Subject to Completion
Preliminary Pricing Supplement dated July 19, 2000
PRICING SUPPLEMENT
------------------
(To prospectus supplement and prospectus
dated June 16, 2000 and June 15, 2000, respectively)
$20,000,000
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series B
% Stock-Linked Notes due July , 2002
(Linked to the performance of the common stock of
The Procter & Gamble Company)
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The notes: Payment formula:
o The issue price for each note o For each $1,000 principal
equals its principal amount, amount of the notes you own,
plus accrued interest, if any, the amount you will receive at
from July , 2000. maturity will equal the lesser
of:
o We will pay you interest on the
principal amount of the notes o the Capped Value equal to $
semi-annually at a rate per per $1,000 principal amount,
year equal to %. or
o At maturity, for each $1,000 o the product of the exchange
principal amount of the notes ratio and the average market
you own, we will pay you an price of the common stock of
amount in US dollars based on The Procter & Gamble Company
the formula described in this determined as described in
pricing supplement. this pricing supplement.
o The amount you receive at o At maturity, if the price of
maturity will not exceed the The Procter & Gamble Company
Capped Value of $ for each common stock has decreased
$1,000 principal amount. since the date of this pricing
supplement you will receive
o We will not redeem the notes less than the principal amount
prior to the maturity date. of your notes.
o The notes have been approved o The exchange ratio initially
for listing on the American equals and is subject to
Stock Exchange under the adjustment from time to time as
trading symbol " ". described in this pricing
supplement.
Investing in the notes involves risk.
See "Risk Factors" beginning on page PS-5 of this pricing supplement.
Neither the Securities and Exchange Commission 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 , 2000.
Terms of the notes:
Notes .............................. % Stock-Linked Notes due July , 2002
(Linked to the performance of the
common stock of The Procter & Gamble
Company ("Procter & Gamble")),
Medium-Term Notes, Series B.
Aggregate principal amount ......... $20,000,000.
Issuer ............................. Merrill Lynch & Co., Inc.
References to "ML&Co.", "we", "us" and
"our" are to Merrill Lynch & Co., Inc.
Maturity date ...................... July , 2002.
Interest rate ...................... % 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 ............. January and July , commencing
January , 2001.
Issue price ........................ $1,000 per note.
Original issue date ................ July , 2000.
CUSIP number ....................... 59018Y .
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 in excess thereof.
Trustee ............................ The Chase Manhattan Bank.
Amount payable at maturity.......... At maturity, in addition to accrued and
unpaid interest, you will receive for
each $1,000 principal amount of the
notes you own, an amount equal to the
lesser of:
o the Capped Value equal to $ per
$1,000 principal amount, or
o the product of the exchange ratio
and the average (arithmetic mean)
market price of the common stock of
Procter & Gamble for the first five
Calculation Days during the
Calculation Period. If there are
fewer than five Calculation Days in
the Calculation Period with respect
to the Procter & Gamble common
stock, then the amount payable at
maturity shall be calculated using
the average, arithmetic mean, of
the market prices of Procter &
Gamble common stock on those
Calculation Days, and if there is
only one Calculation Day, then the
amount payable at maturity shall be
calculated using the market price
of Procter & Gamble common stock on
such Calculation Day. If no
Calculation Days occur during the
Calculation Period with respect to
Procter & Gamble common stock, then
the amount payable at maturity
shall be calculated using the
market price of Procter & Gamble
common stock determined on the last
scheduled Calculation Day in the
Calculation Period, regardless of
the occurrence of a Market
Disruption Event on that day.
"Calculation Period" means the period
from and including the seventh
scheduled Calculation Day prior to the
maturity date to and including the
third scheduled Calculation Day prior
to the maturity date.
"Calculation Day" means, with respect
to Procter & Gamble common stock, any
Trading Day during the Calculation
Period on which a Market Disruption
Event has not occurred.
Exchange ratio...................... The exchange ratio is equal to the
product of 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 of one share of
Procter & Gamble common stock as
reported by the principal exchange in
the United States on which the Procter
& Gamble common stock is traded on
that date as determined by the
calculation agent.
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 Procter & Gamble 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 NYSE, 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.
RISK FACTORS
Your investment in the notes will involve certain risks, including risks
not necessarily 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.
Your investment may result in a loss
The notes may not repay their principal amount. Because the price of
Procter & Gamble common stock is subject to market fluctuations, the amount of
cash you receive at maturity may be more or less than the principal amount of
your notes.
Your yield may be lower than the yield on a standard debt security of
comparable maturity
The amount we pay you at maturity and the interest to be paid on the
notes 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, if any, is
based substantially on the appreciation in price, if any, of the Procter &
Gamble common stock on the five scheduled Trading Days shortly prior to the
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 is capped and will not reflect the return of owning Procter &
Gamble common stock
You should understand that the opportunity to participate in the possible
increases in the price of Procter & Gamble common stock through an investment
in the notes is limited because the amount that you receive on the maturity
date will never exceed the Capped Value, which represents an appreciation of
% over the initial issue price of the notes. However, in the event
that the value of the Procter & Gamble common stock declines over the term of
the notes, you will realize the entire decline in value of the notes, and may
lose all or a part of your initial investment. 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 notes. Accordingly, the value of the notes may
decline and that decline could be substantial.
In addition, your return on the notes will not reflect the return you
would realize if you actually owned Procter & Gamble common stock and received
the dividends, if any, paid on Procter & Gamble common stock because the
amount payable at maturity is calculated by reference to the prices of Procter
& Gamble common stock without taking into consideration the value of any
normal dividends paid on Procter & Gamble common stock.
Your return on the notes will not reflect the payment of dividends
The calculation of the market price of the Procter & Gamble common stock
and any amount payable to you at maturity does not take into consideration the
value of cash dividends, if any, paid on the Procter & Gamble 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 Procter & Gamble common stock directly and receiving the dividends, if
any, paid on such shares of common stock.
There may be an uncertain trading market for the notes
The notes have been approved for listing on the AMEX under the symbol
" ", 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 the Procter & Gamble
common stock. In addition, it is unlikely that the secondary market price of
the notes will correlate exactly with the value of the Procter & Gamble 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 Procter & Gamble 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 Procter & Gamble 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 Procter & Gamble common stock. In general, the
value of the notes will decrease as the value of Procter & Gamble common stock
decreases and the value of the notes will increase as the value of Procter &
Gamble common stock increases, subject to the Capped Value. However, as the
value of Procter & Gamble 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 Procter & Gamble common stock. Additionally, political,
economic and other developments that can affect the capital markets generally
and the market segment of which Procter & Gamble is a part, and over which we
have no control, may affect the value of Procter & Gamble common stock and,
consequently, may also affect the value of the notes. Because the value of the
notes at maturity cannot be greater than the Capped Value, generally we do not
expect the notes will trade above the Capped Value in the secondary market.
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 Procter & Gamble common stock. Rising interest rates may
lower the value of Procter & Gamble common stock and, as a result, the value
of the notes. Falling interest rates may increase the value of Procter &
Gamble common stock and, as a result, may increase the value of the notes.
Changes in the volatility of Procter & Gamble 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 Procter & Gamble common stock increases, we expect that the
trading value of the notes will decrease and if the volatility of Procter &
Gamble common stock decreases, we expect that the trading value of the notes
will increase.
Changes in dividend yield on the Procter & Gamble common stock are
expected to affect the trading value of the notes. In general, if the dividend
yield, if any, on Procter & Gamble common stock increases, we expect that the
value of the notes will decrease, and conversely, if the dividend yield, if
any, on Procter & Gamble 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 Procter &
Gamble 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 is
subject to adjustment for the specified corporate events affecting the Procter
& Gamble 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 the Procter & Gamble
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 Procter & Gamble
We are not affiliated with Procter & Gamble, and Procter & Gamble 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. Procter & Gamble 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, Procter & Gamble 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 the
Procter & Gamble common stock
You will not be entitled to any rights with respect to the common stock
of Procter & Gamble including, without limitation, the right to receive
dividends or other distributions, if any, on, to vote or to tender or exchange
the shares of Procter & Gamble common stock in any tender or exchange offer by
the issuer of Procter & Gamble common stock or any third party.
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 Notes 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 Notes 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 herein) 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 Procter & Gamble 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 website at
http://www.sec.gov. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an
active link. 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., 222 Broadway, 17th
Floor, New York, New York 10038; telephone number (212) 670-0425.
Procter & Gamble
Procter & Gamble also files reports, proxy statements and other
information with the SEC. Information provided to or filed with the SEC by
Procter & Gamble 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 1-00434. You may also inspect Procter & Gamble's SEC reports and other
information at the NYSE. In addition, information regarding Procter & Gamble
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 Procter & Gamble common stock is subject to a stock split or reverse
stock split, then once such 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 Procter & Gamble 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 Procter & Gamble common stock is subject to a stock dividend, i.e.,
issuance of additional shares of Procter & Gamble common stock, that is given
ratably to all holders of shares of Procter & Gamble common stock, then once
such 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 Procter & Gamble common stock issued with
respect to one share of Procter & Gamble 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 Procter & Gamble
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 Procter & Gamble common stock, the extent
to which a dividend or other distribution exceeds the immediately preceding
non-Extraordinary Dividend for Procter & Gamble common stock by an amount
equal to at least 10% of the market price of Procter & Gamble 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 Procter & Gamble 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
Procter & Gamble 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 Procter & Gamble 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 Procter & Gamble 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 Procter & Gamble issues transferable rights or warrants to all holders
of Procter & Gamble common stock to subscribe for or purchase Procter & Gamble
common stock, including new or existing rights to purchase Procter & Gamble
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 Procter & Gamble 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 Procter & Gamble common stock
outstanding immediately prior to the issuance plus the number of additional
shares of Procter & Gamble 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 Procter & Gamble common stock outstanding immediately
prior to the issuance plus the number of additional shares of Procter & Gamble
common stock which the aggregate offering price of the total number of shares
of Procter & Gamble common stock so offered for subscription or purchase
pursuant to those rights or warrants would purchase at the closing price of
one share of Procter & Gamble 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 Procter & Gamble
common stock,
(b) Procter & Gamble, or any surviving entity or subsequent surviving
entity of Procter & Gamble (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 Procter & Gamble or any
Successor Entity with another corporation occurs, other than
pursuant to clause (b) above,
(d) Procter & Gamble is liquidated,
(e) Procter & Gamble issues to all of its shareholders equity securities
of an issuer other than Procter & Gamble, 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 Procter & Gamble (an event in clauses (a) through (f) a
"Reorganization Event"),
the Market Price shall be adjusted to include the Reorganization Event Amount.
The "Reorganization Event Amount" shall be determined by the calculation
agent and shall equal 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 Procter &
Gamble common stock multiplied by the share multiplier in
effect on the date all of the holders of shares of Procter &
Gamble 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
Procter & Gamble 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 first five Calculation Days during the
Calculation Period multiplied by (b) the quantity of that
security received for each share of Procter & Gamble 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 Procter & Gamble common stock, an
amount equal to (a) the average market price per share of that
security for the first five Calculation Days during the
Calculation Period multiplied by (b) the quantity of that
security received for each share of Procter & Gamble common
stock multiplied by the then current share multiplier.
The respective share multiplier with respect to these securities
shall equal the product of the share multiplier in effect for
Procter & Gamble 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 Procter & Gamble common stock.
The share multiplier of these securities will be subject to the same
adjustments as that of the share multiplier of Procter & Gamble
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 Procter & Gamble 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.
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 Procter & Gamble 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 Procter &
Gamble common stock, including, without limitation, a partial tender or
exchange offer for Procter & Gamble 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 Procter & Gamble common stock by Procter & Gamble for cash or in connection
with acquisitions or the occurrence of a partial tender or exchange offer for
Procter & Gamble common stock by Procter & Gamble 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 Procter & Gamble
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 Procter & Gamble 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.
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 Procter & Gamble common stock,
(4) a suspension of trading in an options contract on Procter &
Gamble 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 Procter & Gamble common stock; and
(5) a suspension, absence or material limitation of trading on the
primary securities market on which options contracts related to Procter &
Gamble common stock are traded will not include any time when that
securities market is itself closed for trading under ordinary
circumstances.
If the Reorganization Event Amount includes securities other than Procter
& Gamble common stock, then the above definition shall be revised to include
each such security in the same manner as Procter & Gamble 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 Reorganization Event Amount, and thus if Procter &
Gamble common stock is not included in the determination of the Reorganization
Event Amount, then the Procter & Gamble 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 the 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 as if the date of early repayment were the maturity date. 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 PROCTER & GAMBLE COMPANY COMMON STOCK
The following information has been derived from publicly available
documents published by Procter & Gamble We make no representation or warranty
as to the accuracy or completeness of the following information. The Procter &
Gamble Company is incorporated in Ohio company and its headquarters are
located in Cincinnati, Ohio. Procter & Gamble's business is represented by the
aggregate of its laundry and cleaning, paper, beauty care, food and beverage,
and health care segments. The markets in which Procter & Gamble's products are
sold are highly competitive. The products of Procter & Gamble's business
segments compete with many large and small companies, and there is no dominant
competitor or competitors. Most of Procter & Gamble's products in each of its
segments are distributed through grocery stores and other retail outlets.
Procter & Gamble has registered trademarks and owns or has licenses under
patents that are used in connection with its business in all segments. The
company has approximately 110,000 employees.
Information provided to or filed with the SEC by Procter & Gamble can be
located at the SEC's facilities or through the SEC's website by reference to
SEC file number 1-00434 for Procter & Gamble. 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 Procter & Gamble common stock is not a recommendation to
buy or sell Procter & Gamble common stock and neither ML&Co. nor any of its
affiliates make any representation to any purchaser of notes as to the
performance of Procter & Gamble common stock.
ML&Co. is not affiliated with Procter & Gamble and Procter & Gamble does
not have any obligations with respect to the notes. This pricing supplement
relates only to the notes and does not relate to Procter & Gamble common stock
or other securities of Procter & Gamble. All disclosures contained in this
pricing supplement regarding Procter & Gamble 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 Procter & Gamble 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 Procter & Gamble 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 Procter & Gamble common stock have been publicly
disclosed. Subsequent disclosure of any events or the disclosure of or failure
to disclose material future events concerning Procter & Gamble 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
Procter & Gamble common stock.
ML&Co. or its affiliates may presently or from time to time engage in
business, directly or indirectly, with Procter & Gamble including extending
loans to, or making equity investments in, Procter & Gamble or providing
investment banking or advisory services to Procter & Gamble, 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 Procter &
Gamble and, in addition, one or more affiliates of ML&Co. may publish research
reports with respect to Procter & Gamble.
Any prospective purchaser of a note should undertake an independent
investigation of Procter & Gamble as in its judgment is appropriate to make an
informed decision with respect to an investment in the notes.
Historical Data
Procter & Gamble common stock is principally traded on the NYSE. The
following table sets forth the high and low closing prices during 1996, 1997,
1998, 1999 and during 2000 through July 18, 2000. On July 18, 2000, the last
recorded transaction price on the NYSE of Procter & Gamble common stock was
$58.25 per share. The closing prices and dividends per share listed below were
obtained from Bloomberg Financial Markets. The historical closing prices of
Procter & Gamble common stock should not be taken as an indication of future
performance, and no assurance can be given that the price of Procter & Gamble
common stock will not decrease. Nor can assurance be given that the price of
Procter & Gamble 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.
Dividends per
High Low Share/1/
---------- ----------- --------------
The Procter & Gamble Company
1996
First Quarter....................... $44.38 $41.00 0.20
Second Quarter...................... $46.75 $40.50 0.20
Third Quarter....................... $48.75 $42.06 0.225
Fourth Quarter...................... $55.44 $47.00 0.225
1997
First Quarter....................... $64.75 $53.31 0.225
Second Quarter...................... $71.81 $57.50 0.225
Third Quarter....................... $76.75 $64.72 0.2525
Fourth Quarter...................... $83.38 $65.69 0.2525
Dividends per
High Low Share/1/
---------- ----------- --------------
Procter & Gamble Co.
1998
First Quarter....................... $ 86.56 $78.00 0.2525
Second Quarter...................... $ 92.19 $80.75 0.2525
Third Quarter....................... $ 94.00 $66.81 0.285
Fourth Quarter...................... $ 93.75 $71.13 0.285
1999
First Quarter....................... $101.13 $83.63 0.285
Second Quarter...................... $102.94 $84.31 0.285
Third Quarter....................... $103.13 $84.88 0.32
Fourth Quarter...................... $113.75 $93.31 0.32
2000
First Quarter....................... $117.75 $53.75 0.32
Second Quarter
(through July 18, 2000).......... $ 70.50 $53.63 0.32
______________
1 ML&Co. makes no representation as to the amount of dividends, if any,
that issuer of the Procter & Gamble common stock will pay in the future.
Holders of the notes will not be entitled to receive dividends, if any,
that may be payable on the Procter & Gamble 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 may, 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 the Procter & Gamble common stock
with MLPF&S or an affiliate. MLPF&S or an affiliate has purchased shares of
Procter & Gamble common stock in secondary market transactions at or before
the time of the pricing of the notes and may sell such shares of Procter &
Gamble common stock on or shortly prior to the maturity date. MLPF&S and other
affiliates of ML&Co. may from time to time buy or sell the Procter & Gamble
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 the Procter & Gamble common stock.
UNITED STATES FEDERAL INCOME TAXATION
The following discussion is based upon the opinion of Brown & Wood LLP,
counsel to ML&Co. ("Tax Counsel"). As the law applicable to the U.S. Federal
income taxation of instruments such as the notes is technical and complex, the
discussion below necessarily represents only a general summary. The following
summary 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 the notes as a
hedge against currency risks, as a position in a "straddle" or as part of a
"hedging" or "conversion" transaction 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.
General
There are no statutory provisions, regulations, published rulings or
judicial decisions addressing or involving the characterization and treatment,
for U.S. Federal income tax purposes, of the notes or securities with terms
substantially the same as the notes. Accordingly, the proper U.S. Federal
income tax characterization and treatment of the notes is uncertain. Pursuant
to the terms of the notes, ML&Co. and every holder of a note agree (in the
absence of an administrative determination or judicial ruling to the contrary)
to characterize a note for all tax purposes as an investment unit consisting
of the following components (the "Components"): (i) a debt instrument of
ML&Co. (the "Debt Instrument") with a fixed principal amount unconditionally
payable on the maturity date equal to the principal amount of the note and
bearing stated interest at the stated interest rate on the notes 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 ML&Co.
in exchange for the right to receive cash at maturity linked to the price of
Procter & Gamble common stock. In the opinion of Tax Counsel, such
characterization and tax treatment of the notes, although 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 Internal Revenue Service (the "IRS"), will not result in the
imposition of penalties. Furthermore, based on ML&Co.'s determination of the
relative fair market values of the Components at the time of issuance of the
notes, ML&Co. will allocate the entire issue price of the notes to the Debt
Instrument and none of the issue price to the Forward Contract. ML&Co.'s
allocation of the issue price will be binding on a U.S. Holder of a note,
unless such U.S. Holder timely and explicitly discloses to the IRS that its
allocation is different from ML&Co.'s. The treatment of the notes described
above and ML&Co.'s allocation are not, however, binding on the IRS or the
courts. No statutory, judicial or administrative authority directly addresses
the characterization of the notes or instruments similar to the notes for U.S.
Federal income tax purposes, and no ruling is being requested from the IRS
with respect to the notes.
Due to the absence of authorities that directly address instruments that
are similar to the notes, significant aspects of the U.S. Federal income tax
consequences of an investment in the notes are not certain, and no assurance
can be given that the IRS or the courts will agree with the characterization
described above. Accordingly, prospective purchasers are urged to consult
their tax advisors regarding the U.S. Federal income tax consequences of an
investment in a note (including alternative characterizations of a note) and
with respect to any tax consequences arising under the laws of any state,
local or foreign taxing jurisdiction. Unless otherwise stated, the following
discussions are based on the assumption that the treatment and the allocation
described above are accepted for U.S. Federal income tax purposes.
Tax Treatment of a Note
Interest on the Debt Instrument. As described above, the Debt Instrument
is treated as bearing interest at a stated rate of % per annum. A U.S. Holder
will include "qualified stated interest" equal to the stated interest on the
notes in income in accordance with the U.S. Holder's method of accounting for
U.S. Federal income tax purposes. Based on ML&Co.'s determination set forth
above, the U.S. Holder's tax basis in the Debt Instrument will initially be
100% of the issue price.
Settlement of the Forward Contract. Upon the final settlement of the
Forward Contract, a U.S. Holder would, pursuant to the Forward Contract, be
deemed to have applied an amount (the "Forward Contract Payment Amount") equal
to the principal amount of the Debt Instrument toward the exchange for the
cash payment payable on the notes at maturity, and a U.S. Holder would
recognize gain or loss. The amount of such gain or loss would be the extent to
which the amount of such cash received differs from the Forward Contract
Payment Amount.
U.S. Holders should note that it is uncertain whether any gain or loss
recognized upon the final settlement of the Forward Contract for cash would be
capital gain or loss or ordinary income or loss. The distinction between
capital gain or loss and ordinary income or loss is potentially significant in
several respects. For example, limitations apply to a U.S. Holder's ability to
offset capital losses against ordinary income, and certain U.S. Holders may be
subject to lower U.S. Federal income tax rates with respect to long-term
capital gain than with respect to ordinary income. U.S. Holders should consult
their tax advisors with respect to the treatment of gain or loss on a note.
Sale or Exchange of the Note
Upon a sale or exchange of a note prior to the maturity of the note, a
U.S. Holder would recognize taxable gain or loss equal to the difference
between the amount realized on such sale or exchange (as allocated among the
Components in accordance with their relative fair market values) and such U.S.
Holder's tax basis in the Components deemed so sold or exchanged. Any such
gain or loss would generally be long-term or short-term capital gain or loss
(depending on the U.S. Holder's holding period for the notes). For these
purposes, the amount realized does not include any amount attributable to
accrued interest on the Debt Instrument, which would be taxed as described
under "Tax Treatment of a Note--Interest on the Debt Instrument" above.
Possible Alternative Tax Treatments of an Investment in a Note
Due to the absence of authorities that directly address the proper
characterization of the notes, no assurance can be given that the IRS will
accept, or that a court will uphold, the characterization and tax treatment
described above. In particular, the IRS could seek to analyze the U.S. Federal
income tax consequences of owning a note under Treasury regulations governing
contingent payment debt instruments (the "Contingent Payment Regulations").
ML&Co. will take the position that the Contingent Payment Regulations do
not apply to the notes. If the IRS were successful in asserting that the
Contingent Payment Regulations applied to the notes, the timing and character
of income thereon would be significantly affected. Among other things, a U.S.
Holder would be required to accrue as OID, subject to the adjustments
described below, income at a "comparable yield" on the issue price, regardless
of the U.S. Holder's usual method of accounting for U.S. Federal income tax
purposes. In addition, the Contingent Payment Regulations require that a
projected payment schedule, which results in such a "comparable yield," be
determined, and that adjustments to income accruals be made to account for
differences between actual payments and projected amounts (such as upon
receipt of the cash payment payable at maturity). Furthermore, any gain
realized with respect to a note would generally be treated as ordinary income,
and any loss realized would generally be treated as ordinary loss to the
extent of the U.S. Holder's prior ordinary income inclusions (which were not
previously reversed) with respect to the notes.
Even if the Contingent Payment Regulations do not apply to the notes,
other alternative U.S. Federal income characterizations or treatments of the
notes are also possible, which may also affect the timing and the character of
the income or loss with respect to the notes. Accordingly, prospective
purchasers are urged to consult their tax advisors regarding the U.S. Federal
income tax consequences of an investment in a note.
Non-U.S. Holders
Based on the treatment of each note as an investment unit consisting of
the Debt Instrument and the Forward Contract, in the case of a non-U.S.
Holder, payments of interest made with respect to the notes will not be
subject to United States withholding tax, provided that such non-U.S. Holder
complies with applicable certification requirements and that such payments are
not effectively connected with a United States trade or business of such
non-U.S. Holder. Any capital gain realized upon the sale or other disposition
of a note by a non-U.S. Holder will generally not be subject to United States
Federal income tax if (i) such gain is not effectively connected with a United
States trade or business of such non-U.S. Holder and (ii) in the case of an
individual non-U.S. Holder, such individual is not present in the United
States for 183 days or more in the taxable year of the sale or other
disposition, or the gain is not attributable to a fixed place of business
maintained by such individual in the United States and such individual does
not have a "tax home" (as defined for United States Federal income tax
purposes) in the United States.
As discussed above, alternative characterizations of the notes for United
States Federal income tax purposes are possible. Should an alternative
characterization of the notes, by reason of a change or clarification of the
law, by regulation or otherwise, cause payments with respect to the notes to
become subject to withholding tax, ML&Co. will withhold tax at the statutory
rate. Prospective non-U.S. Holders of the notes should consult their own tax
advisors in this regard.
Backup Withholding and Information Reporting
A beneficial owner of a note may be subject to information reporting and
to backup withholding at a rate of 31% of certain amounts paid to the
beneficial owner unless such beneficial owner provides proof of an applicable
exemption or a correct taxpayer identification number, and otherwise complies
with applicable requirements of the backup withholding rules.
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.
New Withholding Regulations
On October 6, 1997, the Treasury Department issued new regulations which
make certain modifications to the withholding, backup 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,
2000, subject to certain transitional rules. Prospective investors are urged
to consult their own tax advisors regarding the new regulations.
