PRICING SUPPLEMENT
- ------------------
(TO PROSPECTUS SUPPLEMENT AND PROSPECTUS DATED MAY 6, 1999)
$50,000,000
MERRILL LYNCH & CO., INC.
MEDIUM-TERM NOTES, SERIES B
1% CALLABLE AND EXCHANGEABLE STOCK-LINKED NOTES DUE JULY 20, 2006
LINKED TO THE PERFORMANCE OF THE COMMON STOCK OF AT&T CORP.
----------------------
THE NOTES:
o Issue price for each note equals $1,000, plus accrued interest, if any,
from July 20, 1999.
o We will pay you interest on the notes semi-annually at a rate per year
equal to 1%.
o We may redeem all of the notes, at our option, before their maturity for
an amount in U.S. dollars based on the formula described in this
prospectus supplement.
o You may exchange any number of notes you own, at your option, before
maturity. For each $1,000 principal amount of the notes you exchange, we
will deliver to you a number of shares of AT&T Corp. common stock, and in
certain circumstances other securities, equal to the exchange ratio.
o At maturity, for each $1,000 principal amount of the notes you own, we
will pay you an amount in U.S. dollars based on the formula described in
this pricing supplement.
o The notes have been approved for listing on the American Stock Exchange
under the trading symbol "ATM.A".
PAYMENT FORMULA:
o For each $1,000 principal amount of the notes you own, the amount you
will receive at maturity will equal the greater of:
o the product of the exchange ratio and the
average market price of the common stock of
AT&T Corp. determined as described in this
pricing supplement; provided, however, that
if the amount you receive at maturity is
based on this formula, you will not receive
accrued interest from and including January
20, 2006 through the maturity date; or
o $1,000 plus accrued and unpaid interest through but excluding the
maturity date.
o The exchange ratio initially equals 14.9783 and is subject to adjustment
from time to time as described in this pricing supplement.
INVESTING IN THE NOTES INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE PS-6 OF THIS RICING SUPPLEMENT.
Neither the SEC nor any state securities commission has approved
these securities or passed upon the adequacy or accuracy of this pricing
supplement or the accompanying prospectus supplement and prospectus. Any
representation to the contrary is a criminal offense.
----------------------
MERRILL LYNCH & CO.
----------------------
The date of this pricing supplement is July 13, 1999.
<PAGE>
TERMS OF THE NOTES:
Aggregate principal amount........... $50,000,000.
Issuer............................... Merrill Lynch & Co., Inc.
References to "ML&Co.", "we", "us"
and "our" are to Merrill Lynch &
Co., Inc.
Maturity date........................ July 20, 2006.
Interest rate ........................ 1% per year. Interest on the note
will be computed on the basis of a
360-day year of twelve 30-day
months.
Interest payment dates............... July 20 and January 20, commencing
January 20, 2000.
Specified currency................... U.S. dollars.
Issue price.......................... $1,000 per note.
Pricing date......................... July 13, 1999.
Original issue date.................. July 20, 1999.
CUSIP number......................... 590 188 JY5.
Form of notes........................ Book-entry only.
Denominations........................ We will issue and sell the notes in
denominations of $1,000 and integral
multiples of $1,000 only.
Trustee.............................. The Chase Manhattan Bank.
Amount payable at maturity........... At maturity, whether as a result of
acceleration or otherwise, you will
receive for each $1,000 principal
amount of the notes, an amount in
U.S. dollars equal to the greater
of:
o The product of the exchange
ratio and the average market
price of the AT&T Corp. ("AT&T")
common stock for the five
scheduled Trading Days ending on
and including the third
scheduled Trading Day
immediately prior to maturity;
provided, however, that if the
payment at maturity is based on
this formula, you will not
receive accrued interest from
and including January 20, 2006
through the maturity date; or
o $1,000 plus accrued and unpaid
interest through but excluding
the maturity date.
ML&Co.redemption...................... We may redeem all of the notes,
at any time, on any Business Day
after July 20, 2002, upon not
more than 30 nor fewer than 15
calendar days notice to you. Any
date on which we give you notice
that we are redeeming the notes
is referred to as a redemption
notice date. Unless you have
exchanged your notes prior to
July 20, 2002, you will receive
interest through and including
July 20, 2002 regardless of
whether we redeem all of the
notes after July 20, 2002. If we
redeem the notes, for each
$1,000 principal amount of the
notes you own, we will pay you
an amount in U.S. dollars equal
to the greater of:
o the product of the exchange
ratio and the average market
price of AT&T common stock for
the five Trading Days
immediately following the
applicable redemption notice
date; provided, however, that if
the amount you receive is based
on this formula, you will not
receive accrued interest from
and including the immediately
preceding interest payment date
through the date of redemption;
or
o $1,000 plus accrued and unpaid
interest on your notes through
but excluding the date of
redemption.
Once we have given notice that we
are going to redeem the notes, you
are precluded from exercising the
holder exchange right.
Holder exchange right.................. On any Trading Day during the
period beginning July 20, 1999 and
ending the earlier of (i) 15
scheduled Trading Days before the
maturity date or (ii) the
redemption notice date, upon
written notice to the calculation
agent and the trustee, you may
exchange your notes for a number of
shares of AT&T common stock equal
to the exchange ratio, subject to
certain adjustments as described
below in "Exchange Amount". Any
date on which you give us notice to
cause us to exchange your notes is
referred to as the exchange notice
date. If the calculation agent
receives your notice after 3:00
p.m. on any Trading Day, the
calculation agent will consider
your notice as received on the
following Trading Day.
If you choose to exercise your
holder exchange right, ML&Co. may
no longer redeem your notes as of
the applicable exchange notice
date.
Exchange Amount........................ For each $1,000 principal amount of
the notes you exchange, the
Exchange Amount will be a number of
shares of AT&T common stock equal
to the exchange ratio on the
Business Day following the day the
calculation agent receives written
notice of your intention to
exchange your notes; provided,
however, you will not receive
accrued interest from and including
the immediately preceding interest
payment date through the date of
exchange. We will deliver these
shares to you on the applicable
settlement date; provided, however,
that we will pay you cash in lieu
of delivering fractional shares, in
an amount as determined by the
calculation agent. In the event of
certain Market Disruption Events,
the delivery of these shares may be
delayed as described in the section
entitled "Market Disruption Event".
In the event of certain
reorganization events, the Exchange
Amount may be adjusted to include
certain cash and/or securities in
addition to, or in lieu of, the
AT&T common stock.
Exchange ratio........................ The exchange ratio is equal to the
product of 14.9783 and the share
multiplier.
Share multiplier...................... The share multiplier initially will
be set at 1.0, but will be subject
to adjustment upon the occurrence of
certain corporate events described
in the section entitled "Dilution
and Reorganization Adjustments".
Market price.......................... The market price for any date of
determination on any Trading Day
means the official closing price, in
the afternoon session, as
applicable, of one share of AT&T
common stock as reported by the
principal exchange on which AT&T
common stock is traded on that 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 AT&T common stock
for any date will be the arithmetic
mean, as determined by the
calculation agent, of the bid prices
for the security obtained from as
many dealers in the security, but
not exceeding three, as have made
the bid prices available to the
calculation agent after 3:00 p.m.,
local time in the principal market,
on that date.
Trading Day.......................... A day on which the New York
Stock Exchange, the AMEX and the
NASDAQ Stock Market are open for
trading, as determined by the
calculation agent.
Business Day......................... Any day other than a Saturday
or Sunday that is neither a
legal holiday nor a day on which
banking institutions are authorized
or required by law or regulation to
close in The City of New York.
Calculation agent.................... Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
References to "MLPF&S" are to
Merrill Lynch, Pierce, Fenner &
Smith Incorporated.
All determinations made by the
calculation agent shall be at the
sole discretion of the calculation
agent and, absent manifest error,
shall be conclusive for all purposes
and binding on ML&Co. 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 this
calculation will be rounded to the
nearest cent with one-half cent
being rounded upwards.
<PAGE>
RISK FACTORS
Your investment in the notes will involve certain risks, including
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 notes is suitable for you.
THE NOTES ARE SUBJECT TO REDEMPTION BEFORE THEIR MATURITY
We may elect to redeem all of the notes on any Business Day beginning
after July 20, 2002, upon not more than 30 nor fewer than 15 calendar days
notice to you. In the event that we elect to redeem the notes, you may receive
an amount that is less than the amount to which you would otherwise have been
entitled had you held the notes until maturity.
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. The terms of the notes differ from the terms
of ordinary debt securities because the amount payable at maturity in excess
of the principal amount is based substantially on the appreciation in price,
if any, of AT&T common stock on five Trading Days shortly before the stated
maturity date. Your yield may be less than the yield you would earn if you
bought a standard senior non-callable debt security of ML&Co. 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 ON THE NOTES WILL NOT REFLECT THE PAYMENT OF DIVIDENDS
The calculation of the market price of AT&T common stock and any
amounts payable or deliverable to you at maturity or upon any redemption or
exchange, as the case may be, does not take into consideration the value of
cash dividends, if any, paid on AT&T common stock, other than as described in
the section entitled "Dilution and Reorganization Adjustments". Your return
will not be the same as the return you could earn by owning AT&T common stock
directly and receiving the dividends, if any, paid on that stock.
THERE MAY BE AN UNCERTAIN TRADING MARKET FOR THE NOTES
The notes have been approved for listing on the AMEX under the symbol
"ATM.A", subject to official notice of issuance. There is no historical
information to indicate how the notes will trade in the secondary market.
Listing the notes on the AMEX does not necessarily ensure that a liquid
trading market will develop for the notes. The development of a liquid trading
market for the notes will depend on our financial performance and other
factors such as the appreciation, if any, in the price of AT&T common stock.
In addition, it is unlikely that the secondary market price of the notes will
correlate exactly with the value of AT&T common stock.
If the trading market for the notes is limited, there may be a
limited number of buyers when you decide to sell your notes if you do not wish
to hold your investment until the maturity date. This may affect the price you
receive.
MANY FACTORS AFFECT THE TRADING VALUE OF THE NOTES; THESE FACTORS INTERRELATE
IN COMPLEX WAYS AND THE EFFECT OF ANY ONE FACTOR MAY OFFSET OR MAGNIFY THE
EFFECT OF ANOTHER FACTOR
The trading value of the notes will be affected by factors that
interrelate in complex ways. It is important for you to understand that the
effect of one factor may offset the increase in the trading value of the notes
caused by another factor and that the effect of one factor may exacerbate the
decrease in the trading value of the notes caused by another factor. For
example, an increase in interest rates may offset some or all of any increase
in the trading value of the notes attributable to another factor, such as an
increase in the value of the AT&T common stock. The following paragraphs
describe the expected impact on the market value of the notes given a change
in a specific factor, assuming all other conditions remain constant.
THE VALUE OF AT&T COMMON STOCK IS EXPECTED TO AFFECT THE TRADING
VALUE OF THE NOTES. The market value of the notes will depend substantially on
the value of AT&T common stock. In general, the value of the notes will
decrease as the value of AT&T common stock decreases and the value of the
notes will increase as the value of AT&T common stock increases. However, as
the value of AT&T common stock increases or decreases, the value of the notes
is not expected to increase or decrease at the same rate as the change in
value of AT&T common stock. You should understand that for each $1,000
principal amount of the notes that you own, you will not receive more than
$1,000 on the maturity date unless the market price of AT&T common stock has
appreciated by more than approximately 17% from the original pricing date to
the period in which the calculation agent calculates the amount payable at
maturity on the notes. Additionally, political, economic and other
developments that can affect the capital markets generally and the market
segment of which AT&T is a part, and over which we have no control, may affect
the value of AT&T common stock and, consequently, may also affect the value of
the notes.
CHANGES IN THE LEVELS OF INTEREST RATES ARE EXPECTED TO AFFECT THE
TRADING VALUE OF THE NOTES. In general, we anticipate that if U.S. interest
rates increase, the trading value of the notes will decrease, and conversely,
if U.S. interest rates decrease, the trading value of the notes will increase.
In general, fluctuations in interest rates will affect the U.S. economy and,
in turn, the value of AT&T common stock. Rising interest rates may lower the
value of AT&T common stock and, as a result, the value of the notes. Falling
interest rates may increase the value of AT&T common stock and, as a result,
may increase the value of the notes.
CHANGES IN THE VOLATILITY OF AT&T COMMON STOCK ARE EXPECTED TO AFFECT
THE TRADING VALUE OF THE NOTES. Volatility is the term used to describe the
size and frequency of market price fluctuations. In general, if the volatility
of AT&T common stock increases, we expect that the trading value of the notes
will increase and if the volatility of AT&T common stock decreases, we expect
that the trading value of the notes will decrease.
AS THE TIME REMAINING TO MATURITY OF THE NOTES DECREASES, THE "TIME
PREMIUM" ASSOCIATED WITH THE NOTES WILL DECREASE. We believe that before the
maturity date the notes will trade at a value above that which would be
expected based on the value of AT&T common stock. In general, as the time
remaining to maturity decreases, including because of early redemption at our
option, the value of the notes will approach the amount that would be payable
at maturity or early redemption, as the case may be, based on the then-current
value of AT&T common stock. As a result, as the time remaining to maturity, or
early redemption, decreases, any premium attributed to the trading value of
the notes will diminish, decreasing the trading value of the notes, as
applicable.
CHANGES IN DIVIDEND YIELD ON THE AT&T COMMON STOCK ARE EXPECTED TO
AFFECT THE TRADING VALUE OF THE NOTES. In general, if the dividend yield, if
any, on AT&T common stock increases, we expect that the value of the notes
will decrease, and conversely, if the dividend yield, if any, on AT&T common
stock decreases, we expect that the value of the notes will increase.
CHANGES IN OUR CREDIT RATINGS MAY AFFECT THE TRADING VALUE OF THE
NOTES. Our credit ratings are an assessment of our ability to pay our
obligations. Consequently, real or anticipated changes in our credit ratings
may affect the trading value of the notes. However, because your return on
your notes is dependent upon factors in addition to our ability to pay our
obligations under the notes, such as the percentage increase in the value of
the AT&T common stock, an improvement in our credit ratings will not reduce
the investment risks related to the notes.
In general, assuming all relevant factors are held constant, we
expect that the effect on the trading value of the notes of a given change in
most of the factors listed above will be less if it occurs later in the term
of the notes than if it occurs earlier in the term of the notes.
THE AMOUNT PAYABLE AT MATURITY IS NOT SUBJECT TO ADJUSTMENT FOR ALL
CORPORATE EVENTS
The amount that you are entitled to receive on the maturity date or
upon earlier redemption or exchange of the notes is subject to adjustment for
the specified corporate events affecting AT&T and AT&T common stock described
in the section entitled "Dilution and Reorganization Adjustments". However,
these adjustments do not cover all corporate events that could affect the
market price of AT&T common stock. The occurrence of any other event not
described under "Dilution and Reorganization Adjustments" may adversely affect
the determination of the market price and the trading value of the notes.
NO AFFILIATION BETWEEN ML&CO. AND AT&T
We are not affiliated with AT&T, and AT&T has no obligations with
respect to the notes or amounts to be paid to you, including any obligation to
take the needs of ML&Co. or of beneficial owners of the notes into
consideration for any reason. AT&T will not receive any of the proceeds of the
offering of the notes made hereby and is not responsible for, and has not
participated in, the determination or calculation of the amount receivable by
beneficial owners of the notes on the maturity date. In addition, AT&T is not
involved with the administration or trading of the notes and has no
obligations with respect to the amount receivable by beneficial owners of the
notes.
AS A HOLDER OF THE NOTES, YOU HAVE NO STOCKHOLDER RIGHTS WITH RESPECT
TO AT&T COMMON STOCK
Unless and until you receive shares upon exercising your exchange
right, you will not be entitled to any rights with respect to AT&T common
stock including, without limitation, the right to receive dividends or other
distributions, if any, on, to vote or to tender or exchange AT&T common stock
in any tender or exchange offer by AT&T or any third party.
PURCHASES AND SALES OF AT&T COMMON STOCK BY US AND OUR AFFILIATES MAY
AFFECT YOUR RETURN
We have entered into hedging arrangements related to AT&T common
stock with one of our affiliates in connection with our obligations under the
notes. In connection with these obligations, our affiliate may purchase shares
of AT&T common stock in the secondary market on or before the pricing date and
may purchase and sell shares of AT&T common stock in the secondary market
during the term of the notes. We or any of our affiliates, including MLPF&S,
may from time to time buy or sell AT&T common stock for our own accounts for
business reasons or in connection with hedging our obligations under the
notes. These transactions could affect the price of AT&T common stock,
including during the period when the amount payable at maturity is determined,
in a manner that would be adverse to your investment in the notes.
AMOUNTS PAYABLE ON THE NOTES MAY BE LIMITED BY STATE LAW
New York State law governs the 1993 Indenture under which ML&Co. will
issue the notes. 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.
POTENTIAL CONFLICTS
The calculation agent for the notes is one of our subsidiaries. Under
certain circumstances, MLPF&S' role as our subsidiary and its responsibilities
as calculation agent for the notes could give rise to conflicts of interests
between the calculation agent and the holders of the notes. These conflicts
could occur, for instance, in connection with the calculation agent's
determination as to whether a Market Disruption Event (as defined below) has
occurred or in connection with judgments that the calculation agent would be
required to make with respect to certain anti-dilution and reorganization
adjustments to the market price of the AT&T common stock. 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
MLPF&S, 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 amounts due
under the notes. Our subsidiary expects to make a profit in connection with
this arrangement. We did not seek competitive bids for this arrangement from
unaffiliated parties.
UNCERTAIN TAX CONSEQUENCES
You should also consider the tax consequences of investing in the
notes, certain aspects of which are uncertain. See "United States Federal
Income Taxation" below.
WHERE YOU CAN FIND MORE INFORMATION
ML&CO.
We file reports, proxy statements and other information with the 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 will send you copies of our SEC filings, excluding exhibits, at no
cost upon request. Please address your request to Lawrence M. Egan, Jr.,
Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100 Church Street,
12th Floor, New York, New York 10080-6512; telephone number (212) 602-8439.
AT&T CORP.
AT&T also files reports, proxy statements and other information with
the SEC. Information provided to or filed with the SEC by AT&T pursuant to the
Exchange Act can be located at the SEC's facilities or accessed through the
SEC's website by reference to SEC file number 1-01105. You may also inspect
AT&T's SEC reports and other information at the NYSE. In addition, information
regarding AT&T may be obtained from other sources including, but not limited
to, press releases, newspaper articles and other publicly disseminated
documents. We make no representation or warranty as to the accuracy or
completeness of the information or reports.
DILUTION AND REORGANIZATION ADJUSTMENTS
The share multiplier used to calculate the exchange ratio on any date
of determination is subject to adjustment by the calculation agent as a result
of the dilution and reorganization adjustments described in this section.
STOCK SPLITS AND REVERSE STOCK SPLITS
If AT&T common stock is subject to a stock split or reverse stock
split, then once any split has become effective, the share multiplier will be
adjusted to equal the product of the prior share multiplier and the number of
shares which a holder of one share of AT&T common stock before the effective
date of that stock split or reverse stock split would have owned or been
entitled to receive immediately following the applicable effective date.
STOCK DIVIDENDS
If AT&T common stock is subject to a stock dividend, i.e., issuance
of additional shares of AT&T common stock, that is given ratably to all
holders of shares of AT&T common stock, then once the shares are trading
ex-dividend, the share multiplier will be adjusted so that the new share
multiplier shall equal the prior share multiplier plus the product of:
o the number of shares of AT&T common stock issued with respect
to one share of AT&T common stock, and
o the prior share multiplier.
EXTRAORDINARY DIVIDENDS
There will be no adjustments to the share multiplier to reflect cash
dividends or distributions paid, if any, with respect to AT&T common stock
other than distributions described under clause (e) of the section entitled
"--Reorganization Events" below and Extraordinary Dividends as described
below.
An "Extraordinary Dividend" means, with respect to a cash dividend or
other distribution with respect to AT&T common stock, the extent to which a
dividend or other distribution exceeds the immediately preceding
non-Extraordinary Dividend for AT&T common stock by an amount equal to at
least 10% of the market price of AT&T common stock on the Trading Day
preceding the ex-dividend date with respect to the Extraordinary Dividend (the
"ex-dividend date"). If an Extraordinary Dividend occurs with respect to AT&T
common stock, the share multiplier will be adjusted on the ex-dividend date
with respect to the Extraordinary Dividend so that the new share multiplier
will equal the product of:
o the then-current share multiplier, multiplied by
o a fraction, the numerator of which is the closing price per
share of AT&T common stock 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 the AT&T common stock will equal:
o in the case of cash dividends or other distributions that
constitute quarterly dividends, the amount per share of that
Extraordinary Dividend minus the amount per share of the
immediately preceding non-Extraordinary Dividend, or
o in the case of cash dividends or other distributions that do
not constitute quarterly dividends, the amount per share of
that 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 AT&T common stock
described in clause (e) of the section entitled "--Reorganization Events"
below that also constitutes an Extraordinary Dividend shall cause an
adjustment to the share multiplier pursuant only to clause (e) under the
section entitled "--Reorganization Events".
ISSUANCE OF TRANSFERABLE RIGHTS OR WARRANTS
If AT&T issues transferable rights or warrants to all holders of AT&T
common stock to subscribe for or purchase AT&T common stock, including new or
existing rights to purchase AT&T common stock pursuant to a shareholder's
rights plan or arrangement, once a triggering event shall have occurred
thereunder, at an exercise price per share less than the closing price of one
share of AT&T common stock on:
o the date the exercise price of those rights or warrants is
determined and
o the expiration date of those rights or warrants,
then, in each case, if the expiration date of those rights or warrants
precedes the maturity date, then the share multiplier will be adjusted to
equal the product of the prior share multiplier and a fraction, the numerator
of which shall be the number of shares of AT&T common stock outstanding
immediately prior to the issuance plus the number of additional shares of AT&T
common stock offered for subscription or purchase pursuant to those rights or
warrants and the denominator of which shall be the number of shares of AT&T
common stock outstanding immediately prior to the issuance plus the number of
additional shares of AT&T common stock which the aggregate offering price of
the total number of shares of AT&T common stock so offered for subscription or
purchase pursuant to those rights or warrants would purchase at the closing
price of one share of AT&T common stock on the expiration date of those rights
or warrants, which shall be determined by multiplying the total number of
shares offered by the exercise price of those rights or warrants and dividing
the product so obtained by the closing price.
REORGANIZATION EVENTS
If before the maturity date of the notes,
(a) there occurs any reclassification or change of AT&T common
stock,
(b) AT&T, or any surviving entity or subsequent surviving entity of
AT&T (a "Successor Entity"), has been subject to a merger,
combination or consolidation and is not the surviving entity,
(c) any statutory exchange of securities of AT&T or any Successor
Entity with another corporation occurs, other than pursuant to
clause (b) above,
(d) AT&T is liquidated,
(e) AT&T issues to all of its shareholders equity securities of an
issuer other than AT&T, other than in a transaction described
in clauses (b), (c) or (d) above (a "Spin-off Event"), or
(f) a tender or exchange offer is consummated for all the
outstanding shares of AT&T (an event in clauses (a) through (f)
a "Reorganization Event"),
the Market Price shall be equal to the Reorganization Event Value.
The "Reorganization Event Value" shall be determined by the
calculation agent and shall equal:
o the Transaction Value related to the relevant Reorganization
Event, plus
o in the event described in clause (1) below only, interest on
the Transaction Value accruing from the date of the payment or
delivery of the consideration, if any, received in connection
with the Reorganization Event until the stated maturity date,
date of early redemption or upon exchange, as the case may be,
at a fixed interest rate determined on the date of the payment
or delivery equal to the interest rate that would be paid on a
standard senior non-callable debt security of ML&Co. with a
term equal to the remaining term of the notes.
"Transaction Value" means the sum of the following:
(1) for any cash received in a Reorganization Event, an
amount equal to the amount of cash received per share of
AT&T common stock multiplied by the share multiplier in
effect on the date all of the holders of shares of AT&T
common stock have agreed or have become irrevocably
obligated to exchange those shares,
(2) for any property other than cash or securities received
in a Reorganization Event, the market value, as
determined by the calculation agent, of the property
received for each share of AT&T common stock at the date
of the receipt of the property multiplied by the then
current share multiplier,
(3) for any security received in a Reorganization Event, an
amount equal to (a) the average market price per share of
that security for the five scheduled Trading Days ending
on and including the third scheduled Trading Day
immediately prior to the maturity date or date of early
redemption, as the case may be, multiplied by (b) the
quantity of that security received for each share of AT&T
common stock multiplied by the then current share
multiplier, and
(4) for any security received in the case of a Spin-off
Event, in addition to the shares of AT&T common stock, an
amount equal to (a) the average market price per share of
that security for the five scheduled Trading Days ending
on and including the third scheduled Trading Day
immediately prior to the maturity date, or date of early
redemption, as the case may be, multiplied by (b) the
quantity of that security received for each share of AT&T
common stock multiplied by the then current share
multiplier. The share multiplier with respect to these
securities shall equal the product of the share
multiplier in effect for the AT&T common stock at the
time of the issuance of these securities multiplied by
the number of shares of these securities issued with
respect to one share of AT&T common stock. The share
multiplier of these securities will be subject to the
same adjustments as that of the share multiplier of the
AT&T common stock.
"Exchange Property" means the securities, cash or any other assets
distributed in a Reorganization Event, including, in the case of a Spin-off
Event, the share of AT&T common stock with respect to which the spun-off
security was issued.
For purposes of this section, 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 for the Exchange Property, in
an amount determined on the basis of the rate of exchange in that 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.
Notwithstanding anything to the contrary in the document, if you
elect to exchange your notes, the Exchange Amount will be adjusted in the
following manner:
o In the case of a Spin-off Event, the Exchange Amount shall be
calculated so as to include any securities received in the
Spin-off Event in addition to the shares of AT&T common stock
already included in the Exchange Amount. The share multiplier
for these securities shall equal the product of the share
multiplier in effect for the AT&T common stock at the time of
the issuance of the securities multiplied by the number of
shares of the securities issued with respect to one share of
AT&T common stock. The share multiplier of these securities
will be subject to the same adjustments as that of the share
multiplier of the AT&T common stock.
o If AT&T, or any Successor Entity, has been subject to a merger,
combination or consolidation and is not the surviving entity,
or a tender or exchange offer is consummated for all the
outstanding shares of AT&T, then the Exchange Amount shall be
calculated to include securities, if any, received in that
event instead of the AT&T common stock. The share multiplier
for these securities shall equal the product of the share
multiplier in effect for the AT&T common stock at the time of
the issuance of the securities multiplied by the number of
shares of the securities issued with respect to one share of
AT&T common stock. The share multiplier of these securities
will be subject to the same adjustments as that of the share
multiplier of the AT&T common stock.
ADJUSTMENTS TO THE SHARE MULTIPLIER
No adjustments to the share multiplier will be required unless the
share multiplier adjustment would require a change of at least 0.1% in the
share multiplier then in effect. The share multiplier resulting from any of
the adjustments specified above will be rounded to the nearest one thousandth
with five ten-thousandths being rounded upward.
No adjustments to the share multiplier will be required other than
those specified above. However, ML&Co. may, at its sole discretion, cause the
calculation agent to make additional adjustments to the share multiplier to
reflect changes occurring in relation to AT&T common stock or any other
Exchange Property in other circumstances where ML&Co. determines that it is
appropriate to reflect those changes. The required adjustments specified above
do not cover all events that could affect the closing price of AT&T common
stock, including, without limitation, a partial tender or exchange offer for
AT&T common stock.
MLPF&S, as calculation agent, shall be solely responsible for the
determination and calculation of any adjustments to the share 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 connection with any corporate event described above, and
its determinations and calculations shall be conclusive absent manifest error.
No adjustments will be made for certain other events, such as
offerings of AT&T common stock by AT&T for cash or in connection with
acquisitions or the occurrence of a partial tender or exchange offer for AT&T
common stock by AT&T or any third party.
ML&Co. will, within ten Business Days following the occurrence of an
event that requires an adjustment to the share multiplier, or if ML&Co. is not
aware of this occurrence, as soon as practicable after becoming so aware,
provide written notice to the Trustee, which shall provide notice to the
holders of the notes of the occurrence of this event and, if applicable, a
statement in reasonable detail setting forth the adjusted share multiplier.
MARKET DISRUPTION EVENT
"Market Disruption Event" means:
(1) a suspension, absence, including the absence of an
official closing price, or material limitation of trading of AT&T
common 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, as
determined by the calculation agent in its sole discretion; or the
suspension or material limitation on the primary market for trading
in options contracts related to AT&T common stock, if available,
during the one-half hour period preceding or at the close of trading
in the applicable market, in each case as determined by the
calculation agent in its sole discretion; and
(2) a determination by the calculation agent in its sole
discretion that the event described in clause (1) above materially
interfered with the ability of ML&Co. or any of its affiliates to
unwind all or a material portion of the hedge with respect to the
notes or to purchase AT&T common stock for the purpose of delivering
the Exchange Amount.
For purposes of determining whether a Market Disruption Event has
occurred:
(1) a limitation on the hours or number of days of trading
will not constitute a Market Disruption Event if it results from an
announced change in the regular business hours of the relevant
exchange,
(2) a decision to permanently discontinue trading in the
relevant options contract will not constitute a Market Disruption
Event,
(3) 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 AT&T common stock,
(4) a suspension of trading in an options contract on AT&T
common stock by the primary securities market trading in the options,
if available, by reason of:
o a price change exceeding limits set by the securities
exchange or market
o an imbalance of orders relating to the contracts or
o a disparity in bid and ask quotes relating to the
contracts will constitute a suspension or material
limitation of trading in options contracts related to
AT&T common stock; and
(5) a suspension, absence or material limitation of trading
on the primary securities market on which options contracts related
to AT&T common stock are traded will not include any time when that
securities market is itself closed for trading under ordinary
circumstances.
If the Transaction Value includes securities other than AT&T common
stock, then the above definition shall be revised to include each such
security in the same manner as AT&T common stock is considered in determining
whether a Market Disruption Event exists. The definition of Market Disruption
Event shall only consider those securities included in determining the
Transaction Value, and thus if AT&T common stock is not included in the
determination of the Transaction Value, then the AT&T common stock shall not
be considered in determining whether a Market Disruption Event exists.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any notes has occurred
and is 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 principal amount of the note plus accrued but
unpaid interest to but excluding the date of early repayment, if applicable,
calculated as though the date of early repayment were the stated maturity date
of the notes. If a bankruptcy proceeding is commenced in respect of ML&Co.,
the claim of the beneficial owner of a note may be limited, under Section
502(b)(2) of Title 11 of the United States Code, to the principal amount of
the note plus an additional amount of contingent interest calculated as though
the date of the commencement of the proceeding were the maturity date of the
notes.
THE AT&T COMMON STOCK
The following information has been derived from publicly available
documents published by AT&T. We make no representation or warranty as to the
accuracy or completeness of the following information: AT&T is among the
world's communications leaders, providing voice, data and video
communications services to large and small businesses, consumers and
government entities. AT&T and its subsidiaries furnish domestic long
distance, international long distance, regional, local and wireless
telecommunications services, cable television and Internet communications
transmission services. AT&T also provides billing, directory, and calling
card services to support its communications business.
Information provided to or filed with the SEC by AT&T can be located
at the SEC's facilities or through the SEC's website by reference to SEC file
number 1-01105 for AT&T. See "Where You Can Find More Information". ML&Co.
makes no representation or warranty as to the accuracy or completeness of the
information or reports.
The selection of AT&T common stock is not a recommendation to buy or
sell AT&T common stock and neither ML&Co. nor any of its affiliates make any
representation to any purchaser of notes as to the performance of the AT&T
common stock.
ML&Co. is not affiliated with AT&T and AT&T does not have any
obligations with respect to the notes. This pricing supplement relates only to
the notes and does not relate to AT&T common stock or other securities of
AT&T. All disclosures contained in this pricing supplement regarding AT&T are
derived from the publicly available documents described in the preceding
paragraph. Neither ML&Co. nor MLPF&S has participated in the preparation of
these documents or made any due diligence inquiry with respect to AT&T in
connection with the offering of the notes. Neither ML&Co. nor MLPF&S makes any
representation that the publicly available documents or any other publicly
available information regarding AT&T 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 AT&T common stock have been publicly disclosed.
Subsequent disclosure of any events or the disclosure of or failure to
disclose material future events concerning AT&T could affect the amount
received at maturity with respect to the notes and therefore the trading
prices of the notes. Neither ML&Co. nor any of its affiliates make any
representation to any purchaser of the notes as to the performance of the AT&T
common stock.
ML&Co. or its affiliates may presently or from time to time engage in
business, directly or indirectly, with AT&T including extending loans to, or
making equity investments in, AT&T or providing investment banking or advisory
services to AT&T, including merger and acquisition advisory services. In the
course of such business, ML&Co. or its affiliates may acquire non-public
information with respect to AT&T and, in addition, one or more affiliates of
ML&Co. may publish research reports with respect to AT&T.
Any prospective purchaser of a note should undertake an independent
investigation of AT&T as in its judgment is appropriate to make an informed
decision with respect to an investment in the notes.
HISTORICAL DATA
AT&T common stock is principally traded on the NYSE. The following
table sets forth the high and low closing prices during 1996, 1997, 1998 and
during 1999 through July 12, 1999. On July 13, 1999, the last recorded
transaction price on the NYSE of AT&T common stock was $57.0625 per share. The
closing prices and dividends per share listed below were obtained from
Bloomberg Financial Markets. The historical closing prices of AT&T common
stock should not be taken as an indication of future performance, and no
assurance can be given that the price of AT&T common stock will not decrease.
Nor can assurance be given that the price of AT&T common stock will increase
above the issue price so that at maturity the beneficial owners of the notes
will receive cash in an amount in excess of the principal amount of the notes.
<TABLE>
<CAPTION>
DIVIDENDS PER
HIGH LOW SHARE(1)
------------- ----------- --------------
<S> <C> <C> <C> <C>
AT&T Corp.
1996
First Quarter....... $31.63 $27.72 $.22
Second Quarter...... $29.08 $26.81 $.22
Third Quarter....... $28.13 $22.80 $.22
Fourth Quarter...... $27.87 $21.33 $.22
1997
First Quarter....... $27.92 $22.92 $.22
Second Quarter...... $25.50 $20.50 $.22
Third Quarter....... $30.63 $22.83 $.22
Fourth Quarter...... $42.63 $28.80 $.22
1998
First Quarter....... $45.33 $38.92 $.22
Second Quarter...... $44.75 $37.64 $.22
Third Quarter....... $40.42 $33.42 $.22
Fourth Quarter...... $52.67 $38.00 $.22
1999
First Quarter....... $63.33 $51.75 $.22
Second Quarter...... $61.94 $50.50 $.22
Third Quarter
(through July 13, 1999) $58.50 $56.56 $.22
</TABLE>
- --------------
(1) ML&Co. makes no representation as to the amount of dividends, if any,
that AT&T will pay in the future. Holders of the notes will not be
entitled to receive dividends, if any, that may be payable on AT&T
common stock.
USE OF PROCEEDS AND HEDGING
The net proceeds to be received by ML&Co. from the sale of the notes
will be used for general corporate purposes and, in part, by ML&Co. or one or
more of its affiliates in connection with hedging ML&Co.'s obligations under
the notes. See also "Use of Proceeds" in the accompanying prospectus.
In connection with ML&Co.'s obligations under the notes, ML&Co. has
entered into hedging arrangements related to AT&T common stock with an
affiliate of ML&Co. The affiliate has purchased shares of AT&T common stock in
secondary market transactions at or before the time of the pricing of the
notes. ML&Co., MLPF&S and other affiliates of ML&Co. may from time to time buy
or sell AT&T common stock for their own accounts, for business reasons or in
connection with hedging ML&Co.'s obligations under the notes. These
transactions could affect the price of AT&T common stock.
UNITED STATES FEDERAL INCOME TAXATION
GENERAL
There are no statutory provisions, regulations, published rulings or
judicial decisions addressing or involving the characterization, for United
States federal income tax purposes, of the notes or securities with terms
substantially the same as the notes. However, although the matter is not free
from doubt, under current law, each note should be treated as a debt
instrument of ML&Co. for United States federal income tax purposes. ML&Co.
currently intends to treat each note as a debt instrument of ML&Co. for United
States federal income tax purposes and, where required, intends to file
information returns with the Internal Revenue Service ("IRS") in accordance
with such treatment, in the absence of any change or clarification in the law,
by regulation or otherwise, requiring a different characterization of the
notes. Prospective investors in the notes should be aware, however, that the
IRS is not bound by ML&Co.'s characterization of the notes as indebtedness,
and the IRS could possibly take a different position as to the proper
characterization of the notes for United States federal income tax purposes.
The following discussion of the principal United States federal income tax
consequences of the purchase, ownership and disposition of the notes is based
upon the assumption that each note will be treated as a debt instrument of
ML&Co. for United States federal income tax purposes. If the notes are not in
fact treated as debt instruments of ML&Co. for United States federal income
tax purposes, then the United States federal income tax treatment of the
purchase, ownership and disposition of the notes could differ from the
treatment discussed below with the result that the timing and character of
income, gain or loss recognized in respect of a note could differ from the
timing and character of income, gain or loss recognized in respect of a note
had the notes in fact been treated as debt instruments of ML&Co. for United
States federal income tax purposes.
U.S. HOLDERS
On June 11, 1996, the Treasury Department issued final regulations
(the "Final Regulations") concerning the proper United States federal income
tax treatment of contingent payment debt instruments such as the notes, which
apply to debt instruments issued on or after August 13, 1996 and, accordingly,
will apply to the notes. In general, the Final Regulations 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 prior United States federal income tax law. Specifically, the
Final 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 Final Regulations, any gain recognized by a U.S. holder on
the sale, exchange, or retirement of a contingent payment debt instrument is
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 Final Regulations provide no definitive guidance as to
whether or not an instrument is properly characterized as a debt instrument
for United States federal income tax purposes.
In particular, solely for purposes of applying the Final Regulations
to the notes, ML&Co. has determined that the projected payment schedule for
the notes will consist of the stated interest payments on the note (other than
the final stated interest payment) and a payment at maturity equal to
$1,501.58 per $1,000 of principal amount of the notes ("Projected Redemption
Amount"). This represents an estimated yield on the notes equal to 6.68% per
annum, compounded semiannually. Accordingly, during the term of the notes, a
U.S. holder of a note will be required to include in income the sum of the
daily portions of interest on the note that are deemed to accrue at this
estimated yield for each day during the taxable year, or portion of the
taxable year, on which the U.S. holder holds such note. The amount of interest
that will be deemed to accrue in any accrual period, i.e., generally each
six-month period during which the notes are outstanding, will equal the
product of this estimated yield, properly adjusted for the length of the
accrual period, and the note's adjusted issue price at the beginning of the
accrual period. The daily portions of interest will be determined by
allocating to each day in the accrual period the ratable portion of the
interest that is deemed to accrue during the accrual period. In general, for
these purposes a note's adjusted issue price will equal the note's issue
price, increased by the interest previously accrued on the note and reduced by
interest payments received on the notes. As a result of the foregoing rules, a
U.S. holder will not be required to include in income the stated interest
payments received on its notes. Upon maturity of a note on July 20, 2006, in
the event that the amount payable upon maturity (the "Actual Redemption
Amount") exceeds $1,501.58 on every $1,000 note, a U.S. holder will be
required to include the excess of the Actual Redemption Amount over $1,501.58
per $1,000 (i.e., the Projected Redemption Amount) in income as ordinary
interest on the maturity date. Alternatively, in the event that the Actual
Redemption Amount is less than $1,501.58 per $1,000 of principal amount of
notes (i.e., the Projected Redemption Amount), the excess of the Projected
Redemption Amount over the Actual Redemption Amount will be treated first as
an offset to any interest otherwise includible in income by the U.S. holder
with respect to the note for the taxable year in which the maturity date
occurs to the extent of the amount of such includible interest. A U.S. holder
will be permitted to recognize and deduct, as an ordinary loss that is not
subject to the limitations applicable to miscellaneous itemized deductions,
any remaining portion of the excess of the Projected Redemption Amount over
the Actual Redemption Amount that is not treated as an interest offset
pursuant to the foregoing rules. U.S. holders purchasing a note at a price
that differs from the adjusted issue price of the note as of the purchase date
(e.g., subsequent purchasers) will be subject to special rules providing for
certain adjustments to the foregoing rules, and such U.S. holders should
consult their own tax advisors concerning these rules.
Upon the sale, redemption or exchange of a note prior to the maturity
of the note, a U.S. holder will be required to recognized taxable gain or loss
in an amount equal to the difference, if any, between the amount realized by
the U.S. holder upon such sale, redemption or exchange and the 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 interest previously included in income with respect to the
note by the U.S. holder and reduced by interest payments received on the note.
Any such taxable gain will be treated as ordinary income. Any such taxable
loss will be treated as ordinary loss to the extent of the U.S. holder's total
interest inclusions on the note. Any remaining loss generally will be treated
as long-term or short-term capital loss, depending upon the U.S. holder's
holding period for the note. All amounts includible in income by a U.S. holder
as ordinary interest pursuant to the Final Regulations will be treated as
original issue discount.
Prospective investors in the notes should consult their own tax
advisors concerning the application of the Final Regulations to their
investment in the notes. Investors in the notes may also obtain the projected
payment schedule, as determined by ML&Co. for purposes of the application of
the Final Regulations to the notes, 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.
The projected payment schedule, including both the Projected
Redemption Amount and the estimated yield on the notes, has been determined
solely for United States federal income tax purposes, i.e., for purposes of
applying the Final Regulations to the notes, and is neither a prediction nor a
guarantee of what the Actual Redemption Amount will be.
The following table sets forth the amount of interest that will be
deemed to have accrued with respect to each $1,000 principal amount of the
notes during each accrual period over the term of the notes based upon the
projected payment schedule for the notes, including both the Projected
Redemption Amount and the estimated yield equal to 6.68% per annum (compounded
semiannually), as determined by ML&Co. for purposes of applying the Final
Regulations to the notes:
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INTEREST
DEEMED TO
HAVE ACCRUED
ON THE NOTES
INTEREST DEEMED AS OF THE END
TO ACCRUE DURING OF ACCRUAL
ACCRUAL PERIOD PERIOD
ACCRUAL PERIOD (PER $1,000) (PER $1,000)
- -------------------------------- ----------------- ---------------
July 20, 1999 through January 20, 2000... $33.40 $33.40
January 21, 2000 through July 20, 2000... $34.35 $67.75
July 21, 2000 through January 20, 2001... $35.33 $103.08
January 21, 2001 through July 20, 2001... $36.34 $139.42
July 21, 2001 through January 20, 2002... $37.39 $176.81
January 21, 2002 through July 20, 2002... $38.47 $215.28
July 21, 2002 through January 20, 2003... $39.59 $254.87
January 21, 2003 through July 20, 2003... $40.74 $295.61
July 21, 2003 through January 20, 2004... $41.94 $337.55
January 21, 2004 through July 20, 2004... $43.17 $380.72
July 21, 2004 through January 20, 2005... $44.45 $425.17
January 21, 2005 through July 20, 2005... $45.76 $470.93
July 21, 2005 through January 20, 2006... $47.12 $518.05
January 21, 2006 through July 20, 2006... $48.53 $566.58
</TABLE>
- ---------------
Projected Redemption Amount = $1,501.58 per $1,000 principal amount of notes.
