<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 11, 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
---------------------
<TABLE>
<S> <C> <C>
MERRILL LYNCH & CO., INC. DELAWARE
(Exact name of registrant as specified in charter) (State of incorporation)
MERRILL LYNCH PREFERRED FUNDING VI, L.P. DELAWARE
(Exact name of registrant as specified in certificate of (State of organization)
limited partnership)
MERRILL LYNCH PREFERRED CAPITAL TRUST VI DELAWARE
(Exact name of registrant as specified in certificate of (State of organization)
trust)
<CAPTION>
MERRILL LYNCH & CO., INC. 13-2740599
MERRILL LYNCH PREFERRED FUNDING VI, L.P. 13-4034253
(Exact name of registrant as specified in certificate of (I.R.S. employer identification number)
limited partnership)
MERRILL LYNCH PREFERRED CAPITAL TRUST VI 13-7174482
(Exact name of registrant as specified in certificate of (I.R.S. employer identification number)
trust)
<CAPTION>
(Exact name of registrant as specified in charter) (I.R.S. employer identification number)
</TABLE>
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.
GENERAL COUNSEL
CORPORATE LAW
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:
<TABLE>
<S> <C> <C>
NORMAN D. SLONAKER, ESQ. DONALD R. CRAWSHAW, ESQ. RICHARD T. PRINS, ESQ.
BROWN & WOOD LLP SULLIVAN & CROMWELL SKADDEN, ARPS, SLATE,
ONE WORLD TRADE CENTER 125 BROAD STREET MEAGHER & FLOM LLP
NEW YORK, NEW YORK 10048 NEW YORK, NEW YORK 10004 919 THIRD AVENUE
NEW YORK, NEW YORK 10022
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO 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/
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
AGGREGATE PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED(1) REGISTERED(2)(3) 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 VI (the "Trust") (the "Trust
Preferred Securities").............. $15,000,000,000 N/A $15,000,000,000 $4,170,000
Partnership Preferred Securities of
Merrill Lynch Preferred Funding VI,
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............................. $15,000,000,000 -- $15,000,000,000 $4,170,000
</TABLE>
- ------------------------------
(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, as amended (the
"Securities Act"), 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. 333-59997 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 amendments applicable to a registration statement being also
indicated parenthetically), all as follows: 2-78338 (July 23, 1982-No. 25);
2-83477 (May 9, 1983-No. 24); 2-89519 (February 23, 1984-No. 23); 2-96315
(March 20, 1985-No. 21); 33-03079 (February 6, 1986-No. 20); 33-03602 (April
15, 1986-No. 17); 33-05125 (April 28, 1986-No. 9); 33-09910 (November 5,
1986-No. 18); 33-16165 (August 11, 1987-No. 17); 33-17965 (November 5,
1987-No. 16); 33-19820 (January 29, 1988-No. 16); 33-23605 (August 16,
1988-No. 15); 33-27512 (March 20, 1989-No. 14); 33-27594 (March 20, 1989-No.
14); 33-35456 (August 10, 1990-No. 14); 33-38879 (February 12, 1991-No. 13);
33-42041 (August 16, 1991-No. 13); 33-45327 (February 12, 1992-No. 12);
33-54218 (November 19, 1992-No. 11); 33-49947 (August 25, 1993-No. 10);
33-51489 (January 14, 1994-No. 9); 33-52647 (March 22, 1994-No. 8); 33-61559
(August 23, 1995-No. 7); 33-65135 (January 12, 1996-No. 11); 333-13649
(November 25, 1996-No. 3); 333-25255 (April 30, 1997-No. 4); 333-28537 (June
13, 1997-No. 3); 333-44173 (January 28, 1998-No. 2); and 333-59997 (July 30,
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.
(3) This Registration Statement also registers, where required, an indeterminate
amount of securities to be sold by Merrill Lynch & Co., 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 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<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, including certain alternate pages, which
is to be used in connection with offerings of preferred securities of Merrill
Lynch Preferred Capital Trust VI (the "Trust"); preferred securities of Merrill
Lynch Preferred Funding VI, 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 & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated in connection with market-making transactions.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 11, 1998
PROSPECTUS
[LOGO]
MERRILL LYNCH & CO., INC.
DEBT SECURITIES, WARRANTS, PREFERRED STOCK,
DEPOSITARY SHARES AND COMMON STOCK
Merrill Lynch & Co., Inc. ("we" or the "Company") may offer from time to
time up to $ of our debt securities; warrants; preferred stock;
depositary shares; and common stock.
When we offer securities, we will provide you with a prospectus supplement
or term sheet relating to such securities. You should read this prospectus and
the prospectus supplement or term sheet carefully before you invest.
We may offer the securities through our affiliate Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") as agent, through
underwriting syndicates managed or co-managed by one or more underwriters,
including MLPF&S, or directly to purchasers. The prospectus supplement or term
sheet for each offering of securities will describe in more detail the plan of
distribution for that offering. For general information about the distribution
of the securities offered, please see "Plan of Distribution" in this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
The date of this prospectus is , 199 .
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition, results
of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission ("SEC"). Our SEC filings are also available over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference rooms in Washington, D.C.,
New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330
for more information on the public reference rooms and their copy charges. You
may also inspect our SEC reports and other information at the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering the
securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file with
them, which means:
- incorporated documents are considered part of the prospectus;
- we can disclose important information to you by referring you to those
documents; and
- information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed with
the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
- Annual Report on Form 10-K for the year ended December 26, 1997 (excluding
the financial information which was restated in Exhibit 99(i) to the
Company's Current Report on Form 8-K dated December 10, 1998);
- Quarterly Reports on Form 10-Q for the quarters ended March 27, 1998, June
26, 1998 and September 25, 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,
July 15, 1998, July 29, 1998, September 3, 1998, September 8, 1998,
September 29, 1998, October 13, 1998, October 21, 1998, October 28, 1998,
November 3, 1998, November 24, 1998, December 1, 1998 and December 10,
1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
- Reports filed under Sections 13(a) and (c) of the Exchange Act;
2
<PAGE>
- Definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting; and
- Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
USE OF PROCEEDS
We intend 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, our
subsidiaries, the funding of our assets and those of our subsidiaries, the
lengthening of the average maturity of our 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. We expect that we
will, on a recurrent basis, engage in additional financings as the need arises
to finance our growth, through acquisitions or otherwise, or to lengthen the
average maturity of our borrowings. To the extent that securities being
purchased for resale by MLPF&S are not resold, the aggregate proceeds to us and
our subsidiaries would be reduced.
3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
In 1998, the Company acquired the outstanding shares of Midland Walwyn Inc.
("Midland"), in a transaction accounted for as a pooling-of-interests. The
following information has been restated, except as noted in note (a) below, as
if the Company and Midland had always been combined.
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>
YEAR ENDED LAST FRIDAY IN DECEMBER
---------------------------------------------------------------
1993(A) 1994 1995 1996 1997
----------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges........................ 1.4 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
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER 25,
1998
-----------------
<S> <C>
Ratio of earnings to fixed charges........................ 1.1
Ratio of earnings to combined fixed charges and preferred
stock dividends......................................... 1.1
</TABLE>
(a) 1993 information has not been restated for the Midland merger. The effect
of combining Midland on these ratios would not be material.
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.
THE SECURITIES
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.
4
<PAGE>
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.
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, 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;
5
<PAGE>
(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.
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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 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
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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.
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
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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 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
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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 September 25,
1998, a total of approximately $83.7 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.
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DESCRIPTION OF DEBT WARRANTS
The Company may issue Debt Warrants for the purchase of Debt Securities. The
Debt Warrants are to be issued under debt warrant agreements (each a "Debt
Warrant Agreement") to be entered into between the Company and a bank or trust
company, as debt warrant agent (the "Debt Warrant Agent"), all as shall be set
forth in the prospectus supplement relating to 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 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
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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 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. 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
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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).
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
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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.
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;
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(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).
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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.
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
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an Index Warrant may, at the option of the Company, be determined on a different
basis, including in connection with automatic exercise at expiration.
Unless otherwise specified in the related prospectus supplement, the Index
Warrants will be deemed to be automatically exercised upon expiration or such
earlier date that may be specified. Upon such automatic exercise, Index
Warrantholders will be entitled to receive a payment or delivery equal to the
Settlement Value of the Index Warrants, except that holders of Index Warrants
having a Minimum Expiration Value will be entitled to receive a payment or
delivery equal to the greater of such Settlement Value and the applicable
Minimum Expiration Value. The Minimum Expiration Value may be either a
predetermined payment or delivery or a payment or delivery that varies during
the term of the Index Warrants in accordance with a schedule or formula. Any
Minimum Expiration Value applicable to an issue of Index Warrants, as well as
any additional circumstances resulting in the automatic exercise of such Index
Warrants, will be specified in the related prospectus supplement.
If so specified in the prospectus supplement, the Index Warrants may be
canceled by the Company, or the exercise or valuation of, or payment or delivery
for, such Index Warrants may be delayed or postponed upon the occurrence of an
extraordinary event. Any extraordinary events relating to an issue of Index
Warrants will be set forth in the related prospectus supplement. Upon
cancellation, the related Index Warrantholders will be entitled to receive only
the applicable payment or delivery on cancellation specified in such prospectus
supplement. The payment or delivery on cancellation may be either a
predetermined payment or delivery or a payment or delivery that varies during
the term of the Index Warrants in accordance with a schedule or formula.
If the Company defaults with respect to any of its obligations under Index
Warrants which are issued with a Minimum Expiration Value pursuant to an Index
Warrant Trust Indenture, such default may be waived by the Index Warrantholders
of a majority in interest of all outstanding Index Warrants, except a default in
the payment or delivery of the Settlement Value, Minimum Expiration Value or
cancellation payment or delivery (if applicable) on such Index Warrants or in
respect of a covenant or provision of the applicable Index Warrant Trust
Indenture which cannot be modified or amended without the consent of the Index
Warrantholder of each outstanding Index Warrant affected.
The Index Warrants are unsecured contractual obligations of the Company and
will rank PARI PASSU with the Company's other unsecured contractual obligations
and with the Company's unsecured and unsubordinated debt. Since the Company is a
holding company, the right of the Company, and hence the right of creditors of
the Company (including the Holders of the Debt Securities), to participate in
any distribution of the assets of any subsidiary upon its liquidation or
reorganization or otherwise is necessarily subject to the prior claims of
creditors of the subsidiary, except to the extent that claims of the Company
itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the 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
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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:
(a) 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,
(b) evidencing the succession of another corporation to the Company and
the assumption by any such successor of the covenants of the Company
contained in the Index Warrant Agreement or the Index Warrant Trust
Indenture, as the case may be, and the Index Warrants,
(c) appointing a successor depository,
(d) 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,
(e) 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,
(f) issuing Index Warrants in definitive form, or
(g) 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
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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.
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
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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 September 25, 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
September 25, 1998, there were 42,500 shares of 9% Cumulative Preferred Stock,
Series A (the "9% Preferred Stock") represented by 17,000,000 Depositary Shares
and one Special Voting Share outstanding. See "--Outstanding Preferred Stock".
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.
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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 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 $2.575
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.
- ------------------------
(SM) Service mark of Merrill Lynch & Co., Inc.
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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.
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
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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.
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 September 25, 1998, there were 42,500 shares of 9% Preferred Stock
represented by 17,000,000 Depositary Shares and one Special Voting Share
outstanding.
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.
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SPECIAL VOTING STOCK
In connection with the acquisition of Midland by the Company in August 1998,
the Company issued a single share of preferred stock with special voting rights
(the "Special Voting Share"), pursuant to the terms of a Voting and Exchange
Trust Agreement 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 possesses a number of votes equal to the
number of exchangeable shares of ML Canada (the "Exchangeable Shares") issued
and outstanding from time to time that are not owned by the Company or its
affiliates, 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 vote
together as a class on all matters. See "Description of Common Stock--Voting
Rights". The Special Voting Share was issued to the trustee under the Voting
Trust Agreement. The holder of the Special Voting Share is not 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. 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;
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(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 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
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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 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.
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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
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trust company having its principal office in the United States and having a
combined capital and surplus of at least $50,000,000.
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. 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;
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(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).
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.
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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.
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 December 3, 1998, there
were 355,360,925 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.
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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 September 25, 1998, 17,000,000 Depositary Shares,
each representing a one-four-hundredth interest in a share of 9% Preferred
Stock, and one Special Voting Share were outstanding. See "Description of
Preferred Stock--Outstanding Preferred Stock". 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.
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 $2.575
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.
- ------------------------
(SM) Service mark of Merrill Lynch & Co., Inc.
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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 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.
34
<PAGE>
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.
DESCRIPTION OF COMMON STOCK WARRANTS
The Company may issue Common Stock Warrants for the purchase of Common
Stock. 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
35
<PAGE>
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.
36
<PAGE>
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 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
37
<PAGE>
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.
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.
EXPERTS
The consolidated financial statements of the Company and its subsidiaries
included in the Company's Current Report on Form 8-K dated December 10, 1998 and
related financial statement schedules of the Company and its subsidiaries
included in the 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 Current Report on Form 8-K dated December 10,
1998, and incorporated by reference herein, has been derived from consolidated
financial
38
<PAGE>
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 reports 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.
39
<PAGE>
SUBJECT TO COMPLETION
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PRELIMINARY PROSPECTUS DATED DECEMBER 11, 1998
PROSPECTUS
[LOGO]
MERRILL LYNCH & CO., INC.
STRYPES(SM)
PAYABLE WITH SHARES OF COMMON STOCK OR OTHER SECURITIES
OF THE UNDERLYING ISSUER
(OR CASH WITH AN EQUAL VALUE)
------------------------
THE ISSUER:
Merrill Lynch & Co., Inc. ("we" or the "Company") intends to sell from time
to time our Structured Yield Product Exchangeable for Stock(SM) ("STRYPES"(SM)).
We will offer the STRYPES in series and on terms determined by market conditions
at the time of sale and set forth in the accompanying prospectus supplement.
DISTRIBUTION ON THE MATURITY DATE:
On the maturity date of each series of STRYPES (the "Maturity Date"), we
will pay and discharge such STRYPES by delivering to you a number of shares of
common stock or other 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
our right to deliver cash, or a combination of cash and such common stock or
other securities, with an equal value).
There can be no assurance that the value of the such common stock or other
securities (or cash) payable to you on the Maturity Date will be equal to or
greater than the price at which you purchased the STRYPES. If the value of the
common stock or other securities (or cash) that you receive on the Maturity Date
of a series of STRYPES is less than the price that you paid for such STRYPES,
your investment in the STRYPES will result in a loss.
We refer you to any accompanying prospectus of the Underlying Issuer
covering its common stock or other securities that you may receive on the
Maturity Date.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
We may sell the STRYPES through our subsidiary, Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"). The 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 any common stock or other
securities of such Underlying Issuer that you may receive on the Maturity Date.
------------------------
The date of this prospectus is , 199 .
- ------------------------
(SM) Service mark of Merrill Lynch & Co., Inc.
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell the STRYPES in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition, results
of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission ("SEC"). Our SEC filings are also available over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference rooms in Washington, D.C.,
New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330
for more information on the public reference rooms and their copy charges. You
may also inspect our SEC reports and other information at the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering the
STRYPES. For further information on the Company and the securities, you should
refer to our registration statement and its exhibits. This prospectus summarizes
material provisions of contracts and other documents that we refer you to.
Because the prospectus may not contain all the information that you may find
important, you should review the full text of these documents. We have included
copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file with
them, which means:
- incorporated documents are considered part of the prospectus;
- we can disclose important information to you by referring you to those
documents; and
- information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed with
the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
- Annual Report on Form 10-K for the year ended December 26, 1997 (excluding
the financial information which was restated in Exhibit 99(i) to the
Company's Current Report on Form 8-K dated December 10, 1998);
- Quarterly Reports on Form 10-Q for the quarters ended March 27, 1998, June
26, 1998 and September 25, 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,
July 15, 1998, July 29, 1998, September 3, 1998, September 8, 1998,
September 29, 1998, October 13, 1998, October 21, 1998, October 28, 1998,
November 3, 1998, November 24, 1998, December 1, 1998 and December 10,
1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
- Reports filed under Sections 13(a) and (c) of the Exchange Act;
- Definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting; and
2
<PAGE>
- Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
USE OF PROCEEDS
We intend 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, our subsidiaries, the
funding of our assets and those of our subsidiaries, the lengthening of the
average maturity of our 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. We expect that we will, on a
recurrent basis, engage in additional financings as the need arises to finance
our growth, through acquisitions or otherwise, or to lengthen the average
maturity of our borrowings. To the extent that STRYPES being purchased for
resale by MLPF&S are not resold, the aggregate proceeds to us and our
subsidiaries would be reduced.
3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn Inc.
("Midland"), in a transaction accounted for as a pooling-of-interests. The
following information has been restated, except as noted in note (a) below, as
if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED LAST FRIDAY IN DECEMBER
---------------------------------------------------------------
1993(A) 1994 1995 1996 1997
----------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges......................... 1.4 1.2 1.2 1.2 1.2
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 25,
1998
-----------------
<S> <C>
Ratio of earnings to fixed charges......................... 1.1
</TABLE>
(a) 1993 information has not been restated for the Midland merger. The effect
of combining Midland on this ratio would not be material.
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 (the
"Senior Debt Securities") of the Company 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;
4
<PAGE>
(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 a number of shares of common stock or other
securities (the "Underlying Securities") of the Underlying Issuer (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 accompanying prospectus supplement (the "Prospectus
Supplement") for the terms of the STRYPES being offered thereby.
Under the Indenture, the Company will have the ability, in addition to the
ability to issue STRYPES with terms different from those of STRYPES previously
issued, to "reopen" a previous series of STRYPES and issue additional STRYPES of
such series.
Issue price and interest, premium and Additional Amounts, if any, and
Underlying Securities will be payable or deliverable in the manner, at the
places and subject to the restrictions set forth in the Indenture, the STRYPES
and the Prospectus Supplement relating thereto, provided that payment of any
interest and any Additional Amounts may be made at the option of the Company by
check mailed to the holders of registered STRYPES at their registered addresses.
STRYPES may be presented for exchange, and registered STRYPES may be
presented for transfer, in the manner, at the places and subject to the
restrictions set forth in the Indenture, the STRYPES and the Prospectus
Supplement relating thereto. No service charge will be made for any transfer or
exchange of STRYPES, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
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
5
<PAGE>
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 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,
6
<PAGE>
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.
The Securities Depository's management is aware that some computer
applications, systems, and the like for processing data ("Systems") that are
dependent upon calendar dates, including dates before, on, and after January 1,
2000, may encounter "Year 2000 problems." The Securities Depository has informed
its Direct and Indirect Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and interest payments) to securityholders, book-entry
deliveries, and settlement of trades within the Securities Depository
("Securities Depository Services"), continue to function appropriately. This
program includes a technical assessment and a remediation plan, each of which is
complete. Additionally, the Securities Depository's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, the Securities Depository's ability to perform properly its
services is also dependent upon other parties, including, but not limited to,
issuers and their agents, as well as the Securities Depository's Direct and
Indirect Participants, third party vendors from whom the Securities Depository
licenses software and hardware, and third party vendors on whom the Securities
Depository relies for information or the provision of services, including
telecommunication and electrical utility service providers, among others. The
Securities Depository has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom the Securities Depository
acquires services to: (i) impress upon them the importance of such services
being Year 2000 compliant; and (ii) determine the extent of their efforts for
Year 2000 remediation (and, as appropriate, testing) of their services. In
addition, the Securities Depository is in the process of developing such
contingency plans as it deems appropriate.
According to the Securities Depository, the information in the preceding two
paragraphs with respect to the Securities Depository has been provided to the
Industry for informational purposes only and is not intended to serve as a
representation, warranty, or contract modification of any kind.
7
<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
8
<PAGE>
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) above) 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
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),
9
<PAGE>
(c) reduce the amount of interest or Additional Amounts payable on any
STRYPES or reduce the amount of cash payable with respect to any STRYPES
upon acceleration of the maturity thereof,
(d) change the place or currency of payment of interest or Additional
Amounts on, or any amount of cash payable with respect to, any STRYPES,
(e) impair the right to institute suit for the enforcement of any payment
on or with respect to any STRYPES, including the payment of Underlying
Securities with respect to any STRYPES,
(f) reduce the percentage of the aggregate issue price of Outstanding
STRYPES of such series, the consent of whose holders is required to
modify or amend the Indenture,
(g) reduce the percentage of the aggregate issue price of Outstanding
STRYPES of such series necessary for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults or
(h) modify such provisions with respect to modification and waiver.
Except as provided in the Indenture, no modification of or amendment to the
Indenture may adversely affect the rights of a holder of any other Senior Debt
Security without the consent of such holder.
The holders of a majority of the aggregate issue price of each series of
STRYPES may waive compliance by the Company with certain restrictive provisions
of the Indenture. The holders of a majority of the aggregate issue price of each
series of STRYPES may waive any past default under the Indenture, except a
default in the payment of the Underlying Securities with respect to any STRYPES
of that series, or of cash payable in lieu thereof, or in the payment of any
premium, interest or Additional Amounts on any STRYPES of that series for which
payment had not been subsequently made or in respect of a covenant and provision
of the Indenture which cannot be modified or amended without the consent of the
holder of each Outstanding STRYPES of such series affected.
GOVERNING LAW
The Indenture and the STRYPES will be governed by, and construed in
accordance with, the laws of the State of New York.
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 of the Company and its subsidiaries
included in the Company's Current Report on Form 8-K dated December 10, 1998 and
related financial statement schedules of the Company and its subsidiaries
included in the 1997 Annual Report on Form 10-K, and
10
<PAGE>
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 Current Report on
Form 8-K dated December 10, 1998, 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 reports 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.
11
<PAGE>
SUBJECT TO COMPLETION
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PRELIMINARY PROSPECTUS DATED DECEMBER 11, 1998
PROSPECTUS
[LOGO]
TRUST PREFERRED SECURITIES
MERRILL LYNCH PREFERRED CAPITAL TRUST VI
% TRUST ORIGINATED PREFERRED SECURITIES(SM) ("TOPRS(SM)")
(LIQUIDATION AMOUNT $25 PER TRUST PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
MERRILL LYNCH & CO., INC.
--------------------------
Merrill Lynch Preferred Capital Trust VI is a business trust formed for the
sole purpose of issuing the TOPrS and investing the proceeds from their sale in
Partnership Preferred Securities of Merrill Lynch Preferred Funding VI, ,L.P., a
limited partnership. The Partnership will use the proceeds from the sale of the
Partnership Preferred Securities and the capital contribution of Merrill Lynch &
Co., Inc., a Delaware corporation ("we" or the "Company"), as general partner of
the Partnership, to purchase Debentures from the Company and from one or more
eligible controlled affiliates, and to purchase certain other Eligible Debt
Securities.
From the interest payments it receives on the Debentures and its other
investments, the Partnership may elect, but is not obligated, to pay
distributions on the Partnership Preferred Securities to the Trust. If the
Partnership makes these distributions, the Trust is expected to have sufficient
funds to pay you a quarterly cash distribution at the rate of % of the
liquidation amount of $25 per TOPrS per annum. This is equivalent to $ per
TOPrS per annum. The Company or its eligible controlled affiliates may elect to
defer interest payments on the Debentures for up to six consecutive quarters, in
which case the Partnership would not have sufficient funds to pay a distribution
to the Trust, and the Trust would not have sufficient funds to pay cash
distributions to you on the TOPrS.
The Company will guarantee the payment of distributions by the Trust and
payments to you if the Trust is liquidated or if the TOPrS are redeemed. This
guarantee will be subordinated, and will be only to the extent that the Trust
has funds available to pay you but fails to do so. The Company will also
guarantee payments by the Partnership to the Trust on a subordinated basis and
only to the extent the Partnership has declared a distribution and has funds
available to pay the Trust but fails to do so.
The Trust may redeem the TOPrS on and after , or earlier upon
the occurrence of certain Special Events.
The Trust will apply to have the TOPrS listed on the New York Stock Exchange
(the "NYSE"). If the TOPrS are approved for listing by the NYSE, the Trust
expects that trading on the NYSE will commence within 30 days after delivery of
the TOPrS.
INVESTING IN THE TOPRS INVOLVES CERTAIN RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------------------
<TABLE>
<CAPTION>
PER TOPRS TOTAL
----------- ------------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ (1) $ (1)
Proceeds to Trust........................................... $ $
</TABLE>
(1) The proceeds of the sale of the TOPrS will ultimately be invested in the
Debentures and other Eligible Debt Securities; therefore we will pay the
underwriters $ per TOPrS (or $ in the aggregate) (or
$ per TOPrS for sales of more than 10,000 TOPrS to a single
purchaser).
The Trust expects that the TOPrS will be ready for delivery in book-entry
form only through the facilities of DTC on or about , .
--------------------------
MERRILL LYNCH & CO.
---------------
The date of this prospectus is , 199 .
- -SM- "TOPrS" and "Trust Originated Preferred Securities" are service marks owned
by Merrill Lynch & Co., Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Where You Can Find More Information........................................................................ 3
Incorporation of Information We File With the SEC.......................................................... 3
Summary Information--Q&A................................................................................... 4
Risk Factors............................................................................................... 8
Merrill Lynch & Co., Inc................................................................................... 12
Use Of Proceeds............................................................................................ 12
Ratio of Earnings to Fixed Charges......................................................................... 13
Merrill Lynch Preferred Capital Trust VI................................................................... 13
Merrill Lynch Preferred Funding VI, L.P.................................................................... 14
Description of the Trust Preferred Securities.............................................................. 16
Description of the Trust Guarantee......................................................................... 28
Description of the Partnership Preferred Securities........................................................ 31
Description of the Partnership Guarantee................................................................... 43
Certain Federal Income Tax Considerations.................................................................. 46
Underwriting............................................................................................... 50
Legal Matters.............................................................................................. 52
Experts.................................................................................................... 52
Index of Defined Terms..................................................................................... 53
Index to Financial Statements.............................................................................. F-1
</TABLE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are not, and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition, results
of operations and prospects may have changed since that date.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission ("SEC"). Our SEC filings are also available over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference rooms in Washington, D.C.,
New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330
for more information on the public reference rooms and their copy charges. You
may also inspect our SEC reports and other information at the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
We have filed a registration statement on Form S-3 pursuant to the
Securities Act of 1933, as amended (the "Securities Act") with the SEC covering
the TOPrS. For further information on the Company and the TOPrS, you should
refer to our registration statement and its exhibits. This prospectus summarizes
material provisions of contracts and other documents that we refer you to. Since
the prospectus may not contain all the information that you may find important,
you should review the full text of these documents. We have included copies of
these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file with
them, which means:
- incorporated documents are considered part of the prospectus;
- we can disclose important information to you by referring you to those
documents; and
- information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed with
the SEC under the Securities Exchange Act of 1934 (the "Exchange Act"):
- Annual Report on Form 10-K for the year ended December 26, 1997 (excluding
the financial information which was restated in Exhibit 99(i) to the
Company's Current Report on Form 8-K dated December 10, 1998);
- Quarterly Reports on Form 10-Q for the quarters ended March 27, 1998, June
26, 1998 and September 25, 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,
July 15, 1998, July 29, 1998, September 3, 1998, September 8, 1998,
September 29, 1998, October 13, 1998, October 21, 1998, October 28, 1998,
November 3, 1998, November 24, 1998, December 1, 1998 and December 10,
1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus but before the end of
the TOPrS offering, or subsequent to the date of the initial registration
statement and prior to effectiveness of the registration statement:
- reports filed under Sections 13(a) and (c) of the Exchange Act;
- definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting; and
- any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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SUMMARY INFORMATION--Q&A
This summary may not contain all the information that may be important to
you. The terms "we", the "Company" or "Merrill Lynch" as used in this prospectus
refer to Merrill Lynch & Co., Inc. 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.
This summary includes questions and answers that highlight selected
information from the prospectus to help you understand the Trust Originated
Preferred Securities (the "TOPrS" or "Trust Preferred Securities"). You should
carefully read the prospectus to fully understand the terms of the TOPrS, as
well as the tax and other considerations that are important to you in making a
decision about whether to invest in the TOPrS. You should pay special attention
to the "Risk Factors" section to determine whether an investment in the TOPrS is
appropriate for you.
WHAT ARE THE TOPRS?
Each TOPrS represents a preferred undivided beneficial interest in the
assets of the Trust. The Company will own all of the common securities of the
Trust. The Trust assets will be Partnership Preferred Securities (the
"Partnership Preferred Securities") in Merrill Lynch Preferred Funding VI, L.P.
The Partnership will use the proceeds from the sale of the Partnership Preferred
Securities and the capital contribution from the Company, as general partner of
the Partnership, to make investments by purchasing Debentures, which are debt
instruments of the Company and one or more eligible controlled affiliates of the
Company. In addition, the Partnership will invest certain proceeds in Eligible
Debt Securities.
WHAT IS THE TRUST?
Merrill Lynch Preferred Capital Trust VI (the "Trust") is a Delaware
statutory business trust that exists for the sole purpose of issuing the TOPrS
and investing the proceeds and engaging in incidental activities.
WHAT IS THE PARTNERSHIP?
Merrill Lynch Preferred Funding VI, L.P. (the "Partnership") is a Delaware
limited partnership. The Partnership will initially hold the Debentures and
Eligible Debt Securities. The Company is the General Partner of the Partnership.
WHAT DISTRIBUTIONS WILL I RECEIVE ON THE TOPRS?
The Trust expects to pay you a quarterly cash distribution at the rate of
% per annum. Distributions are payable on each , , and
, commencing , . Distributions will accumulate from ,
, the date of original issuance of the TOPrS. Distributions may be
deferred if interest payments on the Debentures are deferred.
WHAT WILL AFFECT THE TRUST'S DISTRIBUTIONS?
The ability of the Trust to pay you is entirely dependent on its receipt of
corresponding distributions from the Partnership Preferred Securities held by
the Trust. In turn, the Partnership's ability to pay the Trust is dependent on
its receipt of payments on the Debentures and other permitted investments held
by the Partnership. In addition, the Partnership has no obligation to make
distributions to the Trust.
WHAT ARE THE DEBENTURES?
The Debentures are long term loans made by the Partnership to the Company
and one or more eligible controlled affiliates of the Company. Debentures issued
by the Company will be senior unsecured obligations of the Company and will rank
equally with all of the Company's other unsecured obligations. Debentures issued
by affiliates of the Company will be guaranteed on a subordinated basis by the
Company. An issuer of a Debenture may elect to defer interest payments for a
period not exceeding six consecutive quarters.
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<PAGE>
ARE THERE ANY RISKS ASSOCIATED WITH MY INVESTMENT?
Yes, the TOPrS are subject to certain risks. Please refer to the section
entitled "Risk Factors" in this prospectus.
WHAT HAPPENS IF THE TRUST DOESN'T PAY MY DISTRIBUTION?
If at any time:
- you have not received a distribution for six consecutive quarters,
- an Investment Event of Default occurs and is continuing on an Affiliate
Investment Instrument, or
- the Company defaults on its obligations under the Trust Guarantee or the
Partnership Guarantee,
then:
- the Property Trustee may enforce the Partnership's creditors' rights,
including the right to receive payments under the Affiliate Investment
Instruments and the Investment Guarantees,
- the Property Trustee has the right to enforce the terms of the Partnership
Preferred Securities, including the Trust's right to receive distributions
on the Partnership Preferred Securities, and
- the Trust Guarantee Trustee or the Special Representative, as the holders
of the Trust Guarantee (the "Trust Guarantee") and the Partnership
Guarantee (the "Partnership Guarantee"), may enforce the Guarantees,
including the right to enforce the covenant restricting certain payments
to others by the Company and Finance Subsidiaries described below.
You should be aware that the Special Representative does not have the
authority to cause the Partnership to declare distributions on the Partnership
Preferred Securities. If the Partnership does not declare and pay distributions
on the Partnership Preferred Securities, the Trust will not have sufficient
funds to make distributions on the TOPrS.
The Company has agreed that if:
- payments on a cumulative basis on the TOPrS are not paid to you or set
aside by the Trust for payment to you,
- an Investment Event of Default by any Investment Affiliate in respect of
any Affiliate Investment Instrument has occurred and is continuing, or
- 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, the Company will not declare or pay dividends on, or
acquire, or make a liquidation payment with respect to, any of its capital
stock. The Company will not permit any Finance Subsidiary to make any payment of
any dividends on, any distribution with respect to, or any acquisition of, or
any liquidation payment with respect to, any preferred security of any Finance
Subsidiary.
This limitation prevents the Company from paying cash or certain other
dividends to its own shareholders if payments are not being made on the TOPrS,
or Debentures or any Affiliate Investment Instrument, or if the Company is in
default under any guarantee.
These provisions will not restrict:
- the payment of dividends or distributions in shares of, or options,
warrants or rights to subscribe for or purchase shares of, the Company's
capital stock, or conversions or exchanges of common stock of one class
into common stock of another class,
- redemptions or purchases of any rights pursuant to the Company's Rights
Agreement dated as of December 2, 1997 between the Company and Chase
Mellon Shareholder Services, L.L.C. (the "Rights Agreement") and the
issuance of preferred stock pursuant to such rights, and
- purchases by the Company or its affiliates in connection with transactions
for the account of customers of the Company or any of its subsidiaries or
in connection
5
<PAGE>
with the distribution or trading of such capital stock.
WHAT HAPPENS IF THE TRUST IS LIQUIDATED?
If the Trust is liquidated, other than in connection with a Trust Special
Event, you will be entitled to receive $25 per TOPrS plus any accumulated and
unpaid distributions.
OPTIONAL REDEMPTION
The Partnership has the option to redeem the Partnership Preferred
Securities, in whole or in part from time to time, on or after , .
If the Partnership Preferred Securities are redeemed, the TOPrS will in turn be
redeemed for $25 plus accumulated and unpaid distributions. Neither the
Partnership Preferred Securities nor the TOPrS have any scheduled maturity or
are redeemable at any time at the option of the holders.
WHAT ARE THE GUARANTEES?
The Company provides several subordinated guarantees. These are guarantees,
to the extent set forth herein, of (1) distributions by the Partnership to the
Trust, and by the Trust to you; (2) the amount due to you upon redemption of the
TOPrS; (3) the liquidation amount of the TOPrS if the Trust is liquidated; and
(4) payments under Affiliate Investment Instruments.
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 TOPrS. However, the Guarantees do not apply to either (1) current
distributions by the Partnership unless and until the Partnership declares
distributions out of funds legally available for payment or (2) liquidating
distributions unless there are Partnership assets available for payment.
The Company's obligations under the Guarantees are subordinate and junior in
right of payment to all other liabilities of the Company and rank equally with
the most senior preferred stock issued from time to time by the Company, with
similar guarantees issued by the Company in connection with prior issues of
TOPrS by certain Finance Subsidiaries and with any guarantee now or hereafter
entered into by the Company in respect of any preferred stock of any other
Finance Subsidiary.
DO I HAVE VOTING RIGHTS?
Generally, holders of the TOPrS will not have any voting rights, except
under the limited circumstances described below. The holders of a majority in
liquidation amount of the TOPrS, 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.
WHAT HAPPENS IF SPECIAL EVENT REDEMPTIONS OR DISTRIBUTIONS OCCUR?
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 Affiliate Investment Instruments 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 will have the right to liquidate the
Trust and cause Partnership Preferred Securities to be distributed to the
holders of the TOPrS. 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.
6
<PAGE>
FORM OF THE TOPRS
The TOPrS will be represented by a global certificate or certificates
registered in the name of Cede & Co., as nominee for The Depository Trust
Company ("DTC"). Beneficial interests in the TOPrS will be evidenced by, and
transfers thereof will be effected only through, records maintained by the
participants in DTC. TOPrS in certificated form will not be issued in exchange
for the global certificate or certificates.
CAN YOU TELL ME MORE ABOUT THE COMPANY?
Merrill Lynch & Co., Inc. is a holding company. Its subsidiary and
affiliated companies provide investment, financing, insurance and related
services on a global basis. Our principal executive offices are located at World
Financial Center, North Tower, 250 Vesey Street, New York, New York 10281. The
Company's telephone number is (212) 449-1000. For information about the Company,
see the section "Merrill Lynch & Co., Inc." in the prospectus. You should also
read the other documents the Company has filed with the SEC, which you can find
by referring to the section "Where You Can Find More Information".
USE OF PROCEEDS
All of the proceeds from the sale of the Trust Common Securities and the
Trust Preferred Securities (together, 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 other permitted investments. The
Company and the subsidiaries of the Company that are the issuers of the
Debentures will use the proceeds from the sale of the Debentures for general
corporate purposes.
7
<PAGE>
RISK FACTORS
Your investment in the TOPrS will involve certain risks. You should
carefully consider the following discussion of risks before deciding whether an
investment in the TOPrS is suitable for you.
DISTRIBUTIONS PAYABLE ONLY IF DECLARED BY THE GENERAL PARTNER
The Trust's ability to pay distributions to you is dependent upon its
receipt of distributions on the Partnership Preferred Securities. If we defer or
fail to make interest or principal payments on the Debentures or if we or our
Investment Affiliates fail to make such payments on the Affiliate Investment
Instruments and we fail to make guarantee payments on the Investment Guarantees,
the Partnership will lack the funds necessary to pay distributions on the
Partnership Preferred Securities. If the Partnership does not make current
distributions on the Partnership Preferred Securities, either because the
Company, as the General Partner, does not declare distributions to be made or
because the Partnership lacks sufficient funds, the Trust will not have funds to
make current distributions on the TOPrS. If the Trust does not make payments to
you on the TOPrS, the Company will be restricted from, among other things,
paying cash or certain other dividends on its Common Stock.
TAX CONSEQUENCES OF FAILURE OF DISTRIBUTIONS. Even if the Partnership fails
to pay current distributions on the Partnership Preferred Securities, you will
be required to accrue income, for United States Federal income tax purposes, on
the cumulative deferred distributions (including interest) allocable to your
proportionate share of the Partnership Preferred Securities. As a result, you
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 you dispose of your TOPrS prior to the record date for the date
on which distributions of such amounts are made by the Trust.
INSUFFICIENT INCOME OR ASSETS AVAILABLE TO PARTNERSHIP
You are subject to the risk that the current or liquidating distributions
paid on the TOPrS will not match 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:
- the Company, as the General Partner of the Partnership, in its sole
discretion, does not declare distributions on the Partnership Preferred
Securities or if the Partnership receives insufficient amounts from its
investments to pay the additional compounded distributions that will
accumulate on any unpaid distributions,
- the Partnership reinvests the proceeds received from the Debentures upon
their retirement or at their maturities in Affiliate Investment
Instruments or Eligible Debt Securities that do not generate income
sufficient to pay full distributions in respect of the Partnership
Preferred Securities at a rate of % per annum, or
- 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 or
if the Partnership does not make such distributions.
The Trust will not have sufficient funds available to pay you full current
or liquidating distributions on the TOPrS if the Partnership lacks sufficient
funds to make current or liquidating distributions on the Partnership Preferred
Securities in full.
INVESTMENTS ARE NOT DIVERSIFIED
With the proceeds from the issuance of the TOPrS and the Trust Common
Securities (the "Trust Common Securities"), the Trust will purchase the
Partnership Preferred Securities. The Partnership will
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<PAGE>
invest approximately 99% of the proceeds from the issuance of the Partnership
Preferred Securities and the General Partner's capital contribution in Company
Debentures and Affiliate Investment Instruments.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
The occurrence of (i) certain adverse tax consequences to the Trust or the
Partnership, or the denial of an interest deduction by an Investment Affiliate
on any Affiliate Investment Instrument held by the Partnership, or (ii) the
Trust or the Partnership being considered an "investment company" under the 1940
Act would constitute a "Special Event". If a Trust Special Event occurs, there
is a possibility that your TOPrS will be redeemed for cash, or that you will
receive Partnership Preferred Securities in exchange for your TOPrS. Partnership
Preferred Securities may not trade at the same value as the TOPrS. In addition,
the receipt of Partnership Preferred Securities may cause you to incur tax
liability in excess of what you initially contemplated. There is also the
possibility that you will receive Partnership Preferred Securities in the event
that a Partnership Special Event occurs.
TAX CONSEQUENCES. 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 TOPrS. If as a consequence of a Trust Special
Event resulting from the Trust becoming subject to United States Federal income
tax with respect to income on the Partnership Preferred Securities, Partnership
Preferred Securities distributed to you by the Trust would likely cause you to
recognize a gain or loss as if you had exchanged TOPrS for the Partnership
Preferred Securities. Similarly, you would recognize a gain or loss if, upon an
occurrence of a Partnership Special Event, the Trust redeems the TOPrS for cash.
EXCHANGE ISSUES. Because you may receive Partnership Preferred Securities
upon the occurrence of a Special Event, you are also 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. There can be no assurance as to the market prices
for the Partnership Preferred Securities that may be distributed in exchange for
TOPrS if a dissolution or liquidation of the Trust were to occur. Accordingly,
the Partnership Preferred Securities that a holder of TOPrS may receive may
trade at a discount to the purchase price of the TOPrS.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEES AND THE COMPANY
DEBENTURE
You should be aware that the Company's obligations under the Trust
Guarantee, the Partnership Guarantee and the Investment Guarantee (the
"Guarantees") will not be paid until certain other obligations of the Company
have been satisfied in full. The Company's obligations under the Guarantees are:
- subordinate and junior in right of payment to all liabilities of the
Company, and
- will rank equally:
- 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
- $275,000,000 aggregate liquidation amount of 7.75% Trust Originated
Preferred Securities issued by Merrill Lynch Preferred Capital
Trust I,
- $300,000,000 aggregate liquidation amount of 8% Trust Originated
Preferred Securities issued by Merrill Lynch Preferred Capital
Trust II,
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- $750,000,000 aggregate liquidation amount of 7% Trust Originated
Preferred Securities issued by Merrill Lynch Preferred Capital
Trust III,
- $400,000,000 aggregate liquidation amount of 7.12% Trust Originated
Preferred Securities issued by Merrill Lynch Preferred Capital
Trust IV,
- $850,000,000 aggregate liquidation amount of 7.28% Trust Originated
Preferred Securities issued by Merrill Lynch Preferred Capital
Trust V, and
- with any guarantee now or hereafter entered into by the Company in
respect of any preferred stock of any other Finance Subsidiary.
The Company's obligations under the Company Debenture are subordinate and
junior in right of payment to all Senior Indebtedness. At September 25, 1998,
the Company had outstanding Senior Indebtedness aggregating approximately $83.7
billion which would have ranked senior to the Company's obligations under the
Guarantees and the Company Debenture.
There are no terms in the TOPrS, 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.
ENFORCEMENT OF CERTAIN RIGHTS BY OR ON BEHALF OF HOLDERS OF THE TOPRS
The Special Representative's ability to take action on your behalf is
limited, and it is uncertain that you would receive a distribution on the TOPrS
even if he or she took such action. Under no circumstances will 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 rather than declaring and making
distributions on the Partnership Preferred Securities.
If a Trust Enforcement Event occurs and is continuing, then
(a) You 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 will 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.
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<PAGE>
LIMITED VOTING RIGHTS
Holders of the TOPrS will have limited voting rights and will not be
entitled to vote to appoint, change, or to increase or decrease the number of
trustees. Those voting rights are vested exclusively in the Company as the
holder of the Trust Common Securities.
TRADING CHARACTERISTICS OF TOPRS
The price at which the TOPrS may trade may not fully reflect the value of
the accumulated but unpaid distributions on the TOPrS (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 TOPrS (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 not pay current distributions.
If you dispose of your TOPrS, you 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 your adjusted tax basis in your pro
rata share of the Partnership Preferred Securities deemed disposed of. To the
extent the selling price is less than your adjusted tax basis (which will
include all accumulated but unpaid distributions), you will recognize a capital
loss. Subject to certain limited exceptions, you cannot apply capital losses to
offset ordinary income for United States Federal income tax purposes.
NO PRIOR MARKET FOR THE TOPRS
The TOPrS constitute a new issue of securities with no established trading
market. We have applied to list the TOPrS on the NYSE. There can be no assurance
that an active market for the TOPrS 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 TOPrS, 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 TOPrS.
The TOPrS will only be sold to those investors for whom such TOPrS are
considered suitable in light of their particular circumstances.
11
<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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting and sale of life insurance and annuity products. Our
banking, trust, and mortgage lending operations conducted through our
subsidiaries 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 other permitted investments. See
"Description of the Partnership Preferred Securities--Partnership Investments".
The Company and its subsidiaries which are the issuers of the Debentures will
use the proceeds from the sale of such Debentures to the Partnership primarily
for general corporate purposes. Such general corporate purposes may include the
funding of investments in, or extensions of credit to, our subsidiaries, the
funding of assets our assets and those of our subsidiaries, the lengthening of
the average maturity of our 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. We expect that we will, on a
recurrent basis, engage in additional financings as the need arises to finance
our growth, through acquisitions or otherwise, or to lengthen the average
maturity of our borrowings. To the extent that Trust Preferred Securities being
purchased for resale by MLPF&S are not resold, the aggregate proceeds to us and
our subsidiaries would be reduced.
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RATIO OF EARNINGS TO FIXED CHARGES
In 1998, Merrill Lynch acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests. The
following information has been restated, except as noted in note (a) below, as
if Merrill Lynch and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges of the Company for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED LAST FRIDAY IN DECEMBER
---------------------------------------------------------------
1993(A) 1994 1995 1996 1997
----------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.................... 1.4 1.2 1.2 1.2 1.2
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 25,
1998
-----------------
<S> <C>
Ratio of earnings to fixed charges.................... 1.1
</TABLE>
(a) 1993 information has not been restated for the Midland merger. The effect of
combining Midland on this ratio would not be material.
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.
MERRILL LYNCH PREFERRED CAPITAL TRUST VI
Merrill Lynch Preferred Capital Trust VI 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 December 7, 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.
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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.
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 VI, L.P.
Merrill Lynch Preferred Funding VI, 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 December 7, 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.
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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".
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.
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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 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 , 199
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
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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, 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
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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.
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
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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 proposed change in the laws (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein,
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(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 Affiliate Investment Instrument 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 NYSE 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.
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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.
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 City 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 (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.
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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 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
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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.
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
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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 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.
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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 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.
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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.
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
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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.
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Direct and Indirect Participants and other
members of the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and interest payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct and Indirect Participants, third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
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
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Securities to the extent the Trust has funds available 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
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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.
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, the $850,000,000 aggregate liquidation amount of 7.28% Trust Originated
Preferred Securities issued by Merrill Lynch Preferred Capital Trust V and with
any guarantee now or hereafter entered into by the Company in respect of any
preferred stock of any other 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, Merrill Lynch Preferred Capital Trust V and any other wholly-owned
subsidiary of the Company the principal purpose of which is to raise capital for
the 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. 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).
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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 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 Trust 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
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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 , 199 . 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.
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
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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
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.
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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 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
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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 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).
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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 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
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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, the $850,000,000
aggregate liquidation amount of 7.28% Trust Originated Preferred Securities
issued by Merrill Lynch Preferred Capital Trust V 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 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.
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"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 Affiliate Investment Instrument
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
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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.
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
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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 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
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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.
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
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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 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.
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DESCRIPTION OF THE PARTNERSHIP GUARANTEE
Set forth below is a summary of information concerning the Partnership
Guarantee (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 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".
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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. 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, the $850,000,000
aggregate liquidation amount of 7.28% Trust Originated Preferred Securities
issued by Merrill Lynch Preferred Capital Trust V and with any guarantee now or
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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) 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.
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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.
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
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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.
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
47
<PAGE>
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.
48
<PAGE>
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).
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 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.
49
<PAGE>
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.
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 MLPF&S and (the
"underwriters") 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
PREFERRED
UNDERWRITERS 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 may be changed. Proceeds to be received by the Company will be net
of the underwriting discount and expenses payable by the Company.
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
50
<PAGE>
$ 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.
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.
Certain of the underwriters and their affiliates engage in transactions
with, and perform services for, the Company in the ordinary course of business
and have engaged, and may in the future engage, in commercial banking and
investment banking transactions with the Company.
In connection with the offering, the underwriters are permitted to engage in
certain transactions that stabilize the market price of the Trust Preferred
Securities. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the market 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 Trust
Preferred Securities than are set forth on the cover page of this prospectus,
the underwriter may reduce that short position by purchasing Trust Preferred
Securities in the open market. 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 underwriters may also impose a penalty bid on certain underwriters and
selling group members. This means that if an underwriter purchases 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 Trust Preferred Securities as part of the offering.
The imposition of a penalty bid might 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.
51
<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 of the Company and its subsidiaries
included in the Company's Current Report on Form 8-K dated December 10, 1998 and
related financial statement schedules of the Company and its subsidiaries
included in the 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 Current Report on Form 8-K dated December 10,
1998, 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 VI, L.P. and Merrill Lynch
Preferred Capital Trust VI as of , 1998 included in this prospectus
have also been audited by and have been included in reliance upon such
reports of 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 of the Company 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 reports 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 for any such report on unaudited interim financial
information because any such report is not a "report" or a "part" of the
registration statement prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Securities Act.
52
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERMS PAGE NO.
- -------------------------------------------------------------------------------------------------------- -------------
<S> <C>
Affiliate Debentures.................................................................................... 32
Affiliate Investment Instruments........................................................................ 14
Beneficial Owner........................................................................................ 24
Business Day............................................................................................ 17
Change in 1940 Act Law.................................................................................. 19
Code.................................................................................................... 43
Company................................................................................................. 1
Company Debenture....................................................................................... 32
Debentures.............................................................................................. 32
Declaration............................................................................................. 13
Delaware Trustee........................................................................................ 13
Depository.............................................................................................. 24
DTC..................................................................................................... 6
Eligible Institution.................................................................................... 33
Eligible Debt Securities................................................................................ 32
Exchange Act............................................................................................ 3
FDIC.................................................................................................... 33
Finance Subsidiary...................................................................................... 28
General Partner......................................................................................... 14
Global Certificates..................................................................................... 24
Global Partnership Security............................................................................. 39
Guarantees.............................................................................................. 8
Independent Financial Advisor........................................................................... 33
Indirect Participants................................................................................... 24
Initial Partnership Proceeds............................................................................ 32
Investment Affiliate.................................................................................... 33
Investment Events of Default............................................................................ 32
Investment Guarantee.................................................................................... 32
IRS..................................................................................................... 19
Limited Partnership Agreement........................................................................... 13
Merrill Lynch........................................................................................... 4
Midland................................................................................................. 13
MLPF&S.................................................................................................. 11
Moody's................................................................................................. 32
NASD.................................................................................................... 48
New Regulations......................................................................................... 46
1940 Act................................................................................................ 6
Non-United States Person................................................................................ 43
NYSE.................................................................................................... 1
Participants............................................................................................ 24
Partnership............................................................................................. 4
Partnership Act......................................................................................... 14
Partnership Enforcement Event........................................................................... 31
Partnership Guarantee................................................................................... 40
Partnership Guarantee Payments.......................................................................... 40
Partnership Investment Company Event.................................................................... 36
Partnership Liquidation Distribution.................................................................... 36
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERMS PAGE NO.
- -------------------------------------------------------------------------------------------------------- -------------
<S> <C>
Partnership Preferred Securities........................................................................ 4
Partnership Special Event............................................................................... 35
Partnership Successor Securities........................................................................ 35
Partnership Tax Event................................................................................... 35
Property Account........................................................................................ 13
Property Trustee........................................................................................ 13
Purchase Agreement...................................................................................... 47
Redemption Price........................................................................................ 20
Regular Trustees........................................................................................ 13
Representatives......................................................................................... 47
Rights Agreement........................................................................................ 5
SEC..................................................................................................... 3
S&P..................................................................................................... 32
Securities Act.......................................................................................... 3
Senior Indebtedness..................................................................................... 9
Special Event........................................................................................... 8
Special Representatives................................................................................. 31
Successor Securities.................................................................................... 23
Tax Action.............................................................................................. 19
Tax Counsel............................................................................................. 43
TOPrS................................................................................................... 1
Trust................................................................................................... 4
Trust Act............................................................................................... 13
Trust Common Securities................................................................................. 7
Trust Dissolution Tax Opinion........................................................................... 19
Trust Enforcement Event................................................................................. 17
Trust Guarantee......................................................................................... 5
Trust Guarantee Payments................................................................................ 27
Trust Guarantee Trustee................................................................................. 13
Trust Indenture Act..................................................................................... 13
Trust Investment Company Event.......................................................................... 19
Trust Liquidation....................................................................................... 21
Trust Liquidation Distribution.......................................................................... 21
Trust Preferred Securities.............................................................................. 4
Trust Redemption Tax Opinion............................................................................ 18
Trust Securities........................................................................................ 6
Trust Special Event..................................................................................... 18
Trust Tax Event......................................................................................... 19
Trustees................................................................................................ 13
Underwriters............................................................................................ 47
Underwriters' Compensation.............................................................................. 47
United States Person.................................................................................... 43
</TABLE>
54
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
-------------
<S> <C>
MERRILL LYNCH PREFERRED FUNDING VI, L.P.
Independent Auditors' Report.......................................................................... F-2
Balance Sheet......................................................................................... F-3
Notes to Balance Sheet................................................................................ F-3
MERRILL LYNCH PREFERRED CAPITAL TRUST VI
Independent Auditors' Report.......................................................................... F-4
Balance Sheet......................................................................................... F-5
Notes to Balance Sheet................................................................................ F-5
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the General Partner and Initial Limited Partner of
Merrill Lynch Preferred Funding VI, L.P.
We have audited the accompanying balance sheet of Merrill Lynch Preferred
Funding VI, L.P. (the "Partnership") as of , 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 , 1998,
in conformity with generally accepted accounting principles.
, 1998
New York, New York
F-2
<PAGE>
BALANCE SHEET
OF MERRILL LYNCH PREFERRED FUNDING VI, L.P.
BALANCE SHEET
, 1998
<TABLE>
<S> <C>
Assets............................................................... $
---------
---------
Partnership Securities
Limited partner interest........................................... $
General partner interest...........................................
---------
$
Less: Receivables from partners for subscribed partnership
interests..........................................................
---------
--
---------
---------
</TABLE>
NOTES TO BALANCE SHEET OF MERRILL LYNCH PREFERRED FUNDING VI, L.P.
Merrill Lynch Preferred Funding VI, L.P. (the "Partnership") is a limited
partnership that was formed under the Delaware Revised Uniform Limited
Partnership Act on December 7, 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 VI (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>
INDEPENDENT AUDITORS' REPORT
To the Trustees of
Merrill Lynch Preferred Capital Trust VI
We have audited the accompanying balance sheet of Merrill Lynch Preferred
Capital Trust VI (the "Trust") as of , 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 , 1998, in
conformity with generally accepted accounting principles.
, 1998
New York, New York
F-4
<PAGE>
BALANCE SHEET OF
MERRILL LYNCH PREFERRED CAPITAL TRUST VI
BALANCE SHEET
, 1998
<TABLE>
<S> <C>
Assets......................................................... $
--
Trust securities............................................... $
--
</TABLE>
NOTES TO BALANCE SHEET OF MERRILL LYNCH PREFERRED CAPITAL TRUST VI
Merrill Lynch Preferred Capital Trust VI (the "Trust") is a statutory
business trust formed on December 7, 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 VI, 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 , 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 , 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-5
<PAGE>
- -----------------------------------------
- -----------------------------------------
[LOGO]
MERRILL LYNCH PREFERRED CAPITAL TRUST VI
TRUST PREFERRED SECURITIES
% TRUST ORIGINATED PREFERRED SECURITIES(SM) ("TOPRS(SM)")
(LIQUIDATION AMOUNT $25 PER TRUST PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
MERRILL LYNCH & CO., INC.
-------------
PROSPECTUS
-------------
MERRILL LYNCH & CO.
, 199
- -----------------------------------------
- -----------------------------------------
<PAGE>
INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED DECEMBER 11, 1998
PROSPECTUS SUPPLEMENT
- ----------------------------
(TO PROSPECTUS DATED , 199 )
$
[LOGO]
MERRILL LYNCH & CO., INC.
MEDIUM-TERM NOTES, SERIES B
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
---------------------
THE COMPANY: Merrill Lynch & Co., Inc.
TERMS: We plan to offer and sell Notes with various terms, including the
following:
- Ranking as senior indebtedness of the Company
- Stated maturities of 9 months or more from date of issue
- Redemption and/or repayment provisions, if applicable, whether mandatory
or at the option of the Company or Noteholders
- Payments in U.S. dollars
- Minimum denominations of $1,000 and integral multiples thereof
- Book-entry (through The Depository Trust Company) or certificated form
- Interest at fixed or floating rates, or no interest at all. The floating
interest rate may be based on one or more of the following indices plus or
minus a spread and/or multiplied by a spread multiplier:
DEG. CD rate
DEG. CMT rate
DEG. Commercial paper rate
DEG. Eleventh district cost of funds rate
DEG. Federal funds rate
DEG. LIBOR
DEG. Prime rate
DEG. Treasury rate
- Interest payments on fixed rate Notes on each May 15 and November 15 and
at maturity
- Interest payments on floating rate Notes on a monthly, quarterly,
semiannual or annual basis
The final terms for each Note, which may be different from the terms
described in this prospectus supplement, will be specified in the applicable
pricing supplement.
INVESTING IN THE NOTES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" ON PAGE
S-3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
We may sell Notes to the Agents as principal for resale at varying or fixed
offering prices or through the Agents as agent using their reasonable efforts on
our behalf. If we sell all of the Notes, we expect to receive proceeds therefrom
of between $ and $ after paying the Agents' discounts and commissions
of between $ and $ . We may also sell Notes without the assistance of
the Agents (whether acting as principal or as agent). However, the Agents'
discounts and commissions may exceed these amounts with respect to sales of
Notes with stated maturities in excess of 30 years. If we sell other
<PAGE>
securities referred to in the accompanying prospectus, the aggregate initial
offering price of Notes that we may offer and sell under this prospectus
supplement would be reduced.
------------------------
MERRILL LYNCH & CO.
---------------
The date of this prospectus supplement is , 199 .
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
RISK FACTORS............................................................................................... S-2
RATIO OF EARNINGS TO FIXED CHARGES......................................................................... S-4
DESCRIPTION OF NOTES....................................................................................... S-4
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS.................................................... S-22
PLAN OF DISTRIBUTION....................................................................................... S-28
LEGAL OPINION.............................................................................................. S-29
<CAPTION>
PROSPECTUS
PAGE
---------
<S> <C>
Where You Can Find More Information........................................................................
Incorporation of Information We File With the SEC..........................................................
Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends................................................................................................
Merrill Lynch & Co., Inc...................................................................................
Use of Proceeds............................................................................................
The Securities.............................................................................................
Description of Debt Securities.............................................................................
Description of Debt Warrants...............................................................................
Description of Currency Securities.........................................................................
Description of Index Warrants..............................................................................
Description of Preferred Stock.............................................................................
Description of Depositary Shares...........................................................................
Description of Preferred Stock Warrants....................................................................
Description of Common Stock................................................................................
Description of Common Stock Warrants.......................................................................
Plan of Distribution.......................................................................................
Experts....................................................................................................
</TABLE>
S-2
<PAGE>
RISK FACTORS
Your investment in the Notes will include certain risks. In consultation
with your own financial and legal advisers, you should carefully consider, among
other matters, the following discussion of risks before deciding whether an
investment in the Notes is suitable for you. Notes are not an appropriate
investment for you if you are unsophisticated with respect to the significant
components of their relationships.
STRUCTURE RISKS
GENERAL
If you invest in Notes indexed to one or more interest rate, currency or
other indices or formula, there will be significant risks not associated with a
conventional fixed rate or floating rate debt security. Such risks include
fluctuation of the indices or formulas and the possibility that you will receive
a lower (or no) amount of principal, premium or interest and at different times
than you expected. We have no control over a number of matters, including
economic, financial and political events, that are important in determining the
existence, magnitude and longevity of such risks and their results. In addition,
if an index or formula used to determine any amounts payable in respect of the
Notes contains a multiplier or leverage factor, the effect of any change in such
index or formula will be magnified. In recent years, values of certain indices
and formulas have been volatile and volatility in those and other indices and
formulas may be expected in the future. However, past experience is not
necessarily indicative of what may occur in the future.
REDEMPTION
If your Notes are redeemable at our option or are otherwise subject to
mandatory redemption, we may (in the case of optional redemption) or must (in
the case of mandatory redemption) choose to redeem such Notes at times when
prevailing interest rates may be relatively low. Accordingly, you generally will
not be able to reinvest the redemption proceeds in a comparable security at an
effective interest rate as high as that of the Notes.
UNCERTAIN TRADING MARKETS
We cannot assure you a trading market for your Notes will ever develop or be
maintained. Many factors independent of our creditworthiness affect the trading
market. These factors include:
- complexity and volatility of the index or formula applicable to the Notes,
- method of calculating the principal, premium and interest in respect of
the Notes,
- time remaining to the maturity of the Notes,
- outstanding amount of the Notes,
- redemption features of the Notes,
- amount of other debt securities linked to the index or formula applicable
to the Notes, and
- level, direction and volatility of market interest rates generally.
CREDIT RATINGS
The credit ratings of our medium-term note program may not reflect the
potential impact of all risks related to structure and other factors on the
value of your Notes. In addition, real or anticipated changes in our credit
ratings will generally affect the market value of your Notes.
S-3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn Inc.
("Midland"), in a transaction accounted for as a pooling-of-interests. The
following information has been restated, except as noted in note (a) below, as
if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED LAST FRIDAY IN DECEMBER
---------------------------------------------------------------
1993(A) 1994 1995 1996 1997
----------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.................... 1.4 1.2 1.2 1.2 1.2
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 25,
1998
-----------------
<S> <C>
Ratio of earnings to fixed charges.................... 1.1
</TABLE>
(a) 1993 information has not been restated for the Midland merger. The effect of
combining Midland on this ratio would not be material.
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
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
S-4
<PAGE>
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 September 25, 1998, the Company
had issued and outstanding Notes in an aggregate principal amount of
approximately $ 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 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.
S-5
<PAGE>
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.
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,
the Trustee must receive, at its office maintained for such purpose in the
Borough of Manhattan, The City of New York, currently the Corporate Trust Office
of
S-6
<PAGE>
the Trustee, not more than 60 nor less than 30 days prior to the Optional
Repayment Date (i) in the case of a Certificated Note, such Certificated Note
and the form thereon entitled "Option to Elect Repayment" duly completed or (ii)
in the case of a Book-Entry Note, instructions to such effect from the
applicable Beneficial Owner (as hereinafter defined) to the Depositary and
forwarded by the Depositary. 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.
Only the Depositary may exercise the repayment option in respect of Global
Securities representing Book-Entry Notes. Accordingly, Beneficial Owners of
Global Securities that desire to have all or any portion of the Book-Entry Notes
represented by such Global Securities repaid must instruct the Participant (as
hereinafter defined) through which they own their interest to direct the
Depositary to exercise the repayment option on their behalf by forwarding the
repayment instructions to the Trustee as aforesaid. In order to ensure that such
instructions are received by the Trustee on a particular day, the applicable
Beneficial Owner must so instruct the Participant through which it owns its
interest before such Participant's deadline for accepting instructions for that
day. Different firms may have different deadlines for accepting instructions
from their customers. Accordingly, Beneficial Owners should consult the
Participants through which they own their interest for the respective deadlines
for such Participants. All instructions given to Participants from Beneficial
Owners of Global Securities relating to the option to elect repayment shall be
irrevocable. In addition, at the time such instructions are given, each such
Beneficial Owner shall cause the Participant through which it owns its interest
to transfer such Beneficial Owner's interest in the Global Security or
Securities representing the related Book-Entry Notes, on the Depositary's
records, to the Trustee. See "--Book-Entry Notes".
If applicable, the Company will comply with the requirements of Section
14(e) of the Exchange Act and the rules promulgated thereunder, and any other
securities laws or regulations in connection with any such repayment.
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
S-7
<PAGE>
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 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;
S-8
<PAGE>
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 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
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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 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
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) 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.
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<PAGE>
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.
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
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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 in H.15(519) (as hereinafter defined)
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 in H.15 Daily Update (as hereinafter defined), or such other
recognized electronic source used for the purpose of displaying such rate, under
the caption "CDs (secondary market)." If such rate is not yet published in
either H.15(519), H.15 Daily Update or another recognized electronic source 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 center banks for negotiable certificates of deposit
with a remaining maturity closest to the Index Maturity specified 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 mentioned in this
sentence, 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.
"H.15(519)" means the weekly statistical release designated as such, or any
successor publication, published by the Board of Governors of the Federal
Reserve System.
"H.15 Daily Update" means the daily update of H.15(519), available through
the world-wide-web site of the Board of Governors of the Federal Reserve System
at http://www.bog.frb.fed.us/releases/h15/update, or any successor site or
publication.
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 7051, 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 applicable pricing
supplement, for the week or the month, as applicable, ended immediately
preceding the week or the month, as applicable, in which the related CMT Rate
Interest Determination Date falls. If such rate is no longer displayed on the
relevant page or is not so 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 so published by 3:00 P.M., New York City
time, on the related Calculation Date, then the CMT Rate on such CMT Rate
Interest Determination Date will be such treasury constant maturity rate for 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
H.15(519). If such information is not so 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
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secondary market offered rates 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 in The City of New York (which may include the Agent or its affiliates)
(each, a "Reference Dealer") 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 offered
rates 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 offered rates 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 Bridge Telerate, Inc.
(or any successor service) on the page specified in the applicable pricing
supplement (or any other page as may replace such page on such service) for the
purpose of displaying Treasury Constant Maturities as reported in H.15(519) or
if no such page is specified in the applicable pricing supplement, page 7052.
"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 or if no such maturity is specified in the applicable pricing
supplement, 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 applicable pricing supplement as published
in H.15(519) under the caption "Commercial Paper-Nonfinancial" or, if not so
published by 3:00 P.M., New York City time, on the related Calculation Date, the
rate on such Commercial Paper Rate Interest Determination Date for commercial
paper having the Index Maturity specified in the applicable pricing supplement
as published in H.15 Daily Update, or such other recognized electronic source
used for the purpose of displaying such rate, under the caption "Commercial
Paper-Nonfinancial." If such rate is not yet published in H.15(519), H.15 Daily
Update or another recognized electronic source by 3:00 P.M., New York City time,
on the related
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Calculation Date, then the Commercial Paper Rate on 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 United States dollar
commercial paper in The City of New York (which may include the Agent and its
affiliates) selected by the Calculation Agent for commercial paper having the
Index Maturity specified in the applicable pricing supplement placed for
industrial issuers whose bond rating is "Aa", or the equivalent, from a
nationally recognized statistical 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 as of such Commercial
Paper Rate Interest Determination Date will be the Commercial Paper 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:
<TABLE>
<S> <C> <C>
D X 360
Money Market Yield = -------------- X 100
360 - (D X M)
</TABLE>
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 immediately preceding the month in
which such Eleventh District Cost of Funds Rate Interest Determination Date
falls as set forth under the caption "11th District" on the display on Bridge
Telerate, Inc. (or any successor service) on page 7058 ("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 such related Eleventh District Cost of Funds Rate Interest Determination
Date, then the Eleventh District Cost of Funds on 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 immediately preceding
such Eleventh District Cost of Funds Rate Interest Determination Date. 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 determined as
of 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.
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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.
"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)", as such rate is displayed on Bridge Telerate, Inc. (or any
successor service) on page 120 ("Telerate Page 120"), or, if such rate does not
appear on Telerate Page 120 or is 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 for United States dollar federal funds as published
in H.15 Daily Update, or such other recognized electronic source used for the
purpose of displaying such rate, under the caption "Federal Funds/Effective
Rate." If such rate does not appear on Telerate Page 120 or is not yet published
in H.15(519), H.15 Daily Update or another recognized electronic source by 3:00
P.M., New York City time, on the related Calculation Date, then the Federal
Funds Rate on 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 United States dollar federal funds
transactions in The City of New York (which may include the Agent or its
affiliates) 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 determined as of 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 Telerate" is specified in the applicable
pricing supplement or if neither "LIBOR Reuters" nor "LIBOR Telerate" is
specified in the applicable pricing supplement as the method for
calculating LIBOR, the rate for deposits in the Index Currency having
the Index Maturity specified in such applicable pricing supplement,
commencing on the second London Business Day immediately following that
LIBOR Interest Determination Date that appears on the Designated LIBOR
Page as of 11:00 A.M., London time, on such LIBOR Interest Determination
Date. If fewer than two such offered rates so appear, or no such rate
appears, as applicable, LIBOR on such LIBOR Interest Determination Date
will be determined in accordance with the provisions described in clause
(ii) below, or (b) if "LIBOR Reuters" is specified in the applicable
pricing supplement, the arithmetic mean of the offered rates (unless the
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 specified in the applicable pricing supplement, commencing on
the second London Business Day immediately following that LIBOR Interest
Determination Date, that appear (or, if only a single rate is required
as aforesaid, appears) on the Designated LIBOR Page specified in the
applicable pricing supplement as of 11:00 A.M., London time, on such
LIBOR Interest Determination Date.
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(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 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 (which may include affiliates of the Agent)
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
specified 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, then LIBOR
determined on such LIBOR Interest Determination Date will be the
arithmetic mean of such quotations. If fewer than two quotations are
provided, then LIBOR determined on such LIBOR Interest Determination
Date will be the arithmetic mean of the rates quoted at approximately
11:00 A.M., in the applicable Principal Financial Center(s) (as defined
below), on such LIBOR Interest Determination Date by three major banks
(which may include affiliates of the Agent) in such Principal Financial
Center selected by the Calculation Agent for loans in the Index
Currency to leading European banks, having the Index Maturity specified
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 as of such LIBOR Interest
Determination Date will be LIBOR in effect on such LIBOR Interest
Determination Date.
"Index Currency" means the currency specified in the applicable pricing
supplement as to which LIBOR shall be calculated or if no such currency is
specified in the applicable pricing supplement, United States dollars.
"Designated LIBOR Page" means either (a) if "LIBOR Reuters" is specified in
the applicable pricing supplement, the display on the Reuter Monitor Money Rates
Service (or any successor service) on the page specified in such pricing
supplement (or any other page as may replace such page or such 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 or neither "LIBOR Reuters" nor "LIBOR Telerate" is
specified in the applicable pricing supplement as the method for calculating
LIBOR, the display on Bridge Telerate, Inc. (or any successor service) on the
page specified in such pricing supplement (or any page as may replace such page
on such service) for the purpose of displaying the London interbank rates of
major banks for the applicable Index Currency.
"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, 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 rate on such date as such rate is published in
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H.15(519) under the heading "Bank Prime Loan" or, if not published by 3:00 P.M.,
New York City time, on the related Calculation Date, the rate on such Prime Rate
Interest Determination Date as published in H.15 Daily Update, or such other
recognized electronic source used for the purpose of displaying such rate, under
the caption "Bank Prime Loan." If such rate is not yet published in H.15(519),
H.15 Daily Update or another recognized electronic source by 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 US PRIME 1 Page (as defined below) as such bank's
prime rate or base lending rate as of 11:00 A.M., New York City time, on such
Prime Rate Interest Determination Date. If fewer than four such rates so appear
on the Reuters Screen US PRIME 1 Page for such Prime Rate Interest Determination
Date, then the Prime Rate shall be the arithmetic mean of the prime rates on
base lending 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; 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 determined as of such Prime Rate
Interest Determination Date will be the Prime Rate in effect on such Prime Rate
Interest Determination Date.
"Reuters Screen US PRIME 1 Page" means the display on the Reuter Monitor
Money Rates Service (or any successor service) on the "US PRIME 1 Page" (or such
other page as may replace the US PRIME 1 Page on such 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 from the auction held on such Treasury
Rate Interest Determination Date (the "Auction") of direct obligations of the
United States ("Treasury Bills") having the Index Maturity specified in the
applicable pricing supplement under the caption "AVGE INVEST YIELD" on the
display on Bridge Telerate, Inc. (or any successor service) on page 56
("Telerate Page 56") or page 57 ("Telerate Page 57") or, if not so published by
3:00 P.M., New York City time, on the related Calculation Date, the auction
average rate of such Treasury Bills (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 specified in the applicable pricing supplement are not so published by
3:00 P.M., New York City time, on the related Calculation Date, or if no such
Auction is held, then the Treasury Rate will be the 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) on such Treasury Rate Interest Determination Date of Treasury
Bills having the Index Maturity specified in the applicable pricing supplement
as published in H.15(519) under the caption "U.S. Government Securities/Treasury
Bills/Secondary Market" or, if not yet published by 3:00 P.M., New York City
time, on the related Calculation Date, the rate on such Treasury Rate Interest
Determination Date of such Treasury Bills as published in H.15 Daily Update, or
such other recognized electronic source used for the purpose of displaying such
rate, under the caption "U.S. Government Securities/Treasury Bills/Secondary
Market." If such rate is not yet published in H.15(519), H.15 Daily Update or
another recognized electronic source, 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 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
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to the Index Maturity specified 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 determined as of 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 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
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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 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
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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.
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
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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.
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.
Management of the Depository is aware that some computer applications,
systems and the like for processing data ("Systems") that are dependent upon
calendar dates, including dates before, on, and after January 1, 2000, may
encounter "Year 2000 problems." The Depository has informed Direct and Indirect
Participants and other members of the financial community (the "Industry") that
it has developed and is implementing a program so that its Systems, as the same
relate to the timely payment of distributions (including principal and interest
payments) to securityholders, book-entry deliveries, and settlement of trades
within the Depository ("Depository Services"), continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, the Depository's plan includes a
testing phase, which is expected to be completed within appropriate time frames.
However, the Depository's ability to perform properly its services is also
dependent upon other parties, including, but not limited to, issuers and their
agents, as well as the Depository's Direct and Indirect Participants, third
party vendors from whom the Depository licenses software and hardware, and third
party vendors on whom the Depository relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. The Depository has informed the Industry that it is contacting
(and will continue to contact) third party vendors from whom the Depository
acquires services to: (i) impress upon them the importance of such services
being Year 2000 compliant; and (ii) determine the extent of their efforts for
Year 2000 remediation (and, as appropriate, testing) of their services. In
addition, the Depository is in the process of developing such contingency plans
as it deems appropriate.
According to the Depository, the information in the preceding two paragraphs
with respect to the Depository has been provided to the Industry for
informational purposes only and is not intended to serve as a representation,
warranty, or contract modification of any kind.
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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 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
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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.
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
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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 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
S-24
<PAGE>
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-25
<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
S-26
<PAGE>
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.
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 one year. Long-term capital
gains of individuals are subject to reduced capital gain rates while short-term
capital gains are subject to ordinary income rates. The deductibility of capital
losses is subject to certain limitations. Prospective investors should consult
their own tax advisors concerning these tax law provisions.
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.
S-27
<PAGE>
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.
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.
S-28
<PAGE>
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.
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-29
<PAGE>
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[LOGO]
$
MERRILL LYNCH & CO., INC.
MEDIUM-TERM NOTES,
SERIES B
----------------------------
PROSPECTUS SUPPLEMENT
----------------------------
MERRILL LYNCH & CO.
, 199
- -----------------------------------------
- -----------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 1998
P R O S P E C T U S
- -------------------
Merrill Lynch & Co., Inc.
Senior Debt Securities
Merrill Lynch & Co., Inc. ("we" or the "Company") has issued and intends
from time to time to issue senior debt securities (the "Senior Debt Securities"
or the "Securities").
The following Securities have been issued and the indicated aggregate
principal amounts are outstanding as of the date of this prospectus:
Redeemable Notes
$1,650,000,000 of 6% Notes due February 12, 2003;
$150,000,000 of 7.05% Notes due April 15, 2003;
$750,000,000 Floating Rate Notes due June 24, 2003;
$500,000,000 6% Notes due November 15, 2004;
$500,000,000 6% Notes due July 15, 2005;
$125,000,000 of 6 3/8% Notes due September 8, 2006;
$700,000,000 6 1/2% Notes due July 15, 2018;
$1,000,000,000 6 7/8% Notes due November 15, 2018; and
$33,015,000 of 8.40% Notes due November 1, 2019.
Non-Redeemable Fixed Rate Notes
$165,000,000 of 10 3/8% Notes due February 1, 1999;
$175,000,000 of 7 3/4% Notes due March 1, 1999;
$200,000,000 of 6 3/8% Notes due March 30, 1999;
$300,000,000 of 8 1/4% Notes due November 15, 1999;
$150,000,000 of 8 3/8% Notes due February 9, 2000;
$150,000,000 of 6.70% Notes due August 1, 2000;
$500,000,000 of 6% Notes due January 15, 2001;
$250,000,000 of 6% Notes due March 1, 2001;
$300,000,000 of 6 1/2% Notes due April 1, 2001;
$225,000,000 of 8% Notes due February 1, 2002;
$150,000,000 of 7 3/8% Notes due August 17, 2002;
$250,000,000 of 6.64% Notes due September 19, 2002;
$150,000,000 of 8.30% Notes due November 1, 2002;
$200,000,000 of 6 7/8% Notes due March 1, 2003;
$500,000,000 of 6.55% Notes due August 1, 2004;
$200,000,000 of 6 1/4% Notes due January 15, 2006;
$200,000,000 of 7% Notes due March 15, 2006;
$350,000,000 of 7 3/8% Notes due May 15, 2006;
$500,000,000 of 7% Notes due January 15, 2007;
$150,000,000 of 8% Notes due June 1, 2007;
$250,000,000 of 6.56% Notes due December 16, 2007;
$250,000,000 of 7% Notes due April 27, 2008;
$150,000,000 of 6 1/4% Notes due October 15, 2008;
$500,000,000 of 6 3/8% Notes due October 15, 2008; and
$250,000,000 of 6 3/4% Notes due June 1, 2028.
Non-Redeemable Floating Rate Notes
$300,000,000 of Floating Rate Notes due February 4, 2003.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. 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 , 199 .
<PAGE>
TABLE OF CONTENTS
WHERE YOU CAN FIND MORE INFORMATION........................................ 2
INCORPORATION OF INFORMATION WE FILE WITH THE SEC.......................... 2
MERRILL LYNCH & CO., INC................................................... 3
RATIO OF EARNINGS TO FIXED CHARGES......................................... 4
DESCRIPTION OF SENIOR DEBT SECURITIES..................................... 10
Redeemable Notes.................................................... 10
Non-Redeemable Fixed Rate Notes...................................... 18
Non-Redeemable Floating Rate Notes................................... 19
OTHER TERMS................................................................ 20
EXPERTS.................................................................... 21
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copy charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you to
those documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
2
<PAGE>
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
o Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
o Quarterly Reports on Form 10-Q for the quarters ended March 27,
1998, June 26, 1998 and September 25, 1998; and
o 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, July 15, 1998, July 29, 1998, September
3, 1998, September 8, 1998, September 29, 1998, October 13, 1998,
October 21, 1998, October 28, 1998, November 3, 1998, November 24,
1998, December 1, 1998 and December 10, 1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
o Reports filed under Sections 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December Nine Months
---------------------------------------- Ended
1993(a) 1994 1995 1996 1997 September 25, 1998
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges ..... 1.4 1.2 1.2 1.2 1.2 1.1
</TABLE>
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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 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
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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.
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 Depositary, 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 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. 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 Cedelbank, societe anonyme ("Cedelbank"), 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.
Cedelbank and Euroclear hold interests on behalf of their participants through
customers' securities accounts in Cedelbank'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 Cedelbank 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
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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 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.
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems". DTC has informed its Direct and Indirect Participants and other
members of the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and interest payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct and Indirect Participants, third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
If (x) any 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, 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 Depositary shall instruct the Trustee. It is expected that such
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instructions may be based upon directions received by the Depositary from
Participants with respect to ownership of beneficial interests in Global Notes.
Cedelbank has advised the Company that it is incorporated under the laws
of Luxembourg as a professional depositary. Cedelbank 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. Cedelbank provides
to Cedel Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Cedelbank interfaces with domestic markets
in several countries. As a professional depositary, Cedelbank 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 Cedelbank 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 Cedelbank 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 Cedelbank.
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.
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 Cedelbank and Euroclear and will be settled
using the procedures applicable to conventional eurobonds in immediately
available funds.
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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 Cedelbanks 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 Cedelbank 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 Cedelbank or Euroclear cash account
only as of the business day following settlement in the Depositary.
Although the Depositary, Cedelbank and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of Book-Entry Securities
among participants of the Depositary, Cedelbank 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 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:
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(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;
(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.
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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 you should reach an investment decision regarding the
Securities only after carefully considering the suitability of the Securities in
the light of your particular circumstances.
You should also consider the tax consequences, if any, of investing in the
Securities and should consult your tax advisor.
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.
* Book-Entry Securities
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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.
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".
* Book-Entry Securities
11
<PAGE>
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 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.
12
<PAGE>
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 Bridge Telerate (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).
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 November 15, 2004*
General
The 6% Notes due November 15, 2004 (the "6% Notes") will mature on
November 15, 2004 (the "Stated Maturity"). The 6% Notes bear interest from
November 24, 1998, payable semiannually on May 15 and November 15 of each year
(each, an "Interest Payment Date"), commencing May 15, 1998 and at maturity, to
the persons in whose names the Notes are registered on the preceding May 1 and
November 1, 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.
* Book-Entry Securities
13
<PAGE>
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 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".
* Book-Entry Securities
14
<PAGE>
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.
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 3/8% Notes shall be given not less than 30 or more than 60
days prior to the Redemption Date to each Holder of 6 3/8% 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
* Book-Entry Securities
15
<PAGE>
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 6 7/8% Notes due November 15, 2018*
General
The 6 7/8% Notes due November 15, 2018 (the "6 7/8% Notes") will mature on
November 15, 2018 (the "Stated Maturity"). The 6 7/8% Notes bear interest from
November 24, 1998, payable semiannually on May 15 and November 15 of each year
(each, an "Interest Payment Date"), commencing May 15, 1998 and at maturity, to
the persons in whose names the 6 7/8% Notes are registered on the preceding May
1 and November 1, 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 7/8% 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 7/8% Notes are issuable and transferable in denominations of $1,000
and integral multiples thereof.
Any 6 7/8% 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
7/8% Notes so issued will be registered in such names, and in such
denominations, as the Depositary shall request. Such 6 7/8% 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 7/8% Notes.
In the event definitive 6 7/8% 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 7/8% Notes.
The Company has appointed Chase Manhattan Bank Luxembourg S.A. as a paying
agent in Luxembourg with respect to the 6 7/8% Notes, and as long as the 6 7/8%
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 7/8% 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 are
issuable and transferable only in fully registered form without coupons, in
denominations of $1,000 and integral multiples thereof.
* Book-Entry Securities
16
<PAGE>
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.
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 3/8% Notes due October 15, 2008* April 15 and October 15 April 1 and October 1
6 3/4% Notes due June 1, 2028* June 1 and December 1 May 15 and November 15
</TABLE>
- ------------------
* Book-Entry Securities
17
<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;
* Book-Entry Securities
18
<PAGE>
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 Bridge Telerate (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 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
19
<PAGE>
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.
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 of the Company and its
subsidiaries included in the Company's Current Report on Form 8-K dated
December 10, 1998 and related financial statement schedules of the Company
and its subsidiaries included in the 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 Current Report on
Form 8-K dated December 10, 1998, 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.
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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 reports 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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
MEDIUM-TERM NOTES
THE COMPANY: Merrill Lynch & Co., Inc.
TERMS: We have issued Notes with various terms, including the following:
- - Ranking as senior indebtedness of the Company
- - Stated maturities of 9 months or more from date of issue
- - Redemption and/or repayment provisions, if applicable, when mandatory or at
the option of the Company or Noteholders
- - Payments in U.S. dollars
- - Minimum denominations of $1,000 and integral multiples thereof
- - Book-entry (through The Depository Trust Company) or certificated form
- - Interest at fixed or floating rates, or no interest at all. The floating
interest rate is based on one or more of the following indicies plus or
minus a spread and/or multiplied by a spread multiplier:
- CD rate
- CMT rate
- Commercial paper rate
- Eleventh district cost of funds rate
- Federal funds rate
- LIBOR
- Prime rate
- Treasury rate
- - Interest payments on fixed rate Notes on each May 15 and November 15 and at
maturity
- - Interest payments on floating rate Notes on a monthly, quarterly,
semiannual or annual basis
The final terms for each Note, which may be different from the terms
described in this prospectus supplement, is specified in the applicable pricing
supplement.
INVESTING IN THE NOTES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
ON PAGE 2.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
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 , 199 .
<PAGE>
RISK FACTORS
Your investment in the Notes will include certain risks. In consultation
with your own financial and legal advisers, you should carefully consider, among
other matters, the following discussion of risks before deciding whether an
investment in the Notes is suitable for you. Notes are not an appropriate
investment for you if you are unsophisticated with respect to the significant
components of their relationship.
STRUCTURE RISKS
GENERAL
If you invest in Notes indexed to one or more interest rate, currency or
other indicies or formula, there will be significant risks not associated with a
conventional fixed rate or floating rate debt security. Such risks include
fluctuation of the indicies or formulas and the possibility that you will
receive a lower (or no) amount of principal, premium or interest and at
different time than you expected. We have no control over a number of matters,
including economic, financial and political events, that are important in
determining the existence, magnitude and longevity of such risks and their
results. In addition, if an index or formula used to determine any amounts
payable in respect of the Notes contains a multiplier or leverage factor, the
effect of any change in such index or formula will be magnified. In recent
years, values of certain indicies and formulas have been volatile and volatility
in those and other indicies and formulas may be expected in the future.
However, past experience is not necessarily indicative of what may occur in the
future.
REDEMPTION
If your Notes are redeemable at our option or are otherwise subject to
mandatory redemption, we may (in the case of optional redemption) or must (in
the case of mandatory redemption) choose to redeem such Notes at times when
prevailing interest rates may be relatively low. Accordingly, you generally
will not be able to reinvest the redemption proceeds in a comparable security at
an effective interest rate as high as that of the Notes.
UNCERTAIN TRADING MARKETS
We cannot assure you a trading market for your Notes will ever develop or
be maintained. Many factors independent of our creditworthiness affect the
trading market. These factors include:
- complexity and volatility of the index or formula applicable to the
Notes,
- method of calculating the principal, premium and interest in respect
of the Notes,
- time remaining to the maturity of the Notes,
- outstanding amount of the Notes,
- redemption features of the Notes,
- amount of other debt securities linked to the index or formula
applicable to the Notes, and
- level, direction and volatility of market interest rates generally.
CREDIT RATINGS
The credit ratings of our medium-term note program may not reflect the
potential impact of all risks related to structure and other factors on the
value of your Notes. In addition, real or anticipated changes in our credit
ratings will generally affect the market value of your Notes.
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copy charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
- incorporated documents are considered part of the prospectus;
- we can disclose important information to you by referring you to those
documents; and
- information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
- Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
- Quarterly Reports on Form 10-Q for the quarters ended March 27, 1998,
June 26, 1998 and September 25, 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, July 15, 1998, July 29, 1998, September 3, 1998,
September 8, 1998, September 29, 1998, October 13, 1998, October 21,
1998, October 28, 1998, November 3, 1998, November 24, 1998, December
1, 1998 and December 10, 1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
- Reports filed under Sections 13(a) and (c) of the Exchange Act;
- Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
- Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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<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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
YEAR ENDED LAST FRIDAY IN DECEMBER NINE MONTHS
---------------------------------- ENDED
1993(a) 1994 1995 1996 1997 SEPTEMBER 25, 1998
---- ---- ---- ---- ---- ------------------
Ratio of earnings
to fixed charges... 1.4 1.2 1.2 1.2 1.2 1.1
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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
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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
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.
5
<PAGE>
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
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
6
<PAGE>
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 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
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<PAGE>
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.
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
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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:
D X 360
Money Market Yield = -------------- 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.
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.
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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
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
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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.
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
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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 662/3% 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 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.
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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 of the Company and its
subsidiaries included in the Company's Current Report on Form 8-K dated
December 10, 1998 and related financial statement schedules of the Company
and its subsidiaries included in the 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 Current Report on
Form 8-K dated December 10, 1998, 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.
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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 reports 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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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 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 Depositary
described below. Units will be transferable by the Securities Depositary, as
more fully described below, in denominations of whole Units.
General:
o Senior unsecured debt securities o Not redeemable prior to maturity
o No payments prior to maturity o 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 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The Securities will be maintained in book-entry form only through the
facilities of DTC.
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 , 199 .
- ----------
(R)"MITTS" is a registered service mark and (SM)"Market Index Target-Term
Securities" is a service mark of Merrill Lynch & Co., Inc.
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also available
over the Internet at the SEC's web site at http://www.sec.gov. You may also
read and copy any document we file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for more information on the public reference rooms and
their copy charges. You may also inspect our SEC reports and other information
at the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you to
those documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
o Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
o Quarterly Reports on Form 10-Q for the quarters ended March 27,
1998, June 26, 1998 and September 25, 1998; and
o 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, July 15, 1998, July 29, 1998, September
3, 1998, September 8, 1998, September 29, 1998, October 13, 1998,
October 21, 1998, October 28, 1998, November 3, 1998, November 24,
1998, December 1, 1998 and December 10, 1998.
2
<PAGE>
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
o Reports filed under Sections 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December Nine Months
---------------------------------- Ended
1993(a) 1994 1995 1996 1997 September 25, 1998
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges .......... 1.4 1.2 1.2 1.2 1.2 1.1
</TABLE>
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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
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.
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.
4
<PAGE>
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.
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.
o 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 $10 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.
o 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. 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.
o 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.
o 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,
5
<PAGE>
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.
o 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.
o 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 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
6
<PAGE>
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.
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.
You should also consider the tax consequences of investing in the
Securities and should consult your tax advisor.
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
"-Events of Default and Acceleration" and "Other Terms-Events of Default" in
this Prospectus.
The Securities were issued in denominations of whole Units.
7
<PAGE>
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 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 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).
8
<PAGE>
<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% -15.48%
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 (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).
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<PAGE>
"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 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.
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<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 6.25% 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.
Depositary
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 Depositary, 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
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 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 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
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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 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 will act as securities depositary 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 Securities
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.
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
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<PAGE>
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 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 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, 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.
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Direct and Indirect Participants and other
members of the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and interest payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct and Indirect Participants, third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
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.
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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. 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 SubIndex 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.
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:
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<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.
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.
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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
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
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<PAGE>
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.
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,
17
<PAGE>
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 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.
18
<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.
19
<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
20
<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.
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:
21
<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 of the Company and its
subsidiaries included in the Company's Current Report on Form 8-K dated
December 10, 1998 and related financial statement schedules of the Company
and its subsidiaries included in the 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 Current Report on
Form 8-K dated December 10, 1998, 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 reports 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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 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 Depositary
described below. Units will be transferable by the Securities Depositary, as
more fully described below, in denominations of whole Units.
General:
o Senior unsecured debt securities o Not redeemable prior to maturity
o No payments prior to maturity o 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.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The MITTS will be maintained in book-entry form only through the
facilities of DTC.
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 is , 199 .
- ----------
"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.
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also available
over the Internet at the SEC's web site at http://www.sec.gov. You may also
read and copy any document we file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for more information on the public reference rooms and
their copy charges. You may also inspect our SEC reports and other information
at the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you to
those documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
2
<PAGE>
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
o Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
o Quarterly Reports on Form 10-Q for the quarters ended March 27,
1998, June 26, 1998 and September 25, 1998; and
o 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, July 15, 1998, July 29, 1998, September
3, 1998, September 8, 1998, September 29, 1998, October 13, 1998,
October 21, 1998, October 28, 1998, November 3, 1998, November 24,
1998, December 1, 1998 and December 10, 1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
o Reports filed under Sections 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
3
<PAGE>
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December Nine Months
---------------------------------- Ended
1993(a) 1994 1995 1996 1997 September 25, 1998
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges ............ 1.4 1.2 1.2 1.2 1.2 1.1
</TABLE>
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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.
4
<PAGE>
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
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.
5
<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 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.
o 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.
o 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.
o 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.
o 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.
o Time Remaining to Maturity We anticipate that prior to the
maturity of the MITTS, 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.
o 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.
o Company Credit Ratings Real or anticipated changes in the Company's
credit ratings may affect the market value of the MITTS.
6
<PAGE>
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.
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
You should also consider the tax consequences of investing in the
Securities and should consult your tax advisor.
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
(Final CPI)
(b) the principal amount of such Security X -----------
(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.
(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
10
<PAGE>
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 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).
11
<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 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.
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
12
<PAGE>
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.
Depositary
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 Depositary, 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
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 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 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 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 Depositary shall
13
<PAGE>
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 will act as securities depositary 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 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).
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 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 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, 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.
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Direct and Indirect Participants and other
members of the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and interest payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct and Indirect Participants, third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
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.
15
<PAGE>
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 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.
16
<PAGE>
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."
17
<PAGE>
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.
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.
18
<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 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.
19
<PAGE>
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 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.
20
<PAGE>
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 to
Interest Deemed 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
September 24, 2000 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 of the Company and its
subsidiaries included in the Company's Current Report on Form 8-K dated
December 10, 1998 and related financial statement schedules of the Company
and its subsidiaries included in the 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 Current Report on
Form 8-K dated December 10, 1998, 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.
21
<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 reports 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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 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 Depositary described below.
Units will be transferable by the Securities Depositary, as more fully described
below, in denominations of whole Units.
General:
o Senior unsecured debt securities o Not redeemable prior to maturity
o No payments prior to maturity o 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.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The MITTS will be maintained in book-entry form only through the
facilities of DTC.
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 , 199 .
- ----------
"MITTS" is a registered service mark and "Market Index Target-Term Securities"
is a service mark owned by Merrill Lynch & Co., Inc.
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also available
over the Internet at the SEC's web site at http://www.sec.gov. You may also
read and copy any document we file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for more information on the public reference rooms and
their copy charges. You may also inspect our SEC reports and other information
at the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you to
those documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
o Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
o Quarterly Reports on Form 10-Q for the quarters ended March 27,
1998, June 26, 1998 and September 25, 1998; and
o 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, July 15, 1998, July 29, 1998, September
3, 1998, September 8, 1998, September 29, 1998, October 13, 1998,
October 21, 1998, October 28, 1998, November 3, 1998, November 24,
1998, December 1, 1998 and December 10, 1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
o Reports filed under Sections 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
2
<PAGE>
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to
fixed charges for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December Nine Months
---------------------------------- Ended
1993(a) 1994 1995 1996 1997 September 25, 1998
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges ........... 1.4 1.2 1.2 1.2 1.2 1.1
</TABLE>
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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.
o 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.
o 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.
o 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.
o Time Remaining to Maturity. We anticipate that prior to the maturity of
the MITTS, 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.
o 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.
o 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.
You should also consider the tax consequences of investing in the
Securities and should consult your tax advisor.
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
"--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 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
8
<PAGE>
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
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.
Depositary
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 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
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.
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
10
<PAGE>
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 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 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 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.
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Direct and Indirect Participants and other
members of the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and interest payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct and Indirect Participants, third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
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
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. 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:
12
<PAGE>
<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 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
13
<PAGE>
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.
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
14
<PAGE>
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.
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 SubIndex 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.
15
<PAGE>
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.
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
16
<PAGE>
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.
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).
17
<PAGE>
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:
<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.
18
<PAGE>
EXPERTS
The consolidated financial statements of the Company and its
subsidiaries included in the Company's Current Report on Form 8-K dated
December 10, 1998 and related financial statement schedules of the Company
and its subsidiaries included in the 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 Current Report on
Form 8-K dated December 10, 1998, 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 reports 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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 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(SM) based upon the Dow Jones Industrial Average(SM) 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 Depositary described below. Units will be transferable by the
Securities Depositary, as more fully described below, in denominations of whole
Units.
General:
o Senior unsecured debt securities o No payments prior to maturity
o Not redeemable prior to maturity o 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(SM) (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.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The Securities will be maintained in book-entry form only through the
facilities of DTC.
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 is , 199 .
- ----------
"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 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.
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition, results
of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also available
over the Internet at the SEC's web site at http://www.sec.gov. You may also
read and copy any document we file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for more information on the public reference rooms and
their copy charges. You may also inspect our SEC reports and other information
at the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you to
those documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
2
<PAGE>
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
o Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
o Quarterly Reports on Form 10-Q for the quarters ended March 27,
1998, June 26, 1998 and September 25, 1998; and
o 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, July 15, 1998, July 29, 1998, September
3, 1998, September 8, 1998, September 29, 1998, October 13, 1998,
October 21, 1998, October 28, 1998, November 3, 1998, November 24,
1998, December 1, 1998 and December 10, 1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
o Reports filed under Sections 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December Nine Months
---------------------------------- Ended
1993(a) 1994 1995 1996 1997 September 25, 1998
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges ... 1.4 1.2 1.2 1.2 1.2 1.1
</TABLE>
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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 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.
4
<PAGE>
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.
o 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.
o 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.
o 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.
o Time Remaining to Maturity. We anticipate that prior to the
maturity of the Securities, 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.
o 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.
o 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 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.
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 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
You should also consider the tax consequences of investing in the
Securities and should consult your tax advisor.
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
"--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.
6
<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).
8
<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
9
<PAGE>
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 6.18% 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.
Depositary
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 Depositary, 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 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 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 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 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 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 will act as securities depositary 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"
10
<PAGE>
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 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 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 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 depositary 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
depositary is not obtained, Security certificates are required to be printed and
delivered.
11
<PAGE>
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.
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Direct and Indirect Participants and other
members of the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and interest payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct and Indirect Participants, third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
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.
12
<PAGE>
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).
13
<PAGE>
<TABLE>
<CAPTION>
Price Total Shares Market
Issuer of Component Stock(1) Symbol Industry 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.
14
<PAGE>
License Agreement
The Securities are not sponsored, endorsed, sold or promoted by Dow Jones.
Dow Jones 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. 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.
15
<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
16
<PAGE>
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 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:
17
<PAGE>
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)
-------------- ---------- ----------
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
- -----------
Projected Supplemental Redemption Amount = $3.6070 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 of the Company and its
subsidiaries included in the Company's Current Report on Form 8-K dated
December 10, 1998 and related financial statement schedules of the Company
and its subsidiaries included in the 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 Current Report on
Form 8-K dated December 10, 1998, 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.
18
<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 reports 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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 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)")
($10 principal amount per Unit)
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 Depositary described below.
Units will be transferable by the Securities Depositary, as more fully described
below, in denominations of whole Units.
General:
o Senior unsecured debt securities o Not redeemable prior to maturity
o No payments prior to maturity o 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 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The MITTS will be maintained in book-entry form only through the
facilities of DTC.
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 , 199 .
(R)"MITTS" is a registered service mark and (SM)"Market Index Target-Term
Securities" is a service mark of Merrill Lynch & Co., Inc.
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition, results
of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copy charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you to
those documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
o Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
o Quarterly Reports on Form 10-Q for the quarters ended March 27,
1998, June 26, 1998 and September 25, 1998; and
o 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, July 15, 1998, July 29, 1998, September
3, 1998, September 8, 1998, September 29, 1998, October 13, 1998,
October 21, 1998, October 28, 1998, November 3, 1998, November 24,
1998, December 1, 1998 and December 10, 1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
2
<PAGE>
o Reports filed under Sections 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December Nine Months
---------------------------------- Ended
1993(a) 1994 1995 1996 1997 September 25, 1998
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges .......... 1.4 1.2 1.2 1.2 1.2 1.1
</TABLE>
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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 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.
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
4
<PAGE>
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.
o 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 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.
o 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.
o 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.
o Time Remaining to Maturity. We anticipate that prior to the maturity of
the MITTS, 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.
o 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.
o 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 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.
5
<PAGE>
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 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 you should reach an investment decision with regard
to the Securities only after carefully considering the suitability of the
Securities in the light of your particular circumstances.
You should also consider the tax consequences of investing in the
Securities and should consult your tax adviser.
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 herein. 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.
6
<PAGE>
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 "-
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, 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%
</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>
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%
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
8
<PAGE>
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)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.
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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
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.
Depositary
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 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
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.
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
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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 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 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 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 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.
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Direct and Indirect Participants and other
members of the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and interest payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
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However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct and Indirect Participants, third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
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.
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 (Y)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 (Y)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
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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 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
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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 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 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.
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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:
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>
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 of the Company and its
subsidiaries included in the Company's Current Report on Form 8-K dated
December 10, 1998 and related financial statement schedules of the Company
and its subsidiaries included in the 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 Current Report on
Form 8-K dated December 10, 1998, 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 reports included in such Quarterly Reports on
Form 10-Q and incorporated by reference herein, they did not audit and they
17
<PAGE>
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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
P R O S P E C T U S
- --------------------
Subject to Completion
Preliminary Prospectus dated December 11, 1998
7,700,000 Units
Merrill Lynch & Co., Inc.
Merrill Lynch EuroFund Market Index Target-Term
Securities(R) due February 28, 2006
("MITTS(R) Securities")
($10 principal amount per Unit)
On September 3, 1998, Merrill Lynch & Co., Inc. (the "Company") issued
$77,000,000 aggregate principal amount (7,700,000 Units) of S&P 500 Market Index
Target-Term Securities due February 28, 2006 (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: o 100% principal protection at maturity ($10 per Unit
o No payments prior to the stated maturity date
o Senior unsecured debt securities of Merrill Lynch & Co., Inc.
(the "Company")
o The MITTS Securities are listed on the American Stock Exchange
("AMEX") under the symbol "EFM".
Payment at
Maturity: o Principal Amount + Supplemental Redemption Amount
o The Supplemental Redemption Amount will be based on the
percentage increase, if any, in the total return value of
Class B Shares of the Merrill Lynch EuroFund, a registered
mutual fund (the "EuroFund"), adjusted as described below (the
"EuroFund Index"). The Supplemental Redemption Amount may be
zero, but will not be less than zero.
o The Company intends to pay and discharge each MITTS Security
by delivering the number of Class D Shares of the Merrill
Lynch EuroFund equal in value to the Principal Amount plus the
Supplemental Redemption Amount, if any, based on a market
price for Class D Shares shortly prior to the stated maturity
of the MITTS Securities.
EuroFund
Index: o The EuroFund Index measures the total return of Class B Shares
of the EuroFund, which reflects the change in price of Class B
Shares plus a reinvestment of cash dividends and distributions
paid on Class B Shares of the EuroFund, as reduced by an
adjustment factor equal to 2.6% of the value of the EuroFund
Index each year. Such annual reduction will be applied on a
pro rata basis each calendar day to calculate the value of the
EuroFund Index.
o Although advised by an affiliate of the Company, the EuroFund
is not otherwise affiliated with the Company and does not have
any obligations with respect to the MITTS Securities.
Before you decide to invest in the MITTS Securities, carefully read this
prospectus, especially the risk factors beginning on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these MITTS Securities or determined
if this prospectus is truthful or complete. 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 , 199 .
- -----------
"MITTS" is a registered service mark and "Market Index Target-Term Securities"
is a service mark owned by Merrill Lynch & Co., Inc.
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus . We have not authorized any other person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition, results
of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
The Company
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copy charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
The EuroFund
The EuroFund is subject to the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act"), and the Investment Company Act
of 1940, as amended (the "Investment Company Act"). Accordingly, the EuroFund
files prospectuses, statements of additional information, reports and other
information with the SEC. Information provided to or filed with the SEC by the
EuroFund is available at the offices of the SEC listed above and from the SEC's
Internet web site referred to above. You may also obtain copies of such
documents at no cost by calling the EuroFund at (609) 282-2800 or writing the
EuroFund at: P.O. Box 9011, Princeton, New Jersey 08543-9011. Such documents are
not incorporated by reference herein, and the Company makes no representation or
warranty as to the accuracy or completeness of such reports.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you to
those documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
o Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
o Quarterly Reports on Form 10-Q for the quarters ended March 27,
1998, June 26, 1998 and September 25, 1998; and
2
<PAGE>
o 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, July 15, 1998, July 29, 1998, September
3, 1998, September 8, 1998, September 29, 1998, October 13, 1998,
October 21, 1998, October 28, 1998, November 3, 1998, November 24,
1998, December 1, 1998 and December 10, 1998.
We also incorporate by reference each of the following documents
that we will file with the SEC after the date of this prospectus until this
offering is completed or after the date of the initial registration statement
and prior to effectiveness of the registration statement:
o Reports filed under Sections 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting and sale of life insurance and annuity products. Our
banking, trust, and mortgage lending operations conducted through our
subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges of the Company for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December Nine Months
---------------------------------- Ended
1993(a) 1994 1995 1996 1997 September 25, 1998
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges....... 1.4 1.2 1.2 1.2 1.2 1.1
</TABLE>
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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 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
their maturity. 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 Ending Index Value does not exceed the
Starting Index Value, the Supplemental Redemption Amount will be zero. This will
be true even if the value of the EuroFund Index was higher than the Starting
Index Value at some time during the life of the MITTS Securities but
subsequently falls below the Starting Index Value during the period in which we
calculate the Ending Index Value. If the Supplemental Redemption Amount is zero,
we will pay you only the Principal Amount of your MITTS Securities by
delivering, if available, a number of Class D Shares of the EuroFund in an
amount equal in value (determined based on the Maturity NAV) to such Principal
Amount.
Your yield on the MITTS Securities will not equal the yield on Class B Shares
The yield you earn on the MITTS Securities, if any, will not be the same
as the yield that you would earn if you actually owned Class B Shares of the
EuroFund. In calculating the value of the EuroFund Index, the AMEX will apply an
adjustment factor equal to 2.6% of the value of the EuroFund Index each year.
Such annual reduction will be applied on a pro rata basis each calendar day.
Because of such cumulative daily reductions, the value of the EuroFund Index
over time will increasingly diverge from the value of the Class B Shares and
their distributions had you owned such Class B Shares. Such reductions would not
apply if you owned the Class B Shares of the EuroFund.
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 similar 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.
Uncertain trading market
The MITTS Securities are listed on the AMEX under the symbol "EFM".
However, 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
4
<PAGE>
Securities will depend on the financial performance of the Company, and other
factors such as the appreciation, if any, of the value of the EuroFund 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 EuroFund 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.
o EuroFund Index. We expect that the market value of the MITTS
Securities will depend substantially on the amount by which the
value of the EuroFund Index exceeds or does not exceed the Starting
Index Value. If you choose to sell your MITTS Securities when the
value of the EuroFund Index exceeds the Starting Index Value on any
given date, you may receive substantially less than the value that
would be payable at maturity based on that value of the EuroFund
Index because of the expectation that the value of the EuroFund
Index will continue to fluctuate until the Ending Index Value is
determined. If you choose to sell your MITTS Securities when the
value of the EuroFund Index is below, or not sufficiently above, the
Starting Index Value, you may receive less than the Principal Amount
per Unit of MITTS Securities and lose a substantial portion of your
investment. Political, economic and other developments that affect
the securities owned by the EuroFund may also affect the value of
the EuroFund Index and the value of the MITTS Securities.
o 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 interest rates increase, we expect that the
trading value of the MITTS Securities will decrease. If interest
rates decrease, we expect the trading value of the MITTS Securities
will increase.
o Volatility of the EuroFund Index. Volatility is the term used to
describe the size and frequency of market fluctuations. If the
volatility of the EuroFund Index increases, we expect that the
trading value of the MITTS Securities will increase. If the
volatility of the EuroFund Index decreases, we expect that the
trading value of the MITTS Securities will decrease.
o 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 EuroFund Index. This difference would reflect
a "time premium" due to expectations concerning the value of the
EuroFund Index during the period prior to maturity of the MITTS
Securities. However, as the time remaining to maturity of the MITTS
Securities decreases, we expect that this time premium will
decrease, lowering the trading value of the MITTS Securities.
o 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 EuroFund Index.
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
5
<PAGE>
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 or decrease in the EuroFund 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.
No shareholder's rights
You will not be entitled to any rights with respect to any shares of the
EuroFund (including, without limitation, voting rights and rights to receive any
dividends or distributions on such shares) until we deliver Class D Shares at
the maturity of the MITTS Securities. For example, if the EuroFund sets a record
date for a matter to be voted on by holders of Class D Shares prior to our
delivery of Class D Shares to you, you will not be entitled to vote on any such
matter. You should be aware that if Class D Shares of the EuroFund are not
available for sale to new investors immediately prior to the stated maturity
date, we will pay you the Principal Amount and the Supplemental Redemption
Amount in cash instead of delivering Class D Shares on the stated maturity date.
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
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 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.
Purchases and sales by Merrill Lynch
The Company, MLPF&S and other affiliates of the Company may from time to
time buy or sell shares of the EuroFund or shares of the companies in which the
EuroFund invests, 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 EuroFund Index in a manner that would be adverse
to investors in the MITTS Securities.
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. Such conflicts could
occur, for instance, in connection with the Calculation Agent's determination as
to whether a Market Disruption Event has occurred, or in connection with
judgments that the Calculation Agent would be required to make in the event of a
discontinuance of the Index. See "Description of the MITTS
Securities--Adjustments to the EuroFund Index" and "--Discontinuance of the
EuroFund Index" in this Prospectus. MLPF&S is required to carry out its duties
as Calculation Agent in good faith and using its reasonable judgment. However,
you should be aware that because the Calculation Agent is controlled by the
Company, potential conflicts of interest could arise.
The Company has entered into an arrangement with a subsidiary of the
Company to hedge the market risks associated with the Company's obligation to
pay the Principal Amount and the Supplemental Redemption Amount. Such subsidiary
expects to make a profit in connection with such arrangement. The Company did
not seek competitive bids for such an arrangement from unaffiliated parties.
Other Considerations
It is suggested that you should reach an investment decision with regard
to the MITTS Securities only after carefully considering the suitability of the
MITTS Securities in the light of your particular circumstances.
6
<PAGE>
You should also consider the tax consequences of investing in the MITTS
Securities and should consult your tax advisor.
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 February 28, 2006.
While at maturity a beneficial owner of a MITTS Security will receive, if
available, the number of Class D Shares of the EuroFund equal in value
(determined based on the Maturity NAV) to the sum of 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 "--Delivery at
Maturity".
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 "--Events of Default and Acceleration" and "Other Terms--Events
of Default" in this Prospectus.
The MITTS Securities were issued in denominations of whole Units.
Delivery at Maturity
General
At maturity, a beneficial owner of a MITTS Security will be entitled to
receive the number of Class D Shares of the EuroFund equal in value (determined
based on the Maturity NAV) to the Principal Amount of such MITTS Security plus
the Supplemental Redemption Amount, if any, all as provided below. The number of
Class D Shares delivered by the Company will be rounded to the nearest
one-thousandth of a share. If the Ending Index Value does not exceed the
Starting Index Value, a beneficial owner of a MITTS Security will be entitled to
receive only the number of Class D Shares of the EuroFund equal in value
(determined based on the Maturity NAV) to the Principal Amount of such MITTS
Security.
"Maturity NAV" shall mean the net asset value for the Class D Shares of
the EuroFund as calculated by the EuroFund on the first Calculation Day during
the Calculation Period; provided, however, if no Calculation Days occur during
the Calculation Period because of Market Disruption Events, then Maturity NAV
shall mean the net asset value for the Class D Shares of the EuroFund as
calculated by the EuroFund on the last scheduled Index Business Day in the
Calculation Period regardless of the occurrence of a Market Disruption Event on
such day.
Notwithstanding the foregoing, if the EuroFund is not issuing Class D
Shares to new investors in the EuroFund on the date Maturity NAV is to be
determined, the Company may, in lieu of delivering Class D Shares of the
EuroFund, pay cash in an amount equal to the sum of the Principal Amount of the
MITTS Securities and the Supplemental Redemption Amount, if any.
Determination of the Supplemental Redemption Amount
The Supplemental Redemption Amount for a MITTS Security will be determined
by the Calculation Agent and will equal:
<TABLE>
<S> <C>
(Ending Index Value - Starting Index Value)
Principal Amount of such MITTS Security ($10 per Unit) X (-----------------------------------------)
( Starting Index Value )
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
7
<PAGE>
The Starting Index Value equals 15.53, which was the value of the EuroFund
Index on the Pricing Date. The value of the EuroFund Index on the Pricing Date
was set to match the net asset value of Class B Shares of the EuroFund on the
Pricing Date.
The Ending Index Value will be determined by the Calculation Agent and
will equal the closing value of the EuroFund Index determined on the first
Calculation Day during the Calculation Period. 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 EuroFund 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 fourth
scheduled Index Business Day prior to the stated maturity date to and including
the second scheduled Index Business Day prior to the stated maturity date.
"Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
"Index Business Day" means any day on which the New York Stock Exchange
and the AMEX are open for trading and the AMEX calculates and publishes the
EuroFund Index.
"Market Disruption Event" means the EuroFund (i) is unable or otherwise
fails to issue a net asset value for any series of shares of the EuroFund after
the close of business on the NYSE but before 11:00 p.m., New York City time on
the same day or (ii) suspends redemption of shares of the EuroFund.
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
EuroFund Index during the Calculation Period, (i) the Ending Index Value used to
calculate the Supplemental Redemption Amount, (ii) the percentage change from
the Starting Index Value to the Ending Index Value, (iii) the total value of
Class D Shares deliverable at maturity for each $10 Principal Amount of MITTS
Securities, (iv) the total rate of return to beneficial owners of the MITTS
Securities, (v) the pretax annualized rate of return to beneficial owners of
MITTS Securities, and (vi) the pretax annualized rate of return of Class B
Shares.
<TABLE>
<CAPTION>
Total Value
of Class D
Shares
Deliverable
Percentage at Maturity Pretax Pretax
Change of per $10 Annualized Annualized
Ending Index Principal Total Rate Rate of Rate of
Hypothetical Value Over the Amount of of Return Return on the Return of
Ending Index Starting Index MITTS on the MITTS MITTS Class B
Value Value Securities Securities Securities(1) Shares(1)(2)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3.11 -80.00% $ 10.00 0.00% 0.00% -18.02%
6.21 -60.00% $ 10.00 0.00% 0.00% -9.40%
9.32 -40.00% $ 10.00 0.00% 0.00% -4.17%
12.42 -20.00% $ 10.00 0.00% 0.00% -0.38%
15.53(3) 0.00% $ 10.00 0.00% 0.00% 2.62%
18.64 20.00% $ 12.00 20.00% 2.45% 5.10%
21.74 40.00% $ 14.00 40.00% 4.54% 7.22%
24.85 60.00% $ 16.00 60.00% 6.37% 9.07%
27.95 80.00% $ 18.00 80.00% 8.00% 10.72%
31.06 100.00% $ 20.00 100.00% 9.47% 12.21%
34.17 120.00% $ 22.00 120.00% 10.80% 13.56%
37.27 140.00% $ 24.00 140.00% 12.03% 14.81%
40.38 160.00% $ 26.00 160.00% 13.17% 15.96%
43.48 180.00% $ 28.00 180.00% 14.22% 17.03%
46.59 200.00% $ 30.00 200.00% 15.21% 18.03%
</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 described
above, (i) an initial investment of a fixed amount in the Series B Shares of the
EuroFund; (ii) a reinvestment of all cash dividends and distributions in the
Series B Shares of the EuroFund; (iii) no transaction fees or expenses; (iv) an
investment term from September 3, 1998 to February 28, 2006; and (v) a final
EuroFund Index value equal to the Ending Index Value.
(3) This is the Starting Index Value.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount and the total and pretax annualized rate of
return resulting therefrom will depend entirely on the Starting Index Value and
the actual Ending Index Value determined by the Calculation Agent as provided
herein.
Adjustments to the EuroFund Index
If at any time the method of calculating the EuroFund Index, or the value
thereof, is changed in any material respect, or if the EuroFund Index is in any
other way modified so that such EuroFund Index does not, in the opinion of the
Calculation Agent, fairly represent the value of the EuroFund 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 an index comparable to the EuroFund Index as if such changes or
modifications had not been made, and calculate such closing value with reference
to the EuroFund Index, as adjusted. Accordingly, if the method of calculating
the EuroFund Index is modified so that the value of such EuroFund Index is a
fraction or a
9
<PAGE>
multiple of what it would have been if it had not been modified (e.g., due to a
split in the EuroFund Index), then the Calculation Agent shall adjust such
EuroFund Index in order to arrive at a value of the EuroFund Index as if it had
not been modified (e.g., as if such split had not occurred).
Discontinuance of the EuroFund Index
If the AMEX discontinues publication of the EuroFund 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 EuroFund
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 EuroFund Index and
calculate the Ending Index Value as described above under "Delivery 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 MITTS
Securities.
If the AMEX discontinues publication of the EuroFund 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 EuroFund 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 EuroFund Index
prior to any such discontinuance. If a Successor Index is selected or the
Calculation Agent calculates a value as a substitute for the EuroFund Index as
described below, such Successor Index or value shall be substituted for the
EuroFund Index for all purposes, including for purposes of determining whether a
Market Disruption Event exists.
If the AMEX discontinues publication of the EuroFund 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 EuroFund
Index may adversely affect trading in the MITTS Securities.
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 "Delivery 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 at the maturity date of the MITTS Securities
(whether at their 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 5.97% 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.
10
<PAGE>
Depositary
The MITTS Securities were 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
beneficial owners of the MITTS Securities represented by a Global Security (the
"Beneficial Owners") will not be entitled to have the MITTS Securities
represented by such Global Security 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 will 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 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
Securities 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
11
<PAGE>
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 DTC's system must be made by or
through Direct Participants, which will receive a credit for the MITTS
Securities on 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.
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 to be made
in cash 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 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.
Management of DTC is aware that some computer applications, systems and
the like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed Direct and Indirect Participants and other members
of the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and interest payments) to
securityholders,
12
<PAGE>
book-entry deliveries, and settlement of trades within DTC ("Depositary
Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct and Indirect Participants, third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
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 Delivery
All payments of principal and the Supplemental Redemption Amount, if any,
will be made by the Company, if available, by delivery of Class D Shares in an
equivalent value.
THE EUROFUND INDEX
Calculation of the EuroFund Index
General
The AMEX has set the starting value of the EuroFund Index to equal the net
asset value of one Class B Share of the EuroFund on the Pricing Date.
Thereafter, the AMEX will calculate the value of the EuroFund Index on any day
by multiplying the current Index Share Multiplier by the most recent net asset
value per Class B Share announced by the EuroFund. For purposes of this
calculation, any declared but unpaid Cash Distribution (as defined below) will
be added back and included in the "net asset value" of the EuroFund from and
including the ex-dividend date related to such Cash Distribution to but
excluding the date that such Cash Distribution is paid to holders of the Class B
Shares.
Calculation of the Index Share Multiplier
The Index Share Multiplier shall initially be set to one, representing one
Class B Share of the EuroFund. If the EuroFund distributes any cash dividends or
distributions of any character to holders of the Class B Shares (a "Cash
Distribution"), then the Index Share Multiplier shall be increased by a
percentage of Class B Shares equal to the Cash Distribution divided by the net
asset value for Class B Shares calculated by the EuroFund on the date that such
Cash Distribution is paid to holders of Class B Shares. If a Market Disruption
Event has occurred on the day any such Cash Distribution is paid, the adjustment
to the Index Share Multiplier shall be postponed until the next succeeding Index
Business Day on which a Market Disruption Event has not occurred. The Index
Share Multiplier shall also be adjusted by the AMEX to reflect certain stock
splits, reverse stock splits or share dividends that may occur with respect to
the Class B Shares.
Each calendar day, the AMEX shall reduce the value of the EuroFund Index
by a percentage equal to 2.6% divided by 365 and reset the Index Share
Multiplier so that the product of such net asset value and the revised Index
Share Multiplier equals the value of the EuroFund Index so reduced. If a Market
Disruption Event occurs on any day
13
<PAGE>
on which the EuroFund Index value is to be determined, then the foregoing
adjustment to the Index Share Multiplier shall occur on the next succeeding
Index Business Day on which a Market Disruption Event has not occurred.
The EuroFund
The EuroFund has stated that its investment objectives are to seek capital
appreciation primarily through investment in equities of corporations domiciled
in European countries. Current income from dividends and interest will not be an
important consideration in selecting portfolio securities. The EuroFund has
stated that it anticipates that under normal market conditions at least 80% of
its net assets will consist of European corporate securities, primarily common
stocks and securities convertible into common stock.
The EuroFund is a diversified, open-end management investment company
under the Investment Company Act.
The EuroFund has publicly disclosed its intention to distribute all of its
net investment income, if any. The EuroFund has indicated that dividends from
such net investment income are paid at least annually and all net realized
capital gains, if any, are distributed to the shareholders of the EuroFund
annually.
The EuroFund is subject to the registration requirements of the Securities
Act and the Investment Company Act. Accordingly, the EuroFund files
prospectuses, statements of additional information, reports, proxy and other
information statements and other information with the SEC. The Company makes no
representation or warranty as to the accuracy or completeness of such
information.
The foregoing summary of the policies of the EuroFund reflect certain
investment restrictions which are subject to change by shareholders of the
EuroFund at any time.
The EuroFund is managed by Merrill Lynch Asset Management, L.P., an
affiliate of the Company. The EuroFund itself is governed by an independent
board of directors.
THE EUROFUND HAS NO OBLIGATIONS WITH RESPECT TO THE MITTS SECURITIES. THIS
PROSPECTUS RELATES ONLY TO THE MITTS SECURITIES OFFERED HEREBY AND DOES NOT
RELATE TO THE CLASS B OR CLASS D SHARES OF THE EUROFUND. THE INFORMATION
CONTAINED IN THIS PROSPECTUS REGARDING THE EUROFUND HAS BEEN DERIVED FROM THE
PUBLICLY AVAILABLE DOCUMENTS DESCRIBED ABOVE. THE COMPANY HAS NOT PARTICIPATED
IN THE PREPARATION OF SUCH DOCUMENTS OR MADE ANY DUE DILIGENCE INQUIRIES WITH
RESPECT TO THE EUROFUND IN CONNECTION WITH THE OFFERING OF THE MITTS SECURITIES.
THE COMPANY MAKES NO REPRESENTATION THAT SUCH PUBLICLY AVAILABLE DOCUMENTS OR
ANY OTHER PUBLICLY AVAILABLE INFORMATION REGARDING THE EUROFUND 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 EUROFUND INDEX (AND THEREFORE THE TRADING PRICE
OF THE MITTS SECURITIES) HAVE BEEN PUBLICLY DISCLOSED. SUBSEQUENT DISCLOSURE OF
ANY SUCH EVENTS OR THE DISCLOSURE OF OR FAILURE TO DISCLOSE MATERIAL FUTURE
EVENTS CONCERNING THE EUROFUND COULD AFFECT THE SUPPLEMENTAL REDEMPTION AMOUNT
TO BE RECEIVED AT THE STATED MATURITY DATE AND THEREFORE THE TRADING VALUE 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
14
<PAGE>
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.
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.
15
<PAGE>
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 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
16
<PAGE>
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.
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 MITTS Securities, the
Company has determined that the projected payment schedule for the MITTS
Securities will consist of payment on the maturity date of the principal amount
thereof and a projected Supplemental Redemption Amount equal to $5.5344 per Unit
(the "Projected Supplemental Redemption Amount"). This represents an estimated
yield on the MITTS Securities equal to 5.97% per annum (compounded
semiannually).
The following table sets forth the amount of interest that will be deemed
to have accrued with respect to each Unit of the MITTS Securities during each
accrual period over a term of seven years and six months for the MITTS
Securities based upon the projected payment schedule for the MITTS Securities
(including both the Projected Supplemental Redemption Amount and the estimated
yield equal to 5.97% per annum (compounded semiannually)) as determined by the
Company for purposes of applying the Final Regulations to the MITTS Securities:
Total Interest
Deemed to Have
Accrued on
MITTS
Interest Deemed to Securities as
Accrue During of End of
Accrual Period Accrual Period
Accrual Period (per Unit) (per Unit)
-------------- ------------------ --------------
September 3, 1998 through February 28, 1999 . $0.2910 $0.2910
March 1, 1999 through August 28, 1999 ....... $0.3072 $0.5982
August 29, 1999 through February 28, 2000 ... $0.3164 $0.9146
February 29, 2000 through August 28, 2000 ... $0.3258 $1.2404
August 29, 2000 through February 28, 2001 ... $0.3355 $1.5759
March 1, 2001 through August 28, 2001 ....... $0.3455 $1.9214
August 29, 2001 through February 28, 2002 ... $0.3559 $2.2773
March 1, 2002 through August 28, 2002 ....... $0.3665 $2.6438
August 29, 2002 through February 28, 2003 ... $0.3774 $3.0212
March 1, 2003 through August 28, 2003 ....... $0.3887 $3.4099
August 29, 2003 through February 28, 2004 ... $0.4003 $3.8102
February 29, 2004 through August 28, 2004 ... $0.4122 $4.2224
August 29, 2004 through February 28, 2005 ... $0.4245 $4.6469
March 1, 2005 through August 28, 2005 ....... $0.4372 $5.0841
August 29, 2005 through February 28, 2006 ... $0.4503 $5.5344
Projected Supplemental Redemption Amount = $5.5344 per Unit.
Prospective investors in the MITTS Securities should consult their own tax
advisors concerning the application of the Final Regulations to their investment
in the MITTS Securities. Investors in the MITTS Securities may also obtain the
projected payment schedule, as determined by the Company for purposes of the
application of the Final Regulations to the MITTS 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 of the Company and its
subsidiaries included in the Company's Current Report on Form 8-K dated
December 10, 1998 and related financial statement schedules of the Company
and its subsidiaries included in the 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 Current Report on
Form 8-K dated December 10, 1998, 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 reports 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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 1998
P R O S P E C T U S
- -------------------
8,200,000 Units
Merrill Lynch & Co., Inc.
S&P 500(R) Market Index Target-Term Securities(SM) due September 28, 2005
"MITTS(R) Securities"
($10 principal amount per Unit)
On September 29, 1998, Merrill Lynch & Co., Inc. (the "Company") issued
$82,000,000 aggregate principal amount (8,200,000 Units) of S&P 500 Market Index
Target-Term Securities due September 28, 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: o 100% principal protection at maturity
o No payments prior to the stated maturity date
o Senior unsecured debt securities of Merrill Lynch & Co., Inc.
(the "Company")
o The MITTS Securities are listed on the New York Stock Exchange
(the "NYSE") under the symbol "MIJ".
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 1.9% (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 12.48%. 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 Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. 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 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 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 , 199 .
- ----------
"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.
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to
provide you with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. We are not making an
offer to sell these securities in any jurisdiction where the offer or sale is
not permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copy charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This Prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the Prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
2
<PAGE>
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you to
those documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
o Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
o Quarterly Reports on Form 10-Q for the quarters ended March 27,
1998, June 26, 1998 and September 25, 1998; and
o 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, July 15, 1998, July 29, 1998, September
3, 1998, September 8, 1998, September 29, 1998, October 13, 1998,
October 21, 1998, October 28, 1998, November 3, 1998, November 24,
1998, December 1, 1998 and December 10, 1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
o Reports filed under Sections 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
3
<PAGE>
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting and sale of life insurance and annuity products. Our
banking, trust, and mortgage lending operations conducted through our
subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland
Walwyn Inc. ("Midland"), in a transaction accounted for as a
pooling-of-interests. The following information has been restated, except as
noted in note (a) below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges of the Company for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December Nine Months
---------------------------------- Ended
1993(a) 1994 1995 1996 1997 September 25, 1998
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges... 1.4 1.2 1.2 1.2 1.2 1.1
</TABLE>
- ------------------
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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 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
5
<PAGE>
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 are listed on the NYSE under the symbol "MIJ". 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.
o 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 or does not exceed the
Starting Value. If you choose to sell your 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, or not
sufficiently above, 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.
o 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
6
<PAGE>
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.
o 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.
o 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 would 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.
o 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.
o 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 or decrease 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.
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 Securities. These transactions could affect the price of such stocks
and the value of the Index in a manner that would be adverse to investors in the
MITTS Securities.
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. Such conflicts could
occur, for instance, in connection with the Calculation Agent's determination as
to whether a Market Disruption Event has occurred, or in connection with
judgments that the Calculation Agent would be required to make in the event of a
discontinuance of the Index.
7
<PAGE>
See "Description of the MITTS Securities--Adjustments to the Index; Market
Disruption Events" and "--Discontinuance of the Index" in this Prospectus.
MLPF&S is required to carry out its duties as Calculation Agent in good faith
and using its reasonable judgment. However, you should be aware that because the
Calculation Agent is controlled by the Company, potential conflicts of interest
could arise.
The Company has entered into an arrangement with a subsidiary of the
Company to hedge the market risks associated with the Company's obligation to
pay the Supplemental Redemption Amount. Such subsidiary expects to make a profit
in connection with such arrangement. The Company did not seek competitive bids
for such an arrangement from unaffiliated parties.
Other Considerations
It is suggested that you should reach an investment decision with regard
to the MITTS Securities only after carefully considering the suitability of the
MITTS Securities in the light of your particular circumstances.
You should also consider the tax consequences of investing in the MITTS
Securities and should consult your tax advisor.
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 more fully
described below. The MITTS Securities will mature on September 28, 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 "--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
The Supplemental Redemption Amount for a MITTS Security will be determined
by the Calculation Agent and will equal:
Principal Amount of such MITTS Security ($10 per Unit) X
((Adjusted Ending Value - Starting Value) / Starting Value)
provided, however, that in no event will the Supplemental Redemption
Amount be less than zero.
The Starting Value equals 1,066.09.
8
<PAGE>
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 1.9% per annum and will be prorated based
on a 365-day year 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 12.48% 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 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 MITTS Securities.
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 Starting 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 1.49% per annum, as more
fully described below).
9
<PAGE>
<TABLE>
<CAPTION>
Pretax
Adjusted Ending Total Amount Annualized Pretax Annualized
Hypothetical Index Value Percentage Payable at Maturity Total Rate of Rate of Rate of Return of
Value During the Adjusted Change Over the per Unit of Return on the Return on the Stocks Underlying
Calculation Period Ending Value Starting Value MITTS Securities MITTS Securities MITTS Securities(1) the Index(1)(2)
- ------------------ ------------ -------------- ---------------- ---------------- ------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
533.05 466.49 -56.24% $10.00 0.00% 0.00% -8.16%
639.65 559.79 -47.49% $10.00 0.00% 0.00% -5.68%
746.26 653.09 -38.74% $10.00 0.00% 0.00% -3.55%
852.87 746.39 -29.99% $10.00 0.00% 0.00% -1.68%
959.48 839.68 -21.24% $10.00 0.00% 0.00% -0.02%
1,066.09(3) 932.98 -12.49% $10.00 0.00% 0.00% 1.49%
1,172.70 1,026.28 -3.73% $10.00 0.00% 0.00% 2.86%
1,279.31 1,119.58 5.02% $10.50 5.02% 0.70% 4.13%
1,385.92 1,212.88 13.77% $11.38 13.77% 1.85% 5.30%
1,492.53 1,306.17 22.52% $12.25 22.52% 2.91% 6.39%
1,599.14 1,399.47 31.27% $13.13 31.27% 3.91% 7.41%
1,705.74 1,492.77 40.02% $14.00 40.02% 4.85% 8.38%
1,812.35 1,586.07 48.77% $14.88 48.77% 5.74% 9.29%
1,918.96 1,679.37 57.53% $15.75 57.53% 6.58% 10.15%
2,025.57 1,772.66 66.28% $16.63 66.28% 7.38% 10.97%
2,132.18 1,865.96 75.03% $17.50 75.03% 8.14% 11.75%
2,238.79 1,959.26 83.78% $18.38 83.78% 8.86% 12.50%
2,345.40 2,052.56 92.53% $19.25 92.53% 9.55% 13.21%
2,452.01 2,145.86 101.28% $20.13 101.28% 10.22% 13.90%
2,558.62 2,239.16 110.03% $21.00 110.03% 10.86% 14.56%
2,665.23 2,332.45 118.79% $21.88 118.79% 11.47% 15.19%
</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 1.49% 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) an investment term
from September 23, 1998 to September 28, 2005; and (iv) a final Index
value equal to the hypothetical Index value during the Calculation Period.
(3) The Starting Value equals 1,066.09.
The figures on the previous page 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 Starting Value, Adjustment Factor and the actual Adjusted Ending 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 Adjusted Ending 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
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<PAGE>
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 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 MITTS Securities.
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 "--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 5.78% per annum (to the extent that payment of
such interest shall be legally
11
<PAGE>
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
beneficial owners of the MITTS Securities represented by a Global Security (the
"Beneficial Owners") will not be entitled to have the MITTS Securities
represented by such Global Security 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 will 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 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
Securities 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
12
<PAGE>
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 DTC's system must be made by or
through Direct Participants, which will receive a credit for the MITTS
Securities on 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.
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 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.
Management of DTC is aware that some computer applications, systems and
the like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed Direct and Indirect Participants and other members
of the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the
13
<PAGE>
same relate to the timely payment of distributions (including principal and
interest payments) to securityholders, book-entry deliveries, and settlement of
trades within DTC ("Depositary Services"), continue to function appropriately.
This program includes a technical assessment and a remediation plan, each of
which is complete. Additionally, DTC's plan includes a testing phase, which is
expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct and Indirect Participants, third party vendors from whom
DTC's licenses software and hardware, and third party vendors on whom DTC's
relies for information or the provision of services, including telecommunication
and electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
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 September 23,
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 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
July 31, 1998, the 500 companies included in the Index represented approximately
84% 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 July 31, 1998, the
aggregate Market Value of the 500 companies included in the Index represented
approximately 75% 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 acitvity of the common stock of that
company. Four main groups of companies comprise the Index (with the number of
companies currently included in each group indicated in parentheses):
Industrials (378), Utilities (37), Transporation (10) and Financial (75). 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.
14
<PAGE>
The Index does not reflect the payment of dividends on the stocks
underlying it. Because of this (and due to the application of the Adjustment
Factor) the return on the MITTS Securities will not be the same that you would
receive if you were to purchase such underlying stocks and hold them for a
period equal to the term of the MITTS Securities.
Computation of the Index
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 Values of all component stocks as of such time 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 are aggregated (such aggregate amount being referred to
as the "Base Value");
(e) the current aggregate Market Value of all component stocks 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 offset 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 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 Base Value
Old Base Value X ----------------- = New Market 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 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
Supplement:
"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
15
<PAGE>
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 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.
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
16
<PAGE>
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 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
17
<PAGE>
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.
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 MITTS Securities, the
Company has determined that the projected payment schedule for the MITTS
Securities will consist of payment on the maturity date of the principal amount
thereof and a projected Supplemental Redemption Amount equal to $4.8955 per Unit
(the "Projected Supplemental Redemption Amount"). This represents an estimated
yield on the MITTS Securities equal to 5.78% per annum (compounded
semiannually).
The projected payment schedule (including both the Projected Supplemental
Redemption Amount and the estimated yield on the MITTS Securities) has been
determined solely for United States Federal income tax purposes (i.e., for
purposes of applying the Final Regulations to the MITTS 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 MITTS Securities during each
accrual period over the term of the MITTS Securities based upon the projected
payment schedule for the MITTS Securities (including both the Projected
Supplemental Redemption Amount and the estimated yield equal to 5.78% per annum
(compounded semiannually)) as determined by the Company for purposes of applying
the Final Regulations to the MITTS Securities:
18
<PAGE>
Total Interest
Deemed to
Have Accrued
on the MITTS
Interest Deemed to Securities
Accrue During as of End of
Accrual Period Accrual Period
Accrual Period (per Unit) (per Unit)
-------------- ---------- ----------
September 29, 1998 through March 28, 1999.... $0.2850 $0.2850
March 29, 1999 through September 28, 1999.... $0.2972 $0.5822
September 29, 1999 through March 28, 2000.... $0.3058 $0.8880
March 29, 2000 through September 28, 2000.... $0.3147 $1.2027
September 29, 2000 through March 28, 2001.... $0.3238 $1.5265
March 29, 2001 through September 28, 2001.... $0.3331 $1.8596
September 29, 2001 through March 28, 2002.... $0.3427 $2.2023
March 29, 2002 through September 28, 2002.... $0.3527 $2.5550
September 29, 2002 through March 28, 2003.... $0.3628 $2.9178
March 29, 2003 through September 28, 2003.... $0.3733 $3.2911
September 29, 2003 through March 28, 2004.... $0.3842 $3.6753
March 29, 2004 through September 28, 2004.... $0.3952 $4.0705
September 29, 2004 through March 28, 2005.... $0.4066 $4.4771
March 29, 2005 through September 28, 2005.... $0.4184 $4.8955
- ---------
Projected Supplemental Redemption Amount = $4.8955 per Unit.
Prospective investors in the MITTS Securities should consult their own tax
advisors concerning the application of the Final Regulations to their investment
in the MITTS Securities. Investors in the MITTS Securities may also obtain the
projected payment schedule, as determined by the Company for purposes of the
application of the Final Regulations to the MITTS 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 of the Company and its subsidiaries
included in the Company's Current Report on Form 8-K dated December 10, 1998
and related financial statement schedules of the Company and its subsidiaries
included in the 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 Current Report on Form 8-K dated
December 10, 1998, 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 reports 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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 1998
P R O S P E C T U S
- -------------------
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: o 100% principal protection at maturity
o No payments prior to the stated maturity date
o Senior unsecured debt securities of Merrill Lynch
& Co., Inc.
o The MITTS Securities are 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 Securities and Exchange Commission 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 , 199 .
- ----------
"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.
You should rely only on the information contained or incorporated by
reference in this prospectus . We have not authorized any other person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copy charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you to
those documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
o Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
o Quarterly Reports on Form 10-Q for the quarters ended March 27,
1998, June 26, 1998 and September 25, 1998; and
o 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
2
<PAGE>
3, 1998, June 15, 1998, June 24, 1998, June 26, 1998, July 2, 1998,
July 14, 1998, July 15, 1998, July 29, 1998, September 3, 1998,
September 8, 1998, September 29, 1998, October 13, 1998, October 21,
1998, October 28, 1998, November 3, 1998, November 24, 1998,
December 1, 1998 and December 10, 1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
o Reports filed under Sections 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges of the Company for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December
---------------------------------- Nine Months Ended
1993(a) 1994 1995 1996 1997 September 25, 1998
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges...... 1.4 1.2 1.2 1.2 1.2 1.1
</TABLE>
- --------------------
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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 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 are 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.
4
<PAGE>
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.
o 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 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.
o 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.
o 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.
o 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.
o 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.
o 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
5
<PAGE>
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.
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 you should reach an investment decision regarding the
MITTS Securities only after carefully considering the suitability of the MITTS
Securities in the light of your particular circumstances.
You should also consider the tax consequences of investing in the MITTS
Securities and should consult your tax advisor.
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 "--Events of Default and Acceleration" and "Other Terms--Events
of Default" in this Prospectus.
6
<PAGE>
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
The Supplemental Redemption Amount for a MITTS Security will be determined
by the Calculation Agent and will equal:
<TABLE>
<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.
7
<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
Hypothetical Percentage Payable at Pretax
Index Change Maturity Pretax Annualized
Value During of Adjusted Per $10 Total Rate of Annualized Rate of Return
the Adjusted Ending Principal Return on the Rate of on Stocks
Calculation Ending Value Over the Amount of MITTS Return on the Underlying
Period Value Starting Value MITTS Securities Securities MITTS Securities(1) 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(3) 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 pretax annualized rate of return resulting therefrom will depend entirely on
the Starting Value, Adjustment Factor and the actual Adjusted Ending 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 Adjusted Ending 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 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.
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
9
<PAGE>
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.
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.
10
<PAGE>
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 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.
11
<PAGE>
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.
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Direct and Indirect Participants and other
members of the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and interest payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct and Indirect Participants, third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
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
12
<PAGE>
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
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:
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 clauses
upon the Index.
13
<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 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 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.
14
<PAGE>
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 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.
15
<PAGE>
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.
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 MITTS Securities, the
Company has determined that the projected payment schedule for the MITTS
Securities will consist of payment on the maturity date of the principal amount
thereof and a projected Supplemental Redemption Amount equal to $5.0390 per
Unit. This represents an estimated yield on the MITTS Securities equal to 5.90%
per annum (compounded semiannually).
The projected payment schedule (including both the projected Supplemental
Redemption Amount and the estimated yield on the MITTS Securities) has been
determined solely for United States Federal income tax purposes (i.e., for
purposes of applying the Final Regulations to the MITTS 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 MITTS Securities during each
accrual period over a term of seven years and one day for the MITTS Securities
based upon the projected payment schedule for the MITTS Securities (including
both the projected Supplemental Redemption Amount and the estimated yield equal
to 5.90% per annum (compounded semiannually)) as determined by the Company for
purposes of application of the Final Regulations to the MITTS Securities:
16
<PAGE>
Total Interest
Deemed to
Have Accrued
Interest Deemed on the MITTS
to Securities
Accrue During as of End of
Accrual Period Accrual Period
Accrual Period (per Unit) (per Unit)
-------------- ---------- ----------
June 26, 1998 through January 1,
1999............................. $0.3057 $0.3057
January 2, 1999 through July 1,
1999.............................. $0.3040 $0.6097
July 2, 1999 through January 1,
2000............................... $0.3130 $0.9227
January 2, 2000 through July 1,
2000............................... $0.3222 $1.2449
July 2, 2000 through January 1,
2001............................... $0.3317 $1.5766
January 2, 2001 through July 1,
2001............................... $0.3415 $1.9181
July 2, 2001 through January 1, 2002
............................... $0.3516 $2.2697
January 2, 2002 through July 1,
2002............................... $0.3620 $2.6317
July 2, 2002 through January 1,
2003............................... $0.3726 $3.0043
January 2, 2003 through July 1,
2003............................... $0.3836 $3.3879
July 2, 2003 through January 1,
2004............................... $0.3950 $3.7829
January 2, 2004 through July 1,
2004............................... $0.4066 $4.1895
July 2, 2004 through January 1,
2005............................... $0.4186 $4.6081
January 2, 2005 through July 1,
2005............................... $0.4309 $5.0390
- ----------
Projected Supplemental Redemption Amount = $5.0390 per Unit.
All prospective investors in the MITTS Securities should consult their
own tax advisors concerning the application of the Final Regulations to their
investment in the MITTS Securities. Investors in the MITTS Securities may
also obtain the projected payment schedule, as determined by the Company for
purposes of the application of the Final Regulations to the MITTS 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 of the Company and its
subsidiaries included in the Company's Current Report on Form 8-K dated
December 10, 1998 and related financial statement schedules of the Company
and its subsidiaries included in the 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 Current Report on
Form 8-K dated December 10, 1998, 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 reports 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
17
<PAGE>
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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 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 Depositary
described below. Units will be transferable by the Securities Depositary, as
more fully described below, in denominations of whole Units.
General:
o Senior unsecured debt securities
o Not redeemable prior to maturity
o No payments prior to maturity
o 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.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The MITTS will be maintained in book-entry form only through the
facilities of DTC.
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 , 199 .
- ----------
* 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>
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.
You should rely only on the information contained or incorporated by
reference in this prospectus . We have not authorized any other person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copy charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you to
those documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
o Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
o Quarterly Reports on Form 10-Q for the quarters ended March 27,
1998, June 26, 1998 and September 25, 1998; and
o 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, July 15, 1998, July 29, 1998, September
3, 1998, September 8, 1998, September 29, 1998, October 13, 1998,
October 21, 1998, October 28, 1998, November 3, 1998, November 24,
1998, December 1, 1998 and December 10, 1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
2
<PAGE>
o Reports filed under Sections 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December Nine Months
---------------------------------- Ended
1993(a) 1994 1995 1996 1997 September 25, 1998
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges....... 1.4 1.2 1.2 1.2 1.2 1.1
</TABLE>
- ---------------
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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
3
<PAGE>
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 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.
o 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.
4
<PAGE>
o 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 interest rates may increase the value of the Index
and, thus, may increase the value of the MITTS.
o 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.
o 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.
o 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.
o 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
5
<PAGE>
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.
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.
You should also consider the tax consequences of investing in the
Securities and should consult your tax advisor.
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
"--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>
Principal Amount of such Security ($10 per Unit) x Ending Index Value - Benchmark Index Value
------------------------------------------
Benchmark Index Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
6
<PAGE>
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 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.
Depositary
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 Depositary, 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
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 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 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 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 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 will act as securities depositary 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 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 Securities at any time by giving reasonable notice to the Company
or Trustee. Under such circumstances, in the event that a successor securities
depositary 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 depositary). In that event,
Security certificates will be printed and delivered.
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Direct and Indirect Participants and other
members of the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and interest payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct and Indirect Participants, third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
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.
11
<PAGE>
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.
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:
Number of Percentage of Index
Industry Companies Market Capitalization
- -------- --------- ---------------------
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)
- ----------
(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%.
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,
13
<PAGE>
INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
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 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.
15
<PAGE>
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 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:
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)
-------------- ---------- ----------
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
- -----------
Projected Supplemental Redemption Amount = $5.5304 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 of the Company and its subsidiaries
included in the Company's Current Report on Form 8-K dated December 10, 1998
and related financial statement schedules of the Company and its subsidiaries
included in the 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 Current Report on Form 8-K
dated December 10, 1998, 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 reports 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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 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: o 100% principal protected if held to maturity
o Callable prior to the stated maturity date by
Merrill Lynch & Co., Inc., the issuer, as provided
herein
o No payments prior to the stated maturity date
unless called
o 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 are 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 Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. 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 , 199 .
- ----------
(SM)"Protected Growth" and "ProGroS" are service marks of Merrill Lynch & Co.,
Inc.
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus . We have not authorized any other person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition, results
of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copy charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you to
those documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
o Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
o Quarterly Reports on Form 10-Q for the quarters ended March 27,
1998, June 26, 1998 and September 25, 1998; and
o 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, July 15, 1998, July 29, 1998, September
3, 1998, September 8, 1998, September 29, 1998, October 13, 1998,
October 21, 1998, October 28, 1998, November 3, 1998, November 24,
1998, December 1, 1998 and December 10, 1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
2
<PAGE>
o Reports filed under Sections 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges of the Company for the periods indicated:
Nine Months
Year Ended Last Friday in December Ended
---------------------------------- September 25,
1993(a) 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
Ratio of earnings to
fixed charges................ 1.4 1.2 1.2 1.2 1.2 1.1
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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.
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
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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
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.
o 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.
o 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.
o Volatility of the Reference Securities. Volatility is the term used to
describe the size and frequency of
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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.
o 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 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.
o 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.
o 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
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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.
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
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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).
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
You should also consider the tax consequences of investing in the ProGroS
Securities and should consult your tax advisor.
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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
"--Events of Default and Acceleration" and "Other Terms--General--Events of
Default" in this Prospectus.
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 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
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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 "--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 New York Stock Exchange
(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
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 Price shall mean the last reported
sale price for a transaction which occurred
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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.
11
<PAGE>
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>
Percentage Total Amount Pretax Pretax Rate
Change Payable at the Annualized 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
12
<PAGE>
issuer; (v) issue 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
13
<PAGE>
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.
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
14
<PAGE>
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 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
15
<PAGE>
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 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
16
<PAGE>
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 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.
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Direct and Indirect Participants and other
members of the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and interest payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct and Indirect Participants, third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine
17
<PAGE>
the extent of their efforts for Year 2000 remediation (and, as appropriate,
testing) of their services. In addition, DTC is in the process of developing
such contingency plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
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 the ProGroS Securities
should carefully review the adjustments to be made in the case of certain
reorganization events contained in "--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. 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
18
<PAGE>
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.
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
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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 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
20
<PAGE>
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 of the Company and its
subsidiaries included in the Company's Current Report on Form 8-K dated
December 10, 1998 and related financial statement schedules of the Company
and its subsidiaries included in the 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 Current Report on
Form 8-K dated December 10, 1998, 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 reports 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
21
<PAGE>
"part" of the registration statement prepared or certified by an accountant
within the meaning of Sections 7 and 11 of the Act.
22
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 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: o Senior unsecured debt securities
o Callable prior to the stated maturity date of
March 31, 2003 by Merrill Lynch & Co., Inc., the
issuer, as provided herein
o No payments prior to the stated maturity date
unless called
o 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 Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if of
this prospectus is truthful or complete. 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 , 199 .
- ----------
(SM)"Protected Growth" and "ProGroS" are service marks of Merrill Lynch & Co.,
Inc.
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus . We have not authorized any other person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copy charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you to
those documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
o Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
o Quarterly Reports on Form 10-Q for the quarters ended March 27,
1998, June 26, 1998 and September 25, 1998; and
o 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, July 15, 1998, July 29, 1998, September
3, 1998, September 8, 1998, September 29, 1998, October 13, 1998,
October 21, 1998, October 28, 1998, November 3, 1998, November 24,
1998, December 1, 1998 and December 10, 1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
o Reports filed under Sections 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
2
<PAGE>
o Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges of the Company for the periods indicated:
<TABLE>
<CAPTION>
Nine Months
Year Ended Last Friday in December Ended
--------------------------------------- September 25,
1993(a) 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 1.1
</TABLE>
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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.
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
4
<PAGE>
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.
o 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.
o 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.
o 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.
o 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.
o 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 dividend yield on the
Underlying Stock were to decrease, we expect that the value of the
ProGroS Securities would increase.
5
<PAGE>
o 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
You should also consider the tax consequences of investing in the ProGroS
Securities and should consult your tax advisor.
6
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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
"-Events of Default and Acceleration" and "Other Terms-Events of Default" in
this Prospectus.
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>
Principal Amount of such ProGroS Security ($10 per Unit) x Ending Value - Starting Value
-----------------------------
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.
"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
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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:
Call Period Call Price
----------- ------------------------
April, 1999 116% of principal amount
April, 2000 132% of principal amount
April, 2001 148% of principal amount
April, 2002 164% of principal amount
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.
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.
8
<PAGE>
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.
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)
- ------------ -------------- -------- --------- ----------
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%
- -----------
(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 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.
9
<PAGE>
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 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.
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<PAGE>
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 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 Security has been issued for the ProGroS 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
11
<PAGE>
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 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.
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Direct and Indirect Participants and other
members of the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and interest payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
12
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However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct and Indirect Participants, third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
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. 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.
13
<PAGE>
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.
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
14
<PAGE>
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 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
15
<PAGE>
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 of the Company and its
subsidiaries included in the Company's Current Report on Form 8-K dated
December 10, 1998 and related financial statement schedules of the Company
and its subsidiaries included in the 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 Current Report on
Form 8-K dated December 10, 1998, 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 reports 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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 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. ("we" or the "Company")
issued $30,000,000 aggregate principal amount of Global Bond Linked
Securities due December 31, 1998 (the "GloBLS" or the "Notes"). The Notes
will mature and be repayable at 100% of the principal amount thereof on
December 31, 1998. Payments will be payable with respect to the Notes
semiannually on June 30 and December 31 of each year ("June Payment Dates"
and "December Payment Dates", respectively), commencing June 30, 1993.
We will pay you interest on the Notes each calendar year at a rate per
year 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"). We will not pay you at a rate in any calendar year
any 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. For each $1,000 principal amount of Notes, we
will pay you $15 of the total amount payable for each calendar year on the
June Payment Date and will pay you the balance of the annual amount due on
the Notes for such year on the December Payment Date. We may not redeem the
Notes prior to maturity.
Before you decide to invest in the Notes, carefully read this prospectus,
especially "Risk Factors" beginning on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The Notes will be maintained in book-entry form only through the
facilities of the Securities Depositary.
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 , 199 .
(SM)"GloBLS" and "Global Bond Linked Securities" are service marks
of Merrill Lynch & Co., Inc.
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copy charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you to
those documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
o Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
o Quarterly Reports on Form 10-Q for the quarters ended March 27,
1998, June 26, 1998 and September 25, 1998; and
o 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, July 15, 1998, July 29, 1998, September
3, 1998, September 8, 1998, September 29, 1998, October 13, 1998,
October 21, 1998, October 28, 1998, November 3, 1998, November 24,
1998, December 1, 1998 and December 10, 1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
2
<PAGE>
o Reports filed under Sections 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December Nine Months
---------------------------------- Ended
1993(a) 1994 1995 1996 1997 September 25, 1998
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges ....... 1.4 1.2 1.2 1.2 1.2 1.1
</TABLE>
- --------------------
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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
3
<PAGE>
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
Semiannual Payments
If the Index Bund Price applicable to a December Payment Date does not
exceed the Benchmark Price, you 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.
You 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". You 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 we would pay as
interest as of the date hereof if we 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 cost
to you 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 you purchased the Index Bund and held it 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.
New York State laws govern 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 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 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 your benefit, to the extent permitted by law, not to
voluntarily claim the benefits of any laws concerning usurious rates of
interest.
Trading
The Notes are listed on the New York Stock Exchange under the symbol "MER
DM". We expect 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
4
<PAGE>
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.
Price of the Index Bund. We expect that the trading value of the Notes
will depend significantly on the extent to which, if at all, the price of
the Index Bund exceeds the Benchmark Price. If, however, you sell your
Notes at a time when the price of the Index Bund exceeds the Benchmark
Price, the price you receive may be at a discount from the amount expected
to be payable if such price were to prevail until the next applicable
Determination Date. Furthermore, the price at which you 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, we expect the trading value of the Notes to
increase. If the volatility of the price of the Index Bund decreases, we
expect the trading value of the Notes to decrease.
Interest Rates. In general, if U.S. interest rates increase, we expect the
value of the Notes to decrease. If U.S. interest rates decrease, we expect
the value of the Notes 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. We anticipate that 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 you should reach an investment decision with regard
to the Notes only after carefully considering the suitability of the Notes in
the light of your particular circumstances.
You should also consider the tax consequences of investing in the Notes
and should consult your tax advisor.
5
<PAGE>
DESCRIPTION OF NOTES
General
The Notes were issued as a series of Senior Debt Securities under the
Senior Indenture, as 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 "-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.
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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
Hypothetical Index Hypothetical Total Annual
Bund Price on the GloBLS Payment
Determination Date Rate (1)
------------------ --------
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%
- ----------
(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.
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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)
-----------------------------
Total Pretax
Annual
Payment Rate(1) 1995 1996 1997 1998
- --------------- -------- -------- -------- --------
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%
- ----------
(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:
Corresponding
Approximate Determination Yield to
Maturity Date Maturity
----------- ------------- --------
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%
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 Depositary
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
Depositary (the "Securities Depositary"), registered in the name of the
Securities Depositary 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 Depositary to a nominee of
such Securities Depositary or by a nominee of such Securities Depositary to such
Securities Depositary or another nominee of such Securities Depositary or by
such Securities Depositary or any such nominee to a successor of such Securities
Depositary or a nominee of such successor.
The Securities Depositary has advised the Company as follows: The
Securities Depositary 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 Depositary 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 Depositary's Participants include securities
brokers and dealers, banks, trust companies, clearing corporations, and certain
other organizations. The Securities Depositary 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
Depositary 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 Depositary. 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
Depositary 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 Depositary (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 Depositary, or its nominee, is the registered
owner of the Global Security, the Securities Depositary 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
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<PAGE>
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 Depositary 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 Depositary 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 Depositary 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 Depositary or its nominee will be made to the Securities Depositary
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 Depositary, 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 Depositary. 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 Depositary is at any time unwilling or unable to
continue as Securities 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 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 Depositary shall instruct the Trustee.
It is expected that such instructions may be based upon directions received by
the Securities Depositary from Participants with respect to ownership of
beneficial interests in such Global Security.
The Securities Depositary management is aware that some computer
applications, systems, and the like for processing data ("Systems") that are
dependent upon calendar dates including dates before, on, and after January 1,
2000, may encounter "Year 2000 problems." The Securities Depositary has informed
its Direct and Indirect Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and interest payments) to securityholders, book-entry
deliveries, and settlement of trades within the Securities Depositary
("Depositary Services"), continue to function appropriately. This program
includes a technical assessment and a remediation plan, each of which is
complete. Additionally, the Securities Depositary's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, the Securities Depositary's ability to perform properly its
services is also dependent upon other parties, including, but not limited to,
issuers and their agents, as well as the Securities Depositary's Direct and
Indirect Participants, third party vendors from whom the Securities Depositary
licenses software and hardware, and third party vendors on whom the Securities
Depositary relies for information or the provision of services, including
telecommunication and electrical utility service providers, among others. The
Securities Depositary has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom the Securities Depositary
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acquires services to: (i) impress upon them the importance of such services
being Year 2000 compliant; and (ii) determine the extent of their efforts for
Year 2000 remediation (and, as appropriate, testing) of their services. In
addition, the Securities Depositary is in the process of developing such
contingency plans as it deems appropriate.
According to the Securities Depositary, the information in the preceding
two paragraphs with respect to the Securities Depositary has been provided to
the Industry for informational purposes only and is not intended to serve as a
representation, warranty, or contract modification of any kind.
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.
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.
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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 Holders is required to modify or
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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 of the Company and its
subsidiaries included in the Company's Current Report on Form 8-K dated
December 10, 1998 and related financial statement schedules of the Company
and its subsidiaries included in the 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 Current Report on
Form 8-K dated December 10, 1998, 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.
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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 reports 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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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 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. ("we" or the "Company")
issued $25,000,000 of Currency Protected Notes ("CPNs") due December 31, 1998
(the "Notes"). The Notes will mature and be repayable at 100% of the
principal amount thereof on December 31, 1998. We will pay you interest on
the Notes on June 30 and December 31 of each year ("June Payment Dates" and
"December Payment Dates", respectively and together the "Payment Dates"). The
Notes are not subject to redemption prior to maturity.
We will pay to you interest 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). The payments on the Notes for any period will not 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 (the
"Canadian BA Rate").
Before you decide to invest in the Notes, carefully read this prospectus,
especially "Risk Factors" beginning on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The Notes will be maintained in book-entry form only through the
facilities of the Securities Depositary.
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 , 199 .
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition, results
of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copy charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you to
those documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
o Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
o Quarterly Reports on Form 10-Q for the quarters ended March 27,
1998, June 26, 1998 and September 25, 1998; and
o 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, July 15, 1998, July 29, 1998, September
3, 1998, September 8, 1998, September 29, 1998, October 13, 1998,
October 21, 1998, October 28, 1998, November 3, 1998, November 24,
1998, December 1, 1998 and December 10, 1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
o Reports filed under Sections 13(a) and (c) of the Exchange Act;
2
<PAGE>
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December Nine Months
---------------------------------- Ended
1993(a) 1994 1995 1996 1997 September 25, 1998
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges ...... 1.4 1.2 1.2 1.2 1.2 1.1
</TABLE>
- ------------------
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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 Rate applicable to a Payment Date equals or exceeds 6.15%,
you 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.
You 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". You 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 we would pay as interest as of the date hereof if
we 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 cost to you 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 are listed on the New York Stock Exchange under the symbol
"MERCN 98". We expect 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. We expect that the trading value of the Notes
will depend significantly on the extent to which, if at all, the Index
Rate is less than 6.15%. If, however, you sell your Notes at a time when
the Index Rate is less than 6.15%, the price that you receive may be at a
discount from the amount expected to be payable if such price were to
prevail until the next applicable Determination Date. Furthermore, the
price at which you will be able to sell Notes prior to a 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 Rate is above, equal to
or not sufficiently below 6.15%.
4
<PAGE>
Volatility of the Index Rate. If the volatility of the Index Rate
increases, we expect the trading value of the Notes to increase. If the
volatility of the Index Rate decreases, we expect the trading value of the
Notes to decrease.
Interest Rates. In general, if U.S. interest rates increase, we expect the
value of the Notes to decrease. If U.S. interest rates decrease, we expect
the value of the Notes to increase. In addition, Canadian interest rates
will affect the Index Rate. In general, if Canadian interest rates
increase, we expect the Index Rate to increase, and therefore the value of
the Notes to decrease. If Canadian interest rates decrease, we expect the
Index Rate to decrease, and therefore the value of the Notes to increase.
Time Remaining to Payment Dates. We anticipate that 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 you should reach an investment decision with regard
to the Notes only after carefully considering the suitability of the Notes in
the light of your particular circumstances.
You should also consider the tax consequences of investing in the Notes
and should consult your tax advisor.
DESCRIPTION OF NOTES
General
The Notes were issued as a series of Senior Debt Securities under the
Senior Indenture, as 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
"--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,
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.
5
<PAGE>
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.
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.
6
<PAGE>
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 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.
7
<PAGE>
Securities Depositary
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
Depositary (the "Securities Depositary"), registered in the name of the
Securities Depositary 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 Depositary to a nominee of such
Securities Depositary or by a nominee of such Securities Depositary to such
Securities Depositary or another nominee of such Securities Depositary or by
such Securities Depositary or any such nominee to a successor of such Securities
Depositary or a nominee of such successor.
The Securities Depositary has advised the Company as follows: the
Securities Depositary 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 Depositary 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 Depositary's Participants include securities
brokers and dealers, banks, trust companies, clearing corporations, and certain
other organizations. The Securities Depositary 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 Depositary 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 Depositary. 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
Depositary 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 Depositary (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 Depositary, or its nominee, is the registered
owner of the Global Security, the Securities Depositary 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 Depositary 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 Depositary
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 Depositary 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.
8
<PAGE>
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 Depositary or its nominee will be made to the Securities Depositary
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 Depositary, 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 Depositary. 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 Depositary is at any time unwilling or unable to
continue as Securities 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 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 Depositary shall instruct the Trustee.
It is expected that such instructions may be based upon directions received by
the Securities Depositary from Participants with respect to ownership of
beneficial interests in such Global Security.
The Securities Depositary management is aware that some computer
applications, systems, and the like for processing data ("Systems") that are
dependent upon calendar dates including dates before, on, and after January 1,
2000, may encounter "Year 2000 problems." The Securities Depositary has informed
its Direct and Indirect Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and interest payments) to securityholders, book-entry
deliveries, and settlement of trades within the Securities Depositary
("Depositary Services"), continue to function appropriately. This program
includes a technical assessment and a remediation plan, each of which is
complete. Additionally, the Securities Depositary's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, the Securities Depositary's ability to perform properly its
services is also dependent upon other parties, including, but not limited to,
issuers and their agents, as well as the Securities Depositary's Direct and
Indirect Participants, third party vendors from whom the Securities Depositary
licenses software and hardware, and third party vendors on whom the Securities
Depositary relies for information or the provision of services, including
telecommunication and electrical utility service providers, among others. The
Securities Depositary has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom the Securities Depositary
acquires services to: (i) impress upon them the importance of such services
being Year 2000 compliant; and (ii) determine the extent of their efforts for
Year 2000 remediation (and, as appropriate, testing) of their services. In
addition, the Securities Depositary is in the process of developing such
contingency plans as it deems appropriate.
According to the Securities Depositary, the information in the preceding
two paragraphs with respect to the Securities Depositary has been provided to
the Industry for informational purposes only and is not intended to serve as a
representation, warranty, or contract modification of any kind.
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
9
<PAGE>
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.
10
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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
11
<PAGE>
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 of the Company and its
subsidiaries included in the Company's Current Report on Form 8-K dated
December 10, 1998 and related financial statement schedules of the Company
and its subsidiaries included in the 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 Current Report on
Form 8-K dated December 10, 1998, 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 reports 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.
12
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 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 Depositary described below. Units will be
transferable by the Securities Depositary, as more fully described below, in
denominations of whole Units.
General:
o Senior unsecured debt securities o No payments prior to maturity
o Not redeemable prior to maturity o Transferable only in whole Units
The payment at maturity will be 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. The amount payable at maturity will not be less than $9.00 (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. 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 will be less than the principal amount.
Before you decide to invest in the Securities, carefully read this
prospectus, especially Risk Factors beginning on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The Securities will be maintained in book-entry form only through the
facilities of the Securities Depositary.
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 , 199 .
(R)"MITTS" is a registered service mark and (SM)"Market Index Target-Term
Securities" is a service mark of Merrill Lynch & Co., Inc.
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copy charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you to
those documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
o Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
o Quarterly Reports on Form 10-Q for the quarters ended March 27,
1998, June 26, 1998 and September 25, 1998; and
o 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, July 15, 1998, July 29, 1998, September
3, 1998, September 8, 1998, September 29, 1998, October 13, 1998,
October 21, 1998, October 28, 1998, November 3, 1998, November 24,
1998, December 1, 1998 and December 10, 1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
o Reports filed under Sections 13(a) and (c) of the Exchange Act;
2
<PAGE>
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a), as
if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December Nine Months
------------------------------------ Ended
1993(a) 1994 1995 1996 1997 September 25, 1998
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges .... 1.4 1.2 1.2 1.2 1.2 1.1
</TABLE>
- -----------------
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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
If the Closing Portfolio Value is less than the Original Portfolio Value,
you will receive less than the principal amount of such Securities at maturity,
but not less than the Minimum Payment. You will 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 to you at
maturity, such return of principal does not reflect any opportunity cost to you
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 you purchased
the Portfolio Securities and held them for a similar period, because, among
other reasons, any payment to you 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.
New York State laws govern the Senior 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 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 your benefit, to the extent permitted by law, not to
voluntarily claim the benefits of any laws concerning usurious rates of
interest.
Trading
The Securities are listed on the New York Stock Exchange. We expect that
the secondary market for the Securities will be affected by the creditworthiness
of the Company and by a number of other factors. We expect that the trading
value of the Securities will depend primarily on the extent of the appreciation,
if any, of the Portfolio Value over the Original Portfolio Value. If, however,
you sell your Securities prior to the maturity date at a time when the Portfolio
Value exceeds the Original Portfolio Value, the price you receive 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, we expect the
value of the Securities to decrease. If U.S. interest rates decrease, we
expect the value of the Securities 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.
4
<PAGE>
Volatility of the Portfolio Value. If the volatility of the Portfolio
Value increases, we expect the trading value of the Securities to
increase. If the volatility of the Portfolio Value decreases, we expect
the trading value of the Securities to decrease.
Time Remaining to Maturity. We anticipate that 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, we expect the value of the
Securities to decrease. Conversely, if dividend rates on the Portfolio
Securities and Underlying Shares decrease, we expect the value of the
Securities 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. Your investment in the Securities does not
give you 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.
You should be aware that 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.
5
<PAGE>
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 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.
6
<PAGE>
Other Considerations
It is suggested that you should reach an investment decision regarding the
Securities only after carefully considering the suitability of the Securities in
the light of your particular circumstances.
You should also consider the tax consequences of investing in the
Securities and should consult your tax advisor.
DESCRIPTION OF SECURITIES
General
The Securities were issued as a series of Senior Debt Securities under the
Senior Indenture, are more fully described below. 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 under "--Events of Default and
Acceleration" and "Other Terms--Events of Default" in this Prospectus.
The Securities were 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
7
<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
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. 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 following table sets forth the
Portfolio Securities, the percentage of each Portfolio Security in the Original
Portfolio Value and their Initial Multipliers:
9
<PAGE>
<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 Telecommunications 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 ADRs.
(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.
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
10
<PAGE>
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 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
11
<PAGE>
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.
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.
12
<PAGE>
Payment at Maturity
Hypothetical Closing Percentage Change per $10 Principal
Portfolio Value in the Portfolio Level Amount of Securities
--------------- ---------------------- --------------------
$ 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
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.
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 Depositary
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 Depositary (the
"Securities Depositary), registered in the name of the Securities Depositary 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
13
<PAGE>
transferred except as a whole by the Securities Depositary to a nominee of such
Securities Depositary or by a nominee of such Securities Depositary to such
Securities Depositary or another nominee of such Securities Depositary or by
such Securities Depositary or any such nominee to a successor of such Securities
Depositary or a nominee of such successor.
The Securities Depositary has advised the Company as follows: The
Securities Depositary 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 Depositary 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 Depositary's Participants include securities
brokers and dealers, banks, trust companies, clearing corporations, and certain
other organizations.
The Securities Depositary 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 Depositary 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 Depositary. 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
Depositary 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 Depositary (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 Depositary, or its nominee, is the registered
owner of the Global Security, the Securities Depositary 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 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 Depositary 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 Depositary
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 Depositary 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 Depositary
or its nominee will be made to the Securities Depositary 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
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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 Depositary, 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 Depositary. 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 Depositary is at any time unwilling or unable to
continue as Securities 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 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 Depositary shall
instruct the Trustee. It is expected that such instructions may be based upon
directions received by the Securities Depositary from Participants with respect
to ownership of beneficial interests in such Global Security.
The Securities Depositary management is aware that some computer
applications, systems, and the like for processing data ("Systems") that are
dependent upon calendar dates including dates before, on, and after January 1,
2000, may encounter "Year 2000 problems." The Securities Depositary has informed
its Direct and Indirect Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and interest payments) to securityholders, book-entry
deliveries, and settlement of trades within the Securities Depositary
("Depositary Services"), continue to function appropriately. This program
includes a technical assessment and a remediation plan, each of which is
complete. Additionally, the Securities Depositary's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, the Securities Depositary's ability to perform properly its
services is also dependent upon other parties, including, but not limited to,
issuers and their agents, as well as the Securities Depositary's Direct and
Indirect Participants, third party vendors from whom the Securities Depositary
licenses software and hardware, and third party vendors on whom the Securities
Depositary relies for information or the provision of services, including
telecommunication and electrical utility service providers, among others. The
Securities Depositary has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom the Securities Depositary
acquires services to: (i) impress upon them the importance of such services
being Year 2000 compliant; and (ii) determine the extent of their efforts for
Year 2000 remediation (and, as appropriate, testing) of their services. In
addition, the Securities Depositary is in the process of developing such
contingency plans as it deems appropriate.
According to the Securities Depositary, the information in the preceding
two paragraphs with respect to the Securities Depositary has been provided to
the Industry for informational purposes only and is not intended to serve as a
representation, warranty, or contract modification of any kind.
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 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
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(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, 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:
16
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Company Name Country Industry
- ------------ ------- --------
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
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
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.
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<PAGE>
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.
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
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<PAGE>
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.
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.
19
<PAGE>
EXPERTS
The consolidated financial statements of the Company and its
subsidiaries included in the Company's Current Report on Form 8-K dated
December 10, 1998 and related financial statement schedules of the Company
and its subsidiaries included in the 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 Current Report on
Form 8-K dated December 10, 1998, 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 reports 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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 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 Depositary described below.
Units will be transferable by the Securities Depositary, as more fully described
below, in denominations of whole Units.
General:
o Senior unsecured debt securities o Not redeemable prior to maturity
o No payments prior to maturity o 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 S&P 500 Composite Stock Price Index over the Starting
Index Value of 813.65, which was the closing value of the Index on the date the
Securities were priced for initial sale to the public.
The Supplemental Redemption Amount will equal the product of (A) the
Principal Amount, (B) the percentage increase from the Starting Index Value to
the Ending Index Value, and (C) the Participation Rate. The Ending Index Value
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%. The Supplemental Redemption Amount will in no event be less than
zero.
Before you decide to invest in the Securities, carefully read this
prospectus, especially Risk Factors beginning on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The Securities will be maintained in book-entry form only through the
facilities of the Securities Depositary.
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 , 199 .
(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.
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also available
over the Internet at the SEC's web site at http://www.sec.gov. You may also
read and copy any document we file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for more information on the public reference rooms and
their copy charges. You may also inspect our SEC reports and other information
at the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you to
those documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
2
<PAGE>
o Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
o Quarterly Reports on Form 10-Q for the quarters ended March 27,
1998, June 26, 1998 and September 25, 1998; and
o 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, July 15, 1998, July 29, 1998, September
3, 1998, September 8, 1998, September 29, 1998, October 13, 1998,
October 21, 1998, October 28, 1998, November 3, 1998, November 24,
1998, December 1, 1998 and December 10, 1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
o Reports filed under Sections 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
3
<PAGE>
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December Nine Months
---------------------------------- Ended
1993(a) 1994 1995 1996 1997 September 25, 1998
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges ........... 1.4 1.2 1.2 1.2 1.2 1.1
</TABLE>
- ----------------
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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. You should be aware that if
the Ending Index Value does not exceed the Starting Index Value, the
Supplemental Redemption Amount will be zero. This will be true 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. If the Supplemental Redemption
Amount is zero, we will pay you only the principal amount of your Securities.
Yield may be Below Market Interest Rates on the Pricing Date. You may not
receive any Supplemental Redemption Amount at maturity, or a Supplemental
Redemption Amount that is below what we would pay as interest as of the Pricing
Date if we 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 cost to you implied by inflation or other factors relating
to the time value of money.
Yield on Securities will not Reflect Dividends. 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 the Index does
not reflect the payment of dividends on the stocks underlying it.
State Law Limit 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 your benefit, to the extent permitted by law, not to
voluntarily claim the benefits of any laws concerning usurious rates of
interest.
4
<PAGE>
Trading
The Securities are 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. We expect that the trading value of the Securities will depend
substantially on the extent of the appreciation, if any, of the Index over the
Starting Index Value. If, however, you sell your Securities prior to the
maturity date at a time when the Index exceeds the Starting Index Value, the
price you receive may be at a substantial discount from the amount expected to
be payable 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 you 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, you 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, we anticipate that if U.S.
interest rates increase, the trading value of the Securities will decrease. If
U.S. interest rates decrease, we expect the trading value of the Securities 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, we
expect the trading value of the Securities to increase. If the volatility of the
Index decreases, we expect the trading value of the Securities to decrease.
Time Remaining to Maturity. We believe that before their 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, we expect this time premium to
decrease, thus decreasing the trading value of the Securities. In addition,
the price at which you may be able to sell your 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, we expect the value of the Securities to
decrease. Conversely, if dividend rates on the stocks comprising the Index
decrease, we expect the value of the Securities 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
5
<PAGE>
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 you should reach an investment decision regarding the
Securities only after carefully considering the suitability of the Securities in
light of your particular circumstances.
You should also consider the tax consequences of investing in the
Securities and should consult your tax advisor.
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 "Senior Indenture", which is more
fully described below. 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
"-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 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.
6
<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 ($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
represent the value of the Index had such changes or modifications not been
made, then, from and after such time,
8
<PAGE>
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
circulation), and
9
<PAGE>
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.
Depositary
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 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
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.
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
10
<PAGE>
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 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 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 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.
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Direct and Indirect Participants and other
members of the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and interest payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
11
<PAGE>
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct and Indirect Participants, third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
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.
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:
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<PAGE>
(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:
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
13
<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
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."
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.
14
<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
15
<PAGE>
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 $4.3254 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:
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 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
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
</TABLE>
- ----------
Projected Supplemental Redemption Amount = $4.3254 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 of the Company and its
subsidiaries included in the Company's Current Report on Form 8-K dated
December 10, 1998 and related financial statement schedules of the Company
and its subsidiaries included in the 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 Current Report on
Form 8-K dated December 10, 1998, 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.
17
<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 reports 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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 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
Depositary described below. Units will be transferable by the Depositary, as
more fully described below, in denominations of whole Units.
General:
o Senior unsecured debt securities o Not redeemable prior to maturity
o No payments prior to maturity o 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 value of the Portfolio which is a portfolio of
specified stock of companies involved in various segments of the healthcare
industry and the biotechnology industry over the Benchmark Portfolio Value of
115.
The Supplemental Redemption Amount will equal the product of (A) the
Principal Amount, and (B) the percentage increase from the Benchmark Portfolio
Value to the Ending Portfolio Value. The Benchmark Portfolio Value exceeded the
closing value of the Portfolio on the date the Securities were priced for
initial sale to the public by 15%. The Ending Portfolio Value 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. The Supplemental Redemption
Amount will in no event be less than zero.
Before you decide to invest in the Securities, carefully read this
prospectus, especially Risk Factors beginning on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The Securities will be maintained in book-entry form only through the
facilities of the Depositary.
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 , 199 .
(R)"MITTS" is a registered service mark and (SM) "Market Index Target-Term
Securities" is a service mark of Merrill Lynch & Co., Inc.
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also available
over the Internet at the SEC's web site at http://www.sec.gov. You may also
read and copy any document we file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for more information on the public reference rooms and
their copy charges. You may also inspect our SEC reports and other information
at the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you to
those documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
o Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in Exhibit
99(i) to the Company's Current Report on Form 8-K dated December
10, 1998);
o Quarterly Reports on Form 10-Q for the quarters ended March 27,
1998, June 26, 1998 and September 25, 1998; and
o 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, July 15, 1998, July 29, 1998, September
3, 1998, September 8, 1998, September 29, 1998, October 13, 1998,
October 21, 1998, October 28, 1998, November 3, 1998, November 24,
1998, December 1, 1998 and December 10, 1998.
2
<PAGE>
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
o Reports filed under Sections 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
Nine Months
Year Ended Last Friday in December
---------------------------------- Ended
1993(a) 1994 1995 1996 1997 September 25, 1998
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges........ 1.4 1.2 1.2 1.2 1.2 1.1
</TABLE>
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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
Benchmark Portfolio Value will Exceed Value of Starting Portfolio Value on
the Pricing Date. On the date the Securities were priced by the Company for
initial sale to the public (the "Pricing Date"), the Benchmark Portfolio Value
exceeded the Starting Portfolio Value (as defined below) by 15%. You should be
aware that if, at maturity, the Ending Portfolio Value does not exceed the
Starting Portfolio Value by more than 15%, you will not receive a Supplemental
Redemption Amount and you will receive only the principal amount of your
Securities.
Yield may be Below Market Interest Rates on the Pricing Date. You may not
receive any Supplemental Redemption Amount at maturity, or a Supplemental
Redemption Amount that is below what we would pay as interest as of the Pricing
Date if we 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 cost to you 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 you purchased such underlying stocks and held them for a
similar period.
State Law Limit 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 your benefit, to the extent permitted by law, not to
voluntarily claim the benefits of any laws concerning usurious rates of
interest.
Trading
The Securities are listed on the AMEX under the symbol "MLH". We expect
that the secondary market for the Securities will be affected by the
creditworthiness of the Company and by a number of other factors.
We expect that the trading value of the Securities will depend
substantially on the extent of the appreciation, if any, of the Portfolio Value
over the Benchmark Portfolio Value. If, however, you sell your Securities prior
to the maturity date at a time when the Portfolio Value exceeds the Benchmark
Portfolio Value, the price you receive may be at a substantial discount from the
amount expected to be payable 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 you 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.
4
<PAGE>
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, you should be aware
that factors other than the level of the Portfolio 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, we expect the trading value of the Securities to decrease. If U.S.
interest rates decrease, we expect the trading value of the Securities 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, we expect the trading value of the Securities to increase. If the
volatility of the Portfolio Value decreases, we expect the trading value of the
Securities to decrease.
Time Remaining to Maturity. We anticipate that prior 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 you 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, we expect the trading value of the Securities
to decrease. Conversely, if dividend rates on the stocks comprising the
Portfolio decrease, we expect the value of the Securities 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,
5
<PAGE>
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".
Other Considerations
It is suggested that you should reach an investment decision with regard
to the Securities only after carefully considering the suitability of the
Securities in light of your particular circumstances.
You should also consider the tax consequences of investing in the
Securities, and should consult your tax advisor.
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
"--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 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.
6
<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 ($10 for
each Unit), and (ii) the Supplemental Redemption Amount equal in amount to:
Principal Amount x Ending Portfolio Value -- Benchmark Portfolio Value
---------------------------------------------------
Benchmark Portfolio Value
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.
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
8
<PAGE>
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.
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
9
<PAGE>
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.
Depositary
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 Depositary (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 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.
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
10
<PAGE>
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 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 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 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.
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Direct and Indirect Participants and other
members of the financial community (the
11
<PAGE>
"Industry") that it has developed and is implementing a program so that its
Systems, as the same relate to the timely payment of distributions (including
principal and interest payments) to securityholders, book-entry deliveries, and
settlement of trades within DTC ("DTC Services"), continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct and Indirect Participants, third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
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.
12
<PAGE>
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.
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
</TABLE>
13
<PAGE>
<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>
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>
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.
14
<PAGE>
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.
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.
15
<PAGE>
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.
16
<PAGE>
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
17
<PAGE>
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., 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:
18
<PAGE>
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)
-------------- ----------------- ----------
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
- ----------
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 of the Company and its subsidiaries
included in the Company's Current Report on Form 8-K dated December 10, 1998
and related financial statement schedules of the Company and its subsidiaries
included in the 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 Current Report on Form 8-K
dated December 10, 1998, 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 reports included in such
19
<PAGE>
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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 1998
P R O S P E C T U S
- -------------------
Merrill Lynch & Co., Inc.
Technology Market Index Target-Term Securities(SM) 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 Depositary described below. Units will be
transferable by the Depositary, as more fully described below, in denominations
of whole Units.
General:
o Senior unsecured debt securities o No payments prior to maturity
o Not redeemable prior to maturity o 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 CBOE Technology Index* (the "Index") over the Benchmark
Index Value of 189.48.
The Supplemental Redemption Amount will equal the product of (A) the
Principal Amount and (B) the percentage increase from the Benchmark Index Value
to the Ending Index Value. The closing value of the Index on the date the
Securities were priced 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 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 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.
Before you decide to invest in the Securities, carefully read this
prospectus, especially "Risk Factors" beginning on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The Securities will be maintained in book-entry form only through the
facilities of the Depositary.
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.
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The date of this prospectus is , 199 .
(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>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copy charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you to
those documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
o Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
o Quarterly Reports on Form 10-Q for the quarters ended March 27,
1998, June 26, 1998 and September 25, 1998; and
o 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, July 15, 1998, July 29, 1998, September
3, 1998, September 8, 1998, September 29, 1998, October 13, 1998,
October 21, 1998, October 28, 1998, November 3, 1998, November 24,
1998, December 1, 1998 and December 10, 1998.
2
<PAGE>
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
o Reports filed under Sections 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December Nine Months
-------------------------------------------------- Ended
1993(a) 1994 1995 1996 1997 September 25, 1998
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges .......... 1.4 1.2 1.2 1.2 1.2 1.1
</TABLE>
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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 12.5%. You 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%,
you will receive only the principal amount of your Securities.
Yield may be Below Market Interest Rates on the Pricing Date. You may
receive no Supplemental Redemption Amount at maturity, or a Supplemental
Redemption Amount that is below what we would pay as interest as of the Pricing
Date if we 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 cost to you 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,
you 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 you purchased such underlying stocks and held them for a similar
period.
Trading
The Securities are 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, you sell your Securities prior to the maturity date at a
time when the Index exceeds the Benchmark Index Value, the price you receive may
be at a substantial discount from the amount expected to be payable 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 you will be able to sell the
Securities prior
4
<PAGE>
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, you 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, we anticipate that 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, 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. We believe that before 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, we expect this time premium to decrease, thus decreasing the
trading value of the Securities. In addition, the price at which you may be able
to sell your 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, we expect the trading value of the Securities to
decrease. Conversely, if dividend rates on the stocks comprising the Index
decrease, we expect the value of the Securities 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. We expect that the effect on the trading
value of the Securities of a given appreciation of the Index in excess of the
Benchmark Index Value 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.
5
<PAGE>
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 you should reach an investment decision with regard
to the Securities only after carefully considering the suitability of the
Securities in light of your particular circumstances.
You should also consider the tax consequences of investing in the
Securities and should consult your tax advisor.
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
"--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 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.
6
<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 ($10 for
each Unit), and (ii) the Supplemental Redemption Amount equal in amount to:
Principal Amount X Ending Index Value - Benchmark Index Value
------------------------------------------
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 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%
</TABLE>
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 Stocks Underlying
Index Value Index Value Maturity Securities(1) the Index(1)(2)
----------- ----------- -------- ------------- ---------------
<S> <C> <C> <C> <C>
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>
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(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 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.
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.
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<PAGE>
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 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.
Depositary
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 Depositary (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 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.
9
<PAGE>
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 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
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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 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 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 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.
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Direct and Indirect Participants and other
members of the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and interest payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct and Indirect Participants, third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
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,
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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.
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,
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<PAGE>
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
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.
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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 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 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.
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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 of the Company and its subsidiaries
included in the Company's Current Report on Form 8-K dated December 10, 1998
and related financial statement schedules of the Company and its subsidiaries
included in the 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 Current Report on Form 8-K
dated December 10, 1998, 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 reports 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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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 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 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"). 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:
o Senior unsecured debt securities o Not redeemable prior to maturity
o No payments prior to maturity o 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 S&P 500 Composite Stock Price Index over the Starting
Index Value of 638.26, which was the closing value of the Index on the date the
Securities were priced for initial sale to the public.
The Supplemental Redemption Amount will equal the product of (A) the
Principal Amount, (B) the percentage increase from the Starting Index Value to
the Ending Index Value, and (C) the Participation Rate of 110%. The Ending Index
Value 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 Supplemental
Redemption Amount will in no event be less than zero.
Before you decide to invest in the Securities, carefully read this
prospectus, especially Risk Factors beginning on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The MITTS will be maintained through the facilities of the Securities
Depository.
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 , 199 .
(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.
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copy charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you to
those documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
o Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
<PAGE>
o Quarterly Reports on Form 10-Q for the quarters ended March 27,
1998, June 26, 1998 and September 25, 1998; and
o 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, July 15, 1998, July 29, 1998, September
3, 1998, September 8, 1998, September 29, 1998, October 13, 1998,
October 21, 1998, October 28, 1998, November 3, 1998, November 24,
1998, December 1, 1998 and December 10, 1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
o Reports filed under Sections 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December Nine Months
-------------------------------------------------- Ended
1993(a) 1994 1995 1996 1997 September 25, 1998
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges .......... 1.4 1.2 1.2 1.2 1.2 1.1
</TABLE>
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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. You should be aware that if
the Ending Index Value does not exceed the Starting Index Value, the
Supplemental Redemption Amount will be zero. This will be true 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. If the Supplemental Redemption
Amount is zero, we will pay you only the principal amount of your Securities.
Yield may be Below Market Interest Rates on the Pricing Date. You may not
receive any Supplemental Redemption Amount at maturity, or a Supplemental
Redemption Amount that is below what we would pay as interest as of the Pricing
Date if we 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 cost to you implied by inflation or other factors relating
to the time value of money.
Yield on Securities will not Reflect Dividends. Your return will not
reflect the return you would realize if you actually owned the stock underlying
the Index and received the dividends paid on those stocks because the Index does
not reflect the payment of dividends on the stocks underlying it.
State Law Limit 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 your benefit, to the extent permitted by law, not to
voluntarily claim the benefits of any laws concerning usurious rates of
interest.
Trading
The Securities are listed on the New York Stock Exchange under the symbol
"MIX".
We expect 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. We expect that the trading value of the Securities will depend
substantially on the extent of the appreciation, if any, of the Index over the
Starting Index Value. See
4
<PAGE>
"The Index--Historical Data on the Index" in this Prospectus for historical
values of the Index. If, however, you sell your Securities prior to the maturity
date at a time when the Index exceeds the Starting Index Value, the price you
receive may be at a substantial discount from the amount expected to be payable
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 you 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, you 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, we anticipate that if U.S.
interest rates increase, the trading value of the Securities will decrease. If
U.S. interest rates decrease, we expect the trading value of the Securities 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, 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. We believe that before 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, we expect this time premium to decrease, thus decreasing the
trading value of the Securities. In addition, the price at which you 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, we expect the value of the Securities to
decrease. Conversely, if dividend rates on the stocks comprising the Index
decrease, we expect the value of the Securities 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. We expect that the
effect on the trading value of the Securities of a given appreciation of the
Index in excess of the Starting Index Value 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.
5
<PAGE>
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 you should reach an investment decision regarding the
Securities only after you carefully considering the suitability of the
Securities in light of your particular circumstances.
You should also consider the tax consequences of investing in the
Securities and should consult your tax advisor.
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
"--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 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
6
<PAGE>
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 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.
7
<PAGE>
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".
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.
8
<PAGE>
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
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").
9
<PAGE>
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 $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.
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Direct and Indirect Participants and other
members of the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
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payment of distributions (including principal and interest payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct and Indirect Participants, third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
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
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(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.
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.
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.
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<PAGE>
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."
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
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$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
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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 of the Company and its subsidiaries
included in the Company's Current Report on Form 8-K dated December 10, 1998
and related financial statement schedules of the Company and its subsidiaries
included in the 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 Current Report on Form 8-K
dated December 10, 1998, 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 reports 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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 1998
P R O S P E C T U S
- -------------------
Merrill Lynch & Co., Inc.
Top Ten Yield Market Index Target-Term Securities(SM) 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 Depositary described below. Units
will be transferable by the Depositary, as more fully described below, in
denominations of whole Units.
General:
o Senior unsecured debt securities o Not redeemable prior to maturity
o No payments prior to maturity o 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 Top Ten Yield Index (the "Index") over the Starting
Index Value which was set to 100 on the date the Securities were priced for
initial sale to the public. 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"). 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 Supplemental Redemption Amount will equal the product of (A) the
Principal Amount, and (B) the percentage increase from the Starting Index Value
to the Ending Index Value. 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 Supplemental
Redemption Amount will not be less than $2.40 per $10 Principal Amount
representing a minimum yield-to-maturity of 2.16% per annum calculated on a
semi-annual bond equivalent basis.
Before you decide to invest in the Securities, carefully read this
prospectus, especially Risk Factors beginning on page 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The Securities will be maintained in book-entry form only through the
facilities of the Depositary.
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 to the
By-Laws of the National Association of Securities Dealers, Inc.
---------------
Merrill Lynch & Co.
---------------
The date of this prospectus is , 199 .
(R)"MITTS" is a registered service mark and (sm)"Market Index Target-Term
Securities" is a service mark of Merrill Lynch & Co., Inc.
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copy charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you to
those documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
o Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
o Quarterly Reports on Form 10-Q for the quarters ended March 27,
1998, June 26, 1998 and September 25, 1998; and
o 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
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14, 1998, July 15, 1998, July 29, 1998, September 3, 1998, September
8, 1998, September 29, 1998, October 13, 1998, October 21, 1998,
October 28, 1998, November 3, 1998, November 24, 1998, December 1,
1998 and December 10, 1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
o Reports filed under Sections 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
YEAR ENDED LAST FRIDAY IN DECEMBER NINE MONTHS
---------------------------------- ENDED
1993(a) 1994 1995 1996 1997 SEPTEMBER 25, 1998
---- ---- ---- ---- ---- ------------------
Ratio of earnings
to fixed charges... 1.4 1.2 1.2 1.2 1.2 1.1
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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. You should be aware that if the Ending Index Value does not exceed the
Starting Index Value by more than 24%, you will receive at maturity only the
principal amount of your Securities and the Minimum Supplemental 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 we would pay as interest as of the
Pricing Date if we 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 cost to you 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
you purchased such underlying stocks and held them 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, you will not receive any interest, periodic or otherwise, on the
Securities prior to their maturity.
State Law Limit 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.
4
<PAGE>
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 your benefit, to the extent permitted by law, not to
voluntarily claim the benefits of any laws concerning usurious rates of
interest.
Trading
The Securities are listed on the AMEX under the symbol "MTT". We expect
that the secondary market for the Securities will be affected by the
creditworthiness of the Company and by a number of other factors.
We expect that the trading value of the Securities will depend
substantially on the extent of the appreciation, if any, of the Index over the
Starting Index Value. If, however, you sell your Securities prior to the
maturity date at a time when the Index exceeds the Starting Index Value, the
price you receive may be at a substantial discount from the amount expected to
be payable 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 you 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. Accordingly, you 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, we expect that if U.S.
interest rates increase, the trading value of the Securities will decrease. If
U.S. interest rates decrease, we expect that 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, 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, we
expect the trading value of the Securities to increase. If the volatility of the
Index decreases, we expect the trading value of the Securities to decrease.
Time Remaining to Maturity. We anticipate that before their 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 you 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
5
<PAGE>
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 you should reach an investment decision only after
carefully considering the suitability of the Securities in light of your
particular circumstances.
You should also consider the tax consequences of investing in the
Securities and should consult your 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 our 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, 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
"--Events of Default and Acceleration" and "Other Terms--Events of Default" in
this Prospectus.
The Securities were 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 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 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 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.
8
<PAGE>
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 by the Calculation Agent for each Calculation Day in
accordance with the procedures last used to calculate the Index prior to
9
<PAGE>
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.
Depositary
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 Depositary (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 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.
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.
10
<PAGE>
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 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 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
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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 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.
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Direct and Indirect Participants and other
members of the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and interest payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct and Indirect Participants, third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
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.
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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.
Dividend Initial
Yield on Share
Name of Issuer July 26, 1996 Multiplier
-------------- ------------- ----------
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
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 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.
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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.
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
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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.
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
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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 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 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.
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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 of the Company and its subsidiaries
included in the Company's Current Report on Form 8-K dated December 10, 1998
and related financial statement schedules of the Company and its subsidiaries
included in the 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 Current Report on Form 8-K
dated December 10, 1998, 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 reports 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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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 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. ("WE" OR 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 will mature and be repayable at 100% of their principal amount on
December 31, 1999. We may not redeem the Notes prior to their maturity.
We will pay interest on the Notes on each June 30 and December 30 at a rate
per year equal to the Participation Rate set forth below multiplied by the
percentage increase, if any, in the S&P MidCap 400 Composite Stock Price Index.
For each $1,000 principal amount of the Notes that you own, you will not receive
less than the Minimum Annual Payment or more than the Maximum Annual Payment as
set forth in the table below.
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.
BEFORE YOU DECIDE TO INVEST IN THE NOTES, CAREFULLY READ THIS PROSPECTUS,
ESPECIALLY "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
The Notes will be maintained in book-entry form only through the facilities
of the Securities Depository.
The Notes have been listed on the New York Stock Exchange under the symbol
"MERIQ 99".
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. 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 , 199 .
-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.
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copy charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
- incorporated documents are considered part of the prospectus;
- we can disclose important information to you by referring you to those
documents; and
- information that we file with the SEC will automatically update and
supersede this incorporated information.
2
<PAGE>
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
- Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
- Quarterly Reports on Form 10-Q for the quarters ended March 27, 1998,
June 26, 1998 and September 25, 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, July 15, 1998, July 29, 1998, September 3, 1998,
September 8, 1998, September 29, 1998, October 13, 1998, October 21,
1998, October 28, 1998, November 3, 1998, November 24, 1998, December
1, 1998 and December 10, 1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
- Reports filed under Sections 13(a) and (c) of the Exchange Act;
- Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
- Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries include
issuing certificates of deposit, offering
3
<PAGE>
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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
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
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED LAST FRIDAY IN DECEMBER NINE MONTHS
---------------------------------- ENDED
1993(a) 1994 1995 1996 1997 SEPTEMBER 25, 1998
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges... 1.4 1.2 1.2 1.2 1.2 1.1
</TABLE>
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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%, you 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%, you would receive only the Maximum Annual Payment for the applicable
payment period.
You 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. You 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 we would pay as interest as of the date of issuance if we 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
4
<PAGE>
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 you purchased the stocks underlying the S&P MidCap
400 Index and held them 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 are listed on the New York Stock Exchange under the symbol "MERIQ
99". We expect 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.
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. We expect that the trading
value of the Notes will 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,
you sell your Notes 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 if such excess were to prevail until
the next December Payment Date. Furthermore, the price at which you 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, we expect the trading value of the Notes to increase.
If the volatility of the S&P MidCap 400 Index decreases, we expect the
trading value of the Notes to decrease.
U.S. INTEREST RATES. In general, if U.S. interest rates increase, we expect
the value of the Notes to decrease. If U.S. interest rates decrease, we
expect the value of the Notes 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. We anticipate that prior to each
December Payment Date, 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
5
<PAGE>
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
It is suggested that you should reach an investment decision only after
carefully considering the suitability of the Notes in the light of your
particular circumstances.
You should also consider the tax consequences of investing in the Notes and
should consult your 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 Annual Percent Appreciation Participation Rate
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<PAGE>
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 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
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<PAGE>
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 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
HYPOTHETICAL
HYPOTHETICAL HYPOTHETICAL INDEX PARTICI- ANNUALIZED
STARTING ENDING PERCENT PATION SMART
YEAR ANNUAL VALUE(1) ANNUAL VALUE(2) CHANGE RATE NOTE PAYMENT RATE(3)
- ---- --------------- --------------- ------- ------- --------------------
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%
- ----------------
(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
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<PAGE>
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, 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
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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.
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
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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.
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
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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 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, 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 management of the Securities Depository is aware that some computer
applications, systems, and the like for processing data ("Systems") that are
dependent upon calendar dates including dates before, on, and after January 1,
2000, may encounter "Year 2000 problems." The Securities Depository has informed
its Direct and Indirect Participants and other members of the financial
community (the "Industry") that it has developed and is implementing
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a program so that its Systems, as the same relate to the timely payment of
distributions (including principal and interest payments) to securityholders,
book-entry deliveries, and settlement of trades within the Securities Depository
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, the Securities Depository's plan includes a testing phase, which
is expected to be completed within appropriate time frames.
However, the Securities Depository's ability to perform properly its
services is also dependent upon other parties, including, but not limited to,
issuers and their agents, as well as the Securities Depository's Direct and
Indirect Participants, third party vendors from whom the Securities Depository
licenses software and hardware, and third party vendors on whom the Securities
Depository relies for information or the provision of services, including
telecommunication and electrical utility service providers, among others. The
Securities Depository has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom the Securities Depository
acquires services to: (i) impress upon them the importance of such services
being Year 2000 compliant; and (ii) determine the extent of their efforts for
Year 2000 remediation (and, as appropriate, testing) of their services. In
addition, the Securities Depository is in the process of developing such
contingency plans as it deems appropriate.
According to the Securities Depository, the information in the preceding
two paragraphs with respect to the Securities Depository has been provided to
the Industry for informational purposes only and is not intended to serve as a
representation, warranty, or contract modification of any kind.
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 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.
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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.
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
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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.
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.
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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 of the Company and its subsidiaries
included in the Company's Current Report on Form 8-K dated December 10, 1998
and related financial statement schedules of the Company and its subsidiaries
included in the 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 Current Report on Form 8-K
dated December 10, 1998, 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.
17
<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 reports 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
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 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.
GENERAL:
- Senior unsecured debt securities
- No payments prior to maturity
- Not redeemable prior to maturity
PAYMENT AT MATURITY:
Principal Amount + Supplemental Redemption Amount
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. BEFORE YOU DECIDE TO INVEST IN THE SECURITIES,
CAREFULLY READ THIS PROSPECTUS, ESPECIALLY "RISK FACTORS" BEGINNING ON PAGE 4 OF
THIS PROSPECTUS.
The Securities will be maintained in book-entry form only through the
facilities of DTC.
The Securities have been listed on the New York Stock Exchange under the
symbol "MERP ZR99".
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. 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 , 199 .
<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.
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copy charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
- incorporated documents are considered part of the prospectus;
- we can disclose important information to you by referring you to those
documents; and
- information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
- Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
- Quarterly Reports on Form 10-Q for the quarters ended March 27, 1998,
June 26, 1998 and September 25, 1998; and
2
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- 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, July 15, 1998, July 29, 1998, September 3, 1998,
September 8, 1998, September 29, 1998, October 13, 1998, October 21,
1998, October 28, 1998, November 3, 1998, November 24, 1998, December
1, 1998 and December 10, 1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
- Reports filed under Sections 13(a) and (c) of the Exchange Act;
- Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
- Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
3
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YEAR ENDED LAST FRIDAY IN DECEMBER NINE MONTHS
---------------------------------- ENDED
1993(a) 1994 1995 1996 1997 SEPTEMBER 25, 1998
------- ---- ---- ---- ---- ------------------
Ratio of earnings
to fixed charges..... 1.4 1.2 1.2 1.2 1.2 1.1
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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
You 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%, you will
receive only the principal amount of your Securities and the Minimum
Supplemental Redemption Amount. You 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 we would pay as interest as
of the date of issuance if we 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 cost to you 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 you purchased such
underlying stocks and held them 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 are 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. We expect 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 you 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.
We expect that the trading value of the Securities will depend primarily on
the extent of the appreciation, if any, of the S&P 500 Index over the Initial
Value. If, however, you sell your Securities prior to the maturity date at a
time when the S&P 500 Index exceeds the Initial Value, the price you receive may
be at a discount from the amount expected to be payable 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 you will be able to sell your 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.
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, you 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, we expect the
value of the Securities to decrease. If U.S. interest rates decrease, we
expect the value of the Securities 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, we expect the trading value of the Securities to increase. If
the volatility of the S&P 500 Index decreases, we expect the trading value
of the Securities to decrease.
TIME REMAINING TO MATURITY. We anticipate that prior to the maturity date,
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 you 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 you should reach an investment decision only after
carefully considering the suitability of the Securities in light of your
particular circumstances.
Investors should also consider the tax consequences of investing in the
Securities and should consult your 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
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<PAGE>
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.
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:
Principal Amount x Final Average Value - Initial Value 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
6
<PAGE>
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
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.
7
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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.
TOTAL
HYPOTHETICAL FINAL PERCENTAGE CHANGE AMOUNT
AVERAGE VALUE OF OVER INITIAL PAYABLE AT
THE S&P 500 INDEX VALUE MATURITY
- ----------------- ----------------- ----------
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
- -----------------------
(1) 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 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.
8
<PAGE>
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 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").
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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.
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 Depositary (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 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.
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.
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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 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 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 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 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.
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DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Direct and Indirect Participants and other
members of the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and interest payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct and Indirect Participants, third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
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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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:
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 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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"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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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
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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 of the Company and its subsidiaries
included in the Company's Current Report on Form 8-K dated December 10, 1998
and related financial statement schedules of the Company and its subsidiaries
included in the 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 Current Report on Form 8-K
dated December 10, 1998, 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 reports 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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospective is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 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.
GENERAL:
- Senior unsecured debt securites
- No payments prior to maturity
- Not redeemable prior to maturity
PAYMENT AT MATURITY:
Principal Amount + Supplemental Redemption Amount
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. BEFORE YOU DECIDE TO INVEST IN THE SECURITIES, CAREFULLY READ THIS
PROSPECTUS, ESPECIALLY "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
The Securities will be maintained in book-entry form only through the
facilities of DTC.
The Securities have been listed on the American Stock Exchange under the
symbol "MJP.A".
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. 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 , 199 .
-SM-"Japan Index" is a service mark of The American Stock Exchange.
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copy charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
- incorporated documents are considered part of the prospectus;
- we can disclose important information to you by referring you to those
documents; and
- information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
- Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
- Quarterly Reports on Form 10-Q for the quarters ended March 27, 1998,
June 26, 1998 and September 25, 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, July 15, 1998, July 29, 1998, September 3, 1998,
September 8, 1998, September 29, 1998, October 13, 1998 and October
21, 1998, October 28, 1998, November 3, 1998, November 24, 1998,
December 1, 1998 and December 10, 1998.
2
<PAGE>
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
- Reports filed under Sections 13(a) and (c) of the Exchange Act;
- Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
- Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
YEAR ENDED LAST FRIDAY IN DECEMBER NINE MONTHS
---------------------------------- ENDED
1993(a) 1994 1995 1996 1997 SEPTEMBER 25, 1998
------- ---- ---- ---- ---- ------------------
Ratio of earnings
to fixed charges..... 1.4 1.2 1.2 1.2 1.2 1.1
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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
You should be aware that if the Final Average Value of the Index does not
exceed the Initial Value by more than approximately 13.04%, at maturity you will
receive only the principal amount of your Securities and the Minimum
Supplemental Redemption Amount. You 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 we would pay as interest as
of the date of issuance if we 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 cost to you 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 you purchased such underlying
stocks and held them 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.
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
4
<PAGE>
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 your benefit, to the extent permitted by law, not to
voluntarily claim the benefits of any laws concerning usurious rates of
interest.
TRADING
The Securities are listed on the American Stock Exchange. We expect 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 you will be able to sell your Security in the secondary market may be at a
discount if the first or second such Calculation Value is below the Initial
Value.
We expect that the trading value of the Securities will depend primarily on
the extent of the appreciation, if any, of the Index over the Initial Value. If,
however, you sell your Securities prior to the maturity date at a time when the
Index exceeds the Initial Value, the price you receive may be at a discount from
the amount expected to be payable 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 you 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.
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, you 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, we expect
the value of the Securities to decrease. If U.S. interest rates decrease,
we expect the value of the Securities to increase. In general, if Japanese
interest rates increase, we expect the value of the Securities to increase.
If Japanese interest rates decrease, we expect the value of the Securities
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, we
expect the trading value of the Securities to increase. If the volatility
of the Index decreases, we expect the trading value of the Securities to
decrease.
TIME REMAINING TO MATURITY. We anticipate that prior to their 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
5
<PAGE>
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, we expect the value of the Securities to decrease.
Conversely, if dividend rates on the stocks comprising the Index decrease,
we expect the value of the Securities 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, you 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 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 you should reach an investment decision only after
carefully considering the suitability of the Securities in light of your
particular circumstances.
You should also consider the tax consequences of investing in the
Securities and should consult your tax advisors.
6
<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, 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) 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:
Principal Amount x Final Average Value - Initial Value 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
7
<PAGE>
will 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.
TOTAL
HYPOTHETICAL FINAL PERCENTAGE AMOUNT
AVERAGE VALUE OF CHANGE OVER PAYABLE AT
THE JAPAN INDEX INITIAL VALUE MATURITY
--------------- ------------- --------
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
- ---------------
(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
8
<PAGE>
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).
"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
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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:
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
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(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 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.
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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 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 DEPOSITARY
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 Depositary (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, the Global Security may not
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.
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
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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 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 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 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 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 Security.
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates
including dates before, on, and after January 1, 2000, may
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<PAGE>
encounter "Year 2000 problems." DTC has informed its Direct and Indirect
Participants and other members of the financial community (the "Industry") that
it has developed and is implementing a program so that its Systems, as the same
relate to the timely payment of distributions (including principal and interest
payments) to securityholders, book-entry deliveries, and settlement of trades
within DTC ("DTC Services"), continue to function appropriately. This program
includes a technical assessment and a remediation plan, each of which is
complete. Additionally, DTC's plan includes a testing phase, which is expected
to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct and Indirect Participants, third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
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.
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 Y50 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 Y50. 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".
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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.
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
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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 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.
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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.
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
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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.
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,
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<PAGE>
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 of the Company and its subsidiaries
included in the Company's Current Report on Form 8-K dated December 10, 1998
and related financial statement schedules of the Company and its subsidiaries
included in the 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 Current Report on Form 8-K
dated December 10, 1998, 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 reports 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
19
<PAGE>
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
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This information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 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. ("we" or 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 will mature and be repayable at 100% of their principal amount on
December 31, 1999. We may not redeem the Notes prior to their maturity.
We will pay you interest on the Notes on each June 30 and December 30 at
a rate per year equal to 85% (the "Participation Rate") multiplied by the
percentage increase, if any, in the AMEX Oil Index as described herein. For
each $1,000 principal amount of the Notes that you own, you will receive not
less than $20 (the "Minimum Annual Payment") per year.
- 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.
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. BEFORE YOU DECIDE TO INVEST IN THE
NOTES, CAREFULLY READ THIS PROSPECTUS, ESPECIALLY "RISK FACTORS" BEGINNING ON
PAGE 4 OF THIS PROSPECTUS.
The Notes will be maintained in book-entry form only through the facilities
of the Securities Depositary.
The Notes have been listed on the American Stock Exchange under the symbol
"MOI.F".
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. 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 , 199 .
- -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>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copy charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
- incorporated documents are considered part of the prospectus;
- we can disclose important information to you by referring you to those
documents; and
- information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
- Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
- Quarterly Reports on Form 10-Q for the quarters ended March 27, 1998,
June 26, 1998 and September 25, 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, July 15, 1998, July 29, 1998, September 3, 1998,
September 8, 1998, September 29, 1998, October 13, 1998, October 21,
1998, October 28, 1998, November 3, 1998, November 24, 1998, December
1, 1998 and December 10, 1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
- Reports filed under Sections 13(a) and (c) of the Exchange Act;
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<PAGE>
- Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
- Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
YEAR ENDED LAST FRIDAY IN DECEMBER NINE MONTHS
---------------------------------- ENDED
1993(a) 1994 1995 1996 1997 SEPTEMBER 25, 1998
------- ---- ---- ---- ---- ------------------
Ratio of earnings
to fixed charges..... 1.4 1.2 1.2 1.2 1.2 1.1
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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
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%, at maturity you 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.
You 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. You 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 we would pay as interest as of the date hereof if we 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 you purchased the stocks underlying the AMEX Oil
Index and held them 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.
New York State laws govern the 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 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 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 your benefit, to the extent permitted by law, not to
voluntarily claim the benefits of any laws concerning usurious rates of
interest.
TRADING
The Notes are listed on the American Stock Exchange under the symbol
"MOI.F". We expect 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. We expect that the trading value of
the Notes will depend significantly on the extent of the excess of the expected
Ending Average Value for a calendar year over the Starting Annual
4
<PAGE>
Value applicable to such calendar year. If, however, you sell your Notes 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 price
you receive may nevertheless be at a discount from the amount expected to be
payable if such excess were to prevail until the next December Payment Date.
Furthermore, the price at which you 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".
VOLATILITY OF THE AMEX OIL INDEX. If the volatility of the AMEX Oil Index
increases, we expect the trading value of the Notes to increase. If the
volatility of the AMEX Oil Index decreases, we expect the trading value of the
Notes to decrease.
U.S. INTEREST RATES. In general, if U.S. interest rates increase, we
expect the value of the Notes to decrease. If U.S. interest rates decrease, we
expect the value of the Notes 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. We anticipate that prior to
each December Payment Date, Notes may trade at a value above 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 you should reach an investment decision only after
carefully considering the suitability of the Notes in light of your particular
circumstances. You should also consider the tax consequences of investing in the
Notes and should consult your 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%.
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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
depositary 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 DEPOSITARY
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 Depositary (the "Securities
Depositary"), registered in the name of the Securities Depositary 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 Depositary to a nominee of such Securities Depositary or by a
nominee of such Securities Depositary to such Securities Depositary or another
nominee of such Securities Depositary or by such Securities Depositary or any
such nominee to a successor of such Securities Depositary or a nominee of such
successor.
The Securities Depositary has advised the Company as follows: The
Securities Depositary 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 Depositary 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 Depositary's Participants include securities
brokers and dealers, banks, trust companies, clearing corporations, and certain
other organizations. The Securities Depositary 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 Depositary 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 Depositary. 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
Depositary 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 Depositary (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 DEPOSITARY, OR ITS NOMINEE, IS THE REGISTERED
OWNER OF THE GLOBAL SECURITY, THE SECURITIES DEPOSITARY 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 Depositary 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 Depositary
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 Depositary 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 Depositary or its nominee, will be made to the Securities Depositary
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 Depositary, 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 Depositary. 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 Depositary is at any time unwilling or unable to
continue as Securities 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 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 Depositary shall instruct the Trustee.
It is expected that such instructions may be based upon directions received by
the Securities Depositary from Participants with respect to ownership of
beneficial interests in such Global Security.
The management of the Securities Depositary is aware that some computer
applications, systems, and the like for processing data ("Systems") that are
dependent upon calendar dates including dates before, on, and after January 1,
2000, may encounter "Year 2000 problems." The Securities Depositary has informed
its Direct and Indirect Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and interest payments) to securityholders, book-entry
deliveries, and settlement of trades within the Securities Depositary ("DTC
Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, the Securities Depositary's plan includes a testing phase, which
is expected to be completed within appropriate time frames.
However, the Securities Depositary's ability to perform properly its
services is also dependent upon other parties, including, but not limited to,
issuers and their agents, as well as the Securities Depositary's Direct and
Indirect Participants, third party vendors from whom the Securities Depositary
licenses software and hardware, and third party vendors on whom the Securities
Depositary relies for information or the provision of services, including
telecommunication and electrical utility service providers, among others. The
Securities Depositary has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom the Securities Depositary
acquires services to: (i) impress upon them the importance of such services
being Year 2000 compliant; and (ii) determine the extent of their efforts for
Year 2000 remediation (and, as appropriate, testing) of their services. In
addition, the Securities Depositary is in the process of developing such
contingency plans as it deems appropriate.
According to the Securities Depositary, the information in the preceding
two paragraphs with respect to the Securities Depositary has been provided to
the Industry for informational purposes only and is not intended to serve as a
representation, warranty, or contract modification of any kind.
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
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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.
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.
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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 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.
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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.
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
13
<PAGE>
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 of the Company and its subsidiaries
included in the Company's Current Report on Form 8-K dated December 10, 1998
and related financial statement schedules of the Company and its subsidiaries
included in the 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 Current Report on Form 8-K
dated December 10, 1998, 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.
14
<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 reports 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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 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. ("we" or 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").
WHAT YOU WILL RECEIVE BEFORE THE MATURITY DATE:
- - On each March 1, June 1, September 1 and December 1, beginning September 1,
1996, we will pay you interest on the STRYPES in cash at the rate of 6% per
year.
- - We may redeem the STRYPES, in whole but not in part, at any time after a
tax event date at the Tax Event Redemption Price in the manner described
herein.
WHAT YOU WILL RECEIVE ON THE MATURITY DATE:
- - For each STRYPES you own, you will receive a number of shares of Cox Common
Stock (or cash with an equal value), determined based on the average
Closing Price per share of Cox Common Stock on the 20 Trading Days
immediately prior to the second Trading Day preceding the Maturity Date:
IF THE MATURITY PRICE IS: YOU WILL RECEIVE:
(a) greater than $27.91 .8196 shares of Cox Common Stock
(b) less than $27.91 but greaterthan A fractional share of Cox Common the
Initial Price Stock equal in value to the Initial
Price
(c) less than the Initial Price One share of Cox Common Stock
Cox is not affiliated with the Company and has no obligation with respect
to the STRYPES.
BEFORE YOU DECIDE TO INVEST IN THE STRYPES, CAREFULLY READ THIS PROSPECTUS,
ESPECIALLY "RISK FACTORS" ON PAGE 4 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE STRYPES.
The STRYPES are listed on the New York Stock Exchange ("NYSE") under the
symbol "CML".
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. 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 , 199 .
- -SM-Service Mark of Merrill Lynch & Co., Inc.
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition, results
of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission ("SEC"). Our SEC filings are also available over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for more information on the public reference rooms and their copy
charges. You may also inspect our SEC reports and other information at the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
- incorporated documents are considered part of the prospectus;
- we can disclose important information to you by referring you to those
documents; and
- information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
- Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
- Quarterly Reports on Form 10-Q for the quarters ended March 27, 1998,
June 26, 1998 and September 25, 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, July 15, 1998, July 29, 1998, September 3, 1998,
September 8, 1998, September 29, 1998, October 13, 1998, October 21,
1998, October 28, 1998, November 3, 1998, November 24, 1998,
December 1, 1998 and December 10, 1998.
2
<PAGE>
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
- Reports filed under Sections 13(a) and (c) of the Exchange Act;
- Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
- Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
YEAR ENDED LAST FRIDAY IN DECEMBER NINE MONTHS
---------------------------------- ENDED
1993(a) 1994 1995 1996 1997 SEPTEMBER 25, 1998
------- ---- ---- ---- ---- ------------------
Ratio of earnings
to fixed charges..... 1.4 1.2 1.2 1.2 1.2 1.1
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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
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, at our option, the amount of cash)
that you 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 THAT YOU WILL RECEIVE 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, THE AMOUNT THAT
YOU RECEIVE ON THE MATURITY DATE WILL BE LESS THAN THE ISSUE PRICE PAID FOR THE
STRYPES, IN WHICH CASE YOUR INVESTMENT IN STRYPES WILL RESULT IN A LOSS TO YOU.
ACCORDINGLY, YOU ASSUME 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
Because the amount that you will receive on the Maturity Date will only
exceed the issue price of the 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) the opportunity for equity appreciation afforded
by an investment in the STRYPES is less than the opportunity for equity
appreciation you would have if you made a direct investment in Cox Common Stock.
Moreover, you 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) that you receive 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 our control.
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.
4
<PAGE>
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. However, there can be no assurance that an
active trading market for the STRYPES will develop, that such listing will
provide you 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, we 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
You 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 we 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, you will not be entitled to
vote on such amendment.
NO AFFILIATION BETWEEN THE COMPANY AND COX
We are not affiliated with Cox, and Cox has no obligations with respect to
the STRYPES or amounts to be paid to you, including any obligation to take the
needs of the Company or you 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 you as a holder 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 you as a holder 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 you
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 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) that you receive 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 you as a holder 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
5
<PAGE>
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 if
you are subject to U.S. Federal income tax, that you 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 your regular method
of tax accounting. The Indenture also requires you, as a holder of the STRYPES,
and the Company 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 you agree 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 your sale or other
disposition of a STRYPES prior to the Maturity Date, the amount paid or realized
be allocated 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 you agree,
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 U.S. 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 you should consult your own tax adviser
concerning the application of the U.S. Federal income tax laws to your
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 you should reach an investment decision only after
carefully considering the suitability of the STRYPES in the light of your
particular circumstances.
COX COMMUNICATIONS, INC.
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.
6
<PAGE>
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.
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
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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.
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:
Maturity Price Number of
of Cox Shares of Cox
Common Stock Common Stock Amount of Cash
------------ ------------ --------------
$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
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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 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
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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) 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
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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
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
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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 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.
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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.
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
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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.
The management of the Securities Depository is aware that some computer
applications, systems, and the like for processing data ("Systems") that are
dependent upon calendar dates including dates before, on, and after January 1,
2000, may encounter "Year 2000 problems". The Securities Depository has
informed its Direct and Indirect Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and interest payments) to securityholders, book-entry
deliveries, and settlement of trades within the Securities Depository ("DTC
Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, the Securities Depository's plan includes a testing phase, which
is expected to be completed within appropriate time frames.
However, the Securities Depository's ability to perform properly its
services is also dependent upon other parties, including, but not limited to,
issuers and their agents, as well as the Securities Depository's Direct and
Indirect Participants, third party vendors from whom the Securities Depository
licenses software and hardware, and third party vendors on whom the Securities
Depository relies for information or the provision of services, including
telecommunication and electrical utility service providers, among others. The
Securities Depository has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom the Securities Depository
acquires services to: (i) impress upon them the importance of such services
being Year 2000 compliant; and (ii) determine the extent of their efforts for
Year 2000 remediation (and, as appropriate, testing) of their services. In
addition, the Securities Depository is in the process of developing such
contingency plans as it deems appropriate.
According to the Securities Depository, the information in the preceding
two paragraphs with respect to the Securities Depository has been provided to
the Industry for informational purposes only and is not intended to serve as a
representation, warranty, or contract modification of any kind.
14
<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 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
15
<PAGE>
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 662/3% of the aggregate issue price of the Outstanding STRYPES of
such series; provided, however, that no such modification or amendment may,
without the consent of the holder of each Outstanding STRYPES of such series
affected thereby, (a) change the Maturity Date or the Stated Maturity of any
installment of interest or Additional Amounts on any STRYPES or any premium
payable on the redemption thereof, or change the Redemption Price, (b) reduce
the amount of Underlying Securities payable with respect to any STRYPES (or
reduce the amount of cash payable in lieu thereof), (c) reduce the amount of
interest or Additional Amounts payable on any STRYPES or reduce the amount of
cash payable with respect to any STRYPES upon acceleration of the maturity
thereof, (d) change the place or currency of payment of interest or Additional
Amounts on, or any amount of cash payable with respect to, any STRYPES, (e)
impair the right to institute suit for the enforcement of any payment on or with
respect to any STRYPES, including the payment of Underlying Securities with
respect to any STRYPES, (f) reduce the percentage of the aggregate issue price
of Outstanding STRYPES of such series, the consent of whose holders is required
to modify or amend the Indenture, (g) reduce the percentage of the aggregate
issue price of Outstanding STRYPES of such series necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults or (h) modify such provisions with respect to modification and waiver.
Except as provided in the Indenture, no modification of or amendment to the
Indenture may adversely affect the rights of a holder of any other Senior Debt
Security without the consent of such holder.
The holders of a majority of the aggregate issue price of each series of
STRYPES may waive compliance by the Company with certain restrictive provisions
of the Indenture. The holders of a majority of the aggregate issue price of each
series of STRYPES may waive any past default under the Indenture, except a
default in the payment of the Underlying Securities with respect to any STRYPES
of that series, or of cash payable in lieu thereof, or in the payment of any
premium, interest or Additional Amounts on any STRYPES of that series for which
payment had not been subsequently made or in respect of a covenant and provision
of the Indenture which cannot be modified or amended without the consent of the
holder of each Outstanding STRYPES of such series affected.
16
<PAGE>
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.
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 of the Company and its subsidiaries
included in the Company's Current Report on Form 8-K dated December 10, 1998
and related financial statement schedules of the Company and its subsidiaries
included in the 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 Current Report on Form 8-K
dated December 10, 1998, 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.
17
<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 reports 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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 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. ("we" or 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").
WHAT YOU WILL RECEIVE BEFORE THE MATURITY DATE:
- - On each March 15, June 15, September 15 and December 15, beginning
September 15, 1996, we will pay you interest on the STRYPES in cash at the
rate of 71/4% per year.
- - We may redeem the STRYPES at any time or from time to time before the
Maturity Date, in whole or in part, at a redemption price per STRYPES
initially equal to $86.58, declining by $.00966 each day following the
Issue Date to $76.686 on April 15, 1999 and equal to $76.106 thereafter.
We will pay you either in (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 our 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 with an equal value, plus in either case an amount in cash
equal to accrued and unpaid interest on the STRYPES to but excluding the
redemption date.
WHAT YOU WILL RECEIVE ON THE MATURITY DATE:
- - Unless redeemed before the Maturity Date, for each STRYPES you own, you
will receive one share of SunAmerica Common Stock, subject to adjust for
certain events (or, at our option, cash in an amount equal to the Current
Market Price, determined on the second Trading Day preceding the applicable
Notice Date, of the SunAmerica Common Stock which otherwise would have been
delivered).
SunAmerica Inc. is not affiliated with the Company and has no obligation
with respect to the STRYPES.
BEFORE YOU DECIDE TO INVEST IN THE STRYPES CAREFULLY READ THIS PROSPECTUS,
ESPECIALLY "RISK FACTORS" ON PAGE 3 OF THIS PROSPECTUS.
The STRYPES are listed on the New York Stock Exchange ("NYSE") under the
symbol "SAI."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. 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 , 199 .
- -SM-Service Mark of Merrill Lynch & Co., Inc.
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition, results
of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission ("SEC"). Our SEC filings are also available over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for more information on the public reference rooms and their copy
charges. You may also inspect our SEC reports and other information at the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
- incorporated documents are considered part of the prospectus;
- we can disclose important information to you by referring you to those
documents; and
- information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
- Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
- Quarterly Reports on Form 10-Q for the quarters ended March 27, 1998,
June 26, 1998 and September 25, 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, July 15, 1998, July 29, 1998, September 3, 1998,
September 8, 1998, September 29, 1998, October 13, 1998, October 21,
1998, October 28, 1998, November 3, 1998, November 24, 1998, December
1, 1998 and December 10, 1998.
2
<PAGE>
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
- Reports filed under Sections 13(a) and (c) of the Exchange Act;
- Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
- Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
YEAR ENDED LAST FRIDAY IN DECEMBER NINE MONTHS
---------------------------------- ENDED
1993(a) 1994 1995 1996 1997 SEPTEMBER 25, 1998
------- ---- ---- ---- ---- ------------------
Ratio of earnings
to fixed charges..... 1.4 1.2 1.2 1.2 1.2 1.1
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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
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 our
option exercisable at maturity, the amount of cash) that you as a holder of the
STRYPES will receive upon maturity may be less than the amount that you paid for
the STRYPES upon issuance, in which case an investment in the STRYPES will
result in a loss to you. ACCORDINGLY, YOU ASSUME THE RISK THAT THE MARKET VALUE
OF THE SUNAMERICA COMMON STOCK MAY DECLINE, AND THAT SUCH DECLINE COULD
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<PAGE>
BE SUBSTANTIAL. THE SUNAMERICA PROSPECTUS COVERS THE SHARES OF SUNAMERICA COMMON
STOCK WHICH YOU AS A HOLDER OF THE STRYPES MAY RECEIVE 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 we (i) elect to pay the STRYPES in cash
at maturity or (ii) elect 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 you 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 our
option, be paid at maturity or the number of shares of SunAmerica Common Stock
which may, at our option, 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 you would have
if you made a direct investment in the SunAmerica Common Stock. The
opportunity for capital appreciation afforded by an investment in the STRYPES
is limited because we may, at our 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, we expect 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 you will receive less
than one share of SunAmerica Common Stock for each STRYPES (or, at our
option, 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-SM-Optional Redemption." If we elect to redeem the STRYPES, in whole
or in part, the capital appreciation, exclusive of accrued interest that you
may realize on an investment in the STRYPES will 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 payment of such redemption price (such
redemption price being initially $86.568 and declining thereafter to
$76.106), over (ii) the price you paid 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
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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
our 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 are 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 you 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, we
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
You 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 we 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 to vote on such amendment occurs prior to such delivery, you, as a
holder of the STRYPES, will not be entitled to vote on such amendment.
NO AFFILIATION BETWEEN THE COMPANY AND THE SELLING STOCKHOLDER
We are not affiliated with the Selling Stockholder, and the Selling
Stockholder has no obligation with respect to the STRYPES or amounts to be paid
to you as a holder thereof, including any obligation to take the needs of the
Company or of you, as a holder 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
We are not affiliated with SunAmerica, and SunAmerica has no obligations
with respect to the STRYPES or amounts to be paid to you as a holder thereof,
including any obligation to take the needs of the Company or of you, as a holder
of the STRYPES into consideration for any reason. SunAmerica will not receive
any of the proceeds
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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 to be
received by you 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 to be received by you on the Maturity
Date or upon redemption.
DILUTION OF SUNAMERICA COMMON STOCK
The number of shares of SunAmerica Common Stock (or, pursuant to our
option, the amount of cash) that you 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-SM-Dilution
Adjustments." Such number of shares of SunAmerica Common Stock (or, pursuant to
our option, the amount of cash) to be received by you 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 if you are subject to United States Federal
income tax, that you 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 your regular method of tax accounting. The
Indenture also requires the Company and you, as a holder of the STRYPES 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 you agree 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 your sale or other disposition of a STRYPES prior to the Maturity Date or
redemption of the STRYPES, the amount paid or realized be allocated by you
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 you agree, 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 you should consult your own tax adviser concerning the
application of the United States Federal income tax laws to your particular
situation as well as any consequences of the purchase, ownership and disposition
of the STRYPES arising under the laws of any other taxing jurisdiction.
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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 you should reach an investment decision only after
carefully considering the suitability of the STRYPES in the light of your
particular circumstances.
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
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.
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GENERAL
Each STRYPES, which was issued at the Issue Price of $56.375, bears
interest at the rate of 71/4% 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 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,
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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, 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
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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 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.
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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
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.
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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 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").
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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.
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The management of the Securities Depository is aware that some computer
applications, systems, and the like for processing data ("Systems") that are
dependent upon calendar dates including dates before, on, and after January 1,
2000, may encounter "Year 2000 problems." The Securities Depository has informed
its Direct and Indirect Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and interest payments) to securityholders, book-entry
deliveries, and settlement of trades within the Securities Depository ("DTC
Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, the Securities Depository's plan includes a testing phase, which
is expected to be completed within appropriate time frames.
However, the Securities Depository's ability to perform properly its
services is also dependent upon other parties, including, but not limited to,
issuers and their agents, as well as the Securities Depository's Direct and
Indirect Participants, third party vendors from whom the Securities Depository
licenses software and hardware, and third party vendors on whom the Securities
Depository relies for information or the provision of services, including
telecommunication and electrical utility service providers, among others. The
Securities Depository has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom the Securities Depository
acquires services to: (i) impress upon them the importance of such services
being Year 2000 compliant; and (ii) determine the extent of their efforts for
Year 2000 remediation (and, as appropriate, testing) of their services. In
addition, the Securities Depository is in the process of developing such
contingency plans as it deems appropriate.
According to the Securities Depository, the information in the preceding
two paragraphs with respect to the Securities Depository has been provided to
the Industry for informational purposes only and is not intended to serve as a
representation, warranty, or contract modification of any kind.
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
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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 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.
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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 662/3% of the aggregate issue price of the Outstanding STRYPES of
such series; provided, however, that no such modification or amendment may,
without the consent of the holder of each Outstanding STRYPES of such series
affected thereby, (a) change the Maturity Date or the Stated Maturity of any
installment of interest or Additional Amounts on any STRYPES or any premium
payable on the redemption thereof, or change the Redemption Price, (b) reduce
the amount of Underlying Securities payable with respect to any STRYPES (or
reduce the amount of cash payable in lieu thereof), (c) reduce the amount of
interest or Additional Amounts payable on any STRYPES or reduce the amount of
cash payable with respect to any STRYPES upon acceleration of the maturity
thereof, (d) change the place or currency of payment of interest or Additional
Amounts on, or any amount of cash payable with respect to any STRYPES, (e)
impair the right to institute suit for the enforcement of any payment on or with
respect to any STRYPES, including the payment of Underlying Securities with
respect to any STRYPES, (f) reduce the percentage of the aggregate issue price
of Outstanding STRYPES of such series, the consent of whose holders is required
to modify or amend the Indenture, (g) reduce the percentage of the aggregate
issue price of Outstanding STRYPES of such series necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults or (h) modify such provisions with respect to modification and waiver.
Except as provided in the Indenture, no modification of or amendment to the
Indenture may adversely affect the rights of a holder of any other Senior Debt
Security without the consent of such holder.
The holders of a majority of the aggregate issue price of each series of
STRYPES may waive compliance by the Company with certain restrictive provisions
of the Indenture. The holders of a majority of the aggregate issue price of
each series of STRYPES may waive any past default under the Indenture, except a
default in the payment of the Underlying Securities with respect to any STRYPES
of that series, or of cash payable in lieu thereof, or in the payment of any
premium, interest or Additional Amounts on any STRYPES of that series for which
payment had not been subsequently made or in respect of a covenant and provision
of the Indenture which cannot be modified or amended without the consent of the
holder of each Outstanding STRYPES of such series affected.
GOVERNING LAW
The Indenture and the STRYPES 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
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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).
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 of the Company and its subsidiaries
included in the Company's Current Report on Form 8-K dated December 10, 1998
and related financial statement schedules of the Company and its subsidiaries
included in the 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 Current Report on Form 8-K
dated December 10, 1998, 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 reports 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
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"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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The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 1998
P R O S P E C T U S
- -------------------
MERRILL LYNCH & CO., INC.
6 1/4% STRYPES-SM- 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-SM-, 6 1/4% STRYPES-SM-
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").
WHAT YOU WILL RECEIVE BEFORE THE MATURITY DATE:
- - On each January 1, April 1, July 1 and October 1, beginning October 1,
1996, we will pay you interest on the STRYPES in cash at the rate of 61/4%
per year.
- - We may not redeem the STRYPES at any time before the Maturity Date.
WHAT YOU WILL RECEIVE ON THE MATURITY DATE:
- - For each STRYPES you own, you will receive a percentage of each type of
Reference Property (subject to our right to deliver, with respect to not
less than all, cash with an equal value to the Reference Property
deliverable on the Maturity Date) as set forth below:
IF THE REFERENCE PROPERTY VALUE IS: YOU WILL RECEIVE:
(a) greater than or equal to $46.28 (the 82.65% of each type of
"Threshold Appreciation Price") Reference Property
(b) less than the Threshold Appreciation A percentage of each type
Price but greater than the Initial Price of Reference
Property equal in value
to the Initial Price
(c) less than or equal to the Initial Price 100% of each type of
Reference Property
- - "Reference Property" shall mean initially one share of IMC Common Stock and
shall be subject to adjustment from time to time before 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.
IMC is not affiliated with the Company and has no obligation with respect
to the STRYPES.
BEFORE YOU DECIDE TO INVEST IN THE STRYPES, CAREFULLY READ THIS PROSPECTUS,
ESPECIALLY "RISK FACTORS" ON PAGE 3 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE STRYPES.
The STRYPES are listed on the New York Stock Exchange ("NYSE") under the
symbol "IGL".
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. 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 , 199 .
- -SM-Service Mark of Merrill Lynch & Co., Inc.
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission ("SEC"). Our SEC filings are also available over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for more information on the public reference rooms and their copy
charges. You may also inspect our SEC reports and other information at the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
- incorporated documents are considered part of the prospectus;
- we can disclose important information to you by referring you to those
documents; and
- information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
- Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
- Quarterly Reports on Form 10-Q for the quarters ended March 27, 1998,
June 26, 1998 and September 25, 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, July 15, 1998, July 29, 1998, September 3, 1998,
September 8, 1998, September 29, 1998, October 13, 1998, October 21,
1998, October 28, 1998, November 3, 1998, November 24, 1998, December
1, 1998 and December 10, 1998.
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We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
- Reports filed under Sections 13(a) and (c) of the Exchange Act;
- Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
- Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
YEAR ENDED LAST FRIDAY IN DECEMBER NINE MONTHS
---------------------------------- ENDED
1993(a) 1994 1995 1996 1997 SEPTEMBER 25, 1998
------- ---- ---- ---- ---- ------------------
Ratio of earnings
to fixed charges..... 1.4 1.2 1.2 1.2 1.2 1.1
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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
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 our option, the amount
of cash) that you 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 WILL BE EQUAL TO OR GREATER THAN THE ISSUE PRICE
OF THE STRYPES. IF THE REFERENCE PROPERTY
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VALUE IS LESS THAN THE INITIAL PRICE, SUCH AMOUNT WILL BE LESS THAN THE ISSUE
PRICE THAT YOU PAID FOR THE STRYPES, IN WHICH CASE AN INVESTMENT IN STRYPES WILL
RESULT IN A LOSS TO YOU. ACCORDINGLY, YOU ASSUME 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 YOU MAY RECEIVE
AS 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 that you would have
if you made a direct investment in the IMC Common Stock because the amount
receivable 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, you 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) that
you may receive as 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 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 are 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 you 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, we 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
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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
You 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 we 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, you, as a holder of the
STRYPES will not be entitled to vote on such amendment.
NO AFFILIATION BETWEEN THE COMPANY AND IMC
We are not affiliated with IMC, and IMC has no obligations with respect to
the STRYPES or amounts to be paid to you, including any obligation to take the
needs of the Company or of you as a holder 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 to
be received by you as a holder of the STRYPES on the Maturity Date.
DILUTION OF IMC COMMON STOCK
The Reference Property (or, pursuant to our option, the amount of cash)
that you 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) that you may receive 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.
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 if you are subject to U.S. Federal income tax,
that you 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 your 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
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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 you agree 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 your
sale or other disposition of a STRYPES prior to the Maturity Date, the amount
paid or realized by you be allocated 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 you
agree, 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 U.S. 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 you should consult your own tax adviser
concerning the application of the U.S. Federal income tax laws to your
particular situation 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 you should reach an investment decision only after
carefully considering the suitability of the STRYPES in the light of your
particular circumstances.
IMC GLOBAL INC.
IMC is one of the world's leading producers of crop nutrients for the
international agricultural community and is one of the largest distributors in
the United States of crop nutrients and related products through its retail and
wholesale distribution networks. IMC mines, processes and distributes potash in
the United States and Canada, and is a joint venture partner in IMC-Agrico
Company, a leading producer, marketer and distributor of phosphate crop
nutrients and a leading producer and marketer of animal feed ingredients. IMC's
retail distribution network, which extends principally to corn and soybean
farmers in the Midwestern and Southeastern United States, is one of the largest
distributors of crop nutrients and related products in the United States. IMC
also manufactures nitrogen-based and other high-value crop nutrients which are
marketed on a wholesale basis principally in the Midwestern and Southeastern
United States. In addition, IMC sells specialty lawn and garden, turf, and
nursery products on a national basis and ice-melter products in the Midwest and
Eastern snow-belt states.
IMC is subject to the informational requirements of the Exchange Act.
Accordingly, IMC files reports, proxy and information statements and other
information with the Commission. Copies of such material can be inspected and
copied at the public reference facilities maintained by the Commission at the
addresses specified under
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"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 61/4% 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.
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
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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 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
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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:
Reference Number of Shares
Property of IMC Common Amount
Value Stock of Cash
----- ----- -------
$ 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
REFERENCE PROPERTY ADJUSTMENTS
The Reference Property is subject to adjustment if an issuer of a Reference
Security shall: (i) subdivide or split the outstanding units of such Reference
Security into a greater number of units; (ii) combine the outstanding units of
such Reference Security into a smaller number of units; (iii) issue by
reclassification of units of such Reference Security any units of another
security of such issuer; (iv) issue rights or warrants to all holders of such
Reference Security entitling them, for a period expiring prior to the fifteenth
calendar day following the Maturity Date, to subscribe for or purchase any of
its securities or other property (other than rights to purchase units of such
Reference Security pursuant to a plan for the reinvestment of dividends or
interest); or (v) pay a dividend or make a distribution to all holders of such
Reference Security of cash, securities or other property (excluding any cash
dividend on any Reference Security consisting of capital stock that does not
constitute an Extraordinary Cash Dividend (as defined below), excluding any
payment of interest on any Reference Security consisting of an evidence of
indebtedness and excluding any dividend or distribution referred to in clause
(i), (ii), (iii) or (iv) above) or issue to all holders of such Reference
Security rights or warrants to subscribe for or purchase any of its securities
or other property (other than those referred to in clause (iv) above) (any of
the foregoing cash, securities or other property or rights or warrants are
referred to as the "Distributed Assets").
In the case of the events referred to in clauses (i), (ii) and (iii) above,
the Reference Property shall be adjusted to include the number of units of such
Reference Security and/or other security of such issuer which a holder of units
of such Reference Security would have owned or been entitled to receive
immediately following any such event had such holder held, immediately prior to
such event, the number of units of such Reference Security constituting part of
the Reference Property immediately prior to such event. Each such adjustment
shall become effective immediately after the effective date for such
subdivision, split, combination or reclassification, as the case may be. Each
such adjustment shall be made successively.
In the case of the event referred to in clause (iv) above, the Reference
Property shall be adjusted to include an amount in cash equal to the fair market
value (determined as described below), as of the fifth Business Day (except as
provided below) following the date on which such rights or warrants are received
by securityholders entitled thereto (the "Receipt Date"), of each such right or
warrant multiplied by the product of (A) the number of such rights or warrants
issued for each unit of such Reference Security and (B) the number of units of
such Reference Security
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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.
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
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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.
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
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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 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
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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.
The management of the Securities Depository is aware that some computer
applications, systems, and the like for processing data ("Systems") that are
dependent upon calendar dates including dates before, on, and after January 1,
2000, may encounter "Year 2000 problems". The Securities Depository has informed
its Direct and Indirect Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and interest payments) to securityholders, book-entry
deliveries, and settlement of trades within the Securities Depository ("DTC
Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, the Securities Depository's plan includes a testing phase, which
is expected to be completed within appropriate time frames.
However, the Securities Depository's ability to perform properly its
services is also dependent upon other parties, including, but not limited to,
issuers and their agents, as well as the Securities Depository's Direct and
Indirect Participants, third party vendors from whom the Securities Depository
licenses software and hardware, and third party vendors on whom the Securities
Depository relies for information or the provision of services, including
telecommunication and electrical utility service providers, among others. The
Securities Depository has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom the Securities Depository
acquires services to: (i) impress upon them the importance of such services
being Year 2000 compliant; and (ii) determine the extent of their efforts for
Year 2000 remediation (and, as appropriate, testing) of their services. In
addition, the Securities Depository is in the process of developing such
contingency plans as it deems appropriate.
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According to the Securities Depository, the information in the preceding
two paragraphs with respect to the Securities Depository has been provided to
the Industry for informational purposes only and is not intended to serve as a
representation, warranty, or contract modification of any kind.
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.
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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
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 662/3% 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.
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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 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.
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EXPERTS
The consolidated financial statements of the Company and its subsidiaries
included in the Company's Current Report on Form 8-K dated December 10, 1998
and related financial statement schedules of the Company and its subsidiaries
included in the 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 Current Report on Form 8-K
dated December 10, 1998, 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 reports 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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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 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)
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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").
WHAT YOU WILL RECEIVE BEFORE THE MATURITY DATE:
- - On each February 1, May 1, August 1 and November 1, beginning May 1, 1998,
we will pay you interest on the STRYPES in cash at the rate of 7 7/8% per
year.
WHAT YOU WILL RECEIVE ON THE MATURITY DATE:
- - For each STRYPES you own, you will receive a number of shares of CIBER
Common Stock (or cash with an equal value), determined in accordance with
the following Payment Rate Formula, subject to certain adjustments:
IF THE MATURITY PRICE IS: YOU WILL RECEIVE:
(a) greater than $91.4713 .7692 shares of CIBER Common
(the "Threshold Appreciation Price") Stock
(b) less than the Threshold Appreciation A fractional share of CIBER
Price but greater than $70.3625 (the Common Stock equal in value to
"Initial Appreciation Cap") the Initial Appreciation Cap
(c) less than the Initial Appreciation One share of CIBER Common Stock
Cap but greater than or equal to the
Initial Price
(d) less than the Initial Price but A number of shares of CIBER
greater than $51.4188 (the "Downside Common Stock equal in value
Protection Threshold Price") (determined based on the
Maturity Price) to the Initial
Price
(e) less than the Downside Protection 1.0526 shares of CIBER Common
Threshold Price Stock
The "Maturity Price" means the average Closing Price per share of CIBER
Common Stock on the 20 Trading Days immediately before, but not including, the
second Trading Day before the Maturity Date.
CIBER is not affiliated with the Company and has no obligations with
respect to the STRYPES.
Before you decide to invest in the STRYPES, carefully read this prospectus,
especially "RISK FACTORS," beginning on page 4 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".
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. 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.
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MERRILL LYNCH & CO.
-------------------
The date of this prospectus is , 199 .
- -SM- Service mark of Merrill Lynch & Co., Inc.
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus . We have not authorized any other person to
provide you with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. We are not making an
offer to sell these securities in any jurisdiction where the offer or sale is
not permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition, results
of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission ("SEC"). Our SEC filings are also available over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for more information on the public reference rooms and their copy
charges. You may also inspect our SEC reports and other information at the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
- incorporated documents are considered part of the prospectus;
- we can disclose important information to you by referring you to those
documents; and
- information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
- Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
- Quarterly Reports on Form 10-Q for the quarters ended March 27, 1998,
June 26, 1998 and September 25, 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, July 15, 1998, July 29, 1998, September 3, 1998,
September 8, 1998, September 29, 1998, October 13, 1998, October 21,
1998, October 28, 1998, November 3, 1998, November 24, 1998, December
1, 1998 and December 10, 1998.
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<PAGE>
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
- Reports filed under Sections 13(a) and (c) of the Exchange Act;
- Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
- Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges of the Company for the periods indicated:
NINE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
---------------------------------- SEPTEMBER 25,
1993(a) 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
Ratio of earnings
to fixed charges 1.4 1.2 1.2 1.2 1.2 1.1
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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
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 our option, the amount
of cash) that you 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 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, YOU 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, THE AMOUNT
YOU MAY RECEIVE 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 TO
YOU. ACCORDINGLY, YOU ASSUME 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 that you would have
by a direct investment in the CIBER Common Stock because the amount you may
receive 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, you 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) you may receive
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, you 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, we 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
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<PAGE>
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
You 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 we 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, you will not be
entitled to vote on such amendment.
NO AFFILIATION BETWEEN THE COMPANY AND CIBER
We are not affiliated with CIBER, and CIBER has no obligations with respect
to the STRYPES or amounts to be paid to you as a holder of the STRYPES,
including any obligation to take the needs of the Company or of you as a holder
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 you as a holder 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 you
as a holder 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) that
you may receive as a holder of the STRYPES 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. Additional
issuances or sales may materially and adversely affect the price of the
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<PAGE>
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 if you are subject to United
States Federal income tax, that you 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 your regular method of tax
accounting. The Indenture also requires the Company and you as a holder of the
STRYPES 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 you
agree 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 your sale or other disposition of a STRYPES prior to the
Maturity Date, the amount paid or realized be allocated 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 you agree, 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 you should consult your 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 you should reach an investment decision only after
carefully considering the suitability of the STRYPES in the light of your
particular circumstances.
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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.
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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 7O% 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
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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:
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MATURITY PRICE NUMBER OF
OF CIBER SHARES OF CIBER
COMMON STOCK COMMON STOCK AMOUNT OF CASH*
------------ ------------ ---------------
$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
___________
* 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
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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
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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
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<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.
The management of the Securities Depository is aware that some computer
applications, systems, and the like for processing data ("Systems") that are
dependent upon calendar dates, including dates before, on, and after January
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1, 2000, may encounter "Year 2000 problems." The Securities Depository has
informed its Direct and Indirect Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and interest payments) to securityholders, book-entry
deliveries, and settlement of trades within the Securities Depository ("DTC
Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, the Securities Depository's plan includes a testing phase, which
is expected to be completed within appropriate time frames.
However, the Securities Depository's ability to perform properly its
services is also dependent upon other parties, including, but not limited to,
issuers and their agents, as well as the Securities Depository's Direct and
Indirect Participants, third party vendors from whom the Securities Depository
licenses software and hardware, and third party vendors on whom the Securities
Depository relies for information or the provision of services, including
telecommunication and electrical utility service providers, among others. The
Securities Depository has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom the Securities Depository
acquires services to: (i) impress upon them the importance of such services
being Year 2000 compliant; and (ii) determine the extent of their efforts for
Year 2000 remediation (and, as appropriate, testing) of their services. In
addition, the Securities Depository is in the process of developing such
contingency plans as it deems appropriate.
According to the Securities Depository, the information in the preceding
two paragraphs with respect to the Securities Depository has been provided to
the Industry for informational purposes only and is not intended to serve as a
representation, warranty, or contract modification of any kind.
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
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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 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 662/3% 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
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<PAGE>
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
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
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<PAGE>
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.
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 of the Company and its subsidiaries
included in the Company's Current Report on Form 8-K dated December 10, 1998
and related financial statement schedules of the Company and its subsidiaries
included in the 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 Current Report on Form 8-K
dated December 10, 1998, 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 reports 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.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 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. ("WE" OR 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.
GENERAL:
- Senior unsecured debt securities
- No payments prior to maturity
- Not redeemable prior to maturity
PAYMENT AT MATURITY:
Principal Amount + Supplemental Redemption Amount
The Supplemental Redemption Amount will be no less than zero and no more
than $1,000 per $1,000 principal amount of Notes.
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. BEFORE YOU DECIDE TO INVEST IN THE NOTES, CAREFULLY READ THIS
PROSPECTUS, ESPECIALLY "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
The Notes will be maintained in book-entry form only through the facilities
of DTC.
The Notes have been listed on the American Stock Exchange (the "AMEX")
under the symbol "HKN.A".
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. 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 , 199 .
* 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>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copy charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
- incorporated documents are considered part of the prospectus;
- we can disclose important information to you by referring you to those
documents; and
- information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
- Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in Exhibit
99(i) to the Company's Current Report on Form 8-K dated December 10,
1998);
- Quarterly Reports on Form 10-Q for the quarters ended March 27, 1998,
June 26, 1998 and September 25, 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, July 15, 1998, July 29, 1998, September 3, 1998,
September 8, 1998, September 29, 1998, October 13, 1998, October 21,
1998, October 28, 1998, November 3, 1998, November 24, 1998, December
1, 1998 and December 10, 1998.
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We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
- Reports filed under Sections 13(a) and (c) of the Exchange Act;
- Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
- Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to fixed
charges for the periods indicated:
YEAR ENDED LAST FRIDAY IN DECEMBER NINE MONTHS
---------------------------------- ENDED
1993(a) 1994 1995 1996 1997 SEPTEMBER 25, 1998
---- ---- ---- ---- ---- ------------------
Ratio of earnings
to fixed charges... 1.4 1.2 1.2 1.2 1.2 1.1
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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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%. You should be aware that if the Ending Index Value does not
exceed the closing value of the Index on the Pricing Date by more than 14.67%,
at maturity you will receive only the principal amount of your Notes.
YIELD MAY BE BELOW MARKET INTEREST RATES ON THE PRICING DATE. You may not
receive any Supplemental Redemption Amount at maturity, or a Supplemental
Redemption Amount that is below what we would pay as interest as of the Pricing
Date if we 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 cost to you 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,
you 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
you purchased such underlying stocks and held them for a similar period.
STATE LAW LIMIT ON INTEREST PAID. New York State laws govern the 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 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 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 your benefit, to the extent permitted by law, not to
voluntarily claim the benefits of any laws concerning usurious rates of
interest.
TRADING
The Notes are listed on the American Stock Exchange. We expect that the
secondary market for the Notes will be affected by the creditworthiness of the
Company and by a number of other factors.
We expect that the trading value of the Notes will 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, you sell your Notes prior to the
maturity date at a time when the Index exceeds the Benchmark Index Value, the
price you receive may be at a substantial discount from the amount expected to
be payable if such excess of the Index over the Benchmark Index Value were to
prevail until maturity
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<PAGE>
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 you 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, you should be aware 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, we expect
the trading value of the Notes to decrease. If U.S. interest rates
decrease, we expect the trading value of the Notes to increase. If interest
rates in Hong Kong increase, we expect the trading value of the Notes 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, we expect the trading value of the Notes 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, we
expect the trading value of the Notes to increase. If the volatility of the
Index decreases, we expect the trading value of the Notes to decrease.
TIME REMAINING TO MATURITY. We anticipate that prior to the maturity
of the Notes, 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, we expect the value of the Notes to
decrease. Conversely, if dividend rates on the stocks comprising the Index
decrease, we expect the value of the Notes 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,
5
<PAGE>
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 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
You 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.
6
<PAGE>
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.
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 you should reach an investment decision only after
carefully considering the suitability of the Notes in light of your particular
circumstances.
You should also consider the tax consequences of investing in the Notes and
should consult your tax advisors.
7
<PAGE>
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.
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:
Principal Amount X Ending Index Value-Benchmark Index Value
----------------------------------------
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
8
<PAGE>
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. 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>
Pretax Pretax Annualized
Hypothetical ending Percentage Change Total 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>
9
<PAGE>
- ---------------
(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.
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
10
<PAGE>
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 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.
11
<PAGE>
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 Depositary (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 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
12
<PAGE>
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 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.
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Direct and Indirect Participants and other
members of the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and interest payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct and Indirect Participants, third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
13
<PAGE>
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 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
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<PAGE>
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.
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
15
<PAGE>
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 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
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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.
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
17
<PAGE>
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.
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 of the Company and its subsidiaries
included in the Company's Current Report on Form 8-K dated December 10, 1998
and related financial statement schedules of the Company and its subsidiaries
included in the 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 Current Report on Form 8-K
dated December 10, 1998, 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 reports 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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated December 11, 1998
P R O S P E C T U S
- -------------------
6,600,000 Units
Merrill Lynch & Co., Inc.
5 3/4% STock Return Income DEbt Securities(SM)
due June 1, 2000
"STRIDES(SM) Securities"
Payable with common stock of Lucent Technologies Inc.
(or cash with an equal value)
($10 Principal Amount per unit)
On December 1, 1998, Merrill Lynch & Co., Inc. ("we" or the
"Company") issued $66,000,000 aggregate principal amount (66,000,000 Units) of
5 3/4% STock Return Income DEbt Securities due June 1, 2000 (the "STRIDES
Securities").
o The STRIDES Securities will bear interest at a rate of 5 3/4% per
year. Interest on the STRIDES Securities is payable on June 1 and
December 1 of each year, beginning June 1, 1999. We will not redeem
the STRIDES Securities before maturity.
Payment on Maturity:
o At maturity, for each unit of the STRIDES Securities that you own,
we will pay you the Redemption Amount which is equal to the lesser
of:
o $13.00 (the "Capped Value"); and
Ending Value
o $10 X ---------------
Starting Value
o At maturity, you will receive a number of shares of the common stock
("Lucent Common Stock") of Lucent Technologies Inc. ("Lucent") equal
to the Redemption Amount divided by the Ending Value (the average
Closing Price per share of Lucent Common Stock on five Trading Days
shortly prior to maturity).
o If we choose to pay you cash at maturity instead of the shares of
Lucent Common Stock that you would otherwise be entitled to receive,
we will pay you an amount of cash equal to the Redemption Amount.
o The Starting Value is $90.3125 which was the Closing Price of Lucent
Common Stock on November 24, 1998.
o If the Redemption Amount is less than $10.00, you will receive less
at maturity than the initial issue price of each unit, which may
result in a loss to you. The Redemption Amount will not exceed the
Capped Value.
Lucent Common Stock presently trades on the New York Stock Exchange
(the "NYSE") under the trading symbol "LU". The STRIDES Securities are listed on
the American Stock Exchange (the "AMEX") under the trading symbol "LTS".
Investing in the STRIDES Securities involves certain risks which are
described in the "Risk Factors" section beginning on page 7.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The STRIDES Securities will be maintained in book-entry form only
through The Depository Trust Company.
This prospectus has been prepared in connection with the STRIDES
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 STRIDES Securities. MLPF&S may act as principal or agent in
such transactions. The STRIDES 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
STRIDES 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 , 199 .
"STock Return Income DEbt Securities" and "STRIDES" are service marks owned by
Merrill Lynch & Co., Inc.
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition,
results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copying charges. You may also inspect our SEC reports and
other information at the New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the securities. For further information on the Company and the securities, you
should refer to our registration statement and its exhibits. This Prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Because the Prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you to
those documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"):
o Annual Report on Form 10-K for the year ended December 26, 1997
(excluding the financial information which was restated in
Exhibit 99(i) to the Company's Current Report on Form 8-K dated
December 10, 1998);
o Quarterly Reports on Form 10-Q for the quarters ended March 27,
1998, June 26, 1998 and September 25, 1998; and
o 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, July 15, 1998, July 29, 1998, September
3, 1998, September 8, 1998, September 29, 1998, October 13, 1998,
October 21, 1998, October 28, 1998, November 3, 1998, November 24,
1998, December 1, 1998 and December 10, 1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of the initial registration statement and prior to
effectiveness of the registration statement:
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o Reports filed under Sections 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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. Our 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. Our 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. Our 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 our primary derivative product dealers and enter into interest
rate, currency, and other over-the-counter derivative transactions as
intermediaries and as principals. Our operations in insurance services consist
of the underwriting of life insurance and annuity products. Our banking, trust,
and mortgage lending operations conducted through our subsidiaries 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.
Our principal executive office is located at World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281; our telephone number is (212)
449-1000.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, the Company acquired the outstanding shares of Midland Walwyn
Inc. ("Midland"), in a transaction accounted for as a pooling-of-interests.
The following information has been restated, except as noted in note (a)
below, as if the Company and Midland had always been combined.
The following table sets forth the historical ratios of earnings to
fixed charges for the periods indicated:
<TABLE>
<CAPTION>
Nine Months
Year Ended Last Friday in December Ended
---------------------------------------------------- September 25,
1993(a) 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 1.1
</TABLE>
(a) 1993 information has not been restated for the Midland merger. The
effect of combining Midland on this ratio would not be material.
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 STRIDES Securities will involve certain risks.
STRIDES Securities are not principal-protected. If the Ending Value is less than
the Starting Value, the Redemption Amount will be less than the amount that you
initially paid for your STRIDES Security, in which case your investment in the
STRIDES Securities will result in a loss to you. In addition, your investment in
the STRIDES Securities entails risks not associated with similar investments in
a conventional debt security. You should consider carefully the following
discussion of risks before you decide that an investment in the STRIDES
Securities is suitable for you.
General
The STRIDES Securities combine features of equity and debt instruments.
For example, as a holder of the STRIDES Securities, unlike a holder of Lucent
Common Stock, you will not be entitled to receive dividends, if any, that may be
payable on Lucent Common Stock. In addition, the terms of the STRIDES Securities
differ from the terms of ordinary debt securities in that the Redemption Amount
payable on the Maturity Date is not a fixed amount, but is based on the price of
the Lucent Common Stock on five (or, under certain circumstances, fewer than
five) Trading Days shortly prior to the Maturity Date, subject to the Capped
Value. Because the price of the Lucent Common Stock is subject to market
fluctuations, the amount of cash or the value of the Lucent Common Stock paid to
you on the Maturity Date, determined as described herein, may be more or less
than the Principal Amount of the STRIDES Securities.
Although the Redemption Amount that you are entitled to receive on the
Maturity Date is subject to adjustment for certain corporate events relating to
Lucent and Lucent Common Stock, such adjustments do not cover all events that
could affect the market price of the Lucent Common Stock, including, without
limitation, the occurrence of a partial tender or exchange offer for the Lucent
Common Stock by Lucent or any third party. Such other events may adversely
affect the market value of the STRIDES Securities or any Lucent Common Stock
allocated during the Calculation Period (as defined herein) (but not received by
you until the Maturity Date).
Comparison to Other Debt Securities; Relationship to Lucent Common Stock
The terms of the STRIDES Securities differ from those of ordinary debt
securities in that the value of the Lucent Common Stock (or the amount of cash)
that you may receive on the Maturity Date is not fixed, but is based on the
Ending Value of the Lucent Common Stock. You should understand that the
opportunity to participate in the possible increases in the price of Lucent
Common Stock through an investment in the STRIDES Securities is limited because
the amount that you receive, if any, on the Maturity Date will never exceed the
Capped Value (which represents an appreciation of 30% over the initial price of
the STRIDES Securities). However, in the event that the price of Lucent Common
Stock declines over the term of the STRIDES Securities, you will realize the
entire decline in value of the STRIDES Securities, and may lose all or part of
your investment in the STRIDES Securities. There is no assurance that the amount
that you receive on the Maturity Date will be equal to or greater than the
initial issue price of the STRIDES Securities. Accordingly, the market value of
the Lucent Common Stock may decline and that decline could be substantial.
Return on the STRIDES Securities will not Reflect the Payment of Dividends
The calculation of the Starting Value and the Ending Value does not take
into consideration the value of cash dividends paid on the Lucent Common Stock
(other than an Extraordinary Dividend (as defined herein)). Therefore, your
return on the STRIDES Securities, if any, will not be the same as the return
that could be earned by owning Lucent Common Stock directly and receiving the
dividends paid on that stock.
Uncertain Trading Market
The STRIDES Securities are listed on the AMEX under the trading symbol
"LTS". There is no historical information to indicate how the STRIDES Securities
will trade in the secondary market. Listing the STRIDES Securities on the AMEX
does not necessarily ensure that a liquid trading market will develop for the
5
<PAGE>
STRIDES Securities. The development of a liquid trading market for the STRIDES
Securities will depend on the financial performance of the Company and other
factors such as the appreciation, if any, in the price of the Lucent Common
Stock. In addition, it is unlikely that the secondary market price of the
STRIDES Securities will correlate exactly with the value of Lucent Common Stock.
If the trading market for the STRIDES Securities is limited, there may be
a limited number of buyers when you decide to sell your STRIDES Securities if
you do not wish to hold your investment until the Maturity Date. This may affect
the price you receive upon such sale.
Factors Affecting the Trading Value of the STRIDES Securities
The market value of the STRIDES Securities will be affected by the value
of the Lucent Common Stock 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 magnified or mitigated by the effect of another factor. The
following paragraphs describe the expected effect on the market value of the
STRIDES Securities given a change in a specific factor, assuming all other
conditions remain constant.
o Value of Lucent Common Stock. The market value of the STRIDES
Securities will depend substantially on the value of the Lucent
Common Stock. In general, the value of the STRIDES Securities will
decrease as the value of the Lucent Common Stock decreases and the
value of the STRIDES Securities will increase as the value of the
Lucent Common Stock increases. However, as the value of the Common
Stock increases or decreases, the value of the STRIDES Securities is
not expected to increase or decrease at the same rate as the change
in value of the Lucent Common Stock. The value of the STRIDES
Securities on the Maturity Date cannot be greater than the Capped
Value, and therefore, the STRIDES Securities will generally not
trade in the secondary market significantly above the Capped Value.
Additionally, political, economic and other developments that can
affect the capital markets generally and the market segment of which
Lucent is a part (and over which we have no control) that affect the
value of the Lucent Common Stock will also affect the value of the
STRIDES Securities.
o Interest Rates. In general, we anticipate that if U.S. interest
rates increase, the trading value of the STRIDES Securities will
decrease, and conversely, if U.S. interest rates decrease, the
trading value of the STRIDES Securities will increase. Generally,
fluctuations in interest rates will affect the U.S. economy and, in
turn, the value of the Lucent Common Stock. Rising interest rates
may lower the value of the Lucent Common Stock and, as a result, the
value of the STRIDES Securities. Falling interest rates may increase
the value of the Lucent Common Stock and, as a result, may increase
the value of the STRIDES Securities.
o Volatility of the Lucent Common Stock. Volatility is the term used
to describe the size and frequency of market fluctuations.
Generally, if the volatility of the Lucent Common Stock increases,
we expect that the trading value of the STRIDES Securities will
decrease and if the volatility of the Lucent Common Stock decreases,
we expect that the trading value of the STRIDES Securities will
increase.
o Time Remaining to Maturity. We believe that before the Maturity Date
the STRIDES Securities will trade at a value above or below that
which would be expected based on the value of the Lucent Common
Stock. Generally, as the time remaining to maturity decreases, the
value of the STRIDES Securities will approach the Redemption Amount
that would be payable at maturity based on the then current value of
the Common Stock. As a result, as the time remaining to maturity
decreases, any discount or premium attributed to the trading value
of the STRIDES Securities will diminish, increasing or decreasing
the trading value of the STRIDES Securities, as applicable.
6
<PAGE>
o Dividend Yields. Generally, if the dividend yield on the Lucent
Common Stock increases, we expect that the value of the STRIDES
Securities will decrease, and conversely, if the dividend yield on
the Lucent Common Stock decreases, we expect that the value of the
STRIDES Securities will increase.
o Company Credit Ratings. Real or anticipated changes in our credit
ratings may affect the market value of the STRIDES Securities.
It is important for you to understand that a decrease in the trading value
of the STRIDES Securities resulting from the effect 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 STRIDES Securities attributable to
another factor, such as an increase in the value of the Lucent Common Stock.
In general, assuming all relevant factors are held constant, we expect
that the effect on the trading value of the STRIDES Securities of a given change
in most of the factors listed above will be less if it occurs later in the term
of the STRIDES Securities than if it occurs earlier in the term of the STRIDES
Securities. However, so long as the value of the Lucent Common Stock is less
than 30% above the Starting Value, we expect that the effect on the trading
value of the STRIDES Securities of a given increase or decrease in the value of
the Lucent Common Stock will be greater if it occurs later in the term of the
STRIDES Securities than if it occurs earlier in the term of the STRIDES
Securities.
No Affiliation Between the Company and Lucent Technologies Inc.
We are not affiliated with Lucent, and Lucent has no obligations with
respect to the STRIDES Securities or amounts to be paid to you, including any
obligation to take the needs of the Company or of beneficial owners of the
STRIDES Securities into consideration for any reason. Lucent will not receive
any of the proceeds of the offering of the STRIDES 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 STRIDES
Securities on the Maturity Date. In addition, Lucent is not involved with the
administration or trading of the STRIDES Securities and has no obligations with
respect to the amount receivable by beneficial owners of the STRIDES Securities.
No Stockholder Rights
You will not be entitled to any rights with respect to the Lucent Common
Stock including, without limitation, the right to receive dividends or other
distributions, voting rights and the right to tender or exchange Lucent Common
Stock in any tender or exchange offer by Lucent or any third party.
Purchases and Sales of Lucent Common Stock
We have entered into hedging arrangements related to the Lucent Common
Stock with one of our affiliates in connection with our obligations under the
STRIDES Securities. In connection therewith, such affiliate will purchase shares
of Lucent Common Stock in the secondary market on or before the Pricing Date and
will purchase and sell shares of Lucent Common Stock in the secondary market
during the term of the STRIDES Securities. We or any of our affiliates,
including MLPF&S, may from time to time buy or sell the Lucent Common Stock for
our own accounts for business reasons or in connection with hedging our
obligations under the STRIDES Securities. These transactions could affect the
price of the Lucent Common Stock, including during the period when the Ending
Value is determined.
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 STRIDES
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.
7
<PAGE>
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 your benefit, to the extent permitted by law, not to
voluntarily claim the benefits of any laws concerning usurious rates of
interest.
Potential Conflicts
The Calculation Agent is one of our subsidiaries. Under certain
circumstances, MLPF&S's role as our subsidiary and its responsibilities as
Calculation Agent for the STRIDES Securities could give rise to conflicts of
interests between the Calculation Agent and the holders of the STRIDES
Securities. Such conflicts could occur, for instance, in connection with the
Calculation Agent's determination as to whether a Market Disruption Event (as
defined herein) has occurred or in connection with judgments that the
Calculation Agent would be required to make with respect to certain antidilution
and reorganization adjustments to the Closing Price. See "Description of the
STRIDES Securities--Dilution and Reorganization Adjustments" in this prospectus.
MLPF&S is required to carry out its duties as Calculation Agent in good faith
and using its reasonable judgment. However, you should be aware that because we
control the Calculation Agent, potential conflicts of interest could arise.
We have entered into an arrangement with one of our subsidiaries to hedge
the market risks associated with our obligation to pay the Redemption Amount.
Such subsidiary expects to make a profit in connection with such arrangement. We
did not seek competitive bids for such an arrangement from unaffiliated parties.
Uncertain Tax Consequences
You should also consider the tax consequences of investing in the STRIDES
Securities, certain aspects of which are uncertain, and should consult your tax
advisor.
DESCRIPTION OF THE STRIDES SECURITIES
General
The STRIDES Securities are to be issued as a series of Senior Debt
Securities under the Senior Indenture, which is more fully described below.
Upon the occurrence of an Event of Default with respect to the STRIDES
Securities, beneficial owners of the STRIDES Securities may accelerate the
maturity of the STRIDES Securities, as described under "--Events of Default and
Acceleration" and "Other Events of Default" in this Prospectus.
The STRIDES Securities were issued in denominations of whole Units.
The STRIDES Securities do not have the benefit of any sinking fund.
Interest
The STRIDES Securities will bear interest at a rate of 5 3/4% per annum of
the Principal Amount of each Unit from December 1, 1998, or from the most recent
Interest Payment Date (as defined herein) to which interest has been paid or
provided for, until the Maturity Date. Interest on the STRIDES Securities will
be payable in cash semi-annually in arrears on June 1 and December 1 of each
year (each, an "Interest Payment Date"), commencing June 1, 1999, to the persons
in whose names the STRIDES Securities are registered at the close of business on
the May 15 and November 15 (whether or not a Business Day) immediately preceding
such Interest Payment Date. Interest on the STRIDES Securities 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.
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Payment at Maturity
The STRIDES Securities will mature on June 1, 2000. On the Maturity Date,
the beneficial owner of each STRIDES Security will receive an amount equal to
the value of the Redemption Amount of such STRIDES Security.
The "Redemption Amount" will be determined by the Calculation Agent and
for each Unit will equal the lesser of:
o $13.00 (the "Capped Value"); and
( Ending Value )
o $10 X (--------------)
(Starting Value)
On the Maturity Date, holders of the STRIDES Securities will receive, for
each Unit of the STRIDES Securities then held, a number of shares of Lucent
Common Stock equal to the Redemption Amount divided by the Ending Value and
accrued interest from the last Interest Payment Date for which interest was
paid.
If the Company elects to pay the Redemption Amount in cash instead of in
shares of Lucent Common Stock to which a holder of the STRIDES Securities would
otherwise be entitled to receive, the Company will pay such holder an amount of
cash equal to the Redemption Amount.
The "Starting Value" means $90.3125 which was the Closing Price (as
defined herein) of one share of Lucent Common Stock on November 24, 1998. The
Ending Value will be determined by the Calculation Agent and will equal the
average (arithmetic mean) of the Closing Prices of Lucent Common Stock
determined on each of the first five Calculation Days during the Calculation
Period, subject to adjustment for certain events described under "--Dilution and
Reorganization Adjustments". If there are fewer than five Calculation Days in
the Calculation Period, then the Closing Prices used to determine the Ending
Value will equal the average (arithmetic mean) of the Closing Prices of Lucent
Common Stock on such Calculation Days, and if there is only one Calculation Day,
then the Ending Value will be equal to the Closing Price of Lucent Common Stock
on such Calculation Day. If no Calculation Days occur during the Calculation
Period, then the Ending Value will be equal to the Closing Price of Lucent
Common 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 Maturity Date to and including the second
scheduled Calculation Day prior to the Maturity Date.
"Calculation Day" means any Trading Day on which a Market Disruption Event
has not occurred.
"Trading Day" is a day on which the Lucent Common 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 Lucent Common Stock.
"Market Disruption Event" means the occurrence or existence on any Trading
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 the Lucent
Common Stock on the NYSE (or other market or exchange, if applicable).
"Closing Price" means the product of (i) the Share Ratio and (ii) the last
sales price of one share of Lucent Common Stock as reported by the NYSE or, if
such security is not 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, 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
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<PAGE>
as determined by a nationally recognized independent investment banking firm
retained for this purpose by the Calculation Agent.
"Share Ratio" means, initially 1.0, but will be subject to adjustment for
certain events described under "--Dilution and Reorganization Adjustments."
"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 STRIDES Securities.
Fractional Shares
No fractional shares of Lucent Common Stock will be distributed by the
Company on the Maturity Date. In the event the Company elects to pay the
Redemption Amount in shares of Lucent Common Stock, all amounts due to any
holder of the STRIDES Securities in respect of the total number of Units held by
such holder will be aggregated, and in lieu of delivering any fractional share
to such holder, such holder will receive the cash value of such fractional share
based on the Ending Value.
Examples of Redemption Amount Calculations
Set forth below are three examples of Redemption Amount calculations:
Example One--Ending Value is 50% less than Starting Value
Starting Value: $90.31
Hypothetical Ending Value: $45.16
45.16
Redemption Amount (per Unit) = $10.00 X ----- = $5.00.
90.31
Total payment on the Maturity Date (per Unit) = $5.00.
Example Two--Ending Value is 20% greater than Starting Value
Starting Value: $90.31
Hypothetical Ending Value: $108.38
108.38
Redemption Amount (per Unit) = $10.00 X ------ = $12.00.
90.31
Total payment on the Maturity Date (per Unit) = $12.00.
Example Three--Ending Value is 50% greater than Starting Value
Starting Value: $90.31
Hypothetical Ending Value: $135.47
135.47
Redemption Amount (per Unit) = $10.00 X ------ = $13.00
90.31 (Redemption Amount
cannot be greater
than Capped Value).
Total payment on the Maturity Date (per Unit) = $13.00.
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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 on the Maturity Date for each $10 Principal Amount of STRIDES
Securities; (iii) the total rate of return to beneficial owners of the STRIDES
Securities; (iv) the pretax annualized rate of return to beneficial owners of
STRIDES Securities; and (v) the pretax annualized rate of return of the Lucent
Common Stock.
Total
Amount
Percentage Payable Pretax
Change on the Pretax Annualized Rate
Over the Maturity Total Annualized of Return of the
Hypothetical Starting Date Rate of Rate of Lucent Common
Ending Value Value per Unit Return(1) Return(2)(3) Stock(3)(4)
- ------------ ----- -------- --------- ------------ -----------
45.16 -50.00% $5.00 -41.375% -33.94% -41.11%
54.19 -40.00% $6.00 -31.375% -24.46% -31.16%
63.22 -30.00% $7.00 -21.375% -15.93% -22.26%
72.25 -20.00% $8.00 -11.375% -8.14% -14.17%
81.28 -10.00% $9.00 -1.375% -0.95% -6.73%
90.31(5) 0.00% $10.00 8.625% 5.75% 0.18%
99.34 10.00% $11.00 18.625% 12.03% 6.64%
108.38 20.00% $12.00 28.625% 17.95% 12.72%
117.41 30.00% $13.00 38.625% 23.57% 18.48%
126.44 40.00% $13.00 38.625% 23.57% 23.94%
135.47 50.00% $13.00 38.625% 23.57% 29.15%
144.50 60.00% $13.00 38.625% 23.57% 34.14%
153.53 70.00% $13.00 38.625% 23.57% 38.92%
162.56 80.00% $13.00 38.625% 23.57% 43.51%
171.59 90.00% $13.00 38.625% 23.57% 47.94%
180.63 100.00% $13.00 38.625% 23.57% 52.22%
- ----------
(1) The rates of return specified in this column assume a coupon yield of 5
3/4% per annum.
(2) The annualized rates of return specified in this column assume a constant
coupon yield of 5 3/4% per annum paid semi-annually from December 1, 1998
and applied to the Principal Amount of each STRIDES Security.
(3) The annualized rates of return specified in these columns are calculated
on a semi-annual bond equivalent basis.
(4) The rates of return specified in this column assume (i) a constant
dividend yield of 0.18% per annum, paid quarterly from the date of initial
delivery of STRIDES Securities, applied to the value of the Lucent Common
Stock 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
STRIDES Securities from December 1, 1998 to June 1, 2000; and (iv) a final
value of the Lucent Common Stock equal to the Ending Value. The dividend
yield of the Lucent Common Stock as of November 24, 1998 was approximately
0.18%.
(5) The actual Starting Value, as determined on November 24, 1998, was
$90.3125.
The above figures are for purposes of illustration only. The actual
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.
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Dilution and Reorganization Adjustments
The Closing Price of the Lucent Common Stock used to determine the Ending
Value is subject to adjustment by the Calculation Agent as follows:
1. If Lucent Common 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 which a holder of one share of Lucent Common Stock prior
to the effective date of such stock split or reverse stock split would
have owned or been entitled to receive immediately following such
effective date.
2. If Lucent Common Stock is subject to a stock dividend (issuance
of additional shares of Lucent Common Stock) that is given ratably to all
holders of shares of Lucent Common Stock, then once such shares are
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 of Lucent Common Stock issued with respect to one share
of Lucent Common Stock and (ii) the prior Share Ratio.
3. There will be no adjustments to the Share Ratio to reflect cash
dividends or distributions paid with respect to Lucent Common Stock other
than distributions described in clause (v) of paragraph 5 below and
Extraordinary Dividends as described below. An "Extraordinary Dividend"
means, with respect to any consecutive 12-month period, all cash dividends
or other distributions with respect to Lucent Common Stock to the extent
such dividends exceed on a per share basis 10% of the average Closing
Price during such period (less any such dividends for which a prior
adjustment was previously made). If an Extraordinary Dividend occurs with
respect to Lucent Common Stock, the Share Ratio will be adjusted on the
Trading Day preceding the payment of any dividend, the payment of which
caused all cash dividends or other distributions made with respect to
Lucent Common Stock over the past 12-month period to exceed on a per share
basis 10% of the average Closing Price during such period (less any such
dividends for which a prior adjustment was previously made) (the
"ex-dividend date"), 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 Closing Price on the Trading Day preceding the ex-dividend
date, and the denominator of which is the amount by which the Closing
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 Lucent Common 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 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 Lucent Common 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 Lucent issues transferable rights or warrants to all holders
of Lucent Common Stock to subscribe for or purchase Lucent Common Stock
(including new or existing rights to purchase Lucent Common Stock pursuant
to a shareholders rights plan or arrangement, once a triggering event
shall have occurred thereunder), at an exercise price per share less than
the Closing Price of Lucent Common 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, in each case, if the expiration date
of such rights or warrants precedes the Maturity Date, 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 Lucent
Common Stock outstanding immediately prior to such issuance plus the
number of additional shares of Lucent 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 Lucent Common Stock
outstanding immediately prior to such issuance plus the number of
additional shares of Lucent Common Stock which the aggregate offering
price of the
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total number of shares of Lucent Common Stock so offered for subscription
or purchase pursuant to such rights of warrants would purchase at the
Closing 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 Closing Price.
5. If (i) there occurs any reclassification or change of Lucent
Common Stock, (ii) Lucent, or any surviving entity or subsequent surviving
entity of Lucent (a "Successor Entity") has been subject to a merger,
combination or consolidation and is not the surviving entity, (iii) any
statutory exchange of securities of Lucent or any Successor Entity with
another corporation occurs (other than pursuant to clause (ii) above),
(iv) Lucent is liquidated, (v) Lucent issues to all of its shareholders
equity securities of an issuer other than Lucent (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 Lucent (any such event in clauses (i) through (vi) a
"Reorganization Event"), the Ending Value shall equal to the
Reorganization Event Value (as defined below). 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 STRIDES Securities. "Transaction Value" means (i) for any cash
received in any such Reorganization Event, an amount equal to the amount
of cash received per share of Lucent Common Stock multiplied by the Share
Ratio in effect on the date all of the holders of shares of Lucent Common
Stock have agreed or have become irrevocably obligated to exchange such
shares, (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
Lucent Common Stock at the date of the receipt of such Exchange Property
multiplied by the then current Share Ratio and (iii) for any security
received in any such Reorganization Event, an amount equal to the closing
price per share of such security on the fifth Trading Day prior to the
Maturity Date multiplied by the quantity of such security received for
each share of Lucent Common Stock multiplied by the then current Share
Ratio. "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 Lucent Common Stock with respect to which the
spun-off security was issued.
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 Ending Value 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 or to the Ending Value to reflect changes occurring in relation to
Lucent Common Stock or any other Exchange Property in other circumstances where
the Company determines that it is appropriate to reflect such changes.
MLPF&S, as Calculation Agent, will be solely responsible for the
determination and calculation of any adjustments to the Share Ratio or the
Ending Value 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
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any corporate event described in paragraph 5 above, and its determinations and
calculations with respect thereto shall be conclusive.
No adjustments will be made for certain other events, such as offerings of
Lucent Common Stock by Lucent for cash or in connection with acquisitions or the
occurrence of a partial tender or exchange offer for the Lucent Common Stock by
Lucent or any third party.
The Company will, within ten Business Days following the occurrence of an
event that requires an adjustment to the Share Radio or the Ending Value (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 STRIDES Securities of the occurrence of such event
and, if applicable, a statement in reasonable detail setting forth the adjusted
Share Ratio or other formula to be used in determining the Ending Value.
Events of Default and Acceleration
In case an Event of Default with respect to any STRIDES Securities shall
have occurred and be continuing, the amount payable to a beneficial owner of a
STRIDES Security upon any acceleration permitted by the STRIDES Securities, with
respect to each $10 Unit thereof, will be equal to the Principal Amount and any
accrued interest due thereon. If a bankruptcy proceeding is commenced in respect
of the Company, the claim of the beneficial owner of a STRIDES Security may be
limited, under Section 502(b)(2) of Title 11 of the United States Code, to the
Principal Amount of the STRIDES 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 STRIDES Securities.
In case of default in payment of the STRIDES Securities (whether at any
Interest Payment Date, the Maturity Date or upon acceleration), from and after
any such date the STRIDES Securities shall bear interest, payable upon demand of
the beneficial owners thereof, at the rate of 5 3/4% 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 STRIDES
Securities to the date payment of such amount has been made or duly provided
for.
Depositary
Upon issuance, all STRIDES 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"; 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 STRIDES 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 STRIDES Securities represented by such Global Security
for all purposes under the Senior Indenture. Except as provided below, the
actual owner of the STRIDES Securities represented by a Global Security (the
"Beneficial Owner") will not be entitled to have the STRIDES Securities
represented by such Global Securities registered in their names, will not
receive or be entitled to receive physical delivery of the STRIDES 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
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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 STRIDES Securities,
the Global Securities will be exchangeable for STRIDES Securities in definitive
form of like tenor and of an equal aggregate principal amount, in denominations
of $10 and integral multiples thereof. Such definitive STRIDES 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 will act as securities depositary for the STRIDES Securities. The
STRIDES 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 Securities will be issued for the STRIDES 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 NYSE, the AMEX, and the National
Association of Securities Dealers, Inc. ("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 SEC.
Purchases of STRIDES Securities under the DTC's system must be made by or
through Direct Participants, which will receive a credit for the STRIDES
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 STRIDES 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 STRIDES Securities, except in the event that use of
the book-entry system for the STRIDES Securities is discontinued.
To facilitate subsequent transfers, all STRIDES Securities deposited with
DTC are registered in the name of DTC's partnership nominee, Cede & Co. The
deposit of STRIDES 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 STRIDES Securities; DTC's records reflect only
the identity of the Direct Participants to whose
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accounts such STRIDES 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
STRIDES 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 STRIDES 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
STRIDES 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 has advised the Company that management of DTC is aware that some
computer applications, systems, and the like for processing data ("Systems")
that are dependent upon calendar dates, including dates before, on, and after
January 1, 2000, may encounter "Year 2000 problems". DTC has informed Direct and
Indirect Participants and other members of the financial community (the
"Industry") that it has developed and is implementing a program so that its
Systems, as the same relate to the timely payment of distributions (including
principal and interest payments) to securityholders, book-entry deliveries, and
settlement of trades within DTC ("Depositary Services"), continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct Participants and Indirect Participants, and third party
vendors from whom DTC licenses software and hardware, and third party vendors on
whom DTC relies for information or the provision of services, including
telecommunication and electrical utility service providers, among others. DTC
has informed the Industry that it is contacting (and will continue to contact)
third party vendors from whom DTC acquires services to: (i) impress upon them
the importance of such services being Year 2000 compliant; and (ii) determine
the extent of their efforts for Year 2000 remediation (and, as appropriate,
testing) of their services. In addition, DTC is in the process of developing
such contingency plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
DTC may discontinue providing its services as securities depositary with
respect to the STRIDES 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, STRIDES Security certificates are
required to be printed and delivered.
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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 Settlement and Payment
All payments of interest and the Redemption Amount (to the extent that
payment of the Redemption Amount is made in cash) will be made by the Company in
immediately available funds so long as the STRIDES Securities are maintained in
book-entry form.
LUCENT COMMON STOCK
Lucent Technologies Inc.
Lucent is a designer, developer and manufacturer of communications
systems, software and products. Lucent is engaged in the sale of public
communications systems, and is a supplier of systems or software to most of the
world's largest network operators. Lucent is also engaged in the sale of
business communications systems and in the sale of microelectronic components
for communications applications to manufacturers of communications systems and
computers. Lucent's research and development activities are conducted through
Bell Laboratories.
Because the Lucent Common Stock is registered under the Exchange Act,
Lucent is required to file periodically certain financial and other information
specified by the SEC. For more information about Lucent and the Lucent Common
Stock that you may receive on the Maturity Date, information provided to or
filed with the SEC by Lucent with respect to its registered securities can be
located by reference to SEC file number 1-11639 and inspected at the SEC's
public reference facilities or accessed over the Internet through a web site
maintained by the SEC at http://www.sec.gov. In addition, information regarding
Lucent may be obtained from other sources including, but not limited to, press
releases, newspaper articles and other publicly disseminated information. We
make no representation or warranty as to the accuracy or completeness of any
such information.
THE COMPANY IS NOT AFFILIATED WITH LUCENT, AND LUCENT HAS NO OBLIGATIONS
WITH RESPECT TO THE STRIDES SECURITIES. THIS PROSPECTUS RELATES ONLY TO THE
STRIDES SECURITIES OFFERED HEREBY AND DOES NOT RELATE TO THE LUCENT COMMON STOCK
OR OTHER SECURITIES OF LUCENT. THE INFORMATION CONTAINED IN THIS PROSPECTUS
REGARDING LUCENT 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 LUCENT IN CONNECTION WITH THE OFFERING OF THE STRIDES SECURITIES. THE COMPANY
MAKES NO REPRESENTATION THAT SUCH PUBLICLY AVAILABLE DOCUMENTS OR ANY OTHER
PUBLICLY AVAILABLE INFORMATION REGARDING LUCENT 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 LUCENT COMMON STOCK (AND THEREFORE THE
TRADING PRICE OF THE STRIDES SECURITIES) HAVE BEEN PUBLICLY DISCLOSED.
SUBSEQUENT DISCLOSURE OF ANY SUCH EVENTS OR THE DISCLOSURE OF OR FAILURE TO
DISCLOSE MATERIAL FUTURE EVENTS CONCERNING LUCENT COULD AFFECT THE REDEMPTION
AMOUNT TO BE RECEIVED AT THE MATURITY DATE AND THEREFORE THE TRADING VALUE OF
THE STRIDES 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
Lucent as well as served as counterparty in certain other transactions.
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OTHER TERMS
General
The STRIDES 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 STRIDES 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 STRIDES
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.
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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 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 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
19
<PAGE>
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 of the Company and its subsidiaries
included in the Company's Current Report on Form 8-K dated December 10, 1998
and related financial statement schedules of the Company and its subsidiaries
included in the 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 Current Report on Form 8-K
dated December 10, 1998, 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 reports 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................................................ $4,170,000
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..................................................... $8,605,000
---------
---------
</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, has 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, employees, representative or agent of any Regular Trustee, or any
officer, director,
II-1
<PAGE>
shareholder 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 any 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 Preferred
Securities-SM- 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 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>
INCORPORATION BY REFERENCE
EXHIBIT NUMBER DESCRIPTION TO FILINGS INDICATED
- -------------- --------------------------------------------------------- --------------------------------------
<S> <C> <C>
1(a) --Form of Underwriting Agreement for Debt Securities and Exhibit 1(a) to Company's Registration
Debt, Currency and Index Warrants, including forms of Statement on Form S-3 (No. 333-59997).
Terms Agreement.
1(b) --Form of Distribution Agreement, including form of Terms Exhibit 1(b) to Company's Registration
Agreement, relating to Medium-Term Notes, Series B (a Statement on Form S-3 (No. 33-51489).
series of Senior Debt Securities).
1(c) --Form of Underwriting Agreement for Preferred Stock and Exhibit 1(c) to Company's Registration
Common Stock Warrants, Preferred Stock, Depositary Statement on Form S-3 (No. 333-59997).
Shares and Common Stock.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY REFERENCE
EXHIBIT NUMBER DESCRIPTION TO FILINGS INDICATED
- -------------- --------------------------------------------------------- --------------------------------------
<S> <C> <C>
1(d) --Form of Purchase Agreement relating to the Trust Exhibit 1.1 to Company's Registration
Preferred Securities. Statement on Form S-3 (No. 333-42859).
4(a)(i) --Senior Indenture, dated as of April 1, 1983, as amended Exhibit 99(c) to Company's
and restated (the "1983 Senior Indenture"), between the Registration Statement on Form 8-A
Company and The Chase Manhattan Bank, formerly known as dated July 20, 1992.
Chemical Bank (successor by merger to Manufacturers
Hanover Trust Company).
4(a)(ii) --Senior Indenture, dated as of October 1, 1993 (the Exhibit 4 to Company's Current Report
"1993 Senior Indenture"), between the Company and the on Form 8-K dated October 7, 1993.
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.*
</TABLE>
<TABLE>
<S> <C> <C>
4(a)(iv) --Form of Subsequent Indenture with respect to
Senior Debt Securities.*
4(b)(i) --Supplemental Indenture to the 1983 Senior Exhibit 99(c) to Company's
Indenture, dated March 15, 1990, between the Registration Statement on Form
Company and The Chase Manhattan Bank, 8-A dated July 20, 1992.
formerly known as Chemical Bank (successor
by merger to Manufacturers Hanover Trust
Company).
4(b)(ii) --Eighth Supplemental Indenture to the 1983 Exhibit 4(b) to Post-Effective
Senior Indenture, dated March 1, 1996, Amendment No. 1 to Company's
between the Company and The Chase Manhattan Registration Statement on Form
Bank, formerly known as Chemical Bank S-3 (No. 33-65135).
(successor by merger to Manufacturers
Hanover Trust Company).
4(b)(iii) --Ninth Supplemental Indenture to the 1983 Exhibit 4(b) to Post-Effective
Senior Indenture, dated June 1, 1996, Amendment No. 4 to Company's
between the Company and The Chase Manhattan Registration Statement on Form
Bank, formerly known as Chemical Bank S-3 (No. 33-65135).
(successor by merger to Manufacturers
Hanover Trust Company).
4(b)(iv) --Tenth Supplemental Indenture to the 1983 Exhibit 4(b) to Post-Effective
Senior Indenture, dated July 1, 1996, Amendment No. 5 to Company's
between the Company and The Chase Manhattan Registration Statement on Form
Bank, formerly known as Chemical Bank S-3 (No. 33-65135).
(successor by merger to Manufacturers
Hanover Trust Company).
</TABLE>
- ------------------------
* Filed herewith
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
- ----------- ---------------------------------------------- -------------------------------
<S> <C> <C> <C>
4(b)(v) --Supplemental Indenture to the 1983 Senior Indenture, Exhibit 4(b)(ii) to Company's
dated October 25, 1993, between the Company and The Registration Statement on Form S-3
Chase Manhattan Bank (successor by merger to The Chase (No. 33-61559).
Manhattan Bank, N.A.).
4(b)(vi) --Twelfth Supplemental Indenture to the 1983 Senior Exhibit 4(a) to Company's Current
Indenture dated as of September 1, 1998 between the report on Form 8-K dated October 21,
Company and The Chase Manhattan Bank, formerly known as 1998.
Chemical Bank (successor by merger to Manufacturers
Hanover Trust Company).
4(b)(vii) --First Supplemental Indenture to the 1993 Senior Exhibit 4(a) to Company's Current
Indenture, dated as of June 1, 1998, between the Report on Form 8-K dated July 2, 1998.
Company and The Chase Manhattan Bank (successor by
merger to The Chase Manhattan Bank N.A.).
4(c)(i) --Form of Subordinated Indenture between the Company and Exhibit 4.7 to Company's Registration
The Chase Manhattan Bank. Statement on Form S-3 (No. 333-16603).
4(c)(ii) --Form of Subsequent Indentures with respect to
Subordinated Debt Securities.*
</TABLE>
<TABLE>
<S> <C> <C>
4(d) --Form of Global Bond Linked Security due Exhibit 4 to Company's Current
December 31, 1998. Report on Form 8-K dated
February 22, 1993.
4(e) --Form of Currency Protected Note due December Exhibit 4 to Company's Current
31, 1998. Report on Form 8-K dated July
7, 1993.
4(f) --Form of 10 3/8% Note due February 1, 1999. Exhibit 4(y) to Company's
Registration Statement on Form
S-3 (No. 33-45327).
4(g) --Form of 7 3/4% Note due March 1, 1999. Exhibit 4 to Company's Current
Report on Form 8-K dated March
2, 1992.
4(h) --Form of 6 3/8% Note due March 30, 1999. Exhibit 4 to Company's Current
Report on Form 8-K dated March
30, 1994.
4(i) --Form of Equity Participation Security with Exhibit 4(ooo) to Amendment No.
Minimum Return Protection due June 30, 1999. 1 to Company's Registration
Statement on Form S-3 (No.
33-54218).
</TABLE>
- ------------------------
* Filed herewith
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
- ----------- ---------------------------------------------- -------------------------------
<S> <C> <C> <C>
4(j) --Form of European Portfolio Market Index Target-Term Exhibit 4 to Company's Current Report
Security due June 30, 1999. on Form 8-K dated December 30, 1993.
4(k) --Form of 8 1/4% Note due November 15, 1999. Exhibit 4(cc) to Company's
Registration Statement on Form S-3
(No. 33-45327).
4(l) --Form of Stock Market Annual Reset Term Note due Exhibit 4 to Company's Current Report
December 31, 1999 (Series A). on Form 8-K dated April 29, 1993.
4(m) --Form of Japan Index Equity Participation Security with Exhibit 4 to Company's Current Report
Minimum Return Protection due January 31, 2000. on Form 8-K dated January 27, 1994.
4(n) --Form of 8 3/8% Note due February 9, 2000. Exhibit 4 to Company's Current Report
on Form 8-K dated February 9, 1995.
4(o) --Form of 6.70% Note due August 1, 2000. Exhibit 4 to Company's Report on Form
8-K dated August 1, 1995.
4(p) --Form of AMEX Oil Index Stock Market Annual Reset Term Exhibit 4 to Company's Current Report
Note due December 29, 2000. on Form 8-K dated March 31, 1994.
4(q) --Form of 8% Note due February 1, 2002. Exhibit 4 to Company's Current Report
on Form 8-K dated February 4, 1992.
4(r) --Form of Step-Up Note due April 30, 2002. Exhibit 4 to Company's Current Report
on Form 8-K dated April 30, 1992.
4(s) --Form of Step-Up Note due May 6, 2002. Exhibit 4 to Company's Current Report
on Form 8-K dated May 6, 1992.
4(t) --Form of 7 3/8% Note due August 17, 2002. Exhibit 4 to Company's Current Report
on Form 8-K dated August 17, 1992.
4(u) --Form of Major 8 European Index Market Index Target-Term Exhibit 4 to Company's Current Report
Security due August 30, 2002. on Form 8-K dated August 1, 1997.
4(v) --Form of 6.64% Note due September 19, 2002. Exhibit 4 to Company's Current Report
on Form 8-K dated September 19, 1995.
4(w) --Form of 8.30% Note due November 1, 2002. Exhibit 4 to Company's Current Report
on Form 8-K dated May 4, 1992.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY REFERENCE
EXHIBIT NUMBER DESCRIPTION TO FILINGS INDICATED
- -------------- --------------------------------------------------------- --------------------------------------
<S> <C> <C> <C>
4(x) --Form of Major 11 European Market Index Target-Term Exhibit 4 to Company's Current Report
Security due December 6, 2002. on Form 8-K dated November 26, 1997.
4(y) --Form of 6 7/8% Note due March 1, 2003. Exhibit 4 to Company's Current Report
on Form 8-K dated March 1, 1993.
4(z) --Form of 7.05% Note due April 15, 2003. Exhibit 4 to Company's Current Report
on Form 8-K dated April 15, 1993.
4(aa) --Form of 6.55% Note due August 1, 2004. Exhibit 4 to Company's Current Report
on Form 8-K dated August 1, 1997.
4(bb) --Form of Russell 2000 Index Market Index Target-Term Exhibit 4 to Company's Current Report
Security due September 30, 2004. on Form 8-K dated September 29, 1997.
4(cc) --Form of 6 1/4% Note due January 15, 2006. Exhibit 4 to Company's Current Report
on Form 8-K dated January 20, 1994.
4(dd) --Form of 6 3/8% Note due September 8, 2006. Exhibit 4 to Company's Current Report
on Form 8-K dated September 8, 1993.
4(ee) --Form of 8% Note due June 1, 2007. Exhibit 4 to Company's Current Report
on Form 8-K dated June 1, 1992.
4(ff) --Form of S&P 500 Inflation Adjusted Market Index Exhibit 4 to Company's Current Report
Target-Term Security due September 24, 2007. on Form 8-K dated September 24, 1997.
4(gg) --Form of 7% Note due April 27, 2008. Exhibit 4 to Company's Current Report
on Form 8-K dated April 27, 1993.
4(hh) --Form of 6 1/4% Note due October 15, 2008. Exhibit 4 to Company's Current Report
on Form 8-K dated October 15, 1993.
4(ii) --Form of 8.40% Note due November 1, 2019. Exhibit 4(z) to Company's Registration
Statement on Form S-3 (No. 33-35456).
4(jj) --Form of Fixed Rate Medium-Term Note (without redemption Exhibit 4(kk) to Company's
provisions). Registration Statement on Form S-3
(No. 33-54218).
4(kk) --Form of Fixed Rate Medium-Term Note (with redemption Exhibit 4(ll) to Company's
provisions). Registration Statement on Form S-3
(No. 33-54218).
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY REFERENCE
EXHIBIT NUMBER DESCRIPTION TO FILINGS INDICATED
- -------------- --------------------------------------------------------- --------------------------------------
<S> <C> <C> <C>
4(ll) --Form of Fixed Rate Medium-Term Note (without redemption Exhibit 4(d) to Company's Registration
provisions, minimum denomination $1,000). Statement on Form S-3 (No. 33-38879).
4(mm) --Form of Fixed Rate Medium-Term Note (with redemption Exhibit 4(c) to Company's Registration
provisions, minimum denominations $1,000). Statement on Form S-3 (No. 33-38879).
4(nn) --Form of Fixed Rate Medium-Term Note, Series B. Exhibit 4(xiii) to Company's Quarterly
Report on Form 10-Q for the quarter
ended September 24, 1993.
4(oo) --Form of Federal Funds Rate Medium-Term Note. Exhibit 4(oo) to Company's
Registration Statement on Form S-3
(No. 33-54218).
4(pp) --Form of Floating Rate Medium-Term Note, Series B. Exhibit 4(xiv) to Company's Quarterly
Report on Form 10-Q for the quarter
ended September 24, 1993.
4(qq) --Form of Commercial Paper Rate Medium-Term Note. Exhibit 4(qq) to Company's
Registration Statement on Form S-3
(No. 33-54218).
4(rr) --Form of Commercial Paper Index Rate Medium-Term Note. Exhibit 4(i) to Company's Registration
Statement on Form S-3 (File No.
33-38879).
4(ss) --Form of Constant Maturity Treasury Rate Indexed Exhibit 4(ccc) to Company's
Medium-Term Note, Series B. Registration Statement on Form S-3
(No. 33-52647).
4(tt) --Form of Constant Maturity Treasury Rate Indexed Exhibit 4(xv) to Company's Annual
Medium-Term Note II, Series B. Report on Form 10-K for the year ended
December 30, 1994.
4(uu) --Form of JPY Yield Curve Flattening Medium-Term Note, Exhibit 4(ddd) to Company's
Series B. Registration Statement on Form S-3
(No. 33-52647).
4(vv) --Form of LIBOR Medium-Term Note. Exhibit 4(pp) to Company's
Registration Statement on Form S-3
(No. 33-54218).
4(ww) --Form of Multi-Currency Medium-Term Note, Series B. Exhibit 4(fff) to Company's
Registration Statement on Form S-3
(No. 33-52647).
4(xx) --Form of Nine Month Renewable Floating Rate Medium-Term Exhibit 4(ix) to Company's Quarterly
Note, Series B. Report on Form 10-Q for the quarter
ended September 24, 1993.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY REFERENCE
EXHIBIT NUMBER DESCRIPTION TO FILINGS INDICATED
- -------------- --------------------------------------------------------- --------------------------------------
<S> <C> <C> <C>
4(yy) --Form of Treasury Rate Medium-Term Note. Exhibit 4(aaa) to Company's
Registration Statement on Form S-3
(No. 33-54218).
4(zz) --Form of Collared LIBOR Medium-Term Note due February Exhibit 4(ww) to Company's
14, 2000. Registration Statement on Form S-3
(No. 33-54218).
4(aaa) --Form of Japanese Yen Swap Rate Linked Medium-Term Note, Exhibit 4(mmm) to Company's
Series B. Registration Statement on Form S-3
(No. 33-52647).
4(bbb) --Form of Step-Up Medium-Term Note due May 20, 2008. Exhibit 4(ggg) to Amendment No. 1 to
Company's Registration Statement on
Form S-3 (No. 33-54218).
4(ccc) --Form of Warrant Agreement, including form of Warrant Exhibit 4(aa) to Company's
Certificate. Registration Statement on Form S-3
(No. 33-35456).
4(ddd) --Form of Currency [Put/Call] Warrant Agreement, Exhibit 4 to Company's Registration
including form of Global Currency Warrant Certificate. Statement on Form S-3 (No. 33-17965).
4(eee) --Form of Index Warrant Agreement, including form of Exhibit 4(kkk) to Amendment No. 1 to
Global Index Warrant Certificate. Company's Registration Statement on
Form S-3 (No. 33-54218).
4(fff) --Form of Index Warrant Trust Indenture, including form Exhibit 4(lll) to Amendment No. 1 to
of Global Index Warrant Certificate. Company's Registration Statement on
Form S-3 (No. 33-54218).
4(ggg) --Form of 6 1/2% Note due April 1, 2001. Exhibit 4 to Company's Current Report
on Form 8-K dated April 1, 1996.
4(hhh) --Form of 6% Note due January 15, 2001. Exhibit 4 to Company's Current Report
on Form 8-K dated January 17, 1996.
4(iii) --Form of 6% Note due March 1, 2001. Exhibit 4 to Company's Current Report
on Form 8-K dated February 29, 1996.
4(jjj) --Form of 7% Note due March 15, 2006. Exhibit 4 to Company's Current Report
on Form 8-K dated March 18, 1996.
4(kkk) --Form of 7 3/8% Note due May 15, 2006. Exhibit 4 to Company's Current Report
on Form 8-K dated May 15, 1996.
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY REFERENCE
EXHIBIT NUMBER DESCRIPTION TO FILINGS INDICATED
- -------------- --------------------------------------------------------- --------------------------------------
<S> <C> <C> <C>
4(lll) --Form of 6% STRYPES due June 1, 1999. Exhibit 4(c) to Company's Form 8-K/A
dated June 7, 1996.
4(mmm) --Form of 7 1/4% STRYPES due June 15, 1999. Exhibit 4(c) to Post-Effective
Amendment No. 4 to Company's
Registration Statement on Form S-3
(33-65135).
4(nnn) --Form of 6 1/4% STRYPES due July 1, 2001. Exhibit 4(c) to Company's Current
Report on Form 8-K dated July 9, 1996.
4(ooo) --Form of S&P 500 Market Index Target-Term Security due Exhibit 4 to Company's Current Report
May 10, 2001. on Form 8-K dated May 13, 1996.
4(ppp) --Form of AMEX Hong Kong 30 Index Equity Participation Exhibit 4 to Company's Current Report
Note due February 16, 1999. on Form 8-K dated February 7, 1996.
4(qqq) --Form of Technology Market Index Target-Term Security Exhibit 4(a) to Company's Current
due August 15, 2001. Report on Form 8-K dated August 12,
1996.
4(rrr) --Form of Top Ten Yield Market Index Target-Term Security Exhibit 4(b) to Company's Current
due August 15, 2006. Report on Form 8-K dated August 12,
1996.
4(sss) --Form of Healthcare/Biotechnology Portfolio Market Index Exhibit 4 to Company's Current Report
Target-Term Security due October 31, 2001. on Form 8-K dated October 30, 1996.
4(ttt) --Form of 7% Note due January 15, 2007. Exhibit 4 to Company's Current Report
on Form 8-K dated January 13, 1997.
4(uuu) --Form of S&P 500 Market Index Target-Term Security due Exhibit 4 to Company's Current Report
September 16, 2002. on Form 8-K dated March 14, 1997.
4(vvv) --Form of Nikkei 225 Market Index Target-Term Security Exhibit 4 to Company's Current Report
due June 14, 2002. on Form 8-K dated June 3, 1997.
4(www) --Form of 6.56% Note due December 16, 2007. Exhibit 4 to Company's Current Report
on Form 8-K dated December 16, 1997.
4(xxx) --Form of 7 7/8% STRYPES due February 1, 2001 (Payable Exhibit 4(c) to Company's Current
with Shares of Common Stock of CIBER, Inc.) Report on Form 8-K dated January 30,
1998.
4(yyy) --Form of Floating Rate Note due February 4, 2003. Exhibit 4 to Company's Current Report
on Form 8-K dated February 4, 1998.
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY REFERENCE
EXHIBIT NUMBER DESCRIPTION TO FILINGS INDICATED
- -------------- --------------------------------------------------------- --------------------------------------
<S> <C> <C> <C>
4(zzz) --Form of 6% Note due February 12, 2003. Exhibit 4 to Company's Current Report
on Form 8-K dated February 12, 1998.
4(aaaa) --Form of Oracle Corporation Indexed Callable Protected Exhibit 4 to Company's Current Report
Growth Security due March 31, 2003. on Form 8-K dated March 19, 1998.
4(bbbb) --Form of Telebras Indexed Callable Protected Growth Exhibit 4 to Company's Current Report
Security due May 19, 2005. on Form 8-K dated May 19, 1998.
4(cccc) --Form of 6 3/4% Note due June 1, 2028. Exhibit 4 to Company's Current Report
on Form 8-K dated June 3, 1998.
4(dddd) --Form of Floating Rate Note due June 24, 2003. Exhibit 4 to Company's Current Report
on Form 8-K dated June 24, 1998.
4(eeee) --Form of S&P 500 Market Index Target-Term Security due Exhibit 4 to Company's Current Report
July 1, 2005. on Form 8-K dated June 26, 1998.
4(ffff) --Form of Medium-Term Notes, Series B, 3% Stock Linked Exhibit 4 to Company's Current Report
Note due June 10, 2000 (Linked to the performance of on Form 8-K dated June 10, 1998.
Honda Motor Co., Ltd. Common Stock)
4(gggg) --Form of Medium-Term Notes, Series B, 5% Stock Linked Exhibit 4(c) to Company's Current
Note due July 3, 2000 (Linked to the performance of the Report on Form 8-K dated July 2, 1998.
Common Stock of Travelers Group, Inc.).
4(hhhh) --Form of Medium-Term Notes, Series B, 7% Stock Portfolio
Linked Note due August 18, 2000 (Linked to the
performance of the Common Stock of Intuit Inc., CKS
Group, Inc. and CNET, Inc.).*
4(iiii) --Form of Medium-Term Notes, Series B, Single Stock
Linked Note due August 13, 1999 (Linked to the
performance of the Common Stock of Case Corporation).*
4(jjjj) --Form of 5 3/4% STock Return Income DEbt Securities due Exhibit 4 to Company's Current Report
June 1, 2000. on Form 8-K dated December 1, 1998.
4(kkkk) --Form of 6% Note due July 15, 2003. Exhibit (4)(a) to Company's Current
Report on Form 8-K dated July 15,
1998.
</TABLE>
- ------------------------
* Filed herewith
II-10
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY REFERENCE
EXHIBIT NUMBER DESCRIPTION TO FILINGS INDICATED
- -------------- --------------------------------------------------------- --------------------------------------
<S> <C> <C>
4(llll) --Form of 6 1/2% Note due July 15, 2018. Exhibit (4)(b) to Company's
Current Report on Form 8-K
dated July 15, 1998.
4(mmmm) --Form of Preferred Stock and Common Stock Exhibit 4(cccc) to Company's
Warrant Agreement, including forms of Registration Statement on Form
Preferred Stock and Common Stock Warrant S-3 (File No. 333-44173).
Certificates.
4(nnnn) --Form of Deposit Agreement, including form of Exhibit 4(ffff) to Company's
Depositary Receipt Certificate representing Registration Statement on Form
the Depositary Shares. S-3 (File No. 333-44173).
4(oooo) --Form of Certificate of Trust of Merrill
Lynch Preferred Capital Trust VI.*
4(pppp) --Form of Amended and Restated Declaration of
Trust of Merrill Lynch Preferred Capital
Trust VI, including form of Trust Preferred
Security.*
4(qqqq) --Form of Certificate of Limited Partnership
of Merrill Lynch Preferred Funding VI, L.P.*
4(rrrr) --Form of Amended and Restated Limited
Partnership Agreement of Merrill Lynch
Preferred Funding VI, L.P.*
4(ssss) --Form of Trust Preferred Securities Guarantee
Agreement, between the Company and The Chase
Manhattan Bank, as guarantee trustee,
including form of Partnership Preferred
Security.*
4(tttt) --Form of Partnership Preferred Securities
Guarantee Agreement between the Company and
The Chase Manhattan Bank, as guarantee
trustee.*
4(uuuu) --Form of Subordinated Debenture Indenture Exhibit 4 to Registration
between the Company and The Chase Manhattan Statement on Form S-3 (File No.
Bank, as guarantee trustee. 333-16603).
4(vvvv) --Form of Affiliate Debenture Guarantee
Agreement between the Company and The Chase
Manhattan Bank, as guarantee trustee.*
4(wwww) --Form of Subordinated Debenture.*
4(xxxx) --Restated Certificate of Incorporation of the Exhibit 3(i) to Company's
Company, dated April 28, 1998. Quarterly Report on Form 10-Q
for the quarter ended March 27,
1998.
</TABLE>
- ------------------------
* Filed herewith
II-11
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY REFERENCE
EXHIBIT NUMBER DESCRIPTION TO FILINGS INDICATED
- -------------- --------------------------------------------------------- --------------------------------------
<S> <C> <C>
4(yyyy) --By-Laws of the Company, effective as of Exhibit 3(ii) to Company's
April 15, 1997. Quarterly Report on Form 10-Q
for the quarter ended March 27,
1997.
4(zzzz) --Form of Certificate of Designations of the Exhibit 4(ssss) to Company's
Company establishing the rights, Registration Statement on Form
preferences, privileges, qualifications, S-3 (File No. 333-44173).
restrictions, and limitations relating to a
series of the Preferred Stock.
4(aaaaa) --Form of certificate representing Preferred Exhibit 4(d) to Company's
Stock. Registration Statement on Form
S-3 (File No. 33-55363).
4(bbbbb) --Form of certificate representing Common Exhibit 4(uuuu) to Company's
Stock. Registration Statement on Form
S-3 (File No. 333-44173).
4(ccccc) --Form of Liquid Yield Option Note Indenture. Exhibit 4(vvvv) to Company's
Registration Statement on Form
S-3 (File No. 333-44173).
4(ddddd) --Form of Subsequent Liquid Yield Option Note Exhibit 4(wwww) to Company's
Indenture. Registration Statement on Form
S-3 (File No. 333-44173).
4(eeeee) --Form of Market Index Target-Term Security Exhibit 4 to Company's Current
based upon the Dow Jones Industrial Average Report on Form 8-K dated
due January 14, 2003. December 23, 1997.
4(fffff) --Form of Supplemental Indenture to the 1983 Exhibit 4(yyyy) to Company's
Senior Indenture, the 1993 Senior Indenture Registration Statement on Form
and the Subordinated Indenture between the S-3 (File No. 333-44173).
Company and The Chase Manhattan Bank, as
trustee.
4(ggggg) --Form of Amended and Restated Rights Exhibit 4 to Company's Current
Agreement, dated as of December 2, 1997 Report on Form 8-K dated
between the Company and ChaseMellon December 2, 1997.
Shareholder Services, L.L.C., as Rights
Agent.
4(hhhhh) --Certificate of Designations of the Company Exhibit 3(f) to Company's
establishing the rights, preferences, Registration Statement on Form
privileges, qualifications, restrictions and S-3 (File No. 33-19975).
limitations relating to the Company's Series
A Junior Preferred Stock.
4(iiiii) --Form of Amendment No. 1 to the Form of Exhibit 4(bbbbb) to Company's
Distribution Agreement. Registration Statement on Form
S-3 (File No. 333-19975).
4(jjjjj) --Form of EuroFund Market Index Target-Term Exhibit 4 to Company's Current
Security due February 28, 2006. Report on Form 8-K dated
September 3, 1998.
</TABLE>
II-12
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
- ----------- ---------------------------------------------- -------------------------------
<S> <C> <C> <C>
4(kkkkk) --Form of S&P 500 Market Index Target-Term Security due Exhibit 4 to Company's Current Report
September 28, 2005. on Form 8-K dated September 29, 1998.
4(lllll) --Form of 6 3/8% Note due October 15, 2008. Exhibit 4 to Company's Current Report
on Form 8-K dated October 28, 1998.
4(mmmmm) --Form of 6% Note due November 15, 2004. Exhibit (4)(b) to Company's Current
Report on Form 8-K dated November 24,
1998.
4(nnnnn) --Form of 6 7/8% Note due November 15, 2018. Exhibit (4)(c) to Company's Current
Report on Form 8-K dated November 24,
1998.
4(ooooo) --Form of Medium-Term Notes, Series B, 1.5% Principal Exhibit 99(b) to Company's
Protected Note due December 15, 2005 (Linked to the Registration Statement on Form 8-A
performance of the Dow Jones Euro STOXX 50 Index). dated December 3, 1998.
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.*
</TABLE>
<TABLE>
<S> <C> <C>
12(a) --Computation of Ratio of Earnings to Fixed Exhibit 12 to Company's Annual
Charges of the Company. Report on Form 10-K for the
year ended December 26, 1997
and Exhibit 12 to Company's
Quarterly Report on Form 10-Q
for the quarter ended September
25, 1998.
12(b) --Computation of Ratio of Earnings to Combined Exhibit 12 to Company's Annual
Fixed Charges and Preferred Stock Dividends Report on Form 10-K for the
of the Company. year ended December 26, 1997
and Exhibit 12 to Company's
Quarterly Report on Form 10-Q
for the quarter ended September
25, 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-13
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INCORPORATION BY REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
- ----------- ---------------------------------------------- -------------------------------
<S> <C> <C> <C>
24 --Power of Attorney of the Company (included on page
II-16).*
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 Amended and Restated Declaration of Trust
(contained in Exhibit 4(pppp)); Trust Preferred
Securities Guarantee Agreement (contained in Exhibit
4(ssss)); Subordinated Indenture (contained in Exhibit
4(uuuu)); and Affiliate Debenture Guarantee Agreement
(contained in Exhibit 4(vvvv)).*
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; Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective 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;
II-14
<PAGE>
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 purpose 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.
(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-15
<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 11th day of
December, 1998.
<TABLE>
<S> <C> <C>
MERRILL LYNCH & CO., INC.
By: /s/ DAVID H. KOMANSKY
-----------------------------------------
David H. Komansky
(CHAIRMAN OF THE BOARD, CHIEF
EXECUTIVE OFFICER AND DIRECTOR)
</TABLE>
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 11TH DAY OF DECEMBER, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ DAVID H. KOMANSKY Chairman of the Board,
- ------------------------------ Chief Executive Officer
(David H. Komansky) and Director
/s/ HERBERT M. ALLISON, JR.
- ------------------------------ President, Chief Operating
(Herbert M. Allison, Jr.) Officer and Director
Executive Vice President
/s/ E. STANLEY O'NEAL and Chief Financial
- ------------------------------ Officer (Principal
(E. Stanley O'Neal) Financial Officer)
/s/ MICHAEL J. CASTELLANO Senior Vice President and
- ------------------------------ Controller (Principal
(Michael J. Castellano) Accounting Officer)
</TABLE>
II-16
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/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)
</TABLE>
II-17
<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 11th day of December, 1998.
<TABLE>
<S> <C> <C>
MERRILL LYNCH PREFERRED FUNDING VI, L.P.
BY: MERRILL LYNCH & CO., INC.,
as General Partner
By: /s/ THERESA LANG
-----------------------------------------
Name: Theresa Lang
Title: Senior Vice President and Treasurer
</TABLE>
II-18
<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 11th day of December, 1998.
<TABLE>
<S> <C> <C>
MERRILL LYNCH PREFERRED CAPITAL TRUST VI
By: /s/ THERESA LANG
-----------------------------------------
Name: Theresa Lang
Title: Regular Trustee
By: /s/ STANLEY SCHAEFER
-----------------------------------------
Name: Stanley Schaefer
Title: Regular Trustee
</TABLE>
II-19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
INCORPORATION BY
EXHIBIT REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
- --------------------------------------------------------------------------------
<S> <C> <C>
1(a) --Form of Underwriting Agreement for Debt Exhibit 1(a) to
Securities and Debt, Currency and Index Company's Registration
Warrants, including forms of Terms Agreement. Statement on Form S-3
(No. 333-59997).
1(b) --Form of Distribution Agreement, including form Exhibit 1(b) to
of Terms Agreement, relating to Medium-Term Company's Registration
Notes, Series B (a series of Senior Debt Statement on Form S-3
Securities). (No. 33-51489).
1(c) --Form of Underwriting Agreement for Preferred Exhibit 1(c) to
Stock and Common Stock Warrants, Preferred Company's Registration
Stock, Depositary Shares and Common Stock. Statement on Form S-3
(No. 333-59997).
1(d) --Form of Purchase Agreement relating to the Trust Exhibit 1.1 to
Preferred Securities. Company's Registration
Statement on Form S-3
(No. 333-42859).
4(a)(i) --Senior Indenture, dated as of April 1, 1983, as Exhibit 99(c) to
amended and restated (the "1983 Senior Company's Registration
Indenture"), between the Company and The Chase Statement on Form 8-A
Manhattan Bank, formerly known as Chemical Bank dated July 20, 1992.
(successor by merger to Manufacturers Hanover
Trust Company).
4(a)(ii) --Senior Indenture, dated as of October 1, 1993 Exhibit 4 to Company's
(the "1993 Senior Indenture"), between the Current Report on Form
Company and the Chase Manhattan Bank (successor 8-K dated October 7,
by merger to The Chase Manhattan Bank, N.A.). 1993.
4(a)(iii) --Form of initial Subsequent Indenture with
respect to Senior Debt Securities.*
</TABLE>
<TABLE>
<S> <C> <C>
4(a)(iv) --Form of Subsequent Indenture with respect to
Senior Debt Securities.*
4(b)(i) --Supplemental Indenture to the 1983 Senior Exhibit 99(c) to
Indenture, dated March 15, 1990, between the Company's Registration
Company and The Chase Manhattan Bank, formerly Statement on Form 8-A
known as Chemical Bank (successor by merger to dated July 20, 1992.
Manufacturers Hanover Trust Company).
4(b)(ii) --Eighth Supplemental Indenture to the 1983 Senior Exhibit 4(b) to
Indenture, dated March 1, 1996, between the Post-Effective
Company and The Chase Manhattan Bank, formerly Amendment No. 1 to
known as Chemical Bank (successor by merger to Company's Registration
Manufacturers Hanover Trust Company). Statement on Form S-3
(No. 33-65135).
</TABLE>
- ------------------------
* Filed herewith
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY
EXHIBIT REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
- --------------------------------------------------------------------------------
<S> <C> <C>
4(b)(iii) --Ninth Supplemental Indenture to the 1983 Senior Exhibit 4(b) to
Indenture, dated June 1, 1996, between the Post-Effective
Company and The Chase Manhattan Bank, formerly Amendment No. 4 to
known as Chemical Bank (successor by merger to Company's Registration
Manufacturers Hanover Trust Company). Statement on Form S-3
(No. 33-65135).
4(b)(iv) --Tenth Supplemental Indenture to the 1983 Senior Exhibit 4(b) to
Indenture, dated July 1, 1996, between the Post-Effective
Company and The Chase Manhattan Bank, formerly Amendment No. 5 to
known as Chemical Bank (successor by merger to Company's Registration
Manufacturers Hanover Trust Company). Statement on Form S-3
(No. 33-65135).
4(b)(v) --Supplemental Indenture to the 1983 Senior Exhibit 4(b)(ii) to
Indenture, dated October 25, 1993, between the Company's Registration
Company and The Chase Manhattan Bank (successor Statement on Form S-3
by merger to The Chase Manhattan Bank, N.A.). (No. 33-61559).
4(b)(vi) --Twelfth Supplemental Indenture to the 1983 Exhibit 4(a) to
Senior Indenture dated as of September 1, 1998 Company's Current
between the Company and The Chase Manhattan report on Form 8-K
Bank, formerly known as Chemical Bank (successor dated October 21,
by merger to Manufacturers Hanover Trust 1998.
Company).
4(b)(vii) --First Supplemental Indenture to the 1993 Senior Exhibit 4(a) to
Indenture, dated as of June 1, 1998, between the Company's Current
Company and The Chase Manhattan Bank (successor Report on Form 8-K
by merger to The Chase Manhattan Bank N.A.). dated July 2, 1998.
4(c)(i) --Form of Subordinated Indenture between the Exhibit 4.7 to
Company and The Chase Manhattan Bank. Company's Registration
Statement on Form S-3
(No. 333-16603).
4(c)(ii) --Form of Subsequent Indentures with respect to
Subordinated Debt Securities.*
</TABLE>
<TABLE>
<S> <C> <C>
4(d) --Form of Global Bond Linked Security due December Exhibit 4 to Company's
31, 1998. Current Report on Form
8-K dated February 22,
1993.
4(e) --Form of Currency Protected Note due December 31, Exhibit 4 to Company's
1998. Current Report on Form
8-K dated July 7,
1993.
4(f) --Form of 10 3/8% Note due February 1, 1999. Exhibit 4(y) to
Company's Registration
Statement on Form S-3
(No. 33-45327).
4(g) --Form of 7 3/4% Note due March 1, 1999. Exhibit 4 to Company's
Current Report on Form
8-K dated March 2,
1992.
</TABLE>
- ------------------------
* Filed herewith
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY
EXHIBIT REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
- --------------------------------------------------------------------------------
<S> <C> <C>
4(h) --Form of 6 3/8% Note due March 30, 1999. Exhibit 4 to Company's
Current Report on Form
8-K dated March 30,
1994.
4(i) --Form of Equity Participation Security with Exhibit 4(ooo) to
Minimum Return Protection due June 30, 1999. Amendment No. 1 to
Company's Registration
Statement on Form S-3
(No. 33-54218).
4(j) --Form of European Portfolio Market Index Exhibit 4 to Company's
Target-Term Security due June 30, 1999. Current Report on Form
8-K dated December 30,
1993.
4(k) --Form of 8 1/4% Note due November 15, 1999. Exhibit 4(cc) to
Company's Registration
Statement on Form S-3
(No. 33-45327).
4(l) --Form of Stock Market Annual Reset Term Note due Exhibit 4 to Company's
December 31, 1999 (Series A). Current Report on Form
8-K dated April 29,
1993.
4(m) --Form of Japan Index Equity Participation Exhibit 4 to Company's
Security with Minimum Return Protection due Current Report on Form
January 31, 2000. 8-K dated January 27,
1994.
4(n) --Form of 8 3/8% Note due February 9, 2000. Exhibit 4 to Company's
Current Report on Form
8-K dated February 9,
1995.
4(o) --Form of 6.70% Note due August 1, 2000. Exhibit 4 to Company's
Report on Form 8-K
dated August 1, 1995.
4(p) --Form of AMEX Oil Index Stock Market Annual Reset Exhibit 4 to Company's
Term Note due December 29, 2000. Current Report on Form
8-K dated March 31,
1994.
4(q) --Form of 8% Note due February 1, 2002. Exhibit 4 to Company's
Current Report on Form
8-K dated February 4,
1992.
4(r) --Form of Step-Up Note due April 30, 2002. Exhibit 4 to Company's
Current Report on Form
8-K dated April 30,
1992.
4(s) --Form of Step-Up Note due May 6, 2002. Exhibit 4 to Company's
Current Report on Form
8-K dated May 6, 1992.
4(t) --Form of 7 3/8% Note due August 17, 2002. Exhibit 4 to Company's
Current Report on Form
8-K dated August 17,
1992.
4(u) --Form of Major 8 European Index Market Index Exhibit 4 to Company's
Target-Term Security due August 30, 2002. Current Report on Form
8-K dated August 1,
1997.
4(v) --Form of 6.64% Note due September 19, 2002. Exhibit 4 to Company's
Current Report on Form
8-K dated September
19, 1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY
EXHIBIT REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
- --------------------------------------------------------------------------------
<S> <C> <C>
4(w) --Form of 8.30% Note due November 1, 2002. Exhibit 4 to Company's
Current Report on Form
8-K dated May 4, 1992.
4(x) --Form of Major 11 European Market Index Exhibit 4 to Company's
Target-Term Security due December 6, 2002. Current Report on Form
8-K dated November 26,
1997.
4(y) --Form of 6 7/8% Note due March 1, 2003. Exhibit 4 to Company's
Current Report on Form
8-K dated March 1,
1993.
4(z) --Form of 7.05% Note due April 15, 2003. Exhibit 4 to Company's
Current Report on Form
8-K dated April 15,
1993.
4(aa) --Form of 6.55% Note due August 1, 2004. Exhibit 4 to Company's
Current Report on Form
8-K dated August 1,
1997.
4(bb) --Form of Russell 2000 Index Market Index Exhibit 4 to Company's
Target-Term Security due September 30, 2004. Current Report on Form
8-K dated September
29, 1997.
4(cc) --Form of 6 1/4% Note due January 15, 2006. Exhibit 4 to Company's
Current Report on Form
8-K dated January 20,
1994.
4(dd) --Form of 6 3/8% Note due September 8, 2006. Exhibit 4 to Company's
Current Report on Form
8-K dated September 8,
1993.
4(ee) --Form of 8% Note due June 1, 2007. Exhibit 4 to Company's
Current Report on Form
8-K dated June 1,
1992.
4(ff) --Form of S&P 500 Inflation Adjusted Market Index Exhibit 4 to Company's
Target-Term Security due September 24, 2007. Current Report on Form
8-K dated September
24, 1997.
4(gg) --Form of 7% Note due April 27, 2008. Exhibit 4 to Company's
Current Report on Form
8-K dated April 27,
1993.
4(hh) --Form of 6 1/4% Note due October 15, 2008. Exhibit 4 to Company's
Current Report on Form
8-K dated October 15,
1993.
4(ii) --Form of 8.40% Note due November 1, 2019. Exhibit 4(z) to
Company's Registration
Statement on Form S-3
(No. 33-35456).
4(jj) --Form of Fixed Rate Medium-Term Note Exhibit 4(kk) to
(without redemption provisions). Company's Registration
Statement on Form S-3
(No. 33-54218).
4(kk) --Form of Fixed Rate Medium-Term Note Exhibit 4(ll) to
(with redemption provisions). Company's Registration
Statement on Form S-3
(No. 33-54218).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY
EXHIBIT REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
- --------------------------------------------------------------------------------
<S> <C> <C>
4(ll) --Form of Fixed Rate Medium-Term Note (without Exhibit 4(d) to
redemption provisions, minimum denomination Company's Registration
$1,000). Statement on Form S-3
(No. 33-38879).
4(mm) --Form of Fixed Rate Medium-Term Note (with Exhibit 4(c) to
redemption provisions, minimum denominations Company's Registration
$1,000). Statement on Form S-3
(No. 33-38879).
4(nn) --Form of Fixed Rate Medium-Term Note, Series B. Exhibit 4(xiii) to
Company's Quarterly
Report on Form 10-Q
for the quarter ended
September 24, 1993.
4(oo) --Form of Federal Funds Rate Medium-Term Note. Exhibit 4(oo) to
Company's Registration
Statement on Form S-3
(No. 33-54218).
4(pp) --Form of Floating Rate Medium-Term Note, Series Exhibit 4(xiv) to
B. Company's Quarterly
Report on Form 10-Q
for the quarter ended
September 24, 1993.
4(qq) --Form of Commercial Paper Rate Medium-Term Note. Exhibit 4(qq) to
Company's Registration
Statement on Form S-3
(No. 33-54218).
4(rr) --Form of Commercial Paper Index Rate Medium-Term Exhibit 4(i) to
Note. Company's Registration
Statement on Form S-3
(File No. 33-38879).
4(ss) --Form of Constant Maturity Treasury Rate Indexed Exhibit 4(ccc) to
Medium-Term Note, Series B. Company's Registration
Statement on Form S-3
(No. 33-52647).
4(tt) --Form of Constant Maturity Treasury Rate Indexed Exhibit 4(xv) to
Medium-Term Note II, Series B. Company's Annual
Report on Form 10-K
for the year ended
December 30, 1994.
4(uu) --Form of JPY Yield Curve Flattening Medium-Term Exhibit 4(ddd) to
Note, Series B. Company's Registration
Statement on Form S-3
(No. 33-52647).
4(vv) --Form of LIBOR Medium-Term Note. Exhibit 4(pp) to
Company's Registration
Statement on Form S-3
(No. 33-54218).
4(ww) --Form of Multi-Currency Medium-Term Note, Series Exhibit 4(fff) to
B. Company's Registration
Statement on Form S-3
(No. 33-52647).
4(xx) --Form of Nine Month Renewable Floating Rate Exhibit 4(ix) to
Medium-Term Note, Series B. Company's Quarterly
Report on Form 10-Q
for the quarter ended
September 24, 1993.
4(yy) --Form of Treasury Rate Medium-Term Note. Exhibit 4(aaa) to
Company's Registration
Statement on Form S-3
(No. 33-54218).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY
EXHIBIT REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
- --------------------------------------------------------------------------------
<S> <C> <C>
4(zz) --Form of Collared LIBOR Medium-Term Note due Exhibit 4(ww) to
February 14, 2000. Company's Registration
Statement on Form S-3
(No. 33-54218).
4(aaa) --Form of Japanese Yen Swap Rate Linked Exhibit 4(mmm) to
Medium-Term Note, Series B. Company's Registration
Statement on Form S-3
(No. 33-52647).
4(bbb) --Form of Step-Up Medium-Term Note due May 20, Exhibit 4(ggg) to
2008. Amendment No. 1 to
Company's Registration
Statement on Form S-3
(No. 33-54218).
4(ccc) --Form of Warrant Agreement, including form of Exhibit 4(aa) to
Warrant Certificate. Company's Registration
Statement on Form S-3
(No. 33-35456).
4(ddd) --Form of Currency [Put/Call] Warrant Agreement, Exhibit 4 to Company's
including form of Global Currency Warrant Registration Statement
Certificate. on Form S-3 (No.
33-17965).
4(eee) --Form of Index Warrant Agreement, including form Exhibit 4(kkk) to
of Global Index Warrant Certificate. Amendment No. 1 to
Company's Registration
Statement on Form S-3
(No. 33-54218).
4(fff) --Form of Index Warrant Trust Indenture, including Exhibit 4(lll) to
form of Global Index Warrant Certificate. Amendment No. 1 to
Company's Registration
Statement on Form S-3
(No. 33-54218).
4(ggg) --Form of 6 1/2% Note due April 1, 2001. Exhibit 4 to Company's
Current Report on Form
8-K dated April 1,
1996.
4(hhh) --Form of 6% Note due January 15, 2001. Exhibit 4 to Company's
Current Report on Form
8-K dated January 17,
1996.
4(iii) --Form of 6% Note due March 1, 2001. Exhibit 4 to Company's
Current Report on Form
8-K dated February 29,
1996.
4(jjj) --Form of 7% Note due March 15, 2006. Exhibit 4 to Company's
Current Report on Form
8-K dated March 18,
1996.
4(kkk) --Form of 7 3/8% Note due May 15, 2006. Exhibit 4 to Company's
Current Report on Form
8-K dated May 15,
1996.
4(lll) --Form of 6% STRYPES due June 1, 1999. Exhibit 4(c) to
Company's Form 8-K/A
dated June 7, 1996.
4(mmm) --Form of 7 1/4% STRYPES due June 15, 1999. Exhibit 4(c) to
Post-Effective
Amendment No. 4 to
Company's Registration
Statement on Form S-3
(33-65135).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY
EXHIBIT REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
- --------------------------------------------------------------------------------
<S> <C> <C>
4(nnn) --Form of 6 1/4% STRYPES due July 1, 2001. Exhibit 4(c) to
Company's Current
Report on Form 8-K
dated July 9, 1996.
4(ooo) --Form of S&P 500 Market Index Target-Term Exhibit 4 to Company's
Security due May 10, 2001. Current Report on Form
8-K dated May 13,
1996.
4(ppp) --Form of AMEX Hong Kong 30 Index Equity Exhibit 4 to Company's
Participation Note due February 16, 1999. Current Report on Form
8-K dated February 7,
1996.
4(qqq) --Form of Technology Market Index Target-Term Exhibit 4(a) to
Security due August 15, 2001. Company's Current
Report on Form 8-K
dated August 12, 1996.
4(rrr) --Form of Top Ten Yield Market Index Target-Term Exhibit 4(b) to
Security due August 15, 2006. Company's Current
Report on Form 8-K
dated August 12, 1996.
4(sss) --Form of Healthcare/Biotechnology Portfolio Exhibit 4 to Company's
Market Index Target-Term Security due October Current Report on Form
31, 2001. 8-K dated October 30,
1996.
4(ttt) --Form of 7% Note due January 15, 2007. Exhibit 4 to Company's
Current Report on Form
8-K dated January 13,
1997.
4(uuu) --Form of S&P 500 Market Index Target-Term Exhibit 4 to Company's
Security due September 16, 2002. Current Report on Form
8-K dated March 14,
1997.
4(vvv) --Form of Nikkei 225 Market Index Target-Term Exhibit 4 to Company's
Security due June 14, 2002. Current Report on Form
8-K dated June 3,
1997.
4(www) --Form of 6.56% Note due December 16, 2007. Exhibit 4 to Company's
Current Report on Form
8-K dated December 16,
1997.
4(xxx) --Form of 7 7/8% STRYPES due February 1, 2001 Exhibit 4(c) to
(Payable with Shares of Common Stock of CIBER, Company's Current
Inc.) Report on Form 8-K
dated January 30,
1998.
4(yyy) --Form of Floating Rate Note due February 4, 2003. Exhibit 4 to Company's
Current Report on Form
8-K dated February 4,
1998.
4(zzz) --Form of 6% Note due February 12, 2003. Exhibit 4 to Company's
Current Report on Form
8-K dated February 12,
1998.
4(aaaa) --Form of Oracle Corporation Indexed Callable Exhibit 4 to Company's
Protected Growth Security due March 31, 2003. Current Report on Form
8-K dated March 19,
1998.
4(bbbb) --Form of Telebras Indexed Callable Protected Exhibit 4 to Company's
Growth Security due May 19, 2005. Current Report on Form
8-K dated May 19,
1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY
EXHIBIT REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
- --------------------------------------------------------------------------------
<S> <C> <C>
4(cccc) --Form of 6 3/4% Note due June 1, 2028. Exhibit 4 to Company's
Current Report on Form
8-K dated June 3,
1998.
4(dddd) --Form of Floating Rate Note due June 24, 2003. Exhibit 4 to Company's
Current Report on Form
8-K dated June 24,
1998.
4(eeee) --Form of S&P 500 Market Index Target-Term Exhibit 4 to Company's
Security due July 1, 2005. Current Report on Form
8-K dated June 26,
1998.
4(ffff) --Form of Medium-Term Notes, Series B, 3% Stock Exhibit 4 to Company's
Linked Note due June 10, 2000 (Linked to the Current Report on Form
performance of Honda Motor Co., Ltd. Common 8-K dated June 10,
Stock) 1998.
4(gggg) --Form of Medium-Term Notes, Series B, 5% Stock Exhibit 4(c) to
Linked Note due July 3, 2000 (Linked to the Company's Current
performance of the Common Stock of Travelers Report on Form 8-K
Group, Inc.). dated July 2, 1998.
4(hhhh) --Form of Medium-Term Notes, Series B, 7% Stock
Portfolio Linked Notes due August 18, 2000
(Linked to the performance of the Common Stock
of Intuit Inc., CKS Group, Inc. and CNET,
Inc.).*
</TABLE>
<TABLE>
<S> <C> <C>
4(iiii) --Form of Medium-Term Notes, Series B, Single
Stock Linked Note due August 13, 1999 (Linked to
the performance of the Common Stock of Case
Corporation).*
4(jjjj) --Form of 5 3/4% STock Return Income DEbt Exhibit 4 to Company's
Securities due June 1, 2000. Current Report on Form
8-K dated December 1,
1998.
4(kkkk) --Form of 6% Note due July 15, 2003. Exhibit (4)(a) to
Company's Current
Report on Form 8-K
dated July 15, 1998.
4(llll) --Form of 6 1/2% Note due July 15, 2018. Exhibit (4)(b) to
Company's Current
Report on Form 8-K
dated July 15, 1998.
4(mmmm) --Form of Preferred Stock and Common Stock Warrant Exhibit 4(cccc) to
Agreement, including forms of Preferred Stock Company's Registration
and Common Stock Warrant Certificates. Statement on Form S-3
(File No. 333-44173).
4(nnnn) --Form of Deposit Agreement, including form of Exhibit 4(ffff) to
Depositary Receipt Certificate representing the Company's Registration
Depositary Shares. Statement on Form S-3
(File No. 333-44173).
4(oooo) --Form of Certificate of Trust of Merrill Lynch
Preferred Capital Trust VI.*
</TABLE>
- ------------------------
* Filed herewith
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY
EXHIBIT REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
- --------------------------------------------------------------------------------
<S> <C> <C>
4(pppp) --Form of Amended and Restated Declaration of
Trust of Merrill Lynch Preferred Capital Trust
VI, including form of Trust Preferred Security.*
4(qqqq) --Form of Certificate of Limited Partnership of
Merrill Lynch Preferred Funding VI, L.P.*
</TABLE>
<TABLE>
<S> <C> <C>
4(rrrr) --Form of Amended and Restated Limited Partnership
Agreement of Merrill Lynch Preferred Funding VI,
L.P.*
4(ssss) --Form of Trust Preferred Securities Guarantee
Agreement, between the Company and The Chase
Manhattan Bank, as guarantee trustee, including
form of Partnership Preferred Security.*
4(tttt) --Form of Partnership Preferred Securities
Guarantee Agreement between the Company and The
Chase Manhattan Bank, as guarantee trustee.*
4(uuuu) --Form of Subordinated Debenture Indenture between Exhibit 4 to
the Company and The Chase Manhattan Bank, as Registration Statement
guarantee trustee. on Form S-3 (File No.
333-16603).
4(vvvv) --Form of Affiliate Debenture Guarantee Agreement
between the Company and The Chase Manhattan
Bank, as guarantee trustee.*
4(wwww) --Form of Subordinated Debenture.*
4(xxxx) --Restated Certificate of Incorporation of the Exhibit 3(i) to
Company, dated April 28, 1998. Company's Quarterly
Report on Form 10-Q
for the quarter ended
March 27, 1998.
4(yyyy) --By-Laws of the Company, effective as of April Exhibit 3(ii) to
15, 1997. Company's Quarterly
Report on Form 10-Q
for the quarter ended
March 27, 1997.
4(zzzz) --Form of Certificate of Designations of the Exhibit 4(ssss) to
Company establishing the rights, preferences, Company's Registration
privileges, qualifications, restrictions, and Statement on Form S-3
limitations relating to a series of the (File No. 333-44173).
Preferred Stock.
4(aaaaa) --Form of certificate representing Preferred Exhibit 4(d) to
Stock. Company's Registration
Statement on Form S-3
(File No. 33-55363).
4(bbbbb) --Form of certificate representing Common Stock. Exhibit 4(uuuu) to
Company's Registration
Statement on Form S-3
(File No. 333-44173).
</TABLE>
- ------------------------
* Filed herewith
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY
EXHIBIT REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
- --------------------------------------------------------------------------------
<S> <C> <C>
4(ccccc) --Form of Liquid Yield Option Note Indenture. Exhibit 4(vvvv) to
Company's Registration
Statement on Form S-3
(File No. 333-44173).
4(ddddd) --Form of Subsequent Liquid Yield Option Note Exhibit 4(wwww) to
Indenture. Company's Registration
Statement on Form S-3
(File No. 333-44173).
4(eeeee) --Form of Market Index Target-Term Security based Exhibit 4 to Company's
upon the Dow Jones Industrial Average due Current Report on Form
January 14, 2003. 8-K dated December 23,
1997.
4(fffff) --Form of Supplemental Indenture to the 1983 Exhibit 4(yyyy) to
Senior Indenture, the 1993 Senior Indenture and Company's Registration
the Subordinated Indenture between the Company Statement on Form S-3
and The Chase Manhattan Bank, as trustee. (File No. 333-44173).
4(ggggg) --Form of Amended and Restated Rights Agreement, Exhibit 4 to Company's
dated as of December 2, 1997 between the Company Current Report on Form
and ChaseMellon Shareholder Services, L.L.C., as 8-K dated December 2,
Rights Agent. 1997.
4(hhhhh) --Certificate of Designations of the Company Exhibit 3(f) to
establishing the rights, preferences, Company's Registration
privileges, qualifications, restrictions and Statement on Form S-3
limitations relating to the Company's Series A (File No. 33-19975).
Junior Preferred Stock.
4(iiiii) --Form of Amendment No. 1 to the Form of Exhibit 4(bbbbb) to
Distribution Agreement. Company's Registration
Statement on Form S-3
(File No. 333-19975).
4(jjjjj) --Form of EuroFund Market Index Target-Term Exhibit 4 to Company's
Security due February 28, 2006. Current Report on Form
8-K dated September 3,
1998.
4(kkkkk) --Form of S&P 500 Market Index Target-Term Exhibit 4 to Company's
Security due September 28, 2005. Current Report on Form
8-K dated September
29, 1998.
4(lllll) --Form of 6 3/8% Note due October 15, 2008. Exhibit 4 to Company's
Current Report on Form
8-K dated October 28,
1998.
4(mmmmm) --Form of 6% Note due November 15, 2004. Exhibit (4)(b) to
Company's Current
Report on Form 8-K
dated November 24,
1998.
4(nnnnn) --Form of 6 7/8% Note due November 15, 2018. Exhibit (4)(c) to
Company's Current
Report on Form 8-K
dated November 24,
1998.
4(ooooo) --Form of Medium-Term Notes, Series B, 1.5% Exhibit 99(b) to
Principal Protected Note due December 15, 2005 Company's Registration
(Linked to the performance of the Dow Jones Euro Statement on Form 8-A
STOXX 50 Index). dated December 3,
1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY
EXHIBIT REFERENCE
NUMBER DESCRIPTION TO FILINGS INDICATED
- --------------------------------------------------------------------------------
<S> <C> <C>
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 Earnings to Fixed Exhibit 12 to
Charges of the Company. Company's Annual
Report on Form 10-K
for the year ended
December 26, 1997 and
Exhibit 12 to
Company's Quarterly
Report on Form 10-Q
for the quarter ended
September 25, 1998.
12(b) --Computation of Ratio of Earnings to Combined Exhibit 12 to
Fixed Charges and Preferred Stock Dividends of Company's Annual
the Company. Report on Form 10-K
for the year ended
December 26, 1997 and
Exhibit 12 to
Company's Quarterly
Report on Form 10-Q
for the quarter ended
September 25, 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-16).*
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 Amended and Restated
Declaration of Trust (contained in Exhibit
4(pppp)); Trust Preferred Securities Guarantee
Agreement (contained in Exhibit 4(ssss));
Subordinated Indenture (contained in Exhibit
4(uuuu)); and Affiliate Debenture Guarantee
Agreement (contained in Exhibit 4(vvvv)).*
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 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(hhhh)
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO A NOMINEE OF DTC OR BY DTC OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
TO MERRILL LYNCH & CO., INC. OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE
OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
REGISTERED NO. 1 CUSIP No. 590188 ___
MERRILL LYNCH & CO., INC.
MEDIUM-TERM NOTE,
SERIES B
7% Stock Portfolio Linked Notes due August 18, 2000
(Linked to the performance of the Common Stock of
Intuit Inc., CKS Group, Inc. and CNET, Inc.)
MERRILL LYNCH & CO., INC., a Delaware corporation (hereinafter referred to
as the "Company", which term includes any successor corporation under the
Indenture herein referred to), for value received, hereby promises to pay and
discharge each Note evidenced hereby on August 18, 2000 (the "Maturity Date") by
delivering to CEDE & CO., or registered assigns with respect to ______________
DOLLARS ($____________) of the principal amount hereof (i) the Cash Amount or
(ii) if the holder so elects as hereinafter provided, the Equivalent Share
Amount, each as defined below and determined in accordance with the provisions
set forth below, and to pay interest on the principal amount hereof from August
18, 1998, or from the most recent date in respect of which interest has been
paid or duly provided for, semiannually in arrears on February 18 and August 18,
in each year (each an "Interest Payment Date"), commencing
1
<PAGE>
February 18, 1999, at the rate of 7% per annum (the "Interest Rate"), until the
Cash Amount is paid or duly made available for payment or the Equivalent Share
Amount is delivered or duly made available for delivery, as the case may be. The
Notes will be issued in minimum denominations of $1,000 and integral multiples
thereof. The interest so payable and punctually paid or duly provided for on any
Interest Payment Date will, as provided in such Indenture, be paid to the Person
in whose name this Note (or one or more Predecessor Securities) is registered at
the close of business on the Regular Record Date for such interest, which shall
be the fifteenth day (whether or not a Business Day) next preceding such
Interest Payment Date. Any such interest which is payable, but is not punctually
paid or duly provided for on any Interest Payment Date, shall forthwith cease to
be payable to the registered Holder on such Regular Record Date, and may be paid
to the Person in whose name this Note (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to the Holder of this Note not less than 10 days prior to such Special
Record Date, or may be paid at any time in any other lawful manner, as more
fully provided in such Indenture.
Payment of interest, the Cash Amount, and, if applicable, delivery of the
Equivalent Share Amount, if any, with respect to this Note shall be made at the
office or agency of the Company maintained for that purpose in the Borough of
Manhattan, The City of New York, in such coin or currency of the United States
of America as at the time of payment is legal tender for payment of public and
private debts. The Company shall, or shall cause the Calculation Agent to,
deliver U.S. Dollars (or Portfolio Securities, if the Holder of this Note
exercises the Right to Receive the Equivalent Share Amount) to the Trustee for
delivery to the Holder of this Note.
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 or regulation to close in The City of New York and that is a
Trading Day.
"Calculation Agent" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated (including any successor thereto).
"Cash Amount" means, with respect to this Note, an amount in U.S. dollars
determined in accordance with the following formula, subject to certain
adjustments: (i) if the Final Portfolio Value is greater than or equal to the
Portfolio Value Cap, each Note will be redeemed for an amount equal to the
Portfolio Value Cap and (ii) if the Final Portfolio Value is less than the
Portfolio Value Cap, each Note will be redeemed for the Final Portfolio Value.
"Closing Price" for any Trading Day for any security listed on a national
securities exchange or traded on NASDAQ, as applicable, means the official
closing price or the last reported sale price (as of 4:00 p.m. in the City of
New York) on such day as reported by the principal trading market. If for any
reason neither the official closing price nor the last reported sale price is
available for any security, the applicable Closing Price for such security on
such day
2
<PAGE>
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.
"Determination Date" means the fifth Trading Day preceding the Maturity
Date or, if there is a Market Disruption Event with respect to any Portfolio
Security on such day, the Determination Date will be the immediately succeeding
Trading Day on which no Market Disruption Event with respect to any Portfolio
Security shall have occurred; provided that the Determination Date will be no
later than the third Trading Day preceding the Maturity Date, notwithstanding
the occurrence of a Market Disruption Event with respect to any Portfolio
Security on such Trading Day (each, an "Affected Portfolio Security"); and
provided further that, with respect to each such Affected Portfolio Security,
(i) the Calculation Agent will determine its good faith estimate of the Closing
Price for each such Affected Portfolio Security that would have prevailed on
such Trading Day but for such Market Disruption Event and (ii) for holders of
Notes that have not otherwise elected to receive the Equivalent Share Amount,
the Company may, in its sole discretion, deliver to such holders on the Maturity
Date the Equivalent Share Amount attributable to such Affected Portfolio
Security per Note in lieu of delivering the portion of the Cash Amount
attributable to such Affected Portfolio Security per Note.
"Equivalent Share Amount" means, with respect to this Note and as
determined by the Calculation Agent, (i) if the Final Portfolio Value is less
than or equal to the Portfolio Value Cap, the number of shares of each Portfolio
Security equal to the Multiplier for such Portfolio Security on such date; or
(ii) if the Final Portfolio Value is greater than the Portfolio Value Cap, the
number of shares of each Portfolio Security equal to the Multiplier for such
Portfolio Security on such date multiplied by a fraction, the numerator of which
is the Portfolio Value Cap and the denominator of which is the Final Portfolio
Value; provided, however, that the Company will pay cash in lieu of delivering
fractional shares, in an amount as determined by the Calculation Agent. Unless
the Calculation Agent otherwise determines that it is not practicable to deliver
the Equivalent Share Amount, the Equivalent Share Amount will be delivered to
the holder on the Maturity Date; provided that in the event of certain Market
Disruption Events, the delivery of the Portfolio Securities may be delayed until
after the Maturity Date.
"Final Portfolio Value", as determined by the Calculation Agent, means the
sum of the Closing Prices of the Portfolio Securities on the Determination Date,
each as multiplied by the Multiplier for such Portfolio Security; provided,
however, that in the event of the occurrence of certain corporate events
affecting any Portfolio Security, the method of calculating the Final Portfolio
Value may be adjusted by the Calculation Agent as set forth herein.
"Initial Portfolio Value" equals $1,000.
"Issue Price" means an amount equal to $1,000 per $1,000 principal amount
of each Note evidenced hereby.
"Market Disruption Event" means:
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<PAGE>
(i) a suspension, absence (including the absence of an official closing
price, if applicable) or material limitation of trading of any Portfolio
Security on NASDAQ or other relevant securities exchanges 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 any Portfolio Security, 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 any
Portfolio Security for the purposes of delivering the Equivalent Share
Amount.
For the 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 any relevant option contract will not constitute a Market
Disruption Event, (3) limitations pursuant to any rule or regulation enacted or
promulgated by NASDAQ or other relevant securities exchanges (or other
regulatory organization with jurisdiction over NASDAQ or other relevant
securities exchanges, as applicable) on trading during significant market
fluctuations will constitute a suspension or material limitation of trading in
any Portfolio Security, (4) a suspension of trading in an options contract on
any Portfolio Security 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 such Portfolio Security and (5) a suspension, absence or
material limitation of trading on the primary securities market on which options
contracts related to any Portfolio Security are traded will not include any time
when such securities market is itself closed for trading under ordinary
circumstances.
"Market Price" for any security listed on a national securities exchange
or traded on NASDAQ means (i) at any time prior to the availability of a Closing
Price for such security on such day, the last reported sale price at such time
as reported by the principal trading market and (ii) at any time after the
availability of a Closing Price for such security on such day, the Closing
Price. If for any reason the last reported sale price is not available at any
time prior to the availability of a Closing Price for any security, the
applicable Market Price for such security on such day 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.
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<PAGE>
"Multiplier" means, initially, 7.0541 in the case of the Intuit Stock,
17.4483 in the case of the CKS Stock and 7.0304 in the case of the CNET Stock.
The Multiplier for each Portfolio Security is subject to adjustment by the
Calculation Agent as set forth elsewhere herein.
"NASDAQ" means the Nasdaq National Market System.
"Portfolio Securities" means common stock of Intuit Inc., par value $0.01,
common stock of CKS Group, Inc., par value $0.001, and common stock of CNET,
Inc., par value $0.0001.
"Portfolio Value Cap" equals $1600 per Note.
"Trading Day " means a day on which the New York Stock Exchange, the
American Stock Exchange and NASDAQ are open for trading, as determined by the
Calculation Agent.
The Holder of this Note 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 (in the form of Annex A
attached hereto) prior to 11:00 a.m., New York City time on or prior to the
fifteenth Business Day preceding the Maturity Date, to elect to receive, with
respect to any of the Notes evidenced hereby, 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 on the Maturity Date. If the Calculation Agent determines that it is not
reasonably practicable to obtain the Equivalent Share Amount, the Calculation
Agent will provide written notice to the Trustee at its New York office and to
The Depository Trust Company, or any successor depositary ("DTC"), on which
notice the Trustee and DTC may conclusively rely, of such determination on or
prior to 4:00 p.m. on the second Business Day immediately preceding the Maturity
Date.
Prior to 9:30 a.m. on the first Business Day immediately preceding the
Maturity Date, the Company shall cause the Calculation Agent to provide written
notice to the Trustee at its New York office and to DTC , on which notice the
Trustee and DTC may conclusively rely, (i) of its receipt of any such "Official
Notice of Instruction to Deliver the Equivalent Share Amount," (ii) of the
Company's determination to deliver the Equivalent Share Amount (which
determination shall be deemed made unless the Calculation Agent has determined
as aforesaid that it is not reasonably practicable to obtain the Equivalent
Share Amount) and (iii) if Portfolio Securities are to be delivered, of the
number of shares of each Portfolio Security per Note and of the amount of any
cash to be paid in lieu of fractional Portfolio Securities.
The Company shall, or shall cause the Calculation Agent to, deliver such
Portfolio Securities or cash to the Trustee for delivery to the Holders.
The Multiplier with respect to any Portfolio Security will be adjusted by
the Calculation Agent as follows:
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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 prior Multiplier and the number of shares issued in such stock
split or reverse stock split with respect to one share of such Portfolio
Security.
2. If a Portfolio Security is subject to a stock dividend (issuance
of additional shares of the Portfolio Security) that is given ratably to
all holders of shares of common stock of the issuer of such Portfolio
Security, then once such Portfolio Security is trading ex-dividend, the
Multiplier will be adjusted so that the new Multiplier shall equal the
prior Multiplier plus the product of (i) the number of shares of such
Portfolio Security issued with respect to one share of such Portfolio
Security and (ii) the prior Multiplier.
3. There will be no adjustments to the Multipliers to reflect cash
dividends or distributions paid with respect to a Portfolio Security 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 a Portfolio Security will be deemed to be an
"Extraordinary Dividend" if such dividend or other distribution exceeds
the immediately preceding non-Extraordinary Dividend for such Portfolio
Security by an amount equal to at least 10% of the Closing Price of such
Portfolio Security on the Trading Day preceding the 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 Closing Price on the
Trading Day preceding the ex-dividend date, and the denominator of which
is the amount by which the Closing 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 a Portfolio Security 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 any Portfolio
Security 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 any Portfolio Security described in clause (v) of
paragraph 5 below that also constitutes an Extraordinary Dividend shall
cause an adjustment to the Multiplier pursuant only to clause (v) of
paragraph 5.
4. If an issuer of one of the Portfolio Securities issues
transferable rights or warrants to all holders of such Portfolio Security
to subscribe for or purchase such Portfolio Security (including new or
existing rights to purchase such Portfolio Security pursuant to a
shareholders rights plan or arrangement, once a triggering event shall
have occurred thereunder), then the method of determining the amount
payable at maturity for
6
<PAGE>
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, in
addition to the Cash Amount or Equivalent Share Amount, cash in an amount
equal to the Rights Value (as defined below) of such Portfolio Security
plus accrued interest thereon from the Trading Day immediately following
receipt by holders of such Portfolio Security of such rights or warrants
to the maturity date at LIBOR (as defined below), reset monthly on the
first Trading Day of each month. The "Rights Value" shall be the Closing
Prices of such rights or warrants on the Trading Day immediately following
receipt by holders of such Portfolio Security of such rights or warrants.
"LIBOR" shall be the rate for deposits in U.S. Dollars for a period of one
month which appears on the Reuters Screen ISDA Page as of 11:00 a.m.,
London time, on the day that is two Trading Days preceding the reset date,
or in the case of the initial determination of LIBOR, on the Trading Day
immediately preceding the date on which the holders of such Portfolio
Security received such rights, warrants, cash or other property.
5. If (i) there occurs any reclassification or change of any
Portfolio Security, (ii) the issuer of such Portfolio Security, or any
surviving entity or subsequent surviving entity of the issuer of such
Portfolio Security (a "Successor Entity") has been subject to a merger,
combination or consolidation and is not the surviving entity, (iii) any
statutory exchange of securities of any issuer of the Portfolio Securities
or any Successor Entity with another corporation occurs (other than
pursuant to clause (ii) above), (iv) any issuer of the Portfolio
Securities is liquidated, (v) any issuer of the Portfolio Securities
issues to all of its shareholders equity securities of an issuer other
than such issuer of the Portfolio Securities (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 any issuer of the Portfolio Securities (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, cash
in an amount equal to the Transaction Value (as defined below). "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 such Portfolio Securities with respect to which the spun-off
security was issued. "Transaction Value" means (i) for any cash received
in any such Reorganization Event, an amount equal to (a) the amount of
cash received per share of such Portfolio Security plus accrued interest
thereon at LIBOR reset monthly for the period beginning on the date such
cash is distributed to the holders of such Portfolio Security to but
excluding the Maturity Date, multiplied by (b) the Multiplier in effect on
the date all of the holders of shares of the relevant issuer of the
Portfolio Securities have agreed or have become irrevocably obligated to
exchange such shares, (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 such Portfolio Security at the date of the receipt of such
Exchange Property multiplied by the then current Multiplier and (iii) for
any security received in any such Reorganization Event, an
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<PAGE>
amount equal to the Closing Price per share of such security on the
Determination Date multiplied by the quantity of such security received
for each share of such Portfolio Security multiplied by the then current
Multiplier.
6. If there occurs a cash tender offer for at least 25% but less
than all of any Portfolio Security then outstanding at a price per share
in excess of the Closing Price of such Portfolio Security on the date such
offer is announced (the "Announcement Date"), then 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 applicable Portfolio Security, in lieu of the Cash Amount or
Equivalent Share Amount attributable to such Portfolio Security, cash in
an amount equal to the Tender Value. "Tender Value" means an amount equal
to the product of (a) the sum of the Closing Price of such Portfolio
Security on the Trading Day immediately following the Announcement Date
plus accrued interest thereon at LIBOR reset monthly for the period
beginning on the fourth Trading Day following the Announcement Date to but
excluding the Maturity Date, multiplied by (b) the Multiplier for such
Portfolio Security in effect on the Announcement Date.
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 Multiplier will be required unless such Multiplier
adjustment would require a change of at least 0.1% 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 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 Multiplier to reflect changes occurring in
relation to any Portfolio Security 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 or Closing Price, as applicable, of such
Portfolio Security, including, without limitation, a partial tender or exchange
offer for such Portfolio Security.
The Calculation Agent shall be solely responsible for the determination
and calculation of any adjustments to the Multiplier and of any related
determinations and calculations with respect to any distributions of stock,
other securities or other property or assets (including cash) in
8
<PAGE>
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 Multiplier upon written request by any holder 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 U.S. Dollar
amounts used in or resulting from such calculation will be rounded to the
nearest cent with one-half cent being rounded upwards.
The Company, by its sale of this Note and every Holder of this Note (and
any successor Holder of this Note), by its respective purchase hereof, hereby
agree (in the absence of an administrative determination or judicial ruling to
the contrary):
1. To characterize this 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 Maturity Date equal
to the Principal Amount of this Note 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, which treatment will require, among other
things, each Holder that is subject to United States Federal income
tax in connection with its ownership of the Notes to include
currently in income payments denominated as interest that are made
with respect to this Note in accordance with such Holder's regular
method of tax accounting;
2. In the case of purchases of Notes in connection with the original
issuance thereof, to assign an amount equal to 102.24% of the entire
initial purchase price of a Note (i.e., the Issue Price of the
Notes) to the Debt Instrument component and to assign an amount
equal to 2.24% of the Issue Price to the Forward Contract component;
and
3. To file all United States Federal, state and local income, franchise
and estate tax returns consistent with the treatment of each Note as
a unit consisting of the Debt Instrument and the Forward Contract
(in the absence of an administrative determination or judicial
ruling to the contrary).
General
Unless the certificate of authentication hereon has been executed by or on
behalf of The Chase Manhattan Bank, the Trustee for this Note under the
Indenture, or its successor thereunder, by the manual signature of one of its
authorized officers, this Note shall not be entitled to any benefit under the
Indenture or be valid or obligatory for any purpose.
9
<PAGE>
This Note is one of a duly authorized issue of Securities (hereinafter
called the "Securities") of the Company designated as its Medium-Term Notes,
Series B (the "Notes"). The Securities are issued and to be issued under an
indenture (the "Indenture") dated as of October 1, 1993, as amended and
supplemented, between the Company and The Chase Manhattan Bank, as trustee
(herein called the "Trustee," which term includes any successor Trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights thereunder of
the Company, the Trustee and the Holders of the Notes and the terms upon which
the Notes are to be authenticated and delivered. The terms of individual Notes
may vary with respect to interest rates or interest rate formulas, issue dates,
maturity, redemption, repayment, currency of payment and otherwise as provided
in the Indenture.
The Notes are issuable only in registered form without coupons in
denominations, unless otherwise specified above, of $1,000 and integral
multiples thereof. References to payment "per Note" refer to each $1,000
principal amount of each Note evidenced hereby. As provided in the Indenture and
subject to certain limitations therein set forth, the Notes are exchangeable for
a like aggregate principal amount of Notes as requested by the Holder
surrendering the same. 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 this Note shall be exchangeable or (z) an Event
of Default has occurred and is continuing with respect to the Notes, this Note
shall be exchangeable for Notes in definitive form of like tenor and of an equal
aggregate principal amount, in authorized denominations. Such definitive Notes
shall be registered in such name or names as the Depository shall instruct the
Trustee. If definitive Notes are so delivered, the Company may make such changes
to the form of this Note as are necessary or appropriate to allow for the
issuance of such definitive Notes.
This Note is not subject to any sinking fund.
This Note is not subject to repayment at the option of the Holder prior to
its Maturity Date.
If an Event of Default (as defined in the Indenture) with respect to the
Notes shall occur and be continuing, the principal of all the Notes may be
declared due and payable in the manner and with the effect provided in the
Indenture; provided, however, that 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 of the
Notes, as provided above, plus any accrued but unpaid interest to but not
including the date of acceleration.
In case of default in (i) payment 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% per annum (to the extent that payment
10
<PAGE>
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, or (ii) delivery of
the Equivalent Share Amount of the Notes at their stated maturity, from and
after the maturity date the Notes shall bear interest, payable upon demand of
the beneficial owners thereof, at the rate of 5% per annum (to the extent that
payment of such interest shall be legally enforceable) on the Cash Amount
otherwise payable on such date in accordance with the terms of the Notes to the
date payment of such Cash Amount has been made or duly provided for.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of 66-2/3% in aggregate principal amount of the
Securities at the time Outstanding, as defined in the Indenture, of each series
affected thereby. The Indenture also contains provisions permitting the Holders
of specified percentages in aggregate principal amount of the Securities of each
series at the time Outstanding, on behalf of the Holders of all the Securities
of each series, to waive compliance by the Company with certain provisions of
the Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Note shall be
conclusive and binding upon such Holder and upon all future Holders of this Note
and of any Note issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof whether or not notation of such consent or waiver is
made upon this Note.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the interest on, and the Cash Amount or
Equivalent Share Amount, with respect to this Note and any interest on any
overdue amount thereof at the time, place and rate, and in the coin or currency,
herein prescribed.
As provided in the Indenture and subject to certain limitations set forth
therein and on the face hereof, the transfer of this Note may be registered on
the Security Register of the Company, upon surrender of this Note for
registration of transfer at the office or agency of the Company in the Borough
of Manhattan, The City of New York, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company duly executed
by, the Holder hereof or by his attorney duly authorized in writing, and
thereupon one or more new Notes of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this
11
<PAGE>
Note is registered as the owner hereof for all purposes, whether or not this
Note be overdue, and neither the Company, the Trustee nor any such agent shall
be affected by notice to the contrary.
The Indenture and the Notes shall be governed by and construed in
accordance with the laws of the State of New York.
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
12
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: August 18, 1998
CERTIFICATE OF AUTHENTICATION Merrill Lynch & Co., Inc.
This is one of the Securities of the [Copy of Seal]
series designated therein referred to
in the within-mentioned Indenture.
The Chase Manhattan Bank, as Trustee By:
Treasurer
By: Attest:
Authorized Officer Secretary
13
<PAGE>
ANNEX A
OFFICIAL NOTICE OF EXERCISE OF RIGHT
TO RECEIVE EQUIVALENT SHARE AMOUNT
7% Stock Portfolio Linked Medium-Term Notes due August 18, 2000
(Linked to the performance of the Common Stock of Intuit Inc.,
CKS Group, Inc. and CNET, Inc.)
Dated: [On or prior to the fifteenth Business Day prior to August 18,
2000]
Merrill Lynch & Co., Inc.
World Financial Center
South Tower, 5th Floor
New York, New York 10080-6105
Fax No.: (212) 236-3865
(Attn: Treasury)
Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Calculation Agent
World Financial Center
North Tower, 5th Floor
New York, New York 10281-1305
Fax No.: (212) 449-2697
(Attn: Operations (Matthew Pomeranz))
The Chase Manhattan Bank
450 West 33rd Street
15th Floor
New York, New York 10001
Fax No.: (212) 946-8161
(Attn: Corporate Trust Department)
Dear Sirs:
The undersigned holder of the 7% Stock Portfolio Linked Medium-Term Notes
due August 18, 2000 (Linked to the performance of the Common Stock of Intuit
Inc., CKS Group, Inc. and CNET, Inc.) of Merrill Lynch & Co., Inc. (the "Notes")
hereby irrevocably elects to exercise with respect to the number of Notes
indicated below, as of the date hereof, provided that such day is prior to the
fifteenth Business Day prior to August 18, 2000, the Right to Receive the
Equivalent Share Amount as described in Pricing Supplement dated August 11, 1998
(the
14
<PAGE>
"Pricing Supplement") to the Prospectus Supplement and Prospectus dated July 30,
1998. Capitalized terms not defined herein have the meanings given to such terms
in the Pricing Supplement. Please date and acknowledge receipt of this notice in
the place provided below on the date of receipt, and fax a copy to the fax
number indicated, whereupon the Company will deliver Portfolio Securities, in
accordance with the terms of the Notes described in the Pricing Supplement.
Very truly yours,
_____________________________
[Name of Holder]
By:__________________________________________
[Title]
_____________________________________________
[Fax No.]
$____________________________________________
Number of Notes surrendered for exercise of the Right to Receive the
Equivalent Share Amount
If you want the Portfolio Securities made out in another person's name,
fill in the form below:
_____________________________________________
(Insert person's soc. sec. or tax ID no.)
_____________________________________________
(Print or type person's name, address and zip code)
Date: _______________________________
Your Signature:______________________________________
15
<PAGE>
Receipt of the above Official Notice of
Exchange is hereby acknowledged.
MERRILL LYNCH & CO., INC., as Issuer
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
as Calculation Agent
By: THE CHASE MANHATTAN BANK,
as Trustee
By: _________________________________________________
Name:
Title:
Date and time of acknowledgment ____________________
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<PAGE>
ASSIGNMENT/TRANSFER FORM
FOR VALUE RECEIVED the undersigned registered Holder hereby sell(s),
assign(s) and transfer(s) unto
(insert Taxpayer Identification No.)
(Please print or typewrite name and address including postal zip code of
assignee)
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing _______________________ attorney to transfer said Note on the books
of the Company with full power of substitution in the premises.
Dated: _____________________
NOTICE: The signature of the registered Holder to
this assignment must correspond with the name as
written upon the face of the within instrument in
every particular, without alteration or
enlargement or any change whatsoever.
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<PAGE>
Exhibit 4(iiii)
REGISTERED NO. ___ CUSIP No. 59018S___
$___________
MERRILL LYNCH & CO., INC.
MEDIUM-TERM NOTE,
SERIES B
Single Stock Linked Notes due August 13, 1999
(Linked to the performance of the Common Stock of
Case Corporation)
MERRILL LYNCH & CO., INC., a Delaware corporation (hereinafter referred to
as the "Company", which term includes any successor corporation under the
Indenture herein referred to), for value received, hereby promises to pay and
discharge each Note evidenced hereby on August 13, 1999 (the "Maturity Date") by
delivering to ___________________, or registered assigns, with respect to the
principal amount hereof, ____________________ ($______), the Cash Amount, as
defined below and determined in accordance with the provisions set forth below,
and to pay interest on the principal amount hereof from August 14, 1998, or from
the most recent date in respect of which interest has been paid or duly provided
for, quarterly in arrears on November 13, 1998, February 12, 1999, May 13, 1999
and August 13, 1999 (each an "Interest Payment Date"), at the rate of 3% per
annum plus the Cash Dividend Amount, if any (the "Interest Rate"), until the
Cash Amount is paid or duly made available for payment. The Notes will be issued
in minimum denominations of $32.97 aggregate principal amount and integral
multiples thereof. The interest so payable and punctually paid or duly provided
for on any Interest Payment Date will, as provided in such Indenture, be paid to
the Person in whose name this Note (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the fifteenth day (whether or not a Business Day) next
preceding such Interest Payment Date. Any such interest which is payable, but is
not punctually paid or duly provided for on any Interest Payment Date, shall
forthwith cease to be payable to the registered Holder on such Regular Record
Date, and may be paid to the Person in whose name this Note (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of this Note not less than
10 days prior to such Special Record Date, or may be paid at any time in any
other lawful manner, as more fully provided in such Indenture.
Payment of interest and the Cash Amount with respect to this Note shall be
made at the office or agency of the Company maintained for that purpose in the
Borough of Manhattan, The City of New York, in such coin or currency of the
United States of America as at the time of
<PAGE>
payment is legal tender for payment of public and private debts. The Company
shall, or shall cause the Calculation Agent to, deliver U.S. Dollars to the
Trustee for delivery to the Holder of this Note.
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 or regulation to close in The City of New York and that is a
Trading Day.
"Case" means Case Corporation, a company incorporated under the laws of
Delaware.
"Case Stock" means the Common Stock, $.01 par value per share, of Case
Corporation.
"Cash Amount" means, with respect to each $32.97 principal amount of this
Note, an amount in U.S. dollars determined in accordance with the following
formula, subject to certain adjustments: The product of the Final Price
multiplied by the Share Ratio.
"Cash Dividend Amount" means, with respect to each $32.97 principal amount
of this Note, an amount determined by Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Calculation Agent", which term includes any successor
thereto) equal to cash dividends, if any, payable by Case on a number of shares
of the Case Stock equal to the Share Ratio. The Cash Dividend Amount with
respect to cash dividends of Case, the record date of which occurs from and
including August 12, 1998 to but excluding the first Interest Payment Date,
shall be paid on the first Interest Payment Date. Thereafter the Cash Dividend
Amount with respect to cash dividends of Case, the record date of which occurs
from and including the previous Interest Payment Date to but excluding the next
following Interest Payment Date, shall be paid on such following Interest
Payment Date.
"Final Price" will be an amount determined by the Calculation Agent and
will equal the sum of the Market Prices of one share of the Case Stock on the
Trading Days from and including July 21, 1999 to but excluding August 11, 1999
(the "Calculation Period") for which the Market Prices are available, each
multiplied by a Multiplier, each as determined by the Calculation Agent.
"Market Disruption Event" means:
(i) a suspension, absence (including the absence of an official closing
price) or material limitation of trading of Case Stock on the NYSE for more than
two hours of trading or during the one-half hour period preceding or at the
close of trading in such market; as determined by the Calculation Agent in its
sole discretion; and
2
<PAGE>
(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.
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, and (2) limitations
pursuant to any rule or regulation enacted or promulgated by the NYSE (or other
regulatory organization with jurisdiction over the NYSE) on trading during
significant market fluctuations will constitute a suspension or material
limitation of trading in Case Stock.
"Market Price" for any security for any date means the official closing
price 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.
"Multiplier" for the Calculation Period shall initially be set at 1
divided by the number of scheduled Trading Days in the Calculation Period,
and for any other period for which Market Prices of such security are to be
determined shall initially be set as a fraction, the numerator of which is
one and the denominator of which is the specified number of Trading Days in
such period (such Calculation Period and other period referred to as the
"Applicable Period"). In the event the Market Price for any security for any
date in the Applicable Period cannot be determined (a "Price Unavailability
Date"), the Multiplier for each subsequent date in the Applicable Period for
which the Market Price can be determined (a "Price Availability Date") shall
be adjusted so that the new Multiplier is the prior Multiplier multiplied by
a fraction, the numerator of which is the remaining Trading Days in the
Applicable Period, including such Price Unavailability Date, and the
denominator of which is the remaining Trading Days in the Applicable Period,
excluding such Price Unavailability Date. If the final Trading Day of the
Applicable Period is a Price Unavailability Date, the Market Price for such
day shall be the market value of such security as determined by the
Calculation Agent, and the Multiplier for such Market Price shall be computed
as if such day were a Price Availability Date.
"NYSE" means the New York Stock Exchange.
"Share Ratio" initially means 1.0, but will be subject to adjustment, as
provided herein, through and including the Maturity Date.
"Trading Day " means a day on which the NYSE, the American Stock Exchange
and the NASDAQ National Market System are open for trading, as determined by the
Calculation Agent.
3
<PAGE>
The Share Ratio (and, in the case of paragraph 5 below, the determination
of the Cash Amount) will be adjusted as follows:
1. If Case 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 Case Stock.
2. If Case Stock is subject to a stock dividend (issuance of additional
shares of Case Stock) that is given ratably to all holders of shares of Case
Stock, then once the Case Stock begins 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 Case
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 Case 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 Case Stock will be deemed to be an "Extraordinary Dividend" if such dividend
or other distribution exceeds the immediately preceding non-Extraordinary
Dividend for Case Stock by an amount equal to at least 10% of the Market Price
of Case 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 Case Stock, the Share Ratio with respect to Case
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
Case 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 Case 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 Case 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 Case issues transferable rights or warrants to all holders of the
Case Stock to subscribe for or purchase Case Stock (including new or existing
rights to purchase Case Stock pursuant to a shareholders rights plan or
arrangement, once a triggering event shall have occurred thereunder), then 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, in addition to the Cash Amount,
cash in an amount equal to
4
<PAGE>
the Rights Value (as defined below) plus accrued interest thereon from the third
Trading Day following the last day of the Rights Calculation Period (as defined
below) to the maturity date at LIBOR (as defined below), reset monthly on the
first Trading Day of each month. The "Rights Value" shall be (i) if the rights
or warrants expire before the Calculation Period, the sum of the Market Prices
of such rights or warrants on the 15 Trading Days immediately following receipt
by holders of Case Stock of such rights or warrants, each multiplied by the
applicable Multiplier; (ii) if the rights or warrants expire after the
Calculation Period, the sum of the Market Prices of such rights or warrants on
the Trading Days in the Calculation Period, each multiplied by the applicable
Multiplier; or (iii) if the rights or warrants expire during the Calculation
Period, the sum of the Market Prices of such rights or warrants on the Trading
Days in the Calculation Period prior to such expiration date, each multiplied by
the applicable Multiplier (the Trading Days utilized in determining the Rights
Value is referred to as the "Rights Valuation Period"). "LIBOR" shall be the
rate for deposits in U.S. Dollars for a period of one month which appears on the
Reuters Screen ISDA Page as of 11:00 a.m., London time, on the day that is two
Trading Days preceding the reset date, or in the case of the initial
determination of LIBOR, on the second Trading Day preceding last day of the
Rights Calculation Period.
5. If (i) there occurs any reclassification or change of the Case Stock,
(ii) Case, or any surviving entity or subsequent surviving entity of Case (a
"Case Successor") has been subject to a merger, combination or consolidation and
is not the surviving entity, (iii) any statutory exchange of securities of Case
or any Case Successor with another corporation occurs (other than pursuant to
clause (ii) above), (iv) Case is liquidated, (v) Case issues to all of its
shareholders equity securities of an issuer other than Case (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 Case 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,
cash 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 Case Stock, and 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, cash in an amount equal to the sum of (A) the
Transaction Value and (B) the sum of the present values of the remaining
interest payments on the Notes, in each case discounted from their respective
scheduled payment dates to the accelerated maturity date on a quarterly basis at
the Swap Rate (as defined below). "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 Case 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 Case Stock multiplied by the then current Share Ratio, (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 Case Stock at the date of the receipt of such
5
<PAGE>
Exchange Property multiplied by the then current Share Ratio and (iii) for any
security received in any such Reorganization Event, an amount equal to the sum
of the Market Prices per share of such security each multiplied by the
applicable Multiplier during the Calculation Period, multiplied by the quantity
of such security received for each share of Case Stock and multiplied by the
then current Share Ratio. The "Swap Rate" shall be the rate for U.S. Dollar
swaps with a one month maturity, expressed as a percentage, which appears on the
Reuters Screen ISDA FIX 1 Page as of 11:00 a.m., New York City time on the reset
date, or, in the case of the initial determination of the Swap Rate, on the
second preceding Trading Day.
6. If there occurs a cash tender offer for at least 25% but less than all
of the Case Stock then outstanding at a price per share in excess of the Market
Price of the Case Stock on the date such offer is announced (the "Announcement
Date"), the maturity date of the Notes will be deemed to be accelerated to the
18th scheduled Trading Day after the Announcement Date and 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, cash in an amount
equal to the sum of (i) the "Tender Value", which shall be the sum of the Market
Prices of the Case Stock each multiplied by the applicable Multiplier during the
period ending on the 15th scheduled Trading Day following the Announcement Date
plus (ii) the sum of the present values of the remaining interest payments on
the Notes, in each case discounted from their respective scheduled payment dates
to the accelerated maturity date on a quarterly basis at the Swap Rate (as
defined above).
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 and in good faith, cause the Calculation
Agent to make additional adjustments to the Share Ratio to reflect changes
occurring in relation to the Case Stock or any other Exchange Property in other
circumstances where the Company determines that it is appropriate to reflect
such changes.
The Calculation Agent shall be solely responsible for the determination
and calculation of the Cash Dividend Amount and any adjustments to the Share
Ratio and of any related
6
<PAGE>
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, absent manifest error, shall be conclusive
for all purposes and binding on the Company and holders of the Notes.
The Calculation Agent will provide information as to the Cash Dividend
Amount and any adjustments to the Share Ratio upon written request by any holder
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 U.S. Dollar
amounts used in or resulting from such calculation will be rounded to the
nearest cent with one-half cent being rounded upwards.
The Company, by its sale of this Note and every Holder of this Note (and
any successor Holder of this Note), by its respective purchase hereof, hereby
agree (in the absence of an administrative determination or judicial ruling to
the contrary):
1. To characterize this 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 Maturity Date equal
to the Principal Amount of this Note 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;
2. In the case of purchases of Notes in connection with the original
issuance thereof, to allocate 97.32% of the entire initial purchase
price of a Note (i.e., the Issue Price of the Notes) to the Debt
Instrument component and to allocate the remaining 2.68% of the
Issue Price to the Forward Contract component; and
3. To file all United States Federal, state and local income, franchise
and estate tax returns consistent with the treatment of each Note as
a unit consisting of the Debt Instrument and the Forward Contract
(in the absence of an administrative determination or judicial
ruling to the contrary).
General
Unless the certificate of authentication hereon has been executed by or on
behalf of The Chase Manhattan Bank, the Trustee for this Note under the
Indenture, or its successor thereunder, by the manual signature of one of its
authorized officers, this Note shall not be entitled to any benefit under the
Indenture or be valid or obligatory for any purpose.
7
<PAGE>
This Note is one of a duly authorized issue of Securities (hereinafter
called the "Securities") of the Company designated as its Medium-Term Notes,
Series B (the "Notes"). The Securities are issued and to be issued under an
indenture (the "Indenture") dated as of October 1, 1993, as amended, between the
Company and The Chase Manhattan Bank, as trustee (herein called the "Trustee,"
which term includes any successor Trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights thereunder of the Company, the Trustee and
the Holders of the Notes and the terms upon which the Notes are to be
authenticated and delivered. The terms of individual Notes may vary with respect
to interest rates or interest rate formulas, issue dates, maturity, redemption,
repayment, currency of payment and otherwise as provided in the Indenture.
The Notes are issuable only in certificated form in denominations of
$32.97 and integral multiples thereof. References to payment "per Note" refer to
each $32.97 principal amount of each Note evidenced hereby.
This Note is not subject to any sinking fund.
This Note is not subject to repayment at the option of the Holder prior to
its Maturity Date.
If an Event of Default (as defined in the Indenture) with respect to the
Notes shall occur and be continuing, the principal of all the Notes may be
declared due and payable in the manner and with the effect provided in the
Indenture; provided, however, that 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 sum of the Market
Prices of the Case Stock on the 15 Trading Days immediately preceding the
acceleration of the Notes each multiplied by the applicable Multiplier, as
provided above, plus any accrued but unpaid interest and Cash Dividend Amount to
but not including the date of acceleration.
In case of default in payment 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 3% 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.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of 66-2/3% in aggregate principal amount of the
Securities at the time Outstanding, as defined in the Indenture, of each series
affected thereby. The Indenture also contains provisions permitting the Holders
of specified percentages in aggregate principal amount of the Securities of each
series at the time Outstanding, on behalf of the Holders of all the Securities
of each series, to waive compliance by
8
<PAGE>
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Note shall be conclusive and binding upon such Holder and upon
all future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange herefor or in lieu hereof whether or not notation
of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the interest on, and the Cash Amount, with
respect to this Note and any interest on any overdue amount thereof at the time,
place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations set forth
therein and on the face hereof, the transfer of this Note may be registered on
the Security Register of the Company, upon surrender of this Note for
registration of transfer at the office or agency of the Company in the Borough
of Manhattan, The City of New York, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company duly executed
by, the Holder hereof or by his attorney duly authorized in writing, and
thereupon one or more new Notes of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees. Notwithstanding anything to the contrary contained in the Indenture
or the provisions of this Note, neither this Note nor any interest therein may
be transferred to any Person that is not subject to United States federal income
taxation in respect of payments received under this Note.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Indenture and the Notes shall be governed by and construed in
accordance with the laws of the State of New York.
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
9
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: August 14, 1998
CERTIFICATE OF AUTHENTICATION Merrill Lynch & Co., Inc.
This is one of the Securities of the [Copy of Seal]
series designated therein referred to
in the within-mentioned Indenture.
The Chase Manhattan Bank, as Trustee By:_____________________
Treasurer
By:_________________________________ Attest:_________________
Authorized Officer Secretary
10
<PAGE>
ASSIGNMENT/TRANSFER FORM
FOR VALUE RECEIVED the undersigned registered Holder hereby sell(s),
assign(s) and transfer(s) unto
(insert Taxpayer Identification No.)
__________________________________________________________________________
(Please print or typewrite name and address including
postal zip code of assignee)
the within Note and all rights thereunder, hereby irrevocably constituting
and appointing _________________________________________________________________
attorney to transfer said Note on the books of the Company with full power of
substitution in the premises.
Dated: _____________________
NOTICE: The signature of the registered Holder to
this assignment must correspond with the name as
written upon the face of the within instrument in
every particular, without alteration or
enlargement or any change whatsoever.
11
<PAGE>
Exhibit 4(oooo)
-------------------------------
DECLARATION OF TRUST
MERRILL LYNCH PREFERRED CAPITAL TRUST VI
Dated as of December 3, 1998
----------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions ...................................................1
ARTICLE II
ORGANIZATION
SECTION 2.1 Name...........................................................3
SECTION 2.2 Office.........................................................3
SECTION 2.3 Purpose........................................................3
SECTION 2.4 Authority......................................................3
SECTION 2.5 Title to Property of the Trust.................................4
SECTION 2.6 Powers of the Trustees.........................................4
SECTION 2.7 Filing of Certificate of Trust.................................5
SECTION 2.8 Duration of Trust..............................................5
SECTION 2.9 Responsibilities of the Sponsor................................5
SECTION 2.10 Declaration Binding on Securities Holders......................5
ARTICLE III
TRUSTEES
SECTION 3.1 Trustees.......................................................6
SECTION 3.2 Regular Trustees...............................................6
SECTION 3.3 Delaware Trustee...............................................6
SECTION 3.4 Property Trustee...............................................7
SECTION 3.5 Not Responsible for Recitals or Sufficiency of Declaration.....7
ARTICLE IV
LIMITATION OF LIABILITY OF
SECTION 4.1 Exculpation....................................................7
SECTION 4.2 Fiduciary Duty.................................................8
SECTION 4.3 Indemnification................................................8
SECTION 4.4 Outside Businesses............................................11
ARTICLE V
AMENDMENTS, TERMINATION, MISCELLANEOUS
SECTION 5.1 Amendments....................................................12
SECTION 5.2 Termination of Trust..........................................12
SECTION 5.3 Governing Law.................................................12
SECTION 5.4 Headings......................................................12
SECTION 5.5 Successors and Assigns........................................12
SECTION 5.6 Partial Enforceability........................................13
SECTION 5.7 Counterparts..................................................13
</TABLE>
i
<PAGE>
DECLARATION OF TRUST ("Declaration") dated and effective as of
December 3, 1998 by the Trustees (as defined herein), the Sponsor (as defined
herein), and by the holders, from time to time, of undivided beneficial
interests in the Trust to be issued pursuant to this Declaration;
WHEREAS, the Trustees and the Sponsor desire to establish a trust
(the "Trust") pursuant to the Delaware Business Trust Act for the sole purpose
of issuing and selling certain securities representing undivided beneficial
interests in the assets of the Trust and investing the proceeds thereof in
certain Partnership Preferred Securities of the Partnership; and
NOW, THEREFORE, it being the intention of the parties hereto that
the Trust constitute a business trust under the Business Trust Act and that this
Declaration constitute the governing instrument of such business trust, the
Trustees declare that all assets contributed to the Trust will be held in trust
for the benefit of the holders, from time to time, of the securities
representing undivided beneficial interests in the assets of the Trust issued
hereunder, subject to the provisions of this Declaration.
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions.
Unless the context otherwise requires:
(a) Capitalized terms used in this Declaration but not defined in
the preamble above have the respective meanings assigned to them in this Section
1.1;
(b) a term defined anywhere in this Declaration has the same meaning
throughout;
(c) all references to "the Declaration" or "this Declaration" are to
this Declaration of Trust as modified, supplemented or amended from time to
time;
(d) all references in this Declaration to Articles and Sections are
to Articles and Sections of this Declaration unless otherwise specified; and
(e) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405
of the Securities Act or any successor rule thereunder.
"Business Day" means any day other than a day on which banking
institutions in New York, New York are authorized or required by law to close.
"Business Trust Act" means Chapter 38 of Title 12 of the Delaware
Code, 12 Del. Code Section 3801 et seq., as it may be amended from time to time,
or any successor legislation.
"Commission" means the Securities and Exchange Commission.
<PAGE>
"Common Security" means a security representing an undivided
beneficial interest in the assets of the Trust with such terms as may be set out
in any amendment to this Declaration.
"Company Indemnified Person" means (a) any Regular Trustee; (b) any
Affiliate of any Regular Trustee; (c) any officers, directors, shareholders,
members, partners, employees, representatives or agents of any Regular Trustee;
or (d) any employee or agent of the Trust or its Affiliates.
"Covered Person" means (a) any officer, director, shareholder,
partner, member, representative, employee or agent of (i) the Trust or (ii) the
Trust's Affiliates and (b) any holder of Securities.
"Delaware Trustee" has the meaning set forth in 3.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor legislation.
"Fiduciary Indemnified Person" has the meaning set forth in Section
4.3(b).
"Indemnified Person" means a Company Indemnified Person or a
Fiduciary Indemnified Person.
"Parent" means Merrill Lynch & Co., Inc., a Delaware corporation, or
any successor entity in a merger.
"Partnership" means Merrill Lynch Preferred Funding VI, L.P.
"Partnership Preferred Securities" means the limited partnership
interests to be issued by the Partnership.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Preferred Security" means a security representing an undivided
beneficial interest in the assets of the Trust with such terms as may be set out
in any amendment to this Declaration.
"Property Trustee" has the meaning set forth in Section 3.4.
"Regular Trustee" has the meaning set forth in Section 3.1.
"Securities" means the Common Securities and the Preferred
Securities.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, or any successor legislation.
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"Sponsor" means the Parent in its capacity as sponsor of the Trust.
"Trustee" or "Trustees" means each Person who has signed this
Declaration as a trustee, so long as such Person shall continue in office in
accordance with the terms hereof, and all other Persons who may from time to
time be duly appointed, qualified and serving as Trustees in accordance with the
provisions hereof, and references herein to a Trustee or the Trustees shall
refer to such Person or Persons solely in their capacity as trustees hereunder.
ARTICLE II
ORGANIZATION
SECTION 2.1 Name.
The Trust created by this Declaration is named "Merrill Lynch
Preferred Capital Trust VI". The Trust's activities may be conducted under the
name of the Trust or any other name deemed advisable by the Regular Trustees.
SECTION 2.2 Office.
The address of the principal office of the Trust is c/o Merrill
Lynch & Co., Inc., World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281 (with a copy to: Chase Manhattan Bank Delaware, c/o John J.
Cashin, Senior Trust Officer, 1201 Market Street, Wilmington, Delaware 19801).
At any time, the Regular Trustees may designate another principal office.
SECTION 2.3 Purpose.
The exclusive purposes and functions of the Trust are (a) to issue
and sell the Securities and use the proceeds from such sale to acquire the
Partnership Preferred Securities, and (b) except as otherwise limited herein, to
engage in only those other activities necessary, or incidental thereto. The
Trust shall not borrow money, issue debt or reinvest proceeds derived from
investments, pledge any of its assets, or otherwise undertake (or permit to be
undertaken) any activity that would cause the Trust not to be classified for
United States federal income tax purposes as a grantor trust.
SECTION 2.4 Authority.
Subject to the limitations provided in this Declaration, the Regular
Trustees shall have exclusive and complete authority to carry out the purposes
of the Trust. An action taken by the Regular Trustees in accordance with their
powers shall constitute the act of and serve to bind the Trust. In dealing with
the Regular Trustees acting on behalf of the Trust, no person shall be required
to inquire into the authority of the Regular Trustees to bind the Trust. Persons
dealing with the Trust are entitled to rely conclusively on the power and
authority of the Regular Trustees as set forth in this Declaration.
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SECTION 2.5 Title to Property of the Trust.
Legal title to all assets of the Trust shall be vested in the Trust.
SECTION 2.6 Powers of the Trustees.
The Regular Trustees shall have the exclusive power and authority to
cause the Trust to engage in the following activities:
(a) to issue and sell the Preferred Securities and the Common
Securities in accordance with this Declaration; provided, however, that
the Trust may issue no more than one series of Preferred Securities and no
more than one series of Common Securities, and, provided further, that
there shall be no interests in the Trust other than the Securities and the
issuance of the Securities shall be limited to a one-time, simultaneous
issuance of both Preferred Securities and Common Securities;
(b) in connection with the issue and sale of the Preferred
Securities, at the direction of the Sponsor, to:
(i) execute and file with the Commission a registration
statement on Form S-3 prepared by the Sponsor and the Partnership,
including any amendments thereto in relation to the Preferred
Securities;
(ii) execute and file any documents prepared by the Sponsor,
or take any acts as determined by the Sponsor to be necessary in
order to qualify or register all or part of the Preferred Securities
in any state in which the Sponsor has determined to qualify or
register such Preferred Securities for sale;
(iii) execute and file an application, prepared by the
Sponsor, to the New York Stock Exchange or any other national stock
exchange or the National Association of Securities Dealers Automated
Quotation System National Market System ("Nasdaq/NMS") for listing
upon notice of issuance of any Preferred Securities;
(iv) execute and file with the Commission a registration
statement, including any amendments thereto, prepared by the Sponsor
relating to the registration of the Preferred Securities under
Section 12(b) of the Exchange Act; and
(v) execute and enter into an underwriting agreement and
pricing agreement providing for the sale of the Preferred
Securities;
(c) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors,
and consultants and provide for reasonable compensation for such services;
(d) to incur expenses which are necessary or incidental to carry out
any of the purposes of this Declaration; and
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(e) to execute all documents or instruments, perform all duties and
powers, and do all things for and on behalf of the Trust in all matters
necessary or incidental to the foregoing.
SECTION 2.7 Filing of Certificate of Trust.
On or after the date of execution of this Declaration, the Trustees
shall cause the filing of the Certificate of Trust in the form attached hereto
as Exhibit A with the Secretary of State of the State of Delaware.
SECTION 2.8 Duration of Trust.
The Trust, absent termination pursuant to the provisions of Section
5.2, shall have no fixed term and shall exist indefinitely.
SECTION 2.9 Responsibilities of the Sponsor.
In connection with the issue and sale of the Preferred Securities,
the Sponsor shall have the exclusive right and responsibility to engage in the
following activities:
(a) to prepare for filing by the Trust with the Commission a
registration statement on Form S-3 in relation to the Preferred
Securities, including any amendments thereto;
(b) to determine the states in which to take appropriate action to
qualify or register for sale all or part of the Preferred Securities and
to do any and all such acts, other than actions which must be taken by the
Trust, and advise the Trust of actions it must take, and prepare for
execution and filing any documents to be executed and filed by the Trust,
as the Sponsor deems necessary or advisable in order to comply with the
applicable laws of any such states;
(c) to prepare for filing by the Trust an application to the New
York Stock Exchange or any other national stock exchange or the Nasdaq/NMS
for listing upon notice of issuance of any Preferred Securities;
(d) to prepare for filing by the Trust with the Commission a
registration statement relating to the registration of the class of
Preferred Securities under Section 12(b) of the Exchange Act, including
any amendments thereto; and
(e) to negotiate the terms of an underwriting agreement and pricing
agreement providing for the sale of the Preferred Securities.
SECTION 2.10 Declaration Binding on Securities Holders.
Every Person by virtue of having become a holder of a Security or
any interest therein in accordance with the terms of this Declaration, shall be
deemed to have expressly assented and agreed to the terms of, and shall be bound
by, this Declaration.
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ARTICLE III
TRUSTEES
SECTION 3.1 Trustees.
The number of Trustees initially shall be three (3), and thereafter
the number of Trustees shall be such number as shall be fixed from time to time
by a written instrument signed by the Sponsor. The Sponsor is entitled to
appoint or remove without cause any Trustee at any time; provided, however, that
the number of Trustees shall in no event be less than two (2); provided further
that one Trustee, in the case of a natural person, shall be a person who is a
resident of the State of Delaware or that, if not a natural person, is an entity
which has its principal place of business in the State of Delaware (the
"Delaware Trustee"); provided further that there shall be at least one trustee
who is an employee or officer of or who is affiliated with the Parent (a
"Regular Trustee").
SECTION 3.2 Regular Trustees.
The initial Regular Trustees shall be:
Theresa Lang
Stanley Schaefer
(a) Except as expressly set forth in this Declaration, any power of
the Regular Trustees, if there is more than one Regular Trustee, may be
exercised by, or with the consent of, any one Regular Trustee.
(b) Unless otherwise determined by the Regular Trustees, and except
as otherwise required by the Business Trust Act, any Regular Trustee is
authorized to execute on behalf of the Trust any documents which the Regular
Trustees have the power and authority to cause the Trust to execute pursuant to
Section 2.6, provided, that, the registration statement referred to in Section
2.6(b)(i), including any amendments thereto, shall be signed, if there is more
than one Regular Trustee, by a majority of the Regular Trustees; and
(c) a Regular Trustee may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purposes of signing any documents which the Regular Trustees
have power and authority to cause the Trust to execute pursuant to Section 2.6.
SECTION 3.3 Delaware Trustee.
The initial Delaware Trustee shall be:
Chase Manhattan Bank Delaware
Notwithstanding any other provision of this Declaration, the
Delaware Trustee shall not be entitled to exercise any of the powers, nor shall
the Delaware Trustee have any of the duties and responsibilities of the Regular
Trustees described in this Declaration. The Delaware Trustee shall be a Trustee
for the sole and limited purpose of fulfilling the requirements of Section
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3807 of the Business Trust Act. Notwithstanding anything herein to the contrary,
the Delaware Trustee shall not be liable for the acts or omissions to act of the
Trust or of the Regular Trustees except such acts as the Delaware Trustee is
expressly obligated or authorized to undertake under this Declaration or the
Business Trust Act and except for the gross negligence or willful misconduct of
the Delaware Trustee.
SECTION 3.4 Property Trustee.
Prior to the issuance of the Preferred Securities and Common
Securities, the Sponsor shall appoint another trustee (the "Property Trustee")
meeting the requirements of an eligible trustee of the Trust Indenture Act of
1939, as amended, by the execution of an amendment to this Declaration executed
by the Regular Trustees, the Sponsor, the Property Trustee and the Delaware
Trustee.
SECTION 3.5 Not Responsible for Recitals or Sufficiency of Declaration.
The recitals contained in this Declaration shall be taken as the
statements of the Sponsor, and the Trustees do not assume any responsibility for
their correctness. The Trustees make no representations as to the value or
condition of the property of the Trust or any part thereof. The Trustees make no
representations as to the validity or sufficiency of this Declaration.
ARTICLE IV
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 4.1 Exculpation.
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Trust or any Covered Person for any
loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith on behalf of the Trust and in a
manner such Indemnified Person reasonably believed to be within the scope of the
authority conferred on such Indemnified Person by this Declaration or by law,
except that an Indemnified Person shall be liable for any such loss, damage or
claim incurred by reason of such Indemnified Person's gross negligence or bad
faith with respect to such acts or omissions; and
(b) an Indemnified Person shall be fully protected in relying in
good faith upon the records of the Trust and upon such information, opinions,
reports or statements presented to the Trust by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Trust, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which distributions to holders of Securities might properly be paid.
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SECTION 4.2 Fiduciary Duty.
(a) To the extent that, at law or in equity, an Indemnified Person
has duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to any other Covered Person, an Indemnified Person acting under this
Declaration shall not be liable to the Trust or to any other Covered Person for
its good faith reliance on the provisions of this Declaration. The provisions of
this Declaration, to the extent that they restrict the duties and liabilities of
an Indemnified Person otherwise existing at law or in equity, are agreed by the
parties hereto to replace such other duties and liabilities of such Indemnified
Person;
(b) unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between
Covered Persons; or
(ii) whenever this Declaration or any other agreement
contemplated herein or therein provides that an Indemnified Person
shall act in a manner that is, or provides terms that are, fair and
reasonable to the Trust or any holder of Securities,
the Indemnified Person shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the Indemnified Person,
the resolution, action or term so made, taken or provided by the Indemnified
Person shall not constitute a breach of this Declaration or any other agreement
contemplated herein or of any duty or obligation of the Indemnified Person at
law or in equity or otherwise; and
(c) whenever in this Declaration an Indemnified Person is permitted
or required to make a decision:
(i) in its "discretion" or under a grant of similar authority,
the Indemnified Person shall be entitled to consider such interests
and factors as it desires, including its own interests, and shall
have no duty or obligation to give any consideration to any interest
of or factors affecting the Trust or any other Person; or
(ii) in its "good faith" or under another express standard,
the Indemnified Person shall act under such express standard and
shall not be subject to any other or different standard imposed by
this Declaration or by applicable law.
SECTION 4.3 Indemnification.
(a) (i) The Sponsor shall indemnify, to the full extent permitted by
law, any Company Indemnified 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,
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administrative or investigative (other than an action by or in the right of the
Trust) by reason of the fact that he is or was a Company Indemnified Person
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the Trust,
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the Company Indemnified Person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
Trust, and, with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful.
(ii) The Sponsor shall indemnify, to the full extent permitted by
law, any Company Indemnified Person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in the
right of the Trust to procure a judgment in its favor by reason of the fact that
he is or was a Company Indemnified Person against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the Trust
and except that no such indemnification shall be made in respect of any claim,
issue or matter as to which such Company Indemnified Person shall have been
adjudged to be liable to the Trust unless and only to the extent that the Court
of Chancery of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which such Court of Chancery
or such other court shall deem proper.
(iii) To the extent that a Company Indemnified Person shall be
successful on the merits or otherwise (including dismissal of an action without
prejudice or the settlement of an action without admission of liability) in
defense of any action, suit or proceeding referred to in paragraphs (i) and (ii)
of this Section 4.3(a), or in defense of any claim, issue or matter therein, he
shall be indemnified, to the full extent permitted by law, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(iv) Any indemnification under paragraphs (i) and (ii) of this
Section 4.3(a) (unless ordered by a court) shall be made by the Sponsor only as
authorized in the specific case upon a determination that indemnification of the
Company Indemnified Person is proper in the circumstances because he has met the
applicable standard of conduct set forth in paragraphs (i) and (ii). Such
determination shall be made (1) by the Regular Trustees by a majority vote of a
quorum consisting of such Regular Trustees who were not parties to such action,
suit or proceeding, (2) if such a quorum is not obtainable, or, even if
obtainable, if a quorum of disinterested Regular Trustees so directs, by
independent legal counsel in a written opinion, or (3) by the Common Security
Holder of the Trust.
(v) Expenses (including attorneys' fees) incurred by a Company
Indemnified Person in defending a civil, criminal, administrative or
investigative action, suit or proceeding referred to in paragraphs (i) and (ii)
of this Section 4.3(a) shall be paid by the
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Sponsor in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such Company Indemnified
Person to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Company as authorized in this Section 4.3(a).
Notwithstanding the foregoing, no advance shall be made by the Company if a
determination is reasonably and promptly made (i) by the Regular Trustees by a
majority vote of a quorum of disinterested Regular Trustees, (ii) if such a
quorum is not obtainable, or, even if obtainable, if a quorum of disinterested
Regular Trustees so directs, by independent legal counsel in a written opinion
or (iii) the Common Security Holder of the Trust, that, based upon the facts
known to the Regular Trustees, counsel or the Common Security Holder at the time
such determination is made, such Company Indemnified Person acted in bad faith
or in a manner that such person did not believe to be in or not opposed to the
best interests of the Trust, or, with respect to any criminal proceeding, that
such Company Indemnified Person believed or had reasonable cause to believe his
conduct was unlawful. In no event shall any advance be made in instances where
the Regular Trustees, independent legal counsel or Common Security Holder
reasonably determine that such person deliberately breached his duty to the
Trust or its Common or Preferred Security Holders.
(vi) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other paragraphs of this Section 4.3(a) shall not be
deemed exclusive of any other rights to which those seeking indemnification and
advancement of expenses may be entitled under any agreement, vote of
stockholders or disinterested directors of the Sponsor or Preferred Security
Holders of the Trust or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office. All rights to
indemnification under this Section 4.3(a) shall be deemed to be provided by a
contract between the Sponsor and each Company Indemnified Person who serves in
such capacity at any time while this Section 4.3(a) is in effect. Any repeal or
modification of this Section 4.3(a) shall not affect any rights or obligations
then existing.
(vii) The Sponsor or the Trust may purchase and maintain insurance
on behalf of any person who is or was a Company Indemnified Person against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Company would have the
power to indemnify him against such liability under the provisions of this
Section 4.3(a).
(viii) For purposes of this Section 4.3(a), references to "the
Trust" shall include, in addition to the resulting or surviving entity, any
constituent entity (including any constituent of a constituent) absorbed in a
consolidation or merger, so that any person who is or was a director, trustee,
officer or employee of such constituent entity, or is or was serving at the
request of such constituent entity as a director, trustee, officer, employee or
agent of another entity, shall stand in the same position under the provisions
of this Section 4.3(a) with respect to the resulting or surviving entity as he
would have with respect to such constituent entity if its separate existence had
continued.
(ix) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 4.3(a) shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a Company
Indemnified Person and shall inure to the benefit of the heirs, executors and
administrators of such a person.
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(b) the Sponsor agrees, to the fullest extent permitted by
applicable law,
(i) to indemnify and hold harmless (x) the Delaware Trustee,
(y) any Affiliate of the Delaware Trustee, and (z) any officer, director,
shareholder, employee, representative or agent of the Delaware Trustee,
(referred to herein as an "Fiduciary Indemnified Person") from and against any
loss, damage, liability, tax, penalty, expense or claim of any kind or nature
whatsoever incurred by such Fiduciary Indemnified Person by reason of the
creation, operation or termination of the Trust or any act or omission performed
or omitted by such Fiduciary Indemnified Person in good faith on behalf of the
Trust and in a manner such Fiduciary Indemnified Person reasonably believed to
be within the scope of authority conferred on such Fiduciary Indemnified Person
by this Declaration, except that no Fiduciary Indemnified Person shall be
entitled to be indemnified in respect of any loss, damage or claim incurred by
such Fiduciary Indemnified Person by reason of gross negligence or willful
misconduct with respect to such acts or omissions; and
(ii) to advance expenses (including legal fees) incurred by a
Fiduciary Indemnified Person in defending any claim, demand, action, suit or
proceeding, from time to time, prior to the final disposition of such claim,
demand, action, suit or proceeding upon receipt by the Sponsor of an undertaking
by or on behalf of the Fiduciary Indemnified Person to repay such amount if it
shall be determined that the Fiduciary Indemnified Person is not entitled to be
indemnified as authorized in the preceding subsection.
(c) The provisions of Section 4.3(b) shall survive the termination
of this Declaration, or the earlier resignation or removal of the Delaware
Trustee.
SECTION 4.4 Outside Businesses.
Any Covered Person, the Sponsor and the Delaware Trustee may engage
in or possess an interest in other business ventures of any nature or
description, independently or with others, similar or dissimilar to the business
of the Trust, and the Trust and the holders of Securities shall have no rights
by virtue of this Declaration in and to such independent ventures or the income
or profits derived therefrom and the pursuit of any such venture, even if
competitive with the business of the Trust, shall not be deemed wrongful or
improper. No Covered Person, the Sponsor or the Delaware Trustee shall be
obligated to present any particular investment or other opportunity to the Trust
even if such opportunity is of a character that, if presented to the Trust,
could be taken by the Trust, and any Covered Person, the Sponsor and the
Delaware Trustee shall have the right to take for its own account (individually
or as a partner or fiduciary) or to recommend to others any such particular
investment or other opportunity. Any Covered Person and the Delaware Trustee may
engage or be interested in any financial or other transaction with the Sponsor
or any Affiliate of the Sponsor, or may act as depositary for, trustee or agent
for or may act on any committee or body of holders of, securities or other
obligations of the Sponsor or its Affiliates.
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ARTICLE V
AMENDMENTS, TERMINATION, MISCELLANEOUS
SECTION 5.1 Amendments.
At any time before the issue of any Securities, this Declaration may
be amended by, and only by, a written instrument executed by all of the Trustees
and the Sponsor.
SECTION 5.2 Termination of Trust.
(a) The Trust shall terminate and be of no further force or effect:
(i) upon the bankruptcy of the Sponsor;
(ii) upon the filing of a certificate of dissolution or its
equivalent with respect to the Sponsor or the revocation of the
Sponsor's charter or of the Trust's certificate of trust;
(iii) upon the entry of a decree of judicial dissolution of
the Sponsor, or the Trust; or
(iv) before the issue of any Securities, with the consent of
all of the Regular Trustees and the Sponsor.
(b) as soon as is practicable after the occurrence of an event
referred to in Section 5.2(a), the Trustees shall file a Certificate of
Cancellation with the Secretary of State of the State of Delaware.
SECTION 5.3 Governing Law.
This Declaration and the rights of the parties hereunder shall be
governed by and interpreted in accordance with the laws of the State of Delaware
and all rights and remedies shall be governed by such laws without regard to
principles of conflict of laws.
SECTION 5.4 Headings.
Headings contained in this Declaration are inserted for convenience
of reference only and do not affect the interpretation of this Declaration or
any provision hereof.
SECTION 5.5 Successors and Assigns.
Whenever in this Declaration any of the parties hereto is named or
referred to, the successors and assigns of such party shall be deemed to be
included, and all covenants and agreements in this Declaration by the Sponsor
and the Trustees shall bind and inure to the benefit of their respective
successors and assigns, whether so expressed.
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SECTION 5.6 Partial Enforceability.
If any provision of this Declaration, or the application of such
provision to any Person or circumstance, shall be held invalid, the remainder of
this Declaration, or the application of such provision to persons or
circumstances other than those to which it is held invalid, shall not be
affected thereby.
SECTION 5.7 Counterparts.
This Declaration may contain more than one counterpart of the
signature page and this Declaration may be executed by the affixing of the
signature of each of the Trustees to one of such counterpart signature pages.
All of such counterpart signature pages shall be read as though one, and they
shall have the same force and effect as though all of the signers had signed a
single signature page.
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IN WITNESS WHEREOF, the parties hereto have executed this
Declaration as of the day and year first above written.
/s/ Theresa Lang
---------------------------------
Name: Theresa Lang
Title: Regular Trustee
/s/ Stanley Schaefer
---------------------------------
Name: Stanley Schaefer
Title: Regular Trustee
Chase Manhattan Bank Delaware, as
Delaware Trustee
By: /s/ Denis Kelly
-----------------------------
Name: Denis Kelly
Title: Trust Officer
Merrill Lynch & Co., Inc., as Sponsor
By: /s/ Theresa Lang
-----------------------------
Name: Theresa Lang
Title: Senior Vice President
and Treasurer
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EXHIBIT A
<PAGE>
CERTIFICATE OF TRUST
The undersigned, the trustees of Merrill Lynch Preferred Capital
Trust VI, desiring to form a business trust pursuant to Delaware Business Trust
Act, 12 Del. C. Section 3810, hereby certify as follows:
(a) The name of the business trust being formed hereby (the
"Trust") is "Merrill Lynch Preferred Capital Trust VI."
(b) The name and business address of the trustee of the Trust
which has its principal place of business in the State of
Delaware is as follows:
Chase Manhattan Bank Delaware
c/o John J. Cashin
1201 Market Street
Wilmington, Delaware 19801
(c) This Certificate of Trust shall be effective as of the date of
filing.
Dated: December 3, 1998
/s/ Theresa Lang
-----------------------------
Name: Theresa Lang
Title: Regular Trustee
/s/ Stanley Schaefer
-----------------------------
Name: Stanley Schaefer
Title: Regular Trustee
Chase Manhattan Bank Delaware
By: /s/ Denis Kelly
-------------------------
Name: Denis Kelly
Title: Trust Officer
<PAGE>
Exhibit 4 (pppp)
================================================================================
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
MERRILL LYNCH PREFERRED CAPITAL TRUST VI
Dated as of __________ __, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
Table of Contents
<TABLE>
<CAPTION>
Page
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ARTICLE I
INTERPRETATION AND DEFINITIONS
<S> <C>
SECTION 1.1 Definitions......................................................2
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application................................10
SECTION 2.2 Lists of Holders of Trust Securities............................10
SECTION 2.3 Reports by the Property Trustee.................................11
SECTION 2.4 Periodic Reports to Property Trustee............................11
SECTION 2.5 Evidence of Compliance with Conditions Precedent................11
SECTION 2.6 Trust Enforcement Events; Waiver................................11
SECTION 2.7 Trust Enforcement Event; Notice.................................13
ARTICLE III
ORGANIZATION
SECTION 3.1 Name............................................................14
SECTION 3.2 Office..........................................................14
SECTION 3.3 Purpose.........................................................14
SECTION 3.4 Authority.......................................................14
SECTION 3.5 Title to Property of the Trust..................................15
SECTION 3.6 Powers and Duties of the Regular Trustees.......................15
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees............17
SECTION 3.8 Powers and Duties of the Property Trustee.......................18
SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee.....20
SECTION 3.10 Certain Rights of Property Trustee..............................22
SECTION 3.11 Delaware Trustee................................................24
SECTION 3.12 Execution of Documents..........................................24
SECTION 3.13 Not Responsible for Recitals or Issuance of Trust Securities....24
SECTION 3.14 Duration of Trust...............................................24
SECTION 3.15 Mergers.........................................................24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE IV
SPONSOR
SECTION 4.1 Responsibilities of the Sponsor.................................26
SECTION 4.2 Indemnification and Expenses of the Trustee.....................27
ARTICLE V
TRUST COMMON SECURITIES HOLDER
SECTION 5.1 Company's Purchase of Trust Common Securities...................27
SECTION 5.2 Covenants of the Trust Common Securities Holder.................27
ARTICLE VI
TRUSTEES
SECTION 6.1 Number of Trustees..............................................28
SECTION 6.2 Delaware Trustee................................................28
SECTION 6.3 Property Trustee; Eligibility...................................28
SECTION 6.4 Qualifications of Regular Trustees and
Delaware Trustee Generally......................................29
SECTION 6.5 Regular Trustees................................................29
SECTION 6.6 Delaware Trustee................................................30
SECTION 6.7 Appointment, Removal and Resignation of Trustees................30
SECTION 6.8 Vacancies among Trustees........................................31
SECTION 6.9 Effect of Vacancies.............................................31
SECTION 6.10 Meetings........................................................32
SECTION 6.11 Delegation of Power.............................................32
SECTION 6.12 Merger, Conversion, Consolidation or Succession to Business.....32
ARTICLE VII
DISTRIBUTIONS
SECTION 7.1 Distributions...................................................33
ARTICLE VIII
ISSUANCE OF TRUST SECURITIES
SECTION 8.1 Designation and General Provisions Regarding Trust Securities...34
SECTION 8.2 Redemption of Trust Securities..................................36
SECTION 8.3 Redemption Procedures...........................................37
SECTION 8.4 Voting Rights of Trust Preferred Securities.....................38
SECTION 8.5 Voting Rights of Trust Common Securities........................41
</TABLE>
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SECTION 8.6 Paying Agent....................................................42
SECTION 8.7 Listing.........................................................43
SECTION 8.8 Acceptance of Guarantee and Agreements,
Limited Partnership Agreement...................................43
ARTICLE IX
TERMINATION AND LIQUIDATION OF THE TRUST
SECTION 9.1 Termination of Trust............................................43
SECTION 9.2 Liquidation Distribution Upon Termination
and Dissolution of the Trust....................................44
ARTICLE X
TRANSFER OF INTERESTS
SECTION 10.1 Transfer of Trust Securities....................................45
SECTION 10.2 Transfer of Certificates........................................45
SECTION 10.3 Deemed Security Holders.........................................46
SECTION 10.4 Book-Entry Interests............................................46
SECTION 10.5 Notices to Clearing Agency......................................47
SECTION 10.6 Appointment of Successor Clearing Agency........................47
SECTION 10.7 Definitive Trust Preferred Security Certificates................47
SECTION 10.8 Mutilated, Destroyed, Lost or Stolen Certificates...............48
ARTICLE XI
LIMITATION OF LIABILITY OF HOLDERS OF TRUST SECURITIES, TRUSTEES OR
OTHERS
SECTION 11.1 Liability.......................................................48
SECTION 11.2 Exculpation.....................................................49
SECTION 11.3 Fiduciary Duty..................................................49
SECTION 11.4 Indemnification.................................................50
SECTION 11.5 Outside Businesses..............................................53
ARTICLE XII
ACCOUNTING
SECTION 12.1 Fiscal Year.....................................................53
SECTION 12.2 Certain Accounting Matters......................................53
SECTION 12.3 Banking.........................................................54
SECTION 12.4 Withholding.....................................................54
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ARTICLE XIII
AMENDMENTS AND MEETINGS
SECTION 13.1 Amendments......................................................55
SECTION 13.2 Meetings of the Holders of Trust Securities;
Action by Written Consent.......................................57
ARTICLE XIV
REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE
SECTION 14.1 Representations and Warranties of Property Trustee..............58
SECTION 14.2 Representations and Warranties of Delaware Trustee..............59
ARTICLE XV
MISCELLANEOUS
SECTION 15.1 Notices.........................................................60
SECTION 15.2 Governing Law...................................................61
SECTION 15.3 Intention of the Parties........................................61
SECTION 15.4 Headings........................................................61
SECTION 15.5 Successors and Assigns..........................................61
SECTION 15.6 Partial Enforceability..........................................61
SECTION 15.7 Counterparts....................................................62
EXHIBIT A-1 FORM OF PREFERRED SECURITY CERTIFICATE........................A1-1
EXHIBIT A-2 FORM OF COMMON SECURITY CERTIFICATE...........................A2-1
EXHIBIT B PURCHASE AGREEMENT.............................................B-1
</TABLE>
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<TABLE>
<CAPTION>
CROSS-REFERENCE TABLE*
Section of
Trust Indenture Act Section of
of 1939, as amended Declaration
- ------------------- -----------
<S> <C>
310(a)............................................................. 6.3(a)
310(c)............................................................. Inapplicable
311(c)............................................................. Inapplicable
312(a)............................................................. 2.2(a)
312(b)............................................................. 2.2(b)
313................................................................ 2.3
314(a)............................................................. 2.4
314(b)............................................................. Inapplicable
314(c)............................................................. 2.5
314(d)............................................................. Inapplicable
314(f)............................................................. Inapplicable
315(a)............................................................. 3.9(b)
315(c)............................................................. 3.9(a)
315(d)............................................................. 3.9(a)
316(a)............................................................. Annex I
316(c)............................................................. 3.6(e)
</TABLE>
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* This Cross-Reference Table does not constitute part of the Declaration and
shall not affect the interpretation of any of its terms or provisions.
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
MERRILL LYNCH PREFERRED CAPITAL TRUST VI
_____________ , 1999
AMENDED AND RESTATED DECLARATION OF TRUST (the "Declaration") dated
and effective as of ______________, 1999, by the Trustees (as defined herein),
by the Sponsor (as defined herein) and by the Holders, from time to time, of
undivided beneficial interests in the Trust to be issued pursuant to this
Declaration;
WHEREAS, certain of the Trustees and the Sponsor established
MERRILL LYNCH PREFERRED CAPITAL TRUST VI (the "Trust"), a trust under the
Delaware Business Trust Act (the "Business Trust Act"), pursuant to a
Declaration of Trust dated as of December 3, 1998 (the "Original
Declaration") and a Certificate of Trust filed with the Secretary of State of
the State of Delaware on December 7, 1998, for the sole purpose of issuing
and selling certain securities representing undivided beneficial interests in
the assets of the Trust and investing the proceeds thereof in the Partnership
Preferred Securities;
WHEREAS, as of the date hereof, no interests in the Trust have been
issued; and
WHEREAS, all of the Trustees and the Sponsor, by this Declaration,
amend and restate each and every term and provision of the Original Declaration.
NOW, THEREFORE, it being the intention of the parties hereto to
continue the Trust as a business trust under the Business Trust Act and that
this Declaration constitute the governing instrument of such business trust, the
Trustees declare that all assets contributed to the Trust will be held in trust
for the benefit of the Holders, from time to time, of the securities
representing undivided beneficial ownership interests in the assets of the Trust
issued hereunder, subject to the provisions of this Declaration.
<PAGE>
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 Definitions.
Unless the context otherwise requires:
(a) Capitalized terms used in this Declaration but not defined in
the preamble above have the respective meanings assigned to them in this
Section 1.1;
(b) a term defined anywhere in this Declaration has the same meaning
throughout;
(c) all references to "the Declaration" or "this Declaration" are to
this Declaration as modified, supplemented or amended from time to time;
(d) all references in this Declaration to Articles and Sections and
Annexes and Exhibits are to Articles and Sections of and Annexes and
Exhibits to this Declaration unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning
when used in this Declaration unless otherwise defined in this Declaration
or unless the context otherwise requires;
(f) a reference to the singular includes the plural and vice versa;
and
(g) a term used in this Agreement and not otherwise defined herein
shall have the meaning ascribed to such term in the Partnership Agreement.
"Affiliate" has the same meaning as given to that term in Rule 405
under the Securities Act of 1933, as amended, or any successor rule thereunder.
"Affiliate Investment Instruments" has the meaning set forth in
Section 7.1 of the Limited Partnership Agreement.
"Authorized Officer" of a Person means any Person that is authorized
to bind such Person.
"Book-Entry Interest" means a beneficial interest in a Global
Certificate, ownership and transfers of which shall be maintained and made
through book entries by a Clearing Agency as set forth in Section 10.4 of this
Declaration.
"Business Day" means any day other than a day on which banking
institutions in The City of New York are authorized or required by law to close.
"Business Trust Act" means Chapter 38 of Title 12 of the Delaware
Code, 12 Del. C. Section 3801 et seq., as it may be amended from time to time,
or any successor legislation.
2
<PAGE>
"Certificate" means a Trust Common Security Certificate or a Trust
Preferred Security Certificate.
"Change in 1940 Act Law" means, as a result of the occurrence on or
after the date of the issuance of the Trust Preferred Securities 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, the Trust is or will be considered an "investment company" which is
required to be registered under the 1940 Act.
"Clearing Agency" means an organization registered as a "Clearing
Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary
for the Trust Preferred Securities and in whose name or in the name of a nominee
of that organization shall be registered a Global Certificate and which shall
undertake to effect book-entry transfers and pledges of beneficial interests in
the Trust Preferred Securities.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time the Clearing
Agency effects book-entry transfers and pledges of interest in securities
deposited with the Clearing Agency.
"Closing Date" means __________, 1999.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor legislation.
"Commission" means the United States Securities and Exchange
Commission.
"Common Security Holder of the Trust" means the Company in its
capacity as Holder of the Trust Common Security.
"Company" means Merrill Lynch & Co., Inc.
"Company Indemnified Person" means (a) any Regular Trustee; (b) any
Affiliate of any Regular Trustee; (c) any officers, directors, shareholders,
members, partners, employees, representatives or agents of any Regular Trustee;
or (d) any officer, director, shareholder, member, partner, employee,
representative or agent of the Trust or its Affiliates.
"Compounded Distributions" has the meaning set forth in Section
7.1(a) of this Declaration.
"Corporate Trust Office" means the principal corporate trust office
of the Property Trustee in the Borough of Manhattan, the City of New York, which
office at the date hereof is located at 450 West 33rd Street, 15th Floor, New
York, New York 10001.
"Covered Person" means: (a) any officer, director, shareholder,
partner, member, representative, employee or agent of (i) the Trust or (ii) the
Trust's Affiliates; and (b) any Holder of Trust Securities.
3
<PAGE>
"Definitive Trust Preferred Security Certificates" has the meaning
set forth in Section 10.4 of this Declaration.
"Delaware Trustee" has the meaning set forth in Section 6.2 of this
Declaration.
"Distribution" has the meaning set forth in Section 7.1(a) of this
Declaration.
"DTC" means The Depository Trust Company, the initial Clearing
Agency.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor legislation.
"Fiduciary Indemnified Person" has the meaning set forth in Section
11.4(b) of this Declaration.
"Fiscal Period" has the meaning set forth in Section 1.1 of the
Limited Partnership Agreement.
"Fiscal Year" has the meaning set forth in Section 12.1 of this
Declaration.
"General Partner" means Merrill Lynch & Co., Inc., in its capacity
as the general partner of the Partnership, its permitted successors, or any
successor general partner in the Partnership admitted as such pursuant to the
Limited Partnership Agreement.
"Global Certificate" has the meaning set forth in Section 10.4 of
this Declaration.
"Holder" means a Person in whose name a Certificate representing a
Trust Security is registered, such Person being a beneficial owner within the
meaning of the Business Trust Act.
"Indemnified Person" means a Company Indemnified Person or a
Fiduciary Indemnified Person.
"Initial Debentures" has the meaning set forth in Section 7.1(b) of
the Limited Partnership Agreement.
"Investment Affiliate" means the Company or any corporation,
partnership, limited liability company or other entity (other than the
Partnership or the Trust) that (i) is controlled by the Company and (ii) is not
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 Securities and Exchange Commission.
"Investment Company" means an investment company as defined in the
1940 Act.
"Investment Guarantee" means any guarantee on a subordinated basis
by the Company with respect to (1) payment of interest, principal and other
payment terms of Affiliate
4
<PAGE>
Investment Instruments that are debt securities of an Investment Affiliate and
(2) the payment of dividends, distributions and other payment terms of Affiliate
Investment Instruments that are preferred or preference stock of an Investment
Affiliate when, as and if declared by such Investment Affiliate.
"Legal Action" has the meaning set forth in Section 3.6(h) of this
Declaration.
"Limited Partnership Agreement" means the Amended and Restated
Agreement of Limited Partnership of Merrill Lynch Preferred Funding VI, L.P. to
be dated as of ________________, 1999.
"List of Holders" has the meaning set forth in Section 2.2(a) of
this Declaration.
"Majority in liquidation amount of the Trust Securities" means,
except as provided in the terms of the Trust Preferred Securities or by the
Trust Indenture Act, Holder(s) of outstanding Trust Securities voting together
as a single class or, as the context may require, Holders of outstanding Trust
Preferred Securities or Holders of outstanding Trust Common Securities voting
separately as a class, who are the record owners of more than 50% of the
aggregate liquidation amount of all outstanding Trust Securities of the relevant
class.
"Ministerial Action" means, a 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.
"Nasdaq" means the National Association of Securities Dealers
Automated Quotation System.
"1940 Act" means the Investment Company Act of 1940, as amended from
time to time, or any successor legislation.
"Officers' Certificate" means, with respect to any Person (who is
not an individual), a certificate signed by the Chairman of the Board, the
President, a Vice President or the Treasurer, and by an Assistant Treasurer, the
Secretary or an Assistant Secretary of such Person. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Declaration shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers'
Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
5
<PAGE>
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Partnership" means Merrill Lynch Preferred Funding VI, L.P., a
Delaware limited partnership formed pursuant to the Limited Partnership
Agreement.
"Partnership Enforcement Event" has the meaning set forth in Section
6.2(h)(i) of the Limited Partnership Agreement.
"Partnership Guarantee" means the Partnership Guarantee Agreement to
be dated as of _____________, 1999, by the Company in favor of the Partnership
Preferred Security Holders with respect to the Partnership Preferred Securities,
as amended or supplemented from time to time.
"Partnership Preferred Securities" has the meaning set forth in
Section 1.1 of the Limited Partnership Agreement.
"Partnership Special Event" has the meaning set forth in Section 1.1
of the Limited Partnership Agreement.
"Payment Amount" has the meaning set forth in Section 7.1(a) of this
Declaration.
"Paying Agent" has the meaning set forth in Section 3.8(g) of this
Declaration.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Preferred Security Beneficial Owner" means, with respect to a
Book-Entry Interest, a Person who is the beneficial owner of such Book-Entry
Interest, as reflected on the books of the Clearing Agency, or on the books of a
Person maintaining an account with such Clearing Agency (directly as a Clearing
Agency Participant or as an indirect participant, or each case in accordance
with the rules of such Clearing Agency).
"Property Account" has the meaning set forth in Section 3.8(c) of
this Declaration.
"Property Trustee" means the Trustee meeting the eligibility
requirements set forth in Section 6.3 of this Declaration.
"Pro Rata" means, in reference to any distributions on or
redemptions of Trust Securities or the distribution of Partnership Preferred
Securities or any other payment with respect to Trust Securities in connection
with a Trust Special Event or liquidation of the Trust, pro rata to each Holder
of Trust Securities according to the aggregate liquidation amount of the
6
<PAGE>
Trust Securities held by the relevant Holder in relation to the aggregate
liquidation amount of all Trust Securities outstanding.
"Quorum" means a majority of the Regular Trustees or, if there are
only two Regular Trustees, both of them.
"Redemption Price" has the meaning set forth in Section 8.2(a) of
this Declaration.
"Regular Trustee" has the meaning set forth in Section 6.1 of this
Declaration.
"Related Party" means, with respect to the Sponsor, any direct or
indirect wholly owned subsidiary of the Sponsor or any Person that owns,
directly or indirectly, 100% of the outstanding voting securities of the
Sponsor.
"Responsible Officer" means, with respect to the Trust Preferred
Guarantee Trustee, the chairman or vice-chairman of the board of directors, the
chairman or vice-chairman of the executive committee of the board of directors,
the president, any vice president (whether or not designated by a number or a
word or words added before or after the title "vice president"), the secretary,
any assistant secretary, the treasurer, any assistant treasurer, the cashier,
any assistant cashier, any trust officer or assistant trust officer, or any
other officer of the Trust Preferred Guarantee Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Rule 3a-5" means Rule 3a-5 under the 1940 Act.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, or any successor legislation.
"Special Representative" has the meaning set forth in Section
6.2(h)(i) of the Limited Partnership Agreement.
"Sponsor" means the Company or any successor entity in a merger,
consolidation or amalgamation, in its capacity as sponsor of the Trust.
"Successor Delaware Trustee" has the meaning set forth in Section 6.7(b) of this
Declaration.
"Successor Entity" has the meaning set forth in Section 3.15 of this
Declaration.
"Successor Property Trustee" has the meaning set forth in Section
6.7(b) of this Declaration.
"Successor Trust Securities" has the meaning set forth in Section
3.15 of this Declaration.
7
<PAGE>
"Super Majority" has the meaning set forth in Section 2.6(a)(ii) of
this Declaration.
"Tax Action" means (a) an amendment to, change in or announced
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 decision,
pronouncement or proposed change is announced or which action, clarification or
challenge occurs on or after the date of the prospectus related to the issuance
of the Trust Preferred Securities.
"10% in liquidation amount of the Trust Securities" means, except as
provided in the terms of the Trust Preferred Securities or by the Trust
Indenture Act, Holder(s) of outstanding Trust Securities voting together as a
single class or, as the context may require, Holders of outstanding Trust
Preferred Securities or Holders of outstanding Trust Common Securities voting
separately as a class, who are the record owners of 10% or more of the aggregate
liquidation amount of all outstanding Trust Securities of the relevant class.
"Treasury Regulations" means the income tax regulations, including
temporary and proposed regulations, promulgated under the Code by the United
States Treasury Department, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
"Trust Common Security" has the meaning set forth in Section 8.1 of
this Declaration.
"Trust Common Security Certificate" means a definitive certificate
in fully registered form representing a Common Security substantially in the
form of Exhibit A-2.
"Trust Common Securities Guarantee" means the Trust Common
Securities Guarantee Agreement to be dated as of __________, 1999, entered into
by the Company, as Guarantor, for the benefit of the holders of the Trust Common
Securities.
"Trust Dissolution Tax Opinion" means an opinion of nationally
recognized independent tax counsel experienced in such matters to the effect
that there has been a Trust Tax Event.
"Trust Enforcement Event" means 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
8
<PAGE>
Trust Guarantee or (iii) a Partnership Enforcement Event (as defined in the
Limited Partnership Agreement).
"Trust Guarantees" means the Trust Common Securities Guarantee and
The Trust Preferred Securities Guarantee, collectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended from time to time, or any successor legislation.
"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 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.
"Trust Liquidation" has the meaning set forth in Section 9.2(a) of
this Declaration.
"Trust Preferred Securities Guarantee" has the meaning set forth in
Section 1.1 of the Limited Partnership Agreement.
"Trust Liquidation Distribution" has the meaning set forth in
Section 9.2(a) of this Declaration.
"Trust Preferred Security" has the meaning set forth in Section
8.1(a) of this Declaration.
"Trust Preferred Security Beneficial Owner" means, with respect to a
Book-Entry Interest, a Person who is the beneficial owner of such Book-Entry
Interest, as reflected on the books of the Clearing Agency, or on the books of a
Person maintaining an account with such Clearing Agency (directly as a Clearing
Agency Participant or as an indirect participant, in each case in accordance
with the rules of such Clearing Agency).
"Trust Preferred Security Certificate" means a certificate
representing a Preferred Security substantially in the form of Exhibit A-1.
"Trust Redemption Tax Opinion" means an opinion of nationally
recognized independent tax counsel experienced in such matters that there has
been a Trust Tax Event, and following such Trust Tax Event there is more than an
insubstantial risk that interest payable by one or more of the Investment
Affiliates with respect to the Debentures 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.
"Trust Securities" means the Trust Common Securities and the Trust
Preferred Securities.
9
<PAGE>
"Trust Special Event" means a Trust Tax Event or a Trust Investment
Company Event.
"Trust Tax Event" means that there has been a Tax Action which
relates to any of the items described in (i) through (iii) below, and that 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 one or more of the Investment Affiliates
with respect to the Debentures is not, or will not be, deductible by such
Investment Affiliate for United States federal income tax purposes.
"Trustee" or "Trustees" means each Person who has signed this
Declaration as a trustee, so long as such Person shall continue in office in
accordance with the terms hereof, and all other Persons who may from time to
time be duly appointed, qualified and serving as Trustees in accordance with the
provisions hereof, and references herein to a Trustee or the Trustees shall
refer to such Person or Persons solely in their capacity as trustees hereunder.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application.
(a) This Declaration is subject to the provisions of the Trust
Indenture Act that are required to be part of this Declaration and shall, to the
extent applicable, be governed by such provisions.
(b) The Property Trustee shall be the only Trustee which is a
Trustee for the purposes of the Trust Indenture Act.
(c) If and to the extent that any provision of this Declaration
limits, qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
(d) The application of the Trust Indenture Act to this Declaration
shall not affect the nature of the Trust Securities as equity securities
representing undivided beneficial interests in the assets of the Trust.
SECTION 2.2 Lists of Holders of Trust Securities.
(a) Each of the Sponsor and the Regular Trustees on behalf of the
Trust shall provide the Property Trustee (i) within 14 days after each record
date for payment of Distributions, a list, in such form as the Property Trustee
may reasonably require, of the names and addresses of the Holders of the Trust
Securities ("List of Holders") as of such record date, provided, that neither
the Sponsor nor the Regular Trustees on behalf of the Trust shall be obligated
to provide such List of Holders at any time the List of Holders does not differ
from the
10
<PAGE>
most recent List of Holders given to the Property Trustee by the Sponsor and the
Regular Trustees on behalf of the Trust, and (ii) at any other time, within 30
days of receipt by the Trust of a written request therefor, a List of Holders as
of a date no more than 14 days before such List of Holders is given to the
Property Trustee. The Property Trustee shall preserve, in as current a form as
is reasonably practicable, all information contained in Lists of Holders given
to it or which it receives in the capacity as Paying Agent (if acting in such
capacity), provided, that the Property Trustee may destroy any List of Holders
previously given to it on receipt of a new List of Holders.
(b) The Property Trustee shall comply with its obligations under
Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act.
SECTION 2.3 Reports by the Property Trustee.
Within 60 days after May 15 of each year commencing May 15, 1999,
the Property Trustee shall provide to the Holders of the Trust Preferred
Securities such reports as are required by Section 313 of the Trust Indenture
Act, if any, in the form and in the manner provided by Section 313 of the Trust
Indenture Act. The Property Trustee shall also comply with the requirements of
Section 313(d) of the Trust Indenture Act.
SECTION 2.4 Periodic Reports to Property Trustee.
Each of the Sponsor and the Regular Trustees on behalf of the Trust
shall provide to the Property Trustee such documents, reports and information as
are required by Section 314 of the Trust Indenture Act (if any) and the
compliance certificate required by Section 314 of the Trust Indenture Act in the
form, in the manner and at the times required by Section 314 of the Trust
Indenture Act.
SECTION 2.5 Evidence of Compliance with Conditions Precedent.
Each of the Sponsor and the Regular Trustees on behalf of the Trust
shall provide to the Property Trustee such evidence of compliance with any
conditions precedent provided for in this Declaration that relate to any of the
matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate
or opinion required to be given by an officer pursuant to Section 314(c)(1) may
be given in the form of an Officers' Certificate.
SECTION 2.6 Trust Enforcement Events; Waiver.
(a) The Holders of a Majority in liquidation amount of Trust
Preferred Securities may, by vote, on behalf of the Holders of all of the Trust
Preferred Securities, waive any past Trust Enforcement Event in respect of the
Trust Preferred Securities and its consequences, provided, that if the
underlying event of default or Partnership Enforcement Event:
(i) is not waivable under the Trust Preferred Securities Guarantee
or the Limited Partnership Agreement, the Trust Enforcement Event under
this Declaration shall also not be waivable; or
11
<PAGE>
(ii) requires the consent or vote of the Holders of greater than a
Majority in liquidation amount of the Trust Preferred Securities to be
waived under the Trust Preferred Securities Guarantee or the Partnership
Preferred Securities to be waived under the Limited Partnership Agreement
(a "Super Majority"),
the Trust Enforcement Event under this Declaration may only be waived by the
vote of the Holders of at least the relevant Super Majority in liquidation
amount of the Trust Preferred Securities.
The foregoing provisions of this Section 2.6(a) shall be in lieu of Section
316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of the
Trust Indenture Act is hereby expressly excluded from this Declaration and the
Trust Securities, as permitted by the Trust Indenture Act. Upon such waiver, any
such default shall cease to exist, and any Trust Enforcement Event with respect
to the Trust Preferred Securities arising therefrom shall be deemed to have been
cured, for every purpose of this Declaration, but no such waiver shall extend to
any subsequent or other default or Trust Enforcement Event with respect to the
Trust Preferred Securities or impair any right consequent thereon. Any waiver by
the Holders of the Trust Preferred Securities of Trust Enforcement Events with
respect to the Trust Preferred Securities shall also be deemed to constitute a
waiver by the Holders of the Trust Common Securities of any such Trust
Enforcement Event with respect to the Trust Common Securities for all purposes
of this Declaration without any further act, vote, or consent of the Holders of
the Trust Common Securities.
(b) The Holders of a Majority in liquidation amount of the Trust
Common Securities may, by vote, on behalf of the Holders of all of the Trust
Common Securities, waive any past Trust Enforcement Event with respect to the
Trust Common Securities and its consequences, provided, that if the underlying
event of default or Partnership Enforcement Event:
(i) is not waivable under the Trust Common Securities Guarantee or
the Limited Partnership Agreement, except where the Holders of the Trust
Common Securities are deemed to have waived such Trust Enforcement Event
under this Declaration as provided below in this Section 2.6(b), the Trust
Enforcement Event under this Declaration shall also not be waivable; or
(ii) requires the consent or vote of the Holders of a Super Majority
to be waived, except where the Holders of the Trust Common Securities are
deemed to have waived such Trust Enforcement Event under the Declaration
as provided below in this Section 2.6(b), the Trust Enforcement Event
under this Declaration may only be waived by the vote of the Holders of at
least the relevant Super Majority in liquidation amount of the Trust
Common Securities;
provided, further, each Holder of Trust Common Securities will be deemed to have
waived any such Trust Enforcement Event and all Trust Enforcement Events with
respect to the Trust Common Securities and its consequences if all Trust
Enforcement Events with respect to the Trust Preferred Securities have been
cured, waived or otherwise eliminated, and until such Trust
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Enforcement Events 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 in accordance with
the terms of the Trust Securities. The foregoing provisions of this Section
2.6(b) shall be in lieu of Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust
Indenture Act and such Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust
Indenture Act are hereby expressly excluded from this Declaration and the Trust
Securities, as permitted by the Trust Indenture Act. Subject to the foregoing
provisions of this Section 2.6(b), upon such waiver, any such default shall
cease to exist and any Trust Enforcement Event with respect to the Trust Common
Securities arising therefrom shall be deemed to have been cured for every
purpose of this Declaration, but no such waiver shall extend to any subsequent
or other default or Trust Enforcement Event with respect to the Trust Common
Securities or impair any right consequent thereon.
(c) A waiver of Partnership Enforcement Events under the Limited
Partnership Agreement by the Property Trustee at the direction of the Holders of
the Trust Preferred Securities constitutes a waiver of the corresponding Trust
Enforcement Event under this Declaration. The foregoing provisions of this
Section 2.6(c) shall be in lieu of Section 316(a)(1)(B) of the Trust Indenture
Act and such Section 316(a)(1)(B) of the Trust Indenture Act is hereby expressly
excluded from this Declaration and the Trust Securities, as permitted by the
Trust Indenture Act.
SECTION 2.7 Trust Enforcement Event; Notice.
The Property Trustee shall, within 90 days after the occurrence of a
Trust Enforcement Event, transmit by mail, first class postage prepaid, to the
Holders of the Trust Securities, notices of all defaults with respect to the
Trust Securities actually known to a Responsible Officer of the Property
Trustee, unless such defaults have been cured before the giving of such notice
(the term "defaults" for the purposes of this Section 2.7 being hereby defined
to be defaults as defined in the Trust Guarantees or the Limited Partnership
Agreement, not including any periods of grace provided for therein and
irrespective of the giving of any notice provided therein); provided, that
except for a default in the payment of principal of (or premium, if any) or
interest on any of the Affiliate Investment Instruments or in the payment of any
sinking fund installment established for the Affiliate Investment Instruments,
the Property Trustee shall be fully protected in withholding such notice if and
so long as a Responsible Officer of the Property Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders of the Trust Securities.
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ARTICLE III
ORGANIZATION
SECTION 3.1 Name.
The Trust is named Merrill Lynch Preferred Capital Trust VI, as such
name may be modified from time to time by the Regular Trustees following written
notice to the Holders of Trust Securities. The Trust's activities may be
conducted under the name of the Trust or any other name deemed advisable by the
Regular Trustees.
SECTION 3.2 Office.
The address of the principal office of the Trust is c/o Merrill
Lynch & Co., Inc., World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281. On ten Business Days written notice to the Holders of
Trust Securities, the Regular Trustees may designate another principal office.
SECTION 3.3 Purpose.
The exclusive purposes and functions of the Trust are (a) to issue
the Trust Securities, (b) investing the proceeds from such sale of the Trust
Securities to acquire the Partnership Preferred Securities, and (c) except as
otherwise limited herein, to engage in only those other activities necessary or
incidental thereto. The Trust shall not borrow money, issue debt or reinvest
proceeds derived from investments, mortgage or pledge any of its assets, or
otherwise undertake (or permit to be undertaken) any activity that would cause
the Trust not to be classified for United States federal income tax purposes as
a grantor trust. It is the intent of the parties to this Declaration for the
Trust to be classified as a grantor trust for United States federal income tax
purposes under Subpart E of Subchapter J of the Code, pursuant to which the
owners of the Trust Preferred Securities and the Trust Common Securities will be
the owners of the Trust for United States federal income tax purposes, and such
owners will include directly in their gross income the income, gain, deduction
or loss of the Trust as if the Trust did not exist. By the acceptance of this
Declaration neither the Trustees, the Sponsor or the Holders of the Trust
Preferred Securities or Trust Common Securities will take any position or action
for United States federal income tax purposes which is contrary to the
classification of the Trust as a grantor trust.
SECTION 3.4 Authority.
Subject to the limitations provided in this Declaration and to the
specific duties of the Property Trustee, the Regular Trustees shall have
exclusive and complete authority to carry out the purposes of the Trust. An
action taken by the Regular Trustees in accordance with their powers shall
constitute the act of and serve to bind the Trust and an action taken by the
Property Trustee on behalf of the Trust in accordance with its powers shall
constitute the act of and serve to bind the Trust. In dealing with the Trustees
acting on behalf of the Trust, no person shall be required to inquire into the
authority of the Trustees to bind the Trust. Persons dealing with the Trust are
entitled to rely conclusively on the power and authority of the Trustees as set
forth in this Declaration.
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SECTION 3.5 Title to Property of the Trust.
Except as provided in Section 3.8 with respect to the Partnership
Preferred Securities and the Property Account or as otherwise provided in this
Declaration, legal title to all assets of the Trust shall be vested in the
Trust. The Holders shall not have legal title to any part of the assets of the
Trust, but shall have an undivided beneficial ownership interest in the assets
of the Trust.
SECTION 3.6 Powers and Duties of the Regular Trustees.
The Regular Trustees shall have the exclusive power, duty and
authority to cause the Trust to engage in the following activities:
(a) to issue and sell the Trust Preferred Securities and the Trust
Common Securities in accordance with this Declaration; provided, however,
that the Trust may issue no more than one series of Trust Preferred
Securities and no more than one series of Trust Common Securities, and,
provided, further, that there shall be no interests in the Trust other
than the Trust Securities, and the issuance of Trust Securities shall be
limited to a one-time, simultaneous issuance of both Trust Preferred
Securities and Trust Common Securities on the Closing Date;
(b) in connection with the issue and sale of the Trust Preferred
Securities, at the direction of the Sponsor, to:
(i) execute and file with the Commission the registration
statement on Form S-3 prepared by the Sponsor, including any
amendments thereto, pertaining to the Trust Preferred Securities;
(ii) execute and file any documents prepared by the Sponsor,
or take any acts as determined by the Sponsor to be necessary in
order to qualify or register all or part of the Trust Preferred
Securities in any State in which the Sponsor has determined to
qualify or register such Trust Preferred Securities for sale;
(iii) execute and file an application, prepared by the
Sponsor, to the New York Stock Exchange, Inc. or any other national
stock exchange or Nasdaq for listing upon notice of issuance of any
Trust Preferred Securities;
(iv) execute and file with the Commission a registration
statement, including any amendments thereto, prepared by the
Sponsor, relating to the registration of the Trust Preferred
Securities, the Partnership Preferred Securities, the Trust
Preferred Securities Guarantee and the Partnership Guarantee under
Section 12(b) of the Exchange Act; and
(v) execute and enter into an underwriting agreement providing
for the sale of the Trust Preferred Securities and perform the
duties and obligations of the Trust thereunder;
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(c) to acquire the Partnership Preferred Securities with the
proceeds of the sale of the Trust Preferred Securities and the Trust
Common Securities; provided, however, that the Regular Trustees shall
cause legal title to the Partnership Preferred Securities to be held of
record in the name of the Property Trustee for the benefit of the Holders
of the Trust Preferred Securities and the Holders of Trust Common
Securities;
(d) to give the Sponsor and the Property Trustee prompt written
notice of the occurrence of a Trust Special Event; provided, that the
Regular Trustees shall consult with the Sponsor and the Property Trustee
before taking or refraining from taking any Ministerial Action in relation
to a Trust Special Event;
(e) to establish a record date with respect to all actions to be
taken hereunder that require a record date be established, including and
with respect to, for the purposes of Section 316(c) of the Trust Indenture
Act, Distributions, voting rights, redemptions and exchanges, and to issue
relevant notices to the Holders of Trust Preferred Securities and Holders
of Trust Common Securities as to such actions and applicable record dates;
(f) to give prompt written notice to the Holders of the Trust
Securities of any notice received from the Partnership of the General
Partner's election not to make a current, quarterly distribution on the
Partnership Preferred Securities under the Limited Partnership Agreement;
(g) to take all actions and perform such duties as may be required
of the Regular Trustees pursuant to the terms of the Trust Securities;
(h) to bring or defend, pay, collect, compromise, arbitrate, resort
to legal action, or otherwise adjust claims or demands of or against the
Trust ("Legal Action"), unless pursuant to Section 3.8(f), the Property
Trustee has the exclusive power to bring such Legal Action;
(i) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors,
and consultants and pay reasonable compensation for such services;
(j) to cause the Trust to comply with the Trust's obligations under
the Trust Indenture Act;
(k) to give the certificate required by Section 314(a)(4) of the
Trust Indenture Act to the Property Trustee, which certificate may be
executed by any Regular Trustee;
(l) to incur expenses that are necessary or incidental to carry out
any of the purposes of the Trust;
(m) to act as, or appoint another Person to act as, registrar and
transfer agent for the Trust Securities;
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(n) to take all action that may be necessary or appropriate for the
preservation and the continuation of the Trust's valid existence, rights,
franchises and privileges as a statutory business trust under the laws of
the State of Delaware and of each other jurisdiction in which such
existence is necessary to protect the limited liability of the Holders of
the Trust Preferred Securities or to enable the Trust to effect the
purposes for which the Trust was created;
(o) to take any action, or to take no action, not inconsistent with
this Declaration or with applicable law, that the Regular Trustees
determine in their discretion to be necessary or desirable in carrying out
the activities of the Trust as set out in this Section 3.6, including, but
not limited to:
(i) causing the Trust not to be deemed to be an Investment
Company required to be registered under the 1940 Act; and
(ii) causing the Trust to be classified for United States
Federal income tax purposes as a grantor trust; and
(iii) activities taking no action which would be reasonably
likely to cause the Trust to be classified as an association or a
publicly traded partnership taxable as a corporation for United
States federal income tax purposes.
provided, that such action does not adversely affect the interests of
Holders;
(p) to take all action necessary to cause all applicable tax returns
and tax information reports that are required to be filed with respect to
the Trust to be duly prepared and filed by the Regular Trustees, on behalf
of the Trust; and
(q) to execute all documents or instruments, perform all duties and
powers, and do all things for and on behalf of the Trust in all matters
necessary or incidental to the foregoing.
The Regular Trustees must exercise the powers set forth in this
Section 3.6 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Regular Trustees shall not take any
action that is inconsistent with the purposes and functions of the Trust set
forth in Section 3.3.
Subject to this Section 3.6, the Regular Trustees shall have none of
the powers or the authority of the Property Trustee set forth in Section 3.8.
Any expenses incurred by the Regular Trustees pursuant to this
Section 3.6 shall be reimbursed by the Partnership pursuant to Section 9.1 of
the Limited Partnership Agreement.
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees.
(a) The Trust shall not, and the Trustees (including the Property
Trustee) shall cause the Trust not to, engage in any activity other than as
required or authorized by this
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Declaration. In particular, the Trust shall not and the Trustees (including the
Property Trustee) shall cause the Trust not to:
(i) invest any proceeds received by the Trust from holding the
Partnership Preferred Securities, but shall distribute all such proceeds
to Holders of Trust Securities pursuant to the terms of this Declaration
and of the Trust Securities;
(ii) acquire any assets other than as expressly provided herein;
(iii) possess Trust property for other than a Trust purpose;
(iv) make any loans or incur any indebtedness or acquire any
securities other than the Partnership Preferred Securities;
(v) possess any power or otherwise act in such a way as to vary the
Trust assets or the terms of the Trust Securities in any way whatsoever;
(vi) issue any securities or other evidences of beneficial ownership
of, or beneficial interest in, the Trust other than the Trust Securities;
(vii) other than as set forth herein, (A) cause the Special
Representative to direct the time, method and place of conducting any
proceeding for any remedy available to the Special Representative or
exercising any trust or power conferred upon the Special Representative
with respect to the Partnership Preferred Securities, the Affiliate
Investment Instruments and the Investment Guarantees, (B) cause the
Special Representative to waive any past default that is waivable under
the Limited Partnership Agreement, the Affiliate Investment Instruments or
the Investment Guarantees, (C) cause the Special Representative to
exercise any right to rescind or annul any declaration that the principal
of, or other amounts in respect of, any Affiliate Investment Instrument is
due and payable or (D) consent to any amendment, modification or
termination of the Limited Partnership Agreement or the Partnership
Preferred Securities where such consent shall be required; and
(viii) other than in connection with the liquidation of the Trust
pursuant to a Trust Special Event or upon redemption of all the Trust
Securities, file a certificate of cancellation of the Trust.
SECTION 3.8 Powers and Duties of the Property Trustee.
(a) The legal title to the Partnership Preferred Securities shall be
owned by and held of record in the name of the Property Trustee in trust for the
benefit of the Holders of the Trust Securities. The right, title and interest of
the Property Trustee to the Partnership Preferred Securities shall vest
automatically in each Person who may hereafter be appointed as Property Trustee
in accordance with Section 6.7. Such vesting and cessation of title shall be
effective whether or not conveyancing documents with regard to the Partnership
Preferred Securities have been executed and delivered.
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(b) The Property Trustee shall not transfer its right, title and
interest in the Partnership Preferred Securities to the Regular Trustees or to
the Delaware Trustee (if the Property Trustee does not also act as Delaware
Trustee).
(c) The Property Trustee shall:
(i) establish and maintain a segregated non-interest bearing trust
account (the "Property Account") in the name of and under the exclusive
control of the Property Trustee on behalf of the Holders of the Trust
Securities and, upon the receipt of payments of funds made in respect of
the Partnership Preferred Securities held by the Property Trustee, deposit
such funds into the Property Account and make payments to the Holders of
the Trust Preferred Securities and Holders of the Trust Common Securities
from the Property Account in accordance with Section 7.1. Funds in the
Property Account shall be held uninvested until disbursed in accordance
with this Declaration. The Property Account shall be an account that is
maintained with a banking institution (including the Property Trustee if
it qualifies hereunder) authorized to exercise corporate trust powers and
having a combined capital and surplus of at least $50,000,000 and subject
to supervision or examination by Federal or state authority;
(ii) engage in such ministerial activities as shall be necessary or
appropriate to effect the redemption of the Trust Preferred Securities and
the Trust Common Securities to the extent the Partnership Preferred
Securities are redeemed; and
(iii) upon written notice of distribution issued by the Regular
Trustees in accordance with the terms of the Trust Securities, engage in
such ministerial activities as shall be necessary or appropriate to effect
the distribution of the Partnership Preferred Securities to Holders of
Trust Securities upon the occurrence of a Trust Special Event.
(d) The Property Trustee shall take all actions and perform such
duties as may be specifically required of the Property Trustee pursuant to the
terms of the Trust Securities.
(e) The Property Trustee shall take any Legal Action which arises
out of or in connection with a Trust Enforcement Event of which a Responsible
Officer of the Property Trustee has actual knowledge or the Property Trustee's
duties and obligations under this Declaration or the Trust Indenture Act.
(f) The Property Trustee shall have the legal power to exercise all
of the rights, powers and privileges of a Holder of Partnership Preferred
Securities and, if a Trust Enforcement Event occurs and is continuing, the
Property Trustee shall, for the benefit of Holders of the Trust Securities,
enforce its rights as Holder of the Partnership Preferred Securities subject to
the rights of the Holders pursuant to the terms of such Trust Securities.
(g) The Property Trustee may authorize one or more Persons (each, a
"Paying Agent") to pay Distributions, redemption payments or liquidation
payments on behalf of the Trust with respect to all Trust Securities and any
such Paying Agent shall comply with Section 317(b) of the Trust Indenture Act.
Any Paying Agent may be removed by the Property
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Trustee at any time and a successor Paying Agent or additional Paying Agents may
be appointed at any time by the Property Trustee.
(h) The Property Trustee shall continue to serve as a Trustee until
either:
(i) the Trust has been completely liquidated and the proceeds of the
liquidation distributed to the Holders of Trust Securities pursuant to the
terms of the Trust Securities; or
(ii) a Successor Property Trustee has been appointed and has
accepted that appointment in accordance with Section 6.7.
(i) Subject to this Section 3.8, the Property Trustee shall have
none of the duties, liabilities, powers or the authority of the Regular Trustees
set forth in Section 3.6.
The Property Trustee must exercise the powers set forth in this
Section 3.8 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Property Trustee shall not take any
action that is inconsistent with the purposes and functions of the Trust set out
in Section 3.3.
SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee.
(a) The Property Trustee, before the occurrence of any Trust
Enforcement Event and after the curing or waiver of all Trust Enforcement Events
that may have occurred, shall undertake to perform only such duties as are
specifically set forth in this Declaration and no implied covenants shall be
read into this Declaration against the Property Trustee. In case a Trust
Enforcement Event has occurred (that has not been cured or waived pursuant to
Section 2.6) of which a Responsible Officer of the Property Trustee has actual
knowledge, the Property Trustee shall exercise such of the rights and powers
vested in it by this Declaration, and use the same degree of care and skill in
their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
(b) No provision of this Declaration shall be construed to relieve
the Property Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of a Trust Enforcement Event and after
the curing or waiving of all such Trust Enforcement Events that may have
occurred:
(A) the duties and obligations of the Property Trustee shall
be determined solely by the express provisions of this Declaration
and the Property Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set
forth in this Declaration, and no implied covenants or obligations
shall be read into this Declaration against the Property Trustee;
and
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(B) in the absence of bad faith on the part of the Property
Trustee, the Property Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Property
Trustee and conforming to the requirements of this Declaration; but
in the case of any such certificates or opinions that by any
provision hereof are specifically required to be furnished to the
Property Trustee, the Property Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Declaration;
(ii) the Property Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Property
Trustee, unless it shall be proved that the Property Trustee was negligent
in ascertaining the pertinent facts;
(iii) subject to the requirement of the Property Trustee receiving a
tax opinion as set forth in Section 8.4(d) or 8.5(c), as the case may be,
the Property Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the
direction of the Holders of not less than a Majority in liquidation amount
of the Trust Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Property
Trustee, or exercising any trust or power conferred upon the Property
Trustee under this Declaration;
(iv) no provision of this Declaration shall require the Property
Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that the repayment of such funds or protection from
such liability is not reasonably assured to it under the terms of this
Declaration or indemnity reasonably satisfactory to the Property Trustee
against such risk or liability is not reasonably assured to it;
(v) the Property Trustee's sole duty with respect to the custody,
safe keeping and physical preservation of the Partnership Preferred
Securities and the Property Account shall be to deal with such property in
a similar manner as the Property Trustee deals with similar property for
its own account, subject to the protections and limitations on liability
afforded to the Property Trustee under this Declaration and the Trust
Indenture Act;
(vi) the Property Trustee shall have no duty or liability for or
with respect to the value, genuineness, existence or sufficiency of the
Partnership Preferred Securities or the payment of any taxes or
assessments levied thereon or in connection therewith;
(vii) money held by the Property Trustee need not be segregated from
other funds held by it except in relation to the Property Account
maintained by the Property Trustee pursuant to Section 3.8(c)(i) and
except to the extent otherwise required by law; and
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(viii) the Property Trustee shall not be responsible for monitoring
the compliance by the Regular Trustees or the Sponsor with their
respective duties under this Declaration, nor shall the Property Trustee
be liable for any default or misconduct of the Regular Trustees or the
Sponsor.
SECTION 3.10 Certain Rights of Property Trustee.
(a) Subject to the provisions of Section 3.9:
(i) the Property Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and
to have been signed, sent or presented by the proper party or parties;
(ii) any direction or act of the Sponsor or the Regular Trustees
acting on behalf of the Trust contemplated by this Declaration shall be
sufficiently evidenced by an Officers' Certificate;
(iii) whenever in the administration of this Declaration, the
Property Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting any action hereunder, the
Property Trustee (unless other evidence is herein specifically prescribed)
may, in the absence of bad faith on its part, request and conclusively
rely upon an Officers' Certificate which, upon receipt of such request,
shall be promptly delivered by the Sponsor or the Regular Trustees;
(iv) the Property Trustee shall have no duty to see to any
recording, filing or registration of any instrument (including any
financing or continuation statement or any filing under tax or securities
laws) or any rerecording, refiling or registration thereof;
(v) the Property Trustee may consult with counsel or other experts
and the advice or opinion of such counsel and experts with respect to
legal matters or advice within the scope of such experts' area of
expertise shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good
faith and in accordance with such advice or opinion; such counsel may be
counsel to the Sponsor or any of its Affiliates, and may include any of
its employees. The Property Trustee shall have the right at any time to
seek instructions concerning the administration of this Declaration from
any court of competent jurisdiction;
(vi) the Property Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Declaration at the
request or direction of any Holder, unless (a) such Holder shall have
provided to the Property Trustee security and indemnity, reasonably
satisfactory to the Property Trustee, against the costs, expenses
(including attorneys' fees and expenses and the expenses of the Property
Trustee's agents, nominees or custodians) and liabilities that might be
incurred by it in complying with such request or direction, including such
reasonable advances as may be requested by the Property Trustee and (b)
the Property Trustee has obtained the legal opinions, if
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any, required by Section 8.4(d) or 8.5(c), as the case may be, of this
Agreement; provided, that, nothing contained in this Section 3.10(a)(vi)
shall be taken to relieve the Property Trustee, upon the occurrence of a
Trust Enforcement Event, of its obligation to exercise the rights and
powers vested in it by this Declaration;
(vii) the Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Property Trustee, in its
discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit;
(viii) the Property Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents, custodians, nominees or attorneys and the Property Trustee shall
not be responsible for any misconduct or negligence on the part of any
agent or attorney appointed with due care by it hereunder;
(ix) any action taken by the Property Trustee or its agents
hereunder shall bind the Trust and the Holders of the Trust Securities,
and the signature of the Property Trustee or its agents alone shall be
sufficient and effective to perform any such action and no third party
shall be required to inquire as to the authority of the Property Trustee
to so act or as to its compliance with any of the terms and provisions of
this Declaration, both of which shall be conclusively evidenced by the
Property Trustee's or its agent's taking such action;
(x) whenever in the administration of this Declaration the Property
Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder, the
Property Trustee (i) may request instructions from the Holders of the
Trust Securities which instructions may only be given by the Holders of
the same proportion in liquidation amount of the Trust Securities as would
be entitled to direct the Property Trustee under the terms of the Trust
Securities in respect of such remedy, right or action, (ii) may refrain
from enforcing such remedy or right or taking such other action until such
instructions are received, and (iii) shall be fully protected in
conclusively relying on or acting in or accordance with such instructions;
provided, however, that the Property Trustee shall not be required to take
any action unless it shall have obtained such legal opinions, if any,
required by Sections 8.4(d) or 8.5(c), as the case may be, of this
Agreement; and
(xi) except as otherwise expressly provided by this Declaration, the
Property Trustee shall not be under any obligation to take any action that
is discretionary under the provisions of this Declaration.
(b) No provision of this Declaration shall be deemed to impose any
duty or obligation on the Property Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Property Trustee
shall be unqualified or incompetent in accordance with applicable
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law, to perform any such act or acts, or to exercise any such right, power, duty
or obligation. No permissive power or authority available to the Property
Trustee shall be construed to be a duty.
SECTION 3.11 Delaware Trustee.
Notwithstanding any provision of this Declaration other than Section
6.2, the Delaware Trustee shall not be entitled to exercise any powers, nor
shall the Delaware Trustee have any of the duties and responsibilities of the
Regular Trustees or the Property Trustee described in this Declaration. Except
as set forth in Section 6.2, the Delaware Trustee shall be a Trustee for the
sole and limited purpose of fulfilling the requirements of Section 3807 of the
Business Trust Act.
SECTION 3.12 Execution of Documents.
Unless otherwise determined by the Regular Trustees, and except as
otherwise required by the Business Trust Act, any Regular Trustee is authorized
to execute on behalf of the Trust any documents that the Regular Trustees have
the power and authority to cause the Trust to execute pursuant to Section 3.6;
provided, that the registration statement referred to in Section 3.6(b)(i),
including any amendments thereto, shall be signed by or on behalf of a majority
of the Regular Trustees.
SECTION 3.13 Not Responsible for Recitals or Issuance of Trust Securities.
The recitals contained in this Declaration and the Trust Securities
shall be taken as the statements of the Sponsor, and the Trustees do not assume
any responsibility for their correctness. The Trustees make no representations
as to the value or condition of the property of the Trust or any part thereof.
The Trustees make no representations as to the validity or sufficiency of this
Declaration or the Trust Securities.
SECTION 3.14 Duration of Trust.
The Trust, unless terminated pursuant to the provisions of Article
VIII hereof, shall have perpetual existence.
SECTION 3.15 Mergers.
(a) 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 Person, except as described in Section
3.15(b) and (c).
(b) The Trust may, with the consent of the Regular Trustees or, if
there are more than two, a majority of the Regular Trustees and without the
consent of the Holders of the Trust Securities, the Delaware Trustee or the
Property Trustee, consolidate, amalgamate, merge with or into, or be replaced
by, or convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to a trust organized as such under the laws of any
State of the United States; provided, that:
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(i) if the Trust is not the survivor, such successor entity (the
"Successor Entity") either:
(A) expressly assumes all of the obligations of the Trust
under the Trust Securities; or
(B) substitutes for the Trust Preferred Securities other
securities having substantially the same terms as the Trust
Preferred Securities (the "Successor Trust Securities") so long as
the Successor Trust Securities rank the same as the Trust Preferred
Securities rank with respect to Distributions, assets and payments
upon liquidation, redemption and otherwise;
(ii) the Company expressly acknowledges a trustee of the Successor
Entity that possesses the same powers and duties as the Property Trustee
as the Holder of the Partnership Preferred Securities;
(iii) the Successor Trust Securities are listed, or any Successor
Trust 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, replacement,
conveyance, transfer or lease does not cause the Trust Preferred
Securities (including any Successor Trust Securities) to be downgraded by
any nationally recognized statistical rating organization;
(v) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the Holders of the Trust Preferred
Securities (including any Successor Trust Securities) in any material
respect;
(vi) such Successor Entity has a purpose identical to that of the
Trust;
(vii) the Company guarantees the obligations of such Successor
Entity under the Successor Trust Securities at least to the extent
provided by the Trust Guarantees; and
(viii) prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the Sponsor 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, replacement,
conveyance, transfer or lease will not adversely affect the rights,
preferences and privileges of the Holders of the Trust Preferred
Securities (including any Successor Trust Securities) in any
material respect (other than with respect to any dilution of the
Holders' interest in the new entity);
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(B) following such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, neither the Trust nor
the 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 the Successor Entity) 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.
(c) Notwithstanding Section 3.15(b), 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 Successor Entity or the Partnership to be
classified as an association or a publicly traded partnership taxable as a
corporation for United States federal income tax purposes.
ARTICLE IV
SPONSOR
SECTION 4.1 Responsibilities of the Sponsor.
In connection with the issue and sale of the Trust Preferred
Securities, the Sponsor shall have the exclusive right and responsibility to
engage in the following activities:
(a) to prepare for filing by the Trust with the Commission a
registration statement on Form S-3 in relation to the Trust Preferred
Securities, including any amendments thereto;
(b) to determine the States in which to take appropriate action to
qualify or register for sale all or part of the Trust Preferred Securities and
to do any and all such acts, other than actions which must be taken by the
Trust, and advise the Trust of actions it must take, and prepare for execution
and filing any documents to be executed and filed by the Trust, as the Sponsor
deems necessary or advisable in order to comply with the applicable laws of any
such States;
(c) to prepare for filing by the Trust an application to the New
York Stock Exchange or any other national stock exchange or the Nasdaq National
Market System for listing upon notice of issuance of any Trust Preferred
Securities, Partnership Preferred Securities, the Trust Preferred Securities
Guarantee and the Partnership Guarantee;
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(d) to prepare for filing by the Trust with the Commission a
registration statement relating to the registration of the Trust Preferred
Securities, the Partnership Preferred Securities, the Trust Preferred Securities
Guarantee and the Partnership Guarantee under Section 12(b) of the Exchange Act,
including any amendments thereto; and
(e) to negotiate the terms of an underwriting agreement and any
pricing agreement providing for the sale of the Trust Preferred Securities.
SECTION 4.2 Indemnification and Expenses of the Trustee.
The Partnership agrees, and to the extent the Partnership fails to
do so, the Sponsor agrees, to indemnify the Property Trustee and the Delaware
Trustee for, and to hold each of them harmless against, any loss, liability or
expense incurred without negligence or bad faith on the part of the Property
Trustee or the Delaware Trustee, as the case may be, arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending either of them against
any claim or liability in connection with the exercise or performance of any of
their respective powers or duties hereunder; the provisions of this Section 4.2
shall survive the resignation or removal of the Delaware Trustee or the Property
Trustee or the termination of this Declaration.
ARTICLE V
TRUST COMMON SECURITIES HOLDER
SECTION 5.1 Company's Purchase of Trust Common Securities.
On the Closing Date, at the same time as the Trust Preferred
Securities are sold, the Company will purchase all of the Trust Common
Securities issued by the Trust, for an amount at least equal to 3% of the
capital of the Trust.
SECTION 5.2 Covenants of the Trust Common Securities Holder.
For so long as the Trust Preferred Securities remain outstanding,
the Company will covenant (i) to maintain directly 100 percent 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 this Declaration, (iii) to use its commercially
reasonable efforts to ensure that the Trust will not be an investment company
for purposes of the 1940 Act, and (iv) to take no action which would be
reasonably likely to cause the Trust to be classified as an association or a
publicly traded partnership taxable as a corporation for United States federal
income tax purposes.
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ARTICLE VI
TRUSTEES
SECTION 6.1 Number of Trustees.
The number of Trustees initially shall be four (4), and:
(a) at any time before the issuance of any Trust Securities, the
Sponsor may, by written instrument, increase or decrease the number of
Trustees; and
(b) after the issuance of any Trust Securities, the number of
Trustees may be increased or decreased by vote of the Holders of a
Majority in liquidation amount of the Trust Common Securities voting as a
class at a meeting of the Holders of the Trust Common Securities;
provided, however, that the number of Trustees shall in no event be less
than three (3); provided, further, that (1) if required by the Business
Trust Act, one Trustee is the Delaware Trustee; (2) there shall be at
least one Trustee who is an employee or officer of, or is affiliated with
the Company (each, a "Regular Trustee"); and (3) one Trustee shall be the
Property Trustee for so long as this Declaration is required to qualify as
an indenture under the Trust Indenture Act, and such Property Trustee may
also serve as Delaware Trustee if it meets the applicable requirements.
SECTION 6.2 Delaware Trustee.
If required by the Business Trust Act, one Trustee (the "Delaware
Trustee") shall be:
(a) a natural person who is a resident of the State of Delaware; or
(b) if not a natural person, an entity which has its principal place
of business in the State of Delaware, and otherwise meets the requirements
of applicable law,
provided, that if the Property Trustee has its principal place of business in
the State of Delaware and otherwise meets the requirements of applicable law,
then the Property Trustee may also be the Delaware Trustee (in which case
Section 3.11 shall have no application).
SECTION 6.3 Property Trustee; Eligibility.
(a) There shall at all times be one Trustee (the "Property Trustee")
which shall act as Property Trustee which shall:
(i) not be an Affiliate of the Sponsor; and
(ii) be a corporation organized and doing business under the laws of
the United States of America or any State or Territory thereof or of the
District of Columbia, or a corporation or Person permitted by the
Commission to act as an institutional trustee under the Trust Indenture
Act, authorized under such laws to exercise corporate trust powers, having
a combined capital and surplus of at least 50 million U.S. dollars
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($50,000,000), and subject to supervision or examination by Federal,
State, Territorial or District of Columbia authority. If such corporation
publishes reports of condition at least annually, pursuant to law or to
the requirements of the supervising or examining authority referred to
above, then for the purposes of this Section 6.3(a)(ii), the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published.
(b) If at any time the Property Trustee shall cease to be eligible
to so act under Section 6.3(a), the Property Trustee shall immediately resign in
the manner and with the effect set forth in Section 6.7(c).
(c) If the Property Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Property Trustee and the Holder of the Trust Common Securities (as if it were
the obligor referred to in Section 310(b) of the Trust Indenture Act) shall in
all respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
(d) The Trust Guarantee shall be deemed to be specifically described
in this Declaration for purposes of clause (i) of the first provision contained
in Section 310(b) of the Trust Indenture Act.
(e) The initial Property Trustee shall be:
The Chase Manhattan Bank
SECTION 6.4 Qualifications of Regular Trustees and Delaware Trustee Generally.
Each Regular Trustee and the Delaware Trustee (unless the Property
Trustee also acts as Delaware Trustee) shall be either a natural person who is
at least 21 years of age or a legal entity that shall act through one or more
Authorized Officers.
SECTION 6.5 Regular Trustees.
The initial Regular Trustees shall be:
Theresa Lang
Stanley Schaefer
(a) Except as expressly set forth in this Declaration and except if
a meeting of the Regular Trustees is called with respect to any matter over
which the Regular Trustees have power to act, any power of the Regular Trustees
may be exercised by, or with the consent of, any one such Regular Trustee.
(b) Unless otherwise determined by the Regular Trustees, and except
as otherwise required by the Business Trust Act or applicable law, any Regular
Trustee is authorized to execute on behalf of the Trust any documents which the
Regular Trustees have the power and authority to cause the Trust to execute
pursuant to Section 3.6, provided, that the
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registration statement referred to in Section 3.6(b)(i), including any
amendments thereto, shall be signed by or on behalf of a majority of the Regular
Trustees.
SECTION 6.6 Delaware Trustee.
The initial Delaware Trustee shall be:
Chase Manhattan Bank Delaware
SECTION 6.7 Appointment, Removal and Resignation of Trustees.
(a) Subject to Section 6.7(b), Trustees may be appointed or removed
without cause at any time:
(i) until the issuance of any Trust Securities, by written
instrument executed by the Sponsor; and
(ii) after the issuance of any Trust Securities, by vote of the
Holders of a Majority in liquidation amount of the Trust Common Securities
voting as a class at a meeting of the Holders of the Trust Common
Securities.
(b) (i) The Trustee that acts as Property Trustee shall not be
removed in accordance with Section 6.7(a) until a successor Trustee possessing
the qualifications to act as Property Trustee under Section 6.3 (a "Successor
Property Trustee") has been appointed and has accepted such appointment by
written instrument executed by such Successor Property Trustee and delivered to
the Regular Trustees and the Sponsor; and
(ii) the Trustee that acts as Delaware Trustee shall not be removed
in accordance with Section 6.7(a) until a successor Trustee possessing the
qualifications to act as Delaware Trustee under Sections 6.2 and 6.4 (a
"Successor Delaware Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor Delaware
Trustee and delivered to the Regular Trustees and the Sponsor.
(c) A Trustee appointed to office shall hold office until his
successor shall have been appointed or until his death, removal or resignation.
Any Trustee may resign from office (without need for prior or subsequent
accounting) by an instrument in writing signed by the Trustee and delivered to
the Sponsor and the Trust, which resignation shall take effect upon such
delivery or upon such later date as is specified therein; provided, however,
that:
(i) No such resignation of the Trustee that acts as the Property
Trustee shall be effective:
(A) until a Successor Property Trustee has been appointed and
has accepted such appointment by instrument executed by such
Successor Property Trustee and delivered to the Trust, the Sponsor
and the resigning Property Trustee; or
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(B) until the assets of the Trust have been completely
liquidated and the proceeds thereof distributed to the Holders of
the Trust Securities; and
(ii) no such resignation of the Trustee that acts as the Delaware
Trustee shall be effective until a Successor Delaware Trustee has been
appointed and has accepted such appointment by instrument executed by such
Successor Delaware Trustee and delivered to the Trust, the Sponsor and the
resigning Delaware Trustee.
(d) The Holders of the Trust Common Securities shall use their best
efforts to promptly appoint a Successor Delaware Trustee or Successor Property
Trustee, as the case may be, if the Property Trustee or the Delaware Trustee
delivers an instrument of resignation in accordance with this Section 6.7.
(e) If no Successor Property Trustee or Successor Delaware Trustee
shall have been appointed and accepted appointment as provided in this Section
6.7 within 60 days after delivery to the Sponsor and the Trust of an instrument
of resignation, the resigning Property Trustee or Delaware Trustee, as
applicable, may petition any court of competent jurisdiction for appointment of
a Successor Property Trustee or Successor Delaware Trustee. Such court may
thereupon, after prescribing such notice, if any, as it may deem proper and
prescribe, appoint a Successor Property Trustee or Successor Delaware Trustee,
as the case may be.
(f) No Property Trustee or Delaware Trustee shall be liable for the
acts or omissions to act of any Successor Property Trustee or successor Delaware
Trustee, as the case may be.
SECTION 6.8 Vacancies among Trustees.
If a Trustee ceases to hold office for any reason and the number of
Trustees is not reduced pursuant to Section 6.1, or if the number of Trustees is
increased pursuant to Section 6.1, a vacancy shall occur. A resolution
certifying the existence of such vacancy by the Regular Trustees or, if there
are more than two, a majority of the Regular Trustees shall be conclusive
evidence of the existence of such vacancy. The vacancy shall be filled with a
Trustee appointed in accordance with Section 6.7.
SECTION 6.9 Effect of Vacancies.
The death, resignation, retirement, removal, bankruptcy,
dissolution, liquidation, incompetence or incapacity to perform the duties of a
Trustee shall not operate to annul the Trust. Whenever a vacancy in the number
of Regular Trustees shall occur, until such vacancy is filled by the appointment
of a Regular Trustee in accordance with Section 6.7, the Regular Trustees in
office, regardless of their number, shall have all the powers granted to the
Regular Trustees and shall discharge all the duties imposed upon the Regular
Trustees by this Declaration.
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SECTION 6.10 Meetings.
If there is more than one Regular Trustee, meetings of the Regular
Trustees shall be held from time to time upon the call of any Regular Trustee.
Regular meetings of the Regular Trustees may be held at a time and place fixed
by resolution of the Regular Trustees. Notice of any in-person meetings of the
Regular Trustees shall be hand delivered or otherwise delivered in writing
(including by facsimile, with a hard copy by overnight courier) not less than 48
hours before such meeting. Notice of any telephonic meetings of the Regular
Trustees or any committee thereof shall be hand delivered or otherwise delivered
in writing (including by facsimile, with a hard copy by overnight courier) not
less than 24 hours before a meeting. Notices shall contain a brief statement of
the time, place and anticipated purposes of the meeting. The presence (whether
in person or by telephone) of a Regular Trustee at a meeting shall constitute a
waiver of notice of such meeting except where a Regular Trustee attends a
meeting for the express purpose of objecting to the transaction of any activity
on the ground that the meeting has not been lawfully called or convened. Unless
provided otherwise in this Declaration, any action of the Regular Trustees may
be taken at a meeting by vote of a majority of the Regular Trustees present
(whether in person or by telephone) and eligible to vote with respect to such
matter; provided, that a Quorum is present, or without a meeting by the
unanimous written consent of the Regular Trustees. Notwithstanding the
foregoing, any and all actions of the Regular Trustees may be taken by the
unanimous written consent of all Regular Trustees.
SECTION 6.11 Delegation of Power.
(a) Any Regular Trustee may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purpose of executing any documents contemplated in Section
3.6, including any registration statement or amendment thereto filed with the
Commission, or making any other governmental filing; and
(b) the Regular Trustees shall have power to delegate from time to
time to such of their number or to officers of the Trust the doing of such
things and the execution of such instruments either in the name of the Trust or
the names of the Regular Trustees or otherwise as the Regular Trustees may deem
expedient, to the extent such delegation is not prohibited by applicable law or
contrary to the provisions of the Trust, as set forth herein.
SECTION 6.12 Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Property Trustee or the Delaware
Trustee, as the case may be, may be merged or converted or with which either may
be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Property Trustee or the Delaware Trustee, as the case
may be, shall be a party, or any corporation succeeding to all or substantially
all the corporate trust business of the Property Trustee or the Delaware
Trustee, as the case may be, shall be the successor of the Property Trustee or
the Delaware Trustee, as the case may be, hereunder; provided, that such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto.
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ARTICLE VII
DISTRIBUTIONS
SECTION 7.1 Distributions.
(a) Holders of Trust Securities shall be entitled to receive
cumulative cash distributions at the rate per annum of ____% of the stated
liquidation amount of $25 per Trust Security, calculated on the basis of a
360-day year consisting of twelve 30-day months. For any period shorter than a
full 90-day quarter, distributions will be computed on the basis of the actual
number of days elapsed in such 90-day quarter. Distributions shall be made on
the Trust Preferred Securities and the Trust Common Securities on a Pro Rata
basis. Distributions on the Trust Securities shall, from the date of original
issue, accumulate and be cumulative and shall be payable quarterly only to the
extent that the Trust has funds available for the payment of such Distributions
in the Property Account. Distributions not paid on the scheduled payment date
will accumulate and compound quarterly at the rate of ____% per annum
("Compounded Distributions"). "Distributions" shall mean ordinary cumulative
distributions in respect of each Fiscal Period together with any Compounded
Distributions. If and to the extent that the Partnership makes a distribution on
the Partnership Preferred Securities held by the Property Trustee or the Company
makes a payment under the Partnership Guarantee (the amount of any such
partnership distribution, including any compounded partnership distributions, or
guarantee payment being a "Payment Amount"), the Trust shall and the Property
Trustee is directed, to the extent funds are available for that purpose, to make
a Pro Rata Distribution of the Payment Amount to Holders.
(b) Distributions on the Trust Securities will be cumulative, will
accumulate from the date of initial issuance and will be payable quarterly in
arrears on each March 30, June 30, September 30 and December 30, commencing
______________, 1999, when, as and if 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 Securities as they appear on the books and records of the Trust on the
record date as determined under Section 7.1(d) below.
(c) Amounts available to the Trust for distribution to the Holders
of the Trust Securities will be limited to payments received by the Trust from
the Partnership on the Partnership Preferred Securities or from the Company on
the Partnership Guarantees paid by the Company to the Trust. If the Property
Trustee, as the holder of the Partnership Preferred Securities for the benefit
of the Holders of the Trust Securities, receives notice of any determination by
the Partnership not to pay distributions on such Partnership Preferred
Securities, the Property Trustee shall give notice of such determination to the
Holders.
(d) Distributions on the Trust 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 relevant record dates, as long as the Trust
Preferred Securities remain in book-entry only form, will be one Business Day
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. In the
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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 Securities is not a Business Day, 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 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.
ARTICLE VIII
ISSUANCE OF TRUST SECURITIES
SECTION 8.1 Designation and General Provisions Regarding Trust Securities.
(a) The Regular Trustees shall on behalf of the Trust issue one
class of preferred securities representing undivided beneficial ownership
interests in the assets of the Trust and one class of common securities
representing undivided beneficial ownership interests in the assets of the Trust
as follows:
(i) Trust Preferred Securities. __________ Trust Preferred
Securities of the Trust with an aggregate liquidation amount with respect
to the assets of the Trust of ________________________________ dollars and
a liquidation amount with respect to the assets of the Trust of $25 per
preferred security, are hereby designated for the purpose of
identification only as ____% Trust Originated Preferred Securities(SM)
(the "Trust Preferred Securities"). The Trust Preferred Security
Certificates evidencing the Trust Preferred Securities shall be
substantially in the form of Exhibit A-1 to the Declaration, with such
changes and additions thereto or deletions therefrom as may be required by
ordinary usage, custom or practice or to conform to the rules of any stock
exchange on which the Trust Preferred Securities are listed.
(ii) Trust Common Securities. 1________ Trust Common Securities of
the Trust with an aggregate liquidation amount with respect to the assets
of the Trust of _____________________________________ dollars and a
liquidation amount with respect to the assets of the Trust of $25 per
common security, are hereby designated for the purposes of identification
only as ____% Trust Common Securities (the "Trust Common Securities" and,
together with the Trust Preferred Securities, the "Trust Securities"). The
Trust Common Security Certificates evidencing the Trust Common Securities
shall be substantially in the form of Exhibit A-2 to the Declaration, with
such changes and additions thereto or deletions therefrom as may be
required by ordinary usage, custom or practice.
- --------------------
(SM) "Trust Originated Preferred Securities" and "TOPrS" are service marks of
Merrill Lynch & Co., Inc.
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(b) Except as provided in Section 9.2(b) of this Declaration, the
Trust Preferred Securities rank pari passu and payment thereon shall be made Pro
Rata with the Trust Common Securities. The Trust shall issue no securities or
other interests in the assets of the Trust other than the Trust Preferred
Securities and the Trust Common Securities.
(c) Any Regular Trustee shall sign the Trust Securities for the
Trust by manual or facsimile signature. In case any Regular Trustee of the Trust
who shall have signed any of the Trust Securities shall cease to be a Regular
Trustee before the Certificates so signed shall be delivered by the Trust, such
Certificates nevertheless may be delivered as though the person who signed such
Certificates had not ceased to be such Regular Trustee; and any Certificate may
be signed on behalf of the Trust by such persons who, at the actual date of
execution of such Trust Security, shall be the Regular Trustees of the Trust,
although at the date of the execution and delivery of the Declaration any such
person was not such a Regular Trustee. Certificates shall be printed,
lithographed or engraved or may be produced in any other manner as is reasonably
acceptable to the Regular Trustees, as evidenced by their execution thereof, and
may have such letters, numbers or other marks of identification or designation
and such legends or endorsements as the Regular Trustees may deem appropriate,
or as may be required to comply with any law or with any rule or regulation of
any stock exchange on which Trust Securities may be listed, or to conform to
usage.
A Trust Security shall not be valid until authenticated by the
manual signature of an authorized officer of the Property Trustee. Such
signature shall be conclusive evidence that the Trust Security has been
authenticated under this Declaration.
Upon a written order of the Trust signed by one Regular Trustee, the
Property Trustee shall authenticate the Trust Securities for original issue. The
aggregate number of Trust Securities outstanding at any time shall not exceed
the number set forth in the Terms of the Trust Securities.
The Property Trustee may appoint an authenticating agent acceptable
to the Trust to authenticate Trust Securities. An authenticating agent may
authenticate Trust Preferred Securities whenever the Property Trustee may do so.
Each reference in this Declaration to authentication by the Property Trustee
includes authentication by such agent. An authenticating agent has the same
rights as the Property Trustee to deal with the Sponsor or an Affiliate of the
Sponsor.
(d) The consideration received by the Trust for the issuance of the
Trust Securities shall constitute a contribution to the capital of the Trust and
shall not constitute a loan to the Trust.
(e) Upon issuance of the Trust Securities as provided in this
Declaration, the Trust Securities so issued shall be deemed to be validly
issued, fully paid and non-assessable, subject to Section 11.1 with respect to
the Trust Common Securities.
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(f) Every Person, by virtue of having become a Holder or a Trust
Preferred Security Beneficial Owner in accordance with the terms of this
Declaration, shall be deemed to have expressly assented and agreed to the terms
of, and shall be bound by, this Declaration.
SECTION 8.2 Redemption of Trust Securities.
(a) Upon a purchase of the Partnership Preferred Securities by the
Partnership upon redemption or otherwise, the proceeds from such purchase shall
be simultaneously applied Pro Rata to redeem Trust Securities having an
aggregate liquidation amount equal to the Partnership Preferred Securities so
purchased or redeemed at an amount equal to $25 per Partnership Preferred
Security plus an amount equal to accumulated and unpaid Distributions, including
any Compounded Distributions thereon through the date of the redemption or such
lesser amount as shall be received by the Trust in respect of the Partnership
Preferred Securities so purchased or redeemed (the "Redemption Price"). Holders
will be given not less than 30 nor more than 60 days notice of such redemption.
(b) If fewer than all the outstanding Trust Securities are to be so
redeemed, the Trust Common Securities and the Trust Preferred Securities will be
redeemed Pro Rata and the Trust Preferred Securities to be redeemed will be
redeemed as described in Section 8.3 below; provided, that fewer than all of the
outstanding Trust Preferred Securities may not be redeemed 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.
(c) If, at any time, 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, if any, of the Trust, 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 Sponsor has or will cause no adverse
effect on the Trust, the Partnership, the Sponsor 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 Sponsor 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 a Trust Redemption Tax Opinion,
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 Securities will be redeemed by the Trust at the Redemption
Price as described in Section 8.3 below.
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(d) If the Partnership Preferred Securities are distributed to the
Holders of the Trust Preferred Securities, the Sponsor 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.
(e) On the date fixed for any distribution of Partnership Preferred
Securities, upon dissolution of the Trust, (i) the Trust Preferred Securitiesand
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 Sponsor or its agent for transfer or reissuance.
SECTION 8.3 Redemption Procedures.
(a) Notice of any redemption of, or notice of distribution of
Partnership Preferred Securities in exchange for, the Trust Securities (a
"Redemption/Distribution Notice") will be given by the Trust by mail to each
Holder of Trust Securities to be redeemed or exchanged not fewer than 30 nor
more than 60 days before the date fixed for redemption or exchange thereof
which, in the case of a redemption, will be the date fixed for redemption of the
Partnership Preferred Securities. For purposes of the calculation of the date of
redemption or exchange and the dates on which notices are given pursuant to this
Section 8.3, a Redemption/ Distribution Notice shall be deemed to be given on
the day such notice is first mailed by first-class mail, postage prepaid, to
Holders of Trust Securities. Each Redemption/Distribution Notice shall be
addressed to the Holders of Trust Securities at the address of each such Holder
appearing in the books and records of the Trust. No defect in the
Redemption/Distribution Notice or in the mailing of either thereof with respect
to any Holder shall affect the validity of the redemption or exchange
proceedings with respect to any other Holder.
(b) In the event that fewer than all the outstanding Trust
Securities are to be redeemed, the Trust Securities to be redeemed shall be
redeemed Pro Rata from each Holder of Trust Securities, provided, that in
respect of Preferred Securities registered in the name of and held of record by
DTC or its nominee (or any successor Clearing Agency or its nominee) or any
nominee, the distribution of the proceeds of such redemption will be made to
each Clearing Agency Participant (or Person on whose behalf such nominee holds
such securities) in accordance with the procedures applied by such agency or
nominee. In the event that the Trust Securities do not remain in book-entry only
form and fewer than all of the outstanding Trust Securities are to be redeemed,
the Trust Securities shall be redeemed Pro Rata or pursuant to the rules of any
securities exchange on which the Trust Securities are listed.
(c) If Trust Securities are to be redeemed and the Trust gives a
Redemption/Distribution Notice, which notice may only be issued if the
Partnership Preferred Securities are redeemed as set out in this Section 8.3
(which notice will be irrevocable), then (A) while the Trust Preferred
Securities are in book-entry only form, by 12:00 noon, New York City time, on
the redemption date, the Property Trustee will deposit irrevocably with the DTC
or its nominee (or successor Clearing Agency or its nominee) funds sufficient to
pay the applicable Redemption Price with respect to the Trust Preferred
Securities and will give the DTC
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irrevocable instructions and authority to pay the Redemption Price to the
Holders of the Trust Preferred Securities, and (B) with respect to Trust
Preferred Securities issued in definitive form and Trust Common Securities, the
Property Trustee will pay the relevant Redemption Price to the Holders of such
Trust Securities by check mailed to the address of the relevant Holder appearing
on the books and records of the Trust on the redemption date. If a
Redemption/Distribution Notice shall have been given and funds deposited as
required, if applicable, then immediately prior to the close of business on the
date of such deposit, or on the redemption date, as applicable, distributions
will cease to accumulate on the Trust Securities so called for redemption and
all rights of Holders of such Trust Securities will cease, except the right of
the Holders of such Trust Securities to receive the Redemption Price, but
without interest on such Redemption Price. If any date fixed for redemption of
Trust 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 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 each case with the same force and effect as if made on such date fixed
for redemption. If payment of the Redemption Price in respect of any Trust
Securities is improperly withheld or refused and not paid either by the Property
Trustee or by the Sponsor as guarantor pursuant to the relevant Trust Guarantee,
Distributions on such Trust Securities will continue to accumulate at the then
applicable rate from the original redemption date to the actual date of payment,
in which case the actual payment date will be considered the date fixed for
redemption for purposes of calculating the Redemption Price. For these purposes,
the applicable Redemption Price shall not include Distributions which are being
paid to Holders who were Holders on a relevant record date. Upon satisfaction of
the foregoing conditions, immediately prior to the close of business on the date
of such deposit or payment, all rights of Holders of such Trust Preferred
Securities so called for redemption will cease, except the right of the Holders
to have received the Redemption Price, but without interest on such Redemption
Price, and from and after the date fixed for redemption, such Trust Preferred
Securities will not accumulate distributions or bear interest.
Neither the Regular Trustees nor the Trust shall be required to
register or cause to be registered the transfer of any Trust Securities that
have been called for redemption.
(d) 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.
SECTION 8.4 Voting Rights of Trust Preferred Securities.
(a) Except as provided under Sections 6.1(b) and this Article VIII
and as otherwise required by the Business Trust Act, the Trust Indenture Act and
other applicable law, the Holders of the Trust Preferred Securities will have no
voting rights.
(b) Subject to the requirement of the Property Trustee obtaining a
tax opinion in certain circumstances set forth in Section 8.4(d) below, the
Holders of a Majority in liquidation amount of the Trust Preferred Securities
have the right to direct the time, method and
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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 of the Partnership as elected by the Holders of the
Partnership Preferred Securities in accordance with the Limited Partnership
Agreement (A) to enforce the Partnership's creditors rights and other rights
with respect to the Affiliate Investment Instruments and any Investment
Guarantees, (B) to enforce the rights of the Holders of the Partnership
Preferred Securities under the Partnership Guarantee, and (C) to enforce the
rights of the Holders of the Partnership Preferred Securities to receive
distributions (if and to the extent such distributions have been declared out of
funds legally available therefor by the General Partner in its sole discretion)
on the Partnership Preferred Securities or (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 Preferred Securities which is at least equal to the
percentage of aggregate liquidation preference required under the Limited
Partnership Agreement may direct the Property Trustee to give such consent or
take such action.
(c) If the Property Trustee fails to enforce its rights under the
Partnership Preferred Securities after a Holder of record of Trust Preferred
Securities has made a written request, such Holder of record of Trust Preferred
Securities may institute a legal proceeding directly against the General Partner
or the Special Representative, to enforce the Property Trustee's rights under
the Limited Partnership Agreement without first instituting any legal proceeding
against the Property Trustee or any other person or entity. Notwithstanding the
foregoing, 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, then a Holder
of Trust Preferred Securities may directly institute a proceeding against such
Investment Affiliate for enforcement of payment with respect to such Affiliate
Investment Instrument.
(d) 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, the Property Trustee shall be under no obligation to take any of
the actions described in clause 8.4(b)(i) and (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 will continue to be treated as owning an undivided beneficial
ownership interest in the Partnership Preferred Securities.
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(e) In the event the consent of the Property Trustee, as the Holder
of the Partnership Preferred Securities, is required under the Limited
Partnership Agreement with respect to any amendment, modification or termination
of the Limited Partnership Agreement, the Property Trustee shall request the
direction of the Holders of the Trust Securities with respect to such amendment,
modification or termination and shall vote with respect to such amendment,
modification or termination as directed by a Majority in liquidation amount of
the Trust Securities voting together as a single class; provided, however, that
where a consent under the Limited Partnership Agreement would require the
consent of the Holders of more than a majority of the aggregate liquidation
preference of the Partnership Preferred Securities, the Property Trustee may
only give such consent at the direction of the Holders of at least the same
proportion in aggregate stated liquidation amount of the Trust Securities. The
Property Trustee shall not take any such action in accordance with the
directions of the Holders of the Trust Securities unless the Property Trustee
has obtained an opinion of tax counsel to the effect that, as a result of such
action, the Trust will not be classified as other than a grantor trust for
United States federal income tax purposes.
(f) A waiver of a Partnership Enforcement Event with respect to the
Partnership Preferred Securities will constitute a waiver of the corresponding
Trust Enforcement Event.
(g) 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.
(h) 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.
(i) 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, 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, 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
Securities; provided, however, that persons (other than affiliates of the
Company) to whom the Company or any of its subsidiaries have pledged Trust
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Preferred Securities may vote or consent with respect to such pledged Trust
Preferred Securities pursuant to the terms of such pledge.
(i) 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.
SECTION 8.5 Voting Rights of Trust Common Securities.
(a) Except as provided under this Section 8.5 or as otherwise
required by the Business Trust Act, the Trust Indenture Act or other applicable
law or provided by the Declaration, the Holders of the Trust Common Securities
will have no voting rights.
(b) The Holders of the Trust Common Securities are entitled, in
accordance with Article V of the Declaration, to vote to appoint, remove or
replace any Trustee or to increase or decrease the number of Trustees.
(c) Subject to Section 2.6 of the Declaration and only after all
Trust Enforcement Events with respect to the Trust Preferred Securities have
been cured, waived, or otherwise eliminated and subject to the requirement of
the Property Trustee obtaining a tax opinion in certain circumstances set forth
in this paragraph (c), the Holders of a Majority in liquidation amount of the
Trust Common 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 of the Partnership as elected by the Holders of the Partnership
Preferred Securities in accordance with the Limited Partnership Agreement (A) to
enforce the Partnership's creditors rights and other rights with respect to the
Affiliate Investment Instruments and any Investment Guarantees, (B) to enforce
the rights of the Holders of the Partnership Preferred Securities under the
Partnership Guarantee, and (C) to enforce the rights of the Holders of the
Partnership Preferred Securities to receive distributions (if and to the extent
such distributions have been declared out of funds legally available therefor by
the General Partner in its sole discretion) on the Partnership Preferred
Securities or (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 Common
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. Except with respect to directing the time, method, and place
of conducting a proceeding for a remedy, the Property Trustee shall be under no
obligation to take any of the actions described in clause 8.5(c)(i) and (ii)
above unless the Property Trustee has obtained an opinion of independent tax
counsel to the effect that, as a result of such action, for United States
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federal income tax purposes the Trust will not fail to be classified as a
grantor trust and each Holder will be treated as owning an undivided beneficial
ownership interest in the Partnership Preferred Securities.
(d) If the Property Trustee fails to enforce its rights under the
Partnership Preferred Securities after a Holder of record of Trust Common
Securities has made a written request, such Holder of record of Trust Common
Securities may directly institute a legal proceeding directly against the
Company, as General Partner of the Partnership or 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 or
any other person or entity. Notwithstanding the foregoing, 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, then a Holder of Trust Common Securities
may directly institute a proceeding against such Investment Affiliate for
enforcement of payment with respect to such Affiliate Investment Instrument.
(e) A waiver of a Partnership Enforcement Event with respect to the
Partnership Preferred Securities will constitute a waiver of the corresponding
Trust Enforcement Event.
(f) Any required approval or direction of Holders of Trust Common
Securities may be given at a separate meeting of Holders of Trust Common
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 Common 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 Common
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.
(g) No vote or consent of the Holders of the Trust Common Securities
shall be required for the Trust to redeem and cancel Trust Common Securities or
to distribute Partnership Preferred Securities in accordance with the
Declaration and the terms of the Trust Securities.
SECTION 8.6 Paying Agent.
In the event that the Trust Preferred Securities are not in
book-entry only form, the Trust shall maintain in the Borough of Manhattan, City
of New York, State of New York, an office or agency where the Trust Preferred
Securities may be presented for payment ("Paying Agent"). The Trust may appoint
the Paying Agent and may appoint one or more additional paying agents in such
other locations as it shall determine. The term "Paying Agent" includes any
additional paying agent. The Trust may change any Paying Agent without prior
notice to any Holder. The Trust shall notify the Property Trustee of the name
and address of any Paying Agent not a party to this Declaration. If the Trust
fails to appoint or maintain another entity as
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Paying Agent, the Property Trustee shall act as such. The Trust or any of its
Affiliates may act as Paying Agent. The Chase Manhattan Bank shall initially act
as Paying Agent for the Trust Preferred Securities and the Trust Common
Securities.
SECTION 8.7 Listing.
The Sponsor shall use its best efforts to cause the Trust Preferred
Securities to be listed for quotation on the New York Stock Exchange.
SECTION 8.8 Acceptance of Guarantee and Agreements, Limited Partnership
Agreement.
Each Holder of Trust Preferred Securities and Trust Common
Securities, by the acceptance thereof, agrees to the provisions of the
applicable Trust Guarantee, the Partnership Guarantee, and the Investment
Guarantee, respectively, including the subordination provisions therein.
ARTICLE IX
TERMINATION AND LIQUIDATION OF THE TRUST
SECTION 9.1 Termination of Trust.
(a) The Trust shall terminate:
(i) upon the bankruptcy of the Holder of Trust Common Securities or
the Sponsor;
(ii) upon the filing of a certificate of dissolution or its
equivalent with respect to the Sponsor, 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 Sponsor's charter and the
expiration of 90 days after the date of revocation without a reinstatement
thereof;
(iii) upon the entry of a decree of judicial dissolution of the
Sponsor or the Trust;
(iv) when all of the Trust Securities shall have been called for
redemption and the amounts necessary for redemption thereof shall have
been paid to the Holders in accordance with the terms of the Trust
Securities;
(v) upon the election of the Regular Trustees, following the
occurrence and continuation of a Trust Special Event, pursuant to which
the Trust shall have been dissolved in accordance with the terms of the
Trust Securities and all of the Partnership Preferred Securities shall
have been distributed to the Holders of Trust Securities in exchange for
all of the Trust Securities; or
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(vi) before the issuance of any Trust Securities, with the consent
of all of the Regular Trustees and the Sponsor.
(b) As soon as is practicable after the occurrence of an event
referred to in Section 9.1(a), the Trustees shall file a certificate of
cancellation with the Secretary of State of the State of Delaware.
(c) The provisions of Section 3.9 and Article XI shall survive the
termination of the Trust.
SECTION 9.2 Liquidation Distribution Upon Termination and Dissolution of the
Trust.
(a) 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 on the date of the
Trust Liquidation will be entitled to receive, out of the assets of the Trust
available for distribution to Holders of Trust Securities after satisfaction of
the Trusts' liabilities and 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 Security plus accumulated and unpaid
Distributions thereon to the date of payment (such amount being the "Trust
Liquidation Distribution"), unless, in connection with such Trust Liquidation,
Partnership Preferred Securities shall be distributed on a Pro Rata basis to the
Holders of the Trust Securities in exchange for such Trust Securities.
(b) 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 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 Trust Liquidation Pro Rata with the Holders
of the Trust Preferred Securities except that if the Company is in default on
any of its obligations under the Trust Preferred Securities Guarantee, the
Partnership Guarantee or any Investment Guarantee, or any Investment Event of
Default has occurred and is continuing with respect to an Affiliate Investment
Instrument, the Trust Preferred Securities shall have a preference over the
Trust Common Securities with regard to such distributions as provided below.
Such preference is effectuated by the Holder of the Trust Common Securities
hereby agreeing to provide limited recourse guarantees as follows: (i) to the
Holders of the Trust Preferred Securities, of the Company's obligations under
the Trust Preferred Securities Guarantee; (ii) to the Trust and the Holders of
the Trust Preferred Securities, of the Company's obligations under the
Partnership Guarantee; and (iii) to the Partnership and the Holders of the Trust
Preferred Securities, of the Company's obligations under any Investment
Guarantee and/or the obligations of any Investment Affiliate under an Affiliate
Investment Instrument. In the case of the limited recourse guarantee given by
the Holder of the Trust Common Securities to the Partnership and the Holder of
the Trust Preferred Securities in respect of the Company's obligations under any
Investment Guarantee and/or any Investment Affiliate's obligations under an
Affiliate Investment Instrument, (i) the Trust Common Securities Holder will be
deemed to have pledged the amount due in respect of its Trust Common Securities
upon a liquidation of the Trust to the Partnership and the Holders of Trust
Preferred Securities; (ii) the Trust Common Securities
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Holder will be deemed to have paid such amount to the Partnership in respect of
such defaulted Investment Guarantee and/or Affiliate Investment Instrument, as
the case may be; (iii) the Partnership will be deemed to have paid such amount
to the Trust; and (iv) the Property Trustee is hereby authorized to distribute
such amount to the Holders of Trust Preferred Securities (on a pro rata basis
among such Trust Preferred Securities Holders) in respect of the Trust Common
Securities Holder's pledge of such amounts to such Trust Preferred Securities
Holders. In the case of a limited recourse guarantee given by the Holder of the
Trust Common Securities to the Trust and the Holders of the Trust Preferred
Securities in respect of the Company's obligations under the Partnership
Guarantee, (i) the Holder of the Trust Common Securities will be deemed to have
pledged the amount due in respect of its Trust Common Securities upon a
liquidation of the Trust to the Trust and the Holders of the Trust Preferred
Securities; (ii) the Holder of the Trust Common Securities will be deemed to
have paid such amount to the Trust in respect of its obligations under the
Partnership Guarantee; and (iii) the Property Trustee is hereby authorized to
distribute such amount to the Holders of the Trust Preferred Securities (on a
pro rata basis among such Trust Preferred Securities Holders) in respect of the
Trust Common Securities Holder's pledge of such amount to such Trust Preferred
Securities Holders.
ARTICLE X
TRANSFER OF INTERESTS
SECTION 10.1 Transfer of Trust Securities.
(a) Trust Securities may only be transferred, in whole or in part,
in accordance with the terms and conditions set forth in this Declaration and in
the terms of the Trust Securities. Any transfer or purported transfer of any
Trust Security not made in accordance with this Declaration shall be null and
void.
(b) Subject to this Article X, Trust Preferred Securities shall be
freely transferable.
SECTION 10.2 Transfer of Certificates.
The Regular Trustees shall provide for the registration of
Certificates and of transfers of Certificates, which will be effected without
charge but only upon payment (with such indemnity as the Regular Trustees may
require) in respect of any tax or other government charges that may be imposed
in relation to it. Upon surrender for registration of transfer of any
Certificate, the Regular Trustees shall cause one or more new Certificates to be
issued in the name of the designated transferee or transferees. Every
Certificate surrendered for registration of transfer shall be accompanied by a
written instrument of transfer in form satisfactory to the Regular Trustees duly
executed by the Holder or such Holder's attorney duly authorized in writing.
Each Certificate surrendered for registration of transfer shall be canceled by
the Regular Trustees. A transferee of a Certificate shall be entitled to the
rights and subject to the obligations of a Holder hereunder upon the receipt by
such transferee of a Certificate. By acceptance of a Certificate, each
transferee shall be deemed to have agreed to be bound by this Declaration.
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SECTION 10.3 Deemed Security Holders.
The Trustees may treat the Person in whose name any Certificate
shall be registered on the books and records of the Trust as the sole Holder of
such Certificate and of the Trust Securities represented by such Certificate for
purposes of receiving Distributions and for all other purposes whatsoever and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such Certificate or in the Trust Securities represented by such
Certificate on the part of any Person, whether or not the Trust shall have
actual or other notice thereof.
SECTION 10.4 Book-Entry Interests.
Unless otherwise specified in the terms of the Trust Preferred
Securities, the Trust Preferred Securities Certificates, on original issuance,
will be issued in the form of one or more fully registered, global Trust
Preferred Security Certificates (each a "Global Certificate"), to be delivered
to DTC, the initial Clearing Agency, by, or on behalf of, the Trust. Such Global
Certificates shall initially be registered on the books and records of the Trust
in the name of Cede & Co., the nominee of DTC, and no Trust Preferred Security
Beneficial Owner will receive a definitive Trust Preferred Security Certificate
representing such Trust Preferred Security Beneficial Owner's interests in such
Global Certificates, except as provided in Section 10.7. Unless and until
definitive, fully registered Trust Preferred Security Certificates (the
"Definitive Trust Preferred Security Certificates") have been issued to the
Trust Preferred Security Beneficial Owners pursuant to Section 10.7:
(a) the provisions of this Section 10.4 shall be in full force and
effect;
(b) the Trust and the Trustees shall be entitled to deal with the
Clearing Agency for all purposes of this Declaration (including the
payment of Distributions on the Global Certificates and receiving
approvals, votes or consents hereunder) as the Holder of the Trust
Preferred Securities and the sole Holder of the Global Certificates and
shall have no obligation to the Trust Preferred Security Beneficial
Owners;
(c) to the extent that the provisions of this Section 10.4 conflict
with any other provisions of this Declaration, the provisions of this
Section 10.4 shall control; and
(d) the rights of the Trust Preferred Security Beneficial Owners
shall be exercised only through the Clearing Agency and shall be limited
to those established by law and agreements between such Trust Preferred
Security Beneficial Owners and the Clearing Agency and/or the Clearing
Agency Participants and the Clearing Agency shall receive and transmit
payments of Distributions on the Global Certificates to such Clearing
Agency Participants. The Clearing Agency will make book-entry transfers
among the Clearing Agency Participants; provided, that solely for the
purposes of determining whether the Holders of the requisite amount of
Trust Preferred Securities have voted on any matter provided for in this
Declaration, so long as Definitive Trust Preferred Security Certificates
have not been issued, the Trustees may conclusively rely on, and shall be
fully protected in relying on, any written instrument (including a proxy)
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delivered to the Trustees by the Clearing Agency setting forth the Trust
Preferred Security Beneficial Owners' votes or assigning the right to vote
on any matter to any other Persons either in whole or in part.
SECTION 10.5 Notices to Clearing Agency.
Whenever a notice or other communication to the Trust Preferred
Security Holders is required under this Declaration, unless and until Definitive
Trust Preferred Security Certificates shall have been issued to the Trust
Preferred Security Beneficial Owners pursuant to Section 10.7, the Regular
Trustees shall give all such notices and communications specified herein to be
given to the Trust Preferred Security Holders to the Clearing Agency, and shall
have no notice obligations to the Trust Preferred Security Beneficial Owners.
SECTION 10.6 Appointment of Successor Clearing Agency.
If any Clearing Agency elects to discontinue its services as
securities depositary with respect to the Trust Preferred Securities, the
Regular Trustees may, in their sole discretion, appoint a successor Clearing
Agency with respect to such Trust Preferred Securities.
SECTION 10.7 Definitive Trust Preferred Security Certificates.
If:
(a) a Clearing Agency elects to discontinue its services as
securities depositary with respect to the Trust Preferred Securities and a
successor Clearing Agency is not appointed within 90 days after such
discontinuance pursuant to Section 10.6;
(b) the Regular Trustees elect after consultation with the Sponsor
to terminate the book-entry system through the Clearing Agency with
respect to the Trust Preferred Securities; or
(c) there is a Trust Enforcement Event,
then:
(d) Definitive Trust Preferred Security Certificates shall be
prepared by the Regular Trustees on behalf of the Trust with respect to
such Trust Preferred Securities; and
(e) upon surrender of the Global Certificates by the Clearing
Agency, accompanied by registration instructions, the Regular Trustees
shall cause Definitive Trust Preferred Security Certificates to be
delivered to Trust Preferred Security Beneficial Owners in accordance with
the instructions of the Clearing Agency. Neither the Trustees nor the
Trust shall be liable for any delay in delivery of such instructions and
each of them may conclusively rely on and shall be fully protected in
relying on, said instructions of the Clearing Agency. The Definitive Trust
Preferred Security Certificates shall be printed, lithographed or engraved
or may be produced in any other manner as is
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reasonably acceptable to the Regular Trustees, as evidenced by their
execution thereof, and may have such letters, numbers or other marks of
identification or designation and such legends or endorsements as the
Regular Trustees may deem appropriate, or as may be required to comply
with any law or with any rule or regulation made pursuant thereto or with
any rule or regulation of any stock exchange on which Trust Preferred
Securities may be listed, or to conform to usage.
SECTION 10.8 Mutilated, Destroyed, Lost or Stolen Certificates.
If:
(a) any mutilated Certificates should be surrendered to the Regular
Trustees, or if the Regular Trustees shall receive evidence to their
satisfaction of the destruction, loss or theft of any Certificate; and
(b) there shall be delivered to the Regular Trustees such security
or indemnity as may be required by them to keep each of them harmless,
then, in the absence of notice that such Certificate shall have been acquired by
a bona fide purchaser, any Regular Trustee on behalf of the Trust shall execute
and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost
or stolen Certificate, a new Certificate of like denomination. In connection
with the issuance of any new Certificate under this Section 10.8, the Regular
Trustees may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith. Any duplicate
Certificate issued pursuant to this Section shall constitute conclusive evidence
of an ownership interest in the relevant Trust Securities, as if originally
issued, whether or not the lost, stolen or destroyed Certificate shall be found
at any time.
ARTICLE XI
LIMITATION OF LIABILITY OF
HOLDERS OF TRUST SECURITIES, TRUSTEES OR OTHERS
SECTION 11.1 Liability.
(a) Except as expressly set forth in this Declaration, the Trust
Guarantees and the terms of the Trust Securities, the Sponsor and the Trustees
shall not be:
(i) personally liable for the return of any portion of the capital
contributions (or any return thereon) of the Holders of the Trust
Securities which shall be made solely from assets of the Trust; and
(ii) required to pay to the Trust or to any Holder of Trust
Securities any deficit upon dissolution of the Trust or otherwise.
(b) Pursuant to Section 3803(a) of the Business Trust Act, the
Holders of the Trust Securities shall be entitled to the same limitation of
personal liability extended to
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shareholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware.
SECTION 11.2 Exculpation.
(a) No Company Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Trust or any Covered Person for any
loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Company Indemnified Person in good faith on behalf of the Trust
and in a manner such Company Indemnified Person reasonably believed to be within
the scope of the authority conferred on such Company Indemnified Person by this
Declaration or by law, except that a Company Indemnified Person shall be liable
for any such loss, damage or claim incurred by reason of such Company
Indemnified Person's gross negligence (or, in the case of the Property Trustee,
negligence) or willful misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Trust and upon such information, opinions,
reports or statements presented to the Trust by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Trust, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Trust Securities might properly be paid.
SECTION 11.3 Fiduciary Duty.
(a) To the extent that, at law or in equity, an Indemnified Person
has duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to any other Covered Person, an Indemnified Person acting under this
Declaration shall not be liable to the Trust or to any other Covered Person for
its good faith reliance on the provisions of this Declaration. The provisions of
this Declaration, to the extent that they restrict the duties and liabilities of
an Indemnified Person otherwise existing at law or in equity (other than the
duties imposed on the Property Trustee under the Trust Indenture Act), are
agreed by the parties hereto to replace such other duties and liabilities of
such Indemnified Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between an
Indemnified Person and any Covered Person; or
(ii) whenever this Declaration or any other agreement contemplated
herein or therein provides that an Indemnified Person shall act in a
manner that is, or provides terms that are, fair and reasonable to the
Trust or any Holder of Trust Securities,
the Indemnified Person shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such
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interests, any customary or accepted industry practices, and any applicable
generally accepted accounting practices or principles. In the absence of bad
faith by the Indemnified Person, the resolution, action or term so made, taken
or provided by the Indemnified Person shall not constitute a breach of this
Declaration or any other agreement contemplated herein or of any duty or
obligation of the Indemnified Person at law or in equity or otherwise.
(c) Whenever in this Declaration an Indemnified Person is permitted
or required to make a decision:
(i) in its "discretion" or under a grant of similar authority, the
Indemnified Person shall be entitled to consider such interests and
factors as it desires, including its own interests, and shall have no duty
or obligation to give any consideration to any interest of or factors
affecting the Trust or any other Person; or
(ii) in its "good faith" or under another express standard, the
Indemnified Person shall act under such express standard and shall not be
subject to any other or different standard imposed by this Declaration or
by applicable law.
SECTION 11.4 Indemnification.
(a) (i) To the fullest extent permitted by applicable law, the
Sponsor shall indemnify and hold harmless any Company Indemnified 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 (other than an action by
or in the right of the Trust) by reason of the fact that he is or was a
Company Indemnified Person against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Trust, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere
or its equivalent, shall not, of itself, create a presumption that the
Company Indemnified Person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of
the Trust, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(ii) The Sponsor shall indemnify, to the fullest extent permitted by
law, any Company Indemnified Person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit
by or in the right of the Trust to procure a judgment in its favor by
reason of the fact that he is or was a Company Indemnified Person against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Trust and except that no such
indemnification shall be made in respect of any claim, issue or matter as
to which such Company Indemnified Person shall
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have been adjudged to be liable to the Trust unless and only to the extent
that the Court of Chancery of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which such Court of Chancery or such other court shall deem
proper.
(iii) To the extent that a Company Indemnified Person shall be
successful on the merits or otherwise (including dismissal of an action
without prejudice or the settlement of an action without admission of
liability) in defense of any action, suit or proceeding referred to in
paragraphs (i) and (ii) of this Section 11.4(a), or in defense of any
claim, issue or matter therein, he shall be indemnified, to the fullest
extent permitted by law, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
(iv) Any indemnification under paragraphs (i) and (ii) of this
Section 11.4(a) (unless ordered by a court) shall be made by the Sponsor
only as authorized in the specific case upon a determination that
indemnification of the Company Indemnified Person is proper in the
circumstances because he has met the applicable standard of conduct set
forth in paragraphs (i) and (ii). Such determination shall be made (1) by
the Regular Trustees by a majority vote of a quorum consisting of such
Regular Trustees who were not parties to such action, suit or proceeding,
(2) if such a quorum is not obtainable, or, even if obtainable, if a
quorum of disinterested Regular Trustees so directs, by independent legal
counsel in a written opinion, or (3) by the Holder of the Trust Common
Securities.
(v) Expenses (including attorneys' fees) incurred by a Company
Indemnified Person in defending a civil, criminal, administrative or
investigative action, suit or proceeding referred to in paragraphs (i) and
(ii) of this Section 11.4(a) shall be paid by the Sponsor in advance of
the final disposition of such action, suit or proceeding upon receipt of
an undertaking by or on behalf of such Company Indemnified Person to repay
such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Sponsor as authorized in this Section 11.4(a).
Notwithstanding the foregoing, no advance shall be made by the Sponsor if
a determination is reasonably and promptly made (i) by the Regular
Trustees by a majority vote of a quorum of disinterested Regular Trustees,
(ii) if such a quorum is not obtainable, or, even if obtainable, if a
quorum of disinterested Regular Trustees so directs, by independent legal
counsel in a written opinion or (iii) the Holder of the Trust Common
Securities, that, based upon the facts known to the Regular Trustees,
counsel or the Holder of the Trust Common Securities at the time such
determination is made, such Company Indemnified Person acted in bad faith
or in a manner that such person did not believe to be in or not opposed to
the best interests of the Trust, or, with respect to any criminal
proceeding, that such Company Indemnified Person believed or had
reasonable cause to believe his conduct was unlawful. In no event shall
any advance be made in instances where the Regular Trustees, independent
legal counsel or Holder of the Trust Common Securities reasonably
determine that such person deliberately breached his duty to the Trust or
Holders of Trust Common Securities.
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(vi) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other paragraphs of this Section 11.4(a) shall
not be deemed exclusive of any other rights to which those seeking
indemnification and advancement of expenses may be entitled under any
agreement, vote of shareholders or disinterested directors of the Sponsor
or Holders of the Trust Preferred Securities or otherwise, both as to
action in his official capacity and as to action in another capacity while
holding such office. All rights to indemnification under this Section
11.4(a) shall be deemed to be provided by a contract between the Sponsor
and each Company Indemnified Person who serves in such capacity at any
time while this Section 11.4(a) is in effect. Any repeal or modification
of this Section 11.4(a) shall not affect any rights or obligations then
existing.
(vii) The Sponsor or the Trust may purchase and maintain insurance
on behalf of any person who is or was a Company Indemnified Person against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Sponsor
would have the power to indemnify him against such liability under the
provisions of this Section 11.4(a).
(viii) For purposes of this Section 11.4(a), references to "the
Trust" shall include, in addition to the resulting or surviving entity,
any constituent entity (including any constituent of a constituent)
absorbed in a consolidation or merger, so that any person who is or was a
director, trustee, officer or employee of such constituent entity, or is
or was serving at the request of such constituent entity as a director,
trustee, officer, employee or agent of another entity, shall stand in the
same position under the provisions of this Section 11.4(a) with respect to
the resulting or surviving entity as he would have with respect to such
constituent entity if its separate existence had continued.
(ix) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 11.4(a) shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be
a Company Indemnified Person and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(b) The Sponsor agrees to indemnify the (i) Property Trustee, (ii)
the Delaware Trustee, (iii) any Affiliate of the Property Trustee and the
Delaware Trustee, and (iv) any officers, directors, shareholders, members,
partners, employees, representatives, custodians, nominees or agents of the
Property Trustee and the Delaware Trustee (each of the Persons in (i) through
(iv) being referred to as a "Fiduciary Indemnified Person") for, and to hold
each Fiduciary Indemnified Person harmless against, any loss, damage, claim,
liability or expense including taxes (other than taxes based on the income of
the Trustee) incurred without negligence or bad faith on the part of the Trustee
arising out of or in connection with the acceptance or administration of the
trust or trusts hereunder, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against or investigating
any claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder. The obligation to indemnify as set forth in this
Section 11.4(b) shall survive the satisfaction and discharge of this
Declaration.
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SECTION 11.5 Outside Businesses.
Any Covered Person, the Sponsor, the Delaware Trustee and the
Property Trustee may engage in or possess an interest in other business ventures
of any nature or description, independently or with others, similar or
dissimilar to the business of the Trust, and the Trust and the Holders of Trust
Securities shall have no rights by virtue of this Declaration in and to such
independent ventures or the income or profits derived therefrom, and the pursuit
of any such venture, even if competitive with the business of the Trust, shall
not be deemed wrongful or improper. No Covered Person, the Sponsor, the Delaware
Trustee, nor the Property Trustee shall be obligated to present any particular
investment or other opportunity to the Trust even if such opportunity is of a
character that, if presented to the Trust, could be taken by the Trust, and any
Covered Person, the Sponsor, the Delaware Trustee and the Property Trustee shall
have the right to take for its own account (individually or as a partner or
fiduciary) or to recommend to others any such particular investment or other
opportunity. Any Covered Person, the Delaware Trustee and the Property Trustee
may engage or be interested in any financial or other transaction with the
Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee
or agent for, or act on any committee or body of Holders of, securities or other
obligations of the Sponsor or its Affiliates.
ARTICLE XII
ACCOUNTING
SECTION 12.1 Fiscal Year.
The fiscal year ("Fiscal Year") of the Trust shall be the calendar
year.
SECTION 12.2 Certain Accounting Matters.
(a) At all times during the existence of the Trust, the Regular
Trustees shall keep, or cause to be kept, full books of account, records and
supporting documents, which shall reflect in reasonable detail, each transaction
of the Trust. The books of account shall be maintained on the accrual method of
accounting, in accordance with generally accepted accounting principles,
consistently applied. The books of account and the records of the Trust shall be
examined by and reported upon as of the end of each Fiscal Year of the Trust by
a firm of independent certified public accountants selected by the Regular
Trustees.
(b) Within 60 days after May 15 of each year commencing May 15,
1999, the Property Trustee shall provide to the Holders of the Trust Securities
such reports as are required by Section 313 of the Trust Indenture Act, if any,
in the form and in the manner provided by Section 313 of the Trust Indenture
Act. The Property Trustee shall also comply with the requirements of Section
313(d) of the Trust Indenture Act.
(c) The Regular Trustees shall cause to be duly prepared and
delivered to each of the Holders of Trust Securities, any annual United States
federal income tax information statement, required by the Code, containing such
information with regard to the Trust Securities held by each Holder as is
required by the Code and the Treasury Regulations. Notwithstanding
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any right under the Code to deliver any such statement at a later date, the
Regular Trustees shall endeavor to deliver all such statements within 30 days
after the end of each Fiscal Year of the Trust.
(d) The Regular Trustees shall cause to be duly prepared and filed
with the appropriate taxing authority, an annual United States federal income
tax return, on a Form 1041 or such other form required by United States federal
income tax law, and any other annual income tax returns required to be filed by
the Regular Trustees on behalf of the Trust with any state or local taxing
authority.
SECTION 12.3 Banking.
The Trust shall maintain one or more bank accounts in the name and
for the sole benefit of the Trust; provided, however, that all payments of funds
in respect of the Partnership Preferred Securities held by the Property Trustee
shall be made directly to the Property Account and no other funds of the Trust
shall be deposited in the Property Account. The sole signatories for such
accounts shall be designated by the Regular Trustees; provided, however, that
the Property Trustee shall designate the signatories for the Property Account.
SECTION 12.4 Withholding.
The Trust and the Regular Trustees shall comply with all withholding
requirements under United States federal, state and local law. The Trust shall
request, and the Holders shall provide to the Trust, such forms or certificates
as are necessary to establish an exemption from withholding with respect to each
Holder, and any representations and forms as shall reasonably be requested by
the Trust to assist it in determining the extent of, and in fulfilling, its
withholding obligations. The Regular Trustees shall file required forms with
applicable jurisdictions and, unless an exemption from withholding is properly
established by a Holder, shall remit amounts withheld with respect to the Holder
to applicable jurisdictions. To the extent that the Trust is required to
withhold and pay over any amounts to any authority with respect to distributions
or allocations to any Holder, the amount withheld shall be deemed to be a
distribution in the amount of the withholding to the Holder. In the event of any
claimed over withholding, Holders shall be limited to an action against the
applicable jurisdiction. If the amount required to be withheld was not withheld
from actual Distributions made, the Trust may reduce subsequent Distributions by
the amount of such withholding. Notwithstanding anything herein to the contrary,
the Trust and the Regular Trustees shall, absent receipt of an opinion of
nationally recognized tax counsel to the contrary, withhold thirty percent (30%)
(or such other rate as may be imposed as a result of an amendment to the Code or
such lower rate as may be imposed under an applicable income tax treaty) on the
gross amount of any Distributions on Trust Preferred Securities held by a Holder
that is not a "United States person" within the meaning of Section 7701(a)(30)
of the Code.
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ARTICLE XIII
AMENDMENTS AND MEETINGS
SECTION 13.1 Amendments.
(a) Except as otherwise provided in this Declaration or by any
applicable terms of the Trust Securities, this Declaration may only be amended
by a written instrument approved and executed by:
(i) the Regular Trustees (or, if there are more than two Regular
Trustees, a majority of the Regular Trustees);
(ii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Property Trustee, the Property Trustee;
and
(iii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Delaware Trustee, the Delaware Trustee.
(b) No amendment shall be made, and any such purported amendment
shall be void and ineffective:
(i) unless, in the case of any proposed amendment, the Property
Trustee shall have first received an Officers' Certificate from each of
the Trust and the Sponsor that such amendment is permitted by, and
conforms to, the terms of this Declaration (including the terms of the
Trust Securities);
(ii) unless, in the case of any proposed amendment which affects the
rights, powers, duties, obligations or immunities of the Property Trustee,
the Property Trustee shall have first received an opinion of counsel (who
may be counsel to the Sponsor or the Trust) that such amendment is
permitted by, and conforms to, the terms of this Declaration (including
the terms of the Trust Securities); and
(iii) to the extent the result of such amendment would be to:
(A) cause the Trust to fail to continue to be classified for
purposes of United States federal income taxation as a grantor
trust;
(B) cause the Partnership to be classified for purposes of
United States federal income tax as an association or publicly
traded partnership taxable as a corporation;
(C) reduce or otherwise adversely affect the powers of the
Property Trustee in contravention of the Trust Indenture Act; or
(D) cause the Trust to be deemed to be an Investment Company
required to be registered under the 1940 Act.
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(c) In the event the consent of the Property Trustee, as the Holder
of the Partnership Preferred Securities is required under the Limited
Partnership Agreement with respect to any amendment, modification or termination
of the Limited Partnership Agreement or the Partnership Preferred Securities the
Property Trustee shall request the direction of the Holders of the Trust
Securities with respect to such amendment, modification or termination and shall
vote with respect to such amendment, modification or termination as directed by
a Majority in liquidation amount of the Trust Securities voting together as a
single class; provided, however, that where a consent under the Limited
Partnership Agreement would require the consent of a Super Majority of the
Holders of Partnership Preferred Securities the Property Trustee may only give
such consent at the direction of the Holders of at least the proportion in
liquidation amount of the Trust Securities which the relevant Super Majority
represents of the aggregate liquidation preference of the Partnership Preferred
Securities outstanding; provided, further, that the Property Trustee shall not
be obligated to take any action in accordance with the directions of the Holders
of the Trust Securities under this Section 13.1(c) unless the Property Trustee
has obtained an opinion of independent tax counsel to the effect that for United
States federal income tax purposes the Trust will continue to be classified as a
grantor trust after consummation of such action and each Holder will be treated
as owning an undivided beneficial ownership interest in the Partnership
Preferred Securities.
(d) At such time after the Trust has issued any Trust Securities
that remain outstanding, any amendment that would (I) adversely affect the
powers, preferences or special rights of the Trust Securities or (II) provide
for the dissolution, winding-up or termination of the Trust other than pursuant
to the terms of this Declaration, may be effected only with the approval of the
Holders of at least a Majority in liquidation amount of the Trust Securities
affected thereby; provided, that if any amendment or proposal referred to in
clause (I) hereof 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;
(e) Section 11.1 (c) and this Section 13.1 shall not be amended
without the consent of all of the Holders of the Trust Securities;
(f) Article IV shall not be amended without the consent of the
Holders of a Majority in liquidation amount of the Trust Common Securities and;
(g) The rights of the Holders of the Trust Common Securities under
Article V to increase or decrease the number of, and appoint and remove,
Trustees shall not be amended without the consent of the Holders of a Majority
in liquidation amount of the Trust Common Securities; and
(h) Notwithstanding Section 13.1(c), this Declaration may be amended
without the consent of the Holders of the Trust Securities:
(i) to cure any ambiguity;
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(ii) to correct or supplement any provision in this Declaration that
may be defective or inconsistent with any other provision of this
Declaration;
(iii) to add to the covenants, restrictions or obligations of the
Sponsor;
(iv) to conform to any change in the 1940 Act or written change in
interpretation or application of the rules and regulations promulgated
thereunder by any legislative body, court, government agency or regulatory
authority;
(v) to conform to any change in the Trust Indenture Act or written
change in interpretation or application of the rules and regulations
promulgated thereunder by any legislative body, court, government agency
or regulatory authority; and
(vi) to modify, eliminate and add to any provision of this
Declaration to such extent as may be necessary;
provided, that such amendments do not have a material adverse effect on the
rights, preferences or privileges of the Holders.
SECTION 13.2 Meetings of the Holders of Trust Securities; Action by Written
Consent.
(a) Meetings of the Holders of any class of Trust Securities may be
called at any time by the Regular Trustees (or as provided in the terms of the
Trust Securities) to consider and act on any matter on which Holders of such
class of Trust Securities are entitled to act under the terms of this
Declaration, the terms of the Trust Securities, the Limited Partnership
Agreement, the rules of any stock exchange on which the Trust Preferred
Securities are listed or admitted for trading, the Business Trust Act or other
applicable law. The Regular Trustees shall call a meeting of the Holders of such
class if directed to do so by the Holders of at least 10% in liquidation amount
of such class of Trust Securities. Such direction shall be given by delivering
to the Regular Trustees one or more notices in a writing stating that the
signing Holders of Trust Securities wish to call a meeting and indicating the
general or specific purpose for which the meeting is to be called. Any Holders
of Trust Securities calling a meeting shall specify in writing the Certificates
held by the Holders of Trust Securities exercising the right to call a meeting
and only those Trust Securities specified shall be counted for purposes of
determining whether the required percentage set forth in the second sentence of
this paragraph has been met.
(b) Except to the extent otherwise provided in the terms of the
Trust Securities, the following provisions shall apply to meetings of Holders of
Trust Securities:
(i) notice of any such meeting shall be given to all the Holders of
Trust Securities having a right to vote thereat at least 7 days and not
more than 60 days before the date of such meeting. Any action that may be
taken at a meeting of the Holders of Trust Securities may be taken without
a meeting if a consent in writing setting forth the action so taken is
signed by the Holders of Trust Securities owning not less than the minimum
amount of Trust Securities in liquidation amount that would be necessary
to authorize or take such action at a meeting at which all Holders of
Trust Securities having a right to vote thereon were present and voting.
Prompt notice of the taking of action
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without a meeting shall be given to the Holders of Trust Securities
entitled to vote who have not consented in writing. The Regular Trustees
may specify that any written ballot submitted to the Holder for the
purpose of taking any action without a meeting shall be returned to the
Trust within the time specified by the Regular Trustees;
(ii) each Holder of a Trust Security may authorize any Person to act
for it by proxy on all matters in which a Holder of Trust Securities is
entitled to participate, including waiving notice of any meeting, or
voting or participating at a meeting. No proxy shall be valid after the
expiration of 11 months from the date thereof unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the Holder of
Trust Securities executing it. Except as otherwise provided herein, all
matters relating to the giving, voting or validity of proxies shall be
governed by the General Corporation Law of the State of Delaware relating
to proxies, and judicial interpretations thereunder, as if the Trust were
a Delaware corporation and the Holders of the Trust Securities were
shareholders of a Delaware corporation;
(iii) each meeting of the Holders of the Trust Securities shall be
conducted by the Regular Trustees or by such other Person that the Regular
Trustees may designate; and
(iv) unless the Business Trust Act, this Declaration, the terms of
the Trust Securities, the Trust Indenture Act or the listing rules of any
stock exchange on which the Trust Preferred Securities are then listed for
trading, otherwise provides, the Regular Trustees, in their sole
discretion, shall establish all other provisions relating to meetings of
Holders of Trust Securities, including notice of the time, place or
purpose of any meeting at which any matter is to be voted on by any
Holders of Trust Securities, waiver of any such notice, action by consent
without a meeting, the establishment of a record date, quorum
requirements, voting in person or by proxy or any other matter with
respect to the exercise of any such right to vote.
ARTICLE XIV
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE
SECTION 14.1 Representations and Warranties of Property Trustee.
The Trustee that acts as initial Property Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration, and
each Successor Property Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Property Trustee's acceptance of its
appointment as Property Trustee that:
(a) The Property Trustee is a New York banking corporation with
trust powers, duly organized, validly existing and in good standing under
the laws of New York, with trust power and authority to execute and
deliver, and to carry out and perform its obligations under the terms of,
the Declaration;
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(b) The execution, delivery and performance by the Property Trustee
of the Declaration has been duly authorized by all necessary corporate
action on the part of the Property Trustee. The Declaration has been duly
executed and delivered by the Property Trustee and constitutes a legal,
valid and binding obligation of the Property Trustee, enforceable against
it in accordance with its terms, subject to applicable bankruptcy,
reorganization, moratorium, insolvency, and other similar laws affecting
creditors' rights generally and to general principles of equity and the
discretion of the court (regardless of whether the enforcement of such
remedies is considered in a proceeding in equity or at law);
(c) The execution, delivery and performance of the Declaration by
the Property Trustee does not conflict with or constitute a breach of the
Articles of Organization or By-laws of the Property Trustee;
(d) No consent, approval or authorization of, or registration with
or notice to, any State or Federal banking authority is required for the
execution, delivery or performance by the Property Trustee of this
Declaration; and
(e) The Property Trustee, pursuant to this Declaration, shall hold
legal title to, and a valid ownership interest on behalf of the Holders of
the Trust Securities, in the Partnership Preferred Securities and agrees
that, except as expressly provided or contemplated by this Agreement, it
will not create, incur or assume, or suffer to exist any mortgage, pledge,
hypothecation, encumbrance, lien or other charge or security interest upon
the Partnership Preferred Securities.
SECTION 14.2 Representations and Warranties of Delaware Trustee.
The Trustee that acts as initial Delaware Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration, and
each Successor Delaware Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Delaware Trustee's acceptance of its
appointment as Delaware Trustee that:
(a) The Delaware Trustee is a Delaware corporation with, duly
organized, validly existing and in good standing under the laws of the
State of Delaware, with power and authority to execute and deliver, and to
carry out and perform its obligations under the terms of, the Declaration;
(b) The Delaware Trustee has been authorized to perform its
obligations under the Certificate of Trust and the Declaration. The
Declaration, under Delaware law, constitutes a legal, valid and binding
obligation of the Delaware Trustee, enforceable against it in accordance
with its terms, subject to applicable bankruptcy, reorganization,
moratorium, insolvency, and other similar laws affecting creditors' rights
generally and to general principles of equity and the discretion of the
court (regardless of whether the enforcement of such remedies is
considered in a proceeding in equity or at law);
59
<PAGE>
(c) No consent, approval or authorization of, or registration with
or notice to, any State or Federal banking authority is required for the
execution, delivery or performance by the Delaware Trustee of the
Declaration; and
(d) The Delaware Trustee is an entity which has its principal place
of business in the State of Delaware.
ARTICLE XV
MISCELLANEOUS
SECTION 15.1 Notices.
All notices provided for in this Declaration shall be in writing,
duly signed by the party giving such notice, and shall be delivered, telecopied
or mailed by registered or certified mail, as follows:
(a) if given to the Trust, in care of the Regular Trustees at the
Trust's mailing address set forth below (or such other address as the
Trust may give notice of to the Holders of the Trust Securities):
MERRILL LYNCH PREFERRED CAPITAL TRUST VI
c/o Merrill Lynch & Co., Inc.
World Financial Center
South Tower
225 Liberty Street
New York, New York 10080-6105
Attention: Treasurer
(b) if given to the Delaware Trustee, at the mailing address set
forth below (or such other address as the Delaware Trustee may give notice
of to the other Trustees):
Chase Manhattan Bank Delaware
1201 Market Street
Wilmington, Delaware 19801
Attention: John J. Cashin
Vice President
(c) if given to the Property Trustee, at its Corporate Trust Office
(or such other address as the Property Trustee may give notice of to the
Holders of the Trust Securities and the other Trustee)
(d) if given to the Holder of the Trust Common Securities, at the
mailing address of the Sponsor set forth below (or such other address as
the Holder of the Trust Common Securities may give notice of to the
Trust):
60
<PAGE>
MERRILL LYNCH PREFERRED CAPITAL TRUST VI
c/o Merrill Lynch & Co., Inc.
World Financial Center
South Tower
225 Liberty Street
New York, New York 10080-6105
Attention: Treasurer
(e) if given to any other Holder, at the address set forth on the
books and records of the Trust.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.
SECTION 15.2 Governing Law.
This Declaration and the rights of the parties hereunder shall be
governed by and construed in accordance with the internal laws of the State of
Delaware and all rights and remedies shall be governed by such laws without
regard to principles of conflict of laws.
SECTION 15.3 Intention of the Parties.
It is the intention of the parties hereto that the Trust be
classified for United States federal income tax purposes as a grantor trust. The
provisions of this Declaration shall be interpreted to further this intention of
the parties.
SECTION 15.4 Headings.
Headings contained in this Declaration are inserted for convenience
of reference only and do not affect the interpretation of this Declaration or
any provision hereof.
SECTION 15.5 Successors and Assigns.
Whenever in this Declaration any of the parties hereto is named or
referred to, the successors and assigns of such party shall be deemed to be
included, and all covenants and agreements in this Declaration by the Sponsor
and the Trustees shall bind and inure to the benefit of their respective
successors and assigns, whether so expressed.
SECTION 15.6 Partial Enforceability.
If any provision of this Declaration, or the application of such
provision to any Person or circumstance, shall be held invalid, the remainder of
this Declaration, or the application of such provision to persons or
circumstances other than those to which it is held invalid, shall not be
affected thereby.
61
<PAGE>
SECTION 15.7 Counterparts.
This Declaration may contain more than one counterpart of the
signature page and this Declaration may be executed by the affixing of the
signature of each of the Trustees and a duly authorized officer of the Sponsor
to one of such counterpart signature pages. All of such counterpart signature
pages shall be read as though one, and they shall have the same force and effect
as though all of the signers had signed a single signature page.
62
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has be executed this
Declaration as of the day and year first above written.
__________________________________________________
Theresa Lang, as Regular Trustee
__________________________________________________
Stanley Schaefer, as Regular Trustee
CHASE MANHATTAN BANK DELAWARE,
as Delaware Trustee
By: ______________________________________________
Name:
Title:
THE CHASE MANHATTAN BANK,
as Property Trustee
By: ______________________________________________
Name:
Title:
MERRILL LYNCH & CO., INC.,
as Sponsor
By: ______________________________________________
Name: Theresa Lang
Title: Senior Vice President and Treasurer
63
<PAGE>
EXHIBIT A-1
FORM OF PREFERRED SECURITY CERTIFICATE
This Trust Preferred Security is a Global Certificate within the
meaning of the Declaration hereinafter referred to and is registered in the name
of The Depository Trust Company (the "Depositary") or a nominee of the
Depositary. This Trust Preferred Security is exchangeable for Trust Preferred
Securities registered in the name of a person other than the Depositary or its
nominee only in the limited circumstances described in the Declaration and no
transfer of this Trust Preferred Security (other than a transfer of this Trust
Preferred Security as a whole by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary) may be registered except in limited circumstances.
Unless this Trust Preferred Security is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York), a New York corporation, to the Trust or its agent for registration of
transfer, exchange or payment, and any Trust Preferred Security issued is
registered in the name of Cede & Co. or such other name as requested by an
authorized representative of the Depositary and any payment hereon is made to
Cede & Co. or such other entity as is requested by an authorized representative
of the Depositary, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
<PAGE>
TP-1 [__________________]
Certificate Evidencing Trust Preferred Securities
of
MERRILL LYNCH PREFERRED CAPITAL TRUST VI
_____% Trust Preferred Securities
(liquidation amount $25 per Trust Preferred Security)
MERRILL LYNCH PREFERRED CAPITAL TRUST VI, a statutory business
trust formed under the laws of the State of Delaware (the "Trust"), hereby
certifies that Cede & Co. (the "Holder") is the registered owner of
__________ preferred securities of the Trust representing undivided
beneficial ownership interests in the assets of the Trust designated the
____% Trust Preferred Securities (liquidation amount $25 per Trust Preferred
Security) (the "Trust Preferred Securities"). The Trust Preferred Securities
are freely transferable on the books and records of the Trust, in person or
by a duly authorized attorney, upon surrender of this certificate duly
endorsed and in proper form for transfer. The designation, rights, powers,
privileges, restrictions, preferences and other terms and provisions of the
Trust Preferred Securities represented hereby are set forth in, issued under
and shall in all respects be subject to the provisions of the Amended and
Restated Declaration of Trust dated as of __________, 1999, as the same may
be amended from time to time (the "Declaration"). Capitalized terms used
herein but not defined shall have the meaning given them in the Declaration.
The Holder is entitled to the benefits of the Trust Preferred Securities
Guarantee to the extent provided therein. Each Holder of a Trust Preferred
Security, by acceptance of this Certificate and each Certificate owner, by
acquisition of a beneficial interest in a Certificate, agrees to treat the
Debentures, and any other Affiliate Investment Instruments that are treated
as debt instruments by the relevant Investment Affiliate and by the
Partnership, as indebtedness for United States federal income tax purposes.
The Sponsor will provide a copy of the Declaration, the Trust Preferred
Securities Guarantee and the Limited Partnership Agreement to a Holder
without charge upon written request to the Trust at its principal place of
business.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
A1-1
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this certificate this
_____ day of ________, 1999.
MERRILL LYNCH PREFERRED
CAPITAL TRUST VI
____________________________________________
Name: Theresa Lang,
as Regular Trustee
(See reverse for additional terms)
A1-2
<PAGE>
CERTIFICATE OF AUTHENTICATION
This is the Trust Preferred Security described in the within-
mentioned Declaration.
THE CHASE MANHATTAN BANK,
as Trustee
By: ________________________________________
Authorized Officer
A1-3
<PAGE>
[FORM OF REVERSE OF SECURITY]
Holders of Trust Preferred Securities shall be entitled to receive
cumulative cash distributions at a rate per annum of ____% of the stated
liquidation amount of $25 per Trust Preferred Security. Distributions on the
Trust Preferred Securities shall, from the date of original issue, accumulate
and be cumulative and shall be payable quarterly only to the extent that the
Trust has funds available for the payment of such distributions in the Property
Account. Distributions not paid on the scheduled payment date will accumulate
and compound quarterly (to the extent permitted by applicable law) at the rate
of ____% per annum. The term "Distributions" as used herein shall mean ordinary
cumulative distributions in respect of each Fiscal Period together with any such
Compounded Distributions. 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 on the Partnership Preferred Securities or
from the Company on the Partnership 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. If and to
the extent that the Partnership makes a distribution on the Partnership
Preferred Securities held by the Property Trustee or the Company makes a payment
under the Partnership Guarantee (the amount of any such partnership
distribution, including any compounded partnership distributions or guarantee
payment being a "Payment Amount"), the Trust shall and the Property Trustee is
directed, to the extent funds are available for that purpose, to make a Pro Rata
Distribution of the Payment Amount to Holders.
The amount of Distributions payable for any period will be computed
for any full quarterly Distribution period on the basis of a 360-day year of
twelve 30-day months, and for any period shorter than a full quarterly
Distribution period on the basis of the actual number of days elapsed in a
90-day quarter.
Except as otherwise described herein, 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 March 30, June 30,
September 30 and December 30 of each year, commencing on ________________,
1999, if, as and when available for payment by the Property Trustee. If the
Trust Preferred Securities (or, if the Trust is liquidated, the Partnership
Preferred Securities) are in book-entry-only form, Distributions will be
payable to the Holders of record of Trust Preferred Securities as they appear
on the books and records of the Trust on the relevant record dates, which
will be one Business Day prior to the relevant payment dates. If the Trust
Preferred Securities (or, if the Trust is liquidated, the Partnership
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 is not a
Business Day, payment of such Distribution shall be made on the next
succeeding day which is a Business Day (without any interest or other payment
in respect of any such delay) except that, if such Business Day falls in the
next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, with the same force and effect as if made on such
date. Payments of accumulated Distributions will be payable to Holders of
record of
A1-4
<PAGE>
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.
The Trust Preferred Securities shall be redeemable as provided in
the Declaration.
A1-5
<PAGE>
--------------------------------
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Trust Preferred
Security Certificate to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax identification number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints
________________________________________________________________________________
________________________________________________________________________________
______________________________________________________________ agent to transfer
this Trust Preferred Security Certificate on the books of the Trust. The agent
may substitute another to act for him or her.
Date: ______________________________
Signature: _________________________
(Sign exactly as your name appears on the other side of this Trust Preferred
Security Certificate)
A1-6
<PAGE>
EXHIBIT A-2
FORM OF COMMON SECURITY CERTIFICATE
CS-1 _________
Certificate Evidencing Trust Common Securities
of
MERRILL LYNCH PREFERRED CAPITAL TRUST VI
____% Trust Common Securities
(liquidation amount $25 per Trust Common Security)
MERRILL LYNCH PREFERRED CAPITAL TRUST VI, a statutory business
trust formed under the laws of the State of Delaware (the "Trust"), hereby
certifies that Merrill Lynch & Co., Inc., a Delaware corporation (the
"Holder") is the registered owner of _________ common securities of the Trust
representing undivided beneficial ownership interests in the assets of the
Trust designated the ____% Trust Common Securities (liquidation amount $25
per Trust Common Security) (the "Trust Common Securities"). The designation,
rights, powers, privileges, restrictions, preferences and other terms and
provisions of the Trust Common Securities represented hereby are set forth
in, issued under and shall in all respects be subject to the provisions of
the Amended and Restated Declaration of Trust dated as of __________, 1999,
as the same may be amended from time to time (the "Declaration"). Capitalized
terms used herein but not defined shall have the meaning given them in the
Declaration. The Holder is entitled to the benefits of the Trust Common
Securities Guarantee to the extent provided therein. Each Holder of a Trust
Common Security, by acceptance of this Certificate, agrees to treat the
Debentures, and any other Affiliate Investment Instruments that are treated
as debt instruments by the relevant Investment Affiliate and by the
Partnership, as indebtedness for United States federal income tax purposes.
The Sponsor will provide a copy of the Declaration, the Trust Common
Securities Guarantee and the Limited Partnership Agreement to a Holder
without charge upon written request to the Sponsor at its principal place of
business. THE TRUST COMMON SECURITIES ARE TRANSFERABLE ON THE BOOKS AND
RECORDS OF THE TRUST ONLY IN ACCORDANCE WITH THE TERMS OF THE DECLARATION.
Upon receipt of this certificate, the Sponsor is bound by the
Declaration and is entitled to the benefits thereunder.
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this certificate this
___ day of ________, 1999.
MERRILL LYNCH PREFERRED
CAPITAL TRUST VI
____________________________________________
Name: Theresa Lang,
as Regular Trustee
(See reverse for additional terms)
A2-2
<PAGE>
CERTIFICATE OF AUTHENTICATION
This is the Trust Common Security described in the within-mentioned
Declaration.
THE CHASE MANHATTAN BANK,
as Trustee
By: ________________________________________
Authorized Officer
A2-3
<PAGE>
[FORM OF REVERSE OF SECURITY]
Holders of Trust Common Securities shall be entitled to receive
cumulative cash distributions at a rate per annum of ____% of the stated
liquidation amount of $25 per Trust Common Security. Distributions on the Trust
Common Securities shall, from the date of original issue, accumulate and be
cumulative and shall be payable quarterly only to the extent that the Trust has
funds available for the payment of such distributions in the Property Account.
Distributions not paid on the scheduled payment date will accumulate and
compound quarterly (to the extent permitted by applicable law) at the rate of
____% per annum. The term "Distributions" as used herein shall mean ordinary
cumulative distributions in respect of each Fiscal Period together with any such
Compounded Distributions. Amounts available to the Trust for distribution to the
holders of the Trust Common Securities will be limited to payments received by
the Trust from the Partnership on the Partnership Preferred Securities or from
the Company on the Partnership 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. If and to
the extent that the Partnership makes a distribution on the Partnership
Preferred Securities held by the Property Trustee or the Company makes a payment
under the Partnership Guarantee (the amount of any such partnership
distribution, including any compounded partnership distributions or guarantee
payment being a "Payment Amount"), the Trust shall and the Property Trustee is
directed, to the extent funds are available for that purpose, to make a Pro Rata
Distribution of the Payment Amount to Holders.
The amount of Distributions payable for any period will be computed
for any full quarterly Distribution period on the basis of a 360-day year of
twelve 30-day months, and for any period shorter than a full quarterly
Distribution period on the basis of the actual number of days elapsed in a
90-day quarter.
Except as otherwise described herein, distributions on the Trust
Common Securities will be cumulative, will accumulate from the date of initial
issuance and will be payable quarterly in arrears, on March 30, June 30,
September 30 and December 30 of each year, commencing on _____________, 1999 if,
as and when available for payment by the Property Trustee. Distributions will be
payable to the Holders of record of Trust Common Securities as they appear on
the books and records of the Trust on the relevant record dates, which will be
one Business Day prior to the relevant payment dates. In the event that any date
on which distributions are payable is not a Business Day, payment of the
Distribution shall be made on the next succeeding day which is a Business Day
(without any interest or other payment in respect of any such delay) except
that, if such Business Day falls 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. Payments of accumulated
Distributions will be payable to Holders of record of Trust Common Securities as
they appear on the books and records of the Trust on the record date with
respect to the
A2-4
<PAGE>
payment date for the Trust Common Securities which corresponds to the payment
date fixed by the Partnership with respect to the payment of cumulative
distributions on the Partnership Preferred Securities.
The Trust Common Securities shall be redeemable as provided in the
Declaration.
A2-5
<PAGE>
---------------------
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Trust Common
Security Certificate to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax identification number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints
________________________________________________________________________________
________________________________________________________________________________
______________________________________________________________ agent to transfer
this Trust Common Security Certificate on the books of the Trust. The agent may
substitute another to act for him or her.
Date: _________________________________
Signature: ____________________________
(Sign exactly as your name appears on the other side of this Trust Common
Security Certificate)
A2-6
<PAGE>
Exhibit 4(qqqq)
--------------------
AGREEMENT OF LIMITED PARTNERSHIP
OF
MERRILL LYNCH PREFERRED FUNDING VI, L.P.
Dated as of December 3, 1998
--------------------
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I.
FORMATION OF THE PARTNERSHIP
Section 1.01. Name...........................................................1
Section 1.02. Business of the Partnership....................................1
Section 1.03. Term...........................................................2
Section 1.04. Registered Agent and Office....................................2
Section 1.05. Principal Place of Business....................................2
Section 1.06. Name and Business Address of General Partner...................2
Section 1.07. Admission of Initial Partners..................................2
Section 1.08. Additional Partners............................................3
ARTICLE II.
DEFINED TERMS
Section 2.01. Definitions....................................................3
ARTICLE III.
CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS
Section 3.01. Capital Contributions..........................................4
Section 3.02. Capital Accounts...............................................5
Section 3.03. Interest on Capital Contributions..............................5
Section 3.04. Withdrawal and Return of Capital Contributions.................5
ARTICLE IV.
ALLOCATIONS; DISTRIBUTIONS
Section 4.01. Allocations of Profits and Losses..............................5
Section 4.02. Distributions..................................................5
ARTICLE V.
POWERS, RIGHTS AND DUTIES OF THE PARTNERS
Section 5.01. General Partner................................................6
Section 5.02. Limited Partners...............................................6
Section 5.03. Liability......................................................6
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI.
MISCELLANEOUS
Section 6.01. Expenses.......................................................7
Section 6.02. Transfer of Interests..........................................7
Section 6.03. Dissolution of the Partnership.................................8
Section 6.04. Distribution in Liquidation....................................9
Section 6.05. Termination....................................................9
Section 6.06. Rights of Limited Partners.....................................9
Section 6.07. Amendments.....................................................9
Section 6.08. Amendment of Certificate......................................10
Section 6.09. Notices.......................................................10
Section 6.10. Entire Agreement..............................................11
Section 6.11. Governing Law.................................................11
Section 6.12. Effect........................................................11
Section 6.13. Pronouns and Number...........................................11
Section 6.14. Captions and Headings.........................................11
Section 6.15. Partial Enforceability........................................11
Section 6.16. Counterparts..................................................12
</TABLE>
ii
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP of Merrill Lynch Preferred Funding
VI, L.P. (the "Partnership"), dated as of December 3, 1998, among Merrill Lynch
& Co., Inc., a Delaware corporation (the "Company"), as the general partner, and
Merrill Lynch Group, Inc., a Delaware corporation, as the initial limited
partner (the "Initial Limited Partner").
WHEREAS, the Certificate of Limited Partnership of the Partnership
substantially in the form of Annex A was filed with the Office of the Secretary
of State of the State of Delaware on December 3, 1998;
NOW, THEREFORE, in consideration of the agreements and obligations
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I.
FORMATION OF THE PARTNERSHIP
Section 1.01. Name.
The name of the Partnership is "Merrill Lynch Preferred Funding VI,
L.P.", as such name may be modified from time to time by the General Partner
following written notice to the Limited Partners. The Partnership business may
be conducted under the name of the Partnership or any other name deemed
advisable by the General Partner.
Section 1.02. Business of the Partnership.
The sole purpose of the Partnership is (a) to issue partnership
interests in the Partnership, including, without limitation, preferred
securities (the "Partnership Preferred Securities") and to use the proceeds
thereof to purchase, from time to time, (i) certain eligible debt investment
instruments of the Company and its eligible controlled affiliates and (ii) to a
limited extent, certain eligible debt securities of entities not affiliated with
the Company and (b) except as otherwise limited herein, to enter into, make and
perform all contracts and other undertakings, and engage in all activities and
transactions as the General Partner may reasonably deem necessary or advisable
to carry out the foregoing purpose of the Partnership.
Section 1.03. Term.
The term of the Partnership shall commence upon the filing of the
Certificate in the Office of the Secretary of State of the State of Delaware and
shall
<PAGE>
continue until the Partnership is dissolved in accordance with the provisions of
this Agreement.
Section 1.04. Registered Agent and Office.
The Partnership's registered office, and the name and address of the
registered agent for service of process, in the State of Delaware shall be CT
Corporation, Corporate Trust Center, 1209 Orange Street, Wilmington, Delaware
19801. At any time, the General Partner may designate another registered agent
and/or registered office.
Section 1.05. Principal Place of Business.
The principal place of business of the Partnership shall be: c/o
Merrill Lynch & Co., Inc., World Financial Center, North Tower, 250 Vesey
Street, New York, New York 10281. Upon ten days written notice to the Limited
Partners, the General Partner may change the location of the Partnership's
principal place of business.
Section 1.06. Name and Business Address of General Partner.
The name and address of the General Partner are as follows:
Merrill Lynch & Co., Inc.
World Financial Center, North Tower
250 Vesey Street
New York, New York 10281
The General Partner may change its name or business address from time to time,
in which event the General Partner shall promptly notify the Limited Partners of
any such change.
Section 1.07. Admission of Initial Partners.
The Company and the Initial Limited Partner shall be deemed admitted
to the Partnership as general partner and limited partner, respectively, upon
the formation of the Partnership.
Section 1.08. Additional Partners.
(a) The General Partner may admit additional Limited Partners. Upon
the admission of any additional Limited Partner, the Initial Limited Partner
2
<PAGE>
shall withdraw from the Partnership and shall be entitled to receive forthwith
the return of its capital contribution, without interest or deduction.
(b) The Partnership shall continue as a limited partnership under
the Act (as defined herein) after the admission of any additional Limited
Partner pursuant to this Section 1.8.
(c) The admission of additional Limited Partners pursuant to this
Section 1.8 shall be accomplished by the amendment of this Agreement of Limited
Partnership and, if required by the Act, the filing of a certificate of
amendment in the Office of the Secretary of State of the State of Delaware.
ARTICLE II.
DEFINED TERMS
Section 2.01. Definitions.
Unless the context otherwise requires, the terms defined in this
Article II shall, for the purposes of this Agreement, have the meanings herein
specified.
"Act" means the Delaware Revised Uniform Limited Partnership Act, 6
Del. C. Section 17-101, et seq., as amended from time to time.
"Agreement" means this Agreement of Limited Partnership of the
Partnership, as amended, modified, supplemented or restated from time to time.
"Capital Account" has the meaning set forth in Section 3.2.
"Certificate" means the Certificate of Limited Partnership of the
Partnership filed with the Secretary of State of the State of Delaware on
December 3, 1998 and any and all amendments thereto and restatements thereof.
"Company" has the meaning set forth in the forepart of this
Agreement.
"Fiscal Year" means (i) the period commencing upon the formation of
the Partnership and ending on the last Friday in December, 1998 and (ii) any
subsequent period commencing on the day immediately succeeding the last Friday
in December of a calendar year and ending on the last Friday in December of the
immediately succeeding calendar year.
3
<PAGE>
"General Partner" means the Company, in its capacity as general
partner of the Partnership, and any additional or successor general partner of
the Partnership admitted as a general partner of the Partnership pursuant to
this Agreement.
"Initial Limited Partner" means Merrill Lynch Group, Inc., a
Delaware corporation.
"Interest" means the entire ownership interest of a Partner in the
Partnership at any particular time, including, without limitation, its interest
in the capital, profits, losses and distributions of the Partnership.
"Limited Partner" means any Person who is admitted to the
Partnership as a limited partner of the Partnership pursuant to the terms of
this Agreement, in each such Person's capacity as a limited partner of the
Partnership.
"Partners" means the General Partner and the Limited Partners,
collectively, where no distinction is required by the context in which the term
is used.
"Partnership" means the limited partnership formed under and
pursuant to the Act and this Agreement.
"Treasury Regulations" means the income tax regulations, including
temporary regulations, promulgated under the Internal Revenue Code of 1986, as
amended, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
ARTICLE III.
CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS
Section 3.01. Capital Contributions.
(a) The General Partner has contributed an aggregate of $15.00 to
the capital of the Partnership, which amount is equal to at least 15% of the
total capital contributions to the Partnership on the date hereof, after taking
into account the contribution of the Initial Limited Partner referred to in
paragraph (b) of this Section 3.1. The General Partner shall from time to time
make such additional capital contributions as are necessary to maintain its
Capital Account balance at least equal to 10% of the aggregate positive Capital
Account balances of all Partners.
4
<PAGE>
(b) The Initial Limited Partner has contributed the amount of $85.00
to the capital of the Partnership. The Initial Limited Partner is not required
to make any additional capital contributions to the Partnership.
Section 3.02. Capital Accounts.
An individual capital account (a "Capital Account") shall be
established and maintained on the books of the Partnership for each Partner in
compliance with Treasury Regulation (Sec.)1.704-1(b)(2)(iv) and 1.704-2, as
amended. Subject to the preceding sentence, each Capital Account will be
credited with the capital contributions made and the profits allocated to such
Partner (or predecessor in interest) and debited by the distributions made and
losses allocated to such Partner (or predecessor in interest).
Section 3.03. Interest on Capital Contributions.
No Partner shall be entitled to interest on or with respect to any
capital contribution to the Partnership.
Section 3.04. Withdrawal and Return of Capital Contributions.
No Partner shall be entitled to withdraw any part of such Partner's
capital contribution to the Partnership or to receive any distributions from the
Partnership, except as provided in this Agreement.
ARTICLE IV.
ALLOCATIONS; DISTRIBUTIONS
Section 4.01. Allocations of Profits and Losses.
The Partnership's profits and losses shall be allocated in
proportion to the capital contributions of the Partners.
Section 4.02. Distributions.
At the time determined by the General Partner, but at least once
during each Fiscal Year, the General Partner shall cause the Partnership to
distribute any cash held by it which is not reasonably necessary for the
operation of the Partnership. Cash available for distribution shall be
distributed to the Partners in the same proportion as their then Capital Account
balances.
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ARTICLE V.
POWERS, RIGHTS AND DUTIES OF THE PARTNERS
Section 5.01. General Partner.
(a) The General Partner shall have exclusive and complete authority
and discretion to manage the operations and affairs of the Partnership and to
make all decisions regarding the business of the Partnership. Any action taken
by the General Partner shall constitute the act of and serve to bind the
Partnership. In dealing with the General Partner acting on behalf of the
Partnership, no Person shall be required to inquire into the authority of the
General Partner to bind the Partnership. Persons dealing with the Partnership
are entitled to rely conclusively on the power and authority of the General
Partner as set forth in this Agreement.
(b) The General Partner shall have all rights and powers of a
general partner under the Act, and shall have all authority, rights and powers
in the management of the Partnership business to do any and all other acts and
things necessary, proper, convenient or advisable to effectuate the purposes of
this Agreement.
Section 5.02. Limited Partners.
(a) The Limited Partners shall not participate in the management or
control of the Partnership's business, property or other assets nor shall the
Limited Partners transact any business for the Partnership, nor shall the
Limited Partners have the power to act for or bind the Partnership, said powers
being vested solely and exclusively in the General Partner.
(b) Subject to the provisions of the Act, no Limited Partner shall
be liable for the repayment, satisfaction or discharge of any debts or other
obligations of the Partnership in excess of the Capital Account balance of such
Limited Partner.
Section 5.03. Liability.
Except as expressly set forth in this Agreement, (a) the General
Partner shall not be personally liable for the return of any portion of the
capital contributions (or any return thereon) of the Limited Partners; (b) the
return of such capital contributions (or any return thereon) shall be made
solely from assets of the Partnership; and (c) the General Partner shall not be
required to pay to the Partnership or to any Limited Partner any deficit in any
Limited Partner's Capital Account upon dissolution or otherwise. Other than as
expressly provided in this Agreement or under the Act, no Limited Partner shall
have the right to demand or
6
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receive property other than cash for its respective Interest in the Partnership.
Otherwise, the General Partner shall be liable to an unlimited extent for the
debts and other obligations of the Partnership.
ARTICLE VI.
MISCELLANEOUS
Section 6.01. Expenses.
(a) The General Partner shall pay for all costs and expenses of the
Partnership (including, but not limited to, costs and expenses relating to the
organization of, and offering of limited partner interests in, the Partnership
and costs and expenses relating to the operation of the Partnership, including
without limitation, costs and expenses of accountants, attorneys, statistical or
bookkeeping services and computing or accounting equipment, paying agent(s) or
registrar(s), transfer agent(s), duplicating, travel and telephone and costs and
expenses incurred in connection with the acquisition, financing, and disposition
of Partnership assets).
(b) The General Partner will pay any and all taxes (other than
United States withholding taxes) and all liabilities, costs and expenses with
respect to such taxes of the Partnership.
Section 6.02. Transfer of Interests.
(a) The General Partner may not assign its interest in the
Partnership in whole or in part under any circumstances except to a successor of
the General Partner. The admission of such successor as a general partner of the
Partnership shall be effective upon the filing of an amendment to the
Certificate with the Secretary of State of the State of Delaware which indicates
that such successor has been admitted as a general partner in the Partnership.
If the General Partner assigns its entire Interest to a successor of the General
Partner, the General Partner shall cease to be a general partner in the
Partnership simultaneously with the admission of the successor as a general
partner in the Partnership. Any such successor general partner in the
Partnership is hereby authorized to and shall continue the business of the
Partnership without dissolution.
(b) A Limited Partner may assign all or any part of his or its
partnership interest only with the consent of the General Partner. A Limited
Partner has no right to grant an assignee of his or its partnership interest the
right to become a substituted Limited Partner.
Section 6.03. Dissolution of the Partnership.
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(a) The Partnership shall not be dissolved by the admission of
additional or successor Partners in accordance with the terms of this Agreement.
The death, withdrawal, bankruptcy or dissolution of a Limited Partner, or the
occurrence of any other event which terminates the Interest of a Limited Partner
in the Partnership, shall not, in and of itself, cause the Partnership to be
dissolved and its affairs wound up. To the fullest extent permitted by
applicable law, upon the occurrence of such event, the General Partner may,
without any further act, vote or approval of any Partner, admit any Person to
the Partnership as an additional or substitute limited partner in the
Partnership, which admission shall be effective as of the date of the occurrence
of such event, and the business of the Partnership shall be continued without
dissolution.
(b) The Partnership shall be dissolved and its affairs shall be
wound up upon the occurrence of any of the following events:
(i) The expiration of the term of the Partnership, as provided in
Section 1.3 hereof,
(ii) Upon the bankruptcy of the General Partner;
(iii) 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
Section 6.2(a), 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 the occurrence of any other event which causes the General
Partner to cease to be a general partner of the Partnership under the Act,
unless the business of the Partnership is continued in accordance with the
Act (any remaining general partner of the Partnership is hereby authorized
to and shall continue the business of the Partnership without
dissolution);
(iv) upon the entry of a decree of judicial dissolution under
Section 17-802 of the Act; or
(v) upon the written consent of all Partners.
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Section 6.04. Distribution in Liquidation.
Upon the winding up of the Partnership, the assets of the
Partnership shall be distributed in the following order of priority:
(i) to creditors of the Partnership, to the extent otherwise
permitted by law, in satisfaction of the liabilities of the Partnership
(whether by payment or the making of reasonable provision for payment
thereof); and
(ii) to the Partners in proportion to such Partners' positive
Capital Account balances.
Section 6.05. Termination.
The Partnership shall terminate when all of the assets of the
Partnership shall have been disposed of and the assets shall have been
distributed in accordance with Section 6.4, and the General Partner has executed
and caused to be filed a certificate of cancellation of the Certificate.
Section 6.06. Rights of Limited Partners.
Each Limited Partner shall look solely to the assets of the
Partnership for all distributions with respect to the Partnership and such
Partner's capital contribution (including return thereof), and such Partner's
share of profits or losses thereof, and shall have no recourse therefor (upon
dissolution or otherwise) against the General Partner. No Partner shall have any
right to demand or receive property other than cash upon dissolution and
termination of the Partnership.
Section 6.07. Amendments.
Except as otherwise provided in this Agreement, this Agreement shall
be amended by, and only by, a written instrument executed by the General
Partner; provided, however, that no amendment shall be made, and any such
purported amendment shall be void and ineffective, to the extent the result
thereof would be to cause the Partnership to be treated as anything other than a
partnership for purposes of United States income taxation.
Section 6.08. Amendment of Certificate.
In the event this Agreement shall be amended pursuant to Section
6.7, the General Partner shall amend the Certificate to reflect such change if
it deems such amendment of the Certificate to be necessary or appropriate.
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Section 6.09. Notices.
All notices provided for in this Agreement shall be in writing, duly
signed by the party giving such notice, and shall be delivered, telecopied or
mailed by registered or certified mail, as follows:
(a) if given to the Partnership, in care of the General Partner at
the Partnership's mailing address set forth below:
Merrill Lynch Preferred Funding VI, L.P.
c/o Merrill Lynch & Co., Inc.
World Financial Center, North Tower
250 Vesey Street
New York, New York 10281
Attention: Treasurer
(b) if given to the General Partner, at its mailing address set
forth below:
Merrill Lynch & Co., Inc.
World Financial Center, North Tower
250 Vesey Street
New York, New York 10281
Attention: Treasurer
(c) if given to any other Partner, at the address set forth on the
books and records of the Partnership.
All such notices shall be deemed to have been given, in the case of
the Partnership or the General Partners, when received in person, telecopied
with receipt confirmed, or mailed by first class mail, postage prepaid.
Section 6.10. Entire Agreement.
This Agreement constitutes the entire agreement among the parties.
It supersedes any prior agreement or understandings among them, and it may not
be modified or amended in any manner other than as set forth herein.
Section 6.11. Governing Law.
This Agreement and the rights of the parties hereunder shall be
governed by and interpreted in accordance with the laws of the State of Delaware
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and all rights and remedies shall be governed by such laws without regard to
principles of conflict of laws.
Section 6.12. Effect.
Except as herein otherwise specifically provided, this Agreement
shall be binding upon and inure to the benefit of the parties and their legal
representatives, successors and assigns.
Section 6.13. Pronouns and Number.
Wherever from the context it appears appropriate, each term stated
in either the singular or the plural shall include the singular and the plural,
and pronouns stated in either the masculine, feminine or neuter shall include
the masculine, feminine and neuter.
Section 6.14. Captions and Headings.
Captions and headings contained in this Agreement are inserted only
as a matter of convenience and in no way define, limit or extend the scope or
intent of this Agreement or any provision hereof.
Section 6.15. Partial Enforceability.
If any provision of this Agreement, or the application of such
provision to any Person or circumstance, shall be held invalid, the remainder of
this Agreement, or the application of such provision to persons or circumstances
other than those to which it is held invalid, shall not be affected thereby.
Section 6.16. Counterparts.
This Agreement may contain more than one counterpart of the
signature page and this Agreement may be executed by the affixing of the
signature of each of the Partners to one of such counterpart signature pages.
All of such counterpart signature pages shall be read as though one, and they
shall have the same force and effect as though all of the signers had signed a
single signature page.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first stated above.
General Partner:
Merrill Lynch & Co., Inc.,
a Delaware corporation
By: /s/ Theresa Lang
----------------------------
Name: Theresa Lang
Title: Senior Vice President
and Treasurer
Initial Limited Partner:
Merrill Lynch Group, Inc.,
a Delaware corporation
By: /s/ Theresa Lang
----------------------------
Name: Theresa Lang
Title: President
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Annex A
CERTIFICATE OF LIMITED PARTNERSHIP
OF
MERRILL LYNCH PREFERRED FUNDING VI, L.P.
This Certificate of Limited Partnership of Merrill Lynch Preferred
Funding VI, L.P. (the "Partnership"), dated as of December 3, 1998, is being
duly executed and filed by Merrill Lynch & Co., Inc., a Delaware corporation, as
general partner, to form a limited partnership under the Delaware Revised
Uniform Limited Partnership Act (6 Del. C.ss.17-101, et seq.).
(a) Name. The name of the limited partnership formed hereby is
Merrill Lynch Preferred Funding VI, L.P.
(b) Registered Office. The address of the registered office of the
Partnership in the State of Delaware is c/o The Corporation Trust Company,
Corporate Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.
(c) Registered Agent. The name and address of the registered agent
for service of process on the Partnership in the State of Delaware is The
Corporation Trust Company, Corporate Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801.
(d) General Partner. The name and the business mailing address of
the sole general partner of the Partnership is: Merrill Lynch & Co., Inc., a
Delaware corporation, World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Limited Partnership as of the date first written above.
Merrill Lynch & Co., Inc.,
as sole general partner
By: : /s/ Theresa Lang
-----------------------
Name: Theresa Lang
Title: Senior Vice President
and Treasurer
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Exhibit 4 (rrrr)
============================================================
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
MERRILL LYNCH PREFERRED FUNDING VI, L.P.
Dated as of __________ __, 1999
==========================================================
<PAGE>
TABLE OF CONTENTS
Table of Contents
<TABLE>
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Page
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<S> <C>
ARTICLE I.
DEFINED TERMS
Section 1.1. DEFINITIONS ......................................... 2
ARTICLE II.
CONTINUATION OF THE PARTNERSHIP; ADMISSION OF PARTNERSHIP PREFERRED
SECURITIES HOLDERS; WITHDRAWAL OF INITIAL LIMITED PARTNER
Section 2.1. CONTINUATION OF THE PARTNERSHIP ..................... 9
Section 2.2. NAME ................................................ 9
Section 2.3. PURPOSES OF THE PARTNERSHIP. ........................ 9
Section 2.4. TERM. ............................................... 9
Section 2.5. REGISTERED AGENT AND OFFICE. ........................ 9
Section 2.6. PRINCIPAL PLACE OF ACTIVITY. ........................ 9
Section 2.7. NAME AND ADDRESS OF GENERAL PARTNER. ................ 10
Section 2.8. QUALIFICATION TO CONDUCT ACTIVITIES. ................ 10
Section 2.9. ADMISSION OF HOLDERS OF PARTNERSHIP PREFERRED
SECURITIES; WITHDRAWAL OF INITIAL LIMITED PARTNER ... 10
ARTICLE III.
CAPITAL CONTRIBUTIONS; REPRESENTATION OF PARTNERSHIP PREFERRED
SECURITY HOLDER'S INTEREST; CAPITAL ACCOUNTS
Section 3.1. CAPITAL CONTRIBUTIONS. .............................. 11
Section 3.2. PARTNERSHIP PREFERRED SECURITY HOLDER'S INTEREST
REPRESENTED BY PARTNERSHIP PREFERRED SECURITIES ..... 11
Section 3.3. CAPITAL ACCOUNTS. ................................... 11
Section 3.4. INTEREST ON CAPITAL CONTRIBUTIONS. .................. 12
Section 3.5. WITHDRAWAL AND RETURN OF CAPITAL CONTRIBUTIONS. ..... 12
ARTICLE IV.
ALLOCATIONS
Section 4.1. PROFITS AND LOSSES. ................................. 12
Section 4.2. SPECIAL ALLOCATION. ................................. 13
Section 4.3. WITHHOLDING. ........................................ 14
</TABLE>
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ARTICLE V.
DISTRIBUTIONS
Section 5.1. DISTRIBUTIONS. ...................................... 14
Section 5.2. LIMITATIONS ON DISTRIBUTIONS. ....................... 15
ARTICLE VI.
ISSUANCE OF PARTNERSHIP PREFERRED SECURITIES
Section 6.1. GENERAL PROVISIONS REGARDING PARTNERSHIP
PREFERRED SECURITIES ................................ 15
Section 6.2. PARTNERSHIP PREFERRED SECURITIES. ................... 16
ARTICLE VII.
PARTNERSHIP INVESTMENTS
Section 7.1. INITIAL AFFILIATE INVESTMENT INSTRUMENTS. ........... 23
Section 7.2. REINVESTMENT OF PAYMENTS RECEIVED BY THE
PARTNERSHIP ......................................... 24
ARTICLE VIII.
BOOKS OF ACCOUNT, RECORDS AND REPORTS
Section 8.1. BOOKS AND RECORDS. .................................. 25
Section 8.2. ACCOUNTING METHOD. .................................. 26
Section 8.3. ANNUAL AUDIT. ....................................... 26
ARTICLE IX.
PAYMENT OF EXPENSES
Section 9.1. PAYMENT OF TRUST EXPENSES AND PARTNERSHIP TAXES. .... 26
Section 9.2. PAYMENT OF OTHER PARTNERSHIP EXPENSES. .............. 26
ARTICLE X.
POWERS, RIGHTS AND DUTIES OF THE LIMITED PARTNERS
Section 10.1. LIMITATIONS. ........................................ 27
Section 10.2. LIABILITY. .......................................... 27
Section 10.3. PRIORITY. ........................................... 27
ARTICLE XI.
POWERS, RIGHTS AND DUTIES OF THE GENERAL PARTNER
Section 11.1. AUTHORITY. .......................................... 27
Section 11.2. POWERS AND DUTIES OF GENERAL PARTNER. ............... 27
Section 11.3. OBLIGATIONS AND EXPENSES PAYABLE BY GENERAL PARTNER . 29
</TABLE>
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Section 11.4. LIABILITY. .......................................... 29
Section 11.5. OUTSIDE ACTIVITIES. ................................. 30
Section 11.6. LIMITS ON GENERAL PARTNER'S POWERS. ................. 30
Section 11.7. EXCULPATION. ........................................ 31
Section 11.8. FIDUCIARY DUTY. ..................................... 31
Section 11.9. INDEMNIFICATION. .................................... 32
Section 11.10.TAX MATTERS ......................................... 32
Section 11.11.CONSOLIDATION, MERGER OR SALE OF ASSETS. ............ 33
ARTICLE XII.
TRANSFERS OF INTERESTS BY PARTNERS
Section 12.1. TRANSFER OF INTERESTS. .............................. 34
Section 12.2. TRANSFER OF L.P. CERTIFICATES. ...................... 35
Section 12.3. DEFINITIVE L.P. CERTIFICATES; PERSONS DEEMED
PARTNERSHIP PREFERRED SECURITY HOLDERS;
DEFINITIVE L.P. CERTIFICATES ........................ 35
Section 12.4. BOOK-ENTRY PROVISIONS. .............................. 35
Section 12.5. REGISTRAR, TRANSFER AGENT AND PAYING AGENT. ......... 37
ARTICLE XIII.
WITHDRAWAL, DISSOLUTION; LIQUIDATION AND DISTRIBUTION OF ASSETS
Section 13.1. WITHDRAWAL OF PARTNERS. ............................. 38
Section 13.2. DISSOLUTION OF THE PARTNERSHIP. ..................... 38
Section 13.3. LIQUIDATION. ........................................ 39
Section 13.4. DISTRIBUTION IN LIQUIDATION. ........................ 39
Section 13.5. RIGHTS OF LIMITED PARTNERS. ......................... 39
Section 13.6. TERMINATION. ........................................ 40
ARTICLE XIV.
AMENDMENTS AND MEETINGS
Section 14.1. AMENDMENTS. ......................................... 40
Section 14.2. AMENDMENT OF CERTIFICATE. ........................... 40
Section 14.3. MEETINGS OF PARTNERS. ............................... 40
ARTICLE XV.
MISCELLANEOUS
Section 15.1. NOTICES. ............................................ 41
Section 15.2. POWER OF ATTORNEY. .................................. 42
Section 15.3. ENTIRE AGREEMENT. ................................... 42
Section 15.4. GOVERNING LAW. ...................................... 42
Section 15.5. EFFECT. ............................................. 43
Section 15.6. PRONOUNS AND NUMBER. ................................ 43
Section 15.7. CAPTIONS. ........................................... 43
Section 15.8. PARTIAL ENFORCEABILITY. ............................. 43
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Section 15.9. COUNTERPARTS. ....................................... 43
Section 15.10.WAIVER OF PARTITION. ................................ 43
Section 15.11.REMEDIES. ........................................... 43
Schedule 1 LIST OF PARTNERS............................................. S-1
Annex A FORM OF L.P. CERTIFICATE
EXHIBIT A FORM OF INDENTURE OF MERRILL LYNCH & CO., INC.
EXHIBIT B FORM OF INDENTURE FOR SUBSIDIARIES
</TABLE>
iv
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AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
MERRILL LYNCH PREFERRED FUNDING VI, L.P.
_______ __, 1999
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of Merrill
Lynch Preferred Funding VI , L.P., a Delaware limited partnership (the
"Partnership"), dated as of _______ __, 1999, among Merrill Lynch & Co., Inc., a
Delaware corporation (the "Company"), as the general partner, Merrill Lynch
Group, Inc., a Delaware corporation, as the initial limited partner (the
"Initial Limited Partner") and such other Persons (as defined herein) who become
Limited Partners (as defined herein) as provided herein.
WHEREAS, the Company and the Initial Limited Partner entered into an
Agreement of Limited Partnership of Merrill Lynch Preferred Funding VI, L.P.
dated as of December 3, 1998 (the "Original Partnership Agreement"), and the
Partners (as defined herein) desire to continue the Partnership under the Act
(as defined herein) and to amend and restate the Original Partnership Agreement
in its entirety;
WHEREAS, the Certificate of Limited Partnership of the Partnership
was filed with the Office of the Secretary of State of the State of Delaware on
December 7, 1998;
NOW, THEREFORE, in consideration of the agreements and obligations
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree to amend
and restate the Original Partnership Agreement as follows:
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ARTICLE I.
DEFINED TERMS
Section 1.1. DEFINITIONS. Unless the context otherwise requires, the terms
defined in this Article I shall, for the purposes of this Agreement, have the
meanings herein specified. Terms used in this Agreement and not otherwise
defined herein shall have the meanings ascribed to such terms in the
Declaration.
"Act" means the Delaware Revised Uniform Limited Partnership Act,
Del. Code Ann. tit. 6, ss. 17-101 et seq., as amended from time to time.
"Affiliate" has the meaning set forth in Section 1.1 of the
Declaration.
"Affiliate Investment Instruments" has the meaning set forth in
Section 7.1 of this Agreement.
"Agreement" means this Amended and Restated Agreement of Limited
Partnership, as it may be amended or supplemented from time to time.
"Beneficiaries" has the meaning set forth in Section 11.3 of this
Agreement.
"Book-Entry Interest" means a beneficial interest in the L.P.
Certificates, ownership and transfers of which shall be maintained and made
through book entries of a Clearing Agency as set forth in Section 12.4 of this
Agreement.
"Business Day" means any day other than a day on which banking
institutions in The City of New York are authorized or required by law to close.
"Capital Account" has the meaning set forth in Section 3.3 of this
Agreement.
"Certificate" means the Certificate of Limited Partnership of the
Partnership filed with the Secretary of State of the State of Delaware on
December 7, 1998, as it may be amended and restated from time to time.
"Change in 1940 Act Law" has the meaning set forth in Section 1.1 of
the Declaration.
"Closing Date" has the meaning set forth in Section 1.1 of the
Declaration.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor legislation.
"Company" means Merrill Lynch & Co., Inc., a Delaware corporation.
"Compounded Distributions" has the meaning set forth in Section 6.2
of this Agreement.
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<PAGE>
"Declaration" means the Amended and Restated Declaration of Trust by
and among the Company, as Sponsor, the Property Trustee, the Delaware Trustee,
and the Regular Trustees, dated as of ______ __, 1999.
"Definitive L.P. Certificates" has the meaning set forth in Section
12.4(a) of this Agreement.
"Delaware Partnership Act" means the Revised Uniform Limited
Partnership Act of the State of Delaware (6 Del. C. ss. 17-101, et seq.).
"Delaware Trustee" has the meaning set forth in Section 6.2 of the
Declaration.
"Distribution Payment Date" has the meaning set forth in Section
6.2(b)(ii) of this Agreement.
"Distributions" means the cumulative cash distributions payable by
the Partnership with respect to the Interests represented by the Partnership
Preferred Securities, which amounts will accumulate on the $25 liquidation
preference of each Partnership Preferred Security from the Closing Date and are
payable quarterly in arrears in accordance with Sections 5.1 and 6.2(b) of this
Agreement.
"DTC" means the Depository Trust Company, the initial Clearing
Agency.
"Eligible Debt Securities" means cash or book-entry securities,
negotiable instruments, or other securities of entities not affiliated with the
Company represented by instruments in registered form 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 of 1933 (the "Securities Act") and having, at the time of the
investment or contractual commitment to invest therein, a rating from each of
S&P and Moody's in the highest 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 FDIC, in no
case having a maturity greater than nine months; (d) repurchase obligations,
having a maturity of no greater than nine months; 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 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 depository institution organized
under the laws of the United States of America 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+ or better by S&P and P-1 or better by
Moody's and (ii)
3
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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.
"FDIC" means the Federal Deposit Insurance Corporation or any
successor thereto.
"Finance Subsidiary" means any wholly-owned subsidiary of the
Company the principal purpose of which is to raise capital for the 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.
"Fiscal Period" means each calendar quarter.
"Fiscal Year" means the calendar year.
"General Partner" means Merrill Lynch & Co., Inc., in its capacity
as the general partner of the Partnership, its permitted successors, or any
successor general partner in the Partnership admitted as such pursuant to the
terms of this Agreement.
"General Partner Capital Contribution" means the contribution by the
General Partner to the Partnership made contemporaneous with the issuance of the
Partnership Preferred Securities.
"General Partner Interest" means the Interest of the General Partner
in the Partnership.
"Holder" or "Partnership Preferred Security Holder" means a Limited
Partner in whose name an L.P. Certificate representing Partnership Preferred
Securities is registered.
"Indentures" means (i) the Indenture between the Company and The
Chase Manhattan Bank, as Indenture Trustee, dated as of December 17, 1996, a
form of which is attached hereto as Exhibit A and (ii) the Indenture between a
subsidiary of the Company and The Chase Manhattan Bank, as Indenture Trustee,
dated as of June 16, 1998, a form of which is attached hereto as Exhibit B.
"Independent Financial Adviser" shall mean a nationally recognized
accounting firm, bank or investment banking firm which shall be designated by
the Company and which firm 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.
"Initial Affiliate Debentures" has the meaning set forth in Section
7.1(b) of this Agreement.
"Initial Company Debenture" has the meaning set forth in Section
7.1(b) of this Agreement.
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"Initial Debentures" means collectively, the Initial Company
Debenture and the Initial Affiliate Debentures.
"Initial Limited Partner" means Merrill Lynch Group, Inc., a
Delaware corporation.
"Initial Partnership Proceeds" means the aggregate proceeds received
by the Partnership from the sale of the Partnership Preferred Securities and the
General Partner Capital Contribution.
"Interest" means the entire ownership interest of a Partner in the
Partnership at any particular time, including, without limitation, its interest
in the capital, profits, and losses of, and distributions from, the Partnership.
"Investment Affiliate" means the Company or any corporation,
partnership, limited liability company or other entity (other than the
Partnership or the Trust) that (i) is controlled by the Company and (ii) is not
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 Securities and Exchange Commission.
"Investment Event of Default" means an event of default under any
Affiliate Investment Instrument that is a debt instrument or the breach by an
Investment Affiliate of its obligations under any Affiliate Investment
Instrument that is an equity instrument.
"Investment Guarantee" has the meaning specified in Section 1.1 of
the Declaration.
"Investment Offer" has the meaning specified in Section 7.2(b) of
this Agreement.
"Limited Partner" means any Person who is admitted to the
Partnership as a limited partner pursuant to the terms of this Agreement, in
such Person's capacity as a limited partner of the Partnership.
"Liquidator" has the meaning specified in Section 13.3 of this
Agreement.
"L.P. Certificate" means a certificate substantially in the form
attached hereto as Annex A, evidencing the Partnership Preferred Securities held
by a Limited Partner.
"Majority in Liquidation Preference" means Holder(s) of Partnership
Preferred Securities who are the record owners of Partnership Preferred
Securities whose aggregate liquidation preferences represent more than 50% of
the aggregate liquidation preference of all Partnership Preferred Securities
then outstanding.
"Moody's" means Moody's Investors Service, Inc. or any successor
thereto.
"Net Income" and "Net Loss", respectively, for any Fiscal Period
mean the income and loss, respectively, of the Partnership for such Fiscal
Period as determined in
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accordance with the method of accounting followed by the Partnership for United
States federal income tax purposes, including, for all purposes, the net income,
if any, from the Affiliate Investment Instruments, Eligible Debt Securities and
any income exempt from tax and any noncapital, nondeductible expenditures of the
Partnership which are described in the Code.
"1940 Act" has the meaning set forth in Section 1.1 of the
Declaration.
"Original Partnership Agreement" has the meaning set forth in the
recitals to this Agreement.
"Partners" means the General Partner and the Limited Partners,
collectively, where no distinction is required by the context in which the term
is used.
"Partnership Covered Person" means any Partner, any Affiliate of a
Partner or any officers, directors, shareholders, partners, members, employees,
representatives or agents of a Partner or its respective Affiliates, or any
employee or agent of the Partnership or its Affiliates or any Special
Representative.
"Partnership Enforcement Event" has the meaning set forth in Section
6.2(h)(i) of this Agreement.
"Partnership Guarantee" means the Partnership Guarantee Agreement
dated as of ___________ __, 1999 by the Company in favor of the Partnership
Preferred Security Holders with respect to the Partnership Preferred Securities,
as amended or supplemented from time to time.
"Partnership Indemnified Person" means the General Partner, any
Special Representative, any Affiliate of the General Partner or any Special
Representative or any officers, directors, shareholders, members, partners,
employees, representatives or agents of the General Partner or any Special
Representative, or any of their respective Affiliates, or any employee or agent
of the Partnership or its Affiliates.
"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.
"Partnership Liquidation Distribution" has the meaning set forth in
Section 6.2(g) of this Agreement.
"Partnership Preferred Securities" represent the Interests of
Limited Partners and have the preference and designation set forth in Section
6.2(a) of this Agreement.
"Partnership Preferred Securities Purchase Agreement" means the
partnership purchase agreement between the Trust and the Partnership providing
for the purchase of the Partnership Preferred Securities.
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"Partnership Preferred Security Owner" means, with respect to a
Book-Entry Interest, a Person who is the beneficial owner of such Book-Entry
Interest as reflected on the books of DTC, or on the books of a Person
maintaining an account with DTC (directly as a participant or as an indirect
participant, in each case in accordance with the rules of DTC or such
participant).
"Partnership Special Event" means either a Partnership Tax Event or
a Partnership Investment Company Event.
"Partnership Successor Securities" has the meaning set forth in
Section 11.11 of this Agreement.
"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 Initial
Debentures is not, or will not be, deductible by such Investment Affiliate for
United States federal income tax purposes.
"Paying Agent" shall have the meaning set forth in Section 12.5 of
this Agreement.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Power of Attorney" means the Power of Attorney granted pursuant to
Section 15.2 of this Agreement.
"Property Trustee" has the meaning set forth in Section 1.1 of the
Declaration.
"Purchase Agreement" means the Purchase Agreement dated _______ __,
1999 among the Company, the Trust, the Partnership and Merrill Lynch & Co.,
Merrill, Lynch, Pierce, Fenner & Smith Incorporated,
__________________________________________ and ________________________________
as representatives of the other underwriters named in Schedule A thereto.
"Record Date" means (i) 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, one Business Day prior to the relevant payment dates and
(ii) in the event that the Trust Preferred Securities (or in the event that the
Trust is liquidated in connection with a Trust Special Event, the Partnership
Preferred
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Securities) shall not continue to remain in book-entry-only form, the 15th day
of the month of the relevant payment date.
"Redemption Notice" has the meaning set forth in Section 6.2(e) of
this Agreement.
"Redemption Price" has the meaning set forth in Section 6.2(c) of
this Agreement.
"Registrar" has the meaning set forth in Section 12.5 of this
Agreement.
"Regular Trustees" has the meaning set forth in Section 1.1 of the
Declaration.
"Reinvestment Criteria" has the meaning specified in Section 7.2(c)
of this Agreement.
"S&P" means Standard & Poor's Ratings Services or any successor
thereof.
"Special Representative" has the meaning set forth in Section
6.2(h)(i) of this Agreement.
"Tax Action" has the meaning set forth in Section 1.1 of the
Declaration.
"Tax Matters Partner" means the General Partner designated as such
in Section 11.10 of this Agreement.
"10% in Liquidation Preference" means Holder(s) of the Partnership
Preferred Securities voting together as a single class representing 10% of the
aggregate liquidation amount of the Partnership Preferred Securities.
"Treasury Regulations" has the meaning set forth in Section 1.1 of
the Declaration.
"Trust" means the Merrill Lynch Preferred Capital Trust VI, a
Delaware business trust, formed under the Declaration.
"Trust Common Securities" has the meaning specified in Section 8.1
of the Declaration.
"Trust Common Securities Guarantee" means the Trust Common
Securities Guarantee Agreement dated as of _______ __, 1999, entered into by the
Company, as Guarantor, for the benefit of the holders of the Trust Common
Securities.
"Trust Preferred Securities" has the meaning specified in Section
8.1 of the Declaration.
"Trust Preferred Securities Guarantee" means the Trust Preferred
Securities Guarantee Agreement dated as of _______ __, 1999, entered into by the
Company, as Guarantor, for the benefit of the holders of the Trust Preferred
Securities.
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ARTICLE II.
CONTINUATION OF THE PARTNERSHIP;
ADMISSION OF PARTNERSHIP PREFERRED SECURITIES HOLDERS;
WITHDRAWAL OF INITIAL LIMITED PARTNER
Section 2.1. CONTINUATION OF THE PARTNERSHIP. The parties hereto agree to
continue the Partnership in accordance with the terms of this Agreement. The
General Partner, for itself and as agent for the Limited Partners, shall make
every reasonable effort to assure that all certificates and documents are
properly executed and shall accomplish all filing, recording, publishing and
other acts necessary or appropriate for compliance with all the requirements for
the continuation of the Partnership as a limited partnership under the Act and
under all other laws of the State of Delaware or such other jurisdictions in
which the General Partner determines that the Partnership may conduct
activities. The rights and duties of the Partners shall be as provided herein
and, subject to the terms hereof, under the Act.
Section 2.2. NAME. The name of the Partnership is Merrill Lynch Preferred
Funding VI, L.P., as such name may be modified from time to time by the General
Partner following written notice to the Limited Partners.
Section 2.3. PURPOSES OF THE PARTNERSHIP. The purposes of the Partnership
are (a) to issue limited partnership interests in the Partnership in the form of
Partnership Preferred Securities, (b) to receive the General Partner Capital
Contribution, (c) to use substantially all of the Initial Partnership Proceeds
to purchase, as an investment, the Initial Debentures, (d) to invest, at all
times, an amount equal to at least 1% of the Initial Partnership Proceeds in
Eligible Debt Securities, (e) to receive interest and other payments on the
Affiliate Investment Instruments and the Eligible Debt Securities held by the
Partnership from time to time, (f) to make Distributions on the Partnership
Preferred Securities and distributions on the General Partner Interest if, as
and when declared by the General Partner in its sole discretion, (g) subject to
the restrictions and conditions contained in this Agreement, to make additional
investments in Affiliate Investment Instruments and Eligible Debt Securities and
to dispose of any such investments and (h) except as otherwise limited herein,
to enter into, make and perform all contracts and other undertakings, and engage
in those activities and transactions as the General Partner may reasonably deem
necessary or advisable for the carrying out of the foregoing purposes of the
Partnership. The Partnership may not engage in any other activities or
operations except as contemplated by the preceding sentence.
Section 2.4. TERM. The term of the Partnership shall commence upon the
filing of the Certificate in the Office of the Secretary of State of the State
of Delaware and shall continue until the Partnership is dissolved in accordance
with the provisions of this Agreement.
Section 2.5. REGISTERED AGENT AND OFFICE. The Partnership's registered
agent and office in Delaware shall be CT Corporation, Corporate Trust Center,
1209 Orange Street, Wilmington, Delaware 19801. At any time, the General Partner
may designate another registered agent and/or registered office.
Section 2.6. PRINCIPAL PLACE OF ACTIVITY. The principal place of activity
of the Partnership shall be c/o Merrill Lynch & Co., Inc., World Financial
Center, North Tower,
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250 Vesey Street, New York, New York 10281. Upon ten days' written notice to the
Partners, the General Partner may change the location of the Partnership's
principal place of activity, provided that such change has no material adverse
effect upon any Partner.
Section 2.7. NAME AND ADDRESS OF GENERAL PARTNER. The name and address of
the General Partner are as follows:
Merrill Lynch & Co., Inc.
World Financial Center
South Tower
225 Liberty Street
New York, New York 10080-6105
Attention: Treasurer
The General Partner may change its name or address from time to time, in which
event the General Partner shall promptly notify the Limited Partners of any such
change.
Section 2.8. QUALIFICATION TO CONDUCT ACTIVITIES. The General Partner
shall cause the Partnership to become qualified, formed or registered under the
applicable qualification, fictitious name or similar laws of any jurisdiction in
which the Partnership conducts activities.
Section 2.9. ADMISSION OF HOLDERS OF PARTNERSHIP PREFERRED SECURITIES;
WITHDRAWAL OF INITIAL LIMITED PARTNER.
(a) Without execution of this Agreement, upon the receipt of an L.P.
Certificate by a Person, whether by purchase, gift, devise or other valid
transfer, which receipt shall be deemed to constitute a request by such Person
that the books and records of the Partnership reflect such Person's admission as
a Limited Partner, such Person shall be admitted to the Partnership as a Limited
Partner and shall become bound by this Agreement.
(b) Following the first admission of a Partnership Preferred
Security Holder to the Partnership as a Limited Partner, the Initial Limited
Partner shall withdraw from the Partnership and shall receive the return of its
capital contribution without interest or deduction.
(c) The name and mailing address of each Partner and the amount
contributed by such Partner to the capital of the Partnership shall be listed on
the books and records of the Partnership. The General Partner shall be required
to update the books and records from time to time as necessary to accurately
reflect such information.
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ARTICLE III.
CAPITAL CONTRIBUTIONS; REPRESENTATION OF
PARTNERSHIP PREFERRED SECURITY HOLDER'S INTEREST;
CAPITAL ACCOUNTS
Section 3.1. CAPITAL CONTRIBUTIONS.
(a) The General Partner has, prior to the date hereof, contributed
an aggregate of $15.00 to the capital of the Partnership, which amount is equal
to at least 15% of the total capital contributions to the Partnership, after
taking into account the contribution of the Initial Limited Partner referred to
in Section 3.1(b). Contemporaneous with the issuance of the Partnership
Preferred Securities, the General Partner shall make the General Partner Capital
Contribution. The General Partner shall, from time to time, make such additional
capital contributions as are necessary to maintain at all times a positive
Capital Account balance equal to at least one percent (1%) of the aggregate
positive Capital Account balances of all Partners at the end of such period.
(b) The Initial Limited Partner has, prior to the date hereof,
contributed the amount of $85.00 to the capital of the Partnership, which amount
shall be returned to the Initial Limited Partner as contemplated by Section
2.9(b).
(c) On the Closing Date, the Trust shall, in exchange for a
definitive L.P. Certificate, contribute to the capital of the Partnership on
behalf of the Trust an amount in cash equal to the gross proceeds from the sale
of the Trust Preferred Securities and the Trust Common Securities (such amount
being a capital contribution to the Partnership). On such date, immediately
following the withdrawal of the Initial Limited Partner, the Trust shall be the
sole Limited Partner.
(d) No Limited Partner shall at any time be required to make any
additional capital contributions to the Partnership, except as may be required
by law.
Section 3.2. PARTNERSHIP PREFERRED SECURITY HOLDER'S INTEREST REPRESENTED
BY PARTNERSHIP PREFERRED SECURITIES. A Partnership Preferred Security Holder's
Interest shall be represented by the Partnership Preferred Securities held by or
on behalf of such Partner. Each Partnership Preferred Security Holder's
respective ownership of Partnership Preferred Securities shall be set forth on
the books and records of the Partnership. Each Partner hereby agrees that its
Interest in the Partnership shall for all purposes be personal property. No
Partner shall have an interest in specific Partnership property.
Section 3.3. CAPITAL ACCOUNTS.
(a) Establishment and Maintenance of Capital Accounts. The
Partnership shall establish and maintain a separate account (the "Capital
Account") for each Partner. The initial balance of the Capital Account for each
Partner shall be the amount as set out opposite the name of each of the Partners
on Schedule 1 attached hereto. The Capital Account of each Partner shall be
increased by (i) the dollar amount of any additional contributions made by such
Partner and (ii) allocations to such Partner of income and gain (including
income exempt from tax). The Capital Account of each Partner shall be decreased
by (i) the dollar amount of any distributions made to such Partner, and (ii)
allocations to such Partner of loss and deduction (including
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noncapital, nondeductible expenditures not deductible in computing the
Partnership's income or loss for United States federal income tax purposes).
(b) Compliance with Regulations. Notwithstanding any other provision
of this Agreement to the contrary, the provisions of Section 3.3(a) hereof
regarding the maintenance of Capital Accounts shall be construed so as to comply
with the Treasury Regulations promulgated under section 704 of the Code. The
General Partner, in its sole discretion, is authorized to modify such provisions
to the minimum extent necessary to comply with such Treasury Regulations.
Section 3.4. INTEREST ON CAPITAL CONTRIBUTIONS. Except as provided herein,
no Partner shall be entitled to interest on or with respect to any capital
contribution to the Partnership.
Section 3.5. WITHDRAWAL AND RETURN OF CAPITAL CONTRIBUTIONS. Subject to
Section 3.1(b) hereof, no Partner shall be entitled to withdraw any part of such
Partner's capital contribution to the Partnership. No Partner shall be entitled
to receive any distributions from the Partnership, except as provided in this
Agreement.
ARTICLE IV.
ALLOCATIONS
Section 4.1. PROFITS AND LOSSES. After giving effect to the special
allocation provisions set forth in Section 4.2 which special allocations shall
take precedence over any allocations made pursuant to this Section 4.1,
(a) the Partnership's Net Income for each Fiscal Period of the
Partnership shall be allocated as follows:
(i) First, to each Holder of a Partnership Preferred Security
in an amount equal to the excess, if any, of (x) all Net Losses, if any,
allocated to each such Holder from the date of issuance of the Partnership
Preferred Security through and including the close of such Fiscal Period
pursuant to Section 4.1(b)(ii) below over (y) the amount of Net Income, if any,
allocated to each such Holder pursuant to this Section 4.1(a)(i) in all prior
Fiscal Periods.
(ii) Second, to the Holders of the Partnership Preferred
Securities, an amount of Net Income equal to the excess of (x) the Distributions
accumulated on the Partnership Preferred Securities from the date of their
issuance through and including the last day of such Fiscal Period, including any
Compounded Distributions payable with respect thereto, over (y) the amount of
Net Income allocated to the Holders of the Partnership Preferred Securities
pursuant to this Section 4.1(a)(ii) in all prior Fiscal Periods. Amounts
allocated to all Partnership Preferred Security Holders shall be allocated among
such Holders in proportion to the number of Partnership Preferred Securities
held by such Holders.
(iii) Any remaining Net Income shall be allocated to the
General Partner.
(b) The Partnership's Net Loss for any Fiscal Period shall be
allocated as follows:
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(i) First, to the General Partner until the balance of the
General Partner's Capital Account is reduced to zero, provided, however, that
the aggregate amount of Net Losses allocated to the General Partner pursuant to
this Section 4.1(b)(i) shall not exceed the sum of 14% of the total capital
contributions of all Partners plus the aggregate Net Income allocated to the
General Partner pursuant to this Section 4.1.
(ii) Second, among the Holders in proportion to their
respective aggregate Capital Account balances, until the Capital Account
balances of such Holders are reduced to zero.
(iii) Any remaining Net Loss shall be allocated to the General
Partner.
(c) DAILY DETERMINATION. For purposes of determining the profits,
losses or any other items allocable to any period, profits, losses and any such
other items shall be determined on a daily basis, unless the General Partner
determines that another method is permissible under Section 704 of the Code and
the Treasury Regulations promulgated thereunder. Unless otherwise specified,
such profits, losses or other items shall be determined for each Fiscal Period.
Section 4.2. SPECIAL ALLOCATION.
(a) All expenditures that are (i) incurred by, or on behalf of, the
Partnership and (ii) paid, or otherwise reimbursed, by the General Partner out
of its own funds shall be allocated entirely to the General Partner.
(b) In the event any Partner unexpectedly receives any adjustments,
allocations or distributions described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of the Partnership's income
(including gross income) shall be specially allocated to such Partner in a
manner sufficient to eliminate the deficit, if any, in the balance of the
Capital Account of such Partner as quickly as possible. The foregoing is
intended to be a "qualified income offset" provision as described in Treasury
Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted and applied in
all respects in accordance with such Treasury Regulation.
(c) SECTION 704 COMPLIANCE. While this Agreement does not
specifically provide for certain provisions required by Treasury Regulation
Sections 1.704-1(b) and 1.704-2 because those provisions apply to transactions
that are not expected to occur as regards the Partnership, the Partners intend
that the allocations under Section 4.1 conform to Treasury Regulations Sections
1.704-1(b) and 1.704-2 (including, without limitation, the minimum gain
chargeback, chargeback of partner nonrecourse debt minimum gain and partner
nonrecourse debt provisions of such Treasury Regulations), and, to the extent
necessary due to the occurrence of unexpected events, the General Partner shall
make such changes in the allocations under Section 4.1 as it believes are
reasonably necessary to meet the requirements of such Treasury Regulations.
(d) ADJUSTMENT OF ALLOCATIONS. If the allocations set forth in this
Article IV are adjusted by the Internal Revenue Service and the Tax Matters
Partner agrees to such adjustments, such allocations shall be amended to the
minimum extent necessary to conform with such adjustments.
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(e) ADDITIONAL ALLOCATIONS. Notwithstanding the foregoing, if, upon
the final dissolution and termination of the Partnership and after taking into
account all allocations of Net Income and Net Losses (and other tax items) under
this Article IV, the distributions to be made in accordance with the positive
Capital Account balances would result in a distribution that would be different
from a distribution under Article XIII, then gross items of income and gain (and
other tax items) for the taxable year of the final dissolution and termination
(and, to the extent permitted under section 761(c) of the Code, gross items of
income and gain, and other tax items, for the immediately preceding taxable
year) shall be allocated to the Partners to increase or decrease their
respective Capital Account balances so that the final distribution will occur in
the same manner as a distribution under Section 13.4.
(f) GENERAL PARTNER ALLOCATIONS. Notwithstanding any provision of
this Agreement to the contrary, the interest of the General Partner in each item
of Partnership income, gain, loss, deduction, or credit shall, at all times
during the existence of the Partnership, be equal to at least (A) at any time
that the aggregate capital contributions to the Partnership are equal to or less
than $50,000,000, one percent (1%) of each such item and (B) at any time that
the aggregate capital contributions to the Partnership are greater than
$50,000,000, at least a percentage equal to the product of (i) one percent (1%)
and (ii) a fraction (not exceeding 1 and not less than 0.2), the numerator of
which is $50,000,000 and the denominator of which is the lesser of (x) the
aggregate Capital Account balances of the Capital Accounts of all Partners at
such time and (y) the aggregate capital contributions to the Partnership of all
Partners at such time.
Section 4.3. WITHHOLDING. The Partnership shall comply with withholding
requirements under Federal, state and local law and shall remit amounts withheld
to and file required forms with applicable jurisdictions. To the extent that the
Partnership is required to withhold and pay over any amounts to any authority
with respect to distributions or allocations to any Partner, the amount withheld
shall be deemed to be a distribution in the amount of the withholding to the
Partner. In the event of any claimed over-withholding, Partners shall be limited
to an action against the applicable jurisdiction. If the amount withheld was not
withheld from actual distributions, the Partnership may reduce subsequent
distributions by the amount of such withholding. Each Partner agrees to furnish
the Partnership with any representations and forms as shall reasonably be
requested by the Partnership to assist it in determining the extent of, and in
fulfilling, its withholding obligations.
ARTICLE V.
DISTRIBUTIONS
Section 5.1. DISTRIBUTIONS. Limited Partners shall receive periodic
Distributions and Compounded Distributions, if any, redemption payments and
liquidation distributions in accordance with the terms of the Partnership
Preferred Securities set forth in Article VI. The General Partner shall in its
sole discretion determine whether and when Distributions shall be payable;
provided, however, that if the General Partner shall determine a Distribution
will not be paid on a scheduled Distribution Payment Date, the General Partner
shall give notice of its determination not to pay such Distribution to Limited
Partners of record as of the Record Date for the payment of such Distribution;
provided, further, however, that the General Partner shall
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not declare distributions, and no distributions shall be payable by the
Partnership to the General Partner in respect of its General Partner Interest
unless all accumulated and unpaid Distributions, including any Compounded
Distributions, have been paid in full for all prior Fiscal Periods. Subject to
the immediately preceding sentence, to the extent that the aggregate payments of
interest (or dividends) received by the Partnership in respect of Affiliate
Investment Instruments and Eligible Debt Securities for each Fiscal Period
exceed the amount of Distributions, including any Compounded Distributions, paid
on the Partnership Preferred Securities for such Fiscal Period, the General
Partner, in its sole discretion may declare and distribute such excess funds to
the General Partner in respect of its General Partner Interest.
Section 5.2. LIMITATIONS ON DISTRIBUTIONS. The Partnership shall not make
a Distribution to any Partner on account of such Partner's Interest if such
Distribution would violate Section 17-607 of the Act or other applicable law.
ARTICLE VI.
ISSUANCE OF PARTNERSHIP PREFERRED SECURITIES
Section 6.1. GENERAL PROVISIONS REGARDING PARTNERSHIP PREFERRED
SECURITIES.
(a) There is hereby authorized for issuance and sale Partnership
Preferred Securities having an aggregate liquidation preference not greater than
$___________ and having the designation, annual distribution rate, liquidation
preference, redemption terms, and other powers, preferences and special rights
and limitations set forth in this Article VI.
(b) The payment of Distributions (including payments of
distributions by the Partnership in liquidation or on redemption in respect of
Partnership Preferred Securities) shall be guaranteed by the Company pursuant to
and to the extent set forth in the Partnership Guarantee. The Partnership
Preferred Security Holders hereby authorize the General Partner to hold the
Guarantee on behalf of the Partnership Preferred Security Holders. In the event
of an appointment of a Special Representative pursuant to Section 6.2(i), among
other things, to 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 Partnership Preferred Security Holders. The Partnership Preferred Security
Holders, by acceptance of such Partnership Preferred Securities, acknowledge and
agree to the subordination provisions in, and other terms of, the Partnership
Guarantee.
(c) The Partnership may not issue any interests in the Partnership
other than the Partnership Preferred Securities and the General Partner
Interest, provided that the Partnership may accept consideration for additional
capital contributions from the General Partner with respect to the General
Partner Interest. All Partnership Preferred Securities shall rank senior to all
other Interests in the Partnership in respect of the right to receive
Distributions. All Partnership Preferred Securities redeemed, purchased or
otherwise acquired by the Partnership shall be canceled. The Partnership
Preferred Securities will be issued in registered form only.
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(d) No Holder shall be entitled as a matter of right to subscribe
for or purchase, or have any preemptive right with respect to, any part of any
new or additional limited partnership interests, or of securities convertible
into any Partnership Preferred Securities or other limited partnership
interests, whether now or hereafter authorized and whether issued for cash or
other consideration or by way of a distribution.
(e) Any of the Partnership Preferred Securities that are owned by
the Company or by any entity directly or indirectly controlled by, or under
direct or indirect common control with, the Company, shall not be entitled to
vote or consent with respect to any Partnership Preferred Security owned by it,
and shall, for purposes of such vote or consent, be treated as if they were not
outstanding 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; 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 under any of the circumstances described in
Section 6.2.
Section 6.2. PARTNERSHIP PREFERRED SECURITIES.
(a) DESIGNATION. A total of Partnership Preferred Securities,
liquidation preference $25 per Partnership Preferred Security, are hereby
designated as "___% Partnership Preferred Securities".
(b) DISTRIBUTIONS. (i) Partnership Preferred Security Holders shall
be entitled to receive cumulative Distributions and Compounded Distributions (as
defined below) (if any), if, as and when declared by the General Partner, in its
sole discretion, out of the assets of the Partnership legally available
therefor, at a rate per annum of ___% of the stated liquidation preference of
$25 per Partnership Preferred Security, calculated on the basis of a 360-day
year consisting of twelve 30-day months. For any period shorter than a full
90-day quarter, Distributions will be computed on the basis of the actual number
of days elapsed in such 90-day quarter. Such Distributions shall, from the date
of original issue, accumulate and be cumulative and shall be payable quarterly,
when, if, and as declared by the General Partner on the dates specified in
Section 6.2(b)(ii) below. Distributions and Compounded Distributions (as defined
below) (if any) on the Partnership Preferred Securities shall be cumulative from
the Closing Date. Distributions not paid on the scheduled Distribution Payment
Date will accumulate and compound quarterly at the rate of ___% per annum
("Compounded Distributions"). 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 which 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.
(b) Distributions on the Partnership Preferred Securities will be
payable quarterly in arrears if, as and when, declared by the General Partner on
March 30, June 30, September 30
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and December 30 of each year, commencing on ________ __, 1999 (each a
"Distribution Payment Date").
Distributions will be payable to the Holders as they appear on the
books and records of the Partnership on the relevant Record Date. If the Trust
or the Property Trustee is the Holder of the Partnership Preferred Securities,
all Distributions of cash shall be made by wire transfer of same day funds to
such Holder by 10:00 a.m., New York City time, on the applicable Distribution
Payment Date. Distributions payable on any Partnership Preferred Securities that
are not punctually paid on any Distribution Payment Date will cease to be
payable to the Person in whose name such Partnership Preferred Securities are
registered on the relevant record date, and such Distribution will instead be
payable to the Person in whose name such Partnership Preferred Securities are
registered on the special record date or other specified date for payment of
such defaulted or accumulated Distribution.
(c) OPTIONAL REDEMPTION. Partnership Preferred Securities shall be
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 Securities equal to $25
plus accumulated and unpaid Distributions thereon, including any Compounded
Distributions (the "Redemption Price"). The Partnership may not redeem the
Partnership Preferred Securities in part unless all accumulated and unpaid
Distributions, including any Compounded Distributions, have been paid in full on
all Partnership Preferred Securities for all Fiscal Periods terminating on or
prior to the date of redemption. If a partial redemption of the Partnership
Preferred Securities 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 but not in part.
(d) SPECIAL EVENT REDEMPTIONS. If, at any time, 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 measure that in the sole
judgment of the General Partner 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 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 which are attributable to the Partnership Special
Event.
(e) REDEMPTION PROCEDURES. (i) Notice of any redemption of
Partnership Preferred Securities (a "Redemption Notice") will be given by the
Partnership by mail to each Holder of Partnership Preferred Securities to be
redeemed not fewer than 30 nor more than 60 days before the date fixed for
redemption. For purposes of the calculation of the date of redemption and the
dates on which notices are given pursuant to this Section 6.2(e)(i), a
Redemption Notice shall be deemed to be given on the day such notice is first
mailed, by first-
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class mail, postage prepaid, to Holders of Partnership Preferred Securities.
Each Redemption Notice shall be addressed to the Holders of Partnership
Preferred Securities at the address of each such Holder appearing in the books
and records of the Partnership. No defect in the Redemption Notice or in the
mailing thereof with respect to any Holder shall affect the validity of the
redemption proceedings with respect to any other Holder.
(b) In the event that fewer than all the outstanding Partnership
Preferred Securities are to be redeemed, the Partnership Preferred Securities to
be redeemed shall be redeemed pro rata provided, that, in the event Partnership
Preferred Securities are held in book-entry-only form by DTC or its nominee (or
any successor Clearing Agency or its nominee), DTC will reduce, in accordance
with DTC's customary procedures, the amount of the interest of each Clearing
Agency Participant in the Partnership Preferred Securities to be redeemed;
provided, that if, as a result of such pro rata redemption, Holders would hold
fractional interests in the Partnership Preferred Securities, the General
Partner may adjust the amount of the interest of each Holder to be redeemed to
avoid such fractional interests.
(c) If the Partnership gives a Redemption Notice (which notice will
be irrevocable), then by 12:00 noon, New York City time, on the redemption date,
the Partnership (A) if the Partnership Preferred Securities are in
book-entry-only 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 (B) if the
Partnership Preferred Securities are held in certificated form, will deposit
with the Paying Agent, funds sufficient to pay the applicable Redemption Price
of the amount of any such Partnership Preferred Securities and will give to the
Paying Agent irrevocable instructions and authority to pay such amounts to the
Holders of Partnership Preferred Securities, upon surrender of their
certificates, by check, mailed to the address of the relevant Holder appearing
on the books and records of the Partnership on the redemption date; provided,
however, that for so long as the Trust or the Property Trustee of the Trust
shall hold the Partnership Preferred Securities, payment of cash shall be made
by wire in same day funds to the Holder by 12:00 Noon, New York City time, on
the redemption date. For these purposes, the applicable Redemption Price shall
not include Distributions which are being paid to Holders who were Holders on a
relevant record date. Upon satisfaction of the foregoing conditions, then
immediately prior to the close of business on the date of such deposit or
payment, all rights of Holders of such Partnership Preferred Securities so
called for redemption will cease, except the right of the Holders to receive the
Redemption Price, but without interest on such Redemption Price, and from and
after the date fixed for redemption, such Partnership Preferred Securities will
not accumulate Distributions or bear interest.
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 Business Day (and
without any interest 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 is improperly withheld or refused and not paid by either the
Partnership or the Company pursuant to the Partnership Guarantee, Distributions
on the Partnership Preferred Securities called for
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Redemption will continue to accumulate, to the extent that payment of such
interest is legally available, from the original redemption date until the
Redemption Price is actually paid.
The Partnership shall not be required to register or cause to be
registered the transfer of any Partnership Preferred Securities which have been
called for redemption.
(f) COMPANY PURCHASES. Subject to the provisions of this Section 6.2
and applicable law (including, without limitation, Federal securities laws), if
Partnership Preferred Securities have been distributed to the Holders (as
defined in the Declaration) of Trust Preferred Securities, 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.
(g) LIQUIDATION DISTRIBUTION UPON DISSOLUTION. In the event of any
voluntary or involuntary liquidation, dissolution, winding-up or termination of
the Partnership, the Holders of Partnership Preferred Securities at the time
outstanding will be entitled to receive out of the assets of the Partnership
such amount as is determined in accordance with Section 13.4 (the "Partnership
Liquidation Distribution") payable in cash.
(h) VOTING RIGHTS.
(i) SPECIAL REPRESENTATIVE. A. 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 (iii) an
Investment Event of Default on any Affiliate Investment Instrument or a default
under any Investment Guarantee, as the case may be, occurs and is continuing
then the Property Trustee, for so long as the Partnership Preferred Securities
are held by the Property Trustee, will have the right, or the Holders of the
Partnership Preferred Securities, upon the affirmative vote of at least a
Majority in Liquidation Preference of the Partnership Preferred Securities,
shall have the right, to the exclusion of the General Partner, (a) to appoint
and authorize a special representative of the Partnership and the Limited
Partners (a "Special Representative") to enforce (1) to the maximum extent
permitted by applicable law, 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 by the General Partner, in its sole discretion, out of
funds legally available therefor) on the Partnership 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 of 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 nor to
have any authority concerning the selection of Partnership Investments. When the
Special Representative acts to enforce the Partnership's creditors' rights and
other rights with respect to the Affiliate Investment Instruments and the
Investment Guarantees, the Special Representative acts as an agent of the
Partnership. When the Special Representative acts to enforce the rights of the
Holders of the Partnership Preferred
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Securities under the Partnership Guarantee or their rights to receive
Distributions on the Partnership Preferred Securities, the Special
Representative acts as an agent of the Holders of the Partnership Preferred
Securities. In addition, the Special Representative shall not, by virtue of
acting in such capacity, be admitted as a general or limited partner in the
Partnership or otherwise be deemed to be a general or limited partner in the
Partnership and shall have no liability for the debts, obligations, or
liabilities of the Partnership.
B. In furtherance of the foregoing, and without limiting the
powers of any Special Representative so appointed and to avoid any doubt
concerning the powers of the Special Representative, any Special Representative,
in its own name, in the name of the Partnership, in the name of the Limited
Partners, or otherwise, may institute, or cause to be instituted, a proceeding,
including, without limitation, any suit in equity, an action at law or other
judicial or administrative proceeding, to enforce on behalf of the Partnership
the Partnership's rights directly against the Company or any other obligor in
connection with its obligations to the Partnership, and may prosecute such
proceeding to judgment or final decree, and enforce the same against the Company
or any other obligor in connection with such obligations and collect, out of the
property, wherever situated, of the Company or any such other obligor upon such
obligations, the monies adjudged or decreed to be payable in the manner provided
by law. The General Partner agrees to execute and deliver such documents as may
be necessary, appropriate or convenient for the Special Representative to
enforce the foregoing rights and obligations on behalf and in the name of the
Partnership.
C. 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 to the fullest extent permitted by law
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 to the fullest extent permitted by law on
behalf of the Partnership directly institute a proceeding against such
Investment Affiliate with respect to such Affiliate Investment Instrument for
enforcement of payment. In addition, the Partnership acknowledges that, 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 Securities has made
a written request, a holder of record of Trust Securities may to the fullest
extent permitted by law 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
the Partnership acknowledges that a holder of Trust Securities may to the
fullest extent permitted by law on behalf of the Partnership directly institute
a proceeding against such Investment Affiliate
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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. Under no circumstances shall the Special Representative, any holder of
Partnership Preferred Securities or any holder of Trust Preferred Securities
have authority to cause the General Partner to declare distributions on the
Partnership Preferred Securities.
D. For purposes of determining whether the Partnership has
deferred payment of Distributions for six (6) consecutive quarters,
Distributions shall be deemed to remain in arrears, notwithstanding any payments
in respect thereof, until full cumulative Distributions, including Compounded
Distributions, have been or contemporaneously are paid with respect to all
quarterly Distribution periods terminating on or prior to the date of payment of
such full cumulative Distributions. Not later than 30 days after such right to
appoint a Special Representative arises, the General Partner will convene a
meeting for election of a Special Representative. If the General Partner fails
to convene such meeting within such 30-day period, the Holders of not less than
10% in Liquidation Preference of the Outstanding Partnership Preferred
Securities will be entitled to convene such meeting. The provisions of Section
14.3 relating to the convening and conduct of 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 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/or the Limited Partners if (x) 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, (y) the relevant Investment Event of Default shall have
been cured, and (z) 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 activities 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 this
Agreement, including the right to determine whether to declare, in its sole
discretion, the payment of Distributions on the Partnership Preferred
Securities.
(ii) CERTAIN AMENDMENTS; WAIVER. A. If any proposed amendment of
this Agreement provides for, or the General Partner otherwise proposes to
effect, (x) any action that would adversely affect the powers, preferences or
special rights of the Holders of the Partnership Preferred Securities, whether
by way of amendment of this Agreement or otherwise (including, without
limitation, the authorization or issuance of any limited partnership interests
in the Partnership ranking, as to participation in profits or distributions, or
in the assets of the Partnership, senior to the Partnership Preferred
Securities); or (y) the dissolution, winding-up or termination of the
Partnership, other than (1) in connection with the occurrence of a Partnership
Special Event or (2) as described under Sections 11.11 and 13.2 of this
Agreement, 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 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 (1) or (2)
above shall not be effective without the prior or concurrent approval of
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the Holders of a majority in liquidation preference of the outstanding Trust
Preferred Securities having a right to vote on such matters; provided, further,
that no such approval shall be required if the dissolution, winding-up or
termination of the Partnership is proposed or initiated upon the initiation of
proceedings, or after proceedings have been initiated, for the dissolution,
winding-up, liquidation or termination of the Company.
B. The Holders of a Majority in Liquidation Preference of
Partnership Preferred Securities may, by vote, on behalf of the Holders of all
of the Partnership Preferred Securities, waive any past Partnership Enforcement
Event with respect to the Partnership Preferred Securities and its consequences;
provided, that if the underlying Investment Event of Default:
(1) is not waivable under the related Affiliate
Investment Instrument, such Partnership Enforcement Event shall also not be
waivable; or
(2) requires the consent or vote of the Holders of
greater than a majority in principal amount or liquidation preference of the
Affiliate Investment Instruments (a "Super Majority") to be waived under the
related Affiliate Investment Instrument, the Partnership Enforcement Event may
only be waived by the vote of the Holders of the relevant Super Majority in
liquidation preference of the Partnership Preferred Securities.
Upon such waiver, any such Partnership Enforcement Event shall cease to exist,
and shall be deemed to have been cured, for every purpose of this Agreement, but
no such waiver shall extend to any subsequent or other Partnership Enforcement
Event or impair any right consequent thereon.
C. A waiver of an Investment Event of Default by the
Special Representative, acting at the direction of the Holders of the
Partnership Preferred Securities, constitutes a waiver of the corresponding
Partnership Enforcement Event.
(iii) GENERAL VOTING. A. 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 that are
debt instruments shall be due and payable, (iv) waive the breach of the covenant
by the Company in the Partnership Guarantee 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 a Majority in Liquidation Preference of the Partnership
Preferred Securities. The General
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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.
B. Any required approval of Holders of Partnership Preferred
Securities may be given at a separate meeting of such Holders convened for such
purpose or pursuant to written consent. The General Partner will cause a notice
of any meeting at which Holders of Partnership Preferred Securities are entitled
to vote, or of any matter upon which the 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
(x) the date of such meeting or the date by which such action is to be taken,
(y) a description of any matter 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 (z) instructions 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 this Agreement.
C. 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,
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, 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; 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.
D. Holders of the Partnership Preferred Securities shall have
no rights to remove or replace the General Partner.
E. Holders of Partnership Preferred Securities shall have no
preemptive rights.
ARTICLE VII.
PARTNERSHIP INVESTMENTS
Section 7.1. INITIAL AFFILIATE INVESTMENT INSTRUMENTS.
(a) All Partnership funds will be invested in the debt securities of
Investment Affiliates (the "Affiliate Investment Instruments") and Eligible Debt
Securities. No more than 99% of the Initial Partnership Proceeds will be used by
the Partnership to purchase the Initial Debentures meeting the criteria set
forth in this Section 7.1. The remaining funds from the Initial Partnership
Proceeds will be used to purchase Eligible Debt Securities in accordance with
the terms of this Agreement.
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(b) The Partnership shall apply approximately 99% of the Initial
Partnership Proceeds to purchase (1) a debt instrument of the Company (the
"Initial Company Debenture") and (2) debt instruments of one or more eligible
controlled affiliates of the Company (such debt instruments collectively
referred to as the "Initial Affiliate Debentures"). The Initial Company
Debenture and the Initial Affiliate Debentures are collectively referred to as
the "Initial Debentures". The Initial Affiliate Debentures may each contain a
provision that allows an affiliate of the issuer of such Debenture to assume the
obligations of such issuer subject to certain conditions. The Partnership may
purchase the Initial Debentures only upon receipt of an opinion of the
Independent Financial Advisor to the effect that if such Initial Debentures were
to be rated, at least one Rating Agency would rate all the Initial Debentures
investment grade at the time such Initial Debentures are purchased by the
Partnership, (ii) the Company and each Investment Affiliate which is a
subsidiary of the Company would have been capable of issuing and selling debt
instruments with the same terms and conditions as the applicable Initial
Debentures to unrelated third party investors, (iii) the terms and conditions of
the Initial Debentures are consistent with the terms and conditions of a public
offering or a private placement pursuant to Rule 144A under the Securities Act
of 1933 of such Initial Debentures and are no more favorable to the relevant
Investment Affiliate than could have been obtained by such Investment Affiliate
from unrelated third party investors pursuant to such a public offering or
private placement of such Initial Debentures. On the Closing Date, the
Partnership shall invest at least 1% of such Initial Partnership Proceeds in
Eligible Debt Securities. The terms of the Initial Debentures will be as set
forth in the Indentures attached hereto as Exhibits A and B.
Section 7.2. REINVESTMENT OF PAYMENTS RECEIVED BY THE PARTNERSHIP.
(a) The Partnership must at all times invest an amount equal to at
least 1% of the Initial Partnership Proceeds in Eligible Debt Securities.
(b) The Partnership may reinvest any payments it receives in respect
of its investments in Eligible Debt Securities without limitation or (ii)
additional Affiliate Investment Instruments but only upon (A) the acceptance of
a written offer setting forth the terms and conditions on which an Investment
Affiliate would be willing to issue an Affiliate Investment Instrument to the
Partnership (an "Investment Offer") and (B) the receipt of an opinion of the
Independent Financial Advisor that the terms of such Affiliate Investment
Instrument set forth in such Investment Offer satisfy the Reinvestment Criteria
(as defined below).
(c) If the Independent Financial Advisor determines that the terms
of an Affiliate Investment Instrument (as set forth in the Investment Offer) do
not satisfy the Reinvestment Criteria, the Partnership shall be prohibited from
making any investment in such Affiliate Investment Instrument.
(d) Each Affiliate Investment Instrument shall satisfy the following
criteria (the "Reinvestment Criteria"): the economic terms of each Affiliate
Investment Instrument shall be no less favorable to the Partnership than terms
that would otherwise be obtainable through a public offering or private
placement under Rule 144A of the Securities Act of 1933 of securities by the
requesting Investment Affiliate and the other terms and conditions of each
Affiliate
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Reinvestment Instrument are substantially similar to the terms and conditions of
similar securities and guarantees, if any, included therein, that are offered to
the public in a public offering or private placement under Rule 144A of the
Securities Act of 1933 of such securities; (ii) the Partnership shall not have
held any Affiliate Investment Instruments of the Investment Affiliate submitting
the Investment Offer within the three-year period ending on the date of the
Investment Offer; (iii) there shall not have been a default on any debt
obligation of the Investment Affiliate submitting the Investment Offer that was
owned by the Partnership; (iv) no dividend arrearages shall have existed on any
preferred stock of the Investment Affiliate submitting the Investment Offer that
was owned by the Partnership; and (v) the Investment Affiliate submitting the
Investment Offer 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
Securities and Exchange Commission.
(e) Any payments received by the Partnership in respect of its
investments that are not invested in additional Affiliate Investment
Instruments, may be reinvested only in Eligible Debt Securities (subject to
restrictions of applicable law, including the 1940 Act).
ARTICLE VIII.
BOOKS OF ACCOUNT, RECORDS AND REPORTS
Section 8.1. BOOKS AND RECORDS.
(a) Proper and complete records and books of account of the
Partnership shall be kept by the General Partner, in which shall be entered
fully and accurately all transactions and other matters relative to the
Partnership's investments. The books and records of the Partnership, together
with a certified copy of this Agreement and of the Certificate, shall at all
times be maintained at the principal office of the General Partner and shall be
open to the inspection and examination of the Partners or their duly authorized
representatives for any proper purpose reasonably related to its Interest during
reasonable business hours.
(b) Notwithstanding any other provision of this Agreement to the
contrary, the General Partner may, to the maximum extent permitted by applicable
law, keep confidential from the Partners any information with respect to the
Partnership, the disclosure of which the General Partner reasonably believes is
not in the best interests of the Partnership, or is adverse to the interests of
the Partnership, or which the Partnership or the General Partner is required by
law or by an agreement with any Person to keep confidential.
(c) (i) For so long as the Partnership Preferred Securities are held
by the Property Trustee on behalf of the Trust, within one month after the close
of each Fiscal Year, the General Partner shall transmit to each Partner a
statement indicating such Partner's share of each item of Partnership income,
gain, loss, deduction or credit, for United States federal income tax purposes,
for such Fiscal Year.
(d) In the event that the Partnership Preferred Securities are no
longer held by the Property Trustee on behalf of the Trust, as soon as
reasonably possible after the close of the
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Fiscal Year, the General Partner shall transmit to each Partner the statement
referred to in Section 8.1(c)(i) hereof.
Section 8.2. ACCOUNTING METHOD. For both financial and tax reporting
purposes, the books and records of the Partnership shall be kept on the accrual
method of accounting applied on a consistent basis and shall reflect all
Partnership transactions.
Section 8.3. ANNUAL AUDIT. As soon as practical after the end of each
Fiscal Year, but not later than 90 days after such end, the financial statements
of the Partnership shall be audited by a firm of independent certified public
accountants selected by the General Partner in accordance with applicable law.
The cost of such audits will be an expense of the Partnership and shall be paid
by the General Partner.
ARTICLE IX.
PAYMENT OF EXPENSES
Section 9.1. PAYMENT OF TRUST EXPENSES AND PARTNERSHIP TAXES. Since the
Trust is being formed solely to facilitate a direct investment in the
Partnership Preferred Securities, the Partnership hereby agrees, at any time
while the Property Trustee is the Holder of any Partnership Preferred
Securities, to pay all the expenses of the Trust, including, but not limited to,
any taxes, duties, assessments or governmental charges of whatever nature (other
than withholding taxes) imposed on the Trust by the United States, or any other
domestic taxing authority, so that the net amounts received and retained by the
Trust and the Property Trustee after paying such expenses will be equal to the
amounts the Trust and the Property Trustee would have received had no such costs
or expenses been incurred by or imposed on the Trust. The General Partner shall
be liable for, and shall pay all such expenses solely out of its own funds. In
addition, if the Partnership is required to pay 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, then, in
any case, the General Partner will pay such taxes, duties, assessments or other
governmental charges out of its own funds.
Section 9.2. PAYMENT OF OTHER PARTNERSHIP EXPENSES. In connection with the
offering, sale and issuance of the Partnership Preferred Securities by the
Partnership, the General Partner shall:
(a) pay all costs and expenses of the Partnership (including, but
not limited to, costs and expenses relating to the organization of the
Partnership, the offering, sale and issuance of the Partnership Preferred
Securities (including commissions to the underwriters in connection therewith)
the fees and expenses of the Special Representatives (if any), and the costs and
expenses relating to the operation of the Partnership, including, without
limitation, costs and expenses of accountants, attorneys, statistical or
bookkeeping services, expenses for printing and engraving and computing or
accounting equipment, paying agent(s), registrar(s), transfer agent(s),
duplicating, travel and telephone and other telecommunications expenses; and
(b) be primarily and fully liable for any indemnification
obligations arising with respect to this Agreement.
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ARTICLE X.
POWERS, RIGHTS AND DUTIES
OF THE LIMITED PARTNERS
Section 10.1. LIMITATIONS. The Limited Partners shall not participate in
the management or control of the Partnership's investment activity, property or
other assets, nor shall the Limited Partners engage in any activities for the
Partnership, nor shall the Limited Partners have the power to act for or bind
the Partnership, such powers being vested solely and exclusively in the General
Partner (and, upon appointment, and to the extent set forth herein, the Special
Representative). The Limited Partners shall have such rights as are set forth
herein and in the Partnership Guarantee. The Limited Partners shall have no
interest in the properties or assets of the General Partner, or any equity
therein, or in any proceeds of any sales thereof (which sales shall not be
restricted in any respect), by virtue of acquiring or owning an Interest in the
Partnership.
Section 10.2. LIABILITY. Subject to the provisions of the Act, no Limited
Partner shall be liable for the repayment, satisfaction or discharge of any
debts or other obligations of the Partnership in excess of the Capital Account
balance of such Limited Partner.
Section 10.3. PRIORITY. No Limited Partner shall have priority over any
other Limited Partner as to Partnership allocations or distributions.
ARTICLE XI.
POWERS, RIGHTS AND DUTIES
OF THE GENERAL PARTNER
Section 11.1. AUTHORITY. Subject to the provisions of Section 6.2(h)(i)
with respect to the Special Representative, the General Partner shall have
exclusive and complete authority and discretion to manage the operations and
affairs of the Partnership and to make all decisions regarding the investment
activity of the Partnership. Any action taken by the General Partner shall
constitute the act of and serve to bind the Partnership. In dealing with the
General Partner acting on behalf of the Partnership no Person shall be required
to inquire into the authority of the General Partner to bind the Partnership.
Persons dealing with the Partnership are entitled to rely conclusively on the
power and authority of the General Partner as set forth in this Agreement.
Section 11.2. POWERS AND DUTIES OF GENERAL PARTNER. Subject to the
provisions of Section 6.2(h)(i) with respect to the Special Representative, the
General Partner shall have all rights and powers of a general partner under the
Act, and shall have all authority, rights and powers in the management of the
Partnership's investment activity to do any and all other acts and things
necessary, proper, convenient or advisable to effectuate the purposes of this
Agreement, including by way of illustration but not by way of limitation, the
following:
(i) to secure the necessary goods and services required in
performing the General Partner's duties for the Partnership;
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(ii) to exercise all powers of the Partnership, on behalf of
the Partnership, in connection with enforcing the Partnership's rights under the
Affiliate Investment Instruments and the Partnership Guarantee;
(iii) to issue Partnership Preferred Securities and to admit
Limited Partners in connection therewith in accordance with this Agreement;
(iv) to act as registrar and transfer agent for the
Partnership Preferred Securities or designate an entity to act as registrar and
transfer agent;
(v) to establish a record date with respect to all actions to
be taken hereunder that require a record date be established, including with
respect to Distributions and voting rights and to make determinations as to the
payment of Distributions, and make or cause to be made all other required
payments to Holders of the Partnership Preferred Securities and to the General
Partner;
(vi) to open, maintain and close bank accounts and to draw
checks and other orders for the payment of money;
(vii) to bring or defend, pay, collect, compromise, arbitrate,
resort to legal action, or otherwise adjust claims or demands of or against the
Partnership;
(viii) to deposit, withdraw, invest, pay, retain and
distribute the Partnership's funds in a manner consistent with the provisions of
this Agreement;
(ix) to take all action that may be necessary or appropriate
for the preservation and the continuation of the Partnership's valid existence,
rights, franchises and privileges as a limited partnership under the laws of the
State of Delaware and of each other jurisdiction in which such existence is
necessary to protect the limited liability of the Limited Partners or to enable
the Partnership to invest in the Affiliate Investment Instruments and Eligible
Debt Securities;
(x) to take all action not inconsistent with applicable law,
the Certificate or this Agreement, that the General Partner or, upon appointment
pursuant to Section 6.2(h)(i), the Special Representative determines in its sole
discretion to be necessary or desirable to ensure, as long as such action does
not adversely affect the interests of the Partnership Preferred Security
Holders, or cause (i) the Partnership to be deemed to be an "investment company"
required to be registered under the 1940 Act, (ii) any Initial Debenture (or any
subsequent Affiliate Investment Instrument that is intended to be classified as
debt) to not be treated as indebtedness for United States federal income tax
purposes, or (iii) the Partnership to be treated as an association, or as a
publicly traded partnership, taxable as a corporation;
(xi) to cause the Partnership to enter into and perform the
Purchase Agreement and the Partnership Preferred Securities Purchase Agreement
and to purchase Eligible Debt Securities and Affiliate Investment Instruments,
as the case may be, without any further act, vote or approval of any Partner;
and
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(xii) to execute and deliver any and all documents or
instruments, perform all duties and powers and do all things for and on behalf
of the Partnership in all matters necessary or desirable or incidental to the
foregoing.
(b) For so long as any Partnership Preferred Securities remain
outstanding, the General Partner covenants and agrees subject to Section 12.1(b)
hereof, 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.
Section 11.3. OBLIGATIONS AND EXPENSES PAYABLE BY GENERAL PARTNER. (a) The
General Partner hereby assumes and shall be liable for the debts, obligations
and liabilities of the Partnership, including, but not limited to, any
liabilities arising under the Securities Act or the Exchange Act and all costs
and expenses relating to the investment by the Partnership in any Affiliate
Investment Instruments (but not any losses related to any non-payment with
respect to such investments), and agrees to pay to each Person to whom the
Partnership is now or hereafter becomes indebted or liable (the
"Beneficiaries"), whether such indebtedness, obligations or liabilities arise in
contract, tort or otherwise (excluding payment obligations of the Company to
Holders of the Partnership Preferred Securities in such Holders' capacities as
Holders of such Partnership Preferred Securities, such obligations being
separately guaranteed under the Partnership Guarantee), the full payment of such
indebtedness and any and all liabilities, when and as due. This Agreement is
intended to be for the benefit of and to be enforceable by all such
Beneficiaries whether or not such Beneficiaries have received notice hereof.
(b) The General Partner agrees to pay and be responsible for:
(i) all costs and expenses of the Partnership including, but not
limited to, costs and expenses relating to the organization of the
Partnership, the offering, sale and issuance of Partnership Preferred
Securities, the costs and expenses relating to the operation of the
Partnership (including without limitation, costs and expenses of
accountants, attorneys, statistical or bookkeeping services, expenses for
printing and engraving and computing or accounting equipment, paying
agent(s), registrar(s), transfer agents, duplicating, travel and telephone
and other telecommunications expenses) and costs and expenses incurred in
connection with the acquisition, financing, and disposition of the
Partnership's assets; and
(ii) any and all taxes (other than Federal, state and local
withholding taxes) and all liabilities, costs and expenses with respect to
such taxes of the Partnership.
Section 11.4. LIABILITY. Except as expressly set forth in this Agreement
or in the Guarantee Agreements, the General Partner shall not be personally
liable for the return of any
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portion of the capital contributions (or any return thereon) of the Limited
Partners; (b) the return of such capital contributions (or any return thereon)
shall be made solely from assets of the Partnership; and (c) the General Partner
shall not be required to pay to the Partnership or to any Limited Partner any
deficit in any Limited Partner's Capital Account upon dissolution, winding up or
otherwise. Other than as expressly provided in this Agreement or under the Act,
no Limited Partner shall have the right to demand or receive property other than
cash for its respective Interest in the Partnership. The General Partner shall
be liable to an unlimited extent for the debts and other obligations of the
Partnership.
Section 11.5. OUTSIDE ACTIVITIES. Any Partner or Affiliate thereof may
engage in or possess an interest in other ventures of any nature or description,
independently or with others, similar or dissimilar to the activities of the
Partnership, and the Partnership and the Partners shall have no rights by virtue
of this Agreement in and to such independent ventures or the income or profits
derived therefrom, and the pursuit of any such venture, even if competitive with
the activities of the Partnership, shall not be deemed wrongful or improper. No
Partner or Affiliate thereof shall be obligated to present any particular
investment opportunity to the Partnership even if such opportunity is of a
character that, if presented to the Partnership, could be taken by the
Partnership, and any Partner or Affiliate thereof shall have the right to take
for its own account (individually or as a partner or fiduciary) or to recommend
to others any such particular investment opportunity.
Section 11.6. LIMITS ON GENERAL PARTNER'S POWERS. Anything in this
Agreement to the contrary notwithstanding, the General Partner shall not cause
or permit the Partnership to:
(i) acquire any assets other than as expressly provided
herein;
(ii) do any act which would make it impractical or impossible
to carry on the ordinary activity of the Partnership as set forth in Section
2.3;
(iii) possess Partnership property for other than a
Partnership purpose;
(iv) admit a Person as a Partner, except as expressly provided
in this Agreement;
(v) make any advances of funds to the General Partner or its
Affiliates, other than such as represented by the Affiliate Investment
Instruments;
(vi) perform any act that would subject any Limited Partner to
liability as a general partner in any jurisdiction;
(vii) engage in any activity that is not consistent with the
purposes of the Partnership, as set forth in Section 2.3;
(viii) without the written consent of the Holders of 66-2/3%
in liquidation preference of the Partnership Preferred Securities, have an order
for relief entered with respect to the Partnership or commence a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consent to the entry of an order for relief in an
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involuntary case under any such law, or consent to the appointment of or taking
possession by a receiver, trustee or other custodian for all or a substantial
part of the Partnership's property, or make any assignment for the benefit of
creditors of the Partnership; or
(ix) borrow money or become liable for the borrowings of any
third party or to engage in any financial or other trade or business.
Section 11.7. EXCULPATION. (a) No Partnership Indemnified Person shall be
liable, responsible or accountable in damages or otherwise to the Partnership or
any Partnership Covered Person for any loss, damage or claim incurred 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 the
authority conferred on such Partnership Indemnified Person by this Agreement or
by law, except that a Partnership Indemnified Person shall be liable for any
such loss, damage or claim incurred by reason of such Partnership Indemnified
Person's gross negligence or willful misconduct with respect to such acts or
omissions.
(b) A Partnership Indemnified Person shall be fully protected in
relying in good faith upon the records of the Partnership and upon such
information, opinions, reports or statements presented to the Partnership by any
Person as to matters the Partnership Indemnified Person reasonably believes are
within such other Person's professional or expert competence and who has been
selected with reasonable care by or on behalf of the Partnership, including
information, opinions, reports or statements as to the value and amount of the
assets, liabilities, profits, losses, or any other facts pertinent to the
existence and amount of assets from which distributions to Partners might
properly be paid.
Section 11.8. FIDUCIARY DUTY. (a) To the extent that, at law or in equity,
a Partnership Indemnified Person has duties (including fiduciary duties) and
liabilities relating thereto to the Partnership or to any other Partnership
Covered Person, a Partnership Indemnified Person acting under this Agreement
shall not be liable to the Partnership or to any other Partnership Covered
Person for its good faith reliance on the provisions of this Agreement. The
provisions of this Agreement, to the extent that they restrict the duties and
liabilities of a Partnership Indemnified Person otherwise existing at law or in
equity, are agreed by the parties hereto to replace such other duties and
liabilities of such Partnership Indemnified Person.
(b) Unless otherwise expressly provided herein, whenever a conflict
of interest exists or arises between Partnership Covered Persons, or (ii)
whether this Agreement or any other agreement contemplated herein or therein
provides that a Partnership Indemnified Person shall act in a manner that is, or
provides terms that are, fair and reasonable to the Partnership or any Partner,
the Partnership Indemnified Person shall resolve such conflict of interest, take
such action or provide such terms, considering in each case the relative
interest of each party (including its own interest) to such conflict, agreement,
transaction or situation and the benefits and burdens relating to such
interests, any customary or accepted industry practices, and any applicable
generally accepted accounting practices or principles. In the absence of bad
faith by the Partnership Indemnified Person, the resolution, action or term so
made, taken or provided by the Partnership Indemnified Person shall not
constitute a breach of this Agreement or any other
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agreement contemplated herein or of any duty or obligation of the Partnership
Indemnified Person at law or in equity or otherwise.
(c) Whenever in this Agreement a Partnership Indemnified Person is
permitted or required to make a decision in its "discretion" or under a grant of
similar authority, the Partnership Indemnified Person shall be entitled to
consider such interests and factors as it desires, including its own interest,
and shall have no duty or obligation to give any consideration to any interest
of or factors affecting the Partnership or any other Person, or (ii) in its
"good faith" or under another express standard, the Partnership Indemnified
Person shall act under such express standard and shall not be subject to any
other or different standard imposed by this Agreement or by applicable law.
Section 11.9. INDEMNIFICATION. (a) To the fullest extent permitted by
applicable law, the Partnership shall indemnify and hold harmless each
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 this 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;
provided, however, that any indemnity under this Section 11.9 shall be provided
out of and to the extent of Partnership assets only, and no Partnership Covered
Person shall have any personal liability on account thereof.
(b) 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 Section 11.9(a).
Section 11.10. TAX MATTERS
(a) For purposes of section 6231(a)(7) of the Code, the "Tax Matters
Partner" shall be the Company as long as it remains the general partner of the
Partnership. The Tax Matters Partner shall keep the Limited Partners fully
informed of any inquiry, examination or proceeding.
(b) Neither the Partnership, nor the Tax Matters Partner on behalf
of the Partnership, shall make an election under section 754 of the Code.
(c) The General Partner and the Partnership Preferred Security
Holders acknowledge that they intend, for United States federal income tax
purposes, that the Partnership shall be treated as a "partnership" (other than a
publicly traded partnership taxable as a
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corporation) and that the General Partner and the Partnership Preferred Security
Holders shall be treated as "partners" of the Partnership.
(d) The General Partner shall retain, at the expense of the
Partnership and at its sole discretion, a nationally recognized firm of
certified public accountants which shall prepare all United States federal,
state, local or other tax and information returns of the Partnership, as
required by law, and the Schedule K-1's or any successor or similar forms or
schedules.
Section 11.11. CONSOLIDATION, MERGER OR SALE OF ASSETS. 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 permitted pursuant to this Section
11.11. 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 continue to be or any
Partnership Successor Securities are or 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 securities 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 the Holders of the 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 and not as an association or a publicly
traded partnership taxable as a corporation, (B) such merger, consolidation,
amalgamation or replacement will not cause the Trust to be classified as an
association or a publicly traded partnership 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
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successor entity under the Partnership Successor Securities at least to the
extent provided by the Partnership Guarantee.
ARTICLE XII.
TRANSFERS OF INTERESTS BY PARTNERS
Section 12.1. TRANSFER OF INTERESTS.
(a) Partnership Preferred Securities shall be freely transferable by
a Holder.
(b) Except as provided in the next sentence, the General Partner may
not assign or transfer its Interest in the Partnership in whole or in part
unless, prior to such assignment or transfer, the General Partner has obtained
the consent of the Holders of not less than 66-2/3% in Liquidation Preference of
the Partnership Preferred Securities. The General Partner may assign or transfer
its Interest in the Partnership without such consent to an entity that is the
survivor of a merger or consolidation of the General Partner in a transaction
that meets the requirements of Section 11.11 and only if prior to such
assignment or transfer the Company has received an opinion of nationally
recognized independent tax counsel to the Partnership experienced in such
matters to the effect that after such assignment or transfer the Partnership
will continue to be treated as a partnership for United States federal income
tax purposes and will not be treated as an association or a publicly traded
partnership taxable as a corporation. The General Partner may transfer its
Interest to a wholly-owned direct or indirect subsidiary of the Company provided
that such 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. "Permitted Successor" shall mean an entity that is an
assignee or transferee of the Interest of the General Partner as permitted by
this Section 12.1(b). The admission of a Permitted Successor as a general
partner of the Partnership shall be effective upon the filing of an amendment to
the Certificate with the Secretary of State of the State of Delaware which
indicates that the Permitted Successor has been admitted as a general partner of
the Partnership. If the General Partner assigns its entire Interest, the General
Partner shall cease to be a general partner of the Partnership simultaneously
with the admission of the Permitted Successor as a general partner of the
Partnership. Any such Permitted Successor is hereby authorized to and shall
continue the business of the Partnership without dissolution.
(c) Except as provided above, no Interest shall be transferred, in
whole or in part, except in accordance with the terms and conditions set forth
in this Agreement. Any transfer or purported transfer of any Interest not made
in accordance with this Agreement shall be null and void.
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Section 12.2. TRANSFER OF L.P. CERTIFICATES. The General Partner shall
provide for the registration of L.P. Certificates and of transfers of L.P.
Certificates. Upon surrender for registration of transfer of any L.P.
Certificate, the General Partner shall cause one or more new L.P. Certificates
to be issued in the name of the designated transferee or transferees. Every L.P.
Certificate surrendered for registration of transfer shall be accompanied by a
written instrument of transfer in form satisfactory to the General Partner duly
executed by the Partnership Preferred Security Holder or his or her attorney
duly authorized in writing. Each L.P. Certificate surrendered for registration
of transfer shall be cancelled by the General Partner. A transferee of an L.P.
Certificate shall be admitted to the Partnership as a Limited Partner, shall
become bound by this Agreement and shall be entitled to the rights and subject
to the obligations of a Partnership Preferred Security Holder hereunder upon the
receipt by the transferee of an L.P. Certificate, which receipt shall be deemed
to constitute a request by such transferee that the books and records of the
Partnership reflect such transferee's admission as a limited partner. The
transferor of an L.P. Certificate, in whole, shall cease to be a Limited Partner
at the time that the transferee of such L.P. Certificate is admitted to the
Partnership as a Limited Partner in accordance with this Section 12.2.
Section 12.3. DEFINITIVE L.P. CERTIFICATES; PERSONS DEEMED PARTNERSHIP
PREFERRED SECURITY HOLDERS; DEFINITIVE L.P. CERTIFICATES. Unless and until the
Partnership issues a global L.P. Certificate pursuant to Section 12.4(a), the
Partnership shall only issue definitive L.P. Certificates to the Partnership
Preferred Security Holders. (b) The Partnership may treat the Person in whose
name any L.P. Certificate shall be registered on the books and records of the
Partnership as the sole holder of such L.P. Certificate and of the Partnership
Preferred Securities represented by such L.P. Certificate for purposes of
receiving Distributions and for all other purposes whatsoever (including without
limitation, tax returns and information reports) and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such L.P.
Certificate or in the Partnership Preferred Securities represented by such L.P.
Certificate on the part of any other Person, whether or not the Partnership
shall have actual or other notice thereof.
Section 12.4. BOOK-ENTRY PROVISIONS.
(a) GENERAL. The provisions of this Section 12.4 shall apply only in
the event that the Partnership Preferred Securities are distributed to the
Holders of Trust 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. Upon the occurrence of such event, a global
L.P. Certificate representing the Book-Entry Interests shall be delivered to
DTC, the initial Clearing Agency, by, or on behalf of, the Partnership and any
previously issued and still outstanding definitive L.P. Certificates shall be of
no further force and effect. The global L.P. Certificate shall initially be
registered on the books and records of the Partnership in the name of Cede &
Co., the nominee of DTC, and no Holder of a Partnership Preferred Security will
receive a new definitive L.P. Certificate representing such Holder's interests
in such L.P. Certificate, except as provided in Section 12.4(c). 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, Cede & Co., the
nominee of DTC, shall automatically be admitted to the Partnership as a Limited
Partner. Receipt of the global L.P. Certificate shall be deemed to constitute a
request by Cede & Co., the nominee of DTC, that the books and records of the
Partnership reflect its
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admission as a Limited Partner. Unless and until new definitive, fully
registered L.P. Certificates (the "Definitive L.P. Certificates") have been
issued to the Partnership Preferred Security Owners pursuant to Section 12.4(c):
(i) The provisions of this Section shall be in full force and
effect;
(ii) The Partnership, the General Partner and any Special
Representative shall be entitled to deal with the Clearing Agency for all
purposes of this Agreement (including the payment of Distributions, Redemption
Price and liquidation proceeds on the L.P. Certificates and receiving approvals,
votes or consents hereunder) as the Partnership Preferred Security Holder and
the sole holder of the L.P. Certificates and shall have no obligation to the
Partnership Preferred Security Owners;
(iii) None of the Partnership, the Trust, the General Partner,
any Special Representative or any agents of any of the foregoing shall have any
liability or responsibility for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a global L.P.
Certificate for such beneficial ownership interests or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests; and
(iv) Except as provided in Section 12.4(c) below, the
Partnership Preferred Security Owners will not be entitled to receive physical
delivery of the Partnership Preferred Securities in definitive form and will not
be considered Holders thereof for any purpose under this Agreement, and no
global L.P. Certificate representing Partnership Preferred Securities shall be
exchangeable, except for another global L.P. Certificate of like denomination
and tenor to be registered in the name of DTC or Cede & Co., or to a successor
Depositary or its nominee. Accordingly, each Partnership Preferred Security
Owner must rely on the procedures of DTC or 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 Agreement.
(b) NOTICES TO CLEARING AGENCY. Whenever a notice or other
communication to the Partnership Preferred Security Holders is required under
this Agreement, unless and until Definitive L.P. Certificates shall have been
issued to the Partnership Preferred Security Owners pursuant to Section 12.4(c),
the General Partner and any Special Representative shall give all such notices
and communications specified herein to be given to the Partnership Preferred
Security Holders to the Clearing Agency, and shall have no obligations to the
Partnership Preferred Security Owners.
(c) DEFINITIVE L.P. CERTIFICATES. Definitive L.P. Certificates shall
be prepared by the Partnership and exchangeable for the global L.P. Certificate
or L.P. Certificates if and only if the Depositary notifies the Company that it
is unwilling or unable to continue its services as a securities depositary and
no successor depositary shall have been appointed, (ii) the Depositary, at any
time, ceases to be a clearing agency registered under the Exchange Act at such
time as the Depositary is required to be so registered to act as such depositary
and no successor depositary shall have been appointed, or (iii) the Company, in
its sole discretion, determines that such global L.P. Certificate shall be so
exchangeable. Upon surrender of the global L.P. Certificate or L.P. Certificates
representing the Book-Entry Interests by the Clearing Agency, accompanied by
registration instructions, the General Partner shall cause Definitive L.P.
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Certificates to be delivered to Partnership Preferred Security Owners in
accordance with the instructions of the Clearing Agency. Neither the General
Partner nor the Partnership shall be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be protected in relying on,
such instructions. Any Person receiving a Definitive L.P. Certificate in
accordance with this Section 12.4 shall be admitted to the Partnership as a
Limited Partner upon receipt of such Definitive L.P. Certificate and shall be
registered on the books and records of the Partnership as a Partnership
Preferred Security Holder. The Clearing Agency or the nominee of the Clearing
Agency, as the case may be, shall cease to be a Limited Partner under this
Section 12.4(c) at the time that at least one additional Person is admitted to
the Partnership as a Limited Partner in accordance herewith. The Definitive L.P.
Certificates shall be printed, lithographed or engraved or may be produced in
any other manner as may be required by any national securities exchange on which
Partnership Preferred Securities may be listed and is reasonably acceptable to
the General Partner, as evidenced by its execution thereof.
Section 12.5. REGISTRAR, TRANSFER AGENT AND PAYING AGENT.
(a) 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.
(b) Except in such case where the General Partner shall act as
Registrar or Paying Agent pursuant to Section 12.5(a) hereof, the Partnership
shall maintain in the Borough of Manhattan, City of New York, State of New York
an office or agency where Partnership Preferred Securities may be presented for
registration of transfer or for exchange ("Registrar") and (ii) an office or
agency where Partnership Preferred Securities may be presented for payment
("Paying Agent"). The Registrar shall keep a register of the Partnership
Preferred Securities and of their transfer and exchange. The Partnership may
appoint the Registrar and the Paying Agent and may appoint one or more
co-registrars and one or more additional paying agents in such other locations
as it shall determine. The term "Paying Agent" includes any additional paying
agent. The Partnership may change any Paying Agent, Registrar or co-registrar
without prior notice to any Holder. If the Partnership fails to appoint or
maintain another entity as Registrar or Paying Agent, the General Partner shall
act as such.
(c) Registration of transfers of Partnership Preferred Securities
shall 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.
(d) 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.
37
<PAGE>
ARTICLE XIII.
WITHDRAWAL, DISSOLUTION;
LIQUIDATION AND DISTRIBUTION OF ASSETS
Section 13.1. WITHDRAWAL OF PARTNERS. The General Partner shall not at any
time retire or withdraw from the Partnership except as otherwise permitted
hereunder. If the General Partner retires or withdraws in contravention of this
Section 13.1, it shall indemnify, defend and hold harmless the Partnership and
the other Partners from and against any losses, expenses, judgments, fines,
settlements or damages suffered or incurred by the Partnership or such other
Partners arising out of or resulting from such retirement or withdrawal.
Section 13.2. DISSOLUTION OF THE PARTNERSHIP.
(a) The Partnership shall not be dissolved by the admission of
Partners in accordance with the terms of this Agreement. The death, withdrawal,
bankruptcy or dissolution of a Limited Partner, or the occurrence of any other
event which terminates the Interest of a Limited Partner in the Partnership,
shall not, in and of itself, cause the Partnership to be dissolved and its
affairs wound up. To the fullest extent permitted by applicable law, upon the
occurrence of any such event, the General Partner may, without any further act,
vote on approval of any Partner, admit any Person to the Partnership as an
additional or substitute limited partner in the Partnership, which admission
shall be effective as of the date of the occurrence of such event, and the
business of the Partnership shall be continued without dissolution.
(b) The Partnership shall be dissolved and its affairs shall be
wound up upon the earliest to occur of any of the following events:
(i) upon the bankruptcy or insolvency 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 this 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 Delaware Partnership Act, unless the business of the
Partnership is continued in accordance with the Delaware Partnership Act;
(iii) the Partnership has redeemed or otherwise purchased all
of the Partnership Preferred Securities;
(iv) upon the entry of a decree of judicial dissolution under
Section 17-802 of the Act; or
(v) the written consent of all Partners.
(c) Upon dissolution of the Partnership, the Liquidator shall
promptly notify the Partners of such dissolution.
38
<PAGE>
Section 13.3. LIQUIDATION.
(a) In the event of the dissolution of the Partnership for any
reason, the General Partner (or, if the Partnership is dissolved pursuant to
Section 13.2(b)(i) or (ii), then a liquidating agent appointed by Holders of not
less than 66 2/3% in Liquidation Preference of the Partnership Preferred
Securities (the General Partner or such Person so appointed is hereinafter
referred to as the "Liquidator")) shall commence to wind up the affairs of the
Partnership and to liquidate the Partnership's assets; provided, however, that a
reasonable time shall be allowed for the orderly liquidation of the assets of
the Partnership and the satisfaction of liabilities to creditors so as to enable
the Partners to minimize the normal losses attendant upon liquidation. The
Partners shall continue to share all income, losses and distributions during the
period of liquidation in accordance with Articles IV and V. Subject to the
provisions of this Article XIII, the Liquidator shall have full right and
unlimited discretion to determine the time, manner and terms of any sale or
sales of Partnership property pursuant to such liquidation, giving due regard to
the activity and condition of the relevant market and general financial and
economic conditions.
(b) The Liquidator shall have all of the rights and powers with
respect to the assets and liabilities of the Partnership in connection with the
liquidation and termination of the Partnership that the General Partner would
have with respect to the assets and liabilities of the Partnership during the
term of the Partnership, and the Liquidator is hereby expressly authorized and
empowered to execute any and all documents necessary or desirable to effectuate
the liquidation and termination of the Partnership and the transfer of any
assets.
(c) Notwithstanding the foregoing, a Liquidator that is not a
General Partner shall not, by virtue of acting in such capacity, be deemed a
Partner in this Partnership and shall not have any of the economic interests in
the Partnership of a Partner; and such Liquidator may be compensated for its
services to the Partnership at normal customary and competitive rates for its
services to the Partnership as reasonably determined by all the Limited
Partners.
Section 13.4. DISTRIBUTION IN LIQUIDATION. The proceeds of liquidation
shall be applied in the following order of priority (and without regard to the
non-mandatory provisions of Section 17-804 of the Act):
(i) first, to creditors of the Partnership, including Partners
who are creditors, to the extent otherwise permitted by law, in satisfaction of
the liabilities of the Partnership (whether by payment or the making of
reasonable provisions for payment thereof), other than liabilities for
distributions (including Distributions) to Partners;
(ii) second, following any allocations required under Section
4.2(e) of the Agreement, to the Limited Partners, an amount equal to the
aggregate liquidation preference of their Partnership Preferred Securities, plus
the amount of Distributions (including any Compounded Distributions) that are
accumulated and unpaid as of the date of such liquidating distribution; and
(iii) thereafter, to the General Partner.
Section 13.5. RIGHTS OF LIMITED PARTNERS. Each Limited Partner shall look
solely to the assets of the Partnership for all distributions with respect to
the Partnership and such
39
<PAGE>
Partner's capital contribution (including returns thereof), and such Partner's
share of profits or losses thereof, and shall have no recourse therefor (upon
dissolution or otherwise) against the General Partner, except under the
Partnership Guarantee. No Partner shall have any right to demand or receive
property other than cash upon dissolution and termination of the Partnership.
Section 13.6. TERMINATION. The Partnership shall terminate when all of the
assets of the Partnership shall have been disposed of and the assets shall have
been distributed as provided in Section 13.4 and the Liquidator has executed and
caused to be filed a certificate of cancellation of the Partnership.
ARTICLE XIV.
AMENDMENTS AND MEETINGS
Section 14.1. AMENDMENTS. Except as provided by Section 3.3(b) and Section
6.2(i), this Agreement may be amended by, and only by, a written instrument
executed by the General Partner without the consent of any Limited Partner;
provided, however, that no amendment shall be made, and any such purported
amendment shall be void and ineffective, to the extent the result thereof would
be to (A) cause the Partnership to be treated for United States federal income
tax purposes as an association or a publicly traded partnership taxable as a
corporation, (B) require the Partnership to register under the 1940 Act or (C)
materially adversely affect the rights, privileges or preferences of the
Partnership Preferred Securities. Notwithstanding any provision to the contrary,
in the event of (i) a liquidation of the Trust for any reason or (ii) any other
distribution which effectively causes Partnership Preferred Securities to be
distributed to Holders of Trust Preferred Securities, the General Partner may
amend this Agreement without the consent of the Limited Partners to provide for
(A) orderly dissemination, purchase, sale, exchange and replacement of such
Partnership Preferred Securities, (B) all other matters to the extent required
by or desirable under then applicable law and (C) such other matters reasonably
incidental or related thereto; provided, however, that no such amendment may
materially adversely affect the rights, privileges, or preferences of the
Partnership Preferred Securities without the consent of a majority in interest
of the Partners so effected.
Section 14.2. AMENDMENT OF CERTIFICATE. In the event this Agreement shall
be amended pursuant to Section 14.1, the General Partner shall amend the
Certificate to reflect such change if it deems such amendment of the Certificate
to be necessary or appropriate.
Section 14.3. MEETINGS OF PARTNERS.
(a) Meetings of the Limited Partners who are Holders may be called
at any time by the General Partner to consider and act on any matter on which
Limited Partners are entitled to act under the terms of this Agreement or the
Act. The General Partner shall call a meeting of Holders if directed to do so by
Holders of no less than 10% in Liquidation Preference as permitted by this
Agreement. Such direction shall be given by delivering to the General Partner a
request in writing stating that the signing Limited Partners desire to call a
meeting and indicating the general or specific purpose for which the meeting is
to be called. Any Limited Partners calling a meeting shall specify in writing
the L.P. Certificates held by the Limited Partners exercising the right to call
a meeting and only those specified Interests shall be counted
40
<PAGE>
for purposes of determining whether the required percentage set forth in the
second sentence of this paragraph has been met. Except to the extent otherwise
provided in this Agreement, the following provisions shall apply to meetings of
Partners.
(b) Notice of any such meeting shall be given to all Limited
Partners having a right to vote thereat not less than seven Business Days nor
more than 60 days prior to the date of such meeting. Each such notice shall set
forth the date, time and place of the meeting, a description of any matter on
which Holders are entitled to vote and instructions for the delivery of proxies
or written consents.
(c) Any action that may be taken at a meeting of the Limited
Partners may be taken without a meeting if a consent in writing setting forth
the action so taken is signed by Limited Partners owning not less than the
minimum Interests that would be necessary to authorize or take such action at a
meeting in which all Limited Partners having a right to vote thereon were
present and voting. Prompt notice of the taking of action without a meeting
shall be given to the Limited Partners entitled to vote who have not consented
in writing. The General Partner may provide that any written ballot submitted to
the Limited Partners for the purpose of taking any action without a meeting
shall be returned to the Partnership within a specified time.
(d) Each Partner may authorize any Person to act for it by proxy on
all matters as to which a Partner is entitled to participate, including waiving
notice of any meeting, or voting or participating at a meeting. Every proxy must
be signed by the Partner or its attorney-in-fact. No proxy shall be valid after
the expiration of 11 months from the date thereof unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the Partner
executing it. Except as otherwise provided herein, or pursuant to Section
14.3(f), all matters relating to the giving, voting or validity of proxies shall
be governed by the General Corporation Law of the State of Delaware relating to
proxies, and judicial interpretations thereunder, as if the Partnership were a
Delaware corporation and the Limited Partners were stockholders of a Delaware
corporation.
(e) Each meeting of Partners shall be conducted by the General
Partner or by such other Person that the General Partner may designate.
(f) The General Partner may establish all other reasonable
procedures relating to meetings of Limited Partners or the giving of written
consents, in addition to those expressly provided, including notice of time,
place or purpose of any meeting at which any matter is to be voted on by any
Partners, waiver of any such notice, action by consent without a meeting, the
establishment of a record date, quorum requirements, voting in person or by
proxy or any other matter with respect to the exercise of any such right to
vote.
ARTICLE XV.
MISCELLANEOUS
Section 15.1. NOTICES. All notices provided for in this Agreement shall be
in writing, and shall be delivered or mailed by first class or registered or
certified mail or, with respect to the Partnership and General Partner,
telecopied, as follows:
41
<PAGE>
(a) if given to the Partnership, in care of the General Partner at
the Partnership's mailing address set forth below:
Merrill Lynch & Co., Inc.
World Financial Center
South Tower
225 Liberty Street
New York, New York 10080-6105
Attention: Treasurer
(b) if given to the General Partner, at its mailing address set
forth below:
Merrill Lynch & Co., Inc.
World Financial Center
South Tower
225 Liberty Street
New York, New York 10080-6105
Attention: Treasurer
(c) if given to any other Partner at the address set forth on the
books and records of the Partnership.
Section 15.2. POWER OF ATTORNEY. Each Holder of a Partnership Preferred
Security does hereby constitute and appoint the General Partner, and if
applicable, any Special Representative appointed pursuant to Section 6.2(h)(i)
of this Agreement, as its true and lawful representative and attorney-in-fact,
in its name, place and stead to make, execute, sign, deliver and file any
amendment of the Certificate required because of an amendment of this Agreement
or in order to effect any change in the Partnership, (b) this Agreement, (c) any
amendments to this Agreement and (d) all such other instruments, documents and
certificates which from time to time may be required by the laws of the United
States of America, the State of Delaware or any other jurisdiction, or any
political subdivision or agency thereof, to effectuate, implement and continue
the valid and subsisting existence of the Partnership or to dissolve the
Partnership for any other purpose consistent with this Agreement and the
transactions contemplated hereby.
The power of attorney granted hereby is coupled with an interest and
shall (a) survive and not be affected by the subsequent death, incapacity,
disability, dissolution, termination, or bankruptcy of the Holder granting the
same or the transfer of all or any portion of such Holder's Interest and (b)
extend to such Holder's successors, assigns and legal representatives.
Section 15.3. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties. It supersedes any prior agreement or understandings
among them, and it may not be modified or amended in any manner other than as
set forth herein.
Section 15.4. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAW OF THE
STATE OF DELAWARE AND ALL RIGHTS
42
<PAGE>
AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
Section 15.5. EFFECT. Except as herein otherwise specifically provided,
this Agreement shall be binding upon and inure to the benefit of the parties and
their legal representatives, successors and assigns.
Section 15.6. PRONOUNS AND NUMBER. Wherever from the context it appears
appropriate, each term stated in either the singular or the plural shall include
the singular and the plural, and pronouns stated in either the masculine,
feminine or neuter shall include the masculine, feminine and neuter.
Section 15.7. CAPTIONS. Captions, headings, and subheadings contained in
this Agreement are included for convenience and identification purposes only and
in no way define, limit or extend the scope or intent of this Agreement or any
provision herein.
Section 15.8. PARTIAL ENFORCEABILITY. If any provision of this Agreement,
or the application of such provision to any Person or circumstance, shall be
held invalid, the remainder of this Agreement, or the application of such
provision to persons or circumstances other than those to which it is held
invalid, shall not be affected thereby.
Section 15.9. COUNTERPARTS. This Agreement may contain more than one
counterpart of the signature page and this Agreement may be executed by the
affixing of the signature of each of the Partners to one of such counterpart
signature pages. All of such counterpart signature pages shall be read as though
one, and they shall have the same force and effect as though all of the signers
had signed a single signature page.
Section 15.10. WAIVER OF PARTITION. Each Partner hereby irrevocably waives
any and all rights (if any) that such Partner may have to maintain any action
for partition of any of the Partnership's property.
Section 15.11. REMEDIES. The failure of any party to seek redress for
violation of, or to insist upon the strict performance of, any provision of this
Agreement shall not prevent a subsequent act, which would have originally
constituted a violation, from having the effect of an original violation. The
rights and remedies provided by this Agreement are cumulative and the use of any
one right or remedy by any party shall not preclude or waive its right to use
any or all other remedies. Said rights and remedies are given in addition to any
other rights the parties may have by law, statute, ordinance or otherwise.
43
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above stated.
GENERAL PARTNER:
MERRILL LYNCH & CO., INC.
a Delaware corporation
By:
------------------------------------
Name: Theresa Lang
Title: Senior Vice President
and Treasurer
INITIAL LIMITED PARTNER:
MERRILL LYNCH GROUP, INC.
a Delaware corporation
By:
------------------------------------
Name: Theresa Lang
Title: President
44
<PAGE>
SCHEDULE 1
Merrill Lynch & Co., Inc.
Merrill Lynch Group, Inc.
S-1
<PAGE>
ANNEX A
FORM OF L.P. CERTIFICATE
[IF THE PARTNERSHIP PREFERRED SECURITY IS TO BE A GLOBAL CERTIFICATE
INSERT: This Partnership Preferred Security is a Global Certificate within the
meaning of the Partnership Agreement hereinafter referred to and is registered
in the name of The Depository Trust Company (the "Depositary") or a nominee of
the Depositary. This Partnership Preferred Security is exchangeable for
Partnership Preferred Securities registered in the name of a person other than
the Depositary or its nominee only in the limited circumstances described in the
Partnership Agreement and no transfer of this Partnership Preferred Security
(other than a transfer of this Partnership Preferred Security as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary) may be registered except in
limited circumstances.
Unless this Partnership Preferred Security is presented by an
authorized representative of The Depository Trust Company (55 Water Street, New
York, New York), a New York corporation, to the Partnership or its agent for
registration of transfer, exchange or payment, and any Partnership Preferred
Security issued is registered in the name of Cede & Co. or such other name as
requested by an authorized representative of the Depositary and any payment
hereon is made to Cede & Co. or such other entity as is requested by an
authorized representative of the Depositary, ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest herein.]
1
<PAGE>
PS-1 [ ]
Certificate Evidencing Partnership Preferred Securities
of
MERRILL LYNCH PREFERRED FUNDING VI , L.P.
____% Partnership Preferred Securities
(liquidation preference $25 per Partnership Preferred Security)
MERRILL LYNCH PREFERRED FUNDING VI, L.P., a limited partnership
formed under the laws of the State of Delaware (the "Partnership"), hereby
certifies that The Chase Manhattan Bank, a property trustee pursuant to the
Amended and Restated Declaration of Trust of Merrill Lynch Preferred Capital
Trust, dated as of _______ __, 1999 (the "Holder") is the registered owner of
preferred securities of the Partnership representing limited partner interests
in the Partnership designated the __% Partnership Preferred Securities
(liquidation preference $25 per Partnership Preferred Security) (the
"Partnership Preferred Securities"). The Partnership Preferred Securities are
freely transferable on the books and records of the Partnership, in person or by
a duly authorized attorney, upon surrender of this certificate duly endorsed and
in proper form for transfer. The designation, rights, powers, privileges,
restrictions, preferences and other terms and provisions of the Partnership
Preferred Securities represented hereby are set forth in, issued under and shall
in all respects be subject to the provisions of the Amended and Restated
Agreement of Limited Partnership dated as of _______ __, 1999, as the same may
be amended from time to time (the "Partnership Agreement"). Capitalized terms
used herein but not defined shall have the meaning given them in the Partnership
Agreement. The Holder is entitled to the benefits of the Partnership Guarantee
to the extent provided therein. The Partnership will provide a copy of the
Partnership Agreement and the Partnership Guarantee to a Holder without charge
upon written request to the Partnership at its principal place of business.
Upon receipt of this certificate, the Holder is admitted to the
Partnership as a Limited Partner, is bound by the Partnership Agreement and is
entitled to the benefits thereunder. Each Holder of a Partnership Preferred
Security, by acceptance of this Certificate and each Certificate owner, by
acquisition of a beneficial interest in a Certificate, agrees to treat the
Debentures, and any other Affiliate Investment Instruments that are treated as
debt instruments by the relevant Investment Affiliate and by the Partnership, as
indebtedness for United States federal income tax purposes.
1
<PAGE>
IN WITNESS WHEREOF, the Partnership has executed this certificate
this ___ day of ________, 1999.
MERRILL LYNCH PREFERRED FUNDING VI, L.P.
By: MERRILL LYNCH & CO., INC.,
as General Partner
By:
------------------------------------
Name: Theresa Lang
Title: Senior Vice President
and Treasurer
(See reverse for additional terms)
2
<PAGE>
[FORM OF REVERSE OF SECURITY]
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 (to the extent permitted by
applicable law) at the rate of ____% per annum. The term "Distributions" as used
herein shall mean ordinary cumulative distributions in respect of each Fiscal
Period together with any such Compounded Distributions. Distributions on the
Partnership Preferred Securities will only be made to the extent that the
Partnership has funds legally available for the payment of such distributions.
Amounts available to the Partnership for Distribution to the holders of the
Partnership Preferred Securities will be limited to payments received by the
Partnership from the Company and certain wholly owned subsidiaries on the
Initial Debentures and Affiliate Investment Instruments or from the Company on
the Partnership Guarantee or on the Eligible Debt Securities. 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. The amount of Distributions payable for any period will be computed
for any full quarterly Distribution period on the basis of a 360-day year of
twelve 30-day months, and for any period shorter than a full quarterly
Distribution period on the basis of the actual number of days elapsed in a
90-day quarter.
Except as otherwise described herein, Distributions on the
Partnership Preferred Securities will be cumulative, will accumulate from the
date of initial issuance and will be payable quarterly in arrears, on March 30,
June 30, September 30 and December 30 of each year, commencing on ________ __,
1999, if, as and when declared by the General Partner in its sole discretion. If
the Trust Preferred Securities (or, if the Trust is liquidated, the Partnership
Preferred Securities) are in book-entry-only form, Distributions will be payable
to the Holders of record of Partnership Preferred Securities as they appear on
the books and records of the Partnership on the relevant record dates, which
will be one Business Day prior to the relevant payment dates. If the Trust or
the Property Trustee is the Holder of the Partnership Preferred Securities, all
Distributions of cash shall be made by wire transfer of same day funds to such
Holder by 10:00 a.m., New York City time, on the applicable Distribution Payment
Date. Distributions payable on any Partnership Preferred Securities that are not
punctually paid on any Distribution Payment Date will cease to be payable to the
Person in whose name such Partnership Preferred Securities are registered on the
relevant record date, and such Distribution will instead be payable to the
Person in whose name such Partnership Preferred Securities are registered on the
special record date or other specified date for payment of such defaulted or
accumulated Distribution. If the Trust Preferred Securities (or, if the Trust is
liquidated, the Partnership Preferred Securities) are not 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 is not a Business Day, payment of such Distribution shall be made on the
next succeeding day which is a Business Day (without any interest or other
payment in respect of any such delay) except that, if such Business Day falls 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.
The Partnership Preferred Securities shall be redeemable as provided
in the Partnership Agreement.
3
<PAGE>
---------------------
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Partnership
Preferred Security Certificate to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax identification number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints
________________________________________________________________________________
________________________________________________________________________________
_______________________________ agent to transfer this Partnership Preferred
Security Certificate on the books of the Partnership. The agent may substitute
another to act for him or her.
Date: _________________________
Signature: ____________________
(Sign exactly as your name appears on the other side of this Partnership
Preferred Security Certificate)
4
<PAGE>
Exhibit 4 (ssss)
====================================
TRUST PREFERRED SECURITIES GUARANTEE AGREEMENT
Merrill Lynch Preferred Capital Trust VI
Dated as of _______ __, 1999
====================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1 Definitions and Interpretation...................................2
ARTICLE II
TRUST INDENTURE ACT
Section 2.1 Trust Indenture Act; Application.................................5
Section 2.2 Lists of Holders of Securities...................................6
Section 2.3 Reports by the Trust Preferred Guarantee Trustee.................6
Section 2.4 Periodic Reports to Trust Preferred Guarantee Trustee............6
Section 2.5 Evidence of Compliance with Conditions Precedent.................6
Section 2.6 Events of Default; Waiver........................................7
Section 2.7 Event of Default; Notice.........................................7
Section 2.8 Conflicting Interests............................................7
ARTICLE III
POWERS, DUTIES AND RIGHTS OF TRUST PREFERRED GUARANTEE TRUSTEE
Section 3.1 Powers and Duties of the Trust Preferred Guarantee Trustee.......7
Section 3.2 Certain Rights of Trust Preferred Guarantee Trustee..............9
Section 3.3 Not Responsible for Recitals or Issuance of Trust Preferred
Securities Guarantee............................................11
ARTICLE IV
TRUST PREFERRED GUARANTEE TRUSTEE
Section 4.1 Trust Preferred Guarantee Trustee; Eligibility..................11
Section 4.2 Appointment, Removal and Resignation of Trust Preferred
Guarantee Trustee...............................................12
ARTICLE V
GUARANTEE
Section 5.1 Guarantee.......................................................13
Section 5.2 Waiver of Notice and Demand.....................................13
Section 5.3 Obligations Not Affected........................................13
Section 5.4 Rights of Holders...............................................14
Section 5.5 Guarantee of Payment............................................15
Section 5.6 Subrogation.....................................................15
Section 5.7 Independent Obligations.........................................15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
Section 6.1 Limitation of Transactions......................................15
Section 6.2 Ranking.........................................................16
ARTICLE VII
TERMINATION
Section 7.1 Termination.....................................................17
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Exculpation.....................................................17
Section 8.2 Indemnification.................................................17
ARTICLE IX
MISCELLANEOUS
Section 9.1 Successors and Assigns..........................................18
Section 9.2 Amendments......................................................18
Section 9.3 Consolidations and Mergers......................................18
Section 9.4 Notices.........................................................19
Section 9.5 Benefit.........................................................19
Section 9.6 Governing Law...................................................19
</TABLE>
ii
<PAGE>
TRUST PREFERRED SECURITIES GUARANTEE AGREEMENT
This TRUST PREFERRED SECURITIES GUARANTEE AGREEMENT (the "Trust
Preferred Securities Guarantee"), dated as of __________ __, 1999, is executed
and delivered by Merrill Lynch & Co., Inc., a Delaware corporation (the
"Guarantor"), and The Chase Manhattan Bank, a New York banking corporation, as
trustee (the "Trust Preferred Guarantee Trustee"), for the benefit of the
Holders (as defined herein) from time to time of the Trust Preferred Securities
(as defined herein) of Merrill Lynch Preferred Capital Trust VI, a Delaware
statutory business trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Declaration of Trust
(the "Declaration"), dated as of ________ __, 1999, among the trustees of the
Issuer named therein, Merrill Lynch & Co., Inc., as sponsor, and the holders
from time to time of undivided beneficial interests in the assets of the Issuer,
the Issuer is issuing on the date hereof Trust Originated Preferred Securities,
having an aggregate liquidation amount of $___________, designated the ____%
Trust Originated Preferred Securities (the "Trust Preferred Securities");
WHEREAS, as incentive for the Holders to purchase the Trust
Preferred Securities, the Guarantor desires irrevocably and unconditionally to
agree, to the extent set forth in this Trust Preferred Securities Guarantee, to
pay to the Holders of the Trust Preferred Securities the Guarantee Payments (as
defined herein) and to make certain other payments on the terms and conditions
set forth herein and;
WHEREAS, the Guarantor is also executing and delivering a guarantee
agreement (the "Trust Common Securities Guarantee"), with substantially
identical terms to this Trust Preferred Securities Guarantee for the benefit of
the holders of the Trust Common Securities (as defined herein), except that if
the Guarantor is in default on any of its obligations under the Trust Preferred
Securities Guarantee, the Partnership Guarantee, or any Investment Guarantee, or
any default has occurred and is continuing with respect to an Affiliate
Investment Instrument, the rights of holders of the Trust Common Securities to
receive Guarantee Payments under the Trust Common Securities Guarantee are
subordinated, to the extent and in the manner set forth in the Trust Common
Securities Guarantee, to the rights of Holders of Trust Preferred Securities to
receive Guarantee Payments under this Trust Preferred Securities Guarantee.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Trust Preferred Securities, which purchase the Guarantor hereby acknowledges
shall benefit the Guarantor, the Guarantor executes and delivers this Trust
Preferred Securities Guarantee for the benefit of the Holders.
<PAGE>
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1 Definitions and Interpretation
In this Trust Preferred Securities Guarantee, unless the context
otherwise requires:
(a) Capitalized terms used in this Trust Preferred Securities
Guarantee but not defined in the preamble above have the
respective meanings assigned to them in this Section 1.1;
(b) Capitalized terms used in this Trust Preferred Securities
Guarantee but not otherwise defined herein shall have the
meanings assigned to them in the Declaration or the
Partnership Agreement, as the case may be;
(c) a term defined anywhere in this Trust Preferred Securities
Guarantee has the same meaning throughout;
(d) all references to "the Trust Preferred Securities Guarantee"
or "this Trust Preferred Securities Guarantee" are to this
Trust Preferred Securities Guarantee as modified, supplemented
or amended from time to time;
(e) all references in this Trust Preferred Securities Guarantee to
Articles and Sections are to Articles and Sections of this
Trust Preferred Securities Guarantee, unless otherwise
specified;
(f) a term defined in the Trust Indenture Act has the same meaning
when used in this Trust Preferred Securities Guarantee, unless
otherwise defined in this Trust Preferred Securities Guarantee
or unless the context otherwise requires; and
(g) a reference to the singular includes the plural and vice
versa.
"Affiliate" has the same meaning as given to that term in Rule 405
under the Securities Act of 1933, as amended, or any successor rule thereunder.
"Business Day" means any day other than a day on which banking
institutions in The City of New York are authorized or required by law to close.
"Corporate Trust Office" means the principal trust office of the
Trust Preferred Guarantee Trustee in the Borough of Manhattan, The City of New
York, which office at the date hereof is located at 450 West 33rd Street, 15th
Floor, New York, New York 10001.
"Covered Person" means any Holder or beneficial owner of Trust
Preferred Securities.
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"Event of Default" means a default by the Guarantor on any of its
payment or other obligations under this Trust Preferred Securities Guarantee.
"Finance Subsidiary" means any wholly-owned subsidiary of the
Guarantor the principal purpose of which is to raise capital for the Guarantor
by issuing securities that are guaranteed by the Guarantor and the proceeds of
which are loaned to or invested in the Guarantor or one or more of its
affiliates.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Trust Preferred Securities, to the
extent not paid or made by the Issuer: (i) any accumulated and unpaid
Distributions (as defined in the Declaration) that are required to be paid on
such Trust Preferred Securities, to the extent the Issuer has funds legally
available therefor at such time, (ii) the redemption price, including all
accumulated and unpaid Distributions to the date of redemption (the "Redemption
Price"), to the extent the Issuer has funds legally available therefor at such
time, with respect to any Trust Preferred Securities called for redemption by
the Issuer, and (iii) upon a voluntary or involuntary termination or liquidation
of the Issuer (other than in connection with the distribution of Partnership
Preferred Securities to the Holders in exchange for Trust Preferred Securities
as provided in the Declaration 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 to the
date of payment, to the extent the Issuer has funds legally available therefor,
and (b) the amount of assets of the Issuer, after satisfaction of all
liabilities, remaining available for distribution to Holders in liquidation of
the Issuer (in either case, the "Liquidation Distribution").
"Holder" shall mean any holder, as registered on the books and
records of the Issuer of any Trust Preferred Securities; provided, however,
that, in determining whether the holders of the requisite percentage of Trust
Preferred Securities have given any request, notice, consent or waiver
hereunder, "Holder" shall not apply to Trust Preferred Securities beneficially
owned by the Guarantor or any Affiliate of the Guarantor.
"Indemnified Person" means the Trust Preferred Guarantee Trustee,
any Affiliate of the Trust Preferred Guarantee Trustee, or any officers,
directors, shareholders, members, partners, employees, representatives,
nominees, custodians or agents of the Trust Preferred Guarantee Trustee.
"Majority in liquidation amount of the Trust Preferred Securities"
means, except as provided by the Trust Indenture Act, a vote by Holder(s) of
Trust Preferred Securities, voting separately as a class, of more than 50% of
the aggregate liquidation amount (including the amount that would be paid on
redemption, liquidation or otherwise, plus accumulated and unpaid Distributions
to the date upon which the voting percentages are determined) of all Trust
Preferred Securities.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chairman of the Board, the President, a Vice President
or the Treasurer, and by an Assistant
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Treasurer, the Secretary or an Assistant Secretary of such Person. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Trust Preferred Securities Guarantee shall include:
(a) a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the
definition relating thereto;
(b) a brief statement of the nature and scope of the examination
or investigation undertaken by each officer in rendering the
Officers' Certificate;
(c) a statement that each such officer has made such examination
or investigation as, in such officer's opinion, is necessary
to enable such officer to express an informed opinion as to
whether or not such covenant or condition has been complied
with; and
(d) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.
"Partnership" means Merrill Lynch Preferred Funding VI, L.P.
"Partnership Agreement" means the Amended and Restated Agreement of
Limited Partnership of the Partnership, dated as of ______ ___, 1999, among
Merrill Lynch & Co., Inc., a Delaware corporation, as general partner, Merrill
Lynch Group, Inc., Delaware corporation, as initial limited partner and such
other persons who become limited partners as provided therein.
"Partnership Preferred Securities" means those securities
representing limited partnership interests in the Partnership.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Responsible Officer" means, with respect to the Trust Preferred
Guarantee Trustee, the chairman or vice-chairman of the board of directors, the
chairman or vice-chairman of the executive committee of the board of directors,
the president, any vice president (whether or not designated by a number or a
word or words added before or after the title "vice president"), the secretary,
any assistant secretary, the treasurer, any assistant treasurer, the cashier,
any assistant cashier, any trust officer or assistant trust officer, or any
other officer of the Trust Preferred Guarantee Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate
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trust matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"Rights Agreement" means the Amended and Restated Rights Agreement
dated as of December 2, 1997 between the Guarantor and The Chase Manhattan Bank
(successor by merger to Manufacturers Hanover Trust Guarantor), or any successor
to such Rights Agreement.
"Senior Indebtedness" means any payment in respect of indebtedness
of the Guarantor for money borrowed, except for any such indebtedness that is by
its terms subordinated to or pari passu with the debt instrument of the
Guarantor purchased by the Partnership (the "Company Debenture"), as the case
may be.
"Successor Trust Preferred Guarantee Trustee" means a successor
Trust Preferred Guarantee Trustee possessing the qualifications to act as Trust
Preferred Guarantee Trustee under Section 4.1.
"Trust Common Securities" means the securities representing common
undivided beneficial interests in the assets of the Issuer.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.
"Trust Preferred Guarantee Trustee" means The Chase Manhattan Bank,
a national banking association, until a Successor Trust Preferred Guarantee
Trustee has been appointed and has accepted such appointment pursuant to the
terms of this Trust Preferred Securities Guarantee and thereafter means each
such Successor Trust Preferred Guarantee Trustee.
"Trust Securities" means the Trust Common Securities together with
the Trust Preferred Securities.
ARTICLE II
TRUST INDENTURE ACT
Section 2.1 Trust Indenture Act; Application
(a) This Trust Preferred Securities Guarantee is subject to the
provisions of the Trust Indenture Act that are required to be part of this Trust
Preferred Securities Guarantee and shall, to the extent applicable, be governed
by such provisions; and
(b) if and to the extent that any provision of this Trust Preferred
Securities Guarantee limits, qualifies or conflicts with the duties imposed by
Section 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties
shall control.
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Section 2.2 Lists of Holders of Securities
(a) The Trust Guarantee Trustee shall preserve in as current a form
as is reasonably practicable the most recent list available to it of the names
and addresses of Holders of Trust Preferred Securities. If the Trust Guarantee
Trustee is not the Registrar, the Guarantor shall furnish to the Trust Guarantee
Trustee semi-annually on or before June 15 and December 15 in each year, and at
such other times as the Trust Guarantee Trustee may request in writing, a list,
in such form and as of such date as the Trust Guarantee Trustee may require,
containing all the information in the possession or control of the Registrar,
the Guarantor or any of its Paying Agents other than the Trust Guarantee Trustee
as to the names and addresses of Holders of Trust Preferred Securities. If there
are unregistered securities outstanding, even if the Trust Guarantee Trustee is
the Registrar, the Guarantor shall furnish to the Trust Guarantee Trustee such a
list containing such information with respect to Holders of such unregistered
securities only.
(b) The Trust Preferred Guarantee Trustee shall comply with its
obligations under Sections 311(a), 311(b) and Section 312(b) of the Trust
Indenture Act.
Section 2.3 Reports by the Trust Preferred Guarantee Trustee
Within 60 days after ________ __ of each year, commencing ________
__, 1999, the Trust Preferred Guarantee Trustee shall provide to the Holders of
the Trust Preferred Securities such reports as are required by Section 313 of
the Trust Indenture Act, if any, in the form and in the manner provided by
Section 313 of the Trust Indenture Act. The Trust Preferred Guarantee Trustee
shall also comply with the requirements of Section 313(d) of the Trust Indenture
Act.
Section 2.4 Periodic Reports to Trust Preferred Guarantee Trustee
The Guarantor shall provide to the Trust Preferred Guarantee Trustee
such documents, reports and information as required by Section 314 (if any) and
the compliance certificate required by Section 314 of the Trust Indenture Act in
the form, in the manner and at the times required by Section 314 of the Trust
Indenture Act.
Section 2.5 Evidence of Compliance with Conditions Precedent
The Guarantor shall provide to the Trust Preferred Guarantee Trustee
such evidence of compliance with any conditions precedent, if any, provided for
in this Trust Preferred Securities Guarantee that relate to any of the matters
set forth in Section 314(c) of the Trust Indenture Act. Any certificate or
opinion required to be given by an officer pursuant to Section 314(c)(1) may be
given in the form of an Officers' Certificate.
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Section 2.6 Events of Default; Waiver
The Holders of a Majority in liquidation amount of Trust Preferred
Securities may, by vote, on behalf of the Holders of all of the Trust Preferred
Securities, waive any past Event of Default and its consequences. Upon such
waiver, any such Event of Default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been cured, for every purpose of this
Trust Preferred Securities Guarantee, but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
Section 2.7 Event of Default; Notice
(a) The Trust Preferred Guarantee Trustee shall, within 90 days
after the occurrence of an Event of Default, transmit by mail, first class
postage prepaid, to the Holders of the Trust Preferred Securities, notices of
all Events of Default actually known to a Responsible Officer of the Trust
Preferred Guarantee Trustee, unless such defaults have been cured before the
giving of such notice, provided, that, except in the case of default in any
Guarantee Payment, the Trust Preferred Guarantee Trustee shall be protected in
withholding such notice if and so long as a Responsible Officer of the Trust
Preferred Guarantee Trustee in good faith determines that the withholding of
such notice is in the interests of the Holders of the Trust Preferred
Securities.
(b) The Trust Preferred Guarantee Trustee shall not be deemed to
have knowledge of any Event of Default unless the Trust Preferred Guarantee
Trustee shall have received written notice, or a Responsible Officer of the
Trust Preferred Guarantee Trustee charged with the administration of the
Declaration shall have obtained actual knowledge, of such Event of Default.
Section 2.8 Conflicting Interests
The Declaration shall be deemed to be specifically described in this
Trust Preferred Securities Guarantee for the purposes of clause (i) of the first
proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF
TRUST PREFERRED GUARANTEE TRUSTEE
Section 3.1 Powers and Duties of the Trust Preferred Guarantee Trustee
(a) This Trust Preferred Securities Guarantee shall be held by the
Trust Preferred Guarantee Trustee for the benefit of the Holders of the Trust
Preferred Securities, and the Trust Preferred Guarantee Trustee shall not
transfer this Trust Preferred Securities Guarantee to any Person except a Holder
of Trust Preferred Securities exercising his or her rights pursuant to Section
5.4(b) or to a Successor Trust Preferred Guarantee Trustee on acceptance by such
Successor Trust Preferred Guarantee Trustee of its appointment to act as
Successor Trust
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Preferred Guarantee Trustee. The right, title and interest of the Trust
Preferred Guarantee Trustee shall automatically vest in any Successor Trust
Preferred Guarantee Trustee, and such vesting and succession of title shall be
effective whether or not conveyancing documents have been executed and delivered
pursuant to the appointment of such Successor Trust Preferred Guarantee Trustee.
(b) If an Event of Default actually known to a Responsible Officer
of the Trust Preferred Guarantee Trustee has occurred and is continuing, the
Trust Preferred Guarantee Trustee shall enforce this Trust Preferred Securities
Guarantee for the benefit of the Holders of the Trust Preferred Securities.
(c) The Trust Preferred Guarantee Trustee, before the occurrence of
any Event of Default and after the curing or waiver of all Events of Default
that may have occurred, shall undertake to perform only such duties as are
specifically set forth in this Trust Preferred Securities Guarantee, and no
implied covenants shall be read into this Trust Preferred Securities Guarantee
against the Trust Preferred Guarantee Trustee. In case an Event of Default has
occurred (that has not been cured or waived pursuant to Section 2.6) and is
actually known to a Responsible Officer of the Trust Preferred Guarantee
Trustee, the Trust Preferred Guarantee Trustee shall exercise such of the rights
and powers vested in it by this Trust Preferred Securities Guarantee, and use
the same degree of care and skill in its exercise thereof, as a prudent person
would exercise or use under the circumstances in the conduct of his or her own
affairs.
(d) No provision of this Trust Preferred Securities Guarantee shall
be construed to relieve the Trust Preferred Guarantee Trustee from liability for
its own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) prior to the occurrence of any Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Trust Preferred
Guarantee Trustee shall be determined solely by the express
provisions of this Trust Preferred Securities Guarantee, and the
Trust Preferred Guarantee Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set
forth in this Trust Preferred Securities Guarantee, and no implied
covenants or obligations shall be read into this Trust Preferred
Securities Guarantee against the Trust Preferred Guarantee Trustee;
and
(B) in the absence of bad faith on the part of the Trust
Preferred Guarantee Trustee, the Trust Preferred Guarantee Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates
or opinions furnished to the Trust Preferred Guarantee Trustee and
conforming to the requirements of this Trust Preferred Securities
Guarantee; but in the case of any such certificates or opinions that
by any provision hereof are specifically required to be furnished to
the Trust Preferred Guarantee Trustee,
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the Trust Preferred Guarantee Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Trust Preferred Securities Guarantee;
(ii) the Trust Preferred Guarantee Trustee shall not be liable for
any error of judgment made in good faith by a Responsible Officer of the
Trust Preferred Guarantee Trustee, unless it shall be proved that the
Trust Preferred Guarantee Trustee was negligent in ascertaining the
pertinent facts upon which such judgment was made;
(iii) the Trust Preferred Guarantee Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of a Majority in liquidation
amount of the Trust Preferred Securities relating to the time, method and
place of conducting any proceeding for any remedy available to the Trust
Preferred Guarantee Trustee, or exercising any trust or power conferred
upon the Trust Preferred Guarantee Trustee under this Trust Preferred
Securities Guarantee; and
(iv) no provision of this Trust Preferred Securities Guarantee shall
require the Trust Preferred Guarantee Trustee to expend or risk its own
funds or otherwise incur personal financial liability in the performance
of any of its duties or in the exercise of any of its rights or powers, if
the Trust Preferred Guarantee Trustee shall have reasonable grounds for
believing that the repayment of such funds or liability is not assured to
it under the terms of this Trust Preferred Securities Guarantee or
indemnity, reasonably satisfactory to the Trust Preferred Guarantee
Trustee, against such risk or liability is not reasonably assured to it.
Section 3.2 Certain Rights of Trust Preferred Guarantee Trustee
(a) Subject to the provisions of Section 3.1:
(i) The Trust Preferred Guarantee Trustee may conclusively rely, and
shall be fully protected in acting or refraining from acting, upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other evidence
of indebtedness or other paper or document believed by it to be genuine
and to have been signed, sent or presented by the proper party or parties.
(ii) Any direction or act of the Guarantor contemplated by this
Trust Preferred Securities Guarantee shall be sufficiently evidenced by an
Officers' Certificate.
(iii) Whenever, in the administration of this Trust Preferred
Securities Guarantee, the Trust Preferred Guarantee Trustee shall deem it
desirable that a matter be proved or established before taking, suffering
or omitting any action hereunder, the Trust Preferred Guarantee Trustee
(unless other evidence is herein specifically prescribed) may, in the
absence of bad faith on its part, request and conclusively rely upon an
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Officers' Certificate which, upon receipt of such request, shall be
promptly delivered by the Guarantor.
(iv) The Trust Preferred Guarantee Trustee shall have no duty to see
to any recording, filing or registration of any instrument (or any
rerecording, refiling or registration thereof).
(v) The Trust Preferred Guarantee Trustee may consult with counsel
of its selection, and the advice or opinion of such counsel with respect
to legal matters shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in
good faith and in accordance with such advice or opinion. Such counsel may
be counsel to the Guarantor or any of its Affiliates and may include any
of its employees. The Trust Preferred Guarantee Trustee shall have the
right at any time to seek instructions concerning the administration of
this Trust Preferred Securities Guarantee from any court of competent
jurisdiction.
(vi) The Trust Preferred Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by this
Trust Preferred Securities Guarantee at the request or direction of any
Holder, unless such Holder shall have provided to the Trust Preferred
Guarantee Trustee such security and indemnity, reasonably satisfactory to
the Trust Preferred Guarantee Trustee, against the costs, expenses
(including attorneys' fees and expenses and the expenses of the Preferred
Guarantee Trustee's agents, nominees or custodians) and liabilities that
might be incurred by it in complying with such request or direction,
including such reasonable advances as may be requested by the Trust
Preferred Guarantee Trustee; provided that, nothing contained in this
Section 3.2(a)(vi) shall be taken to relieve the Trust Preferred Guarantee
Trustee, upon the occurrence of an Event of Default, of its obligation to
exercise the rights and powers vested in it by this Trust Preferred
Securities Guarantee.
(vii) The Trust Preferred Guarantee Trustee shall not be bound to
make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Trust Preferred Guarantee
Trustee, in its discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit.
(viii) The Trust Preferred Guarantee Trustee may execute any of the
trusts or powers hereunder or perform any duties hereunder either directly
or by or through agents, nominees, custodians or attorneys, and the Trust
Preferred Guarantee Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder.
(ix) Any action taken by the Trust Preferred Guarantee Trustee or
its agents hereunder shall bind the Holders of the Trust Preferred
Securities, and the signature of
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the Trust Preferred Guarantee Trustee or its agents alone shall be
sufficient and effective to perform any such action. No third party shall
be required to inquire as to the authority of the Trust Preferred
Guarantee Trustee to so act or as to its compliance with any of the terms
and provisions of this Trust Preferred Securities Guarantee, both of which
shall be conclusively evidenced by the Trust Preferred Guarantee Trustee
or its agent taking such action.
(x) Whenever in the administration of this Trust Preferred
Securities Guarantee the Trust Preferred Guarantee Trustee shall deem it
desirable to receive instructions with respect to enforcing any remedy or
right or taking any other action hereunder, the Trust Preferred Guarantee
Trustee (i) may request instructions from the Holders of a Majority in
liquidation amount of the Trust Preferred Securities, (ii) may refrain
from enforcing such remedy or right or taking such other action until such
instructions are received, and (iii) shall be fully protected in
conclusively relying on or acting in accordance with such instructions.
(xi) The Trust Preferred Guarantee Trustee shall not be liable for
any action taken, suffered, or omitted to be taken by it in good faith,
without negligence, and reasonably believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this Trust
Preferred Securities Guarantee.
(b) No provision of this Trust Preferred Securities Guarantee shall
be deemed to impose any duty or obligation on the Trust Preferred Guarantee
Trustee to perform any act or acts or exercise any right, power, duty or
obligation conferred or imposed on it in any jurisdiction in which it shall be
illegal, or in which the Trust Preferred Guarantee Trustee shall be unqualified
or incompetent in accordance with applicable law, to perform any such act or
acts or to exercise any such right, power, duty or obligation. No permissive
power or authority available to the Trust Preferred Guarantee Trustee shall be
construed to be a duty.
Section 3.3 Not Responsible for Recitals or Issuance of Trust Preferred
Securities Guarantee
The recitals contained in this Trust Preferred Securities Guarantee
shall be taken as the statements of the Guarantor, and the Trust Preferred
Guarantee Trustee does not assume any responsibility for their correctness. The
Trust Preferred Guarantee Trustee makes no representation as to the validity or
sufficiency of this Trust Preferred Securities Guarantee.
ARTICLE IV
TRUST PREFERRED GUARANTEE TRUSTEE
Section 4.1 Trust Preferred Guarantee Trustee; Eligibility
(a) There shall at all times be a Trust Preferred Guarantee Trustee
which shall:
(i) not be an Affiliate of the Guarantor; and
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(ii) be a corporation organized and doing business under the laws of
the United States of America or any State or Territory thereof or of the
District of Columbia, or a corporation or Person permitted by the
Securities and Exchange Commission to act as an institutional trustee
under the Trust Indenture Act, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
50 million U.S. dollars ($50,000,000), and subject to supervision or
examination by Federal, State, Territorial or District of Columbia
authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the supervising or
examining authority referred to above, then, for the purposes of this
Section 4.1(a)(ii), the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its
most recent report of condition so published.
(b) If at any time the Trust Preferred Guarantee Trustee shall cease
to be eligible to so act under Section 4.1(a), the Trust Preferred Guarantee
Trustee shall immediately resign in the manner and with the effect set out in
Section 4.2(c).
(c) If the Trust Preferred Guarantee Trustee has or shall acquire
any "conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Trust Preferred Guarantee Trustee and Guarantor shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
Section 4.2 Appointment, Removal and Resignation of Trust Preferred Guarantee
Trustee
(a) Subject to Section 4.2(b), the Trust Preferred Guarantee Trustee
may be appointed or removed without cause at any time by the Guarantor except
during an Event of Default.
(b) The Trust Preferred Guarantee Trustee shall not be removed in
accordance with Section 4.2(a) until a Successor Trust Preferred Guarantee
Trustee has been appointed and has accepted such appointment by written
instrument executed by such Successor Trust Preferred Guarantee Trustee and
delivered to the Guarantor.
(c) The Trust Preferred Guarantee Trustee shall hold office until a
Successor Trust Preferred Guarantee Trustee shall have been appointed or until
its removal or resignation. The Trust Preferred Guarantee Trustee may resign
from office (without need for prior or subsequent accounting) by an instrument
in writing executed by the Trust Preferred Guarantee Trustee and delivered to
the Guarantor, which resignation shall not take effect until a Successor Trust
Preferred Guarantee Trustee has been appointed and has accepted such appointment
by instrument in writing executed by such Successor Trust Preferred Guarantee
Trustee and delivered to the Guarantor and the resigning Trust Preferred
Guarantee Trustee.
(d) If no Successor Trust Preferred Guarantee Trustee shall have
been appointed and accepted appointment as provided in this Section 4.2 within
60 days after delivery of an instrument of removal or resignation, the Trust
Preferred Guarantee Trustee resigning or being
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removed may petition any court of competent jurisdiction for appointment of a
Successor Trust Preferred Guarantee Trustee. Such court may thereupon, after
prescribing such notice, if any, as it may deem proper, appoint a Successor
Trust Preferred Guarantee Trustee.
(e) No Trust Preferred Guarantee Trustee shall be liable for the
acts or omissions to act of any Successor Trust Preferred Guarantee Trustee.
(f) Upon termination of this Trust Preferred Securities Guarantee or
removal or resignation of the Trust Preferred Guarantee Trustee pursuant to this
Section 4.2, the Guarantor shall pay to the Trust Preferred Guarantee Trustee
all amounts due to the Trust Preferred Guarantee Trustee accumulated to the date
of such termination, removal or resignation.
ARTICLE V
GUARANTEE
Section 5.1 Guarantee
The Guarantor irrevocably and unconditionally agrees to pay in full
to the Holders the Guarantee Payments (without duplication of amounts
theretofore paid by the Issuer), if, as and when due, regardless of any defense,
right of set-off or counterclaim that the Issuer may have or assert. The
Guarantor's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holders or by causing
the Issuer to pay such amounts to the Holders.
Section 5.2 Waiver of Notice and Demand
The Guarantor hereby waives notice of acceptance of this Trust
Preferred Securities Guarantee and of any liability to which it applies or may
apply, presentment, demand for payment, any right to require a proceeding first
against the Issuer or any other Person before proceeding against the Guarantor,
protest, notice of nonpayment, notice of dishonor, notice of redemption and all
other notices and demands.
Section 5.3 Obligations Not Affected
The obligations, covenants, agreements and duties of the Guarantor
under this Trust Preferred Securities Guarantee shall in no way be affected or
impaired by reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the Trust Preferred Securities to be
performed or observed by the Issuer;
(b) the extension of time for the payment by the Issuer of all or
any portion of the Distributions, Redemption Price, Liquidation Distribution or
any other sums payable under the
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terms of the Trust Preferred Securities or the extension of time for the
performance of any other obligation under, arising out of, or in connection
with, the Trust Preferred Securities;
(c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Trust Preferred
Securities, or any action on the part of the Issuer granting indulgence or
extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for the benefit
of creditors, reorganization, arrangement, composition or readjustment of debt
of, or other similar proceedings affecting, the Issuer or any of the assets of
the Issuer;
(e) any invalidity of, or defect or deficiency in, the Trust
Preferred Securities;
(f) the settlement or compromise of any obligation guaranteed hereby
or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a guarantor, it being
the intent of this Section 5.3 that the obligations of the Guarantor hereunder
shall be absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or
obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.
Section 5.4 Rights of Holders
(a) 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 Preferred
Guarantee Trustee in respect of this Trust Preferred Securities Guarantee or
exercising any trust or power conferred upon the Trust Preferred Guarantee
Trustee under this Trust Preferred Securities Guarantee.
(b) If the Trust Preferred Guarantee Trustee fails to enforce its
rights under the Trust Preferred Securities Guarantee after a Holder of Trust
Preferred Securities has made a written request, such Holder of Trust Preferred
Securities may institute a legal proceeding directly against the Guarantor to
enforce the Trust Preferred Guarantee Trustee's rights under this Trust
Preferred Securities Guarantee, without first instituting a legal proceeding
against the Issuer, the Trust Preferred Guarantee Trustee or any other person or
entity. Notwithstanding the foregoing, if the Guarantor has failed to make a
guarantee payment, a Holder of Trust Preferred Securities may directly institute
a proceeding in such Holder's own name against the Guarantor for enforcement of
the Trust Preferred Securities Guarantee for such payment. The Guarantor
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waives any right or remedy to require that any action be brought first against
the Issuer or any other person or entity before proceeding directly against the
Guarantor.
Section 5.5 Guarantee of Payment
This Trust Preferred Securities Guarantee creates a guarantee of
payment and not of collection.
Section 5.6 Subrogation
The Guarantor shall be subrogated to all (if any) rights of the
Holders of Trust Preferred Securities against the Issuer in respect of any
amounts paid to such Holders by the Guarantor under this Trust Preferred
Securities Guarantee; provided, however, that the Guarantor shall not (except to
the extent required by mandatory provisions of law) be entitled to enforce or
exercise any right that it may acquire by way of subrogation or any indemnity,
reimbursement or other agreement, in all cases as a result of payment under this
Trust Preferred Securities Guarantee, if, at the time of any such payment, any
amounts are due and unpaid under this Trust Preferred Securities Guarantee. If
any amount shall be paid to the Guarantor in violation of the preceding
sentence, the Guarantor agrees to hold such amount in trust for the Holders and
to pay over such amount to the Holders.
Section 5.7 Independent Obligations
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Trust Preferred
Securities, and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Trust
Preferred Securities Guarantee notwithstanding the occurrence of any event
referred to in subsections (a) through (g), inclusive, of Section 5.3 hereof.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
Section 6.1 Limitation of Transactions
So long as any Trust Preferred Securities remain outstanding, if (a)
for any distribution period, full distributions on a cumulative basis on any
Trust 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 Guarantor is in default of its obligations under the Trust Preferred
Securities Guarantee, the Trust Common Securities Guarantee, the Partnership
Guarantee or any Investment Guarantee, then, during such period (i) the
Guarantor 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
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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
Guarantor or its affiliates in connection with transactions effected by or for
the account of customers of the Guarantor or any of its subsidiaries or in
connection with the distribution or trading of such capital stock or comparable
equity interest) and (ii) the Guarantor shall not make, or permit any Finance
Subsidiary to 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.
Section 6.2 Ranking
(a) This Trust Preferred Securities Guarantee will constitute an
unsecured obligation of the Guarantor and will rank (i) subordinate and junior
in right of payment to all other liabilities of the Guarantor, (ii) pari passu
with the most senior preferred or preference stock now or hereafter issued by
the Guarantor and with any other guarantee now or hereafter entered into by the
Guarantor in respect of any preferred or preference stock of any Finance
Subsidiary, and (iii) senior to the Guarantor's common stock. Any similar
guarantee given hereafter by the Guarantor with respect to Trust Preferred
Securities that is silent as to seniority will rank pari passu with this Trust
Preferred Securities Guarantee.
(b) The holders of obligations of the Guarantor that are senior to
the obligations under the Trust Preferred Securities 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 Preferred Securities Guarantee that inure
to the holders of "Senior Indebtedness" under Article Eleven of the Indenture
dated as of December 17, 1996 between Merrill Lynch & Co., Inc. and The Chase
Manhattan Bank as against the holders of the Company Debenture, and the holders
of the Trust Preferred Securities will be subject to all the terms and
conditions of such Article Eleven with respect to any claims or rights hereunder
with the same effect as though fully set forth herein.
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ARTICLE VII
TERMINATION
Section 7.1 Termination
This Trust Preferred Securities Guarantee shall terminate upon (i)
full payment of the Redemption Price of all Trust Preferred Securities, (ii)
upon the distribution of the Partnership Preferred Securities to the Holders of
all of the Trust Preferred Securities or (iii) upon full payment of the amounts
payable in accordance with the Declaration upon liquidation of the Issuer.
Notwithstanding the foregoing, this Trust Preferred Securities 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 sums
paid under the Trust Preferred Securities or under this Trust Preferred
Securities Guarantee.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Exculpation
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Guarantor or any Covered Person for
any loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith in accordance with this Trust
Preferred Securities Guarantee and in a manner that such Indemnified Person
reasonably believed to be within the scope of the authority conferred on such
Indemnified Person by this Trust Preferred Securities Guarantee or by law,
except that an Indemnified Person shall be liable for any such loss, damage or
claim incurred by reason of such Indemnified Person's gross negligence or
willful misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Guarantor and upon such information,
opinions, reports or statements presented to the Guarantor by any Person as to
matters the Indemnified Person reasonably believes are within such other
Person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Guarantor, including information,
opinions, reports or statements as to the value and amount of the assets,
liabilities, profits, losses, or any other facts pertinent to the existence and
amount of assets from which Distributions to Holders of Trust Preferred
Securities might properly be paid.
Section 8.2 Indemnification
The Guarantor agrees to indemnify each Indemnified Person for, and
to hold each Indemnified Person harmless against, any and all loss, liability,
damage, claim or expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of the
trust or trusts hereunder, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against, or
investigating, any
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claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder. The obligation to indemnify as set forth in this
Section 8.2 shall survive the termination of this Trust Preferred Securities
Guarantee or the earlier resignation or removal of the Trust Preferred Guarantee
Trustee.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Successors and Assigns
All guarantees and agreements contained in this Trust Preferred
Securities Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Trust Preferred Securities then outstanding.
Section 9.2 Amendments
Except with respect to any changes that do not materially adversely
affect the rights of Holders (in which case no consent of Holders will be
required), this Trust Preferred Securities Guarantee may only be amended with
the prior approval of the Holders of at least a Majority in liquidation amount
of the Trust Preferred Securities (including the stated amount that would be
paid on redemption, liquidation or otherwise, plus accumulated and unpaid
Distributions to the date upon which the voting percentages are determined). The
provisions of Section 12.2 of the Declaration with respect to meetings of
Holders of the Securities apply to the giving of such approval.
Section 9.3 Consolidations and Mergers
The Guarantor 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 Guarantor 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 thereof
and such successor corporation shall expressly assume the due and punctual
payment of the Guarantee Payments payable pursuant to Section 5.1 hereof and the
due and punctual performance and observance of all of the covenants and
conditions of this Trust Preferred Securities Guarantee to be performed by the
Guarantor by a separate guarantee satisfactory to the Trust Preferred Guarantee
Trustee, executed and delivered to the Trust Preferred Guarantee Trustee by such
corporation, and (ii) the Guarantor 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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Section 9.4 Notices
All notices provided for in this Trust Preferred Securities
Guarantee shall be in writing, duly signed by the party giving such notice, and
shall be delivered, telecopied or mailed by first class mail, as follows:
(a) If given to the Trust Preferred Guarantee Trustee, at the Trust
Preferred Guarantee Trustee's Corporate Trust Office.
(b) If given to the Guarantor, at the Guarantor's mailing address
set forth below (or such other address as the Guarantor may give notice of to
the Holders of the Trust Preferred Securities):
Merrill Lynch & Co., Inc.
World Financial Center
South Tower
225 Liberty Street
New York, New York 10080-6105
Attention: Treasurer
(c) If given to any Holder of Trust Preferred Securities, at the
address set forth on the books and records of the Issuer.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
Section 9.5 Benefit
This Trust Preferred Securities Guarantee is solely for the benefit
of the Holders of the Trust Preferred Securities and, subject to Section 3.1(a),
is not separately transferable from the Trust Preferred Securities.
Section 9.6 Governing Law
THIS TRUST PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF.
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THIS TRUST PREFERRED SECURITIES GUARANTEE is executed as of the day
and year first above written.
MERRILL LYNCH & CO., INC.
as Guarantor
By:
--------------------------------------
Name: Theresa Lang
Title: Senior Vice President
and Treasurer
THE CHASE MANHATTAN BANK, as
Trust Preferred Guarantee Trustee
By:
--------------------------------------
Authorized Signatory
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Exhibit 4 (tttt)
-----------------------------------
-----------------------------------
PARTNERSHIP PREFERRED SECURITIES GUARANTEE AGREEMENT
Merrill Lynch Preferred Funding, L.P. VI
Dated as of ________ __, 1999
-----------------------------------
------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions....................................................2
ARTICLE II
GUARANTEE
SECTION 2.1. Guarantee......................................................3
SECTION 2.2. Waiver of Notice and Demand....................................3
SECTION 2.3. Obligations Not Affected.......................................3
SECTION 2.4. Rights of Holders..............................................4
SECTION 2.5. Guarantee of Payment...........................................5
SECTION 2.6. Subrogation....................................................5
SECTION 2.7. Independent Obligations........................................5
ARTICLE III
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 3.1. Limitation of Transactions.....................................5
SECTION 3.2. Ranking........................................................6
ARTICLE IV
TERMINATION
SECTION 4.1. Termination....................................................7
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Successors and Assigns.........................................7
SECTION 5.2. Amendments.....................................................7
SECTION 5.3. Consolidations and Mergers.....................................7
SECTION 5.4. Notices........................................................8
SECTION 5.5. Benefit........................................................8
SECTION 5.6. Governing Law..................................................8
</TABLE>
<PAGE>
PARTNERSHIP PREFERRED SECURITIES GUARANTEE AGREEMENT
This PARTNERSHIP PREFERRED SECURITIES GUARANTEE AGREEMENT (the
"Partnership Guarantee"), dated as of _______ __, 1999, is executed and
delivered by Merrill Lynch & Co., Inc., a Delaware corporation (the
"Guarantor"), for the benefit of the holders from time to time of the
Partnership Preferred Securities (as defined below).
WHEREAS, pursuant to an Amended and Restated Agreement of Limited
Partnership (the "Partnership Agreement"), dated as of the date hereof, of
Merrill Lynch Preferred Funding VI, L.P., a Delaware limited partnership (the
"Issuer"), the Issuer may issue a single series of limited partner interests
in the Issuer (the "Partnership Preferred Securities");
WHEREAS, pursuant to the Partnership Agreement, the proceeds
received by the Issuer from the issuance and sale of the Partnership Preferred
Securities will be invested by the Issuer in the Affiliate Investment
Instruments and Eligible Debt Securities (each as defined in the Partnership
Agreement); and
WHEREAS, the Guarantor, as incentive for the Holders (as defined
herein) to purchase Partnership Preferred Securities, desires hereby irrevocably
and unconditionally to agree, to the extent set forth herein, to pay to the
Holders the Guarantee Payments (as defined herein) and to make certain other
payments on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Partnership Preferred Securities, which purchase the Guarantor hereby
acknowledges shall directly or indirectly provide at least some material benefit
to the Guarantor, the Guarantor executes and delivers this Partnership Guarantee
for the benefit of the Holders.
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions
As used in this Partnership Guarantee, the terms set forth below
shall, unless the context otherwise requires, have the following meanings.
Capitalized terms used but not otherwise defined herein shall have the meanings
assigned to such terms in the Partnership Agreement.
"Affiliate" has the same meaning as given to that term in Rule 405
under the Securities Act of 1933, as amended, or any successor rule thereunder.
"Finance Subsidiary" means any wholly-owned subsidiary of the
Guarantor the principal purpose of which is to raise capital for the Guarantor
by issuing securities that are guaranteed by the Guarantor and the proceeds of
which are loaned to or invested in the Guarantor or one or more of its
affiliates.
"Guarantee Payments" shall mean the following payments or
distributions, without duplication, with respect to the Partnership Preferred
Securities, to the extent not paid or made by the Issuer: (i) any accumulated
and unpaid distributions that have theretofore been declared on the Partnership
Preferred Securities out of funds legally available therefor at such time, (ii)
the redemption price, including all accumulated and unpaid Distributions to the
date of redemption (the "Redemption Price"), payable out of funds legally
available therefor at such time, with respect to any Partnership Preferred
Securities called for redemption by the Issuer, and (iii) upon a voluntary or
involuntary termination or liquidation of the Issuer, 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 out
of funds legally available therefor and (b) the amount of assets of the Issuer
after satisfaction of all liabilities remaining available for distribution to
Holders in liquidation of the Issuer (in either case, the "Liquidation
Distribution").
"Holder" shall mean any holder, as registered on the books and
records of the Issuer, of any Partnership Preferred Securities; provided,
however, that in determining whether the holders of the requisite percentage of
Partnership Preferred Securities have given any request, notice, consent or
waiver hereunder, "Holder" shall not apply to Partnership Preferred Securities
owned beneficially by the Guarantor or any Affiliate of the Guarantor.
"Rights Agreement" means the Amended and Restated Rights Agreement
dated as of December 2, 1997 between the Guarantor and The Chase Manhattan Bank
(successor by merger to Manufacturers Hanover Trust Company), or any successor
to such Rights Agreement.
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"Senior Indebtedness" means any payment in respect of indebtedness
of the Guarantor for money borrowed, except for any such indebtedness that is by
its terms subordinated to or pari passu with the debt instrument of the
Guarantor purchased by the Partnership (the "Company Debenture"), as the case
may be.
ARTICLE II
GUARANTEE
SECTION 2.1. Guarantee
The Guarantor irrevocably and unconditionally agrees to pay in full
to the Holders the Guarantee Payments, as and when due (without duplication of
amounts theretofore paid by the Issuer), regardless of any defense, right of
set-off or counterclaim which the Issuer may have or assert. The Guarantor's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Guarantor to the Holders or by causing the Issuer to pay
such amounts to the Holders.
SECTION 2.2. Waiver of Notice and Demand
The Guarantor hereby waives notice of acceptance of this Partnership
Guarantee and of any liability to which it applies or may apply, presentment,
demand for payment, any right to require a proceeding first against the Issuer,
protest, notice of nonpayment, notice of dishonor, notice of redemption and all
other notices and demands.
SECTION 2.3. Obligations Not Affected
The obligations, covenants, agreements and duties of the Guarantor
under this Partnership Guarantee shall in no way be affected or impaired by
reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or
otherwise, of the performance or observance by the Issuer of
any express or implied agreement, covenant, term or condition
relating to the Partnership Preferred Securities to be
performed or observed by the Issuer;
(b) the extension of time for the payment by the Issuer
of all or any portion of the distributions, Redemption Price,
Liquidation Distribution or any other sums payable under the
terms of the Partnership Preferred Securities or the extension
of time for the performance of any other obligation under,
arising out of, or in connection with, the Partnership
Preferred Securities;
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(c) any failure, omission, delay or lack of diligence on
the part of the Holders to enforce, assert or exercise any
right, privilege, power or remedy conferred on the Holders
pursuant to the terms of the Partnership Preferred Securities;
(d) the voluntary or involuntary liquidation,
dissolution, sale of any collateral, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition or readjustment of
debt of, or other similar proceedings affecting, the Issuer or
any of the assets of the Issuer;
(e) any invalidity of, or defect or deficiency in, the
Partnership Preferred Securities;
(f) the settlement or compromise of any obligation
guaranteed hereby or hereby incurred; or
(g) any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense
of a guarantor, it being the intent of this Section 2.3 that
the obligations of the Guarantor hereunder shall be absolute
and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain consent
of, the Guarantor with respect to the happening of any of the foregoing.
SECTION 2.4. Rights of Holders
The Guarantor expressly acknowledges that (i) this Partnership
Guarantee will be deposited with the General Partner to be held for the benefit
of the Holders; (ii) in the event of the appointment of a Special Representative
to, among other things, enforce this Partnership Guarantee, the Special
Representative may take possession of this Partnership Guarantee for such
purpose; (iii) if no Special Representative has been appointed, the General
Partner has the right to enforce this Partnership Guarantee on behalf of the
Holders; (iv) 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 this Partnership Guarantee including the giving of directions to the
General Partner or the Special Representative, as the case may be; and (v) if
the General Partner or Special Representative fails to enforce this Partnership
Guarantee after a Holder has made a written request and as above provided, any
Holder may institute a legal proceeding directly against the Guarantor to
enforce its rights under this Partnership Guarantee, without first instituting a
legal proceeding against the Issuer or any other person or entity.
Notwithstanding the foregoing, if the Guarantor has failed to make a guarantee
payment, a Holder may
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directly institute a proceeding against Guarantor to enforce such payment under
this Partnership Guarantee.
SECTION 2.5. Guarantee of Payment
This Partnership Guarantee creates a guarantee of payment and not
collection. This Partnership Guarantee will not be discharged except by payment
of the Guarantee Payments in full to the extent not paid by the Issuer.
SECTION 2.6. Subrogation
The Guarantor shall be subrogated to all (if any) rights of the
Holders against the Issuer in respect of any amounts paid to the Holders by the
Guarantor under this Partnership Guarantee provided, however, that the Guarantor
shall not (except to the extent required by mandatory provisions of law) be
entitled to enforce or exercise any rights which it may acquire by way of
subrogation or any indemnity, reimbursement or other agreement, in all cases as
a result of payment under this Partnership Guarantee, if, at the time of any
such payment, any amounts are due and unpaid under this Partnership Guarantee.
If any amount shall be paid to the Guarantor in violation of the preceding
sentence, the Guarantor agrees to hold such amount in trust for the Holders and
to pay over such amount to the Holders.
SECTION 2.7. Independent Obligations
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Partnership
Preferred Securities and that the Guarantor shall be liable as principal and as
debtor hereunder to make Guarantee Payments pursuant to the terms of this
Partnership Guarantee notwithstanding the occurrence of any event referred to in
subsections (a) through (f), inclusive, of Section 2.3 hereof.
ARTICLE III
LIMITATION OF TRANSACTIONS;
SUBORDINATION
SECTION 3.1. Limitation of Transactions
So long as any Partnership Preferred Securities remain outstanding,
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) there shall have occurred an Event of Default under the
Partnership Agreement or (c) the Guarantor shall be in default with respect to
its payment obligations under this Partnership Guarantee, the Trust Preferred
Securities Guarantee, the Trust Common Securities Guarantee or any Investment
Guarantee then, during such period (i) the Guarantor shall not declare or pay
dividends on, make distributions with respect to, or redeem, purchase or
acquire, or make a
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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 Guarantor or its affiliates in
connection with transactions effected by or for the account of customers of the
Guarantor or any of its subsidiaries or in connection with the distribution or
trading of such capital stock or comparable equity interest) and (ii) the
Guarantor shall not make, or permit any Finance Subsidiary to 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.
SECTION 3.2. Ranking
(a) This Partnership Guarantee will constitute an unsecured
obligation of the Guarantor and will rank (i) subordinate and junior in
right of payment to all other liabilities of the Guarantor, (ii) pari
passu with the most senior preferred or preference stock now or hereafter
issued from time to time by the Guarantor and with any other guarantee now
or hereafter entered into by the Guarantor in respect of any preferred or
preference stock of any Finance Subsidiary, and (iii) senior to the
Guarantor's common stock. Any similar guarantee given hereafter by the
Guarantor with respect to Partnership Preferred Securities that is silent
as to seniority will rank pari passu with this Partnership Guarantee.
(b) The holders of obligations of the Guarantor 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" under Article Eleven of the Indenture
dated as of December 17, 1996 between Merrill Lynch & Co., Inc. and The
Chase Manhattan Bank as against holders of the Company Debenture, and the
holders of the Partnership Preferred Securities will be subject to all the
terms and conditions of such Article Eleven with respect to any claims or
rights hereunder with the same effect as though fully set forth herein.
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ARTICLE IV
TERMINATION
SECTION 4.1. Termination
This Partnership Guarantee shall terminate and be of no further
force and effect, as to the Partnership Preferred Securities, upon full payment
of the Redemption Price of all Partnership Preferred Securities, and will
terminate completely upon full payment of the amounts payable in accordance with
the Partnership Agreement upon liquidation of the Issuer. This Partnership
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any Holder must, in accordance with Delaware Revised Uniform
Limited Partnership Act, restore payment of any sums paid under any Partnership
Preferred Securities or this Partnership Guarantee.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Successors and Assigns
All guarantees and agreements contained in this Partnership
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Partnership Preferred Securities then outstanding.
SECTION 5.2. Amendments
Except with respect to any changes which do not adversely affect the
rights of Holders (in which case no consent of Holders will be required), this
Partnership Guarantee may only be amended with the prior approval of the Holders
of not less than a majority in aggregate liquidation preference of all the
outstanding Partnership Preferred Securities.
SECTION 5.3. Consolidations and Mergers
The Guarantor 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 Guarantor 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 thereof
and such successor corporation shall expressly assume the due and punctual
payment of the Guarantee Payments payable pursuant to Section 5.1 hereof and the
due and punctual performance and observance of all of the covenants and
conditions of this Partnership Guarantee to be performed by the Guarantor by a
separate guarantee satisfactory to the Trust Preferred Guarantee Trustee (as
defined in the Trust Preferred Securities Guarantee Agreement dated as of
_________ __, 1999),
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executed and delivered to the Trust Preferred Guarantee Trustee by such
corporation, and (ii) the Guarantor 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.
SECTION 5.4. Notices
Any notice, request or other communication required or permitted to
be given hereunder to the Guarantor shall be given in writing by delivering the
same against receipt therefor by facsimile transmission (confirmed by mail),
addressed to the Guarantor, as follows (and if so given, shall be deemed given
when mailed):
Merrill Lynch & Co., Inc.
World Financial Center
South Tower
225 Liberty Street
New York, New York 10080-6105
Attention: Treasurer
Any notice, request or other communication required or permitted to
be given hereunder to the Holders shall be given by the Guarantor in the same
manner as notices sent by the Issuer to the Holders.
SECTION 5.5. Benefit
This Partnership Guarantee is solely for the benefit of the Holders
and is not separately transferable from the Partnership Preferred Securities.
SECTION 5.6. Governing Law
THIS PARTNERSHIP GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
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THIS PARTNERSHIP GUARANTEE is executed as of the day and year first
above written.
MERRILL LYNCH & CO., INC.
By:
-----------------------
Name: Theresa Lang
Title: Senior Vice President
and Treasurer
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Exhibit 4 (vvvv)
- --------------------------------------------------------------------------------
AFFILIATE DEBENTURE GUARANTEE AGREEMENT
Merrill Lynch & Co., Inc., as Guarantor
_______________________________, as Issuer
Dated as of _______ __, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1 Definitions and Interpretation...................................1
ARTICLE II
TRUST INDENTURE ACT
Section 2.1 Trust Indenture Act; Application.................................4
Section 2.2 Lists of Holders of Securities...................................5
Section 2.3 Reports by the Investment Guarantee Trustee......................5
Section 2.4 Periodic Reports to Investment Guarantee Trustee.................5
Section 2.5 Evidence of Compliance with Conditions Precedent.................5
Section 2.6 Events of Default; Waiver........................................5
Section 2.7 Event of Default; Notice.........................................6
Section 2.8 Conflicting Interests............................................6
ARTICLE III
POWERS, DUTIES AND RIGHTS OF INVESTMENT GUARANTEE TRUSTEE
Section 3.1 Powers and Duties of the Investment Guarantee Trustee............6
Section 3.2 Certain Rights of Investment Guarantee Trustee...................8
Section 3.3 Not Responsible for Recitals or Issuance of Investment
Guarantee.......................................................10
ARTICLE IV
INVESTMENT GUARANTEE TRUSTEE
Section 4.1 Investment Guarantee Trustee; Eligibility.......................10
Section 4.2 Appointment, Removal and Resignation of Investment
Guarantee Trustee...............................................11
ARTICLE V
GUARANTEE
Section 5.1 Guarantee.......................................................12
Section 5.2 Waiver of Notice and Demand.....................................12
Section 5.3 Obligations Not Affected........................................12
Section 5.4 Rights of Holders...............................................13
Section 5.5 Guarantee of Payment............................................13
Section 5.6 Subrogation.....................................................13
Section 5.7 Independent Obligations.........................................14
</TABLE>
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<TABLE>
<S> <C>
ARTICLE VI
SUBORDINATION
Section 6.1 Ranking.........................................................14
ARTICLE VII
TERMINATION
Section 7.1 Termination.....................................................14
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Exculpation.....................................................15
Section 8.2 Indemnification.................................................15
ARTICLE IX
MISCELLANEOUS
Section 9.1 Successors and Assigns..........................................15
Section 9.2 Amendments......................................................16
Section 9.3 Consolidations and Mergers......................................16
Section 9.4 Notices.........................................................16
Section 9.5 Benefit.........................................................17
Section 9.6 Governing Law...................................................17
</TABLE>
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AFFILIATE DEBENTURE GUARANTEE AGREEMENT (this "Investment
Guarantee"), dated as of _______ __, 1999, is executed and delivered by Merrill
Lynch & Co., Inc., a Delaware corporation (the "Guarantor"), and The Chase
Manhattan Bank, as trustee (the "Investment Guarantee Trustee"), for the benefit
of the Holder (as defined herein) of the Affiliate Debenture (as defined herein)
of _____________________, a Delaware corporation (the "Issuer").
WHEREAS, pursuant to an Indenture (the "Affiliate Indenture"), dated
as of ________________________, between the Issuer and The Chase Manhattan Bank,
as indenture trustee (in such capacity, the "Indenture Trustee"), the Issuer is
issuing to the Holder on the date hereof its ____% Debenture Due
______________________ (the "Affiliate Debenture");
WHEREAS, as incentive for the Holder to purchase the Affiliate
Debenture, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Investment Guarantee, to make Guarantee Payments
(as defined herein) to the Holder of the Affiliate Debenture on the terms and
conditions set forth herein; and
NOW, THEREFORE, in consideration of the purchase by the Holder of
the Affiliate Debenture, which purchase the Guarantor hereby acknowledges shall
benefit the Guarantor, the Guarantor executes and delivers this Investment
Guarantee for the benefit of the Holder.
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1 Definitions and Interpretation
In this Investment Guarantee, unless the context otherwise requires:
(a) Capitalized terms used in this Investment Guarantee but not
defined in the Preamble above have the respective meanings
assigned to them in this Section 1.1;
(b) Capitalized terms used in this Investment Guarantee but not
otherwise defined herein shall have the meanings assigned to
them in the Affiliate Indenture.
(c) a term defined anywhere in this Investment Guarantee has the
same meaning throughout;
(d) all references to "the Investment Guarantee" or "this
Investment Guarantee" are to this Investment Guarantee as
modified, supplemented or amended from time to time;
<PAGE>
(e) all references in this Investment Guarantee to Articles and
Sections are to Articles and Sections of this Investment
Guarantee, unless otherwise specified;
(f) a term defined in the Trust Indenture Act has the same meaning
when used in this Investment Guarantee, unless otherwise
defined in this Investment Guarantee or unless the context
otherwise requires; and
(g) a reference to the singular includes the plural and vice
versa.
"Affiliate" has the same meaning as given to that term in Rule 405
under the Securities Act of 1933, as amended, or any successor rule thereunder.
"Business Day" means any day other than a day on which banking
institutions in The City of New York are authorized or required by law to close.
"Company Debenture" means the series of debt securities issued on
_______ __, 1999 under the Company Indenture.
"Company Indenture" means the Indenture between Merrill Lynch & Co.,
Inc. and The Chase Manhattan Bank, dated as of December 17, 1996.
"Corporate Trust Office" means the office of the Investment
Guarantee Trustee at which the corporate trust business of the Investment
Guarantee Trustee shall, at any particular time, be principally administered,
which office at the date of execution of this Agreement is located at 450 West
33rd Street, 15th Floor, New York, New York 10001, Attention: Corporate Trust
Services Division.
"Covered Person" means the Holder or any beneficial owner of the
Affiliate Debenture.
"Declaration" means the Amended and Restated Declaration of Trust by
and among the Guarantor and certain Trustees, dated as of _______ __, 1999.
"Event of Default" means a default by the Guarantor on any of its
payment or other obligations under this Investment Guarantee.
"Guarantee Payments" means, without duplication, with respect to the
Affiliate Debenture, to the extent not paid or made by the Issuer, the due and
punctual payment of the principal of, premium, if any, and interest on the
Affiliate Debenture, when and as the same shall become due and payable, whether
at maturity or upon declaration of acceleration or otherwise, according to the
terms of the Affiliate Debenture and of the Affiliate Indenture.
"Holder" shall mean any holder, as registered on the books and
records of the Issuer of the Affiliate Debenture. The initial Holder of the
Affiliate Debenture is the Partnership.
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<PAGE>
"Holder of Partnership Preferred Securities" shall have the meaning
specified in the Partnership Agreement.
"Indemnified Person" means the Investment Guarantee Trustee, any
Affiliate of the Investment Guarantee Trustee, or any officers, directors,
shareholders, members, partners, employees, representatives, nominees,
custodians or agents of the Investment Guarantee Trustee.
"Investment Guarantee Trustee" means The Chase Manhattan Bank, until
a Successor Investment Guarantee Trustee has been appointed and has accepted
such appointment pursuant to the terms of this Investment Guarantee and
thereafter means each such Successor Investment Guarantee Trustee.
"Majority in aggregate principal amount of the Affiliate Debenture"
means, except as provided by the Trust Indenture Act, a vote by Holder(s) of the
Affiliate Debenture, voting separately as a class, of more than 50% of the
outstanding aggregate principal amount of the Affiliate Debenture plus accrued
and unpaid interest to the date upon which the voting percentages are
determined.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two authorized officers of such Person. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Investment Guarantee shall include:
(a) a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the
definition relating thereto;
(b) a brief statement of the nature and scope of the examination
or investigation undertaken by each officer in rendering the
Officers' Certificate;
(c) a statement that each such officer has made such examination
or investigation as, in such officer's opinion, is necessary
to enable such officer to express an informed opinion as to
whether or not such covenant or condition has been complied
with; and
(d) a statement as to whether, in the opinion of each such
officer, such condition of covenant has been complied with.
"Partnership" means Merrill Lynch Preferred Funding VI, L.P.
"Partnership Agreement" means the Amended and Restated Agreement of
Limited Partnership of the Partnership, dated as of _______ __, 1999, among
Merrill Lynch & Co., Inc., a Delaware corporation, as general partner, Merrill
Lynch Group, Inc., a Delaware corporation, as initial limited partner and such
other persons who become limited partners as provided therein.
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<PAGE>
"Partnership Preferred Securities" means those securities
representing limited partnership interests in the Partnership.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Property Trustee" shall have the meaning specified in the
Declaration.
"Responsible Officer" means, with respect to the Investment
Guarantee Trustee, any officer within the Corporate Trust Office of the
Investment Guarantee Trustee, including any vice president, any assistant vice
president, any assistant secretary, the treasurer, any assistant treasurer or
other officer of the Corporate Trust Office of the Investment Guarantee Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of that
officer's knowledge of and familiarity with the particular subject.
"Senior Indebtedness" shall have the meaning specified in the
Company Indenture.
"Successor Investment Guarantee Trustee" means a Successor
Investment Guarantee Trustee possessing the qualifications to act as Investment
Guarantee Trustee under Section 4.1.
"Trust" means the Merrill Lynch Preferred Capital Trust VI, a
Delaware business Trust, formed under the Declaration.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.
"Trust Preferred Securities" shall have the meaning specified in the
Declaration.
ARTICLE II
TRUST INDENTURE ACT
Section 2.1 Trust Indenture Act; Application
(a) This Investment Guarantee is subject to the provisions of the
Trust Indenture Act that are required to be part of this Investment Guarantee
and shall, to the extent applicable, be governed by such provisions; and
(b) if and to the extent that any provision of this Investment
Guarantee limits, qualifies or conflicts with the duties imposed by Sections 310
to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control;
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<PAGE>
Section 2.2 Lists of Holders of Securities
(a) The Guarantor shall provide the Investment Guarantee Trustee
(unless the Investment Guarantee Trustee is otherwise the Security Registrar of
the Affiliate Debenture) with a list, in such form as the Investment Guarantee
Trustee may reasonably require, of the names and addresses of the Holder(s) of
the Affiliate Debenture ("List of Holders") as of such date, (i) within one (1)
Business Day after June 15 and December 15 of each year, and (ii) at any other
time within 30 days of receipt by the Guarantor of a written request therefor, a
List of Holders as of a date no more than 14 days before such List of Holders is
given to the Investment Guarantee Trustee provided, that the Guarantor shall not
be obligated to provide such List of Holders at any time the List of Holders
does not differ from the most recent List of Holders given to the Investment
Guarantee Trustee by the Guarantor. The Investment Guarantee Trustee may destroy
any List of Holders previously given to it on receipt of a new List of Holders.
(b) The Investment Guarantee Trustee shall comply with its
obligations under Sections 311(a), 311(b) and Section 312(b) of the Trust
Indenture Act.
Section 2.3 Reports by the Investment Guarantee Trustee
Within 60 days after ________ __ of each year, commencing ________
__, 1999, the Investment Guarantee Trustee shall provide to the Holders of the
Affiliate Debenture such reports as are required by Section 313 of the Trust
Indenture Act, if any, in the form and in the manner provided by Section 313 of
the Trust Indenture Act. The Investment Guarantee Trustee shall also comply with
the requirements of Section 313(d) of the Trust Indenture Act.
Section 2.4 Periodic Reports to Investment Guarantee Trustee
The Guarantor shall provide to the Investment Guarantee Trustee such
documents, reports and information as required by Section 314 (if any) and the
compliance certificate required by Section 314 of the Trust Indenture Act in the
form, in the manner and at the times required by Section 314 of the Trust
Indenture Act.
Section 2.5 Evidence of Compliance with Conditions Precedent
The Guarantor shall provide to the Investment Guarantee Trustee such
evidence of compliance with any conditions precedent, if any, provided for in
this Investment Guarantee that relate to any of the matters set forth in Section
314(c) of the Trust Indenture Act. Any certificate or opinion required to be
given by an officer pursuant to Section 314(c)(1) may be given in the form of an
Officers' Certificate.
Section 2.6 Events of Default; Waiver
The Holders of a Majority in aggregate principal amount of the
Affiliate Debenture may, by vote, on behalf of the Holders of the Affiliate
Debenture, waive any past Event of Default and its consequences. Upon such
waiver, any such Event of Default shall cease
5
<PAGE>
to exist, and any Event of Default arising therefrom shall be deemed to have
been cured, for every purpose of this Investment Guarantee, but no such waiver
shall extend to any subsequent or other default or Event of Default or impair
any right consequent thereon.
Section 2.7 Event of Default; Notice
(a) The Investment Guarantee Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders of the Affiliate Debenture, notices of all Events of
Default actually known to a Responsible Officer of the Investment Guarantee
Trustee, unless such defaults have been cured before the giving of such notice,
provided, that, except in the case of default of any Guaranty Payment, the
Investment Guarantee Trustee shall be protected in withholding such notice if
and so long as a Responsible Officer of the Investment Guarantee Trustee in good
faith determines that the withholding of such notice is in the interests of the
Holders of the Affiliate Debenture.
(b) The Investment Guarantee Trustee shall not be deemed to have
knowledge of any Event of Default unless the Investment Guarantee Trustee shall
have received written notice, or a Responsible Officer of the Investment
Guarantee Trustee charged with the administration of the Affiliate Debenture
shall have obtained actual knowledge, of such Event of Default.
Section 2.8 Conflicting Interests
The Affiliate Debenture shall be deemed to be specifically described
in this Investment Guarantee for the purposes of clause (i) of the first proviso
contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF INVESTMENT GUARANTEE TRUSTEE
Section 3.1 Powers and Duties of the Investment Guarantee Trustee
(a) This Investment Guarantee shall be held by the Investment
Guarantee Trustee for the benefit of the Holders of the Affiliate Debenture, and
the Investment Guarantee Trustee shall not transfer this Investment Guarantee to
any Person except a Holder of the Affiliate Debenture exercising his or her
rights pursuant to Section 5.4(b) or to a Successor Investment Guarantee Trustee
on acceptance by such Successor Investment Guarantee Trustee of its appointment
to act as Successor Investment Guarantee Trustee. The right, title and interest
of the Investment Guarantee Trustee shall automatically vest in any Successor
Investment Guarantee Trustee, and such vesting and succession of title shall be
effective whether or not conveyancing documents have been executed and delivered
pursuant to the appointment of such Successor Investment Guarantee Trustee.
6
<PAGE>
(b) If an Event of Default actually known to a Responsible Officer
of the Investment Guarantee Trustee has occurred and is continuing, the
Investment Guarantee Trustee shall enforce this Investment Guarantee for the
benefit of the Holders of the Affiliate Debenture.
(c) The Investment Guarantee Trustee, before the occurrence of any
Event of Default and after the curing or waiver of all Events of Default that
may have occurred, shall undertake to perform only such duties as are
specifically set forth in this Investment Guarantee, and no implied covenants
shall be read into this Investment Guarantee against the Investment Guarantee
Trustee. In case an Event of Default has occurred (that has not been cured or
waived pursuant to Section 2.6) and is actually known to a Responsible Officer
of the Investment Guarantee Trustee, the Investment Guarantee Trustee shall
exercise such of the rights and powers vested in it by this Investment
Guarantee, and use the same degree of care and skill in its exercise thereof, as
a prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
(d) No provision of this Investment Guarantee shall be construed to
relieve the Investment Guarantee Trustee from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(i) prior to the occurrence of any Event of Default and after
the curing or waiving of all such Events of Default that may have
occurred:
(A) the duties and obligations of the Investment
Guarantee Trustee shall be determined solely by the express
provisions of this Investment Guarantee, and the Investment
Guarantee Trustee shall not be liable except for the performance of
such duties and obligations as are specifically set forth in this
Investment Guarantee, and no implied covenants or obligations shall
be read into this Investment Guarantee against the Investment
Guarantee Trustee; and
(B) in the absence of bad faith on the part of the
Investment Guarantee Trustee, the Investment Guarantee Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates
or opinions furnished to the Investment Guarantee Trustee and
conforming to the requirements of this Investment Guarantee; but in
the case of any such certificates or opinions that by any provision
hereof are specifically required to be furnished to the Investment
Guarantee Trustee, the Investment Guarantee Trustee shall be under a
duty to examine the same to determine whether or not they conform to
the requirements of this Investment Guarantee;
(ii) the Investment Guarantee Trustee shall not be liable for
any error of judgment made in good faith by a Responsible Officer of the
Investment Guarantee Trustee, unless it shall be proved that the
Investment Guarantee Trustee was negligent in ascertaining the pertinent
facts upon which such judgment was made;
7
<PAGE>
(iii) the Investment Guarantee Trustee shall not be liable
with respect to any action taken or omitted to be taken by it in good
faith in accordance with the direction of the Holders of a Majority in
aggregate principal amount of the Affiliate Debenture relating to the
time, method and place of conducting any proceeding for any remedy
available to the Investment Guarantee Trustee, or exercising any trust or
power conferred upon the Investment Guarantee Trustee under this
Investment Guarantee; and
(iv) no provision of this Investment Guarantee shall require
the Investment Guarantee Trustee to expend or risk its own funds or
otherwise incur personal financial liability in the performance of any of
its duties or in the exercise of any of its rights or powers, if the
Investment Guarantee Trustee shall have reasonable grounds for believing
that the repayment of such funds or liability is not reasonably assured to
it under the terms of this Investment Guarantee or indemnity, reasonably
satisfactory to the Investment Guarantee Trustee, against such risk or
liability is not reasonably assured to it.
Section 3.2 Certain Rights of Investment Guarantee Trustee
(a) Subject to the provisions of Section 3.1:
(i) The Investment Guarantee Trustee may conclusively rely,
and shall be fully protected in acting or refraining from acting, upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other evidence
of indebtedness or other paper or document believed by it to be genuine
and to have been signed, sent or presented by the proper party or parties.
(ii) Any direction or act of the Guarantor contemplated by
this Investment Guarantee shall be sufficiently evidenced by an Officers'
Certificate.
(iii) Whenever, in the administration of this Investment
Guarantee, the Investment Guarantee Trustee shall deem it desirable that a
matter be proved or established before taking, suffering or omitting any
action hereunder, the Investment Guarantee Trustee (unless other evidence
is herein specifically prescribed) may, in the absence of bad faith on its
part, request and conclusively rely upon an Officers' Certificate which,
upon receipt of such request, shall be promptly delivered by the
Guarantor.
(iv) The Investment Guarantee Trustee shall have no duty to
see to any recording, filing or registration of any instrument (or any
rerecording, refiling or registration thereof).
(v) The Investment Guarantee Trustee may consult with counsel
of its selection, and the advice or opinion of such counsel with respect
to legal matters shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in
good faith and in accordance with such advice or opinion.
8
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Such counsel may be counsel to the Guarantor or any of its Affiliates and
may include any of its employees. The Investment Guarantee Trustee shall
have the right at any time to seek instructions concerning the
administration of this Investment Guarantee from any court of competent
jurisdiction.
(vi) The Investment Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by this
Investment Guarantee at the request or direction of any Holder, unless
such Holder shall have provided to the Investment Guarantee Trustee such
security and indemnity, reasonably satisfactory to the Investment
Guarantee Trustee, against the costs, expenses (including attorneys' fees
and expenses and the expenses of the Investment Guarantee Trustee's
agents, nominees or custodians) and liabilities that might be incurred by
it in complying with such request or direction, including such reasonable
advances as may be requested by the Investment Guarantee Trustee; provided
that, nothing contained in this Section 3.2(a)(vi) shall be taken to
relieve the Investment Guarantee Trustee, upon the occurrence of an Event
of Default, of its obligation to exercise the rights and powers vested in
it by this Investment Guarantee.
(vii) The Investment Guarantee Trustee shall not be bound to
make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Investment Guarantee
Trustee, in its discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit.
(viii) The Investment Guarantee Trustee may execute any of the
trusts or powers hereunder or perform any duties hereunder either directly
or by or through agents, nominees, custodians or attorneys, and the
Investment Guarantee Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due care
by it hereunder.
(ix) Any action taken by the Investment Guarantee Trustee or
its agents hereunder shall bind the holders of the Affiliate Debenture,
and the signature of the Investment Guarantee Trustee or its agents alone
shall be sufficient and effective to perform any such action. No third
party shall be required to inquire as to the authority of the Investment
Guarantee Trustee to so act or as to its compliance with any of the terms
and provisions of this Investment Guarantee, both of which shall be
conclusively evidenced by the Investment Guarantee Trustee or its agent
taking such action.
(x) Whenever in the administration of this Investment
Guarantee the Investment Guarantee Trustee shall deem it desirable to
receive instructions with respect to enforcing any remedy or right or
taking any other action hereunder, the Investment Guarantee Trustee (i)
may request instructions from the Holders of a Majority in aggregate
principal amount of the Affiliate Debenture, (ii) may refrain from
enforcing
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<PAGE>
such remedy or right or taking such other action until such instructions
are received, and (iii) shall be fully protected in conclusively relying
on or acting in accordance with such instructions.
(xi) The Investment Guarantee Trustee shall not be liable for
any action taken, suffered, or omitted to be taken by it in good faith,
without negligence, and reasonably believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this
Investment Guarantee.
(b) No provision of this Investment Guarantee shall be deemed to
impose any duty or obligation on the Investment Guarantee Trustee to perform any
act or acts or exercise any right, power, duty or obligation conferred or
imposed on it in any jurisdiction in which it shall be illegal, or in which the
Investment Guarantee Trustee shall be unqualified or incompetent in accordance
with applicable law, to perform any such act or acts or to exercise any such
right, power, duty or obligation. No permissive power or authority available to
the Investment Guarantee Trustee shall be construed to be a duty.
Section 3.3 Not Responsible for Recitals or Issuance of Investment
Guarantee
The recitals contained in this Investment Guarantee shall be taken
as the statements of the Guarantor, and the Investment Guarantee Trustee does
not assume any responsibility for their correctness. The Investment Guarantee
Trustee makes no representation as to the validity or sufficiency of this
Investment Guarantee.
ARTICLE IV
INVESTMENT GUARANTEE TRUSTEE
Section 4.1 Investment Guarantee Trustee; Eligibility
(a) There shall at all times be an Investment Guarantee Trustee
which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the
laws of the United States of America or any State or Territory thereof or
of the District of Columbia, or a corporation or Person permitted by the
Securities and Exchange Commission to act as an institutional trustee
under the Trust Indenture Act, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
50 million U.S. dollars ($50,000,000), and subject to supervision or
examination by Federal, State, Territorial or District of Columbia
authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the supervising or
examining authority referred to above, then, for the purposes of this
Section 4.1(a)(ii), the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its
most recent report of condition so published.
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(b) If at any time the Investment Guarantee Trustee shall cease to
be eligible to so act under Section 4.1(a), the Investment Guarantee Trustee
shall immediately resign in the manner and with the effect set out in Section
4.2(c).
(c) If the Investment Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Investment Guarantee Trustee and Guarantor shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
Section 4.2 Appointment, Removal and Resignation of Investment
Guarantee Trustee
(a) Subject to Section 4.2(b), the Investment Guarantee Trustee may
be appointed or removed without cause at any time by the Guarantor except during
a default or an Event of Default.
(b) The Investment Guarantee Trustee shall not be removed in
accordance with Section 4.2(a) until a Successor Investment Guarantee Trustee
has been appointed and has accepted such appointment by written instrument
executed by such Successor Investment Guarantee Trustee and delivered to the
Guarantor.
(c) The Investment Guarantee Trustee shall hold office until a
Successor Investment Guarantee Trustee shall have been appointed or until its
removal or resignation. The Investment Guarantee Trustee may resign from office
(without need for prior or subsequent accounting) by an instrument in writing
executed by the Investment Guarantee Trustee and delivered to the Guarantor,
which resignation shall not take effect until a Successor Investment Guarantee
Trustee has been appointed and has accepted such appointment by instrument in
writing executed by such Successor Investment Guarantee Trustee and delivered to
the Guarantor and the resigning Investment Guarantee Trustee.
(d) If no Successor Investment Guarantee Trustee shall have been
appointed and accepted appointment as provided in this Section 4.2 within 30
days after delivery of an instrument of removal or resignation, the Investment
Guarantee Trustee resigning or being removed may petition any court of competent
jurisdiction for appointment of a Successor Investment Guarantee Trustee. Such
court may thereupon, after prescribing such notice, if any, as it may deem
proper, appoint a Successor Investment Guarantee Trustee.
(e) No Investment Guarantee Trustee shall be liable for the acts or
omissions to act of any Successor Investment Guarantee Trustee.
(f) Upon termination of this Investment Guarantee or removal or
resignation of the Investment Guarantee Trustee pursuant to this Section 4.2,
the Guarantor shall pay to the Investment Guarantee Trustee all amounts due to
the Investment Guarantee Trustee accrued to the date of such termination,
removal or resignation.
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ARTICLE V
GUARANTEE
Section 5.1 Guarantee
The Guarantor irrevocably and unconditionally agrees to pay in full
to the Holders the Guarantee Payments (without duplication of amounts
theretofore paid by the Issuer), as and when due, regardless of any defense,
right of set-off or counterclaim that the Issuer may have or assert. The
Guarantor's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holders or by causing
the Issuer to pay such amounts to the Holders.
Section 5.2 Waiver of Notice and Demand
The Guarantor hereby waives notice of acceptance of this Investment
Guarantee and of any liability to which it applies or may apply, presentment,
demand for payment, any right to require a proceeding first against the Issuer
or any other Person before proceeding against the Guarantor, protest, notice of
nonpayment, notice of dishonor, notice of redemption and all other notices and
demands.
Section 5.3 Obligations Not Affected
The obligations, covenants, agreements and duties of the Guarantor
under this Investment Guarantee shall in no way be affected or impaired by
reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the Affiliate Debenture to be performed
or observed by the Issuer;
(b) the extension of time for the payment by the Issuer of all or
any portion of the interest, principal or premium, if any, or any other sums
payable under the terms of the Affiliate Debenture or the extension of time for
the performance of any other obligation under, arising out of, or in connection
with, the Affiliate Debenture (other than an extension of time for payment of
interest during an Extension Period, as defined in the Affiliate Debenture,
permitted by the Affiliate Indenture);
(c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Affiliate Debenture, or
any action on the part of the Issuer granting indulgence or extension of any
kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for the benefit
of creditors, reorganization,
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<PAGE>
arrangement, composition or readjustment of debt of, or other similar
proceedings affecting, the Issuer or any of the assets of the Issuer;
(e) any invalidity of, or defect or deficiency in, the Affiliate
Debenture;
(f) the settlement or compromise of any obligation guaranteed hereby
or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a guarantor, it being
the intent of this Section 5.3 that the obligations of the Guarantor hereunder
shall be absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or
obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.
Section 5.4 Rights of Holders
(a) The Holders of a Majority in aggregate principal amount of the
Affiliate Debenture have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Investment Guarantee
Trustee in respect of this Investment Guarantee or exercising any trust or power
conferred upon the Investment Guarantee Trustee under this Investment Guarantee.
(b) If the Investment Guarantee Trustee fails to enforce its rights
under the Investment Guarantee after a Holder of the Affiliate Debenture has
made a written request, such Holder of the Affiliate Debenture may institute a
legal proceeding directly against the Guarantor to enforce the Investment
Guarantee Trustee's rights under this Investment Guarantee, without first
instituting a legal proceeding against the Issuer, the Investment Guarantee
Trustee or any other Person. Notwithstanding the foregoing, if the Guarantor has
failed to make a Guarantee Payment, a Holder of the Affiliate Debenture may
directly institute a proceeding in such Holder's own name against the Guarantor
for enforcement of the Investment Guarantee for such payment. The Guarantor
waives any right or remedy to require that any action be brought first against
the Issuer or any other person or entity before proceeding directly against the
Guarantor.
Section 5.5 Guarantee of Payment
This Investment Guarantee creates a guarantee of payment and not of
collection.
Section 5.6 Subrogation
The Guarantor shall be subrogated to all (if any) rights of the
Holders of Affiliate Debenture against the Issuer in respect of any amounts paid
to such Holders by the Guarantor under this Investment Guarantee; provided,
however, that the Guarantor shall not (except to the extent required by
mandatory provisions of law) be entitled to enforce or exercise any right that
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<PAGE>
it may acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Investment Guarantee,
if, at the time of any such payment, any amounts are due and unpaid under this
Investment Guarantee. If any amount shall be paid to the Guarantor in violation
of the preceding sentence, the Guarantor agrees to hold such amount in trust for
the Holders and to pay over such amount to the Holders.
Section 5.7 Independent Obligations
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Affiliate
Debenture, and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Investment
Guarantee notwithstanding the occurrence of any event referred to in subsections
(a) through (g), inclusive, of Section 5.3 hereof.
ARTICLE VI
SUBORDINATION
Section 6.1 Ranking
This Investment Guarantee will constitute an unsecured obligation of
the Guarantor and will rank (i) subordinate and junior in right of payment to
all other liabilities of the Guarantor, (ii) pari passu with the most senior
preferred or preference stock now or hereafter issued by the Guarantor and with
any other guarantee now or hereafter entered into by the Guarantor in respect of
any preferred or preference stock of any Affiliate of the Guarantor, and (iii)
senior to the Guarantor's common stock. The holders of obligations of the
Guarantor that are senior to the obligations under the Investment Guarantee
(including, but not limited to, obligations constituting Senior Indebtedness)
shall be entitled to the same rights in payment default or dissolution,
liquidation and reorganization in respect of this Investment Guarantee that
inure to the holders of Senior Indebtedness as against the holders of the
Company Debenture specified in Sections 1102, 1103 and 1105 of the Company
Indenture.
ARTICLE VII
TERMINATION
Section 7.1 Termination
This Investment Guarantee shall terminate upon the repayment in full
(whether at maturity, upon redemption or otherwise) of all of the principal of,
premium, if any, and interest on (including all accrued and unpaid interest
thereon) and any other amounts payable in respect of the Affiliate Debenture.
Notwithstanding the foregoing, this Investment Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any Holder
of the Affiliate Debenture must restore payment of any sums paid under the
Affiliate Debenture or under this Investment Guarantee.
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ARTICLE VIII
INDEMNIFICATION
Section 8.1 Exculpation
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Guarantor or any Covered Person for
any loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith in accordance with this
Investment Guarantee and in a manner that such Indemnified Person reasonably
believed to be within the scope of the authority conferred on such Indemnified
Person by this Investment Guarantee or by law, except that an Indemnified Person
shall be liable for any such loss, damage or claim incurred by reason of such
Indemnified Person's gross negligence or willful misconduct with respect to such
acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Guarantor and upon such information,
opinions, reports or statements presented to the Guarantor by any Person as to
matters the Indemnified Person reasonably believes are within such other
Person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Guarantor, including information,
opinions, reports or statements as to the value and amount of the assets,
liabilities, profits, losses, or any other facts pertinent to the existence and
amount of assets from which principal, premium, interest or other payments to
Holders of the Affiliate Debenture might properly be paid.
Section 8.2 Indemnification
The Guarantor agrees to indemnify each Indemnified Person for, and
to hold each Indemnified Person harmless against, any and all loss, liability,
damage, claim or expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of the
trust or trusts hereunder, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against, or
investigating, any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The obligation to
indemnify as set forth in this Section 8.2 shall survive the termination of this
Investment Guarantee.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Successors and Assigns
All guarantees and agreements contained in this Investment Guarantee
shall bind the successors, assigns, receivers, trustees and representatives of
the Guarantor and shall inure to the benefit of the Holders of the Partnership
Preferred Securities then outstanding. The Company may not assign its rights or
delegate its obligations hereunder without the prior approval of the Holders of
at least a majority of the aggregated stated liquidation preference of the
Partnership Preferred Securities then outstanding, except that the Company may
consolidate
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<PAGE>
with, or sell, lease or convey all or substantially all of its assets to, or
merge with or into any other corporation, provided that in any such case either
the Company shall be the continuing corporation, or the successor corporation
shall expressly assume the obligations of the Guarantor hereunder.
Section 9.2 Amendments
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), this Investment 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, provided that 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.
Section 9.3 Consolidations and Mergers
The Guarantor 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 Guarantor 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 thereof
and such successor corporation shall expressly assume the due and punctual
payment of the Guarantee Payments payable pursuant to Section 5.1 hereof and the
due and punctual performance and observance of all of the covenants and
conditions of this Investment Guarantee to be performed by the Guarantor by a
separate guarantee satisfactory to the Investment Guarantee Trustee (as defined
in this Investment Guarantee dated as of _______ __, 1999), executed and
delivered to the Investment Guarantee Trustee by such corporation, and (ii) the
Guarantor 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.
Section 9.4 Notices
All notices provided for in this Investment Guarantee shall be in
writing, duly signed by the party giving such notice, and shall be delivered,
telecopied or mailed by first class mail, as follows:
(a) If given to the Investment Guarantee Trustee, at the Investment
Guarantee Trustee's Corporate Trust Office, Telecopy: (212) 946-8161 (or such
other address as the Investment Guarantee Trustee may give notice of to the
Holders of the Affiliate Debenture); and
(b) If given to the Guarantor, at the Guarantor's mailing address
set forth below (or such other address as the Guarantor may give notice of to
the Holders of the Affiliate Debenture):
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<PAGE>
Merrill Lynch & Co., Inc.
World Financial Center
South Tower
225 Liberty Street
New York, New York 10080-6105
Attention: Treasurer
(c) If given to any Holder of Affiliate Debenture, at the address
set forth on the books and records of the Issuer.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
Section 9.5 Benefit
This Investment Guarantee is solely for the benefit of the Holders
of the Affiliate Debenture and, subject to Section 3.1(a), is not separately
transferable from the Affiliate Debenture.
Section 9.6 Governing Law
THIS INVESTMENT GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF.
17
<PAGE>
This Investment Guarantee is executed as of the day and year first
above written.
MERRILL LYNCH & CO., INC., as Guarantor
By:
--------------------------------------
Name: Theresa Lang
Title: Senior Vice President
and Treasurer
THE CHASE MANHATTAN BANK, as Investment
Guarantee Trustee
By:
--------------------------------------
Authorized Signatory
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<PAGE>
Exhibit 4(wwww)
---------------------------------
___% Debenture Due _____
No. R-_ $__________
_______________________, a corporation duly organized and existing
under the laws of the State of Delaware (herein called the "Company", which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to MERRILL LYNCH PREFERRED FUNDING
VI, L.P., or registered assigns, the principal sum of DOLLARS ($_____________)
on ,__________ __, ____ and to pay interest on said principal sum from _______
__, 1999 or from the most recent interest payment date (each such date, an
"Interest Payment Date") to which interest has been paid or duly provided for,
quarterly (subject to deferral as set forth herein) in arrears on March 30, June
30, September 30 and December 30 of each year, commencing ________ , ____, at
the rate of ___% per annum plus Additional Interest, if any, until the principal
hereof shall have become due and payable, and on any overdue principal. The
amount of interest payable for any period will be computed on the basis of a
360-day year of twelve 30-day months. In the event that any date on which
interest is payable on this Security is not a Business Day, then a payment of
the interest payable on such date will be made on the next succeeding day which
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 the date the
payment was originally payable. 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. The interest installment so payable, and punctually
paid or duly provided for, on any Interest Payment Date will, as provided in the
Indenture, be paid to the Person in whose name this Security (or one or more
Predecessor Securities, as defined in the Indenture) is registered at the close
of business on the Regular Record Date for such interest installment, which
shall be the close of business on the Business Day next preceding such Interest
Payment Date. Any such interest installment not so punctually paid or duly
provided for shall forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name this Security (or
one or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in said Indenture.
The Company shall have the right at any time during the term of this
Security, from time to time, to extend the interest payment period of such
Security for a period not exceeding six consecutive quarters from the date of
issue or the most recent date that interest has been paid or been duly provided
for (an "Extension Period"). During any Extension Period,
<PAGE>
interest will compound quarterly and the Company shall have the right to make
partial payments of interest on any Interest Payment Date. At the end of any
Extension Period the Company shall pay all interest then accrued and unpaid
(together with Additional Interest thereon to the extent that payment of such
interest is permitted by applicable law). "Additional Interest" means
interest that shall accrue on any interest on the Securities that is in
arrears for more than one quarter or not paid during an Extension Period,
which in either case shall accrue at % per annum compounded quarterly. Prior
to the termination of any such Extension Period, the Company may further
extend the interest payment period, provided that such Extension Period
together with all such previous and further extensions thereof shall not
exceed six consecutive quarters or extend beyond the Maturity of this
Security. Upon the termination of any Extension Period and upon the payment
of all accrued and unpaid interest and any Additional Interest then due, the
Company may select a new Extension Period, subject to the foregoing
requirements. No interest shall be due and payable during an Extension Period
except at the end thereof and no default under this Security or Event of
Default shall be deemed to occur solely as a result of an Extension Period.
The Company shall give the Holder of this Security and the Trustee notice of
its selection of an Extension Period at least one Business Day prior to the
earlier of (i) the Interest Payment Date or (ii) the date Merrill Lynch
Preferred Capital Trust VI is required to give notice to the New York Stock
Exchange, Inc. or other applicable self-regulatory organization or to holders
of the Trust Preferred Securities of the record date or the date such
distributions are payable, but in any event not less than one Business Day
prior to such record date.
During any Extension Period or during the continuance of an Event of
Default, 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 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).
Payment of the principal of and interest on this Security will be
made at the office or agency of the Company maintained for that purpose in New
York, New York, in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts;
provided, however, that at the option of the Company payment of interest may be
made (i) by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register or (ii) by wire transfer in
immediately available funds at such place and to such account as may be
designated by the Person entitled thereto as specified in the Security Register.
The indebtedness evidenced by this Security is, to the extent
provided in the Affiliate Debenture Guarantee Agreement (the "Guarantee"),
guaranteed by Merrill Lynch & Co., Inc., as guarantor of this Security, and any
successor thereto (the "Guarantor"). Each Holder of this Security, by accepting
the same, agrees to and shall be subject to the subordination provisions and
other terms of the Guarantee.
Reference is hereby made to the further provisions of the Indenture
summarized on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
2
<PAGE>
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, _____________________ has caused this instrument
to be duly executed.
Dated: ________ __, ____
-------------------------------------
By:
----------------------------------
Name:
Title:
Attest:
By:
----------------------------------
Name: Lawrence M. Egan, Jr.
Title: Assistant Secretary
[SEAL]
[authentication]
3
<PAGE>
Reverse of Security
This Security is one of a duly authorized issue of Securities of the
Company, designated as its ____% Debentures Due ____ (herein called the
"Securities"), limited in aggregate principal amount to $___________ issued
under an Indenture, dated as of ________ __, ____ (herein called the
"Indenture"), between the Company and The Chase Manhattan Bank, as Trustee
(herein called the "Trustee", which term includes any successor trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Trustee, the Company and the
Holders of the Securities, and of the terms upon which the Securities are, and
are to be, authenticated and delivered.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
At any time on or after _________ __, ____, the Company shall have
the right to redeem the Securities, in whole or in part, from time to time, at a
Redemption Price equal to 100% of the principal amount of Securities to be
redeemed plus accrued but unpaid interest, including any Additional Interest, if
any, to the Redemption Date.
If, at any time, a Partnership Tax Event or a Partnership Investment
Company Event (each a "Partnership Special Event") shall occur and be
continuing, the Company may, within 90 days following the occurrence of such
Partnership Special Event, elect to redeem the 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 Company or 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, and will involve no
material cost, the Company will pursue such measure in lieu of redemption.
"Partnership Investment Company Event" means that Merrill Lynch &
Co., Inc., in its capacity as general partner of Merrill Lynch Preferred Funding
VI, L.P. (the "Partnership"), 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 _______ __, 1999 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, the Partnership is or will be considered an "investment company"
which is required to be registered under the Investment Company Act of 1940.
"Partnership Tax Event" means that Merrill Lynch & Co., Inc. in its
capacity as general partner of the Partnership, 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 (each as
defined in the Limited Partnership
4
<PAGE>
Agreement), (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 one or more of the obligors with respect to the Affiliate
Investment Instruments (as defined in the Amended and Restated Agreement of
Limited Partnership of Merrill Lynch Preferred Funding VI, L.P.) to the
Partnership is not, or will not be, deductible by the Company for United States
federal income tax purposes.
"Tax Action" means (a) an amendment to, change in or announced
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 substantially similar to
the Securities, the Partnership Preferred Securities, or the Trust Preferred
Securities, which amendment or change is adopted or which decision,
pronouncement or proposed change is announced or which action, clarification or
challenge occurs on or after the date of the prospectus related to the issuance
of the Trust Preferred Securities.
"Limited Partnership Agreement" means the amended and restated
agreement of Limited Partnership, dated as of ________ __, 1999, of the
Partnership as amended, modified or otherwise supplemented from time to time. If
the Securities are only partially redeemed by the Company, the Securities will
be redeemed pro rata, by lot or in such other manner as the Trustee shall deem
appropriate and fair in its discretion and that may provide for the selection of
a portion or portions (equal to twenty-five U.S. dollars ($25) or any integral
multiple thereof) of the principal amount of any Security.
In the event of redemption of this Security in part only, a new
Security or Securities for the unredeemed portion hereof will be issued in the
name of the Holder hereof upon the cancellation hereof.
If an Event of Default with respect to the Securities shall occur
and be continuing, the principal of the Securities may be declared due and
payable in the manner, with the effect and subject to the conditions provided in
the Indenture.
The Indenture contains provisions for satisfaction and discharge at
any time of the entire indebtedness of this Security upon compliance by the
Company with certain conditions set forth in the Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of Holders of not less than 66 2/3% in principal
amount of the Outstanding Securities, to modify the Indenture in a manner
affecting the rights of the Holders of the Securities; provided that no such
modification may, without the consent of the Holder of each Outstanding
Security, (i) extend the fixed maturity of the Securities, or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest thereon, or reduce any premium
5
<PAGE>
payable upon the redemption thereof, or (ii) reduce the percentage of principal
amount of the Securities, the Holders of which are required to consent to any
such modification of the Indenture. The Indenture also contains provisions
permitting Holders of specified percentages in principal amount of the
Securities at the time Outstanding, on behalf of the Holders of all Securities,
to waive compliance by the Company with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Security and of any
Security issued upon the registration of transfer hereof or in exchange herefor
or in lieu hereof, whether or not notation of such consent or waiver is made
upon this Security.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in New York, New York, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Securities,
of authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees. No service charge shall be
made for any such registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Guarantor, the Trustee and any of their respective
agents may treat the Person in whose name this Security is registered as the
owner hereof for all purposes, whether or not this Security shall be overdue,
and neither the Company, the Guarantor, the Trustee nor any such agent shall be
affected by notice to the contrary.
The Securities are issuable only in registered form without coupons
in denominations of $25 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Securities are
exchangeable for a like aggregate principal amount of Securities of a different
authorized denomination, as requested by the Holder surrendering the same.
The obligations under this Security for the due and punctual payment
of the principal of (and premium, if any), interest on and any Additional
Amounts payable pursuant hereto with respect to this Security, according to its
tenor, and the due and punctual performance and observance of all of the
covenants and conditions of this Security and the Indenture to be performed by
the Company may be assumed, in whole or in part, by an Affiliate of the Company
that, as of the end of the most recent fiscal year for which consolidated
financial statements of the Company and such Affiliate are available, has a
Consolidated Net Worth at least equal to the Consolidated Net Worth of the
Company. For purposes of this paragraph, "Consolidated Net
6
<PAGE>
Worth" of an entity shall mean (a) the aggregate of capital stock, additional
paid-in capital and retained earnings (or minus accumulated deficit) of an
entity and its consolidated subsidiaries, minus (b) treasury stock of the entity
and its consolidated subsidiaries at cost, as of the end of the latest fiscal
quarter, of the entity and its consolidated subsidiaries, each item to be
determined in conformity with generally accepted accounting principles
consistently applied. A "subsidiary" of an entity shall be a corporation 50% or
more of the shares of Voting Stock of which is owned directly or indirectly by
such entity.
In case of any such assumption by an Affiliate of the Company, such
Affiliate shall succeed to and be substituted for the Company, with the same
effect as if it had been named herein as the Company, and the Company shall be
relieved of any further obligation under this Security and the Indenture. Such
Affiliate shall be a successor corporation for purposes of Section 802 of the
Indenture.
THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES
THEREOF.
7
<PAGE>
[Letterhead of Brown & Wood LLP]
Exhibit 5(a)
December 11, 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 $15,000,000,000 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 1/3 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;
2
<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]
December 11, 1998
Merrill Lynch & Co., Inc.
World Financial Center
North Tower
250 Vesey Street
New York, New York 10281
Merrill Lynch Preferred Funding Merrill Lynch Preferred Capital
VI, L.P. Trust VI
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 VI
Trust Originated 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 VI, L.P., a
Delaware limited partnership (the "Partnership"), and Merrill Lynch Preferred
Capital Trust VI, 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
<PAGE>
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 "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.
2
<PAGE>
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 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)
December 11, 1998
Merrill Lynch Preferred Capital Trust VI
Merrill Lynch Preferred Funding VI, 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 VI (the "Trust"), a statutory business trust created under the
Business Trust Act of the State of Delaware (Del. Code Ann., tit. 12, Section
3801 et seq.), and Merrill Lynch Preferred Funding VI, L.P. (the
"Partnership"), a limited partnership formed under the Revised Uniform Limited
Partnership Act of the State of Delaware (6 Del. C. Section 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 VI
Merrill Lynch & Co., Inc.
December 11, 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
December 11, 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 December 7, 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 7, 1998; (vii) the form of the Limited Partnership
Agreement (including the designation 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
2
<PAGE>
Merrill Lynch Capital Trust VI
Merrill Lynch & Co., Inc.
December 11, 1998
Page 3
documents, certificates 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 VI
Merrill Lynch & Co., Inc.
December 11, 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 VI
Merrill Lynch & Co., Inc.
December 11, 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.
This opinion is furnished solely for your benefit and is not to be
used, circulated, quoted or otherwise referred to for any other purpose or
relied upon by any other person without our express written permission. 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.
<PAGE>
Merrill Lynch Capital Trust VI
Merrill Lynch & Co., Inc.
December 11, 1998
Page 6
Very truly yours,
6
<PAGE>
Exhibit 5(d)
[Letterhead of Brown & Wood LLP]
December 11, 1998
Merrill Lynch & Co., Inc.
World Financial Center
North Tower
New York, New York 10281
Merrill Lynch Preferred Funding VI, Merrill Lynch Preferred Capital Trust
L.P. VI
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 VI
Trust Originated 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 VI,
L.P., a limited partnership formed under the Delaware Revised Uniform Limited
Partnership Act, as amended (the "Partnership"), and Merrill Lynch Preferred
Capital Trust VI, 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 the 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 Securities and Trust
<PAGE>
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 meanings 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 the company and certain eligible controlled Affiliates of the 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 the Partnership and the
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
December 10, 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
condensed consolidated financial information of Merrill Lynch & Co., Inc. and
subsidiaries ("Merrill Lynch") as of March 27, 1998, June 26, 1998 and
September 25, 1998 and for the three-month periods ended March 27, 1998 and
March 28, 1997, the three- and six-month periods ended June 26, 1998 and June
27, 1997 and the three- and nine-month periods ended September 25, 1998 and
September 26, 1997, as indicated in our reports dated May 8, 1998, August 7,
1998 and November 9, 1998, respectively; because we did not perform an audit,
we expressed no opinion on that information. The financial information as of
and for the three- and nine-month periods ended September 25, 1998 and
September 26, 1997 gives retroactive effect to the merger of Merrill Lynch
and Midland Walwyn Inc., which has been accounted for as a
pooling-of-interests, as described in Note 2 to the condensed consolidated
financial statements included in your Quarterly Report on Form 10-Q for the
quarter ended September 25, 1998.
We are aware that our reports referred to above, which were included in your
Quarterly Reports on Form 10-Q for the quarters ended March 27, 1998, June 26,
1998 and September 25, 1998, are incorporated by reference in this
Registration Statement.
We are also aware that the aforementioned reports, pursuant to Rule 436(c) under
the Securities Act of 1933, are 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
New York, New York
<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 ("Merrill Lynch") on Form S-3
of our report dated February 23, 1998 (December 10, 1998 as to Note 1,
paragraphs 1 and 2), appearing in the Current Report on Form 8-K dated
December 10, 1998 and to the incorporation by reference of our report dated
February 23, 1998 appearing on page 72 of the Annual Report on Form 10-K of
Merrill Lynch for the year ended December 26, 1997 and to the reference to us
under the heading "Experts" in the Prospectuses, which are a 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 (December
10, 1998 as to Ratio of Earnings to Fixed Charges, paragraph 1 and note a,
and Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends, paragraph 1 and note a), 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 Prospectus relating to STRYPES-SM-, in the Prospectus relating
to Trust Preferred Securities and in the Prospectuses relating to other
securities, each of which is 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 (December 10, 1998 as to Selected Financial
Data, paragraph 1 and note a) relating to the Selected Financial Data under
the captions "Operating Results", "Financial Position" and "Common Share Data"
appearing in the Current Report on Form 8-K dated December 10, 1998 of
Merrill Lynch.
/s/ Deloitte & Touche LLP
New York, New York
December 10, 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 13-2740599
(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 4th day of December, 1998.
THE CHASE MANHATTAN BANK
By /s/ Andrew M. Deck
------------------------------------
/s/ 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 September 30, 1998, in accordance
with a call made by the Federal Reserve Bank of this District
pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Millions
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin .......................................... $ 11,951
Interest-bearing balances .................................. 4,551
Securities:
Held to maturity securities ..................................... 1,740
Available for sale securities ................................... 48,537
Federal funds sold and securities purchased under
agreements to resell ....................................... 29,730
Loans and lease financing receivables:
Loans and leases, net of unearned income ......... $127,379
Less: Allowance for loan and lease losses ........ 2,719
Less: Allocated transfer risk reserve ............ 0
--------
Loans and leases, net of unearned income,
allowance, and reserve ..................................... 124,660
Trading Assets .................................................. 51,549
Premises and fixed assets (including capitalized
leases) .................................................... 3,009
Other real estate owned ......................................... 272
Investments in unconsolidated subsidiaries and
associated companies ....................................... 300
Customers' liability to this bank on acceptances
outstanding ................................................ 1,329
Intangible assets ............................................... 1,429
Other assets .................................................... 13,563
--------
TOTAL ASSETS .................................................... $292,620
========
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
Deposits
In domestic offices ......................................... $ 98,760
Noninterest-bearing ............................... $ 39,071
Interest-bearing .................................. 59,689
--------
In foreign offices, Edge and Agreement,
subsidiaries and IBF's ...................................... 75,403
Noninterest-bearing ............................... $ 3,877
Interest-bearing .................................. 71,526
Federal funds purchased and securities sold under
agreements to repurchase ......................................... 34,471
Demand notes issued to the U.S. Treasury ......................... 1,000
Trading liabilities .............................................. 41,589
Other borrowed money (includes mortgage indebtedness and
obligations under capitalized leases):
With a remaining maturity of one year or less ............... 3,781
With a remaining maturity of more than one year
through three years .................................... 213
With a remaining maturity of more than three years .......... 104
Bank's liability on acceptances executed and outstanding ......... 1,329
Subordinated notes and debentures ................................ 5,408
Other liabilities ................................................ 12,041
TOTAL LIABILITIES ................................................ 274,099
--------
EQUITY CAPITAL
Perpetual preferred stock and related surplus .................... 0
Common stock ..................................................... 1,211
Surplus (exclude all surplus related to preferred stock) ......... 10,441
Undivided profits and capital reserves ........................... 6,287
Net unrealized holding gains (losses)
on available-for-sale securities ................................. 566
Cumulative foreign currency translation adjustments .............. 16
TOTAL EQUITY CAPITAL ............................................. 18,521
--------
TOTAL LIABILITIES AND EQUITY CAPITAL ............................. $292,620
========
</TABLE>
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 instructions
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 VI
(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 4th day of December, 1998.
THE CHASE MANHATTAN BANK
By /s/ Andrew M. Deck
------------------------------------
/s/ 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 September 30, 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
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin .......................................... $ 11,951
Interest-bearing balances .................................. 4,551
Securities:
Held to maturity securities ..................................... 1,740
Available for sale securities ................................... 48,537
Federal funds sold and securities purchased under
agreements to resell ....................................... 29,730
Loans and lease financing receivables:
Loans and leases, net of unearned income ......... $127,379
Less: Allowance for loan and lease losses ........ 2,719
Less: Allocated transfer risk reserve ............ 0
--------
Loans and leases, net of unearned income,
allowance, and reserve ..................................... 124,660
Trading Assets .................................................. 51,549
Premises and fixed assets (including capitalized
leases) .................................................... 3,009
Other real estate owned ......................................... 272
Investments in unconsolidated subsidiaries and
associated companies ....................................... 300
Customers' liability to this bank on acceptances
outstanding ................................................ 1,329
Intangible assets ............................................... 1,429
Other assets .................................................... 13,563
--------
TOTAL ASSETS .................................................... $292,620
--------
--------
-4-
<PAGE>
LIABILITIES
Deposits
In domestic offices ......................................... $ 98,760
Noninterest-bearing ............................... $ 39,071
Interest-bearing .................................. 59,689
--------
In foreign offices, Edge and Agreement,
subsidiaries and IBF's ...................................... 75,403
Noninterest-bearing ............................... $ 3,877
Interest-bearing .................................. 71,526
Federal funds purchased and securities sold under
agreements to repurchase ......................................... 34,471
Demand notes issued to the U.S. Treasury ......................... 1,000
Trading liabilities .............................................. 41,589
Other borrowed money (includes mortgage indebtedness and
obligations under capitalized leases):
With a remaining maturity of one year or less ............... 3,781
With a remaining maturity of more than one year
through three years .................................... 213
With a remaining maturity of more than three years .......... 104
Bank's liability on acceptances executed and outstanding ......... 1,329
Subordinated notes and debentures ................................ 5,408
Other liabilities ................................................ 12,041
TOTAL LIABILITIES ................................................ 274,099
--------
EQUITY CAPITAL
Perpetual preferred stock and related surplus .................... 0
Common stock ..................................................... 1,211
Surplus (exclude all surplus related to preferred stock) ......... 10,441
Undivided profits and capital reserves ........................... 6,287
Net unrealized holding gains (losses)
on available-for-sale securities ................................. 566
Cumulative foreign currency translation adjustments .............. 16
TOTAL EQUITY CAPITAL ............................................. 18,521
--------
TOTAL LIABILITIES AND EQUITY CAPITAL ............................. $292,620
--------
--------
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 instructions
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 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 ("Merrill Lynch") 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 (December 10, 1998
as to Note 1, paragraphs 1 and 2). Such consolidated financial statements and
our report thereon are included in Merrill Lynch's Current Report on Form 8-K
dated December 10, 1998, which is incorporated herein by reference.
We have also previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheets of Merrill Lynch 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 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 in the Prospectus relating to Debt
Securities, Warrants, Preferred Stock, Depositary Shares and Common Stock,
which is a part of this Registration Statement of Merrill Lynch 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,
<PAGE>
1997 appearing in the Prospectus relating to STRYPES-SM-, in the Prospectus
relating to Trust Preferred Securities and in the Prospectuses relating to
other securities, each of which is a part of this Registration Statement of
Merrill Lynch 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
New York, New York
February 23, 1998
(December 10, 1998 as to Ratio of Earnings to Fixed Charges, paragraph 1 and
note a, and Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends, paragraph 1 and note a)
<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 ("Merrill Lynch") 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 (December 10, 1998 as
to Note 1, paragraphs 1 and 2). Such consolidated financial statements and our
report thereon are included in Merrill Lynch's Current Report on Form 8-K
dated December 10, 1998, which is incorporated herein by reference.
We have also previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheets of Merrill Lynch 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 Merrill Lynch's Current Report on Form 8-K dated December 10,
1998, is fairly stated, in all material respects, in relation to the
consolidated financial statements from which it has been derived.
/s/ Deloitte & Touche LLP
New York, New York
February 23, 1998
(December 10, 1998 as to Selected Financial Data, paragraph 1 and note a)
