<PAGE>
RULE NO. 424(b)(5)
REGISTRATION NO. 333-44173
PRICING SUPPLEMENT
(TO PROSPECTUS SUPPLEMENT DATED MARCH 12, 1998 AND PROSPECTUS DATED JANUARY
29, 1998)
$41,023,936.80
MERRILL LYNCH & CO., INC.
MEDIUM-TERM NOTES, SERIES B
3% STOCK LINKED NOTES DUE JUNE 9, 2000
(LINKED TO THE PERFORMANCE OF HONDA MOTOR CO., LTD. COMMON STOCK)
Aggregate Principal Amount: $41,023,936.80
Initial Public Offering Price: $1,016.40 per Note, plus accrued interest, if
any, from June 10, 1998
Interest Rate: 3%
Interest Payment Dates: June 9 and December 9 of each year, commencing
December 9, 1998
Stated Maturity Date: June 9, 2000
Redemption: The Notes are not redeemable prior to maturity.
Other Provisions:
The 3% Stock Linked Notes due June 9, 2000 (the "Notes") are Fixed Rate
Notes as described in the attached Prospectus Supplement dated March 12, 1998
with other provisions as described herein.
The principal amount of each Note being offered hereby will be $1,016.40
(the "Issue Price"), which equals the quotient of (a) the Initial Stock Price
of 30 shares (the "Initial Share Control Amount") of common stock, Yen 50 par
value per share (the "Honda Stock") of Honda Motor Co., Ltd., a company
incorporated under the laws of Japan ("Honda") divided by (b) an exchange rate
of 138.135 Japanese Yen per U.S. Dollar. The Notes will mature on June 9,
2000. Interest on the Notes, at the rate of 3% of the principal amount per
annum, is payable semiannually in arrears on each June 9 and December 9,
commencing December 9, 1998. See "Hypothetical Movements in the Japanese
Yen/U.S. Dollar Exchange Rate" in this Pricing Supplement. The Honda Stock is
quoted in Japanese Yen on the Tokyo Stock Exchange. As of June 4, 1998, the
Market Price of Honda Stock was 4680 Japanese Yen.
At maturity (including as a result of acceleration or otherwise), the
Company will, with respect to the principal amount of each Note, deliver
either (i) an amount in U.S. Dollars equal to the product of the principal
amount thereof and the Stock Percentage Change (the "Cash Amount") or (ii) if
the holder so elects, the Equivalent Share Amount of Honda ADRs (see "Right to
Receive the Equivalent Share Amount" in this Pricing Supplement). The Stock
Percentage Change is a fraction, the numerator of which will be the Final
Stock Price and the denominator of which will be the Initial Stock Price. The
Initial Stock Price is 4680 Japanese Yen, the Market Price of Honda Stock on
the Pricing Date. The Final Stock Price will equal the Market Price of Honda
Stock on the Determination Date, which will be June 1, 2000, subject to
certain market disruption events. See "Amount Payable at Maturity" and
"Dilution and Reorganization Adjustments" in this Pricing Supplement.
The Notes will be issued and sold in denominations of $1,016.40, and
integral multiples thereof.
The Notes have been approved for listing on the American Stock Exchange
("AMEX") under the symbol "HML". It is not possible to predict whether the
Notes will trade in the secondary market or if such market will be liquid or
illiquid.
AS A RESULT OF THE FORMULA FOR DETERMINING THE AMOUNT PAYABLE AT THE
MATURITY OF THE NOTES, A HOLDER MAY RECEIVE AT MATURITY MORE OR LESS THAN THE
ISSUE PRICE PER NOTE. IF THE FINAL STOCK PRICE IS LESS THAN THE INITIAL STOCK
PRICE, THE AMOUNT PAYABLE AT MATURITY OF THE NOTES WILL BE LESS THAN THE ISSUE
PRICE PER NOTE, IN WHICH CASE AN INVESTMENT IN THE NOTES WILL RESULT IN A
LOSS. IN ADDITION, AN INVESTMENT IN THE NOTES ENTAILS RISKS NOT ASSOCIATED
WITH SIMILAR INVESTMENTS IN A CONVENTIONAL DEBT SECURITY.
BEFORE YOU DECIDE TO INVEST IN THE NOTES, CAREFULLY READ THIS PRICING
SUPPLEMENT, THE PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, ESPECIALLY THE RISK
FACTORS BEGINNING ON PAGE PS-5 OF THIS PRICING SUPPLEMENT.
---------------
It is expected that the Notes will be ready for delivery in book-entry form
only through the facilities of DTC on or about June 10, 1998.
---------------
MERRILL LYNCH & CO.
---------------
The date of this Pricing Supplement is June 4, 1998.
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Capitalized terms not defined herein have the meanings given to such terms in
the accompanying Prospectus Supplement.
<TABLE>
<S> <C>
Aggregate Principal Amount.... $41,023,936.80
Issuer........................ Merrill Lynch & Co., Inc. (the "Company")
Maturity Date................. June 9, 2000
Interest Rate................. 3% per annum.
Interest Payment Dates........ June 9 and December 9, commencing December 9, 1998
Specified Currency............ U.S. Dollars
Issue Price................... $1,016.40 per Note, which equals:
Initial Stock Price X Initial Share Control Amount
--------------------------------------------------
Initial FX Rate
Pricing Date.................. June 4, 1998
Original Issue Date
(Settlement Date)............. June 10, 1998
CUSIP......................... 59018S J62
Book-Entry Note or
Certificated Note............. Book-Entry
The Notes will be issued and sold in
Denominations................. denominations of $1,016.40, and integral
multiples thereof.
Trustee....................... The Chase Manhattan Bank
Agent......................... Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S")
Amount Payable at Maturity.... At maturity (including as a result of
acceleration or otherwise), the Company will,
with respect to the principal amount of each
Note, upon delivery of such Note to the
Trustee, deliver either (i) an amount in U.S.
Dollars equal to the product of the principal
amount thereof and the Stock Percentage Change
(the "Cash Amount") or (ii) if the holder so
elects, the Equivalent Share Amount. See "Right
to Receive the Equivalent Share Amount." The
Company shall, or shall cause the Calculation
Agent to, deliver U.S. Dollars (or Honda ADRs,
if any holder of the Notes exercises the Right
to Receive the Equivalent Share Amount) to the
Trustee for delivery to the holders. References
to payment "per Note" refer to each $1,016.40
principal amount of any Note.
Stock Percentage Change....... The Stock Percentage Change will be:
Final Stock Price
-------------------
Initial Stock Price
Initial Stock Price........... 4680 Japanese Yen, the Market Price of one
share of Honda Stock on the Pricing Date, as
determined by the Calculation Agent.
Final Stock Price............. The product of the Market Price of one share of
Honda Stock and the Share Ratio, each as
determined on the Determination Date by the
Calculation Agent.
</TABLE>
PS-2
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Determination Date............ Sixth Trading Day before the Maturity Date or
if there is a Market Disruption Event on such
day, the Determination Date will be the
immediately succeeding Trading Day during which
no Market Disruption Event shall have occurred;
"provided" that the Determination Date will be no
later than the second scheduled Trading Day
preceding the Maturity Date, notwithstanding
the occurrence of a Market Disruption Event on
such second scheduled Trading Day.
Initial Share Control
Amount........................ 30
Initial FX Rate............... 138.135 Japanese Yen per U.S. $1.00, the
Japanese Yen/U.S. dollar exchange rate as of
3:00 p.m. (Tokyo time) on the Pricing Date as
determined by reference to Reuters Screen
TKYFX, as determined by the Calculation Agent.
Share Ratio................... The Share Ratio will initially be set at 1.0,
but will be subject to adjustment upon the
occurrence of certain corporate events through
and including the Determination Date. See
"Dilution and Reorganization Adjustments"
below.
Right to Receive the
Equivalent Share Amount...... On or prior to the fifteenth Business Day prior
to the Maturity Date, holders of Notes will be
entitled, upon completion by the holder and
delivery to the Company and the Calculation
Agent of an Official Notice of Exercise of
Right to Receive Equivalent Share Amount prior
to 11:00 a.m., New York City time on such date,
to elect to receive the Equivalent Share Amount
at maturity, in lieu of the Cash Amount, unless
it is not reasonably practicable at such time,
in the opinion of the Calculation Agent, to
obtain such Equivalent Share Amount for all
Notes with respect to which holders have
elected to receive the Equivalent Share Amount
at maturity, in which case the Cash Amount will
be paid. Because the Notes will be issued as
Book-Entry Notes, an Official Notice of
Exercise of Right to Receive Equivalent Share
Amount may only be submitted by the Depository.
Therefore, beneficial owners of Notes must rely
upon 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 submit such
Official Notice. See "Description of Notes--
Book-Entry Notes" in the accompanying
Prospectus Supplement.
Equivalent Share Amount....... The Equivalent Share Amount for any Note means
an amount of American Depositary Shares, as
determined by the Calculation Agent,
representing Honda Stock ("Honda ADRs")
equivalent to the Cash Amount otherwise payable
on such Note determined as follows. The number
of Honda ADRs resulting from the conversion
into Honda ADRs (at the then current ratio of
Honda Stock to Honda ADRs) will be a number of
shares of Honda Stock having an aggregate
Market Price on the Determination Date equal to
the Cash Amount multiplied by the Final FX
Rate; provided that the Cash Amount shall be
reduced by the cost of converting such Honda
Stock into Honda ADRs assessed by Morgan
Guaranty Trust Company of New York, as
Depositary for such Honda ADRs (together with
any successor depositary, the "Honda ADR
Depositary") (currently estimated to be $0.05
per Honda ADR, or $0.75 per Note, subject to
any adjustment of the
PS-3
<PAGE>
Share Ratio) and by any tax or other
governmental charge levied in connection with
such conversion; and "provided further" that the
Company will pay cash in lieu of delivering
fractional Honda ADRs, in an amount as
determined by the Calculation Agent. The
Equivalent Share Amount will be delivered to
the holder on the later of (i) the Maturity
Date and (ii) the first Business Day when Honda
ADRs are available with respect to shares of
Honda Stock submitted to the Honda ADR
Depositary for conversion into Honda ADRs on
the Business Day immediately succeeding the
Determination Date. In the event of certain
Market Disruption Events, the delivery of such
Honda ADRs may be delayed until after the
Maturity Date.
Final FX Rate................. The Japanese Yen/U.S. dollar exchange rate as
of 3:00 p.m. (Tokyo time) on the Determination
Date as determined by reference to Reuters
Screen TKYFX, as determined by the Calculation
Agent on the Determination Date.
Market Price.................. The Market Price for any security for any date
means the official closing price (afternoon
session, as applicable) of such security as
reported by the principal exchange on which
such security is traded on such date. If the
official closing price is not available for any
reason (including, without limitation, the
occurrence of a Market Disruption Event), the
Market Price for such security for any date
shall be the mean, as determined by the
Calculation Agent, of the bid prices for such
security obtained from as many dealers in such
security, but not exceeding three, as will make
such bid prices available to the Calculation
Agent after 3:00 p.m. (local time in such
principal market) on such date.
Trading Day................... A day on which trading is generally conducted
on the Tokyo Stock Exchange ("TSE"), and in the
over-the-counter market for equity securities
in the United States and Japan, as determined
by the Calculation Agent.
Business Day.................. 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 or regulation to close in The City of
New York or in Tokyo.
Calculation Agent............. MLPF&S
For potential conflicts of interest that may
exist between the Calculation Agent and the
holders of the Notes, see "Risk Factors" below.
All determinations made by the Calculation
Agent shall be at the sole discretion of the
Calculation Agent and, absent a 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.
PS-4
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RISK FACTORS
Your investment in the Notes will involve certain risks. As a result of the
formula for determining the amount payable at the maturity of the Notes, you
may receive at maturity more or less than the Issue Price per Note. If the
Final Stock Price is less than the Initial Stock Price, the amount payable at
maturity of the Notes will be less than the Issue Price per Note, in which
case an investment in the Notes will result in a loss. In addition, an
investment in the Notes entails risks not associated with similar investments
in a conventional debt security. You should carefully consider the following
discussion of risks before deciding whether an investment in the Notes is
suitable for you.
GENERAL
The Notes combine features of equity and debt instruments. For example,
holders of Notes, unlike holders of Honda Stock, will not be entitled to
receive dividends, if any, that may be payable on Honda Stock. In addition,
the terms of the Notes differ from those of ordinary debt securities in that
the amount due at maturity is not fixed, but is based on the price of the
Honda Stock at maturity. Because the price of the Honda Stock is subject to
market fluctuations, the amount of cash or the value of the Honda ADRs
received by a holder of Notes at maturity, determined as described herein, may
be more or less than the principal amount of the Notes. If the Final Stock
Price is less than the Initial Stock Price, the amount of cash or the value of
the Honda ADRs receivable upon exchange will be less than the principal amount
of the Notes, in which case an investment in the Notes may result in a loss.
Although the amount that holders of the Notes are entitled to receive at
maturity is subject to adjustment for certain corporate events, such
adjustments do not cover all events that could affect the Market Price of the
Honda Stock, including, without limitation, the occurrence of a partial tender
or exchange offer for the Honda Stock by Honda or any third party. Such other
events may adversely affect the market value of the Notes or any Honda ADRs
allocated on the Determination Date (but not received by the holder until
maturity) pursuant to such holder's election to receive the Equivalent Share
Amount.
COMPARABLE YIELD ON NOTES
The amount holders of Notes receive at maturity may, in addition to the
payments of the fixed interest, be less than the return they could earn on
other investments. The yield on the Notes may be less than the yield that
could be earned on a standard senior callable debt security of the Company
with the same maturity date. An investment in the Notes may not reflect the
full opportunity cost considering the effect of factors that affect the time
value of money.
RETURN ON THE NOTES WILL NOT REFLECT THE PAYMENT OF DIVIDENDS.
The calculation of the Initial Stock Price and the Final Stock Price does
not take into consideration the value of dividends paid on the Honda Stock.
Therefore, the return earned on the Notes, if any, will not be the same as the
return that could be earned by owning the Honda Common Stock and receiving the
dividends paid on that stock.
UNCERTAIN TRADING MARKET
The Notes have been approved for listing on the AMEX. There is no precedent
to indicate how the Notes will trade in the secondary market. You cannot
assume that a trading market will develop for the Notes. 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 Notes will
depend on the financial performance of the Company, and other factors such as
the appreciation, if any, of the price of the Honda Stock.
If the trading market for the Notes is limited, there may be a limited
number of buyers when you decide to sell your Notes if you do not wish to hold
your investment until maturity. This may affect the price you receive.
PS-5
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FACTORS AFFECTING TRADING VALUE OF THE NOTES
The market value for the Notes will be affected by a number of factors in
addition to the creditworthiness of the Company and the value of Honda Stock,
including, but not limited to the dividend rate on Honda Stock, market
interest and yield rates and the time remaining to the maturity of the Notes.
In addition, the value of Honda Stock depends on a number of interrelated
factors, including economic, financial and political events, that can affect
the capital markets generally and the market segment of which Honda is a part
and over which the Company has no control. The market value of the Notes is
expected to depend primarily on changes in the Market Price of Honda Stock.
The price at which a holder 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, such Market Price is below, equal to or not
sufficiently above the Initial Stock Price. The historical Market Prices of
Honda Stock should not be taken as an indication of Honda Stock's future
performance during the term of any Note.
NO AFFILIATION BETWEEN THE COMPANY AND HONDA
The Company has no affiliation with Honda, and Honda has no obligations with
respect to the Notes 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 Notes into consideration for any reason. Honda will not receive
any of the proceeds of the offering of the Notes 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 Notes at maturity. In
addition, Honda is not involved with the administration or trading of the
Notes and has no obligations with respect to the amount receivable by
beneficial owners of the Notes.
NO STOCKHOLDER'S RIGHTS
Holders of the Notes will not be entitled to any rights with respect to the
Honda Stock (including, without limitation, the right to receive dividends or
other distributions, voting rights and the right to tender or exchange Honda
Stock in any partial tender or exchange offer by Honda or any third party).
PURCHASES AND SALES OF HONDA STOCK
The Company has entered into hedging arrangements related to the Honda Stock
with an affiliate of the Company, in connection with the Company's obligations
under the Notes. In connection therewith, such affiliate has purchased shares
of Honda Stock in secondary market transactions at or before the time of the
pricing of the Notes. The Company, MLPF&S and other affiliates of the Company
may from time to time buy or sell the Honda Stock and Honda ADRs for their own
accounts for business reasons or in connection with hedging the Company's
obligations under the Notes. These transactions could affect the price of the
Honda Stock.
STATE LAW LIMITS ON INTEREST PAID
New York State laws govern the 1993 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 Notes.
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 the Company believes 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. The Company will promise, for the benefit of the Noteholders,
to the extent permitted by law, not to voluntarily claim the benefits of any
laws concerning usurious rates of interest.
POTENTIAL CONFLICTS
Because the Calculation Agent is an affiliate of the Company, potential
conflicts of interest may exist between the Calculation Agent and the holders
of the Notes, including with respect to certain adjustments to the Share Ratio
and other antidilution adjustments that may influence the determination of the
amount of cash receivable at the maturity of the Notes. See "Dilution and
Reorganization Adjustments" and "Market Disruption Event."
UNCERTAIN TAX CONSEQUENCES
Investors should also consider the tax consequences of investing in the
Notes, certain aspects of which are uncertain. See "United States Federal
Income Taxation" below.
PS-6
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DILUTION AND REORGANIZATION ADJUSTMENTS
The Share Ratio (and, in the case of paragraph 5 below, the determination of
the Cash Amount) will be adjusted as follows:
1. If Honda Stock is subject to a stock split or reverse stock split,
then once such split has become effective, the Share Ratio will be adjusted
to equal the product of the prior Share Ratio and the number of shares
issued in such stock split or reverse stock split with respect to one share
of Honda Stock.
2. If Honda Stock is subject (i) to a stock dividend (issuance of
additional shares of Honda Stock) that is given ratably to all holders of
shares of Honda Stock or (ii) to a distribution of Honda Stock as a result
of the triggering of any provision of the corporate charter of Honda by any
shareholder that is not a holder of the Notes, then once the dividend has
become effective and Honda Stock is trading ex-dividend, the Share Ratio
will be adjusted so that the new Share Ratio shall equal the prior Share
Ratio plus the product of (i) the number of shares issued with respect to
one share of Honda Stock and (ii) the prior Share Ratio.
3. There will be no adjustments to the Share Ratio to reflect cash
dividends or other distributions paid with respect to Honda Stock other
than distributions described in clause (v) of paragraph 5 below and
Extraordinary Dividends as described below. A cash dividend or other
distribution with respect to Honda Stock will be deemed to be an
"Extraordinary Dividend" if such dividend or other distribution exceeds the
immediately preceding non-Extraordinary Dividend for Honda Stock by an
amount equal to at least 10% of the Market Price of Honda Stock on the
Trading Day preceding the ex-dividend date for the payment of such
Extraordinary Dividend (the "ex-dividend date"). If an Extraordinary
Dividend occurs with respect to Honda Stock, the Share Ratio with respect
to Honda Stock will be adjusted on the ex-dividend date with respect to
such Extraordinary Dividend so that the new Share Ratio will equal the
product of (i) the then current Share Ratio and (ii) a fraction, the
numerator of which is the Market Price on the Trading Day preceding the ex-
dividend date, and the denominator of which is the amount by which the
Market Price on the Trading Day preceding the ex-dividend date exceeds the
Extraordinary Dividend Amount. The "Extraordinary Dividend Amount" with
respect to an Extraordinary Dividend for Honda Stock will equal (i) in the
case of cash dividends or other distributions that constitute quarterly
dividends, the amount per share of such Extraordinary Dividend minus the
amount per share of the immediately preceding non-Extraordinary Dividend
for Honda Stock or (ii) in the case of cash dividends or other
distributions that do not constitute quarterly dividends, the amount per
share of such Extraordinary Dividend. To the extent an Extraordinary
Dividend is not paid in cash, the value of the non-cash component will be
determined by the Calculation Agent, whose determination shall be
conclusive. A distribution on the Honda Stock described in clause (v) of
paragraph 5 below that also constitutes an Extraordinary Dividend shall
cause an adjustment to the Share Ratio pursuant only to clause (v) of
paragraph 5.
4. If Honda issues rights or warrants to all holders of Honda Stock to
subscribe for or purchase Honda Stock at an exercise price per share less
than the Market Price of the Honda Stock on (i) the date the exercise price
of such rights or warrants is determined and (ii) the expiration date of
such rights or warrants, and if the expiration date of such rights or
warrants precedes the maturity of the Notes, then the Share Ratio will be
adjusted to equal the product of the prior Share Ratio and a fraction, the
numerator of which shall be the number of shares of Honda Stock outstanding
immediately prior to such issuance plus the number of additional shares of
Honda Stock offered for subscription or purchase pursuant to such rights or
warrants and the denominator of which shall be the number of shares of
Honda Stock outstanding immediately prior to such issuance plus the number
of additional shares of Honda Stock which the aggregate offering price of
the total number of shares of Honda Stock so offered for subscription or
purchase pursuant to such rights or warrants would purchase at the Market
Price on the expiration date of such rights or warrants, which shall be
determined by multiplying such total number of shares offered by the
exercise price of such rights or warrants and dividing the product so
obtained by such Market Price.
5. If (i) there occurs any reclassification or change of Honda Stock,
(ii) Honda, or any surviving entity or subsequent surviving entity of Honda
(a "Honda Successor") has been subject to a merger, combination or
consolidation and is not the surviving entity, (iii) any statutory exchange
of securities of Honda or any
PS-7
<PAGE>
Honda Successor with another corporation occurs (other than pursuant to
clause (ii) above), (iv) Honda is liquidated, (v) Honda issues to all of
its shareholders equity securities of an issuer other than Honda (other
than in a transaction described in clauses (ii), (iii) or (iv) above) (a
"Spin-off Event") or (vi) a tender or exchange offer is consummated for all
the outstanding shares of Honda Stock (any such event in clauses (i)
through (vi) a "Reorganization Event"), the method of determining the
amount payable at maturity for each Note will be adjusted to provide that
each holder of Notes will receive at maturity, in respect of the principal
amount of each Note and in lieu of the Cash Amount, U.S. Dollars in an
amount equal to the Transaction Value (as defined below); provided that, if
the Exchange Property (as defined below) received in any such
Reorganization Event consists only of cash, the maturity date of the Notes
will be deemed to be accelerated to the date on which such cash is
distributed to holders of Honda Stock. "Exchange Property" means the
securities, cash or any other assets distributed in any such Reorganization
Event, including, in the case of a Spin-off Event, the share of Honda Stock
with respect to which the spun-off security was issued. "Transaction Value"
means (i) for any cash received in any such Reorganization Event, the
amount of cash received per share of Honda Stock multiplied by the product
of the Initial Share Control Amount and the then current Share Ratio
divided by the Initial FX Rate, (ii) for any property other than cash or
securities received in any such Reorganization Event, the market value (as
determined by the Calculation Agent) of such Exchange Property received for
each share of Honda Stock at the date of the receipt of such Exchange
Property multiplied by the product of the Initial Share Control Amount and
the then current Share Ratio divided by the Initial FX Rate and (iii) for
any security received in any such Reorganization Event, an amount equal to
the Market Price per share of such security on the Determination Date
multiplied by the quantity of such security received for each share of
Honda Stock multiplied by the product of the Initial Share Control Amount
and the then current Share Ratio divided by the Initial FX Rate.
6. In the event of a general revaluation of the Japanese Yen pursuant to
any governmental action by Japan, the Share Ratio will be adjusted by the
Calculation Agent so that the new Share Ratio will reflect the effect of
such revaluation on the Japanese Yen/U.S. dollar exchange rate. For
example, if Japan were to revalue the Yen by the issuance of a new currency
(the "New Currency") whose value per currency unit against the U.S. dollar
was equivalent to a multiple or fraction of the then prevailing Japanese
Yen/U.S. dollar rate (and the price of Honda Stock was to be quoted in such
New Currency), the Market Price will be determined by reference to the
market price of Honda Stock as quoted in such New Currency and the Share
Ratio will be adjusted by such multiple or fraction so that the U.S. dollar
value of the Notes would remain constant i.e. the Cash Amount, if
determined immediately after such revaluation would be the same as the Cash
Amount as determined immediately prior to such revaluation.
For purposes of paragraph 5 above, in the case of a consummated tender or
exchange offer for all Exchange Property of a particular type, Exchange
Property shall be deemed to include the amount of cash or other property paid
by the offeror in the tender or exchange offer with respect to such Exchange
Property (in an amount determined on the basis of the rate of exchange in such
tender or exchange offer). In the event of a tender or exchange offer with
respect to Exchange Property in which an offeree may elect to receive cash or
other property, Exchange Property shall be deemed to include the kind and
amount of cash and other property received by offerees who elect to receive
cash.
No adjustments to the Share Ratio will be required unless such Share Ratio
adjustment would require a change of at least 0.1% in the Share Ratio then in
effect. The Share Ratio 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 Share Ratio or to the amount payable at maturity of
the Notes will be required other than those specified above. However, the
Company may, at its sole discretion, cause the Calculation Agent to make
additional adjustments to the Share Ratio to reflect changes occurring in
relation to the Honda Stock or any other Exchange Property in other
circumstances where the Company determines that it is appropriate to reflect
such changes. The required adjustments specified above do not cover all events
that could affect the Market Price of the Honda Stock, including, without
limitation, a partial tender or exchange offer for the Honda Stock.
PS-8
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The Calculation Agent shall be solely responsible for the determination and
calculation of any adjustments to the Share Ratio and of any related
determinations and calculations with respect to any distributions of stock,
other securities or other property or assets (including cash) in connection
with any corporate event described in paragraph 5 above, and its
determinations and calculations with respect thereto shall be conclusive.
The Calculation Agent will provide information as to any adjustments to the
Share Ratio upon written request by any holder of the Notes.
MARKET DISRUPTION EVENT
"Market Disruption Event" means:
(i) a suspension, absence (including the absence of an official closing
price) or material limitation of trading of Honda Stock on the TSE for more
than two hours of trading or during the one-half hour period preceding or
at the close of trading in such market; or the suspension or material
limitation on the primary market for trading in options contracts related
to Honda Stock, if available, during the one-half hour period preceding or
at the close of trading in the applicable market, in each case as
determined by the Calculation Agent in its sole discretion; and
(ii) a determination by the Calculation Agent in its sole discretion that
the event described in clause (i) above materially interfered with the
ability of the Company or any of its affiliates to unwind all or a material
portion of the hedge with respect to the Notes or to purchase Honda Stock
for the purpose of delivering the Equivalent Share Amount.
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 option contract will not constitute a
Market Disruption Event, (3) limitations pursuant to any rule or regulation
enacted or promulgated by the TSE (or other regulatory organization in Japan
with jurisdiction over the TSE) on trading during significant market
fluctuations will constitute a suspension or material limitation of trading in
Honda Stock, (4) a suspension of trading in an options contract on Honda Stock
by the primary securities market trading in such options, if available, by
reason of (x) a price change exceeding limits set by such securities exchange
or 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 options contracts related to
Honda Stock and (5) a suspension, absence or material limitation of trading on
the primary securities market on which options contracts related to Honda
Stock are traded will not include any time when such securities market is
itself closed for trading under ordinary circumstances.
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 be determined by the Calculation
Agent and will be equal to the Cash Amount determined as though the
Determination Date were the date of acceleration plus any accrued but unpaid
interest to but not including the date of acceleration. 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.
THE HONDA STOCK
Honda currently manufactures a wide variety of products using internal
combustion engines. These products include motorcycles, automobiles and power
products such as portable generators, small general purpose engines, lawn
mowers and tractors, power tillers, outboard engines and four-wheeled all-
terrain vehicles.
PS-9
<PAGE>
Honda Stock and American Depositary Shares representing Honda Stock are
registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Companies with securities registered under the Exchange Act
are required to file periodically certain financial and other information
specified by the Securities and Exchange Commission (the "Commission").
Information provided to or filed with the Commission 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 or at its Regional Office
located at Suite 1400, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661 and at Seven World Trade Center, 13th Floor, New York, New York
10048, and copies of such material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, information provided to or filed with the
Commission electronically can be accessed through a Website maintained by the
Commission. The address of the Commission's Website is http:/www.sec.gov.
Information provided to or filed with the Commission by Honda pursuant to the
Exchange Act can be located by reference to Commission file number 1-7628. In
addition, information regarding Honda may be obtained from other sources
including, but not limited to, press releases, newspaper articles and other
publicly disseminated documents. The Company makes no representation or
warranty as to the accuracy or completeness of such reports.
THE COMPANY IS NOT AFFILIATED WITH HONDA, AND HONDA HAS NO OBLIGATIONS WITH
RESPECT TO THE NOTES. THIS PRICING SUPPLEMENT RELATES ONLY TO THE NOTES
OFFERED HEREBY AND DOES NOT RELATE TO HONDA STOCK OR OTHER SECURITIES OF
HONDA. ALL DISCLOSURES CONTAINED IN THIS PRICING SUPPLEMENT REGARDING HONDA
ARE DERIVED FROM THE PUBLICLY AVAILABLE DOCUMENTS DESCRIBED IN THE PRECEDING
PARAGRAPH. NEITHER THE COMPANY NOR THE AGENT HAS PARTICIPATED IN THE
PREPARATION OF SUCH DOCUMENTS OR MADE ANY DUE DILIGENCE INQUIRY WITH RESPECT
TO HONDA IN CONNECTION WITH THE OFFERING OF THE NOTES. NEITHER THE COMPANY NOR
THE AGENT MAKES ANY REPRESENTATION THAT SUCH PUBLICLY AVAILABLE DOCUMENTS OR
ANY OTHER PUBLICLY AVAILABLE INFORMATION REGARDING HONDA 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 HONDA STOCK (AND THEREFORE
THE INITIAL STOCK PRICE) HAVE BEEN PUBLICLY DISCLOSED. SUBSEQUENT DISCLOSURE
OF ANY SUCH EVENTS OR THE DISCLOSURE OF OR FAILURE TO DISCLOSE MATERIAL FUTURE
EVENTS CONCERNING HONDA COULD AFFECT THE VALUE RECEIVED AT MATURITY WITH
RESPECT TO THE NOTES AND THEREFORE THE TRADING PRICES OF THE NOTES. NEITHER
THE COMPANY NOR ANY OF ITS AFFILIATES MAKE ANY REPRESENTATION TO ANY PURCHASER
OF NOTES AS TO THE PERFORMANCE OF HONDA STOCK.
The Company or its affiliates may presently or from time to time engage in
business with Honda including extending loans to, or making equity investments
in, Honda or providing investment banking or advisory services to Honda,
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 Honda and, in addition, one or more affiliates of the Company
may publish research reports with respect to Honda. Any prospective purchaser
of a Note should undertake an independent investigation of Honda as in its
judgment is appropriate to make an informed decision with respect to an
investment in the Notes and the Honda Stock.
PS-10
<PAGE>
DATA ON THE HONDA STOCK
The Honda Stock is principally traded on the TSE. The following table sets
forth the high and low Market Price during 1995, 1996, 1997, and during 1998
through June 4, 1998. The Market Price on June 4, 1998 was Yen 4680. The
Market Prices and Dividends Per Share listed below were obtained from
Bloomberg Financial Markets. The historical prices of Honda Stock should not
be taken as an indication of future performance, and no assurance can be given
that the price of Honda Stock will not decrease so that the beneficial owners
of the Notes will receive at maturity cash in an amount that is less than the
principal amount of the Notes. Nor can assurance be given that the price of
Honda Stock will increase above the Initial Stock Price so that at maturity
the beneficial owners of the Notes will receive cash in an amount in excess of
the principal amount of the Notes.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW PER SHARE(/1/)
---- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Honda
(SEDOL #6435145)
1995
First Quarter............................ Yen 1800 Yen 1350 Yen 0
Second Quarter........................... 1420 1150 7
Third Quarter............................ 1750 1300 0
Fourth Quarter........................... 2130 1730 7
1996
First Quarter............................ 2430 2130 0
Second Quarter........................... 2960 2280 7
Third Quarter............................ 2840 2490 0
Fourth Quarter........................... 3470 2670 7
1997
First Quarter............................ 3820 3050 0
Second Quarter........................... 4150 3210 8
Third Quarter............................ 4380 3220 0
Fourth Quarter........................... 4960 4000 9
1998
First Quarter............................ 4900 4300 0
Second Quarter (through June 4, 1998).... 4830 4510 9
</TABLE>
- --------
(/1/) The Company makes no representation as to the amount of dividends, if
any, that Honda will pay in the future. In any event, holders of the Notes
will not be entitled to receive dividends, if any, that may be payable on
Honda Stock.
PS-11
<PAGE>
HYPOTHETICAL MOVEMENTS IN THE JAPANESE YEN/U.S. DOLLAR EXCHANGE RATE
By linking the amount payable at maturity to the Stock Percentage Change
rather than the U.S. Dollar value of Honda Stock at maturity, the Notes permit
the investor to participate in price fluctuations of the Honda Stock without
being affected by future changes in the Japanese Yen/U.S. Dollar exchange
rate. Based on an initial Japanese Yen/U.S. Dollar exchange rate of Yen
138.135/1 U.S. Dollar and a Market Price of Honda Stock of Yen 4680 (or U.S.
$33.88 at such initial exchange rate), which implies a principal amount of
$1,016.40 per Note, and assuming, solely for the purpose of illustrating the
lack of effect of changes in such exchange rate, a hypothetical 20% increase
in the Market Price of Honda Stock to Yen 5664, the following table
illustrates, for a range of Final FX Rates, the variations in the U.S. Dollar
value of Honda Stock at maturity (excluding dividends) and compares such
values to the total payment on the Notes.
<TABLE>
<CAPTION>
FINAL NOTE
INTERNAL RATE
FINAL HONDA HONDA OF RETURN
FINAL HONDA CHANGE PRICE (IN CHANGE IN FINAL NOTE (INCLUDING 3%
FX RATE ON TSE (%) $) $ (%) VALUE ($) COUPON)
------- ------------ ----------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
160 20.00% 35.10 3.60% 1,219.68 26%
156 20.00% 36.00 6.26% 1,219.68 26%
152 20.00% 36.95 9.06% 1,219.68 26%
148 20.00% 37.95 12.01% 1,219.68 26%
144 20.00% 39.00 15.11% 1,219.68 26%
138.135(/1/) 20.00% 40.66 20.00% 1,219.68 26%
136 20.00% 41.29 21.89% 1,219.68 26%
132 20.00% 42.55 25.59% 1,219.68 26%
128 20.00% 43.88 29.51% 1,219.68 26%
124 20.00% 45.29 33.68% 1,219.68 26%
120 20.00% 46.80 38.13% 1,219.68 26%
</TABLE>
- --------
(/1/) Initial FX Rate.
USE OF PROCEEDS AND HEDGING
The net proceeds to be received by the Company from the sale of the Notes
will be used for general corporate purposes and, in part, by the Company or
one or more of its affiliates in connection with hedging the Company's
obligations under the Notes. See also "Use of Proceeds" in the accompanying
Prospectus.
The Company has entered into hedging arrangements related to the Honda Stock
with an affiliate of the Company, in connection with the Company's obligations
under the Notes. In connection therewith, such affiliate has purchased shares
of Honda Stock in secondary market transactions at or before the time of the
pricing of the Notes. The Company, MLPF&S and other affiliates of the Company
may from time to time buy or sell the Honda Stock and Honda ADRs for their own
accounts for business reasons or in connection with hedging the Company's
obligations under the Notes. These transactions could affect the price of the
Honda Stock.
UNITED STATES FEDERAL INCOME TAXATION
The following discussion, which is based on the advice of Brown & Wood LLP,
counsel to the Company ("Tax Counsel"), supplements and, to the extent
inconsistent with, replaces the discussion contained in the accompanying
Prospectus Supplement under the heading "Certain United States Federal Income
Tax Considerations." As the law applicable to the U.S. federal income taxation
of instruments such as the Notes is technical and complex, the discussion
below necessarily represents only a general summary. The following discussion
also only addresses initial purchases of the Notes. Moreover, the effect of
any applicable state, local or foreign tax laws is not discussed.
PS-12
<PAGE>
GENERAL
There are no statutory provisions, regulations, published rulings or
judicial decisions addressing or involving the characterization and treatment,
for U.S. federal income tax purposes, of the Notes or securities with terms
substantially the same as the Notes. Accordingly, the proper U.S. federal
income tax characterization and treatment of the Notes is uncertain. Pursuant
to the terms of the Notes, the Company and every holder of a Note agree (in
the absence of an administrative determination or judicial ruling to the
contrary) to characterize a Note for all tax purposes as an investment unit
consisting of the following components (the "Components"): (i) a debt
instrument of the Company (the "Debt Instrument") with a fixed principal
amount unconditionally payable on the Stated Maturity Date equal to the
Principal Amount of the Notes and bearing stated interest at the Interest Rate
and (ii) a contract (the "Forward Contract") pursuant to which the holder
agrees to use the principal payment due on the Debt Instrument to make a
payment to the Company in exchange for the right to receive the Cash Amount
payable at maturity or the Equivalent Share Amount. Furthermore, based on the
Company's determination of the relative fair market values of the Components
at the time of issuance of the Notes, the Company will allocate 94.5% of the
Issue Price of the Notes to the Debt Instrument and 5.5% of the Issue Price to
the Forward Contract. The Company's allocation of the Issue Price among the
Components will be binding on a U.S. Holder (as defined in the accompanying
Prospectus Supplement) of a Note, unless such U.S. Holder timely and
explicitly discloses to the Internal Revenue Service (the "IRS") that its
allocation is different from the Company's. The treatment of the Notes
described above and the Company's allocation are not, however, binding on the
IRS or the courts. No statutory, judicial or administrative authority directly
addresses the characterization of the Notes or instruments similar to the
Notes for U.S. federal income tax purposes, and no ruling is being requested
from the IRS with respect to the Notes. DUE TO THE ABSENCE OF AUTHORITIES THAT
DIRECTLY ADDRESS INSTRUMENTS THAT ARE SIMILAR TO THE NOTES, SIGNIFICANT
ASPECTS OF THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE
NOTES ARE NOT CERTAIN, AND NO ASSURANCE CAN BE GIVEN THAT THE IRS OR THE
COURTS WILL AGREE WITH THE CHARACTERIZATION DESCRIBED ABOVE. ACCORDINGLY,
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE
U.S. FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN A NOTE (INCLUDING
ALTERNATIVE CHARACTERIZATIONS OF A NOTE) AND WITH RESPECT TO ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION. UNLESS OTHERWISE STATED, THE FOLLOWING DISCUSSIONS ARE BASED ON
THE ASSUMPTION THAT THE TREATMENT AND THE ALLOCATION DESCRIBED ABOVE ARE
ACCEPTED FOR U.S. FEDERAL INCOME TAX PURPOSES.
TAX TREATMENT OF A NOTE
"Interest on the Debt Instrument." As described above, the Debt Instrument is
treated as bearing interest at a stated rate of 3.0% per annum and 94.5% of
the Issue Price has been allocated by the Company to the Debt Instrument.
Accordingly, the Debt Instrument will be subject to the "original issue
discount" rules. A U.S. Holder will include "qualified stated interest" equal
to the stated interest on the Notes in income in accordance with the U.S.
Holder's method of accounting for U.S. federal income tax purposes.
Additionally, each U.S. Holder, including a taxpayer who otherwise uses the
cash method of accounting, will be required to include original issue discount
("OID") on the Debt Instrument in income as it accrues, in accordance with a
constant yield method based on a compounding of interest. Such method will
generally cause the U.S. Holder to include OID in each accrual period in an
amount equal to the product of the adjusted issue price of the Debt Instrument
at the beginning of the accrual period and the yield of the Debt Instrument,
less the amount of any qualified stated interest allocable to the accrual
period. Because the yield on the Debt Instrument is higher than the stated
interest rate, the amount of income recognized by the U.S. Holder will
generally be more than the stated interest paid to the U.S. Holder and will
increase during the term of the Notes.
TAX BASIS
Based on the Company's determination set forth above, the U.S. Holder's tax
basis in the Debt Instrument would initially be 94.5% of the Issue Price. The
U.S. Holder's tax basis in the Debt Instrument will be subsequently increased
by OID accrued with respect thereto.
PS-13
<PAGE>
"Settlement of the Forward Contract." Upon the final settlement of the Forward
Contract, a U.S. Holder receiving cash would, pursuant to the Forward
Contract, be deemed to have applied an amount (the "Forward Contract Payment
Amount") equal to the sum of the principal amount of the Debt Instrument
(which includes the amount of OID accrued) plus 5.5% of the Issue Price (which
has been allocated to the Forward Contract) toward the exchange for the cash
payment at maturity, and a U.S. Holder would recognize gain or loss. The
amount of such gain or loss would be the extent to which the amount of such
cash received differs from the Forward Contract Payment Amount.
U.S. Holders should note that while the accrued but unpaid OID on the Debt
Instrument would be taxable as ordinary income, it is uncertain whether any
gain or loss recognized upon the final settlement of the Forward Contract for
cash would be capital gain or loss or ordinary income or loss. The distinction
between capital gain or loss and ordinary income or loss is potentially
significant in several respects. For example, limitations apply to a U.S.
Holder's ability to offset capital losses against ordinary income, and certain
U.S. Holders may be subject to lower U.S. federal income tax rates with
respect to long-term capital gain than with respect to ordinary income. U.S.
Holders should consult their tax advisors with respect to the treatment of
gain or loss on a Note.
A U.S. Holder receiving the Equivalent Share Amount pursuant to the Forward
Contract would be deemed to have applied the Forward Contract Payment Amount
toward the purchase of such Equivalent Share Amount, and such U.S. Holder
should not recognize any gain or loss with respect to the Equivalent Share
Amount received upon the final settlement of the Forward Contract. A U.S.
Holder's tax basis in the Equivalent Share Amount so received would be equal
to the Forward Contract Payment Amount allocable thereto. Such U.S. Holder's
holding period of the Equivalent Share Amount would start on the day after the
Stated Maturity Date.
SALE OR EXCHANGE OF THE NOTES
Upon a sale or exchange of a Note prior to the maturity of the Notes, a U.S.
Holder would recognize taxable gain or loss equal to the difference between
the amount realized on such sale or exchange (as allocated among the
Components in accordance with their relative fair market values) and such U.S.
Holder's tax basis in the Components deemed so sold or exchanged. Any such
gain or loss would generally be capital gain or loss, as the case may be. For
these purposes, the amount realized does not include any amount attributable
to accrued interest on the Debt Instrument, which would be taxed as described
under "--Interest on the Debt Instrument" above.
POSSIBLE ALTERNATIVE TAX TREATMENTS OF AN INVESTMENT IN A NOTE
Due to the absence of authorities that directly address the proper
characterization of the Notes, no assurance can be given that the IRS will
accept, or that a court will uphold, the characterization and tax treatment
described above. In particular, the IRS could seek to analyze the U.S. federal
income tax consequences of owning a Note under Treasury regulations governing
contingent payment debt instruments (the "Contingent Payment Regulations").
The Company will take the position that the Contingent Payment Regulations
do not apply to the Notes. If the IRS were successful in asserting that the
Contingent Payment Regulations applied to the Notes, the timing and character
of income thereon would be significantly affected. Among other things, a U.S.
Holder would be required to accrue as OID, subject to the adjustments
described below, income at a "comparable yield" on the Issue Price, regardless
of the U.S. Holder's usual method of accounting for U.S. federal income tax
purposes. In addition, the Contingent Payment Regulations require that a
projected payment schedule, which results in such a "comparable yield," be
determined, and that adjustments to income accruals be made to account for
differences between actual payments and projected amounts (including upon
receipt of the Equivalent Share Amount at maturity). Furthermore, any gain
realized with respect to a Note would generally be treated as ordinary income,
and any loss realized would generally be treated as ordinary loss to the
extent of the U.S. Holder's prior ordinary income inclusions (which were not
previously reversed) with respect to the Notes.
Even if the Contingent Payment Regulations do not apply to the Notes, other
alternative U.S. federal income characterizations or treatments of the Notes
are also possible, which may also affect the timing and the character of the
income or loss with respect to the Notes. Accordingly, prospective purchasers
are urged to consult their tax advisors regarding the U.S. federal income tax
consequences of an investment in a Note.
PS-14
<PAGE>
PROPOSED LEGISLATION
On February 4, 1998, Representative Barbara Kennelly released H.R. 3170 (the
"Kennelly Bill"), which, if enacted, would treat a taxpayer owning certain
types of derivative positions in property as having "constructive ownership"
in that property, with the result that all or a portion of any long-term
capital gain recognized by such taxpayer with respect to the derivative
position would be recharacterized as short-term capital gain. It is unclear
whether, if enacted in its present form, the Kennelly Bill would apply to a
Note. If the Kennelly Bill were to apply to a Note, the effect on a U.S.
Holder of a Note would be to treat all or a portion of the long-term capital
gain recognized by such U.S. Holder on sale or maturity of the Notes (or the
Equivalent Share Amount received thereon) as short-term capital gain, but only
to the extent such long-term capital gain exceeds the long-term capital gain
that would have been recognized by such U.S. Holder if the U.S. Holder had
acquired Honda Stock itself on the issue date of the Notes and disposed of the
Honda Stock upon disposition of the Notes (or, where the U.S. Holder elects to
receive the Equivalent Share Amount, upon disposition of the Equivalent Share
Amount). In addition, the Kennelly Bill would impose an interest charge on the
gain that was recharacterized on the sale or maturity of the Notes (or the
Equivalent Share Amount received thereon). As proposed, the Kennelly Bill
would be effective for gains recognized after the date of enactment. U.S.
Holders should consult their tax advisors regarding the potential application
of the Kennelly Bill to the purchase, ownership and disposition of a Note.
PS-15
