<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-3
REGISTRATION STATEMENT
AND
POST-EFFECTIVE AMENDMENTS
UNDER
THE SECURITIES ACT OF 1933
--------------
MERRILL LYNCH & CO., INC. DELAWARE 13-2740599
(EXACT NAME OF REGISTRANT AS (STATE OF INCORPORATION) (I.R.S. EMPLOYER
SPECIFIED IN CHARTER) IDENTIFICATION
NUMBER)
MERRILL LYNCH PREFERRED FUNDING V, L.P. DELAWARE 13-3983474
(EXACT NAME OF REGISTRANT AS (STATE OF ORGANIZATION) (I.R.S. EMPLOYER
SPECIFIED IN CERTIFICATE OF LIMITED IDENTIFICATION
PARTNERSHIP) NUMBER)
MERRILL LYNCH PREFERRED CAPITAL TRUST V DELAWARE 13-7140866
(EXACT NAME OF REGISTRANT AS (STATE OF ORGANIZATION) (I.R.S. EMPLOYER
SPECIFIED IN CERTIFICATE OF TRUST) IDENTIFICATION
NUMBER)
WORLD FINANCIAL CENTER
NORTH TOWER
NEW YORK, NEW YORK 10281-1334
(212) 449-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
MARK B. GOLDFUS, ESQ.
ASSOCIATE GENERAL COUNSEL
MERRILL LYNCH & CO., INC.
WORLD FINANCIAL CENTER
NORTH TOWER
NEW YORK, NEW YORK 10281-1334
(212) 449-6990
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
COPIES TO:
NORMAN D. SLONAKER, ESQ. DONALD R. CRAWSHAW, ESQ. RICHARD T. PRINS, ESQ.
BROWN & WOOD LLP SULLIVAN & CROMWELL SKADDEN, ARPS, SLATE, MEAGHER &
ONE WORLD TRADE CENTER 125 BROAD STREET FLOM LLP
NEW YORK, NEW YORK NEW YORK, NEW YORK 10004 919 THIRD AVENUE
10048 NEW YORK, NEW YORK 10022
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement as determined
by market conditions.
--------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
--------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE AGGREGATE MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED(1) REGISTERED(2)(3) PRICE PER UNIT(4) OFFERING PRICE(4) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt Securities and Warrants(5)...... --
Preferred Stock, par value $1.00 per
share(5)............................ --
Depositary Shares representing
Preferred Stock(6).................. --
Common Stock, par value $1.33 1/3 per
share (including preferred share
purchase Rights)(7)(8).............. --
Trust Originated Preferred Securities
of Merrill Lynch Preferred Capital
Trust V (the "Trust") (the "Trust
Preferred Securities").............. $20,000,000,000 N/A $20,000,000,000 $5,900,000
Partnership Preferred Securities of
Merrill Lynch Preferred Funding V,
L.P. (the "Partnership") (the
"Partnership Preferred
Securities")(9)..................... --
Guarantees of Merrill Lynch & Co.,
Inc. with respect to Trust Preferred
Securities.......................... --
Guarantees of Merrill Lynch & Co.,
Inc. with respect to Partnership
Preferred Securities................ --
Guarantees of Merrill Lynch & Co.,
Inc. with respect to certain
debentures of its wholly owned
subsidiaries (the "Affiliate
Debentures")........................ --
Subordinated Debentures of Merrill
Lynch & Co., Inc. to be issued with
respect to Trust Originated
Preferred Securities................ --
- -------------------------------------------------------------------------------------------------------------
Totals............................. $20,000,000,000 $20,000,000,000 $5,900,000
</TABLE>
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- -------------------------------------------------------------------------------
(Footnotes on next page)
<PAGE>
(Footnotes from previous page)
- --------
(1) This Registration Statement also registers delayed delivery contracts
which may be issued by Merrill Lynch & Co., Inc. (the "Company") under
which the counterparty may be required to purchase Debt Securities,
Preferred Stock, Depositary Shares and/or Warrants. Such contracts would
be issued with the Debt Securities, Preferred Stock, Depositary Shares
and/or Warrants covered hereby. In addition, securities registered
hereunder may be sold separately, together or as units with other
securities registered hereunder.
(2) Such amount shall be increased, if any Debt Securities are issued at an
original issue discount, by an amount such that the net proceeds to be
received by the Company shall be equal to the above amount to be
registered. Any offering of securities denominated other than in U.S.
dollars will be treated as the equivalent in U.S. dollars based on the
official exchange rate applicable to the purchase of such securities from
the Company. Pursuant to Rule 429 under the Securities Act of 1933, the
Prospectus included in this Post-Effective Amendment relates to the
remaining unsold securities which were previously registered by the
Registrants under Registration Statement No. 333-44173 on Form S-3. The
following registration statements, each having the original effective date
indicated parenthetically, are amended hereby (the number of such post-
effective amendment applicable to a registration statement being also
indicated parenthetically), all as follows: 2-78338 (July 23, 1982-No.
24); 2-83477 (May 9, 1983-No. 23); 2-89519 (February 23, 1984-No. 22); 2-
96315 (March 20, 1985-No. 20); 33-03079 (February 6, 1986-No. 19); 33-
03602 (April 15, 1986-No. 16); 33-05125 (April 28, 1986-No. 8); 33-09910
(November 5, 1986-No. 17); 33-16165 (August 11, 1987-No. 16); 33-17965
(November 5, 1987-No. 15); 33-19820 (January 29, 1988-No. 15); 33-23605
(August 16, 1988-No. 14); 33-27512 (March 20, 1989-No. 13); 33-27594
(March 20, 1989-No. 13); 33-35456 (August 10, 1990-No. 13); 33-38879
(February 12, 1991-No. 12); 33-42041 (August 16, 1991-No. 12); 33-45327
(February 12, 1992-No. 11); 33-54218 (November 19, 1992-No. 10); 33-49947
(August 25, 1993-No. 9); 33-51489 (January 14, 1994-No. 8); 33-52647
(March 22, 1994-No. 7); 33-61559 (August 23, 1995-No. 6); 33-65135
(January 12, 1996-No. 10); 333-13649 (November 25, 1996-No. 2); 333-25255
(April 30, 1997-No. 3), 333-28537 (June 13, 1997-No. 2) and 333-44173
(January 28, 1998-No. 1). Each such post-effective amendment shall
hereafter become effective concurrently with the effectiveness of this
Registration Statement in accordance with Section 8(c) of the Securities
Act of 1933.
(3) This Registration Statement also registers, where required, an
indeterminate amount of securities to be sold by Merrill Lynch, Pierce,
Fenner & Smith Incorporated in market-making transactions.
(4) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457. The proposed maximum offering price per unit will be
determined from time to time by the Registrants in connection with the
issuance of securities registered hereunder or previously registered under
the Securities Act. No separate consideration will be received for Common
Stock, Preferred Stock, Debt Securities or Warrants that are issued upon
conversion or exchange of Debt Securities, Preferred Stock, Depositary
Shares or Warrants nor will any separate consideration be received for the
Guarantees or the Subordinated Debentures registered hereunder. The
Subordinated Debentures and the Affiliate Debentures will be purchased by
the Partnership with proceeds of the sale of the Partnership Preferred
Securities, together with a capital contribution of the Company.
(5) There is also registered hereunder such indeterminate amount of Debt
Securities and an indeterminate number of shares of Preferred Stock as may
from time to time be issued upon conversion or exchange of Debt
Securities, Preferred Stock or Warrants registered hereunder.
(6) To be represented by Depositary Receipts representing an interest in all
or a specified portion of a share of Preferred Stock.
(7) The aggregate amount of Common Stock of the Company registered hereunder
is limited to that which is permissible under Rule 415(a)(4) under the
Securities Act. There is also registered hereunder such indeterminate
number of shares of Common Stock as may from time to time be issued upon
conversion or exchange of Debt Securities, Preferred Stock or Warrants
registered hereunder.
(8) Prior to the occurrence of certain events, the preferred share purchase
Rights will not be evidenced separately from the Common Stock; value
attributable to such Rights, if any, is reflected in the market price of
the Common Stock.
(9) The Partnership Preferred Securities will be purchased by the Trust with
the proceeds of the sale of the Trust Preferred Securities, together with
the proceeds received from the Company in respect of the common securities
to be issued by the Trust. No separate consideration will be received for
the Partnership Preferred Securities.
----------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains a number of forms of Prospectuses: (i)
a Prospectus which is to be used by Merrill Lynch & Co., Inc. (the "Company")
in connection with offerings of debt securities, warrants, preferred stock,
depositary shares and common stock, (ii) a Prospectus which is to be used by
the Company in connection with offerings of Structured Yield Product
Exchangeable for Stock SM and (iii) a Prospectus which is to be used in
connection with offerings of preferred securities of Merrill Lynch Preferred
Capital Trust V (the "Trust"); preferred securities of Merrill Lynch Preferred
Funding V, L.P. (the "Partnership"); subordinated debentures of the Company;
and guarantees by the Company of preferred securities issued by the Trust, of
preferred securities issued by the Partnership, and of certain debentures
issued severally by wholly-owned subsidiaries of the Company. Additionally,
there is a Prospectus Supplement, and there are a number of Prospectuses to be
used by Merrill Lynch, Pierce, Fenner & Smith Incorporated in connection with
market-making transactions.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
PROSPECTUS
LOGO
MERRILL LYNCH & CO., INC.
DEBT SECURITIES, WARRANTS, PREFERRED STOCK, DEPOSITARY SHARES AND COMMON STOCK
----------
Merrill Lynch & Co., Inc. (the "Company") intends to sell from time to time
senior debt securities ("Senior Debt Securities") and subordinated debt
securities ("Subordinated Debt Securities" and, together with the Senior Debt
Securities, the "Debt Securities"), both of which may be convertible into
common stock, par value $1.33 1/3 per share, of the Company ("Common Stock"),
preferred stock, par value $1.00 per share, of the Company ("Preferred Stock")
or Depositary Shares representing Preferred Stock ("Depositary Shares");
warrants to purchase Debt Securities ("Debt Warrants"); warrants entitling the
holders thereof to receive from the Company a payment or delivery determined by
reference to decreases or increases in the level of an index or portfolio based
on one or more equity or debt securities (including, but not limited to, the
price or yield of such securities), any statistical measure of economic or
financial performance (including, but not limited to, any consumer price,
currency or mortgage index) or the price or value of any commodity or any other
item or index or a combination thereof ("Index Warrants"); warrants to receive
from the Company the cash value in U.S. dollars of the right to purchase
("Currency Call Warrants") or to sell ("Currency Put Warrants" and, together
with the Currency Call Warrants, the "Currency Warrants") specified foreign
currencies or units of two or more such currencies; shares of Preferred Stock
which may be convertible into Preferred Stock or Common Stock or exchangeable
for Debt Securities; shares of Preferred Stock, which may be represented by
Depositary Shares; warrants to purchase shares of Preferred Stock ("Preferred
Stock Warrants"); shares of Common Stock; and warrants to purchase shares of
Common Stock ("Common Stock Warrants"), in each case as shall be designated by
the Company at the time of offering. The Debt Warrants, Index Warrants,
Currency Warrants, Preferred Stock Warrants and Common Stock Warrants are
collectively hereinafter called the "Warrants", and the Debt Securities, the
Warrants, the Preferred Stock, the Depositary Shares and the Common Stock are
collectively called the "Securities". The Securities may be offered
independently or together with other Securities and may be attached to, or
separate from such other Securities. The Securities will be offered to the
public on terms determined by market conditions at the time of sale and set
forth in a prospectus supplement.
The Securities offered pursuant to this Prospectus may be offered separately
or together in one or more series of up to $ aggregate public offering
price or its equivalent in such foreign currencies or units of two or more
currencies, based on the applicable exchange rate at the time of offering, as
shall be designated by the Company at the time of offering, subject to
reduction on account of the sale of other securities under the Registration
Statement of which this Prospectus is a part.
The Debt Securities will be unsecured and, except in the case of Subordinated
Debt Securities, will rank equally with all other unsecured and unsubordinated
indebtedness of the Company. The Subordinated Debt Securities will be
subordinated to all existing and future Senior Indebtedness of the Company.
Each issue of Securities may vary, where applicable, as to aggregate
principal amount, maturity date, public offering or purchase price, interest
rate or rates, if any, and timing of payments thereof, provisions, if any, for
redemption, exchangeability or conversion, sinking fund requirements, if any,
exercise provisions, ranking, detachability, currencies of denomination or
currencies otherwise applicable thereto, the option of the Company to satisfy
its obligations upon maturity, any redemption or required repurchase or in
connection with any exchange provisions by delivering securities (whether or
not issued by, or the obligations of, the Company) or a combination of cash,
other securities and/or property, the right of the Company to defer payment of
interest and the maximum length of any such deferral period, put options, if
any, number of shares, liquidation preference per share, dividend or
distribution rate (or method of calculation thereof), if any, and timing of
payments thereof, dates from which dividends or distributions shall accrue, any
voting rights, whether interests in the Preferred Stock will be represented by
Depositary Shares and, if so, the fraction of a share of Preferred Stock which
each such Depositary Share will represent, any rights, preferences, limitations
or restrictions relating to the Preferred Stock of a specific series, the
applicable type and amount of Securities covered by any Warrants, and any other
variable terms and method of distribution. The accompanying Prospectus
Supplement (the "Prospectus Supplement") sets forth the specific terms with
regard to the Securities in respect of which this Prospectus is being
delivered. The Company may elect to deliver to purchasers of Securities an
abbreviated term sheet setting forth a description of the Securities being
offered, or a summary thereof (a "Terms Sheet"), instead of a Prospectus
Supplement. This Prospectus may be delivered prior to or concurrently with a
Terms Sheet.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------
The Securities may be sold through Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S") as agent or may be offered and
reoffered through, or through underwriting syndicates managed or co-managed by,
one or more underwriters, including MLPF&S, or directly to purchasers by the
Company. The Securities may not be sold without delivery of a Prospectus
Supplement describing such issue of Securities, the method and terms of
offering thereof or of a Terms Sheet, the names of any agents or underwriters
and any applicable commissions or discounts. The Company may also issue
contracts under which the counterparty may be required to purchase Debt
Securities, Preferred Stock, Depositary Shares and/or Warrants in amounts and
on terms set forth in a Prospectus Supplement.
----------
The date of this Prospectus is , 1998.
<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 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 26,
1997, Quarterly Report on Form 10-Q for the period ended March 27, 1998, and
Current Reports on Form 8-K dated January 20, 1998, January 30, 1998, February
4, 1998, February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998,
April 29, 1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June
24, 1998, June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 filed
pursuant to Section 13 of the United States Securities Exchange Act of 1934
(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 hereof and prior to the
termination of the offering of the Securities, or subsequent to the date of
the initial Registration Statement and prior to effectiveness of the
Registration Statement, 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 LAWRENCE M. EGAN, JR.,
CORPORATE SECRETARY'S OFFICE, MERRILL LYNCH & CO., INC., 100 CHURCH STREET,
12TH FLOOR, NEW YORK, NEW YORK 10080-6512; TELEPHONE NUMBER (212) 602-8435.
2
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its
subsidiaries and affiliates, provides investment, financing, advisory,
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; an underwriter of selected insurance products
and a distributor of investment products of the Merrill Lynch Asset Management
group. 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. The Company's asset management and investment management
activities are conducted through the Merrill Lynch Asset Management group and
Merrill Lynch Mercury Asset Management, which together constitute one of the
largest asset management organizations in the world. Merrill Lynch Government
Securities Inc. is a primary dealer in obligations issued or guaranteed by the
U.S. Government and its agencies and its government-sponsored entities.
Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative Products AG,
and Merrill Lynch International are the Company's primary derivative product
dealers and enter into interest rate, currency, and other over-the-counter
derivative transactions as intermediaries and as principals. The Company's
operations in insurance services 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 and purchasing secured
loans, providing currency exchange facilities and other related services, and
furnishing trust, employee benefit, and custodial 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 Securities
for general corporate purposes, unless otherwise specified in the Prospectus
Supplement relating to such Securities. Such general corporate purposes may
include the funding of investments in, or extensions of credit to, its
subsidiaries, the funding of assets of the Company and its subsidiaries, the
lengthening of the average maturity of the Company's borrowings, and the
financing of acquisitions. Pending such applications, the net proceeds will be
applied to the reduction of short-term indebtedness or temporarily invested.
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, through acquisitions or otherwise, or to lengthen the average
maturity of its borrowings. To the extent that Securities being purchased for
resale by MLPF&S are not resold, the aggregate proceeds to the Company and its
subsidiaries would be reduced.
3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the historical ratios of earnings to fixed
charges and ratios of earnings to combined fixed charges and preferred stock
dividends for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED LAST FRIDAY ENDED
IN DECEMBER MARCH 27,
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges...... 1.4 1.2 1.2 1.2 1.2 1.2
Ratio of earnings to combined fixed
charges and preferred stock dividends.. 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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
interest factor.
DESCRIPTION OF DEBT SECURITIES
Unless otherwise specified in a Prospectus Supplement, the Senior Debt
Securities are to be issued under an indenture (the "1983 Indenture"), dated
as of April 1, 1983, as amended and restated and as further amended, between
the Company and The Chase Manhattan Bank, formerly known as Chemical Bank
(successor by merger to Manufacturers Hanover Trust Company), as trustee or
issued under an indenture (the "1993 Indenture"), dated as of October 1, 1993,
as amended, between the Company and The Chase Manhattan Bank (successor by
merger to The Chase Manhattan Bank, N.A.), as trustee (each, a "Senior Debt
Trustee"). The 1983 Indenture and the 1993 Indenture are referred to herein as
the "Senior Indentures". Unless otherwise specified in a Prospectus
Supplement, the Subordinated Debt Securities are to be issued under an
indenture (the "Subordinated Indenture"), between the Company and The Chase
Manhattan Bank, as trustee (the "Subordinated Debt Trustee"). The Senior Debt
Securities and Subordinated Debt Securities may also be issued under one or
more other indentures (each, a "Subsequent Indenture") and have one or more
other trustees (each, a "Subsequent Trustee"). Any Subsequent Indenture
relating to Senior Debt Securities will have terms and conditions identical in
all material respects to the above-referenced Senior Indentures and any
Subsequent Indenture relating to Subordinated Debt Securities will have terms
and conditions identical in all material respects to the above-referenced
Subordinated Indenture, including, but not limited to, the applicable terms
and conditions described below. Any Subsequent Indenture relating to a series
of Debt Securities, and the trustee with respect thereto, will be identified
in the applicable Prospectus Supplement. The Senior Indentures, the
Subordinated Indenture and any Subsequent Indentures (whether senior or
subordinated) are referred to herein as the "Indentures"; and the Senior Debt
Trustees, the Subordinated Debt Trustee and any Subsequent Trustees are
referred to herein as the "Trustees". A copy of each Indenture is filed (or,
in the case of a Subsequent Indenture, will be filed) as an exhibit to the
registration statements relating to the Securities (collectively, the
"Registration Statement"). The following summaries of certain provisions of
the Indentures do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all provisions of the respective
Indentures, including the definitions therein of certain terms.
GENERAL
Each Indenture provides that Debt Securities (Senior Debt Securities in the
case of the Senior Indentures or a Subsequent Indenture for Senior Debt
Securities, and Subordinated Debt Securities in the case of the Subordinated
Indenture or a Subsequent Indenture for Subordinated Debt Securities) may be
issued thereunder,
4
<PAGE>
without limitation as to aggregate principal amount, in one or more series, by
the Company from time to time upon satisfaction of certain conditions
precedent, including the delivery by the Company to the applicable Trustee of
a resolution of the Board of Directors, or the Executive Committee thereof, of
the Company which fixes or provides for the establishment of terms of such
Debt Securities, including: (1) the aggregate principal amount of such Debt
Securities and whether there is any limit upon the aggregate principal amount
of such Debt Securities that may be subsequently issued; (2) the date on which
such Debt Securities will mature; (3) the principal amount payable with
respect to such Debt Securities whether at maturity or upon earlier
acceleration, and whether such principal amount will be determined with
reference to an index, formula or other method; (4) the rate or rates per
annum (which may be fixed or variable) at which such Debt Securities will bear
interest, if any; (5) the dates on which such interest, if any, will be
payable; (6) the provisions for redemption of such Debt Securities, if any,
the redemption price and any remarketing arrangements relating thereto; (7)
the sinking fund requirements, if any, with respect to such Debt Securities;
(8) whether such Debt Securities are denominated or provide for payment in
United States dollars or a foreign currency or units of two or more of such
foreign currencies; (9) the form (registered or bearer or both) in which such
Debt Securities may be issued and any restrictions applicable to the exchange
of one form for another and to the offer, sale and delivery of such Debt
Securities in either form; (10) whether and under what circumstances the
Company will pay additional amounts ("Additional Amounts") in respect of such
Debt Securities held by a person who is not a U.S. person (as defined in the
Prospectus Supplement, as applicable) in respect of specified taxes,
assessments or other governmental charges and whether the Company has the
option to redeem the affected Debt Securities rather than pay such Additional
Amounts; (11) whether such Debt Securities are to be issued in global form;
(12) the title of the Debt Securities and the series of which such Debt
Securities shall be a part; (13) the denominations of such Debt Securities;
(14) whether, and the terms and conditions relating to when, the Company may
satisfy certain of its obligations with respect to such Debt Securities with
regard to payment upon maturity, or any redemption or required repurchase or
in connection with any exchange provisions by delivering to the Holders
thereof securities (whether or not issued by, or the obligation of, the
Company) or a combination of cash, other securities and/or property ("Maturity
Consideration"); (15) any additions or deletions in the terms of the Debt
Securities with respect to the Events of Default set forth in the respective
Indentures; (16) the terms, if any, upon which the Debt Securities may be
convertible into Common Stock or Preferred Stock of the Company and the terms
and conditions upon which such conversion will be effected, including the
initial conversion price or rate, the conversion period and any other
provisions in addition to or in lieu of those described herein; (17) whether,
and the terms and conditions relating to when, the Debt Securities may be
transferred separately from Warrants when such Debt Securities and Warrants
are issued together; and (18) any other terms of the Debt Securities (which
shall not be inconsistent with the provisions of the respective Indentures).
Reference is made to the Prospectus Supplement for the terms of the Debt
Securities being offered thereby, including whether such Debt Securities are
Senior Debt Securities or Subordinated Debt Securities. The Company may elect
to deliver to purchasers of Securities a Terms Sheet instead of a Prospectus
Supplement. This Prospectus may be delivered prior to or concurrently with a
Terms Sheet. Debt Securities may also be issued under the Indentures upon the
exercise of Debt Warrants. See "Description of Debt Warrants". Nothing in the
Indentures or in the terms of the Debt Securities will prohibit the issuance
of securities representing subordinated indebtedness that is senior or junior
to the Subordinated Debt Securities.
Prospective purchasers of Debt Securities should be aware that special U.S.
federal income tax, accounting and other considerations may be applicable to
instruments such as Debt Securities. The Prospectus Supplement relating to any
issue of Debt Securities will describe any such considerations.
The Debt Securities will be issued, to the extent provided in the Prospectus
Supplement, in fully registered form without coupons, and/or in bearer form
with or without coupons, and in denominations set forth in the Prospectus
Supplement. No service charge will be made for any registration of transfer of
registered Debt Securities or exchange of Debt Securities, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charges that may be imposed in connection therewith. Each Indenture provides
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that Debt Securities issued thereunder may be issued in global form. If any
series of Debt Securities is issuable in global form, the applicable
Prospectus Supplement will describe the circumstances, if any, under which
beneficial owners of interest in any such global Debt Securities may exchange
such interests for Debt Securities of such series and of like tenor and
principal amount in any authorized form and denomination. Principal of, and
any premium, Additional Amounts, Maturity Consideration and interest on, a
global Debt Security will be payable or deliverable in the manner described in
the applicable Prospectus Supplement.
The provisions of the Indentures described above provide the Company with
the ability, in addition to the ability to issue Debt Securities with terms
different from those of Debt Securities previously issued, to "reopen" a
previous issue of a series of Debt Securities and issue additional Debt
Securities of such series.
The Senior Debt Securities will be unsecured and will rank pari passu with
all other unsecured and unsubordinated indebtedness of the Company. The
Subordinated Debt Securities will be unsecured and will be subordinated to all
existing and future Senior Indebtedness (as defined below) of the Company.
Since the Company is a holding company, the right of the Company, and hence
the right of creditors of the Company (including the Holders of the Debt
Securities), to participate in any distribution of the assets of any
subsidiary upon its liquidation or reorganization or otherwise is necessarily
subject to the prior claims of creditors of the subsidiary, except to the
extent that claims of the Company itself as a creditor of the subsidiary may
be recognized. In addition, dividends, loans and advances from certain
subsidiaries, including MLPF&S, to the Company are restricted by net capital
requirements under the Exchange Act and under rules of certain exchanges and
other regulatory bodies.
Principal and any premium, Additional Amounts, Maturity Consideration and
interest will be payable or deliverable in the manner, at the places and
subject to the restrictions set forth in the applicable Indenture, the Debt
Securities and the Prospectus Supplement relating thereto, provided that
payment of any interest and any Additional Amounts may be made at the option
of the Company by check mailed to the holders of registered Debt Securities at
their registered addresses.
Debt Securities may be presented for exchange, and registered Debt
Securities may be presented for transfer, in the manner, at the places and
subject to the restrictions set forth in the applicable Indenture, the Debt
Securities and the Prospectus Supplement relating thereto. Debt Securities in
bearer form and the coupons, if any, pertaining thereto will be transferable
by delivery. No service charge will be made for any transfer or exchange of
Debt Securities, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Unless otherwise indicated in the applicable Prospectus Supplement, the Debt
Securities will be issued under the Indentures. If so specified in a
Prospectus Supplement, the Company may issue Subordinated Debt Securities
under a separate indenture which provides for a single issue of zero coupon
convertible Subordinated Debt Securities, a form of which is filed as an
exhibit to the Registration Statement. In the event the Company issues Debt
Securities under such indenture, the applicable Prospectus Supplement will set
forth the terms of such Debt Securities and the indenture relating thereto and
will identify such indenture and the trustee with respect thereto.
MERGER AND CONSOLIDATION
The Company may consolidate or merge with or into any other corporation, and
the Company may sell, lease or convey all or substantially all of its assets
to any corporation, provided that (i) the corporation (if other than the
Company) formed by or resulting from any such consolidation or merger or which
shall have received such assets shall be a corporation organized and existing
under the laws of the United States of America or a state thereof and shall
assume payment or delivery of the principal of, and any premium, Additional
Amounts, Maturity Consideration or interest on, the Debt Securities and the
performance and observance of all of the covenants and conditions of the
Indentures to be performed or observed by the Company, and (ii) the Company or
such successor corporation, as the case may be, shall not immediately
thereafter be in default under the Indentures.
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MODIFICATION AND WAIVER
Modification and amendment of each Indenture may be effected by the Company
and the applicable Trustee with the consent of the Holders of at least 66 2/3%
in principal amount or aggregate issue price of the Outstanding Debt Securities
of each series issued pursuant to such Indenture and affected thereby, provided
that no such modification or amendment may, without the consent of the Holder of
each Outstanding Debt Security affected thereby, (a) change the Stated Maturity
of the principal or Maturity Consideration of, or any installment of interest or
Additional Amounts on, any Debt Security or any premium payable on the
redemption thereof, or change the Redemption Price; (b) reduce the principal
amount of, or the interest or Additional Amounts payable on, or reduce the
amount or change the type of Maturity Consideration deliverable on, any Debt
Security or reduce the amount of principal or Maturity Consideration which could
be declared due and payable prior to the Stated Maturity; (c) change the place
or currency of any delivery or payment of principal or Maturity Consideration
of, or any premium, interest or Additional Amounts on any Debt Security; (d)
impair the right to institute suit for the enforcement of any delivery or
payment on or with respect to any Debt Security; (e) reduce the percentage in
principal amount or aggregate issue price of the Outstanding Debt Securities of
any series, the consent of whose Holders is required to modify or amend such
Indenture; or (f) modify the foregoing requirements or reduce the percentage in
principal amount or aggregate issue price of Outstanding Debt Securities
necessary to waive any past default to less than a majority. No modification or
amendment of the Subordinated Indenture or any Subsequent Indenture for
Subordinated Debt Securities may adversely affect the rights of any Holder of
Senior Indebtedness without the consent of such Holder. Except with respect to
certain fundamental provisions, the Holders of at least a majority in principal
amount or aggregate issue price of Outstanding Debt Securities of any series
may, with respect to such series, waive past defaults under the applicable
Indenture and waive compliance by the Company with certain provisions of such
Indenture.
EVENTS OF DEFAULT
Under each Indenture, the following will be Events of Default with respect to
Debt Securities of any series issued thereunder: (a) default in the payment of
any interest or Additional Amounts upon any Debt Security of that series when
due, and such default has continued for 30 days; (b) default in the payment of
any principal of or premium, if any, on any Debt Security of that series when
due; (c) default in the delivery or payment of the Maturity Consideration when
due, in respect of any Debt Security of that series; (d) default in the deposit
of any sinking fund payment, when due, in respect of any Debt Security of that
series; (e) default in the performance of any other covenant of the Company
contained in such Indenture for the benefit of such series or in the Debt
Securities of such series, and such default has continued for 60 days after
written notice as provided in such Indenture; (f) certain events in bankruptcy,
insolvency or reorganization; and (g) any other Event of Default provided with
respect to Debt Securities of that series. The applicable Trustee or the Holders
of 25% in principal amount or aggregate issue price of the Outstanding Debt
Securities of that series may declare the principal amount (or such lesser
amount as may be provided for in the Debt Securities of that series) of all
Outstanding Debt Securities of that series and the interest accrued thereon and
Additional Amounts payable and Maturity Consideration deliverable in respect
thereof, if any, to be due and payable or deliverable immediately if an Event of
Default with respect to Debt Securities of such series shall occur and be
continuing at the time of declaration. At any time after a declaration of
acceleration has been made with respect to Debt Securities of any series but
before a judgment or decree for payment of money due has been obtained by the
applicable Trustee, the Holders of a majority in principal amount or aggregate
issue price of the Outstanding Debt Securities of that series may rescind any
declaration of acceleration and its consequences, provided that all payments
and/or deliveries due (other than those due as a result of acceleration) have
been made and all Events of Default have been remedied or waived. Any Event of
Default with respect to Debt Securities of any series may be waived by the
Holders of a majority in principal amount or aggregate issue price of all
Outstanding Debt Securities of that series, except in a case of failure to pay
or deliver principal of, premium, if any, interest, Additional Amount or
Maturity Consideration, if any, on any Debt Security of that series for which
payment or delivery had not been subsequently made or in respect of a covenant
or provision which cannot be modified or amended without the consent of the
Holder of each Outstanding Debt Security of such series affected.
The Holders of a majority in principal amount or aggregate issue price of the
Outstanding Debt Securities of a series may direct the time, method and place of
conducting any proceeding for any remedy available to the
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applicable Trustee or exercising any trust or power conferred on such Trustee
with respect to Debt Securities of such series, provided that such direction
shall not be in conflict with any rule of law or the applicable Indenture.
Subject to the provisions of each Indenture relating to the duties of the
appropriate Trustee, before proceeding to exercise any right or power under an
Indenture at the direction of such Holders, the applicable Trustee shall be
entitled to receive from such Holders reasonable security or indemnity against
the costs, expenses and liabilities which might be incurred by it in complying
with any such direction.
The Company will be required to furnish to each Trustee annually a statement
as to the fulfillment by the Company of all of its obligations under the
applicable Indenture.
SPECIAL TERMS RELATING TO THE SENIOR DEBT SECURITIES
LIMITATIONS UPON LIENS
The Senior Indentures provide that the Company may not, and may not permit
any Subsidiary to, create, assume, incur or permit to exist any indebtedness
for borrowed money secured by a pledge, lien or other encumbrance (except for
certain liens specifically permitted by the Senior Indentures) on the Voting
Stock owned directly or indirectly by the Company of any Subsidiary (other
than a Subsidiary which, at the time of incurrence of such secured
indebtedness, has a net worth of less than $3,000,000) without making
effective provision whereby the Outstanding Senior Debt Securities will be
secured equally and ratably with such secured indebtedness.
LIMITATIONS ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS
BY, MLPF&S
The Senior Indentures provide that the Company may not sell, transfer or
otherwise dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue,
sell or otherwise dispose of any of its Voting Stock, unless, after giving
effect to any such transaction, MLPF&S remains a Controlled Subsidiary
(defined in the Senior Indentures to mean a corporation more than 80% of the
outstanding shares of Voting Stock of which are owned directly or indirectly
by the Company). In addition, the Senior Indentures provide that the Company
may not permit MLPF&S to (i) merge or consolidate, unless the surviving
company is a Controlled Subsidiary, or (ii) convey or transfer its properties
and assets substantially as an entirety, except to one or more Controlled
Subsidiaries.
SPECIAL TERMS RELATING TO THE SUBORDINATED DEBT SECURITIES
Upon any distribution of assets of the Company resulting from any
dissolution, winding up, liquidation or reorganization, payments on
Subordinated Debt Securities are to be subordinated to the extent provided in
the Subordinated Indenture in right of payment to the prior payment in full of
all Senior Indebtedness, but the obligation of the Company to make payments on
the Subordinated Debt Securities will not otherwise be affected. No payment on
Subordinated Debt Securities may be made at any time when there is a default
in the payment of any principal, premium, interest, Additional Amounts, if
any, or sinking fund of or on any Senior Indebtedness. Holders of Subordinated
Debt Securities will be subrogated to the rights of holders of Senior
Indebtedness to the extent of payments made on Senior Indebtedness upon any
distribution of assets in any such proceedings out of the distributive shares
of Subordinated Debt Securities. By reason of such subordination, in the event
of a distribution of assets upon insolvency, certain creditors of the Company
may recover more, ratably, than Holders of Subordinated Debt Securities.
Unless otherwise specified in the Prospectus Supplement relating to the
Subordinated Debt Securities offered thereby, Senior Indebtedness shall mean
any payment in respect of indebtedness of the Company for money borrowed,
except for any such indebtedness that is by its terms subordinated to or pari
passu with securities issued pursuant to the Subordinated Indenture. As of
June 26, 1998, a total of approximately $90.2 billion of the Company's
indebtedness would have been Senior Indebtedness as so defined.
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SPECIAL TERMS RELATING TO CONVERTIBLE DEBT SECURITIES
The following provisions will apply to Debt Securities that will be
convertible into Common Stock or Preferred Stock (the "Convertible Debt
Securities") unless otherwise provided in the Prospectus Supplement relating
to Debt Securities being offered thereby.
The Holder of any Convertible Debt Securities will have the right,
exercisable at any time during the time period specified in the applicable
Prospectus Supplement, unless previously redeemed by the Company, to convert
such Convertible Debt Securities into shares of Common Stock or Preferred
Stock, as specified in the Prospectus Supplement, at the conversion rate per
principal amount of Convertible Debt Securities set forth in the Prospectus
Supplement. In the case of Convertible Debt Securities called for redemption,
conversion rights will expire at the close of business on the date fixed for
the redemption specified in the applicable Prospectus Supplement, except that,
in the case of redemption at the option of the Holder, if applicable, such
right will terminate upon receipt of written notice of the exercise of such
option.
In certain events, the conversion price or rate will be subject to
adjustment as contemplated in the applicable Indenture. Unless otherwise
provided in the applicable Prospectus Supplement, such events will include the
issuance of shares of Common Stock of the Company as a dividend; subdivisions
and combinations of Common Stock; the issuance to all holders of Common Stock
of rights or warrants entitling such holders (for a specified period) to
subscribe for or purchase shares of Common Stock at a price per share less
than the current market price per share of Common Stock; and the distribution
to all holders of Common Stock of shares of capital stock of the Company
(other than Common Stock), evidences of indebtedness of the Company or assets
(excluding cash dividends paid from retained earnings and dividends payable in
Common Stock for which adjustment is made as referred to above) or
subscription rights or warrants (other than those referred to above). In any
of such cases, no adjustment of the conversion price or rate will be required
unless an adjustment would require a cumulative increase or decrease of at
least 1% in such price or rate. Fractional shares of Common Stock will not be
issued upon conversion, but, in lieu thereof, the Company will pay a cash
adjustment. If indicated in the applicable Prospectus Supplement, Convertible
Debt Securities convertible into Common Stock surrendered for conversion
between the record date for an interest payment, if any, and the interest
payment date (except such Convertible Debt Securities called for redemption on
a redemption date during such period) must be accompanied by payment of an
amount equal to the interest thereon which the registered Holder is entitled
to receive.
The adjustment provisions for Convertible Debt Securities will be determined
at the time of issuance of such Convertible Debt Securities and will be set
forth in the applicable Prospectus Supplement related thereto.
Except as set forth in the applicable Prospectus Supplement, any Convertible
Debt Securities called for redemption, unless surrendered for conversion on or
before the close of business on the redemption date, are subject to being
purchased from the holder of such Convertible Debt Securities by one or more
investment banking firms or other purchasers who may agree with the Company to
purchase such Convertible Debt Securities and convert them into Common Stock
or Preferred Stock, as the case may be.
DESCRIPTION OF DEBT WARRANTS
The Company may issue Debt Warrants for the purchase of Debt Securities.
Debt Warrants may be issued independently or together with other Securities
offered by any Prospectus Supplement and may be attached to or separate from
such other Securities. The Debt Warrants are to be issued under debt warrant
agreements (each a "Debt Warrant Agreement") to be entered into between the
Company and a bank or trust company, as debt warrant agent (the "Debt Warrant
Agent"), all as shall be set forth in the Prospectus Supplement relating to
the Debt Warrants being offered thereby. A copy of the form of Debt Warrant
Agreement, including the form of warrant certificates representing the Debt
Warrants (the "Debt Warrant Certificates"), reflecting the alternative
provisions to be included in the Debt Warrant Agreements that will be entered
into with respect to particular offerings of Debt Warrants, is filed as an
exhibit to the Registration Statement. The following summaries of
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certain provisions of the Debt Warrant Agreement and the Debt Warrant
Certificates do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all the provisions of the Debt
Warrant Agreement and the Debt Warrant Certificates, respectively, including
the definitions therein of certain terms.
GENERAL
The applicable Prospectus Supplement will describe the terms of Debt
Warrants offered thereby, the Debt Warrant Agreement relating to such Debt
Warrants and the Debt Warrant Certificates representing such Debt Warrants,
including the following: (1) the designation, aggregate principal amount,
price at which such principal amount may be purchased upon exercise and terms
of the Debt Securities purchasable upon exercise of such Debt Warrants,
including whether such Debt Securities are Senior Debt Securities or
Subordinated Debt Securities, and the procedures and conditions relating to
the exercise of such Debt Warrants; (2) the designation and terms of any
related Debt Securities with which such Debt Warrants are issued, including
whether such Debt Securities are Senior Debt Securities or Subordinated Debt
Securities, the number of such Debt Warrants issued with each such Debt
Security, and the Indenture under which the Debt Securities will be issued;
(3) the date, if any, on and after which such Debt Warrants and the related
Debt Securities will be separately transferable; (4) the date on which the
right to exercise such Debt Warrants shall commence and the date on which such
right shall expire (the "Expiration Date"); (5) whether the Debt Warrants
represented by the Debt Warrant Certificates will be issued in registered or
bearer form, and, if registered, where they may be transferred and registered;
(6) the circumstances, if any, which will cause the Debt Warrants to be deemed
to be automatically exercised; (7) any material risk factors relating to such
Debt Warrants; (8) the identity of the Debt Warrant Agent; and (9) any other
terms of such Debt Warrants (which shall not be inconsistent with the
provisions of the Debt Warrant Agreement).
Debt Warrant Certificates will be exchangeable for new Debt Warrant
Certificates of different denominations and Debt Warrants may be exercised at
the corporate trust office of the Debt Warrant Agent or any other office
indicated in the Prospectus Supplement. Prior to the exercise of their Debt
Warrants, holders of Debt Warrants will not have any of the rights of Holders
of the Debt Securities that may be purchased upon such exercise and will not
be entitled to payments of principal of, and any premium, Additional Amounts,
if any, or interest on, the Debt Securities purchasable upon such exercise.
Prospective purchasers of Debt Warrants should be aware that special U.S.
federal income tax, accounting and other considerations may be applicable to
instruments such as Debt Warrants and to the Debt Securities purchasable upon
exercise thereof. The Prospectus Supplement relating to any issue of Debt
Warrants will describe any such considerations.
BOOK-ENTRY PROCEDURES
Except as may otherwise be provided in the applicable Prospectus Supplement,
the Debt Warrants will be issued in the form of global Debt Warrant
Certificates, registered in the name of a depositary or its nominee. Except as
may otherwise be provided in the applicable Prospectus Supplement, beneficial
owners will not be entitled to receive definitive certificates representing
Debt Warrants unless the depositary is unwilling or unable to continue as
depositary or the Company decides to have the Debt Warrants represented by
definitive certificates. A beneficial owner's interest in a Debt Warrant will
be recorded on or through the records of the brokerage firm or other entity
that maintains a beneficial owner's account. In turn, the total number of Debt
Warrants held by an individual brokerage firm for its clients will be
maintained on the records of the depositary in the name of such brokerage firm
or its agent. Transfer of ownership of any Debt Warrant will be effected only
through the selling beneficial owner's brokerage firm.
EXERCISE OF DEBT WARRANTS
Each Debt Warrant will entitle the Holder to purchase for cash such
principal amount of Debt Securities at such exercise price as shall in each
case be set forth in, or be determinable as set forth in, the Prospectus
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Supplement relating to the Debt Warrants offered thereby. Debt Warrants may be
exercised at any time up to the close of business on the Expiration Date set
forth in the Prospectus Supplement relating to the Debt Warrants offered
thereby. After the close of business on the Expiration Date, unexercised Debt
Warrants will become void.
Debt Warrants may be exercised as set forth in the Prospectus Supplement
relating to the Debt Warrants offered thereby. Upon receipt of payment and the
Debt Warrant Certificate properly completed and duly executed at the corporate
trust office of the Debt Warrant Agent or any other office indicated in the
Prospectus Supplement, the Company will, as soon as practicable, forward the
Debt Securities purchased upon such exercise. If less than all of the Debt
Warrants represented by such Debt Warrant Certificate are exercised, a new
Debt Warrant Certificate will be issued for the remaining amount of Debt
Warrants.
LISTING
An issue of Debt Warrants may be listed on a national securities exchange,
as set forth in the applicable Prospectus Supplement.
DESCRIPTION OF CURRENCY WARRANTS
The Company may issue Currency Warrants either in the form of Currency Put
Warrants entitling the Holders thereof to receive from the Company the cash
settlement value in U.S. dollars of the right to sell a specified amount of a
specified foreign currency or currency units for a specified amount of U.S.
dollars, or in the form of Currency Call Warrants entitling the Holders
thereof to receive from the Company the cash settlement value in U.S. dollars
of the right to purchase a specified amount of a specified foreign currency or
units of two or more currencies for a specified amount of U.S. dollars.
Currency Warrants may be issued independently or together with other
Securities offered by any Prospectus Supplement and may be attached to or
separate from such other Securities. The Currency Warrants are to be issued
under a currency put warrant agreement or a currency call warrant agreement,
as applicable (each a "Currency Warrant Agreement"), to be entered into
between the Company and a bank or trust company, as currency warrant agent
(the "Currency Warrant Agent"), all as shall be set forth in the Prospectus
Supplement relating to Currency Warrants being offered thereby. Copies of the
forms of Currency Put Warrant Agreement and Currency Call Warrant Agreement,
including the forms of warrant certificates representing the Currency Put
Warrants and Currency Call Warrants (the "Currency Warrant Certificates"),
reflecting the provisions to be included in the Currency Warrant Agreements
that will be entered into with respect to particular offerings of Currency
Warrants, are filed as exhibits to the Registration Statement. The following
summaries of certain provisions of the Currency Warrant Agreements and the
Currency Warrant Certificates do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all the provisions of
the Currency Warrant Agreements and the Currency Warrant Certificates,
respectively, including the definitions therein of certain terms.
GENERAL
The applicable Prospectus Supplement will describe the terms of Currency
Warrants offered thereby, the Currency Warrant Agreement relating to such
Currency Warrants and the Currency Warrant Certificates representing such
Currency Warrants, including the following: (1) whether such Currency Warrants
shall be Currency Put Warrants, Currency Call Warrants, or both; (2) the
formula for determining the cash settlement value of each Currency Warrant;
(3) the procedures and conditions relating to the exercise of such Currency
Warrants; (4) the circumstances, if any, which will cause the Currency
Warrants to be deemed to be automatically exercised; (5) any minimum number of
Currency Warrants which must be exercised at any one time, other than upon
automatic exercise; (6) the date on which the right to exercise such Currency
Warrants shall commence and the date on which such right shall expire (the
"Expiration Date"), provided that the commencement date and the Expiration
Date may be the same date; (7) any material risk factors relating to such
Currency Warrants; (8) the identity of the Currency Warrant Agent; and (9) any
other terms of such Currency Warrants (which shall not be inconsistent with
the provisions of the applicable Currency Warrant Agreement).
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Prospective purchasers of Currency Warrants should be aware that special
U.S. federal income tax, accounting and other considerations may be applicable
to instruments such as Currency Warrants. The Prospectus Supplement relating
to any issue of Currency Warrants will describe any such considerations.
BOOK-ENTRY PROCEDURES
Except as may otherwise be provided in the applicable Prospectus Supplement,
the Currency Warrants will be issued in the form of global Currency Warrant
Certificates, registered in the name of a depositary or its nominee. Except as
may otherwise be provided in the applicable Prospectus Supplement, beneficial
owners will not be entitled to receive definitive certificates representing
Currency Warrants unless the depositary is unwilling or unable to continue as
depositary or the Company decides to have the Currency Warrants represented by
definitive certificates. A beneficial owner's interest in a Currency Warrant
will be recorded on or through the records of the brokerage firm or other
entity that maintains a beneficial owner's account. In turn, the total number
of Currency Warrants held by an individual brokerage firm for its clients will
be maintained on the records of the depositary in the name of such brokerage
firm or its agent. Transfer of ownership of any Currency Warrant will be
effected only through the selling beneficial owner's brokerage firm.
EXERCISE OF CURRENCY WARRANTS
Each Currency Warrant will entitle the Holder to the cash settlement value
of such Currency Warrant on the applicable Exercise Date, in each case as such
terms will be defined in the applicable Prospectus Supplement. If a Currency
Warrant has more than one exercise date and is not exercised prior to the time
specified in the applicable Prospectus Supplement, on the fifth New York
Business Day preceding the Expiration Date, Currency Warrants will be deemed
automatically exercised.
LISTING
Each issue of Currency Warrants will be listed on a national securities
exchange, subject only to official notice of issuance, as a condition of sale
of any such Currency Warrants. In the event that the Currency Warrants are
delisted from, or permanently suspended from trading on, such exchange, the
Expiration Date for such Currency Warrants will be the date such delisting or
trading suspension becomes effective and Currency Warrants not previously
exercised will be deemed automatically exercised on the business day
immediately preceding such Expiration Date. The applicable Currency Warrant
Agreement will contain a covenant of the Company not to seek delisting of the
Currency Warrants, or suspension of their trading, on such exchange.
DESCRIPTION OF INDEX WARRANTS
The Company may issue from time to time Index Warrants consisting of put
warrants (the "Index Put Warrants") or call warrants (the "Index Call
Warrants"). The Index Warrants will entitle the holders to receive from the
Company a payment or delivery, subject to applicable law, determined by
reference to decreases (in the case of Index Put Warrants) or to increases (in
the case of Index Call Warrants) in the level or value of an index, an equity
or debt security, or a portfolio or basket of indices or securities
(including, but not limited to, the price or yield of such securities), any
statistical measure of economic or financial performance (including, but not
limited to, any consumer price, currency or mortgage index) or the price or
value of any commodity or any other item or index or any combination thereof
(the "Index"). Unless otherwise specified in the accompanying Prospectus
Supplement, payments, if any, upon exercise (or deemed exercise) of the Index
Warrants will be made in U.S. dollars. The Index Warrants will be offered on
terms to be determined at the time of sale. Index Warrants may be issued
independently or together with other Securities offered by any Prospectus
Supplement and may be attached to or separate from such other Securities.
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GENERAL
The applicable Prospectus Supplement will describe the Index Warrants
offered thereby, the Index Warrant Agreement or Index Warrant Trust Indenture
(each as defined below), as the case may be, relating to such Index Warrants
and the warrant certificates representing the Index Warrants (the "Index
Warrant Certificates"), including the following: (1) whether the Index
Warrants to be issued will be Index Put Warrants, Index Call Warrants or both;
(2) the aggregate number and initial public offering price or purchase price;
(3) the Index for such Index Warrants; (4) whether the Index Warrants will be
deemed exercised as of a specified date or whether the Index Warrants may be
exercised during a period and the date on which the right to exercise such
Index Warrants commences and the date on which such right expires; (5) the
manner in which such Index Warrants may be exercised and any restrictions on,
or other special provisions relating to, the exercise of such Index Warrants;
(6) the minimum number, if any, of such Index Warrants exercisable at any one
time; (7) the maximum number, if any, of such Index Warrants that may, subject
to the Company's election, be exercised by all Index Warrantholders (or by any
person or entity) on any day; (8) any provisions permitting an Index
Warrantholder to condition an exercise notice on the absence of certain
specified changes in the level of the applicable Index after the exercise
date, any provisions permitting the Company to suspend exercise of such Index
Warrants based on market conditions or other circumstances and any other
special provision relating to the exercise of such Index Warrants; (9) any
provisions for the automatic exercise of such Index Warrants other than at
expiration; (10) any provisions permitting the Company to cancel such Index
Warrants upon the occurrence of certain events; (11) any additional
circumstances which would constitute an Event of Default with respect to such
Index Warrants; (12) the method of determining (a) the payment or delivery, if
any, to be made in connection with the exercise or deemed exercise of such
Index Warrants (the "Settlement Value"), (b) the minimum payment or delivery,
if any, to be made upon expiration of such Index Warrants (the "Minimum
Expiration Value"), (c) the payment or delivery to be made upon the exercise
of any right which the Company may have to cancel such Index Warrants and (d)
the value of the Index; (13) in the case of Index Warrants relating to an
Index for which the trading prices of underlying securities, commodities or
rates are expressed in a foreign currency, the method of converting amounts in
the relevant foreign currency or currencies into U.S. dollars (or such other
currency or composite currency in which the Index Warrants are payable); (14)
the method of providing for a substitute index or otherwise determining the
payment or delivery, if any, to be made in connection with the exercise of
such Index Warrants if the Index changes or ceases to be made available by its
publisher; (15) the time or times at which payment or delivery, if any, will
be made in respect of such Index Warrants following exercise or deemed
exercise; (16) any provisions for issuing such Index Warrants in other than
book-entry form; (17) if such Index Warrants are not issued in book-entry
form, the place or places at which payment or delivery on cancellation, if
any, and the Minimum Expiration Value, if any, of such Index Warrants is to be
made by the Company; (18) the circumstances, if any, which will cause the
Index Warrants to be deemed to be automatically exercised; (19) any material
risk factors relating to such Index Warrants; (20) the identity of the Index
Warrant Agent; and (21) any other terms of the Index Warrants (which shall not
be inconsistent with the provisions of the Index Warrant Agreement).
Prospective purchasers of Index Warrants should be aware that special U.S.
federal income tax, accounting and other considerations may be applicable to
instruments such as the Index Warrants. The Prospectus Supplement relating to
any issue of Index Warrants will describe any such considerations.
Except as otherwise provided in the applicable Prospectus Supplement, each
issue of Index Warrants will contain the terms set forth below.
The Index Warrants which are issued without a Minimum Expiration Value will
be issued under one or more index warrant agreements (each, an "Index Warrant
Agreement") to be entered into between the Company and a bank or trust
company, as warrant agent (the "Index Warrant Agent"), all as described in the
Prospectus Supplement relating to such Index Warrants. The Index Warrant Agent
will act solely as the agent of the Company under the applicable Index Warrant
Agreement and will not assume any obligation or relationship of agency or
trust for or with any Index Warrantholders. A single bank or trust company may
act as Index Warrant Agent for more than one issue of Index Warrants.
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The Index Warrants which are issued with a Minimum Expiration Value will be
issued under one or more index warrant trust indentures (each an "Index
Warrant Trust Indenture") to be entered into between the Company and a
corporation (or other person permitted to so act by the Trust Indenture Act of
1939, as amended from time to time (the "Trust Indenture Act")), to act as
trustee (the "Index Warrant Trustee"), all as described in the Prospectus
Supplement relative to such Index Warrants. Any Index Warrant Trust Indenture
will be qualified under the Trust Indenture Act. To the extent allowed by the
Trust Indenture Act, a single qualified corporation may act as Index Warrant
Trustee for more than one issue of Index Warrants.
Forms of Index Warrant Agreement and Index Warrant Trust Indenture and the
respective global index warrant certificates related thereto are filed as
exhibits to the Registration Statement. The summaries herein of certain
provisions of the Index Warrant Agreement, the Index Warrant Trust Indenture
and global index warrant certificates do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all the
provisions of the Index Warrant Agreement, the Index Warrant Trust Indenture
and global index warrant certificates, respectively.
The Company will have the right to "reopen" a previous issue of Index
Warrants and to issue additional Index Warrants of such issue without the
consent of any Index Warrantholder.
The Index Warrants involve a high degree of risk, including the risk that
the Index Warrants will expire worthless except for the Minimum Expiration
Value, if any, of such Index Warrants. Investors should therefore be prepared
to sustain a total loss of the purchase price of the Index Warrants (except
for the Minimum Expiration Value, if applicable). Investors who consider
purchasing Index Warrants should be experienced with respect to options and
option transactions and reach an investment decision only after carefully
considering the suitability of the Index Warrants in light of their particular
circumstances and the information set forth below as well as additional
information contained in the Prospectus Supplement relating to such Index
Warrants.
Unless otherwise provided in the Prospectus Supplement, each Index Warrant
will entitle the Holder thereof to receive from the Company upon exercise the
Settlement Value of such Index Warrant. Certain Index Warrants issued pursuant
to an Index Warrant Trust Indenture will, if specified in the Prospectus
Supplement, entitle the Index Warrantholder to receive from the Company, under
certain circumstances specified in the Prospectus Supplement, a payment or
delivery equal to the greater of the applicable Settlement Value and a Minimum
Expiration Value of such Index Warrants. In addition, certain Index Warrants
will, if specified in the Prospectus Supplement, entitle Index Warrantholders
to receive from the Company a certain payment or delivery upon cancellation of
the Index Warrants by the Company, upon the occurrence of specified events. In
addition, if so specified in the Prospectus Supplement, following the
occurrence of an extraordinary event, the Settlement Value of an Index Warrant
may, at the option of the Company, be determined on a different basis,
including in connection with automatic exercise at expiration.
Unless otherwise specified in the related Prospectus Supplement, the Index
Warrants will be deemed to be automatically exercised upon expiration or such
earlier date that may be specified. Upon such automatic exercise, Index
Warrantholders will be entitled to receive a payment or delivery equal to the
Settlement Value of the Index Warrants, except that holders of Index Warrants
having a Minimum Expiration Value will be entitled to receive a payment or
delivery equal to the greater of such Settlement Value and the applicable
Minimum Expiration Value. The Minimum Expiration Value may be either a
predetermined payment or delivery or a payment or delivery that varies during
the term of the Index Warrants in accordance with a schedule or formula. Any
Minimum Expiration Value applicable to an issue of Index Warrants, as well as
any additional circumstances resulting in the automatic exercise of such Index
Warrants, will be specified in the related Prospectus Supplement.
If so specified in the Prospectus Supplement, the Index Warrants may be
canceled by the Company, or the exercise or valuation of, or payment or
delivery for, such Index Warrants may be delayed or postponed upon the
occurrence of an extraordinary event. Any extraordinary events relating to an
issue of Index Warrants will be set forth in the related Prospectus
Supplement. Upon cancellation, the related Index Warrantholders will be
entitled
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to receive only the applicable payment or delivery on cancellation specified
in such Prospectus Supplement. The payment or delivery on cancellation may be
either a predetermined payment or delivery or a payment or delivery that
varies during the term of the Index Warrants in accordance with a schedule or
formula.
If the Company defaults with respect to any of its obligations under Index
Warrants which are issued with a Minimum Expiration Value pursuant to an Index
Warrant Trust Indenture, such default may be waived by the Index
Warrantholders of a majority in interest of all outstanding Index Warrants,
except a default in the payment or delivery of the Settlement Value, Minimum
Expiration Value or cancellation payment or delivery (if applicable) on such
Index Warrants or in respect of a covenant or provision of the applicable
Index Warrant Trust Indenture which cannot be modified or amended without the
consent of the Index Warrantholder of each outstanding Index Warrant affected.
The Index Warrants are unsecured contractual obligations of the Company and
will rank pari passu with the Company's other unsecured contractual
obligations and with the Company's unsecured and unsubordinated debt. Since
the Company is a holding company, the right of the Company, and hence the
right of creditors of the Company (including the Holders of the Debt
Securities), to participate in any distribution of the assets of any
subsidiary upon its liquidation or reorganization or otherwise is necessarily
subject to the prior claims of creditors of the subsidiary, except to the
extent that claims of the Company itself as a creditor of the subsidiary may
be recognized. In addition, dividends, loans and advances from certain
subsidiaries, including MLPF&S, to the Company are restricted by net capital
requirements under the Exchange Act and under rules of certain exchanges and
other regulatory bodies.
BOOK-ENTRY PROCEDURES
Except as may otherwise be provided in the applicable Prospectus Supplement,
the Index Warrants will be issued in book-entry form and represented by global
Index Warrants, registered in the name of a depositary or its nominee. Except
as may otherwise be provided in the applicable Prospectus Supplement, Index
Warrantholders will not be entitled to receive definitive certificates
representing Index Warrants, unless the depositary is unwilling or unable to
continue as depositary or the Company decides to have the Index Warrants
represented by definitive certificates. A beneficial owner's interest in an
Index Warrant represented by a global Index Warrant will be recorded on or
through the records of the brokerage firm or other entity that maintains such
beneficial owner's account. In turn, the total number of Index Warrants held
by an individual brokerage firm or other entity for its clients will be
maintained on the records of the depositary in the name of such brokerage firm
or other entity or its agent. Transfer of ownership of any Index Warrant will
be effected only through the selling beneficial owner's brokerage firm.
LISTING
An issue of Index Warrants may be listed on a national securities exchange,
as set forth in the applicable Prospectus Supplement.
MODIFICATION
Any Index Warrant Agreement or Index Warrant Trust Indenture and the terms
of the related Index Warrants may be amended by the Company and the Index
Warrant Agent or Index Warrant Trustee, as the case may be (which amendment
shall take the form of a supplemental index warrant agreement or supplemental
index warrant trust indenture (collectively referred to as "Supplemental
Agreements")), without the consent of the holders of any Index Warrants, for
the purpose of (i) curing any ambiguity, or of curing, correcting or
supplementing any defective or inconsistent provision contained therein, or of
making any other provisions with respect to matters or questions arising under
the Index Warrant Agreement or Index Warrant Trust Indenture, as the case may
be, which shall not be inconsistent with the provisions thereof or of the
Index Warrants, (ii) evidencing the succession of another corporation to the
Company and the assumption by any such successor of
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the covenants of the Company contained in the Index Warrant Agreement or the
Index Warrant Trust Indenture, as the case may be, and the Index Warrants,
(iii) appointing a successor depository, (iv) evidencing and providing for the
acceptance of appointment by a successor Index Warrant Agent or Index Warrant
Trustee with respect to the Index Warrants, as the case may be, (v) adding to
the covenants of the Company, for the benefit of the Index Warrantholders or
surrendering any right or power conferred upon the Company under the Index
Warrant Agreement or Index Warrant Trust Indenture, as the case may be, (vi)
issuing Index Warrants in definitive form, or (vii) amending the Index Warrant
Agreement or Index Warrant Trust Indenture, as the case may be, in any manner
which the Company may deem to be necessary or desirable and which will not
materially and adversely affect the interests of the Index Warrantholders.
The Company and the Index Warrant Agent may also amend any Index Warrant
Agreement or Index Warrant Trust Indenture, as the case may be, and the terms
of the related Index Warrants (which amendment shall take the form of a
Supplemental Agreement) with the consent of the Index Warrantholders holding
not less than 66 2/3% in number of the then outstanding unexercised Index
Warrants affected by such amendment, for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of the Index
Warrant Agreement or Index Warrant Trust Indenture, as the case may be, or of
modifying in any manner the rights of the Index Warrantholders; provided that
no such amendment that (i) changes the determination of the Settlement Value
or the payment or delivery to be made on cancellation, if any, or Minimum
Expiration Value, if any, of the Index Warrants (or any aspects of such
determination) so as to reduce the payment or delivery to be made upon
exercise or deemed exercise, (ii) shortens the period of time during which the
Index Warrants may be exercised, or otherwise materially and adversely affects
the exercise rights of the Index Warrantholders or (iii) reduces the number of
outstanding Index Warrants, the consent of whose holders is required for
amendment of the Index Warrant Agreement, the Index Warrant Trust Indenture or
the terms of the related Index Warrants, may be made without the consent of
each Index Warrantholder affected thereby.
EVENTS OF DEFAULT
Certain events in bankruptcy, insolvency or reorganization of the Company
will constitute an Event of Default with respect to Index Warrants having a
Minimum Expiration Value which are issued under an Index Warrant Trust
Indenture. Upon the occurrence of an Event of Default, the holders of 25% of
unexercised Index Warrants may elect to receive a settlement payment or
delivery for such unexercised Index Warrants, which will immediately become
due to the Index Warrantholders upon such election in an amount equal to the
market value of such Index Warrants (assuming the Company's ability to satisfy
its obligations under such Index Warrants as they would become due) as of the
date the Company is notified of the intended liquidation, as determined by a
nationally recognized securities broker-dealer unaffiliated with the Company
and mutually selected by the Company and the Index Warrant Trustee.
MERGER, CONSOLIDATION, SALE, LEASE OR OTHER DISPOSITIONS
The Company may consolidate or merge with or into any other corporation and
the Company may sell, lease or convey all or substantially all of its assets
to any corporation, provided that (i) the corporation (if other than the
Company) formed by or resulting from any such consolidation or merger or which
shall have received such assets shall be a corporation organized and existing
under the laws of the United States of America or a State thereof and shall
assume the Company's obligations in respect of the payment or delivery of the
Settlement Value (or any Minimum Expiration Value or cancellation payment or
delivery, if applicable) with respect to all the unexercised Index Warrants
and the performance and observance of all of the covenants and conditions of
the Index Warrant Agreement or Index Warrant Trust Indenture, as the case may
be, to be performed or observed by the Company, and (ii) the Company or such
successor corporation, as the case may be, shall not immediately be in default
under the Index Warrant Agreement or Index Warrant Trust Indenture, as the
case may be.
ENFORCEABILITY OF RIGHTS BY INDEX WARRANTHOLDERS
Any Index Warrantholder may, without the consent of the related Index
Warrant Agent, enforce by appropriate legal action, in and for its own behalf,
its right to exercise, and receive payment or delivery for, its Index
Warrants.
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DESCRIPTION OF PREFERRED STOCK
The following description sets forth certain general terms of Preferred
Stock which may be issued by the Company. The terms of any series of the
Preferred Stock will be described in the Prospectus Supplement relating to the
Preferred Stock being offered thereby. The description set forth below and in
any Prospectus Supplement does not purport to be complete and is subject to,
and qualified in its entirety by reference to, the Company's Restated
Certificate of Incorporation, as amended (the "Certificate of Incorporation"),
which is filed as an exhibit to the Registration Statement, and the
Certificate of Designations (the "Certificate of Designations") relating to
each particular series of the Preferred Stock, which was or will be filed with
the Commission at or prior to the time of sale of such Preferred Stock.
GENERAL
Pursuant to the Certificate of Incorporation, the Company is authorized to
issue up to 25,000,000 shares of undesignated preferred stock, par value $1.00
per share. The Board of Directors of the Company has the authority, without
approval of the stockholders, to issue all of the shares of preferred stock
which are currently authorized in one or more series and to fix the number of
shares and the rights, preferences, privileges, qualifications, restrictions
and limitations of each series. As of June 26, 1998, the Company had
24,957,500 shares available for issuance as Preferred Stock.
The Company has authorized the issuance of shares of Series A Junior
Preferred Stock, par value $1.00 per share (the "Series A Junior Preferred
Stock"), of the Company upon exercise of certain preferred share purchase
rights associated with each share of Common Stock outstanding. See
"Description of Common Stock -- Rights Agreement".
In addition, as described under "Description of Depositary Shares" the
Company, at its option, may elect to offer depositary shares ("Depositary
Shares") evidenced by depositary receipts, each representing a fraction (to be
specified in the Prospectus Supplement relating to the Depositary Shares
offered thereby) of a share of the particular series of Preferred Stock issued
and deposited with a depositary, in lieu of offering full shares of such
series of Preferred Stock.
The Preferred Stock shall have the dividend, liquidation, redemption, voting
and conversion or exchange rights set forth below unless otherwise specified
in the Prospectus Supplement relating to the particular series of Preferred
Stock offered thereby. The applicable Prospectus Supplement will describe the
terms of such Preferred Stock, including, where applicable, the following: (1)
the designation, stated value and liquidation preference of such Preferred
Stock and the number of shares offered; (2) the offering price or prices; (3)
the dividend rate or rates (or method of calculation), the dividend periods,
the date on which dividends shall be payable and whether such dividends shall
be cumulative or noncumulative and, if cumulative, the dates from which
dividends shall commence to cumulate; (4) any redemption or sinking fund
provisions; (5) any conversion or exchange provisions; (6) voting rights, if
any; (7) to the extent permitted by applicable law, whether such Preferred
Stock will be issued in certificated or book-entry form; (8) whether such
Preferred Stock will be listed on a national securities exchange; (9)
information with respect to book-entry procedures, if any; and (10) any
additional rights, preferences, privileges, limitations and restrictions of
such Preferred Stock (which shall not be inconsistent with the provisions of
the Certificate of Incorporation or the Certificate of Designations
establishing such series of Preferred Stock).
The Preferred Stock will be, when issued against payment therefor, fully
paid and nonassessable. Holders thereof shall have no preemptive rights to
subscribe for any additional securities which may be issued by the Company.
Unless otherwise specified in the applicable Prospectus Supplement, the shares
of each series of Preferred Stock will rank on a parity with all other
outstanding series of preferred stock issued by the Company as to payment of
dividends (except with respect to cumulation thereof) and as to the
distribution of assets upon liquidation, dissolution, or winding up of the
Company. As of June 26, 1998, there were 42,500 shares of 9% Cumulative
Preferred Stock, Series A (the "9% Preferred Stock") represented by 17,000,000
Depositary Shares outstanding. Each series of Preferred Stock will rank prior
to the Common Stock, and any other stock of the Company that is expressly made
junior to such series of Preferred Stock.
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Unless otherwise specified in the applicable Prospectus Supplement,
Citibank, N.A., will be the transfer agent, dividend disbursing agent and
registrar for the shares of the Preferred Stock.
Because the Company is a holding company, its rights and the rights of
holders of its securities, including the holders of Preferred Stock, to
participate in the distribution of assets of any subsidiary of the Company
upon the latter's liquidation or recapitalization will be subject to the prior
claims of such subsidiary's creditors and preferred stockholders, except to
the extent the Company may itself be a creditor with recognized claims against
such subsidiary or a holder of preferred stock of such subsidiary.
DIVIDENDS AND DISTRIBUTIONS
Holders of shares of the Preferred Stock will be entitled to receive, as, if
and when declared by the Board of Directors of the Company (or a duly
authorized committee thereof) out of funds legally available for the payment
of dividends, cash dividends at the rate set forth in, or calculated in
accordance with the formula set forth in, the Prospectus Supplement relating
to the Preferred Stock offered thereby.
Dividends on the Preferred Stock may be cumulative ("Cumulative Preferred
Stock") or noncumulative ("Noncumulative Preferred Stock") as provided in the
applicable Prospectus Supplement. Unless otherwise provided in the Prospectus
Supplement, dividends on the Cumulative Preferred Stock will be cumulative
from the date of original issue of such series and will be payable quarterly
in arrears on the dates specified in the Prospectus Supplement. If any date so
specified as a dividend payment date is not a business day, dividends (if
declared) on the Preferred Stock (unless otherwise provided in the Prospectus
Supplement) will be paid on the immediately succeeding business day, without
interest. The Prospectus Supplement will set forth the applicable dividend
period with respect to a dividend payment date. If the Board of Directors of
the Company (or a duly authorized committee thereof) fails to declare a
dividend on any series of Noncumulative Preferred Stock for any dividend
period, the Company shall have no obligation to pay a dividend for such
period, whether or not dividends on such series of Noncumulative Preferred
Stock are declared for any future dividend period. Dividends on the Preferred
Stock will be payable to record holders as they appear on the stock books of
the Company on such record dates, not more than 30 nor less than 15 days
preceding the payment dates thereof, as shall be fixed by the Board of
Directors of the Company (or a duly authorized committee thereof).
No dividends will be declared or paid or set apart for payment on the
preferred stock of any series ranking, as to dividends, on a parity with or
junior to any other series of Preferred Stock for any period unless dividends
have been or are contemporaneously declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on such series
of Preferred Stock for (i) all dividend periods terminating on or prior to the
date of payment of full cumulative dividends (in the case of a series of
Cumulative Preferred Stock) or (ii) the immediately preceding dividend period
(in the case of a series of Noncumulative Preferred Stock). When dividends are
not paid in full upon such series of Preferred Stock (whether Cumulative
Preferred Stock or Noncumulative Preferred Stock), and any other preferred
stock ranking on a parity as to dividends with such series of Preferred Stock,
all dividends declared upon shares of such series of Preferred Stock and any
other preferred stock ranking on a parity as to dividends will be declared pro
rata so that the amount of dividends declared per share on such series of
Preferred Stock and such other preferred stock will in all cases bear to each
other the same ratio that accrued dividends per share (which, in the case of
Noncumulative Preferred Stock, shall not include any cumulation in respect of
unpaid dividends for prior dividend periods) on the shares of such series of
Preferred Stock and such other preferred stock bear to each other.
Except as provided in the preceding paragraph, unless full dividends on all
outstanding shares of any such series of Preferred Stock have been declared
and paid for all past dividend periods, in the case of a series of Cumulative
Preferred Stock, or for the immediately preceding dividend period, in the case
of Noncumulative Preferred Stock, no dividends (other than dividends or
distributions paid in shares of, or options, warrants or rights to subscribe
for or purchase shares of, the Common Stock of the Company or another stock of
the Company ranking junior to the Preferred Stock as to dividends and upon
liquidation) will be declared or paid or set aside for payment or other
distribution declared or made upon the Common Stock of the Company or upon
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any other stock of the Company ranking junior to or on parity with the
Preferred Stock as to dividends or upon liquidation, nor will any Common Stock
of the Company nor any other stock of the Company ranking junior to or on
parity with such Preferred Stock as to dividends or upon liquidation be
redeemed, purchased or otherwise acquired, other than in connection with the
distribution or trading thereof, for any consideration (or any moneys be paid
to or made available for a sinking fund for the redemption of any shares of
any such stock) by the Company (except by conversion or exchange for stock of
the Company ranking junior to the Preferred Stock as to dividends and upon
liquidation).
Unless otherwise specified in the applicable Prospectus Supplement, the
amount of dividends payable for any period shorter than a full dividend period
shall be computed on the basis of twelve 30-day months, a 360-day year and the
actual number of days elapsed in any period of less than one month.
As of the date hereof, subsidiaries of the Company have issued $1.725
billion of perpetual Trust Originated Preferred Securities SM. In connection
with the issuance of such Trust Originated Preferred Securities SM, the
Company has agreed, among other things, that if full distributions on such
securities have not been paid or set apart for payment or the Company is in
default of certain related guarantee obligations, the Company, with certain
exceptions, will not declare or pay dividends, make distributions with respect
to, or redeem, purchase or acquire, or make a liquidation payment with respect
to any of its capital stock, including the Preferred Stock.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Company, the holders of the Preferred Stock will have preference and
priority over the Common Stock of the Company and any other class of stock of
the Company ranking junior to the Preferred Stock upon liquidation,
dissolution or winding up, for payments out of or distributions of the assets
of the Company or proceeds thereof, whether from capital or surplus, of the
amount per share set forth in the Prospectus Supplement plus all dividends
(whether or not earned or declared), accrued and unpaid thereon to the date of
final distribution to such holders (but in the case of Noncumulative Preferred
Stock, without cumulation of unpaid dividends for prior dividend periods), and
after such payment the holders of Preferred Stock will be entitled to no other
payments. If, in the case of any such liquidation, dissolution or winding up
of the Company, the assets of the Company or proceeds thereof should be
insufficient to make the full liquidation payment in the amount per share set
forth in the Prospectus Supplement relating to the series of Preferred Stock
offered thereby, plus all accrued and unpaid dividends on the Preferred Stock
(but in the case of Noncumulative Preferred Stock without cumulation of unpaid
dividends for prior dividend periods), and liquidating payments on any other
preferred stock ranking as to liquidation, dissolution or winding up on a
parity with the Preferred Stock, then such assets and proceeds will be
distributed among the holders of the Preferred Stock and any such other
preferred stock ratably in accordance with the respective amounts which would
be payable on such shares of Preferred Stock and any such other preferred
stock if all amounts thereon were paid in full. A consolidation or merger of
the Company with one or more corporations will not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary, of the
Company.
REDEMPTION
If specified in the Prospectus Supplement relating to the series of
Preferred Stock offered thereby, the Company may, at its option, at any time
or from time to time on not less than 30 nor more than 60 days notice, redeem
such series of Preferred Stock in whole or in part at the redemption prices
and on the dates set forth in the applicable Prospectus Supplement.
If less than all outstanding shares of a series of Preferred Stock are to be
redeemed, the selection of the shares to be redeemed shall be determined by
lot or pro rata as may be determined by the Board of Directors of the Company
(or a duly authorized committee thereof) to be equitable. From and after the
redemption date (unless default shall be made by the Company in providing for
the payment of the redemption price), dividends shall cease to accrue on the
shares of such series of Preferred Stock called for redemption and all rights
of the holders thereof (except the right to receive the redemption price)
shall cease.
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VOTING RIGHTS
Unless otherwise described in the applicable Prospectus Supplement, holders
of the Preferred Stock will have no voting rights except as set forth below or
as otherwise from time to time required by law.
Whenever dividends payable on the Preferred Stock shall be in arrears for
such number of dividend periods, whether or not consecutive, which shall in
the aggregate contain a number of months equivalent to six calendar quarters,
the holders of outstanding shares of the Preferred Stock (voting as a class
with holders of shares of all other series of preferred stock ranking on a
parity with the Preferred Stock either as to dividends or the distribution of
assets upon liquidation, dissolution or winding up and upon which like voting
rights have been conferred and are exercisable) will be entitled to vote for
the election of two additional directors on the terms set forth below. Such
voting rights will continue, in the case of any series of Cumulative Preferred
Stock, until all past dividends accumulated on shares of Cumulative Preferred
Stock shall have been paid in full and, in the case of Noncumulative Preferred
Stock, until all dividends on shares of Noncumulative Preferred Stock shall
have been paid in full for at least one year. Upon payment in full of such
dividends, such voting rights shall terminate except as expressly provided by
law, subject to re-vesting in the event of each and every subsequent default
in the payment of dividends as aforesaid. Holders of all series of preferred
stock which are granted such voting rights (which rank on a parity with the
Preferred Stock) will vote as a class, and, unless otherwise specified in the
applicable Prospectus Supplement, each holder of shares of the Preferred Stock
will have one vote for each share of stock held and each other series will
have such number of votes, if any, for each share of stock held as may be
granted to them. In the event that the holders of shares of the Preferred
Stock are entitled to vote as described in this paragraph, the Board of
Directors of the Company will be increased by two directors, and the holders
of the Preferred Stock will have the exclusive right as members of such class,
as outlined above, to elect two directors at the next annual meeting of
stockholders.
Upon termination of the right of the holders of the Preferred Stock to vote
for directors as discussed in the preceding paragraph, the term of office of
all directors then in office elected by such holders will terminate
immediately. Whenever the term of office of the directors elected by such
holders ends and the related special voting rights expire, the number of
directors will automatically be decreased to such number as would otherwise
prevail.
So long as any shares of Preferred Stock remain outstanding, the Company
shall not, without the affirmative vote or consent of the holders of at least
two-thirds of the shares of the Preferred Stock outstanding at the time
(voting as a class with all other series of preferred stock ranking on a
parity with the Preferred Stock either as to dividends or the distribution of
assets upon liquidation, dissolution or winding up and upon which like voting
rights have been conferred and are exercisable), given in person or by proxy,
either in writing or at a meeting, (i) authorize, create or issue, or increase
the authorized or issued amount of, any class or series of stock ranking prior
to the Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up; or (ii)
amend, alter or repeal, whether by merger, consolidation or otherwise, the
provisions of the Certificate of Incorporation or the Certificate of
Designations of the Preferred Stock designating such Preferred Stock and the
preferences and privileges, relative, participating, optional or other special
rights and qualifications, limitations and restrictions thereof, so as to
materially and adversely affect any right, preference, privilege or voting
power of the Preferred Stock or the holders thereof; provided, however, that
any increase in the amount of authorized preferred stock or the creation and
issuance, or an increase in the authorized or issued amount, of other series
of preferred stock, or any increase in the amount of authorized shares of
Preferred Stock, in each case ranking on a parity with or junior to the
Preferred Stock with respect to the payment of dividends and the distribution
of assets upon liquidation, dissolution or winding up will not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
powers.
The foregoing voting provisions will not apply if all outstanding shares of
Preferred Stock have been redeemed or sufficient funds have been deposited in
trust to effect such a redemption which is scheduled to be consummated within
three months after the time that such rights would otherwise be exercisable.
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CONVERSION OR EXCHANGE RIGHTS
The Prospectus Supplement relating to a series of Preferred Stock that is
convertible or exchangeable will state the terms on which shares of such
series are convertible or exchangeable into Common Stock, another series of
Preferred Stock or Debt Securities.
OUTSTANDING PREFERRED STOCK
At June 26, 1998, there were outstanding 42,500 shares of 9% Preferred Stock
represented by 17,000,000 Depositary Shares.
9% Preferred Stock
The 9% Preferred Stock has preference over the Common Stock and the Series A
Junior Preferred Stock issuable pursuant to the Rights Plan described under
"Description of Common Stock" with respect to the payment of dividends and the
distribution of assets in the event of liquidation, dissolution or winding up
of the Company. Holders of the 9% Preferred Stock do not have any preemptive
rights to subscribe for any additional securities which may be issued by the
Company. Dividends on the 9% Preferred Stock are cumulative and payable
quarterly at the rate per annum of 9% of the $10,000 liquidation preference
per share. Holders of the 9% Preferred Stock have no voting rights except as
set forth above under "--Voting Rights". In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the holders
of outstanding shares of 9% Preferred Stock are entitled to receive out of
assets of the Company available for distribution to stockholders a
distribution of $10,000 per share, plus accumulated and unpaid dividends, if
any. The 9% Preferred Stock is not redeemable prior to December 30, 2004. On
and after that date, the 9% Preferred Stock is redeemable at the option of the
Company, in whole at any time or from time to time in part, upon not less than
30 nor more than 60 days notice, at a redemption price of $10,000 per share,
plus accumulated and unpaid dividends, if any.
Special Voting Stock
In connection with the proposed acquisition of Midland Walwyn Inc. by the
Company (the "Acquisition"), the Company has authorized the issuance of a
single share of preferred stock with special voting rights (the "Special
Voting Share"), which will be issued pursuant to the terms of a Voting and
Exchange Trust Agreement to be entered into by Merrill Lynch & Co., Canada
Ltd. ("ML Canada"), the Company and Montreal Trust Company of Canada, as
trustee (the "Voting Trust Agreement"). The Special Voting Share will possess
a number of votes equal to the number of exchangeable shares (the
"Exchangeable Shares") issued and outstanding from time to time by ML Canada
to certain holders of Midland Walwyn Inc. common stock (other than the Company
or its affiliates) in connection with the Acquisition, which votes may be
exercised for the election of directors and on all other matters submitted to
a vote of the Company's stockholders. The holders of the Company's Common
Stock and the holder of the Special Voting Share will vote together as a class
on all matters. See "Description of Common Stock--Voting Rights". The Special
Voting Share will be issued to the trustee under the Voting Trust Agreement.
The holder of the Special Voting Share will not be entitled to receive
dividends, and, in the event of any liquidation, dissolution or winding-up of
the Company, will receive an amount equal to the par value thereof. At such
time as the Special Voting Share has no votes attached to it because there are
no Exchangeable Shares outstanding not owned by the Company or any of its
affiliates, the Special Voting share will cease to have any rights.
DESCRIPTION OF DEPOSITARY SHARES
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fraction of a share of Preferred Stock.
Shares of Preferred Stock of each class or series represented by Depositary
Shares will be deposited under deposit agreements (each a "Deposit Agreement")
to be entered into among the Company, a bank or trust company, as depository
(the "Depositary"), and the holders from time to time of the Depositary
Receipts. Depositary Shares may be issued independently or together with other
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Securities offered by any Prospectus Supplement and may be attached to or
separate from such other Securities. A copy of the form of Deposit Agreement,
including the form of certificates representing the Depositary Receipts (the
"Depositary Receipt Certificates"), is filed as an exhibit to the Registration
Statement. The following summaries of certain provisions of the Deposit
Agreements and the Depositary Receipt Certificates do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Deposit Agreement and the Depositary Receipt
Certificates, respectively, including the definitions therein of certain
terms.
GENERAL
The Depositary Shares are to be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the
issuance and delivery of the Preferred Stock by the Company to the Depositary,
the Company will cause the Depositary to issue, on behalf of the Company, the
Depositary Receipts. Subject to the terms of the applicable Deposit Agreement,
each holder of a Depositary Receipt will be entitled, in proportion to the
fraction of a share of Preferred Stock represented by such Depositary Share,
to all the rights and preferences of the Preferred Stock represented thereby
(including dividend, voting, conversion, redemption and liquidation rights),
all as shall be set forth in the Prospectus Supplement relating to the
Depositary Receipts offered thereby.
The Depositary Shares shall have the dividend, liquidation, redemption,
voting and conversion or exchange rights set forth below unless otherwise
specified in the applicable Prospectus Supplement. The applicable Prospectus
Supplement will describe the terms of Depositary Shares offered thereby, the
Deposit Agreement relating to such Depositary Shares and the Depositary
Receipt Certificates representing such Depositary Shares, including the
following: (1) the designation, stated value and liquidation preference of
such Depositary Shares and the number of shares offered; (2) the offering
price or prices; (3) the dividend rate or rates (or method of calculation),
the dividend periods, the dates on which dividends shall be payable and
whether such dividends shall be cumulative or noncumulative and, if
cumulative, the dates from which dividends shall commence to cumulate; (4) any
redemption or sinking fund provisions; (5) any conversion or exchange
provisions; (6) any material risk factors relating to such Depositary Shares;
(7) the identity of the Depositary; and (8) any other terms of such Depositary
Shares (which shall not be inconsistent with the provisions of the Deposit
Agreement).
BOOK-ENTRY PROCEDURES
Except as may otherwise be provided in the applicable Prospectus Supplement,
the Depositary Receipts will be issued in the form of global Depositary
Receipt Certificates, registered in the name of a depositary or its nominee.
Except as may otherwise be provided in the applicable Prospectus Supplement,
beneficial owners will not be entitled to receive definitive certificates
representing Depositary Receipts unless the depositary is unwilling or unable
to continue as depositary or the Company decides to have the Depositary
Receipts represented by definitive certificates. A beneficial owner's interest
in a Depositary Receipt will be recorded on or through the records of the
brokerage firm or other entity that maintains a beneficial owner's account. In
turn, the total number of Depositary Receipts held by an individual brokerage
firm for its clients will be maintained on the records of the depositary in
the name of such brokerage firm or its agent. Transfer of ownership of any
Depositary Receipt will be effected only through the selling beneficial
owner's brokerage firm.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Depositary will distribute all cash dividends or other cash
distributions received in respect of the Preferred Stock to the record holders
of Depositary Receipts in proportion to the number of such Depositary Receipts
owned by such holders, subject to certain obligations of holders to file
proofs, certificates and other information and to pay certain charges and
expenses to the Depositary.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary
Receipts entitled thereto, subject to certain obligations of holders to file
proofs, certificates and other information and to pay certain charges and
expenses to the Depositary, unless the Depositary, after consultation with the
Company, determines that it is not feasible to make such distribution, in
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which case the Depositary may, with the approval of the Company, sell such
property and distribute the net proceeds from such sale to such holders.
WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the Depositary (unless the related Depositary Shares have previously been
called for redemption), the holder of the Depositary Shares evidenced thereby
will be entitled to delivery, at such office to or upon his order, of the
number of whole shares of the Preferred Stock and any money or other property
represented by such Depositary Shares. Holders of Depositary Receipts will be
entitled to receive whole shares of the Preferred Stock on the basis of the
proportion of Preferred Stock represented by each Depositary Share as
specified in the applicable Prospectus Supplement, but holders of such whole
shares of Preferred Stock will not thereafter be entitled to receive
Depositary Shares therefor. If the Depositary Receipts delivered by the holder
evidence a number of Depositary Shares in excess of the number of Depositary
Shares representing the number of whole shares of Preferred Stock to be
withdrawn, the Depositary will deliver to such holder at the same time a new
Depositary Receipt evidencing such excess number of Depositary Shares. In no
event will fractional shares of Preferred Stock be delivered upon surrender of
Depositary Receipts to the Depositary.
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems shares of Preferred Stock held by the
Depositary, the Depositary will redeem as of the same redemption date the
number of Depositary Shares representing shares of the Preferred Stock so
redeemed, provided the Company shall have paid in full to the Depositary the
redemption price of the Preferred Stock to be redeemed plus an amount equal to
any accumulated and unpaid dividends thereon to the date fixed for redemption.
The redemption price per Depositary Share will be equal to the redemption
price and any other amounts per share payable with respect to the Preferred
Stock multiplied by the fraction of a share of Preferred Stock represented by
one Depositary Share. If less than all the Depositary Shares are to be
redeemed, the Depositary Shares to be redeemed will be selected by the lot or
pro rata as may be determined by the Depositary.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Shares so called for redemption will cease, except
the right to receive any moneys payable upon such redemption and any money or
other property to which the holders of such Depositary Shares were entitled
upon such redemption upon surrender to the Depositary of the Depositary
Receipts evidencing such Depositary Shares.
VOTING THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the Preferred
Stock are entitled to vote, the Depositary will mail the information contained
in such notice of meeting to the record holders of the Depositary Receipts
relating to Preferred Stock. Each record holder of such Depositary Shares on
the record date (which will be the same date as the record date for the
Preferred Stock) will be entitled to instruct the Depositary as to the
exercise of the voting rights pertaining to the amount of Preferred Stock
represented by such holder's Depositary Receipts. The Depositary will
endeavor, insofar as practicable, to vote the amount of Preferred Stock
represented by such Depositary Shares in accordance with such instructions,
and the Company will agree to take all reasonable action which may be deemed
necessary by the Depositary in order to enable the Depositary to do so. The
Depositary will abstain from voting shares of Preferred Stock to the extent it
does not receive specific instructions from the holders of Depositary Receipts
representing shares of Preferred Stock.
EXCHANGE OF PREFERRED STOCK
Whenever the Company exchanges all of the shares of a series of Preferred
Stock held by the Depositary for Debt Securities, Common Stock or other shares
of Preferred Stock, the Depositary will exchange as of the same exchange date
the number of Depositary Shares representing all of the shares of the
Preferred Stock so exchanged for Debt Securities, Common Stock or other shares
of Preferred Stock, provided the Company shall have issued and deposited with
the Depositary, Debt Securities, Common Stock or other shares of Preferred
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Stock, as applicable, for all of the shares of the Preferred Stock to be
exchanged. The exchange rate per Depositary Share shall be equal to the
exchange rate per share of Preferred Stock multiplied by the fraction of a
share of Preferred Stock represented by one Depositary Share, plus all money
and other property, if any, represented by such Depositary Shares, including
all amounts paid by the Company in respect of dividends which on the exchange
date have accumulated on the shares of Preferred Stock to be so exchanged and
have not theretofore been paid.
CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, are not convertible or exchangeable into
Common Stock or any other securities or property of the Company. Nevertheless,
if so specified in the Prospectus Supplement relating to the Depositary Shares
offered thereby, the Depositary Receipts may be surrendered by holders thereof
to the Depositary with written instructions to the Depositary to instruct the
Company to cause conversion or exchange of the Preferred Stock represented by
the Depositary Shares evidenced by such Depositary Receipts into whole shares
of Common Stock, other shares of Preferred Stock or Debt Securities of the
Company, and the Company has agreed that upon receipt of such instructions and
any amounts payable in respect thereof, it will cause the conversion or
exchange thereof utilizing the same procedures as those provided for delivery
of Preferred Stock to effect such conversions or exchange. If the Depositary
Shares represented by a Depositary Receipt are to be converted in part only, a
new Depositary Receipt or Receipts will be issued for any Depositary Shares
not to be converted or exchanged.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may at any time be amended by agreement
between the Company and the Depositary. However, any amendment that materially
and adversely alters the rights of the holders of Depositary Receipts will not
be effective unless such amendment has been approved by the holders of at
least a majority (or, in the case of amendments relating to or affecting
rights to receive dividends or distributions or voting, redemption or
conversion rights, two-thirds) of the Depositary Shares then outstanding.
The Deposit Agreement may be terminated by the Company at any time upon 60
days prior written notice to the Depositary, in which case the Depositary will
deliver to the record holders, upon surrender of the Depositary Receipts, such
number of whole or fractional shares of Preferred Stock as is represented by
such Depositary Receipts. The Deposit Agreement will automatically terminate
if (i) all outstanding Depositary Shares have been redeemed, (ii) all shares
of Preferred Stock deposited with the Depositary in accordance with the terms
of the Deposit Agreement and all money and other property relating thereto
have been withdrawn in accordance with the terms of the Deposit Agreement, or
(iii) there has been a final distribution in respect of the Preferred Stock in
connection with any liquidation, dissolution or winding up of the Company and
such distribution has been distributed to the holders of Depositary Receipts.
CHARGES OF DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. The Company
will pay the fees and expenses of the Depositary in connection with the
performance of its duties under the Deposit Agreement. Holders of Depositary
Receipts will pay transfer and other taxes and governmental charges and such
other charges as are expressly provided in the Deposit Agreement to be for
their accounts. The Depositary may refuse to effect any transfer of a
Depositary Receipt or any withdrawals of Preferred Stock evidenced thereby
until all such taxes and charges with respect to such Depositary Receipts or
shares of Preferred Stock are paid by the holders thereof.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Depositary may resign at any time by delivering to the Company notice of
its election to do so, and the Company may at any time remove the Depositary.
Any such resignation or removal will take effect upon the appointment of a
successor Depositary, which successor Depositary must be appointed within 60
days after delivery of the notice of resignation or removal and must be a bank
or trust company having its principal office in the United States and having a
combined capital and surplus of at least $50,000,000.
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MISCELLANEOUS
The Depositary will forward to holders of Depositary Receipts all reports
and communications received from the Company which are received by the
Depositary and which the Company is required to furnish to holders of the
underlying Preferred Stock. The Depositary will also, promptly after receipt
thereof, transmit to the holders of Depositary Receipts, copies of all notices
and reports required by law, the rules of any national securities exchange or
the Company's Certificate of Incorporation to be furnished to the record
holders of Depositary Receipts.
Neither the Depositary nor the Company will assume any obligation or be
subject to any liability under the Deposit Agreement to holders of Depositary
Receipts other than for negligence, willful misconduct or bad faith. The
Depositary will not be obligated to prosecute or defend any legal proceeding
in respect of any Depositary Shares or any shares of Preferred Stock unless
satisfactory indemnity is furnished. The Company and the Depositary may rely
on written advice of counsel or accountants, or information provided by
persons presenting shares of Preferred Stock for deposit, holders of
Depositary Receipts or other persons believed to be competent and on documents
believed to be genuine. Neither the Depositary nor the Company will be liable
if it is prevented from or delayed, by law, by provision of the Company's
Certificate of Incorporation or any circumstances beyond its control, in
performing its obligations under the Deposit Agreement.
DESCRIPTION OF PREFERRED STOCK WARRANTS
The Company may issue Preferred Stock Warrants for the purchase of Preferred
Stock. Preferred Stock Warrants may be issued independently or together with
other Securities offered by any Prospectus Supplement and may be attached to
or separate from such other Securities. Each series of Preferred Stock
Warrants is to be issued under a warrant agreement (each a "Preferred Stock
Warrant Agreement") to be entered into between the Company and a bank or trust
company, as preferred stock warrant agent (the "Preferred Stock Warrant
Agent"), all as set forth in the Prospectus Supplement relating to the
Preferred Stock Warrants offered thereby. A copy of the form of Preferred
Stock Warrant Agreement, including the form of warrant certificates
representing the Preferred Stock Warrants (the "Preferred Stock Warrant
Certificates"), is filed as an exhibit to the Registration Statement. The
following summaries of certain provisions of the Preferred Stock Warrant
Agreement and Preferred Stock Warrant Certificates do not purport to be
complete and are subject to and are qualified in their entirety by reference
to, all the provisions of the Preferred Stock Warrant Agreement and the
Preferred Stock Warrant Certificates, respectively, including the definitions
therein of certain terms.
GENERAL
The applicable Prospectus Supplement will describe the terms of the
Preferred Stock Warrants offered thereby, the Preferred Stock Warrant
Agreement relating to such Preferred Stock Warrants and the Preferred Stock
Warrant Certificates representing such Preferred Stock Warrants, including the
following: (1) the offering price or prices; (2) the designation, aggregate
number and terms of the series of Preferred Stock that may be purchased upon
exercise of such Preferred Stock Warrants and the minimum number of Preferred
Stock Warrants that are exercisable; (3) the designation and terms of the
Securities, if any, with which such Preferred Stock Warrants are being offered
and the number of such Preferred Stock Warrants being offered with each such
Security; (4) the date, if any, on and after which such Preferred Stock
Warrants and the related Securities will be transferable separately; (5) the
number and stated values of the series of Preferred Stock that may be
purchased upon exercise of each such Preferred Stock Warrant and the price at
which such number of shares of Preferred Stock of such series may be purchased
upon such exercise, and events or conditions under which such number of shares
may be subject to adjustment; (6) the date on which the right to exercise such
Preferred Stock Warrants shall commence and the date on which such right shall
expire (the "Preferred Stock Warrant Expiration Date"); (7) the circumstances,
if any, which will cause the Preferred Stock Warrants to be deemed to be
automatically exercised; (8) any material risk factors relating to such
Preferred Stock Warrants; (9) the identity of the Preferred Stock Warrant
Agent; and (10) any other terms of such Preferred Stock Warrants (which shall
not be inconsistent with the provisions of the Preferred Stock Warrant
Agreement).
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Preferred Stock Warrant Certificates may be exchanged for new Preferred
Stock Warrant Certificates of different denominations, may (if in registered
form) be presented for registration of transfer, and may be exercised at the
corporate trust office of the Preferred Stock Warrant Agent or any other
office indicated in the applicable Prospectus Supplement. Prior to the
exercise of any Preferred Stock Warrant, a Holder thereof shall have no rights
of a holder of shares of the Preferred Stock that may be purchased upon such
exercise, including the right to receive payment of dividends, if any, on the
underlying Preferred Stock or the right to vote such underlying Preferred
Stock.
Prospective purchasers of Preferred Stock Warrants should be aware that
special U.S. federal income tax, accounting and other considerations may be
applicable to instruments such as Preferred Stock Warrants. The Prospectus
Supplement relating to any issue of Preferred Stock Warrants will describe any
such considerations.
BOOK-ENTRY PROCEDURES
Except as may otherwise be provided in the applicable Prospectus Supplement,
the Preferred Stock Warrants will be issued in the form of global Preferred
Stock Warrant Certificates, registered in the name of a depositary or its
nominee. Except as may otherwise be provided in the applicable Prospectus
Supplement, beneficial owners will not be entitled to receive definitive
certificates representing Preferred Stock Warrants unless the depositary is
unwilling or unable to continue as depositary, certain specified events of
bankruptcy or insolvency occur with respect to the Company or the Company
decides to have the Preferred Stock Warrants represented by definitive
certificates. A beneficial owner's interest in a Preferred Stock Warrant will
be recorded on or through the records of the brokerage firm or other entity
that maintains a beneficial owner's account. In turn, the total number of
Preferred Stock Warrants held by an individual brokerage firm for its clients
will be maintained on the records of the depositary in the name of such
brokerage firm or its agent. Transfer of ownership of any Preferred Stock
Warrant will be effected only through the selling beneficial owner's brokerage
firm.
EXERCISE OF PREFERRED STOCK WARRANTS
Each Preferred Stock Warrant will entitle the Holder thereof to purchase
such number of shares of Preferred Stock at such exercise price as shall be
set forth in, or calculable from, the applicable Prospectus Supplement. After
the close of business on the Expiration Date (or such later date to which such
Expiration Date may be extended by the Company), unexercised Preferred Stock
Warrants will become void.
Preferred Stock Warrants may be exercised as set forth in the Prospectus
Supplement relating to the Preferred Stock Warrants offered thereby. Upon
receipt of payment and the Preferred Stock Warrant Certificate properly
completed and duly executed at the corporate trust office of the Preferred
Stock Warrant Agent or any other office indicated in the applicable Prospectus
Supplement, the Company will, as soon as practicable, issue and deliver the
shares of Preferred Stock purchased upon such exercise. If less than all of
the Preferred Stock Warrants represented by such Preferred Stock Warrant
Certificate are exercised, a new Preferred Stock Warrant Certificate will be
issued for the remaining number of Preferred Stock Warrants.
LISTING
An issue of Preferred Stock Warrants may be listed on a national securities
exchange, as set forth in the applicable Prospectus Supplement.
MODIFICATIONS
Any Preferred Stock Warrant Agreement and the terms of the related Preferred
Stock Warrants may be amended by the Company and the Preferred Stock Warrant
Agent, without the consent of the Holders of the Preferred Stock Warrants, for
the purpose of curing any ambiguity, or of curing, correcting or supplementing
any defective or inconsistent provision contained therein, or in any other
manner which the Company may deem necessary or desirable and which will not
materially and adversely affect the interests of the Preferred Stock
Warrantholders.
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The Company and the Preferred Stock Warrant Agent also may amend any
Preferred Stock Warrant Agreement and the terms of the related Preferred Stock
Warrants, with the consent of the Holders of not less than a majority in
number of the then outstanding unexercised Preferred Stock Warrants affected
by such amendment, provided that no such amendment that shortens the period of
time during which the Preferred Stock Warrants may be exercised or otherwise
materially and adversely affects the exercise rights of the Preferred Stock
Warrantholders or reduces the number of outstanding Preferred Stock Warrants
the consent of whose Holders is required for amendment of the Preferred Stock
Warrant Agreement or the terms of the related Preferred Stock Warrants without
the consent of each of the Preferred Stock Warrantholders affected thereby.
ENFORCEABILITY OF RIGHTS BY PREFERRED STOCK WARRANTHOLDERs
Any Preferred Stock Warrantholder may, without the consent of the related
Preferred Stock Warrant Agent, enforce by appropriate legal action, in and of
its own behalf, its right to exercise its Preferred Stock Warrants.
DESCRIPTION OF COMMON STOCK
The following description sets forth the general terms of Common Stock which
may be issued by the Company. The description set forth below and in any
Prospectus Supplement does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, the Certificate of Incorporation
which is filed as an exhibit to the Registration Statement.
GENERAL
Pursuant to the Certificate of Incorporation, the Company is authorized to
issue up to 1,000,000,000 shares of Common Stock. As of May 1, 1998, there
were 345,991,939 shares of Common Stock outstanding. The Common Stock is
traded on the New York Stock Exchange under the symbol "MER" and also on the
Chicago Stock Exchange, the Pacific Exchange, the Paris Bourse, the London
Stock Exchange and the Tokyo Stock Exchange.
The Common Stock shall have the dividend, voting, liquidation and preemptive
rights set forth below unless otherwise specified in the Prospectus Supplement
relating to the Common Stock offered thereby. The applicable Prospectus
Supplement will describe the terms of such Common Stock including, where
applicable, the following: (1) the number of shares to be offered; (2) the
offering price or prices; (3) to the extent permitted by applicable law,
whether such Common Stock will be issued in certificated or book-entry form;
(4) information with respect to book-entry procedures, if any; and (5) any
additional terms of such Common Stock (which shall not be inconsistent with
the provisions of the Certificate of Incorporation).
The Common Stock will be, when issued against payment therefor, fully paid
and nonassessable. Holders thereof will have no preemptive rights to subscribe
for any additional securities which may be issued by the Company. The rights
of holders of Common Stock will be subject to, and may be adversely affected
by, the rights of holders of any Preferred Stock that has been issued and may
be issued in the future. As of July 15, 1998, 17,000,000 Depositary Shares,
each representing a one-four-hundredth interest in a share of 9% Preferred
Stock, were outstanding. The Board of Directors of the Company may cause
additional shares of Preferred Stock to be issued to obtain additional
financing, in connection with acquisitions, to officers, directors and
employees of the Company and its subsidiaries pursuant to benefit plans or
otherwise and for other proper corporate purposes.
The Company is the principal transfer agent for the Common Stock.
Because the Company is a holding company, its rights and the rights of
holders of its securities, including the holders of Common Stock, to
participate in the distribution of assets of any subsidiary of the Company
upon the latter's liquidation or recapitalization will be subject to the prior
claims of such subsidiary's creditors and preferred stockholders, except to
the extent the Company may itself be a creditor with recognized claims against
such subsidiary or a holder of preferred stock of such subsidiary.
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<PAGE>
DIVIDENDS
The Company may pay dividends on the Common Stock out of funds legally
available therefor as, if and when declared by the Board of Directors of the
Company (or a duly authorized committee thereof).
As of the date hereof, subsidiaries of the Company have issued $1.725
billion of perpetual Trust Originated Preferred Securities SM. In connection
with the issuance of such Trust Originated Preferred Securities SM, the
Company has agreed, among other things, that if full distributions on such
securities have not been paid or set apart for payment or the Company is in
default of certain related guarantee obligations, the Company, with certain
exceptions, will not declare or pay dividends, make distributions with respect
to, or redeem, purchase or acquire, or make a liquidation payment with respect
to any of its capital stock, including the Common Stock.
LIQUIDATION RIGHTS
Upon any voluntary or involuntary liquidation, dissolution, or winding up of
the Company, the holders of its Common Stock will be entitled to receive,
after payment of all of its debts, liabilities and of all sums to which
holders of any Preferred Stock may be entitled, all of the remaining assets of
the Company.
VOTING RIGHTS
Except as described under "Description of Preferred Stock -- Outstanding
Preferred Stock", the holders of the Common Stock currently possess exclusive
voting rights in the Company. The Board of Directors of the Company may,
however, specify voting power with respect to any Preferred Stock which may be
issued in the future. Each holder of Common Stock is entitled to one vote per
share with respect to all matters. There is no cumulative voting in the
election of directors. Actions requiring approval of stockholders generally
require approval by a majority vote of outstanding shares.
The Board of Directors of the Company is currently comprised of 14
directors, divided into three classes, the precise number of members to be
fixed from time to time by the Board of Directors. The directors of the class
elected at each annual election hold office for a term of three years, with
the term of each class expiring at successive annual meetings of stockholders.
RIGHTS TO PURCHASE SERIES A JUNIOR PREFERRED STOCK
On December 2, 1997, the Board of Directors of the Company approved and
adopted the Amended and Restated Rights Agreement, which amends and restates
the plan that had originally been adopted in December 1987 (the "Rights
Agreement"). Under the Rights Agreement, preferred purchase rights (the
"Rights") were distributed to holders of Common Stock. The Rights will
separate from the Common Stock ten days following the earlier of: (a) an
announcement of an acquisition by a person or group ("acquiring party") of 15%
or more of the outstanding common shares of the Company; or (b) the
commencement of a tender or exchange offer for 15% or more of the shares of
Common Stock outstanding. The Rights are attached to each outstanding share of
Common Stock and will attach to all subsequently issued shares, including
Common Stock that may be offered by the Company pursuant to an applicable
Prospectus Supplement. The Rights entitle the holder to purchase fractions of
a share ("Units") of Series A Junior Preferred Stock at an exercise price of
$300 per Unit, subject to adjustment from time to time as provided in the
Rights Agreement. The exercise price and the number of Units issuable are
subject to adjustment to prevent dilution.
If, after the Rights have separated, (i) the Company is the surviving
corporation in a merger with an acquiring party, (ii) a person becomes the
beneficial owner of 15% or more of the Common Stock, (iii) an acquiring party
engages in one or more "self-dealing" transactions, or (iv) an event occurs
which results in such acquiring party's ownership interest being increased by
more than 1%, then each holder of a Right will have the right to purchase,
upon exercise, Units of Series A Junior Preferred Stock having a value equal
to two times the exercise price of the Right and, in addition, Rights held by
or transferred in certain circumstances by, an
28
<PAGE>
acquiring party may immediately become void. In the event that, at any time,
(i) the Company is acquired in a merger or other business combination
transaction and the Company is not the surviving corporation, or (ii) any
person consolidates or merges with the Company and all or part of the Common
Stock is converted or exchanged for securities, cash or property of any other
person or (iii) 50% or more of the Company's assets or earning power is sold
or transferred, each holder of a right shall thereafter have the right to
purchase, upon exercise, common stock of the acquiring party having a value
equal to two times the exercise price of the Right. The Rights expire on
December 2, 2007 and are redeemable at the option of a majority of the
independent directors of the Company at $.01 per Right at any time until the
tenth day following an announcement of the acquisition of 15% or more of the
Common Stock.
The foregoing provisions of the Rights Agreement may have the effect of
delaying, deferring or preventing a change in control of the Company.
The Certificate of Designations of the Series A Junior Preferred Stock (the
"Series A Certificate of Designations") provides that the holders of Units of
the Series A Junior Preferred Stock will be entitled to receive quarterly
dividends in an amount to be determined in accordance with the formula set
forth in the Series A Certificate of Designations. Such dividend rights shall
be cumulative. The Series A Junior Preferred Stock shall rank junior in right
of payment of dividends to the 9% Preferred Stock and to all other Preferred
Stock issued by the Company, unless the terms of such Preferred Stock provide
otherwise. The holders of Units of the Series A Junior Preferred Stock shall
have one vote per Unit on all matters submitted to the stockholders of the
Company, subject to certain adjustments. If at any time dividends on any Units
of the Series A Junior Preferred Stock shall be in arrears in an amount equal
to six quarterly dividends thereon, then during such default period, the
holders of all Units, voting separately as a class, shall have the right to
elect two directors to the Board of Directors of the Company. Additionally,
whenever quarterly dividends or other dividends or distributions payable on
the Series A Junior Preferred Stock are in arrears, the Company shall not,
among other things, declare or pay dividends on or make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares or capital stock of the Company which ranks junior in right of
payment to the Series A Junior Preferred Stock, including the Common Stock. In
the event of any voluntary or involuntary liquidation, dissolution or winding
up of the Company, the holders of outstanding Units of the Series A Junior
Preferred Stock will be entitled to receive a distribution in an amount to be
determined in accordance with the formula set forth in the Series A
Certificate of Designations prior to the payment of any distribution to the
holders of Common Stock. The Units of Series A Junior Preferred Stock are not
redeemable. As of the date of this Prospectus, there are no shares of Series A
Junior Preferred Stock outstanding.
CERTAIN CHARTER PROVISIONS
The Certificate of Incorporation provides that the Company may not merge or
consolidate with any one or more corporations, joint-stock associations or
non-stock corporations (except under certain circumstances); sell, lease or
exchange all or substantially all of its property and assets or dissolve
without the affirmative vote of two-thirds of the entire Board of Directors of
the Company and the holders of a majority of the outstanding shares of Common
Stock entitled to vote thereon. Additionally, the Certificate of Incorporation
provides that specified business combinations involving the Company and an
interested stockholder or an affiliate or associate of such stockholder must
be approved by 80% of the voting power of the outstanding shares of capital
stock of the Company entitled to vote generally in the election of directors
(the "Voting Stock"). The vote of 80% of the voting power of the Voting Stock
is required for amendment of these provisions. The Certificate of
Incorporation also provides that only the Board of Directors of the Company
has the authority to call special stockholder meetings.
The foregoing provisions of the Certificate of Incorporation may have the
effect of delaying, deferring or preventing a change in control of the
Company.
29
<PAGE>
DESCRIPTION OF COMMON STOCK WARRANTS
The Company may issue Common Stock Warrants for the purchase of Common
Stock. Common Stock Warrants may be issued independently or together with
other Securities offered by any Prospectus Supplement and may be attached to
or separate from such Securities. Each series of Common Stock Warrants will be
issued under a warrant agreement (each a "Common Stock Warrant Agreement") to
be entered into between the Company and a bank or trust company, as common
stock warrant agent (the "Common Stock Warrant Agent"), all as set forth in
the Prospectus Supplement relating to the Common Stock Warrants offered
thereby. A copy of the form of Common Stock Warrant Agreement, including the
form of warrant certificates representing the Common Stock Warrants (the
"Common Stock Warrant Certificates"), reflecting the provisions to be included
in the Common Stock Warrant Agreements that will be entered into with respect
to particular offerings of Common Stock Warrants, is filed as an exhibit to
the Registration Statement. The following summaries of certain provisions of
the Common Stock Warrant Agreement and Common Stock Warrant Certificates do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Common Stock Warrant
Agreement and the Common Stock Warrant Certificates, respectively, including
the definitions therein of certain terms.
GENERAL
The applicable Prospectus Supplement will describe the terms of the Common
Stock Warrants offered thereby, the Common Stock Warrant Agreement relating to
such Common Stock Warrants and the Common Stock Warrant Certificates,
including the following: (1) the offering price or prices; (2) the aggregate
number of shares of Common Stock that may be purchased upon exercise of such
Common Stock Warrants and minimum number of Common Stock Warrants that are
exercisable; (3) the number of Securities, if any, with which such Common
Stock Warrants are being offered and the number of such Common Stock Warrants
being offered with each such Security; (4) the date on and after which such
Common Stock Warrants and the related Securities, if any, will be transferable
separately; (5) the number of shares of Common Stock purchasable upon exercise
of each such Common Stock Warrant and the price at which such number of shares
of Common Stock may be purchased upon such exercise, and events or conditions
under which such number of shares may be subject to adjustment; (6) the date
on which the right to exercise such Common Stock Warrants shall commence and
the date on which such right shall expire (the "Common Stock Warrant
Expiration Date"); (7) the circumstances, if any, which will cause the Common
Stock Warrants to be deemed to be automatically exercised; (8) any material
risk factors relating to such Common Stock Warrants; (9) the identity of the
Common Stock Warrant Agent; and (10) any other terms of such Common Stock
Warrants (which shall not be inconsistent with the provisions of the Common
Stock Warrant Agreement).
Common Stock Warrant Certificates may be exchanged for new Common Stock
Warrant Certificates of different denominations, may (if in registered form)
be presented for registration of transfer, and may be exercised at the
corporate trust office of the Common Stock Warrant Agent or any other office
indicated in the applicable Prospectus Supplement. Prior to the exercise of
any Common Stock Warrants to purchase Common Stock, Holders of such Common
Stock Warrants will not have any rights of Holders of shares of the Common
Stock purchasable upon such exercise, including the right to receive payments
of dividends, if any, on the Common Stock purchasable upon such exercise or
the right to vote such underlying Common Stock.
Prospective purchasers of Common Stock Warrants should be aware that special
U.S. federal income tax, accounting and other considerations may be applicable
to instruments such as Common Stock Warrants. The Prospectus Supplement
relating to any issue of Common Stock Warrants will describe such
considerations.
BOOK-ENTRY PROCEDURES
Except as may otherwise be provided in the applicable Prospectus Supplement,
the Common Stock Warrants will be issued in the form of global Common Stock
Warrant Certificates, registered in the name of a depositary or its nominee.
Except as may otherwise be provided in the applicable Prospectus Supplement,
beneficial owners
30
<PAGE>
will not be entitled to receive definitive certificates representing Common
Stock Warrants unless the depositary is unwilling or unable to continue as
depositary, certain specified events of bankruptcy or insolvency occur with
respect to the Company or the Company decides to have the Common Stock
Warrants represented by definitive certificates. A beneficial owner's interest
in a Common Stock Warrant will be recorded on or through the records of the
brokerage firm or other entity that maintains a beneficial owner's account. In
turn, the total number of Common Stock Warrants held by an individual
brokerage firm for its clients will be maintained on the records of the
depositary in the name of such brokerage firm or its agent. Transfer of
ownership of any Common Stock Warrant will be effected only through the
selling beneficial owner's brokerage firm.
EXERCISE OF COMMON STOCK WARRANTS
Each Common Stock Warrant will entitle the Holder thereof to purchase such
number of shares of Common Stock at such exercise price as shall be set forth
in, or calculable from, the applicable Prospectus Supplement. After the close
of business on the Expiration Date (or such later date to which such
Expiration Date may be extended by the Company), unexercised Common Stock
Warrants will become void.
Common Stock Warrants may be exercised as set forth in the applicable
Prospectus Supplement relating to the Common Stock Warrants offered thereby.
Upon receipt of payment and the Common Stock Warrant Certificate properly
completed and duly executed at the corporate trust office of the Common Stock
Warrant Agent or any other office indicated in the applicable Prospectus
Supplement, the Company will, as soon as practicable, issue and deliver the
shares of Common Stock purchased upon such exercise. If less than all of the
Common Stock Warrants represented by such Common Stock Warrant Certificate are
exercised, a new Common Stock Warrant Certificate will be issued for the
remaining amount of Common Stock Warrants.
LISTING
An issue of Common Stock Warrants may be listed on a national securities
exchange, as set forth in the applicable Prospectus Supplement.
MODIFICATIONS
Any Common Stock Warrant Agreement and the terms of the related Common Stock
Warrants may be amended by the Company and the Common Stock Warrant Agent,
without the consent of the Holders of the Common Stock Warrants, for the
purpose of curing any ambiguity, or of curing, correcting or supplementing any
defective or inconsistent provision contained therein, or in any other manner
which the Company may deem necessary or desirable and which will not
materially and adversely affect the interests of the Common Stock
Warrantholders.
The Company and the Common Stock Warrant Agent also may amend any Common
Stock Warrant Agreement and the terms of the related Common Stock Warrants,
with the consent of the holders of not less than a majority in number of the
then outstanding unexercised Common Stock Warrants affected by such amendment,
provided that no such amendment that shortens the period of time during which
the Common Stock Warrants may be exercised or otherwise materially and
adversely affects the exercise rights of the Common Stock Warrantholders or
reduces the number of outstanding Common Stock Warrants the consent of whose
Holders is required for amendment of the Common Stock Warrant Agreement or the
terms of the related Common Stock Warrants may be made without the consent of
each of the Common Stock Warrantholders affected thereby.
ENFORCEABILITY OF RIGHTS BY COMMON STOCK WARRANTHOLDERS
Any Common Stock Warrantholder may, without the consent of the related
Common Stock Warrant Agent, enforce by appropriate legal action, in and for
its own behalf, its right to exercise its Common Stock Warrant.
31
<PAGE>
PLAN OF DISTRIBUTION
The Company may sell Securities (i) through MLPF&S as agent, (ii) to the
public through, or through underwriting syndicates managed or co-managed by,
one or more underwriters, including MLPF&S, or (iii) directly to purchasers.
The Prospectus Supplement with respect to the Securities of a particular
series describes the terms of the offering of such Securities, including the
name of the agent or the name or names of any underwriters, the public
offering or purchase price, any discounts and commissions to be allowed or
paid to the agent or underwriters, all other items constituting underwriting
compensation, the discounts and commissions to be allowed or paid to dealers,
if any, and the exchanges, if any, on which the Securities will be listed.
Only the agents or underwriters so named in the Prospectus Supplement are
agents or underwriters in connection with the Securities offered thereby.
Under certain circumstances, the Company may repurchase Securities and reoffer
them to the public as set forth above. The Company may also arrange for
repurchases and resales of such Securities by dealers.
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters to solicit offers by certain institutions to purchase Debt
Securities from the Company pursuant to delayed delivery contracts providing
for payment and delivery on the date stated in the Prospectus Supplement. Each
such contract will be for an amount not less than, and, unless the Company
otherwise agrees, the aggregate principal amount of Debt Securities sold
pursuant to such contracts shall not be more than, the respective amounts
stated in the Prospectus Supplement. Institutions with whom such contracts,
when authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions, and other institutions, but shall in all cases be subject to the
approval of the Company. Delayed delivery contracts will not be subject to any
conditions except that the purchase by an institution of the Debt Securities
covered thereby shall not at the time of delivery be prohibited under the laws
of any jurisdiction in the United States to which such institution is subject.
The Company has agreed to indemnify the agent and the several underwriters
against certain civil liabilities, including liabilities under the Securities
Act of 1933, as amended (the "Act"), or contribute to payments the agent or
the underwriters may be required to make in respect thereof.
The distribution of Securities will conform to the requirements set forth in
the applicable sections of Rule 2720 of the Conduct Rules of the National
Association of Securities Dealers, Inc.
32
<PAGE>
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997
included in the 1997 Annual Report on Form 10-K, and incorporated by reference
herein, has been derived from consolidated financial statements audited by
Deloitte & Touche LLP, as set forth in their reports included or incorporated
by reference herein. Such consolidated financial statements and related
financial statement schedules, and such 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 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 such Quarterly Reports 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
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.
33
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
PROSPECTUS
LOGO
MERRILL LYNCH & CO., INC.
STRYPESSM
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 StockSM, STRYPESSM. 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 cash, or a combination of cash and Underlying Securities, 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 SECURI-
TIES 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.
-----------
The date of this Prospectus is , 1998.
SM Service mark of Merrill Lynch & Co., Inc.
<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 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 26,
1997, Quarterly Report on Form 10-Q for the period ended March 27, 1998, and
Current Reports on Form 8-K dated January 20, 1998, January 30, 1998, February
4, 1998, February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998,
April 29, 1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June
24, 1998, June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 filed
pursuant to Section 13 of the United States Securities Exchange Act of 1934
(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, or subsequent to the date
of the initial Registration Statement and prior to effectiveness of the
Registration Statement, 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 LAWRENCE M. EGAN, JR.,
CORPORATE SECRETARY'S OFFICE, MERRILL LYNCH & CO., INC., 100 CHURCH STREET,
12TH FLOOR, NEW YORK, NEW YORK 10080-6512; TELEPHONE NUMBER (212) 602-8435.
2
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its
subsidiaries and affiliates, provides investment, financing, advisory,
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; an underwriter of selected insurance products
and a distributor of investment products of the Merrill Lynch Asset Management
group. 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. The Company's asset management and investment management
activities are conducted through the Merrill Lynch Asset Management group and
Merrill Lynch Mercury Asset Management, which together constitute one of the
largest asset management organizations in the world. Merrill Lynch Government
Securities Inc. is a primary dealer in obligations issued or guaranteed by the
U.S. Government and its agencies and its government-sponsored entities.
Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative Products AG,
and Merrill Lynch International are the Company's primary derivative product
dealers and enter into interest rate, currency, and other over-the-counter
derivative transactions as intermediaries and as principals. The Company's
operations in insurance services 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 and purchasing secured
loans, providing currency exchange facilities and other related services, and
furnishing trust, employee benefit, and custodial 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, unless otherwise specified in the Prospectus
Supplement relating to such STRYPES. Such general corporate purposes may
include the funding of investments in, or extensions of credit to, its
subsidiaries, the funding of assets of the Company and its subsidiaries, the
lengthening of the average maturity of the Company's borrowings, and the
financing of acquisitions. Pending such applications, the net proceeds will be
applied to the reduction of short-term indebtedness or temporarily invested.
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, through acquisitions or otherwise, 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>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
MARCH 27,
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges............ 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
DESCRIPTION OF THE STRYPES
Each issue of STRYPES will be a series of Senior Debt Securities to be
issued under an indenture (the "1983 Indenture"), dated as of April 1, 1983,
as amended and restated, 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"), 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 1983 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, or a combination of cash and
Underlying Securities, 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.
4
<PAGE>
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.
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
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'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").
5
<PAGE>
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 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.
6
<PAGE>
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.
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
7
<PAGE>
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.
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,
or cash and Underlying Securities, 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
8
<PAGE>
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.
9
<PAGE>
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, 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. 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 in the Company's 1997
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 26, 1997
included in the 1997 Annual Report on Form 10-K, and incorporated by reference
herein, has been derived from consolidated financial statements audited by
Deloitte & Touche LLP, as set forth in their reports included or incorporated
by reference herein. Such consolidated financial statements and related
financial statement schedules, and such 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 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 such Quarterly Reports 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.
10
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS, DATED JULY 28, 1998
PROSPECTUS
LOGO
TRUST PREFERRED SECURITIES
MERRILL LYNCH PREFERRED CAPITAL TRUST V
% TRUST ORIGINATED PREFERRED SECURITIESSM ("TOPRSSM")
(LIQUIDATION AMOUNT $25 PER TRUST PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
MERRILL LYNCH & CO., INC.
-----------
The % Trust Originated Preferred SecuritiesSM (the "TOPrSSM" or "Trust
Preferred Securities") offered hereby represent preferred undivided beneficial
ownership interests in the assets of Merrill Lynch Preferred Capital Trust V, a
statutory business trust formed under the laws of the State of Delaware (the
"Trust"). Merrill Lynch & Co., Inc., a Delaware corporation (the "Company" or
"Merrill Lynch"), will own all the common securities (the "Trust Common
Securities" and, together with the Trust Preferred Securities, the "Trust
Securities") representing undivided beneficial ownership interests in the
assets of the Trust. The Trust exists for the sole purpose of issuing the Trust
Securities and investing the proceeds as described below and engaging in
activities incident thereto. The proceeds from the sale of the Trust Securities
will be used by the Trust to purchase Partnership Preferred Securities
("Partnership Preferred Securities"), representing the limited partner
interests of Merrill Lynch Preferred Funding V, L.P., a Delaware limited
partnership (the "Partnership"). The general partner interest, which
constitutes all of the interest in the Partnership other than the limited
partner interests represented by the Partnership Preferred Securities, is owned
by the Company, which is the sole general partner of the Partnership (in such
capacity, the "General Partner"). Substantially all of the proceeds from the
sale of the Partnership Preferred Securities, together with the capital
contribution from the General Partner, will be used by the Partnership to
purchase Debentures (as defined herein), which consist of debt instruments of
the Company and one or more of its eligible controlled affiliates. In addition,
approximately one percent of the proceeds from the sale of the Partnership
Preferred Securities and the capital contribution from the General Partner will
be used to purchase Eligible Debt Securities (as defined herein). See
"Description of the Partnership Preferred Securities -- Partnership
Investments".
(CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE TRUST PREFERRED
SECURITIES, INCLUDING CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.
Application will be made to list the Trust Preferred Securities on the New
York Stock Exchange (the "NYSE"). If approved for listing, trading of the Trust
Preferred Securities on the NYSE is expected to commence within the 30-day
period after the initial delivery of the Trust Preferred Securities. See
"Underwriting".
-----------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) THE TRUST(3)(4)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Trust Preferred Security........ $25 (3) $25
- -------------------------------------------------------------------------------
Total............................... $ (3) $
- -------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Plus accumulated distributions, if any, from .
(2) The Trust, the Partnership and the Company have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting".
(3) In view of the fact that the proceeds of the sale of the Trust Preferred
Securities will be ultimately invested in debt securities of the Company
and its subsidiaries, the Company has agreed to pay to the Underwriters as
compensation (the "Underwriters' Compensation") $ per Trust Preferred
Security (or $ in the aggregate); provided that such compensation for
sales of more than 10,000 Trust Preferred Securities to a single purchaser
will be $ per Trust Preferred Security. Therefore, to the extent of such
sales, the actual amount of Underwriters' Compensation will be less than
the aggregate amount specified in the preceding sentence. See
"Underwriting".
(4) Expenses of the offering payable by the Company are estimated to be $ .
-----------
The Trust Preferred Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that delivery of the Trust Preferred Securities will be made only in
book-entry form through the facilities of The Depository Trust Company ("DTC")
on or about .
This Prospectus may be used by Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S") in connection with offers and sales
related to market-making transactions in the Trust Preferred Securities. MLPF&S
may act as principal or agent in such transactions. Such sales will be made at
prices related to prevailing market prices at the time of sale.
-----------
MERRILL LYNCH & CO.
-----------
THE DATE OF THIS PROSPECTUS IS , 1998.
SM"TRUST ORIGINATED PREFERRED SECURITIES" AND "TOPRS" ARE SERVICE MARKS OF
MERRILL LYNCH & CO., INC.
<PAGE>
(continued from cover page)
Holders of the Trust Preferred Securities will be entitled to receive
cumulative cash distributions accumulating from the date of original issuance
and payable quarterly in arrears on each , , and ,
commencing , at an annual rate of % of the liquidation amount of $25
per Trust Preferred Security (equivalent to $ per Trust Preferred Security
per annum), if, as and when the Trust has funds available for payment. See
"Description of the Trust Preferred Securities --Distributions". Distributions
not paid on the scheduled payment date will accumulate and compound quarterly
at a rate per annum equal to %. The distribution rate and the distribution
payment dates and other payment dates for the Trust Preferred Securities will
correspond to the distribution rate and distribution payment dates and other
payment dates for the Partnership Preferred Securities, which are the sole
assets of the Trust. As described above, the assets of the Partnership will
initially consist only of the Debentures and, to a limited extent, Eligible
Debt Securities.
The payment of distributions by the Trust and payments on liquidation of the
Trust or the redemption of Trust Preferred Securities, as described below, are
guaranteed on a subordinated basis by the Company (the "Trust Guarantee") to
the extent the Trust has funds available therefor as described under
"Description of the Trust Guarantee". The payment of distributions by the
Partnership (if, as and when declared) on the Partnership Preferred Securities
and payments on liquidation of the Partnership or the redemption of
Partnership Preferred Securities, as described below, are also guaranteed on a
subordinated basis by the Company (the "Partnership Guarantee") to the extent
the Partnership has funds available therefor as described under "Description
of the Partnership Guarantee". In addition, payments in respect of the
Debentures (other than the Company Debenture (as defined herein)) will be
fully and unconditionally guaranteed, on a subordinated basis, by the Company
(the "Investment Guarantees") for the benefit of the holders of the
Partnership Preferred Securities. The Trust Guarantee, the Partnership
Guarantee and the Investment Guarantees (collectively, the "Guarantees"), when
taken together with the Company Debenture and the Company's obligations to pay
all fees and expenses of the Trust and the Partnership, constitute a guarantee
to the extent set forth herein by the Company of the distribution, redemption
and liquidation payments payable to the holders of the Trust Preferred
Securities. The Guarantees do not apply to current distributions by the
Partnership unless and until such distributions are declared by the
Partnership out of funds legally available for payment or to liquidating
distributions unless there are assets available for payment in the
Partnership, each as more fully described in the next succeeding paragraph and
under "Risk Factors -- Insufficient Income or Assets Available to
Partnership". The Company's obligations under the Guarantees are subordinate
and junior in right of payment to all other liabilities of the Company and
rank pari passu with the most senior preferred stock issued from time to time
by the Company, with similar guarantees issued by the Company in connection
with the $275,000,000 aggregate liquidation amount of 7 3/4% Trust Originated
Preferred Securities issued by Merrill Lynch Preferred Capital Trust I, the
$300,000,000 aggregate liquidation amount of 8% Trust Originated Preferred
Securities issued by Merrill Lynch Preferred Capital Trust II, the
$750,000,000 aggregate liquidation amount of 7% Trust Originated Preferred
Securities issued by Merrill Lynch Preferred Capital Trust III, the
$400,000,000 aggregate liquidation amount of 7.12% Trust Originated Preferred
Securities issued by Merrill Lynch Preferred Capital Trust IV and with any
guarantee now or hereafter entered into by the Company in respect of any
preferred stock of any other Finance Subsidiary (as defined below). The
Company's obligations under the Company Debenture are subordinate and junior
in right of payment to all Senior Indebtedness of the Company. At June 26,
1998, the Company had outstanding Senior Indebtedness aggregating
approximately $90.2 billion, which would have ranked senior to the Company's
obligations under the Guarantees and the Company Debenture. See "Risk
Factors -- Ranking of Subordinate Obligations Under the Guarantees and the
Company Debenture". The term "Senior Indebtedness" means any payment in
respect of indebtedness of the Company for money borrowed, except for any such
indebtedness that is by its terms subordinated to or pari passu with the
Company Debenture, as the case may be.
Distributions on the Partnership Preferred Securities will be declared and
paid only as determined in the sole discretion of the Company in its capacity
as the General Partner of the Partnership. In addition, the General Partner is
not obligated to declare distributions on the Partnership Preferred Securities
at any time, including upon or following a Partnership Enforcement Event (as
defined herein). To the extent that the issuers (including, where applicable,
the Company, as guarantor) of the securities in which the Partnership invests
defer or fail to
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<PAGE>
make any payments in respect of such securities (or, if applicable,
guarantees), the Partnership will not have sufficient funds to pay and will
not declare or pay distributions on the Partnership Preferred Securities. In
addition, as described under "Risk Factors -- Insufficient Income or Assets
Available to Partnership", the Partnership may not have sufficient funds to
pay current or liquidating distributions on the Partnership Preferred
Securities if (i) at any time that the Partnership is receiving current
payments in respect of the securities held by the Partnership (including the
Debentures), the General Partner, in its sole discretion, does not declare
distributions on the Partnership Preferred Securities and the Partnership
receives insufficient amounts to pay the additional compounded distributions
that will accumulate in respect of the Partnership Preferred Securities, (ii)
the Partnership reinvests the proceeds received in respect of the Debentures
upon their retirement or at their maturities in Affiliate Investment
Instruments (as defined herein) and Eligible Debt Securities that do not
generate income in an amount that is sufficient to pay full distributions in
respect of the Partnership Preferred Securities or (iii) the Partnership
invests in debt securities of Investment Affiliates that are not guaranteed by
the Company and that cannot be liquidated by the Partnership for an amount
sufficient to pay such distributions in full. The Debentures will provide that
payments of interest may be deferred at any time, and from time to time, by
the relevant issuer for a period not exceeding six consecutive quarters. If an
issuer were to so defer the payment of interest, interest would continue to
accrue and compound at the stated interest rate on such Debenture. If the
Partnership does not declare and pay distributions on the Partnership
Preferred Securities out of funds legally available for distribution, the
Trust will not have sufficient funds to make distributions on the Trust
Preferred Securities, in which event the Trust Guarantee will not apply to
such distributions until the Trust has sufficient funds available therefor.
See "Risk Factors -- Distributions Payable Only if Declared by General
Partner; Restrictions on Certain Payments; Tax Consequences", "-- Insufficient
Income or Assets Available to Partnership", "Description of the Trust
Preferred Securities -- Distributions" and "Description of the Partnership
Preferred Securities -- Distributions".
The Partnership may, from time to time and subject to the restrictions
described herein, reinvest payments received with respect to the Affiliate
Investment Instruments (including the Debentures) and the Eligible Debt
Securities, in additional Affiliate Investment Instruments and Eligible Debt
Securities. As of the date of this Prospectus, the Company, as the General
Partner, does not intend to cause the Partnership to reinvest regularly
scheduled periodic payments of interest or dividends received by the
Partnership in the manner described herein, although there can be no assurance
that the General Partner's intention in respect of such reinvestments will not
change in the future.
If (a) for any distribution period, full distributions on a cumulative basis
on any Trust Preferred Securities have not been paid or set apart for payment,
(b) an Investment Event of Default by any Investment Affiliate in respect of
any Affiliate Investment Instrument has occurred and is continuing or (c) the
Company is in default of its obligations under any Guarantee, then during such
period (i) the Company shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock or comparable
equity interest (except for (x) dividends or distributions in shares of, or
options, warrants or rights to subscribe for or purchase shares of, its
capital stock, and conversions or exchanges of common stock of one class into
common stock of another class, (y) redemptions or purchases of any rights
pursuant to the Amended and Restated Rights Agreement dated as of December 2,
1997 between the Company and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent, or any successor Rights Agent (the "Rights Agreement") and the
issuance of preferred stock pursuant to such rights and (z) purchases or
acquisitions by the Company or its affiliates in connection with transactions
effected by or for the account of customers of the Company or any of its
subsidiaries or in connection with the distribution or trading of such capital
stock or comparable equity interest) and (ii) the Company shall not make,
permit any Finance Subsidiary to make, or make any payments that would enable
any Finance Subsidiary to make, any payment of any dividends on, any
distribution with respect to, or any redemption, purchase or other acquisition
of, or any liquidation payment with respect to, any preferred security or
comparable equity interest of any Finance Subsidiary. "Finance Subsidiary"
means Merrill Lynch Preferred Capital Trust I, Merrill Lynch Preferred Capital
Trust II, Merrill Lynch Preferred Capital Trust III, Merrill Lynch Preferred
Capital Trust IV and any other wholly-owned subsidiary of the Company the
principal purpose of which is to raise capital for the
3
<PAGE>
Company by issuing securities that are guaranteed by the Company and the
proceeds of which are loaned to or invested in the Company or one or more of
its affiliates.
The Partnership Preferred Securities are redeemable by the Partnership, in
whole or in part, from time to time, on or after at an amount per
Partnership Preferred Security equal to $25 plus accumulated and unpaid
distributions thereon to the date fixed for redemption. The Partnership
Preferred Securities may also be redeemed, in whole but not in part, at any
time upon the occurrence of a Partnership Special Event (as defined herein).
If the Partnership redeems the Partnership Preferred Securities, the Trust
must redeem Trust Securities on a pro rata basis having an aggregate
liquidation amount equal to the aggregate liquidation preference of the
Partnership Preferred Securities so redeemed at a redemption price of $25 per
Partnership Preferred Security plus all accumulated and unpaid distributions
thereon to the date fixed for redemption (the "Redemption Price"). See
"Description of the Trust Preferred Securities -- Mandatory Redemption".
Neither the Partnership Preferred Securities nor the Trust Preferred
Securities have any scheduled maturity or are redeemable at any time at the
option of the holders thereof.
The Trust will be dissolved upon the occurrence of a Trust Special Event (as
defined herein). Upon dissolution of the Trust, the Partnership Preferred
Securities will be distributed to the holders of the Trust Securities, on a
pro rata basis, in lieu of any cash distribution, unless the Partnership
Preferred Securities are redeemed in the limited circumstances described
herein. If the Partnership Preferred Securities are distributed to the holders
of the Trust Securities, the Company will use its best efforts to cause the
Partnership Preferred Securities to be listed on the NYSE or such other
national securities exchange or similar organization as the Trust Preferred
Securities are then listed or quoted. See "Description of the Trust Preferred
Securities -- Trust Special Event Redemption or Distribution" and "Description
of the Partnership Preferred Securities".
In the event of any liquidation, dissolution, winding up or termination of
the Trust, the holders of the Trust Preferred Securities will be entitled to
receive for each Trust Preferred Security a liquidation amount of $25 plus
accumulated and unpaid distributions thereon, except to the extent, in
connection with such dissolution, Partnership Preferred Securities are
distributed to the holders of the Trust Preferred Securities. Upon (i) the
occurrence of an Investment Event of Default by an Investment Affiliate in
respect of any Affiliate Investment Instrument or (ii) default by the Company
on any of its obligations under any Guarantee, the holders of the Trust
Preferred Securities will have a preference over the holders of the Trust
Common Securities with respect to payments upon liquidation of the Trust.
Under no circumstances will the investment instruments held by the Partnership
be distributed in kind to the holders of the Trust Preferred Securities or
Partnership Preferred Securities. See "Description of the Trust Preferred
Securities -- Liquidation Distribution Upon Dissolution".
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Trust Preferred
Securities. Such transactions may include stabilizing, the purchase of Trust
Preferred Securities to cover syndicate short positions and the imposition of
penalty bids. For a description of these activities, see "Underwriting".
AVAILABLE INFORMATION
The Company, the Trust and the Partnership have filed with the Securities
and Exchange Commission (the "Commission") a Registration Statement on Form S-
3 (the "Registration Statement", which term shall include all amendments,
exhibits and schedules thereto), pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), and the rules and regulations promulgated
thereunder, with respect to the Trust Preferred Securities offered hereby (as
well as the Partnership Preferred Securities, the Trust Guarantee, the
Partnership Guarantee, the Investment Guarantees and the Company Debenture).
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission, and to which reference is hereby made.
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
4
<PAGE>
Commission. Except for the listing of Trust Preferred Securities that is
expected to be made on the New York Stock Exchange, neither the Trust nor the
Partnership has any securities that are listed on any national securities
exchange. The Registration Statement, as well as 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: Northeast Regional
Office, Seven World Trade Center, New York, New York 10048 and Midwest
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2551. 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
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.
Statements made in this Prospectus concerning the provisions of any
contract, agreement or other document referred to herein are not necessarily
complete. With respect to each such statement concerning a contract, agreement
or other document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission, reference is made to such exhibit or
other filing for a more complete description of the matter involved, and each
such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 26,
1997, Quarterly Report on Form 10-Q for the period ended March 27, 1998, and
Current Reports on Form 8-K dated January 20, 1998, January 30, 1998, February
4, 1998, February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998,
April 29, 1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June
24, 1998, June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 filed
pursuant to Section 13 of the United States Securities Exchange Act of 1934
(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 Trust Preferred Securities, or
subsequent to the date of the initial Registration Statement and prior to
effectiveness of the Registration Statement, shall be deemed to be
incorporated by reference in 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. LAWRENCE M. EGAN, JR.,
CORPORATE SECRETARY'S OFFICE, MERRILL LYNCH & CO., INC., 100 CHURCH STREET,
12TH FLOOR, NEW YORK, NEW YORK 10080-6512; TELEPHONE NUMBER (212) 602-8435.
5
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SUMMARY
The following summary does not purport to be complete and is qualified in its
entirety by the more detailed information appearing elsewhere in this
Prospectus. Certain terms used in this Summary are defined elsewhere in this
Prospectus. See "Index of Defined Terms" for a cross reference to the location
in this Prospectus where such terms are defined.
THE TRUST................... Merrill Lynch Preferred Capital Trust V, a
Delaware statutory business trust. The sole
assets of the Trust will be the Partnership
Preferred Securities.
THE PARTNERSHIP............. Merrill Lynch Preferred Funding V, L.P., a
Delaware limited partnership. The assets of the
Partnership will initially consist of the
Debentures and certain Eligible Debt Securities.
SECURITIES OFFERED.......... of % Trust Preferred Securities.
DISTRIBUTIONS............... Distributions on the Trust Preferred Securities
will accumulate from the date of original
issuance of the Trust Preferred Securities and
will be payable at the annual rate of % of the
liquidation amount of $25 per Trust Preferred
Security if, as and when the Trust has funds
available for payment. Distributions will be
payable quarterly in arrears on each ,
, and , commencing .
Distributions not made on the scheduled payment
date will accumulate and compound quarterly at a
rate per annum equal to %. The distributions
payable with respect to will represent
distributions accumulated from and will
equal $ for each $25 Trust Preferred Security.
The ability of the Trust to pay distributions on
the Trust Preferred Securities is entirely
dependent on its receipt of corresponding
distributions with respect to the Partnership
Preferred Securities. The ability of the
Partnership to pay distributions on the
Partnership Preferred Securities is, in turn,
dependent on its receipt of payments with respect
to the Debentures and the Eligible Debt
Securities held by the Partnership. The
Debentures will provide that payments of interest
may be deferred at any time, and from time to
time, by the relevant issuer for a period not
exceeding six consecutive quarters. Distributions
on the Partnership Preferred Securities will be
declared and paid only as determined in the sole
discretion of the Company in its capacity as the
General Partner of the Partnership. See "Risk
Factors -- Distributions Payable Only if Declared
by General Partner; Restrictions on Certain
Payments; Tax Consequences", "Description of the
Trust Preferred Securities -- Distributions" and
"Description of the Partnership Preferred
Securities -- Distributions" and "-- Partnership
Investments".
RIGHTS UPON NON-PAYMENT OF
DISTRIBUTIONS AND CERTAIN
DEFAULTS; COVENANTS OF THE
COMPANY....................
If, at any time, (i) arrearages on distributions
on the Trust Preferred Securities shall exist for
six consecutive quarterly distribution
6
<PAGE>
periods, (ii) an Investment Event of Default
occurs and is continuing on any Affiliate
Investment Instrument or (iii) the Company is in
default on any of its obligations under the Trust
Guarantee or the Partnership Guarantee, then (a)
the Property Trustee, as the holder of the
Partnership Preferred Securities, will have the
right to enforce the terms of the Partnership
Preferred Securities, including the right to
direct the Special Representative (as defined
herein) to enforce (1) the Partnership's
creditors' rights and other rights with respect
to the Affiliate Investment Instruments and the
Investment Guarantees and (2) the rights of the
holders of the Partnership Preferred Securities
to receive distributions (only if, as and when
declared) on the Partnership Preferred
Securities, and (b) the Trust Guarantee Trustee
or the Special Representative, as the holders of
the Trust Guarantee and the Partnership
Guarantee, respectively, shall have the right to
enforce such Guarantees, including the right to
enforce the covenant restricting certain payments
by the Company and Finance Subsidiaries described
below.
Under no circumstances, however, shall the
Special Representative have authority to cause
the General Partner to declare distributions on
the Partnership Preferred Securities. If the
Partnership does not declare and pay
distributions on the Partnership Preferred
Securities out of funds legally available for
distribution, the Trust will not have sufficient
funds to make distributions on the Trust
Preferred Securities. See "Risk Factors --
Insufficient Income or Assets Available to
Partnership", "Description of the Trust Preferred
Securities -- Trust Enforcement Events" and
"Description of the Partnership Preferred
Securities -- Partnership Enforcement Events".
The Company has agreed that if (a) for any
distribution period, full distributions on a
cumulative basis on any Trust Preferred
Securities have not been paid or set apart for
payment, (b) an Investment Event of Default by
any Investment Affiliate in respect of any
Affiliate Investment Instrument has occurred and
is continuing or (c) the Company is in default on
any of its obligations under the Trust Guarantee,
the Partnership Guarantee or any Investment
Guarantee, then, during such period (i) the
Company shall not declare or pay dividends on,
make distributions with respect to, or redeem,
purchase or acquire, or make a liquidation
payment with respect to any of its capital stock
or comparable equity interest (except for (x)
dividends or distributions in shares of, or
options, warrants or rights to subscribe for or
purchase shares of, its capital stock and
conversions or exchanges of common stock of one
class into common stock of another class, (y)
redemptions or purchases of any rights pursuant
to the Rights Agreement and the issuance of
preferred stock pursuant to such rights and (z)
purchases or acquisitions by the Company or its
affiliates in connection with transactions
effected by or for the account of customers of
the Company or any of its subsidiaries or in
connection with the
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<PAGE>
distribution or trading of such capital stock or
comparable equity interest) and (ii) the Company
shall not make, permit any Finance Subsidiary to
make, nor make any payments that would enable any
Finance Subsidiary to make, any payment of any
dividends on, any distribution with respect to,
or any redemption, purchase or other acquisition
of, or any liquidation payment with respect to,
any preferred security or comparable equity
interest of any Finance Subsidiary.
LIQUIDATION AMOUNT.......... In the event of any liquidation of the Trust,
holders will be entitled to receive $25 per Trust
Preferred Security plus an amount equal to any
accumulated and unpaid distributions thereon to
the date of payment (such amount being the "Trust
Liquidation Distribution"), unless Partnership
Preferred Securities are distributed to such
holders in connection with a Trust Special Event.
If upon a liquidation of the Trust (in which the
Partnership Preferred Securities are not
distributed to holders of the Trust Securities),
the Trust Liquidation Distribution can be paid
only in part because the Trust has insufficient
assets available to pay in full the aggregate
Trust Liquidation Distribution, then the amounts
payable directly by the Trust on the Trust
Preferred Securities shall be paid on a pro rata
basis. The holders of the Trust Common Securities
will be entitled to receive distributions upon
any such liquidation pro rata with the holders of
the Trust Preferred Securities, except that upon
(i) the occurrence of an Investment Event of
Default by an Investment Affiliate (including the
Company) in respect of any Affiliate Investment
Instrument or (ii) default by the Company on any
of its obligations under any Guarantee, the
holders of the Trust Preferred Securities will
have a preference over the holders of the Trust
Common Securities with respect to payments upon
liquidation of the Trust. See "Description of the
Trust Preferred Securities -- Liquidation
Distribution Upon Dissolution".
OPTIONAL REDEMPTION......... The Partnership Preferred Securities will be
redeemable for cash, at the option of the
Partnership, in whole or in part, from time to
time, after at an amount per Partnership
Preferred Security equal to $25 plus accumulated
and unpaid distributions thereon. Upon any
redemption of the Partnership Preferred
Securities, the Trust Preferred Securities will
be redeemed, in whole or in part, as applicable,
at the Redemption Price. See "Description of the
Partnership Preferred Securities -- Optional
Redemption" and "Description of the Trust
Preferred Securities -- Mandatory Redemption".
Neither the Partnership Preferred Securities nor
the Trust Preferred Securities have any scheduled
maturity or are redeemable at any time at the
option of the holders thereof.
GUARANTEES.................. The Company will irrevocably guarantee, on a
subordinated basis, the payment in full of (i)
any accumulated and unpaid distributions on the
Trust Preferred Securities to the extent of funds
of the Trust legally available therefor, (ii) the
amount payable upon redemption
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<PAGE>
of the Trust Preferred Securities to the extent
of funds of the Trust legally available therefor
and (iii) generally, the liquidation amount of
the Trust Preferred Securities to the extent of
the assets of the Trust legally available for
distribution to holders of Trust Preferred
Securities. See "Description of the Trust
Guarantee".
The Company will also irrevocably guarantee, on a
subordinated basis and to the extent set forth
herein, the payment in full of (i) any
accumulated and unpaid distributions on the
Partnership Preferred Securities if, as and when
declared out of funds legally available therefor,
(ii) the amount payable upon redemption of the
Partnership Preferred Securities to the extent of
funds of the Partnership legally available
therefor and (iii) generally, the liquidation
preference of the Partnership Preferred
Securities to the extent of the assets of the
Partnership legally available for distribution to
holders of Partnership Preferred Securities. See
"Description of the Partnership Guarantee".
The Company will fully and unconditionally
guarantee, on a subordinated basis, payments in
respect of the Debentures (other than the Company
Debenture) for the benefit of the holders of the
Partnership Preferred Securities, to the extent
described under "Description of the Partnership
Preferred Securities -- Investment Guarantees".
The Guarantees, when taken together with the
Company Debenture and the Company's obligations
to pay all fees and expenses of the Trust and the
Partnership, constitute a guarantee to the extent
set forth herein by the Company of the
distribution, redemption and liquidation amounts
payable to the holders of the Trust Preferred
Securities. The Guarantees do not apply, however,
to current distributions by the Partnership
unless and until such distributions are declared
by the Partnership out of funds legally available
for payment or to liquidating distributions
unless there are assets available for payment in
the Partnership, each as more fully described
under "Risk Factors -- Insufficient Income or
Assets Available to Partnership". The Company's
obligations under the Guarantees are subordinate
and junior in right of payment to all other
liabilities of the Company and rank pari passu
with the most senior preferred stock issued from
time to time by the Company, with similar
guarantees issued by the Company in connection
with the $275,000,000 aggregate liquidation
amount of 7 3/4% Trust Originated Preferred
Securities issued by Merrill Lynch Preferred
Capital Trust I, the $300,000,000 aggregate
liquidation amount of 8% Trust Originated
Preferred Securities issued by Merrill Lynch
Preferred Capital Trust II, the $750,000,000
aggregate liquidation amount of 7% Trust
Originated Preferred Securities issued by Merrill
Lynch Preferred Capital Trust III, the
$400,000,000 aggregate liquidation amount of
7.12% Trust Originated Preferred Securities
issued by Merrill Lynch Preferred Capital Trust
IV and with any guarantee now or hereafter
entered into by the Company in respect of any
preferred stock of any other Finance Subsidiary.
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<PAGE>
VOTING RIGHTS............... Generally, holders of the Trust Preferred
Securities will not have any voting rights. The
holders of a majority in liquidation amount of
the Trust Preferred Securities, however, have the
right to direct the time, method and place of
conducting any proceeding for any remedy
available to the Property Trustee, or direct the
exercise of any trust or power conferred upon the
Property Trustee under the Declaration, including
the right to direct the Property Trustee, as
holder of the Partnership Preferred Securities,
(i) to exercise its rights in the manner
described above under "Rights Upon Non-Payment of
Distributions and Certain Defaults; Covenants of
the Company" and (ii) to consent to any
amendment, modification or termination of the
Limited Partnership Agreement or the Partnership
Preferred Securities where such consent shall be
required. See "Description of the Trust Preferred
Securities -- Voting Rights".
SPECIAL EVENT REDEMPTIONS
OR DISTRIBUTIONS............
Upon the occurrence of a Trust Tax Event (which
event will generally be triggered upon the
occurrence of certain adverse tax consequences or
the denial of an interest deduction on the
Debentures held by the Partnership) or a Trust
Investment Company Event (which event will
generally be triggered if the Trust is considered
an "investment company" under the Investment
Company Act of 1940, as amended (the "1940
Act")), except in certain limited circumstances,
the Regular Trustees (as defined herein) will
have the right to liquidate the Trust and cause
Partnership Preferred Securities to be
distributed to the holders of the Trust Preferred
Securities. In certain circumstances involving a
Partnership Tax Event (which event will generally
be triggered upon the occurrence of certain
adverse tax consequences or the denial of an
interest deduction on the Debentures held by the
Partnership) or a Partnership Investment Company
Event (which event will generally be triggered if
the Partnership is considered an "investment
company" under the 1940 Act), the Partnership
will have the right to redeem the Partnership
Preferred Securities, in whole (but not in part),
at $25 per Partnership Preferred Security plus
accumulated and unpaid distributions thereon,
regardless of the occurrence of any Trust Tax
Event or Trust Investment Company Event and in
lieu of any distribution of the Partnership
Preferred Securities required in connection
therewith, in which event the Trust Securities
will be redeemed at the Redemption Price. See
"Description of the Trust Preferred Securities --
Trust Special Event Redemption or Distribution"
and "Description of the Partnership Preferred
Securities -- Partnership Special Event
Redemption".
FORM OF TRUST PREFERRED The Trust Preferred Securities will be
SECURITIES.................. represented by a global certificate or
certificates registered in the name of Cede &
Co., as nominee for DTC. Beneficial interests in
the Trust Preferred Securities will be evidenced
by, and transfers thereof will be effected only
through, records maintained by the participants
in
10
<PAGE>
DTC. Except as described herein, Trust Preferred
Securities in certificated form will not be
issued in exchange for the global certificate or
certificates. See "Description of the Trust
Preferred Securities -- Book-Entry Only
Issuance -- The Depository Trust Company".
USE OF PROCEEDS............. All of the proceeds from the sale of the Trust
Securities will be invested by the Trust in the
Partnership Preferred Securities. The Partnership
will use the funds to make investments in
Debentures and certain Eligible Debt Securities.
The Company and the subsidiaries of the Company
which are the issuers of the Debentures will use
the proceeds from the sale of such Debentures for
general corporate purposes. See "Use of
Proceeds".
11
<PAGE>
RISK FACTORS
Prospective purchasers of the Trust Preferred Securities should consider
carefully the risk factors set forth below, as well as all other information
contained or incorporated by reference in this Prospectus, in evaluating an
investment in the Trust Preferred Securities.
DISTRIBUTIONS PAYABLE ONLY IF DECLARED BY GENERAL PARTNER; RESTRICTIONS ON
CERTAIN PAYMENTS; TAX CONSEQUENCES
Distributions on the Partnership Preferred Securities will be payable only
if, as and when declared by the General Partner in its sole discretion. The
Company is the sole General Partner of the Partnership, and the Debentures
will constitute obligations of the Company and its affiliates. If interest
payments on the Debentures are deferred as permitted thereby, or if such
interest payments are not paid to the Partnership according to their terms
(and guarantee payments on the Investment Guarantees are not made by the
Company), the Partnership will generally lack funds to pay distributions on
the Partnership Preferred Securities. If the Partnership does not make current
distributions on the Partnership Preferred Securities, either because the
General Partner does not declare distributions to be made or because the
Partnership lacks sufficient funds, the Trust will not have funds available to
make current distributions on the Trust Preferred Securities. As described
under "Description of the Trust Guarantee -- Covenants of the Company", in
certain circumstances, the Company will be restricted from, among other
things, paying any dividends on its Common Stock.
Should the Partnership fail to pay current distributions on the Partnership
Preferred Securities, each holder of Trust Preferred Securities will generally
be required to accrue income, for United States federal income tax purposes,
in respect of the cumulative deferred distributions (including interest
thereon) allocable to its proportionate share of the Partnership Preferred
Securities. As a result, each holder of Trust Preferred Securities will
recognize income for United States federal income tax purposes in advance of
the receipt of cash and will not receive the cash from the Trust related to
such income if such holder disposes of its Trust Preferred Securities prior to
the record date for the date on which distributions of such amounts are made
by the Trust. See "Certain Federal Income Tax Considerations".
INSUFFICIENT INCOME OR ASSETS AVAILABLE TO PARTNERSHIP
The Trust Preferred Securities are subject to the risk of a current or
liquidating distribution rate mismatch between the rate paid on the Trust
Preferred Securities and the rate paid on the securities held by the
Partnership, including the Debentures and any additional securities acquired
by the Partnership in the future. Such mismatch could occur if (i) at any time
that the Partnership is receiving current payments in respect of the
securities held by the Partnership (including the Debentures), the General
Partner, in its sole discretion, does not declare distributions on the
Partnership Preferred Securities and the Partnership receives insufficient
amounts to pay the additional compounded distributions that will accumulate in
respect of the Partnership Preferred Securities, (ii) the Partnership
reinvests the proceeds received in respect of the Debentures upon their
retirement or at their maturities in Affiliate Investment Instruments or
Eligible Debt Securities that do not generate income in an amount that is
sufficient to pay full distributions in respect of the Partnership Preferred
Securities at a rate of % per annum or (iii) the Partnership invests in debt
securities of Investment Affiliates that are not guaranteed by the Company and
that cannot be liquidated by the Partnership for an amount sufficient to pay
such distributions in full. If the reinvestments in the securities of the
Investment Affiliates contemplated by the General Partner do not meet the
eligibility criteria for Affiliate Investment Instruments described under
"Description of the Partnership Preferred Securities -- Partnership
Investments", the Partnership shall invest funds available for reinvestment in
Eligible Debt Securities. To the extent that the Partnership lacks sufficient
funds to make current or liquidating distributions on the Partnership
Preferred Securities in full, the Trust will not have sufficient funds
available to pay full current or liquidating distributions on the Trust
Preferred Securities.
12
<PAGE>
DEPENDENCE ON AFFILIATE INVESTMENT INSTRUMENTS
Approximately 99% of the proceeds from the issuance of the Partnership
Preferred Securities and the General Partner's capital contribution will be
invested in Debentures, which consist of debt instruments of the Company and
one or more eligible controlled affiliates. See "Description of the
Partnership Preferred Securities -- Partnership Investments".
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
Upon the occurrence of a Trust Special Event or a Partnership Special Event
(each of which will generally be triggered either upon (i) the occurrence of
certain adverse tax consequences to the Trust or the Partnership, as the case
may be, or the denial of an interest deduction by the related Investment
Affiliate on the Debentures held by the Partnership or (ii) the Trust or
Partnership being considered an "investment company" under the 1940 Act)
(each, a "Special Event"), the Trust will be dissolved with the result that,
except in the limited circumstances described below, the Partnership Preferred
Securities would be distributed to the holders of the Trust Securities in
connection with the liquidation of the Trust. In certain circumstances, the
Partnership shall have the right to redeem the Partnership Preferred
Securities, in whole (but not in part), in lieu of a distribution of the
Partnership Preferred Securities by the Trust, in which event the Trust will
redeem the Trust Preferred Securities for cash. See "Description of the Trust
Preferred Securities -- Trust Special Event Redemption or Distribution" and
"Description of the Partnership Preferred Securities -- Partnership Special
Event Redemption".
Unless the liquidation of the Trust occurs as a result of the Trust being
subject to United States federal income tax with respect to income on the
Partnership Preferred Securities, a distribution of the Partnership Preferred
Securities upon the dissolution of the Trust would not be a taxable event to
holders of the Trust Preferred Securities. If, however, the liquidation of the
Trust were to occur because the Trust is subject to United States federal
income tax with respect to income accrued or received on the Partnership
Preferred Securities, the distribution of Partnership Preferred Securities to
holders by the Trust would likely be a taxable event to each such holder, and
a holder would recognize gain or loss as if the holder had exchanged its Trust
Preferred Securities for the Partnership Preferred Securities it received upon
the liquidation of the Trust. Similarly, the holders of the Trust Preferred
Securities would recognize gain or loss if the Trust dissolves upon an
occurrence of a Partnership Special Event and the holders of Trust Preferred
Securities receive cash in exchange for their Trust Preferred Securities. See
"Certain Federal Income Tax Considerations -- Redemption of Trust Preferred
Securities for Cash".
There can be no assurance as to the market prices for the Partnership
Preferred Securities that may be distributed in exchange for Trust Preferred
Securities if a dissolution or liquidation of the Trust were to occur.
Accordingly, the Partnership Preferred Securities that a holder of Trust
Preferred Securities may receive upon dissolution and liquidation of the Trust
may trade at a discount to the price that the investor paid to purchase the
Trust Preferred Securities offered hereby. Because holders of Trust Preferred
Securities may receive Partnership Preferred Securities upon the occurrence of
a Special Event, prospective purchasers of Trust Preferred Securities also are
making an investment decision with regard to the Partnership Preferred
Securities and should carefully review all the information regarding the
Partnership Preferred Securities contained herein. See "Description of the
Partnership Preferred Securities -- Partnership Special Event Redemption" and
"-- General".
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEES AND THE COMPANY
DEBENTURE
The Company's obligations under the Trust Guarantee, the Partnership
Guarantee and the Investment Guarantees are subordinate and junior in right of
payment to all liabilities of the Company and will rank pari passu with the
most senior preferred stock, if any, issued from time to time by the Company,
with similar guarantees issued by the Company in connection with the
$275,000,000 aggregate liquidation amount of 7 3/4% Trust Originated Preferred
Securities issued by Merrill Lynch Preferred Capital Trust I, the $300,000,000
aggregate liquidation amount of 8% Trust Originated Preferred Securities
issued by Merrill Lynch Preferred
13
<PAGE>
Capital Trust II, the $750,000,000 aggregate liquidation amount of 7% Trust
Originated Preferred Securities issued by Merrill Lynch Preferred Capital
Trust III, the $400,000,000 aggregate liquidation amount of 7.12% Trust
Originated Preferred Securities issued by Merrill Lynch Preferred Capital
Trust IV and with any guarantee now or hereafter entered into by the Company
in respect of any preferred stock of any other Finance Subsidiary, and the
Company's obligations under the Company Debenture are subordinate and junior
in right of payment to all Senior Indebtedness. At June 26, 1998, the Company
had outstanding Senior Indebtedness aggregating approximately $90.2 billion
which would have ranked senior to the Company's obligations under the
Guarantees and the Company Debenture. There are no terms in the Trust
Preferred Securities, the Partnership Preferred Securities, the Guarantees or
the Debentures that limit the Company's ability to incur additional
indebtedness, including indebtedness that ranks senior to the Guarantees. See
"Description of the Partnership Preferred Securities -- Partnership
Investments" and "-- Investment Guarantees", "Description of the Trust
Guarantee" and "Description of the Partnership Guarantee".
ENFORCEMENT OF CERTAIN RIGHTS BY OR ON BEHALF OF HOLDERS OF TRUST PREFERRED
SECURITIES
If a Trust Enforcement Event occurs and is continuing, then (a) the holders
of Trust Preferred Securities would rely on the enforcement by the Property
Trustee of its rights, as a holder of the Partnership Preferred Securities,
against the Company, including the right to direct the Special Representative
to enforce (i) the Partnership's creditors' rights and other rights with
respect to the Affiliate Investment Instruments and the Investment Guarantees,
(ii) the rights of the holders of the Partnership Preferred Securities under
the Partnership Guarantee, and (iii) the rights of the holders of the
Partnership Preferred Securities to receive distributions (only if and to the
extent declared out of funds legally available therefor) on the Partnership
Preferred Securities, and (b) the Trust Guarantee Trustee shall have the right
to enforce the terms of the Trust Guarantee, including the right to enforce
the covenant restricting certain payments by the Company and Finance
Subsidiaries. Under no circumstances, however, shall the Special
Representative have authority to cause the General Partner to declare
distributions on the Partnership Preferred Securities. As a result, although
the Special Representative may be able to enforce the Partnership's creditors'
rights to accelerate and receive payments in respect of the Affiliate
Investment Instruments and the Investment Guarantees, the Partnership would be
entitled to reinvest such payments in additional Affiliate Investment
Instruments, subject to satisfying the reinvestment criteria described under
"Description of the Partnership Preferred Securities -- Partnership
Investments", and the Eligible Debt Securities, rather than declaring and
making distributions on the Partnership Preferred Securities. See "Description
of the Trust Preferred Securities -- Trust Enforcement Events".
LIMITED VOTING RIGHTS
Holders of the Trust Preferred Securities will have limited voting rights
and will not be entitled to vote to appoint, remove or replace, or to increase
or decrease the number of, Trustees, which voting rights are vested
exclusively in the holder of the Trust Common Securities. See "Description of
the Trust PreferredSecurities -- Voting Rights".
TRADING CHARACTERISTICS OF TRUST PREFERRED SECURITIES
The price at which the Trust Preferred Securities may trade may not fully
reflect the value of the accumulated but unpaid distributions on the Trust
Preferred Securities (which will equal the accumulated but unpaid
distributions on the Partnership Preferred Securities). In addition, as a
result of the right of the General Partner not to declare current
distributions on the Partnership Preferred Securities, the market price of the
Trust Preferred Securities (which represent undivided beneficial ownership
interests in the Partnership Preferred Securities) may be more volatile than
other similar securities where there is no such right to defer current
distributions. A holder who disposes of its Trust Preferred Securities will be
required to include for United States federal income tax purposes accumulated
but unpaid distributions on the Partnership Preferred Securities through the
date of disposition in income as ordinary income, and to add such amount to
its adjusted tax basis in its pro rata share of the Partnership Preferred
Securities deemed disposed of. To the extent the selling price is less than
the holder's adjusted tax basis (which will include all accumulated but unpaid
distributions), a holder will recognize a capital loss. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes. See "Certain Federal Income Tax
Considerations".
14
<PAGE>
NO PRIOR MARKET FOR THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities constitute a new issue of securities with no
established trading market. Application will be made to list the Trust
Preferred Securities on the NYSE. There can be no assurance that an active
market for the Trust Preferred Securities will develop or be sustained in the
future on the NYSE. Although the Underwriters have indicated to the Company
that they intend to make a market in the Trust Preferred Securities, as
permitted by applicable laws and regulations, they are not obligated to do so
and may discontinue any such market-making at any time without notice.
Accordingly, no assurance can be given as to the liquidity of, or trading
markets for, the Trust Preferred Securities.
The Trust Preferred Securities will only be sold to those investors for whom
such Trust Preferred Securities are considered suitable in light of their
particular circumstances.
15
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its
subsidiaries and affiliates, provides investment, financing, advisory,
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; an underwriter of selected insurance products
and a distributor of investment products of the Merrill Lynch Asset Management
group. 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. The Company's asset management and investment management
activities are conducted through the Merrill Lynch Asset Management group and
Merrill Lynch Mercury Asset Management, which together constitute one of the
largest asset management organizations in the world. Merrill Lynch Government
Securities Inc. is a primary dealer in obligations issued or guaranteed by the
U.S. Government and its agencies and its government-sponsored entities.
Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative Products AG,
and Merrill Lynch International are the Company's primary derivative product
dealers and enter into interest rate, currency, and other over-the-counter
derivative transactions as intermediaries and as principals. The Company's
operations in insurance services 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 and purchasing secured
loans, providing currency exchange facilities and other related services, and
furnishing trust, employee benefit, and custodial 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 proceeds to be received by the Trust from the sale of the Trust
Preferred Securities and the Trust Common Securities will be used by the Trust
to purchase Partnership Preferred Securities, and will be applied by the
Partnership to invest in Debentures and Eligible Debt Securities. See
"Description of the Partnership Preferred Securities -- Partnership
Investments". The Company and the subsidiaries of the Company which are the
issuers of the Debentures will use the proceeds from the sale of such
Debentures to the Partnership of $ primarily for general corporate
purposes. Such general corporate purposes may include the funding of
investments in, or extensions of credit to, its subsidiaries, the funding of
assets of the Company and its subsidiaries, the lengthening of the average
maturity of the Company's borrowings, and the financing of acquisitions.
Pending such applications, the net proceeds will be applied to the reduction
of short-term indebtedness or temporarily invested. 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, through acquisitions or
otherwise, or to lengthen the average maturity of its borrowings. To the
extent that Trust Preferred Securities being purchased for resale by MLPF&S
are not resold, the aggregate proceeds to the Company and its subsidiaries
would be reduced.
16
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings to fixed
charges of the Company for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED LAST FRIDAY ENDED
IN DECEMBER MARCH 27,
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges....... 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
17
<PAGE>
MERRILL LYNCH PREFERRED CAPITAL TRUST V
Merrill Lynch Preferred Capital Trust V (the "Trust") is a statutory
business trust formed under the Delaware Business Trust Act, as amended (the
"Trust Act"), pursuant to a declaration of trust and the filing of a
certificate of trust with the Secretary of State of the State of Delaware on
January 8, 1998; such declaration will be amended and restated in its entirety
(as so amended and restated, the "Declaration") substantially in the form
filed as an exhibit to the Registration Statement of which this Prospectus
forms a part. The Declaration will be qualified as an indenture under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). Upon
issuance of the Trust Preferred Securities, the purchasers thereof will own
all the Trust Preferred Securities. See "Description of the Trust Preferred
Securities". The Company will acquire Trust Common Securities in an amount
equal to at least 3% of the total capital of the Trust. The Trust will use all
the proceeds derived from the issuance of the Trust Securities to purchase the
Partnership Preferred Securities from the Partnership and, accordingly, the
assets of the Trust will consist solely of the Partnership Preferred
Securities. The Trust exists for the exclusive purpose of (i) issuing the
Trust Securities representing undivided beneficial ownership interests in the
assets of the Trust, (ii) investing the gross proceeds of the Trust Securities
in the Partnership Preferred Securities, and (iii) engaging in only those
other activities necessary or incidental thereto.
Pursuant to the Declaration, there will initially be four trustees (the
"Trustees") for the Trust. Two of the Trustees will be individuals who are
employees or officers of or who are affiliated with the Company (the "Regular
Trustees"). The third trustee will be a financial institution that is
unaffiliated with the Company and is indenture trustee for purposes of
compliance with the provisions of the Trust Indenture Act (the "Property
Trustee"). The fourth trustee will be an entity that maintains its principal
place of business in the State of Delaware (the "Delaware Trustee").
Initially, The Chase Manhattan Bank, a New York banking corporation, will act
as Property Trustee, and its affiliate, Chase Manhattan Bank Delaware, a
Delaware corporation, will act as Delaware Trustee until, in each case,
removed or replaced by the holder of the Trust Common Securities. For purposes
of compliance with the Trust Indenture Act, The Chase Manhattan Bank will also
act as trustee under the Trust Guarantee (the "Trust Guarantee Trustee"), as
Property Trustee under the Declaration and as trustee under the indenture
applicable to the Company Debenture.
The Property Trustee will hold title to the Partnership Preferred Securities
for the benefit of the holders of the Trust Securities, and the Property
Trustee will have the power to exercise all rights, powers and privileges with
respect to the Partnership Preferred Securities under the Amended and Restated
Agreement of Limited Partnership to be entered into by the Company and the
Trust (the "Limited Partnership Agreement") as the holder of the Partnership
Preferred Securities. In addition, the Property Trustee will maintain
exclusive control of a segregated non-interest bearing bank account (the
"Property Account") to hold all payments made in respect of the Partnership
Preferred Securities for the benefit of the holders of the Trust Securities.
The Trust Guarantee Trustee will hold the Trust Guarantee for the benefit of
the holders of the Trust Preferred Securities. The Company, as the holder of
all the Trust Common Securities, will have the right to appoint, remove or
replace any of the Trustees and to increase or decrease the number of
trustees, provided that at least one trustee shall be a Delaware Trustee, at
least one trustee shall be the Property Trustee and at least one Trustee shall
be a Regular Trustee. The Company will pay all fees and expenses related to
the organization and operations of the Trust (including any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States or any other domestic taxing authority
upon the Trust) and the offering of the Trust Preferred Securities and be
responsible for all debts and obligations of the Trust (other than with
respect to the Trust Securities).
For so long as the Trust Preferred Securities remain outstanding, the
Company will covenant (i) to maintain directly 100% ownership of the Trust
Common Securities, (ii) to cause the Trust to remain a statutory business
trust and not to voluntarily dissolve, wind-up, liquidate or be terminated,
except as permitted by the Declaration of the Trust and (iii) to use its
commercially reasonable efforts to ensure that the Trust will not be (A) an
"investment company" for purposes of the 1940 Act or (B) classified as other
than a grantor trust for United States federal income tax purposes.
18
<PAGE>
The rights of the holders of the Trust Preferred Securities, including
economic rights, rights to information and voting rights, are as set forth in
the Declaration and the Trust Act. See "Description of the Trust Preferred
Securities". The Declaration and the Trust Guarantee also incorporate by
reference the terms of the Trust Indenture Act.
The location of the principal executive office of the Trust is c/o Merrill
Lynch & Co., Inc., World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281, and its telephone number is (212) 449-1000.
MERRILL LYNCH PREFERRED FUNDING V, L.P.
Merrill Lynch Preferred Funding V, L.P. (the "Partnership") is a limited
partnership that was formed under the Delaware Revised Uniform Limited
Partnership Act, as amended (the "Partnership Act"), on January 8, 1998 for
the exclusive purposes of purchasing certain eligible debt securities of the
Company and wholly-owned subsidiaries of the Company (the "Affiliate
Investment Instruments") with the proceeds from the sale of Partnership
Preferred Securities to the Trust and a capital contribution from the Company
in exchange for the general partner interest in the Partnership. Pursuant to
the certificate of limited partnership, as amended, and the Limited
Partnership Agreement, the Company is the sole general partner of the
Partnership (in such capacity the "General Partner"). Upon the issuance of the
Partnership Preferred Securities, which securities represent limited partner
interests in the Partnership, the Trust will be the sole limited partner of
the Partnership. Contemporaneously with the issuance of the Partnership
Preferred Securities, the General Partner will contribute capital to the
Partnership in an amount sufficient to establish its initial capital account
at an amount equal to at least 15% of the total capital of the Partnership.
The Partnership is managed by the General Partner and exists for the sole
purpose of (i) issuing its partnership interests, (ii) investing the proceeds
thereof in Affiliate Investment Instruments and Eligible Debt Securities and
(iii) engaging in only those other activities necessary or incidental thereto.
To the extent that aggregate payments to the Partnership on the Affiliate
Investment Instruments and on Eligible Debt Securities exceed distributions
accumulated or payable with respect to the Partnership Preferred Securities,
the Partnership may at times have excess funds which shall be allocated to and
may, in the General Partner's sole discretion, be distributed to the General
Partner.
For so long as the Partnership Preferred Securities remain outstanding, the
General Partner will covenant in the Limited Partnership Agreement (i) to
remain the sole general partner of the Partnership and to maintain directly
100% ownership of the General Partner's interest in the Partnership, which
interest will at all times represent at least 1% of the total capital of the
Partnership, (ii) to cause the Partnership to remain a limited partnership and
not to voluntarily dissolve, liquidate, wind-up or be terminated, except as
permitted by the Limited Partnership Agreement and (iii) to use its
commercially reasonable efforts to ensure that the Partnership will not be (A)
an "investment company" for purposes of the 1940 Act or (B) an association or
a publicly traded partnership taxable as a corporation for United States
federal income tax purposes. The Company or the then General Partner may
transfer its obligations as General Partner to a wholly-owned direct or
indirect subsidiary of the Company provided that (i) such successor entity
expressly accepts such transfer of the obligations as General Partner and (ii)
prior to such transfer, the Company has received an opinion of nationally
recognized independent counsel to the Partnership experienced in such matters
to the effect that (A) the Partnership will be treated as a partnership for
United States federal income tax purposes, (B) such transfer would not cause
the Trust to be classified as an association taxable as a corporation for
United States federal income tax purposes, (C) following such transfer, the
Company and such successor entity will be in compliance with the 1940 Act
without registering thereunder as an investment company, and (D) such transfer
will not adversely affect the limited liability of the holders of the
Partnership Preferred Securities.
The rights of the holders of the Partnership Preferred Securities, including
economic rights, rights to information and voting rights, are set forth in the
Limited Partnership Agreement and the Partnership Act. See "Description of the
Partnership Preferred Securities".
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<PAGE>
The Limited Partnership Agreement provides that the General Partner will
have liability for the fees and expenses of the Partnership (including any
taxes, duties, assessments or governmental charges of whatever nature (other
than withholding taxes) imposed by the United States or any other domestic
taxing authority upon the Partnership) and be responsible for all debts and
obligations of the Partnership (other than with respect to the Partnership
Preferred Securities). Under Delaware law, assuming a limited partner in a
Delaware limited partnership such as the Partnership (i.e., a holder of the
Partnership Preferred Securities) does not participate in the control of the
business of the limited partnership, such limited partner will not be
personally liable for the debts, obligations and liabilities of such limited
partnership, whether arising in contract, tort or otherwise, solely by reason
of being a limited partner of such limited partnership (subject to any
obligation such limited partner may have to repay any funds that may have been
wrongfully distributed to it). The Partnership's business and affairs will be
conducted by the General Partner.
The location of the principal executive offices of the Partnership is c/o
Merrill Lynch & Co., Inc., World Financial Center, North Tower, 250 Vesey
Street, New York, New York 10281 and its telephone number is (212) 449-1000.
DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities will be issued pursuant to the terms of the
Declaration. The Declaration will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee, The Chase Manhattan Bank, will act as
trustee for the Trust Preferred Securities under the Declaration for purposes
of compliance with the provisions of the Trust Indenture Act. The terms of the
Trust Preferred Securities will include those stated in the Declaration and
those made part of the Declaration by the Trust Indenture Act. The following
summary of the material terms and provisions of the Trust Preferred Securities
does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the Declaration, a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part, the
Trust Act and the Trust Indenture Act.
GENERAL
The Trust Preferred Securities will be issued in fully registered form
without coupons. Trust Preferred Securities will not be issued in bearer form.
See "-- Book-Entry Only Issuance -- The Depository Trust Company".
The Declaration authorizes the Regular Trustees of the Trust to issue the
Trust Securities, which represent undivided beneficial ownership interests in
the assets of the Trust. Title to the Partnership Preferred Securities will be
held by the Property Trustee for the benefit of the holders of the Trust
Securities. The Declaration does not permit the Trust to acquire any assets
other than the Partnership Preferred Securities or the issuance by the Trust
of any securities other than the Trust Securities or the incurrence of any
indebtedness by the Trust. The payment of distributions out of money held by
the Trust, and payments out of money held by the Trust upon redemption of the
Trust Preferred Securities or liquidation of the Trust, are guaranteed by the
Company to the extent described under "Description of the Trust Guarantee".
The Trust Guarantee will be held by The Chase Manhattan Bank, the Trust
Guarantee Trustee, for the benefit of the holders of the Trust Preferred
Securities. The Trust Guarantee does not cover payment of distributions when
the Trust does not have sufficient available funds to pay such distributions.
In such event, holders of Trust Preferred Securities will have the remedies
described below under "-- Trust Enforcement Events".
DISTRIBUTIONS
The distribution rate on Trust Preferred Securities will be fixed at a rate
per annum of % of the stated liquidation amount of $25 per Trust Preferred
Security and will be paid if, as and when the Trust has funds available for
payment. Distributions not paid on the scheduled payment date will accumulate
and compound quarterly at a rate per annum equal to %. The term
"distribution" as used herein includes any such
20
<PAGE>
compounded amounts unless otherwise stated or the context otherwise requires.
The amount of distributions payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months.
Distributions on the Trust Preferred Securities will be cumulative, will
accumulate from the date of initial issuance and will be payable quarterly in
arrears on each , , and , commencing , if, as and
when available for payment, by the Property Trustee, except as otherwise
described below. If distributions are not paid when scheduled, the accumulated
distributions shall be paid to the holders of record of Trust Preferred
Securities as they appear on the books and records of the Trust on the record
date with respect to the payment date for the Trust Preferred Securities which
corresponds to the payment date fixed by the Partnership with respect to the
payment of cumulative distributions on the Partnership Preferred Securities.
Distributions on the Trust Preferred Securities will be made to the extent
that the Trust has funds available for the payment of such distributions in
the Property Account. Amounts available to the Trust for distribution to the
holders of the Trust Preferred Securities will be limited to payments received
by the Trust from the Partnership with respect to the Partnership Preferred
Securities or from the Company on the Partnership Guarantee or the Trust
Guarantee. Distributions on the Partnership Preferred Securities will be paid
only if, as and when declared in the sole discretion of the Company, as the
General Partner of the Partnership. Pursuant to the Limited Partnership
Agreement, the General Partner is not obligated to declare distributions on
the Partnership Preferred Securities at any time, including upon or following
a Partnership Enforcement Event. See "Description of Partnership Preferred
Securities -- Partnership Enforcement Events".
The assets of the Partnership will consist only of Affiliate Investment
Instruments (which initially will be the Debentures) and Eligible Debt
Securities. To the extent that the issuers (and, where applicable, the
Company, as guarantor) of the securities in which the Partnership invests
defer or fail to make any payment in respect of such securities (or, if
applicable, such guarantees), the Partnership will not have sufficient funds
to pay and will not declare or pay distributions on the Partnership Preferred
Securities. If the Partnership does not declare and pay distributions on the
Partnership Preferred Securities out of funds legally available for
distribution, the Trust will not have sufficient funds to make distributions
on the Trust Preferred Securities, in which event the Trust Guarantee will not
apply to such distributions until the Trust has sufficient funds available
therefor. See "Description of the Partnership Preferred Securities --
Distributions" and "Description of the Trust Guarantee". In addition, as
described under "Risk Factors -- Insufficient Income or Assets Available to
Partnership", the Partnership may not have sufficient funds to pay current or
liquidating distributions on the Partnership Preferred Securities if (i) at
any time that the Partnership is receiving current payments in respect of the
securities held by the Partnership (including the Debentures), the General
Partner, in its sole discretion, does not declare distributions on the
Partnership Preferred Securities and the Partnership receives insufficient
amounts to pay the additional compounded distributions that will accumulate in
respect of the Partnership Preferred Securities, (ii) the Partnership
reinvests the proceeds received in respect of the Debentures upon their
retirement or at their maturities in Affiliate Investment Instruments that do
not generate income in an amount that is sufficient to pay full distributions
in respect of the Partnership Preferred Securities or (iii) the Partnership
invests in debt securities of Investment Affiliates that are not guaranteed by
the Company and that cannot be liquidated by the Partnership for an amount
sufficient to pay such distributions in full.
Distributions on the Trust Preferred Securities will be payable to the
holders thereof as they appear on the books and records of the Trust on the
relevant record dates, which will be one Business Day (as defined herein)
prior to the relevant payment dates. Such distributions will be paid through
the Property Trustee who will hold amounts received in respect of the
Partnership Preferred Securities in the Property Account for the benefit of
the holders of the Trust Securities. Subject to any applicable laws and
regulations and the provisions of the Declaration, each such payment will be
made as described under "-- Book-Entry Only Issuance -- The Depository Trust
Company" below. In the event that the Trust Preferred Securities do not remain
in book-entry only form, the relevant record dates shall be the 15th day of
the month of the relevant payment dates. In the event that any date on which
distributions are payable on the Trust Preferred Securities is not a Business
Day,
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payment of the distribution payable on such date will be made on the next
succeeding day which is a Business Day (without any interest or other payment
in respect of the distribution subject to such delay) except that, if such
Business Day is in the next succeeding calendar year, such payment shall be
made on the immediately preceding Business Day, in each case with the same
force and effect as if made on such date. A "Business Day" shall mean any day
other than a day on which banking institutions in The City of New York are
authorized or required by law to close.
TRUST ENFORCEMENT EVENTS
The occurrence, at any time, of (i) arrearages on distributions on the Trust
Preferred Securities that shall exist for six consecutive quarterly
distribution periods, (ii) a default by the Company in respect of any of its
obligations under the Trust Guarantee or (iii) a Partnership Enforcement Event
under the Limited Partnership Agreement, will constitute an enforcement event
under the Declaration with respect to the Trust Securities (a "Trust
Enforcement Event"); provided, that pursuant to the Declaration, the holder of
the Trust Common Securities will be deemed to have waived any Trust
Enforcement Event with respect to the Trust Common Securities until all Trust
Enforcement Events with respect to the Trust Preferred Securities have been
cured, waived or otherwise eliminated. Until such Trust Enforcement Events
with respect to the Trust Preferred Securities have been so cured, waived or
otherwise eliminated, the Property Trustee will be deemed to be acting solely
on behalf of the holders of the Trust Preferred Securities and only the
holders of the Trust Preferred Securities will have the right to direct the
Property Trustee with respect to certain matters under the Declaration and, in
the case of a Partnership Enforcement Event, the Special Representative with
respect to certain matters under the Limited Partnership Agreement. See
"Description of the Partnership Preferred Securities -- Partnership
Enforcement Events" for a description of the events which will trigger the
occurrence of a Partnership Enforcement Event.
Upon the occurrence of a Trust Enforcement Event, (a) the Property Trustee,
as the holder of the Partnership Preferred Securities, shall have the right to
enforce the terms of the Partnership Preferred Securities, including the right
to direct the Special Representative to enforce (i) the Partnership's
creditors' rights and other rights with respect to the Affiliate Investment
Instruments and the Investment Guarantees, (ii) the rights of the holders of
the Partnership Preferred Securities under the Partnership Guarantee and (iii)
the rights of the holders of the Partnership Preferred Securities to receive
distributions (only if and to the extent declared out of funds legally
available therefor) on the Partnership Preferred Securities, and (b) the Trust
Guarantee Trustee shall have the right to enforce the terms of the Trust
Guarantee, including the right to enforce the covenant restricting certain
payments by the Company and Finance Subsidiaries.
If the Property Trustee fails to enforce its rights under the Partnership
Preferred Securities after a holder of Trust Preferred Securities has made a
written request, such holder of record of Trust Preferred Securities may
directly institute a legal proceeding against the Partnership and the Special
Representative to enforce the Property Trustee's rights under the Partnership
Preferred Securities without first instituting any legal proceeding against
the Property Trustee, the Trust or any other person or entity. In addition,
for so long as the Trust holds any Partnership Preferred Securities, if the
Special Representative fails to enforce its rights on behalf of the
Partnership under the Affiliate Investment Instruments after a holder of Trust
Preferred Securities has made a written request, a holder of record of Trust
Preferred Securities may on behalf of the Partnership directly institute a
legal proceeding against the Investment Affiliates under the Affiliate
Investment Instruments, without first instituting any legal proceeding against
the Property Trustee, the Trust, the Special Representative or the
Partnership. In any event, for so long as the Trust is the holder of any
Partnership Preferred Securities, if a Trust Enforcement Event has occurred
and is continuing and such event is attributable to the failure of an
Investment Affiliate to make any required payment when due on any Affiliate
Investment Instrument or the failure of the Company to make any required
payment when due on any Investment Guarantee, then a holder of Trust Preferred
Securities may on behalf of the Partnership directly institute a proceeding
against such Investment Affiliate with respect to such Affiliate Investment
Instrument or against the Company with respect to any such Investment
Guarantee, in each case for enforcement of payment.
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Under no circumstances, however, shall the Special Representative have
authority to cause the General Partner to declare distributions on the
Partnership Preferred Securities. As a result, although the Special
Representative may be able to enforce the Partnership's creditors' rights to
accelerate and receive payments in respect of the Affiliate Investment
Instruments and the Investment Guarantees, the Partnership would be entitled
to reinvest such payments in additional Affiliate Investment Instruments,
subject to satisfying the reinvestment criteria described under "Description
of the Partnership Preferred Securities -- Partnership Investments", and
Eligible Debt Securities, rather than declaring and making distributions on
the Partnership Preferred Securities.
The Company and the Trust are each required to file annually with the
Property Trustee an officer's certificate as to its compliance with all
conditions and covenants under the Declaration.
MANDATORY REDEMPTION
The Partnership Preferred Securities may be redeemed by the Partnership at
the option of the General Partner, in whole or in part, at any time on or
after or at any time in certain circumstances upon the occurrence of a
Partnership Special Event. Upon such redemption of the Partnership Preferred
Securities (either at the option of the General Partner or pursuant to a
Partnership Special Event), the proceeds from such repayment shall
simultaneously be applied to redeem Trust Securities having an aggregate
liquidation amount equal to the Partnership Preferred Securities so redeemed
at an amount per Trust Security equal to $25 plus accumulated and unpaid
distributions thereon; provided, that holders of the Trust Securities shall be
given not less than 30 nor more than 60 days notice of such redemption. See
"Description of the Partnership Preferred Securities -- General" and "--
Optional Redemption".
TRUST SPECIAL EVENT REDEMPTION OR DISTRIBUTION
If, at any time, a Trust Tax Event or a Trust Investment Company Event (each
as hereinafter defined, and each, a "Trust Special Event") shall occur and be
continuing, the Regular Trustees shall, unless the Partnership Preferred
Securities are redeemed in the limited circumstances described below, within
90 days following the occurrence of such Trust Special Event elect to either
(i) dissolve the Trust upon not less than 30 nor more than 60 days notice with
the result that, after satisfaction of creditors of the Trust, if any,
Partnership Preferred Securities would be distributed on a pro rata basis to
the holders of the Trust Preferred Securities and the Trust Common Securities
in liquidation of such holders' interests in the Trust; provided, however,
that if at the time there is available to the Trust the opportunity to
eliminate, within such 90-day period, the Trust Special Event by taking some
ministerial action, such as filing a form or making an election, or pursuing
some other similar reasonable measure which in the sole judgment of the
Company has or will cause no adverse effect on the Trust, the Partnership, the
Company or the holders of the Trust Securities and will involve no material
cost, the Trust will pursue such measure in lieu of dissolution or (ii) cause
the Trust Preferred Securities to remain outstanding, provided that in the
case of this clause (ii), the Company shall pay any and all expenses incurred
by or payable by the Trust attributable to the Trust Special Event.
Furthermore, if in the case of the occurrence of a Trust Tax Event, the
Regular Trustees have received an opinion (a "Trust Redemption Tax Opinion")
of nationally recognized independent tax counsel experienced in such matters
that there is more than an insubstantial risk that interest payable by one or
more of the Investment Affiliates with respect to the Debentures issued by
such Investment Affiliate is not, or will not be, deductible by such
Investment Affiliate for United States federal income tax purposes even if the
Partnership Preferred Securities were distributed to the holders of the Trust
Securities in liquidation of such holders' interests in the Trust as described
above, then the General Partner shall have the right, within 90 days following
the occurrence of such Trust Tax Event, to elect to cause the Partnership to
redeem the Partnership Preferred Securities in whole (but not in part) for
cash upon not less than 30 nor more than 60 days notice and promptly following
such redemption, the Trust Preferred Securities and Trust Common Securities
will be redeemed by the Trust at the Redemption Price.
"Trust Tax Event" means that the Company shall have requested and received
and shall have delivered to the Regular Trustees an opinion of nationally
recognized independent tax counsel experienced in such matters (a "Trust
Dissolution Tax Opinion") to the effect that there has been (a) an amendment
to, change in or announced
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proposed change in the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein,
(b) a judicial decision interpreting, applying, or clarifying such laws or
regulations, (c) an administrative pronouncement or action that represents an
official position (including a clarification of an official position) of the
governmental authority or regulatory body making such administrative
pronouncement or taking such action, or (d) a threatened challenge asserted in
connection with an audit of the Company or any of its subsidiaries, the
Partnership, or the Trust, or a threatened challenge asserted in writing
against any other taxpayer that has raised capital through the issuance of
securities that are substantially similar to the Debentures, the Partnership
Preferred Securities, or the Trust Preferred Securities, which amendment or
change is adopted or which proposed change, decision or pronouncement is
announced or which action, clarification or challenge occurs on or after the
date of this Prospectus (collectively a "Tax Action"), which Tax Action
relates to any of the items described in (i) through (iii) below, and that
following the occurrence of such Tax Action there is more than an
insubstantial risk that (i) the Trust is, or will be, subject to United States
federal income tax with respect to income accrued or received on the
Partnership Preferred Securities, (ii) the Trust is, or will be, subject to
more than a de minimis amount of other taxes, duties or other governmental
charges or (iii) interest payable by an Investment Affiliate with respect to
the Debenture issued by such Investment Affiliate is not, or will not be,
deductible by such Investment Affiliate for United States federal income tax
purposes.
Recently, the Internal Revenue Service ("IRS") asserted that the interest
payable on a security issued in circumstances with certain similarities to the
issuance of the Debentures issued by the Investment Affiliates to the
Partnership was not deductible for United States federal income tax purposes.
The taxpayer in that case has filed a petition in the United States Tax Court
challenging the IRS's position on this matter. If this matter were to be
litigated and the Tax Court were to sustain the IRS's position on this matter,
such judicial decision could constitute a Trust Tax Event, which could result
in an early redemption of the Trust Preferred Securities.
"Trust Investment Company Event" means that the Company shall have requested
and received and shall have delivered to the Regular Trustees an opinion of
nationally recognized independent legal counsel experienced in such matters to
the effect that as a result of the occurrence on or after the date hereof of a
change in law or regulation or a change in interpretation or application of
law or regulation by any legislative body, court, governmental agency or
regulatory authority (a "Change in 1940 Act Law"), the Trust is or will be
considered an "investment company" which is required to be registered under
the 1940 Act.
If the Partnership Preferred Securities are distributed to the holders of
the Trust Preferred Securities, the Company will use its best efforts to cause
the Partnership Preferred Securities to be listed on the New York Stock
Exchange or on such other national securities exchange or similar organization
as the Trust Preferred Securities are then listed or quoted.
On the date fixed for any distribution of Partnership Preferred Securities,
upon dissolution of the Trust, (i) the Trust Preferred Securities and the
Trust Common Securities will no longer be deemed to be outstanding and (ii)
certificates representing Trust Securities will be deemed to represent the
Partnership Preferred Securities having a liquidation preference equal to the
stated liquidation amount of such Trust Securities until such certificates are
presented to the Company or its agent for transfer or reissuance.
There can be no assurance as to the market price for the Partnership
Preferred Securities which may be distributed in exchange for Trust Preferred
Securities if a dissolution and liquidation of the Trust were to occur.
Accordingly, the Partnership Preferred Securities which an investor may
subsequently receive on dissolution and liquidation of the Trust may trade at
a discount to the price of the Trust Preferred Securities exchanged.
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Trust Preferred
Securities unless all accumulated and unpaid distributions have been paid on
all Trust Preferred Securities for all quarterly distribution periods
terminating on or prior to the date of redemption.
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If the Trust gives a notice of redemption in respect of Trust Preferred
Securities (which notice will be irrevocable), and if the Company has paid to
the Property Trustee a sufficient amount of cash in connection with the
related redemption of the Partnership Preferred Securities, then, by 12:00
noon, New York time, on the redemption date, the Trust will irrevocably
deposit with DTC funds sufficient to pay the amount payable on redemption of
all book-entry certificates and will give DTC irrevocable instructions and
authority to pay such amount to holders of the Trust Preferred Securities. See
"-- Book-Entry Only Issuance -- The Depository Trust Company". If notice of
redemption shall have been given and funds are deposited as required, then
upon the date of such deposit, all rights of holders of such Trust Preferred
Securities so called for redemption will cease, except the right of the
holders of such Trust Preferred Securities to receive the Redemption Price,
but without interest on such Redemption Price. In the event that any date
fixed for redemption of Trust Preferred Securities is not a Business Day, then
payment of the amount payable on such date will be made on the next succeeding
day which is a Business Day (without any interest or other payment in respect
of the amount payable subject to such delay), except that, if such Business
Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day. In the event that payment of the
Redemption Price in respect of Trust Preferred Securities is improperly
withheld or refused and not paid either by the Trust or by the Company
pursuant to the Trust Guarantee described under "Description of the Trust
Guarantee", distributions on such Trust Preferred Securities will continue to
accumulate from the original redemption date to the date of payment.
In the event that fewer than all of the outstanding Trust Preferred
Securities are to be redeemed, the Trust Preferred Securities will be redeemed
in accordance with the procedures of DTC. See "-- Book-Entry Only Issuance --
The Depository Trust Company". In the event that the Trust Preferred
Securities do not remain in book-entry only form and fewer than all of the
outstanding Trust Preferred Securities are to be redeemed, the Trust Preferred
Securities shall be redeemed on a pro rata basis or pursuant to the rules of
any securities exchange on which the Trust Preferred Securities are listed.
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), the Company or its subsidiaries may at
any time and from time to time purchase outstanding Trust Preferred Securities
by tender, in the open market or by private agreement.
SUBORDINATION OF TRUST COMMON SECURITIES
Payment of amounts upon liquidation of the Trust Securities shall be made
pro rata based on the liquidation amount of the Trust Securities; provided,
however, that upon (i) the occurrence of an Investment Event of Default by an
Investment Affiliate (including the Company) in respect of any Affiliate
Investment Instrument or (ii) default by the Company on any of its obligations
under any Guarantee, the holders of the Trust Preferred Securities will have a
preference over the holders of the Trust Common Securities with respect to
payments upon liquidation of the Trust.
In the case of any Trust Enforcement Event, the holder of Trust Common
Securities will be deemed to have waived any such Trust Enforcement Event
until all such Trust Enforcement Events with respect to the Trust Preferred
Securities have been cured, waived or otherwise eliminated. Until all Trust
Enforcement Events with respect to the Trust Preferred Securities have been so
cured, waived or otherwise eliminated, the Property Trustee shall act solely
on behalf of the holders of the Trust Preferred Securities and not on behalf
of the holder of the Trust Common Securities, and only the holders of the
Trust Preferred Securities will have the right to direct the Property Trustee
to act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each a "Trust Liquidation"), the
holders of the Trust Preferred Securities will be entitled to receive out of
the assets of the Trust, after satisfaction of liabilities to creditors,
distributions in cash or other immediately available funds in an amount equal
to the aggregate of the stated liquidation amount of $25 per Trust Preferred
Security
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plus accumulated and unpaid distributions thereon to the date of payment (the
"Trust Liquidation Distribution"), unless, in connection with such Trust
Liquidation, Partnership Preferred Securities have been distributed on a pro
rata basis to the holders of the Trust Securities.
If, upon any such Trust Liquidation, the Trust Liquidation Distribution can
be paid only in part because the Trust has insufficient assets available to
pay in full the aggregate Trust Liquidation Distribution, then the amounts
payable directly by the Trust on the Trust Preferred Securities shall be paid
on a pro rata basis. The holders of the Trust Common Securities will be
entitled to receive distributions upon any such liquidation pro rata
with the holders of the Trust Preferred Securities, except in the limited
circumstances described above under "-- Subordination of Trust Common
Securities".
Pursuant to the Declaration, the Trust shall terminate (i) upon the
bankruptcy of the Company, (ii) upon the filing of a certificate of
dissolution or the equivalent with respect to the Company, the filing of a
certificate of cancellation with respect to the Trust after having obtained
the consent of at least a majority in liquidation amount of the Trust
Securities, voting together as a single class, to file such certificate of
cancellation, or the revocation of the charter of the Company and the
expiration of 90 days after the date of revocation without a reinstatement
thereof, (iii) upon the distribution of all of the Partnership Preferred
Securities upon the occurrence of a Trust Special Event, (iv) upon the entry
of a decree of a judicial dissolution of the Company or the Trust, or (v) upon
the redemption of all the Trust Securities.
VOTING RIGHTS
Except as described herein, under the Trust Act, the Trust Indenture Act and
under "Description of the Trust Guarantee -- Amendments and Assignment", and
as otherwise required by law and the Declaration, the holders of the Trust
Preferred Securities will have no voting rights.
Subject to the requirement of the Property Trustee obtaining a tax opinion
as set forth in the last sentence of this paragraph, the holders of a majority
in liquidation amount of the Trust Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Property Trustee, or direct the exercise of any trust or
power conferred upon the Property Trustee under the Declaration, including the
right to direct the Property Trustee, as holder of the Partnership Preferred
Securities, to (i) exercise the remedies available to it under the Limited
Partnership Agreement as a holder of the Partnership Preferred Securities,
including the right to direct the Special Representative to exercise its
rights in the manner described above under "-- Trust Enforcement Events" and
(ii) consent to any amendment, modification, or termination of the Limited
Partnership Agreement or the Partnership Preferred Securities where such
consent shall be required; provided, however, that where a consent or action
under the Limited Partnership Agreement would require the consent or act of
the holders of more than a majority of the aggregate liquidation preference of
Partnership Preferred Securities affected thereby, only the holders of the
percentage of the aggregate stated liquidation amount of the Trust Securities
which is at least equal to the percentage required under the Limited
Partnership Agreement may direct the Property Trustee to give such consent or
take such action on behalf of the Trust. See "Description of the Partnership
Preferred Securities -- Voting Rights". The Property Trustee shall notify all
holders of the Trust Preferred Securities of any notice of any Partnership
Enforcement Event received from the General Partner with respect to the
Partnership Preferred Securities and the Affiliate Investment Instruments.
Such notice shall state that such Partnership Enforcement Event also
constitutes a Trust Enforcement Event. Except with respect to directing the
time, method, and place of conducting a proceeding for a remedy as described
above, the Property Trustee shall be under no obligation to take any of the
actions described in clauses (i) or (ii) above unless the Property Trustee has
obtained an opinion of independent tax counsel to the effect that as a result
of such action, the Trust will not fail to be classified as a grantor trust
for United States federal income tax purposes and that after such action each
holder of Trust Securities will continue to be treated as owning an undivided
beneficial ownership interest in the Partnership Preferred Securities.
A waiver of a Partnership Enforcement Event with respect to the Partnership
Preferred Securities held by the Property Trustee will constitute a waiver of
the corresponding Trust Enforcement Event.
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Any required approval or direction of holders of Trust Preferred Securities
may be given at a separate meeting of holders of Trust Preferred Securities
convened for such purpose, at a meeting of all of the holders of Trust
Securities or pursuant to written consent. The Regular Trustees will cause a
notice of any meeting at which holders of Trust Preferred Securities are
entitled to vote, or of any matter upon which action by written consent of
such holders is to be taken, to be mailed to each holder of record of Trust
Preferred Securities. Each such notice will include a statement setting forth
the following information: (i) the date of such meeting or the date by which
such action is to be taken; (ii) a description of any resolution proposed for
adoption at such meeting on which such holders are entitled to vote or of such
matter upon which written consent is sought; and (iii) instructions for the
delivery of proxies or consents. No vote or consent of the holders of Trust
Preferred Securities will be required for the Trust to redeem and cancel Trust
Preferred Securities or distribute Partnership Preferred Securities in
accordance with the Declaration.
Notwithstanding that holders of Trust Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Trust Securities that are beneficially owned at such time by the Company or
any entity directly or indirectly controlled by, or under direct or indirect
common control with, the Company, except for Trust Preferred Securities
purchased or acquired by the Company or its affiliates in connection with
transactions effected by or for the account of customers of the Company or any
of its subsidiaries or in connection with the distribution or trading of such
Trust Preferred Securities, shall not be entitled to vote or consent and
shall, for purposes of such vote or consent, be treated as if such Trust
Securities were not outstanding; provided, however, that persons (other than
affiliates of the Company) to whom the Company or any of its subsidiaries have
pledged Trust Preferred Securities may vote or consent with respect to such
pledged Trust Preferred Securities pursuant to the terms of such pledge.
The procedures by which holders of Trust Preferred Securities represented by
the global certificates may exercise their voting rights are described below.
See "-- Book-Entry Only Issuance -- The Depository Trust Company".
Holders of the Trust Preferred Securities will have no rights to appoint or
remove the Regular Trustees, who may be appointed, removed or replaced solely
by the Company, as the holder of all of the Trust Common Securities.
MERGER, CONSOLIDATION OR AMALGAMATION OF THE TRUST
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other entity, except as
described below. The Trust may, with the consent of a majority of the Regular
Trustees and without the consent of the holders of the Trust Securities, the
Property Trustee or the Delaware Trustee consolidate, amalgamate, merge with
or into, or be replaced by a trust organized as such under the laws of any
State of the United States; provided, that (i) if the Trust is not the
survivor, such successor entity either (x) expressly assumes all of the
obligations of the Trust under the Trust Securities or (y) substitutes for the
Trust Preferred Securities other securities having substantially the same
terms as the Trust Preferred Securities (the "Successor Securities"), so long
as the Successor Securities rank the same as the Trust Securities rank with
respect to distributions, assets and payments, (ii) the Company expressly
acknowledges a trustee of such successor entity possessing the same powers and
duties as the Property Trustee as the holder of the Partnership Preferred
Securities, (iii) the Trust Preferred Securities or any Successor Securities
are listed, or any Successor Securities will be listed upon notification of
issuance, on any national securities exchange or with another organization on
which the Trust Preferred Securities are then listed or quoted, (iv) such
merger, consolidation, amalgamation or replacement does not cause the Trust
Preferred Securities (including any Successor Securities) to be downgraded by
any nationally recognized statistical rating organization, (v) such merger,
consolidation, amalgamation or replacement does not adversely affect the
rights, preferences and privileges of the holders of the Trust Preferred
Securities (including any Successor Securities) in any material respect, (vi)
such successor entity has a purpose substantially identical to that of the
Trust, (vii) the Company guarantees the obligations of such successor entity
under the Successor
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Securities to the same extent as provided by the Trust Guarantee and (viii)
prior to such merger, consolidation, amalgamation or replacement, the Company
has received an opinion of a nationally recognized independent counsel to the
Trust experienced in such matters to the effect that: (A) such merger,
consolidation, amalgamation or replacement will not adversely affect the
rights, preferences and privileges of the holders of the Trust Preferred
Securities (including any Successor Securities) in any material respect (other
than with respect to any dilution of the holders' interest in the new entity),
(B) following such merger, consolidation, amalgamation or replacement, neither
the Trust nor such successor entity will be required to register as an
investment company under the 1940 Act, (C) following such merger,
consolidation, amalgamation or replacement, the Trust (or such successor
trust) will not be classified as an association or a publicly traded
partnership taxable as a corporation for United States federal income tax
purposes and (D) following such merger, consolidation, amalgamation or
replacement, the Partnership will not be classified as an association or a
publicly traded partnership taxable as a corporation for United States federal
income tax purposes. Notwithstanding the foregoing, the Trust shall not,
except with the consent of holders of 100% in liquidation amount of the Trust
Preferred Securities, consolidate, amalgamate, merge with or into, or be
replaced by any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it, if such consolidation,
amalgamation, merger or replacement would cause the Trust or the successor
entity to be classified as an association or a publicly traded partnership
taxable as a corporation for United States federal income tax purposes.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by a majority of the
Regular Trustees (and in certain circumstances the Property Trustee and the
Delaware Trustee), provided, that if any proposed amendment provides for, or
the Regular Trustees otherwise propose to effect, (i) any action that would
adversely affect the powers, preferences or special rights of the Trust
Securities, whether by way of amendment to the Declaration or otherwise or
(ii) the dissolution, winding-up or termination of the Trust other than
pursuant to the terms of the Declaration, then the holders of the Trust
Securities voting together as a single class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of at least a majority in liquidation amount of the
Trust Securities affected thereby; provided, further that if any amendment or
proposal referred to in clause (i) above would adversely affect only the Trust
Preferred Securities or the Trust Common Securities, then only the affected
class will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective except with the approval of a
majority in liquidation amount of such class of Trust Securities.
The Declaration may be amended without the consent of the holders of the
Trust Securities to (i) cure any ambiguity, (ii) correct or supplement any
provision in the Declaration that may be defective or inconsistent with any
other provision of the Declaration, (iii) add to the covenants, restrictions
or obligations of the Sponsor, (iv) conform to any change in the 1940 Act, the
Trust Indenture Act or the rules or regulations of either such Act and (v)
modify, eliminate and add to any provision of the Declaration to such extent
as may be necessary or desirable; provided that no such amendment shall have a
material adverse effect on the rights, preferences or privileges of the
holders of the Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
fail to be classified as a grantor trust for United States federal income tax
purposes, (ii) cause the Partnership to be classified as an association or
publicly traded partnership taxable as a corporation for such purposes, (iii)
reduce or otherwise adversely affect the powers of the Property Trustee or
(iv) cause the Trust or the Partnership to be deemed an "investment company"
which is required to be registered under the 1940 Act.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depository (the
"Depository") for the Trust Preferred Securities and, to the extent
distributed to the holders of Trust Preferred Securities, the Partnership
Preferred Securities. The Trust Preferred Securities will be issued only as
fully-registered securities registered in
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the name of Cede & Co. (DTC's nominee). One or more fully-registered global
Trust Preferred Securities certificates ("Global Certificates"), representing
the total aggregate number of Trust Preferred Securities, will be issued and
will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Participants in DTC
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
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 DTC system is also available to others such as securities
brokers and dealers, banks and trust companies that clear through or maintain
a custodial relationship with a Participant, either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and its Participants
are on file with the Commission.
Purchases of Trust Preferred Securities within the DTC system must be made
by or through Participants, which will receive a credit for the Trust
Preferred Securities on DTC's records. The ownership interest of each actual
purchaser of Trust Preferred Securities ("Beneficial Owner") is in turn to be
recorded on the Participants' and Indirect Participants' records. Beneficial
Owners will not receive written confirmation from DTC of their purchases, but
Beneficial Owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the Participants or Indirect Participants through which the Beneficial
Owners purchased Trust Preferred Securities. Transfers of ownership interests
in the Trust Preferred Securities are to be accomplished by entries made on
the books of Participants and Indirect Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in Trust Preferred Securities, except
in the event that use of the book-entry system for the Trust Preferred
Securities is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Trust Preferred
Securities; DTC's records reflect only the identity of the Participants to
whose accounts such Trust Preferred Securities are credited, which may or may
not be the Beneficial Owners. The Participants and Indirect Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Certificate, DTC or such nominee, as the case may be, will be
considered the sole owner or holder of the Trust Preferred Securities
represented thereby for all purposes under the Declaration and the Trust
Preferred Securities. No beneficial owner of an interest in a Global
Certificate will be able to transfer that interest except in accordance with
DTC's applicable procedures, in addition to those provided for under the
Declaration.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Trust Preferred Securities (including the presentation of
Trust Preferred Securities for exchange as described below) only at the
direction of one or more Participants to whose account the DTC interests in
the Global Certificates are credited and only in respect of such portion of
the aggregate liquidation amount of Trust Preferred Securities as to which
such Participant or Participants has or have given such direction. Also, if
there is a Trust Enforcement Event under the Trust Preferred Securities, DTC
will exchange the Global Certificates for Certificated Securities, which it
will distribute to its Participants in accordance with its customary
procedures.
Conveyance of notices and other communications by DTC 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.
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Redemption notices in respect of the Trust Preferred Securities held in
book-entry form will be sent to Cede & Co. If less than all of the Trust
Preferred Securities are being redeemed, DTC will determine the amount of the
interest of each Participant to be redeemed in accordance with its procedures.
Although voting with respect to the Trust Preferred Securities is limited,
in those cases where a vote is required, neither DTC nor Cede & Co. will
itself consent or vote with respect to Trust Preferred Securities. Under its
usual procedures, DTC would mail an Omnibus Proxy to the Trust as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Participants to whose accounts the Trust
Preferred Securities are allocated on the record date (identified in a listing
attached to the Omnibus Proxy).
Distributions on the Trust Preferred Securities held in book-entry form will
be made to DTC in immediately available funds. DTC's practice is to credit
Participants' accounts on the relevant payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe
that it will not receive payments on such payment date. Payments by
Participants and Indirect Participants to Beneficial Owners will be governed
by standing instructions and customary practices and will be the
responsibility of such Participants and Indirect Participants and not of DTC,
the Trust or the Company, subject to any statutory or regulatory requirements
as may be in effect from time to time. Payment of any distributions to DTC is
the responsibility of the Trust, disbursement of such payments to Participants
is the responsibility of DTC, and disbursement of such payments to the
Beneficial Owners is the responsibility of Participants and Indirect
Participants.
Except as described, a Beneficial Owner of an interest in a Global
Certificate will not be entitled to receive physical delivery of Trust
Preferred Securities. Accordingly, each Beneficial Owner must rely on the
procedures of DTC to exercise any rights under the Trust Preferred Securities.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Certificates among Participants of DTC,
DTC is under no obligation to perform or continue to perform such procedures,
and such procedures may be discontinued at any time. Neither the Company nor
the Trust will have any responsibility for the performance by DTC or its
Participants or Indirect Participants under the rules and procedures governing
DTC. DTC may discontinue providing its services as securities depository with
respect to the Trust Preferred Securities at any time by giving notice to the
Trust. Under such circumstances, in the event that a successor securities
depository is not obtained, Trust Preferred Security certificates are required
to be printed and delivered to the Property Trustee. Additionally, the Trust
(with the consent of the Company) may decide to discontinue use of the system
of book-entry transfers through DTC or any successor depository. In that
event, certificates for the Trust Preferred Securities will be printed and
delivered to the Property Trustee. In each of the above circumstances, the
Company will appoint a paying agent with respect to the Trust Preferred
Securities.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in the global Trust Preferred
Securities as represented by a Global Certificate.
PAYMENT
Payments in respect of the Trust Preferred Securities represented by the
Global Certificates shall be made to DTC, which shall credit the relevant
accounts at DTC on the scheduled payment dates or, in the case of certificated
securities, if any, such payments shall be made by check mailed to the address
of the holder entitled thereto as such address shall appear on the register.
The Paying Agent shall be permitted to resign as Paying Agent upon 30 days
written notice to the Regular Trustees. In the event that The Chase Manhattan
Bank shall no longer be the Paying Agent, the Regular Trustees shall appoint a
successor to act as Paying Agent (which shall be a bank or trust company).
REGISTRAR, TRANSFER AGENT, AND PAYING AGENT
The Property Trustee will act as Registrar, Transfer Agent and Paying Agent
for the Trust Preferred Securities.
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Registration of transfers of Trust Preferred Securities will be effected
without charge by or on behalf of the Trust, but upon payment (with the giving
of such indemnity as the Trust or the Company may require) in respect of any
tax or other government charges which may be imposed in relation to it.
The Trust will not be required to register or cause to be registered the
transfer of Trust Preferred Securities after such Trust Preferred Securities
have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a default with respect to
the Trust Securities, undertakes to perform only such duties as are
specifically set forth in the Declaration and, after default, shall exercise
the same degree of care as a prudent individual would exercise in the conduct
of his or her own affairs. Subject to such provisions, the Property Trustee is
under no obligation to exercise any of the powers vested in it by the
Declaration at the request of any holder of Trust Preferred Securities, unless
offered reasonable indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. The holders of Trust Preferred
Securities will not be required to offer such indemnity in the event such
holders, by exercising their voting rights, direct the Property Trustee to
take any action following a Trust Enforcement Event.
GOVERNING LAW
The Declaration and the Trust Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to conduct the affairs of
and to operate the Trust in such a way that the Trust will not be deemed to be
an "investment company" required to be registered under the 1940 Act or
characterized as other than a grantor trust for United States federal income
tax purposes. In this connection, the Regular Trustees are authorized to take
any action, not inconsistent with applicable law, the certificate of trust or
the Declaration that the Regular Trustees determine in their discretion to be
necessary or desirable for such purposes as long as such action does not
adversely affect the interests of the holders of the Trust Preferred
Securities.
Holders of the Trust Preferred Securities have no preemptive rights.
DESCRIPTION OF THE TRUST GUARANTEE
Set forth below is a summary of information concerning the Trust Guarantee
which will be executed and delivered by the Company for the benefit of the
holders from time to time of Trust Preferred Securities. The summary does not
purport to be complete and is subject in all respects to the provisions of,
and is qualified in its entirety by reference to, the Trust Guarantee, which
is filed as an exhibit to the Registration Statement of which this Prospectus
is a part. The Trust Guarantee incorporates by reference the terms of, and
will be qualified as an indenture under, the Trust Indenture Act. The Chase
Manhattan Bank, as the Trust Guarantee Trustee, will hold the Trust Guarantee
for the benefit of the holders of the Trust Preferred Securities and will act
as indenture trustee for the purposes of compliance with the Trust Indenture
Act.
GENERAL
Pursuant to the Trust Guarantee, the Company will irrevocably agree, on a
subordinated basis and to the extent set forth therein, to pay in full to the
holders of the Trust Preferred Securities (except to the extent paid by the
Trust), as and when due, regardless of any defense, right of set off or
counterclaim which the Trust may have or assert, the following payments (the
"Trust Guarantee Payments"), without duplication: (i) any accumulated and
unpaid distributions on the Trust Preferred Securities to the extent the Trust
has funds available
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therefor, (ii) the Redemption Price with respect to any Trust Preferred
Securities called for redemption by the Trust, to the extent the Trust has
funds available therefor and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of the Trust (other than in connection
with the distribution of Partnership Preferred Securities to the holders of
Trust Preferred Securities or the redemption of all of the Trust Preferred
Securities), the lesser of (a) the aggregate of the liquidation amount and all
accumulated and unpaid distributions on the Trust Preferred Securities and (b)
the amount of assets of the Trust remaining available for distribution to
holders of Trust Preferred Securities upon the liquidation of the Trust. The
Company's obligation to make a Trust Guarantee Payment may be satisfied by
direct payment of the required amounts by the Company to the holders of Trust
Preferred Securities or by causing the Trust to pay such amounts to such
holders.
The Trust Guarantee will be a guarantee on a subordinated basis with respect
to the Trust Preferred Securities from the time of issuance of such Trust
Preferred Securities but will only apply to any payment of distributions or
Redemption Price, or to payments upon the dissolution, winding-up or
termination of the Trust, to the extent the Trust shall have funds available
therefor. If the Partnership fails to declare distributions on Partnership
Preferred Securities, the Trust would lack available funds for the payment of
distributions or amounts payable on redemption of the Trust Preferred
Securities or otherwise, and in such event holders of the Trust Preferred
Securities would not be able to rely upon the Trust Guarantee for payment of
such amounts. Instead, holders of the Trust Preferred Securities will have the
remedies described herein under "Description of the Trust Preferred
Securities -- Trust Enforcement Events", including the right to direct the
Trust Guarantee Trustee to enforce the covenant restricting certain payments
by the Company and Finance Subsidiaries. See "-- Covenants of the Company"
below.
The Guarantees, when taken together with the Company Debenture and the
Company's obligations to pay all fees and expenses of the Trust and the
Partnership, constitute a guarantee to the extent set forth herein by the
Company of the distribution, redemption and liquidation payments payable to
the holders of the Trust Preferred Securities. The Guarantees do not apply,
however, to current distributions by the Partnership unless and until such
distributions are declared by the Partnership out of funds legally available
for payment or to liquidating distributions unless there are assets available
for payment in the Partnership, each as more fully described under "Risk
Factors -- Insufficient Income or Assets Available to Partnership".
COVENANTS OF THE COMPANY
The Company will covenant in the Trust Guarantee that, if (a) for any
distribution period, full distributions on a cumulative basis on any Trust
Preferred Securities have not been paid, (b) an Investment Event of Default by
any Investment Affiliate in respect of any Affiliate Investment Instrument has
occurred and is continuing or (c) the Company is in default of its obligations
under the Trust Guarantee, the Partnership Guarantee or any Investment
Guarantee, then, during such period (i) the Company shall not declare or pay
dividends on, make distributions with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital
stock or comparable equity interest (except for (x) dividends or distributions
in shares of, or options, warrants or rights to subscribe for or purchase
shares of, its capital stock, and conversions or exchanges of common stock of
one class into common stock of another class, (y) redemptions or purchases of
any rights pursuant to the Rights Agreement and the issuance of preferred
stock pursuant to such rights and (z) purchases or acquisitions by the Company
or its affiliates in connection with transactions effected by or for the
account of customers of the Company or any of its subsidiaries or in
connection with the distribution or trading of such capital stock or
comparable equity interest) and (ii) the Company shall not make, permit any
Finance Subsidiary to make, or make any payments that would enable any Finance
Subsidiary to make, any payment of any dividends on, any distribution with
respect to, or any redemption, purchase or other acquisition of, or any
liquidation payment with respect to, any preferred security or comparable
equity interest of any Finance Subsidiary.
EVENTS OF DEFAULT; ENFORCEMENT OF TRUST GUARANTEE
An event of default under the Trust Guarantee will occur upon the failure of
the Company to perform any of its payment or other obligations thereunder.
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The holders of a majority in liquidation amount of the Trust Preferred
Securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trust Guarantee Trustee or to
direct the exercise of any trust or power conferred upon the Trust Guarantee
Trustee under the Trust Guarantee. If the Trust Guarantee Trustee fails to
enforce its rights under the Trust Guarantee after a holder of Trust Preferred
Securities has made a written request, such holder may institute a legal
proceeding directly against the Company to enforce the Trust Guarantee
Trustee's rights under the Trust Guarantee, without first instituting a legal
proceeding against the Trust, the Trust Guarantee Trustee or any other person
or entity. In any event, if the Company has failed to make a guarantee payment
under the Trust Guarantee, a holder of Trust Preferred Securities may directly
institute a proceeding in such holder's own name against the Company for
enforcement of the Trust Guarantee for such payment.
STATUS OF THE TRUST GUARANTEE; SUBORDINATION
The Trust Guarantee will constitute an unsecured obligation of the Company
and will rank subordinate and junior in right of payment to all other
liabilities of the Company and will rank pari passu with the most senior
preferred stock, if any, issued from time to time by the Company, with similar
guarantees issued by the Company in connection with the $275,000,000 aggregate
liquidation amount of 7 3/4% Trust Originated Preferred Securities issued by
Merrill Lynch Preferred Capital Trust I, the $300,000,000 aggregate
liquidation amount of 8% Trust Originated Preferred Securities issued by
Merrill Lynch Preferred Capital Trust II, the $750,000,000 aggregate
liquidation amount of 7% Trust Originated Preferred Securities issued by
Merrill Lynch Preferred Capital Trust III, the $400,000,000 aggregate
liquidation amount of 7.12% Trust Originated Preferred Securities issued by
Merrill Lynch Preferred Capital Trust IV and with any guarantee now or
hereafter entered into by the Company in respect of any preferred stock of any
other Finance Subsidiary. Accordingly, the rights of the holders of Trust
Preferred Securities to receive payments under the Trust Guarantee will be
subject to the rights of the holders of any obligations of the Company that
are senior in priority to the obligations under the Trust Guarantee.
Furthermore, the holders of obligations of the Company that are senior to the
obligations under the Trust Guarantee (including, but not limited to,
obligations constituting Senior Indebtedness) will be entitled to the same
rights upon payment default or dissolution, liquidation and reorganization in
respect of the Trust Guarantee that inure to the holders of Senior
Indebtedness as against the holders of the Company Debenture. The terms of the
Trust Preferred Securities provide that each holder of Trust Preferred
Securities, by acceptance thereof, agrees to the subordination provisions and
other terms of the Trust Guarantee.
The Trust Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may directly institute a legal
proceeding against the Company to enforce its rights under the Trust Guarantee
without instituting a legal proceeding against any other person or entity).
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of Trust Preferred Securities (in which case no vote
will be required), the Trust Guarantee may be amended only with the prior
approval of the holders of at least a majority in liquidation amount of all
the outstanding Trust Preferred Securities. The manner of obtaining any such
approval of holders of the Trust Preferred Securities will be as set forth
under "Description of the Trust Preferred Securities -- Voting Rights". All
guarantees and agreements contained in the Trust Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of the Company
and shall inure to the benefit of the holders of the Trust Preferred
Securities then outstanding. Except in connection with permitted merger or
consolidation of the Company with or into another entity or permitted sale,
transfer or lease of the Company's assets to another entity in which the
surviving corporation (if other than the Company) assumes the Company's
obligations under the Trust Guarantee, the Company may not assign its rights
or delegate its obligations under the Trust Guarantee without the prior
approval of the holders of at least a majority of the aggregate stated
liquidation amount of the Trust Preferred Securities then outstanding.
TERMINATION OF THE TRUST GUARANTEE
The Trust Guarantee will terminate as to each holder of Trust Preferred
Securities upon (i) full payment of the Redemption Price of all Trust
Preferred Securities, (ii) distribution of the Partnership Preferred
Securities
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held by the Trust to the holders of the Trust Preferred Securities or (iii)
full payment of the amounts payable in accordance with the Declaration upon
liquidation of the Trust. The Trust Guarantee will continue to be effective or
will be reinstated, as the case may be, if at any time any holder of Trust
Preferred Securities must restore payment of any sum paid under such Trust
Preferred Securities or such Trust Guarantee.
INFORMATION CONCERNING THE TRUST GUARANTEE TRUSTEE
The Trust Guarantee Trustee, prior to the occurrence of a default with
respect to the Trust Guarantee, undertakes to perform only such duties as are
specifically set forth in the Trust Guarantee and, after default with respect
to the Trust Guarantee, shall exercise the same degree of care as a prudent
man would exercise in the conduct of his own affairs. Subject to such
provision, the Trust Guarantee Trustee is under no obligation to exercise any
of the powers vested in it by the Trust Guarantee at the request of any holder
of Trust Preferred Securities unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred thereby.
GOVERNING LAW
The Guarantee will be governed by, and construed in accordance with, the
internal laws of the State of New York.
DESCRIPTION OF THE PARTNERSHIP PREFERRED SECURITIES
GENERAL
All of the partnership interests in the Partnership, other than the
Partnership Preferred Securities acquired by the Trust, are owned directly by
the Company. Initially, the Company will be the sole General Partner of the
Partnership. The Limited Partnership Agreement authorizes and creates the
Partnership Preferred Securities, which represent limited partner interests in
the Partnership. The limited partner interests represented by the Partnership
Preferred Securities will have a preference with respect to distributions and
amounts payable on redemption or liquidation over the General Partner's
interest in the Partnership. Except as otherwise described herein or provided
in the Limited Partnership Agreement, the Limited Partnership Agreement does
not permit the issuance of any additional partnership interests, or the
incurrence of any indebtedness by the Partnership.
The summary of certain material terms and provisions of the Partnership
Preferred Securities set forth below does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the Limited
Partnership Agreement, which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part, and the Partnership Act.
DISTRIBUTIONS
Holders of Partnership Preferred Securities will be entitled to receive
cumulative cash distributions, if, as and when declared by the General Partner
in its sole discretion out of assets of the Partnership legally available for
payment. The distributions payable on each Partnership Preferred Security will
be fixed at a rate per annum of % of the stated liquidation preference of
$25 per Partnership Preferred Security. Distributions not paid on the
scheduled payment date will accumulate and compound quarterly at the rate per
annum equal to %. The amount of distributions payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months.
Distributions on the Partnership Preferred Securities will be payable
quarterly in arrears on , , and of each year, commencing
. If distributions are not declared and paid when scheduled, the
accumulated distributions shall be paid to the holders of record of
Partnership Preferred Securities as they appear on the books and records of
the Partnership on the record date with respect to the payment date for the
Partnership Preferred Securities.
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The Partnership's earnings available for distribution to the holders of the
Partnership Preferred Securities will be limited to payments made on the
Affiliate Investment Instruments and Investment Guarantees and payments on
Eligible Debt Securities in which the Partnership has invested from time to
time. See "-- Partnership Investments". To the extent that the issuers (and,
where applicable, the Company, as guarantor) of the securities in which the
Partnership invests fail to make any payment in respect of such securities
(or, if applicable, such guarantees), the Partnership will not have sufficient
funds to pay and will not declare or pay distributions on the Partnership
Preferred Securities, in which event the Partnership Guarantee will not apply
to such distributions until the Partnership has sufficient funds available
therefor. See "Description of the Partnership Guarantee". In addition,
distributions on the Partnership Preferred Securities may be declared and paid
only as determined in the sole discretion of the General Partner of the
Partnership. If the Partnership fails to declare and pay distributions on the
Partnership Preferred Securities out of funds legally available for
distribution, the Trust will not have sufficient funds to make distributions
on the Trust Preferred Securities, in which event the Trust Guarantee will not
apply to such distributions until the Trust has sufficient funds available
therefor. In addition, as described under "Risk Factors -- Insufficient Income
or Assets Available to Partnership", the Partnership may not have sufficient
funds to pay current or liquidating distributions on the Partnership Preferred
Securities if (i) at any time that the Partnership is receiving current
payments in respect of the securities held by the Partnership (including the
Debentures), the General Partner, in its sole discretion, does not declare
distributions on the Partnership Preferred Securities and the Partnership
receives insufficient amounts to pay the additional compounded distributions
that will accumulate in respect of the Partnership Preferred Securities, (ii)
the Partnership reinvests the proceeds received in respect of the Debentures
upon their retirement or at their maturities in Affiliate Investment
Instruments that do not generate income in an amount that is sufficient to pay
full distributions in respect of the Partnership Preferred Securities or (iii)
the Partnership invests in debt securities of Investment Affiliates that are
not guaranteed by the Company and that cannot be liquidated by the Partnership
for an amount sufficient to pay such distributions in full.
Distributions on the Partnership Preferred Securities will be payable to the
holders thereof as they appear on the books and records of the Partnership on
the relevant record dates, which, as long as the Trust Preferred Securities
remain (or, in the event that the Trust is liquidated in connection with a
Trust Special Event, as long as the Partnership Preferred Securities remain)
in book-entry only form, will be one Business Day prior to the relevant
payment dates. In the event the Trust Preferred Securities (or in the event
that the Trust is liquidated in connection with a Trust Special Event, the
Partnership Preferred Securities) shall not continue to remain in book-entry
only form, the relevant record dates shall be the 15th day of the month of the
relevant payment dates. In the event that any date on which distributions are
payable on the Partnership Preferred Securities is not a Business Day, then
payment of the distribution payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay) except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on such date.
PARTNERSHIP ENFORCEMENT EVENTS
If one or more of the following events shall occur and be continuing (each a
"Partnership Enforcement Event"): (i) arrearages on distributions on the
Partnership Preferred Securities shall exist for six consecutive quarterly
distribution periods, (ii) the Company is in default on any of its obligations
under the Partnership Guarantee or any Investment Guarantee or (iii) an
Investment Event of Default occurs and is continuing on any Affiliate
Investment Instrument, then the Property Trustee, for so long as the
Partnership Preferred Securities are held by the Property Trustee, will have
the right, or holders of the Partnership Preferred Securities will be entitled
by the vote of a majority in aggregate liquidation preference of such holders
(a) under the Limited Partnership Agreement to enforce the terms of the
Partnership Preferred Securities, including the right to appoint and authorize
a special representative of the Partnership and the limited partners (a
"Special Representative") to enforce (1) the Partnership's creditors' rights
and other rights with respect to the Affiliate Investment Instruments and the
Investment Guarantees, (2) the rights of the holders of the Partnership
Preferred Securities under the Partnership Guarantee and (3) the rights of the
holders of the Partnership Preferred Securities to receive distributions (only
if and to the extent declared out of funds legally available therefor) on the
Partnership
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Preferred Securities, and (b) under the Partnership Guarantee to enforce the
terms of the Partnership Guarantee, including the right to enforce the
covenant restricting certain payments by the Company and Finance Subsidiaries.
If the Special Representative fails to enforce its rights under the
Affiliate Investment Instruments after a holder of Partnership Preferred
Securities has made a written request, such holder of record of Partnership
Preferred Securities may directly institute a legal proceeding against the
Company to enforce the rights of the Special Representative and the
Partnership under the Affiliate Investment Instruments without first
instituting any legal proceeding against the Special Representative, the
Partnership or any other person or entity. In any event, if a Partnership
Enforcement Event has occurred and is continuing and such event is
attributable to the failure of an Investment Affiliate to make any required
payment when due on any Affiliate Investment Instrument, then a holder of
Partnership Preferred Securities may on behalf of the Partnership directly
institute a proceeding against such Investment Affiliate with respect to such
Affiliate Investment Instrument for enforcement of payment. A holder of
Partnership Preferred Securities may also bring a direct action against the
Company to enforce such holder's right under the Partnership Guarantee. See
"Description of the Partnership Guarantee -- Events of Default; Enforcement of
Partnership Guarantee".
Under no circumstances, however, shall the Special Representative have
authority to cause the General Partner to declare distributions on the
Partnership Preferred Securities. As a result, although the Special
Representative may be able to enforce the Partnership's creditors' rights to
accelerate and receive payments in respect of the Affiliate Investment
Instruments and the Investment Guarantees, the Partnership would be entitled
to reinvest such payments in additional Affiliate Investment Instruments,
subject to satisfying the reinvestment criteria described under "--
Partnership Investments", and Eligible Debt Securities, rather than declaring
and making distributions on the Partnership Preferred Securities. The Special
Representative shall not, by virtue of acting in such capacity, be admitted as
a general partner in the Partnership or otherwise be deemed to be a general
partner in the Partnership and shall have no liability for the debts,
obligations or liabilities of the Partnership.
PARTNERSHIP INVESTMENTS
Approximately 99% of the proceeds from the issuance of the Partnership
Preferred Securities and the General Partner's contemporaneous capital
contribution (the "Initial Partnership Proceeds") will be used by the
Partnership to purchase the Debentures and the remaining 1% of the Initial
Partnership Proceeds will be used to purchase Eligible Debt Securities. The
purchase of the Debentures by the Partnership will occur contemporaneously
with the issuance of the Partnership Preferred Securities.
The initial Affiliate Investment Instruments purchased by the Partnership
will consist of two or more debt instruments (the "Debentures"). The Company
anticipates that approximately 85% of the Initial Partnership Proceeds will be
used to purchase a Debenture of the Company (the "Company Debenture"), and
approximately 14% of the Initial Partnership Proceeds will be used to purchase
Debentures of one or more eligible controlled affiliates of the Company (the
"Affiliate Debentures"). Each Debenture is expected to have a term of 20 years
and to provide for interest payable on , , and of each year,
commencing , at market rates for such Debentures. The Debentures will be
general unsecured debt obligations of the relevant issuer, except that the
Company Debenture will rank subordinate and junior to all Senior Indebtedness
of the Company.
The payment of interest on each of the Debentures may be deferred at any
time, and from time to time, by the relevant issuer for a period not exceeding
six consecutive quarters. If an issuer were to so defer the payment of
interest, interest would continue to accrue and compound at the stated
interest rate on such Debenture. The Debentures will contain covenants
appropriate for unsecured debt securities issued or guaranteed by similar
borrowers pursuant to a public offering or private placement under Rule 144A
of the Securities Act of a comparable debt security, including a limitation on
consolidation, merger and sale or conveyance of assets. The Debentures will
contain redemption provisions that correspond to the redemption provisions
applicable to the Partnership Preferred Securities, including an option to
redeem the Debentures by the relevant issuer, in whole or in part, from time
to time, on or after , and following the occurrence of a Partnership
Special
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Event, in each case, in the same manner described under "-- Optional
Redemption" and "-- Partnership Special Event Redemption". The Debentures, and
any other Affiliate Investment Instruments that are debt instruments acquired
by the Partnership in the future, will also contain customary events of
default (the "Investment Events of Default"), including events of default for
defaults in payments on such securities when due (provided that no default
shall occur upon a valid deferral of an interest payment by an issuer),
defaults in the performance of the relevant issuer's obligations under its
Debenture or Affiliate Investment Instruments, as the case may be, and certain
bankruptcy, insolvency or reorganization events (subject to customary
exceptions and grace periods).
The payment of interest and principal when due and other payment terms of
the Debentures (other than the Company Debenture), will be guaranteed to the
extent described herein (each, an "Investment Guarantee") by the Company for
the benefit of the holders of Partnership Preferred Securities. See "--
Investment Guarantees".
Approximately 1% of the Initial Partnership Proceeds will be invested in
Eligible Debt Securities. "Eligible Debt Securities" means cash or book-entry
securities, negotiable instruments, or other securities of entities not
affiliated with the Company which evidence any of the following: (a) any
security issued or guaranteed as to principal or interest by the United
States, or by a person controlled or supervised by and acting as an
instrumentality of the Government of the United States pursuant to authority
granted by the Congress of the United States, or any certificate of deposit
for any of the foregoing; (b) commercial paper issued pursuant to Section
3(a)(3) of the Securities Act and having, at the time of the investment or
contractual commitment to invest therein, a rating from each of Standard &
Poor's Ratings Services, a division of the McGraw-Hill Companies, Inc. ("S&P")
and Moody's Investors Service, Inc. ("Moody's") in the highest investment
rating category granted by such rating agency and having a maturity not in
excess of nine months; (c) demand deposits, time deposits and certificates of
deposit which are fully insured by the Federal Deposit Insurance Corporation
("FDIC"); (d) repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed by, the Government of the United
States of America or any agency or instrumentality thereof, the obligations of
which are backed by the full faith and credit of the United States of America,
in either case entered into with a depository institution or trust company
which is an Eligible Institution (as defined herein) and the deposits of which
are insured by the FDIC; and (e) any other security which is identified as a
permitted investment of a finance subsidiary pursuant to Rule 3a-5 under the
1940 Act at the time it is acquired by the Partnership.
"Eligible Institution" means (a) a depository institution organized under
the laws of the United States or any one of the states thereof or the District
of Columbia (or any domestic branch of a foreign bank), (1) (i) which has
either (A) a long-term unsecured debt rating of AA or better by S&P and Aa or
better by Moody's or (B) a short-term unsecured debt rating or a certificate
of deposit rating of A-1+ by S&P and P-1 by Moody's and (ii) whose deposits
are insured by the FDIC or (2) (i) the parent of which has a long-term or
short-term unsecured debt rating which signifies investment grade and (ii)
whose deposits are insured by the FDIC.
The Partnership may, from time to time and subject to the restrictions
described below, reinvest payments received with respect to the Affiliate
Investment Instruments (including the Debentures) and the Eligible Debt
Securities in additional Affiliate Investment Instruments and Eligible Debt
Securities. As of the date of this Prospectus, the Company, as the General
Partner, does not intend to cause the Partnership to reinvest regularly
scheduled, periodic payments of interest or dividends received by the
Partnership in the manner described below, although there can be no assurance
that the General Partner's intention in respect of such reinvestments will not
change in the future.
The fairness of specific terms of all Affiliate Investment Instruments
(including the Debentures) will be passed upon by a nationally recognized
accounting firm, bank or investment banking firm that does not (and whose
directors, officers, employees and affiliates do not) have a direct or
indirect material equity interest in the Company or any of its subsidiaries
(the "Independent Financial Advisor").
The Partnership may reinvest in additional Affiliate Investment Instruments
only if certain procedures and criteria are satisfied with respect to each
such Affiliate Investment Instrument, including the satisfaction of the
following conditions: (i) the Partnership did not hold debt securities of the
issuer of the proposed Affiliate
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Investment Instrument within the three-year period ending on the date of such
proposed investment; (ii) there was never a default on any debt obligation of,
or arrearages of dividends on preferred stock issued by, the issuer of the
proposed Affiliate Investment Instrument that was previously or is currently
owned by the Partnership; (iii) the applicable terms and provisions with
respect to the proposed Affiliate Investment Instrument have been determined
by the Independent Financial Advisor to be at least as favorable as terms
which could be obtained by the Partnership in a public offering or private
placement under Rule 144A of the Securities Act of a comparable security
issued by the relevant Investment Affiliate and guarantees, if any, included
therein; and (iv) the requesting Investment Affiliate shall not be deemed to
be an investment company by reason of Section 3(a) or 3(b) of the 1940 Act or
is otherwise an eligible recipient of funds directly or indirectly from the
Trust pursuant to an order issued by the Commission. The term "Investment
Affiliate" means the Company or any corporation, partnership, limited
liability company or other entity (other than the Partnership or the Trust)
that is controlled by the Company. If the Partnership is unable to reinvest
payments and proceeds from Affiliate Investment Instruments in additional
Affiliate Investment Instruments meeting the above criteria, the Partnership
may only invest such funds in Eligible Debt Securities (subject to
restrictions of applicable law, including the 1940 Act).
INVESTMENT GUARANTEES
General
The Company will agree to execute and deliver an Investment Guarantee, on a
subordinated basis, for the benefit of the holders of Partnership Preferred
Securities with respect to each Debenture issued by an Investment Affiliate
(other than the Company Debenture) to the extent set forth below. The
Investment Guarantees shall be enforceable regardless of any defense, right of
set-off or counterclaim that the Company may have or assert. The Investment
Guarantees will be full and unconditional guarantees, to the extent set forth
therein, with respect to the applicable Debentures from the time of issuance.
To the extent that, as described above, the Partnership invests in additional
Affiliate Investment Instruments, the determination as to whether such
Affiliate Investment Instrument will contain an Investment Guarantee will be
made at the date of its issuance and will be based, among other things, upon
its approval by the Independent Financial Advisor in accordance with the
reinvestment criteria described above.
The Investment Guarantees will constitute guarantees of payment and not of
collection (that is, the guaranteed party may directly institute a legal
proceeding against the Company to enforce its rights under the applicable
Investment Guarantee without instituting a legal proceeding against any other
person or entity). If no Special Representative has been appointed to enforce
any Investment Guarantee, the General Partner has the right to enforce such
Investment Guarantee on behalf of the holders of the Partnership Preferred
Securities. The holders of not less than a majority in aggregate liquidation
preference of the Partnership Preferred Securities have the right to direct
the time, method and place of conducting any proceeding for any remedy
available in respect of any Investment Guarantee, including the giving of
directions to the General Partner or the Special Representative, as the case
may be. If the General Partner or the Special Representative fails to enforce
any Investment Guarantee as above provided, any holder of Trust Preferred
Securities may institute its own legal proceeding to enforce such Investment
Guarantee. No Investment Guarantee will be discharged except by payment in
full of all amounts guaranteed by such Investment Guarantee (without
duplication of amounts theretofore paid by the relevant Investment Affiliate).
Amendments and Assignment
Except with respect to any changes that do not adversely affect the rights
of holders of Partnership Preferred Securities (in which case no consent will
be required), the Investment Guarantees may be amended only with the prior
approval of the holders of not less than a majority in liquidation preference
of the outstanding Partnership Preferred Securities, provided that for so long
as the Property Trustee of the Trust is the holder of the Partnership
Preferred Securities, such amendment will not be effective without the prior
written approval of a majority in liquidation amount of the outstanding Trust
Preferred Securities. All guarantees and agreements contained in the
Investment Guarantees shall bind the successors, assigns, receivers, trustees
and representatives of the Company and shall inure to the benefit of the
holders of Partnership Preferred Securities. Except in connection with any
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permitted merger or consolidation of the Company with or into another entity
or any permitted sale, transfer or lease of the Company's assets to another
entity in which the surviving corporation (if other than the Company) assumes
the Company's obligations under the Investment Guarantees, the Company may not
assign its rights or delegate its obligations under the Investment Guarantees
without the prior approval of the holders of at least a majority of the
aggregate stated liquidation preference of the Partnership Preferred
Securities then outstanding.
Status of the Investment Guarantees
The Company's obligations under the Investment Guarantees will constitute
unsecured obligations of the Company and will rank subordinate and junior in
right of payment to all other liabilities of the Company and will rank pari
passu with the most senior preferred stock, if any, issued from time to time
by the Company, with similar guarantees issued by the Company in connection
with the $275,000,000 aggregate liquidation amount of 7 3/4% Trust Originated
Preferred Securities issued by Merrill Lynch Preferred Capital Trust I, the
$300,000,000 aggregate liquidation amount of 8% Trust Originated Preferred
Securities issued by Merrill Lynch Preferred Capital Trust II, the
$750,000,000 aggregate liquidation amount of 7% Trust Originated Preferred
Securities issued by Merrill Lynch Preferred Capital Trust III, the
$400,000,000 aggregate liquidation amount of 7.12% Trust Originated Preferred
Securities issued by Merrill Lynch Preferred Capital Trust IV and with any
guarantee now or hereafter entered into by the Company in respect of any
preferred stock of any other Finance Subsidiary. Accordingly, the rights of
the holders of the Debentures to receive payments under the Investment
Guarantees will be subject to the rights of the holders of any obligations
that are senior in priority to the obligations under the Investment
Guarantees. Furthermore, the holders of obligations of the Company that are
senior to the obligations under the Investment Guarantees (including, but not
limited to, obligations constituting Senior Indebtedness) will be entitled to
the same rights upon payment default or dissolution, liquidation and
reorganization in respect of the Investment Guarantees that inure to the
holders of Senior Indebtedness as against the holders of the Company
Debenture. The terms of the Debentures provide that each holder of Debentures,
by acceptance thereof, agrees to the subordination provisions and other terms
of the Investment Guarantees.
Governing Law
The Investment Guarantees will be governed by and construed in accordance
with the internal laws of the State of New York.
OPTIONAL REDEMPTION
The Partnership Preferred Securities are redeemable, at the option of the
General Partner, in whole or in part, from time to time, on or after ,
upon not less than 30 nor more than 60 days notice, at an amount per
Partnership Preferred Security equal to $25 plus accumulated and unpaid
distributions thereon. If the Partnership redeems Partnership Preferred
Securities in accordance with the terms thereof, Trust Securities will be
mandatorily redeemed at the Redemption Price. If a partial redemption would
result in the delisting of the Trust Preferred Securities (or, if the Trust is
liquidated in connection with a Trust Special Event, or if a partial
redemption would result in the delisting of the Partnership Preferred
Securities), the Partnership may only redeem the Partnership Preferred
Securities in whole.
PARTNERSHIP SPECIAL EVENT REDEMPTION
If, at any time, a Partnership Tax Event or a Partnership Investment Company
Event (each as hereinafter defined, and each a "Partnership Special Event")
shall occur and be continuing, the General Partner shall, within 90 days
following the occurrence of such Partnership Special Event, elect to either
(i) redeem the Partnership Preferred Securities in whole (but not in part),
upon not less than 30 or more than 60 days notice at the Redemption Price,
provided that, if at the time there is available to the Partnership the
opportunity to eliminate, within such 90-day period, the Partnership Special
Event by taking some ministerial action, such as filing a form or making an
election, or pursuing some other similar reasonable such measure that in the
sole judgment of the Company has or will cause no adverse effect on the
Partnership, the Trust or the Company, the General Partner will pursue such
measure in lieu of redemption; or (ii) cause the Partnership Preferred
Securities to remain
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outstanding, provided that in the case of this clause (ii), the General
Partner shall pay any and all costs and expenses incurred by or payable by the
Partnership attributable to the Partnership Special Event.
"Partnership Tax Event" means that the General Partner shall have requested
and received an opinion of nationally recognized independent tax counsel
experienced in such matters to the effect that there has been a Tax Action
which affects any of the events described in (i) through (iii) below and that
there is more than an insubstantial risk that (i) the Partnership is, or will
be, subject to United States federal income tax with respect to income accrued
or received on the Affiliate Investment Instruments or the Eligible Debt
Securities, (ii) the Partnership is, or will be, subject to more than a de
minimis amount of other taxes, duties or other governmental charges or (iii)
interest payable by an Investment Affiliate with respect to the Debenture
issued by such Investment Affiliate to the Partnership is not, or will not be,
deductible by such Investment Affiliate for United States federal income tax
purposes.
Recently, the IRS asserted that the interest payable on a security issued in
circumstances with certain similarities to the issuance of the Debentures
issued by the Investment Affiliates to the Partnership was not deductible for
United States federal income tax purposes. The taxpayer in that case has filed
a petition in the United States Tax Court challenging the IRS's position on
this matter. If this matter were to be litigated and the Tax Court were to
sustain the IRS's position on this matter, such judicial decision could
constitute a Partnership Tax Event, which could result in an early redemption
of the Partnership Preferred Securities.
"Partnership Investment Company Event" means that the General Partner shall
have requested and received an opinion of nationally recognized independent
legal counsel experienced in such matters to the effect that as a result of
the occurrence on or after the date hereof of a Change in 1940 Act Law, the
Partnership is or will be considered an "investment company" which is required
to be registered under the 1940 Act.
REDEMPTION PROCEDURES
The Partnership may not redeem fewer than all the outstanding Partnership
Preferred Securities unless all accumulated and unpaid distributions have been
paid on all Partnership Preferred Securities for all quarterly distribution
periods terminating on or prior to the date of redemption.
If the Partnership gives a notice of redemption in respect of Partnership
Preferred Securities (which notice will be irrevocable) then, by 12:00 noon,
New York City time, on the redemption date, the Partnership (i) if the
Partnership Preferred Securities are in book entry form with DTC, will deposit
irrevocably with DTC funds sufficient to pay the applicable Redemption Price
and will give DTC irrevocable instructions and authority to pay the Redemption
Price in respect of the Partnership Preferred Securities held through DTC in
global form or (ii) if the Partnership Preferred Securities are held in
certificated form, will deposit with the paying agent for the Partnership
Preferred Securities funds sufficient to pay such amount in respect of any
Partnership Preferred Securities in certificated form and will give such
paying agent irrevocable instructions and authority to pay such amounts to the
holders of Partnership Preferred Securities upon surrender of their
certificates. See "Description of the Trust Preferred Securities -- Book-Entry
Only Issuance -- The Depository Trust Company".
If notice of redemption shall have been given and funds deposited as
required, then upon the date of such deposit, all rights of holders of such
Partnership Preferred Securities so called for redemption will cease, except
the right of the holders of such Partnership Preferred Securities to receive
the Redemption Price, but without interest on such Redemption Price. In the
event that any date fixed for redemption of Partnership Preferred Securities
is not a Business Day, then payment of the Redemption Price payable on such
date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay) except
that, if such Business Day falls in the next calendar year, such payment will
be made on the immediately preceding Business Day, in each case with the same
force and effect as if made on such date fixed for redemption. In the event
that payment of the Redemption Price in respect of Partnership Preferred
Securities is improperly withheld or refused and not paid either by the
Partnership or by the Company pursuant to the Partnership Guarantee described
under "Description of the Partnership Guarantee," distributions on such
Partnership Preferred Securities will continue to accumulate, from the
original redemption date to the date of payment.
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Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), the Company or any of its subsidiaries
may at any time and from time to time purchase outstanding Partnership
Preferred Securities by tender, in the open market or by private agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary dissolution, winding-up or
termination of the Partnership, the holders of the Partnership Preferred
Securities at the time will be entitled to receive out of the assets of the
Partnership available for distribution to partners after satisfaction of
liabilities of creditors as required by the Partnership Act, before any
distribution of assets is made to the General Partner, an amount equal to, in
the case of holders of Partnership Preferred Securities, the aggregate of the
stated liquidation preference of $25 per Partnership Preferred Security plus
accumulated and unpaid distributions thereon to the date of payment (such
amount being the "Partnership Liquidation Distribution").
Pursuant to the Limited Partnership Agreement, the Partnership shall be
dissolved and its affairs shall be wound up: (i) upon the bankruptcy of the
General Partner, (ii) upon the assignment by the General Partner of its entire
interest in the Partnership when the assignee is not admitted to the
Partnership as a general partner of the Partnership in accordance with the
Limited Partnership Agreement, or the filing of a certificate of dissolution
or its equivalent with respect to the General Partner, or the revocation of
the General Partner's charter and the expiration of 90 days after the date of
notice to the General Partner of revocation without a reinstatement of its
charter, or if any other event occurs that causes the General Partner to cease
to be a general partner of the Partnership under the Partnership Act, unless
the business of the Partnership is continued in accordance with the
Partnership Act, (iii) if the Partnership has redeemed or otherwise purchased
all the Partnership Preferred Securities, (iv) upon the entry of a decree of
judicial dissolution or (v) upon the written consent of all partners of the
Partnership.
VOTING RIGHTS
Except as provided below and under "Description of the Partnership
Guarantee -- Amendments and Assignment" and as otherwise required by law and
the Limited Partnership Agreement, the holders of the Partnership Preferred
Securities will have no voting rights.
Not later than 30 days after any Partnership Enforcement Event occurs, the
General Partner will convene a meeting for the purpose of appointing a Special
Representative. If the General Partner fails to convene such meeting within
such 30-day period, the holders of 10% in liquidation preference of the
outstanding Partnership Preferred Securities will be entitled to convene such
meeting. The provisions of the Limited Partnership Agreement relating to the
convening and conduct of the meetings of the partners will apply with respect
to any such meeting. In the event that, at any such meeting, holders of less
than a majority in aggregate liquidation preference of Partnership Preferred
Securities entitled to vote for the appointment of a Special Representative
vote for such appointment, no Special Representative shall be appointed. Any
Special Representative appointed shall cease to be a Special Representative of
the Partnership and the limited partners if (1) the Partnership (or the
Company pursuant to the Partnership Guarantee) shall have paid in full all
accumulated and unpaid distributions on the Partnership Preferred Securities,
(2) such Investment Event of Default, as the case may be, shall have been
cured, and (3) the Company is in compliance with all its obligations under the
Partnership Guarantee and the Company, in its capacity as the General Partner,
shall continue the business of the Partnership without dissolution.
Notwithstanding the appointment of any such Special Representative, the
Company shall continue as General Partner and shall retain all rights under
the Limited Partnership Agreement, including the right to declare, in its sole
discretion, the payment of distributions on the Partnership Preferred
Securities for which the failure of such declaration would not constitute a
default under the Limited Partnership Agreement.
If any proposed amendment to the Limited Partnership Agreement provides for,
or the General Partner otherwise proposes to effect, (i) any action that would
adversely affect the powers, preferences or special rights of the Partnership
Preferred Securities, whether by way of amendment to the Limited Partnership
Agreement or otherwise (including, without limitation, the authorization or
issuance of any limited partner interests in the
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Partnership ranking, as to participation in the profits or distributions or in
the assets of the Partnership, senior to the Partnership Preferred
Securities), or (ii) the dissolution, winding-up or termination of the
Partnership, other than (x) in connection with the occurrence of a Partnership
Special Event or (y) as described under "Merger, Consolidation or Amalgamation
of the Partnership" below, then the holders of outstanding Partnership
Preferred Securities will be entitled to vote on such amendment or proposal of
the General Partner (but not on any other amendment or proposal) as a class,
and such amendment or proposal shall not be effective except with the approval
of the holders of a majority in liquidation preference of such outstanding
Partnership Preferred Securities having a right to vote on the matter;
provided, however, that if the Property Trustee on behalf of the Trust is the
holder of the Partnership Preferred Securities, any such amendment or proposal
not excepted by clauses (x) and (y) above shall not be effective without the
prior or concurrent approval of the holders of a majority in liquidation
amount of the outstanding Trust Preferred Securities having a right to vote on
such matters.
The General Partner shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available, (ii) waive any Investment
Event of Default that is waivable under the Affiliate Investment Instruments,
(iii) exercise any right to rescind or annul a declaration that the principal
of any Affiliate Investment Instruments shall be due and payable, (iv) waive
the breach of the covenant by the Company to restrict certain payments by the
Company, or (v) consent to any amendment, modification or termination of any
Affiliate Investment Instrument, where such consent shall be required from the
investor, without, in each case, obtaining the prior approval of the holders
of at least a majority in liquidation preference of the Partnership Preferred
Securities; provided, however, that if the Property Trustee on behalf of the
Trust is the holder of the Partnership Preferred Securities, such waiver,
consent or amendment or other action shall not be effective without the prior
or concurrent approval of at least a majority in liquidation amount of the
outstanding Trust Preferred Securities having a right to vote on such matters.
The General Partner shall not revoke any action previously authorized or
approved by a vote of the holders of the Partnership Preferred Securities
without the approval of such revocation by a majority in liquidation
preference of the outstanding Partnership Preferred Securities. The General
Partner shall notify all holders of the Partnership Preferred Securities of
any notice of an Investment Event of Default received with respect to any
Affiliate Investment Instrument.
Any required approval of holders of Partnership Preferred Securities may be
given at a separate meeting of holders of Partnership Preferred Securities
convened for such purpose, at a meeting of all of the partners in the
Partnership or pursuant to written consent. The Partnership will cause a
notice of any meeting at which holders of Partnership Preferred Securities are
entitled to vote, or of any matter upon which action by written consent of
such holders is to be taken, to be mailed to each holder of record of
Partnership Preferred Securities. Each such notice will include a statement
setting forth (i) the date of such meeting or the date by which such action is
to be taken, (ii) a description of any resolution proposed for adoption at
such meeting on which such holders are entitled to vote or of such matters
upon which written consent is sought and (iii) instruction for the delivery of
proxies or consents.
No vote or consent of the holders of Partnership Preferred Securities will
be required for the Partnership to redeem and cancel Partnership Preferred
Securities in accordance with the Limited Partnership Agreement.
Notwithstanding that holders of Partnership Preferred Securities are
entitled to vote or consent under any of the circumstances described above,
any of the Partnership Preferred Securities at such time that are beneficially
owned by the Company or by any entity directly or indirectly controlled by, or
under direct or indirect common control with, the Company, except for
Partnership Preferred Securities purchased or acquired by the Company or its
affiliates in connection with transactions effected by or for the account of
customers of the Company or any of its subsidiaries or in connection with the
distribution or trading of such Partnership Preferred Securities; shall not be
entitled to vote or consent and shall, for purposes of such vote or consent,
be treated as if they were not outstanding, provided, however, that persons
(other than affiliates of the Company) to whom the Company or any of its
subsidiaries have pledged Partnership Preferred Securities may vote or consent
with respect to such pledged Partnership Preferred Securities pursuant to the
terms of such pledge.
Holders of the Partnership Preferred Securities will have no rights to
remove or replace the General Partner.
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MERGER, CONSOLIDATION OR AMALGAMATION OF THE PARTNERSHIP
The Partnership may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other body, except as
described below. The Partnership may, without the consent of the holders of
the Partnership Preferred Securities, consolidate, amalgamate, merge with or
into, or be replaced by a limited partnership, limited liability company or
trust organized as such under the laws of any state of the United States of
America, provided that (i) such successor entity either (x) expressly assumes
all of the obligations of the Partnership under the Partnership Preferred
Securities or (y) substitutes for the Partnership Preferred Securities other
securities having substantially the same terms as the Partnership Preferred
Securities (the "Partnership Successor Securities") so long as the Partnership
Successor Securities are not junior to any other equity securities of the
successor entity, with respect to participation in the profits and
distributions, and in the assets, of the successor entity, (ii) the Investment
Affiliates expressly acknowledge such successor entity as the holder of the
Affiliate Investment Instruments, (iii) the Partnership Preferred Securities
or any Partnership Successor Securities are listed, or any Partnership
Successor Securities will be listed upon notification of issuance, on any
national securities exchange or other organization on which the Partnership
Preferred Securities, if so listed, are then listed, (iv) such merger,
consolidation, amalgamation or replacement does not cause the Trust Preferred
Securities (or, in the event that the Trust is liquidated in connection with a
Trust Special Event, the Partnership Preferred Securities (including any
Partnership Successor Securities)) to be downgraded by any nationally
recognized statistical rating organization, (v) such merger, consolidation,
amalgamation or replacement does not adversely affect the powers, preferences
and other special rights of the holders of the Trust Preferred Securities or
Partnership Preferred Securities (including any Partnership Successor
Securities) in any material respect (other than, in the case of the
Partnership Preferred Securities, with respect to any dilution of the holders'
interest in the new resulting entity), (vi) such successor entity has a
purpose substantially identical to that of the Partnership, (vii) prior to
such merger, consolidation, amalgamation or replacement, the Company has
received an opinion of nationally recognized independent counsel to the
Partnership experienced in such matters to the effect that (A) such successor
entity will be treated as a partnership for United States federal income tax
purposes, (B) such merger, consolidation, amalgamation or replacement would
not cause the Trust to be classified as an association taxable as a
corporation for United States federal income tax purposes, (C) following such
merger, consolidation, amalgamation or replacement, the Company and such
successor entity will be in compliance with the 1940 Act without registering
thereunder as an investment company, and (D) such merger, consolidation,
amalgamation or replacement will not adversely affect the limited liability of
the holders of the Partnership Preferred Securities and (viii) the Company
guarantees the obligations of such successor entity under the Partnership
Successor Securities at least to the extent provided by the Partnership
Guarantee.
BOOK-ENTRY AND SETTLEMENT
If the Partnership Preferred Securities are distributed to holders of Trust
Preferred Securities in connection with the involuntary or voluntary
dissolution, winding-up or liquidation of the Trust as a result of the
occurrence of a Trust Special Event, the Partnership Preferred Securities will
be issued in the form of one or more global certificates (each a "Global
Partnership Security") registered in the name of DTC as the depository or its
nominee. For a description of DTC and the specific terms of the Depository
arrangements, see "Description of the Trust Preferred Securities -- Book-Entry
Only Issuance -- The Depository Trust Company". As of the date of this
Prospectus, the description therein of DTC's book-entry system and DTC's
practices as they relate to purchases, transfers, notices and payments with
respect to the Trust Preferred Securities apply in all material respects to
any Partnership Preferred Securities represented by one or more Global
Partnership Securities.
REGISTRAR, TRANSFER AGENT AND PAYING AGENT
The General Partner will act as registrar, transfer agent and paying agent
for the Partnership Preferred Securities for so long as the Partnership
Preferred Securities are held by the Trust or, if the Trust is liquidated in
connection with a Trust Special Event, for so long as the Partnership
Preferred Securities remain in book-entry only form. In the event the
Partnership Preferred Securities are distributed in connection with a Trust
Special
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Event and the book-entry system for the Partnership Preferred Securities is
discontinued, it is anticipated that The Chase Manhattan Bank or one of its
affiliates will act as registrar, transfer agent and paying agent for the
Partnership Preferred Securities.
Registration of transfers of Partnership Preferred Securities will be
effected without charge by or on behalf of the Partnership, but upon payment
(with the giving of such indemnity as the Partnership or the General Partner
may require) in respect of any tax or other governmental charges that may be
imposed in relation to it.
The Partnership will not be required to register or cause to be registered
the transfer of Partnership Preferred Securities after such Partnership
Preferred Securities have been called for redemption.
MISCELLANEOUS
The General Partner is authorized and directed to conduct its affairs and to
operate the Partnership in such a way that (i) the Partnership will not be
deemed to be an "investment company" required to be registered under the 1940
Act or characterized as an association taxable as a corporation for United
States federal income tax purposes, (ii) the Affiliate Investment Instruments
will be treated as indebtedness of the issuer of such debt instruments for
United States federal income tax purposes and (iii) the Partnership will not
be treated as an association or as a "publicly traded partnership" (within the
meaning of Section 7704 of the Code) taxable as a corporation. In this
connection, the General Partner is authorized to take any action, not
inconsistent with applicable law, the certificate of limited partnership of
the Partnership or the Limited Partnership Agreement, that the General Partner
determines in its discretion to be necessary or desirable for such purposes as
long as such action does not adversely affect the interests of the holders of
the Partnership Preferred Securities.
DESCRIPTION OF THE PARTNERSHIP GUARANTEE
Set forth below is a summary of information concerning the Partnership
Guarantee that will be executed and delivered by the Company for the benefit
of the holders from time to time of Partnership Preferred Securities. The
summary does not purport to be complete and is subject in all respects to the
provisions of, and is qualified in its entirety by reference to, the
Partnership Guarantee, which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The General Partner will hold
the Partnership Guarantee for the benefit of the holders of the Partnership
Preferred Securities.
GENERAL
Pursuant to the Partnership Guarantee, the Company will irrevocably agree,
on a subordinated basis to the extent set forth therein, to pay in full to the
holders of the Partnership Preferred Securities (without duplication of
amounts theretofore paid by the Partnership), as and when due, regardless of
any defense, right of set-off or counterclaim that the Partnership may have or
assert, the following payments (the "Partnership Guarantee Payments"): (i) any
accumulated and unpaid distributions that have theretofore been declared on
the Partnership Preferred Securities out of funds legally available therefor,
(ii) the redemption price with respect to any Partnership Preferred Securities
called for redemption by the Partnership out of funds legally available
therefor, and (iii) upon a liquidation of the Partnership, the lesser of (a)
the aggregate of the liquidation preference and all accumulated and unpaid
distributions on the Partnership Preferred Securities to the date of payment
and (b) the amount of assets of the Partnership, after satisfaction of all
liabilities, remaining available for distribution to holders of Partnership
Preferred Securities in liquidation of the Partnership. The Company's
obligation to make a Partnership Guarantee Payment may be satisfied by direct
payment of the required amounts by the Company to the holders of Partnership
Preferred Securities or by causing the Partnership to pay such amounts to such
holders.
The Partnership Guarantee will be a guarantee on a subordinated basis with
respect to the Partnership Preferred Securities from the time of issuance of
such Partnership Preferred Securities but will not apply to any
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payment of distributions or Redemption Price, or to payments upon the
dissolution, winding-up or termination of the Trust, except to the extent the
Partnership shall have funds available therefor. If Investment Affiliates
(including, where applicable, the Company, as guarantor) of the Affiliate
Investment Instruments in which the Partnership invests fail to make any
payment in respect of such securities (or, if applicable, guarantees), the
Partnership may not declare or pay dividends on the Partnership Preferred
Securities. In such event, holders of the Partnership Preferred Securities
would not be able to rely upon the Partnership Guarantee for payment of such
amounts. Instead, holders of the Partnership Preferred Securities will have
the remedies described herein under "Description of the Partnership Preferred
Securities -- Partnership Enforcement Events", including the right to direct
the General Partner or the Special Representative, as the case may be, to
enforce the covenant restricting certain payments by the Company and Finance
Subsidiaries. See "-- Covenants of the Company" below.
The Guarantees, when taken together with the Company Debenture and the
Company's obligations to pay all fees and expenses of the Trust and the
Partnership, constitute a guarantee to the extent set forth herein by the
Company of the distribution, redemption and liquidation payments payable to
the holders of the Trust Preferred Securities. The Guarantees do not apply,
however, to current distributions by the Partnership unless and until such
distributions are declared by the Partnership out of funds legally available
for payment or to liquidating distributions unless there are assets available
for payment in the Partnership, each as more fully described under "Risk
Factors -- Insufficient Income or Assets Available to Partnership".
COVENANTS OF THE COMPANY
The Company will covenant in the Partnership Guarantee that if (a) for any
distribution period, full distributions on a cumulative basis on any
Partnership Preferred Securities have not been paid or declared and set apart
for payment, (b) an Investment Event of Default by any Investment Affiliate in
respect of any Affiliate Investment Instrument has occurred and is continuing
or (c) the Company is in default of its obligations under the Trust Guarantee,
the Partnership Guarantee or any Investment Guarantee, then, during such
period (i) the Company shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock or comparable
equity interest (except for (x) dividends or distributions in shares of, or
options, warrants or rights to subscribe for or purchase shares of, its
capital stock, and conversions or exchanges of common stock of one class into
common stock of another class, (y) redemptions or purchases of any rights
pursuant to the Rights Agreement and the issuance of preferred stock pursuant
to such rights and (z) purchases or acquisitions by the Company or its
affiliates in connection with transactions effected by or for the account of
customers of the Company or any of its subsidiaries or in connection with the
distribution or trading of such capital stock or comparable equity interest)
and (ii) the Company shall not make, permit any Finance Subsidiary to make, or
make any payments that would enable any Finance Subsidiary to make, any
payment of any dividends on, any distribution with respect to, or any
redemption, purchase or other acquisition of, or any liquidation payment with
respect to, any preferred security or comparable equity interest of any
Finance Subsidiary.
EVENTS OF DEFAULT; ENFORCEMENT OF PARTNERSHIP GUARANTEE
An event of default under the Partnership Guarantee will occur upon the
failure of the Company to perform any of its payment or other obligations
thereunder.
The holders of a majority in liquidation amount of the Partnership Preferred
Securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Special Representative in
respect of the Partnership Guarantee or to direct the exercise of any trust or
power conferred upon the Special Representative under the Partnership
Guarantee. If the Special Representative fails to enforce its rights under the
Partnership Guarantee, after a holder of Partnership Preferred Securities has
made a written request, such holder of Partnership Preferred Securities may
institute a legal proceeding directly against the Company to enforce the
Special Representative's rights under the Partnership Guarantee without first
instituting a legal proceeding against the Partnership, the Special
Representative or any other person or entity.
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Notwithstanding the foregoing, if the Company has failed to make a guarantee
payment, a holder of Partnership Preferred Securities may directly institute a
proceeding against the Company for enforcement of the Partnership Guarantee
for such payment.
STATUS OF THE PARTNERSHIP GUARANTEE; SUBORDINATION
The Partnership Guarantee will constitute an unsecured obligation of the
Company and will rank subordinate and junior in right of payment to all other
liabilities of the Company and will rank pari passu with the most senior
preferred stock issued from time to time by the Company, with similar
guarantees issued by the Company in connection with the $275,000,000 aggregate
liquidation amount of 7 3/4% Trust Originated Preferred Securities issued by
Merrill Lynch Preferred Capital Trust I, the $300,000,000 aggregate
liquidation amount of 8% Trust Originated Preferred Securities issued by
Merrill Lynch Preferred Capital Trust II, the $750,000,000 aggregate
liquidation amount of 7% Trust Originated Preferred Securities issued by
Merrill Lynch Preferred Capital Trust III, the $400,000,000 aggregate
liquidation amount of 7.12% Trust Originated Preferred Securities issued by
Merrill Lynch Preferred Capital Trust IV and with any guarantee now or
hereafter entered into by the Company in respect of any preferred stock of any
other Finance Subsidiary. Accordingly, the rights of the holders of
Partnership Preferred Securities to receive payments under the Partnership
Guarantee will be subject to the rights of the holders of any obligations of
the Company that are senior in priority to the obligations under the
Partnership Guarantee. Furthermore, the holders of obligations of the Company
that are senior to the obligations under the Partnership Guarantee (including,
but not limited to, obligations constituting Senior Indebtedness) will be
entitled to the same rights upon payment default or dissolution, liquidation
and reorganization in respect of the Partnership Guarantee that inure to the
holders of Senior Indebtedness as against the holders of the Company
Debenture. The Limited Partnership Agreement provides that each holder of
Partnership Preferred Securities, by acceptance thereof, agrees to the
subordination provisions and other terms of the Partnership Guarantee.
The Partnership Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may directly institute a legal
proceeding against the Company to enforce its rights under the Partnership
Guarantee without instituting a legal proceeding against any other person or
entity).
The Partnership Guarantee will be deposited with the General Partner to be
held for the benefit of the holders of the Partnership Preferred Securities.
In the event of the appointment of a Special Representative to, among other
things, enforce the Partnership Guarantee, the Special Representative may take
possession of the Partnership Guarantee for such purpose. If no Special
Representative has been appointed to enforce the Partnership Guarantee, the
General Partner has the right to enforce the Partnership Guarantee on behalf
of the holders of the Partnership Preferred Securities.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of Partnership Preferred Securities (in which case no consent will
be required), the Partnership Guarantee may be amended only with the prior
approval of the holders of not less than a majority in liquidation preference
of the outstanding Partnership Preferred Securities. All guarantees and
agreements contained in the Partnership Guarantee shall bind the successors,
assigns, receivers, trustees and representatives of the Company and shall
inure to the benefit of the holders of the Partnership Preferred Securities
then outstanding. Except in connection with any permitted merger or
consolidation of the Company with or into another entity or any permitted
sale, transfer or lease of the Company's assets to another entity in which the
surviving corporation (if other than the Company) assumes the Company's
obligations under the Partnership Guarantee, the Company may not assign its
rights or delegate its obligations under the Partnership Guarantee without the
prior approval of the holders of at least a majority of the aggregate stated
liquidation preference of the Partnership Preferred Securities then
outstanding.
TERMINATION OF THE PARTNERSHIP GUARANTEE
The Partnership Guarantee will terminate and be of no further force and
effect as to the Partnership Preferred Securities upon (i) full payment of the
redemption price of all Partnership Preferred Securities or (ii)
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<PAGE>
full payment of the amounts payable in accordance with the Limited Partnership
Agreement upon liquidation of the Partnership. The Partnership Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any holder of Partnership Preferred Securities must in accordance with
the Partnership Act restore payment of any sums paid under the Partnership
Preferred Securities or the Partnership Guarantee. The Partnership Act
provides that a limited partner of a limited partnership who wrongfully
receives a distribution may be liable to the limited partnership for the
amount of such distribution.
GOVERNING LAW
The Partnership Guarantee will be governed by and construed in accordance
with the internal laws of the State of New York.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
In the opinion of Brown & Wood LLP, tax counsel to the Company, the Trust
and the Partnership ("Tax Counsel"), the following summary accurately
describes the material United States federal income tax consequences that may
be relevant to the purchase, ownership and disposition of Trust Preferred
Securities. Unless otherwise stated, this summary deals only with Trust
Preferred Securities held as capital assets by United States Persons (defined
herein) who purchase the Trust Preferred Securities upon original issuance. As
used herein, a "United States Person" means a person that is a citizen or
resident of the United States, a corporation or a partnership (including an
entity treated as a corporation or partnership for United States federal
income tax purposes) created or organized in or under the laws of the United
States, any state thereof or the District of Columbia (unless, in the case of
a partnership, Treasury regulations are adopted that provide otherwise), or an
estate or trust as defined in section 7701(a)(30) of the Internal Revenue Code
of 1986, as amended (the "Code"). The tax treatment of a holder may vary
depending on its particular situation. This summary does not address all the
tax consequences that may be relevant to holders who may be subject to special
tax treatment, such as banks, real estate investment trusts, regulated
investment companies, insurance companies, dealers in securities or
currencies, tax-exempt investors, or foreign investors. This summary does not
include any description of any alternative minimum tax consequences or the tax
laws of any state or local government or of any foreign government that may be
applicable to the Trust Preferred Securities. This summary is based on the
Code, the Treasury regulations promulgated thereunder and administrative and
judicial interpretations thereof, as of the date hereof, all of which are
subject to change, possibly on a retroactive basis.
The Trust Preferred Securities are not being marketed to persons that are
not United States Persons ("non-United States Persons") and, consequently, the
following discussion does not discuss the tax consequences that might be
relevant to non-United States Persons. Moreover, in order to protect the Trust
and the Partnership from potential adverse consequences, non-United States
Persons will be subject to withholding on distributions on the Trust Preferred
Securities held by such non-United States Persons at a rate of 30%. In
determining a holder's status, the United States entity otherwise required to
withhold taxes may rely on an IRS form W-8, an IRS form W-9, or a holder's
certification of its non-foreign status signed under penalty of perjury. NON-
UNITED STATES PERSONS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, AND
DISPOSITION OF TRUST PREFERRED SECURITIES.
Tax Counsel has advised that there is no authority directly on point dealing
with securities such as the Trust Preferred Securities or transactions of the
type described herein and that the opinions of Tax Counsel are not binding on
the IRS or the courts, either of which could take a contrary position. No
rulings have been or will be sought from the IRS. Accordingly, there can be no
assurance that the IRS will not challenge the opinions expressed herein or
that a court would not sustain such a challenge. Nevertheless, Tax Counsel has
advised that it is of the view that, if challenged, the opinions expressed
herein would be sustained by a court with jurisdiction in a properly presented
case.
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HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE TRUST
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED
STATES FEDERAL OR OTHER TAX LAWS. FOR A DISCUSSION OF THE POSSIBLE REDEMPTION
OF THE TRUST PREFERRED SECURITIES OR REDEMPTION OF THE PARTNERSHIP PREFERRED
SECURITIES UPON THE OCCURRENCE OF CERTAIN TAX EVENTS SEE "DESCRIPTION OF THE
TRUST PREFERRED SECURITIES -- TRUST SPECIAL EVENT REDEMPTION OR DISTRIBUTION"
AND "DESCRIPTION OF THE PARTNERSHIP PREFERRED SECURITIES -- PARTNERSHIP
SPECIAL EVENT REDEMPTION" RESPECTIVELY.
CLASSIFICATION OF THE TRUST
Tax Counsel is of the opinion that, under current law, and based on certain
representations, facts and assumptions set forth in such opinion, the Trust
will be classified for United States federal income tax purposes as a grantor
trust and not as an association taxable as a corporation. Accordingly, for
United States federal income tax purposes, each holder of Trust Preferred
Securities will be considered the owner of an undivided interest in the
Partnership Preferred Securities held by the Trust, and each holder will be
required to include in its gross income its distributive share of income
attributable to the Partnership, which generally will be equal to such
holder's allocable share of amounts accrued on the Partnership Preferred
Securities. No amount included in income with respect to the Trust Preferred
Securities will be eligible for the corporate dividends-received deduction.
CLASSIFICATION OF THE PARTNERSHIP
Tax Counsel is of the opinion that, under current law, and based on certain
representations, facts and assumptions set forth in such opinion, the
Partnership will be classified for United States federal income tax purposes
as a partnership and not as an association or publicly traded partnership
taxable as a corporation.
Tax Counsel's opinion is based on certain factual assumptions relating to
the organization and operation of the Partnership and is conditioned upon
certain representations made by the General Partner and the Partnership as to
factual matters, such as the organization and the operation of the Partnership
and the type and frequency of investments made by the Partnership.
The General Partner has represented that it intends to operate the
Partnership in a manner such that it will continue to constitute a partnership
for all future taxable periods in which any Partnership Preferred Securities
remain outstanding. In particular, pursuant to the Limited Partnership
Agreement, the General Partner is prohibited from taking any action that would
cause the Partnership to constitute a "publicly traded partnership" taxable as
a corporation under section 7704(a) of the Code. Accordingly, it is expected
that the Partnership will continue to qualify as a partnership, and therefore
will not constitute a publicly traded partnership taxable as a corporation,
for all taxable years in which the Partnership Preferred Securities remain
outstanding.
CLASSIFICATION OF THE DEBENTURES
The Partnership, the Company, the relevant Investment Affiliates and the
holders of the Trust Securities (by acceptance of a beneficial interest in a
Trust Security) will agree to treat the Debentures as indebtedness of the
relevant issuer for all United States tax purposes. In connection with the
issuance of the Debentures, Tax Counsel will issue its opinion that, under
current law, and based on certain representations, facts and assumptions set
forth in such opinion, the Debentures will be classified as indebtedness of
the relevant issuer for United States federal income tax purposes.
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INCOME AND DEDUCTIONS
A holder's distributive share of income attributable to the Partnership
generally will be substantially equal to the amount of the cash distributions
that accumulate with respect to the Trust Preferred Securities. Accordingly,
if quarterly distributions on the Trust Preferred Securities are paid
currently, the amount of income recognized by a holder during a taxable year
generally will be substantially equal to the cash distributions received by
the holder with respect to its Trust Preferred Securities.
The nature and timing of the income that is allocated to holders of Trust
Preferred Securities will, however, depend on the United States federal income
tax characterization of the investments held by the Partnership during the
period in question. Because the Partnership will be an accrual basis taxpayer
for United States federal income tax purposes, income will accrue on the Trust
Preferred Securities and will be allocated to holders of Trust Preferred
Securities on a daily accrual basis, generally at a rate that is expected to
be equal to (and that will not be greater than) the distribution rate on the
Trust Preferred Securities, regardless of the holders' method of accounting.
Actual cash distributions on the Trust Preferred Securities will not, however,
be separately reported as taxable income to the holders at the time they are
received.
If distributions on the Partnership Preferred Securities are not made
currently, the corresponding distributions on the Trust Preferred Securities
will not be made currently. Because the Partnership is an accrual basis
taxpayer it can be expected that during a period in which interest payments on
the Debentures or distributions on the Partnership Preferred Securities are
deferred (for whatever reason), holders will generally recognize income in
advance of their receipt of any cash distributions with respect to their Trust
Preferred Securities. The amount of income that will be allocated to holders
of Trust Preferred Securities during any such deferral period will equal their
pro rata share of the amount of distributions accruing on the Partnership
Preferred Securities during such deferral period.
The Partnership does not presently intend to make an election under Section
754 of the Code. Accordingly, a subsequent purchaser of Trust Preferred
Securities will not be permitted to adjust the tax basis in his allocable
share of the Partnership's assets so as to reflect any difference between his
purchase price for the Trust Preferred Securities and his share of the
Partnership's underlying tax basis in its assets. As a result, a holder of
Trust Preferred Securities may be required to report a larger or smaller
amount of income from holding the Trust Preferred Securities than would
otherwise be appropriate based upon the holder's purchase price for the Trust
Preferred Securities.
RECEIPT OF PARTNERSHIP PREFERRED SECURITIES UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under the caption "Description of
the Trust Preferred Securities-- Trust Special Event Redemption or
Distribution", Partnership Preferred Securities may be distributed to holders
of Trust Preferred Securities in exchange for their Trust Preferred Securities
and in liquidation of the Trust. Unless the liquidation of the Trust occurs as
a result of the Trust being subject to United States federal income tax with
respect to income accrued or received on the Partnership Preferred Securities,
such a distribution to holders would, for United States federal income tax
purposes, be treated as a nontaxable event to each holder, each holder would
receive an aggregate tax basis in the Partnership Preferred Securities equal
to such holder's aggregate tax basis in its Trust Preferred Securities, and a
holder's holding period in the Partnership Preferred Securities so received in
liquidation of the Trust would include the period during which the Trust
Preferred Securities were held by such holder. If, however, the liquidation of
the Trust were to occur because the Trust is subject to United States federal
income tax with respect to income accrued or received on the Partnership
Preferred Securities, the distribution of Partnership Preferred Securities to
holders by the Trust would likely be a taxable event to each holder, and a
holder would recognize gain or loss as if the holder had exchanged its Trust
Preferred Securities for the Partnership Preferred Securities it received upon
the liquidation of the Trust. Such gain or loss would be equal to the
difference between the holder's aggregate tax basis in its Trust Preferred
Securities surrendered in the exchange and the aggregate fair market value of
the Partnership Preferred Securities received in the exchange.
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REDEMPTION OF TRUST PREFERRED SECURITIES FOR CASH
Under certain circumstances, as described under the caption "Description of
the Trust Preferred Securities-- Mandatory Redemption", "Description of the
Trust Preferred Securities -- Trust Special Event Redemption or Distribution"
and "Description of the Partnership Preferred Securities -- Partnership
Special Event Redemption", the General Partner may cause the Partnership to
redeem the Partnership Preferred Securities for cash, in which event the Trust
shall simultaneously apply the proceeds of such redemption to redeem the Trust
Preferred Securities. Under current law, such a redemption would constitute,
for United States federal income tax purposes, a taxable disposition, and a
holder would recognize gain or loss as if it sold the holder's proportionate
interest in the redeemed Partnership Preferred Securities for an amount of
cash equal to the proceeds received upon redemption. See "-- Disposition of
Trust Preferred Securities".
DISPOSITION OF TRUST PREFERRED SECURITIES
A holder that sells Trust Preferred Securities will recognize gain or loss
equal to the difference between the amount realized on the sale of the Trust
Preferred Securities and the holder's adjusted tax basis in such Trust
Preferred Securities. Such gain or loss will be a capital gain or loss and
will be a long-term capital gain or loss if the Trust Preferred Securities
have been held for more than one year at the time of the sale. A holder will
be required to include accumulated but unpaid distributions on the Partnership
Preferred Securities through the date of disposition in income as ordinary
income, and to add such amount to the adjusted tax basis of its Trust
Preferred Securities.
A holder's tax basis in its Trust Preferred Securities generally will equal
(i) the amount paid by such holder for its Trust Preferred Securities, (ii)
increased by the amount includible in income by such holder with respect to
its Trust Preferred Securities, and (iii) reduced by the amount of cash or
other property distributed to such holder with respect to its Trust Preferred
Securities. A holder who acquires Trust Preferred Securities at different
prices may be required to maintain a single aggregate adjusted tax basis in
all of his Trust Preferred Securities and, upon sale or other disposition of
some of such Trust Preferred Securities, to allocate a pro rata portion of
such aggregate tax basis to the Trust Preferred Securities sold (rather than
maintaining a separate tax basis in each Trust Preferred Security for purposes
of computing gain or loss on a sale of that Trust Preferred Security).
On August 5, 1997, the Taxpayer Relief Act of 1997 (the "Tax Act"), was
enacted into law. The Tax Act reduces the maximum rates on long-term capital
gains recognized on capital assets held by individual taxpayers for more than
eighteen months as of the date of disposition and would further reduce the
maximum rates on such gains in the year 2001 and thereafter for certain
individual taxpayers who meet specified conditions. Prospective investors
should consult their own tax advisers concerning these tax law changes. The
IRS Restructuring and Reform Act of 1998 (the "IRS Reform Act"), which was
enacted into law on July 22, 1998, contains a provision that eliminates the
28% maximum capital gains rate on the sale of capital assets held for more
than one year but less than 18 months and taxes gains from dispositions of
capital assets held for more than 12 months at a maximum capital gains rate of
20%. This provision applies to dispositions of capital assets occurring after
December 31, 1997.
OTHER PARTNERSHIP PROVISIONS
Section 708. Under Section 708 of the Code, the Partnership will be deemed
to terminate for United States federal income tax purposes if 50% or more of
the capital and profits interests in the Trust are sold or exchanged within a
12-month period. Pursuant to final Treasury regulations issued on May 9, 1997,
if such a deemed termination were to occur, the Partnership would be
considered to have contributed its assets to a new partnership in return for
partnership interests therein and then to have distributed those new
partnership interests to the partners of the old partnership in liquidation
thereof.
Section 701. The Department of Treasury has promulgated regulations under
Section 701 of the Code that generally permit it to recast a transaction or
disregard a partnership if a partnership is formed or availed of in
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connection with a transaction a principal purpose of which is to reduce
substantially the present value of the partners' aggregate federal tax
liability in a manner that is inconsistent with the intent of the partnership
provisions of the Code or to treat a partnership as an aggregate of its
partners as appropriate to carry out the purpose of any provision of the Code
or the Treasury regulations thereunder. The Partnership has been formed for,
and will engage in, activities typical for partnerships. Although there is no
precedent that applies to the transactions contemplated herein, Tax Counsel
believes that the Partnership is not of the type intended to fall within the
scope of these regulations.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Income on the Trust Preferred Securities will be reported to holders on an
IRS Form 1099, which form should be mailed to holders of Trust Preferred
Securities by January 31 following each calendar year. Payments made on and
proceeds from the sale of Trust Preferred Securities may be subject to a
"back-up" withholding tax of 31% unless the holder complies with certain
identification requirements. Any withheld amount generally will be allowed as
a credit against the holder's United States federal income tax, provided the
required information is timely filed with the IRS.
NEW WITHHOLDING REGULATIONS
On October 6, 1997, the Treasury Department issued new regulations (the "New
Regulations") which make certain modifications to the back-up withholding and
information reporting rules described above. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
1999, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
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UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), the Trust has agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom Merrill
Lynch, Pierce, Fenner & Smith Incorporated and are acting as
representatives (the "Representatives"), has severally agreed to purchase the
number of Trust Preferred Securities set forth opposite its name below. In the
Purchase Agreement, the several Underwriters have agreed, subject to the terms
and conditions set forth therein, to purchase all the Trust Preferred
Securities offered hereby if any of the Trust Preferred Securities are
purchased. In the event of default by an Underwriter, the Purchase Agreement
provides that, in certain circumstances, the purchase commitments of the non-
defaulting Underwriters may be increased or the Purchase Agreement may be
terminated.
<TABLE>
<CAPTION>
NUMBER OF TRUST
UNDERWRITERS PREFERRED SECURITIES
------------ --------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
----------
Total..............................................
==========
</TABLE>
The Underwriters propose to offer the Trust Preferred Securities to the
public at the public offering price set forth on the cover page of this
Prospectus, and, to certain dealers at such price less a concession not in
excess of $ per Trust Preferred Security; provided, that such concession for
sales of 10,000 or more Trust Preferred Securities to any single purchaser
will be $ per Trust Preferred Security. The Underwriters may allow, and such
dealers may reallow, a discount not in excess of $ per Trust Preferred
Security to certain brokers and dealers. After the Trust Preferred Securities
are released for sale to the public, the offering price, concession and
discount.
In view of the fact that the proceeds of the sale of the Trust Preferred
Securities will ultimately be used to purchase the investment instruments of
the Company and its subsidiaries, the Purchase Agreement provides that the
Company will pay as compensation (the "Underwriters' Compensation") to the
Underwriters, an amount in immediately available funds of $ per Trust
Preferred Security (or $ in the aggregate) for the accounts of the several
Underwriters; provided that, such compensation for sales of 10,000 or more
Trust Preferred Securities to any single purchaser will be $ per Trust
Preferred Security. Therefore, to the extent of such sales, the actual amount
of Underwriters' Compensation will be less than the aggregate amount specified
in the preceding sentence.
Application will be made to list the Trust Preferred Securities on the NYSE.
Trading of the Trust Preferred Securities on the NYSE is expected to commence
within a 30-day period after the initial delivery of the Trust Preferred
Securities. The Representatives have advised the Trust that they intend to
make a market in the Trust Preferred Securities prior to the commencement of
trading on the NYSE. The Representatives will have no obligation to make a
market in the Trust Preferred Securities, however, and may cease market making
activities, if commenced, at any time.
Prior to this offering there has been no public market for the Trust
Preferred Securities. In order to meet one of the requirements for listing the
Trust Preferred Securities on the NYSE, the Underwriters will undertake to
sell lots of 100 or more Trust Preferred Securities to a minimum of 400
beneficial holders, that there will be at least one million units of Trust
Preferred Securities outstanding and that the Trust Preferred Securities will
have a minimum market value of $4,000,000.
The Trust, the Company, and the Partnership have agreed to indemnify the
Underwriters against, or contribute to payments that the Underwriters may be
required to make in respect of, certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Act").
52
<PAGE>
Because MLPF&S, one of the Underwriters in the offering, is an affiliate of
the Company and a member of the National Association of Securities Dealers,
Inc. (the "NASD"), the offering of Trust Preferred Securities will be
conducted pursuant to the applicable sections of Rule 2810 of the Conduct
Rules of the NASD. The Underwriters may not confirm sales to any discretionary
account without the prior specific written approval of the customer.
The Underwriters are permitted to engage in certain transactions that
stabilize the price of the Trust Preferred Securities. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Trust Preferred Securities.
If an Underwriter creates a short position in the Trust Preferred Securities
in connection with the offering, i.e., if it sells more Units of the Trust
Preferred Securities than are set forth on the cover page of this Prospectus,
the Underwriter may reduce that short position by purchasing Units of the
Trust Preferred Securities in the open market.
The Underwriters may also impose a penalty bid on certain Underwriters and
selling group members. This means that if an Underwriter purchases Units of
the Trust Preferred Securities in the open market to reduce the Underwriter's
short position or to stabilize the price of the Trust Preferred Securities,
they may reclaim the amount of the selling concession from the Underwriters
and selling group members who sold those Units as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Trust Preferred
Securities. In addition, neither the Company nor any of the Underwriters makes
any representation that the Underwriters will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
MLPF&S may use this Prospectus for offers and sales related to market-making
transactions in the Trust Preferred Securities. MLPF&S may act as principal or
agent in these transactions, and the sales will be made at prices related to
prevailing market prices at the time of sale.
53
<PAGE>
LEGAL MATTERS
Certain matters of Delaware law relating to the legality of the Trust
Preferred Securities, the validity of the Trust Agreement, the formation of
the Trust and the Partnership and the legality under state law of the Trust
Preferred Securities and the Partnership Preferred Securities are being passed
upon by Skadden, Arps, Slate, Meagher & Flom (Delaware), special Delaware
counsel to the Trust, the Partnership and the Company. The legality under
state law of the Trust Guarantee, the Partnership Guarantee, the Company
Debenture and the Investment Guarantees with respect to the Affiliate
Debentures will be passed upon on behalf of the Trust, the Partnership and the
Company by Brown & Wood LLP, New York, New York. The validity of the Trust
Preferred Securities, the Partnership Preferred Securities and the Trust
Guarantee and the Partnership Guarantee will be passed upon on behalf of the
Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York,
counsel to the Underwriters.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997
included in the 1997 Annual Report on Form 10-K and incorporated by reference
herein, has been derived from consolidated financial statements audited by
Deloitte & Touche LLP, as set forth in their reports included or incorporated
by reference herein. Such consolidated financial statements and related
financial statement schedules, and such 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. The balance sheets of Merrill Lynch
Preferred Funding V, L.P. and Merrill Lynch Preferred Capital Trust V as of
January 8, 1998 included in this Prospectus have also been audited by Deloitte
& Touche LLP and have been included 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 such Quarterly Reports 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
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.
54
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERMS PAGE NO.
- ------------- --------
<S> <C>
Affiliate Debentures................................................... 36
Affiliate Investment Instruments....................................... 19
Beneficial Owner....................................................... 29
Business Day........................................................... 22
Change in 1940 Act Law................................................. 24
Code................................................................... 47
Commission............................................................. 4
Company................................................................ 1
Company Debenture...................................................... 36
Debentures............................................................. 36
Declaration............................................................ 18
Delaware Trustee....................................................... 18
Depository............................................................. 28
DTC.................................................................... 1
Eligible Institution................................................... 37
Eligible Debt Securities............................................... 37
Exchange Act........................................................... 4
FDIC................................................................... 37
Finance Subsidiary..................................................... 3
General Partner........................................................ 1
Global Certificates.................................................... 28
Global Partnership Security............................................ 43
Guarantees............................................................. 2
Independent Financial Advisor.......................................... 37
Indirect Participants.................................................. 29
Initial Partnership Proceeds........................................... 36
Investment Affiliate................................................... 38
Investment Events of Default........................................... 37
Investment Guarantee................................................... 37
IRS.................................................................... 47
Limited Partnership Agreement.......................................... 18
Merrill Lynch.......................................................... 1
MLPF&S................................................................. 1
Moody's................................................................ 37
NASD................................................................... 53
New Regulations........................................................ 51
1940 Act............................................................... 10
1997 Form 10-K......................................................... 5
Non-United States Persons.............................................. 47
NYSE................................................................... 1
Participants........................................................... 29
Partnership............................................................ 1
Partnership Act........................................................ 19
Partnership Enforcement Event.......................................... 35
Partnership Guarantee.................................................. 2
Partnership Guarantee Payments......................................... 44
Partnership Investment Company Event................................... 40
Partnership Liquidation Distribution................................... 41
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERMS PAGE NO.
- ------------- --------
<S> <C>
Partnership Preferred Securities....................................... 1
Partnership Special Event.............................................. 39
Partnership Successor Securities....................................... 42
Partnership Tax Event.................................................. 40
Property Account....................................................... 18
Property Trustee....................................................... 18
Purchase Agreement..................................................... 52
Redemption Price....................................................... 4
Registration Statement................................................. 4
Regular Trustees....................................................... 18
Representatives........................................................ 52
Rights Agreement....................................................... 3
S&P.................................................................... 37
Securities Act......................................................... 4
Senior Indebtedness.................................................... 2
Special Event.......................................................... 13
Special Representative................................................. 35
Successor Securities................................................... 27
Tax Act................................................................ 50
Tax Action............................................................. 24
Tax Counsel............................................................ 47
TOPrS.................................................................. 1
Trust.................................................................. 1
Trust Act.............................................................. 18
Trust Common Securities................................................ 1
Trust Dissolution Tax Opinion.......................................... 23
Trust Enforcement Event................................................ 22
Trust Guarantee........................................................ 2
Trust Guarantee Payments............................................... 31
Trust Guarantee Trustee................................................ 18
Trust Indenture Act.................................................... 18
Trust Investment Company Event......................................... 24
Trust Liquidation...................................................... 25
Trust Liquidation Distribution......................................... 8
Trust Preferred Securities............................................. 1
Trust Redemption Tax Opinion........................................... 23
Trust Securities....................................................... 1
Trust Special Event.................................................... 23
Trust Tax Event........................................................ 23
Trustees............................................................... 18
Underwriters' Compensation............................................. 1
United States Person................................................... 47
</TABLE>
56
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
MERRILL LYNCH PREFERRED FUNDING V, L.P.
Independent Auditors' Report......................................... F-2
Audited Balance Sheet................................................ F-3
Notes to Balance Sheet............................................... F-3
Unaudited Balance Sheet.............................................. F-4
MERRILL LYNCH PREFERRED CAPITAL TRUST V
Independent Auditors' Report......................................... F-5
Audited Balance Sheet................................................ F-6
Notes to Balance Sheet............................................... F-6
Unaudited Balance Sheet.............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the General Partner and Initial Limited Partner of
Merrill Lynch Preferred Funding V, L.P.
We have audited the accompanying balance sheet of Merrill Lynch Preferred
Funding V, L.P. (the "Partnership") as of January 8, 1998. This balance sheet
is the responsibility of the Partnership's management. Our responsibility is
to express an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of the Partnership as of January 8,
1998, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
January 23, 1998
New York, New York
F-2
<PAGE>
BALANCE SHEET OF
MERRILL LYNCH PREFERRED FUNDING V, L.P.
OPENING BALANCE SHEET
JANUARY 8, 1998
<TABLE>
<S> <C>
Assets........................................................... $ --
=====
Partnership Securities
Limited partner interest....................................... $ 85
General partner interest....................................... 15
-----
$ 100
Less: Receivables from partners for subscribed partnership inter-
ests............................................................ (100)
-----
--
=====
</TABLE>
NOTES TO BALANCE SHEET OF MERRILL LYNCH PREFERRED FUNDING V, L.P.
Merrill Lynch Preferred Funding V, L.P. (the "Partnership") is a limited
partnership that was formed under the Delaware Revised Uniform Limited
Partnership Act on January 8, 1998 for the exclusive purposes of purchasing
certain eligible debt instruments of Merrill Lynch & Co., Inc. (the "Company")
and wholly owned subsidiaries of the Company (the "Affiliate Investment
Instruments") with the proceeds from the sale of Partnership Preferred
Securities (the "Partnership Preferred Securities") to Merrill Lynch Preferred
Capital Trust V (the "Trust") and a capital contribution from the Company in
exchange for the general partnership interest in the Partnership
(collectively, the "Partnership Proceeds").
The Partnership Preferred Securities will be redeemable for cash, at the
option of the Partnership, in whole or in part, from time to time, after a
certain date to be determined. Except as provided in the Limited Partnership
Agreement and Partnership Preferred Securities Guarantee Agreement, and as
otherwise provided by law, the holders of the Partnership Preferred Securities
will have no voting rights.
The Partnership Proceeds will be used initially to purchase debt instruments
from the Company and certain domestic wholly owned subsidiaries of the
Company, retaining 1% in unaffiliated debt securities. The Partnership shall
have a perpetual existence subject to certain termination events. The Company
serves as the sole general partner of the Partnership. The Company, in its
capacity as General Partner of the Partnership, has agreed to pay all fees and
expenses related to the organization and operations of the Partnership
(including any taxes, duties, assessments or government charges of whatever
nature (other than withholding taxes) imposed by the United States or any
other domestic taxing authority upon the Partnership) and the offering of the
Partnership Preferred Securities and be responsible for all debts and other
obligations of the Partnership (other than with respect to the Partnership
Preferred Securities). The General Partner has agreed to indemnify certain
officers and agents of the Partnership.
F-3
<PAGE>
BALANCE SHEET OF
MERRILL LYNCH PREFERRED FUNDING V, L.P.
MARCH 27, 1998
(UNAUDITED)
<TABLE>
<S> <C>
Assets........................................................... $ --
=====
Partnership Securities
Limited partner interest....................................... $ 85
General partner interest....................................... 15
-----
$ 100
Less: Receivables from partners for subscribed partnership inter-
ests............................................................ (100)
-----
--
=====
</TABLE>
NOTES TO BALANCE SHEET OF MERRILL LYNCH PREFERRED FUNDING V, L.P.
Merrill Lynch Preferred Funding V, L.P. (the "Partnership") is a limited
partnership that was formed under the Delaware Revised Uniform Limited
Partnership Act on January 8, 1998 for the exclusive purposes of purchasing
certain eligible debt instruments of Merrill Lynch & Co., Inc. (the "Company")
and wholly owned subsidiaries of the Company (the "Affiliate Investment
Instruments") with the proceeds from the sale of Partnership Preferred
Securities (the "Partnership Preferred Securities") to Merrill Lynch Preferred
Capital Trust V (the "Trust") and a capital contribution from the Company in
exchange for the general partnership interest in the Partnership (collectively,
the "Partnership Proceeds").
The Partnership Preferred Securities will be redeemable for cash, at the
option of the Partnership, in whole or in part, from time to time, after a
certain date to be determined. Except as provided in the Limited Partnership
Agreement and Partnership Preferred Securities Guarantee Agreement, and as
otherwise provided by law, the holders of the Partnership Preferred Securities
will have no voting rights.
The Partnership Proceeds will be used initially to purchase debt instruments
from the Company and certain domestic wholly owned subsidiaries of the Company,
retaining 1% in unaffiliated debt securities. The Partnership shall have a
perpetual existence subject to certain termination events. The Company serves as
the sole general partner of the Partnership. The Company, in its capacity as
General Partner of the Partnership, has agreed to pay all fees and expenses
related to the organization and operations of the Partnership (including any
taxes, duties, assessments or government charges of whatever nature (other than
withholding taxes) imposed by the United States or any other domestic taxing
authority upon the Partnership) and the offering of the Partnership Preferred
Securities and be responsible for all debts and other obligations of the
Partnership (other than with respect to the Partnership Preferred Securities).
The General Partner has agreed to indemnify certain officers and agents of the
Partnership.
F-4
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of
Merrill Lynch Preferred Capital Trust V
We have audited the accompanying balance sheet of Merrill Lynch Preferred
Capital Trust V (the "Trust"), as of January 8, 1998. This balance sheet is
the responsibility of the Trust's management. Our responsibility is to express
an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of the Trust as of January 8, 1998,
in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
January 23, 1998
New York, New York
F-5
<PAGE>
BALANCE SHEET OF
MERRILL LYNCH PREFERRED CAPITAL TRUST V
OPENING BALANCE SHEET
JANUARY 8, 1998
<TABLE>
<S> <C>
Assets................................................................ $0
===
Trust securities...................................................... $0
===
</TABLE>
NOTES TO BALANCE SHEET OF MERRILL LYNCH PREFERRED CAPITAL TRUST V
Merrill Lynch Preferred Capital Trust V (the "Trust") is a statutory
business trust formed on January 8, 1998 under the laws of the State of
Delaware for the exclusive purposes of (i) issuing the Trust Originated
Preferred Securities (the "Trust Preferred Securities") and the Trust Common
Securities (together with the Trust Preferred Securities, the "Trust
Securities") representing undivided beneficial ownership interests in the
assets of the Trust, (ii) purchasing Partnership Preferred Securities (the
"Partnership Preferred Securities") representing the limited partnership
interests of Merrill Lynch Preferred Funding V, L.P. (the "Partnership") with
the proceeds from the sale of the Trust Securities, and (iii) engaging in only
those other activities necessary or incidental thereto. The Trust has a
perpetual existence, subject to certain termination events as provided in the
Declaration of Trust under which it was formed. Subsequent to January 8, 1998,
the Trust intends to issue and sell its Trust Preferred Securities in a public
offering and to issue and sell its Trust Common Securities to Merrill Lynch &
Co., Inc. (the "Company"). No Trust Preferred Securities have been issued as
of January 8, 1998.
The proceeds from the Trust's sale of the Trust Securities will be used to
purchase the Partnership Preferred Securities from the Partnership. The
Partnership Preferred Securities will be redeemable for cash, at the option of
the Partnership, in whole or in part, from time to time, after a certain date
to be determined. Upon any redemption of the Partnership Preferred Securities,
the Trust Preferred Securities will be redeemed, in whole or in part, as
applicable. Holders of the Trust Preferred Securities will have limited voting
rights and will not be entitled to vote to appoint, remove or replace, or to
increase or decrease the number of, Trustees, which voting rights are vested
exclusively in the holder of the Trust Common Securities.
The Company will be obligated to pay compensation to the underwriters of the
offering of the Trust Preferred Securities. The company will pay all fees and
expenses related to the organization and operations of the Trust (including
any taxes, duties, assessments or governmental charges of whatever nature
(other than withholding taxes) imposed by the United States or any other
domestic taxing authority upon the Trust) and the offering of the Trust
Preferred Securities and be responsible for all debts and other obligations of
the Trust (other than the Trust Securities). The Company has also agreed to
indemnify the Trustees and certain other persons.
F-6
<PAGE>
BALANCE SHEET OF
MERRILL LYNCH PREFERRED CAPITAL TRUST V
MARCH 27, 1998
(UNAUDITED)
<TABLE>
<S> <C>
Assets................................................................ $0
===
Trust securities...................................................... $0
===
</TABLE>
NOTES TO BALANCE SHEET OF MERRILL LYNCH PREFERRED CAPITAL TRUST V
Merrill Lynch Preferred Capital Trust V (the "Trust") is a statutory business
trust formed on January 8, 1998 under the laws of the State of Delaware for the
exclusive purposes of (i) issuing the Trust Originated Preferred Securities (the
"Trust Preferred Securities") and the Trust Common Securities (together with the
Trust Preferred Securities, the "Trust Securities") representing undivided
beneficial ownership interests in the assets of the Trust, (ii) purchasing
Partnership Preferred Securities (the "Partnership Preferred Securities")
representing the limited partnership interests of Merrill Lynch Preferred
Funding V, L.P. (the "Partnership") with the proceeds from the sale of the Trust
Securities, and (iii) engaging in only those other activities necessary or
incidental thereto. The Trust has a perpetual existence, subject to certain
termination events as provided in the Declaration of Trust under which it was
formed. Subsequent to March 27, 1998, the Trust intends to issue and sell its
Trust Preferred Securities in a public offering and to issue and sell its Trust
Common Securities to Merrill Lynch & Co., Inc. (the "Company"). No Trust
Preferred Securities have been issued as of March 27, 1998.
The proceeds from the Trust's sale of the Trust Securities will be used to
purchase the Partnership Preferred Securities from the Partnership. The
Partnership Preferred Securities will be redeemable for cash, at the option of
the Partnership, in whole or in part, from time to time, after a certain date to
be determined. Upon any redemption of the Partnership Preferred Securities, the
Trust Preferred Securities will be redeemed, in whole or in part, as applicable.
Holders of the Trust Preferred Securities will have limited voting rights and
will not be entitled to vote to appoint, remove or replace, or to increase or
decrease the number of, Trustees, which voting rights are vested exclusively in
the holder of the Trust Common Securities.
The Company will be obligated to pay compensation to the underwriters of the
offering of the Trust Preferred Securities. The company will pay all fees and
expenses related to the organization and operations of the Trust (including any
taxes, duties, assessments or governmental charges of whatever nature (other
than withholding taxes) imposed by the United States or any other domestic
taxing authority upon the Trust) and the offering of the Trust Preferred
Securities and be responsible for all debts and other obligations of the Trust
(other than the Trust Securities). The Company has also agreed to indemnify the
Trustees and certain other persons.
F-7
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THE TRUST PREFERRED SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 4
Incorporation of Certain Documents by Reference............................ 5
Summary.................................................................... 6
Risk Factors............................................................... 12
Merrill Lynch & Co., Inc................................................... 16
Use of Proceeds............................................................ 16
Ratio of Earnings to Fixed Charges......................................... 17
Merrill Lynch Preferred Capital Trust V ................................... 18
Merrill Lynch Preferred Funding V, L.P..................................... 19
Description of the Trust Preferred Securities.............................. 20
Description of the Trust Guarantee......................................... 31
Description of the Partnership Preferred Securities........................ 34
Description of the Partnership Guarantee................................... 44
Certain Federal Income Tax Considerations.................................. 47
Underwriting............................................................... 52
Legal Matters.............................................................. 54
Experts.................................................................... 54
Index of Defined Terms..................................................... 55
Index to Financial Statements.............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOGO
TRUST PREFERRED SECURITIES
MERRILL LYNCH PREFERRED
CAPITAL TRUST V
% TRUST ORIGINATED
PREFERRED SECURITIES SM ("TOPRS SM")
GUARANTEED TO THE EXTENT SET
FORTH HEREIN BY
MERRILL LYNCH & CO., INC.
---------------
PROSPECTUS
---------------
MERRILL LYNCH & CO.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS SUBJECT TO +
+COMPLETION OR AMENDMENT. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING +
+PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN +
+OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN +
+WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO +
+REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY , 1998)
$
LOGO
MERRILL LYNCH & CO., INC.
MEDIUM-TERM NOTES, SERIES B
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
----------
Merrill Lynch & Co., Inc. (the "Company") may offer from time to time up to
$ aggregate principal amount (except that with respect to Notes
sold at a discount, the initial offering price will be used), or the equivalent
thereof in one or more foreign currencies or currency units, of its Medium-Term
Notes, Series B (the "Notes"). Each Note will mature on a day nine months or
more from the date of issue, as selected by the purchaser and agreed to by the
Company, and may be subject to redemption by the Company or repayment at the
option of the Holder thereof, in each case, in whole or in part, prior to its
Stated Maturity, as set forth therein and specified in a pricing supplement
hereto (each, a "Pricing Supplement").
The interest rate, if any, or the formula for the determination of any such
interest rate, applicable to each Note and other variable terms of the Notes as
described herein will be established by the Company at the date of issue of
such Note and will be set forth therein and specified in a Pricing Supplement.
Interest rates, interest rate formulae and such other variable terms are
subject to change by the Company, but no change will affect any Note already
issued or as to which an offer to purchase has been accepted by the Company.
Each Note will be issued in fully registered book-entry form (a "Book-Entry
Note") or certificated form (a "Certificated Note"), as set forth in the
applicable Pricing Supplement, in denominations of $1,000 and integral
multiples thereof, unless otherwise specified in the applicable Pricing
Supplement. Each Book-Entry Note will be represented by one or more global
securities ("Global Notes") deposited with or on behalf of The Depository Trust
Company (or such other depository as is identified in an applicable Pricing
Supplement) (the "Depository") and registered in the name of the Depository's
nominee. Beneficial interests in Book-Entry Notes will be shown on, and
transfers thereof will be effected only through, records maintained by the
Depository (with respect to its participants) and the Depository's participants
(with respect to Beneficial Owners). Beneficial Owners of the Book-Entry Notes
will not have the right to receive physical certificates evidencing their
ownership except under the limited circumstances described herein.
Unless otherwise specified in an applicable Pricing Supplement, the Notes
will bear interest at fixed rates (the "Fixed Rate Notes") or at floating rates
(the "Floating Rate Notes"). The applicable Pricing Supplement will specify
whether a Floating Rate Note is a Floating Rate/Fixed Rate Note, Inverse
Floating Rate Note or Regular Floating Rate Note and whether its rate of
interest is determined by reference to one or more of the CD Rate, the CMT
Rate, the Commercial Paper Rate, the Eleventh District Cost of Funds Rate, the
Federal Funds Rate, LIBOR, the Prime Rate or the Treasury Rate, or any other
interest rate basis or formula (each, an "Interest Rate Basis"), as adjusted by
any Spread and/or Spread Multiplier and will specify such other terms
applicable to such Note. Interest rates offered by the Company with respect to
the Notes may differ depending upon the aggregate principal amount of Notes
subject to purchase in any single transaction. See "Description of Notes".
SEE "RISK FACTORS" ON PAGE S-2 FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD
BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES OFFERED HEREBY.
----------
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, THE
PROSPECTUS OR ANY SUPPLEMENT HERETO. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGENT'S DISCOUNTS
PRICE TO AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(1)(2) COMPANY(1)(3)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note......... 100% .050% --.600% 99.950% --99.400%
- ------------------------------------------------------------------------------
$ -- $ --
Total(4)......... $ $ $
- ------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
(the "Agent") will purchase the Notes, as principal, from the Company, for
resale to investors and other purchasers at varying prices relating to
prevailing market prices at the time of resale as determined by the Agent,
or, if so specified in an applicable Pricing Supplement, for resale at a
fixed public offering price. Unless otherwise specified in an applicable
Pricing Supplement, any Note sold to the Agent as principal will be
purchased by such Agent at a price equal to 100% of the principal amount
thereof less a percentage of the principal amount equal to the commission
applicable to an agency sale (as described below) of a Note of identical
maturity. If agreed to by the Company and the Agent, the Agent may utilize
their reasonable efforts on an agency basis to solicit offers to purchase
the Notes at 100% of the principal amount thereof, unless otherwise
specified in an applicable Pricing Supplement. The Company will pay a
commission to an Agent, ranging from .050% to .600% (or, with respect to
Notes for which the Stated Maturity is in excess of 30 years, such
commission as shall be agreed upon by the Company and the related Agent at
the time of sale) of the principal amount of a Note, depending upon its
Stated Maturity, sold through such Agent.
(2) The Company has agreed to indemnify the Agent against, and to provide
contribution with respect to, certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Plan of Distribution".
(3) Before deducting expenses payable by the Company.
(4) Or the equivalent thereof in one or more foreign or composite currencies.
----------
The Notes are being offered on a continuing basis by the Company through the
Agent. Unless otherwise specified in an applicable Pricing Supplement, the
Notes will not be listed on any securities exchange and there can be no
assurance that the Notes offered by this Prospectus Supplement will be sold or
that there will be a secondary market for the Notes. The Company reserves the
right to cancel or modify the offer made hereby without notice. The Company or
the Agent, if it solicits the offer, may reject any offer to purchase Notes in
whole or in part. See "Plan of Distribution".
This Prospectus Supplement and the accompanying Prospectus may be used by the
Agent, a wholly-owned subsidiary of the Company, in connection with offers and
sales related to market-making transactions in the Notes. The Agent may act as
principal or agent in such transactions.
----------
MERRILL LYNCH & CO.
----------
The date of this Prospectus Supplement is July , 1998.
<PAGE>
IN CONNECTION WITH AN OFFERING OF NOTES PURCHASED BY THE AGENT AS PRINCIPAL
ON A FIXED OFFERING PRICE BASIS, THE AGENT MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF SUCH NOTES. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF NOTES TO COVER SHORT
POSITIONS OF THE AGENT. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF
DISTRIBUTION".
----------------
RISK FACTORS
This Prospectus Supplement does not describe all of the risks of an
investment in Notes that result from such Notes being denominated or payable
in or determined by reference to a currency or composite currency other than
United States dollars or to one or more interest rate, currency or other
indices or formulas. The Company and the Agent disclaim any responsibility to
advise prospective investors of such risks as they exist at the date of this
Prospectus Supplement or as they change from time to time. Prospective
investors should consult their own financial and legal advisors as to the
risks entailed by an investment in such Notes and the suitability of investing
in such Notes in light of their circumstances. Such Notes are not an
appropriate investment for investors who are unsophisticated with respect to
foreign currency transactions or transactions involving the applicable
interest rate index or currency index or other indices or formulas.
Prospective investors should carefully consider, among other factors, the
matters described below.
STRUCTURE RISKS
An investment in Notes indexed, as to principal, premium, if any, and/or
interest, if any, to one or more currencies or composite currencies (including
exchange rates and swap indices between currencies or composite currencies),
commodities, interest rates or other indices or formulas, either directly or
inversely, entails significant risks that are not associated with similar
investments in a conventional fixed rate or floating rate debt security. Such
risks include, without limitation, the possibility that such indices or
formulas may be subject to significant changes, that no interest will be
payable in respect of such Notes or that the resulting interest rate will be
less than that payable on a conventional fixed rate or floating rate debt
security issued by the Company at the same time, that the repayment of
principal and/or premium, if any, can occur at times other than that expected
by the investor, and that the investor could lose all or a substantial portion
of principal and/or premium, if any, payable on the Maturity Date (as defined
under "Description of Notes--General"). Such risks depend on a number of
interrelated factors, including economic, financial and political events, over
which the Company has no control. Additionally, if the formula used to
determine the amount of principal, premium, if any, and/or interest, if any,
payable with respect to such Notes contains a multiplier or leverage factor,
the effect of any change in the applicable index or indices or formula or
formulas will be magnified. In recent years, values of certain indices and
formulas have been highly volatile and such volatility may be expected to
continue in the future. Fluctuations in the value of any particular index or
formula that have occurred in the past are not necessarily indicative,
however, of fluctuations that may occur in the future.
Any optional redemption feature of Notes might affect the market value of
such Notes. Since the Company may be expected to redeem such Notes when
prevailing interest rates are relatively low, an investor might not be able to
reinvest the redemption proceeds at an effective interest rate as high as the
interest rate on such Notes.
The Notes will not have an established trading market when issued, and there
can be no assurance of a secondary market for the Notes or the continued
liquidity of such market if one develops. See "Plan of Distribution".
The secondary market, if any, for such Notes will be affected by a number of
factors independent of the creditworthiness of the Company and the value of
the applicable index or indices or formula or formulas, including the
complexity and volatility of each such index or formula, the method of
calculating the principal, premium, if any, and/or interest, if any, in
respect of such Notes, the time remaining to the maturity of such Notes, the
outstanding amount of such Notes, any redemption features of such Notes, the
amount of other debt securities linked to such index or formula and the level,
direction and volatility of market interest rates generally.
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<PAGE>
Such factors also will affect the market value of such Notes. In addition,
certain Notes may be designed for specific investment objectives or strategies
and, therefore, may have a more limited secondary market and experience more
price volatility than conventional debt securities. Investors may not be able
to sell such Notes readily or at prices that will enable investors to realize
their anticipated yield. No investor should purchase Notes unless such
investor understands and is able to bear the risk that such Notes may not be
readily saleable, that the value of such Notes will fluctuate over time and
that such fluctuations may be significant.
CREDIT RATINGS
Any credit ratings assigned to the Company's medium-term note program may
not reflect the potential impact of all risks related to structure and other
factors on the market value of the Notes. Accordingly, prospective investors
should consult their own financial and legal advisors as to the risks entailed
by an investment in the Notes and the suitability of such Notes in light of
their particular circumstances.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
MARCH 27,
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges............ 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
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<PAGE>
DESCRIPTION OF NOTES
The Notes will be issued as a series of debt securities under a senior
indenture, dated as of October 1, 1993, as amended (the "1993 Indenture"),
between the Company and The Chase Manhattan Bank (successor by merger to The
Chase Manhattan Bank, N.A.), as trustee (as used in this Prospectus
Supplement, the "Trustee"). The term "Senior Debt Securities," as used in this
Prospectus Supplement, refers to all securities issued and issuable from time
to time under the Senior Indentures (as defined in the accompanying
Prospectus) and includes the Notes. The Senior Debt Securities and the Trustee
are more fully described in the accompanying Prospectus. The following summary
of certain provisions of the Notes and of the 1993 Indenture does not purport
to be complete and is qualified in its entirety by reference to the 1993
Indenture, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus Supplement and the accompanying Prospectus
are a part. Capitalized terms used but not defined herein have the meanings
given to them in the 1993 Indenture or the Notes, as the case may be.
THE FOLLOWING DESCRIPTION OF NOTES WILL APPLY UNLESS OTHERWISE SPECIFIED IN
AN APPLICABLE PRICING SUPPLEMENT.
GENERAL
All Senior Debt Securities, including the Notes, issued and to be issued
under the Senior Indentures will be unsecured general obligations of the
Company and will rank pari passu with all other unsecured and unsubordinated
indebtedness of the Company from time to time outstanding. However, because
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 Notes), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including Merrill
Lynch, Pierce, Fenner & Smith Incorporated, to the Company are restricted by
net capital requirements under the Securities Exchange Act of 1934, as
amended, (the "Exchange Act") and under rules of certain exchanges and other
regulatory bodies.
The Senior Indentures do not limit the aggregate principal amount of Senior
Debt Securities which may be issued thereunder and Senior Debt Securities may
be issued thereunder from time to time as a single series or in two or more
separate series up to the aggregate principal amount from time to time
authorized by the Company for each series. The Company may, from time to time,
without the consent of the Holders of the Notes, provide for the issuance of
Notes or other Senior Debt Securities under the Senior Indentures in addition
to the $ aggregate principal amount of Notes offered hereby. As of June
26, 1998, the Company had issued and outstanding Notes in an aggregate
principal amount of approximately $16.9 billion. The aggregate principal
amount of Notes which may be offered hereby may be reduced by the issuance of
other securities of the Company pursuant to the registration statement of
which this Prospectus Supplement and the accompanying Prospectus are a part.
The Notes will be offered on a continuing basis and will mature on a day
nine months or more from the date of issue, as selected by the purchaser and
agreed to by the Company. Interest-bearing Notes will either be Fixed Rate
Notes or Floating Rate Notes as specified in the applicable Pricing
Supplement. Notes may be issued at significant discounts from their principal
amount payable at Stated Maturity (or on any prior date on which the principal
or an installment of principal of a Note becomes due and payable, whether by
the declaration of acceleration, call for redemption at the option of the
Company, repayment at the option of the Holder or otherwise) (each such date,
a "Maturity"), and some Notes may not bear interest.
Unless otherwise indicated in a Note and in the applicable Pricing
Supplement, the Notes will be denominated in United States dollars and
payments of principal of, and premium, if any, and interest on, the Notes will
be made in United States dollars. If any of the Notes to be denominated other
than in United States dollars or if the principal of, and interest on, the
Notes, and any premium provided for in any Note is to be
S-4
<PAGE>
payable in or by reference to a currency (or in composite currency units or in
amounts determined by reference to one or more currencies) other than that in
which such Note is denominated, provisions with respect thereto will be set
forth in such Note and in the applicable Pricing Supplement.
Interest rates, interest rate formulae and other variable terms of the Notes
are subject to change by the Company from time to time, but no such change
will affect any Note already issued or as to which an offer to purchase has
been accepted by the Company.
Each Note will be issued in fully registered book-entry form (a "Book-Entry
Note") or certificated form (a "Certificated Note"), in denominations of
$1,000 and integral multiples thereof, unless otherwise specified in the
applicable Pricing Supplement. Book-Entry Notes may be transferred or
exchanged only through a participating member of The Depository Trust Company
(or such other depository as is identified in an applicable Pricing
Supplement) (the "Depository"). See "Book-Entry Notes." Registration of
transfer of Certificated Notes will be made at the Corporate Trust Office of
the Trustee. No service charge will be made by the Company, the Trustee or the
Security Registrar for any such registration of transfer or exchange of Notes,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith (other than
exchanges pursuant to the 1993 Indenture, not involving any transfer).
Payments of principal of, and premium and interest, if any, on Book-Entry
Notes will be made by the Company through the Trustee to the Depository or its
nominee. See "Book-Entry Notes." Unless otherwise specified in the applicable
Pricing Supplement, a Beneficial Owner of Book-Entry Notes denominated in a
currency other than United States dollars (a "Specified Currency") electing to
receive payments of principal or any premium or interest in such Specified
Currency must notify the Participant through which its interest is held on or
prior to the applicable Record Date, in the case of a payment of interest, and
on or prior to the sixteenth day, whether or not a Business Day (as defined
below), prior to its Stated Maturity, in the case of principal or premium, of
such Beneficial Owner's election to receive all or a portion of such payment
in a Specified Currency. Such Participant must notify the Depository of such
election on or prior to the third Business Day after such Record Date. The
Depository will notify the Paying Agent of such election on or prior to the
fifth Business Day after such Record Date. If complete instructions are
received by the Participant and forwarded by the Participant to the
Depository, and by the Depository to the Paying Agent, on or prior to such
dates, the Beneficial Owner will receive payments in the Specified Currency.
In the case of Certificated Notes, payment of principal or premium, if any,
at the Maturity of each Certificated Note will be made in immediately
available funds upon presentation of the Certificated Note at the Corporate
Trust Office of the Trustee in the Borough of Manhattan, The City of New York,
or at such other place as the Company may designate. Payment of interest due
at Maturity will be made to the person to whom payment of the principal of the
Certificated Note shall be made. Payment of interest due on Certificated Notes
other than at Maturity will be made at the Corporate Trust Office of the
Trustee or, at the option of the Company, may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register. Notwithstanding the foregoing, a Holder of $1,000,000 or
more in aggregate principal amount of Certificated Notes (whether having
identical or different terms and provisions) having the same Interest Payment
Dates will, at the option of the Company, be entitled to receive interest
payments (other than at Maturity) by wire transfer of immediately available
funds if appropriate wire transfer instructions have been received in writing
by the Trustee not less than 15 days prior to the applicable Interest Payment
Date. Any such wire instructions received by the Trustee shall remain in
effect until revoked by such Holder.
TRANSACTION AMOUNT
Interest rates offered by the Company with respect to the Notes may differ
depending upon, among other things, the aggregate principal amount of Notes
purchased in any transaction. Notes with similar variable terms but different
interest rates may be offered concurrently at any time. The Company may also
concurrently offer Notes having different variable terms (as are described
herein or in any Prospectus Supplement) to different investors.
S-5
<PAGE>
REDEMPTION AT THE OPTION OF THE COMPANY
The Notes will not be subject to any sinking fund. The Notes will be
redeemable at the option of the Company prior to their Stated Maturity only if
an Initial Redemption Date is specified therein and in the applicable Pricing
Supplement. If so indicated in the applicable Pricing Supplement, Notes will
be subject to redemption at the option of the Company on any date on and after
the applicable Initial Redemption Date specified in such Pricing Supplement.
On and after the Initial Redemption Date, if any, the related Note may be
redeemed at any time in whole or from time to time in part (in increments of
$1,000, provided that any remaining principal amount shall be an authorized
denomination of the applicable Note) at the option of the Company at the
applicable Redemption Price (as defined below) together with interest thereon
payable to the Redemption Date, on notice given, unless otherwise specified in
the applicable Pricing Supplement, not more than 60 nor less than 30 days
prior to the Redemption Date. Unless otherwise specified in the applicable
Pricing Supplement, "Redemption Price" with respect to a Note will initially
mean a percentage, the Initial Redemption Percentage, of the principal amount
of such Note to be redeemed specified in the applicable Pricing Supplement and
shall decline at each anniversary of the Initial Redemption Date by a
percentage, the Annual Redemption Percentage Reduction, if any, specified in
the applicable Pricing Supplement, of the principal amount to be redeemed
until the Redemption Price is 100% of such principal amount.
REPAYMENT AT THE OPTION OF THE HOLDER
If so indicated in an applicable Pricing Supplement, Notes will be repayable
by the Company in whole or in part at the option of the Holders thereof on
their respective Optional Repayment Dates specified in such Pricing
Supplement. If no Optional Repayment Date is indicated with respect to a Note,
such Note will not be repayable at the option of the Holder prior to its
Stated Maturity. Any repayment in part will be in an amount equal to $1,000 or
integral multiples thereof, provided that any remaining principal amount shall
be an authorized denomination of the applicable Note. The repurchase price for
any Note so repurchased will be 100% of the principal amount to be repaid,
together with interest thereon payable to the date of repayment. For any Note
to be repaid, such Note must be received, together with the form thereon
entitled "Option to Elect Repayment" duly completed, by the Trustee at its
office maintained for such purpose in the Borough of Manhattan, The City of
New York, currently the Corporate Trust Office of the Trustee, not more than
60 nor less than 30 days prior to the Optimal Repayment Date. Notices of
elections from a Holder to exercise the repayment option must be received by
the Trustee by 5:00 p.m., New York City time, on the last day for giving such
notice. Exercise of such repayment option by the Holder will be irrevocable.
While the Book-Entry Notes are represented by Global Notes held by or on
behalf of the Depository, and registered in the name of the Depository or the
Depository's nominee, the option for repayment may be exercised by the
applicable Participant (as defined below under "Book- Entry Notes") on behalf
of the Beneficial Owners (as defined below) of such Book-Entry Notes by
delivering a written notice to the Trustee at the Corporate Trust Office, not
more than 60 nor less than 30 days prior to the Optional Repayment Date.
Notices of elections from Participants on behalf of Beneficial Owners of the
Book-Entry Notes to exercise their option to have the Book-Entry Notes repaid
must be received by the Trustee by 5:00 p.m., New York City time, on the last
day for giving such notice. In order to ensure that a notice is received by
the Trustee on a particular day, the Beneficial Owner of Book-Entry Notes must
so direct the applicable Participant before such Participant's cut-off time
for accepting instructions for that day. Different firms may have different
cut-off times for accepting instructions from their customers. Accordingly,
Beneficial Owners of Book-Entry Notes should consult the Participants through
which they own their interest in the Book-Entry Notes for the cut-off times
for such Participants. All notices shall be executed by a duly authorized
officer of such Participant (with signature guaranteed) and shall be
irrevocable. In addition, such Beneficial Owners of Book-Entry Notes shall
effect delivery of such Book-Entry Notes at the time such notices of election
are given to the Depository by causing the Participant to transfer such
Beneficial Owner's interest in the Book-Entry Notes, on the Depository's
records, to the Trustee. Conveyance of notices and other communications by the
Depository to Participants, by Participants to Indirect Participants (as
defined below) and by Participants and Indirect Participants to Beneficial
Owners of the Book-Entry Notes will be governed by agreements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
S-6
<PAGE>
The Company may at any time purchase Notes at any price or prices in the
open market or otherwise. Notes so purchased by the Company may, at the
discretion of the Company, be held, resold or surrendered to the Trustee for
cancellation.
INTEREST
General
Each Note will bear interest from the date of issue at the rate per annum
or, in the case of a Floating Rate Note, pursuant to the interest rate formula
stated therein and in the applicable Pricing Supplement until the principal
thereof is paid or made available for payment. Interest will be payable in
arrears on each date specified in the applicable Pricing Supplement on which
an installment of interest is due and payable (an "Interest Payment Date") and
at Maturity. The first payment of interest on any Note originally issued
between a Regular Record Date and the related Interest Payment Date will be
made on the Interest Payment Date immediately following the next succeeding
Regular Record Date to the registered Holder on such next succeeding Regular
Record Date. The "Regular Record Date" shall be the fifteenth calendar day
(whether or not a Business Day) (as defined below) immediately preceding the
related Interest Payment Date.
Fixed Rate Notes
Unless otherwise specified in an applicable Pricing Supplement, each Fixed
Rate Note will bear interest from, and including, the date of issue, at the
rate per annum stated on the face thereof until the principal amount thereof
is paid or made available for payment. Interest payments on Fixed Rate Notes
will equal the amount of interest accrued from and including the immediately
preceding Interest Payment Date in respect of which interest has been paid (or
from and including the date of issue, if no interest has been paid with
respect to such Fixed Rate Notes), to, but excluding, the related Interest
Payment Date or Maturity, as the case may be. Unless otherwise specified in
the applicable Pricing Supplement, interest on Fixed Rate Notes will be
computed on the basis of a 360-day year of twelve 30-day months.
Unless otherwise specified in the applicable Pricing Supplement, interest on
Fixed Rate Notes will be payable semiannually on May 15 and November 15 of
each year and at Maturity. If any Interest Payment Date or the Maturity of a
Fixed Rate Note falls on a day that is not a Business Day, the related payment
of principal, premium, if any, or interest will be made on the next succeeding
Business Day as if made on the date such payment was due, and no interest will
accrue on the amount so payable for the period from and after such Interest
Payment Date or Maturity, as the case may be.
Floating Rate Notes
Floating Rate Notes will be issued as described below. Each applicable
Pricing Supplement will specify certain terms with respect to which such
Floating Rate Note is being delivered, including: whether such Floating Rate
Note is a "Regular Floating Rate Note" (as defined below), an "Inverse
Floating Rate Note" (as defined below) or a "Floating Rate/Fixed Rate Note"
(as defined below); the Interest Rate Basis or Bases, Initial Interest Rate,
Interest Reset Dates, Interest Payment Dates, Index Maturity, Maximum Interest
Rate and Minimum Interest Rate, if any, and the Spread and/or Spread
Multiplier, if any, and, if one or more of the specified Interest Rate Bases
is LIBOR, the Index Currency, the Index Maturity and the Designated LIBOR Page
or, if one or more of the specified Interest Rate Bases is the CMT Rate, the
Designated CMT Telerate Page and Designated CMT Maturity Index, as described
below.
The interest rate borne by the Floating Rate Notes will be determined as
follows:
(i) Unless such Floating Rate Note is designated as a Floating Rate/Fixed
Rate Note, an Inverse Floating Rate Note or as having an Addendum attached
or as having "Other Provisions" apply relating to a different interest rate
formula, such Floating Rate Note will be designated a "Regular Floating
Rate Note" and, except as described below or in an applicable Pricing
Supplement, bear interest at the rate determined
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<PAGE>
by reference to the applicable Interest Rate Basis or Bases (i) plus or
minus the applicable Spread, if any, and/or (ii) multiplied by the
applicable Spread Multiplier, if any. Commencing on the first Interest
Reset Date, the rate at which interest on such Regular Floating Rate Note
shall be payable shall be reset as of each Interest Reset Date; provided,
however, that the interest rate in effect for the period from the Original
Issue Date to the first Interest Reset Date will be the Initial Interest
Rate.
(ii) If such Floating Rate Note is designated as a "Floating Rate/Fixed
Rate Note", then such Floating Rate Note will bear interest at the rate
determined by reference to the applicable Interest Rate Basis or Bases (i)
plus or minus the applicable Spread, if any, and/or (ii) multiplied by the
applicable Spread Multiplier, if any. Commencing on the first Interest
Reset Date, the rate at which interest on such Floating Rate/Fixed Rate
Note shall be payable shall be reset as of each Interest Reset Date;
provided, however, that (i) the interest rate in effect for the period from
the Original Issue Date to the first Interest Reset Date will be the
Initial Interest Rate, and (ii) the interest rate in effect commencing on,
and including, the Fixed Rate Commencement Date to Maturity shall be the
Fixed Interest Rate, if such rate is specified in the applicable Pricing
Supplement, or if no such Fixed Interest Rate is so specified, the interest
rate in effect thereon on the day immediately preceding the Fixed Rate
Commencement Date.
(iii) If such Floating Rate Note is designated as an "Inverse Floating
Rate Note," then, except as described below, such Floating Rate Note will
bear interest equal to the Fixed Interest Rate specified in the related
Pricing Supplement minus the rate determined by reference to the applicable
Interest Rate Basis or Bases (i) plus or minus the applicable Spread, if
any, and/or (ii) multiplied by the applicable Spread Multiplier, if any;
provided, however, that unless otherwise specified in the applicable
Pricing Supplement, the interest rate thereon will not be less than zero
percent. Commencing on the first Interest Reset Date, the rate at which
interest on such Inverse Floating Rate Note is payable shall be reset as of
each Interest Reset Date; provided, however, that the interest rate in
effect for the period from the Original Issue Date to the first Interest
Reset Date will be the Initial Interest Rate.
Notwithstanding the foregoing, if such Floating Rate Note is designated as
having an Addendum attached or as having "Other Provisions" apply as specified
on the face thereof, such Floating Rate Note shall bear interest in accordance
with the terms described in such Addendum or specified under "Other
Provisions" and the applicable Pricing Supplement.
Each Interest Rate Basis shall be the rate determined in accordance with the
applicable provisions below. Except as set forth above, the interest rate in
effect on each day shall be (a) if such day is an Interest Reset Date, the
interest rate determined as of the Interest Determination Date (as defined
below) immediately preceding such Interest Reset Date or (b) if such day is
not an Interest Reset Date, the interest rate determined as of the Interest
Determination Date immediately preceding the applicable Interest Reset Date.
Interest on Floating Rate Notes will be determined by reference to an
"Interest Rate Basis," which may be one or more of (i) the "CD Rate," (ii) the
"CMT Rate," (iii) the "Commercial Paper Rate," (iv) the "Eleventh District
Cost of Funds Rate," (v) the "Federal Funds Rate," (vi) "LIBOR," (vii) the
"Prime Rate," (viii) the "Treasury Rate," or (ix) such other Interest Rate
Basis or interest rate formula as may be set forth in the applicable Pricing
Supplement. In addition, a Floating Rate Note may bear interest in respect of
two or more Interest Rate Bases.
The "Spread" is the number of basis points to be added to or subtracted from
the related Interest Rate Basis or Bases applicable to such Floating Rate
Note. The "Spread Multiplier" is the percentage of the related Interest Rate
Basis or Bases applicable to such Floating Rate Note by which such Interest
Rate Basis or Bases will be multiplied to determine the applicable interest
rate on such Floating Rate Note. The "Index Maturity" is the period to
maturity of the instrument or obligation with respect to which the Interest
Rate Basis or Bases will be calculated.
Each applicable Pricing Supplement will specify the dates on which such
Interest Rate will be reset (each, an "Interest Reset Date"). Unless otherwise
specified in the applicable Pricing Supplement, the Interest Reset
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<PAGE>
Date will be, in the case of Floating Rate Notes which reset: (i) daily, each
Business Day; (ii) weekly, the Wednesday of each week (with the exception of
weekly reset Treasury Rate Notes which will reset the Tuesday of each week,
except as specified below); (iii) monthly, the third Wednesday of each month
(with the exception of monthly reset Eleventh District Cost of Funds Rate
Notes, which will reset on the first calendar day of the month); (iv)
quarterly, the third Wednesday of March, June, September and December of each
year; (v) semiannually, the third Wednesday of the two months specified in the
applicable Pricing Supplement; and (vi) annually, the third Wednesday of the
month specified in the applicable Pricing Supplement; provided, however, that
with respect to Floating Rate/Fixed Rate Notes, the fixed rate of interest in
effect for the period from the Fixed Rate Commencement Date until Maturity
shall be the Fixed Interest Rate or the interest rate in effect on the day
immediately preceding the Fixed Rate Commencement Date, as specified in the
applicable Pricing Supplement. If any Interest Reset Date for any Floating
Rate Note would otherwise be a day that is not a Business Day, such Interest
Reset Date will be postponed to the next succeeding day that is a Business
Day, except that in the case of a Floating Rate Note as to which LIBOR is an
applicable Interest Rate Basis, if such Business Day falls in the next
succeeding calendar month, such Interest Reset Date will be the immediately
preceding Business Day. In addition, in the case of a Floating Rate Note for
which the Treasury Rate is an applicable Interest Rate Basis and the Interest
Determination Date would otherwise fall on an Interest Reset Date, then such
Interest Reset Date will be postponed to the next succeeding Business Day. As
used herein, "Business Day" means any day, other than a Saturday or Sunday,
that is neither a legal holiday nor a day on which banking institutions are
authorized or required by law, regulation or executive order to close in The
City of New York; provided, however, that, with respect to non-United States-
dollar denominated Notes, such day is also not a day on which banking
institutions are authorized or required by law, regulation or executive order
to close in the Principal Financial Center (as hereinafter defined) of the
country issuing the Specified Currency (unless the Specified Currency is
European Currency Units ("ECU"), in which case such day is also not a day that
appears as an ECU non-settlement day on the displayed designated as "ISDE" on
the Reuter Monitor Money Rates Service (or is not a day designated as an ECU
non-settlement day by the ECU Banking Association) or, if ECU non-settlement
days do not appear on that page (and are not so designated), a day that is not
a day on which payments in ECU cannot be settled in the international
interbank market); provided, further, that, with respect to Notes as to which
LIBOR is an applicable Interest Rate Basis, such day is also a London Business
Day. "London Business Day" means a day on which dealings in the Index Currency
(as hereinafter defined) are transacted in the London interbank market.
A Floating Rate Note may also have either or both of the following: (i) a
maximum numerical limitation, or ceiling, on the rate at which interest may
accrue during any interest period (a "Maximum Interest Rate"), and (ii) a
minimum numerical limitation, or floor, on the rate at which interest may
accrue during any period (a "Minimum Interest Rate"). The Indenture provides
that the Indenture and the Securities will be governed by and construed in
accordance with the laws of the State of New York. Under present New York law,
the maximum rate of interest is 25% per annum on a simple interest basis. This
limit may not apply to Securities in which $2,500,000 or more has been
invested. While the Company believes that New York law would be given effect
by a state or federal court sitting outside of New York, state laws frequently
regulate the amount of interest that may be charged to and paid by a borrower
(including, in some cases, corporate borrowers). It is suggested that
prospective investors consult their personal advisors with respect to the
applicability of such laws. The Company has covenanted for the benefit of the
beneficial owners of the Securities, to the extent permitted by law, not to
claim voluntarily the benefits of any laws concerning usurious rates of
interest against a beneficial owner of the Securities.
Each applicable Pricing Supplement will specify the dates on which interest
will be payable (each an "Interest Payment Date"). Each Floating Rate Note
will bear interest from the date of issue at the rates specified therein until
the principal thereof is paid or otherwise made available for payment. Unless
otherwise specified in the applicable Pricing Supplement and, except as
provided below, interest will be payable in the case of Floating Rate Notes
which reset: (i) daily, weekly or monthly, on the third Wednesday of each
month or on the third Wednesday of March, June, September and December of each
year as specified in the applicable Pricing Supplement; (ii) quarterly, on the
third Wednesday of March, June, September and December of each year; (iii)
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semiannually, on the third Wednesday of the two months of each year specified
in the applicable Pricing Supplement; and (iv) annually, on the third
Wednesday of the month of each year specified in the applicable Pricing
Supplement and, in each case, at Maturity. If any Interest Payment Date for
any Floating Rate Note (other than an Interest Payment Date at Maturity) would
otherwise be a day that is not a Business Day, such Interest Payment Date will
be postponed to the next succeeding day that is a Business Day except that in
the case of a Floating Rate Note as to which LIBOR is an applicable Interest
Rate Basis, if such Business Day falls in the next succeeding calendar month,
such Interest Payment Date will be the immediately preceding Business Day. If
the Maturity of a Floating Rate Note falls on a day that is not a Business
Day, the payment of principal, premium, if any, and interest will be made on
the next succeeding Business Day, and no interest on such payment will accrue
for the period from and after such Maturity.
All percentages resulting from any calculation on Floating Rate Notes will
be rounded to the nearest one hundred-thousandth of a percentage point, with
five one millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) would be rounded to 9.87655% (or .0987655)), and all dollar amounts
used in or resulting from such calculation on Floating Rate Notes will be
rounded to the nearest cent (with one-half cent being rounded upward).
Interest payments on Floating Rate Notes will equal the amount of interest
accrued from and including the immediately preceding Interest Payment Date in
respect of which interest has been paid (or from and including the date of
issue, if no interest has been paid with respect to such Floating Rate Notes),
to but excluding the related Interest Payment Date or Maturity.
With respect to each Floating Rate Note, accrued interest is calculated by
multiplying its face amount by an accrued interest factor. Such accrued
interest factor is computed by adding the interest factor calculated for each
day in the period for which accrued interest is being calculated. The interest
factor for each such day will be computed by dividing the interest rate
applicable to such day by 360, in the case of Notes for which the Interest
Rate Basis is the CD Rate, the Commercial Paper Rate, the Eleventh District
Cost of Funds Rate, the Federal Funds Rate, LIBOR or the Prime Rate, or by the
actual number of days in the year in the case of Notes for which the Interest
Rate Basis is the CMT Rate or the Treasury Rate. The interest factor for Notes
for which the interest rate is calculated with reference to two or more
Interest Rate Bases will be calculated in each period in the same manner as if
only one of the applicable Interest Rate Bases applied.
The interest rate applicable to each interest reset period commencing on the
Interest Reset Date with respect to such interest reset period will be the
rate determined as of the applicable "Interest Determination Date." The
Interest Determination Date with respect to the CD Rate, the CMT Rate and the
Commercial Paper Rate will be the second Business Day preceding each Interest
Reset Date for the related Note; the Interest Determination Date with respect
to the Federal Funds Rate and the Prime Rate, unless otherwise specified in
the applicable Pricing Supplement, will be the Business Day immediately
preceding each Interest Reset Date; the Interest Determination Date with
respect to the Eleventh District Cost of Funds Rate will be the last working
day of the month immediately preceding each Interest Reset Date on which the
Federal Home Loan Bank of San Francisco (the "FHLB of San Francisco")
publishes the Index (as defined below); the Interest Determination Date with
respect to LIBOR will be the second London Business Day preceding each
Interest Reset Date. With respect to the Treasury Rate, unless otherwise
specified in an applicable Pricing Supplement, the Interest Determination Date
will be the day in the week in which the related Interest Reset Date falls on
which day Treasury Bills (as defined below) are normally auctioned (Treasury
Bills are normally sold at auction on Monday of each week, unless that day is
a legal holiday, in which case the auction is normally held on the following
Tuesday, except that such auction may be held on the preceding Friday);
provided, however, that if an auction is held on the Friday of the week
preceding the related Interest Reset Date, the related Interest Determination
Date will be such preceding Friday; and provided, further, that if an auction
falls on any Interest Reset Date, then the related Interest Reset Date will
instead be the first Business Day following such auction. Unless otherwise
specified in the applicable Pricing Supplement, the Interest Determination
Date pertaining to a Floating Rate Note the interest rate of which is
determined with reference to two or more Interest Rate Bases will be the
latest Business Day which is at least two Business Days prior to such Interest
Reset Date for such Floating Rate Note on which each Interest Reset Basis is
determinable. Each Interest Rate Basis will be determined on such date, and
the applicable interest rate will take effect on the related Interest Reset
Date.
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Unless otherwise provided in the applicable Pricing Supplement, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, a subsidiary of the Company, will
be the "Calculation Agent." Upon the request of the Holder of any Floating
Rate Note, the Calculation Agent will provide the interest rate then in effect
and, if determined, the interest rate that will become effective as a result
of a determination made for the next Interest Reset Date with respect to such
Floating Rate Note. Unless otherwise specified in the applicable Pricing
Supplement, the "Calculation Date," if applicable, pertaining to any Interest
Determination Date will be the earlier of (i) the tenth calendar day after
such Interest Determination Date, or, if such day is not a Business Day, the
next succeeding Business Day or (ii) the Business Day preceding the applicable
Interest Payment Date or Maturity, as the case may be.
CD Rate. CD Rate Notes will bear interest at the rates (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any)
specified in such CD Rate Notes and in any applicable Pricing Supplement.
"CD Rate" means, with respect to any Interest Determination Date relating to
a CD Rate Note or any Floating Rate Note for which the interest rate is
determined with reference to the CD Rate (a "CD Rate Interest Determination
Date"), the rate on such date for negotiable United States dollar certificates
of deposit having the Index Maturity specified in the applicable Pricing
Supplement as published by the Board of Governors of the Federal Reserve
System in "Statistical Release H.15(519), Selected Interest Rates" or any
successor publication ("H.15(519)") under the heading "CDs (Secondary
Market)," or, if not published by 3:00 P.M., New York City time, on the
related Calculation Date, the rate on such CD Rate Interest Determination Date
for negotiable United States dollar certificates of deposit of the Index
Maturity specified in the applicable Pricing Supplement as published by the
Federal Reserve Bank of New York in its daily statistical release "Composite
3:30 P.M. Quotations for U.S. Government Securities" or any successor
publication ("Composite Quotations") under the heading "Certificates of
Deposit." If such rate is not yet published in either H.15(519) or Composite
Quotations by 3:00 P.M., New York City time, on the related Calculation Date,
then the CD Rate on such CD Rate Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean of the
secondary market offered rates as of 10:00 A.M., New York City time, on such
CD Rate Interest Determination Date, of three leading non-bank dealers in
negotiable United States dollar certificates of deposit in The City of New
York selected by the Calculation Agent for negotiable United States dollar
certificates of deposit of major United States money market banks with a
remaining maturity closest to the Index Maturity designated in the applicable
Pricing Supplement in an amount that is representative for a single
transaction in that market at that time; provided, however, that if the
dealers so selected by the Calculation Agent are not quoting as set forth
above, the CD Rate with respect to such CD Rate Interest Determination Date
will be the CD Rate in effect on such CD Rate Interest Determination Date.
CMT Rate. CMT Rate Notes will bear interest at the rates (calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any)
specified in such CMT Rate Notes and in any applicable Pricing Supplement.
"CMT Rate" means, with respect to any Interest Determination Date relating
to any Floating Rate Note for which the interest rate is determined with
reference to the CMT Rate (a "CMT Rate Interest Determination Date"), the rate
displayed on the Designated CMT Telerate Page under the caption "Treasury
Constant Maturities. Federal Reserve Board Release H.15. Mondays Approximately
3:45 P.M.," under the column for the Designated CMT Maturity Index for (i) if
the Designated CMT Telerate Page is 7055, the rate on such CMT Rate Interest
Determination Date and (ii) if the Designated CMT Telerate Page is 7052, the
weekly or the monthly average, as specified in the Pricing Supplement, for the
week or the month, as applicable, ended immediately preceding the week in
which the related CMT Rate Interest Determination Date occurs. If such rate is
no longer displayed on the relevant page or is not displayed by 3:00 P.M., New
York City time, on the related Calculation Date, then the CMT Rate for such
CMT Rate Interest Determination Date will be such treasury constant maturity
rate for the Designated CMT Maturity Index as published in the relevant
H.15(519). If such rate is no longer published or is not published by 3:00
P.M., New York City time, on the related Calculation
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Date, then the CMT Rate on such CMT Rate Interest Determination Date will be
such treasury constant maturity rate of the Designated CMT Maturity Index (or
other United States Treasury rate for the Designated CMT Maturity Index) for
the CMT Rate Interest Determination Date with respect to such Interest Reset
Date as may then be published by either the Board of Governors of the Federal
Reserve System or the United States Department of the Treasury that the
Calculation Agent determines to be comparable to the rate formerly displayed
on the Designated CMT Telerate Page and published in the relevant H.15(519).
If such information is not provided by 3:00 P.M., New York City time, on the
related Calculation Date, then the CMT Rate on the CMT Rate Interest
Determination Date will be calculated by the Calculation Agent and will be a
yield to maturity, based on the arithmetic mean of the secondary market
closing offer side prices as of approximately 3:30 P.M., New York City time,
on such CMT Rate Interest Determination Date reported, according to their
written records, by three leading primary United States government securities
dealers (each, a "Reference Dealer") in The City of New York (which may
include the Agent or its affiliates) selected by the Calculation Agent (from
five such Reference Dealers selected by the Calculation Agent and eliminating
the highest quotation (or, in the event of equality, one of the highest) and
the lowest quotation (or, in the event of equality, one of the lowest)), for
the most recently issued direct noncallable fixed rate obligations of the
United States ("Treasury Notes") with an original maturity of approximately
the Designated CMT Maturity Index and a remaining term to maturity of not less
than such Designated CMT Maturity Index minus one year. If the Calculation
Agent is unable to obtain three such Treasury Note quotations, the CMT Rate on
such CMT Rate Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity based on the arithmetic mean
of the secondary market offer side prices as of approximately 3:30 P.M., New
York City time, on such CMT Rate Interest Determination Date of three
Reference Dealers in The City of New York (from five such Reference Dealers
selected by the Calculation Agent and eliminating the highest quotation (or,
in the event of equality, one of the highest) and the lowest quotation (or, in
the event of equality, one of the lowest)), for Treasury Notes with an
original maturity of the number of years that is the next highest to the
Designated CMT Maturity Index and a remaining term to maturity closest to the
Designated CMT Maturity Index and in an amount of at least $100 million. If
three or four (and not five) of such Reference Dealers are quoting as
described above, then the CMT Rate will be based on the arithmetic mean of the
offer prices obtained and neither the highest nor the lowest of such quotes
will be eliminated; provided, however, that if fewer than three Reference
Dealers so selected by the Calculation Agent are quoting as mentioned herein,
the CMT Rate determined as of such CMT Rate Interest Determination Date will
be the CMT Rate in effect on such CMT Rate Interest Determination Date. If two
Treasury Notes with an original maturity as described in the second preceding
sentence have remaining terms to maturity equally close to the Designated CMT
Maturity Index, the Calculation Agent will obtain from five Reference Dealers
quotations for the Treasury Note with the shorter remaining term to maturity.
"Designated CMT Telerate Page" means the display on the Dow Jones Markets
Limited on the page specified in the applicable Pricing Supplement (or any
other page as may replace such page on that service for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519)) for the
purpose of displaying Treasury Constant Maturities as reported in H.15(519).
If no such page is specified in the applicable Pricing Supplement, the
Designated CMT Telerate Page shall be 7052 for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of the
U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years) specified
in the applicable Pricing Supplement with respect to which the CMT Rate will
be calculated. If no such maturity is specified in the applicable Pricing
Supplement, the Designated CMT Maturity Index shall be 2 years.
Commercial Paper Rate. Commercial Paper Rate Notes will bear interest at the
rates (calculated with reference to the Commercial Paper Rate and the Spread
and/or Spread Multiplier, if any) specified in such Commercial Paper Rate
Notes and in any applicable Pricing Supplement.
"Commercial Paper Rate" means, with respect to any Interest Determination
Date relating to a Commercial Paper Rate Note or any Floating Rate Note for
which the interest rate is determined with reference to the Commercial Paper
Rate (a "Commercial Paper Rate Interest Determination Date"), the Money Market
Yield (as defined below) on such date of the rate for commercial paper having
the Index Maturity specified in the
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applicable Pricing Supplement as published in H.15(519) under the caption
"Commercial Paper--Nonfinancial". In the event that such rate is not published
by 3:00 P.M., New York City time, on the related Calculation Date, then the
Commercial Paper Rate will be the Money Market Yield on such Commercial Paper
Rate Interest Determination Date of the rate for commercial paper having the
Index Maturity specified in the applicable Pricing Supplement as published in
Composite Quotations under the heading "Commercial Paper" (with an Index
Maturity of one month or three months being deemed to be equivalent to an
Index Maturity of 30 days or 90 days, respectively). If by 3:00 P.M., New York
City time, on the related Calculation Date such rate is not yet published in
either H.15(519) or Composite Quotations, then the Commercial Paper Rate for
such Commercial Paper Rate Interest Determination Date will be calculated by
the Calculation Agent and will be the Money Market Yield of the arithmetic
mean of the offered rates at approximately 11:00 A.M., New York City time, on
such Commercial Paper Rate Interest Determination Date of three leading
dealers of commercial paper in The City of New York selected by the
Calculation Agent for commercial paper having the Index Maturity designated in
the applicable Pricing Supplement placed for a non-financial entity whose bond
rating is "Aa", or the equivalent, from a nationally recognized securities
rating organization; provided, however, that if the dealers so selected by the
Calculation Agent are not quoting as mentioned in this sentence, the
Commercial Paper Rate determined on such Commercial Paper Rate Interest
Determination Date will be the rate in effect on such Commercial Paper Rate
Interest Determination Date.
"Money Market Yield" means a yield (expressed as a percentage) calculated in
accordance with the following formula:
D X 360
Money Market Yield = ____________ X 100
360 - (D X
M)
where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the interest period for which interest is being
calculated.
Eleventh District Cost of Funds Rate. Eleventh District Cost of Funds Rate
Notes will bear interest at the rates (calculated with reference to the
Eleventh District Cost of Funds Rate and the Spread and/or Spread Multiplier,
if any) specified in such Eleventh District Cost of Funds Rate Notes and in
any applicable Pricing Supplement.
"Eleventh District Cost of Funds Rate" means, with respect to any Interest
Determination Date relating to an Eleventh District Cost of Funds Rate Note or
any Floating Rate Note for which the interest rate is determined with
reference to the Eleventh District Cost of Funds Rate (an "Eleventh District
Cost of Funds Rate Interest Determination Date"), the rate equal to the
monthly weighted average cost of funds for the calendar month preceding such
Eleventh District Cost of Funds Rate Interest Determination Date as set forth
under the caption "11th District" on Telerate Page 7058 as of 11:00 A.M., San
Francisco time, on such Eleventh District Cost of Funds Rate Interest
Determination Date. If such rate does not appear on Telerate Page 7058 on any
related Eleventh District Cost of Funds Rate Interest Determination Date, the
Eleventh District Cost of Funds for such Eleventh District Cost of Funds Rate
Interest Determination Date shall be the monthly weighted average cost of
funds paid by member institutions of the Eleventh Federal Home Loan Bank
District that was most recently announced (the "Index") by the FHLB of San
Francisco as such cost of funds for the calendar month preceding the date of
such announcement. If the FHLB of San Francisco fails to announce the Index on
or prior to such Eleventh District Cost of Funds Rate Interest Determination
Date for the calendar month immediately preceding such Eleventh District Cost
of Funds Rate Interest Determination Date, then the Eleventh District Cost of
Funds Rate for such Eleventh District Cost of Funds Rate Interest
Determination Date will be the Eleventh District Cost of Funds Rate in effect
on such Eleventh District Cost of Funds Rate Interest Determination Date.
Federal Funds Rate. Federal Funds Rate Notes will bear interest at the rates
(calculated with reference to the Federal Funds Rate and the Spread and/or
Spread Multiplier, if any) specified in such Federal Funds Rate Notes and in
any applicable Pricing Supplement.
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"Federal Funds Rate" means, with respect to any Interest Determination Date
relating to a Federal Funds Rate Note or any Floating Rate Note for which the
interest rate is determined with reference to the Federal Funds Rate (a
"Federal Funds Rate Interest Determination Date"), the rate on such date for
United States dollar Federal Funds as published in H.15(519) under the heading
"Federal Funds (Effective)" or, if not published by 3:00 P.M., New York City
time, on the related Calculation Date, the rate on such Federal Funds Rate
Interest Determination Date as published in Composite Quotations under the
heading "Federal Funds/Effective Rate." If such rate is not published in
either H.15(519) or Composite Quotations by 3:00 P.M., New York City time, on
the related Calculation Date, the Federal Funds Rate for such Federal Funds
Rate Interest Determination Date will be calculated by the Calculation Agent
and will be the arithmetic mean of the rates for the last transaction in
overnight United States dollar federal funds arranged by three leading brokers
of federal funds transactions in The City of New York selected by the
Calculation Agent prior to 9:00 A.M., New York City time on such Federal Funds
Rate Interest Determination Date; provided, however, that if the brokers so
selected by the Calculation Agent are not quoting as mentioned in this
sentence, the Federal Funds Rate with respect to such Federal Funds Rate
Interest Determination Date will be the Federal Funds Rate in effect on such
Federal Funds Rate Interest Determination Date.
LIBOR. LIBOR Notes will bear interest at the rates (calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any) specified
in such LIBOR Notes and in any applicable Pricing Supplement.
"LIBOR" means the rate determined by the Calculation Agent in accordance
with the following provisions:
(i) With respect to an Interest Determination Date relating to a LIBOR
Note or any Floating Rate Note for which the interest rate is determined
with reference to LIBOR (a "LIBOR Interest Determination Date"), LIBOR will
be either: (a) if "LIBOR Reuters" is specified in the applicable Pricing
Supplement, the arithmetic mean of the offered rates (unless the specified
Designated LIBOR Page (as defined below) by its terms provides only for a
single rate, in which case such single rate shall be used) for deposits in
the Index Currency (as defined below) having the Index Maturity designated
in the applicable Pricing Supplement, commencing on the second London
Business Day immediately following that LIBOR Interest Determination Date,
that appear on the Designated LIBOR Page specified in the applicable
Pricing Supplement as of 11:00 A.M., London time, on that LIBOR Interest
Determination Date, if at least two such offered rates appear (unless, as
aforesaid, only a single rate is required) on such Designated LIBOR Page,
or (b) if "LIBOR Telerate" is specified in the applicable Pricing
Supplement, the rate for deposits in the Index Currency having the Index
Maturity designated in the applicable Pricing Supplement commencing on the
second London Business Day immediately following that LIBOR Interest
Determination Date that appears on the Designated LIBOR Page specified in
the applicable Pricing Supplement as of 11:00 A.M., London time, on that
LIBOR Interest Determination Date. If fewer than two offered rates appear,
or no rate appears, as applicable, LIBOR in respect of the related LIBOR
Interest Determination Date will be determined as if the parties had
specified the rate described in clause (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which fewer
than two offered rates appear, or no rate appears, as the case may be, on
the applicable Designated LIBOR Page as specified in clause (i) above, the
Calculation Agent will request the principal London offices of each of four
major reference banks in the London interbank market, as selected by the
Calculation Agent, to provide the Calculation Agent with its offered
quotation for deposits in the Index Currency for the period of the Index
Maturity designated in the applicable Pricing Supplement, commencing on the
second London Business Day immediately following such LIBOR Interest
Determination Date, to prime banks in the London interbank market at
approximately 11:00 A.M., London time, on such LIBOR Interest Determination
Date and in a principal amount that is representative for a single
transaction in such Index Currency in such market at such time. If at least
two such quotations are provided, LIBOR determined on such LIBOR Interest
Determination Date will be the arithmetic mean of such quotations. If fewer
than two quotations are provided, LIBOR determined on such LIBOR Interest
Determination Date will be the arithmetic mean of the rates quoted at
approximately 11:00 A.M. (or such other time specified in the applicable
Pricing Supplement), in the applicable Principal Financial Center(s) (as
defined below), on such LIBOR Interest
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Determination Date by three major banks in such Principal Financial Center
selected by the Calculation Agent for loans in the Index Currency to
leading European banks, having the Index Maturity designated in the
applicable Pricing Supplement and in a principal amount that is
representative for a single transaction in such Index Currency in such
market at such time; provided, however, that if the banks so selected by
the Calculation Agent are not quoting as mentioned in this sentence, LIBOR
determined on such LIBOR Interest Determination Date will be LIBOR in
effect on such LIBOR Interest Determination Date.
"Index Currency" means the currency (including composite currencies)
specified in the applicable Pricing Supplement as the currency for which LIBOR
shall be calculated. If no such currency is specified in the applicable
Pricing Supplement, the Index Currency shall be United States dollars.
"Designated LIBOR Page" means either (a) if "LIBOR Reuters" is designated in
the applicable Pricing Supplement, the display on the Reuter Monitor Money
Rates Service for the purpose of displaying the London interbank rates of
major banks for the applicable Index Currency, or (b) if "LIBOR Telerate" is
designated in the applicable Pricing Supplement, the display on the Dow Jones
Markets Limited (or such other service or services as may be nominated by the
British Bankers' Association for the purpose of displaying London interbank
offered rates for the Index Currency) for the purpose of displaying the London
interbank rates of major banks for the applicable Index Currency. If neither
LIBOR Reuters nor LIBOR Telerate is specified in the applicable Pricing
Supplement, LIBOR for the applicable Index Currency will be determined as if
LIBOR Telerate (and, if the United States dollar is the Index Currency, Page
3750) had been specified.
"Principal Financial Center" means, unless otherwise specified in the
applicable Pricing Supplement, (i) the capital city of the country issuing the
Specified Currency (except with respect to ECU) or (ii) the capital city of
the country to which the Index Currency, if applicable, relates (or, in the
case of ECU, Luxembourg), except, in each case, that with respect to United
States dollars, Australian dollars, Canadian dollars, Deutsche marks, Dutch
guilders, Italian lire and Swiss francs, the "Principal Financial Center"
shall be The City of New York, Sydney, Toronto, Frankfurt, Amsterdam, Milan
(solely in the case of clause (i) above) and Zurich, respectively.
Prime Rate. Prime Rate Notes will bear interest at the rates (calculated
with reference to the Prime Rate and the Spread and/or Spread Multiplier, if
any) specified in such Prime Rate Notes and any applicable Pricing Supplement.
"Prime Rate" means the rate determined by the Calculation Agent in
accordance with the provisions set out in clause (i) or in clause (ii) below,
depending upon whether such rate is specified as "Prime Rate--Major Banks" or
as "Prime Rate--H.15" in the applicable Pricing Supplement:
(i) If the applicable Pricing Supplement indicates that the applicable
rate is "Prime Rate--Major Banks": "Prime Rate" means, with respect to any
Interest Determination Date relating to a Prime Rate Note or any Floating
Rate Note for which the interest rate is determined with reference to the
Prime Rate (a "Prime Rate Interest Determination Date"), the arithmetic
mean of the prime rates of interest publicly announced by three major banks
in The City of New York as its United States dollar prime rate or base
lending rate as in effect for that day. Each change in the prime rate or
base lending rate of any bank so announced by such bank will be effective
as of the effective date of the announcement or, if no effective date is
specified, as of the date of the announcement. If fewer than three such
quotations are provided, the Prime Rate will be calculated by the
Calculation Agent and will be determined as the arithmetic mean on the
basis of the prime rates quoted in The City of New York by three substitute
banks or trust companies organized and doing business under the laws of the
United States, or any state thereof, each having total equity capital of at
least $500 million and being subject to supervision or examination by a
federal or state authority, selected by the Calculation Agent to quote such
rate or rates; provided, however, that if the banks or trust companies so
selected by the Calculation Agent are not quoting as mentioned in this
sentence, the Prime Rate with respect to such Prime Rate Interest
Determination Date will be the Prime Rate in effect on such Prime Rate
Interest Determination Date.
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(ii) If the applicable Pricing Supplement indicates that the applicable
rate is "Prime Rate--H.15": "Prime Rate" means, with respect to any Prime
Rate Interest Determination Date, the rate on such date as such rate is
published in H.15(519) under the heading "Bank Prime Loan." If such rate is
not published prior to 3:00 P.M., New York City time, on the related
Calculation Date, then the Prime Rate shall be the arithmetic mean of the
rates of interest publicly announced by each bank that appears on the
Reuters Screen USPRIME1 as such bank's prime rate or base lending rate as
in effect for that Prime Rate Interest Determination Date. If fewer than
four such rates but more than one such rate appear on the Reuters Screen
USPRIME1 for such Prime Rate Interest Determination Date, the Prime Rate
shall be the arithmetic mean of the prime rates quoted on the basis of the
actual number of days in the year divided by a 360-day year as of the close
of business on such Prime Rate Interest Determination Date by four major
money center banks in The City of New York selected by the Calculation
Agent. If fewer than two such rates appear on the Reuters Screen USPRIME1,
the Prime Rate will be determined by the Calculation Agent on the basis of
the rates furnished in The City of New York by three substitute banks or
trust companies organized and doing business under the laws of the United
States, or any state thereof, having total equity capital of at least $500
million and being subject to supervision or examination by Federal or state
authority, selected by the Calculation Agent to provide such rate or rates;
provided, however, that if the banks or trust companies selected as
aforesaid are not quoting as mentioned in this sentence, the Prime Rate for
such Prime Rate Interest Determination Date will be the Prime Rate in
effect on such Prime Rate Interest Determination Date.
"Reuters Screen USPRIME1" means the display designated as page "USPRIME1"
(or such other page as may replace such page) on that service for the purpose
of displaying prime rates or base lending rates of major United States banks.
Treasury Rate. Treasury Rate Notes will bear interest at the rates
(calculated with reference to the Treasury Rate and the Spread and/or Spread
Multiplier, if any) specified in such Treasury Rate Notes and in any
applicable Pricing Supplement.
"Treasury Rate" means, with respect to an Interest Determination Date
relating to a Treasury Rate Note or any Floating Rate Note for which the
interest rate is determined by reference to the Treasury Rate (a "Treasury
Rate Interest Determination Date"), the rate applicable to the most recent
auction of direct obligations of the United States ("Treasury Bills") having
the Index Maturity specified in the applicable Pricing Supplement, as such
rate is published in H.15(519) under the heading "Treasury Bills-auction
average (investment)" or, if not published by 3:00 P.M., New York City time,
on the related Calculation Date, the auction average rate (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) as otherwise announced by the United States
Department of the Treasury. In the event that the results of the auction of
Treasury Bills having the Index Maturity designated in the applicable Pricing
Supplement are not reported as provided by 3:00 P.M., New York City time, on
such Calculation Date, or if no such auction is held in a particular week,
then the Treasury Rate will be calculated by the Calculation Agent and will be
a yield to maturity (expressed as a bond equivalent on the basis of a year of
365 or 366 days, as applicable, and applied on a daily basis) of the
arithmetic mean of the secondary market bid rates, as of approximately 3:30
P.M., New York City time, on such Treasury Rate Interest Determination Date,
of three leading primary United States government securities dealers (which
may include the Agent) selected by the Calculation Agent, for the issue of
Treasury Bills with a remaining maturity closest to the Index Maturity
designated in the applicable Pricing Supplement; provided, however, that if
the dealers so selected by the Calculation Agent are not quoting as mentioned
in this sentence, the Treasury Rate with respect to such Treasury Rate
Interest Determination Date will be the Treasury Rate in effect on such
Treasury Rate Interest Determination Date.
OTHER PROVISIONS; ADDENDA
Any provisions with respect to an issue of Notes, including the
determination of one or more Interest Rate Bases, the specification of one or
more Interest Rate Bases, calculation of the interest rate applicable to a
Floating
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Rate Note, its Interest Payment Dates or any other matter relating thereto may
be modified by the terms as specified under "Other Provisions" on the face
thereof or in an Addendum relating thereto, if so specified on the face
thereof and in the applicable Pricing Supplement.
ORIGINAL ISSUE DISCOUNT NOTES
Notes may be issued at a price less than their redemption price at Maturity,
resulting in such Notes being treated as if they were issued with original
issue discount for federal income tax purposes ("Original Issue Discount
Notes"). Such Original Issue Discount Notes may currently pay no interest or
interest at a rate which at the time of issuance is below market rates.
Certain additional considerations relating to any Original Issue Discount
Notes may be described in the Pricing Supplement relating thereto.
AMORTIZING NOTES
The Company may from time to time offer Amortizing Notes. Unless otherwise
specified in the applicable Pricing Supplement, interest on each Amortizing
Note will be computed on the basis of a 360-day year of twelve 30-day months.
Payments with respect to Amortizing Notes will be applied first to interest
due and payable thereon and then to the reduction of the unpaid principal
amount thereof. Further information concerning additional terms and conditions
of any issue of Amortizing Notes will be provided in the applicable Pricing
Supplement. A table setting forth repayment information in respect of each
Amortizing Note will be included in the applicable Pricing Supplement and set
forth on such Notes.
BOOK-ENTRY NOTES
Upon issuance, all Book-Entry Notes having the same Original Issue Date,
Maturity and otherwise having identical terms and provisions will be
represented by one or more fully registered global Notes (the "Global Notes").
Each such Global Note will be deposited with, or on behalf of, The Depository
Trust Company as Depository (the "Depository") registered in the name of the
Depository or a nominee thereof. Unless and until it is exchanged in whole or
in part for Notes in definitive form, no Global Note may be transferred except
as a whole by the Depository to a nominee of such Depository or by a nominee
of such Depository to such Depository or another nominee of such Depository or
by such Depository or any such nominee to a successor of such Depository or a
nominee of such successor.
The following is based on information furnished by the Depository:
The Depository will act as securities depository for the Book-Entry Notes.
The Book-Entry Notes will be issued as fully registered securities registered
in the name of Cede & Co. (the Depository's partnership nominee). One fully
registered Global Note will be issued for each issue of Book-Entry Notes, each
in the aggregate principal amount of such issue, and will be deposited with
the Depository. If, however, the aggregate principal amount of any issue
exceeds $200,000,000, one Global Note will be issued with respect to each
$200,000,000 of principal amount and an additional Global Note will be issued
with respect to any remaining principal amount of such issue.
The Depository is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depository holds securities that its participants ("Participants")
deposit with the Depository. The Depository also facilitates the settlement
among Participants of securities transactions, such as transfers and pledges,
in deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants of the Depository ("Direct
Participants") include securities brokers and dealers (including the Agent),
banks, trust companies, clearing corporations and certain other organizations.
The Depository is owned by a number of its Direct Participants and by the New
York
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Stock Exchange, Inc., the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to the Depository's system is
also available to others such as securities brokers and dealers, banks and
trust companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect Participants").
The rules applicable to the Depository and its Participants are on file with
the Securities and Exchange Commission.
Purchasers of Book-Entry Notes under the Depository's system must be made by
or through Direct Participants, which will receive a credit for such Book-
Entry Notes on the Depository's records. The ownership interest of each actual
purchaser of each Book-Entry Note represented by a Global Note ("Beneficial
Owner") is, in turn, to be recorded on the records of Direct Participants and
Indirect Participants. Beneficial Owners will not receive written confirmation
from the Depository of their purchase, but Beneficial Owners are expected to
receive written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the Direct Participants or
Indirect Participants through which such Beneficial Owner entered into the
transaction. Transfers of ownership interests in a Global Note representing
Book-Entry Notes are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners of a
Global Note representing Book-Entry Notes will not receive Certificated Notes
representing their ownership interests therein, except in the event that use
of the book-entry system for such Book-Entry Notes is discontinued.
To facilitate subsequent transfers, all Global Notes representing Book-Entry
Notes which are deposited with, or on behalf of, the Depository are registered
in the name of the Depository's nominee, Cede & Co. The deposit of Global
Notes with, or on behalf of, the Depository and their registration in the name
of Cede & Co. effect no change in beneficial ownership. The Depository has no
knowledge of the actual Beneficial Owners of the Global Notes representing the
Book-Entry Notes; the Depository's records reflect only the identity of the
Direct Participants to whose accounts such Book-Entry Notes are credited,
which may or may not be the Beneficial Owners. The Participants will remain
responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by the Depository to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
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.
Neither the Depository nor Cede & Co. will consent or vote with respect to
the Global Notes representing the Book-Entry Notes. Under its usual
procedures, the Depository mails an Omnibus Proxy to the Company as soon as
possible after the applicable record date. The Omnibus Proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose
accounts the Book-Entry Notes are credited on the applicable record date
(identified in a listing attached to the Omnibus Proxy).
Principal, premium, if any, and/or interest, if any, payments on the Global
Notes representing the Book-Entry Notes will be made in immediately available
funds to the Depository. The Depository's practice is to credit Director
Participants' accounts on the applicable payment date in accordance with their
respective holdings shown on the Depository's records unless the Depository
has reason to believe that it will not receive payment on such date. Payments
by Participants to Beneficial Owners will be governed by standing instructions
and customary practices, as is 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 Participant and not of the Depository, the Trustee or
the Company, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of principal, premium, if any, and/or
interest, if any, to the Depository is the responsibility of the Company and
the Trustee, disbursement of such payments to Direct Participants shall be the
responsibility of the Depository, and disbursement of such payments to the
Beneficial Owners shall be the responsibility of Direct Participants and
Indirect Participants.
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If applicable, redemption notices shall be sent to Cede & Co. If less than
all of the Book-Entry Notes of like tenor and terms are being redeemed, the
Depository's practice is to determine by lot the amount of the interest of
each Direct Participant in such issue to be redeemed.
A Beneficial Owner shall give notice of any option to elect to have its
Book-Entry Notes repaid by the Company, through its Participant, to the
Trustee, and shall effect delivery of such Book-Entry Notes by causing the
Direct Participant to transfer the Participant's interest in the Global Note
or Notes representing such Book-Entry Notes, on the Depository's records, to
the Trustee. The requirement for physical delivery of Book-Entry Notes in
connection with a demand for repayment will be deemed satisfied when the
ownership rights in the Global Note or Notes representing such Book-Entry
Notes are transferred by Direct Participants on the Depository's records.
The Depository may discontinue providing its services as securities
depository with respect to the Book-Entry Notes at any time by giving
reasonable notice to the Company or the Trustee. Under such circumstances, in
the event that a successor securities depository is not obtained, Certificated
Notes are required to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through the Depository (or a successor securities depository). In
that event, Certificated Notes will be printed and delivered.
The information in this section concerning the Depository and the
Depository's system has been obtained from sources that the Company believes
to be reliable, but the Company takes no responsibility for the accuracy
thereof.
Purchases of Book-Entry Notes must be made by or through Participants, which
will receive a credit on the records of the Depository. The ownership interest
of each actual purchaser of each Book-Entry Note (the "Beneficial Owner") is
in turn to be recorded on the Participants' or Indirect Participants' records.
Beneficial Owners will not receive written confirmation from the Depository of
their purchase, but Beneficial Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Participant or Indirect Participant
through which the Beneficial Owner entered into the transaction. Ownership of
beneficial interests in Global Notes will be shown on, and the transfer of
such ownership interests will be effected only through, records maintained by
the 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 Depository, or its nominee, is the registered owner of a
Global Note, the Depository or its nominee, as the case may be, will be
considered the sole owner or Holder of the Notes represented by such Global
Note for all purposes under the Senior Indenture. Except as provided below,
Beneficial Owners of a Global Note will not be entitled to have the Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of the Notes in definitive form and
will not be considered the owners or Holders thereof under the 1993 Indenture.
Accordingly, each person owning a beneficial interest in a Global Note must
rely on the procedures of the 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 1993
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 1993 Indenture, the
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 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.
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If (x) the Depository is at any time unwilling or unable to continue as
Depository and a successor depository is not appointed by the Company within
60 days, or (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 Notes, the
Global Note or Global Notes will be exchangeable for Notes in definitive form
of like tenor and of an equal aggregate principal amount, in denominations of
$1,000 and integral multiples thereof. Such definitive Notes shall be
registered in such name or names as the Depository shall instruct the Trustee.
It is expected that such instructions may be based upon directions received by
the Depository from Participants with respect to ownership of beneficial
interests in Global Notes.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible differing
interpretations. It deals only with Notes held as capital assets and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, regulated investment companies, dealers in
securities or currencies, persons holding Notes as a hedge against currency
risks or as a position in a "straddle" for tax purposes, or persons whose
functional currency is not the United States dollar. It also does not deal
with holders other than original purchasers (except where otherwise
specifically noted). Persons considering the purchase of the Notes should
consult their own tax advisors concerning the application of United States
Federal income tax laws to their particular situations as well as any
consequences of the purchase, ownership and disposition of the Notes arising
under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for United States Federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation or a partnership (including
an entity treated as a corporation or a partnership for United States Federal
income tax purposes) created or organized in or under the laws of the United
States, any state thereof or the District of Columbia (unless, in the case of
a partnership, Treasury regulations are adopted that provide otherwise), (iii)
an estate whose income is subject to United States federal income tax
regardless of its source, (iv) a trust if a court within the United States is
able to exercise primary supervision over the administration of the trust and
one or more United States persons have the authority to control all
substantial decisions of the trust, or (v) any other person whose income or
gain in respect of a Note is effectively connected with the conduct of a
United States trade or business. Certain trusts not described in clause (iv)
above in existence on August 20, 1996 that elect to be treated as a United
States person will also be a U.S. Holder for purposes of the following
discussion. As used herein, the term "non-U.S. Holder" means a beneficial
owner of a Note that is not a U.S. Holder.
U.S. HOLDERS
Payments of Interest. Payments of interest on a Note generally will be
taxable to a U.S. Holder as ordinary interest income at the time such payments
are accrued or are received (in accordance with the U.S. Holder's regular
method of tax accounting).
Original Issue Discount. The following summary is a general discussion of
the United States Federal income tax consequences to U.S. Holders of the
purchase, ownership and disposition of Notes issued with original issue
discount ("Discount Notes"). The following summary is based upon final
Treasury regulations (the "OID Regulations") released by the Internal Revenue
Service ("IRS") on January 27, 1994, as amended on June 11, 1996, under the
original issue discount provisions of the Code.
For United States Federal income tax purposes, original issue discount is
the excess of the stated redemption price at maturity of a Note over its issue
price, if such excess equals or exceeds a de minimis amount (generally 1/4 of
1% of the Note's stated redemption price at maturity multiplied by the number
of complete years to its
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maturity from its issue date or, in the case of a Note providing for the
payment of any amount other than qualified stated interest (as defined below)
prior to maturity, multiplied by the weighted average maturity of such Note).
The issue price of each Note of an issue of Notes equals the first price at
which a substantial amount of such Notes has been sold (ignoring sales to bond
houses, brokers, or similar persons or organizations acting in the capacity of
underwriters, placement agents, or wholesalers). The stated redemption price
at maturity of a Note is the sum of all payments provided by the Note other
than "qualified stated interest" payments. The term "qualified stated
interest" generally means stated interest that is unconditionally payable in
cash or property (other than debt instruments of the issuer) at least annually
at a single fixed rate. In addition, under the OID Regulations, if a Note
bears interest for one or more accrual periods at a rate below the rate
applicable for the remaining term of such Note (e.g., Notes with teaser rates
or interest holidays), and if the greater of either the resulting foregone
interest on such Note or any "true" discount on such Note (i.e., the excess of
the Note's stated principal amount over its issue price) equals or exceeds a
specified de minimis amount, then the stated interest on the Note would be
treated as original issue discount rather than qualified stated interest.
Payments of qualified stated interest on a Note are taxable to a U.S. Holder
as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting). A U.S. Holder of a Discount Note must include original issue
discount in income as ordinary interest for United States Federal income tax
purposes as it accrues under a constant yield method in advance of receipt of
the cash payments attributable to such income, regardless of such U.S.
Holder's regular method of tax accounting. In general, the amount of original
issue discount included in income by the initial U.S. Holder of a Discount
Note is the sum of the daily portions of original issue discount with respect
to such Discount Note for each day during the taxable year (or portion of the
taxable year) on which such U.S. Holder held such Discount Note. The "daily
portion" of original issue discount on any Discount Note is determined by
allocating to each day in any accrual period a ratable portion of the original
issue discount allocable to that accrual period. An "accrual period" may be of
any length and the accrual periods may vary in length over the term of the
Discount Note, provided that each accrual period is no longer than one year
and each scheduled payment of principal or interest occurs either on the final
day of an accrual period or on the first day of an accrual period. The amount
of original issue discount allocable to each accrual period is generally equal
to the difference between (i) the product of the Discount Note's adjusted
issue price at the beginning of such accrual period and its yield to maturity
(determined on the basis of compounding at the close of each accrual period
and appropriately adjusted to take into account the length of the particular
accrual period) and (ii) the amount of any qualified stated interest payments
allocable to such accrual period. The "adjusted issue price" of a Discount
Note at the beginning of any accrual period is the sum of the issue price of
the Discount Note plus the amount of original issue discount allocable to all
prior accrual periods minus the amount of any prior payments on the Discount
Note that were not qualified stated interest payments. Under these rules, U.S.
Holders generally will have to include in income increasingly greater amounts
of original issue discount in successive accrual periods.
A U.S. Holder who purchases a Discount Note for an amount that is greater
than its adjusted issue price as of the purchase date and less than or equal
to the sum of all amounts payable on the Discount Note after the purchase date
other than payments of qualified stated interest, will be considered to have
purchased the Discount Note 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 Discount Note for any
taxable year (or portion thereof in which the U.S. Holder holds the Discount
Note) will be reduced (but not below zero) by the portion of the acquisition
premium properly allocable to the period.
Under the OID Regulations, Floating Rate Notes and Indexed Notes
(hereinafter "Variable Notes") are subject to special rules whereby a Variable
Note will qualify as a "variable rate debt instrument" if (a) its issue price
does not exceed the total noncontingent principal payments due under the
Variable Note by more than a specified de minimis amount and (b) it provides
for stated interest, paid or compounded at least annually, at current values
of (i) one or more qualified floating rates, (ii) a single fixed rate and one
or more qualified floating rates, (iii) a single objective rate, or (iv) a
single fixed rate and a single objective rate that is a qualified inverse
floating rate.
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A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Note is denominated. Although a multiple of a qualified floating rate
will generally not itself constitute a qualified floating rate, a variable
rate equal to the product of a qualified floating rate and a fixed multiple
that is greater than .65 but not more than 1.35 will constitute a qualified
floating rate. A variable rate equal to the product of a qualified floating
rate and a fixed multiple that is greater than .65 but not more than 1.35,
increased or decreased by a fixed rate, will also constitute a qualified
floating rate. In addition, under the OID Regulations, two or more qualified
floating rates that can reasonably be expected to have approximately the same
values throughout the term of the Variable Note (e.g., two or more qualified
floating rates with values within 25 basis points of each other as determined
on the Variable Note's issue date) will be treated as a single qualified
floating rate. Notwithstanding the foregoing, a variable rate that would
otherwise constitute a qualified floating rate but which is subject to one or
more restrictions such as a maximum numerical limitation (i.e., a cap) or a
minimum numerical limitation (i.e., a floor) may, under certain circumstances,
fail to be treated as a qualified floating rate under the OID Regulations
unless such cap or floor is fixed throughout the term of the Note. An
"objective rate" is a rate that is not itself a qualified floating rate but
which is determined using a single fixed formula that is based on objective
financial or economic information. A rate will not qualify as an objective
rate if it is based on information that is within the control of the issuer
(or a related party) or that is unique to the circumstances of the issuer (or
a related party), such as dividends, profits, or the value of the issuer's
stock (although a rate does not fail to be an objective rate merely because it
is based on the credit quality of the issuer). A "qualified inverse floating
rate" is any objective rate where such rate is equal to a fixed rate minus a
qualified floating rate, as long as variations in the rate can reasonably be
expected to inversely reflect contemporaneous variations in the qualified
floating rate. The OID Regulations also provide that if a Variable Note
provides for stated interest at a fixed rate for an initial period of one year
or less followed by a variable rate that is either a qualified floating rate
or an objective rate and if the variable rate on the Variable Note's issue
date is intended to approximate the fixed rate (e.g., the value of the
variable rate on the issue date does not differ from the value of the fixed
rate by more than 25 basis points), then the fixed rate and the variable rate
together will constitute either a single qualified floating rate or objective
rate, as the case may be.
If a Variable Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OID Regulations, and
if the interest on such Note is unconditionally payable in cash or property
(other than debt instruments of the issuer) at least annually, then all stated
interest on the Note will constitute qualified stated interest and will be
taxed accordingly. Thus, a Variable Note that provides for stated interest at
either a single qualified floating rate or a single objective rate throughout
the term thereof and that qualifies as a "variable rate debt instrument" under
the OID Regulations will generally not be treated as having been issued with
original issue discount unless the Variable Note is issued at a "true"
discount (i.e., at a price below the Note's stated principal amount) in excess
of a specified de minimis amount. The amount of qualified stated interest and
the amount of original issue discount, if any, that accrues during an accrual
period on such a Variable Note is determined under the rules applicable to
fixed rate debt instruments by assuming that the variable rate is a fixed rate
equal to (i) in the case of a qualified floating rate or qualified inverse
floating rate, the value as of the issue date, of the qualified floating rate
or qualified inverse floating rate, or (ii) in the case of an objective rate
(other than a qualified inverse floating rate), a fixed rate that reflects the
yield that is reasonably expected for the Variable Note. The qualified stated
interest allocable to an accrual period is increased (or decreased) if the
interest actually paid during an accrual period exceeds (or is less than) the
interest assumed to be paid during the accrual period pursuant to the
foregoing rules.
In general, any other Variable Note that qualifies as a "variable rate debt
instrument" will be converted into an "equivalent" fixed rate debt instrument
for purposes of determining the amount and accrual of original issue discount
and qualified stated interest on the Variable Note. The OID Regulations
generally require that such a Variable Note be converted into an "equivalent"
fixed rate debt instrument by substituting any qualified floating rate or
qualified inverse floating rate provided for under the terms of the Variable
Note with a fixed rate equal to the value of the qualified floating rate or
qualified inverse floating rate, as the case may be, as of the
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Variable Note's issue date. Any objective rate (other than a qualified inverse
floating rate) provided for under the terms of the Variable Note is converted
into a fixed rate that reflects the yield that is reasonably expected for the
Variable Note. In the case of a Variable Note that qualifies as a "variable
rate debt instrument" and provides for stated interest at a fixed rate in
addition to either one or more qualified floating rates or a qualified inverse
floating rate, the fixed rate is initially converted into a qualified floating
rate (or a qualified inverse floating rate, if the Variable Note provides for
a qualified inverse floating rate). Under such circumstances, the qualified
floating rate or qualified inverse floating rate that replaces the fixed rate
must be such that the fair market value of the Variable Note as of the
Variable Note's issue date is approximately the same as the fair market value
of an otherwise identical debt instrument that provides for either the
qualified floating rate or qualified inverse floating rate rather than the
fixed rate. Subsequent to converting the fixed rate into either a qualified
floating rate or a qualified inverse floating rate, the Variable Note is then
converted into an "equivalent" fixed rate debt instrument in the manner
described above.
Once the Variable Note is converted into an "equivalent" fixed rate debt
instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a U.S.
Holder of the Variable Note will account for such original issue discount and
qualified stated interest as if the U.S. Holder held the "equivalent" fixed
rate debt instrument. Each accrual period appropriate adjustments will be made
to the amount of qualified stated interest or original issue discount assumed
to have been accrued or paid with respect to the "equivalent" fixed rate debt
instrument in the event that such amounts differ from the actual amount of
interest accrued or paid on the Variable Note during the accrual period.
If a Variable Note does not qualify as a "variable rate debt instrument"
under the OID Regulations, then the Variable Note would be treated as a
contingent payment debt obligation. On June 11, 1996, the Treasury Department
issued final regulations (the "CPDI Regulations") concerning the proper United
States Federal income tax treatment of contingent payment debt instruments. In
general, the CPDI 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. Specifically, the CPDI Regulations generally
require a U.S. Holder of such an instrument to include future contingent and
noncontingent interest payments in income as such interest accrues based upon
a projected payment schedule. Moreover, in general, under the CPDI
Regulations, any gain recognized by a U.S. Holder on the sale, exchange, or
retirement of a contingent payment debt instrument will be treated as ordinary
income and all or a portion of any loss realized could be treated as ordinary
loss as opposed to capital loss (depending upon the circumstances). The CPDI
Regulations apply to debt instruments issued on or after August 13, 1996. The
proper United States Federal income tax treatment of Variable Notes that are
treated as contingent payment debt obligations will be more fully described in
the applicable Pricing Supplement. Furthermore, any other special United
States Federal income tax considerations, not otherwise discussed herein,
which are applicable to any particular issue of Notes will be discussed in the
applicable Pricing Supplement.
Certain of the Notes (i) may be redeemable at the option of the Company
prior to their stated maturity (a "call option") and/or (ii) may be repayable
at the option of the holder prior to their stated maturity (a "put option").
Notes containing such features may be subject to rules that differ from the
general rules discussed above. Investors intending to purchase Notes with such
features should consult their own tax advisors, since the original issue
discount consequences will depend, in part, on the particular terms and
features of the purchased Notes.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions.
S-23
<PAGE>
Foreign-Currency Notes. The United States Federal income tax consequences of
the purchase, ownership and disposition of Notes providing for payments
denominated in a currency other than U.S. dollars will be more fully described
in the applicable Pricing Supplement.
Short-Term Notes. Notes that have a fixed maturity of one year or less
("Short-Term Notes") will be treated as having been issued with original issue
discount. In general, an individual or other cash method U.S. Holder is not
required to accrue such original issue discount unless the U.S. Holder elects
to do so. If such an election is not made, any gain recognized by the U.S.
Holder on the sale, exchange or maturity of the Short-Term Note will be
ordinary income to the extent of the original issue discount accrued on a
straight-line basis, or upon election under the constant yield method (based
on daily compounding), through the date of sale or maturity, and a portion of
the deductions otherwise allowable to the U.S. Holder for interest on
borrowings allocable to the Short-Term Note will be deferred until a
corresponding amount of income is realized. U.S. Holders who report income for
United States Federal income tax purposes under the accrual method, and
certain other holders including banks and dealers in securities, are required
to accrue original issue discount on a Short-Term Note on a straight-line
basis unless an election is made to accrue the original issue discount under a
constant yield method (based on daily compounding).
Market Discount. If a U.S. Holder purchases a Note, other than a Discount
Note, for an amount that is less than its issue price (or, in the case of a
subsequent purchaser, its stated redemption price at maturity) or, in the case
of a Discount Note, for an amount that is less than its adjusted issue price
as of the purchase date, such U.S. Holder will be treated as having purchased
such Note at a "market discount," unless such market discount is less than a
specified de minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat any
partial principal payment (or, in the case of a Discount Note, any payment
that does not constitute qualified stated interest) on, or any gain realized
on the sale, exchange, retirement or other disposition of, a Note as ordinary
income to the extent of the lesser of (i) the amount of such payment or
realized gain or (ii) the market discount which has not previously been
included in income and is treated as having accrued on such Note at the time
of such payment or disposition. Market discount will be considered to accrue
ratably during the period from the date of acquisition to the maturity date of
the Note, unless the U.S. Holder elects to accrue market discount on the basis
of semiannual compounding.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a Note with market discount until the maturity of the Note
or certain earlier dispositions, because a current deduction is only allowed
to the extent the interest expense exceeds an allocable portion of market
discount. A U.S. Holder may elect to include market discount in income
currently as it accrues (on either a ratable or semiannual compounding basis),
in which case the rules described above regarding the treatment as ordinary
income of gain upon the disposition of the Note and upon the receipt of
certain cash payments and regarding the deferral of interest deductions will
not apply. Generally, such currently included market discount is treated as
ordinary interest for United States Federal income tax purposes. Such an
election will apply to all debt instruments acquired by the U.S. Holder on or
after the first day of the taxable year to which such election applies and may
be revoked only with the consent of the IRS.
Premium. If a U.S. Holder purchases a Note for an amount that is greater
than the sum of all amounts payable on the Note after the purchase date other
than payments of qualified stated interest, such U.S Holder will be considered
to have purchased the Note with "amortizable bond premium" equal in amount to
such excess. A U.S. Holder may elect to amortize such premium using a constant
yield method over the remaining term of the Note and may offset interest
otherwise required to be included in respect of the Note during any taxable
year by the amortized amount of such excess for the taxable year. However, if
the Note may be optionally redeemed after the U.S. Holder acquires it at a
price in excess of its stated redemption price at maturity, special rules
would apply which could result in a deferral of the amortization of some bond
premium until later in the term of the Note. Any election to amortize bond
premium applies to all taxable debt obligations then owned and thereafter
acquired by the U.S. Holder and may be revoked only with the consent of the
IRS.
S-24
<PAGE>
Disposition of a Note. Except as discussed above, upon the sale, exchange or
retirement of a Note, a U.S. Holder generally will recognize taxable gain or
loss equal to the difference between the amount realized on the sale, exchange
or retirement (other than amounts representing accrued and unpaid interest)
and such U.S. Holder's adjusted tax basis in the Note. A U.S. Holder's
adjusted tax basis in a Note generally will equal such U.S. Holder's initial
investment in the Note increased by any original issue discount included in
income (and accrued market discount, if any, if the U.S. Holder has included
such market discount in income) and decreased by the amount of any payments,
other than qualified stated interest payments, received and amortizable bond
premium taken with respect to such Note. Such gain or loss generally will be
long-term capital gain or loss if the Note were held for more than the
applicable holding period. The Taxpayer Relief Act of 1997 reduces the maximum
rates on long-term capital gains recognized on capital assets held by
individual taxpayers for more than eighteen months as of the date of
disposition (and would further reduce the maximum rates on such gains in the
year 2001 and thereafter for certain individual taxpayers who meet specified
conditions). Prospective investors should consult their own tax advisors
concerning these tax law changes.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal, premium (if any) or interest (including original
issue discount, if any) on a Note, unless such non-U.S. Holder is a direct or
indirect 10% or greater shareholder of the Company, a controlled foreign
corporation related to the Company or a bank receiving interest described in
section 881(c)(3)(A) of the Code. To qualify for the exemption from taxation,
the last United States payor in the chain of payment prior to payment to a
non-U.S. Holder (the "Withholding Agent") must have received in the year in
which a payment of interest or principal occurs, or in either of the two
preceding calendar years, a statement that (i) is signed by the beneficial
owner of the Note under penalties of perjury, (ii) certifies that such owner
is not a U.S. Holder and (iii) provides the name and address of the beneficial
owner. The statement may be made on an IRS Form W-8 or a substantially similar
form, and the beneficial owner must inform the Withholding Agent of any change
in the information on the statement within 30 days of such change. If a Note
is held through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement
to the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by
the beneficial owner to the organization or institution. The Treasury
Department is considering implementation of further certification requirements
aimed at determining whether the issuer of a debt obligation is related to
holders thereof.
On October 6, 1997, the Treasury issued new regulations (the "New
Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
1999, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
Generally, a non-U.S. Holder will not be subject to United States Federal
income taxes on any amount which constitutes capital gain upon retirement or
disposition of a Note, provided the gain is not effectively connected with the
conduct of a trade or business in the United States by the non-U.S. Holder.
Certain other exceptions may be applicable, and a non-U.S. Holder should
consult its tax advisor in this regard.
The Notes will not be includible in the estate of a non-U.S. Holder unless
the individual is a direct or indirect 10% or greater shareholder of the
Company or, at the time of such individual's death, payments in respect of the
Notes would have been effectively connected with the conduct by such
individual of a trade or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the Notes to registered owners who are
not "exempt recipients" and who fail to provide certain identifying
information (such as the registered owner's taxpayer identification number) in
the required manner.
S-25
<PAGE>
Generally, individuals are not exempt recipients, whereas corporations and
certain other entities generally are exempt recipients. Payments made in
respect of the Notes to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance
with the identification procedures described in the preceding section would
establish an exemption from backup withholding for those non-U.S. Holders who
are not exempt recipients.
In addition, upon the sale of a Note to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-
U.S. Holder (and certain other conditions are met). Such a sale must also be
reported by the broker to the IRS, unless either (i) the broker determines
that the seller is an exempt recipient or (ii) the seller certifies its non-
U.S. status (and certain other conditions are met). Certification of the
registered owner's non-U.S. status would be made normally on an IRS Form W-8
under penalties of perjury, although in certain cases it may be possible to
submit other documentary evidence. In addition, prospective U.S. Holders are
strongly urged to consult their own tax advisors with respect to the New
Withholding Regulations. See "Certain United States Federal Income Tax
Considerations--Non-U.S. Holders".
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.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis for sale by the Company,
through the Agent, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, who will purchase the Notes, as principal, from the Company, for
resale to investors and other purchasers at varying prices relating to
prevailing market prices at the time of resale as determined by the Agent, or,
if so specified in an applicable Pricing Supplement, for resale at a fixed
public offering price. Unless otherwise specified in an applicable Pricing
Supplement, any Note sold to the Agent as principal will be purchased by the
Agent at a price equal to 100% of the principal amount thereof less a
percentage of the principal amount equal to the commission applicable to an
agency sale (as described below) of a Note of identical maturity. If agreed to
by the Company and the Agent, the Agent may utilize its reasonable efforts on
an agency basis to solicit offers to purchase the Notes at 100% of the
principal amount thereof, unless otherwise specified in an applicable Pricing
Supplement. The Company will pay a commission to the Agent, ranging from .050%
to .600% of the principal amount of a Note, depending upon its Stated Maturity
(or, with respect to Notes for which the Stated Maturity is in excess of 30
years, such commission as shall be agreed upon by the Company and the Agent at
the time of sale), sold through the Agent.
The Agent may sell Notes it has purchased from the Company as principal to
other dealers for resale to investors, and may allow any portion of the
discount received in connection with such purchases from the Company to such
dealers. After the initial public offering of Notes, the public offering price
(in the case of Notes to be resold at a fixed public offering price), the
concession and the discount allowed to dealers may be changed.
The Company reserves the right to withdraw, cancel or modify the offer made
hereby without notice and may reject orders in whole or in part whether placed
directly with the Company or through the Agent. The Agent will have the right,
in its discretion reasonably exercised, to reject in whole or in part any
offer to purchase Notes received by the Agent.
Unless otherwise specified in an applicable Pricing Supplement, payment of
the purchase price of the Notes will be required to be made in immediately
available funds in New York City on the date of settlement.
No Note will have an established trading market when issued. Unless
specified in the applicable Pricing Supplement, the Notes will not be listed
on any securities exchange. The Agent may from time to time purchase and sell
Notes in the secondary market, but the Agent is not obligated to do so, and
there can be no assurance that there will be a secondary market for the Notes
or liquidity in the secondary market if one develops. From time to time, the
Agent may make a market in the Notes.
S-26
<PAGE>
The Agent may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Act"). The Company has agreed to
indemnify the Agent against or to make contributions relating to certain civil
liabilities, including liabilities under the Act, or to contribute to payments
the Agent may be required to make in respect thereof. The Company has agreed
to reimburse the Agent for certain expenses.
From time to time, the Company may issue and sell other Securities described
in the accompanying Prospectus, and the amount of Notes offered hereby is
subject to reduction as a result of such sales.
In connection with the offering of Notes purchased by the Agent as principal
on a fixed price basis, the Agent is permitted to engage in certain
transactions that stabilize the price of the Notes. Such transactions may
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Notes. If the Agent creates a short position in the Notes in
connection with the offering (i.e., if it sells Notes in an aggregate
principal amount exceeding that set forth in the applicable Pricing
Supplement), then the Agent may reduce that short position by purchasing Notes
in the open market. In general, purchases of Notes for the purpose of
stabilization or to reduce a short position could cause the price of the Notes
to be higher than in the absence of such purchases.
Neither the Company nor the Agent make any representation or prediction as
to the direction or magnitude of any effect that the transactions described
above may have on the price of the Notes. In addition, neither the Company nor
the Agent makes any representation that the Agent will engage in any such
transactions or that such transactions, once commenced, will not be
discontinued without notice.
The distribution of the Notes 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.
LEGAL OPINION
The validity of the Notes will be passed upon for the Company and the Agent
by Brown & Wood LLP, New York, New York.
S-27
<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, THE APPLICABLE PRICING
SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PRO-
SPECTUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT AND THE PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE AGENT. NEITHER THE DELIVERY
OF THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT OR THE PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUM-
STANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE
PRICING SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITA-
TION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
---------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risk Factors.............................................................. S-2
Ratio of Earnings to Fixed Charges........................................ S-3
Description of Notes...................................................... S-4
Certain United States Federal Income Tax Considerations................... S-20
Plan of Distribution...................................................... S-26
Legal Opinion............................................................. S-27
PROSPECTUS
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Merrill Lynch & Co., Inc. ................................................ 3
Use of Proceeds........................................................... 3
Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.................................... 4
Description of Debt Securities............................................ 4
Description of Debt Warrants.............................................. 9
Description of Currency Warrants.......................................... 11
Description of Index Warrants............................................. 12
Description of Preferred Stock............................................ 17
Description of Depositary Shares.......................................... 21
Description of Preferred Stock Warrants................................... 25
Description of Common Stock............................................... 27
Description of Common Stock Warrants...................................... 30
Plan of Distribution...................................................... 32
Experts................................................................... 33
</TABLE>
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- -------------------------------------------------------------------------------
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LOGO
$
MERRILL LYNCH & CO., INC.
MEDIUM-TERM NOTES,
SERIES B
-----------------------
PROSPECTUS SUPPLEMENT
-----------------------
MERRILL LYNCH & CO.
JULY , 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
SENIOR DEBT SECURITIES
Merrill Lynch & Co., Inc. (the "Company") has issued and intends from time
to time to issue senior debt securities (the "Senior Debt Securities" or the
"Securities") pursuant to an indenture, dated as of April 1, 1983, as amended
and restated, between the Company and The Chase Manhattan Bank, formerly known
as Chemical Bank (successor by merger to Manufacturers Hanover Trust Company).
____________________
The following Securities have been issued and the indicated aggregate
principal amounts are outstanding as of the date hereof:
Redeemable Notes
----------------
<TABLE>
<S> <C>
$1,650,000,000 of 6% Notes due February 12, 2003 $125,000,000 of 6 3/8% Notes due September 8, 2006;
$150,000,000 of 7.05% Notes due April 15, 2003; $700,000,000 6 1/2% Notes due July 15, 2018; and
$750,000,000 Floating Rate Notes due June 24, 2003; $33,015,000 of 8.40% Notes due November 1, 2019.
$500,000,000 6% Notes due July 15, 2005;
</TABLE>
Non-Redeemable Fixed Rate Notes
-------------------------------
<TABLE>
<S> <C>
$165,000,000 of 10 3/8% Notes due February 1, 1999; $150,000,000 of 8.30% Notes due November 1, 2002;
$175,000,000 of 7 3/4% Notes due March 1, 1999; $200,000,000 of 6 7/8% Notes due March 1, 2003;
$200,000,000 of 6 3/8% Notes due March 30, 1999; $500,000,000 of 6.55% Notes due August 1, 2004;
$300,000,000 of 8 1/4% Notes due November 15, 1999; $200,000,000 of 6 1/4% Notes due January 15, 2006;
$150,000,000 of 8 3/8% Notes due February 9, 2000; $200,000,000 of 7% Notes due March 15, 2006;
$150,000,000 of 6.70% Notes due August 1, 2000; $350,000,000 of 7 3/8% Notes due May 15, 2006;
$500,000,000 of 6% Notes due January 15, 2001; $500,000,000 of 7% Notes due January 15, 2007;
$250,000,000 of 6% Notes due March 1, 2001; $150,000,000 of 8% Notes due June 1, 2007;
$300,000,000 of 6 1/2% Notes due April 1, 2001; $250,000,000 of 6.56% Notes due December 16, 2007;
$225,000,000 of 8% Notes due February 1, 2002; $250,000,000 of 7% Notes due April 27, 2008;
$150,000,000 of 7 3/8% Notes due August 17, 2002; $150,000,000 of 6 1/4% Notes due October 15, 2008; and
$250,000,000 of 6.64% Notes due September 19, 2002; $250,000,000 of 6 3/4% Notes due June 1, 2028.
</TABLE>
Non-Redeemable Floating Rate Notes
----------------------------------
$300,000,000 of Floating Rate Notes due February 4, 2003
____________________
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 Securities 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 Securities.
MLPF&S may act as principal or agent in such transactions. The Securities may
be offered on a national securities exchange in the event the particular issue
of Securities has been listed on such exchange, 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 Securities 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.
____________________
MERRILL LYNCH & CO.
____________________
THE DATE OF THIS PROSPECTUS IS JULY ___, 1998.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSIONER OF
INSURANCE FOR THE STATE OF NORTH CAROLINA, NOR HAS THE COMMISSIONER OF INSURANCE
RULED UPON THE ACCURACY OR THE ADEQUACY OF THIS DOCUMENT.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
AVAILABLE INFORMATION........................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................. 2
MERRILL LYNCH & CO., INC........................................ 3
RATIO OF EARNINGS TO FIXED CHARGES.............................. 3
DESCRIPTION OF SENIOR DEBT SECURITIES........................... 4
Redeemable Notes........................................... 10
Non-Redeemable Fixed Rate Notes............................ 16
Non-Redeemable Floating Rate Notes......................... 17
OTHER TERMS..................................................... 18
EXPERTS......................................................... 19
</TABLE>
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 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 26,
1997, Quarterly Report on Form 10-Q for the period ended March 27, 1998, and
Current Reports on Form 8-K dated January 20, 1998, January 30, 1998, February
4, 1998, February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998,
April 29, 1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June
24, 1998, June 26, 1998, July 2, 1998, July 14 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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
2
<PAGE>
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 Lawrence M. Egan, Jr., Corporate
Secretary's Office, 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 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.
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its
subsidiaries and affiliates, provides investment, financing, advisory,
insurance, and related services on a global basis. Its principal subsidiary,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("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; an underwriter of selected insurance products and a distributor of
investment products of the Merrill Lynch Asset Management group. 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. The Company's asset management and investment management activities are
conducted through the Merrill Lynch Asset Management group and Merrill Lynch
Mercury Asset Management, which together constitute one of the largest asset
management organizations in the world. Merrill Lynch Government Securities Inc.
is a primary dealer in obligations issued or guaranteed by the U.S. Government
and its agencies and its government-sponsored entities. Merrill Lynch Capital
Services, Inc., Merrill Lynch Derivative Products AG, and Merrill Lynch
International are the Company's primary derivative product dealers and enter
into interest rate, currency, and other over-the-counter derivative transactions
as intermediaries and as principals. The Company's operations in insurance
services consist of the underwriting and sale 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 and purchasing secured loans, providing
currency exchange facilities and other related services, and furnishing trust,
employee benefit, and custodial 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
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
Ratio of earnings
to fixed charges . . . 1.4 1.2 1.2 1.2 1.2 1.2
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist of interest costs, amortization
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of debt expense, preferred stock dividend requirements of majority-owned
subsidiaries, and that portion of rentals estimated to be representative of the
interest factor.
DESCRIPTION OF SENIOR DEBT SECURITIES
The Senior Debt Securities have been and are to be issued under an
Indenture (the "Senior Indenture"), dated as of April 1, 1983, as amended and
restated, 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"). A copy of the Senior Indenture is filed as an exhibit
to the registration statements relating to the Securities. The following
summaries of certain provisions of the Senior Indenture do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all provisions of the Senior Indenture, including the definition therein of
certain terms.
The Senior Indenture provides that series of Senior Debt Securities may
from time to time be issued thereunder, without limitation as to aggregate
principal amount, in one or more series and upon such terms as the Company may
establish pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the Securities
are governed by and construed in accordance with the laws of the State of New
York. Under present New York law the maximum rate of interest is 25% per annum
on a simple interest basis. This limit may not apply to Securities in which
$2,500,000 or more has been invested. While the Company believes that New York
law would be given effect by a state or Federal court sitting outside of New
York, state laws frequently regulate the amount of interest that may be charged
to and paid by a borrower (including, in some cases, corporate borrowers). The
Company has covenanted for the benefit of the Holders of Securities, to the
extent permitted by law, not to claim voluntarily the benefits of any laws
concerning usurious rates of interest against a Holder of Securities.
The Outstanding Senior Debt Securities are issuable only in fully
registered form without coupons, in denominations set forth below under each
description of Outstanding Senior Debt Securities. No service charge will be
made for any registration of transfer or exchange of such Senior Debt
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charges that may be imposed in connection therewith.
The description below indicates that certain of the Outstanding Senior Debt
Securities have been issued in global form (see "Book-Entry Securities").
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen" a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities),
to participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and other regulatory bodies.
Any principal, premium and interest is and will be payable, the transfer of
the Senior Debt Securities is and will be registrable, and Senior Debt
Securities are and will be exchangeable, at the office of the Trustee in New
York City designated for such purpose, provided that (except as otherwise set
forth below with respect to any series of Senior Debt Securities) payment of
interest may be made at the option of the Company by check mailed to the address
of the person entitled thereto as shown on the Security Register.
Unless otherwise specified with respect to a particular series of Senior
Debt Securities, the Senior Debt Securities are not subject to any sinking fund
and are not redeemable prior to maturity.
Unless otherwise specified, terms defined under a caption for a specific
series of Senior Debt Securities shall have such meanings only as to the Senior
Debt Securities described therein.
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BOOK-ENTRY SECURITIES
Certain of the Outstanding Senior Debt Securities have been issued in
global form (such Outstanding Senior Debt Securities are hereinafter referred to
as "Book-Entry Securities"). Such Book-Entry Securities are represented by one
or more fully registered global securities (the "Global Notes"). Each such
Global Note has been deposited with, or on behalf of, The Depository Trust
Company ("DTC"), as Depository, registered in the name of DTC or a nominee
thereof. Unless and until it is exchanged in whole or in part for Senior Debt
Securities in definitive form, no Global Note may be transferred except as a
whole by the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository or by such
Depository or any such nominee to a successor of such Depository or a nominee of
such successor. Investors of certain of the Outstanding Senior Debt Securities
have elected to hold interests in the Global Notes through either the Depositary
(in the United States) or Cedel Bank, societe anonyme ("Cedel Bank"), and Morgan
Guaranty Trust Company of New York, Brussels Office, as operator of the
Euroclear System ("Euroclear"), if they are participants in such systems, or
indirectly through organizations which are participants in such systems. Cedel
Bank and Euroclear hold interests on behalf of their participants through
customers' securities account in Cedel Bank's and Euroclear's names on the books
of their respective depositaries, which in turn will hold such interest in
customers' securities accounts in the depositaries' names on the books of the
Depositary. Citibank, N.A. acts as depositary for Cedel Bank and The Chase
Manhattan Bank acts as depositary for Euroclear (in such capacities, the "U.S.
Depositaries").
DTC has advised the Company as follows: DTC 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. DTC 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. DTC's Participants include securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations,
including the Underwriters.
DTC is owned by a number of Participants and by the New York Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to DTC'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 Book-Entry Securities must be made by or through Participants,
which will receive a credit on the records of DTC. The ownership interest of
each actual purchaser of each Book-Entry Security (the "Beneficial Owner") is in
turn to be recorded on the Participants' or Indirect Participants' records.
Beneficial Owners will not receive written confirmation from DTC of their
purchase, but Beneficial Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the Participant or Indirect Participant through which the
Beneficial Owner entered into the transaction. Ownership of beneficial
interests in Global Notes will be shown on, and the transfer of such ownership
interests will be effected only through, records maintained by DTC (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 DTC, or its nominee, is the registered owner of a Global Note,
DTC or its nominee, as the case may be, will be considered the sole owner or
Holder of the Book-Entry Securities 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 Book-Entry Securities represented
by such Global Note registered in their names, will not receive or be entitled
to receive physical delivery of the Book-Entry Securities in definitive
registered 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 DTC 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, DTC 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 DTC to Participants, by Participants
5
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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 principal of, and interest on, Book-Entry Securities registered
in the name of DTC or its nominee will be made to DTC or its nominee, as the
case may be, as the Holder of the Global Note or Global Notes representing such
Book-Entry Securities. 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 DTC,
upon receipt of any payment of principal or interest in respect of a Global
Note, will credit the accounts of the Participants with payment in amounts
proportionate to their respective holdings in principal amount of beneficial
interest in such Global Note as shown on the records of DTC. 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) any Depository is at any time unwilling or unable to continue as
Depository and a successor depository is not appointed by the Company within 60
days, or (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 Book-Entry
Securities, the Global Note or Global Notes will be exchangeable for Senior Debt
Securities in definitive form of like tenor and of an equal aggregate principal
amount, in denominations of $1,000 and integral multiples thereof. Such
definitive Senior Debt Securities shall be registered in such name or names as
the Depository shall instruct the Trustee. It is expected that such
instructions may be based upon directions received by the Depository from
Participants with respect to ownership of beneficial interests in Global Notes.
Cedel Bank has advised the Company that it is incorporated under the laws
of Luxembourg as a professional depositary. Cedel Bank holds securities for its
participating organizations ("Cedel Participants") and facilities the clearance
and settlement of securities transactions between Cedel Participants through
electronic book-entry changes in accounts of Cedel Participants, thereby
eliminating the need for physical movement of certificates. Cedel Bank provides
to Cedel Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Cedel Bank interfaces with domestic
markets in several countries. As a professional depositary, Cedel Bank is
subject to regulation by the Luxembourg Monetary Institute. Cedel Participants
are recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Indirect access to Cedel Bank is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Cedel Participant
either directly or indirectly.
Distributions with respect to the Book-Entry Securities held beneficially
through Cedel Bank are credited to cash accounts of Cedel Participants in
accordance with its rules and procedures, to the extent received by the U.S.
Depositary for Cedel Bank.
Euroclear has advised the Company that it was created in 1968 to hold
securities for participants of Euroclear ("Euroclear Participants") and to clear
and settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need for
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Euroclear includes various other services,
including securities lending and borrowing and interfaces with domestic markets
in several countries. Euroclear is operated by the Brussels, Belgium office of
Morgan Guaranty Trust Company of New York (the "Euroclear Operator"), under
contract with Euro-clear Clearance Systems S.C., a Belgian cooperative
corporation (the "Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for Euroclear on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries.
Indirect access to Euroclear is also available to other firms that clear through
or maintain a custodial relationship with a Euroclear Participant, either
directly or indirectly.
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The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
Terms and Conditions only on behalf of Euroclear Participants, and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions with respect to Book-Entry Securities held beneficially
through Euroclear are credited to the cash accounts of Euroclear Participants in
accordance with the Terms and Conditions, to the extent received by the U.S.
Depositary for Euroclear.
CLEARANCE AND SETTLEMENT PROCEDURES
Secondary market trading between DTC Participants will occur in the
ordinary way in accordance with the Depositary's rules and will be settled in
immediately available funds using the Depositary's Same-Day Funds Settlement
System. Secondary market trading between Cedel Participants and/or Euroclear
Participants will occur in the ordinary way in accordance with the applicable
rules and operating procedures of Cedel Bank and Euroclear and will be settled
using the procedures applicable to conventional eurobonds in immediately
available funds.
Cross-market transfers between persons holding directly or indirectly
through the Depositary on the one hand, and directly or indirectly through Cedel
or Euroclear Participants, on the other, will be effected in the Depositary in
accordance with the Depositary's rules on behalf of the relevant European
international clearing system by its U.S. Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to its U.S.
Depositary to take action to effect final settlement on its behalf by delivering
or receiving Book-Entry Securities in the Depositary, and making or receiving
payment in accordance with normal procedures for same-day funds settlement
applicable to the Depositary. Cedel Participants and Euroclear participants may
not deliver instructions directly to the Depositary.
Because of time-zone differences, credits of Book-Entry Securities received
in Cedel Banks or Euroclear as a result of a transaction with a DTC Participant
will be made during subsequent securities settlement processing and will be
credited the business day following the Depositary settlement date. Such
credits or any transactions in such Book-Entry Securities settled during such
processing will be reported to the relevant Euroclear or Cedel Participants on
such business day. Cash received in Cedel Bank or Euroclear as a result of
sales of such securities by or through a Cedel Participant or a Euroclear
Participant to a DTC Participant will be received with value on the Depositary
settlement date but will be available in the relevant Cedel Bank or Euroclear
cash account only as of the business day following settlement in the Depositary.
Although the Depositary, Cedel Bank and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of Book-Entry Securities
among participants of the Depositary, Cedel Bank and Euroclear, they are under
no obligation to perform or continue to perform such procedures and such
procedures may be discontinued at any time.
NOTICES
Notices to holders of certain of the Outstanding Senior Debt Securities
will be sent by mail to the registered holders and will be published, whether
such securities are in global or definitive form, and so long as such securities
are listed on the Luxembourg Stock Exchange, in a daily newspaper of general
circulation in Luxembourg. It is expected that publication will be made in
Luxembourg in the Luxembourg Wort. Any such notice shall be deemed to have been
given on the date of such publication or, if published more than once, on the
date of the first such
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publication. So long as such securities are listed on the Luxembourg Stock
Exchange, any change in the Luxembourg Paying Agent and Transfer Agent will be
published in Luxembourg in the manner set forth above.
FURTHER ISSUES
The Company may from time to time, without notice to or the consent of the
registered holders of certain of the Outstanding Senior Debt Securities, create
and issue further securities ranking pari passu with such securities in all
respects (or in all respects except for the payment of interest accruing prior
to the issues date of such further notes or except for the first payment of
interest following the issue date of such further notes) and so that such
further notes may be consolidated and form a single series with such securities
and have the same terms as to status, redemption or otherwise as the securities
of such series.
PAYMENT OF ADDITIONAL AMOUNTS
With respect to certain of the Outstanding Senior Debt Securities, the
Company will, subject to the exceptions and limitations set forth below, pay as
additional interest on such securities, such additional amounts as are necessary
in order that the net payment by the Company or a paying agent of the principal
of and interest on such securities to a holder who is a non-United States person
(as defined below), after deduction for any present or future tax, assessment or
other governmental charge of the United States of a political subdivision or
taking authority thereof or therein, imposed by withholding with respect to the
payment, will not be less than the amount provided in such securities to be then
due and payable; provided, however, that the foregoing obligation to pay
additional amounts shall not apply:
(1) to any tax, assessment, or other governmental charge that is
imposed or withheld solely by reason of the holder, or a fiduciary,
settlor, beneficiary, member or shareholder of the holder if the holder is
an estate, trust, partnership or corporation, or a person holding a power
over an estate or trust administered by a fiduciary holder, being
considered as:
(a) being or having been present or engaged in a trade or business
in the United States or having had a permanent establishment in the
United States;
(b) having a current or former relationship with the Untied
States, including a relationship as a citizen or resident thereof;
(c) being or having been a foreign or domestic personal holding
company, a passive foreign investment company or a controlled foreign
corporation with respect to the United States or a corporation that
has accumulated earnings to avoid United States federal income tax;
(d) being or having been present a "10-percent shareholder" of the
Company as defined in section 871 (h)(3) of the United States Internal
Revenue Code or any successor provisions; or
(e) being a bank receiving payments on an extension of credit made
pursuant to a loan agreement entered into in the ordinary course of
its trade or business.
(2) to any holder that is not the sole beneficial owner of such
securities, or a portion thereof, or that is a fiduciary or partnership,
but only to the extent that a beneficiary or settlor with respect to the
fiduciary, a beneficial owner or member of the partnership would not have
been entitled to the payment of an additional amount had the beneficiary,
settlor, beneficial owner or member received directly its beneficial or
distributive share of the payment;
(3) to any tax, assessment, or other governmental charge that is
imposed or withheld solely by reason of the failure of the holder or any
other person to comply with certification, identification or information
reporting requirements concerning the nationality, residence, identity or
connection with the United States of the holder or beneficial owner of such
security, if compliance is required by statute, by regulation of the United
States Treasury Department or by an applicable income tax treaty to which
the United States is a party as a precondition to exemption from such tax,
assessment or other governmental charge;
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(4) to any tax, assessment or other governmental charge that is
imposed otherwise than by withholding by the Company or a paying agent from
the payment;
(5) to any tax, assessment or other governmental charge that is
imposed or withheld solely by reason of a change in law, regulation, or
administrative or judicial interpretation that becomes effective more than
15 days after the payment becomes due or is duly provided for, whichever
occurs later;
(6) to any estate, inheritance, gift, sales, excise, transfer, wealth
or personal property tax or similar tax, assessment or other governmental
charge;
(7) to any tax, assessment or other governmental charge required to be
withheld by any payment agent from any payment of principal of or interest
on any such security, if such payment can be made without such withholding
by any other payment agent; or
(8) in the case of any combination of items (1), (2), (3), (4), (5),
(6) and (7).
Certain of the Outstanding Senior Debt Securities are subject in all cases
to any tax, fiscal or other law or regulation or administrative or judicial
interpretation applicable thereto. Except as specifically provided under this
heading "Payment of Additional Amounts" and under the heading "Description of
Senior Debt Securities--Redemption for Tax Reasons", the Company shall not be
required to make any payment with respect to any tax, assessment or other
governmental charge imposed by any government or a political subdivision or
taking authority thereof or therein.
As used under this heading "Payment of Additional Amounts" and "Description
of Senior Debt Securities--Redemption for Tax Reasons", the term "United States"
means the United States of America (including the States and the District of
Columbia) and its territories, its possessions and other areas subject to its
jurisdiction, "United States person" means any individual who is a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States, any state
thereof or the District of Columbia (other than a partnership that is not
treated as a United States person under any applicable Treasury regulations),
any estate the income of which is subject to United States federal income
taxation regardless of its source, or any trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States persons have the authority to control all
substantial decision of the trust. Notwithstanding the preceding sentence, to
the extent provided in the Treasury regulations, certain trusts in existence on
August 20, 1996, and treated as United States persons prior to such date that
elect to continue to be treated as United States persons will also be a United
States person. "Non-United States person" means a person who is not a United
States person.
REDEMPTION FOR TAX REASONS
Certain of the Outstanding Senior Debt Securities provide that, if, as a
result of any change in, or amendment to, the laws (or any regulations or
rulings promulgated thereunder) of the United States (or any political
subdivision or taking authority thereof or therein), or any change in, or
amendments to, an official position regarding the applicable or interpretation
of such laws, regulations or rulings, which change or amendment is announced or
becomes effective on or after the date of such securities were initially issued,
the Company becomes or, based upon a written opinion of independent counsel
selected by the Company, will become obligated to pay additional amounts as
described herein under the heading "Description of Senior Debt Securities--
Payment of Additional Amounts" with respect to such securities, then the Company
may, at its option redeem, as a whole, but not in part, such securities on not
less than 30 nor more than 60 days prior notice, at a redemption price equal to
100% of their principal amount, together with interest accrued but unpaid
thereon to the date fixed for redemption.
TAX CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the
Securities should reach an investment decision only after carefully considering
the suitability of the Securities in the light of their particular
circumstances.
Investors should also consider the tax consequences, if any, of investing
in the Securities and should consult their tax advisors.
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REDEEMABLE NOTES
TERMS AND PROVISIONS OF 6% NOTES DUE FEBRUARY 12, 2003/*/
General
The 6% Notes due February 12, 2003 (the "6% Notes") will mature on February
12, 2003 (the "Stated Maturity"). The 6% Notes bear interest from February 12,
1998, payable semiannually on February 12 and August 12 of each year (each an
"Interest Payment Date"), commencing August 12, 1998 and at maturity, to the
persons in whose names the Notes are registered on the preceding July 29 and
January 29, respectively. If any Interest Payment Date or the Stated Maturity
falls on a day that is not a Business Day (as defined below), the related
payment of principal or interest will be made on the next succeeding Business
Day as if made on the date such payment was due, and no interest will accrue on
the amount so payable for the period from and after such Interest Payment Date
or Stated Maturity, as the case may be. "Business Day" with respect to any
place of payment means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in such place of payment are
authorized or obligated by law to close.
The 6% Notes are not subject to redemption by the Company prior to maturity
unless certain events occur involving U.S. taxation. See "Description of Senior
Debt Securities--Redemption for Tax Reasons".
The 6% Notes are issuable and transferable in denominations of $1,000 and
integral multiples thereof.
Any 6% Notes issued in definitive form will be issued only in fully
registered form, without coupons, in denominations of $1,000 and in integral
multiples thereof, in the amount of each holder's registered holdings. Any 6%
Notes so issued will be registered in such names, and in such denominations, as
the Depositary shall request. Such 6% Notes may be presented for registration
of transfer or exchange at the office of the Trustee in The City of New York and
principal thereof and interest thereon will be payable at such office of the
Trustee, provided that interest thereon may be paid by check mailed to the
registered holders of the definitive 6% Notes. In the event definitive 6% Notes
are issued, the holders thereof will be able to receive payments thereon and
effect transfers thereof at the offices of Chase Manhattan Bank Luxembourg S.A.
or its successor as paying agent in Luxembourg with respect to the 6% Notes.
The Company has appointed Chase Manhattan Bank Luxembourg S.A. as a paying
agent in Luxembourg with respect to the 6% Notes, and as long as the 6% Notes
are listed on the Luxembourg Stock Exchange, the Company will maintain a paying
agent in Luxembourg and any change in the Luxembourg paying agent and transfer
agent will be published in Luxembourg. See "Description of Senior Debt
Securities--Notices".
The provisions set forth under the headings "Description of Senior Debt
Securities--Further Issues" and "Description of Senior Debt Securities--Payment
of Additional Amounts" are applicable to the 6% Notes.
TERMS AND PROVISIONS OF 7.05% NOTES DUE APRIL 15, 2003/*/
General
The 7.05% Notes due April 15, 2003 (the "7.05% Notes") will mature on April
15, 2003 unless redeemed earlier as provided below. The 7.05% Notes bear
interest payable semiannually on each October 15 and April 15 to the persons in
whose names the 7.05% Notes are registered on the next preceding October 1 and
April 1, respectively. The 7.05% Notes are issuable and transferable only in
fully registered form without coupons, in denominations of $1,000 and integral
multiples thereof.
/*/ Book-Entry Securities,
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Redemption by the Company
The 7.05% Notes are subject to redemption at the option of the Company on
or after April 15, 1998, in whole or in part in increments of $1,000, at a
redemption price of 100% of the principal amount thereof to be redeemed plus
accrued interest thereon to but excluding the Redemption Date. Notice of
redemption of the 7.05% Notes shall be given not less than 30 or more than 60
days prior to the Redemption Date to each Holder of 7.05% Notes to be redeemed.
TERMS AND PROVISIONS OF FLOATING RATE NOTES DUE JUNE 24, 2003/*/
General
The Floating Rate Notes due June 24, 2003 (the "June 2003 Floating Rate
Notes") will mature on June 24, 2003.
The June 2003 Floating Rate Notes are not subject to redemption by the
Company prior to maturity unless certain events occur involving U.S. taxation.
See "Description of Senior Debt Securities--Redemption for Tax Reasons".
The June 2003 Floating Rate Notes are issuable and transferable in
denominations of $1,000 and integral multiples thereof.
Any June 2003 Floating Rate Notes issued in definitive form will be issued
only in fully registered form, without coupons, in denominations of $1,000 and
in integral multiples thereof, in the amount of each holder's registered
holdings. Any June 2003 Floating Rate Notes so issued will be registered in
such names, and in such denominations, as the Depositary shall request. Such
June 2003 Floating Rate Notes may be presented for registration of transfer or
exchange at the office of the Trustee in The City of New York and principal
thereof and interest thereon will be payable at such office of the Trustee,
provided that interest thereon may be paid by check mailed to the registered
holders of the definitive June 2003 Floating Rate Notes. In the event
definitive June 2003 Floating Rate Notes are issued, the holders thereof will be
able to receive payments thereon and effect transfers thereof at the offices of
Chase Manhattan Bank Luxembourg S.A. or its successor as paying agent in
Luxembourg with respect to the June 2003 Floating Rate Notes.
The Company has appointed Chase Manhattan Bank Luxembourg S.A. as a paying
agent in Luxembourg with respect to the June 2003 Floating Rate Notes, and as
long as the June 2003 Floating Rate Notes are listed on the Luxembourg Stock
Exchange, the Company will maintain a paying agent in Luxembourg and any change
in the Luxembourg paying agent and transfer agent will be published in
Luxembourg. See "Description of Senior Debt Securities--Notices".
The provisions set forth under the headings "Description of Senior Debt
Securities--Further Issues" and "Description of Senior Debt Securities--Payment
of Additional Amounts" are applicable to the June 2003 Floating Rate Notes.
Interest
The June 2003 Floating Rate Notes bear interest from June 24, 1998 until
their maturity, payable in arrears on March 24, June 24, September 24 and
December 24 of each year (each, an "Interest Payment Date"), commencing
September 24, 1998, and at maturity, to the persons in whose names the Notes are
registered on the preceding March 9, June 9, September 9 and December 9,
respectively; provided, however, that interest payable at maturity will be
payable to the person to whom principal shall be payable. If any Interest
Payment Date would otherwise be a day that is not a Business Day (as defined
below), such Interest Payment Date will be postponed to the next succeeding day
that is a Business Day except that if such Business Day falls in the next
succeeding calendar month, such Interest Payment Date will be the immediately
preceding Business Day. If the maturity of a June 2003 Floating Rate Note falls
on a day that is not a Business Day, the payment of principal and interest will
be made on
/*/ Book-Entry Securities.
11
<PAGE>
the next succeeding Business Day, and no interest on such payment shall accrue
from and after such maturity. Interest payable on each Interest Payment Date
will include interest accrued from and including the first day of the Interest
Period relating to such Interest Payment Date to and including the last day of
such Interest Period. "Interest Period" shall mean the period beginning on and
including June 24, 1998 and ending on and including the day preceding the first
Interest Payment Date, and, thereafter, each successive period beginning on and
including each Interest Payment Date and ending on and including the day
preceding the next succeeding Interest Payment Date. As used herein, "Business
Day", with respect to any place of payment, means any day (other than a Saturday
or Sunday) that is neither a legal holiday nor a day on which banking
institutions in such place of payment are authorized or required by law,
regulation or executive order to close, and such day is also a London Business
Day. "London Business Day" means any day (other than a Saturday or a Sunday) on
which commercial banks and foreign exchange markets settle payments in London,
England.
The per annum rate of interest with respect to the June 2003 Floating Rate
Notes will be reset on each Interest Reset Date and will be LIBOR, as defined
below, plus 0.15%. Each Interest Payment Date will be an Interest Reset Date.
The interest rate applicable to each Interest Period will be the rate
determined on the Interest Determination Date applicable to such Interest
Period. The interest rate in effect during the first Interest Period will equal
a rate of interest determined as if the original issue date, June 24, 1998, were
an Interest Reset Date. The "Interest Determination Date" applicable to an
Interest Reset Date will be the second London Business Day preceding such
Interest Reset Date.
With respect to each Interest Reset Date, "LIBOR" will be determined by
MLPF&S (the "Calculation Agent") for an Interest Determination Date and will be
the rate for deposits in United States dollars having a maturity of three months
commencing on the second London Business Day immediately following that Interest
Determination Date that appears on Telerate Page 3750 as of 11:00 A.M., London
time, on that Interest Determination Date.
If fewer than two offered rates appear, or no rate appears, as applicable,
the Calculation Agent will request the principal London offices of each of four
major reference banks in the London interbank market, as selected by the
Calculation Agent, to provide the Calculation Agent with its offered quotation
for deposits in United States dollars having a maturity of three months
commencing on the second London Business Day immediately following such Interest
Determination Date, to prime banks in the London interbank market at
approximately 11:00 A.M., London time, on such Interest Determination Date and
in a principal amount that is representative for a single transaction in United
States dollars in such market at such time. If at least two such quotations are
provided, LIBOR determined on such Interest Determination Date will be the
arithmetic mean of such quotations. If fewer than two quotations are provided,
LIBOR determined on such Interest Determination Date will be the arithmetic mean
of the rates quoted at approximately 11:00 A.M., in The City of New York, on
such Interest Determination Date by three major banks in The City of New York
selected by the Calculation Agent for loans in United States dollars to leading
European banks, having a maturity of three months and in a principal amount that
is representative for a single transaction in United States dollars in such
market at such time; provided, however, that if the banks so selected by the
Calculation Agent are not quoting as mentioned in this sentence, LIBOR
determined on such Interest Determination Date will be LIBOR in effect on such
interest Determination Date.
"Telerate Page 3750" means page 3750 on the Dow Jones Markets (or such
other service or services as may be nominated by the British Bankers'
Association for the purpose of displaying London interbank offered rates for
United States dollars) for the purpose of displaying the London interbank rates
of major banks for United States dollars.
Interest on the June 2003 Floating Rate Notes will be computed and paid on
the basis of the actual number of days for which interest accrues in each
Interest Period divided by 360.
All percentages resulting from any calculation on the June 2003 Floating
Rate Notes will be rounded to the nearest one hundred-thousandth of a percentage
point, with five one millionths of a percentage point rounded upwards (e.g.,
9.876545% (or .09876545)) would be rounded to 9.87655% (or .0987655), and all
dollar amounts used in or resulting from such calculation on the June 2003
Floating Rate Notes will be rounded to the nearest cent (with one-half cent
being rounded upward).
12
<PAGE>
The Company will notify the Luxembourg Stock Exchange or will cause the
Luxembourg Stock Exchange to be notified of the interest rate, the interest
amount that will accrue, and commencement and ending dates for each Interest
Period as soon as practicable after such determination is made.
TERMS AND PROVISIONS OF 6% NOTES DUE JULY 15, 2005/*/
General
The 6% Notes due July 15, 2005 (the "6% Notes") will mature at par on July
15, 2005. The 6% Notes bear interest at the rate of 6% per annum, from July 15,
1998, payable semiannually on January 15 and July 15 of each year (each an
"Interest Payment Date"), commencing January 15, 1999, and at maturity, to the
persons in whose names the Notes are registered on the preceding December 31 and
June 30, respectively. If any Interest Payment Date or maturity date falls on a
day that is not a Business Day (as defined below), the related payment of
principal or interest will be made on the next succeeding Business Day as if
made on the date such payment was due, and no interest will accrue on the amount
so payable for the period from and after such Interest Payment Date or maturity
date, as the case may be. "Business Day" with respect to any place of payment
means each Monday, Tuesday, Wednesday, Thursday and Friday which is neither a
legal holiday nor a day on which banking institutions in such place of payment
are authorized or obligated by law, regulation or executive order to close.
The 6% Notes are not subject to redemption by the Company prior to maturity
unless certain events occur involving U.S. taxation. See "Description of Senior
Debt Securities--Redemption for Tax Reasons".
The Notes are issuable in denominations of $1,000 and integral multiples
thereof.
Any 6% Notes issued in definitive form will be issued only in fully
registered form, without coupons, in denominations of $1,000 and in integral
multiples there, in the amount of each holder's registered holdings. Any 6%
Notes so issued will be registered in such names, and in such denominations, as
the Depositary shall request. Such 6% Notes may be presented for registration
of transfer or exchange at the office of the Trustee in The City of New York and
principal thereof and interest thereon will be payable at such office of the
Trustee, provided that interest thereon may be paid by check mailed to the
registered holders of the definitive 6% Notes. In the event definitive 6% Notes
are issued, the holders thereof will be able to receive payments thereon and
effect transfers thereof at the offices of Chase Manhattan Bank Luxembourg S.A.
or its successor as paying agent in Luxembourg with respect to the 6% Notes.
The Company has appointed Chase Manhattan Bank Luxembourg S.A. as a paying
agent in Luxembourg with respect to the 6% Notes, and as long as the 6% Notes
are listed on the Luxembourg Stock Exchange, the Company will maintain a paying
agent in Luxembourg and any change in the Luxembourg paying agent and transfer
agent will be published in Luxembourg. See "Description of Senior Debt
Securities--Notices".
The provisions set forth under the headings "Description of Senior Debt
Securities--Further Issues" and "Description of Senior Debt Securities--Payment
of Additional Amounts" are applicable to the 6% Notes.
TERMS AND PROVISIONS OF 6 3/8% NOTES DUE SEPTEMBER 8, 2006/*/
General
The 6 3/8% Notes due September 8, 2006 (the "6 3/8% Notes") will mature on
September 8, 2006 unless redeemed earlier as provided below. The 6 3/8% Notes
bear interest payable semiannually on each March 8 and September 8 to the
persons in whose names the 6 3/8% Notes are registered on the next preceding
February 23 and August 23, respectively. The 6 3/8% Notes are issuable and
transferable only in fully registered form without coupons, in denominations of
$1,000 and integral multiples thereof.
/*/ Book-Entry Securities.
13
<PAGE>
Redemption by the Company
The 6 3/8% Notes are subject to redemption at the option of the Company on
or after September 8, 2003, in whole or in part in increments of $1,000, at a
redemption price of 100% of the principal amount thereof to be redeemed plus
accrued interest thereon to but excluding the Redemption Date. Notice of
redemption of the 6% Notes shall be given not less than 30 or more than 60 days
prior to the Redemption Date to each Holder of 6% Notes to be redeemed.
TERMS AND PROVISIONS OF 6 1/2% NOTES DUE JULY 15, 2018/*/
General
The 6 1/2% Notes due July 15, 2018 (the "6 1/2% Notes") will mature at par
on July 15, 2018. The 6 1/2% Notes bear interest at the rate of 6 1/2% per
annum, from July 15, 1998, payable semiannually on January 15 and July 15 of
each year (each an "Interest Payment Date"), commencing January 15, 1999, and at
maturity, to the persons in whose names the Notes are registered on the
preceding December 31 and June 30, respectively. If any Interest Payment Date
or maturity date falls on a day that is not a Business Day (as defined below),
the related payment of principal or interest will be made on the next succeeding
Business Day as if made on the date such payment was due, and no interest will
accrue on the amount so payable for the period from and after such Interest
Payment Date or maturity date, as the case may be. "Business Day" with respect
to any place of payment means each Monday, Tuesday, Wednesday, Thursday and
Friday which is neither a legal holiday nor a day on which banking institutions
in such place of payment are authorized or obligated by law, regulation or
executive order to close.
The 6 1/2% Notes are not subject to redemption by the Company prior to
maturity unless certain events occur involving U.S. taxation. See "Description
of Senior Debt Securities--Redemption for Tax Reasons".
The 6 1/2% Notes are issuable in denominations of $1,000 and integral
multiples thereof.
Any 6 1/2% Notes issued in definitive form will be issued only in fully
registered form, without coupons, in denominations of $1,000 and in integral
multiples thereof, in the amount of each holder's registered holdings. Any
Notes so issued will be registered in such names, and in such denominations, as
the Depositary shall request. Such 6 1/2% Notes may be presented for
registration of transfer or exchange at the office of the Trustee in The City of
New York and principal thereof and interest thereon will be payable at such
office of the Trustee, provided that interest thereon may be paid by check
mailed to the registered holders of the definitive 6 1/2% Notes. In the event
definitive 6 1/2% Notes are issued, the holders thereof will be able to receive
payments thereon and effect transfers thereof at the offices of Chase Manhattan
Bank Luxembourg S.A. or its successor as paying agent in Luxembourg with respect
to the 6 1/2% Notes.
The Company has appointed Chase Manhattan Bank Luxembourg S.A. as a paying
agent in Luxembourg with respect to the 6 1/2% Notes, and as long as the 6 1/2%
Notes are listed on the Luxembourg Stock Exchange, the Company will maintain a
paying agent in Luxembourg and any change in the Luxembourg paying agent and
transfer agent will be published in Luxembourg. See "Description of Senior Debt
Securities--Notices".
The provisions set forth under the headings "Description of Senior Debt
Securities--Further Issues" and "Description of Senior Debt Securities--Payment
of Additional Amounts" are applicable to the 6 1/2% Notes.
TERMS AND PROVISIONS OF 8.40% NOTES DUE NOVEMBER 1, 2019
General
The 8.40% Notes due November 1, 2019 (the "8.40% Notes") will mature on
November 1, 2019. The 8.40% Notes bear interest payable semiannually on each
May 1 and November 1 to the persons in whose names the 8.40% Notes are
registered on the next preceding April 15 and October 15, respectively. The
8.40% Notes
/*/ Book-Entry Securities.
14
<PAGE>
are issuable and transferable only in fully registered form without coupons, in
denominations of $1,000 and integral multiples thereof.
Redemption by the Company
The 8.40% Notes are not redeemable by the Company prior to maturity unless
$20,000,000 or less of aggregate principal amount of the 8.40% Notes are
outstanding, in which case the 8.40% Notes are redeemable at any time on or
after November 1, 1994, in whole but not in part, on at least 15 days and not
more than 60 days prior notice at a redemption price of 100% of principal amount
thereof plus accrued interest thereon to the date of redemption.
15
<PAGE>
NON-REDEEMABLE FIXED RATE NOTES
GENERAL TERMS AND PROVISIONS OF NON-REDEEMABLE FIXED RATE NOTES
Each series of Non-Redeemable Fixed Rate Notes bears interest at a
specified rate payable semiannually through maturity to the persons in whose
names the Notes are registered on the Regular Record Date preceding each
Interest Payment Date. The Non-Redeemable Fixed Rate Notes are not subject to
redemption by the Company or repayment at the option of the holders thereof
prior to their stated maturity dates, and are issuable and transferable in
denominations of $1,000 and any integral multiple thereof. Beneficial interests
in Non-Redeemable Fixed Rate Notes that are Book-Entry Securities may be
acquired, or subsequently transferred, only in denominations of $1,000 and
integral multiples thereof. The title of each series of Non-Redeemable Fixed
Rate Notes designates the interest rate and maturity date of such Notes.
TERMS OF SERIES OF NON-REDEEMABLE FIXED RATE NOTES
<TABLE>
<CAPTION>
Series Interest Payment Dates Regular Record Dates
------ ---------------------- --------------------
<S> <C> <C>
10 3/8% Notes due February 1, 1999 February 1 and August 1 January 15 and July 15
7 3/4% Notes due March 1, 1999 March 1 and September 1 February 15 and August 15
6 3/8% Notes due March 30, 1999/*/ March 30 and September 30 March 15 and September 15
8 1/4% Notes due November 15, 1999 May 15 and November 15 May 1 and November 1
8 3/8% Notes due February 9, 2000/*/ February 9 and August 9 January 25 and July 25
6.70% Notes due August 1, 2000/*/ February 1 and August 1 January 15 and July 15
6% Notes due January 15, 2001/*/ January 15 and July 15 January 1 and July 1
6% Notes due March 1, 2001/*/ March 1 and September 1 February 15 and August 15
6 1/2% Notes due April 1, 2001/*/ April 1 and October 1 March 15 and September 15
8% Notes due February 1, 2002 February 1 and August 1 January 15 and July 15
7 3/8% Notes due August 17, 2002/*/ February 17 and August 17 February 2 and August 2
6.64% Notes due September 19, 2002/*/ March 19 and September 19 March 4 and September 4
8.30% Notes due November 1, 2002 May 1 and November 1 April 15 and October 15
6% Notes due February 12, 2003/*/ February 12 and August 12 January 29 and July 29
6 7/8% Notes due March 1, 2003/*/ March 1 and September 1 February 15 and August 15
6.55% Notes due August 1, 2004/*/ February 1 and August 1 January 15 and July 15
6 1/4% Notes due January 15, 2006/*/ January 15 and July 15 January 1 and July 1
7% Notes due March 15, 2006/*/ March 15 and September 15 March 1 and September 1
7 3/8% Notes due May 15, 2006/*/ May 15 and November 15 May 1 and November 1
7% Notes due January 15, 2007/*/ January 15 and July 15 January 1 and July 1
8% Notes due June 1, 2007 June 1 and December 1 May 15 and November 15
6.56% Notes due December 16, 2007/*/ June 16 and December 16 June 1 and December 1
7% Notes due April 27, 2008/*/ April 27 and October 27 April 12 and October 12
6 1/4% Notes due October 15, 2008/*/ April 15 and October 15 March 31 and September 30
6 3/4% Notes due June 1, 2028/*/ June 1 and December 1 May 15 and November 15
</TABLE>
__________________
/*/Book-Entry Securities.
16
<PAGE>
NON-REDEEMABLE FLOATING RATE NOTES
TERMS AND PROVISIONS OF FLOATING RATE NOTES DUE FEBRUARY 4, 2003/*/
General
The Floating Rate Notes due February 4, 2003 (the "February 2003 Floating
Rate Notes") will mature on February 4, 2003. The February 2003 Floating Rate
Notes are not subject to redemption by the Company prior to maturity. The
February 2003 Floating Rate Notes are issuable and transferable in fully
registered form without coupons, in denominations of $1,000 and integral
multiples thereof.
Interest
The February 2003 Floating Rate Notes bear interest payable in arrears on
February 4, May 4, August 4 and November 4 of each year, (each, an "Interest
Payment Date"), until maturity. If any Interest Payment Date would otherwise be
a day that is not a Business Day (as defined below), such Interest Payment Date
will be postponed to the next succeeding day that is a Business Day except that
if such Business Day falls in the next succeeding calendar month, such Interest
Payment Date will be the immediately preceding Business Day. Interest payable
on each Interest Payment Date will include interest accrued from and including
the first day of the Interest Period relating to such Interest Payment Date to
and including the last day of such Interest Period. "Interest Period" shall
mean the period beginning on and including each Interest Payment Date and ending
on and including the day preceding the next succeeding Interest Payment Date.
As used herein, "Business Day" means any day, other than a Saturday or Sunday,
that is neither a legal holiday nor a day on which banking institutions are
authorized or required by law, regulation or executive order to close in The
City of New York and such day is also a London Business Day. "London Business
Day" means any day (other than a Saturday or a Sunday) on which commercial banks
and foreign exchange markets settle payments in London, England.
The per annum rate of interest with respect to the February 2003 Floating
Rate Notes will be reset on each Interest Reset Date and will be LIBOR, as
defined below, plus 0.2%. Each Interest Payment Date will be an Interest Reset
Date. The interest rate applicable to each Interest Period will be the rate
determined on the Interest Determination Date on which such Interest Period
commences. The "Interest Determination Date" applicable to an Interest Reset
Date will be the second London Business Day preceding such Interest Reset Date.
With respect to each Interest Reset Date, LIBOR will be determined by
MLPF&S (the "Calculation Agent") for an Interest Determination Date and will be
the rate for deposits in United States dollars having a maturity of three months
commencing on the second London Business Day immediately following that Interest
Determination Date that appears on Telerate Page 3750 as of 11:00 A.M., London
time, on that Interest Determination Date.
If fewer than two offered rates appear, or no rate appears, as applicable,
the Calculation Agent will request the principal London offices of each of four
major reference banks in the London interbank market, as selected by the
Calculation Agent, to provide the Calculation Agent with its offered quotation
for deposits in United States dollars having a maturity of three months
commencing on the second London Business Day immediately following such Interest
Determination Date, to prime banks in the London interbank market at
approximately 11:00 A.M., London time, on such Interest Determination Date and
in a principal amount that is representative for a single transaction in United
States dollars in such market at such time. If at least two such quotations are
provided, LIBOR determined on such Interest Determination Date will be the
arithmetic mean of such quotations. If fewer than two quotations are provided,
LIBOR determined on such Interest Determination Date will be the arithmetic mean
of the rates quoted at approximately 11:00 A.M., in The City of New York, on
such Interest Determination Date by three major banks in The City of New York
selected by the Calculation Agent for loans in United States dollars to leading
European banks, having a maturity of three months and in a principal amount that
is representative for a single transaction United States dollars in such market
at such time; provided, however, that if the banks so selected by the
Calculation Agent are not quoting as mentioned in this sentence, LIBOR
determined on such Interest Determination Date will be LIBOR in effect on such
Interest Determination Date.
"Telerate Page 3750" means page 3750 on the Dow Jones Markets (or such
other service or services as may be nominated by the British Bankers'
Association for the purpose of displaying London interbank offered rates
/*/ Book-Entry Securities.
17
<PAGE>
for United States dollars) for the purpose of displaying the London interbank
rates of major banks for United States dollars.
Interest on the February 2003 Floating Rate Notes is computed and paid on
the basis of the actual number of days for which interest accrues in each
Interest Period divided by the actual number of days in the relevant year.
All percentages resulting from any calculation on the February 2003
Floating Rate Notes will be rounded to the nearest one hundred-thousandth of a
percentage point, with five one millionths of a percentage point rounded upwards
(e.g., 9.876545% (or .09876545) would be rounded to 9.87655% (or .0987655)), and
all dollar amounts used in or resulting from such calculation on the February
2003 Floating Rate Notes will be rounded to the nearest cent (with one-half cent
being rounded upward).
OTHER TERMS
LIMITATIONS UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of the incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
LIMITATION ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Indenture provides that the Company may not sell, transfer or otherwise
dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell or
otherwise dispose of any of its Voting Stock, unless, after giving effect to any
such transaction, MLPF&S remains a Controlled Subsidiary (defined in the Senior
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the 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.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or
into any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior 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 Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company
and the Trustee with the consent of the Holders of 66 2/3% in principal amount
of the Outstanding Senior Debt Securities of each series issued pursuant to such
indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding Senior Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts payable on, any Senior Debt
Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any Senior Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Debt Security; (e) reduce the percentage in principal
amount of the Outstanding Senior Debt Securities of any series, the consent of
whose Holders is required to modify or amend the Indenture; or (f) modify the
foregoing
18
<PAGE>
requirements or reduce the percentage of Outstanding Senior Debt Securities
necessary to waive any past default to less than a majority. No modification or
amendment of the Subordinated Indenture or any Subsequent Indenture for
Subordinated Debt Securities may adversely affect the rights of any holder of
Senior Indebtedness without the consent of such Holder. Except with respect to
certain fundamental provisions, the Holders of at least a majority in principal
amount of Outstanding Senior Debt Securities of any series may, with respect to
such series, waive past defaults under the Indenture and waive compliance by the
Company with certain provisions thereof.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the Indenture for
the benefit of such series or in the Senior Debt Securities of such series,
continued for 60 days after written notice as provided in the Senior Indenture;
(e) certain events in bankruptcy, insolvency or reorganization; and (f) any
other Event of Default provided with respect to Senior Debt Securities of that
series. The Trustee or the Holders of 25% in principal amount of the
Outstanding Senior Debt Securities of that series may declare the principal
amount (or such lesser amount as may be provided for in the Senior Debt
Securities of that series) of all Outstanding Senior Debt Securities of that
series and the interest due thereon and Additional Amounts payable in respect
thereof, if any to be due and payable immediately if an Event of Default with
respect to Senior Debt Securities of such series shall occur and be continuing
at the time of such declaration. At any time after a declaration of
acceleration has been made with respect to Senior Debt Securities of any series
but before a judgment or decree for payment of money due has been obtained by
the Trustee, the Holders of a majority in principal amount of the Outstanding
Senior Debt Securities of that series may rescind any declaration of
acceleration and its consequences, if all payments due (other than those due as
a result of acceleration) have been made and all Events of Default have been
remedied or waived. Any Event of Default with respect to Senior Debt Securities
of any series may be waived by the Holders of a majority in principal amount of
all Outstanding Senior Debt Securities of that series, except in a case of
failure to pay principal or premium, if any, or interest or Additional Amounts
payable on any Senior Debt Security of that series for which payment had not
been subsequently made or in respect of a covenant or provision which cannot be
modified or amended without the consent of the Holder of each Outstanding Senior
Debt Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior
Debt Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any right or power
under the Senior Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company is required to furnish to the Trustee annually a statement as
to the fulfillment by the Company of all of its obligations under the Senior
Indenture.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997 included
in the 1997 Annual Report on Form 10-K, and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP, as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such 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.
19
<PAGE>
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 such Quarterly Reports 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.
20
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
MEDIUM-TERM NOTES
Merrill Lynch & Co., Inc. (the "Company'') has issued Medium-Term Notes with
original maturities from and exceeding 9 months from date of issue (the
"Notes'') pursuant to an indenture, dated as of April 1, 1983, as amended and
restated, between the Company and The Chase Manhattan Bank, formerly known as
Chemical Bank (successor to Manufacturers Hanover Trust Company). The Notes bear
interest at fixed or variable rates, or were sold at a discount and do not bear
interest. The descriptions of the interest rates on Fixed Rate Notes, the method
of determining the interest rates on Floating Rate Notes, the issue prices of
Zero Coupon Notes, the currencies (if other than U.S. dollars) in which Notes
were denominated and the dates of maturity and other terms related to specific
issues of Notes are set forth in Pricing Supplements relating to each such issue
of Notes that were previously filed by the Company with the Securities and
Exchange Commission pursuant to regulations promulgated under the Securities Act
of 1933. Such Pricing Supplements are hereby incorporated by reference into this
Prospectus and are available at the reference facilities maintained by the
Securities and Exchange Commission specified in the section entitled "Available
Information'' contained in this Prospectus. The Notes had original maturities
from and exceeding 9 months from their respective dates of original issue. The
Notes were issued in the form of a certificate issued in definitive form.
Floating Rate Notes and Zero Coupon Notes were issued in denominations of
$25,000 or any amount in excess thereof which is an integral multiple of $1,000.
Fixed Rate Notes were issued in denominations of $1,000 or any integral multiple
in excess thereof.
Unless otherwise specified in the applicable Pricing Supplement, interest on
Fixed Rate Notes will be payable semi-annually on each May 15 and November 15
and at maturity or, if applicable, upon redemption or optional repayment. The
interest rate on Floating Rate Notes will be determined by reference to a
specified interest rate formula, and may be adjusted by a "Spread'' or "Spread
Multiplier'', as defined herein. Interest on each Floating Rate Note will be
payable monthly, quarterly, semi-annually or annually, as set forth in the
applicable Pricing Supplement, and at maturity or, if applicable, upon
redemption or optional repayment. On and after the Redemption Date, if any, set
forth in the applicable Pricing Supplement, a Note will be subject to redemption
by the Company, in whole or in part, at 100% of the principal amount to be
redeemed, together with interest to the date of redemption. On any Optional
Repayment Date set forth in the applicable Pricing Supplement, a Note will be
subject to repayment at the option of the Holder, in whole or in part, at 100%
of the principal amount to be repaid, together with interest to the date of
repayment. (See "Description of Notes'' in this Prospectus.)
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR
ANY SUPPLEMENT HERETO. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
____________________
This Prospectus has been prepared in connection with the Notes 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 Notes. MLPF&S may act as
principal or agent in such transactions. Sales will be made at prices related to
prevailing prices at the time of sale. The distribution of the Notes 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.
__________
MERRILL LYNCH & CO.
__________
The date of this Prospectus is July ___, 1998.
<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 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 26, 1997,
Quarterly Report on Form 10-Q for the period ended March 27, 1998, and Current
Reports on Form 8-K dated January 20, 1998, January 30, 1998, February 4, 1998,
February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998, April 29,
1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June 24, 1998,
June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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 LAWRENCE M. EGAN, JR., CORPORATE SECRETARY'S
OFFICE, 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 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.
2
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, advisory, insurance, and related
services on a global basis. Its principal subsidiary, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("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; an underwriter of selected insurance
products and a distributor of investment products of the Merrill Lynch Asset
Management group. 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. The Company's asset management and investment
management activities are conducted through the Merrill Lynch Asset Management
group and Merrill Lynch Mercury Asset Management, which together constitute one
of the largest asset management organizations in the world. Merrill Lynch
Government Securities Inc. is a primary dealer in obligations issued or
guaranteed by the U.S. Government and its agencies and its government-sponsored
entities. Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative
Products AG, and Merrill Lynch International are the Company's primary
derivative product dealers and enter into interest rate, currency, and other
over-the-counter derivative transactions as intermediaries and as principals.
The Company's operations in insurance services consist of the underwriting and
sale 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 and
purchasing secured loans, providing currency exchange facilities and other
related services, and furnishing trust, employee benefit, and custodial
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
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
Ratio of earnings
to fixed charges . . . . . 1.4 1.2 1.2 1.2 1.2 1.2
3
<PAGE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
DESCRIPTION OF NOTES
GENERAL
"Pricing Supplement'', as used herein, means a prospectus supplement relating
to an individual issue of the Notes, as filed with the Commission.
The terms and conditions set forth below apply to each Note unless otherwise
specified in the applicable Pricing Supplement.
Except as provided in the applicable Pricing Supplement, the Notes are
denominated in U.S. dollars. If provided in the applicable Pricing Supplement,
Notes may be denominated in a foreign currency or in units of two or more
currencies ("Multi-Currency Notes'').
Except as provided in the applicable Pricing Supplement, (i) the Notes were
issued only in fully registered form without coupons, (ii) Floating Rate Notes
and Zero Coupon Notes were issued in denominations of $25,000 or any amount in
excess thereof which is an integral multiple of $1,000, and (iii) Fixed Rate
Notes were issued in denominations of $1,000 or any integral multiple in excess
thereof.
Unless otherwise specified in the applicable Pricing Supplement, principal and
interest, if any, will be payable, the transfer of the Notes will be
registrable, and Notes will be exchangeable for Notes bearing identical terms
and provisions at the office of the Trustee in The City of New York designated
for such purpose, provided that payment of interest, other than interest payable
at maturity (or on any date of redemption or repayment), may be made at the
option of the Company by check mailed to the address of the person entitled
thereto as shown on the Security Register. The principal and interest payable at
maturity or the date of redemption or repayment on each Note will be paid upon
maturity, redemption or repayment, as the case may be, in immediately available
funds against presentation of the Note at the office of the Trustee maintained
for such purpose.
Notwithstanding the above, however, payment of interest on a Note which bears
interest at a floating rate (a "Floating Rate Note'') at maturity or earlier
redemption or repayment may be made by wire transfer of immediately available
funds to a designated account maintained in the United States upon (i) receipt
of written notice by the Senior Debt Trustee from the Holder thereof not less
than one Business Day prior to the due date of such principal payment and (ii)
presentation of such Note at the Corporate Trust Office of the Senior Debt
Trustee in the Borough of Manhattan, The City of New York (the "Corporate Trust
Office''), or at such other place as the Company may designate. A Holder of not
less than $1,000,000 aggregate principal amount of Floating Rate Notes may by
written notice to the Senior Debt Trustee at the Corporate Trust Office (or at
such other address as the Company will give notice in writing) not less than 15
days prior to an Interest Payment Date, arrange to have the interest payable on
all Notes held by such Holder on such Interest Payment Date, and all subsequent
Interest Payment Dates until written notice to the contrary is given to the
Senior Debt Trustee, made by wire transfer of immediately available funds to a
designated account maintained in the United States.
Except as provided in the applicable Pricing Supplement, "Business Day'' means
any day that is not a Saturday or Sunday and that, in The City of New York, is
neither a legal holiday nor a day on which banking institutions are authorized
or obligated by law or regulation to close.
REPAYMENT AT OPTION OF HOLDER
If so indicated in an applicable Pricing Supplement, Notes will be repayable
by the Company in whole or in part at the option of the Holders thereof on their
respective Optional Repayment Dates specified in such Pricing
4
<PAGE>
Supplement. If no Optional Repayment Date is indicated with respect to a Note,
such Note will not be repayable at the option of the Holder prior to maturity.
Any repayment in part will be in increments of $1,000 provided that any
remaining principal amount of such Note will be an authorized denomination of
such Note. The repurchase price for any Note so repurchased will be 100% of the
principal amount to be repaid, together with interest thereon payable to the
date of repayment.
Notwithstanding anything to the contrary herein, if repayable at the option of
the Holder, a Note shall be repayable only on an Interest Payment Date, and if
any Optional Repayment Date specified with respect to a Note would not be an
Interest Payment Date (whether because such date is not a Business Day or
otherwise), such Optional Repayment Date shall (instead of being the date so
specified) be the Interest Payment Date nearest such specified Optional
Repayment Date (whether such Interest Payment Date shall precede or succeed such
specified Optional Repayment Date), or, in the event that an equal number of
days shall separate a specified Optional Repayment Date and the preceding
Interest Payment Date, on the one hand, and the succeeding Interest Payment
Date, on the other hand, such Optional Repayment Date shall be the succeeding
Interest Payment Date.
In order for a Note which is by its terms repayable at the option of the
Holder to be repaid, prior to maturity, the Company must receive at the
Corporate Trust Office of the Senior Debt Trustee (or at such other address of
which the Company will from time to time notify the Holder thereof) during the
period from and including the 20th Business Day preceding the applicable
Optional Repayment Date up to and including the close of business on the 16th
Business Day preceding the applicable Optional Repayment Date: (i) such Note
with the information under the caption "Option to Elect Repayment'' duly
completed, or (ii) a telegram, telex, facsimile transmission or letter from a
member of a national securities exchange or the National Association of
Securities Dealers, Inc. or a commercial bank or a trust company in the United
States of America dated no later than the 16th Business Day preceding the
applicable Optional Repayment Date and setting forth the name of the Holder of
such Note, the principal amount of such Note, the amount of such Note to be
repaid, a statement that the option to elect repayment is being exercised
thereby and a guarantee that such Note (with the information required under the
caption "Option to Elect Repayment'' duly completed) will be received at the
above-mentioned office of the Senior Debt Trustee, not later than the 5th
Business Day after the date of such telegram, telex, facsimile transmission or
letter and Note, duly completed, is received at such office of the Trustee by
such 5th Business Day. Effective exercise of the repayment option by the Holder
of a Note will be irrevocable. No transfer or exchange of a Note (or, in the
event that a Note is to be repaid in part, such portion of such Note to be
repaid) will be permitted after exercise of the repayment option. All questions
as to the validity, eligibility (including time of receipt) and acceptance of
any Note for repayment will be determined by the Company, whose determination
will be final, binding and non-appealable. The Company has the right to offer
for resale any Note acquired by it pursuant to the foregoing arrangements.
Accordingly, the indebtedness evidenced by any Note so repurchased by the
Company may not be satisfied by such repurchase.
REDEMPTION AT OPTION OF THE COMPANY
The Notes do not have a sinking fund but are redeemable at the option of the
Company only if a Redemption Date is specified therein and in the applicable
Pricing Supplement. If so indicated in an applicable Pricing Supplement, such
Notes will be subject to redemption by the Company on and after their respective
Redemption Dates specified in such Pricing Supplement. On and after the
Redemption Date, if any, the related Note will be redeemable in whole or in part
in increments of $1,000 (provided that any remaining principal amount of such
Note shall be an authorized denomination of such Note) at the option of the
Company at a redemption price equal to 100% of the principal amount to be
redeemed, together with interest thereon payable to the date of redemption, on
notice given not more than 60 nor less than 30 days prior to the date of
redemption in the case of Fixed Rate Notes, or on notice given not more than 30
nor less than 15 days prior to the date of redemption in the case of Floating
Rate Notes. Notwithstanding the above, however, Floating Rate Notes, if
redeemable at the option of the Company, will be redeemable only on Interest
Payment Dates occurring on or after the applicable Redemption Dates.
INTEREST RATE
Each Floating Rate Note and Note which bears interest at a fixed rate (a
"Fixed Rate Note'') will bear interest at the rate per annum, or pursuant to the
interest rate formula, stated therein and in the applicable Pricing Supplement
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<PAGE>
until the principal thereof is paid or made available for payment. Interest will
be payable on each Interest Payment Date and at maturity or, if applicable, upon
redemption or repayment. Interest will be payable to the person in whose name a
Note is registered at the close of business on the Regular Record Date next
preceding each Interest Payment Date; provided, however, interest payable at
maturity or, if applicable, upon redemption or repayment will be payable to the
person to whom principal shall be payable. Except as provided in the applicable
Pricing Supplement, Merrill Lynch, Pierce, Fenner & Smith Incorporated will be
the calculation agent (the "Calculation Agent'') with respect to Floating Rate
Notes.
Each Floating Rate Note will bear interest at rates determined by reference to
an interest rate formula, which may be adjusted by a Spread or Spread Multiplier
(each as defined below), unless otherwise specified therein. A Floating Rate
Note may also have either or both of the following: (i) a maximum limitation, or
ceiling, on the rate at which interest which may accrue during any interest
period; and (ii) a minimum limitation, or floor, on the rate at which interest
which may accrue during any interest period. The applicable Pricing Supplement
relating to Fixed Rate Notes or Floating Rate Notes will designate either a
fixed rate of interest per annum payable on the applicable Note, in which case
such Note will be a Fixed Rate Note, or one of the following Base Rates, as
applicable to the relevant Floating Rate Note: (a) the Commercial Paper Index
Rate, in which case such Note will be a Commercial Paper Index Rate Note, (b)
the Federal Funds Rate, in which case such Note will be a Federal Funds Rate
Note, (c) the Prime Rate, in which case such Note will be a Prime Rate Note, (d)
the Treasury Index Rate, in which case such Note will be a Treasury Index Rate
Note, (e) LIBOR, in which case such Note will be a LIBOR Note, or (f) such other
interest rate formula as is set forth in such Pricing Supplement. Except as
specified in the applicable Pricing Supplement, Floating Rate Notes will have
daily, weekly, monthly, quarterly, semiannual or annual resets of the rate of
interest.
FIXED RATE NOTES
Each Fixed Rate Note will bear interest at the rate per annum stated on the
face thereof until the principal thereof is paid or made available for payment.
Except as provided in the applicable Pricing Supplement, interest will be
payable semi-annually on May 15 and November 15 of each year and at maturity (or
on the date of redemption or repayment, if a Fixed Rate Note is redeemed by the
Company or repaid at the Holder's option prior to maturity). Interest will be
computed on the basis of a 360-day year of twelve 30-day months. Interest will
be payable to the person in whose name a Fixed Rate Note is registered at the
close of business on the May 1 or November 1 Regular Record Date next preceding
the May 15 or November 15 Interest Payment Date. Interest rates are subject to
change by the Company from time to time, but no such change will affect any
Fixed Rate Note theretofore issued or as to which an offer to purchase has been
accepted by the Company.
Any payment of principal or interest required to be made on an Interest
Payment Date, at maturity or earlier redemption or repayment of a Fixed Rate
Note which is not a Business Day need not be made on such day, but may be made
on the next succeeding Business Day with the same force and effect as if made on
the Interest Payment Date, maturity date or date of redemption or repayment, as
the case may be, and no interest shall accrue with respect to such payment for
the period from and after such Interest Payment Date, maturity date or date of
redemption or repayment.
FLOATING RATE NOTES
The applicable Pricing Supplement specifies the base rate or other interest
rate formula and the Spread or Spread Multiplier, if any, and the maximum or
minimum interest rate limitation, if any, applicable to each Floating Rate Note.
In addition, such Pricing Supplement specifies for each Floating Rate Note the
following terms, if applicable: the Initial Interest Rate, the Interest Payment
Dates, the Index Maturity, Interest Reset Dates, Optional Repayment Dates,
Redemption Date and any other variable term applicable to such Note.
The interest rate on each Floating Rate Note will be calculated by reference
to the specified interest rate formula (i) plus or minus the Spread, if any, or
(ii) multiplied by the Spread Multiplier, if any. The "Spread'' is the number of
basis points specified in the applicable Pricing Supplement as being applicable
to the interest rate for such Floating Rate Note. The "Spread Multiplier'' is
the percentage of the Base Rate applicable to the interest rate for such
Floating Rate Note. "Index Maturity'' means, with respect to a Floating Rate
Note, the period to maturity of the
6
<PAGE>
instrument or obligation on which the interest rate formula is based, as
specified in the applicable Pricing Supplement. "Regular Record Date'' with
respect to Floating Rate Notes means the 15th day (whether or not a Business
Day) prior to the applicable Interest Payment Date. The "Calculation Date'', if
applicable, with respect to any Interest Determination Date (as specified with
respect to each Base Rate) will be the earlier of (i) the tenth calendar day
after such Interest Determination Date or, if such day is not a Business Day,
the next succeeding Business Day, or (ii) the Business Day prior to the Interest
Payment Date on which such accrued interest will be payable.
Except as otherwise provided herein with respect to LIBOR Notes or in the
applicable Pricing Supplement, if any Interest Reset Date for any Floating Rate
Note would otherwise be a day that is not a Business Day, such Interest Reset
Date shall be postponed to the next succeeding day that is a Business Day.
Each Floating Rate Note will bear interest from the date of issue at the rates
determined as described below until the principal thereof is paid or otherwise
made available for payment. The rate of interest on a Floating Rate Note will be
reset each Interest Reset Date applicable to such Note; provided, however, that
except in the case of Floating Rate Notes which reset daily, the interest rate
in effect for the ten days immediately prior to maturity, redemption or
repayment, as the case may be, will be that in effect on the tenth day preceding
such maturity, redemption or repayment, as the case may be. Except as otherwise
provided herein or in the applicable Pricing Supplement, the rate of interest
determined on an Interest Reset Date with respect to a Floating Rate Note will
be applicable on and after such Interest Reset Date to, but not including, the
next succeeding Interest Reset Date, or until the date of maturity or date of
redemption or repayment, as the case may be.
If an Interest Payment Date with respect to any Floating Rate Note would
otherwise fall on a day that is not a Business Day with respect to such Note,
such Interest Payment Date will be the following day that is a Business Day,
except that in the case of a LIBOR Note, if such day falls in the next calendar
month, such Interest Payment Date will be the preceding day that is a Business
Day. If the maturity date (or date of redemption or repayment) of any Floating
Rate Note would fall on a day that is not a Business Day, the payment of
interest and principal may be made on the next succeeding Business Day, and no
interest on such payment will accrue for the period from and after the maturity
date (or the date of redemption or repayment).
Except as provided in the applicable Pricing Supplement, interest payments on
Floating Rate Notes shall be the amount of interest accrued from, and including,
the next preceding Interest Payment Date in respect of which interest has been
paid to, but excluding, the Interest Payment Date. With respect to a Floating
Rate Note, accrued interest from the last date to which interest has been paid
is calculated by multiplying the principal amount of such Floating Rate Note by
an accrued interest factor. Such accrued interest factor is computed by adding
the interest factors, calculated for each day, from the last date to which
interest has been paid, to the date for which accrued interest is being
calculated. The interest factor for each such day is computed by dividing the
interest rate applicable to such day by 360, in the case of Commercial Paper
Index Rate Notes, Federal Funds Rate Notes, Prime Rate Notes and LIBOR Notes, or
by the actual number of days in the year, in the case of Treasury Index Rate
Notes.
All percentages resulting from any calculation on Floating Rate Notes will be
rounded, if necessary, to the nearest one hundred-thousandth of a percentage
point, with five one- millionths of a percentage point rounded upward (e.g.,
9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)), and all
dollar amounts used in or resulting from such calculation on Floating Rate Notes
will be rounded to the nearest cent (with one-half cent being rounded upward).
Upon the request of the holder of any Floating Rate Note, the Calculation
Agent will provide the interest rate then in effect and, if determined, the
interest rate which will become effective as a result of a determination made
with respect to the most recent Interest Determination Date with respect to such
Floating Rate Note.
COMMERCIAL PAPER INDEX RATE NOTES
Commercial Paper Index Rate Notes will bear interest at the interest rates
(calculated with reference to the Commercial Paper Index Rate and the Spread or
Spread Multiplier, if any) specified in the applicable Pricing Supplement.
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Unless otherwise indicated in the applicable Pricing Supplement, "Commercial
Paper Index Rate'' means, with respect to any Interest Determination Date
relating to a Commercial Paper Index Rate Note, the Money Market Yield
(calculated as described below) of the rate on that date for commercial paper
having the Index Maturity specified in the applicable Pricing Supplement as such
rate is published by the Board of Governors of the Federal Reserve System in
"Statistical Release H.15(519), Selected Interest Rates'' or any successor
publication of the Board of Governors of the Federal Reserve System
("H.15(519)''), under the heading "Commercial Paper''. In the event that such
rate is not published by 9:00 A.M. New York City time on the Calculation Date
pertaining to such Interest Determination Date, then the Commercial Paper Index
Rate shall be the Money Market Yield of the rate on that Interest Determination
Date for commercial paper having such Index Maturity as published by the Federal
Reserve Bank of New York in its daily statistical release, "Composite 3:30 P.M.
Quotations for U.S. Government Securities'' ("Composite Quotations'') under the
heading "Commercial Paper''. If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not yet published in either H.15(519) or Composite
Quotations, the Commercial Paper Index Rate for that Interest Determination Date
shall be calculated by the Calculation Agent and shall be the Money Market Yield
of the arithmetic mean of the offered rates of three leading dealers of
commercial paper in The City of New York selected by the Calculation Agent as of
11:00 A.M., New York City time, on that Interest Determination Date for
commercial paper having the specified Index Maturity placed for an industrial
issuer whose bond rating is "AA'' or the equivalent from a nationally recognized
rating agency; provided, however, that if the dealers selected as aforesaid by
the Calculation Agent are not quoting as mentioned in this sentence, the
Commercial Paper Index Rate will be the Commercial Paper Index Rate in effect on
such Interest Determination Date.
"Money Market Yield'' shall be the yield (expressed as a percentage)
calculated in accordance with the following formula:
Money Market Yield = D X 360 X 100
--------------
360 - (D X M)
where "D'' refers to the per annum rate for commercial paper quoted on a bank
discount basis and expressed as a decimal; and "M'' refers to the actual number
of days in the interest period for which interest is being calculated.
The Interest Determination Date pertaining to an Interest Reset Date on a
Commercial Paper Index Rate Note will be the Business Day prior to such Interest
Reset Date.
FEDERAL FUNDS RATE NOTES
Federal Funds Rate Notes will bear interest at the interest rates (calculated
with reference to the Federal Funds Rate and the Spread, or Spread Multiplier,
if any) specified in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Federal
Funds Rate'' means, with respect to any Interest Determination Date relating to
a Federal Funds Rate Note, the rate on such Interest Determination Date for
Federal Funds as published by the Board of Governors of the Federal Reserve
System in "Statistical Release H.15(519), Selected Interest Rates''
("H.15(519)'') or any successor publication under the heading "Federal Funds
(Effective)'' or, if not so published by 9:00 A.M., New York City time, on the
Calculation Date pertaining to such Interest Determination Date, the Federal
Funds Rate will be the interest rate on such Interest Determination Date as
published by the Federal Reserve Bank of New York in its daily statistical
release, "Composite 3:30 P.M. Quotations for U.S. Government Securities''
("Composite Quotations'') under the heading "Federal Funds/Effective Rate''. If
such rate is not yet published by 9:00 A.M. on the Calculation Date pertaining
to such Interest Determination Date, the Federal Funds Rate for such Interest
Determination Date will be the rate on such Interest Determination Date made
publicly available by the Federal Reserve Bank of New York which is equivalent
to the rate which appears in H.15(519) under the heading "Federal Funds
(Effective)''; provided, however, that if such rate is not made publicly
available by the Federal Reserve Bank of New York by 9:00 A.M. on the
Calculation Date, the Federal Funds Rate will be the last Federal Funds Rate in
effect prior to such Interest Determination Date.
The rate of interest on a Federal Funds Rate Note will be reset each Interest
Reset Date applicable to such Note. Unless otherwise specified in the applicable
Pricing Supplement, with respect to Federal Funds Rate Notes, each Business Day
will be an Interest Reset Date. The Interest Determination Date pertaining to an
Interest Reset Date on a Federal Funds Rate Note will be the Business Day prior
to such Interest Reset Date.
8
<PAGE>
PRIME RATE NOTES
Prime Rate Notes will bear interest at the interest rates (calculated with
reference to the Prime Rate and the Spread, or Spread Multiplier, if any)
specified in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Prime Rate''
means, with respect to any Interest Determination Date relating to a Prime Rate
Note, the arithmetic mean of the prime rates quoted on the basis of the actual
number of days in the year divided by a 360-day year as of the close of business
on such Interest Determination Date by three major money center banks in The
City of New York selected by the Calculation Agent. If fewer than three
quotations are provided, the Prime Rate shall be calculated by the Calculation
Agent and shall be determined as the arithmetic mean on the basis of the prime
rates quoted in The City of New York on such date by three substitute banks or
trust companies organized and doing business under the laws of the United
States, or any State thereof, and unaffiliated with the Company, having total
equity capital of at least $500 million and being subject to supervision or
examination by a Federal or State authority, selected by the Calculation Agent;
provided, however, that if the substitute banks or trust companies selected as
aforesaid by the Calculation Agent are not quoting as mentioned in this
sentence, the Prime Rate will be the Prime Rate in effect on such Interest
Determination Date relating to a Prime Rate Note.
The Interest Determination Date pertaining to an Interest Reset Date on a
Prime Rate Note will be the Business Day prior to such Interest Reset Date.
LIBOR NOTES
LIBOR Notes will bear interest at the interest rates (calculated with
reference to LIBOR and the Spread or Spread Multiplier, if any) specified in the
applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, LIBOR with
respect to any Interest Determination Date relating to a LIBOR Note will equal
the arithmetic mean (as determined by the Calculation Agent) of the offered
rates which appear as of 11:00 A.M., London time, on the Reuters Screen LIBOR
Page on the Reuter Monitor Money Rates Service for deposits (in United States
dollars for the period of the Index Maturity specified in the applicable Pricing
Supplement) commencing on the second day on which dealings in deposits in United
States dollars are transacted in the London interbank market (a "London Banking
Day'') immediately following such Interest Determination Date; provided,
however, that if fewer than two such quotations appear, the Calculation Agent
shall request the principal London office of four major banks in the London
interbank market selected by the Calculation Agent to provide the Calculation
Agent with a quotation of their offered rates at approximately 11:00 A.M.,
London time, on such Interest Determination Date for deposits (in United States
dollars for the period of the applicable Index Maturity and in a principal
amount equal to an amount that is representative for a single transaction in
such market at such time) commencing on the second London Banking Day
immediately following such Interest Determination Date. If at least two such
quotations are provided, LIBOR for such Interest Determination Date will equal
the arithmetic mean of such quotations. If fewer than two quotations are
provided, LIBOR for such Interest Determination Date will equal the arithmetic
mean of the rates quoted by three major banks in The City of New York, as
selected by the Calculation Agent, at approximately 11:00 A.M., New York City
time, on such Interest Determination Date for loans to leading European banks
(in United States dollars for the period of the applicable Index Maturity and in
a principal amount equal to an amount that is representative for a single
transaction in such market at such time) commencing on the second London Banking
Day following such Interest Determination Date; provided, however, that if the
banks selected as aforesaid by the Calculation Agent are not quoting as
mentioned in this sentence, LIBOR for such Interest Determination Date will be
LIBOR in effect on such Interest Determination Date.
The Interest Determination Date pertaining to an Interest Reset Date on a
LIBOR Note will be the second London Banking Day next preceding such Interest
Reset Date.
TREASURY INDEX RATE NOTES
9
<PAGE>
Treasury Index Rate Notes will bear interest at the interest rates (calculated
with reference to the Treasury Index Rate and the Spread or Spread Multiplier,
if any) specified in the applicable Pricing Supplement.
Unless otherwise indicated in the Pricing Supplement, "Treasury Index Rate''
means, with respect to any Interest Determination Date relating to a Treasury
Index Rate Note, the per annum discount rate for direct obligations of the
United States with a maturity of thirteen weeks ("91-day Treasury bills''),
expressed as a bond equivalent on the basis of a year of 365 or 366 days, at the
91-day Treasury bill auction occurring on such Interest Determination Date as
published by the Board of Governors of the Federal Reserve System in
"Statistical Release H.15(519), Selected Interest Rates'', or any successor
publication, under the heading "Treasury bills--auction average (investment)''
or (if not so published by 9:00 A.M. New York City time on the Calculation Date)
as reported by the United States Department of the Treasury. Such Treasury bills
are usually sold at auction on Monday of each week unless that day is a legal
holiday in which case the auction is usually held on the following Tuesday,
except that such auction may be held on the preceding Friday.
The day of each such auction of 91-day Treasury bills, unless otherwise
specified in the Pricing Supplement, will be an Interest Determination Date
(provided that the results of such auction are so published or reported), and
each Business Day following such an Interest Determination Date will be a
Treasury Index Rate Note Interest Reset Date. The rate of interest applicable to
Treasury Index Rate Notes will therefore not be reset during any period in which
such auctions are not held or the results of such auctions are not so published
or reported.
ZERO COUPON NOTES
Notes which do not bear interest ("Zero Coupon Notes'') were initially offered
at a substantial discount from their principal amount at maturity. There will be
no periodic payments of interest. The calculation of the accrual of Original
Issue Discount (as defined below), in the period during which a Zero Coupon Note
remains outstanding, will be on a semiannual bond equivalent basis using a year
composed of twelve 30-day months. Upon maturity, Original Issue Discount will
cease to accrue on a Zero Coupon Note.
Limitation of Claims in Bankruptcy: If a bankruptcy proceeding is commenced
in respect of the Company, the claim of the Holder of a Zero Coupon Note with
respect to the principal amount thereof may, under Section 502(b)(2) of Title 11
of the United States Code, be limited to the issue price of the Zero Coupon Note
plus that portion of the Original Issue Discount that is amortized from the date
of issue to the commencement of the proceeding.
OTHER TERMS
GENERAL
The Notes are a series of Securities issued under an Indenture (the "Senior
Indenture''), (all such series being herein referred to as "Senior Debt
Securities'') dated as of April 1, 1983, as amended and restated, between the
Company and The Chase Manhattan Bank, formerly known as Chemical Bank (successor
to Manufacturers Hanover Trust Company), as trustee (the "Trustee''). A copy of
the Senior Indenture is filed as an exhibit to the registration statements
relating to the Securities. The following summaries of certain provisions of the
Senior Indenture do not purport to be complete and are subject to, and qualified
in their entirety by reference to, all provisions of the Senior Indenture,
including the definition therein of certain terms.
The Senior Indenture provides that series of Senior Debt Securities may from
time to time be issued thereunder, without limitation as to aggregate principal
amount, in one or more series and upon such terms as the Company may establish
pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the Securities
will be governed by and construed in accordance with the laws of the State of
New York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen'' a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
10
<PAGE>
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Securities
Exchange Act of 1934, as amended, and under rules of certain exchanges and other
regulatory bodies.
LIMITATIONS UPON LIENS
The Senior Indenture provides that the Company may not, and may not permit any
Subsidiary to, create, assume, incur or permit to exist any indebtedness for
borrowed money secured by a pledge, lien or other encumbrance (except for
certain liens specifically permitted by the Senior Indenture) on the Voting
Stock owned directly or indirectly by the Company of any Subsidiary (other than
a Subsidiary which, at the time of the incurrence of such secured indebtedness,
has a net worth of less than $3,000,000) without making effective provision
whereby the Outstanding Senior Debt Securities will be secured equally and
ratably with such secured indebtedness.
LIMITATION ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Senior Indenture provides that the Company may not sell, transfer or
otherwise dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell
or otherwise dispose of any of its Voting Stock, unless, after giving effect to
any such transaction, MLPF&S remains a Controlled Subsidiary (defined in the
Senior Indenture to mean a corporation more than 80% of the outstanding shares
of Voting Stock of which owned directly or indirectly by the Company). In
addition, 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.
MERGER AND CONSOLIDATION
The Senior Indenture provides that the Company may consolidate or merge with
or into any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior 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 Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Senior Indenture may be effected by the
Company and the Trustee with the consent of the Holders of at least 66/2//3% in
principal amount of the outstanding Senior Debt Securities of each series issued
pursuant to such indenture and affected thereby, provided that no such
modification or amendment may, without the consent of the Holder of each
Outstanding Senior Debt Security affected thereby, (a) change the Stated
Maturity of the principal of, or any installment of interest or Additional
Amounts payable on, any Senior Debt Security or any premium payable on the
redemption thereof, or change the Redemption Price; (b) reduce the principal
amount of, or the interest or Additional Amounts payable on, any Senior Debt
Security or reduce the amount of principal which could be declared due and
payable prior to the Stated Maturity; (c) change place or currency of any
payment of principal or any premium, interest or Additional Amounts payable on
any Senior Debt Security; (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any Senior Debt Security;
11
<PAGE>
(e) reduce the percentage in principal amount of the Outstanding Senior Debt
Securities of any series, the consent of whose Holders is required to modify or
amend the Indenture; or (f) modify the foregoing requirements or reduce the
percentage of Outstanding Senior Debt Securities necessary to waive any past
default to less than a majority. No modification or amendment of any
subordinated indenture or any subsequent indenture for subordinated debt
securities may adversely affect the rights of any holder of Senior Indebtedness
without the consent of such Holder. Except with respect to certain fundamental
provisions, the Holders of at least a majority in principal amount of
Outstanding Senior Debt Securities of any series may, with respect to such
series, waive past defaults under the Senior Indenture and waive compliance by
the Company with certain provisions thereof.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Defaults with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the Indenture for
the benefit of such series or in the Senior Debt Securities of such series,
continued for 60 days after written notice as provided in the Senior Indenture;
(e) certain events in bankruptcy, insolvency or reorganization; and (f) any
other Event of Default provided with respect to Senior Debt Securities of that
series. The Trustee or the Holders of 25% in principal amount of the Outstanding
Senior Debt Securities of that series may declare the principal amount (or such
lesser amount as may be provided for in the Senior Debt Securities of that
series) of all Outstanding Senior Debt Securities of that series and the
interest due thereon and Additional Amounts payable in respect thereof, if any
to be due and payable immediately if an Event of Default with respect to Senior
Debt Securities of such series shall occur and be continuing at the time of such
declaration. At any time after a declaration of acceleration has been made with
respect to Senior Debt Securities of any series but before a judgment or decree
for payment of money due has been obtained by the Trustee, the Holders of a
majority in principal amount of the Outstanding Senior Debt Securities of that
series may rescind any declaration of acceleration and its consequences, if all
payments due (other than those due as a result of acceleration) have been made
and all Events of Default have been remedied or waived. Any Event of Default
with respect to Senior Debt Securities of any series may be waived by the
Holders of a majority in principal amount of all Outstanding Senior Debt
Securities of that series, except in a case of failure to pay principal or
premium, if any, or interest or Additional Amounts payable on any Senior Debt
Security of that series for which payment had not been subsequently made or in
respect of a covenant or provision which cannot be modified or amended without
the consent of the Holder of each Outstanding Senior Debt Security of such
series affected.
The Holders of a majority in principal amount of the Outstanding Senior Debt
Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any right or power
under the Senior Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company is required to furnish to the Trustee annually a statement as to
the fulfillment by the Company of all of its obligations under the Senior
Indenture.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997 included
in the 1997
12
<PAGE>
Annual Report on Form 10-K, and incorporated by reference herein, has been
derived from consolidated financial statements audited by Deloitte & Touche LLP,
as set forth in their reports included or incorporated by reference herein. Such
consolidated financial statements and related financial statement schedules, and
such 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 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 such Quarterly Reports 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.
13
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
S&P 500 MARKET INDEX TARGET-TERM SECURITIES(SM) DUE JULY 31, 1998
("MITTS(R)")
On January 28, 1993, Merrill Lynch & Co., Inc. (the "Company") issued
$16,000,000 aggregate principal amount (1,600,000 Units) of S&P 500 Market Index
Target-Term Securities due July 31, 1998 (the "Securities or MITTS"). Each $10
principal amount of the Securities will be deemed a "Unit" for purposes of
trading and transfer at the Securities Depository described below. Units will be
transferable by the Securities Depository, as more fully described below, in
denominations of whole Units.
The Securities were offered at an original issue price of 100% of the
principal amount thereof, will bear no periodic payments of interest and will
mature on July 31, 1998. At maturity, a Holder of a Security will be entitled to
receive, with respect to each Security, the principal amount thereof, plus a
contingent interest payment (the "Supplemental Redemption Amount"), if any, if
the Final Value (as defined herein) of the S&P 500 Composite Stock Price Index
(the "S&P 500 Index") exceeds 435.49 (the "Initial Value"). If the Final Value
does not exceed the Initial Value, a Holder of a Security will be repaid the
principal amount of the Security, but the Holder will not receive any
Supplemental Redemption Amount. While at maturity a beneficial owner of a
Security may receive an amount in excess of the principal amount of such
Security if the Final Value exceeds the Initial Value, there will be no payment
of interest, periodic or otherwise, prior to maturity. The Securities were
issued as a series of Senior Debt Securities under the Senior Indenture
described herein. The Securities are not redeemable prior to maturity.
The Supplemental Redemption Amount, if any, payable with respect to a
Security at maturity will equal the product of (A) the principal amount of the
applicable Security, and (B) the quotient of the Final Value less the Initial
Value, divided by the Initial Value, and (C) 115%. The calculation of the Final
Value, as more fully described herein, will be based upon certain values of the
S&P 500 Index during the ten Business Days prior to the maturity date of the
Securities.
For information as to the calculation of the Supplemental Redemption Amount,
if any, which will be paid at maturity, the calculation and the composition of
the S&P 500 Index, see "Description of Securities" and "The Standard & Poor's
500 Index" in this Prospectus. FOR OTHER INFORMATION THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS
PROSPECTUS.
Ownership of the Securities will be maintained in book-entry form by or
through the Securities Depository. Beneficial owners of the Securities will not
have the right to receive physical certificates evidencing their ownership
except under the limited circumstances described herein.
The Securities have been listed on the New York Stock Exchange under the
symbol "MIE".
_______________________
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 Securities 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 Securities.
MLPF&S may act as principal or agent in such transactions. The Securities may be
offered on the New York Stock Exchange, 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 Securities 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.
_______________________
MERRILL LYNCH & CO.
_______________________
THE DATE OF THIS PROSPECTUS IS JULY ___, 1998.
(R)"MITTS" is a registered service mark and (SM)"Market Index Target-Term
Securities" is a service mark of Merrill Lynch & Co., Inc.
<PAGE>
STANDARD & POOR'S CORPORATION ("S&P") DOES NOT GUARANTEE THE ACCURACY AND/OR
THE COMPLETENESS OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE COMPANY,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, HOLDERS OF THE SECURITIES,
OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA
INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED UNDER THE LICENSE
AGREEMENT DESCRIBED HEREIN OR FOR ANY OTHER USE. S&P MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P
HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
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 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 26,
1997, Quarterly Report on Form 10-Q for the period ended March 27, 1998, and
Current Reports on Form 8-K dated January 20, 1998, January 30, 1998, February
4, 1998, February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998,
April 29, 1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June
24, 1998, June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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.
2
<PAGE>
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 Lawrence M. Egan, Jr., Corporate
Secretary's Office, 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 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.
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, advisory, insurance, and related
services on a global basis. Its principal subsidiary, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("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; an underwriter of selected insurance
products and a distributor of investment products of the Merrill Lynch Asset
Management group. 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. The Company's asset management and investment
management activities are conducted through the Merrill Lynch Asset Management
group and Merrill Lynch Mercury Asset Management, which together constitute one
of the largest asset management organizations in the world. Merrill Lynch
Government Securities Inc. is a primary dealer in obligations issued or
guaranteed by the U.S. Government and its agencies and its government-sponsored
entities. Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative
Products AG, and Merrill Lynch International are the Company's primary
derivative product dealers and enter into interest rate, currency, and other
over-the-counter derivative transactions as intermediaries and as principals.
The Company's operations in insurance services consist of the underwriting and
sale 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 and
purchasing secured loans, providing currency exchange facilities and other
related services, and furnishing trust, employee benefit, and custodial
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.
3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges....... 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
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.
RISK FACTORS
PAYMENT AT MATURITY
If the Final Value is equal to or less than the Initial Value, the Holders of
the Securities will be entitled to receive $10 in respect of each $10 principal
amount of Securities, and no Supplemental Redemption Amount. This will be true
even though the value of the S&P 500 Index as of some interim period or periods
prior to the maturity date of the Securities may have exceeded the Initial Value
because the Supplemental Redemption Amount on the Securities is calculated on
the basis of the Final Value only.
The $10 minimum to be received by Holders at maturity in respect of each $10
principal amount of a Security does not reflect any opportunity cost implied by
inflation and other factors relating to the time value of money.
The S&P 500 Index does not reflect the payment of dividends on the stocks
underlying it and therefore the yield based on the S&P 500 Index to the maturity
of the Securities will not produce the same yield as if such underlying stocks
were purchased and held for a similar period.
TRADING
The Securities have been listed on the New York Stock Exchange under the
symbol "MIE". It is expected that the secondary market for the Securities will
be affected by the creditworthiness of the Company and by a number of other
factors.
The trading value of the Securities is expected to depend primarily on the
extent of the appreciation, if any, of the S&P 500 Index over the Initial Value.
If, however, Securities are sold prior to the maturity date at a time when the
S&P 500 Index exceeds the Initial Value, the sale price may be at a discount
from the amount expected to be payable to the Holder if such excess of the S&P
500 Index over the Initial Value were to prevail until maturity of the
Securities because of the possible fluctuation of the S&P 500 Index between the
time of such sale and the maturity date. (See "The Standard & Poor's 500
Index".) Furthermore, the price at which a Holder will be able to sell
Securities prior to maturity may be at a discount, which could be substantial,
from the principal amount thereof, if, at such time, the S&P 500 Index is below,
equal to or not sufficiently above the Initial Value. A discount could also
result from rising interest rates.
4
<PAGE>
The trading values of the Securities may be affected by a number of
interrelated factors, including the creditworthiness of the Company and those
factors listed below. The relationship among these factors is complex, including
how these factors affect the relative value of the principal amount of the
Securities to be repaid at maturity and the value of the Supplemental Redemption
Amount. Accordingly, investors should be aware that factors other than the level
of the S&P 500 Index are likely to affect their trading value. The expected
effect on the trading value of the Securities of each of the factors listed
below, assuming in each case that all other factors are held constant, is as
follows:
Interest Rates. In general, if U.S. interest rates increase, the value of the
Securities is expected to decrease. If U.S. interest rates decrease, the
value of the Securities is expected to increase. Interest rates may also
affect the U.S. economy, and, in turn, the value of the S&P 500 Index. Rising
interest rates may lower the value of the S&P 500 Index and, thus, the
Securities. Falling interest rates may increase the value of the S&P 500
Index and, thus, may increase the value of the Securities.
Volatility of the S&P 500 Index. If the volatility of the S&P 500 Index
increases, the trading value of the Securities is expected to increase. If
the volatility of the S&P 500 Index decreases, the trading value of the
Securities is expected to decrease.
Time Remaining to Maturity. The Securities may trade at a value above that
which may be inferred from the level of interest rates and the S&P 500 Index.
This difference will reflect a "time premium" due to expectations concerning
the value of the S&P 500 Index during the period prior to maturity of the
Securities. As the time remaining to maturity of the Securities decreases,
however, this time premium is expected to decrease, thus decreasing the
trading value of the Securities.
Dividend Rates in the United States. If dividend rates on the stocks
comprising the S&P 500 Index increase, the value of the Securities is
expected to decrease. Conversely, if dividend rates on the stocks comprising
the S&P 500 Index decrease, the value of the Securities is expected to
increase. However, in general, rising U.S. corporate dividend rates may
increase the S&P 500 Index and, in turn, increase the value of the
Securities. Conversely, falling U.S. dividend rates may decrease the S&P 500
Index and, in turn, decrease the value of the Securities.
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the
Securities should reach an investment decision only after carefully considering
the suitability of the Securities in the light of their particular
circumstances.
Investors should also consider the tax consequences of investing in the
Securities and should consult their tax advisors.
DESCRIPTION OF SECURITIES
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Senior Indenture, dated as of April 1, 1983, as amended and restated, as
described below. The principal amount of each Security equals $10 for each $10
original price to the public. The Securities will mature on July 31, 1998.
5
<PAGE>
While at maturity a beneficial owner of a Security may receive an amount in
excess of the principal amount of such Security if the Final Value exceeds the
Initial Value, there will be no payment of interest, periodic or otherwise,
prior to maturity.
The Securities are not subject to redemption by the Company or at the option
of any Holder prior to maturity. Upon the occurrence of an Event of Default with
respect to the Securities, Holders of the Securities may accelerate the maturity
of the Securities, as described under "Description of Securities-Events of
Default and Acceleration" and "Other Terms-Events of Default" in this
Prospectus.
The Securities were issued in denominations of whole Units.
PAYMENT AT MATURITY
At maturity, a Holder of a Security will be entitled to receive the principal
amount thereof ($10 for each $10 price to public) plus a Supplemental Redemption
Amount, if any, all as provided below. If the Final Value of the S&P 500 Index
does not exceed the Initial Value, a Holder of a Security will be repaid the
principal amount of the Security at maturity, but will not be entitled to
receive any contingent interest (i.e., Supplemental Redemption Amount).
At maturity, a Holder of a Security will be entitled to receive, with respect
to each such Security, (i) the principal amount thereof, and (ii) the
Supplemental Redemption Amount, if any, equal in amount to:
(Final Value - Initial Value)
Principal X --------------------------- X 115%
Initial Value
provided, however, that the Supplemental Redemption Amount will not be less than
zero. The Initial Value of the S&P 500 Index is 435.49. If the Final Value does
not exceed the Initial Value, the Supplemental Redemption Amount will equal zero
and a Holder of a Security will receive only the principal amount thereof ($10
for each $10 price to public).
The Final Value of the S&P 500 Index will be determined by State Street Bank
and Trust Company (the "Calculation Agent") and will equal the average (mean) of
the closing values of the S&P 500 Index as calculated by S&P on the tenth
Business Day (as defined below) prior to the maturity date (provided that a
Market Disruption Event, as defined below, shall not have occurred on such day)
and on each succeeding Business Day (provided that a Market Disruption Event
shall not have occurred on the applicable day) up to and including the fourth
Business Day prior to the maturity date (each, a "Calculation Day") until the
Calculation Agent has so determined such closing values for five Business Days.
If a Market Disruption Event occurs on one or more of the Business Days during
the period specified above, the Final Value will equal the average of the values
on Business Days on which a Market Disruption Event did not occur or, if there
is only one such Business Day, the value on such day. If Market Disruption
Events occur on all of such Business Days during such period, the Final Value
shall equal the closing value of the S&P 500 Index on the fourth Business Day
prior to the maturity date regardless of whether a Market Disruption Event shall
have occurred on such day. For purposes of determining the Final Value, a
"Business Day" is a day on which The New York Stock Exchange is open for
trading. All determinations made by the Calculation Agent shall be at the sole
discretion of the Calculation Agent and, in the absence of manifest error, shall
be conclusive for all purposes and binding on the Company and Holders of the
Securities.
If S&P discontinues publication of the S&P 500 Index and S&P or another
entity publishes a successor or substitute index that the Calculation Agent
determines, in its sole discretion, to be comparable to the S&P 500 Index (any
such index being referred to hereinafter as a "Successor Index"), then, upon the
Calculation Agent's
6
<PAGE>
notification of such determination to the Trustee and the Company, the
Calculation Agent will substitute the Successor Index as calculated by S&P or
such other entity for the S&P 500 Index and calculate the Final Value as
described in the preceding paragraph. Upon any selection by the Calculation
Agent of a Successor Index, the Company shall cause notice thereof to be
published in The Wall Street Journal (or another newspaper of general
circulation) within three Business Days of such selection.
If S&P discontinues publication of the S&P 500 Index and a Successor Index is
not selected by the Calculation Agent or is no longer published on any of the
Calculation Days, the value to be substituted for the S&P 500 Index for any such
Calculation Day used to calculate the Supplemental Redemption Amount, if any, at
maturity will be calculated as described below under "Discontinuance of the S&P
500 Index".
If a Successor Index is selected or the Calculation Agent calculates a value
as a substitute for the S&P 500 Index as described below, such Successor Index
or value shall be substituted for the S&P 500 Index for all purposes, including
for purposes of determining whether a Market Disruption Event exists.
If at any time the method of calculating the S&P 500 Index, or the value
thereof, is changed in a material respect, or if the S&P 500 Index is in any
other way modified so that such Index does not, in the opinion of the
Calculation Agent, fairly represent the value of the S&P 500 Index had such
changes or modifications not been made, then, from and after such time, the
Calculation Agent shall, at the close of business in New York, New York, on each
date that the closing value with respect to the Final Value is to be calculated,
make such adjustments as, in the good faith judgment of the Calculation Agent,
may be necessary in order to arrive at a calculation of a value of a stock index
comparable to the S&P 500 Index as if such changes or modifications had not been
made, and calculate such closing value with reference to the S&P 500 Index, as
adjusted. Accordingly, if the method of calculating the S&P 500 Index is
modified so that the value of such Index is a fraction or a multiple of what it
would have been if it had not been modified (e.g., due to a split in the Index),
then the Calculation Agent shall adjust such Index in order to arrive at a value
of the S&P 500 Index as if it had not been modified (e.g., as if such split had
not occurred).
"Market Disruption Event" means either of the following events, as determined
by the Calculation Agent:
(i) the material limitation (limitations pursuant to New York Stock
Exchange Rule 80A (or any applicable rule or regulation enacted or
promulgated by the New York Stock Exchange, any other self regulatory
organization or the Securities and Exchange Commission of similar scope as
determined by the Calculation Agent) on trading during significant market
fluctuations shall be considered "material" for purposes of this definition)
or suspension, in each case, for more than two hours of trading in 100 or
more of the securities included in the S&P 500 Index, or
(ii) the suspension or material limitation, in each case, for more than two
hours of trading (whether by reason of movements in price otherwise exceeding
levels permitted by the relevant exchange or otherwise) in (A) futures
contracts related to the S&P 500 Index which are traded on the Chicago
Mercantile Exchange or (B) option contracts related to the S&P 500 Index
which are traded on the Chicago Board Options Exchange, Inc.
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular business hours of
the relevant exchange.
The following table illustrates, for a range of hypothetical Final Values,
the percentage change in the S&P 500 Index from the date of pricing of the
Securities offered hereby until maturity, the Supplemental Redemption Amount at
maturity for each $10 principal amount of Securities.
7
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL
REDEMPTION AMOUNT
HYPOTHETICAL FINAL PERCENTAGE CHANGE PER $10 PRINCIPAL
VALUE OF THE S&P IN THE S&P 500 AMOUNT OF
500 INDEX INDEX SECURITIES
- ------------------ ----------------- -----------------
<S> <C> <C>
217.75 -50% $ 0.00
261.29 -40% 0.00
304.84 -30% 0.00
348.39 -20% 0.00
391.94 -10% 0.00
435.49/(1)/ 0% 0.00
479.04 10% 1.15
522.59 20% 2.30
566.14 30% 3.45
609.69 40% 4.60
653.24 50% 5.75
696.78 60% 6.90
740.33 70% 8.05
783.88 80% 9.20
827.43 90% 10.35
878.98 100% 11.50
</TABLE>
- --------------
(1) Initial Value.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the pretax annualized
rate of return resulting therefrom will depend entirely on the actual Final
Value determined by the Calculation Agent as provided herein.
The Senior Indenture provides that the Senior Indenture and the Notes will be
governed by and construed in accordance with the laws of the State of New York.
Under present New York law, the maximum rate of interest is 25% per annum on a
simple interest basis. This limit may not apply to Securities in which
$2,500,000 or more has been invested. While the Company believes that New York
law would be given effect by a state or federal court sitting outside of New
York, state laws frequently regulate the amount of interest that may be charged
to and paid by a borrower (including, in some cases, corporate borrowers). All
payments under the Securities (other than the return of principal) could be
considered interest for the purpose of state usury laws. The Company has
covenanted for the benefit of the Holders of the Notes, to the extent permitted
by law, not to claim voluntarily the benefits of any laws concerning usurious
rates of interest against a Holder of the Securities.
DISCONTINUANCE OF THE S&P 500 INDEX AND SUCCESSOR INDEX
If S&P discontinues publication of the S&P 500 Index and a Successor Index is
available, then the amount payable at maturity or upon earlier acceleration will
be determined by reference to the Successor Index, as provided above.
If the publication of the S&P 500 Index is discontinued and S&P or another
entity does not publish a Successor Index on any of the Calculation Days, the
value to be substituted for the S&P 500 Index for any such Calculation Day used
to calculate the Supplemental Redemption Amount, if any, at maturity will be the
value computed by the Calculation Agent for each such Calculation Day in
accordance with the following procedures:
8
<PAGE>
(1) identifying the component stocks of the S&P 500 Index or any Successor
Index as of the last date on which either of such indices was calculated by
S&P or another entity and published by S&P or such other entity (each such
component stock is a "Last Component Stock");
(2) for each Last Component Stock, calculating as of each such Calculation
Day the product of the market price per share and the number of the then
outstanding shares (such product referred to as the "Market Value" of such
stock), by reference to (a) the closing market price per share of such Last
Component Stock as quoted by the New York Stock Exchange or the American
Stock Exchange or any other registered national securities exchange that is
the primary market for such Last Component Stock, or if no such quotation is
available, then the closing market price as quoted by any other registered
national securities exchange or the National Association of Securities
Dealers Automated Quotation National Market System ("NASDAQ"), or if no such
price is quoted, then the market price from the best available source as
determined by the Calculation Agent (collectively, the "Exchanges") and (b)
the most recent publicly available statement of the number of outstanding
shares of such Last Component Stock;
(3) aggregating the Market Values obtained in clause (2) for all Last
Component Stocks;
(4) ascertaining the Base Value (as defined below under "The Standard &
Poor's 500 Index--Computation of the Index") in effect as of the last day on
which either the S&P 500 Index or any Successor Index was published by S&P or
another entity, adjusted as described below;
(5) dividing the aggregate Market Value of all Last Component Stocks by
the Base Value (adjusted as aforesaid);
(6) multiplying the resulting quotient (expressed in decimals) by ten.
If any Last Component Stock is no longer publicly traded on any registered
national securities exchange or in the over-the-counter market, the last
available market price per share for such Last Component Stock as quoted by any
registered national securities exchange or in the over-the-counter market, and
the number of outstanding shares thereof at such time, will be used in computing
the last available Market Value of such Last Component Stock. Such Market Value
will be used in all computations of the S&P 500 Index thereafter.
If a company that has issued a Last Component Stock and another company that
has issued a Last Component Stock are consolidated to form a new company, the
common stock of such new company will be considered a Last Component Stock and
the common stocks of the constituent companies will no longer be considered Last
Component Stocks. If any company that has issued a Last Component Stock merges
with, or acquires, a company that has not issued a Last Component Stock, the
common stock of the surviving corporation will, upon the effectiveness of such
merger or acquisition, be considered a Last Component Stock. In each such case,
the Base Value will be adjusted so that the Base Value immediately after such
consolidation, merger or acquisition will equal (a) the Base Value immediately
prior to such event, multiplied by (b) the quotient of the aggregate Market
Value of all Last Component Stocks immediately after such event, divided by the
aggregate Market Value for all Last Component Stocks immediately prior to such
event.
If a company that has issued a Last Component Stock issues a stock dividend,
declares a stock split or issues new shares pursuant to the acquisition of
another company, then, in each case, the Base Value will be adjusted (in
accordance with the formula described below) so that the Base Value immediately
after the time the particular Last Component Stock commences trading ex-
dividend, the effectiveness of the stock split or the time new shares of such
Last Component Stock commence trading equals (a) the Base Value immediately
prior to such event, multiplied by (b) the quotient of the aggregate Market
Value for all Last Component Stocks immediately after such event, divided by the
aggregate Market Value of all Last Component Stocks immediately prior to such
event. The Base Value used by the Calculation Agent to calculate the value
described above will not necessarily be adjusted in all cases in which S&P, in
its discretion, might adjust the Base Value (as described below under "The
Standard & Poor's 500 Index-- Computation of the S&P 500 Index").
9
<PAGE>
If S&P discontinues publication of the S&P 500 Index prior to the period
during which the Supplemental Redemption Amount is to be determined and the
Calculation Agent determines that no Successor Index is available at such time,
then on each Business Day until the earlier to occur of (i) the determination of
the Final Value and (ii) a determination by the Calculation Agent that a
Successor Index is available, the Calculation Agent shall determine the value
that would be used in computing the Supplemental Redemption Amount by reference
to the method set forth in clauses (1) through (6) in the fourth preceding
paragraph above as if such day were a Calculation Day. The Calculation Agent
will cause notice of each such value to be published not less often than once
each month in the Wall Street Journal (or another newspaper of general
circulation), and arrange for information with respect to such values to be made
available by telephone. Notwithstanding these alternative arrangements,
discontinuance of the publication of the S&P 500 Index may adversely affect
trading in the Securities.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Securities shall have
occurred and be continuing, the amount payable to a Holder of a Security upon
any acceleration permitted by the Securities, with respect to each $10 principal
amount thereof, will be equal to: (i) the initial issue price ($10), plus (ii)
an additional amount, if any, of contingent interest calculated as though the
date of early repayment were the maturity date of the Securities. See
"Description of Securities--Payment at Maturity" in this Prospectus. If a
bankruptcy proceeding is commenced in respect of the Company, the claim of the
Holder of a Security may be limited, under Section 502(b)(2) of Title 11 of the
United States Code, to the principal amount of the Security plus an additional
amount, if any, of contingent interest calculated as though the date of the
commencement of the proceeding were the maturity date of the Securities.
In case of default in payment at the maturity date of the Securities (whether
at their stated maturity or upon acceleration), from and after the maturity date
the Securities shall bear interest, payable upon demand of the Holders thereof,
at the rate of 7% per annum (to the extent that payment of such interest shall
be legally enforceable) on the unpaid amount due and payable on such date in
accordance with the terms of the Securities to the date payment of such amount
has been made or duly provided for.
SECURITIES DEPOSITORY
Upon issuance, all Securities will be represented by one or more fully
registered global securities (the "Global Securities"). Each such Global
Security will be deposited with, or on behalf of, The Depository Trust Company,
as Securities Depository (the "Securities Depository"), registered in the name
of the Securities Depository or a nominee thereof. Unless and until it is
exchanged in whole or in part for Securities in definitive form, no Global
Security may be transferred except as a whole by the Securities Depository to a
nominee of such Securities Depository or by a nominee of such Securities
Depository to such Securities Depository or another nominee of such Securities
Depository or by such Securities Depository or any such nominee to a successor
of such Securities Depository or a nominee of such successor.
The Securities Depository has advised the Company as follows: The Securities
Depository is a limited-purpose trust company organized under the Banking Law of
the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
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,
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
10
<PAGE>
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 Securities 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 Security ("Beneficial Owner") is in
turn to be recorded on the Participants' or Indirect Participants' records.
Beneficial Owners will not receive written confirmation from the Securities
Depository of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Participant or Indirect Participant
through which the Beneficial Owner entered into the transaction. Ownership of
beneficial interests in such Global Security will be shown on, and the transfer
of such ownership interests will be effected only through, records maintained by
the Securities Depository (with respect to interests of Participants) and on the
records of Participants (with respect to interests of persons held through
Participants). The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to own, transfer or pledge
beneficial interests in Global Securities.
So long as the Securities Depository, or its nominee, is the registered owner
of a Global Security, the Securities Depository or its nominee, as the case may
be, will be considered the sole owner or Holder of the Securities represented by
such Global Security for all purposes under the Senior Indenture. Except as
provided below, Beneficial Owners in a Global Security will not be entitled to
have the Securities represented by such Global Securities registered in their
names, will not receive or be entitled to receive physical delivery of the
Securities in definitive form and will not be considered the owners or Holders
thereof under the Senior Indenture. Accordingly, each Person owning a beneficial
interest in a Global Security must rely on the procedures of the Securities
Depository and, if such Person is not a Participant, on the procedures of the
Participant through which such Person owns its interest, to exercise any rights
of a Holder under the Senior Indenture. The Company understands that under
existing industry practices, in the event that the Company requests any action
of Holders or that an owner of a beneficial interest in such a Global Security
desires to give or take any action which a Holder is entitled to give or take
under the Senior Indenture, the Securities Depository would authorize the
Participants holding the relevant beneficial interests to give or take such
action, and such Participants would authorize Beneficial Owners owning through
such Participants to give or take such action or would otherwise act upon the
instructions of Beneficial Owners. Conveyance of notices and other
communications by the Securities Depository to Participants, by Participants to
Indirect Participants, and by Participants and Indirect Participants to
Beneficial Owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of the principal of, and any Supplemental Redemption Amount with
respect to, Securities registered in the name of the Securities Depository or
its nominee will be made to the Securities Depository or its nominee, as the
case may be, as the Holder of the Global Securities representing such
Securities. None of the Company, the Trustee or any other agent of the Company
or agent of the Trustee will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interests or for supervising or reviewing any records relating to such
beneficial ownership interests. The Company expects that the Securities
Depository, upon receipt of any payment of principal or any Supplemental
Redemption Amount in respect of a Global Security, will credit the accounts of
the Participants with payment in amounts proportionate to their respective
holdings in principal amount of beneficial interest in such Global Security as
shown on the records of the Securities Depository. The Company also expects that
payments by Participants to Beneficial Owners will be governed by standing
customer instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name", and will be the responsibility of such Participants.
11
<PAGE>
If (x) the Securities Depository is at any time unwilling or unable to
continue as Securities Depository and a successor depository is not appointed by
the Company within 60 days, (y) the Company executes and delivers to the Trustee
a Company Order to the effect that the Global Securities shall be exchangeable
or (z) an Event of Default has occurred and is continuing with respect to the
Securities, the Global Securities will be exchangeable for Securities in
definitive form of like tenor and of an equal aggregate principal amount, in
denominations of $10 and integral multiples thereof. Such definitive Securities
shall be registered in such name or names as the Securities Depository shall
instruct the Trustee. It is expected that such instructions may be based upon
directions received by the Securities Depository from Participants with respect
to ownership of beneficial interests in such Global Securities.
THE STANDARD & POOR'S 500 INDEX
All disclosure contained in this Prospectus regarding the S&P 500 Index,
including, without limitation, its make-up, method of calculation and changes in
its components, is derived from publicly available information prepared by S&P
as of December 31, 1992. The Company takes no responsibility for the accuracy or
completeness of such information.
GENERAL
The S&P 500 Index is published by S&P and is intended to provide an
indication of the pattern of common stock price movement. The calculation of the
value of the S&P 500 Index (discussed below in further detail) is based on the
relative value of the aggregate Market Value (as defined above) of the common
stocks of 500 companies as of a particular time as compared to the aggregate
average Market Value of the common stocks of 500 similar companies during the
base period of the years 1941 through 1943. As of December 31, 1992, the 500
companies included in the S&P 500 Index represented approximately 76% of the
aggregate Market Value of common stocks traded on The New York Stock Exchange;
however, the 500 companies are not the 500 largest companies listed on The New
York Stock Exchange and not all 500 companies are listed on such exchange. As of
December 31, 1992, the aggregate market value of the 500 companies included in
the S&P 500 Index represented approximately 70% of the aggregate market value of
United States domestic, public companies. S&P chooses companies for inclusion in
the S&P 500 Index with the aim of achieving a distribution by broad industry
groupings that approximates the distribution of these groupings in the common
stock population of The New York Stock Exchange, which S&P uses as an assumed
model for the composition of the total market. Relevant criteria employed by S&P
include the viability of the particular company, the extent to which that
company represents the industry group to which it is assigned, the extent to
which the market price of that company's common stock is generally responsive to
changes in the affairs of the respective industry and the Market Value and
trading activity of the common stock of that company.
COMPUTATION OF THE S&P 500 INDEX
S&P computes the S&P 500 Index as of a particular time as follows:
(1) the Market Value of each component stock is determined as of such
time;
(2) the Market Value of all component stocks as of such time (as
determined under clause (1) above) are aggregated;
(3) the mean average of the Market Values as of each week in the base
period of the years 1941 through 1943 of the common stock of each
company in a group of 500 substantially similar companies is
determined;
(4) the mean average Market Values of all such common stocks over such
base period (as determined under clause (3) above) are aggregated
(such aggregate amount being referred to as the "Base Value");
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<PAGE>
(5) the aggregate Market Value of all component stocks as of such time (as
determined under clause (2) above) is divided by the Base Value; and
(6) the resulting quotient (expressed in decimals) is multiplied by ten.
While S&P employs the above methodology to calculate the S&P 500 Index, no
assurance can be given that S&P will not modify or change such methodology in a
manner that may affect the Supplemental Redemption Amount, if any, payable to
Holders of Securities upon maturity or otherwise.
S&P adjusts the foregoing formula to negate the effect of changes in the
Market Value of a component stock that are determined by S&P to be arbitrary or
not due to true market fluctuations. Such changes may result from such causes as
the issuance of stock dividends, the granting to shareholders of rights to
purchase additional shares of such stock, the purchase thereof by employees
pursuant to employee benefit plans, certain consolidations and acquisitions, the
granting to shareholders of rights to purchase other securities of the company,
the substitution by S&P of particular component stocks in the S&P 500 Index, and
other reasons. In all such cases, S&P first recalculates the aggregate Market
Value of all component stocks (after taking account of the new market price per
share of the particular component stock or the new number of outstanding shares
thereof or both, as the case may be) and then determines the New Base Value in
accordance with the following formula:
Old Base Value x New Market Value = New Base Value
----------------
Old Market Value
The result is that the Base Value is adjusted in proportion to any change in
the aggregate Market Value of all component stocks resulting from the causes
referred to above to the extent necessary to negate the effects of such causes
upon the S&P 500 Index.
A potential investor should review the historical performance of the S&P 500
Index. The historical performance of the S&P 500 Index should not be taken as an
indication of future performance, and no assurance can be given that the S&P 500
Index will increase sufficiently to cause the beneficial owners of the
Securities to receive a Supplemental Redemption Amount at the maturity of the
Securities.
LICENSE AGREEMENT
S&P and Merrill Lynch Capital Services, Inc. have entered into a non-
exclusive license agreement providing for the license to Merrill Lynch Capital
Services, Inc., in exchange for a fee, of the right to use indices owned and
published by S&P in connection with certain securities, including the
Securities, and the Company is an authorized sublicensee thereof.
The license agreement between S&P and Merrill Lynch Capital Services, Inc.
provides that the following language must be stated in this Prospectus:
"The Securities are not sponsored, endorsed, sold or promoted by S&P. S&P
makes no representation or warranty, express or implied, to the Holders of
the Securities or any member of the public regarding the advisability of
investing in securities generally or in the Securities particularly or the
ability of the S&P 500 Index to track general stock market performance. S&P's
only relationship to Merrill Lynch Capital Services, Inc. and the Company
(other then transactions entered into in the ordinary course of business) is
the licensing of certain service marks and trade names of S&P and of the S&P
500 Index which is determined, composed and calculated by S&P without regard
to the Company or the Securities. S&P has no obligation to take the needs
13
<PAGE>
of the Company or the Holders of the Securities into consideration in
determining, composing or calculating the S&P 500 Index. S&P is not
responsible for and has not participated in the determination of the timing of
the sale of the Securities, prices at which the Securities are to initially be
sold, or quantities of the Securities to be issued or in the determination or
calculation of the equation by which the Securities are to be converted into
cash. S&P has no obligation or liability in connection with the
administration, marketing or trading of the Securities."
OTHER TERMS
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Indenture (the "Senior Indenture"), dated as of April 1, 1983, as amended and
restated, 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"). A copy of the Senior Indenture is filed as an exhibit
to the registration statements relating to the Securities. The following
summaries of certain provisions of the Senior Indenture do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the Senior Indenture, including the definition therein of
certain terms.
The Senior Indenture provides that series of Senior Debt Securities may from
time to time be issued thereunder, without limitation as to aggregate principal
amount, in one or more series and upon such terms as the Company may establish
pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the Securities
are governed by and construed in accordance with the laws of the State of New
York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen" a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and other regulatory bodies.
LIMITATIONS UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of the incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
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<PAGE>
LIMITATION 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 Senior
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the 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.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or into
any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior 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 Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company
and the Trustee with the consent of the Holders of 66 2/3% in principal amount
of the Outstanding Senior Debt Securities of each series issued pursuant to such
indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding Senior Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts payable on, any Senior Debt
Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any Senior Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Debt Security; (e) reduce the percentage in principal
amount of the Outstanding Senior Debt Securities of any series, the consent of
whose Holders is required to modify or amend the Indenture; or (f) modify the
foregoing requirements or reduce the percentage of Outstanding Senior Debt
Securities necessary to waive any past default to less than a majority. No
modification or amendment of the Subordinated Indenture or any Subsequent
Indenture for Subordinated Debt Securities may adversely affect the rights of
any holder of Senior Indebtedness without the consent of such Holder. Except
with respect to certain fundamental provisions, the Holders of at least a
majority in principal amount of Outstanding Senior Debt Securities of any series
may, with respect to such series, waive past defaults under the Indenture and
waive compliance by the Company with certain provisions thereof.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the Indenture for
the benefit of such series or in the Senior Debt Securities of such series,
15
<PAGE>
continued for 60 days after written notice as provided in the Senior Indenture;
(e) certain events in bankruptcy, insolvency or reorganization; and (f) any
other Event of Default provided with respect to Senior Debt Securities of that
series. The Trustee or the Holders of 25% in principal amount of the Outstanding
Senior Debt Securities of that series may declare the principal amount (or such
lesser amount as may be provided for in the Senior Debt Securities of that
series) of all Outstanding Senior Debt Securities of that series and the
interest due thereon and Additional Amounts payable in respect thereof, if any
to be due and payable immediately if an Event of Default with respect to Senior
Debt Securities of such series shall occur and be continuing at the time of such
declaration. At any time after a declaration of acceleration has been made with
respect to Senior Debt Securities of any series but before a judgment or decree
for payment of money due has been obtained by the Trustee, the Holders of a
majority in principal amount of the Outstanding Senior Debt Securities of that
series may rescind any declaration of acceleration and its consequences, if all
payments due (other than those due as a result of acceleration) have been made
and all Events of Default have been remedied or waived. Any Event of Default
with respect to Senior Debt Securities of any series may be waived by the
Holders of a majority in principal amount of all Outstanding Senior Debt
Securities of that series, except in a case of failure to pay principal or
premium, if any, or interest or Additional Amounts payable on any Senior Debt
Security of that series for which payment had not been subsequently made or in
respect of a covenant or provision which cannot be modified or amended without
the consent of the Holder of each Outstanding Senior Debt Security of such
series affected.
The Holders of a majority in principal amount of the Outstanding Senior Debt
Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any right or power
under the Senior Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company is required to furnish to the Trustee annually a statement as to
the fulfillment by the Company of all of its obligations under the Senior
Indenture.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997 included
in the 1997 Annual Report on Form 10-K, and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP, as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such 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.
16
<PAGE>
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 such Quarterly Reports 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.
17
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
GLOBAL TELECOMMUNICATIONS PORTFOLIO MARKET INDEX TARGET-TERM SECURITIES(SM)
DUE OCTOBER 15, 1998
("MITTS (R)")
On September 13, 1993, Merrill Lynch & Co., Inc. (the "Company") issued an
aggregate principal amount of $110,000,000 Global Telecommunications Portfolio
Market Index Target-Term Securities due October 15, 1998 (the "Securities" or
"MITTS"). As of the date of this Prospectus, $85,000,000 aggregate principal
amount of the Securities remain outstanding. Each $10 principal amount of
Securities will be deemed a "Unit" for purposes of trading and transfer at the
Securities Depository described below. Units will be transferable by the
Securities Depository, as more fully described below, in denominations of whole
Units.
The Securities will bear no periodic payments of interest and will mature
on October 15, 1998. At maturity, a beneficial owner of a Security will be paid
an amount based upon the change in the value of a portfolio of specified
telecommunications industry stocks of issuers organized in the United States and
abroad measured from September 2, 1993 (the "Original Portfolio Value") to the
Closing Portfolio Value, all as more fully described herein; provided, however,
that the amount payable at maturity will not be less than $9.00 for each Unit of
the Securities (the "Minimum Payment"). The Closing Portfolio Value will be
based on certain values of the specified telecommunications industry stocks
during a period prior to the maturity date of the Securities. While at maturity
a beneficial owner of a Security may receive an amount in excess of the
principal amount of such Security if the Closing Portfolio Value exceeds the
Original Portfolio Value, there will be no payment of interest, periodic or
otherwise, prior to maturity.
IF THE CLOSING PORTFOLIO VALUE IS LESS THAN THE ORIGINAL PORTFOLIO VALUE,
THE AMOUNT PAYABLE AT MATURITY WITH RESPECT TO A SECURITY WILL BE LESS THAN THE
PRINCIPAL AMOUNT OF SUCH SECURITY.
For information as to the calculation of the amount that will be paid at
maturity and the calculation and the composition of the global
telecommunications industry portfolio, see "Description of Securities" and "The
Portfolio" in this Prospectus. FOR OTHER INFORMATION THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS
PROSPECTUS.
Ownership of the Securities will be maintained in book-entry form by or
through the Securities Depository. Beneficial owners of the Securities will not
have the right to receive physical certificates evidencing their ownership
except under the limited circumstances described herein.
The Securities have been listed on the New York Stock Exchange under the
Symbol "MLC".
______________________
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 Securities 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 Securities.
MLPF&S may act as principal or agent in such transactions. The Securities may
be offered on the New York Stock Exchange, 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 Securities 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.
___________________
MERRILL LYNCH & CO.
___________________
THE DATE OF THIS PROSPECTUS IS JULY ___, 1998.
(R)"MITTS" is a registered service mark and (SM)"Market Index Target-Term
Securities" is a service mark of Merrill Lynch & Co., Inc.
<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 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 26,
1997, Quarterly Report on Form 10-Q for the period ended March 27, 1998, and
Current Reports on Form 8-K dated January 20, 1998, January 30, 1998, February
4, 1998, February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998,
April 29, 1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June
24, 1998, June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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 LAWRENCE M. EGAN, JR., CORPORATE
SECRETARY'S OFFICE, 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 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.
2
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its
subsidiaries and affiliates, provides investment, financing, advisory,
insurance, and related services on a global basis. Its principal subsidiary,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("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; an underwriter of selected insurance products and a distributor of
investment products of the Merrill Lynch Asset Management group. 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. The Company's asset management and investment management activities are
conducted through the Merrill Lynch Asset Management group and Merrill Lynch
Mercury Asset Management, which together constitute one of the largest asset
management organizations in the world. Merrill Lynch Government Securities Inc.
is a primary dealer in obligations issued or guaranteed by the U.S. Government
and its agencies and its government-sponsored entities. Merrill Lynch Capital
Services, Inc., Merrill Lynch Derivative Products AG, and Merrill Lynch
International are the Company's primary derivative product dealers and enter
into interest rate, currency, and other over-the-counter derivative transactions
as intermediaries and as principals. The Company's operations in insurance
services consist of the underwriting and sale 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 and purchasing secured loans, providing
currency exchange facilities and other related services, and furnishing trust,
employee benefit, and custodial 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
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges . . . . . . 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
RISK FACTORS
PAYMENT AT MATURITY
If the Closing Portfolio Value is less than the Original Portfolio Value,
beneficial owners of the Securities will receive less than the principal amount
of such Securities at maturity, but not less than the Minimum Payment.
Beneficial owners would receive only the return of principal if the Closing
Portfolio Value should equal the Original
3
<PAGE>
Portfolio Value. This will be true even though the Portfolio Value as of some
interim period or periods prior to the Calculation Period may have exceeded the
Original Portfolio Value because the Closing Portfolio Value is calculated on
the basis of the average of the value of Portfolio Securities only on the
Calculation Days.
Even if the principal of the Securities is fully returned, such return of
principal does not reflect any opportunity cost implied by inflation and other
factors relating to the time value of money.
The return based on the Closing Portfolio Value relative to the Original
Portfolio Value generally will not produce the same return as if the Portfolio
Securities were purchased and held for a similar period, because, among other
reasons, any payment at maturity on the Securities based on an increase in the
value of the Portfolio will not reflect the payment of dividends on the
Portfolio Securities.
The Senior Indenture provides that the Senior Indenture and the Securities
are governed by and construed in accordance with the laws of New York. Under
present New York law the maximum rate of interest is 25% per annum on a simple
interest basis. This limit may not apply to Securities in which $2,500,000 or
more has been invested. While the Company believes that New York law would be
given effect by a state or Federal court sitting outside of New York, state laws
frequently regulate the amount of interest that may be charged to and paid by a
borrower (including, in some cases, corporate borrowers). All payments under the
Securities (other than the return of principal) could be considered interest for
the purpose of state usury laws. The Company has covenanted for the benefit of
the Holders of the Securities, to the extent permitted by law, not to claim
voluntarily the benefits of any laws concerning usurious rates of interest
against a Holder of the Securities.
TRADING
The Securities have been listed on the New York Stock Exchange under the
Symbol "MLC". There can be no assurance as to how the Securities will trade in
the secondary market or whether such market will be liquid. It is expected that
the secondary market for the Securities will be affected by the creditworthiness
of the Company and by a number of other factors. The trading value of the
Securities is expected to depend primarily on the extent of the appreciation, if
any, of the Portfolio Value over the Original Portfolio Value. If, however,
Securities are sold prior to the maturity date at a time when the Portfolio
Value exceeds the Original Portfolio Value, the sale price may be at a discount
from the amount expected to be payable to the beneficial owner if such excess of
the Portfolio Value over the Original Portfolio Value were to prevail during the
Calculation Period. Furthermore, the price at which a beneficial owner will be
able to sell Securities prior to maturity may be at a discount, which could be
substantial, from the principal amount thereof, if, at such time, the Portfolio
Value is below, equal to or not sufficiently above the Original Portfolio Value.
A discount could also result from rising interest rates.
The trading values of the Securities may be affected by a number of
interrelated factors, including those listed below. The relationship among these
factors is complex, including how these factors affect the value of the
principal amount of the Securities payable at maturity, if any, in excess of the
principal amount of the Securities. Accordingly, investors should be aware that
factors other than the level of the Portfolio Value are likely to affect their
trading value. The expected theoretical effect on the trading value of the
Securities of each of the factors listed below, assuming in each case that all
other factors are held constant, is as follows:
Interest Rates. In general, if U.S. interest rates increase, the value of
the Securities is expected to decrease. If U.S. interest rates decrease, the
value of the Securities is expected to increase. Local interest rates may also
affect the economies of countries in which issuers of the respective Portfolio
Securities (or shares underlying such securities) operate, and, in turn, affect
the Portfolio Value.
Volatility of the Portfolio Value. If the volatility of the Portfolio Value
increases, the trading value of the Securities is expected to increase. If the
volatility of the Portfolio Value decreases, the trading value of the Securities
is expected to decrease.
4
<PAGE>
Time Remaining to Maturity. The Securities may trade at a value above that
which may be inferred from the level of the Portfolio Value. This difference
will reflect a "time premium" due to expectations concerning the Portfolio Value
during the period prior to maturity of the Securities. As the time remaining to
maturity of the Securities decreases, however, this time premium is expected to
decrease, thus decreasing the trading value of the Securities.
Dividend Rates. If dividend rates on the Portfolio Securities (or shares
underlying such securities) increase, the value of the Securities is expected to
decrease. Conversely, if dividend rates on the Portfolio Securities decrease,
the value of the Securities is expected to increase. Local general corporate
dividend rates may also affect the Portfolio Value and, in turn, the value of
the Securities.
FOREIGN CURRENCY EXCHANGE AND FOREIGN MARKET
The Securities are U.S. dollar-denominated securities issued by the
Company, a United States corporation. Investments in the Securities do not give
the beneficial owners any right to receive any Portfolio Security or any other
ownership right or interest in the Portfolio Securities, although the return on
the investment in the Securities is based on the Portfolio Value of the
Portfolio Securities. Certain of the Portfolio Securities (or securities
underlying DRs included in the Portfolio) have been issued by non-United States
companies, and certain of the Portfolio Securities and the underlying securities
represented by the DRs are quoted in currencies other than the U.S. dollar.
Investments in securities indexed to the value of non-United States securities
involve certain risks. Fluctuations in foreign exchange rates, future foreign
political and economic developments, and the possible imposition of exchange
controls or other foreign governmental laws or restrictions applicable to such
investments may affect the U.S. dollar value of such securities, including DRs.
Securities prices in different countries are subject to different economic,
financial, political and social factors. Rates of exchange between the dollar
and other currencies are determined by forces of supply and demand in the
foreign exchange markets. These forces are, in turn, affected by international
balance of payments and other economic and financial conditions, government
intervention, speculation and other factors. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resources, self-sufficiency and balance of payments position. With
respect to certain countries, there is the possibility of expropriation of
assets, confiscatory taxation, political or social instability or diplomatic
developments which could affect the value of investments in those countries.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to those
to which U.S. entities are subject. Certain foreign investments may be subject
to foreign withholding taxes which could affect the value of investment in these
countries. In addition, investment laws in certain foreign countries may limit
or restrict ownership of certain securities by foreign nationals by restricting
or eliminating voting or other rights or limiting the amount of securities that
may be so owned, and such limitations or restrictions may affect the prices of
such securities.
Foreign financial markets, while growing in volume, may have substantially
less volume than U.S. markets, and securities of many foreign companies are less
liquid and their prices more volatile than securities of comparable domestic
companies. The foreign markets have different trading practices that may affect
the prices of securities. The foreign markets have different clearance and
settlement procedures, and in certain countries there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. There is
generally less government supervision and regulation of exchanges, brokers and
issuers in foreign countries than there is in the U.S. In addition, the terms
and conditions of depositary facilities may result in less liquidity or lower
market values for the DRs than for the underlying stocks.
AMERICAN DEPOSITARY RECEIPTS AND GLOBAL DEPOSITARY RECEIPTS
Certain of the Portfolio Securities are in the form of either American
Depositary Receipts ("ADRs") or Global Depositary Receipts ("GDRs", which,
together with ADRs, are hereinafter collectively referred to as "DRs"). A DR is
a negotiable receipt which is issued by a depositary, generally a bank,
representing shares (the "Underlying
5
<PAGE>
Shares") of a foreign issuer (the "Foreign Issuer") that have been deposited and
are held, on behalf of the holders of the DRs, at a custodian bank in the
Foreign Issuer's home country. While the market for Underlying Shares will
generally be in the country in which the Foreign Issuer is organized, and
trading in such market will generally be based on that country's currency, DRs
that are Portfolio Securities will trade in U.S. Dollars.
Although DRs are distinct securities from the Underlying Shares, the
trading characteristics and valuations of DRs will usually, but not necessarily,
mirror the characteristics and valuations of the Underlying Shares represented
by the DRs. Active trading volume and efficient pricing in the principal market
in the home country for the Underlying Shares will usually indicate similar
characteristics in respect of the DRs. In the case of certain DRs, however,
there may be inadequate familiarity with or information about the Foreign Issuer
of the Underlying Shares represented by the DR in the market in which the DR
trades to support active volume, thus resulting in pricing distortions. This is
more likely to occur when the DR is not listed on a U.S. stock exchange or
quoted on the National Market System of the National Association of Securities
Dealers Automated Quotations System ("NASDAQ"), and trades only over-the-
counter, because the Foreign Issuer would not be required to register such DRs
under the Exchange Act, as is the case with DRs so listed or quoted. In
addition, because of the size of an offering of Underlying Shares in DR form
outside the home country and/or other factors that have limited or increased the
float of certain DRs, the liquidity of such securities may be less than or
greater than that with respect to the Underlying Shares. Inasmuch as holders of
DRs may surrender the DR in order to take delivery of and trade the Underlying
Shares, a characteristic that allows investors in DRs to take advantage of price
differentials between different markets, a market for the Underlying Shares that
is not liquid will generally result in an liquid market for the DR representing
such Underlying Shares.
The depositary bank that issues a DR generally charges a fee, based on the
price of the DR, upon issuance and cancellation of the DR. This fee would be in
addition to the brokerage commissions paid upon the acquisition or surrender of
the security. In addition, the depositary bank incurs expenses in connection
with the conversion of dividends or other cash distributions paid in local
currency into U.S. Dollars and such expenses are deducted from the amount of the
dividend or distribution paid to holders, resulting in a lower payout per
Underlying Share represented by the DR than would be the case if the Underlying
Share were held directly. Furthermore, foreign investment laws in certain
countries may restrict ownership by foreign nationals of certain classes of
Underlying Shares. Accordingly, the DR representing such class of securities may
not possess voting rights, if any, equivalent to those in respect of the
Underlying Shares. Certain tax considerations, including tax rate differentials,
arising from application of the tax laws of one nation to the nationals of
another and from certain practices in the DR market may also exist with respect
to certain DRs. In varying degrees, any or all of these factors may affect the
value of the DR compared with the value of the Underlying Shares in the local
market.
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the
Securities should reach an investment decision only after carefully considering
the suitability of the Securities in the light of each investor's particular
circumstances.
Investors should also consider the tax consequences of investing in the
Securities and should consult their tax advisors.
DESCRIPTION OF SECURITIES
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Senior Indenture, dated as of April 1, 1983, as amended and restated, which is
more fully described below. The principal amount of each Security will equal $10
for each $10 price to the public. The Securities will mature on October 15,
1998.
6
<PAGE>
While at maturity a beneficial owner of a Security may receive an amount in
excess of the principal amount of such Security if the Closing Portfolio Value
exceeds the Original Portfolio Value, there will be no payment of interest,
periodic or otherwise, prior to maturity. (See "Payment at Maturity", below.)
The Securities are not subject to redemption by the Company or at the
option of any Holder prior to maturity. Upon the occurrence of an Event of
Default with respect to the Securities, Holders of the Securities may accelerate
the maturity of the Securities, as described under "Events of Default and
Acceleration" and "Description of Debt Securities--General--Events of Default"
below.
The Securities were issued in denominations of whole Units.
PAYMENT AT MATURITY
At maturity, a beneficial owner of a Security will be entitled to receive,
with respect to each $10 principal amount of the Security, an amount equal to
the following:
Closing Portfolio Value
$10 x -----------------------
$100
provided, however, that the amount payable at maturity will not be less than $9
for each $10 principal amount of Securities (the "Minimum Payment"). Based on
the prices of the Portfolio Securities on September 2, 1993, the Multipliers
were initially set so that the value of the Portfolio on September 2, 1993
equaled $100 (the "Original Portfolio Value").
If the Closing Portfolio Value is equal to $90 or less, a beneficial owner
of a Security will receive the Minimum Payment of $9 for each $10 principal
amount of the Securities at maturity. If the Closing Portfolio Value is between
$90 and $100, a beneficial owner of a Security will receive between $9 and $10
for each $10 principal amount of the Securities at maturity.
The "Closing Portfolio Value" will be determined by MLPF&S an affiliate of
the Company, or successor thereto (the "Calculation Agent"), and will equal the
sum of the products of the Average Market Price and the applicable Multiplier
for each Portfolio Security. The "Average Market Price" of a Portfolio Security
will equal the average (mean) of the Market Prices of such Portfolio Security
determined on each of the first thirty Calculation Days with respect to such
Portfolio Security during the Calculation Period. If there are fewer than thirty
Calculation Days with respect to a Portfolio Security, then the Average Market
Price will equal the average (mean) of the Market Prices on such Calculation
Days, and if there is only one Calculation Day, then the Average Market Price
will equal the Market Price on such Calculation Day. The "Calculation Period"
means the period from and including the sixtieth scheduled NYSE Trading Day (as
defined below) prior to the maturity date to and including the fourth scheduled
NYSE Trading Day prior to the maturity date. "Calculation Day" with respect to a
Portfolio Security means any Trading Day during the Calculation Period in the
country in which such Portfolio Security is being priced on which a Market
Disruption Event has not occurred. If a Market Disruption Event occurs on all
Trading Days in such country during the Calculation Period then the fourth
scheduled NYSE Trading Day (as defined below) prior to the maturity date in such
country will be deemed a Calculation Day, notwithstanding the Market Disruption
Event; provided, however, that if such fourth scheduled NYSE Trading Day is not
a Trading Day in such country, then the immediately preceding Trading Day shall
instead be deemed a Calculation Day. Any reference to a specific day herein
shall mean such calendar day in each market in which Portfolio Securities are
priced.
"Market Price" means for a Calculation Day the following:
(i) If the Portfolio Security is listed on a national securities
exchange in the United States, is a NASDAQ National Market System
("NASDAQ NMS") security or is included in the OTC Bulletin Board
Service ("OTC Bulletin Board") operated by the National Association of
Securities Dealers, Inc. (the "NASD"), Market Price means (i) the last
reported sale price, regular way, on such day on the principal United
7
<PAGE>
States securities exchange registered under the Securities Exchange
Act of 1934 on which such Portfolio Security is listed or admitted to
trading, or (ii) if not listed or admitted to trading on any such
securities exchange or if such last reported sale price is not
obtainable, the last reported sale price on the over-the-counter
market as reported on the NASDAQ NMS or OTC Bulletin Board on such
day, or (iii) if the last reported sale price is not available
pursuant to (i) and (ii) above, the mean of the last reported bid and
offer price on the over-the-counter market as reported on the NASDAQ
NMS or OTC Bulletin Board on such day as determined by the Calculation
Agent. If the Portfolio Security is a security issued by a company
organized in the United States and is not listed on a national
securities exchange in the United States, is not a NASDAQ NMS security
or is not included in the OTC Bulletin Board operated by the NASD,
Market Price means the average (mean) of the last available bid and
offer prices in the United States over-the-counter market of the three
dealers which have the highest volume of transactions in such
Portfolio Security in the immediately preceding calendar month as
determined by the Calculation Agent based on information that is
reasonably available to it. The term "NASDAQ NMS security" shall
include a security included in any successor to such system and the
term "OTC Bulletin Board Service" shall include any successor service
thereto.
(ii) If the Portfolio Security is a security issued by a company
organized other than in the United States or is a DR, that, in either
case, is not listed on a national securities exchange in the United
States or is not a NASDAQ NMS security or included in the OTC Bulletin
Board operated by the NASD, Market Price means the last reported sale
price on such day on the securities exchange on which such Portfolio
Security is listed or admitted to trading with the greatest volume of
trading for the calendar month preceding such day as determined by the
Calculation Agent, provided that if such last reported sale price is
for a transaction which occurred more than four hours prior to the
close of such exchange, then the Market Price shall mean the average
(mean) of the last available bid and offer price on such exchange. If
such Portfolio Security is not listed or admitted to trading on any
such securities exchange or if such last reported sale price or bid
and offer are not obtainable, the Market Price shall mean the last
reported sale price on the over-the-counter market with the greatest
volume of trading as determined by the Calculation Agent, provided
that if such last reported sale price is for a transaction which
occurred more than four hours prior to when trading in such over-the-
counter market typically ends, then the Market Price shall mean the
average (mean) of the last available bid and offer prices in such
market of the three dealers which have the highest volume of
transactions in such Portfolio Security in the immediately preceding
calendar month as determined by the Calculation Agent based on
information that is reasonably available to it. If such prices are
quoted in a currency other than in U.S. Dollars, such prices will be
translated into U.S. Dollars for purposes of calculating the Average
Market Price using the Spot Rate on the same calendar day as the date
of any such price. The "Spot Rate" on any date will be determined by
the Calculation Agent and will equal the spot rate of such currency
per U.S. $1.00 on such date at approximately 3:00 p.m., New York City
time, as reported on the information service operated by Bloomberg,
L.P. ("Bloomberg") representing the mean of certain dealers in such
currency or, if Bloomberg has not reported such rate by 3:30 p.m., New
York City time, on such day, the offered spot rate of such currency
per U.S. $1.00 on such date for a transaction amount in an amount
customary for such market on such date quoted at approximately 3:30
p.m., New York City time, by a leading bank in the foreign exchange
markets as may be selected by the Calculation Agent.
If the Calculation Agent is required to use the bid and offer price for a
Portfolio Security to determine the Market Price of such Portfolio Security
pursuant to the foregoing, the Calculation Agent shall not use any bid or offer
price announced by MLPF&S or any other affiliate of the Company.
As used herein, "NYSE Trading Day" shall mean a day on which trading is
generally conducted in the over-the-counter market for equity securities in the
United States and on the New York Stock Exchange as determined by the
Calculation Agent. "Trading Day" shall mean a day on which trading is conducted
on the principal securities exchanges in the country in which such Portfolio
Security is being priced.
8
<PAGE>
"Market Disruption Event" with respect to a Portfolio Security means either
of the following events, as determined by the Calculation Agent:
(i) the suspension or material limitation (provided that, with
respect to Portfolio Securities that are priced in the United States,
limitations pursuant to New York Stock Exchange Rule 80A (or any
applicable rule or regulation enacted or promulgated by the New York
Stock Exchange, any other self regulatory organization or the
Commission of similar scope as determined by the Calculation Agent) on
trading during significant market fluctuations shall be considered
"material" for purposes of this definition) in the trading of such
Portfolio Security in the country in which such Portfolio Security is
being priced for more than two hours of trading or during the period
one-half hour prior to the time that such Portfolio Security is to be
priced, or
(ii) the suspension or material limitation (whether by reason of
movements in price otherwise exceeding levels permitted by the
relevant exchange or otherwise) in option contracts related to a
Portfolio Security traded on any exchange in the country in which such
Portfolio Security is being priced for more than two hours of trading
or during the period one-half hour prior to the time that such
Portfolio Security is to be priced.
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular business hours of
the relevant exchange.
All determinations made by the Calculation Agent shall be at the sole
discretion of the Calculation Agent and, in the absence of manifest error, shall
be conclusive for all purposes and binding on the Company and beneficial owners
of the Securities. All percentages resulting from any calculation on the
Securities will be rounded to the nearest one hundred-thousandth of a percentage
point, with five one millionths of a percentage point rounded upwards (e.g.,
9.876545% (or .09876545) would be rounded to 9.87655% (or .0987655)), and all
dollar amounts used in or resulting from such calculation will be rounded to the
nearest cent with one-half cent being rounded upwards.
9
<PAGE>
PORTFOLIO SECURITIES
The stocks or the depositary receipts representing the stocks listed below
will be used to calculate the value of the Portfolio. Holders of the Securities
will not have any right to receive the Portfolio Securities. The following table
sets forth, as of September 2, 1993, the Portfolio Securities, the percentage of
each Portfolio Security in the Original Portfolio Value and their initial
Multipliers:
<TABLE>
<CAPTION>
% OF PORTFOLIO
VALUE
REPRESENTED IN
ISSUER OF THE COUNTRY IN ORIGINAL INITIAL
PORTFOLIO SECURITY(1) WHICH ORGANIZED ADR/GDR PORTFOLIO VALUE MULTIPLIER
--------------------- --------------- ------- --------------- ----------
<S> <C> <C> <C> <C>
Alcatel Alstholm Compagnie Generale d'Electricite France Yes 4.5455% .1731602
American Telephone & Telegraph Company United States No 4.5455% .0722935
Bell Atlantic Corporation United States No 4.5455% .0711617
BellSouth Corporation United States No 4.5455% .0763942
British Telecommunications plc United Kingdom Yes 4.5455% .0692641
Compania de Telefonos de Chile S.A. Chile Yes 4.5455% .0582751
LM Ericsson Telephone Company Sweden Yes 4.5455% .0988142
GTE Corporation United States No 4.5455% .1249609
Hong Kong Telecommunications, Ltd. Hong Kong Yes 4.5455% .0934798
Newbridge Networks Corporation Canada No 4.5455% .0640205
NYNEX Corporation United States No 4.5455% .0492065
Pacific Telesis Group United States No 4.5455% .0822707
Philippine Long Distance Telephone Company Philippines No 4.5455% .0918274
Rogers Cantel Mobile Communications, Inc. Canada No 4.5455% .1668057
Southwestern Bell Corporation United States No 4.5455% .0999001
Tadiran Ltd. Israel No 4.5455% .1298701
Telecom Corporation of New Zealand Limited New Zealand Yes 4.5455% .1038961
Telecomunicacoes Brasileiras S.A. Brazil Yes 4.5455% .1312767
Telefonica de Argentina Argentina Yes 4.5455% .1033058
Telefonica de Espana Spain Yes 4.5455% .1249609
Telefonos de Mexico, S.A. de C.V. Mexico Yes 4.5455% .0851607
Vodaphone Group plc United Kingdom Yes 4.5455% .0569963
</TABLE>
___________________________
(1) Or, in the case of DRs, the Underlying Shares.
The initial Multiplier relating to each Portfolio Security indicates the
number of such Portfolio Security, given the market price of such Portfolio
Security as of September 2, 1993, required to be included in the calculation of
the Original Portfolio Value so that each Portfolio Security represented an
equal percentage of the Original Portfolio Value as of September 2, 1993. The
price of each Portfolio Security used to calculate the initial Multiplier
relating to each such Portfolio Security was the closing price of such Portfolio
Security on September 2, 1993. The respective Multipliers will remain constant
for the term of the Securities unless adjusted for certain corporate events, as
described below.
The Portfolio Value, for any day, will equal the sum of the products of the
most recently available Market Prices (determined as described herein) and the
applicable Multipliers for the Portfolio Securities. The Closing Portfolio
Value, however, is calculated based on averaging Market Prices for certain days.
The Calculation Agent currently intends to publish the Portfolio Value once
on each business day. The Calculation Agent currently calculates and publishes
values of approximately 1,100 specified portfolios. The Calculation Agent
currently provides information concerning such portfolios to the electronic
reporting services operated by Bloomberg and to newspapers and specialized trade
publications. If the Calculation Agent does publish
10
<PAGE>
Portfolio Values, the Calculation Agent currently intends to provide such values
to similar sources described above, but there can be no assurance that such
information will ultimately be published by such sources.
ADJUSTMENTS TO THE MULTIPLIER AND PORTFOLIO
The Multiplier with respect to any Portfolio Security and the Portfolio
will be adjusted as follows:
1. If a Portfolio Security is subject to a stock split or reverse stock
split or similar adjustment in the case of DRs, then once such split has
become effective, the Multiplier relating to such Portfolio Security will
be adjusted to equal the product of the number of shares issued with
respect to one such share of such Portfolio Security, or the number of
receipts issued with respect to one DR if a Portfolio Security is a DR, and
the prior multiplier.
2. If a Portfolio Security is subject to a stock dividend (issuance of
additional shares of the Portfolio Security) that is given equally to all
holders of shares of the issuer of such Portfolio Security, then once the
dividend has become effective and such Portfolio Security is trading ex-
dividend, the Multiplier will be adjusted so that the new Multiplier shall
equal the former Multiplier plus the product of the number of shares of
such Portfolio Security issued with respect to one such share of Portfolio
Security and the prior multiplier.
3. There will be no adjustments to the Multipliers to reflect cash
dividends or distributions paid with respect of a Portfolio Security other
than for Extraordinary Dividends as described below. A cash dividend with
respect to a Portfolio Security will be deemed to be an "Extraordinary
Dividend" if such dividend exceeds the immediately preceding non-
Extraordinary Dividend for such Portfolio Security by an amount equal to at
least 10% of the Market Price on the Trading Day preceding the record day
for the payment of such Extraordinary Dividend (the "ex-dividend date"). If
an Extraordinary Dividend occurs with respect to a Portfolio Security, the
Multiplier with respect to such Portfolio Security will be adjusted on the
ex-dividend date with respect to such Extraordinary Dividend so that the
new Multiplier will equal the product of (i) the then current Multiplier,
and (ii) a fraction, the numerator of which is the sum of the Extraordinary
Dividend Amount and the Market Price on the Trading Day preceding the ex-
dividend date, and the denominator of which is the Market Price on the
Trading Day preceding the ex-dividend date. The "Extraordinary Dividend
Amount" with respect to an Extraordinary Dividend for a Portfolio Security
will equal such Extraordinary Dividend minus the amount of the immediately
preceding non-Extraordinary Dividend for such Portfolio Security.
4. If the issuer of a Portfolio Security is being liquidated or is subject
to a proceeding under any applicable bankruptcy, insolvency or other
similar law such Portfolio Security will continue to be included in the
Portfolio so long as a Market Price for such Portfolio Security is
available. If a Market Price is no longer available for a Portfolio
Security for whatever reason, including the liquidation of the issuer of
such Portfolio Security or the subjection of the issuer of such Portfolio
Security to a proceeding under any applicable bankruptcy, insolvency or
other similar law, then the value of such Portfolio Security will equal
zero in connection with calculating Portfolio Value and Closing Portfolio
Value for so long as no Market Price is available, and no attempt will be
made to find a replacement stock or increase the value of the Portfolio to
compensate for the deletion of such Portfolio Security.
5. If the issuer of a Portfolio Security or, if a Portfolio Security is a
DR, the Foreign Issuer of the Underlying Share, has been subject to a
merger or consolidation and is not the surviving entity or is nationalized,
then a value for such Portfolio Security will be determined at the time
such issuer is merged or consolidated or nationalized and will equal the
last available Market Price for such Portfolio Security and that value will
be constant for the remaining term of the Securities. At such time, no
adjustment will be made to the Multiplier of such Portfolio Security. The
Company may at its sole discretion increase such last available Market
Price to reflect payments or dividends of cash, securities or other
consideration to holders of such Portfolio Security in connection with such
a merger or consolidation which may not be reflected in such last available
Market Price.
11
<PAGE>
6. If the issuer of a Portfolio Security issues to all of its shareholders
equity securities of an issuer other than the issuer of the Portfolio
Security, then such new equity securities will be added to the Portfolio as
a new Portfolio Security. The Multiplier for such new Portfolio Security
will equal the product of the original Multiplier with respect to the
Portfolio Security for which the new Portfolio Security is being issued
(the "Original Portfolio Security") and the number of shares of the new
Portfolio Security issued with respect to one share of the Original
Portfolio Security.
7. If a DR is no longer listed or admitted to trading on a United States
securities exchange registered under the Exchange Act, is no longer a
NASDAQ NMS security or is no longer included in the OTC Bulletin Board
operated by the NASD, then the Underlying Share represented by such DR will
be deemed to be a new Portfolio Security. The initial Multiplier for such
new Portfolio Security will equal the last value of the Multiplier for such
DR multiplied by the number of shares of Underlying Shares represented by a
single DR.
No adjustments of any Multiplier of a Portfolio Security will be required
unless such adjustment would require a change of at least 1% in the Multiplier
then in effect. The Multiplier resulting from any of the adjustments specified
above will be rounded to the nearest one thousandth with five ten-thousandths
being rounded upward.
No adjustments to the Multiplier of any Portfolio Security or to the
Portfolio will be made other than those specified above.
12
<PAGE>
HYPOTHETICAL PAYMENTS
The following table illustrates, for a range of hypothetical Closing
Portfolio Values, the amount payable at maturity for each $10 principal amount
of Securities. AN INVESTMENT IN THE PORTFOLIO SECURITIES WOULD BE SIGNIFICANTLY
DIFFERENT THAN INVESTING IN THE SECURITIES. AMONG OTHER THINGS, AN INVESTOR IN
THE PORTFOLIO SECURITIES MAY REALIZE CERTAIN DIVIDENDS THAT ARE NOT REFLECTED BY
INVESTING IN THE SECURITIES, AND CURRENCY FLUCTUATIONS MAY SIGNIFICANTLY
INCREASE OR DECREASE THE RATE OF RETURN OF THE PORTFOLIO SECURITIES VERSUS
INVESTING IN THE SECURITIES.
<TABLE>
<CAPTION>
PAYMENT AT
HYPOTHETICAL CLOSING PERCENTAGE MATURITY PER $10
VALUE OF THE CHANGE IN THE PRINCIPAL AMOUNT
PORTFOLIO VALUE PORTFOLIO LEVEL OF SECURITIES
--------------- --------------- -------------
<S> <C> <C>
0.00 -100.00% $ 9.00
10.00 -90.00% $ 9.00
20.00 -80.00% $ 9.00
30.00 -70.00% $ 9.00
40.00 -60.00% $ 9.00
50.00 -50.00% $ 9.00
60.00 -40.00% $ 9.00
70.00 -30.00% $ 9.00
80.00 -20.00% $ 9.00
90.00 -10.00% $ 9.00
100.00 0.00% $10.00
110.00 10.00% $11.00
120.00 20.00% $12.00
130.00 30.00% $13.00
140.00 40.00% $14.00
150.00 50.00% $15.00
160.00 60.00% $16.00
170.00 70.00% $17.00
180.00 80.00% $18.00
190.00 90.00% $19.00
200.00 100.00% $20.00
</TABLE>
The above figures are for purposes of illustration only. The actual amount
payable at maturity with respect to the Securities will depend entirely on the
actual Closing Portfolio Value.
The investor will not receive their entire principal at maturity should the
market decline in value. The investor will only receive $9.00 for each $10
principal amount of Securities (90% of their original investment) should the
market decline by 10% or more.
13
<PAGE>
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Securities shall have
occurred and be continuing, the amount payable to a Holder of a Security upon
any acceleration permitted by the Securities will be equal to the amount payable
calculated as though the date of early repayment were the maturity date of the
Securities. See "Description of Securities-Payment at Maturity" in this
Prospectus. If a bankruptcy proceeding is commenced in respect of the Company,
the claim of the Holder of a Security may be limited, under Section 502(b)(2) of
Title 11 of the United States Code, to the principal amount of the Security plus
an additional amount, if any, of contingent interest calculated as though the
date of the commencement of the proceeding were the maturity date of the
Securities.
In case of default in payment at the maturity date of the Securities
(whether at their stated maturity or upon acceleration), from and after the
maturity date the Securities shall bear interest, payable upon demand of the
Holders thereof, at the rate of 6% per annum (to the extent that payment of such
interest shall be legally enforceable) on the unpaid amount due and payable on
such date in accordance with the terms of the Securities to the date payment of
such amount has been made or duly provided for.
SECURITIES DEPOSITORY
The Securities are represented by one or more fully registered global
securities (the "Global Securities"). Each such Global Security has been
deposited with, or on behalf of, The Depository Trust Company, as Securities
Depository (the "Securities Depository"), registered in the name of the
Securities Depository or a nominee thereof. Unless and until it is exchanged in
whole or in part for Securities in definitive form, no Global Security may be
transferred except as a whole by the Securities Depository to a nominee of such
Securities Depository or by a nominee of such Securities Depository to such
Securities Depository or another nominee of such Securities Depository or by
such Securities Depository or any such nominee to a successor of such Securities
Depository or a nominee of such successor.
The Securities Depository has advised the Company as follows: The
Securities Depository is a limited-purpose trust company organized under the
Banking Law of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the 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, 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 NASD.
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 Securities 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 Security ("Beneficial Owner") is in
turn to be recorded on the Participants' or Indirect Participants' records.
Beneficial Owners will not receive written confirmation from the Securities
Depository of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Participant or Indirect Participant
through which the Beneficial Owner entered into the transaction. Ownership of
beneficial interests in such Global Security will be shown on, and the transfer
of such ownership interests will be effected only through, records maintained by
the Securities Depository (with respect to interests of Participants) and on the
records of Participants (with respect to interests of persons held through
Participants). The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to own, transfer or pledge
beneficial interests in Global Securities.
14
<PAGE>
So long as the Securities Depository, or its nominee, is the registered
owner of a Global Security, the Securities Depository or its nominee, as the
case may be, will be considered the sole owner or Holder of the Securities
represented by such Global Security for all purposes under the Senior Indenture.
Except as provided below, Beneficial Owners in a Global Security will not be
entitled to have the Securities represented by such Global Securities registered
in their names, will not receive or be entitled to receive physical delivery of
the Securities in definitive form and will not be considered the owners or
Holders thereof under the Senior Indenture. Accordingly, each Person owning a
beneficial interest in a Global Security must rely on the procedures of the
Securities Depository and, if such Person is not a Participant, on the
procedures of the Participant through which such Person owns its interest, to
exercise any rights of a Holder under the Senior Indenture. The Company
understands that under existing industry practices, in the event that the
Company requests any action of Holders or that an owner of a beneficial interest
in such a Global Security desires to give or take any action which a Holder is
entitled to give or take under the Senior Indenture, the Securities Depository
would authorize the Participants holding the relevant beneficial interests to
give or take such action, and such Participants would authorize Beneficial
Owners owning through such Participants to give or take such action or would
otherwise act upon the instructions of beneficial owners. Conveyance of notices
and other communications by the Securities Depository to Participants, by
Participants to Indirect Participants, and by Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Payment of the principal of, and any additional amount payable at maturity
with respect to, Securities registered in the name of the Securities Depository
or its nominee will be made to the Securities Depository or its nominee, as the
case may be, as the Holder of the Global Securities representing such
Securities. None of the Company, the Trustee or any other agent of the Company
or agent of the Trustee will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interests or for supervising or reviewing any records relating to such
beneficial ownership interests. The Company expects that the Securities
Depository, upon receipt of any payment of principal or any additional amount
payable at maturity in respect of a Global Security, will credit the accounts of
the Participants with payment in amounts proportionate to their respective
holdings in principal amount of beneficial interest in such Global Security as
shown on the records of the Securities Depository. The Company also expects that
payments by Participants to Beneficial Owners will be governed by standing
customer instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name", and will be the responsibility of such Participants.
If (x) the Securities Depository is at any time unwilling or unable to
continue as Securities Depository and a successor depository is not appointed by
the Company within 60 days, (y) the Company executes and delivers to the Trustee
a Company Order to the effect that the Global Securities shall be exchangeable
or (z) an Event of Default has occurred and is continuing with respect to the
Securities, the Global Securities will be exchangeable for Securities in
definitive form of like tenor and of an equal aggregate principal amount, in
denominations of $10 and integral multiples thereof. Such definitive Securities
shall be registered in such name or names as the Securities Depository shall
instruct the Trustee. It is expected that such instructions may be based upon
directions received by the Securities Depository from Participants with respect
to ownership of beneficial interests in such Global Securities.
THE PORTFOLIO
GENERAL
While the Portfolio consists of stocks (or DRs representing interests
therein) of issuers that are involved in the global telecommunications industry,
the Portfolio is not intended to provide an indication of the pattern of price
movements of common stocks of corporations involved in the global
telecommunications industry generally. Each of the United States issuers of a
Portfolio Security files certain information reports with the Commission
pursuant to the Exchange Act. Such reports generally contain a description of
the business of the issuer, financial statements and certain other information
which may be material to potential investors in the Securities. Foreign Issuers
of
15
<PAGE>
Underlying Shares related to DRs that are Portfolio Securities and that are
traded in the United States also file certain information reports with the
Commission pursuant to the Exchange Act, although information contained in such
reports will generally be more limited than that available with respect to a
United States issuer. The Company makes no representation or warranty as to the
accuracy or completeness of such reports. THE INCLUSION OF A PORTFOLIO SECURITY
IN THE PORTFOLIO IS NOT A RECOMMENDATION TO BUY OR SELL SUCH PORTFOLIO SECURITY,
AND NEITHER THE COMPANY NOR ANY OF ITS AFFILIATES MAKE ANY REPRESENTATION TO ANY
PURCHASER OF SECURITIES AS TO THE PERFORMANCE OF THE PORTFOLIO.
The Company or its affiliates may presently or from time to time engage in
business with one or more of the issuers of the Portfolio Securities or, in the
case of DRs, the Underlying Shares, including extending loans to, or making
equity investments in, such issuers or providing advisory services to such
issuers, including merger and acquisition advisory services. In the course of
such business, the Company or its affiliates may acquire non-public information
with respect to such issuers and, in addition, one or more affiliates of the
Company may publish research reports with respect to such issuers. The Company
does not make any representation to any purchaser of Securities with respect to
any matters whatsoever relating to such issuers. Any prospective purchaser of a
Security should undertake an independent investigation of the issuers of the
Portfolio Securities as in its judgment is appropriate to make an informed
decision with respect to an investment in the Securities.
GLOBAL TELECOMMUNICATIONS SECTOR
The global telecommunications industry is subject to varying degrees of
regulatory, political and economic risk which may affect the price of the stocks
of companies involved in such industry. Such risks depend on a number of factors
including the country in which a company is located. Telecommunications
companies in both developed and emerging countries are undergoing significant
change due to varying and evolving levels of governmental regulation or
deregulation and other factors. As a result, competitive pressures are intense
and the securities of such companies may be subject to rapid price volatility.
In addition, companies offering telephone services are experiencing increasing
competition from cellular telephones, and the cellular telephone industry,
because the industry has a limited operating history, faces uncertainty
concerning the future of the industry and demand for cellular telephones. All
telecommunications companies in both developed and emerging countries are
subject to the additional risk that technological innovations will make their
products and services obsolete.
In virtually every country, certain aspects of the telecommunications
industry are subject to some government regulation. The nature and scope of such
regulation generally is subject to political forces and market considerations,
the effect of which cannot be predicted. Such regulation can have significant
effects upon the operations of a telecommunications venture. It is difficult to
predict the directions, types or effects of future telecommunications-related
regulation.
During the 1980s and early 1990s, the global telecommunications industry
underwent structural changes. Many state-owned telephone monopolies were
completely or partially divested to the public. American Telephone & Telegraph
divested its local telephone service creating seven independent regional holding
companies in 1984 under an agreement with the U.S. Government. In addition, the
evolution of technology allowed the entrance of new competitors into the
previously exclusive domain of the traditional telephone operators including
operators of cable television systems. Companies that employ various
technologies including fibre-optic, microwave and satellite communications are
allowed to compete for traditional telephone company business in many countries.
Continued mergers, divestitures, privatizations and alliances in the global
telecommunications industry and changes in technology will affect companies
involved in such industry and the prices of their stocks.
A potential investor should review the historical prices of the securities
underlying the Portfolio. The historical prices of such securities should not
be taken as an indication of future performance, and no assurance can be given
that the prices of such securities will increase sufficiently to cause the
beneficial owners of the Securities to receive an amount in excess of the
Minimum Payment at the maturity of the Securities.
16
<PAGE>
OTHER TERMS
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Indenture (the "Senior Indenture"), dated as of April 1, 1983, as amended and
restated, 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"). A copy of the Senior Indenture is filed as an exhibit
to the registration statements relating to the Securities. The following
summaries of certain provisions of the Senior Indenture do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the Senior Indenture, including the definition therein of
certain terms.
The Senior Indenture provides that series of Senior Debt Securities may
from time to time be issued thereunder, without limitation as to aggregate
principal amount, in one or more series and upon such terms as the Company may
establish pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the Securities
are governed by and construed in accordance with the laws of the State of New
York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen" a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and other regulatory bodies.
LIMITATIONS UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of the incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
LIMITATION ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Indenture provides that the Company may not sell, transfer or otherwise
dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell or
otherwise dispose of any of its Voting Stock, unless, after giving effect to any
such transaction, MLPF&S remains a Controlled Subsidiary (defined in the Senior
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the 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.
17
<PAGE>
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or
into any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior 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 Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company
and the Trustee with the consent of the Holders of 66 2/3% in principal amount
of the Outstanding Senior Debt Securities of each series issued pursuant to such
indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding Senior Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts payable on, any Senior Debt
Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any Senior Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Debt Security; (e) reduce the percentage in principal
amount of the Outstanding Senior Debt Securities of any series, the consent of
whose Holders is required to modify or amend the Indenture; or (f) modify the
foregoing requirements or reduce the percentage of Outstanding Senior Debt
Securities necessary to waive any past default to less than a majority. No
modification or amendment of the Subordinated Indenture or any Subsequent
Indenture for Subordinated Debt Securities may adversely affect the rights of
any holder of Senior Indebtedness without the consent of such Holder. Except
with respect to certain fundamental provisions, the Holders of at least a
majority in principal amount of Outstanding Senior Debt Securities of any series
may, with respect to such series, waive past defaults under the Indenture and
waive compliance by the Company with certain provisions thereof.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the Indenture for
the benefit of such series or in the Senior Debt Securities of such series,
continued for 60 days after written notice as provided in the Senior Indenture;
(e) certain events in bankruptcy, insolvency or reorganization; and (f) any
other Event of Default provided with respect to Senior Debt Securities of that
series. The Trustee or the Holders of 25% in principal amount of the Outstanding
Senior Debt Securities of that series may declare the principal amount (or such
lesser amount as may be provided for in the Senior Debt Securities of that
series) of all Outstanding Senior Debt Securities of that series and the
interest due thereon and Additional Amounts payable in respect thereof, if any
to be due and payable immediately if an Event of Default with respect to Senior
Debt Securities of such series shall occur and be continuing at the time of such
declaration. At any time after a declaration of acceleration has been made with
respect to Senior Debt Securities of any series but before a judgment or decree
for payment of money due has been obtained by the Trustee, the Holders of a
majority in principal amount of the Outstanding Senior Debt Securities of that
series may rescind any declaration of acceleration and its consequences, if all
payments due (other than those due as a result of acceleration) have been made
and all Events of Default have been remedied or waived. Any Event of Default
with respect to Senior Debt Securities of any series may be waived by the
Holders of a majority in principal amount of all Outstanding Senior
18
<PAGE>
Debt Securities of that series, except in a case of failure to pay principal or
premium, if any, or interest or Additional Amounts payable on any Senior Debt
Security of that series for which payment had not been subsequently made or in
respect of a covenant or provision which cannot be modified or amended without
the consent of the Holder of each Outstanding Senior Debt Security of such
series affected.
The Holders of a majority in principal amount of the Outstanding Senior
Debt Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any right or power
under the Senior Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company is required to furnish to the Trustee annually a statement as
to the fulfillment by the Company of all of its obligations under the Senior
Indenture.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997 included
in the 1997 Annual Report on Form 10-K, and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP, as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such 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 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 such Quarterly Reports 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.
19
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
RUSSELL 2000(R) INDEX/*/ CALL WARRANTS
EXPIRING NOVEMBER 17, 1998
-----------------------------
On November 27, 1995, Merrill Lynch & Co., Inc. (the "Company") issued
1,350,000 Russell 2000 Index Call Warrants Expiring November 17, 1998 (the
"Warrants"). Each Warrant will entitle the beneficial owner thereof to receive
from the Company upon exercise (including automatic exercise) an amount in U.S.
dollars computed by reference to increases in the Russell 2000 Index (the
"Index"). Such amount (the "Cash Settlement Value") will equal the product, if
positive, of $15 multiplied by the Percentage Change in the Index. The
"Percentage Change" will equal (i) the Index Spot Price minus the Index Strike
Price, divided by (ii) the Index Strike Price. The Cash Settlement Value cannot
be less than zero. The Index Strike Price equals 302.22 and the Index Spot Price
will be determined upon exercise as more fully described herein.
The Warrants will be exercisable at the option of the beneficial owner from
the date of the initial delivery of the Warrants until 1:00 p.m., New York City
time, on the fourth scheduled Index Calculation Day (as defined herein)
immediately preceding the earlier of their expiration on November 17, 1998 (the
"Expiration Date"), cancellation, or the date of their earlier expiration upon
delisting from, or permanent suspension of trading on, the American Stock
Exchange (the "AMEX") unless the Warrants are simultaneously accepted for
trading pursuant to the rules of another Self-Regulatory Organization (as
defined herein). Any Warrant not exercised at or before 1:00 p.m., New York City
time, on the fourth scheduled Index Calculation Day immediately preceding the
Expiration Date or the date of their earlier expiration will be deemed
automatically exercised on the first scheduled Index Calculation Day immediately
preceding the Expiration Date or, in the case of early expiration, on the first
scheduled Index Calculation Day immediately preceding the Early Expiration Date
(as defined herein). A beneficial owner may exercise no fewer than 100 Warrants
at any one time, except in the case of automatic exercise. The valuation of and
payment for any exercised Warrant (including automatic exercise) may be
postponed as a result of the occurrence of certain events. See "Description of
the Warrants". The Warrants will be in book-entry form and, accordingly, no
beneficial owner of Warrants will be entitled to receive a certificate
representing such Warrants.
THE WARRANTS INVOLVE A HIGH DEGREE OF RISK, INCLUDING THE RISK OF EXPIRING
WORTHLESS. INVESTORS THEREFORE SHOULD BE PREPARED TO SUSTAIN A TOTAL LOSS OF THE
PURCHASE PRICE OF THEIR WARRANTS, AND ARE ADVISED TO CAREFULLY CONSIDER THE
INFORMATION UNDER "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS,
"DESCRIPTION OF THE WARRANTS", "DESCRIPTION OF THE WARRANTS--DELISTING OF THE
WARRANTS" AND "THE INDEX".
The Warrants have been listed on the AMEX under the symbol "RIM.WS".
-----------------------------
THESE WARRANTS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------------------
This Prospectus has been prepared in connection with the Securities 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 Securities.
MLPF&S may act as principal or agent in such transactions. The Securities may
be offered on a national securities exchange in the event the particular issue
of Securities has been listed on such exchange, 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 Securities 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.
----------------------------
MERRILL LYNCH & CO.
-----------------------------
THE DATE OF THIS PROSPECTUS IS JULY ___, 1998.
/*/The use of, and reference to, the term "Russell 2000 Index" herein has been
consented to by Frank Russell Company.
<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 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 26, 1997,
Quarterly Report on Form 10-Q for the period ended March 27, 1998, and Current
Reports on Form 8-K dated January 20, 1998, January 30, 1998, February 4, 1998,
February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998, April 29,
1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June 24, 1998,
June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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 LAWRENCE M. EGAN, JR., CORPORATE SECRETARY'S
OFFICE, 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 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. MERRILL LYNCH & CO., INC.
2
<PAGE>
Merrill Lynch & Co., Inc. is a holding company that, through its
subsidiaries and affiliates, provides investment, financing, advisory,
insurance, and related services on a global basis. Its principal subsidiary,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("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; an underwriter of selected insurance products and a distributor of
investment products of the Merrill Lynch Asset Management group. 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. The Company's asset management and investment management activities are
conducted through the Merrill Lynch Asset Management group and Merrill Lynch
Mercury Asset Management, which together constitute one of the largest asset
management organizations in the world. Merrill Lynch Government Securities Inc.
is a primary dealer in obligations issued or guaranteed by the U.S. Government
and its agencies and its government-sponsored entities. Merrill Lynch Capital
Services, Inc., Merrill Lynch Derivative Products AG, and Merrill Lynch
International are the Company's primary derivative product dealers and enter
into interest rate, currency, and other over-the-counter derivative transactions
as intermediaries and as principals. The Company's operations in insurance
services consist of the underwriting and sale 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 and purchasing secured loans, providing
currency exchange facilities and other related services, and furnishing trust,
employee benefit, and custodial 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
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
Ratio of earnings
to fixed charges . . . . . 1.4 1.2 1.2 1.2 1.2 1.2
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
CERTAIN IMPORTANT INFORMATION CONCERNING THE WARRANTS
A beneficial owner will receive a cash payment upon exercise only if the
Warrants have a Cash Settlement Value in excess of zero on the relevant
Valuation Date. The Warrants will be "in-the-money" (i.e., their Cash Settlement
Value will exceed zero) on the relevant Valuation Date only if, as of such date,
the value of the Index increases from the date of this Prospectus so that the
Index Spot Price is above the Index Strike Price. An increase in the level of
the Index from the date of this Prospectus will result in a greater Cash
Settlement Value for the Warrants, and a decrease in the level of the Index from
the date of this Prospectus will result in a lesser or zero Cash Settlement
Value for the Warrants. If a Warrant is not exercised prior to its expiration
and, on the Valuation Date with respect to its expiration, the value of the
Index is less than or equal to the Index Strike Price, the Warrant will
3
<PAGE>
expire worthless and the beneficial owner will have sustained a total loss of
the purchase price of such Warrant. Investors therefore should be prepared to
sustain a total loss of the purchase price of their Warrants.
RISK FACTORS
THE WARRANTS INVOLVE A HIGH DEGREE OF RISK, INCLUDING THE RISK OF EXPIRING
WORTHLESS. INVESTORS THEREFORE SHOULD BE PREPARED TO SUSTAIN A TOTAL LOSS OF THE
PURCHASE PRICE OF THEIR WARRANTS. IT IS SUGGESTED THAT INVESTORS CONSIDERING
PURCHASING THE WARRANTS BE EXPERIENCED WITH RESPECT TO OPTIONS AND OPTION
TRANSACTIONS AND UNDERSTAND THE RISKS OF STOCK INDEX TRANSACTIONS AND REACH AN
INVESTMENT DECISION ONLY AFTER CAREFULLY CONSIDERING ALL OF THE RISK FACTORS SET
FORTH IN THIS SECTION OF THIS PROSPECTUS, THE SUITABILITY OF THE WARRANTS IN
LIGHT OF THEIR PARTICULAR CIRCUMSTANCES AND ALL THE OTHER INFORMATION SET FORTH
IN THIS PROSPECTUS.
Underlying Stocks. The underlying stocks that constitute the Index (the
"Underlying Stocks") have been issued by corporations domiciled in the U.S. and
its territories and traded on the NYSE, AMEX or in the over-the-counter market.
If a Successor Index is substituted for the Index, such Successor Index would
also be based upon stocks issued by corporations domiciled in the U.S. and its
territories and traded on the NYSE, AMEX or in the over-the-counter market.
Investments in securities indexed to the value of small capitalization companies
involve certain risks. In general, the stocks comprising the Index have smaller
market capitalizations, less trading liquidity and greater price volatility than
stocks in other larger capitalization indexes which are designed to measure the
broad movement of the U.S. stock market. These factors may adversely affect the
value of the Index and the Warrants.
The Underlying Stocks are traded on the NYSE, AMEX and in the over-the-counter
market. Certain of these markets have adopted measures intended to prevent
extreme short-term price fluctuations resulting from order imbalances. Investors
should also be aware that certain of these markets may suspend the trading of
individual stocks in certain limited and extraordinary circumstances including,
for example, unusual trading activity in that stock. As a result, variations in
the Index may be limited by price limitations on, or by suspension of trading
in, individual stocks which comprise the Index which may, in turn, adversely
affect the value of the Warrants or result in a Market Disruption Event. See
"Description of the Warrants--Extraordinary Events and Market Disruption
Events".
Exercise of Warrants. A beneficial owner may incur transaction costs in
connection with any exercise of Warrants. To the extent Warrants are exercised,
including Warrants exercised by the Underwriter or any of its affiliates, the
number of Warrants outstanding will decrease, which may result in a decrease in
the liquidity of the Warrants.
Certain Factors Affecting the Value of the Warrants. The Cash Settlement Value
of the Warrants at any time prior to expiration is typically expected to be less
than the Warrants' trading value at that time. The difference between the
trading value and the Cash Settlement Value will reflect a number of factors,
including a "time value" for the Warrants. The "time value" of the Warrants will
depend upon the length of the period remaining to expiration, among other
factors. The expiration date of the Warrants will be accelerated should the
Warrants be delisted or should their trading on the AMEX be suspended
permanently unless the Warrants simultaneously are accepted for trading pursuant
to the rules of another self-regulatory organization (a "Self-Regulatory
Organization"). Any such acceleration would result in the total loss of any
otherwise remaining "time value", and could occur when the Warrants are out-of-
the-money, thus resulting in total loss of the purchase price of the Warrants.
See "Description of the Warrants--Delisting of the Warrants". Before exercising
or selling Warrants, beneficial owners should carefully consider the trading
value of the Warrants, the value of the Index at the time, the time remaining to
expiration and the probable range of Cash Settlement Values and any related
transaction costs.
There can be no assurance as to how the Warrants will trade in the secondary
market or whether such market will be liquid. The trading value of a Warrant is
expected to be dependent upon a number of complex interrelated factors,
including those listed below. The expected theoretical effect on the trading
value of a Warrant of each of the factors listed below, assuming in each case
that all other factors are held constant, is as follows:
4
<PAGE>
(1) The Index. If the value of the Index increases, the trading value of a
Warrant is expected to increase. If the value of the Index decreases, the
trading value of a Warrant is expected to decrease. It is possible that the
trading value of a Warrant may decline even if there is an increase in the value
of the Index.
(2) The volatility of the Index. If the volatility of the Index increases, the
trading value of a Warrant is expected to increase. If such volatility
decreases, the trading value of a Warrant is expected to decrease.
(3) The time remaining to the Expiration Date of the Warrants. An index
warrant is a "wasting asset", meaning that as the time remaining to the
Expiration Date decreases, the trading value of a Warrant is expected to
decrease.
(4) Interest rates in the United States. In general, if U.S. interest rates
increase, the trading value of the Warrants is expected to increase. If U.S.
interest rates decrease, the trading value of the Warrants is expected to
decrease.
(5) Dividend rates. If dividend rates on the common stocks underlying the
Index increase, the trading value of a Warrant is expected to decrease. If
dividend rates on the common stocks underlying the Index decrease, the trading
value of a Warrant is expected to increase. Changes in the dividend rates on the
common stocks underlying the Index may affect the value of the Index and
therefore the value of the Warrants as described above.
As noted above, these hypothetical scenarios are based on the assumption that
all other factors are held constant. In reality, it is unlikely that only one
factor would change in isolation, because changes in one factor usually cause,
or result from, changes in others.
Minimum Exercise Amount. Except for cases of automatic exercise, a beneficial
owner must tender at least 100 Warrants at any one time in order to exercise
Warrants. Thus, except in cases of automatic exercise, beneficial owners with
fewer than 100 Warrants will need either to sell their Warrants or to purchase
additional Warrants, incurring transaction costs in either case, in order to
realize proceeds from their investment. At any time that a beneficial owner must
purchase additional Warrants in order to have the minimum number of Warrants
necessary to elect to exercise, such beneficial owner will be subject to the
secondary market for Warrants at the time of any such purchase, including the
risk that there may be a limited number of Warrants available in such market at
such time and the other factors affecting the secondary market discussed above.
Furthermore, such beneficial owners incur the risk that there may be differences
between the trading value of the Warrants and the Cash Settlement Value of such
Warrants.
Maximum Exercise Amount. All exercises of Warrants (other than on automatic
exercise) are subject, at the Company's option, to the limitation that not more
than 20% of the Warrants originally issued may be exercised on any Exercise Date
and not more than 10% of the Warrants originally issued may be exercised by or
on behalf of any beneficial owner, either individually or in concert with any
other beneficial owner, on any Exercise Date. If any New York Business Day would
otherwise, under the terms of the Warrant Agreement, be the Exercise Date in
respect to more than 20% of the Warrants originally issued, then at the
Company's election 20% of the Warrants originally issued (provided, however,
that no more than 10% of the Warrants originally issued shall be exercised for
the account of any beneficial owner) shall be exercised on such Exercise Date
(selected by the Warrant Agent on a pro rata basis, but if, as a result of such
pro rata selection, any beneficial owner of Warrants would be deemed to have
exercised less than 100 Warrants, as the case may be, the Warrant Agent shall
first select an additional amount of such beneficial owner's Warrants so that no
beneficial owner shall be deemed to have exercised fewer than 100 Warrants), and
the remainder of such Warrants (the "Remaining Warrants") shall be deemed
exercised on the following New York Business Day subject to successive
applications of this provision; provided that any Remaining Warrants which were
exercised on a prior Exercise Date shall be deemed exercised before any other
Warrants exercised on a subsequent Exercise Date. As a result of any such
postponed exercise, beneficial owners will receive a Cash Settlement Value
determined as of a date later than the otherwise applicable Valuation Date. In
any such case, as a result of any such postponement, the Cash Settlement Value
actually received by beneficial owners may be lower than the otherwise
applicable Cash Settlement Value if the Valuation Date of the Warrants had not
been postponed.
5
<PAGE>
Time Lag After Exercise Instructions Given. In the case of any exercise of
Warrants, there will be a time lag between the time a beneficial owner gives
instructions to exercise and the time the Index Spot Price relating to such
exercise is determined. Therefore, a beneficial owner will not be able to
determine, at the time of exercise of a Warrant, the Index Spot Price that will
be used in calculating the Cash Settlement Value of such Warrant (and will thus
be unable to determine such Cash Settlement Value). The delay will, at a
minimum, amount to several hours and could be much longer (e.g., an exercise
notice received by the Warrant Agent after 1:00 p.m. Friday would generally
result in the Index Spot Price being determined the following Monday). Any
downward movement in the level of the Index between the time a beneficial owner
of a Warrant exercises a Warrant and the time the Index Spot Price for such
exercise is determined will result in such beneficial owner receiving a Cash
Settlement Value that is less than the Cash Settlement Value anticipated by such
beneficial owner based on the level of the Index most recently reported prior to
exercise. A beneficial owner that has not exercised a Warrant prior to the
fourth scheduled Index Calculation Day preceding the Expiration Date will,
pursuant to the provision for automatic exercise, have the Index Spot Price with
respect to such Warrant determined on the deemed exercise day, if such deemed
exercise date is an Index Calculation Day, or on the immediately succeeding
Index Calculation Day, if such deemed exercise date is not an Index Calculation
Day. The value of the Index may change significantly during any such period, and
such movements could adversely affect the Cash Settlement Value of the Warrants
being exercised.
Further delay may occur if a Market Disruption Event or Extraordinary Event
has occurred, in which case the Cash Settlement Value in respect of exercised
Warrants will be calculated as of the next succeeding Index Calculation Day on
which there is no Market Disruption Event or Extraordinary Event. If the
Calculation Agent determines that on a Valuation Date a Market Disruption Event
or Extraordinary Event has occurred, the Valuation Date shall be postponed to
the first succeeding Index Calculation Day on which no Market Disruption Event
or Extraordinary Event occurs; provided that, if the Valuation Date has not
occurred on or prior to the fifth Index Business Day following an Exercise Date
because of Market Disruption Events, such fifth Index Business Day shall be the
Valuation Date regardless of whether a Market Disruption Event has occurred on
such day; provided further, however, that if an Extraordinary Event has occurred
and is continuing, and if the Extraordinary Event is expected by the Company to
continue, the Company may immediately cancel the Warrants as described below
under "Description of the Warrants--Extraordinary Events and Market Disruption
Events". During any period of delay due to a Market Disruption Event or
Extraordinary Event, the value of the Index may change significantly, and such
change may adversely affect the amount paid on any Warrants exercised during
such period.
Automatic Exercise of the Warrants upon Delisting. In the event that the
Warrants are delisted from, or permanently suspended from trading on, the AMEX
and the Warrants are not simultaneously accepted for trading pursuant to the
rules of another Self-Regulatory Organization that are filed with the Commission
under the Exchange Act, such Warrants not previously exercised will expire on
the date such delisting or trading suspension becomes effective and will be
deemed automatically exercised on the first scheduled Index Calculation Day
immediately preceding the date of such early expiration. At the applicable
Valuation Date with respect to such automatic exercise, the Warrants may be out-
of-the-money so that the Cash Settlement Value would equal zero.
Warrants Not Standardized Options Issued by the Options Clearing Corporation.
The Warrants are not standardized stock index options of the type issued by the
Options Clearing Corporation (the "OCC"), a clearing agency regulated by the
Commission. For example, unlike purchasers of OCC standardized options who have
the credit benefits of guarantees and margin and collateral deposits by OCC
clearing members to protect the OCC from a clearing member's failure, purchasers
of Warrants must look solely to the Company for performance of its obligations
to pay the Cash Settlement Value or Alternative Settlement Amount on the
exercise of Warrants. Further, the market for the Warrants is not expected to be
generally as liquid as the market for OCC standardized options. The OCC does
issue standardized stock index options in which payments, if any, are determined
based on changes in the Index.
The Warrants are unsecured contractual obligations of the Company and rank on
a parity with the Company's other unsecured contractual obligations and with the
Company's unsecured and unsubordinated debt. However, given
6
<PAGE>
that the Company is a holding company, the right of the Company, and hence the
right of creditors of the Company (including beneficial owners of the Warrants),
to participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including 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.
Relationship to the Index. Options and warrants provide opportunities for
investment and pose risks to investors as a result of fluctuations in the value
of the underlying investment. In general, certain of the risks associated with
the Warrants are similar to those generally applicable to other options or
warrants of private corporate issuers. However, unlike options or warrants on
equities or debt securities, which are traded primarily on the basis of the
value of a single underlying security, the trading value of a Warrant is likely
to reflect primarily the extent of the appreciation, if any, of the Index.
The purchaser of a Warrant may lose his entire investment. This risk reflects
the nature of a Warrant as an asset which tends to decline in value over time
and which may, depending on the relative value of the Index, be worthless when
it expires. Assuming all other factors are held constant, the more a Warrant is
out-of-the-money and the shorter its remaining term to expiration, the greater
the risk that a purchaser of the Warrant will lose all of his investment. This
means that the purchaser of a Warrant who does not sell it in the secondary
market or exercise it prior to expiration will necessarily lose his entire
investment in the Warrant if it expires when the Index Spot Price is less than
or equal to the Index Strike Price.
The fact that Warrants may become valueless upon expiration means that, in
order to recover and realize a return upon his investment, a purchaser of a
Warrant must generally be correct about the direction, timing and magnitude of
anticipated changes in the value of the Index. If the value of the Index does
not increase to an extent sufficient to cover an investor's cost of a Warrant
(i.e., the purchase price plus transaction costs, if any) before the Warrant
expires, the investor will lose all or a part of his investment in the Warrant
upon expiration.
Suitability. The AMEX requires that Warrants be sold only to investors with
options-approved accounts and that its members and member organizations and
registered employees thereof make certain suitability determinations before
recommending transactions in Warrants. It is suggested that investors
considering purchasing Warrants be experienced with respect to options and
option transactions and understand the risks of stock index transactions and
reach an investment decision only after carefully considering, with their
advisers, the suitability of the Warrants in light of their particular
circumstances. Warrants are not suitable for persons solely dependent upon a
fixed income, for individual retirement plan accounts or for accounts under the
Uniform Gift to Minors Act. INVESTORS SHOULD BE PREPARED TO SUSTAIN A TOTAL LOSS
OF THE PURCHASE PRICE OF THEIR WARRANTS.
Successor Index. In the event that the Index is not published by Frank Russell
Company ("FRC") but is published by another party acceptable to the Calculation
Agent, then the Index Spot Price for any date thereafter will be determined
based on the closing level of the Index as published by such third party. If FRC
or any third party discontinues publication of the Index and publishes a
successor or substitute index that the Calculation Agent determines, in its sole
discretion, to be comparable to the Index (any such index being a "Successor
Index"), then the Index Spot Price for any date thereafter will be determined by
the Calculation Agent on behalf of the Company based on the Successor Index on
such date. If FRC or any third party makes a material change in the formula for,
or the method of calculating, the Index or any Successor Index, the Calculation
Agent shall make such calculations as may be required to determine the
applicable Cash Settlement Value using the formula and method of calculating the
Index or any Successor Index as in effect prior to such change or modification.
If FRC and/or any third party discontinues publication of the Index and/or any
Successor Index, the Calculation Agent will determine the applicable Cash
Settlement Value based on the formula and method used in calculating the Index
or any Successor Index as in effect on the date the Index or such Successor
Index was last published.
7
<PAGE>
The Company and Its Affiliates. The Underwriter and its affiliates may from
time to time engage in transactions involving the Underlying Stocks for their
proprietary accounts and for other accounts under their management, which may
influence the value of such Underlying Stocks and therefore the value of the
Warrants. The Underwriter and its affiliates will also be the writers of the
hedge of the Company's obligations under the Warrants and will be obligated to
pay to the Company upon exercise of Warrants an amount equal to the value of the
exercised Warrants. Accordingly, under certain circumstances, conflicts of
interest may arise between the Underwriter's responsibilities as Calculation
Agent with respect to the Warrants and its obligations under its hedge and its
status as a subsidiary of the Company. Under certain circumstances, the duties
of the Underwriter as Calculation Agent in determining the existence of
Extraordinary Events and Market Disruption Events could conflict with the
interests of the Underwriter as an affiliate of the issuer of the Warrants,
Merrill Lynch & Co., Inc., and with the interests of the beneficial owners of
the Warrants.
Other Considerations
Investors should also consider the tax consequences of investing in the
Warrants and should consult their tax advisors.
DESCRIPTION OF THE WARRANTS
GENERAL
An aggregate of 1,350,000 Russell 2000 Index Call Warrants, Expiring November
17, 1998 (the "Warrants") were issued. The Warrants were issued under a Warrant
Agreement (the "Warrant Agreement"), dated November 27, 1995, between the
Company and Citibank, N.A., as Warrant Agent (the "Warrant Agent"). The
following statements with respect to the Warrants are summaries of the detailed
provisions of the Warrant Agreement, the form of which is filed as an exhibit to
the Registration Statement relating to the Warrants. Wherever particular
provisions of the Warrant Agreement or terms defined therein are referred to,
such provisions or definitions are incorporated by reference as a part of the
statements made, and the statements are qualified in their entirety by such
reference.
A Warrant will not require, or entitle, a beneficial owner to sell or purchase
any shares of any stock underlying the Index or any Successor Index or any other
securities to or from the Company. The Company will make only a U.S. dollar cash
settlement, if any, upon exercise of a Warrant. A beneficial owner will not
receive any interest on any Cash Settlement Value or Alternative Settlement
Amount and the Warrants will not entitle the beneficial owners thereof to any of
the rights of holders of any underlying stock or other securities.
"Holder" means the person in whose name a certificate representing a Warrant
is registered in the records of the Warrant Agent, which, so long as the
Warrants are held in book-entry form, will be CEDE & Co.
The Warrants are exercisable commencing on the date of initial delivery of the
Warrants, as set forth under "Exercise of Warrants". The Warrants will expire on
November 17, 1998 (the "Expiration Date") or may expire on an earlier date as
described under "Automatic Exercise". Warrants not exercised at or prior to 1:00
p.m., New York City time, on the fourth scheduled Index Calculation Day
immediately preceding the Expiration Date or earlier expiration will be deemed
automatically exercised on the first scheduled Index Calculation Day preceding
the Expiration Date or, in the case of early expiration, on the first scheduled
Index Calculation Day immediately preceding the Early Expiration Date. Warrants
cancelled upon the occurrence and continuation of an Extraordinary Event shall
be exercised as described below under "Extraordinary Events and Market
Disruption Events". The term "New York Business Day", as used herein, means any
day other than a Saturday or a Sunday or a day on which commercial banks in The
City of New York are required or authorized by law or executive order to be
closed, and "Index Business Day" means any day on which the NYSE is scheduled to
be open for trading.
8
<PAGE>
The Warrants are unsecured contractual obligations of the Company and rank on
a parity with the Company's other unsecured contractual obligations and with the
Company's unsecured and unsubordinated debt. However, given that the Company is
a holding company, the right of the Company, and hence the right of creditors of
the Company (including beneficial owners of the Warrants), to participate in any
distribution of the assets of any subsidiary upon its liquidation or
reorganization or otherwise is necessarily subject to the prior claims of
creditors of the subsidiary, except to the extent that claims of the Company
itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange, and
under rules of certain exchanges and other regulatory bodies.
CASH SETTLEMENT VALUE
The Cash Settlement Value of an exercised Warrant is an amount stated in U.S.
dollars that results from the following formula:
Percentage Change x $15
The "Percentage Change" will equal the following amount:
Index Spot Price-Index Strike Price
-----------------------------------
Index Strike Price
The "Index Spot Price" relating to any Exercise Date will be determined by
MLPF&S (the "Calculation Agent") on the Valuation Date relating to such Exercise
Date.
The "Index Strike Price" equals 302.22.
The "Index" means the Russell 2000 Index, as presently calculated and
disseminated by FRC, except as otherwise provided herein. See "Description of
the Warrants--The Index".
The Cash Settlement Value will be rounded, if necessary, to the nearest cent
(with one-half cent being rounded upwards).
Set forth below are illustrations of the Cash Settlement Values for Warrants
at exercise based upon various hypothetical percentage changes in the value of
the Index. The Index Percentage Change on Valuation Date column indicates the
percentage increase or decrease in the value of the Index Spot Price as compared
to the Index Strike Price at the time of exercise. The actual Cash Settlement
Value of a Warrant will depend entirely on the actual Index Percentage Change on
the applicable Valuation Date relating to the Exercise Date. The illustrative
Cash Settlement Values in the table do not reflect any "time value" for a
Warrant, which may be reflected in trading value, and are not necessarily
indicative of potential profit or loss, which are also affected by purchase
price and transaction costs.
9
<PAGE>
<TABLE>
<CAPTION>
CALL WARRANT
CASH SETTLEMENT
INDEX PERCENTAGE CHANGE ON VALUATION DATE VALUE
- ------------------------------------------- ---------------
<S> <C>
50% increase............................ $7.50
45% increase............................ 6.75
40% increase............................ 6.00
35% increase............................ 5.25
30% increase............................ 4.50
25% increase............................ 3.75
20% increase............................ 3.00
15% increase............................ 2.25
10% increase............................ 1.50
5% increase............................. 0.75
No change............................... 0.00
5% decrease............................. 0.00
10% decrease............................ 0.00
15% decrease............................ 0.00
20% decrease............................ 0.00
25% decrease............................ 0.00
30% decrease............................ 0.00
35% decrease............................ 0.00
40% decrease............................ 0.00
45% decrease............................ 0.00
50% decrease............................ 0.00
</TABLE>
BOOK-ENTRY PROCEDURES AND SETTLEMENT
The Warrants are represented by one registered global Warrant (a "Global
Warrant"). The Global Warrant will be deposited with, or on behalf of, The
Depository Trust Company, as Securities Depository (the "Securities Depository"
or "DTC"), and registered in the name of the Securities Depository or a nominee
thereof. Unless and until the Global Warrant is exchanged in whole or in part
for Warrants in definitive form in the limited circumstances described below,
such Global Warrant may not be transferred except as a whole by the Securities
Depository to a nominee of such Securities Depository or by a nominee of such
Securities Depository to such Securities Depository or another nominee of such
Securities Depository or by such Securities Depository or any such nominee to a
successor of such Securities Depository or a nominee of such successor. Morgan
Guaranty Trust Company of New York, Brussels office, as operator for the
Euroclear System ("Euroclear") and Cedel Bank, societe anonyme ("Cedel") will
hold interests in the Global Warrant on behalf of their participants through the
facilities of DTC.
The Securities Depository has advised the Company as follows: The Securities
Depository is a limited-purpose trust company organized under the Banking Laws
of the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. The Securities Depository was created to hold securities of its
participants and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic book-
entry changes in accounts of the participants, thereby eliminating the need for
physical movement of securities certificates. The Securities Depository's
participants include
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securities brokers and dealers (including the Underwriter), banks, trust
companies, clearing corporations, and certain other organizations, some of whom
(and/or their representatives) own the Securities Depository. Access to the
Securities Depository book-entry system is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Persons who are not participants may beneficially own securities held by the
Securities Depository only through participants.
Ownership of beneficial interests in the Warrants will be limited to persons
that have accounts with the Securities Depository ("Agent Members") or persons
that may hold interests through Agent Members. The Securities Depository has
advised the Company that upon the issuance of the Global Warrant representing
the Warrants, the Securities Depository will credit, on its book-entry
registration and transfer system, the Agent Members' accounts with the
respective number of Warrants represented by such Global Warrant. Ownership of
beneficial interests in the Global Warrant will be shown on, and the transfer of
such ownership interests will be effected only through, records maintained by
the Securities Depository (with respect to interests of Agent Members) and on
the records of Agent Members (with respect to interests of persons held through
Agent Members). The laws of some states may require that certain purchasers of
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 the Global Warrant.
So long as the Securities Depository, or its nominee, is the registered owner
of the Global Warrant, the Securities Depository or its nominee, as the case may
be, will be considered the sole owner or Holder of the Warrants represented by
the Global Warrant for all purposes under the Warrant Agreement. Except as
provided below, owners of beneficial interests in the Global Warrant will not be
entitled to have the Warrants represented by such Global Warrant registered in
their names, will not receive or be entitled to receive physical delivery of
such Warrants in definitive form and will not be considered the owners or
Holders thereof under the Warrant Agreement. Accordingly, each person owning a
beneficial interest in the Global Warrant must rely on the procedures of the
Securities Depository and, if such person is not an Agent Member, on the
procedures of the Agent Member through which such person owns its interest, to
exercise any rights of a beneficial owner under the Warrant Agreement. The
Company understands that under existing industry practices, in the event that
the Company requests any action of Holders or that an owner of a beneficial
interest in the Global Warrant desires to give or take any action which a
beneficial owner is entitled to give or take under the Warrant Agreement, the
Securities Depository would authorize the Agent Members holding the relevant
beneficial interests to give or take such action, and such Agent Members would
authorize beneficial owners owning through such Agent Members to give or take
such action or would otherwise act upon the instructions of beneficial owners
through them.
The Cash Settlement Value payable upon exercise of Warrants registered in the
name of the Securities Depository or its nominee will be paid by the Warrant
Agent to the Agent Members or, in the case of automatic exercise, to the
Securities Depository. None of the Company, the Warrant Agent or any other agent
of the Company or agent of the Warrant Agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests or for supervising or reviewing any records
relating to such beneficial ownership interests. The Company expects that the
Warrant Agent, upon the receipt of any payment of the Cash Settlement Value in
respect of any portion of the Global Warrant, will pay the relevant Agent Member
in an amount proportionate to its beneficial interest in such Global Warrant
being exercised and that such Agent Member will credit the accounts of the
beneficial owners of such Warrants. The Company expects that the Securities
Depository, in the case of automatic exercise, upon receipt of any payment of
the Cash Settlement Value in respect of all or any portion of the Global
Warrant, will credit the accounts of the Agent Members with payment in amounts
proportionate to their respective beneficial interests in the portion of such
Global Warrant so exercised, as shown on the records of the Securities
Depository. The Company also expects that payments by Agent Members to owners of
beneficial interests in the Global Warrant will be governed by standing customer
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name", and
will be the responsibility of such Agent Members. It is suggested that
purchasers of Warrants with
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accounts at more than one brokerage firm effect transactions in the Warrants,
including exercises, only through the brokerage firm or firms which hold that
purchaser's Warrants.
If the Securities Depository is at any time unwilling or unable to continue as
depository and a successor Securities Depository is not appointed by the Company
within 90 days or if the Company is subject to certain events in bankruptcy,
insolvency or reorganization, the Company will issue Warrants in definitive form
in exchange for the Global Warrant. In addition, the Company may at any time
determine not to have the Warrants represented by the Global Warrant and, in
such event, will issue Warrants in definitive form in exchange for the Global
Warrant. In any such instance, an owner of a beneficial interest in the Global
Warrant will be entitled to have a number of Warrants equivalent to such
beneficial interest registered in its name and will be entitled to physical
delivery of such Warrants in definitive form.
Cedel and Euroclear. Beneficial owners may hold their interests in Warrants
through Cedel or Euroclear if they are participants of such systems, or
indirectly through organizations which are participants in such systems. Cedel
and Euroclear will hold omnibus positions on behalf of their participants
through the facilities of DTC. All securities in Cedel or Euroclear are held on
a fungible basis without attribution of specific certificates to specific
securities clearance accounts.
Exercises of Warrants by persons holding through Cedel or Euroclear
participants will be effected through DTC, in accordance with DTC rules, on
behalf of the relevant European international clearing system by its depositary;
however, such transactions will require delivery of exercise instructions to the
relevant European international clearing system by the participant in such
system in accordance with its rules and procedures and within its established
deadlines (European time). The relevant European international clearing system
will, if the exercise meets its requirements, deliver instructions to its
depositary to take action to effect its exercise of the Warrants on its behalf
by delivering Warrants through DTC and receiving payment in accordance with its
normal procedures for next-day funds settlement. Payments with respect to the
Warrants held through Cedel or Euroclear will be credited to the cash accounts
of Cedel participants or Euroclear participants in accordance with the relevant
system's rules and procedures, to the extent received by its depositary. See
"Exercise and Settlement of Warrants" herein.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations and
facilitates the clearance and settlement of securities transactions between
Cedel participants through electronic book-entry changes in accounts of Cedel
participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Cedel in any of 28 currencies,
including U.S. dollars. Cedel provides to its participants, among other things,
services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing. Cedel
interfaces with domestic markets in several countries. As a professional
depository, Cedel is subject to regulation by the Luxembourg Monetary Institute.
Cedel participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations and include an affiliate
of the Underwriter. Indirect access to Cedel is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for participants
in the Euroclear System and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates and
any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in any of 27 currencies, including U.S. dollars.
The Euroclear System includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements of cross-market transfers with DTC
described above. The Euroclear System is operated by the Brussels, Belgium
office of Morgan Guaranty Trust Company of New York (the "Euroclear Operator")
under contract with Euroclear Clearance System S.C., a Belgium cooperative
corporation (the "Cooperative"). Morgan Guaranty Trust Company of New York
("Morgan")
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is a member bank of the United States Federal Reserve System. All operations are
conducted by the Euroclear Operator, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear Operator,
not the Cooperative. The Cooperative establishes policy for the Euroclear System
on behalf of Euroclear participants. Euroclear participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries and include an affiliate of the Underwriter. Indirect
access to the Euroclear System is also available to other firms that clear
through or maintain a custodial relationship with a Euroclear participant,
either directly or indirectly.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipt of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear participants and has no record
of or relationship with persons holding through Euroclear participants.
All information herein on Cedel and Euroclear is derived from Cedel or
Euroclear, as the case may be, and reflects the policies of such organizations;
such policies are subject to change without notice.
EXERCISE AND SETTLEMENT OF WARRANTS
The Warrants are immediately exercisable, subject to postponement upon the
occurrence of an Extraordinary Event or a Market Disruption Event as described
under "Extraordinary Events and Market Disruption Events" herein, and will
expire on November 17, 1998 (the "Expiration Date"). Warrants not exercised
(including by reason of any such postponed exercise) at or before 1:00 p.m., New
York City time, on the earlier of (i) the fourth scheduled Index Calculation Day
immediately preceding the Expiration Date and (ii) the Early Expiration Date,
will be automatically exercised as described under "Automatic Exercise" below,
subject to earlier cancellation as described below under "Extraordinary Events
and Market Disruption Events". See "Minimum Exercise Amount" and "Maximum
Exercise Amount" below.
A beneficial owner may exercise the Warrants on any New York Business Day
during the period from the date of the initial delivery of the Warrants until
1:00 p.m., New York City time, on the earlier of (i) the fourth scheduled Index
Calculation Day immediately preceding the Expiration Date and (ii) the Early
Expiration Date, by causing (x) such Warrants to be transferred free to the
Warrant Agent on the records of DTC and (y) a duly completed and executed
Exercise Notice to be delivered by an Agent Member on behalf of the beneficial
owner to the Warrant Agent. Forms of Exercise Notice may be obtained from the
Warrant Agent at the Warrant Agent's Office. The Warrant Agent's telephone
number and facsimile transmission number for this purpose are (201) 262-5444 and
(201) 262-7521, respectively.
In the case of Warrants held through the facilities of Cedel or Euroclear, a
beneficial owner may exercise such Warrants on any New York Business Day during
the period from the date of initial delivery of the Warrants until 1:00 p.m.,
New York City time, on the earlier of (i) the fourth scheduled Index Calculation
Day immediately preceding the Expiration Date and (ii) the Early Expiration Date
by causing (x) such Warrants to be transferred to the Warrant Agent, by giving
appropriate instructions to the participant holding such Warrants in either the
Cedel or Euroclear system, as the case may be, and (y) a duly completed and
executed Exercise Notice to be delivered on behalf of the beneficial owner by
Cedel, in the case of Warrants held through Cedel, or such participant, in the
case of Warrants held through Euroclear, to the Warrant Agent. Forms of Exercise
Notice for Warrants held through the facilities of either Cedel or Euroclear may
be obtained from the Warrant Agent at the Warrant Agent's Office or from Cedel
or Euroclear.
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Except for Warrants subject to automatic exercise or held through the
facilities of Cedel or Euroclear, the "Exercise Date" for a Warrant will be (i)
the New York Business Day on which the Warrant Agent receives the Warrant and
Exercise Notice in proper form with respect to such Warrant, if received at or
prior to 1:00 p.m., New York City time, on such day, or (ii) if the Warrant
Agent receives such Warrant and Exercise Notice after 1:00 p.m., New York City
time, on a New York Business Day, then the first New York Business Day following
such New York Business Day.
In the case of Warrants held through the facilities of Cedel or Euroclear,
except for Warrants subject to automatic exercise, the "Exercise Date" for a
Warrant will be (i) the New York Business Day on which the Warrant Agent
receives the Exercise Notice in proper form with respect to such Warrant if such
Exercise Notice is received at or prior to 1:00 p.m., New York City time, on
such day, provided that the Warrant is received by the Warrant Agent by 1:00
p.m., New York City time, on the Valuation Date, or (ii) if the Warrant Agent
receives such Exercise Notice after 1:00 p.m., New York City time, on a New York
Business Day, then the first New York Business Day following such New York
Business Day, provided that the Warrant is received by 1:00 p.m., New York City
time, on the Valuation Date relating to exercises of Warrants on such succeeding
New York Business Day. In the event that the Warrant is received after 1:00
p.m., New York City time, on the Valuation Date, then the Exercise Date for such
Warrants will be the first New York Business Day following the day on which such
Warrants are received. If a beneficial owner of Warrants held through the
facilities of Cedel or Euroclear has exercised Warrants by delivering an
Exercise Notice in proper form with respect to such Warrants and the Valuation
Date is expected not to be a New York Business Day, such beneficial owner should
make arrangements so that the Warrants are delivered prior to such Valuation
Date in order to ensure that the Exercise Date for such Warrants is not
postponed as described above. In the case of Warrants held through the
facilities of Cedel or Euroclear, in order to ensure proper exercise on a given
New York Business Day, participants in Cedel or Euroclear must submit exercise
instructions to Cedel or Euroclear, as the case may be, by 10:00 a.m.,
Luxembourg time, in the case of Cedel and by 10:00 a.m., Brussels time (by
telex), or 11:00 a.m., Brussels time (by EUCLID), in the case of Euroclear. In
addition, in the case of book-entry exercises by means of the Euroclear System,
(i) participants must also transmit, by facsimile (facsimile number (201) 262-
7521), to the Warrant Agent a copy of the Exercise Notice submitted to Euroclear
by 1:00 p.m., New York City time, on the desired Exercise Date and (ii)
Euroclear must confirm by telex to the Warrant Agent by 9:00 a.m., New York City
time, on the Valuation Date, that the Warrants will be received by the Warrant
Agent on such date; provided, that if such telex communication is received after
9:00 a.m., New York City time, on the Valuation Date, the Company will be
entitled to direct the Warrant Agent to reject the related Exercise Notice or
waive the requirement for timely delivery of such telex communication.
To ensure that an Exercise Notice and the related Warrants will be delivered
to the Warrant Agent before 1:00 p.m., New York City time, on a given New York
Business Day, a beneficial owner may need to give exercise instructions to his
broker or other intermediary substantially earlier than 1:00 p.m., New York City
time, on such day or even on the prior New York Business Day. Different
brokerage firms may have different cut-off times for accepting and implementing
exercise instructions from their customers. Therefore, beneficial owners should
consult with their brokers and other intermediaries, if applicable, as to
applicable cut-off times and other exercise mechanics.
Except in the case of Warrants subject to automatic exercise and for Warrants
that upon exercise will entitle the Holder thereof to receive an Alternative
Settlement Amount in lieu of the Cash Settlement Amount, if on any Valuation
Date the Cash Settlement Amount for any Warrants would be zero, then the
attempted exercise of any such Warrants will be void and of no effect. Such
Warrants will be transferred back to the Agent Member that submitted them free
on the records of DTC and, in any such case, such beneficial owner will be
permitted to re-exercise such Warrants as described herein.
The "Valuation Date" for a Warrant will be the applicable Exercise Date, if
such Exercise Date is an Index Calculation Day, or the immediately succeeding
Index Calculation Day, if such Exercise Date is not an Index Calculation Day,
subject to postponement upon the occurrence of an Extraordinary Event or a
Market Disruption Event as described below under "Extraordinary Events and
Market Disruption Events" or as a result of the exercise
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of a number of Warrants exceeding the limits on exercise described below under
"Maximum Exercise Amount". "Index Calculation Day" means any day on which the
NYSE is open for trading and the Index or a Successor Index, if any, is
calculated and published. The following is an illustration of the timing of an
Exercise Date and the Valuation Date, assuming (i) that all relevant dates are
New York Business Days and Index Calculation Days, (ii) the absence of any
intervening Extraordinary Event or Market Disruption Event and (iii) the number
of exercised Warrants does not exceed the maximum permissible amount. If the
Warrant Agent receives a beneficial owner's Warrants and Exercise Notice in
proper form at or prior to 1:00 p.m., New York City time, on Thursday, December
7, 1995, the Exercise Date for such Warrants will be Thursday, December 7th and
the Valuation Date for such Warrants will be Thursday, December 7th (except that
in the case of Warrants held through the facilities of Cedel or Euroclear, the
Warrants must be received by 1:00 p.m., New York City time, on the Valuation
Date; if such Warrants are received after such time, then the Exercise Date for
such Warrants will be the day on which such Warrants are received or, if such
day is not a New York Business Day, the next succeeding New York Business Day,
and the Valuation Date for such Warrants will be the Exercise Date, if it is an
Index Calculation Day, or the first Index Calculation Day following such
Exercise Date, if such Exercise Date is not an Index Calculation Day).
Following receipt of Warrants and the related Exercise Notice in proper form,
the Warrant Agent will, not later than 10:00 a.m., New York City time, on the
New York Business Day following the applicable Valuation Date (i) obtain the
Index Spot Price from the Calculation Agent, (ii) determine the Cash Settlement
Value of such Warrants and (iii) advise the Company of the aggregate Cash
Settlement Value of the exercised Warrants. The Company will be required to make
available to the Warrant Agent, no later than 3:00 p.m., New York City time, on
the fourth New York Business Day following the Valuation Date, funds in an
amount sufficient to pay such aggregate Cash Settlement Value. If the Company
has made such funds available by such time, the Warrant Agent will thereafter be
responsible for making funds available to each appropriate Agent Member
(including Citibank, N.A. and Morgan as custodians for Cedel and Euroclear,
respectively, who, in turn, will disburse payments to Cedel and Euroclear, as
the case may be, who will be responsible for disbursing such payments to each of
their respective participants, who, in turn, will be responsible for disbursing
payments to the beneficial owner it represents), and such participant will be
responsible for disbursing such payments to the beneficial owner it represents
and to each brokerage firm for which it acts as agent. Each such brokerage firm
will be responsible for disbursing funds to the beneficial owners it represents.
The "Index Spot Price" for any Valuation Date on or prior to the fourth Index
Calculation Day preceding the Expiration Date will equal the closing value of
the Index, or, if applicable, the Successor Index, in New York on such date and
for any Valuation Date after the fourth Index Calculation Day preceding the
Expiration Date will equal the opening value of the Index, or, if applicable,
the Successor Index, in New York on such date as calculated by the Calculation
Agent using opening prices for the underlying stocks that constitute the Index
or Successor Index, as applicable. Since the opening value of the Index as
reported by FRC or a Successor Index published by its distributor will not
reflect the opening prices for the underlying stocks that constitute the Index
or Successor Index, the Calculation Agent will calculate an opening value for
the Index or Successor Index using the same method then used to calculate the
Index or Successor Index and such opening prices.
"Calculation Agent" means MLPF&S or, in lieu thereof, another firm selected by
the Company to perform the functions of the Calculation Agent in connection with
the Warrants. The Calculation Agent is obligated to carry out its duties and
functions as Calculation Agent in good faith and using its reasonable judgment.
However, MLPF&S, in its capacity as Calculation Agent, will have no obligation
to take the interests of the Company or the beneficial owners into consideration
in the event it determines, composes or calculates the Cash Settlement Value or
Alternative Settlement Amount. The Calculation Agent and its affiliates may from
time to time engage in transactions involving the Underlying Stocks for their
proprietary accounts and for other accounts under their management, which may
influence the value of such Underlying Stocks. The Calculation Agent and its
affiliates will also be the writers of the hedge of the Company's obligations
under the Warrants and will be obligated to pay to the Company upon exercise of
the Warrants an amount equal to the value of the Warrants. Accordingly, under
certain circumstances, conflicts of interest may arise between the Calculation
Agent's responsibilities as Calculation Agent with respect to the Warrants and
its obligations under its hedge and its status as a subsidiary of the Company.
In addition, because
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the Calculation Agent is an affiliate of the Company, certain conflicts of
interest may arise in connection with the Calculation Agent performing its role
as Calculation Agent. The Calculation Agent, as a registered broker-dealer, is
required to maintain policies and procedures regarding the handling and use of
confidential proprietary information, and such policies and procedures will be
in effect throughout the term of the Warrants to restrict the use of information
relating to any calculation of the Cash Settlement Value prior to its
dissemination.
AUTOMATIC EXERCISE
All Warrants for which the Warrant Agent has not received a valid Exercise
Notice at or prior to 1:00 p.m., New York City time, or for which the Warrant
Agent has received a valid Exercise Notice but with respect to which timely
delivery of the relevant Warrant has not been made, together with any Warrants
the Valuation Date for which has at such time been postponed as described under
"Extraordinary Events and Market Disruption Events" below, on (i) the fourth
scheduled Index Calculation Day immediately preceding the Expiration Date, or
(ii) the close of business on the New York Business Day on which the Warrants
are delisted from, or permanently suspended from trading on, the AMEX and the
Warrants are not simultaneously accepted for trading pursuant to the rules of
another Self-Regulatory Organization (the "Early Expiration Date") will be
deemed automatically exercised on the first scheduled Index Calculation Day
immediately preceding such Expiration Date or Early Expiration Date, as the case
may be (such first scheduled Index Calculation Day will be deemed the Exercise
Date), and the Cash Settlement Value, if any (determined as provided under
"Exercise and Settlement of Warrants"), of such automatically exercised Warrants
will be paid and settlement shall otherwise occur as described under "Book-Entry
Procedures and Settlement" and "Exercise and Settlement of Warrants". The
Company will notify Holders as soon as practicable of such delisting or trading
suspension. The Company agreed in the Warrant Agreement that it will not seek
delisting of the Warrants or suspension of their trading on the AMEX.
In the event the Warrants are canceled by the Company because of the
continuance of an Extraordinary Event as described under "Extraordinary Events
and Market Disruption Events" below, Warrants not previously exercised shall be
automatically exercised on the basis that the Valuation Date for such Warrants
shall be the Cancellation Date, and the Alternative Settlement Amount of such
automatically exercised Warrants will be paid on the fourth New York Business
Day following such Valuation Date. Settlement shall otherwise occur as described
under "Book-Entry Procedures and Settlement" and "Exercise and Settlement of
Warrants".
MINIMUM EXERCISE AMOUNT
No fewer than 100 Warrants may be exercised by or on behalf of a beneficial
owner at any one time, except in the case of automatic exercise or exercise upon
cancellation of the Warrants as described under "Extraordinary Events and Market
Disruption Events" below. Accordingly, except in the case of automatic exercise
of the Warrants or upon cancellation of the Warrants, beneficial owners with
fewer than 100 Warrants, as the case may be, will need either to sell their
Warrants or to purchase additional Warrants, thereby incurring transaction
costs, in order to realize proceeds from their investment. Warrants held through
one Agent Member (including participants in Cedel or Euroclear) may not be
combined with Warrants held through another Agent Member in order to satisfy the
minimum exercise requirement.
MAXIMUM EXERCISE AMOUNT
All exercises of Warrants (other than on automatic exercise) are subject, at
the Company's option, to the limitation that not more than 20% of the Warrants
originally issued (provided, however, that no more than 10% of the Warrants
originally issued shall be exercised for the account of any beneficial owner)
may be exercised on any Exercise Date and not more than 10% of the Warrants
originally issued may be exercised by or on behalf of any
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beneficial owner, either individually or in concert with any other beneficial
owner, on any Exercise Date. If any New York Business Day would otherwise, under
the terms of the Warrant Agreement, be the Exercise Date in respect to more than
20% of the Warrants originally issued, then at the Company's election, 20% of
the Warrants originally issued (provided, however, that no more than 10% of the
Warrants originally issued shall be exercised for the account of any beneficial
owner) shall be deemed exercised on such Exercise Date (selected by the Warrant
Agent on a pro rata basis, but if, as a result of such pro rata selection, any
beneficial owner of Warrants would be deemed to have exercised fewer than 100
Warrants, then the Warrant Agent shall first select an additional amount of such
beneficial owner's Warrants so that no beneficial owner shall be deemed to have
exercised fewer than 100 Warrants), and the remainder of such warrants (the
"Remaining Warrants") shall be deemed exercised on the following New York
Business Day (subject to successive applications of this provision); provided
that any Remaining Warrants for which an Exercise Notice was delivered on a
given Exercise Date shall be deemed exercised before any other Warrants for
which an Exercise Notice was delivered on a later Exercise Date. If any
beneficial owner attempts to exercise more than 10% of the Warrants originally
issued on any New York Business Day, then, at the Company's election, 10% of
such Warrants shall be deemed exercised on such New York Business Day and the
remainder shall be deemed exercised on the following New York Business Day
(subject to successive applications of this provision). As a result of any
postponed exercise as described above, such beneficial owners will receive a
Cash Settlement Value determined as of a date later than the otherwise
applicable Valuation Date. In any such case, as a result of any such
postponement, the Cash Settlement Value actually received by such beneficial
owners may be lower than the otherwise applicable Cash Settlement Value if the
Valuation Date of the Warrants had not been postponed.
SUCCESSOR INDEX
If FRC discontinues publication of the Index and FRC or another entity
publishes a successor or substitute index that the Calculation Agent determines,
in its sole discretion, to be comparable to the Index (any such index being
referred to herein as a "Successor Index"), then, upon the Calculation Agent's
notification of such determination to the Warrant Agent and the Company, the
Calculation Agent will substitute the Successor Index as calculated by FRC or
such other entity for the Index and calculate the Cash Settlement Value upon an
exercise as described above. Upon any selection by the Calculation Agent of a
Successor Index, the Company shall promptly give notice to the beneficial owners
by publication in a United States newspaper with a national circulation
(currently expected to be The Wall Street Journal), within three New York
Business Days of such selection.
If FRC discontinues publication of the Index and a Successor Index is not
selected by the Calculation Agent or is no longer published on any Valuation
Date, the value to be substituted for the Index for any Valuation Date used to
calculate the Cash Settlement Value upon exercise will be a value computed by
the Calculation Agent on each Valuation Date in accordance with the procedures
last used to calculate the Index prior to such discontinuance.
If a Successor Index is selected or the Calculation Agent calculates a value
as a substitute for the Index, such Successor Index or value shall be
substituted for the Index for all purposes, including for purposes of
determining whether a Market Disruption Event or Extraordinary Event exists. If
the Calculation Agent calculates a value as a substitute for the Index, "Index
Calculation Day" shall mean any day on which the Calculation Agent is able to
calculate such value.
If at any time the method of calculating the Index or any Successor Index, as
the case may be, or the value thereof, is changed in a material respect, or if
the Index is in any other way modified so that such Index does not, in the
opinion of the Calculation Agent, fairly represent the value of the Index had
such changes or modifications not been made, then, from and after such time, the
Calculation Agent shall, at the close of business in New York, New York, on each
Valuation Date, make such adjustments as, in the good faith judgment of the
Calculation Agent, may be necessary in order to arrive at a calculation of a
value of a stock index comparable to the Index or any Successor Index, as the
case may be, as if such changes or modifications had not been made, and
calculate such
17
<PAGE>
Closing Index Value with reference to the Index or any Successor Index, as the
case may be, as adjusted. Accordingly, if the method of calculating the Index or
any Successor Index, as the case may be, is modified so that the value of such
Index or such Successor Index is a fraction or a multiple of what it would have
been if it had not been modified (e.g., due to a split in the Index), the
Calculation Agent shall adjust the Index in order to arrive at a value of the
Index or such Successor Index as if it had not been modified (e.g., as if such
split had not occurred).
EXTRAORDINARY EVENTS AND MARKET DISRUPTION EVENTS
Extraordinary Events. The Warrant Agreement provides that if the Calculation
Agent determines that an Extraordinary Event has occurred and is continuing on
the Index Business Day with respect to which the Index Spot Price on a Valuation
Date is to be determined (the "Applicable Index Business Day"), then the Cash
Settlement Value in respect of an exercise shall be calculated on the basis that
the Valuation Date shall be the next Index Calculation Day following an
Applicable Index Business Day on which there is no Extraordinary Event or Market
Disruption Event; provided that if a Valuation Date has not occurred on or prior
to the Expiration Date or the Early Expiration Date, the Holders will receive
the Alternative Settlement Amount in lieu of the Cash Settlement Value which
shall be calculated as if the Warrants had been cancelled on the Expiration Date
or the Early Expiration Date, as the case may be. The Company shall promptly
give notice to the beneficial owners by publication in a United States newspaper
with a national circulation (currently expected to be The Wall Street Journal),
if an Extraordinary Event shall have occurred.
"Extraordinary Event" means any of the following events:
(i) a suspension or absence of trading on the NYSE, AMEX or the over-the-
counter market of all the Underlying Stocks which then comprise the Index or a
Successor Index;
(ii) the enactment, publication, decree or other promulgation of any statute,
regulation, rule or order of any court or any other U.S. or non-U.S.
governmental authority that would make it unlawful for the Company to perform
any of its obligations under the Warrant Agreement or the Warrants; or
(iii) any outbreak or escalation of hostilities or other national or
international calamity or crises (including, without limitation, natural
calamities that in the reasonable opinion of the Calculation Agent may
materially and adversely affect the economy of the United States or the trading
of securities generally on the NYSE, AMEX or the over-the-counter market) that
has or will have a material adverse effect on the ability of the Company to
perform its obligations under the Warrants or to modify the hedge of its
position with respect to the Index or the Underlying Stocks.
For the purposes of determining whether an Extraordinary Event has occurred:
(1) a limitation on the hours or number of days of trading on an exchange will
not constitute an Extraordinary Event if it results from an announced change in
the regular business hours of such exchange and (2) an "absence of trading" on
an exchange will not include any time when such exchange itself is closed for
trading under ordinary circumstances.
If the Calculation Agent determines that an Extraordinary Event has occurred
and is continuing, and if the Extraordinary Event is expected by the Calculation
Agent to continue, the Company may immediately cancel all outstanding Warrants
by notifying the Warrant Agent of such cancellation (the date such notice is
given being the "Cancellation Date"), and each beneficial owner's rights under
the Warrants and the Warrant Agreement shall thereupon cease; provided that each
Warrant shall be automatically exercised on the basis that the Valuation Date
for such Warrant shall be the Cancellation Date, if the Cancellation Date is an
Index Calculation Day, or the immediately succeeding Index Calculation Day, if
the Cancellation Date is not an Index Calculation Day, and the beneficial owner
of each such Warrant will receive, in lieu of the Cash Settlement Value of such
Warrant, an amount (the "Alternative Settlement Amount"), determined by the
Calculation Agent, which is the greater of (i) the average
18
<PAGE>
of the last sale prices, as available, of the Warrants on the AMEX (or any
successor securities exchange on which the Warrants are listed) on the 30
trading days preceding the date on which such Extraordinary Event was declared;
provided that, if the Warrants were not traded on the AMEX (or such successor
securities exchange) on at least 20 of such trading days, no effect will be
given to this clause (i) for the purpose of determining the Alternative
Settlement Amount, and (ii) the amount "X" calculated using the formula set
forth below:
[ T x A ]
X = I + - -
2 B
where
I = The Cash Settlement Value of the Warrants determined as described under
"Cash Settlement Value" above, but subject to the following modifications:
(1) if the Cancellation Date for such Warrants is a date on which the Index or
a Successor Index is calculated and published, for the purpose of determining
such Cash Settlement Value, the Index Spot Price will be determined as of such
Cancellation Date except that, if the Index Spot Price as of such day is less
than 90% of the Index Spot Price as of the immediately preceding Index
Calculation Day, then the Index Spot Price will be deemed to be 90% of the Index
Spot Price on such preceding Index Calculation Day; or
(2) if the Cancellation Date for such Warrants is a date on which the Index or
a Successor Index is not calculated or published, for the purpose of determining
such Cash Settlement Value, the Index Spot Price will be deemed to be the lesser
of (i) the Index Spot Price as of the first Index Calculation Day immediately
preceding the Cancellation Date except that, if the Index Spot Price as of such
day is less than 90% of the Index Spot Price as of the second Index Calculation
Day immediately preceding such Cancellation Date, 90% of the Index Spot Price as
of such second Index Calculation Day and (ii) the arithmetic average of four
amounts, being (a) the Index Spot Price at each of the three successive Index
Calculation Days immediately preceding the Cancellation Date and (b) the Index
Spot Price at the next Index Calculation Day, provided that if an Extraordinary
Event continues for 30 consecutive days immediately following such Cancellation
Date, then the Calculation Agent shall calculate an amount which, in its
reasonable opinion, fairly reflects the value of the Underlying Stocks on the
Index Calculation Day immediately following such Cancellation Date which,
subject to approval by the Company (such approval not to be unreasonably
withheld), shall for purposes of calculating the amount under this clause
(2)(ii) be treated as the figure arrived at under clause (2)(ii)(b) above;
T = U.S.$3.15, the initial offering price per Warrant;
A = the total number of days from but excluding the Cancellation Date for such
Warrants to and including the Expiration Date; and
B = the total number of days from but excluding the date the Warrants were
initially sold to and including the Expiration Date.
For the purposes of determining "I" in the above formula, in the event that
the Calculation Agent and the Company are required to have, but have not, after
good faith consultation with each other and within five days following the first
day upon which such Alternative Settlement Amount may be calculated in
accordance with the above formula, agreed upon a figure under clause (2)(ii)(b)
which fairly reflects the value of the Underlying Stocks on the Cancellation
Date, then the Calculation Agent shall promptly nominate a third party, subject
to approval by the Company (such approval not to be unreasonably withheld), to
determine such figure and calculate the Alternative Settlement Amount in
accordance with the above formula. Such party shall act as an independent expert
and not as an agent of the Company or the Calculation Agent, and its calculation
and determination of the Alternative Settlement Amount shall, absent manifest
error, be final and binding on the Company, the Warrant Agent, the Calculation
Agent and the Holders. Any such calculations will be made available to Holders
for inspection at the
19
<PAGE>
Warrant Agent's Office. Neither the Company nor such third party shall have any
responsibility for good faith errors or omissions in calculating the Alternative
Settlement Amount. Under certain circumstances, the duties of MLPF&S as
Calculation Agent in determining the existence of Extraordinary Events could
conflict with the interests of MLPF&S as an affiliate of the issuer of the
Warrants, Merrill Lynch & Co., Inc.
Market Disruption Events. If the Calculation Agent determines that on a
Valuation Date a Market Disruption Event has occurred and is continuing, the
Valuation Date shall be postponed to the first succeeding Index Calculation Day
on which no Market Disruption Event occurs; provided that, if the Valuation Date
has not occurred on or prior to the fifth Index Business Day following an
Exercise Date because of Market Disruption Events, the Calculation Agent shall,
on such fifth Index Business Day, calculate an amount which, in its reasonable
opinion, fairly reflects the value of the Underlying Stocks on such day in order
to determine the Cash Settlement Value.
"Market Disruption Event" means with respect to any Valuation Date the
occurrence or existence during the one-half hour period that ends at the
determination of the Closing Index Value for such Index Business Day of:
(i) a suspension, material limitation or absence of trading on the NYSE, AMEX
or the over-the-counter market of 20% or more of the Underlying Stocks which
then comprise the Index or a Successor Index during the one-half hour period
preceding the close of trading on the applicable exchange; or
(ii) the suspension or material limitation on the Chicago Board Options
Exchange (the "CBOE"), Chicago Mercantile Exchange (the "CME") or any other
major futures or securities market of trading in futures or options contracts
related to the Index or a Successor Index during the one-half hour period
preceding the close of trading on the applicable exchange.
For the purposes of determining whether a Market Disruption Event has
occurred: (i) a limitation on the hours or number of days of trading will not
constitute a Market Disruption Event if it results from an announced change in
the regular business hours of the relevant exchange, (ii) a decision to
permanently discontinue trading in the relevant futures or options contract will
not constitute a Market Disruption Event, (iii) a suspension in trading in a
futures or options contract on the Index by a major securities market by reason
of (a) a price change violating limits set by such securities market, (b) an
imbalance of orders relating to such contracts or (c) a disparity in bid and ask
quotes relating to such contracts will constitute a suspension or material
limitation of trading in futures or options contracts related to the Index, (iv)
an absence of trading on an exchange will not include any time when such
exchange is closed for trading under ordinary circumstances, and (v) the
occurrence of an Extraordinary Event described in Clause (i) of Extraordinary
Event will not constitute, and will supersede the occurrence of, a Market
Disruption Event. Under certain circumstances, the duties of MLPF&S as
Calculation Agent in determining the existence of Market Disruption Events could
conflict with the interests of MLPF&S as an affiliate of the issuer of the
Warrants, Merrill Lynch & Co., Inc.
LISTING OF THE WARRANTS
The Warrants are listed on the AMEX. The AMEX will expect to cease trading the
Warrants on such Exchange as of the close of business on the Expiration Date.
MODIFICATION
The Warrant Agreement and the terms of the Warrants may be amended by the
Company and the Warrant Agent without the consent of the beneficial owners of
any Warrants for the purpose of curing any ambiguity, or of curing, correcting
or supplementing any defective or inconsistent provision contained therein, or
in any other manner which the Company may deem necessary or desirable and which
will not materially and adversely affect the interests of the beneficial owners
of the Warrants.
20
<PAGE>
The Company and the Warrant Agent also may modify or amend the Warrant
Agreement and the terms of the Warrants, with the consent of the beneficial
owners of not less than a majority in number of the then outstanding Warrants
affected, provided that no such modification or amendment that changes the Index
Strike Price so as to adversely affect the beneficial owner, shortens the period
of time during which the Warrants may be exercised or otherwise materially and
adversely affects the exercise rights of the beneficial owners of the Warrants
or reduces the percentage of the number of outstanding Warrants, the consent of
whose beneficial owners is required for modification or amendment of such
Warrant Agreement or the terms of such Warrants may be made without the consent
of the beneficial owners of Warrants affected thereby.
MERGER AND CONSOLIDATION
The Company may consolidate or merge with or into any other corporation, and
the Company may sell, lease or convey all or substantially all of its assets to
any corporation, provided that the corporation (if other than the Company)
formed by or resulting from any such consolidation or merger or which shall have
received such assets shall be a corporation organized and existing under the
laws of the United States of America or a state thereof and shall assume payment
of the Cash Settlement Value or Alternative Settlement Amount with respect to
all unexercised Warrants, according to their tenor, and the due and punctual
performance and observance of all of the covenants and conditions of the Warrant
Agreement and of the Warrants to be performed by the Company.
THE INDEX
Unless otherwise stated, all information herein on the Index is derived from
FRC or other publicly available sources. Such information reflects the policies
of FRC as stated in such sources and such policies are subject to change by FRC.
FRC is under no obligation to continue to publish the Index and may discontinue
publication of the Index at any time.
The Index is an index calculated, published and disseminated by FRC, and
measures the composite price performance of stocks of 2000 companies domiciled
in the U.S. and its territories. All 2000 stocks are traded on either the NYSE,
AMEX or the over-the-counter market and form a part of the Russell 3000 Index.
The Russell 3000 Index is composed of the 3,000 largest U.S. companies as
determined by market capitalization and represents approximately 98% of the
investable U.S. equity market. As of May 31, 1995, the average market
capitalization of companies included in the Russell 3000 Index was $1.74
billion.
The Index consists of the smallest 2,000 companies included in the Russell
3000 Index and represents approximately 11% of the total market capitalization
of the Russell 3000 Index. The Index is designed to track the performance of the
small capitalization segment of the U.S. equity market. As of May 31, 1995, the
average market capitalization of companies included in the Index was $288
million.
Only common stocks belonging to corporations domiciled in the U.S. and its
territories are eligible for inclusion in the Russell 3000 Index, and
subsequently the Index. Stocks traded on the different exchanges in the U.S. but
domiciled in other countries are excluded. Preferred stock, convertible
preferred stock, participating preferred stock, paired shares, warrants and
rights are also excluded. Trust receipts, Royalty Trusts, limited liability
companies, OTC Bulletin Board companies, pink sheets, closed-end mutual funds,
and limited partnerships that are traded on any of the exchanges, are also
ineligible for inclusion. Real Estate Investment Trusts and Beneficial Trusts
are eligible for inclusion, however. Generally, only one class of securities of
a company is allowed in the Russell 3000 Index, although exceptions to this
general rule have been made where FRC has determined that each class of
securities acts independent of the other.
The primary criteria used to determine the initial list of securities eligible
for the Russell 3000 Index is total market capitalization which is defined as
the price of the shares times the total number of shares outstanding. Based
21
<PAGE>
on closing values on May 31st of each year, FRC reconstitutes the composition of
the Russell 3000 Index based on the then existing market capitalization of the
companies eligible for inclusion. As of June 30th of each year, the Index is
adjusted to reflect the reconstitution for that year. Publication of the Index
began on January 1, 1987.
As a capitalization-weighted index, Russell 2000 reflects changes in the
capitalization (market value) of the component stocks relative to the
capitalization on a base date. The current Index value is calculated by adding
the market values of the Index's component stocks, which are derived by
multiplying the price of each stock by the number of shares outstanding, to
arrive at the total market capitalization of the 2000 stocks. The total market
capitalization is then divided by a divisor, which represents the "adjusted"
capitalization of the Index on the base date of December 31, 1986. To calculate
the Index, last sale prices will be used for exchange-traded and NASDAQ stocks.
If a component stock is not open for trading, the most recently traded price for
that security will be used in calculating the Index. In order to provide
continuity for the Index's value, the divisor is adjusted periodically to
reflect such events as changes in the number of common shares outstanding for
component stocks, company additions or deletions, corporate restructurings and
other capitalization changes.
All disclosure contained in this Prospectus regarding the Index, or its
publisher, is derived from publicly available information. All copyrights and
other intellectual property rights relating to the Index are owned by FRC. FRC
has no relationship with the Company or the Warrants; it does not sponsor,
endorse, authorize, sell or promote the Warrants, and has no obligation or
liability in connection with the administration, marketing or trading of the
Warrants.
Below is a breakdown of the component stocks of the Index by industry group as
of September 30, 1995:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF INDEX
INDUSTRY COMPANIES MARKET CAPITALIZATION
- -------- --------- ----------------------
<S> <C> <C>
Technology........................... 240 13.0%
Health Care.......................... 205 10.6%
Consumer Discretionary and Services.. 378 16.4%
Consumer Staples..................... 60 3.0%
Integrated Oils...................... 10 0.5%
Other Energy......................... 70 3.5%
Materials and Processing............. 214 10.1%
Producer Durables.................... 150 7.9%
Auto and Transportation.............. 89 4.1%
Financial Services, including REITS.. 433 23.5%
Utilities............................ 101 5.9%
Other................................ 25 1.5%
----- -----
1,975 100.0%
</TABLE>
Source: FRC.
Note: The Index included fewer than 2000 stocks (1,975) as of September 30,
1995 due to company attrition (e.g., mergers, bankruptcies, etc.).
As of September 30, 1995, the ten largest holdings in the Index represented 2.1%
of the aggregate market capitalization of the Index. Thirty-three of the 1,975
stocks in the Index were also components of the S&P 500 Index. These 33 stoc ks
represented 3.1% of the Index market capitalization. The dividend yield on the
Index was 1.48%.
A potential investor should review the historical performance of the
Index. The historical performance of the Index should not be taken as an
indication of future performance, and no assurance can be given that the Index
22
<PAGE>
will increase sufficiently to cause the Warrants to have a Cash Settlement Value
in excess of zero on the relevant Valuation Date.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997 included
in the 1997 Annual Report on Form 10-K, and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP, as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such 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 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 such Quarterly Reports 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.
23
<PAGE>
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
CURRENCY PROTECTED NOTES ("CPNS") DUE DECEMBER 31, 1998
On July 7, 1993, Merrill Lynch & Co., Inc. (the "Company") issued $25,000,000
of Currency Protected Notes ("CPNs") due December 31, 1998 (the "Notes") in
denominations of $1,000 and integral multiples thereof. As of the date of this
Prospectus, $15,000,000 aggregate principal amount of the Notes remain
outstanding. The Notes will mature and be repayable at 100% of the principal
amount thereof on December 31, 1998 (the "Maturity Date"). Interest payments
will be payable with respect to the Notes semiannually on June 30 and December
31 of each year, as described below ("June Payment Dates" and "December Payment
Dates", respectively and together the "Payment Dates"). The Notes are not
subject to redemption by the Holders or the Company prior to the Maturity Date.
The Company will make interest payments on the Notes on each June and December
Payment Date for the period from and including the last Payment Date for which
interest was paid, to but excluding such Payment Date (each, an "Interest
Period") at a per annum rate equal to the sum of (i) the Minimum Payment Rate
(3%), and (ii) the Supplemental Payment Rate. The "Supplemental Payment Rate"
for an Interest Period will equal 4.5 multiplied by the difference between 6.15%
minus the Index Rate (as defined below) as of the applicable Determination Date
(generally the seventh scheduled NYSE Business Day (as defined below) prior to
the applicable Payment Date). In no event, however, will the payments on the
Notes for any period be at a rate less than the Minimum Payment Rate. The "Index
Rate" will be the average bankers' acceptance rate in Canadian Dollars for a
term of six months, as more fully described herein (the "Canadian BA Rate").
For information as to the calculation of the amount payable in any calendar
year, see "Description of Notes" in this Prospectus. FOR OTHER INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS" BEGINNING ON
PAGE 4 OF THIS PROSPECTUS.
Ownership of the Notes will be maintained in book-entry form by or through the
Securities Depository. Beneficial owners of the Notes will not have the right to
receive physical certificates evidencing their ownership except under the
limited circumstances described herein.
The Notes have been listed on the New York Stock Exchange under the symbol
"MERCN 98".
----------------------
THESE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
This Prospectus has been prepared in connection with the Notes 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 Notes. MLPF&S may act as
principal or agent in such transactions. The Notes may be offered on the New
York Stock Exchange, 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 Notes 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.
------------
MERRILL LYNCH & CO.
------------
THE DATE OF THIS PROSPECTUS IS JULY ___, 1998.
<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 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 26, 1997,
Quarterly Report on Form 10-Q for the period ended March 27, 1998, and Current
Reports on Form 8-K dated January 20, 1998, January 30, 1998, February 4, 1998,
February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998, April 29,
1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June 24, 1998,
June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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 LAWRENCE M. EGAN, JR., CORPORATE SECRETARY'S
OFFICE, 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 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.
2
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, advisory, insurance, and related
services on a global basis. Its principal subsidiary, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("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; an underwriter of selected insurance
products and a distributor of investment products of the Merrill Lynch Asset
Management group. 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. The Company's asset management and investment
management activities are conducted through the Merrill Lynch Asset Management
group and Merrill Lynch Mercury Asset Management, which together constitute one
of the largest asset management organizations in the world. Merrill Lynch
Government Securities Inc. is a primary dealer in obligations issued or
guaranteed by the U.S. Government and its agencies and its government-sponsored
entities. Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative
Products AG, and Merrill Lynch International are the Company's primary
derivative product dealers and enter into interest rate, currency, and other
over-the-counter derivative transactions as intermediaries and as principals.
The Company's operations in insurance services consist of the underwriting and
sale 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 and
purchasing secured loans, providing currency exchange facilities and other
related services, and furnishing trust, employee benefit, and custodial
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
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
Ratio of earnings
to fixed charges........... 1.4 1.2 1.2 1.2 1.2 1.2
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
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RISK FACTORS
SEMIANNUAL PAYMENTS
If the Index Rate applicable to a Payment Date equals or exceeds 6.15%,
beneficial owners of the Notes will receive only the Minimum Payment Rate
payable with respect to the Notes on such Payment Date, even if the Index Rate
at some point since the preceding Determination Date or issue date, as the case
may be, was less than 6.15%. The interest rate for any Interest Period generally
will be determined seven NYSE Business Days prior to the end of such Interest
Period.
Beneficial owners of the Notes will receive total annual payments on the Notes
at a rate equal to at least the Minimum Payment Rate, and will be repaid 100% of
the principal amount of the Notes at the Maturity Date. The amount payable on
any Payment Date is subject to the conditions described under "Description of
Notes--Semiannual Payments". A beneficial owner of the Notes may receive
payments with respect to the Notes equal to only the Minimum Payment Rate for
each Interest Period at the times specified herein, and such payments are below
what the Company would pay as interest as of the date hereof if the Company
issued non-callable senior debt securities with a similar maturity as that of
the Notes. The return of principal at the Maturity Date and the payment of the
Minimum Payment Rate with respect to the Notes are not expected to reflect the
full opportunity costs implied by inflation or other factors relating to the
time value of money.
The amount payable on the Notes based on the Index Rate will not produce the
same return as any investment in Canadian bankers' acceptances with maturities
of six months because, among other reasons, interest and principal payable on
the Notes will be in U.S. Dollars while interest and principal payable on such
bankers' acceptances are payable in Canadian Dollars and the U.S. Dollar value
of such Canadian Dollar payments may increase or decrease depending on the U.S.
Dollar/Canadian Dollar exchange rate. Since the principal and interest payments
on the Notes will be made in U.S. Dollars, such payments will not be subject to
changes in Canadian Dollar/U.S. Dollar exchange rates. Such exchange rate
changes may have a direct effect on the market demand for, and thus the price
of, such bankers' acceptances.
The formula used to determine the interest payable with respect to any Payment
Date contains a multiple which increases the effect of any change in the
applicable Index Rate.
TRADING
The Notes have been listed on the New York Stock Exchange under the symbol
"MERCN 98". It is expected that the secondary market for the Notes will be
affected by the creditworthiness of the Company and by a number of other
factors. It is possible to view the Notes as the economic equivalent of a debt
obligation plus a series of cash settlement options; however, there can be no
assurance that the Notes will not trade in the secondary market at a discount
from the aggregate value of such economic components, if such economic
components were valued and capable of being traded separately.
The trading values of the Notes may be affected by a number of interrelated
factors, including those listed below. The following is the expected effect on
the trading value of the Notes of each of the factors listed below. The
following discussion of each separate factor generally assumes that all other
factors are held constant, although the actual interrelationship between certain
of such factors is complex.
Value of the Index Rate. The trading value of the Notes is expected to depend
significantly on the extent to which, if at all, the Index Rate is less than
6.15%. If, however, Notes are sold at a time when the Index Rate is less than
6.15%, the sale price may be at a discount from the amount expected to be
payable to the beneficial owner if such price were to prevail until the next
applicable Determination Date. Furthermore, the price at which a beneficial
owner will be able to sell Notes prior to a Payment Date may be at a discount,
which could
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be substantial, from the principal amount thereof, if, at such time, the price
of the Index Rate is above, equal to or not sufficiently below 6.15%.
Volatility of the Index Rate. If the volatility of the Index Rate increases,
the trading value of the Notes is expected to increase. If the volatility of
the Index Rate decreases, the trading value of the Notes is expected to
decrease.
Interest Rates. In general, if U.S. interest rates increase, the value of the
Notes is expected to decrease. If U.S. interest rates decrease, the value of
the Notes is generally expected to increase. In addition, Canadian interest
rates will affect the Index Rate. In general, if Canadian interest rates
increase, the Index Rate is expected to increase, and therefore the value of
the Notes is expected to decrease. If Canadian interest rates decrease, the
Index Rate is expected to decrease, and therefore the value of the Notes is
expected to increase.
Time Remaining to Payment Dates. The Notes may trade at a value above that
which may be inferred from the level of interest rates and the Index Rate.
This difference will reflect a "time premium" due to expectations concerning
the value of the Index Rate during the period prior to each Payment Date. As
the time remaining to each Payment Date decreases, however, this time premium
may decrease, thus decreasing the trading value of the Notes.
Time Remaining to Maturity Date. As the number of remaining Payment Dates
decreases, the value of the remaining rights to receive payments based on the
value of the Index Rate will decrease, thus decreasing the value of the Notes.
Furthermore, as the time to the Maturity Date decreases, the value of the
fixed payments (i.e., the Minimum Annual Payments and the payment of the
principal amount at the maturity of the Notes) is expected to increase, thus
increasing the value of the Notes.
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the Notes
should reach an investment decision only after carefully considering the
suitability of the Notes in the light of their particular circumstances.
Investors should also consider the tax consequences of investing in the Notes
and should consult their tax advisors.
DESCRIPTION OF NOTES
GENERAL
The Notes were issued as a series of Senior Debt Securities under the Senior
Indenture, dated as of April 1, 1983, as amended and restated, which is more
fully described below. The Notes will mature, and the principal of the Notes
will be repayable at par, on December 31, 1998.
The Notes are not subject to redemption prior to the Maturity Date by the
Company or at the option of any Holder. Upon the occurrence of an Event of
Default with respect to the Notes, however, Holders of the Notes or the Senior
Debt Trustee may accelerate the maturity of the Notes, as described under
"Description of Notes--Events of Default and Acceleration" and "Other Terms--
Events of Default" in this Prospectus.
The Notes were issued in denominations of $1,000 and integral multiples
thereof.
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SEMIANNUAL PAYMENTS
The Company will make semiannual payments on the Notes each June 30 and
December 31 ("June Payment Dates" and "December Payment Dates", respectively,
and together the "Payment Dates"), as described below, to the persons in whose
names the Notes are registered on the next preceding June 29 or December 30,
except as provided below. Notwithstanding the foregoing, if it is known three
Business Days prior to December 31 that December 31 will not be a Business Day,
the amount payable by the Company with respect to such December Payment Date
will be made on the Business Day immediately preceding such December 31 to the
persons in whose names the Notes are registered on the second Business Day
immediately preceding such December 31 and the amount so paid will equal an
amount as if interest had accrued through December 31.
The Company will pay interest on the Notes on each June and December Payment
Date for the period since the last Payment Date for which interest was paid, to
but excluding such Payment Date (each, an "Interest Period") at a rate per annum
equal to the sum of (i) the Minimum Payment Rate (3% per annum), and (ii) the
Supplemental Payment Rate. The "Supplemental Payment Rate" for an Interest
Period will equal 4.5 multiplied by the difference between 6.15% minus the Index
Rate as of the Determination Date in such Interest Period. In no event, however,
will the payments on the Notes for any period be at a rate less than the Minimum
Payment Rate. The "Index Rate" will equal the Canadian BA Rate (as defined
below). Interest payable with respect to any Payment Date will be computed on
the basis of a year consisting of 360 days of twelve 30-day months.
State Street Bank and Trust Company is the calculation agent (the "Calculation
Agent") with respect to the Notes. All determinations made by the Calculation
Agent shall be at the sole discretion of the Calculation Agent and, absent a
determination by the Calculation Agent of a manifest error, shall be conclusive
for all purposes and binding on the Company and the Holders of the Notes. All
percentages resulting from any calculation on the Notes will be rounded to the
nearest one-hundredth of a percentage point, with five one-thousandth of a
percentage point rounded upwards (e.g., 9.875% (or .09875) would be rounded to
9.88% (or .0988)), and all dollar amounts used in or resulting from such
calculation will be rounded to the nearest cent with one-half cent being rounded
upwards.
If the Index Rate applicable to a Payment Date is equal to or exceeds 6.15%,
beneficial owners of the Notes will receive only the Minimum Payment Rate for
the Interest Period preceding such Payment Date, even if the Index Rate at some
point since the preceding Determination Date or the original issue date, as the
case may be, was less than 6.15%.
The following table shows the annual payment rate payable on the Notes for any
Interest Period assuming various Index Rates on a Determination Date.
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HYPOTHETICAL ANNUAL PAYMENT RATE
HYPOTHETICAL
INDEX RATE
ON THE ANNUAL
DETERMINATION DATE PAYMENT RATE
------------------ -------------
6.15% or greater...................... 3.00%/(1)/
6.00%................................. 3.68%
5.75%................................. 4.80%
5.50%................................. 5.93%
5.25%................................. 7.05%
5.00%................................. 8.18%
4.75%................................. 9.30%
4.50%................................. 10.43%
4.25%................................. 11.55%
4.00%................................. 12.68%
3.75%................................. 13.80%
3.50%................................. 14.93%
__________
(1) Minimum Payment Rate of 3% per annum.
A potential investor should review the historical performance of the Index
Rate. The historical performance of the Index Rate should not be taken as an
indication of future performance, and no assurance can be given that the Index
Rate will increase sufficiently to cause the beneficial owners of the Notes to
receive an amount in excess of the principal amount and the Minimum Payment Rate
at the maturity of the Notes or the Minimum Payment Rate in prior years.
CANADIAN DOLLAR BANKERS' ACCEPTANCE RATE
The "Canadian BA Rate" shall be determined for each Determination Date as
follows:
(i) On the relevant Determination Date, the Canadian BA Rate will be
determined on the basis of the average bankers' acceptance rate in Canadian
Dollars for a term of six months, commencing on the related Determination
Date, which appears on the Reuters Screen Page CDOR (as defined below), as of
10:00 A.M. New York City time on such Determination Date or as soon thereafter
as rates first appear (but in no event later than 12:00 P.M. New York City
time), as determined by the Calculation Agent. If no rate appears by 12:00
P.M. New York City time on a Determination Date with respect to the Canadian
bankers' acceptance rates, then the Canadian BA Rate will be determined as
specified in clause (ii) below. "Reuters Screen Page CDOR" means the displays
designated as Page CDOR on the Reuters Monitor Money Rates Service (or such
other page as may replace Page CDOR on that service for the purpose of
displaying the Canadian Dollar bankers' acceptance rates of major banks).
(ii) With respect to a Determination Date on which no rate appears on
Reuters Screen Page CDOR as specified in clause (i) above, the Calculation
Agent will request each of four major banks in the Toronto interbank market,
as selected by the Calculation Agent, to provide the Calculation Agent with
its quotation for deposits in Canadian Dollars for a period of six months
commencing on the related Determination Date to major banks in the Toronto
interbank market at approximately 10:00 A.M. New York City time on such
Determination Date and in a principal amount that is representative for a
single transaction in such market at such time. If at least two such
quotations are provided, the Canadian BA Rate determined on such Determination
Date will be the arithmetic mean of such quotations. If fewer than two banks
so selected by the Calculation Agent are quoting as mentioned in this
sentence, the Canadian BA Rate will equal the average quotation for deposits
in Canadian Dollars for a period of six months commencing on the related
Determination Date of major banks in the Toronto
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interbank market in a principal amount that is representative for a single
transaction in such market at such time as determined by the Calculation
Agent.
The "Determination Date" means the seventh scheduled NYSE Business Day prior
to the applicable Payment Date as determined by the Calculation Agent; provided,
however, if such day is not a Canadian Business Day, the Determination Date will
be the next succeeding scheduled Canadian Business Day. "NYSE Business Day"
means a day on which the New York Stock Exchange is open for trading. "Canadian
Business Day", as used in this Prospectus with respect to the Notes, means any
day on which commercial banks are open for business (including dealings in
foreign exchange and foreign currency deposits) in Toronto, Canada. The
Calculation Agent will determine which days are scheduled NYSE Business Days and
Canadian Business Days.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Notes shall have occurred and
be continuing, the amount payable to a Holder of a Note upon any acceleration
permitted by the Notes, will equal: (i) the principal amount thereof, plus (ii)
an additional amount calculated as though the date of early repayment were a
Payment Date. If a bankruptcy proceeding is commenced in respect of the Company,
the claim of the Holder of a Note may be limited, under Section 502(b)(2) of
Title 11 of the United States Code, to the principal amount of the Note plus an
additional amount, if any, of contingent interest calculated as though the date
of the commencement of the proceeding were the maturity date of the Notes.
SECURITIES DEPOSITORY
The Notes were issued in book-entry form and are represented by one fully
registered global security (the "Global Security"). The Global Security was
deposited with, or on behalf of, The Depository Trust Company, as Securities
Depository (the "Securities Depository"), registered in the name of the
Securities Depository or a nominee thereof. Unless and until it is exchanged in
whole or in part for Notes in definitive form, the Global Security may not be
transferred except as a whole by the Securities Depository to a nominee of such
Securities Depository or by a nominee of such Securities Depository to such
Securities Depository or another nominee of such Securities Depository or by
such Securities Depository or any such nominee to a successor of such Securities
Depository or a nominee of such successor.
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,
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 Notes must be made by or through Participants, which will receive
a credit on the records of the Securities Depository. The ownership interest of
each actual purchaser of each Note ("Beneficial Owner") is in turn to be
recorded on the Participants' or Indirect Participants' records. Beneficial
Owners will not receive written confirmation from the Securities Depository of
their purchase, but Beneficial Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Participant or Indirect Participant
through which the Beneficial Owner entered into the transaction. Ownership of
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beneficial interests in such Global Security will be shown on, and the transfer
of such ownership interests will be effected only through, records maintained by
the Securities Depository (with respect to interests of Participants) and on the
records of Participants (with respect to interests of persons held through
Participants). The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to own, transfer or pledge
beneficial interests in Global Securities.
So long as the Securities Depository, or its nominee, is the registered owner
of the Global Security, the Securities Depository or its nominee, as the case
may be, will be considered the sole owner or Holder of the Notes represented by
such Global Security for all purposes under the Senior Indenture. Except as
provided below, Beneficial Owners in the Global Security will not be entitled to
have the Notes represented by such Global Security registered in their names,
will not receive or be entitled to receive physical delivery of the Notes in
definitive registered form and will not be considered the owners or Holders
thereof under the Senior Indenture. Accordingly, each Person owning a beneficial
interest in the Global Security must rely on the procedures of the Securities
Depository and, if such Person is not a Participant, on the procedures of the
Participant through which such Person owns its interest, to exercise any rights
of a Holder under the Senior Indenture. The Company understands that under
existing industry practices, in the event that the Company requests any action
of Holders or that an owner of a beneficial interest in such a Global Security
desires to give or take any action which a Holder is entitled to give or take
under the Senior Indenture, the Securities Depository would authorize the
Participants holding the relevant beneficial interests to give or take such
action, and such Participants would authorize Beneficial Owners owning through
such Participants to give or take such action or would otherwise act upon the
instructions of Beneficial Owners. Conveyance of notices and other
communications by the Securities Depository to Participants, by Participants to
Indirect Participants, and by Participants and Indirect Participants to
Beneficial Owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of the principal of, and amounts payable on any June Payment Date or
December Payment Date with respect to, Notes registered in the name of the
Securities Depository or its nominee will be made to the Securities Depository
or its nominee, as the case may be, as the Holder of the Global Security
representing such Notes. None of the Company, the Trustee or any other agent of
the Company or agent of the Trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests or for supervising or reviewing any records
relating to such beneficial ownership interests. The Company expects that the
Securities Depository, upon receipt of any payment of principal or amounts
payable on any June Payment Date or December Payment Date in respect of the
Global Security, will credit the accounts of the Participants with payment in
amounts proportionate to their respective holdings in principal amount of
beneficial interest in such Global Security as shown on the records of the
Securities Depository. The Company also expects that payments by Participants to
Beneficial Owners will be governed by standing customer instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name", and will be the
responsibility of such Participants.
If (x) the Securities Depository is at any time unwilling or unable to
continue as Securities Depository and a successor depository is not appointed by
the Company within 60 days, (y) the Company executes and delivers to the Trustee
a Company Order to the effect that the Global Security shall be exchangeable or
(z) an Event of Default has occurred and is continuing with respect to the
Notes, the Global Security will be exchangeable for Notes in definitive form of
like tenor and of an equal aggregate principal amount, in denominations of
$1,000 and integral multiples thereof. Such definitive Notes shall be registered
in such name or names as the Securities Depository shall instruct the Trustee.
It is expected that such instructions may be based upon directions received by
the Securities Depository from Participants with respect to ownership of
beneficial interests in such Global Security.
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THE CANADIAN BANKERS' ACCEPTANCE RATE
Bankers' acceptances in Canada are a popular method of raising short-term
funding in Canada. Bankers' acceptances represent unconditional written orders
from a borrower instructing a bank to pay a certain amount of money on a
specified future date. Bankers' acceptances are generally issued in Canadian
$100,000 denominations, and are not guaranteed by the Canada Deposit
Corporation.
The market for bankers' acceptances has grown from under 1 billion Canadian
Dollars in early 1975 to approximately 22 billion Canadian Dollars in 1993 and
is among the most liquid short-term securities markets in Canada.
OTHER TERMS
GENERAL
The Notes were issued as a series of Senior Debt Securities under the
Indenture (the "Senior Indenture"), dated as of April 1, 1983, as amended and
restated, 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"). A copy of the Senior Indenture is filed as an exhibit
to the registration statements relating to the Notes. The following summaries
of certain provisions of the Senior Indenture do not purport to be complete and
are subject to, and qualified in their entirety by reference to, all provisions
of the Senior Indenture, including the definition therein of certain terms.
The Senior Indenture provides that series of Senior Debt Securities may from
time to time be issued thereunder, without limitation as to aggregate principal
amount, in one or more series and upon such terms as the Company may establish
pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the Notes are
governed by and construed in accordance with the laws of the State of New York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen" a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and other regulatory bodies.
LIMITATIONS UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of the incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
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LIMITATION 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 Senior
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the 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.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or into
any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior 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 Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company and
the Trustee with the consent of the Holders of 66 2/3% in principal amount of
the Outstanding Senior Debt Securities of each series issued pursuant to such
indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding Senior Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts payable on, any Senior Debt
Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any Senior Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Debt Security; (e) reduce the percentage in principal
amount of the Outstanding Senior Debt Securities of any series, the consent of
whose Holders is required to modify or amend the Indenture; or (f) modify the
foregoing requirements or reduce the percentage of Outstanding Senior Debt
Securities necessary to waive any past default to less than a majority. No
modification or amendment of the Subordinated Indenture or any Subsequent
Indenture for Subordinated Debt Securities may adversely affect the rights of
any holder of Senior Indebtedness without the consent of such Holder. Except
with respect to certain fundamental provisions, the Holders of at least a
majority in principal amount of Outstanding Senior Debt Securities of any series
may, with respect to such series, waive past defaults under the Indenture and
waive compliance by the Company with certain provisions thereof.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the Indenture for
the benefit of such series or in the Senior Debt Securities of such series,
continued for 60 days after written notice as provided in the Senior Indenture;
(e) certain events in bankruptcy, insolvency or reorganization; and (f) any
other Event of Default provided with respect to Senior Debt Securities of
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that series. The Trustee or the Holders of 25% in principal amount of the
Outstanding Senior Debt Securities of that series may declare the principal
amount (or such lesser amount as may be provided for in the Senior Debt
Securities of that series) of all Outstanding Senior Debt Securities of that
series and the interest due thereon and Additional Amounts payable in respect
thereof, if any to be due and payable immediately if an Event of Default with
respect to Senior Debt Securities of such series shall occur and be continuing
at the time of such declaration. At any time after a declaration of
acceleration has been made with respect to Senior Debt Securities of any series
but before a judgment or decree for payment of money due has been obtained by
the Trustee, the Holders of a majority in principal amount of the Outstanding
Senior Debt Securities of that series may rescind any declaration of
acceleration and its consequences, if all payments due (other than those due as
a result of acceleration) have been made and all Events of Default have been
remedied or waived. Any Event of Default with respect to Senior Debt Securities
of any series may be waived by the Holders of a majority in principal amount of
all Outstanding Senior Debt Securities of that series, except in a case of
failure to pay principal or premium, if any, or interest or Additional Amounts
payable on any Senior Debt Security of that series for which payment had not
been subsequently made or in respect of a covenant or provision which cannot be
modified or amended without the consent of the Holder of each Outstanding Senior
Debt Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior Debt
Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any right or power
under the Senior Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company is required to furnish to the Trustee annually a statement as to
the fulfillment by the Company of all of its obligations under the Senior
Indenture.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997 included
in the 1997 Annual Report on Form 10-K, and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP, as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such 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 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 such Quarterly Reports 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
12
<PAGE>
a "part" of the registration statement prepared or certified by an accountant
within the meaning of Sections 7 and 11 of the Act.
13
<PAGE>
********************************************************************************
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
********************************************************************************
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
GLOBAL BOND LINKED SECURITIES(SM)("GLOBLS"(SM)) DUE DECEMBER 31, 1998
CURRENCY PROTECTED NOTES
On February 22, 1993, Merrill Lynch & Co., Inc. (the "Company") issued
$30,000,000 aggregate principal amount of Global Bond Linked Securities due
December 31, 1998 (the "GloBLS" or the "Notes") in denominations of $1,000 and
integral multiples thereof. The Notes will mature and be repayable at 100% of
the principal amount thereof on December 31, 1998 (the "Maturity Date").
Payments will be payable with respect to the Notes semiannually on June 30 and
December 31 of each year, as described below ("June Payment Dates" and "December
Payment Dates", respectively), commencing June 30, 1993.
The Company will make interest payments on the Notes each calendar year at a
per annum rate equal to the sum of (i) the Minimum Annual Payment Rate (3%), and
(ii) the Supplemental Annual Payment Rate. The "Supplemental Annual Payment
Rate" will equal the amount, if any, by which the price (expressed as a
percentage) of the Index Bund as of the applicable Determination Date exceeds
100.95% (the "Benchmark Price"). In no event, however, will the payments on the
Notes in any calendar year be at a rate less than the Minimum Annual Payment
Rate. The "Index Bund" will be the 7.125% Bundesanleihe due December 20, 2002
issued by the Federal Republic of Germany on December 29, 1992. If German
interest rates decline, the annual amount payable on the Notes is expected to
increase; if German interest rates increase, the annual amount payable on the
Notes is expected to decrease (although not less than a rate equal to the
Minimum Annual Payment Rate). For each $1,000 principal amount of Notes, the
Company will pay $15 of the total amount payable for each calendar year on the
June Payment Date and will pay the balance of the annual amount due on the Notes
for such year on the December Payment Date. The Notes are not subject to
redemption by the Holders or the Company prior to the Maturity Date.
For information as to the calculation of the amount payable in any calendar
year see "Description of Notes" in this Prospectus. FOR OTHER INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS" BEGINNING ON
PAGE 4 OF THIS PROSPECTUS.
Ownership of the Notes will be maintained in book-entry form by or through the
Securities Depository. Beneficial owners of the Notes will not have the right to
receive physical certificates evidencing their ownership except under the
limited circumstances described herein.
The Notes have been listed on the New York Stock Exchange under the symbol
"MER DM".
_________________
THESE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
_________________
This Prospectus has been prepared in connection with the Notes 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 Notes. MLPF&S may act as
principal or agent in such transactions. The Notes may be offered on the New
York Stock Exchange, 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 Notes 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.
_________________
MERRILL LYNCH & CO.
_________________
THE DATE OF THIS PROSPECTUS IS JULY ___, 1998.
(SM)"GloBLS" and "Global Bond Linked Securities" are service marks of Merrill
Lynch & Co., Inc.
<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 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 26, 1997,
Quarterly Report on Form 10-Q for the period ended March 27, 1998, and Current
Reports on Form 8-K dated January 20, 1998, January 30, 1998, February 4, 1998,
February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998, April 29,
1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June 24, 1998,
June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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 LAWRENCE M. EGAN, JR., CORPORATE SECRETARY'S
OFFICE, 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 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.
2
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, advisory, insurance, and related
services on a global basis. Its principal subsidiary, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("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; an underwriter of selected insurance
products and a distributor of investment products of the Merrill Lynch Asset
Management group. 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. The Company's asset management and investment
management activities are conducted through the Merrill Lynch Asset Management
group and Merrill Lynch Mercury Asset Management, which together constitute one
of the largest asset management organizations in the world. Merrill Lynch
Government Securities Inc. is a primary dealer in obligations issued or
guaranteed by the U.S. Government and its agencies and its government-sponsored
entities. Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative
Products AG, and Merrill Lynch International are the Company's primary
derivative product dealers and enter into interest rate, currency, and other
over-the-counter derivative transactions as intermediaries and as principals.
The Company's operations in insurance services consist of the underwriting and
sale 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 and
purchasing secured loans, providing currency exchange facilities and other
related services, and furnishing trust, employee benefit, and custodial
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
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges............. 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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
<PAGE>
RISK FACTORS
SEMIANNUAL PAYMENTS
If the Index Bund Price applicable to a December Payment Date does not exceed
the Benchmark Price, beneficial owners of the Notes will receive payments only
at the Minimum Annual Payment Rate payable with respect to the Notes, even if
the price of the Index Bund at some point since the preceding Determination Date
or issue date, as the case may be, exceeded the Benchmark Price.
Beneficial owners will receive total annual payments on the Notes at a rate
equal to at least the Minimum Annual Payment Rate, and will be repaid 100% of
the principal amount of the Notes at the Maturity Date. The amount payable on
any December Payment Date is subject to the conditions described under
"Description of Notes--Semiannual Payments". A beneficial owner of the Notes may
receive payments with respect to the Notes at a rate equal to only the Minimum
Annual Payment Rate for each year at the times specified herein, and such
payments are below what the Company would pay as interest as of the date hereof
if the Company issued non-callable senior debt securities with a similar
maturity as that of the Notes. The return of principal at the Maturity Date and
the payment at a rate equal to the Minimum Annual Payment Rate with respect to
the Notes are not expected to reflect the full opportunity costs implied by
inflation or other factors relating to the time value of money.
The amount payable on the Notes based on the Index Bund will not produce the
same return as if the Index Bund was purchased and held for a similar period
because of the following: (i) the Index Bund Price will not reflect any interest
payable on the Index Bund, (ii) interest and principal payable on the Notes will
be in U.S. Dollars while interest and principal payable on the Index Bund is
payable in Deutsche Marks and the U.S. Dollar value of such Deutsche Mark
payments may increase or decrease depending on the U.S. Dollar/Deutsche Mark
exchange rate, and (iii) the annual interest rate on the Index Bund is higher
than the Minimum Annual Payment Rate.
Unlike a direct investment in the Index Bund, the principal and interest
payments on the Notes will be made in U.S. Dollars, and as such, the U.S. Dollar
value of such payments will not be subject to changes in Deutsche Mark/U.S.
Dollar exchange rates. Such exchange rate changes may have a direct effect on
the market demand for, and thus the price of, the Index Bund.
The Senior Indenture provides that the Senior Indenture and the Notes are
governed by and construed in accordance with the laws of the State of New York.
Under present New York law the maximum rate of interest is 25% per annum on a
simple interest basis. This limit may not apply to notes in which $2,500,000 or
more has been invested. While the Company believes that New York law would be
given effect by a state or Federal court sitting outside of New York, state laws
frequently regulate the amount of interest that may be charged to and paid by a
borrower (including, in some cases, corporate borrowers). All payments under the
Notes (other than the return of principal) could be considered interest for the
purpose of state usury laws. The Company has covenanted for the benefit of the
Holders of the Notes, to the extent permitted by law, not to claim voluntarily
the benefits of any laws concerning usurious rates of interest against a Holder
of the Notes.
TRADING
The Notes have been listed on the New York Stock Exchange under the symbol
"MER DM". It is expected that the secondary market for the Notes will be
affected by the creditworthiness of the Company and by a number of other
factors. It is possible to view the Notes as the economic equivalent of a debt
obligation plus a series of cash settlement options; however, there can be no
assurance that the Notes will not trade in the secondary market at a discount
from the aggregate value of such economic components, if such economic
components were valued and capable of being traded separately.
4
<PAGE>
The trading values of the Notes may be affected by a number of interrelated
factors, including those listed below. The following is the expected effect on
the trading value of the Notes of each of the factors listed below. The
following discussion of each separate factor generally assumes that all other
factors are held constant, although the actual interrelationship between certain
of such factors is complex.
Price of the Index Bund. The trading value of the Notes is expected to depend
significantly on the extent to which, if at all, the price of the Index Bund
exceeds the Benchmark Price. If, however, Notes are sold at a time when the
price of the Index Bund exceeds the Benchmark Price, the sale price may be at
a discount from the amount expected to be payable to the beneficial owner if
such price were to prevail until the next applicable Determination Date.
Furthermore, the price at which a beneficial owner will be able to sell Notes
prior to a December Payment Date may be at a discount, which could be
substantial, from the principal amount thereof, if, at such time, the price of
the Index Bund is below, equal to or not sufficiently above the Benchmark
Price.
Volatility of the Price of the Index Bund. If the volatility of the price of
the Index Bund increases, the trading value of the Notes is expected to
increase. If the volatility of the price of the Index Bund decreases, the
trading value of the Notes is expected to decrease.
Interest Rates. In general, if U.S. interest rates increase, the value of the
Notes is expected to decrease. If U.S. interest rates decrease, the value of
the Notes is generally expected to increase. In addition, German interest
rates will affect the price of the Index Bund. In general, if German interest
rates increase, the Index Bund price, and therefore the value of the Notes, is
expected to decrease. If German interest rates decrease, the Index Bund price,
and therefore the value of the Notes, is expected to increase.
Time Remaining to December Payment Dates. The Notes may trade at a value above
that which may be inferred from the level of interest rates and the price of
the Index Bund. This difference will reflect a "time premium" due to
expectations concerning the price of the Index Bund during the period prior to
each December Payment Date. As the time remaining to each December Payment
Date decreases, however, this time premium may decrease, thus decreasing the
trading value of the Notes.
Time Remaining to Maturity. As the number of remaining December Payment Dates
decreases, the value of the remaining rights to receive payments based on the
price of the Index Bund in excess of the Minimum Annual Payment Rate will
decrease, thus decreasing the value of the Notes. Furthermore, as the time to
the Maturity Date decreases, the value of the fixed payments (i.e., payments
at the Minimum Annual Payment Rate and the payment of the principal amount at
the maturity of the Notes) is expected to increase, thus increasing the value
of the Notes. In addition, as the time to maturity decreases, the remaining
term to maturity of the Index Bund will decrease. In general, a given change
in German interest rates will generally affect German debt instruments with
shorter maturities less than those with longer maturities.
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the Notes
should reach an investment decision only after carefully considering the
suitability of the Notes in the light of their particular circumstances.
Investors should also consider the tax consequences of investing in the Notes
and should consult their tax advisors.
5
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The Notes were issued as a series of Senior Debt Securities under the Senior
Indenture, dated as of April 1, 1983, as amended and restated, which is more
fully described below. The Notes will mature, and the principal of the Notes
will be repayable at par, on December 31, 1998.
The Notes are not subject to redemption prior to the Maturity Date by the
Company or at the option of any Holder. Upon the occurrence of an Event of
Default with respect to the Notes, however, Holders of the Notes or the Trustee
may accelerate the maturity of the Notes, as described under "Description of
Notes--Events of Default and Acceleration" and "Other Terms--Events of Default"
in this Prospectus.
The Notes were issued in denominations of $1,000 and integral multiples
thereof.
SEMIANNUAL PAYMENTS
The Company will make semiannual payments on the Notes each June 30 and
December 31 ("June Payment Dates" and "December Payment Dates", respectively),
as described below, to the persons in whose names the Notes are registered on
the next preceding June 29 or December 30, except as provided below.
Notwithstanding the foregoing, if it is known three Business Days prior to
December 31 that December 31 will not be a Business Day, the amount payable by
the Company with respect to such December Payment Date will be made on the
Business Day immediately preceding such December 31 to the persons in whose
names the Notes are registered on the second Business Day immediately preceding
such December 31 and the amount so paid will equal an amount as if interest had
accrued through December 31.
For each calendar year, the Company will pay interest on the Notes at a rate
per annum equal to the sum of (i) the Minimum Annual Payment Rate (3%), and (ii)
the Supplemental Annual Payment Rate. The "Supplemental Annual Payment Rate"
equals the amount, if any, by which the price (expressed as a percentage) of the
Index Bund, determined as described below (the "Index Bund Price"), as of the
applicable Determination Date exceeds 100.95% (the "Benchmark Price") as
determined by the Calculation Agent. In no event, however, will the payments on
the Notes in any calendar year be at a rate less than the Minimum Annual Payment
Rate. For each $1,000 principal amount of the Notes, the Company will pay $15 of
the total amount payable for each calendar year on the June Payment Date, and
will pay the balance of the annual interest amount due on the Notes for such
year on the December Payment Date.
State Street Bank and Trust Company is the calculation agent (the "Calculation
Agent") with respect to the Notes. All determinations made by the Calculation
Agent shall be at the sole discretion of the Calculation Agent and, in the
absence of manifest error, shall be conclusive for all purposes and binding on
the Company and the Holders of the Notes. All percentages resulting from any
calculation on the Notes will be rounded to the nearest one hundred-thousandth
of a percentage point, with five one-millionths of a percentage point rounded
upwards (e.g., 9.876545% (or .09876545) would be rounded to 9.87655% (or
.0987655)), and all dollar amounts used in or resulting from such calculation
will be rounded to the nearest cent (with one-half cent being rounded upwards).
If the Index Bund Price applicable to a December Payment Date does not exceed
the Benchmark Price, Holders of the Notes will receive payments which reflect
only the Minimum Annual Payment Rate payable with respect to the Notes for the
calendar year containing such December Payment Date, even if the price of the
Index Bund at some point since the preceding Determination Date or issue date,
as the case may be, exceeded the Benchmark Price.
6
<PAGE>
The following table shows the total pretax annual payment rate on the Notes in
any year assuming various Index Bund Prices for the Index Bund on any
Determination Date.
HYPOTHETICAL GLOBLS TOTAL ANNUAL PAYMENT RATE
<TABLE>
<CAPTION>
HYPOTHETICAL INDEX HYPOTHETICAL TOTAL ANNUAL
BUND PRICE ON THE GLOBLS PAYMENT
DETERMINATION DATE RATE (1)
------------------ --------------
<S> <C>
less than 100.95% 3.00%/(1)/
100.95%/(2)/ 3.00%/(1)/
101.95% 4.00%
102.95% 5.00%
103.95% 6.00%
104.95% 7.00%
105.95% 8.00%
106.95% 9.00%
107.95% 10.00%
108.95% 11.00%
109.95% 12.00%
110.95% 13.00%
111.95% 14.00%
112.95% 15.00%
113.95% 16.00%
</TABLE>
___________
(1) Minimum Annual Payment Rate of 3% per annum ($30 per $1,000 principal
amount of Notes).
(2) Benchmark Price.
INDEX BUND PRICE
The Index Bund Price is the arithmetic mean of the bid prices for the 7.125%
Bundesanleihe due December 20, 2002 issued by the Federal Republic of Germany on
December 29, 1992 (the "Index Bund"), expressed as a percentage of the principal
amount, as of 9:30 A.M. New York City time on the applicable Determination Date,
of three leading dealers in Bundesanleihen selected by the Calculation Agent.
The "Determination Date" means the seventh scheduled NYSE Business Day (as
defined below) prior to the applicable December Payment Date. If three such bid
prices are not available on such seventh scheduled NYSE Business Day, the
Determination Date will be the sixth scheduled NYSE Business Day preceding the
applicable December Payment Date. If the Calculation Agent cannot obtain three
bid prices from leading dealers for Bundesanleihen on the sixth scheduled NYSE
Business Day preceding the applicable December Payment Date, then the Index Bund
Price will equal the official price expressed as a percentage reported by the
Frankfurt Stock Exchange for the Index Bund as a result of the official price
fixing on the Frankfurt Stock Exchange on such sixth scheduled NYSE Business Day
preceding the applicable December Payment Date. If no official price is fixed on
the Frankfurt Stock Exchange on such sixth scheduled NYSE Business Day, then the
Index Bund Price will equal the bid price determined by the Calculation Agent on
such sixth scheduled NYSE Business Day based on then current market conditions,
including the last price at which the Index Bund was offered or sold. The bid
prices solicited by the Calculation Agent will be for an amount that is
representative of a single transaction in the market at the applicable time and
will not include accrued but unpaid interest on the Index Bund. "NYSE Business
Day" means a day on which the New York Stock Exchange is open for trading and
the Calculation Agent will determine which days are scheduled NYSE Business
Days.
7
<PAGE>
HYPOTHETICAL PAYMENTS
The following table shows the approximate required yield-to-maturity of the
Index Bund on each anticipated Determination Date in order to generate various
total pretax annual payment rates for the Notes in each year. Yields on the
Index Bund are expressed on an annual yield-to-maturity basis. The yields-to-
maturity and total pretax annual payment rates shown below are for illustrative
purposes only and are not intended to predict either the future price levels of
the Index Bund or actual payments on the Notes.
ANNUAL DETERMINATION DATES/(2)/
<TABLE>
<CAPTION>
TOTAL PRETAX
ANNUAL
PAYMENT RATE(1) 1995 1996 1997 1998
- --------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
3.00% 6.95% 6.92% 6.89% 6.84%
4.00% 6.76% 6.72% 6.65% 6.55%
5.00% 6.58% 6.51% 6.41% 6.26%
6.00% 6.41% 6.31% 6.18% 5.98%
7.00% 6.23% 6.11% 5.95% 5.70%
8.00% 6.05% 5.91% 5.72% 5.42%
9.00% 5.88% 5.72% 5.49% 5.15%
10.00% 5.71% 5.53% 5.27% 4.87%
11.00% 5.54% 5.34% 5.04% 4.61%
12.00% 5.38% 5.15% 4.83% 4.34%
13.00% 5.21% 4.96% 4.61% 4.08%
14.00% 5.05% 4.78% 4.40% 3.82%
15.00% 4.89% 4.60% 4.19% 3.57%
16.00% 4.73% 4.42% 3.98% 3.32%
</TABLE>
_____________
(1) Total pretax annual payment rate includes the Minimum Annual Payment Rate
plus the Supplemental Annual Payment Rate in each year.
(2) As of February 12, 1993, the yield-to-maturity on German government bonds
with approximate maturities indicated below were approximately the
following:
<TABLE>
<CAPTION>
CORRESPONDING
APPROXIMATE DETERMINATION YIELD TO
MATURITY DATE MATURITY
------------- ------------- --------
<S> <C> <C>
9 years December 1993 7.01%
8 years December 1994 6.94%
7 years December 1995 6.91%
6 years December 1996 6.63%
5 years December 1997 6.61%
4 years December 1998 6.66%
</TABLE>
A potential investor should review the historical performance of the Index
Bund. The historical performance of the Index Bund should not be taken as an
indication of future performance, and no assurance can be given that the Index
Bund will increase sufficiently to cause the beneficial owners of the Notes to
receive an amount in excess of principal and the Minimum Annual Payment Rate at
the maturity of the Notes or the Minimum Annual Payment Rate in any prior year.
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EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Notes shall have occurred and
be continuing, the amount payable to a Holder of a Note upon any acceleration
permitted by the Notes, will equal: (i) the principal amount thereof, plus (ii)
an additional amount calculated as though the date of early repayment were a
December Payment Date and prorated through such date of early repayment in the
same manner as the amount payable on the December 1993 payment date was
prorated. If a bankruptcy proceeding is commenced in respect of the Company, the
claim of the Holder of a Note may be limited, under Section 502(b)(2) of Title
11 of the United States Code, to the principal amount of the Note plus an
additional amount, if any, of contingent interest calculated as though the date
of the commencement of the proceeding were the maturity date of the Notes.
SECURITIES DEPOSITORY
The Notes were issued in book-entry form, and are represented by one
registered global security (the "Global Security"). The Global Security was
deposited with, or on behalf of, The Depository Trust Company, as Securities
Depository (the "Securities Depository"), registered in the name of the
Securities Depository or a nominee thereof. Unless and until it is exchanged in
whole or in part for Securities in definitive form, the Global Security may not
be transferred except as a whole by the Securities Depository to a nominee of
such Securities Depository or by a nominee of such Securities Depository to such
Securities Depository or another nominee of such Securities Depository or by
such Securities Depository or any such nominee to a successor of such Securities
Depository or a nominee of such successor.
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,
banks, trust companies, clearing corporations, and certain other organizations.
The Securities Depository is owned by a number of Participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. The Underwriter (as hereinafter defined)
is a Participant. Access to the Securities Depository book-entry system is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participants").
Purchases of Notes must be made by or through Participants, which will receive
a credit on the records of the Securities Depository. The ownership interest of
each actual purchaser of each Note ("Beneficial Owner") is in turn to be
recorded on the Participants' or Indirect Participants' records. Beneficial
Owners will not receive written confirmation from the Securities Depository of
their purchase, but Beneficial Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Participant or Indirect Participant
through which the Beneficial Owner entered into the transaction. Ownership of
beneficial interests in such Global Security will be shown on, and the transfer
of such ownership interests will be effected only through, records maintained by
the Securities Depository (with respect to interests of Participants) and on the
records of Participants (with respect to interests of persons held through
Participants). The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to own, transfer or pledge
beneficial interests in Global Securities.
So long as the Securities Depository, or its nominee, is the registered owner
of the Global Security, the Securities Depository or its nominee, as the case
may be, will be considered the sole owner or Holder of the Notes represented by
such Global Security for all purposes under the Senior Indenture. Except as
provided below, Beneficial Owners in the Global Security will not be entitled to
have the Notes represented by such Global Security registered in their
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names, will not receive or be entitled to receive physical delivery of the Notes
in definitive registered form and will not be considered the owners or Holders
thereof under the Senior Indenture. Accordingly, each Person owning a beneficial
interest in the Global Security must rely on the procedures of the Securities
Depository and, if such Person is not a Participant, on the procedures of the
Participant through which such Person owns its interest, to exercise any rights
of a Holder under the Senior Indenture. The Company understands that under
existing industry practices, in the event that the Company requests any action
of Holders or that an owner of a beneficial interest in such a Global Security
desires to give or take any action which a Holder is entitled to give or take
under the Senior Indenture, the Securities Depository would authorize the
Participants holding the relevant beneficial interests to give or take such
action, and such Participants would authorize Beneficial Owners owning through
such Participants to give or take such action or would otherwise act upon the
instructions of beneficial owners. Conveyance of notices and other
communications by the Securities Depository to Participants, by Participants to
Indirect Participants, and by Participants and Indirect Participants to
Beneficial Owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of the principal of, and amounts payable on any June Payment Date or
December Payment Date with respect to, Notes registered in the name of the
Securities Depository or its nominee will be made to the Securities Depository
or its nominee, as the case may be, as the Holder of the Global Security
representing such Notes. None of the Company, the Trustee or any other agent of
the Company or agent of the Trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests or for supervising or reviewing any records
relating to such beneficial ownership interests. The Company expects that the
Securities Depository, upon receipt of any payment of principal or amounts
payable on any June Payment Date or December Payment Date in respect of the
Global Security, will credit the accounts of the Participants with payment in
amounts proportionate to their respective holdings in principal amount of
beneficial interest in such Global Security as shown on the records of the
Securities Depository. The Company also expects that payments by Participants to
Beneficial Owners will be governed by standing customer instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name", and will be the
responsibility of such Participants.
If (x) the Securities Depository is at any time unwilling or unable to
continue as Securities Depository and a successor depository is not appointed by
the Company within 60 days, (y) the Company executes and delivers to the Trustee
a Company Order to the effect that the Global Security shall be exchangeable or
(z) an Event of Default has occurred and is continuing with respect to the
Notes, the Global Security will be exchangeable for Notes in definitive form of
like tenor and of an equal aggregate principal amount, in denominations of
$1,000 and integral multiples thereof. Such definitive Notes shall be registered
in such name or names as the Securities Depository shall instruct the Trustee.
It is expected that such instructions may be based upon directions received by
the Securities Depository from Participants with respect to ownership of
beneficial interests in such Global Security.
THE GERMAN BOND MARKET AND THE INDEX BUND
The following discussion of the German bond market is based upon information
available as of the end of September 1992. The Deutsche Mark-denominated fixed
income market is the third largest in the world, exceeded in size only by those
of the U.S. Dollar and Japanese Yen. As of the end of September 1992, the total
nominal amount of Deutsche Mark-denominated fixed income debt outstanding was
over DM 1.889 trillion (or U.S. $1.18 trillion assuming an exchange rate of
DM/U.S. $1.60) (Source: Bundesbank). Bundesanleihen ("Bunds") are debt
securities issued by the Federal Republic of Germany and are backed by its full
faith and credit. Bunds account for approximately 75% of the debt of the Federal
Republic of Germany and approximately 30% of all fixed income debt denominated
in Deutsche Marks as of the end of September 1992. Bundesanleihen are
principally traded in the over-the-counter market in Germany and are also listed
on eight exchanges in Germany, including the Frankfurt Exchange.
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The Index Bund was originally issued on December 29, 1992 and is not
redeemable prior to its stated maturity. Because the Index Bund had a maturity
of ten years when it was originally issued, the time remaining to such maturity
will necessarily decline over time. As the time remaining to maturity declines
on the Index Bund, the Index Bund price will be affected.
A potential investor should review the historical performance of the Index
Bund. The historical performance of the Index Bund should not be taken as an
indication of future performance, and no assurance can be given that the Index
Bund will increase sufficiently to cause the beneficial owners of the Notes to
receive an amount in excess of the principal amount at the maturity of the
Notes.
OTHER TERMS
GENERAL
The Notes were issued as a series of Senior Debt Securities under the
Indenture (the "Senior Indenture"), dated as of April 1, 1983, as amended and
restated, 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"). A copy of the Senior Indenture is filed as an exhibit
to the registration statements relating to the Notes. The following summaries of
certain provisions of the Senior Indenture do not purport to be complete and are
subject to, and qualified in their entirety by reference to, all provisions of
the Senior Indenture, including the definition therein of certain terms.
The Senior Indenture provides that series of Senior Debt Securities may from
time to time be issued thereunder, without limitation as to aggregate principal
amount, in one or more series and upon such terms as the Company may establish
pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the Notes are
governed by and construed in accordance with the laws of the State of New York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen" a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and other regulatory bodies.
LIMITATIONS UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of the incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
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LIMITATION 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 Senior
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the 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.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or into
any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior 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 Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company and
the Trustee with the consent of the Holders of 66 2/3% in principal amount of
the Outstanding Senior Debt Securities of each series issued pursuant to such
indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding Senior Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts payable on, any Senior Debt
Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any Senior Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Debt Security; (e) reduce the percentage in principal
amount of the Outstanding Senior Debt Securities of any series, the consent of
whose Holders is required to modify or amend the Indenture; or (f) modify the
foregoing requirements or reduce the percentage of Outstanding Senior Debt
Securities necessary to waive any past default to less than a majority. No
modification or amendment of the Subordinated Indenture or any Subsequent
Indenture for Subordinated Debt Securities may adversely affect the rights of
any holder of Senior Indebtedness without the consent of such Holder. Except
with respect to certain fundamental provisions, the Holders of at least a
majority in principal amount of Outstanding Senior Debt Securities of any series
may, with respect to such series, waive past defaults under the Indenture and
waive compliance by the Company with certain provisions thereof.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the Indenture for
the benefit of such series or in the Senior Debt Securities of such series,
continued for 60 days after written notice as provided in the Senior Indenture;
(e) certain events in bankruptcy, insolvency or reorganization; and (f) any
other Event of Default provided with respect to Senior Debt Securities of
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<PAGE>
that series. The Trustee or the Holders of 25% in principal amount of the
Outstanding Senior Debt Securities of that series may declare the principal
amount (or such lesser amount as may be provided for in the Senior Debt
Securities of that series) of all Outstanding Senior Debt Securities of that
series and the interest due thereon and Additional Amounts payable in respect
thereof, if any to be due and payable immediately if an Event of Default with
respect to Senior Debt Securities of such series shall occur and be continuing
at the time of such declaration. At any time after a declaration of
acceleration has been made with respect to Senior Debt Securities of any series
but before a judgment or decree for payment of money due has been obtained by
the Trustee, the Holders of a majority in principal amount of the Outstanding
Senior Debt Securities of that series may rescind any declaration of
acceleration and its consequences, if all payments due (other than those due as
a result of acceleration) have been made and all Events of Default have been
remedied or waived. Any Event of Default with respect to Senior Debt Securities
of any series may be waived by the Holders of a majority in principal amount of
all Outstanding Senior Debt Securities of that series, except in a case of
failure to pay principal or premium, if any, or interest or Additional Amounts
payable on any Senior Debt Security of that series for which payment had not
been subsequently made or in respect of a covenant or provision which cannot be
modified or amended without the consent of the Holder of each Outstanding Senior
Debt Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior Debt
Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any right or power
under the Senior Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company is required to furnish to the Trustee annually a statement as to
the fulfillment by the Company of all of its obligations under the Senior
Indenture.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997 included
in the 1997 Annual Report on Form 10-K, and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP, as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such 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 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 such Quarterly Reports 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.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
EQUITY PARTICIPATION SECURITIES WITH MINIMUM RETURN PROTECTION DUE JUNE 30, 1999
On June 28, 1993, Merrill Lynch & Co., Inc. (the "Company") issued
$355,000,000 aggregate principal amount of Equity Participation Securities with
Minimum Return Protection due June 30, 1999 (the "Securities", or the "Notes").
As of the date of this Prospectus, $220,000,000 aggregate principal amount of
the Securities remain outstanding. The Securities were issued in denominations
of $1,000 and integral multiples thereof, bear no periodic payments of interest
and will mature on June 30, 1999. At maturity, a beneficial owner of a Security
will be entitled to receive, with respect to each Security, the principal amount
thereof plus an interest payment (the "Supplemental Redemption Amount") based on
the percentage increase, if any, in the S&P 500 Composite Stock Price Index (the
"S&P 500 Index"). The Securities were issued as a series of Senior Debt
Securities under the Senior Indenture described herein. The Securities are not
redeemable prior to maturity.
The Supplemental Redemption Amount payable with respect to a Security at
maturity will equal the product of (A) the principal amount of the applicable
Security, (B) the percentage change from 447.43, the closing value of the S&P
500 Index on June 16, 1993, as compared to the Final Average Value, and (C)
128%. In no event, however, will the Supplemental Redemption Amount be less than
$200 per $1,000 principal amount of the Securities (the "Minimum Supplemental
Redemption Amount"), representing a minimum annualized rate of return of 3.06%.
The calculation of the Final Average Value, as more fully described herein, will
equal the arithmetic average of the closing values of the S&P 500 Index on
certain days during June of 1997, 1998 and 1999.
For information as to the calculation of the Supplemental Redemption Amount
which will be paid at maturity and the calculation and the composition of the
S&P 500 Index, see "Description of Securities" and "The Standard & Poor's 500
Index" in this Prospectus. FOR OTHER INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS
PROSPECTUS.
Ownership of the Securities will be maintained in book-entry form by or
through the Depository. Beneficial owners of the Securities will not have the
right to receive physical certificates evidencing their ownership except under
the limited circumstances described herein.
The Securities have been listed on the New York Stock Exchange under the
symbol "MERP ZR99".
_____________
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 Securities 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 Securities.
MLPF&S may act as principal or agent in such transactions. The Securities may
be offered on the New York Stock Exchange, 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 Securities 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.
_______________
MERRILL LYNCH & CO.
_______________
THE DATE OF THIS PROSPECTUS IS JULY ___, 1998.
<PAGE>
STANDARD & POOR'S CORPORATION ("S&P") DOES NOT GUARANTEE THE ACCURACY AND/OR
THE COMPLETENESS OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE COMPANY,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, HOLDERS OF THE SECURITIES,
OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA
INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED UNDER THE LICENSE
AGREEMENT DESCRIBED HEREIN OR FOR ANY OTHER USE. S&P MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P
HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
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 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 26,
1997, Quarterly Report on Form 10-Q for the period ended March 27, 1998, and
Current Reports on Form 8-K dated January 20, 1998, January 30, 1998, February
4, 1998, February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998,
April 29, 1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June
24, 1998, June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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 LAWRENCE M. EGAN, JR., CORPORATE
SECRETARY'S OFFICE, MERRILL LYNCH & CO., INC., 100 CHURCH STREET, 12TH FLOOR,
NEW YORK, NEW YORK 10080-6512; TELEPHONE NUMBER (212) 602-8435.
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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 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.
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, advisory, insurance, and related
services on a global basis. Its principal subsidiary, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("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; an underwriter of selected insurance
products and a distributor of investment products of the Merrill Lynch Asset
Management group. 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. The Company's asset management and investment
management activities are conducted through the Merrill Lynch Asset Management
group and Merrill Lynch Mercury Asset Management, which together constitute one
of the largest asset management organizations in the world. Merrill Lynch
Government Securities Inc. is a primary dealer in obligations issued or
guaranteed by the U.S. Government and its agencies and its government-sponsored
entities. Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative
Products AG, and Merrill Lynch International are the Company's primary
derivative product dealers and enter into interest rate, currency, and other
over-the-counter derivative transactions as intermediaries and as principals.
The Company's operations in insurance services consist of the underwriting and
sale 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 and
purchasing secured loans, providing currency exchange facilities and other
related services, and furnishing trust, employee benefit, and custodial
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
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges . . . . 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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
<PAGE>
RISK FACTORS
PAYMENT AT MATURITY
Investors should be aware that if the Final Average Value of the S&P 500 Index
does not exceed the Initial Value by more than approximately 15.63%, beneficial
owners of the Securities will receive only the principal amount thereof and the
Minimum Supplemental Redemption Amount. A beneficial owner of the Securities may
receive a Supplemental Redemption Amount equal only to the Minimum Supplemental
Redemption Amount at maturity, and such Minimum Supplemental Redemption Amount
is below what the Company would pay as interest as of the date of issuance if
the Company issued non-callable senior debt securities with a similar maturity
as that of the Securities. The return of principal of the Securities at maturity
and the payment of the Minimum Supplemental Redemption Amount are not expected
to reflect the full opportunity costs implied by inflation or other factors
relating to the time value of money.
The S&P 500 Index does not reflect the payment of dividends on the stocks
underlying it and therefore, in addition to the considerations regarding
averaging discussed below, the yield based on the S&P 500 Index to the maturity
of the Securities will not produce the same yield as if such underlying stocks
were purchased and held for a similar period.
Because the Final Average Value will be based upon average values of the S&P
500 Index during specified periods in three successive years, a significant
increase in the S&P 500 Index as measured by the average values during the
specified period in the final year, or in either earlier year, may be
substantially or entirely offset by the average values of the S&P 500 Index
during the specified periods in the other two years.
TRADING
The Securities have been listed on the New York Stock Exchange under the
symbol "MERP ZR99". There can be no assurances as to how the Securities will
trade in the secondary market or whether such market will be liquid. It is
expected that the secondary market for the Securities will be affected by the
creditworthiness of the Company and by a number of other factors. Because the
Final Average Value is an average of the three Calculation Values as described
below, the price at which a beneficial owner of a Security will be able to sell
such Security in the secondary market may be at a discount if the first or
second such Calculation Value is below the Initial Value.
The trading value of the Securities is expected to depend primarily on the
extent of the appreciation, if any, of the S&P 500 Index over the Initial Value.
If, however, Securities are sold prior to the maturity date at a time when the
S&P 500 Index exceeds the Initial Value, the sale price may be at a discount
from the amount expected to be payable to the beneficial owner if such excess of
the S&P 500 Index over the Initial Value were to prevail until maturity of the
Securities because of the possible fluctuation of the S&P 500 Index between the
time of such sale and the maturity date and the effect of the value of the S&P
500 Index on prior days used to calculate the Final Average Value, if any.
Furthermore, the price at which a beneficial owner will be able to sell
Securities prior to maturity may be at a discount, which could be substantial,
from the principal amount thereof, if, at such time, the S&P 500 Index is below,
equal to or not sufficiently above the Initial Value and/or if the value of the
S&P 500 Index on prior days used to calculate the Final Average Value, if any,
was below, equal to or not sufficiently above the Initial Value. A discount
could also result from rising interest rates.
The trading values of the Securities may be affected by a number of
interrelated factors, including the creditworthiness of the Company and those
factors listed below. The relationship among these factors is complex, including
how these factors affect the relative value of the principal amount of the
Securities to be repaid at maturity and the value of the Supplemental Redemption
Amount. Accordingly, investors should be aware that factors other than the level
of the S&P 500 Index are likely to affect the Securities' trading value. The
expected theorized effect on the trading value of the Securities of each of the
factors listed below, assuming in each case that all other factors are held
constant, is as follows:
Interest Rates. In general, if U.S. interest rates increase, the value of the
Securities is expected to decrease. If U.S. interest rates decrease, the value
of the Securities is expected to increase. Interest rates may also affect the
U.S. economy, and, in turn, the value of the S&P 500 Index. Rising interest
rates may lower the value of the
4
<PAGE>
S&P 500 Index and, thus, the Securities. Falling interest rates may increase
the value of the S&P 500 Index and, thus, may increase the value of the
Securities.
Volatility of the S&P 500 Index. If the volatility of the S&P 500 Index
increases, the trading value of the Securities is expected to increase. If the
volatility of the S&P 500 Index decreases, the trading value of the Securities
is expected to decrease.
Time Remaining to Maturity. The Securities may trade at a value above that
which may be inferred from the level of interest rates and the S&P 500 Index.
This difference will reflect a "time premium" due to expectations concerning
the value of the S&P 500 Index during the period prior to maturity of the
Securities. As the time remaining to maturity of the Securities decreases,
however, this time premium is expected to decrease, thus decreasing the
trading value of the Securities. In addition, the price at which a beneficial
owner may be able to sell Securities prior to maturity may be at a discount,
which may be substantial, from the minimum expected value at maturity if one
or more Calculation Values, as defined below, were below, equal to or not
sufficiently above the Initial Value.
Dividend Rates in the United States. If dividend rates on the stocks
comprising the S&P 500 Index increase, the value of the Securities is expected
to decrease. Conversely, if dividend rates on the stocks comprising the S&P
500 Index decrease, the value of the Securities is expected to increase.
However, in general, rising U.S. corporate dividend rates may increase the
value of the S&P 500 Index and, in turn, increase the value of the Securities.
Conversely, falling U.S. dividend rates may decrease the value of the S&P 500
Index and, in turn, decrease the value of the Securities.
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the
Securities should reach an investment decision only after carefully considering
the suitability of the Securities in light of their particular circumstances.
Investors should also consider the tax consequences of investing in the
Securities and should consult their tax advisors.
DESCRIPTION OF SECURITIES
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Senior Indenture, dated as of April 1, 1983, as amended and restated, which is
more fully described under "Other Terms" in this Prospectus. The Securities
will mature on June 30, 1999.
No periodic payments of interest will be payable with respect to the
Securities. (See "Payment at Maturity", below.)
The Securities are not subject to redemption by the Company or at the option
of any beneficial owner prior to maturity. Upon the occurrence of an Event of
Default with respect to the Securities, beneficial owners of the Securities may
accelerate the maturity of the Securities, as described under "Description of
Securities--Events of Default and Acceleration" and "Other Terms--Events of
Default" in this Prospectus.
The Securities are transferable in denominations of $1,000 and integral
multiples thereof.
PAYMENT AT MATURITY
At maturity, a beneficial owner of a Security will be entitled to receive the
principal amount thereof plus a Supplemental Redemption Amount, all as provided
below. If the Final Average Value of the S&P 500 Index does not exceed the
Initial Value by more than approximately 15.63%, a beneficial owner of a
Security will be entitled to receive only the principal amount thereof and the
Minimum Supplemental Redemption Amount.
5
<PAGE>
At maturity, a beneficial owner of a Security will be entitled to receive,
with respect to each such Security, (i) the principal amount thereof, and (ii)
the Supplemental Redemption Amount equal in amount to:
Final Average Value-Initial Value
Principal Amount X --------------------------------- X 128%
Initial Value
provided, that the Supplemental Redemption Amount will not be less than the
Minimum Supplemental Redemption Amount of $200 per $1,000 principal amount of
Securities. The Initial Value equals 447.43, the closing value of the S&P 500
Index on June 16, 1993.
The Final Average Value of the S&P 500 Index will be determined by State
Street Bank and Trust Company (the "Calculation Agent") and will equal the
arithmetic average (mean) of the Yearly Values, as defined below, for 1997, 1998
and 1999. The Yearly Value for any year will be calculated during the
Calculation Period for such year which will be from and including June 18 in
1997, June 18 in 1998 and June 17 in 1999 to and including the fifth scheduled
Business Day after such date. The Yearly Value for each year will equal the
arithmetic average (mean) of the closing values of the S&P 500 Index on the
first day in the applicable Calculation Period (provided that a Market
Disruption Event, as defined below, shall not have occurred on such day) and on
each succeeding Business Day (provided that a Market Disruption Event shall not
have occurred on the applicable day) up to and including the last Business Day
in the applicable Calculation Period (each, a "Calculation Date") until the
Calculation Agent has so determined such closing values for five Business Days.
If a Market Disruption Event occurs on two or more of the Business Days during a
Calculation Period, the Yearly Value for the relevant year will equal the
average of the values on Business Days on which a Market Disruption Event did
not occur during such Calculation Period or, if there is only one such Business
Day, the value on such day. If Market Disruption Events occur on all of such
Business Days during a Calculation Period, the Yearly Value for the relevant
year shall equal the closing value of the S&P 500 Index on the last Business Day
of the Calculation Period regardless of whether a Market Disruption Event shall
have occurred on such day.
For purposes of determining the Final Average Value, a "Business Day" is a day
on which The New York Stock Exchange is open for trading. All determinations
made by the Calculation Agent shall be at the sole discretion of the Calculation
Agent and, absent a determination by the Calculation Agent of a manifest error,
shall be conclusive for all purposes and binding on the Company and beneficial
owners of the Securities.
If S&P discontinues publication of the S&P 500 Index and S&P or another entity
publishes a successor or substitute index that the Calculation Agent determines,
in its sole discretion, to be comparable to the S&P 500 Index (any such index
being referred to hereinafter as a "Successor Index"), then, upon the
Calculation Agent's notification of such determination to the Trustee and the
Company, the Calculation Agent will substitute the Successor Index as calculated
by S&P or such other entity for the S&P 500 Index and calculate the Final
Average Value as described in the preceding paragraph. Upon any selection by the
Calculation Agent of a Successor Index, the Company shall cause notice thereof
to be published in The Wall Street Journal (or another newspaper of general
circulation) within three Business Days of such selection.
If S&P discontinues publication of the S&P 500 Index and a Successor Index is
not selected by the Calculation Agent or is no longer published on any of the
Calculation Dates, the value to be substituted for the S&P 500 Index for any
such Calculation Date used to calculate the Supplemental Redemption Amount at
maturity will be calculated as described below under "Discontinuance of the S&P
500 Index".
If a Successor Index is selected or the Calculation Agent calculates a value
as a substitute for the S&P 500 Index as described below, such Successor Index
or value shall be substituted for the S&P 500 Index for all purposes, including
for purposes of determining whether a Market Disruption Event exists.
If at any time the method of calculating the S&P 500 Index, or the value
thereof, is changed in a material respect, or if the S&P 500 Index is in any
other way modified so that such Index does not, in the opinion of the
Calculation Agent, fairly represent the value of the S&P 500 Index had such
changes or modifications not been made, then, from and after such time, the
Calculation Agent shall, at the close of business in New York, New York, on each
date that the closing value with respect to the Final Average Value is to be
calculated, make such adjustments as, in the good faith judgment of the
Calculation Agent, may be necessary in order to arrive at a calculation of a
6
<PAGE>
value of a stock index comparable to the S&P 500 Index as if such changes or
modifications had not been made, and calculate such closing value with reference
to the S&P 500 Index, as adjusted. Accordingly, if the method of calculating the
S&P 500 Index is modified so that the value of such Index is a fraction or a
multiple of what it would have been if it had not been modified (e.g., due to a
split in the Index), then the Calculation Agent shall adjust such Index in order
to arrive at a value of the S&P 500 Index as if it had not been modified (e.g.,
as if such split had not occurred).
"Market Disruption Event" means either of the following events, as determined
by the Calculation Agent:
(i) the suspension or material limitation (limitations pursuant to New
York Stock Exchange Rule 80A (or any applicable rule or regulation enacted or
promulgated by the New York Stock Exchange, any other self regulatory
organization or the Commission of similar scope as determined by the
Calculation Agent) on trading during significant market fluctuations shall be
considered "material" for purposes of this definition), in each case, for
more than two hours of trading in 100 or more of the securities included in
the S&P 500 Index, or
(ii) the suspension or material limitation, in each case, for more than
two hours of trading (whether by reason of movements in price otherwise
exceeding levels permitted by the relevant exchange or otherwise) in (A)
futures contracts related to the S&P 500 Index which are traded on the
Chicago Mercantile Exchange or (B) option contracts related to the S&P 500
Index which are traded on the Chicago Board Options Exchange, Inc.
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular business hours of
the relevant exchange.
The following table illustrates, for a range of hypothetical Final Average
Values, the total amount payable at maturity for each $1,000 principal amount of
Securities.
<TABLE>
<CAPTION>
TOTAL
HYPOTHETICAL FINAL PERCENTAGE CHANGE AMOUNT
AVERAGE VALUE OF OVER INITIAL PAYABLE AT
THE S&P 500 INDEX VALUE MATURITY
- ------------------ ----------------- ---------------
<S> <C> <C>
223.72 -50% $1,200
268.46 -40% $1,200
313.20 -30% $1,200
357.94 -20% $1,200
402.69 -10% $1,200
447.43/(1)/ 0% $1,200
492.17 10% $1,200
536.92 20% $1,256
581.66 30% $1,384
626.40 40% $1,512
671.15 50% $1,640
715.89 60% $1,768
760.63 70% $1,896
805.37 80% $2,024
850.12 90% $2,152
894.86 100% $2,280
939.60 110% $2,408
984.35 120% $2,536
</TABLE>
___________________________
(1) Initial Value.
7
<PAGE>
The above figures are for purposes of illustration only. The actual Total
Redemption Amount received by investors will depend entirely on the actual Final
Average Value determined by the Calculation Agent as provided herein. Because
the Final Average Value will be based upon average values of the S&P 500 Index
during specified periods in three successive years, a significant increase or
decrease in the S&P 500 Index as measured by the average values during the
specified period in any year may be substantially or entirely offset by the
average values of the S&P 500 Index during the specified periods in the other
two years.
The Senior Indenture provides that the Senior Indenture and the Securities are
governed by and construed in accordance with the laws of the state of New York.
Under present New York law, the maximum rate of interest is 25% per annum on a
simple interest basis. This limit may not apply to Securities in which
$2,500,000 or more has been invested. While the Company believes that New York
law would be given effect by a state or federal court sitting outside of New
York, state laws frequently regulate the amount of interest that may be charged
to and paid by a borrower (including, in some cases, corporate borrowers). It is
suggested that prospective investors consult their personal advisors with
respect to the applicability of such laws. The Company has covenanted for the
benefit of the beneficial owners of the Securities, to the extent permitted by
law, not to claim voluntarily the benefits of any laws concerning usurious rates
of interest against a beneficial owner of the Securities.
DISCONTINUANCE OF THE S&P 500 INDEX AND SUCCESSOR INDEX
If S&P discontinues publication of the S&P 500 Index and a Successor Index is
available, then the amount payable at maturity or upon earlier acceleration will
be determined by reference to the Successor Index, as provided above.
If the publication of the S&P 500 Index is discontinued and S&P or another
entity does not publish a Successor Index on any of the Calculation Dates, the
value to be substituted for the S&P 500 Index for any such Calculation Date used
to calculate the Supplemental Redemption Amount at maturity will be the value
computed by the Calculation Agent for each such Calculation Date in accordance
with the following procedures:
(1) identifying the component stocks of the S&P 500 Index or any Successor
Index as of the last date on which either of such indices was calculated by S&P
or another entity and published by S&P or such other entity (each such component
stock is a "Last Component Stock");
(2) for each Last Component Stock, calculating as of each such Calculation
Date the product of the market price per share and the number of the then
outstanding shares (such product referred to as the "Market Value" of such
stock), by reference to (a) the closing market price per share of such Last
Component Stock as quoted by the New York Stock Exchange or the American Stock
Exchange or any other registered national securities exchange that is the
primary market for such Last Component Stock, or if no such quotation is
available, then the closing market price as quoted by any other registered
national securities exchange or the National Association of Securities Dealers
Automated Quotation National Market System ("NASDAQ"), or if no such price is
quoted, then the market price from the best available source as determined by
the Calculation Agent (collectively, the "Exchanges") and (b) the most recent
publicly available statement of the number of outstanding shares of such Last
Component Stock;
(3) aggregating the Market Values obtained in clause (2) for all Last
Component Stocks;
(4) ascertaining the Base Value (as defined below under "The Standard &
Poor's 500 Index--Computation of the Index") in effect as of the last day on
which either the S&P 500 Index or any Successor Index was published by S&P or
another entity, adjusted as described below;
(5) dividing the aggregate Market Value of all Last Component Stocks by the
Base Value (adjusted as aforesaid);
(6) multiplying the resulting quotient (expressed in decimals) by ten.
If any Last Component Stock is no longer publicly traded on any registered
national securities exchange or in the over-the-counter market, the last
available market price per share for such Last Component Stock as quoted by any
registered national securities exchange or in the over-the-counter market, and
the number of outstanding shares
8
<PAGE>
thereof at such time, will be used in computing the last available Market Value
of such Last Component Stock. Such Market Value will be used in all computations
of the S&P 500 Index thereafter.
If a company that has issued a Last Component Stock and another company that
has issued a Last Component Stock are consolidated to form a new company, the
common stock of such new company will be considered a Last Component Stock and
the common stocks of the constituent companies will no longer be considered Last
Component Stocks. If any company that has issued a Last Component Stock merges
with, or acquires, a company that has not issued a Last Component Stock, the
common stock of the surviving corporation will, upon the effectiveness of such
merger or acquisition, be considered a Last Component Stock. In each such case,
the Base Value will be adjusted so that the Base Value immediately after such
consolidation, merger or acquisition will equal (a) the Base Value immediately
prior to such event, multiplied by (b) the quotient of the aggregate Market
Value of all Last Component Stocks immediately after such event, divided by the
aggregate Market Value for all Last Component Stocks immediately prior to such
event.
If a company that has issued a Last Component Stock issues a stock dividend,
declares a stock split or issues new shares pursuant to the acquisition of
another company, then, in each case, the Base Value will be adjusted (in
accordance with the formula described below) so that the Base Value immediately
after the time the particular Last Component Stock commences trading ex-
dividend, the effectiveness of the stock split or the time new shares of such
Last Component Stock commence trading equals (a) the Base Value immediately
prior to such event, multiplied by (b) the quotient of the aggregate Market
Value for all Last Component Stocks immediately after such event, divided by the
aggregate Market Value of all Last Component Stocks immediately prior to such
event. The Base Value used by the Calculation Agent to calculate the value
described above will not necessarily be adjusted in all cases in which S&P, in
its discretion, might adjust the Base Value (as described below under "The
Standard & Poor's 500 Index--Computation of the S&P 500 Index").
If S&P discontinues publication of the S&P 500 Index prior to the period
during which the Supplemental Redemption Amount is to be determined and the
Calculation Agent determines that no Successor Index is available at such time,
then on each Business Day until the earlier to occur of (i) the determination of
the Final Average Value and (ii) a determination by the Calculation Agent that a
Successor Index is available, the Calculation Agent shall determine the value
that would be used in computing the Supplemental Redemption Amount by reference
to the method set forth in clauses (1) through (6) in the fourth preceding
paragraph above as if such day were a Calculation Date. The Calculation Agent
will cause notice of each such value to be published not less often than once
each month in The Wall Street Journal (or another newspaper of general
circulation), and arrange for information with respect to such values to be made
available by telephone. Notwithstanding these alternative arrangements,
discontinuance of the publication of the S&P 500 Index may adversely affect
trading in the Securities.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Securities shall have occurred
and be continuing, the amount payable to a beneficial owner of a Security upon
any acceleration permitted by the Securities, with respect to each $1,000
principal amount thereof, will be equal to: (i) the initial issue price
($1,000), plus (ii) an additional amount of contingent interest calculated as
though the date of early repayment were the maturity date of the Securities. The
Calculation Period used to calculate the final Yearly Value of the Notes so
accelerated will begin on the eighth scheduled Business Day next preceding the
scheduled date for such early redemption. If such final Yearly Value is the only
Yearly Value which shall have been calculated with respect to the Notes, such
final Yearly Value will be the Final Average Value. If one or two other Yearly
Values shall have been calculated with respect to the Notes for prior years when
the Notes shall have been outstanding, the average of the final Yearly Value and
such one other Yearly Value or such two other Yearly Values, as the case may be,
will be the Final Average Value. The Minimum Supplemental Redemption Amount with
respect to any such early redemption date will be an amount equal to the
interest which would have accrued on the Securities from and including the date
of original issuance to but excluding the date of early redemption at an
annualized rate of 3.06%, calculated on a semiannual bond equivalent basis. See
"Description of Securities--Payment at Maturity" in this Prospectus. If a
bankruptcy proceeding is commenced in respect of the Company, the claim of the
beneficial owner of a Security may be limited, under Section 502(b)(2) of Title
11 of the United States Code, to the principal amount of the Security plus an
additional amount of contingent interest calculated as though the date of the
commencement of the proceeding were the maturity date of the Securities.
9
<PAGE>
In case of default in payment at the maturity date of the Securities (whether
at their stated maturity or upon acceleration), from and after the maturity date
the Securities shall bear interest, payable upon demand of the beneficial owners
thereof, at the rate of 7% per annum (to the extent that payment of such
interest shall be legally enforceable) on the unpaid amount due and payable on
such date in accordance with the terms of the Securities to the date payment of
such amount has been made or duly provided for.
DEPOSITORY
The Securities are represented by three fully registered global securities
(the "Global Securities"). Each such Global Security has been deposited with, or
on behalf of, The Depository Trust Company ("DTC"), as Depository (the
"Depository"), registered in the name of DTC or a nominee thereof. Unless and
until it is exchanged in whole or in part for Securities in definitive form, no
Global Security may be transferred except as a whole by the Depository to a
nominee of such Depository or by a nominee of such Depository to such Depository
or another nominee of such Depository or by such Depository or any such nominee
to a successor of such Depository or a nominee of such successor.
DTC has advised the Company as follows: DTC 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. DTC 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. DTC's Participants include securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations.
DTC 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 DTC 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 Securities must be made by or through Participants, which will
receive a credit on the records of DTC. The ownership interest of each actual
purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the
Participants' or Indirect Participants' records. Beneficial Owners will not
receive written confirmation from DTC of their purchase, but Beneficial Owners
are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the
Participant or Indirect Participant through which the Beneficial Owner entered
into the transaction. Ownership of beneficial interests in such Global Security
will be shown on, and the transfer of such ownership interests will be effected
only through, records maintained by DTC (with respect to interests of
Participants) and on the records of Participants (with respect to interests of
persons held through Participants). The laws of some states may require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to own,
transfer or pledge beneficial interests in Global Securities.
So long as DTC, or its nominee, is the registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole owner or
Holder of the Securities represented by such Global Security for all purposes
under the Senior Indenture. Except as provided below, Beneficial Owners in a
Global Security will not be entitled to have the Securities represented by such
Global Securities registered in their names, will not receive or be entitled to
receive physical delivery of the Securities in definitive form and will not be
considered the owners or Holders thereof under the Senior Indenture.
Accordingly, each Person owning a beneficial interest in a Global Security must
rely on the procedures of DTC and, if such Person is not a Participant, on the
procedures of the Participant through which such Person owns its interest, to
exercise any rights of a Holder under the Senior Indenture. The Company
understands that under existing industry practices, in the event that the
Company requests any action of Holders or that an owner of a beneficial interest
in such a Global Security desires to give or take any action which a Holder is
entitled to give or take under the Senior Indenture, DTC 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 DTC to Participants, by Participants to
10
<PAGE>
Indirect Participants, and by Participants and Indirect Participants to
Beneficial Owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of the principal of, and any Supplemental Redemption Amount with
respect to, Securities registered in the name of DTC or its nominee will be made
to DTC or its nominee, as the case may be, as the Holder of the Global
Securities representing such Securities. 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 DTC, upon receipt of any payment of principal or any Supplemental
Redemption Amount in respect of a Global Security, will credit the accounts of
the Participants with payment in amounts proportionate to their respective
holdings in principal amount of beneficial interest in such Global Security as
shown on the records of DTC. 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) any Depository is at any time unwilling or unable to continue as
Depository and a successor depository is not appointed by the Company within 60
days, (y) the Company executes and delivers to the Trustee a Company Order to
the effect that the Global Securities shall be exchangeable or (z) an Event of
Default has occurred and is continuing with respect to the Securities, the
Global Securities will be exchangeable for Securities in definitive form of like
tenor and of an equal aggregate principal amount, in denominations of $1,000 and
integral multiples thereof. Such definitive Securities shall be registered in
such name or names as the Depository shall instruct the Trustee. It is expected
that such instructions may be based upon directions received by the Depository
from Participants with respect to ownership of beneficial interests in such
Global Securities.
THE STANDARD & POOR'S 500 INDEX
All disclosure contained in this Prospectus regarding the S&P 500 Index,
including, without limitation, its make-up, method of calculation and changes in
its components, was derived from publicly available information prepared by S&P
as of May 28, 1993. The Company takes no responsibility for the accuracy or
completeness of such information.
GENERAL
The S&P 500 Index is published by S&P and is intended to provide an indication
of the pattern of common stock price movement. The calculation of the value of
the S&P 500 Index (discussed below in further detail) is based on the relative
value of the aggregate Market Value (as defined above) of the common stocks of
500 companies as of a particular time as compared to the aggregate average
Market Value of the common stocks of 500 similar companies during the base
period of the years 1941 through 1943. As of May 28, 1993, the 500 companies
included in the S&P 500 Index represented approximately 75% of the aggregate
Market Value of common stocks traded on The New York Stock Exchange; however,
the 500 companies are not the 500 largest companies listed on The New York Stock
Exchange and not all 500 companies are listed on such exchange. As of May 28,
1993, the aggregate market value of the 500 companies included in the S&P 500
Index represented approximately 70% of the aggregate market value of United
States domestic, public companies. S&P chooses companies for inclusion in the
S&P 500 Index with the aim of achieving a distribution by broad industry
groupings that approximates the distribution of these groupings in the common
stock population of The New York Stock Exchange, which S&P uses as an assumed
model for the composition of the total market. Relevant criteria employed by S&P
include the viability of the particular company, the extent to which that
company represents the industry group to which it is assigned, the extent to
which the market price of that company's common stock is generally responsive to
changes in the affairs of the respective industry and the Market Value and
trading activity of the common stock of that company. As of May 28, 1993, the
500 companies included in the Index were divided into 88 individual groups.
These individual groups comprised the following four main groups of companies
(with the number of companies currently included in each group indicated in
parentheses): Industrials (384), Utilities (46), Transportation (15) and
Financial (55). S&P may from time to time, in its sole discretion, add companies
to, or delete companies from, the S&P 500 Index to achieve the objectives stated
above.
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<PAGE>
COMPUTATION OF THE S&P 500 INDEX
S&P computes the S&P 500 Index as of a particular time as follows:
(1) the Market Value of each component stock is determined as of such
time;
(2) the Market Value of all component stocks as of such time (as
determined under clause (1) above) are aggregated;
(3) the mean average of the Market Values as of each week in the base
period of the years 1941 through 1943 of the common stock of each company
in a group of 500 substantially similar companies is determined;
(4) the mean average Market Values of all such common stocks over such
base period (as determined under clause (3) above) are aggregated (such
aggregate amount being referred to as the "Base Value");
(5) the aggregate Market Value of all component stocks as of such time
(as determined under clause (2) above) is divided by the Base Value; and
(6) the resulting quotient (expressed in decimals) is multiplied by ten.
While S&P employs the above methodology to calculate the S&P 500 Index, no
assurance can be given that S&P will not modify or change such methodology in a
manner that may affect the Supplemental Redemption Amount payable to beneficial
owners of Securities upon maturity or otherwise.
S&P adjusts the foregoing formula to negate the effect of changes in the
Market Value of a component stock that are determined by S&P to be arbitrary or
not due to true market fluctuations. Such changes may result from such causes as
the issuance of stock dividends, the granting to shareholders of rights to
purchase additional shares of such stock, the purchase thereof by employees
pursuant to employee benefit plans, certain consolidations and acquisitions, the
granting to shareholders of rights to purchase other securities of the company,
the substitution by S&P of particular component stocks in the S&P 500 Index, and
other reasons. In all such cases, S&P first recalculates the aggregate Market
Value of all component stocks (after taking account of the new market price per
share of the particular component stock or the new number of outstanding shares
thereof or both, as the case may be) and then determines the New Base Value in
accordance with the following formula:
New Market Value
Old Base Value X ---------------- = New Base Value
Old Market Value
The result is that the Base Value is adjusted in proportion to any change in the
aggregate Market Value of all component stocks resulting from the causes
referred to above to the extent necessary to negate the effects of such causes
upon the S&P 500 Index.
A potential investor should review the historical performance of the S&P
500 Index. The historical performance of the S&P 500 Index should not be taken
as an indication of future performance, and no assurance can be given that the
S&P 500 Index will increase sufficiently to cause the beneficial owners of the
Securities to receive an amount in excess of the principal amount plus the
Minimum Supplemental Redemption Amount at the maturity of the Securities.
LICENSE AGREEMENT
S&P and Merrill Lynch Capital Services, Inc. have entered into a non-
exclusive license agreement providing for the license to Merrill Lynch Capital
Services, Inc., in exchange for a fee, of the right to use indices owned and
published by S&P in connection with certain securities, including the
Securities, and the Company is an authorized sublicensee thereof.
The license agreement between S&P and Merrill Lynch Capital Services, Inc.
provides that the following language must be stated in this Prospectus:
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<PAGE>
"The Securities are not sponsored, endorsed, sold or promoted by S&P. S&P
makes no representation or warranty, express or implied, to the Holders of
the Securities or any member of the public regarding the advisability of
investing in securities generally or in the Securities particularly or the
ability of the S&P 500 Index to track general stock market performance.
S&P's only relationship to Merrill Lynch Capital Services, Inc. and the
Company (other than transactions entered into in the ordinary course of
business) is the licensing of certain servicemarks and trade names of S&P
and of the S&P 500 Index which is determined, composed and calculated by
S&P without regard to the Company or the Securities. S&P has no obligation
to take the needs of the Company or the Holders of the Securities into
consideration in determining, composing or calculating the S&P 500 Index.
S&P is not responsible for and has not participated in the determination of
the timing of the sale of the Securities, prices at which the Securities
are to initially be sold, or quantities of the Securities to be issued or
in the determination or calculation of the equation by which the Securities
are to be converted into cash. S&P has no obligation or liability in
connection with the administration, marketing or trading of the
Securities."
OTHER TERMS
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Indenture (the "Senior Indenture"), dated as of April 1, 1983, as amended and
restated, 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"). A copy of the Senior Indenture is filed as an exhibit
to the registration statements relating to the Securities. The following
summaries of certain provisions of the Senior Indenture do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the Senior Indenture, including the definition therein of
certain terms.
The Senior Indenture provides that series of Senior Debt Securities may
from time to time be issued thereunder, without limitation as to aggregate
principal amount, in one or more series and upon such terms as the Company may
establish pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the Securities
are governed by and construed in accordance with the laws of the State of New
York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen" a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act,
and under rules of certain exchanges and other regulatory bodies.
LIMITATIONS UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of the incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
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<PAGE>
LIMITATION 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 Senior
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the 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.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or
into any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior 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 Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company
and the Trustee with the consent of the Holders of 66 2/3% in principal amount
of the Outstanding Senior Debt Securities of each series issued pursuant to such
indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding Senior Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts payable on, any Senior Debt
Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any Senior Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Debt Security; (e) reduce the percentage in principal
amount of the Outstanding Senior Debt Securities of any series, the consent of
whose Holders is required to modify or amend the Indenture; or (f) modify the
foregoing requirements or reduce the percentage of Outstanding Senior Debt
Securities necessary to waive any past default to less than a majority. No
modification or amendment of the Subordinated Indenture or any Subsequent
Indenture for Subordinated Debt Securities may adversely affect the rights of
any holder of Senior Indebtedness without the consent of such Holder. Except
with respect to certain fundamental provisions, the Holders of at least a
majority in principal amount of Outstanding Senior Debt Securities of any series
may, with respect to such series, waive past defaults under the Indenture and
waive compliance by the Company with certain provisions thereof.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the Indenture for
the benefit of such series or in the Senior Debt Securities of such series,
continued for 60 days after written notice as provided in the Senior Indenture;
(e) certain events in bankruptcy, insolvency or reorganization; and (f) any
other Event of Default provided with respect to Senior Debt Securities of that
series. The Trustee or the Holders of 25% in principal amount of the
Outstanding Senior Debt Securities of that series may declare the principal
amount (or such lesser amount as may be provided for in the Senior Debt
Securities of that series) of all Outstanding Senior Debt Securities of that
series and the interest due thereon and Additional Amounts payable in respect
thereof, if any to be due and payable immediately if an Event of Default with
respect to Senior Debt Securities of such series shall occur and be continuing
at the time of such declaration. At any time
14
<PAGE>
after a declaration of acceleration has been made with respect to Senior Debt
Securities of any series but before a judgment or decree for payment of money
due has been obtained by the Trustee, the Holders of a majority in principal
amount of the Outstanding Senior Debt Securities of that series may rescind any
declaration of acceleration and its consequences, if all payments due (other
than those due as a result of acceleration) have been made and all Events of
Default have been remedied or waived. Any Event of Default with respect to
Senior Debt Securities of any series may be waived by the Holders of a majority
in principal amount of all Outstanding Senior Debt Securities of that series,
except in a case of failure to pay principal or premium, if any, or interest or
Additional Amounts payable on any Senior Debt Security of that series for which
payment had not been subsequently made or in respect of a covenant or provision
which cannot be modified or amended without the consent of the Holder of each
Outstanding Senior Debt Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior
Debt Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any right or power
under the Senior Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company is required to furnish to the Trustee annually a statement as
to the fulfillment by the Company of all of its obligations under the Senior
Indenture.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997 included
in the 1997 Annual Report on Form 10-K, and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP, as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such 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 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 such Quarterly Reports 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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
EUROPEAN PORTFOLIO MARKET INDEX TARGET-TERM SECURITIES(SM) DUE JUNE 30, 1999
("MITTS(R)")
On December 30, 1993, Merrill Lynch & Co., Inc. (the "Company") issued an
aggregate principal amount of $31,000,000 of European Portfolio Market Index
Target-Term Securities due June 30, 1999 (the "Securities" or "MITTS"). Each
$10 principal amount of Securities will be deemed a "Unit" for purposes of
trading and transfer at the Securities Depository described below. Units will
be transferable by the Securities Depository, as more fully described below, in
denominations of whole Units.
The Securities will mature on June 30, 1999. At maturity, a beneficial owner
of a Security will be paid an amount based upon the change in the value of a
portfolio (the "Portfolio") of specified stocks of European companies measured
on December 22, 1993 (the "Original Portfolio Value") through the Calculation
Period, all as more fully described herein; provided, however, that the amount
payable at maturity will not be less than $9.00 for each Unit of the Securities
(the "Minimum Payment"). The Closing Portfolio Value will be based on certain
values of the specified stocks during a period prior to the maturity date of the
Securities. While at maturity a beneficial owner of a Security may receive an
amount in excess of the principal amount of such Security if the Closing
Portfolio Value exceeds the Original Portfolio Value, there will be no payment
of interest, periodic or otherwise, prior to maturity.
IF THE CLOSING PORTFOLIO VALUE IS LESS THAN THE ORIGINAL PORTFOLIO VALUE, THE
AMOUNT PAYABLE AT MATURITY WITH RESPECT TO A SECURITY WILL BE LESS THAN THE
PRINCIPAL AMOUNT OF SUCH SECURITY.
The Securities were issued as a series of Senior Debt Securities under the
Senior Indenture described herein. The Securities are not redeemable prior to
maturity.
For information as to the calculation of the amount that will be paid at
maturity and the calculation and the composition of the European portfolio, see
"Description of Securities" and "The Portfolio" in this Prospectus. FOR OTHER
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK
FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
Ownership of the Securities will be maintained in book-entry form by or
through the Securities Depository. Beneficial owners of the Securities will not
have the right to receive physical certificates evidencing their ownership
except under the limited circumstances described herein.
The Securities have been listed on the New York Stock Exchange under the
symbol "MEE".
_________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
ANY 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 Securities 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 Securities.
MLPF&S may act as principal or agent in such transactions. The Securities may
be offered on the New York Stock Exchange, 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 Securities 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.
_________________
MERRILL LYNCH & CO.
_________________
THE DATE OF THIS PROSPECTUS IS JULY ___, 1998.
(R)"MITTS" is a registered service mark and (R)"Market Index Target-Term
Securities" is a service mark of Merrill Lynch & Co., Inc.
<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 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 26, 1997,
Quarterly Report on Form 10-Q for the period ended March 27, 1998, and Current
Reports on Form 8-K dated January 20, 1998, January 30, 1998, February 4, 1998,
February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998, April 29,
1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June 24, 1998,
June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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 LAWRENCE M. EGAN, JR., CORPORATE SECRETARY'S
OFFICE, 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 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
2
<PAGE>
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.
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, advisory, insurance, and related
services on a global basis. Its principal subsidiary, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("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; an underwriter of selected insurance
products and a distributor of investment products of the Merrill Lynch Asset
Management group. 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. The Company's asset management and investment
management activities are conducted through the Merrill Lynch Asset Management
group and Merrill Lynch Mercury Asset Management, which together constitute one
of the largest asset management organizations in the world. Merrill Lynch
Government Securities Inc. is a primary dealer in obligations issued or
guaranteed by the U.S. Government and its agencies and its government-sponsored
entities. Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative
Products AG, and Merrill Lynch International are the Company's primary
derivative product dealers and enter into interest rate, currency, and other
over-the-counter derivative transactions as intermediaries and as principals.
The Company's operations in insurance services consist of the underwriting and
sale 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 and
purchasing secured loans, providing currency exchange facilities and other
related services, and furnishing trust, employee benefit, and custodial
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
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges . . . . . . 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist of interest
3
<PAGE>
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.
RISK FACTORS
PAYMENT AT MATURITY
If the Closing Portfolio Value is less than the Original Portfolio Value,
beneficial owners of the Securities will receive less than the principal amount
of such Securities at maturity, but not less than the Minimum Payment.
Beneficial owners would receive only the return of principal if the Closing
Portfolio Value should equal the Original Portfolio Value. This will be true
even though the Portfolio Value as of some interim period or periods prior to
the Calculation Period may have exceeded the Original Portfolio Value, since the
Closing Portfolio Value is calculated on the basis of the average of the value
of Portfolio Securities only on the Calculation Days.
Even if the principal of the Securities is fully returned, such return of
principal does not reflect any opportunity cost implied by inflation and other
factors relating to the time value of money.
The return based on the Closing Portfolio Value relative to the Original
Portfolio Value generally will not produce the same return as if the Portfolio
Securities were purchased and held for a similar period, because, among other
reasons, any payment at maturity on the Securities based on an increase in the
value of the Portfolio will not reflect the payment of dividends on the
Portfolio Securities.
The Senior Indenture provides that the Senior Indenture and the Securities
will be governed by and construed in accordance with the laws of New York.
Under present New York law the maximum rate of interest is 25% per annum on a
simple interest basis. This limit may not apply to Securities in which
$2,500,000 or more has been invested. While the Company believes that New York
law would be given effect by a state or federal court sitting outside New York,
state laws frequently regulate the amount of interest that may be charged to and
paid by a borrower (including, in some cases, corporate borrowers). The Company
has covenanted for the benefit of the Holders of the Securities, to the extent
permitted by law, not to claim voluntarily the benefits of any laws concerning
usurious rates of interest against a Holder of the Securities.
TRADING
The Securities have been listed on the New York Stock Exchange. It is
expected that the secondary market for the Securities will be affected by the
creditworthiness of the Company and by a number of other factors. The trading
value of the Securities is expected to depend primarily on the extent of the
appreciation, if any, of the Portfolio Value over the Original Portfolio Value.
If, however, Securities are sold prior to the maturity date at a time when the
Portfolio Value exceeds the Original Portfolio Value, the sale price may be at a
discount from the amount expected to be payable to the beneficial owner if such
excess of the Portfolio Value over the Original Portfolio Value were to prevail
during the Calculation Period. Furthermore, the price at which a beneficial
owner will be able to sell Securities prior to maturity may be at a discount,
which could be substantial, from the principal amount thereof, if, at such time,
the Portfolio Value is below, equal to or not sufficiently above the Original
Portfolio Value. A discount could also result from rising interest rates.
The trading values of the Securities may be affected by a number of
interrelated factors, including those listed below. The relationship among
these factors is complex, including how these factors affect
4
<PAGE>
the value of the principal amount of the Securities payable at maturity, if any,
in excess of the principal amount of the Securities. Accordingly, investors
should be aware that factors other than the level of the Portfolio Value are
likely to affect their trading value. The expected theoretical effect on the
trading value of the Securities of each of the factors listed below, assuming in
each case that all other factors are held constant, is as follows:
Interest Rates. In general, if U.S. interest rates increase, the value of the
Securities is expected to decrease. If U.S. interest rates decrease, the
value of the Securities is expected to increase. Local interest rates may
also affect the economies of countries in which issuers of the Portfolio
Securities or the shares underlying the Portfolio Securities operate, and, in
turn, affect the Portfolio Value.
Volatility of the Portfolio Value. If the volatility of the Portfolio Value
increases, the trading value of the Securities is expected to increase. If
the volatility of the Portfolio Value decreases, the trading value of the
Securities is expected to decrease.
Time Remaining to Maturity. The Securities may trade at a value above that
which may be inferred from the level of the Portfolio Value. This difference
will reflect a "time premium" due to expectations concerning the Portfolio
Value during the period prior to maturity of the Securities. As the time
remaining to maturity of the Securities decreases, however, this time premium
is expected to decrease, thus decreasing the trading value of the Securities.
Dividend Rates. If dividend rates on the Portfolio Securities and Underlying
Shares (as defined herein) increase, the value of the Securities is expected
to decrease. Conversely, if dividend rates on the Portfolio Securities and
Underlying Shares decrease, the value of the Securities is expected to
increase. Local general corporate dividend rates may also affect the
Portfolio Value and, in turn, the value of the Securities.
FOREIGN CURRENCY EXCHANGE RATE AND FOREIGN MARKET CONSIDERATIONS
The Securities are U.S. dollar-denominated securities issued by the Company, a
United States corporation. Investments in the Securities do not give the
beneficial owners any right to receive any Portfolio Security or any other
ownership right or interest in the Portfolio Securities, although the return on
the investment in the Securities is based on the Portfolio Value of the
Portfolio Securities. All of the Portfolio Securities (or securities underlying
the ADRs included in the Portfolio) have been issued by non-United States
companies. The prices of the securities underlying the ADRs are quoted in
currencies other than the U.S. dollar. The U.S. dollar price of an ADR will
depend on the price of the security underlying the ADR and the exchange rate
between such foreign currency and the U.S. dollar. Even if the price in a
foreign currency of the security underlying an ADR is unchanged, changes in the
rates of exchange between the U.S. dollar and such foreign currency will change
the U.S. dollar price of such ADR. Furthermore, even if the price of the
security underlying the ADR in such foreign currency increases, the U.S. dollar
price of such ADR may decrease as a result of changes in the rates of exchange
between the U.S. dollar and such foreign currency. The U.S. dollar price of a
Portfolio Security that trades in the United States and outside the United
States and is not an ADR will also be similarly affected by changes in the
exchange rate between the U.S. dollar and the foreign currency in which such
Portfolio Security trades outside the United States. Rates of exchange between
the dollar and other currencies are determined by forces of supply and demand in
the foreign exchange markets. These forces are, in turn, affected by
international balance of payments and other economic and financial conditions,
government intervention, speculation and other factors.
5
<PAGE>
Investments in securities indexed to the value of non-United States securities
involve certain risks. Fluctuations in foreign exchange rates, future foreign
political and economic developments, and the possible imposition of exchange
controls or other foreign governmental laws or restrictions applicable to such
investments may affect the U.S. dollar value of such securities, including the
Portfolio Securities. Securities prices in different countries are subject to
different economic, financial, political and social factors. Individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resources, self-sufficiency and balance of payments position.
With respect to certain countries, there is the possibility of expropriation of
assets, confiscatory taxation, political or social instability or diplomatic
developments which could affect the value of investments in those countries.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to those
to which U.S. entities are subject. Certain foreign investments may be subject
to foreign withholding taxes which could affect the value of investment in these
countries. In addition, investment laws in certain foreign countries may limit
or restrict ownership of certain securities by foreign nationals by restricting
or eliminating voting or other rights or limiting the amount of securities that
may be so owned, and such limitations or restrictions may affect the prices of
such securities.
Foreign financial markets, while currently growing in volume, may have
substantially less volume than U.S. markets, and securities of many foreign
companies are less liquid and their prices more volatile than securities of
comparable domestic companies. The foreign markets have different trading
practices that may affect the prices of securities. Certain of the foreign
markets on which shares underlying ADRs which are Portfolio Securities trade
impose trading restrictions if certain price movements occur. The foreign
markets have different clearance and settlement procedures, and in certain
countries there have been times when settlements have been unable to keep pace
with the volume of securities transactions, making it difficult to conduct such
transactions. There is generally less government supervision and regulation of
exchanges, brokers and issuers in foreign countries than there is in the U.S.
In addition, the terms and conditions of depositary facilities may result in
less liquidity or lower market values for the Portfolio Securities than for the
underlying stocks.
AMERICAN DEPOSITARY RECEIPTS
Certain of the Portfolio Securities are in the form of American Depositary
Receipts ("ADRs"). An ADR is a negotiable receipt which is issued by a
depositary, generally a bank, representing shares (the "Underlying Shares") of a
foreign issuer (the "Foreign Issuer") that have been deposited and are held, on
behalf of the holders of the ADRs, at a custodian bank in the Foreign Issuer's
home country. While the market for Underlying Shares will generally be in the
country in which the Foreign Issuer is organized, and trading in such market
will generally be based on that country's currency, ADRs that are Portfolio
Securities will trade in U.S. Dollars.
Although ADRs are distinct securities from the Underlying Shares, the trading
characteristics and valuations of ADRs will usually, but not necessarily, mirror
the characteristics and valuations of the Underlying Shares represented by the
ADRs. Active trading volume and efficient pricing in the principal market in
the home country for the Underlying Shares will usually indicate similar
characteristics in respect of the ADRs. In the case of certain ADRs, however,
there may be inadequate familiarity with or information about the Foreign Issuer
of the Underlying Shares represented by the ADR in the market in which the ADR
trades to support active volume, thus resulting in pricing distortions. This is
more likely to occur when the ADR is not listed on a U.S. stock exchange or
quoted on the National Market System of the National Association of Securities
Dealers Automated Quotations System ("NASDAQ"), and trades only in the over-the-
counter market, because the Foreign Issuer is not required to register such
6
<PAGE>
ADRs under the Exchange Act, as is the case with ADRs so listed or quoted. In
addition, because of the size of an offering of Underlying Shares in ADR form
outside the home country and/or other factors that have limited or increased the
float of certain ADRs, the liquidity of such securities may be less than or
greater than that with respect to the Underlying Shares. Inasmuch as holders of
ADRs may surrender the ADR in order to take delivery of and trade the Underlying
Shares, a characteristic that allows investors in ADRs to take advantage of
price differentials between different markets, a market for the Underlying
Shares that is not liquid will generally result in an illiquid market for the
ADR representing such Underlying Shares.
The depositary bank that issues an ADR generally charges a fee, based on the
price of the ADR, upon issuance and cancellation of the ADR. This fee would be
in addition to the brokerage commissions paid upon the acquisition or surrender
of the security. In addition, the depositary bank incurs expenses in connection
with the conversion of dividends or other cash distributions paid in local
currency into U.S. Dollars and such expenses are deducted from the amount of the
dividend or distribution paid to holders, resulting in a lower payout per
Underlying Share represented by the ADR than would be the case if the Underlying
Share were held directly. Furthermore, foreign investment laws in certain
countries may restrict ownership by foreign nationals of certain classes of
Underlying Shares. Accordingly, the ADR representing such class of securities
may not possess voting rights, if any, equivalent to those in respect of the
Underlying Shares. Certain tax considerations, including tax rate
differentials, arising from application of the tax laws of one nation to the
nationals of another and from certain practices in the ADR market may also exist
with respect to certain ADRs. In varying degrees, any or all of these factors
may affect the value of the ADR compared with the value of the Underlying Shares
in the home market of the issuer.
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the
Securities should reach an investment decision only after carefully considering
the suitability of the Securities in the light of each investor's particular
circumstances.
Investors should also consider the tax consequences of investing in the
Securities and should consult their tax advisors.
7
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Senior Indenture, dated as of April 1, 1983, as amended and restated. The
principal amount of each Security will equal $10 for each Unit. The Securities
will mature on June 30, 1999.
While at maturity a beneficial owner of a Security may receive an amount in
excess of the principal amount of such Security if the Closing Portfolio Value
exceeds the Original Portfolio Value, there will be no payment of interest,
periodic or otherwise, prior to maturity. (See "Payment at Maturity", below.)
The Securities are not subject to redemption by the Company or at the option
of any Holder prior to maturity. Upon the occurrence of an Event of Default
with respect to the Securities, Holders of the Securities may accelerate the
maturity of the Securities, as described below.
The Securities are to be issued in denominations of whole Units. Each Unit is
equal to $10 principal amount of the Securities.
PAYMENT AT MATURITY
At maturity, a beneficial owner of a Security will be entitled to receive,
with respect to each $10 principal amount of the Security, an amount equal to
the following:
Closing Portfolio Value
$10 X -----------------------
$100
provided, however, that the amount payable at maturity will not be less than $9
for each $10 principal amount of Securities (the "Minimum Payment"). Based on
the prices of the Portfolio Securities on December 22, 1993, the Multipliers
were initially set so that the value of the Portfolio on such date equalled $100
(the "Original Portfolio Value").
If the Closing Portfolio Value is equal to $90 or less, a beneficial owner of
a Security will receive the Minimum Payment of $9 for each $10 principal amount
of the Securities at maturity. If the Closing Portfolio Value is between $90
and $100, a beneficial owner of a Security will receive between $9 and $10 for
each $10 principal amount of the Securities at maturity.
The "Closing Portfolio Value" will be determined by MLPF&S, an affiliate of
the Company, or successor thereto (the "Calculation Agent"), and will equal the
sum of the products of the Average Market Price and the applicable Multiplier
for each Portfolio Security. The "Average Market Price" of a Portfolio Security
will equal the average (mean) of the Market Prices of such Portfolio Security
determined on each of the first forty-five Calculation Days with respect to such
Portfolio Security during the Calculation Period. If there are fewer than
forty-five Calculation Days with respect to a Portfolio Security, then the
Average Market Price with respect to such Portfolio Security will equal the
average (mean) of the Market Prices on such Calculation Days, and if there is
only one Calculation Day, then the Average Market Price will equal the Market
Price on such Calculation Day. The "Calculation Period" means the period from
and including the ninetieth scheduled NYSE Trading Day (as defined below) prior
to the maturity date to and including the fourth scheduled NYSE Trading Day
prior to the maturity date. "Calculation Day" with respect to a Portfolio
Security means any Trading Day during the Calculation Period in the country in
which such Portfolio Security is being priced on which a Market Disruption
8
<PAGE>
Event has not occurred. If a Market Disruption Event occurs on all Trading Days
in such country during the Calculation Period then the fourth scheduled NYSE
Trading Day prior to the maturity date in such country will be deemed a
Calculation Day, notwithstanding the Market Disruption Event; provided, however,
that if such fourth scheduled NYSE Trading Day is not a Trading Day in such
country, then the immediately preceding Trading Day shall instead be deemed a
Calculation Day. Any reference to a specific day herein shall mean such
calendar day in each market in which Portfolio Securities are priced.
"Market Price" means for a Calculation Day the following:
(a) If the Portfolio Security is listed on a national securities exchange in
the United States, is a NASDAQ National Market System ("NASDAQ NMS") security
or is included in the OTC Bulletin Board Service ("OTC Bulletin Board")
operated by the National Association of Securities Dealers, Inc. (the "NASD"),
Market Price means (i) the last reported sale price, regular way, on such day
on the principal United States securities exchange registered under the
Securities Exchange Act of 1934 on which such Portfolio Security is listed or
admitted to trading, or (ii) if not listed or admitted to trading on any such
securities exchange or if such last reported sale price is not obtainable, the
last reported sale price on the over-the-counter market as reported on the
NASDAQ NMS or OTC Bulletin Board on such day, or (iii) if the last reported
sale price is not available pursuant to (i) and (ii) above, the mean of the
last reported bid and offer price on the over-the-counter market as reported
on the NASDAQ NMS or OTC Bulletin Board on such day as determined by the
Calculation Agent. The term "NASDAQ NMS security" shall include a security
included in any successor to such system and the term "OTC Bulletin Board
Service" shall include any successor service thereto.
(b) If the Portfolio Security is not listed on a national securities exchange
in the United States or is not a NASDAQ NMS security or included in the OTC
Bulletin Board operated by the NASD, Market Price means the last reported sale
price on such day on the securities exchange on which such Portfolio Security
is listed or admitted to trading with the greatest volume of trading for the
calendar month preceding such day as determined by the Calculation Agent,
provided that if such last reported sale price is for a transaction which
occurred more than four hours prior to the close of such exchange, then the
Market Price shall mean the average (mean) of the last available bid and offer
price on such exchange. If such Portfolio Security is not listed or admitted
to trading on any such securities exchange or if such last reported sale price
or bid and offer are not obtainable, the Market Price shall mean the last
reported sale price on the over-the-counter market with the greatest volume of
trading as determined by the Calculation Agent, provided that if such last
reported sale price is for a transaction which occurred more than four hours
prior to when trading in such over-the-counter market typically ends, then the
Market Price shall mean the average (mean) of the last available bid and offer
prices in such market of the three dealers which have the highest volume of
transactions in such Portfolio Security in the immediately preceding calendar
month as determined by the Calculation Agent based on information that is
reasonably available to it. If such prices are quoted in a currency other
than in U.S. Dollars, such prices will be translated into U.S. Dollars for
purposes of calculating the Average Market Price using the Spot Rate on the
same calendar day as the date of any such price. The "Spot Rate" on any date
will be determined by the Calculation Agent and will equal the spot rate of
such currency per U.S. $1.00 on such date at approximately 3:00 p.m., New York
City time, as reported on the information service operated by Bloomberg, L.P.
("Bloomberg") representing the mean of certain dealers in such currency or, if
Bloomberg has not reported such rate by 3:30 p.m., New York City time, on such
day, the offered spot rate of such currency per U.S. $1.00 on such date for a
transaction amount in an amount customary for such
9
<PAGE>
market on such date quoted at approximately 3:30 p.m., New York City time, by
a leading bank in the foreign exchange markets as may be selected by the
Calculation Agent.
If the Calculation Agent is required to use the bid and offer price for a
Portfolio Security to determine the Market Price of such Portfolio Security
pursuant to the foregoing, the Calculation Agent shall not use any bid or offer
price announced by MLPF&S or any other affiliate of the Company.
As used herein, "NYSE Trading Day" shall mean a day on which trading is
generally conducted in the over-the-counter market for equity securities in the
United States and on the New York Stock Exchange as determined by the
Calculation Agent. "Trading Day" shall mean a day on which trading is conducted
on the principal securities exchanges in the country in which such Portfolio
Security is being priced.
"Market Disruption Event" with respect to a Portfolio Security means either of
the following events, as determined by the Calculation Agent:
(i) the suspension or material limitation (provided that, with respect to
Portfolio Securities that are priced in the United States, limitations
pursuant to New York Stock Exchange Rule 80A (or any applicable rule or
regulation enacted or promulgated by the New York Stock Exchange, any other
self regulatory organization or the Commission of similar scope as determined
by the Calculation Agent) on trading during significant market fluctuations
shall be considered "material" for purposes of this definition) in the trading
of such Portfolio Security in the country in which such Portfolio Security is
being priced for more than two hours of trading or during the period one-half
hour prior to the time that such Portfolio Security is to be priced, or
(ii) the suspension or material limitation (whether by reason of movements in
price otherwise exceeding levels permitted by the relevant exchange or
otherwise) in option contracts related to a Portfolio Security traded on any
exchange in the country in which such Portfolio Security is being priced for
more than two hours of trading or during the period one-half hour prior to the
time that such Portfolio Security is to be priced.
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular business hours of
the relevant exchange. Under certain circumstances, the duties of MLPF&S as
Calculation Agent in determining the existence of Market Disruption Events could
conflict with the interests of MLPF&S as an affiliate of the issuer of the
Securities, Merrill Lynch & Co., Inc., and with the interests of beneficial
owners of the Securities.
All determinations made by the Calculation Agent shall be at the sole
discretion of the Calculation Agent and, in the absence of manifest error, shall
be conclusive for all purposes and binding on the Company and beneficial owners
of the Securities. All percentages resulting from any calculation on the
Securities will be rounded to the nearest one hundred-thousandth of a percentage
point, with five one-millionths of a percentage point rounded upwards (e.g.,
9.876545% (or .09876545) would be rounded to 9.87655% (or .0987655)), and all
dollar amounts used in or resulting from such calculation will be rounded to the
nearest cent with one-half cent being rounded upwards.
Portfolio Securities
The securities listed below were used to calculate the Original Portfolio
Value. Holders of the MITTS will not have any right to receive the Portfolio
Securities or the Underlying Shares. The
10
<PAGE>
following table sets forth the Portfolio Securities, the percentage of each
Portfolio Security in the Original Portfolio Value and their Initial
Multipliers:
<TABLE>
<CAPTION>
% of Portfolio
Value
Represented
Issuer of the Country in in Original Initial
Portfolio Security Which Organized ADR Portfolio Value Multiplier
- ------------------------------- --------------- --- ---------------- ----------
<S> <C> <C> <C> <C>
Alcatel Alsthom Compagnie
Generale d'Electricite(1).... France Yes 4.167% 0.145560
Banco de Santander S.A.(1)..... Spain Yes 4.167% 0.084388
Bayer A.G.(3).................. Germany No 4.167% 0.019832
Benetton Group S.p.A.(1)....... Italy Yes 4.167% 0.130719
The British Petroleum Co.,
plc.(1)....................... United Kingdom Yes 4.167% 0.064977
British Telecom-
munications plc.(1)............ United Kingdom Yes 4.167% 0.056402
Cadbury Schweppes plc(1)....... United Kingdom Yes 4.167% 0.136054
Deutsche Bank A.G.(3).......... Germany No 4.167% 0.008103
L.M. Ericsson Telephone
Co., Inc. (1)................ Sweden Yes 4.167% 0.103842
Grand Metropolitan plc(1) United Kingdom Yes 4.167% 0.148810
Hanson plc(1).................. United Kingdom Yes 4.167% 0.205761
Hoechst A.G.(3)................ Germany No 4.167% 0.023662
Nestle S.A.(3)................. Switzerland No 4.167% 0.004792
Philips Electronics N.V.(2).... Netherlands No 4.167% 0.198413
Reuters Holdings plc(1)........ United Kingdom Yes 4.167% 0.051125
Rhone-Poulenc S.A.(1).......... France Yes 4.167% 0.166667
Royal Dutch Petroleum Co.(2)... Netherlands No 4.167% 0.039683
Siemens A.G.(3)................ Germany No 4.167% 0.009207
Societe Nationale
Elf Aquitaine(1)............. France Yes 4.167% 0.115741
Telefonica de Espana, S.A.(1).. Spain Yes 4.167% 0.104167
Total S.A.(1).................. France Yes 4.167% 0.153610
Unilever plc(1)................ United Kingdom Yes 4.167% 0.057870
Vodaphone Group plc(1)......... United Kingdom Yes 4.167% 0.047755
Waste Management
International plc(1)......... United Kingdom Yes 4.167% 0.234742
</TABLE>
_______________
(1) As represented in the Portfolio by American Depositary Receipts.
(2) As represented in the Portfolio by ordinary shares traded in U.S. dollars.
(3) As represented in the Portfolio by ordinary shares traded outside the U.S.
and denominated in other than U.S. dollars.
11
<PAGE>
The initial Multiplier relating to each Portfolio Security indicates the
number of such Portfolio Security, given the market price of such Portfolio
Security, required to be included in the calculation of the Original Portfolio
Value so that each Portfolio Security represents an equal percentage of the
Original Portfolio Value on December 22, 1993. The price of each Portfolio
Security used to calculate the initial Multiplier relating to each such
Portfolio Security was the closing price of such Portfolio Security on December
22, 1993. The respective Multipliers will remain constant for the term of the
Securities unless adjusted for certain corporate events, as described below.
The Portfolio Value, for any day, will equal the sum of the products of the
most recently available Market Prices (determined as described herein) and the
applicable Multipliers for the Portfolio Securities. The Closing Portfolio
Value, however, is calculated based on averaging Market Prices for certain days.
The Calculation Agent currently intends to publish the Portfolio Value once
on each business day. The Calculation Agent currently calculates and publishes
values of approximately 1,100 specified portfolios. The Calculation Agent
currently provides information concerning such portfolios to the electronic
reporting services operated by Bloomberg and to newspapers and specialized trade
publications. If the Calculation Agent does publish Portfolio Values, the
Calculation Agent currently intends to provide such values to similar sources
described above, but there can be no assurance that such information will
ultimately be published by such sources. In addition, the Calculation Agent
will provide the Portfolio Value upon request, and will provide the Portfolio
Value once each business day to the New York Stock Exchange which has agreed to
report such Portfolio Value on its electronic transaction reporting services
under the symbol "MEP".
ADJUSTMENTS TO THE MULTIPLIER AND PORTFOLIO
The Multiplier with respect to any Portfolio Security and the Portfolio will
be adjusted as follows:
1. If a Portfolio Security is subject to a stock split or reverse
stock split or a Portfolio Security that is an ADR is subject to a similar
adjustment, then once such split has become effective, the Multiplier
relating to such Portfolio Security will be adjusted to equal the product of
the number of shares issued with respect to one such share of such Portfolio
Security, or the number of receipts issued with respect to one ADR if a
Portfolio Security is an ADR, and the prior multiplier.
2. If a Portfolio Security is subject to a stock dividend (issuance
of additional shares of the Portfolio Security) that is given equally to all
holders of shares of the issuer of such Portfolio Security, then once the
dividend has become effective and such Portfolio Security is trading ex-
dividend, the Multiplier will be adjusted so that the new Multiplier shall
equal the former Multiplier plus the product of the number of shares of such
Portfolio Security issued with respect to one such share of such Portfolio
Security and the prior multiplier.
3. There will be no adjustments to the Multipliers to reflect cash
dividends or distributions paid with respect of a Portfolio Security other
than for Extraordinary Dividends as described below. A cash dividend with
respect to a Portfolio Security will be deemed to be an "Extraordinary
Dividend" if such dividend exceeds the immediately preceding non-
Extraordinary Dividend for such Portfolio Security by an amount equal to at
least 10% of the Market Price on the Trading Day preceding the record day for
the payment of such Extraordinary Dividend (the "ex-dividend date"). If an
Extraordinary Dividend occurs with respect to a Portfolio Security, the
Multiplier with respect to such Portfolio Security will be adjusted on the
ex-dividend date with respect to such Extraordinary Dividend so that the new
Multiplier will equal the product of (i) the then current Multiplier, and
(ii) a fraction, the numerator of which is the sum of the Extraordinary
12
<PAGE>
Dividend Amount and the Market Price on the Trading Day preceding the ex-
dividend date, and the denominator of which is the Market Price on the
Trading Day preceding the ex-dividend date. The "Extraordinary Dividend
Amount" with respect to an Extraordinary Dividend for a Portfolio Security
will equal such Extraordinary Dividend minus the amount of the immediately
preceding non-Extraordinary Dividend for such Portfolio Security.
4. If the issuer of a Portfolio Security, or, if a Portfolio Security
is an ADR, the issuer of the Underlying Share, is being liquidated or is
subject to a proceeding under any applicable bankruptcy, insolvency or other
similar law, such Portfolio Security will continue to be included in the
Portfolio so long as a Market Price for such Portfolio Security is available.
If a Market Price is no longer available for a Portfolio Security for
whatever reason, including the liquidation of the issuer of such Portfolio
Security or the subjection of the issuer of such Portfolio Security to a
proceeding under any applicable bankruptcy, insolvency or other similar law,
then the value of such Portfolio Security will equal zero in connection with
calculating Portfolio Value and Closing Portfolio Value for so long as no
Market Price is available, and no attempt will be made to find a replacement
stock or increase the value of the Portfolio to compensate for the deletion
of such Portfolio Security.
5. If the issuer of a Portfolio Security, or, if a Portfolio Security
is an ADR, the issuer of the Underlying Share, has been subject to a merger
or consolidation and is not the surviving entity or is nationalized, then a
value for such Portfolio Security will be determined at the time such issuer
is merged or consolidated or nationalized and will equal the last available
Market Price for such Portfolio Security and that value will be constant for
the remaining term of the Securities. At such time, no adjustment will be
made to the Multiplier of such Portfolio Security. The Company may at its
sole discretion increase such last available Market Price to reflect payments
or dividends of cash, securities or other consideration to holders of such
Portfolio Security in connection with such a merger or consolidation which
may not be reflected in such last available Market Price.
6. If the issuer of a Portfolio Security issues to all of its
shareholders equity securities of an issuer other than the issuer of the
Portfolio Security, then such new equity securities will be added to the
Portfolio as a new Portfolio Security. The Multiplier for such new Portfolio
Security will equal the product of the original Multiplier with respect to
the Portfolio Security for which the new Portfolio Security is being issued
(the "Original Portfolio Security") and the number of shares of the new
Portfolio Security issued with respect to one share of the Original Portfolio
Security.
7. If an ADR is no longer listed or admitted to trading on a United
States securities exchange registered under the Exchange Act, is no longer a
NASDAQ NMS security or is no longer included in the OTC Bulletin Board
operated by the NASD, then the Underlying Shares represented by such ADR will
be deemed to be a new Portfolio Security and such ADR will no longer
constitute a Portfolio Security. The initial Multiplier for such new
Portfolio Security will equal the last value of the Multiplier for such ADR
multiplied by the number of shares of Underlying Shares represented by a
single ADR.
No adjustments of any Multiplier of a Portfolio Security will be required
unless such adjustment would require a change of at least 1% in the Multiplier
then in effect. The Multiplier resulting from any of the adjustments specified
above will be rounded to the nearest one thousandth with five ten-thousandths
being rounded upward.
No adjustments to the Multiplier of any Portfolio Security or to the
Portfolio will be made other than those specified above.
13
<PAGE>
HYPOTHETICAL PAYMENTS
The following table illustrates, for a range of hypothetical Closing
Portfolio Values, the amount payable at maturity for each Unit of Securities.
AN INVESTMENT IN THE PORTFOLIO SECURITIES WOULD BE SIGNIFICANTLY DIFFERENT THAN
INVESTING IN THE SECURITIES. AMONG OTHER THINGS, AN INVESTOR IN THE PORTFOLIO
SECURITIES MAY REALIZE CERTAIN DIVIDENDS THAT ARE NOT REFLECTED BY INVESTING IN
THE SECURITIES, AND CURRENCY FLUCTUATIONS MAY SIGNIFICANTLY INCREASE OR DECREASE
THE RATE OF RETURN OF THE PORTFOLIO SECURITIES VERSUS INVESTING IN THE
SECURITIES.
<TABLE>
<CAPTION>
Payment at Maturity
Hypothetical Closing Percentage Change per $10 Principal
Portfolio Value in the Portfolio Level Amount of Securities
- ---------------------- ----------------------- --------------------
<S> <C> <C>
$ 0.00 -100.00% $ 9.00
$ 10.00 -90.00% $ 9.00
$ 20.00 -80.00% $ 9.00
$ 30.00 -70.00% $ 9.00
$ 40.00 -60.00% $ 9.00
$ 50.00 -50.00% $ 9.00
$ 60.00 -40.00% $ 9.00
$ 70.00 -30.00% $ 9.00
$ 80.00 -20.00% $ 9.00
$ 90.00 -10.00% $ 9.00
$100.00 0.00% $10.00
$110.00 10.00% $11.00
$120.00 20.00% $12.00
$130.00 30.00% $13.00
$140.00 40.00% $14.00
$150.00 50.00% $15.00
$160.00 60.00% $16.00
$170.00 70.00% $17.00
$180.00 80.00% $18.00
$190.00 90.00% $19.00
$200.00 100.00% $20.00
</TABLE>
The above figures are for purposes of illustration only. The actual amount
payable at maturity with respect to the Securities will depend entirely on the
actual Closing Portfolio Value.
The investor will not receive their entire principal at maturity should the
Portfolio decline in value. The investor will only receive $9.00 for each $10
principal amount of Securities (90% of their original investment) should the
Portfolio decline in value by 10% or more.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Securities shall have
occurred and be continuing, the amount payable to a Holder of a Security upon
any acceleration permitted by the Securities will be equal to the amount payable
calculated as though the date of early repayment were the maturity date of the
Securities. See "Description of Securities--Payment at Maturity" in this
Prospectus. If a bankruptcy proceeding is commenced in respect of the Company,
the claim of the Holder of a Security may be limited, under Section 502(b)(2) of
Title 11 of the United States Code, to the principal amount of the Security plus
an additional amount, if any, of contingent interest calculated as though the
date of the commencement of the proceeding were the maturity date of the
Securities.
14
<PAGE>
In case of default in payment at the maturity date of the Securities (whether
at their stated maturity or upon acceleration), from and after the maturity date
the Securities shall bear interest, payable upon demand of the Holders thereof,
at the rate of 6% per annum (to the extent that payment of such interest shall
be legally enforceable) on the unpaid amount due and payable on such date in
accordance with the terms of the Securities to the date payment of such amount
has been made or duly provided for.
SECURITIES DEPOSITORY
The Securities are represented by one fully registered global security (the
"Global Security"). Such Global Security has been deposited with, or on behalf
of, The Depository Trust Company, as Securities Depository (the "Securities
Depository), registered in the name of the Securities Depository or a nominee
thereof. Unless and until it is exchanged in whole or in part for Securities in
definitive form, the Global Security may not be transferred except as a whole by
the Securities Depository to a nominee of such Securities Depository or by a
nominee of such Securities Depository to such Securities Depository or another
nominee of such Securities Depository or by such Securities Depository or any
such nominee to a successor of such Securities Depository or a nominee of such
successor.
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,
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 NASD.
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 Securities 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 Security ("Beneficial Owner") is in
turn to be recorded on the Participants' or Indirect Participants' records.
Beneficial Owners will not receive written confirmation from the Securities
Depository of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Participant or Indirect Participant
through which the Beneficial Owner entered into the transaction. Ownership of
beneficial interests in such Global Security will be shown on, and the transfer
of such ownership interests will be effected only through, records maintained by
the Securities Depository (with respect to interests of Participants) and on the
records of Participants (with respect to interests of persons held through
Participants). The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to own, transfer or pledge
beneficial interests in Global Securities.
So long as the Securities Depository, or its nominee, is the registered owner
of the Global Security, the Securities Depository or its nominee, as the case
may be, will be considered the sole owner or Holder
15
<PAGE>
of the Securities represented by such Global Security for all purposes under the
Senior Indenture. Except as provided below, Beneficial Owners in the Global
Security will not be entitled to have the Securities represented by such Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of the Securities in definitive form and will not be
considered the owners or Holders thereof under the Senior Indenture.
Accordingly, each Person owning a beneficial interest in a Global Security must
rely on the procedures of the Securities Depository and, if such Person is not a
Participant, on the procedures of the Participant through which such Person owns
its interest, to exercise any rights of a Holder under the Senior Indenture.
The Company understands that under existing industry practices, in the event
that the Company requests any action of Holders or that an owner of a beneficial
interest in the Global Security desires to give or take any action which a
Holder is entitled to give or take under the Senior Indenture, the Securities
Depository would authorize the Participants holding the relevant beneficial
interests to give or take such action, and such Participants would authorize
Beneficial Owners owning through such Participants to give or take such action
or would otherwise act upon the instructions of beneficial owners. Conveyance
of notices and other communications by the Securities Depository to
Participants, by Participants to Indirect Participants, and by Participants and
Indirect Participants to Beneficial Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Payment of the principal of, and any additional amount payable at maturity
with respect to, Securities 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 Security representing such Securities.
None of the Company, the Trustee or any other agent of the Company or agent of
the Trustee will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests or for supervising or reviewing any records relating to such
beneficial ownership interests. The Company expects that the Securities
Depository, upon receipt of any payment of principal or any additional amount
payable at maturity in respect of the Global Security, will credit the accounts
of the Participants with payment in amounts proportionate to their respective
holdings in principal amount of beneficial interest in such Global Security as
shown on the records of the Securities Depository. The Company also expects
that payments by Participants to Beneficial Owners will be governed by standing
customer instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name", and will be the responsibility of such Participants.
If (x) the Securities Depository is at any time unwilling or unable to
continue as Securities Depository and a successor depository is not appointed by
the Company within 60 days, (y) the Company executes and delivers to the Trustee
a Company Order to the effect that the Global Security shall be exchangeable or
(z) an Event of Default has occurred and is continuing with respect to the
Securities, the Global Security will be exchangeable for Securities in
definitive form of like tenor and of an equal aggregate principal amount, in
denominations of $10 and integral multiples thereof. Such definitive Securities
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 Security.
THE PORTFOLIO
GENERAL
While the Portfolio consists of stocks (or ADRs representing interests
therein) of European issuers, the Portfolio is not intended to provide an
indication of the pattern of price movements of common stocks
16
<PAGE>
of European corporations generally. As of December 22, 1993, all of the
Portfolio Securities were registered under the Exchange Act, except for the
Portfolio Securities which are ADRs representing shares in Bayer A.G., Deutsche
Bank A.G., Hoechst A.G., Siemens A.G. and Nestle S.A. Companies with securities
registered under the Exchange Act are required to file periodically certain
financial and other information specified by the Commission (including a
reconciliation of their financial statements to United States generally accepted
accounting principles). As of December 22, 1993, Bayer A.G., Deutsche Bank
A.G., Hoechst A.G., Siemens A.G. and Nestle S.A. had qualified for an exemption
from the reporting requirements of the Exchange Act and had agreed to provide to
the Commission certain financial and other information that the issuer provides
to its shareholders or files with stock exchanges in its home country or is
otherwise required to make public. Such information is not required to contain
a reconciliation of their financial statements to United States generally
accepted accounting principles. Information provided to or filed with the
Commission is available at the offices of the Commission specified under
"Available Information" in this Prospectus. Information contained in such
information filed with the Commission will generally be more limited than that
available with respect to a United States issuer. The Company makes no
representation or warranty as to the accuracy or completeness of such reports.
THE INCLUSION OF A PORTFOLIO SECURITY IN THE PORTFOLIO IS NOT A RECOMMENDATION
TO BUY OR SELL SUCH PORTFOLIO SECURITY OR THE UNDERLYING SHARES RELATING
THERETO, AND NEITHER THE COMPANY NOR ANY OF ITS AFFILIATES MAKE ANY
REPRESENTATION TO ANY PURCHASER OF SECURITIES AS TO THE PERFORMANCE OF THE
PORTFOLIO.
The Company or its affiliates may presently or from time to time engage in
business with one or more of the issuers of the Portfolio Securities or of the
Underlying Shares relating to the Portfolio Securities, including extending
loans to, or making equity investments in, such issuers or providing advisory
services to such issuers, including merger and acquisition advisory services.
In the course of such business, the Company or its affiliates may acquire non-
public information with respect to such issuers and, in addition, one or more
affiliates of the Company may publish research reports with respect to such
issuers. The Company does not make any representation to any purchaser of
Securities with respect to any matters whatsoever relating to such issuers. Any
prospective purchaser of a Security should undertake an independent
investigation of the issuers of the Underlying Shares relating to the Portfolio
Securities as in its judgment is appropriate to make an informed decision with
respect to an investment in the Securities.
EUROPE
The issuers of the Portfolio Securities, or of the shares underlying the
Portfolio Securities which are ADRs, are companies which have been organized in
countries located in Europe. The amount payable at the maturity of the
Securities is dependent on the value of such Portfolio Securities and the value
of such Portfolio Securities will be affected by political and economic
developments in Europe.
The economies of individual European countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. European countries in recent years generally have
experienced weak economic performance and suffer from relatively high
unemployment levels, slow growth, falling industrial competitiveness, and
increasing costs for social welfare programs.
The securities markets of most European countries have substantially less
trading volume than the securities markets of the United States and Japan.
Further, securities of some European companies are less liquid and more volatile
than securities of comparable U.S. companies. Accordingly, European securities
markets may be subject to greater influence by adverse events generally
affecting the market,
17
<PAGE>
and by large investors trading significant blocks of securities or by large
dispositions of securities than is the case in the United States.
ISSUERS OF THE UNDERLYING SHARES
Among the issuers of Portfolio Securities and the Underlying Shares, 9 are
incorporated in the United Kingdom, 4 in the Federal Republic of Germany, 4 in
France, 2 in the Netherlands, 2 in Spain, 1 in Italy, 1 in Sweden and 1 in
Switzerland. The following table sets forth the issuers of the Portfolio
Securities and Underlying Shares, the country in which each such issuer is
organized and the primary industry in which each such issuer is engaged:
<TABLE>
<CAPTION>
Company Name Country Industry
- ------------ ------- --------
<S> <C> <C>
The British Petroleum Co., plc United Kingdom Energy
British Telecommunications plc United Kingdom Telecommunications
Cadbury Schweppes plc United Kingdom Beverage
Grand Metropolitan plc United Kingdom Food/Beverage
Hanson plc. United Kingdom Conglomerate
Reuters Holdings plc. United Kingdom Media/Publishing
Unilever plc. United Kingdom Foods
Vodaphone Group plc United Kingdom Telecommunications
Waste Management International plc United Kingdom Pollution Control
Alcatel Alsthom Compagnie Generale
d'Electricite France Telecommunications
Rhone-Poulenc S.A. France Chemicals
Societe Nationale Elf Aquitaine France Energy
Total S.A. France Energy
Bayer A.G. Germany Chemicals
Deutsche Bank A.G. Germany Bank
Hoechst A.G. Germany Chemicals
Siemens A.G. Germany Electrical Equipment
Philips Electronics N.V. Netherlands Electrical Equipment
Royal Dutch Petroleum Company Netherlands Energy
Banco de Santander S.A. Spain Bank
Telefonica de Espana, S.A Spain Telecommunications
Benetton Group S.p.A. Italy Retailing
L.M. Ericsson
Telephone Co., Inc Sweden Telecommunications
Nestle S.A. Switzerland Foods
</TABLE>
A potential investor should review the historical prices of the
securities underlying the Portfolio. The historical prices of such securities
should not be taken as an indication of future performance, and no assurance can
be given that the prices of such securities will increase sufficiently to cause
the beneficial owners of the Securities to receive an amount in excess of the
Minimum Payment at the maturity of the Securities.
OTHER TERMS
GENERAL
18
<PAGE>
The Securities were issued as a series of Senior Debt Securities under the
Indenture (the "Senior Indenture"), dated as of April 1, 1983, as amended and
restated, 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"). A copy of the Senior Indenture is filed as an exhibit
to the registration statements relating to the Securities. The following
summaries of certain provisions of the Senior Indenture do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the Senior Indenture, including the definition therein of
certain terms.
The Senior Indenture provides that series of Senior Debt Securities may from
time to time be issued thereunder, without limitation as to aggregate principal
amount, in one or more series and upon such terms as the Company may establish
pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the Securities are
governed by and construed in accordance with the laws of the State of New York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen" a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and other regulatory bodies.
LIMITATIONS UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of the incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
LIMITATION ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Indenture provides that the Company may not sell, transfer or otherwise
dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell or
otherwise dispose of any of its Voting Stock, unless, after giving effect to any
such transaction, MLPF&S remains a Controlled Subsidiary (defined in the Senior
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the 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.
19
<PAGE>
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or into
any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior 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 Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company and
the Trustee with the consent of the Holders of 66 2/3% in principal amount of
the Outstanding Senior Debt Securities of each series issued pursuant to such
indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding Senior Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts payable on, any Senior Debt
Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any Senior Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Debt Security; (e) reduce the percentage in principal
amount of the Outstanding Senior Debt Securities of any series, the consent of
whose Holders is required to modify or amend the Indenture; or (f) modify the
foregoing requirements or reduce the percentage of Outstanding Senior Debt
Securities necessary to waive any past default to less than a majority. No
modification or amendment of the Subordinated Indenture or any Subsequent
Indenture for Subordinated Debt Securities may adversely affect the rights of
any holder of Senior Indebtedness without the consent of such Holder. Except
with respect to certain fundamental provisions, the Holders of at least a
majority in principal amount of Outstanding Senior Debt Securities of any series
may, with respect to such series, waive past defaults under the Indenture and
waive compliance by the Company with certain provisions thereof.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the Indenture for
the benefit of such series or in the Senior Debt Securities of such series,
continued for 60 days after written notice as provided in the Senior Indenture;
(e) certain events in bankruptcy, insolvency or reorganization; and (f) any
other Event of Default provided with respect to Senior Debt Securities of that
series. The Trustee or the Holders of 25% in principal amount of the
Outstanding Senior Debt Securities of that series may declare the principal
amount (or such lesser amount as may be provided for in the Senior Debt
Securities of that series) of all Outstanding Senior Debt Securities of that
series and the interest due thereon and Additional Amounts payable in respect
thereof, if any to be due and payable immediately if
20
<PAGE>
an Event of Default with respect to Senior Debt Securities of such series shall
occur and be continuing at the time of such declaration. At any time after a
declaration of acceleration has been made with respect to Senior Debt Securities
of any series but before a judgment or decree for payment of money due has been
obtained by the Trustee, the Holders of a majority in principal amount of the
Outstanding Senior Debt Securities of that series may rescind any declaration of
acceleration and its consequences, if all payments due (other than those due as
a result of acceleration) have been made and all Events of Default have been
remedied or waived. Any Event of Default with respect to Senior Debt Securities
of any series may be waived by the Holders of a majority in principal amount of
all Outstanding Senior Debt Securities of that series, except in a case of
failure to pay principal or premium, if any, or interest or Additional Amounts
payable on any Senior Debt Security of that series for which payment had not
been subsequently made or in respect of a covenant or provision which cannot be
modified or amended without the consent of the Holder of each Outstanding Senior
Debt Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior Debt
Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any right or power
under the Senior Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company is required to furnish to the Trustee annually a statement as to
the fulfillment by the Company of all of its obligations under the Senior
Indenture.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997 included
in the 1997 Annual Report on Form 10-K, and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP, as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such 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 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 such Quarterly Reports 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
21
<PAGE>
registration statement prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Act.
22
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
STOCK MARKET ANNUAL RESET TERM(SM) NOTES DUE DECEMBER 31, 1999
(SERIES A)
"SMART NOTES(SM)"
On April 29, 1993, Merrill Lynch & Co., Inc. (the "Company") issued
$50,000,000 aggregate principal amount of Stock Market Annual Reset Term Notes
(Series A) due December 31, 1999 (the "Notes" or "SMART Notes"). As of the date
of this Prospectus, $20,000,000 aggregate principal amount of the Notes remain
outstanding. The Notes were issued in denominations of $1,000 and integral
multiples thereof and will mature and be repayable at 100% of the principal
amount thereof on December 31, 1999. The Notes are not subject to redemption
prior to maturity.
The Company will make interest payments on the Notes for each year at a rate
per annum equal to the Participation Rate multiplied by the percent increase, if
any, in the S&P MidCap 400 Composite Stock Price Index as determined in each
year as further described herein (the "Annual Percent Appreciation"). Annual
payments will in no event be less than the Minimum Annual Payment or more than
the Maximum Annual Payment. The table below specifies the Minimum Annual Payment
and the Maximum Annual Payment on a per annum basis per $1,000 principal amount
of Notes as well as the Participation Rate. Interest payments will be payable
on June 30 and December 31 of each year.
Minimum Annual Payment .................... $ 30 (3%)
Maximum Annual Payment .................... $100 (10%)
Participation Rate ........................ 65%
For information as to the calculation of the amount payable in any calendar
year and the calculation of the S&P MidCap 400 Index, see "Description of Notes"
and "The Standard & Poor's MidCap 400 Index" in this Prospectus. FOR OTHER
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK
FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
Ownership of the Notes will be maintained only in book-entry form by or
through the Securities Depository. Beneficial owners of the Notes will not have
the right to receive physical certificates evidencing their ownership except
under the limited circumstances described herein.
The Notes have been listed on the New York Stock Exchange under the symbol
"MERIQ 99".
______________
THESE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
______________
This Prospectus has been prepared in connection with the Notes 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 Notes. MLPF&S may act as
principal or agent in such transactions. The Notes may be offered on the New
York Stock Exchange, 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 Notes 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.
______________
MERRILL LYNCH & CO.
______________
THE DATE OF THIS PROSPECTUS IS JULY ___, 1998.
(SM)"SMART Notes" and "Stock Market Annual Reset Term" are service marks of
Merrill Lynch & Co., Inc.
<PAGE>
STANDARD & POOR'S CORPORATION ("S&P") DOES NOT GUARANTEE THE ACCURACY AND/OR
THE COMPLETENESS OF THE S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED THEREIN. S&P
MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE
COMPANY, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, HOLDERS OF THE
NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P MIDCAP 400 INDEX OR
ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED UNDER THE
LICENSE AGREEMENT DESCRIBED HEREIN OR FOR ANY OTHER USE. S&P MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE S&P
MIDCAP 400 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
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 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 26, 1997,
Quarterly Report on Form 10-Q for the period ended March 27, 1998, and Current
Reports on Form 8-K dated January 20, 1998, January 30, 1998, February 4, 1998,
February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998, April 29,
1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June 24, 1998,
June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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.
<PAGE>
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 LAWRENCE M. EGAN, JR., CORPORATE SECRETARY'S
OFFICE, 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 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.
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, advisory, insurance, and related
services on a global basis. Its principal subsidiary, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("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; an underwriter of selected insurance
products and a distributor of investment products of the Merrill Lynch Asset
Management group. 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. The Company's asset management and investment
management activities are conducted through the Merrill Lynch Asset Management
group and Merrill Lynch Mercury Asset Management, which together constitute one
of the largest asset management organizations in the world. Merrill Lynch
Government Securities Inc. is a primary dealer in obligations issued or
guaranteed by the U.S. Government and its agencies and its government-sponsored
entities. Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative
Products AG, and Merrill Lynch International are the Company's primary
derivative product dealers and enter into interest rate, currency, and other
over-the-counter derivative transactions as intermediaries and as principals.
The Company's operations in insurance services consist of the underwriting and
sale 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 and
purchasing secured loans, providing currency exchange facilities and other
related services, and furnishing trust, employee benefit, and custodial
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
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
Ratio of earnings
to fixed charges .............. 1.4 1.2 1.2 1.2 1.2 1.2
3
<PAGE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
RISK FACTORS
INTEREST PAYMENTS
If the Ending Annual Value applicable to a December Payment Date does not
exceed the Starting Annual Value applicable to such December Payment Date by
more than approximately 4.62%, beneficial owners of the Notes will receive only
the Minimum Annual Payment on such December Payment Date, even if the value of
the S&P MidCap 400 Index at some point between the determination of the
applicable Starting Annual Value and the determination of the applicable Ending
Annual Value exceeded such Starting Annual Value by more than approximately
4.62%. The annual amount payable on the Notes based on the S&P MidCap 400 Index
is limited to the Participation Rate multiplied by the percent increase in such
index during the period between the date of the determination of the applicable
Starting Annual Value for such year and the date of the determination of the
applicable Ending Annual Value for such year, and in no event will such amount
exceed the Maximum Annual Payment. If the Ending Annual Value applicable to a
December Payment Date exceeds the Starting Annual Value applicable to such
December Payment Date by more than approximately 15.38%, the beneficial owners
of the Notes would receive only the Maximum Annual Payment for the applicable
payment period.
Beneficial owners of the Notes will receive total annual payments equal to
not less than the Minimum Annual Payment, and will be repaid 100% of the
principal amount of the Notes at maturity. Beneficial owners of Notes may
receive interest payments with respect to the Notes equal to only the Minimum
Annual Payment for each year, and such interest payments are below what the
Company would pay as interest as of the date of issuance if the Company issued
non-callable senior debt securities with a similar maturity as that of the
Notes. The payment of additional amounts on the Notes is subject to the
conditions described under "Description of Notes--Interest Payments". The return
of principal of the Notes at maturity and the payment of the Minimum Annual
Payment are not expected to reflect the full opportunity costs implied by
inflation or other factors relating to the time value of money.
The amount payable on the Notes based on the S&P MidCap 400 Index will not
produce the same return as if the underlying stocks underlying the S&P MidCap
400 Index were purchased and held for a similar period because of the following:
(i) the S&P MidCap 400 Index does not reflect the payment of dividends on the
stocks underlying it, (ii) the amounts payable on the Notes do not reflect any
changes in the S&P MidCap 400 Index for the period between the determination of
an Ending Annual Value and the determination of the next succeeding Starting
Annual Value, and (iii), the annual amount payable is limited to 65% of the
percentage increase in the S&P MidCap 400 Index during any relevant period,
subject to the Minimum Annual Payment and the Maximum Annual Payment.
TRADING
The Notes have been listed on the New York Stock Exchange under the symbol
"MERIQ 99". It is expected that the secondary market for the Notes (including
prices in such market) will likely be affected by the creditworthiness of the
Company and by a number of other factors. It is possible to view the Notes as
the economic equivalent of a debt obligation plus a series of cash settlement
options; however, there can be no assurance that the Notes will not trade in the
secondary market at a discount from the aggregate value of such economic
components, if such economic components were valued and capable of being traded
separately.
4
<PAGE>
The trading values of the Notes may be affected by a number of interrelated
factors, including those listed below. The following is the expected theoretical
effect on the trading value of the Notes of each of the factors listed below.
The following discussion of each separate factor generally assumes that all
other factors are held constant, although the actual interrelationship between
certain of such factors is complex.
Relative Level of the S&P MidCap 400 Index. The trading value of the Notes is
expected to depend significantly on the extent of the appreciation, if any,
of the S&P MidCap 400 Index over the Annual Starting Value applicable to the
next succeeding December Payment Date. If, however, Notes are sold at a time
when the S&P MidCap 400 Index exceeds the Annual Starting Value, the sale
price may nevertheless be at a discount from the amount expected to be
payable to the beneficial owner if such excess were to prevail until the next
December Payment Date. Furthermore, the price at which a beneficial owner
will be able to sell Notes prior to a December Payment Date may be at a
discount, which could be substantial, from the principal amount thereof, if,
at such time, the S&P MidCap 400 Index is below, equal to or not sufficiently
above the Annual Starting Value applicable to such December Payment Date. The
value of the Notes may also be affected by the limitation of the applicable
Maximum Annual Payment.
Volatility of the S&P MidCap 400 Index. If the volatility of the S&P MidCap
400 Index increases, the trading value of the Notes is expected to increase.
If the volatility of the S&P MidCap 400 Index decreases, the trading value of
the Notes is expected to decrease.
U.S. Interest Rates. In general, if U.S. interest rates increase, the value
of the Notes is expected to decrease. If U.S. interest rates decrease, the
value of the Notes is generally expected to increase. Interest rates may also
affect the U.S. economy, and, in turn, the level of the S&P MidCap 400 Index.
Rising interest rates may lower the level of the S&P MidCap 400 Index and,
thus, the value of the Notes. Falling interest rates may increase the level
of the S&P MidCap 400 Index and, thus, may increase the value of the Notes.
Time Remaining to December Payment Dates. The Notes may trade at a value
above that which may be inferred from the level of U.S. interest rates and
the S&P MidCap 400 Index. This difference will reflect a "time premium" due
to expectations concerning the level of the S&P MidCap 400 Index during the
period prior to each December Payment Date. As the time remaining to each
December Payment Date decreases, however, this time premium may decrease,
thus decreasing the trading value of the Notes.
Time Remaining to Maturity. As the number of remaining December Payment Dates
decreases, the cumulative value of all the annual rights to receive an amount
that reflects participation in the appreciation of the S&P MidCap 400 Index
above the Starting Annual Value (which would be realized in interest payments
in excess of the Minimum Annual Payment) will decrease, thus decreasing the
value of the Notes. Furthermore, as the time to maturity decreases, the value
of the right to receive the Minimum Annual Payment and the principal amount
is expected to increase, thus increasing the value of the Note.
Dividend Rates. A number of complex relationships between the relative values
of the Notes and dividend rates are likely to exist. If dividend rates on the
stocks comprising the S&P MidCap 400 Index increase, the value of the annual
right to receive an amount that reflects participation in the appreciation of
the S&P MidCap 400 Index above the Starting Annual Value is expected to
decrease. Consequently the value of the Notes is expected to decrease.
Conversely, if dividend rates on the stocks comprising the S&P MidCap 400
Index decrease, the value of the annual right to receive such an amount is
expected to increase and, therefore, the value of the Notes is expected to
increase. However, in general, rising U.S. corporate dividend rates may
increase the S&P MidCap 400 Index and, in turn, increase the value of the
Notes. Conversely, falling U.S. dividend rates may decrease the S&P MidCap
400 Index and, in turn, decrease the value of the Notes.
OTHER CONSIDERATIONS
5
<PAGE>
It is suggested that prospective investors who consider purchasing the Notes
should reach an investment decision only after carefully considering the
suitability of the Notes in the light of their particular circumstances.
Investors should also consider the tax consequences of investing in the Notes
and should consult their tax advisors.
DESCRIPTION OF NOTES
GENERAL
The Notes were issued as a series of Senior Debt Securities under the Senior
Indenture, dated as of April 1, 1983, as amended and restated, which is more
fully described below. The Notes will mature, and the principal of the Notes
will be repayable at par, on December 31, 1999.
The Notes are not subject to redemption prior to maturity by the Company or
at the option of any beneficial owner. Upon the occurrence of an Event of
Default with respect to the Notes, however, beneficial owners of the Notes or
the Senior Debt Trustee may accelerate the maturity of the Notes, as described
under "Description of Notes--Events of Default and Acceleration" and "Other
Terms--Events of Default" in this Prospectus.
The Notes were issued in denominations of $1,000 and integral multiples
thereof.
INTEREST PAYMENTS
For each full calendar year, the Company will pay interest in an amount equal
to the following for each $1,000 principal amount of Notes:
$1,000 x Annual Percent Appreciation x Participation Rate
provided, however, that the per annum amount payable as a result of the
foregoing on the Notes will not be less than the Minimum Annual Payment or
greater than the Maximum Annual Payment. The table below specifies the Minimum
Annual Payment and the Maximum Annual Payment on a per annum basis per $1,000
principal amount of Notes as well as the Participation Rate.
Minimum Annual Payment .................... $30 (3%)
Maximum Annual Payment .................... $100 (10%)
Participation Rate ........................ 65%
The "Annual Percent Appreciation" applicable to the determination of the
amount payable in any year will equal (i) the Ending Annual Value minus the
Starting Annual Value, divided by (ii) the Starting Annual Value. The "Starting
Annual Value" applicable to the determination of the amount payable in a
calendar year will equal the closing value of the S&P MidCap 400 Index on the
first NYSE Business Day (as defined herein) in such year on which a Market
Disruption Event has not occurred as determined by State Street Bank and Trust
Company (the "Calculation Agent"); provided, however, that if a Market
Disruption Event shall have occurred on each of the first ten NYSE Business Days
in any year, the "Starting Annual Value" applicable to the determination of the
amount payable in such year will equal the closing value of the S&P MidCap 400
Index on such tenth NYSE Business Day regardless of whether a Market Disruption
Event occurs on such day. The "Ending Annual Value" applicable to the
determination of the amount payable in a calendar year will equal the closing
value of the S&P MidCap 400 Index on the seventh scheduled NYSE Business Day
preceding the end of such year (including December 31 if it is a scheduled NYSE
Business Day) as determined by the Calculation Agent, unless a Market Disruption
Event has occurred on such day. In the event that a Market Disruption Event has
occurred on the seventh scheduled NYSE Business Day preceding the end of such
year, the "Ending Annual Value" applicable to the determination of the amount
payable in such year will equal the closing value of the S&P MidCap 400 Index on
the sixth scheduled
6
<PAGE>
NYSE Business Day preceding the end of such year regardless of whether such day
is a NYSE Business Day or a Market Disruption Event occurs on such day. The
Calculation Agent will determine the seventh scheduled NYSE Business Day, and,
if necessary, the sixth scheduled NYSE Business Day prior to each December
Payment Date.
If the Ending Annual Value applicable to such December Payment Date does not
exceed the Starting Annual Value applicable to such December Payment Date by
more than approximately 4.62%, beneficial owners of the Notes will receive only
the Minimum Annual Payment on such December Payment Date, even if the value of
the S&P MidCap 400 Index at some point between the determination of the
applicable Starting Annual Value and the determination of the applicable Ending
Annual Value exceeded such Starting Annual Value by more than approximately
4.62%. If the Ending Annual Value applicable to a December Payment Date exceeds
the Starting Annual Value applicable to such December Payment Date by more than
approximately 15.38%, the beneficial owners of the Notes would receive only the
Maximum Annual Payment for the applicable payment period.
Any day on which a Starting Annual Value or an Ending Annual Value is
required to be calculated is referred to herein as a "Calculation Day". A "NYSE
Business Day" is a day on which The New York Stock Exchange is open for trading.
All determinations made by the Calculation Agent shall be at the sole discretion
of the Calculation Agent and, in the absence of manifest error, shall be
conclusive for all purposes and binding on the Company and beneficial owners of
the Notes. All percentages resulting from any calculation on the Notes will be
rounded to the nearest one hundred-thousandth of a percentage point, with five
one-millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) would be rounded to 9.87655% (or .0987655)), and all dollar amounts
used in or resulting from such calculation will be rounded to the nearest cent
(with one-half cent being rounded upwards).
"Market Disruption Event" means either of the following events, as determined
by the Calculation Agent:
(i) the suspension or material limitation (limitations pursuant to New
York Stock Exchange Rule 80A (or any applicable rule or regulation enacted or
promulgated by the New York Stock Exchange, any other self regulatory
organization or the Securities and Exchange Commission of similar scope as
determined by the Calculation Agent) on trading during significant market
fluctuations shall be considered "material" for purposes of this
definition), in each case, for more than two hours of trading in 80 or more
of the securities included in the S&P MidCap 400 Index, or
(ii) the suspension or material limitation, in each case for more than two
hours of trading (whether by reason of movements in price exceeding levels
permitted by the relevant exchange or otherwise), in (A) futures contracts
related to the S&P MidCap 400 Index which are traded on the Chicago
Mercantile Exchange or (B) option contracts related to the S&P MidCap 400
Index which are traded on the American Stock Exchange.
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular business hours of
the relevant exchange.
INTEREST PAYMENT DATES
The Company will make semiannual interest payments on the Notes on June 30
and December 31 of each year ("June Payment Dates" and "December Payment Dates",
respectively), except as provided below, to the persons in whose names the Notes
are registered on the next preceding June 29 or December 30. For each Note, the
Company will pay half of the Minimum Annual Payment for each calendar year on
the June Payment Date, and will pay the balance of the annual amount payable on
such Note for such year on the December Payment Date.
Notwithstanding the foregoing, if it is known at least three Business Days
prior to December 31 that December 31 will not be a Business Day, the amount
payable by the Company with respect to a December Payment Date for
7
<PAGE>
Series A Notes will be made on the Business Day immediately preceding such
December 31 to the persons in whose names the Notes are registered on the second
Business Day immediately preceding such December 31.
S&P MIDCAP 400 INDEX
The following table illustrates hypothetical annual payments on the Notes
using assumed changes in the S&P MidCap 400 Index. The numbers below are shown
for illustrative purposes only and are not intended to predict either the future
levels of the S&P MidCap 400 Index or the payments to be received on the Notes.
HYPOTHETICAL SMART NOTE PAYMENTS
<TABLE>
<CAPTION>
INDEX HYPOTHETICAL ANNUALIZED
HYPOTHETICAL STARTING HYPOTHETICAL ENDING PERCENT PARTICIPATION SMART
YEAR ANNUAL VALUE(1) ANNUAL VALUE(2) CHANGE RATE NOTE PAYMENT RATE(3)
- ---- --------------------- -------------------- ------- -------------- ------------------------
<S> <C> <C> <C> <C> <C>
1........... 163 180 10.43% 65% 6.78%
2........... 178 206 15.73% 65% 10.00%**
3........... 208 174 -16.35% 65% 3.00%*
4........... 174 218 25.29% 65% 10.00%**
5........... 217 216 -0.46% 65% 3.00%*
6........... 219 284 29.68% 65% 10.00%**
7........... 283 310 9.54% 65% 6.20%
- -----------
</TABLE>
(1) Assumed closing value of the S&P MidCap 400 Index on the first NYSE Business
Day of each year.
(2) Assumed closing value of the S&P MidCap 400 Index on the seventh scheduled
NYSE Business Day prior to the end of each year.
(3) Simple interest basis.
* Minimum Annual Payment ($30 per $1,000 principal amount (3% per annum)).
** Maximum Annual Payment ($100 per $1,000 principal amount (10% per annum)).
The above information is for purposes of illustration only. The actual amount
payable in any year on the Notes will depend entirely on the Starting Annual
Value and Ending Annual Value applicable to such year determined by the
Calculation Agent as provided herein and the Minimum Annual Payment, Maximum
Annual Payment and Participation Rate.
A potential investor should review the historical performance of the S&P
MidCap 400 Index. The historical performance of the S&P MidCap 400 Index should
not be taken as an indication of future performance, and no assurance can be
given that the S&P MidCap 400 Index will increase sufficiently during any
calendar year to cause the beneficial owners of the Notes to receive an amount
in excess of the Minimum Annual Payment during any such calendar year.
UNAVAILABILITY OF THE S&P MIDCAP 400 INDEX
If S&P discontinues publication of the S&P MidCap 400 Index and S&P or another
entity publishes a successor or substitute index that the Calculation Agent
determines, in its sole discretion, to be comparable to the S&P MidCap 400 Index
(any such index being referred to hereinafter as a "Successor Index"), then,
upon the Calculation Agent's notification of such determination to the Trustee
and the Company, the Calculation Agent will substitute the Successor Index as
calculated by S&P or such other entity for the S&P MidCap 400 Index and
calculate the Starting Annual Value and/or the Ending Annual Value as described
above. Upon any selection by the Calculation Agent of a Successor Index, the
Company shall cause notice thereof to be published in The Wall Street Journal
(or another newspaper of general circulation) within three Business Days of such
selection.
If the S&P MidCap 400 Index is unavailable or S&P discontinues publication of
the S&P MidCap 400 Index and a Successor Index is not selected by the
Calculation Agent or is no longer published on any of the Calculation Days,
8
<PAGE>
the value to be substituted for the S&P MidCap 400 Index for any such
Calculation Day used to calculate the Starting Annual Value or Ending Annual
Value, as the case may be, will be calculated as described below.
If a Successor Index is selected or the Calculation Agent calculates a value
as a substitute for the S&P MidCap 400 Index as described below, such Successor
Index or value shall be substituted for the S&P MidCap 400 Index for all
purposes.
If at any time the method of calculating the S&P MidCap 400 Index, or the
value thereof, is changed in a material respect, or if the S&P MidCap 400 Index
is in any other way modified so that such Index does not, in the opinion of the
Calculation Agent, fairly represent the value of the S&P MidCap 400 Index had
such changes or modifications not been made, then, from and after such time, the
Calculation Agent shall, at the close of business in New York, New York, on each
Calculation Date, make such adjustments as, in the good faith judgment of the
Calculation Agent, may be necessary in order to arrive at a calculation of a
value of a stock index comparable to the S&P MidCap 400 Index as if such changes
or modifications had not been made, and calculate such closing value with
reference to the S&P MidCap 400 Index, as adjusted. Accordingly, if the method
of calculating the S&P MidCap 400 Index is modified so that the value of such
Index is a fraction or a multiple of what it would have been if it had not been
modified (e.g., due to a split in the Index), then the Calculation Agent shall
adjust such Index in order to arrive at a value of the S&P MidCap 400 Index as
if it had not been modified (e.g., as if such split had not occurred).
If the S&P MidCap 400 Index is unavailable or the publication of the S&P
MidCap 400 Index is discontinued and S&P or another entity does not publish a
Successor Index on any of the Calculation Days, the value to be substituted for
the S&P MidCap 400 Index for any such Calculation Day will be the value computed
by the Calculation Agent for each such Calculation Day in accordance with the
following procedures:
(1) identifying the component stocks of the S&P MidCap 400 Index or any
Successor Index as of the last date on which either of such indices was
calculated by S&P or another entity and published by S&P or such other entity
(each such component stock is a "Last Component Stock");
(2) for each Last Component Stock, calculating as of each such NYSE
Business Day the product of the market price per share and the number of the
then outstanding shares (such product referred to as the "Market Value" of
such stock), by reference to (a) the closing market price per share of such
Last Component Stock as quoted by the New York Stock Exchange or the American
Stock Exchange or any other registered national securities exchange that is
the primary market for such Last Component Stock, or if no such quotation is
available, then the closing market price as quoted by any other registered
national securities exchange or the National Association of Securities Dealers
Automated Quotation National Market System ("NASDAQ"), or if no such price is
quoted, then the market price from the best available source as determined by
the Calculation Agent (collectively, the "Exchanges") and (b) the most recent
publicly available statement of the number of outstanding shares of such Last
Component Stock;
(3) aggregating the Market Values obtained in clause (2) for all Last
Component Stocks;
(4) ascertaining the Base Value (as defined below under "The Standard &
Poor's MidCap 400 Index--Computation of the S&P MidCap 400 Index") in effect
as of the last day on which either the S&P MidCap 400 Index or any Successor
Index was published by S&P or another entity, adjusted as described below;
(5) dividing the aggregate Market Value of all Last Component Stocks by the
Base Value (adjusted as aforesaid);
(6) multiplying the resulting quotient (expressed in decimals) by 100.
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If any Last Component Stock is no longer publicly traded on any registered
national securities exchange or in the over-the-counter market, the last
available market price per share for such Last Component Stock as quoted by any
registered national securities exchange or in the over-the-counter market, and
the number of outstanding shares thereof at such time, will be used in computing
the last available Market Value of such Last Component Stock. Such Market Value
will be used in all computations of the S&P MidCap 400 Index thereafter.
If a company that has issued a Last Component Stock and another company that
has issued a Last Component Stock are consolidated to form a new company, the
common stock of such new company will be considered a Last Component Stock and
the common stocks of the constituent companies will no longer be considered Last
Component Stocks. If any company that has issued a Last Component Stock merges
with, or acquires, a company that has not issued a Last Component Stock, the
common stock of the surviving corporation will, upon the effectiveness of such
merger or acquisition, be considered a Last Component Stock. In each such case,
the Base Value will be adjusted so that the Base Value immediately after such
consolidation, merger or acquisition will equal (a) the Base Value immediately
prior to such event, multiplied by (b) the quotient of the aggregate Market
Value of all Last Component Stocks immediately after such event, divided by the
aggregate Market Value for all Last Component Stocks immediately prior to such
event.
If a company that has issued a Last Component Stock issues a stock dividend,
declares a stock split or issues new shares pursuant to the acquisition of
another company, then, in each case, the Base Value will be adjusted (in
accordance with the formula described below) so that the Base Value immediately
after the time the particular Last Component Stock commences trading ex-
dividend, the effectiveness of the stock split or the time new shares of such
Last Component Stock commence trading equals (a) the Base Value immediately
prior to such event, multiplied by (b) the quotient of the aggregate Market
Value for all Last Component Stocks immediately after such event, divided by the
aggregate Market Value of all Last Component Stocks immediately prior to such
event. The Base Value used by the Calculation Agent to calculate the value
described above will not necessarily be adjusted in all cases in which S&P, in
its discretion, might adjust the Base Value (as described below under "The
Standard & Poor's MidCap 400 Index--Computation of the S&P MidCap 400 Index").
If S&P discontinues publication of the S&P MidCap 400 Index prior to the
period during which the amount payable with respect to any year is to be
determined and the Calculation Agent determines that no Successor Index is
available at such time, then on each NYSE Business Day until the earlier to
occur of (i) the determination of the amount payable with respect to such year
or (ii) a determination by the Calculation Agent that a Successor Index is
available, the Calculation Agent shall determine the value that would be used in
computing the amount payable with respect to such year by reference to the
method set forth in clauses (1) through (6) in the fourth preceding paragraph
above as if such day were a Calculation Day. The Calculation Agent will cause
notice of each such value to be published not less often than once each month in
the Wall Street Journal (or another newspaper of general circulation), and
arrange for information with respect to such values to be made available by
telephone. Notwithstanding these alternative arrangements, discontinuance of the
publication of the S&P MidCap 400 Index may adversely affect trading in the
Notes.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Notes shall have occurred and
be continuing, the amount payable to a beneficial owner of a Note upon any
acceleration permitted by the Notes, will equal: (i) the principal amount
thereof, plus (ii) an additional amount, if any, of interest calculated as
though the date of early repayment were a December Payment Date and prorated
through such date of early repayment based on the ratio of the number of days
from and including the date the Starting Annual Value applicable to such year is
determined to but excluding the date of early repayment, computed on the basis
of a year consisting of 360 days of twelve 30-day months, divided by 360. If a
bankruptcy proceeding is commenced in respect of the Company, the claim of the
beneficial owner of a Note may be limited, under Section 502(b)(2) of Title 11
of the United States Code, to the principal amount of the Note plus an
additional amount, if any, of contingent interest calculated as though the date
of the commencement of the proceeding were the maturity date of the Notes.
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SECURITIES DEPOSITORY
The Notes are represented by one fully registered global security (the "Global
Security"). Such Global Security has been deposited with, or on behalf of, The
Depository Trust Company, as Securities Depository (the "Securities
Depository"), registered in the name of the Securities Depository or a nominee
thereof. Unless and until it is exchanged in whole or in part for Securities in
definitive form, the Global Security may be transferred except as a whole by the
Securities Depository to a nominee of such Securities Depository or by a nominee
of such Securities Depository to such Securities Depository or another nominee
of such Securities Depository or by such Securities Depository or any such
nominee to a successor of such Securities Depository or a nominee of such
successor.
The Securities Depository has advised the Company as follows: The Securities
Depository is a limited-purpose trust company organized under the Banking Law of
the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
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,
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 Notes must be made by or through Participants, which will receive
a credit on the records of the Securities Depository. The ownership interest of
each actual purchaser of each Note ("Beneficial Owner") is in turn to be
recorded on the Participants' or Indirect Participants' records. Beneficial
Owners will not receive written confirmation from the Securities Depository of
their purchase, but Beneficial Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Participant or Indirect Participant
through which the Beneficial Owner entered into the transaction. Ownership of
beneficial interests in such Global Security will be shown on, and the transfer
of such ownership interests will be effected only through, records maintained by
the Securities Depository (with respect to interests of Participants) and on the
records of Participants (with respect to interests of persons held through
Participants). The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to own, transfer or pledge
beneficial interests in Global Securities.
So long as the Securities Depository, or its nominee, is the registered owner
of the Global Security, the Securities Depository or its nominee, as the case
may be, will be considered the sole owner or Holder of the Notes represented by
such Global Security for all purposes under the Senior Indenture. Except as
provided below, Beneficial Owners in the Global Security will not be entitled to
have the Notes represented by such Global Security registered in their names,
will not receive or be entitled to receive physical delivery of the Notes in
definitive registered form and will not be considered the owners or Holders
thereof under the Senior Indenture. Accordingly, each Person owning a beneficial
interest in the Global Security must rely on the procedures of the Securities
Depository and, if such Person is not a Participant, on the procedures of the
Participant through which such Person owns its interest, to exercise any rights
of a Holder under the Senior Indenture. The Company understands that under
existing industry practices, in the event that the Company requests any action
of Holders or that an owner of a beneficial interest in the Global Security
desires to give or take any action which a Holder is entitled to give or take
under the Senior Indenture, the Securities Depository would authorize the
Participants holding the relevant beneficial interests to give or take such
action, and such Participants would authorize Beneficial Owners owning through
such Participants to give or take such action or would otherwise act upon the
instructions of beneficial owners. Conveyance of notices and other
communications by the Securities Depository to Participants, by Participants to
Indirect Participants, and by
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Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Payment of the principal of, and amounts payable on any June Payment Date or
December Payment Date with respect to Notes registered in the name of the
Securities Depository or its nominee, will be made to the Securities Depository
or its nominee, as the case may be, as the Holder of the Global Security
representing such Notes. None of the Company, the Trustee or any other agent of
the Company or agent of the Trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests or for supervising or reviewing any records
relative to such beneficial ownership interests. The Company expects that the
Securities Depository, upon receipt of any payment of principal or amounts
payable on any June Payment Date or December Payment Date in respect of the
Global Security, will credit the accounts of the Participants with payment in
amounts proportionate to their respective holdings in principal amount of
beneficial interest in such Global Security as shown on the records of the
Securities Depository. The Company also expects that payments by Participants to
Beneficial Owners will be governed by standing customer instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name", and will be the
responsibility of such Participants.
If (x) the Securities Depository is at any time unwilling or unable to
continue as Securities Depository and a successor depository is not appointed by
the Company within 60 days, (y) the Company executes and delivers to the Trustee
a Company Order to the effect that the Global Security shall be exchangeable or
(z) an Event of Default has occurred and is continuing with respect to the
Notes, the Global Security will be exchangeable for Notes in definitive form of
like tenor and of an equal aggregate principal amount, in denominations of
$1,000 and integral multiples thereof. Such definitive Notes shall be registered
in such name or names as the Securities Depository shall instruct the Trustee.
It is expected that such instructions may be based upon directions received by
the Securities Depository from Participants with respect to ownership of
beneficial interests in such Global Security.
THE STANDARD & POOR'S MIDCAP 400 INDEX
All disclosure contained in this Prospectus regarding the S&P MidCap 400
Index, including, without limitation, its make-up, method of calculation and
changes in its components, is derived from publicly available information
prepared by S&P as of April 16, 1993. Neither the Company nor MLPF&S take any
responsibility for such information.
GENERAL
The S&P MidCap 400 Index is published by S&P and is intended to provide an
indication of the pattern of price movements of common stocks of corporations
having mid-market capitalization. The calculation of the value of the S&P MidCap
400 Index (discussed below in further detail) is based on the relative value of
the aggregate Market Value (as defined above) of the common stocks of 400
companies as of a particular time as compared to the aggregate average Market
Value of the common stocks of 400 substantially similar companies on December
31, 1990. As of April 16, 1993, 263 (66%) of the companies included in the S&P
MidCap 400 Index were listed on the New York Stock Exchange, 125 (31%) of the
companies were traded in the over-the-counter market and 12 (3%) of the
companies were listed on the American Stock Exchange. As of February 3, 1993,
the aggregate Market Value of the 400 companies included in the S&P MidCap 400
Index represented approximately 15% of the aggregate Market Value of United
States domestic companies. The 400 companies are not the largest companies
listed on The New York Stock Exchange (the companies included in the Standard &
Poor's 500 Composite Stock Price Index, which had a median market capitalization
of $3.1 billion at April 16, 1993, are generally larger than those included in
the S&P MidCap 400 Index, which had a median market capitalization of $846.8
million at April 16, 1993). S&P chooses companies for inclusion in the S&P
MidCap 400 Index with the aim of achieving (for companies of mid-market
capitalization) a distribution by broad industry groupings that approximates the
distribution of these groupings in the common stock population of The New York
Stock Exchange, which S&P uses as an assumed model
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for the composition of the total market with respect to such mid-market
corporations. Relevant criteria employed by S&P in selecting companies for the
S&P MidCap 400 Index include the viability of the particular company, the extent
to which that company represents the industry group to which it is assigned, the
extent to which the market price of that company's common stock is generally
responsive to changes in the affairs of the respective industry and the Market
Value and trading activity of the common stock of that company.
COMPUTATION OF THE S&P MIDCAP 400 INDEX
As of April 16, 1993, S&P computed the S&P MidCap 400 Index as of a particular
time as follows:
(1) the Market Value of each component stock is determined as of such time;
(2) the Market Values of all component stocks as of such time (as
determined under clause (1) above) are aggregated;
(3) the Market Values as of December 31, 1990 (the "Base Period") of the
common stock of each company in a group of 400 substantially similar companies
is determined;
(4) the Market Values of all such common stocks as of the Base Period (as
determined under clause (3) above) are aggregated (such aggregate amount being
referred to as the "Base Value");
(5) the aggregate Market Value of all component stocks as of such time (as
determined under clause (2) above) is divided by the Base Value; and
(6) the resulting quotient (expressed in decimals) is multiplied by 100.
While S&P currently employs the above methodology to calculate the S&P MidCap
400 Index, no assurance can be given that S&P will not modify or change such
methodology in a manner that may affect the amounts payable on any December
Payment Date to beneficial owners of the Notes.
S&P adjusts the foregoing formula to negate the effect of changes in the
Market Value of a component stock that are determined by S&P to be arbitrary or
not due to true market fluctuations. Such changes may result from such causes as
the issuance of stock dividends, the granting to shareholders of rights to
purchase additional shares of such stock, the purchase of additional shares of
stock by employees pursuant to employee benefit plans, certain consolidations
and acquisitions, the granting to shareholders of rights to purchase other
securities of the company, the substitution by S&P of particular component
stocks in the S&P MidCap 400 Index and other reasons. In all such cases, S&P
first recalculates the aggregate Market Value of all component stocks (after
taking account of the new market price per share of the particular component
stock or the new number of outstanding shares thereof or both, as the case may
be) and then determines the New Base Value in accordance with the following
formula:
New Market Value
Old Base Value X ---------------- = New Base Value
Old Market Value
The result is that the Base Value is adjusted in proportion to any change in the
aggregate Market Value of all component stocks resulting from the causes
referred to above to the extent necessary to negate the effects of such causes
upon the S&P MidCap 400 Index.
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A potential investor should review the historical performance of the S&P
MidCap 400 Index. The historical performance of the S&P MidCap 400 Index should
not be taken as an indication of future performance, and no assurance can be
given that the S&P MidCap 400 Index will increase sufficiently to cause the
beneficial owners of the Notes to receive an amount in excess of the principal
amount at the maturity of the Notes.
LICENSE AGREEMENT
S&P and Merrill Lynch Capital Services, Inc. have entered into a non-exclusive
license agreement providing for the license to Merrill Lynch Capital Services,
Inc., in exchange for a fee, of the right to use indices owned and published by
S&P in connection with certain securities, including the Notes, and the Company
is an authorized sublicensee thereof.
The license agreement between S&P and Merrill Lynch Capital Services, Inc.
provides that the following language must be stated in this Prospectus:
"The Notes are not sponsored, endorsed, sold or promoted by S&P. S&P makes
no representation or warranty, express or implied, to the Holders of the
Notes or any member of the public regarding the advisability of investing in
securities generally or in the Notes particularly or the ability of the S&P
MidCap 400 Index to track general stock market performance. S&P's only
relationship to Merrill Lynch Capital Services, Inc. and the Company (other
than transactions entered into in the ordinary course of business) is the
licensing of certain service marks and trade names of S&P and of the S&P
MidCap 400 Index which is determined, composed and calculated by S&P without
regard to the Company or the Notes. S&P has no obligation to take the needs
of the Company or the Holders of the Notes into consideration in determining,
composing or calculating the S&P MidCap 400 Index. S&P is not responsible for
and has not participated in the determination or calculation of the equation
by which the Notes are to be converted into cash. S&P has no obligation or
liability in connection with the administration, marketing or trading of the
Notes."
OTHER TERMS
GENERAL
The Note were issued as a series of Senior Debt Securities under the Indenture
(the "Senior Indenture"), dated as of April 1, 1983, as amended and restated,
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"). A copy of the Senior Indenture is filed as an exhibit to the
registration statements relating to the Notes. The following summaries of
certain provisions of the Senior Indenture do not purport to be complete and are
subject to, and qualified in their entirety by reference to, all provisions of
the Senior Indenture, including the definition therein of certain terms.
The Senior Indenture provides that series of Senior Debt Securities may from
time to time be issued thereunder, without limitation as to aggregate principal
amount, in one or more series and upon such terms as the Company may establish
pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the Notes are
governed by and construed in accordance with the laws of the State of New York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen" a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
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The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Securities
Exchange Act of 1934, as amended, and under rules of certain exchanges and other
regulatory bodies.
LIMITATIONS UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of the incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
LIMITATION ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Indenture provides that the Company may not sell, transfer or otherwise
dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell or
otherwise dispose of any of its Voting Stock, unless, after giving effect to any
such transaction, MLPF&S remains a Controlled Subsidiary (defined in the Senior
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the 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.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or into
any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior 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 Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company and
the Trustee with the consent of the Holders of 66 2/3% in principal amount of
the Outstanding Senior Debt Securities of each series issued pursuant to such
indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding Senior Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts payable on, any Senior Debt
Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any Senior Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Debt Security; (e) reduce the percentage in principal
amount of the Outstanding Senior Debt Securities of any series, the consent of
whose Holders
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is required to modify or amend the Indenture; or (f) modify the foregoing
requirements or reduce the percentage of Outstanding Senior Debt Securities
necessary to waive any past default to less than a majority. No modification or
amendment of the Subordinated Indenture or any Subsequent Indenture for
Subordinated Debt Securities may adversely affect the rights of any holder of
Senior Indebtedness without the consent of such Holder. Except with respect to
certain fundamental provisions, the Holders of at least a majority in principal
amount of Outstanding Senior Debt Securities of any series may, with respect to
such series, waive past defaults under the Indenture and waive compliance by the
Company with certain provisions thereof.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the Indenture for
the benefit of such series or in the Senior Debt Securities of such series,
continued for 60 days after written notice as provided in the Senior Indenture;
(e) certain events in bankruptcy, insolvency or reorganization; and (f) any
other Event of Default provided with respect to Senior Debt Securities of that
series. The Trustee or the Holders of 25% in principal amount of the
Outstanding Senior Debt Securities of that series may declare the principal
amount (or such lesser amount as may be provided for in the Senior Debt
Securities of that series) of all Outstanding Senior Debt Securities of that
series and the interest due thereon and Additional Amounts payable in respect
thereof, if any to be due and payable immediately if an Event of Default with
respect to Senior Debt Securities of such series shall occur and be continuing
at the time of such declaration. At any time after a declaration of
acceleration has been made with respect to Senior Debt Securities of any series
but before a judgment or decree for payment of money due has been obtained by
the Trustee, the Holders of a majority in principal amount of the Outstanding
Senior Debt Securities of that series may rescind any declaration of
acceleration and its consequences, if all payments due (other than those due as
a result of acceleration) have been made and all Events of Default have been
remedied or waived. Any Event of Default with respect to Senior Debt Securities
of any series may be waived by the Holders of a majority in principal amount of
all Outstanding Senior Debt Securities of that series, except in a case of
failure to pay principal or premium, if any, or interest or Additional Amounts
payable on any Senior Debt Security of that series for which payment had not
been subsequently made or in respect of a covenant or provision which cannot be
modified or amended without the consent of the Holder of each Outstanding Senior
Debt Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior Debt
Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any right or power
under the Senior Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company is required to furnish to the Trustee annually a statement as to
the fulfillment by the Company of all of its obligations under the Senior
Indenture.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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
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"Common Share Data" for each of the five years in the period ended December 26,
1997 included in the 1997 Annual Report on Form 10-K, and incorporated by
reference herein, has been derived from consolidated financial statements
audited by Deloitte & Touche LLP, as set forth in their reports included or
incorporated by reference herein. Such consolidated financial statements and
related financial statement schedules, and such 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 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 such Quarterly Reports 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.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
JAPAN INDEX(SM)
EQUITY PARTICIPATION SECURITIES WITH MINIMUM RETURN PROTECTION DUE JANUARY 31,
2000
On January 27, 1994, Merrill Lynch & Co., Inc. (the "Company") issued
$115,000,000 aggregate principal amount of Japan Index(SM) Equity Participation
Securities with Minimum Return Protection due January 31, 2000 (the "Securities"
or the "Notes") in denominations of $1,000 and integral multiples thereof. As
of the date of this Prospectus, $60,000,000 aggregate principal amount of the
Securities remain outstanding. The Securities will mature on January 31, 2000.
At maturity, a beneficial owner of a Security will be entitled to receive, with
respect to each Security, the principal amount thereof plus an interest payment
(the "Supplemental Redemption Amount") based on the percentage increase, if any,
in the Index (as hereinafter defined). The Securities were issued as a series of
Senior Debt Securities under the Senior Indenture described herein. The
Securities are not redeemable or callable by the Company prior to maturity.
While at maturity a beneficial owner of a Security will receive the principal
amount of such Security plus the Supplemental Redemption Amount, there will be
no payment of interest, periodic or otherwise.
The Supplemental Redemption Amount payable with respect to a Security at
maturity will equal the product of (A) the principal amount of the applicable
Security, (B) the percentage change from 195.46, the closing value of the Index
on January 20, 1994 as compared to the Final Average Value (as hereinafter
defined), and (C) 115% (the "Participation Rate"). In no event, however, will
the Supplemental Redemption Amount be less than $150 per $1,000 principal amount
of the Securities (the "Minimum Supplemental Redemption Amount"), representing a
minimum annualized rate of return of 2.33%. The calculation of the Final Average
Value, as more fully described herein, will equal the arithmetic average of the
closing values of the Index on certain days during January of 1998, 1999 and
2000. Although the Index will initially be the Japan Index (as defined herein),
under certain circumstances described herein, a New Japan Index (as defined
herein) may be substituted for the Japan Index. The Japan Index (or, if such
substitution shall occur, the New Japan Index) is referred to herein as the
"Index".
For information as to the calculation of the Supplemental Redemption Amount
which will be paid at maturity and the calculation and the composition of the
Index, see "Description of Securities" and "The Index", respectively, in this
Prospectus. FOR OTHER INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF IN THIS PROSPECTUS.
Ownership of the Securities is maintained in book-entry form by or through the
Depository (as hereinafter defined). Beneficial owners of the Securities do not
have the right to receive physical certificates evidencing their ownership
except under the limited circumstances described herein.
The Securities have been listed on the American Stock Exchange under the
symbol "MJP.A".
____________
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 Securities 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 Securities.
MLPF&S may act as principal or agent in such transactions. The Securities may
be offered on the American Stock Exchange, 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 Securities 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.
____________
MERRILL LYNCH & CO.
____________
THE DATE OF THIS PROSPECTUS IS JULY ___, 1998.
(SM)"Japan Index" is a service mark of The American Stock Exchange.
<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 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 26, 1997,
Quarterly Report on Form 10-Q for the period ended March 27, 1998, and Current
Reports on Form 8-K dated January 20, 1998, January 30, 1998, February 4, 1998,
February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998, April 29,
1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June 24, 1998,
June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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 LAWRENCE M. EGAN, JR., CORPORATE SECRETARY'S
OFFICE, 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 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.
MERRILL LYNCH & CO., INC.
<PAGE>
Merrill Lynch & Co., Inc. is a holding company that, through its
subsidiaries and affiliates, provides investment, financing, advisory,
insurance, and related services on a global basis. Its principal subsidiary,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("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; an underwriter of selected insurance products and a distributor of
investment products of the Merrill Lynch Asset Management group. 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. The Company's asset management and investment management activities are
conducted through the Merrill Lynch Asset Management group and Merrill Lynch
Mercury Asset Management, which together constitute one of the largest asset
management organizations in the world. Merrill Lynch Government Securities Inc.
is a primary dealer in obligations issued or guaranteed by the U.S. Government
and its agencies and its government-sponsored entities. Merrill Lynch Capital
Services, Inc., Merrill Lynch Derivative Products AG, and Merrill Lynch
International are the Company's primary derivative product dealers and enter
into interest rate, currency, and other over-the-counter derivative transactions
as intermediaries and as principals. The Company's operations in insurance
services consist of the underwriting and sale 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 and purchasing secured loans, providing
currency exchange facilities and other related services, and furnishing trust,
employee benefit, and custodial 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
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges ............. 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
RISK FACTORS
PAYMENT AT MATURITY
Investors should be aware that if the Final Average Value of the Index does
not exceed the Initial Value by more than approximately 13.04%, beneficial
owners of the Securities will receive only the principal amount thereof and the
Minimum Supplemental Redemption Amount. A beneficial owner of the Securities may
receive a Supplemental Redemption Amount equal only to the Minimum Supplemental
Redemption Amount at maturity, and such Minimum Supplemental Redemption Amount
is below what the Company would pay as interest as of the date of issuance if
the Company issued non-callable senior debt securities with a similar maturity
as that of the Securities.
3
<PAGE>
The return of principal of the Securities at maturity and the payment of the
Minimum Supplemental Redemption Amount are not expected to reflect the full
opportunity costs implied by inflation or other factors relating to the time
value of money.
The Index does not reflect the payment of dividends on the stocks underlying
it and therefore, in addition to the considerations regarding averaging
discussed below, the yield based on the Index to the maturity of the Securities
will not produce the same yield as if such underlying stocks were purchased and
held for a similar period. Because the Final Average Value will be based upon
average values of the Index during specified periods in three successive years,
a significant increase in the Index as measured by the average values during the
specified period in the final year, or in either earlier year, may be
substantially or entirely offset by the average values of the Index during the
specified periods in the other two years.
The Index used to calculate the Supplemental Redemption Amount will initially
be the Japan Index, which is currently calculated and published by the American
Stock Exchange. Upon the occurrence of certain events described under
"Description of Securities--Substitution of the Index", a New Japan Index (which
will also relate to the trading of equity securities in Japan) will be
substituted for the Japan Index as the basis of the calculation of the
Supplemental Redemption Amount. The required characteristics of such New Japan
Index are described herein; however, the New Japan Index does not currently
exist, and such New Japan Index may be calculated and published by a United
States stock exchange other than the American Stock Exchange. In the event that
a New Japan Index is substituted for the Japan Index, no assurance can be given
as to whether the Supplemental Redemption Amount calculated on the basis of such
New Japan Index will be more than or less than or equal to the Supplemental
Redemption Amount which would have been payable had such substitution not
occurred.
The Senior Indenture provides that the Senior Indenture and the Securities
will be governed by and construed in accordance with the laws of New York. Under
present New York law the maximum rate of interest is 25% per annum on a simple
interest basis. This limit may not apply to Securities in which $2,500,000 or
more has been invested. While the Company believes that New York law would be
given effect by a state or Federal court sitting outside of New York, state laws
frequently regulate the amount of interest that may be charged to and paid by a
borrower (including, in some cases, corporate borrowers). The Company has
covenanted for the benefit of the Holders of the Securities, to the extent
permitted by law, not to claim voluntarily the benefits of any laws concerning
usurious rates of interest against a Holder of the Securities.
TRADING
The Securities are listed on the American Stock Exchange. It is expected that
the secondary market for the Securities will be affected by the creditworthiness
of the Company and by a number of other factors. Because the Final Average Value
is an average of the three Calculation Values as described below, the price at
which a beneficial owner of a Security will be able to sell such Security in the
secondary market may be at a discount if the first or second such Calculation
Value is below the Initial Value.
The trading value of the Securities is expected to depend primarily on the
extent of the appreciation, if any, of the Index over the Initial Value. If,
however, Securities are sold prior to the maturity date at a time when the Index
exceeds the Initial Value, the sale price may be at a discount from the amount
expected to be payable to the beneficial owner if such excess of the Index over
the Initial Value were to prevail until maturity of the Securities because of
the possible fluctuation of the Index between the time of such sale and the
maturity date and the effect of the value of the Index on prior days used to
calculate the Final Average Value, if any. Furthermore, the price at which a
beneficial owner will be able to sell Securities prior to maturity may be at a
discount, which could be substantial, from the principal amount thereof if, at
such time, the Index is below, equal to or not sufficiently above the Initial
Value and/or if the value of the Index on prior days used to calculate the Final
Average Value, if any, was below, equal to or not sufficiently above the Initial
Value. A discount could also result from rising interest rates in the U.S.
4
<PAGE>
The trading values of the Securities may be affected by a number of
interrelated factors, including the creditworthiness of the Company and those
factors listed below. The relationship among these factors is complex, including
how these factors affect the relative value of the principal amount of the
Securities to be repaid at maturity and the value of the Supplemental Redemption
Amount. Accordingly, investors should be aware that factors other than the level
of the Index are likely to affect the Securities' trading value. The expected
theoretical effect on the trading value of the Securities of each of the factors
listed below, assuming in each case that all other factors are held constant, is
as follows:
Interest Rates. In general, if U.S. interest rates increase, the value of
the Securities is expected to decrease. If U.S. interest rates decrease, the
value of the Securities is expected to increase. In general, if Japanese
interest rates increase, the value of the Securities is expected to increase.
If Japanese interest rates decrease, the value of the Securities is expected
to decrease. Interest rates may also affect the Japanese economy, and, in
turn, the value of the Index. Rising interest rates may lower the value of the
Index and, thus, the Securities. Falling interest rates may increase the value
of the Index and, thus, may increase the value of the Securities.
Volatility of the Index. If the volatility of the Index increases, the
trading value of the Securities is expected to increase. If the volatility of
the Index decreases, the trading value of the Securities is expected to
decrease.
Time Remaining to Maturity. The Securities may trade at a value above that
which may be inferred from the level of interest rates and the Index. This
difference will reflect a "time premium" due to expectations concerning the
value of the Index during the period prior to maturity of the Securities. As
the time remaining to maturity of the Securities decreases, however, this time
premium is expected to decrease, thus decreasing the trading value of the
Securities. In addition, the price at which a beneficial owner may be able to
sell Securities prior to maturity may be at a discount, which may be
substantial, from the minimum expected value at maturity if one or more
Calculation Values, as defined below, were below, equal to or not sufficiently
above the Initial Value.
Dividend Rates in Japan. If dividend rates on the stocks comprising the
Index increase, the value of the Securities is expected to decrease.
Conversely, if dividend rates on the stocks comprising the Index decrease, the
value of the Securities is expected to increase. However, in general, rising
Japanese corporate dividend rates may increase the value of the Index and, in
turn, increase the value of the Securities. Conversely, falling Japanese
dividend rates may decrease the value of the Index and, in turn, decrease the
value of the Securities.
Although the stocks comprising the Japan Index are traded in Japanese yen and
the Securities are denominated in U.S. dollars, the Supplemental Redemption
Amount will not be adjusted for the currency exchange rate in effect at the
maturity of the Securities. The Supplemental Redemption Amount is based upon the
percentage increase in the Japan Index. The Japan Index is calculated using a
constant U.S.$/Japanese Yen exchange rate. The value of the Securities should
not, therefore, be directly affected by the currency exchange rate. For example,
if the Japan Index were to increase by 25% from the Initial Value to the Final
Average Value, a holder of the Securities would receive a Supplemental
Redemption Amount equal to $287.50 per $1,000 principal amount of Securities at
maturity regardless of the U.S.$/Japanese Yen exchange rate prevailing at
maturity. Changes in the exchange rate, however, may reflect changes in the
Japanese economy which, of course, would affect the value of the Index and the
Securities.
THE JAPANESE MARKET
The underlying stocks that constitute the Japan Index have been issued by
Japanese companies. If a New Japan Index is substituted for the Japan Index,
such New Japan Index would also be based upon stocks issued by Japanese
companies. Investments in securities indexed to the value of Japanese equity
securities involve certain risks. The Japanese securities markets may be more
volatile than U.S. or other securities markets and may be affected by
5
<PAGE>
market developments in different ways than U.S. or other securities markets.
Direct or indirect government intervention to stabilize the Japanese securities
markets and cross-shareholdings in Japanese companies on such markets may affect
prices and volume of trading on those markets. Also, there is generally less
publicly available information about Japanese companies than about those U.S.
companies that are subject to the reporting requirements of the Commission, and
Japanese companies are subject to accounting, auditing and financial reporting
standards and requirements that differ from those to which U.S. reporting
companies are subject.
Securities prices in Japan are subject to political, economic, financial and
social factors that apply in Japan. These factors (including the possibility
that recent or future changes in the Japanese government's economic and fiscal
policies, the possible imposition of, or changes in, currency exchange laws or
other Japanese laws or restrictions applicable to Japanese companies or
investments in Japanese equity securities and the possibility of fluctuations in
the rate of exchange between currencies) could negatively affect the Japanese
securities markets. Moreover, the Japanese economy may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resources and self-
sufficiency.
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the
Securities should reach an investment decision only after carefully considering
the suitability of the Securities in light of their particular circumstances.
Investors should also consider the tax consequences of investing in the
Securities and should consult their tax advisors.
DESCRIPTION OF SECURITIES
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Senior Indenture, dated as of April 1, 1983, as amended and restated, which is
more fully described below. The Securities will mature on January 31, 2000.
While at maturity a beneficial owner of a Security will receive the principal
amount of such Security plus the Supplemental Redemption Amount, there will be
no payment of interest, periodic or otherwise. (See "Payment at Maturity",
below.)
The Securities are not subject to redemption by the Company or at the option
of any beneficial owner prior to maturity. Upon the occurrence of an Event of
Default with respect to the Securities, beneficial owners of the Securities may
accelerate the maturity of the Securities, as described under "Description of
Securities--Events of Default and Acceleration" and "Other Terms--Events of
Default" in this Prospectus.
The Securities were issued in denominations of $1,000 and integral multiples
thereof.
PAYMENT AT MATURITY
At maturity, a beneficial owner of a Security will be entitled to receive the
principal amount thereof plus a Supplemental Redemption Amount, all as provided
below. If the Final Average Value of the Index does not exceed the Initial Value
by more than approximately 13.04% a beneficial owner of a Security will be
entitled to receive only the principal amount thereof and the Minimum
Supplemental Redemption Amount. Although the Index will initially be the Japan
Index, under certain circumstances described herein a New Japan Index (as
defined herein)
6
<PAGE>
may be substituted for the Japan Index. The Japan Index (or, if such
substitution shall occur, the New Japan Index) is referred to herein as the
"Index".
At maturity, a beneficial owner of a Security will be entitled to receive,
with respect to each such Security, (i) the principal amount thereof, and (ii)
the Supplemental Redemption Amount equal in amount to:
Final Average Value-Initial Value
Principal Amount x --------------------------------- x 115%
Initial Value
provided, that the Supplemental Redemption Amount will not be less than the
Minimum Supplemental Redemption Amount of $150 per $1,000 principal amount of
Securities. The Initial Value equals 195.46, the closing value of the Japan
Index on January 20, 1994; provided, however, that a new Initial Value will be
calculated as described herein if a New Japan Index is substituted for the Japan
Index.
The Final Average Value of the Index will be determined by State Street Bank
and Trust Company (the "Calculation Agent") and will equal the arithmetic
average (mean) of the Yearly Values, as defined below, for 1998, 1999 and 2000.
The Yearly Value for any year will be calculated during the Calculation Period
for such year which will be from and including January 22 in 1998, January 21 in
1999 and January 20 in 2000 to and including the fifth scheduled Business Day
after each such date. The Yearly Value for each year will equal the arithmetic
average (mean) of the closing values of the Index on the first Business Day in
the applicable Calculation Period (provided that a Market Disruption Event, as
defined below, shall not have occurred on such day) and on each succeeding
Business Day (provided that a Market Disruption Event shall not have occurred on
the applicable day) up to and including the last Business Day in the applicable
Calculation Period (each, a "Calculation Date") until the Calculation Agent has
so determined such closing values for five Business Days. If a Market Disruption
Event occurs on two or more of the Business Days during a Calculation Period,
the Yearly Value for the relevant year will equal the average of the values on
Business Days on which a Market Disruption Event did not occur during such
Calculation Period or, if there is only one such Business Day, the value on such
day. If a Market Disruption Event occurs on all of such Business Days during a
Calculation Period, the Yearly Value for the relevant year shall equal the
closing value of the Index on the last Business Day of the Calculation Period
regardless of whether a Market Disruption Event shall have occurred on such day.
A Yearly Value may be restated if the Substitution Event occurs after the
determination of such Yearly Value, see "Substitution of the Index".
For purposes of determining the Final Average Value, a "Business Day" is a day
on which the Relevant Stock Exchange is open for trading. "Relevant Stock
Exchange" means the American Stock Exchange or, if a New Japan Index has been
substituted for the Japan Index, the U.S. stock exchange that publishes such New
Japan Index. All determinations made by the Calculation Agent shall be at the
sole discretion of the Calculation Agent and, absent a determination by the
Calculation Agent of a manifest error, shall be conclusive for all purposes and
binding on the Company and beneficial owners of the Securities.
The following table illustrates, for a range of hypothetical Final Average
Values, the total amount payable at maturity for each $1,000 principal amount of
Securities.
7
<PAGE>
<TABLE>
<CAPTION>
TOTAL
HYPOTHETICAL FINAL PERCENTAGE AMOUNT
AVERAGE VALUE OF CHANGE OVER PAYABLE AT
THE JAPAN INDEX INITIAL VALUE MATURITY
------------------ ------------- ----------
<S> <C> <C>
97.73 -50% $1,150
117.28 -40% $1,150
136.82 -30% $1,150
156.37 -20% $1,150
175.91 -10% $1,150
195.46(1) 0% $1,150
215.01 10% $1,150
234.55 20% $1,230
254.10 30% $1,345
273.64 40% $1,460
293.19 50% $1,575
312.74 60% $1,690
332.28 70% $1,805
351.83 80% $1,920
371.37 90% $2,035
390.92 100% $2,150
410.47 110% $2,265
430.01 120% $2,380
</TABLE>
___________
(1) The Initial Value.
The above figures are for purposes of illustration only. The actual total
redemption amount received by investors will depend entirely on the actual Final
Average Value determined by the Calculation Agent as provided herein. Because
the Final Average Value will be based upon average values of the Index (which
may be a New Japan Index substituted for the Japan Index) during specified
periods in three successive years, a significant increase or decrease in the
Index as measured by the average values during the specified period in any year
may be substantially or entirely offset by the average values of the Index
during the specified periods in the other two years.
A potential investor should review the historical performance of the Japan
Index. The historical performance of the Japan Index should not be taken as an
indication of future performance, and no assurance can be given that the Japan
Index will increase sufficiently to cause the beneficial owners of the
Securities to receive an amount in excess of the principal amount and the
Minimum Supplemental Redemption Amount at the maturity of the Securities.
ADJUSTMENTS TO THE INDEX; MARKET DISRUPTION EVENT
If at any time the method of calculating the Index, or the value thereof, is
changed in a material respect, or if the Index is in any other way modified so
that such Index does not, in the opinion of the Calculation Agent, fairly
represent the value of the Index had such changes or modifications not been
made, then, from and after such time, the Calculation Agent shall, at the close
of business in New York, New York, on each date that the closing value with
respect to the Final Average Value is to be calculated, make such adjustments
as, in the good faith judgment of the Calculation Agent, may be necessary in
order to arrive at a calculation of a value of a stock index comparable to the
Index as if such changes or modifications had not been made, and calculate such
closing value with reference to the Index, as adjusted. Accordingly, if the
method of calculating the Index is modified so that the value of such Index is a
fraction or a multiple of what it would have been if it had not been modified
(e.g., due to a split in the Index), then the Calculation Agent shall adjust
such Index in order to arrive at a value of the Index as if it had not been
modified (e.g., as if such split had not occurred).
8
<PAGE>
"Market Disruption Event" means the occurrence or existence of either of the
following events on a Business Day during a Calculation Period as determined by
the Calculation Agent:
(i) a suspension or absence of trading on the TSE of 20% or more of the
Underlying Stocks which then comprise the Index or a Successor Index during
the one-half hour period preceding the close of trading on the TSE; or
(ii) the suspension or material limitation on the Singapore International
Monetary Exchange Ltd. (the "SIMEX"), Osaka Securities Exchange (the "OSE") or
the Relevant Stock Exchange or any other major securities market of trading in
futures or options contracts related to the Index during the one-half hour
period preceding the close of trading on the applicable exchange.
For purposes of determining whether a Market Disruption Event has occurred:
(1) a limitation on the hours or number of days of trading will not constitute a
Market Disruption Event if it results from an announced change in the regular
business hours of the relevant exchange, (2) a decision to permanently
discontinue trading in the relevant contract will not constitute a Market
Disruption Event, (3) a suspension of trading in a futures or options contract
on the Index by the Relevant Stock Exchange or other major securities market by
reason of (x) a price change exceeding limits set by the Relevant Stock Exchange
or such securities market, (y) an imbalance of orders relating to such contracts
or (z) a disparity in bid and ask quotes relating to such contracts will
constitute a suspension or material limitation of trading in futures or options
contracts related to the Index and (4) an "absence of trading" on the SIMEX,
OSE, the Relevant Stock Exchange or a major securities market on which futures
or options contracts related to the Index are traded will not include any time
when the SIMEX, OSE, the Relevant Stock Exchange or such securities market, as
the case may be, itself is closed for trading under ordinary circumstances.
SUBSTITUTION OF THE INDEX
Movements in the Japan Index correspond generally to movements in the Nikkei
225 Index published by Nihon Keizai Shimbun, Inc., which is currently the most
widely utilized index relating to Japanese equity securities, as measured by
trading volume and open interest relating to the futures contract on such index
(the "Nikkei 225 Futures Contract"). In October of 1993, Nihon Keizai Shimbun,
Inc. commenced the calculation and publication of a new broad-based,
capitalization-weighted index referred to as the Nikkei 300 Index (the "Nikkei
300 Index"). Unlike the Nikkei 225 Index, which is a price-weighted index of 225
Japanese companies listed in the First Section of the TSE, the Nikkei 300 Index
is a capitalization-weighted index of 300 Japanese companies listed in the First
Section of the TSE. See "The Index--The New Japan Index" for a description of
the Nikkei 300 Index. The OSE announced that, if a broad-based, capitalization-
weighted index were introduced on the TSE, the OSE expected to establish a new
futures contract on such index. Although the OSE has not as of the date of this
Prospectus introduced a new futures contract on the Nikkei 300 Index, any such
contract which it may introduce at some future date is referred to herein as the
"Nikkei 300 Futures Contract".
If the Nikkei 300 Futures Contract is introduced and publicly traded on an
exchange in Japan, and such contract develops trading volume and open interest
exceeding that of the Nikkei 225 Futures Contract, the Company believes this
would indicate that the Nikkei 300 Futures Contract will have become more widely
utilized than the Nikkei 225 Futures Contract. Therefore, in the event that a
Nikkei 300 Futures Contract is publicly traded at some future date on an
exchange in Japan and each of the additional conditions described below are
fulfilled (the occurrence of all such conditions being referred to herein as a
"Substitution Event"), a New Japan Index (as defined below) will be substituted
for the Japan Index. From and after such time, the Index used to determine the
Supplemental Redemption Amount with respect to the Notes will be such New Japan
Index. Upon the substitution of the New Japan Index for the Japan Index, the
Company will cause notice thereof to be given to Holders of the Securities. Such
notice will also state that, for purposes of calculating the Supplemental
Redemption Amount, an adjusted Initial Value will be substituted for the
original Initial Value. Such adjusted Initial Value will be calculated as
follows:
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Initial Value of Japan Index x current value of New Japan Index
--------------------------------
current value of Japan Index
where the current values of the Japan Index and of the New Japan Index will
equal their respective levels reported by the relevant exchange at the close of
business on the day that the Calculation Agent substitutes the New Japan Index
for the Japan Index. If the Substitution Event occurs after the determination of
a Yearly Value, any such Yearly Value will be restated in terms of the New Japan
Index pursuant to the following formula:
Yearly Value prior to restatement x adjusted Initial Value
---------------------------------
original Initial Value
The Supplemental Redemption Amount will then be calculated using such restated
Yearly Value.
A "Substitution Event" will have occurred if, as determined by the Calculation
Agent (whose opinion shall be conclusive and binding on the Company and on the
holders of the Notes), the following conditions are fulfilled:
(a) Nikkei 300 Futures Contracts shall be introduced and publicly traded on
an exchange in Japan; and
(b) The American Stock Exchange or another United States securities
exchange publishes (on a basis not less regularly than each day on which such
exchange and the TSE are open for trading) an index (the "New Japan Index")
which:
(i) for a period of 90 days immediately preceding the date of the
Substitution Event has a correlation based on daily, closing value to
closing value, percentage changes of not less than 90% with the Nikkei 300
Index; and
(ii) an option, warrant or other security which has payments determined
by reference to the New Japan Index has been approved to be listed on a
national securities exchange by the Securities and Exchange Commission; and
(c) Either of the following has occurred:
(i) the Nikkei 225 Index is no longer published and/or the Nikkei 225
Futures have been delisted from trading on the OSE; or
(ii) the Nikkei 300 Futures Contracts publicly traded on exchanges in
Japan have (A) greater average daily volume and (B) greater average daily
open interest than the Nikkei 225 Futures Contracts which trade on the OSE,
each for any three-month period prior to the date of the Substitution
Event, commencing on a futures expiration date on the OSE and ending on the
following futures expiration date; and
(d) To the extent required, the Company shall have obtained any license
necessary to use the New Japan Index as described herein. The Company has
agreed in the Securities to use its reasonable efforts to obtain any such
license.
Notwithstanding the above, unless the Nikkei 225 Index is no longer published
and/or the Nikkei 225 Futures Contracts shall have been delisted from trading on
the OSE, a Substitution Event will not be deemed to have occurred on any of the
180 days next preceding the maturity date of the Notes.
All disclosure contained in this Prospectus regarding the Nikkei 225 Index,
Nikkei 225 Futures Contract, Nikkei 300 Index, Nikkei 300 Futures Contract, or
their publisher, Nihon Keizai Shimbun, Inc., is derived from publicly available
information as of January 20, 1994. Nihon Keizai Shimbun, Inc. has no
relationship with the Company
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or the Securities; it does not sponsor, endorse, authorize, sell or promote the
Securities, and has no obligation or liability in connection with the
administration, marketing or trading of the Securities.
DISCONTINUANCE OF THE INDEX
If the American Stock Exchange discontinues publication of the Japan Index
(or, if a New Japan Index has been substituted for the Japan Index, publication
of the New Japan Index has been discontinued) and the American Stock Exchange or
another entity publishes a successor or substitute index that the Calculation
Agent determines, in its sole discretion, to be comparable to such Index (any
such index being referred to hereinafter as a "Successor Index"), then, upon the
Calculation Agent's notification of such determination to the Trustee and the
Company, the Calculation Agent will substitute the Successor Index as calculated
by the American Stock Exchange or such other entity for the Japan Index or the
New Japan Index, as the case may be, and calculate the Final Average Value as
described above under "Payment at Maturity". Upon any selection by the
Calculation Agent of a Successor Index, the Company shall cause notice thereof
to be given to Holders of the Securities.
If the American Stock Exchange discontinues publication of the Japan Index
(or, if a New Japan Index has been substituted for the Japan Index, publication
of the New Japan Index has been discontinued) and a Successor Index is not
selected by the Calculation Agent or is no longer published on any of the
Calculation Dates, the value to be substituted for the Index for any such
Calculation Date used to calculate the Supplemental Redemption Amount at
maturity will be a value computed by the Calculation Agent for each Calculation
Date in accordance with the procedures last used to calculate the Index prior to
any such discontinuance. If a Successor Index is selected or the Calculation
Agent calculates a value as a substitute for the Index as described below, such
Successor Index or value shall be substituted for the Index for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
If the American Stock Exchange discontinues publication of the Japan Index
(or, if a New Japan Index has been substituted for the Japan Index, publication
of the New Japan Index has been discontinued) prior to the period during which
the Supplemental Redemption Amount is to be determined and the Calculation Agent
determines that no Successor Index is available at such time, then on each
Business Day until the earlier to occur of (i) the determination of the Final
Average Value and (ii) a determination by the Calculation Agent that a Successor
Index is available, the Calculation Agent shall determine the value that would
be used in computing the Supplemental Redemption Amount as described in the
preceding paragraph as if such day were a Calculation Date. The Calculation
Agent will cause notice of each such value to be published not less often than
once each month in The Wall Street Journal (or another newspaper of general
circulation), and arrange for information with respect to such values to be made
available by telephone. Notwithstanding these alternative arrangements,
discontinuance of the publication of the Index may adversely affect trading in
the Securities.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Securities shall have occurred
and be continuing, the amount payable to a beneficial owner of a Security upon
any acceleration permitted by the Securities will be equal to: (i) the principal
amount thereof, plus (ii) an additional amount of contingent interest calculated
as though the date of early repayment were the maturity date of the Securities.
The Calculation Period used to calculate the final Yearly Value of the
Securities so accelerated will begin on the eighth scheduled Business Day next
preceding the scheduled date for such early redemption. If such final Yearly
Value is the only Yearly Value which shall have been calculated with respect to
the Securities, such final Yearly Value will be the Final Average Value. If one
or two other Yearly Values shall have been calculated with respect to the
Securities for prior years when the Securities shall have been outstanding, the
average (mean) of the final Yearly Value and such one other Yearly Value or such
two other Yearly Values, as the case may be, will be the Final Average Value.
The Minimum Supplemental Redemption Amount with respect to any such early
redemption date will be an amount equal to the interest which would have accrued
on the Securities from and including the date of original issuance to but
excluding the date of early redemption at an annualized rate of 2.33%,
calculated on a semiannual bond equivalent basis. See "Description of
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Securities--Payment at Maturity" in this Prospectus. If a bankruptcy proceeding
is commenced in respect of the Company, the claim of the beneficial owner of a
Security may be limited, under Section 502(b)(2) of Title 11 of the United
States Code, to the principal amount of the Security plus an additional amount
of contingent interest calculated as though the date of the commencement of the
proceeding were the maturity date of the Securities.
In case of default in payment at the maturity date of the Securities (whether
at their stated maturity or upon acceleration), from and after the maturity date
the Securities shall bear interest, payable upon demand of the beneficial owners
thereof, at the rate of 5.5% per annum (to the extent that payment of such
interest shall be legally enforceable) on the unpaid amount due and payable on
such date in accordance with the terms of the Securities to the date payment of
such amount has been made or duly provided for.
SECURITIES DEPOSITORY
All Securities are represented by one fully registered global security (the
"Global Security"). The Global Security is deposited with, or on behalf of, The
Depository Trust Company ("DTC"), as Depository (the "Depository"), registered
in the name of DTC or a nominee thereof. Unless and until it is exchanged in
whole or in part for Securities in definitive form, the Global Security may not
be transferred except as a whole by the Depository to a nominee of such
Depository or by a nominee of such Depository to such Depository or another
nominee of such Depository or by such Depository or any such nominee to a
successor of such Depository or a nominee of such successor.
DTC has advised the Company as follows: DTC 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. DTC 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. DTC's Participants include securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations.
DTC 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 DTC 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 Securities must be made by or through Participants, which will
receive a credit on the records of DTC. The ownership interest of each actual
purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the
Participants' or Indirect Participants' records. Beneficial Owners will not
receive written confirmation from DTC of their purchase, but Beneficial Owners
are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the
Participant or Indirect Participant through which the Beneficial Owner entered
into the transaction. Ownership of beneficial interests in the Global Security
will be shown on, and the transfer of such ownership interests will be effected
only through, records maintained by DTC (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 the Global Security.
So long as DTC, or its nominee, is the registered owner of the Global
Security, DTC or its nominee, as the case may be, will be considered the sole
owner or Holder of the Securities represented by such Global Security for all
purposes under the Senior Indenture. Except as provided below, Beneficial Owners
in a Global Security will not be entitled to have the Securities represented by
such Global Securities registered in their names, will not receive or be
entitled to receive physical delivery of the Securities in definitive form and
will not be considered the owners or
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Holders thereof under the Senior Indenture. Accordingly, each Person owning a
beneficial interest in a Global Security must rely on the procedures of DTC and,
if such Person is not a Participant, on the procedures of the Participant
through which such Person owns its interest, to exercise any rights of a Holder
under the Senior Indenture. The Company understands that under existing industry
practices, in the event that the Company requests any action of Holders or that
an owner of a beneficial interest in the Global Security desires to give or take
any action which a Holder is entitled to give or take under the Senior
Indenture, DTC 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 DTC to Participants, by Participants to
Indirect Participants, and by Participants and Indirect Participants to
Beneficial Owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of the principal of, and any Supplemental Redemption Amount with
respect to, Securities registered in the name of DTC or its nominee will be made
to DTC or its nominee, as the case may be, as the Holder of the Global Security
representing such Securities. 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 DTC,
upon receipt of any payment of principal or any Supplemental Redemption Amount
in respect of the Global Security, will credit the accounts of the Participants
with payment in amounts proportionate to their respective holdings in principal
amount of beneficial interest in the Global Security as shown on the records of
DTC. 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) any Depository is at any time unwilling or unable to continue as
Depository and a successor depository is not appointed by the Company within 60
days, (y) the Company executes and delivers to the Trustee a Company Order to
the effect that the Global Security shall be exchangeable or (z) an Event of
Default has occurred and is continuing with respect to the Securities, the
Global Security will be exchangeable for Securities in definitive form of like
tenor and of an equal aggregate principal amount, in denominations of $1,000 and
integral multiples thereof. Such definitive Securities shall be registered in
such name or names as the Depository shall instruct the Trustee. It is expected
that such instructions may be based upon directions received by the Depository
from Participants with respect to ownership of beneficial interests in such
Global Security.
THE INDEX
THE JAPAN INDEX
The Index for purposes of calculating the Supplemental Redemption Amount will
initially be the Japan Index. Unless otherwise stated, all information herein
relating to the Japan Index has been provided by the American Stock Exchange as
of January 20, 1994. Such information reflects the policies of the American
Stock Exchange; such policies are subject to change in the discretion of the
American Stock Exchange.
The Japan Index is a stock index calculated, published and disseminated by the
American Stock Exchange that measures the composite price performance of
selected Japanese stocks. The Japan Index as of January 20, 1994 was based on
210 highly capitalized Underlying Stocks trading on the TSE representing a broad
cross-section of Japanese industries. All 210 Underlying Stocks are stocks
listed in the First Section of the TSE. Stocks listed in the First Section are
among the most actively traded stocks on the Tokyo Stock Exchange. Options
contracts on the Japan Index are traded on the American Stock Exchange.
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The Japan Index is a modified, price-weighted index (i.e., an Underlying
Stock's weight in the index is based on its price per share rather than the
total market capitalization of the issuer) which is calculated by (i)
multiplying the per share price of each Underlying Stock by the corresponding
weighing factor for such Underlying Stock (a "Weight Factor"), (ii) calculating
the sum of all these products and (iii) dividing such sums by a divisor (the
"Divisor"). The Divisor, initially set in September 1990 at 9,799,460, was
9,608,946 as of January 20, 1994, and is subject to periodic adjustments as set
forth below. Each Weight Factor is computed by dividing (Yen)50 by the par value
of the relevant Underlying Stock and multiplying the result by 100, so that the
share price of each Underlying Stock when multiplied by its Weight Factor
corresponds to a share price based on a uniform par value of (Yen)50. Each
Weight Factor represents the number of shares of the related Underlying Stock
which are included in one trading unit of the Japan Index. The stock prices used
in the calculation of the Japan Index are those reported by a primary market for
the Underlying Stock (as of January 20, 1994, the TSE). The level of the Japan
Index is calculated once per day using last sale prices only (i.e., not "special
bid quotes" or "special ask quotes" which are used in connection with other
stock indices) for transactions in Underlying Stock on the TSE. The level of the
Japan Index is disseminated via the Consolidated Tape Authority Network-B
(commonly referred to as the "American Stock Exchange Tape"). The American Stock
Exchange Tape symbol for the Japan Index is "JPN".
In order to maintain continuity in the level of the Japan Index in the event
of certain changes due to non-market factors affecting the Underlying Stocks,
such as the addition or deletion of stocks, substitution of stocks, stock
dividends, stock splits or distributions of assets to stockholders, the Divisor
used in calculating the Japan Index is adjusted in a manner designed to prevent
any instantaneous change or discontinuity in the level of the Japan Index.
Thereafter, the Divisor remains at the new value until a further adjustment is
necessary as the result of another change. As a result of each such change
affecting any Underlying Stock, the Divisor is adjusted in such a way that the
sum of all share prices immediately after such change multiplied by the
applicable Weight Factor and divided by the new Divisor (i.e., the level of the
Japan Index immediately after such change) will equal the level of the Japan
Index immediately prior to the change.
Underlying Stocks may be deleted or added by the American Stock Exchange.
However, to maintain continuity in the Japan Index, the policy of the American
Stock Exchange is generally not to alter the composition of the Underlying
Stocks except when an Underlying Stock is deleted due to (i) bankruptcy of the
issuer, (ii) merger of the issuer with, or acquisition of the issuer by, another
company, (ii) delisting of such stock, or (iv) failure of such stock to meet,
upon periodic review by the American Stock Exchange, market value and trading
volume criteria established by the American Stock Exchange (as such may change
from time to time). Upon deletion of a stock from the Underlying Stocks, the
American Stock Exchange may select a suitable replacement for such deleted
Underlying Stock. The policy of the American Stock Exchange is to announce any
such change in advance via distribution of an information circular.
The American Stock Exchange is under no obligation to continue the calculation
and dissemination of the Japan Index. The Securities are not sponsored,
endorsed, sold or promoted by the American Stock Exchange. No inference should
be drawn from the information contained in this Prospectus that the American
Stock Exchange makes any representation or warranty, implied or express, to the
Company, beneficial owners of the Securities or any member of the public
regarding the advisability of investing in securities generally or in the
Securities in particular or the ability of the Japan Index to track general
stock market performance. The American Stock Exchange has no obligation to take
the needs of the Company or beneficial owners of the Securities into
consideration in determining, composing or calculating the Japan Index. The
American Stock Exchange is not responsible for, and has not participated in the
determination or calculation of the equation by which the Supplemental
Redemption Amount with respect to the Securities will be determined. The
American Stock Exchange has no obligation or liability in connection with the
administration, marketing or trading of the Securities.
The use of and reference to the Japan Index in connection with the Securities
has been consented to by the American Stock Exchange, the publisher of the Japan
Index. "Japan Index" is a service mark of the American Stock Exchange.
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None of the Company, the Calculation Agent and MLPF&S accepts any
responsibility for the calculation, maintenance or publication of the Japan
Index or any Successor Index. The American Stock Exchange disclaims all
responsibility for any errors or omissions in the calculation and dissemination
of the Japan Index or the manner in which such index is applied in determining
the Supplemental Redemption Amount with respect to the Securities.
A potential investor should review the historical performance of the Index.
The historical performance of the Index should not be taken as an indication of
future performance, and no assurance can be given that the Index will increase
sufficiently to cause the beneficial owners of the Securities to receive an
amount in excess of the principal amount and the Minimum Supplemental Redemption
Amount at the maturity of the Securities.
THE TOKYO STOCK EXCHANGE
The following information relating to the Tokyo Stock Exchange was derived
from information publicly available as of January 20, 1994. The TSE is one of
the world's largest securities exchanges in terms of market capitalization. The
TSE is a two-way, continuous pure auction market. Trading hours are from 9:00
A.M. to 11:00 A.M. and from 1:00 P.M. to 3:00 P.M., Tokyo time, Monday through
Friday.
Due to the time zone difference, on any normal trading day the TSE will close
prior to the opening of business in New York City on the same calendar day.
Therefore, the closing level of the Japan Index on such trading day will
generally be available in the United States by the opening of business on the
same calendar day.
The TSE has adopted certain measures intended to prevent any extreme short-
term price fluctuation resulting from order imbalances. These include daily
price floors and ceilings intended to prevent extreme fluctuations in individual
stock prices. Any stock listed on the Tokyo Stock Exchange cannot be traded at a
price outside of these limits which are stated in absolute Japanese yen, and not
percentage, limits from the closing price of the stock on the previous day. In
addition, when there is a major order imbalance in a listed stock, the TSE posts
a "special bid quote" or a "special asked quote" for that stock at a specified
higher or lower price level than the stock's last sale price in order to solicit
counter orders and balance supply and demand for the stock. Investors should
also be aware that the TSE may suspend the trading of individual stocks in
certain limited and extraordinary circumstances including, for example, unusual
trading activity in that stock. As a result, variations in the Japan Index may
be limited by price limitations on, or by suspension of trading in, individual
stocks which comprise the Japan Index which may, in turn, adversely affect the
value of the Securities or result in a Market Disruption Event. See "Description
of Securities--Adjustments to the Index; Market Disruption Event".
THE NEW JAPAN INDEX
Under certain circumstances, a New Japan Index may be substituted for the
Japan Index for purposes of calculating the Supplemental Redemption Amount. The
New Japan Index would be an index published by the American Stock Exchange or
another United States securities exchange with a high correlation to the Nikkei
Stock Index 300. See "Substitution of the Index".
The Nikkei Stock Index 300 is an index calculated, published and disseminated
by Nihon Keizai Shimbun, Inc., that measures the composite price performance of
stocks of 300 Japanese companies. All 300 stocks are listed in the First Section
of the TSE. Stocks listed in the First Section are among the most actively
traded stocks on the TSE. Publication of the Nikkei Stock Index 300 began on
October 8, 1993.
The Nikkei Stock Index 300 is a market capitalization-weighted index which is
calculated by (i) multiplying the per share price of each stock included in the
Nikkei Stock Index 300 by the number of outstanding shares (excluding shares
held by the Japanese Government), (ii) calculating the sum of all these products
(such sum being hereinafter referred to as the "Aggregate Market Price"), (iii)
dividing the Aggregate Market Price by the Base Aggregate
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Market Price (i.e. the Aggregate Market Price as of October 1, 1982) and (iv)
multiplying the result by 100. Larger companies' shares have a larger effect on
moving the entire index than smaller companies' shares.
Although the Nikkei Stock Index 300 was first published in October 1993, Nihon
Keizai Shimbun, Inc. has calculated values for the Nikkei Stock Index 300 for
the period from October 1, 1982 through October 8, 1993. The stocks included in
the Nikkei Stock Index 300 (such stocks being hereinafter referred to as the
"Underlying Stocks") were selected from a reference group of stocks which were
selected by excluding stocks listed in the First Section of the TSE that have
relatively low market liquidity or extremely poor financial results. The
Underlying Stocks were selected from this reference group by (i) selecting from
the remaining stocks in this reference group the stocks with the largest
aggregate market value in each of 36 industrial sectors and (ii) selecting
additional stocks (with priority within each industrial sector given to the
stock with the largest aggregate market value) so that the selection ratios
(i.e. the ratio of the aggregate market value of the included stocks to that of
the stocks in the reference group) with respect to all 36 industry sectors will
be as nearly equal as possible and the total number of companies with stocks
included in the Nikkei Stock Index 300 will be 300.
In order to maintain continuity in the level of the Nikkei Stock Index 300,
the Nikkei Stock Index 300 will be reviewed annually by Nihon Keizai Shimbun,
Inc. and the Underlying Stocks may be replaced, if necessary, in accordance with
the "deletion/addition rule". The "deletion/addition" rule provides generally
for the deletion of a stock from the Nikkei Stock Index 300 if such stock is no
longer included in the reference group or if the aggregate market value of such
stock is low relative to other stocks in the relevant industry sector. Stocks
deleted pursuant to the "deletion/addition" rule will be replaced by stocks
included in the reference group which have relatively high aggregate market
values. In addition, stocks may be added or deleted from time to time for
extraordinary reasons.
All disclosure contained in this Prospectus regarding the Nikkei 225 Index,
Nikkei 225 Futures Contract, Nikkei Stock Index 300, Nikkei 300 Futures
Contract, or their publisher, Nihon Keizai Shimbun, Inc., is derived from
information publicly available as of January 20, 1994. Nihon Keizai Shimbun,
Inc. has no relationship with the Company or the Securities; it does not
sponsor, endorse, authorize, sell or promote the Securities, and has no
obligation or liability in connection with the administration, marketing or
trading of the Securities.
OTHER TERMS
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Indenture (the "Senior Indenture"), dated as of April 1, 1983, as amended and
restated, 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"). A copy of the Senior Indenture is filed as an exhibit
to the registration statements relating to the Securities. The following
summaries of certain provisions of the Senior Indenture do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the Senior Indenture, including the definition therein of
certain terms.
The Senior Indenture provides that series of Senior Debt Securities may from
time to time be issued thereunder, without limitation as to aggregate principal
amount, in one or more series and upon such terms as the Company may establish
pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the Securities are
governed by and construed in accordance with the laws of the State of New York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen" a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
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The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and other regulatory bodies.
LIMITATIONS UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of the incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
LIMITATION ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Indenture provides that the Company may not sell, transfer or otherwise
dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell or
otherwise dispose of any of its Voting Stock, unless, after giving effect to any
such transaction, MLPF&S remains a Controlled Subsidiary (defined in the Senior
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the 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.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or into
any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior 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 Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company and
the Trustee with the consent of the Holders of 66 2/3% in principal amount of
the Outstanding Senior Debt Securities of each series issued pursuant to such
indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding Senior Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts payable on, any Senior Debt
Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any Senior Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Debt Security; (e) reduce the percentage in principal
amount of the Outstanding Senior Debt Securities of any series, the consent of
whose
17
<PAGE>
Holders is required to modify or amend the Indenture; or (f) modify the
foregoing requirements or reduce the percentage of Outstanding Senior Debt
Securities necessary to waive any past default to less than a majority. No
modification or amendment of the Subordinated Indenture or any Subsequent
Indenture for Subordinated Debt Securities may adversely affect the rights of
any holder of Senior Indebtedness without the consent of such Holder. Except
with respect to certain fundamental provisions, the Holders of at least a
majority in principal amount of Outstanding Senior Debt Securities of any series
may, with respect to such series, waive past defaults under the Indenture and
waive compliance by the Company with certain provisions thereof.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the Indenture for
the benefit of such series or in the Senior Debt Securities of such series,
continued for 60 days after written notice as provided in the Senior Indenture;
(e) certain events in bankruptcy, insolvency or reorganization; and (f) any
other Event of Default provided with respect to Senior Debt Securities of that
series. The Trustee or the Holders of 25% in principal amount of the
Outstanding Senior Debt Securities of that series may declare the principal
amount (or such lesser amount as may be provided for in the Senior Debt
Securities of that series) of all Outstanding Senior Debt Securities of that
series and the interest due thereon and Additional Amounts payable in respect
thereof, if any to be due and payable immediately if an Event of Default with
respect to Senior Debt Securities of such series shall occur and be continuing
at the time of such declaration. At any time after a declaration of
acceleration has been made with respect to Senior Debt Securities of any series
but before a judgment or decree for payment of money due has been obtained by
the Trustee, the Holders of a majority in principal amount of the Outstanding
Senior Debt Securities of that series may rescind any declaration of
acceleration and its consequences, if all payments due (other than those due as
a result of acceleration) have been made and all Events of Default have been
remedied or waived. Any Event of Default with respect to Senior Debt Securities
of any series may be waived by the Holders of a majority in principal amount of
all Outstanding Senior Debt Securities of that series, except in a case of
failure to pay principal or premium, if any, or interest or Additional Amounts
payable on any Senior Debt Security of that series for which payment had not
been subsequently made or in respect of a covenant or provision which cannot be
modified or amended without the consent of the Holder of each Outstanding Senior
Debt Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior Debt
Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any right or power
under the Senior Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company is required to furnish to the Trustee annually a statement as to
the fulfillment by the Company of all of its obligations under the Senior
Indenture.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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
18
<PAGE>
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 26, 1997 included in the
1997 Annual Report on Form 10-K, and incorporated by reference herein, has been
derived from consolidated financial statements audited by Deloitte & Touche LLP,
as set forth in their reports included or incorporated by reference herein.
Such consolidated financial statements and related financial statement
schedules, and such 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 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 such Quarterly Reports 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.
19
<PAGE>
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
AMEX OIL INDEX(SM)
STOCK MARKET ANNUAL RESET TERM(SM) NOTES
DUE DECEMBER 29, 2000 "SMART NOTES(SM)"
On March 31, 1994, Merrill Lynch & Co., Inc. (the "Company") issued
$25,000,000 aggregate principal amount of AMEX Oil Index Stock Market Annual
Reset Term Notes due December 29, 2000 (the "Notes" or "SMART Notes"). The
Notes were issued in denominations of $1,000 and integral multiples thereof and
will mature and be repayable at 100% of the principal amount thereof on December
29, 2000. The Notes are not subject to redemption prior to maturity.
The Company will make interest payments on the Notes for each calendar year at
a rate per annum equal to 85% (the "Participation Rate") of the average
percentage increase, if any, in the AMEX Oil Index (as defined herein) as
determined in each calendar year from the Starting Annual Value to the Ending
Average Value as further described herein (the "Average Percent Change"). Annual
payments will in no event be less than the Minimum Annual Payment of $20 per
$1,000 principal amount of Notes on a per annum basis (2% per annum).
The "Starting Annual Value" applicable to the determination of the amount
payable in a calendar year will equal the closing value of the AMEX Oil Index on
the last AMEX Business Day (as defined below) in the immediately preceding
calendar year. The "Ending Average Value" applicable to the determination of the
amount payable in a calendar year will equal the arithmetic average (mean) of
the Quarterly Values of the AMEX Oil Index for each calendar quarter during such
year. Interest payments will be payable on June 30 and December 31 of each year
and at maturity as described below.
For information as to the calculation of the amount payable in any calendar
year and the calculation of the AMEX Oil Index, see "Description of Notes" and
"The AMEX Oil Index" in this Prospectus. FOR OTHER INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF
IN THIS PROSPECTUS.
Ownership of the Notes will be maintained only in book-entry form by or
through the Securities Depository. Beneficial owners of the Notes will not have
the right to receive physical certificates evidencing their ownership except
under the limited circumstances described herein.
The Notes have been listed on the American Stock Exchange under the symbol
"MOI.F".
________________
THESE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
________________
This Prospectus has been prepared in connection with the Notes 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 Notes. MLPF&S may act as
principal or agent in such transactions. The Notes may be offered on the
American Stock Exchange, 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 Notes 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.
________________
MERRILL LYNCH & CO.
________________
THE DATE OF THIS PROSPECTUS IS JULY ___, 1998.
(SM)"SMART Notes" and "Stock Market Annual Reset Term" are service marks of
Merrill Lynch & Co., Inc.
(SM)"Oil Index" is a registered service mark of the American Stock
Exchange, Inc.
<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 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 26, 1997,
Quarterly Report on Form 10-Q for the period ended March 27, 1998, and Current
Reports on Form 8-K dated January 20, 1998, January 30, 1998, February 4, 1998,
February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998, April 29,
1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June 24, 1998,
June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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 LAWRENCE M. EGAN, JR., CORPORATE SECRETARY'S
OFFICE, 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 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.
2
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, advisory, insurance, and related
services on a global basis. Its principal subsidiary, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("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; an underwriter of selected insurance
products and a distributor of investment products of the Merrill Lynch Asset
Management group. 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. The Company's asset management and investment
management activities are conducted through the Merrill Lynch Asset Management
group and Merrill Lynch Mercury Asset Management, which together constitute one
of the largest asset management organizations in the world. Merrill Lynch
Government Securities Inc. is a primary dealer in obligations issued or
guaranteed by the U.S. Government and its agencies and its government-sponsored
entities. Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative
Products AG, and Merrill Lynch International are the Company's primary
derivative product dealers and enter into interest rate, currency, and other
over-the-counter derivative transactions as intermediaries and as principals.
The Company's operations in insurance services consist of the underwriting and
sale 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 and
purchasing secured loans, providing currency exchange facilities and other
related services, and furnishing trust, employee benefit, and custodial
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
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges ............................. 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
RISK FACTORS
INTEREST PAYMENTS
If the Ending Average Value applicable to a December Payment Date does not
exceed the Starting Annual Value applicable to such December Payment Date by
more than approximately 2.35%, beneficial owners of the Notes will receive only
the Minimum Annual Payment on such December Payment Date, even if the value of
the AMEX Oil Index at some point between the determination of the applicable
Starting Annual Value and the determination of the applicable Ending Average
Value exceeded such Starting Annual Value by more than approximately 2.35%. The
annual amount payable on the Notes based on the AMEX Oil Index is limited to the
Participation Rate multiplied by the percentage increase, if any, between the
Starting Annual Value and the Ending Average Value for such year.
3
<PAGE>
Beneficial owners of the Notes will receive total annual payments equal to not
less than the Minimum Annual Payment, and will be repaid 100% of the principal
amount of the Notes at maturity. Beneficial owners of Notes may receive interest
payments with respect to the Notes equal to only the Minimum Annual Payment for
each year, and such interest payments are below what the Company would pay as
interest as of the date hereof if the Company issued non-callable senior debt
securities with a similar maturity as that of the Notes. The payment of
additional amounts on the Notes is subject to the conditions described under
"Description of Notes--Interest Payments". The return of principal of the Notes
at maturity and the payment of the Minimum Annual Payment are not expected to
reflect the full opportunity costs implied by inflation or other factors
relating to the time value of money.
The amount payable on the Notes based on the AMEX Oil Index will not produce
the same return as if the stocks underlying the AMEX Oil Index were purchased
and held for a similar period because of the following: (i) the AMEX Oil Index
does not reflect the payment of dividends on the stocks underlying it, (ii) the
annual amount payable is limited to the Participation Rate multiplied by the
percentage increase in the AMEX Oil Index during any relevant period, subject to
the Minimum Annual Payment, (iii) the Ending Average Value may not reflect the
full percentage increase in the AMEX Oil Index during any relevant period
because it is an average of the AMEX Oil Index at various points in time and
(iv) the amounts payable on the Notes do not reflect changes in the AMEX Oil
Index for the period between the determination of an Ending Average Value and
the determination of the next succeeding Starting Annual Value.
The Indenture provides that the Indenture and the Notes are governed by and
construed in accordance with the laws of the state of New York. Under present
New York law, the maximum rate of interest is 25% per annum on a simple interest
basis. This limit may not apply to Notes in which $2,500,000 or more has been
invested. While the company believes that New York law would be given effect by
a state or federal court sitting outside of New York, state laws frequently
regulate the amount of interest that may be charged to and paid by a borrower
(including, in some cases, corporate borrowers). It is suggested that
prospective investors consult their personal advisors with respect to the
applicability of such laws. The Company has covenanted for the benefit of the
beneficial owners of the Notes, to the extent permitted by law, not to claim
voluntarily the benefits of any laws concerning usurious rates of interest
against a beneficial owner of the Notes.
TRADING
The Notes have been listed on the American Stock Exchange under the symbol
"MOI.F". It is expected that the secondary market for the Notes (including
prices in such market) will likely be affected by the creditworthiness of the
Company and by a number of other factors. It is possible to view the Notes as
the economic equivalent of a debt obligation plus a series of cash settlement
options; however, the Notes may trade in the secondary market at a discount from
the aggregate value of such economic components, if such economic components
were valued and capable of being traded separately.
The trading values of the Notes may be affected by a number of interrelated
factors, including those listed below. The following is the expected theoretical
effect on the trading value of the Notes of each of the factors listed below.
The following discussion of each separate factor generally assumes that all
other factors are held constant, although the actual interrelationship between
certain of such factors is complex.
Relative Level of the AMEX Oil Index. The trading value of the Notes is
expected to depend significantly on the extent of the excess of the expected
Ending Average Value for a calendar year over the Starting Annual Value
applicable to such calendar year. If, however, Notes are sold at a time when the
AMEX Oil Index (or the estimated Ending Average Value if such value were
calculated at such time) exceeds the Starting Annual Value, the sale price may
nevertheless be at a discount from the amount expected to be payable to the
beneficial owner if such excess were to prevail until the next December Payment
Date. Furthermore, the price at which a beneficial owner will be able to sell
Notes prior to a December Payment Date may be at a discount, which could be
substantial, from the principal amount thereof, if, at such time, the AMEX Oil
Index is below, equal to or not sufficiently above the Annual Starting Value
applicable to such December Payment Date. The level of the AMEX Oil Index will
depend on the prices of the stocks underlying such Index which, in turn, will be
affected by factors affecting the oil industry, see "The AMEX Oil Index--Oil
Industry Sector".
4
<PAGE>
Volatility of the AMEX Oil Index. If the volatility of the AMEX Oil Index
increases, the trading value of the Notes is expected to increase. If the
volatility of the AMEX Oil Index decreases, the trading value of the Notes is
expected to decrease.
U.S. Interest Rates. In general, if U.S. interest rates increase, the value
of the Notes is expected to decrease. If U.S. interest rates decrease, the value
of the Notes is generally expected to increase. Interest rates may also affect
the U.S. economy, and, in turn, the level of the AMEX Oil Index. Rising interest
rates may lower the level of the AMEX Oil Index and, thus, the value of the
Notes. Falling interest rates may increase the level of the AMEX Oil Index and,
thus, may increase the value of the Notes.
Time Remaining to December Payment Dates. The Notes may trade at a value
above that which may be inferred from the level of U.S. interest rates and the
AMEX Oil Index. This difference will reflect a "time premium" due to
expectations concerning the level of the AMEX Oil Index during the period prior
to each December Payment Date. As the time remaining to each December Payment
Date decreases, however, this time premium may decrease, thus decreasing the
trading value of the Notes.
Time Remaining to Maturity. As the number of remaining December Payment
Dates decreases, the cumulative value of all the annual rights to receive an
amount that reflects participation in the payments in excess of the Minimum
Annual Payment will decrease, thus decreasing the value of the Notes.
Dividend Rates. A number of complex relationships between the relative
values of the Notes and dividend rates are likely to exist. If dividend rates on
the stocks comprising the AMEX Oil Index increase, the value of the annual right
to receive an amount that reflects participation in the average appreciation of
the AMEX Oil Index above the Starting Annual Value is expected to decrease.
Consequently the value of the Notes is expected to decrease. Conversely, if
dividend rates on the stocks comprising the AMEX Oil Index decrease, the value
of the annual right to receive such an amount is expected to increase and,
therefore, the value of the Notes is expected to increase. In general, however,
because the majority of issuers of stocks underlying the AMEX Oil Index are
organized in the United States, rising U.S. corporate dividend rates may
increase the AMEX Oil Index and, in turn, increase the value of the Notes.
Conversely, falling U.S. dividend rates may decrease the AMEX Oil Index and, in
turn, decrease the value of the Notes.
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the Notes
should reach an investment decision only after carefully considering the
suitability of the Notes in light of their particular circumstances. Investors
should also consider the tax consequences of investing in the Notes and should
consult their tax advisors.
5
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The Notes were issued as a series of Senior Debt Securities under the Senior
Indenture, dated as of April 1, 1983, as amended and restated, as described
below. The Notes will mature, and the principal of the Notes will be repayable
at par, on December 29, 2000.
The Notes are not subject to redemption prior to maturity by the Company or at
the option of any beneficial owner. Upon the occurrence of an Event of Default
with respect to the Notes, however, beneficial owners of the Notes or the Senior
Debt Trustee may accelerate the maturity of the Notes, as described under
"Description of Notes--Events of Default and Acceleration" and "Other Terms--
Events of Default" in this Prospectus.
The Notes are transferable in denominations of $1,000 and integral multiples
thereof.
INTEREST PAYMENTS
For each full calendar year, the Company will pay interest in an amount equal
to the following for each $1,000 principal amount of Notes:
$1,000 x Average Percent Change x Participation Rate
provided, however, that the per annum amount payable as a result of the
foregoing on the Notes will not be less than the Minimum Annual Payment of $20
per $1,000 principal amount of Notes on a per annum basis (2% per annum). The
Participation Rate equals 85%.
The "Average Percent Change" applicable to the determination of the amount
payable in any calendar year will equal:
Ending Average Value -- Starting Annual Value
---------------------------------------------
Starting Annual Value
The "Starting Annual Value" applicable to the determination of the amount
payable in a calendar year will equal the closing value of the AMEX Oil Index on
the last AMEX Business Day in the immediately preceding calendar year as
determined by State Street Bank and Trust Company (the "Calculation Agent"). The
"Ending Average Value" applicable to the determination of the amount payable in
a calendar year will equal the arithmetic average (mean) of the Quarterly Values
of the AMEX Oil Index for each calendar quarter during such year as determined
by the Calculation Agent. The "Quarterly Value" for any of the first three
calendar quarters in a calendar year will be the closing value of the AMEX Oil
Index on the last scheduled AMEX Business Day in any such calendar quarter;
provided, however, that if a Market Disruption Event has occurred on such last
scheduled AMEX Business Day in such calendar quarter, the Quarterly Value for
such calendar quarter will be the closing value of the AMEX Oil Index on the
next succeeding scheduled AMEX Business Day regardless of whether a Market
Disruption Event occurs on such day. The "Quarterly Value" for the fourth
calendar quarter in a calendar year will be the closing value of the AMEX Oil
Index on the seventh scheduled AMEX Business Day preceding the end of such
calendar quarter; provided, however, that if a Market Disruption Event has
occurred on such seventh scheduled AMEX Business Day, the Quarterly Value for
such calendar quarter will be the closing value of the AMEX Oil Index on the
sixth scheduled AMEX Business Day preceding the end of such calendar quarter
regardless of whether a Market Disruption Event occurs on such day. The
Calculation Agent will determine scheduled AMEX Business Days.
If the Ending Average Value applicable to such December Payment Date does not
exceed the Annual Starting Value by more than approximately 2.35%, beneficial
owners of the Notes will receive only the Minimum Annual Payment on such
December Payment Date, even if the value of the AMEX Oil Index at some point
between the determination of the applicable Starting Annual Value and the
determination of the applicable Ending Average Value exceeded such Starting
Annual Value by more than approximately 2.35%.
6
<PAGE>
Any day on which a Starting Annual Value or a closing value of the AMEX Oil
Index for a calendar quarter is required to be calculated is referred to herein
as a "Calculation Day". An "AMEX Business Day" is a day on which the American
Stock Exchange is open for trading. All determinations made by the Calculation
Agent shall be at the sole discretion of the Calculation Agent and, in the
absence of manifest error, shall be conclusive for all purposes and binding on
the Company and beneficial owners of the Notes. All percentages resulting from
any calculation on the Notes will be rounded to the nearest one hundred-
thousandth of a percentage point, with five one millionths of a percentage point
rounded upwards (e.g., 9.876545% (or .09876545) would be rounded to 9.87655% (or
.0987655)), and all dollar amounts used in or resulting from such calculation
will be rounded to the nearest cent (with one-half cent being rounded upwards).
ADJUSTMENTS TO THE INDEX; MARKET DISRUPTION EVENT
If at any time the method of calculating the AMEX Oil Index, or the value
thereof, is changed in a material respect, or if the AMEX Oil Index is in any
other way modified so that such index does not, in the opinion of the
Calculation Agent, fairly represent the value of the AMEX Oil Index had such
changes or modifications not been made, then, from and after such time, the
Calculation Agent shall, at the close of business in New York, New York, on each
Calculation Day, make such adjustments as, in the good faith judgment of the
Calculation Agent, may be necessary in order to arrive at a calculation of a
value of a stock index comparable to the AMEX Oil Index as if such changes or
modifications had not been made, and calculate such closing value with reference
to the AMEX Oil Index, as adjusted. Accordingly, if the method of calculating
the AMEX Oil Index is modified so that the value of such index is a fraction or
a multiple of what it would have been if it had not been modified (e.g., due to
a split in the Index), then the Calculation Agent shall adjust such index in
order to arrive at a value of the AMEX Oil Index as if it had not been modified
(e.g., as if such split had not occurred).
"Market Disruption Event" means either of the following events, as determined
by the Calculation Agent:
(i) the suspension or material limitation (limitations pursuant to New York
Stock Exchange Rule 80A (or any applicable rule or regulation enacted or
promulgated by the New York Stock Exchange, the American Stock Exchange, or
the Commission of similar scope as determined by the Calculation Agent) on
trading during significant market fluctuations shall be considered "material"
for purposes of this definition), in each case, during the last half hour of
trading in any of the component stocks, or depository receipts representing
such stocks, included in the AMEX Oil Index on any national securities
exchange in the United States, or
(ii) the suspension or material limitation, in each case during the last
half hour of trading (whether by reason of movements in price exceeding levels
permitted by the relevant exchange or otherwise), in (A) futures contracts
related to the AMEX Oil Index which are traded on any exchange or board of
trade in the United States or (B) option contracts related to the AMEX Oil
Index which are traded on the American Stock Exchange.
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular business hours of
the relevant exchange.
INTEREST PAYMENT DATES
The Company will make semiannual interest payments on the Notes on June 30 of
each year ("June Payment Dates") and December 31 of each year and at maturity
("December Payment Dates"), except as provided below, to the persons in whose
names the Notes are registered on the immediately preceding June 29 or December
30, and, at maturity, to the person to whom the principal is payable. For each
Note, the Company will pay half of the Minimum Annual Payment for each calendar
year on the June Payment Date, and will pay the balance of the annual amount
payable on such Note for such year on the December Payment Date.
Notwithstanding the foregoing, if it is known at least three Business Days
prior to December 31 that December 31 will not be a Business Day, the amount
payable by the Company with respect to a December Payment Date for the Notes
will be made on the Business Day immediately preceding such December 31 to the
persons in whose names the Notes are registered on the second Business Day
immediately preceding such December 31.
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UNAVAILABILITY OF THE AMEX OIL INDEX
If the AMEX discontinues publication of the AMEX Oil Index and the AMEX or
another entity publishes a successor or substitute index that the Calculation
Agent determines, in its sole discretion, to be comparable to the AMEX Oil Index
(any such index being referred to hereinafter as a "Successor Index"), then,
upon the Calculation Agent's notification of such determination to the Trustee
and the Company, the Calculation Agent will substitute the Successor Index as
calculated by the AMEX or such other entity for the AMEX Oil Index and calculate
the annual amount payable as described above under "Interest Payments". Upon any
selection by the Calculation Agent of a Successor Index, the Company shall cause
notice thereof to be given to Holders of the Notes.
If the AMEX discontinues publication of the AMEX Oil Index and a Successor
Index is not selected by the Calculation Agent or is no longer published on any
of the Calculation Days, the value to be substituted for the AMEX Oil Index for
any such Calculation Day used to calculate the annual amount payable will be a
value computed by the Calculation Agent for each Calculation Day in accordance
with the procedures last used to calculate the AMEX Oil Index prior to any such
discontinuance. If a Successor Index is selected or the Calculation Agent
calculates a value as a substitute for the AMEX Oil Index such Successor Index
or value shall be substituted for the AMEX Oil Index for all purposes, including
for purposes of determining whether a Market Disruption Event exists.
If the AMEX discontinues publication of the AMEX Oil Index prior to the period
during which the amount payable with respect to any year is to be determined and
the Calculation Agent determines that no Successor Index is available at such
time, then on each AMEX Business Day until the earlier to occur of (i) the
determination of the amount payable with respect to such year or (ii) a
determination by the Calculation Agent that a Successor Index is available, the
Calculation Agent shall determine the value that would be used in computing the
amount payable with respect to such year as described in the preceding paragraph
as if such day were a Calculation Day. The Calculation Agent will cause notice
of each such value to be published not less often than once each month in the
Wall Street Journal (or another newspaper of general circulation), and arrange
for information with respect to such values to be made available by telephone.
Notwithstanding these alternative arrangements, discontinuance of the
publication of the AMEX Oil Index may adversely affect trading in the Notes.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Notes shall have occurred and
be continuing, the amount payable to a beneficial owner of a Note upon any
acceleration permitted by the Notes, will equal: (i) the principal amount
thereof, plus (ii) an additional amount, if any, of interest calculated as
though the date of early repayment were a December Payment Date and prorated
through such date of early repayment on the basis of a year consisting of 360
days of twelve 30-day months. If Quarterly Values have been calculated prior to
the early redemption date for the calendar year in which such early redemption
date occurs, such Quarterly Values shall be averaged with the value of the AMEX
Oil Index determined with respect to such date of early redemption. If no
Quarterly Values have been calculated prior to the early redemption date for the
calendar year in which the early redemption date occurs, the Ending Average
Value for such calendar year will be the value of the AMEX Oil Index determined
with respect to such date of early redemption. The Minimum Supplemental
Redemption Amount with respect to any such early redemption date will be an
amount equal to the interest which would have accrued on the Notes from and
including January 1 in the calendar year in which such early redemption date
occurs, to but excluding the date of early redemption at an annualized rate of
2%, calculated on a semiannual bond equivalent basis. If a bankruptcy proceeding
is commenced in respect of the Company, the claim of the beneficial owner of a
Note may be limited, under Section 502(b)(2) of Title 11 of the United States
Code, to the principal amount of the Note plus an additional amount, if any, of
contingent interest calculated as though the date of the commencement of the
proceeding were the maturity date of the Notes.
In case of default in payment at the maturity date of the Notes (whether at
their stated maturity or upon acceleration), from and after the maturity date
the Notes shall bear interest, payable upon demand of the Holders thereof, at
the rate of 7% per annum (to the extent that payment of such interest shall be
legally enforceable) on the unpaid amount due and payable on such date in
accordance with the terms of the Notes to the date payment of such amount has
been made or duly provided for.
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SECURITIES DEPOSITORY
The Notes are represented by one fully registered global security (the "Global
Security"). Such Global Security has been deposited with, or on behalf of, The
Depository Trust Company, as Securities Depository (the "Securities
Depository"), registered in the name of the Securities Depository or a nominee
thereof. Unless and until it is exchanged in whole or in part for Securities in
definitive form, the Global Security may not be transferred except as a whole by
the Securities Depository to a nominee of such Securities Depository or by a
nominee of such Securities Depository to such Securities Depository or another
nominee of such Securities Depository or by such Securities Depository or any
such nominee to a successor of such Securities Depository or a nominee of such
successor.
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,
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 Notes must be made by or through Participants, which will receive
a credit on the records of the Securities Depository. The ownership interest of
each actual purchaser of each Note ("Beneficial Owner") is in turn to be
recorded on the Participants' or Indirect Participants' records. Beneficial
Owners will not receive written confirmation from the Securities Depository of
their purchase, but Beneficial Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Participant or Indirect Participant
through which the Beneficial Owner entered into the transaction. Ownership of
beneficial interests in such Global Security will be shown on, and the transfer
of such ownership interests will be effected only through, records maintained by
the Securities Depository (with respect to interests of Participants) and on the
records of Participants (with respect to interests of persons held through
Participants). The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to own, transfer or pledge
beneficial interests in Global Securities.
So long as the Securities Depository, or its nominee, is the registered owner
of the Global Security, the Securities Depository or its nominee, as the case
may be, will be considered the sole owner or Holder of the Notes represented by
such Global Security for all purposes under the Senior Indenture. Except as
provided below, Beneficial Owners in the Global Security will not be entitled to
have the Notes represented by such Global Security registered in their names,
will not receive or be entitled to receive physical delivery of the Notes in
definitive registered form and will not be considered the owners or Holders
thereof under the Senior Indenture. Accordingly, each Person owning a beneficial
interest in a Global Security must rely on the procedures of the Securities
Depository and, if such Person is not a Participant, on the procedures of the
Participant through which such Person owns its interest, to exercise any rights
of a Holder under the Senior Indenture. The Company understands that under
existing industry practices, in the event that the Company requests any action
of Holders or that an owner of a beneficial interest in the Global Security
desires to give or take any action which a Holder is entitled to give or take
under the Senior Indenture, the Securities Depository would authorize the
Participants holding the relevant beneficial interests to give or take such
action, and such Participants would authorize Beneficial Owners owning through
such Participants to give or take such action or would otherwise act upon the
instructions of beneficial owners. Conveyance of notices and other
communications by the Securities Depository to Participants, by Participants to
Indirect Participants, and by Participants and Indirect Participants to
Beneficial Owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of the principal of, and amounts payable on any June Payment Date or
December Payment Date with respect to Notes registered in the name of the
Securities Depository or its nominee, will be made to the Securities Depository
or its nominee, as the case may be, as the Holder of the Global Security
representing such Notes. None of the Company,
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the Trustee or any other agent of the Company or agent of the Trustee will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests or for supervising or
reviewing any records relating to such beneficial ownership interests. The
Company expects that the Securities Depository, upon receipt of any payment of
principal or amounts payable on any June Payment Date or December Payment Date
in respect of the Global Security, will credit the accounts of the Participants
with payment in amounts proportionate to their respective holdings in principal
amount of beneficial interest in such Global Security as shown on the records of
the Securities Depository. The Company also expects that payments by
Participants to Beneficial Owners will be governed by standing customer
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name", and
will be the responsibility of such Participants.
If (x) the Securities Depository is at any time unwilling or unable to
continue as Securities Depository and a successor depository is not appointed by
the Company within 60 days, (y) the Company executes and delivers to the Trustee
a Company Order to the effect that the Global Security shall be exchangeable or
(z) an Event of Default has occurred and is continuing with respect to the
Notes, the Global Security will be exchangeable for Notes in definitive form of
like tenor and of an equal aggregate principal amount, in denominations of
$1,000 and integral multiples thereof. Such definitive Notes shall be registered
in such name or names as the Securities Depository shall instruct the Trustee.
It is expected that such instructions may be based upon directions received by
the Securities Depository from Participants with respect to ownership of
beneficial interests in such Global Security.
THE AMEX OIL INDEX
GENERAL
All information relating to the AMEX Oil Index was derived from information
publicly available as of March 24, 1994. The AMEX Oil Index is a price-weighted
stock index (i.e., an Underlying Stock's weight in the index is based on its
price per share rather than the total market capitalization of the issuer)
calculated, published and disseminated by the AMEX that measures the composite
price performance of selected common stocks of widely-held corporations involved
in various segments of the oil industry. The AMEX Oil Index was originally
published by the AMEX as the Oil and Gas Index. In September 1984, the AMEX
changed the Oil and Gas Index from a market-weighted index to a price-weighted
index and deleted all companies engaged exclusively in gas exploration and
production activities. The Oil and Gas Index was then renamed the Oil Index. At
March 24, 1994, the calculation of the value of the AMEX Oil Index was based on
the relative value of the aggregate market price of the common stocks of sixteen
companies engaged in various segments of the oil industry.
The AMEX may from time to time, with approval of the Commission, add companies
to, or delete companies from, the AMEX Oil Index to fulfill the above-stated
intention of providing an indication of price movements of common stock of
corporations engaged in various segments of the oil industry. The level of the
AMEX Oil Index is calculated once per day using last sale prices only (i.e., not
special "bid quotes" or special "ask quotes" which are used in connection with
other stock indices). The level of the AMEX Oil Index is disseminated via the
Consolidated Tape Authority Network-B (commonly referred to as the "AMEX Tape").
The AMEX Tape Symbol for the AMEX Oil Index is "XOI".
COMPUTATION OF THE AMEX OIL INDEX
At March 24, 1994, the AMEX computed the AMEX Oil Index as of a particular
time as follows:
(1) the market price of one share of each component stock is determined as of
such time;
(2) the market prices of all component stocks as of such time (as determined
under clause (1) above) are aggregated;
(3) the aggregate amount (as determined under clause (2) above) is divided by
3.47874 (the "Divisor").
While the AMEX employed the above methodology to calculate the AMEX Oil Index
at March 24, 1994, no assurance can be given that the AMEX will not modify or
change such methodology in a manner that may affect the amounts payable on any
December Payment Date to beneficial owners of the Notes.
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In order to maintain continuity in the level of the AMEX Oil Index in the
event of certain changes due to non-market factors affecting the Underlying
Stocks, such as the addition or deletion of stocks, substitution of stocks,
stock dividends, stock splits or distributions of assets to stockholders, the
Divisor used in calculating the AMEX Oil Index is adjusted in a manner designed
to prevent any instantaneous change or discontinuity in the level of the AMEX
Oil Index. Thereafter, the Divisor remains at the new value until a further
adjustment is necessary as the result of another change. As a result of each
such change affecting any component stock, the Divisor is adjusted in such a way
that the level of the AMEX Oil Index immediately after such change will equal
the level of the AMEX Oil Index immediately prior to the change.
Component stocks may be deleted or added by the AMEX with approval of the
Commission. However, to maintain continuity in the AMEX Oil Index, the policy
of the AMEX is generally not to alter the composition of the component stocks
except when a component Stock is deleted due to (i) bankruptcy of the issuer,
(ii) merger of the issuer with, or acquisition of the issuer by, another
company, (iii) delisting of such stock, or (iv) failure of such stock to meet,
upon periodic review by the AMEX, market value and trading volume criteria
established by the AMEX (as such may change from time to time). Upon deletion of
a stock from the component stocks, the AMEX may select a suitable replacement
for such deleted component stock. The policy of the AMEX is to announce any such
change in advance via distribution of an information circular.
The use of and reference to the AMEX Oil Index in connection with the Notes
has been consented to by the AMEX, the publisher of the AMEX Oil Index and, in
connection with such consent, the AMEX has requested that the following
information appear in this Prospectus. The AMEX is under no obligation to
continue the calculation and dissemination of the AMEX Oil Index. The Notes are
not sponsored, endorsed, sold or promoted by the AMEX. No inference should be
drawn from the information contained in this Prospectus that the AMEX makes any
representation or warranty, implied or express, to the Company, beneficial
owners of the Notes or any member of the public regarding the advisability of
investing in securities generally or in the Notes in particular or the ability
of the AMEX Oil Index to track general stock market performance. The AMEX has no
obligation to take the needs of the Company or beneficial owners of the Notes
into consideration in determining, composing or calculating the AMEX Oil Index.
The AMEX is not responsible for, and has not participated, in the determination
or calculation of the equation by which the Notes with respect to the annual
payments will be determined. The AMEX has no obligation or liability in
connection with the administration, marketing or trading of the Notes. The AMEX
disclaims all responsibility for any errors or omissions in the calculation and
dissemination of the AMEX Oil Index or the manner in which such index is applied
in determining the annual payments with respect to the Notes.
None of the Company, the Calculation Agent, MLPF&S nor the Trustee accepts any
responsibility for the calculation, maintenance or publication of the AMEX Oil
Index or any Successor Index.
A potential investor should review the historical prices of the securities
underlying the Amex Oil Index. The historical prices of such securities should
not be taken as an indication of future performance, and no assurance can be
given that the prices of such securities will increase sufficiently to cause the
beneficial owners of the Notes to receive an amount in excess of the Minimum
Annual Payment on any December Payment Date and at the maturity of the Notes.
OIL INDUSTRY SECTOR
The oil industry is subject to varying degrees of regulatory, political and
economic risk which may affect the price of the stocks of the companies engaged
in the industry. Such risks depend on a number of factors including the
countries in which a particular company conducts its activities, evolving levels
of governmental regulation, and litigation with respect to environmental and
other matters. All segments of the oil industry are competitive, including
manufacturing, distribution and marketing of petroleum products and
petrochemicals. In addition, the oil industry competes with other industries in
supplying the energy needs of various types of consumers. Refining margins (the
difference between the price of products and the price of crude oil) and
marketing margins (the difference between the wholesale and retail price of
petroleum products) also affect companies engaged in the oil industry.
The profitability of companies engaged in the oil industry is directly
affected by the worldwide price of oil and related petroleum products which, in
turn, depends upon the worldwide demand for oil and related petroleum products.
Environmental regulation is a significant factor affecting profitability of
companies engaged in the oil industry. In the U.S., companies engaged in the oil
industry are subject to substantial environmental regulation by federal, state,
and local
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authorities. Federal regulations include the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (often referred to
as CERCLA or Superfund), the Superfund Amendments and Reauthorizations Act of
1986, and the Resource Conservation Recovery Act of 1976.
In the United States and elsewhere, various laws and regulations are either
now in force, in standby status or under consideration, with respect to such
matters as price controls, crude oil and refined product allocations, refined
product specifications, environmental, health and safety regulations,
retroactive and prospective tax increases, cancellation of contract rights,
expropriation of property, divestiture of certain operations, foreign exchange
rate restrictions as to the convertibility of currencies, tariffs and other
international trade restrictions. Other regulations such as the U.S. Federal
Clean Air Act Amendments of 1990 may have a substantial impact on companies
engaged in the oil industry despite the fact that they do not impose direct
regulations. Finally, regional regulations like those proposed by California's
South Coast Air Quality Management District may have substantial effects on the
oil industry as well.
OTHER TERMS
GENERAL
The Notes were issued as a series of Senior Debt Securities under the
Indenture (the "Senior Indenture"), dated as of April 1, 1983, as amended and
restated, 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"). A copy of the Senior Indenture is filed as an exhibit
to the registration statements relating to the Notes. The following summaries
of certain provisions of the Senior Indenture do not purport to be complete and
are subject to, and qualified in their entirety by reference to, all provisions
of the Senior Indenture, including the definition therein of certain terms.
The Senior Indenture provides that series of Senior Debt Securities may from
time to time be issued thereunder, without limitation as to aggregate principal
amount, in one or more series and upon such terms as the Company may establish
pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the Notes are
governed by and construed in accordance with the laws of the State of New York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen" a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and other regulatory bodies.
LIMITATIONS UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of the incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
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LIMITATION 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 Senior
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the 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.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or into
any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior 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 Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company and
the Trustee with the consent of the Holders of 66 2/3% in principal amount of
the Outstanding Senior Debt Securities of each series issued pursuant to such
indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding Senior Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts payable on, any Senior Debt
Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any Senior Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Debt Security; (e) reduce the percentage in principal
amount of the Outstanding Senior Debt Securities of any series, the consent of
whose Holders is required to modify or amend the Indenture; or (f) modify the
foregoing requirements or reduce the percentage of Outstanding Senior Debt
Securities necessary to waive any past default to less than a majority. No
modification or amendment of the Subordinated Indenture or any Subsequent
Indenture for Subordinated Debt Securities may adversely affect the rights of
any holder of Senior Indebtedness without the consent of such Holder. Except
with respect to certain fundamental provisions, the Holders of at least a
majority in principal amount of Outstanding Senior Debt Securities of any series
may, with respect to such series, waive past defaults under the Indenture and
waive compliance by the Company with certain provisions thereof.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the Indenture for
the benefit of such series or in the Senior Debt Securities of such series,
continued for 60 days after written notice as provided in the Senior Indenture;
(e) certain events in bankruptcy, insolvency or reorganization; and (f) any
other Event of Default provided with respect to Senior Debt Securities of that
series. The Trustee or the Holders of 25% in principal amount of the
Outstanding Senior Debt Securities of that series may declare the principal
amount (or such lesser amount as may be provided for in the Senior Debt
Securities of that series) of all Outstanding Senior Debt Securities of that
series and the interest due thereon and Additional Amounts payable in respect
thereof, if any to be due and payable immediately if an Event of Default with
respect to Senior Debt Securities of such series shall occur and be continuing
at the time of such declaration. At any time after a declaration of
acceleration has been made with respect to Senior Debt Securities of any series
but before a judgment or decree for payment of money due has been obtained by
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the Trustee, the Holders of a majority in principal amount of the Outstanding
Senior Debt Securities of that series may rescind any declaration of
acceleration and its consequences, if all payments due (other than those due as
a result of acceleration) have been made and all Events of Default have been
remedied or waived. Any Event of Default with respect to Senior Debt Securities
of any series may be waived by the Holders of a majority in principal amount of
all Outstanding Senior Debt Securities of that series, except in a case of
failure to pay principal or premium, if any, or interest or Additional Amounts
payable on any Senior Debt Security of that series for which payment had not
been subsequently made or in respect of a covenant or provision which cannot be
modified or amended without the consent of the Holder of each Outstanding Senior
Debt Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior Debt
Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any right or power
under the Senior Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company is required to furnish to the Trustee annually a statement as to
the fulfillment by the Company of all of its obligations under the Senior
Indenture.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997 included
in the 1997 Annual Report on Form 10-K, and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP, as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such 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 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 such Quarterly Reports 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.
14
<PAGE>
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
S&P 500 MARKET INDEX TARGET-TERM SECURITIES DUE MAY 10, 2001
("MITTS(R)")
On May 13, 1996, Merrill Lynch & Co., Inc. (the "Company") issued an
aggregate principal amount of $110,000,000 of S&P 500 Market Index Target-Term
Securities due May 10, 2001 (the "Securities" or "MITTS"). As of the date of
this Prospectus, $75,000,000 aggregate principal amount of the Securities
remain outstanding. Each $10 principal amount of Securities will be deemed a
"Unit" for purposes of trading and transfer at the Securities Depository
described below. Units will be transferable by the Securities Depository, as
more fully described below, in denominations of whole Units.
The Securities are debt securities of the Company. The Securities were
issued in denominations of $10 and integral multiples thereof, will bear no
periodic payments of interest and will mature on May 10, 2001. At maturity, a
beneficial owner of a Security will be entitled to receive, with respect to each
Security, the principal amount thereof plus an interest payment, if any (the
"Supplemental Redemption Amount"), based on the percentage increase, if any, in
the S&P 500 Composite Stock Price Index (the "Index") over the Starting Index
Value. The Supplemental Redemption Amount will in no event be less than zero.
The Securities are not redeemable or callable by the Company prior to maturity.
At maturity, a beneficial owner of a Security will receive the principal amount
of such Security plus the Supplemental Redemption Amount, if any, however, there
will be no other payment of interest, periodic or otherwise.
The Supplemental Redemption Amount payable with respect to a Security at
maturity will equal the product of (A) the principal amount of the applicable
Security, (B) the percentage increase from the Starting Index Value to the
Ending Index Value, and (C) the Participation Rate. The Starting Index Value
equals 638.26 which was the closing value of the Index on the date the
Securities were priced by the Company for initial sale to the public (the
"Pricing Date"). The Ending Index Value, as more particularly described herein,
will be the average (arithmetic mean) of the closing values of the Index on
certain days, or, if certain events occur, the closing value of the Index on a
single day prior to the maturity of the Securities. The Participation Rate
equals 110%.
FOR INFORMATION AS TO THE CALCULATION OF THE SUPPLEMENTAL REDEMPTION AMOUNT
WHICH WILL BE PAID AT MATURITY, THE CALCULATION AND THE COMPOSITION OF THE
INDEX, SEE "DESCRIPTION OF SECURITIES" AND "THE INDEX", RESPECTIVELY, IN THIS
PROSPECTUS. FOR OTHER INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
Ownership of the Securities will be maintained in book-entry form by or
through the Depository. Beneficial owners of the Securities will not have the
right to receive physical certificates evidencing their ownership except under
the limited circumstances described herein.
The Securities have been listed on the New York Stock Exchange under the
symbol "MIX".
____________
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 Securities 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 Securities.
MLPF&S may act as principal or agent in such transactions. The Securities may be
offered on the New York Stock Exchange, 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 Securities 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.
____________
MERRILL LYNCH & CO.
____________
THE DATE OF THIS PROSPECTUS IS JULY ___, 1998.
(R)"MITTS" is a registered service mark and (R)"Market Index Target-Term
Securities" is a service mark of Merrill Lynch & Co., Inc.
<PAGE>
STANDARD & POOR'S CORPORATION ("S&P") DOES NOT GUARANTEE THE ACCURACY
AND/OR THE COMPLETENESS OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P
MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE
COMPANY, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, HOLDERS OF THE
SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR
ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED UNDER THE
LICENSE AGREEMENT DESCRIBED HEREIN OR FOR ANY OTHER USE. S&P MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO
EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
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 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 26,
1997, Quarterly Report on Form 10-Q for the period ended March 27, 1998, and
Current Reports on Form 8-K dated January 20, 1998, January 30, 1998, February
4, 1998, February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998,
April 29, 1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June
24, 1998, June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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
<PAGE>
SHOULD BE DIRECTED TO LAWRENCE M. EGAN, JR., CORPORATE SECRETARY'S OFFICE,
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 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.
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its
subsidiaries and affiliates, provides investment, financing, advisory,
insurance, and related services on a global basis. Its principal subsidiary,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("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; an underwriter of selected insurance products and a distributor of
investment products of the Merrill Lynch Asset Management group. 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. The Company's asset management and investment management activities are
conducted through the Merrill Lynch Asset Management group and Merrill Lynch
Mercury Asset Management, which together constitute one of the largest asset
management organizations in the world. Merrill Lynch Government Securities Inc.
is a primary dealer in obligations issued or guaranteed by the U.S. Government
and its agencies and its government-sponsored entities. Merrill Lynch Capital
Services, Inc., Merrill Lynch Derivative Products AG, and Merrill Lynch
International are the Company's primary derivative product dealers and enter
into interest rate, currency, and other over-the-counter derivative transactions
as intermediaries and as principals. The Company's operations in insurance
services consist of the underwriting and sale 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 and purchasing secured loans, providing
currency exchange facilities and other related services, and furnishing trust,
employee benefit, and custodial 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
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges ............ 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
3
<PAGE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
RISK FACTORS
PAYMENT AT MATURITY
Supplemental Redemption Amount May be Zero. Investors should be aware that
if the Ending Index Value does not exceed the Starting Index Value, beneficial
owners of the Securities will receive only the principal amount thereof at
maturity, even if the value of the Index at some point between the issue date
and the maturity date of the Securities exceeded the Starting Index Value.
Yield may be Below Market Interest Rates on the Pricing Date. A beneficial
owner of the Securities may receive no Supplemental Redemption Amount at
maturity, or a Supplemental Redemption Amount that is below what the Company
would pay as interest as of the Pricing Date if the Company issued non-callable
senior debt securities with a similar maturity as that of the Securities. The
return of principal of the Securities at maturity and the payment of the
Supplemental Redemption Amount, if any, may not reflect the full opportunity
costs implied by inflation or other factors relating to the time value of money.
Yield on Securities will not Reflect Dividends. The Index does not reflect
the payment of dividends on the stocks underlying it and therefore the yield
based on the Index to the maturity of the Securities will not produce the same
yield as if such underlying stocks were purchased and held for a similar period.
State Law Limit on Interest Paid. Because the Senior Indenture provides
that the Securities are governed by and construed in accordance with the laws of
New York, certain usury laws of New York State may apply. Under present New York
law, the maximum rate of interest is 25% per annum on a simple interest basis.
This limit may not apply to Securities in which $2,500,000 or more has been
invested. While the Company believes that New York law would be given effect by
a state or Federal court sitting outside of New York, state laws frequently
regulate the amount of interest that may be charged to and paid by a borrower
(including, in some cases, corporate borrowers). It is suggested that
prospective investors consult their personal advisors with respect to the
applicability of such laws. The Company will covenant for the benefit of the
Holders of the Securities, to the extent permitted by law, not to claim
voluntarily the benefits of any laws concerning usurious rates of interest
against a Holder of the Securities.
TRADING
The Securities have been listed on the New York Stock Exchange under the
symbol "MIX".
It is expected that the trading value of the Securities in the secondary
market will be affected by the creditworthiness of the Company and by a number
of other factors. The trading value of the Securities is expected to depend
substantially on the extent of the appreciation, if any, of the Index over the
Starting Index Value. See "The Index--Historical Data on the Index" in this
Prospectus for historical values of the Index. If, however, Securities are sold
prior to the maturity date at a time when the Index exceeds the Starting Index
Value, the sale price may be at a substantial discount from the amount expected
to be payable to the beneficial owner if such excess of the Index over the
Starting Index Value were to prevail until maturity of the Securities because of
the possible fluctuation of the Index between the time of such sale and the time
that the Ending Index Value is determined. Furthermore, the price at which a
beneficial owner will be able to sell Securities prior to maturity may be at a
discount, which could be substantial, from the principal amount thereof, if, at
such time, the Index is below, equal to, or not sufficiently above the Starting
Index Value. A discount could also result from rising interest rates.
4
<PAGE>
In addition to the value of the Index, the trading value of the Securities
may be affected by a number of interrelated factors, including the
creditworthiness of the Company and those factors listed below. The relationship
among these factors is complex, including how these factors affect the relative
value of the principal amount of the Securities to be repaid at maturity and the
value of the Supplemental Redemption Amount, if any. Accordingly, investors
should be aware that factors other than the level of the Index are likely to
affect the Securities' trading value. The expected effect on the trading value
of the Securities of each of the factors listed below, assuming in each case
that all other factors are held constant, is as follows:
Interest Rates. Because the Securities repay at a minimum the principal
amount thereof at maturity, the trading value of the Securities will likely be
affected by changes in interest rates. In general, if U.S. interest rates
increase, the trading value of the Securities is expected to decrease. If U.S.
interest rates decrease, the trading value of the Securities is expected to
increase. Interest rates may also affect the U.S. economy, and, in turn, the
value of the Index. Rising interest rates may lower the value of the Index and,
thus, the Securities. Falling interest rates may increase the value of the Index
and, thus, may increase the value of the Securities.
Volatility of the Index. If the volatility of the Index increases, the
trading value of the Securities is expected to increase. If the volatility of
the Index decreases, the trading value of the Securities is expected to
decrease.
Time Remaining to Maturity. The Securities may trade at a value above that
which may be inferred from the level of interest rates and the Index. This
difference will reflect a "time premium" due to expectations concerning the
value of the Index during the period prior to maturity of the Securities. As the
time remaining to maturity of the Securities decreases, however, this time
premium is expected to decrease, thus decreasing the trading value of the
Securities. In addition, the price at which a beneficial owner may be able to
sell Securities prior to maturity may be at a discount, which may be
substantial, from the principal amount of the Securities if the value of the
Index is below, equal to, or not sufficiently above the Starting Index Value.
Dividend Rates in the United States. If dividend rates on the stocks
comprising the Index increase, the value of the Securities is expected to
decrease. Conversely, if dividend rates on the stocks comprising the Index
decrease, the value of the Securities is expected to increase. However, in
general, rising U.S. corporate dividend rates may increase the value of the
Index and, in turn, increase the value of the Securities. Conversely, falling
U.S. dividend rates may decrease the value of the Index and, in turn, decrease
the value of the Securities.
The impact of the factors specified above, excluding the value of the
Index, may offset, partially or in whole, any increase in the trading value of
the Securities that is attributable to an increase in the value of the Index.
For example, an increase in U.S. interest rates may cause the Securities to
trade at a discount from their initial offering price, even if the Index has
appreciated significantly. In general, assuming all relevant factors are held
constant, the effect on the trading value of the Securities of a given change in
interest rates, Index volatility and/or dividend rates of stocks comprising the
Index is expected to be less if it occurs later in the term of the Securities
than if it occurs earlier in the term of the Securities. The effect on the
trading value of the Securities of a given appreciation of the Index in excess
of the Starting Index Value is expected to be greater if it occurs later in the
term of the Securities than if it occurs earlier in the term of the Securities,
assuming all other relevant factors are held constant.
THE INDEX
The value of the Index and the Supplemental Redemption Amount, if any, may
be adversely affected by political, economic and other developments that affect
the stocks underlying the Index.
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the
Securities should reach an investment decision only after carefully considering
the suitability of the Securities in light of their particular circumstances.
5
<PAGE>
Investors should also consider the tax consequences of investing in the
Securities and should consult their tax advisors.
MLPF&S or its affiliates may from time to time engage in transactions
involving the stocks underlying the Index for their proprietary accounts and for
other accounts under their management, which may influence the value of such
stocks and therefore the value of the Securities. MLPF&S and its affiliates will
also be the counterparties to the hedge of the Company's obligations under the
Securities. Accordingly, under certain circumstances, conflicts of interest may
arise between MLPF&S's responsibilities as Calculation Agent with respect to the
Securities and its obligations under its hedge and its status as a subsidiary of
the Company. Under certain circumstances, the duties of MLPF&S as Calculation
Agent in determining the existence of Market Disruption Events could conflict
with the interests of MLPF&S as an affiliate of the issuer of the Securities,
Merrill Lynch & Co., Inc., and with the interests of the holders of the
Securities.
DESCRIPTION OF SECURITIES
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Senior Indenture, referred to as the "Senior Indenture", which is more fully
described below. The Securities will mature on May 10, 2001.
At maturity, a beneficial owner of a Security will receive the principal
amount of such Security plus the Supplemental Redemption Amount, if any,
however, there will be no other payment of interest, periodic or otherwise. (See
"Payment at Maturity" below.)
The Securities are not subject to redemption by the Company or at the
option of any beneficial owner prior to maturity. Upon the occurrence of an
Event of Default with respect to the Securities, beneficial owners of the
Securities may accelerate the maturity of the Securities, as described under
"Description of Securities--Events of Default and Acceleration" in this
Prospectus and "Other Terms--Events of Default" in this Prospectus.
The Securities were issued in denominations of whole Units.
PAYMENT AT MATURITY
At maturity, a beneficial owner of a Security will be entitled to receive
the principal amount thereof plus a Supplemental Redemption Amount, if any, all
as provided below. If the Ending Index Value does not exceed the Starting Index
Value a beneficial owner of a Security will be entitled to receive only the
principal amount thereof.
At maturity, a beneficial owner of a Security will be entitled to receive,
with respect to each such Security, (i) the principal amount thereof ($10 for
each Unit), and (ii) the Supplemental Redemption Amount equal in amount to:
<TABLE>
<S> <C> <C>
Ending Index Value--Starting Index Value
Principal Amount X ---------------------------------------- X Participation Rate
Starting Index Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero. The Starting Index Value equals 638.26, which was the closing
value of the Index on the date the Securities were priced by the Company for
initial sale to the public (i.e, the Pricing Date). The Participation Rate
equals 110%. The Ending Index Value will be determined by Merrill Lynch, Pierce,
Fenner & Smith Incorporated (the "Calculation Agent") and will equal the average
(arithmetic mean) of the closing values of the Index determined on each of the
first five Calculation Days during the Calculation Period. If there are fewer
than five Calculation Days, then the Ending Index Value will equal the average
(arithmetic mean) of the closing values of the Index on such Calculation Days,
and if there is only one Calculation Day, then the Ending Index Value will equal
the closing value of the Index on such
6
<PAGE>
Calculation Day. If no Calculation Days occur during the Calculation Period
because of Market Disruption Events, then the Ending Index Value will equal the
closing value of the Index determined on the last scheduled Index Business Day
in the Calculation Period, regardless of the occurrences of a Market Disruption
Event on such day. The "Calculation Period" means the period from and including
the seventh scheduled Index Business Day prior to the maturity date to and
including the second scheduled Index Business Day prior to the maturity date.
"Calculation Day" means any Index Business Day during the Calculation Period on
which a Market Disruption Event has not occurred. For purposes of determining
the Ending Index Value, an "Index Business Day" is a day on which the New York
Stock Exchange and the American Stock Exchange are open for trading and the
Index or any Successor Index is calculated and published. All determinations
made by the Calculation Agent shall be at the sole discretion of the Calculation
Agent and, absent a determination by the Calculation Agent of a manifest error,
shall be conclusive for all purpose and binding on the Company and beneficial
owners of the Securities.
The following table illustrates, for a range of hypothetical Ending Index
Values, (i) the total amount payable at maturity for each $10 principal amount
of Securities, (ii) the total rate of return to beneficial owners of the
Securities, (iii) the pretax annualized rate of return to beneficial owners of
Securities, and (iv) the pretax annualized rate of return of an investment in
the stocks underlying the Index (which includes an assumed aggregate dividend
yield of 2.20% per annum, as more fully described below).
<TABLE>
<CAPTION>
TOTAL AMOUNT PRETAX PRETAX ANNUALIZED
PERCENTAGE CHANGE PAYABLE AT MATURITY ANNUALIZED RATE RATE OF RETURN OF
HYPOTHETICAL ENDING OVER THE STARTING PER $10 PRINCIPAL OF RETURN ON STOCKS UNDERLYING
INDEX VALUE INDEX VALUE AMOUNT OF SECURITIES THE SECURITIES(1) THE INDEX(1)(2)
- ------------------- ------------------ -------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
319.13 -50% $10.00 0.00% -11.41%
382.96 -40% $10.00 0.00% -7.89%
446.78 -30% $10.00 0.00% -4.89%
510.61 -20% $10.00 0.00% -2.25%
574.43 -10% $10.00 0.00% 0.09%
638.26(3) 0% $10.00 0.00% 2.21%
702.09 10% $11.10 2.10% 4.15%
765.91 20% $12.20 4.02% 5.94%
829.74 30% $13.30 5.80% 7.61%
893.56 40% $14.40 7.44% 9.16%
957.39 50% $15.50 8.97% 10.62%
1,021.22 60% $16.60 10.42% 12.00%
1,085.04 70% $17.70 11.77% 13.30%
1,148.87 80% $18.80 13.05% 14.54%
1,212.69 90% $19.90 14.27% 15.72%
1,276.52 100% $21.00 15.43% 16.84%
1,340.35 110% $22.10 16.53% 17.92%
1,404.17 120% $23.20 17.59% 18.95%
</TABLE>
- --------------
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes (i) an investment of a fixed amount in the
stocks underlying the Index with the allocation of such amount reflecting
the current relative weights of such stocks in the Index; (ii) a percentage
change in the aggregate price of such stocks that equals the percentage
change in the Index from the Starting Index Value to the relevant
hypothetical Ending Index Value; (iii) a constant dividend yield of 2.20%
per annum, paid quarterly from the date of initial delivery of Securities,
applied to the value of the Index at the end of each such quarter assuming
such value increases or decreases linearly from the Starting Index Value to
the applicable hypothetical Ending Index Value; (iv) no transaction fees or
expenses; (v) a term for the Securities from May 13, 1996 to May 10, 2001;
and (vi) a final Index value equal to the Ending Index Value. The aggregate
dividend yield of the stocks underlying the Index as of May 7, 1996 was
approximately 2.20%.
(3) The Starting Index Value.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the total and pretax
annualized rate of return resulting therefrom will depend entirely on the actual
Ending Index Value determined by the Calculation Agent as provided herein.
Historical data regarding the Index is included in this Prospectus under "The
Index--Historical Data on the Index".
7
<PAGE>
ADJUSTMENTS TO THE INDEX; MARKET DISRUPTION EVENTS
If at any time the method of calculating the Index, or the value thereof,
is changed in any material respect, or if the Index is in any other way modified
so that such Index does not, in the opinion of the Calculation Agent, fairly
represent the value of the Index had such changes or modifications not been
made, then, from and after such time, the Calculation Agent shall, at the close
of business in New York, New York, on each date that the closing value with
respect to the Ending Index Value is to be calculated, make such adjustments as,
in the good faith judgment of the Calculation Agent, may be necessary in order
to arrive at a calculation of a value of a stock index comparable to the Index
as if such changes or modifications had not been made, and calculate such
closing value with reference to the Index, as adjusted. Accordingly, if the
method of calculating the Index is modified so that the value of such Index is a
fraction or a multiple of what it would have been if it had not been modified
(e.g., due to a split in the Index), then the Calculation Agent shall adjust
such Index in order to arrive at a value of the Index as if it had not been
modified (e.g., as if such split had not occurred).
"Market Disruption Event" means either of the following events, as
determined by the Calculation Agent:
(i) the suspension or material limitation (limitations pursuant to New
York Stock Exchange Rule 80A (or any applicable rule or regulation enacted or
promulgated by the New York Stock Exchange or any other self regulatory
organization or the Securities and Exchange Commission of similar scope as
determined by the Calculation Agent) on trading during significant market
fluctuations shall be considered "material" for purposes of this definition), in
each case, for more than two hours of trading in 100 or more of the securities
included in the S&P 500 Index, or
(ii) the suspension or material limitation, in each case, for more than two
hours of trading (whether by reason of movements in price otherwise exceeding
levels permitted by the relevant exchange or otherwise) in (A) futures contracts
related to the Index which are traded on the Chicago Mercantile Exchange or (B)
option contracts related to the Index which are traded on the Chicago Board
Options Exchange, Inc.
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular business hours of
the relevant exchange.
DISCONTINUANCE OF THE INDEX
If S&P discontinues publication of the Index and S&P or another entity
publishes a successor or substitute index that the Calculation Agent determines,
in its sole discretion, to be comparable to such Index (any such index being
referred to hereinafter as a "Successor Index"), then, upon the Calculation
Agent's notification of such determination to the Trustee and the Company, the
Calculation Agent will substitute the Successor Index as calculated by S&P or
such other entity for the Index and calculate the Ending Index Value as
described above under "Payment at Maturity". Upon any selection by the
Calculation Agent of a Successor Index, the Company shall cause notice thereof
to be given to Holders of the Securities.
If S&P discontinues publication of the Index and a Successor Index is not
selected by the Calculation Agent or is no longer published on any of the
Calculation Days, the value to be substituted for the Index for any such
Calculation Day used to calculate the Supplemental Redemption Amount at maturity
will be a value computed by the Calculation Agent for each Calculation Day in
accordance with the procedures last used to calculate the Index prior to any
such discontinuance. If a Successor Index is selected or the Calculation Agent
calculates a value as a substitute for the Index as described below, such
Successor Index or value shall be substituted for the Index for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
If S&P discontinues publication of the Index prior to the period during
which the Supplemental Redemption Amount is to be determined and the Calculation
Agent determines that no Successor Index is available at such time, then on each
Business Day until the earlier to occur of (i) the determination of the Ending
Index Value and (ii) a determination by the Calculation Agent that a Successor
Index is available, the Calculation Agent shall determine
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the value that would be used in computing the Supplemental Redemption Amount as
described in the preceding paragraph as if such day were a Calculation Day. The
Calculation Agent will cause notice of each such value to be published not less
often than once each month in The Wall Street Journal (or another newspaper of
general circulation), and arrange for information with respect to such values to
be made available by telephone. Notwithstanding these alternative arrangements,
discontinuance of the publication of the Index may adversely affect trading in
the Securities.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Securities shall have
occurred and be continuing, the amount payable to a beneficial owner of a
Security upon any acceleration permitted by the Securities, with respect to each
$10 principal amount thereof, will be equal to: (i) the initial issue price
($10), plus (ii) an additional amount of contingent interest calculated as
though the date of early repayment were the maturity date of the Securities. See
"Description of Securities--Payment at Maturity" in this Prospectus. If a
bankruptcy proceeding is commenced in respect of the Company, the claim of the
beneficial owner of a Security may be limited, under Section 502(b)(2) of Title
11 of the United States Code, to the principal amount of the Security plus an
additional amount of contingent interest calculated as though the date of the
commencement of the proceeding were the maturity date of the Securities.
In case of default in payment at the maturity date of the Securities
(whether at their stated maturity or upon acceleration), from and after the
maturity date the Securities shall bear interest, payable upon demand of the
beneficial owners thereof, at the rate of 8% per annum (to the extent that
payment of such interest shall be legally enforceable) on the unpaid amount due
and payable on such date in accordance with the terms of the Securities to the
date payment of such amount has been made or duly provided for.
DEPOSITORY
The issuance, all Securities are represented by one or more fully
registered global securities (the "Global Securities"). Each such Global
Security has been deposited with, or on behalf of, The Depository Trust Company
("DTC"), as Depository (the "Depository"), registered in the name of DTC or a
nominee thereof. Unless and until it is exchanged in whole or in part for
Securities in definitive form, no Global Security may be transferred except as a
whole by the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository or by such
Depository or any such nominee to a successor of such Depository or a nominee of
such successor.
DTC has advised the Company as follows: DTC 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. DTC 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. DTC's Participants include securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations.
DTC 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 DTC 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 Securities must be made by or through Participants, which will
receive a credit on the records of DTC. The ownership interest of each actual
purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the
Participants' or Indirect Participants' records. Beneficial Owners will not
receive written confirmation from
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DTC of their purchase, but Beneficial Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Participant or Indirect Participant
through which the Beneficial Owner entered into the transaction. Ownership of
beneficial interests in such Global Security will be shown on, and the transfer
of such ownership interests will be effected only through, records maintained by
DTC (with respect to interests of Participants) and on the records of
Participants (with respect to interests of persons held through Participants).
The laws of some states may require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and such
laws may impair the ability to own, transfer or pledge beneficial interests in
Global Securities.
So long as DTC, or its nominee, is the registered owner of a Global
Security, DTC or its nominee, as the case may be, will be considered the sole
owner or Holder of the Securities represented by such Global Security for all
purposes under the Senior Indenture. Except as provided below, Beneficial Owners
in a Global Security will not be entitled to have the Securities represented by
such Global Securities registered in their names, will not receive or be
entitled to receive physical delivery of the Securities in definitive form and
will not be considered the owners or Holders thereof under the Senior Indenture,
including for purposes of receiving any reports delivered by the Company or the
Trustee pursuant to the Senior Indenture. Accordingly, each Person owning a
beneficial interest in a Global Security must rely on the procedures of DTC and,
if such Person is not a Participant, on the procedures of the Participant
through which such Person owns its interest, to exercise any rights of a Holder
under the Senior Indenture. The Company understands that under existing industry
practices, in the event that the Company requests any action of Holders or that
an owner of a beneficial interest in such a Global Security desires to give or
take any action which a Holder is entitled to give or take under the Senior
Indenture, DTC 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 DTC to Participants, by Participants to
Indirect Participants, and by Participants and Indirect Participants to
Beneficial Owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of the principal of, and any Supplemental Redemption Amount with
respect to, Securities registered in the name of DTC or its nominee will be made
to DTC or its nominee, as the case may be, as the Holder of the Global
Securities representing such Securities. 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 DTC, upon receipt of any payment of principal or any Supplemental
Redemption Amount in respect of a Global Security, will credit the accounts of
the Participants with payment in amounts proportionate to their respective
holdings in principal amount of beneficial interest in such Global Security as
shown on the records of DTC. 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) any Depository is at any time unwilling or unable to continue as
Depository and a successor depository is not appointed by the Company within 60
days, (y) the Company executes and delivers to the Trustee a Company Order to
the effect that the Global Securities shall be exchangeable or (z) an Event of
Default has occurred and is continuing with respect to the Securities, the
Global Securities will be exchangeable for Securities in definitive form of like
tenor and of an equal aggregate principal amount, in denominations of $1,000 and
integral multiples thereof. Such definitive Securities shall be registered in
such name or names as the Depository shall instruct the Trustee. It is expected
that such instructions may be based upon directions received by the Depository
from Participants with respect to ownership of beneficial interests in such
Global Securities.
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SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Securities will be made by the Underwriter in
immediately available funds. All payments of principal and the Supplemental
Redemption Amount, if any, will be made by the Company in immediately available
funds so long as the Securities are maintained in book-entry form.
THE INDEX
All disclosure contained in this Prospectus regarding the Index, including,
without limitation, its make-up, method of calculation and changes in its
components, is derived from publicly available information prepared by S&P as of
May 7, 1996. Neither the Company nor the Underwriter takes any responsibility
for the accuracy or completeness of such information.
GENERAL
The Index is published by S&P and is intended to provide an indication of
the pattern of common stock price movement. The calculation of the value of the
Index (discussed below in further detail) is based on the relative value of the
aggregate Market Value (as defined below) of the common stocks of 500 companies
as of a particular time as compared to the aggregate average Market Value of the
common stocks of 500 similar companies during the base period of the years 1941
through 1943. As of April 29, 1996, the 500 companies included in the Index
represented approximately 77% of the aggregate Market Value of common stocks
traded on The New York Stock Exchange; however, these 500 companies are not the
500 largest companies listed on The New York Stock Exchange and not all of these
500 companies are listed on such exchange. As of April 29, 1996, the aggregate
market value of the 500 companies included in the Index represented
approximately 70% of the aggregate market value of United States domestic,
public companies. S&P chooses companies for inclusion in the Index with the aim
of achieving a distribution by broad industry groupings that approximates the
distribution of these groupings in the common stock population of The New York
Stock Exchange, which S&P uses as an assumed model for the composition of the
total market. Relevant criteria employed by S&P include the viability of the
particular company, the extent to which that company represents the industry
group to which it is assigned, the extent to which the market price of that
Company's common stock is generally responsive to changes in the affairs of the
respective industry and the Market Value and trading activity of the common
stock of that company. As of April 29, 1996, the 500 companies included in the
Index were divided into 90 individual groups. These individual groups comprised
the following four main groups of companies (with the number of companies
currently included in each group indicated in parentheses): Industrials (372),
Utilities (49), Transportation (14) and Financial (65). S&P may from time to
time, in its sole discretion, add companies to, or delete companies from, the
Index to achieve the objectives stated above.
COMPUTATION OF THE S&P 500 INDEX
S&P currently computes the Index as of a particular time as follows:
(1) the product of the market price per share and the number of then
outstanding shares of each component stock is determined as of such time (such
product referred to as the "Market Value" of such stock);
(2) the Market Value of all component stocks as of such time (as
determined under clause (1) above) are aggregated;
(3) the mean average of the Market Values as of each week in the base
period of the years 1941 through 1943 of the common stock of each company in a
group of 500 substantially similar companies is determined;
(4) the mean average Market Values of all such common stocks over such
base period (as determined under clause (3) above) are aggregated (such
aggregate amount being referred to as the "Base Value");
(5) the aggregate Market Value of all component stocks as of such time (as
determined under clause (2) above) is divided by the Base Value; and
(6) the resulting quotient (expressed in decimals) is multiplied by ten.
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While S&P currently employs the above methodology to calculate the Index, no
assurance can be given that S&P will not modify or change such methodology in a
manner that may affect the Supplemental Redemption Amount, if any, payable to
beneficial owners of Securities upon maturity or otherwise.
S&P adjusts the foregoing formula to negate the effect of changes in the
Market Value of a component stock that are determined by S&P to be arbitrary or
not due to true market fluctuations. Such changes may result from such causes as
the issuance of stock dividends, the granting to shareholders of rights to
purchase additional shares of such stock, the purchase thereof by employees
pursuant to employee benefit plans, certain consolidations and acquisitions, the
granting to shareholders of rights to purchase other securities of the company,
the substitution by S&P of particular component stocks in the Index, and other
reasons. In all such cases, S&P first recalculates the aggregate Market Value of
all component stocks (after taking account of the new market price per share of
the particular component stock or the new number of outstanding shares thereof
or both, as the case may be) and then determines the New Base Value in
accordance with the following formula:
New Market Value
Old Base Value X ----------------- = New Base Value
Old Market Value
The result is that the Base Value is adjusted in proportion to any change in the
aggregate Market Value of all component stocks resulting from the causes
referred to above to the extent necessary to negate the effects of such causes
upon the Index.
A potential investor should review the historical performance of the Index.
The historical performance of the Index should not be taken as an indication of
future performance, and no assurance can be given that the Index will increase
sufficiently to cause the beneficial owners of the Securities to receive an
amount in excess of the principal amount at the maturity of the Securities.
LICENSE AGREEMENT
S&P and Merrill Lynch Capital Services, Inc. have entered into a non-
exclusive license agreement providing for the license to Merrill Lynch Capital
Services, Inc., in exchange for a fee, of the right to use indices owned and
published by S&P in connection with certain securities, including the
Securities, and the Company is an authorized sublicensee thereof.
The license agreement between S&P and Merrill Lynch Capital Services, Inc.
provides that the following language must be stated in this Prospectus:
"The Securities are not sponsored, endorsed, sold or promoted by S&P.
S&P makes no representation or warranty, express or implied, to the Holders
of the Securities or any member of the public regarding the advisability of
investing in securities generally or in the Securities particularly or the
ability of the Index to track general stock market performance. S&P's only
relationship to Merrill Lynch Capital Services, Inc. and the Company (other
than transactions entered into in the ordinary course of business) is the
licensing of certain servicemarks and trade names of S&P and of the Index
which is determined, composed and calculated by S&P without regard to the
Company or the Securities. S&P has no obligation to take the needs of the
Company or the Holders of the Securities into consideration in determining,
composing or calculating the Index. S&P is not responsible for and has not
participated in the determination of the timing of the sale of the
Securities, prices at which the Securities are to initially be sold, or
quantities of the Securities to be issued or in the determination or
calculation of the equation by which the Securities are to be converted
into cash. S&P has no obligation or liability in connection with the
administration, marketing or trading of the Securities."
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OTHER TERMS
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Indenture (the "Senior Indenture"), dated as of April 1, 1983, as amended and
restated, 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"). A copy of the Senior Indenture is filed as an exhibit
to the registration statements relating to the Securities. The following
summaries of certain provisions of the Senior Indenture do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the Senior Indenture, including the definition therein of
certain terms.
The Senior Indenture provides that series of Senior Debt Securities may
from time to time be issued thereunder, without limitation as to aggregate
principal amount, in one or more series and upon such terms as the Company may
establish pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the Securities
are governed by and construed in accordance with the laws of the State of New
York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen" a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and other regulatory bodies.
LIMITATIONS UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of the incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
LIMITATION ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Indenture provides that the Company may not sell, transfer or otherwise
dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell or
otherwise dispose of any of its Voting Stock, unless, after giving effect to any
such transaction, MLPF&S remains a Controlled Subsidiary (defined in the Senior
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the 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.
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MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or
into any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior 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 Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company
and the Trustee with the consent of the Holders of 66 2/3% in principal amount
of the Outstanding Senior Debt Securities of each series issued pursuant to such
indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding Senior Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts payable on, any Senior Debt
Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any Senior Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Debt Security; (e) reduce the percentage in principal
amount of the Outstanding Senior Debt Securities of any series, the consent of
whose Holders is required to modify or amend the Indenture; or (f) modify the
foregoing requirements or reduce the percentage of Outstanding Senior Debt
Securities necessary to waive any past default to less than a majority. No
modification or amendment of the Subordinated Indenture or any Subsequent
Indenture for Subordinated Debt Securities may adversely affect the rights of
any holder of Senior Indebtedness without the consent of such Holder. Except
with respect to certain fundamental provisions, the Holders of at least a
majority in principal amount of Outstanding Senior Debt Securities of any series
may, with respect to such series, waive past defaults under the Indenture and
waive compliance by the Company with certain provisions thereof.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the Indenture for
the benefit of such series or in the Senior Debt Securities of such series,
continued for 60 days after written notice as provided in the Senior Indenture;
(e) certain events in bankruptcy, insolvency or reorganization; and (f) any
other Event of Default provided with respect to Senior Debt Securities of that
series. The Trustee or the Holders of 25% in principal amount of the
Outstanding Senior Debt Securities of that series may declare the principal
amount (or such lesser amount as may be provided for in the Senior Debt
Securities of that series) of all Outstanding Senior Debt Securities of that
series and the interest due thereon and Additional Amounts payable in respect
thereof, if any to be due and payable immediately if an Event of Default with
respect to Senior Debt Securities of such series shall occur and be continuing
at the time of such declaration. At any time after a declaration of
acceleration has been made with respect to Senior Debt Securities of any series
but before a judgment or decree for payment of money due has been obtained by
the Trustee, the Holders of a majority in principal amount of the Outstanding
Senior Debt Securities of that series may rescind any declaration of
acceleration and its consequences, if all payments due (other than those due as
a result of acceleration) have been made and all Events of Default have been
remedied or waived. Any Event of Default with respect to Senior Debt Securities
of
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any series may be waived by the Holders of a majority in principal amount of all
Outstanding Senior Debt Securities of that series, except in a case of failure
to pay principal or premium, if any, or interest or Additional Amounts payable
on any Senior Debt Security of that series for which payment had not been
subsequently made or in respect of a covenant or provision which cannot be
modified or amended without the consent of the Holder of each Outstanding Senior
Debt Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior
Debt Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any right or power
under the Senior Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company is required to furnish to the Trustee annually a statement as
to the fulfillment by the Company of all of its obligations under the Senior
Indenture.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997 included
in the 1997 Annual Report on Form 10-K, and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP, as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such 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 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 such Quarterly Reports 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.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
TECHNOLOGY MARKET INDEX TARGET-TERM SECURITIES DUE AUGUST 15, 2001
("MITTS(R)")
On August 12, 1996, Merrill Lynch & Co., Inc. (the "Company") issued
$25,000,000 aggregate principal amount (2,500,000 Units) of Technology Market
Index Target-Term Securities due August 15, 2001 (the "Securities" or "MITTS").
Each $10 principal amount of Securities will be deemed a "Unit" for purposes of
trading and transfer at the Depository described below. Units will be
transferable by the Depository, as more fully described below, in denominations
of whole Units.
The Securities are debt securities of the Company, which were issued in
denominations of $10 and integral multiples thereof, will bear no periodic
payments of interest and will mature on August 15, 2001. At maturity, a
beneficial owner of a Security will be entitled to receive, with respect to each
Security, the principal amount thereof plus an interest payment (the
"Supplemental Redemption Amount"), based on the percentage increase, if any, in
the CBOE Technology Index* (the "Index") over the Benchmark Index Value. The
Supplemental Redemption Amount will in no event be less than zero or more than
$10 per $10 principal amount of Securities, representing a maximum annualized
rate of return of 14.33% compounded semi-annually over the term of the
Securities. The Securities are not redeemable or callable by the Company prior
to maturity. At maturity, a beneficial owner of a Security will receive the
principal amount of such Security plus the Supplemental Redemption Amount, if
any, however, there will be no other payment of interest, periodic or otherwise.
The Supplemental Redemption Amount payable with respect to a Security at
maturity will equal the product of (A) the principal amount of the applicable
Security and (B) the percentage increase from the Benchmark Index Value to the
Ending Index Value. The Benchmark Index Value equals 189.48 and was determined
as described herein. The closing value of the Index on the date the Securities
were priced by the Company for initial sale to the public was 168.43, and the
Benchmark Index Value exceeded such closing value by 12.5%. The Ending Index
Value, as more particularly described herein, will be the average (arithmetic
mean) of the closing values of the Index on certain days, or, if certain events
occur, the closing value of the Index on a single day prior to the maturity of
the Securities.
FOR INFORMATION AS TO THE CALCULATION OF THE SUPPLEMENTAL REDEMPTION AMOUNT
WHICH WILL BE PAID AT MATURITY, THE CALCULATION AND THE COMPOSITION OF THE
INDEX, SEE "DESCRIPTION OF SECURITIES" AND "THE INDEX", RESPECTIVELY, IN THIS
PROSPECTUS. FOR OTHER INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
Ownership of the Securities will be maintained in book-entry form by or
through the Depository. Beneficial owners of the Securities will not have the
right to receive physical certificates evidencing their ownership except under
the limited circumstances described herein.
The Securities have been listed on the Chicago Board Options Exchange, Inc.
(the "CBOE") and the New York Stock Exchange (the "NYSE") under the symbol
"TKM".
_____________
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 Securities 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 Securities.
MLPF&S may act as principal or agent in such transactions. The Securities may
be offered on the CBOE and 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 Securities 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.
_____________
MERRILL LYNCH & CO.
_____________
THE DATE OF THIS PROSPECTUS IS JULY ___, 1998.
(R)"MITTS" is a registered service mark and (SM)"Market Index Target-Term
Securities" is a service mark of Merrill Lynch & Co., Inc.
* The use and reference of the term "CBOE Technology Index" herein has been
consented to by the CBOE.
The "CBOE Technology Index" is a service mark of the CBOE.
<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 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 26, 1997,
Quarterly Report on Form 10-Q for the period ended March 27, 1998, and Current
Reports on Form 8-K dated January 20, 1998, January 30, 1998, February 4, 1998,
February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998, April 29,
1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June 24, 1998,
June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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 Lawrence M. Egan, Jr., Corporate Secretary's
Office, 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 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.
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, advisory, insurance, and related
services on a global basis. Its principal subsidiary, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("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; an underwriter of selected insurance
products and a distributor of investment products of the Merrill Lynch Asset
Management group. 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. The Company's asset management and investment
management activities are conducted through the Merrill Lynch Asset Management
group and Merrill Lynch Mercury Asset Management, which together constitute one
of the largest asset management organizations in the world. Merrill Lynch
Government Securities Inc. is a primary dealer in obligations issued or
guaranteed by the U.S. Government and its agencies and its government-sponsored
entities. Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative
Products AG, and Merrill Lynch International are the Company's primary
derivative product dealers and enter into interest rate, currency, and other
over-the-counter derivative transactions as intermediaries and as principals.
The Company's operations in insurance services consist of the underwriting and
sale 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 and
purchasing secured loans, providing currency exchange facilities and other
related services, and furnishing trust, employee benefit, and custodial
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
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
Ratio of earnings
to fixed charges . . . . 1.4 1.2 1.2 1.2 1.2 1.2
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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
<PAGE>
RISK FACTORS
PAYMENT AT MATURITY
Benchmark Index Value will Exceed Value of Index on the Pricing Date. The
Benchmark Index Value exceeded the closing value of the Index on the Pricing
Date by 12.5%. Investors should be aware that if, at maturity, the Ending Index
Value does not exceed the closing Index value on the Pricing Date by more than
12.5%, beneficial owners of the Securities will receive only the principal
amount thereof.
Yield may be Below Market Interest Rates on the Pricing Date. A beneficial
owner of the Securities may receive no Supplemental Redemption Amount at
maturity, or a Supplemental Redemption Amount that is below what the Company
would pay as interest as of the Pricing Date if the Company issued non-callable
senior debt securities with a similar maturity as that of the Securities. The
return of principal of the Securities at maturity and the payment of the
Supplemental Redemption Amount, if any, may not reflect the full opportunity
costs implied by inflation or other factors relating to the time value of money.
Limitation of Supplemental Redemption Amount. Because the Supplemental
Redemption Amount will not exceed $10 per $10 principal amount of Securities,
beneficial owners of Securities will not benefit from Index increases in excess
of approximately 125% of the closing Index value on the Pricing Date (the
"Maximum Index Value"). In no event will the Supplemental Redemption Amount
exceed $10 per $10 principal amount of Securities.
Yield on Securities will not Reflect Dividends. The Index does not reflect
the payment of dividends on the stocks underlying it and therefore the yield
based on the Index to the maturity of the Securities will not produce the same
yield as if such underlying stocks were purchased and held for a similar period.
TRADING
The Securities have been listed on the CBOE and on the NYSE under the symbol
"TKM". It is expected that the secondary market for the Securities will be
affected by the creditworthiness of the Company and by a number of other
factors.
The trading value of the Securities is expected to depend substantially on the
extent of the appreciation, if any, of the Index over the Benchmark Index Value.
If, however, Securities are sold prior to the maturity date at a time when the
Index exceeds the Benchmark Index Value, the sale price may be at a substantial
discount from the amount expected to be payable to the beneficial owner if such
excess of the Index over the Benchmark Index Value were to prevail until
maturity of the Securities because of the possible fluctuation of the Index
between the time of such sale and the time that the Ending Index Value is
determined. Furthermore, the price at which a beneficial owner will be able to
sell Securities prior to maturity may be at a discount, which could be
substantial, from the principal amount thereof, if, at such time, the Index is
below, equal to, or not sufficiently above the Benchmark Index Value. The
limitation that the Supplemental Redemption Amount will not exceed $10 per $10
principal amount of Securities may adversely affect the secondary market value
of the Securities and such adverse effect could occur even if the value of the
Index is below the Maximum Index Value. A discount could also result from rising
interest rates.
In addition to the value of the Index, the trading value of the Securities may
be affected by a number of interrelated factors, including the creditworthiness
of the Company and those factors listed below. The relationship among these
factors is complex, including how these factors affect the relative value of the
principal amount of the Securities to be repaid at maturity and the value of the
Supplemental Redemption Amount. Accordingly, investors should be aware that
factors other than the level of the Index are likely to affect the Securities'
trading value. The expected effect on the trading value of the Securities of
each of the factors listed below, assuming in each case that all other factors
are held constant, is as follows:
4
<PAGE>
Interest Rates. Because the Securities repay at a minimum the principal
amount thereof at maturity, the trading value of the Securities will likely be
affected by changes in interest rates. In general, if U.S. interest rates
increase, the trading value of the Securities is expected to decrease. If U.S.
interest rates decrease, the trading value of the Securities is expected to
increase. Interest rates may also affect the U.S. economy, and, in turn, the
value of the Index. Rising interest rates may lower the value of the Index and,
thus, may decrease the trading value of the Securities. Falling interest rates
may increase the value of the Index and, thus, may increase the trading value of
the Securities.
Volatility of the Index. If the volatility of the Index increases, the
trading value of the Securities is expected to increase. If the volatility of
the Index decreases, the trading value of the Securities is expected to
decrease.
Time Remaining to Maturity. The Securities may trade at a value above that
which may be inferred from the level of interest rates and the Index. This
difference will reflect a "time premium" due to expectations concerning the
value of the Index during the period prior to maturity of the Securities. As the
time remaining to maturity of the Securities decreases, however, this time
premium is expected to decrease, thus decreasing the trading value of the
Securities. In addition, the price at which a beneficial owner may be able to
sell Securities prior to maturity may be at a discount, which may be
substantial, from the principal amount of the Securities if the value of the
Index is below, equal to, or not sufficiently above the Benchmark Index Value.
Dividend Rates in the United States. If dividend rates on the stocks
comprising the Index increase, the trading value of the Securities is expected
to decrease. Conversely, if dividend rates on the stocks comprising the Index
decrease, the value of the Securities is expected to increase. However, in
general, rising U.S. corporate dividend rates may increase the value of the
Index and, in turn, increase the trading value of the Securities. Conversely,
falling U.S. corporate dividend rates may decrease the value of the Index and,
in turn, decrease the trading value of the Securities.
The impact of the factors specified above, excluding the value of the Index,
may offset, partially or in whole, any increase in the trading value of the
Securities that is attributable to an increase in the value of the Index. For
example, an increase in U.S. interest rates may cause the Securities to trade at
a discount from their initial offering price, even if the Index has appreciated
significantly. In addition, the impact of a given factor may change depending on
the prevailing value of the Index relative to the Benchmark Index Value and the
Maximum Index Value and on the time remaining to maturity. In general, assuming
all relevant factors are held constant, the effect on the trading value of the
Securities of a given change in interest rates, Index volatility and/or dividend
rates of stocks comprising the Index is expected to be less if it occurs later
in the term of the Securities than if it occurs earlier in the term of the
Securities. The effect on the trading value of the Securities of a given
appreciation of the Index in excess of the Benchmark Index Value is expected to
be greater if it occurs later in the term of the Securities than if it occurs
earlier in the term of the Securities, assuming all other relevant factors are
held constant.
THE INDEX
The value of the Index and the Supplemental Redemption Amount, if any, may be
adversely affected by political, economic and other developments that affect the
stocks underlying the Index. Since the stocks underlying the Index are of
companies involved in various aspects of the high technology industry segment,
factors affecting this industry segment may affect the value of the Index and
therefore the trading value of the Securities.
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the
Securities should reach an investment decision only after carefully considering
the suitability of the Securities in light of their particular circumstances.
5
<PAGE>
Investors should also consider the tax consequences of investing in the
Securities and should consult their tax advisors.
MLPF&S or its affiliates may from time to time engage in transactions
involving the stocks underlying the Index for their proprietary accounts and for
other accounts under their management, which may influence the value of such
stocks and therefore the value of the Securities. MLPF&S and its affiliates will
also be the counterparties to the hedge of the Company's obligations under the
Securities. Accordingly, under certain circumstances, conflicts of interest may
arise between MLPF&S's responsibilities as Calculation Agent with respect to the
Securities and its obligations under its hedge and its status as a subsidiary of
the Company. Under certain circumstances, the duties of MLPF&S as Calculation
Agent in determining the existence of Market Disruption Events could conflict
with the interests of MLPF&S as an affiliate of the issuer of the Securities,
Merrill Lynch & Co., Inc., and with the interests of the holders of the
Securities.
DESCRIPTION OF SECURITIES
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Senior Indenture, referred to as the "Senior Indenture", which is more fully
described below. The Securities will mature on August 15, 2001.
At maturity, a beneficial owner of a Security will receive the principal
amount of such Security plus the Supplemental Redemption Amount, if any,
however, there will be no other payment of interest, periodic or otherwise. (See
"Payment at Maturity" below.)
The Securities are not subject to redemption by the Company or at the option
of any beneficial owner prior to maturity. Upon the occurrence of an Event of
Default with respect to the Securities, beneficial owners of the Securities may
accelerate the maturity of the Securities, as described under "Description of
Securities--Events of Default and Acceleration" in this Prospectus and "Other
Terms--Events of Default" in this Prospectus.
The Securities were issued in denominations of whole Units.
PAYMENT AT MATURITY
At maturity, a beneficial owner of a Security will be entitled to receive the
principal amount thereof plus a Supplemental Redemption Amount, if any, all as
provided below. If the Ending Index Value does not exceed the Benchmark Index
Value a beneficial owner of a Security will be entitled to receive only the
principal amount thereof.
At maturity, a beneficial owner of a Security will be entitled to receive,
with respect to each such Security, (i) the principal amount thereof ($10 for
each Unit), and (ii) the Supplemental Redemption Amount equal in amount to:
Ending Index Value-Benchmark Index Value
Principal Amount X -----------------------------------------
Benchmark Index Value
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero or more than $10 per $10 principal amount of Securities. The
Benchmark Index Value equals 189.48. The Benchmark Index Value was determined on
the Pricing Date by multiplying the closing value of the Index on the Pricing
Date by a factor equal to 112.5%. The Ending Index Value will be determined by
MLPF&S (the "Calculation Agent") and will equal
6
<PAGE>
the average (arithmetic mean) of the closing values of the Index determined on
each of the first five Calculation Days during the Calculation Period. If there
are fewer than five Calculation Days, then the Ending Index Value will equal the
average (arithmetic mean) of the closing values of the Index on such Calculation
Days, and if there is only one Calculation Day, then the Ending Index Value will
equal the closing value of the Index on such Calculation Day. If no Calculation
Days occur during the Calculation Period because of Market Disruption Events,
then the Ending Index Value will equal the closing value of the Index determined
on the last scheduled Index Business Day in the Calculation Period, regardless
of the occurrence of a Market Disruption Event on such day. The "Calculation
Period" means the period from and including the seventh scheduled Index Business
Day prior to the maturity date to and including the second scheduled Index
Business Day prior to the maturity date. "Calculation Day" means any Index
Business Day during the Calculation Period on which a Market Disruption Event
has not occurred. For purposes of determining the Ending Index Value, an "Index
Business Day" is a day on which the NYSE is open for trading and trading
generally occurs in the over-the-counter market for equity securities and the
Index or any Successor Index is calculated and published. All determinations
made by the Calculation Agent shall be at the sole discretion of the Calculation
Agent and, absent a determination by the Calculation Agent of a manifest error,
shall be conclusive for all purposes and binding on the Company and beneficial
owners of the Securities.
The following table illustrates, for a range of hypothetical Ending Index
Values, (i) the total amount payable at maturity for each $10 principal amount
of Securities, (ii) the pretax annualized rate of return to beneficial owners of
Securities, and (iii) the pretax annualized rate of return of an investment in
the stocks underlying the Index (which includes an assumed aggregate dividend
yield of 0.20% per annum, as more fully described below).
<TABLE>
<CAPTION>
TOTAL PRETAX PRETAX ANNUALIZED
PERCENTAGE CHANGE AMOUNT ANNUALIZED RATE OF RATE OF RETURN OF
HYPOTHETICAL ENDING OVER THE STARTING PAYABLE AT RETURN ON THE STOCKS UNDERLYING
INDEX VALUE INDEX VALUE MATURITY SECURITIES(1) THE INDEX(1)(2)
----------- ----------- --------- ------------- ---------------
<S> <C> <C> <C> <C>
84.22 -50% $10.00 0.00% -13.20%
101.06 -40% $10.00 0.00% -9.77%
117.90 -30% $10.00 0.00% -6.81%
134.74 -20% $10.00 0.00% -4.22%
151.59 -10% $10.00 0.00% -1.90%
168.43(3) 0% $10.00 0.00% 0.20%
185.27 10% $10.00 0.00% 2.12%
202.12 20% $10.67 1.30% 3.88%
218.96 30% $11.56 2.92% 5.52%
235.80 40% $12.44 4.41% 7.05%
252.65 50% $13.33 5.82% 8.49%
269.49 60% $14.22 7.15% 9.84%
286.33 70% $15.11 8.41% 11.12%
303.17 80% $16.00 9.61% 12.33%
320.02 90% $16.89 10.74% 13.48%
336.86 100% $17.78 11.83% 14.58%
353.70 110% $18.67 12.86% 15.63%
370.55 120% $19.56 13.85% 16.64%
387.39 130% $20.00 14.33% 17.60%
404.23 140% $20.00 14.33% 18.53%
421.08 150% $20.00 14.33% 19.43%
</TABLE>
- --------------
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
7
<PAGE>
(2) This rate of return assumes (i) an investment of a fixed amount in the
stocks underlying the Index with the allocation of such amount reflecting
the relative weights of such stocks in the Index; (ii) a percentage change
in the aggregate price of such stocks that equals the percentage change in
the Index from the closing value of the Index on the Pricing Date to the
relevant hypothetical Ending Index Value; (iii) a constant dividend yield
of 0.20% per annum, paid quarterly from the date of initial delivery of
Securities, applied to the value of the Index at the end of each such
quarter assuming such value increases or decreases linearly from the
closing value of the Index on the Pricing Date to the applicable
hypothetical Ending Index Value; (iv) no transaction fees or expenses; (v)
an investment term equal to the term of the Securities; and (vi) a final
Index value equal to the Ending Index Value. The aggregate dividend yield
of the stocks underlying the Index as of August 7, 1996 was approximately
0.20%.
(3) The closing value of the Index on the Pricing Date.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the pretax annualized
rate of return resulting therefrom will depend entirely on the actual Ending
Index Value determined by the Calculation Agent as provided herein. Historical
data regarding the Index is included in this Prospectus under "The Index--
Historical Data on the Index".
ADJUSTMENTS TO THE INDEX; MARKET DISRUPTION EVENTS
If at any time the method of calculating the Index, or the value thereof, is
changed in any material respect, or if the Index is in any other way modified so
that such Index does not, in the opinion of the Calculation Agent, fairly
represent the value of the Index had such changes or modifications not been
made, then, from and after such time, the Calculation Agent shall, at the close
of business in New York, New York, on each date that the closing value with
respect to the Ending Index Value is to be calculated, make such adjustments as,
in the good faith judgment of the Calculation Agent, may be necessary in order
to arrive at a calculation of a value of a stock index comparable to the Index
as if such changes or modifications had not been made, and calculate such
closing value with reference to the Index, as adjusted. Accordingly, if the
method of calculating the Index is modified so that the value of such Index is a
fraction or a multiple of what it would have been if it had not been modified
(e.g., due to a split in the Index), then the Calculation Agent shall adjust
such Index in order to arrive at a value of the Index as if it had not been
modified (e.g., as if such split had not occurred).
"Market Disruption Event" means either of the following events, as
determined by the Calculation Agent:
(i) the suspension or material limitation (limitations pursuant to New York
Stock Exchange Rule 80A (or any applicable rule or regulation enacted or
promulgated by the New York Stock Exchange or any other self regulatory
organization or the Commission of similar scope as determined by the Calculation
Agent) on trading during significant market fluctuations shall be considered
"material" for purposes of this definition), in each case, for more than two
hours of trading in 5 or more of the securities included in the Index, or
(ii) the suspension or material limitation, in each case, for more than two
hours of trading (whether by reason of movements in price otherwise exceeding
levels permitted by the relevant exchange or otherwise) in option contracts on
the Index which are traded on the Chicago Board Options Exchange, Inc.
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular business hours of
the relevant exchange.
DISCONTINUANCE OF THE INDEX
If the CBOE discontinues publication of the Index and the CBOE or another
entity publishes a successor or substitute index that the Calculation Agent
determines, in its sole discretion, to be comparable to such Index (any
8
<PAGE>
such index being referred to hereinafter as a "Successor Index"), then, upon the
Calculation Agent's notification of such determination to the Trustee (as
defined below) and the Company, the Calculation Agent will substitute the
Successor Index as calculated by the CBOE or such other entity for the Index and
calculate the Ending Index Value as described above under "Payment at Maturity".
Upon any selection by the Calculation Agent of a Successor Index, the Company
shall cause notice thereof to be given to Holders of the Securities.
If the CBOE discontinues publication of the Index and a Successor Index is not
selected by the Calculation Agent or is no longer published on any of the
Calculation Days, the value to be substituted for the Index for any such
Calculation Day used to calculate the Supplemental Redemption Amount at maturity
will be a value computed by the Calculation Agent for each Calculation Day in
accordance with the procedures last used to calculate the Index prior to any
such discontinuance. If a Successor Index is selected or the Calculation Agent
calculates a value as a substitute for the Index as described below, such
Successor Index or value shall be substituted for the Index for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
If the CBOE discontinues publication of the Index prior to the period during
which the Supplemental Redemption Amount is to be determined and the Calculation
Agent determines that no Successor Index is available at such time, then on each
Business Day until the earlier to occur of (i) the determination of the Ending
Index Value and (ii) a determination by the Calculation Agent that a Successor
Index is available, the Calculation Agent shall determine the value that would
be used in computing the Supplemental Redemption Amount as described in the
preceding paragraph as if such day were a Calculation Day. The Calculation Agent
will cause notice of each such value to be published not less often than once
each month in The Wall Street Journal (or another newspaper of general
circulation), and arrange for information with respect to such values to be made
available by telephone. Notwithstanding these alternative arrangements,
discontinuance of the publication of the Index may adversely affect trading in
the Securities.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Securities shall have occurred
and be continuing, the amount payable to a beneficial owner of a Security upon
any acceleration permitted by the Securities, with respect to each $10 principal
amount thereof, will be equal to: (i) the initial issue price ($10), plus (ii)
an additional amount of contingent interest calculated as though the date of
early repayment were the maturity date of the Securities. See "Description of
Securities--Payment at Maturity" in this Prospectus. If a bankruptcy proceeding
is commenced in respect of the Company, the claim of the beneficial owner of a
Security may be limited, under Section 502(b)(2) of Title 11 of the United
States Code, to the principal amount of the Security plus an additional amount
of contingent interest calculated as though the date of the commencement of the
proceeding were the maturity date of the Securities.
In case of default in payment at the maturity date of the Securities (whether
at their stated maturity or upon acceleration), from and after the maturity date
the Securities shall bear interest, payable upon demand of the beneficial owners
thereof, at the rate of 7.76% per annum (to the extent that payment of such
interest shall be legally enforceable) on the unpaid amount due and payable on
such date in accordance with the terms of the Securities to the date payment of
such amount has been made or duly provided for.
DEPOSITORY
Upon issuance, all Securities will be represented by one or more fully
registered global securities (the "Global Securities"). Each such Global
Security will be deposited with, or on behalf of, The Depository Trust Company
("DTC"), as Depository (the "Depository"), registered in the name of DTC or a
nominee thereof. Unless and until it is exchanged in whole or in part for
Securities in definitive form, no Global Security may be transferred except
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as a whole by the Depository to a nominee of such Depository or by a nominee of
such Depository to such Depository or another nominee of such Depository or by
such Depository or any such nominee to a successor of such Depository or a
nominee of such successor.
DTC has advised the Company as follows: DTC 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. DTC 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. DTC's Participants include securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations.
DTC 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 DTC 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 Securities must be made by or through Participants, which will
receive a credit on the records of DTC. The ownership interest of each actual
purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the
Participants' or Indirect Participants' records. Beneficial Owners will not
receive written confirmation from DTC of their purchase, but Beneficial Owners
are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the
Participant or Indirect Participant through which the Beneficial Owner entered
into the transaction. Ownership of beneficial interests in such Global Security
will be shown on, and the transfer of such ownership interests will be effected
only through, records maintained by DTC (with respect to interests of
Participants) and on the records of Participants (with respect to interests of
persons held through Participants). The laws of some states may require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to own,
transfer or pledge beneficial interests in Global Securities.
So long as DTC, or its nominee, is the registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole owner or
Holder of the Securities represented by such Global Security for all purposes
under the Senior Indenture. Except as provided below, Beneficial Owners in a
Global Security will not be entitled to have the Securities represented by such
Global Securities registered in their names, will not receive or be entitled to
receive physical delivery of the Securities in definitive form and will not be
considered the owners or Holders thereof under the Senior Indenture, including
for purposes of receiving any reports delivered by the Company or the Trustee
pursuant to the Senior Indenture. Accordingly, each Person owning a beneficial
interest in a Global Security must rely on the procedures of DTC and, if such
Person is not a Participant, on the procedures of the Participant through which
such Person owns its interest, to exercise any rights of a Holder under the
Senior Indenture. The Company understands that under existing industry
practices, in the event that the Company requests any action of Holders or that
an owner of a beneficial interest in such a Global Security desires to give or
take any action which a Holder is entitled to give or take under the Senior
Indenture, DTC 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 DTC to Participants, by Participants to
Indirect Participants, and by Participants and Indirect Participants to
Beneficial Owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of the principal of, and any Supplemental Redemption Amount with
respect to, Securities registered in the name of DTC or its nominee will be made
to DTC or its nominee, as the case may be, as the Holder of the Global
Securities representing such Securities. None of the Company, the Trustee or any
other agent of the Company
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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 DTC, upon receipt of
any payment of principal or any Supplemental Redemption Amount in respect of a
Global Security, will credit the accounts of the Participants with payment in
amounts proportionate to their respective holdings in principal amount of
beneficial interest in such Global Security as shown on the records of DTC. 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) any Depository is at any time unwilling or unable to continue as
Depository and a successor depository is not appointed by the Company within 60
days, (y) the Company executes and delivers to the Trustee a Company Order to
the effect that the Global Securities shall be exchangeable or (z) an Event of
Default has occurred and is continuing with respect to the Securities, the
Global Securities will be exchangeable for Securities in definitive form of like
tenor and of an equal aggregate principal amount, in denominations of $10 and
integral multiples thereof. Such definitive Securities shall be registered in
such name or names as the Depository shall instruct the Trustee. It is expected
that such instructions may be based upon directions received by the Depository
from Participants with respect to ownership of beneficial interests in such
Global Securities.
SAME-DAY SETTLEMENT AND PAYMENT
All payments of principal and the Supplemental Redemption Amount, if any, will
be made by the Company in immediately available funds so long as the Securities
are maintained in book-entry form.
THE INDEX
THE INDEX
Unless otherwise stated, all information herein on the Index is derived from
the CBOE or other publicly available sources. Such information reflects the
policies of the CBOE as stated in such sources and such policies are subject to
change by the CBOE.
The Index is a price-weighted stock index designed, developed, maintained and
operated by, and is a service mark of, the CBOE. The Index is designed to
provide an indication of the composite price performance of the common stocks of
companies involved in the U.S. high technology industry segment (i.e., companies
involved in the design and manufacture of high technology components and
systems). The Index consists of the stocks of 30 issuers involved in various
aspects of the high technology industry segment, including: computer services,
telecommunications equipment, server software and hardware, design software, PC
software and hardware, networking, peripherals, and semiconductors. (See the
table below for a list of the stocks underlying the Index as of August 5, 1996.)
The CBOE selects companies for inclusion in the Index with the aim of
representing the spectrum of companies that develop components and systems that
define high technology. Relevant criteria employed by the CBOE include the
viability of the particular company, the extent to which that company represents
the high technology sector, the extent to which the market price of that
company's common stock is generally responsive to changes in the affairs of the
technology sector and the market value and trading activity of the common stock
of that company. As of August 5, 1996, the 30 companies included in the Index
were divided into five main individual groups. These individual groups comprised
the following (with the number of companies currently included in each group
indicated in parentheses): Computer Hardware (8), Computer Software (6),
Computer Systems & Services (6), Telecommunications (5) and Semiconductors (5).
The CBOE may from time to time, in its sole discretion, add companies to, or
delete companies from, the Index to achieve the objectives stated above. The
Index has a base date of January 3, 1995.
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The common stocks comprising the Index are currently listed either on the New
York Stock Exchange or traded through the facilities of the National Association
of Securities Dealers Automated Quotation System and reported as National Market
System securities. As of August 5, 1996, the 30 companies included in the Index
had an aggregate market value of $445.9 billion, with an average capitalization
of $14.86 billion. The Index components ranged in size from $906.6 million to
$72.3 billion, with a median capitalization of $4.81 billion. All of the stocks
are currently the subject of listed options trading in the U.S.
The average monthly trading volumes per Index component over the six month
period ending July 31, 1996 ranged from a low of 5.65 million shares to a high
of 177.6 million shares. As of August 5, 1996, the largest stock in the Index,
by value, accounted for 8.88% of the Index, while the smallest represented 0.78%
of the Index. Also on that date, the top five stocks in the Index accounted for
32.26% of the Index by value.
The Index satisfies the CBOE's generic maintenance standards for options on
narrow-based stock indexes.
COMPUTATION OF THE INDEX
The Index is a price-weighted index (i.e., the weight in the Index of a stock
underlying the Index (an "Underlying Stock") is based on its price per share
rather than the total market capitalization of the issuer of such stock) and
reflects changes in the prices of the Underlying Stocks relative to the index
base date, January 3, 1995, when the Index equaled 100.00. Specifically, the
Index value is calculated by (i) totaling the prices of a single share of each
of the Underlying Stocks (the "Market Price Aggregate"), and (ii) dividing the
Market Price Aggregate by the Index Divisor. The Index Divisor was originally
chosen to result in an Index value of 100 on January 3, 1995, and is subject to
periodic adjustments as set forth below. The stock prices used to calculate the
Index are those reported by a primary market for the Underlying Stocks.
The CBOE adjusts the foregoing Index Divisor to negate the effects of changes
in the price of an Underlying Stock that are determined by the CBOE to be
arbitrary and not due to market fluctuations. Such adjustments may result from
stock splits, certain consolidations and acquisitions, the grant to shareholders
of the right to purchase other securities of the issuer (e.g., spinoffs and
rights issuances). The CBOE may also adjust the Index Divisor because of the
substitution of an Underlying Security. In all such cases, the CBOE first
recalculates the Market Price Aggregate and then determines a new Index Divisor
based on the following formula:
New Market Price Aggregate
Old Divisor X -------------------------- = New Divisor
Old Market Price Aggregate
The Index will be maintained by the CBOE. The Index is reviewed on
approximately a monthly basis by the CBOE staff. The CBOE may change the
composition of the Index at any time to reflect changes affecting the components
of the Index or the technology industry generally. If it becomes necessary to
remove a stock from the Index (for example, because of a takeover or merger),
the CBOE will only add a stock having characteristics that will permit the Index
to remain within the maintenance criteria specified in CBOE Rules and within the
applicable rules of the Commission. These maintenance criteria currently
provide, among other things, that each component security must have (1) a market
capitalization of at least $75 million, except that securities accounting for
the bottom 10% of the weight of the Index may have market capitalizations of at
least $50 million, and (2) trading volume of at least 500,000 shares in each of
the last six months, except that securities accounting for the bottom 10% of the
weight of the Index may have trading volumes of at least 400,000 shares in each
of the last six months. Additionally, as of the first trading day of each
January and July, no single security may account for over 25% of the weight of
the Index and no five securities may account for over 50% of the weight of the
Index. Furthermore, each component security must be a reported security as
defined in Rule 11Aa3-1 of the Exchange Act. Finally, at least 90% of the weight
of the Index and 80% of the number of components in the Index must be eligible
for standardized options
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<PAGE>
trading pursuant to CBOE Rules or, if currently listed for options trading, must
meet the applicable maintenance standards specified in CBOE Rules. The CBOE will
also take into account the capitalizations, liquidity, volatility, and name
recognition of any proposed replacement stock.
Absent prior approval of the Commission, the CBOE will not increase to more
than 40, or decrease to fewer than 20, the number of stocks in the Index.
Additionally, the CBOE will not make any change in the composition of the Index
that would cause fewer than 90% of the stocks by weight, or fewer than 80% of
the total number of stocks in the index, to qualify as stocks eligible for
equity options trading under CBOE rules.
The CBOE is under no obligation to continue the calculation and dissemination
of the Index and the method by which the Index is calculated and the name "CBOE
Technology Index" may be changed at the discretion of the CBOE. The Securities
are not sponsored, endorsed, sold or promoted by the CBOE. No inference should
be drawn from the information contained in this Prospectus that the CBOE makes
any representation or warranty, implied or express, to the Company, the
beneficial owners of Securities or any member of the public regarding the
advisability of investing in securities generally or in the Securities in
particular or the ability of the Index to track general stock market
performance. The CBOE has no obligation to take the needs of the Company or the
beneficial owners of Securities into consideration in determining, composing or
calculating the Index. The CBOE is not responsible for, and has not participated
in the determination of the timing of prices for or quantities of, the
Securities to be issued or in the determination or calculation of the equation
by which the Supplemental Redemption Amount is determined. The CBOE has no
obligation or liability in connection with the administration, marketing or
trading of the Securities.
The use of and reference to the Index in connection with the Securities have
been consented to by the CBOE.
Except with respect to the responsibility of the Calculation Agent to make
certain calculations under certain circumstances as described herein, none of
the Company, the Trustee, the Calculation Agent or the Underwriter has
undertaken independent diligence of the calculation, maintenance or publication
of the Index or any Successor Index. The CBOE disclaims all responsibility for
any inaccuracies in the data on which the Index is based and any mistakes or
errors or omissions in the calculation or dissemination of the Index and for the
manner in which the Index is used in determining the Supplemental Redemption
Amount, if any.
A potential investor should review the historical performance of the Index.
The historical performance of the Index should not be taken as an indication of
future performance, and no assurance can be given that the Index will increase
sufficiently to cause the beneficial owners of the Securities to receive an
amount in excess of the principal amount at the maturity of the Securities.
OTHER TERMS
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Indenture (the "Senior Indenture"), dated as of April 1, 1983, as amended and
restated, 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"). A copy of the Senior Indenture is filed as an exhibit
to the registration statements relating to the Securities. The following
summaries of certain provisions of the Senior Indenture do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the Senior Indenture, including the definition therein of
certain terms.
The Senior Indenture provides that series of Senior Debt Securities may from
time to time be issued thereunder, without limitation as to aggregate principal
amount, in one or more series and upon such terms as the Company may establish
pursuant to the provisions thereof.
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The Senior Indenture provides that the Senior Indenture and the Securities are
governed by and construed in accordance with the laws of the State of New York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen" a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and other regulatory bodies.
LIMITATIONS UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of the incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
LIMITATION ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Indenture provides that the Company may not sell, transfer or otherwise
dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell or
otherwise dispose of any of its Voting Stock, unless, after giving effect to any
such transaction, MLPF&S remains a Controlled Subsidiary (defined in the Senior
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the 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.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or into
any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior 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 Senior Indenture.
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MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company and
the Trustee with the consent of the Holders of 66 2/3% in principal amount of
the Outstanding Senior Debt Securities of each series issued pursuant to such
indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding Senior Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts payable on, any Senior Debt
Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any Senior Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Debt Security; (e) reduce the percentage in principal
amount of the Outstanding Senior Debt Securities of any series, the consent of
whose Holders is required to modify or amend the Indenture; or (f) modify the
foregoing requirements or reduce the percentage of Outstanding Senior Debt
Securities necessary to waive any past default to less than a majority. No
modification or amendment of the Subordinated Indenture or any Subsequent
Indenture for Subordinated Debt Securities may adversely affect the rights of
any holder of Senior Indebtedness without the consent of such Holder. Except
with respect to certain fundamental provisions, the Holders of at least a
majority in principal amount of Outstanding Senior Debt Securities of any series
may, with respect to such series, waive past defaults under the Indenture and
waive compliance by the Company with certain provisions thereof.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the Indenture for
the benefit of such series or in the Senior Debt Securities of such series,
continued for 60 days after written notice as provided in the Senior Indenture;
(e) certain events in bankruptcy, insolvency or reorganization; and (f) any
other Event of Default provided with respect to Senior Debt Securities of that
series. The Trustee or the Holders of 25% in principal amount of the
Outstanding Senior Debt Securities of that series may declare the principal
amount (or such lesser amount as may be provided for in the Senior Debt
Securities of that series) of all Outstanding Senior Debt Securities of that
series and the interest due thereon and Additional Amounts payable in respect
thereof, if any to be due and payable immediately if an Event of Default with
respect to Senior Debt Securities of such series shall occur and be continuing
at the time of such declaration. At any time after a declaration of
acceleration has been made with respect to Senior Debt Securities of any series
but before a judgment or decree for payment of money due has been obtained by
the Trustee, the Holders of a majority in principal amount of the Outstanding
Senior Debt Securities of that series may rescind any declaration of
acceleration and its consequences, if all payments due (other than those due as
a result of acceleration) have been made and all Events of Default have been
remedied or waived. Any Event of Default with respect to Senior Debt Securities
of any series may be waived by the Holders of a majority in principal amount of
all Outstanding Senior Debt Securities of that series, except in a case of
failure to pay principal or premium, if any, or interest or Additional Amounts
payable on any Senior Debt Security of that series for which payment had not
been subsequently made or in respect of a covenant or provision which cannot be
modified or amended without the consent of the Holder of each Outstanding Senior
Debt Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior Debt
Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any
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right or power under the Senior Indenture at the direction of such Holders, the
Trustee shall be entitled to receive from such Holders reasonable security or
indemnity against the costs, expenses and liabilities which might be incurred by
it in complying with any such direction.
The Company is required to furnish to the Trustee annually a statement as to
the fulfillment by the Company of all of its obligations under the Senior
Indenture.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997 included
in the 1997 Annual Report on Form 10-K, and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP, as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such 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 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 such Quarterly Reports 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.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
********************************************************************************
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
HEALTHCARE/BIOTECHNOLOGY PORTFOLIO MARKET INDEX TARGET-TERM SECURITIES(SM)
DUE OCTOBER 31, 2001
("MITTS(R)")
On October 30, 1996, Merrill Lynch & Co., Inc. (the "Company") issued
$15,000,000 aggregate principal amount (1,500,000 Units) of
Healthcare/Biotechnology Portfolio Market Index Target-Term Securities due
October 31, 2001 (the "Securities" or "MITTS"). Each $10 principal amount of
Securities will be deemed a "Unit" for purposes of trading and transfer at the
Depository described below. Units will be transferable by the Depository, as
more fully described below, in denominations of whole Units.
The Securities are debt securities of the Company, which were issued in
denominations of $10 and integral multiples thereof, will bear no periodic
payments of interest and will mature on October 31, 2001. At maturity, a
beneficial owner of a Security will be entitled to receive, with respect to each
Security, the principal amount thereof plus an interest payment (the
"Supplemental Redemption Amount"), based on the percentage increase, if any, in
the value of a portfolio (the "Portfolio Value") of specified stocks (the
"Portfolio") of companies involved in various segments of the healthcare
industry and the biotechnology industry over the Benchmark Portfolio Value. The
Supplemental Redemption Amount will in no event be less than zero. The
Securities are not redeemable or callable by the Company prior to maturity. At
maturity a beneficial owner of a Security will receive the principal amount of
such Security plus the Supplemental Redemption Amount, if any, however, there
will be no other payment of interest, periodic or otherwise.
The Supplemental Redemption Amount payable with respect to a Security at
maturity will equal the product of (A) the principal amount of the applicable
Security, and (B) the percentage increase from the Benchmark Portfolio Value to
the Ending Portfolio Value. The Benchmark Portfolio Value equals 115 and was
determined as described herein. The Benchmark Portfolio Value exceeds the
closing value of the Portfolio on the date the Securities were priced by the
Company for initial sale to the Public (the "Pricing Date") by 15%. The Ending
Portfolio Value, as more particularly described herein, will be the average
(arithmetic mean) of the closing values of the Portfolio on certain days, or, if
certain events occur, the closing value of the Portfolio on a single day prior
to the maturity of the Securities.
FOR INFORMATION AS TO THE CALCULATION OF THE SUPPLEMENTAL REDEMPTION AMOUNT,
IF ANY, WHICH WILL BE PAID AT MATURITY AND THE CALCULATION AND THE COMPOSITION
OF THE PORTFOLIO, SEE "DESCRIPTION OF SECURITIES" AND "THE PORTFOLIO",
RESPECTIVELY, IN THIS PROSPECTUS. FOR OTHER INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF
THIS PROSPECTUS.
Ownership of the Securities will be maintained in book-entry form by or
through the Depository. Beneficial owners of the Securities will not have the
right to receive physical certificates evidencing their ownership except under
the limited circumstances described herein.
The Securities have been listed on the American Stock Exchange (the "AMEX")
under the symbol "MLH".
____________
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 Securities 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 Securities.
MLPF&S may act as principal or agent in such transactions. The Securities may
be offered on the CBOE and 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 Securities 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.
____________
MERRILL LYNCH & CO.
____________
THE DATE OF THIS PROSPECTUS IS JULY ___, 1998.
(R)"MITTS" is a registered service mark and(SM) "Market Index Target-Term
Securities" is a service mark of Merrill Lynch & Co., Inc.
<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 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 26, 1997,
Quarterly Report on Form 10-Q for the period ended March 27, 1998, and Current
Reports on Form 8-K dated January 20, 1998, January 30, 1998, February 4, 1998,
February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998, April 29,
1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June 24, 1998,
June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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 LAWRENCE M. EGAN, JR., CORPORATE SECRETARY'S
OFFICE, 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 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.
2
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, advisory, insurance, and related
services on a global basis. Its principal subsidiary, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("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; an underwriter of selected insurance
products and a distributor of investment products of the Merrill Lynch Asset
Management group. 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. The Company's asset management and investment
management activities are conducted through the Merrill Lynch Asset Management
group and Merrill Lynch Mercury Asset Management, which together constitute one
of the largest asset management organizations in the world. Merrill Lynch
Government Securities Inc. is a primary dealer in obligations issued or
guaranteed by the U.S. Government and its agencies and its government-sponsored
entities. Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative
Products AG, and Merrill Lynch International are the Company's primary
derivative product dealers and enter into interest rate, currency, and other
over-the-counter derivative transactions as intermediaries and as principals.
The Company's operations in insurance services consist of the underwriting and
sale 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 and
purchasing secured loans, providing currency exchange facilities and other
related services, and furnishing trust, employee benefit, and custodial
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
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
Ratio of earnings
to fixed charges ........... 1.4 1.2 1.2 1.2 1.2 1.2
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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
<PAGE>
RISK FACTORS
PAYMENT AT MATURITY
Benchmark Portfolio Value will Exceed Value of Starting Portfolio Value on the
Pricing Date. On the Pricing Date, the Benchmark Portfolio Value exceeded the
Starting Portfolio Value (as defined below) by 15%. Investors should be aware
that if, at maturity, the Ending Portfolio Value does not exceed the Starting
Portfolio Value by more than 15%, beneficial owners of the Securities will
receive only the principal amount thereof.
Yield may be Below Market Interest Rates on the Pricing Date. A beneficial
owner of the Securities may receive no Supplemental Redemption Amount at
maturity, or a Supplemental Redemption Amount that is below what the Company
would pay as interest as of the Pricing Date if the Company issued non-callable
senior debt securities with a similar maturity as that of the Securities. The
return of principal of the Securities at maturity and the payment of the
Supplemental Redemption Amount, if any, may not reflect the full opportunity
costs implied by inflation or other factors relating to the time value of money.
Yield on Securities will not Reflect Dividends. The Portfolio does not
reflect the payment of dividends on the stocks underlying it and therefore the
yield based on the Portfolio to the maturity of the Securities will not produce
the same yield as if such underlying stocks were purchased and held for a
similar period.
State Law Limit on Interest Paid. Because the Senior Indenture (as defined
below) provides that the Securities are governed by and construed in accordance
with the laws of New York, certain usury laws of New York State may apply. Under
present New York law, the maximum rate of interest is 25% per annum on a simple
interest basis. This limit may not apply to Securities in which $2,500,000 or
more has been invested. While the Company believes that New York law would be
given effect by a state or Federal court sitting outside of New York, state laws
frequently regulate the amount of interest that may be charged to and paid by a
borrower (including, in some cases, corporate borrowers). It is suggested that
prospective investors consult their personal advisors with respect to the
applicability of such laws. The Company will covenant for the benefit of the
Holders of the Securities, to the extent permitted by law, not to claim
voluntarily the benefits of any laws concerning usurious rates of interest
against a Holder of the Securities.
TRADING
The Securities have been listed on the AMEX under the symbol "MLH". It is
expected that the secondary market for the Securities will be affected by the
creditworthiness of the Company and by a number of other factors.
The trading value of the Securities is expected to depend substantially on the
extent of the appreciation, if any, of the Portfolio Value over the Benchmark
Portfolio Value. If, however, Securities are sold prior to the maturity date at
a time when the Portfolio Value exceeds the Benchmark Portfolio Value, the sale
price may be at a substantial discount from the amount expected to be payable to
the beneficial owner if such excess of the Portfolio Value over the Benchmark
Portfolio Value were to prevail until maturity of the Securities because of the
possible fluctuation of the Portfolio between the time of such sale and the time
that the Ending Portfolio Value is determined. Furthermore, the price at which a
beneficial owner will be able to sell Securities prior to maturity may be at a
discount, which could be substantial, from the principal amount thereof, if, at
such time, the Portfolio is below, equal to, or not sufficiently above the
Benchmark Portfolio Value. A discount could also result from rising interest
rates.
In addition to the value of the Portfolio, the trading value of the Securities
may be affected by a number of interrelated factors, including the
creditworthiness of the Company and those factors listed below. The relationship
among these factors is complex, including how these factors affect the relative
value of the principal amount of the Securities to be repaid at maturity and the
value of the Supplemental Redemption Amount. Accordingly, investors should be
aware that factors other than the level of the Portfolio are likely to affect
the Securities' trading value.
4
<PAGE>
The expected effect on the trading value of the Securities of each of the
factors listed below, assuming in each case that all other factors are held
constant, is as follows:
Interest Rates. Because the Securities repay at a minimum the principal
amount thereof at maturity, the trading value of the Securities will likely be
affected by changes in interest rates. In general, if U.S. interest rates
increase, the trading value of the Securities is expected to decrease. If U.S.
interest rates decrease, the trading value of the Securities is expected to
increase. Interest rates may also affect the U.S. economy, and, in turn, the
value of the Portfolio. Rising interest rates may lower the value of the
Portfolio and, thus, may decrease the trading value of the Securities. Falling
interest rates may increase the value of the Portfolio and, thus, may increase
the trading value of the Securities.
Volatility of the Portfolio. If the volatility of the Portfolio Value
increases, the trading value of the Securities is expected to increase. If the
volatility of the Portfolio Value decreases, the trading value of the Securities
is expected to decrease.
Time Remaining to Maturity. The Securities may trade at a value above that
which may be inferred from the level of interest rates and the Portfolio. This
difference will reflect a "time premium" due to expectations concerning the
value of the Portfolio during the period prior to maturity of the Securities. As
the time remaining to maturity of the Securities decreases, however, this time
premium is expected to decrease, thus decreasing the trading value of the
Securities. In addition, the price at which a beneficial owner may be able to
sell Securities prior to maturity may be at a discount, which may be
substantial, from the principal amount of the Securities if the value of the
Portfolio is below, equal to, or not sufficiently above the Benchmark Portfolio
Value.
Dividend Rates in the United States. If dividend rates on the stocks
comprising the Portfolio increase, the trading value of the Securities is
expected to decrease. Conversely, if dividend rates on the stocks comprising the
Portfolio decrease, the value of the Securities is expected to increase.
However, in general, rising U.S. corporate dividend rates may increase the value
of the Portfolio and, in turn, increase the trading value of the Securities.
Conversely, falling U.S. corporate dividend rates may decrease the value of the
Portfolio and, in turn, decrease the trading value of the Securities.
The impact of the factors specified above, excluding the value of the
Portfolio, may offset, partially or in whole, any increase in the trading value
of the Securities that is attributable to an increase in the value of the
Portfolio. For example, an increase in U.S. interest rates may cause the
Securities to trade at a discount from their initial offering price, even if the
Portfolio has appreciated significantly. In general, assuming all relevant
factors are held constant, the effect on the trading value of the Securities of
a given change in interest rates, Portfolio volatility and/or dividend rates of
stocks comprising the Portfolio is expected to be less if it occurs later in the
term of the Securities than if it occurs earlier in the term of the Securities.
The effect on the trading value of the Securities of a given appreciation of the
Portfolio in excess of the Benchmark Portfolio Value is expected to be greater
if it occurs later in the term of the Securities than if it occurs earlier in
the term of the Securities, assuming all other relevant factors are held
constant.
THE PORTFOLIO
The value of the Portfolio and the Supplemental Redemption Amount, if any, may
be adversely affected by political, economic and other developments that affect
the stocks underlying the Portfolio. Since the stocks underlying the Portfolio
are of companies involved in various segments of the healthcare industry and the
biotechnology industry, factors affecting these industries may affect the value
of the Portfolio and therefore the trading value of the Securities. See "The
Portfolio--Healthcare and Biotechnology Industries".
5
<PAGE>
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the
Securities should reach an investment decision only after carefully considering
the suitability of the Securities in light of their particular circumstances.
Investors should also consider the tax consequences of investing in the
Securities, and should consult their tax advisors.
MLPF&S or its affiliates may from time to time engage in transactions
involving the stocks underlying the Portfolio for their proprietary accounts and
for other accounts under their management, which may influence the value of such
stocks and therefore the value of the Securities. MLPF&S and its affiliates will
also be the counterparties to the hedge of the Company's obligations under the
Securities. Accordingly, under certain circumstances, conflicts of interest may
arise between MLPF&S's responsibilities as Calculation Agent with respect to the
Securities and its obligations under its hedge and its status as a subsidiary of
the Company. Under certain circumstances, the duties of MLPF&S as Calculation
Agent in determining the existence of Market Disruption Events could conflict
with the interests of MLPF&S as an affiliate of the issuer of the Securities,
Merrill Lynch & Co., Inc., and with the interests of the holders of the
Securities.
DESCRIPTION OF SECURITIES
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Senior Indenture, referred to as the "Senior Indenture", which is more fully
described below. The Securities will mature on October 31, 2001.
At maturity a beneficial owner of a Security will receive the principal amount
of such Security plus the Supplemental Redemption Amount, if any, however, there
will be no other payment of interest, periodic or otherwise. (See "Payment at
Maturity" below.)
The Securities are not subject to redemption by the Company or at the option
of any beneficial owner prior to maturity. Upon the occurrence of an Event of
Default with respect to the Securities, beneficial owners of the Securities may
accelerate the maturity of the Securities, as described under "Description of
Securities--Events of Default and Acceleration" in this Prospectus and "Other
Terms--Events of Default" in this Prospectus.
The Securities were issued in denominations of whole Units.
PAYMENT AT MATURITY
At maturity, a beneficial owner of a Security will be entitled to receive the
principal amount thereof plus a Supplemental Redemption Amount, if any, all as
provided below. If the Ending Portfolio Value does not exceed the Benchmark
Portfolio Value a beneficial owner of a Security will be entitled to receive
only the principal amount thereof.
At maturity, a beneficial owner of a Security will be entitled to receive,
with respect to each such Security, (i) the principal amount thereof ($10 for
each Unit), and (ii) the Supplemental Redemption Amount equal in amount to:
Ending Portfolio Value-Benchmark Portfolio Value
Principal Amount x -------------------------------------------------
Benchmark Portfolio Value
6
<PAGE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero. The Benchmark Portfolio Value equals 115. The Benchmark
Portfolio Value was determined on the Pricing Date by multiplying the Starting
Portfolio Value (as defined below) by a factor equal to 115%. Based on the
individual prices of the Portfolio Securities on the Pricing Date, the
Multiplier for each Portfolio Security was initially set by the AMEX so that, on
the Pricing Date, the Portfolio Securities were equally dollar-weighted in the
Portfolio and the Portfolio Value equaled 100 (the "Starting Portfolio Value").
The Ending Portfolio Value will be determined by MLPF&S (the "Calculation
Agent") and will equal the average (arithmetic mean) of the closing values of
the Portfolio determined on each of the first five Calculation Days during the
Calculation Period. If there are fewer than five Calculation Days, then the
Ending Portfolio Value will equal the average (arithmetic mean) of the closing
values of the Portfolio on such Calculation Days, and if there is only one
Calculation Day, then the Ending Portfolio Value will equal the closing value of
the Portfolio on such Calculation Day. If no Calculation Days occur during the
Calculation Period because of Market Disruption Events, then the Ending
Portfolio Value will equal the closing value of the Portfolio determined on the
last scheduled Portfolio Business Day in the Calculation Period, regardless of
the occurrence of a Market Disruption Event on such day. The "Calculation
Period" means the period from and including the seventh scheduled Portfolio
Business Day prior to the maturity date to and including the second scheduled
Portfolio Business Day prior to the maturity date. "Calculation Day" means any
Portfolio Business Day during the Calculation Period on which a Market
Disruption Event has not occurred. For purposes of determining the Ending
Portfolio Value, a "Portfolio Business Day" is a day on which the AMEX is open
for trading and trading generally occurs in the over-the-counter market for
equity securities and the Portfolio or any Successor Portfolio is calculated and
published. All determinations made by the Calculation Agent shall be at the sole
discretion of the Calculation Agent and, absent a determination by the
Calculation Agent of a manifest error, shall be conclusive for all purposes and
binding on the Company and beneficial owners of the Securities.
The following table illustrates, for a range of hypothetical Ending Portfolio
Values, (i) the total amount payable at maturity for each $10 principal amount
of Securities, based on the Benchmark Portfolio Value, which equals 115% of the
Starting Portfolio Value; (ii) the pretax annualized rate of return to
beneficial owners of Securities, and (iii) the pretax annualized rate of return
of an investment in the stocks underlying the Portfolio (which includes an
assumed aggregate dividend yield of 0.23% per annum, as more fully described
below).
7
<PAGE>
<TABLE>
<CAPTION>
TOTAL PRETAX PRETAX ANNUALIZED
PERCENTAGE CHANGE AMOUNT ANNUALIZED RATE OF RATE OF RETURN OF
HYPOTHETICAL ENDING OVER THE STARTING PAYABLE AT RETURN ON THE STOCK UNDERLYING
PORTFOLIO VALUE PORTFOLIO VALUE MATURITY(1) SECURITIES(2) THE PORTFOLIO(2)(3)
--------------- --------------- ----------- -------------- -------------------
<S> <C> <C> <C> <C>
50 -50% $10.00 0.00% -13.09%
60 -40% $10.00 0.00% -9.66%
70 -30% $10.00 0.00% -6.71%
80 -20% $10.00 0.00% -4.11%
90 -10% $10.00 0.00% -1.79%
100(4) 0% $10.00 0.00% 0.23%
110 10% $10.00 0.00% 2.23%
120 20% $10.43 0.85% 4.00%
130 30% $11.30 2.47% 5.64%
140 40% $12.17 3.97% 7.17%
150 50% $13.04 5.39% 8.60%
160 60% $13.91 6.72% 9.96%
170 70% $14.78 7.97% 11.23%
180 80% $15.65 9.16% 12.45%
190 90% $16.52 10.30% 13.60%
200 100% $17.39 11.38% 14.70%
210 110% $18.26 12.41% 15.75%
220 120% $19.13 13.40% 16.76%
230 130% $20.00 14.35% 17.77%
240 140% $20.87 15.27% 18.66%
250 150% $21.74 16.15% 19.56%
</TABLE>
(1) The total amount payable at maturity is based on the Benchmark Portfolio
Value, which equals 115% of the Starting Portfolio Value.
(2) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(3) This rate of return assumes (i) an investment of a fixed amount in the
stocks underlying the Portfolio with the allocation of such amount
reflecting the relative weights of such stocks in the Portfolio; (ii) a
percentage change in the aggregate price of such stocks that equals the
percentage change in the Portfolio from the Starting Portfolio Value to the
relevant hypothetical Ending Portfolio Value; (iii) a constant dividend
yield of 0.23% per annum, paid quarterly from the date of initial delivery
of Securities, applied to the value of the Portfolio at the end of each such
quarter assuming such value increases or decreases linearly from the
Starting Portfolio Value to the applicable hypothetical Ending Portfolio
Value; (iv) no transaction fees or expenses; (v) a five year maturity of the
Securities from the date of issuance; and (vi) a final Portfolio value equal
to the Ending Portfolio Value. The aggregate dividend yield of the stocks
underlying the Portfolio as of October 24, 1996 was approximately 0.23% per
annum.
(4) The Starting Portfolio Value was set at 100 based on the closing prices on
the Pricing Date.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the pretax annualized
rate of return resulting therefrom will depend entirely on the actual Ending
Portfolio Value determined by the Calculation Agent as provided herein.
8
<PAGE>
ADJUSTMENTS TO THE PORTFOLIO; MARKET DISRUPTION EVENTS
If at any time the method of calculating the Portfolio Value is changed in any
material respect, or if the Portfolio is in any other way modified so that such
Portfolio Value does not, in the opinion of the Calculation Agent, fairly
represent the Portfolio Value had such changes or modifications not been made,
then, from and after such time, the Calculation Agent shall, at the close of
business in New York, New York, on each date that the closing value with respect
to the Ending Portfolio Value is to be calculated, make such adjustments as, in
the good faith judgment of the Calculation Agent, may be necessary in order to
arrive at a calculation of a value of a stock index comparable to the Portfolio
Value as if such changes or modifications had not been made, and calculate such
closing value with reference to the Portfolio Value, as adjusted. Accordingly,
if the method of calculating the Portfolio Value is modified so that the
Portfolio Value is a fraction or a multiple of what it would have been if it had
not been modified (e.g., due to a split in the Portfolio Value), then the
Calculation Agent shall adjust such Portfolio Value in order to arrive at a
Portfolio Value as if it had not been modified (e.g., as if such split had not
occurred).
"Market Disruption Event" means either of the following events, as determined
by the Calculation Agent:
(i) the suspension or material limitation (limitations pursuant to New York
Stock Exchange Rule 80A (or any applicable rule or regulation enacted or
promulgated by the New York Stock Exchange or any other self regulatory
organization or the Commission of similar scope as determined by the Calculation
Agent) on trading during significant market fluctuations shall be considered
"material" for purposes of this definition) in the trading of three or more of
the Portfolio Securities on any exchange in the United States or in the over-
the-counter market for more than two hours of trading or during the period one-
half hour prior to the close of such trading, or
(ii) the suspension or material limitation (whether by reason of movements in
price otherwise exceeding levels permitted by the relevant exchange or
otherwise) in the trading of option contracts related to three or more of the
Portfolio Securities traded on any exchange for more than two hours of trading
or during the period one-half hour prior to the close of such trading.
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular business hours of
the relevant exchange.
DISCONTINUANCE OF THE PORTFOLIO
If the AMEX discontinues publication of the Portfolio Value and the AMEX or
another entity publishes a successor or substitute index that the Calculation
Agent determines, in its sole discretion, to be comparable to such Portfolio
Value (any such index being referred to hereinafter as a "Successor Portfolio
Value"), then, upon the Calculation Agent's notification of such determination
to the Trustee (as defined below) and the Company, the Calculation Agent will
substitute the Successor Portfolio Value as calculated by the AMEX or such other
entity for the Portfolio Value and calculate the Ending Portfolio Value as
described above under "Payment at Maturity". Upon any selection by the
Calculation Agent of a Successor Portfolio Value, the Company shall cause notice
thereof to be given to Holders of the Securities.
If the AMEX discontinues publication of the Portfolio Value and a Successor
Portfolio Value is not selected by the Calculation Agent or is no longer
published on any of the Calculation Days, the value to be substituted for the
Portfolio Value for any such Calculation Day used to calculate the Supplemental
Redemption Amount at maturity will be a value computed by the Calculation Agent
for each Calculation Day in accordance with the procedures last used to
calculate the Portfolio Value prior to any such discontinuance. If a Successor
Portfolio Value is selected or the Calculation Agent calculates a value as a
substitute for the Portfolio Value as described below, such Successor Portfolio
Value or value shall be substituted for the Portfolio Value for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
9
<PAGE>
If the AMEX discontinues publication of the Portfolio Value prior to the
period during which the Supplemental Redemption Amount is to be determined and
the Calculation Agent determines that no Successor Portfolio Value is available
at such time, then on each Business Day until the earlier to occur of (i) the
determination of the Ending Portfolio Value and (ii) a determination by the
Calculation Agent that a Successor Portfolio Value is available, the Calculation
Agent shall determine the value that would be used in computing the Supplemental
Redemption Amount as described in the preceding paragraph as if such day were a
Calculation Day. The Calculation Agent will cause notice of each such value to
be published not less often than once each month in The Wall Street Journal (or
another newspaper of general circulation), and arrange for information with
respect to such values to be made available by telephone. Notwithstanding these
alternative arrangements, discontinuance of the publication of the Portfolio
Value may adversely affect trading in the Securities.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Securities shall have occurred
and be continuing, the amount payable to a beneficial owner of a Security upon
any acceleration permitted by the Securities, with respect to each $10 principal
amount thereof, will be equal to: (i) the initial issue price ($10), plus (ii)
an additional amount of contingent interest calculated as though the date of
early repayment were the maturity date of the Securities. See "Description of
Securities--Payment at Maturity" in this Prospectus. If a bankruptcy proceeding
is commenced in respect of the Company, the claim of the beneficial owner of a
Security may be limited, under Section 502(b)(2) of Title 11 of the United
States Code, to the principal amount of the Security plus an additional amount
of contingent interest calculated as though the date of the commencement of the
proceeding were the maturity date of the Securities.
In case of default in payment at the maturity date of the Securities (whether
at their stated maturity or upon acceleration), from and after the maturity date
the Securities shall bear interest, payable upon demand of the beneficial owners
thereof, at the rate of 7.7% per annum (to the extent that payment of such
interest shall be legally enforceable) on the unpaid amount due and payable on
such date in accordance with the terms of the Securities to the date payment of
such amount has been made or duly provided for.
DEPOSITORY
Upon issuance, all Securities will be represented by one or more fully
registered global securities (the "Global Securities"). Each such Global
Security will be deposited with, or on behalf of, The Depository Trust Company
("DTC"), as Depository (the "Depository"), registered in the name of DTC or a
nominee thereof. Unless and until it is exchanged in whole or in part for
Securities in definitive form, no Global Security may be transferred except as a
whole by the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository or by such
Depository or any such nominee to a successor of such Depository or a nominee of
such successor.
DTC has advised the Company as follows: DTC 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. DTC 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. DTC's Participants include securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations.
DTC 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 DTC book-entry system is also
10
<PAGE>
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 Securities must be made by or through Participants, which will
receive a credit on the records of DTC. The ownership interest of each actual
purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the
Participants' or Indirect Participants' records. Beneficial Owners will not
receive written confirmation from DTC of their purchase, but Beneficial Owners
are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the
Participant or Indirect Participant through which the Beneficial Owner entered
into the transaction. Ownership of beneficial interests in such Global Security
will be shown on, and the transfer of such ownership interests will be effected
only through, records maintained by DTC (with respect to interests of
Participants) and on the records of Participants (with respect to interests of
persons held through Participants). The laws of some states may require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to own,
transfer or pledge beneficial interests in Global Securities.
So long as DTC, or its nominee, is the registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole owner or
Holder of the Securities represented by such Global Security for all purposes
under the Senior Indenture. Except as provided below, Beneficial Owners in a
Global Security will not be entitled to have the Securities represented by such
Global Securities registered in their names, will not receive or be entitled to
receive physical delivery of the Securities in definitive form and will not be
considered the owners or Holders thereof under the Senior Indenture, including
for purposes of receiving any reports delivered by the Company or the Trustee
pursuant to the Senior Indenture. Accordingly, each Person owning a beneficial
interest in a Global Security must rely on the procedures of DTC and, if such
Person is not a Participant, on the procedures of the Participant through which
such Person owns its interest, to exercise any rights of a Holder under the
Senior Indenture. The Company understands that under existing industry
practices, in the event that the Company requests any action of Holders or that
an owner of a beneficial interest in such a Global Security desires to give or
take any action which a Holder is entitled to give or take under the Senior
Indenture, DTC 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 DTC to Participants, by Participants to
Indirect Participants, and by Participants and Indirect Participants to
Beneficial Owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of the principal of, and any Supplemental Redemption Amount with
respect to, Securities registered in the name of DTC or its nominee will be made
to DTC or its nominee, as the case may be, as the Holder of the Global
Securities representing such Securities. 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 DTC, upon receipt of any payment of principal or any Supplemental
Redemption Amount in respect of a Global Security, will credit the accounts of
the Participants with payment in amounts proportionate to their respective
holdings in principal amount of beneficial interest in such Global Security as
shown on the records of DTC. 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) any Depository is at any time unwilling or unable to continue as
Depository and a successor depository is not appointed by the Company within 60
days, (y) the Company executes and delivers to the Trustee a Company Order to
the effect that the Global Securities shall be exchangeable or (z) an Event of
Default has occurred and is continuing with respect to the Securities, the
Global Securities will be exchangeable for Securities in definitive form of like
tenor and of an equal aggregate principal amount, in denominations of $10 and
integral multiples thereof. Such definitive Securities shall be registered in
such name or names as the Depository shall instruct the Trustee. It
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<PAGE>
is expected that such instructions may be based upon directions received by the
Depository from Participants with respect to ownership of beneficial interests
in such Global Securities.
SAME-DAY SETTLEMENT AND PAYMENT
All payments of principal and the Supplemental Redemption Amount, if any, will
be made by the Company in immediately available funds so long as the Securities
are maintained in book-entry form.
THE PORTFOLIO
GENERAL
While the Portfolio consists of stocks of certain companies involved in
various segments of the healthcare industry and the biotechnology industry, the
Portfolio is not intended to provide an indication of the pattern of price
movements of common stocks of healthcare and biotechnology corporations
generally. All of the Portfolio Securities are registered under the Exchange
Act. Companies with securities registered under the Exchange Act are required
to file periodically certain financial and other information specified by the
Commission. Information provided to or filed with the Commission is available at
the offices of the Commission and at the Web site specified under "Available
Information" in this Prospectus. Neither the Company nor MLPF&S makes any
representation or warranty as to the accuracy or completeness of such reports.
THE INCLUSION OF A PORTFOLIO SECURITY IN THE PORTFOLIO IS NOT A RECOMMENDATION
TO BUY OR SELL SUCH PORTFOLIO SECURITY AND NEITHER THE COMPANY NOR ANY OF ITS
AFFILIATES MAKE ANY REPRESENTATION TO ANY PURCHASER OF SECURITIES AS TO THE
PERFORMANCE OF THE PORTFOLIO.
The Company or its affiliates may presently or from time to time engage in
business with one or more of the issuers of the Portfolio Securities, including
extending loans to, or making equity investments in, such issuers or providing
advisory services to such issuers, including merger and acquisition advisory
services. In the course of such business, the Company or its affiliates may
acquire non-public information with respect to such issuers and, in addition,
one or more affiliates of the Company may publish research reports with respect
to such issuers. The Company does not make any representation to any purchaser
of Securities with respect to any matters whatsoever relating to such issuers.
Any prospective purchaser of a Security should undertake an independent
investigation of the issuers of the Portfolio Securities as in its judgment is
appropriate to make an informed decision with respect to an investment in the
Securities.
HEALTHCARE AND BIOTECHNOLOGY INDUSTRIES
The healthcare industry is subject to various federal, state and local laws
and regulations which are frequently subject to change in many ways that can
affect the price of the stocks of companies involved in such industry.
A number of legislative bills and proposals to regulate, control or alter
substantially the methods of financing and delivering healthcare, including
proposals covering cost controls, imposition of charitable care requirements,
national health insurance, incentives for competition in the provision of
healthcare insurance premiums, catastrophic illness coverage under Medicare, a
voucher system for Medicare, and the promotion of prepaid healthcare plans, are
currently under discussion, and certain of such bills have been introduced in
Congress. There are wide variations among these bills and proposals, and the
effect of these bills and proposals on the healthcare industry cannot be
determined at this time. Because of the many possible financial effects that
could result from an enactment of any of these bills and proposals, it is not
possible at this time to predict with assurance the effect on the prices of
Portfolio Securities and therefore the Securities if any of these bills or
proposals were enacted.
12
<PAGE>
The biotechnology industry segment is subject to many of the same factors that
affect the healthcare industry. In addition, the products produced by
biotechnology companies often entail costly research and development and can be
subject to extensive regulatory review prior to approval for sale.
COMPUTATION OF THE PORTFOLIO VALUE
The AMEX will generally calculate and disseminate the value of the Portfolio
based on the most recently reported prices of the Portfolio Securities (as
reported by the Exchanges), at approximately 15-second intervals during the
AMEX's business hours and at the end of each Portfolio Business Day via the
Consolidated Tape Association's Network B. The Portfolio Value, at any time,
will equal the sum of the products of such prices and the applicable Multipliers
for the Portfolio Securities. The Ending Portfolio Value, however, is calculated
by the Calculation Agent based on averaging the Portfolio Values reported by the
AMEX at the end of certain Portfolio Business Days. See "Description of
Securities--Payment at Maturity". The securities listed below are the Portfolio
Securities and will be used to calculate the value of the Portfolio. Holders of
the MITTS will not have any right to receive the Portfolio Securities. The
following table sets forth the issuers of the Portfolio Securities, the
exchanges, the percentage of each Portfolio Security in the Starting Portfolio
Value and the initial Multipliers:
<TABLE>
<CAPTION>
Approximate
Market
Capitalization % of Starting
Issuer of the Industry as of Portfolio Initial
Portfolio Security Exchanges Segment October 23, 1996 Value Multiplier
------------------ --------- -------- ----------------- -------------- ----------
(In Millions)
<S> <C> <C> <C> <C> <C>
Amgen Inc. ........................ Nasdaq Biotechnology 16,312.14 4% 0.0640000
Apria Healthcare Group Inc. ........ NYSE Health--Specialty 874.73 4% 0.2269504
Baxter International Inc. .......... NYSE Hospital Supplies 11,718.40 4% 0.0981595
Beverly Enterprises ............... NYSE Health--Long Term Care 1,166.27 4% 0.3368421
Biogen, Inc. ..................... Nasdaq Biotechnology 2,870.02 4% 0.0487805
Chiron Corporation ................ Nasdaq Biotechnology 3,270.62 4% 0.2077922
Columbia/HCA Healthcare
Corporation ...................... NYSE Hospital Management 24,148.37 4% 0.1126761
Emcare Holdings Inc. ............. Nasdaq Health--Specialty 215.90 4% 0.1502347
Genzyme Corporation ............... Nasdaq Biotechnology 1,629.46 4% 0.1649485
Genesis Health Ventures, Inc. ...... NYSE Health--Long Term Care 730.63 4% 0.1675393
Health Management Associates,
Inc. ............................. NYSE Hospital Management 2,495.82 4% 0.1729730
Healthsource, Inc. ................. NYSE Health Maintenance Organization 741.34 4% 0.3440860
Healthsouth Corporation ........... NYSE Health--Specialty 5,909.69 4% 0.1038961
Humana Inc. ....................... NYSE Health Maintenance Organization 3,086.40 4% 0.2105263
Johnson & Johnson ................. NYSE Hospital Supplies 66,327.34 4% 0.0822622
Medpartners/Mullikin, Inc. ......... NYSE Health Maintenance Organization 1,205.26 4% 0.1720430
Neuromedical Systems, Inc. ......... Nasdaq Health--Specialty 516.75 4% 0.2162162
Olsten Corporation ................ NYSE Health--Specialty 1,283.15 4% 0.1739130
Oxford Health Plans, Inc. ......... Nasdaq Health Maintenance Organization 3,441.59 4% 0.0871935
Phycor, Inc. ..................... Nasdaq Health Maintenance Organization 1,759.06 4% 0.1216730
Quorum Health Group, Inc. ......... Nasdaq Hospital Management 1,291.42 4% 0.1428571
Renal Treatment Centers, Inc. ..... NYSE Health--Specialty 683.50 4% 0.1361702
Tenet Healthcare Corporation ...... NYSE Hospital Management 4,476.70 4% 0.1893491
Total Renal Care Holdings, Inc. .... NYSE Health--Specialty 1,119.74 4% 0.0932945
United Healthcare Corporation ..... NYSE Health Maintenance Organization 6,657.24 4% 0.1126761
</TABLE>
13
<PAGE>
The initial Multiplier relating to each Portfolio Security indicates the
number of shares of such Portfolio Security, given the market price of such
Portfolio Security, required to be included in the calculation of the Starting
Portfolio Value so that each Portfolio Security represents an equal percentage
of the Starting Portfolio Value. The price of each Portfolio Security used to
calculate the initial Multiplier relating to each such Portfolio Security was
the closing price of such Portfolio Security on the Pricing Date. The respective
Multipliers will remain constant for the term of the Securities unless adjusted
for certain corporate events, as described below.
ADJUSTMENTS TO THE MULTIPLIER AND PORTFOLIO
The Multiplier with respect to any Portfolio Security and the Portfolio will
be adjusted as follows:
1. If a Portfolio Security is subject to a stock split or reverse stock split,
then once such split has become effective, the Multiplier relating to such
Portfolio Security will be adjusted to equal the product of the number of shares
issued with respect to one such share of such Portfolio Security and the prior
multiplier.
2. If a Portfolio Security is subject to a stock dividend (issuance of
additional shares of the Portfolio Security) that is given equally to all
holders of shares of the issuer of such Portfolio Security, then once the
dividend has become effective and such Portfolio Security is trading ex-
dividend, the Multiplier will be adjusted so that the new Multiplier shall equal
the former Multiplier plus the product of the number of shares of such Portfolio
Security issued with respect to one such share of such Portfolio Security and
the prior multiplier.
3. There will be no adjustments to the Multipliers to reflect cash dividends
or distributions paid with respect of a Portfolio Security other than for
Extraordinary Dividends as described below. A cash dividend with respect to a
Portfolio Security will be deemed to be an "Extraordinary Dividend" if such
dividend exceeds the immediately preceding non-Extraordinary Dividend for such
Portfolio Security by an amount equal to at least 10% of the market price on the
Portfolio Business Day preceding the record day for the payment of such
Extraordinary Dividend (the "ex-dividend date"). If an Extraordinary Dividend
occurs with respect to a Portfolio Security, the Multiplier with respect to such
Portfolio Security will be adjusted on the ex-dividend date with respect to such
Extraordinary Dividend so that the new Multiplier will equal the product of (i)
the then current Multiplier, and (ii) a fraction, the numerator of which is the
sum of the Extraordinary Dividend Amount and the market price on the Trading Day
preceding the ex-dividend date, and the denominator of which is the market price
on the Trading Day preceding the ex-dividend date. The "Extraordinary Dividend
Amount" with respect to an Extraordinary Dividend for a Portfolio Security will
equal such Extraordinary Dividend minus the amount of the immediately preceding
non-Extraordinary Dividend for such Portfolio Security.
4. If the issuer of a Portfolio Security is being liquidated or is subject to
a proceeding under any applicable bankruptcy, insolvency or other similar law,
such Portfolio Security will continue to be included in the Portfolio so long as
a market price for such Portfolio Security is available. If a market price is no
longer available for a Portfolio Security for whatever reason, including the
liquidation of the issuer of such Portfolio Security or the subjection of the
issuer of such Portfolio Security to a proceeding under any applicable
bankruptcy, insolvency or other similar law, then the value of such Portfolio
Security will equal zero in connection with calculating the Portfolio Value and
the Ending Portfolio Value for so long as no market price is available, and no
attempt will be made to find a replacement stock or increase the value of the
Portfolio to compensate for the deletion of such Portfolio Security.
5. If the issuer of a Portfolio Security has been subject to a merger or
consolidation and is not the surviving entity or is nationalized, then a value
for such Portfolio Security will be determined at the time such issuer is merged
or consolidated or nationalized and will equal the last available market price
for such Portfolio Security and that value will be constant for the remaining
term of the Securities. At such time, no adjustment will be made to the
Multiplier of such Portfolio Security. The Company may at its sole discretion
increase such last available market price to reflect payments or dividends of
cash, securities or other consideration to holders of such Portfolio Security in
connection with such a merger or consolidation which may not be reflected in
such last available market price.
14
<PAGE>
6. If the issuer of a Portfolio Security issues to all of its shareholders
equity securities that are publicly traded of an issuer other than the issuer of
the Portfolio Security, then such new equity securities will be added to the
Portfolio as a new Portfolio Security. The Multiplier for such new Portfolio
Security will equal the product of the original Multiplier with respect to the
Portfolio Security for which the new Portfolio Security is being issued (the
"Original Portfolio Security") and the number of shares of the new Portfolio
Security issued with respect to one share of the Original Portfolio Security.
No adjustments of any Multiplier of a Portfolio Security will be required
unless such adjustment would require a change of at least 1% in the Multiplier
then in effect. The Multiplier resulting from any of the adjustments specified
above will be rounded to the nearest one thousandth with five ten-thousandths
being rounded upward.
The AMEX expects that no adjustments to the Multiplier of any Portfolio
Security or to the Portfolio will be made other than those specified above,
however, the AMEX may at its discretion make adjustments to maintain the
economic intent of the Portfolio.
A potential investor should review the historical performance of the
Portfolio. The historical performance of the Index should not be taken as an
indication of future performance, and no assurance can be given that the
Portfolio will increase sufficiently to cause the beneficial owners of the
Securities to receive an amount in excess of the principal amount at the
maturity of the Securities.
OTHER TERMS
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Indenture (the "Senior Indenture"), dated as of April 1, 1983, as amended and
restated, 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"). A copy of the Senior Indenture is filed as an exhibit
to the registration statements relating to the Securities. The following
summaries of certain provisions of the Senior Indenture do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the Senior Indenture, including the definition therein of
certain terms.
The Senior Indenture provides that series of Senior Debt Securities may from
time to time be issued thereunder, without limitation as to aggregate principal
amount, in one or more series and upon such terms as the Company may establish
pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the Securities are
governed by and construed in accordance with the laws of the State of New York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen" a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and other regulatory bodies.
15
<PAGE>
LIMITATIONS UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of the incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
LIMITATION ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Indenture provides that the Company may not sell, transfer or otherwise
dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell or
otherwise dispose of any of its Voting Stock, unless, after giving effect to any
such transaction, MLPF&S remains a Controlled Subsidiary (defined in the Senior
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the 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.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or into
any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior 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 Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company and
the Trustee with the consent of the Holders of 66 2/3% in principal amount of
the Outstanding Senior Debt Securities of each series issued pursuant to such
indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding Senior Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts payable on, any Senior Debt
Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any Senior Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Debt Security; (e) reduce the percentage in principal
amount of the Outstanding Senior Debt Securities of any series, the consent of
whose Holders is required to modify or amend the Indenture; or (f) modify the
foregoing requirements or reduce the percentage of Outstanding Senior Debt
Securities necessary to waive any past default to less than a majority. No
modification or amendment of the Subordinated Indenture or any Subsequent
Indenture for Subordinated Debt Securities may adversely affect the rights of
any holder of Senior Indebtedness without the consent of such Holder. Except
with respect to certain fundamental provisions, the Holders of at least a
majority in principal amount of Outstanding
16
<PAGE>
Senior Debt Securities of any series may, with respect to such series, waive
past defaults under the Indenture and waive compliance by the Company with
certain provisions thereof.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the Indenture for
the benefit of such series or in the Senior Debt Securities of such series,
continued for 60 days after written notice as provided in the Senior Indenture;
(e) certain events in bankruptcy, insolvency or reorganization; and (f) any
other Event of Default provided with respect to Senior Debt Securities of that
series. The Trustee or the Holders of 25% in principal amount of the
Outstanding Senior Debt Securities of that series may declare the principal
amount (or such lesser amount as may be provided for in the Senior Debt
Securities of that series) of all Outstanding Senior Debt Securities of that
series and the interest due thereon and Additional Amounts payable in respect
thereof, if any to be due and payable immediately if an Event of Default with
respect to Senior Debt Securities of such series shall occur and be continuing
at the time of such declaration. At any time after a declaration of
acceleration has been made with respect to Senior Debt Securities of any series
but before a judgment or decree for payment of money due has been obtained by
the Trustee, the Holders of a majority in principal amount of the Outstanding
Senior Debt Securities of that series may rescind any declaration of
acceleration and its consequences, if all payments due (other than those due as
a result of acceleration) have been made and all Events of Default have been
remedied or waived. Any Event of Default with respect to Senior Debt Securities
of any series may be waived by the Holders of a majority in principal amount of
all Outstanding Senior Debt Securities of that series, except in a case of
failure to pay principal or premium, if any, or interest or Additional Amounts
payable on any Senior Debt Security of that series for which payment had not
been subsequently made or in respect of a covenant or provision which cannot be
modified or amended without the consent of the Holder of each Outstanding Senior
Debt Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior Debt
Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any right or power
under the Senior Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company is required to furnish to the Trustee annually a statement as to
the fulfillment by the Company of all of its obligations under the Senior
Indenture.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Solely for purposes of applying final Treasury regulations (the "Final
Regulations") concerning the United States Federal income tax treatment of
contingent payment debt instruments to the Securities, the Company has
determined that the projected payment schedule for the Securities will consist
of payment on the maturity date of the principal amount thereof and a
Supplemental Redemption Amount equal to $3.8425 per Unit. This represents an
estimated yield on the Securities equal to 6.61% per annum (compounded
semiannually).
The projected payment schedule (including both the projected Supplemental
Redemption Amount and the estimated yield on the Securities) has been determined
solely for United States Federal income tax purposes (i.e.,
17
<PAGE>
for purposes of applying the Final Regulations to the Securities), and is not a
prediction of what the actual Supplemental Redemption Amount will be, or that
the actual Supplemental Redemption Amount will even exceed zero.
The following table sets forth the amount of interest that will be deemed to
have accrued with respect to each Unit of the Securities during each accrual
period over the term of the Securities based upon the projected payment schedule
for the Securities (including both the projected Supplemental Redemption Amount
and the estimated yield equal to 6.61% per annum (compounded semiannually)) as
determined by the Company for purposes of the application of the Final
regulations to the Securities:
<TABLE>
<CAPTION>
TOTAL INTEREST DEEMED
TO HAVE ACCRUED ON
INTEREST DEEMED TO SECURITIES AS OF END
ACCRUE DURING ACCRUAL OF ACCRUAL PERIOD
ACCRUAL PERIOD PERIOD (PER UNIT) (PER UNIT)
-------------- --------------------- ------------------
<S> <C> <C>
October 30, 1996 through
April 30, 1997.......... $0.3305 $0.3305
May 1, 1997 through
October 31, 1997........ $0.3414 $0.6719
November 1, 1997 through
April 30, 1998.......... $0.3527 $1.0246
May 1, 1998 through
October 31, 1998........ $0.3644 $1.3890
November 1, 1998 through
April 30, 1999.......... $0.3764 $1.7654
May 1, 1999 through
October 31, 1999........ $0.3888 $2.1542
November 1, 1999 through
April 30, 2000.......... $0.4017 $2.5559
May 1, 2000 through
October 31, 2000........ $0.4150 $2.9709
November 1, 2000 through
April 30, 2001.......... $0.4287 $3.3996
May 1, 2001 through
October 31, 2001........ $0.4429 $3.8425
</TABLE>
___________
Projected Supplemental Redemption Amount = $3.8425 per Unit
Investors in the Securities may also obtain the projected payment schedule, as
determined by the Company for purposes of the application of the Final
Regulations to the Securities, by submitting a written request for such
information to Merrill Lynch & Co., Inc., Attn: Darryl W. Colletti, Office of
the Corporate Secretary, 100 Church Street, New York, New York 10080.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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
18
<PAGE>
"Common Share Data" for each of the five years in the period ended December 26,
1997 included in the 1997 Annual Report on Form 10-K, and incorporated by
reference herein, has been derived from consolidated financial statements
audited by Deloitte & Touche LLP, as set forth in their reports included or
incorporated by reference herein. Such consolidated financial statements and
related financial statement schedules, and such 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 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 such Quarterly Reports 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.
19
<PAGE>
********************************************************************************
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
********************************************************************************
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
NIKKEI 225 MARKET INDEX TARGET-TERM SECURITIES(SM) DUE JUNE 14, 2002
("MITTS(R)")
On June 3, 1997, Merrill Lynch & Co., Inc. (the "Company") issued an aggregate
principal amount of $255,000,000 (25,500,000 Units) of Nikkei 225 Market Index
Target-Term Securities due June 14, 2002 (the "Securities" or "MITTS"). Each
$10 principal amount of Securities will be deemed a "Unit" for purposes of
trading and transfer at the Securities Depository described below. Units will
be transferable by the Securities Depository, as more fully described below, in
denominations of whole Units.
GENERAL:
. Senior unsecured debt securities . Not redeemable prior to maturity
. No payments prior to maturity . Transferable only in whole Units
PAYMENT AT MATURITY:
Principal Amount + Supplemental Redemption Amount
The Supplemental Redemption Amount will be based on the percentage change in
the Nikkei Stock Average multiplied by a Participation Rate of 140%. The
Supplemental Redemption Amount may be zero, but will not be less than zero.
Before you decide to invest in the MITTS, carefully read this prospectus,
especially the risk factors beginning on page 3.
Neither the Securities and Exchange Commission (the "SEC") nor any state
securities commission has approved these securities or passed upon the adequacy
of this Prospectus. Any representation to the contrary is a criminal offense.
We expect that the MITTS will be maintained in book-entry form only through
the facilities of DTC.
_______________
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 Securities 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 Securities.
MLPF&S may act as principal or agent in such transactions. The Securities may
be offered on the New York Stock Exchange, 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 Securities 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.
_______________
MERRILL LYNCH & CO.
_______________
THE DATE OF THIS PROSPECTUS IS JULY ___, 1998.
(R)"MITTS" is a registered service mark and(SM) "Market Index Target-Term
Securities" is a service mark of Merrill Lynch & Co., Inc.
<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 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 26, 1997,
Quarterly Report on Form 10-Q for the period ended March 27, 1998, and Current
Reports on Form 8-K dated January 20, 1998, January 30, 1998, February 4, 1998,
February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998, April 29,
1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June 24, 1998,
June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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 LAWRENCE M. EGAN, JR., CORPORATE SECRETARY'S
OFFICE, 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 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.
2
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, advisory, insurance, and related
services on a global basis. Its principal subsidiary, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("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; an underwriter of selected insurance
products and a distributor of investment products of the Merrill Lynch Asset
Management group. 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. The Company's asset management and investment
management activities are conducted through the Merrill Lynch Asset Management
group and Merrill Lynch Mercury Asset Management, which together constitute one
of the largest asset management organizations in the world. Merrill Lynch
Government Securities Inc. is a primary dealer in obligations issued or
guaranteed by the U.S. Government and its agencies and its government-sponsored
entities. Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative
Products AG, and Merrill Lynch International are the Company's primary
derivative product dealers and enter into interest rate, currency, and other
over-the-counter derivative transactions as intermediaries and as principals.
The Company's operations in insurance services consist of the underwriting and
sale 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 and
purchasing secured loans, providing currency exchange facilities and other
related services, and furnishing trust, employee benefit, and custodial
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
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
Ratio of earnings
to fixed charges ........... 1.4 1.2 1.2 1.2 1.2 1.2
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
RISK FACTORS
Your investment in MITTS will involve certain risks. For example, there is the
risk that you might not earn a return on your investment, and the risk that you
will be unable to sell your MITTS prior to their maturity. You should carefully
consider the following discussion of risks before deciding whether an investment
in the MITTS is suitable for you.
3
<PAGE>
THE SUPPLEMENTAL REDEMPTION AMOUNT.
You should be aware that if the Ending Index Value does not exceed the
Starting Index Value at maturity, the Supplemental Redemption Amount will be
zero. This will be true even if the value of the Index was higher than the
Starting Index Value at some time during the life of the MITTS but later falls
below the Starting Index Value. If the Supplemental Redemption Amount is zero,
we will pay you only the principal amount of your MITTS.
The Participation Rate equals 140%. If the Ending Index Value exceeds the
Starting Index Value, then the Participation Rate will enhance the amount of the
interest payment received at maturity. However, if the Ending Index Value does
not exceed the Starting Index Value you will receive only the principal amount
of your MITTS.
YOUR YIELD MAY BE LOWER THAN THE YIELD ON A STANDARD DEBT SECURITY OF COMPARABLE
MATURITY.
The amount we pay you at maturity may be less than the return you could earn
on other investments. Your yield may be less than the yield you would earn if
you bought a standard senior non-callable debt security of the Company with the
same maturity date. Your investment may not reflect the full opportunity cost to
you when you consider the effect of inflation or other factors that affect the
time value of money.
YOUR RETURN WILL NOT REFLECT THE PAYMENT OF DIVIDENDS.
NKS calculates the Index by reference to the prices of the common stocks
comprising the Index without taking into consideration the value of dividends
paid on those stocks. Therefore, the return you earn on the MITTS, if any, will
not be the same as the return that you would earn if you actually owned each of
the common stocks in the Index and received the dividends paid on those stocks.
CURRENCY EXCHANGE RATE.
Although the stocks comprising the Index are traded in Japanese yen and the
MITTS are denominated in U.S. dollars, we will not adjust the Supplemental
Redemption Amount for the currency exchange rate in effect at the maturity of
the MITTS. The Supplemental Redemption Amount is based solely upon the
percentage increase in the Index. Changes in the exchange rate, however, may
reflect changes in the Japanese economy which may affect the value of the Index
and the MITTS.
UNCERTAIN TRADING MARKET.
The MITTS have been approved for listing on the New York Stock Exchange under
the symbol "JEM", subject to official notice of issuance. While there have been
a number of issuances of Market Index Target-Term Securities, trading volumes
have varied historically from one transaction to another and it is therefore
impossible to predict how the MITTS will trade. You cannot assume that a trading
market will develop for the MITTS. If such a trading market does develop, there
can be no assurance that there will be liquidity in the trading market. The
development of a trading market for the MITTS will depend on the financial
performance of the Company, and other factors such as the appreciation, if any,
of the value of the Index.
If the trading market for the MITTS is limited, there may be a limited number
of buyers when you decide to sell your MITTS if you do not wish to hold your
investment until maturity. This may affect the price you receive.
FACTORS AFFECTING TRADING VALUE OF THE MITTS.
We believe that the market value of the MITTS will be affected by the value
of the Index and by a number of other factors. Some of these factors are
interrelated in complex ways; as a result, the effect of any one factor may be
offset or magnified by the effect of another factor. The following bullets
describe the expected impact on the market value of the MITTS given a change in
a specific factor, assuming all other conditions remain constant.
. Index Value. We expect that the market value of the MITTS will depend
substantially on the amount by which the Index exceeds the Stating Index
Value. If you choose to sell your MITTS when the value of the Index exceeds
the Starting Index Value, you may receive substantially less than the amount
that would be payable at maturity based on that Index value because of the
expectation that the Index will continue to fluctuate until the
4
<PAGE>
Ending Index Value is determined. If you choose to sell your MITTS when the
value of the Index is below the Starting Index Value, you may receive less
than the $10 principal amount per Unit of MITTS. In general, rising Japanese
dividend rates (i.e., dividends per share) may increase the value of the
Index while falling Japanese dividend rates may decrease the value of the
Index. Political, economic and other developments that affect the stocks
underlying the Index may also affect the value of the Index and the value of
the MITTS.
. Interest Rates. Because the MITTS repay, at a minimum, the principal amount
at maturity, we expect that the trading value of the MITTS will be affected
by changes in interest rates. In general, if U.S. interest rates increase, we
expect that the trading value of the MITTS will decrease. If U.S. interest
rates decrease, we expect the trading value of the MITTS will increase. In
general, if interest rates in Japan increase, we expect that the trading
value of the MITTS will increase. If interest rates in Japan decrease, we
expect the trading value of the MITTS will decrease. However, interest rates
in Japan may also affect the Japanese economy and, in turn, the value of the
Index. Rising interest rates in Japan may lower the value of the Index and
the MITTS. Falling interest rates in Japan may increase the value of the
Index and the value of the MITTS.
. Volatility of the Index. Volatility is the term used to describe the size and
frequency of market fluctuations. If the volatility of the Index increases,
we expect that the trading value of the MITTS will increase. If the
volatility of the Index decreases, we expect that the trading value of the
MITTS will decrease.
. Time Remaining to Maturity. The MITTS may trade at a value above that which
would be expected based on the level of interest rates and the Index. This
difference will reflect a "time premium" due to expectations concerning the
value of the Index during the period prior to maturity of the MITTS. However,
as the time remaining to maturity of the MITTS decreases, we expect that this
time premium will decrease, lowering the trading value of the MITTS.
. Dividend Yields. If dividend yields on the stocks comprising the Index
increase, we expect that the value of the MITTS will decrease. Conversely, if
dividend yields on the stocks comprising the Index decrease, we expect that
the value of the MITTS will increase.
. Company Credit Ratings. Real or anticipated changes in the Company's credit
ratings may affect the market value of the MITTS.
We want you to understand that the impact of one of the factors specified
above, such as an increase in interest rates, may offset some or all of any
change in the trading value of the MITTS attributable to another factor, such as
an increase in the Index value.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the MITTS of a given change in most of the
factors listed above will be less if it occurs later in the term of the MITTS
than if it occurs earlier in the term of the MITTS except that we expect that
the effect on the trading value of the MITTS of a given increase in the value of
the Index will be greater if it occurs later in the term of the MITTS than if it
occurs earlier in the term of the MITTS.
STATE LAW LIMITS ON INTEREST PAID.
New York State laws govern the 1983 Indenture. New York has certain usury
laws that limit the amount of interest that can be charged and paid on loans,
which includes debt securities like the MITTS. Under present New York law, the
maximum rate of interest is 25% per annum on a simple interest basis. This limit
may not apply to debt securities in which $2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state or
Federal court sitting outside of New York, many other states also have laws that
regulate the amount of interest that may be charged to and paid by a borrower.
We will promise, for the benefit of the MITTS holders, to the extent permitted
by law, not to voluntarily claim the benefits of any laws concerning usurious
rates of interest.
5
<PAGE>
THE JAPANESE SECURITIES MARKET.
The underlying stocks that constitute the Index have been issued by Japanese
companies. You should be aware that investments in securities indexed to the
value of Japanese equity securities involve certain risks. The Japanese
securities markets may be more volatile than U.S. or other securities markets
and may be affected by market developments in different ways than U.S. or other
securities markets. Direct or indirect government intervention to stabilize the
Japanese securities markets and cross-shareholdings in Japanese companies on
such markets may affect prices and volume of trading on those markets. Also,
there is generally less publicly available information about Japanese companies
than about those U.S. companies that are subject to the reporting requirements
of the U.S. Securities and Exchange Commission, and Japanese companies are
subject to accounting, auditing and financial reporting standards and
requirements that differ from those applicable to U.S. reporting companies.
Securities prices in Japan are subject to political, economic, financial and
social factors that apply in Japan. These factors (including the possibility
that recent or future changes in the Japanese government's economic and fiscal
policies, the possible imposition of, or changes in, currency exchange laws or
other Japanese laws or restrictions applicable to Japanese companies or
investments in Japanese equity securities and the possibility of fluctuations in
the rate of exchange between currencies) could negatively affect the Japanese
securities markets. Moreover, the Japanese economy may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resources and self-
sufficiency.
PURCHASES AND SALES BY MERRILL LYNCH.
The Company, MLPF&S, and other affiliates of the Company may from time to time
buy or sell the stocks underlying the Index for their own accounts for business
reasons or in connection with hedging the Company's obligations under the MITTS.
These transactions could affect the price of such stocks and the value of the
Index.
POTENTIAL CONFLICTS.
Under certain circumstances, MLPF&S's roles as a subsidiary of the Company, a
counterparty of the Company's hedge, the Underwriter and the Calculation Agent
for the MITTS could give rise to conflicts of interests.
OTHER CONSIDERATIONS.
It is suggested that prospective investors who consider purchasing the
Securities should reach an investment decision only after carefully considering
the suitability of the Securities in the light of their particular
circumstances.
Investors should also consider the tax consequences of investing in the
Securities and should consult their tax advisers.
DESCRIPTION OF SECURITIES
GENERAL
The Nikkei 225 Market Index Target-Term Securities due June 14, 2002, which
are referred to herein as the "MITTS" or the "Securities", are to be issued as a
series of Senior Debt Securities under the Senior Indenture, dated as of April
1, 1993, as amended and restated, which is more fully described below. The
Securities will mature on June 14, 2002.
While at maturity a beneficial owner of a Security will receive the principal
amount of such Security plus the Supplemental Redemption Amount, if any, there
will be no other payment of interest, periodic or otherwise. See "Payment at
Maturity" below.
The Securities are not subject to redemption by the Company or at the option
of any beneficial owner prior to maturity. Upon the occurrence of an Event of
Default with respect to the Securities, beneficial owners of the Securities may
accelerate the maturity of the Securities, as described under "Description of
Securities - Events of Default and Acceleration" and "Other Terms - Events of
Default" in this Prospectus.
6
<PAGE>
The Securities are to be issued in denominations of whole Units.
PAYMENT AT MATURITY
General
At maturity, a beneficial owner of a Security will be entitled to receive the
principal amount thereof plus a Supplemental Redemption Amount, if any, as
provided below. If the Ending Index Value does not exceed the Starting Index
Value, a beneficial owner of a Security will be entitled to receive only the
principal amount thereof. The principal amount for a Security will equal the
initial issue price of $10 per Unit of MITTS.
Determination of the Supplemental Redemption Amount
The Supplemental Redemption Amount for a Security will be determined by the
Calculation Agent and will equal:
<TABLE>
<S> <C> <C>
Ending Index Value Starting Index Value
Principal Amount of such Security ($10 per Unit) X --------------------------------------- X Participation Rate
Starting Index Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero. As indicated in the formula above, the Supplemental Redemption
Amount for the MITTS will be calculated using the principal amount of the MITTS.
The Participation Rate equals 140%. The Starting Index Value equals 20,351.34,
which was the closing value of the Index on the Pricing Date. The Ending Index
Value will be determined by the Calculation Agent and will equal the average
(arithmetic mean) of the closing values of the Index determined on each of the
first five Calculation Days during the Calculation Period. If there are fewer
than five Calculation Days, then the Ending Index Value will equal the average
(arithmetic mean) of the closing values of the Index on such Calculation Days,
and if there is only one Calculation Day, then the Ending Index Value will equal
the closing value of the Index on such Calculation Day. If no Calculation Days
occur during the Calculation Period because of Market Disruption Events, then
the Ending Index Value will equal the closing value of the Index determined on
the last scheduled Index Business Day in the Calculation Period, regardless of
the occurrence of a Market Disruption Event on such day. The "Calculation
Period" means the period from and including the seventh scheduled Index Business
Day prior to the maturity date to and including the second scheduled Index
Business Day prior to the maturity date. "Calculation Day" means any Index
Business Day during the Calculation Period on which a Market Disruption Event
has not occurred. For purposes of determining the Ending Index Value, an "Index
Business Day" is a day on which the New York Stock Exchange and the American
Stock Exchange are open for trading and the Index or any Successor Index, as
defined below, is calculated and published. All determinations made by the
Calculation Agent shall be at the sole discretion of the Calculation Agent and,
absent a determination by the Calculation Agent of a manifest error, shall be
conclusive for all purposes and binding on the Company and beneficial owners of
the Securities.
HYPOTHETICAL RETURNS
The following table illustrates, for a range of hypothetical Ending Index
Values, (i) the total amount payable at maturity for each $10 principal amount
of Securities, (ii) the total rate of return to beneficial owners of the
Securities, (iii) the pretax annualized rate of return to beneficial owners of
Securities, and (iv) the pretax annualized rate of return of an investment in
the stocks underlying the Index (which includes an assumed aggregate dividend
yield of .75% per annum, as more fully described below).
<TABLE>
<CAPTION>
TOTAL AMOUNT PRETAX ANNUALIZED
PAYABLE AT MATURITY PRETAX RATE OF RETURN OF
PERCENTAGE CHANGE PER $10 PRINCIPAL TOTAL RATE OF ANNUALIZED RATE STOCKS UNDERLYING
HYPOTHETICAL ENDING OVER THE STARTING AMOUNT OF RETURN ON OF RETURN ON THE
INDEX VALUE INDEX VALUE SECURITIES THE SECURITIES THE SECURITIES(1) INDEX(1)(2)
----------- ----------- ---------- -------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
8,140.54 -60% $10.00 0.00% 0.00% -17.13%
10,175.67 -50% $10.00 0.00% 0.00% -12.86%
12,210.80 -40% $10.00 0.00% 0.00% -9.33%
14,245.94 -30% $10.00 0.00% 0.00% -6.32%
16,281.07 -20% $10.00 0.00% 0.00% -3.69%
18,316.21 -10% $10.00 0.00% 0.00% -1.35%
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
TOTAL AMOUNT PRETAX ANNUALIZED
PAYABLE AT MATURITY PRETAX RATE OF RETURN OF
PERCENTAGE CHANGE PER $10 PRINCIPAL TOTAL RATE OF ANNUALIZED RATE STOCKS UNDERLYING
HYPOTHETICAL ENDING OVER THE STARTING AMOUNT OF RETURN ON OF RETURN ON THE
INDEX VALUE INDEX VALUE SECURITIES THE SECURITIES THE SECURITIES(1) INDEX(1)(2)
----------- ----------- ---------- -------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
20,351.34(3) 0% $10.00 0.00% 0.00% 0.75%
22,386.47 10% $11.40 14.00% 2.62% 2.66%
24,421.61 20% $12.80 28.00% 4.97% 4.42%
26,456.74 30% $14.20 42.00% 7.09% 6.04%
28,491.88 40% $15.60 56.00% 9.04% 7.55%
30,527.01 50% $17.00 70.00% 10.83% 8.96%
32,562.14 60% $18.40 84.00% 12.50% 10.29%
34,597.28 70% $19.80 98.00% 14.05% 11.54%
36,632.41 80% $21.20 112.00% 15.51% 12.72%
38,667.55 90% $22.60 126.00% 16.88% 13.84%
40,702.68 100% $24.00 140.00% 18.18% 14.91%
42,737.81 110% $25.40 154.00% 19.42% 15.92%
44,772.95 120% $26.80 168.00% 20.59% 16.90%
46,808.08 130% $28.20 182.00% 21.71% 17.83%
</TABLE>
___________
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes (i) an investment of a fixed amount in the
stocks underlying the Index with the allocation of such amount reflecting the
current relative weights of such stocks in the Index; (ii) a percentage change
in the aggregate price of such stocks that equals the percentage change in the
Index from the Starting Index Value to the relevant hypothetical Ending Index
Value; (iii) a constant dividend yield of .75% per annum, paid quarterly from
the date of initial delivery of Securities, applied to the value of the Index at
the end of each such quarter assuming such value increases or decreases linearly
from the Starting Index Value to the applicable hypothetical Ending Index Value;
(iv) no transaction fees or expenses; (v) a term for the Securities from June 3,
1997 to June 14, 2002; and (vi) a final Index value equal to the Ending Index
Value. The aggregate dividend yield of the stocks underlying the Index as of May
28, 1997 was approximately .75%.
(3) This is the Starting Index Value.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the total and pretax
annualized rate of return resulting therefrom will depend entirely on the actual
Ending Index Value determined by the Calculation Agent as provided herein.
ADJUSTMENTS TO THE INDEX; MARKET DISRUPTION EVENTS
If at any time the method of calculating the Index, or the value thereof, is
changed in any material respect, or if the Index is in any other way modified so
that such Index does not, in the opinion of the Calculation Agent, fairly
represent the value of the Index had such changes or modifications not been
made, then, from and after such time, the Calculation Agent shall, at the close
of business in New York, New York, on each date that the closing value with
respect to the Ending Index Value is to be calculated, make such adjustments as,
in the good faith judgment of the Calculation Agent, may be necessary in order
to arrive at a calculation of a value of a stock index comparable to the Index
as if such changes or modifications had not been made, and calculate such
closing value with reference to the Index, as adjusted. Accordingly, if the
method of calculating the Index is modified so that the value of such Index is a
fraction or a multiple of what it would have been if it had not been modified
(e.g., due to a split in the Index), then the Calculation Agent shall adjust
such Index in order to arrive at a value of the Index as if it had not been
modified (e.g., as if such split had not occurred).
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"Market Disruption Event" means either of the following events, as determined
by the Calculation Agent: (a)a suspension, material limitation or absence of
trading on the TSE of 20% or more of the Underlying Stocks which then comprise
the Index or a Successor Index during the one-half hour period preceding the
close of trading on the applicable exchange; or (b)the suspension or material
limitation on the Singapore International Monetary Exchange, Ltd. (the "SIMEX"),
the Osaka Securities Exchange (the "OSE") or any other major futures or
securities market from trading in futures or options contracts related to the
Index or a Successor Index during the one-half hour period preceding the close
of trading on the applicable exchange.
For the purposes of determining whether a Market Disruption Event has
occurred: (i) a limitation on the hours or number of days of trading will not
constitute a Market Disruption Event if it results from an announced change in
the regular business hours of the relevant exchange, (ii) a decision to
permanently discontinue trading in the relevant futures or options contract will
not constitute a Market Disruption Event, (iii) a suspension in trading in a
futures or options contract on the Index by a major securities market by reason
of (a) a price change violating limits set by such securities market, (b) an
imbalance of orders relating to such contracts or (c) a disparity in bid and ask
quotes relating to such contracts will constitute a suspension or material
limitation of trading in futures or options contracts related to the Index, and,
(iv) an absence of trading on the TSE will not include any time when the TSE is
closed for trading under ordinary circumstances. Under certain circumstances,
the duties of MLPF&S as Calculation Agent in determining the existence of Market
Disruption Events could conflict with the interests of MLPF&S as an affiliate of
the issuer of the MITTS.
Based on the information currently available to the Company, the opening of
trading on the OSE was delayed on January 17, 1995 because of the earthquake in
Kobe. If such delay had occurred during the one-half hour period preceding the
close of trading on the OSE, it would have constituted a Market Disruption
Event. In addition, because of movements in the price for futures contracts for
the Index, the OSE imposed price limits on such futures contracts on January 23,
1995 that were in effect during the one-half hour period preceding the close of
trading on the OSE and that would have constituted a Market Disruption Event. On
January 31 and February 1 of 1994, prices for futures contracts for the Nikkei
Stock Index 225 reached price limits imposed by the OSE, which would have been a
Market Disruption Event. Other than the foregoing events, to the Company's
knowledge no circumstances have arisen since the inception of the Index that
could have constituted a Market Disruption Event. The existence or non-existence
of such circumstances, however, is not necessarily indicative of the likelihood
of such circumstances arising or not arising in the future.
DISCONTINUANCE OF THE INDEX
If NKS discontinues publication of the Index and NKS or another entity
publishes a successor or substitute index that the Calculation Agent determines,
in its sole discretion, to be comparable to such Index (any such index being
referred to hereinafter as a "Successor Index"), then, upon the Calculation
Agent's notification of such determination to the Trustee and the Company, the
Calculation Agent will substitute the Successor Index as calculated by NKS or
such other entity for the Index and calculate the Ending Index Value as
described above under "Payment at Maturity". Upon any selection by the
Calculation Agent of a Successor Index, the Company shall cause notice thereof
to be given to Holders of the Securities.
If NKS discontinues publication of the Index and a Successor Index is not
selected by the Calculation Agent or is no longer published on any of the
Calculation Days, the value to be substituted for the Index for any such
Calculation Day used to calculate the Supplemental Redemption Amount at maturity
will be a value computed by the Calculation Agent for each Calculation Day in
accordance with the procedures last used to calculate the Index prior to any
such discontinuance. If a Successor Index is selected or the Calculation Agent
calculates a value as a substitute for the Index as described below, such
Successor Index or value shall be substituted for the Index for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
If NKS discontinues publication of the Index prior to the period during which
the Supplemental Redemption Amount is to be determined and the Calculation Agent
determines that no Successor Index is available at such time, then on each
Business Day until the earlier to occur of (a) the determination of the Ending
Index Value and (b) a determination by the Calculation Agent that a Successor
Index is available, the Calculation Agent shall determine the value that would
be used in computing the Supplemental Redemption Amount as described in the
preceding paragraph as if such day were a Calculation Day. The Calculation Agent
will cause notice of each such value to be published not less often than once
each month in The Wall Street Journal (or another newspaper of general
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circulation), and arrange for information with respect to such values to be made
available by telephone. Notwithstanding these alternative arrangements,
discontinuance of the publication of the Index may adversely affect trading in
the Securities.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Securities shall have occurred
and be continuing, the amount payable to a beneficial owner of a Security upon
any acceleration permitted by the Securities, with respect to each $10 principal
amount thereof, will be equal to the principal amount and the Supplemental
Redemption Amount, if any, calculated as though the date of early repayment were
the stated maturity date of the Securities. See "Description of Securities -
Payment at Maturity" in this Prospectus. If a bankruptcy proceeding is commenced
in respect of the Company, the claim of the beneficial owner of a Security may
be limited, under Section 502(b)(2) of Title 11 of the United States Code, to
the principal amount of the Security plus an additional amount of contingent
interest calculated as though the date of the commencement of the proceeding
were the maturity date of the Securities.
In case of default in payment at the maturity date of the Securities (whether
at their stated maturity or upon acceleration), from and after the maturity date
the Securities shall bear interest, payable upon demand of the beneficial owners
thereof, at the rate of 6.96% per annum (to the extent that payment of such
interest shall be legally enforceable) on the unpaid amount due and payable on
such date in accordance with the terms of the Securities to the date payment of
such amount has been made or duly provided for.
DEPOSITORY
Upon issuance, all Securities will be represented by one or more fully
registered global securities (the "Global Securities"). Each such Global
Security will be deposited with, or on behalf of, The Depository Trust Company
("DTC"), as Depository, registered in the name of DTC or a nominee thereof.
Unless and until it is exchanged in whole or in part for Securities in
definitive form, no Global Security may be transferred except as a whole by the
Depository to a nominee of such Depository or by a nominee of such Depository to
such Depository or another nominee of such Depository or by such Depository or
any such nominee to a successor of such Depository or a nominee of such
successor.
DTC has advised the Company as follows: DTC 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.
DTC 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. DTC's Participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations.
DTC 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 DTC 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 Securities must be made by or through Participants, which will
receive a credit on the records of DTC. The ownership interest of each actual
purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the
Participants' or Indirect Participants' records. Beneficial Owners will not
receive written confirmation from DTC of their purchase, but Beneficial Owners
are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the
Participant or Indirect Participant through which the Beneficial Owner entered
into the transaction. Ownership of beneficial interests in such Global Security
will be shown on, and the transfer of such ownership interests will be effected
only through, records maintained by DTC (with respect to interests of
Participants) and on the records of Participants (with respect to interests of
persons held through Participants). The laws of some states may require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to own,
transfer or pledge beneficial interests in Global Securities.
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So long as DTC, or its nominee, is the registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole owner or
Holder of the Securities represented by such Global Security for all purposes
under the 1983 Indenture. Except as provided below, Beneficial Owners in a
Global Security will not be entitled to have the Securities represented by such
Global Securities registered in their names, will not receive or be entitled to
receive physical delivery of the Securities in definitive form and will not be
considered the owners or Holders thereof under the 1983 Indenture, including for
purposes of receiving any reports delivered by the Company or the Trustee
pursuant to the 1983 Indenture. Accordingly, each Person owning a beneficial
interest in a Global Security must rely on the procedures of DTC 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 1983
Indenture. The Company understands that under existing industry practices, in
the event that the Company requests any action of Holders or that an owner of a
beneficial interest in such a Global Security desires to give or take any action
which a Holder is entitled to give or take under the 1983 Indenture, DTC 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 DTC to Participants, by Participants to Indirect Participants,
and by Participants and Indirect Participants to Beneficial Owners will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Payment of the principal amount and any Supplemental Redemption Amount with
respect to the Securities registered in the name of DTC or its nominee will be
made to DTC or its nominee, as the case may be, as the Holder of the Global
Securities representing such Securities. 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 DTC, upon receipt of any payment of principal or any Supplemental
Redemption Amount in respect of a Global Security, will credit the accounts of
the Participants with payment in amounts proportionate to their respective
holdings in principal amount of beneficial interest in such Global Security as
shown on the records of DTC. 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) any Depository is at any time unwilling or unable to continue as
Depository and a successor depository is not appointed by the Company within 60
days, (y) the Company executes and delivers to the Trustee a Company Order to
the effect that the Global Securities shall be exchangeable or (z) an Event of
Default has occurred and is continuing with respect to the Securities, the
Global Securities will be exchangeable for Securities in definitive form of like
tenor and of an equal aggregate principal amount, in denominations of $10 and
integral multiples thereof. Such definitive Securities shall be registered in
such name or names as the Depository shall instruct the Trustee. It is expected
that such instructions may be based upon directions received by the Depository
from Participants with respect to ownership of beneficial interests in such
Global Securities.
SAME-DAY SETTLEMENT AND PAYMENT
All payments of principal and the Supplemental Redemption Amount, if any, will
be made by the Company in immediately available funds so long as the Securities
are maintained in book-entry form.
THE INDEX
All disclosure contained in this Prospectus regarding the Index, including,
without limitation, its make-up, method of calculation and changes in its
components, is derived from publicly available information prepared by Nihon
Keizai Shimbun, Inc. ("NKS").
GENERAL
Unless otherwise stated, all information herein relating to the Nikkei 225
Index has been derived from the Stock Market Indices Data Book published by NKS
and other publicly-available sources. Such information reflects the policies of
NKS as stated in such sources; such policies are subject to change at the
discretion of NKS.
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The Nikkei 225 Index is a stock index calculated, published and disseminated
by NKS that measures the composite price performance of selected Japanese
stocks. The Nikkei 225 Index is currently based on 225 Underlying Stocks trading
on the TSE and represents a broad cross-section of Japanese industry. All 225
Underlying Stocks are stocks listed in the First Section of the TSE. Stocks
listed in the First Section are among the most actively traded stocks on the
TSE. Futures and options contracts on the Nikkei 225 Index are traded on the
Singapore International Monetary Exchange Ltd., the Osaka Securities Exchange
and the Chicago Mercantile Exchange.
The Nikkei 225 Index is a modified, price-weighted index (i.e., an Underlying
Stock's weight in the index is based on its price per share rather than the
total market capitalization of the issuer) which is calculated by (i)
multiplying the per share price of each Underlying Stock by the corresponding
weighting factor for such Underlying Stock (a "Weight Factor"), (ii) calculating
the sum of all these products and (iii) dividing such sum by a divisor. The
divisor, initially set in 1949 at 225, was 9.999 as of May 28, 1997, and is
subject to periodic adjustments as set forth below. Each Weight Factor is
computed by dividing (Yen)50 by the par value of the relevant Underlying Stock,
so that the share price of each Underlying Stock when multiplied by its Weight
Factor corresponds to a share price based on a uniform par value of (Yen)50.
Each Weight Factor represents the number of shares of the related Underlying
Stock which are included in one trading unit of the Nikkei 225 Index. The stock
prices used in the calculation of the Nikkei 225 Index are those reported by a
primary market for the Underlying Stocks (currently the TSE). The level of the
Nikkei 225 Index is calculated once per minute during TSE trading hours.
In order to maintain continuity in the level of the Nikkei 225 Index in the
event of certain changes due to non-market factors affecting the Underlying
Stocks, such as the addition or deletion of stocks, substitution of stocks,
stock dividends, stock splits or distributions of assets to stockholders, the
divisor used in calculating the Nikkei 225 Index is adjusted in a manner
designed to prevent any instantaneous change or discontinuity in the level of
the Nikkei 225 Index. Thereafter, the divisor remains at the new value until a
further adjustment is necessary as the result of another change. As a result of
each such change affecting any Underlying Stock, the divisor is adjusted in such
a way that the sum of all share prices immediately after such change multiplied
by the applicable Weight Factor and divided by the new divisor (i.e., the level
of the Nikkei 225 Index immediately after such change) will equal the level of
the Nikkei 225 Index immediately prior to the change.
Underlying Stocks may be deleted or added by NKS. However, to maintain
continuity in the Nikkei 225 Index, the policy of NKS is generally not to alter
the composition of the Underlying Stocks except when an Underlying Stock is
deleted in accordance with the following criteria. Any stock becoming ineligible
for listing in the First Section of the TSE due to any of the following reasons
will be deleted from the Underlying Stocks: bankruptcy of the issuer; merger of
the issuer into, or acquisition of the issuer by, another company; delisting of
such stock or transfer of such stock to the "Seiri-Post" because of excess debt
of the issuer or because of any other reason; or transfer of such stock to the
Second Section of the TSE. Upon deletion of a stock from the Underlying Stocks,
NKS will select, in accordance with certain criteria established by it, a
replacement for such deleted Underlying Stock. In an exceptional case, a newly
listed stock in the First Section of the TSE that is recognized by NKS to be
representative of a market may be added to the Underlying Stocks. In such case,
an existing Underlying Stock with low trading volume and not representative of a
market will be deleted.
NKS is under no obligation to continue the calculation and dissemination of
the Nikkei 225 Index. The MITTS are not sponsored, endorsed, sold or promoted by
NKS. No inference should be drawn from the information contained in this
Prospectus Supplement that NKS makes any representation or warranty, implied or
express, to the Company, the holders of the MITTS or any member of the public
regarding the advisability of investing in securities generally or in the MITTS
in particular or the ability of the Nikkei 225 Index to track general stock
market performance. NKS has no obligation to take the needs of the Company or
the holders of the MITTS into consideration in determining, composing or
calculating the Nikkei 225 Index. NKS is not responsible for, and has not
participated in the determination of the timing of, prices for, or quantities
of, the MITTS to be issued or in the determination or calculation of the
equation by which the MITTS are to be settled in cash. NKS has no obligation or
liability in connection with the administration, marketing or trading of the
MITTS.
The use of and reference to the Nikkei 225 Index in connection with the MITTS
have been consented to by NKS, the publisher of the Nikkei 225 Index.
None of the Company, the Calculation Agent and the Underwriter accepts any
responsibility for the calculation, maintenance or publication of the Nikkei 225
Index or any Successor Index. NKS disclaims all responsibility for any
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errors or omissions in the calculation and dissemination of the Nikkei 225 Index
or the manner in which such Index is applied in determining any Starting or
Ending Index Values or any Supplemental Redemption Amount upon maturity of the
MITTS.
THE TOKYO STOCK EXCHANGE
The Tokyo Stock Exchange is one of the world's largest securities exchanges in
terms of market capitalization. The TSE market is a two-way, continuous pure
auction market. Trading hours are currently from 9:00 A.M. to 11:00 A.M. and
from 12:30 P.M. to 3:00 P.M., Tokyo time, Monday through Friday.
Due to the time zone difference, on any normal trading day the TSE will close
prior to the opening of business in New York City on the same calendar day.
Therefore, the closing level of the Nikkei 225 Index on such trading day will
generally be available in the United States by the opening of business on the
same calendar day.
The TSE has adopted certain measures, including daily price floors and
ceilings on individual stocks, intended to prevent any extreme short-term price
fluctuations resulting from order imbalances. In general, any stock listed on
the TSE cannot be traded at a price lower than the applicable price floor or
higher than the applicable price ceiling. Such price floors and ceilings are
expressed in absolute Japanese yen, rather than percentage, limits based on the
closing price of the stock on the previous trading day. In addition, when there
is a major order imbalance in a listed stock, the TSE posts a "special bid
quote" or a "special asked quote" for that stock at a specified higher or lower
price level than the stock's last sale price in order to solicit counter-orders
and balance supply and demand for the stock. Investors should also be aware that
the TSE may suspend the trading of individual stocks in certain limited and
extraordinary circumstances, including, for example, unusual trading activity in
that stock. As a result, changes in the Nikkei 225 Index may be limited by price
limitations or special quotes, or by suspension of trading, on individual stocks
which comprise the Nikkei 225 Index, which limitations may, in turn, adversely
affect the value of the MITTS.
OTHER TERMS
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Indenture (the "Senior Indenture"), dated as of April 1, 1983, as amended and
restated, 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"). A copy of the Senior Indenture is filed as an exhibit
to the registration statements relating to the Securities. The following
summaries of certain provisions of the Senior Indenture do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the Senior Indenture, including the definition therein of
certain terms.
The Senior Indenture provides that series of Senior Debt Securities may from
time to time be issued thereunder, without limitation as to aggregate principal
amount, in one or more series and upon such terms as the Company may establish
pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the Securities are
governed by and construed in accordance with the laws of the State of New York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen" a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including
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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.
LIMITATIONS UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of the incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
LIMITATION ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Indenture provides that the Company may not sell, transfer or otherwise
dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell or
otherwise dispose of any of its Voting Stock, unless, after giving effect to any
such transaction, MLPF&S remains a Controlled Subsidiary (defined in the Senior
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the 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.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or into
any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior 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 Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company and
the Trustee with the consent of the Holders of 66 2/3% in principal amount of
the Outstanding Senior Debt Securities of each series issued pursuant to such
indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding Senior Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts payable on, any Senior Debt
Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any Senior Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Debt Security; (e) reduce the percentage in principal
amount of the Outstanding Senior Debt Securities of any series, the consent of
whose Holders is required to modify or amend the Indenture; or (f) modify the
foregoing requirements or reduce the percentage of Outstanding Senior Debt
Securities necessary to waive any past default to less than a majority. No
modification or amendment of the Subordinated Indenture or any Subsequent
Indenture for Subordinated Debt Securities may adversely affect the rights of
any holder of Senior Indebtedness without the consent of such Holder. Except
with respect to certain fundamental provisions, the Holders of at least a
majority in principal amount of Outstanding Senior Debt Securities of any series
may, with respect to such series, waive past defaults under the Indenture and
waive compliance by the Company with certain provisions thereof.
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EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the Indenture for
the benefit of such series or in the Senior Debt Securities of such series,
continued for 60 days after written notice as provided in the Senior Indenture;
(e) certain events in bankruptcy, insolvency or reorganization; and (f) any
other Event of Default provided with respect to Senior Debt Securities of that
series. The Trustee or the Holders of 25% in principal amount of the
Outstanding Senior Debt Securities of that series may declare the principal
amount (or such lesser amount as may be provided for in the Senior Debt
Securities of that series) of all Outstanding Senior Debt Securities of that
series and the interest due thereon and Additional Amounts payable in respect
thereof, if any to be due and payable immediately if an Event of Default with
respect to Senior Debt Securities of such series shall occur and be continuing
at the time of such declaration. At any time after a declaration of
acceleration has been made with respect to Senior Debt Securities of any series
but before a judgment or decree for payment of money due has been obtained by
the Trustee, the Holders of a majority in principal amount of the Outstanding
Senior Debt Securities of that series may rescind any declaration of
acceleration and its consequences, if all payments due (other than those due as
a result of acceleration) have been made and all Events of Default have been
remedied or waived. Any Event of Default with respect to Senior Debt Securities
of any series may be waived by the Holders of a majority in principal amount of
all Outstanding Senior Debt Securities of that series, except in a case of
failure to pay principal or premium, if any, or interest or Additional Amounts
payable on any Senior Debt Security of that series for which payment had not
been subsequently made or in respect of a covenant or provision which cannot be
modified or amended without the consent of the Holder of each Outstanding Senior
Debt Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior Debt
Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any right or power
under the Senior Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company is required to furnish to the Trustee annually a statement as to
the fulfillment by the Company of all of its obligations under the Senior
Indenture.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Solely for purposes of applying final Treasury regulations (the "Final
Regulations") concerning the United States Federal income tax treatment of
contingent payment debt instruments to the Securities, the Company has
determined that the projected payment schedule for the Securities will consist
of payment on the maturity date of the principal amount thereof and a
Supplemental Redemption Amount equal to $4.1078 per Unit. This represents an
estimated yield on the Securities equal to 6.96% per annum (compounded
semiannually).
The projected payment schedule (including both the projected Supplemental
Redemption Amount and the estimated yield on the Securities) has been determined
solely for United States Federal income tax purposes (i.e., for purposes of
applying the Final Regulations to the Securities), and is not a prediction of
what the actual Supplemental Redemption Amount will be, or that the actual
Supplemental Redemption Amount will even exceed zero.
The following table sets forth the amount of interest that will be deemed to
have accrued with respect to each Unit of the Securities during each accrual
period over the term of the Securities based upon the projected payment schedule
for the Securities (including both the projected Supplemental Redemption Amount
and the estimated yield equal to 6.96% per annum (compounded semiannually)) as
determined by the Company for purposes of the application of the Final
Regulations to the Securities:
15
<PAGE>
<TABLE>
<CAPTION>
TOTAL INTEREST DEEMED
TO HAVE ACCRUED ON
INTEREST DEEMED TO SECURITIES AS OF END
ACCRUE DURING ACCRUAL OF ACCRUAL PERIOD
ACCRUAL PERIOD PERIOD (PER UNIT) (PER UNIT)
-------------- --------------------- ---------------------
<S> <C> <C>
June 3, 1997 through
June 14, 1997............ $0.0206 $0.0206
June 15, 1997 through
December 14, 1997........ $0.3506 $0.3712
December 15, 1997 through
June 14, 1998............ $0.3590 $0.7302
June 15, 1998 through
December 14, 1998........ $0.3734 $1.1036
December 15, 1998 through
June 14, 1999............ $0.3864 $1.4900
June 15, 1999 through
December 14, 1999........ $0.3999 $1.8899
December 15, 1999 through
June 14, 2000............ $0.4138 $2.3037
June 15, 2000 through
December 14, 2000........ $0.4281 $2.7318
June 15, 2001 through
December 14, 2001........ $0.4585 $3.6334
December 15, 2001 through
June 14, 2002............ $0.4744 $4.1078
</TABLE>
____________
Projected Supplemental Redemption Amount = $4.1078 per Unit
Investors in the Securities may also obtain the projected payment schedule, as
determined by the Company for purposes of the application of the Final
Regulations to the Securities, by submitting a written request for such
information to Merrill Lynch & Co., Inc., Attn: Darryl W. Colletti, Office of
the Corporate Secretary, 100 Church Street, New York, New York 10080.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997 included
in the 1997 Annual Report on Form 10-K, and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP,as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such 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 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 such Quarterly Reports 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
16
<PAGE>
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.
17
<PAGE>
*******************************************************************************
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
********************************************************************************
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
7,200,000 UNITS
MERRILL LYNCH & CO., INC.
MAJOR 8 EUROPEAN INDEX MARKET INDEX TARGET-TERM SECURITIES DUE AUGUST 30, 2002
"MITTS(R)"
($10 PRINCIPAL AMOUNT PER UNIT)
On July 28, 1997, Merrill Lynch & Co., Inc. (the "Company") issued an
aggregate principal amount $72,000,000 (7,200,000 Units) of Major 8 European
Index Market Index Target-Term Securities due August 30, 2002 (the "Securities"
or "MITTS"). Each $10 principal amount of Securities will be deemed a "Unit" for
purposes of trading and transfer at the Securities Depository described below.
Units will be transferable by the Securities Depository, as more fully described
below, in denominations of whole Units.
GENERAL:
. Senior unsecured debt securities . Not redeemable prior to maturity
. No payments prior to maturity . Transferable only in whole Units
PAYMENT AT MATURITY:
Principal Amount + Supplemental Redemption Amount
The Supplemental Redemption Amount will be based on the percentage increase,
if any, in the Major 8 European Index, which is a compilation of eight European
equity indices, multiplied by a Participation Rate of 110%. The Supplemental
Redemption Amount may be ZERO, but will not be less than zero.
BEFORE YOU DECIDE TO INVEST IN THE MITTS, CAREFULLY READ THIS PROSPECTUS,
ESPECIALLY THE RISK FACTORS BEGINNING ON PAGE 3.
We expect that the MITTS will be maintained in book-entry form only through
the facilities of DTC.
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 Securities 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 Securities.
MLPF&S may act as principal or agent in such transactions. The Securities may be
offered on the American Stock Exchange (the "AMEX"), 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 Securities 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.
-------------
MERRILL LYNCH & CO.
-------------
The date of this Prospectus is July __, 1998.
- -------------
"MITTS" is a registered service mark and "Market Index Target-Term Securities"
is a service mark owned by Merrill Lynch & Co., Inc.
<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 AMEX, the Chicago Stock Exchange
and the Pacific 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 26, 1997,
Quarterly Report on Form 10-Q for the period ended March 27, 1998, and Current
Reports on Form 8-K dated January 20, 1998, January 30, 1998, February 4, 1998,
February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998, April 29,
1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June 24, 1998,
June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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 LAWRENCE M. EGAN, JR., CORPORATE SECRETARY'S
OFFICE, 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 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.
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, advisory, insurance, and related
services on a global basis. Its principal subsidiary, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("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; an underwriter of selected insurance
products and a distributor of investment products of the Merrill Lynch Asset
Management group. 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. The Company's asset management and investment
management activities are conducted through the Merrill Lynch Asset Management
group and Merrill Lynch Mercury Asset Management, which together constitute one
of the largest asset management organizations in the world. Merrill Lynch
Government Securities Inc. is a primary dealer in obligations issued or
guaranteed by the U.S. Government and its agencies and its government-sponsored
entities. Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative
Products AG, and Merrill Lynch International are the Company's primary
derivative product dealers and enter into interest rate, currency, and other
over-the-counter derivative transactions as intermediaries and as principals.
The Company's operations in insurance services consist of the underwriting and
sale 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 and
purchasing secured loans, providing currency exchange facilities and other
related services, and furnishing trust, employee benefit, and custodial
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
The following table sets forth the historical ratios for earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges........... 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
RISK FACTORS
Your investment in MITTS will involve certain risks. For example, there is the
risk that you might not earn a return on your investment, and the risk that you
will be unable to sell your MITTS prior to their maturity. You should carefully
consider the following discussion of risks before deciding whether an investment
in the MITTS is suitable for you.
3
<PAGE>
THE SUPPLEMENTAL REDEMPTION AMOUNT.
You should be aware that if the Ending Index Value does not exceed the
Starting Index Value at maturity, the Supplemental Redemption Amount will be
zero. This will be true even if the value of the Index was higher than the
Starting Index Value at some time during the life of the MITTS but later falls
below the Starting Index Value. If the Supplemental Redemption Amount is zero,
we will pay you only the principal amount of your MITTS.
The Participation Rate equals 110%. If the Ending Index Value exceeds the
Starting Index Value, then the Participation Rate will enhance the amount of the
interest payment received at maturity. However, if the Ending Index Value does
not exceed the Starting Index Value, you will receive only the principal amount
of your MITTS.
YOUR YIELD MAY BE LOWER THAN THE YIELD ON A STANDARD DEBT SECURITY OF COMPARABLE
MATURITY.
The amount we pay you at maturity may be less than the return you could earn
on other investments. Your yield may be less than the yield you would earn if
you bought a standard senior non-callable debt security of the Company with the
same maturity date. Your investment may not reflect the full opportunity cost to
you when you consider the effect of factors that affect the time value of money.
YOUR RETURN WILL NOT REFLECT THE PAYMENT OF DIVIDENDS.
The AMEX calculates the Index by reference to the Sub-Indices which reflect
the prices of the common stocks comprising such Sub-Indices without taking into
consideration the value of dividends paid on those stocks, except in the case of
the Deutscher Aktienindex Sub-Index which reflects dividends paid on its
underlying common stocks. Therefore, the return you earn on the MITTS, if any,
will not be the same as the return that you would earn if you actually owned
each of the common stocks underlying each Sub-Index and received the dividends
paid on those stocks.
CURRENCY EXCHANGE RATES.
Although the stocks comprising the Sub-Indices are traded in currencies other
than U.S. dollars and the MITTS are denominated in U.S. dollars, we will not
adjust the Supplemental Redemption Amount for currency exchange rates in effect
at the maturity of the MITTS. The Supplemental Redemption Amount is based solely
upon the percentage increase in the Index. Changes in exchange rates, however,
may reflect changes in the relevant European economies which may affect the
value of the Sub-Indices, and the MITTS.
UNCERTAIN TRADING MARKET.
The MITTS are traded on the AMEX under the symbol "MEM". While there have been
a number of issuances of Market Index Target-Term Securities, trading volumes
have varied historically from one transaction to another and it is therefore
impossible to predict how the MITTS will trade. You cannot assume that a trading
market will develop for the MITTS. If such a trading market does develop, there
can be no assurance that there will be liquidity in the trading market. The
development of a trading market for the MITTS will depend on the financial
performance of the Company, and other factors such as the appreciation, if any,
of the value of the Index.
If the trading market for the MITTS is limited, there may be a limited number
of buyers when you decide to sell your MITTS if you do not wish to hold your
investment until maturity. This may affect the price you receive.
4
<PAGE>
FACTORS AFFECTING TRADING VALUE OF THE MITTS.
We believe that the market value of the MITTS will be affected by the value
of the Index and by a number of other factors. Some of these factors are
interrelated in complex ways; as a result, the effect of any one factor may be
offset or magnified by the effect of another factor. The following bullets
describe the expected impact on the market value of the MITTS given a change in
a specific factor, assuming all other conditions remain constant.
. INDEX VALUE. We expect that the market value of the MITTS will depend
substantially on the amount by which the Index exceeds the Starting Index
Value. If you choose to sell your MITTS when the value of the Index exceeds
the Starting Index Value, you may receive substantially less than the
amount that would be payable at maturity based on that Index value because
of the expectation that the Index will continue to fluctuate until the
Ending Index Value is determined. If you choose to sell your MITTS when the
value of the Index is below the Starting Index Value, you may receive less
than the $10 principal amount per Unit of MITTS. In general, rising
dividend rates (i.e., dividends per share) in the European countries
related to the common stocks underlying the Sub-Indices (each, an
"applicable European country") may increase the value of the Index while
falling dividend rates in the applicable European countries may decrease
the value of the Index. Political, economic and other developments that
affect the stocks underlying the Index may also affect the value of the
Index and the value of the MITTS.
. INTEREST RATES. Because the MITTS repay, at a minimum, the principal
amount at maturity, we expect that the trading value of the MITTS will be
affected by changes in interest rates. In general, if U.S. interest rates
increase, we expect that the trading value of the MITTS will decrease. If
U.S. interest rates decrease, we expect the trading value of the MITTS will
increase. In general, if interest rates in the applicable European
countries increase, we expect that the trading value of the MITTS will
increase. If interest rates in the applicable European countries decrease,
we expect the trading value of the MITTS will decrease. However, interest
rates in the applicable European countries may also affect the relevant
economies and, in turn, the value of the Sub-Indices. Rising interest rates
in the applicable European countries may lower the value of the Sub-Indices
and the MITTS. Falling interest rates in the applicable European countries
may increase the value of the Index and the value of the MITTS.
. VOLATILITY OF THE INDEX. Volatility is the term used to describe the size
and frequency of market fluctuations. If the volatility of the Index
increases, we expect that the trading value of the MITTS will increase. If
the volatility of the Index decreases, we expect that the trading value of
the MITTS will decrease.
. TIME REMAINING TO MATURITY. The MITTS may trade at a value above that
which would be expected based on the level of interest rates and the Index.
This difference will reflect a "time premium" due to expectations
concerning the value of the Index during the period prior to maturity of
the MITTS. However, as the time remaining to maturity of the MITTS
decreases, we expect that this time premium will decrease, lowering the
trading value of the MITTS.
. DIVIDEND YIELDS. If dividend yields on the stocks comprising the Sub-
Indices increase, we expect that the value of the MITTS will decrease.
Conversely, if dividend yields on the stock comprising the Sub-Indices
decrease, we expect that the value of the MITTS will increase.
. COMPANY CREDIT RATINGS. Real or anticipated changes in the Company's
credit ratings may affect the market value of the MITTS.
We want you to understand that the impact of one of the factors specified
above, such as an increase in interest rates, may offset some or all of any
increase in the trading value of the MITTS attributable to another factor, such
as an increase in the Index value.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the MITTS of a given change in most of the
factors listed above will be less if it occurs later in the term of the MITTS
than if it occurs earlier in the term of the MITTS except that we expect that
the effect on the trading value of the MITTS of a given increase in the value of
the Index will be greater if it occurs later in the term of the MITTS than if it
occurs earlier in the term of the MITTS.
5
<PAGE>
STATE LAW LIMITS ON INTEREST PAID.
New York State laws govern the Senior Indenture, as defined below. New York
has certain usury laws that limit the amount of interest that can be charged and
paid on loans, which includes debt securities like the MITTS. Under present New
York law, the maximum rate of interest is 25% per annum on a simple interest
basis. This limit may not apply to debt securities in which $2,500,000 or more
has been invested.
While we believe that New York law would be given effect by a state or Federal
court sitting outside of New York, many other states also have laws that
regulate the amount of interest that may be charged to and paid by a borrower.
We will promise, for the benefit of the MITTS holders, to the extent permitted
by law, not to voluntarily claim the benefits of any laws concerning usurious
rates of interest.
THE EUROPEAN SECURITIES MARKETS.
The underlying stocks that constitute the Sub-Indices have been issued by
companies listed on European exchanges. You should be aware that investments in
securities indexed to the value of the European equity securities involve
certain risks. The European securities markets may be more volatile than U.S. or
other securities markets and may be affected by market developments in different
ways than U.S. or other securities markets. Direct or indirect government
intervention to stabilize a particular European securities market and cross-
shareholdings in European companies on such markets may affect prices and volume
of trading on those markets. Also, there is generally less publicly available
information about European companies than about those U.S. companies that are
subject to the reporting requirements of the SEC and European companies are
subject to accounting, auditing and financial reporting standards and
requirements that differ from those applicable to U.S. reporting companies.
Securities prices in Europe may be affected by political, economic, financial
and social factors in Europe. These factors (including the possibility that
recent or future changes in a European country's government, economic and fiscal
policies, the possible imposition of, or changes in, currency exchange laws or
other laws or restrictions applicable to such European companies or investments
in European equity securities and the possibility of fluctuations in the rate of
exchange between currencies) could negatively affect the European securities
markets. Moreover, the relevant European economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resources and self-
sufficiency.
PURCHASES AND SALES BY MERRILL LYNCH.
The Company, MLPF&S and other affiliates of the Company may from time to time
buy or sell the stocks underlying the Index for their own accounts for business
reasons or in connection with hedging the Company's obligations under the MITTS.
These transactions could affect the price of such stocks and the value of the
Index.
POTENTIAL CONFLICTS.
The Calculation Agent is a subsidiary of the Company, the issuer of the MITTS.
Under certain circumstances, MLPF&S's roles as a subsidiary of the Company and
its responsibilities as Calculation Agent for the MITTS could give rise to
conflicts of interests. You should be aware that because the Calculation Agent
is controlled by the Company, potential conflicts of interest could arise.
OTHER CONSIDERATIONS.
Investors should also consider the tax consequences of investing in the
Securities and should consult their tax advisors.
6
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Senior Indenture, referred to as the "Senior Indenture", which is more fully
described below. The Securities will mature on August 30, 2002.
While at maturity a beneficial owner of a Security will receive the principal
amount of such Security plus the Supplemental Redemption Amount, if any, there
will be no other payment of interest, periodic or otherwise. See "Payment at
Maturity" below.
The Securities are not subject to redemption by the Company or at the option
of any beneficial owner prior to maturity. Upon the occurrence of an Event of
Default with respect to the Securities, beneficial owners of the Securities may
accelerate the maturity of the Securities, as described under "Description of
Securities--Events of Default and Acceleration" and "Other Terms--Events of
Default" in this Prospectus.
The Securities were issued in denominations of whole Units.
PAYMENT AT MATURITY
General
At maturity, a beneficial owner of a Security will be entitled to receive the
principal amount thereof plus a Supplemental Redemption Amount, if any, all as
provided below. If the Ending Index Value does not exceed the Starting Index
Value, a beneficial owner of a Security will be entitled to receive only the
principal amount thereof.
Determination of the Supplemental Redemption Amount
The Supplemental Redemption Amount for a Security will be determined by the
Calculation Agent and will equal:
<TABLE>
<S> <C> <C>
Ending Index Value - Starting Index Value
Principal Amount of such Security ($10 per Unit) x ----------------------------------------- x Participation Rate
Starting Index Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The Participation Rate equals 110%. The Starting Index Value equals 100. The
Ending Index Value will be determined by the Calculation Agent and will equal
the average (arithmetic mean) of the closing values of the Index determined on
each of the first five Calculation Days during the Calculation Period. If there
are fewer than five Calculation Days, then the Ending Index Value will equal the
average (arithmetic mean) of the closing values of the Index on such Calculation
Days, and if there is only one Calculation Day, then the Ending Index Value will
equal the closing value of the Index on such Calculation Day. If no Calculation
Days occur during the Calculation Period because of Market Disruption Events,
then the Ending Index Value will equal the closing value of the Index determined
on the last scheduled Index Business Day in the Calculation Period, regardless
of the occurrences of a Market Disruption Event on such day. The "Calculation
Period" means the period from and including the seventh scheduled Index Business
Day prior to the maturity date to and including the second scheduled Index
Business Day prior to the maturity date. "Calculation Day" means any Index
Business Day during the Calculation Period on which a Market Disruption Event
has not occurred. For purposes of determining the Ending Index Value, an "Index
Business Day" is a day on which The New York Stock Exchange and the AMEX are
open for trading and the Index or any Successor Index, as defined below, is
calculated and published. All determinations made by the Calculation Agent shall
be at the sole discretion of the Calculation Agent and, absent a determination
by the Calculation Agent of a manifest error, shall be conclusive for all
purposes and binding on the Company and beneficial owners of the Securities.
7
<PAGE>
HYPOTHETICAL RETURNS
The following table illustrates, for a range of hypothetical Ending Index
Values, (i) the total amount payable at maturity for each $10 principal amount
of Securities, (ii) the total rate of return to beneficial owners of the
Securities, (iii) the pretax annualized rate of return to beneficial owners of
Securities, and (iv) the pretax annualized rate of return of an investment in
the stocks underlying the Index (which includes an assumed aggregate dividend
yield of 2.33% per annum, as more fully described below).
<TABLE>
<CAPTION>
TOTAL AMOUNT PRETAX
PAYABLE AT MATURITY ANNUALIZED PRETAX ANNUALIZED
PERCENTAGE CHANGE PER $10 PRINCIPAL TOTAL RATE OF RATE RATE OF RETURN OF
HYPOTHETICAL ENDING OVER THE STARTING AMOUNT OF RETURN ON OF RETURN ON STOCKS UNDERLYING THE
INDEX VALUE INDEX VALUE SECURITIES THE SECURITIES THE SECURITIES(1) INDEX(1)(2)
----------- ----------- ---------- -------------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
40 -60% $10.00 0.00% 0.00% -15.28%
50 -50% $10.00 0.00% 0.00% -11.10%
60 -40% $10.00 0.00% 0.00% -7.64%
70 -30% $10.00 0.00% 0.00% -4.68%
80 -20% $10.00 0.00% 0.00% -2.09%
90 -10% $10.00 0.00% 0.00% 0.21%
100(3) 0% $10.00 0.00% 0.00% 2.29%
110 10% $11.10 11.00% 2.06% 4.18%
120 20% $12.20 22.00% 3.95% 5.92%
130 30% $13.30 33.00% 5.69% 7.53%
140 40% $14.40 44.00% 7.31% 9.03%
150 50% $15.50 55.00% 8.81% 10.43%
160 60% $16.60 66.00% 10.23% 11.75%
170 70% $17.70 77.00% 11.56% 12.99%
180 80% $18.80 88.00% 12.82% 14.17%
190 90% $19.90 99.00% 14.01% 15.28%
200 100% $21.00 110.00% 15.14% 16.35%
210 110% $22.10 121.00% 16.23% 17.36%
220 120% $23.20 132.00% 17.26% 18.34%
230 130% $24.30 143.00% 18.26% 19.27%
</TABLE>
- --------------
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes (i) an investment of a fixed amount in the
stocks underlying the Sub-Indices with the allocation of such amount
reflecting the current relative weights of such stocks in the Sub-Indices;
(ii) a percentage change in the aggregate price of such stocks that equals
the percentage change in the Index from the Starting Index Value to the
relevant hypothetical Ending Index Value; (iii) a constant dividend yield of
2.33% per annum, paid quarterly from the date of initial delivery of
Securities, applied to the value of the Index at the end of each such
quarter assuming such value increases or decreases linearly from the
Starting Index Value to the applicable hypothetical Ending Index Value; (iv)
no transaction fees or expenses; (v) a term for the Securities from August
1, 1997 to August 30, 2002; and (vi) a final Index value equal to the Ending
Index Value. The aggregate dividend yield of the stocks underlying the Sub-
Indices as of July 28, 1997 was approximately 2.33%.
(3) The Starting Index Value equals 100.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the total and pretax
annualized rate of return resulting therefrom will depend entirely on the actual
Ending Index Value determined by the Calculation Agent as provided herein.
ADJUSTMENTS TO THE INDEX; MARKET DISRUPTION EVENTS
If at any time the method of calculating the Index, or the value thereof, is
changed in any material respect, or if the Index is in any other way modified so
that such Index does not, in the opinion of the Calculation Agent, fairly
represent the value of the Index had such changes or modifications not been
made, then, from and after such time, the Calculation Agent shall, at the close
of business in New York, New York, on each date that the closing value with
respect to the Ending Index Value is to be calculated, make such adjustments as,
in the good faith judgment of the Calculation Agent, may be necessary in order
8
<PAGE>
to arrive at a calculation of a value of a stock index comparable to the Index
as if such changes or modifications had not been made, and calculate such
closing value with reference to the Index, as adjusted. Accordingly, if the
method of calculating the Index is modified so that the value of such Index is a
fraction or a multiple of what it would have been if it had not been modified
(e.g., due to a split in the Index), then the Calculation Agent shall adjust
such Index in order to arrive at a value of the Index as if it had not been
modified (e.g., as if such split had not occurred).
"Market Disruption Event" means the occurrence or existence on any Overseas
Index Business Day with respect to a Sub-Index during the one-half hour period
that ends at the regular official weekday time at which trading on the Index
Exchange related to such Sub-Index occurs of any suspension of, or limitation
imposed on, trading (by reason of movements in price exceeding limits permitted
by the relevant exchange or otherwise) on (i) the Index Exchange in securities
that comprise 20% or more of the value of such Sub-Index or (ii) any exchanges
on which futures or options on such Sub-Index are traded in such option or
futures if, in the determination of the Calculation Agent, such suspension or
limitation is material. For the purpose of the foregoing definition, (i) a
limitation on the hours and number of days of trading will not constitute a
Market Disruption Event if it results from an announced change in the regular
hours of the relevant exchange and (ii) a limitation on trading imposed during
the course of a day by reason of movements in price otherwise exceeding levels
permitted by the relevant exchange will constitute a Market Disruption Event.
"Overseas Index Business Day" means, with respect to any Sub-Index, any day
that is (or, but for the occurrence of a Market Disruption Event, would have
been) a trading day on the relevant Index Exchange or on any exchanges on which
futures or options on such Sub-Index are traded, other than a day on which
trading on any such exchange is scheduled to close prior to its regular weekday
closing time.
"Index Exchange" means, with respect to any Sub-Index, the principal exchange
on which the shares comprising such Sub-Index are traded.
DISCONTINUANCE OF THE INDEX
If the AMEX discontinues publication of the Index and the AMEX or another
entity publishes a successor or substitute index that the Calculation Agent
determines, in its sole discretion, to be comparable to such Index (any such
index being referred to hereinafter as a "Successor Index"), then, upon the
Calculation Agent's notification of such determination to the Trustee and the
Company, the Calculation Agent will substitute the Successor Index as calculated
by the AMEX or such other entity for the Index and calculate the Ending Index
Value as described above under "Payment at Maturity". Upon any selection by the
Calculation Agent of a Successor Index, the Company shall cause notice thereof
to be given to Holders of the Securities.
If the AMEX discontinues publication of the Index and a Successor Index is not
selected by the Calculation Agent or is no longer published on any of the
Calculation Days, the value to be substituted for the Index for any such
Calculation Day used to calculate the Supplemental Redemption Amount at maturity
will be a value computed by the Calculation Agent for each Calculation Day in
accordance with the procedures last used to calculate the Index prior to any
such discontinuance. If a Successor Index is selected or the Calculation Agent
calculates a value as a substitute for the Index as described below, such
Successor Index or value shall be substituted for the Index for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
If the AMEX discontinues publication of the Index prior to the period during
which the Supplemental Redemption Amount is to be determined and the Calculation
Agent determines that no Successor Index is available at such time, then on each
Business Day until the earlier to occur of (a) the determination of the Ending
Index Value and (b) a determination by the Calculation Agent that a Successor
Index is available, the Calculation Agent shall determine the value that would
be used in computing the Supplemental Redemption Amount as described in the
preceding paragraph as if such day were a Calculation Day. The Calculation Agent
will cause notice of each such value to be published not less often than once
each month in The Wall Street Journal (or another newspaper of general
circulation), and arrange for information with respect to such values to be made
available by telephone. Notwithstanding these alternative arrangements,
discontinuance of the publication of the Index may adversely affect trading in
the Securities.
9
<PAGE>
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Securities shall have occurred
and be continuing, the amount payable to a beneficial owner of a Security upon
any acceleration permitted by the Securities, with respect to each $10 principal
amount thereof, will be equal to the Principal Amount and the Supplemental
Redemption Amount, if any, calculated as though the date of early repayment were
the stated maturity date of the Securities. See "Description of Securities--
Payment at Maturity" in this Prospectus. If a bankruptcy proceeding is commenced
in respect of the Company, the claim of the beneficial owner of a Security may
be limited, under Section 502(b)(2) of Title 11 of the United States Code, to
the principal amount of the Security plus an additional amount of contingent
interest calculated as though the date of the commencement of the proceeding
were the maturity date of the Securities.
In case of default in payment at the maturity date of the Securities (whether
at their stated maturity or upon acceleration), from and after the maturity date
the Securities shall bear interest, payable upon demand of the beneficial owners
thereof, at the rate of 6.32% per annum (to the extent that payment of such
interest shall be legally enforceable) on the unpaid amount due and payable on
such date in accordance with the terms of the Securities to the date payment of
such amount has been made or duly provided for.
DEPOSITORY
Upon issuance, all Securities will be represented by one or more fully
registered global securities (the "Global Securities"). Each such Global
Security will be deposited with, or on behalf of, The Depository Trust Company
("DTC"), as Depository, registered in the name of DTC or a nominee thereof.
Unless and until it is exchanged in whole or in part for Securities in
definitive form, no Global Security may be transferred except as a whole by the
Depository to a nominee of such Depository or by a nominee of such Depository to
such Depository or another nominee of such Depository or by such Depository or
any such nominee to a successor of such Depository or a nominee of such
successor.
DTC has advised the Company as follows: DTC 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. DTC 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. DTC's Participants include securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations.
DTC 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 DTC 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 Securities must be made by or through Participants, which will
receive a credit on the records of DTC. The ownership interest of each actual
purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the
Participants' or Indirect Participants' records. Beneficial Owners will not
receive written confirmation from DTC of their purchase, but Beneficial Owners
are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the
Participant or Indirect Participant through which the Beneficial Owner entered
into the transaction. Ownership of beneficial interests in such Global Security
will be shown on, and the transfer of such ownership interests will be effected
only through, records maintained by DTC (with respect to interests of
Participants) and on the records of Participants (with respect to interests of
persons held through Participants). The laws of some states may require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to own,
transfer or pledge beneficial interests in Global Securities.
So long as DTC, or its nominee, is the registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole owner or
Holder of the Securities represented by such Global Security for all purposes
under the Senior Indenture. Except as provided below, Beneficial Owners in a
Global Security will not be entitled to have the Securities represented by such
Global Securities registered in their names, will not receive or be entitled to
receive physical delivery of the Securities in definitive form and will not be
considered the owners or Holders thereof under the Senior Indenture,
10
<PAGE>
including for purposes of receiving any reports delivered by the Company or the
Trustee pursuant to the Senior Indenture. Accordingly, each Person owning a
beneficial interest in a Global Security must rely on the procedures of DTC and,
if such Person is not a Participant, on the procedures of the Participant
through which such Person owns its interest, to exercise any rights of a Holder
under the Senior Indenture. The Company understands that under existing industry
practices, in the event that the Company requests any action of Holders or that
an owner of a beneficial interest in such a Global Security desires to give or
take any action which a Holder is entitled to give or take under the Senior
Indenture, DTC 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 DTC to Participants, by Participants to
Indirect Participants, and by Participants and Indirect Participants to
Beneficial Owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of the Principal Amount and any Supplemental Redemption Amount with
respect to the Securities registered in the name of DTC or its nominee will be
made to DTC or its nominee, as the case may be, as the Holder of the Global
Securities representing such Securities. 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 DTC, upon receipt of any payment of principal or any Supplemental
Redemption Amount in respect of a Global Security, will credit the accounts of
the Participants with payment in amounts proportionate to their respective
holdings in principal amount of beneficial interest in such Global Security as
shown on the records of DTC. 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) any Depository is at any time unwilling or unable to continue as
Depository and a successor depository is not appointed by the Company within 60
days, (y) the Company executes and delivers to the Trustee a Company Order to
the effect that the Global Securities shall be exchangeable or (z) an Event of
Default has occurred and is continuing with respect to the Securities, the
Global Securities will be exchangeable for Securities in definitive form of like
tenor and of an equal aggregate principal amount, in denominations of $10 and
integral multiples thereof. Such definitive Securities shall be registered in
such name or names as the Depository shall instruct the Trustee. It is expected
that such instructions may be based upon directions received by the Depository
from Participants with respect to ownership of beneficial interests in such
Global Securities.
SAME-DAY SETTLEMENT AND PAYMENT
All payments of principal and the Supplemental Redemption Amount, if any, will
be made by the Company in immediately available funds so long as the Securities
are maintained in book-entry form.
THE INDEX
The value of the Index on any Index Business Day is calculated and
disseminated by the AMEX. The AMEX generally calculates and disseminates the
value of the Index based on the most recently reported values of the Sub-
Indices, at approximately 15-second intervals during the AMEX's business hours
and the end of each Index Business Day via the Consolidated Tape Association's
Network B.
Determination of Index Multiplier for each Sub-Index
The weighting of each Sub-Index was determined at the close of business on the
date the Securities were priced for initial sale to the public (the "Pricing
Date") based on its relative market capitalization. The market capitalization of
a stock equals the product of the total number of shares of such stock
outstanding and the price of a share of such stock. The total market
capitalization of the stocks comprising each Sub-Index was determined using the
most recently available information concerning the number of shares outstanding
for each stock contained in a Sub-Index and the most recently available price
for each such share. Current exchange rates were used to translate such market
capitalization information into U.S. dollars.
11
<PAGE>
The market capitalizations expressed in U.S. dollars of each Sub-Index were
totaled (the "Total Market Capitalization"). The weighting of each Sub-Index was
then determined and equals the percentage of the market capitalization for such
Sub-Index relative to the Total Market Capitalization. The Index Multiplier for
each Sub-Index was then calculated and equals (i) the weighting for such Sub-
Index multiplied by 100, divided by (ii) the most recently available value of
such Sub-Index. The Index Multipliers were calculated in this way so that the
Index would equal 100.00 on the Pricing Date.
The Index Multiplier for each Sub-Index will remain fixed, except that the
AMEX may adjust such Index Multiplier in the event of a significant change in
how a Sub-Index is calculated. There will be no periodic rebalancing of the
Index to reflect changes in the relative market capitalizations of the Sub-
Indices.
Computation of the Index
The Index is calculated by totaling the products of the most recently
available value of each Sub-Index and the Index Multiplier applicable to such
Sub-Index. Since the Sub-Indices are based on stocks traded on stock exchanges
in Europe, once such stock exchanges close and the values of the Sub-Indices
become fixed until such stock exchanges reopen, the value of the Index will be
fixed.
Sub-Indices
The following table sets forth the name of each Sub-Index, the number of
stocks underlying each Sub-Index, the market capitalization in U.S. dollars of
each Sub-Index, the weighting of each Sub-Index as of the Pricing Date and the
Index Multiplier:
<TABLE>
<CAPTION>
NUMBER MARKET CURRENT INDEX
SUB-INDEX OF STOCKS CAPITALIZATION(1) WEIGHTING(1) MULTIPLIER
------------------------------------------- --------- ----------------- ------------ ----------
(IN BILLIONS)
<S> <C> <C> <C> <C>
Financial Times SE 100 Index............... 102 U.S.$1,391.3 36.96% 0.0076009
Deutscher Aktienindex...................... 30 599.1 15.91% 0.0036398
Compagnie des Agents de Change 40 Index.... 40 398.2 10.58% 0.0035008
Swiss Market Index......................... 23 399.2 10.60% 0.0018003
Amsterdam European Options Exchange Index.. 25 398.0 10.57% 0.0106457
Milano Italia Borsa 30 Index............... 30 224.8 5.97% 0.0002623
Stockholm Options Market Index............. 30 185.1 4.92% 0.0018909
IBEX 35.................................... 35 169.2 4.49% 0.0006586
--- ------------ ------
Total.................................... 315 U.S.$3,764.9 100.00%
</TABLE>
--------------
(1) As of July 28, 1997.
The following is list of the Sub-Indices and certain information concerning
each such Sub-Index. All disclosure contained in this Prospectus regarding the
Sub-Indices is derived from publicly available information.
FINANCIAL TIMES SE 100 INDEX--"FTSE 100"
Description of FTSE 100: The FTSE 100 is intended to provide an indication
of the pattern of common stock price movement of the 100 common stocks with
the largest market capitalization on the London Stock Exchange.
Publisher: The Financial Times and London Stock Exchange
Required Disclosure: The FTSE 100 is calculated by FTSE International Limited
in conjunction with the Institute of Actuaries and the Faculty of Actuaries.
Merrill Lynch & Co., Inc. has obtained full license from FTSE International
12
<PAGE>
Limited to use its trademark and copyright in the creation of this Security.
FTSE International Limited does not sponsor, endorse or promote this Security.
DEUTSCHER AKTIENINDEX--"DAX(R)"
Description of DAX: The DAX is total rate of return index measuring the
performance of 30 common stocks on the Frankfurt Stock Exchange selected based
on their market capitalization and trading volume. A total rate of return
index reflects both the price performance of the relevant common stocks as
well as the dividends paid on such common stocks.
Publisher: Deutsche Borse AG
--------------
"DAX" is a registered trademark of Deutsche Borse AG.
COMPAGNIE DES AGENTS DE CHANGE 40 INDEX--"CAC 40"
Description of CAC 40: The CAC 40 is intended to provide an indication of the
pattern of common stock price movement of the 40 common stocks with the
largest market capitalization on the Paris Bourse.
Publisher: SBF--Paris Bourse
Required Disclosure: "CAC-40" is a registered trademark of the Societe des
Bourses Francaises-Paris Bourse, which designates the index that the SBF-Paris
Bourse calculates and publishes. Authorization to use the index and the "CAC-
40" trademark in connection with the Securities has been granted by license.
The SBF-Paris Bourse, owner of the trademark and of the CAC-40, does not
sponsor, endorse or participate in the marketing of the Securities. The SBF-
Paris Bourse makes no warranty or representation to any person, express or
implied, as to the figure at which the CAC-40 stands at any particular time,
nor as to the results or performance of the Securities. Neither shall the SBF-
Paris Bourse be under any obligation to advise any person of any error in the
published level of the CAC-40.
SWISS MARKET INDEX--"SMI(R)"
Description of SMI: The SMI is intended to provide an indication of the
pattern of common stock price movement of common stocks with the largest
market capitalization and greatest liquidity on the Geneva, Zurich and Basle
Stock Exchanges.
Publisher: Swiss Exchange
Required Disclosure: The Securities are not in any way sponsored, endorsed,
sold or promoted by the Swiss Exchange and the Swiss Exchange makes no
warranty or representation whatsoever, express or implied, either as to the
results to be obtained from the use of the SMI index and/or the figure at
which the SMI index stands at any particular time on any particular day or
otherwise. The SMI index is compiled and calculated solely by the Swiss
Exchange. However, the Swiss Exchange shall not be liable (whether in
negligence or otherwise) to any person for any error in the SMI index and the
Swiss Exchange shall not be under any obligation to advise any person of any
error therein.
--------------
"SMI" is a registered trademark of the Swiss Exchange.
13
<PAGE>
AMSTERDAM EUROPEAN OPTIONS EXCHANGE INDEX--"AEX"
Description of AEX: The AEX is intended to provide an indication of the
pattern of common stock price movement of the 25 common stocks with the
largest market capitalization on the Amsterdam Stock Exchange.
Publisher: AEX--Optiebeurs nv
Required Disclosure: The AEX-Optiebeurs nv has all proprietary rights with
relation to the AEX index. The AEX-Optiebeurs nv in no way sponsors, endorses
or is otherwise involved in the issue and offering of the Securities. The AEX-
Optiebeurs nv disclaims any liability to any party for any inaccuracy in the
data on which the AEX Index is based, for any mistakes, errors, or omissions
in the calculation or dissemination of the AEX Index or for the manner in
which the AEX Index is used in connection with the issue and offering of the
Securities.
MILANO ITALIA BORSA 30 INDEX--"MIB 30"
Description of MIB 30: The MIB 30 is intended to provide an indication of the
pattern of common stock price movement of common stocks with the largest
market capitalization and greatest liquidity on the Italian Stock Exchange.
Publisher: Consiglio di Borsa
STOCKHOLM OPTIONS MARKET INDEX--"OMX INDEX"
Description of OMX index: The OMX index is intended to provide an indication
of the pattern of common stock price movement of the 30 common stocks with the
largest volume of trading on the Stockholm Stock Exchange.
Publisher: OM Gruppen AB
Required Disclosure: The Securities are not in any way sponsored, endorsed,
sold or promoted by OM Gruppen AB ("OM") and OM makes no warranty or
representation whatsoever, express or implied, either as to the results to be
obtained from the use of the OMX index and/or the figure at which the said OMX
index stands at any particular time on any particular day or otherwise. The
OMX index is compiled and calculated solely by an indexer on behalf of OM.
However, OM shall not be liable (whether in negligence or otherwise) to any
person for any error in the OMX index and OM shall not be under any obligation
to advise any person of any error therein.
All rights to the trademark OMX, OMX INDEX are vested in OM Gruppen AB ("OM")
and are used under a license agreement with OM.
IBEX 35 INDEX
Description of IBEX 35: The IBEX 35 is intended to provide an indication of
the pattern of common stock price movement of the 35 common stocks with the
greatest liquidity continuously traded and quoted on the Joint Stock Exchange
System made up of the Barcelona, Bilbao, Madrid and Valencia stock exchanges.
Publisher: Sociedad de Bolsas, S.A.
Required Disclosure: Sociedad de Bolsas, S.A. does not warrant in any case
nor for any reason whatsoever: (a) The continuity of the composition of the
IBEX 35 Index exactly as it is today; (b) the continuity of the method for
calculating the IBEX 35 Index exactly as it is calculated today; (c) the
continuity of the calculation, formula and publication of the IBEX 35 Index;
(d) the precision, integrity or freedom from errors or mistakes in the
composition and calculation of the IBEX 35 Index; (e) the adequacy of the IBEX
35 Index for the purposes expected in the issue of the Securities nor for
dealing in the same.
14
<PAGE>
The publisher of each Sub-Index will add or delete stocks due to events such
as the bankruptcy or merger of the issuer of a stock. The publisher of a Sub-
Index may reevaluate the composition of the stocks underlying the Sub-Index at
specified intervals to assure that they still meet the selection criteria or any
ongoing eligibility criteria.
The publisher of a Sub-Index is under no obligation to continue the
calculation and dissemination of such Sub-Index and such publisher may change
the method by which such Sub-Index is calculated. The publishers of the Sub-
Indices are under no obligation to take the needs of the Company or the holders
of the MITTS into consideration in determining, composing or calculating the
Sub-Indices.
OTHER TERMS
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Indenture (the "Senior Indenture"), dated as of April 1, 1983, as amended and
restated, 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"). A copy of the Senior Indenture is filed as an exhibit
to the registration statements relating to the Securities. The following
summaries of certain provisions of the Senior Indenture do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the Senior Indenture, including the definition therein of
certain terms.
The Senior Indenture provides that series of Senior Debt Securities may from
time to time be issued thereunder, without limitation as to aggregate principal
amount, in one or more series and upon such terms as the Company may establish
pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the Securities are
governed by and construed in accordance with the laws of the State of New York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen" a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and other regulatory bodies.
LIMITATIONS UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of the incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
LIMITATION ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Indenture provides that the Company may not sell, transfer or otherwise
dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell or
otherwise dispose of any of its Voting Stock, unless, after giving effect to any
such transaction, MLPF&S remains a Controlled Subsidiary (defined in the Senior
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the Company may not permit MLPF&S to (i) merge or consolidate, unless
the surviving company is a Controlled
15
<PAGE>
Subsidiary or (ii) convey or transfer its properties and assets substantially as
an entirety, except to one or more Controlled Subsidiaries.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or into
any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior 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 Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company and
the Trustee with the consent of the Holders of 66 2/3% in principal amount of
the Outstanding Senior Debt Securities of each series issued pursuant to such
indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding Senior Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts payable on, any Senior Debt
Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any Senior Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Debt Security; (e) reduce the percentage in principal
amount of the Outstanding Senior Debt Securities of any series, the consent of
whose Holders is required to modify or amend the Indenture; or (f) modify the
foregoing requirements or reduce the percentage of Outstanding Senior Debt
Securities necessary to waive any past default to less than a majority. No
modification or amendment of the Subordinated Indenture or any Subsequent
Indenture for Subordinated Debt Securities may adversely affect the rights of
any holder of Senior Indebtedness without the consent of such Holder. Except
with respect to certain fundamental provisions, the Holders of at least a
majority in principal amount of Outstanding Senior Debt Securities of any series
may, with respect to such series, waive past defaults under the Indenture and
waive compliance by the Company with certain provisions thereof.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the Indenture for
the benefit of such series or in the Senior Debt Securities of such series,
continued for 60 days after written notice as provided in the Senior Indenture;
(e) certain events in bankruptcy, insolvency or reorganization; and (f) any
other Event of Default provided with respect to Senior Debt Securities of that
series. The Trustee or the Holders of 25% in principal amount of the Outstanding
Senior Debt Securities of that series may declare the principal amount (or such
lesser amount as may be provided for in the Senior Debt Securities of that
series) of all Outstanding Senior Debt Securities of that series and the
interest due thereon and Additional Amounts payable in respect thereof, if any
to be due and payable immediately if an Event of Default with respect to Senior
Debt Securities of such series shall occur and be continuing at the time of such
declaration. At any time after a declaration of acceleration has been made with
respect to Senior Debt Securities of any series but before a judgment or decree
for payment of money due has been obtained by the Trustee, the Holders of a
majority in principal amount of the Outstanding Senior Debt Securities of that
series may rescind any declaration of acceleration and its consequences, if all
payments due (other than those due as a result of acceleration) have been made
and all Events of Default have been remedied or waived. Any Event of Default
with respect to Senior Debt Securities of any series may be waived by the
Holders of a majority in principal amount of all Outstanding Senior Debt
Securities of that series, except in a case of failure to pay principal or
premium, if any, or interest or Additional Amounts payable on any Senior Debt
Security of that series for which payment had not been subsequently made or in
respect of
16
<PAGE>
a covenant or provision which cannot be modified or amended without the consent
of the Holder of each Outstanding Senior Debt Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior Debt
Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any right or power
under the Senior Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company is required to furnish to the Trustee annually a statement as to
the fulfillment by the Company of all of its obligations under the Senior
Indenture.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Solely for purposes of applying the final Treasury Department Regulations (the
"Final Regulations") concerning the United States Federal income tax treatment
of contingent payment debt instruments to the Securities, the Company has
determined that the projected payment schedule for the Securities will consist
of payment on the maturity date of the principal amount thereof and a projected
Supplemental Redemption Amount equal to $3.7137 per Unit. This represents an
estimated yield on the Securities equal to 6.32% per annum (compounded
semiannually).
The projected payment schedule (including both the projected Supplemental
Redemption Amount and the estimated yield on the Securities) has been determined
solely for United States Federal income tax purposes (i.e., for purposes of
applying the Final Regulations to the Securities), and is neither a prediction
nor a guarantee of what the actual Supplemental Redemption Amount will be, or
that the actual Supplemental Redemption Amount will even exceed zero.
The following table sets forth the amount of interest that will be deemed to
have accrued with respect to each Unit of the Securities during each accrual
period over an assumed term of five years and one month for the Securities based
upon the projected payment schedule for the Securities (including both the
projected Supplemental Redemption Amount and the estimated yield equal to 6.32%
per annum (compounded semiannually)) as determined by the Company for purposes
of application of the Final Regulations to the Securities:
17
<PAGE>
<TABLE>
<CAPTION>
TOTAL INTEREST
DEEMED TO HAVE
INTEREST DEEMED TO ACCRUED ON
ACCRUE DURING SECURITIES AS OF END
ACCRUAL PERIOD OF ACCRUAL PERIOD
ACCRUAL PERIOD (PER UNIT) (PER UNIT)
---------------------------------- ---------- ----------
<S> <C> <C>
August 1, 1997 through August 30, 1997..... $0.0495 $0.0495
August 31, 1997 through February 28, 1998.. $0.3173 $0.3668
March 1, 1998 through August 30, 1998...... $0.3274 $0.6942
August 31, 1998 through February 28, 1999.. $0.3376 $1.0318
March 1, 1999 through August 30, 1999...... $0.3484 $1.3802
August 31, 1999 through February 29, 2000.. $0.3593 $1.7395
March 1, 2000 through August 30, 2000...... $0.3707 $2.1102
August 31, 2000 through February 28, 2001.. $0.3823 $2.4925
March 1, 2001 through August 30, 2001...... $0.3945 $2.8870
August 31, 2001 through February 28, 2002.. $0.4069 $3.2939
March 1, 2002 through August 30, 2002...... $0.4198 $3.7137
</TABLE>
- -------------------------
Projected Supplemental Redemption Amount = $3.7137 per Unit.
All prospective investors in the Securities should consult their own tax
advisors concerning the application of the Final Regulations to their investment
in the Securities. Investors in the Securities may also obtain the projected
payment schedule, as determined by the Company for purposes of the application
of the Final Regulations to the Securities, by submitting a written request for
such information to Merrill Lynch & Co., Inc., Attn: Darryl W. Colletti,
Corporate Secretary's Office, 100 Church Street, 12th Floor, New York, New York
10080-6512.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997 included
in the 1997 Annual Report on Form 10-K, and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP, as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such 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 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 such Quarterly Reports 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.
18
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
S&P 500 MARKET INDEX TARGET-TERM SECURITIES/SM/ DUE SEPTEMBER 16, 2002
("MITTS(R)")
On March 14, 1997, Merrill Lynch & Co., Inc. (the "Company") issued an
aggregate principal amount of $175,000,000 (17,500,000 Units) of S&P 500 Market
Index Target-Term Securities due September 16, 2002 (the "Securities" or
"MITTS"). Each $10 principal amount of Securities will be deemed a "Unit" for
purposes of trading and transfer at the Securities Depository described below.
Units will be transferable by the Securities Depository, as more fully described
below, in denominations of whole Units.
The Securities are debt securities of the Company, which were being issued in
denominations of $10 and integral multiples thereof, will bear no periodic
payments of interest and will mature on September 16, 2002. At maturity, a
beneficial owner of a Security will be entitled to receive, with respect to each
Security, the principal amount thereof plus an interest payment, if any (the
"Supplemental Redemption Amount"), based on the percentage increase, if any, in
the S&P 500 Composite Stock Price Index (the "Index") over the Starting Index
Value. The Supplemental Redemption Amount will in no event be less than zero.
The Securities are not redeemable or callable by the Company prior to maturity.
At maturity, a beneficial owner of a Security will receive the principal amount
of such Security plus the Supplemental Redemption Amount, if any, however, there
will be no other payment of interest, periodic or otherwise.
The Supplemental Redemption Amount payable with respect to a Security at
maturity will equal the product of (A) the principal amount of the applicable
Security, (B) the percentage increase from the Starting Index Value to the
Ending Index Value, and (C) the Participation Rate. The Starting Index Value
equals 813.65 which was the closing value of the Index on the date the
Securities were priced by the Company for initial sale to the public (the
"Pricing Date"). The Ending Index Value, as more particularly described herein,
will be the average (arithmetic mean) of the closing values of the Index on
certain days, or, if certain events occur, the closing value of the Index on a
single day prior to the maturity of the Securities. The Participation Rate
equals 101%.
FOR INFORMATION AS TO THE CALCULATION OF THE SUPPLEMENTAL REDEMPTION AMOUNT
WHICH WILL BE PAID AT MATURITY, THE CALCULATION AND THE COMPOSITION OF THE
INDEX, AND CERTAIN TAX CONSEQUENCES TO BENEFICIAL OWNERS OF THE SECURITIES, SEE
"DESCRIPTION OF SECURITIES" AND "THE INDEX", RESPECTIVELY, IN THIS PROSPECTUS.
FOR OTHER INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE
"RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
Ownership of the Securities will be maintained in book-entry form by or
through the Depository. Beneficial owners of the Securities will not have the
right to receive physical certificates evidencing their ownership except under
the limited circumstances described herein.
The Securities have been listed on the New York Stock Exchange under the
symbol "MIM".
_____________________
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 Securities 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 Securities.
MLPF&S may act as principal or agent in such transactions. The Securities may
be offered on the New York Stock Exchange, 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 Securities 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.
__________
MERRILL LYNCH & CO.
__________
THE DATE OF THIS PROSPECTUS IS JULY ___, 1998.
(R)"MITTS" is a registered service mark and /SM/"Market Index Target-Term
Securities" is a service mark of Merrill Lynch & Co., Inc.
<PAGE>
STANDARD & POOR'S CORPORATION ("S&P") DOES NOT GUARANTEE THE ACCURACY AND/OR
THE COMPLETENESS OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES
NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE COMPANY,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, HOLDERS OF THE SECURITIES,
OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA
INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED UNDER THE LICENSE
AGREEMENT DESCRIBED HEREIN OR FOR ANY OTHER USE. S&P MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN
NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
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 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 26, 1997,
Quarterly Report on Form 10-Q for the period ended March 27, 1998, and Current
Reports on Form 8-K dated January 20, 1998, January 30, 1998, February 4, 1998,
February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998, April 29,
1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June 24, 1998,
June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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.
2
<PAGE>
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 LAWRENCE M. EGAN, JR., CORPORATE SECRETARY'S
OFFICE, 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 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.
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, advisory, insurance, and related
services on a global basis. Its principal subsidiary, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("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; an underwriter of selected insurance
products and a distributor of investment products of the Merrill Lynch Asset
Management group. 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. The Company's asset management and investment
management activities are conducted through the Merrill Lynch Asset Management
group and Merrill Lynch Mercury Asset Management, which together constitute one
of the largest asset management organizations in the world. Merrill Lynch
Government Securities Inc. is a primary dealer in obligations issued or
guaranteed by the U.S. Government and its agencies and its government-sponsored
entities. Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative
Products AG, and Merrill Lynch International are the Company's primary
derivative product dealers and enter into interest rate, currency, and other
over-the-counter derivative transactions as intermediaries and as principals.
The Company's operations in insurance services consist of the underwriting and
sale 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 and
purchasing secured loans, providing currency exchange facilities and other
related services, and furnishing trust, employee benefit, and custodial
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.
3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
Ratio of earnings
to fixed charges . . . . . . 1.4 1.2 1.2 1.2 1.2 1.2
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
RISK FACTORS
PAYMENT AT MATURITY
Supplemental Redemption Amount May be Zero. Investors should be aware that if
the Ending Index Value does not exceed the Starting Index Value, beneficial
owners of the Securities will receive only the principal amount thereof at
maturity, even if the value of the Index at some point between the issue date
and the maturity date of the Securities exceeded the Starting Index Value.
Yield may be Below Market Interest Rates on the Pricing Date. A beneficial
owner of the Securities may receive no Supplemental Redemption Amount at
maturity, or a Supplemental Redemption Amount that is below what the Company
would pay as interest as of the Pricing Date if the Company issued non-callable
senior debt securities with a similar maturity as that of the Securities. The
return of principal of the Securities at maturity and the payment of the
Supplemental Redemption Amount, if any, may not reflect the full opportunity
costs implied by inflation or other factors relating to the time value of money.
Yield on Securities will not Reflect Dividends. The Index does not reflect
the payment of dividends on the stocks underlying it and therefore the yield
based on the Index to the maturity of the Securities will not produce the same
yield as if such underlying stocks were purchased and held for a similar period.
State Law Limit on Interest Paid. Because the 1983 Indenture provides that
the Securities will be governed by and construed in accordance with the laws of
New York, certain usury laws of New York State may apply. Under present New York
law, the maximum rate of interest is 25% per annum on a simple interest basis.
This limit may not apply to Securities in which $2,500,000 or more has been
invested. While the Company believes that New York law would be given effect by
a state or Federal court sitting outside of New York, state laws frequently
regulate the amount of interest that may be charged to and paid by a borrower
(including, in some cases, corporate borrowers). It is suggested that
prospective investors consult their personal advisors with respect to the
applicability of such laws. The Company will covenant for the benefit of the
Holders of the Securities, to the extent permitted by law, not to claim
voluntarily the benefits of any laws concerning usurious rates of interest
against a Holder of the Securities.
4
<PAGE>
TRADING
The Securities have been listed on the New York Stock Exchange under the
symbol "MIM". There is little precedent to indicate how the Securities will
trade in the secondary market or whether such market will be liquid.
It is expected that the trading value of the Securities in the secondary
market will be affected by the creditworthiness of the Company and by a number
of other factors. The trading value of the Securities is expected to depend
substantially on the extent of the appreciation, if any, of the Index over the
Starting Index Value. If, however, Securities are sold prior to the maturity
date at a time when the Index exceeds the Starting Index Value, the sale price
may be at a substantial discount from the amount expected to be payable to the
beneficial owner if such excess of the Index over the Starting Index Value were
to prevail until maturity of the Securities because of the possible fluctuation
of the Index between the time of such sale and the time that the Ending Index
Value is determined. Furthermore, the price at which a beneficial owner will be
able to sell Securities prior to maturity may be at a discount, which could be
substantial, from the principal amount thereof, if, at such time, the Index is
below, equal to, or not sufficiently above the Starting Index Value. A discount
could also result from rising interest rates.
In addition to the value of the Index, the trading value of the Securities may
be affected by a number of interrelated factors, including the creditworthiness
of the Company and those factors listed below. The relationship among these
factors is complex, including how these factors affect the relative value of the
principal amount of the Securities to be repaid at maturity and the value of the
Supplemental Redemption Amount, if any. Accordingly, investors should be aware
that factors other than the level of the Index are likely to affect the
Securities' trading value. The expected effect on the trading value of the
Securities of each of the factors listed below, assuming in each case that all
other factors are held constant, is as follows:
Interest Rates. Because the Securities repay at a minimum the principal
amount thereof at maturity, the trading value of the Securities will likely be
affected by changes in interest rates. In general, if U.S. interest rates
increase, the trading value of the Securities is expected to decrease. If U.S.
interest rates decrease, the trading value of the Securities is expected to
increase. Interest rates may also affect the U.S. economy, and, in turn, the
value of the Index. Rising interest rates may lower the value of the Index and,
thus, the Securities. Falling interest rates may increase the value of the Index
and, thus, may increase the value of the Securities.
Volatility of the Index. If the volatility of the Index increases, the
trading value of the Securities is expected to increase. If the volatility of
the Index decreases, the trading value of the Securities is expected to
decrease.
Time Remaining to Maturity. The Securities may trade at a value above that
which may be inferred from the level of interest rates and the Index. This
difference will reflect a "time premium" due to expectations concerning the
value of the Index during the period prior to maturity of the Securities. As the
time remaining to maturity of the Securities decreases, however, this time
premium is expected to decrease, thus decreasing the trading value of the
Securities. In addition, the price at which a beneficial owner may be able to
sell Securities prior to maturity may be at a discount, which may be
substantial, from the principal amount of the Securities if the value of the
Index is below, equal to, or not sufficiently above the Starting Index Value.
Dividend Rates in the United States. If dividend rates on the stocks
comprising the Index increase, the value of the Securities is expected to
decrease. Conversely, if dividend rates on the stocks comprising the Index
decrease, the value of the Securities is expected to increase. However, in
general, rising U.S. corporate dividend rates may increase the value of the
Index and, in turn, increase the value of the Securities. Conversely, falling
U.S. dividend rates may decrease the value of the Index and, in turn, decrease
the value of the Securities.
The impact of the factors specified above, excluding the value of the Index,
may offset, partially or in whole, any increase in the trading value of the
Securities that is attributable to an increase in the value of the Index. For
example, an increase in U.S. interest rates may cause the Securities to trade at
a discount from their initial offering
5
<PAGE>
price, even if the Index has appreciated significantly. In general, assuming all
relevant factors are held constant, the effect on the trading value of the
Securities of a given change in interest rates, Index volatility and/or dividend
rates of stocks comprising the Index is expected to be less if it occurs later
in the term of the Securities than if it occurs earlier in the term of the
Securities. The effect on the trading value of the Securities of a given
appreciation of the Index in excess of the Starting Index Value is expected to
be greater if it occurs later in the term of the Securities than if it occurs
earlier in the term of the Securities, assuming all other relevant factors are
held constant.
THE INDEX
The value of the Index and the Supplemental Redemption Amount, if any, may be
adversely affected by political, economic and other developments that affect the
stocks underlying the Index.
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the
Securities should reach an investment decision only after carefully considering
the suitability of the Securities in light of their particular circumstances.
Investors should also consider the tax consequences of investing in the
Securities and should consult their tax advisors.
MLPF&S or its affiliates may from time to time engage in transactions
involving the stocks underlying the Index for their proprietary accounts and for
other accounts under their management, which may influence the value of such
stocks and therefore the value of the Securities. MLPF&S and its affiliates will
also be the counterparties to the hedge of the Company's obligations under the
Securities. Accordingly, under certain circumstances, conflicts of interest may
arise between MLPF&S's responsibilities as Calculation Agent, as defined below,
with respect to the Securities and its obligations under its hedge and its
status as a subsidiary of the Company. Under certain circumstances, the duties
of MLPF&S as Calculation Agent in determining the existence of Market Disruption
Events could conflict with the interests of MLPF&S as an affiliate of the issuer
of the Securities, Merrill Lynch & Co., Inc., and with the interests of the
holders of the Securities.
DESCRIPTION OF SECURITIES
GENERAL
The Securities are to be issued as a series of Senior Debt Securities under
the Senior Indenture, referred to as the "1983 Indenture", which is more fully
described in the accompanying Prospectus. The Securities will mature on
September 16, 2002.
While at maturity a beneficial owner of a Security will receive the principal
amount of such Security plus the Supplemental Redemption Amount, if any, there
will be no other payment of interest, periodic or otherwise. (See "Payment at
Maturity" below.)
The Securities are not subject to redemption by the Company or at the option
of any beneficial owner prior to maturity. Upon the occurrence of an Event of
Default with respect to the Securities, beneficial owners of the Securities may
accelerate the maturity of the Securities, as described under "Description of
Securities-Events of Default and Acceleration" in this Prospectus.
The Securities are to be issued in denominations of whole Units.
6
<PAGE>
PAYMENT AT MATURITY
At maturity, a beneficial owner of a Security will be entitled to receive the
principal amount thereof plus a Supplemental Redemption Amount, if any, all as
provided below. If the Ending Index Value does not exceed the Starting Index
Value, a beneficial owner of a Security will be entitled to receive only the
principal amount thereof.
At maturity, a beneficial owner of a Security will be entitled to receive,
with respect to each such Security, (i) the principal amount thereof ($10 for
each Unit) and (ii) the Supplemental Redemption Amount equal in amount to:
<TABLE>
<S> <C> <C>
Ending Index Value-Starting Index Value
Principal Amount X --------------------------------------- X Participation Rate
Starting Index Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero. The Starting Index Value equals 813.65, which was the closing
value of the Index on the date the Securities were priced by the Company for
initial sale to the public (i.e., the Pricing Date). The Participation Rate
equals 101%. The Ending Index Value will be determined by Merrill Lynch, Pierce,
Fenner & Smith Incorporated (the "Calculation Agent") and will equal the average
(arithmetic mean) of the closing values of the Index determined on each of the
first five Calculation Days during the Calculation Period. If there are fewer
than five Calculation Days, then the Ending Index Value will equal the average
(arithmetic mean) of the closing values of the Index on such Calculation Days,
and if there is only one Calculation Day, then the Ending Index Value will equal
the closing value of the Index on such Calculation Day. If no Calculation Days
occur during the Calculation Period because of Market Disruption Events, then
the Ending Index Value will equal the closing value of the Index determined on
the last scheduled Index Business Day in the Calculation Period, regardless of
the occurrences of a Market Disruption Event on such day. The "Calculation
Period" means the period from and including the seventh scheduled Index Business
Day prior to the maturity date to and including the second scheduled Index
Business Day prior to the maturity date. "Calculation Day" means any Index
Business Day during the Calculation Period on which a Market Disruption Event
has not occurred. For purposes of determining the Ending Index Value, an "Index
Business Day" is a day on which the New York Stock Exchange and the American
Stock Exchange are open for trading and the Index or any Successor Index, as
defined below, is calculated and published. All determinations made by the
Calculation Agent shall be at the sole discretion of the Calculation Agent and,
absent a determination by the Calculation Agent of a manifest error, shall be
conclusive for all purposes and binding on the Company and beneficial owners of
the Securities.
The following table illustrates, for a range of hypothetical Ending Index
Values, (i) the total amount payable at maturity for each $10 principal amount
of Securities, (ii) the total rate of return to beneficial owners of the
Securities, (iii) the pretax annualized rate of return to beneficial owners of
Securities and (iv) the pretax annualized rate of return of an investment in the
stocks underlying the Index (which includes an assumed aggregate dividend yield
of 1.80% per annum, as more fully described below).
7
<PAGE>
<TABLE>
<CAPTION>
PRETAX
ANNUALIZED
TOTAL AMOUNT RATE OF RETURN
PAYABLE AT MATURITY PRETAX OF
PERCENTAGE CHANGE PER $10 PRINCIPAL TOTAL RATE OF ANNUALIZED RATE STOCKS
HYPOTHETICAL ENDING OVER THE STARTING AMOUNT OF RETURN ON OF RETURN ON UNDERLYING THE
INDEX VALUE INDEX VALUE SECURITIES THE SECURITIES THE SECURITIES(1) INDEX(1)(2)
- --------------------- ------------------ ------------------- --------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C>
406.83 -50% $10.00 0.00% 0.00% -10.43%
488.19 -40% $10.00 0.00% 0.00% -7.30%
569.56 -30% $10.00 0.00% 0.00% -4.60%
650.92 -20% $10.00 0.00% 0.00% -2.23%
732.29 -10% $10.00 0.00% 0.00% -0.12%
813.65(3) 0% $10.00 0.00% 0.00% 1.80%
895.02 10% $11.01 10.10% 1.76% 3.56%
976.38 20% $12.02 20.20% 3.37% 5.18%
1,057.75 30% $13.03 30.30% 4.87% 6.69%
1,139.11 40% $14.04 40.40% 6.26% 8.10%
1,220.48 50% $15.05 50.50% 7.56% 9.41%
1,301.84 60% $16.06 60.60% 8.79% 10.66%
1,383.21 70% $17.07 70.70% 9.95% 11.83%
1,464.57 80% $18.08 80.80% 11.05% 12.95%
1,545.94 90% $19.09 90.90% 12.10% 14.01%
1,627.30 100% $20.10 101.00% 13.09% 15.02%
1,708.67 110% $21.11 111.10% 14.04% 16.00%
1,790.03 120% $22.12 121.20% 14.95% 16.83%
</TABLE>
___________
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes (i) an investment of a fixed amount in the
stocks underlying the Index with the allocation of such amount reflecting the
current relative weights of such stocks in the Index; (ii) a percentage change
in the aggregate price of such stocks that equals the percentage change in the
Index from the Starting Index Value to the relevant hypothetical Ending Index
Value; (iii) a constant dividend yield of 1.80% per annum, paid quarterly from
the date of initial delivery of Securities, applied to the value of the Index at
the end of each such quarter assuming such value increases or decreases linearly
from the Starting Index Value to the applicable hypothetical Ending Index Value;
(iv) no transaction fees or expenses; (v) a term for the Securities from March
14, 1997 to September 16, 2002; and (vi) a final Index value equal to the Ending
Index Value. The aggregate dividend yield of the stocks underlying the Index as
of March 10, 1997 was approximately 1.80%.
(3) This is the Starting Index Value.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the total and pretax
annualized rate of return resulting therefrom will depend entirely on the actual
Ending Index Value determined by the Calculation Agent as provided herein.
ADJUSTMENTS TO THE INDEX; MARKET DISRUPTION EVENTS
If at any time the method of calculating the Index, or the value thereof, is
changed in any material respect, or if the Index is in any other way modified so
that such Index does not, in the opinion of the Calculation Agent, fairly
8
<PAGE>
represent the value of the Index had such changes or modifications not been
made, then, from and after such time, the Calculation Agent shall, at the close
of business in New York, New York, on each date that the closing value with
respect to the Ending Index Value is to be calculated, make such adjustments as,
in the good faith judgment of the Calculation Agent, may be necessary in order
to arrive at a calculation of a value of a stock index comparable to the Index
as if such changes or modifications had not been made, and calculate such
closing value with reference to the Index, as adjusted. Accordingly, if the
method of calculating the Index is modified so that the value of such Index is a
fraction or a multiple of what it would have been if it had not been modified
(e.g., due to a split in the Index), then the Calculation Agent shall adjust
such Index in order to arrive at a value of the Index as if it had not been
modified (e.g., as if such split had not occurred).
"Market Disruption Event" means either of the following events, as determined
by the Calculation Agent:
(i) the suspension or material limitation (limitations pursuant to New York
Stock Exchange Rule 80A (or any applicable rule or regulation enacted or
promulgated by the New York Stock Exchange or any other self regulatory
organization or the Securities and Exchange Commission of similar scope as
determined by the Calculation Agent) on trading during significant market
fluctuations shall be considered "material" for purposes of this definition), in
each case, for more than two hours of trading in 100 or more of the securities
included in the Index, or
(ii) the suspension or material limitation, in each case, for more than two
hours of trading (whether by reason of movements in price otherwise exceeding
levels permitted by the relevant exchange or otherwise) in (A) futures contracts
related to the Index which are traded on the Chicago Mercantile Exchange or (B)
option contracts related to the Index which are traded on the Chicago Board
Options Exchange, Inc.
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular business hours of
the relevant exchange.
DISCONTINUANCE OF THE INDEX
If S&P discontinues publication of the Index and S&P or another entity
publishes a successor or substitute index that the Calculation Agent determines,
in its sole discretion, to be comparable to such Index (any such index being
referred to hereinafter as a "Successor Index"), then, upon the Calculation
Agent's notification of such determination to the Trustee and the Company, the
Calculation Agent will substitute the Successor Index as calculated by S&P or
such other entity for the Index and calculate the Ending Index Value as
described above under "Payment at Maturity". Upon any selection by the
Calculation Agent of a Successor Index, the Company shall cause notice thereof
to be given to Holders of the Securities.
If S&P discontinues publication of the Index and a Successor Index is not
selected by the Calculation Agent or is no longer published on any of the
Calculation Days, the value to be substituted for the Index for any such
Calculation Day used to calculate the Supplemental Redemption Amount at maturity
will be a value computed by the Calculation Agent for each Calculation Day in
accordance with the procedures last used to calculate the Index prior to any
such discontinuance. If a Successor Index is selected or the Calculation Agent
calculates a value as a substitute for the Index as described below, such
Successor Index or value shall be substituted for the Index for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
If S&P discontinues publication of the Index prior to the period during which
the Supplemental Redemption Amount is to be determined and the Calculation Agent
determines that no Successor Index is available at such time, then on each
Business Day until the earlier to occur of (i) the determination of the Ending
Index Value and (ii) a determination by the Calculation Agent that a Successor
Index is available, the Calculation Agent shall determine the value that would
be used in computing the Supplemental Redemption Amount as described in the
preceding paragraph as if such day were a Calculation Day. The Calculation Agent
will cause notice of each such value to be published not less often than once
each month in The Wall Street Journal (or another newspaper of general
9
<PAGE>
circulation), and arrange for information with respect to such values to be made
available by telephone. Notwithstanding these alternative arrangements,
discontinuance of the publication of the Index may adversely affect trading in
the Securities.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Securities shall have occurred
and be continuing, the amount payable to a beneficial owner of a Security upon
any acceleration permitted by the Securities, with respect to each $10 principal
amount thereof, will be equal to: (i) the initial issue price ($10), plus (ii)
an additional amount of contingent interest calculated as though the date of
early repayment were the maturity date of the Securities. See "Description of
Securities-Payment at Maturity" in this Prospectus. If a bankruptcy proceeding
is commenced in respect of the Company, the claim of the beneficial owner of a
Security may be limited, under Section 502(b)(2) of Title 11 of the United
States Code, to the principal amount of the Security plus an additional amount
of contingent interest calculated as though the date of the commencement of the
proceeding were the maturity date of the Securities.
In case of default in payment at the maturity date of the Securities (whether
at their stated maturity or upon acceleration), from and after the maturity date
the Securities shall bear interest, payable upon demand of the beneficial owners
thereof, at the rate of 6.75% per annum (to the extent that payment of such
interest shall be legally enforceable) on the unpaid amount due and payable on
such date in accordance with the terms of the Securities to the date payment of
such amount has been made or duly provided for.
DEPOSITORY
Upon issuance, all Securities will be represented by one or more fully
registered global securities (the "Global Securities"). Each such Global
Security will be deposited with, or on behalf of, The Depository Trust Company
("DTC"), as Depository, registered in the name of DTC or a nominee thereof.
Unless and until it is exchanged in whole or in part for Securities in
definitive form, no Global Security may be transferred except as a whole by the
Depository to a nominee of such Depository or by a nominee of such Depository to
such Depository or another nominee of such Depository or by such Depository or
any such nominee to a successor of such Depository or a nominee of such
successor.
DTC has advised the Company as follows: DTC 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.
DTC 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. DTC's Participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations.
DTC 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 DTC 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 Securities must be made by or through Participants, which will
receive a credit on the records of DTC. The ownership interest of each actual
purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the
Participants' or Indirect Participants' records. Beneficial Owners will not
receive written confirmation from DTC of their purchase, but Beneficial Owners
are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the
Participant or Indirect Participant through which the Beneficial Owner entered
into the transaction. Ownership of beneficial interests in
10
<PAGE>
such Global Security will be shown on, and the transfer of such ownership
interests will be effected only through, records maintained by DTC (with respect
to interests of Participants) and on the records of Participants (with respect
to interests of persons held through Participants). The laws of some states may
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and such laws may impair the ability
to own, transfer or pledge beneficial interests in Global Securities.
So long as DTC, or its nominee, is the registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole owner or
Holder of the Securities represented by such Global Security for all purposes
under the 1983 Indenture. Except as provided below, Beneficial Owners in a
Global Security will not be entitled to have the Securities represented by such
Global Securities registered in their names, will not receive or be entitled to
receive physical delivery of the Securities in definitive form and will not be
considered the owners or Holders thereof under the 1983 Indenture, including for
purposes of receiving any reports delivered by the Company or the Trustee
pursuant to the 1983 Indenture. Accordingly, each Person owning a beneficial
interest in a Global Security must rely on the procedures of DTC 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 1983
Indenture. The Company understands that under existing industry practices, in
the event that the Company requests any action of Holders or that an owner of a
beneficial interest in such a Global Security desires to give or take any action
which a Holder is entitled to give or take under the 1983 Indenture, DTC 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 DTC to Participants, by Participants to Indirect Participants,
and by Participants and Indirect Participants to Beneficial Owners will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Payment of the principal of, and any Supplemental Redemption Amount with
respect to, Securities registered in the name of DTC or its nominee will be made
to DTC or its nominee, as the case may be, as the Holder of the Global
Securities representing such Securities. 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 DTC, upon receipt of any payment of principal or any Supplemental
Redemption Amount in respect of a Global Security, will credit the accounts of
the Participants with payment in amounts proportionate to their respective
holdings in principal amount of beneficial interest in such Global Security as
shown on the records of DTC. 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) any Depository is at any time unwilling or unable to continue as
Depository and a successor depository is not appointed by the Company within 60
days, (y) the Company executes and delivers to the Trustee a Company Order to
the effect that the Global Securities shall be exchangeable or (z) an Event of
Default has occurred and is continuing with respect to the Securities, the
Global Securities will be exchangeable for Securities in definitive form of like
tenor and of an equal aggregate principal amount, in denominations of $10 and
integral multiples thereof. Such definitive Securities shall be registered in
such name or names as the Depository shall instruct the Trustee. It is expected
that such instructions may be based upon directions received by the Depository
from Participants with respect to ownership of beneficial interests in such
Global Securities.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Securities will be made by the Underwriter in immediately
available funds. All payments of principal and the Supplemental Redemption
Amount, if any, will be made by the Company in immediately available
11
<PAGE>
funds so long as the Securities are maintained in book-entry form.
THE INDEX
All disclosure contained in this Prospectus regarding the Index, including,
without limitation, its make-up, method of calculation and changes in its
components, is derived from publicly available information prepared by S&P.
Neither the Company nor the Underwriter takes any responsibility for the
accuracy or completeness of such information.
GENERAL
The Index is published by S&P and is intended to provide an indication of the
pattern of common stock price movement. The calculation of the value of the
Index (discussed below in further detail) is based on the relative value of the
aggregate Market Value (as defined below) of the common stocks of 500 companies
as of a particular time as compared to the aggregate average Market Value of the
common stocks of 500 similar companies during the base period of the years 1941
through 1943. As of December 31, 1996, the 500 companies included in the Index
represented approximately 88% of the aggregate Market Value of common stocks
traded on The New York Stock Exchange; however, these 500 companies are not the
500 largest companies listed on The New York Stock Exchange and not all of these
500 companies are listed on such exchange. As of December 31, 1996, the
aggregate market value of the 500 companies included in the Index represented
approximately 71% of the aggregate market value of United States domestic,
public companies. S&P chooses companies for inclusion in the Index with the aim
of achieving a distribution by broad industry groupings that approximates the
distribution of these groupings in the common stock population of The New York
Stock Exchange, which S&P uses as an assumed model for the composition of the
total market. Relevant criteria employed by S&P include the viability of the
particular company, the extent to which that company represents the industry
group to which it is assigned, the extent to which the market price of that
Company's common stock is generally responsive to changes in the affairs of the
respective industry and the Market Value and trading activity of the common
stock of that company. As of December 31, 1996, the 500 companies included in
the Index were divided into 105 individual groups. These individual groups
comprised the following four main groups of companies (with the number of
companies currently included in each group indicated in parentheses):
Industrials (381), Utilities (40), Transportation (12) and Financial (67). S&P
may from time to time, in its sole discretion, add companies to, or delete
companies from, the Index to achieve the objectives stated above.
COMPUTATION OF THE INDEX
S&P currently computes the Index as of a particular time as follows:
(1) the product of the market price per share and the number of then
outstanding shares of each component stock is determined as of such time (such
product referred to as the "Market Value" of such stock);
(2) the Market Value of all component stocks as of such time (as determined
under clause (1) above) are aggregated;
(3) the mean average of the Market Values as of each week in the base period
of the years 1941 through 1943 of the common stock of each company in a group of
500 substantially similar companies is determined;
(4) the mean average Market Values of all such common stocks over such base
period (as determined under clause (3) above) are aggregated (such aggregate
amount being referred to as the "Base Value");
(5) the aggregate Market Value of all component stocks as of such time (as
determined under clause (2) above) is divided by the Base Value; and
12
<PAGE>
(6) the resulting quotient (expressed in decimals) is multiplied by ten.
While S&P currently employs the above methodology to calculate the Index, no
assurance can be given that S&P will not modify or change such methodology in a
manner that may affect the Supplemental Redemption Amount, if any, payable to
beneficial owners of Securities upon maturity or otherwise.
S&P adjusts the foregoing formula to negate the effect of changes in the
Market Value of a component stock that are determined by S&P to be arbitrary or
not due to true market fluctuations. Such changes may result from such causes as
the issuance of stock dividends, the granting to shareholders of rights to
purchase additional shares of such stock, the purchase thereof by employees
pursuant to employee benefit plans, certain consolidations and acquisitions, the
granting to shareholders of rights to purchase other securities of the company,
the substitution by S&P of particular component stocks in the Index, and other
reasons. In all such cases, S&P first recalculates the aggregate Market Value of
all component stocks (after taking account of the new market price per share of
the particular component stock or the new number of outstanding shares thereof
or both, as the case may be) and then determines the New Base Value in
accordance with the following formula:
New Market Value
Old Base Value X ---------------- = New Base Value
Old Market Value
The result is that the Base Value is adjusted in proportion to any change in
the aggregate Market Value of all component stocks resulting from the causes
referred to above to the extent necessary to negate the effects of such causes
upon the Index.
LICENSE AGREEMENT
S&P and Merrill Lynch Capital Services, Inc. have entered into a non-exclusive
license agreement providing for the license to Merrill Lynch Capital Services,
Inc., in exchange for a fee, of the right to use indices owned and published by
S&P in connection with certain securities, including the Securities, and the
Company is an authorized sublicensee thereof.
The license agreement between S&P and Merrill Lynch Capital Services, Inc.
provides that the following language must be stated in this Prospectus:
"The Securities are not sponsored, endorsed, sold or promoted by S&P. S&P
makes no representation or warranty, express or implied, to the Holders of the
Securities or any member of the public regarding the advisability of investing
in securities generally or in the Securities particularly or the ability of
the Index to track general stock market performance. S&P's only relationship
to Merrill Lynch Capital Services, Inc. and the Company (other than
transactions entered into in the ordinary course of business) is the licensing
of certain servicemarks and trade names of S&P and of the Index which is
determined, composed and calculated by S&P without regard to the Company or
the Securities. S&P has no obligation to take the needs of the Company or the
Holders of the Securities into consideration in determining, composing or
calculating the Index. S&P is not responsible for and has not participated in
the determination of the timing of the sale of the Securities, prices at which
the Securities are to initially be sold, or quantities of the Securities to be
issued or in the determination or calculation of the equation by which the
Securities are to be converted into cash. S&P has no obligation or liability
in connection with the administration, marketing or trading of the
Securities."
13
<PAGE>
OTHER TERMS
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Indenture (the "Senior Indenture"), dated as of April 1, 1983, as amended and
restated, 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"). A copy of the Senior Indenture is filed as an exhibit
to the registration statements relating to the Securities. The following
summaries of certain provisions of the Senior Indenture do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the Senior Indenture, including the definition therein of
certain terms.
The Senior Indenture provides that series of Senior Debt Securities may from
time to time be issued thereunder, without limitation as to aggregate principal
amount, in one or more series and upon such terms as the Company may establish
pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the Securities are
governed by and construed in accordance with the laws of the State of New York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen" a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and other regulatory bodies.
LIMITATIONS UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of the incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
LIMITATION ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Indenture provides that the Company may not sell, transfer or otherwise
dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell or
otherwise dispose of any of its Voting Stock, unless, after giving effect to any
such transaction, MLPF&S remains a Controlled Subsidiary (defined in the Senior
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the 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.
14
<PAGE>
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or into
any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior 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 Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company and
the Trustee with the consent of the Holders of 66 2/3% in principal amount of
the Outstanding Senior Debt Securities of each series issued pursuant to such
indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding Senior Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts payable on, any Senior Debt
Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any Senior Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Debt Security; (e) reduce the percentage in principal
amount of the Outstanding Senior Debt Securities of any series, the consent of
whose Holders is required to modify or amend the Indenture; or (f) modify the
foregoing requirements or reduce the percentage of Outstanding Senior Debt
Securities necessary to waive any past default to less than a majority. No
modification or amendment of the Subordinated Indenture or any Subsequent
Indenture for Subordinated Debt Securities may adversely affect the rights of
any holder of Senior Indebtedness without the consent of such Holder. Except
with respect to certain fundamental provisions, the Holders of at least a
majority in principal amount of Outstanding Senior Debt Securities of any series
may, with respect to such series, waive past defaults under the Indenture and
waive compliance by the Company with certain provisions thereof.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the Indenture for
the benefit of such series or in the Senior Debt Securities of such series,
continued for 60 days after written notice as provided in the Senior Indenture;
(e) certain events in bankruptcy, insolvency or reorganization; and (f) any
other Event of Default provided with respect to Senior Debt Securities of that
series. The Trustee or the Holders of 25% in principal amount of the
Outstanding Senior Debt Securities of that series may declare the principal
amount (or such lesser amount as may be provided for in the Senior Debt
Securities of that series) of all Outstanding Senior Debt Securities of that
series and the interest due thereon and Additional Amounts payable in respect
thereof, if any to be due and payable immediately if an Event of Default with
respect to Senior Debt Securities of such series shall occur and be continuing
at the time of such declaration. At any time after a declaration of
acceleration has been made with respect to Senior Debt Securities of any series
but before a judgment or decree for payment of money due has been obtained by
the Trustee, the Holders of a majority in principal amount of the Outstanding
Senior Debt Securities of that series may rescind any declaration of
15
<PAGE>
acceleration and its consequences, if all payments due (other than those due as
a result of acceleration) have been made and all Events of Default have been
remedied or waived. Any Event of Default with respect to Senior Debt Securities
of any series may be waived by the Holders of a majority in principal amount of
all Outstanding Senior Debt Securities of that series, except in a case of
failure to pay principal or premium, if any, or interest or Additional Amounts
payable on any Senior Debt Security of that series for which payment had not
been subsequently made or in respect of a covenant or provision which cannot be
modified or amended without the consent of the Holder of each Outstanding Senior
Debt Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior Debt
Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any right or power
under the Senior Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company is required to furnish to the Trustee annually a statement as to
the fulfillment by the Company of all of its obligations under the Senior
Indenture.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Solely for purposes of applying final Treasury regulations (the "Final
Regulations") concerning the United States Federal income tax treatment of
contingent payment debt instruments to the Securities, the Company has
determined that the projected payment schedule for the Securities will consist
of payment on the maturity date of the principal amount thereof and a
Supplemental Redemption Amount equal to $4.3254 per Unit. This represents an
estimated yield on the Securities equal to 6.64% per annum (compounded
semiannually).
The projected payment schedule (including both the projected Supplemental
Redemption Amount and the estimated yield on the Securities) has been determined
solely for United States Federal income tax purposes (i.e., for purposes of
applying the Final Regulations to the Securities), and is not a prediction of
what the actual Supplemental Redemption Amount will be, or that the actual
Supplemental Redemption Amount will even exceed zero.
The following table sets forth the amount of interest that will be deemed to
have accrued with respect to each Unit of the Securities during each accrual
period over the term of the Securities based upon the projected payment schedule
for the Securities (including both the projected Supplemental Redemption Amount
and the estimated yield equal to 6.64% per annum (compounded semiannually)) as
determined by the Company for purposes of the application of the Final
Regulations to the Securities:
<TABLE>
<CAPTION>
TOTAL INTEREST DEEMED
TO HAVE ACCRUED ON
INTEREST DEEMED TO SECURITIES AS OF END
ACCRUE DURING ACCRUAL OF ACCRUAL PERIOD
ACCRUAL PERIOD PERIOD (PER UNIT) (PER UNIT)
-------------- ---------------------- ----------------------
<S> <C> <C>
March 14, 1997 through
March 16, 1997............ $0.0018 $0.0018
March 17, 1997 through
September 16, 1997........ $0.3338 $0.3356
September 17, 1997 through
March 16, 1998............ $0.3413 $0.6769
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
TOTAL INTEREST DEEMED
TO HAVE ACCRUED ON
INTEREST DEEMED TO SECURITIES AS OF END
ACCRUE DURING ACCRUAL OF ACCRUAL PERIOD
ACCRUAL PERIOD PERIOD (PER UNIT) (PER UNIT)
-------------- ---------------------- ----------------------
<S> <C> <C>
March 17, 1998 through
September 16, 1998........ $0.3545 $1.0314
September 17, 1998 through
March 16, 1999............ $0.3662 $1.3976
March 17, 1999 through
September 16, 1999........ $0.3785 $1.7761
September 17, 1999 through
March 16, 2000............ $0.3909 $2.1670
March 17, 2000 through
September 16, 2000........ $0.4040 $2.5710
September 17, 2000 through
March 16, 2001............ $0.4173 $2.9883
March 17, 2001 through
September 16, 2001........ $0.4312 $3.4195
September 17, 2001 through
March 16, 2002............ $0.4456 $3.8651
March 17, 2002 through
September 16, 2002........ $0.4603 $4.3254
____________
Projected Supplemental Redemption Amount = $4.3254 per Unit
</TABLE>
Investors in the Securities may also obtain the projected payment schedule, as
determined by the Company for purposes of the application of the Final
Regulations to the Securities, by submitting a written request for such
information to Merrill Lynch & Co., Inc., Attn: Darryl W. Colletti, Office of
the Corporate Secretary, 100 Church Street, New York, New York 10080.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997 included
in the 1997 Annual Report on Form 10-K, and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP, as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such 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 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 such Quarterly Reports 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
17
<PAGE>
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.
18
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
2,750,000 UNITS
MERRILL LYNCH & CO., INC.
MAJOR 11 INTERNATIONAL MARKET INDEX TARGET-TERM SECURITIES/SM/ DUE DECEMBER 6,
2002
"MITTS(R)"
($10 PRINCIPAL AMOUNT PER UNIT)
On November 26, 1997, Merrill Lynch & Co., Inc. (the "Company") issued an
aggregate principal amount of $27,250,000 (2,750,000 Units) of Major 11
International Market Index Target-Term Securities due December 6, 2002 (the
"Securities" or "MITTS"). Each $10 principal amount of Securities will be
deemed a "Unit" for purposes of trading and transfer at the Securities
Depository described below. Units will be transferable by the Securities
Depository, as more fully described below, in denominations of whole Units.
GENERAL:
. Senior unsecured debt securities . Not redeemable prior to maturity
. No payments prior to maturity . Transferable only in whole Units
PAYMENT AT MATURITY:
Principal Amount + Supplemental Redemption Amount
The Supplemental Redemption Amount will be based on the percentage increase, if
any, in the Major 11 International Index, which is a compilation of eleven
equity indices reflecting select stocks listed on certain equity markets in
Europe, Australia and Asia, multiplied by a Participation Rate of 115%. The
Supplemental Redemption Amount may be zero, but will not be less than zero.
BEFORE YOU DECIDE TO INVEST IN THE SECURITIES, CAREFULLY READ THIS PROSPECTUS,
ESPECIALLY THE RISK FACTORS BEGINNING ON PAGE 3.
We expect that the Securities will be maintained in book-entry form only
through the facilities of DTC.
_______________
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 Securities 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 Securities.
MLPF&S may act as principal or agent in such transactions. The Securities may
be offered on the American Stock Exchange (the "AMEX"), 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 Securities 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.
_______________
MERRILL LYNCH & CO.
_______________
The date of this Prospectus Supplement is July __, 1998.
________________________
(R)"MITTS" is a registered service mark and /SM/"Market Index Target-Term
Securities" is a service mark of Merrill Lynch & Co., Inc.
<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 AMEX, the Chicago Stock Exchange
and the Pacific 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 26, 1997,
Quarterly Report on Form 10-Q for the period ended March 27, 1998, and Current
Reports on Form 8-K dated January 20, 1998, January 30, 1998, February 4, 1998,
February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998, April 29,
1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June 24, 1998,
June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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 LAWRENCE M. EGAN, JR., CORPORATE SECRETARY'S
OFFICE, 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 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.
2
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, advisory, insurance, and related
services on a global basis. Its principal subsidiary, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("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; an underwriter of selected insurance
products and a distributor of investment products of the Merrill Lynch Asset
Management group. 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. The Company's asset management and investment
management activities are conducted through the Merrill Lynch Asset Management
group and Merrill Lynch Mercury Asset Management, which together constitute one
of the largest asset management organizations in the world. Merrill Lynch
Government Securities Inc. is a primary dealer in obligations issued or
guaranteed by the U.S. Government and its agencies and its government-sponsored
entities. Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative
Products AG, and Merrill Lynch International are the Company's primary
derivative product dealers and enter into interest rate, currency, and other
over-the-counter derivative transactions as intermediaries and as principals.
The Company's operations in insurance services consist of the underwriting and
sale 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 and
purchasing secured loans, providing currency exchange facilities and other
related services, and furnishing trust, employee benefit, and custodial
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
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
Ratio of earnings
to fixed charges . . . . . . 1.4 1.2 1.2 1.2 1.2 1.2
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
RISK FACTORS
Your investment in the Securities will involve certain risks. For example,
there is the risk that you might not earn a return on your investment, and the
risk that you will be unable to sell your Securities prior to their maturity.
You should carefully consider the following discussion of risks before deciding
whether an investment in the Securities is suitable for you.
3
<PAGE>
THE SUPPLEMENTAL REDEMPTION AMOUNT.
You should be aware that if the Ending Index Value does not exceed the
Starting Index Value at maturity, the Supplemental Redemption Amount will be
zero. This will be true even if the value of the Index was higher than the
Starting Index Value at some time during the life of the Securities but later
falls below the Starting Index Value. If the Supplemental Redemption Amount is
zero, we will pay you only the principal amount of your Securities.
The Participation Rate equals 115%. If the Ending Index Value exceeds the
Starting Index Value, then the Participation Rate will enhance the amount of the
interest payment received at maturity. However, if the Ending Index Value does
not exceed the Starting Index Value, you will receive only the principal amount
of your Securities.
YOUR YIELD MAY BE LOWER THAN THE YIELD ON A STANDARD DEBT SECURITY OF COMPARABLE
MATURITY.
The amount we pay you at maturity may be less than the return you could earn
on other investments. Your yield may be less than the yield you would earn if
you bought a standard senior non-callable debt security of the Company with the
same maturity date. Your investment may not reflect the full opportunity cost to
you when you consider the effect of factors that affect the time value of money.
YOUR RETURN WILL NOT REFLECT THE PAYMENT OF DIVIDENDS.
The AMEX calculates the Index by reference to the Sub-Indices which reflect
the prices of the common stocks comprising such Sub-Indices without taking into
consideration the value of dividends paid on those stocks, except in the case of
the Deutscher Aktienindex Sub-Index which reflects dividends paid on its
underlying common stocks. Therefore, the return you earn on the Securities, if
any, will not be the same as the return that you would earn if you actually
owned each of the common stocks underlying each Sub-Index and received the
dividends paid on those stocks.
CURRENCY EXCHANGE RATES.
Although the stocks comprising the Sub-Indices are traded in currencies other
than U.S. dollars and the Securities are denominated in U.S. dollars, we will
not adjust the Supplemental Redemption Amount for currency exchange rates in
effect at the maturity of the Securities. The Supplemental Redemption Amount is
based solely upon the percentage increase in the Index. Changes in exchange
rates, however, may reflect changes in the relevant European, Australian and
Asian economies which in turn may affect the value of the Sub-Indices, and the
Securities.
UNCERTAIN TRADING MARKET.
The Securities are traded on the AMEX under the symbol "EEM". While there have
been a number of issuances of Market Index Target-Term Securities, trading
volumes have varied historically from one transaction to another and it is
therefore impossible to predict how the Securities will trade. You cannot assume
that a trading market will develop for the Securities. If such a trading market
does develop, there can be no assurance that there will be liquidity in the
trading market. The development of a trading market for the Securities will
depend on the financial performance of the Company, and other factors such as
the appreciation, if any, of the value of the Index.
If the trading market for the Securities is limited, there may be a limited
number of buyers when you decide to sell your Securities if you do not wish to
hold your investment until maturity. This may affect the price you receive.
4
<PAGE>
FACTORS AFFECTING TRADING VALUE OF THE SECURITIES.
We believe that the market value of the Securities will be affected by the
value of the Index and by a number of other factors. Some of these factors are
interrelated in complex ways; as a result, the effect of any one factor may be
offset or magnified by the effect of another factor. The following paragraphs
describe the expected impact on the market value of the Securities given a
change in a specific factor, assuming all other conditions remain constant.
. INDEX VALUE. We expect that the market value of the Securities will depend
substantially on the amount by which the Index exceeds the Starting Index
Value. If you choose to sell your Securities when the value of the Index
exceeds the Starting Index Value, you may receive substantially less than
the amount that would be payable at maturity based on that Index value
because of the expectation that the Index will continue to fluctuate until
the Ending Index Value is determined. If you choose to sell your Securities
when the value of the Index is below the Starting Index Value, you may
receive less than the 0 principal amount per Unit of Securities. In general,
rising dividend rates (i.e., dividends per share) in Australia and in the
European and Asian countries related to the common stocks underlying the
Sub-Indices (each, an "applicable home country") may increase the value
of the Index while falling dividend rates in the applicable home countries
may decrease the value of the Index. Political, economic and other
developments that affect the stocks underlying the Index may also affect the
value of the Index and the value of the Securities.
. that the trading value of the Securities will be affected by changes in
interest rates. In general, if U.S. interest rates increase, we expect that
the trading value of the Securities will decrease. If U.S. interest rates
decrease, we expect the trading value of the Securities will increase. In
general, if interest rates in the applicable home countries increase, we
expect that the trading value of the Securities will increase. If interest
rates in the applicable home countries decrease, we expect the trading value
of the Securities will decrease. However, interest rates in the applicable
home countries may also affect the relevant economies and, in turn, the
value of the Sub-Indices. Rising interest rates in the applicable home
countries may lower the value of the Sub-Indices and the Securities. Falling
interest rates in the applicable home countries may increase the value of
the Index and the value of the Securities.
. VOLATILITY OF THE INDEX. Volatility is the term used to describe the size
and frequency of market fluctuations. If the volatility of the Index
increases, we expect that the trading value of the Securities will increase.
If the volatility of the Index decreases, we expect that the trading value
of the Securities will decrease.
. TIME REMAINING TO MATURITY. The Securities may trade at a value above that
which would be expected based on the level of interest rates and the Index.
This difference will reflect a "time premium" due to expectations concerning
the value of the Index during the period prior to maturity of the
Securities. However, as the time remaining to maturity of the Securities
decreases, we expect that this time premium will decrease, lowering the
trading value of the Securities.
. DIVIDEND YIELDS. If dividend yields on the stocks comprising the Sub-Indices
increase, we expect that the value of the Securities will decrease.
Conversely, if dividend yields on the underlying stock comprising the Sub-
Indices decrease, we expect that the value of the Securities will increase.
. COMPANY CREDIT RATINGS. Real or anticipated changes in the Company's credit
ratings may affect the market value of the Securities.
It is important for you to understand that the impact of one of the factors
specified above, such as an increase in interest rates, may offset some or all
of any increase in the trading value of the Securities attributable to another
factor, such as an increase in the Index value.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the Securities of a given change in most of
the factors listed above will be less if it occurs later in the term of the
5
<PAGE>
Securities than if it occurs earlier in the term of the Securities except that
we expect that the effect on the trading value of the Securities of a given
increase in the value of the Index will be greater if it occurs later in the
term of the Securities than if it occurs earlier in the term of the Securities.
STATE LAW LIMITS ON INTEREST PAID.
New York State laws govern the Senior Indenture, as hereinafter defined. New
York has certain usury laws that limit the amount of interest that can be
charged and paid on loans, which includes debt securities like the Securities.
Under present New York law, the maximum rate of interest is 25% per annum on a
simple interest basis. This limit may not apply to debt securities in which
$2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state or Federal
court sitting outside of New York, many other states also have laws that
regulate the amount of interest that may be charged to and paid by a borrower.
We will promise, for the benefit of the Securities holders, to the extent
permitted by law, not to voluntarily claim the benefits of any laws concerning
usurious rates of interest.
THE INTERNATIONAL SECURITIES MARKETS.
The underlying stocks that constitute the Sub-Indices have been issued by
companies listed on European, Australian and Asian exchanges. You should be
aware that investments in securities indexed to the value of European,
Australian and Asian securities involve certain risks. The European, Australian
and Asian securities markets may be more volatile than U.S. or other securities
markets and may be affected by market developments in different ways than U.S.
or other securities markets. Direct or indirect government intervention to
stabilize a particular non-U.S. securities market and cross-shareholdings in
European, Australian and Asian companies on such markets may affect prices and
volume of trading on those markets. Also, there is generally less publicly
available information about non-U.S. companies than about those U.S. companies
that are subject to the reporting requirements of the Commission and non-U.S.
companies are subject to accounting, auditing and financial reporting standards
and requirements that differ from those applicable to U.S. reporting companies.
Securities prices in Europe, Australia and Asia may be affected by political,
economic, financial and social factors in those regions. These factors
(including recent or future changes in a country's government, economic and
fiscal policies; the possible imposition of, or changes in, currency exchange
laws or other laws or restrictions applicable to non-U.S. companies or
investments in non-U.S. equity securities; and possible fluctuations in the rate
of exchange between currencies) could negatively affect the international
securities markets. Moreover, the relevant European, Australian and Asian
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resources and self-sufficiency. Because some Sub-Indices have a
greater weighting than others in calculating the value of the Index,
fluctuations in the securities markets relating to those Sub-Indices will have a
greater effect on the value of the Index than fluctuations in securities markets
relating to Sub-Indices with a lesser weighting. See "The Index-Sub-Indices" in
this Prospectus for the current weightings of the Sub-Indices.
PURCHASES AND SALES BY MERRILL LYNCH.
The Company, MLPF&S and other affiliates of the Company may from time to time
buy or sell the stocks underlying the Index for their own accounts for business
reasons or in connection with hedging the Company's obligations under the
Securities. These transactions could affect the price of such stocks and the
value of the Index.
6
<PAGE>
POTENTIAL CONFLICTS.
The Calculation Agent is a subsidiary of the Company, the issuer of the
Securities. Under certain circumstances, MLPF&S's role as a subsidiary of the
Company and its responsibilities as Calculation Agent for the Securities could
give rise to conflicts of interests. You should be aware that because the
Calculation Agent is controlled by the Company, potential conflicts of interest
could arise.
OTHER CONSIDERATIONS.
Investors should also consider the tax consequences of investing in the
Securities and should consult their tax advisors.
DESCRIPTION OF SECURITIES
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Senior Indenture, referred to as the "Senior Indenture", which is more fully
described below. The Securities will mature on December 6, 2002.
While at maturity a beneficial owner of a Security will receive the principal
amount of such Security plus the Supplemental Redemption Amount, if any, there
will be no other payment of interest, periodic or otherwise. See "Payment at
Maturity" below.
The Securities are not subject to redemption by the Company or at the option
of any beneficial owner prior to maturity. Upon the occurrence of an Event of
Default with respect to the Securities, beneficial owners of the Securities may
accelerate the maturity of the Securities, as described under "Description of
Securities-Events of Default and Acceleration" and "Other Terms-Events of
Default" in this Prospectus.
The Securities were issued in denominations of whole Units.
PAYMENT AT MATURITY
General
At maturity, a beneficial owner of a Security will be entitled to receive the
principal amount thereof plus a Supplemental Redemption Amount, if any, all as
provided below. If the Ending Index Value does not exceed the Starting Index
Value, a beneficial owner of a Security will be entitled to receive only the
principal amount thereof.
Determination of the Supplemental Redemption Amount
The Supplemental Redemption Amount for a Security will be determined by the
Calculation Agent and will equal:
<TABLE>
<S> <C>
Ending Index Value - Starting Index Value
Principal Amount of such Security ($10 per Unit) x ----------------------------------------- x Participation Rate
Starting Index Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The Participation Rate equals 115%. The Starting Index Value equals 100. The
Ending Index Value will be determined by the Calculation Agent and will equal
the average (arithmetic mean) of the closing values of the Index
7
<PAGE>
in New York determined on each of the first five Calculation Days during the
Calculation Period. If there are fewer than five Calculation Days, then the
Ending Index Value will equal the average (arithmetic mean) of the closing
values of the Index on such Calculation Days, and if there is only one
Calculation Day, then the Ending Index Value will equal the closing value of the
Index on such Calculation Day. If no Calculation Days occur during the
Calculation Period because of Market Disruption Events, then the Ending Index
Value will equal the closing value of the Index determined on the last scheduled
Index Business Day in the Calculation Period, regardless of the occurrences of a
Market Disruption Event on such day. The "Calculation Period" means the period
from and including the seventh scheduled Index Business Day prior to the
maturity date to and including the second scheduled Index Business Day prior to
the maturity date. "Calculation Day" means any Index Business Day during the
Calculation Period on which a Market Disruption Event has not occurred. For
purposes of determining the Ending Index Value, an "Index Business Day" is a day
on which the New York Stock Exchange and the AMEX are open for trading and the
Index or any Successor Index, as defined below, is calculated and published. All
determinations made by the Calculation Agent shall be at the sole discretion of
the Calculation Agent and, absent a determination by the Calculation Agent of a
manifest error, shall be conclusive for all purposes and binding on the Company
and beneficial owners of the Securities.
HYPOTHETICAL RETURNS
The following table illustrates, for a range of hypothetical Ending Index
Values, (i) the total amount payable at maturity for each $10 principal amount
of Securities, (ii) the total rate of return to beneficial owners of the
Securities, (iii) the pretax annualized rate of return to beneficial owners of
Securities, and (iv) the pretax annualized rate of return of an investment in
the stocks underlying the Index (which includes an assumed aggregate dividend
yield of 2.36% per annum, as more fully described below).
<TABLE>
<CAPTION>
TOTAL AMOUNT
PAYABLE AT PRETAX
MATURITY ANNUALIZED PRETAX ANNUALIZED
PERCENTAGE CHANGE PER $10 PRINCIPAL TOTAL RATE OF RATE RATE OF RETURN OF
HYPOTHETICAL ENDING OVER THE STARTING AMOUNT OF RETURN ON OF RETURN ON STOCKS UNDERLYING THE
INDEX VALUE INDEX VALUE SECURITIES THE SECURITIES THE SECURITIES(1) INDEX(1)(2)
- --------------------- ------------------ ------------------- --------------- ----------------- -------------------------
<S> <C> <C> <C> <C> <C>
40 -60% $10.00 0.00% 0.00% -15.48%
50 -50% $10.00 0.00% 0.00% -11.24%
60 -40% $10.00 0.00% 0.00% -7.73%
70 -30% $10.00 0.00% 0.00% -4.72%
80 -20% $10.00 0.00% 0.00% -2.09%
90 -10% $10.00 0.00% 0.00% 0.25%
100(3) 0% $10.00 0.00% 0.00% 2.36%
110 10% $11.15 11.50% 2.18% 4.28%
120 20% $12.30 23.00% 4.16% 6.04%
130 30% $13.45 34.50% 5.98% 7.68%
140 40% $14.60 46.00% 7.67% 9.20%
150 50% $15.75 57.50% 9.24% 10.62%
160 60% $16.90 69.00% 10.71% 11.96%
170 70% $18.05 80.50% 12.09% 13.22%
180 80% $19.20 92.00% 13.40% 14.41%
190 90% $20.35 103.50% 14.64% 15.55%
200 100% $21.50 115.00% 15.81% 16.63%
210 110% $22.65 126.50% 16.93% 17.66%
220 120% $23.80 138.00% 18.00% 18.64%
230 130% $24.95 149.50% 19.03% 19.59%
</TABLE>
- --------------
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes (i) an investment of a fixed amount in the
stocks underlying the Sub-Indices with the allocation of such amount
reflecting the current relative weights of such stocks in the Sub-Indices;
(ii) a percentage change in the aggregate price of such stocks that equals
the percentage change in the Index from the Starting Index Value to the
relevant hypothetical Ending Index Value; (iii) a constant dividend yield of
2.36% per annum, paid quarterly from the date of initial delivery of
Securities, applied to the value of the Index at the end of each such
quarter assuming such value increases or decreases linearly from the
Starting Index Value to the applicable hypothetical Ending Index Value; (iv)
no transaction fees or expenses; (v) a term for the Securities from November
26, 1997 to December 6, 2002; and
8
<PAGE>
(vi) a final Index value equal to the Ending Index Value. The aggregate
dividend yield of the stocks underlying the Sub-Indices as of the close of
business on November 20, 1997 was approximately 2.36%.
(3) The Starting Index Value equals 100.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the total and pretax
annualized rate of return resulting therefrom will depend entirely on the actual
Ending Index Value determined by the Calculation Agent as provided herein.
ADJUSTMENTS TO THE INDEX; MARKET DISRUPTION EVENTS
If at any time the method of calculating the Index, or the value thereof, is
changed in any material respect, or if the Index is in any other way modified so
that such Index does not, in the opinion of the Calculation Agent, fairly
represent the value of the Index had such changes or modifications not been
made, then, from and after such time, the Calculation Agent shall, at the close
of business in New York, New York, on each date that the closing value with
respect to the Ending Index Value is to be calculated, make such adjustments as,
in the good faith judgment of the Calculation Agent, may be necessary in order
to arrive at a calculation of a value of a stock index comparable to the Index
as if such changes or modifications had not been made, and calculate such
closing value with reference to the Index, as adjusted. Accordingly, if the
method of calculating the Index is modified so that the value of such Index is a
fraction or a multiple of what it would have been if it had not been modified
(e.g., due to a split in the Index), then the Calculation Agent shall adjust
such Index in order to arrive at a value of the Index as if it had not been
modified (e.g., as if such split had not occurred).
"Market Disruption Event" means the occurrence or existence on any Overseas
Index Business Day with respect to a Sub-Index during the one-half hour period
that ends at the regular official weekday time at which trading on the Index
Exchange related to such Sub-Index occurs of any suspension of, or limitation
imposed on, trading (by reason of movements in price exceeding limits permitted
by the relevant exchange or otherwise) on (i) the Index Exchange in securities
that comprise 20% or more of the value of such Sub-Index or (ii) any exchanges
on which futures or options on such Sub-Index are traded in such options or
futures if, in the determination of the Calculation Agent, such suspension or
limitation is material. For the purpose of the foregoing definition, (i) a
limitation on the hours and number of days of trading will not constitute a
Market Disruption Event if it results from an announced change in the regular
hours of the relevant exchange and (ii) a limitation on trading imposed during
the course of a day by reason of movements in price otherwise exceeding levels
permitted by the relevant exchange will constitute a Market Disruption Event.
"Overseas Index Business Day" means, with respect to any Sub-Index, any day
that is (or, but for the occurrence of a Market Disruption Event, would have
been) a trading day on the relevant Index Exchange or on any exchanges on which
futures or options on such Sub-Index are traded, other than a day on which
trading on any such exchange is scheduled to close prior to its regular weekday
closing time.
"Index Exchange" means, with respect to any Sub-Index, the principal exchange
on which the shares comprising such Sub-Index are traded.
DISCONTINUANCE OF THE INDEX
If the AMEX discontinues publication of the Index and the AMEX or another
entity publishes a successor or substitute index that the Calculation Agent
determines, in its sole discretion, to be comparable to such Index (any such
index being referred to hereinafter as a "Successor Index"), then, upon the
Calculation Agent's notification of such determination to the Trustee and the
Company, the Calculation Agent will substitute the Successor Index as calculated
by the AMEX or such other entity for the Index and calculate the Ending Index
Value as described above
9
<PAGE>
under "Payment at Maturity". Upon any selection by the Calculation Agent of a
Successor Index, the Company shall cause notice thereof to be given to Holders
of the Securities.
If the AMEX discontinues publication of the Index and a Successor Index is not
selected by the Calculation Agent or is no longer published on any of the
Calculation Days, the value to be substituted for the Index for any such
Calculation Day used to calculate the Supplemental Redemption Amount at maturity
will be a value computed by the Calculation Agent for each Calculation Day in
accordance with the procedures last used to calculate the Index prior to any
such discontinuance. If a Successor Index is selected or the Calculation Agent
calculates a value as a substitute for the Index as described below, such
Successor Index or value shall be substituted for the Index for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
If the AMEX discontinues publication of the Index prior to the period during
which the Supplemental Redemption Amount is to be determined and the Calculation
Agent determines that no Successor Index is available at such time, then on each
Business Day until the earlier to occur of (a) the determination of the Ending
Index Value and (b) a determination by the Calculation Agent that a Successor
Index is available, the Calculation Agent shall determine the value that would
be used in computing the Supplemental Redemption Amount as described in the
preceding paragraph as if such day were a Calculation Day. The Calculation Agent
will cause notice of each such value to be published not less often than once
each month in The Wall Street Journal (or another newspaper of general
circulation), and arrange for information with respect to such values to be made
available by telephone. Notwithstanding these alternative arrangements,
discontinuance of the publication of the Index may adversely affect trading in
the Securities.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Securities shall have occurred
and be continuing, the amount payable to a beneficial owner of a Security upon
any acceleration permitted by the Securities, with respect to each $10 principal
amount thereof, will be equal to the Principal Amount and the Supplemental
Redemption Amount, if any, calculated as though the date of early repayment were
the stated maturity date of the Securities. See "Description of
Securities-Payment at Maturity" in this Prospectus. If a bankruptcy proceeding
is commenced in respect of the Company, the claim of the beneficial owner of a
Security may be limited, under Section 502(b)(2) of Title 11 of the United
States Code, to the principal amount of the Security plus an additional amount
of contingent interest calculated as though the date of the commencement of the
proceeding were the maturity date of the Securities.
In case of default in payment at the maturity date of the Securities (whether
at their stated maturity or upon acceleration), from and after the maturity date
the Securities shall bear interest, payable upon demand of the beneficial owners
thereof, at the rate of 6.25% per annum (to the extent that payment of such
interest shall be legally enforceable) on the unpaid amount due and payable on
such date in accordance with the terms of the Securities to the date payment of
such amount has been made or duly provided for.
DEPOSITORY
Upon issuance, all Securities will be represented by one or more fully
registered global securities (the "Global Securities"). Each such Global
Security will be deposited with, or on behalf of, The Depository Trust Company
("DTC"), as Depository, registered in the name of Cede & Co. (DTC's partnership
nominee). Unless and until it is exchanged in whole or in part for Securities in
definitive form, no Global Security may be transferred except as a whole by the
Depository to a nominee of such Depository or by a nominee of such Depository to
such Depository or another nominee of such Depository or by such Depository or
any such nominee to a successor of such Depository or a nominee of such
successor.
10
<PAGE>
So long as DTC, or its nominee, is a registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole owner or
Holder of the Securities represented by such Global Security for all purposes
under the Senior Indenture. Except as provided below, the actual owner of the
Securities represented by a Global Security (the "Beneficial Owner") will not be
entitled to have the Securities represented by such Global Securities registered
in their names, will not receive or be entitled to receive physical delivery of
the Securities in definitive form, except in the event that use of the book-
entry system for the Securities is discontinued, and will not be considered the
owners or Holders thereof under the Senior Indenture, including for purposes of
receiving any reports delivered by the Company or the Trustee pursuant to the
Senior Indenture. Accordingly, each person owning a beneficial interest in a
Global Security must rely on the procedures of DTC and, if such person is not a
participant of DTC (a "Participant"), on the procedures of the Participant
through which such person owns its interest, to exercise any rights of a Holder
under the Senior Indenture. The Company understands that under existing industry
practices, in the event that the Company requests any action of Holders or that
an owner of a beneficial interest in such a Global Security desires to give or
take any action which a Holder is entitled to give or take under the Senior
Indenture, DTC 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 DTC to Participants, by Participants to
Indirect Participants, as defined below, 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.
If (x) the Depository is at any time unwilling or unable to continue as
Depository and a successor depository is not appointed by the Company within 60
days, (y) the Company executes and delivers to the Trustee a Company Order to
the effect that the Global Securities shall be exchangeable or (z) an Event of
Default has occurred and is continuing with respect to the Securities, the
Global Securities will be exchangeable for Securities in definitive form of like
tenor and of an equal aggregate principal amount, in denominations of $10 and
integral multiples thereof. Such definitive Securities shall be registered in
such name or names as the Depository shall instruct the Trustee. It is expected
that such instructions may be based upon directions received by the Depository
from Participants with respect to ownership of beneficial interests in such
Global Securities.
The following is based on information furnished by DTC:
DTC will act as securities depository for the Securities. The Securities will
be issued as fully registered securities registered in the name of Cede & Co.
(DTC's partnership nominee). One or more fully registered Global Security will
be issued for the Securities in the aggregate principal amount of such issue,
and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its Participants deposit with DTC. DTC also facilitates
the settlement among Participants of securities transactions, such as transfers
and pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants of DTC ("Direct
Participants") include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. DTC is owned by a number
of its Direct 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 DTC's system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the Commission.
Purchases of Securities under the DTC's system must be made by or through
Direct Participants, which will receive a credit for the Securities on the DTC's
records. The ownership interest of each Beneficial Owner is in turn
11
<PAGE>
to be recorded on the records of Direct Participants and Indirect Participants.
Beneficial Owners will not receive written confirmation from DTC of their
purchase, but Beneficial Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the Direct Participants or Indirect Participants through which
such Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Securities are to be accomplished by entries made on the books
of Participants acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests in Securities,
except in the event that use of the book-entry system for the Securities is
discontinued.
To facilitate subsequent transfers, all Securities deposited with DTC are
registered in the name of DTC's partnership nominee, Cede & Co. The deposit of
Securities with DTC and their registration in the name of Cede & Co. effect no
change in beneficial ownership. DTC has no knowledge of the actual Beneficial
Owners of the Securities; DTC's records reflect only the identity of the Direct
Participants to whose accounts such Securities are credited, which may or may
not be the Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants, and by Direct 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.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to the
Company as soon as possible after the applicable record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants to
whose accounts the Securities are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
Principal, premium, if any, and/or interest, if any, payments on the
Securities will be made in immediately available funds to DTC. DTC's practice is
to credit Direct Participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the Depository's records
unless DTC has reason to believe that it will not receive payment on such date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is 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 Participant and not of DTC, the Trustee or
the Company, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of principal, premium, if any, and/or
interest, if any, to DTC is the responsibility of the Company or the Trustee,
disbursement of such payments to Direct Participants shall be the responsibility
of DTC, and disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct Participants and Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the Securities at any time by giving reasonable notice to the Company
or the Trustee. Under such circumstances, in the event that a successor
securities depository is not obtained, Security certificates are required to be
printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Security certificates will be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that the Company believes to be reliable, but the Company
takes no responsibility for the accuracy thereof.
SAME-DAY SETTLEMENT AND PAYMENT
All payments of principal and the Supplemental Redemption Amount, if any, will
be made by the Company in immediately available funds so long as the Securities
are maintained in book-entry form.
12
<PAGE>
THE INDEX
The value of the Index on any Index Business Day is calculated and
disseminated by the AMEX. The AMEX generally calculates and disseminates the
value of the Index based on the most recently reported values of the Sub-
Indices, at approximately 15-second intervals during the AMEX's business hours
and the end of each Index Business Day via the Consolidated Tape Association's
Network B. The Index will be reported on the AMEX under the symbol "EUX". The
Starting Index Value was set to 100 on the date the Securities were priced for
initial sale to the public (the "Pricing Date").
Determination of Index Multiplier for each Sub-Index
The weighting of each Sub-Index was determined at the close of business on the
Pricing Date based on its relative market capitalization. The market
capitalization of a stock equals the product of the total number of shares of
such stock outstanding and the price of a share of such stock. The total market
capitalization of the stocks comprising each Sub-Index was determined using the
most recently available information concerning the number of shares outstanding
for each stock contained in a Sub-Index and the most recently available price
for each such share. Current exchange rates were used to translate such market
capitalization information into U.S. dollars. The market capitalizations
expressed in U.S. dollars of each Sub-Index were totaled (the "Total Market
Capitalization"). The weighting of each Sub-Index was then determined and equals
the percentage of the market capitalization for such Sub-Index relative to the
Total Market Capitalization. The Index Multiplier for each Sub-Index was then
calculated and equals (i) the weighting for such Sub-Index multiplied by 100,
divided by (ii) the most recently available value of such Sub-Index. The Index
Multipliers were calculated in this way so that the Index would equal 100.00 on
the Pricing Date.
The Index Multiplier for each Sub-Index will remain fixed, except that the
AMEX may adjust such Index Multiplier in the event of a significant change in
how a Sub-Index is calculated. There will be no periodic rebalancing of the
Index to reflect changes in the relative market capitalizations of the Sub-
Indices.
Computation of the Index
The Index is calculated by totaling the products of the most recently
available value of each Sub-Index and the Index Multiplier applicable to such
Sub-Index. Since the Sub-Indices are based on stocks traded on stock exchanges
in Europe, Asia and Australia, once such stock exchanges close and the values of
the Sub-Indices become fixed until such stock exchanges reopen, the value of the
Index will be fixed.
13
<PAGE>
Sub-Indices
The following table sets forth the name of each Sub-Index, the number of
stocks underlying each Sub-Index, the market capitalization in U.S. dollars of
each Sub-Index, the weighting of each Sub-Index as of the Pricing Date and the
Index Multiplier:
<TABLE>
<CAPTION>
NUMBER MARKET CURRENT INDEX
SUB-INDEX OF STOCKS CAPITALIZATION(1) WEIGHTING(1) MULTIPLIER
- ----------------------------------------- --------- ----------------- ------------ ----------
(IN BILLIONS)
<S> <C> <C> <C> <C>
Financial Times SE 100 Index............. 102 US$1,534 25.18% .0051303
Nikkei 225............................... 225 1,366 22.43% .0013754
Deutscher Aktienindex.................... 30 586 9.62% .0024576
Swiss Market Index....................... 23 545 8.95% .0015832
Amsterdam Exchanges-index................ 25 432 7.10% .0080236
Compagnie des Agents de Change 40 Index.. 40 399 6.54% .0023191
Australia All Ordinaries Index........... 338 309 5.08% .0020840
Stockholm Options Market Index........... 30 267 4.39% .0018237
Milano Italia Borsa 30 Index............. 30 258 4.23% .0001851
Hong Kong 30 Index....................... 30 216 3.54% .0070410
IBEX 35.................................. 35 179 2.94% .0004344
--- ----- ------
Total.................................. 908 US$6,091 100.00%
</TABLE>
- --------------
(1) As of November 20, 1997.
The following is a list of the Sub-Indices and certain information concerning
each such Sub-Index. All disclosure contained in this Prospectus regarding the
Sub-Indices is derived from publicly available information.
NIKKEI STOCK AVERAGE- "NIKKEI 225"
Description of Nikkei 225: The Nikkei 225 is intended to provide an
indication of the pattern of common stock price movement of the 225 most
actively traded common stocks on the Tokyo Stock Exchange. The Nikkei 225 is a
modified price-weighted index which means that an underlying stock's weight in
the Nikkei 225 is based on its price per share rather than the total market
capitalization of the issuer.
Publisher: Nihon Keizai Shimbun, Inc. ("NKS")
Required Disclosure: NKS is under no obligation to continue the calculation
and dissemination of the Nikkei 225. The Securities are not sponsored,
endorsed, sold or promoted by NKS. No inference should be drawn from the
information contained in this Prospectus Supplement that NKS makes any
representation or warranty, implied or express, to the Company, the holders of
the Securities or any member of the public regarding the advisability of
investing in securities generally or in the Securities in particular or the
ability of the Nikkei 225 to track general stock market performance. NKS has
no obligation to take the needs of the Company or the holders of the
Securities into consideration in determining, composing or calculating the
Nikkei 225. NKS is not responsible for, and has not participated in the
determination of the timing of, prices for, or quantities of, the Securities
to be issued or in the determination or calculation of the equation by which
the Securities are to be settled in cash. NKS has no obligation or liability
in connection with the administration, marketing or trading of the Securities.
The use of and reference to the Nikkei 225 in connection with the Securities
have been consented to by NKS, the publisher of the Nikkei 225.
14
<PAGE>
FINANCIAL TIMES SE 100 INDEX-"FTSE 100"
Description of FTSE 100: The FTSE 100 is intended to provide an indication
of the pattern of common stock price movement of the 100 common stocks with
the largest market capitalization on the London Stock Exchange.
Publisher: The Financial Times and London Stock Exchange
Required Disclosure: The FTSE 100 is calculated by FTSE International
Limited in conjunction with the Institute of Actuaries and the Faculty of
Actuaries. Merrill Lynch & Co., Inc. has obtained full license from FTSE
International Limited to use its trademark and copyright in the creation of
this Security. FTSE International Limited does not sponsor, endorse or promote
this Security.
DEUTSCHER AKTIENINDEX-"DAX(R)"
Description of DAX: The DAX is a total rate of return index measuring the
performance of 30 common stocks on the Frankfurt Stock Exchange selected on
the basis of their market capitalization and trading volume. A total rate of
return index reflects both the price performance of the relevant common stocks
as well as the dividends paid on such common stocks.
Publisher: Deutsche Borse AG
------------
"DAX" is a registered trademark of Deutsche Borse AG.
COMPAGNIE DES AGENTS DE CHANGE 40 INDEX-"CAC 40"
Description of CAC 40: The CAC 40 is intended to provide an indication of
the pattern of common stock price movement of the 40 common stocks with the
largest market capitalization on the Paris Bourse.
Publisher: SBF-Paris Bourse
Required Disclosure: "CAC-40" is a registered trademark of the Societe des
Bourses Francaises-Paris Bourse, which designates the index that the SBF-Paris
Bourse calculates and publishes. Authorization to use the index and the "CAC-
40" trademark in connection with the Securities has been granted by license.
The SBF-Paris Bourse, owner of the trademark and of the CAC-40, does not
sponsor, endorse or participate in the marketing of the Securities. The SBF-
Paris Bourse makes no warranty or representation to any person, express or
implied, as to the figure at which the CAC-40 stands at any particular time,
nor as to the results or performance of the Securities. Neither shall the SBF-
Paris Bourse be under any obligation to advise any person of any error in the
published level of the CAC-40.
SWISS MARKET INDEX-"SMI(R)"
Description of SMI: The SMI is intended to provide an indication of the
pattern of common stock price movement of common stocks with the largest
market capitalization and greatest liquidity on the Geneva, Zurich and Basle
Stock Exchanges.
Publisher: Swiss Exchange
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<PAGE>
Required Disclosure: The Securities are not in any way sponsored, endorsed,
sold or promoted by the Swiss Exchange and the Swiss Exchange makes no
warranty or representation whatsoever, express or implied, either as to the
results to be obtained from the use of the SMI and/or the figure at which the
SMI stands at any particular time on any particular day or otherwise. The SMI
is compiled and calculated solely by the Swiss Exchange. However, the Swiss
Exchange shall not be liable (whether in negligence or otherwise) to any
person for any error in the SMI and the Swiss Exchange shall not be under any
obligation to advise any person of any error therein.
------------
"SMI" is a registered trademark of the Swiss Exchange.
AMSTERDAM EXCHANGES-INDEX(R)-"AEX-INDEX(R)"
Description of AEX: The AEX is intended to provide an indication of the
pattern of common stock price movement of the 25 common stocks with the
largest market capitalization on the Amsterdam Stock Exchange.
Publisher: AEXOptiebeurs nv
Required Disclosure: The AEX-Optiebeurs nv has all proprietary rights with
relation to the AEX. The AEX-Optiebeurs nv in no way sponsors, endorses or is
otherwise involved in the issue and offering of the Securities. The AEX-
Optiebeurs nv disclaims any liability to any party for any inaccuracy in the
data on which the AEX is based, for any mistakes, errors, or omissions in the
calculation or dissemination of the AEX or for the manner in which the AEX is
used in connection with the issue and offering of the Securities.
------------
"AEX-index" is a registered trademark of the AEX-Optiebeurs nv.
AMEX HONG KONG 30 INDEX-"HK30"
Description of HK30: The HK30 is intended to provide an indication of the
pattern of common stock price movement of 30 common stocks listed on the Hong
Kong Stock Exchange and selected on the basis of market weight, trading
liquidity and representation of business industry.
Publisher: The American Stock Exchange
Required Disclosure: The AMEX in no way sponsors, endorses or is otherwise
involved in the issuance of the Securities (other than the fact that the
Securities will be listed and traded on the AMEX and the AMEX will calculate
and disseminate the Major 11 Index) and the AMEX disclaims any liability to
any party for any inaccuracy in the data on which the HK30 is based, for any
mistakes, errors or omissions in the calculation, and/or dissemination of the
HK30, or for the manner in which it is applied in connection with the issuance
of the Securities.
------------
The use and reference to the term "AMEX Hong Kong 30 Index" herein has been
consented to by the AMEX. The "AMEX Hong Kong 30 Index" is a service mark of
the AMEX.
AUSTRALIA ALL ORDINARIES INDEX-"XAO"
Description of XAO: The XAO is a capitalization-weighted index of 338 common
stocks listed on the Australian Stock Exchange.
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<PAGE>
Publisher: ASX Operations Pty Limited
Required Disclosure: The XAO is a registered trade mark of ASX Operations
Pty Limited ("ASXO"), a wholly-owned subsidiary of the Australian Stock
Exchange Limited ("ASX"). ASXO has granted a license for the use of the XAO on
the basis that ASXO does not expressly or impliedly approve, endorse, make any
judgment or express any opinion in respect of the Company or the Securities.
ASX and its related corporations, shall be under no liability for any claim
whatsoever where the claim arises wholly or substantially out of accident or
negligence of ASX, its related corporations and their servants and agents as
the case may be or acts of third parties; and without in any way limiting the
generality of the foregoing, arising out of unavailability of the All
Ordinaries Index or non-supply of the All Ordinaries Index.
MILANO ITALIA BORSA 30 INDEX-"MIB 30"
Description of MIB 30: The MIB 30 is intended to provide an indication of
the pattern of common stock price movement of common stocks with the largest
market capitalization and greatest liquidity on the Italian Stock Exchange.
Publisher: Consiglio di Borsa
STOCKHOLM OPTIONS MARKET INDEX-"OMX INDEX"
Description of OMX index: The OMX index is intended to provide an indication
of the pattern of common stock price movement of the 30 common stocks with the
largest volume of trading on the Stockholm Stock Exchange.
Publisher: OM Gruppen AB
Required Disclosure: The Securities are not in any way sponsored, endorsed,
sold or promoted by OM Gruppen AB ("OM") and OM makes no warranty or
representation whatsoever, express or implied, either as to the results to be
obtained from the use of the OMX index and/or the figure at which the said OMX
index stands at any particular time on any particular day or otherwise. The
OMX index is compiled and calculated solely by an indexer on behalf of OM.
However, OM shall not be liable (whether in negligence or otherwise) to any
person for any error in the OMX index and OM shall not be under any obligation
to advise any person of any error therein.
All rights to the trademark OMX, OMX INDEX are vested in OM Gruppen AB and are
used under a license agreement with OM.
IBEX 35 INDEX-"IBEX 35"
Description of IBEX 35: The IBEX 35 is intended to provide an indication of
the pattern of common stock price movement of the 35 common stocks with the
greatest liquidity continuously traded and quoted on the Joint Stock Exchange
System made up of the Barcelona, Bilbao, Madrid and Valencia stock exchanges.
Publisher: Sociedad de Bolsas, S.A.
Required Disclosure: Sociedad de Bolsas, S.A. does not warrant in any case
nor for any reason whatsoever: (a) the continuity of the composition of the
IBEX 35 exactly as it is today; (b) the continuity of the method for
calculating the IBEX 35 exactly as it is calculated today; (c) the continuity
of the calculation, formula and
17
<PAGE>
publication of the IBEX 35; (d) the precision, integrity or freedom from
errors or mistakes in the composition and calculation of the IBEX 35; and (e)
the adequacy of the IBEX 35 for the purposes expected in the issue of the
Securities nor for dealing in the same.
The publisher of each Sub-Index will add or delete stocks due to events such
as the bankruptcy or merger of the issuer of a stock. The publisher of a Sub-
Index may reevaluate the composition of the stocks underlying the Sub-Index at
specified intervals to assure that they still meet the selection criteria or any
ongoing eligibility criteria.
The publisher of a Sub-Index is under no obligation to continue the
calculation and dissemination of such Sub-Index and such publisher may change
the method by which such Sub-Index is calculated. The publishers of the Sub-
Indices are under no obligation to take the needs of the Company or the holders
of the MITTS into consideration in determining, composing or calculating the
Sub-Indices.
OTHER TERMS
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Indenture (the "Senior Indenture"), dated as of April 1, 1983, as amended and
restated, 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"). A copy of the Senior Indenture is filed as an exhibit
to the registration statements relating to the Securities. The following
summaries of certain provisions of the Senior Indenture do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the Senior Indenture, including the definition therein of
certain terms.
The Senior Indenture provides that series of Senior Debt Securities may from
time to time be issued thereunder, without limitation as to aggregate principal
amount, in one or more series and upon such terms as the Company may establish
pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the Securities are
governed by and construed in accordance with the laws of the State of New York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen" a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and other regulatory bodies.
LIMITATIONS UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of the incurrence of such secured indebtedness, has a net worth
18
<PAGE>
of less than $3,000,000) without making effective provision whereby the
Outstanding Senior Debt Securities will be secured equally and ratably with such
secured indebtedness.
LIMITATION ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Indenture provides that the Company may not sell, transfer or otherwise
dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell or
otherwise dispose of any of its Voting Stock, unless, after giving effect to any
such transaction, MLPF&S remains a Controlled Subsidiary (defined in the Senior
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the 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.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or into
any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior 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 Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company and
the Trustee with the consent of the Holders of 66 2/3% in principal amount of
the Outstanding Senior Debt Securities of each series issued pursuant to such
indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding Senior Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts payable on, any Senior Debt
Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any Senior Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Debt Security; (e) reduce the percentage in principal
amount of the Outstanding Senior Debt Securities of any series, the consent of
whose Holders is required to modify or amend the Indenture; or (f) modify the
foregoing requirements or reduce the percentage of Outstanding Senior Debt
Securities necessary to waive any past default to less than a majority. No
modification or amendment of the Subordinated Indenture or any Subsequent
Indenture for Subordinated Debt Securities may adversely affect the rights of
any holder of Senior Indebtedness without the consent of such Holder. Except
with respect to certain fundamental provisions, the Holders of at least a
majority in principal amount of Outstanding Senior Debt Securities of any series
may, with respect to such series, waive past defaults under the Indenture and
waive compliance by the Company with certain provisions thereof.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the
19
<PAGE>
Company contained in the Indenture for the benefit of such series or in the
Senior Debt Securities of such series, continued for 60 days after written
notice as provided in the Senior Indenture; (e) certain events in bankruptcy,
insolvency or reorganization; and (f) any other Event of Default provided with
respect to Senior Debt Securities of that series. The Trustee or the Holders of
25% in principal amount of the Outstanding Senior Debt Securities of that series
may declare the principal amount (or such lesser amount as may be provided for
in the Senior Debt Securities of that series) of all Outstanding Senior Debt
Securities of that series and the interest due thereon and Additional Amounts
payable in respect thereof, if any to be due and payable immediately if an Event
of Default with respect to Senior Debt Securities of such series shall occur and
be continuing at the time of such declaration. At any time after a declaration
of acceleration has been made with respect to Senior Debt Securities of any
series but before a judgment or decree for payment of money due has been
obtained by the Trustee, the Holders of a majority in principal amount of the
Outstanding Senior Debt Securities of that series may rescind any declaration of
acceleration and its consequences, if all payments due (other than those due as
a result of acceleration) have been made and all Events of Default have been
remedied or waived. Any Event of Default with respect to Senior Debt Securities
of any series may be waived by the Holders of a majority in principal amount of
all Outstanding Senior Debt Securities of that series, except in a case of
failure to pay principal or premium, if any, or interest or Additional Amounts
payable on any Senior Debt Security of that series for which payment had not
been subsequently made or in respect of a covenant or provision which cannot be
modified or amended without the consent of the Holder of each Outstanding Senior
Debt Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior Debt
Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any right or power
under the Senior Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company is required to furnish to the Trustee annually a statement as to
the fulfillment by the Company of all of its obligations under the Senior
Indenture.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Solely for purposes of applying the final Treasury Department Regulations (the
"Final Regulations") concerning the United States Federal income tax treatment
of contingent payment debt instruments to the Securities, the Company has
determined that the projected payment schedule for the Securities will consist
of payment on the maturity date of the principal amount thereof and a projected
Supplemental Redemption Amount equal to $3.6261 per Unit. This represents an
estimated yield on the Securities equal to 6.25% per annum (compounded
semiannually).
The projected payment schedule (including both projected Supplemental
Redemption Amount and the estimated yield on the Securities) has been determined
solely for United States Federal income tax purposes (i.e., for purposes of
applying the Final Regulations to the Securities), and is neither a prediction
nor a guarantee of what the actual Supplemental Redemption Amount will be, or
that the actual Supplemental Redemption Amount will even exceed zero.
The following table sets forth the amount of interest that will be deemed to
have accrued with respect to each Unit of the Securities during each accrual
period over a term of five years and ten days for the Securities based upon the
projected payment schedule for the Securities (including both the projected
Supplemental Redemption Amount and the estimated yield equal to 6.25% per annum
(compounded semiannually)) as determined by the Company for purposes of
illustrating the application of the Final Regulations to the Securities:
20
<PAGE>
<TABLE>
<CAPTION>
TOTAL INTEREST
DEEMED TO HAVE
INTEREST DEEMED TO ACCRUED ON
ACCRUE DURING SECURITIES AS OF END
ACCRUAL PERIOD OF ACCRUAL PERIOD
ACCRUAL PERIOD (PER UNIT) (PER UNIT)
------------------------------------------------- ------------------- ---------------------
<S> <C> <C>
November 26, 1997 through December 6, 1997 . $0.0169 $0.0169
December 7, 1997 through June 6, 1998 .... . $0.3130 $0.3299
June 7, 1998 through December 6, 1998 .... . $0.3228 $0.6527
December 7, 1998 through June 6, 1999 .... . $0.3329 $0.9856
June 7, 1999 through December 6, 1999 .... . $0.3433 $1.3289
December 7, 1999 through June 6, 2000 .... . $0.3540 $1.6829
June 7, 2000 through December 6, 2000 .... . $0.3651 $2.0480
December 7, 2000 through June 6, 2001 .... . $0.3765 $2.4245
June 7, 2001 through December 6, 2001 .... . $0.3883 $2.8128
December 7, 2001 through June 6, 2002 .... . $0.4004 $3.2132
June 7, 2002 through December 6, 2002 .... . $0.4129 $3.6261
</TABLE>
- --------------
Projected Supplemental Redemption Amount = $3.6261 per Unit.
All prospective investors in the Securities should consult their own tax
advisors concerning the application of the Final Regulations to their investment
in the Securities. Investors in the Securities may also obtain the projected
payment schedule, as determined by the Company for purposes of the application
of the Final Regulations to the Securities, by submitting a written request for
such information to Merrill Lynch & Co., Inc., Attn: Darryl W. Colletti,
Corporate Secretary's Office, 100 Church Street, 12th Floor, New York, New York
10080-6512.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997 included
in the 1997 Annual Report on Form 10-K, and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP, as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such 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 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 such Quarterly Reports 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.
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<PAGE>
********************************************************************************
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
********************************************************************************
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
9,000,000 UNITS
MERRILL LYNCH & CO., INC.
MARKET INDEX TARGET-TERM SECURITIES SM
BASED UPON THE DOW JONES INDUSTRIAL AVERAGE SM
DUE JANUARY 14, 2003
"MITTS(R)"
($10 PRINCIPAL AMOUNT PER UNIT)
ON DECEMBER 23, 1997, MERRILL LYNCH & CO., INC. (THE "COMPANY") ISSUED AN
AGGREGATE PRINCIPAL AMOUNT OF $90,000,000 (9,000,000 UNITS) OF MARKET INDEX
TARGET-TERM SECURITIES BASED UPON THE DOW JONES INDUSTRIAL AVERAGE DUE JANUARY
14, 2003 (THE "SECURITIES" OR "MITTS"). EACH $10 PRINCIPAL AMOUNT OF SECURITIES
WILL BE DEEMED A "UNIT" FOR PURPOSES OF TRADING AND TRANSFER AT THE SECURITIES
DEPOSITORY DESCRIBED BELOW. UNITS WILL BE TRANSFERABLE BY THE SECURITIES
DEPOSITORY, AS MORE FULLY DESCRIBED BELOW, IN DENOMINATIONS OF WHOLE UNITS.
GENERAL:
. Senior unsecured debt securities . Not redeemable prior to maturity
. No payments prior to maturity . Transferable only in whole Units
PAYMENT AT MATURITY:
Principal Amount + Supplemental Redemption Amount
The Supplemental Redemption Amount will be based on the percentage increase, if
any, in the Dow Jones Industrial Average (the "Index") above a benchmark value
of 8,594, which exceeded the closing value of such Index on the date the
Securities were priced for initial sale to the public by 8%. The Supplemental
Redemption Amount may be ZERO, but will not be less than zero.
BEFORE YOU DECIDE TO INVEST IN THE SECURITIES, CAREFULLY READ THIS PROSPECTUS,
ESPECIALLY THE RISK FACTORS BEGINNING ON PAGE 4.
We expect that the Securities will be maintained in book-entry form only through
the facilities of DTC.
______________________
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 Securities 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 Securities.
MLPF&S may act as principal or agent in such transactions. The Securities may
be offered on the New York Stock Exchange (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 Securities 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.
__________________
MERRILL LYNCH & CO.
____________________
The date of this Prospectus Supplement is July __, 1998.
________________
"MITTS" is a registered service mark and "Market Index Target-Term Securities"
is a service mark owned by Merrill Lynch & Co., Inc.
<PAGE>
REQUIRED DISCLOSURES
DOW JONES
"Dow Jones", "Dow Jones Industrial Average(SM)", and "DJIA(SM)" are service
marks of Dow Jones & Company, Inc. ("Dow Jones") and have been licensed for use
for certain purposes by MLPF&S.
The Securities are not sponsored, endorsed, sold or promoted by Dow Jones and
Dow Jones makes no representation regarding the advisability of investing in
such product.
DOW JONES DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX
OR ANY DATA INCLUDED THEREIN AND DOW JONES SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. DOW JONES MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY MERRILL LYNCH & CO., INC.,
OWNERS OF THE SECURITIES OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX
OR ANY DATA INCLUDED THEREIN. DOW JONES MAKES NO EXPRESS OR IMPLIED WARRANTIES,
AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL DOW JONES HAVE
ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY
AGREEMENTS OR ARRANGEMENTS BETWEEN DOW JONES AND MLPF&S.
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 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 26, 1997,
Quarterly Report on Form 10-Q for the period ended March 27, 1998, and Current
Reports on Form 8-K dated January 20, 1998, January 30, 1998, February 4, 1998,
February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998, April 29,
1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June 24, 1998,
June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 filed pursuant to
Section 13 of the Exchange Act, are hereby incorporated by reference into this
Prospectus.
2
<PAGE>
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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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 LAWRENCE M. EGAN, JR., CORPORATE SECRETARY'S
OFFICE, 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 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.
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, advisory, insurance, and related
services on a global basis. Its principal subsidiary, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("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; an underwriter of selected insurance
products and a distributor of investment products of the Merrill Lynch Asset
Management group. 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. The Company's asset management and investment
management activities are conducted through the Merrill Lynch Asset Management
group and Merrill Lynch Mercury Asset Management, which together constitute one
of the largest asset management organizations in the world. Merrill Lynch
Government Securities Inc. is a primary dealer in obligations issued or
guaranteed by the U.S. Government and its agencies and its government-sponsored
entities. Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative
Products AG, and Merrill Lynch International are the Company's primary
derivative product dealers and enter into interest rate, currency, and other
over-the-counter derivative transactions as intermediaries and as principals.
The Company's operations in insurance services consist of the underwriting and
sale 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 and
purchasing secured loans, providing currency exchange facilities and other
related services, and furnishing trust, employee benefit, and custodial
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.
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<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
Ratio of earnings
to fixed charges........ 1.4 1.2 1.2 1.2 1.2 1.2
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
RISK FACTORS
Your investment in the Securities will involve certain risks. For example,
there is the risk that you might not earn a return on your investment, and the
risk that you will be unable to sell your Securities prior to their maturity.
You should carefully consider the following discussion of risks before deciding
whether an investment in the Securities is suitable for you.
THE SUPPLEMENTAL REDEMPTION AMOUNT
The Benchmark Index Value exceeded the closing value of the Index (i.e., the
Starting Index Value) on the date the Securities were priced for initial sale to
the public (the "Pricing Date") by 8%. You should be aware that if the Ending
Index Value does not exceed the Starting Index Value at maturity by more than
8%, the Supplemental Redemption Amount will be zero. This will be true even if
the value of the Index was higher than the Benchmark Index Value at some time
during the life of the Securities but later falls below the Benchmark Index
Value. If the Supplemental Redemption Amount is zero, we will pay you only the
principal amount of your Securities.
YOUR YIELD MAY BE LOWER THAN THE YIELD ON A STANDARD DEBT SECURITY OF COMPARABLE
MATURITY
The amount we pay you at maturity may be less than the return you could earn
on other investments. Your yield may be less than the yield you would earn if
you bought a standard senior non-callable debt security of the Company with the
same maturity date. Your investment may not reflect the full opportunity cost to
you when you take into account factors that affect the time value of money.
YOUR RETURN WILL NOT REFLECT THE PAYMENT OF DIVIDENDS
Dow Jones calculates the Index by reference to the prices of the common stocks
comprising the Index without taking into consideration the value of dividends
paid on those stocks. Therefore, the return you earn on the Securities, if any,
will not be the same as the return that you would earn if you actually owned
each of the common stocks underlying the Index and received the dividends paid
on those stocks.
UNCERTAIN TRADING MARKET
The Securities have been approved for listing on the NYSE under the symbol
"DJM". While there have been a number of issuances of Market Index Target-Term
Securities, trading volumes have varied historically from one transaction to
another and it is therefore impossible to predict how the Securities will trade.
You cannot assume that a trading market will develop for the Securities. If such
a trading market does develop, there can be no assurance that there will be
liquidity in the trading
4
<PAGE>
market. The development of a trading market for the Securities will depend on
the financial performance of the Company, and other factors such as the
appreciation, if any, of the value of the Index.
If the trading market for the Securities is limited, there may be a limited
number of buyers when you decide to sell your Securities if you do not wish to
hold your investment until maturity. This may affect the price you receive.
FACTORS AFFECTING TRADING VALUE OF THE SECURITIES
We believe that the market value of the Securities will be affected by the
value of the Index and by a number of other factors. Some of these factors are
interrelated in complex ways; as a result, the effect of any one factor may be
offset or magnified by the effect of another factor. The following paragraphs
describe the expected impact on the market value of the Securities given a
change in a specific factor, assuming all other conditions remain constant.
. INDEX VALUE We expect that the market value of the Securities will depend
substantially on the value of the Index relative to the Benchmark Index
Value. If you choose to sell your Securities when the value of the Index
exceeds the Benchmark Index Value, you may receive substantially less than
the amount that would be payable at maturity based on that Index value
because of the expectation that the Index will continue to fluctuate until
the Ending Index Value is determined. If you choose to sell your Securities
when the value of the Index is below the Benchmark Index Value, you may
receive less than the $10 principal amount per Unit of Securities. In
general, rising U.S. dividend rates (i.e., dividends per share) may increase
the value of the Index while falling U.S. dividend rates may decrease the
value of the Index. Political, economic and other developments that affect
the stocks underlying the Index may also affect the value of the Index and
the value of the Securities.
. INTEREST RATES Because the Securities repay, at a minimum, the principal
amount at maturity, we expect that the trading value of the Securities will
be affected by changes in interest rates. In general, if U.S. interest rates
increase, we expect that the trading value of the Securities will decrease.
If U.S. interest rates decrease, we expect the trading value of the
Securities will increase. Interest rates may also affect the U.S. economy
and, in turn, the value of the Index. Rising interest rates may lower the
value of the Index and, thus, the Securities. Falling interest rates may
increase the value of the Index and, thus, may increase the value of the
Securities.
. VOLATILITY OF THE INDEX Volatility is the term used to describe the size and
frequency of market fluctuations. If the volatility of the Index increases,
we expect that the trading value of the Securities will increase. If the
volatility of the Index decreases, we expect that the trading value of the
Securities will decrease.
. TIME REMAINING TO MATURITY The Securities may trade at a value above that
which would be expected based on the level of interest rates and the Index.
This difference will reflect a "time premium" due to expectations concerning
the value of the Index during the period prior to maturity of the
Securities. However, as the time remaining to maturity of the Securities
decreases, we expect that this time premium will decrease, lowering the
trading value of the Securities.
. DIVIDEND YIELDS If dividend yields on the stocks comprising the Index
increase, we expect that the value of the Securities will decrease.
Conversely, if dividend yields on the stock comprising the Index decrease,
we expect that the value of the Securities will increase.
. COMPANY CREDIT RATINGS Real or anticipated changes in the Company's credit
ratings may affect the market value of the Securities.
It is important for you to understand that the impact of one of the factors
specified above, such as an increase in interest rates, may offset some or all
of any increase in the trading value of the Securities attributable to another
factor, such as an increase in the Index value.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the Securities of a given change in most of
the factors listed above will be less if it occurs later in the term of the
Securities than if it occurs
5
<PAGE>
earlier in the term of the Securities except that we expect that the effect on
the trading value of the Securities of a given increase in the value of the
Index will be greater if it occurs later in the term of the Securities than if
it occurs earlier in the term of the Securities.
STATE LAW LIMITS ON INTEREST PAID
New York State laws govern the Senior Indenture, as defined below. New York
has certain usury laws that limit the amount of interest that can be charged and
paid on loans, which includes debt securities like the Securities. Under present
New York law, the maximum rate of interest is 25% per annum on a simple interest
basis. This limit may not apply to debt securities in which $2,500,000 or more
has been invested.
While we believe that New York law would be given effect by a state or Federal
court sitting outside of New York, many other states also have laws that
regulate the amount of interest that may be charged to and paid by a borrower.
We will promise, for the benefit of the holders of the Securities, to the extent
permitted by law, not to voluntarily claim the benefits of any laws concerning
usurious rates of interest.
PURCHASES AND SALES BY MERRILL LYNCH
The Company, MLPF&S and other affiliates of the Company may from time to time
buy or sell the stocks underlying the Index for their own accounts for business
reasons or in connection with hedging the Company's obligations under the
Securities. These transactions could affect the price of such stocks and the
value of the Index.
POTENTIAL CONFLICTS
The Calculation Agent is a subsidiary of the Company, the issuer of the
Securities. Under certain circumstances, MLPF&S's role as a subsidiary of the
Company and its responsibilities as Calculation Agent for the Securities could
give rise to conflicts of interests. You should be aware that because the
Calculation Agent is controlled by the Company, potential conflicts of interest
could arise.
OTHER CONSIDERATIONS
Investors should also consider the tax consequences of investing in the
Securities and should consult their tax advisors.
DESCRIPTION OF SECURITIES
GENERAL
The Market Index Target-Term Securities based upon the Dow Jones Industrial
Average SM due January 14, 2003, which are referred to herein as the
"Securities" are to be issued as a series of Senior Debt Securities under the
Senior Indenture, referred to as the "Senior Indenture", which is more fully
described below. The Securities will mature on January 14, 2003.
While at maturity a beneficial owner of a Security will receive the principal
amount of such Security plus the Supplemental Redemption Amount, if any, there
will be no other payment of interest, periodic or otherwise. See "Payment at
Maturity" below.
The Securities are not subject to redemption by the Company or at the option
of any beneficial owner prior to maturity. Upon the occurrence of an Event of
Default with respect to the Securities, beneficial owners of the Securities may
accelerate the maturity of the Securities, as described under "Description of
Securities--Events of Default and Acceleration" and "Other Terms--Events of
Default" in this Prospectus.
The Securities are to be issued in denominations of whole Units.
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<PAGE>
PAYMENT AT MATURITY
At maturity, a beneficial owner of a Security will be entitled to receive the
principal amount thereof plus the Supplemental Redemption Amount, if any, all as
provided below. If the Ending Index Value does not exceed the Benchmark Index
Value, a beneficial owner of a Security will be entitled to receive only the
principal amount thereof.
DETERMINATION OF THE SUPPLEMENTAL REDEMPTION AMOUNT
The Supplemental Redemption Amount for a Security will be determined by the
Calculation Agent and will equal:
<TABLE>
<S> <C>
Ending Index Value--Benchmark Index Value
Principal Amount of such Security ($10 per Unit) x -----------------------------------------
Benchmark Index Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The Benchmark Index Value equals 8,594. The Benchmark Index Value was
determined on the Pricing Date by multiplying the Starting Index Value by a
factor equal to 108%. The Ending Index Value will be determined by the
Calculation Agent and will equal the average (arithmetic mean) of the closing
values of the Index determined on each of the first five Calculation Days during
the Calculation Period. If there are fewer than five Calculation Days, then the
Ending Index Value will equal the average (arithmetic mean) of the closing
values of the Index on such Calculation Days, and if there is only one
Calculation Day, then the Ending Index Value will equal the closing value of the
Index on such Calculation Day. If no Calculation Days occur during the
Calculation Period, then the Ending Index Value will equal the closing value of
the Index determined on the last scheduled Index Business Day in the Calculation
Period, regardless of the occurrence of a Market Disruption Event on such day.
The "Calculation Period" means the period from and including the seventh
scheduled Index Business Day prior to the maturity date to and including the
second scheduled Index Business Day prior to the maturity date. "Calculation
Day" means any Index Business Day during the Calculation Period on which a
Market Disruption Event has not occurred. For purposes of determining the Ending
Index Value, an "Index Business Day" is a day on which the NYSE and the American
Stock Exchange are open for trading and the Index or any Successor Index, as
defined below, is calculated and published. All determinations made by the
Calculation Agent shall be at the sole discretion of the Calculation Agent and,
absent a determination by the Calculation Agent of a manifest error, shall be
conclusive for all purposes and binding on the Company and beneficial owners of
the Securities.
HYPOTHETICAL RETURNS
The following table illustrates, for a range of hypothetical Ending Index
Values, (i) the total amount payable at maturity for each $10 principal amount
of Securities, (ii) the total rate of return to beneficial owners of the
Securities, (iii) the pretax annualized rate of return to beneficial owners of
Securities, and (iv) the pretax annualized rate of return of an investment in
the stocks underlying the Index (which includes an assumed aggregate dividend
yield of 1.72% per annum, as more fully described below).
7
<PAGE>
<TABLE>
<CAPTION>
TOTAL AMOUNT PRETAX
PAYABLE AT MATURITY ANNUALIZED PRETAX ANNUALIZED
HYPOTHETICAL PERCENTAGE CHANGE PER $10 PRINCIPAL TOTAL RATE OF RATE RATE OF RETURN OF
ENDING OVER THE STARTING AMOUNT OF RETURN ON OF RETURN ON STOCKS UNDERLYING THE
INDEX VALUE INDEX VALUE SECURITIES THE SECURITIES THE SECURITIES(1) INDEX(1)(2)
- ----------------- ------------------ ------------------- --------------- ----------------- -------------------------
<S> <C> <C> <C> <C> <C>
3,182.96 -60.00% $10.00 0.00% 0.00% -14.21%
3,978.71 -50.00% $10.00 0.00% 0.00% -10.67%
4,774.45 -40.00% $10.00 0.00% 0.00% -7.63%
5,570.19 -30.00% $10.00 0.00% 0.00% -4.95%
6,365.93 -20.00% $10.00 0.00% 0.00% -2.55%
7,161.67 -10.00% $10.00 0.00% 0.00% -0.37%
7,957.41(3) 0.00% $10.00 0.00% 0.00% 1.64%
8,753.15 10.00% $10.19 1.85% 0.36% 3.49%
9,548.89 20.00% $11.11 11.11% 2.09% 5.22%
10,344.63 30.00% $12.04 20.37% 3.70% 6.84%
11,140.37 40.00% $12.96 29.63% 5.19% 8.36%
11,936.12 50.00% $13.89 38.89% 6.59% 9.80%
12,731.86 60.00% $14.81 48.15% 7.92% 11.17%
13,527.60 70.00% $15.74 57.41% 9.16% 12.48%
14,323.34 80.00% $16.67 66.67% 10.35% 13.72%
15,119.08 90.00% $17.59 75.93% 11.47% 14.91%
15,914.82 100.00% $18.52 85.19% 12.55% 16.05%
16,710.56 110.00% $19.44 94.44% 13.57% 17.15%
17,506.30 120.00% $20.37 103.70% 14.56% 18.21%
</TABLE>
______________
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes (i) an investment of a fixed amount in the
stocks underlying the Index with the allocation of such amount reflecting
the current relative weights of such stocks in the Index; (ii) a percentage
change in the aggregate price of such stocks that equals the percentage
change in the Index from the Starting Index Value to the relevant
hypothetical Ending Index Value; (iii) a constant dividend yield of 1.72%
per annum, paid quarterly from the date of initial delivery of Securities,
applied to the value of the Index at the end of each such quarter assuming
such value increases or decreases linearly from the Starting Index Value to
the applicable hypothetical Ending Index Value; (iv) no transaction fees or
expenses; (v) a term for the Securities from December 23, 1997 to January
14, 2003; and (vi) a final Index value equal to the Ending Index Value. The
aggregate dividend yield of the stocks underlying the Index as of December
17, 1997 was approximately 1.72%.
(3) This is the Starting Index Value.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the total and pretax
annualized rate of return resulting therefrom will depend entirely on the actual
Ending Index Value determined by the Calculation Agent as provided herein.
ADJUSTMENTS TO THE INDEX; MARKET DISRUPTION EVENTS
If at any time the method of calculating the Index, or the value thereof, is
changed in any material respect, or if the Index is in any other way modified so
that such Index does not, in the opinion of the Calculation Agent, fairly
represent the value of the Index had such changes or modifications not been
made, then, from and after such time, the Calculation Agent shall, at the close
of business in New York, New York, on each date that the closing value with
respect to the Ending Index Value is to be calculated, make such adjustments as,
in the good faith judgment of the Calculation Agent, may be necessary in order
to arrive at a calculation of a value of a stock index comparable to the Index
as if such changes or modifications had not been made, and calculate such
closing value with reference to the Index, as adjusted. Accordingly, if the
method of calculating the Index is modified so that the value of such Index is a
fraction or a multiple of what it would have been if it had not been modified
(e.g., due to a split in the Index), then the Calculation Agent shall adjust
such Index in order to arrive at a value of the Index as if it had not been
modified (e.g., as if such split had not occurred).
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<PAGE>
"Market Disruption Event" means either of the following events; as determined
by the Calculation Agent:
(a) the suspension or material limitation (limitations pursuant to New York
Stock Exchange Rule 80A (or any applicable rule or regulation enacted or
promulgated by the NYSE or any other self regulatory organization or the SEC of
similar scope as determined by the Calculation Agent) on trading during
significant market fluctuations shall be considered "material" for purposes of
this definition), in each case, for more than two hours of trading, or during
the one-half hour period preceding the close of trading on the applicable
exchange, in 20% or more of the stocks which then comprise the Index; or
(b) the suspension or material limitation, in each case, for more than two
hours of trading (whether by reason of movements in price otherwise exceeding
levels permitted by the relevant exchange or otherwise) in (A) futures contracts
related to the Index, or options on such futures contracts, which are traded on
any major U.S. exchange or (B) option contracts related to the Index which are
traded on any major U.S. exchange.
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular business hours of
the relevant exchange.
DISCONTINUANCE OF THE INDEX
If Dow Jones discontinues publication of the Index and Dow Jones or another
entity publishes a successor or substitute index that the Calculation Agent
determines, in its sole discretion, to be comparable to such Index (any such
index being referred to herein as a "Successor Index"), then, upon the
Calculation Agent's notification of such determination to the Trustee and the
Company, the Calculation Agent will substitute the Successor Index as calculated
by Dow Jones or such other entity for the Index. Upon any selection by the
Calculation Agent of a Successor Index, the Company shall cause notice thereof
to be given to Holders of the Securities.
If Dow Jones discontinues publication of the Index and a Successor Index is
not selected by the Calculation Agent or is no longer published on any of the
Calculation Days, the value to be substituted for the Index for any such
Calculation Day used to calculate the Supplemental Redemption Amount at maturity
will be a value computed by the Calculation Agent for each Calculation Day in
accordance with the procedures last used to calculate the Index prior to such
discontinuance. If a Successor Index is selected or the Calculation Agent
calculates a value as a substitute for the Index as described below, such
Successor Index or value shall be substituted for the Index for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
If the Calculation Agent calculates a value as a substitute for the Index,
"Index Calculation Day" shall mean any day on which the Calculation Agent is
able to calculate such value.
If Dow Jones discontinues publication of the Index prior to the period during
which the Supplemental Redemption Amount is to be determined and the Calculation
Agent determines that no Successor Index is available at such time, then on each
Business Day until the earlier to occur of (a) the determination of the Ending
Index Value and (b) a determination by the Calculation Agent shall determine the
value that would be used in computing the Supplemental Redemption Amount as
described in the preceding paragraph as if such day were a Calculation Day. The
Calculation Agent will cause notice of each such value to be published not less
often than once each month in The Wall Street Journal (the "WSJ") (or another
newspaper of general circulation), and arrange for information with respect to
such values to be made available by telephone. Notwithstanding these alternative
arrangements, discontinuance of the publication of the Index may adversely
affect trading in the Securities.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Securities shall have occurred
and be continuing, the amount payable to a beneficial owner of a Security upon
any acceleration permitted by the Securities, with respect to each $10 principal
amount thereof, will be equal to the Principal Amount and the Supplemental
Redemption Amount, if any, calculated as though the date of early repayment were
the stated maturity date of the Securities. See "Description of Securities--
Payment at Maturity". If a bankruptcy proceeding is commenced in respect of the
Company, the claim of the beneficial owner of a Security may be limited, under
Section 502(b)(2) of Title 11 of the United States Code, to the principal amount
of the
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<PAGE>
Security plus an additional amount of contingent interest calculated as though
the date of the commencement of the proceeding were the maturity date of the
Securities.
In case of default in payment at the maturity date of the Securities (whether
at their stated maturity or upon acceleration), from and after the maturity date
the Securities shall bear interest, payable upon demand of the beneficial owners
thereof, at the rate of 6.18% per annum (to the extent that payment of such
interest shall be legally enforceable) on the unpaid amount due and payable on
such date in accordance with the terms of the Securities to the date payment of
such amount has been made or duly provided for.
DEPOSITORY
Upon issuance, all Securities will be represented by one or more fully
registered global securities (the "Global Securities"). Each such Global
Security will be deposited with, or on behalf of, The Depository Trust Company
("DTC"), as Depository, and registered in the name of Cede & Co. (DTC's
partnership nominee). Unless and until it is exchanged in whole or in part for
Securities in definitive form, no Global Security may be transferred except as a
whole by the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository or by such
Depository or any such nominee to a successor of such Depository or a nominee of
such successor.
So long as DTC, or its nominee, is a registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole owner or
Holder of the Securities represented by such Global Security for all purposes
under the Senior Indenture. Except as provided below, the actual owner of the
Securities represented by a Global Security (the "Beneficial Owner") will not be
entitled to have the Securities represented by such Global Securities registered
in their names, will not receive or be entitled to receive physical delivery of
the Securities in definitive form and will not be considered the owners or
Holders thereof under the Senior Indenture, including for purposes of receiving
any reports delivered by the Company or the Trustee pursuant to the Senior
Indenture. Accordingly, each person owning a beneficial interest in a Global
Security must rely on the procedures of DTC and, if such person is not a
participant of DTC (a "Participant"), on the procedures of the Participant
through which such person owns its interest, to exercise any rights of a Holder
under the Senior Indenture. The Company understands that under existing industry
practices, in the event that the Company requests any action of Holders or than
an owner of a beneficial interest which a Holder is entitled to give or take
under the Senior Indenture, DTC 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 DTC to Participants,
by Participants to Indirect Participants, as defined below, 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.
If (x) the Depository is at any time unwilling or unable to continue as
Depository and a successor depository is not appointed by the Company within 60
days, (y) the Company executes and delivers to the Trustee a Company Order to
the effect that the Global Securities shall be exchangeable or (z) an Event of
Default has occurred and is continuing with respect to the Securities, the
Global Securities will be exchangeable for Securities in definitive form of like
tenor and of an equal aggregate principal amount, in denominations of $10 and
integral multiples thereof. Such definitive Securities shall be registered in
such name or names as the Depository shall instruct the Trustee. It is expected
that such instructions may be based upon directions received by the Depository
from Participants with respect to ownership of beneficial interests in such
Global Securities.
The following is based on information furnished by DTC:
DTC will act as securities depository for the Securities. The Securities will
be issued as fully registered securities registered in the name of Cede & Co.
(DTC's partnership nominee). One or more fully registered Global Security will
be issued for the Securities in the aggregate principal amount of such issue,
and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section
10
<PAGE>
17A of the Exchange Act. DTC holds securities that its Participants deposit
with DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants of DTC ("Direct Participants") include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. DTC is owned by a number of its Direct 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 DTC's system is
also available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The rules
applicable to DTC and its Participants are on file with the Commission.
Purchases of Securities under the DTC's system must be made by or through
Direct Participants, which will receive a credit for the Securities on the DTC's
records. The ownership interest of each Beneficial Owner is in turn to be
recorded on the records of Direct Participants and Indirect Participants.
Beneficial Owners will not receive written confirmation from DTC of their
purchase, but Beneficial Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the Direct Participants or Indirect Participants through which
such Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Securities are to be accomplished by entries made on the books
of Participants acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests in Securities,
except as provided above.
To facilitate subsequent transfers, all Securities deposited with DTC are
registered in the name of DTC's partnership nominee, Cede & Co. The deposit of
Securities with DTC and their registration in the name of Cede & Co. effect no
change in beneficial ownership. DTC has no knowledge of the actual Beneficial
Owners of the Securities; DTC's records reflect only the identity of the Direct
Participants to whose accounts such Securities are credited, which may or may
not be the Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants, and by Direct 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.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to the
Company as soon as possible after the applicable record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants to
whose accounts the Securities are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
Principal, premium, if any, and/or interest, if any, payments on the
Securities will be made in immediately available funds to DTC. DTC's practice is
to credit Direct Participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the Depository's records
unless DTC has reason to believe that it will not receive payment on such date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is 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 Participant and not of DTC, the Trustee or
the Company, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of principal, premium, if any, and/or
interest, if any, to DTC is the responsibility of the Ct Participants shall be
the responsibility of DTC, and disbursement of such payments to the Beneficial
Owners shall be the responsibility of Direct Participants and Indirect
Participants.
DTC may discontinue providing its services as securities depository with
respect to the Securities at any time by giving reasonable notice to the Company
or Trustee. Under such circumstances, in the event that a successor securities
depository is not obtained, Security certificates are required to be printed and
delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Security certificates will be printed and delivered.
11
<PAGE>
SAME-DAY SETTLEMENT AND PAYMENT
All payments of principal and the Supplemental Redemption Amount, if any, will
be made by the Company in immediately available funds so long as the Securities
are maintained in book-entry form.
THE INDEX
GENERAL
Unless otherwise stated, all information herein on the Index is derived from
Dow Jones or other publicly available sources. Such information reflects the
policies of Dow Jones as stated in such sources and such policies are subject to
change by Dow Jones. Dow Jones is under no obligation to continue to publish the
Index and may discontinue publication of the Index at any time.
The Index is a price-weighted index (i.e., the weight of a component stock in
the Index is based on its price per share rather than the total market
capitalization of the issuer of such component stock) comprised of 30 common
stocks chosen by the editors of the WSJ as representative of the broad market of
U.S. industry. The corporations represented in the Index tend to be leaders
within their respective industries and their stocks are typically widely held by
individuals and institutional investors. Changes in the composition of the Index
are made entirely by the editors of the WSJ without consultation with the
corporations represented in the Index, any stock exchange, any official agency
or the Company. Changes to the common stocks included in the Index tend to be
made infrequently. Historically, most substitutions have been the result of
mergers, but from time to time, changes may be made to achieve what the editors
of the WSJ deem to be a more accurate representation of the broad market of U.S.
industry. In choosing a new corporation for the Index, the editors of the WSJ
look for leading industrial companies with a successful history of growth and
wide interest among investors. The component stocks of the Index may be changed
at any time for any reason. Dow Jones, publisher of the WSJ, is not affiliated
with the Company and has not participated in any way in the creation of the
Securities.
The Index initially consisted of 12 common stocks and was first published in
the WSJ in 1896. The Index was increased to include 20 common stocks in 1916 and
to 30 common stocks in 1928. The number of common stocks in the Index has
remained at 30 since 1928, and, in an effort to maintain continuity, the
constituent corporations represented in the Index have been changed on a
relatively infrequent basis.
The value of the Index is the sum of the primary exchange prices of each of
the 30 common stocks included in the Index, divided by a divisor that is
designed to provide a meaningful continuity in the value of the Index. Because
the Index is price-weighted, stock splits or changes in the component stocks
could result in distortions in the Index value. In order to prevent such
distortions related to extrinsic factors, the divisor is changed in accordance
with a mathematical formula that reflects adjusted proportions within the Index.
The current divisor of the Index is published daily in the WSJ and other
publications. In addition, other statistics based on the Index may be found in a
variety of publicly available sources.
The Company or its affiliates may presently or from time to time engage in
business with one or more of the issuers of the component stocks of the Index,
including extending loans to, or making equity investments in, such issuers or
providing advisory services to such issuers, including merger and acquisition
advisory services. In the course of such business, the Company or its affiliates
may acquire non-public information with respect to such issuers. The Company
does not make any representation to any purchaser of Securities with respect to
any matters whatsoever relating to such issuers. Any prospective purchaser of
Securities should undertake an independent investigation of the issuers of the
component stocks of the Index as in its judgment is appropriate to make an
informed decision with respect to an investment in the Securities. The
composition of the Index does not reflect any investment or sell recommendations
of the Company or its affiliates.
The following table presents the listing symbol, industry group, price per
share, total number of shares outstanding and market capitalization for each of
the component stocks in the Index based on publicly available information as of
November 28, 1997/1/.
12
<PAGE>
<TABLE>
<CAPTION>
TOTAL SHARES MARKET
ISSUER OF COMPONENT STOCK/1/ SYMBOL INDUSTRY PRICE PER SHARE OUTSTANDING/2/ CAPITALIZATION/2/
- ------------------------------------- ------ ----------------------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
General Electric Co. ............. GE Electronics $ 73.75 3,274,120 $ 241,466,350
Exxon Corp. ...................... XON Oil/Gas 61.00 2,474,360 150,935,960
Coca-Cola Co., The ................ KO Beverages 62.50 2,480,340 155,021,250
Merck & Co. ...................... MRK Pharmaceutics 94.56 1,207,870 114,219,207
International Business Machines
Corp. ........................... IBM Computers 109.56 982,260 107,618,861
Morris (Philip) Cos. ............. MO Tobacco 43.50 2,422,971 105,399,239
Procter & Gamble Co. ............. PG Household Products 76.31 1,350,840 103,085,978
Wal-Mart Stores Inc. ............. WMT Retail-Dept 39.94 2,253,460 89,997,559
Johnson & Johnson ................. JNJ Pharmaceutics 62.94 1,330,770 83,755,337
Hewlett-Packard Co. .............. HWP Computers 61.06 1,040,180 63,515,391
AT&T Corp. ....................... T Util-Telecom 55.88 1,624,430 90,765,028
Du Pont (E.I.) De Nemours & Co. .. DD Chemicals 60.56 1,130,850 68,487,103
Disney (Walt) Co. ................ DIS Entertainment 94.94 675,134 64,095,534
Chevron Corp. .................... CHV Oil/Gas 80.19 654,690 52,497,954
Boeing Co., The ................... BA Aerospace/Defense 53.13 1,001,258 53,191,831
General Motors Corp. ............. GM Auto & Truck 61.00 720,200 43,932,200
Travelers Group Inc. ............. TRV Insurance 50.50 1,143,852 57,764,526
American Express Co. ............. AXP Financial Services 78.88 468,800 36,976,600
Minnesota Mining & Manufacturing
Co. ............................. MMM Manufacturing 97.44 415,470 40,482,358
McDonald's Corp. ................. MCD Restaurant/Food Service 48.50 688,017 33,368,825
Allied-Signal Inc. ............... ALD Aerospace/Defense 37.13 565,970 21,011,636
Sears, Roebuck & Co. ............. S Retail-Dept 45.81 391,608 17,940,542
Eastman Kodak Co. ................ EK Manufacturing 60.63 325,800 19,751,625
Morgan (J.P.) & Co. .............. JPM Financial/Banking 114.19 178,910 20,429,286
Caterpillar Inc. ................. CAT Machine Construction 47.94 376,420 18,044,634
United Technologies Corp. ......... UTX Aerospace/Defense 74.94 235,420 17,641,786
International Paper Co. .......... IP Forest Products 47.44 302,410 14,345,574
Aluminum Co. of America ........... AA Metals 67.25 173,920 11,696,120
Goodyear Tire & Rubber Co. ....... GT Tire & Rubber 60.69 155,975 9,465,733
Union Carbide Corp. .............. UK Chemicals 44.13 124,218 5,481,119
-------------
TOTAL MARKET CAPITALIZATION $1,912,385,74
AVERAGE MARKET CAPITALIZATION 63,746,191
</TABLE>
______________
1 The inclusion of a component stock in the portfolio should not be considered
a recommendation to buy or sell such stock, and neither the Company nor any
of its affiliates make any representation to any purchaser of securities as
to the performance of the portfolio or any component stock. Beneficial owners
of the Securities will not have any right to the component stocks or any
dividends paid thereon.
2 Shares and Market Capitalization in thousands.
LICENSE AGREEMENT
The Securities are not sponsored, endorsed, sold or promoted by Dow Jones. Dow
Jones makes no representation or
13
<PAGE>
warranty, express or implied, to the owners of the Securities or any member of
the public regarding the advisability of investing in securities generally or in
the Securities particularly. Dow Jones' only relationship to the Company is the
licensing of certain trademarks and trade names of Dow Jones and of the DJIA SM
which is determined, composed and calculated by Dow Jones without regard to the
Company or the Securities. Dow Jones has no obligation to take the needs of the
Company or the owners of the Securities into consideration in determining,
composing or calculating Securities. Dow Jones is not responsible for and has
not participated in the determination of the timing of, prices at, or quantities
of the Securities to be issued or in the determination or calculation of the
equation by which the DJIA SM are to be converted into cash. Dow Jones has no
obligation or liability in connection with the administration, marketing or
trading of the Securities.
OTHER TERMS
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Indenture (the "Senior Indenture"), dated as of April 1, 1983, as amended and
restated, 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"). A copy of the Senior Indenture is filed as an exhibit
to the registration statements relating to the Securities. The following
summaries of certain provisions of the Senior Indenture do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the Senior Indenture, including the definition therein of
certain terms.
The Senior Indenture provides that series of Senior Debt Securities may from
time to time be issued thereunder, without limitation as to aggregate principal
amount, in one or more series and upon such terms as the Company may establish
pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the Securities are
governed by and construed in accordance with the laws of the State of New York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen" a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and other regulatory bodies.
LIMITATIONS UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of the incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
LIMITATION ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Indenture provides that the Company may not sell, transfer or otherwise
dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell or
otherwise dispose of any of its Voting Stock, unless, after giving effect to any
such transaction, MLPF&S remains a Controlled Subsidiary (defined in the Senior
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the
14
<PAGE>
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.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or into
any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior 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 Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company and
the Trustee with the consent of the Holders of 66 2/3% in principal amount of
the Outstanding Senior Debt Securities of each series issued pursuant to such
indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding Senior Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts payable on, any Senior Debt
Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any Senior Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Debt Security; (e) reduce the percentage in principal
amount of the Outstanding Senior Debt Securities of any series, the consent of
whose Holders is required to modify or amend the Indenture; or (f) modify the
foregoing requirements or reduce the percentage of Outstanding Senior Debt
Securities necessary to waive any past default to less than a majority. No
modification or amendment of the Subordinated Indenture or any Subsequent
Indenture for Subordinated Debt Securities may adversely affect the rights of
any holder of Senior Indebtedness without the consent of such Holder. Except
with respect to certain fundamental provisions, the Holders of at least a
majority in principal amount of Outstanding Senior Debt Securities of any series
may, with respect to such series, waive past defaults under the Indenture and
waive compliance by the Company with certain provisions thereof.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the Indenture for
the benefit of such series or in the Senior Debt Securities of such series,
continued for 60 days after written notice as provided in the Senior Indenture;
(e) certain events in bankruptcy, insolvency or reorganization; and (f) any
other Event of Default provided with respect to Senior Debt Securities of that
series. The Trustee or the Holders of 25% in principal amount of the
Outstanding Senior Debt Securities of that series may declare the principal
amount (or such lesser amount as may be provided for in the Senior Debt
Securities of that series) of all Outstanding Senior Debt Securities of that
series and the interest due thereon and Additional Amounts payable in respect
thereof, if any to be due and payable immediately if an Event of Default with
respect to Senior Debt Securities of such series shall occur and be continuing
at the time of such declaration. At any time after a declaration of
acceleration has been made with respect to Senior Debt Securities of any series
but before a judgment or decree for payment of money due has been obtained by
the Trustee, the Holders of a majority in principal amount of the Outstanding
Senior Debt Securities of that series may rescind any declaration of
acceleration and its consequences, if all payments due (other than those due as
a result of acceleration) have been made and all Events of Default have been
remedied or waived. Any Event of Default with respect to Senior Debt Securities
of any series may be waived by the Holders of a majority in principal amount of
all Outstanding Senior Debt Securities of that series, except in a case of
failure to pay
15
<PAGE>
principal or premium, if any, or interest or Additional Amounts payable on any
Senior Debt Security of that series for which payment had not been subsequently
made or in respect of a covenant or provision which cannot be modified or
amended without the consent of the Holder of each Outstanding Senior Debt
Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior Debt
Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any right or power
under the Senior Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company is required to furnish to the Trustee annually a statement as to
the fulfillment by the Company of all of its obligations under the Senior
Indenture.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Solely for purposes of applying the final Treasury Department Regulations (the
"Final Regulations"), concerning the proper United States Federal income tax
treatment of contingent payment debt instruments to the Securities, the Company
has determined that the projected payment schedule for the Securities will
consist of payment on the maturity date of the principal amount thereof and a
projected Supplemental Redemption Amount equal to $3.6070 per Unit (the
"Projected Supplemental Redemption Amount"). This represents an estimated yield
on the Securities equal to 6.18% per annum (compounded semiannually).
The projected payment schedule (including both the Projected Supplemental
Redemption Amount and the estimated yield on the Securities) has been determined
solely for United States Federal income tax purposes (i.e., for purposes of
applying the Final Regulations to the Securities), and is neither a prediction
nor a guarantee of what the actual Supplemental Redemption Amount will be, or
that the actual Supplemental Redemption Amount will even exceed zero.
The following table sets forth the amount of interest that will be deemed to
have accrued with respect to each Unit of the Securities during each accrual
period over a term of five years and twenty-two days for the Securities based
upon the projected payment schedule for the Securities (including both the
Projected Supplemental Redemption Amount and the estimated yield equal to 6.18%
per annum (compounded semiannually)) as determined by the Company for purposes
of applying the Final Regulations to the Securities:
<TABLE>
<CAPTION>
TOTAL INTEREST
DEEMED TO
HAVE ACCRUED
INTEREST DEEMED TO ON SECURITIES
ACCRUE DURING AS OF END OF
ACCRUAL PERIOD ACCRUAL PERIOD
ACCRUAL PERIOD (PER UNIT) (PER UNIT)
- ---------------------------------------------- ------------------- ---------------
<S> <C> <C>
January 15, 1998 through July 14, 1998. $0.3101 $0.3470
July 15, 1998 through January 14, 1999. $0.3197 $0.6667
January 15, 1999 through July 14, 1999. $0.3296 $0.9963
July 15, 1999 through January 14, 2000. $0.3398 $1.3361
January 15, 2000 through July 14, 2000. $0.3503 $1.6864
July 15, 2000 through January 14, 2001. $0.3611 $2.0475
January 15, 2001 through July 14, 2001. $0.3723 $2.4198
July 15, 2001 through January 14, 2002. $0.3837 $2.8035
January 15, 2002 through July 14, 2002. $0.3957 $3.1992
July 15, 2002 through January 14, 2003. $0.4078 $3.6070
</TABLE>
______________
Projected Supplemental Redemption Amount = $3.6070 per Unit.
16
<PAGE>
All prospective investors in the Securities should consult their own tax
advisors concerning the application of the Final Regulations to their investment
in the Securities. Investors in the Securities may also obtain the projected
payment schedule, as determined by the Company for purposes of the application
of the Final Regulations to the Securities, by submitting a written request for
such information to Merrill Lynch & Co., Inc., Attn: Darryl W. Colletti,
Corporate Secretary's Office, 100 Church Street, 12th Floor, New York, New York
10080-6512.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997 included
in the 1997 Annual Report on Form 10-K, and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP, as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such 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 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 such Quarterly Reports 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.
17
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
16,750,000 UNITS
MERRILL LYNCH & CO., INC.
RUSSELL 2000(R) INDEX* MARKET INDEX TARGET-TERM SECURITIES DUE SEPTEMBER 30,
2004
"MITTS(R)/1/"
($10 PRINCIPAL AMOUNT PER UNIT)
On September 29, 1997, Merrill Lynch & Co., Inc. (the "Company") issued an
aggregate principal amount $167,500,000 (16,750,000 Units) of Russell 2000(R)
Index Market Index Target-Term Securities due September 30, 2004 (the
"Securities" or "MITTS"). Each $10 principal amount of Securities will be
deemed a "Unit" for purposes of trading and transfer at the Securities
Depository described below. Units will be transferable by the Securities
Depository, as more fully described below, in denominations of whole Units.
GENERAL:
. Senior unsecured debt securities . Not redeemable prior to maturity
. No payments prior to maturity . Transferable only in whole Units
PAYMENT AT MATURITY:
Principal Amount + Supplemental Redemption Amount
The Supplemental Redemption Amount will be based on the percentage increase, if
any, in the Russell 2000 Index above a benchmark value of 494.36, which exceeded
the closing value of such Index on the date the Securities were priced for
initial sale to the public by 10%. The Supplemental Redemption Amount may be
ZERO, but will not be less than zero.
BEFORE YOU DECIDE TO INVEST IN THE MITTS, CAREFULLY READ THIS PROSPECTUS,
ESPECIALLY THE RISK FACTORS BEGINNING ON PAGE 3.
_________________
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 Securities 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 Securities.
MLPF&S may act as principal or agent in such transactions. The Securities may be
offered on the American Stock Exchange (the "AMEX"), 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 Securities 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.
We expect that the MITTs will be maintained in book-entry form only through
the facilities of DTC.
_________________
MERRILL LYNCH & CO.
_________________
The date of this Prospectus Supplement is July __, 1998.
_____________________
/*/ The use of, and reference to, the term "Russell 2000 Index" herein has been
consented to by Frank Russell Company.
/1/ "MITTS" is a registered service mark and "Market Index Target-Term
Securities" is a service mark owned by Merrill Lynch & Co., Inc.
<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 "NYSE"), the AMEX, the Chicago
Stock Exchange and the Pacific 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 26,
1997, Quarterly Report on Form 10-Q for the period ended March 27, 1998, and
Current Reports on Form 8-K dated January 20, 1998, January 30, 1998, February
4, 1998, February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998,
April 29, 1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June
24, 1998, June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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 LAWRENCE M. EGAN, JR., CORPORATE
SECRETARY'S OFFICE, 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 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.
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its
subsidiaries and affiliates, provides investment, financing, advisory,
insurance, and related services on a global basis. Its principal subsidiary,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("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; an underwriter of selected insurance products and a distributor of
investment products of the Merrill Lynch Asset Management group. 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. The Company's asset management and investment management activities are
conducted through the Merrill Lynch Asset Management group and Merrill Lynch
Mercury Asset Management, which together constitute one of the largest asset
management organizations in the world. Merrill Lynch Government Securities Inc.
is a primary dealer in obligations issued or guaranteed by the U.S. Government
and its agencies and its government-sponsored entities. Merrill Lynch Capital
Services, Inc., Merrill Lynch Derivative Products AG, and Merrill Lynch
International are the Company's primary derivative product dealers and enter
into interest rate, currency, and other over-the-counter derivative transactions
as intermediaries and as principals. The Company's operations in insurance
services consist of the underwriting and sale 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 and purchasing secured loans, providing
currency exchange facilities and other related services, and furnishing trust,
employee benefit, and custodial 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
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges . . . . . 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
RISK FACTORS
Your investment in MITTS will involve certain risks. For example, there is
the risk that you might not earn a return on your investment, and the risk that
you will be unable to sell your MITTS prior to their maturity. You should
carefully consider the following discussion of risks before deciding whether an
investment in the MITTS is suitable for you.
THE SUPPLEMENTAL REDEMPTION AMOUNT.
The Benchmark Index Value exceeded the closing value of the Russell 2000
Index (i.e., the Starting Index Value) on the date the MITTS are priced for
initial sale to the public (the "Pricing Date") by 10%. You should be
3
<PAGE>
aware that if the Ending Index Value does not exceed the Starting Index Value at
maturity by more than 10%, the Supplemental Redemption Amount will be zero. This
will be true even if the value of the Russell 2000 Index was higher than the
Benchmark Index Value at some time during the life of the MITTS but later falls
below the Benchmark Index Value. If the Supplemental Redemption Amount is zero,
we will pay you only the principal amount of your MITTS.
YOUR YIELD MAY BE LOWER THAN THE YIELD ON A STANDARD DEBT SECURITY OF COMPARABLE
MATURITY.
The amount we pay you at maturity may be less than the return you could
earn on other investments. Your yield may be less than the yield you would earn
if you bought a standard senior non-callable debt security of the Company with
the same maturity date. Your investment may not reflect the full opportunity
cost to you when you take into account factors that affect the time value of
money.
YOUR RETURN WILL NOT REFLECT THE PAYMENT OF DIVIDENDS.
FRC calculates the Index by reference to the prices of the common stocks
comprising the Index without taking into consideration the value of dividends
paid on those stocks. Therefore, the return you earn on the MITTS, if any, will
not be the same as the return that you would earn if you actually owned each of
the common stocks underlying the Index and received the dividends paid on those
stocks.
UNCERTAIN TRADING MARKET.
The MITTS are listed on the AMEX under the symbol "RUM". While there have
been a number of issuances of Market Index Target-Term Securities, trading
volumes have varied historically from one transaction to another and it is
therefore impossible to predict how the MITTS will trade. You cannot assume that
a trading market will develop for the MITTS. If such a trading market does
develop, there can be no assurance that there will be liquidity in the trading
market. The development of a trading market for the MITTS will depend on the
financial performance of the Company, and other factors such as the
appreciation, if any, of the value of the Index.
If the trading market for the MITTS is limited, there may be a limited
number of buyers when you decide to sell your MITTS if you do not wish to hold
your investment until maturity. This may affect the price you receive.
FACTORS AFFECTING TRADING VALUE OF THE MITTS.
We believe that the market value of the MITTS will be affected by the value
of the Index and by a number of other factors. Some of these factors are
interrelated in complex ways; as a result, the effect of any one factor may be
offset or magnified by the effect of another factor. The following paragraphs
describe the expected impact on the market value of the MITTS given a change in
a specific factor, assuming all other conditions remain constant.
. INDEX VALUE. We expect that the market value of the MITTS will depend
substantially on the value of the Index relative to the Benchmark
Index Value. If you choose to sell your MITTS when the value of the
Index exceeds the Benchmark Index Value, you may receive substantially
less than the amount that would be payable at maturity based on that
Index value because of the expectation that the Index will continue to
fluctuate until the Ending Index Value is determined. If you choose to
sell your MITTS when the value of the Index is below the Benchmark
Index Value, you may receive less than the $10 principal amount per
Unit of MITTS. In general, rising U.S. dividend rates (i.e., dividends
per share) may increase the value of the Index while falling U.S.
dividend rates may decrease the value of the Index. Political,
economic and other developments that affect the stocks underlying the
Index may also affect the value of the Index and the value of the
MITTS.
. INTEREST RATES. Because the MITTS repay, at a minimum, the principal
amount at maturity, we expect that the trading value of the MITTS will
be affected by changes in interest rates. In general, if U.S. interest
rates increase, we expect that the trading value of the MITTS will
decrease. If U.S. interest rates decrease, we expect the trading value
of the MITTS will increase. Interest rates may also affect the U.S.
economy and, in turn, the value of the Index. Rising interest rates
may lower
4
<PAGE>
the value of the Index and, thus, the MITTS. Falling interest rates
may increase the value of the Index and, thus, may increase the value
of the MITTS.
. VOLATILITY OF THE INDEX. Volatility is the term used to describe the
size and frequency of market fluctuations. If the volatility of the
Index increases, we expect that the trading value of the MITTS will
increase. If the volatility of the Index decreases, we expect that the
trading value of the MITTS will decrease.
. TIME REMAINING TO MATURITY. The MITTS may trade at a value above that
which would be expected based on the level of interest rates and the
Index. This difference will reflect a "time premium" due to
expectations concerning the value of the Index during the period prior
to maturity of the MITTS. However, as the time remaining to maturity
of the MITTS decreases, we expect that this time premium will
decrease, lowering the trading value of the MITTS.
. DIVIDEND YIELDS. If dividend yields on the stocks comprising the
Index increase, we expect that the value of the MITTS will decrease.
Conversely, if dividend yields on the stock comprising the Index
decrease, we expect that the value of the MITTS will increase.
. COMPANY CREDIT RATINGS. Real or anticipated changes in the Company's
credit ratings may affect the market value of the MITTS.
We want you to understand that the impact of one of the factors specified
above, such as an increase in interest rates, may offset some or all of any
increase in the trading value of the MITTS attributable to another factor, such
as an increase in the Index value.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the MITTS of a given change in most of the
factors listed above will be less if it occurs later in the term of the MITTS
than if it occurs earlier in the term of the MITTS except that we expect that
the effect on the trading value of the MITTS of a given increase in the value of
the Index will be greater if it occurs later in the term of the MITTS than if it
occurs earlier in the term of the MITTS.
STATE LAW LIMITS ON INTEREST PAID.
New York State laws govern the Senior Indenture, as defined below. New York
has certain usury laws that limit the amount of interest that can be charged and
paid on loans, which includes debt securities like the MITTS. Under present New
York law, the maximum rate of interest is 25% per annum on a simple interest
basis. This limit may not apply to debt securities in which $2,500,000 or more
has been invested.
While we believe that New York law would be given effect by a state or
Federal court sitting outside of New York, many other states also have laws that
regulate the amount of interest that may be charged to and paid by a borrower.
We will promise, for the benefit of the MITTS holders, to the extent permitted
by law, not to voluntarily claim the benefits of any laws concerning usurious
rates of interest.
SMALL CAPITALIZATION STOCKS.
The underlying stocks that constitute the Index (the "Underlying Stocks")
have been issued by corporations domiciled in the U.S. and its territories and
traded on the NYSE, on the AMEX or in the over-the-counter market. If a
Successor Index is substituted for the Index as described below, such Successor
Index would also be based upon stocks issued by corporations domiciled in the
U.S. and its territories and traded on the NYSE, on the AMEX or in the over-the-
counter market. You should be aware that investments in securities indexed to
the value of small capitalization companies involve certain risks. In general,
the stocks comprising the Index have smaller market capitalizations, less
trading liquidity and greater price volatility than stocks in other larger
capitalization indexes which are designed to measure the broad movement of the
U.S. stock markets. We want you to understand that these factors could adversely
affect the value of the Index and the MITTS.
5
<PAGE>
PURCHASES AND SALES BY MERRILL LYNCH.
The Company, MLPF&S and other affiliates of the Company may from time to
time buy or sell the stocks underlying the Index for their own accounts for
business reasons or in connection with hedging the Company's obligations under
the MITTS. These transactions could affect the price of such stocks and the
value of the Index.
POTENTIAL CONFLICTS.
Under certain circumstances, MLPF&S's roles as a subsidiary of the Company
and its responsibilities as Calculation Agent for the MITTS could give rise to
conflicts of interests. You should be aware that because the Calculation Agent
is controlled by the Company, potential conflicts of interest could arise.
OTHER CONSIDERATIONS.
Investors should also consider the tax consequences of investing in the
Securities and should consult their tax advisors.
DESCRIPTION OF SECURITIES
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Senior Indenture, referred to as the "Senior Indenture", which is more fully
described below. The Securities will mature on September 30, 2004.
While at maturity a beneficial owner of a Security will receive the
principal amount of such Security plus the Supplemental Redemption Amount, if
any, there will be no other payment of interest, periodic or otherwise. See
"Payment at Maturity" below.
The Securities are not subject to redemption by the Company or at the
option of any beneficial owner prior to maturity. Upon the occurrence of an
Event of Default with respect to the Securities, beneficial owners of the
Securities may accelerate the maturity of the Securities, as described under
"Description of Securities--Events of Default and Acceleration" and "Other
Terms--Events of Default" in this Prospectus.
The Securities were issued in denominations of whole Units.
PAYMENT AT MATURITY
General
At maturity, a beneficial owner of a Security will be entitled to receive
the principal amount thereof plus the Supplemental Redemption Amount, if any,
all as provided below. If the Ending Index Value does not exceed the Benchmark
Index Value, a beneficial owner of a Security will be entitled to receive only
the principal amount thereof.
Determination of the Supplemental Redemption Amount
The Supplemental Redemption Amount for a Security will be determined by the
Calculation Agent and will equal:
<TABLE>
<S> <C>
Ending Index Value - Benchmark Index Value
Principal Amount of such Security ($10 per Unit) x ------------------------------------------
Benchmark Index Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The Benchmark Index Value equals 494.36. The Benchmark Index Value was
determined on the Pricing Date by multiplying the Starting Index Value by a
factor equal to 110%. The Ending Index Value will be determined by the
Calculation Agent and will equal the average (arithmetic mean) of the closing
values of the Index determined
6
<PAGE>
on each of the first five Calculation Days during the Calculation Period. If
there are fewer than five Calculation Days, then the Ending Index Value will
equal the average (arithmetic mean) of the closing values of the Index on such
Calculation Days, and if there is only one Calculation Day, then the Ending
Index Value will equal the closing value of the Index on such Calculation Day.
If no Calculation Days occur during the Calculation Period because of Market
Disruption Events, then the Ending Index Value will equal the closing value of
the Index determined on the last scheduled Index Business Day in the Calculation
Period, regardless of the occurrences of a Market Disruption Event on such day.
The "Calculation Period" means the period from and including the seventh
scheduled Index Business Day prior to the maturity date to and including the
second scheduled Index Business Day prior to the maturity date. "Calculation
Day" means any Index Business Day during the Calculation Period on which a
Market Disruption Event has not occurred. For purposes of determining the Ending
Index Value, an "Index Business Day" is a day on which the NYSE and the AMEX are
open for trading and the Index or any Successor Index, as defined below, is
calculated and published. All determinations made by the Calculation Agent shall
be at the sole discretion of the Calculation Agent and, absent a determination
by the Calculation Agent of a manifest error, shall be conclusive for all
purposes and binding on the Company and beneficial owners of the Securities.
HYPOTHETICAL RETURNS
The following table illustrates, for a range of hypothetical Ending Index
Values, (i) the total amount payable at maturity for each $10 principal amount
of Securities, (ii) the total rate of return to beneficial owners of the
Securities, (iii) the pretax annualized rate of return to beneficial owners of
Securities, and (iv) the pretax annualized rate of return of an investment in
the stocks underlying the Index (which includes an assumed aggregate dividend
yield of 1.15% per annum, as more fully described below).
<TABLE>
<CAPTION>
TOTAL AMOUNT PRETAX
PAYABLE AT MATURITY ANNUALIZED PRETAX ANNUALIZED
PERCENTAGE CHANGE PER $10 PRINCIPAL TOTAL RATE OF RATE RATE OF RETURN OF
HYPOTHETICAL ENDING OVER THE STARTING AMOUNT OF RETURN ON OF RETURN ON STOCKS UNDERLYING THE
INDEX VALUE INDEX VALUE SECURITIES THE SECURITIES THE SECURITIES(1) INDEX(1)(2)
----------- ----------- ---------- --------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
179.77 -60.00% $10.00 0.00% 0.00% -11.69%
224.71 -50.00% $10.00 0.00% 0.00% -8.61%
269.65 -40.00% $10.00 0.00% 0.00% -6.08%
314.59 -30.00% $10.00 0.00% 0.00% -3.92%
359.54 -20.00% $10.00 0.00% 0.00% -2.03%
404.48 -10.00% $10.00 0.00% 0.00% -0.36%
449.42(3) 0.00% $10.00 0.00% 0.00% 1.15%
494.36 10.00% $10.00 0.00% 0.00% 2.52%
539.30 20.00% $10.91 9.09% 1.25% 3.77%
584.25 30.00% $11.82 18.18% 2.40% 4.93%
629.19 40.00% $12.73 27.27% 3.48% 6.01%
674.13 50.00% $13.64 36.36% 4.48% 7.02%
719.07 60.00% $14.55 45.45% 5.43% 7.96%
764.01 70.00% $15.45 54.55% 6.32% 8.85%
808.96 80.00% $16.36 63.64% 7.16% 9.69%
853.90 90.00% $17.27 72.73% 7.96% 10.49%
898.84 100.00% $18.18 81.82% 8.73% 11.25%
943.78 110.00% $19.09 90.91% 9.45% 11.98%
988.72 120.00% $20.00 100.00% 10.15% 12.67%
1,033.67 130.00% $20.91 109.09% 10.82% 13.33%
1,078.61 140.00% $21.82 118.18% 11.46% 13.97%
1,123.55 150.00% $22.73 127.27% 12.08% 14.58%
</TABLE>
___________
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
7
<PAGE>
(2) This rate of return assumes (i) an investment of a fixed amount in the
stocks underlying the Index with the allocation of such amount reflecting
the current relative weights of such stocks in the Index; (ii) a percentage
change in the aggregate price of such stocks that equals the percentage
change in the Index from the Starting Index Value to the relevant
hypothetical Ending Index Value; (iii) a constant dividend yield of 1.15%
per annum, paid quarterly from the date of initial delivery of Securities,
applied to the value of the Index at the end of each such quarter assuming
such value increases or decreases linearly from the Starting Index Value to
the applicable hypothetical Ending Index Value; (iv) no transaction fees or
expenses; (v) a term for the Securities from September 29, 1997 to
September 30, 2004; and (vi) a final Index value equal to the Ending Index
Value. The aggregate dividend yield of the stocks underlying the Index as
of September 23, 1997 was approximately 1.15%.
(3) This is the Starting Index Value.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the total and pretax
annualized rate of return resulting therefrom will depend entirely on the actual
Ending Index Value determined by the Calculation Agent as provided herein.
ADJUSTMENTS TO THE INDEX; MARKET DISRUPTION EVENTS
If at any time the method of calculating the Index, or the value thereof,
is changed in any material respect, or if the Index is in any other way modified
so that such Index does not, in the opinion of the Calculation Agent, fairly
represent the value of the Index had such changes or modifications not been
made, then, from and after such time, the Calculation Agent shall, at the close
of business in New York, New York, on each date that the closing value with
respect to the Ending Index Value is to be calculated, make such adjustments as,
in the good faith judgment of the Calculation Agent, may be necessary in order
to arrive at a calculation of a value of a stock index comparable to the Index
as if such changes or modifications had not been made, and calculate such
closing value with reference to the Index, as adjusted. Accordingly, if the
method of calculating the Index is modified so that the value of such Index is a
fraction or a multiple of what it would have been if it had not been modified
(e.g., due to a split in the Index), then the Calculation Agent shall adjust
such Index in order to arrive at a value of the Index as if it had not been
modified (e.g., as if such split had not occurred).
"Market Disruption Event" means either of the following events; as
determined by the Calculation Agent:
(a) the suspension or material limitation (limitations pursuant to New
York Stock Exchange Rule 80A (or any applicable rule or regulation enacted or
promulgated by the NYSE or any other self regulatory organization or the SEC of
similar scope as determined by the Calculation Agent) on trading during
significant market fluctuations shall be considered "material" for purposes of
this definition), in each case, for more than two hours of trading, or during
the one-half hour period preceding the close of trading on the applicable
exchange, in 20% or more of the stocks which then comprise the Index; or
(b) the suspension or material limitation, in each case, for more than two
hours of trading (whether by reason of movements in price otherwise exceeding
levels permitted by the relevant exchange or otherwise) in (A) futures contracts
related to the Index which are traded on the Chicago Mercantile Exchange or (B)
option contracts related to the Index which are traded on the Chicago Board
Options Exchange, Inc.
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular business hours of
the relevant exchange.
DISCONTINUANCE OF THE INDEX
If FRC discontinues publication of the Index and FRC or another entity
publishes a successor or substitute index that the Calculation Agent determines,
in its sole discretion, to be comparable to such Index (any such index being
referred to herein as a "Successor Index"), then, upon the Calculation Agent's
notification of such determination to the Trustee and the Company, the
Calculation Agent will substitute the Successor Index as calculated by FRC or
such other entity for the Index. Upon any selection by the Calculation Agent of
a Successor Index, the Company shall cause notice thereof to be given to Holders
of the Securities.
8
<PAGE>
If FRC discontinues publication of the Index and a Successor Index is not
selected by the Calculation Agent or is no longer published on any of the
Calculation Days, the value to be substituted for the Index for any such
Calculation Day used to calculate the Supplemental Redemption Amount at maturity
will be a value computed by the Calculation Agent for each Calculation Day in
accordance with the procedures last used to calculate the Index prior to such
discontinuance. If a Successor Index is selected or the Calculation Agent
calculates a value as a substitute for the Index as described below, such
Successor Index or value shall be substituted for the Index for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
If the Calculation Agent calculates a value as a substitute for the Index,
"Index Calculation Day" shall mean any day on which the Calculation Agent is
able to calculate such value.
If FRC discontinues publication of the Index prior to the period during
which the Supplemental Redemption Amount is to be determined and the Calculation
Agent determines that no Successor Index is available at such time, then on each
Business Day until the earlier to occur of (a) the determination of the Ending
Index Value and (b) a determination by the Calculation Agent that a Successor
Index is available, the Calculation Agent shall determine the value that would
be used in computing the Supplemental Redemption Amount as described in the
preceding paragraph as if such day were a Calculation Day. The Calculation Agent
will cause notice of each such value to be published not less often than once
each month in The Wall Street Journal (or another newspaper of general
circulation), and arrange for information with respect to such values to be made
available by telephone. Notwithstanding these alternative arrangements,
discontinuance of the publication of the Index may adversely affect trading in
the Securities.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Securities shall have
occurred and be continuing, the amount payable to a beneficial owner of a
Security upon any acceleration permitted by the Securities, with respect to each
$10 principal amount thereof, will be equal to the Principal Amount and the
Supplemental Redemption Amount, if any, calculated as though the date of early
repayment were the stated maturity date of the Securities. See "Description of
Securities--Payment at Maturity" in this Prospectus. If a bankruptcy proceeding
is commenced in respect of the Company, the claim of the beneficial owner of a
Security may be limited, under Section 502(b)(2) of Title 11 of the United
States Code, to the principal amount of the Security plus an additional amount
of contingent interest calculated as though the date of the commencement of the
proceeding were the maturity date of the Securities.
In case of default in payment at the maturity date of the Securities
(whether at their stated maturity or upon acceleration), from and after the
maturity date the Securities shall bear interest, payable upon demand of the
beneficial owners thereof, at the rate of 6.39% per annum (to the extent that
payment of such interest shall be legally enforceable) on the unpaid amount due
and payable on such date in accordance with the terms of the Securities to the
date payment of such amount has been made or duly provided for.
DEPOSITORY
Upon issuance, all Securities will be represented by one or more fully
registered global securities (the "Global Securities"). Each such Global
Security will be deposited with, or on behalf of, The Depository Trust Company
("DTC"), as Depository, registered in the name of Cede & Co. (DTC's partnership
nominee). Unless and until it is exchanged in whole or in part for Securities
in definitive form, no Global Security may be transferred except as a whole by
the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository or by such
Depository or any such nominee to a successor of such Depository or a nominee of
such successor.
So long as DTC, or its nominee, is a registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole owner or
Holder of the Securities represented by such Global Security for all purposes
under the Senior Indenture. Except as provided below, the actual owner of the
Securities represented by a Global Security (the "Beneficial Owner") will not be
entitled to have the Securities represented by such Global Securities registered
in their names, will not receive or be entitled to receive physical delivery of
the Securities in definitive form, except in the event that use of the book-
entry system for the Securities is discontinued, and will not be considered the
owners or Holders thereof under the Senior Indenture, including for purposes of
receiving any reports delivered by the Company or the Trustee pursuant to the
Senior Indenture. Accordingly, each Person owning a beneficial interest in a
Global Security must rely on the procedures of DTC and, if such Person is not a
participant
9
<PAGE>
of DTC (a "Participant"), on the procedures of the Participant through which
such person owns its interest, to exercise any rights of a Holder under the
Senior Indenture. The Company understands that under existing industry
practices, in the event that the Company requests any action of Holders or than
an owner of a beneficial interest in such a Global Security desires to give or
take any action which a Holder is entitled to give or take under the Senior
Indenture, DTC 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 DTC to Participants, by Participants to
Indirect Participants, as defined below, 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.
If (x) the Depository is at any time unwilling or unable to continue as
Depository and a successor depository is not appointed by the Company within 60
days, (y) the Company executes and delivers to the Trustee a Company Order to
the effect that the Global Securities shall be exchangeable or (z) an Event of
Default has occurred and is continuing with respect to the Securities, the
Global Securities will be exchangeable for Securities in definitive form of like
tenor and of an equal aggregate principal amount, in denominations of $10 and
integral multiples thereof. Such definitive Securities shall be registered in
such name or names as the Depository shall instruct the Trustee. It is expected
that such instructions may be based upon directions received by the Depository
from Participants with respect to ownership of beneficial interests in such
Global Securities.
The following is based on information furnished by DTC:
DTC will act as securities depository for the Securities. The Securities
will be issued as fully registered securities registered in the name of Cede &
Co. (DTC's partnership nominee). One or more fully registered Global Security
will be issued for the Securities in the aggregate principal amount of such
issue, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its Participants deposit with DTC. DTC also facilitates
the settlement among Participants of securities transactions, such as transfers
and pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants of DTC ("Direct
Participants") include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. DTC is owned by a number
of its Direct 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 DTC's system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the Commission.
Purchases of Securities under the DTC's system must be made by or through
Direct Participants, which will receive a credit for the Securities on the DTC's
records. The ownership interest of each Beneficial Owner is in turn to be
recorded on the records of Direct Participants and Indirect Participants.
Beneficial Owners will not receive written confirmation from DTC of their
purchase, but Beneficial Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the Direct Participants or Indirect Participants through which
such Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Securities are to be accomplished by entries made on the books
of Participants acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests in Securities,
except in the event that use of the book-entry system for the Securities is
discontinued.
To facilitate subsequent transfers, all Securities deposited with DTC are
registered in the name of DTC's partnership nominee, Cede & Co. The deposit of
Securities with DTC and their registration in the name of Cede & Co. effect no
change in beneficial ownership. DTC has no knowledge of the actual Beneficial
Owners of the Securities; DTC's records reflect only the identity of the Direct
Participants to whose accounts such Securities are credited, which may or may
not be the Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
10
<PAGE>
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
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.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to the
Company as soon as possible after the applicable record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants to
whose accounts the Securities are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
Principal, premium, if any, and/or interest, if any, payments on the
Securities will be made in immediately available funds to DTC. DTC's practice is
to credit Direct Participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the Depository's records
unless DTC has reason to believe that it will not receive payment on such date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is 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 Participant and not of DTC, the Trustee or
the Company, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of principal, premium, if any, and/or
interest, if any, to DTC is the responsibility of the Company or the Trustee,
disbursement of such payments to Direct Participants shall be the responsibility
of DTC, and disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct Participants and Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the Securities at any time by giving reasonable notice to the Company
or Trustee. Under such circumstances, in the event that a successor securities
depository is not obtained, Security certificates are required to be printed and
delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Security certificates will be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that the Company believes to be reliable, but the Company
takes no responsibility for the accuracy thereof.
SAME-DAY SETTLEMENT AND PAYMENT
All payments of Adjusted Principal Amount and the Supplemental Redemption
Amount, if any, will be made by the Company in immediately available funds so
long as the Securities are maintained in book-entry form.
THE INDEX
GENERAL
Unless otherwise stated, all information herein on the Index is derived
from FRC or other publicly available sources. Such information reflects the
policies of FRC as stated in such sources and such policies are subject to
change by FRC. FRC is under no obligation to continue to publish the Index and
may discontinue publication of the Index at any time.
The Index is an index calculated, published and disseminated by FRC, and
measures the composite price performance of stocks of 2,000 companies domiciled
in the U.S. and its territories. All 2,000 stocks are traded on either the NYSE
or the AMEX or in the over-the-counter market and form a part of the Russell
3000(R) Index. The Russell 3000 Index is composed of the 3,000 largest U.S.
companies as determined by market capitalization and represents approximately
98% of the investable U.S. equity market. As of August 31, 1997, the average
market capitalization of companies included in the Russell 3000 Index was $3.12
billion.
The Index consists of the smallest 2,000 companies included in the Russell
3000 Index and represents approximately 9.51% of the total market capitalization
of the Russell 3000 Index. The Index is designed to track the performance of the
small capitalization segment of the U.S. equity market. As of August 31, 1997,
the market capitalization of the stocks in the Russell 2000 Index ranged from
approximately $90 million to $2.36 billion, with the average market
capitalization being $540 million.
11
<PAGE>
Only common stocks belonging to corporations domiciled in the U.S. and its
territories are eligible for inclusion in the Russell 3000 Index and the Index.
Stocks traded on U.S. exchanges but domiciled in other countries are excluded.
Preferred stock, convertible preferred stock, participating preferred stock,
paired shares, warrants and rights are also excluded. Trust receipts, Royalty
Trusts, limited liability companies, OTC Bulletin Board companies, pink sheets,
closed-end mutual funds, and limited partnerships that are traded on U.S.
exchanges, are also ineligible for inclusion. Real Estate Investment Trusts and
Beneficial Trusts are eligible for inclusion, however. Generally, only one class
of securities of a company is allowed in the Russell 3000 Index, although
exceptions to this general rule have been made where FRC has determined that
each class of securities acts independent of the other.
The primary criteria used to determine the initial list of securities
eligible for the Russell 3000 Index is total market capitalization, which is
defined as the price of the shares times the total number of shares outstanding.
Based on closing values on May 31 of each year, FRC reconstitutes the
composition of the Russell 3000 Index using the then existing market
capitalizations of eligible companies. As of June 30 of each year, the Index is
adjusted to reflect the reconstitution of the Russell 3000 Index for that year.
Publication of the Index began on January 1, 1987.
As a capitalization-weighted index, the Russell 2000 Index reflects changes
in the capitalization (market value) of the component stocks relative to the
capitalization on a base date. The current Index value is calculated by adding
the market values of the Index's component stocks, which are derived by
multiplying the price of each stock by the number of shares outstanding, to
arrive at the total market capitalization of the 2,000 stocks. The total market
capitalization is then divided by a divisor, which represents the "adjusted"
capitalization of the Index on the base date of December 31, 1986. To calculate
the Index, last sale prices will be used for exchange-traded and NASDAQ stocks.
If a component stock is not open for trading, the most recently traded price for
that security will be used in calculating the Index. In order to provide
continuity for the Index's value, the divisor is adjusted periodically to
reflect such events as changes in the number of common shares outstanding for
component stocks, company additions or deletions, corporate restructurings and
other capitalization changes.
All disclosure contained in this Prospectus regarding the Index, or its
publisher, is derived from publicly available information. All copyrights and
other intellectual property rights relating to the Index are owned by FRC. FRC
has no relationship with the Company or the Securities; it does not sponsor,
endorse, authorize, sell or promote the Securities, and has no obligation or
liability in connection with the administration, marketing or trading of the
Securities.
12
<PAGE>
Below is a breakdown of the component stocks of the Index by industry group
as of August 31, 1997:
<TABLE>
<CAPTION>
INDUSTRY NUMBER OF PERCENTAGE OF INDEX
- -------- COMPANIES MARKET CAPITALIZATION
--------- ---------------------
<S> <C> <C>
Technology........................... 258 13.4%
Health Care.......................... 214 9.9%
Consumer Discretionary and Services.. 376 16.1%
Consumer Staples..................... 57 2.8%
Integrated Oils...................... 7 0.5%
Other Energy......................... 65 3.9%
Materials and Processing............. 196 9.9%
Producer Durables.................... 153 8.6%
Auto and Transportation.............. 81 4.1%
Financial Services, including REITS.. 424 23.3%
Utilities............................ 108 6.4%
Other................................ 25 1.3%
--------- ---------------------
Total.............................. 1,964 100%(1)
</TABLE>
___________
(1) 100.2% was rounded down to 100%.
Source: FRC.
Note: The Index included fewer than 2,000 stocks (1,964) as of August 31,
1997 due to company attrition (e.g., mergers, bankruptcies, etc.).
As of August 31, 1997, the ten largest holdings in the Index represented
1.9% of the aggregate market capitalization of the Index. Twenty-three of the
1,964 stocks in the Index were also components of the S&P 500 Index. These 23
stocks represented 2.1% of the Russell 2000 Index market capitalization. The
dividend yield on the Index as of September 23, 1997 was 1.15%.
HISTORICAL DATA ON THE INDEX
The following table sets forth the closing level of the Index at the end of
each quarter, in the period from March 1979 through June 1997. All historical
data presented in the following table relating to periods prior to January 1,
1987 (the date FRC commenced publication of the Index) are presented as if the
Index had existed during such periods and such closing levels have been
calculated hypothetically on the same basis that the Index is calculated. All
historical data presented in the following table relating to periods after
January 1, 1987 are based on actual data from the Index. These historical data
on the Index are not necessarily indicative of the future performance of the
Index or what the value of the Securities may be. Any historical upward or
downward trend in the closing level of the Index during any period set forth
below is not any indication that the Index is more or less likely to decline at
any time during the term of the Securities.
13
<PAGE>
<TABLE>
<CAPTION>
MARCH JUNE SEPTEMBER DECEMBER
----- ---- --------- --------
QUARTER-END CLOSING LEVEL
-------------------------
<S> <C> <C> <C> <C>
1979................................. 46.94 49.62 54.68 55.91
1980................................. 48.27 57.47 69.94 74.80
1981................................. 80.25 82.56 67.55 73.67
1982................................. 66.21 64.67 70.84 88.90
1983................................. 103.77 124.17 117.43 112.27
1984................................. 104.10 100.30 105.17 101.49
1985................................. 114.92 118.38 112.65 129.87
1986................................. 147.63 154.23 134.73 135.00
1987................................. 166.79 164.75 170.81 120.42
1988................................. 142.15 151.30 149.09 147.36
1989................................. 157.90 167.43 178.21 168.31
1990................................. 163.64 169.12 126.74 132.20
1991................................. 171.01 167.61 180.16 189.94
1992................................. 203.69 188.64 192.92 221.01
1993................................. 229.21 233.35 252.95 258.59
1994................................. 251.06 240.29 256.12 250.36
1995................................. 260.77 283.63 310.38 315.97
1996................................. 330.77 346.61 346.39 362.61
1997................................. 342.56 396.37
</TABLE>
The closing value of the Index on September 23, 1997 was 449.42.
LICENSE AGREEMENT
The Index is a trademark of FRC and has been licensed for use by the
Company. The Securities are not sponsored, endorsed, sold or promoted by FRC.
The Securities are not sponsored, endorsed, sold or promoted by FRC. FRC makes
no representation or warranty, express or implied, to the owners of the
Securities or any member of the public regarding the advisability of investing
in securities generally or in the Securities particularly or the ability of the
Index to track general stock market performance or a segment of the same. FRC's
publication of the Index in no way suggests or implies an opinion by FRC as to
the advisability of investment in any or all of the Securities upon which the
Index is based. FRC's only relationship to the Company is the licensing of
certain trademarks, and trade names of FRC and of the Index which is determined,
composed and calculated by FRC without regard to the Company or the Securities.
FRC is not responsible for and has not reviewed the Securities or any associated
literature or publications and FRC makes no representation or warranty express
or implied as to their accuracy or completeness, or otherwise. FRC reserves the
right, at any time and without notice, to alter, amend, terminate or in any way
change the Index. FRC has no obligation or liability in connection with the
administration, marketing or trading of the Securities.
FRC DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX OR
ANY DATA INCLUDED THEREIN AND FRC SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. FRC MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY THE COMPANY, INVESTORS, OWNERS OF THE
SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR ANY DATA
INCLUDED THEREIN. FRC MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING
ANY OF THE FOREGOING, IN NO EVENT SHALL FRC HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
14
<PAGE>
OTHER TERMS
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Indenture (the "Senior Indenture"), dated as of April 1, 1983, as amended and
restated, 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"). A copy of the Senior Indenture is filed as an exhibit
to the registration statements relating to the Securities. The following
summaries of certain provisions of the Senior Indenture do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the Senior Indenture, including the definition therein of
certain terms.
The Senior Indenture provides that series of Senior Debt Securities may
from time to time be issued thereunder, without limitation as to aggregate
principal amount, in one or more series and upon such terms as the Company may
establish pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the Securities
are governed by and construed in accordance with the laws of the State of New
York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen" a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and other regulatory bodies.
LIMITATIONS UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of the incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
LIMITATION ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Indenture provides that the Company may not sell, transfer or otherwise
dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell or
otherwise dispose of any of its Voting Stock, unless, after giving effect to any
such transaction, MLPF&S remains a Controlled Subsidiary (defined in the Senior
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the 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.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or
into any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior
15
<PAGE>
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 Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company
and the Trustee with the consent of the Holders of 66 2/3% in principal amount
of the Outstanding Senior Debt Securities of each series issued pursuant to such
indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding Senior Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts payable on, any Senior Debt
Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any Senior Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Debt Security; (e) reduce the percentage in principal
amount of the Outstanding Senior Debt Securities of any series, the consent of
whose Holders is required to modify or amend the Indenture; or (f) modify the
foregoing requirements or reduce the percentage of Outstanding Senior Debt
Securities necessary to waive any past default to less than a majority. No
modification or amendment of the Subordinated Indenture or any Subsequent
Indenture for Subordinated Debt Securities may adversely affect the rights of
any holder of Senior Indebtedness without the consent of such Holder. Except
with respect to certain fundamental provisions, the Holders of at least a
majority in principal amount of Outstanding Senior Debt Securities of any series
may, with respect to such series, waive past defaults under the Indenture and
waive compliance by the Company with certain provisions thereof.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the Indenture for
the benefit of such series or in the Senior Debt Securities of such series,
continued for 60 days after written notice as provided in the Senior Indenture;
(e) certain events in bankruptcy, insolvency or reorganization; and (f) any
other Event of Default provided with respect to Senior Debt Securities of that
series. The Trustee or the Holders of 25% in principal amount of the
Outstanding Senior Debt Securities of that series may declare the principal
amount (or such lesser amount as may be provided for in the Senior Debt
Securities of that series) of all Outstanding Senior Debt Securities of that
series and the interest due thereon and Additional Amounts payable in respect
thereof, if any to be due and payable immediately if an Event of Default with
respect to Senior Debt Securities of such series shall occur and be continuing
at the time of such declaration. At any time after a declaration of
acceleration has been made with respect to Senior Debt Securities of any series
but before a judgment or decree for payment of money due has been obtained by
the Trustee, the Holders of a majority in principal amount of the Outstanding
Senior Debt Securities of that series may rescind any declaration of
acceleration and its consequences, if all payments due (other than those due as
a result of acceleration) have been made and all Events of Default have been
remedied or waived. Any Event of Default with respect to Senior Debt Securities
of any series may be waived by the Holders of a majority in principal amount of
all Outstanding Senior Debt Securities of that series, except in a case of
failure to pay principal or premium, if any, or interest or Additional Amounts
payable on any Senior Debt Security of that series for which payment had not
been subsequently made or in respect of a covenant or provision which cannot be
modified or amended without the consent of the Holder of each Outstanding Senior
Debt Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior
Debt Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any right or power
under the Senior Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
16
<PAGE>
The Company is required to furnish to the Trustee annually a statement as
to the fulfillment by the Company of all of its obligations under the Senior
Indenture.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Solely for purposes of applying the Treasury Department Final Regulations
(the "Final Regulations") concerning the United States Federal income tax
treatment of contingent payment debt instruments to the Securities, the Company
has determined that the projected payment schedule for the Securities will
consist of payment on the maturity date of the principal amount thereof and a
projected Supplemental Redemption Amount equal to $5.5304 per Unit. This
represents an estimated yield on the Securities equal to 6.39% per annum
(compounded semiannually).
The projected payment schedule (including both the projected Supplemental
Redemption Amount and the estimated yield on the Securities) has been determined
solely for United States Federal income tax purposes (i.e., for purposes of
applying the Final Regulations to the Securities), and is neither a prediction
nor a guarantee of what the actual Supplemental Redemption Amount will be, or
that the actual Supplemental Redemption Amount will even exceed zero.
The following table sets forth the amount of interest that will be deemed
to have accrued with respect to each Unit of the Securities during each accrual
period over a term of seven years and one day for the Securities based upon the
projected payment schedule for the Securities (including both the projected
Supplemental Redemption Amount and the estimated yield equal to 6.39% per annum
(compounded semiannually)) as determined by the Company for purposes of
application of the Final Regulations to the Securities:
<TABLE>
<CAPTION>
TOTAL INTEREST
DEEMED TO
HAVE ACCRUED
INTEREST DEEMED TO ON SECURITIES
ACCRUAL PERIOD AS OF END OF
ACCRUAL PERIOD ACCRUE DURING
ACCRUAL PERIOD (PER UNIT) (PER UNIT)
-------------- ---------- ----------
<S> <C> <C>
September 29, 1997 through March 30, 1998.. $0.3186 $0.3186
March 31, 1998 through September 30, 1998.. $0.3315 $0.6501
October 1, 1998 through March 30, 1999..... $0.3384 $0.9885
March 31, 1999 through September 30, 1999.. $0.3511 $1.3396
October 1, 1999 through March 30, 2000..... $0.3623 $1.7019
March 31, 2000 through September 30, 2000.. $0.3739 $2.0758
October 1, 2000 through March 30, 2001..... $0.3858 $2.4616
March 31, 2001 through September 30, 2001.. $0.3981 $2.8597
October 1, 2001 through March 30, 2002..... $0.4109 $3.2706
March 31, 2002 through September 30, 2002.. $0.4240 $3.6946
October 1, 2002 through March 30, 2003..... $0.4375 $4.1321
March 31, 2003 through September 30, 2003.. $0.4516 $4.5837
October 1, 2003 through March 30, 2004..... $0.4659 $5.0496
March 31, 2004 through September 30, 2004.. $0.4808 $5.5304
</TABLE>
___________
Projected Supplemental Redemption Amount = $5.5304 per Unit.
All prospective investors in the Securities should consult their own tax
advisors concerning the application of the Final Regulations to their investment
in the Securities. Investors in the Securities may also obtain the projected
payment schedule, as determined by the Company for purposes of the application
of the Final Regulations to the Securities, by submitting a written request for
such information to Merrill Lynch & Co., Inc., Attn: Darryl W. Colletti,
Corporate Secretary's Office, 100 Church Street, 12th Floor, New York, New York
10080-6512.
17
<PAGE>
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997 included
in the 1997 Annual Report on Form 10-K, and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP, as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such 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 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 such Quarterly Reports 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.
18
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
TOP TEN YIELD MARKET INDEX TARGET-TERM SECURITIES DUE AUGUST 15, 2006
("MITTS(R)")
On August 12, 1996, Merrill Lynch & Co., Inc. (the "Company") issued
$35,000,000 aggregate principal amount (3,500,000 Units) of Top Ten Yield Market
Index Target-Term Securities due August 15, 2006 (the "Securities" or the
"MITTS"). Each $10 principal amount of the Securities will be deemed a "Unit"
for purposes of trading and transfer at the Depository described below. Units
will be transferable by the Depository, as more fully described below, in
denominations of whole Units.
The Securities are debt securities of the Company, which were issued in
denominations of $10 and integral multiples thereof, will bear no periodic
payments of interest and will mature on August 15, 2006. At maturity, a
beneficial owner of a Security will be entitled to receive, with respect to each
Security, the principal amount thereof plus an interest payment (the
"Supplemental Redemption Amount") based on the percentage increase, if any, in
the Top Ten Yield Index (the "Index") over the Starting Index Value. The
Supplemental Redemption Amount will in no event be less than $2.40 per $10
principal amount of the Securities (the "Minimum Supplemental Redemption
Amount"), representing a minimum yield-to-maturity of 2.16% per annum calculated
on a semi-annual bond equivalent basis. The Index will reflect the price
movements and cash dividends on a portfolio of ten common stocks with the
highest dividend yields in the Dow Jones Industrial Average* (the "DJIA") on
July 26, 1996 that will be reconstituted annually to reflect the stocks having
the highest dividend yields in the DJIA (the "Top Ten Yield Stocks"), as more
particularly described herein. Subject to certain exceptions, the Index will be
reduced each calendar quarter by a value equal to 0.4375% of the then current
Index value. The Securities are not redeemable or callable by the Company prior
to maturity. While at maturity a beneficial owner of a Security will receive the
principal amount of such Security plus the Supplemental Redemption Amount there
will be no other payment of interest, periodic or otherwise.
The Supplemental Redemption Amount payable with respect to a Security at
maturity will equal the product of (A) the principal amount of the applicable
Security, and (B) the percentage increase from the Starting Index Value to the
Ending Index Value, however, in no event will the Supplemental Redemption Amount
be less than the Minimum Supplemental Redemption Amount. The Starting Index
Value, as more particularly described herein, was set to 100 on the date the
Securities were priced by the Company for initial sale to the public ("the
Pricing Date"). The Ending Index Value, as more particularly described herein,
will be the average (arithmetic mean) of the closing values of the Index on
certain days, or, if certain events occur, the closing value of the Index on a
single day prior to the maturity of the Securities.
FOR INFORMATION AS TO THE CALCULATION OF THE SUPPLEMENTAL REDEMPTION AMOUNT
WHICH WILL BE PAID AT MATURITY, THE CALCULATION AND THE COMPOSITION OF THE
INDEX, SEE "DESCRIPTION OF SECURITIES" AND "THE INDEX", RESPECTIVELY, IN THIS
PROSPECTUS. FOR OTHER INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS.
Ownership of the Securities will be maintained in book-entry form by or
through the Depository. Beneficial owners of the Securities will not have the
right to receive physical certificates evidencing their ownership except under
the limited circumstances described herein.
The Securities have been listed on the American Stock Exchange (the "AMEX")
under the symbol "MTT".
_____________
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 Securities 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 Securities.
MLPF&S may act as principal or agent in such transactions. The Securities may be
offered on the AMEX, 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 Securities 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.
_____________
MERRILL LYNCH & CO.
_____________
THE DATE OF THIS PROSPECTUS IS JULY ___, 1998.
(R)"MITTS" is a registered service mark and (SM)"Market Index Target-Term
Securities" is a service mark of Merrill Lynch & Co., Inc.
<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 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 26,
1997, Quarterly Report on Form 10-Q for the period ended March 27, 1998, and
Current Reports on Form 8-K dated January 20, 1998, January 30, 1998, February
4, 1998, February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998,
April 29, 1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June
24, 1998, June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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 LAWRENCE M. EGAN, JR., CORPORATE
SECRETARY'S OFFICE, 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 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.
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its
subsidiaries and affiliates, provides investment, financing, advisory,
insurance, and related services on a global basis. Its principal subsidiary,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("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; an underwriter of selected insurance products and a distributor of
investment products of the Merrill Lynch Asset Management group. 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. The Company's asset management and investment management activities are
conducted through the Merrill Lynch Asset Management group and Merrill Lynch
Mercury Asset Management, which together constitute one of the largest asset
management organizations in the world. Merrill Lynch Government Securities Inc.
is a primary dealer in obligations issued or guaranteed by the U.S. Government
and its agencies and its government-sponsored entities. Merrill Lynch Capital
Services, Inc., Merrill Lynch Derivative Products AG, and Merrill Lynch
International are the Company's primary derivative product dealers and enter
into interest rate, currency, and other over-the-counter derivative transactions
as intermediaries and as principals. The Company's operations in insurance
services consist of the underwriting and sale 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 and purchasing secured loans, providing
currency exchange facilities and other related services, and furnishing trust,
employee benefit, and custodial 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
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges............ 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
RISK FACTORS
PAYMENT AT MATURITY
Supplemental Redemption Amount May Equal Minimum Supplemental Redemption
Amount. Investors should be aware that if the Ending Index Value does not
exceed the Starting Index Value by more than 24%, beneficial owners of the
Securities will receive at maturity only the principal amount thereof and the
Minimum Supplemental
3
<PAGE>
Redemption Amount, even if the value of the Index at some point between the
issue date and the maturity date of the Securities exceeded such amounts.
Yield may be Below Market Interest Rates on the Pricing Date. The Minimum
Supplemental Redemption Amount is below what the Company would pay as interest
as of the Pricing Date if the Company issued non-callable senior debt securities
with a similar maturity as that of the Securities. The return of principal of
the Securities at maturity and the payment of the Minimum Supplemental
Redemption Amount may not reflect the full opportunity costs implied by
inflation or other factors relating to the time value of money.
Yield on Securities will not Reflect Yield on Securities Underlying the
Index. While the Index does reflect the payment of dividends on the stocks
underlying the Index as described in more detail below, the yield based on the
Index to the maturity of the Securities will not produce the same yield as if
such underlying stocks were purchased and held for a similar period. At the end
of each calendar quarter, the dividends accrued on the stocks underlying the
Index will be incorporated into the Index by adjusting the Share Multipliers of
such stocks and such amounts will thereafter be subject to the price movements
of such stocks. In addition, as described in more detail below, at the end of
each calendar quarter, an amount equal to 0.4375% of the current value of the
Index will be deducted from the value of the Index, provided that (i) there will
be no deduction at the end of the calendar quarter ending in September 1996 and
the deduction at the end of the calendar quarter ending in December 1996 will be
increased to reflect the quarterly rate of 0.4375% prorated for the period from
the date of the issuance of the Securities through the end of the calendar
quarter in December 1996, and (ii) there will be a prorated amount deducted on
July 31, 2006 equal to 0.1507% of the then current Index value to reflect the
quarterly rate of 0.4375% for the period from July 1, 2006 through July 31,
2006. Although the Index is based on stocks which are selected based on
dividends paid, the Securities will not pay any interest, periodic or otherwise,
prior to their maturity.
State Law Limit on Interest Paid. Because the Senior Indenture (as defined
below) provides that the Securities are governed by and construed in accordance
with the laws of New York, certain usury laws of New York State may apply. Under
present New York law, the maximum rate of interest is 25% per annum on a simple
interest basis. This limit may not apply to Securities in which $2,500,000 or
more has been invested. While the Company believes that New York law would be
given effect by a state or Federal court sitting outside of New York, state laws
frequently regulate the amount of interest that may be charged to and paid by a
borrower (including, in some cases, corporate borrowers). It is suggested that
prospective investors consult their personal advisors with respect to the
applicability of such laws. The Company will covenant for the benefit of the
Holders of the Securities, to the extent permitted by law, not to claim
voluntarily the benefits of any laws concerning usurious rates of interest
against a Holder of the Securities.
TRADING
The Securities have been listed on the AMEX under the symbol "MTT". It is
expected that the secondary market for the Securities will be affected by the
creditworthiness of the Company and by a number of other factors.
The trading value of the Securities is expected to depend substantially on
the extent of the appreciation, if any, of the Index over the Starting Index
Value. If, however, Securities are sold prior to the maturity date at a time
when the Index exceeds the Starting Index Value, the sale price may be at a
substantial discount from the amount expected to be payable to the beneficial
owner if such excess of the Index over the Starting Index Value were to prevail
until maturity of the Securities because of the possible fluctuation of the
Index between the time of such sale and the time that the Ending Index Value is
determined. Furthermore, the price at which a beneficial owner will be able to
sell Securities prior to maturity may be at a discount, which could be
substantial, from the principal amount thereof, if, at such time, the Index is
below, equal to, or not sufficiently above the Starting Index Value. A discount
could also result from rising interest rates.
4
<PAGE>
In addition to the value of the Index, the trading value of the Securities
may be affected by a number of interrelated factors, including the
creditworthiness of the Company and those factors listed below. The relationship
among these factors is complex, including how these factors affect the relative
value of the principal amount of the Securities to be repaid at maturity and the
value of the Supplemental Redemption Amount. Accordingly, investors should be
aware that factors other than the level of the Index are likely to affect the
Securities' trading value. The expected effect on the trading value of the
Securities of each of the factors listed below, assuming in each case that all
other factors are held constant, is as follows:
Interest Rates. Because the Securities repay at a minimum the principal
amount thereof at maturity, the trading value of the Securities will likely be
affected by changes in interest rates. In general, if U.S. interest rates
increase, the trading value of the Securities is expected to decrease. If U.S.
interest rates decrease, the trading value of the Securities is expected to
increase. Interest rates may also affect the U.S. economy, and, in turn, the
value of the Index. Rising interest rates may lower the value of the Index and,
thus, may decrease the trading value of the Securities. Falling interest rates
may increase the value of the Index and, thus, may increase the trading value of
the Securities.
Volatility of the Index. If the volatility of the Index increases, the
trading value of the Securities is expected to increase. If the volatility of
the Index decreases, the trading value of the Securities is expected to
decrease.
Time Remaining to Maturity. The Securities may trade at a value above that
which may be inferred from the level of interest rates and the Index. This
difference will reflect a "time premium" due to expectations concerning the
value of the Index during the period prior to maturity of the Securities. As the
time remaining to maturity of the Securities decreases, however, this time
premium is expected to decrease, thus decreasing the trading value of the
Securities. In addition, the price at which a beneficial owner may be able to
sell Securities prior to maturity may be at a discount, which may be
substantial, from the principal amount of the Securities if the value of the
Index is below, equal to, or not sufficiently above the Starting Index Value.
The impact of the factors specified above, excluding the value of the
Index, may offset, partially or in whole, any increase in the trading value of
the Securities that is attributable to an increase in the value of the Index.
For example, an increase in U.S. interest rates may cause the Securities to
trade at a discount from their initial offering price, even if the Index has
appreciated significantly. In general, assuming all relevant factors are held
constant, the effect on the trading value of the Securities of a given change in
interest rates and/or Index volatility is expected to be less if it occurs later
in the term of the Securities than if it occurs earlier in the term of the
Securities. The effect on the trading value of the Securities of a given
appreciation of the Index in excess of the Starting Index Value is expected to
be greater if it occurs later in the term of the Securities than if it occurs
earlier in the term of the Securities, assuming all other relevant factors are
held constant.
THE INDEX
The value of the Index and the Supplemental Redemption Amount, if any, may
be adversely affected by political, economic and other developments that affect
the Top Ten Yield Stocks. The stocks underlying the Index will be adjusted
annually as more fully described below, see "The Index" in this Prospectus.
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the
Securities should reach an investment decision only after carefully considering
the suitability of the Securities in light of their particular circumstances.
Investors should also consider the tax consequences of investing in the
Securities and should consult their tax advisors.
MLPF&S or its affiliates may from time to time engage in transactions
involving the Top Ten Yield Stocks underlying the Index for their proprietary
accounts and for other accounts under their management, which may influence the
value of such stocks and therefore the value of the Securities. MLPF&S and its
affiliates will also be the counterparties to the hedge of the Company's
obligations under the Securities. Accordingly, under certain
5
<PAGE>
circumstances, conflicts of interest may arise between MLPF&S's responsibilities
as Calculation Agent with respect to the Securities and its obligations under
its hedge and its status as a subsidiary of the Company. Under certain
circumstances, the duties of MLPF&S as Calculation Agent in determining the
existence of Market Disruption Events could conflict with the interests of
MLPF&S as an affiliate of the issuer of the Securities, Merrill Lynch & Co.,
Inc., and with the interests of the holders of the Securities.
DESCRIPTION OF SECURITIES
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Senior Indenture, referred to as the "Senior Indenture", which is more fully
described below. The Securities will mature on August 15, 2006.
At maturity, a beneficial owner of a Security will receive the principal
amount of such Security plus the Supplemental Redemption Amount, if any,
however, there will be no other payment of interest, periodic or otherwise. (See
"Payment at Maturity" below.)
The Securities are not subject to redemption by the Company or at the
option of any beneficial owner prior to maturity. Upon the occurrence of an
Event of Default with respect to the Securities, beneficial owners of the
Securities may accelerate the maturity of the Securities, as described under
"Description of Securities--Events of Default and Acceleration" in this
Prospectus and "Other Terms--Events of Default" in this Prospectus.
The Securities were issued in denominations of whole Units.
PAYMENT AT MATURITY
At maturity, a beneficial owner of a Security will be entitled to receive
the principal amount thereof plus a Supplemental Redemption Amount all as
provided below. If the Ending Index Value does not exceed the Starting Index
Value by more than 24%, a beneficial owner of a Security will be entitled to
receive only the principal amount thereof and the Minimum Supplemental
Redemption Amount.
At maturity, a beneficial owner of a Security will be entitled to receive,
with respect to each such Security, (i) the principal amount thereof ($10 for
each Unit), and (ii) the Supplemental Redemption Amount equal in amount to:
Ending Index Value-Starting Index Value
Principal Amount X ----------------------------------------
Starting Index Value
provided, however, that in no event will the Supplemental Redemption Amount be
less than $2.40 per $10 principal amount of the Securities. The Minimum
Supplemental Redemption Amount is equivalent to a rate of return of 2.16% per
annum calculated on a semi-annual bond equivalent basis. The Starting Index
Value was set to 100 on the Pricing Date. The Ending Index Value will be
determined by MLPF&S (the "Calculation Agent") and will equal the average
(arithmetic mean) of the closing values of the Index determined on each of the
first five Calculation Days during the Calculation Period. If there are fewer
than five Calculation Days, then the Ending Index Value will equal the average
(arithmetic mean) of the closing values of the Index on such Calculation Days,
and if there is only one Calculation Day, then the Ending Index Value will equal
the closing value of the Index on such Calculation Day. If no Calculation Days
occur during the Calculation Period because of Market Disruption Events, then
the Ending Index Value will equal the closing value of the Index determined on
the last scheduled Index Business Day in the Calculation Period, regardless of
the occurrence of a Market Disruption Event on such day. The "Calculation
Period" means the period from and including the seventh scheduled Index Business
Day prior to the maturity date
6
<PAGE>
to and including the second scheduled Index Business Day prior to the maturity
date. "Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred. For purposes of
determining the Ending Index Value, an "Index Business Day" is a day on which
the New York Stock Exchange and AMEX are open for trading and trading generally
occurs in the over-the-counter market for equity securities and the Index is
calculated and published by the AMEX. All determinations made by the Calculation
Agent shall be at the sole discretion of the Calculation Agent and, absent a
determination by the Calculation Agent of a manifest error, shall be conclusive
for all purposes and binding on the Company and beneficial owners of the
Securities.
The following table illustrates, for a range of hypothetical Ending Index
Values, (i) the total amount payable at maturity for each $10 principal amount
of Securities, (ii) the pretax annualized rate of return to beneficial owners of
Securities, and (iii) the pretax annualized rate of return of an investment in
the stocks underlying the Index, as adjusted from time to time, that experience
the same price changes and dividend payments necessary to produce the indicated
hypothetical Ending Index Value (which reflects a deduction from the value of
the Index at the end of each calendar quarter equal to 0.4375% of the then
current Index value). The pretax annualized rate of return of the stocks
underlying the Index illustrated below is intended to reflect the return that
might be earned by an investor who seeks to replicate the Index return by
trading in the actual stocks underlying the Index and differs from the pretax
annualized rate of return on the Securities because of the percentage deducted
from the value of the Index each calendar quarter equal to 0.4375% of the then
current Index value. Investors seeking to replicate the Index return by trading
in the actual underlying stocks would not incur this periodic deduction although
they might incur commissions and other transaction-related costs.
7
<PAGE>
<TABLE>
<CAPTION>
Total Pretax Pretax Annualized
Percentage Change Amount Annualized Rate of Rate of Return of
Hypothetical Ending Over the Starting Payable at Return on the Stock Underlying
Index Value Index Value Maturity Securities(1) Index(1)(2)
- ------------------- ----------------- ---------- ------------------- -----------------
<S> <C> <C> <C> <C>
50 -50% $12.40 2.16% -5.09%
60 -40% $12.40 2.16% -3.31%
70 -30% $12.40 2.16% -1.80%
80 -20% $12.40 2.16% -0.47%
90 -10% $12.40 2.16% 0.70%
100 0% $12.40 2.16% 1.75%
110 10% $12.40 2.16% 2.71%
120 20% $12.40 2.16% 3.59%
130 30% $13.00 2.64% 4.41%
140 40% $14.00 3.39% 5.16%
150 50% $15.00 4.10% 5.87%
160 60% $16.00 4.76% 6.53%
170 70% $17.00 5.38% 7.15%
180 80% $18.00 5.97% 7.74%
190 90% $19.00 6.52% 8.30%
200 100% $20.00 7.05% 8.84%
210 110% $21.00 7.56% 9.35%
220 120% $22.00 8.04% 9.83%
230 130% $23.00 8.50% 10.30%
240 140% $24.00 8.94% 10.74%
250 150% $25.00 9.37% 11.17%
260 160% $26.00 9.78% 11.58%
270 170% $27.00 10.17% 11.98%
280 180% $28.00 10.56% 12.37%
290 190% $29.00 10.93% 12.74%
300 200% $30.00 11.28% 13.10%
310 210% $31.00 11.63% 13.44%
320 220% $32.00 11.97% 13.78%
330 230% $33.00 12.29% 14.11%
340 240% $34.00 12.61% 14.43%
350 250% $35.00 12.92% 14.74%
360 260% $36.00 13.22% 15.04%
370 270% $37.00 13.51% 15.33%
380 280% $38.00 13.80% 15.62%
390 290% $39.00 14.07% 15.90%
400 300% $40.00 14.34% 16.17%
</TABLE>
- -------------
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes, in addition to the price changes and dividend
payments described above, (i) an initial investment of a fixed amount in
the Top Ten Yield Stocks with the allocation of such amount reflecting an
equal dollar-weighted portfolio of such stocks in the Index; (ii) a
reconstruction of this portfolio investment
8
<PAGE>
on each Anniversary Date so as to be an equal-dollar weighted portfolio of
the ten common stocks in the DJIA having the highest Dividend Yield on the
second scheduled Index Business Day prior to each such Anniversary Date;
(iii) a compounded quarterly rate of return on the stocks which is greater
than the compounded quarterly return on the Index by 0.4375% (the amount of
the quarterly deduction applied to the Index), with dividends being
reinvested on a quarterly basis; (iv) no transaction fees or expenses; (v)
an investment term equal to the term of the Securities; and (vi) a final
Index value equal to the Ending Index Value.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the pretax
annualized rate of return resulting therefrom will depend entirely on the
actual Ending Index Value determined by the Calculation Agent as provided
herein. Historical data regarding the Index is included in this Prospectus
under "The Index--Historical Data on the Index".
ADJUSTMENTS TO THE INDEX; MARKET DISRUPTION EVENTS
If at any time the method of calculating the Index, or the value thereof,
is changed in any material respect, or if the Index is in any other way modified
so that such Index does not, in the opinion of the Calculation Agent, fairly
represent the value of the Index had such changes or modifications not been
made, then, from and after such time, the Calculation Agent shall, at the close
of business in New York, New York, on each date that the closing value with
respect to the Ending Index Value is to be calculated, make such adjustments as,
in the good faith judgment of the Calculation Agent, may be necessary in order
to arrive at a calculation of a value of a stock index comparable to the Index
as if such changes or modifications had not been made, and calculate such
closing value with reference to the Index, as adjusted. Accordingly, if the
method of calculating the Index is modified so that the value of such Index is a
fraction or a multiple of what it would have been if it had not been modified
(e.g., due to a split in the Index), then the Calculation Agent shall adjust
such Index in order to arrive at a value of the Index as if it had not been
modified (e.g., as if such split had not occurred).
"Market Disruption Event" means either of the following events, as
determined by the Calculation Agent:
(i) the suspension or material limitation (limitations pursuant to New
York Stock Exchange Rule 80A (or any applicable rule or regulation enacted or
promulgated by the New York Stock Exchange or any other self regulatory
organization or the Commission of similar scope as determined by the Calculation
Agent) on trading during significant market fluctuations shall be considered
"material" for purposes of this definition), in the trading of one or more of
the Top Ten Yield Stocks on any exchange in the United States or in the
over-the-counter market for more than two hours of trading or during the period
one-half hour prior to the close of such trading, or
(ii) the suspension or material limitation (whether by reason of movements
in price otherwise exceeding levels permitted by the relevant exchange or
otherwise) in option contracts related to one or more of the Top Ten Yield
Stocks traded on any exchange for more than two hours of trading or during the
period one-half hour prior to the close of such trading.
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular business hours of
the relevant exchange.
DISCONTINUANCE OF THE INDEX
If the AMEX discontinues publication of the Index and the AMEX or another
entity publishes a successor or substitute index that the Calculation Agent
determines, in its sole discretion, to be comparable to such Index (any such
index being referred to hereinafter as a "Successor Index"), then, upon the
Calculation Agent's notification of such determination to the Trustee (as
defined below) and the Company, the Calculation Agent will substitute the
Successor Index as calculated by the AMEX or such other entity for the Index and
calculate the Ending Index Value as described above under "Payment at Maturity".
Upon any selection by the Calculation Agent of a Successor Index, the Company
shall cause notice thereof to be given to Holders of the Securities.
If the AMEX discontinues publication of the Index and a Successor Index is
not selected by the Calculation Agent or is no longer published on any of the
Calculation Days, the value to be substituted for the Index for any such
Calculation Day used to calculate the Supplemental Redemption Amount at maturity
will be a value computed
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by the Calculation Agent for each Calculation Day in accordance with the
procedures last used to calculate the Index prior to any such discontinuance. If
a Successor Index is selected or the Calculation Agent calculates a value as a
substitute for the Index as described below, such Successor Index or value shall
be substituted for the Index for all purposes, including for purposes of
determining whether a Market Disruption Event exists.
If the AMEX discontinues publication of the Index prior to the period
during which the Supplemental Redemption Amount is to be determined and the
Calculation Agent determines that no Successor Index is available at such time,
then on each Business Day until the earlier to occur of (i) the determination of
the Ending Index Value and (ii) a determination by the Calculation Agent that a
Successor Index is available, the Calculation Agent shall determine the value
that would be used in computing the Supplemental Redemption Amount as described
in the preceding paragraph as if such day were a Calculation Day. The
Calculation Agent will cause notice of each such value to be published not less
often than once each month in The Wall Street Journal (or another newspaper of
general circulation) (the "WSJ"), and arrange for information with respect to
such values to be made available by telephone. Notwithstanding these alternative
arrangements, discontinuance of the publication of the Index may adversely
affect trading in the Securities.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Securities shall have
occurred and be continuing, the amount payable to a beneficial owner of a
Security upon any acceleration permitted by the Securities, with respect to each
$10 principal amount thereof, will be equal to: (i) the initial issue price
($10), plus (ii) an additional amount of contingent interest calculated as
though the date of early repayment were the maturity date of the Securities. The
Minimum Supplemental Redemption Amount with respect to any such early redemption
date will be an amount equal to the interest which would have accrued on the
Securities from and including the date of original issuance to but excluding the
date of early redemption at an annualized rate of 2.16%, calculated on a semi-
annual bond equivalent basis. See "Description of Securities--Payment at
Maturity" in this Prospectus. If a bankruptcy proceeding is commenced in respect
of the Company, the claim of the beneficial owner of a Security may be limited,
under Section 502(b)(2) of Title 11 of the United States Code, to the principal
amount of the Security plus an additional amount of contingent interest
calculated as though the date of the commencement of the proceeding were the
maturity date of the Securities.
In case of default in payment at the maturity date of the Securities
(whether at their stated maturity or upon acceleration), from and after the
maturity date the Securities shall bear interest, payable upon demand of the
beneficial owners thereof, at the rate of 7.76% per annum (to the extent that
payment of such interest shall be legally enforceable) on the unpaid amount due
and payable on such date in accordance with the terms of the Securities to the
date payment of such amount has been made or duly provided for.
DEPOSITORY
Upon issuance, all Securities will be represented by one or more fully
registered global securities (the "Global Securities"). Each such Global
Security will be deposited with, or on behalf of, The Depository Trust Company
("DTC"), as Depository (the "Depositary"), registered in the name of DTC or a
nominee thereof. Unless and until it is exchanged in whole or in part for
Securities in definitive form, no Global Security may be transferred except as a
whole by the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository or by such
Depository or any such nominee to a successor of such Depository or a nominee of
such successor.
DTC has advised the Company as follows: DTC 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. DTC 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. DTC's Participants include securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations.
10
<PAGE>
DTC 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 DTC 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 Securities must be made by or through Participants, which will
receive a credit on the records of DTC. The ownership interest of each actual
purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the
Participants' or Indirect Participants' records. Beneficial Owners will not
receive written confirmation from DTC of their purchase, but Beneficial Owners
are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the
Participant or Indirect Participant through which the Beneficial Owner entered
into the transaction. Ownership of beneficial interests in such Global Security
will be shown on, and the transfer of such ownership interests will be effected
only through, records maintained by DTC (with respect to interests of
Participants) and on the records of Participants (with respect to interests of
persons held through Participants). The laws of some states may require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to own,
transfer or pledge beneficial interests in Global Securities.
So long as DTC, or its nominee, is the registered owner of a Global
Security, DTC or its nominee, as the case may be, will be considered the sole
owner or Holder of the Securities represented by such Global Security for all
purposes under the Senior Indenture. Except as provided below, Beneficial Owners
in a Global Security will not be entitled to have the Securities represented by
such Global Securities registered in their names, will not receive or be
entitled to receive physical delivery of the Securities in definitive form and
will not be considered the owners or Holders thereof under the Senior Indenture,
including for purposes of receiving any reports delivered by the Company or the
Trustee pursuant to the Senior Indenture. Accordingly, each Person owning a
beneficial interest in a Global Security must rely on the procedures of DTC and,
if such Person is not a Participant, on the procedures of the Participant
through which such Person owns its interest, to exercise any rights of a Holder
under the Senior Indenture. The Company understands that under existing industry
practices, in the event that the Company requests any action of Holders or that
an owner of a beneficial interest in such a Global Security desires to give or
take any action which a Holder is entitled to give or take under the Senior
Indenture, DTC 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 DTC to Participants, by Participants to
Indirect Participants, and by Participants and Indirect Participants to
Beneficial Owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of the principal of, and any Supplemental Redemption Amount with
respect to, Securities registered in the name of DTC or its nominee will be made
to DTC or its nominee, as the case may be, as the Holder of the Global
Securities representing such Securities. 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 DTC, upon receipt of any payment of principal or any Supplemental
Redemption Amount in respect of a Global Security, will credit the accounts of
the Participants with payment in amounts proportionate to their respective
holdings in principal amount of beneficial interest in such Global Security as
shown on the records of DTC. 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) any Depository is at any time unwilling or unable to continue as
Depository and a successor depository is not appointed by the Company within 60
days, (y) the Company executes and delivers to the Trustee a Company Order to
the effect that the Global Securities shall be exchangeable or (z) an Event of
Default has occurred and is continuing with respect to the Securities, the
Global Securities will be exchangeable for Securities in definitive form of like
tenor and of an equal aggregate principal amount, in denominations of $10 and
integral multiples thereof.
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Such definitive Securities shall be registered in such name or names as the
Depository shall instruct the Trustee. It is expected that such instructions may
be based upon directions received by the Depository from Participants with
respect to ownership of beneficial interests in such Global Securities.
SAME-DAY SETTLEMENT AND PAYMENT
All payments of principal and the Supplemental Redemption Amount, if any,
will be made by the Company in immediately available funds so long as the
Securities are maintained in book-entry form.
THE INDEX
TOP TEN YIELD INDEX
The value of the Index on any Index Business Day will be calculated and
disseminated by the AMEX and will equal the Top Ten Yield Portfolio Value plus
the Current Quarter Dividends (as defined below) as of such Index Business Day.
The Top Ten Yield Portfolio Value will equal the sum of the products of the most
recently available market price and the applicable Share Multiplier for each Top
Ten Yield Stock. The AMEX will generally calculate and disseminate the value of
the Index based on the most recently reported prices of the stocks underlying
the Index (as reported by the exchange or trading system on which such
underlying stocks are listed or traded), at approximately 15-second intervals
during the AMEX's business hours and the end of each Index Business Day via the
Consolidated Tape Association's Network B.
Initial Determination of Top Ten Yield Portfolio
The initial stocks in the Top Ten Yield Portfolio and their respective
Dividend Yields and Share Multipliers are shown below, and have been determined
by the AMEX to be the ten common stocks in the DJIA having the highest Dividend
Yield on July 26, 1996 (the "Initial Stocks"). "Dividend Yield" for each common
stock is determined by the AMEX by annualizing the last quarterly or semi-annual
ordinary cash dividend for which the ex-dividend date has occurred, excluding
any extraordinary dividend as determined by the AMEX in its sole discretion, and
dividing the result by the last available sale price for each stock on its
primary exchange on the date such Dividend Yield is to be determined.
<TABLE>
<CAPTION>
DIVIDEND INITIAL
YIELD ON SHARE
NAME OF ISSUER JULY 26, 1996 MULTIPLIER
-------------- -------------- ----------
<S> <C> <C>
Philip Morris Companies, Inc.............. 3.92% 0.09479
Texaco Inc................................ 3.80 0.11511
Exxon Corporation......................... 3.80 0.12121
J.P. Morgan & Co. Incorporated............ 3.79 0.11111
Chevron Corporation....................... 3.46 0.17021
General Motors Corporation................ 3.35 0.19656
Minnesota Mining & Manufacturing Company.. 2.85 0.15094
E.I. Du Pont de Nemours and Company....... 2.83 0.11994
International Paper Company............... 2.64 0.25157
AT&T Company.............................. 2.55 0.18141
</TABLE>
The average (mean) dividend yield of the ten Initial Stocks contained in
the Index as of July 26, 1996 was 3.30%.
The initial Share Multiplier for each Initial Stock was determined by the
AMEX and indicates the number of shares of each such Initial Stock, or portion
thereof, given the closing market price of such Initial Stock on the Pricing
Date, required to be included in the calculation of the original Top Ten Yield
Portfolio Value so that each Initial Stock represents approximately an equal
percentage of the starting value of the Index (i.e., 100) as of the
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Pricing Date. The respective Share Multipliers will remain constant unless
adjusted for certain corporate events, quarterly dividend adjustments and annual
reconstitutions as described below. The initial Share Multipliers for each of
the Initial Stocks are set forth in the above table.
Annual Top Ten Yield Portfolio Reconstitution
As of the close of business on each Anniversary Date (as defined below)
through the applicable Anniversary Date in 2005, the content of the Top Ten
Yield Portfolio shall be reconstituted so as to include the ten common stocks in
the DJIA having the highest Dividend Yield (the "New Stocks") on the second
scheduled Index Business Day prior to such Anniversary Date (the "Annual
Determination Date"), provided, however that the AMEX will only add a stock
having characteristics as of such Annual Determination Date that will permit the
Index to remain within certain criteria specified in the AMEX rules and within
the applicable rules of the Securities and Exchange Commission. Such criteria
and rules will apply only on an Annual Determination Date to exclude a proposed
New Stock. If a proposed New Stock does not meet such criteria or rules, the
AMEX will replace it with the common stock in the DJIA with the next highest
Dividend Yield which does meet such criteria and rules. These criteria currently
provide, among other things, (1) that each component stock must have a minimum
market value of at least $75 million, except that up to 10% of the component
securities in the Index may have a market value of $50 million; (2) that each
component stock must have an average monthly trading volume in the preceding six
months of not less than 1,000,000 shares, except that up to 10% of the component
stocks in the Index may have an average monthly trading volume of 500,000 shares
or more in the last six months; (3) 90% of the Index's numerical Index value and
at least 80% of the total number of component stocks will meet the then current
criteria for standardized option trading set forth in the rules of the AMEX; and
(4) all component stocks will either be listed on the AMEX, the New York Stock
Exchange, or traded through the facilities of the National Association of
Securities Dealers Automated Quotation System and reported as National Market
System securities.
The Share Multiplier for each New Stock will be determined by the AMEX and
will indicate the number of shares of each New Stock, given the closing market
price of such New Stock on the Anniversary Date, required to be included in the
calculation of the Top Ten Yield Portfolio Value so that each New Stock
represents approximately an equal percentage of a value equal to the Index in
effect at the close of business on such Anniversary Date. As an example, if the
Index in effect at the close of business on an Anniversary Date equaled 200,
then each of the ten New Stocks relating to such Anniversary Date would be
allocated a portion of the value of the Index equal to 20 and if the closing
market price of one such New Stock on the Anniversary Date was 40, the
applicable Share Multiplier would be 0.5. If the Index equaled 80, then each of
the ten New Stocks would be allocated a portion of the value of the Index equal
to 8 and if the closing market price of one such New Stock on the Anniversary
Date was 40, the applicable Share Multiplier would be 0.2. The last Anniversary
Date on which such reconstitution will occur will be the Anniversary Date in
2005, which will be approximately one year prior to the maturity date of the
Securities. "Anniversary Date" shall mean the anniversary date of the date the
Securities are initially issued; provided, however, that if such date is not an
Index Business Day or a Market Disruption Event occurs on such date, then the
Anniversary Date for such year shall mean the immediately succeeding Index
Business Day on which a Market Disruption Event does not occur. "Top Ten Yield
Stock" at any time shall mean the stocks contained in the Top Ten Yield
Portfolio at such time.
DOW JONES INDUSTRIAL AVERAGE
The DJIA is comprised of 30 common stocks chosen by the editors of the WSJ
as representative of the broad market of American industry generally. The
companies are major factors in their industries and their stocks are typically
widely held by individuals and institutional investors. Changes in the
composition of the DJIA are made entirely by the editors of the WSJ without
consultation with the companies, the stock exchange or any official agency or
the Company. For the sake of continuity, changes are made infrequently. Most
substitutions have been the result of mergers, but from time to time, changes
may be made to achieve a better representation. The components of the DJIA may
be changed at any time for any reason. Dow Jones & Company, Inc., publisher of
the WSJ, is not affiliated with the Company, has not participated in any way in
the creation of the Securities or in the selection of stocks to be included in
the Top Ten Yield Portfolio and has not reviewed or approved any information
included in this Prospectus.
The first DJIA, consisting of 12 stocks, was published in the WSJ in 1896.
The list grew to 20 stocks in 1916 and to 30 stocks on October 1, 1928. For two
periods of 17 consecutive years each, there were no changes to the list; March
15, 1939-July 2, 1956 and June 2, 1959-August 8, 1976.
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<PAGE>
The Company or its affiliates may presently or from time to time engage in
business with one or more of the issuers of the Top Ten Yield Portfolio stocks,
including extending loans to, or making equity investments in, such issuers or
providing advisory services to such issuers, including merger and acquisition
advisory services. In the course of such business, the Company or its affiliates
may acquire non-public information with respect to such issuers and, in
addition, one or more affiliates of the Company may publish research reports
with respect to such issuers. The Company does not make any representation to
any purchaser of Securities with respect to any matters whatsoever relating to
such issuers. Any prospective purchaser of Securities should undertake an
independent investigation of the issuers of the Top Ten Yield Portfolio stocks
as in its judgment is appropriate to make an informed decision with respect to
an investment in the Securities. The composition of the Index does not reflect
any investment or sell recommendations of the Company or its affiliates.
CASH DIVIDENDS
Current Quarter Dividend
As described above, the value of the Index will include an amount
reflecting Current Quarter Dividends. "Current Quarter Dividends" for any day
will be determined by the AMEX and will equal the sum of the Dividend Payment
for each Top Ten Yield Stock. The "Dividend Payment" with respect to a Top Ten
Yield Stock for any day will equal the sum of the products of (i) each dividend
paid by the issuer of such Top Ten Yield Stock on one share of such Top Ten
Yield Stock during the Current Quarter (not including any reinvestment thereof)
multiplied by (ii) the Share Multiplier applicable to such Top Ten Yield Stock
at the time each such dividend is paid. A dividend will be considered paid by an
issuer at the open of business on the ex-dividend date (i.e., generally, the
trading day on which the market price of the stock reflects the payment of the
dividend). "Current Quarter" shall mean the period from and including August 9,
1996 through December 31, 1996, and after December 31, 1996, from and including
the first day of the then current calendar quarter containing the day on which
the applicable Dividend Payment is being determined to and including the day on
which the applicable Dividend Payment is being determined.
Quarterly Stock Dividend
As of the first day of the start of each calendar quarter, the AMEX will
allocate the Current Quarter Dividends as of the end of the immediately
preceding calendar quarter to each then outstanding Top Ten Yield Stock. The
amount of the Current Quarter Dividends allocated to each Top Ten Yield Stock
will equal the percentage of the value of such Top Ten Yield Stock contained in
the Top Ten Yield Portfolio relative to the value of the entire Top Ten Yield
Portfolio based on the closing market price on the last Index Business Day in
the immediately preceding calendar quarter. The Share Multiplier of each such
outstanding Top Ten Yield Stock will be increased to reflect the number of
shares, or portion of a share, that the amount of the Current Quarter Dividend
allocated to such Top Ten Yield Stock can purchase of each such Top Ten Yield
Stock based on the closing market price on the last Index Business Day in the
immediately preceding calendar quarter.
Quarterly Deduction
At the end of each calendar quarter, the Index will be reduced by a value
equal to 0.4375% of the then current Index, provided that (i) there will be no
deduction at the end of the calendar quarter ending in September 1996 and the
deduction at the end of the calendar quarter ending in December 1996 will be
increased to reflect the quarterly rate of 0.4375% prorated for the period from
the date of the issuance of the Securities through the end of the calendar
quarter in December 1996 and (ii) the Index will be reduced at the close of
business on July 31, 2006 by a value equal to 0.1507% of the closing value of
the Index on such date. With respect to the period ending December 31, 1996, the
quarterly rate of 0.4375% will be prorated by multiplying it by a factor equal
to the result of dividing the number of days in the period from the date the
Securities are issued through the calendar quarter ending in December 1996 by
90.
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<PAGE>
ADJUSTMENTS TO THE SHARE MULTIPLIER AND TOP TEN YIELD PORTFOLIO
The Share Multiplier with respect to any Top Ten Yield Stock and the Top
Ten Yield Portfolio will be adjusted as follows:
1. If a Top Ten Yield Stock is subject to a stock split or reverse stock
split, then once such split has become effective, the Share Multiplier relating
to such Top Ten Yield Stock will be adjusted to equal the product of the number
of shares issued with respect to one such share of such Top Ten Yield Stock and
the prior multiplier.
2. If a Top Ten Yield Stock is subject to a stock dividend (issuance of
additional shares of the Top Ten Yield Stock) that is given equally to all
holders of shares of the issuer of such Top Ten Yield Stock, then once the
dividend has become effective and such Top Ten Yield Stock is trading ex-
dividend, the Share Multiplier will be adjusted so that the new Share Multiplier
shall equal the former Share Multiplier plus the product of the number of shares
of such Top Ten Yield Stock issued with respect to one such share of such Top
Ten Yield Stock and the prior multiplier.
3. If the issuer of a Top Ten Yield Stock is being liquidated or is
subject to a proceeding under any applicable bankruptcy, insolvency or other
similar law, such Top Ten Yield Stock will continue to be included in the Top
Ten Yield Portfolio so long as a Market Price for such Top Ten Yield Stock is
available. If a market price is no longer available for a Top Ten Yield Stock
for whatever reason, including the liquidation of the issuer of such Top Ten
Yield Stock or the subjection of the issuer of such Top Ten Yield Stock to a
proceeding under any applicable bankruptcy, insolvency or other similar law,
then the value of such Top Ten Yield Stock will equal zero in connection with
calculating the Top Ten Yield Portfolio Value for so long as no market price is
available, and no attempt will be made to immediately find a replacement stock
or increase the value of the Top Ten Yield Portfolio to compensate for the
deletion of such Top Ten Yield Stock. If a market price is no longer available
for a Top Ten Yield Stock as described above, the Top Ten Yield Portfolio Value
will be computed based on the remaining Top Ten Yield Stocks for which market
prices are available and no new stock will be added to the Top Ten Yield
Portfolio until the annual reconstitution of the Top Ten Yield Portfolio. As a
result, there may be periods during which the Top Ten Yield Portfolio contains
fewer than ten Top Ten Yield Stocks.
4. If the issuer of a Top Ten Yield Stock has been subject to a merger or
consolidation and is not the surviving entity or is nationalized, then a value
for such Top Ten Yield Stock will be determined at the time such issuer is
merged or consolidated or nationalized and will equal the last available market
price for such Top Ten Yield Stock and that value will be constant until the Top
Ten Yield Portfolio is reconstituted. At such time, no adjustment will be made
to the Share Multiplier of such Top Ten Yield Stock.
5. If the issuer of a Top Ten Yield Stock issues to all of its
shareholders equity securities that are publicly traded of an issuer other than
the issuer of the Top Ten Yield Stock, then such new equity securities will be
added to the Top Ten Yield Portfolio as a new Top Ten Yield Stock. The Share
Multiplier for such new Top Ten Yield Stock will equal the product of the
original Share Multiplier with respect to the Top Ten Yield Stock for which the
new Top Ten Yield Stock is being issued (the "Original Top Ten Yield Stock") and
the number of shares of the new Top Ten Yield Stock issued with respect to one
share of the Original Top Ten Yield Stock.
No adjustments of any Share Multiplier of a Top Ten Yield Stock will be
required unless such adjustment would require a change of at least 1% in the
Share Multiplier then in effect. The Share Multiplier resulting from any of the
adjustments specified above will be rounded to the nearest ten-thousandth with
five hundred-thousandths being rounded upward.
The AMEX expects that no adjustments to the Share Multiplier of any Top Ten
Yield Stock or to the Top Ten Yield Portfolio will be made other than those
specified above, however, the AMEX may at its discretion make adjustments to
maintain the value of the Index if certain events would otherwise alter the
value of the Index despite no change in the market prices of the Top Ten Yield
Stocks.
HISTORICAL PERFORMANCE OF THE INDEX
A potential investor should review the historical performance of the Index.
The historical performance of the Index should not be taken as an indication of
future performance, and no assurance can be given that the Index will
15
<PAGE>
increase sufficiently to cause the beneficial owners of the Securities to
receive an amount in excess of the principal amount at the maturity of the
Securities.
OTHER TERMS
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Indenture (the "Senior Indenture"), dated as of April 1, 1983, as amended and
restated, 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"). A copy of the Senior Indenture is filed as an exhibit
to the registration statements relating to the Securities. The following
summaries of certain provisions of the Senior Indenture do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the Senior Indenture, including the definition therein of
certain terms.
The Senior Indenture provides that series of Senior Debt Securities may
from time to time be issued thereunder, without limitation as to aggregate
principal amount, in one or more series and upon such terms as the Company may
establish pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the Securities
are governed by and construed in accordance with the laws of the State of New
York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen" a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and other regulatory bodies.
LIMITATIONS UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of the incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
LIMITATION ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Indenture provides that the Company may not sell, transfer or otherwise
dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell or
otherwise dispose of any of its Voting Stock, unless, after giving effect to any
such transaction, MLPF&S remains a Controlled Subsidiary (defined in the Senior
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the 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.
16
<PAGE>
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or
into any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior 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 Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company
and the Trustee with the consent of the Holders of 66 2/3% in principal amount
of the Outstanding Senior Debt Securities of each series issued pursuant to such
indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding Senior Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts payable on, any Senior Debt
Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any Senior Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Debt Security; (e) reduce the percentage in principal
amount of the Outstanding Senior Debt Securities of any series, the consent of
whose Holders is required to modify or amend the Indenture; or (f) modify the
foregoing requirements or reduce the percentage of Outstanding Senior Debt
Securities necessary to waive any past default to less than a majority. No
modification or amendment of the Subordinated Indenture or any Subsequent
Indenture for Subordinated Debt Securities may adversely affect the rights of
any holder of Senior Indebtedness without the consent of such Holder. Except
with respect to certain fundamental provisions, the Holders of at least a
majority in principal amount of Outstanding Senior Debt Securities of any series
may, with respect to such series, waive past defaults under the Indenture and
waive compliance by the Company with certain provisions thereof.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the Indenture for
the benefit of such series or in the Senior Debt Securities of such series,
continued for 60 days after written notice as provided in the Senior Indenture;
(e) certain events in bankruptcy, insolvency or reorganization; and (f) any
other Event of Default provided with respect to Senior Debt Securities of that
series. The Trustee or the Holders of 25% in principal amount of the
Outstanding Senior Debt Securities of that series may declare the principal
amount (or such lesser amount as may be provided for in the Senior Debt
Securities of that series) of all Outstanding Senior Debt Securities of that
series and the interest due thereon and Additional Amounts payable in respect
thereof, if any to be due and payable immediately if an Event of Default with
respect to Senior Debt Securities of such series shall occur and be continuing
at the time of such declaration. At any time after a declaration of
acceleration has been made with respect to Senior Debt Securities of any series
but before a judgment or decree for payment of money due has been obtained by
the Trustee, the Holders of a majority in principal amount of the Outstanding
Senior Debt Securities of that series may rescind any declaration of
acceleration and its consequences, if all payments due (other than those due as
a result of acceleration) have been made and all Events of Default have been
remedied or waived. Any Event of Default with respect to Senior Debt Securities
of any series may be waived by the Holders of a majority in principal amount of
all Outstanding Senior Debt Securities of that series, except in a case of
failure to pay principal or premium, if any, or interest or Additional Amounts
17
<PAGE>
payable on any Senior Debt Security of that series for which payment had not
been subsequently made or in respect of a covenant or provision which cannot be
modified or amended without the consent of the Holder of each Outstanding Senior
Debt Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior
Debt Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any right or power
under the Senior Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company is required to furnish to the Trustee annually a statement as
to the fulfillment by the Company of all of its obligations under the Senior
Indenture.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997 included
in the 1997 Annual Report on Form 10-K, and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP, as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such 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 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 such Quarterly Reports 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.
18
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
1,650,000 UNITS
MERRILL LYNCH & CO., INC.
S&P 500 INFLATION ADJUSTED MARKET INDEX TARGET-TERM SECURITIES DUE SEPTEMBER 24,
2007
"MITTS(R)"
($10 PRINCIPAL AMOUNT PER UNIT)
On September 24, 1997, Merrill Lynch & Co., Inc. (the "Company") issued an
aggregate principal amount $16,500,000 (1,650,000 Units) of S&P 500 Inflation
Adjusted Market Index Target-Term Securities due September 24, 2007 (the
"Securities" or "MITTS"). Each $10 principal amount of Securities will be
deemed a "Unit" for purposes of trading and transfer at the Securities
Depository described below. Units will be transferable by the Securities
Depository, as more fully described below, in denominations of whole Units.
GENERAL:
. Senior unsecured debt securities . Not redeemable prior to maturity
. No payments prior to maturity . Transferable only in whole Units
PAYMENT AT MATURITY:
Adjusted Principal Amount + Supplemental Redemption Amount
The Adjusted Principal Amount will equal the principal amount of the MITTS you
hold adjusted to reflect any increase in the Consumer Price Index over the term
of the MITTS. The Supplemental Redemption Amount will be based on the
percentage increase, if any, in the S&P 500 Composite Stock Price Index above a
benchmark value of 1089.38 which exceeded the closing value of such Index on
the date the Securities were priced for initial sale to the public by 15%.
The Supplemental Redemption Amount will not exceed $10 per Unit regardless of
the increase in the S&P 500 Index. The Supplemental Redemption Amount may be
ZERO, but will not be less than zero.
Before you decide to invest in the MITTS, carefully read this prospectus,
especially the risk factors beginning on page 4.
_______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-
TIES 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 Securities 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 Securities.
MLPF&S may act as principal or agent in such transactions. The Securities may
be offered on the New York Stock Exchange (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 Securities 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.
We expect that the MITTS will be maintained in book-entry form only
through the facilities of DTC.
_______________
MERRILL LYNCH & CO.
_______________
The date of this Prospectus Supplement is July __, 1998.
__________
"MITTS" is a registered service mark and "Market Index Target-Term Securities"
is a service mark owned by Merrill Lynch & Co., Inc.
<PAGE>
REQUIRED DISCLOSURES
Standard & Poor's
Standard & Poor's ("S&P") does not guarantee the accuracy and/or the
completeness of the S&P 500 Index or any data included in the S&P 500 Index. S&P
makes no warranty, express or implied, as to results to be obtained by the
Company, MLPF&S, the holders of the MITTS, or any other person or entity from
the use of the S&P 500 Index or any data included therein in connection with the
rights licensed under the license agreement described herein or for any other
use. S&P makes no express or implied warranties, and expressly disclaims all
warranties of merchantability or fitness for a particular purpose with respect
to the S&P 500 Index or any data included therein. Without limiting the
generality of the foregoing, in no event shall S&P have any liability for any
special, punitive, indirect or consequential damages (including lost profits),
even if notified of the possibility of such damages.
"Standard & Poor's(R)"; "S&P(R)"; "S&P 500"; and "Standard & Poor's 500"
are trademarks of The McGraw-Hill Companies, Inc., which have been licensed for
use by Merrill Lynch Capital Services, Inc. The Company is an authorized
sublicensee.
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 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 26,
1997, Quarterly Report on Form 10-Q for the period ended March 27, 1998, and
Current Reports on Form 8-K dated January 20, 1998, January 30, 1998, February
4, 1998, February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998,
April 29, 1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June
24, 1998, June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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
2
<PAGE>
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 LAWRENCE M. EGAN, JR., CORPORATE
SECRETARY'S OFFICE, 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 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.
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its
subsidiaries and affiliates, provides investment, financing, advisory,
insurance, and related services on a global basis. Its principal subsidiary,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("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; an underwriter of selected insurance products and a distributor of
investment products of the Merrill Lynch Asset Management group. 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. The Company's asset management and investment management activities are
conducted through the Merrill Lynch Asset Management group and Merrill Lynch
Mercury Asset Management, which together constitute one of the largest asset
management organizations in the world. Merrill Lynch Government Securities Inc.
is a primary dealer in obligations issued or guaranteed by the U.S. Government
and its agencies and its government-sponsored entities. Merrill Lynch Capital
Services, Inc., Merrill Lynch Derivative Products AG, and Merrill Lynch
International are the Company's primary derivative product dealers and enter
into interest rate, currency, and other over-the-counter derivative transactions
as intermediaries and as principals. The Company's operations in insurance
services consist of the underwriting and sale 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 and purchasing secured loans, providing
currency exchange facilities and other related services, and furnishing trust,
employee benefit, and custodial 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.
3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION> THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges . . . . . . . . . . . . . . . 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
RISK FACTORS
Your investment in MITTS will involve certain risks. For example, there is
the risk that you might not earn a return on your investment, and the risk that
you will be unable to sell your MITTS prior to their maturity. You should
carefully consider the following discussion of risks before deciding whether an
investment in the MITTS is suitable for you.
THE SUPPLEMENTAL REDEMPTION AMOUNT
The Benchmark Index Value exceeded the closing value of the S&P 500 Index
(i.e., the Starting Index Value) on the date the MITTS were priced for initial
sale to the public (the "Pricing Date") by 15%. You should be aware that if the
Ending Index value does not exceed the Starting Index Value at maturity by more
than 15%, the Supplemental Redemption Amount will be zero. This will be true
even if the value of the S&P 500 Index was higher than the Benchmark Index Value
at some time during the life of the MITTS but later falls below the Benchmark
Index Value. If the Supplemental Redemption Amount is zero, we will pay you only
the Adjusted Principal Amount of your MITTS.
You will not receive a Supplemental Redemption Amount that exceeds $10 per
Unit regardless of how much the Index increases. If the S&P 500 Index reaches a
value of two times the Benchmark Index Value, you will receive a Supplemental
Redemption Amount of $10. Since $10 is the maximum Supplemental Redemption
Amount we will pay, you will not receive any incremental benefit from increases
beyond that value. If we pay you the maximum Supplemental Redemption Amount of
$10 per unit, this will represent a maximum annualized rate of return of 7.05%
compounded semi-annually over a term of ten years. This limitation does not
apply to the Adjusted Principal Amount which is dependent on changes in the CPI.
YOUR YIELD MAY BE LOWER THAN THE YIELD ON A STANDARD DEBT SECURITY OF COMPARABLE
MATURITY
The amount we pay you at maturity may be less than the return you could
earn on other investments. Your yield may be less than the yield you would earn
if you bought a standard senior non-callable debt security of the Company with
the same maturity date. Your investment may not reflect the full opportunity
cost to you when you consider the effect of factors that affect the time value
of money.
4
<PAGE>
YOUR RETURN WILL NOT REFLECT THE PAYMENT OF DIVIDENDS
S&P calculates the Index by reference to the prices of the common stocks
comprising the Index without taking into consideration the value of dividends
paid on those stocks. Therefore, the return you earn on the MITTS, if any, will
not be the same as the return that you would earn if you actually owned each of
the common stocks in the Index and received the dividends paid on those stocks.
CONSUMER PRICE INDEX
The Adjusted Principal Amount will be affected by changes in the CPI. Such
changes may be significant. Changes in the CPI are a function of the changes in
specified consumer prices over time, which result from the interaction of many
factors over which the Company has no control.
In the past, the CPI has experienced periods of volatility and such
volatility may occur in the future. Fluctuations and trends in the CPI that have
occurred in the past are not necessarily indicative, however, of fluctuations
that may occur in the future.
In addition, the Congressionally-appointed Boskin Commission concluded in
its report released in December 1996 that the CPI overstates increases in the
cost of living and recommended significant adjustments to the calculation of the
index. Chairman of the Federal Reserve Board, Alan Greenspan, also recently
testified before Congress to similar effect. Recently Congressional leaders and
the President proposed that a panel be formed to review the accuracy of the CPI
as a measure of inflation. To date, neither the BLS nor Congress has adopted or
mandated any change in the manner in which the CPI is calculated. However, there
can be no assurance that such a change will not be adopted or mandated. As a
result of any such change, the Adjusted Principal Amount payable on the MITTS,
and therefore the value of the MITTS could be significantly reduced. If the CPI
is substantially altered, a substitute index may be employed to calculate the
Adjusted Principal Amount as described under "Description of Securities--Payment
at Maturity".
UNCERTAIN TRADING MARKET
The MITTS are traded on the NYSE under the symbol "IEM". While there have
been a number of issuances of Market Index Target-Term Securities, trading
volumes have varied historically from one transaction to another and it is
therefore impossible to predict how the MITTS will trade. You cannot assume that
a trading market will develop for the MITTS. If such a trading market does
develop, there can be no assurance that there will be liquidity in the trading
market. The development of a trading market for the MITTS will depend on the
financial performance of the Company, and other factors such as the
appreciation, if any, of the value of the Index and changes in the value or the
method of calculating the CPI.
If the trading market for the MITTS is limited, there may be a limited
number of buyers when you decide to sell your MITTS if you do not wish to hold
your investment until maturity. This may affect the price you receive.
FACTORS AFFECTING TRADING VALUE OF THE MITTS
We believe that the market value of the MITTS will be affected by the value
of the Index and the CPI and by a number of other factors. Some of these factors
are interrelated in complex ways; as a result, the effect of any one factor may
be offset or magnified by the effect of another factor. The following paragraphs
describe the expected impact on the market value of the MITTS given a change in
a specific factor, assuming all other conditions remain constant.
5
<PAGE>
. INDEX VALUE We expect that the market value of the MITTS will depend
substantially on the amount by which the Index exceeds the Benchmark Index
Value. If you choose to sell your MITTS when the value of the Index exceeds
the Benchmark Index Value, you may receive substantially less than the
amount that would be payable at maturity based on that Index value because
of the expectation that the Index will continue to fluctuate until the
Ending Index Value is determined. If you choose to sell your MITTS when the
value of the Index is below the Benchmark Index Value, you may receive less
than the $10 principal amount per Unit of MITTS. In general, rising U.S.
dividend rates (i.e., dividends per share) may increase the value of the
Index while falling U.S. dividend rates may decrease the value of the
Index. Political, economic and other developments that affect the stocks
underlying the Index may also affect the value of the Index and the value
of the MITTS.
. INTEREST RATES Because the MITTS repay, at a minimum, the principal amount
at maturity, we expect that the trading value of the MITTS will be affected
by changes in interest rates. In general, if U.S. interest rates increase,
we expect that the trading value of the MITTS will decrease. If U.S.
interest rates decrease, we expect the trading value of the MITTS will
increase. Interest rates may also affect the U.S. economy and, in turn, the
value of the Index. Rising interest rates may lower the value of the Index
and, thus, the MITTS. Falling rates may increase the value of the Index
and, thus, may increase the value of the MITTS.
. CPI The Adjusted Principal Amount of the MITTS will generally be higher in
direct proportion to the percentage increase, if any, in the CPI from when
the Initial CPI is fixed to when the Final CPI is determined. However,
interim increases in the CPI may or may not result in increases in the
trading value of the MITTS because of other economic factors. For example,
an increase in the CPI may be accompanied by higher interest rates. Such
higher interest rates could offset any positive impact of increases in the
CPI on the trading value of the MITTS.
. VOLATILITY OF THE INDEX OR OF THE CPI Volatility is the term used to
describe the size and frequency of market fluctuations. If the volatility
of the Index or of the CPI increases, we expect that the trading value of
the MITTS will increase. If the volatility of the Index or of the CPI
decreases, we expect that the trading value of the MITTS will decrease.
. TIME REMAINING TO MATURITY The MITTS may trade at a value above that which
would be expected based on the level of interest rates and the Index. This
difference will reflect a "time premium" due to expectations concerning the
value of the Index during the period prior to maturity of the MITTS.
However, as the time remaining to maturity of the MITTS decreases, we
expect that this time premium will decrease, lowering the trading value of
the MITTS.
. DIVIDEND YIELDS If dividend yields on the stocks comprising the Index
increase, we expect that the value of the MITTS will decrease. Conversely,
if dividend yields on the stocks comprising the Index decrease, we expect
that the value of the MITTS will increase.
. COMPANY CREDIT RATINGS Real or anticipated changes in the Company's credit
ratings may affect the market value of the MITTS.
We want you to understand that the impact of one of the factors specified
above, such as an increase in interest rates, may offset some or all of any
increase in the trading value of the MITTS attributable to another factor, such
as an increase in the Index value.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the MITTS of a given change in most of the
factors listed above will be less if it occurs later in the term of the MITTS
than if it occurs earlier in the term of the MITTS except that we expect that
the effect on the trading value of the MITTS of a given increase in the value of
the Index or the CPI will be greater if it occurs later in the term of the MITTS
than if it occurs earlier in the term of the MITTS.
6
<PAGE>
STATE LAW LIMITS ON INTEREST PAID
New York State laws govern the SENIOR INDENTURE, as hereinafter defined.
New York has certain usury laws that limit the amount of interest that can be
charged and paid on loans, which includes debt securities like the MITTS. Under
present New York law, the maximum rate of interest is 25% per annum on a simple
interest basis. This limit may not apply to debt securities in which $2,500,000
or more has been invested.
While we believe that New York law would be given effect by a state or
Federal court sitting outside of New York, many other states also have laws that
regulate the amount of interest that may be charged to and paid by a borrower.
We will promise, for the benefit of the MITTS holders, to the extent permitted
by law, not to voluntarily claim the benefits of any laws concerning usurious
rates of interest.
PURCHASES AND SALES BY MERRILL LYNCH
The Company, MLPF&S and other affiliates of the Company may from time to
time buy or sell the stocks underlying the Index for their own accounts for
business reasons or in connection with hedging the Company's obligations under
the MITTS. These transactions could affect the price of such stocks and the
value of the Index .
POTENTIAL CONFLICTS
The Calculation Agent is a subsidiary of the Company, the issuer of the
MITTS. Under certain circumstances, MLPF&S's roles as a subsidiary of the
Company and its responsibilities as Calculation Agent for the MITTS could give
rise to conflicts of interests. You should be aware that because the Calculation
Agent is controlled by the Company, potential conflicts of interest could arise;
however, the Calculation Agent is subject to limits and has certain duties. For
example, in the case of the CPI, the Calculation Agent could only adjust a value
of the CPI to undo a change to how the CPI is calculated or select a successor
measure for inflation to maintain the intended economic benefits of the MITTS to
you if the CPI is discontinued. The Calculation Agent could not otherwise adjust
a value of the CPI or replace the CPI with another measure of inflation.
OTHER CONSIDERATIONS
Investors should also consider the tax consequences of investing in the
Securities and should consult their tax advisors.
7
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Senior Indenture, referred to as the "Senior Indenture", which is more fully
described below. The Securities will mature on September 24, 2007.
While at maturity a beneficial owner of a Security will receive the
Adjusted Principal Amount of such Security plus the Supplemental Redemption
Amount, if any, there will be no other payment of interest, periodic or
otherwise. See "Payment at Maturity" below.
The Securities are not subject to redemption by the Company or at the
option of any beneficial owner prior to maturity. Upon the occurrence of an
Event of Default with respect to the Securities, beneficial owners of the
Securities may accelerate the maturity of the Securities, as described under
"Description of Securities--Events of Default and Acceleration" and "Other
Terms--Events of Default" in this Prospectus.
The Securities are to be issued in denominations of whole Units.
PAYMENT AT MATURITY
General
At maturity, a beneficial owner of a Security will be entitled to receive
the Adjusted Principal Amount thereof plus a Supplemental Redemption Amount, if
any, all as provided below. If the Ending Index Value does not exceed the
Benchmark Index Value, a beneficial owner of a Security will be entitled to
receive only the Adjusted Principal Amount thereof.
Determination of the Adjusted Principal Amount
The Adjusted Principal Amount for a Security will be determined by MLPF&S,
as calculation agent, and will equal the greater of:
(a) the principal amount of such Security ($10 for each Unit); and
(b) the principal amount of such Security X Final CPI
---------
Initial CPI
Initial CPI equals 160.3, the value of the CPI for the third calendar month
prior to the month containing the Pricing Date. Final CPI shall be determined by
the Calculation Agent and will equal the value of the CPI for the third calendar
month prior to September 24, 2007 as reported on the seventh calendar day prior
to the maturity date. CPI means the non-seasonally adjusted U.S. City Average
All Items Consumer Price Index for All Urban Consumers, published monthly by the
Bureau of Labor Statistics of the Department of Labor (the "BLS").
If a previously reported CPI value is revised by the BLS after the Final
CPI is determined, the Calculation Agent will continue to use the previously
reported CPI value in calculating the Adjusted Principal Amount.
If the CPI is rebased to a different year, the Calculation Agent will
continue to use the CPI based on the base reference period in effect on the
Pricing Date for such purposes, as long as the CPI continues to be published.
8
<PAGE>
Determination of the Supplemental Redemption Amount
The Supplemental Redemption Amount for a Security will be determined by the
Calculation Agent and will equal:
<TABLE>
<S> <C>
Ending Index Value-Benchmark Index Value
Principal Amount of such Security ($10 per Unit) X -----------------------------------------
Benchmark Index Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero or more than $10 per Unit. As indicated in the formula above, the
Supplemental Redemption Amount for the MITTS will be calculated using the
principal amount of the MITTS, not the Adjusted Principal Amount which may be
greater if the CPI has increased over the term of the MITTS.
The Benchmark Index Value equals 1089.38. The Benchmark Index Value was
determined on the Pricing Date by multiplying the Starting Index Value by a
factor equal to 115%. The Ending Index Value will be determined by the
Calculation Agent and will equal the average (arithmetic mean) of the closing
values of the Index determined on each of the first five Calculation Days during
the Calculation Period. If there are fewer than five Calculation Days, then the
Ending Index Value will equal the average (arithmetic mean) of the closing
values of the Index on such Calculation Days, and if there is only one
Calculation Day, then the Ending Index Value will equal the closing value of the
Index on such Calculation Day. If no Calculation Days occur during the
Calculation Period because of Market Disruption Events, then the Ending Index
Value will equal the closing value of the Index determined on the last scheduled
Index Business Day in the Calculation Period, regardless of the occurrences of a
Market Disruption Event on such day. The "Calculation Period" means the period
from and including the seventh scheduled Index Business Day prior to the
maturity date to and including the second scheduled Index Business Day prior to
the maturity date. "Calculation Day" means any Index Business Day during the
Calculation Period on which a Market Disruption Event has not occurred. For
purposes of determining the Ending Index Value, an "Index Business Day" is a day
on which the NYSE and the American Stock Exchange are open for trading and the
Index or any Successor Index, as defined below, is calculated and published. All
determinations made by the Calculation Agent shall be at the sole discretion of
the Calculation Agent and, absent a determination by the Calculation Agent of a
manifest error, shall be conclusive for all purposes and binding on the Company
and beneficial owners of the Securities.
HYPOTHETICAL RETURNS
The following table provides the amount payable to beneficial owners of
Securities related to the pretax annualized rates of return given in the table
on the following page for a range of hypothetical annualized rates of change in
the CPI and percentage changes in the Index from the Starting Index Value to the
Ending Index Value.
9
<PAGE>
<TABLE>
<CAPTION>
ANNUALIZED RATE OF CHANGE IN CPI
------------------------------------------------------------------------------
PERCENTAGE CHANGE IN INDEX
FROM STARTING INDEX VALUE -3.00% -1.00% 0.00% 1.00% 3.00% 5.00% 7.00% 9.00%
- --------------------------------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-50.00%..................... $10.00 $10.00 $10.00 $11.05 $13.44 $16.29 $19.67 $23.67
-30.00%..................... 10.00 10.00 10.00 11.05 13.44 16.29 19.67 23.67
-10.00%..................... 10.00 10.00 10.00 11.05 13.44 16.29 19.67 23.67
0.00%..................... 10.00 10.00 10.00 11.05 13.44 16.29 19.67 23.67
10.00%..................... 10.00 10.00 10.00 11.05 13.44 16.29 19.67 23.67
30.00%..................... 11.30 11.30 11.30 12.35 14.74 17.59 20.98 24.98
50.00%..................... 13.04 13.04 13.04 14.09 16.48 19.33 22.71 26.72
70.00%..................... 14.78 14.78 14.78 15.83 18.22 21.07 24.45 28.46
90.00%..................... 16.52 16.52 16.52 17.57 19.96 22.81 26.19 30.20
110.00%..................... 18.26 18.26 18.26 19.31 21.70 24.55 27.93 31.93
130.00%..................... 20.00 20.00 20.00 21.05 23.44 26.29 29.67 33.67
150.00%..................... 20.00 20.00 20.00 21.05 23.44 26.29 29.67 33.67
170.00%..................... 20.00 20.00 20.00 21.05 23.44 26.29 29.67 33.67
190.00%..................... 20.00 20.00 20.00 21.05 23.44 26.29 29.67 33.67
</TABLE>
The following table provides the pretax annualized rate of return to
beneficial owners of the Securities for a range of hypothetical annualized rates
of change in the CPI and percentage changes in the Index from the Starting Index
Value to the Ending Index Value. The far right column of the table provides the
pretax annualized rate of return of an investment in the stocks underlying the
Index (which includes an assumed aggregate dividend yield of 1.60% per annum, as
more fully described below).
<TABLE>
<CAPTION>
ANNUALIZED RATE OF CHANGE IN CPI (1)
------------------------------------------------------------------------------
PERCENTAGE CHANGE PRETAX ANNUALIZED
IN INDEX RATE OF RETURN OF
FROM STARTING STOCKS UNDERLYING
INDEX VALUE -3.00% -1.00% 0.00% 1.00% 3.00% 5.00% 7.00% 9.00% THE INDEX (2)
- ------------------- ----- ----- ---- ---- ---- ---- ----- ----- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-50.00%....... 0.00% 0.00% 0.00% 1.00% 2.98% 4.94% 6.88% 8.81% -5.24%
-30.00%....... 0.00% 0.00% 0.00% 1.00% 2.98% 4.94% 6.88% 8.81% -1.95%
-10.00%....... 0.00% 0.00% 0.00% 1.00% 2.98% 4.94% 6.88% 8.81% 0.55%
0.00%....... 0.00% 0.00% 0.00% 1.00% 2.98% 4.94% 6.88% 8.81% 1.60%
10.00%....... 0.00% 0.00% 0.00% 1.00% 2.98% 4.94% 6.88% 8.81% 2.56%
30.00%....... 1.23% 1.23% 1.23% 2.12% 3.92% 5.73% 7.55% 9.37% 4.25%
50.00%....... 2.67% 2.67% 2.67% 3.46% 5.06% 6.70% 8.38% 10.07% 5.71%
70.00%....... 3.95% 3.95% 3.95% 4.65% 6.09% 7.59% 9.15% 10.74% 7.00%
90.00%....... 5.08% 5.08% 5.08% 5.72% 7.03% 8.42% 9.86% 11.36% 8.15%
110.00%....... 6.11% 6.11% 6.11% 6.69% 7.90% 9.19% 10.54% 11.95% 9.20%
130.00%....... 7.05% 7.05% 7.05% 7.58% 8.70% 9.90% 11.18% 12.52% 10.15%
150.00%....... 7.05% 7.05% 7.05% 7.58% 8.70% 9.90% 11.18% 12.52% 11.02%
170.00%....... 7.05% 7.05% 7.05% 7.58% 8.70% 9.90% 11.18% 12.52% 11.84%
190.00%....... 7.05% 7.05% 7.05% 7.58% 8.70% 9.90% 11.18% 12.52% 12.60%
</TABLE>
- ----------------------
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
10
<PAGE>
(2) This rate of return assumes (a) an investment of a fixed amount in the
stocks underlying the Index with the allocation of such amount
reflecting the current relative weights of such stocks in the Index;
(b) a percentage change in the aggregate price of such stocks that
equals the percentage change in the Index from the Starting Index Value
to the relevant hypothetical Ending Index Value; (c) a constant
dividend yield of 1.60% per annum, paid quarterly from the date of
initial delivery of Securities, applied to the value of the Index at
the end of each such quarter assuming such value increases or decreases
linearly from the Starting Index Value to the applicable hypothetical
Ending Index Value; (d) no transaction fees or expenses; (e) a term for
the Securities from September 24, 1997 to September 24, 2007; and (f) a
final Index value equal to the Ending Index Value. The aggregate
dividend yield of the stocks underlying the Index as of September 18,
1997 was approximately 1.60%.
As you can see from the foregoing tables, if you assume a 3% per annum
change in the CPI during the term of the Securities and a 70% increase in
the Index from the Starting Index Value to the Ending Index Value, $18.22
would be payable at the maturity of the Securities and the pretax annualized
rate of return to beneficial owners of the Securities calculated on a semi-
annual bond equivalent basis would be 6.09%. Given a fixed annual percentage
change in the CPI, any increase in the value of the Index above 230% of the
Starting Index Value (i.e., a percentage increase in the Index from the
Starting Index Value of 130%) will not increase the pretax annualized rate
of return on the Securities.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the total and
pretax annualized rate of return resulting therefrom will depend entirely on
the actual Ending Index Value determined by the Calculation Agent as
provided herein.
ADJUSTMENTS TO THE CPI
If at any time the method of calculating the CPI, or the value thereof,
is changed in any material respect, or if the CPI is in any other way modified
so that such CPI does not, in the opinion of the Calculation Agent, fairly
represent the value of the CPI had such changes or modifications not been
made, then, from and after such time, the Calculation Agent shall make such
adjustments for purposes of determining the Final CPI as, in the good faith
judgment of the Calculation Agent, may be necessary in order to arrive at a
calculation of a value of an inflation index comparable to the CPI as if such
changes or modifications had not been made.
If the CPI is discontinued while the Securities are outstanding, the
Calculation Agent shall determine an alternative index that in the Calculation
Agent's sole discretion is comparable to the CPI (the "Successor CPI"). Upon the
Calculation Agent's notification of such determination to the Trustee and the
Company, the Calculation Agent will substitute the Successor CPI for the CPI.
The Calculation Agent may make such adjustments to the values of the Successor
CPI in order to maintain the intended economic benefits to the Company and the
Holders of the Securities. Upon any selection by the Calculation Agent of a
Successor CPI, the Company shall cause notice thereof to be given to the Holders
of the Securities.
ADJUSTMENTS TO THE INDEX; MARKET DISRUPTION EVENTS
If at any time the method of calculating the Index, or the value thereof,
is changed in any material respect, or if the Index is in any other way modified
so that such Index does not, in the opinion of the Calculation Agent, fairly
represent the value of the Index had such changes or modifications not been
made, then, from and after such time, the Calculation Agent shall, at the close
of business in New York, New York, on each date that the closing value with
respect to the Ending Index Value is to be calculated, make such adjustments as,
in the good faith judgment of the Calculation Agent, may be necessary in order
to arrive at a calculation of a value of a stock index comparable to the Index
as if such changes or modifications had not been made, and calculate such
closing value with reference to the Index, as adjusted. Accordingly, if the
method of calculating the Index is modified so that the value of such Index is a
fraction or a multiple of what it would have been if it had not been modified
(e.g., due to a split in the
11
<PAGE>
Index), then the Calculation Agent shall adjust such Index in order to arrive at
a value of the Index as if it had not been modified (e.g., as if such split had
not occurred).
"Market Disruption Event" means either of the following events, as
determined by the Calculation Agent:
(a) the suspension or material limitation (limitations pursuant to New York
Stock Exchange Rule 80A (or any applicable rule or regulation enacted or
promulgated by the New York Stock Exchange or any other self regulatory
organization or the Commission of similar scope as determined by the Calculation
Agent) on trading during significant market fluctuations shall be considered
"material" for purposes of this definition), in each case, for more than two
hours of trading in 100 or more of the securities included in the Index, or
(b) the suspension or material limitation, in each case, for more than two
hours of trading (whether by reason of movements in price otherwise exceeding
levels permitted by the relevant exchange or otherwise) in (A) futures contracts
related to the Index which are traded on the Chicago Mercantile Exchange or (B)
option contracts related to the Index which are traded on the Chicago Board
Options Exchange, Inc.
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular business hours of
the relevant exchange.
DISCONTINUANCE OF THE INDEX
If S&P discontinues publication of the Index and S&P or another entity
publishes a successor or substitute index that the Calculation Agent determines,
in its sole discretion, to be comparable to such Index (any such index being
referred to hereinafter as a "Successor Index"), then, upon the Calculation
Agent's notification of such determination to the Trustee and the Company, the
Calculation Agent will substitute the Successor Index as calculated by S&P or
such other entity for the Index and calculate the Ending Index Value as
described above under "Payment at Maturity". Upon any selection by the
Calculation Agent of a Successor Index, the Company shall cause notice thereof
to be given to Holders of the Securities.
If S&P discontinues publication of the Index and a Successor Index is not
selected by the Calculation Agent or is no longer published on any of the
Calculation Days, the value to be substituted for the Index for any such
Calculation Day used to calculate the Supplemental Redemption Amount at maturity
will be a value computed by the Calculation Agent for each Calculation Day in
accordance with the procedures last used to calculate the Index prior to any
such discontinuance. If a Successor Index is selected or the Calculation Agent
calculates a value as a substitute for the Index as described below, such
Successor Index or value shall be substituted for the Index for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
If S&P discontinues publication of the Index prior to the period during
which the Supplemental Redemption Amount is to be determined and the Calculation
Agent determines that no Successor Index is available at such time, then on each
Business Day until the earlier to occur of (a) the determination of the Ending
Index Value and (b) a determination by the Calculation Agent that a Successor
Index is available, the Calculation Agent shall determine the value that would
be used in computing the Supplemental Redemption Amount as described in the
preceding paragraph as if such day were a Calculation Day. The Calculation Agent
will cause notice of each such value to be published not less often than once
each month in The Wall Street Journal (or another newspaper of general
circulation), and arrange for information with respect to such values to be made
available by telephone. Notwithstanding these alternative arrangements,
discontinuance of the publication of the Index may adversely affect trading in
the Securities.
12
<PAGE>
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Securities shall have
occurred and be continuing, the amount payable to a beneficial owner of a
Security upon any acceleration permitted by the Securities, with respect to each
$10 principal amount thereof, will be equal to the Adjusted Principal Amount and
the Supplemental Redemption Amount, if any, calculated as though the date of
early repayment were the stated maturity date of the Securities. See
"Description of Securities--Payment at Maturity" in this Prospectus. If a
bankruptcy proceeding is commenced in respect of the Company, the claim of the
beneficial owner of a Security may be limited, under Section 502(b)(2) of Title
11 of the United States Code, to the principal amount of the Security plus an
additional amount of contingent interest calculated as though the date of the
commencement of the proceeding were the maturity date of the Securities.
In case of default in payment at the maturity date of the Securities
(whether at their stated maturity or upon acceleration), from and after the
maturity date the Securities shall bear interest, payable upon demand of the
beneficial owners thereof, at the rate of 6.58% per annum (to the extent that
payment of such interest shall be legally enforceable) on the unpaid amount due
and payable on such date in accordance with the terms of the Securities to the
date payment of such amount has been made or duly provided for.
DEPOSITORY
Upon issuance, all Securities will be represented by one or more fully
registered global securities (the "Global Securities"). Each such Global
Security will be deposited with, or on behalf of, The Depository Trust Company
("DTC"), as Depository, registered in the name of Cede & Co. (DTC's partnership
nominee). Unless and until it is exchanged in whole or in part for Securities in
definitive form, no Global Security may be transferred except as a whole by the
Depository to a nominee of such Depository or by a nominee of such Depository to
such Depository or another nominee of such Depository or by such Depository or
any such nominee to a successor of such Depository or a nominee of such
successor.
So long as DTC, or its nominee, is a registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole owner or
Holder of the Securities represented by such Global Security for all purposes
under the Senior Indenture. Except as provided below, the actual owner of the
Securities represented by a Global Security (the "Beneficial Owner") will not be
entitled to have the Securities represented by such Global Securities registered
in their names, will not receive or be entitled to receive physical delivery of
the Securities in definitive form, except in the event that use of the book-
entry system for the Securities is discontinued, and will not be considered the
owners or Holders thereof under the Senior Indenture, including for purposes of
receiving any reports delivered by the Company or the Trustee pursuant to the
Senior Indenture. Accordingly, each Person owning a beneficial interest in a
Global Security must rely on the procedures of DTC and, if such Person is not a
participant of DTC (a "Participant"), on the procedures of the Participant
through which such person owns its interest, to exercise any rights of a Holder
under the Senior Indenture. The Company understands that under existing industry
practices, in the event that the Company requests any action of Holders or that
an owner of a beneficial interest in such a Global Security desires to give or
take any action which a Holder is entitled to give or take under the Senior
Indenture, DTC 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 DTC to Participants, by Participants to
Indirect Participants, as defined below, 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.
If (x) the Depository is at any time unwilling or unable to continue as
Depository and a successor depository is not appointed by the Company within 60
days, (y) the Company executes and delivers to the Trustee a Company Order to
the effect that the Global Securities shall be exchangeable or (z) an Event of
Default has occurred and is
13
<PAGE>
continuing with respect to the Securities, the Global Securities will be
exchangeable for Securities in definitive form of like tenor and of an equal
aggregate principal amount, in denominations of $10 and integral multiples
thereof. Such definitive Securities shall be registered in such name or names as
the Depository shall instruct the Trustee. It is expected that such instructions
may be based upon directions received by the Depository from Participants with
respect to ownership of beneficial interests in such Global Securities.
The following is based on information furnished by DTC:
DTC will act as securities depository for the Securities. The Securities
will be issued as fully registered securities registered in the name of Cede &
Co. (DTC's partnership nominee). One or more fully registered Global Security
will be issued for the Securities in the aggregate principal amount of such
issue, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its Participants deposit with DTC. DTC also facilitates
the settlement among Participants of securities transactions, such as transfers
and pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants of DTC ("Direct
Participants") include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. DTC is owned by a number
of its Direct 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 DTC's system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the Securities and Exchange Commission.
Purchases of Securities under the DTC's system must be made by or through
Direct Participants, which will receive a credit for the Securities on the DTC's
records. The ownership interest of each Beneficial Owner is in turn to be
recorded on the records of Direct Participants and Indirect Participants.
Beneficial Owners will not receive written confirmation from DTC of their
purchase, but Beneficial Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the Direct Participants or Indirect Participants through which
such Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Securities are to be accomplished by entries made on the books
of Participants acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests in Securities,
except in the event that use of the book-entry system for the Securities is
discontinued.
To facilitate subsequent transfers, all Securities deposited with DTC are
registered in the name of DTC's partnership nominee, Cede & Co. The deposit of
Securities with DTC and their registration in the name of Cede & Co. effect no
change in beneficial ownership. DTC has no knowledge of the actual Beneficial
Owners of theSecurities; DTC's records reflect only the identity of the Direct
Participants to whose accounts such Securities are credited, which may or may
not be the Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
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.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to the
Company as soon as possible after the applicable record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants to
whose accounts the Securities are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
14
<PAGE>
Principal, premium, if any, and/or interest, if any, payments on the
Securities will be made in immediately available funds to DTC. DTC's practice is
to credit Direct Participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the Depository's records
unless DTC has reason to believe that it will not receive payment on such date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is 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 Participant and not of DTC, the Trustee or
the Company, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of principal, premium, if any, and/or
interest, if any, to DTC is the responsibility of the Company or the Trustee,
disbursement of such payments to Direct Participants shall be the responsibility
of DTC, and disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct Participants and Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the Securities at any time by giving reasonable notice to the Company
or the Trustee. Under such circumstances, in the event that a successor
securities depository is not obtained, Security certificates are required to be
printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Security certificates will be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that the Company believes to be reliable, but the Company
takes no responsibility for the accuracy thereof.
SAME-DAY SETTLEMENT AND PAYMENT
All payments of Adjusted Principal Amount and the Supplemental Redemption
Amount, if any, will be made by the Company in immediately available funds so
long as the Securities are maintained in book-entry form.
THE INDEX
All disclosure contained in this Prospectus regarding the Index, including,
without limitation, its make-up, method of calculation and changes in its
components, is derived from publicly available information prepared by S&P.
GENERAL
The Index is published by S&P and is intended to provide an indication of
the pattern of common stock price movement. The calculation of the value of the
Index (discussed below in further detail) is based on the relative value of the
aggregate Market Value (as defined below) of the common stocks of 500 companies
as of a particular time as compared to the aggregate average Market Value of the
common stocks of 500 similar companies during the base period of the years 1941
through 1943. As of August 31, 1997, the 500 companies included in the Index
represented approximately 79% of the aggregate Market Value of common stocks
traded on the NYSE; however, these 500 companies are not the 500 largest
companies listed on the NYSE and not all of these 500 companies are listed on
such exchange. As of August 31, 1997, the aggregate market value of the 500
companies included in the Index represented approximately 71% of the aggregate
market value of United States domestic, public companies. S&P chooses companies
for inclusion in the Index with the aim of achieving a distribution by broad
industry groupings that approximates the distribution of these groupings in the
common stock population of the NYSE, which S&P uses as an assumed model for the
composition of the total market. Relevant criteria employed by S&P include the
viability of the particular company, the extent to which that company represents
the industry group to which it is assigned, the extent to which the market price
of that Company's common stock is generally responsive to changes in the affairs
of the respective industry and the Market Value and trading activity of the
common stock of that company. As of August 31, 1997, the 500 companies included
in the Index were divided into 103 individual groups. These
15
<PAGE>
individual groups comprised the following four main groups of companies (with
the number of companies currently included in each group indicated in
parentheses): Industrials (383), Utilities (37), Transportation (11) and
Financial (69). S&P may from time to time, in its sole discretion, add companies
to, or delete companies from, the Index to achieve the objectives stated above.
COMPUTATION OF THE INDEX
S&P currently computes the Index as of a particular time as follows:
(1) the product of the market price per share and the number of then
outstanding shares of each component stock is determined as of such time (such
product referred to as the "Market Value" of such stock);
(2) the Market Value of all component stocks as of such time (as determined
under clause (1) above) are aggregated;
(3) the mean average of the Market Values as of each week in the base
period of the years 1941 through 1943 of the common stock of each company in a
group of 500 substantially similar companies is determined;
(4) the mean average Market Values of all such common stocks over such base
period (as determined under clause (3) above) are aggregated (such aggregate
amount being referred to as the "Base Value");
(5) the aggregate Market Value of all component stocks as of such time (as
determined under clause (2) above) is divided by the Base Value; and
(6) the resulting quotient (expressed in decimals) is multiplied by ten.
While S&P currently employs the above methodology to calculate the Index, no
assurance can be given that S&P will not modify or change such methodology in a
manner that may affect the Supplemental Redemption Amount, if any, payable to
beneficial owners of Securities upon maturity or otherwise.
S&P adjusts the foregoing formula to negate the effect of changes in the
Market Value of a component stock that are determined by S&P to be arbitrary or
not due to true market fluctuations. Such changes may result from such causes as
the issuance of stock dividends, the granting to shareholders of rights to
purchase additional shares of such stock, the purchase thereof by employees
pursuant to employee benefit plans, certain consolidations and acquisitions, the
granting to shareholders of rights to purchase other securities of the company,
the substitution by S&P of particular component stocks in the Index, and other
reasons. In all such cases, S&P first recalculates the aggregate Market Value of
all component stocks (after taking account of the new market price per share of
the particular component stock or the new number of outstanding shares thereof
or both, as the case may be) and then determines the New Base Value in
accordance with the following formula:
Old Base Value X New Market Value = New Base Value
----------------
Old Market Value
The result is that the Base Value is adjusted in proportion to any change
in the aggregate Market Value of all component stocks resulting from the causes
referred to above to the extent necessary to negate the effects of such causes
upon the Index.
16
<PAGE>
LICENSE AGREEMENT
S&P and Merrill Lynch Capital Services, Inc. have entered into a non-
exclusive license agreement providing for the license to Merrill Lynch Capital
Services, Inc., in exchange for a fee, of the right to use indices owned and
published by S&P in connection with certain securities, including the
Securities, and the Company is an authorized sublicensee thereof.
The license agreement between S&P and Merrill Lynch Capital Services, Inc.
provides that the following language must be stated in this Prospectus:
"The Securities are not sponsored, endorsed, sold or promoted by S&P. S&P
makes no representation or warranty, express or implied, to the Holders of the
Securities or any member of the public regarding the advisability of investing
in securities generally or in the Securities particularly or the ability of
the Index to track general stock market performance. S&P's only relationship
to Merrill Lynch Capital Services, Inc. and the Company (other than
transactions entered into in the ordinary course of business) is the licensing
of certain servicemarks and trade names of S&P and of the Index which is
determined, composed and calculated by S&P without regard to the Company or
the Securities. S&P has no obligation to take the needs of the Company or the
Holders of the Securities into consideration in determining, composing or
calculating the Index. S&P is not responsible for and has not participated in
the determination of the timing of the sale of the Securities, prices at which
the Securities are to initially be sold, or quantities of the Securities to be
issued or in the determination or calculation of the equation by which the
Securities are to be converted into cash. S&P has no obligation or liability
in connection with the administration, marketing or trading of the
Securities."
CPI
GENERAL
The CPI is a measure of the average change in consumer prices over time for
a fixed market basket of goods and services, including food, clothing, shelter,
fuels, transportation, charges for doctors and dentists services, and drugs. In
calculating the index, price changes for the various items are averaged together
with weights that represent their importance in the spending of urban households
in the United States. The contents of the market basket of goods and services
and the weights assigned to the various items are updated periodically by the
BLS to take into account changes in consumer expenditure patterns.
All disclosure contained in this Prospectus regarding the CPI, including,
without limitation, its composition, method of calculation and changes in its
components, is derived from publicly available information prepared by the
United States Government. Neither the Company nor the underwriter takes any
responsibility for the accuracy or completeness of such information.
The CPI is expressed in relative terms in relation to a time base reference
period for which the level is set at 100. For example, if the CPI for the 1982-
1984 reference period is 100, an increase of 16.5 percent from that period would
result in a CPI value equal to 116.5. The CPI for a particular month is released
and published during the following month. From time to time, the CPI is rebased
to a more recent base reference period. The base reference period for these
Notes is the 1982-1984 average which is equal to 100.
17
<PAGE>
OTHER TERMS
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Indenture (the "Senior Indenture"), dated as of April 1, 1983, as amended and
restated, 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"). A copy of the Senior Indenture is filed as an exhibit
to the registration statements relating to the Securities. The following
summaries of certain provisions of the Senior Indenture do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the Senior Indenture, including the definition therein of
certain terms.
The Senior Indenture provides that series of Senior Debt Securities may
from time to time be issued thereunder, without limitation as to aggregate
principal amount, in one or more series and upon such terms as the Company may
establish pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the Securities
are governed by and construed in accordance with the laws of the State of New
York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen" a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and other regulatory bodies.
LIMITATIONS UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of the incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
LIMITATION ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Indenture provides that the Company may not sell, transfer or otherwise
dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell or
otherwise dispose of any of its Voting Stock, unless, after giving effect to any
such transaction, MLPF&S remains a Controlled Subsidiary (defined in the Senior
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the 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.
18
<PAGE>
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or
into any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior 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 Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company
and the Trustee with the consent of the Holders of 66 2/3% in principal amount
of the Outstanding Senior Debt Securities of each series issued pursuant to such
indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding Senior Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts payable on, any Senior Debt
Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any Senior Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Debt Security; (e) reduce the percentage in principal
amount of the Outstanding Senior Debt Securities of any series, the consent of
whose Holders is required to modify or amend the Indenture; or (f) modify the
foregoing requirements or reduce the percentage of Outstanding Senior Debt
Securities necessary to waive any past default to less than a majority. No
modification or amendment of the Subordinated Indenture or any Subsequent
Indenture for Subordinated Debt Securities may adversely affect the rights of
any holder of Senior Indebtedness without the consent of such Holder. Except
with respect to certain fundamental provisions, the Holders of at least a
majority in principal amount of Outstanding Senior Debt Securities of any series
may, with respect to such series, waive past defaults under the Indenture and
waive compliance by the Company with certain provisions thereof.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the Indenture for
the benefit of such series or in the Senior Debt Securities of such series,
continued for 60 days after written notice as provided in the Senior Indenture;
(e) certain events in bankruptcy, insolvency or reorganization; and (f) any
other Event of Default provided with respect to Senior Debt Securities of that
series. The Trustee or the Holders of 25% in principal amount of the
Outstanding Senior Debt Securities of that series may declare the principal
amount (or such lesser amount as may be provided for in the Senior Debt
Securities of that series) of all Outstanding Senior Debt Securities of that
series and the interest due thereon and Additional Amounts payable in respect
thereof, if any to be due and payable immediately if an Event of Default with
respect to Senior Debt Securities of such series shall occur and be continuing
at the time of such declaration. At any time after a declaration of
acceleration has been made with respect to Senior Debt Securities of any series
but before a judgment or decree for payment of money due has been obtained by
the Trustee, the Holders of a majority in principal amount of the Outstanding
Senior Debt Securities of that series may rescind any declaration of
acceleration and its consequences, if all payments due (other than those due as
a result of acceleration) have been made and all Events of Default have been
remedied or waived. Any Event of Default with respect to Senior Debt Securities
of
19
<PAGE>
any series may be waived by the Holders of a majority in principal amount of all
Outstanding Senior Debt Securities of that series, except in a case of failure
to pay principal or premium, if any, or interest or Additional Amounts payable
on any Senior Debt Security of that series for which payment had not been
subsequently made or in respect of a covenant or provision which cannot be
modified or amended without the consent of the Holder of each Outstanding Senior
Debt Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior
Debt Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any right or power
under the Senior Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company is required to furnish to the Trustee annually a statement as
to the fulfillment by the Company of all of its obligations under the Senior
Indenture.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Solely for purposes of applying the final Treasury Department Regulations
(the "Final Regulations") concerning the United States Federal income tax
treatment of contingent payment debt instruments to the Securities, the Company
has determined that the projected payment schedule for the Securities will
consist of payment on the maturity date of a projected amount equal to $19.0973
per Unit. This represents an estimated yield on the Securities equal to 6.58%
per annum (compounded semiannually).
The projected payment schedule (including both the projected Redemption
Amount and the estimated yield on the Securities) has been determined solely for
United States Federal income tax purposes (i.e., for purposes of applying the
Final Regulations to the Securities), and is neither a prediction nor a
guarantee of what either the actual Adjusted Principal Amount or the actual
Supplemental Redemption Amount will be, or that either the actual Adjusted
Principal Amount will exceed $10 or that the actual Supplemental Redemption
Amount will even exceed zero.
The following table sets forth the amount of interest that will be deemed
to have accrued with respect to each Unit of the Securities during each accrual
period over a term of ten years for the Securities based upon a projected
payment schedule for the Securities (including both the projected Supplemental
Redemption Amount and the estimated yield equal to 6.58% per annum (compounded
semiannually)) as determined by the Company for purposes of application of the
Final Regulations to the Securities:
<TABLE>
<CAPTION>
TOTAL INTEREST
DEEMED
INTEREST DEEMED TO TO HAVE ACCRUED ON
ACCRUE DURING SECURITIES AS OF END
ACCRUAL OF ACCRUAL PERIOD
ACCRUAL PERIOD PERIOD (PER UNIT) (PER UNIT)
- -------------- ------------------- ---------------------
<S> <C> <C>
September 24, 1997 through March 23, 1998.. $0.3244 $0.3244
March 24, 1998 through September 23, 1998.. $0.3415 $0.6659
September 24, 1998 through March 23, 1999.. $0.3490 $1.0149
March 24, 1999 through September 23, 1999.. $0.3624 $1.3773
September 24, 1999 through March 23, 2000.. $0.3743 $1.7516
March 24, 2000 through September 23, 2000.. $0.3867 $2.1383
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
TOTAL INTEREST
DEEMED
INTEREST DEEMED TO TO HAVE ACCRUED ON
ACCRUE DURING SECURITIES AS OF END
ACCRUAL OF ACCRUAL PERIOD
ACCRUAL PERIOD PERIOD (PER UNIT) (PER UNIT)
-------------- ------------------- ---------------------
<S> <C> <C>
September 24, 2002 through March 23, 2001.. $0.3993 $2.5376
March 24, 2001 through September 23, 2001.. $0.4125 $2.9501
September 24, 2001 through March 23, 2002.. $0.4261 $3.3762
March 24, 2002 through September 23, 2002.. $0.4401 $3.8163
September 24, 2002 through March 23, 2003.. $0.4545 $4.2708
March 24, 2003 through September 23, 2003.. $0.4695 $4.7403
September 24, 2003 through March 23, 2004.. $0.4850 $5.2253
March 24, 2004 through September 23, 2004.. $0.5009 $5.7262
September 24, 2004 through March 23, 2005.. $0.5174 $6.2436
March 24, 2005 through September 23, 2005.. $0.5344 $6.7780
September 24, 2005 through March 23, 2006.. $0.5520 $7.3300
March 24, 2006 through September 23, 2006.. $0.5701 $7.9001
September 24, 2006 through March 23, 2007.. $0.5890 $8.4891
March 24, 2007 through September 24, 2007.. $0.6082 $9.0973
</TABLE>
_____________
Projected Redemption Amount = $19.0973 per Unit.
All prospective investors in the Securities should consult their own tax
advisors concerning the application of the Final Regulations to their investment
in the Securities. Investors in the Securities may also obtain the projected
payment schedule, as determined by the Company for purposes of the application
of the Final Regulations to the Securities, by submitting a written request for
such information to Merrill Lynch & Co., Inc., Attn: Darryl W. Colletti,
Corporate Secretary's Office, 100 Church Street, 12th Floor, New York, New York
10080-6512.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997 included
in the 1997 Annual Report on Form 10-K, and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP, as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such 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 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
21
<PAGE>
included in such Quarterly Reports 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.
22
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLEMENT OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
7 1/4% STRYPES(SM) DUE JUNE 15, 1999
PAYABLE WITH SHARES OF COMMON STOCK OF SUNAMERICA INC.
(OR IN CASH)
--------------------
On June 6, 1996, Merrill Lynch & Co., Inc. (the "Company") issued 3,000,000
of its Structured Yield Product Exchangeable for Stock(SM), 7 1/4% STRYPES(SM)
Due June 15, 1999 (each, a "STRYPES"). The issue price of each STRYPES was
$56.375, which amount was equal to the last sale price of the common stock, par
value $1.00 per share (the "SunAmerica Common Stock"), of SunAmerica Inc., a
Maryland corporation ("SunAmerica"), on June 6, 1996, as reported on the New
York Stock Exchange (the "Initial Price"). The STRYPES will mature on June 15,
1999 (the "Maturity Date"). Interest on the STRYPES, at the rate of 7 1/4% of
the issue price per annum, is payable in cash quarterly in arrears on March 15,
June 15, September 15 and December 15, beginning September 15, 1996. 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, unless redeemed on or prior to such
date, the Company will pay and discharge each STRYPES by delivering to the
holder thereof one share of SunAmerica Common Stock, subject to adjustment in
certain events (subject to the Company's right to deliver, with respect to all,
but not less than all, of the STRYPES then outstanding, cash in an amount equal
to the Current Market Price (as defined herein), determined as of the second
Trading Day (as defined herein) prior to the applicable Notice Date (as defined
herein), of SunAmerica Common Stock which otherwise would have been delivered).
BECAUSE THE PRICE OF THE SUNAMERICA COMMON STOCK IS SUBJECT TO MARKET
FLUCTUATIONS, THE VALUE OF THE SUNAMERICA COMMON STOCK (OR, AT THE OPTION OF THE
COMPANY, THE AMOUNT OF CASH) RECEIVED BY A HOLDER OF STRYPES AT MATURITY MAY BE
LESS THAN THE AMOUNT PAID FOR THE STRYPES UPON ISSUANCE, IN WHICH CASE AN
INVESTMENT IN THE STRYPES WILL RESULT IN LOSS.
At any time or from time to time on or prior to the Maturity Date, the
Company may, at its option, redeem the outstanding STRYPES, in whole or in part,
at a redemption price per STRYPES initially equal to $86.568, declining by
$.00966 on each day following the Issue Date to $76.686 on April 15, 1999, and
equal to $76.106 thereafter, payable in either (i) shares of SunAmerica Common
Stock having an aggregate Current Market Price, determined as of the second
Trading Day prior to the applicable Notice Date, equal to the applicable
redemption price or (ii) at the Company's option (which may be exercised with
respect to all, but not less than all, of the STRYPES to be redeemed on any
redemption date) cash, plus in either case an amount in cash equal to accrued
and unpaid interest on the STRYPES to but excluding the redemption date. The
STRYPES are not subject to any sinking fund.
The opportunity for capital appreciation afforded by an investment in the
STRYPES is limited because the Company may, at its option, redeem the STRYPES at
any time on or prior to the Maturity Date at the redemption prices described
above. Although not obligated to do so, the Company may be expected to redeem
the STRYPES on or prior to the Maturity Date if the market price of the
SunAmerica Common Stock exceeds the applicable redemption price, in which event
holders of STRYPES will receive less than one share of SunAmerica Common Stock
for each STRYPES (or, at the option of the Company, cash in an amount equal to
the Current Market Price of less than one share of such SunAmerica Common
Stock).
The Notice Date applicable to the Maturity Date or a redemption date will be
at least 30 days and could be up to 60 days prior to such Maturity Date or
redemption date, as the case may be. If, as described above, the Company (i)
elects to pay the STRYPES in cash at maturity or (ii) elects to redeem the
STRYPES, in whole or in part, and to pay the redemption price by delivering
shares of SunAmerica Common Stock, the amount of cash payable on the Maturity
Date or the number of shares to be delivered on the redemption date, as the case
may be, will be determined on the basis of the Current Market Price as of the
second Trading Day prior to the applicable Notice Date. The price of the
SunAmerica Common Stock is subject to market fluctuations and, as a result, (a)
the amount of cash delivered on the Maturity Date in respect of each STRYPES may
be more or less than the market value on the Maturity Date of the SunAmerica
Common Stock which a holder would otherwise have been entitled to receive and
(b) the market value on a redemption date of shares of SunAmerica Common Stock
delivered in respect of each STRYPES may be more or less than the applicable
redemption price.
SunAmerica Inc. 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 "SAI."
____________________
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 Conduct Rules of the National
Association of Securities Dealers, Inc.
___________________________
MERRILL LYNCH & CO.
___________________________
The date of this Prospectus is July __, 1998
(SM) Service Mark of Merrill Lynch & Co., Inc.
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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 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 26,
1997, Quarterly Report on Form 10-Q for the period ended March 27, 1998, and
Current Reports on Form 8-K dated January 20, 1998, January 30, 1998, February
4, 1998, February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998,
April 29, 1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June
24, 1998, June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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 LAWRENCE M. EGAN, JR., CORPORATE
SECRETARY'S OFFICE, 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 SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES OR AN OFFER TO, OR A SOLICITATION OF AN OFFER TO
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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
RISK OF FLUCTUATIONS IN PRICE OF SUNAMERICA COMMON STOCK; CALCULATION OF CURRENT
MARKET PRICE
Because the price of the SunAmerica Common Stock is subject to market
fluctuations, the value of the SunAmerica Common Stock (or, pursuant to the
option of the Company exercisable at maturity, the amount of cash) received by a
holder of STRYPES upon maturity may be less than the amount paid for the STRYPES
upon issuance, in which case an investment in the STRYPES will result in a loss.
ACCORDINGLY, A HOLDER OF STRYPES ASSUMES THE RISK THAT THE MARKET VALUE OF THE
SUNAMERICA COMMON STOCK MAY DECLINE, AND THAT SUCH DECLINE COULD BE SUBSTANTIAL.
THE SUNAMERICA PROSPECTUS COVERS THE SHARES OF SUNAMERICA COMMON STOCK WHICH MAY
BE RECEIVED BY A HOLDER OF THE STRYPES ON THE MATURITY DATE OR UPON REDEMPTION.
The Notice Date applicable to the Maturity Date or a redemption date will be
at least 30 days and could be up to 60 days prior to such Maturity Date or
redemption date, as the case may be. If the Company (i) elects to pay the
STRYPES in cash at maturity or (ii) elects to redeem the STRYPES, in whole or in
part, and to pay the redemption price by delivering shares of SunAmerica Common
Stock, the amount of cash payable on the Maturity Date or the number of shares
to be delivered on the redemption date, as the case may be, will be determined
on the basis of the Current Market Price as of the second Trading Day prior to
the applicable Notice Date. The price of the SunAmerica Common Stock is subject
to market fluctuations and, as a result, (a) the amount of cash delivered on the
Maturity Date in respect of each STRYPES may be more or less than the market
value on the Maturity Date of the SunAmerica Common Stock which a holder would
otherwise have been entitled to receive and (b) the market value on a redemption
date of shares of SunAmerica Common Stock delivered in respect of each STRYPES
may be more or less than the applicable redemption price.
As described under "Description of the STRYPES--Certain Definitions," the
Current Market Price used to determine the amount of cash which may, at the
option of the Company, be paid at maturity or the number of shares of SunAmerica
Common Stock which may, at the option of the Company, be delivered upon any
redemption of the STRYPES will generally be equal to the average of the daily
Closing Prices (as defined) of the SunAmerica Common Stock for the five
consecutive Trading Days ending on and including the date of determination.
However, if the Closing Price on the Trading Day next following such five-day
period (the "Next-Day Closing Price") is less than 95% of such five-day average
Closing Price, then the Current Market Price on such date of determination will
be the Next-Day Closing Price. Because the price of the SunAmerica Common Stock
is subject to market fluctuations, it is possible that the Next-Day Closing
Price could be significantly less than such five-day average.
LIMITATION ON OPPORTUNITY FOR CAPITAL APPRECIATION
The opportunity for capital appreciation afforded by an investment in the
STRYPES is less than the opportunity for capital appreciation afforded by a
direct investment in the SunAmerica Common Stock. The opportunity for capital
appreciation afforded by an investment in the STRYPES is limited because the
Company may, at its option, redeem the STRYPES at any time on or prior to the
Maturity Date at the redemption prices described herein. Although not obligated
to do so, the Company may be expected to redeem the STRYPES on or prior to the
Maturity Date if the market price of the SunAmerica Common Stock exceeds the
applicable redemption price, in which event holders of STRYPES will receive less
than one share of SunAmerica Common Stock for each STRYPES (or, at the option of
the Company, cash in an amount equal to the Current Market Price of less than
one share of such SunAmerica Common Stock). See "Description of the STRYPES--
Optional Redemption." If the Company elects to redeem the STRYPES, in whole or
in part, the capital appreciation, exclusive of accrued interest, realized on an
investment in the STRYPES will, for any owner of STRYPES called for redemption,
be limited to the excess, if any, of (i) the value of the SunAmerica Common
Stock or the amount of cash, as the case may be, received in
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payment of such redemption price (such redemption price being initially $86.568
and declining thereafter to $76.106), over (ii) the price paid by such owner for
such STRYPES (the initial price being the price to public for each STRYPES shown
on the cover page of this Prospectus and the price thereafter being subject to
market fluctuations).
FACTORS AFFECTING TRADING PRICES
The trading prices of the STRYPES in the secondary market will be directly
affected by the trading prices of the SunAmerica Common Stock in the secondary
market. It is impossible to predict whether the price of SunAmerica Common Stock
will rise or fall. Trading prices of SunAmerica Common Stock will be influenced
by SunAmerica'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 SunAmerica is
a part, the NYSE (on which the SunAmerica Common Stock is traded), including the
level of, and fluctuations in, the trading prices of stocks generally and sales
of substantial amounts of SunAmerica 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 beyond the Company's control.
IMPACT OF STRYPES ON THE MARKET FOR SUNAMERICA COMMON STOCK
It is not possible to predict accurately how 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
SunAmerica Common Stock. For example, the price of SunAmerica Common Stock could
be depressed by investors' anticipation of the potential distribution into the
market of substantial additional amounts of SunAmerica Common Stock on the
Maturity Date or upon redemption of the STRYPES, by possible sales of SunAmerica
Common Stock by investors who view the STRYPES as a more attractive means of
equity participation in SunAmerica and by hedging or arbitrage trading activity
that may develop involving the STRYPES and the SunAmerica Common Stock. In
addition Mr. Eli Broad (the "Selling Stockholder" is not precluded from selling
SunAmerica Common Stock. Any such sales could have an adverse effect on the
market price of SunAmerica Common Stock and/or 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 under the symbol "SAI". 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 RIGHTS
Holders of the STRYPES will not be entitled to any rights with respect to the
SunAmerica 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
SunAmerica Common Stock for STRYPES on the Maturity Date or upon redemption 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 certificate of incorporation of SunAmerica and the record date for
determining the stockholders of record entitled
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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 THE SELLING STOCKHOLDER
The Company has no affiliation with the Selling Stockholder, and the Selling
Stockholder has no obligation with respect to the STRYPES or amounts to be paid
to the holders thereof, including any obligation to take the needs of the
Company or of the holders of STRYPES into consideration in determining whether
or when to cause redemption of the STRYPES or whether to deliver shares or cash
at maturity or upon redemption, or for any other reason.
NO AFFILIATION BETWEEN THE COMPANY AND SUNAMERICA
The Company has no affiliation with SunAmerica, and SunAmerica 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. SunAmerica 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 or calculation
of the amount receivable by holders of the STRYPES on the Maturity Date or upon
redemption. SunAmerica 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 or upon redemption.
DILUTION OF SUNAMERICA COMMON STOCK
The number of shares of SunAmerica Common Stock (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 or upon redemption is subject to adjustment for
certain events arising from, among other things, a merger or consolidation in
which SunAmerica is not the surviving or resulting corporation, or a sale or
transfer of all or substantially all of the assets of SunAmerica on the
liquidation, dissolution, winding up or bankruptcy of SunAmerica, as well as
stock splits and combinations, stock dividends and certain other actions of
SunAmerica that modify its capital structure. See "Description of the STRYPES--
Dilution Adjustments." Such number of shares of SunAmerica Common Stock (or,
pursuant to the option of the Company, the amount of cash) to be received by
such holders on the Maturity Date or upon redemption will not be adjusted for
other events, such as offerings of SunAmerica Common Stock for cash or in
connection with acquisitions. SunAmerica is not restricted from issuing
additional shares of SunAmerica 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 market
price of the SunAmerica Common Stock and 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, 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 (as
defined below) will require that any holder subject to United States Federal
income tax include currently in income, for United States 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
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which the holder agrees to use the principal payment due on the Debt Instrument
(or, in the event of redemption on or prior to the Maturity Date, the redemption
price) to purchase on the Maturity Date or upon redemption on or prior to the
Maturity Date the SunAmerica Common Stock 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 SunAmerica 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 or redemption of the STRYPES, 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 assign $57.277 (i.e., 101.6%) of the initial purchase price of a
STRYPES (i.e., the Issue Price of a STRYPES) to the Debt Instrument component
and to assign $.902 (i.e., 1.6%) of the initial purchase price of a STRYPES to
the Forward Contract component. 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.
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 the rules of certain securities exchanges and other regulatory bodies.
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the
STRYPES should reach an investment decision only after carefully considering the
suitability of the STRYPES in the light of their particular circumstances.
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, advisory, insurance, and related
services on a global basis. Its principal subsidiary, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("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; an underwriter of selected insurance
products and a distributor of investment products of the Merrill Lynch Asset
Management group. 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. The Company's asset management and investment
management activities are conducted through the Merrill Lynch Asset Management
group and Merrill Lynch Mercury Asset Management, which together constitute one
of the largest asset management organizations in the world. Merrill Lynch
Government Securities Inc. is a primary dealer in obligations issued or
guaranteed by the U.S. Government and its agencies and its government-sponsored
entities. Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative
Products AG, and Merrill Lynch International are the Company's primary
derivative product dealers and enter into interest rate, currency, and other
over-the-counter derivative transactions as intermediaries and as principals.
The Company's operations in insurance services consist
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of the underwriting and sale 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 and purchasing secured loans, providing currency exchange
facilities and other related services, and furnishing trust, employee benefit,
and custodial 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
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges . . . . . . . . . . . . . . . 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
SUNAMERICA INC.
SunAmerica Inc. is a diversified financial services company specializing in
retirement savings products and services.
SunAmerica is subject to the informational requirements of the Exchange Act.
Accordingly, SunAmerica 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 SunAmerica may also be
inspected at the offices of the NYSE.
THE COMPANY IS NOT AFFILIATED WITH SUNAMERICA, AND SUNAMERICA HAS NO
OBLIGATIONS WITH RESPECT TO THE STRYPES. THIS PROSPECTUS RELATES ONLY TO THE
STRYPES OFFERED HEREBY AND DOES NOT RELATE TO THE SUNAMERICA COMMON STOCK.
SUNAMERICA HAS FILED A REGISTRATION STATEMENT ON FORM S-3 WITH THE COMMISSION
COVERING THE SHARES OF SUNAMERICA COMMON STOCK THAT MAY BE RECEIVED BY A HOLDER
OF STRYPES ON THE MATURITY DATE OR UPON REDEMPTION. THE PROSPECTUS OF SUNAMERICA
(THE "SUNAMERICA PROSPECTUS") CONSTITUTING A PART OF SUCH REGISTRATION STATEMENT
INCLUDES INFORMATION RELATING TO SUNAMERICA AND THE SUNAMERICA COMMON STOCK. THE
SUNAMERICA PROSPECTUS DOES NOT CONSTITUTE A PART OF THIS PROSPECTUS, NOR IS IT
INCORPORATED BY REFERENCE HEREIN OR THEREIN.
DESCRIPTION OF THE STRYPES
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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 the Issue Price of $56.375, bears interest
at the rate of 7 1/4% of the Issue Price per annum (or $4.0872 per annum) from
June 12, 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 redeemed or the Issue Price of such STRYPES is repaid
pursuant to the terms thereof. Interest on the STRYPES will be payable in cash
quarterly in arrears on March 15, June 15, September 15 and December 15,
beginning September 15, 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 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, Maturity Date or redemption date falls on a day
that is not a Business Day, the payments to be made (including any shares of
SunAmerica Common Stock to be delivered) on such date will be made on the next
succeeding Business Day with the same force and effect as if made on such
Interest Payment Date, Maturity Date or redemption date, and no additional
interest will accrue as a result of such delayed payment.
PAYMENTS AT MATURITY
The STRYPES will mature on June 15, 1999. On the Maturity Date, unless
redeemed on or prior to such date, the Company will pay and discharge each
STRYPES by delivering to the holder thereof a number of shares of SunAmerica
Common Stock equal to the Common Equivalent Rate (as described below) in effect
on the Maturity Date (subject to the Company's right to deliver, with respect to
all, but not less than all, of the STRYPES then outstanding, cash in an amount
equal to the Current Market Price, determined as of the second Trading Day prior
to the applicable Notice Date, of the SunAmerica Common Stock which otherwise
would have been delivered). The Common Equivalent Rate will initially be one
share of Common Stock per STRYPES. The Common Equivalent Rate is subject to
adjustment as described below under "--Dilution Adjustments." Because the price
of the SunAmerica Common Stock is subject to market fluctuations, the value of
the SunAmerica Common Stock (or, at the option of the Company, the amount of
cash) received by a holder of STRYPES on the Maturity Date may be less than the
amount paid for the STRYPES upon issuance, in which case an investment in the
STRYPES will result in a loss. In addition, because of such market fluctuations
and because the Current Market Price of the SunAmerica Common Stock will be
determined as of the second Trading Date prior to the applicable Notice Date
(which will be at least 30 and could be up to 60 days prior to the Maturity
Date), it is likely that, if the Company elects to pay the STRYPES in cash on
the Maturity Date, the amount of cash payable per STRYPES will differ from the
market value on the Maturity Date of the shares of SunAmerica Common Stock which
a holder would otherwise have received. See "Risk Factors--Risk of Fluctuations
in Price of SunAmerica Common Stock; Calculation of Current Market Price."
In the Indenture, the Company will agree to deliver on the Maturity Date the
form of consideration that the ML&Co. Subsidiary receives from the Selling
Stockholder. The Company will be required to mail a notice, at least 30 but not
more than 60 days prior to the Maturity Date, to each holder of STRYPES at its
registered address, which
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notice shall state whether the STRYPES will be paid and discharged with shares
of SunAmerica Common Stock or in cash and, if payable in cash, specifying the
amount of cash payable for each STRYPES and the Current Market Price used to
calculate such amount. If the Company elects to deliver shares of SunAmerica
Common Stock, holders of the STRYPES will be responsible for the payment of any
and all brokerage costs upon the subsequent sale of such stock.
OPTIONAL REDEMPTION
At any time or from time to time on or prior to the Maturity Date, the
Company may, at its option, redeem the outstanding STRYPES, in whole or in part,
at a redemption price per STRYPES initially equal to $86.568, declining by
$.00966 on each day following the Issue Date (computed on the basis of a 360-day
year of twelve 30-day months) to $76.686 on April 15, 1999, and equal to $76.106
thereafter, payable in either (i) a number of shares of SunAmerica Common Stock
equal to the redemption price on the applicable redemption date divided by the
Current Market Price of the SunAmerica Common Stock determined as of the second
Trading Day preceding the applicable Notice Date or (ii) at the Company's option
(which may be exercised with respect to all, but not less than all, of the
STRYPES to be redeemed on any redemption date) cash, plus in either case an
amount in cash equal to accrued and unpaid interest on the STRYPES to but
excluding the redemption date; provided that installments of interest which are
due and payable on or prior to the redemption date shall be payable to the
holders of STRYPES registered as such at the close of business on the relevant
record dates. On and after the redemption date, interest will cease to accrue on
the STRYPES called for redemption, unless the Company defaults in the payment of
the redemption price therefor. If the Company elects to deliver shares of
SunAmerica Common Stock, holders of the STRYPES will be responsible for the
payment of any and all brokerage costs upon the subsequent sale of such stock.
Notice of redemption shall be mailed at least 30 days but not more than 60
days before the redemption date to each holder of STRYPES to be redeemed at its
registered address. Such notice shall specify whether the Company will pay the
redemption price by delivery of SunAmerica Common Stock or in cash and, if
payable in SunAmerica Common Stock, will also specify the number of shares of
SunAmerica Common Stock to be delivered for each STRYPES and the Current Market
Price used to calculate such number of shares. If only a portion of the STRYPES
held by any registered holder are to be redeemed, the notice of redemption shall
specify the number of STRYPES to be redeemed from such holder and, upon
redemption, a new STRYPES certificate evidencing the unredeemed STRYPES will be
issued in the name of the holder upon surrender for cancellation of the original
certificate.
In the event that less than all of the STRYPES are to be redeemed at any
time, selection of STRYPES for redemption will be made by the Trustee by such
method as the Trustee shall deem fair and appropriate (subject to compliance
with the requirements of the principal national securities exchange on which the
STRYPES may be listed); provided, however, that the STRYPES shall not be
redeemed except in units of one or more whole STRYPES.
The opportunity for capital appreciation afforded by an investment in the
STRYPES is limited because the Company may, at its option, redeem the STRYPES at
any time on or prior to the Maturity Date at the redemption prices described
above. Although not obligated to do so, the Company may be expected to redeem
the STRYPES on or prior to the Maturity Date if the market price of the
SunAmerica Common Stock exceeds the applicable redemption price, in which event
holders of STRYPES will receive less than one share of SunAmerica Common Stock
for each STRYPES (or, at the option of the Company, cash in an amount equal to
the Current Market Price of less than one share of such SunAmerica Common
Stock). See "Risk Factors--Limitation on Opportunity for Capital Appreciation."
If the Company exercises its option to redeem the STRYPES, in whole or in
part, the Notice Date for such redemption will be at least 30 days and could be
up to 60 days prior to the redemption date. If, as described above, the Company
elects to pay the redemption price by delivering shares of SunAmerica Common
Stock, the number of shares to be so delivered will be determined on the basis
of the Current Market Price as of the second Trading Date prior to the Notice
Date. The price of the SunAmerica Common Stock is subject to market fluctuations
and,
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as a result, the market value on such redemption date of the shares of
SunAmerica Common Stock delivered in respect of each STRYPES may be more or less
than the applicable redemption price. See "Risk Factors--Risk of Fluctuations in
Price of SunAmerica Common Stock; Calculation of Current Market Price."
CERTAIN DEFINITIONS
The "Closing Price" of any security on any day shall mean the closing sales
price regular way on such day or, in case no such sale takes place on such day,
the average of the reported closing bid and asked prices regular way on such
day, in each case on the NYSE, or, if such security is not listed or admitted to
trading on the NYSE, on the principal national securities exchange on which such
security is listed or admitted to trading, or, if not listed or admitted to
trading on any national securities exchange, the average of the closing bid and
asked prices of such security on the over-the-counter market on the day in
question as reported by the National Quotation Bureau Incorporated, or a
similarly generally accepted reporting service, or if not so available in such
manner, as furnished by any NYSE member firm selected from time to time by the
Board of Directors of the Company for that purpose.
The "Current Market Price" per share of the SunAmerica Common Stock on any
date of determination means the average of the daily Closing Prices for the five
consecutive Trading Days ending on and including such date of determination
(appropriately adjusted to take into account the occurrence during such five-day
period of any event that results in an adjustment of the Common Equivalent
Rate); provided, however, that if the Closing Price of the SunAmerica Common
Stock on the Trading Day next following such five-day period (the "Next-Day
Closing Price") is less than 95% of such five-day average, then the Current
Market Price per share of SunAmerica Common Stock on such date of determination
will be the Next-Day Closing Price; and provided, further, that, for the
purposes of calculating the Current Market Price in connection with the Maturity
Date or any redemption of STRYPES or any determination of an amount in cash
payable in lieu of a fractional share of SunAmerica Common Stock, if any
adjustment of the Common Equivalent Rate becomes effective as of any date during
the period beginning on the first day of such five-day period and ending on the
Maturity Date or the relevant redemption date, as the case may be, then the
Current Market Price as determined pursuant to the foregoing will be
appropriately adjusted to reflect such adjustment. Because the price of
SunAmerica Common Stock is subject to market fluctuations, it is possible that
the Next-Day Closing Price could be significantly less than such five-day
average. See "Risk Factors--Risk of Fluctuations in Price of SunAmerica Common
Stock; Calculation of Current Market Price."
A "Notice Date" with respect to any notice given by the Company in connection
with the Maturity Date or any redemption of STRYPES means the commencement of
the mailing of such notice to the holders of STRYPES in accordance with "--
Payments at Maturity" or "--Optional Redemption," as the case may be, above.
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; provided that, if the Closing
Price of such security is to be determined by a NYSE member firm, then the term
Trading Day shall mean, for purposes of determining such Closing Price, a day on
which the NYSE is open for trading.
DILUTION ADJUSTMENTS
The Common Equivalent Rate will initially be one share of SunAmerica Common
Stock for each STRYPES. The Common Equivalent Rate is subject to adjustment if
SunAmerica shall: (i) pay a dividend or make a distribution with respect to
SunAmerica Common Stock in shares of SunAmerica Common Stock; (ii) subdivide or
split the outstanding shares of SunAmerica Common Stock into a greater number of
shares; (iii) combine the outstanding shares of SunAmerica Common Stock into a
smaller number of shares; (iv) issue by reclassification of shares of SunAmerica
Common Stock any shares of common stock of SunAmerica; (v) issue certain rights
or warrants to all holders of SunAmerica Common Stock; or (vi) pay a dividend or
make a distribution to all holders of SunAmerica
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Common Stock of evidences of its indebtedness or other assets (including shares
of capital stock of SunAmerica but excluding any cash dividends and any stock
dividends or distributions referred to in clause (i) above).
All adjustments to the Common Equivalent Rate will be calculated to the
nearest 1/100th of a share of SunAmerica Common Stock (or if there is not a
nearest 1/100th of a share to the next lower 1/100th of a share). No adjustment
in the Common Equivalent Rate 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. Each such adjustment to the Common Equivalent Rate shall be made
successively.
In the event of (A) any consolidation or merger of SunAmerica, or any
surviving entity or subsequent surviving entity of SunAmerica (a "SunAmerica
Successor"), with or into another entity (other than a merger or consolidation
in which SunAmerica is the continuing corporation and in which the SunAmerica
Common Stock outstanding immediately prior to the merger or consolidation is not
exchanged for cash, securities or other property of SunAmerica or another
corporation), (B) any sale, transfer, lease or conveyance to another corporation
of the property of SunAmerica or any SunAmerica Successor as an entirety or
substantially as an entirety, (C) any statutory exchange of securities of
SunAmerica or any SunAmerica Successor with another corporation (other than in
connection with a merger or acquisition) or (D) any liquidation, dissolution,
winding up or bankruptcy of SunAmerica or any SunAmerica Successor (any such
event described in clause (A), (B), (C) or (D), a "Reorganization Event"), the
Common Equivalent Rate will be adjusted to provide that each holder of STRYPES
will receive on the Maturity Date or any redemption date for each STRYPES cash
in an amount equal to the Transaction Value. "Transaction Value" means (i) for
any cash received in any such Reorganization Event, the amount of cash received
per share of SunAmerica 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 or any redemption date of such property
received per share of SunAmerica 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
five Trading Days immediately prior to the second Trading Day preceding the
Maturity Date or any redemption date multiplied by the number of such securities
received for each share of SunAmerica 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 SunAmerica 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
discharged after consummation of such transaction shall be subject to adjustment
as described above following the date of consummation of such transaction.
No adjustments will be made for certain other events, such as offerings of
SunAmerica Common Stock by SunAmerica for cash or in connection with
acquisitions. Likewise, no adjustments will be made for any sales of SunAmerica
Common Stock by the Selling Stockholder.
The Company is required, within ten Business Days following the occurrence of
an event that requires an adjustment to the Common Equivalent Rate (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 Common Equivalent Rate and the method by which the
adjustment to the Common Equivalent Rate was determined.
CERTAIN PROCEDURES IN CONNECTION WITH MATURITY AND REDEMPTION
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Each holder of STRYPES on the Maturity Date, and each holder of STRYPES
called for redemption on any redemption date, must surrender the certificates
evidencing such STRYPES at the office or agency of the Company maintained for
such purpose in order to receive the consideration payable on such date. If, on
the Maturity Date or any redemption date, the Company shall have deposited with
the Trustee or other agent under the Indenture the consideration payable on such
date in respect of all of the STRYPES then outstanding (in the case of the
Maturity Date) or the STRYPES called for redemption (in the case of any
redemption date), then, on the Maturity Date or redemption date, as the case may
be, all of the outstanding STRYPES or the STRYPES called for redemption, as the
case may be, shall cease to bear interest and all rights of the holders thereof
shall terminate (except for the right to receive the consideration payable in
respect of such STRYPES on such date), notwithstanding that the certificates
evidencing any of the STRYPES which are payable or subject to redemption on such
date shall not have been surrendered to the Company.
FRACTIONAL SHARES
No fractional shares of SunAmerica Common Stock will be delivered if the
Company pays and discharges the STRYPES by delivering shares of SunAmerica
Common Stock on the Maturity Date or any redemption date. In lieu of any
fractional share otherwise deliverable in respect of all STRYPES of any holder
on the Maturity Date or any redemption date, such holder shall be entitled to
receive an amount in cash equal to the value of such fractional share at the
Current Market Price of the SunAmerica Common Stock determined as of the second
Trading Day immediately preceding the relevant Notice Date.
NO SINKING FUND
The STRYPES 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.
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.
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
Exchange Act. The Securities Depository was created to
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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 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.
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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.
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
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
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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.
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.
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
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
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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 are 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 this symbol "SAI."
CERTAIN ARRANGEMENTS WITH THE SELLING STOCKHOLDER
Pursuant to an agreement (the "Stock Agreement"), the Selling Stockholder is
obligated to deliver to Merrill Lynch Capital Services, Inc., a wholly owned
subsidiary of the Company (the "ML&Co. Subsidiary), on June 14, 1999, a
specified number of shares of SunAmerica Class B Stock (subject to the Selling
Stockholder's right to deliver cash in an amount equal to the Current Market
Price, determined as of the second Trading Day prior to the applicable Notice
Date, of the SunAmerica Common Stock underlying the SunAmerica Class B Stock
that otherwise would have been delivered). At any time and from time to time
through June 15, 1999, the Selling Stockholder may, at his option, redeem his
obligations under the Stock Agreement in whole or in part, at declining
redemption prices, payable in either (i) shares of SunAmerica Class B Stock
representing SunAmerica Common Stock having an aggregate Current Market Price,
determined as of the second Trading Day prior to the date of the applicable
notice of redemption, equal to the applicable redemption price or (ii) at the
Selling Stockholder's option (which may be exercised with respect to all, but
not less than all, of the obligations to be redeemed), cash, plus in either case
an amount in cash equal to accrued and unpaid interest on the Stock Agreement to
but excluding the redemption date. The consideration paid by the ML&Co.
Subsidiary to the Selling Stockholder under the Stock Agreement is approximately
$131 million, and was paid on June 12, 1996. In the Indenture, the Company has
agreed to pay and discharge the STRYPES by delivering to the holders thereof on
the Maturity Date or any redemption date the form of consideration that the
ML&Co. Subsidiary receives from the Selling Stockholder and to redeem the
STRYPES if and when the Selling Stockholder redeems his obligations under the
Stock Agreement.
Shares of SunAmerica Class B Stock delivered by the Selling Stockholder will
convert automatically into shares of SunAmerica Common Stock upon transfer to
the ML&Co. Subsidiary. The Selling Stockholder has the right at any time to
modify the Stock Agreement so that he may deliver shares of SunAmerica Common
Stock (or cash) instead of shares of SunAmerica Class B Stock (or cash). Until
such time, if any, as the Selling Stockholder shall have delivered shares to the
ML&Co. Subsidiary at maturity or upon redemption pursuant to the terms of the
Stock Agreement, the Selling Stockholder will retain all ownership rights with
respect to the shares held by him (including, without limitation, voting rights
and rights to receive any dividends or other distributions in respect thereof).
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The Selling Stockholder 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 holders of the STRYPES into consideration in determining
whether or when to cause the redemption of the STRYPES or whether to deliver
shares or cash at maturity or upon redemption, or for any other reason. The
Stock Agreement is a commercial transaction among the parties thereto and does
not create any rights in or for the benefit of, any third party, including any
holder of STRYPES.
In the event the Selling Stockholder does not perform under the Stock
Agreement, the Company will be required to otherwise acquire shares of
SunAmerica Common Stock for delivery to holders of the STRYPES on the Maturity
Date or upon redemption, unless it elects to exercise its option to deliver cash
with an equal value.
Merrill Lynch Capital Corporation, a wholly owned subsidiary of the Company,
entered into a secured loan agreement with the Selling Stockholder pursuant to
which the Selling Stockholder borrowed approximately $33 million for a term of
three years.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997 included
in the 1997 Annual Report on Form 10-K, and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP, as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such 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 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 such Quarterly Reports 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.
17
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
6% STRYPES(SM) DUE JUNE 1, 1999
PAYABLE WITH SHARES OF COMMON STOCK OF COX COMMUNICATIONS, INC.
(OR CASH WITH AN EQUAL VALUE)
--------------------
On May 29, 1996, Merrill Lynch & Co., Inc. (the "Company") issued 9,775,000
of its Structured Yield Product Exchangeable for Stock(SM), 6% STRYPES(SM) Due
June 1, 1999 (each, a "STRYPES"). The issue price of each STRYPES was $22.875,
which amount was equal to the last sale price of the Class A Common Stock, par
value $1.00 per share (the "Cox Common Stock"), of Cox Communications, Inc., a
Delaware corporation ("Cox"), on May 22, 1996, as reported on the New York Stock
Exchange (the "Initial Price"). The STRYPES will mature on June 1, 1999 (the
"Maturity Date"). Interest on the STRYPES, at the rate of 6% of the issue price
per annum, is payable in cash quarterly in arrears on March 1, June 1, September
1 and December 1, beginning September 1, 1996. 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, unless previously redeemed, the Company will pay and
discharge each STRYPES by delivering to the holder thereof a number of shares of
Cox Common Stock (subject to the Company's right to deliver, with respect to
all, but not less than all, shares of Cox 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 $27.91 per share of Cox
Common Stock (the "Threshold Appreciation Price"), .8196 shares of Cox Common
Stock per STRYPES, (b) if the Maturity Price is less than the Threshold
Appreciation Price but is greater than the Initial Price, a fractional share of
Cox 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 Cox Common Stock per STRYPES.
The "Maturity Price" means the average Closing Price (as defined herein) per
share of Cox 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 COX 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 THE STRYPES WILL RESULT IN
A LOSS. See "Description of the STRYPES."
From and after a tax event date (as defined herein), the STRYPES will be
redeemed at the option of the Company, in whole but not in part, at the Tax
Event Redemption Price (as defined herein). See "Description of the STRYPES--
Special Redemption Upon Tax Event." The STRYPES are not subject to any sinking
fund.
Cox 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 "CML."
--------------------
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 Conduct Rules of the National
Association of Securities Dealers, Inc.
--------------------
MERRILL LYNCH & CO.
--------------------
The date of this Prospectus is July __, 1998
(SM)Service Mark of Merrill Lynch & Co., Inc.
<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 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 26,
1997, Quarterly Report on Form 10-Q for the period ended March 27, 1998, and
Current Reports on Form 8-K dated January 20, 1998, January 30, 1998, February
4, 1998, February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998,
April 29, 1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June
24, 1998, June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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 LAWRENCE M. EGAN, JR., CORPORATE
SECRETARY'S OFFICE, 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 SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES OR AN OFFER TO, OR A SOLICITATION OF AN OFFER TO
<PAGE>
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 COX COMMON STOCK
The terms of the STRYPES differ from those of ordinary debt securities in
that the value of the Cox 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 Cox 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 COX 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 COX COMMON STOCK MAY DECLINE, AND
THAT SUCH DECLINE COULD BE SUBSTANTIAL.
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 Cox 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 Cox Common Stock exceeds the Threshold
Appreciation Price (which represents an appreciation of 22% over the Initial
Price). Moreover, holders of the STRYPES will only be entitled to receive on the
Maturity Date 81.96% (the percentage equal to the Initial Price divided by the
Threshold Appreciation Price) of any appreciation of the value of Cox Common
Stock in excess of the Threshold Appreciation Price. See "Description of the
STRYPES." Because the price of the Cox Common Stock is subject to market
fluctuations, the value of the Cox 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 Cox Common Stock in the secondary market.
It is impossible to predict whether the price of Cox Common Stock will rise or
fall. Trading prices of Cox Common Stock will be influenced by Cox'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 Cox is a part, the NYSE (on which
the Cox Common Stock is traded), including the level of, and fluctuations in,
the trading prices of stocks generally and sales of substantial amounts of Cox
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 beyond the Company's control.
3
<PAGE>
IMPACT OF STRYPES ON THE MARKET FOR COX 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 Cox Common Stock. For example, the price of Cox Common Stock could be
depressed by investors' anticipation of the potential distribution into the
market of substantial amounts of Cox Common Stock on the Maturity Date or upon
redemption of the STRYPES, by possible sales of Cox Common Stock by investors
who view the STRYPES as a more attractive means of equity participation in Cox
and by hedging or arbitrage trading activity that may develop involving the
STRYPES and the Cox Common Stock. In addition, Cox Enterprises, Inc. ("CEI") is
not precluded from selling shares of Cox Common Stock, either pursuant to Rule
144 or by causing Cox to register such shares. Any such sales could have an
adverse effect on the market price of Cox Common Stock and/or the STRYPES and
could affect the Payment Rate Formula.
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.
NO STOCKHOLDER'S RIGHTS
Holders of the STRYPES will not be entitled to any rights with respect to the
Cox 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 Cox
Common Stock for STRYPES on the Maturity Date or upon redemption, 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
Certificate of Incorporation of Cox 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 COX
The Company has no affiliation with Cox, and Cox 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. Cox 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 or calculation of the amount receivable by
holders of the STRYPES on the Maturity Date or upon redemption. Cox 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 or upon redemption.
DILUTION OF COX COMMON STOCK
The number of shares of Cox Common Stock (or the amount of cash) that holders
of the STRYPES are entitled to receive on the Maturity Date or upon redemption
is subject to adjustment for certain events arising from, among others, a merger
or consolidation in which Cox is not the surviving or resulting corporation, or
a sale or transfer of all or substantially all of the assets of Cox and the
liquidation, dissolution, winding up or bankruptcy of Cox as
4
<PAGE>
well as stock splits and combinations, stock dividends and certain other actions
of Cox that modify its capital structure. See "Description of the STRYPES--
Dilution Adjustments" and "--Special Redemption Upon Tax Event." Such number of
shares of Cox Common Stock (or cash amount) to be received by such holders on
the Maturity Date or upon redemption will not be adjusted for other events, such
as offerings of Cox Common Stock for cash or in connection with acquisitions.
Cox is not restricted from issuing additional shares of Cox 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 Cox Common Stock and, because of the
relationship of the number of shares (or cash amount) to be received on the
Maturity Date or upon redemption to the price of the Cox 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, 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 (as
defined below) 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 or upon redemption the Cox Common
Stock 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 Cox 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 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 $22.555 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 $.32 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.
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.
5
<PAGE>
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the
STRYPES should reach an investment decision only after carefully considering the
suitability of the STRYPES in the light of their particular circumstances.
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, advisory, insurance, and related
services on a global basis. Its principal subsidiary, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("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; an underwriter of selected insurance
products and a distributor of investment products of the Merrill Lynch Asset
Management group. 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. The Company's asset management and investment
management activities are conducted through the Merrill Lynch Asset Management
group and Merrill Lynch Mercury Asset Management, which together constitute one
of the largest asset management organizations in the world. Merrill Lynch
Government Securities Inc. is a primary dealer in obligations issued or
guaranteed by the U.S. Government and its agencies and its government-sponsored
entities. Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative
Products AG, and Merrill Lynch International are the Company's primary
derivative product dealers and enter into interest rate, currency, and other
over-the-counter derivative transactions as intermediaries and as principals.
The Company's operations in insurance services consist of the underwriting and
sale 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 and
purchasing secured loans, providing currency exchange facilities and other
related services, and furnishing trust, employee benefit, and custodial
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
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges . . . . . . . . . . . . . . . 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
COX COMMUNICATIONS, INC.
6
<PAGE>
Cox Communications, Inc. is the fifth largest operator of cable television
systems in the United States and is a fully integrated, diversified media and
broadband communications company with operations and investments in three
related areas: (i) U.S. broadband networks; (ii) United Kingdom broadband
networks; and (iii) cable television programming.
Cox is subject to the informational requirements of the Exchange Act.
Accordingly, Cox 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 Cox may also be
inspected at the offices of the NYSE.
THE COMPANY IS NOT AFFILIATED WITH COX, AND COX HAS NO OBLIGATIONS WITH
RESPECT TO THE STRYPES. THIS PROSPECTUS RELATES ONLY TO THE STRYPES OFFERED
HEREBY AND DO NOT RELATE TO THE COX COMMON STOCK. COX HAS FILED A REGISTRATION
STATEMENT ON FORM S-3 WITH THE COMMISSION COVERING THE SHARES OF COX COMMON
STOCK THAT MAY BE RECEIVED BY A HOLDER OF STRYPES ON THE MATURITY DATE OR UPON
REDEMPTION. THE PROSPECTUS OF COX (THE "COX PROSPECTUS") CONSTITUTING A PART OF
SUCH REGISTRATION STATEMENT INCLUDES INFORMATION RELATING TO COX AND THE COX
COMMON STOCK, INCLUDING CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN COX COMMON
STOCK. THE COX PROSPECTUS DOES NOT CONSTITUTE A PART OF THIS PROSPECTUS, NOR IS
IT INCORPORATED BY REFERENCE HEREIN OR THEREIN.
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 $22.875, bears interest at the
rate of 6% of the issue price per annum (or $1.37 per annum) from May 29, 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 redeemed or the issue price of such STRYPES is repaid pursuant to the terms
thereof. Interest on the STRYPES will be payable in cash quarterly in arrears on
March 1, June 1, September 1 and December 1, beginning September 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 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.
7
<PAGE>
The STRYPES will mature on June 1, 1999. On the Maturity Date, unless
previously redeemed, 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 Cox Common Stock (subject to
the Company's right to deliver, with respect to all, but not less than all,
shares of Cox Common Stock deliverable on the Maturity Date, cash with an equal
value) determined in accordance with the following "Payment Rate Formula,"
subject to adjustment as a result of certain dilution events: (a) if the
Maturity Price (as defined below) per share of Cox Common Stock is greater than
or equal to the Threshold Appreciation Price, .8196 shares of Cox Common Stock
per STRYPES, (b) if the Maturity Price is less than the Threshold Appreciation
Price but is greater than the Initial Price, a fractional share of Cox 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 Cox 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 COX 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. The numbers of shares of Cox 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, in lieu of delivering shares
of Cox Common Stock, deliver cash in an amount equal to the value of such number
of shares of Cox Common Stock at the Maturity Price, subject to the Company's
agreement contained in the STRYPES Agreement to deliver on the Maturity Date the
form of consideration that the ML&Co. Subsidiary (as defined below) receives
from CEI. Such right, if exercised by the Company, must be exercised with
respect to all shares of Cox 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 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 with shares of Cox 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 Cox Common Stock, holders of the STRYPES
will be responsible for the payment of any and all brokerage costs upon the
subsequent sale of such stock.
The "Maturity Price" is defined as the sum of (A) the average Closing Price
per share of Cox Common Stock on the 20 Trading Days immediately prior to, but
not including, the second Trading Day preceding the Maturity Date and (B) 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 the third Trading Day preceding the Maturity Date of the
Distributed Assets (as defined below) applicable to one share of Cox Common
Stock. 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 Formula is adjusted as described under "--
Dilution Adjustments" below, each of the Closing Prices used in determining the
Maturity Price will be similarly adjusted to derive, for purposes of determining
which of clauses (a), (b) or (c) of the Payment Rate Formula will apply on the
Maturity Date, a Maturity Price stated on a basis comparable to the Initial
Price and the Threshold Appreciation Price. 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.
8
<PAGE>
For illustrative purposes only, the following table shows the number of
shares of Cox 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 $22.875 and the Threshold
Appreciation Price of $27.91, a STRYPES holder would receive on the Maturity
Date the following number of shares of Cox Common Stock or amount of cash (if
the Company elects to pay and discharge the STRYPES with cash) per STRYPES:
<TABLE>
<CAPTION>
Maturity Price Number of
of Cox Shares of Cox
Common Stock Common Stock Amount of Cash
---------------- ------------- --------------
<S> <C> <C>
$20.000 1.0000 $20.000
22.875 1.0000 22.875
25.000 0.9150 22.875
27.910 0.8196 22.875
30.000 0.8196 24.588
</TABLE>
DILUTION ADJUSTMENTS
The Payment Rate Formula is subject to adjustment if Cox shall: (i) pay a
stock dividend or make a distribution with respect to Cox Common Stock in shares
of such stock; (ii) subdivide or split the outstanding shares of Cox Common
Stock into a greater number of shares; (iii) combine the outstanding shares of
Cox Common Stock into a smaller number of shares; (iv) issue by reclassification
of shares of Cox Common Stock any shares of common stock of Cox; (v) issue
rights or warrants to all holders of Cox Common Stock entitling them to
subscribe for or purchase shares of Cox Common Stock at a price per share less
than the then current market price of the Cox Common Stock (other than rights to
purchase Cox 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
Cox 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 Dividend (as defined below)) or
issue to all holders of Cox Common Stock rights or warrants to subscribe for or
purchase any of its securities (other than those referred to in clause (v)
above) (any of the foregoing are referred to as the "Distributed Assets"). The
effect of the foregoing is that there will not be any adjustments to the Payment
Rate Formula for the issuance by Cox of options, warrants, stock purchase rights
or securities in connection with Cox's employee benefit plans.
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 or
redemption of such STRYPES, the number of shares of Cox Common Stock which such
holder would have owned or been entitled to receive immediately following any
such event had such STRYPES been paid and discharged or redeemed immediately
prior to such event or any record date with respect thereto.
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, the numerator
of which shall be the number of shares of Cox 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 Cox Common Stock offered for
subscription or purchase pursuant to such rights or warrants, and the
denominator of which shall be the number of shares of Cox 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 Cox Common Stock
which the aggregate offering price of the total number of shares of Cox Common
Stock so offered for subscription or purchase pursuant to such rights or
warrants would
9
<PAGE>
purchase at the current market price (determined as the average Closing Price
per share of Cox Common Stock on the 20 Trading Days immediately prior to the
date such rights or warrants are issued, subject to certain adjustments), 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
current market price. To the extent that shares of Cox Common Stock are not
delivered after the expiration of such rights or warrants, or if such rights or
warrants are not issued, 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 Cox 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, the numerator
of which shall be the market price per share of the Cox Common Stock on the
record date for the determination of stockholders entitled to receive the
dividend or distribution referred to in clause (vi) above (such market price
being determined as the average Closing Price per share of Cox Common Stock on
the 20 Trading Days immediately prior to such record date, subject to certain
adjustments), and the denominator of which shall be such market price per share
of Cox 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 Distributed Assets so distributed applicable to one share of Cox
Common Stock; provided, however, that in the event that the then fair market
value (as so determined) of the portion of the Distributed Assets so distributed
applicable to one share of Cox Common Stock is equal to or greater than the
market price per share of Cox Common Stock as of such record date, in lieu of
the foregoing adjustment, the Company shall reserve such Distributed Assets (or,
in the case of Distributed Assets of a kind described in (z) below, an amount in
cash equal to the fair market value thereof, determined in the manner and as of
the date described in clause (z) below) for delivery to the holders of the
STRYPES on the Maturity Date and, on the Maturity Date, shall deliver to each
such holder, in addition to the shares of Cox Common Stock (or cash in lieu
thereof) to which such holder is otherwise entitled, (x) in respect of that
portion, if any, of the Distributed Assets consisting of cash, the amount of
such Distributed Assets consisting of cash which such holder would have received
had each STRYPES held by such holder been paid and discharged immediately prior
to the record date for the determination of stockholders entitled to receive
such dividend or distribution or such rights or warrants, without interest, plus
(y) in respect of that portion, if any, of the Distributed Assets consisting of
securities for which there is an actual or when issued trading market
("marketable securities"), the amount of such Distributed Assets consisting of
marketable securities which such holder would have received had each STRYPES
held by such holder been paid and discharged immediately prior to the record
date for the determination of stockholders entitled to receive such dividend or
distribution or such rights or warrants, plus (z) in respect of that portion, if
any, of the Distributed Assets which are of a kind other than that described in
clause (x) or (y) above, an amount in cash equal to 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 the record date for determination of stockholders entitled to receive such
dividend or distribution or such rights or warrants, of the Distributed Assets
consisting of other assets which such holder would have received had each
STRYPES held by such holder been paid and discharged immediately prior to such
record date, without interest thereon.
An "Extraordinary Cash Dividend" means, with respect to any consecutive 12-
month period, all cash dividends on the Cox Common Stock during such period to
the extent such dividends exceed on a per share basis 10% of the average Closing
Price of the Cox 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 Cox 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)
10
<PAGE>
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, the numerator of
which shall be the Share Component in clause (c) of the Payment Rate Formula
immediately after such adjustment described above, and the denominator of which
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 Cox, or any surviving
entity or subsequent surviving entity of Cox (a "Cox Successor"), with or into
another entity (other than a merger or consolidation in which Cox is the
continuing corporation and in which the Cox Common Stock outstanding immediately
prior to the merger or consolidation is not exchanged for cash, securities or
other property of Cox or another corporation), (B) any sale, transfer, lease or
conveyance to another corporation of the property of Cox or any Cox Successor as
an entirety or substantially as an entirety, (C) any statutory exchange of
securities of Cox or any Cox Successor with another corporation (other than in
connection with a merger or acquisition) or (D) any liquidation, dissolution,
winding up or bankruptcy of Cox or any Cox 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, .8196 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 Cox 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 Cox
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 Cox
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, in lieu of delivering cash as described above, deliver the amount of cash,
securities and other property received per share of Cox 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 discharged after consummation of such transaction
shall be subject to adjustment as described above following the date of
consummation of such transaction.
No adjustments will be made for certain other events, such as offerings of
Cox Common Stock by Cox for cash or in connection with acquisitions. Likewise,
no adjustments will be made for any sales of Cox Common Stock by CEI.
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
11
<PAGE>
No fractional shares of Cox Common Stock will be delivered if the Company
pays and discharges the STRYPES by delivering shares of Cox 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.
SPECIAL REDEMPTION UPON TAX EVENT
The STRYPES will be redeemable at the option of the Company, in whole but not
in part, at any time from and after the date (the "Tax Event Date") on which a
Tax Event (as defined below) shall occur at a price per STRYPES (the "Tax Event
Redemption Price") equal to (a) an amount of cash equal to the sum of (i) all
accrued and unpaid interest on such STRYPES to the date fixed for redemption
(the "Redemption Date"), (ii) the sum of all interest payments on such STRYPES
due after the Redemption Date and on or prior to the Maturity Date and (iii)
$1.37 (equal to the interest payable on such STRYPES for one year), plus (b) a
number of shares of Cox Common Stock determined in accordance with the Payment
Rate Formula, with the Redemption Date being deemed to be the Maturity Date for
purposes of calculating the Maturity Price.
A "Tax Event" means that CEI shall have delivered to the Company an opinion
(the "Tax Event Opinion") from independent tax counsel experienced in such
matters to the effect that, as a result of (a) any amendment or proposed
amendment to, or change (including any announced prospective change) or proposed
change in, the laws (or any regulations thereunder) of the United States or any
taxing authority thereof or therein or (b) any amendment to, or change in, an
interpretation or application of such laws or regulations by any legislative
body, court, governmental agency or regulatory authority, enacted, promulgated,
introduced, issued or announced or which interpretation is issued or announced
or which action is taken, on or after the date of this Prospectus Supplement,
there is more than an insubstantial risk that a corporation that sells or
otherwise disposes of stock in another corporation on a date that is after the
date of this Prospectus Supplement and that is on or prior to the Maturity Date
would not be permitted to specifically identify the stock sold or disposed of
for purposes of determining the amount of such corporation's gain or loss on the
stock sold or disposed of for United States Federal income tax purposes.
On March 19, 1996, the U.S. Treasury Department proposed a series of tax law
changes as part of President Clinton's 1997 Budget proposal. These proposed tax
law changes would, among other things, require taxpayers (including
corporations) that sell or otherwise dispose of securities (which term includes
stock in a corporation) that are substantially identical to securities which
they continue to hold to determine their tax basis in such substantially
identical securities using the average basis of all of their holdings in the
securities, and would prevent such taxpayers from specifically identifying the
securities sold or disposed of for purposes of determining the amount of their
gain or loss on the securities sold or disposed of for United States Federal
income tax purposes. As originally proposed, this "average cost basis" rule
would apply to determinations (i.e., tax basis determinations made at the time
of sale or disposition) made more than 30 days after the date on the which the
proposal is enacted. Thus, if this "average cost basis" rule is ultimately
adopted in its current form on a date that is 31 or more days prior to the
Maturity Date, such enactment could result in a Tax Event. Furthermore, if there
are future legislative developments such that as a result thereof there is more
than an insubstantial risk that this "average cost basis" rule or a provision
with similar effect will be adopted and effective for determinations made on or
prior to the Maturity Date, such legislative developments could result in a Tax
Event. The Company cannot predict whether or not these proposed tax law changes
will ultimately become law. Moreover, the Company cannot predict whether or not
any other future change or proposed change in the tax law will occur which could
give rise to a Tax Event, nor can it predict whether CEI will elect to cause a
Tax Event by delivering the Tax Event Opinion to the Company in the event that a
change or proposed change in the tax law occurs which could give rise to a Tax
Event.
The Company will provide notice of any call for redemption of STRYPES to
holders of record of the STRYPES not less than 10 nor more than 30 calendar days
prior to the related Redemption Date. Such notice will state the following and
may contain such other information as the Company deems advisable: (a) the
Redemption Date; (b) the place or places where certificates for the STRYPES are
to be surrendered for redemption and (c) that
12
<PAGE>
interest will cease to accrue on the STRYPES on the Redemption Date (except as
otherwise provided in the Indenture). Any such notice will be provided by mail,
sent to each holder of record of STRYPES at such holder's address as it appears
on the security register for the STRYPES, first class postage prepaid; provided,
however, that failure to give such notice or any defect therein shall not affect
the validity of the proceeding for redemption of any STRYPES except as to the
holder to whom the Company has failed to give said notice or whose notice was
defective. At or prior to the mailing of such notice of redemption, the Company
will publish a public announcement of redemption in The Wall Street Journal or
another daily newspaper of national circulation.
The Company will not be required to deliver any fractional share of Cox
Common Stock on the Redemption Date and, in lieu thereof, will pay an amount in
cash equal to the value of such fractional share of Cox Common Stock based on
the average Closing Price per share of Cox Common Stock on the 20 Trading Days
immediately prior to, but not including, the second Trading Day preceding the
Redemption Date.
On and after the Redemption Date, all rights of a holder of STRYPES will
terminate except the right to receive for each STRYPES so redeemed the Tax Event
Redemption Price (unless there is a default on the payment of such Tax Event
Redemption Price).
NO SINKING FUND
The STRYPES 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.
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.
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
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.
13
<PAGE>
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 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)
14
<PAGE>
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.
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
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
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reorganization of the Company; and (g) any other Event of Default provided with
respect to STRYPES of that series.
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.
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
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
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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.
LISTING
The STRYPES have been listed on the NYSE under the symbol CML.
CERTAIN ARRANGEMENTS WITH CEI
Pursuant to an agreement (the "STRYPES Agreement"), CEI is obligated to
deliver to Merrill Lynch Capital Services, Inc., a wholly-owned subsidiary of
the Company (the "ML&Co. Subsidiary"), immediately prior to the Maturity Date a
number of shares of Cox Common Stock equal to the number required by the Company
to pay and discharge all of the STRYPES. In lieu of delivering shares of Cox
Common Stock immediately prior to the Maturity Date, CEI has the right to
satisfy its obligation under the STRYPES Agreement by delivering at such time
cash in an amount equal to the value of such number of shares of Cox Common
Stock at the Maturity Price. Such right, if exercised by CEI, must be exercised
with respect to all shares of Cox Common Stock then deliverable pursuant to the
STRYPES Agreement. Under the STRYPES 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 CEI. CEI
also has the option, exercisable on or after a Tax Event Date, to satisfy and
discharge its obligations under the STRYPES Agreement by delivering to the
ML&Co. Subsidiary, on a date fixed by CEI for early settlement, cash and shares
of Cox Common Stock in an amount and number, respectively, equal to the amount
and number required by the Company to redeem all of the STRYPES. Under the
STRYPES Agreement, the Company has agreed to redeem all of the STRYPES in the
event that CEI exercises such option. The consideration paid by the ML&Co.
Subsidiary under the STRYPES Agreement is $188,572,500 in the aggregate, and was
paid to CEI on May 29, 1996. No other consideration is payable by the ML&Co.
Subsidiary to CEI in connection with its acquisition of the Cox Common Stock or
the performance of the STRYPES Agreement by CEI. The Company has agreed with CEI
that, without the prior consent of CEI, it will not amend the Indenture to
increase the consideration that CEI is obligated to deliver pursuant to the
STRYPES Agreement.
Until such time, if any, as CEI shall have delivered shares of Cox Common
Stock to the ML&Co. Subsidiary pursuant to the terms of the STRYPES Agreement,
CEI will retain all ownership rights with respect to the Cox Common Stock held
by it (including, without limitation, voting rights and rights to receive any
dividends or other distributions in respect thereof).
CEI 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
holders of the STRYPES into consideration in determining whether to deliver
shares of Cox Common Stock or cash or for any other reason. The STRYPES
Agreement between the ML&Co. Subsidiary and CEI is a commercial transaction and
does not create any rights in, or for the benefit of, any third party, including
any holder of STRYPES.
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<PAGE>
In the event CEI does not perform under the STRYPES Agreement, the Company
will be required to otherwise acquire shares of Cox Common Stock for delivery to
holders of the STRYPES on the Maturity Date or upon redemption, unless, in the
case of shares deliverable on the Maturity Date, 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 in the Company's 1997
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 26, 1997 included
in the 1997 Annual Report on Form 10-K, and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP, as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such 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 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 such Quarterly Reports 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.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
6 1/4% STRYPES(TS) DUE JULY 1, 2001
PAYABLE WITH SHARES OF COMMON STOCK OF IMC GLOBAL INC.
(OR CASH WITH AN EQUAL VALUE)
_________________
On July 9, 1996, Merrill Lynch & Co., Inc. (the "Company") issued 6,510,286
of its Structured Yield Product Exchangeable for Stock(TM), 6 1/4% STRYPES(TM)
Due July 1, 2001 (each, a "STRYPES"). The issue price of each STRYPES was
$38.25, which amount was 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 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 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 "Description of the
STRYPES."
IMC 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 "IGL."
____________________
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 Conduct Rules of the
National Association of Securities Dealers, Inc.
___________________________
MERRILL LYNCH & CO.
____________________________
The date of this Prospectus is July __, 1998
(TM)Service Mark of Merrill Lynch & Co., Inc.
<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 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 26,
1997, Quarterly Report on Form 10-Q for the period ended March 27, 1998, and
Current Reports on Form 8-K dated January 20, 1998, January 30, 1998, February
4, 1998, February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998,
April 29, 1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June
24, 1998, June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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 LAWRENCE M. EGAN, JR., CORPORATE
SECRETARY'S OFFICE, 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 SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES OR AN OFFER TO, OR A SOLICITATION OF AN OFFER TO
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<PAGE>
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 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
"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 "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 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
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<PAGE>
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.
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 "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, 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.
4
<PAGE>
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, 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 (as
defined below) 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.
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.
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the
STRYPES should reach an investment decision only after carefully considering the
suitability of the STRYPES in the light of their particular circumstances.
5
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, advisory, insurance, and related
services on a global basis. Its principal subsidiary, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("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; an underwriter of selected insurance
products and a distributor of investment products of the Merrill Lynch Asset
Management group. 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. The Company's asset management and investment
management activities are conducted through the Merrill Lynch Asset Management
group and Merrill Lynch Mercury Asset Management, which together constitute one
of the largest asset management organizations in the world. Merrill Lynch
Government Securities Inc. is a primary dealer in obligations issued or
guaranteed by the U.S. Government and its agencies and its government-sponsored
entities. Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative
Products AG, and Merrill Lynch International are the Company's primary
derivative product dealers and enter into interest rate, currency, and other
over-the-counter derivative transactions as intermediaries and as principals.
The Company's operations in insurance services consist of the underwriting and
sale 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 and
purchasing secured loans, providing currency exchange facilities and other
related services, and furnishing trust, employee benefit, and custodial
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
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION> THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges . . . . . . 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
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
6
<PAGE>
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." 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 RELATES ONLY TO THE STRYPES OFFERED
HEREBY AND DOES NOT RELATE TO IMC OR THE IMC COMMON STOCK. IMC HAS FILED A
REGISTRATION STATEMENT ON FORM S-3 WITH THE COMMISSION COVERING THE SHARES OF
IMC COMMON STOCK THAT MAY BE RECEIVED BY A HOLDER OF STRYPES ON THE MATURITY
DATE. THE PROSPECTUS OF IMC (THE "IMC PROSPECTUS") CONSTITUTING A PART OF SUCH
REGISTRATION STATEMENT INCLUDES INFORMATION RELATING TO IMC AND THE IMC COMMON
STOCK, INCLUDING CERTAIN RISK FACTORS RELEVANT TO AN INVESTMENT IN IMC COMMON
STOCK. THE IMC 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, was issued at a price of $38.25, bears 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 is 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.
7
<PAGE>
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 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 (as defined below) 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
8
<PAGE>
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:
<TABLE>
<CAPTION>
Reference Number of Shares
Property of IMC Common Amount
Value Stock of 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
9
<PAGE>
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 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.
10
<PAGE>
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
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.
11
<PAGE>
RANKING
The STRYPES are unsecured obligations and will 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.
PURCHASE AGREEMENT
Pursuant to the Purchase Agreement described under "Certain Arrangements with
GVI," GVI is obligated to deliver to the ML&Co. Subsidiary (as defined below)
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 MLPF&S). 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.
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'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
12
<PAGE>
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 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.
13
<PAGE>
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.
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
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.
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
14
<PAGE>
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.
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
15
<PAGE>
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.
LISTING
The STRYPES have listed on the NYSE under the symbol "IGL."
CERTAIN ARRANGEMENTS WITH GVI
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, 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, which was paid to GVI
on 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.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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
16
<PAGE>
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 26, 1997 included in the 1997 Annual Report
on Form 10-K, and incorporated by reference herein, has been derived from
consolidated financial statements audited by Deloitte & Touche LLP, as set forth
in their reports included or incorporated by reference herein. Such
consolidated financial statements and related financial statement schedules, and
such 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 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 such Quarterly Reports 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.
17
<PAGE>
*******************************************************************************
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
********************************************************************************
SUBJECT TO COMPLETION, ISSUE DATE JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
TELEBRAS INDEXED CALLABLE
PROTECTED GROWTH(SM) SECURITIES
("PROGROS(SM) SECURITIES")
DUE MAY 19, 2005
($10 PRINCIPAL AMOUNT PER UNIT)
On May 19, 1998, Merrill Lynch & Co., Inc. (the "Company") issued
$14,500,000 aggregate principal amount (1,450,000 Units) of Telebras Indexed
Callable Protected Growth Securities due May 19, 2005 (the "ProGroS
Securities"). Each $10 principal amount of the ProGroS Securities will be deemed
a "unit" for purposes of trading and transfer at DTC described below. Units will
be transferable by DTC, as more fully described below, in denominations of whole
Units.
GENERAL: . 100% principal protected if held to maturity
. Callable prior to the stated maturity date by Merrill
Lynch & Co., Inc., the issuer, as provided herein
. No payments prior to the stated maturity date unless
called
. Senior unsecured debt securities of Merrill Lynch &
Co., Inc.
PAYMENT AT MATURITY: Principal Amount + Supplemental Redemption Amount
The Supplemental Redemption Amount will be based on the
percentage increase, if any, in the price of an American
Depositary Receipt (the "ADR") which trades on the New
York Stock Exchange ("NYSE") representing the common
stock of Telecomunicacoes Brasileiras S.A.-Telebras
("Telebras") and the value of securities, cash or
property received by holders of such ADR in certain
corporate reorganizations of Telebras over the term of the
ProGroS Securities. The Supplemental Redemption Amount may
be ZERO, but will not be less than zero.
CALL FEATURE: Merrill Lynch & Co., Inc. may call all of the ProGroS
Securities offered hereby on any Business Day during the
month of June 2004 at a Call Price equal to $20 per Unit.
In the event that Merrill Lynch & Co., Inc. elects to call
your ProGroS Securities, you will receive only $20 per
Unit and you will not receive a Supplemental Redemption
Amount.
LISTING: The ProGroS Securities have been listed on the American
Stock Exchange ("AMEX") under the symbol "PGT".
BEFORE YOU DECIDE TO INVEST IN THE PROGROS SECURITIES, CAREFULLY READ THIS
PROSPECTUS, ESPECIALLY THE RISK FACTORS BEGINNING ON PAGE 4.
Neither the SEC nor any state securities commission has approved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
________________
This Prospectus has been prepared in connection with ProGroS
Securities 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 ProGroS Securities. MLPF&S may act as principal or agent in
such transactions. The ProGroS Securities may be offered on the AMEX, 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
ProGroS Securities 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.
________________
MERRILL LYNCH & CO.
________________
The date of this Prospectus is July , 1998.
<PAGE>
___________________
(SM) "Protected Growth" and "ProGroS: are service marks of Merrill Lynch & Co.,
Inc.
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 AMEX, the Chicago Stock Exchange and the Pacific
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 26,
1997, Quarterly Report on Form 10-Q for the period ended March 27, 1998, and
Current Reports on Form 8-K dated January 20, 1998, January 30, 1998, February
4, 1998, February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998,
April 29, 1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June
24, 1998, June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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 ProGroS Securities, or subsequent to the date of the initial
Registration Statement and prior to the effectiveness of the Registration
Statement, 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 LAWRENCE M. EGAN, JR., CORPORATE
SECRETARY'S OFFICE, 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 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.
2
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its
subsidiaries and affiliates, provides investment, financing, advisory,
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; an underwriter of selected insurance products; and a distributor of
investment products of the Merrill Lynch Asset Management group. 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. The Company's asset management and investment management activities are
conducted through the Merrill Lynch Asset Management group and Merrill Lynch
Mercury Asset Management, which together constitute one of the largest asset
management organizations in the world. Merrill Lynch Government Securities Inc.
is a primary dealer in obligations issued or guaranteed by the U.S. Government
and its agencies and its government-sponsored agencies. Merrill Lynch Capital
Services, Inc., Merrill Lynch Derivative Products AG, and Merrill Lynch
International are the Company's primary derivative product dealers and enter
into interest rate, currency, and other over-the-counter derivative transactions
as intermediaries and as principals. The Company's operations in insurance
services consist of the underwriting and sale 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 and purchasing secured loans, providing
currency exchange facilities and other related services, and furnishing trust,
employee benefit, and custodial 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
The following table sets forth the historical ratios for earnings to fixed
charges of the Company for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED LAST FRIDAY IN DECEMBER MARCH 27,
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges....... 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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
<PAGE>
RISK FACTORS
Your investment in the ProGroS Securities will involve certain risks. For
example, there is the risk that you might not earn a return on your investment,
the risk that you will be unable to sell your ProGroS Securities prior to the
stated maturity date, and the risk that we may call the ProGroS Securities prior
to the stated maturity date at a Call Price that may be less than the sum of the
Principal Amount and the Supplemental Redemption Amount that would have been
paid to you at the stated maturity date. You should carefully consider the
following discussion of risks before deciding whether an investment in the
ProGroS Securities is suitable for you.
THE PROGROS SECURITIES ARE SUBJECT TO EARLY CALL
We may elect to call all of the ProGroS Securities by giving notice on any
Business Day during June 2004 (i.e., the Call Period). We are likely to call the
ProGroS Securities during the Call Period if the secondary market price of the
ProGroS Securities is approximately equal to the Call Price during such period.
We can, however, call the ProGroS Securities during the Call Period at our
option regardless of the secondary market price of the ProGroS Securities. In
the event that we elect to call the ProGroS Securities, you will receive only
the relevant Call Price and no Supplemental Redemption Amount based on the price
of the Reference Property.
THE SUPPLEMENTAL REDEMPTION AMOUNT
You should be aware that if the Ending Value does not exceed the Starting
Value at the stated maturity date, the Supplemental Redemption Amount will be
zero. This will be true even if the price of the Reference Property at some time
during the life of the ProGroS Securities was higher than the Starting Value but
later falls below the Starting Value. If the Supplemental Redemption Amount is
zero, we will pay you only the Principal Amount of your ProGroS Securities.
You should compare the features of the ProGroS Securities to other
available investments before deciding to purchase the ProGroS Securities. Due to
the uncertainty as to whether the ProGroS Securities will earn a Supplemental
Redemption Amount or be called prior to the stated maturity date, the returns
which you may receive with respect to the ProGroS Securities may be higher or
lower than the returns available on other investments. It is suggested that you
reach an investment decision only after carefully considering the suitability of
the ProGroS Securities in light of your particular circumstances.
YOUR YIELD MAY BE LOWER THAN THE YIELD ON A STANDARD DEBT SECURITY OF COMPARABLE
MATURITY
The amount we pay you at maturity may be less than the return you could
earn on other investments. Your yield may be less than the yield you would earn
if you bought a standard senior non-callable debt security of the Company with
the same stated maturity date. Your investment may not reflect the full
opportunity cost to you when you consider the effect of factors that affect the
time value of money.
YOUR RETURN WILL NOT REFLECT THE PAYMENT OF DIVIDENDS
Your return on the ProGroS Securities will not reflect the same yield as
you might realize if you purchased the Telebras Receipt at the issuance of the
ProGroS Securities and held the Telebras Receipt, or any cash, securities and/or
other property you received from ownership of the Telebras Receipt, for the term
of the ProGroS Securities. The calculation of the Starting Value and Ending
Value does not take into consideration the value of dividends paid on the
Telebras Receipt or any Reference Securities. Therefore, the return you earn on
the ProGroS Securities, if any, will not be the same as the return that you
would earn if you actually owned the Telebras Receipt and received any dividends
paid on the common stock of Telebras or any other Reference Securities. In
addition, if the proposed reorganization of Telebras occurs, or if any other
similar event occurs with respect to a Reference Security, the Ending Value will
reflect the effect of any such event only if the adjustments described in
"Description of the ProGroS Securities--Dilution and Reorganization Adjustments"
account for such event.
UNCERTAIN TRADING MARKET
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The ProGroS Securities are listed on the AMEX under the symbol "PGT". You
cannot assume that a trading market will develop for the ProGroS Securities. If
such a trading market does develop, there can be no assurance that there will be
liquidity in the trading market. The development of a trading market for the
ProGroS Securities will depend on the financial performance of the Company, and
other factors such as the appreciation, if any, of the price of the Reference
Property.
If the trading market for the ProGroS Securities is limited, there may be a
limited number of buyers if you decide to sell your ProGroS Securities. This may
affect the price you receive. Furthermore, it is unlikely that the secondary
market price of the ProGroS Securities will correlate exactly with the value of
the Reference Property, particularly during the earlier years of the ProGroS
Securities.
FACTORS AFFECTING TRADING VALUE OF THE PROGROS SECURITIES
Our ability to call the ProGroS Securities prior to the stated maturity
date of the ProGroS Securities is likely to limit the secondary market price at
which the ProGroS Securities will trade. In particular, we expect that the
secondary market price of the ProGroS Securities will not exceed the Call Price
prior to the Call Period because of our ability to call the ProGroS Securities
and pay only the Call Price. We believe that if we did not have the right to
call the ProGroS Securities, the secondary market price of the ProGroS
Securities would likely be significantly different.
We believe that the market value of the ProGroS Securities will be affected
by the value of the Reference Property and by a number of other factors in
addition to our ability to call the ProGroS Securities prior to the stated
maturity date. Some of these factors are interrelated in complex ways; as a
result, the effect of any one factor may be offset or magnified by the effect of
another factor. The following paragraphs describe the expected impact on the
market value of the ProGroS Securities given a change in a specific factor,
assuming all other conditions remain constant.
. REFERENCE PROPERTY VALUE. We expect that the market value of the ProGroS
Securities will depend on the amount by which the value of the Reference
Property differs from the Starting Value. If you choose to sell your
ProGroS Securities when the value of the Reference Property exceeds the
Starting Value, you may receive substantially less than the amount that
would be payable at the stated maturity date based on that Reference
Property value because of the expectation that the price of the Reference
Property will continue to fluctuate until the Ending Value is determined.
If you choose to sell your ProGroS Securities when the value of the
Reference Property is below, or not sufficiently above, the Starting Value,
you may receive less than the $10 Principal Amount per Unit of ProGroS
Securities. As a general matter, a rising dividend rate (i.e., dividends
per share) on a Reference Security may increase the price of the Reference
Security while a falling dividend rate may decrease the price of the
Reference Security. Political, economic and other developments may also
affect the price of a Reference Security and the price of the ProGroS
Securities.
. INTEREST RATES. We expect that the trading value of the ProGroS Securities
will be affected by changes in interest rates. As a general matter during
the earlier years of the ProGroS Securities, if U.S. interest rates
increase, we expect that the trading value of the ProGroS Securities will
decrease and if U.S. interest rates decrease, we expect the trading value
of the ProGroS Securities will increase. However, interest rates in Brazil
and the U.S. may also affect the economies of Brazil and the U.S. and, in
turn, the prices of the Reference Securities. Rising interest rates may
lower the prices of the Reference Securities and the ProGroS Securities.
Falling interest rates may increase the prices of the Reference Securities
and the value of the ProGroS Securities.
. VOLATILITY OF THE REFERENCE SECURITIES. Volatility is the term used to
describe the size and frequency of market fluctuations. If the volatility
of the Reference Securities increases, we expect that the trading value of
the ProGroS Securities will increase. If the volatility of the Reference
Securities decreases, we expect that the trading value of the ProGroS
Securities will decrease.
. TIME REMAINING TO STATED MATURITY DATE. The ProGroS Securities may trade at
a value above that which would be expected based on the level of interest
rates and the price of the Reference Property. This difference will reflect
a "time premium" due to expectations concerning the price of the Telebras
Receipt during the period prior to the
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<PAGE>
stated maturity date of the ProGroS Securities. However, as the time
remaining to the stated maturity date of the ProGroS Securities decreases,
we expect that this time premium will decrease, potentially lowering the
trading value of the ProGroS Securities.
. DIVIDEND YIELD. If the dividend yield on a Reference Security were to
increase, we expect that the value of the ProGroS Securities would
decrease. Conversely, if the dividend yield on a Reference Security were to
decrease, we expect that the value of the ProGroS Securities would
increase.
. COMPANY'S CREDIT RATINGS. Real or anticipated changes in the Company's
credit ratings may affect the market value of the ProGroS Securities.
It is important for you to understand that the impact of one of the factors
specified above, such as an increase in interest rates, may offset some or all
of any increase in the trading value of the ProGroS Securities attributable to
another factor, such as an increase in the Reference Property value.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the ProGroS Securities of a given change in
most of the factors listed above will be less if it occurs later in the term of
the ProGroS Securities than if it occurs earlier in the term of the ProGroS
Securities except that we expect that the effect on the trading value of the
ProGroS Securities of a given increase in the value of the Reference Property
will be greater if it occurs later in the term of the ProGroS Securities than if
it occurs earlier in the term of the ProGroS Securities.
AMERICAN DEPOSITARY RECEIPTS
The Telebras Receipt is an ADR representing 1,000 shares of common stock of
Telebras. If Telebras is reorganized, the Reference Property will be adjusted as
described below to reflect certain distributions of cash, securities and/or
other property. Certain of the Reference Securities distributed in any such
reorganization may be ADRs. An ADR is a negotiable receipt which is issued by a
depositary, generally a bank, representing shares, such as the common stock of
Telebras, of a non-U.S. issuer (the "Non-U.S. Issuer") that have been
deposited and are held, on behalf of the holders of the ADRs, at a custodian
bank in the Non-U.S. Issuer's home country. While the market for shares
underlying an ADR generally will be in the country in which the Non-U.S. Issuer
is organized and trading in such market generally will be based on that
country's currency, ADRs will trade in U.S. dollars.
Although ADRs are distinct securities from the shares of stock underlying
such ADRs, the trading characteristics and valuations of ADRs will usually, but
not necessarily, mirror the characteristics and valuations of such shares
represented by the ADRs. Inasmuch as holders of ADRs may surrender the ADR in
order to take delivery of and trade the shares underlying such ADR (a
characteristic that allows investors in ADRs to take advantage of price
differentials between different markets), a market for the shares of stock
underlying an ADR that is not liquid generally will result in an illiquid market
for the ADR representing such underlying shares.
The depositary bank that issues an ADR generally charges a fee, based on
the price of the ADR, upon issuance and cancellation of the ADR. This fee would
be in addition to the brokerage commissions paid upon the acquisition or
surrender of the security. In addition, the depositary bank incurs expenses in
connection with the conversion of dividends or other cash distributions paid in
local currency into U.S. Dollars and such expenses are deducted from the amount
of the dividend or distribution paid to holders, resulting in a lower payout per
share of stock underlying an ADR represented by the ADR than would be the case
if such share were held directly. Certain tax considerations, including tax rate
differentials, arising from application of the tax laws of one nation to the
nationals of another and from certain practices in the ADR market may also exist
with respect to an ADR. In varying degrees, any or all of these factors may
affect the value of the ADR compared with the value of the shares of stock
underlying an ADR in the local market.
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FOREIGN CURRENCY EXCHANGE RATE AND FOREIGN MARKET CONSIDERATIONS
The ProGroS Securities are U.S. dollar-denominated securities issued by the
Company, a United States corporation. Investments in the ProGroS Securities do
not give the beneficial owners any right to receive a Reference Security or any
Reference Property or any other ownership right or interest in a Reference
Security or any Reference Property or the shares of common stock represented by
the Telebras Receipt, although the return on the investment in the ProGroS
Securities is based on the Ending Value of the Reference Property. The price of
the common stock of Telebras underlying the Telebras Receipt is quoted in
Brazilian currency. To the extent there are other Reference Securities, the
prices of such other Reference Securities may also be quoted in currency other
than U.S. dollars. The U.S. dollar price of a Reference Security that is an ADR
will depend on the price of the shares underlying such ADR and the exchange rate
between the non-U.S. dollar currency and the U.S. dollar. Even if the price of
the shares underlying an ADR is unchanged, changes in the rates of exchange
between the U.S. dollar and the non-U.S. dollar currency will affect the U.S.
dollar price of such ADR. Furthermore, even if the price in non-U.S. dollar
currency of the shares underlying an ADR increases, the U.S. dollar price of the
ADR may decrease as a result of changes in the rates of exchange between the
U.S. dollar and non-U.S. dollar currency.
Rates of exchange between the U.S. dollar and a non-U.S. dollar currency
are determined by forces of supply and demand in the foreign exchange markets.
These forces are, in turn, affected by international balance of payments and
other economic and financial conditions, government intervention, speculation
and other factors. Fluctuations in foreign exchange rates, future U.S. and non-
U.S. political and economic developments and the possible imposition of exchange
controls or other foreign governmental laws or restrictions applicable to such
investments may affect the U.S. dollar value of an ADR. Moreover, individual
foreign economies, such as Brazil's, may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments position. There is the possibility of expropriation of assets,
confiscatory taxation, political or social instability or diplomatic
developments which could affect the value of investments in countries, such as
Brazil. There may be less publicly available information about a non-U.S.
company, such as Telebras, than about a U.S. company, and non-U.S. companies are
not typically subject to accounting, auditing and financial reporting standards
and requirements comparable to those to which U.S. entities are subject. Non-
U.S. investments may be subject to foreign withholding taxes which could affect
the value of investment. In addition, investment laws in certain non-U.S.
countries such as Brazil may limit or restrict ownership of certain securities
by foreign nationals by restricting or eliminating voting or other rights or
limiting the amount of securities that may be so owned, and such limitations or
restrictions may affect the prices of such securities.
Brazil's financial markets, while growing in volume, have substantially
less volume than U.S. markets. The securities of many non-U.S. companies trading
in foreign markets are generally less liquid and their prices more volatile in
such markets than securities of comparable U.S. companies trading in the
domestic financial markets. Foreign markets have different trading practices
that may affect the prices of securities. Non-U.S. markets have different
clearance and settlement procedures than those in the U.S., and in certain
countries, such as Brazil, there have been instances when such procedures have
been insufficient to accommodate the volume of securities transactions, making
it difficult to conduct such transactions. There is generally less government
supervision and regulation of exchanges, brokers and issuers in Brazil than in
the U.S. In addition, the terms and conditions of depositary facilities may
result in less liquidity or lower market values for the ADRs than for the
securities underlying the ADRs.
The price of the common stock of Telebras and the price of the securities
of any spin-offs from Telebras, will depend on the financial condition and
results of operations of Telebras and such spin-offs. The financial condition
and results of operations of such entities will be affected by general economic,
political, financial and social conditions in Brazil, and in particular, by
prospects for future economic growth and its impact on demand for
telecommunications services in Brazil. Brazil has in the past experienced
economic and political instability and there can be no assurance that current
government programs to stabilize the economy will succeed.
NO STOCKHOLDER'S RIGHTS
Beneficial owners of the ProGroS Securities are not entitled to any rights
with respect to any Reference Securities (including, without limitation, voting
rights and rights to receive any dividends or other distributions in respect
thereof).
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NO AFFILIATION BETWEEN THE COMPANY AND TELEBRAS
The Company has no affiliation with Telebras, and Telebras has no
obligations with respect to the ProGroS Securities or amounts to be paid to
beneficial owners thereof, including any obligation to take the needs of the
Company or of beneficial owners of the ProGroS Securities into consideration for
any reason. Telebras did not receive any of the proceeds of the initial offering
of the ProGroS Securities made hereby and is not responsible for, and has not
participated in, the determination or calculation of the amount receivable by
beneficial owners of the ProGroS Securities on the stated maturity date or upon
an earlier call. In addition, Telebras is not involved with the administration
or trading of the ProGroS Securities.
STATE LAW LIMITS ON INTEREST PAID
New York State law governs the Senior Indenture, as hereinafter defined.
New York has certain usury laws that limit the amount of interest that can be
charged and paid on loans, which includes debt securities like the ProGroS
Securities. Under present New York law, the maximum rate of interest is 25% per
annum on a simple interest basis. This limit may not apply to debt securities in
which $2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state or
Federal court sitting outside of New York, many other states also have laws that
regulate the amount of interest that may be charged to and paid by a borrower.
We will promise, for the benefit of the ProGroS Securities holders, to the
extent permitted by law, not to voluntarily claim the benefits of any laws
concerning usurious rates of interest.
PURCHASES AND SALES BY MLPF&S
The Company, MLPF&S and other affiliates of the Company may from time to
time buy or sell the Reference Securities, including shares of Telebras stock,
for their own accounts for business reasons or in connection with hedging the
Company's obligations under the ProGroS Securities. These transactions could
affect the price of the Reference Securities.
POTENTIAL CONFLICTS
The Calculation Agent is a subsidiary of the Company, the issuer of the
ProGroS Securities. Under certain circumstances, MLPF&S's role as a subsidiary
of the Company and its responsibilities as Calculation Agent for the ProGroS
Securities could give rise to conflicts of interests. You should be aware that
because the Calculation Agent is controlled by the Company, potential conflicts
of interest could arise.
OTHER CONSIDERATIONS
Investors should also consider the tax consequences of investing in the
ProGroS Securities and should consult their tax advisors.
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DESCRIPTION OF THE PROGROS SECURITIES
GENERAL
The ProGroS Securities were issued as a series of Senior Debt Securities
under the Senior Indenture, referred to as the "Senior Indenture", which is more
fully described herein. The ProGroS Securities will mature on May 19, 2005
unless called earlier at the option of the Company.
Unless called, at the stated maturity date of a ProGroS Security, a
beneficial owner will receive the Principal Amount of such ProGroS Security plus
the Supplemental Redemption Amount, if any. There will be no other payment of
interest, periodic or otherwise. See "Payment at Maturity" below.
The ProGroS Securities may be called by the Company as described below, but
are not subject to redemption at the option of any beneficial owner prior to the
stated maturity date. Upon the occurrence of an Event of Default with respect to
the ProGroS Securities, beneficial owners of the ProGroS Securities may
accelerate the maturity of the ProGroS Securities, as described under
"Description of the ProGroS Securities Events of Default and Acceleration" and
"Other Terms General Events of Default" herein.
The ProGroS Securities were issued in denominations of whole Units.
PAYMENT AT MATURITY
General
At the stated maturity date, a beneficial owner of a ProGroS Security will
be entitled to receive the Principal Amount thereof plus a Supplemental
Redemption Amount, if any, as provided below. If the Ending Value does not
exceed the Starting Value, a beneficial owner of a ProGroS Security will be
entitled to receive only the Principal Amount thereof.
Determination of the Supplemental Redemption Amount
The Supplemental Redemption Amount for a ProGroS Security will be
determined by the Calculation Agent and will equal:
<TABLE>
<S> <C>
Ending Value - Starting Value
Principal Amount of such ProGroS Security ($10 per Unit) X -----------------------------
Starting Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount
be less than zero.
The Starting Value equals $115.4375, which was the Closing Price (defined
herein) of a Telebras Receipt on the Pricing Date. The Ending Value will be
determined by the Calculation Agent and will equal the Reorganization Event
Value with respect to a Reorganization Event, if any, plus the value of the
Reference Property determined as follows: (A) for any portion of the Reference
Property consisting of cash, the U.S. Dollar Equivalent (as defined herein) of
such cash plus interest on such amount accruing from the date of the payment of
such cash to holders of the relevant Reference Property for which such cash was
paid until the stated maturity date at a fixed interest rate determined on the
date of such payment equal to the interest rate that would be paid on a fixed
rate senior non-callable debt security of the Company with a term equal to the
remaining term for the ProGroS Securities as determined by the Calculation
Agent; (B) for any portion of the Reference Property consisting of property
other than cash or Reference Securities, the U.S. Dollar Equivalent of the
market value of such property on the date that such property was delivered to
holders of the relevant Reference Property for which such property was
distributed plus interest on such U.S. dollar amount accruing from the date of
such delivery until the stated maturity date at a fixed interest rate determined
as described in (A) above; and (C) for any portion of the Reference Property
consisting of Reference Securities, the average (arithmetic mean) of
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the Closing Prices of each such Reference Security determined on each of the
first five Calculation Days during the Calculation Period. If there are fewer
than five Calculation Days in the Calculation Period with respect to any such
Reference Security, then the Ending Value shall be calculated using the average
(arithmetic mean) of the Closing Prices of such Reference Security on such
Calculation Days, and if there is only one Calculation Day, then the Ending
Value shall be calculated using the Closing Price of such Reference Security on
such Calculation Day. If no Calculation Days occur during the Calculation Period
with respect to such Reference Security, then the Ending Value shall be
calculated using the Closing Price of such Reference Security determined on the
last scheduled Calculation Day in the Calculation Period, regardless of the
occurrence of a Market Disruption Event on such day.
"Reference Property" initially shall mean one unit of the Telebras Receipt,
and shall be subject to adjustment from time to time to reflect the addition,
substitution or distribution of cash, securities and/or other property resulting
from the application of the adjustment provisions described below under
"Description of the ProGroS Securities Dilution and Reorganization
Adjustments".
"U.S. Dollar Equivalent" shall mean, with respect to cash not denominated
in U.S. dollars, such cash amount multiplied by the Spot Rate (defined below)
for the currency in which such cash is denominated at approximately the date of
payment or date of valuation of such cash.
The "Calculation Period" means the period from and including the seventh
scheduled Calculation Day prior to the stated maturity date to and including the
second scheduled Calculation Day prior to the stated maturity date.
"Calculation Day" means, with respect to any Reference Security, any
Trading Day during the Calculation Period on which a Market Disruption Event has
not occurred.
"Trading Day" means a day on which the AMEX, the NYSE and the NASDAQ
National Market System ("NASDAQ NMS") are open for trading.
"Market Disruption Event" means, with respect to a Reference Security, the
occurrence or existence on any Business Day during the one-half hour period that
ends when the Closing Price is determined, of any suspension of, or limitation
imposed on, trading in such Reference Security on the NYSE (or other market or
exchange, if applicable).
"Closing Price" with respect to a Reference Security means, for a
Calculation Day the following:
(a) If such Reference Security is listed on a national securities
exchange in the United States, is a NASDAQ NMS security or is included in
the OTC Bulletin Board Service ("OTC Bulletin Board") operated by the
National Association of Securities Dealers, Inc. (the "NASD"), Closing
Price means (i) the last reported sale price, regular way, on such day on
the principal United States securities exchange registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), on which
such Reference Security is listed or admitted to trading, or (ii) if not
listed or admitted to trading on any such securities exchange or if such
last reported sale price is not obtainable, the last reported sale price on
the over-the-counter market as reported on the NASDAQ NMS or OTC Bulletin
Board on such day, or (iii) if the last reported sale price is not
available pursuant to (i) and (ii) above, the mean of the last reported bid
and offer price on the over-the-counter market as reported on the NASDAQ
NMS or OTC Bulletin Board on such day as determined by the Calculation
Agent. The term "NASDAQ NMS security" shall include a security included in
any successor to such system and the term "OTC Bulletin Board" shall
include any successor service thereto.
(b) If such Reference Security is not listed on a national
securities exchange in the United States or is not a NASDAQ NMS security or
included in the OTC Bulletin Board operated by the NASD, Closing Price
means the last reported sale price on such day on the securities exchange
on which such Reference Security is listed or admitted to trading with the
greatest volume of trading for the calendar month preceding such day as
determined by the Calculation Agent, provided that if such last reported
sale price is for a transaction which occurred more than four hours prior
to the close of such exchange, then the Closing Price shall mean the
average (mean) of the last available bid and offer price on such exchange.
If such Reference Security is not listed or admitted to trading on any such
securities exchange or if such last reported sale price or bid and offer
are not obtainable, the Closing
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Price shall mean the last reported sale price for a transaction which
occurred more than four hours prior to when trading in such over-the-
counter market typically ends, then the Closing Price shall mean the
average (mean) of the last available bid and offer prices in such market of
the three dealers which have the highest volume of transactions in such
Reference Security in the immediately preceding calendar month as
determined by the Calculation Agent based on information that is reasonably
available to it. If such prices are quoted in a currency other than in U.S.
dollars, such prices will be translated into U.S. dollars for purposes of
calculating the Average Market Price using the Spot Rate on the same
calendar day as the date of any such price. The "Spot Rate" on any date
will be determined by the Calculation Agent and will equal the spot rate of
such currency per U.S. $1.00 on such date at approximately 3:00 p.m., New
York City time, as reported by a recognized reporting service for such spot
rate, provided that if the Calculation Agent shall determine that such
reported rate is not indicative of actual rates of exchange that may be
obtained in the currency exchange rate market, then the Spot Rate shall
equal the spot rate of such currency per U.S. $1.00 on such date at
approximately 3:00 p.m., New York City time at which the Calculation Agent
is able to convert such currency into U.S. dollars.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in The City of New York are
authorized or obligated by law to close and that is a trading day on the NYSE
and the AMEX.
All determinations made by the Calculation Agent shall be at the sole
discretion of the Calculation Agent and, absent a determination by the
Calculation Agent of a manifest error, shall be conclusive for all purposes and
binding on the Company and beneficial owners of the ProGroS Securities.
EARLY CALL OF THE PROGROS SECURITIES AT THE OPTION OF THE COMPANY
During the Call Period (the month of June 2004), the Company, in its sole
discretion, may elect to call the ProGroS Securities offered hereby, in whole
but not in part, prior to the stated maturity date by giving notice to the
Trustee of the Company's election on any Business Day within the month of June
2004, at the Call Price ($20 per Unit).
If we elect to call your ProGroS Securities prior to the stated maturity
date, you will receive only the Call Price and you will not receive a
Supplemental Redemption Amount based on the value of the Reference Property. If
we do not call the ProGroS Securities prior to the stated maturity date, the
Principal Amount plus the Supplemental Redemption Amount, if any, that you
receive at the stated maturity may be greater than or less than the Call Price.
The Company may elect to call the ProGroS Securities on any Business Day during
the Call Period by giving notice to the Trustee and specifying the date on which
the Call Price shall be paid. Such Payment Date shall be no later than the 20th
Business Day after such call election. The Trustee will provide notice of such
call election to the registered holders of the ProGroS Securities, specifying
the Payment Date, no less than 15, nor more than 30, calendar days prior to such
Payment Date. While the ProGroS Securities are held at the Depositary, the
registered holder will be the Depositary, and the Depositary will receive the
notice of the call. As more fully described below under "Description of the
ProGroS Securities Depositary", the Depositary will forward such notice to its
participants which will pass such notice on to the beneficial owners.
You should compare the features of the ProGroS Securities to other
available investments before deciding to purchase the ProGroS Securities. Due to
the uncertainty as to whether the ProGroS Securities will earn a Supplemental
Redemption Amount or be called prior to the stated maturity date, the return on
investment with respect to the ProGroS Securities may be higher or lower than
the return available on other securities issued by the Company or issued by
others and available through MLPF&S. It is suggested that you reach an
investment decision only after carefully considering the suitability of the
ProGroS Securities in light of your particular circumstances.
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HYPOTHETICAL RETURNS
The following table illustrates, for a range of hypothetical Ending Values,
(i) the percentage change over the Starting Value; (ii) the total amount payable
at the stated maturity date for each $10 Principal Amount of ProGroS Securities;
(iii) the total rate of return to beneficial owners of the ProGroS Securities;
(iv) the pretax annualized rate of return to beneficial owners of ProGroS
Securities and (v) the pretax annualized rate of return of the Telebras Receipt.
THIS TABLE ASSUMES THAT THE PROGROS SECURITIES ARE NOT CALLED PRIOR TO THE
STATED MATURITY DATE.
<TABLE>
<CAPTION>
TOTAL AMOUNT PRETAX PRETAX RATE
PERCENTAGE CHANGE PAYABLE AT THE ANNUALIZE OF RETURN OF
Hypothetical OVER THE STATED MATURITY TOTAL RATE RATE OF THE TELEBRAS
Ending Value Starting Value Date per Unit of Return Return (1) Receipt(1)(2)
- ------------ -------------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
$ 46.18 -60.00% $10.00 0.00% 0.00% --10.94%
$ 57.72 -50.00% $10.00 0.00% 0.00% --7.96%
$ 69.26 -40.00% $10.00 0.00% 0.00% --5.48%
$ 80.81 -30.00% $10.00 0.00% 0.00% --3.35%
$ 92.35 -20.00% $10.00 0.00% 0.00% --1.48%
$103.89 -10.00% $10.00 0.00% 0.00% 0.18%
$115.44 0.00% $10.00 0.00% 0.00% 1.69%
$126.98 10.00% $11.00 10.00% 1.37% 3.06%
$138.53 20.00% $12.00 20.00% 2.62% 4.33%
$150.07 30.00% $13.00 30.00% 3.78% 5.50%
$161.61 40.00% $14.00 40.00% 4.86% 6.60%
$173.16 50.00% $15.00 50.00% 5.87% 7.62%
$184.70 60.00% $16.00 60.00% 6.82% 8.58%
$196.24 70.00% $17.00 70.00% 7.72% 9.50%
$207.79 80.00% $18.00 80.00% 8.57% 10.36%
$219.33 90.00% $19.00 90.00% 9.38% 11.18%
$230.88 100.00% $20.00 100.00% 10.14% 11.96%
</TABLE>
________
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes (i) a constant dividend yield of 1.69% per
annum, paid quarterly from the date of initial delivery of ProGroS
Securities, applied to the value of the Telebras Receipt at the end of each
such quarter assuming such value increases or decreases linearly from the
Starting Value to the applicable hypothetical Ending Value; (ii) no
transaction fees or expenses; (iii) a term for the ProGroS Securities from
May 19, 1998 to May 19, 2005; and (iv) a final Telebras Receipt value equal
to the Ending Value.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the total and pretax
annualized rate of return resulting therefrom will depend entirely on the actual
Ending Value determined by the Calculation Agent as provided herein.
DILUTION AND REORGANIZATION ADJUSTMENTS
The Reference Property is subject to adjustment if an issuer of any
Reference Security (or the custodian in the case of Reference Security that is
an ADR) shall: (i) pay a stock dividend or make a distribution with respect to
such Reference Security in Reference Securities; (ii) subdivide or split the
outstanding units of such Reference Security into a greater number of units;
(iii) combine the outstanding units of such Reference Security into a smaller
number of units; (iv) issue by reclassification of units of such Reference
Security any units of another security of such issuer; (v) issue
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<PAGE>
rights or warrants to all holders of such Reference Security entitling them to
subscribe for or purchase shares, in the aggregate, for more than 5% of the
number of such Reference Securities outstanding prior to the issuance of such
rights or warrants at a price per share less than the then current market price
of such Reference Security (other than rights to purchase such Reference
Security pursuant to a plan for the reinvestment of dividends or interest); or
(vi) pay a dividend or make a distribution to all holders of such Reference
Security 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 Dividend (as defined below)) or issue to all
holders of such Reference Security rights or warrants to subscribe for or
purchase any of its securities (other than those referred to in clause (v)
above) (any of the foregoing assets are referred to as the "Distributed
Assets" and any of the foregoing events are referred to as the "Dilution
Events"). Notwithstanding provision (vi) in the foregoing sentence, if a
Reference Security is an ADR and the holder of such ADR would receive cash or
other property other than securities in the circumstances described in (vi)
above, but the holder of the securities underlying such ADR could receive
securities as a result of a Dilution Event (the "Distributed Securities") and
the Calculation Agent or its affiliates would be eligible to receive the
Distributed Securities, then the Company can elect for purposes of provision
(vi) to include the Distributed Securities in the Reference Property instead of
the cash or property distributed to holders of the ADR in an amount equal to the
amount of the Distributed Securities that would have been received had the
Reference Property consisted of the securities underlying the ADRs instead of
the ADRs. For purposes of provision (vi), if the holder of a Reference Security
can elect to receive securities in lieu of cash or property other than
securities, then for purposes of provision (vi) the holders of the Reference
Security shall be deemed to receive only the securities.
In the case of the Dilution Events referred to in clauses (i), (ii), (iii)
and (iv) above, the Reference Property shall be adjusted to include the number
of units of such Reference Security and/or 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 Dilution Event referred to in clause (v) above where the
rights or warrants are for more than 5% of the number of shares outstanding
prior to the issuance of such rights or warrants, the Reference Property shall
be adjusted by multiplying the number of Reference Securities constituting
Reference Property immediately prior to the date of issuance of the rights or
warrants referred to in clause (v) above by a fraction, (1) the numerator of
which shall be the number of Reference Securities outstanding on the date
immediately prior to such issuance, plus the number of additional Reference
Securities offered for subscription or purchase pursuant to such rights or
warrants, and (2) the denominator of which shall be the number of Reference
Securities outstanding on the date immediately prior to such issuance, plus the
number of additional Reference Securities which the aggregate offering price of
the total number of Reference Securities so offered for subscription or purchase
pursuant to such rights or warrants would purchase at the current market price
(determined as the average Closing Price per Reference Security for the 20
Trading Days immediately prior to the date of such rights or warrants are
issued, subject to certain adjustments), which shall be determined by
multiplying such total number of Reference Securities by the exercise price of
such rights or warrants and dividing the product so obtained by such current
market price. To the extent that Reference Securities are not delivered after
the expiration of such rights or warrants, or if such rights or warrants are not
issued, the Reference Property shall be readjusted to the Reference Property
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
Reference Securities actually delivered.
In the case of the Dilution Event referred to in clause (vi) 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, 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
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<PAGE>
of such dividend, distribution or issuance, immediately prior to such dividend,
distribution or issuance.
For example, where a reorganization of Telebras results in the distribution
to holders of the Telebras Receipt of ADRs representing shares of common stock
in various companies formed to operate various spin-off businesses of Telebras,
then the Reference Property shall include such ADRs in amounts specified
pursuant to provision (vi) above. If in any such reorganization of Telebras,
holders of Telebras Receipts receive cash or property while holders of the
shares of common stock underlying the Telebras Receipts receive Distributed
Securities and the Calculation Agent or an affiliate can receive and hold such
Distributed Securities, then the Calculation Agent can elect to have the
Reference Property include such Distributed Securities instead of such cash or
property.
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 or any other distribution made by the issuer of a Reference Security
or made pursuant to an arrangement effecting a distribution of distributable
profits or reserves, whether in cash or in specie, on any Reference Security
occurring in such 12-month period (or, if such Reference Security was not
outstanding at the commencement of such 12-month period or was not then a part
of the Reference Property, occurring in such shorter period during which such
Reference Security was outstanding and was part of the Reference Property)
exceeds on a per share basis 10% 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 and was part of the
Reference Property); 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.
All adjustments will be calculated to the nearest 1/10,000th of a share of
the Reference Security (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 shall be required unless
such adjustment would require an increase or decrease of at least one percent in
the Closing Price; 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 any of the Distributed Assets are cash, property or Reference Securities
that will be distributed only to holders of the relevant Reference Property who
or which can certify as to a certain nationality or formation under the laws of
a certain jurisdiction, as the case may be, and a corporation formed in the
United States or an affiliate of such corporation formed elsewhere cannot
receive such distribution, the Reference Property will reflect only those
Distributed Assets available for distribution to such United States corporation
or its affiliates.
In the event of (A) any consolidation or merger of an issuer of a Reference
Security, or any surviving entity or subsequent surviving entity of such issuer
(a "Successor Company"), 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 corporation), (B) any sale, transfer, lease or conveyance to
another corporation of the property of an issuer of a Reference Security or any
Successor Company as an entirety or substantially as an entirety, (C) any
statutory exchange of securities of an issuer of a Reference Security or any
Successor Company with another corporation (other than in connection with a
merger or acquisition) or (D) any liquidation, dissolution, winding up or
bankruptcy of an issuer of a Reference Security or any Successor Company (any
such event described in clause (A), (B), (C) or (D), a "Reorganization
Event"), the Ending Value shall be calculated by including the Reorganization
Event Value. The "Reorganization Event Value" shall be determined by the
Calculation Agent and shall equal (i) the Transaction Value related to the
relevant Reorganization Event, plus (ii) interest on such Transaction Value
accruing from the date of the payment or delivery of the consideration, if any,
received in connection with such Reorganization Event until the stated maturity
date at a fixed interest rate determined on the date of such payment or delivery
equal to the interest rate that would be paid on a fixed rate senior non-
callable debt security of the Company with a term equal to the remaining term of
the ProGroS Securities. The "Transaction Value" means (i) for any cash
received in any such Reorganization Event, the U.S. Dollar Equivalent of cash
received per unit of Reference Security, (ii) for any property other than cash
or securities received in any such Reorganization Event, an amount equal to the
U.S. Dollar Equivalent of the market value of such property per unit of
Reference Security on the date that such property is received by holders of such
Reference
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<PAGE>
Security as determined by the Calculation Agent, and (iii) for any securities
received in any such Reorganization Event, an amount equal to the Closing Price
per unit of such securities on the date such securities are received by holders
of such Reference Security multiplied by the number of such securities received
for each unit of such Reference Security (subject to adjustment on a basis
consistent with the adjustment provisions described above).
The foregoing adjustments shall be made by MLPF&S, as Calculation Agent,
and all such adjustments shall be final.
No adjustments will be made for certain other events, such as offerings of
Deposit Reference Shares by Telebras for cash or in connection with
acquisitions.
The Company will, within ten Business Days following the occurrence of an
event that requires an adjustment (or if the Company is not aware of such
occurrence, as soon as practicable after becoming so aware), provide written
notice to the Trustee, which shall provide notice to the Holders of the ProGroS
Securities of the occurrence of such event and, if applicable, a statement in
reasonable detail setting forth the adjusted Closing Price to be used in
determining the Ending Value.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any ProGroS Securities shall
have occurred and be continuing, the amount payable to a beneficial owner of a
ProGroS Security upon any acceleration permitted by the ProGroS Securities, with
respect to each $10 principal amount thereof, will be equal to the Principal
Amount and the Supplemental Redemption Amount, if any, calculated as though the
date of early repayment were the stated maturity date of the ProGroS Securities.
See "Description of the ProGroS Securities Payment at Maturity" herein. If a
bankruptcy proceeding is commenced in respect of the Company, the claim of the
beneficial owner of a ProGroS Security may be limited, under Section 502(b)(2)
of Title 11 of the United States Code, to the Principal Amount of the ProGroS
Security plus an additional amount of contingent interest calculated as though
the date of the commencement of the proceeding were the stated maturity date of
the ProGroS Securities.
In case of default in payment of the ProGroS Securities (whether at the
Call Date, at the stated maturity date, or upon acceleration), from and after
the stated maturity date the ProGroS Securities shall bear interest, payable
upon demand of the beneficial owners thereof, at the rate of 6.25% per annum (to
the extent that payment of such interest shall be legally enforceable) on the
unpaid amount due and payable on such date in accordance with the terms of the
ProGroS Securities to the date payment of such amount has been made or duly
provided for.
DEPOSITARY
All ProGroS Securities are represented by one or more fully registered
global securities (the "Global Securities"). Each such Global Security has
been deposited with, or on behalf of, The Depository Trust Company ("DTC";
DTC, together with any successor thereto, being a "Depositary"), as
Depositary, registered in the name of Cede & Co. (DTC's partnership nominee).
Unless and until it is exchanged in whole or in part for ProGroS Securities in
definitive form, no Global Security may be transferred except as a whole by the
Depositary to a nominee of such Depositary or by a nominee of such Depositary to
such Depositary or another nominee of such Depositary or by such Depositary or
any such nominee to a successor of such Depositary or a nominee of such
successor.
So long as DTC, or its nominee, is a registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole owner or
Holder of the Securities represented by such Global Security for all purposes
under the Senior Indenture. Except as provided below, the actual owner of the
ProGroS Securities represented by a Global Security (the "Beneficial Owner")
will not be entitled to have the ProGroS Securities represented by such Global
Securities registered in their names, will not receive or be entitled to receive
physical delivery of the ProGroS Securities in definitive form and will not be
considered the owners or Holders thereof under the Senior Indenture, including
for purposes of receiving any reports delivered by the Company or the Trustee
pursuant to the Senior Indenture. Accordingly, each person owning a beneficial
interest in a Global Security must rely on the procedures of DTC and, if such
person is not a participant of DTC (a "Participant"), on the procedures of the
Participant through which such
15
<PAGE>
person owns its interest, to exercise any rights of a Holder under the Senior
Indenture. The Company understands that under existing industry practices, in
the event that the Company requests any action of Holders or that an owner of a
beneficial interest in such a Global Security desires to give or take any action
which a Holder is entitled to give or take under the Senior Indenture, DTC 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 DTC to Participants, by Participants to Indirect Participants,
as defined below, 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.
If (x) the Depositary is at any time unwilling or unable to continue as
Depositary and a successor depositary is not appointed by the Company within 60
days, (y) the Company executes and delivers to the Trustee a Company Order to
the effect that the Global Securities shall be exchangeable or (z) an Event of
Default has occurred and is continuing with respect to the ProGroS Securities,
the Global Securities will be exchangeable for ProGroS Securities in definitive
form of like tenor and of an equal aggregate principal amount, in denominations
of $10 and integral multiples thereof. Such definitive ProGroS Securities shall
be registered in such name or names as the Depositary shall instruct the
Trustee. It is expected that such instructions may be based upon directions
received by the Depositary from Participants with respect to ownership of
beneficial interests in such Global Securities.
The following is based on information furnished by DTC:
DTC is acting as securities depositary for the ProGroS Securities. The
ProGroS Securities have been issued as fully registered securities registered in
the name of Cede & Co. (DTC's partnership nominee). One or more fully registered
Global Securities has been issued for the ProGroS Securities in the aggregate
principal amount of such issue, and has been deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its Participants deposit with DTC. DTC also facilitates
the settlement among Participants of securities transactions, such as transfers
and pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants of DTC ("Direct
Participants") include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. DTC is owned by a number
of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the NASD. Access to the DTC's system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The
rules applicable to DTC and its Participants are on file with the Commission.
Purchases of ProGroS Securities under the DTC's system must be made by or
through Direct Participants, which will receive a credit for the ProGroS
Securities on the DTC's records. The ownership interest of each Beneficial Owner
is in turn to be recorded on the records of Direct Participants and Indirect
Participants. Beneficial Owners will not receive written confirmation from DTC
of their purchase, but Beneficial Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct Participants or Indirect
Participants through which such Beneficial Owner entered into the transaction.
Transfers of ownership interests in the ProGroS Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in ProGroS Securities, except in the event that use of
the book-entry system for the ProGroS Securities is discontinued.
To facilitate subsequent transfers, all ProGroS Securities deposited with
DTC are registered in the name of DTC's partnership nominee, Cede & Co. The
deposit of ProGroS Securities with DTC and their registration in the name of
Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the
actual Beneficial Owners of the ProGroS Securities; DTC's records reflect only
the identity of the Direct Participants to whose accounts such ProGroS
16
<PAGE>
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
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.
Neither DTC nor Cede & Co. will consent or vote with respect to the ProGroS
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to the
Company as soon as possible after the applicable record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants to
whose accounts the ProGroS Securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Principal, premium, if any, and/or interest, if any, payments on the
ProGroS Securities will be made in immediately available funds to DTC. DTC's
practice is to credit Direct Participants' accounts on the applicable payment
date in accordance with their respective holdings shown on the Depositary's
records unless DTC has reason to believe that it will not receive payment on
such date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is 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 Participant and not of DTC, the
Trustee or the Company, subject to any statutory or regulatory requirements as
may be in effect from time to time. Payment of principal, premium, if any,
and/or interest, if any, to DTC is the responsibility of the Company or the
Trustee, disbursement of such payments to Direct Participants shall be the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners shall be the responsibility of Direct Participants and Indirect
Participants.
DTC may discontinue providing its services as securities depositary with
respect to the ProGroS Securities at any time by giving reasonable notice to the
Company or the Trustee. Under such circumstances, in the event that a successor
securities depositary is not obtained, ProGroS Security certificates are
required to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depositary). In that event,
security certificates will be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that the Company believes to be reliable, but the Company
takes no responsibility for the accuracy thereof.
SAME-DAY PAYMENT
All payments of principal and the Supplemental Redemption Amount, and Call
Price if any, and will be made by the Company in immediately available funds so
long as the ProGroS Securities are maintained in book-entry form.
THE TELEBRAS RECEIPT
TELECOMUNICACOES BRASILEIRAS S.A.-TELEBRAS
Telecomunicacoes Brasileiras S.A.-Telebras is the primary supplier of
public telecommunications services in Brazil. Telebras owns and operates all of
the inter-state and international telephone transmission facilities in Brazil,
is the primary provider of intra-state service and provides telephone-related
services such as data transmission, cellular mobile telephone service, and
sound, image, videotext and telex transmission.
Telebras is currently controlled by the federal government of Brazil, which
has announced its intention to privatize Telebras. In connection with such
privatization, the federal government of Brazil has indicated that it intends to
reorganize Telebras by creating 12 separate corporations as a result of spin-
offs from Telebras of various businesses of Telebras which may result in the
distribution to holders of a Telebras Receipt of cash, securities and/or other
property, including common stock and/or warrants or rights to purchase common
stock in the new corporations. An investor in
17
<PAGE>
the ProGroS Securities should carefully review the adjustments to be made in the
case of certain reorganization events contained in "Description of the ProGroS
Securities Dilution and Reorganization Adjustments".
Telebras is subject to the informational requirements of the Exchange Act.
Accordingly, Telebras files reports, proxy and other information statements and
other information with the Commission. Information provided to or filed with the
Commission by Telebras is available at the offices of the Commission specified
under "Available Information" herein. The Company makes no representation or
warranty as to the accuracy or completeness of such reports. There can be no
assurance that Telebras will continue to be subject to the reporting
requirements of the Exchange Act and distribute reports and other information
required thereby to its shareholders. In the event that Telebras ceases to be
subject to such reporting requirements or otherwise fails to distribute such
information during the term of the ProGroS Securities, pricing information for
the ProGroS Securities may be more difficult to obtain and the value and
liquidity of the ProGroS Securities may be adversely affected.
THE COMPANY IS NOT AFFILIATED WITH TELEBRAS AND TELEBRAS HAS NO OBLIGATIONS
WITH RESPECT TO THE PROGROS SECURITIES. THIS PROSPECTUS RELATES ONLY TO THE
PROGROS SECURITIES OFFERED HEREBY AND DOES NOT RELATE TO THE TELEBRAS RECEIPT OR
OTHER SECURITIES OF TELEBRAS. THE INFORMATION CONTAINED IN THIS PROSPECTUS
REGARDING TELEBRAS HAS BEEN DERIVED FROM THE PUBLICLY AVAILABLE DOCUMENTS
DESCRIBED IN THE PRECEDING PARAGRAPH. THE COMPANY HAS NOT PARTICIPATED IN THE
PREPARATION OF SUCH DOCUMENTS OR MADE ANY DUE DILIGENCE INQUIRIES WITH RESPECT
TO TELEBRAS IN CONNECTION WITH THE INITIAL OFFERING OF THE PROGROS SECURITIES.
THE COMPANY MAKES NO REPRESENTATION THAT SUCH PUBLICLY AVAILABLE DOCUMENTS OR
ANY OTHER PUBLICLY AVAILABLE INFORMATION REGARDING TELEBRAS ARE ACCURATE OR
COMPLETE. FURTHERMORE, THERE CAN BE NO ASSURANCE THAT ALL EVENTS OCCURRING PRIOR
TO THE DATE HEREOF (INCLUDING EVENTS THAT WOULD AFFECT THE ACCURACY OR
COMPLETENESS OF THE PUBLICLY AVAILABLE DOCUMENTS DESCRIBED IN THE PRECEDING
PARAGRAPH) THAT WOULD AFFECT THE TRADING PRICE OF THE TELEBRAS RECEIPT (AND
THEREFORE THE TRADING PRICE OF THE PROGROS SECURITIES) HAVE BEEN PUBLICLY
DISCLOSED. SUBSEQUENT DISCLOSURE OF ANY SUCH EVENTS OR THE DISCLOSURE OF OR
FAILURE TO DISCLOSE MATERIAL FUTURE EVENTS CONCERNING TELEBRAS COULD AFFECT THE
SUPPLEMENTAL REDEMPTION AMOUNT TO BE RECEIVED AT THE STATED MATURITY DATE AND
THEREFORE THE TRADING VALUE OF THE PROGROS SECURITIES.
From time to time, in the ordinary course of business, affiliates of the
Company have engaged in certain investment banking activities on behalf of the
Telebras as well as served as counterparty in certain other transactions.
OTHER TERMS
GENERAL
The ProGroS Securities were issued as a series of Senior Debt Securities
under an indenture (the "Senior Indenture"), dated as of April 1, 1983, as
amended and restated, between the Company and The Chase Manhattan Bank, formerly
known as Chemical Bank (successor by merger to Manufacturers Hanover Trust
Company), as trustee. A copy of the Senior Indenture is filed as an exhibit to
the registration statements relating to the Securities. The following summaries
of certain provisions of the Indentures do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all provisions
of the respective Indentures, including the definitions therein of certain
terms.
The Senior Indenture provides that series of Senior Debt Securities may
from time to time be issued thereunder, without limitation as to aggregate
principal amount, in one or more series and upon such terms as the Company may
establish pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the ProGroS
Securities are governed by and construed in accordance with the laws of the
State of New York.
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<PAGE>
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of the Senior Debt Securities
previously issued, and "reopen" a previous issue of a series of Senior Debt
Securities and issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities),
to participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and other regulatory bodies.
LIMITATION UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indentures) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
LIMITATIONS ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Senior Indenture provides that the Company may not sell, transfer or
otherwise dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell
or otherwise dispose of any of its Voting Stock, unless, after giving effect to
any such transaction, MLPF&S remains a Controlled Subsidiary (defined in the
Senior Indentures to mean a corporation more than 80% of the outstanding shares
of Voting Stock of which are owned directly or indirectly by the Company). In
addition, the Senior 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.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or
into any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Indentures to be
performed or observed by the Company, and (ii) the Company or such successor
corporation, as the case may be, shall not immediately thereafter be in default
under the Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Senior Indenture may be effected by the
Company and the a Trustee with the consent of the Holders of at least 662/3% in
principal amount of the Outstanding Senior Debt Securities of each series issued
pursuant to the Indenture and affected thereby, provided that no such
modification or amendment may, without the consent of the Holder of each
Outstanding Senior Debt Security affected thereby, (a) change the Stated
Maturity of, or any installment of interest or Additional Amounts on, any Senior
Debt Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and
19
<PAGE>
payable prior to the Stated Maturity; (c) change the place or currency of any
payment of principal of, or any premium, interest or Additional Amounts on, any
Senior Debt Security; (d) impair the right to institute suit for the enforcement
of any payment on or with respect to any Senior Debt Security; (e) reduce the
percentage in principal amount of the Outstanding Senior Debt Securities of any
series, the consent of whose Holders is required to modify or amend such
Indenture; or (f) modify the foregoing requirements or reduce the percentage of
Outstanding Senior Debt Securities necessary to waive any past default to less
than a majority. No modification or amendment of the Company's Subordinated
Indenture or any Subsequent Indenture for Subordinated Debt Securities may
adversely affect the rights of any Holder of Senior Indebtedness without the
consent of such Holder. Except with respect to certain fundamental provisions,
the Holders of at least a majority in principal amount of Outstanding Senior
Debt Securities of any series may, with respect to such series, waive past
defaults under the Senior Indenture and waive compliance by the Company with
certain provisions of such Indenture.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series issued thereunder: (a) default
in the payment of any interest or Additional Amounts upon any Debt Security of
that series when due, and such default has continued for 30 days; (b) default in
the payment of any principal of or premium, if any, on any Senior Debt Security
of that series when due; (c) default in the deposit of any sinking fund payment,
when due, in respect of any Senior Debt Security of that series; (d) default in
the performance of any other covenant of the Company contained in such Indenture
for the benefit of such series or in the Senior Debt Securities of such series,
and such default has continued for 60 days after written notice as provided in
such Indenture; (e) certain events in bankruptcy, insolvency or reorganization;
and (f) any other Event of Default provided with respect to Senior Debt
Securities of that series. The Trustee or the Holders of 25% in principal amount
of the Outstanding Senior Debt Securities of that series may declare the
principal amount (or such lesser amount as may be provided for in the Senior
Debt Securities of that series) of all Outstanding Senior Debt Securities of
that series and the interest accrued thereon and Additional Amounts payable in
respect thereof, if any, to be due and payable immediately if an Event of
Default with respect to Senior Debt Securities of such series shall occur and be
continuing at the time of declaration. At any time after a declaration of
acceleration has been made with respect to Senior Debt Securities of any series
but before a judgment or decree for payment of money due has been obtained by
the Trustee, the Holders of a majority in principal amount of the Outstanding
Senior Debt Securities of that series may rescind any declaration of
acceleration and its consequences, provided that all payments due (other than
those due as a result of acceleration) have been made and all Events of Default
have been remedied or waived. Any Event of Default with respect to Senior Debt
Securities of any series may be waived by the Holders of a majority in principal
amount of all Outstanding Senior Debt Securities of that series, except in a
case of failure to pay principal of or premium, if any, or interest or
Additional Amounts, if any, on any Senior Debt Security of that series for which
payment had not been subsequently made or in respect of a covenant or provision
which cannot be modified or amended without the consent of the Holder of each
Outstanding Senior Debt Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior
Debt Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Subject to the provisions of the Senior Indenture
relating to the duties of the Trustee, before proceeding to exercise any right
or power under an Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company will be required to furnish to the Trustee annually a statement
as to the fulfillment by the Company of all of its obligations under the Senior
Indenture.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
Annual Report on Form 10-K, and incorporated by reference in this Prospectus,
have
20
<PAGE>
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 26, 1997 included in the
1997 Annual Report on Form 10-K, and incorporated by reference herein, has been
derived from consolidated financial statements audited by Deloitte & Touche LLP,
as set forth in their reports included or incorporated by reference herein. Such
consolidated financial statements and related financial statement schedules, and
such 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 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 such Quarterly Reports 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.
21
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUE DATE JULY 28, 1998
PROSPECTUS
- ----------
28,500,000 Units
MERRILL LYNCH & CO., INC.
S&P 500/(R)/ Market Index Target-Term Securities sm
due July 1, 2005
"MITTS(R)"
($10 principal amount per Unit)
On June 23, 1998, Merrill Lynch & Co., Inc. (the "Company") issued
$285,000,000 aggregate principal amount (28,500,000 Units) of S&P 500 Market
Index Target-Term Securities due July 1, 2005 (the "MITTS Securities"). Each $10
principal amount of the MITTS Securities will be deemed a "unit" for purposes of
trading and transfer at DTC described below. Units will be transferable by DTC,
as more fully described below, in denominations of whole Units .
GENERAL: . 100% principal protection at maturity
. No payments prior to the stated maturity date
. Senior unsecured debt securities of Merrill Lynch &
Co., Inc.
. The MITTS Securities have been listed on the American
Stock
Exchange ("AMEX") under the symbol "MLF".
PAYMENT AT MATURITY: Principal Amount + Supplemental Redemption Amount
The Supplemental Redemption Amount will be based on the
percentage increase, if any, in the S&P 500 Index, reduced
on a daily basis by a percentage equal to the pro rata
portion of an annual adjustment factor. The annual
adjustment factor equals 1.3% (the "Adjustment Factor").
At maturity, the annual application of the Adjustment
Factor will result in a total reduction in the S&P 500
Index equal to approximately 8.78%. The Supplemental
Redemption Amount may be ZERO, but will not be less than
zero.
BEFORE YOU DECIDE TO INVEST IN THE MITTS SECURITIES, CAREFULLY READ THIS
PROSPECTUS, ESPECIALLY THE RISK FACTORS BEGINNING ON PAGE 5.
Neither the SEC nor any state securities commission has approved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
The MITTS Securities will be maintained in book-entry form only through the
facilities of DTC.
--------------------
This Prospectus has been prepared in connection with the MITTS Securities
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 MITTS
Securities. MLPF&S may act as principal or agent in such transactions. The MITTS
Securities may be offered on the AMEX, 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 MITTS Securities 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..
_____________________
MERRILL LYNCH & CO.
_____________________
The date of this Prospectus is July __, 1998.
____________________
"MITTS" is a registered service mark and "Market Index Target-Term Securities"
is a service mark owned by Merrill Lynch & Co., Inc.
"Standard & Poor's(R)", "Standard & Poor's 500", "S&P 500(R)", "S&P(R)" and
"500", are trademarks of The McGraw-Hill Companies, Inc. and have been licensed
for use by Merrill Lynch Capital Services, Inc. and the Company is an
authorized sublicensee.
<PAGE>
STANDARD & POOR'S ("S&P") DOES NOT GUARANTEE THE ACCURACY AND/OR THE
COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE COMPANY, MLPF&S, HOLDERS
OF THE MITTS SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P
INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED UNDER
THE LICENSE AGREEMENT DESCRIBED HEREIN OR FOR ANY OTHER USE. S&P MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE S&P
INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO
EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR
CONSEQUENTIAL DAMAGE (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
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 "NYSE"), the AMEX, the Chicago
Stock Exchange and the Pacific 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 26,
1997, Quarterly Report on Form 10-Q for the period ended March 27, 1998 and
Current Reports on Form 8-K dated January 20, 1998, January 30, 1998, February
4, 1998, February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998,
April 29, 1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June
24, 1998, June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 filed
pursuant to Section 13 of the Exchange Act, are hereby incorporated by reference
into this Prospectus.
2
<PAGE>
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 hereof and prior to the
termination of the offering of the Securities shall be deemed to be incorporated
by reference into this Prospectus and to be a part hereof from the date of
filing of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY
(WITHOUT EXHIBITS OTHER THAN EXHIBITS SPECIFICALLY INCORPORATED BY REFERENCE) OF
ANY OR ALL DOCUMENTS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. REQUESTS
FOR SUCH COPIES SHOULD BE DIRECTED TO LAWRENCE M. EGAN, JR., CORPORATE
SECRETARY'S OFFICE, 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 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.
3
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its
subsidiaries and affiliates, provides investment, financing, advisory,
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; an underwriter of selected insurance products; and a distributor of
investment products of the Merrill Lynch Asset Management group. 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. The Company's asset management and investment management activities are
conducted through the Merrill Lynch Asset Management group and Merrill Lynch
Mercury Asset Management, which together constitute one of the largest asset
management organizations in the world. Merrill Lynch Government Securities Inc.
is a primary dealer in obligations issued or guaranteed by the U.S. Government
and its agencies and its government-sponsored agencies. Merrill Lynch Capital
Services, Inc., Merrill Lynch Derivative Products AG, and Merrill Lynch
International are the Company's primary derivative product dealers and enter
into interest rate, currency, and other over-the-counter derivative transactions
as intermediaries and as principals. The Company's operations in insurance
services consist of the underwriting and sale 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 and purchasing secured loans, providing
currency exchange facilities and other related services, and furnishing trust,
employee benefit, and custodial 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
The following table sets forth the historical ratios for earnings to fixed
charges of the Company for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
--------- --------- ---------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to fixed charges 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
4
<PAGE>
RISK FACTORS
Your investment in the MITTS Securities will involve certain risks. For
example, there is the risk that you might not earn a return on your investment,
and the risk that you will be unable to sell your MITTS Securities prior to the
stated maturity date. You should carefully consider the following discussion of
risks before deciding whether an investment in the MITTS Securities is suitable
for you.
THE SUPPLEMENTAL REDEMPTION AMOUNT
You should be aware that if the Adjusted Ending Value does not exceed the
Starting Value at the stated maturity, the Supplemental Redemption Amount will
be zero. This will be true even if the value of the Index, as reduced by the
Adjustment Factor, was higher than the Starting Value at some time during the
life of the MITTS Securities but later falls below the Starting Value. If the
Supplemental Redemption Amount is zero, we will pay you only the Principal
Amount of your MITTS Securities.
YOUR YIELD MAY BE LOWER THAN THE YIELD ON A STANDARD DEBT SECURITY OF COMPARABLE
MATURITY
The amount we pay you at maturity may be less than the return you could
earn on other investments. Your yield may be less than the yield you would earn
if you bought a standard senior non-callable debt security of the Company with
the same maturity date. Your investment may not reflect the full opportunity
cost to you when you take into account factors that affect the time value of
money.
YOUR RETURN WILL NOT REFLECT THE RETURN OF OWNING THE STOCKS UNDERLYING THE
INDEX
Your return will not reflect the return you would realize if you actually
owned the stocks underlying the Index and received the dividends paid on those
stocks because of the reduction caused by the Adjustment Factor and because S&P
calculates the Index by reference to the prices of the common stocks comprising
the Index without taking into consideration the value of dividends paid on those
stocks.
UNCERTAIN TRADING MARKET
The MITTS Securities have been listed on the AMEX under the symbol "MLF".
While there have been a number of issuances of Market Index Target-Term
Securities, trading volumes have varied historically from one transaction to
another and it is therefore impossible to predict how the MITTS Securities will
trade. You cannot assume that a trading market will develop for the MITTS
Securities. If such a trading market does develop, there can be no assurance
that there will be liquidity in the trading market. The development of a trading
market for the MITTS Securities will depend on the financial performance of the
Company, and other factors such as the appreciation, if any, of the value of the
Index.
If the trading market for the MITTS Securities is limited, there may be a
limited number of buyers when you decide to sell your MITTS Securities if you do
not wish to hold your investment until maturity. This may affect the price you
receive.
FACTORS AFFECTING TRADING VALUE OF THE MITTS SECURITIES
We believe that the market value of the MITTS Securities will be affected
by the value of the Index and by a number of other factors. Some of these
factors are interrelated in complex ways; as a result, the effect of any one
factor may be offset or magnified by the effect of another factor. The following
paragraphs describe the expected impact on the market value of the MITTS
Securities given a change in a specific factor, assuming all other conditions
remain constant.
. INDEX VALUE. We expect that the market value of the MITTS Securities
will depend substantially on the amount by which the Index, as reduced
by the Adjustment Factor, exceeds the Starting Value. If you choose to
sell your
5
<PAGE>
MITTS Securities when the value of the Index, as reduced by the
Adjustment Factor, exceeds the Starting Value, you may receive
substantially less than the amount that would be payable at maturity
based on such value because of the expectation that the Index will
continue to fluctuate until the Adjusted Ending Value is determined. If
you choose to sell your MITTS Securities when the value of the Index is
below the Starting Value, you may receive less than the $10 Principal
Amount per Unit of MITTS Securities. In general, rising U.S. dividend
rates (i.e., dividends per share) may increase the value of the Index
while falling U.S. dividend rates may decrease the value of the Index.
Political, economic and other developments that affect the stocks
underlying the Index may also affect the value of the Index and the
value of the MITTS Securities.
. INTEREST RATES. Because the MITTS Securities repay, at a minimum, the
Principal Amount at maturity, we expect that the trading value of the
MITTS Securities will be affected by changes in interest rates. In
general, if U.S. interest rates increase, we expect that the trading
value of the MITTS Securities will decrease. If U.S. interest rates
decrease, we expect the trading value of the MITTS Securities will
increase. Interest rates may also affect the U.S. economy and, in turn,
the value of the Index. Rising interest rates may lower the value of the
Index and, thus, the MITTS Securities. Falling interest rates may
increase the value of the Index and, thus, may increase the value of the
MITTS Securities.
. VOLATILITY OF THE INDEX. Volatility is the term used to describe the
size and frequency of market fluctuations. If the volatility of the
Index increases, we expect that the trading value of the MITTS
Securities will increase. If the volatility of the Index decreases, we
expect that the trading value of the MITTS Securities will decrease.
. TIME REMAINING TO MATURITY. The MITTS Securities may trade at a value
above that which would be expected based on the level of interest rates
and the Index. This difference will reflect a "time premium" due to
expectations concerning the value of the Index during the period prior
to the stated maturity of the MITTS Securities. However, as the time
remaining to the stated maturity of the MITTS Securities decreases, we
expect that this time premium will decrease, lowering the trading value
of the MITTS Securities.
. DIVIDEND YIELDS. If dividend yields on the stocks comprising the Index
increase, we expect that the value of the MITTS Securities will
decrease. Conversely, if dividend yields on the stock comprising the
Index decrease, we expect that the value of the MITTS Securities will
increase.
. COMPANY CREDIT RATINGS. Real or anticipated changes in the Company's
credit ratings may affect the market value of the MITTS Securities.
It is important for you to understand that the impact of one of the factors
specified above, such as an increase in interest rates, may offset some or all
of any increase in the trading value of the MITTS Securities attributable to
another factor, such as an increase in the Index value.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the MITTS Securities of a given change in
most of the factors listed above will be less if it occurs later in the term of
the MITTS Securities than if it occurs earlier in the term of the MITTS
Securities except that we expect that the effect on the trading value of the
MITTS Securities of a given increase in the value of the Index will be greater
if it occurs later in the term of the MITTS Securities than if it occurs earlier
in the term of the MITTS Securities.
STATE LAW LIMITS ON INTEREST PAID
New York State law governs the Senior Indenture, as defined herein. New
York has certain usury laws that limit the amount of interest that can be
charged and paid on loans, which includes debt securities like the MITTS
Securities. Under present New York law, the maximum rate of interest is 25% per
annum on a simple interest basis. This limit may not apply to debt securities in
which $2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state or
Federal court sitting outside of New York, many other states also have laws that
regulate the amount of interest that may be charged to and paid by a borrower.
We will promise, for the benefit of the holders of the MITTS Securities, to the
extent permitted by law, not to voluntarily claim the benefits of any laws
concerning usurious rates of interest.
6
<PAGE>
PURCHASES AND SALES BY MLPF&S
The Company, MLPF&S and other affiliates of the Company may from time to
time buy or sell the stocks underlying the Index for their own accounts for
business reasons or in connection with hedging the Company's obligations under
the MITTS Securities. These transactions could affect the price of such stocks
and the value of the Index.
POTENTIAL CONFLICTS
The Calculation Agent is a subsidiary of the Company, the issuer of the
MITTS Securities. Under certain circumstances, MLPF&S's role as a subsidiary of
the Company and its responsibilities as Calculation Agent for the MITTS
Securities could give rise to conflicts of interests. You should be aware that
because the Calculation Agent is controlled by the Company, potential conflicts
of interest could arise.
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the
MITTS Securities should reach an investment decision only after carefully
considering the suitability of the Securities in the light of each investor's
particular circumstances.
Investors should also consider the tax consequences of investing in the
MITTS Securities and should consult their tax advisors.
DESCRIPTION OF THE MITTS SECURITIES
GENERAL
The MITTS Securities were issued as a series of Senior Debt Securities
under the Senior Indenture, referred to as the "Senior Indenture", as described
below. The MITTS Securities will mature on July 1, 2005.
While at maturity a beneficial owner of a MITTS Security will receive the
Principal Amount of such MITTS Security plus the Supplemental Redemption Amount,
if any, there will be no other payment of interest, periodic or otherwise. See
"Payment at Maturity" below.
The MITTS Securities are not subject to redemption by the Company or at the
option of any beneficial owner prior to maturity. Upon the occurrence of an
Event of Default with respect to the MITTS Securities, beneficial owners of the
MITTS Securities may accelerate the maturity of the MITTS Securities, as
described under "Description of the MITTS Securities--Events of Default and
Acceleration" and "Other Terms--Events of Default" in this Prospectus.
The MITTS Securities were issued in denominations of whole Units.
PAYMENT AT MATURITY
General
At the stated maturity date, a beneficial owner of a MITTS Security will be
entitled to receive the Principal Amount thereof plus the Supplemental
Redemption Amount, if any, all as provided below. If the Adjusted Ending Value
does not exceed the Starting Value, a beneficial owner of a MITTS Security will
be entitled to receive only the Principal Amount thereof.
Determination of the Supplemental Redemption Amount
7
<PAGE>
The Supplemental Redemption Amount for a MITTS Security will be determined
by the Calculation Agent and will equal:
<TABLE>
<CAPTION>
<S> <C>
Adjusted Ending Value - Starting Value
Principal Amount of such MITTS Security ($10 per Unit) X --------------------------------------
Starting Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount
be less than zero.
The Starting Value equals 1,119.49.
The Adjusted Ending Value will be determined by the Calculation Agent and
will equal the average (arithmetic mean) of the closing values of the Index as
adjusted by the Adjustment Factor (the "Adjusted Index Value") determined on
each of the first five Calculation Days during the Calculation Period. If there
are fewer than five Calculation Days, then the Adjusted Ending Value will equal
the average (arithmetic mean) of the closing values of the Adjusted Index Value
on such Calculation Days, and if there is only one Calculation Day, then the
Adjusted Ending Value will equal the closing value of the Adjusted Index Value
on such Calculation Day. If no Calculation Days occur during the Calculation
Period, then the Adjusted Ending Value will equal the closing value of the
Adjusted Index Value determined on the last scheduled Index Business Day in the
Calculation Period, regardless of the occurrence of a Market Disruption Event on
such day.
The "Adjustment Factor" equals 1.3% per annum and will be prorated and
applied each calendar day during the term of the MITTS Securities to reduce the
Index. As a result of the application of the Adjustment Factor, the adjusted
value of the Index used to calculate your Supplemental Redemption Amount at the
stated maturity of the MITTS Securities will be approximately 8.78% less than
the actual Index value on any day during the Calculation Period.
The "Calculation Period" means the period from and including the seventh
scheduled Index Business Day prior to the maturity date to and including the
second scheduled Index Business Day prior to the maturity date.
"Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
For purposes of determining the Adjusted Ending Value, an "Index Business
Day" is a day on which the NYSE and the AMEX are open for trading and the Index
or any Successor Index, as defined below, is calculated and published. All
determinations made by the Calculation Agent shall be at the sole discretion of
the Calculation Agent and, absent a determination by the Calculation Agent of a
manifest error, shall be conclusive for all purposes and binding on the Company
and beneficial owners of the MITTS Securities.
8
<PAGE>
HYPOTHETICAL RETURNS
The following table illustrates, for a range of hypothetical values of the
Index during the Calculation Period, (i) the Adjusted Ending Value used to
calculate the Supplemental Redemption Amount; (ii) the percentage change from
the initial Index value to the Adjusted Ending Value; (iii) the total amount
payable per Unit of MITTS Securities; (iv) the total rate of return on the MITTS
Securities; (v) the pretax annualized rate of return on the MITTS Securities;
and (vi) the pretax annualized rate of return of the stocks underlying the Index
(which includes an assumed aggregate dividend yield of 1.40% per annum, as more
fully described below).
<TABLE>
<CAPTION>
TOTAL AMOUNT PRETAX
------------ ------
PERCENTAGE CHANGE PAYABLE AT MATURITY ANNUALIZED PRETAX ANNUALIZED
----------------- ------------------- ---------- -----------------
HYPOTHETHICAL INDEX ADJUSTED OF ADJUSTED ENDING PER $10 PRINCIPAL TOTAL RATE OF RATE OF RATE OF RETURN ON
- ------------------- -------- ------------------ ----------------- ------------- ------- -----------------
VALUE DURING THE ENDING VALUE OVER THE AMOUNT OF RETURN ON THE RETURN ON THE STOCKS UNDERLYING
---------------- ------ -------------- --------- ------------- ------------- -----------------
CALCULATION PERIOD VALUE STARTING VALUE MITTS SECURITIES MITTS SECURITIES MITTS SECURITIES THE INDEX (1)(2)
- ------------------ ----- -------------- ----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
559.75 510.62 -54.39% $10.00 0.00% 0.00% -8.25%
671.69 612.75 -45.27% $10.00 0.00% 0.00% -5.77%
783.64 714.87 -36.14% $10.00 0.00% 0.00% -3.64%
895.59 817.00 -27.02% $10.00 0.00% 0.00% -1.77%
1,007.54 919.12 -17.90% $10.00 0.00% 0.00% -0.11%
1,119.49 1,021.25 -8.78% $10.00 0.00% 0.00% 1.40%
1,231.44 1,123.37 0.35% $10.03 0.35% 0.05% 2.77%
1,343.39 1,225.50 9.47% $10.95 9.47% 1.29% 4.04%
1,455.34 1,327.62 18.59% $11.86 18.59% 2.44% 5.21%
1,567.29 1,429.75 27.71% $12.77 27.71% 3.52% 6.30%
1,679.24 1,531.87 36.84% $13.68 36.84% 4.52% 7.32%
1,791.18 1,634.00 45.96% $14.60 45.96% 5.46% 8.28%
1,903.13 1,736.12 55.08% $15.51 55.08% 6.35% 9.19%
2,015.08 1,838.25 64.20% $16.42 64.20% 7.19% 10.05%
2,127.03 1,940.37 73.33% $17.33 73.33% 7.99% 10.87%
2,238.98 2,042.50 82.45% $18.24 82.45% 8.75% 11.65%
2,350.93 2,144.62 91.57% $19.16 91.57% 9.48% 12.40%
2,462.88 2,246.75 100.69% $20.07 100.69% 10.17% 13.11%
2,574.83 2,348.87 109.82% $20.98 109.82% 10.84% 13.80%
2,686.78 2,451.00 118.94% $21.89 118.94% 11.48% 14.46%
2,798.73 2,553.12 128.06% $22.81 128.06% 12.10% 15.09%
</TABLE>
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes (i) a constant dividend yield of 1.40% per
annum, paid quarterly from the date of initial delivery of MITTS Securities
applied to the value of the Index at the end of each such quarter assuming
such value increases or decreases linearly from the Starting Value to the
hypothetical Index value during the Calculation Period; (ii) no transaction
fees or expenses; (iii) the term for the MITTS Securities from June 26,
1998 to July 1, 2005; and (iv) a final Index value equal to the
hypothetical Index value during the Calculation Period.
(3) The Starting Value of the Index equals 1,119.49.
The figures on the previous page are for purposes of illustration only. The
actual Supplemental Redemption Amount received by investors and the total and
9
<PAGE>
"Market Disruption Event" means either of the following events; as
determined by the Calculation Agent:
(a) the suspension or material limitation (limitations pursuant to New
York Stock Exchange Rule 80A (or any applicable rule or regulation enacted
or promulgated by the NYSE or any other self regulatory organization or the
Commission of similar scope as determined by the Calculation Agent) on
trading during significant market fluctuations shall be considered
"material" for purposes of this definition), in each case, for more than
two hours of trading, or during the one-half hour period preceding the
close of trading on the applicable exchange, in 20% or more of the stocks
which then comprise the Index; or
(b) the suspension or material limitation, in each case, for more than
two hours of trading (whether by reason of movements in price otherwise
exceeding levels permitted by the relevant exchange or otherwise) in (A)
futures contracts related to the Index, or options on such futures
contracts, which are traded on any major U.S. exchange or (B) option
contracts related to the Index which are traded on any major U.S. exchange.
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular business hours of
the relevant exchange.
DISCONTINUANCE OF THE INDEX
If S&P discontinues publication of the Index and S&P or another entity
publishes a successor or substitute index that the Calculation Agent determines,
in its sole discretion, to be comparable to such Index (any such index being
referred to herein as a "Successor Index"), then, upon the Calculation Agent's
notification of such determination to the Trustee and the Company, the
Calculation Agent will substitute the Successor Index as calculated by S&P or
such other entity for the Index. Upon any selection by the Calculation Agent of
a Successor Index, the Company shall cause notice thereof to be given to Holders
of the MITTS Securities.
If S&P discontinues publication of the Index and a Successor Index is not
selected by the Calculation Agent or is no longer published on any of the
Calculation Days, the value to be substituted for the Index for any such
Calculation Day used to calculate the Supplemental Redemption Amount at maturity
will be a value computed by the Calculation Agent for each Calculation Day in
accordance with the procedures last used to calculate the Index prior to such
discontinuance. If a Successor Index is selected or the Calculation Agent
calculates a value as a substitute for the Index as described below, such
Successor Index or value shall be substituted for the Index for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
If the Calculation Agent calculates a value as a substitute for the Index,
"Index Calculation Day" shall mean any day on which the Calculation Agent is
able to calculate such value.
If S&P discontinues publication of the Index prior to the period during
which the Supplemental Redemption Amount is to be determined and the Calculation
Agent determines that no Successor Index is available at such time, then on each
Business Day until the earlier to occur of (a) the determination of the Adjusted
Ending Value and (b) a determination by the Calculation Agent shall determine
the value that would be used in computing the Supplemental Redemption Amount as
described in the preceding paragraph as if such day were a Calculation Day. The
Calculation Agent will cause notice of each such value to be published not less
often than once each month in The Wall Street Journal (or another newspaper of
general circulation), and arrange for information with respect to such values to
be made available by telephone. Notwithstanding these alternative arrangements,
discontinuance of the publication of the Index may adversely affect trading in
the MITTS Securities.
10
<PAGE>
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any MITTS Securities shall have
occurred and be continuing, the amount payable to a beneficial owner of a MITTS
Security upon any acceleration permitted by the MITTS Securities, with respect
to each $10 principal amount thereof, will be equal to the Principal Amount and
the Supplemental Redemption Amount, if any, calculated as though the date of
early repayment were the stated maturity date of the MITTS Securities. See
"Description of the MITTS Securities--Payment at Maturity" in this Prospectus.
If a bankruptcy proceeding is commenced in respect of the Company, the claim of
the beneficial owner of a MITTS Security may be limited, under Section 502(b)(2)
of Title 11 of the United States Code, to the Principal Amount of the MITTS
Security plus an additional amount of contingent interest calculated as though
the date of the commencement of the proceeding were the maturity date of the
MITTS Securities.
In case of default in payment of the MITTS Securities (whether at the
stated maturity or upon acceleration), from and after the maturity date the
MITTS Securities shall bear interest, payable upon demand of the beneficial
owners thereof, at the rate of 5.90% per annum (to the extent that payment of
such interest shall be legally enforceable) on the unpaid amount due and payable
on such date in accordance with the terms of the MITTS Securities to the date
payment of such amount has been made or duly provided for.
DEPOSITARY
The MITTS Securities are represented by one or more fully registered
global securities (the "Global Securities"). Each such Global Security has been
deposited with, or on behalf of, The Depository Trust Company ("DTC"; DTC,
together with any successor thereto, being a "Depositary"), as Depositary,
registered in the name of Cede & Co. (DTC's partnership nominee). Unless and
until it is exchanged in whole or in part for MITTS Securities in definitive
form, no Global Security may be transferred except as a whole by the Depositary
to a nominee of such Depositary or by a nominee of such Depositary to such
Depositary or another nominee of such Depositary or by such Depositary or any
such nominee to a successor of such Depositary or a nominee of such successor.
So long as DTC, or its nominee, is a registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole owner or
Holder of the MITTS Securities represented by such Global Security for all
purposes under the Senior Indenture. Except as provided below, the actual owner
of the MITTS Securities represented by a Global Security (the "Beneficial
Owner") will not be entitled to have the MITTS Securities represented by such
Global Securities registered in their names, will not receive or be entitled to
receive physical delivery of the MITTS Securities in definitive form and will
not be considered the owners or Holders thereof under the Senior Indenture,
including for purposes of receiving any reports delivered by the Company or the
Trustee pursuant to the Senior Indenture. Accordingly, each person owning a
beneficial interest in a Global Security must rely on the procedures of DTC and,
if such person is not a participant of DTC (a "Participant"), on the procedures
of the Participant through which such person owns its interest, to exercise any
rights of a Holder under the Senior Indenture. The Company understands that
under existing industry practices, in the event that the Company requests any
action of Holders or that an owner of a beneficial interest in such a Global
Security desires to give or take any action which a Holder is entitled to give
or take under the Senior Indenture, DTC 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 DTC to
Participants, by Participants to Indirect Participants, as defined below, 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.
If (x) the Depositary is at any time unwilling or unable to continue as
Depositary and a successor depositary is not appointed by the Company within 60
days, (y) the Company executes and delivers to the Trustee a Company Order to
the effect that the Global Securities shall be exchangeable or (z) an Event of
Default has occurred and is continuing with respect to the MITTS Securities, the
Global Securities will be exchangeable for MITTS Securities in definitive form
of like tenor and of an equal aggregate principal amount, in denominations of
$10 and integral multiples thereof. Such definitive MITTS Securities shall be
registered in such name or names as the Depositary shall instruct the Trustee.
It is expected that such instructions may be based upon directions received by
the Depositary from Participants with respect to ownership of beneficial
interests in such Global Securities.
11
<PAGE>
THE FOLLOWING IS BASED ON INFORMATION FURNISHED BY DTC:
DTC will act as securities depositary for the MITTS Securities. The MITTS
Securities will be issued as fully registered securities registered in the name
of Cede & Co. (DTC's partnership nominee). One or more fully registered Global
Security will be issued for the MITTS Securities in the aggregate principal
amount of such issue, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its Participants deposit with DTC. DTC also facilitates
the settlement among Participants of securities transactions, such as transfers
and pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants of DTC ("Direct
Participants") include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. DTC is owned by a number
of its Direct 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 DTC's system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the SEC.
Purchases of MITTS Securities under the DTC's system must be made by or
through Direct Participants, which will receive a credit for the MITTS
Securities on the DTC's records. The ownership interest of each Beneficial Owner
is in turn to be recorded on the records of Direct Participants and Indirect
Participants. Beneficial Owners will not receive written confirmation from DTC
of their purchase, but Beneficial Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct Participants or Indirect
Participants through which such Beneficial Owner entered into the transaction.
Transfers of ownership interests in the MITTS Securities are to be accomplished
by entries made on the books of Participants acting on behalf of Beneficial
Owners. Beneficial Owners will not receive certificates representing their
ownership interests in MITTS Securities, except in the event that use of the
book-entry system for the MITTS Securities is discontinued.
To facilitate subsequent transfers, all MITTS Securities deposited with DTC
are registered in the name of DTC's partnership nominee, Cede & Co. The deposit
of MITTS Securities with DTC and their registration in the name of Cede & Co.
effect no change in beneficial ownership. DTC has no knowledge of the actual
Beneficial Owners of the MITTS Securities; DTC's records reflect only the
identity of the Direct Participants to whose accounts such MITTS Securities are
credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
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.
Neither DTC nor Cede & Co. will consent or vote with respect to the MITTS
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to the
Company as soon as possible after the applicable record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants to
whose accounts the MITTS Securities are credited on the record date (identified
in a listing attached to the Omnibus Proxy).
Principal, premium, if any, and/or interest, if any, payments on the MITTS
Securities will be made in immediately available funds to DTC. DTC's practice is
to credit Direct Participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the Depositary's records
unless DTC has reason to believe that it will not receive payment on such date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is 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 Participant and not of DTC, the Trustee or
the Company, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of principal, premium, if any, and/or
interest, if any, to DTC is the responsibility of the Company or the Trustee,
disbursement of such payments to Direct Participants shall be the responsibility
of DTC, and disbursement of such
12
<PAGE>
payments to the Beneficial Owners shall be the responsibility of Direct
Participants and Indirect Participants.
DTC may discontinue providing its services as securities depositary with
respect to the MITTS Securities at any time by giving reasonable notice to the
Company or the Trustee. Under such circumstances, in the event that a successor
securities depositary is not obtained, MITTS Security certificates are required
to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depositary). In that event,
MITTS Security certificates will be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that the Company believes to be reliable, but the Company
takes no responsibility for the accuracy thereof.
SAME-DAY SETTLEMENT AND PAYMENT
All payments of principal and the Supplemental Redemption Amount, if any,
will be made by the Company in immediately available funds so long as the MITTS
Securities are maintained in book-entry form.
THE INDEX
All disclosures contained in this Prospectus regarding the Index, including
its make-up, method of calculation and changes in its components, are derived
from publicly available information prepared by S&P as of April 30, 1998. The
Company and MLPF&S do not assume any responsibility for the accuracy or
completeness of such information.
GENERAL
The Index is published by S&P, and is intended to provide an indication of
the pattern of common stock price movement. The calculation of the value of the
Index (discussed below in further detail) is based on the relative value of the
aggregate Market Value (as defined below) of the common stocks of 500 companies
as of a particular time compared to the aggregate average Market Value of the
common stocks of 500 similar companies during the base period of the years 1941
through 1943. As of April 30, 1998 the 500 companies included in the Index
represented approximately 81% of the aggregate Market Value of common stocks
traded on the NYSE; however, these 500 companies are not the 500 largest
companies listed on the NYSE and not all of these 500 companies are listed on
such exchange. As of April 30, 1998, the aggregate Market Value of the 500
companies included in the Index represented approximately 73% of the aggregate
Market Value of United States domestic, public companies. S&P chooses companies
for inclusion in the Index with the aim of achieving a distribution by broad
industry groupings that approximates the distribution of these groupings in the
common stock population of the NYSE, which S&P uses as an assumed model for the
composition of the total market. Relevant criteria employed by S&P include the
viability of the particular company, the extent to which that company represents
the industry group to which it is assigned, the extent to which the market price
of that company's common stock is generally responsive to changes in the affairs
of the respective industry and the Market Value and trading activity of the
common stock of that company. As of April 30, 1998, the 500 companies included
in the Index were divided into 104 individual groups.
These individual groups comprised the following four main groups of
companies (with the number of companies currently included in each group
indicated in parentheses): Industrials (379), Utilities (37), Transportation
(10) and Financial (74). S&P may from time to time, in its sole discretion, add
companies to, or delete companies from, the Index to achieve the objectives
stated above.
THE INDEX DOES NOT REFLECT THE PAYMENT OF DIVIDENDS ON THE STOCKS
UNDERLYING IT AND THEREFORE THE RETURN BASED ON THE SUPPLEMENTAL REDEMPTION
AMOUNT WILL NOT PRODUCE THE SAME RETURN YOU WOULD RECEIVE IF YOU WERE TO
PURCHASE SUCH UNDERLYING STOCKS AND HOLD THEM FOR A PERIOD EQUAL TO THE MATURITY
OF THE MITTS SECURITIES.
COMPUTATION OF THE INDEX
13
<PAGE>
S&P currently computes the Index as of a particular time as follows:
(a) the product of the market price per share and the number of then
outstanding shares of each component stock is determined as of such time
(such product referred to as the "Market Value" of such stock);
(b) the Market Value of all component stock as of such time (as
determined under clause (a) above) are aggregated;
(c) the mean average of the Market Values as of each week in the base
period of the years 1941 through 1943 of the common stock of each company
in a group of 500 substantially similar companies is determined;
(d) the mean average Market Values of all such common stocks over such
base period (as determined under clause (c) above are aggregated (such
aggregate amount being referred to as the "Base Value");
(e) the aggregate Market Value of all component stocks as of such time
(as determined under clause (b) above) is divided by the Base Value; and
(f) the resulting quotient (expressed in decimals) is multiplied by
ten.
While S&P currently employs the above methodology to calculate the Index,
no assurance can be given that S&P will not modify or change such methodology in
a manner that may affect the Supplemental Redemption Amount, if any, payable to
beneficial owners of MITTS Securities upon maturity or otherwise.
S&P adjusts the foregoing formula to negate the effects of changes in the
Market Value of a component stock that are determined by S&P to be arbitrary or
not due to true market fluctuations. Such changes may result from such causes as
the issuance of stock dividends, the granting to shareholders of rights to
purchase additional shares of such stock, the purchase of shares by employees
pursuant to employee benefit plans, certain consolidations and acquisitions, the
granting to shareholders of rights to purchase other securities of the company,
the substitution by S&P of particular component stocks in the Index, and other
reasons. In all such cases, S&P first recalculates the aggregate Market Value of
all component stocks (after taking account of the new market price per share of
the particular component stock or the new number of outstanding shares thereof
or both, as the case may be) and then determines the New Base Value in
accordance with the following formula:
New Market Value
Old Base Value X -------------------- = New Base Value
Old Market Value
The result is that the Base Value is adjusted in proportion to any change
in the aggregate Market Value of all component stocks resulting from the causes
referred to above to the extent necessary to negate the effects of such clauses
upon the Index.
LICENSE AGREEMENT
S&P and Merrill Lynch Capital Services, Inc. have entered into a non-
exclusive license agreement providing for the license to Merrill Lynch Capital
Services, Inc., in exchange for a fee, of the right to use indices owned and
published by S&P in connection with certain securities, including the MITTS
Securities, and the Company is an authorized sublicensee thereof.
The license agreement between S&P and Merrill Lynch Capital Services, Inc.
provides that the following language must be stated in this Prospectus:
"The MITTS Securities are not sponsored, endorsed, sold or promoted by S&P.
S&P makes no representation or warranty, express or implied, to the Holders of
the MITTS Securities or any member of the public regarding the advisability of
investing in securities generally or in the MITTS Securities particularly or the
ability of the Index to track
14
<PAGE>
general stock market performance. S&P's only relationship to Merrill Lynch
Capital Services, Inc. and the Company (other than transactions entered into in
the ordinary course of business) is the licensing of certain servicemarks and
trade names of S&P and of the Index which is determined, composed and calculated
by S&P without regard to the Company or the MITTS Securities. S&P has no
obligation to take the needs of the Company or the Holders of the MITTS
Securities into consideration in determining, composing or calculating the
Index. S&P is not responsible for and has not participated in the determination
of the timing of the sale of the MITTS Securities, prices at which the MITTS
Securities are to initially be sold, or quantities of the MITTS Securities to be
issued or in the determination or calculation of the equation by which the MITTS
Securities are to be converted into cash. S&P has no obligation or liability in
connection with the administration, marketing or trading of the MITTS
Securities."
OTHER TERMS
GENERAL
The MITTS Securities were issued as a series of Senior Debt Securities
under an indenture (the ''Senior Indenture''), dated as of April 1, 1983, as
amended and restated, between the Company and The Chase Manhattan Bank, formerly
known as Chemical Bank (successor by merger to Manufacturers Hanover Trust
Company), as trustee. A copy of the Senior Indenture is filed as an exhibit to
the registration statements relating to the MITTS Securities. The following
summaries of certain provisions of the Senior Indenture do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all provisions of the Senior Indenture, including the definitions therein of
certain terms.
The Senior Indenture provides that series of Senior Debt Securities may
from time to time be issued thereunder, without limitation as to aggregate
principal amount, in one or more series and upon such terms as the Company may
establish pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the MITTS
Securities are governed by and construed in accordance with the laws of the
State of New York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of the Senior Debt Securities
previously issued, and ''reopen'' a previous issue of a series of Senior Debt
Securities and issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities),
to participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and other regulatory bodies.
LIMITATION UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indentures) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
15
<PAGE>
LIMITATIONS ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Senior Indenture provides that the Company may not sell, transfer or
otherwise dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell
or otherwise dispose of any of its Voting Stock, unless, after giving effect to
any such transaction, MLPF&S remains a Controlled Subsidiary (defined in the
Senior Indentures to mean a corporation more than 80% of the outstanding shares
of Voting Stock of which are owned directly or indirectly by the Company). In
addition, the Senior 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.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or
into any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Indentures to be
performed or observed by the Company, and (ii) the Company or such successor
corporation, as the case may be, shall not immediately thereafter be in default
under the Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Senior Indenture may be effected by the
Company and the Trustee with the consent of the Holders of at least 662/3% in
principal amount of the Outstanding Senior Debt Securities of each series issued
pursuant to the Indenture and affected thereby, provided that no such
modification or amendment may, without the consent of the Holder of each
Outstanding Senior Debt Security affected thereby, (a) change the Stated
Maturity of, or any installment of interest or Additional Amounts on, any Senior
Debt Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change the place or currency of any payment of principal of, or any premium,
interest or Additional Amounts on, any Senior Debt Security; (d) impair the
right to institute suit for the enforcement of any payment on or with respect to
any Senior Debt Security; (e) reduce the percentage in principal amount of the
Outstanding Senior Debt Securities of any series, the consent of whose Holders
is required to modify or amend such Indenture; or (f) modify the foregoing
requirements or reduce the percentage of Outstanding Senior Debt Securities
necessary to waive any past default to less than a majority. No modification or
amendment of the Company's Subordinated Indenture or any Subsequent Indenture
for Subordinated Debt Securities may adversely affect the rights of any Holder
of Senior Indebtedness without the consent of such Holder. Except with respect
to certain fundamental provisions, the Holders of at least a majority in
principal amount of Outstanding Senior Debt Securities of any series may, with
respect to such series, waive past defaults under the Senior Indenture and waive
compliance by the Company with certain provisions of such Indenture.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series issued thereunder: (a) default
in the payment of any interest or Additional Amounts upon any Debt Security of
that series when due, and such default has continued for 30 days; (b) default in
the payment of any principal of or premium, if any, on any Senior Debt Security
of that series when due; (c) default in the deposit of any sinking fund payment,
when due, in respect of any Senior Debt Security of that series; (d) default in
the performance of any other covenant of the Company contained in such Indenture
for the benefit of such series or in the Senior Debt Securities of such series,
and such default has continued for 60 days after written notice as provided in
such Indenture; (e) certain events in bankruptcy,
16
<PAGE>
insolvency or reorganization; and (f) any other Event of Default provided with
respect to Senior Debt Securities of that series. The Trustee or the Holders of
25% in principal amount of the Outstanding Senior Debt Securities of that series
may declare the principal amount (or such lesser amount as may be provided for
in the Senior Debt Securities of that series) of all Outstanding Senior Debt
Securities of that series and the interest accrued thereon and Additional
Amounts payable in respect thereof, if any, to be due and payable immediately if
an Event of Default with respect to Senior Debt Securities of such series shall
occur and be continuing at the time of declaration. At any time after a
declaration of acceleration has been made with respect to Senior Debt Securities
of any series but before a judgment or decree for payment of money due has been
obtained by the Trustee, the Holders of a majority in principal amount of the
Outstanding Senior Debt Securities of that series may rescind any declaration of
acceleration and its consequences, provided that all payments due (other than
those due as a result of acceleration) have been made and all Events of Default
have been remedied or waived. Any Event of Default with respect to Senior Debt
Securities of any series may be waived by the Holders of a majority in principal
amount of all Outstanding Senior Debt Securities of that series, except in a
case of failure to pay principal of or premium, if any, or interest or
Additional Amounts, if any, on any Senior Debt Security of that series for which
payment had not been subsequently made or in respect of a covenant or provision
which cannot be modified or amended without the consent of the Holder of each
Outstanding Senior Debt Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior
Debt Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Subject to the provisions of the Senior Indenture
relating to the duties of the Trustee, before proceeding to exercise any right
or power under an Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company will be required to furnish to the Trustee annually a statement
as to the fulfillment by the Company of all of its obligations under the Senior
Indenture.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997
included in the 1997 Annual Report on Form 10-K, and incorporated by reference
herein, has been derived from consolidated financial statements audited by
Deloitte & Touche LLP, as set forth in their reports included or incorporated by
reference herein. Such consolidated financial statements and related financial
statement schedules, and such 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 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 such Quarterly Reports 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.
17
<PAGE>
********************************************************************************
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
********************************************************************************
SUBJECT TO COMPLETION, ISSUE DATE JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
7 7/8% STRYPES(SM) DUE FEBRUARY 1, 2001
PAYABLE WITH SHARES OF COMMON STOCK OF
CIBER, INC.
(OR CASH WITH AN EQUAL VALUE)
___________
On January 28, 1998, Merrill Lynch & Co., Inc. (the "Company") issued
1,750,000 of its Structured Yield Product Exchangeable for Stock(sm), 7 7/8 %
STRYPES(sm) Due February 1, 2001 (each, a "STRYPES"). The issue price of each
STRYPES was $54.125, which amount is equal to the last sale price of the Common
Stock, par value $.01 per share (the "CIBER Common Stock"), of CIBER, Inc., a
Delaware corporation ("CIBER"), on January 26, 1998, as reported on the New York
Stock Exchange (the "Initial Price"). The STRYPES will mature on February 1,
2001 (the "Maturity Date"). Interest on the STRYPES, at the rate of 7 7/8% of
the issue price per annum, is payable in cash quarterly in arrears on February
1, May 1, August 1 and November 1, beginning May 1, 1998. The STRYPES are
unsecured obligations of the Company ranking pari passu with all of its other
unsecured and unsubordinated indebtedness. In addition, the STRYPES do not
restrict the Company's ability to incur additional indebtedness ranking senior
to, or pari passu with, the STRYPES. 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 CIBER Common Stock
(subject to the Company's right to deliver, with respect to all, but not less
than all, shares of CIBER 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 $91.4713 (the "Threshold Appreciation Price"),
0.7692 shares of CIBER Common Stock per STRYPES, (b) if the Maturity Price is
less than the Threshold Appreciation Price but is greater than $70.3625 (the
"Initial Appreciation Cap"), a fractional share of CIBER Common Stock per
STRYPES so that the value thereof (determined based on the Maturity Price)
equals the Initial Appreciation Cap, (c) if the Maturity Price is less than or
equal to the Initial Appreciation Cap but is greater than or equal to the
Initial Price, one share of CIBER Common Stock per STRYPES, (d) if the Maturity
Price is less than the Initial Price but is greater than or equal to $51.4188
(the "Downside Protection Threshold Price"), a number of shares of CIBER Common
Stock per STRYPES so that the value thereof (determined based on the Maturity
Price) equals the Initial Price and (e) if the Maturity Price is less than the
Downside Protection Threshold Price, 1.0526 shares of CIBER Common Stock per
STRYPES. The "Maturity Price" means the average Closing Price (as defined
herein) per share of CIBER Common Stock on the 20 Trading Days (as defined
herein) immediately prior to, but not including, the second Trading Day
preceding the Maturity Date. AS DESCRIBED HEREIN, THE MATURITY PRICE WILL
REPRESENT A DETERMINATION OF THE VALUE OF A SHARE OF CIBER COMMON STOCK
IMMEDIATELY PRIOR TO THE MATURITY DATE. 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
CIBER COMMON STOCK IS LESS THAN THE DOWNSIDE PROTECTION THRESHOLD 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 "Description of the STRYPES."
CIBER is not affiliated with the Company and has no obligations with
respect to the STRYPES.
SEE "RISK FACTORS," BEGINNING ON PAGE 3 OF THIS PROSPECTUS, FOR CERTAIN
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE STRYPES.
The STRYPES are listed on the New York Stock Exchange ("NYSE") under the
trading symbol "BOB".
_____________
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 Conduct Rules of the
National Association of Securities Dealers, Inc.
___________
(sm) Service mark of Merrill Lynch & Co., Inc.
___________
Merrill Lynch & Co.
___________
The date of this Prospectus is July ___, 1998.
<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 NYSE, the American Stock Exchange, the Chicago Stock Exchange
and the Pacific 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 26, 1997,
Quarterly Report on Form 10-Q for the period ended March 27, 1998, and Current
Reports on Form 8-K dated January 20, 1998, January 30, 1998, February 4, 1998,
February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998, April 29,
1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June 24, 1998,
June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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 STRYPES, or subsequent to the date of the initial
Registration Statement and prior to the effectiveness of the Registration
Statement, 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 LAWRENCE M. EGAN, JR., CORPORATE SECRETARY'S
OFFICE, 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 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.
2
<PAGE>
RISK FACTORS
COMPARISON TO OTHER DEBT SECURITIES; RELATIONSHIP TO CIBER COMMON STOCK
The terms of the STRYPES differ from those of ordinary debt securities in
that the value of the CIBER 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 CIBER
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. ALTHOUGH AN INVESTMENT IN THE
STRYPES AFFORDS PROTECTION FROM A DEPRECIATION IN THE VALUE OF THE CIBER COMMON
STOCK TO THE EXTENT THAT THE MATURITY PRICE DOES NOT FALL BELOW THE DOWNSIDE
PROTECTION THRESHOLD PRICE, HOLDERS OF STRYPES WILL HAVE ONLY LIMITED PROTECTION
FROM DEPRECIATION BELOW 95% OF THE INITIAL PRICE. IF THE MATURITY PRICE OF THE
CIBER COMMON STOCK IS LESS THAN THE DOWNSIDE PROTECTION THRESHOLD 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
CIBER COMMON STOCK MAY DECLINE BELOW 95% OF THE INITIAL PRICE, AND THAT SUCH
DECLINE COULD BE SUBSTANTIAL.
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 CIBER Common Stock because the amount receivable by a
holder of a STRYPES on the Maturity Date will exceed the Initial Appreciation
Cap (which represents an appreciation of 30% over the Initial Price) only if the
Maturity Price of the CIBER Common Stock exceeds the Threshold Appreciation
Price (which represents an appreciation of 69% over the Initial Price).
Moreover, holders of the STRYPES will be entitled to receive on the Maturity
Date only 76.92% (the percentage equal to the Initial Appreciation Cap divided
by the Threshold Appreciation Price) of any appreciation of the value of CIBER
Common Stock above the Threshold Appreciation Price. See "Description of the
STRYPES." Because the price of the CIBER Common Stock is subject to market
fluctuations, the value of the CIBER 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. If the Maturity Price is less than the Downside
Protection Threshold Price, holders of STRYPES will have only limited protection
from depreciation below 95% of the Initial Price.
FACTORS AFFECTING TRADING PRICES
The trading prices of the STRYPES in the secondary market will be affected
by the trading prices of the CIBER Common Stock in the secondary market. It is
impossible to predict whether the price of CIBER Common Stock will rise or fall.
Trading prices of CIBER Common Stock will be influenced by CIBER's operating
results and prospects and by economic, financial and other factors and market
conditions that can affect the capital markets generally, the market segment of
which CIBER is a part, the NYSE (on which the CIBER Common Stock is traded),
including the level of, and fluctuations in, the trading prices of stocks
generally and sales of substantial amounts of CIBER 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 beyond the
Company's control.
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 are listed on the NYSE under the trading symbol "BOB". However, there
can be no assurance 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
3
<PAGE>
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 price and liquidity of the STRYPES may be
adversely affected.
IMPACT OF STRYPES ON THE MARKET FOR CIBER COMMON STOCK
Any market that develops for the STRYPES is likely to influence and be
influenced by the market for CIBER Common Stock. For example, the price of CIBER
Common Stock could be depressed by investors' anticipation of the potential
distribution into the market of substantial amounts of CIBER Common Stock on the
Maturity Date of the STRYPES, by possible sales of CIBER Common Stock by
investors who view the STRYPES as a more attractive means of equity
participation in CIBER, and by hedging or arbitrage trading activity that may
develop involving the STRYPES and the CIBER Common Stock.
NO STOCKHOLDER'S RIGHTS
Holders of the STRYPES will not be entitled to any rights with respect to
the CIBER 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 CIBER
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 Amended and Restated
Certificate of Incorporation of CIBER 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 CIBER
The Company has no affiliation with CIBER, and CIBER 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. CIBER did not receive any of the proceeds of
the initial offering of the STRYPES and is not responsible for, and has not
participated in, the determination or calculation of the amount receivable by
holders of the STRYPES on the Maturity Date. CIBER 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 CIBER COMMON STOCK
The number of shares of CIBER Common Stock (or 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 CIBER is not the surviving or resulting corporation, a
sale or transfer of all or substantially all of the assets of CIBER, and the
liquidation, dissolution, winding up or bankruptcy of CIBER, as well as stock
splits and combinations, stock dividends and certain other actions of CIBER that
modify its capital structure. See "Description of the STRYPES-Dilution
Adjustments." Such number of shares of CIBER Common Stock (or cash amount) to be
received by such holders on the Maturity Date will not be adjusted for other
events not specifically provided, such as offerings of CIBER Common Stock by
CIBER for cash or in connection with acquisitions. Likewise, no adjustments will
be made for any sales of CIBER Common Stock by any principal stockholder of
CIBER (including the Contracting Stockholder). At December 31, 1997, the
Contracting Stockholder owned beneficially approximately 27% of the outstanding
CIBER Common Stock. CIBER is not restricted from issuing additional shares of
CIBER Common Stock during the term of the STRYPES and, because the Contracting
Stockholder is able to exercise significant influence on the business and
affairs of CIBER, any such decision to issue additional shares of CIBER Common
Stock will be influenced by the Contracting Stockholder. In addition, the
principal stockholders of CIBER (including the Contracting Stockholder) are not
precluded from selling shares of CIBER Common Stock, either pursuant to Rule 144
under the Securities Act of 1933, as amended (the "Act"), or by causing CIBER to
register such shares. Neither CIBER nor any stockholder of CIBER (including the
Contracting Stockholder) has any duty or obligation to consider the interests of
the holders of the STRYPES for any reason.
4
<PAGE>
Additional issuances or sales may materially and adversely affect the price of
the CIBER Common Stock and, because of the relationship of the number of shares
of CIBER Common Stock (or cash amount) to be received upon payment and discharge
of the STRYPES on the Maturity Date to the price of the CIBER Common Stock, such
other events may adversely affect the trading price and ultimate value of the
STRYPES. There can be no assurances that CIBER will not take any of the
foregoing actions, or that it will not make offerings of, or that principal
stockholders (including the Contracting Stockholder) will not sell any, CIBER
Common Stock in the future, or as to the amount of any such offerings or sales.
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 tax 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,
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 (as defined herein) will require that any holder subject to United
States Federal income tax include currently in income, for United States 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 CIBER Common Stock which the Company is obligated to deliver at that time
(subject to the Company's right to deliver cash in lieu of CIBER 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 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 assign $56.78 (i.e., 104.91%) of the initial purchase
price of a STRYPES (i.e., the issue price of a STRYPES) to the Debt Instrument
and to assign $2.655 (i.e., 4.91%) of the initial purchase price of a STRYPES to
the Forward Contract. 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 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.
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 securities exchanges and other regulatory bodies.
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the
STRYPES should reach an investment decision only after carefully considering the
suitability of the STRYPES in the light of each investor's particular
circumstances.
5
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, advisory, 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; an
underwriter of selected insurance products; and a distributor od investment
products of the Merrill Lynch Asset Management group. 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. The
Company's asset management and investment management activities are conducted
through the Merrill Lynch Asset Management group and Merrill Lynch Mercury Asset
Management, which together constitute one of the largest asset management
organizations in the world. Merrill Lynch Government Securities Inc. is a
primary dealer in obligations issued or guaranteed by the U.S. Government and
its agencies and its government-sponsored agencies. Merrill Lynch Capital
Services, Inc., Merrill Lynch Derivative Products AG, and Merrill Lynch
International are the Company's primary derivative product dealers and enter
into interest rate, currency, and other over-the-counter derivative transactions
as intermediaries and as principals. The Company's operations in insurance
services consist of the underwriting and sale 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 and purchasing secured loans, providing
currency exchange facilities and other related services, and furnishing trust,
employee benefit, and custodial 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
The following table sets forth the historical ratios for earnings to fixed
charges of the Company for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED LAST FRIDAY IN DECEMBER MARCH 27,
1993 1994 1995 1996 1997 1998
------- ------ ------- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges....... 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
6
<PAGE>
CIBER, INC.
CIBER is a nationwide provider of information technology consulting,
including application software staff supplementation, management consulting
solutions for "business/IT" problems, package software implementation services,
system life-cycle project responsibility, millennium date change conversion
services and networking procurement and engineering services. CIBER's revenues
are generated from two areas, the CIBER Information Services ("CIS") Division
and CIBER's Solutions Consulting Group ("CIBER Solutions"). The CIS Division
provides application software development and maintenance services and, through
its CIBR2000 Division, millennium date change solutions. CIBER Solutions
provides services through CIBER's wholly-owned subsidiaries Spectrum Technology
Group, Inc. ("Spectrum"), Business Information Technology, Inc. ("BIT") and
CIBER Network Services, Inc. ("CNSI"). Spectrum provides information technology
consulting solutions to business problems, specifically in the areas of data
warehousing, data modeling and enterprise architecture, as well as project
management and system integration services. BIT specializes in the
implementation and integration of human resource and financial software
application products, plus workflow automation and manufacturing/distribution
software systems, primarily for client/server networks. A substantial portion of
BIT's revenues is derived from assisting clients implementing PeopleSoft, Inc.
software. CNSI provides a wide range of local-area and wide-area network
solutions, from design and procurement to installation and maintenance, with
services including Internet and intranet connectivity.
CIBER is subject to the informational requirements of the Exchange Act.
Accordingly, CIBER 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. Reports,
proxy and information statements and other information concerning CIBER may also
be inspected at the offices of the NYSE. The Commission maintains a Web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including CIBER, that file
electronically with the Commission.
THE COMPANY IS NOT AFFILIATED WITH CIBER, AND CIBER HAS NO OBLIGATIONS WITH
RESPECT TO THE STRYPES. THIS PROSPECTUS RELATES ONLY TO THE STRYPES OFFERED
HEREBY AND DOES NOT RELATE TO THE CIBER COMMON STOCK. CIBER HAS FILED A
REGISTRATION STATEMENT ON FORM S-3 WITH THE COMMISSION WITH RESPECT TO THE
SHARES OF CIBER COMMON STOCK THAT MAY BE RECEIVED BY A HOLDER OF STRYPES ON THE
MATURITY DATE. THE PROSPECTUS OF CIBER (THE "CIBER PROSPECTUS") CONSTITUTING A
PART OF SUCH REGISTRATION STATEMENT INCLUDES INFORMATION RELATING TO CIBER AND
THE CIBER COMMON STOCK, AS WELL AS A DISCUSSION OF CERTAIN RISK FACTORS RELEVANT
TO AN INVESTMENT IN CIBER COMMON STOCK. THE CIBER PROSPECTUS DOES NOT CONSTITUTE
A PART OF THIS PROSPECTUS NOR IS IT INCORPORATED BY REFERENCE HEREIN.
7
<PAGE>
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 January 30, 1998 (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, 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 an Issue Price of $54.125, bears interest
at the rate of 7 7/8% of the issue price per annum (or $4.2623 per annum) from
January 30, 1998, 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 1, May 1, August 1 and November 1, beginning May 1, 1998, 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 February 1, 2001. 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 CIBER Common Stock (subject to the Company's right to
deliver, with respect to all, but not less than all, shares of CIBER Common
Stock deliverable on the Maturity Date, cash with an equal value) determined in
accordance with the following Payment Rate Formula, subject to adjustment as a
result of certain dilution events: (a) if the Maturity Price (as defined below)
is greater than or equal to the Threshold Appreciation Price, 0.7692 shares of
CIBER Common Stock per STRYPES, (b) if the Maturity Price is less than the
Threshold Appreciation Price but is greater than the Initial Appreciation Cap, a
fractional share of CIBER Common Stock per STRYPES so that the value thereof
(determined based on the Maturity Price) equals the Initial Appreciation Cap,
(c) if the Maturity Price is less than or equal to the Initial Appreciation Cap
but is greater than or equal to the Initial Price, one share of CIBER Common
Stock per STRYPES, (d) if the Maturity Price is less than the Initial Price but
is greater than or equal to the Downside Protection Threshold Price, a number of
shares of CIBER Common Stock per STRYPES so that the value thereof (determined
based on the Maturity Price) equals the Initial Price and (e) if the Maturity
Price is less than the Downside Protection Threshold Price, 1.0526 shares of
CIBER Common Stock per STRYPES. THE MATURITY PRICE WILL REPRESENT A
DETERMINATION OF THE VALUE OF A SHARE OF CIBER COMMON STOCK IMMEDIATELY PRIOR TO
THE MATURITY DATE. 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 CIBER COMMON STOCK IS
LESS THAN THE DOWNSIDE PROTECTION THRESHOLD 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. The numbers of shares of
CIBER Common Stock per STRYPES specified in clauses (a), (c) and (e) of the
Payment Rate Formula are hereinafter referred to as the "Share Components."
Notwithstanding the foregoing, the Company may, in lieu of delivering
shares of CIBER Common Stock, deliver cash in an amount equal to the value of
such number of shares of CIBER Common Stock at the Maturity Price, subject to
the Company's agreement contained in the Forward Purchase Contract to deliver on
the Maturity Date the form of consideration that the ML&Co. Subsidiary receives
from the Contracting Stockholder. Such right, if exercised by the Company, must
be exercised with respect to all shares of CIBER 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 Securities Depository and the Trustee and publish a notice in
8
<PAGE>
The Wall Street Journal or another daily newspaper of national circulation
stating whether the STRYPES will be paid and discharged with shares of CIBER
Common Stock or cash. At the time such notice is published, the Maturity Price
will not have been determined. If the Company delivers shares of CIBER Common
Stock, holders of the STRYPES will be responsible for the payment of any and all
brokerage costs upon the subsequent sale of such stock.
The "Maturity Price" means the average Closing Price per share of CIBER
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 Formula is adjusted as described under "-Dilution Adjustments" below, each
of the Closing Prices used in determining the Maturity Price will be similarly
adjusted to derive, for purposes of determining which clause of the Payment Rate
Formula will apply on the Maturity Date, a Maturity Price stated on a basis
comparable to the Downside Protection Threshold Price, the Initial Price, the
Initial Appreciation Cap and the Threshold Appreciation Price. A "Trading Day"
means 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. The term "Business Day" means any day that is not a
Saturday, a Sunday or a day on which the NYSE or banking institutions or trust
companies in The City of New York are authorized or obligated by law or
executive order to close.
HYPOTHETICAL PAYMENTS AT MATURITY
For illustrative purposes only, the following table shows the number of
shares of CIBER Common Stock or the amount of cash that a holder of STRYPES
would receive for each STRYPES at various hypothetical Maturity Prices. The
table assumes that there will be no dilution adjustments to the Payment Rate
Formula as described below. Given the Downside Protection Threshold Price of
$51.42, the Initial Price of $54.13, the Initial Appreciation Cap of $70.36 and
the Threshold Appreciation Price of $91.47, a STRYPES holder would receive on
the Maturity Date the following number of shares of CIBER Common Stock or amount
of cash (if the Company elects to pay and discharge the STRYPES with cash) per
STRYPES:
9
<PAGE>
<TABLE>
<CAPTION>
MATURITY PRICE NUMBER OF
OF CIBER SHARES OF CIBER
COMMON STOCK COMMON STOCK AMOUNT OF CASH/*/
-------------- --------------- ---------------
<S> <C> <C>
$45.13 1.0526 $47.50
49.13 1.0526 51.71
51.42 1.0526 54.13
52.13 1.0384 54.13
54.13 1.0000 54.13
59.13 1.0000 59.13
64.13 1.0000 64.13
70.36 1.0000 70.36
74.13 0.9492 70.36
79.13 0.8893 70.36
84.13 0.8364 70.36
91.47 0.7692 70.36
94.13 0.7692 72.40
99.13 0.7692 76.25
</TABLE>
___________
* The preceding table does not take into account interest payable on the
STRYPES. Dollar amounts in the table have been rounded to two decimal
places and share amounts have been rounded to four decimal places.
DILUTION ADJUSTMENTS
The Payment Rate Formula is subject to adjustment if CIBER shall: (i) pay a
stock dividend or make a distribution with respect to CIBER Common Stock in
shares of such stock; (ii) subdivide or split the outstanding shares of CIBER
Common Stock into a greater number of shares; (iii) combine the outstanding
shares of CIBER Common Stock into a smaller number of shares; (iv) issue by
reclassification of shares of CIBER Common Stock any shares of common stock of
CIBER; (v) issue rights or warrants to all holders of CIBER Common Stock
entitling them to subscribe for or purchase shares of CIBER Common Stock at a
price per share less than the then current market price of the CIBER Common
Stock (other than rights to purchase CIBER 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 CIBER 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 Dividend (as defined below)) or issue to all holders of CIBER
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, the number of shares of CIBER Common Stock (or, in the case of a
reclassification referred to in clause (iv) above, the number of shares of other
common stock of CIBER issued pursuant thereto) which such holder would have
owned or been entitled to receive immediately following any such event had such
STRYPES been paid and discharged immediately prior to such event or any record
date with respect thereto.
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, the numerator
of which shall be the number of shares of CIBER 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 CIBER Common Stock offered for
subscription or purchase pursuant to such rights or warrants, and the
denominator of which shall be the number of shares of CIBER 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 CIBER Common
Stock which the aggregate offering price of the total number of shares of CIBER
Common Stock so offered for subscription or purchase pursuant to such rights or
warrants would purchase at the current market price (determined as the average
Closing Price per share of CIBER Common Stock on the 20 Trading Days immediately
prior to the date such rights or warrants are issued, subject to
10
<PAGE>
certain adjustments), 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 current market price. To the extent that shares of
CIBER 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 CIBER 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 referred to below by a
fraction, the numerator of which shall be the market price per share of the
CIBER Common Stock on the record date for the determination of stockholders
entitled to receive the dividend or distribution or the rights or warrants
referred to in clause (vi) above (such market price being determined as the
average Closing Price per share of CIBER Common Stock on the 20 Trading Days
immediately prior to such record date, subject to certain adjustments), and the
denominator of which shall be such market price per share of CIBER 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 to be distributed or of such subscription
rights or warrants applicable to one share of CIBER Common Stock.
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 the CIBER Common Stock occurring in such 12-month period (excluding
any such dividends occurring in such period for which a prior adjustment to the
Payment Rate Formula was previously made) exceeds on a per share basis 10% of
the average of the Closing Prices per share of the CIBER Common Stock over such
12-month period. All adjustments to the Payment Rate Formula will be calculated
to the nearest 1/10,000th of a share of CIBER 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 clause 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, the
numerator of which shall be the Share Component in clause (c) of the Payment
Rate Formula immediately after such adjustment described above, and the
denominator of which 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 CIBER, or any surviving
entity or subsequent surviving entity of CIBER (a "CIBER Successor"), with or
into another entity (other than a consolidation or merger in which CIBER is the
continuing corporation and in which the CIBER Common Stock outstanding
immediately prior to the consolidation or merger is not exchanged for cash,
securities or other property of CIBER or another corporation), (B) any sale,
transfer, lease or conveyance to another entity of the property of CIBER or any
CIBER Successor as an entirety or substantially as an entirety, (C) any
statutory exchange of securities of CIBER or any CIBER Successor with another
entity (other than in connection with a merger or acquisition) or (D) any
liquidation, dissolution, winding up or bankruptcy of CIBER or any CIBER
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, 0.7692 (subject to adjustment
in the same manner and to the same extent as the Share Components in the Payment
Rate Formula are adjusted as described above) multiplied by the Transaction
Value, (b) if the Transaction Value is less than the Threshold Appreciation
Price but greater than the Initial Appreciation Cap, the Initial Appreciation
Cap, (c) if the Transaction Value is less than or equal to the Initial
Appreciation Cap but is greater than or equal to the Initial Price, the
Transaction Value, (d) if the Transaction Value is less than the Initial Price
but is greater than or equal to the Downside Protection Threshold Price, the
Initial Price and (e) if the Maturity Price is less than the Downside Protection
Threshold Price, 1.0526 (subject to adjustment in the same manner and to the
same extent as the Share Components in the Payment Rate Formula are adjusted as
described above) multiplied by the Transaction Value. "Transaction Value" means
(i) for any cash received in any
11
<PAGE>
such Reorganization Event, the amount of cash received per share of CIBER 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 third Business
Day preceding the Maturity Date of such property received per share of CIBER
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, but not including, the second Trading Day preceding the
Maturity Date multiplied by the number of such securities (subject to adjustment
on a basis consistent with the adjustment provisions described above) received
for each share of CIBER Common Stock; provided, however, if one or more
adjustments to the Payment Rate Formula shall have become effective prior to the
effective date for such Reorganization Event, then the Transaction Value
determined in accordance with the foregoing shall be adjusted by multiplying
such Transaction Value by the Share Component in clause (c) of the Payment Rate
Formula immediately before the effective date for such Reorganization Event.
Notwithstanding the foregoing, if any Marketable Securities (as defined below)
are received by holders of CIBER Common Stock in such Reorganization Event, then
in lieu of delivering cash as provided above, the Company may at its option
deliver a proportional amount of such Marketable Securities. If the Company
elects to deliver Marketable Securities, holders of the STRYPES will be
responsible for the payment of any and all brokerage and other transactional
costs upon the sale of such securities. "Marketable Securities" means any
securities listed on a U.S. national securities exchange or reported by NASDAQ.
No adjustments will be made for certain other events, such as offerings of
CIBER Common Stock by CIBER for cash or in connection with acquisitions.
Likewise, no adjustments will be made for any sales of CIBER Common Stock by any
principal stockholder of CIBER (including the Contracting Stockholder).
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.
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 STYPES 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
NYSE, 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
12
<PAGE>
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 interests 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 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 interest. 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 such 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.
13
<PAGE>
FRACTIONAL SHARES
No fractional shares of CIBER Common Stock will be delivered if the Company
pays and discharges the STRYPES by delivering shares of CIBER 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.
NO REDEMPTION, SINKING FUND OR PAYMENT PRIOR TO MATURITY
The STRYPES are not subject to redemption prior to the Maturity Date at the
option of the Company 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.
LISTING
The STRYPES are listed on the NYSE under the trading symbol "BOB".
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 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.
LIMITATION UPON LIENS
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 ore 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
14
<PAGE>
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.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company and
the Trustee with the consent of the Holders of at least 66 2/3% of the aggregate
issue price of the Outstanding STRYPES of each series issued pursuant to the
Indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding STRYPES affected
thereby, (a) change the Stated Maturity of, or 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, or
cash and Underlying Securities, 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 any payment of interest or
Additional Amounts on, or any 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 aggregate issue price of
Outstanding STRYPES of such series, the consent of whose Holders is required to
modify or amend such Indenture; (g) reduce the percentage of 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.
EVENTS OF DEFAULT
Each of the following will constitute an Event of Default under the Indenture
with respect to the STRYPES: (a) the failure to pay and discharge the STRYPES
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 when due;
(c) failure to deposit any sinking fund payment, when and as due by the terms of
any STRYPES; (d) the 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 the STRYPES, 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 the STRYPES.
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 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 aggregate issue price of all the
STRYPES 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 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 judgement or
decree based on acceleration, the holder of a majority of the aggregate issue
price of the Outstanding STRYPES may, under certain circumstances, rescind and
annual 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.
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
15
<PAGE>
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 holder 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.
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.
CERTAIN ARRANGEMENTS WITH THE CONTRACTING STOCKHOLDER
Pursuant to the Forward Purchase Contract, the Contracting Stockholder is
obligated to deliver to the ML&Co. Subsidiary on the Business Day immediately
preceding the Maturity Date a number of shares of CIBER Common Stock equal to
the number 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 shares of CIBER Common
Stock on the Business Day immediately preceding the Maturity Date, the
Contracting Stockholder has the right to satisfy his obligation under the
Forward Purchase Contract by delivering at such time cash in an amount equal to
the value of such number of shares of CIBER Common Stock at the Maturity Price.
Such right, if exercised by the Contracting Stockholder, must be exercised with
respect to all shares of CIBER Common Stock then deliverable pursuant to the
Forward Purchase Contract. Under the Forward 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 the ML&Co. Subsidiary receives
from the Contracting Stockholder.
The consideration to be paid by the ML&Co. Subsidiary under the Forward
Purchase Contract is $71,315,820 in the aggregate which was paid to the
Contracting Stockholder on January 30, 1998. No other consideration is payable
by the ML&Co. Subsidiary to the Contracting Stockholder in connection with its
acquisition of the CIBER Common Stock or the performance of the Forward Purchase
Contract by the Contracting Stockholder. The Company has agreed with the
Contracting Stockholder that, without the prior consent of the Contracting
Stockholder, it will not amend, modify or supplement the Indenture or the
STRYPES in any respect that would adversely affect any obligation of the
Contracting Stockholder under the Forward Purchase Contract, including, without
limitation, increasing the consideration that the Contracting Stockholder is
obligated to deliver pursuant to the Forward Purchase Contract.
Until such time, if any, as the Contracting Stockholder shall have
delivered shares of CIBER Common Stock to the ML&Co. Subsidiary pursuant to the
terms of the Forward Purchase Contract, the Contracting Stockholder will retain
all ownership rights with respect to the CIBER Common Stock held by him
(including, without limitation, voting rights and rights to receive any
dividends or other distributions in respect thereof).
The Contracting Stockholder has no duties or obligations with respect to
the STRYPES or amounts to be paid to holders thereof, including any duty or
obligation to take the needs of the Company or holders of the STRYPES into
consideration in determining whether to deliver shares of CIBER Common Stock or
cash or for any other reason. The Forward Purchase Contract among the Company,
the ML&Co. Subsidiary, The Bank of New York, as agent for and on behalf of the
ML&Co. Subsidiary, and the Contracting Stockholder is a commercial transaction
and does not create any rights in, or for the benefit of, any third party,
including any holder of STRYPES.
To the extent that the Contracting Stockholder does not perform under the
Forward Purchase Contract, the Company will be required to otherwise acquire
shares of CIBER Common Stock for delivery to holders of the STRYPES on the
Maturity Date, unless, in the case of shares deliverable on the Maturity Date,
it elects to exercise its option to deliver cash with an equal value.
16
<PAGE>
Merrill Lynch Capital Corporation, a wholly owned subsidiary of the
Company, has entered into a secured loan agreement with Bobby G. Stevenson, as
trustee of the 1998 Bobby G. Stevenson Revocable Trust, pursuant to which Mr.
Stevenson, as trustee of the 1998 Bobby G. Stevenson Revocable Trust, will
borrow approximately $20,567,930 for a term of three years.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997
included in the 1997 Annual Report on Form 10-K, and incorporated by reference
herein, has been derived from consolidated financial statements audited by
Deloitte & Touche LLP, as set forth in their reports included or incorporated by
reference herein. Such consolidated financial statements and related financial
statement schedules, and such 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 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 such Quarterly Reports 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 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.
17
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUE DATE JULY 28 , 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
ORACLE CORPORATION INDEXED
CALLABLE PROTECTED GROWTH(SM)SECURITIES
("PROGROS(SM) SECURITIES")
DUE MARCH 31, 2003
($10 PRINCIPAL AMOUNT PER UNIT)
On March 19, 1998, Merrill Lynch & Co., Inc. (the "Company") issued
$31,000,000 aggregate principal amount (3,100,000 Units) of Oracle Corporation
Indexed Callable Protected Growth Securities due March 31, 2003 (the "ProGroS
Securities"). Each $10 principal amount of the ProGroS Securities will be
deemed a "unit" for purposes of trading and transfer at DTC described below.
Units will be transferable by DTC, as more fully described below, in
denominations of whole Units.
GENERAL: . Senior unsecured debt securities
. Callable prior to the stated maturity date of March
31, 2003 by Merrill Lynch & Co., Inc., the issuer,
as provided herein
. No payments prior to the stated maturity date unless
called
. Transferable only in whole units
PAYMENT AT MATURITY: Principal Amount + Supplemental Redemption Amount
The Supplemental Redemption Amount will be based on the
percentage increase, if any, in the price of a share of
common stock of Oracle Corporation above the Starting
Value of $29.1875. The Supplemental Redemption Amount
may be ZERO, but will not be less than zero.
CALL FEATURE: The issuer may call all of the ProGroS Securities
offered hereby prior to the stated maturity date. In
the event that the issuer elects to call your ProGroS
Securities, you will receive only the relevant Call
Price and you will not receive a Supplemental
Redemption Amount based on the price of the common
stock of Oracle Corporation.
BEFORE YOU DECIDE TO INVEST IN THE PROGROS SECURITIES, CAREFULLY READ THIS
PROSPECTUS, ESPECIALLY THE RISK FACTORS BEGINNING ON PAGE 4.
Neither the SEC nor any state securities commission has approved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
________________
This Prospectus has been prepared in connection with ProGroS Securities 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 ProGroS
Securities. MLPF&S may act as principal or agent in such transactions. The
ProGroS Securities may be offered on the AMEX, 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 ProGroS
Securities 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.
________________
MERRILL LYNCH & CO.
________________
The date of this Prospectus is July , 1998.
_________________
(SM)"Protected Growth" and "ProGroS" are service marks of Merrill Lynch & Co.,
Inc.
<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 NYSE, the AMEX, the Chicago Stock Exchange and the Pacific
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 26,
1997, Quarterly Report on Form 10-Q for the period ended March 27, 1998, and
Current Reports on Form 8-K dated January 20, 1998, January 30, 1998, February
4, 1998, February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998,
April 29, 1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June
24, 1998, June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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 ProGroS Securities, or subsequent to the date of the initial
Registration Statement and prior to the effectiveness of the Registration
Statement, 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 LAWRENCE M. EGAN, JR., CORPORATE
SECRETARY'S OFFICE, 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 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.
2
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its
subsidiaries and affiliates, provides investment, financing, advisory,
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; an underwriter of selected insurance products; and a distributor od
investment products of the Merrill Lynch Asset Management group. 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. The Company's asset management and investment management activities are
conducted through the Merrill Lynch Asset Management group and Merrill Lynch
Mercury Asset Management, which together constitute one of the largest asset
management organizations in the world. Merrill Lynch Government Securities Inc.
is a primary dealer in obligations issued or guaranteed by the U.S. Government
and its agencies and its government-sponsored agencies. Merrill Lynch Capital
Services, Inc., Merrill Lynch Derivative Products AG, and Merrill Lynch
International are the Company's primary derivative product dealers and enter
into interest rate, currency, and other over-the-counter derivative transactions
as intermediaries and as principals. The Company's operations in insurance
services consist of the underwriting and sale 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 and purchasing secured loans, providing
currency exchange facilities and other related services, and furnishing trust,
employee benefit, and custodial 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
The following table sets forth the historical ratios for earnings to fixed
charges of the Company for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED LAST FRIDAY IN DECEMBER MARCH 27,
1993 1994 1995 1996 1997 1998
----- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges................... 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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
<PAGE>
RISK FACTORS
Your investment in the ProGroS Securities will involve certain risks. For
example, there is the risk that you might not earn a return on your investment,
the risk that you will be unable to sell your ProGroS Securities prior to the
stated maturity date, and the risk that the Company may call the ProGroS
Securities prior to the stated maturity date at a Call Price that may be less
than the sum of the Principal Amount and the Supplemental Redemption Amount that
would have been paid to you at the stated maturity date. You should carefully
consider the following discussion of risks before deciding whether an investment
in the ProGroS Securities is suitable for you.
THE PROGROS SECURITIES ARE SUBJECT TO EARLY CALL
We may elect to call all of the ProGroS Securities by giving notice on any
Business Day during April in 1999, 2000, 2001 or 2002. We are likely to call the
ProGroS Securities during a Call Period when the secondary market price of the
ProGroS Securities is approximately equal to the applicable Call Price. We can,
however, call the ProGroS Securities during the Call Periods at our option
regardless of the secondary market price of the ProGroS Securities. In the event
that we elect to call the ProGroS Securities, you will receive only the relevant
Call Price and no Supplemental Redemption Amount based on the price of the
Underlying Stock.
THE SUPPLEMENTAL REDEMPTION AMOUNT
You should be aware that if the Ending Value does not exceed the Starting
Value at the stated maturity, the Supplemental Redemption Amount will be zero.
This will be true even if the value of the Underlying Stock, at some time during
the life of the ProGroS Securities, was higher than the Starting Value but later
falls below the Starting Value. If the Supplemental Redemption Amount is zero,
we will pay you only the Principal Amount of your ProGroS Securities.
You should compare the features of the ProGroS Securities to other
available investments before deciding to purchase the ProGroS Securities. Due to
the uncertainty as to whether the ProGroS Securities will earn a Supplemental
Redemption Amount or be called prior to the stated maturity date, the returns
which may be received with respect to the ProGroS Securities may be higher or
lower than the returns available on other investments. It is suggested that you
reach an investment decision only after carefully considering the suitability of
the ProGroS Securities in light of your particular circumstances.
YOUR YIELD MAY BE LOWER THAN THE YIELD ON A STANDARD DEBT SECURITY OF COMPARABLE
MATURITY
The amount we pay you at maturity may be less than the return you could
earn on other investments. Your yield may be less than the yield you would earn
if you bought a standard senior non-callable debt security of the Company with
the same stated maturity date. Your investment may not reflect the full
opportunity cost to you when you consider the effect of factors that affect the
time value of money.
YOUR RETURN WILL NOT REFLECT THE PAYMENT OF DIVIDENDS
The calculation of the Starting Value and Ending Value does not take into
consideration the value of dividends paid on the Underlying Stock, if any.
Therefore, the return you earn on the ProGroS Securities, if any, will not be
the same as the return that you would earn if you actually owned the Underlying
Stock and received any dividends paid on that stock.
UNCERTAIN TRADING MARKET
The ProGroS Securities are listed on the AMEX under the symbol "OPG". There
is no precedent to indicate how the ProGroS Securities will trade in the
secondary market. You cannot assume that a trading market will develop for the
ProGroS Securities. If such a trading market does develop, there can be no
assurance that there will be liquidity in the trading market. The development of
a trading market for the ProGroS Securities will depend on the financial
performance of the Company, and other factors such as the appreciation, if any,
of the price of the Underlying Stock.
4
<PAGE>
If the trading market for the ProGroS Securities is limited, there may be a
limited number of buyers if you decide to sell your ProGroS Securities. This may
affect the price you receive. Furthermore, it is unlikely that the secondary
market price of the ProGroS Securities will correlate exactly with the market
price of the Underlying Stock, particularly during the earlier years of the
ProGroS Securities.
FACTORS AFFECTING TRADING VALUE OF THE PROGROS SECURITIES
Our ability to call the ProGroS Securities prior to the stated maturity
date of the ProGroS Securities is likely to limit the secondary market price at
which the ProGroS Securities will trade. In particular, we expect that the
secondary market price of the ProGroS Securities generally will not exceed the
applicable Call Price because of our ability to call the ProGroS Securities and
pay only such Call Price. We believe that if we did not have the right to call
the ProGroS Securities, the secondary market price of the ProGroS Securities
would likely be significantly different.
We believe that the market value of the ProGroS Securities will be affected
by the price of the Underlying Stock and by a number of other factors in
addition to our ability to call the ProGroS Securities prior to the stated
maturity date. Some of these factors are interrelated in complex ways; as a
result, the effect of any one factor may be offset or magnified by the effect of
another factor. The following paragraphs describe the expected impact on the
market value of the ProGroS Securities given a change in a specific factor,
assuming all other conditions remain constant.
. UNDERLYING STOCK VALUE. We expect that the market value of the ProGroS
Securities will depend on the amount by which the price of the
Underlying Stock exceeds the Starting Value. If you choose to sell
your ProGroS Securities when the price of the Underlying Stock exceeds
the Starting Value, you may receive substantially less than the amount
that would be payable at the stated maturity date based on that
Underlying Stock price because of the expectation that the price of
the Underlying Stock will continue to fluctuate until the Ending Value
is determined. If you choose to sell your ProGroS Securities when the
price of the Underlying Stock is below the Starting Value, you may
receive less than the $10 Principal Amount per Unit of ProGroS
Securities. The Underlying Stock has not paid dividends prior to the
date of this Prospectus. As a general matter, if dividends are ever
paid on the Underlying Stock, a rising dividend rate (i.e., dividends
per share) on the Underlying Stock may increase the price of the
Underlying Stock while a falling dividend rate may decrease the price
of the Underlying Stock. Political, economic and other developments
may also affect the price of the Underlying Stock and the value of the
ProGroS Securities.
. INTEREST RATES. We expect that the trading value of the ProGroS
Securities will be affected by changes in interest rates. As a general
matter during the earlier years of the ProGroS Securities, if U.S.
interest rates increase, we expect that the trading value of the
ProGroS Securities will decrease and if U.S. interest rates decrease,
we expect the trading value of the ProGroS Securities will increase.
However, interest rates may also affect the economy and, in turn, the
price of the Underlying Stock. Rising interest rates may lower the
price of the Underlying Stock and the ProGroS Securities. Falling
interest rates may increase the value of the Underlying Stock and the
value of the ProGroS Securities.
. VOLATILITY OF THE UNDERLYING STOCK. Volatility is the term used to
describe the size and frequency of market fluctuations. If the
volatility of the Underlying Stock increases, we expect that the
trading value of the ProGroS Securities will increase. If the
volatility of the Underlying Stock decreases, we expect that the
trading value of the ProGroS Securities will decrease.
. TIME REMAINING TO STATED MATURITY DATE. The ProGroS Securities may
trade at a value above that which would be expected based on the level
of interest rates and the price of the Underlying Stock. This
difference will reflect a "time premium" due to expectations
concerning the price of the Underlying Stock during the period prior
to the stated maturity date of the ProGroS Securities. However, as the
time remaining to the stated maturity date of the ProGroS Securities
decreases, we expect that this time premium will decrease, potentially
lowering the trading value of the ProGroS Securities.
. DIVIDEND YIELD. If dividends are ever paid on the Underlying Stock,
the dividend yield that would result would likely affect the value of
the ProGroS Securities. If the dividend yield on the Underlying Stock
were to increase, we expect that the value of the ProGroS Securities
would decrease. Conversely, if the
5
<PAGE>
dividend yield on the Underlying Stock were to decrease, we expect
that the value of the ProGroS Securities would increase.
. COMPANY CREDIT RATINGS. Real or anticipated changes in the Company's
credit ratings may affect the market value of the ProGroS Securities.
It is important for you to understand that the impact of one of the factors
specified above, such as an increase in interest rates, may offset some or all
of any increase in the trading value of the ProGroS Securities attributable to
another factor, such as an increase in the Underlying Stock price.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the ProGroS Securities of a given change in
most of the factors listed above will be less if it occurs later in the term of
the ProGroS Securities than if it occurs earlier in the term of the ProGroS
Securities except that we expect that the effect on the trading value of the
ProGroS Securities of a given increase in the value of the Underlying Stock will
be greater if it occurs later in the term of the ProGroS Securities than if it
occurs earlier in the term of the ProGroS Securities.
NO STOCKHOLDER'S RIGHTS
Beneficial owners of the ProGroS Securities are not entitled to any rights
with respect to the Underlying Stock (including, without limitation, voting
rights and rights to receive any dividends or other distributions in respect
thereof).
NO AFFILIATION BETWEEN THE COMPANY AND ORACLE CORPORATION
The Company has no affiliation with Oracle Corporation, and Oracle
Corporation has no obligations with respect to the ProGroS Securities or amounts
to be paid to beneficial owners thereof, including any obligation to take the
needs of the Company or of beneficial owners of the ProGroS Securities into
consideration for any reason. Oracle Corporation did not receive any of the
proceeds of the initial offering of the ProGroS Securities and is not
responsible for, and has not participated in, the determination or calculation
of the amount receivable by beneficial owners of the ProGroS Securities on the
stated maturity date or upon an earlier call. In addition, Oracle Corporation is
not involved with the administration or trading of the ProGroS Securities.
STATE LAW LIMITS ON INTEREST PAID
New York State law governs the Senior Indenture, as hereinafter defined.
New York has certain usury laws that limit the amount of interest that can be
charged and paid on loans, which includes debt securities like the ProGroS
Securities. Under present New York law, the maximum rate of interest is 25% per
annum on a simple interest basis. This limit may not apply to debt securities in
which $2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state or
Federal court sitting outside of New York, many other states also have laws that
regulate the amount of interest that may be charged to and paid by a borrower.
We will promise, for the benefit of the ProGroS Securities holders, to the
extent permitted by law, not to voluntarily claim the benefits of any laws
concerning usurious rates of interest.
PURCHASES AND SALES BY MLPF&S
The Company, MLPF&S and other affiliates of the Company may from time to
time buy or sell the Underlying Stock for their own accounts for business
reasons or in connection with hedging the Company's obligations under the
ProGroS Securities. These transactions could affect the price of the Underlying
Stock.
POTENTIAL CONFLICTS
The Calculation Agent is a subsidiary of the Company, the issuer of the
ProGroS Securities. Under certain circumstances, MLPF&S's role as a subsidiary
of the Company and its responsibilities as Calculation Agent for the ProGroS
Securities could give rise to conflicts of interests. You should be aware that
because the Calculation Agent is controlled by the Company, potential conflicts
of interest could arise.
OTHER CONSIDERATIONS
6
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Investors should also consider the tax consequences of investing in the
ProGroS Securities and should consult their tax advisors.
DESCRIPTION OF PROGROS SECURITIES
GENERAL
The ProGroS Securities were issued as a series of Senior Debt Securities
under the Senior Indenture, which is more fully described herein. The ProGroS
Securities will mature on March 31, 2003 unless called earlier at the option of
the Company.
Unless called, at the stated maturity date of a ProGroS Security, a
beneficial owner will receive the Principal Amount of such ProGroS Security plus
the Supplemental Redemption Amount, if any. There will be no other payment of
interest, periodic or otherwise. See "Payment at Maturity" below.
The ProGroS Securities may be called by the Company as described below, but
are not subject to redemption at the option of any beneficial owner prior to the
stated maturity date. Upon the occurrence of an Event of Default with respect to
the ProGroS Securities, beneficial owners of the ProGroS Securities may
accelerate the maturity of the ProGroS Securities, as described under
"Description of ProGroS Securities--Events of Default and Acceleration" and
"Other Terms--General Events of Default" herein.
The ProGroS Securities were issued in denominations of whole Units.
PAYMENT AT MATURITY
General
At the stated maturity date, a beneficial owner of a ProGroS Security will
be entitled to receive the Principal Amount thereof plus a Supplemental
Redemption Amount, if any, all as provided below. If the Ending Value does not
exceed the Starting Value, a beneficial owner of a ProGroS Security will be
entitled to receive only the Principal Amount thereof.
Determination of the Supplemental Redemption Amount
The Supplemental Redemption Amount for a ProGroS Security will be
determined by the Calculation Agent and will equal:
<TABLE>
<S> <C>
Ending Value - Starting Value
Principal Amount of such ProGros Security ($10 per Unit) X -----------------------------
Starting Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The Starting Value equals $29.1875, which was the Last Price (defined
herein) of the Underlying Stock on the Pricing Date. The Ending Value will be
determined by the Calculation Agent and will equal the average (arithmetic mean)
of the Last Prices of the Underlying Stock determined on each of the first five
Calculation Days during the Calculation Period. If there are fewer than five
Calculation Days in the Calculation Period, then the Ending Value will equal the
average (arithmetic mean) of the Last Prices of the Underlying Stock on such
Calculation Days, and if there is only one Calculation Day, then the Ending
Value will equal the Last Price of the Underlying Stock on such Calculation Day.
If no Calculation Days occur during the Calculation Period, then the Ending
Value will equal the Last Price of the Underlying Stock determined on the last
scheduled Calculation Day in the Calculation Period, regardless of the
occurrence of a Market Disruption Event on such day.
The "Calculation Period" means the period from and including the seventh
scheduled Calculation Day prior to the stated maturity date to and including the
second scheduled Calculation Day prior to the stated maturity date.
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"Calculation Day" means any Trading Day during the Calculation Period on
which a Market Disruption Event has not occurred.
"Trading Day" is a day on which the Underlying Stock (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 a national or regional securities exchange or association or over-the-
counter market that is the primary market for the trading of the Underlying
Stock.
"Market Disruption Event" means the occurrence or existence on any Trading
Day during the one-half hour period that ends when the Last Price is determined
of any suspension of, or limitation imposed on, trading in the Underlying Stock
on the National Association of Securities Dealers, Inc. Automated Quotation
System (the "NASDAQ NMS") (or other market or exchange, if applicable).
"Last Price" means the last sales price of the Underlying Stock as reported
by the NASDAQ NMS or, if such security is not trading on the NASDAQ NMS 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, 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 Calculation Agent.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in The City of New York are
authorized or obligated by law to close and that is a trading day on the NYSE.
All determinations made by the Calculation Agent shall be at the sole
discretion of the Calculation Agent and, absent a determination by the
Calculation Agent of a manifest error, shall be conclusive for all purposes and
binding on the Company and beneficial owners of the ProGroS Securities.
EARLY CALL OF THE PROGROS SECURITIES AT THE OPTION OF THE COMPANY
Beginning April 1, 1999, the Company, in its sole discretion, may elect to
call the ProGroS Securities offered hereby, in whole but not in part, prior to
the stated maturity date by giving notice to the Trustee of the Company's
election on any Business Day within the month of April in 1999, 2000, 2001 or
2002, at the related Call Price:
<TABLE>
<CAPTION>
CALL PERIOD CALL PRICE
----------------- --------------------------
<S> <C>
April, 1999 116% of principal amount
April, 2000 132% of principal amount
April, 2001 148% of principal amount
April, 2002 164% of principal amount
</TABLE>
IF WE ELECT TO CALL YOUR PROGROS SECURITIES PRIOR TO THE STATED MATURITY
DATE, YOU WILL RECEIVE ONLY THE RELEVANT CALL PRICE AND YOU WILL NOT RECEIVE A
SUPPLEMENTAL REDEMPTION AMOUNT BASED ON THE PRICE OF THE UNDERLYING STOCK. If we
do not call the ProGroS Securities prior to the stated maturity date, the
Principal Amount plus the Supplemental Redemption Amount, if any, that you
receive at the stated maturity may be greater than or less than any of the Call
Prices. The Company may elect to call the ProGroS Securities on any Business Day
during a Call Period by giving notice to the Trustee and specifying the date on
which the Call Price shall be paid. The Call Date shall be no later than the
20th Business Day after such call election. The Trustee will provide notice of
such call election to the registered holders of the ProGroS Securities,
specifying the Call Date, no later than 15, nor more than 30, days prior to the
Call Date. While the ProGroS Securities are held at the Depositary, the
registered holder will be the Depositary, and the Depositary will receive the
notice of the call. As more fully described below under "Description of ProGroS
Securities--Depositary", the Depositary will forward such notice to its
participants which will pass such notice on to the beneficial owners.
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You should compare the features of the ProGroS Securities to other
available investments before deciding to purchase the ProGroS Securities. Due to
the uncertainty as to whether the ProGroS Securities will earn a Supplemental
Redemption Amount or be called prior to the stated maturity date, the return on
investment with respect to the ProGroS Securities may be higher or lower than
the return available on other securities issued by the Company or issued by
others and available through MLPF&S. It is suggested that you reach an
investment decision only after carefully considering the suitability of the
ProGroS Securities in light of your particular circumstances.
HYPOTHETICAL RETURNS
The following table illustrates, for a range of hypothetical Ending Values,
(i) the total amount payable at the stated maturity date for each $10 Principal
Amount of ProGroS Securities, (ii) the total rate of return to beneficial owners
of the ProGroS Securities and (iii) the pretax annualized rate of return to
beneficial owners of ProGroS Securities. THIS TABLE ASSUMES THAT THE PROGROS
SECURITIES ARE NOT CALLED PRIOR TO THE STATED MATURITY DATE.
<TABLE>
<CAPTION>
TOTAL AMOUNT PRETAX
PERCENTAGE CHANGE PAYABLE AT THE ANNUALIZED
HYPOTHETICAL OVER THE STATED MATURITY DATE TOTAL RATE RATE OF
ENDING VALUE STARTING VALUE PER UNIT OF RETURN RETURNS(1)
------------ ----------------- --------------------- ---------- -----------
<S> <C> <C> <C> <C>
11.68 -60% $10.00 0.00% 0.00%
14.60 -50% $10.00 0.00% 0.00%
17.51 -40% $10.00 0.00% 0.00%
20.43 -30% $10.00 0.00% 0.00%
23.35 -20% $10.00 0.00% 0.00%
26.27 -10% $10.00 0.00% 0.00%
29.19 0% $10.00 0.00% 0.00%
32.11 10% $11.00 10.00% 1.90%
35.03 20% $12.00 20.00% 3.65%
37.95 30% $13.00 30.00% 5.28%
40.87 40% $14.00 40.00% 6.79%
43.79 50% $15.00 50.00% 8.22%
46.70 60% $16.00 60.00% 9.55%
49.62 70% $17.00 70.00% 10.82%
52.54 80% $18.00 80.00% 12.02%
55.46 90% $19.00 90.00% 13.16%
58.38 100% $20.00 100.00% 14.25%
61.30 110% $21.00 110.00% 15.29%
64.22 120% $22.00 120.00% 16.29%
</TABLE>
___________
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) The Starting Value equals $29.1875.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the total and pretax
annualized rate of return resulting therefrom will depend entirely on the actual
Ending Value determined by the Calculation Agent as provided herein.
DILUTION ADJUSTMENTS
The Last Prices used to determine the Ending Value are subject to
adjustment if Oracle Corporation shall: (i) pay a stock dividend or make a
distribution with respect to the Underlying Stock in shares of such stock; (ii)
subdivide or split the outstanding shares of the Underlying Stock into a greater
number of shares; (iii) combine the outstanding shares of the Underlying Stock
into a smaller number of shares; (iv) issue by reclassification of shares of the
Underlying Stock any shares of common stock of Oracle Corporation; (v) issue
rights or warrants to all holders of the Underlying Stock entitling them to
subscribe for or purchase shares of the Underlying Stock at a price per share
less than the then current market price of the Underlying Stock (other than
rights to purchase the Underlying 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 the Underlying Stock of evidences of its indebtedness or other assets
(excluding any stock dividends or distributions
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referred to in clause (i) above or any cash dividends other than any
Extraordinary Cash Dividend (as defined below)) or issue to all holders of the
Underlying Stock rights or warrants to subscribe for or purchase any of its
securities (other than those referred to in clause (v) above) (any of the
foregoing are referred to as the "Distributed Assets"). The effect of the
foregoing is that there will not be any adjustments to the Ending Value for the
issuance by Oracle Corporation of options, warrants, stock purchase rights or
securities in connection with the employee benefit plans of Oracle Corporation.
All adjustments will be calculated to the nearest 1/10,000th of a share of
the Underlying 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 shall be required unless such
adjustment would require an increase or decrease of at least one percent in the
Last Price; 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.
An "Extraordinary Cash Dividend" means, with respect to any consecutive 12-
month period, all cash dividends on the Underlying Stock during such period to
the extent such dividends exceed on a per share basis 10% of the average Last
Price of the Underlying Stock over such period (less any such dividends for
which a prior adjustment was previously made).
In the event of (A) any consolidation or merger of Oracle Corporation, or
any surviving entity or subsequent surviving entity of Oracle Corporation (a
"Successor Company"), with or into another entity (other than a merger or
consolidation in which Oracle Corporation is the continuing corporation and in
which the Underlying Stock outstanding immediately prior to the merger or
consolidation is not exchanged for cash, securities or other property of Oracle
Corporation or another corporation), (B) any sale, transfer, lease or conveyance
to another corporation of the property of Oracle Corporation or any Successor
Company as an entirety or substantially as an entirety, (C) any statutory
exchange of securities of Oracle Corporation or any Successor Company with
another corporation (other than in connection with a merger or acquisition) or
(D) any liquidation, dissolution, winding up or bankruptcy of Oracle Corporation
or any Successor Company (any such event described in clause (A), (B), (C) or
(D), a "Reorganization Event"), the Ending Value shall equal the Reorganization
Event Value. The "Reorganization Event Value" shall be determined by the
Calculation Agent and shall equal (i) the Transaction Value related to the
relevant Reorganization Event, plus (ii) interest on such Transaction Value
accruing from the date of the payment or delivery of the consideration, if any,
received in connection with such Reorganization Event until the stated maturity
date at a fixed interest rate determined on the date of such payment or delivery
equal to the interest rate that would be paid on a standard senior non-callable
debt security of the Company with a term equal to the remaining term of the
ProGroS Securities. The "Transaction Value" means (i) for any cash received in
any such Reorganization Event, the amount of cash received per share of
Underlying Stock, (ii) for any property other than cash or securities received
in any such Reorganization Event, an amount equal to the market value of such
property received per share on the date that such property is received by
holders of the Underlying Stock as determined by the Calculation Agent, and
(iii) for any securities received in any such Reorganization Event, an amount
equal to the Last Price per unit of such securities on the date such securities
are received by holders of the Underlying Stock multiplied by the number of such
securities received for each share of Underlying Stock (subject to adjustment on
a basis consistent with the adjustment provisions described above).
The foregoing adjustments shall be made by MLPF&S, as Calculation Agent,
and all such adjustments shall be final.
No adjustments will be made for certain other events, such as offerings of
Underlying Stock by Oracle Corporation for cash or in connection with
acquisitions.
The Company will, within ten Business Days following the occurrence of an
event that requires an adjustment (or if the Company is not aware of such
occurrence, as soon as practicable after becoming so aware), provide written
notice to the Trustee, which shall provide notice to the holders of the ProGroS
Securities of the occurrence of such event and, if applicable, a statement in
reasonable detail setting forth the adjusted Last Price to be used in
determining the Ending Value.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any ProGroS Securities shall
have occurred and be continuing, the amount payable to a beneficial owner of a
ProGroS Security upon any acceleration permitted by the ProGroS
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<PAGE>
Securities, with respect to each $10 principal amount thereof, will be equal to
the Principal Amount and the Supplemental Redemption Amount, if any, calculated
as though the date of early repayment were the stated maturity date of the
ProGroS Securities. See "Description of ProGroS Securities--Payment at Maturity"
herein. If a bankruptcy proceeding is commenced in respect of the Company, the
claim of the beneficial owner of a ProGroS Security may be limited, under
Section 502(b)(2) of Title 11 of the United States Code, to the Principal Amount
of the ProGroS Security plus an additional amount of contingent interest
calculated as though the date of the commencement of the proceeding were the
stated maturity date of the ProGroS Securities.
In case of default in payment of the ProGroS Securities (whether at the
Call Date, at the stated maturity date, or upon acceleration), from and after
the stated maturity date the ProGroS Securities shall bear interest, payable
upon demand of the beneficial owners thereof, at the rate of 5.96% per annum (to
the extent that payment of such interest shall be legally enforceable) on the
unpaid amount due and payable on such date in accordance with the terms of the
ProGroS Securities to the date payment of such amount has been made or duly
provided for.
DEPOSITARY
All the ProGroS Securities are represented by one or more fully registered
global securities (the "Global Securities"). Each such Global Security has been
deposited with, or on behalf of, The Depository Trust Company ("DTC"; DTC,
together with any successor thereto, being a "Depositary"), as Depositary,
registered in the name of Cede & Co. (DTC's partnership nominee). Unless and
until it is exchanged in whole or in part for ProGroS Securities in definitive
form, no Global Security may be transferred except as a whole by the Depositary
to a nominee of such Depositary or by a nominee of such Depositary to such
Depositary or another nominee of such Depositary or by such Depositary or any
such nominee to a successor of such Depositary or a nominee of such successor.
So long as DTC, or its nominee, is a registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole owner or
Holder of the Securities represented by such Global Security for all purposes
under the Senior Indenture. Except as provided below, the actual owner of the
ProGroS Securities represented by a Global Security (the "Beneficial Owner")
will not be entitled to have the ProGroS Securities represented by such Global
Securities registered in their names, will not receive or be entitled to receive
physical delivery of the ProGroS Securities in definitive form and will not be
considered the owners or Holders thereof under the Senior Indenture, including
for purposes of receiving any reports delivered by the Company or the Trustee
pursuant to the Senior Indenture. Accordingly, each person owning a beneficial
interest in a Global Security must rely on the procedures of DTC and, if such
person is not a participant of DTC (a "Participant"), on the procedures of the
Participant through which such person owns its interest, to exercise any rights
of a Holder under the Senior Indenture. The Company understands that under
existing industry practices, in the event that the Company requests any action
of Holders or that an owner of a beneficial interest in such a Global Security
desires to give or take any action which a Holder is entitled to give or take
under the Senior Indenture, DTC 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 DTC to Participants,
by Participants to Indirect Participants, as defined below, 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.
If (x) the Depositary is at any time unwilling or unable to continue as
Depositary and a successor depository is not appointed by the Company within 60
days, (y) the Company executes and delivers to the Trustee a Company Order to
the effect that the Global Securities shall be exchangeable or (z) an Event of
Default has occurred and is continuing with respect to the ProGroS Securities,
the Global Securities will be exchangeable for ProGroS Securities in definitive
form of like tenor and of an equal aggregate Principal Amount, in denominations
of $10 and integral multiples thereof. Such definitive ProGroS Securities shall
be registered in such name or names as the Depositary shall instruct the
Trustee. It is expected that such instructions may be based upon directions
received by the Depositary from Participants with respect to ownership of
beneficial interests in such Global Securities.
The following is based on information furnished by DTC:
DTC is acting as securities depository for the ProGroS Securities. The
ProGroS Securities have been issued as fully registered securities registered in
the name of Cede & Co. (DTC's partnership nominee). One or more fully registered
Global Security has been issued for the ProGroS Securities in the aggregate
principal amount of such issue, and will be deposited with DTC.
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DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its Participants deposit with DTC. DTC also facilitates
the settlement among Participants of securities transactions, such as transfers
and pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants of DTC ("Direct
Participants") include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. DTC is owned by a number
of its Direct 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 DTC's system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the Commission.
Purchases of ProGroS Securities under the DTC's system must be made by or
through Direct Participants, which will receive a credit for the ProGroS
Securities on the DTC's records. The ownership interest of each Beneficial Owner
is in turn to be recorded on the records of Direct Participants and Indirect
Participants. Beneficial Owners will not receive written confirmation from DTC
of their purchase, but Beneficial Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct Participants or Indirect
Participants through which such Beneficial Owner entered into the transaction.
Transfers of ownership interests in the ProGroS Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in ProGroS Securities, except in the event that use of
the book-entry system for the ProGroS Securities is discontinued.
To facilitate subsequent transfers, all ProGroS Securities deposited with
DTC are registered in the name of DTC's partnership nominee, Cede & Co. The
deposit of ProGroS Securities with DTC and their registration in the name of
Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the
actual Beneficial Owners of the ProGroS Securities; DTC's records reflect only
the identity of the Direct Participants to whose accounts such ProGroS
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
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.
Neither DTC nor Cede & Co. will consent or vote with respect to the ProGroS
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to the
Company as soon as possible after the applicable record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants to
whose accounts the ProGroS Securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Principal, premium, if any, and/or interest, if any, payments on the
ProGroS Securities will be made in immediately available funds to DTC. DTC's
practice is to credit Direct Participants' accounts on the applicable payment
date in accordance with their respective holdings shown on the Depositary's
records unless DTC has reason to believe that it will not receive payment on
such date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is 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 Participant and not of DTC, the
Trustee or the Company, subject to any statutory or regulatory requirements as
may be in effect from time to time. Payment of principal, premium, if any,
and/or interest, if any, to DTC is the responsibility of the Company or the
Trustee, disbursement of such payments to Direct Participants shall be the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners shall be the responsibility of Direct Participants and Indirect
Participants.
DTC may discontinue providing its services as securities depository with
respect to the ProGroS Securities at any time by giving reasonable notice to the
Company or the Trustee. Under such circumstances, in the event that a successor
securities depository is not obtained, ProGroS Security certificates are
required to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Security certificates will be printed and delivered.
12
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The information in this section concerning DTC and DTC's system has been
obtained from sources that the Company believes to be reliable, but the Company
takes no responsibility for the accuracy thereof.
SAME-DAY PAYMENT
All payments of principal and the Supplemental Redemption Amount, and Call
Price if any, and will be made by the Company in immediately available funds so
long as the ProGroS Securities are maintained in book-entry form.
THE UNDERLYING STOCK
ORACLE CORPORATION
Oracle Corporation supplies software for information management. Oracle
Corporation offers its database, tools and application products, along with
related consulting, education, and support services in more than 140 countries
around the world.
Oracle Corporation is subject to the informational requirements of the
Exchange Act. Accordingly, Oracle Corporation files reports, proxy and other
information statements and other information with the Commission. Information
provided to or filed with the Commission by Oracle Corporation is available at
the offices of the Commission specified under "Available Information herein. The
Company makes no representation or warranty as to the accuracy or completeness
of such reports.
THE COMPANY IS NOT AFFILIATED WITH ORACLE CORPORATION AND ORACLE
CORPORATION HAS NO OBLIGATIONS WITH RESPECT TO THE PROGROS SECURITIES. THIS
PROSPECTUS RELATES ONLY TO THE PROGROS SECURITIES OFFERED HEREBY AND DOES NOT
RELATE TO THE UNDERLYING STOCK OR OTHER SECURITIES OF ORACLE CORPORATION. THE
INFORMATION CONTAINED IN THIS PROSPECTUS REGARDING ORACLE CORPORATION HAS BEEN
DERIVED FROM THE PUBLICLY AVAILABLE DOCUMENTS DESCRIBED IN THE PRECEDING
PARAGRAPH. THE COMPANY HAS NOT PARTICIPATED IN THE PREPARATION OF SUCH DOCUMENTS
OR MADE ANY DUE DILIGENCE INQUIRIES WITH RESPECT TO ORACLE CORPORATION IN
CONNECTION WITH THE INITIAL OFFERING OF THE PROGROS SECURITIES. THE COMPANY
MAKES NO REPRESENTATION THAT SUCH PUBLICLY AVAILABLE DOCUMENTS OR ANY OTHER
PUBLICLY AVAILABLE INFORMATION REGARDING ORACLE CORPORATION ARE ACCURATE OR
COMPLETE. FURTHERMORE, THERE CAN BE NO ASSURANCE THAT ALL EVENTS OCCURRING PRIOR
TO THE DATE HEREOF (INCLUDING EVENTS THAT WOULD AFFECT THE ACCURACY OR
COMPLETENESS OF THE PUBLICLY AVAILABLE DOCUMENTS DESCRIBED IN THE PRECEDING
PARAGRAPH) THAT WOULD AFFECT THE TRADING PRICE OF THE UNDERLYING STOCK (AND
THEREFORE THE TRADING PRICE OF THE PROGROS SECURITIES) HAVE BEEN PUBLICLY
DISCLOSED. SUBSEQUENT DISCLOSURE OF ANY SUCH EVENTS OR THE DISCLOSURE OF OR
FAILURE TO DISCLOSE MATERIAL FUTURE EVENTS CONCERNING ORACLE CORPORATION COULD
AFFECT THE SUPPLEMENTAL REDEMPTION AMOUNT TO BE RECEIVED AT THE STATED MATURITY
DATE AND THEREFORE THE TRADING VALUE OF THE PROGROS SECURITIES.
From time to time, in the ordinary course of business, affiliates of the
Company have engaged in certain investment banking activities on behalf of the
Oracle Corporation as well as served as counterparty in certain other
transactions.
OTHER TERMS
GENERAL
The ProGroS Securities were issued as a series of Senior Debt Securities
under an indenture (the "Senior Indenture"), dated as of April 1, 1983, as
amended and restated, between the Company and The Chase Manhattan
13
<PAGE>
Bank, formerly known as Chemical Bank (successor by merger to Manufacturers
Hanover Trust Company), as trustee. A copy of the Senior Indenture is filed as
an exhibit to the registration statements relating to the Securities. The
following summaries of certain provisions of the Indentures do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all provisions of the respective Indentures, including the definitions
therein of certain terms.
The Senior Indenture provides that series of Senior Debt Securities may from
time to time be issued thereunder, without limitation as to aggregate principal
amount, in one or more series and upon such terms as the Company may establish
pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the ProGroS
Securities are governed by and construed in accordance with the laws of the
State of New York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of the Senior Debt Securities
previously issued, and ''reopen'' a previous issue of a series of Senior Debt
Securities and issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities),
to participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and other regulatory bodies.
LIMITATION UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indentures) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
LIMITATIONS ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Senior Indenture provides that the Company may not sell, transfer or
otherwise dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell
or otherwise dispose of any of its Voting Stock, unless, after giving effect to
any such transaction, MLPF&S remains a Controlled Subsidiary (defined in the
Senior Indentures to mean a corporation more than 80% of the outstanding shares
of Voting Stock of which are owned directly or indirectly by the Company). In
addition, the Senior 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.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or
into any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Indentures to be
performed or observed by the Company, and (ii) the Company or such successor
corporation, as the case may be, shall not immediately thereafter be in default
under the Senior Indenture.
MODIFICATION AND WAIVER
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Modification and amendment of the Senior Indenture may be effected by the
Company and the Trustee with the consent of the Holders of at least 66 2/3% in
principal amount of the Outstanding Senior Debt Securities of each series issued
pursuant to the Indenture and affected thereby, provided that no such
modification or amendment may, without the consent of the Holder of each
Outstanding Senior Debt Security affected thereby, (a) change the Stated
Maturity of, or any installment of interest or Additional Amounts on, any Senior
Debt Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change the place or currency of any payment of principal of, or any premium,
interest or Additional Amounts on, any Senior Debt Security; (d) impair the
right to institute suit for the enforcement of any payment on or with respect to
any Senior Debt Security; (e) reduce the percentage in principal amount of the
Outstanding Senior Debt Securities of any series, the consent of whose Holders
is required to modify or amend such Indenture; or (f) modify the foregoing
requirements or reduce the percentage of Outstanding Senior Debt Securities
necessary to waive any past default to less than a majority. No modification or
amendment of the Company's Subordinated Indenture or any Subsequent Indenture
for Subordinated Debt Securities may adversely affect the rights of any Holder
of Senior Indebtedness without the consent of such Holder. Except with respect
to certain fundamental provisions, the Holders of at least a majority in
principal amount of Outstanding Senior Debt Securities of any series may, with
respect to such series, waive past defaults under the Senior Indenture and waive
compliance by the Company with certain provisions of such Indenture.
EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series issued thereunder: (a) default
in the payment of any interest or Additional Amounts upon any Debt Security of
that series when due, and such default has continued for 30 days; (b) default in
the payment of any principal of or premium, if any, on any Senior Debt Security
of that series when due; (c) default in the deposit of any sinking fund payment,
when due, in respect of any Senior Debt Security of that series; (d) default in
the performance of any other covenant of the Company contained in such Indenture
for the benefit of such series or in the Senior Debt Securities of such series,
and such default has continued for 60 days after written notice as provided in
such Indenture; (e) certain events in bankruptcy, insolvency or reorganization;
and (f) any other Event of Default provided with respect to Senior Debt
Securities of that series. The Trustee or the Holders of 25% in principal amount
of the Outstanding Senior Debt Securities of that series may declare the
principal amount (or such lesser amount as may be provided for in the Senior
Debt Securities of that series) of all Outstanding Senior Debt Securities of
that series and the interest accrued thereon and Additional Amounts payable in
respect thereof, if any, to be due and payable immediately if an Event of
Default with respect to Senior Debt Securities of such series shall occur and be
continuing at the time of declaration. At any time after a declaration of
acceleration has been made with respect to Senior Debt Securities of any series
but before a judgment or decree for payment of money due has been obtained by
the Trustee, the Holders of a majority in principal amount of the Outstanding
Senior Debt Securities of that series may rescind any declaration of
acceleration and its consequences, provided that all payments due (other than
those due as a result of acceleration) have been made and all Events of Default
have been remedied or waived. Any Event of Default with respect to Senior Debt
Securities of any series may be waived by the Holders of a majority in principal
amount of all Outstanding Senior Debt Securities of that series, except in a
case of failure to pay principal of or premium, if any, or interest or
Additional Amounts, if any, on any Senior Debt Security of that series for which
payment had not been subsequently made or in respect of a covenant or provision
which cannot be modified or amended without the consent of the Holder of each
Outstanding Senior Debt Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior
Debt Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Subject to the provisions of the Senior Indenture
relating to the duties of the Trustee, before proceeding to exercise any right
or power under an Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company will be required to furnish to the Trustee annually a statement
as to the fulfillment by the Company of all of its obligations under the Senior
Indenture.
15
<PAGE>
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997
included in the 1997 Annual Report on Form 10-K, and incorporated by reference
herein, has been derived from consolidated financial statements audited by
Deloitte & Touche LLP, as set forth in their reports included or incorporated by
reference herein. Such consolidated financial statements and related financial
statement schedules, and such 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 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 such Quarterly Reports 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.
16
<PAGE>
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, ISSUE DATE: JULY 28, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
AMEX HONG KONG 30 INDEX/*/ EQUITY PARTICIPATION NOTES
DUE FEBRUARY 16, 1999
On February 7, 1996, Merrill Lynch & Co., Inc. (the "Company") issued
$45,000,000 aggregate principal amount of AMEX Hong Kong 30 Index Equity
Participation Notes due February 16, 1999 (the "Notes" or the "Securities"). As
of the date of this Prospectus, $45,000,000 aggregate principal amount of
Securities remain outstanding. The Securities were issued in denominations of
$1,000 and integral multiples thereof, will bear no periodic payments of
interest and will mature on February 16, 1999. At maturity, a beneficial owner
of a Note will be entitled to receive, with respect to each Note, the principal
amount thereof plus an interest payment (the "Supplemental Redemption Amount")
based on the percentage increase, if any, in the AMEX Hong Kong 30 Index (the
"Index") over the Benchmark Index Value. The Supplemental Redemption Amount will
in no event be less than zero or more than $1,000 per $1,000 principal amount of
Notes, representing a maximum annualized rate of return of 24.28% compounded
semi-annually over a term of three years. The Notes are not redeemable or
callable by the Company prior to maturity. While at maturity a beneficial owner
of a Note will receive the principal amount of such Note plus the Supplemental
Redemption Amount, if any, there will be no other payment of interest, periodic
or otherwise.
The Supplemental Redemption Amount payable with respect to a Note at maturity
will equal the product of (A) the principal amount of the applicable Note, and
(B) the percentage increase from the Benchmark Index Value to the Ending Index
Value. The Benchmark Index Value equals 664.83 and was determined as described
herein. The closing value of the Index on the date of this Prospectus was
579.79, and the Benchmark Index Value exceeds such closing value by 14.67%. The
Ending Index Value, as more particularly described herein, will be the average
(arithmetic mean) of the closing values of the Index on certain days, or, if
certain events occur, the closing value of the Index on a single day prior to
the maturity of the Notes.
FOR INFORMATION AS TO THE CALCULATION OF THE SUPPLEMENTAL REDEMPTION AMOUNT
WHICH WILL BE PAID AT MATURITY, THE CALCULATION AND THE COMPOSITION OF THE
INDEX, SEE "DESCRIPTION OF NOTES" AND "THE INDEX", RESPECTIVELY, IN THIS
PROSPECTUS. FOR OTHER INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
Ownership of the Notes will be maintained in book-entry form by or through the
Depository (as hereinafter defined). Beneficial owners of the Notes will not
have the right to receive physical certificates evidencing their ownership
except under the limited circumstances described herein.
The Notes have been listed on the American Stock Exchange (the "AMEX") under
the symbol "HKN.A".
__________
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 Securities 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 Securities.
MLPF&S may act as principal or agent in such transactions. The Securities may
be offered on the New York Stock Exchange, 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 Securities 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.
__________
MERRILL LYNCH & CO.
__________
THE DATE OF THIS PROSPECTUS IS JULY ___, 1998.
/*/ The use and reference to the term "AMEX Hong Kong 30 Index" herein has been
consented to by the American Stock Exchange. The "AMEX Hong Kong 30 Index"
is a service mark of the American Stock Exchange.
<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 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 26, 1997,
Quarterly Report on Form 10-Q for the period ended March 27, 1998, and Current
Reports on Form 8-K dated January 20, 1998, January 30, 1998, February 4, 1998,
February 12, 1998, February 23, 1998, March 19, 1998, April 13, 1998, April 29,
1998, May 19, 1998, June 2, 1998, June 3, 1998, June 15, 1998, June 24, 1998,
June 26, 1998, July 2, 1998, July 14, 1998 and July 15, 1998 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, or subsequent to the date of the initial
Registration Statement and prior to effectiveness of the Registration Statement,
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 LAWRENCE M. EGAN, JR., CORPORATE SECRETARY'S
OFFICE, 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 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.
2
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, advisory, insurance, and related
services on a global basis. Its principal subsidiary, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("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; an underwriter of selected insurance
products and a distributor of investment products of the Merrill Lynch Asset
Management group. 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. The Company's asset management and investment
management activities are conducted through the Merrill Lynch Asset Management
group and Merrill Lynch Mercury Asset Management, which together constitute one
of the largest asset management organizations in the world. Merrill Lynch
Government Securities Inc. is a primary dealer in obligations issued or
guaranteed by the U.S. Government and its agencies and its government-sponsored
entities. Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative
Products AG, and Merrill Lynch International are the Company's primary
derivative product dealers and enter into interest rate, currency, and other
over-the-counter derivative transactions as intermediaries and as principals.
The Company's operations in insurance services consist of the underwriting and
sale 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 and
purchasing secured loans, providing currency exchange facilities and other
related services, and furnishing trust, employee benefit, and custodial
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
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
THREE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
1993 1994 1995 1996 1997 MARCH 27, 1998
---- ---- ---- ---- ---- --------------
Ratio of earnings
to fixed charges .......... 1.4 1.2 1.2 1.2 1.2 1.2
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
RISK FACTORS
PAYMENT AT MATURITY
Benchmark Index Value will Exceed Value of Index on the Pricing Date. The
Benchmark Index Value exceeded the closing value of the Index on the Pricing
Date by 14.67%. Investors should be aware that if the Ending Index
3
<PAGE>
Value does not exceed the closing value of the Index on the Pricing Date by more
than 14.67%, beneficial owners of the Notes will receive only the principal
amount thereof.
Yield may be Below Market Interest Rates on the Pricing Date. A beneficial
owner of the Notes may receive no Supplemental Redemption Amount at maturity, or
a Supplemental Redemption Amount that is below what the Company would pay as
interest as of the Pricing Date if the Company issued non-callable senior debt
securities with a similar maturity as that of the Notes. The return of principal
of the Notes at maturity and the payment of the Supplemental Redemption Amount,
if any, may not reflect the full opportunity costs implied by inflation or other
factors relating to the time value of money.
Limitation of Supplemental Redemption Amount. Because the Supplemental
Redemption Amount will not exceed $1,000 per $1,000 principal amount of Notes,
beneficial owners of Notes will not benefit from Index increases in excess of
approximately 229% of the closing value of the Index on the Pricing Date (the
"Maximum Index Value"). In no event will the Supplemental Redemption Amount
exceed $1,000 per $1,000 principal amount of Notes.
Yield on Notes will not Reflect Dividends. The Index does not reflect the
payment of dividends on the stocks underlying it and therefore the yield based
on the Index to the maturity of the Notes will not produce the same yield as if
such underlying stocks were purchased and held for a similar period.
State Law Limit on Interest Paid. Because the Senior Indenture provides that
the Notes are governed by and construed in accordance with the laws of New York,
certain usury laws of New York State may apply. Under present New York law, the
maximum rate of interest is 25% per annum on a simple interest basis. This limit
may not apply to Notes in which $2,500,000 or more has been invested. While the
Company believes that New York law would be given effect by a state or Federal
court sitting outside of New York, state laws frequently regulate the amount of
interest that may be charged to and paid by a borrower (including, in some
cases, corporate borrowers). It is suggested that prospective investors consult
their personal advisors with respect to the applicability of such laws. The
Company has covenanted for the benefit of the Holders of the Notes, to the
extent permitted by law, not to claim voluntarily the benefits of any laws
concerning usurious rates of interest against a Holder of the Notes.
TRADING
The Notes have been listed on the American Stock Exchange. It is expected that
the secondary market for the Notes will be affected by the creditworthiness of
the Company and by a number of other factors.
The trading value of the Notes is expected to depend substantially on the
extent of the appreciation, if any, of the Index over the Benchmark Index Value.
See "The Index-Historical Data on the Index" in this Prospectus for historical
values of the Index. If, however, Notes are sold prior to the maturity date at a
time when the Index exceeds the Benchmark Index Value, the sale price may be at
a substantial discount from the amount expected to be payable to the beneficial
owner if such excess of the Index over the Benchmark Index Value were to prevail
until maturity of the Notes because of the possible fluctuation of the Index
between the time of such sale and the time that the Ending Index Value is
determined. Furthermore, the price at which a beneficial owner will be able to
sell Notes prior to maturity may be at a discount, which could be substantial,
from the principal amount thereof, if, at such time, the Index is below, equal
to, or not sufficiently above the Benchmark Index Value. The limitation that the
Supplemental Redemption Amount will not exceed $1,000 per $1,000 principal
amount of Notes may adversely affect the secondary market value of the Notes and
such adverse effect could occur even if the value of the Index is below the
Maximum Index Value. A discount could also result from rising interest rates.
In addition to the value of the Index, the trading value of the Notes may be
affected by a number of interrelated factors, including the creditworthiness of
the Company and those factors listed below. The relationship among these factors
is complex, including how these factors affect the relative value of the
principal amount of the Notes to be repaid at maturity and the value of the
Supplemental Redemption Amount. Accordingly, investors should be aware
4
<PAGE>
that factors other than the level of the Index are likely to affect the Notes'
trading value. The expected effect on the trading value of the Notes of each of
the factors listed below, assuming in each case that all other factors are held
constant, is as follows:
Interest Rates. In general, if U.S. interest rates increase, the trading
value of the Notes is expected to decrease. If U.S. interest rates decrease,
the trading value of the Notes is expected to increase. If interest rates in
Hong Kong increase, the trading value of the Notes is expected to increase;
however, increased Hong Kong interest rates may adversely affect the economy
of Hong Kong and, in turn, the Index, and the trading value of the Notes could
then be expected to decrease. If interest rates in Hong Kong decrease, the
trading value of the Notes is expected to decrease; however, decreased Hong
Kong interest rates may favorably affect the economy of Hong Kong and, in
turn, the Index, and consequently, the trading value of the Notes could then
be expected to increase.
Volatility of the Index. If the volatility of the Index increases, the
trading value of the Notes is expected to increase. If the volatility of the
Index decreases, the trading value of the Notes is expected to decrease.
Time Remaining to Maturity. The Notes may trade at a value above that which
may be inferred from the level of interest rates and the Index. This
difference will reflect a "time premium" due to expectations concerning the
value of the Index during the period prior to maturity of the Notes. As the
time remaining to maturity of the Notes decreases, however, this time premium
is expected to decrease, thus decreasing the trading value of the Notes. In
addition, the price at which a beneficial owner may be able to sell Notes
prior to maturity may be at a discount, which may be substantial, from the
principal amount of the Notes if the value of the Index is below, equal to, or
not sufficiently above the Benchmark Index Value.
Dividend Rates in Hong Kong. If dividend rates on the stocks comprising the
Index increase, the value of the Notes is expected to decrease. Conversely, if
dividend rates on the stocks comprising the Index decrease, the value of the
Notes is expected to increase. However, in general, rising corporate dividend
rates in Hong Kong may increase the value of the Index and, in turn, increase
the value of the Notes. Conversely, falling dividend rates in Hong Kong may
decrease the value of the Index and, in turn, decrease the value of the Notes.
Hong Kong Dollar/U.S. Dollar Exchange Rates. The Supplemental Redemption
Amount is based on a given level of the Index and will not be affected by
changes in the Hong Kong dollar/U.S. dollar exchange rate. However, a number
of economic factors, including the Hong Kong dollar/U.S. dollar exchange rate,
could affect the value of the Underlying Stocks and, therefore, the value of
the Index.
The impact of the factors specified above, excluding the value of the Index,
may offset, partially or in whole, any increase in the trading value of the
Notes that is attributable to an increase in the value of the Index. For
example, an increase in U.S. interest rates may cause the Notes to trade at a
discount from their initial offering price, even if the Index has appreciated
significantly. In general, assuming all relevant factors are held constant, the
effect on the trading value of the Notes of a given change in interest rates,
Index volatility and/or dividend rates of stocks comprising the Index is
expected to be less if it occurs later in the term of the Notes than if it
occurs earlier in the term of the Notes. The effect on the trading value of the
Notes of a given appreciation of the Index in excess of the Benchmark Index
Value is expected to be greater if it occurs later in the term of the Notes than
if it occurs earlier in the term of the Notes, assuming all other relevant
factors are held constant.
THE INDEX
The stocks underlying the Index have been issued by companies organized in
Hong Kong. The prices of such Underlying Stocks will be affected by foreign
political, economic and other developments.
The Hong Kong Stock Exchange has adopted certain measures intended to prevent
any extreme short-term price fluctuations resulting from order imbalances or
market volatility. Where the Hong Kong Stock Exchange considers
5
<PAGE>
it necessary for the protection of the investor or the maintenance of an orderly
market, it may at any time suspend dealings in any securities or cancel the
listing of any securities in such circumstances and subject to such conditions
as it thinks fit, whether requested by the listed issuer or not. The Hong Kong
Stock Exchange may also do so when: (1) an issuer fails, in a manner which the
Hong Kong Stock Exchange considers material, to comply with the Hong Kong Stock
Exchange Listing Rules or its Listing Agreements; or (2) the Hong Kong Stock
Exchange considers there are insufficient securities in the hands of the public;
or (3) the Hong Kong Stock Exchange considers that the listed issuer does not
have a sufficient level of operations or sufficient assets to warrant the
continued listing of the issuer's securities; or (4) the Hong Kong Stock
Exchange considers that the issuer or its business is no longer suitable for
listing. Investors should also be aware that the Hong Kong Stock Exchange may
suspend the trading of individual stocks in certain limited and extraordinary
circumstances, until certain price-sensitive information has been disclosed to
the public. Since the stocks underlying the Index are traded on the Hong Kong
Stock Exchange, changes in the Index may be affected by suspensions of trading
generally or of one or more of the stocks underlying the Index, which
limitations may, in turn, adversely affect the value of the Notes.
IMPORTANT CONSIDERATIONS RELATING TO HONG KONG
Investors should realize that the value of the Index, and therefore the
potential Supplemental Redemption Amount, if any, may be adversely affected by
political, economic or social instability, developments and changes in law or
regulations, particularly in Hong Kong and the People's Republic of China
("China"). Certain of these factors are discussed below.
In December 1984, Great Britain and China signed an agreement (the "Sino-
British Accord") under which Hong Kong will revert to Chinese sovereignty
effective July 1, 1997. Although China has committed by treaty to preserve for
50 years the economic and social freedoms currently enjoyed in Hong Kong, the
continuation of the economic system in Hong Kong after the reversion will be
affected by the Chinese government. Any increase in uncertainty as to the future
economic and political status of Hong Kong could have a material adverse effect
on the economy of Hong Kong and the Index.
The Sino-British Accord provides that the basic policies of China regarding
Hong Kong and the elaboration of these policies in the Sino-British Accord will
be stipulated by the National People's Congress of China in a Basic Law of the
Hong Kong Special Administrative Region (the "Hong Kong SAR") (the "Basic Law").
The Basic Law was finalized in February 1990 and adopted by the National
People's Congress on April 4, 1990. The Basic Law provides that the Chief
Executive of the Hong Kong SAR will be recommended by a committee composed of
Hong Kong residents representing a broad spectrum of distinct constituencies,
such as industry, labor and the various professions, and appointed by the
government of China. The power of amendment of the Basic Law is vested in the
National People's Congress of China. The Basic Law provides that the Hong Kong
dollar will remain the legal tender in the Hong Kong SAR after the transfer of
sovereignty. It also provides that no exchange control policies will be applied
in the Hong Kong SAR and that the Hong Kong dollar will remain freely
convertible.
In the past, the prices of shares on the HKSE and Hong Kong property market
values have experienced substantial fluctuations in response to political
developments affecting China and relations between China and the United Kingdom.
Although China has agreed by treaty that the Hong Kong SAR will have a high
degree of legislative, legal and economic autonomy, there can be no assurance as
to the consequence of the exercise of Chinese sovereignty over Hong Kong on the
future economic and political status of Hong Kong and the Index.
It is not clear how future developments in Hong Kong and China may affect the
implementation of the Basic Law after the transfer of sovereignty in 1997. As a
result of this political and legal uncertainty, the economic prospects of Hong
Kong and the companies whose stocks comprise the Index are uncertain.
Accordingly, the Hong Kong Stock Exchange has been, and can be expected to
remain, highly volatile and sensitive to adverse political developments with
regard to Hong Kong's future and perceptions of actual or potential political
developments of that kind. For this reason, among others, the Index and the
value of the Notes can also be expected to be volatile.
6
<PAGE>
Underlying Stocks. The performance of certain companies listed on the Hong
Kong Stock Exchange is linked to the economic climate of China. Any downturn in
economic growth or other negative developments affecting the economic climate of
China could have a material adverse effect on the value of the Index. In
addition, the Hong Kong securities markets are currently characterized by a high
level of investment by and interest among United States and other non-Hong Kong
persons. Changes in the level of investment or interest could have a material
adverse effect on the level of the Index.
Although none of the companies whose stocks comprise the Underlying Stocks are
currently organized under the laws of China, the level of the Index nonetheless
can be affected by developments in China. China currently indirectly influences
political and economic developments in various parts of Asia, including Hong
Kong, and its influence is expected to continue to grow. The government of
China, a socialist state controlled by the Communist Party of China, now permits
private economic activities to a certain extent. Political, economic or social
instability in, and diplomatic and other developments associated with, China
could have a significant effect on economic conditions in Hong Kong and on the
market prices and liquidity of securities traded on the Hong Kong Stock
Exchange, including the Underlying Stocks. Moreover, many of the issuers of the
Underlying Stocks have substantial investments in China, which investments could
be adversely affected by political, economic, market and other developments in
or affecting China. Accordingly, adverse political or economic developments in
China could adversely affect the level of the Index and thus the value of the
Notes.
Underlying Stocks representing approximately one-third of the market
capitalization of the Index (as of December 29, 1995) are companies engaged in
real estate asset management, development, leasing, property sales and other
related activities. Many factors may have an adverse impact on the credit
quality of these real estate companies and, indirectly, the Index. Generally,
these include economic recession, the cyclical nature of real estate markets,
overbuilding, changing demographics, changes in governmental regulations
(including tax laws and environmental, building, zoning and sales regulations),
increases in real estate taxes or costs of material and labor, the inability to
secure performance guarantees or insurance as required, the unavailability of
investment capital and the inability to obtain construction financing or
mortgage loans at rates acceptable to builders and purchasers of real estate.
Additional risks include an inability to reduce expenditures associated with a
property (such as mortgage payments and property taxes) when rental revenue
declines, and possible loss upon foreclosure of mortgaged properties if mortgage
payments are not paid when due.
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the Notes
should reach an investment decision only after carefully considering the
suitability of the Notes in light of their particular circumstances.
Investors should also consider the tax consequences of investing in the Notes
and should consult their tax advisors.
Merrill Lynch & Co., MLPF&S or its affiliates may from time to time engage in
transactions involving the Underlying Stocks for their proprietary accounts and
for other accounts under their management, which may influence the value of such
Underlying Stocks and therefore the value of the Notes. MLPF&S and its
affiliates will also be the counterparties to the hedge of the Company's
obligations under the Notes. Accordingly, under certain circumstances,
conflicts of interest may arise between MLPF&S's responsibilities as Calculation
Agent with respect to the Notes and its obligations under its hedge and its
status as a subsidiary of the Company. Under certain circumstances, the duties
of MLPF&S as Calculation Agent in determining the existence of Market Disruption
Events could conflict with the interests of MLPF&S as an affiliate of the issuer
of the Notes, Merrill Lynch & Co., Inc., and with the interests of the holders
of the Notes.
7
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The Notes were issued as a series of Senior Debt Securities under the Senior
Indenture, referred to as the "Senior Indenture", which is more fully described
below. The Notes will mature on February 16, 1999.
While at maturity a beneficial owner of a Note will receive the principal
amount of such Note plus the Supplemental Redemption Amount, if any, there will
be no other payment of interest, periodic or otherwise. (See "Payment at
Maturity" below.)
The Notes are not subject to redemption by the Company or at the option of any
beneficial owner prior to maturity. Upon the occurrence of an Event of Default
with respect to the Notes, beneficial owners of the Notes may accelerate the
maturity of the Notes, as described under "Description of Notes--Events of
Default and Acceleration" and "Other Terms--Events of Default" in this
Prospectus.
The Notes were issued in denominations of $1,000 and integral multiples
thereof.
PAYMENT AT MATURITY
At maturity, a beneficial owner of a Note will be entitled to receive the
principal amount thereof plus a Supplemental Redemption Amount, if any, all as
provided below. If the Ending Index Value of the Index does not exceed the
Benchmark Index Value a beneficial owner of a Note will be entitled to receive
only the principal amount thereof.
At maturity, a beneficial owner of a Note will be entitled to receive, with
respect to each such Note, (i) the principal amount thereof, and (ii) the
Supplemental Redemption Amount equal in amount to:
Ending Index Value-Benchmark Index Value
Principal Amount X ----------------------------------------
Benchmark Index Value
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero or more than $1,000 per $1,000 principal amount of Notes. The
Benchmark Index Value equals 664.83. The Benchmark Index Value was determined on
the Pricing Date by multiplying the Starting Index Value by a factor equal to
115%. The Starting Index Value was determined by the Calculation Agent and
equaled the average (arithmetic mean) of the Computed Index Value as of 10:30
A.M., 11:00 A.M., 11:30 A.M., 12:00 Noon, 12:30 P.M., 2:30 P.M., 3:00 P.M. and
3:30 P.M. (Hong Kong time) on the Pricing Date. The "Computed Index Value" as of
any time means the number obtained by (i) multiplying the last reported sales
prices of each Underlying Stock at such time (as reported by Reuters Information
Services, Inc. with respect to intra-day prices and by The Stock Exchange of
Hong Kong Ltd. (the "Hong Kong Stock Exchange" or "HKSE") with respect to
official closing prices) by the number of shares outstanding (as provided by the
AMEX) to obtain the market capitalization for each of the Underlying Stocks and
(ii) dividing the aggregate market capitalization of all the Underlying Stocks
by the divisor used to calculate the last reported Index (see "The Index"
herein). The AMEX has confirmed that the methodology used by the Calculation
Agent to calculate the Computed Index Value is consistent with that currently
used by the AMEX to calculate the Index. The Ending Index Value will be
determined by MLPF&S (the "Calculation Agent") and will equal the average
(arithmetic mean) of the closing values of the Index determined on each of the
first five Calculation Days during the Calculation Period. If there are fewer
than five Calculation Days, then the Ending Index Value will equal the average
(arithmetic mean) of the closing values of the Index on such Calculation Days,
and if there is only one Calculation Day, then the Ending Index Value will equal
the closing value of the Index on such Calculation Day. If no Calculation Days
occur during the Calculation Period because of Market Disruption Events, then
the Ending Index Value will equal the closing value of the Index determined on
the last scheduled Index Business Day in the Calculation Period, regardless of
the occurrences of a Market Disruption Event on such day.
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The "Calculation Period" means the period from and including the seventh
scheduled Index Business Day prior to the maturity date to and including the
second scheduled Index Business Day prior to the maturity date. "Calculation
Day" means any Index Business Day during the Calculation Period on which a
Market Disruption Event has not occurred. For purposes of determining the Ending
Index Value, an "Index Business Day" is a day on which the Hong Kong Stock
Exchange is open for trading and the Index or any Successor Index is calculated
and published. All determinations made by the Calculation Agent shall be at the
sole discretion of the Calculation Agent and, absent a determination by the
Calculation Agent of a manifest error, shall be conclusive for all purposes and
binding on the Company and beneficial owners of the Notes.
The following table illustrates, for a range of hypothetical Ending Index
Values, (i) the total amount payable at maturity for each $1,000 principal
amount of Notes, (ii) the pretax annualized rate of return to beneficial owners
of Notes, and (iii) the pretax annualized rate of return of an investment in the
stocks underlying the Index (which includes an assumed aggregate dividend yield
of 3.31% per annum, and no change in the U.S. dollar/Hong Kong dollar exchange
rate, as more fully described below).
<TABLE>
<CAPTION>
Total Pretax Pretax Annualized
Hypothetical ending Percentage Change Amount Annualized Rate of Rate of Return of
Index Value of Over the Starting Payable at Return on the Stocks Underlying the
the Index Index Value Maturity Notes(1) Index(1)(2)
- ------------------- ------------------- ----------- ------------------ ------------------------
<S> <C> <C> <C> <C>
289.06 -50% $1,000.00 0.00% -18.74%
346.87 -40% $1,000.00 0.00% -13.20%
404.68 -30% $1,000.00 0.00% -8.38%
462.49 -20% $1,000.00 0.00% -4.09%
520.30 -10% $1,000.00 0.00% -0.21%
578.11(3) 0% $1,000.00 0.00% 3.32%
635.92 10% $1,000.00 0.00% 6.58%
693.73 20% $1,043.47 1.41% 9.61%
751.54 30% $1,130.42 4.09% 12.43%
809.35 40% $1,217.38 6.61% 15.08%
867.17 50% $1,304.35 8.98% 17.59%
924.98 60% $1,391.30 11.22% 19.96%
982.79 70% $1,478.26 13.35% 22.21%
1,040.60 80% $1,565.21 15.38% 24.36%
1,098.41 90% $1,652.17 17.31% 26.41%
1,156.22 100% $1,739.12 19.16% 28.38%
1,214.03 110% $1,826.08 20.93% 30.26%
1,271.84 120% $1,913.03 22.64% 32.08%
1,329.65 130% $2,000.00 24.28% 33.83%
1,387.46 140% $2,000.00 24.28% 35.52%
1,445.28 150% $2,000.00 24.28% 37.15%
</TABLE>
___________
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes (i) an investment of a fixed amount in the
stocks underlying the Index with the allocation of such amount reflecting
the relative weights of such stocks in the Index; (ii) a percentage change
in the aggregate price of such stocks that equals the percentage change in
the Index from the Starting Index Value to the relevant hypothetical Ending
Index Value; (iii) a constant dividend yield of 3.31% per annum, paid
quarterly from the date of initial delivery of Notes, applied to the value
of the Index at the end of each such quarter assuming such value increases
or decreases linearly from the Starting Index Value to the applicable
hypothetical Ending Index Value; (iv) no transaction fees or expenses; (v) a
term for the Notes from February 7, 1996 to February 16, 1996; (vi) a final
Index value equal to the Ending Index Value; and (vii) no change in the U.S.
dollar/Hong Kong dollar exchange rate. The aggregate dividend yield of the
stocks underlying the Index as of January 16, 1996 was approximately 3.31%.
(3) The Starting Index Value.
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The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the pretax annualized
rate of return resulting therefrom will depend entirely on the actual Ending
Index Value determined by the Calculation Agent as provided herein. Historical
data regarding the Index is included in this Prospectus under "The Index--
Historical Data on the Index".
ADJUSTMENTS TO THE INDEX; MARKET DISRUPTION EVENTS
If at any time the method of calculating the Index, or the value thereof, is
changed in any material respect, or if the Index is in any other way modified so
that such Index does not, in the opinion of the Calculation Agent, fairly
represent the value of the Index had such changes or modifications not been
made, then, from and after such time, the Calculation Agent shall, at the close
of business in New York, New York, on each date that the closing value with
respect to the Ending Index Value is to be calculated, make such adjustments as,
in the good faith judgment of the Calculation Agent, may be necessary in order
to arrive at a calculation of a value of a stock index comparable to the Index
as if such changes or modifications had not been made, and calculate such
closing value with reference to the Index, as adjusted. Accordingly, if the
method of calculating the Index is modified so that the value of such Index is a
fraction or a multiple of what it would have been if it had not been modified
(e.g., due to a split in the Index), then the Calculation Agent shall adjust
such Index in order to arrive at a value of the Index as if it had not been
modified (e.g., as if such split had not occurred).
"Market Disruption Event" means either of the following events, as determined
by the Calculation Agent:
(i) a suspension or absence of trading on the HKSE of (a) 20% or more of
the Underlying Stocks and/or (b) the stocks of any three of the four most
highly capitalized companies included in the Underlying Stocks which then
comprise the Index or a Successor Index; or
(ii) the suspension or material limitation on the HK Futures Exchange or
any other major futures or securities market (which as of the date of this
Prospectus includes only the HK Futures Exchange, but which in the Calculation
Agent's judgment may change in the future) of trading in futures or options
contracts related to the Hang Seng Index, the Index or a Successor Index.
The Hang Seng Index uses certain of the same securities in its calculation as
the Index (See "The Index--The Hong Kong Stock Exchange and the Hong Kong
Futures Exchange" herein). For purposes of determining whether a Market
Disruption Event has occurred: (1) a limitation on the hours or number of days
of trading will not constitute a Market Disruption Event if it results from an
announced change in the regular business hours of the relevant exchange, (2) a
decision to permanently discontinue trading in the relevant contract will not
constitute a Market Disruption Event, (3) a suspension of trading in a futures
or options contract on the Index by the AMEX or other major securities market by
reason of (x) a price change exceeding limits set by the AMEX or such securities
market, (y) an imbalance of orders relating to such contracts or (z) a disparity
in bid and ask quotes relating to such contracts will constitute a suspension or
material limitation of trading in futures or options contracts related to the
Index and (4) an "absence of trading" on the HKSE, HK Futures Exchange or a
major securities market on which futures or options contracts related to the
Index are traded will not include any time when the HKSE, HK Futures Exchange or
such securities market, as the case may be, itself is closed for trading under
ordinary circumstances.
DISCONTINUANCE OF THE INDEX
If the AMEX discontinues publication of the Index and the AMEX or another
entity publishes a successor or substitute index that the Calculation Agent
determines, in its sole discretion, to be comparable to such Index (any such
index being referred to hereinafter as a "Successor Index"), then, upon the
Calculation Agent's notification of such determination to the Trustee and the
Company, the Calculation Agent will substitute the Successor Index as calculated
by the AMEX or such other entity for the Index and calculate the Ending Index
Value as described
10
<PAGE>
above under "Payment at Maturity". Upon any selection by the Calculation Agent
of a Successor Index, the Company shall cause notice thereof to be given to
Holders of the Notes.
If the AMEX discontinues publication of the Index and a Successor Index is not
selected by the Calculation Agent or is no longer published on any of the
Calculation Days, the value to be substituted for the Index for any such
Calculation Day used to calculate the Supplemental Redemption Amount at maturity
will be a value computed by the Calculation Agent for each Calculation Day in
accordance with the procedures last used to calculate the Index prior to any
such discontinuance. If a Successor Index is selected or the Calculation Agent
calculates a value as a substitute for the Index as described below, such
Successor Index or value shall be substituted for the Index for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
If the AMEX discontinues publication of the Index prior to the period during
which the Supplemental Redemption Amount is to be determined and the Calculation
Agent determines that no Successor Index is available at such time, then on each
Business Day until the earlier to occur of (i) the determination of the Ending
Index Value and (ii) a determination by the Calculation Agent that a Successor
Index is available, the Calculation Agent shall determine the value that would
be used in computing the Supplemental Redemption Amount as described in the
preceding paragraph as if such day were a Calculation Day. The Calculation Agent
will cause notice of each such value to be published not less often than once
each month in The Wall Street Journal (or another newspaper of general
circulation), and arrange for information with respect to such values to be made
available by telephone. Notwithstanding these alternative arrangements,
discontinuance of the publication of the Index may adversely affect trading in
the Notes.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Notes shall have occurred and
be continuing, the amount payable to a beneficial owner of a Note upon any
acceleration permitted by the Notes, with respect to each $1,000 principal
amount thereof, will be equal to: (i) the initial issue price ($1,000), plus
(ii) an additional amount of contingent interest calculated as though the date
of early repayment were the maturity date of the Notes. See "Description of
Notes-Payment at Maturity" in this Prospectus. If a bankruptcy proceeding is
commenced in respect of the Company, the claim of the beneficial owner of a Note
may be limited, under Section 502(b)(2) of Title 11 of the United States Code,
to the principal amount of the Note plus an additional amount of contingent
interest calculated as though the date of the commencement of the proceeding
were the maturity date of the Notes.
In case of default in payment at the maturity date of the Notes (whether at
their stated maturity or upon acceleration), from and after the maturity date
the Notes shall bear interest, payable upon demand of the beneficial owners
thereof, at the rate of 5.40% per annum (to the extent that payment of such
interest shall be legally enforceable) on the unpaid amount due and payable on
such date in accordance with the terms of the Notes to the date payment of such
amount has been made or duly provided for.
DEPOSITORY
The Notes are represented by one or more fully registered global securities
(the "Global Notes"). Each such Global Note has been deposited with, or on
behalf of, The Depository Trust Company ("DTC"), as Depository (the
"Depository"), registered in the name of DTC or a nominee thereof. Unless and
until it is exchanged in whole or in part for Notes in definitive form, no
Global Note may be transferred except as a whole by the Depository to a nominee
of such Depository or by a nominee of such Depository to such Depository or
another nominee of such Depository or by such Depository or any such nominee to
a successor of such Depository or a nominee of such successor.
DTC has advised the Company as follows: DTC 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
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provisions of Section 17A of the Exchange Act. DTC 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. DTC's Participants include securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations.
DTC 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 DTC book-entry system is also available
to others, such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly ("Indirect Participants").
Purchases of Notes must be made by or through Participants, which will receive
a credit on the records of DTC. The ownership interest of each actual purchaser
of each Note ("Beneficial Owner") is in turn to be recorded on the Participants'
or Indirect Participants' records. Beneficial Owners will not receive written
confirmation from DTC of their purchase, but Beneficial Owners are expected to
receive written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the Participant or Indirect
Participant through which the Beneficial Owner entered into the transaction.
Ownership of beneficial interests in such Global Note will be shown on, and the
transfer of such ownership interests will be effected only through, records
maintained by DTC (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 DTC, or its nominee, is the registered owner of a Global Note, DTC
or its nominee, as the case may be, will be considered the sole owner or Holder
of the Notes represented by such Global Note for all purposes under the Senior
Indenture. Except as provided below, Beneficial Owners in a Global Note will not
be entitled to have the Notes represented by such Global Notes registered in
their names, will not receive or be entitled to receive physical delivery of the
Notes in definitive form and will not be considered the owners or Holders
thereof under the Senior Indenture, including for purposes of receiving any
reports delivered by the Company or the Trustee pursuant to the Senior
Indenture. Accordingly, each Person owning a beneficial interest in a Global
Note must rely on the procedures of DTC and, if such Person is not a
Participant, on the procedures of the Participant through which such Person owns
its interest, to exercise any rights of a Holder under the Senior Indenture. The
Company understands that under existing industry practices, in the event that
the Company requests any action of Holders or that an owner of a beneficial
interest in such a Global Note desires to give or take any action which a Holder
is entitled to give or take under the Senior Indenture, DTC 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 DTC to Participants, by Participants to Indirect Participants,
and by Participants and Indirect Participants to Beneficial Owners will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Payment of the principal of, and any Supplemental Redemption Amount with
respect to, Notes registered in the name of DTC or its nominee will be made to
DTC or its nominee, as the case may be, as the Holder of the Global Notes
representing such Notes. None of the Company, the Trustee or any other agent of
the Company or agent of the Trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests or for supervising or reviewing any records
relating to such beneficial ownership interests. The Company expects that DTC,
upon receipt of any payment of principal or any Supplemental Redemption Amount
in respect of a Global Note, will credit the accounts of the Participants with
payment in amounts proportionate to their respective holdings in principal
amount of beneficial interest in such Global Note as shown on the records of
DTC. 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
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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) any Depository is at any time unwilling or unable to continue as
Depository and a successor depository is not appointed by the Company within 60
days, (y) the Company executes and delivers to the Trustee a Company Order to
the effect that the Global Notes shall be exchangeable or (z) an Event of
Default has occurred and is continuing with respect to the Notes, the Global
Notes will be exchangeable for Notes in definitive form of like tenor and of an
equal aggregate principal amount, in denominations of $1,000 and integral
multiples thereof. Such definitive Notes shall be registered in such name or
names as the Depository shall instruct the Trustee. It is expected that such
instructions may be based upon directions received by the Depository from
Participants with respect to ownership of beneficial interests in such Global
Notes.
THE INDEX
THE INDEX
Unless otherwise stated, all information herein on the Index is derived from
the AMEX or other publicly available sources as of February 2, 1996. Such
information reflects the policies of the AMEX as stated in such sources and such
policies are subject to change by the AMEX.
The Index is a capitalization-weighted stock index designed, developed,
maintained and operated by, and is a service mark of, the AMEX that measures the
market value performance (share price times the number of shares outstanding) of
selected Hong Kong Stock Exchange listed stocks. The Index currently is based on
the capitalization of 30 Underlying Stocks trading on the Hong Kong Stock
Exchange and is designed to represent a substantial segment of the Hong Kong
stock market. The Hong Kong Stock Exchange is the primary trading market for
most of the 30 Underlying Stocks. The primary trading market for all of the
Underlying Stocks is either Hong Kong or London. Business sector representation
of the Underlying Stocks comprising the Index as of February 2, 1996 was as
follows: property development (33.36%), financing (21.80%), conglomerates
(18.68%), utilities (18.01%) and also includes hotel/leisure (4.33%), airlines
(2.24%), property investment (0.85%), transportation (0.46%) and publishing
(0.24%). The Index was established on June 25, 1993. (See the table below for a
list of the Underlying Stocks as of February 2, 1996.) As of February 2, 1996,
the five largest Underlying Stocks accounted for approximately 48.53% of the
market capitalization of the Index, with the largest being HSBC Holdings plc
(12.30%), followed by Hutchison Whampoa Ltd. (9.80%), Sun Hung Kai Properties
Ltd. (9.45%), Hong Kong Telecommunications Ltd. (9.10%) and Hang Seng Bank Ltd.
(7.88%). The lowest weighted Underlying Stock, as of February 2, 1996, was Tai
Chung (Holdings) Ltd. (0.23%).
The Index is maintained by the AMEX and will contain at least 30 Underlying
Stocks at all times. In addition, the Underlying Stocks must meet certain
listing and maintenance standards as discussed below. The AMEX may change the
composition of the Index at any time in order to more accurately reflect the
composition and track the movement of the Hong Kong stock market. Any
replacement Underlying Stock must also meet the Underlying Stock listing and
maintenance standards as discussed below. Further, the AMEX may replace
Underlying Stocks in the event of certain corporate events, such as takeovers,
or mergers, that change the nature of the security.
The AMEX will select Underlying Stocks on the basis of their market weight,
trading liquidity, and representation of the business industries reflected on
the Hong Kong Stock Exchange. The AMEX will require that each Underlying Stock
be one issued by an entity with major business interests in Hong Kong, listed
for trading on the Hong Kong Stock Exchange, and have its primary trading market
located in a country with which the AMEX has an effective surveillance sharing
agreement. The AMEX will remove any Underlying Stock failing to meet the above
listing and maintenance criteria within 30 days after such failure occurs. In
order to ensure that the Index does not contain a large number of thinly-
capitalized, low-priced securities with small public floats and low trading
volumes, the AMEX has also established additional qualification criteria for the
inclusion and maintenance of
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Underlying Stocks, based on the following standards: (1) all Underlying Stocks
selected for inclusion in the Index must have and thereafter maintain, an
average daily capitalization, as calculated by the total number of shares
outstanding times the latest price per share (in Hong Kong dollars), measured
over the prior 6-month period, of at least H.K.$3,000,000,000 (approximately
U.S.$388,000,000 as of February 2, 1996); (2) all Underlying Stocks selected for
inclusion in the Index must have, and thereafter maintain, an average daily
closing price, measured over the prior 6-month period, not lower than H.K.$2.50
(approximately U.S.$0.32 as of February 2, 1996); (3) all Underlying Stocks
selected for inclusion in the Index must have, and thereafter maintain an
average daily trading volume, measured over the prior 6-month period, of more
than 1,000,000 shares per day, although up to, but no more than, three
Underlying Stocks may have an average daily trading volume, measured over the
prior 6-month period, of less than 1,000,000 shares per day, but in no event
less than 500,000 shares per day; and (4) all Underlying Stocks selected for
inclusion in the Index must have, and thereafter maintain, a minimum "free
float" value (total freely tradeable outstanding shares minus insider holdings),
based on a monthly average measured over the prior 3-month period, of
U.S.$238,000,000, although up to, but no more than, three Underlying Stocks may
have a free float value of less than U.S.$238,000,000 but in no event less than
U.S.$150,000,000, measured over the same period. The AMEX will review and apply
the above qualification criteria relating to the Underlying Stocks on a
quarterly basis, conducted the last business day in January, April, July, and
October. Any Underlying Stock failing to meet the above listing and maintenance
criteria will be reviewed on the second Friday of the second month following the
quarterly review to again determine compliance with the above criteria. Any
Underlying Stock failing this second review will be replaced by a "qualified"
Underlying Stock effective upon the close of business on the following Friday,
provided however, that if such Friday is not a day on which the AMEX is open for
trading, the replacement will be effective at the close of business on the first
preceding day on which the AMEX is open for trading. The AMEX will notify its
membership immediately after it determines to replace an Underlying Stock.
The annual reports and prospectuses of the companies listed on the Hong Kong
Stock Exchange are available for investors' inspection in the City Hall Library
(a public library in Central Hong Kong). The Hong Kong Stock Exchange library
also has information for each listed company but it is available only to members
of the Hong Kong Stock Exchange.
A company whose stock is included in the Index is not required to be
incorporated under the laws of Hong Kong.
The Index is a capitalization-weighted index. A company's market
capitalization is calculated by multiplying the number of shares outstanding by
the company's current share price (in Hong Kong dollars). For valuation purposes
unrelated to the Notes, one Index unit (1.0) is assigned a fixed value of one
U.S. dollar. The Index measures the average change in prices of the Underlying
Stocks, weighted according to their respective market capitalizations, so that
the effect of a percentage price change in an Underlying Stock will be greater
the larger the Underlying Stock's market capitalization. The Index was
established by the AMEX on June 25, 1993, on which date the Index value was set
at 350.00. The daily calculation and public dissemination by the AMEX of the
Index commenced on September 1, 1993. The data relating to the Index was back-
calculated by the AMEX from January 2, 1989 to August 31, 1993. The Index is
calculated by (i) adding the market capitalization of each Underlying Stock and
(ii) dividing such sum by an adjusted base market capitalization or divisor. On
June 25, 1993, the market value of the Underlying Stocks was approximately
H.K.$1,152,829,149,500 (equivalent to approximately U.S.$148,656,241,000 based
on the exchange rate as of such date) and the divisor used to calculate the
Index was 3,293,797,570. The AMEX selected that particular divisor number in
order, among other things, to ensure that the Index was set at a general price
level consistent with other well recognized stock markets. The divisor is
subject to periodic adjustments as set forth below. The Index is calculated once
every Index Calculation Day by the AMEX based on the most recent official
closing prices of each of the Underlying Stocks reported by the Hong Kong Stock
Exchange. Pricing of the Index will be performed each day and be disseminated
before the opening of trading via the Consolidated Tape Authority Network-B
continuously during each day on which the AMEX is open for trading. The
dissemination value, however, will remain the same throughout the trading day
because the trading hours of the Hong Kong Stock Exchange do not overlap with
AMEX trading hours. Accordingly, updated price information for the Underlying
Stocks will be unavailable.
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In order to maintain continuity in the level of the Index in the event of
certain changes due to non-market factors affecting the Underlying Stocks, such
as the addition or deletion of stocks, substitution of stock, stock dividends,
stock splits, distributions of assets to stockholders or other capitalization
events, the divisor used in calculating the Index is adjusted in a manner
designed to prevent any instantaneous change or discontinuity in the level of
the Index and in order that the value of the Index immediately after such change
will equal the level of the Index immediately prior to the change. Thereafter,
the divisor remains at the new value until a further adjustment is necessary as
the result of another change. Nevertheless, changes in the identities and
characteristics of the Underlying Stocks may significantly affect the behavior
of the Index over time.
The AMEX is under no obligation to continue the calculation and dissemination
of the Index and the method by which the Index is calculated and the name "The
AMEX Hong Kong 30 Index" may be changed at the discretion of the AMEX. The Notes
are not sponsored, endorsed, sold or promoted by the AMEX. No inference should
be drawn from the information contained in this Prospectus that the AMEX makes
any representation or warranty, implied or express, to the Company, the
beneficial owners of Notes or any member of the public regarding the
advisability of investing in securities generally or in the Notes in particular
or the ability of the Index to track general stock market performance. The AMEX
has no obligation to take the needs of the Company or the beneficial owners of
Notes into consideration in determining, composing or calculating the Index. The
AMEX is not responsible for, and has not participated in the determination of
the timing of prices for or quantities of, the Notes to be issued or in the
determination or calculation of the equation by which the Supplemental
Redemption Amount is determined. The AMEX has no obligation or liability in
connection with the administration, marketing or trading of the Notes.
The use of and reference to the Index in connection with the Notes have been
consented to by the AMEX.
Except with respect to the responsibility of the Calculation Agent to make
certain calculations under certain circumstances as described herein, none of
the Company, the Trustee, the Calculation Agent or the Underwriter accepts any
responsibility for the calculation, maintenance or publication of the Index or
any Successor Index. The AMEX disclaims all responsibility for any inaccuracies
in the data on which the Index is based, or any mistakes or errors or omissions
in the calculations or dissemination of the Index or for the manner in which
such index is applied in determining the Supplemental Redemption Amount, if any.
A potential investor should review the historical performance of the Index.
The historical performance of the Index should not be taken as an indication of
future performance, and no assurance can be given that the Index will increase
sufficiently to cause the beneficial owners of the Securities to receive an
amount in excess of the principal amount at the maturity of the Securities.
THE HONG KONG STOCK EXCHANGE AND THE HONG KONG FUTURES EXCHANGE
As of September 29, 1995, the Hong Kong Stock Exchange was the world's ninth
largest stock exchange based on U.S. dollar market capitalization. There are no
market-makers in Hong Kong, but exchange dealers may act as dual capacity
broker-dealers. All of the Underlying Stocks of the Index are traded through the
computerized trading system. Trading is undertaken from 10:00 A.M. to 12:30 P.M.
and then from 2:30 P.M. to 3:55 P.M. (Hong Kong time) every Hong Kong day except
Saturdays, Sundays and other days on which the Hong Kong Stock Exchange is
closed. Hong Kong time is 12 hours ahead of Eastern Daylight Savings Time and 13
hours ahead of Eastern Standard Time. Settlement of trades is required within 48
hours and is conducted by electronic book-entry delivery through the Central
Clearing and Settlement System.
Due to the time differences between New York City and Hong Kong, on any normal
trading day, trading on the Hong Kong Stock Exchange of the Underlying Stocks
currently will cease at 2:55 A.M. or 3:55 A.M., New York City time. Using the
last reported closing prices of the Underlying Stocks on the Hong Kong Stock
Exchange, the level of the Index on any such trading day generally will be
calculated, published and disseminated by the
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AMEX in the United States shortly prior to the opening of trading on the AMEX in
New York on the same calendar day.
The Hong Kong Stock Exchange has adopted certain measures intended to prevent
any extreme short-term price fluctuations resulting from order imbalances or
market volatility. Where the Hong Kong Stock Exchange considers it necessary for
the protection of the investor or the maintenance of an orderly market, it may
at any time suspend dealings in any securities or cancel the listing of any
securities in such circumstances and subject to such conditions as it thinks
fit, whether requested by the listed issuer or not. The Hong Kong Stock Exchange
may also do so where: (1) an issuer fails, in a manner which the Hong Kong Stock
Exchange considers material, to comply with the Hong Kong Stock Exchange Listing
Rules or its Listing Agreements; or (2) the Hong Kong Stock Exchange considers
there are insufficient securities in the hands of the public; or (3) the Hong
Kong Stock Exchange considers that the listed issuer does not have a sufficient
level of operations or sufficient assets to warrant the continued listing of the
issuer's securities; or (4) the Hong Kong Stock Exchange considers that the
issuer or its business is no longer suitable for listing. Investors should also
be aware that the Hong Kong Stock Exchange may suspend the trading of individual
stocks in certain limited and extraordinary circumstances, until certain price-
sensitive information has been disclosed to the public. For instance, dealing on
a listed company's shares will normally be suspended when information about an
intention to make a private placing, or a very substantial transaction compared
to the net asset value of the company, has been leaked through an improper
channel. Trading will not be resumed until after a formal announcement has been
made. Trading of a company's shares may also be suspended if there is unusual
trading activity in that stock.
An issuer may apply for suspension on its own accord. A suspension request
will normally only be acceded to in the following circumstances: (1) where, for
a reason acceptable to the Hong Kong Stock Exchange, price-sensitive information
cannot at that time be disclosed; (2) where the issuer is subject to an offer,
but only where terms have been agreed in principle and require discussion with,
and agreement by, one or more major shareholders (suspensions will only normally
be appropriate where no previous announcement has been made); (3) to maintain an
orderly market; (4) where there is an occurrence of certain levels of notifiable
transactions, such as substantial changes in the nature, control or structure of
the issuer, where publication of full details is necessary to permit a realistic
valuation to be made of the securities concerned, or the approval of
shareholders is required; (5) where the issuer is no longer suitable for
listing, or becomes a "cash" company; or (6) for issuers going into receivership
or liquidation.
As a result of the foregoing, variations in the Index may be limited by
suspension of trading of individual stocks which comprise the Index which may in
turn, adversely affect the value of the Notes. In addition, a partial or total
halt in trading of all of the Underlying Stocks could result in a Market
Disruption Event. See "Description of Notes--Adjustments to the Index; Market
Disruption Events" herein.
Because the Index uses certain of the same securities in its calculation as
the Hang Seng Index ("HSI"), another stock index, the HSI is referenced to
determine if a Market Disruption Event has occurred. A Market Disruption Event
can occur if there is a suspension or material limitation on the HK Futures
Exchange of trading in futures or options contracts related to the HSI. The
stock index contracts traded on the HK Futures Exchange are based upon the HSI
and its four sub-indices: properties, utilities, finance, and commerce and
industry. The HSI is a value-weighted index of 33 stocks and every stock in the
HSI is represented in one of the four sub-indices. The following Underlying
Stocks of the Index (as of December 29, 1995) are not constituent securities of
the HSI: Chinese Estates Holdings, Henderson Investment Ltd. and Tai Cheung
(Holdings) Ltd. The following constituent securities of the HSI (as of December
29, 1995) are not Underlying Stocks of the Index: Hong Kong Aircraft Eng. Co.
Ltd., Johnson Electric Holdings Ltd., Mirmar Hotel and Inv. Co. Ltd., Shangri-La
Asia Ltd., South China Morning Post (Holdings) Ltd. and Television Broadcasts
Ltd. The Index also differs from the HSI in that, among other things, the
selection, maintenance and replacement criteria for the constituent securities
of the two indices are not the same and that they are operated and governed by
the rules of different entities.
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Currently, the contracts listed on the HK Futures Exchange are HSI futures,
HSI sub-indices futures, HSI options, gold and Hong Kong Interbank Offered Rate
futures. There is a daily maximum fluctuation limit of 300 points imposed on the
HSI contracts (not applicable to spot mark contracts). Once the limit is
touched, orders cannot be transacted above (the outside limit) or below (the
downside limit) but orders within the range can continue to trade.
The foregoing discussion reflects the current rules governing the Hong Kong
Stock Exchange and the HK Futures Exchange, which are subject to change.
The HK Futures Exchange takes no responsibility for the contents of this
document, makes no representations as to its accuracy or completeness and
expressly disclaims any liability whatsoever for any loss howsoever arising from
or in reliance upon the whole or any part of the contents of this document. The
HK Futures Exchange has made no assessment of, nor taken any responsibility for,
the financial soundness of the Company or the merits of investing in the Notes,
nor have they verified the accuracy or the truthfulness of statements made or
opinions expressed in this document.
"Hong Kong Futures Exchange" and "HK Futures Exchange" are trademarks of the
Hong Kong Futures Exchange Ltd.
OTHER TERMS
GENERAL
The Securities were issued as a series of Senior Debt Securities under the
Indenture (the "Senior Indenture"), dated as of April 1, 1983, as amended and
restated, 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"). A copy of the Senior Indenture is filed as an exhibit
to the registration statements relating to the Securities. The following
summaries of certain provisions of the Senior Indenture do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the Senior Indenture, including the definition therein of
certain terms.
The Senior Indenture provides that series of Senior Debt Securities may from
time to time be issued thereunder, without limitation as to aggregate principal
amount, in one or more series and upon such terms as the Company may establish
pursuant to the provisions thereof.
The Senior Indenture provides that the Senior Indenture and the Securities are
governed by and construed in accordance with the laws of the State of New York.
The Senior Indenture provides that the Company may issue Senior Debt
Securities with terms different from those of Senior Debt Securities previously
issued, and "reopen" a previously issued series of Senior Debt Securities and
issue additional Senior Debt Securities of such series.
The Senior Debt Securities are unsecured and rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. However, 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 Senior Debt Securities), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and other regulatory bodies.
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LIMITATIONS UPON LIENS
The Company may not, and may not permit any Subsidiary to, create, assume,
incur or permit to exist any indebtedness for borrowed money secured by a
pledge, lien or other encumbrance (except for certain liens specifically
permitted by the Senior Indenture) on the Voting Stock owned directly or
indirectly by the Company of any Subsidiary (other than a Subsidiary which, at
the time of the incurrence of such secured indebtedness, has a net worth of less
than $3,000,000) without making effective provision whereby the Outstanding
Senior Debt Securities will be secured equally and ratably with such secured
indebtedness.
LIMITATION ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Indenture provides that the Company may not sell, transfer or otherwise
dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell or
otherwise dispose of any of its Voting Stock, unless, after giving effect to any
such transaction, MLPF&S remains a Controlled Subsidiary (defined in the Senior
Indenture to mean a corporation more than 80% of the outstanding shares of
Voting Stock of which are owned directly or indirectly by the Company). In
addition, the 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.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or into
any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, provided that (i) the
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received such assets shall be a
corporation organized and existing under the laws of the United States of
America or a state thereof and shall assume payment of the principal of (and
premium, if any) and interest on the Senior Debt Securities and the performance
and observance of all of the covenants and conditions of the Senior 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 Senior Indenture.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company and
the Trustee with the consent of the Holders of 66 2/3% in principal amount of
the Outstanding Senior Debt Securities of each series issued pursuant to such
indenture and affected thereby, provided that no such modification or amendment
may, without the consent of the Holder of each Outstanding Senior Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts payable on, any Senior Debt
Security or any premium payable on the redemption thereof, or change the
Redemption Price; (b) reduce the principal amount of, or the interest or
Additional Amounts payable on, any Senior Debt Security or reduce the amount of
principal which could be declared due and payable prior to the Stated Maturity;
(c) change place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any Senior Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Senior Debt Security; (e) reduce the percentage in principal
amount of the Outstanding Senior Debt Securities of any series, the consent of
whose Holders is required to modify or amend the Indenture; or (f) modify the
foregoing requirements or reduce the percentage of Outstanding Senior Debt
Securities necessary to waive any past default to less than a majority. No
modification or amendment of the Subordinated Indenture or any Subsequent
Indenture for Subordinated Debt Securities may adversely affect the rights of
any holder of Senior Indebtedness without the consent of such Holder. Except
with respect to certain fundamental provisions, the Holders of at least a
majority in principal amount of Outstanding Senior Debt Securities of any series
may, with respect to such series, waive past defaults under the Indenture and
waive compliance by the Company with certain provisions thereof.
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EVENTS OF DEFAULT
Under the Senior Indenture, the following will be Events of Default with
respect to Senior Debt Securities of any series: (a) default in the payment of
any interest or Additional Amounts payable on any Senior Debt Security of that
series when due, continued for 30 days; (b) default in the payment of any
principal or premium, if any, on any Senior Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Senior Debt Security of that series; (d) default in the
performance of any other covenant of the Company contained in the Indenture for
the benefit of such series or in the Senior Debt Securities of such series,
continued for 60 days after written notice as provided in the Senior Indenture;
(e) certain events in bankruptcy, insolvency or reorganization; and (f) any
other Event of Default provided with respect to Senior Debt Securities of that
series. The Trustee or the Holders of 25% in principal amount of the
Outstanding Senior Debt Securities of that series may declare the principal
amount (or such lesser amount as may be provided for in the Senior Debt
Securities of that series) of all Outstanding Senior Debt Securities of that
series and the interest due thereon and Additional Amounts payable in respect
thereof, if any to be due and payable immediately if an Event of Default with
respect to Senior Debt Securities of such series shall occur and be continuing
at the time of such declaration. At any time after a declaration of
acceleration has been made with respect to Senior Debt Securities of any series
but before a judgment or decree for payment of money due has been obtained by
the Trustee, the Holders of a majority in principal amount of the Outstanding
Senior Debt Securities of that series may rescind any declaration of
acceleration and its consequences, if all payments due (other than those due as
a result of acceleration) have been made and all Events of Default have been
remedied or waived. Any Event of Default with respect to Senior Debt Securities
of any series may be waived by the Holders of a majority in principal amount of
all Outstanding Senior Debt Securities of that series, except in a case of
failure to pay principal or premium, if any, or interest or Additional Amounts
payable on any Senior Debt Security of that series for which payment had not
been subsequently made or in respect of a covenant or provision which cannot be
modified or amended without the consent of the Holder of each Outstanding Senior
Debt Security of such series affected.
The Holders of a majority in principal amount of the Outstanding Senior Debt
Securities of a series may 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 Senior Debt Securities of such
series, provided that such direction shall not be in conflict with any rule of
law or the Senior Indenture. Before proceeding to exercise any right or power
under the Senior Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with any such direction.
The Company is required to furnish to the Trustee annually a statement as to
the fulfillment by the Company of all of its obligations under the Senior
Indenture.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
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 26, 1997 included
in the 1997 Annual Report on Form 10-K, and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP, as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such 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.
19
<PAGE>
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 such Quarterly Reports 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.
20
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses in connection with the issuance
and distribution of the securities being registered. All the amounts shown are
estimates, except the registration fee and the NASD fee.
<TABLE>
<S> <C>
Registration fee................................................ $ 5,900,000
Fees and expenses of accountants................................ 400,000
Fees and expenses of counsel.................................... 1,500,000
NASD fee........................................................ 30,500
Fees and expenses of Trustees and Warrant Agents................ 800,000
Printing expenses............................................... 800,000
Printing and engraving of Securities............................ 100,000
Rating agency fees.............................................. 500,000
Stock exchange listing fees..................................... 300,000
Miscellaneous................................................... 4,500
-----------
Total......................................................... $10,335,000
===========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware, as
amended, provides that under certain circumstances a corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation or
is or was serving at its request in such capacity in another corporation or
business association, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such
person's conduct was unlawful.
Article XIII, Section 2 of the Restated Certificate of Incorporation of the
Company provides in effect that, subject to certain limited exceptions, the
Company shall indemnify its directors and officers to the extent authorized or
permitted by the General Corporation Law of the State of Delaware.
Each of the underwriting and distribution agreements and forms thereof filed
as Exhibit 1 provides for the indemnification of the Company, its controlling
persons, its directors and certain of its officers by the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended (the "Act").
The directors and officers of the Company are insured under policies of
insurance maintained by the Company, subject to the limits of the policies,
against certain losses arising from any claim made against them by reason of
being or having been such directors or officers. In addition, the Company has
entered into contracts with all of its directors providing for indemnification
of such persons by the Company to the full extent authorized or permitted by
law, subject to certain limited exceptions.
The Declaration of Trust of the Trust provides, to the fullest extent
permitted by applicable law, for indemnity of the Regular Trustees, any
Affiliate of any Regular Trustee, any officer, director, shareholder, member,
partner, employee, representative or agent of any Regular Trustee, or any
officer, director, shareholder
II-1
<PAGE>
member, partner, employee representative or agent of the Trust or its
Affiliates (each a "Company Indemnified Person"), from and against losses and
expenses incurred by such Company Indemnified Person in connection with any
action, suit or proceeding, except that if such action, suit or proceedings is
by or in the right of the Trust, the indemnity shall be limited to expenses of
such Company Indemnified Person.
The Limited Partnership Agreement of the Partnership provides that to the
fullest extent permitted by applicable law, the Partnership shall indemnify
and hold harmless each of the General Partner, and any Special Representative,
any Affiliate of the General Partner or any Special Representative, any
officer, director, shareholder, member, partner, employee representative or
agent of the General Partner or any Special Representative, or any of their
respective Affiliates, or any employee of agent of the Partnership or its
Affiliates (each a "Partnership Indemnified Person"), from and against any
loss, damage or claim incurred by such Partnership Indemnified Person by
reason of any act or omission performed or omitted by such Partnership
Indemnified Person in good faith on behalf of the Partnership and in a manner
such Partnership Indemnified Person reasonably believed to be within the scope
of authority conferred on such Partnership Indemnified Person by the Limited
Partnership Agreement, except that no Partnership Indemnified Person shall be
entitled to be indemnified in respect of any loss, damage or claim incurred by
such Partnership Indemnified Person by reason of gross negligence or willful
misconduct with respect to such acts or omissions. The Limited Partnership
Agreement also provides that, to the fullest extent permitted by applicable
law, expenses (including legal fees) incurred by a Partnership Indemnified
Person in defending any claim, demand, action, suit or proceeding shall, from
time to time, be advanced by the Partnership prior to the final disposition of
such claim, demand, action, suit or proceeding upon receipt by the Partnership
of an undertaking by or on behalf of the Partnership Indemnified Person to
repay such amount if it shall be determined that the Partnership Indemnified
Person is not entitled to be indemnified as authorized in the Limited
Partnership Agreement.
The Regular Trustees of the Trust are covered by insurance policies
indemnifying them against certain liabilities, including certain liabilities
arising under the Act, which might be incurred by them in such capacity and
against which they cannot be indemnified by the Company or the Trust. Any
agents, dealers or underwriters who execute the agreements filed as Exhibit 1
of this Registration Statement with respect to Trust Originated Preference
Securities will agree to indemnify the Company's directors and their officers
and the Trustees who signed the Registration Statement with respect to such
securities against certain liabilities that may arise under the Securities Act
with respect to information furnished to the Company or the Trust by or on
behalf of any such indemnifying party.
ITEM 16. LIST OF EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
------- ----------- --------------------------
<C> <S> <C>
1(a) --Form of Underwriting
Agreement for Debt
Securities and Debt,
Currency and Index Warrants,
including forms of Terms
Agreement.*
1(b) --Form of Distribution Exhibit 1(b) to Company's Registration
Agreement, including form of Statement on Form S-3 (No. 33-51489).
Terms Agreement, relating to
Medium-Term Notes, Series B
(a series of Senior Debt
Securities).
1(c) --Form of Underwriting
Agreement for Preferred
Stock and Common Stock
Warrants, Preferred Stock,
Depositary Shares and Common
Stock.*
1(d) --Form of Purchase Agreement Exhibit 1.1 to Company's Registration
relating to the Trust Statement on Form S-3 (No. 333-42859).
Preferred Securities.
</TABLE>
- --------
* Filed herewith
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
------- ----------- --------------------------
<C> <S> <C>
4(a)(i) --Senior Indenture, dated Exhibit 99(c) to Company's
as of April 1, 1983, as Registration Statement on Form 8-A
amended and restated (the dated July 20, 1992.
"1983 Senior Indenture"),
between the Company and
The Chase Manhattan Bank,
formerly known as Chemical
Bank (successor by merger
to Manufacturers Hanover
Trust Company).
4(a)(ii) --Senior Indenture, dated Exhibit 4 to Company's Current Report
as of October 1, 1993 (the on Form 8-K dated October 7, 1993.
"1993 Senior Indenture"),
between the Company and
The Chase Manhattan Bank
(successor by merger to
The Chase Manhattan Bank,
N.A.).
4(a)(iii) --Form of initial
Subsequent Indenture with
respect to Senior Debt
Securities.*
4(a)(iv) --Form of Subsequent
Indenture with respect to
Senior Debt Securities.*
4(b)(i) --Supplemental Indenture to Exhibit 99(c) to Company's
the 1983 Senior Indenture, Registration Statement on Form 8-A
dated March 15, 1990, dated July 20, 1992.
between the Company and
The Chase Manhattan Bank,
formerly known as Chemical
Bank (successor by merger
to Manufacturers Hanover
Trust Company).
4(b)(ii) --Eighth Supplemental Exhibit 4(b) to Post-Effective
Indenture to the 1983 Amendment No. 1 to Company's
Senior Indenture, dated Registration Statement on Form S-3
March 1, 1996, between the (No. 33-65135).
Company and The Chase
Manhattan Bank, formerly
known as Chemical Bank
(successor by merger to
Manufacturers Hanover
Trust Company).
4(b)(iii) --Ninth Supplemental Exhibit 4(b) to Post-Effective
Indenture to the 1983 Amendment No. 4 to Company's
Senior Indenture, dated Registration Statement on Form S-3
June 1, 1996, between the (No. 33-65135).
Company and The Chase
Manhattan Bank, formerly
known as Chemical Bank
(successor by merger to
Manufacturers Hanover
Trust Company).
4(b)(iv) --Tenth Supplemental Exhibit 4(b) to Post-Effective
Indenture to the 1983 Amendment No. 5 to Company's
Senior Indenture, dated Registration Statement on Form S-3
July 1, 1996, between the (No. 33-65135).
Company and The Chase
Manhattan Bank, formerly
known as Chemical Bank
(successor by merger to
Manufacturers Hanover
Trust Company).
4(b)(v) --Supplemental Indenture to Exhibit 4(b)(ii) to Company's
the 1983 Senior Indenture, Registration Statement on Form S-3
dated October 25, 1993, (No. 33-61559).
between the Company and
The Chase Manhattan Bank
(successor by merger to
The Chase Manhattan Bank,
N.A.).
4(b)(vi) --First Supplemental Exhibit 4(a) to Company's Current
Indenture to the 1993 Report on Form 8-K dated July 2, 1998.
Senior Indenture, dated as
of June 1, 1998, between
the Company and The Chase
Manhattan Bank (successor
by merger to The Chase
Manhattan Bank N.A.).
</TABLE>
- --------
* Filed herewith
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
------- ----------- --------------------------
<C> <S> <C>
4(c)(i) --Form of Subordinated Exhibit 4.7 to Company's Registration
Indenture between the Statement on Form S-3 (No. 333-16603).
Company and The Chase
Manhattan Bank.
4(c)(ii) --Form of Subsequent
Indentures with respect to
Subordinated Debt
Securities.
4(e) --Form of S&P 500 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated January 28, 1993.
due July 31, 1998.
4(f) --Form of Global Exhibit 4 to Company's Current Report
Telecommunications on Form 8-K dated September 13, 1993.
Portfolio Market Index
Target-Term Security due
October 15, 1998.
4(g) --Form of Global Bond Linked Exhibit 4 to Company's Current Report
Security due December 31, on Form 8-K dated February 22, 1993.
1998.
4(h) --Form of Currency Protected Exhibit 4 to Company's Current Report
Note due December 31, 1998. on Form 8-K dated July 7, 1993.
4(i) --Form of 10 3/8% Note due Exhibit 4(y) to Company's Registration
February 1, 1999. Statement on Form S-3 (No. 33-45327).
4(j) --Form of 7 3/4% Note due Exhibit 4 to Company's Current Report
March 1, 1999. on Form 8-K dated March 2, 1992.
4(k) --Form of 6 3/8% Note due Exhibit 4 to Company's Current Report
March 30, 1999. on Form 8-K dated March 30, 1994.
4(l) --Form of Equity Exhibit 4(ooo) to Amendment No. 1 to
Participation Security with Company's Registration Statement on
Minimum Return Protection Form S-3 (No. 33-54218).
due June 30, 1999.
4(m) --Form of European Portfolio Exhibit 4 to Company's Current Report
Market Index Target-Term on Form 8-K dated December 30, 1993.
Security due June 30, 1999.
4(n) --Form of 8 1/4% Note due Exhibit 4(cc) to Company's
November 15, 1999. Registration Statement on Form S-3
(No. 33-45327).
4(o) --Form of Stock Market Exhibit 4 to Company's Current Report
Annual Reset Term Note due on Form 8-K dated April 29, 1993.
December 31, 1999 (Series
A).
4(p) --Form of Japan Index Equity Exhibit 4 to Company's Current Report
Participation Security with on Form 8-K dated January 27, 1994.
Minimum Return Protection
due January 31, 2000.
4(q) --Form of 8 3/8% Note due Exhibit 4 to Company's Current Report
February 9, 2000. on Form 8-K dated February 9, 1995.
4(r) --Form of 6.70% Note due Exhibit 4 to Company's Current Report
August 1, 2000. on Form 8-K dated August 1, 1995.
4(s) --Form of AMEX Oil Index Exhibit 4 to Company's Current Report
Stock Market Annual Reset on Form 8-K dated March 31, 1994.
Term Note due December 29,
2000.
4(t) --Form of 8% Note due Exhibit 4 to Company's Current Report
February 1, 2002. on Form 8-K dated February 4, 1992.
4(u) --Form of Step-Up Note due Exhibit 4 to Company's Current Report
April 30, 2002. on Form 8-K dated April 30, 1992.
4(v) --Form of Step-Up Note due Exhibit 4 to Company's Current Report
May 6, 2002. on Form 8-K dated May 6, 1992.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
------- ----------- --------------------------
<C> <S> <C>
4(w) --Form of 7 3/8% Note due Exhibit 4 to Company's Current Report
August 17, 2002. on Form 8-K dated August 17, 1992.
4(x) --Form of Major 8 European Exhibit 4 to Company's Current Report
Index Market Index Target- on Form 8-K dated August 1, 1997.
Term Security due August
30, 2002.
4(y) --Form of 6.64% Note due Exhibit 4 to Company's Current Report
September 19, 2002. on Form 8-K dated September 19, 1995.
4(z) --Form of 8.30% Note due Exhibit 4 to Company's Current Report
November 1, 2002. on Form 8-K dated May 4, 1992.
4(aa) --Form of Major 11 European Exhibit 4 to Company's Current Report
Market Index Target-Term on Form 8-K dated November 26, 1997.
Security due December 6,
2002.
4(bb) --Form of 6 7/8% Note due Exhibit 4 to Company's Current Report
March 1, 2003. on Form 8-K dated March 1, 1993.
4(cc) --Form of 7.05% Note due Exhibit 4 to Company's Current Report
April 15, 2003. on Form 8-K dated April 15, 1993.
4(dd) --Form of 6.55% Notes due Exhibit 4 to Company's Current Report
August 1, 2004. on Form 8-K dated August 1, 1997.
4(ee) --Form of Russell 2000 Index Exhibit 4 to Company's Current Report
Market Index Target-Term on Form 8-K dated September 29, 1997.
Security due September 30,
2004.
4(ff) --Form of 6 1/4% Note due Exhibit 4 to Company's Current Report
January 15, 2006. on Form 8-K dated January 20, 1994.
4(gg) --Form of 6 3/8% Note due Exhibit 4 to Company's Current Report
September 8, 2006. on Form 8-K dated September 8, 1993.
4(hh) --Form of 8% Note due June Exhibit 4 to Company's Current Report
1, 2007. on Form 8-K dated June 1, 1992.
4(ii) --Form of S&P 500 Inflation Exhibit 4 to Company's Current Report
Adjusted Market Index on Form 8-K dated September 24, 1997.
Target-Term Security due
September 24, 2007.
4(jj) --Form of 7% Note due April Exhibit 4 to Company's Current Report
27, 2008. on Form 8-K dated April 27, 1993.
4(kk) --Form of 6 1/4% Note due Exhibit 4 to Company's Current Report
October 15, 2008. on Form 8-K dated October 15, 1993.
4(ll) --Form of 8.40% Note due Exhibit 4(z) to Company's Registration
November 1, 2019. Statement on Form S-3 (No. 33-35456).
4(mm) --Form of Fixed Rate Medium- Exhibit 4(kk) to Company's
Term Note (without Registration Statement on Form S-3
redemption provisions). (No. 33-54218).
4(nn) --Form of Fixed Rate Medium- Exhibit 4(ll) to Company's
Term Note (with redemption Registration Statement on Form S-3
provisions). (No. 33-54218).
4(oo) --Form of Fixed Rate Medium- Exhibit 4(d) to Company's Registration
Term Note (without Statement on Form S-3 (No. 33-38879).
redemption provisions,
minimum denomination
$1,000).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
------- ----------- --------------------------
<C> <S> <C>
4(pp) --Form of Fixed Rate Medium- Exhibit 4(e) to Company's Registration
Term Note (with redemption Statement on Form S-3 (No. 33-38879).
provisions, minimum
denomination $1,000).
4(qq) --Form of Fixed Rate Medium- Exhibit 4(xiii) to Company's Quarterly
Term Note, Series B. Report on Form 10-Q for the quarter
ended September 24, 1993.
4(rr) --Form of Federal Funds Rate Exhibit 4(oo) to Company's
Medium-Term Note. Registration Statement on Form S-3
(No. 33-54218).
4(ss) --Form of Floating Rate Exhibit 4(xiv) to Company's Quarterly
Medium-Term Note, Series B. Report on Form 10-Q for the quarter
ended September 24, 1993.
4(tt) --Form of Commercial Paper Exhibit 4(qq) to Company's
Rate Medium- Term Note. Registration Statement on Form S-3
(No. 33-54218).
4(uu) --Form of Commercial Paper Exhibit 4(i) to Company's Registration
Index Rate Medium-Term Statement on Form S-3 (File No. 33-
Note. 38879).
4(vv) --Form of Constant Maturity Exhibit 4(ccc) to Company's
Treasury Rate Indexed Registration Statement on Form S-3
Medium-Term Note, Series B. (No. 33-52647).
4(ww) --Form of Constant Maturity Exhibit 4(xv) to Company's Annual
Treasury Rate Indexed Report on Form 10-K for the year ended
Medium-Term Note II, Series December 30, 1994.
B.
4(xx) --Form of JPY Yield Curve Exhibit 4(ddd) to Company's
Flattening Medium-Term Registration Statement on Form S-3
Note, Series B. (No. 33-52647).
4(yy) --Form of LIBOR Medium-Term Exhibit 4(pp) to Company's
Note. Registration Statement on Form S-3
(No. 33-54218).
4(zz) --Form of Multi-Currency Exhibit 4(fff) to Company's
Medium-Term Note, Series B. Registration Statement on Form S-3
(No. 33-52647).
4(aaa) --Form of Nine Month Exhibit 4(ix) to Company's Quarterly
Renewable Floating Rate Report on Form 10-Q for the quarter
Medium-Term Note, Series B. ended September 24, 1993.
4(bbb) --Form of Treasury Rate Exhibit 4(aaa) to Company's
Medium-Term Note. Registration Statement on Form S-3
(No. 33-54218).
4(ccc) --Form of Collared LIBOR Exhibit 4(ww) to Company's
Medium-Term Note due Registration Statement on Form S-3
February 14, 2000. (No. 33-54218).
4(ddd) --Form of Inverse Floating Exhibit 4(vii) to Company's Quarterly
Rate Medium-Term Note due Report on Form 10-Q for the quarter
September 15, 1998. ended September 24, 1993.
4(eee) --Form of Inverse Floating Exhibit 4(xii) to Company's Quarterly
Rate Medium-Term Note, Report on Form 10-Q for the quarter
Series B, due October 19, ended September 24, 1993.
1998.
4(fff) --Form of Japanese Yen Swap Exhibit 4(mmm) to Company's
Rate Linked Medium-Term Registration Statement on Form S-3
Note, Series B. (No. 33-52647).
4(ggg) --Form of Step-Up Medium- Exhibit 4(ggg) to Amendment No. 1 to
Term Note due May 20, 2008. Company's Registration Statement on
Form
S-3 (No. 33-54218).
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
------- ----------- --------------------------
<C> <S> <C>
4(iii) --Form of Warrant Agreement, Exhibit 4(aa) to Company's
including form of Warrant Registration Statement on Form S-3
Certificate. (No. 33-35456).
4(jjj) --Form of Currency Exhibit 4 to Company's Registration
[Put/Call] Warrant Statement on Form S-3 (No. 33-17965).
Agreement, including form
of Global Currency Warrant
Certificate.
4(kkk) --Form of Index Warrant Exhibit 4(kkk) to Amendment No. 1 to
Agreement, including form Company's Registration Statement on
of Global Index Warrant Form
Certificate. S-3 (No. 33-54218).
4(lll) --Form of Index Warrant Exhibit 4(lll) to Amendment No. 1 to
Trust Indenture, including Company's Registration Statement on
form of Global Index Form
Warrant Certificate. S-3 (No. 33-54218).
4(mmm) --Form of Warrant Agreement, Exhibit 4 to Company's Current Report
including form of Global on Form 8-K dated November 27, 1995.
Warrant Certificate,
relating to Russell 2000
Index Call Warrants
Expiring November 17, 1998.
4(nnn) --Form of 6 1/2% Note due Exhibit 4 to Company's Current Report
April 1, 2001. on Form 8-K dated April 1, 1996.
4(ooo) --Form of 6% Note due Exhibit 4 to Company's Current Report
January 15, 2001. on Form 8-K dated January 17, 1996.
4(ppp) --Form of 6% Note due March Exhibit 4 to Company's Current Report
1, 2001. on Form 8-K dated February 29, 1996.
4(qqq) --Form of 7% Note due March Exhibit 4 to Company's Current Report
15, 2006. on Form 8-K dated March 18, 1996.
4(rrr) --Form of 7 3/8% Note due Exhibit 4 to Company's Current Report
May 15, 2006. on Form 8-K dated May 15, 1996.
4(sss) --Form of 6% STRYPES due Exhibit 4(c) to Company's Form 8-K/A
June 1, 1999. dated June 7, 1996.
4(ttt) --Form of 7 1/4% STRYPES due Exhibit 4(c) to Post-Effective
June 15, 1999. Amendment No. 4 to Company's
Registration Statement on Form S-3
(33-65135).
4(uuu) --Form of 6 1/4% STRYPES due Exhibit 4(c) to Company's Current
July 1, 2001. Report on Form 8-K dated July 9, 1996.
4(vvv) --Form of S&P 500 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated May 13, 1996.
due May 10, 2001.
4(www) --Form of AMEX Hong Kong 30 Exhibit 4 to Company's Current Report
Index Equity Participation on Form 8-K dated February 7, 1996.
Note due February 16, 1999.
4(xxx) --Form of Technology Market Exhibit 4(a) to Company's Current
Index Target-Term Security Report on Form 8-K dated August 12,
due August 15, 2001. 1996.
4(yyy) --Form of Top Ten Yield Exhibit 4(b) to Company's Current
Market Index Target-Term Report on Form 8-K dated August 12,
Security due August 15, 1996.
2006.
4(zzz) --Form of Exhibit 4 to Company's Current Report
Healthcare/Biotechnology on Form 8-K dated October 30, 1996.
Portfolio Market Index
Target-Term Security due
October 31, 2001.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
------- ----------- --------------------------
<C> <S> <C>
4(aaaa) --Form of 7% Note due Exhibit 4 to Company's Current Report
January 15, 2007. on Form 8-K dated January 13, 1997.
4(bbbb) --Form of S&P 500 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated March 14, 1997.
due September 16, 2002.
4(cccc) --Form of Nikkei 225 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated June 3, 1997.
due June 14, 2002.
4(dddd) --Form of 6.56% Note due Exhibit 4 to Company's Current Report
December 16, 2007. on Form 8-K dated December 16, 1997.
4(eeee) --Form of 7 7/8% STRYPES due Exhibit 4(c) to Company's Current
February 1, 2001 Payable Report on Form 8-K dated January 30,
with Stock of CIBER, Inc. 1998.
4(ffff) --Form of Floating Rate Note Exhibit 4 to Company's Current Report
due February 4, 2003. on Form 8-K dated February 4, 1998.
4(gggg) --Form of 6% Note due Exhibit 4 to Company's Current Report
February 12, 2003. on Form 8-K dated February 12, 1998.
4(hhhh) --Form of Oracle Corporation Exhibit 4 to Company's Current Report
Indexed Callable Protected on Form 8-K dated March 19, 1998.
Growth Security due March
31, 2003.
4(iiii) --Form of Telebras Indexed Exhibit 4 to Company's Current Report
Callable Protected Growth on Form 8-K dated May 19, 1998.
Security due May 19, 2005.
4(jjjj) --Form of 6 3/4% Note due Exhibit 4 to Company's Current Report
June 1, 2028. on Form 8-K dated June 3, 1998.
4(kkkk) --Form of Floating Rate Note Exhibit 4 to Company's Current Report
due June 24, 2003. on Form 8-K dated June 24, 1998.
4(llll) --Form of S&P 500 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated June 26, 1998.
due July 1, 2005.
4(mmmm) --Form of Medium-Term Notes, Exhibit 4 to Company's Current Report
Series B, 3% Stock Linked on Form 8-K dated June 10, 1998.
Note due June 10, 2000
(Linked to the performance
of Honda Motor Co., Ltd.
Common Stock).
4(nnnn) --Form of Medium-Term Notes, Exhibit 4(c) to Company's Current
Series B, 5% Stock Linked Report on Form 8-K dated July 2, 1998.
Note due July 3, 2000
(Linked to the performance
of the Common Stock of
Travelers Group, Inc.).
4(oooo) --Form of 6% Note due July Exhibit (4)(a) to Company's Current
15, 2003. Report on Form 8-K dated July 15,
1998.
4(pppp) --Form of 6 1/2% Note due Exhibit (4)(b) to Company's Current
July 15, 2018. Report on Form 8-K dated July 15,
1998.
4(qqqq) --Form of Preferred Stock Exhibit 4(eeee) to Company's
and Common Stock Warrant Registration Statement on Form S-3
Agreement, including forms (File No. 333-44173).
of Preferred Stock and
Common Stock Warrant
Certificates.
4(rrrr) --Form of Deposit Agreement, Exhibit 4(ffff) to Company's
including form of Registration Statement on Form S-3
Depositary Receipt (File No. 333-44173).
Certificate representing
the Depositary Shares.
4(ssss) --Form of Certificate of Exhibit 4.1 to Company's Registration
Trust of Merrill Lynch Statement on Form S-3 (File No. 333-
Preferred Capital Trust V. 42859).
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
------- ----------- --------------------------
<C> <S> <C>
4(tttt) --Form of Amended and Exhibit 4.2 to Company's Registration
Restated Declaration of Statement on Form S-3 (File No. 333-
Trust of Merrill Lynch 42859).
Preferred Capital Trust V,
including form of Trust
Preferred Security.
4(uuuu) --Form of Certificate of Exhibit 4.3 to Company's Registration
Limited Partnership of Statement on Form S-3 (File No. 333-
Merrill Lynch Preferred 42859).
Funding V, L.P.
4(vvvv) --Form of Amended and Exhibit 4.4 to Company's Registration
Restated Limited Statement on Form S-3 (File No. 333-
Partnership Agreement of 42859).
Merrill Lynch Preferred
Funding V, L.P.
4(wwww) --Form of Trust Preferred Exhibit 4.5 to Company's Registration
Securities Guarantee Statement on Form S-3 (File No. 333-
Agreement, between the 42859).
Company and The Chase
Manhattan Bank, as
guarantee trustee,
including form of
Partnership Preferred
Security.
4(xxxx) --Form of Partnership Exhibit 4.6 to Company's Registration
Preferred Securities Statement on Form S-3 (File No. 333-
Guarantee Agreement 42859).
between the Company and
The Chase Manhattan Bank,
as guarantee trustee.
4(yyyy) --Form of Subordinated Exhibit 4 to Company's Registration
Debenture Indenture Statement on Form S-3 (File No. 333-
between the Company and 16603).
The Chase Manhattan Bank,
as trustee.
4(zzzz) --Form of Affiliate Exhibit 4.8 to Company's Registration
Debenture Guarantee Statement on Form S-3 (File No. 333-
Agreement between the 42859).
Company and The Chase
Manhattan Bank, as
guarantee trustee.
4(aaaaa) --Form of Subordinated Exhibit 4.11 to Company's Registration
Debenture. Statement on Form S-3 (File No. 333-
42859).
4(bbbbb) --Restated Certificate of Exhibit 3(i) to Company's Quarterly
Incorporation of the Report on Form 10-Q for the quarter
Company, dated April 28, ended March 27, 1998.
1998.
4(ccccc) --By-Laws of the Company, Exhibit 3(ii) to Company's Quarterly
effective as of April 15, Report on Form 10-Q for the quarter
1997. ended March 27, 1997.
4(ddddd) --Form of Certificate of Exhibit 4(ssss) to Company's
Designations of the Registration Statement on Form S-3
Company establishing the (File No. 333-44173).
rights, preferences,
privileges,
qualifications,
restrictions, and
limitations relating to a
series of the Preferred
Stock.
4(eeeee) --Form of certificate Exhibit 4(d) to Company's Registration
representing Preferred Statement on Form S-3 (File No. 33-
Stock. 55363).
4(fffff) --Form of certificate Exhibit 4(uuuu) to Company's
representing Common Stock. Registration Statement on Form S-3
(File No. 333-44173).
4(ggggg) --Form of Liquid Yield Exhibit 4(vvvv) to Company's
Option Note Indenture. Registration Statement on Form S-3
(File No. 333-44173).
4(hhhhh) --Form of Subsequent Liquid Exhibit 4(wwww) to Company's
Yield Option Note Registration Statement on Form S-3
Indenture. (File No. 333-44173).
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
------- ----------- --------------------------
<C> <S> <C>
4(iiiii) --Form of Market Index Exhibit 4 to Company's Current Report
Target-Term Security based on Form 8-K dated December 23, 1997.
upon the Dow Jones
Industrial Average due
January 14, 2003.
4(jjjjj) --Form of Supplemental Exhibit 4(yyyy) to Company's
Indenture to the 1983 Registration Statement on Form S-3
Senior Indenture, the 1993 (File No. 333-44173).
Senior Indenture and the
Subordinated Indenture
between the Company and
The Chase Manhattan Bank,
as trustee.
4(kkkkk) --Form of Amended and Exhibit 4 to Company's Current Report
Restated Rights Agreement, on Form 8-K dated December 2, 1997.
dated as of December 2,
1997, between the Company
and ChaseMellon
Shareholder Services,
L.L.C., as Rights Agent.
4(lllll) --Certificate of Exhibit 3(f) to Company's Registration
Designations of the Statement on Form S-3 (File No. 33-
Company establishing the 19975).
rights, preferences,
privileges,
qualifications,
restrictions and
limitations relating to
the Company's Series A
Junior Preferred Stock.
4(mmmmm) --Form of Amendment No. 1 Exhibit 4(bbbbb) to Company's
to the Form of Registration Statement on Form S-3
Distribution Agreement. (File No. 333-19975).
4(nnnnn) --Form of Supplemental
Indenture to the 1983
Senior Indenture.*
5(a) --Opinion of Brown & Wood
LLP.*
5(b) --Opinion of Brown & Wood
LLP.*
5(c) --Opinion of Skadden, Arps,
Slate, Meagher & Flom
LLP.*
5(d) --Opinion of Brown & Wood
LLP.*
12(a) --Computation of Ratio of Exhibit 12 to Company's Annual Report
Earnings to Fixed Charges on Form 10-K for the year ended
of the Company. December 26, 1997 and Exhibit 12 to
Company's Quarterly Report on Form 10-
Q for the quarter ended March 27,
1998.
12(b) --Computation of Ratio of Exhibit 12 to Company's Annual Report
Earnings to Combined Fixed on Form 10-K for the year ended
Charges and Preferred December 26, 1997 and Exhibit 12 to
Stock Dividends of the Company's Quarterly Report on Form 10-
Company. Q for the quarter ended March 27,
1998.
15 --Letter re Unaudited
Interim Financial
Information.*
23(a) --Consents of Brown & Wood
LLP. (included as part of
Exhibit 5).*
23(b) --Consent of Deloitte &
Touche LLP.*
</TABLE>
- --------
* Filed herewith
II-10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
------- ----------- --------------------------
<C> <S> <C>
24 --Power of Attorney of the Company
(included on page II-13).*
25(a) --Form T-1 Statement of
Eligibility under the Trust
Indenture Act of 1939 of The
Chase Manhattan Bank.*
25(b) --Form T-1 Statement of
Eligibility under the Trust
Indenture Act of 1939 of The
Chase Manhattan Bank under the
Declaration of Trust (contained
in Exhibit 4(tttt)); Trust
Preferred Securities Guarantee
Agreement (contained in Exhibit
4(wwww)); Subordinated Indenture
(contained in Exhibit 4(yyyy));
and Affiliate Debenture Guarantee
Agreements (contained in Exhibit
4(zzzz)).*
99(a) --Opinion of Deloitte & Touche LLP
with respect to certain financial
data appearing in the
Registration Statement.*
99(b) --Opinion of Deloitte & Touche LLP
with respect to certain summary
financial information and
selected financial data
incorporated by reference in the
Registration Statement.*
</TABLE>
- --------
* Filed herewith
ITEM 17. UNDERTAKINGS
Each of the undersigned registrants hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3 and the information required to
be included in a post-effective amendment by those paragraphs is contained
in periodic reports filed by the registrant pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference
in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the Securities being registered which remain unsold at the
termination of the offering.
(b) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of such registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in this registration statement shall be deemed to
be a new registration statement relating to the securities offered therein
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-11
<PAGE>
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of such registrant pursuant to the provisions referred
to in Item 15 of this registration statement, or otherwise, such registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
such Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by such
registrant of expenses incurred or paid by a director, officer or
controlling person of such registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, such
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(d) To file an application for the purpose of determining the eligibility
of the trustee to act under subsection (a) of Section 310 of the Trust
Indenture Act (the "Act") in accordance with the rules and regulations
prescribed by the Commission under Section 305(b)(2) of the Act.
II-12
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF NEW YORK AND STATE OF NEW YORK ON THE 28TH DAY OF
JULY, 1998.
Merrill Lynch & Co., Inc.
/s/ David H. Komansky
By: _________________________________
DAVID H. KOMANSKY
(CHAIRMAN OF THE BOARD, CHIEF
EXECUTIVE OFFICER AND DIRECTOR)
Know All Men by These Presents, that each person whose signature appears
below constitutes and appoints David H. Komansky, Herbert M. Allison, Jr., E.
Stanley O'Neal and Stephen L. Hammerman, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his name or her name, place and stead,
in any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THE 28TH DAY OF JULY, 1998.
SIGNATURE TITLE
/s/ David H. Komansky Chairman of the Board, Chief
- ------------------------------------- Executive Officer and Director
(DAVID H. KOMANSKY)
/s/ Herbert M. Allison, Jr. President, Chief Operating Officer
- ------------------------------------- and Director
(HERBERT M. ALLISON, JR.)
/s/ E. Stanley O'Neal Executive Vice President and Chief
- ------------------------------------- Financial Officer (Principal
(E. STANLEY O'NEAL) Financial Officer)
/s/ Michael J. Castellano Senior Vice President and Controller
- ------------------------------------- (Principal Accounting Officer)
(MICHAEL J. CASTELLANO)
<PAGE>
SIGNATURE TITLE
/s/ W.H. Clark Director
- -------------------------------------
(W.H. CLARK)
/s/ Jill K. Conway Director
- -------------------------------------
(JILL K. CONWAY)
/s/ Stephen L. Hammerman Director
- -------------------------------------
(STEPHEN L. HAMMERMAN)
/s/ Earle H. Harbison, Jr. Director
- -------------------------------------
(EARLE H. HARBISON, JR.)
/s/ George B. Harvey Director
- -------------------------------------
(GEORGE B. HARVEY)
/s/ William R. Hoover Director
- -------------------------------------
(WILLIAM R. HOOVER)
/s/ Robert P. Luciano Director
- -------------------------------------
(ROBERT P. LUCIANO)
/s/ David K. Newbigging Director
- -------------------------------------
(DAVID K. NEWBIGGING)
/s/ Aulana L. Peters Director
- -------------------------------------
(AULANA L. PETERS)
/s/ John J. Phelan, Jr. Director
- -------------------------------------
(JOHN J. PHELAN, JR.)
/s/ John L. Steffens Director
- -------------------------------------
(JOHN L. STEFFENS)
/s/ William L. Weiss Director
- -------------------------------------
(WILLIAM L. WEISS)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 28th day of July, 1998.
Merrill Lynch Preferred Funding V,
L.P.
By: Merrill Lynch & Co., Inc.,
as General Partner
/s/ Theresa Lang
By:_______________________________
Name: Theresa Lang
Title: Senior Vice President and
Treasurer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 28th day of July, 1998.
Merrill Lynch Preferred Capital
Trust V
/s/ Theresa Lang
By: _________________________________
Name: Theresa Lang
Title: Regular Trustee
/s/ Stanley Schaefer
By: _________________________________
Name: Stanley Schaefer
Title: Regular Trustee
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
------- ----------- --------------------------
<C> <S> <C>
1(a) --Form of Underwriting
Agreement for Debt
Securities and Debt,
Currency and Index
Warrants, including forms
of Terms Agreement.*
1(b) --Form of Distribution Exhibit 1(b) to Company's Registration
Agreement, including form Statement on Form S-3 (No. 33-51489).
of Terms Agreement,
relating to Medium-Term
Notes, Series B (a series
of Senior Debt
Securities).
1(c) --Form of Underwriting
Agreement for Preferred
Stock and Common Stock
Warrants, Preferred Stock,
Depositary Shares and
Common Stock.*
1(d) --Form of Purchase Exhibit 1.1 to Company's Registration
Agreement relating to the Statement on Form S-3 (No. 333-42859).
Trust Preferred
Securities.
4(a)(i) --Senior Indenture, dated Exhibit 99(c) to Company's
as of April 1, 1983, as Registration Statement on Form 8-A
amended and restated (the dated July 20, 1992.
"1983 Senior Indenture"),
between the Company and
The Chase Manhattan Bank,
formerly known as Chemical
Bank (successor by merger
to Manufacturers Hanover
Trust Company).
4(a)(ii) --Senior Indenture, dated Exhibit 4 to Company's Current Report
as of October 1, 1993 (the on Form 8-K dated October 7, 1993.
"1993 Senior Indenture"),
between the Company and
The Chase Manhattan Bank
(successor by merger to
The Chase Manhattan Bank,
N.A.).
4(a)(iii) --Form of initial
Subsequent Indenture with
respect to Senior Debt
Securities.*
4(a)(iv) --Form of Subsequent
Indenture with respect to
Senior Debt Securities.*
4(b)(i) --Supplemental Indenture to Exhibit 99(c) to Company's
the 1983 Senior Indenture, Registration Statement on Form 8-A
dated March 15, 1990, dated July 20, 1992.
between the Company and
The Chase Manhattan Bank,
formerly known as Chemical
Bank (successor by merger
to Manufacturers Hanover
Trust Company).
4(b)(ii) --Eighth Supplemental Exhibit 4(b) to Post-Effective
Indenture to the 1983 Amendment No. 1 to Company's
Senior Indenture, dated Registration Statement on Form S-3
March 1, 1996, between the (No. 33-65135).
Company and The Chase
Manhattan Bank, formerly
known as Chemical Bank
(successor by merger to
Manufacturers Hanover
Trust Company).
</TABLE>
- --------
* Filed herewith
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
------- ----------- --------------------------
<C> <S> <C>
4(b)(iii) --Ninth Supplemental Exhibit 4(b) to Post-Effective
Indenture to the 1983 Amendment No. 4 to Company's
Senior Indenture, dated Registration Statement on Form S-3
June 1, 1996, between the (No. 33-65135).
Company and The Chase
Manhattan Bank, formerly
known as Chemical Bank
(successor by merger to
Manufacturers Hanover
Trust Company).
4(b)(iv) --Tenth Supplemental Exhibit 4(b) to Post-Effective
Indenture to the 1983 Amendment No. 5 to Company's
Senior Indenture, dated Registration Statement on Form S-3
July 1, 1996, between the (No. 33-65135).
Company and The Chase
Manhattan Bank, formerly
known as Chemical Bank
(successor by merger to
Manufacturers Hanover
Trust Company).
4(b)(v) --Supplemental Indenture to Exhibit 4(b)(ii) to Company's
the 1983 Senior Indenture, Registration Statement on Form S-3
dated October 25, 1993, (No. 33-61559).
between the Company and
The Chase Manhattan Bank
(successor by merger to
The Chase Manhattan Bank,
N.A.).
4(b)(vi) --First Supplemental Exhibit 4(a) to Company's Current
Indenture to the 1993 Report on Form 8-K dated July 2, 1998.
Senior Indenture, dated as
of June 1, 1998, between
the Company and The Chase
Manhattan Bank (successor
by merger to The Chase
Manhattan Bank N.A.).
4(c)(i) --Form of Subordinated Exhibit 4.7 to Company's Registration
Indenture between the Statement on Form S-3 (No. 333-16603).
Company and The Chase
Manhattan Bank.
4(c)(ii) --Form of Subsequent
Indentures with respect to
Subordinated Debt
Securities.*
4(e) --Form of S&P 500 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated January 28, 1993.
due July 31, 1998.
4(f) --Form of Global Exhibit 4 to Company's Current Report
Telecommunications on Form 8-K dated September 13, 1993.
Portfolio Market Index
Target-Term Security due
October 15, 1998.
4(g) --Form of Global Bond Exhibit 4 to Company's Current Report
Linked Security due on Form 8-K dated February 22, 1993.
December 31, 1998.
4(h) --Form of Currency Exhibit 4 to Company's Current Report
Protected Note due on Form 8-K dated July 7, 1993.
December 31, 1998.
4(i) --Form of 10 3/8% Note due Exhibit 4(y) to Company's Registration
February 1, 1999. Statement on Form S-3 (No. 33-45327).
4(j) --Form of 7 3/4% Note due Exhibit 4 to Company's Current Report
March 1, 1999. on Form 8-K dated March 2, 1992.
4(k) --Form of 6 3/8% Note due Exhibit 4 to Company's Current Report
March 30, 1999. on Form 8-K dated March 30, 1994.
4(l) --Form of Equity Exhibit 4(ooo) to Amendment No. 1 to
Participation Security Company's Registration Statement on
with Minimum Return Form S-3 (No. 33-54218).
Protection due June 30,
1999.
4(m) --Form of European Exhibit 4 to Company's Current Report
Portfolio Market Index on Form 8-K dated December 30, 1993.
Target-Term Security due
June 30, 1999.
</TABLE>
- --------
* Filed herewith
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
------- ----------- --------------------------
<C> <S> <C>
4(n) --Form of 8 1/4% Note due Exhibit 4(cc) to Company's
November 15, 1999. Registration Statement on Form S-3
(No. 33-45327).
4(o) --Form of Stock Market Annual Exhibit 4 to Company's Current Report
Reset Term Note due December on Form 8-K dated April 29, 1993.
31, 1999 (Series A).
4(p) --Form of Japan Index Equity Exhibit 4 to Company's Current Report
Participation Security with on Form 8-K dated January 27, 1994.
Minimum Return Protection due
January 31, 2000.
4(q) --Form of 8 3/8% Note due Exhibit 4 to Company's Current Report
February 9, 2000. on Form 8-K dated February 9, 1995.
4(r) --Form of 6.70% Note due Exhibit 4 to Company's Current Report
August 1, 2000. on Form 8-K dated August 1, 1995.
4(s) --Form of AMEX Oil Index Stock Exhibit 4 to Company's Current Report
Market Annual Reset Term Note on Form 8-K dated March 31, 1994.
due December 29, 2000.
4(t) --Form of 8% Note due February Exhibit 4 to Company's Current Report
1, 2002. on Form 8-K dated February 4, 1992.
4(u) --Form of Step-Up Note due Exhibit 4 to Company's Current Report
April 30, 2002. on Form 8-K dated April 30, 1992.
4(v) --Form of Step-Up Note due May Exhibit 4 to Company's Current Report
6, 2002. on Form 8-K dated May 6, 1992.
4(w) --Form of 7 3/8% Note due Exhibit 4 to Company's Current Report
August 17, 2002. on Form 8-K dated August 17, 1992.
4(x) --Form of Major 8 European Exhibit 4 to Company's Current Report
Index Market Index Target- on Form 8-K dated August 1, 1997.
Term Security due August 30,
2002.
4(y) --Form of 6.64% Note due Exhibit 4 to Company's Current Report
September 19, 2002. on Form 8-K dated September 19, 1995.
4(z) --Form of 8.30% Note due Exhibit 4 to Company's Current Report
November 1, 2002. on Form 8-K dated May 4, 1992.
4(aa) --Form of Major 11 European Exhibit 4 to Company's Current Report
Market Index Target-Term on Form 8-K dated November 26, 1997.
Security due December 6,
2002.
4(bb) --Form of 6 7/8% Note due Exhibit 4 to Company's Current Report
March 1, 2003. on Form 8-K dated March 1, 1993.
4(cc) --Form of 7.05% Note due April Exhibit 4 to Company's Current Report
15, 2003. on Form 8-K dated April 15, 1993.
4(dd) --Form of 6.55% Notes due Exhibit 4 to Company's Current Report
August 1, 2004. on Form 8-K dated August 1, 1997.
4(ee) --Form of Russell 2000 Index Exhibit 4 to Company's Current Report
Market Index Target-Term on Form 8-K dated September 29, 1997.
Security due September 30,
2004.
4(ff) --Form of 6 1/4% Note due Exhibit 4 to Company's Current Report
January 15, 2006. on Form 8-K dated January 20, 1994.
4(gg) --Form of 6 3/8% Note due Exhibit 4 to Company's Current Report
September 8, 2006. on Form 8-K dated September 8, 1993.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
------- ----------- --------------------------
<C> <S> <C>
4(hh) --Form of 8% Note due June Exhibit 4 to Company's Current Report
1, 2007. on Form 8-K dated June 1, 1992.
4(ii) --Form of S&P 500 Inflation Exhibit 4 to Company's Current Report
Adjusted Market Index on Form 8-K dated September 24, 1997.
Target-Term Security due
September 24, 2007.
4(jj) --Form of 7% Note due April Exhibit 4 to Company's Current Report
27, 2008. on Form 8-K dated April 27, 1993.
4(kk) --Form of 6 1/4% Note due Exhibit 4 to Company's Current Report
October 15, 2008. on Form 8-K dated October 15, 1993.
4(ll) --Form of 8.40% Note due Exhibit 4(z) to Company's Registration
November 1, 2019. Statement on Form S-3 (No. 33-35456).
4(mm) --Form of Fixed Rate Medium- Exhibit 4(kk) to Company's
Term Note (without Registration Statement on Form S-3
redemption provisions). (No. 33-54218).
4(nn) --Form of Fixed Rate Medium- Exhibit 4(ll) to Company's
Term Note (with redemption Registration Statement on Form S-3
provisions). (No. 33-54218).
4(oo) --Form of Fixed Rate Medium- Exhibit 4(d) to Company's Registration
Term Note (without Statement on Form S-3 (No. 33-38879).
redemption provisions,
minimum denomination
$1,000).
4(pp) --Form of Fixed Rate Medium- Exhibit 4(e) to Company's Registration
Term Note (with redemption Statement on Form S-3 (No. 33-38879).
provisions, minimum
denomination $1,000).
4(qq) --Form of Fixed Rate Medium- Exhibit 4(xiii) to Company's Quarterly
Term Note, Series B. Report on Form 10-Q for the quarter
ended September 24, 1993.
4(rr) --Form of Federal Funds Rate Exhibit 4(oo) to Company's
Medium-Term Note. Registration Statement on Form S-3
(No. 33-54218).
4(ss) --Form of Floating Rate Exhibit 4(xiv) to Company's Quarterly
Medium-Term Note, Series B. Report on Form 10-Q for the quarter
ended September 24, 1993.
4(tt) --Form of Commercial Paper Exhibit 4(qq) to Company's
Rate Medium- Term Note. Registration Statement on Form S-3
(No. 33-54218).
4(uu) --Form of Commercial Paper Exhibit 4(i) to Company's Registration
Index Rate Medium-Term Statement on Form S-3 (File No. 33-
Note. 38879).
4(vv) --Form of Constant Maturity Exhibit 4(ccc) to Company's
Treasury Rate Indexed Registration Statement on Form S-3
Medium-Term Note, Series B. (No. 33-52647).
4(ww) --Form of Constant Maturity Exhibit 4(xv) to Company's Annual
Treasury Rate Indexed Report on Form 10-K for the year ended
Medium-Term Note II, Series December 30, 1994.
B.
4(xx) --Form of JPY Yield Curve Exhibit 4(ddd) to Company's
Flattening Medium-Term Registration Statement on Form S-3
Note, Series B. (No. 33-52647).
4(yy) --Form of LIBOR Medium-Term Exhibit 4(pp) to Company's
Note. Registration Statement on Form S-3
(No. 33-54218).
4(zz) --Form of Multi-Currency Exhibit 4(fff) to Company's
Medium-Term Note, Series B. Registration Statement on Form S-3
(No. 33-52647).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
------- ----------- --------------------------
<C> <S> <C>
4(aaa) --Form of Nine Month Exhibit 4(ix) to Company's Quarterly
Renewable Floating Rate Report on Form 10-Q for the quarter
Medium-Term Note, Series B. ended September 24, 1993.
4(bbb) --Form of Treasury Rate Exhibit 4(aaa) to Company's
Medium-Term Note. Registration Statement on Form S-3
(No. 33-54218).
4(ccc) --Form of Collared LIBOR Exhibit 4(ww) to Company's
Medium-Term Note due Registration Statement on Form S-3
February 14, 2000. (No. 33-54218).
4(ddd) --Form of Inverse Floating Exhibit 4(vii) to Company's Quarterly
Rate Medium-Term Note due Report on Form 10-Q for the quarter
September 15, 1998. ended September 24, 1993.
4(eee) --Form of Inverse Floating Exhibit 4(xii) to Company's Quarterly
Rate Medium-Term Note, Report on Form 10-Q for the quarter
Series B, due October 19, ended September 24, 1993.
1998.
4(fff) --Form of Japanese Yen Swap Exhibit 4(mmm) to Company's
Rate Linked Medium-Term Registration Statement on Form S-3
Note, Series B. (No. 33-52647).
4(ggg) --Form of Step-Up Medium-Term Exhibit 4(ggg) to Amendment No. 1 to
Note due May 20, 2008. Company's Registration Statement on
Form
S-3 (No. 33-54218).
4(iii) --Form of Warrant Agreement, Exhibit 4(aa) to Company's
including form of Warrant Registration Statement on Form S-3
Certificate. (No. 33-35456).
4(jjj) --Form of Currency [Put/Call] Exhibit 4 to Company's Registration
Warrant Agreement, including Statement on Form S-3 (No. 33-17965).
form of Global Currency
Warrant Certificate.
4(kkk) --Form of Index Warrant Exhibit 4(kkk) to Amendment No. 1 to
Agreement, including form of Company's Registration Statement on
Global Index Warrant Form
Certificate. S-3 (No. 33-54218).
4(lll) --Form of Index Warrant Trust Exhibit 4(lll) to Amendment No. 1 to
Indenture, including form of Company's Registration Statement on
Global Index Warrant Form
Certificate. S-3 (No. 33-54218).
4(mmm) --Form of Warrant Agreement, Exhibit 4 to Company's Current Report
including form of Global on Form 8-K dated November 27, 1995.
Warrant Certificate,
relating to Russell 2000
Index Call Warrants Expiring
November 17, 1998.
4(nnn) --Form of 6 1/2% Note due Exhibit 4 to Company's Current Report
April 1, 2001. on Form 8-K dated April 1, 1996.
4(ooo) --Form of 6% Note due January Exhibit 4 to Company's Current Report
15, 2001. on Form 8-K dated January 17, 1996.
4(ppp) --Form of 6% Note due March Exhibit 4 to Company's Current Report
1, 2001. on Form 8-K dated February 29, 1996.
4(qqq) --Form of 7% Note due March Exhibit 4 to Company's Current Report
15, 2006. on Form 8-K dated March 18, 1996.
4(rrr) --Form of 7 3/8% Note due May Exhibit 4 to Company's Current Report
15, 2006. on Form 8-K dated May 15, 1996.
4(sss) --Form of 6% STRYPES due June Exhibit 4(c) to Company's Form 8-K/A
1, 1999. dated June 7, 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
------- ----------- --------------------------
<C> <S> <C>
4(ttt) --Form of 7 1/4% STRYPES due Exhibit 4(c) to Post-Effective
June 15, 1999. Amendment No. 4 to Company's
Registration Statement on Form S-3
(33-65135).
4(uuu) --Form of 6 1/4% STRYPES due Exhibit 4(c) to Company's Current
July 1, 2001. Report on Form 8-K dated July 9, 1996.
4(vvv) --Form of S&P 500 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated May 13, 1996.
due May 10, 2001.
4(www) --Form of AMEX Hong Kong 30 Exhibit 4 to Company's Current Report
Index Equity Participation on Form 8-K dated February 7, 1996.
Note due February 16, 1999.
4(xxx) --Form of Technology Market Exhibit 4(a) to Company's Current
Index Target-Term Security Report on Form 8-K dated August 12,
due August 15, 2001. 1996.
4(yyy) --Form of Top Ten Yield Exhibit 4(b) to Company's Current
Market Index Target-Term Report on Form 8-K dated August 12,
Security due August 15, 1996.
2006.
4(zzz) --Form of Exhibit 4 to Company's Current Report
Healthcare/Biotechnology on Form 8-K dated October 30, 1996.
Portfolio Market Index
Target-Term Security due
October 31, 2001.
4(aaaa) --Form of 7% Note due Exhibit 4 to Company's Current Report
January 15, 2007. on Form 8-K dated January 13, 1997.
4(bbbb) --Form of S&P 500 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated March 14, 1997.
due September 16, 2002.
4(cccc) --Form of Nikkei 225 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated June 3, 1997.
due June 14, 2002.
4(dddd) --Form of 6.56% Note due Exhibit 4 to Company's Current Report
December 16, 2007. on Form 8-K dated December 16, 1997.
4(eeee) --Form of 7 7/8% STRYPES due Exhibit 4(c) to Company's Current
February 1, 2001 Payable Report on Form 8-K dated January 30,
with Stock of CIBER, Inc. 1998.
4(ffff) --Form of Floating Rate Note Exhibit 4 to Company's Current Report
due February 4, 2003. on Form 8-K dated February 4, 1998.
4(gggg) --Form of 6% Note due Exhibit 4 to Company's Current Report
February 12, 2003. on Form 8-K dated February 12, 1998.
4(hhhh) --Form of Oracle Corporation Exhibit 4 to Company's Current Report
Indexed Callable Protected on Form 8-K dated March 19, 1998.
Growth Security due March
31, 2003.
4(iiii) --Form of Telebras Indexed Exhibit 4 to Company's Current Report
Callable Protected Growth on Form 8-K dated May 19, 1998.
Security due May 19, 2005.
4(jjjj) --Form of 6 3/4% Note due Exhibit 4 to Company's Current Report
June 1, 2028. on Form 8-K dated June 3, 1998.
4(kkkk) --Form of Floating Rate Note Exhibit 4 to Company's Current Report
due June 24, 2003. on Form 8-K dated June 24, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
------- ----------- --------------------------
<C> <S> <C>
4(llll) --Form of S&P 500 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated June 26, 1998.
due July 1, 2005.
4(mmmm) --Form of Medium-Term Notes, Exhibit 4 to Company's Current Report
Series B, 3% Stock Linked on Form 8-K dated June 10, 1998.
Note due June 10, 2000
(Linked to the performance
of Honda Motor Co., Ltd.
Common Stock).
4(nnnn) --Form of Medium-Term Notes, Exhibit 4(c) to Company's Current
Series B, 5% Stock Linked Report on Form 8-K dated July 2, 1998.
Note due July 3, 2000
(Linked to the performance
of the Common Stock of
Travelers Group, Inc.).
4(oooo) --Form of 6% Note due July Exhibit (4)(a) to Company's Current
15, 2003. Report on Form 8-K dated July 15,
1998.
4(pppp) --Form of 6 1/2% Note due Exhibit (4)(b) to Company's Current
July 15, 2018. Report on Form 8-K dated July 15,
1998.
4(qqqq) --Form of Preferred Stock Exhibit 4(eeee) to Company's
and Common Stock Warrant Registration Statement on Form S-3
Agreement, including forms (File No. 333-44173).
of Preferred Stock and
Common Stock Warrant
Certificates.
4(rrrr) --Form of Deposit Agreement, Exhibit 4(ffff) to Company's
including form of Registration Statement on Form S-3
Depositary Receipt (File No. 333-44173).
Certificate representing
the Depositary Shares.
4(ssss) --Form of Certificate of Exhibit 4.1 to Company's Registration
Trust of Merrill Lynch Statement on Form S-3 (File No. 333-
Preferred Capital Trust V. 42859).
4(tttt) --Form of Amended and Exhibit 4.2 to Company's Registration
Restated Declaration of Statement on Form S-3 (File No. 333-
Trust of Merrill Lynch 42859).
Preferred Capital Trust V,
including form of Trust
Preferred Security.
4(uuuu) --Form of Certificate of Exhibit 4.3 to Company's Registration
Limited Partnership of Statement on Form S-3 (File No. 333-
Merrill Lynch Preferred 42859).
Funding V, L.P.
4(vvvv) --Form of Amended and Exhibit 4.4 to Company's Registration
Restated Limited Statement on Form S-3 (File No. 333-
Partnership Agreement of 42859).
Merrill Lynch Preferred
Funding V, L.P.
4(wwww) --Form of Trust Preferred Exhibit 4.5 to Company's Registration
Securities Guarantee Statement on Form S-3 (File No. 333-
Agreement, between the 42859).
Company and The Chase
Manhattan Bank, as
guarantee trustee,
including form of
Partnership Preferred
Security.
4(xxxx) --Form of Partnership Exhibit 4.6 to Company's Registration
Preferred Securities Statement on Form S-3 (File No. 333-
Guarantee Agreement between 42859).
the Company and The Chase
Manhattan Bank, as
guarantee trustee.
4(yyyy) --Form of Subordinated Exhibit 4 to Company's Registration
Debenture Indenture between Statement on Form S-3 (File No. 333-
the Company and The Chase 16603).
Manhattan Bank, as trustee.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
------- ----------- --------------------------
<C> <S> <C>
4(zzzz) --Form of Affiliate Exhibit 4.8 to Company's Registration
Debenture Guarantee Statement on Form S-3 (File No. 333-
Agreement between the 42859).
Company and The Chase
Manhattan Bank, as
guarantee trustee.
4(aaaaa) --Form of Subordinated Exhibit 4.11 to Company's Registration
Debenture. Statement on Form S-3 (File No. 333-
42859).
4(bbbbb) --Restated Certificate of Exhibit 3(i) to Company's Quarterly
Incorporation of the Report on Form 10-Q for the quarter
Company, dated April 28, ended March 27, 1998.
1998.
4(ccccc) --By-Laws of the Company, Exhibit 3(ii) to Company's Quarterly
effective as of April 15, Report on Form 10-Q for the quarter
1997. ended March 27, 1997.
4(ddddd) --Form of Certificate of Exhibit 4(ssss) to Company's
Designations of the Registration Statement on Form S-3
Company establishing the (File No. 333-44173).
rights, preferences,
privileges,
qualifications,
restrictions, and
limitations relating to a
series of the Preferred
Stock.
4(eeeee) --Form of certificate Exhibit 4(d) to Company's Registration
representing Preferred Statement on Form S-3 (File No. 33-
Stock. 55363).
4(fffff) --Form of certificate Exhibit 4(uuuu) to Company's
representing Common Stock. Registration Statement on Form S-3
(File No. 333-44173).
4(ggggg) --Form of Liquid Yield Exhibit 4(vvvv) to Company's
Option Note Indenture. Registration Statement on Form S-3
(File No. 333-44173).
4(hhhhh) --Form of Subsequent Liquid Exhibit 4(wwww) to Company's
Yield Option Note Registration Statement on Form S-3
Indenture. (File No. 333-44173).
4(iiiii) --Form of Market Index Exhibit 4 to Company's Current Report
Target-Term Security based on Form 8-K dated December 23, 1997.
upon the Dow Jones
Industrial Average due
January 14, 2003.
4(jjjjj) --Form of Supplemental Exhibit 4(yyyy) to Company's
Indenture to the 1983 Registration Statement on Form S-3
Senior Indenture, the 1993 (File No. 333-44173).
Senior Indenture and the
Subordinated Indenture
between the Company and
The Chase Manhattan Bank,
as trustee.
4(kkkkk) --Form of Amended and Exhibit 4 to Company's Current Report
Restated Rights Agreement, on Form 8-K dated December 2, 1997.
dated as of December 2,
1997, between the Company
and ChaseMellon
Shareholder Services,
L.L.C., as Rights Agent.
4(lllll) --Certificate of Exhibit 3(f) to Company's Registration
Designations of the Statement on Form S-3 (File No. 33-
Company establishing the 19975).
rights, preferences,
privileges,
qualifications,
restrictions and
limitations relating to
the Company's Series A
Junior Preferred Stock.
4(mmmmm) --Form of Amendment No. 1 Exhibit 4(bbbbb) to Company's
to the Form of Registration Statement on Form S-3
Distribution Agreement. (File No. 333-19975).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
------- ----------- --------------------------
<C> <S> <C>
4(nnnnn) --Form of Supplemental
Indenture to the 1983
Senior Indenture.*
5(a) --Opinion of Brown & Wood
LLP.*
5(b) --Opinion of Brown & Wood
LLP.*
5(c) --Opinion of Skadden, Arps,
Slate, Meagher & Flom
LLP.*
5(d) --Opinion of Brown & Wood
LLP.*
12(a) --Computation of Ratio of Exhibit 12 to Company's Annual Report
Earnings to Fixed Charges on Form 10-K for the year ended
of the Company. December 26, 1997 and Exhibit 12 to
Company's Quarterly Report on Form 10-
Q for the quarter ended March 27,
1998.
12(b) --Computation of Ratio of Exhibit 12 to Company's Annual Report
Earnings to Combined Fixed on Form 10-K for the year ended
Charges and Preferred December 26, 1997 and Exhibit 12 to
Stock Dividends of the Company's Quarterly Report on Form 10-
Company. Q for the quarter ended March 27,
1998.
15 --Letter re Unaudited
Interim Financial
Information.*
23(a) --Consents of Brown & Wood
LLP. (included as part of
Exhibit 5).*
23(b) --Consent of Deloitte &
Touche LLP.*
24 --Power of Attorney of the
Company (included on page
II-13).
25(a) --Form T-1 Statement of
Eligibility under the
Trust Indenture Act of
1939 of The Chase
Manhattan Bank.*
25(b) --Form T-1 Statement of
Eligibility under the
Trust Indenture Act of
1939 of The Chase
Manhattan Bank under the
Declaration of Trust
(contained in Exhibit
4(tttt)); Trust Preferred
Securities Guarantee
Agreement (contained in
Exhibit 4(wwww));
Subordinated Indenture
(contained in Exhibit
4(yyyy)); and Affiliate
Debenture Guarantee
Agreements (contained in
Exhibit 4(zzzz)).*
99(a) --Opinion of Deloitte &
Touche LLP with respect to
certain financial data
appearing in the
Registration Statement.*
99(b) --Opinion of Deloitte &
Touche LLP with respect to
certain summary financial
information and selected
financial data
incorporated by reference
in the Registration
Statement.*
</TABLE>
- --------
* Filed herewith
<PAGE>
EXHIBIT 1(a)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MERRILL LYNCH & CO., INC.
(a Delaware corporation)
UNDERWRITING AGREEMENT FOR
--------------------------
DEBT SECURITIES AND WARRANTS
----------------------------
Dated: July __, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. Representations and Warranties................................................................... 5
(a) Representations and Warranties by the Company...................................................... 5
(1) Compliance with Registration Requirements..................................................... 5
(2) Incorporated Documents........................................................................ 6
(3) Independent Accountants....................................................................... 6
(4) Financial Statements.......................................................................... 6
(5) No Material Adverse Change in Business........................................................ 7
(6) Good Standing of the Company.................................................................. 7
(7) Good Standing of Subsidiaries................................................................. 7
(8) Capitalization................................................................................ 8
(9) Authorization of this Underwriting Agreement and the Terms Agreement.......................... 8
(10) Authorization of Senior Debt Securities and/or Subordinated Debt Securities................... 8
(11) Authorization of Indentures................................................................... 9
(12) Authorization of Warrants..................................................................... 9
(13) Authorization of Index Warrant Indenture or Warrant Agreement................................. 9
(14) Authorization of Underlying Securities........................................................ 10
(15) Authorization of Deposit Agreement............................................................ 11
(16) Description of the Underwritten Securities, Indentures, Warrant
Agreements and Underlying Securities.......................................................... 11
(17) Absence of Defaults and Conflicts............................................................. 11
(18) Absence of Labor Dispute...................................................................... 12
(19) Absence of Proceedings........................................................................ 12
(20) Exhibits...................................................................................... 12
(21) Absence of Further Requirements............................................................... 12
(22) Possession of Intellectual Property........................................................... 13
(23) Possession of Licenses and Permits............................................................ 13
(24) Title to Property............................................................................. 13
(25) Commodity Exchange Act........................................................................ 14
(26) Compliance with Cuba Act...................................................................... 14
(b) Officer's Certificates............................................................................. 14
SECTION 2. Sale and Delivery to Underwriters; Closing....................................................... 15
(a) Underwritten Securities............................................................................ 15
(b) Payment............................................................................................ 15
(c) Denominations; Registration........................................................................ 15
SECTION 3. Covenants of the Company......................................................................... 15
(a) Compliance with Securities Regulations and Commission Requests..................................... 15
(b) Filing of Amendments............................................................................... 16
(c) Delivery of Registration Statements................................................................ 16
(d) Delivery of Prospectuses........................................................................... 16
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
(e) Continued Compliance with Securities Laws.......................................................... 16
(f) Blue Sky Qualifications............................................................................ 17
(g) Earnings Statement................................................................................. 17
(h) Reservation of Securities.......................................................................... 17
(i) Use of Proceeds.................................................................................... 17
(j) Listing............................................................................................ 17
(k) Restriction on Sale of Securities.................................................................. 17
(l) Reporting Requirements............................................................................. 18
SECTION 4. Payment of Expenses............................................................................. 18
(a) Expenses........................................................................................... 18
(b) Termination of Agreement........................................................................... 19
SECTION 5. Conditions of Underwriters' Obligations......................................................... 19
(a) Effectiveness of Registration Statement............................................................ 19
(b) Opinion of Counsel for Company..................................................................... 19
(c) Opinion of Counsel for Underwriters................................................................ 19
(d) Officers' Certificate.............................................................................. 20
(e) Accountant's Comfort Letter........................................................................ 20
(f) Rating............................................................................................. 20
(g) Approval of Listing................................................................................ 20
(h) No Objection....................................................................................... 20
(i) Additional Documents............................................................................... 21
(j) Termination of Terms Agreement..................................................................... 21
SECTION 6. Indemnification................................................................................. 22
(a) Indemnification of Underwriters.................................................................... 22
(b) Indemnification of Company, Directors and Officers................................................. 22
(c) Documentary Stamp or Similar Issue Tax Indemnification............................................. 22
(d) Actions against Parties; Notification.............................................................. 22
(e) Settlement without Consent if Failure to Reimburse................................................. 23
SECTION 7. Contribution.................................................................................... 23
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.................................. 25
SECTION 9. Termination..................................................................................... 25
(a) Underwriting Agreement............................................................................. 25
(b) Terms Agreement.................................................................................... 25
(c) Liabilities........................................................................................ 25
SECTION 10. Default by One or More of the Underwriters...................................................... 26
SECTION 11. Notices......................................................................................... 27
SECTION 12. Parties......................................................................................... 27
SECTION 13. GOVERNING LAW................................................................................... 28
SECTION 14. Effect of Headings.............................................................................. 28
</TABLE>
iii
<PAGE>
MERRILL LYNCH & CO., INC.
(a Delaware corporation)
Debt Securities and Warrants
UNDERWRITING AGREEMENT
July ___, 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1332
Ladies and Gentlemen:
Merrill Lynch & Co., Inc., a Delaware corporation (the "Company"), proposes
to issue and sell its (i) senior or subordinated debt securities (the "Debt
Securities"), both of which may be convertible into common stock, par value
$1.33 per share, of the Company (the "Common Stock"), preferred stock, par value
$1.00 per share, of the Company (the "Preferred Stock") or Depositary Shares
representing Preferred Stock (the "Depositary Shares"), (ii) warrants to
purchase Debt Securities (the "Debt Security Warrants"), (iii) warrants
entitling the holders thereof to receive from the Company a payment or delivery
determined by reference to decreases or increases in the level of an index or
portfolio based on one or more equity or debt securities (including, but not
limited to, the price or yield of such securities), any statistical measure of
economic or financial performance (including, but not limited to, any consumer
price, currency or mortgage index) or the price or value of any commodity or any
other item or index or a combination thereof (the "Index Warrants") or (iv)
warrants to receive from the Company the cash value in U.S. dollars of the right
to purchase (the "Currency Call Warrants") and/or to receive from the Company
the cash value in U.S. dollars of the right to sell (the "Currency Put Warrants"
and, together with the Currency Call Warrants, the "Currency Warrants")
specified foreign currencies or units of two or more such currencies, or any
combination thereof, as shall be designated by the Company from time to time in
or pursuant to one or more offerings on terms to be determined at the time of
sale. The Debt Security Warrants, the Index Warrants and the Currency Warrants
are collectively referred to herein as the "Warrants". As of the date hereof,
the Company has authorized the issuance and sale of up to $ aggregate
initial
1
<PAGE>
public offering price, or its equivalent based on the applicable exchange rate
at the time of offering, in such foreign currencies or units of two or more
thereof as the Company shall designate at the time of offering, of its Debt
Securities and Warrants. It is understood, however, that the Company may from
time to time authorize the issuance of additional Debt Securities and Warrants.
Unless otherwise specified in the applicable Terms Agreement (as defined
below), the Debt Securities will be issued in one or more series as (i) senior
indebtedness (the "Senior Debt Securities") under (x) an indenture, dated as of
April 1, 1983, as amended and restated (the "1983 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 "1983
Trustee"), or (y) an indenture, dated as of October 1, 1993 (the "1993
Indenture", and together with the 1983 Indenture, the "Senior Indentures"),
between the Company and The Chase Manhattan Bank (successor by merger to The
Chase Manhattan Bank, N.A.), as trustee (the "1993 Trustee" and, together with
the 1983 Trustee, the "Senior Trustees") or (ii) subordinated indebtedness (the
"Subordinated Debt Securities") under an indenture (the "Subordinated
Indenture"), between the Company and The Chase Manhattan Bank, formerly known as
Chemical Bank, as trustee (the "Subordinated Trustee"). The Senior Debt
Securities and the Subordinated Debt Securities may also be issued under one or
more other indentures (each, a "Subsequent Indenture") and have one or more
other trustees (each, a "Subsequent Trustee"). Any Subsequent Indenture
relating to Senior Debt Securities or Subordinated Debt Securities will have
terms and conditions identical in all material respects to the above-referenced
Senior Indentures or the Subordinated Indenture, as the case may be. Each
series of Debt Securities may vary, as applicable, as to title, aggregate
principal amount, rank, interest rate or formula and timing of payments thereof,
stated maturity date, redemption and/or repayment provisions, sinking fund
requirements, conversion provisions (and terms of the related Underlying
Securities (as defined below)) and any other variable terms established by, or
pursuant to, the applicable Indenture. Additionally, the Company may issue
Subordinated Debt Securities under a separate indenture which provides for a
single issue of zero coupon convertible Subordinated Debt Securities.
Unless otherwise specified in the applicable Terms Agreement, Index
Warrants with a minimum value payable upon the expiration of the Index Warrants
(the "Minimum Expiration Value") are to be issued under one or more indentures
(the indenture relating to any issue of Index Warrants with a Minimum Expiration
Value to be sold pursuant to this Underwriting Agreement to be identified in the
applicable Terms Agreement and to be referred to herein as the "Index Warrant
Indenture", and the Index Warrant Indentures, the Senior Indentures, the
Subordinated Indenture and any Subsequent Indentures being collectively referred
to herein as the "Indentures") between the Company and the index warrant trustee
(the "Index Warrant Trustee", and together with the Senior Trustees, the
Subordinated Trustee and any Subsequent Trustees, the "Trustees"). The Debt
Security Warrants, Index Warrants and Currency Warrants which do not have a
Minimum Expiration Value will be issued under one or more warrant agreements
(the warrant agreement relating to any issue of Debt Security Warrants, Index
Warrants or Currency Warrants without a Minimum Expiration Value to be sold
pursuant to this
2
<PAGE>
Underwriting Agreement to be identified in the applicable Terms Agreement and to
be referred to herein as the "Warrant Agreement") between the Company and the
warrant agent identified therein (the "Warrant Agent"). The Warrants may vary,
as applicable, as to, among other terms, title, type, specific number, exercise
dates or periods, exercise price(s), expiration date(s) and terms of the related
Underlying Securities (as hereinafter defined).
The Debt Securities and the Warrants may be offered either together or
separately. As used herein, "Securities" shall mean the Senior Debt Securities
or Subordinated Debt Securities or the Warrants or any combination thereof,
initially issuable by the Company and "Underlying Securities" shall mean the
Common Stock, Preferred Stock or Depositary Shares issuable upon conversion of
the Debt Securities and the Senior Debt Securities or Subordinated Debt
Securities issuable upon exercise of the Debt Security Warrants, as applicable.
The Preferred Stock will be issued in one or more series and each series of
Preferred Stock may vary, as applicable, as to the title, specific number of
shares, rank, stated value, liquidation preference, dividend rate or rates (or
method of calculation), dividend payment dates, redemption provisions, sinking
fund requirements, conversion provisions (and terms of the related Underlying
Securities) and any other variable terms as set forth in the applicable
certificate of designations (each, the "Certificate of Designations") relating
to such series of Preferred Stock. A series of Preferred Stock may be
represented by Depositary Shares that are evidenced by depositary receipts (the
"Depositary Receipts") issued pursuant to a deposit agreement (each, a "Deposit
Agreement") among the Company, the depositary identified therein (the
"Depositary") and the registered holders of the Depositary Receipts issued
thereunder.
Whenever the Company determines to make an offering of Securities through
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), or through an underwriting syndicate managed by Merrill
Lynch, the Company will enter into an agreement (each, a "Terms Agreement")
providing for the sale of such Securities to, and the purchase and offering
thereof by, Merrill Lynch and such other underwriters, if any, selected by
Merrill Lynch (the "Underwriters", which term shall include Merrill Lynch,
whether acting as sole Underwriter or as a member of an underwriting syndicate,
as well as any Underwriter substituted pursuant to Section 10 hereof). The
Terms Agreement relating to each offering of Securities shall specify the
aggregate principal amount or the number, as the case may be, of Securities to
be issued (the "Underwritten Securities"), the name of each Underwriter
participating in such offering (subject to substitution as provided in Section
10 hereof) and the name of any Underwriter other than Merrill Lynch acting as
co-manager in connection with such offering, the aggregate principal amounts or
the number of Warrants, as the case may be, of Underwritten Securities which
each such Underwriter severally agrees to purchase, whether such offering is on
a fixed or variable price basis and, if on a fixed price basis, the initial
offering price, the price at which the Underwritten Securities are to be
purchased by the Underwriters, the form, time, date and place of delivery of and
payment for the Underwritten Securities and any other material variable terms of
the Underwritten Securities, as well as the material variable terms of any
related Underlying Securities. The Terms Agreement, which shall be
substantially in the form of Exhibit A hereto, may take the form of an exchange
of any standard form of written communication (including
3
<PAGE>
facsimile) between the Company and Merrill Lynch, acting for itself and, if
applicable, as representatives of any other Underwriters. Each offering of
Underwritten Securities through Merrill Lynch as sole Underwriter or through an
underwriting syndicate managed by Merrill Lynch will be governed by this
Underwriting Agreement, as supplemented by the applicable Terms Agreement.
The Company has filed with the Securities and Exchange Commission (the
"Commission") two registration statements on Form S-3 (No. 333-44173 and pre-
effective amendment No. 1 thereto and No. 333-___________ [and pre-effective
amendment No. 1 thereto] (the "Initial Registration Statements") for the
registration of the Securities and the Underlying Securities under the
Securities Act of 1933, as amended (the "1933 Act"), and the offering thereof
from time to time in accordance with Rule 415 of the rules and regulations of
the Commission under the 1933 Act (the "1933 Act Regulations"). The Initial
Registration Statements have been declared effective by the Commission, and each
Indenture in effect as of the date of this Underwriting Agreement has been duly
qualified under the Trust Indenture Act of 1939, as amended (the "1939 Act").
The Company will have filed such post-effective amendments to the Initial
Registration Statements as may be required, and any applicable Indenture will
have been duly qualified under the 1939 Act, prior to the execution of the
applicable Terms Agreement. The Initial Registration Statements (as so amended,
if applicable), including the information, if any, deemed to be a part thereof
pursuant to Rule 430A(b) of the 1933 Act Regulations (the "Rule 430A
Information") or Rule 434(d) of the 1933 Act Regulations (the "Rule 434
Information"), are referred to herein as the "Registration Statement"; and the
final prospectus and the final prospectus supplement relating to the offering of
the Underwritten Securities, in the form first furnished to the Underwriters by
the Company for use in connection with the offering of the Underwritten
Securities, are collectively referred to herein as the "Prospectus"; provided,
--------
however, that all references to the "Registration Statement" and the
- -------
"Prospectus" shall also be deemed to include all documents incorporated therein
by reference which have been filed pursuant to the Securities Exchange Act of
1934, as amended (the "1934 Act"), prior to the execution of the applicable
Terms Agreement; provided, further, that if the Company (i) files a registration
-------- -------
statement with the Commission pursuant to Rule 462(b) of the 1933 Act
Regulations (the "Rule 462 Registration Statement"), then, after such filing,
all references to "Registration Statement" shall thereafter also be deemed to
include the Rule 462 Registration Statement; (ii) files a registration statement
or registration statements with the Commission registering additional securities
under the 1933 Act which securities may be issued and sold pursuant to the terms
of this Underwriting Agreement (each, a "Subsequent Registration Statement"),
then after effectiveness of such Subsequent Registration Statement, all
references to "Registration Statement" shall thereafter be deemed to refer to
the Initial Registration Statement and/or the Subsequent Registration Statement
(each as so amended, if applicable, and including any Rule 430A Information,
Rule 434 Information or Rule 462 Registration Statement), as the case may be;
and (iii) elects to rely upon Rule 434 of the 1933 Act Regulations, then all
references to "Prospectus" shall also be deemed to include the final or
preliminary prospectus and the applicable term sheet or abbreviated term sheet
(the "Term Sheet"), as the case may be, in the form furnished to the
Underwriters by the Company in reliance upon Rule 434 of the 1933 Act
Regulations, and all references in this Underwriting Agreement to the date of
the Prospectus
4
<PAGE>
shall mean the date of the Term Sheet. The term "preliminary prospectus" shall
mean any prospectus used before the registration statement became effective and
any prospectus that omitted, as applicable, the Rule 430A Information, the Rule
434 Information or other information to be included upon pricing in a form of
prospectus filed with the Commission pursuant to Rule 424(b) of the 1933 Act
Regulations, that was used after such effectiveness and prior to the execution
and delivery of the applicable Terms Agreement. For purposes of this
Underwriting Agreement, all references to the Registration Statement,
Prospectus, Term Sheet or preliminary prospectus or to any amendment or
supplement to any of the foregoing shall be deemed to include any copy filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR").
All references in this Underwriting Agreement to financial statements and
schedules and other information which is "contained," "included" or "stated" (or
other references of like import) in the Registration Statement, Prospectus or
preliminary prospectus shall be deemed to mean and include all such financial
statements and schedules and other information which is incorporated by
reference in the Registration Statement, Prospectus or preliminary prospectus,
as the case may be; and all references in this Underwriting Agreement to
amendments or supplements to the Registration Statement, Prospectus or
preliminary prospectus shall be deemed to mean and include the filing of any
document under the 1934 Act which is incorporated by reference in the
Registration Statement, Prospectus or preliminary prospectus, as the case may
be.
SECTION 1. Representations and Warranties.
------------------------------
(a) Representations and Warranties by the Company. The Company
represents and warrants to Merrill Lynch, as of the date hereof, and to each
Underwriter named in the applicable Terms Agreement, as of the date thereof, and
as of the relevant Closing Time (as defined below)(in each case, a
"Representation Date"), as follows:
(1) Compliance with Registration Requirements. The Company meets the
-----------------------------------------
requirements for use of Form S-3 under the 1933 Act. The Registration
Statement has become effective under the 1933 Act and no stop order
suspending the effectiveness of the Registration Statement has been issued
under the 1933 Act and no proceedings for that purpose have been instituted
or are pending or, to the knowledge of the Company, are contemplated by the
Commission, and any request on the part of the Commission for additional
information has been complied with. In addition, each Indenture in effect
as of each Representation Date has been duly qualified under the 1939 Act.
At the respective times the Registration Statement and any post-
effective amendments thereto (including the filing of the Company's most
recent Annual Report on Form 10-K with the Commission subsequent to the
date the Registration Statement became effective (the "Annual Report on
Form 10-K")) became effective and at each Representation Date, the
Registration Statement and any amendments and supplements thereto complied
and will comply in all material respects with the requirements of the
5
<PAGE>
1933 Act and the 1933 Act Regulations and the 1939 Act and the rules and
regulations of the Commission under the 1939 Act (the "1939 Act
Regulations"), and did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. At the
date of the Prospectus and at the Closing Time the Prospectus and any
amendments and supplements thereto did not and will not include an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. If Rule 434 is used, the
Company will comply with the requirements of Rule 434. The representations
and warranties in this subsection shall not apply to (A) statements in or
omissions from the Registration Statement or the Prospectus made in
reliance upon and in conformity with information furnished to the Company
in writing by any Underwriter through Merrill Lynch expressly for use in
the Registration Statement or the Prospectus or (B) that part of the
Registration Statement that constitutes the Statement of Eligibility on
Form T-1 (the "Form T-1") under the 1939 Act of the relevant Trustee.
Each preliminary prospectus and prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations and each
preliminary prospectus and the Prospectus delivered to the Underwriters for
use in connection with the offering of Underwritten Securities will, at the
time of such delivery, be identical to any electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(2) Incorporated Documents. The documents incorporated or deemed to be
----------------------
incorporated by reference in the Registration Statement and the Prospectus,
when they became effective or at the time they were or hereafter are filed
with the Commission, complied and will comply in all material respects with
the requirements of the 1934 Act and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations") and, when read together
with the other information in the Prospectus, at the date of the Prospectus
and at the Closing Times, did not and will not include an untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(3) Independent Accountants. The accountants who certified the
-----------------------
financial statements and any supporting schedules thereto included in the
Registration Statement and the Prospectus are independent public
accountants as required by the 1933 Act and the 1933 Act Regulations.
(4) Financial Statements. The financial statements of the Company
--------------------
included in the Registration Statement and the Prospectus, together with
the related schedules and notes, as well as the financial statements,
schedules and notes of any other entity included therein, present fairly
the financial position of the Company and its consolidated subsidiaries, or
such other entity, as the case may be, at the dates indicated and the
statements of consolidated earnings, consolidated stockholders' equity and
consolidated cash flows of the Company and its consolidated
6
<PAGE>
subsidiaries, or such other entity, as the case may be, for the periods
specified; said financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent
basis throughout the periods involved. The supporting schedules, if any,
included in the Registration Statement present fairly in accordance with
GAAP the information required to be stated therein. The selected financial
data and the summary financial information, if any, included in the
Registration Statement or the Prospectus present fairly the information
shown therein and have been compiled on a basis consistent with that of the
audited financial statements incorporated by reference in the Registration
Statement and the Prospectus.
(5) No Material Adverse Change in Business. Since the respective dates
--------------------------------------
as of which information is given in the Registration Statement and the
Prospectus, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (B) there have
been no transactions entered into by the Company or any of its
subsidiaries, other than those arising in the ordinary course of business,
which are material with respect to the Company and its subsidiaries
considered as one enterprise and (C) except for regular quarterly dividends
on the Company's outstanding common stock and regular dividends on its
outstanding preferred stock in amounts per share that are consistent with
the terms of such preferred stock, there has been no dividend or
distribution of any kind declared, paid or made by the Company on any class
of its capital stock.
(6) Good Standing of the Company. The Company has been duly organized
----------------------------
and is validly existing as a corporation in good standing under the laws of
the State of Delaware and has corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under, or as
contemplated under, this Underwriting Agreement and the applicable Terms
Agreement; and the Company is duly qualified as a foreign corporation to
transact business and is in good standing in each other jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure to
so qualify or be in good standing would not result in a Material Adverse
Effect.
(7) Good Standing of Subsidiaries. Each subsidiary of the Company
-----------------------------
which is a "significant subsidiary" as defined in Rule 1-02 of Regulation
S-X under the 1933 Act (each a "Subsidiary" and, collectively, the
"Subsidiaries") has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectus
and is duly qualified as a
7
<PAGE>
foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure to so qualify or be in good standing would not result in
a Material Adverse Effect; except as otherwise disclosed in the
Registration Statement and the Prospectus, all of the issued and
outstanding capital stock of each Subsidiary has been duly authorized and
validly issued and is fully paid and non-assessable and is owned by the
Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; and none of
the outstanding shares of capital stock of any Subsidiary was issued in
violation of preemptive or similar rights of any securityholder of such
Subsidiary. The only subsidiaries of the Company are (A) the subsidiaries
listed in Exhibit 21 to the Annual Report on Form 10-K of the Company filed
with the Commission under Section 13 of the 1934 Act and (B) certain other
subsidiaries which, considered in the aggregate as a single subsidiary, do
not constitute a "significant subsidiary" as defined in Rule 1-02 of
Regulation S-X under the 1933 Act.
(8) Capitalization. If the Prospectus contains a "Capitalization"
--------------
section, the authorized, issued and outstanding shares of capital stock of
the Company is as set forth therein (except for subsequent issuances
thereof, if any, contemplated under this Underwriting Agreement, pursuant
to reservations, agreements or employee benefit plans referred to in the
Prospectus or pursuant to the exercise of convertible securities or options
referred to in the Prospectus). Such shares of capital stock have been duly
authorized and validly issued by the Company and are fully paid and non-
assessable, and none of such shares of capital stock was issued in
violation of preemptive or similar rights of any securityholder of the
Company.
(9) Authorization of this Underwriting Agreement and the Terms
----------------------------------------------------------
Agreement. This Underwriting Agreement has been, and the
----------
applicable Terms Agreement as of the date thereof will have been, duly
authorized, executed and delivered by the Company.
(10) Authorization of Senior Debt Securities and/or Subordinated Debt
----------------------------------------------------------------
Securities. If the Underwritten Securities being sold pursuant to the
----------
applicable Terms Agreement include Senior Debt Securities and/or
Subordinated Debt Securities, such Underwritten Securities have been, or
prior to issuance of such Underwritten Securities will have been, duly
authorized by the Company for issuance and sale pursuant to this
Underwriting Agreement and such Terms Agreement. Such Underwritten
Securities, when issued and authenticated by the applicable Trustee in the
manner provided for in the applicable Indenture and delivered against
payment of the consideration therefor specified in such Terms Agreement,
will constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as
the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally and except as enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law), and except further as
8
<PAGE>
enforcement thereof may be limited by (A) requirements that a claim with
respect to any Debt Securities denominated other than in U.S. dollars (or a
foreign or composite currency judgment in respect of such claim) be
converted into U.S. dollars at a rate of exchange prevailing on a date
determined pursuant to applicable law or (B) governmental authority to
limit, delay or prohibit the making of payments outside the United States;
and such Underwritten Securities will be in the form contemplated by, and
each registered holder thereof will be entitled to the benefits of, the
applicable Indenture.
(11) Authorization of Indentures. If the Underwritten Securities being
---------------------------
sold pursuant to the applicable Terms Agreement include Senior Debt
Securities and/or Subordinated Debt Securities, each applicable Indenture
has been, or prior to the issuance of such Underwritten Securities will
have been, duly authorized, executed and delivered by the Company and
(assuming the due authorization, execution and delivery by the applicable
Trustee), will constitute a valid and legally binding agreement of the
Company, enforceable against the Company in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally and except as enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law), and except further as enforcement thereof
may be limited by (A) requirements that a claim with respect to any Debt
Securities denominated other than in U.S. dollars (or a foreign or
composite currency judgment in respect of such claim) be converted into
U.S. dollars at a rate of exchange prevailing on a date determined pursuant
to applicable law or (B) governmental authority to limit, delay or prohibit
the making of payments outside the United States.
(12) Authorization of Warrants. If the Underwritten Securities being
-------------------------
sold pursuant to the applicable Terms Agreement include Warrants, such
Underwritten Securities have been, or prior to issuance of such
Underwritten Securities will have been, duly authorized by the Company for
issuance and sale pursuant to this Underwriting Agreement and such Terms
Agreement. Such Underwritten Securities, when issued and authenticated in
the manner provided for the applicable Index Warrant Indenture or Warrant
Agreement and delivered against payment of the consideration therefor
specified in such Terms Agreement, will constitute valid and legally
binding obligations of the Company and enforceable against the Company in
accordance with their terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally and except as enforcement
thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law), and except
further as enforcement thereof may be limited by (A) requirements that a
claim with respect to any Warrant payable other than in U.S. dollars (or a
foreign or composite currency judgment in respect of such claim) be
converted into U.S. dollars at a rate of exchange prevailing on a date
determined pursuant to applicable law or (B) governmental authority to
limit, delay or prohibit the making of payments outside the United States.
9
<PAGE>
Such Underwritten Securities will be in the form contemplated by, and each
registered holder thereof will be entitled to the benefits of, the
applicable Index Warrant Indenture or Warrant Agreement.
(13) Authorization of Index Warrant Indenture or Warrant Agreement. If
-------------------------------------------------------------
the Underwritten Securities being sold pursuant to the applicable Terms
Agreement include Warrants, each applicable Index Warrant Indenture or
Warrant Agreement has been, or prior to the issuance of such Underwritten
Securities will have been, duly authorized, executed and delivered by the
Company and, upon such authorization, execution and delivery (assuming the
due authorization, execution and delivery by the applicable Trustee or
Warrant Agent), will constitute a valid and legally binding agreement of
the Company, enforceable against the Company in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally and except as enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law), and except further as enforcement thereof
may be limited by (A) requirements that a claim with respect to any Warrant
payable other than in U.S. dollars (or a foreign or composite currency
judgment in respect of such claim) be converted into U.S. dollars at a rate
of exchange prevailing on a date determined pursuant to applicable law or
(B) governmental authority to limit, delay or prohibit the making of
payments outside the United States.
(14) Authorization of Underlying Securities. If the Underlying
--------------------------------------
Securities related to the Underwritten Securities being sold pursuant to
the applicable Terms Agreement include Senior Debt Securities and/or
Subordinated Debt Securities, such Underlying Securities have been, or
prior to issuance of such Underwritten Securities will have been, duly
authorized for issuance by the Company upon the exercise of the Debt
Security Warrants. Such Underlying Securities, when issued and
authenticated in the manner provided for in the applicable Indenture and
delivered in accordance with the terms of the Debt Security Warrant, will
constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as
the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally and except as enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law), and except further as enforcement thereof
may be limited by (A) requirements that a claim with respect to any Debt
Securities denominated other than in U.S. dollars (or a foreign or
composite currency judgment in respect of such claim) be converted into
U.S. dollars at a rate of exchange prevailing on a date determined pursuant
to applicable law or (B) governmental authority to limit, delay or prohibit
the making of payments outside the United States. If the Underlying
Securities related to the Underwritten Securities being sold pursuant to
the applicable Terms Agreement include Common Stock, Preferred Stock or
Depositary Shares, such Underlying Securities have been, or as of the date
of such Terms Agreement will have been, duly authorized and reserved for
issuance by the Company upon conversion of the Debt Securities. If the
Underlying Securities include Common Stock or
10
<PAGE>
Preferred Stock, such Underlying Securities, when issued upon such
conversion will be validly issued, fully paid and non-assessable and will
not be subject to preemptive or similar rights of any securityholder of the
Company. If the Underlying Securities include Depositary Shares, such
Underlying Securities, upon deposit by the Company of the Preferred Stock
represented thereby with the applicable Depositary and the execution and
delivery by such Depositary of the Depositary Receipts evidencing such
Depositary Shares, in each case pursuant to the applicable Deposit
Agreement, will represent legal and valid interests in such Preferred
Stock. No holder of such Common Stock, Preferred Stock or Depositary
Receipts evidencing Depository Shares is or will be subject to personal
liability by reason of being such a holder.
(15) Authorization of Deposit Agreement. If the Underlying Securities
----------------------------------
related to the Underwritten Securities being sold pursuant to the
applicable Terms Agreement include Depositary Shares, the applicable
Deposit Agreement has been, or prior to the issuance of such Underwritten
Securities will have been, duly authorized, executed and delivered by the
Company and, upon such authorization, execution and delivery (assuming due
authorization, execution and delivery by the applicable Depositary), will
constitute a valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally and except as enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law). Each registered holder of a Depositary
Receipt under the applicable Deposit Agreement will be entitled to the
proportional rights, preferences and limitations of the Preferred Stock
represented by the Depositary Shares evidenced by such Depositary Receipt
and to such other rights as are granted to such registered holder in such
Deposit Agreement.
(16) Description of the Underwritten Securities, Indentures, Warrant
---------------------------------------------------------------
Agreements and Underlying Securities. The Underwritten Securities being
------------------------------------
sold pursuant to the applicable Terms Agreement and each applicable
Indenture and Warrant Agreement, as of the date of the Prospectus, and any
Underlying Securities, when issued and delivered in accordance with the
terms of the related Underwritten Securities, will conform in all material
respects to the respective statements relating thereto contained in the
Prospectus and will be in substantially the respective forms filed or
incorporated by reference, as the case may be, as an exhibit to the
Registration Statement.
(17) Absence of Defaults and Conflicts. Neither the Company nor any of
---------------------------------
its subsidiaries is in violation of its charter or by-laws or in default in
the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which it or
any of them may be bound, or to which any of the property or assets of the
Company or any subsidiary is subject (collectively, "Agreements and
Instruments"),
11
<PAGE>
except for such defaults that would not result in a Material Adverse
Effect; and the execution, delivery and performance by the Company of this
Underwriting Agreement, the applicable Terms Agreement, the Securities,
each applicable Indenture and Warrant Agreement and any other agreement or
instrument entered into or issued or to be entered into or issued by the
Company in connection with the transactions contemplated hereby or thereby
or in the Registration Statement and the Prospectus and the consummation of
the transactions contemplated herein and in the Registration Statement and
the Prospectus (including the issuance and sale of the Underwritten
Securities and the use of the proceeds from the sale of the Underwritten
Securities as described under the caption "Use of Proceeds") and compliance
by the Company with its obligations hereunder and thereunder do not and
will not, whether with or without the giving of notice or passage of time
or both, conflict with or constitute a breach of, or a default or Repayment
Event (as defined below) under or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the Company
or any subsidiary of the Company pursuant to, the Agreements and
Instruments (except for such conflicts, breaches, defaults, events, liens,
charges or encumbrances that would not result in a Material Adverse
Effect), nor will such action result in any violation of the provisions of
the charter or by-laws of the Company or any Subsidiary or any applicable
law, statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any Subsidiary or any of their
properties, assets or operations. As used herein, a "Repayment Event" means
any event or condition which gives the holder of any note, debenture or
other evidence of indebtedness of the Company or any of its subsidiaries
(or any person acting on such holder's behalf) the right to require the
repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company or any of its subsidiaries.
(18) Absence of Labor Dispute. No labor dispute with the employees of
------------------------
the Company or any of its subsidiaries exists or, to the knowledge of the
Company, is imminent, which may reasonably be expected to result in a
Material Adverse Effect.
(19) Absence of Proceedings. There is not any action, suit, proceeding,
----------------------
inquiry or investigation before or brought by any court or governmental
agency or body, domestic or foreign, now pending, or, to the knowledge of
the Company, threatened, against or affecting the Company or any of its
subsidiaries which is required to be disclosed in the Registration
Statement and the Prospectus (other than as stated therein), or which might
reasonably be expected to result in a Material Adverse Effect, or which
might reasonably be expected to materially and adversely affect the assets,
properties, or operations thereof or the consummation of the transactions
contemplated under this Underwriting Agreement, the applicable Terms
Agreement, or any applicable Indenture or Warrant Agreement or the
performance by the Company of its obligations hereunder and thereunder; and
the aggregate of all pending legal or governmental proceedings to which the
Company or any of its subsidiaries is a party or of which any of their
respective assets, property, or operations is the subject which are not
described in the
12
<PAGE>
Registration Statement and the Prospectus, including ordinary routine
litigation incidental to the business, could not reasonably be expected to
result in a Material Adverse Effect.
(20) Exhibits. There are no contracts or documents which are of a
--------
character required to be described in the Registration Statement, the
Prospectus or the documents incorporated by reference therein or to be
filed as exhibits thereto which have not been so described and filed as
required.
(21) Absence of Further Requirements. No filing with, or authorization,
-------------------------------
approval, consent, license, order, registration, qualification or decree
of, any court or governmental authority or agency, domestic or foreign, is
necessary or required for the performance by the Company of its obligations
under this Underwriting Agreement or the applicable Terms Agreement or in
connection with the transactions contemplated under this Underwriting
Agreement, such Terms Agreement, or any applicable Indenture, Deposit
Agreement or Warrant Agreement, except such as have been already obtained
or as may be required under the 1933 Act, the 1933 Act Regulations, the
1939 Act, the 1939 Act Regulations or state securities or blue sky laws.
(22) Possession of Intellectual Property. The Company and its
-----------------------------------
subsidiaries own or possess, or can acquire on reasonable terms, adequate
trademarks, service marks, trade names and other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business
now operated by them, except where the failure to own or possess or the
lack of ability to acquire such Intellectual Property, singly or in the
aggregate, would not result in a Material Adverse Effect, and neither the
Company nor any of its subsidiaries has received any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property or of any facts or circumstances
which would render any Intellectual Property invalid or inadequate to
protect the interest of the Company or any of its subsidiaries therein, and
which infringement or conflict (if the subject of any unfavorable decision,
ruling or finding) or invalidity or inadequacy, singly or in the aggregate,
would result in a Material Adverse Effect.
(23) Possession of Licenses and Permits. The Company and its
----------------------------------
subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
necessary to conduct the business now operated by them, except where the
failure to so possess such Governmental Licenses would not, singly or in
the aggregate, have a Material Adverse Effect; the Company and its
subsidiaries are in compliance with the terms and conditions of all such
Governmental Licenses, except where the failure so to comply would not,
singly or in the aggregate, have a Material Adverse Effect; all of the
Governmental Licenses are valid and in full force and effect, except where
the invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and neither the Company nor any of its
subsidiaries has received any notice of
13
<PAGE>
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would result in a Material
Adverse Effect.
(24) Title to Property. The Company and its subsidiaries have good and
-----------------
marketable title to all real property owned by the Company and its
subsidiaries and good title to all other properties owned by them, in each
case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind, except such as (A) are
described in the Registration Statement and the Prospectus or (B) do not,
singly or in the aggregate, materially affect the value of such property,
do not interfere with the use made and proposed to be made of such property
by the Company or any of its subsidiaries and do not, singly or in the
aggregate have a Material Adverse Effect; and all of the leases and
subleases material to the business of the Company and its subsidiaries,
considered as one enterprise, and under which the Company or any of its
subsidiaries holds properties described in the Prospectus, are in full
force and effect, except where the failure of such leases or subleases to
be in full force and effect would not have a Material Adverse Effect, and
neither the Company nor any subsidiary has any notice of any material claim
of any sort that has been asserted by anyone adverse to the rights of the
Company or any subsidiary under any of the leases or subleases mentioned
above, or affecting or questioning the rights of the Company or such
subsidiary of the continued possession of the leased or subleased premises
under any such lease or sublease.
(25) Commodity Exchange Act. The Underwritten Securities being sold
----------------------
pursuant to the applicable Terms Agreement and any Underlying Securities,
upon issuance, will be excluded or exempted under, or beyond the purview
of, the Commodity Exchange Act, as amended (the "Commodity Exchange Act"),
and the rules and regulations of the Commodity Futures Trading Commission
adopted under the Commodity Exchange Act.
(26) Compliance with Cuba Act. The Company has complied with, and is
------------------------
and will be in compliance with, the provisions of that certain Florida act
relating to disclosure of doing business with Cuba, codified as Section
517.075 of the Florida statutes, and the rules and regulations thereunder
or is exempt therefrom.
(b) Officer's Certificates. Any certificate signed by any officer of the
Company or any of its subsidiaries and delivered to any Underwriter or to
counsel for the Underwriters in connection with the offering of the Underwritten
Securities shall be deemed a representation and warranty by the Company to each
Underwriter as to the matters covered thereby on the date of such certificate
and, unless subsequently amended or supplemented, at each Representation Date
subsequent thereto.
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SECTION 2. Sale and Delivery to Underwriters; Closing.
------------------------------------------
(a) Underwritten Securities. The several commitments of the
Underwriters to purchase the Underwritten Securities pursuant to the applicable
Terms Agreement shall be deemed to have been made on the basis of the
representations and warranties herein contained and shall be subject to the
terms and conditions herein set forth.
(b) Payment. Payment of the purchase price for, and delivery of, the
Underwritten Securities shall be made (i) in the case of Securities in
registered form, at the offices of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, World Financial Center, North Tower, New York, New York 10281, or
(ii) in the case of Securities in bearer form, at the office of Merrill Lynch
International, Ropemaker Place, 25 Ropemaker Street, London EC2Y 9LY, or at such
other place as shall be agreed upon by Merrill Lynch and the Company, at 9:00
A.M. (Eastern time), on the third (fourth, if the pricing occurs after 4:30 P.M.
(Eastern time) on any given day) business day after the date of the applicable
Terms Agreement (unless postponed in accordance with the provisions of Section
10 hereof), or such other time not later than ten business days after such date
as shall be agreed upon by Merrill Lynch and the Company (such time and date of
payment and delivery being herein called the "Closing Time").
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
Merrill Lynch for its account or, if applicable, for the respective accounts of
the Underwriters of the Underwritten Securities to be purchased by them (unless
such Underwritten Securities are issuable only in the form of one or more global
securities registered in the name of a depository or a nominee of a depository,
in which event the Underwriters' interest in such global certificate shall be
noted in a manner satisfactory to the Underwriters and their counsel). It is
understood that each Underwriter has authorized Merrill Lynch, for its account,
to accept delivery of, receipt for, and make payment of the purchase price for,
the Underwritten Securities which it has severally agreed to purchase. Merrill
Lynch, individually and not as representative of the Underwriters, may (but
shall not be obligated to) make payment of the purchase price for the
Underwritten Securities to be purchased by any Underwriter whose funds have not
been received by the Closing Time, but such payment shall not relieve such
Underwriter from its obligations hereunder.
(c) Denominations; Registration. Certificates for the Underwritten
Securities shall be in such denominations and registered in such names as
Merrill Lynch may request in writing at least one full business day prior to the
Closing Time. The certificates for the Underwritten Securities will be made
available for examination and packaging by Merrill Lynch in The City of New York
not later than 10:00 A.M. (Eastern time) on the business day prior to the
Closing Time.
SECTION 3. Covenants of the Company. The Company covenants with
------------------------
Merrill Lynch, and with each Underwriter participating in the applicable
offering of Underwritten Securities, as follows:
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(a) Compliance with Securities Regulations and Commission Requests. The
Company, subject to Section 3(b), will comply with the requirements of Rule 430A
of the 1933 Act Regulations and/or Rule 434 of the 1933 Act Regulations, if and
as applicable, and will notify Merrill Lynch immediately, and confirm the notice
in writing, of (i) the effectiveness of any post-effective amendment to the
Registration Statement or the filing of any supplement or amendment to the
Prospectus, (ii) the receipt of any comments from the Commission, (iii) any
request by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information, and
(iv) the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus, or of the suspension of the
qualification of the Underwritten Securities for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceedings for any of
such purposes. The Company will promptly effect the filings necessary pursuant
to Rule 424 of the 1933 Act Regulations and will take such steps as it deems
necessary to ascertain promptly whether the Prospectus transmitted for filing
under Rule 424 was received for filing by the Commission and, in the event that
it was not, it will promptly file the Prospectus. The Company will make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Company will give Merrill Lynch notice
of its intention to file or prepare any amendment to the Registration Statement
(including any filing under Rule 462(b) of the 1933 Act Regulations), any Term
Sheet or any amendment, supplement or revision to either the prospectus included
in the Registration Statement at the time it became effective or to the
Prospectus, whether pursuant to the 1933 Act, the 1934 Act or otherwise, will
furnish Merrill Lynch with copies of any such documents a reasonable amount of
time prior to such proposed filing or use, as the case may be, and will not file
or use any such document to which Merrill Lynch or counsel for the Underwriters
shall object.
(c) Delivery of Registration Statements. The Company has furnished or
will deliver to Merrill Lynch and counsel for the Underwriters, without charge,
upon request, signed copies of the Registration Statement as originally filed
and of each amendment thereto (including exhibits filed therewith or
incorporated by reference therein and documents incorporated or deemed to be
incorporated by reference therein) and signed copies of all consents and
certificates of experts, and will also deliver to Merrill Lynch, without charge,
a conformed copy of the Registration Statement as originally filed and of each
amendment thereto (without exhibits) for each of the Underwriters. Copies of the
Registration Statement and each amendment thereto furnished to the Underwriters
will be identical to any electronically transmitted copies thereof filed with
the Commission pursuant to EDGAR, except to the extent permitted by Regulation
S-T.
(d) Delivery of Prospectuses. The Company will deliver to each
Underwriter, without charge, as many copies of each preliminary prospectus as
such Underwriter may reasonably request, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such
number
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<PAGE>
of copies of the Prospectus (as amended or supplemented) as such Underwriter may
reasonably request. The Prospectus and any amendments or supplements thereto
furnished to the Underwriters will be identical to any electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will comply
with the 1933 Act and the 1933 Act Regulations and the 1934 Act and the 1934 Act
Regulations so as to permit the completion of the distribution of the
Underwritten Securities as contemplated in this Underwriting Agreement and the
applicable Terms Agreement and in the Registration Statement and the Prospectus.
If at any time when the Prospectus is required by the 1933 Act or the 1934 Act
to be delivered in connection with sales of the Securities, any event shall
occur or condition shall exist as a result of which it is necessary, in the
opinion of counsel for the Underwriters or for the Company, to amend the
Registration Statement in order that the Registration Statement will not contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
or to amend or supplement the Prospectus in order that the Prospectus will not
include an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the light of
the circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the opinion of such counsel, at any such time to amend
the Registration Statement or amend or supplement the Prospectus in order to
comply with the requirements of the 1933 Act or the 1933 Act Regulations, the
Company will promptly prepare and file with the Commission, subject to Section
3(b), such amendment or supplement as may be necessary to correct such statement
or omission or to make the Registration Statement or the Prospectus comply with
such requirements, and the Company will furnish to the Underwriters, without
charge, such number of copies of such amendment or supplement as the
Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best efforts, in
cooperation with the Underwriters, to qualify the Underwritten Securities and
any related Underlying Securities for offering and sale under the applicable
securities laws of such states and other jurisdictions (domestic or foreign) as
Merrill Lynch may designate and to maintain such qualifications in effect for a
period of not less than one year from the date of the applicable Terms
Agreement; provided, however, that the Company shall not be obligated to file
any general consent to service of process or to qualify as a foreign corporation
or as a dealer in securities in any jurisdiction in which it is not so qualified
or to subject itself to taxation in respect of doing business in any
jurisdiction in which it is not otherwise so subject. In each jurisdiction in
which the Underwritten Securities or any related Underlying Securities have been
so qualified, the Company will file such statements and reports as may be
required by the laws of such jurisdiction to continue such qualification in
effect for a period of not less than one year from the date of such Terms
Agreement.
(g) Earnings Statement. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally available
to its securityholders as soon as
17
<PAGE>
practicable an earnings statement for the purposes of, and to provide the
benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act.
(h) Reservation of Securities. If the applicable Terms Agreement
specifies that any related Underlying Securities include Common Stock. Preferred
Stock, Debt Securities and/or Depositary Shares, the Company will reserve and
keep available at all times, free of preemptive or other similar rights, a
sufficient number of shares of Common Stock, Preferred Stock and/or Debt
Securities, as applicable, for the purpose of enabling the Company to satisfy
any obligations to issue such Underlying Securities upon exercise of the related
Warrants, as applicable, or upon conversion of the Debt Securities.
(i) Use of Proceeds. The Company will use the net proceeds received by
it from the sale of the Underwritten Securities in the manner specified in the
Prospectus under "Use of Proceeds".
(j) Listing. The Company will use its best efforts to effect the
listing of the Underwritten Securities and any related Underlying Securities,
prior to the Closing Time, on any national securities exchange or quotation
system if and as specified in the applicable Terms Agreement.
(k) Restriction on Sale of Securities. Between the date of the
applicable Terms Agreement and the later of termination of any trading
restrictions or the Closing Time with respect to the Underwritten Securities,
the Company will not, without the prior written consent of Merrill Lynch,
directly or indirectly, issue, sell, offer to sell, grant any option for the
sale of, or otherwise dispose of, any new issue of debt securities of the
Company with a maturity of more than one year, including additional Debt
Securities (except for (i) any debt securities issued upon exercise of warrants,
(ii) medium-term notes of the Company issued in the ordinary course of business
through MLPF&S (A) acting as agent for the Company, or (B) acting as principal
and purchasing up to $10 million aggregate principal amount of medium-term notes
of the Company for resale, or (iii) any debt securities of the Company
denominated in a currency other than the currency in which the Underwritten
Securities subject to such Terms Agreement shall be denominated) or any warrants
for the purchase of debt securities of the Company with a maturity of more than
one year.
(l) Reporting Requirements. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will
file all documents required to be filed with the Commission pursuant to the 1934
Act within the time periods required by the 1934 Act and the 1934 Act
Regulations.
SECTION 4. Payment of Expenses.
-------------------
(a) Expenses. The Company will pay all expenses incident to the
performance of its obligations under this Underwriting Agreement or the
applicable Terms Agreement, including (i) the preparation, printing and filing
of the Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, (ii) the preparation, printing
and
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delivery to the Underwriters of this Underwriting Agreement, any Terms
Agreement, any Agreement among Underwriters, the Indentures, any Warrant
Agreement, any Deposit Agreement and such other documents as may be required in
connection with the offering, purchase, sale, issuance or delivery of the
Underwritten Securities or any related Underlying Securities, (iii) the
preparation, issuance and delivery of the Underwritten Securities and any
related Underlying Securities, any certificates for the Underwritten Securities
or such Underlying Securities, as applicable, to the Underwriters, including any
transfer taxes and any stamp or other duties payable upon the sale, issuance or
delivery of the Underwritten Securities to the Underwriters, (iv) the fees and
disbursements of the Company's counsel, accountants and other advisors or agents
(including transfer agents and registrars), as well as the fees and
disbursements of the Trustees, any Warrant Agent, and any Depositary and their
respective counsel, (v) the qualification of the Underwritten Securities and any
related Underlying Securities under state securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation, printing and delivery of the Blue Sky Survey
and any Legal Investment Survey, and any amendment thereto, (vi) the printing
and delivery to the Underwriters of copies of each preliminary prospectus, any
Term Sheet, and the Prospectus and any amendments or supplements thereto, (vii)
the fees charged by nationally recognized statistical rating organizations for
the rating of the Underwritten Securities and any related Underlying Securities,
if applicable, (viii) the fees and expenses incurred with respect to the listing
of the Underwritten Securities and any related Underlying Securities, if
applicable, and (ix) the filing fees incident to, and the reasonable fees and
disbursements of counsel to the Underwriters in connection with, the review, if
any, by the National Association of Securities Dealers, Inc. (the "NASD") of the
terms of the sale of the Underwritten Securities and any related Underlying
Securities.
(b) Termination of Agreement. If the applicable Terms Agreement is
terminated by Merrill Lynch in accordance with the provisions of Section 5 or
Section 9(b)(i) hereof, the Company shall reimburse the Underwriters named in
such Terms Agreement for all of their out-of-pocket expenses, including the
reasonable fees and disbursements of counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The obligations
---------------------------------------
of the Underwriters to purchase and pay for the Underwritten Securities pursuant
to the applicable Terms Agreement are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any of its subsidiaries
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement has become effective under the 1933 Act and no stop order suspending
the effectiveness of the Registration Statement shall have been issued under the
1933 Act and no proceedings for that purpose shall have been initiated or be
pending or threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable
19
<PAGE>
satisfaction of counsel to the Underwriters. A prospectus containing information
relating to the description of the Underwritten Securities and any related
Underlying Securities, the specific method of distribution and similar matters
shall have been filed with the Commission in accordance with Rule 424(b)(1),
(2), (3), (4) or (5), as applicable (or any required post-effective amendment
providing such information shall have been filed and declared effective in
accordance with the requirements of Rule 430A), or, if the Company has elected
to rely upon Rule 434 of the 1933 Act Regulations, a Term Sheet including the
Rule 434 Information shall have been filed with the Commission in accordance
with Rule 424(b)(7).
(b) Opinion of Counsel for Company. At Closing Time, Merrill Lynch
shall have received the favorable opinion, dated as of Closing Time, of Brown &
Wood LLP, counsel for the Company, in form and substance satisfactory to counsel
for the Underwriters, together with signed or reproduced copies of such letter
for each of the other Underwriters, to the effect set forth in Exhibit B hereto
and to such further effect as counsel to the Underwriters may reasonably
request.
(c) Opinion of Counsel for Underwriters. At Closing Time, Merrill
Lynch shall have received the favorable opinion, dated as of Closing Time, of
Sullivan & Cromwell, counsel for the Underwriters, together with signed or
reproduced copies of such letter for each of the other Underwriters, with
respect to the matters set forth in (1), (5), (6) to (12), as applicable, (13),
(14) (solely as to the information in the Prospectus under "Description of Debt
Securities", "Description of Debt Warrants", "Description of Currency Warrants",
"Description of Index Warrants", "Description of Preferred Stock", "Description
of Depositary Shares", Description of Preferred Stock Warrants", "Description of
Common Stock" and "Description of Common Stock Warrants", if any, or any caption
purporting to describe any such Securities), (16), (17) and the penultimate
paragraph of Exhibit B hereto. In giving such opinion, such counsel may rely, as
to all matters governed by the laws of jurisdictions other than the law of the
State of New York, the federal law of the United States and the General
Corporation Law of the State of Delaware, upon the opinions of counsel
satisfactory to Merrill Lynch. Such counsel may also state that, insofar as such
opinion involves factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of the Company and its subsidiaries and
certificates of public officials.
(d) Officers' Certificate. At Closing Time, there shall not have been,
since the date of the applicable Terms Agreement or since the respective dates
as of which information is given in the Prospectus, any material adverse change
in the condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and
Merrill Lynch shall have received a certificate of the President, a Vice
President, the Treasurer or the Controller of the Company, dated as of Closing
Time, to the effect that (i) there has been no such material adverse change,
(ii) the representations and warranties in Section 1 are true and correct with
the same force and effect as though expressly made at and as of the Closing
Time, (iii) the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to the Closing
Time, and (iv) no stop order suspending the effectiveness of
20
<PAGE>
the Registration Statement has been issued and no proceedings for that purpose
have been initiated or threatened by the Commission.
(e) Accountant's Comfort Letter. At the date hereof and at Closing
Time, Merrill Lynch shall have received from Deloitte & Touche LLP a letter
dated such date, in form and substance satisfactory to Merrill Lynch, together
with signed or reproduced copies for each of the other Underwriters, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and the
Prospectus.
(f) Ratings. At Closing Time, the Underwritten Securities shall have
the ratings accorded by any "nationally recognized statistical rating
organization", as defined by the Commission for purposes of Rule 436(g)(2) of
the 1933 Act Regulations, if and as specified in the applicable Terms Agreement.
Since the time of execution of such Terms Agreement, there shall not have
occurred a downgrading in the rating assigned to the Underwritten Securities or
any of the Company's other securities by any such rating organization, and no
such rating organization shall have publicly announced that it has under
surveillance or review, with possible negative implications, its rating of the
Underwritten Securities or any of the Company's other securities.
(g) Approval of Listing. At Closing Time, the Underwritten Securities
shall have been approved for listing, subject only to official notice of
issuance, if and as specified in the applicable Terms Agreement.
(h) No Objection. If the Registration Statement or an offering of
Underwritten Securities has been filed with the NASD for review, the NASD shall
not have raised any objection with respect to the fairness and reasonableness of
the underwriting terms and arrangements.
(i) Additional Documents. At Closing Time, counsel for the
Underwriters shall have been furnished with such documents and opinions as they
may require for the purpose of enabling them to pass upon the issuance and sale
of the Underwritten Securities as herein contemplated and, if applicable,
certain matters relating to the Underlying Securities, or in order to evidence
the accuracy of any of the representations or warranties, or the fulfillment of
any of the conditions, herein contained; and all proceedings taken by the
Company in connection with the issuance and sale of the Underwritten Securities
as herein contemplated shall be satisfactory in form and substance to Merrill
Lynch and counsel for the Underwriters.
(j) Termination of Terms Agreement. If any condition specified in this
Section 5 shall not have been fulfilled when and as required to be fulfilled,
the applicable Terms Agreement may be terminated by Merrill Lynch by notice to
the Company at any time at or prior to the Closing Time, and such termination
shall be without liability of any party to any other party except as provided in
Section 4 and except that Sections 1, 6, 7 and 8 shall survive any such
termination and remain in full force and effect.
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SECTION 6. Indemnification.
---------------
(a) Indemnification of Underwriters. The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:
i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the
Rule 434 Information deemed to be a part thereof, if applicable, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading
or arising out of any untrue statement or alleged untrue statement of a
material fact included in any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of the
Company; and
iii) against any and all expense whatsoever, as incurred (including the
fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission, to
the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
- -------- -------
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter expressly for use in the Registration Statement (or any amendment
thereto), including the Rule 430A Information and the Rule 434 Information
deemed to be a part thereof, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
Insofar as this indemnity agreement may permit indemnification for
liabilities under the 1933 Act of any person who is a partner of an Underwriter
or who controls an Underwriter within the meaning of Section 15 of
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the 1933 Act or Section 20 of the 1934 Act and who is a director or officer of
the Company or controls the Company within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act, such indemnity agreement is subject to the
undertaking of the Company in the Registration Statement under Item 13 of Form
S-3.
(b) Indemnification of Company, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information deemed to be a part thereof, if applicable, or any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Company by such Underwriter through Merrill Lynch expressly for use in
the Registration Statement (or any amendment thereto) or such preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).
(c) Documentary Stamp or Similar Issue Tax Indemnification. The
Company agrees to indemnify and hold harmless each Underwriter against any
documentary stamp or similar issue tax and any related interest or penalties on
the issue or sale of the Underwritten Securities to the Underwriters which are
due in the United States of America, the United Kingdom or any other
jurisdiction.
(d) Actions against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section 6(a)
above, counsel to the indemnified parties shall be selected by Merrill Lynch,
and, in the case of parties indemnified pursuant to Section 6(b) above, counsel
to the indemnified parties shall be selected by the Company. An indemnifying
party may participate at its own expense in the defense of any such action;
provided, however, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, except that the Company shall be
liable for the fees and expenses of one counsel representing Merrill Lynch and
the persons controlling Merrill Lynch and one counsel representing all other
Underwriters and the persons controlling them. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or
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any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 6 or Section 7 hereof (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(e) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(2) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 7. Contribution. If the indemnification provided for in
------------
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and the Underwriters, on the other hand, from the
offering of the Underwritten Securities pursuant to the applicable Terms
Agreement or (ii) if the allocation provided by clause (i) is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company, on the one hand, and of the Underwriters, on the other hand, in
connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company, on the one hand, and the
Underwriters, on the other hand, in connection with the offering of the
Underwritten Securities pursuant to the applicable Terms Agreement shall be
deemed to be in the same respective proportions as the total net proceeds from
the offering of such Underwritten Securities (before deducting expenses)
received by the Company and the total underwriting discount received by the
Underwriters, in each case as set forth on the cover of the Prospectus, or, if
Rule 434 is used, the corresponding location on the Term Sheet bear to the
aggregate initial public offering price of such Underwritten Securities as set
forth on such cover.
The relative fault of the Company, on the one hand, and the Underwriters,
on the other hand, shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative
24
<PAGE>
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Underwritten Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of any such untrue
or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number or aggregate principal amount, as the case may be, of
Initial Underwritten Securities set forth opposite their respective names in the
applicable Terms Agreement, and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
------------------------------------------------------
Delivery. All representations, warranties and agreements contained in this
- --------
Underwriting Agreement or the applicable Terms Agreement or in certificates of
officers of the Company submitted pursuant hereto or thereto shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of any Underwriter or controlling person, or by or on behalf of the
Company, and shall survive delivery of and payment for the Underwritten
Securities.
SECTION 9. Termination.
-----------
(a) Underwriting Agreement. This Underwriting Agreement (excluding the
applicable Terms Agreement) may be terminated for any reason at any time by
the Company or Merrill
25
<PAGE>
Lynch upon the giving of 30 days' prior written notice of such termination to
the other party hereto.
(b) Terms Agreement. Merrill Lynch may terminate the applicable Terms
Agreement, by notice to the Company, at any time at or prior to the Closing
Time, if (i) there has been, since the time of execution of such Terms Agreement
or since the respective dates as of which information is given in the
Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) there has occurred any
material adverse change in the financial markets in the United States or, if the
Underwritten Securities or any related Underlying Securities include Debt
Securities denominated or payable in, or indexed to, one or more foreign or
composite currencies, in the international financial markets, or any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of Merrill Lynch, impracticable to market
the Underwritten Securities or to enforce contracts for the sale of the
Underwritten Securities, or (iii) trading in any securities of the Company has
been suspended or limited by the Commission or the New York Stock Exchange, or
if trading generally on the New York Stock Exchange or the American Stock
Exchange or in the Nasdaq National Market System has been suspended or limited,
or minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by either of said exchanges or by such system or by
order of the Commission, the NASD or any other governmental authority, or (iv) a
banking moratorium has been declared by either Federal or New York authorities
or, if the Underwritten Securities or any related Underlying Securities include
Debt Securities denominated or payable in, or indexed to, one or more foreign or
composite currencies, by the relevant authorities in the related foreign country
or countries.
(c) Liabilities. If this Underwriting Agreement or the applicable
Terms Agreement is terminated pursuant to this Section 9, such termination shall
be without liability of any party to any other party except as provided in
Section 4 hereof, and provided further that Sections 1, 6, 7 and 8 shall survive
such termination and remain in full force and effect.
SECTION 10. Default by One or More of the Underwriters. If one or more
------------------------------------------
of the Underwriters shall fail at the Closing Time to purchase the Underwritten
Securities which it or they are obligated to purchase under the applicable Terms
Agreement (the "Defaulted Securities"), then Merrill Lynch shall have the right,
within 24 hours thereafter, to make arrangements for one or more of the non-
defaulting Underwriters, or any other underwriters, to purchase all, but not
less than all, of the Defaulted Securities in such amounts as may be agreed upon
and upon the terms herein set forth; if, however, Merrill Lynch shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number or aggregate principal amount, as the case may be, of
Defaulted Securities does not exceed 10% of the aggregate principal amount or
number, as the case may be,
26
<PAGE>
of Underwritten Securities to be purchased on such date pursuant to such Terms
Agreement, the non-defaulting Underwriters shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that their
respective underwriting obligations under such Terms Agreement bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the aggregate principal amount or number, as the case may be, of
Defaulted Securities exceeds 10% of the aggregate principal amount or number, as
the case may be, of Underwritten Securities to be purchased on such date
pursuant to such Terms Agreement, such Terms Agreement shall terminate without
liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section 10 shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of
the applicable Terms Agreement either Merrill Lynch or the Company shall have
the right to postpone the Closing Time for a period not exceeding seven days in
order to effect any required changes in the Registration Statement or the
Prospectus or in any other documents or arrangements.
SECTION 11. Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to Merrill Lynch at World Financial Center, North
Tower, New York, New York 10281-1332, attention of Patricia A. Verrilli,
Managing Director, or, in respect of any Terms Agreement, to such other person
and place as may be specified therein; and notices to the Company shall be
directed to it at 100 Church Street, 12th Floor, New York, New York 10080-6512,
attention of the Secretary with a copy to the Treasurer at World Financial
Center, South Tower, 225 Liberty Street, New York, New York 10080-6105.
SECTION 12. Parties. This Underwriting Agreement and the applicable
-------
Terms Agreement shall each inure to the benefit of and be binding upon the
Company, Merrill Lynch and, upon execution of such Terms Agreement, any other
Underwriters and their respective successors. Nothing expressed or mentioned in
this Underwriting Agreement or such Terms Agreement is intended or shall be
construed to give any person, firm or corporation, other than the Underwriters
and the Company and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Underwriting Agreement or such Terms Agreement or any provision
herein or therein contained. This Underwriting Agreement and such Terms
Agreement and all conditions and provisions hereof and thereof are intended to
be for the sole and exclusive benefit of the parties hereto and thereto and
their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of Underwritten Securities from
any Underwriter shall be deemed to be a successor by reason merely of such
purchase.
27
<PAGE>
SECTION 13. GOVERNING LAW. THIS UNDERWRITING AGREEMENT AND ANY
-------------
APPLICABLE TERMS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED IN SUCH STATE.
SECTION 14. Effect of Headings. The Article and Section headings
------------------
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
Underwriting Agreement, along with all counterparts, will become a binding
agreement between Merrill Lynch and the Company in accordance with its terms.
Very truly yours,
MERRILL LYNCH & CO., INC.
By:
-------------------------------
Name: Theresa Lang
Title: Senior Vice President
and Treasurer
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
--------------------------------------
Authorized Signatory
28
<PAGE>
Exhibit A
MERRILL LYNCH & CO., INC.
(a Delaware corporation)
Debt Securities and Warrants
TERMS AGREEMENT
---------------
Dated: _______________, 19__
To: Merrill Lynch & Co., Inc.
World Financial Center
North Tower
New York, New York 10281-1332
Ladies and Gentlemen:
We understand that Merrill Lynch & Co., Inc., a Delaware corporation (the
"Company"), proposes to issue and sell [$ aggregate principal amount
of its [senior] [subordinated] debt securities (the "Debt Securities") [
warrants (the "Debt Security Warrants") to purchase $
aggregate principal amount of [senior] [subordinated] debt securities] [title of
Index Warrants or Currency Warrants being purchased] (such securities also being
hereinafter referred to as the "Underwritten Securities"). Subject to the terms
and conditions set forth or incorporated by reference herein, we [the
underwriters named below (the "Underwriters")] offer to purchase [, severally
and not jointly,] the [principal amount] [number] of Underwritten Securities
[opposite their names set forth below] at the purchase price set forth below.
[Principal Amount]
Underwriter [Number] of Underwritten Securities
- ----------- -----------------------------------
-------------
Total [$]
=============
The Underwritten Securities shall have the following terms:
[Debt Securities]
---------------
A-1
<PAGE>
Title:
Rank:
Aggregate principal amount:
Denominations:
Currency of payment:
Interest rate or formula:
Interest payment dates:
Regular record dates:
Stated maturity date:
Redemption provisions:
Sinking fund requirements:
Conversion provisions:
Listing requirements:
Rating requirements:
Black-out provisions:
Fixed or Variable Price Offering: [Fixed] [Variable] Price Offering
If Fixed Price Offering, initial public offering price per share: % of the
principal amount, plus accrued interest [amortized original issue discount], if
any, from _________________.
Purchase price: ___% of principal amount, plus accrued interest [amortized
original issue discount], if any, from _________________.
Form:
Other terms and conditions:
Closing date and location:
Debt Security Warrants
----------------------
Title:
Type:
Number:
Warrant Agreement:
Warrant Agent:
Issuable jointly with Debt Securities: [Yes] [No]
[Number of Debt Security Warrants issued with each $__________ principal amount
of
Debt Securities:]
[Detachable Date:]
Date(s) from which or period(s) during which Debt Security Warrants are
exercisable:
Date(s) on which Debt Security Warrants expire:
Exercise price(s):
Initial public offering price: $
Purchase price: $
Title of Underlying Securities:
Principal amount purchasable upon exercise of one Debt Security Warrant:
Terms of Underlying Securities:
Form: [Registered] [Bearer]
A-2
<PAGE>
Listing requirements:
Rating requirements:
Other terms and conditions:
Closing date and location:
Index Warrants
--------------
Title:
Number:
[Warrant Agreement] [Index Warrant Indenture]:
Issuable jointly with Debt Securities: [Yes] [No]
[Number of Index Warrants issued with each $ principal amount of
Debt Securities:]
[Detachable Date:]
Date(s) from which or period(s) during which Index Warrants are exercisable:
Date(s) on which Index Warrants expire:
Circumstances causing automatic exercise:
Strike price(s) of Index Warrants:
Initial public offering price: $
Purchase price: $
Cash Settlement Value formula:
Listing requirements:
Rating requirements:
Other terms and conditions:
Closing date and location:
Currency Warrants
-----------------
Title:
Number:
Warrant Agreement:
Issuable jointly with Debt Securities: [Yes] [No]
[Number of Currency Warrants issued with each $ principal amount of
Debt Securities:]
[Detachable Date:]
Date(s) from which or period(s) during which Currency Warrants are exercisable:
Date(s) on which Currency Warrants expire:
Circumstances causing automatic exercise:
Strike price(s) of Currency Warrants:
Initial Public offering price: $
Purchase price: $
Cash Settlement Value formula:
Listing requirements:
Rating requirements:
A-3
<PAGE>
Other terms and conditions:
Closing date and location:
All of the provisions contained in the document attached as Annex I hereto
entitled "MERRILL LYNCH & CO., INC.-- Debt Securities and Warrants --
Underwriting Agreement" (the "Underwriting Agreement") are hereby incorporated
by reference in their entirety herein and shall be deemed to be a part of this
Terms Agreement to the same extent as if such provisions had been set forth in
full herein. Terms defined in such document are used herein as therein defined.
Each reference to Underwriters in the Underwriting Agreement so incorporated
herein by reference shall be deemed to refer to the Underwriters as defined in
this Terms Agreement.
[The Underwriter(s) hereby expressly [waives] [waive] Company's compliance
with Section 3(k) of the Underwriting Agreement.]
Please accept this offer no later than ____ o'clock P.M. (New York City
time) on ______________ by signing a copy of this Terms Agreement in the space
set forth below and returning the signed copy to us.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
-----------------------------------
Authorized Signatory
[Acting on behalf of itself and the other named
Underwriters.]
Accepted:
MERRILL LYNCH & CO., INC.
By
-------------------------
Name:
Title:
A-4
<PAGE>
Exhibit B
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(1) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(2) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under, [or as
contemplated under,] the Underwriting Agreement and the applicable Terms
Agreement.
(3) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to so qualify or
be in good standing would not result in a Material Adverse Effect (as defined in
Section 1(a)(5) of the Underwriting Agreement).
(4) Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") has
been duly incorporated and is validly existing as a corporation in good standing
under the laws of the State of Delaware, has corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Prospectus and is duly qualified as a foreign corporation to transact
business and is in good standing in the State of New York; all of the issued and
outstanding capital stock of MLPF&S has been duly authorized and validly issued,
is fully paid and non-assessable and, to the best of our knowledge, is owned by
the Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; and none of the
outstanding shares of capital stock of MLPF&S was issued in violation of
preemptive or similar rights of any securityholder of MLPF&S.
(5) The Underwriting Agreement and the applicable Terms Agreement have
been duly authorized, executed and delivered by the Company.
(6) [Include if the Underwritten Securities being sold pursuant to the
applicable Terms Agreement include Senior Debt Securities and/or Subordinated
Debt Securities --] The Underwritten Securities have been duly authorized by the
Company for issuance and sale pursuant to the Underwriting Agreement and the
applicable Terms Agreement. The Underwritten Securities, when issued and
authenticated by the respective Trustee in the manner provided for in the
applicable Indenture and delivered against payment of the consideration therefor
specified in such Terms Agreement, will constitute valid and legally binding
obligations of the Company, enforceable against the Company in accordance with
their terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally and except as enforcement thereof is subject to general
principles of equity (regardless of whether the enforcement is considered in a
proceeding in equity or at law), and except further as enforcement thereof may
be limited by (A) requirements that a claim with respect to any Debt Securities
denominated other than in
B-1
<PAGE>
U.S. dollars (or a foreign or composite currency judgment in respect of such
claim) be converted into U.S. dollars at a rate of exchange prevailing on a date
determined pursuant to applicable law or (B) governmental authority to limit,
delay or prohibit the making of payments outside the United States; and the
Underwritten Securities are in the form contemplated by, and each registered
holder thereof is entitled to the benefits of, the applicable Indenture.
(7) [Include if the Underwritten Securities being sold pursuant to the
applicable Terms Agreement include Senior Debt Securities and/or Subordinated
Debt Securities --]. The [Each] applicable Indenture has been duly authorized,
executed and delivered by the Company and (assuming due authorization, execution
and delivery thereof by the respective Trustee) constitutes a valid and legally
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally and except as enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law)[, and except further as enforcement thereof may
be limited by (A) requirements that a claim with respect to any Debt Securities
denominated other than in U.S. dollars (or a foreign or composite currency
judgment in respect of such claim) be converted into U.S. dollars at a rate of
exchange prevailing on a date determined pursuant to applicable law or (B)
governmental authority to limit, delay or prohibit the making of payments
outside the United States].
(8) [Include if the Underwritten Securities being sold pursuant to the
applicable Terms Agreement include Warrants --] The Underwritten Securities have
been duly authorized by the Company for issuance and sale pursuant to the
Underwriting Agreement and the applicable Terms Agreement. The Underwritten
Securities, when issued and authenticated in the manner provided for in the
applicable Index Warrant Indenture or Warrant Agreement and delivered against
payment of the consideration therefor specified in such Terms Agreement, will
constitute valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally and except as
enforcement thereof is subject to general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law)[, and
except further as enforcement thereof may be limited by (A) requirements that a
claim with respect to any Warrant payable other than in U.S. dollars (or a
foreign or composite currency judgment in respect of such claim) be converted
into U.S. dollars at a rate of exchange prevailing on a date determined pursuant
to applicable law or (B) governmental authority to limited, delay or prohibit
the making of payments outside the United States; and the Underwritten
Securities are in the form contemplated by and each registered holder thereof is
entitled to the benefits of, the applicable Index Warrant Indenture or Warrant
Agreement].
(9) [Include if the Underwritten Securities being sold pursuant to the
applicable Terms Agreement include Warrants --] The [Each] applicable Index
Warrant Indenture or Warrant Agreement has been duly authorized, executed and
delivered by the Company and (assuming due authorization, execution and delivery
thereof by the applicable Trustee or Warrant Agent) constitutes a valid and
legally binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization,
B-2
<PAGE>
moratorium or other similar laws affecting creditors' rights generally and
except as enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law)[, and except further as enforcement thereof may be limited by (A)
requirements that a claim with respect to any Warrant payable other than in U.S.
dollars (or a foreign or composite currency judgment in respect of such claim)
be converted into U.S. dollars at a rate of exchange prevailing on a date
determined pursuant to applicable law or (B) governmental authority to limited,
delay or prohibit the making of payments outside the United States].
(10) [Include if the Underlying Securities related to the Underwritten
Securities being sold pursuant to the applicable Terms Agreement include Senior
Debt Securities and/or Subordinated Debt Securities -- ] The Underlying
Securities have been duly authorized for issuance upon exercise of the Debt
Security Warrants. The Underlying Securities, when issued and authenticated in
the manner provided for in the applicable Indenture and delivered against
payment of the consideration therefor in accordance with the terms of the Debt
Security Warrants, will constitute valid and legally binding obligations of the
Company, enforceable against the Company in accordance with their terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally and except as enforcement thereof is subject to
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law)[, and except further as enforcement thereof
may be limited by (A) requirements that a claim with respect to any Debt
Securities denominated other than in U.S. dollars (or a foreign or composite
currency judgment in respect of such claim) be converted into U.S. dollars at a
rate of exchange prevailing on a date determined pursuant to applicable law or
(B) governmental authority to limit, delay or prohibit the making of payments
outside the United States]. [Include if the Underlying Securities related to the
Underwritten Securities being sold pursuant to the applicable Terms Agreement
include Common Stock, Preferred Stock or Depositary Shares --] The Underlying
Securities have been duly authorized and reserved for issuance by the Company
[upon exercise of the [Common Stock] [Preferred Stock] Warrants] [upon
conversion of the related [Preferred Stock] [Depositary Shares]. The Underlying
Securities, when issued upon such [exercise] [conversion], will be validly
issued, fully paid and non-assessable and will not be subject to preemptive or
other similar rights of any securityholder of the Company. No holder of the
Underlying Securities is or will be subject to personal liability by reason of
being such a holder. [In addition, the Underlying Securities, upon deposit by
the Company of the Preferred Stock represented thereby with the applicable
Depositary and the execution and delivery by such Depositary of the Depositary
Receipts evidencing such Underlying Securities, in each case pursuant to the
applicable Deposit Agreement, will represent legal and valid interests in such
Preferred Stock.]
(11) [Include if the Underwritten Securities being sold pursuant to the
applicable Terms Agreement include Depositary Shares --] The applicable Deposit
Agreement has been duly authorized, executed and delivered by the Company and
(assuming due authorization, execution and delivery thereof by the applicable
Depositary) constitutes a valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and except as
enforcement thereof is subject to general principles of equity (regardless of
whether enforcement is considered in the proceeding in equity or at law). Each
registered holder of a
B-3
<PAGE>
Depositary Receipt under the applicable Deposit Agreement will be entitled to
the proportional rights, preferences and limitations of the Preferred Stock
represented by the Depositary Shares evidenced by such Depositary Receipt and to
such other rights as are granted to such registered holder in such Deposit
Agreement.
(12) [Include if the Prospectus contains a "Capitalization" section --]
The authorized, issued and outstanding shares of capital stock of the Company is
as set forth in the Prospectus under the caption "Capitalization" (except for
subsequent issuances thereof, if any, contemplated under the Underwriting
Agreement, pursuant to reservations, agreements or employee benefit plans
referred to in the Prospectus or pursuant to the exercise of convertible
securities or options referred to in the Prospectus). Such shares of capital
stock have been duly authorized and validly issued by the Company and are fully
paid and non-assessable, and none of such shares of capital stock was issued in
violation of preemptive or similar rights of any securityholder of the Company.
(13) The Underwritten Securities being sold pursuant to the applicable
Terms Agreement and the [each] applicable [Indenture] [Warrant Agreement]
conform, and any Underlying Securities, when issued and delivered in accordance
with the terms of the related Underwritten Securities, will conform, in all
material respects to the statements relating thereto contained in the Prospectus
and are in substantially the form filed or incorporated by reference, as the
case may be, as an exhibit to the Registration Statement.
(14) The information in the Prospectus under "Description of Debt
Securities", "Description of Debt Warrants", "Description of Currency Warrants",
"Description of Index Warrants", "Description of Preferred Stock", "Description
of Depositary Shares", "Description of Preferred Stock Warrants", "Description
of Common Stock" and "Description of Common Stock Warrants" or any caption
purporting to describe any such Securities, and in the Registration Statement
under Item 15, to the extent that it constitutes matters of law, summaries of
legal matters, the Company's charter and by-laws or legal proceedings, or legal
conclusions, has been reviewed by us and is correct in all material respects.
(15) The execution, delivery and performance of the Underwriting
Agreement, the applicable Terms Agreement and the [each] applicable [Indenture]
[Warrant Agreement] and any other agreement or instrument entered into or issued
or to be entered into or issued by the Company in connection with the
transactions contemplated in the Registration Statement and the Prospectus and
the consummation of the transactions contemplated in the Underwriting Agreement
and such Terms Agreement and in the Registration Statement and the Prospectus
(including the issuance and sale of the Underwritten Securities and the use of
the proceeds from the sale of the Underwritten Securities as described under the
caption "Use of Proceeds") and compliance by the Company with its obligations
thereunder do not and will not, whether with or without the giving of notice or
passage of time or both, conflict with or constitute a breach of, or a default
or Repayment Event (as defined in Section 1(a)(16) of the Underwriting
Agreement) under or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any subsidiary of the
Company pursuant to, any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or any other agreement or instrument, known to us,
to which the Company or any of its subsidiaries is a party or by which it or any
of them may be bound, or to which any of the property or assets of the Company
or its
B-4
<PAGE>
subsidiaries is subject, except for such conflicts, breaches, defaults, liens,
events, charges or encumbrances that would not result in a Material Adverse
Effect, nor will such action result in any violation of the provisions of the
charter or by-laws of the Company or any Subsidiary, or any applicable law,
statute, rule, regulation, judgment, order, writ or decree, known to us, of any
government, government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any Subsidiary or any of their assets
properties, assets or operations.
(16) The Registration Statement has been declared effective under the
1933 Act. Any required filing of the Prospectus pursuant to Rule 424(b) has been
made in the manner and within the time period required by Rule 424(b); and to
the best of our knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued under the 1933 Act and no proceedings for
that purpose have been initiated or are pending or threatened by the Commission.
Each applicable Indenture is qualified under the 1939 Act.
(17) The Registration Statement and the Prospectus, excluding the
documents incorporated by reference therein, and each amendment or supplement to
the Registration Statement and Prospectus, excluding the documents incorporated
by reference therein, as of their respective effective or issue dates (other
than the financial statements and supporting schedules included therein or
omitted therefrom and each Trustee's Statement of Eligibility on Form T-1 (the
"Form T-1s"), as to which we express no opinion) complied as to form in all
material respects with the requirements of the 1933 Act and the 1933 Act
Regulations.
(18) The documents incorporated by reference in the Prospectus (other
than the financial statements and supporting schedules therein or omitted
therefrom, as to which we express no opinion), when they became effective or
were filed with the Commission, as the case may be, complied as to form in all
material respects with the requirements of the 1933 Act or the 1934 Act, as
applicable, and the rules and regulations of the Commission thereunder.
(19) No filing with, or authorization, approval, consent, license, order
registration, qualification or decree of, any court or governmental authority or
agency, domestic or foreign, is necessary or required for the performance by the
Company of its obligations under the Underwriting Agreement or the applicable
Terms Agreement or in connection with the transactions contemplated under the
Underwriting Agreement, such Terms Agreement or the [any] applicable [Indenture]
[Warrant Agreement] other than under the 1933 Act, the 1933 Act Regulations, the
1939 Act and the 1939 Act Regulations, which have been obtained, or as may be
required under the 1933 Act, the 1933 Act Regulations, the 1939 Act, the 1939
Act Regulations or state securities or blue sky laws.
[(20)] [Include if required in Terms Agreement] The Underwritten
Securities [and any Underlying Securities], upon issuance, will be excluded or
exempted under, or beyond the purview of, the Commodity Exchange Act, as amended
(the "Commodity Exchange Act") and the rules and regulations of the Commodity
Futures Trading Commission adopted under the Commodity Exchange Act.]
We have participated in conferences with officers and representatives of
the Company, representatives of the independent accountants of the Company and
the Underwriters at which the
B-5
<PAGE>
contents of the Registration Statement and Prospectus and related matters were
discussed and, although we are not passing upon or assuming responsibility for
the accuracy, completeness or fairness of the statements contained or
incorporated by reference in the Registration Statement and Prospectus and have
made no independent check or verification thereof, on the basis of the
foregoing, nothing has come to our attention that would lead us to believe that
the Registration Statement or any post-effective amendment thereto (except for
financial statements and schedules and other financial data included or
incorporated by reference therein or omitted therefrom and the Form T-1s, as to
which we make no statement), at the time the Registration Statement or any post-
effective amendment thereto (including the filing of the Company's Annual Report
on Form 10-K with the Commission) became effective or at the date of the
applicable Terms Agreement, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus or any
amendment or supplement thereto (except for financial statements and schedules
and other financial data included or incorporated therein or omitted therefrom,
as to which we make no statement), at the time the Prospectus was issued, at the
time any such amended or supplemented prospectus was issued or at the Closing
Time, included or includes an untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
In rendering such opinion, such counsel may rely, as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials.
B-6
<PAGE>
Exhibit 1(c)
MERRILL LYNCH & CO., INC.
(a Delaware corporation)
UNDERWRITING AGREEMENT FOR
--------------------------
COMMON STOCK, COMMON STOCK WARRANTS,
------------------------------------
PREFERRED STOCK, PREFERRED STOCK WARRANTS
-----------------------------------------
AND DEPOSITARY SHARES
---------------------
Dated: July___, 1998
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Representations and Warranties.........................................................................4
(a) Representations and Warranties by the Company...................................................4
(1)Compliance with Registration Requirements.......................................................5
(2) Incorporated Documents..........................................................................5
(3)Independent Accountants.........................................................................6
(4) Financial Statements............................................................................6
(5) No Material Adverse Change in Business..........................................................6
(6) Good Standing of the Company....................................................................6
(7)Good Standing of Subsidiaries...................................................................7
(8) Capitalization..................................................................................7
(9) Authorization of this Underwriting Agreement and Terms Agreement................................7
(10)Authorization of Common Stock...................................................................7
(11)Authorization of Preferred Stock and/or Depositary Shares......................................8
(12)Authorization of Deposit Agreement..............................................................8
(13)Authorization of Warrants.......................................................................9
(14)Authorization of Warrant Agreement..............................................................9
(15)Authorization of Underlying Securities..........................................................9
(16)Authorization of Indentures...................................................................10
(17)Descriptions of the Underwritten Securities, Warrant Agreements,
Deposit Agreements, Indentures and Underlying Securities..........................................10
(18)Absence of Defaults and Conflicts..............................................................10
(19)Absence of Labor Dispute......................................................................11
(20)Absence of Proceedings.........................................................................11
(21)Exhibits......................................................................................12
(22)Absence of Further Requirements................................................................12
(23)Possession of Intellectual Property............................................................12
(24)Possession of Licenses and Permits.............................................................12
(25)Title to Property.............................................................................13
(26)Commodity Exchange Act.........................................................................13
(27)Compliance with Cuba Act.......................................................................13
(b) Officers' Certificates.........................................................................13
SECTION 2. Sale and Delivery to Underwriters; Closing............................................................13
(a) Underwritten Securities........................................................................13
(b) Option Underwritten Securities.................................................................14
(c) Payment........................................................................................14
(d) Denominations; Registration....................................................................15
SECTION 3. Covenants of the Company..............................................................................15
(a) Compliance with Securities Regulations and Commission Requests.................................15
(b) Filing of Amendments...........................................................................16
(c) Delivery of Registration Statements............................................................16
(d) Delivery of Prospectuses.......................................................................16
(e) Continued Compliance with Securities Laws......................................................16
(f) Blue Sky Qualifications........................................................................17
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
(g) Earnings Statement.............................................................................17
(h) Reservation of Securities......................................................................17
(i) Use of Proceeds................................................................................17
(j) Listing........................................................................................17
(k) Restriction on Sale of Securities..............................................................17
(l) Reporting Requirements.........................................................................18
SECTION 4. Payment of Expenses...................................................................................18
(a) Expenses.......................................................................................18
(b) Termination of Agreement.......................................................................18
SECTION 5. Conditions of Underwriters' Obligations...............................................................19
(a) Effectiveness of Registration Statement........................................................19
(b) Opinion of Counsel for Company.................................................................19
(c) Opinion of Counsel for Underwriters............................................................19
(d) Officers' Certificate..........................................................................19
(e) Accountant's Comfort Letter....................................................................20
(f) Ratings........................................................................................20
(g) Approval of Listing............................................................................20
(h) No Objection...................................................................................20
(i) Lock-up Agreements.............................................................................20
(j) Over-Allotment Option..........................................................................20
(k) Additional Documents...........................................................................21
(l) Termination of Terms Agreement.................................................................21
SECTION 6. Indemnification.22
(a) Indemnification of Underwriters................................................................22
(b) Indemnification of Company, Directors and Officers.............................................23
(c) Documentary Stamp or Similar Issue Tax Indemnification.........................................23
(d) Actions Against Parties; Notification..........................................................23
(e) Settlement without Consent if Failure to Reimburse.............................................24
SECTION 7. Contribution..........................................................................................24
SECTION 8. Representations, Warranties and Agreements to Survive Delivery........................................25
SECTION 9. Termination...........................................................................................25
(a) Underwriting Agreement.........................................................................25
(b) Terms Agreement................................................................................25
(c) Liabilities....................................................................................26
SECTION 10. Default by One or More of the Underwriters...........................................................26
SECTION 11. Notices..............................................................................................27
SECTION 12. Parties..............................................................................................27
SECTION 13. GOVERNING LAW........................................................................................27
SECTION 14. Effect of Headings...................................................................................28
</TABLE>
ii
<PAGE>
MERRILL LYNCH & CO., INC.
(a Delaware corporation)
Common Stock, Warrants to Purchase Common Stock,
Preferred Stock, Warrants to Purchase Preferred Stock, and
Depositary Shares
UNDERWRITING AGREEMENT
July ___, 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1332
Ladies and Gentlemen:
Merrill Lynch & Co., Inc., a Delaware corporation (the "Company"), proposes
to issue and sell up to $_____________ aggregate initial public offering price
of its (i) shares of common stock, par value $1.33 per share, including any
preferred share purchase Rights attached thereto (the "Common Stock"), (ii)
warrants to purchase shares of Common Stock (the "Common Stock Warrants"), (iii)
shares of preferred stock, par value $1.00 per share (the "Preferred Stock"),
that may be represented by depositary shares (the "Depositary Shares") or (iv)
warrants to purchase shares of Preferred Stock (the "Preferred Stock Warrants")
or any combination thereof, from time to time, in or pursuant to one or more
offerings on terms to be determined at the time of sale. It is understood that
the Company may from time to time authorize the issuance of additional shares of
Common Stock, Preferred Stock, Common Stock Warrants, Preferred Stock Warrants
or Depositary Shares.
The Preferred Stock will be issued in one or more series and each series of
Preferred Stock may vary, as applicable, as to the title, specific number of
shares, rank, stated value, liquidation preference, dividend rate or rates (or
method of calculation), dividend payment dates, redemption provisions, sinking
fund requirements, conversion provisions (and terms of the related Underlying
Securities (as defined below)) and any other variable terms as set forth in the
applicable certificate of designations (each, the "Certificate of Designations")
relating to such series of Preferred Stock. A series of Preferred Stock may be
represented by Depositary Shares that are evidenced by depositary receipts (the
"Depositary Receipts") issued pursuant to a deposit
<PAGE>
agreement (each, a "Deposit Agreement") among the Company, the depositary
identified therein (the "Depositary") and the registered holders of the
Depositary Receipts issued thereunder.
Each issue of Common Stock Warrants and Preferred Stock Warrants
(collectively, the "Warrants") will be issued pursuant to a separate warrant
agreement (each, a "Warrant Agreement") between the Company and the warrant
agent identified therein (each, a "Warrant Agent"). The Warrants may vary, as
applicable, as to, among other terms, title, type, specific number, exercise
dates or periods, exercise price(s), expiration date(s) and terms of the related
Underlying Securities.
As used herein, "Securities" shall mean the Common Stock, Common Stock
Warrants, Preferred Stock, Preferred Stock Warrants or Depositary Shares, or any
combination thereof, initially issuable by the Company which may be sold
hereunder and "Underlying Securities" shall mean the Common Stock, Preferred
Stock or Depositary Shares issuable upon exercise of the Warrants, as
applicable, or and any Common Stock, Preferred Stock, Depositary Shares or
senior or subordinated debt securities (the "Debt Securities") issuable upon
conversion or exchange of such Preferred Stock or Depositary Shares, as
applicable.
Unless otherwise specified in the applicable Terms Agreement (as defined
below), if the Underlying Securities include Debt Securities, such Debt
Securities will be issued in one or more series as (i) senior indebtedness (the
"Senior Debt Securities") under (x) an indenture, dated as of April 1, 1983, as
amended and restated (the "1983 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 "1983 Trustee"), or (y) an
indenture, dated as of October 1, 1993 (the "1993 Indenture", and together with
the 1983 Indenture, the "Senior Indentures"), between the Company and The Chase
Manhattan Bank (successor by merger to The Chase Manhattan Bank, N.A.), as
trustee (the "1993 Trustee" and, together with the 1983 Trustee, the "Senior
Trustees") or (ii) subordinated indebtedness (the "Subordinated Debt
Securities") under an indenture (the "Subordinated Indenture"), between the
Company and The Chase Manhattan Bank, formerly known as Chemical Bank, as
trustee (the "Subordinated Trustee"). The Senior Debt Securities and the
Subordinated Debt Securities may also be issued under one or more other
indentures (each, a "Subsequent Indenture") and have one or more other trustees
(each, a "Subsequent Trustee"). Any Subsequent Indenture relating to Senior
Debt Securities or Subordinated Debt Securities will have terms and conditions
identical in all material respects to the above-referenced Senior Indentures or
the Subordinated Indenture, as the case may be. Each series of Debt Securities
may vary, as applicable, as to title, aggregate principal amount, rank, interest
rate or formula and timing of payments thereof, stated maturity date, redemption
and/or repayment provisions, sinking fund requirements, conversion provisions
(and terms of the securities issuable upon conversion) and any other variable
terms established by, or pursuant to, the applicable Indenture. Additionally,
the Company may issue Subordinated Debt Securities under a separate indenture
which provides for a single issue of zero coupon convertible Subordinated Debt
Securities.
Whenever the Company determines to make an offering of Securities through
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), or through an underwriting syndicate managed by Merrill
Lynch, the Company will enter into an agreement
2
<PAGE>
(each, a "Terms Agreement") providing for the sale of such Securities to, and
the purchase and offering thereof by, Merrill Lynch and such other underwriters,
if any, selected by Merrill Lynch (the "Underwriters", which term shall include
Merrill Lynch, whether acting as sole Underwriter or as a member of an
underwriting syndicate, as well as any Underwriter substituted pursuant to
Section 10 hereof). The Terms Agreement relating to the offering of Securities
shall specify the number of Securities to be initially issued (the "Initial
Underwritten Securities"), the name of each Underwriter participating in such
offering (subject to substitution as provided in Section 10 hereof) and the name
of any Underwriter other than Merrill Lynch acting as co-manager in connection
with such offering, the number of Initial Underwritten Securities which each
such Underwriter severally agrees to purchase, whether such offering is on a
fixed or variable price basis and, if on a fixed price basis, the initial
offering price, the price at which the Initial Underwritten Securities are to be
purchased by the Underwriters, the form, time, date and place of delivery and
payment of the Initial Underwritten Securities and any other material variable
terms of the Initial Underwritten Securities, as well as the material variable
terms of any related Underlying Securities. In addition, if applicable, such
Terms Agreement shall specify whether the Company has agreed to grant to the
Underwriters an option to purchase additional Securities to cover over-
allotments, if any, and the number of Securities subject to such option (the
"Option Underwritten Securities"). As used herein, the term "Underwritten
Securities" shall include the Initial Underwritten Securities and all or any
portion of any Option Underwritten Securities. The Terms Agreement, which shall
be substantially in the form of Exhibit A hereto, may take the form of an
exchange of any standard form of written telecommunication between the Company
and Merrill Lynch, acting for itself and, if applicable, as representative of
any other Underwriters. Each offering of Underwritten Securities through Merrill
Lynch as sole Underwriter or through an underwriting syndicate managed by
Merrill Lynch will be governed by this Underwriting Agreement, as supplemented
by the applicable Terms Agreement.
The Company has filed with the Securities and Exchange Commission (the
"Commission") two registration statements on Form S-3 (No. 333-44173 and pre-
effective amendment No. 1 thereto and No. 333-________ [and pre-effective
amendment No. 1 thereto]) (the "Initial Registration Statements") for the
registration of the Securities and the Underlying Securities under the
Securities Act of 1933, as amended (the "1933 Act"), and the offering thereof
from time to time in accordance with Rule 415 of the rules and regulations of
the Commission under the 1933 Act (the "1933 Act Regulations"). The Initial
Registration Statements have been declared effective by the Commission, and each
Indenture in effect as of the date of this Underwriting Agreement has been duly
qualified under the Trust Indenture Act of 1939, as amended (the "1939 Act").
The Company will have filed such post-effective amendments to the Initial
Registration Statements as may be required, and any applicable Indenture will
have been duly qualified under the 1939 Act, prior to the execution of the
applicable Terms Agreement. The Initial Registration Statement (as so amended,
if applicable), including the information, if any, deemed to be a part thereof
pursuant to Rule 430A(b) of the 1933 Act Regulations (the "Rule 430A
Information") or Rule 434(d) of the 1933 Act Regulations (the "Rule 434
Information"), are referred to herein as the "Registration Statement"; and the
final prospectus and the final prospectus supplement relating to the offering of
the Underwritten Securities, in the form first furnished to the Underwriters by
the Company for use in connection with the offering of the Underwritten
Securities, are collectively referred to herein as the "Prospectus"; provided,
--------
however, that all references to the "Registration Statement" and
- -------
3
<PAGE>
the "Prospectus" shall also be deemed to include all documents incorporated
therein by reference which have been filed pursuant to the Securities Exchange
Act of 1934, as amended (the "1934 Act"), prior to the execution of the
applicable Terms Agreement; provided, further, that if the Company (i) files a
-------- -------
registration statement with the Commission pursuant to Rule 462(b) of the 1933
Act Regulations (the "Rule 462 Registration Statement"), then, after such
filing, all references to "Registration Statement" shall thereafter also be
deemed to include the Rule 462 Registration Statement; (ii) files a registration
statement or registration statements with the Commission registering additional
securities under the 1933 Act which securities may be issued and sold pursuant
to the terms of this Underwriting Agreement (each, a "Subsequent Registration
Statement"), then after effectiveness of such Subsequent Registration Statement,
all references to "Registration Statement" shall thereafter be deemed to refer
to the Initial Registration Statement and/or the Subsequent Registration
Statement (each as so amended, if applicable, and including any Rule 430A
Information, Rule 434 Information or Rule 462 Registration Statement), as the
case may be; and (iii) elects to rely upon Rule 434 of the 1933 Act Regulations,
then all references to "Prospectus" shall also be deemed to include the final or
preliminary prospectus and the applicable term sheet or abbreviated term sheet
(the "Term Sheet"), as the case may be, in the form first furnished to the
Underwriters by the Company in reliance upon Rule 434 of the 1933 Act
Regulations, and all references in this Underwriting Agreement to the date of
the Prospectus shall mean the date of the Term Sheet. The term "preliminary
prospectus" shall mean any prospectus used before the registration statement
became effective and any prospectus that omitted, as applicable, the Rule 430A
Information, the Rule 434 Information or other information to be included upon
pricing in a form of prospectus filed with the Commission pursuant to Rule
424(b) of the 1933 Act Regulations, that was used after such effectiveness and
prior to the execution and delivery of the applicable Terms Agreement. For
purposes of this Underwriting Agreement, all references to the Registration
Statement, Prospectus, Term Sheet or preliminary prospectus or to any amendment
or supplement to any of the foregoing shall be deemed to include any copy filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR").
All references in this Underwriting Agreement to financial statements and
schedules and other information which is "contained," "included" or "stated" (or
other references of like import) in the Registration Statement, Prospectus or
preliminary prospectus shall be deemed to mean and include all such financial
statements and schedules and other information which is incorporated by
reference in the Registration Statement, Prospectus or preliminary prospectus,
as the case may be; and all references in this Underwriting Agreement to
amendments or supplements to the Registration Statement, Prospectus or
preliminary prospectus shall be deemed to mean and include the filing of any
document under the 1934 Act which is incorporated by reference in the
Registration Statement, Prospectus or preliminary prospectus, as the case may
be.
SECTION 1. Representations and Warranties.
-------------------------------
(a) Representations and Warranties by the Company. The Company
represents and warrants to Merrill Lynch, as of the date hereof, and to each
Underwriter named in the applicable Terms Agreement, as of the date thereof, as
of the Closing Time (as defined below) and, if
4
<PAGE>
applicable, as of each Date of Delivery (as defined below) (in each case, a
"Representation Date"), as follows:
(1) Compliance with Registration Requirements. The Company meets the
-----------------------------------------
requirements for use of Form S-3 under the 1933 Act. The Registration
Statement has become effective under the 1933 Act and no stop order
suspending the effectiveness of the Registration Statement has been issued
under the 1933 Act and no proceedings for that purpose have been instituted
or are pending or, to the knowledge of the Company, are contemplated by the
Commission, and any request on the part of the Commission for additional
information has been complied with. In addition, each Indenture in effect
as of each Representation Date has been duly qualified under the 1939 Act.
At the respective times the Registration Statement and any post-
effective amendments thereto (including the filing of the Company's most
recent Annual Report on Form 10-K with the Commission (the "Annual Report
on Form 10-K")) became effective and at each Representation Date, the
Registration Statement and any amendments and supplements thereto complied
and will comply in all material respects with the requirements of the 1933
Act and the 1933 Act Regulations and the 1939 Act and the rules and
regulations of the Commission under the 1939 Act (the "1939 Act
Regulations"), and did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. At the
date of the Prospectus, at the Closing Time and at each Date of Delivery,
if any, the Prospectus and any amendments and supplements thereto did not
and will not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
If Rule 434 is used, the Company will comply with the requirements of Rule
434. The representations and warranties in this subsection shall not apply
to (A) statements in or omissions from the Registration Statement or the
Prospectus made in reliance upon and in conformity with information
furnished to the Company in writing by any Underwriter through Merrill
Lynch expressly for use in the Registration Statement or the Prospectus or
(B) that part of the Registration Statement that constitutes the Statement
of Eligibility on Form T-1 (the "Form T-1") under the 1939 Act of the
relevant Trustee.
Each preliminary prospectus and prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations and each
preliminary prospectus and the Prospectus delivered to the Underwriters for
use in connection with the offering of Underwritten Securities will, at the
time of such delivery, be identical to any electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(2) Incorporated Documents. The documents incorporated or deemed to be
----------------------
incorporated by reference in the Registration Statement and the Prospectus,
when they became effective or at the time they were or hereafter are filed
with the Commission, complied and will comply in all material respects with
the requirements of the 1934 Act
5
<PAGE>
and the rules and regulations of the Commission thereunder (the "1934 Act
Regulations") and, when read together with the other information in the
Prospectus, at the date of the Prospectus, at the Closing Time and at each
Date of Delivery, if any, did not and will not include an untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(3) Independent Accountants. The accountants who certified the
-----------------------
financial statements and any supporting schedules thereto included in the
Registration Statement and the Prospectus are independent public
accountants as required by the 1933 Act and the 1933 Act Regulations.
(4) Financial Statements. The financial statements of the Company
--------------------
included in the Registration Statement and the Prospectus, together with
the related schedules and notes, as well as those financial statements,
schedules and notes of any other entity included therein, present fairly
the financial position of the Company and its consolidated subsidiaries, or
such other entity, as the case may be, at the dates indicated and the
statement of operations, stockholders' equity and cash flows of the Company
and its consolidated subsidiaries, or such other entity, as the case may
be, for the periods specified. Such financial statements have been prepared
in conformity with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved. The
supporting schedules, if any, included in the Registration Statement
present fairly in accordance with GAAP the information required to be
stated therein. The selected financial data and the summary financial
information, if any, included in the Registration Statement or the
Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with that of the audited financial
statements incorporated by reference or included in the Registration
Statement and the Prospectus.
(5) No Material Adverse Change in Business. Since the respective
--------------------------------------
dates as of which information is given in the Registration Statement and
the Prospectus, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (B) there have
been no transactions entered into by the Company or any of its
subsidiaries, other than those arising in the ordinary course of business,
which are material with respect to the Company and its subsidiaries
considered as one enterprise and (C) except for regular quarterly dividends
on the Company's outstanding common stock and regular dividends on its
outstanding preferred stock in amounts per share that are consistent with
the terms of such preferred stock, there has been no dividend or
distribution of any kind declared, paid or made by the Company on any class
of its capital stock.
(6) Good Standing of the Company. The Company has been duly organized
----------------------------
and is validly existing as a corporation in good standing under the laws of
the State of Delaware and has corporate power and authority to own, lease
and operate its properties
6
<PAGE>
and to conduct its business as described in the Prospectus and to enter
into and perform its obligations under, or as contemplated under, this
Underwriting Agreement and the applicable Terms Agreement. The Company is
duly qualified as a foreign corporation to transact business and is in good
standing in each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure to so qualify or be in good
standing would not result in a Material Adverse Effect.
(7) Good Standing of Subsidiaries. Each subsidiary of the Company
-----------------------------
which is a "significant subsidiary" as defined in Regulation S-X under the
1933 Act (each a "Subsidiary" and, collectively, the "Subsidiaries") has
been duly organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, has
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Prospectus and is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except where the failure to so qualify or be in good standing
would not result in a Material Adverse Effect; except as otherwise
disclosed in the Registration Statement and Prospectus, all of the issued
and outstanding capital stock of each Subsidiary has been duly authorized
and validly issued and is fully paid and non-assessable and is owned by the
Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; and none of
the outstanding shares of capital stock of any Subsidiary was issued in
violation of preemptive or similar rights of any security holder of such
Subsidiary. The only subsidiaries of the Company are (A) the subsidiaries
listed in Exhibit 21 to the Annual Report on Form 10-K of the Company filed
with the Commission under Section 13 of the 1934 Act and (B) certain other
subsidiaries which, considered in the aggregate as a single subsidiary, do
not constitute a "significant subsidiary" as defined in Rule 1-02 of
Regulation S-X under the 1933 Act.
(8) Capitalization. If the Prospectus contains a "Capitalization"
--------------
section, the authorized, issued and outstanding shares of capital stock of
the Company is as set forth therein (except for subsequent issuances
thereof, if any, contemplated under this Underwriting Agreement, pursuant
to reservations, agreements or employee benefit plans referred to in the
Prospectus or pursuant to the exercise of convertible securities or options
referred to in the Prospectus). Such shares of capital stock have been duly
authorized and validly issued by the Company and are fully paid and non-
assessable, and none of such shares of capital stock was issued in
violation of preemptive or similar rights of any securityholder of the
Company.
(9) Authorization of this Underwriting Agreement and Terms Agreement.
----------------------------------------------------------------
This Underwriting Agreement has been, and the applicable Terms Agreement as
of the date thereof will have been, duly authorized, executed and delivered
by the Company.
(10) Authorization of Common Stock. If the Underwritten Securities
-----------------------------
being sold pursuant to the applicable Terms Agreement include Common Stock,
such Underwritten
7
<PAGE>
Securities have been, or as of the date of such Terms Agreement will have
been, duly authorized by the Company for issuance and sale pursuant to this
Underwriting Agreement and such Terms Agreement. Such Underwritten
Securities, when issued and delivered by the Company pursuant to this
Underwriting Agreement and such Terms Agreement against payment of the
consideration therefor specified in such Terms Agreement, will be validly
issued, fully paid and non-assessable and will not be subject to preemptive
or similar rights of any securityholder of the Company. No holder of such
Underwritten Securities is or will be subject to personal liability by
reason of being such a holder.
(11) Authorization of Preferred Stock and/or Depositary Shares. If the
---------------------------------------------------------
Underwritten Securities being sold pursuant to the applicable Terms
Agreement include Preferred Stock and/or Depositary Shares, such
Underwritten Securities have been, or as of the date of such Terms
Agreement will have been, duly authorized by the Company for issuance and
sale pursuant to this Underwriting Agreement and such Terms Agreement. The
applicable Preferred Stock, when issued and delivered by the Company
pursuant to this Underwriting Agreement and such Terms Agreement against
payment of the consideration therefor, or for the related Depositary
Shares, as the case may be, specified in such Terms Agreement, will be
validly issued, fully paid and non-assessable and will not be subject to
preemptive or similar rights of any securityholder of the Company. In
addition, upon deposit by the Company of any Preferred Stock represented by
Depositary Shares with the applicable Depositary and the execution and
delivery by such Depositary of the Depositary Receipts evidencing such
Depositary Shares, in each case pursuant to the applicable Deposit
Agreement, such Depositary Shares will represent legal and valid interests
in such Preferred Stock. No holder of such Preferred Stock or Depositary
Receipts evidencing Depositary Shares is or will be subject to personal
liability by reason of being such a holder. The applicable Certificate of
Designations will be in full force and effect prior to the Closing Time.
(12) Authorization of Deposit Agreement. If the Underwritten
----------------------------------
Securities being sold pursuant to the applicable Terms Agreement include
Depositary Shares, the applicable Deposit Agreement has been, or prior to
the issuance of such Depositary Shares will have been, duly authorized,
executed and delivered by the Company and, upon such authorization,
execution and delivery (assuming due authorization, execution and delivery
by the applicable Depositary), will constitute a valid and legally binding
agreement of the Company, enforceable against the Company in accordance
with its terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and except as enforcement thereof is
subject to general principles of equity (regardless of whether enforcement
is considered in a proceeding in equity or at law). Each registered holder
of a Depositary Receipt under the applicable Deposit Agreement will be
entitled to the proportional rights, preferences and limitations of the
Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipt and to such other rights as are granted to such
registered holder in such Deposit Agreement.
8
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(13) Authorization of Warrants. If the Underwritten Securities being
-------------------------
sold ursuant to the applicable Terms Agreement include Warrants, such
Underwritten Securities have been, or prior to issuance of such
Underwritten Securities will have been, duly authorized by the Company for
issuance and sale pursuant to this Underwriting Agreement and such Terms
Agreement. Such Underwritten Securities, when issued and authenticated in
the manner provided for the applicable Warrant Agreement and delivered
against payment of the consideration therefor specified in such Terms
Agreement, will constitute valid and legally binding obligations of the
Company, entitled to the benefits provided by such Warrant Agreement and
enforceable against the Company in accordance with their terms, except as
the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally and except as enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
(14) Authorization of Warrant Agreement. If the Underwritten
----------------------------------
Securities being sold pursuant to the applicable Terms Agreement include
Warrants, each applicable Warrant Agreement has been, or prior to the
issuance of such Underwritten Securities will have been, duly authorized,
executed and delivered by the Company and, upon such authorization,
execution and delivery (assuming due authorization, execution and delivery
by the applicable Warrant Agent), will constitute a valid and legally
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as the enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and except as enforcement thereof is
subject to general principles of equity (regardless of whether enforcement
is considered in a proceeding in equity or at law).
(15) Authorization of Underlying Securities. If the Underlying
--------------------------------------
Securities related to the Underwritten Securities being sold pursuant to
the applicable Terms Agreement include Common Stock, Preferred Stock or
Depositary Shares, such Underlying Securities have been, or as of the date
of such Terms Agreement will have been, duly authorized and reserved for
issuance by the Company upon exercise of the Warrants, as applicable, or
upon conversion of the related Preferred Stock or Depositary Shares, as
applicable. If the Underlying Securities include Common Stock or Preferred
Stock, such Underlying Securities, when issued upon such exercise or
conversion, as applicable, will be validly issued, fully paid and non-
assessable and will not be subject to preemptive or similar rights of any
securityholder of the Company. If the Underlying Securities include
Depositary Shares, such Underlying Securities, upon deposit by the Company
of the Preferred Stock represented thereby with the applicable Depositary
and the execution and delivery by such Depositary of the Depositary
Receipts evidencing such Depositary Shares, in each case pursuant to the
applicable Deposit Agreement, will represent legal and valid interests in
such Preferred Stock. No holder of such Common Stock, Preferred Stock or
Depositary Receipts evidencing Depository Shares is or will be subject to
personal liability by reason of being such a holder. If the Underlying
Securities related to the Underwritten Securities being sold pursuant to
the applicable Terms Agreement include Debt Securities, such Underlying
Securities have been, or as of the date of such Terms Agreement will have
been, duly authorized for issuance by the Company upon
9
<PAGE>
conversion or exchange of the related Preferred Stock or Depositary Shares,
as applicable. Such Underlying Securities, when issued and authenticated in
the manner provided for in the applicable Indenture and delivered in
accordance with the terms of the related Preferred Stock or Depositary
Shares, as applicable, will constitute valid and legally binding
obligations of the Company, enforceable against the Company in accordance
with their terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and except as enforcement thereof is
subject to general principles of equity (regardless of whether enforcement
is considered in a proceeding in equity or at law), and except as
enforcement thereof may be limited by (A) requirements that a claim with
respect to any Debt Securities denominated other than in U.S. dollars (or a
foreign or composite currency judgment in respect of such claim) be
converted into U.S. dollars at a rate of exchange prevailing on a date
determined pursuant to applicable law or (B) governmental authority to
limit, delay or prohibit the making of payments outside the United States.
(16) Authorization of Indentures. If the Underlying Securities related
---------------------------
to the Underwritten Securities being sold pursuant to the applicable Terms
Agreement include Debt Securities, each applicable Indenture has been, or
prior to issuance of such Underwritten Securities will have been, duly
authorized, executed and delivered by the Company and, upon such
authorization, execution and delivery (assuming the due authorization,
execution and delivery by the respective Trustee), will constitute a valid
and legally binding agreement of the Company, enforceable against the
Company in accordance with its terms, except as the enforcement thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally and except as enforcement
thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law), and except
further as enforcement thereof may be limited by (A) requirements that a
claim with respect to any Debt Security denominated other than in U.S.
dollars (or a foreign or composite currency judgment in respect of such
claim) be converted into U.S. dollars at a rate of exchange prevailing on a
date determined pursuant to applicable law or (B) governmental authority to
limit, delay or prohibit the making of payments outside the United States.
(17) Descriptions of the Underwritten Securities, Warrant Agreements,
----------------------------------------------------------------
Deposit Agreements, Indentures and Underlying Securities.
--------------------------------------------------------
The Underwritten Securities being sold pursuant to the applicable Terms
Agreement and each applicable Warrant Agreement, Deposit Agreement and
Indenture, as of the date of the Prospectus, and any Underlying Securities,
when issued and delivered in accordance with the terms of the related
Underwritten Securities, will conform in all material respects to the
respective statements relating thereto contained in the Prospectus and will
be in substantially the respective forms filed or incorporated by
reference, as the case may be, as an exhibit to the Registration Statement.
(18) Absence of Defaults and Conflicts. Neither the Company nor any of
---------------------------------
its subsidiaries is in violation of its charter or by-laws or in default in
the performance or
10
<PAGE>
observance of any obligation, agreement, covenant or condition contained in
any contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which it or any of them may be bound, or
to which any of the property or assets of the Company or any subsidiary is
subject (collectively, "Agreements and Instruments"), except for such
defaults that would not result in a Material Adverse Effect; and the
execution, delivery and performance of this Underwriting Agreement, the
applicable Terms Agreement, each applicable Warrant Agreement, Deposit
Agreement and Indenture and any other agreement or instrument entered into
or issued or to be entered into or issued by the Company in connection with
the transactions contemplated hereby or thereby or in the Registration
Statement and the Prospectus and the consummation of the transactions
contemplated herein and in the Registration Statement and the Prospectus
(including the issuance and sale of the Underwritten Securities and the use
of the proceeds from the sale of the Underwritten Securities as described
under the caption "Use of Proceeds") and compliance by the Company with its
obligations hereunder and thereunder do not and will not, whether with or
without the giving of notice or passage of time or both, conflict with or
constitute a breach of, or a default or Repayment Event (as defined below)
under or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any subsidiary of
the Company pursuant to, the Agreements and Instruments (except for such
conflicts, breaches, defaults, events or liens, charges or encumbrances
that would not result in a Material Adverse Effect), nor will such action
result in any violation of the provisions of the charter or by-laws of the
Company or any Subsidiary or any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any Subsidiary or any of their properties, assets or operations.
As used herein, a "Repayment Event" means any event or condition which
gives the holder of any note, debenture or other evidence of indebtedness
of the Company or any of its subsidiaries (or any person acting on such
holder's behalf) the right to require the repurchase, redemption or
repayment of all or a portion of such indebtedness by the Company or any of
its subsidiaries.
(19) Absence of Labor Dispute. No labor dispute with the employees
------------------------
of the Company or any of its subsidiaries exists or, to the knowledge of
the Company, is imminent, which may reasonably be expected to result in a
Material Adverse Effect.
(20) Absence of Proceedings. There is not any action, suit,
----------------------
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company or
any of its subsidiaries which is required to be disclosed in the
Registration Statement and the Prospectus (other than as stated therein),
or which might reasonably be expected to result in a Material Adverse
Effect, or which might reasonably be expected to materially and adversely
affect the assets, properties, or operations thereof or the consummation of
the transactions contemplated in this Underwriting Agreement, the
applicable Terms Agreement or any applicable Warrant Agreement, Deposit
Agreement or Indenture or the performance by the Company of its obligations
hereunder
11
<PAGE>
and thereunder; and the aggregate of all pending legal or governmental
proceedings to which the Company or any of its subsidiaries is a party or
of which any of their respective assets, property, or operations is the
subject which are not described in the Registration Statement and the
Prospectus, including ordinary routine litigation incidental to the
business, could not reasonably be expected to result in a Material Adverse
Effect.
(21) Exhibits. There are no contracts or documents which are of a
--------
character required to be described in the Registration Statement, the
Prospectus or the documents incorporated by reference therein or to be
filed as exhibits thereto which have not been so described and filed as
required.
(22) Absence of Further Requirements. No filing with, or authorization,
-------------------------------
approval, consent, license, order, registration, qualification or decree
of, any court or governmental authority or agency, domestic or foreign, is
necessary or required for the performance by the Company of its obligations
under this Underwriting Agreement or the applicable Terms Agreement or in
connection with the transactions contemplated under this Underwriting
Agreement, such Terms Agreement or any applicable Warrant Agreement,
Deposit Agreement or Indenture, except such as have been already obtained
or as may be required under the 1933 Act, the 1933 Act Regulations, the
1939 Act, the 1939 Act Regulations or state securities or blue sky laws.
(23) Possession of Intellectual Property. The Company and its
-----------------------------------
subsidiaries own or possess, or can acquire on reasonable terms, adequate
trademarks, service marks, trade names and other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business
now operated by them, except where the failure to own or possess or the
lack of ability to acquire such Intellectual Property, singly or in the
aggregate, would not result in a Material Adverse Effect, and neither the
Company nor any of its subsidiaries has received any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property or of any facts or circumstances
which would render any Intellectual Property invalid or inadequate to
protect the interest of the Company or any of its subsidiaries therein, and
which infringement or conflict (if the subject of any unfavorable decision,
ruling or finding) or invalidity or inadequacy, singly or in the aggregate,
would result in a Material Adverse Effect.
(24) Possession of Licenses and Permits. The Company and its
----------------------------------
subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
necessary to conduct the business now operated by them except where the
failure to so possess such Governmental Licenses would not, singly or in
the aggregate, have a Material Adverse Effect; the Company and its
subsidiaries are in compliance with the terms and conditions of all such
Governmental Licenses, except where the failure so to comply would not,
singly or in the aggregate, have a Material Adverse Effect; all of the
Governmental Licenses are valid and in full force and effect, except where
the invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse
12
<PAGE>
Effect; and neither the Company nor any of its subsidiaries has received
any notice of proceedings relating to the revocation or modification of any
such Governmental Licenses which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect.
(25) Title to Property. The Company and its subsidiaries have good and
-----------------
marketable title to all real property owned by the Company and its
subsidiaries and good title to all other properties owned by them, in each
case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind, except such as (A) are
described in the Registration Statement and the Prospectus or (B) do not,
singly or in the aggregate, materially affect the value of such property,
do not interfere with the use made and proposed to be made of such property
by the Company or any of its subsidiaries and do not singly or in the
aggregate have a Material Adverse Effect; and all of the leases and
subleases material to the business of the Company and its subsidiaries,
considered as one enterprise, and under which the Company or any of its
subsidiaries holds properties described in the Prospectus, are in full
force and effect, except where the failure of such leases or subleases to
be in full force and effect would not have a Material Adverse Effect, and
neither the Company nor any subsidiary has any notice of any material claim
of any sort that has been asserted by anyone adverse to the rights of the
Company or any subsidiary under any of the leases or subleases mentioned
above, or affecting or questioning the rights of the Company or such
subsidiary of the continued possession of the leased or subleased premises
under any such lease or sublease.
(26) Commodity Exchange Act. If any related Underlying Securities
----------------------
include Debt Securities, such Debt Securities, upon issuance, will be
excluded or exempted under, or beyond the purview of, the Commodity
Exchange Act, as amended (the "Commodity Exchange Act"), and the rules and
regulations of the Commodity Futures Trading Commission adopted under the
Commodity Exchange Act.
(27) Compliance with Cuba Act. The Company has complied with, and is
------------------------
and will be in compliance with, the provisions of that certain Florida act
relating to disclosure of doing business with Cuba, codified as Section
517.075 of the Florida statutes, and the rules and regulations thereunder
or is exempt therefrom.
(b) Officers' Certificates. Any certificate signed by any officer of the
Company or any of its subsidiaries and delivered to any Underwriter or to
counsel for the Underwriters in connection with the offering of the Underwritten
Securities shall be deemed a representation and warranty by the Company to each
Underwriter as to the matters covered thereby on the date of such certificate
and, unless subsequently amended or supplemented, at each Representation Date
subsequent thereto.
SECTION 2. Sale and Delivery to Underwriters; Closing.
------------------------------------------
(a) Underwritten Securities. The several commitments of the
Underwriters to purchase the Underwritten Securities pursuant to the applicable
Terms Agreement shall be
13
<PAGE>
deemed to have been made on the basis of the representations and warranties
herein contained and shall be subject to the terms and conditions herein set
forth.
(b) Option Underwritten Securities. In addition, subject to the terms
and conditions herein set forth, the Company may grant, if so provided in the
applicable Terms Agreement, an option to the Underwriters, severally and not
jointly, to purchase up to the number of the Option Underwritten Securities set
forth therein at a price per Option Underwritten Security equal to the price per
Initial Underwritten Security, less an amount equal to any dividends or
distributions declared by the Company and paid or payable on the Initial
Underwritten Securities but not payable on the Option Underwritten Securities.
Such option, if granted, will expire 30 days after the date of such Terms
Agreement, and may be exercised in whole or in part from time to time only for
the purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Initial Underwritten Securities upon notice by
Merrill Lynch to the Company setting forth the number of Option Underwritten
Securities as to which the several Underwriters are then exercising the option
and the time, date and place of payment and delivery for such Option
Underwritten Securities. Any such time and date of payment and delivery (each, a
"Date of Delivery") shall be determined by Merrill Lynch, but shall not be later
than seven full business days after the exercise of said option, nor in any
event prior to the Closing Time, unless otherwise agreed upon by Merrill Lynch
and the Company. If the option is exercised as to all or any portion of the
Option Underwritten Securities, each of the Underwriters, severally and not
jointly, will purchase that proportion of the total number of Option
Underwritten Securities then being purchased which the number of Initial
Underwritten Securities each such Underwriter has severally agreed to purchase
as set forth in such Terms Agreement bears to the total number of Initial
Underwritten Securities, subject to such adjustments as Merrill Lynch in its
discretion shall make to eliminate any sales or purchases of a fractional number
of Option Underwritten Securities.
(c) Payment. Payment of the purchase price for, and delivery of, the
Initial Underwritten Securities shall be made at the offices of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, World Financial Center, North Tower, New
York, New York 10281, or at such other place as shall be agreed upon by Merrill
Lynch and the Company, at 9:00 A.M. (Eastern time) on the third (fourth, if the
pricing occurs after 4:30 P.M. (Eastern time) on any given day) business day
after the date of the applicable Terms Agreement (unless postponed in accordance
with the provisions of Section 10 hereof), or such other time not later than ten
business days after such date as shall be agreed upon by Merrill Lynch and the
Company (such time and date of payment and delivery being herein called the
"Closing Time"). In addition, in the event that the Underwriters have exercised
their option, if any, to purchase any or all of the Option Underwritten
Securities, payment of the purchase price for, and delivery of such Option
Underwritten Securities, shall be made at the above-mentioned offices of Merrill
Lynch, Pierce, Fenner & Smith Incorporated, World Financial Center, North Tower,
New York, New York 10281, or at such other place as shall be agreed upon by
Merrill Lynch and the Company, on the relevant Date of Delivery as specified in
the notice from Merrill Lynch to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
Merrill Lynch for its account or, if applicable, for the respective accounts of
the Underwriters of the Underwritten Securities to
14
<PAGE>
be purchased by them (unless such Underwritten Securities are issuable only in
the form of one or more global securities registered in the name of a depositary
or a nominee of a depositary, in which event the Underwriters' interest in such
global certificate shall be noted in a manner satisfactory to the Underwriters
and their counsel). It is understood that each Underwriter has authorized
Merrill Lynch, for its account, to accept delivery of, receipt for, and make
payment of the purchase price for, the Underwritten Securities which it has
severally agreed to purchase. Merrill Lynch, individually and not as
representative of the Underwriters, may (but shall not be obligated to) make
payment of the purchase price for the Underwritten Securities to be purchased by
any Underwriter whose funds have not been received by the Closing Time or the
relevant Date of Delivery, as the case may be, but such payment shall not
relieve such Underwriter from its obligations hereunder.
(d) Denominations; Registration. The Underwritten Securities,
certificates for the Underwritten Securities or Depositary Receipts evidencing
the Depositary Shares, as applicable, shall be in such denominations and
registered in such names as Merrill Lynch may request in writing at least one
full business day prior to the Closing Time or the relevant Date of Delivery, as
the case may be. The Underwritten Securities, certificates for the Underwritten
Securities or Depositary Receipts evidencing the Depositary Shares, as
applicable, will be made available for examination and packaging by Merrill
Lynch in The City of New York not later than 10:00 A.M. (Eastern time) on the
business day prior to the Closing Time or the relevant Date of Delivery, as the
case may be.
SECTION 3. Covenants of the Company. The Company covenants with
------------------------
Merrill Lynch, and with each Underwriter participating in the applicable
offering of Underwritten Securities, as follows:
(a) Compliance with Securities Regulations and Commission Requests.
The Company, subject to Section 3(b), will comply with the requirements of Rule
430A of the 1933 Act Regulations and/or Rule 434 of the 1933 Act Regulations, if
and as applicable, and will notify Merrill Lynch immediately, and confirm the
notice in writing, of (i) the effectiveness of any post-effective amendment to
the Registration Statement or the filing of any supplement or amendment to the
Prospectus, (ii) the receipt of any comments from the Commission, (iii) any
request by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information, and
(iv) the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus, or of the suspension of the
qualification of the Underwritten Securities for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceedings for any of
such purposes. The Company will promptly effect the filings necessary pursuant
to Rule 424 of the 1933 Act Regulations and will take such steps as it deems
necessary to ascertain promptly whether the Prospectus transmitted for filing
under Rule 424 was received for filing by the Commission and, in the event that
it was not, it will promptly file the Prospectus. The Company will make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible moment.
15
<PAGE>
(b) Filing of Amendments. The Company will give Merrill Lynch notice
of its intention to file or prepare any amendment to the Registration Statement
(including any filing under Rule 462(b) of the 1933 Act Regulations), any Term
Sheet or any amendment, supplement or revision to either the prospectus included
in the Registration Statement at the time it became effective or to the
Prospectus, whether pursuant to the 1933 Act, the 1934 Act or otherwise, will
furnish Merrill Lynch with copies of any such documents a reasonable amount of
time prior to such proposed filing or use, as the case may be, and will not file
or use any such document to which Merrill Lynch or counsel for the Underwriters
shall object.
(c) Delivery of Registration Statements. The Company has furnished or
will deliver to Merrill Lynch and counsel for the Underwriters, without charge,
upon request, signed copies of the Registration Statement as originally filed
and of each amendment thereto (including exhibits filed therewith or
incorporated by reference therein and documents incorporated or deemed to be
incorporated by reference therein) and signed copies of all consents and
certificates of experts, and will also deliver to Merrill Lynch, without charge,
a conformed copy of the Registration Statement as originally filed and of each
amendment thereto (without exhibits) for each of the Underwriters. Copies of the
Registration Statement and each amendment thereto furnished to the Underwriters
will be identical to any electronically transmitted copies thereof filed with
the Commission pursuant to EDGAR, except to the extent permitted by Regulation
S-T.
(d) Delivery of Prospectuses. The Company will deliver to each
Underwriter, without charge, as many copies of each preliminary prospectus as
such Underwriter may reasonably request, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such
number of copies of the Prospectus (as amended or supplemented) as such
Underwriter may reasonably request. The Prospectus and any amendments or
supplements thereto furnished to the Underwriters will be identical to any
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will comply
with the 1933 Act and the 1933 Act Regulations and the 1934 Act and the 1934 Act
Regulations so as to permit the completion of the distribution of the
Underwritten Securities as contemplated in this Underwriting Agreement and the
applicable Terms Agreement and in the Registration Statement and the Prospectus.
If at any time when the Prospectus is required by the 1933 Act or the 1934 Act
to be delivered in connection with sales of the Securities, any event shall
occur or condition shall exist as a result of which it is necessary, in the
opinion of counsel for the Underwriters or for the Company, to amend the
Registration Statement in order that the Registration Statement will not contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
or to amend or supplement the Prospectus in order that the Prospectus will not
include an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the light of
the circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the opinion of such counsel, at any such time to amend
the Registration Statement or amend or supplement the Prospectus in order to
comply with the requirements of
16
<PAGE>
the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and
file with the Commission, subject to Section 3(b), such amendment or supplement
as may be necessary to correct such statement or omission or to make the
Registration Statement or the Prospectus comply with such requirements, and the
Company will furnish to the Underwriters, without charge, such number of copies
of such amendment or supplement as the Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best efforts, in
cooperation with the Underwriters, to qualify the Underwritten Securities and
any related Underlying Securities for offering and sale under the applicable
securities laws of such states and other jurisdictions (domestic or foreign) as
Merrill Lynch may designate and to maintain such qualifications in effect for a
period of not less than one year from the date of the applicable Terms
Agreement; provided, however, that the Company shall not be obligated to file
any general consent to service of process or to qualify as a foreign corporation
or as a dealer in securities in any jurisdiction in which it is not so qualified
or to subject itself to taxation in respect of doing business in any
jurisdiction in which it is not otherwise so subject. In each jurisdiction in
which the Underwritten Securities or any related Underlying Securities have been
so qualified, the Company will file such statements and reports as may be
required by the laws of such jurisdiction to continue such qualification in
effect for a period of not less than one year from the date of such Terms
Agreement.
(g) Earnings Statement. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally available
to its securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last paragraph of
Section 11(a) of the 1933 Act.
(h) Reservation of Securities. If the applicable Terms Agreement
specifies that any related Underlying Securities include Common Stock, Preferred
Stock, Debt Securities and/or Depositary Shares, the Company will reserve and
keep available at all times, free of preemptive or other similar rights, a
sufficient number of shares of Common Stock, Preferred Stock and/or Debt
Securities, as applicable, for the purpose of enabling the Company to satisfy
any obligations to issue such Underlying Securities upon exercise of the related
Warrants, as applicable, or upon conversion of the Preferred Stock or Depositary
Shares, as applicable.
(i) Use of Proceeds. The Company will use the net proceeds received by
it from the sale of the Underwritten Securities in the manner specified in the
Prospectus under "Use of Proceeds".
(j) Listing. The Company will use its best efforts to effect the
listing of the Underwritten Securities and any related Underlying Securities,
prior to the Closing Time, on any national securities exchange or quotation
system if and as specified in the applicable Terms Agreement.
(k) Restriction on Sale of Securities. Between the date of the
applicable Terms Agreement and the later of termination of any trading
restrictions or the Closing Time, the Company will not, without the prior
written consent of Merrill Lynch, directly or indirectly,
17
<PAGE>
issue, sell, offer to sell, grant any option for the sale of, or otherwise
dispose of, the securities specified in such Terms Agreement.
(l) Reporting Requirements. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will
file all documents required to be filed with the Commission pursuant to the 1934
Act within the time periods required by the 1934 Act and the 1934 Act
Regulations.
SECTION 4. Payment of Expenses.
-------------------
(a) Expenses. The Company will pay all expenses incident to the
performance of its obligations under this Underwriting Agreement or the
applicable Terms Agreement, including (i) the preparation, printing and filing
of the Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, (ii) the preparation, printing
and delivery to the Underwriters of this Underwriting Agreement, any Terms
Agreement, any Agreement among Underwriters, any Warrant Agreement, any Deposit
Agreement, any Indenture and such other documents as may be required in
connection with the offering, purchase, sale, issuance or delivery of the
Underwritten Securities or any related Underlying Securities, (iii) the
preparation, issuance and delivery of the Underwritten Securities and any
related Underlying Securities, any certificates for the Underwritten Securities
or such Underlying Securities or Depositary Receipts evidencing the Depositary
Shares, as applicable, to the Underwriters, including any transfer taxes and any
stamp or other duties payable upon the sale, issuance or delivery of the
Underwritten Securities to the Underwriters, (iv) the fees and disbursements of
the Company's counsel, accountants and other advisors or agents (including
transfer agents and registrars), as well as the fees and disbursements of any
Warrant Agent, any Depositary and any Trustee and their respective counsel, (v)
the qualification of the Underwritten Securities and any related Underlying
Securities under state securities laws in accordance with the provisions of
Section 3(f) hereof, including filing fees and the reasonable fees and
disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation, printing and delivery of the Blue Sky Survey
and any Legal Investment Survey, and any amendment thereto, (vi) the printing
and delivery to the Underwriters of copies of each preliminary prospectus, any
Term Sheet, and the Prospectus and any amendments or supplements thereto, (vii)
the fees charged by nationally recognized statistical rating organizations for
the rating of the Underwritten Securities and any related Underlying Securities,
if applicable, (viii) the fees and expenses incurred with respect to the listing
of the Underwritten Securities and any related Underlying Securities, if
applicable, and (ix) the filing fees incident to, and the reasonable fees and
disbursements of counsel to the Underwriters in connection with, the review, if
any, by the National Association of Securities Dealers, Inc. (the "NASD") of the
terms of the sale of the Underwritten Securities and any related Underlying
Securities.
(b) Termination of Agreement. If the applicable Terms Agreement is
terminated by Merrill Lynch in accordance with the provisions of Section 5 or
Section 9(b)(i) hereof, the Company shall reimburse the Underwriters named in
such Terms Agreement for all of their out-of-pocket expenses, including the
reasonable fees and disbursements of counsel for the Underwriters.
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<PAGE>
SECTION 5. Conditions of Underwriters' Obligations. The obligations
---------------------------------------
of the Underwriters to purchase and pay for the Underwritten Securities pursuant
to the applicable Terms Agreement are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any of its subsidiaries
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement has become effective under the 1933 Act and no stop order suspending
the effectiveness of the Registration Statement shall have been issued under the
1933 Act and no proceedings for that purpose shall have been initiated or be
pending or threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the Underwriters. A prospectus containing
information relating to the description of the Underwritten Securities and any
related Underlying Securities, the specific method of distribution and similar
matters shall have been filed with the Commission in accordance with Rule
424(b)(1), (2), (3), (4) or (5), as applicable (or any required post-effective
amendment providing such information shall have been filed and declared
effective in accordance with the requirements of Rule 430A), or, if the Company
has elected to rely upon Rule 434 of the 1933 Act Regulations, a Term Sheet
including the Rule 434 Information shall have been filed with the Commission in
accordance with Rule 424(b)(7).
(b) Opinion of Counsel for Company. At Closing Time, Merrill Lynch
shall have received the favorable opinion, dated as of Closing Time, of Brown &
Wood LLP, counsel for the Company, in form and substance satisfactory to counsel
for the Underwriters, together with signed or reproduced copies of such letter
for each of the other Underwriters, to the effect set forth in Exhibit B hereto
and to such further effect as counsel to the Underwriters may reasonably
request.
(c) Opinion of Counsel for Underwriters. At Closing Time, Merrill
Lynch shall have received the favorable opinion, dated as of Closing Time, of
Sullivan & Cromwell, counsel for the Underwriters, together with signed or
reproduced copies of such letter for each of the other Underwriters, with
respect to the matters set forth in (1), (5), (6) to (13), as applicable, (14),
(15) (solely as to the information in the Prospectus under "Description of Debt
Securities", "Description of Debt Warrants", "Description of Currency Warrants",
"Description of Index Warrants", "Description of Preferred Stock", Description
of Depositary Shares", "Description of Preferred Stock Warrants", "Description
of Common Stock" and "Description of Common Stock Warrants", if any, or any
caption purporting to describe any such Securities), (17), (18) and the
penultimate paragraph of Exhibit B hereto. In giving such opinion, such counsel
may rely, as to all matters governed by the laws of jurisdictions other than the
law of the State of New York, the federal law of the United States and the
General Corporation Law of the State of Delaware, upon the opinions of counsel
satisfactory to Merrill Lynch. Such counsel may also state that, insofar as such
opinion involves factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of the Company and its subsidiaries and
certificates of public officials.
(d) Officers' Certificate. At Closing Time, there shall not have been,
since the date of the applicable Terms Agreement or since the respective dates
as of which information is given
19
<PAGE>
in the Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, and Merrill Lynch shall have
received a certificate of the President, a Vice President, the Treasurer or the
Controller of the Company, dated as of Closing Time, to the effect that (i)
there has been no such material adverse change, (ii) the representations and
warranties in Section 1 are true and correct with the same force and effect as
though expressly made at and as of the Closing Time, (iii) the Company has
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Closing Time, and (iv) no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been initiated or threatened by the
Commission.
(e) Accountant's Comfort Letter. At the date hereof and at Closing
Time, Merrill Lynch shall have received from Deloitte & Touche LLP a letter
dated such date, in form and substance satisfactory to Merrill Lynch, together
with signed or reproduced copies for each of the other Underwriters, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and the
Prospectus.
(f) Ratings. If the Underlying Securities related to the Underwritten
Securities being sold to the particular Terms Agreement include Debt Securities,
at Closing Time, such Debt Securities shall have the ratings accorded by any
"nationally recognized statistical rating organization", as defined by the
Commission for purposes of Rule 436(g)(2) of the 1933 Act Regulations, if and as
specified in the applicable Terms Agreement. Since the time of execution of such
Terms Agreement, there shall not have occurred a downgrading in the rating
assigned to such Debt Securities or any of the Company's other securities by any
such rating organization, and no such rating organization shall have publicly
announced that it has under surveillance or review, with possible negative
implications, its rating of such Debt Securities or any of the Company's other
securities.
(g) Approval of Listing. At Closing Time, the Underwritten Securities
shall have been approved for listing, subject only to official notice of
issuance, if and as specified in the applicable Terms Agreement.
(h) No Objection. If the Registration Statement or an offering of
Underwritten Securities has been filed with the NASD for review, the NASD shall
not have raised any objection with respect to the fairness and reasonableness of
the underwriting terms and arrangements.
(i) Lock-up Agreements. On the date of the applicable Terms Agreement,
Merrill Lynch shall have received, in form and substance satisfactory to it,
each lock-up agreement, if any, specified in such Terms Agreement as being
required to be delivered by the persons listed therein.
(j) Over-Allotment Option. In the event that the Underwriters are
granted an over-allotment option by the Company in the applicable Terms
Agreement and the Underwriters
20
<PAGE>
exercise their option to purchase all or any portion of the Option Underwritten
Securities, the representations and warranties of the Company contained herein
and the statements in any certificates furnished by the Company or any of its
subsidiaries hereunder shall be true and correct as of each Date of Delivery,
and, at the relevant Date of Delivery, Merrill Lynch shall have received:
(1) A certificate, dated such Date of Delivery, of the President, a
Vice President, the Treasurer or the Controller of the Company, confirming that
the certificate delivered at the Closing Time pursuant to Section 5(d) hereof
remains true and correct as of such Date of Delivery.
(2) The favorable opinion of Brown & Wood LLP, counsel for the Company,
in form and substance satisfactory to counsel for the Underwriters, dated such
Date of Delivery, relating to the Option Underwritten Securities and otherwise
to the same effect as the opinion required by Section 5(b) hereof.
(3) The favorable opinion of Sullivan & Cromwell, counsel for the
Underwriters, dated such Date of Delivery, relating to the Option Underwritten
Securities and otherwise to the same effect as the opinion required by Section
5(c) hereof.
(4) A letter from Deloitte & Touche LLP, in form and substance
satisfactory to Merrill Lynch and dated such Date of Delivery, substantially in
the same form and substance as the letter furnished to Merrill Lynch pursuant to
Section 5(e) hereof, except that the "specified date" on the letter furnished
pursuant to this paragraph shall be a date not more than three business days
prior to such Date of Delivery.
(k) Additional Documents. At Closing Time and at each Date of
Delivery, counsel for the Underwriters shall have been furnished with such
documents and opinions as they may require for the purpose of enabling them to
pass upon the issuance and sale of the Underwritten Securities as herein
contemplated and, if applicable, certain matters relating to the Underlying
Securities, or in order to evidence the accuracy of any of the representations
or warranties, or the fulfillment of any of the conditions, herein contained;
and all proceedings taken by the Company in connection with the issuance and
sale of the Underwritten Securities as herein contemplated shall be satisfactory
in form and substance to Merrill Lynch and counsel for the Underwriters.
(l) Termination of Terms Agreement. If any condition specified in this
Section 5 shall not have been fulfilled when and as required to be fulfilled,
the applicable Terms Agreement (or, with respect to the Underwriters' exercise
of any applicable over-allotment option for the purchase of Option Underwritten
Securities on a Date of Delivery after the Closing Time, the obligations of the
Underwriters to purchase the Option Underwritten Securities on such Date of
Delivery) may be terminated by Merrill Lynch by notice to the Company at any
time at or prior to the Closing Time (or such Date of Delivery, as applicable),
and such termination shall be without liability of any party to any other party
except as provided in Section 4 and except that Sections 1, 6, 7 and 8 shall
survive any such termination and remain in full force and effect.
21
<PAGE>
SECTION 6. Indemnification.
-----------------
(a) Indemnification of Underwriters. The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:
(1) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the
Rule 434 Information deemed to be a part thereof, if applicable, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading
or arising out of any untrue statement or alleged untrue statement of a
material fact included in any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(2) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of the
Company; and
(3) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission, to
the extent that any such expense is not paid under (1) or (2) above;
provided, however, that this indemnity agreement shall not apply to any loss,
- -------- -------
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter expressly for use in the Registration Statement (or any amendment
thereto), including the Rule 430A Information and the Rule 434 Information
deemed to be a part thereof, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
Insofar as this indemnity agreement may permit indemnification for
liabilities under the 1933 Act of any person who is a partner of an Underwriter
or who controls an Underwriter within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act and who is a director or officer of the Company or
controls the Company within the meaning of Section 15 of
22
<PAGE>
the 1933 Act or Section 20 of the 1934 Act, such indemnity agreement is subject
to the undertaking of the Company in the Registration Statement under Item 13 of
Form S-3.
(b) Indemnification of Company, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information deemed to be a part thereof, if applicable, or any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Company by such Underwriter through Merrill Lynch expressly for use in
the Registration Statement (or any amendment thereto) or such preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).
(c) Documentary Stamp or Similar Issue Tax Indemnification. The
Company agrees to indemnify and hold harmless each Underwriter against any
documentary stamp or similar issue tax and any related interest or penalties on
the issue or sale of the Underwritten Securities to the Underwriters which are
due in the United States of America, the United Kingdom or any other
jurisdiction.
(d) Actions Against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section 6(a)
above, counsel to the indemnified parties shall be selected by Merrill Lynch,
and, in the case of parties indemnified pursuant to Section 6(b) above, counsel
to the indemnified parties shall be selected by the Company. An indemnifying
party may participate at its own expense in the defense of any such action;
provided, however, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, except that the Company shall be
liable for the fees and expenses of one counsel representing Merrill Lynch and
the persons controlling Merrill Lynch and one counsel representing all other
Underwriters and the persons controlling them. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential
23
<PAGE>
parties thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(e) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(2) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 7. Contribution. If the indemnification provided for in
------------
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and the Underwriters, on the other hand, from the
offering of the Underwritten Securities pursuant to the applicable Terms
Agreement or (ii) if the allocation provided by clause (i) is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company, on the one hand, and of the Underwriters, on the other hand, in
connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company, on the one hand, and the
Underwriters, on the other hand, in connection with the offering of the
Underwritten Securities pursuant to the applicable Terms Agreement shall be
deemed to be in the same respective proportions as the total net proceeds from
the offering of such Underwritten Securities (before deducting expenses)
received by the Company and the total underwriting discount received by the
Underwriters, in each case as set forth on the cover of the Prospectus, or, if
Rule 434 is used, the corresponding location on the Term Sheet bear to the
aggregate initial public offering price of such Underwritten Securities as set
forth on such cover.
The relative fault of the Company, on the one hand, and the Underwriters,
on the other hand, shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the
24
<PAGE>
Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to above in this The aggregate amount of losses, liabilities, claims,
damages and expenses incurred by an indemnified party and referred to above in
this Section 7 shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon any
such untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Underwritten Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of any such untrue
or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number or aggregate principal amount, as the case may be, of
Initial Underwritten Securities set forth opposite their respective names in the
applicable Terms Agreement, and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
-----------------------------------------------------
Delivery. All representations, warranties and agreements contained in this
- ---------
Underwriting Agreement or the applicable Terms Agreement or in certificates of
officers of the Company submitted pursuant hereto or thereto shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of any Underwriter or controlling person, or by or on behalf of the
Company, and shall survive delivery of and payment for the Underwritten
Securities.
SECTION 9. Termination.
-----------
(a) Underwriting Agreement. This Underwriting Agreement (excluding the
applicable Terms Agreement) may be terminated for any reason at any time by the
Company or by Merrill Lynch upon the giving of 30 days' prior written notice of
such termination to the other party hereto.
(b) Terms Agreement. Merrill Lynch may terminate the applicable Terms
Agreement, by notice to the Company, at any time at or prior to the Closing Time
or any relevant Date of Delivery, if (i) there has been, since the time of
execution of such Terms Agreement or
25
<PAGE>
since the respective dates as of which information is given in the Prospectus,
any material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) there has occurred any material adverse
change in the financial markets in the United States or, if the Underwritten
Securities or any related Underlying Securities include Debt Securities
denominated or payable in, or indexed to, one or more foreign or composite
currencies, in the international financial markets, or any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of Merrill Lynch, impracticable to market
the Underwritten Securities or to enforce contracts for the sale of the
Underwritten Securities, or (iii) trading in any securities of the Company has
been suspended or limited by the Commission or the New York Stock Exchange, or
if trading generally on the New York Stock Exchange or the American Stock
Exchange or in the Nasdaq National Market has been suspended or limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by either of said exchanges or by such system or by
order of the Commission, the NASD or any other governmental authority, or (iv) a
banking moratorium has been declared by either Federal or New York authorities
or, if the Underwritten Securities or any related Underlying Securities include
Debt Securities denominated or payable in, or indexed to, one or more foreign or
composite currencies, by the relevant authorities in the related foreign country
or countries.
(c) Liabilities. If this Underwriting Agreement or the applicable
Terms Agreement is terminated pursuant to this Section 9, such termination shall
be without liability of any party to any other party except as provided in
Section 4 hereof, and provided further that Sections 1, 6, 7 and 8 shall survive
such termination and remain in full force and effect.
SECTION 10. Default by One or More of the Underwriters. If one or
------------------------------------------
more of the Underwriters shall fail at the Closing Time or the relevant Date of
Delivery, as the case may be, to purchase the Underwritten Securities which it
or they are obligated to purchase under the applicable Terms Agreement (the
"Defaulted Securities"), then Merrill Lynch shall have the right, within 24
hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, Merrill Lynch shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number or aggregate principal amount, as the case may be, of
Defaulted Securities does not exceed 10% of the number of Underwritten
Securities to be purchased on such date pursuant to such Terms Agreement, the
non-defaulting Underwriters shall be obligated, severally and not jointly, to
purchase the full amount thereof in the proportions that their respective
underwriting obligations under such Terms Agreement bear to the underwriting
obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
Underwritten Securities to be purchased on such date pursuant to such Terms
Agreement, such Terms
26
<PAGE>
Agreement (or, with respect to the Underwriters' exercise of any applicable
over-allotment option for the purchase of Option Underwritten Securities on a
Date of Delivery after the Closing Time, the obligations of the Underwriters to
purchase, and the Company to sell, such Option Underwritten Securities on such
Date of Delivery) shall terminate without liability on the part of any non-
defaulting Underwriter.
No action taken pursuant to this Section 10 shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in (i) a termination
of the applicable Terms Agreement or (ii) in the case of a Date of Delivery
after the Closing Time, a termination of the obligations of the Underwriters and
the Company with respect to the related Option Underwritten Securities, as the
case may be, either Merrill Lynch or the Company shall have the right to
postpone the Closing Time or the relevant Date of Delivery, as the case may be,
for a period not exceeding seven days in order to effect any required changes in
the Registration Statement or the Prospectus or in any other documents or
arrangements.
SECTION 11. Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to Merrill Lynch at World Financial Center, North
Tower, New York, New York 10281-1332, attention of Patricia A. Verrilli,
Managing Director, or in respect of any Terms Agreement, to such other person
and place as may be specified therein; and notices to the Company shall be
directed to it at 100 Church Street, 12th Floor, New York, New York 10080-6512,
attention of the Secretary with a copy to the Treasurer at World Financial
Center, South Tower, 225 Liberty Street, New York, New York 10080-6105.
SECTION 12. Parties. This Underwriting Agreement and the applicable
-------
Terms Agreement shall each inure to the benefit of and be binding upon the
Company, Merrill Lynch and, upon execution of such Terms Agreement, any other
Underwriters and their respective successors. Nothing expressed or mentioned in
this Underwriting Agreement or such Terms Agreement is intended or shall be
construed to give any person, firm or corporation, other than the Underwriters
and the Company and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Underwriting Agreement or such Terms Agreement or any provision
herein or therein contained. This Underwriting Agreement and such Terms
Agreement and all conditions and provisions hereof and thereof are intended to
be for the sole and exclusive benefit of the parties hereto and thereto and
their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of Underwritten Securities from
any Underwriter shall be deemed to be a successor by reason merely of such
purchase.
SECTION 13. GOVERNING LAW. THIS UNDERWRITING AGREEMENT AND ANY
-------------
APPLICABLE TERMS AGREEMENT SHALL BE GOVERNED BY AND
27
<PAGE>
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
SECTION 14. Effect of Headings. The Article and Section headings
------------------
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
Underwriting Agreement, along with all counterparts, will become a binding
agreement between Merrill Lynch and the Company in accordance with its terms.
Very truly yours,
MERRILL LYNCH & CO., INC.
By:
---------------------------
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
---------------------------
Authorized Signatory
28
<PAGE>
Exhibit A
MERRILL LYNCH & CO., INC.
(a Delaware corporation)
Common Stock, Warrants to Purchase Common Stock,
Preferred Stock, Warrants to Purchase Preferred Stock,
and Depositary Shares
TERMS AGREEMENT
---------------
[Date]
To: Merrill Lynch & Co., Inc.
World Financial Center
North Tower
New York, New York 10281-1332
Ladies and Gentlemen:
We understand that Merrill Lynch & Co., Inc., a Delaware corporation
(the "Company"), proposes to issue and sell [ shares of its common stock,
par value $1.33 per share, including any preferred share purchase Rights
attached thereto (the "Common Stock")] [ shares of its preferred stock,
par value $1.00 per share (the "Preferred Stock")] [in the form of
depositary shares (the "Depositary Shares") each representing of a share
of Preferred Stock] [ warrants (the "Common Stock Warrants") to purchase
common stock, par value $1.33 per share] [ warrants (the
"Preferred Stock Warrants") to purchase preferred stock, par value $1.00 per
share] ([such securities also being hereinafter referred to as] the "[Initial]
Underwritten Securities"). Subject to the terms and conditions set forth or
incorporated by reference herein, we [the underwriters named below (the
"Underwriters")] offer to purchase [, severally and not jointly,] the number of
Underwritten Securities [opposite their names set forth below] at the purchase
price set forth below [, and a proportionate share of Option Underwritten
Securities set forth below, to the extent any are purchased].
A-1
<PAGE>
Underwriter [Number] of [Initial] Underwritten Securities
- ----------- ---------------------------------------------
Total -----------
===========
The Underwritten Securities shall have the following terms:
[Common Stock]
--------------
Title:
Number of shares:
Number of Option Underwritten Securities:
Initial public offering price per share: $
Purchase price per share: $
Listing requirements:
Black-out provisions:
Lock-up provisions:
Other terms and conditions:
Closing date and location:
[Preferred Stock]
-----------------
Title:
Rank:
Ratings:
Number of shares:
Number of Option Underwritten Securities:
Dividend rate (or formula) per share: $
Dividend payment dates:
Stated value: $
Liquidation preference per share: $
Redemption provisions:
Sinking fund requirements:
Conversion provisions:
Listing requirements:
Black-out provisions:
Lock-up provisions:
Initial public offering price per share: $___ plus accumulated dividends, if
any, from _____
Purchase price per share: $___ plus accumulated dividends, if any, from _____
Other terms and conditions:
Closing date and location:
A-2
<PAGE>
[Depositary Shares]
-----------------
Title:
Fractional amount of Preferred Stock represented by each Depositary Share:
Ratings:
Rank:
Number of shares:
Number of Option Underwritten Securities:
Dividend rate (or formula) per share:
Dividend payment dates:
Liquidation preference per share:
Redemption provisions:
Sinking fund requirements:
Conversion provisions:
Listing requirements:
Black-out provisions:
Lock-up provisions:
Initial public offering price per share: $____ plus accumulated dividends, if
any, from ___
Purchase price per share: $____ plus accumulated dividends, if any, from ___
Other terms and conditions:
Closing date and location:
[Common Stock] [Preferred Stock] Warrants
-----------------------------------------
Title:
Type:
Number:
Warrant Agent:
Issuable jointly with [Common Stock] [Preferred Stock]: [Yes] [No]
Number of [Common Stock] [Preferred Stock] Warrants issued with each [share
of Common Stock] [share of Preferred Stock]:
Date(s) from which or period(s) during which [Common Stock] [Preferred Stock]
Warrants
are exercisable:
Date(s) on which [Common Stock] [Preferred Stock] Warrants expire:
Exercise price(s):
Initial public offering price: $
Purchase price: $
Title of Underlying Securities:
[Number of shares] [Principal amount] purchasable upon exercise of one [Common
Stock]
[Preferred Stock] Warrant:
Terms of Underlying Securities:
Other terms and conditions:
Closing date and location:
A-3
<PAGE>
All of the provisions contained in the document attached as Annex I hereto
entitled "MERRILL LYNCH & CO., INC.-- Common Stock, Warrants to Purchase Common
Stock, Preferred Stock, Warrants to Purchase Preferred Stock, Depositary Shares-
- -Underwriting Agreement" are hereby incorporated by reference in their entirety
herein and shall be deemed to be a part of this Terms Agreement to the same
extent as if such provisions had been set forth in full herein. Terms defined
in such document are used herein as therein defined.
[The Company agrees that between the date hereof and the later of
termination of any trading restrictions or the Closing Date, as herein
specified, the Company will not, without the prior written consent of the
Underwriter, directly or indirectly, issue, sell, offer to sell, grant any
option for sale of, or otherwise dispose of the following securities:
_____________________.]
Please accept this offer no later than ____ o'clock P.M. (New York City
time) on ______________ by signing a copy of this Terms Agreement in the space
set forth below and returning the signed copy to us.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
---------------------------
Authorized Signatory
[Acting on behalf of itself and the other named
Underwriters.]
Accepted:
MERRILL LYNCH & CO., INC.
By
---------------------------
Name:
Title:
A-4
<PAGE>
Exhibit B
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(1) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(2) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under, [or as
contemplated under,] the Underwriting Agreement and the applicable Terms
Agreement.
(3) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to so qualify or
be in good standing would not result in a Material Adverse Effect (as defined in
Section 1(a)(5) of the Underwriting Agreement).
(4) Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") has
been duly incorporated and is validly existing as a corporation in good standing
under the laws of the State of Delaware, has corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Prospectus and is duly qualified as a foreign corporation to transact
business and is in good standing in the State of New York; all of the issued and
outstanding capital stock of MLPF&S has been duly authorized and validly issued,
is fully paid and non-assessable and, to the best of our knowledge, is owned by
the Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; and none of the
outstanding shares of capital stock of MLPF&S was issued in violation of
preemptive or similar rights of any securityholder of MLPF&S.
(5) The Underwriting Agreement and the applicable Terms Agreement have
been duly authorized, executed and delivered by the Company.
(6) [Include if the Prospectus contains a "Capitalization" section --]
The authorized, issued and outstanding shares of capital stock of the Company is
as set forth in the Prospectus under the caption "Capitalization" (except for
subsequent issuances thereof, if any, contemplated under the Underwriting
Agreement, pursuant to reservations, agreements or employee benefit plans
referred to in the Prospectus or pursuant to the exercise of convertible
securities or options referred to in the Prospectus). Such shares of capital
stock have been duly authorized and validly issued by the Company and are fully
paid and non-assessable, and none of such shares of capital stock was issued in
violation of preemptive or similar rights of any securityholder of the Company.
(7) [Include if the Underwritten Securities being sold pursuant to the
applicable Terms Agreement include Common Stock --] The Underwritten Securities
have been duly authorized by
B-1
<PAGE>
the Company for issuance and sale pursuant to the Underwriting Agreement and the
applicable Terms Agreement. The Underwritten Securities, when issued and
delivered by the Company pursuant to the Underwriting Agreement and such Terms
Agreement against payment of the consideration therefor specified in such Terms
Agreement, will be validly issued, fully paid and non-assessable and will not be
subject to preemptive or similar rights of any securityholder of the Company. No
holder of the Underwritten Securities is or will be subject to personal
liability by reason of being such a holder. The form of certificate used to
evidence the Underwritten Securities is in due and proper form and complies with
the applicable statutory requirements, with any applicable requirements of the
charter or by-laws of the Company and with the requirements of the New York
Stock Exchange.
(8) [Include if the Underwritten Securities being sold pursuant to the
applicable Terms Agreement include Preferred Stock and/or Depositary Shares--]
The Underwritten Securities have been duly authorized by the Company for
issuance and sale pursuant to the Underwriting Agreement and the applicable
Terms Agreement. The applicable Preferred Stock, when issued and delivered by
the Company pursuant to the Underwriting Agreement and such Terms Agreement
against payment of the consideration [therefor] [for the related Depositary
Shares] specified in such Terms Agreement, will be validly issued, fully paid
and non-assessable and will not be subject to preemptive or similar rights of
any securityholder of the Company. In addition, upon deposit by the Company of
any Preferred Stock represented by Depositary Shares with the applicable
Depositary and the execution and delivery by such Depositary of the Depositary
Receipts evidencing such Depositary Shares, in each case pursuant to the
applicable Deposit Agreement, such Depositary Shares will represent legal and
valid interests in such Preferred Stock. No holder of such Preferred Stock or
Depositary Receipts evidencing such Depositary Shares is or will be subject to
personal liability by reason of being such a holder. The form of certificate
used to evidence the [Preferred Stock] [Depositary Receipts evidencing
Depositary Shares ] is in due and proper form and complies with the applicable
statutory requirements, with any applicable requirements of the charter or by-
laws of the Company and with the requirements of the [ Stock Exchange/Nasdaq
National Market]. The applicable Certificate of Designations is in full force
and effect.
(9) [Include if the Underwritten Securities being sold pursuant to the
applicable Terms Agreement include Depositary Shares --] The applicable Deposit
Agreement has been duly authorized, executed and delivered by the Company and
(assuming due authorization, execution and delivery thereof by the applicable
Depositary) constitutes a valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and except as
enforcement thereof is subject to general principles of equity (regardless of
whether enforcement is considered in the proceeding in equity or at law). Each
registered holder of a Depositary Receipt under the applicable Deposit Agreement
will be entitled to the proportional rights, preferences and limitations of the
Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipt and to such other rights as are granted to such registered
holder in such Deposit Agreement.
(10) [Include if the Underwritten Securities being sold pursuant to the
applicable Terms Agreement include Warrants --] The Underwritten Securities have
been duly authorized by the Company for issuance and sale pursuant to the
Underwriting Agreement and the applicable Terms
B-2
<PAGE>
Agreement. The Underwritten Securities, when issued and authenticated in the
manner provided for in the applicable Warrant Agreement and delivered against
payment of the consideration therefor specified in such Terms Agreement, will
constitute valid and legally binding obligations of the Company, entitled to the
benefits provided by such Warrant Agreement and enforceable against the Company
in accordance with their terms, except as the enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally and except as enforcement
thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
(11) [Include if the Underwritten Securities being sold pursuant to the
applicable Terms Agreement include Warrants --] The [Each] applicable Warrant
Agreement has been duly authorized, executed and delivered by the Company and
(assuming due authorization, execution and delivery thereof by the applicable
Warrant Agent) constitutes a valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally and except as the enforcement thereof is subject to general principles
of equity (regardless of whether enforcement is considered in a proceeding in
equity or at law).
(12) [Include if the Underlying Securities related to the Underwritten
Securities being sold pursuant to the applicable Terms Agreement include Common
Stock, Preferred Stock or Depositary Shares --] The Underlying Securities have
been duly authorized and reserved for issuance by the Company [upon exercise of
the [Common Stock] [Preferred Stock] Warrants] [upon conversion of the related
[Preferred Stock] [Depositary Shares]. The Underlying Securities, when issued
upon such [exercise] [conversion], will be validly issued, fully paid and non-
assessable and will not be subject to preemptive or similar rights of any
securityholder of the Company. [In addition, the Underlying Securities, upon
deposit by the Company of the Preferred Stock represented thereby with the
applicable Depositary and the execution and delivery by such Depositary of the
Depositary Receipts evidencing such Underlying Securities, in each case pursuant
to the applicable Deposit Agreement, will represent legal and valid interests in
such Preferred Stock.] No holder of the Underlying Securities is or will be
subject to personal liability by reason of being such a holder. [Include if the
Underlying Securities related to the Underwritten Securities being sold pursuant
to the applicable Terms Agreement include Senior Debt Securities and/or
Subordinated Debt Securities --] The Underlying Securities have been duly
authorized for issuance by the Company [upon conversion or exchange of the
related [Preferred Stock] [Depositary Shares]]. The Underlying Securities, when
issued and authenticated in the manner provided for in the applicable Indenture
and delivered in accordance with the terms of the [related [Preferred Stock]
[Depositary Shares]], will constitute valid and legally binding obligations of
the Company, enforceable against the Company in accordance with their terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
and except as enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law)[, and except further as enforcement thereof may be limited by (A)
requirements that a claim with respect to any Debt Securities denominated other
than in U.S. dollars (or a foreign or composite currency judgment in respect of
such claim) be converted into U.S. dollars at a rate of exchange prevailing on
B-3
<PAGE>
a date determined pursuant to applicable law or (B) governmental authority to
limit, delay or prohibit the making of payments outside the United States].
(13) [Include if the Underlying Securities related to the Underwritten
Securities being sold pursuant to the applicable Terms Agreement include Debt
Securities --] The [Each] applicable Indenture has been duly authorized,
executed and delivered by the Company and (assuming due authorization, execution
and delivery thereof by the respective Trustee) constitutes a valid and legally
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally and except as enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law)[, and except further as enforcement thereof may
be limited by (A) requirements that a claim with respect to any Debt Security
denominated other than in U.S. dollars (or a foreign or composite currency
judgment in respect of such claim) be converted into U.S. dollars at a rate of
exchange prevailing on a date determined pursuant to applicable law or (B)
governmental authority to limit, delay or prohibit the making of payments
outside the United States].
(14) The Underwritten Securities being sold pursuant to the applicable
Terms Agreement and the [each] applicable [Warrant Agreement] [Deposit
Agreement] [Indenture] conform, and any Underlying Securities, when issued and
delivered in accordance with the terms of the related Underwritten Securities,
will conform, in all material respects to the statements relating thereto
contained in the Prospectus and are in substantially the form filed or
incorporated by reference, as the case may be, as an exhibit to the Registration
Statement.
(15) The information in the Prospectus under "Description of Debt
Securities", "Description of Debt Warrants", "Description of Currency Warrants",
"Description of Index Warrants", "Description of Preferred Stock", "Description
of Depositary Shares", "Description of Preferred Stock Warrants", "Description
of Common Stock" and "Description of Common Stock Warrants" or any caption
purporting to describe any such Securities, and in the Registration Statement
under Item 15, to the extent that it constitutes matters of law, summaries of
legal matters, the Company's charter and by-laws or legal proceedings, or legal
conclusions, has been reviewed by us and is correct in all material respects.
(16) The execution, delivery and performance of the Underwriting
Agreement, the applicable Terms Agreement and the [each] applicable [Warrant
Agreement] [Deposit Agreement] [Indenture] and any other agreement or instrument
entered into or issued or to be entered into or issued by the Company in
connection with the transactions contemplated in the Registration Statement and
the Prospectus and the consummation of the transactions contemplated in the
Underwriting Agreement and such Terms Agreement and in the Registration
Statement and the Prospectus (including the issuance and sale of the
Underwritten Securities and the use of the proceeds from the sale of the
Underwritten Securities as described under the caption "Use of Proceeds") and
compliance by the Company with its obligations thereunder do not and will not,
whether with or without the giving of notice or passage of time or both,
conflict with or constitute a breach of, or a default or Repayment Event (as
defined in Section 1(a)(18) of the Underwriting Agreement) under or result in
the creation or imposition of any lien, charge or encumbrance upon
B-4
<PAGE>
any property or assets of the Company or any subsidiary of the Company pursuant
to, any contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or any other agreement or instrument, known to us, to which the
Company or any of its subsidiaries is a party or by which it or any of them may
be bound, or to which any of the property or assets of the Company or its
subsidiaries is subject, except for such conflicts, breaches, defaults, liens,
events, charges or encumbrances that would not result in a Material Adverse
Effect, nor will such action result in any violation of the provisions of the
charter or by-laws of the Company or any Subsidiary or any applicable law,
statute, rule, regulation, judgment, order, writ or decree, known to us, of any
government, government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any Subsidiary or any of their properties,
assets or operations.
(17) The Registration Statement has been declared effective under the
1933 Act. Any required filing of the Prospectus pursuant to Rule 424(b) has been
made in the manner and within the time period required by Rule 424(b); and to
the best of our knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued under the 1933 Act and no proceedings for
that purpose have been initiated or are pending or threatened by the Commission.
Each applicable Indenture is qualified under the 1939 Act.
(18) The Registration Statement and the Prospectus, excluding the
documents incorporated by reference therein, and each amendment or supplement to
the Registration Statement and Prospectus, excluding the documents incorporated
by reference therein, as of their respective effective or issue dates (other
than the financial statements and supporting schedules included therein or
omitted therefrom and each Trustee's Statement of Eligibility on Form T-1 (the
"Form T-1s"), as to which we express no opinion) complied as to form in all
material respects with the requirements of the 1933 Act and the 1933 Act
Regulations.
(19) The documents incorporated by reference in the Prospectus (other
than the financial statements and supporting schedules therein or omitted
therefrom, as to which we express no opinion), when they became effective or
were filed with the Commission, as the case may be, complied as to form in all
material respects with the requirements of the 1933 Act or the 1934 Act, as
applicable, and the rules and regulations of the Commission thereunder.
(20) No filing with, or authorization, approval, consent, license, order
registration, qualification or decree of, any court or governmental authority or
agency, domestic or foreign, is necessary or required for the performance by the
Company of its obligations under the Underwriting Agreement or the applicable
Terms Agreement or in connection with the transactions contemplated under the
Underwriting Agreement, such Terms Agreement or the [any] applicable [Warrant
Agreement] [Deposit Agreement] [Indenture], except such as have been obtained,
or as may be required under the 1933 Act, the 1933 Act Regulations, the 1939 Act
and the 1939 Act Regulations or state securities or blue sky laws.
(21) [Include if required in Terms Agreement with respect to Underlying
Securities that include Debt Securities --] The Underlying Securities, upon
issuance, will be excluded or exempted under, or beyond the purview of, the
Commodity Exchange Act, as amended (the "Commodity Exchange Act") and the rules
and regulations of the Commodity Futures Trading Commission adopted under the
Commodity Exchange Act.
B-5
<PAGE>
We have participated in conferences with officers and representatives
of the Company, representatives of the independent accountants of the Company
and the Underwriters at which the contents of the Registration Statement and
Prospectus and related matters were discussed and, although we are not passing
upon or assuming responsibility for the accuracy, completeness or fairness of
the statements contained or incorporated by reference in the Registration
Statement and Prospectus and have made no independent check or verification
thereof, on the basis of the foregoing, nothing has come to our attention that
would lead us to believe that the Registration Statement or any post-effective
amendment thereto (except for financial statements and schedules and other
financial data included or incorporated therein or omitted therefrom and the
Form T-1s, as to which we make no statement), at the time the Registration
Statement or any post-effective amendment thereto (including the filing of the
Company's Annual Report on Form 10-K with the Commission) became effective or at
the date of the applicable Terms Agreement, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto (except for financial
statements and schedules and other financial data included or incorporated
therein or omitted therefrom, as to which we make no statement), at the time the
Prospectus was issued, at the time any such amended or supplemented prospectus
was issued or at the Closing Time, included or includes an untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
In rendering such opinion, such counsel may rely, as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials.
B-6
<PAGE>
EXHIBIT 4(a)(iii)
The form of initial Subsequent Indentures, if any, with respect to Senior
Debt Securities will be substantially the same as the Indenture, dated as of
October 1, 1993, between the Company and The Chase Manhattan Bank (successor by
merger to The Chase Manhattan Bank, N.A.) contained as Exhibit 4(a)(ii) to the
Registration Statement except that the name of any Subsequent Trustee with
respect to any Subsequent Indenture will be inserted and any Subsequent
Indenture will be dated as of a current date.
<PAGE>
EXHIBIT 4(a)(iv)
Any Subsequent Indentures with respect to Senior Debt Securities entered
into subsequent to the Subsequent Indenture described in Exhibit 4(a)(iii) will
be substantially the same as the Indenture, dated as of October 1, 1993, between
the Company and The Chase Manhattan Bank (successor by merger to The Chase
Manhattan Bank, N.A.) contained as Exhibit 4(a)(ii) to the Registration
Statement except that the name of any Subsequent Trustee with respect to any
Subsequent Indenture will be inserted and any Subsequent Indenture will be dated
as of a current date.
<PAGE>
EXHIBIT 4(c)(ii)
The form of initial Subsequent Indenture, if any, with respect to
Subordinated Debt Securities will be substantially the same as the Indenture
between the Company and The Chase Manhattan Bank contained as Exhibit 4(c)(i) to
the Registration Statement except that the name of any Subsequent Trustee with
respect to any Subsequent Indenture will be inserted and any Subsequent
Indenture will be dated as of a current date.
<PAGE>
EXHIBIT 4(NNNNN)
MERRILL LYNCH & CO., INC.
TO
THE CHASE MANHATTAN BANK,
AS TRUSTEE
-------------------------------------
[ ] SUPPLEMENTAL INDENTURE
DATED AS OF , 1998
-------------------------------------
SUPPLEMENTAL TO INDENTURE
DATED AS OF APRIL 1, 1983
AS AMENDED
<PAGE>
TABLE OF CONTENTS
Article I
DEFINITIONS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 1.01. Definitions.................................................. 2
Article II
AMENDMENT OF CERTAIN PROVISIONS
OF THE PRINCIPAL INDENTURE
Section 2.01.Amendments.................................................... 2
Article III
MISCELLANEOUS
Section 3.01.Effect of Supplemental Indenture.............................. 9
Section 3.02.Conflict with Trust Indenture Act............................. 9
Section 3.03.Successors and Assigns........................................ 9
Section 3.04.Separability Clause........................................... 9
Section 3.05.Benefits of Supplemental Indenture............................ 9
Section 3.06.Governing Law................................................. 9
Section 3.07.Execution in Counterparts..................................... 9
Section 3.08.Responsibility for Recitals................................... 9
</TABLE>
<PAGE>
[ ] Supplemental Indenture, dated as of , 1998 (the "Supplemental
Indenture"), by and between Merrill Lynch & Co., Inc., a corporation organized
and existing under the laws of the State of Delaware, having its principal
office at World Financial Center, New York, New York 10281 (the "Company"),
and The Chase Manhattan Bank, formerly known as Chemical Bank (successor by
merger to Manufacturers Hanover Trust Company), a corporation duly organized
and existing under the laws of the State of New York and having its Corporate
Trust Office at 450 West 33rd Street, New York, New York 10001, as trustee
(the "Trustee").
WHEREAS, the Company has heretofore executed and delivered its Indenture,
dated as of April 1, 1983 and restated as of April 1, 1987 (as amended and
supplemented to the date hereof, the "Principal Indenture"), to the Trustee to
provide for the issuance from time to time of its unsecured and unsubordinated
debentures, notes or other evidences of senior indebtedness (the
"Securities"), unlimited as to principal amount or aggregate issue price, as
the case may be, and
WHEREAS, the Principal Indenture, as amended by the Trust Indenture Reform
Act of 1990, and this Supplemental Indenture are hereinafter collectively
referred to as the "Indenture"; and
WHEREAS, the Company proposes to allow for terms of the Securities which
will permit or require the Company to pay and discharge the Securities when
due by delivering to the Holders thereof other securities (whether or not
issued by, or the obligations of, the Company) or a combination of cash, other
securities and/or other property, as provided herein; and
WHEREAS, Section 901 of the Principal Indenture provides that, without the
consent of any Holders, the Company, when authorized by a Board Resolution,
and the Trustee, at any time and from time to time, may enter into one or more
indentures supplemental to the Principal Indenture, in form satisfactory to
the Trustee, (a) to establish the form or terms of Securities of any series as
permitted by Sections 201 and 301 thereof and (b) to cure any ambiguity, to
correct or supplement any provision in the Principal Indenture which may be
defective or inconsistent with any other provision of the Principal Indenture,
or to make any other provisions with respect to matters or questions arising
under the Principal Indenture which shall not be inconsistent with the
provisions of the Principal Indenture and which shall not adversely affect the
interests of the Holders of Securities of any series or any related coupons in
any material respect; and
WHEREAS, the Company has duly authorized the execution and delivery of this
Supplemental Indenture, and all things necessary to make this Supplemental
Indenture a valid agreement of the Company, in accordance with its terms, have
been done;
NOW, THEREFORE, the Company and the Trustee, in consideration of the
premises and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, hereby covenant and agree, for
the equal and proportionate benefit of all Holders, as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. For all purposes of the Principal Indenture and
this Supplemental Indenture, except as otherwise expressly provided or unless
the context otherwise requires, the terms defined in this Article I have the
meanings assigned to them in this Article I. Capitalized terms used in the
Principal Indenture and this Supplemental Indenture but not defined herein are
used as they are defined in the Principal Indenture.
"Maturity Consideration" means the securities (whether or not issued by,
or the obligation of, the Company), the amount of cash (including payment
of principal and premium, if any), or a combination of cash, securities
and/or other property, in either case deliverable upon payment and
discharge of the Securities of a series when due or upon redemption as
established in or pursuant to, from time to time, a Board Resolution, and
set forth in an Officers' Certificate or established in one or more
supplemental indentures.
"Supplemental Indenture" has the meaning specified in the first paragraph
of this instrument.
ARTICLE II
AMENDMENT OF CERTAIN PROVISIONS
OF THE PRINCIPAL INDENTURE
Section 2.01. Amendments. The Principal Indenture is hereby amended with
respect to all series of Securities issued on or after the date hereof as
follows:
(a) By deleting the first paragraph of Section 308 of the Principal
Indenture in its entirety and inserting in its stead the following:
"Prior to due presentment of a Registered Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name such Registered Security is
registered as the owner of such Registered Security for the purpose of
receiving delivery or payment of the Maturity Consideration in respect of,
and (subject to Sections 305 and 307) interest on, and Additional Amounts
with respect to, such Registered Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary."
(b) (i) By amending Section 501 of the Principal Indenture by (i) adding as
a new clause (5) the following:
"(5) default in the delivery or payment of the Maturity Consideration of
that series when due; or"; and
(ii) renumbering current clauses (5), (6) and (7) as clauses (6), (7) and
(8), respectively.
(c) By deleting Section 502 of the Principal Indenture in its entirety and
inserting in its stead the following:
"SECTION 502. Acceleration of Maturity; Rescission and Annulment. If an
Event of Default with respect to Securities of any series at the time
Outstanding occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% in principal amount or
aggregate issue price, as the case may be, of the Outstanding Securities of
that series may declare the principal of, or an amount equal to the
aggregate issue price of, all the Securities of such series, or such amount
or aggregate issue price, as the case may be, as may be provided for in the
Securities of that series, to be due and payable immediately by a notice in
writing to the Company (and to the Trustee if given by the Holders), and
upon any such declaration such principal or such amount shall become
immediately due and payable in cash as though the date of acceleration were
the Maturity Date.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in
this Article provided, the Holders of a majority in principal amount or
aggregate issue price, as the case may be, of the Outstanding Securities of
that series, by written notice to the Company and the Trustee, may rescind
and annul such declaration and its consequences if
2
<PAGE>
(1) the Company has deposited with or paid the Trustee
(A) the Maturity Consideration relating to any Securities of that
series which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate or rates borne by or
provided for in such Securities,
(B) all overdue installments of interest on and any Additional
Amounts payable in respect of all Securities of that series,
(C) to the extent that payment of such interest is lawful,
interest upon overdue installments of interest and Additional
Amounts at the rate or rates borne by or provided for in such
Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel,
and
(2) all Events of Default with respect to Securities of that series,
other than the non-delivery or non-payment of the Maturity
Consideration with respect to such series, due solely by reason of such
declaration of acceleration, have been cured or waived as provided in
Section 513.
No such rescission shall affect any subsequent default or impair any
right consequent thereon."
(d) By deleting the first paragraph of Section 503 of the Principal
Indenture in its entirety and inserting in its stead the following:
"The Company covenants that if,
(1) default is made in the payment of any installment of interest on
or any Additional Amounts payable in respect of any Securities when
such interest or such Additional Amounts shall have become due and
payable and such default continues for a period of 30 days, or
(2) default is made in the delivery or payment of the Maturity
Consideration relating to any Security at its Maturity,
the Company will, upon demand of the Trustee, deliver or pay to it,
for the benefit of the Holders of such Securities and coupons, the
whole amount and/or other consideration then due and payable on such
Securities and coupons for Maturity Consideration and interest and
Additional Amounts, if any, with interest upon the overdue Maturity
Consideration and, to the extent that payment of such interest shall be
legally enforceable, upon overdue installments of interest or any
Additional Amounts, interest on any overdue interest or any Additional
Amounts, at the rate or rates borne by or provided for in such
Securities, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel.
If the Company fails to deliver or to pay such amounts and/or other
consideration forthwith upon such demand, the Trustee, in its own name
and as trustee of an express trust, may institute a judicial proceeding
for the collection of such amounts and/or other consideration so due
and undelivered or unpaid, and may prosecute such proceeding to
judgment or final decree, and may enforce the same against the Company
or any other obligor upon such Securities and collect the moneys and/or
other consideration adjudged or decreed to be deliverable or payable in
the manner provided by law out of the property of the Company or any
other obligor upon the Securities, wherever situated."
(e) By deleting Section 506 of the Principal Indenture in its entirety and
inserting in its stead the following:
"SECTION 506. Application of Money Collected. Any money collected by the
Trustee pursuant to this Article shall be applied in the following order,
at the date or dates fixed by the Trustee and, in case of the distribution
of such money on account of the Maturity Consideration, interest or any
Additional Amounts, upon presentation of the relevant Securities or
coupons, or both, as the case may be and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
3
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FIRST: To the payment of all amounts due the Trustee under Section
607;
SECOND: To the payment of any amounts then due and unpaid on the
Securities and coupons for Maturity Consideration and interest and any
Additional Amounts payable in respect of which or for the benefit of
which such money has been collected, ratably, without preference or
priority of any kind, according to the aggregate amounts due and
payable on such Securities and coupons for Maturity Consideration and
interest and any Additional Amounts, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto."
(f) By deleting Section 507 (2) and (5) of the Principal Indenture in their
entirety and inserting in their stead the following:
"(2) The Holders of not less than 25% in principal amount or aggregate
issue price, as the case may be, of the Outstanding Securities of that
series shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as Trustee
hereunder;"
"(5) No direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount or aggregate issue price, as the case may be, of the
Outstanding Securities of that series;"
(g) By deleting Section 508 of the Principal Indenture in its entirety and
inserting in its stead the following:
"SECTION 508. Unconditional Right of Holders to Receive the Maturity
Consideration and Interest. Notwithstanding any other provision in this
Indenture, the Holder of any Security or coupon shall have the right, which
is absolute and unconditional, to receive delivery or payment of the
Maturity Consideration relating to, and (subject to Sections 305 and 307)
interest on and any Additional Amounts payable in respect of, such Security
or payment of such coupon on the respective Stated Maturity or Maturities
expressed in such Security or coupon (or, in the case of redemption, on the
Redemption Date) and to institute suit for the enforcement of any such
delivery or payment, and such right shall not be impaired without the
consent of such Holder."
(h) By deleting the first clause of the first sentence of Section 513 of the
Principal Indenture in its entirety and inserting in its stead the following:
"(1) in the delivery or payment of the Maturity Consideration or interest
on or Additional Amounts payable in respect of any Securities of such
series, or"
(i) By deleting Section 801 of the Principal Indenture in its entirety and
inserting in its stead the following:
"SECTION 801. Consolidations and Mergers of the Company and Sales, Leases
and Conveyances Permitted Subject to Certain Conditions. The Company may
consolidate with, or sell, lease or convey all or substantially all of its
assets to, or merge with or into any other corporation, provided that in
any such case, (i) either the Company shall be the continuing corporation,
or the successor corporation shall be a corporation organized and existing
under the laws of the United States of America or a State thereof and such
successor corporation shall expressly assume the due and punctual delivery
or payment of the Maturity Consideration in respect of, any interest on,
and any Additional Amounts payable pursuant to Section 1004 with respect
to, all the Securities, according to their tenor, and the due and punctual
performance and observance of all of the covenants and conditions of this
Indenture to be performed by the Company by supplemental indenture
satisfactory to the Trustee, executed and delivered to the Trustee by such
corporation, and (ii) the Company or such successor corporation, as the
case may be, shall not, immediately after such merger or consolidation, or
such sale, lease or conveyance, be in default in the performance of any
such covenant or condition."
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<PAGE>
(j) By deleting the first sentence of Section 902 of the Principal Indenture
in its entirety and inserting in its stead the following:
"With the consent of the Holders of not less than 66 2/3% of the
principal amount or aggregate issue price, as the case may be, of the
Outstanding Securities of each series affected by such supplemental
indenture, by Act of said Holders delivered to the Company and the Trustee,
the Company, when authorized by a Board Resolution, and the Trustee may
enter into an indenture or indentures supplemental hereto for the purpose
of adding any provisions to or changing in any manner or eliminating any of
the provisions of this Indenture or of modifying in any manner the rights
of the Holders of Securities of such series under this Indenture; provided,
however, that no such supplemental indenture shall, without the consent of
the Holder of each Outstanding Security affected thereby,
(1) change the Maturity Date or the Stated Maturity of the Maturity
Consideration of, or any installment of interest or Additional Amounts
on any Security, or reduce the principal amount thereof or the amount
or type of Maturity Consideration or the rate of interest thereon or
any Additional Amounts payable in respect thereof, or change the
obligation of the Company to pay Additional Amounts pursuant to Section
1004 (except as contemplated by 801(i) and permitted by Section
901(1)), or reduce the amount of Maturity Consideration of an Original
Issue Discount Security that would be due and deliverable or payable
upon a declaration of acceleration of the Maturity thereof pursuant to
Section 502, or, change any Place of Payment where, or the coin or
currency in which, any Maturity Consideration, interest or Additional
Amounts on any Security are deliverable or payable, or change the
provisions with respect to redemption, or impair the right to institute
suit for the enforcement of the delivery or payment on or with respect to
any Securities on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date), or
(2) reduce the percentage in principal amount or aggregate issue
price, as the case may be, of the Outstanding Securities of any series,
the consent of whose Holders is required for any such supplemental
indenture, or the consent of whose Holders is required for waiver (of
compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this
Indenture, or reduce the requirements of Section 1404 for quorum or
voting, or
(3) modify any of the provisions of this Section, or Section 513, or
Section 1007, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby."
(k) By deleting the first sentence of Section 1001 of the Principal
Indenture in its entirety and inserting in its stead the following:
"Section 1001. Delivery or Payment of Maturity Consideration and
Interest. The Company covenants and agrees for the benefit of the Holders
of each series of Securities that it will duly and punctually deliver or
pay the Maturity Consideration and interest on and any Additional Amounts
payable in respect of the Securities of that series in accordance with the
terms of such series of Securities, any coupons appertaining thereto and
this Indenture. Any interest due on and any Additional Amounts payable in
respect of Bearer Securities on or before Maturity, other than Additional
Amounts, if any, payable as provided in Section 1004 in respect of
principal of (or premium, if any, on) such a Security, shall be payable
only upon presentation and surrender of the several coupons for such
interest installments as are evidenced thereby as they severally mature."
(l) By deleting Section 1003 of the Principal Indenture in its entirety and
inserting in its stead the following:
"SECTION 1003. Money for Security Payments to Be Held in Trust. If the
Company shall at any time act as its own Paying Agent with respect to any
series of Securities, it will, on or before each due date of the Maturity
Consideration or interest on any of the Securities of that series,
segregate and hold in trust
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<PAGE>
for the benefit of the Persons entitled thereto consideration in an amount
sufficient to deliver or pay the Maturity Consideration or a sum sufficient
to pay the interest so becoming due until such consideration shall be
delivered or paid to such Persons or otherwise disposed of as herein
provided and will promptly notify the Trustee of its action or failure so
to act.
Whenever the Company shall have one or more Paying Agents with respect to
any series of Securities, it will, on or prior to each due date of the
Maturity Consideration or interest on any Securities of that series,
deposit with a Paying Agent consideration in an amount sufficient to
deliver or pay the Maturity Consideration or a sum sufficient to pay the
interest so becoming due, such consideration to be held as provided by the
Trust Indenture Act, and (unless such Paying Agent is the Trustee) the
Company will promptly notify the Trustee of its action or failure so to
act.
The Company will cause each Paying Agent for any series of Securities
other than the Trustee to execute and deliver to the Trustee an instrument
in which such Paying Agent shall agree with the Trustee, subject to the
provisions of this Section, that such Paying Agent will (i) comply with the
provisions of the Trust Indenture Act applicable to it as Paying Agent,
(ii) give the Trustee notice of any default by the Company (or any other
obligor upon the Securities of that series) in the making of any delivery
or payment of Maturity Consideration or interest on the Securities of that
series; and (iii) during the continuance of any default by the Company (or
any other obligor upon the Securities) in the making of any delivery or
payment in respect of the Securities of such series, upon the written
request of the Trustee, forthwith deliver or pay to the Trustee all
consideration held in trust by such Paying Agent as such.
The Company may at any time, for any purpose, deliver or pay, or by
Company Order direct any Paying Agent to deliver or pay, to the Trustee all
consideration held in trust by the Company or such Paying Agent, such
consideration to be held by the Trustee upon the same trusts as those upon
which such consideration was held by the Company or such Paying Agent; and,
upon such delivery or payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to
such consideration.
Except as otherwise provided in the form of Securities of any particular
series pursuant to the provisions of this Indenture, any consideration
deposited with the Trustee or any Paying Agent, or then held by the
Company, in trust for the payment of the interest on or delivery or payment
upon discharge of any Securities and remaining unclaimed for two years
after such consideration has become due and deliverable or payable shall be
paid to the Company on Company Request, or (if then held by the Company)
shall be discharged from such trust; and the Holder of such Security or any
coupon appertaining thereto shall thereafter, as an unsecured general
creditor, look only to the Company for delivery or payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust
consideration, and all liability of the Company as trustee thereof, shall
thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Company cause to be published once, in an Authorized Newspaper in each
Place of Payment or to be mailed to Holders of the Registered Securities,
or both, notice that such consideration remains unclaimed and that, after a
date specified therein, which shall not be less than 30 days from the date
of such publication or mailing, any unclaimed balance of such consideration
then remaining will be delivered or repaid to the Company."
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ARTICLE III
MISCELLANEOUS
Section 3.01. Effect of Supplemental Indenture. The Principal Indenture, as
supplemented and amended by this Supplemental Indenture and all other
indentures supplemental thereto, is in all respects ratified and confirmed,
and the Principal Indenture, this Supplemental Indenture and all indentures
supplemental thereto shall be read, taken and construed as one and the same
instrument.
Section 3.02. Conflict with Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with another provision hereof which is required
or deemed to be included in this Supplemental Indenture by any of the
provisions of the Trust Indenture Act, such required or deemed included
provision shall control.
Section 3.03. Successors and Assigns. All covenants and agreements in this
Supplemental Indenture by the Company shall bind its successors and assigns,
whether so expressed or not.
Section 3.04. Separability Clause. In case any provision in this
Supplemental Indenture or in the Securities shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions (or of the other series of Securities) shall not in any way be
affected or impaired thereby.
Section 3.05. Benefits of Supplemental Indenture. Nothing in this
Supplemental Indenture, express or implied, shall give to any Person, other
than the parties hereto and their successors hereunder and the Holders of
Securities issued after the date hereof, any benefit or any legal or equitable
right, remedy or claim under this Supplemental Indenture.
Section 3.06. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE DEEMED TO
BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND THIS
SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
Section 3.07. Execution in Counterparts. This Supplemental Indenture may be
executed in any number of counterparts, each of which shall be an original;
but such counterparts shall together constitute but one and the same
instrument.
Section 3.08. Responsibility for Recitals. The recitals contained herein
shall be taken as statements of the Company, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations as
to the validity or sufficiency of the Principal Indenture or this Supplemental
Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
MERRILL LYNCH & CO., INC.
By:
-----------------------------------
Name: Theresa Lang
Title: Senior Vice President and
Treasurer
THE CHASE MANHATTAN BANK,
as Trustee
By:
-----------------------------------
Name: Andrew M. Deck
Title: Vice President
7
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[Letterhead of Brown & Wood LLP]
Exhibit 5(a)
July 28, 1998
Merrill Lynch & Co., Inc.
World Financial Center
North Tower
New York, New York 10281-1334
Ladies and Gentlemen:
We have acted as your counsel and are familiar with the corporate
proceedings had in connection with the proposed issuance and sale by Merrill
Lynch & Co., Inc. (the "Company") of up to $20,000,000,000 aggregate principal
amount of its senior debt securities, including Structured Yield Product
Exchangeable for Stock, (the "Senior Debt Securities") and/or subordinated debt
securities (the "Subordinated Debt Securities", and together with the Senior
Debt Securities, the "Debt Securities"), both of which may be convertible into
common stock, par value $1.33 per share, of the Company (the "Common Stock"),
preferred stock, par value $1.00 per share, of the Company (the "Preferred
Stock") or Depositary Shares representing Preferred Stock (the "Depositary
Shares"); and/or warrants to purchase Debt Securities (the "Debt Warrants");
and/or warrants entitling the holders thereof to receive from the Company a
payment or delivery determined by reference to decreases or increases in the
level of an index or portfolio based on one or more equity or debt securities,
any statistical measure of economic or financial performance, or the price or
value of any commodity or any other item or index or a combination thereof (the
"Index Warrants"); and/or warrants to receive from the Company the cash value in
U.S. dollars of the right to purchase or to sell specified foreign currencies or
units of two or more such foreign currencies (the "Currency Warrants"); and/or
shares of Preferred Stock, which may be convertible into Preferred Stock or
Common Stock or exchangeable for Debt Securities; and/or shares of Preferred
Stock, which may be represented by Depositary Shares; and/or warrants to
purchase shares of Preferred Stock (the "Preferred Stock Warrants"); and/or
shares of Common Stock; and/or warrants to purchase shares of Common Stock (the
"Common Stock Warrants"), in each case as shall be designated by the Company at
the time of offering.
We have examined such documents and records as we deemed appropriate,
including the following:
(a) a copy of the Restated Certificate of Incorporation of the Company,
certified by the Secretary of State of the State of Delaware;
<PAGE>
(b) copies of the Company's Registration Statement on Form S-3 (File No.
333-_____), as amended, relating to the Securities (as defined below)
(the "Registration Statement");
(c) a copy of the indenture with respect to the Senior Debt Securities
between the Company and The Chase Manhattan Bank (formerly known as
Chemical Bank, successor by merger to Manufacturers Hanover Trust
Company), as trustee, dated April 1, 1983, as amended and restated
(the "1983 Senior Indenture"), in the form executed by the Company and
The Chase Manhattan Bank;
(d) a copy of the indenture with respect to the Senior Debt Securities
between the Company and The Chase Manhattan Bank (successor by merger
to The Chase Manhattan Bank, N.A.), as trustee, dated October 1, 1993
(the "1993 Senior Indenture"), in the form executed by the Company and
The Chase Manhattan Bank;
(e) a copy of the supplemental indenture with respect to the Senior Debt
Securities between the Company and The Chase Manhattan Bank, as
successor trustee, dated October 25, 1993 (the "1993 Supplemental
Indenture") in the form executed by the Company and The Chase
Manhattan Bank;
(f) a copy of the indenture with respect to the Subordinated Debt
Securities between the Company and The Chase Manhattan Bank, as
trustee, dated December 17, 1996 (the "Subordinated Indenture"), in
the form executed by the Company and The Chase Manhattan Bank;
(g) a copy of the form of indenture with respect to Index Warrants which
are to be issued with a minimum value payable upon expiration (a
"Minimum Expiration Value") (including a form of global index warrant
certificate) (the "Index Warrant Indenture") in the form filed or
incorporated by reference as an exhibit to the Registration Statement;
(h) a copy of the form of warrant agreement with respect to Index Warrants
other than Index Warrants which are to be issued with a Minimum
Expiration Value (including a form of global index warrant
certificate) (the "Index Warrant Agreement") in the form filed or
incorporated by reference as an exhibit to the Registration Statement;
(i) a copy of the form of warrant agreement with respect to the Debt
Warrants (including a form of global debt warrant certificate) (the
"Debt Warrant Agreement") in the form filed or incorporated by
reference as an exhibit to the Registration Statement;
(j) a copy of the form of warrant agreement with respect to the Currency
Warrants (including a form of global currency warrant certificate)
(the "Currency Warrant Agreement") in the form filed or incorporated
by reference as an exhibit to the Registration Statement;
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<PAGE>
(k) a copy of the form of warrant agreement with respect to the Preferred
Stock Warrants and the Common Stock Warrants (including a form of
global warrant certificate) (the "Preferred Stock and Common Stock
Warrant Agreement") in the form filed or incorporated by reference as
an exhibit to the Registration Statement;
(l) a copy of the form of certificate of designations with respect to the
Preferred Stock (the "Certificate of Designations") in the form filed
or incorporated by reference as an exhibit to the Registration
Statement;
(m) a copy of the form of deposit agreement with respect to the Depositary
Shares (the "Deposit Agreement") in the form filed or incorporated by
reference as an exhibit to the Registration Statement;
(n) a copy of the form of certificate representing the Preferred Stock in
the form filed or incorporated by reference as an exhibit to the
Registration Statement; and
(o) a specimen of the certificate representing the Common Stock in the
form filed or incorporated by reference as an exhibit to the
Registration Statement.
The Debt Warrants, Index Warrants, Currency Warrants, Preferred Stock
Warrants and Common Stock Warrants are hereinafter collectively referred to as
the "Warrants". The Warrants, Debt Securities, Preferred Stock, Depositary
Shares and Common Stock are hereinafter collectively referred to as the
"Securities". The "1983 Senior Indenture" shall mean such indenture as amended
by the Trust Indenture Reform Act of 1990. The 1983 Senior Indenture, 1993
Senior Indenture and the 1993 Senior Indenture as supplemented by the 1993
Supplemental Indenture are hereinafter collectively referred to as the "Senior
Indentures". The Senior Indentures, Subordinated Indenture and Index Warrant
Indenture, including any supplemental indenture thereto, are hereinafter
collectively referred to as the "Indentures". The Debt Warrant Agreement,
Currency Warrant Agreement, Index Warrant Agreement and Preferred Stock and
Common Stock Warrant Agreement are hereinafter collectively referred to as the
"Warrant Agreements".
Based upon the foregoing and upon such further investigation as we deem
relevant in the premises, we are of the opinion:
1. The Company has been duly incorporated under the laws of the State of
Delaware.
2. The Senior Indentures and the Subordinated Indenture have each been
duly and validly authorized, executed and delivered by the Company and, as
amended by the Trust Indenture Reform Act of 1990, constitute valid and binding
agreements of the Company, enforceable in accordance with their respective
terms.
3. When appropriate corporate action has been taken to authorize the
Company to execute and deliver any applicable Index Warrant Indenture,
supplemental indenture or Warrant Agreement, to fix the terms of one or more
issues of Securities under an Indenture or Warrant Agreement and to authorize
their issue, and such Indenture or Warrant Agreement shall have
3
<PAGE>
been duly executed and delivered by the Company and the trustee or warrant
agent, and when the Securities with terms so fixed shall have been duly
authenticated or countersigned by the trustee or warrant agent, as the case may
be, and duly issued under the respective Indenture or Warrant Agreement in
accordance with such corporate action, such Indentures and/or Warrant Agreements
and such Securities will constitute valid and binding agreements of the Company,
enforceable in accordance with their terms.
4. When appropriate corporate action has been taken by the Company to fix
the terms of one or more series of the Preferred Stock as contemplated in the
Registration Statement, to authorize the execution and filing with the Secretary
of State of the State of Delaware of a Certificate of Designations relating
thereto and to authorize the issuance of shares thereof, and when such
Certificate of Designations shall have been so executed and filed by the Company
and Preferred Stock with the terms so fixed shall have been duly issued and
delivered by the Company against payment of the consideration therefor or for
Depositary Shares representing interests therein in accordance with such
corporate action, such Preferred Stock will be validly issued, fully paid and
non-assessable.
5. When appropriate corporate action has been taken by the Company to
authorize the execution and delivery of a Deposit Agreement, and when such
Deposit Agreement shall have been duly executed and delivered by the Company and
the depositary, such Deposit Agreement will constitute a valid and binding
agreement of the Company, enforceable in accordance with its terms.
6. When appropriate corporate action has been taken by the Company to
authorize the issuance and deposit of Preferred Stock with a depositary pursuant
to a Depositary Agreement and the issuance of Depositary Shares representing
interests therein, and when such Preferred Stock shall have been duly issued and
so deposited and such depositary shall have duly issued and delivered depositary
receipts evidencing such Depositary Shares against payment of the consideration
therefor in accordance with such corporate action, such Depositary Shares will
represent valid interests in the Preferred Stock so deposited and shall entitle
the holders thereof to the rights specified in the depositary receipts
evidencing the Depositary Shares and in the applicable Deposit Agreement.
7. When appropriate corporate action has been taken by the Company to
authorize the issuance of shares of Common Stock, such Common Stock, when
issued, delivered and paid for as contemplated in the Registration Statement,
will be duly authorized, validly issued, fully paid and non-assessable.
With respect to enforcement, the above opinions are qualified to the extent
that enforcement of the Indentures, Warrant Agreements, Securities and Deposit
Agreement may be limited by bankruptcy, insolvency or other laws of general
applicability relating to or affecting enforcement of creditors' rights or by
general equity principles, and further to the extent that enforcement of any
Securities denominated in other than United States dollars may be limited by
requirements that a claim (or foreign currency judgment in respect of such
claim) be converted into United States dollars at a rate of exchange prevailing
on a date determined pursuant to applicable law. We have further assumed with
respect to enforcement that, when fixed, the
4
<PAGE>
terms of the Securities will comply with all applicable "bucket shop" or similar
state laws, or have the availability of federal preemption therefrom.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name wherever appearing in the Registration
Statement and any amendment thereto.
Very truly yours,
/s/ Brown & Wood LLP
5
<PAGE>
Exhibit 5(b)
[Letterhead of Brown & Wood LLP]
July 28, 1998
Merrill Lynch & Co., Inc.
World Financial Center
North Tower
250 Vesey Street
New York, New York 10281
Merrill Lynch Preferred Funding V, L.P. Merrill Lynch Preferred Capital Trust V
c/o Merrill Lynch & Co., Inc. c/o Merrill Lynch & Co., Inc.
World Financial Center World Financial Center
North Tower North Tower
250 Vesey Street 250 Vesey Street
New York, New York 10281 New York, New York 10281
Re: Merrill Lynch Preferred Capital Trust V
Trust Preferred Securities ("TOPrS")
---------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Merrill Lynch & Co., Inc., a Delaware
corporation (the "Company"), Merrill Lynch Preferred Funding V, L.P., a Delaware
limited partnership (the "Partnership"), and Merrill Lynch Preferred Capital
Trust V, a statutory business trust formed under the laws of the State of
Delaware (the "Trust"), in connection with the preparation and filing by the
Company, the Partnership and the Trust with the Securities and Exchange
Commission (the "Commission") of a Registration Statement on Form S-3
(Registration No. 333-_____) (the "Registration Statement") under the Securities
Act of 1933, as amended, with respect to (i) the guarantee (the "Trust
Guarantee") to be issued by the Company to The Chase Manhattan Bank, as trustee,
for the benefit of the holders of the Trust Originated Preferred Securities to
be issued by the Trust (the "Trust Preferred Securities"), (ii) the guarantee
(the "Partnership Guarantee") to be issued by the Company with respect to the
Partnership Preferred Securities to be issued by the Partnership (the
"Partnership Preferred Securities"), (iii) the guarantees (the "Investment
Guarantees") to be issued by the Company for the benefit of the holders of the
Partnership Preferred Securities with respect to certain debentures (the
<PAGE>
"Debentures") to be issued by one or more of the Company's eligible controlled
affiliates and (iv) the subordinated debentures (the "Company Debentures") to be
issued by the Company to the Partnership pursuant to an indenture (the "Company
Indenture") between the Company and The Chase Manhattan Bank, as trustee (the
"Debenture Trustee"), each in the form filed as exhibits to the Registration
Statement. The Trust Guarantee, the Partnership Guarantee and the Investment
Guarantees are hereinafter collectively referred to as the "Guarantees".
We have reviewed the corporate action of the Company in connection
with the giving of the Guarantees and the issuance and sale of the Company
Debentures by the Company and have examined, and have relied as to matters of
fact upon, originals or copies certified or otherwise identified to our
satisfaction, of such corporate records, agreements, documents and other
instruments and such certificates or comparable documents of public officials
and of officers and representatives of the Company, and have made such other and
further investigations as we have deemed relevant and necessary as a basis for
the opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all copies of documents submitted to us and the authenticity of the originals of
such latter documents.
Based upon the foregoing, and subject to the qualifications and
limitations stated herein, we are of the opinion:
1. When the Trust Guarantee has been duly authorized, executed and
delivered by the Company, and upon the issuance and sale of the related Trust
Preferred Securities to the holders of the Trust Preferred Securities in
accordance with the Registration Statement, such Trust Guarantee will constitute
a valid and legally binding obligation of the Company enforceable against the
Company in accordance with its terms.
2. When the Partnership Guarantee has been duly authorized, executed
and delivered by the Company, and upon the issuance and sale of the related
Partnership Preferred Securities to the holders of the Partnership Preferred
Securities in accordance with the Registration Statement, such Partnership
Guarantee will constitute a valid and legally binding obligation of the Company
enforceable against the Company in accordance with its terms.
3. When the Investment Guarantees have been duly authorized, executed
and delivered by the Company, and upon the issuance and sale of Debentures to
the Partnership in accordance with the Registration Statement, such Investment
Guarantees will constitute valid and legally binding obligations of the Company
enforceable against the Company in accordance with their terms.
4. When the Company Debentures have been duly authorized, executed
and issued by the Company and upon the issuance and sale of the Company
Debentures to the Partnership in accordance with the Registration Statement
(assuming due authorization, execution and delivery of the Company Indenture by
the Debenture Trustee and due authentication of the Company Debentures by the
Debenture Trustee), such Company
2
<PAGE>
Debentures will constitute valid and legally binding obligations of the Company
enforceable against the Company in accordance with their terms.
With respect to enforcement, the above opinions are qualified to the
extent that enforcement of the Guarantees or the Company Debentures may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally and except as enforcement
thereof is subject to general equity principles (regardless of whether
enforcement is considered in a proceeding in equity or at law).
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name wherever appearing in the
Registration Statement and any amendment thereto.
Very truly yours,
/s/ Brown & Wood LLP
3
<PAGE>
Exhibit 5(c)
July 28, 1998
Merrill Lynch Preferred Capital Trust V
Merrill Lynch Preferred Funding V, L.P.
Merrill Lynch & Co., Inc.
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281
Re: Merrill Lynch & Co., Inc.
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as special Delaware counsel to Merrill Lynch Preferred
Capital Trust V (the "Trust"), a statutory business trust created under the
Business Trust Act of the State of Delaware (Del. Code Ann., tit. 12, (S)(S)
3801 et seq.), and Merrill Lynch Preferred Funding V, L.P. (the "Partnership"),
a limited partnership formed under the Revised Uniform Limited Partnership Act
of the State of Delaware (6 Del. C. (S) 17-101, et seq.), in connection with
the preparation of the Registration Statement on Form S-3 filed by Merrill
Lynch & Co., Inc. (the "Company"), a corporation organized under the laws of the
State of Delaware, the Trust and the Partnership for the registration under the
Securities Act of 1933, as amended (the "Act"), of Trust Preferred Securities
(the "Trust Preferred Securities") of the Trust, Partnership Preferred
Securities (the "Partnership Preferred Securities") of the Partnership,
guarantees of the Company relating thereto and certain other securities.
The Trust Preferred Securities are to be issued pursuant to an Amended
and Restated Declaration of Trust of the Trust (the "Declaration"), among the
Company, as sponsor of the Trust, Chase Manhattan Bank Delaware, as Delaware
trustee (the "Delaware Trustee"), The Chase Manhattan Bank, as property trustee
(the "Property Trustee"), and Theresa Lang and Stanley Schaefer, as regular
trustees (the "Regular Trustees"). The Partnership Preferred Securities will
be issued pursuant to an Amended
<PAGE>
Merrill Lynch Capital Trust V
Merrill Lynch & Co., Inc.
July 28,1998
Page 2
and Restated Agreement of Limited Partnership of the Partnership (the "Limited
Partnership Agreement") between the Company, as the general partner (in such
capacity, the "General Partner"), and Merrill Lynch Group, Inc., a Delaware
corporation, as the initial limited partner.
This opinion is being delivered in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Act. Capitalized terms used but not
otherwise defined herein have the meanings ascribed to them in the Registration
Statement.
In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of (i) the
Registration Statement on Form S-3 filed by the Company, the Partnership and
the Trust with the Securities and Exchange Commission (the "Commission") on July
28, 1998 under the Act (the "Registration Statement"); (ii) the Certificate of
Trust of the Trust filed with the Secretary of State of the State of Delaware on
January 8, 1998; (iii) the form of the Declaration (including the designation of
the terms of the Trust Preferred Securities annexed thereto); (iv) the form of
the Trust Preferred Securities and specimen certificates thereof; (v) the form
of the Purchase Agreement (the "Purchase Agreement") proposed to be entered
into among the Company, the Partnership, the Trust and the Underwriters to be
named therein (collectively, the "Underwriters") relating to, among other
things, the sale of the Trust Preferred Securities; (vi) the Certificate of
Limited Partnership of the Partnership filed with the Secretary of State of the
State of Delaware on December 19, 1997; (vii) the form of the Limited
Partnership Agreement (including the designation of the terms of the Partnership
Preferred Securities annexed thereto); and (viii) the form of the Partnership
Preferred Securities and specimen certificates thereof. We have also examined
originals or copies, certified or otherwise identified to our satisfaction, of
such other documents, certificates
2
<PAGE>
Merrill Lynch Capital Trust V
Merrill Lynch & Co., Inc.
July 28,1998
Page 3
and records as we have deemed necessary or appropriate as a basis for the
opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies. In making our examination of
documents executed, or to be executed, by parties other than the Partnership
and the Trust, we have assumed that such parties had, or will have, the power,
corporate or other, to enter into and perform all obligations thereunder and
have also assumed that such documents have been or will be duly authorized by
all requisite action, corporate or other, and executed and delivered by such
parties and that such documents constitute or will constitute valid and binding
obligations of such parties. In addition, we have assumed that the Declaration,
the Trust Preferred Securities, the Limited Partnership Agreement and the
Partnership Preferred Securities when executed will be in substantially the
forms reviewed by us. With respect to the opinion set forth in paragraph (2)
below, we have assumed that, except for the exercise of rights and powers
expressly permitted by the Limited Partnership Agreement, the holders of
Partnership Preferred Securities will not participate in the control of the
business of the Partnership. As to any facts material to the opinions expressed
herein which were not independently established or verified, we have relied upon
oral or written statements and representations of officers, trustees and other
representatives of the Company, the Partnership, the Trust and others.
We do not express any opinion as to the laws of any jurisdiction other
than the laws of the State of Delaware.
3
<PAGE>
Merrill Lynch Capital Trust V
Merrill Lynch & Co., Inc.
July 28,1998
Page 4
Based on and subject to the foregoing and to the other qualifications
and limitations set forth herein, we are of the following opinions when (i)
the Registration Statement becomes effective; (ii) the Declaration, the
Limited Partnership Agreement and the Purchase Agreement with respect to the
Trust Preferred Securities and Partnership Preferred Securities have been duly
executed and delivered by the parties thereto; (iii) the terms of the Trust
Preferred Securities being issued have been duly established in accordance with
the Declaration and such Trust Preferred Securities have been duly executed
and authenticated in accordance with the Declaration and delivered to and paid
for by the Underwriters as contemplated by the Purchase Agreement; and (iv) the
terms of the Partnership Preferred Securities being issued have been duly
established in accordance with the Limited Partnership Agreement and the
Partnership Preferred Securities have been duly executed in accordance with
the Limited Partnership Agreement and delivered to and paid for by the Trust as
contemplated by the Purchase Agreement:
1. The Trust Preferred Securities being issued will have been duly
authorized for issuance and will be validly issued, fully paid and
nonassessable, representing undivided beneficial ownership interests in the
assets of the Trust; and the holders of the Trust Preferred Securities will be
entitled to the same limitation of personal liability extended to stockholders
of private corporations for profit organized under the General Corporation Law
of the State of Delaware. We bring to your attention, however, that the holders
of the Trust Preferred Securities may be obligated, pursuant to the Declaration,
to (i) provide indemnity and/or security in connection with and pay taxes or
governmental charges arising from transfers of the Trust Preferred Securities
and (ii) provide security and indemnity in connection with the requests of or
directions to the Property Trust-
4
<PAGE>
Merrill Lynch Capital Trust V
Merrill Lynch & Co., Inc.
July 28,1998
Page 5
ee to exercise its rights and powers under the Declaration.
2. The Partnership Preferred Securities being issued will have been
authorized for issuance and will represent valid partnership interests in the
Partnership, and the holders of the Partnership Preferred Securities, as limited
partners of the Partnership, will not be liable to third parties for the
obligations of the Partnership. We bring to your attention, however, that the
holders of the Partnership Preferred Securities may be obligated, pursuant to
the Limited Partnership Agreement, to (i) provide indemnity and/or security in
connection with and pay taxes or governmental charges arising from transfers of
the Partnership Preferred Securities and the issuance of replacement Partnership
Preferred Securities, and (ii) provide security and indemnity in connection with
requests of or directions to the Special Representative (as defined in the
Limited Partnership Agreement) to exercise its rights and powers under the
Limited Partnership Agreement.
We hereby consent to the use of our name under the heading "Legal
Matters" in the prospectus which forms a part of the Registration Statement. We
also hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement. In giving this consent, we do not
thereby admit that we are within the category of persons whose consent is
required under Section 7 of the Act or the rules and regulations of the
Commission promulgated thereunder. This opinion is expressed as of the date
hereof unless otherwise expressly stated and we disclaim any undertaking to
advise you of any subsequent changes in the facts stated or assumed herein or of
any subsequent changes in applicable law.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher & Flom LLP
5
<PAGE>
Exhibit 5(d)
[Letterhead of Brown & Wood LLP]
July 28, 1998
Merrill Lynch & Co., Inc.
World Financial Center
North Tower
New York, New York 10281
Merrill Lynch Preferred Funding V, L.P. Merrill Lynch Preferred Capital Trust V
World Financial Center World Financial Center
North Tower North Tower
New York, New York 10281 New York, New York 10281
Re: Merrill Lynch Preferred Capital Trust V
Trust Preferred Securities ("TOPrS")
---------------------------------------
Ladies and Gentlemen:
We have acted as tax counsel ("Tax Counsel") to Merrill Lynch & Co.,
Inc., a Delaware corporation (the "Company"), Merrill Lynch Preferred Funding V,
L.P., a limited partnership formed under the Delaware Revised Uniform Limited
Partnership Act, as amended (the "Partnership"), and Merrill Lynch Preferred
Capital Trust V, a statutory business trust formed under the Delaware Business
Trust Act, as amended (the "Trust"), in connection with the preparation and
filing by the Company, the Partnership and the Trust with the Securities and
Exchange Commission (the "Commission") of a Registration Statement on Form S-3
(Registration No. 333-______) (as amended, the "Registration Statement") under
the Securities Act of 1933, as amended, and with respect to: (i) the issuance
and sale of subordinated debentures (the "Company Debentures") by the Company
pursuant to a form of Indenture (the "Company Indenture"), between the Company
and The Chase Manhattan Bank, as trustee (the "Indenture Trustee") in the form
filed as an exhibit to the Registration Statement; (ii) the issuance and sale of
one or more debentures (each of which is guaranteed by the Company pursuant to a
form of Affiliate Debenture Guarantee Agreement in the form filed as an exhibit
to the Registration Statement between such Investment Affiliate and the
Indenture Trustee, each a "Guaranteed Investment Affiliate Debenture",
collectively "Investment Affiliate Debentures") by one or more eligible
controlled affiliates of the Company (each an "Investment Affiliate"), pursuant
to forms of Indenture (each an "Investment Affiliate Indenture"), (the Company
Subordinated Debenture and Investment Affiliate Debentures are collectively
referred to hereinafter as the "Debentures" and the forms of the Company
Indenture and the Investment Affiliate Indentures are collectively referred to
hereinafter as the "Indentures"); (iii) the issuance and sale of Partnership
Preferred Securities by Partnership to the Trust pursuant to the Amended and
Restated Agreement of Limited Partnership (the "Partnership Agreement") in the
form filed as an exhibit to the Registration Statement; and (iv) the issuance
and sale of Trust Preferred
<PAGE>
Securities and Trust Common Securities (collectively, "Trust Securities")
pursuant to the Trust's Amended and Restated Declaration of Trust (the
"Declaration") in the form filed as an exhibit to the Registration Statement.
The Trust Preferred Securities will be offered for sale to investors pursuant to
the Prospectus contained in the Registration Statement.
All capitalized terms used in this opinion letter and not otherwise
defined herein shall have the meaning ascribed to such terms in the Registration
Statement.
In delivering this opinion letter, we have reviewed and relied upon:
(i) the Registration Statement; (ii) forms of the Indentures; (iii) forms of the
Debentures; (iv) the form of the Partnership Agreement; (v) the form of the
Declaration; (vi) the forms of (A) the Partnership Guarantee Agreement, (B) the
Trust Preferred Securities Guarantee Agreement, (C) the Trust Common Securities
Guarantee Agreement and (D) the Affiliate Debenture Guarantee Agreement, each
filed as exhibits to the Registration Statement; and (vii) the forms of (A) the
Partnership Preferred Securities and (B) the Trust Securities, each filed as
exhibits to the Registration Statement. In addition, we have examined, and
relied as to matters of fact upon, certain certificates and comparable documents
of Company and certain eligible controlled affiliates of Company, from which the
Company will select Investment Affiliates. Further, we have relied upon certain
other statements and representations made by officers of the Company. We also
have examined and relied upon original or copies, certified or otherwise
identified to our satisfaction, of such records of the Company, the Partnership
and the Trust and such other documents, certificates and records as we have
deemed necessary or appropriate as a basis for the opinions set forth herein.
In our examination of such material, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals and the conformity to original documents of all copies of documents
submitted to us. In addition, we also have assumed (i) that the transactions
related to the issuance of the Debentures, Partnership Preferred Securities and
Trust Securities will be consummated in accordance with the terms of the
documents and forms of documents described herein and (ii) on the closing date,
an Independent Financial Advisor will deliver the opinion required under Section
7.1(b) of the Partnership Agreement.
On the basis of the foregoing and assuming that Partnership and Trust
were formed and will be maintained in compliance with the terms of the
Partnership Agreement and the Declaration, respectively, we hereby confirm (i)
our opinions set forth in the Prospectus contained in the Registration Statement
under the caption "Certain Federal Income Tax Considerations" and (ii) that,
subject to the qualifications set forth therein, the discussion set forth in the
Registration Statement under such caption is an accurate summary of the United
States federal income tax matters described therein.
We express no opinion with respect to the transactions referred to
herein or in the Registration Statement other than as expressly set forth
herein. Moreover, we note that there is no authority directly on point dealing
with securities such as the Trust Preferred Securities or transactions of the
type described herein and that our opinions are not binding on the Internal
Revenue Service ("IRS") or the courts, either of which could take a contrary
position.
2
<PAGE>
Nevertheless, we believe that if challenged, the opinions we express herein
would be sustained by a court with jurisdiction in a properly presented case.
Our opinions are based upon the Code, the Treasury regulations
promulgated thereunder and other relevant authorities and law, all as in effect
on the date hereof. Consequently, future changes in the law may cause the tax
treatment of the transactions referred to herein to be materially different from
that described above.
The opinions we express herein are limited solely to matters governed
by the federal law of the United States.
We hereby consent to the use of this opinion for filing as Exhibit
5(d) to the Registration Statement and the use of our name in the Registration
Statement under the captions "Certain Federal Income Tax Considerations" and
"Legal Matters".
Very truly yours,
/s/ Brown & Wood LLP
3
<PAGE>
Exhibit 15
July 28, 1998
Merrill Lynch & Co., Inc.
World Financial Center
North Tower, 31st Floor
New York, NY 10281
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim consolidated
financial information of Merrill Lynch & Co., Inc. and subsidiaries as of March
27, 1998, and for the three-month periods ended March 27, 1998 and March 28,
1997 as indicated in our report dated May 8, 1998; because we did not perform an
audit, we expressed no opinion on that information.
We are aware that such report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended March 27, 1998, is
incorporated by reference in this Registration Statement.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
/s/ Deloitte & Touche LLP
<PAGE>
Exhibit 23(b)
INDEPENDENT AUDITORS' CONSENT
- -----------------------------
We consent to the incorporation by reference in this Registration Statement of
Merrill Lynch & Co., Inc. and subsidiaries (the "Company") on Form S-3 of our
reports dated February 23, 1998, appearing in the Annual Report on Form 10-K of
the Company for the year ended December 26, 1997 and to the reference to us
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement. We also consent to the inclusion as Exhibit 99(a) to
this Registration Statement of our report dated February 23, 1998, relating to
information under the captions "Ratio of Earnings to Fixed Charges" and "Ratio
of Earnings to Combined Fixed Charges and Preferred Stock Dividends" for each of
the five years in the period ended December 26, 1997 appearing in the prospectus
relating to Debt Securities, Warrants, Preferred Stock, Depositary Shares and
Common Stock, and information under the caption "Ratio of Earnings to Fixed
Charges" for each of the five years in the period ended December 26, 1997
appearing in the prospectuses relating to STRYPES and Trust Preferred
Securities, which are a part of this Registration Statement. We also consent to
the inclusion as Exhibit 99(b) to this Registration Statement of our report
dated February 23, 1998 relating to the Selected Financial Data under the
captions "Operating Results", "Financial Position" and "Common Share Data"
appearing in the Company's 1997 Annual Report on Form 10-K. We also consent to
the inclusion in this Registration Statement of our reports dated January 23,
1998 relating to the audits of the balance sheets of Merrill Lynch Preferred
Funding V, L.P. and Merrill Lynch Preferred Capital Trust V, appearing in the
prospectus relating to Trust Preferred Securities, which is included in this
Registration Statement.
/s/ Deloitte & Touche LLP
New York, New York
July 28, 1998
<PAGE>
EXHIBIT 25(a)
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_________________________
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
___________________________________________
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________
________________________________________
THE CHASE MANHATTAN BANK
(Exact name of trustee as specified in its charter)
NEW YORK 13-4994650
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
270 PARK AVENUE
NEW YORK, NEW YORK 10017
(Address of principal executive offices) (Zip Code)
William H. McDavid
General Counsel
270 Park Avenue
New York, New York 10017
Tel: (212) 270-2611
(Name, address and telephone number of agent for service)
_____________________________________________
MERRILL LYNCH & CO., INC.
(Exact name of obligor as specified in its charter)
DELAWARE 13-7140866
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
WORLD FINANCIAL CENTER, NORTH TOWER
NEW YORK, NEW YORK 10281-1334
(Address of principal executive offices) (Zip Code)
---------------------------------
DEBT SECURITIES
(Title of the indenture securities)
-----------------------------------------------
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
New York State Banking Department, Suite 2310, 5 Empire State Plaza,
Albany,
New York 12223. Board of Governors of the Federal Reserve System
20th and C
Street NW, Washington, D.C., 20551 Federal Reserve Bank of New York,
District No. 2, 33 Liberty Street, New York, N.Y. 10045.
Federal Deposit Insurance Corporation, 550 Seventeenth Street NW
Washington, D.C., 20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
- 2 -
<PAGE>
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of Eligibility.
1. A copy of the Articles of Association of the Trustee as now in effect,
including the Organization Certificate and the Certificates of Amendment dated
February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982,
February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1
filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996,
in connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank).
3. None, authorization to exercise corporate trust powers being contained
in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to Form
T-1 filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act (see
Exhibit 6 to Form T-1 filed in connection with Registration Statement No. 33-
50010, which is incorporated by reference. On July 14, 1996, in connection with
the merger of Chemical Bank and The Chase Manhattan Bank (National Association),
Chemical Bank, the surviving corporation, was renamed The Chase Manhattan Bank).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York, on the 15TH day of JULY, 1998.
THE CHASE MANHATTAN BANK
By /s/ Andrew M. Deck
--------------------------
Andrew M. Deck
Vice President
- 3 -
<PAGE>
Exhibit 7 to Form T-1
Bank Call Notice
RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF
The Chase Manhattan Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,
at the close of business March 31, 1998, in
accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
DOLLAR AMOUNTS
ASSETS IN MILLIONS
Noninterest-bearing balances and
currency and coin........................................... $ 12,037
Interest-bearing balances................................... 4,054
Securities:
Held to maturity securities................................... 2,340
Available for sale securities................................. 50,134
Federal funds sold and securities purchased under
agreements to resell........................................ 24,982
Loans and lease financing receivables:
Loans and leases, net of unearned income.......... $127,958
Less: Allowance for loan and lease losses......... 2,797
Less: Allocated transfer risk reserve............. 0
--------
Loans and leases, net of unearned income,
allowance, and reserve...................................... 125,161
Trading Assets................................................ 61,820
Premises and fixed assets (including capitalized
leases)..................................................... 2,961
Other real estate owned....................................... 347
Investments in unconsolidated subsidiaries and
associated companies........................................ 242
Customers' liability to this bank on acceptances
outstanding................................................. 1,380
Intangible assets............................................. 1,549
Other assets.................................................. 11,727
--------
TOTAL ASSETS.................................................. $298,734
========
- 4 -
<PAGE>
LIABILITIES
Deposits
In domestic offices........................................... $ 96,682
Noninterest-bearing....................................$38,074
Interest-bearing........................................58,608
------
In foreign offices, Edge and Agreement,
subsidiaries and IBF's........................................ 72,630
Noninterest-bearing....................................$ 3,289
Interest-bearing....................................... 69,341
------
Federal funds purchased and securities sold under
agreements to repurchase........................................ 42,735
Demand notes issued to the U.S. Treasury........................ 872
Trading liabilities............................................. 45,545
Other borrowed money (includes mortgage indebtedness
and obligations under capitalized leases):
With a remaining maturity of one year or less................. 4,454
With a remaining maturity of more than one year .
through three years...................................... 231
With a remaining maturity of more than three
years.................................................... 106
Bank's liability on acceptances executed and outstanding........ 1,380
Subordinated notes and debentures............................... 5,708
Other liabilities............................................... 11,295
TOTAL LIABILITIES............................................... 281,638
-------
EQUITY CAPITAL
Perpetual preferred stock and related surplus................... 0
Common stock.................................................... 1,211
Surplus (exclude all surplus related to preferred stock)....... 10,291
Undivided profits and capital reserves.......................... 5,579
Net unrealized holding gains (losses)
on available-for-sale securities................................ (1)
Cumulative foreign currency translation adjustments............. 16
TOTAL EQUITY CAPITAL............................................ 17,096
--------
TOTAL LIABILITIES AND EQUITY CAPITAL............................ $298,734
========
I, Joseph L. Sclafani, E.V.P. & Controller of the above-named
bank, do hereby declare that this Report of Condition has
been prepared in conformance with the instructions issued
by the appropriate Federal regulatory authority and is true
to the best of my knowledge and belief.
JOSEPH L. SCLAFANI
We, the undersigned directors, attest to the correctness
of this Report of Condition and declare that it has been
examined by us, and to the best of our knowledge and
belief has been prepared in conformance with the in-
structions issued by the appropriate Federal regulatory
authority and is true and correct.
WALTER V. SHIPLEY )
THOMAS G. LABRECQUE ) DIRECTORS
WILLIAM B. HARRISON, JR.)
-5-
<PAGE>
EXHIBIT 25(b)
___________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_________________________
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
___________________________________________
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________
________________________________________
THE CHASE MANHATTAN BANK
(Exact name of trustee as specified in its charter)
NEW YORK 13-4994650
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
270 PARK AVENUE
NEW YORK, NEW YORK 10017
(Address of principal executive offices) (Zip Code)
William H. McDavid
General Counsel
270 Park Avenue
New York, New York 10017
Tel: (212) 270-2611
(Name, address and telephone number of agent for service)
_____________________________________________
MERRILL LYNCH PREFERRED CAPITAL TRUST V
(Exact name of obligor as specified in its charter)
DELAWARE 13-7149866
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
WORLD FINANCIAL CENTER, NORTH TOWER
NEW YORK, NEW YORK 10281-1334
(Address of principal executive offices) (Zip Code)
----------------------------------------------
TRUST ORIGINATED PREFERRED SECURITIES
(Title of the indenture securities)
------------------------------------------------------
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
New York State Banking Department, Suite 2310, 5 Empire State Plaza,
Albany, New York 12223. Board of Governors of the Federal Reserve System
20th and C Street NW, Washington, D.C., 20551 Federal Reserve Bank of
New York, District No. 2, 33 Liberty Street, New York, N.Y. 10045.
Federal Deposit Insurance Corporation, 550 Seventeenth Street NW
Washington, D.C., 20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
- 2 -
<PAGE>
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of
Eligibility.
1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of Amendment
dated February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982,
February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1
filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996, in
connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank).
3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to Form
T-1 filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and The Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York, on the 15TH day of JULY, 1998.
THE CHASE MANHATTAN BANK
By
---------------------
ANDREW M. DECK
VICE PRESIDENT
- 3 -
<PAGE>
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of
Eligibility.
1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of Amendment
dated February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982,
February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1
filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996,
in connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank).
3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and The Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York, on the 15TH day of JULY, 1998.
THE CHASE MANHATTAN BANK
By /S/ ANDREW M. DECK
----------------------
ANDREW M. DECK
Vice President
- 4 -
<PAGE>
Exhibit 99(a)
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Board of Directors and Stockholders of
Merrill Lynch & Co., Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of Merrill Lynch & Co., Inc. and subsidiaries
(the "Company") as of December 26, 1997 and December 27, 1996 and for each of
the three years in the period ended December 26, 1997 and have issued our report
thereon dated February 23, 1998. Such consolidated financial statements and our
report thereon are included in the Company's 1997 Annual Report on Form 10-K,
which is incorporated herein by reference.
We have also previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheets of the Company as of December 29,
1995, December 30, 1994 and December 31, 1993 and the related statements of
consolidated earnings, changes in consolidated stockholders' equity and
consolidated cash flows for each of the two years ended December 30, 1994 (none
of which are presented or incorporated by reference herein); and we expressed
unqualified opinions on those consolidated financial statements. In our opinion,
the information set forth in the table under the captions "Ratio of Earnings to
Fixed Charges" and "Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends" for each of the five years in the period ended December 26,
1997 appearing on page 4 of the prospectus relating to Debt Securities,
Warrants, Preferred Stock, Depositary Shares and Common Stock, which is a part
of this Registration Statement of the Company on Form S-3, is fairly stated in
all material respects in relation to the consolidated financial statements from
which it has been derived. In our opinion, the information set forth in the
table under the caption "Ratio of Earnings to Fixed Charges" for each of the
five years in the period ended December 26, 1997 appearing on page 4 of the
prospectus relating to STRYPES and on page 17 of the prospectus relating to
Trust Preferred Securities, both of which are a part of this Registration
Statement of the Company on Form S-3, is fairly stated in all material respects
in relation to the consolidated financial statements from which it has been
derived.
/s/ Deloitte & Touche LLP
February 23, 1998
<PAGE>
Exhibit 99(b)
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Board of Directors and Stockholders of
Merrill Lynch & Co., Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of Merrill Lynch & Co., Inc. and subsidiaries
(the "Company") as of December 26, 1997, and December 27, 1996, and for each of
the three years in the period ended December 26, 1997, and have issued our
report thereon dated February 23, 1998. Such consolidated financial statements
and our report thereon are included in the Company's 1997 Annual Report on Form
10-K, which is incorporated herein by reference.
We have also previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheets of the Company as of December 29,
1995, December 30, 1994, and December 31, 1993 and the related consolidated
statements of earnings, changes in stockholders' equity and cash flows for each
of the two years in the period ended December 30, 1994 (none of which are
presented or incorporated by reference herein); and we expressed unqualified
opinions on those consolidated financial statements. In our opinion, the
information set forth in the Selected Financial Data under the captions
"Operating Results", "Financial Position" and "Common Share Data", included in
the Company's 1997 Annual Report on Form 10-K, is fairly stated in all material
respects in relation to the consolidated financial statements from which it has
been derived.
/s/ Deloitte & Touche LLP
February 23, 1998
