As Filed with the Securities and Exchange Commission on June 7, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
and
POST-EFFECTIVE AMENDMENTS
under
THE SECURITIES ACT OF 1933
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MERRILL LYNCH & CO., INC. DELAWARE 13-2740599
(Exact name of registrant as
specified in charter) (State of incorporation) (I.R.S. employer identification number)
MERRILL LYNCH PREFERRED FUNDING VI, L.P. DELAWARE 13-4034253
(Exact name of registrant as
specified in certificate of limited (State of organization) (I.R.S. employer identification number)
partnership)
MERRILL LYNCH PREFERRED CAPITAL TRUST VI DELAWARE 13-7174482
(Exact name of registrant as
specified in certificate of trust) (State of organization) (I.R.S. employer identification number)
4 World Financial Center
North Tower
New York, New York 10080
(212)449-1000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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MARK B. GOLDFUS, ESQ.
General Counsel
Corporate Law
Merrill Lynch & Co., Inc.
222 Broadway
New York, New York 10038
(212)670-0180
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
NORMAN D. SLONAKER, DONALD R. CRAWSHAW, ESQ. RICHARD T. PRINS, ESQ.
ESQ. Sullivan & Cromwell Skadden, Arps, Slate,
Brown & Wood LLP 125 Broad Street Meagher & Flom LLP
One World Trade Center New York, New York 10004 Four Times Square
New York, New York New York, New York 10036
10048 --------------
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement as determined
by market conditions.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
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CALCULATION OF REGISTRATION FEE
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Proposed maximum Proposed
Title of each class Amount to be aggregate maximum aggregate Amount of
of securities to be registered(1) registered(2)(3) price per unit(4) offering price(4) registration fee
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Debt Securities and Warrants(5)...... --
Preferred Stock, par value $1.00 per
share(5)............................ --
Depositary Shares representing
Preferred Stock(6).................. --
Common Stock, par value $1.33 1/3 per
share (including preferred share
purchase rights)(7)(8).............. --
Trust Originated Preferred Securities
of Merrill Lynch Preferred Capital
Trust VI (the "Trust") (the "Trust
Preferred Securities").............. $15,000,000,000 N/A $15,000,000,000 $3,960,000
Partnership Preferred Securities of
Merrill Lynch Preferred Funding VI,
L.P. (the "Partnership") (the
"Partnership Preferred
Securities")(9)..................... --
Guarantees of Merrill Lynch & Co.,
Inc. with respect to Trust Preferred
Securities.......................... --
Guarantees of Merrill Lynch & Co.,
Inc. with respect to Partnership
Preferred Securities................ --
Guarantees of Merrill Lynch & Co.,
Inc. with respect to certain
debentures of its wholly owned
subsidiaries (the "Affiliate
Debentures")........................ --
Subordinated Debentures of Merrill
Lynch & Co., Inc. to be issued with
respect to Trust Originated
Preferred Securities................ --
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Totals............................. $15,000,000,000 -- $15,000,000,000 $3,960,000
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(Footnotes on next page)
(Footnotes from previous page)
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(1) This Registration Statement also registers delayed delivery contracts
which may be issued by Merrill Lynch & Co., Inc. (the "Company") under
which the counterparty may be required to purchase Debt Securities,
Preferred Stock, Depositary Shares and/or Warrants. Such contracts would
be issued with the Debt Securities, Preferred Stock, Depositary Shares
and/or Warrants covered hereby. In addition, securities registered
hereunder may be sold separately, together or as units with other
securities registered hereunder.
(2) Such amount shall be increased, if any Debt Securities are issued at an
original issue discount, by an amount such that the net proceeds to be
received by the Company shall be equal to the above amount to be
registered. Any offering of securities denominated other than in U.S.
dollars will be treated as the equivalent in U.S. dollars based on the
official exchange rate applicable to the purchase of such securities from
the Company. Pursuant to Rule 429 under the Securities Act of 1933, as
amended (the "Securities Act"), the Prospectus included in this
Registration Statement also relates to the remaining unsold securities
which were previously registered by the Registrants under Registration
Statement No. 333-68747 on Form S-3. The following registration
statements, each having the original effective date indicated
parenthetically, are amended hereby (the number of such post-effective
amendments applicable to a registration statement being also indicated
parenthetically), all as follows: 2-78338 (July 23, 1982-No. 26); 2-83477
(May 9, 1983-No. 25); 2-89519 (February 23, 1984-No. 24); 2-96315 (March
20, 1985-No. 22); 33-03079 (February 6, 1986-No. 21); 33-03602 (April 15,
1986-No. 18); 33-05125 (April 28, 1986-No. 10); 33-09910 (November 5,
1986-No. 19); 33-16165 (August 11, 1987-No. 18); 33-17965 (November 5,
1987-No. 17); 33-19820 (January 29, 1988-No. 17); 33-23605 (August 16,
1988-No. 16); 33-27512 (March 20, 1989-No. 15); 33-27594 (March 20, 1989-
No. 15); 33-35456 (August 10, 1990-No. 15); 33-38879 (February 12, 1991-
No. 14); 33-42041 (August 16, 1991-No. 14); 33-45327 (February 12, 1992-
No. 13); 33-54218 (November 19, 1992-No. 12); 33-49947 (August 25, 1993-
No. 11); 33-51489 (January 14, 1994-No. 10); 33-52647 (March 22, 1994-No.
9); 33-61559 (August 23, 1995-No. 7); 33-65135 (January 12, 1996-No. 11);
333-13649 (November 25, 1996-No. 3); 333-25255 (April 30, 1997-No. 5);
333-28537 (June 13, 1997-No. 4); 333-44173 (January 28, 1998-No. 3); 333-
59997 (July 30, 1998-No. 2); and 333-68747 (May 6, 1999-No.1). Each such
post-effective amendment shall hereafter become effective concurrently
with the effectiveness of this Registration Statement in accordance with
Section 8(c) of the Securities Act.
(3) This Registration Statement also registers, where required, an
indeterminate amount of securities to be sold by Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated in market-making
transactions.
(4) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457. The proposed maximum offering price per unit will be
determined from time to time by the Registrants in connection with the
issuance of securities registered hereunder or previously registered under
the Securities Act. No separate consideration will be received for Common
Stock, Preferred Stock, Debt Securities or Warrants that are issued upon
conversion or exchange of Debt Securities, Preferred Stock, Depositary
Shares or Warrants, nor will any separate consideration be received for
the Guarantees or the Subordinated Debentures registered hereunder. The
Subordinated Debentures and the Affiliate Debentures will be purchased by
the Partnership with proceeds of the sale of the Partnership Preferred
Securities, together with a capital contribution from the Company.
(5) There is also registered hereunder such indeterminate amount of Debt
Securities and an indeterminate number of shares of Preferred Stock as may
from time to time be issued upon conversion, exercise or exchange of Debt
Securities, Preferred Stock or Warrants registered hereunder.
(6) To be represented by Depositary Receipts representing an interest in all
or a specified portion of a share of Preferred Stock.
(7) The aggregate amount of Common Stock of the Company registered hereunder
is limited to that which is permissible under Rule 415(a)(4) under the
Securities Act. There is also registered hereunder such indeterminate
number of shares of Common Stock as may from time to time be issued upon
conversion, exercise or exchange of Debt Securities, Preferred Stock or
Warrants registered hereunder.
(8) Prior to the occurrence of certain events, the preferred share purchase
Rights will not be evidenced separately from the Common Stock. The value
attributable to such Rights, if any, is reflected in the market price of
the Common Stock.
(9) The Partnership Preferred Securities will be purchased by the Trust with
the proceeds of the sale of the Trust Preferred Securities, together with
the proceeds received from the Company in respect of the common securities
to be issued by the Trust. No separate consideration will be received for
the Partnership Preferred Securities.
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The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act or until this Registration Statement shall
become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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EXPLANATORY NOTE
This registration statement contains:
(a) a prospectus to be used by Merrill Lynch & Co., Inc., or ML&Co., in
connection with offerings of its:
. debt securities;
. warrants;
. common stock;
. preferred stock; and
. depositary shares;
(b) a prospectus to be used by ML&Co. in connection with offerings of its
Structured Yield Product Exchangeable for Stock SM;
(c) a prospectus to be used in connection with offerings of:
. the preferred securities of Merrill Lynch Preferred Capital Trust VI
("ML Trust");
. the preferred securities of Merrill Lynch Preferred Funding VI, L.P.
("ML Partnership");
. the subordinated debentures of ML&Co.; and
. the guarantees of ML&Co. of:
. the preferred securities of ML Trust;
. the preferred securities of ML Partnership; and
. specified debentures issued by ML&Co.'s affiliates;
(d) a prospectus supplement to be used by ML&Co. in connection with
offerings of its medium-term notes; and
(e) prospectuses to be used by ML&Co.'s wholly-owned subsidiary, Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated in connection
with market-making transactions in ML&Co. Securities.
SM Service mark of Merrill Lynch & Co., Inc.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated June 7, 2000
PROSPECTUS
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[LOGO]
Merrill Lynch & Co., Inc.
Debt Securities, Warrants, Preferred Stock,
Depositary Shares and Common Stock
We may offer from time to time in one or more series, together or separately:
. debt securities;
. warrants;
. common stock;
. preferred stock; and
. depositary shares.
When we offer securities, we will provide you with a prospectus supplement or
term sheet describing the terms of the specific issue of securities including
the offering price of the securities.
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You should read this prospectus and the prospectus supplement or the term
sheet relating to the specific issue of securities carefully before you invest.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
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The date of this prospectus is , 2000.
MERRILL LYNCH & CO., INC.
We are a holding company that, through our U.S. and non-U.S. subsidiaries
and affiliates such as Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Merrill Lynch Government Securities Inc., Merrill Lynch Capital Services, Inc.,
Merrill Lynch International, Merrill Lynch Capital Markets Bank Ltd., Merrill
Lynch Asset Management LP and Mercury Asset Management Ltd, provides
investment, financing, advisory, insurance, and related products on a global
basis, including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related record keeping services.
We provide these products and services to a wide array of clients, including
individual investors, small businesses, corporations, governments, governmental
agencies and financial institutions.
Our principal executive office is located at 4 World Financial Center, New
York, New York 10080; our telephone number is (212) 449-1000.
If you want to find more information about us, please see the sections
entitled "Where You Can Find More Information" and "Incorporation of
Information We File with the SEC" in this prospectus.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of all the
securities offered under this prospectus.
USE OF PROCEEDS
We intend to use the net proceeds from the sale of the securities for
general corporate purposes, unless otherwise specified in the prospectus
supplement or term sheet relating to a specific issue of securities. Our
general corporate purposes may include financing the activities of our
subsidiaries, financing our assets and those of our subsidiaries, lengthening
the average maturity of our borrowings and financing acquisitions. Until we use
the net proceeds from the sale of any of our securities for general corporate
purposes, we will use the net proceeds to reduce our short-term indebtedness or
for temporary investments. We expect that we will, on a recurrent basis, engage
in additional financings as the need arises to finance our growth, through
acquisitions or otherwise, or to lengthen the average maturity of our
borrowings. To the extent that securities being purchased for resale by our
subsidiary Merrill Lynch, Pierce, Fenner & Smith Incorporated, referred to in
this prospectus as MLPF&S, are not resold, the aggregate proceeds that we and
our subsidiaries would receive would be reduced.
2
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
In 1998, we acquired the outstanding shares of Midland Walwyn, Inc., in a
transaction accounted for as a pooling-of-interests. The following information
for the fiscal years 1995 through 1997 has been restated as if the two entities
had always been combined.
The following table sets forth our historical ratios of earnings to fixed
charges and ratios of earnings to combined fixed charges and preferred stock
dividends for the periods indicated:
Year Ended Last Friday
in December For the Three
------------------------ Months Ended
1995 1996 1997 1998 1999 March 31, 2000
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Ratio of earnings to fixed
charges(a)........................... 1.2 1.2 1.2 1.1 1.3 1.4
Ratio of earnings to combined fixed
charges and preferred stock
dividends(a)......................... 1.2 1.2 1.2 1.1 1.3 1.4
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(a) The effect of combining Midland Walwyn did not change the ratios
reported for the fiscal years 1995 through 1997.
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges, excluding capitalized interest and preferred security
dividend requirements. "Fixed charges" consist of interest costs, the interest
factor in rentals, amortization of debt issuance costs, preferred security
dividend requirements of subsidiaries, and capitalized interest.
THE SECURITIES
ML&Co. intends to sell its securities from time to time. These securities
may include the following, in each case, as specified by ML&Co. at the time of
offering:
. common stock;
. preferred stock which may be:
. convertible into preferred stock or common stock;
. exchangeable for debt securities, preferred stock or depositary
shares representing preferred stock.
. depositary shares representing preferred stock;
. debt securities, comprising senior debt securities and subordinated debt
securities, each of which may be convertible into common stock or
preferred stock;
. warrants to purchase debt securities;
. warrants to purchase shares of common stock;
. warrants to purchase shares of preferred stock;
. warrants entitling the holders to receive from ML&Co. a payment or
delivery determined by reference to decreases or increases in the level
of an index or portfolio ("Index Warrants") based on:
. one or more equity or debt securities;
. any statistical measure of economic or financial performance such as
a currency or a consumer price or mortgage index; or
3
. the price or value of any commodity or any other item or index; and
. warrants to receive from ML&Co. the cash value in U.S. dollars of the
right to purchase ("Currency Call Warrants") or to sell ("Currency Put
Warrants" and, together with the Currency Call Warrants, the "Currency
Warrants") specified foreign currencies or units of two or more
specified foreign currencies.
We may offer the securities independently or together with other securities
and the securities may be attached to, or separate from other securities. We
will offer the securities to the public on terms determined by market
conditions at the time of sale and set forth in a prospectus supplement or term
sheet relating to the specific issue of securities.
ML&Co. will offer up to $ aggregate public offering price of the
securities or its equivalent in foreign currencies or units of two or more
currencies, based on the applicable exchange rate at the time of offering, as
shall be designated by ML&Co. at the time of offering, subject to reduction on
account of the sale of other securities under the registration statement of
which this prospectus is a part.
DESCRIPTION OF DEBT SECURITIES
Unless otherwise specified in a prospectus supplement, the senior debt
securities are to be issued under an indenture (the "1983 Indenture"), dated as
of April 1, 1983, as amended and restated through the date of this prospectus
and as it may be further amended in the future, between ML&Co. and The Chase
Manhattan Bank, as trustee, or issued under an indenture (the "1993
Indenture"), dated as of October 1, 1993, as amended through the date of this
prospectus and as it may be further amended in the future, between ML&Co. and
The Chase Manhattan Bank, as trustee (each, a "Senior Debt Trustee"). The 1983
Indenture and the 1993 Indenture are referred to as the "Senior Indentures".
Unless otherwise specified in a prospectus supplement, the subordinated debt
securities are to be issued under an indenture (the "Subordinated Indenture"),
between ML&Co. and The Chase Manhattan Bank, as trustee (the "Subordinated Debt
Trustee"). The Senior Debt Securities and Subordinated Debt Securities may also
be issued under one or more other indentures (each, a "Subsequent Indenture")
and have one or more other trustees (each, a "Subsequent Trustee"). Any
Subsequent Indenture relating to senior debt securities will have terms and
conditions identical in all material respects to the above-referenced Senior
Indentures and any Subsequent Indenture relating to subordinated debt
securities will have terms and conditions identical in all material respects to
the above-referenced Subordinated Indenture, including, but not limited to, the
applicable terms and conditions described below. Any Subsequent Indenture
relating to a series of debt securities, and the applicable trustee, will be
identified in the applicable prospectus supplement or term sheet. A copy of
each indenture is filed, or, in the case of a Subsequent Indenture, will be
filed, as an exhibit to the registration statement relating to the securities.
The following summaries of the material provisions of the indentures are not
complete and are subject to, and are qualified in their entirety by reference
to, all provisions of the respective indentures, including the definitions of
terms.
Terms of the Debt Securities
ML&Co. may issue the debt securities from time to time, without limitation
as to aggregate principal amount and in one or more series. ML&Co. may issue
debt securities upon the satisfaction of conditions, including the delivery to
the applicable Trustee of a resolution of the Board of Directors of ML&Co., or
a committee of the Board of Directors, or a certificate of an officer of ML&Co.
who has been authorized by the Board of Directors to take that kind of action,
which fixes or establishes the terms of the debt securities being issued. Any
resolution or officer's certificate approving the issuance of any issue of debt
securities will include the terms of that issue of debt securities, including:
. the aggregate principal amount and whether there is any limit upon the
aggregate principal amount that ML&Co. may subsequently issue;
. the stated maturity date;
4
. the principal amount payable whether at maturity or upon earlier
acceleration, and whether the principal amount will be determined with
reference to an index, formula or other method;
. any fixed or variable interest rate or rates per annum and any
contingencies relating to changes in any applicable interest rate;
. any interest payment dates;
. any provisions for redemption, the redemption price and any remarketing
arrangements;
. any sinking fund requirements;
. whether the debt securities are denominated or payable in United States
dollars or a foreign currency or units of two or more foreign
currencies;
. the form in which ML&Co. will issue the debt securities, whether
registered, bearer or both, and any restrictions applicable to the
exchange of one form for another and to the offer, sale and delivery of
the debt securities in either form;
. whether and under what circumstances ML&Co. will pay additional amounts
("Additional Amounts") under any debt securities held by a person who is
not a U.S. person for specified taxes, assessments or other governmental
charges and whether ML&Co. has the option to redeem the affected debt
securities rather than pay any Additional Amounts;
. whether the debt securities are to be issued in global form;
. the title and series designation;
. the minimum denominations;
. whether, and the terms and conditions relating to when, ML&Co. may
satisfy all or part of its obligations with regard to payment upon
maturity, or any redemption or required repurchase or in connection with
any exchange provisions by delivering to the holders of the debt
securities, other securities, which may or may not be issued by or be
obligations of ML&Co., or a combination of cash, other securities and/or
property ("Maturity Consideration");
. any additions or deletions in the terms of the debt securities with
respect to the Events of Default set forth in the respective indentures;
. the terms, if any, upon which the debt securities are convertible into
common stock or preferred stock of ML&Co. and the terms and conditions
upon which any conversion will be effected, including the initial
conversion price or rate, the conversion period and any other provisions
in addition to or instead of those described in this prospectus;
. whether, and the terms and conditions relating to when, holders may
transfer the debt securities separately from warrants if the debt
securities and warrants are issued together; and
. any other terms of the debt securities which are not inconsistent with
the provisions of the applicable indenture.
Please see the accompanying prospectus supplement or the terms sheet you
have received or will receive for the terms of the specific debt securities
being offered. ML&Co. may deliver this prospectus before or concurrently with
the delivery of a terms sheet. ML&Co. may issue debt securities under the
indentures upon the exercise of warrants to purchase debt securities. See
"Description of Debt Warrants". Nothing in the indentures or in the terms of
the debt securities will prohibit the issuance of securities representing
subordinated indebtedness that is senior or junior to the subordinated debt
securities.
Prospective purchasers of debt securities should be aware that special U.S.
Federal income tax, accounting and other considerations may be applicable to
instruments such as the debt securities. The prospectus supplement relating to
an issue of debt securities will describe these considerations, if they apply.
5
ML&Co. will issue each series of debt securities, as described in the
prospectus supplement, in fully registered form without coupons, and/or in
bearer form with or without coupons, and in denominations set forth in the
prospectus supplement. There will be no service charge for any registration of
transfer of registered debt securities or exchange of debt securities, but
ML&Co. may require payment of a sum sufficient to cover any tax or other
governmental charges imposed in connection with any registration of transfer or
exchange. Each indenture provides that ML&Co. may issue debt securities in
global form. If any series of debt securities is issued in global form, the
applicable prospectus supplement will describe the circumstances, if any, under
which beneficial owners of interests in any of those global debt securities may
exchange their interests for debt securities of that series and of like tenor
and principal amount in any authorized form and denomination.
The provisions of the indentures permit ML&Co. , without the consent of
holders of any debt securities, to issue additional debt securities with terms
different from those of debt securities previously issued and to reopen a
previous series of debt securities and issue additional debt securities of that
series.
The senior debt securities will be unsecured and will rank equally with all
other unsecured and unsubordinated indebtedness of ML&Co. The subordinated debt
securities will be unsecured and will be subordinated to all existing and
future senior indebtedness of ML&Co. Because ML&Co. is a holding company, the
right of ML&Co. and its creditors, including the holders of the debt
securities, to participate in any distribution of the assets of any subsidiary
upon its liquidation or reorganization or otherwise is necessarily subject to
the prior claims of creditors of the subsidiary, except to the extent that a
bankruptcy court may recognize the claims of ML&Co. itself as a creditor of the
subsidiary. In addition, dividends, loans and advances from certain
subsidiaries, including MLPF&S, to ML&Co. are restricted by net capital
requirements under the Securities Exchange Act of 1934, as amended, and under
rules of certain exchanges and other regulatory bodies.
ML&Co. will pay or deliver principal and any premium, Additional Amounts,
Maturity Consideration and interest in the manner, at the places and subject to
the restrictions set forth in the applicable indenture, the debt securities and
the applicable prospectus supplement. However, at its option, ML&Co. may pay
any interest and any Additional Amounts by check mailed to the holders of
registered debt securities at their registered addresses.
Holders may present debt securities for exchange, and registered debt
securities for registration of transfer, in the manner, at the places and
subject to the restrictions set forth in the applicable indenture, the debt
securities and the applicable prospectus supplement. Holders may transfer debt
securities in bearer form and the coupons, if any, pertaining to the debt
securities by delivery. There will be no service charge for any registration of
transfer or exchange of debt securities, but ML&Co. may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection with a transfer or exchange.
Unless otherwise indicated in the applicable prospectus supplement, ML&Co.
will issue the debt securities under the indentures. If so specified in a
prospectus supplement, ML&Co. may issue subordinated debt securities under a
separate indenture which provides for a single issue of zero coupon convertible
subordinated debt securities, a form of which is filed as an exhibit to the
registration statement of which this prospectus is a part. If ML&Co. issues
debt securities under any indenture, the applicable prospectus supplement will
set forth the terms of the debt securities and will identify the applicable
indenture and trustee.
Merger and Consolidation
ML&Co. may consolidate or merge with or into any other corporation, and
ML&Co. may sell, lease or convey all or substantially all of its assets to any
corporation, provided that:
. the resulting corporation, if other than ML&Co., is a corporation
organized and existing under the laws of the United States of America or
any U.S. state and assumes all of ML&Co.'s obligations to:
6
. pay or deliver the principal of, and any premium, Additional
Amounts, Maturity Consideration or interest on, the debt securities;
and
. perform and observe all of ML&Co.'s other obligations under the
indentures, and
. ML&Co. or any successor corporation, as the case may be, is not,
immediately after any consolidation or merger, in default under the
indentures.
Modification and Waiver
Each indenture may be modified and amended by ML&Co. and the applicable
trustee with the consent of holders of at least 66 2/3% in principal amount or
aggregate issue price of each series of debt securities affected. However,
without the consent of each holder of any debt security affected, no amendment
or modification to any indenture may:
. change the stated maturity of the principal or Maturity Consideration
of, or any installment of interest or Additional Amounts on, any debt
security or any premium payable on redemption, or change the redemption
price;
. reduce the principal amount of, or the interest or Additional Amounts
payable on, or reduce the amount or change the type of Maturity
Consideration deliverable on, any debt security or reduce the amount of
principal or Maturity Consideration which could be declared due and
payable before the stated maturity;
. change the place or currency of any delivery or payment of principal or
Maturity Consideration of, or any premium, interest or Additional
Amounts on any debt security;
. impair the right to institute suit for the enforcement of any delivery
or payment on any debt security;
. reduce the percentage in principal amount or aggregate issue price of
the outstanding debt securities of any series, the consent of whose
holders is required to modify or amend the applicable indenture; or
. modify the foregoing requirements or reduce the percentage in principal
amount or aggregate issue price of outstanding debt securities necessary
to waive any past default to less than a majority.
No modification or amendment of the Subordinated Indenture or any Subsequent
Indenture for subordinated debt securities may adversely affect the rights of
any holder of ML&Co.'s senior indebtedness without the consent of each holder
affected. The holders of at least a majority in principal amount or aggregate
issue price of the outstanding debt securities of any series may, with respect
to that series, waive past defaults under the applicable indenture and waive
compliance by ML&Co. with certain provisions of that indenture, except as
described under "--Events of Default".
Events of Default
Each of the following will be an Event of Default with respect to each
series of debt securities issued under each indenture:
. default in the payment of any interest or Additional Amounts when due,
and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the delivery or payment of the Maturity Consideration when
due;
. default in the deposit of any sinking fund payment, when due;
. default in the performance of any other obligation of ML&Co. contained
in the applicable indenture for the benefit of that series or in the
debt securities of that series, and continuing for 60 days after written
notice as provided in the applicable indenture;
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. specified events in bankruptcy, insolvency or reorganization of ML&Co.;
and
. any other Event of Default provided with respect to debt securities of
that series.
If an Event of Default occurs and is continuing for any series of debt
securities, the applicable trustee or the holders of at least 25% in principal
amount or aggregate issue price of the outstanding debt securities of that
series may declare all amounts, or any lesser amount provided for in the debt
securities of that series, due and payable or deliverable immediately. At any
time after the applicable trustee or the holders have made a declaration of
acceleration with respect to the debt securities of any series but before the
applicable trustee has obtained a judgment or decree for payment of money due,
the holders of a majority in principal amount or aggregate issue price of the
outstanding debt securities of that series may rescind any declaration of
acceleration and its consequences, provided that all payments and/or deliveries
due, other than those due as a result of acceleration, have been made and all
Events of Default have been remedied or waived.
The holders of a majority in principal amount or aggregate issue price of
the outstanding debt securities of any series may waive an Event of Default
with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation of ML&Co. contained in, or a provision of,
any indenture which cannot be modified under the terms of that indenture
without the consent of each holder of each series of debt securities
affected.
The holders of a majority in principal amount or aggregate issue price of
the outstanding debt securities of a series may direct the time, method and
place of conducting any proceeding for any remedy available to the applicable
trustee or exercising any trust or power conferred on the trustee with respect
to debt securities of that series, provided that any direction is not in
conflict with any rule of law or the applicable indenture. Subject to the
provisions of each indenture relating to the duties of the appropriate trustee,
before proceeding to exercise any right or power under an indenture at the
direction of the holders, the applicable trustee is entitled to receive from
those holders reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in complying with any direction.
Unless otherwise stated in the applicable prospectus supplement, any series
of debt securities issued under any indenture will not have the benefit of any
cross-default provisions with other indebtedness of ML&Co.
ML&Co. will be required to furnish to each trustee annually a statement as
to the fulfillment by ML&Co. of all of its obligations under the applicable
indenture.
Special Terms Relating to the Senior Debt Securities
Limitations Upon Liens
ML&Co. may not, and may not permit any majority-owned subsidiary to, create,
assume, incur or permit to exist any indebtedness for borrowed money secured by
a pledge, lien or other encumbrance, other than any lien specifically permitted
by the Senior Indentures, on the Voting Stock owned directly or indirectly by
ML&Co. of any majority-owned subsidiary, other than a majority-owned subsidiary
which, at the time of incurrence of the secured indebtedness, has a net worth
of less than $3,000,000, unless the outstanding senior debt securities are
secured equally and ratably with the secured indebtedness.
"Voting Stock" is defined in the Senior Indentures as the stock of the class
or classes having general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of a
corporation provided that, for the purposes of the Senior Indentures, stock
that carries only the right to vote conditionally on the occurrence of an event
is not considered voting stock whether or not the event has happened.
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Limitations on Disposition of Voting Stock of, and Merger and Sale of Assets
by, MLPF&S
ML&Co. may not sell, transfer or otherwise dispose of any Voting Stock of
MLPF&S or permit MLPF&S to issue, sell or otherwise dispose of any of its
Voting Stock, unless, after giving effect to the transaction, MLPF&S remains a
Controlled Subsidiary.
"Controlled Subsidiary" is defined in the Senior Indentures to mean a
corporation more than 80% of the outstanding shares of Voting Stock of which
are owned directly or indirectly by ML&Co.
In addition, ML&Co. may not permit MLPF&S to:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. convey or transfer its properties and assets substantially as an
entirety, except to one or more Controlled Subsidiaries.
Special Terms Relating to the Subordinated Debt Securities
Upon any distribution of assets of ML&Co. resulting from any dissolution,
winding up, liquidation or reorganization, payments on subordinated debt
securities are subordinated to the extent provided in the Subordinated
Indenture in right of payment to the prior payment in full of all senior
indebtedness, but the obligation of ML&Co. to make payments on the subordinated
debt securities will not otherwise be affected. ML&Co. may not make any payment
on subordinated debt securities at any time when there is a default in the
payment or delivery of any amounts due on any senior indebtedness, including
payment of any sinking fund. Because the subordinated debt securities are
subordinated in right of payment to any senior indebtedness, in the event of a
distribution of assets upon insolvency, some creditors of ML&Co. may recover
more, ratably, than holders of subordinated debt securities. Holders of
subordinated debt securities will be subrogated to the rights of holders of
senior indebtedness to the extent of payments made on senior indebtedness upon
any distribution of assets in any proceedings in respect of subordinated debt
securities.
As of March 31, 2000, a total of approximately $85.0 billion of ML&Co.'s
indebtedness was senior indebtedness.
Special Terms Relating to Convertible Debt Securities
The following provisions will apply to debt securities that will be
convertible into common stock or preferred stock of ML&Co. unless otherwise
provided in the prospectus supplement relating to the specific issue of debt
securities.
The holder of any convertible debt securities will have the right,
exercisable at any time during the time period specified in the applicable
prospectus supplement, unless previously redeemed, to convert convertible debt
securities into shares of common stock or preferred stock of ML&Co. as
specified in the prospectus supplement, at the conversion rate per principal
amount of convertible debt securities set forth in the applicable prospectus
supplement. In the case of convertible debt securities called for redemption,
conversion rights will expire at the close of business on the date fixed for
the redemption specified in the applicable prospectus supplement, except that,
in the case of redemption at the option of the holder, if applicable, the
conversion right will terminate upon receipt of written notice of the exercise
of the option.
For each series of convertible debt securities, the conversion price or rate
will be subject to adjustment as contemplated in the applicable indenture.
Unless otherwise provided in the applicable prospectus supplement, these
adjustments may occur as a result of:
. the issuance of shares of ML&Co. common stock as a dividend;
. subdivisions and combinations of ML&Co. common stock;
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. the issuance to all holders of ML&Co. common stock of rights or warrants
entitling holders to subscribe for or purchase shares of ML&Co. common
stock at a price per share less than the current market price per share;
and
. the distribution to all holders of ML&Co. common stock of:
. shares of ML&Co. capital stock other than common stock;
. evidences of indebtedness of ML&Co. or assets other than cash
dividends paid from retained earnings and dividends payable in
common stock referred to above; or
. subscription rights or warrants other than those referred to above.
In any case, no adjustment of the conversion price or rate will be required
unless an adjustment would require a cumulative increase or decrease of at
least 1% in such price or rate. ML&Co. will not issue any fractional shares of
ML&Co. common stock upon conversion, but, instead, ML&Co. will pay a cash
adjustment. If indicated in the applicable prospectus supplement, convertible
debt securities convertible into common stock of ML&Co. which are surrendered
for conversion between the record date for an interest payment, if any, and the
interest payment date, other than convertible debt securities called for
redemption on a redemption date during that period, must be accompanied by
payment of an amount equal to interest which the registered holder is entitled
to receive.
ML&Co. will determine the adjustment provisions for convertible debt
securities at the time of issuance of each series of convertible debt
securities. These adjustment provisions will be described in the applicable
prospectus supplement.
Except as set forth in the applicable prospectus supplement, any convertible
debt securities called for redemption, unless surrendered for conversion on or
before the close of business on the redemption date, are subject to being
purchased from the holder of the convertible debt securities by one or more
investment banking firms or other purchasers who may agree with ML&Co. to
purchase convertible debt securities and convert them into common stock or
preferred stock of ML&Co., as the case may be.
Governing Law
The indentures and the debt securities will be governed by, and construed in
accordance with, the laws of the State of New York.
DESCRIPTION OF DEBT WARRANTS
ML&Co. may issue warrants for the purchase of debt securities ("Debt
Warrants"). The Debt Warrants are to be issued under debt warrant agreements to
be entered into between ML&Co. and a bank or trust company, as debt warrant
agent as set forth in the prospectus supplement relating to the specific issue
of Debt Warrants being offered. We have filed a copy of the form of debt
warrant agreement, including the form of warrant certificates representing the
Debt Warrants, reflecting the alternative provisions to be included in the debt
warrant agreements that will be entered into with respect to particular
offerings of Debt Warrants, as an exhibit to the registration statement of
which this prospectus is a part. The following summaries of the material
provisions of the debt warrant agreement and the debt warrant certificates are
not complete and are subject to, and are qualified in their entirety by
reference to, all the provisions of the debt warrant agreement and the debt
warrant certificates, respectively, including the definitions of terms.
Terms of the Debt Warrants
The applicable prospectus supplement will describe the terms of the specific
issue of Debt Warrants being offered, the debt warrant agreement relating to
the Debt Warrants and the debt warrant certificates representing the Debt
Warrants, including the following:
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. the designation and aggregate principal amount of the debt securities
that the holder of a Debt Warrant may purchase upon exercise of the Debt
Warrant and the price at which the purchase may be made;
. the designation and terms of any debt securities issued with or
purchasable upon exercise of the Debt Warrants, including whether the
debt securities will be senior debt securities or subordinated debt
securities and under which indenture the debt securities will be issued;
. the procedures and conditions relating to the exercise of the Debt
Warrants;
. the number of Debt Warrants issued with each debt security;
. any date on and after which the Debt Warrants and any related debt
securities are separately transferable;
. the date on which the right to exercise the Debt Warrants begins and
expires;
. whether the Debt Warrants represented by the debt warrant certificates
will be issued in registered or bearer form, and, if registered, where
they may be transferred and registered;
. any circumstances which will cause the Debt Warrants to be deemed to be
automatically exercised;
. the identity of the debt warrant agent; and
. any other terms of the Debt Warrants which are not inconsistent with the
provisions of the debt warrant agreement.
Holders may exchange debt warrant certificates for new debt warrant
certificates of different denominations. Holders may exercise Debt Warrants at
the corporate trust office of the debt warrant agent or any other office
indicated in the applicable prospectus supplement. Before the exercise of their
Debt Warrants, holders of Debt Warrants will not have any of the rights of
holders of the debt securities that may be purchased upon exercise of the Debt
Warrants and will not be entitled to payment or delivery of any amounts which
may be due on the debt securities purchasable upon exercise of the Debt
Warrants.
Prospective purchasers of Debt Warrants should be aware that special U.S.
Federal income tax, accounting and other considerations may be applicable to
instruments such as Debt Warrants and to the debt securities purchasable upon
exercise of the Debt Warrants. The prospectus supplement relating to any issue
of Debt Warrants will describe these considerations.
Ranking
The Debt Warrants are unsecured contractual obligations of ML&Co. and will
rank equally with its other unsecured contractual obligations and with its
unsecured and unsubordinated debt. Because ML&Co. is a holding company, the
right of ML&Co. and its creditors, including the debt warrantholders, to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that a bankruptcy
court may recognize claims of ML&Co. itself as a creditor of the subsidiary. In
addition, dividends, loans and advances from certain subsidiaries, including
MLPF&S, to ML&Co. are restricted by net capital requirements under the Exchange
Act and under rules of certain exchanges and other regulatory bodies.
Book-Entry Procedures
Except as may otherwise be provided in the applicable prospectus supplement,
the Debt Warrants will be issued in the form of global debt warrant
certificates, registered in the name of a depositary or its nominee.
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Except as may otherwise be provided in the applicable prospectus supplement,
beneficial owners will not be entitled to receive definitive certificates
representing Debt Warrants unless the depositary is unwilling or unable to
continue as depositary or ML&Co. decides to have the Debt Warrants represented
by definitive certificates. A beneficial owner's interest in a Debt Warrant
will be recorded on or through the records of the brokerage firm or other
entity that maintains the beneficial owner's account. In turn, the total number
of Debt Warrants held by an individual brokerage firm for its clients will be
maintained on the records of the depositary in the name of the brokerage firm
or its agent. Transfer of ownership of any Debt Warrant will be effected only
through the selling beneficial owner's brokerage firm.
Exercise of Debt Warrants
Each Debt Warrant will entitle the holder to purchase for cash a principal
amount of debt securities at the exercise price set forth in, or determined in
the manner set forth in, the applicable prospectus supplement. Holders may
exercise Debt Warrants at any time up to the close of business on the
expiration date set forth in the applicable prospectus supplement. After the
close of business on the expiration date, unexercised Debt Warrants will become
void.
Holders may exercise Debt Warrants in the manner described in the applicable
prospectus supplement. Upon receipt of payment and properly completed and duly
executed debt warrant certificate at the corporate trust office of the debt
warrant agent or any other office indicated in the applicable prospectus
supplement, ML&Co. will, as soon as practicable, forward the debt securities
purchased. If less than all of the Debt Warrants represented by any debt
warrant certificate are exercised, a new debt warrant certificate will be
issued for the remaining amount of Debt Warrants.
Listing
ML&Co. may list an issue of Debt Warrants on a national securities exchange.
Any listing will be specified in the applicable prospectus supplement.
DESCRIPTION OF CURRENCY WARRANTS
ML&Co. may issue Currency Warrants either in the form of:
. Currency Put Warrants entitling the holders to receive from ML&Co. the
cash settlement value in U.S. dollars of the right to sell a specified
amount of a specified foreign currency or currency units for a specified
amount of U.S. dollars, or
. Currency Call Warrants entitling the holders to receive from ML&Co. the
cash settlement value in U.S. dollars of the right to purchase a
specified amount of a specified foreign currency or units of two or more
currencies for a specified amount of U.S. dollars.
ML&Co. may issue the Currency Warrants under a currency put warrant
agreement or a currency call warrant agreement, as applicable, to be entered
into between ML&Co. and a bank or trust company, as currency warrant agent as
set forth in the applicable prospectus supplement relating to Currency Warrants
being offered. Copies of the forms of currency put warrant agreement and
currency call warrant agreement, including the forms of certificates
representing the Currency Put Warrants and Currency Call Warrants, reflecting
the provisions to be included in the currency warrant agreements that will be
entered into with respect to particular offerings of Currency Warrants, are
filed as exhibits to the registration statement of which this prospectus is a
part. The following summaries of the material provisions of the currency
warrant agreements and the currency warrant certificates are not complete and
are subject to, and are qualified in their entirety by reference to, all the
provisions of the currency warrant agreements and the currency warrant
certificates, respectively, including the definitions of terms.
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Terms of the Currency Warrants
The applicable prospectus supplement will describe the terms of the specific
issue of Currency Warrants being offered, the currency warrant agreement
relating to the Currency Warrants and the currency warrant certificates
representing the Currency Warrants, including the following:
. whether the Currency Warrants are Currency Put Warrants, Currency Call
Warrants, or both;
. the formula for determining the cash settlement value of each Currency
Warrant;
. the procedures and conditions relating to the exercise of the Currency
Warrants;
. any circumstances other than those described below under "--Exercise of
Currency Warrants" and "--Listing"that will cause the Currency Warrants
to be deemed to be automatically exercised;
. any minimum number of Currency Warrants which must be exercised at any
one time, other than upon automatic exercise;
. the date on which the right to exercise the Currency Warrants begins and
expires;
. the identity of the currency warrant agent; and
. any other terms of the Currency Warrants that are not inconsistent with
the provisions of the applicable currency warrant agreement.
Prospective purchasers of Currency Warrants should be aware that special
U.S. Federal income tax, accounting and other considerations may be applicable
to instruments such as Currency Warrants. The prospectus supplement relating to
any issue of Currency Warrants will describe these considerations, if they
apply.
Ranking
The Currency Warrants are unsecured contractual obligations of ML&Co. and
will rank equally with its other unsecured contractual obligations and with its
unsecured and unsubordinated debt. Because ML&Co. is a holding company, the
right of ML&Co. and its creditors, including the currency warrantholders, to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that a bankruptcy
court may recognize claims of ML&Co. itself as a creditor of the subsidiary. In
addition, dividends, loans and advances from certain subsidiaries, including
MLPF&S, to ML&Co. are restricted by net capital requirements under the Exchange
Act and under rules of certain exchanges and other regulatory bodies.
Book-Entry Procedures
Except as may otherwise be provided in the applicable prospectus supplement,
the Currency Warrants will be issued in the form of global currency warrant
certificates, registered in the name of a depositary or its nominee. In that
case, beneficial owners will not be entitled to receive definitive certificates
representing Currency Warrants unless the depositary is unwilling or unable to
continue as depositary or ML&Co. decides to have the Currency Warrants
represented by definitive certificates. A beneficial owner's interest in a
Currency Warrant will be recorded on or through the records of the brokerage
firm or other entity that maintains a beneficial owner's account. In turn, the
total number of Currency Warrants held by an individual brokerage firm for its
clients will be maintained on the records of the depositary in the name of the
brokerage firm or its agent. Transfer of ownership of any Currency Warrant will
be effected only through the selling beneficial owner's brokerage firm.
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Exercise of Currency Warrants
Each Currency Warrant will entitle the holder to the cash settlement value
of that Currency Warrant on the applicable exercise date as described in the
applicable prospectus supplement. If a Currency Warrant has more than one
exercise date and is not exercised before the time specified in the applicable
prospectus supplement, on the fifth business day preceding the expiration date,
the Currency Warrants will be deemed automatically exercised.
Listing
ML&Co. will apply to list each issue of Currency Warrants on a national
securities exchange. In the event that the Currency Warrants are delisted from,
or permanently suspended from trading on, any exchange, the expiration date for
the exercise of the Currency Warrants will be the date the delisting or trading
suspension becomes effective and Currency Warrants not previously exercised
will be deemed automatically exercised on the business day immediately
preceding the expiration date. Under the applicable currency warrant agreement,
ML&Co. will agree not to seek delisting of the Currency Warrants, or suspension
of their trading, on any exchange.
DESCRIPTION OF INDEX WARRANTS
ML&Co. may issue from time to time Index Warrants consisting of index put
warrants or index call warrants. Subject to applicable law, ML&Co. will pay or
deliver consideration on each Index Warrant in an amount determined by
reference to the level or value of an index such as:
. an equity or debt security, or a portfolio or basket of indices or
securities, which may include the price or yield of securities;
. any statistical measure of economic or financial performance, which may
include any currency or consumer price, or mortgage index; or
. the price or value of any commodity or any other item or index or any
combination.
The payment or delivery of any consideration on any index put warrant will
be determined by the decrease in the level or value of the applicable index and
the payment or delivery of any consideration on any index call warrant will be
determined by the increase in the level or value of the applicable Index.
Method of Issuance
Index Warrants issued without a Minimum Expiration Value will be issued
under one or more index warrant agreements to be entered into between ML&Co.
and a bank or trust company, as index warrant agent, all as described in the
prospectus supplement relating to the specific issue of Index Warrants. The
index warrant agent will act solely as the agent of ML&Co. under the applicable
index warrant agreement and will not assume any obligation or relationship of
agency or trust for or with any index warrantholders. A single bank or trust
company may act as index warrant agent for more than one issue of Index
Warrants.
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Index Warrants issued with a Minimum Expiration Value will be issued under
one or more index warrant trust indentures to be entered into between ML&Co.
and a corporation or other person permitted by the Trust Indenture Act of 1939,
as amended from time to time, to act as index warrant trustee, all as described
in the prospectus supplement relating to the Index Warrants. Any index warrant
trust indenture will be qualified under the Trust Indenture Act. To the extent
allowed by the Trust Indenture Act, a single qualified corporation may act as
index warrant trustee for more than one issue of Index Warrants.
ML&Co. has filed forms of index warrant agreement and index warrant trust
indenture and the related global index warrant certificates as exhibits to the
registration statement of which this prospectus is a part. The summaries set
forth in this section of the material provisions of the index warrant
agreement, the index warrant trust indenture and global index warrant
certificates are not complete, are subject to, and are qualified in their
entirety by reference to, all the provisions of the index warrant agreement,
the index warrant trust indenture and global index warrant certificates,
respectively.
Unless otherwise specified in the accompanying prospectus supplement,
payments, if any, upon exercise of the Index Warrants will be made in U.S.
dollars. The Index Warrants will be offered on terms to be determined at the
time of sale. ML&Co. will have the right to reopen a previous issue of Index
Warrants and to issue additional Index Warrants of that issue without the
consent of any index warrantholder.
Terms of the Index Warrants
The applicable prospectus supplement will describe the specific issue of
Index Warrants being offered, the indenture or agreement under which the Index
Warrants will be issued, as the case may be, and the index warrant certificates
representing the Index Warrants, including the following:
. whether the Index Warrants to be issued will be Index Put Warrants,
Index Call Warrants or both;
. the aggregate number and initial public offering price or purchase
price;
. the applicable index;
. whether the Index Warrants will be deemed automatically exercised as of
a specified date or whether the Index Warrants may be exercised during a
period and the date on which the right to exercise the Index Warrants
commences and expires;
. the manner in which the Index Warrants may be exercised and any
restrictions on, or other special provisions relating to, the exercise
of the Index Warrants;
. any minimum number of the Index Warrants exercisable at any one time;
. any maximum number of the Index Warrants that may, subject to ML&Co.'s
election, be exercised by all index warrantholders, or by any person or
entity, on any day;
. any provisions permitting an index warrantholder to condition an
exercise notice on the absence of certain specified changes in the level
of the applicable index after the exercise date, any provisions
permitting ML&Co. to suspend exercise of the Index Warrants based on
market conditions or other circumstances and any other special provision
relating to the exercise of the Index Warrants;
. any provisions for the automatic exercise of the Index Warrants other
than at the expiration date;
. any provisions permitting ML&Co. to cancel the Index Warrants upon the
occurrence of certain events;
. any additional circumstances that would constitute an Event of Default
under the Index Warrants;
. the method of determining:
. the payment or delivery, if any, to be made in connection with the
exercise or deemed exercise of the Index Warrants (the "Settlement
Value");
15
. the minimum payment or delivery, if any, to be made upon expiration
of the Index Warrants (the "Minimum Expiration Value");
. the payment or delivery to be made upon the exercise of any right
which ML&Co. may have to cancel the Index Warrants; and
. the value of the index;
. in the case of Index Warrants relating to an index for which the trading
prices of underlying securities, commodities or rates are expressed in a
foreign currency, the method of converting amounts in the relevant
foreign currency or currencies into U.S. dollars, or any other currency
or composite currency in which the Index Warrants are payable;
. any method of providing for a substitute index or otherwise determining
the payment or delivery to be made in connection with the exercise of
the Index Warrants if the index changes or ceases to be made available
by its publisher;
. any time or times at which ML&Co. will make payment or delivery on the
Index Warrants following exercise or automatic exercise;
. any provisions for issuing the Index Warrants in other than book-entry
form;
. if the Index Warrants are not issued in book-entry form, any place or
places at which ML&Co. will make payment or delivery on cancellation and
any Minimum Expiration Value of the Index Warrants;
. any circumstances that will cause the Index Warrants to be deemed to be
automatically exercised;
. any material risk factors relating to the Index Warrants;
. the identity of the Index Warrant Agent; and
. any other terms of the Index Warrants which are not inconsistent with
the provisions of the index warrant agreement.
Prospective purchasers of Index Warrants should be aware that special U.S.
Federal income tax, accounting and other considerations may be applicable to
instruments such as the Index Warrants. The prospectus supplement relating to
any issue of Index Warrants will describe these considerations, if they apply.
Ranking
The Index Warrants are unsecured contractual obligations of ML&Co. and will
rank equally with its other unsecured contractual obligations and with its
unsecured and unsubordinated debt. Because ML&Co. is a holding company, the
right of ML&Co. and its creditors, including the index warrantholders, to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that a bankruptcy
court may recognize claims of ML&Co. itself as a creditor of the subsidiary. In
addition, dividends, loans and advances from certain subsidiaries, including
MLPF&S, to ML&Co. are restricted by net capital requirements under the Exchange
Act and under rules of certain exchanges and other regulatory bodies.
Payment and Delivery
If specified, and under the circumstances described in the prospectus
supplement:
. ML&Co. will pay or deliver to each index warrantholder an amount equal
to the greater of the applicable Settlement Value and a Minimum
Expiration Value of the Index Warrants;
. upon cancellation of the Index Warrants by ML&Co. which may occur upon
specified events, ML&Co. will pay or deliver to each index warrantholder
an amount specified in the prospectus supplement; and
16
. following the occurrence of an extraordinary event, the Settlement Value
of an Index Warrant may, at the option of ML&Co., be determined on a
different basis, including in connection with automatic exercise at
expiration.
Unless otherwise specified in the related prospectus supplement, the Index
Warrants will be deemed to be automatically exercised upon expiration or any
earlier date that may be specified. Upon any automatic exercise, ML&Co. will
deliver or pay to each index warrantholder an amount equal to the Settlement
Value of the Index Warrants, except that holders of Index Warrants having a
Minimum Expiration Value will be entitled to receive a payment or delivery
equal to the greater of the Settlement Value and the applicable Minimum
Expiration Value. The Minimum Expiration Value may be either a predetermined
payment or delivery or a payment or delivery that varies during the term of the
Index Warrants in accordance with a schedule or formula. Any Minimum Expiration
Value applicable to an issue of Index Warrants, as well as any additional
circumstances resulting in the automatic exercise of the Index Warrants, will
be specified in the applicable prospectus supplement.
Cancellation or Postponement
If so specified in the applicable prospectus supplement, ML&Co. may cancel
the Index Warrants. In addition, ML&Co. may delay or postpone the exercise or
valuation of, or payment or delivery for, the Index Warrants upon the
occurrence of an extraordinary event. Any extraordinary events relating to an
issue of Index Warrants will be described in the applicable prospectus
supplement. Upon cancellation, the related index warrantholders will be
entitled to receive only the applicable payment or delivery on cancellation
specified in the applicable prospectus supplement. The amount payable or
deliverable upon cancellation may be either a predetermined amount or an amount
that varies during the term of the Index Warrants in accordance with a schedule
or formula.
Waiver of Default
If ML&Co. defaults with respect to any of its obligations under any Index
Warrants issued with a Minimum Expiration Value under an index warrant trust
indenture, the index warrantholders of a majority in interest of all
outstanding Index Warrants may waive a default, except a default:
. in the payment or delivery of the Settlement Value, Minimum Expiration
Value or payment or delivery of any amount upon cancellation of the
Index Warrants; or
. in respect of a covenant or provision of the applicable index warrant
trust indenture which cannot be modified or amended without the consent
of each index warrantholder of each outstanding Index Warrant affected.
Modification
ML&Co. and the index warrant agent or index warrant trustee, as the case may
be, may amend any index warrant agreement or index warrant indenture and the
terms of the related Index Warrants by a supplemental agreement or supplemental
indenture (each, a "Supplemental Agreement"), without the consent of the
holders of any Index Warrants, for the purpose of:
. curing any ambiguity, or of curing, correcting or supplementing any
defective or inconsistent provision, or of making any other provisions
with respect to matters or questions arising under the index warrant
agreement or index warrant trust indenture, as the case may be, which
are not inconsistent with the provisions of the respective agreement or
indenture or of the Index Warrants;
. evidencing the succession to ML&Co. and the assumption by the successor
of ML&Co.'s covenants contained in the index warrant agreement or the
index warrant trust indenture, as the case may be, and the Index
Warrants;
. appointing a successor depositary;
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. evidencing and providing for the acceptance of appointment by a
successor index warrant agent or index warrant trustee with respect to
the Index Warrants, as the case may be;
. adding to the covenants of ML&Co., for the benefit of the index
warrantholders or surrendering any right or power conferred upon ML&Co.
under the index warrant agreement or index warrant trust indenture, as
the case may be;
. issuing Index Warrants in definitive form; or
. amending the index warrant agreement or index warrant trust indenture,
as the case may be, in any manner which ML&Co. may deem to be necessary
or desirable and which will not materially and adversely affect the
interests of the index warrantholders.
ML&Co. and the index warrant agent may also amend any index warrant
agreement or index warrant trust indenture, as the case may be, and the terms
of the related Index Warrants, by a Supplemental Agreement, with the consent of
the index warrantholders holding not less than 66 2/3% in number of the then
outstanding unexercised Index Warrants affected by the amendment, for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the index warrant agreement or index warrant trust
indenture, as the case may be, or of modifying in any manner the rights of the
index warrantholders. However, without the consent of each index warrantholder
affected, no amendment may be made that:
. changes the determination, or any aspects of the determination, of the
Settlement Value or any payment or delivery to be made on cancellation,
or any Minimum Expiration Value of the Index Warrants so as to reduce
the payment or delivery to be made upon exercise or deemed exercise,
. shortens the period of time during which the Index Warrants may be
exercised, or otherwise materially and adversely affects the exercise
rights of the index warrantholders, or
. reduces the number of outstanding Index Warrants, the consent of whose
holders is required for amendment of the index warrant agreement, the
index warrant trust indenture or the terms of the related Index
Warrants.
Events of Default
Specified events in bankruptcy, insolvency or reorganization of ML&Co. will
constitute Events of Default with respect to Index Warrants having a Minimum
Expiration Value which are issued under an index warrant trust indenture. Upon
the occurrence of an Event of Default, the holders of 25% of unexercised Index
Warrants may elect to receive a settlement payment or delivery for any
unexercised Index Warrants. Any settlement payment or delivery will immediately
become due to the index warrantholders upon any election. Assuming ML&Co. is
able to satisfy its obligations when due under the Index Warrants, the
settlement payment or delivery will be an amount equal to the market value of
the Index Warrants as of the date ML&Co. is notified of the intended
liquidation. The market value of the Index Warrants will be determined by a
nationally recognized securities broker-dealer unaffiliated with ML&Co. and
mutually selected by ML&Co. and the index warrant trustee.
Merger, Consolidation, Sale, Lease or Other Dispositions
ML&Co. may consolidate or merge with or into any other corporation and
ML&Co. may sell, lease or convey all or substantially all of its assets to any
corporation, provided that:
. the resulting corporation, if other than ML&Co., is a corporation
organized and existing under the laws of the United States of America or
any U.S. state and assumes all of ML&Co.'s obligations to:
. pay or deliver the Settlement Value, any Minimum Expiration Value or
any consideration payable or deliverable upon cancellation, if
applicable with respect to all the unexercised Index Warrants; and
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. perform and observe all of the obligations and conditions of the
index warrant agreement or index warrant trust indenture, as the
case may be, to be performed or observed by ML&Co.; and
. ML&Co. or the successor corporation, as the case may be, is not,
immediately after any merger or consolidation, in default under the
index warrant agreement or index warrant trust indenture, as the case
may be.
Enforceability of Rights by Index Warrantholders
Any index warrantholder may, without the consent of the related index
warrant agent, enforce by appropriate legal action, in and for its own behalf,
its right to exercise, and receive payment or delivery for, its Index Warrants.
Book-Entry Procedures
Except as may otherwise be provided in the applicable prospectus supplement,
the Index Warrants will be issued in book-entry form and represented by global
Index Warrants, registered in the name of a depositary or its nominee. In that
case, index warrantholders will not be entitled to receive definitive
certificates representing Index Warrants, unless the depositary is unwilling or
unable to continue as depositary or ML&Co. decides to have the Index Warrants
represented by definitive certificates. A beneficial owner's interest in an
Index Warrant represented by a global Index Warrant will be recorded on or
through the records of the brokerage firm or other entity that maintains the
beneficial owner's account. In turn, the total number of Index Warrants held by
an individual brokerage firm or other entity for its clients will be maintained
on the records of the depositary in the name of the brokerage firm or other
entity or its agent. Transfer of ownership of any Index Warrant will be
effected only through the selling beneficial owner's brokerage firm.
Listing
ML&Co. may list an issue of Index Warrants on a national securities
exchange. Any listing will be specified in the applicable prospectus
supplement.
DESCRIPTION OF PREFERRED STOCK
The following description sets forth certain general terms of preferred
stock which ML&Co. may issue. The terms of any series of the preferred stock
will be described in the applicable prospectus supplement relating to the
preferred stock being offered. The description set forth below and in any
prospectus supplement is not complete, and is subject to, and qualified in its
entirety by reference to, ML&Co.'s restated certificate of incorporation, as
amended, which is filed as an exhibit to the registration statement of which
this prospectus is a part, and the certificate of designations relating to each
particular series of the preferred stock, which was or will be filed with the
SEC at or before the issuance of the series of preferred stock.
Terms of the Preferred Stock
Under ML&Co.'s restated certificate of incorporation, ML&Co. is authorized
to issue up to 25,000,000 shares of preferred stock, par value $1.00 per share.
The Board of Directors of ML&Co. has the authority, without approval of the
stockholders, to issue all of the shares of preferred stock which are currently
authorized in one or more series and to fix the number of shares and the
rights, preferences, privileges, qualifications, restrictions and limitations
of each series. As of March 31, 2000, ML&Co. had 24,957,500 shares of preferred
stock available for issuance.
ML&Co. has authorized the issuance of shares of Series A junior preferred
stock, par value $1.00 per share, of ML&Co. upon exercise of preferred share
purchase rights associated with each share of common stock outstanding. See
"Description of Common Stock--Rights to Purchase Series A Junior Preferred
Stock".
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In addition, as described under "Description of Depositary Shares", ML&Co.,
at its option, instead of offering full shares of any series of preferred
stock, may offer depositary shares evidenced by depositary receipts, each
representing a fraction of a share of the particular series of preferred stock
issued and deposited with a depositary. The fraction of a share of preferred
stock which each depositary share represents will be set forth in the
prospectus supplement relating to the depositary shares.
The applicable prospectus supplement will describe the terms of each series
of preferred stock, including, where applicable, the following:
. the designation, stated value, liquidation preference and number of
shares offered;
. the offering price or prices;
. the dividend rate or rates, or method of calculation, the dividend
periods, the date on which dividends shall be payable and whether
dividends are cumulative or noncumulative and, if cumulative, the dates
from which dividends begin to cumulate;
. any redemption or sinking fund provisions;
. any conversion or exchange provisions;
. any voting rights;
. whether the preferred stock will be issued in certificated or book-entry
form;
. whether the preferred stock will be listed on a national securities
exchange;
. information with respect to any book-entry procedures; and
. any additional rights, preferences, privileges, limitations and
restrictions of the preferred stock which are not inconsistent with the
provisions of the certificate of incorporation.
The preferred stock will be, when issued against payment, fully paid and
nonassessable. Holders will have no preemptive rights to subscribe for any
additional securities which ML&Co. may issue. Unless otherwise specified in the
applicable prospectus supplement, the shares of each series of preferred stock
will rank equally with all other outstanding series of preferred stock issued
by ML&Co. as to payment of dividends, other than with respect to cumulation of
dividends, and as to the distribution of assets upon liquidation, dissolution,
or winding up of ML&Co. As of March 31, 2000, there were 42,500 shares of
ML&Co.'s 9% Cumulative Preferred Stock, Series A (the "9% Preferred Stock")
represented by 17,000,000 depositary shares and one Special Voting Share
outstanding. See "--Outstanding Preferred Stock". Each series of preferred
stock will rank senior to the common stock, and any other stock of ML&Co. that
is expressly made junior to that series of preferred stock.
Unless otherwise specified in the applicable prospectus supplement,
Citibank, N.A., will be the transfer agent, dividend disbursing agent and
registrar for the shares of the preferred stock.
Because ML&Co. is a holding company, its rights and the rights of holders of
its securities, including the holders of preferred stock, to participate in the
distribution of assets of any subsidiary of ML&Co. upon its liquidation or
recapitalization will be subject to the prior claims of the subsidiary's
creditors and preferred stockholders, except to the extent ML&Co. may itself be
a creditor with recognized claims against the subsidiary or a holder of
preferred stock of the subsidiary.
Dividends and Distributions
Holders of shares of the preferred stock will be entitled to receive, as, if
and when declared by the Board of Directors of ML&Co., or a duly authorized
committee of the Board of Directors, out of funds legally available for the
payment of dividends, cash dividends at the rate set forth in, or calculated in
accordance with the formula set forth in, the prospectus supplement relating to
the preferred stock being offered.
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Dividends on the preferred stock may be cumulative or noncumulative as
provided in the applicable prospectus supplement. Dividends on the cumulative
preferred stock will accumulate from the date of original issue and will be
payable quarterly in arrears on the dates specified in the applicable
prospectus supplement. If any date so specified as a dividend payment date is
not a business day, declared dividends on the preferred stock will be paid on
the immediately succeeding business day, without interest. The applicable
prospectus supplement will set forth the applicable dividend period with
respect to a dividend payment date. If the Board of Directors of ML&Co. or a
duly authorized committee of the Board of Directors, fails to declare a
dividend on any series of noncumulative preferred stock for any dividend
period, ML&Co. will have no obligation to pay a dividend for that period,
whether or not dividends on that series of noncumulative preferred stock are
declared for any future dividend period. Unless otherwise specified in the
applicable prospectus supplement, dividends on the preferred stock will be
payable to record holders as they appear on the stock books of ML&Co. on each
record date, not more than 30 nor less than 15 days preceding the applicable
payment date, as shall be fixed by the Board of Directors of ML&Co. or a duly
authorized committee of the Board of Directors.
No dividends will be declared or paid or set apart for payment on the
preferred stock of any series ranking, as to dividends, equally with or junior
to any other series of preferred stock for any period unless dividends have
been or are contemporaneously declared and paid or declared and a sum
sufficient for the payment of those dividends has been set apart for,
. in the case of cumulative preferred stock, all dividend periods
terminating on or before the date of payment of full cumulative
dividends, or
. in the case of noncumulative preferred stock, the immediately preceding
dividend period.
When dividends are not paid in full upon any series of preferred stock, and
any other preferred stock ranking equally as to dividends with that series of
preferred stock, all dividends declared upon shares of that series of preferred
stock and any other preferred stock ranking equally as to dividends will be
declared pro rata so that the amount of dividends declared per share on that
series of preferred stock and any other preferred stock ranking equally as to
dividends will in all cases bear to each other the same ratio that accrued
dividends per share on the shares of that series of preferred stock and the
other preferred stock bear to each other. In the case of noncumulative
preferred stock, any accrued dividends described in the immediately preceding
paragraph will not include any cumulation in respect of unpaid dividends for
prior dividend periods.
Except as provided in the immediately preceding paragraph, unless full
dividends on all outstanding shares of any series of preferred stock have been
declared and paid,
. in the case of a series of cumulative preferred stock, for all past
dividend periods, or
. in the case of noncumulative preferred stock, for the immediately
preceding dividend period,
then:
. ML&Co. may not declare dividends or pay or set aside for payment or
other distribution on any of its capital stock ranking junior to or
equally with that series of preferred stock as to dividends or upon
liquidation, other than dividends or distributions paid in shares of, or
options, warrants or rights to subscribe for or purchase shares of, the
common stock of ML&Co. or other capital stock of ML&Co. ranking junior
to that series of preferred stock as to dividends and upon liquidation,
and
. other than in connection with the distribution or trading of any of its
capital stock, ML&Co. may not redeem, purchase or otherwise acquire any
of its capital stock ranking junior to or equally with that series of
preferred stock as to dividends or upon liquidation, for any
consideration or any moneys paid to or made available for a sinking fund
for the redemption of any shares of any of its capital stock, except by
conversion or exchange for capital stock of ML&Co. ranking junior to
that series of preferred stock as to dividends and upon liquidation.
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Unless otherwise specified in the applicable prospectus supplement, the
amount of dividends payable for any period shorter than a full dividend period
shall be computed on the basis of twelve 30-day months, a 360-day year and the
actual number of days elapsed in any period of less than one month.
As of the date of this prospectus, subsidiaries of ML&Co. have issued $2.673
billion of perpetual Trust Originated Preferred Securities SM ("TOPrS"). In
connection with the issuance of the TOPrS, ML&Co. has agreed, among other
things, that if full distributions on the TOPrS have not been paid or set apart
for payment or if ML&Co. is in default of their related guarantee obligations,
ML&Co., with certain exceptions, will not declare or pay dividends, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to any of its capital stock, including the
preferred stock.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up of
ML&Co., the holders of the preferred stock will have preference and priority
over the common stock of ML&Co. and any other class of stock of ML&Co. ranking
junior to the preferred stock upon liquidation, dissolution or winding up, for
payments out of or distributions of the assets of ML&Co. or proceeds from any
liquidation, whether from capital or surplus, of the amount per share set forth
in the applicable prospectus supplement plus all accrued and unpaid dividends,
whether or not earned or declared, to the date of final distribution to such
holders. After any liquidating payment, the holders of preferred stock will be
entitled to no other payments. If, in the case of any liquidation, dissolution
or winding up of ML&Co., the assets of ML&Co. or the proceeds from any
liquidation should be insufficient to make the full liquidation payment in the
amount per share set forth in the applicable prospectus supplement relating to
a series of preferred stock, plus all accrued and unpaid dividends on that
preferred stock, and liquidating payments on any other preferred stock ranking
as to liquidation, dissolution or winding up equally with that preferred stock,
then any assets and proceeds will be distributed among the holders of the
preferred stock and any other preferred stock ratably in accordance with the
respective amounts which would be payable on those shares of preferred stock
and any other preferred stock if all amounts payable were paid in full. In the
case of noncumulative preferred stock, accrued and unpaid dividends will not
include cumulation of unpaid dividends from prior dividend periods. A
consolidation or merger of ML&Co. with one or more corporations will not be
deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary, of ML&Co.
Redemption
If specified in the prospectus supplement relating to a series of preferred
stock being offered, ML&Co. may, at its option, at any time or from time to
time on not less than 30 nor more than 60 days notice, redeem that series of
preferred stock in whole or in part at the redemption prices and on the dates
set forth in the applicable prospectus supplement.
If less than all outstanding shares of a series of preferred stock are to be
redeemed, the selection of the shares to be redeemed shall be determined by lot
or pro rata as may be determined by the Board of Directors of ML&Co. or a duly
authorized committee of the Board of Directors to be equitable. From and after
the redemption date, unless ML&Co. is in default in providing for the payment
of the redemption price, dividends shall cease to accrue on the shares of that
series of preferred stock called for redemption and all rights of the holders
shall cease, other than the right to receive the redemption price.
Voting Rights
Unless otherwise described in the applicable prospectus supplement, holders
of the preferred stock will have no voting rights except as set forth below or
as otherwise required by law.
SM Service mark of Merrill Lynch & Co., Inc.
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Whenever dividends payable on the preferred stock are in arrears for a
number of dividend periods, whether or not consecutive, which in the aggregate
is equivalent to six calendar quarters, the holders of outstanding shares of
the preferred stock, voting as a class with holders of shares of all other
series of preferred stock ranking equally with the preferred stock either as to
dividends or the distribution of assets upon liquidation, dissolution or
winding up and upon which like voting rights have been conferred and are
exercisable, will be entitled to vote for the election of two additional
directors on the terms set forth below. These voting rights will continue, in
the case of any series of cumulative preferred stock, until all past dividends
accumulated on shares of cumulative preferred stock are paid in full and, in
the case of noncumulative preferred stock, until all dividends on shares of
noncumulative preferred stock are paid in full for at least one calendar year.
Upon payment in full of these dividends, the voting rights will terminate
except as expressly provided by law. These voting rights are subject to re-
vesting in the event of each and every subsequent default in the payment of
dividends. Holders of all series of preferred stock which are granted these
voting rights and which rank equally with the preferred stock will vote as a
class, and, unless otherwise specified in the applicable prospectus supplement,
each holder of shares of the preferred stock will have one vote for each share
of stock held and each other series will have the number of votes, if any, for
each share of stock held as may be granted to them. In the event that the
holders of shares of the preferred stock are entitled to vote as described in
this paragraph, the Board of Directors of ML&Co. will be increased by two
directors, and the holders of the preferred stock will have the exclusive right
as members of that class, as outlined above, to elect two directors at the next
annual meeting of stockholders.
Upon termination of the right of the holders of the preferred stock to vote
for directors as discussed in the preceding paragraph, the term of office of
all directors then in office elected by those holders will terminate
immediately. Whenever the term of office of the directors elected by those
holders ends and the related special voting rights expire, the number of
directors will automatically be decreased to the number of directors as would
otherwise prevail.
So long as any shares of preferred stock remain outstanding, ML&Co. shall
not, without the affirmative vote or consent of the holders of at least two-
thirds of the shares of the preferred stock outstanding at the time, voting as
a class with all other series of preferred stock ranking equally with the
preferred stock either as to dividends or the distribution of assets upon
liquidation, dissolution or winding up and upon which like voting rights have
been conferred and are exercisable, given in person or by proxy, either in
writing or at a meeting:
. authorize, create or issue, or increase the authorized or issued amount
of, any class or series of stock ranking senior to the preferred stock
with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up of ML&Co.; or
. amend, alter or repeal, whether by merger, consolidation or otherwise,
the provisions of ML&Co.'s restated certificate of incorporation or the
certificate of designations of the preferred stock so as to materially
and adversely affect any right, preference, privilege or voting power of
the preferred stock or the holders of the preferred stock;
provided, however, that any increase in the amount of authorized preferred
stock or the creation and issuance, or an increase in the authorized or issued
amount, of other series of preferred stock, or any increase in the amount of
authorized shares of preferred stock, in each case ranking equally with or
junior to the preferred stock with respect to the payment of dividends and the
distribution of assets upon liquidation, dissolution or winding of ML&Co. up
will not be deemed to materially and adversely affect these rights,
preferences, privileges or voting powers.
The foregoing voting provisions will not apply if all outstanding shares of
preferred stock have been redeemed or sufficient funds have been deposited in
trust to effect such a redemption which is scheduled to be consummated within
three months after the time that such rights would otherwise be exercisable.
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Conversion or Exchange Rights
The prospectus supplement relating to a series of preferred stock that is
convertible or exchangeable will state the terms on which shares of that series
are convertible or exchangeable into common stock, another series of preferred
stock or debt securities.
Outstanding Preferred Stock
At March 31, 2000, there were 42,500 shares of 9% Preferred Stock
represented by 17,000,000 depositary shares and one Special Voting Share
outstanding.
9% Preferred Stock
The 9% Preferred Stock has preference over ML&Co.'s common stock and the
Series A junior preferred stock issuable under the Rights Plan described under
"Description of Common Stock" with respect to the payment of dividends and the
distribution of assets in the event of liquidation, dissolution or winding up
of ML&Co. Holders of the 9% Preferred Stock do not have any preemptive rights
to subscribe for any additional securities which may be issued by ML&Co.
Dividends on the 9% Preferred Stock are cumulative and payable quarterly at the
rate per annum of 9% of the $10,000 liquidation preference per share. Holders
of the 9% Preferred Stock have no voting rights except as set forth above under
"--Voting Rights" above. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of ML&Co., the holders of outstanding
shares of 9% Preferred Stock are entitled to receive out of assets of ML&Co.
available for distribution to stockholders a distribution of $10,000 per share,
plus accumulated and unpaid dividends, if any. The 9% Preferred Stock is not
redeemable before December 30, 2004. On and after that date, the 9% Preferred
Stock is redeemable at the option of ML&Co., in whole at any time or from time
to time in part, upon not less than 30 nor more than 60 days notice, at a
redemption price of $10,000 per share, plus accumulated and unpaid dividends,
if any.
Special Voting Share
In connection with the acquisition of Midland Walwyn Inc. by ML&Co. in
August 1998, ML&Co. issued a single share of preferred stock with special
voting rights (the "Special Voting Share"), under the terms of a Voting and
Exchange Trust Agreement entered into by Merrill Lynch & Co., Canada Ltd. ("ML
Canada"), ML&Co. and Montreal Trust Company of Canada, as trustee (the "Voting
Trust Agreement"). The Special Voting Share possesses a number of votes equal
to the number of exchangeable shares of ML Canada (the "Exchangeable Shares")
issued and outstanding from time to time that are not owned by ML&Co. or its
affiliates, which votes may be exercised for the election of directors and on
all other matters submitted to a vote of ML&Co.'s stockholders. The holders of
ML&Co.'s common stock and the holder of the Special Voting Share vote together
as a class on all matters. See "Description of Common Stock--Voting Rights".
The Special Voting Share was issued to the trustee under the Voting Trust
Agreement. The holder of the Special Voting Share is not entitled to receive
dividends, and, in the event of any liquidation, dissolution or winding up of
ML&Co., will receive an amount equal to the par value of the Special Voting
Share. When the Special Voting Share has no votes attached to it because there
are no Exchangeable Shares outstanding not owned by ML&Co. or any of its
affiliates, the Special Voting Share will cease to have any rights.
DESCRIPTION OF DEPOSITARY SHARES
ML&Co. may issue depositary receipts evidencing depositary shares, each of
which will represent a fraction of a share of preferred stock. ML&Co. will
deposit shares of preferred stock of each class or series represented by
depositary shares under deposit agreements to be entered into among ML&Co., a
bank or trust company, as depositary, and the holders from time to time of the
depositary receipts. A copy of the form of deposit agreement, including the
form of certificates representing the depositary receipts, is filed as an
exhibit to the registration statement of which this prospectus is a part. The
following summaries of the material
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provisions of the deposit agreements and the depositary receipt certificates
are not complete, are subject to, and are qualified in their entirety by
reference to, all the provisions of the deposit agreement and the depositary
receipt certificates, respectively, including the definitions of terms.
Terms of the Depositary Shares
Depositary receipts issued under the applicable deposit agreement will
evidence the depositary shares. Immediately following the issuance and delivery
of the preferred stock by ML&Co. to the depositary, ML&Co. will cause the
depositary to issue, on behalf of ML&Co., the depositary receipts. Subject to
the terms of the applicable deposit agreement, each holder of a depositary
receipt will be entitled, in proportion to the fraction of a share of preferred
stock represented by the applicable depositary shares, to all the rights and
preferences of the preferred stock being represented, including dividend,
voting, conversion, redemption and liquidation rights, all as will be set forth
in the prospectus supplement relating to the depositary shares being offered.
The depositary shares will have the dividend, liquidation, redemption,
voting and conversion or exchange rights set forth below unless otherwise
specified in the applicable prospectus supplement. The applicable prospectus
supplement will describe the terms of the specific issue of the depositary
shares being offered, the deposit agreement relating to the depositary shares
and the depositary receipts evidencing the depositary shares, including the
following:
. the designation, stated value and liquidation preference of the
depositary shares and the number of shares offered;
. the offering price or prices;
. the dividend rate or rates, or method of calculation, the dividend
periods, the dates on which dividends will be payable and whether
dividends are cumulative or noncumulative and, if cumulative, the dates
from which dividends will begin to cumulate;
. any redemption or sinking fund provisions;
. any conversion or exchange provisions;
. any material risk factors relating to the depositary shares;
. the identity of the depositary; and
. any other terms of the depositary shares which are not inconsistent with
the provisions of the deposit agreement.
Book-Entry Procedures
Except as may otherwise be provided in the applicable prospectus supplement,
the depositary shares will be evidenced by global depositary receipts,
registered in the name of a depositary or its nominee. In that case, beneficial
owners will not be entitled to receive depositary receipts evidencing their
depositary shares unless the depositary is unwilling or unable to continue as
depositary or ML&Co. decides to have the depositary shares represented by
separate depositary receipts. A beneficial owner's interest in depositary
shares will be recorded on or through the records of the brokerage firm or
other entity that maintains the beneficial owner's account. In turn, the total
number of depositary shares held by an individual brokerage firm for its
clients will be maintained on the records of the depositary in the name of the
brokerage firm or its agent. Transfer of ownership of depositary shares will be
effected only through the selling beneficial owner's brokerage firm.
Dividends and Other Distributions
The depositary will distribute all cash dividends or other cash
distributions received in respect of the preferred stock to the record holders
of depositary receipts in proportion to the number of depositary shares owned
by those holders, subject to the obligations of holders to file proofs,
certificates and other information and to pay certain charges and expenses to
the depositary.
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In the event of a distribution in respect of the preferred stock other than
in cash, the depositary will distribute property it receives to the record
holders of the depositary shares, subject to certain obligations of holders to
file proofs, certificates and other information and to pay certain charges and
expenses to the depositary, unless the depositary, after consultation with
ML&Co., determines that it is not feasible to make the distribution, in which
case the depositary may, with the approval of ML&Co., sell any property and
distribute the net proceeds from the sale to the holders.
Withdrawal of Stock
Unless the related depositary shares have been previously called for
redemption, upon surrender of the depositary receipts at the corporate trust
office of the depositary, the holder of the depositary shares will be entitled
to delivery, at the corporate trust office of the depositary to or upon his or
her order, of the number of whole shares of the preferred stock and any money
or other property represented by the depositary shares. If the depositary
receipts delivered by the holder evidence a number of depositary shares in
excess of the number of depositary shares representing the number of whole
shares of preferred stock to be withdrawn, the depositary will deliver to the
holder at the same time a new depositary receipt evidencing the excess number
of depositary shares. In no event will the depositary deliver fractional shares
of preferred stock upon surrender of depositary receipts.
Redemption of Depositary Shares
Whenever ML&Co. redeems shares of preferred stock held by the depositary,
the depositary will redeem as of the same redemption date the number of
depositary shares representing shares of the preferred stock so redeemed,
provided ML&Co. has paid in full to the depositary the redemption price of the
preferred stock to be redeemed plus an amount equal to any accumulated and
unpaid dividends on the preferred stock to the date fixed for redemption. The
redemption price per depositary share will be equal to the redemption price and
any other amounts per share payable with respect to the preferred stock
multiplied by the fraction of a share of preferred stock represented by one
depositary share. If less than all the depositary shares are to be redeemed,
the depositary shares to be redeemed will be selected by the lot or pro rata as
may be determined by the depositary.
After the date fixed for redemption, depositary shares called for redemption
will no longer be deemed to be outstanding and all rights of the holders of
depositary shares called for redemption will cease, except the right to receive
any moneys payable upon redemption and any money or other property to which the
holders of the depositary shares were entitled upon redemption upon surrender
to the depositary of the depositary receipts evidencing the depositary shares.
Voting the Preferred Stock
Upon receipt of notice of any meeting at which the holders of the preferred
stock are entitled to vote, the depositary will mail the information contained
in the notice of meeting to the record holders of the depositary receipts
relating to that preferred stock. The record date for the depositary receipts
relating to the preferred stock will be the same date as the record date for
the preferred stock. Each record holder of the depositary shares on the record
date will be entitled to instruct the depositary as to the exercise of the
voting rights pertaining to the amount of preferred stock represented by that
holder's depositary shares. The depositary will endeavor, insofar as
practicable, to vote the amount of preferred stock represented by the
depositary shares in accordance with those instructions, and ML&Co. will agree
to take all reasonable action which may be deemed necessary by the depositary
in order to enable the depositary to do so. The depositary will not vote any
shares of preferred stock except to the extent it receives specific
instructions from the holders of depositary shares representing that number of
shares of preferred stock.
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Exchange of Preferred Stock
Whenever ML&Co. exchanges all of the shares of a series of preferred stock
held by the depositary for debt securities, common stock or other shares of
preferred stock, the depositary will exchange as of the same exchange date the
number of depositary shares representing all of the shares of the preferred
stock so exchanged for debt securities, common stock or other shares of
preferred stock, provided ML&Co. has issued and deposited with the depositary,
debt securities, common stock or other shares of preferred stock, as
applicable, for all of the shares of the preferred stock to be exchanged. The
exchange rate per depositary share will be equal to the exchange rate per share
of preferred stock multiplied by the fraction of a share of preferred stock
represented by one depositary share, plus all money and other property, if any,
represented by those depositary shares, including all amounts paid by ML&Co. in
respect of dividends which on the exchange date have accumulated on the shares
of preferred stock to be so exchanged and have not already been paid.
Conversion of Preferred Stock
The depositary shares are not convertible or exchangeable into common stock
or any other securities or property of ML&Co. Nevertheless, if so specified in
the applicable prospectus supplement, each depositary receipt may be
surrendered by its holder to the depositary with written instructions to the
depositary to instruct ML&Co. to cause conversion or exchange of the preferred
stock represented by the depositary shares evidenced by that depositary receipt
into whole shares of common stock, other shares of preferred stock or debt
securities of ML&Co. ML&Co. has agreed that upon the receipt of any
instructions to convert or exchange any depositary shares and the payment of
any fees or other amounts applicable to any conversion or exchange, it will
convert or exchange the depositary shares using the same procedures as those
provided for delivery of preferred stock to effect conversions or exchange. If
the depositary shares represented by a depositary receipt are converted in part
only, a new depositary receipt or receipts will be issued for any depositary
shares not converted or exchanged.
Amendment and Termination of the Deposit Agreement
The form of depositary receipt evidencing the depositary shares and any
provision of the deposit agreement may at any time be amended by agreement
between ML&Co. and the depositary. However, any amendment that materially and
adversely alters the rights of the holders of depositary receipts will not be
effective unless it has been approved by the holders of at least a majority of
the depositary shares then outstanding. No amendment to the form of depositary
receipt or any provision of the deposit agreement relating to or affecting
rights to receive dividends or distributions or voting, redemption or
conversion rights will be effective unless approved by the holders of at least
two-thirds of the depositary shares then outstanding.
ML&Co. may terminate the deposit agreement at any time upon 60 days prior
written notice to the depositary, in which case the depositary will deliver to
the record holders, upon surrender of the depositary receipts, the number of
whole or fractional shares of preferred stock as is represented by those
depositary receipts. The deposit agreement will automatically terminate if:
. all outstanding depositary shares have been redeemed,
. all shares of preferred stock deposited with the depositary in
accordance with the terms of the deposit agreement and all money and
other property relating to those shares of preferred stock have been
withdrawn in accordance with the terms of the deposit agreement, or
. there has been a final distribution in respect of the preferred stock in
connection with any liquidation, dissolution or winding up of ML&Co. and
the distribution has been distributed to the holders of depositary
receipts.
Charges of Depositary
ML&Co. will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. ML&Co. will
pay the fees and expenses of the depositary in connection with
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the performance of its duties under the deposit agreement. Holders of
depositary receipts will pay transfer and other taxes and governmental charges
and any other charges that are expressly provided in the deposit agreement to
be for their accounts. The depositary may refuse to effect any transfer of a
depositary receipt or any withdrawals of preferred stock evidenced by a
depositary receipt until all taxes and charges with respect to the depositary
receipt or preferred stock are paid by their holders.
Resignation and Removal of Depositary
The depositary may resign at any time by delivering to ML&Co. notice of its
election to do so, and ML&Co. may remove the depositary at any time. Any
resignation or removal of the depositary will take effect upon ML&Co.'s
appointment of a successor depositary, which must be appointed within 60 days
after delivery of the notice of resignation or removal and must be a bank or
trust company having its principal office in the United States and having a
combined capital and surplus of at least $50,000,000.
Notices
The depositary will forward to holders of depositary receipts all reports
and communications received from ML&Co. and the depositary and which ML&Co. is
required to furnish to holders of the related underlying preferred stock. The
depositary will also, promptly after its receipt, transmit to the holders of
depositary receipts, copies of all notices and reports required by law, the
rules of any national securities exchange or ML&Co.'s restated certificate of
incorporation to be furnished to the record holders of depositary receipts.
Limitation of Liability
Neither the depositary nor ML&Co. will assume any obligation or be subject
to any liability under the deposit agreement to holders of depositary receipts
other than for negligence, willful misconduct or bad faith.
The depositary will not be obligated to prosecute or defend any legal
proceeding in respect of any depositary shares or any shares of preferred stock
unless it is furnished with satisfactory indemnification. ML&Co. and the
depositary may rely on written advice of counsel or accountants, or information
provided by persons presenting shares of preferred stock for deposit, holders
of depositary receipts or other persons believed to be competent and on
documents believed to be genuine. Neither the depositary nor ML&Co. will be
liable if it is prevented from or delayed, by law, by provision of ML&Co.'s
restated certificate of incorporation or any circumstances beyond its control,
in performing its obligations under the deposit agreement.
DESCRIPTION OF PREFERRED STOCK WARRANTS
ML&Co. may issue warrants for the purchase of preferred stock ("Preferred
Stock Warrants"). Each series of Preferred Stock Warrants is to be issued under
a preferred stock warrant agreement to be entered into between ML&Co. and a
bank or trust company, as preferred stock warrant agent, as described in the
applicable prospectus supplement relating to the Preferred Stock Warrants being
offered. A copy of the form of preferred stock warrant agreement, including the
form of warrant certificates representing the Preferred Stock Warrants, is
filed as an exhibit to the registration statement of which this prospectus is a
part. The following summaries of the material provisions of the preferred stock
warrant agreement and preferred stock warrant certificates are not complete and
are subject to and are qualified in their entirety by reference to, all the
provisions of the preferred stock warrant agreement and the preferred stock
warrant certificates, respectively, including the definitions of terms.
Terms of the Preferred Stock Warrants
The applicable prospectus supplement will describe the terms of the specific
issue of Preferred Stock Warrants being offered, the preferred stock warrant
agreement relating to the Preferred Stock Warrants and the preferred stock
warrant certificates representing the Preferred Stock Warrants, including the
following:
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. the offering price or prices;
. designation, aggregate number and terms of the series of preferred stock
that may be purchased upon exercise of the Preferred Stock Warrants and
the minimum number of Preferred Stock Warrants that are exercisable;
. any designation and terms of the securities with which the Preferred
Stock Warrants are being offered and the number of Preferred Stock
Warrants being offered with each Security;
. any date on and after which the Preferred Stock Warrants and the related
securities will be transferable separately;
. the number and stated values of the series of preferred stock that may
be purchased upon exercise of each Preferred Stock Warrant and the price
at which the shares of preferred stock of that series may be purchased
upon exercise, and events or conditions under which the number of shares
that may be purchased may be adjusted;
. the date on which the right to exercise the Preferred Stock Warrants
will begin and the date on which the right to exercise will expire;
. any circumstances that will cause the Preferred Stock Warrants to be
deemed to be automatically exercised;
. any material risk factors relating to the Preferred Stock Warrants;
. the identity of the preferred stock warrant agent; and
. any other terms of the Preferred Stock Warrants which are not
inconsistent with the provisions of the preferred stock warrant
agreement.
Holders may exchange preferred stock warrant certificates for new preferred
stock warrant certificates of different denominations, may, if in registered
form, present for registration of transfer, and exercise the Preferred Stock
Warrants at the corporate trust office of the preferred stock warrant agent or
any other office indicated in the applicable prospectus supplement. Before the
exercise of any Preferred Stock Warrant, a holder will not have the rights of a
holder of shares of the preferred stock that may be purchased upon exercise of
the Preferred Stock Warrant, including the right to receive payment of
dividends, if any, on the underlying preferred stock or the right to vote the
underlying preferred stock.
Prospective purchasers of Preferred Stock Warrants should be aware that
special U.S. Federal income tax, accounting and other considerations may be
applicable to instruments such as Preferred Stock Warrants. The prospectus
supplement relating to any issue of Preferred Stock Warrants will describe
these considerations.
Book-Entry Procedures
Except as may otherwise be provided in the applicable prospectus supplement,
the Preferred Stock Warrants will be issued in the form of global preferred
stock warrant certificates, registered in the name of a depositary or its
nominee. In that case, beneficial owners will not be entitled to receive
definitive certificates representing Preferred Stock Warrants unless the
depositary is unwilling or unable to continue as depositary, specified events
of bankruptcy or insolvency occur with respect to ML&Co. or ML&Co. decides to
have the Preferred Stock Warrants represented by definitive certificates. A
beneficial owner's interest in a Preferred Stock Warrant will be recorded on or
through the records of the brokerage firm or other entity that maintains the
beneficial owner's account. In turn, the total number of Preferred Stock
Warrants held by an individual brokerage firm for its clients will be
maintained on the records of the depositary in the name of the brokerage firm
or its agent. Transfer of ownership of any Preferred Stock Warrant will be
effected only through the selling beneficial owner's brokerage firm.
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Exercise of Preferred Stock Warrants
Each Preferred Stock Warrant will entitle its holder to purchase a number of
shares of preferred stock at the exercise price described in the applicable
prospectus supplement. After the close of business on the date the right to
exercise the Preferred Stock Warrants expires, or any later date if extended by
ML&Co., unexercised Preferred Stock Warrants will become void.
Holders may exercise the Preferred Stock Warrants in the manner set forth in
the applicable prospectus supplement. Upon receipt of payment and a properly
completed and duly executed preferred stock warrant certificate at the
corporate trust office of the preferred stock warrant agent or any other office
indicated in the applicable prospectus supplement, ML&Co. will, as soon as
practicable, issue and deliver the shares of preferred stock purchased upon
exercise. If less than all of the Preferred Stock Warrants represented by any
preferred stock warrant certificate are exercised, ML&Co. will issue a new
preferred stock warrant certificate for the remaining number of Preferred Stock
Warrants.
Listing
ML&Co. may list an issue of Preferred Stock Warrants on a national
securities exchange. Any listing will be specified in the applicable prospectus
supplement.
Modifications
ML&Co. and the preferred stock warrant agent may amend any preferred stock
warrant agreement and the terms of the related Preferred Stock Warrants,
without the consent of the holders of the Preferred Stock Warrants, for the
purpose of curing any ambiguity, or of curing, correcting or supplementing any
defective or inconsistent provision, or in any other manner which ML&Co. may
deem necessary or desirable and which will not materially and adversely affect
the interests of the preferred stock warrantholders.
ML&Co. and the preferred stock warrant agent also may amend any preferred
stock warrant agreement and the terms of the related Preferred Stock Warrants,
with the consent of the holders of not less than a majority in number of the
then outstanding unexercised Preferred Stock Warrants affected by the
amendment. However, without the consent of each of the preferred stock
warrantholders affected, no amendment will be effective that:
. shortens the period of time during which the Preferred Stock Warrants
may be exercised;
. otherwise materially and adversely affects the exercise rights of the
preferred stock warrantholders; or
. reduces the number of outstanding Preferred Stock Warrants the consent
of whose holders is required to approve an amendment of the preferred
stock warrant agreement or the terms of the related Preferred Stock
Warrants.
Enforceability of Rights by Preferred Stock Warrantholders
Any preferred stock warrantholder may, without the consent of the related
preferred stock warrant agent, enforce by appropriate legal action, in and of
its own behalf, its right to exercise its Preferred Stock Warrants.
DESCRIPTION OF COMMON STOCK
The following description sets forth the general terms of common stock which
ML&Co. may issue. The description set forth below and in any prospectus
supplement is not complete, is subject to, and is qualified in its entirety by
reference to, ML&Co's restated certificate of incorporation which is filed as
an exhibit to the registration statement of which this prospectus is a part.
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Terms of the Common Stock
Under ML&Co.'s restated certificate of incorporation, ML&Co. is authorized
to issue up to 1,000,000,000 shares of common stock, par value $1.33 1/3 per
share. As of May 5, 2000, there were 385,241,585 shares of common stock and
2,634,634 Exchangeable Shares outstanding. The Exchangeable Shares are
exchangeable at any time into common stock on a one-for-one basis and entitle
holders to dividend, voting and other rights equivalent to common stock. The
common stock is traded on the New York Stock Exchange under the symbol "MER"
and also on the Chicago Stock Exchange, the Pacific Exchange, the Paris Bourse,
the London Stock Exchange and the Tokyo Stock Exchange.
The common stock has the dividend, voting, liquidation and preemptive rights
set forth below unless otherwise specified in the prospectus supplement being
used to offer the common stock. The applicable prospectus supplement will
describe the terms of the common stock including, where applicable, the
following:
. the number of shares to be offered;
. the offering price or prices;
. to the extent permitted by applicable law, whether the common stock will
be issued in certificated or book-entry form;
. information with respect to any book-entry procedures; and
. any additional terms of the common stock which are not inconsistent with
the provisions of ML&Co.'s restated certificate of incorporation.
The common stock will be, when issued against payment therefor, fully paid
and nonassessable. Holders of the common stock will have no preemptive rights
to subscribe for any additional securities which may be issued by ML&Co. The
rights of holders of common stock will be subject to, and may be adversely
affected by, the rights of holders of any preferred stock that has been issued
and may be issued in the future. As of March 31, 2000, 17,000,000 depositary
shares, each representing a one-four-hundredth interest in a share of 9%
Preferred Stock, and one Special Voting Share were outstanding. See
"Description of Preferred Stock--Outstanding Preferred Stock" for a description
of that preferred stock . The Board of Directors of ML&Co. may issue additional
shares of preferred stock to obtain additional financing, in connection with
acquisitions, to officers, directors and employees of ML&Co. and its
subsidiaries pursuant to benefit plans or otherwise and for other proper
corporate purposes.
ML&Co. is the principal transfer agent for the common stock.
Because ML&Co. is a holding company, its rights, and the rights of holders
of its securities, including the holders of common stock, to participate in the
distribution of assets of any subsidiary of ML&Co. upon the subsidiary's
liquidation or recapitalization will be subject to the prior claims of the
subsidiary's creditors and preferred stockholders, except to the extent ML&Co.
may itself be a creditor with recognized claims against the subsidiary or a
holder of preferred stock of the subsidiary.
Dividends
ML&Co. may pay dividends on the common stock out of funds legally available
for the payment of dividends as, if and when declared by the Board of Directors
of ML&Co. or a duly authorized committee of the Board of Directors.
As of the date of this prospectus, subsidiaries of ML&Co. have issued $2.673
billion of perpetual TOPrS. In connection with the issuance of the TOPrS,
ML&Co. has agreed, among other things, that if full distributions on the TOPrS
have not been paid or set apart for payment or ML&Co. is in default of its
related guarantee obligations, ML&Co., with certain exceptions, will not
declare or pay dividends, make distributions
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with respect to, or redeem, purchase or acquire, or make a liquidation payment
with respect to any of its capital stock, including the common stock.
Liquidation Rights
Upon any voluntary or involuntary liquidation, dissolution, or winding up
of ML&Co., the holders of its common stock will be entitled to receive, after
payment of all of its debts, liabilities and of all sums to which holders of
any preferred stock may be entitled, all of the remaining assets of ML&Co.
Voting Rights
Except as described under "Description of Preferred Stock--Outstanding
Preferred Stock", the holders of the common stock currently possess exclusive
voting rights in ML&Co. The Board of Directors of ML&Co. may, however, give
voting power to any preferred stock which may be issued in the future. Each
holder of common stock is entitled to one vote per share with respect to all
matters. There is no cumulative voting in the election of directors. Actions
requiring approval of stockholders generally require approval by a majority
vote of outstanding shares.
The Board of Directors of ML&Co. is currently comprised of 13 directors,
divided into three classes, the precise number of members to be fixed from
time to time by the Board of Directors. The directors of the class elected at
each annual election hold office for a term of three years, with the term of
each class expiring at successive annual meetings of stockholders.
Rights to Purchase Series A Junior Preferred Stock
Under the Amended and Restated Rights Agreement, adopted on December 2,
1997 (the "Rights Agreement"), preferred purchase rights were distributed to
holders of common stock. The preferred purchase rights are attached to each
outstanding share of common stock and will attach to all subsequently issued
shares, including common stock that may be offered by ML&Co. pursuant to an
applicable prospectus supplement. The preferred purchase rights entitle the
holder to purchase fractions of a share ("Units") of Series A junior preferred
stock at an exercise price of $300 per Unit, subject to adjustment from time
to time as provided in the Rights Agreement. The exercise price and the number
of Units issuable are subject to adjustment to prevent dilution.
The preferred purchase rights will separate from the common stock ten days
following the earlier of:
. an announcement of an acquisition by a person or group of 15% or more of
the outstanding common stock of ML&Co.; or
. the commencement of a tender or exchange offer for 15% or more of the
shares of common stock of ML&Co. outstanding.
If, after the preferred purchase rights have separated from the common
stock,
. ML&Co. is the surviving corporation in a merger with an acquiring party,
. a person becomes the beneficial owner of 15% or more of the common
stock,
. an acquiring party engages in one or more defined "self-dealing"
transactions, or
. an event occurs which results in such acquiring party's ownership
interest being increased by more than 1%,
then, in each case, each holder of a preferred purchase right will have the
right to purchase Units of Series A junior preferred stock having a value
equal to two times the exercise price of the preferred purchase right. In
addition, preferred purchase rights held by or transferred in certain
circumstances by an acquiring party may immediately become void.
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In the event that, at any time,
. ML&Co. is acquired in a merger or other business combination transaction
and ML&Co. is not the surviving corporation,
. any person consolidates or merges with ML&Co. and all or part of
ML&Co.'s common stock is converted or exchanged for securities, cash or
property of any other person or
. 50% or more of ML&Co.'s assets or earning power is sold or transferred,
each holder of a right will have the right to purchase common stock of the
acquiring party having a value equal to two times the exercise price of the
preferred purchase right.
The preferred purchase rights expire on December 2, 2007. The preferred
purchase rights are redeemable at the option of a majority of the independent
directors of ML&Co. at $.01 per right at any time until the tenth day following
an announcement of the acquisition of 15% or more of the common stock.
The foregoing provisions of the Rights Agreement may have the effect of
delaying, deferring or preventing a change in control of ML&Co.
The certificate of designations of the Series A junior preferred stock
provides that the holders of Units of the Series A junior preferred stock will
be entitled to receive quarterly dividends in an amount to be determined in
accordance with the formula set forth in the certificate of designations. These
dividend rights are cumulative. The Series A junior preferred stock rank junior
in right of payment of dividends to the 9% Preferred Stock and to all other
preferred stock issued by ML&Co., unless the terms of any other preferred stock
provide otherwise. The holders of Units of the Series A junior preferred stock
will have one vote per Unit on all matters submitted to the stockholders of
ML&Co., subject to adjustment. If at any time dividends on any Units of the
Series A junior preferred stock are in arrears for a number of periods, whether
or not consecutive, which in the aggregate is equivalent to six calendar
quarters, then during that period of default, the holders of all Units, voting
separately as a class, will have the right to elect two directors to the Board
of Directors of ML&Co. Additionally, whenever quarterly dividends or other
dividends or distributions payable on the Series A junior preferred stock are
in arrears, ML&Co. shall not, among other things, declare or pay dividends on
or make any other distributions on, or redeem or purchase or otherwise acquire
for consideration any shares or capital stock of ML&Co. which ranks junior in
right of payment to the Series A junior preferred stock, including the common
stock. In the event of any voluntary or involuntary liquidation, dissolution or
winding up of ML&Co., the holders of outstanding Units of the Series A junior
preferred stock will be entitled to receive a distribution in an amount to be
determined in accordance with the formula set forth in the certificate of
designations before the payment of any distribution to the holders of common
stock. The Units of Series A junior preferred stock are not redeemable. As of
the date of this prospectus, there are no shares of Series A junior preferred
stock outstanding.
Material Charter Provisions
ML&Co.'s restated certificate of incorporation provides that, except under
specified circumstances, ML&Co. may not merge or consolidate with any one or
more corporations, joint-stock associations or non-stock corporations; sell,
lease or exchange all or substantially all of its property and assets or
dissolve without the affirmative vote of two-thirds of the entire Board of
Directors of ML&Co. and the holders of a majority of the outstanding shares of
common stock entitled to vote. Additionally, ML&Co.'s restated certificate of
incorporation provides that specified business combinations involving ML&Co.
and an interested stockholder or an affiliate or associate of that stockholder
must be approved by 80% of the voting power of the outstanding shares of
capital stock of ML&Co. entitled to vote generally in the election of
directors. The vote of 80% of the voting power of the voting stock referred to
in the immediately preceding sentence is required for amendment of these
provisions. ML&Co.'s restated certificate of incorporation also provides that
only the Board of Directors of ML&Co. has the authority to call special
stockholder meetings.
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The foregoing provisions of ML&Co.'s restated certificate of incorporation
may have the effect of delaying, deferring or preventing a change in control of
ML&Co.
DESCRIPTION OF COMMON STOCK WARRANTS
ML&Co. may issue warrants for the purchase of common stock ("Common Stock
Warrants"). Each series of Common Stock Warrants will be issued under a common
stock warrant agreement to be entered into between ML&Co. and a bank or trust
company, as common stock warrant agent, all as set forth in the applicable
prospectus supplement. A copy of the form of common stock warrant agreement,
including the form of warrant certificates representing the Common Stock
Warrants, reflecting the provisions to be included in the common stock warrant
agreements that will be entered into with respect to particular offerings of
Common Stock Warrants, is filed as an exhibit to the registration statement of
which this prospectus is a part. The following summaries of the material
provisions of the common stock warrant agreement and common stock warrant
certificates are not complete, are subject to, and are qualified in their
entirety by reference to, all of the provisions of the common stock warrant
agreement and the common stock warrant certificates, including the definitions
of terms.
Terms of the Common Stock Warrants
The applicable prospectus supplement will describe the terms of the Common
Stock Warrants being offered, the common stock warrant agreement relating to
the Common Stock Warrants and the common stock warrant certificates, including
the following:
. the offering price or prices;
. the aggregate number of shares of common stock that may be purchased
upon exercise of the Common Stock Warrants and minimum number of
Common Stock Warrants that are exercisable;
. the number of securities, if any, with which the Common Stock
Warrants are being offered and the number of the Common Stock
Warrants being offered with each security;
. the date on and after which the Common Stock Warrants and the
related securities, if any, will be transferable separately;
. the number of shares of common stock purchasable upon exercise of
each Common Stock Warrant, the price at which the common stock may
be purchased, and events or conditions under which the number of
shares purchasable may be adjusted;
. the date on which the right to exercise the Common Stock Warrants
will begin and the date on which the right to exercise will expire;
. the circumstances, if any, which will cause the Common Stock
Warrants to be deemed to be automatically exercised;
. any material risk factors relating to the Common Stock Warrants;
. the identity of the common stock warrant agent; and
. any other terms of the Common Stock Warrants which are not
inconsistent with the provisions of the common stock warrant
agreement.
Holders may exchange common stock warrant certificates for new common stock
warrant certificates of different denominations, if in registered form, may
present for registration of transfer, and may exercise the Common Stock
Warrants, at the corporate trust office of the common stock warrant agent or
any other office indicated in the applicable prospectus supplement. Before the
exercise of any Common Stock Warrants to
34
purchase common stock, holders of the Common Stock Warrants will not have any
rights of holders of common stock purchasable upon exercise of the Common Stock
Warrants, including the right to receive payments of dividends, if any, on the
common stock purchasable upon any exercise or the right to vote the underlying
common stock.
Prospective purchasers of Common Stock Warrants should be aware that special
U.S. Federal income tax, accounting and other considerations may be applicable
to instruments such as Common Stock Warrants. The prospectus supplement
relating to any issue of Common Stock Warrants will describe these
considerations.
Book-Entry Procedures
Except as may otherwise be provided in the applicable prospectus supplement,
the Common Stock Warrants will be issued in the form of global common stock
warrant certificates, registered in the name of a depositary or its nominee. In
that case, beneficial owners will not be entitled to receive definitive
certificates representing Common Stock Warrants unless the depositary is
unwilling or unable to continue as depositary, certain specified events of
bankruptcy or insolvency occur with respect to ML&Co. or ML&Co. decides to have
the Common Stock Warrants represented by definitive certificates. A beneficial
owner's interest in a Common Stock Warrant will be recorded on or through the
records of the brokerage firm or other entity that maintains a beneficial
owner's account. In turn, the total number of Common Stock Warrants held by an
individual brokerage firm for its clients will be maintained on the records of
the depositary in the name of the brokerage firm or its agent. Transfer of
ownership of any Common Stock Warrant will be effected only through the selling
beneficial owner's brokerage firm.
Exercise of Common Stock Warrants
Each Common Stock Warrant will entitle its holder to purchase a specific
number of shares of common stock at the exercise price described in the
applicable prospectus supplement. After the close of business on the date the
right to exercise the Common Stock Warrants expires, or any later date if
extended by ML&Co., unexercised Common Stock Warrants will become void.
Common Stock Warrants may be exercised as set forth in the applicable
prospectus supplement. Upon receipt of payment and a properly completed and
duly executed common stock warrant certificate at the corporate trust office of
the common stock warrant agent or any other office indicated in the applicable
prospectus supplement, ML&Co. will, as soon as practicable, issue and deliver
the shares of common stock purchased upon exercise. If less than all of the
Common Stock Warrants represented by any common stock warrant certificate are
exercised, a new common stock warrant certificate will be issued for the
remaining Common Stock Warrants.
Listing
ML&Co. may list an issue of Common Stock Warrants on a national securities
exchange. Any listing will be specified in the applicable prospectus
supplement.
Modifications
ML&Co. and the common stock warrant agent may amend any common stock warrant
agreement and the terms of the related Common Stock Warrants, without the
consent of the holders of the Common Stock Warrants, for the purpose of curing
any ambiguity, or of curing, correcting or supplementing any defective or
inconsistent provision, or in any other manner which ML&Co. may deem necessary
or desirable and which will not materially and adversely affect the interests
of the common stock warrantholders.
ML&Co. and the common stock warrant agent also may amend any common stock
warrant agreement and the terms of the related Common Stock Warrants, with the
consent of the holders of not less than a majority in
35
number of the then outstanding unexercised Common Stock Warrants affected by
amendment. However, without the consent of each of the common stock
warrantholders affected, no amendment will be effective that:
. shortens the period of time during which the Common Stock Warrants may
be exercised;
. otherwise materially and adversely affects the exercise rights of the
common stock warrantholders; or
. reduces the number of outstanding Common Stock Warrants the consent of
whose holders is required to approve an amendment of the common stock
warrant agreement or the terms of the related Common Stock Warrants.
Enforceability of Rights by common stock warrantholders
Any common stock warrantholder may, without the consent of the related
common stock warrant agent, enforce by appropriate legal action, in and for its
own behalf, its right to exercise its Common Stock Warrant.
PLAN OF DISTRIBUTION
ML&Co. may sell securities:
. to the public through MLPF&S, or through a group of underwriters managed
or co-managed by, one or more underwriters, including MLPF&S,
. through MLPF&S as agent, or
. directly to purchasers.
The prospectus supplement with respect to the securities of a particular
series describes the terms of the offering of the securities, including the
name of the agent or the name or names of any underwriters, the public offering
or purchase price, any discounts and commissions to be allowed or paid to the
agent or underwriters, all other items constituting underwriting compensation,
any discounts and commissions to be allowed or paid to dealers and any
exchanges on which the securities will be listed. Only the agents or
underwriters so named in the prospectus supplement are agents or underwriters
in connection with the securities being offered. Under certain circumstances,
ML&Co. may repurchase securities and reoffer them to the public as set forth
above. ML&Co. may also arrange for repurchases and resales of the securities by
dealers.
If so indicated in the prospectus supplement, ML&Co. will authorize
underwriters to solicit offers by certain institutions to purchase debt
securities from ML&Co. pursuant to delayed delivery contracts providing for
payment and delivery on the date stated in the prospectus supplement. Each
contract will be for an amount not less than, and, unless ML&Co. otherwise
agrees, the aggregate principal amount of debt securities sold pursuant to the
contracts shall not be more than, the respective amounts stated in the
prospectus supplement. Institutions with whom the contracts, when authorized,
may be made include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions, and other
institutions, but shall in all cases be subject to the approval of ML&Co.
Delayed delivery contracts will not be subject to any conditions except that
the purchase by an institution of the debt securities covered under that
contract shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which that institution is subject.
ML&Co. has agreed to indemnify any agent or underwriters against certain
civil liabilities, including liabilities under the Securities Act or contribute
to payments any agent or underwriters may be required to make.
The distribution of securities will conform to the requirements set forth in
the applicable sections of Rule 2720 of the Conduct Rules of the National
Association of Securities Dealers, Inc.
36
WHERE YOU CAN FIND MORE INFORMATION
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 by visiting
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 further
information about the public reference rooms. You may also inspect our SEC
reports and other information at the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering the
securities and other securities. For further information on ML&Co. and the
securities, you should refer to our registration statement and its exhibits.
This prospectus summarizes material provisions of contracts and other documents
that we refer you to. Because the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement of which this prospectus is a part.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to incorporate by reference the information we file with
them, which means:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed with
the SEC under the Exchange Act:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly report on Form 10-Q for the period ended March 31, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000, March
31, 2000, April 17, 2000, May 3, 2000 and May 24, 2000.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Section 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting;
and
. any reports filed under Section 15(d) of the Exchange Act.
You should rely only on information contained or incorporated by reference
in this prospectus. We have not authorized any other person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We are not making an offer to sell
these securities in any jurisdiction where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date of this prospectus only. Our business, financial
condition and results of operations may have changed since that date.
37
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 222
Broadway, 17th Floor, New York, New York 10038, Telephone (212) 670-0432.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference from the Annual Report on
Form 10-K of Merrill Lynch & Co., Inc. and subsidiaries for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which express an unqualified
opinion and which report on the consolidated financial statements includes an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
With respect to unaudited interim financial information for the periods
included in the Quarterly Reports on Form 10-Q which are incorporated herein by
reference, Deloitte & Touche LLP have applied limited procedures in accordance
with professional standards for a review of such information. However, as
stated in their report included in such Quarterly Reports on Form 10-Q and
incorporated by reference herein, they did not audit and they do not express an
opinion on such interim financial information. Accordingly, the degree of
reliance on their report on such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP is
not subject to the liability provisions of Section 11 of the Securities Act of
1933, as amended, for their reports on unaudited interim financial information
because such report is not a "report" or a "part" of the Registration Statement
prepared or certified by an accountant within the meaning of Sections 7 and 11
of the Securities Act of 1933, as amended.
38
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer and sale is not permitted. +
+ +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated June 7, 2000
PROSPECTUS
[LOGO]
Merrill Lynch & Co., Inc.
Structured Yield Product Exchangeable for Stock(SM)
STRYPES(SM)
------------
Offering of the STRYPES: Distributions at Maturity:
. We will offer from time to time our . On the stated maturity date of each series of
STRYPES, which are senior debt securities of STRYPES, or any earlier date described in the
ML&Co. that are exchangeable into the applicable prospectus supplement, we will pay
common stock or other securities of an and discharge the STRYPES by delivering to
unaffiliated company. you a number of shares of common stock or
other securities of an unaffiliated company or
. We will offer the STRYPES in series and on property determined in accordance with a
terms determined by market conditions at the payment formula all as described in the
time of sale. We will describe these terms in prospectus supplement.
the prospectus supplement used to offer the
specific series of STRYPES. . Instead of delivering shares of common stock
or other securities or property, we may deliver
. Each series of STRYPES may be listed on a cash, or a combination of cash and the common
national securities exchange described in the stock or other securities, with an equal value.
prospectus supplement.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
------------
The date of this prospectus is , 2000.
(SM)Service mark of Merrill Lynch & Co., Inc.
MERRILL LYNCH & CO., INC.
We are a holding company that, through our U.S. and non-U.S. subsidiaries
and affiliates such as Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Merrill Lynch Government Securities Inc., Merrill Lynch Capital Services, Inc.,
Merrill Lynch International, Merrill Lynch Capital Markets Bank Ltd., Merrill
Lynch Asset Management LP and Mercury Asset Management Ltd, provides
investment, financing, advisory, insurance, and related products on a global
basis, including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping services.
We provide these products and services to a wide array of clients, including
individual investors, small businesses, corporations, governments, governmental
agencies and financial institutions.
Our principal executive office is located at 4 World Financial Center, New
York, New York 10080; our telephone number is (212) 449-1000.
If you want to find more information about us, please see the sections
entitled "Where You Can Find More Information" and "Incorporation of
Information We File with the SEC" in this prospectus.
USE OF PROCEEDS
We intend to use the net proceeds from the sale of the STRYPES for general
corporate purposes, unless otherwise specified in the prospectus supplement
relating to a specific issue of STRYPES. Our general corporate purposes may
include financing the activities of our subsidiaries, financing our assets and
those of our subsidiaries, lengthening the average maturity of our borrowings
and financing acquisitions. Until we use the net proceeds from the sale of any
of our securities for general corporate purposes, we will use the net proceeds
to reduce our short-term indebtedness or for temporary investments. We expect
that we will, on a recurrent basis, engage in additional financings as the need
arises to finance our growth, through acquisitions or otherwise, or to lengthen
the average maturity of our borrowings. To the extent that STRYPES being
purchased for resale by our subsidiary Merrill Lynch, Pierce, Fenner & Smith
Incorporated, referred to in this prospectus as MLPF&S, are not resold, the
aggregate proceeds that we and our subsidiaries would receive would be reduced.
2
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, we acquired the outstanding shares of Midland Walwyn Inc., in a
transaction accounted for as a pooling-of-interests. The following information
for the fiscal years 1995 through 1997 has been restated as if the two
entities had always been combined.
The following table sets forth our historical ratios of earnings to fixed
charges for the periods indicated:
Year Ended Last Friday
in December For the Three
------------------------ Months Ended
1995 1996 1997 1998 1999 March 31, 2000
---- ---- ---- ---- ---- --------------
Ratio of earnings to
fixed charges(a)....... 1.2 1.2 1.2 1.1 1.3 1.4
- --------
(a) The effect of combining Midland Walwyn did not change the ratios reported
for the fiscal years 1995 through 1997.
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges, excluding capitalized interest and preferred security
dividend requirements of subsidiaries. "Fixed charges" consist of interest
costs, the interest factor in rentals, amortization of debt issuance costs,
preferred security dividend requirements of subsidiaries, and capitalized
interest.
DESCRIPTION OF THE STRYPES
Each issue of STRYPES will be a series of senior debt securities of ML&Co.
to be issued under an indenture (the "1983 Indenture"), dated as of April 1,
1983, as amended and restated, between ML&Co. and The Chase Manhattan Bank, as
trustee. For each series of STRYPES, ML&Co. and the trustee will enter into a
supplemental indenture which will further amend and supplement the 1983
Indenture. Any supplemental indenture relating to a specific series of STRYPES
and the 1983 Indenture are collectively referred to as the indenture. The
following summary of the material provisions of the indenture is not complete
and is qualified in its entirety by reference to the indenture.
Terms of the STRYPES
The supplemental indenture will provide that ML&Co. may issue STRYPES of
the related series from time to time under the indenture, up to a specified
aggregate issue price, upon the satisfaction of certain conditions before
issuance. The supplemental indenture will establish the terms of the related
series of STRYPES, including:
. the issue price per STRYPES;
. the date on which the STRYPES will mature;
. the consideration deliverable or payable with respect to each STRYPES,
whether at maturity or upon earlier acceleration, and the formula or
other method by which the amount of any consideration deliverable or
payable will be determined;
. any fixed or variable rate or rates per annum;
. the interest payment dates;
. any provisions for redemption, the redemption price and any remarketing
arrangements;
. any sinking fund requirements;
3
. whether the STRYPES are denominated or provide for payment in United
States dollars or a foreign currency or units of two or more foreign
currencies;
. whether and under what circumstances ML&Co. will pay additional amounts
("Additional Amounts") under any STRYPES held by a person who is not a
U.S. person for specified taxes, assessments or other governmental
charges and whether ML&Co. has the option to redeem the affected STRYPES
rather than pay any Additional Amounts;
. the title and series designation;
. whether the STRYPES are to be issued in global form;
. the obligation of ML&Co. to pay and discharge the STRYPES at maturity by
delivery of a number of shares of common stock or other securities or
property (the "Underlying Securities") of an unaffiliated corporation or
cash or a combination of cash and Underlying Securities with an equal
value;
. the formula or other method by which the consideration deliverable or
payable at maturity of the STRYPES or any earlier date will be
determined and the terms and conditions upon which any payment and
discharge of the STRYPES will be effected.
The terms of the specific series of STRYPES being offered will be described
in the applicable prospectus supplement.
Under the indenture, ML&Co., without the consent of holders of any STRYPES,
is permitted to issue STRYPES with terms different from those of STRYPES
previously issued and to reopen a previous series of STRYPES and issue
additional STRYPES of that series.
Issue price and interest, premium and Additional Amounts, if any, and
Underlying Securities will be payable or deliverable in the manner, at the
places and subject to the restrictions set forth in the indenture, the
applicable supplemental indenture, the form of the STRYPES and the applicable
prospectus supplement, provided that payment of any interest and any Additional
Amounts may be made at the option of ML&Co. by check mailed to the holders of
registered STRYPES at their registered addresses.
Holders may present the STRYPES for exchange, and may present registered
STRYPES for registration of transfer, in the manner, at the places and subject
to the restrictions set forth in the indenture, the applicable supplemental
indentures the form of the STRYPES and the applicable prospectus supplement.
There will be no service charge for any registration of transfer or exchange of
STRYPES, but ML&Co. may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection with a transfer or exchange.
Ranking
The STRYPES will be unsecured obligations and will rank equally with all
other unsecured and unsubordinated indebtedness of ML&Co. Because ML&Co. is a
holding company, the rights of ML&Co. and its creditors, including the holders
of the STRYPES, to participate in any distribution of the assets of any
subsidiary upon its liquidation or reorganization or otherwise is necessarily
subject to the prior claims of creditors of the subsidiary, except to the
extent that a bankruptcy court may recognize the claims of ML&Co. itself as a
creditor of the subsidiary. In addition, dividends, loans and advances from
certain subsidiaries, including MLPF&S, to ML&Co. are restricted by net capital
requirements under the Securities Exchange Act of 1934 and under rules of
exchanges and other regulatory bodies.
4
Merger and Consolidation
ML&Co. may consolidate or merge with or into any other corporation and
ML&Co. may sell, lease or convey all or substantially all of its assets to any
corporation, provided that:
. the resulting corporation, if other than ML&Co., is a corporation
organized and existing under the laws of the United States of America or
any U.S. state and assumes all of ML&Co.'s obligations to:
. pay or deliver the Underlying Securities, cash with an equal value
or a combination of both in respect of, any interest and Additional
Amounts on, and any other amounts payable with respect to, the
STRYPES of each series; and
. perform and observe all of ML&Co.'s obligations under the indenture,
and
. ML&Co. or the successor corporation, as the case may be, is not,
immediately after any consolidation or merger, in default under the
indenture.
Limitations Upon Liens
ML&Co. may not, and may not permit any majority-owned subsidiary to,
create, assume, incur or permit to exist any indebtedness for borrowed money
secured by a pledge, lien or other encumbrance, other than any liens
specifically permitted by the indenture, on the voting stock owned directly or
indirectly by ML&Co. of any majority-owned subsidiary, other than a majority-
owned subsidiary which, at the time of incurrence of the secured indebtedness,
has a net worth of less than $3,000,000, unless the outstanding STRYPES are
secured equally and ratably with the secured indebtedness.
"Voting Stock" is defined in the indenture as the stock of the class or
classes having general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of a
corporation provided that, for the purposes of the indenture, stock that
carries only the right to vote conditionally on the occurrence of an event is
not considered voting stock whether or not the event has happened.
Limitations on Disposition of Voting Stock of, and Merger and Sale of Assets
by, MLPF&S
ML&Co. may not sell, transfer or otherwise dispose of any Voting Stock of
MLPF&S or permit MLPF&S to issue, sell or otherwise dispose of any of its
Voting Stock, unless, after giving effect to the transaction, MLPF&S remains a
Controlled Subsidiary.
"Controlled Subsidiary" is defined in the indenture to mean a corporation
more than 80% of the outstanding shares of Voting Stock of which are owned
directly or indirectly by ML&Co.
In addition, ML&Co. may not permit MLPF&S to:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. convey or transfer its properties and assets substantially as an
entirety, except to one or more Controlled Subsidiaries.
Events of Default
Unless otherwise specified in a prospectus supplement, each of the
following will be an Event of Default under the indenture with respect to each
series of STRYPES:
. failure to pay and discharge the STRYPES of that series with the
Underlying Securities or, if ML&Co. so elects, to pay an equivalent
amount in cash instead of Underlying Securities when due;
. failure to pay the redemption price or any redemption premium with
respect to any STRYPES of that series when due;
5
. failure to deposit any sinking fund payment, when and as due by the
terms of any STRYPES of that series;
. failure to pay any interest on or any Additional Amounts in respect of
any STRYPES of that series when due, and continuing for 30 days;
. failure to perform any other obligation of ML&Co. contained in the
indenture for the benefit of that series or in the STRYPES of that
series, continuing for 60 days after written notice has been given to
ML&Co. by the trustee, or to ML&Co. and the trustee by the holders of at
least 10% of the aggregate issue price of the outstanding STRYPES of
that series, as provided in the indenture;
. specified events in bankruptcy, insolvency or reorganization of ML&Co.;
and
. any other Event of Default provided with respect to STRYPES of that
series.
Unless otherwise specified in a prospectus supplement, if an Event of
Default occurs and is continuing for any series of STRYPES, the trustee or the
holders of at least 25% in aggregate issue price of the outstanding STRYPES of
that series, by notice as provided in the indenture, may declare an amount
equal to the aggregate issue price of all the STRYPES of that series, the
accrued interest on the STRYPES and all Additional Amounts payable with respect
to the STRYPES of that series immediately due and payable in cash. The trustee
or the holders of at least 25% in aggregate issue price of the outstanding
STRYPES may declare these amounts due immediately as described in the preceding
sentence without any other declaration or other action by the trustee or any
holder. At any time after a declaration of acceleration, but before the trustee
has obtained a judgment or decree based on acceleration, the holders of a
majority of the aggregate issue price of the outstanding STRYPES of that series
may, under certain circumstances, rescind and annul any acceleration if all
Events of Default, other than the non-payment of the amount equal to the
aggregate issue price of all the STRYPES of that series due by reason of
acceleration, have been cured or waived as provided in the indenture. See
"Modification and Waiver" below.
The holders of a majority in aggregate issue price of the outstanding
STRYPES of a series may direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising any trust
power conferred on the trustee with respect to the STRYPES of that series,
provided that any direction is not in conflict with any rule of law or the
indenture. Subject to the provisions of the indenture relating to the duties of
the trustee, in case an Event of Default shall occur and be continuing, the
trustee will be under no obligation to exercise any of its rights or powers
under the indenture at the request or direction of any of the holders of
STRYPES of any series, unless the holders of that series shall have offered to
the trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with any request or
direction.
Unless otherwise described in the applicable prospectus supplement, the
STRYPES and other series of senior debt securities issued under the indenture
will not have the benefit of any cross-default provisions with other
indebtedness of ML&Co.
ML&Co. will be required to furnish to the trustee annually a statement as to
the fulfillment by ML& Co. of its obligations under the indenture.
Modification and Waiver
Unless otherwise specified in a prospectus supplement, ML&Co. and the
trustee may modify and amend provisions in the indenture affecting a series of
STRYPES with the consent of holders of at least 66 2/3% in aggregate issue
price of the series of STRYPES affected. However, without the consent of each
holder of any STRYPES affected, no amendment or modification to any indenture
may:
. change the maturity date or the stated maturity date or any installment
of interest or Additional Amounts on any STRYPES or any premium payable
on redemption, or change the redemption price,
6
. reduce the amount of Underlying Securities payable with respect to any
STRYPES or reduce the amount of cash, or cash and Underlying Securities,
payable instead of Underlying Securities,
. reduce the amount of interest or Additional Amounts payable on any
STRYPES or reduce the amount of cash payable with respect to any STRYPES
upon acceleration,
. change the place or currency of payment of interest or Additional
Amounts on, or any amount of cash payable with respect to, any STRYPES,
. impair the right to institute suit for the enforcement of any payment on
any STRYPES, including the payment of Underlying Securities with respect
to any STRYPES,
. reduce the percentage of the aggregate issue price of outstanding
STRYPES of that series, the consent of whose holders is required to
modify or amend the indenture,
. reduce the percentage of the aggregate issue price of outstanding
STRYPES of that series necessary for waiver of compliance with certain
provisions of the indenture or for waiver of certain defaults or
. modify the provisions with respect to modification and waiver.
Except as provided in the indenture, no modification of or amendment to the
indenture may adversely affect the rights of a holder of any other senior debt
security without the consent of each holder affected.
The holders of a majority of the aggregate issue price of each series of
STRYPES may waive compliance by ML&Co. with certain restrictive provisions of
the indenture. Any past default with respect to any series of STRYPES may be
waived by the holders of a majority in aggregate issue price of the outstanding
STRYPES of any series may waive any past default with respect to that series,
except a default:
. in the payment of the Underlying Securities or any other amounts due and
payable or deliverable under the STRYPES of that series; or
. in respect of an obligation of ML & Co. contained in, or a provision of,
the indenture which cannot be modified under the terms of that indenture
without the consent of each holder of each outstanding series of STRYPES
affected.
Governing Law
The indenture and the STRYPES will be governed by, and construed in
accordance with, the laws of the State of New York.
PLAN OF DISTRIBUTION
ML&Co. may sell STRYPES to the public solely through MLPF&S or through a
syndicate of underwriters of which MLPF&S is a member. The accompanying
prospectus supplement describes the terms of the STRYPES being offered,
including the public offering or purchase price, any discounts and commissions
to be allowed or paid, all other items constituting underwriting compensation,
the discounts and commissions to be allowed or paid to dealers, if any, and the
exchanges, if any, on which the STRYPES will be listed. Under certain
circumstances, ML&Co. may repurchase STRYPES and reoffer them to the public as
set forth above. ML&Co. may also arrange for repurchases and resales of the
STRYPES by dealers.
The underwriting of STRYPES will conform to the requirements set forth in
the applicable sections of Rule 2720 of the Conduct Rules of the National
Association of Securities Dealers, Inc.
7
WHERE YOU CAN FIND MORE INFORMATION
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 by visiting
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 further
information about the public reference rooms. You may also inspect our SEC
reports and other information at the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering the
STRYPES and other securities. For further information on ML&Co. and the
STRYPES, you should refer to our registration statement and its exhibits. This
prospectus summarizes material provisions of contracts and other documents that
we refer you to. Because the prospectus may not contain all the information
that you may find important, you should review the full text of these
documents. We have included copies of these documents as exhibits to our
registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to incorporate by reference the information we file with
them, which means:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed with
the SEC under the Exchange Act:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly report on Form 10-Q for the period ended March 31, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000, March
31, 2000, April 17, 2000, May 3, 2000 and May 24, 2000.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting;
and
. any reports filed under Section 15(d) of the Exchange Act.
You should rely only on information contained or incorporated by reference
in this prospectus. We have not authorized any other person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We are not making an offer to sell
these securities in any jurisdiction where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date of this prospectus only. Our business, financial
condition and results of operations may have changed since that date.
8
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc.,
222 Broadway, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference from the Annual Report on
Form 10-K of Merrill Lynch & Co., Inc. and subsidiaries for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which express an unqualified
opinion and which report on the consolidated financial statements includes an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
With respect to unaudited interim financial information for the periods
included in the Quarterly Reports on Form 10-Q which are incorporated herein by
reference, Deloitte & Touche LLP have applied limited procedures in accordance
with professional standards for a review of such information. However, as
stated in their report included in such Quarterly Reports on Form 10-Q and
incorporated by reference herein, they did not audit and they do not express an
opinion on such interim financial information. Accordingly, the degree of
reliance on their report on such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP is
not subject to the liability provisions of Section 11 of the Securities Act of
1933, as amended, for their reports on unaudited interim financial information
because such report is not a "report" or a "part" of the Registration Statement
prepared or certified by an accountant within the meaning of Sections 7 and 11
of the Securities Act of 1933, as amended.
9
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
+ +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated June 7, 2000
PROSPECTUS
[LOGO]
% Trust Originated Preferred Securities
Merrill Lynch Preferred Capital Trust VI
Liquidation Amount $25 per TOPrS
guaranteed to the extent described in this prospectus by
Merrill Lynch & Co., Inc.
-----------
The TOPrS: Distributions on the TOPrS:
. TOPrS represent preferred ownership . Each TOPrS pays a quarterly distribution at
interests in the assets of ML Trust. The sole the rate of %, or $ per TOPrS per year,
assets of ML Trust will be the partnership if ML Partnership pays distributions on the
preferred securities of ML Partnership which partnership preferred securities.
represent preferred ownership interests in the
assets of ML Partnership. . If ML Trust and ML Partnership redeem the
TOPrS and the partnership preferred
. The sole assets of ML Partnership will be securities, you will receive $25 plus
the debentures issued by ML&Co. and its accumulated distributions for each TOPrS
affiliates and cash and other permitted you own.
securities described in this prospectus.
. If ML Trust redeems the TOPrS or is
. The TOPrS and the partnership preferred liquidated, but ML Partnership does not
securities do not have any stated maturity. redeem the partnership preferred securities,
you will receive the partnership preferred
. ML Trust will apply to have the TOPrS trade securities rather than cash.
on the New York Stock Exchange starting
within 30 days after the TOPrS are issued. . ML&Co. will guarantee the TOPrS to the
extent described in this prospectus.
. Closing Date:
Investing in the TOPrS involves risks.
Please see "Risk Factors" on page 6.
Per TOPrS Total
--------- -----
Public offering price............................. $25.00 $
Proceeds to ML Trust.............................. $25.00 $
If you purchase the TOPrS and settlement occurs after , 20 , you will
be required to pay accumulated distributions on the aggregate liquidation
amount of your TOPrS at a rate of % per year from that date. Expenses of the
offering and underwriting commissions of $ per TOPrS, or $ per TOPrS for
sales of more than 10,000 TOPrS to a single purchaser, will be paid by ML&Co.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
-----------
Merrill Lynch & Co.
-----------
The date of this prospectus is , 2000.
SM "TOPrS" and "Trust Originated Preferred Securities" are service marks owned
by Merrill Lynch & Co., Inc.
TABLE OF CONTENTS
Page
----
Summary Information--Q&A................................................... 3
Risk Factors............................................................... 6
Use of Proceeds............................................................ 10
Ratio of Earnings to Fixed Charges of Merrill Lynch & Co., Inc............. 11
Merrill Lynch Preferred Capital Trust VI................................... 12
Merrill Lynch Preferred Funding VI, L.P. .................................. 14
Description of the TOPrS................................................... 16
Description of the Trust Guarantee......................................... 30
Description of the Partnership Preferred Securities........................ 34
Description of the Partnership Guarantee................................... 47
United States Federal Income Taxation...................................... 50
Underwriting............................................................... 55
Where You Can Find More Information........................................ 56
Incorporation of Information We File with the SEC.......................... 56
Legal Matters.............................................................. 56
Experts.................................................................... 58
Index of Defined Terms..................................................... 59
Index to Financial Statements.............................................. F-1
2
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from the prospectus to help you understand the TOPrS. This summary
may not contain all the information that may be important to you. You should
carefully read this prospectus to fully understand the terms of the TOPrS, as
well as the tax and other considerations that should be important to you in
making a decision about whether to invest in the TOPrS. You should pay special
attention to the "Risk Factors" section to determine whether an investment in
the TOPrS is appropriate for you.
In this prospectus:
. references to "ML&Co.", "we", "us" and "our" are to Merrill Lynch & Co.,
Inc.,
. references to "ML Trust " are to Merrill Lynch Capital Preferred Trust
VI, and
. references to "ML Partnership " are to Merrill Lynch Preferred Funding
VI, L.P.
What are the TOPrS?
Each TOPrS is a preferred interest in the assets of ML Trust. We will own
all of the common securities of ML Trust. The sole assets of ML Trust will be
the partnership preferred securities issued by ML Partnership, which represent
preferred ownership interests in the assets of ML Partnership. ML Partnership
will use substantially all of the proceeds from the sale of its partnership
preferred securities and our capital contribution as general partner of ML
Partnership to purchase debentures from us and one or more of our affiliates.
What is the ML Trust?
ML Trust is a business trust established under Delaware law that exists for
the sole purpose of issuing the TOPrS and investing the proceeds and engaging
in incidental activities.
What is ML Partnership?
ML Partnership is a limited partnership established under Delaware law. The
assets of ML Partnership will be:
. the debentures issued by us and our affiliates; and
. cash and securities not issued by us or our affiliates.
We are the general partner of ML Partnership.
What distributions will I receive on the TOPrS?
The TOPrS provide for a quarterly cash distribution at the rate of % or
$ per year for each TOPrS you own. Distributions are payable on
each , , and , beginning , . Distributions will
accumulate from the date ML Trust originally issues the TOPrS. Because the sole
assets of ML Trust will be the partnership preferred securities of ML
Partnership and substantially all of ML Partnership's assets will be the
debentures issued by us and our affiliates, ML Trust's ability to pay
distributions on the TOPrS is ultimately dependent upon our and our affiliates'
ability to make interest payments on those debentures. If we or our affiliates
exercise our right to defer making an interest payment on our debentures then
held by ML Partnership, ML Partnership will not be able to pay any
distributions on its preferred partnership securities and ML Trust will not be
able to pay quarterly distributions to you until we resume making interest
payments on those debentures.
In addition, ML Partnership is required to pay dividends on its partnership
preferred securities only if they are declared by us as general partner of ML
Partnership. As a result, you may not receive any distributions on your TOPrS
if ML Trust does not receive dividends on the partnership preferred securities.
What are the debentures?
The debentures are long term loans made by ML Partnership to us or our
affiliates from time to time. These debentures will be substantially all of ML
Partnership's assets. The debentures that we issue to ML Partnership will be
subordinated unsecured obligations of ours and will rank equally with all of
our other subordinated unsecured
3
obligations. The debentures issued by our affiliates to ML Partnership will be
unsecured obligations of our affiliates and we will guarantee those obligations
on a subordinated basis. We and our affiliates may exercise our right to defer
interest payments on the debentures for a period of not more than six
consecutive calendar quarters.
Can the TOPrS be redeemed?
Yes. If ML Partnership redeems the partnership preferred securities, each
TOPrS will be redeemed for $25 plus any accumulated and unpaid distributions to
the date of redemption. ML Partnership can redeem the partnership preferred
securities in whole or in part from time to time on or after .
The trustees of ML Trust can elect to liquidate ML Trust and distribute the
partnership preferred securities to you if at any time the specified changes in
U.S. tax law or U.S. investment company law described in this prospectus occur.
Additionally, we, as general partner of ML Partnership, have the right to
redeem the partnership preferred securities and you will receive cash from the
subsequent automatic redemption of the TOPrS if at any time the specified
changes in U.S. tax law or U.S. investment company law described in this
prospectus occur.
Neither the partnership preferred securities nor the TOPrS can be redeemed
at any time at the option of their holders. Neither the TOPrS nor the
partnership preferred securities have any scheduled maturity.
Are there any risks associated with my investment?
Yes, an investment in the TOPrS is subject to risk. Please refer to the
section entitled "Risk Factors" in this prospectus for a description of these
risks.
What happens if ML Trust doesn't pay distributions on the TOPrS?
If you have not received a distribution on the TOPrS for six consecutive
calendar quarters, during that period until all scheduled quarterly
distributions are paid or set aside for payment to you, we may not declare or
pay dividends on, acquire, or make a liquidation payment with respect to, any
of our outstanding capital stock. In addition, we will not permit any of our
finance subsidiaries to make any dividend payment on, any distribution with
respect to, any acquisition of or any liquidation payment with respect to, any
of their outstanding preferred securities.
This limitation prevents us from paying cash or other dividends to the
shareholders of our capital stock if payments are not being made on the TOPrS,
any debenture issued by us or our affiliates and held by ML Partnership or the
guarantees. However, these provisions will not restrict:
. our ability to pay dividends or distributions on our capital stock in
shares of, or options, warrants or rights to subscribe for or purchase
shares of our capital stock;
. our ability to convert or exchange our common stock of one class into
our common stock of another class;
. our ability to redeem or purchase any rights under a rights agreement
described in this prospectus or issue preferred stock under those
rights; and
. the ability of us and our affiliates to purchase our capital stock in
connection with transactions for the account of customers of ours or our
affiliates or in connection with the distribution or trading of our
capital stock.
What are the guarantees?
We will guarantee, to the extent described in this prospectus:
. declared distributions by ML Partnership to ML Trust and distribution of
quarterly payments on the TOPrS by ML Trust to you to the extent ML
Trust receives distributions on the partnership preferred securities;
. the redemption amount due to you if ML Trust redeems the TOPrS;
. the liquidation amount of the TOPrS if ML Trust is liquidated; and
4
. interest payments on debentures issued by our affiliates and held by ML
Partnership.
However, these guarantees do not apply to either:
. current distributions on the partnership preferred securities unless and
until ML Partnership declares distributions out of funds legally
available for payment; or
. liquidating distributions on the partnership preferred securities unless
ML Partnership has assets available for payment.
If ML Partnership does not declare distributions on the partnership
preferred securities, ML Trust will not have sufficient funds to pay
distributions on the TOPrS. In that case, you will have no right to receive
those distributions because our guarantee does not cover the non-payment of
distributions on the partnership preferred securities unless the distributions
are declared.
Our obligations under the guarantees are subordinate and junior in right of
payment to all other of our liabilities and rank equally with our most senior
preferred stock and similar guarantees of ours with respect to previous and
future issues of TOPrS and other preferred stock by any other of our finance
subsidiaries.
What happens if ML Trust is liquidated?
If ML Trust is liquidated, other than in connection with any change in U.S.
tax or investment company law described above, for each TOPrS you own, you will
be entitled to receive $25 plus any accumulated and unpaid distributions per
TOPrS.
Do I have voting rights?
Generally, you will not have any voting rights, except under the limited
circumstances described below. The holders of a majority of the TOPrS, however,
subject to certain requirements, have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the property
trustee, or direct the exercise of any trust or power conferred upon the
property trustee.
In what form will the TOPrS be issued?
The TOPrS will be issued in the form of a global certificate or certificates
registered in the name of Cede & Co., as nominee for The Depository Trust
Company also known as DTC. This means you will not receive a certificate for
your TOPrS. Your interests in the TOPrS will be evidenced by, and transfers of
the TOPrS will be effected only through, records maintained by the participants
in DTC.
Can you tell me more about ML&Co.?
Merrill Lynch & Co., Inc. is a holding company. Our subsidiary and
affiliated companies provide investment, financing, insurance and related
products on a global basis. Our principal executive offices are located at 4
World Financial Center, New York, New York 10080. Our telephone number is (212)
449-1000. For information about us, see the section "Merrill Lynch & Co., Inc."
in this prospectus. You should also read the other documents we have filed with
the SEC, which you can find by referring to the section entitled "Where You Can
Find More Information" in this prospectus.
Will the TOPrS be listed on an exchange?
ML Trust has applied to list the TOPrS on the NYSE under the trading symbol
" ". If approved for listing, trading on the NYSE will begin within 30 days
after ML Trust issues the TOPrS. The listing of the TOPrS will not necessarily
ensure that a liquid trading market will be available for the TOPrS.
5
RISK FACTORS
Your investment in the TOPrS will involve risks. You should carefully
consider the following discussion of risks before deciding whether an
investment in the TOPrS is suitable for you.
You will only receive distributions if distributions on the partnership
preferred securities are declared
ML Trust's ability to pay distributions on the TOPrS to you is dependent
upon its receipt of distributions on the partnership preferred securities. If
we or our affiliates defer or fail to make interest or principal payments on
the debentures and we fail to make guarantee payments on the guarantees, ML
Partnership will lack the funds necessary to pay distributions on the
partnership preferred securities. If ML Partnership does not pay current
distributions on the partnership preferred securities, either because we, as
the general partner, did not declare distributions to be made or because ML
Partnership lacks sufficient funds, ML Trust will not have funds to make
current distributions on the TOPrS. If ML Trust does not make payments to you
on the TOPrS, we will be restricted from, among other things, paying cash or
certain other dividends on our capital stock.
There may be tax consequences to you if we fail to pay you distributions
As a holder of the TOPrS, each of which represents a preferred ownership
interest in the assets of ML Trust, even if ML Partnership fails to pay current
distributions on the partnership preferred securities, you will be required to
accrue income, for U.S. federal income tax purposes, on the cumulative deferred
distributions and accumulated interest allocable to your proportionate share of
the partnership preferred securities held by ML Trust. As a result, you will
recognize income for U.S. federal income tax purposes in advance of the receipt
of cash and will not receive the cash from ML Trust related to that
distribution if you dispose of your TOPrS before the record date for the date
on which those distributions are made.
You may not receive full distributions if ML Partnership has insufficient
income or assets
You are subject to the risk that the quarterly or liquidating
distributions paid on the TOPrS will not match the rate paid on the assets held
by ML Partnership, including the debentures and any other securities acquired
by ML Partnership in the future.
This mismatch could occur if:
. we, as the general partner of ML Partnership, in our sole discretion,
do not declare distributions on the partnership preferred securities
or if ML Partnership receives insufficient amounts from its
investments to pay the additional compounded distributions that will
accumulate on any unpaid distributions,
. ML Partnership reinvests the proceeds received from the assets it
initially holds upon their retirement or at their maturities in other
assets which do not generate income sufficient to pay full dividends
in respect of the partnership preferred securities at a rate of %
per annum, or
. ML Partnership invests in assets that are not guaranteed by us and
that cannot be liquidated by ML Partnership for an amount sufficient
to pay any distributions on the partnership preferred securities in
full or if ML Partnership does not make any distributions.
ML Trust will not have sufficient funds available to pay you full
quarterly or liquidating distributions on the TOPrS if ML Partnership lacks
sufficient funds to make quarterly or liquidating distributions on the
partnership preferred securities in full.
6
Our obligations under the guarantees and our debentures are subordinated
Our obligations under the guarantees are unsecured and will rank in
priority of payment:
. subordinate and junior in right of payment to all of our other
liabilities; and
. equally with:
. any of our most senior preferred stock issued from time to time,
and
. similar guarantees of ours with respect to previous and future
issues of TOPrS and other series of preferred stock by any of our
finance subsidiaries.
This means that our obligations under the guarantees will not be paid
unless we can satisfy in full all of our other obligations ranking senior to
the guarantees.
Our obligations under our debentures issued to ML Partnership are
subordinate and junior in right of payment to all of our senior indebtedness.
At , we had outstanding senior indebtedness aggregating
approximately $ billion which would have ranked senior to our obligations
under the guarantees and our debentures.
There are no terms in the TOPrS, the partnership preferred securities,
the guarantees or the debentures that limit our ability to incur additional
indebtedness, including indebtedness that ranks senior to the guarantees.
ML Trust's and ML Partnership's investments are not diversified
Because the investments of ML Trust and ML Partnership are not
diversified, you are subject to a greater risk that their assets will not
generate sufficient income to pay current and liquidating distributions on the
TOPrS and the partnership preferred securities than you would with a vehicle
whose investments were diversified and less exposed to the risk that non-
payment on any particular investment asset would impair its ability to pay
distributions to holders of its capital stock.
Redemption of the TOPrS or the partnership preferred securities may affect your
return
If your TOPrS are exchanged for the partnership preferred securities,
. the trading value of the partnership preferred securities may be
lower than the trading value of the TOPrS which may result in a lower
return upon your sale of the partnership preferred securities; and
. you may incur an additional tax liability in excess of what you
originally contemplated.
Your TOPrS may be redeemed for cash or you may receive the partnership
preferred securities in exchange for your TOPrS in the event that:
(1) a change in U.S. tax law occurs which causes:
. ML Trust to be subject to U.S. federal income tax on the
distributions it receives or accrues on the partnership preferred
securities;
. ML Partnership to be subject to U.S. federal income tax on the
income or interest payments it receives or accrues on the
investments it holds;
. ML Trust or ML Partnership to be subject to more than a minimal
amount of other taxes, duties or governmental charges; or
7
. interest payable by us or any of our affiliates on the debentures
then held by ML Partnership to not be deductible for U.S. federal
income tax purposes; or
(2) a change in U.S. investment company law occurs which requires ML
Trust or ML Partnership to register as an investment company.
Because you may receive partnership preferred securities upon the
occurrence of one of the events described above, in connection with your
investment decision with regard to the TOPrS, you are also making an investment
decision with regard to the partnership preferred securities. You should
carefully review all the information regarding the partnership preferred
securities contained in this prospectus.
Enforcement of certain rights by or on your behalf is limited
The special representative's ability to take action on your behalf under
our guarantee of the partnership preferred securities is limited, and it is
uncertain that you would receive a distribution on the TOPrS even if the
special representative took any action or was successful in recovering funds
under our guarantee. This is because under no circumstances will the special
representative have authority to cause the general partner to declare
distributions on the partnership preferred securities. As a result, although
the special representative may be able to enforce ML Partnership's creditors'
rights to accelerate and receive payments in respect of our and our affiliates'
debenture and our guarantee of those debentures, rather than being required to
declare and make distributions on the partnership preferred securities, ML
Partnership would be entitled to reinvest those payments in additional
debentures of ours and our affiliates, subject to satisfying the reinvestment
criteria.
If at any time:
. you have not received a distribution on the TOPrS for six
consecutive calendar quarters;
. an event of default occurs and is continuing on any debenture
issued by us or our affiliates and then held by ML Partnership;
and
. we default on our obligations under our guarantee of the TOPrS
or the partnership preferred securities;
then:
. you would rely on the enforcement by the property trustee of
its rights, as a holder of the partnership preferred
securities, against us, as guarantor of the partnership
preferred securities, including the right to direct the special
representative to enforce
(1) ML Partnership's creditors' rights and other rights with
respect to our and our affiliate's debentures and our
guarantee of those debentures,
(2) the rights of the holders of the partnership preferred
securities under our guarantee of the partnership preferred
securities, and
(3) the rights of the holders of the partnership preferred
securities to receive distributions, only if and to the
extent declared out of funds legally available for
payment, on the partnership preferred securities, and
. ML Trustee under our guarantee of the TOPrS will have the right
to enforce the terms of the guarantee.
You have limited voting rights
As a holder of the TOPrS you will have limited voting rights and will not
be entitled to vote to appoint, change, or to increase or decrease the number
of trustees of ML Trust. As holder of all of ML Trust's common securities,
those rights are ours exclusively.
8
There is no prior market for the TOPrS
This series of TOPrS constitutes a new issue of securities with no
established trading market. ML Trust has applied to list the TOPrS on the NYSE.
There can be no assurance that an active market for the TOPrS will develop or
be sustained in the future on the NYSE. Although the underwriters have
indicated to us that they intend to make a market in the TOPrS, as permitted by
applicable laws and regulations, they are not obligated to do so and may
discontinue any market-making activities at any time without notice.
Accordingly, there is no assurance that a trading market for the TOPrS will
exist and no assurance as to the liquidity of any trading market.
We will only sell the TOPrS to those investors for whom the TOPrS are
considered suitable in light of their particular circumstances.
9
MERRILL LYNCH & CO., INC.
We are a holding company that, through our U.S. and non-U.S. subsidiaries
and affiliates such as Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Merrill Lynch Government Securities Inc., Merrill Lynch Capital Services, Inc.,
Merrill Lynch International, Merrill Lynch Capital Markets Bank Ltd., Merrill
Lynch Asset Management LP and Mercury Asset Management Ltd, provides
investment, financing, advisory, insurance, and related products on a global
basis, including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards,
futures and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending
and related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping services.
We provide these products and services to a wide array of clients,
including individual investors, small businesses, corporations, governments,
governmental agencies and financial institutions.
Our principal executive office is located at 4 World Financial Center,
New York, New York 10080; our telephone number is (212) 449-1000.
If you want to find more information about us, please see the sections
entitled "Where You Can Find More Information" and "Incorporation of
Information We File with the SEC" in this prospectus.
USE OF PROCEEDS
ML Trust will use the proceeds that it receives from the sale of the
TOPrS and its common securities to purchase the partnership preferred
securities, and those proceeds will be used by ML Partnership to invest in
debentures and other permitted investments. See "Description of the Partnership
Preferred Securities--Partnership Investments". We and our affiliates, the
issuers of the debentures, intend to use the net proceeds from the sale of the
debentures for general corporate purposes. Our general corporate purposes may
include financing the activities of our subsidiaries, financing our assets and
those of our subsidiaries, lengthening the average maturity of our borrowings
and financing acquisitions. Until we use the net proceeds from the sale of any
of our securities for general corporate purposes, we will use the net proceeds
to reduce our short-term indebtedness or for temporary investments. We expect
that we will, on a recurrent basis, engage in additional financings as the need
arises to finance our growth, through acquisitions or otherwise, or to lengthen
the average maturity of our borrowings. To the extent that TOPrS being
purchased for resale by MLPF&S are not resold, the aggregate proceeds that we
and our subsidiaries would receive would be reduced.
10
RATIO OF EARNINGS TO FIXED CHARGES OF MERRILL LYNCH & CO., INC.
In 1998, we acquired the outstanding shares of Midland Walwyn Inc., in a
transaction accounted for as a pooling-of-interests. The following information
for the fiscal years 1995 through 1997 has been restated as if the two entities
had always been combined.
The following table sets forth our historical ratios of earnings to fixed
charges for the periods indicated:
Year Ended Last Friday
in December For the Three
------------------------ Months Ended
1995 1996 1997 1998 1999 March 31, 2000
---- ---- ---- ---- ---- --------------
Ratio of earnings to
fixed charges(a)....... 1.2 1.2 1.2 1.1 1.3 1.4
- --------
(a) The effect of combining Midland Walwyn did not change the ratios reported
for the fiscal years 1995 through 1997.
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges, excluding capitalized interest and preferred security
dividend requirements of subsidiaries. "Fixed charges" consist of interest
costs, the interest factor in rentals, amortization of debt issuance costs,
preferred security dividend requirements of subsidiaries, and capitalized
interest.
11
MERRILL LYNCH PREFERRED CAPITAL TRUST VI
Merrill Lynch Preferred Capital Trust VI is a statutory business trust
formed under the Delaware Business Trust Act, as amended, pursuant to a
declaration of trust and the filing of a certificate of trust with the
Secretary of State of the State of Delaware on December 7, 1998; the
declaration will be amended and restated in its entirety substantially in the
form filed as an exhibit to the registration statement of which this prospectus
is a part. The declaration will be qualified as an indenture under the Trust
Indenture Act of 1939, as amended. Upon issuance of the TOPrS, the purchasers
of the TOPrS will own all the TOPrS issued by ML Trust. See "Description of the
TOPrS". ML&Co. will acquire ML Trust's common securities in an amount equal to
at least 3% of the total capital of ML Trust. ML Trust will use all the
proceeds derived from the issuance of the TOPrS and the common securities
(collectively, the "Trust Securities") to purchase the partnership preferred
securities from ML Partnership and, accordingly, the assets of ML Trust will
consist solely of the partnership preferred securities. ML Trust exists for the
exclusive purpose of:
. issuing the Trust Securities representing undivided beneficial
ownership interests in the assets of ML Trust,
. investing the gross proceeds of the Trust Securities in the
partnership preferred securities, and
. engaging in only those other activities necessary or incidental to
the foregoing purposes.
Under the declaration, there will initially be four trustees for ML
Trust.
. Two regular trustees who will be individuals who are employees or
officers of or who are affiliated with ML&Co.
. A property trustee who will be a financial institution that is
unaffiliated with ML&Co. and is the indenture trustee for purposes
of compliance with the provisions of the Trust Indenture Act.
. The Delaware trustee who will be an entity that maintains its
principal place of business in the State of Delaware.
Initially, The Chase Manhattan Bank, a New York banking corporation, will
act as property trustee, and its affiliate, Chase Manhattan Bank Delaware, a
Delaware corporation, will act as Delaware trustee until, in each case, removed
or replaced by the holder of the common securities. For purposes of compliance
with the Trust Indenture Act, The Chase Manhattan Bank will also act as trustee
under the Trust Guarantee, as defined in this prospectus, as property trustee
under the declaration and as trustee under the indenture under which the ML&Co.
Debenture, as defined in this prospectus, is issued.
The property trustee will hold title to the partnership preferred
securities for the benefit of the holders of the Trust Securities, and the
property trustee will have the power to exercise all rights, powers and
privileges with respect to the partnership preferred securities under the
Amended and Restated Agreement of Limited Partnership to be entered into by
ML&Co. and ML Trust as the holder of the partnership preferred securities. In
addition, the property trustee will maintain exclusive control of the property
account which is a segregated non-interest bearing bank account to hold all
payments made in respect of the partnership preferred securities for the
benefit of the holders of the Trust Securities. The trust guarantee trustee
will hold the Trust Guarantee for the benefit of the holders of the TOPrS.
ML&Co., as the holder of all the common securities, will have the right to
appoint, remove or replace any of the trustees and to increase or decrease the
number of trustees, provided that at least one trustee shall be a Delaware
trustee, at least one trustee shall be the property trustee and at least one
trustee shall be a regular trustee. ML&Co. will pay all fees and expenses
related to the organization and operations of ML Trust, including any taxes,
duties, assessments or governmental charges of whatever nature imposed by the
United States or any other domestic taxing authority upon ML Trust, other
12
than withholding taxes, and the offering of the TOPrS and be responsible for
all debts and obligations of ML Trust, other than those obligations with
respect to the Trust Securities.
For so long as the TOPrS remain outstanding, ML&Co. will be obligated to:
. maintain 100% direct ownership of the common securities,
. cause ML Trust to remain a statutory business trust and not to
voluntarily dissolve, wind-up, liquidate or be terminated, except as
permitted by the declaration, and
. use its commercially reasonable efforts to ensure that ML Trust will
not be
(A) an investment company for purposes of the Investment Company Act
of 1940, as amended, or
(B) classified as other than a grantor trust for United States
Federal income tax purposes.
The rights of the holders of the TOPrS, including economic rights, rights
to information and voting rights, are as set forth in the declaration and the
Delaware Trust Act. See "Description of the TOPrS". The declaration and the
Trust Guarantee also incorporate by reference the terms of the Trust Indenture
Act.
The location of the principal executive office of ML Trust is c/o Merrill
Lynch & Co., Inc., 4 World Financial Center, New York, New York 10080, and its
telephone number is (212) 449-1000.
13
MERRILL LYNCH PREFERRED FUNDING VI, L.P.
Merrill Lynch Preferred Funding VI, L.P. is a limited partnership that
was formed under the Delaware Revised Uniform Limited Partnership Act, as
amended, on December 7, 1998 for the exclusive purposes of purchasing debt
securities of ML&Co. and wholly-owned subsidiaries of ML&Co. (the "Affiliate
Investment Instruments") and other permitted investments, with the proceeds
from the sale of partnership preferred securities to ML Trust and a capital
contribution from ML&Co. in exchange for the general partner interest in ML
Partnership. Under the certificate of limited partnership, as amended, and the
limited partnership agreement, ML&Co. is the sole general partner of ML
Partnership. Upon the issuance of the partnership preferred securities, which
securities represent limited partner interests in ML Partnership, ML Trust will
be the sole limited partner of ML Partnership. Contemporaneously with the
issuance of the partnership preferred securities, ML&Co. as general partner
will contribute capital to ML Partnership in an amount sufficient to establish
its initial capital account at an amount equal to at least 15% of the total
capital of ML Partnership.
ML Partnership is managed by ML&Co. as general partner and exists for the
sole purpose of:
. issuing its partnership interests,
. investing the proceeds from the sale of the partnership preferred
securities in Affiliate Investment Instruments and other eligible
debt securities, as described in this prospectus, and
. engaging in only those other activities necessary or incidental for
these purposes.
To the extent that aggregate payments to ML Partnership on its
investments exceed distributions accumulated or payable with respect to the
partnership preferred securities, ML Partnership may at times have excess funds
which shall be allocated to and may, in ML&Co.'s sole discretion, be
distributed to ML&Co.
For so long as the partnership preferred securities remain outstanding,
ML&Co. will be obligated under the limited partnership agreement:
. to remain the sole general partner of ML Partnership and to maintain
100% direct ownership of the general partner's interest in ML
Partnership, which interest will at all times represent at least 1%
of the total capital of ML Partnership,
. to cause ML Partnership to remain a limited partnership and not to
voluntarily dissolve, liquidate, wind-up or be terminated, except as
permitted by the limited partnership agreement, and
. to use its commercially reasonable efforts to ensure that ML
Partnership will not be,
. an investment company for purposes of the Investment Company Act
or
. an association or a publicly traded partnership taxable as a
corporation for United States Federal income tax purposes.
ML&Co. or the then general partner may transfer its obligations as
general partner to a wholly-owned direct or indirect subsidiary of ML&Co.
provided that:
. the successor entity expressly accepts the transfer of the
obligations as general partner, and
. before any transfer, ML&Co. has received an opinion of nationally
recognized independent counsel to ML Partnership experienced in these
matters to the effect that:
(A) ML Partnership will be treated as a partnership for United States
Federal income tax purposes;
(B) any transfer would not cause ML Trust to be classified as an
association taxable as a corporation for United States Federal
income tax purposes;
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(C) following any transfer, ML&Co. and the successor entity will be
in compliance with the Investment Company Act without being
subject to registration as an investment company; and
(D) any transfer will not adversely affect the limited liability of
the holders of the partnership preferred securities.
The rights of the holders of the partnership preferred securities,
including economic rights, rights to information and voting rights, are set
forth in the limited partnership agreement and the Delaware Limited Partnership
Act. See "Description of the Partnership Preferred Securities".
The limited partnership agreement provides that the general partner will
have liability for the fees and expenses of ML Partnership, including any
taxes, duties, assessments or governmental charges of whatever nature imposed
by the United States or any other domestic taxing authority upon ML
Partnership, other than withholding taxes, and be responsible for all debts and
obligations of ML Partnership, other than with respect to the partnership
preferred securities. Under Delaware law, assuming a limited partner in a
Delaware limited partnership such as ML Partnership, i.e., a holder of the
partnership preferred securities, does not participate in the control of the
business of the limited partnership, that limited partner will not be
personally liable for the debts, obligations and liabilities of the limited
partnership, whether arising in contract, tort or otherwise, solely by reason
of being a limited partner of the limited partnership, subject to any
obligation such limited partner may have to repay any funds that may have been
wrongfully distributed to it. ML Partnership's business and affairs will be
conducted by ML&Co. as general partner.
The location of the principal executive offices of ML Partnership is c/o
Merrill Lynch & Co., Inc., 4 World Financial Center, New York, New York 10080
and its telephone number is (212) 449-1000.
15
DESCRIPTION OF THE TOPrS
The TOPrS will be issued under the terms of the declaration. The
declaration will be qualified as an indenture under the Trust Indenture Act.
The property trustee, The Chase Manhattan Bank, will act as trustee for the
TOPrS under the declaration for purposes of compliance with the provisions of
the Trust Indenture Act. The terms of the TOPrS will include those stated in
the declaration and those made part of the declaration by the Trust Indenture
Act. The following summary of the material terms and provisions of the TOPrS is
not complete and is subject to, and qualified in its entirety by reference to,
the declaration, a copy of which is filed as an exhibit to the registration
statement of which this prospectus is a part, the Delaware Trust Act and the
Trust Indenture Act.
The TOPrS will be issued in fully registered form without coupons. The
TOPrS will not be issued in bearer form. See "--Book-Entry Only Issuance--The
Depository Trust Company".
The declaration authorizes the regular trustees of ML Trust to issue the
Trust Securities, which represent undivided beneficial ownership interests in
the assets of ML Trust. Title to the partnership preferred securities will be
held by the property trustee for the benefit of the holders of the Trust
Securities.
The declaration does not permit ML Trust to:
. acquire any assets other than the partnership preferred securities,
. issue any securities other than the Trust Securities, or
. incur any indebtedness.
The payment of distributions out of money held by ML Trust, and payments out of
money held by ML Trust upon redemption of the TOPrS or liquidation of ML Trust,
are guaranteed by ML&Co. to the extent described under "Description of the
Trust Guarantee".
The Trust Guarantee will be held by The Chase Manhattan Bank, the trust
guarantee trustee, for the benefit of the holders of the TOPrS. The Trust
Guarantee does not cover payment of distributions when ML Trust does not have
sufficient available funds to pay such distributions. In any event of non-
payment, holders of the TOPrS will have the remedies described below under "--
Trust Enforcement Events".
Distributions
The distribution rate on the TOPrS will be fixed at a rate per annum of
% of the stated liquidation amount of $25 per TOPrS and will be paid if, as
and when ML Trust has funds available for distribution. Distributions not paid
on the scheduled payment date will accumulate and compound quarterly at a rate
per annum equal to %. The term "distribution" as used in this prospectus
includes any compounded amounts unless otherwise stated or the context
otherwise requires. The amount of distributions payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months.
Distributions on the TOPrS will be cumulative, will accumulate from the
date of initial issuance and will be payable quarterly in arrears on each ,
, and , commencing , if, as and when available for payment,
by the property trustee, except as otherwise described below. If distributions
are not paid when scheduled, the accumulated distributions shall be paid to the
holders of record of the TOPrS as they appear on the books and records of ML
Trust on the record date with respect to the payment date for the TOPrS which
corresponds to the payment date fixed by ML Partnership with respect to the
payment of cumulative distributions on the partnership preferred securities.
Distributions on the TOPrS will be made to the extent that ML Trust has
funds available for the payment of the distributions in the property account.
Amounts available to ML Trust for distribution to the
16
holders of the TOPrS will be limited to payments received by ML Trust from ML
Partnership with respect to the partnership preferred securities or from ML&Co.
on ML&Co.'s guarantee on the TOPrS (the "Trust Guarantee") or its guarantee on
the partnership preferred securities (the "Partnership Guarantee") as described
in this prospectus. Distributions on the partnership preferred securities will
be paid only if, as and when declared in the sole discretion of ML&Co., as the
general partner of ML Partnership. Under the limited partnership agreement,
ML&Co. is not obligated to declare distributions on the partnership preferred
securities at any time, including upon or following a Partnership Enforcement
Event. See "Description of Partnership Preferred Securities--Partnership
Enforcement Events".
The assets of ML Partnership will consist only of Affiliate Investment
Instruments, which initially will be the debentures issued by ML&Co. and
another wholly-owned subsidiary of ML&Co., and other eligible debt securities.
To the extent that the issuers and, where applicable, ML&Co., as guarantor, of
the securities in which ML Partnership invests defer or fail to make any
payment in respect of the securities or, if applicable, the guarantees, ML
Partnership will not have sufficient funds to pay and will not declare or pay
distributions on the partnership preferred securities. If ML Partnership does
not declare and pay distributions on the partnership preferred securities out
of funds legally available for distribution, ML Trust will not have sufficient
funds to make distributions on the TOPrS, in which event the Trust Guarantee
will not apply to those distributions until ML Trust has sufficient funds
available to pay those distributions. See "Description of the Partnership
Preferred Securities--Distributions" and "Description of The Trust Guarantee".
In addition, ML Partnership may not have sufficient funds to pay current or
liquidating distributions on the partnership preferred securities if:
. at any time that ML Partnership is receiving current payments in
respect of the securities held by ML Partnership, including the
debentures, ML&Co, in its sole discretion, does not declare
distributions on the partnership preferred securities and ML
Partnership receives insufficient amounts to pay the additional
compounded distributions that will accumulate in respect of the
partnership preferred securities,
. ML Partnership reinvests the proceeds received in respect of the
debentures upon their retirement or at their maturities in Affiliate
Investment Instruments that do not generate income in an amount that
is sufficient to pay full distributions in respect of the partnership
preferred securities, or
. ML Partnership invests in debt securities of Investment Affiliates,
as defined below, that are not guaranteed by ML&Co. and that cannot
be liquidated by ML Partnership for an amount sufficient to pay the
distributions in full.
Distributions on the TOPrS will be payable to their holders as they
appear on the books and records of ML Trust on the relevant record dates, which
will be one Business Day, as defined below, before the relevant payment dates.
These distributions will be paid through the property trustee who will hold
amounts received in respect of the partnership preferred securities in the
property account for the benefit of the holders of the Trust Securities.
Subject to any applicable laws and regulations and the provisions of the
declaration, each payment will be made as described under "--Book-Entry Only
Issuance--The Depository Trust Company" below. In the event that the TOPrS do
not remain in book-entry only form, the relevant record dates shall be the 15th
day of the month of the relevant payment dates. In the event that any date on
which distributions are payable on the TOPrS is not a Business Day, payment of
the distribution payable on that date will be made on the next succeeding day
which is a Business Day, without any interest or other payment in respect of
the distribution subject to delay, except that, if that Business Day falls in
the next succeeding calendar year, the relevant payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on that date. A "Business Day" shall mean any day other than a day
on which banking institutions in The City of New York are authorized or
required by law to close.
17
Trust Enforcement Events
The occurrence, at any time, of:
. the non-payment of distributions on the TOPrS for six consecutive
quarterly distribution periods,
. a default by ML&Co. in respect of any of its obligations under the
Trust Guarantee, or
. a Partnership Enforcement Event under the limited partnership
agreement,
will constitute an enforcement event under the declaration with respect to the
Trust Securities (a "Trust Enforcement Event"); provided, that under the
declaration, the holder of the common securities will be deemed to have waived
any Trust Enforcement Event with respect to the common securities until all
Trust Enforcement Events with respect to the TOPrS have been cured, waived or
otherwise eliminated. Until any Trust Enforcement Event with respect to the
TOPrS have been so cured, waived or otherwise eliminated, the property trustee
will be deemed to be acting solely on behalf of the holders of the TOPrS and
only the holders of the TOPrS will have the right to direct the property
trustee with respect to certain matters under the declaration and, in the case
of a Partnership Enforcement Event, the special representative with respect to
certain matters under the limited partnership agreement. See "Description of
the Partnership Preferred Securities--Partnership Enforcement Events" for a
description of the events which will trigger the occurrence of a Partnership
Enforcement Event.
Upon the occurrence of a Trust Enforcement Event,
. the property trustee, as the holder of the partnership preferred
securities, shall have the right to enforce the terms of the
partnership preferred securities, including the right to direct the
special representative to enforce:
. ML Partnership's creditors' rights and other rights with respect
to the Affiliate Investment Instruments and ML&Co.'s guarantee of
the Affiliate Investment Instruments (the "Investment Guarantees",
and together with the Trust Guarantee and the Partnership
Guarantee, the "Guarantees"),
. the rights of the holders of the partnership preferred securities
under the Partnership Guarantee, and
. the rights of the holders of the partnership preferred securities
to receive distributions on the partnership preferred securities,
only if and to the extent declared out of funds legally available
for the payment of distributions, and
. the trust guarantee trustee shall have the right to enforce the terms
of the Trust Guarantee, including the right to enforce the restriction
on the payment of distributions by ML&Co. and its finance subsidiaries
on its securities as described in the Trust Guarantee.
If the property trustee fails to enforce its rights under the partnership
preferred securities after a holder of the TOPrS has made a written request,
that holder may directly institute a legal proceeding against ML Partnership
and the special representative to enforce the property trustee's rights under
the partnership preferred securities without first instituting any legal
proceeding against the property trustee, ML Trust or any other person or
entity. In addition, for so long as ML Trust holds any partnership preferred
securities, if the special representative fails to enforce its rights on behalf
of ML Partnership under the Affiliate Investment Instruments after a holder of
the TOPrS has made a written request, any holder may on behalf of ML
Partnership directly institute a legal proceeding against the Investment
Affiliates under the Affiliate Investment Instruments, without first
instituting any legal proceeding against the property trustee, ML Trust, the
special representative or ML Partnership. In any event, for so long as ML Trust
is the holder of any partnership preferred securities, if a Trust Enforcement
Event has occurred and is continuing and such event is attributable to the
failure of an
18
Investment Affiliate to make any required payment when due on any Affiliate
Investment Instrument or the failure of ML&Co. to make any required payment
when due on any Investment Guarantee, then a holder of the TOPrS may on behalf
of ML Partnership directly institute a proceeding against the Investment
Affiliate with respect to any Affiliate Investment Instrument or against ML&Co.
with respect to any the Investment Guarantee, in each case for enforcement of
payment.
Under no circumstances, however, shall the special representative have
authority to cause ML&Co to declare distributions on the partnership preferred
securities. As a result, although the special representative may be able to
enforce ML Partnership's creditors' rights to accelerate and receive payments
in respect of the Affiliate Investment Instruments and the Investment
Guarantees, subject to satisfying the reinvestment criteria described under
"Description of the Partnership Preferred Securities--Partnership Investments",
ML Partnership would be entitled to reinvest any payments in additional
Affiliate Investment Instruments and other eligible debt securities, rather
than declaring and making distributions on the partnership preferred
securities.
ML&Co. and ML Trust are each required to file annually with the property
trustee an officer's certificate as to its compliance with all conditions and
obligations under the declaration.
Mandatory Redemption
At the option of ML&Co., ML Partnership may redeem the partnership
preferred securities, in whole or in part, at any time on or after , or at
any time in certain circumstances upon the occurrence of a Partnership Special
Event. Upon the redemption of the partnership preferred securities either at
the option of ML&Co. or under to a Partnership Special Event, the proceeds from
the repayment shall simultaneously be applied to redeem Trust Securities having
an aggregate liquidation amount equal to the partnership preferred securities
so redeemed at an amount per Trust Security equal to $25 plus accumulated and
unpaid distributions; provided, that holders of the Trust Securities shall be
given not less than 30 nor more than 60 days notice of any redemption. See
"Description of the Partnership Preferred Securities--General" and "--Optional
Redemption".
Trust Special Event Redemption or Distribution
If, at any time, a Trust Tax Event or a Trust Investment Company Event
(each as defined below, and each, a "Trust Special Event") occurs and is
continuing, the regular trustees shall, unless the partnership preferred
securities are redeemed in the limited circumstances described below, within 90
days following the occurrence of such Trust Special Event elect to either:
(1) dissolve ML Trust upon not less than 30 nor more than 60 days notice
with the result that, after satisfaction of creditors of ML Trust,
if any, partnership preferred securities would be distributed on a
pro rata basis to the holders of the TOPrS and the common securities
in liquidation of the holders' interests in ML Trust; provided,
however, that if at the time there is available to ML Trust the
opportunity to eliminate, within the 90-day period, the Trust
Special Event by taking some ministerial action, such as filing a
form or making an election, or pursuing some other similar
reasonable measure which in the sole judgment of ML&Co. has or will
cause no adverse effect on ML Trust, ML Partnership, ML&Co. or the
holders of the Trust Securities and will involve no material cost,
ML Trust will pursue that measure in lieu of dissolution or
(2) cause the TOPrS to remain outstanding, provided that in the case of
this clause (2), ML&Co. shall pay any and all expenses incurred by
or payable by ML Trust attributable to ML Trust Special Event.
19
Furthermore, if in the case of the occurrence of a Trust Tax Event, the regular
trustees have received an opinion of nationally recognized independent tax
counsel experienced in these matters that there is more than an insubstantial
risk that interest payable by one or more of the Investment Affiliates with
respect to the debentures issued by any Investment Affiliate is not, or will
not be, deductible by any Investment Affiliate for United States Federal income
tax purposes even if the partnership preferred securities were distributed to
the holders of the Trust Securities in liquidation of the holders' interests in
ML Trust as described above, then ML&Co. shall have the right, within 90 days
following the occurrence of the Trust Tax Event, to elect to cause ML
Partnership to redeem the partnership preferred securities in whole, but not in
part, for cash upon not less than 30 nor more than 60 days notice and promptly
following any redemption, the Trust Securities will be redeemed by ML Trust at
the redemption price.
"Trust Tax Event" means that ML&Co. shall have requested and received and
shall have delivered to the Regular Trustees an opinion of nationally
recognized independent tax counsel experienced in these matters to the effect
that there has been:
. an amendment to, change in or announced proposed change in the laws,
or any regulations under those laws of the United States or any
political subdivision or taxing authority of that jurisdiction,
. a judicial decision interpreting, applying, or clarifying these laws
or regulations,
. an administrative pronouncement or action that represents an official
position, including a clarification of an official position, of the
governmental authority or regulatory body making the administrative
pronouncement or taking any action, or
. a threatened challenge asserted in connection with an audit of ML&Co.
or any of its subsidiaries, ML Partnership, or ML Trust, or a
threatened challenge asserted in writing against any other taxpayer
that has raised capital through the issuance of securities that are
substantially similar to the debentures, the partnership preferred
securities, or the TOPrS, which amendment or change is adopted or
which proposed change, decision or pronouncement is announced or
which action, clarification or challenge occurs on or after the date
of this prospectus (collectively a "Tax Action"), which Tax Action
relates to any of the items described in (1) through (3) below, and
that following the occurrence of any Tax Action there is more than an
insubstantial risk that:
(1) ML Trust is, or will be, subject to United States Federal income
tax with respect to income accrued or received on the partnership
preferred securities,
(2) ML Trust is, or will be, subject to more than a minimal amount of
other taxes, duties or other governmental charges or
(3) interest payable by an Investment Affiliate with respect to the
Affiliate Investment Instrument issued by the Investment
Affiliate is not, or will not be, deductible by the Investment
Affiliate for United States Federal income tax purposes.
Recently, the Internal Revenue Service asserted that the interest payable
on a security issued in circumstances with certain similarities to the issuance
of the debentures issued by the Investment Affiliates to ML Partnership was not
deductible for United States Federal income tax purposes. The taxpayer in that
case has filed a petition in the United States Tax Court challenging the IRS's
position on this matter. If this matter were to be litigated and the Tax Court
were to sustain the IRS's position on this matter, the judicial decision could
constitute a Trust Tax Event, which could result in an early redemption of the
TOPrS.
"Trust Investment Company Event" means that ML&Co. shall have requested
and received and shall have delivered to the regular trustees an opinion of
nationally recognized independent legal counsel experienced in these matters to
the effect that as a result of the occurrence on or after the date of this
20
prospectus of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in Investment Company Act Law"), ML
Trust is or will be considered an investment company which is required to be
registered under the Investment Company Act.
If the partnership preferred securities are distributed to the holders of
the TOPrS, ML&Co. will use its best efforts to cause the partnership preferred
securities to be listed on the NYSE or on any other national securities
exchange or similar organization as the TOPrS are then listed or quoted.
On the date fixed for any distribution of partnership preferred
securities, upon dissolution of ML Trust,
. the Trust Securities will no longer be deemed to be outstanding, and
. certificates representing the Trust Securities will be deemed to
represent the partnership preferred securities having a liquidation
preference equal to the stated liquidation amount of the Trust
Securities until the certificates are presented to ML&Co. or its agent
for transfer or reissuance.
There can be no assurance as to the market price for the partnership
preferred securities which may be distributed in exchange for TOPrS if a
dissolution and liquidation of ML Trust were to occur. Accordingly, the
partnership preferred securities which an investor may subsequently receive on
dissolution and liquidation of ML Trust may trade at a discount to the price
of the TOPrS exchanged.
Redemption Procedures
ML Trust may not redeem fewer than all of the outstanding TOPrS unless
all accumulated and unpaid distributions have been paid on all TOPrS for all
quarterly distribution periods terminating on or before the date of
redemption.
If ML Trust gives a notice of redemption in respect of the TOPrS, which
notice will be irrevocable, and if ML&Co. has paid to the property trustee a
sufficient amount of cash in connection with the related redemption of the
partnership preferred securities, then, by 12:00 noon, New York City time, on
the redemption date, ML Trust will irrevocably deposit with DTC funds
sufficient to pay the amount payable on redemption of all book-entry
certificates and will give DTC irrevocable instructions and authority to pay
the redemption amount to holders of the TOPrS. See "--Book-Entry Only
Issuance--The Depository Trust Company". If notice of redemption shall have
been given and funds are deposited as required, then upon the date of deposit,
all rights of holders of any TOPrS so called for redemption will cease, except
the right of the holders of those TOPrS to receive the redemption price, but
without interest. In the event that any date fixed for redemption of the TOPrS
is not a Business Day, then payment of the amount payable on that date will be
made on the next succeeding day which is a Business Day, without any interest
or other payment in respect of the amount payable subject to delay, except
that, if that Business Day falls in the next calendar year, the payment will
be made on the immediately preceding Business Day. In the event that payment
of the redemption price in respect of the TOPrS is improperly withheld or
refused and not paid either by ML Trust or by ML&Co. under the Trust Guarantee
described under "Description of the Trust Guarantee", distributions on the
TOPrS will continue to accumulate from the original redemption date to the
date of payment.
In the event that fewer than all of the outstanding TOPrS are to be
redeemed, the TOPrS will be redeemed in accordance with the procedures of DTC.
See "--Book-Entry Only Issuance--The Depository Trust Company". In the event
that the TOPrS do not remain in book-entry only form and fewer than all of the
outstanding TOPrS are to be redeemed, the TOPrS shall be redeemed on a pro
rata basis or pursuant to the rules of any securities exchange on which the
TOPrS are listed.
21
Subject to the foregoing and applicable law, including, without
limitation, United States Federal securities laws, ML&Co. or its subsidiaries
may at any time and from time to time purchase outstanding TOPrS by tender, in
the open market or by private agreement.
Subordination of the Common Securities
Payment of amounts upon liquidation of the Trust Securities shall be made
pro rata based on the liquidation amount of the Trust Securities; provided,
however, that upon:
. the occurrence of an event of default by an Investment Affiliate,
including ML&Co., under any Affiliate Investment Instrument, or
. default by ML&Co. on any of its obligations under any guarantee
described in this prospectus, the holders of the TOPrS will have a
preference over the holders of the common securities with respect to
payments upon liquidation of ML Trust.
In the case of any Trust Enforcement Event, the holder of the common
securities will be deemed to have waived the Trust Enforcement Event until all
Trust Enforcement Events with respect to the TOPrS have been cured, waived or
otherwise eliminated. Until all Trust Enforcement Events with respect to the
TOPrS have been so cured, waived or otherwise eliminated, the property trustee
shall act solely on behalf of the holders of the TOPrS and not on behalf of the
holder of the common securities, and only the holders of the TOPrS will have
the right to direct the property trustee to act on their behalf.
Liquidation Distribution Upon Dissolution
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of ML Trust, the holders of the TOPrS will be
entitled to receive out of the assets of ML Trust, after satisfaction of
liabilities to creditors, distributions in cash or other immediately available
funds in an amount equal to the aggregate of the stated liquidation amount of
$25 per TOPrS plus accumulated and unpaid distributions to the date of payment,
unless, in connection with ML Trust's liquidation, partnership preferred
securities have been distributed on a pro rata basis to the holders of the
Trust Securities.
If, upon ML Trust's liquidation, the liquidation distribution can be paid
only in part because ML Trust has insufficient assets available to pay in full
the aggregate liquidation distribution, then the amounts payable directly by ML
Trust on the TOPrS shall be paid on a pro rata basis. The holders of the common
securities will be entitled to receive distributions upon liquidation pro rata
with the holders of the TOPrS, except in the limited circumstances described
above under "--Subordination of the Common Securities".
Under to the declaration, ML Trust shall terminate:
(1) upon the bankruptcy of ML&Co.,
(2) upon the filing of a certificate of dissolution or the equivalent
with respect to ML&Co., the filing of a certificate of cancellation
with respect to ML Trust after having obtained the consent of at
least a majority in liquidation amount of the Trust Securities,
voting together as a single class, to file such certificate of
cancellation, or the revocation of the charter of ML&Co. and the
expiration of 90 days after the date of revocation without
reinstatement,
(3) upon the distribution of all of the partnership preferred securities
upon the occurrence of a Trust Special Event,
(4) upon the entry of a decree of a judicial dissolution of ML&Co. or ML
Trust, or
(5) upon the redemption of all the Trust Securities.
22
Voting Rights
Except as described in this prospectus, under the Delaware Trust Act, the
Trust Indenture Act and under "Description of The Trust Guarantee--Amendments
and Assignment", and as otherwise required by law and the declaration, the
holders of the TOPrS will have no voting rights.
Subject to the requirement of the property trustee obtaining a tax
opinion as set forth in the last sentence of this paragraph, the holders of a
majority in liquidation amount of the TOPrS have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
property trustee, or direct the exercise of any trust or power conferred upon
the property trustee under the declaration, including the right to direct the
property trustee, as holder of the partnership preferred securities, to:
. exercise the remedies available to it under the limited partnership
agreement as a holder of the partnership preferred securities,
including the right to direct the special representative to exercise
its rights in the manner described above under "--Trust Enforcement
Events", and
. consent to any amendment, modification, or termination of the limited
partnership agreement or the partnership preferred securities where
consent is required; provided, however, that where a consent or action
under the limited partnership agreement would require the consent or
act of the holders of more than a majority of the aggregate liquidation
preference of partnership preferred securities affected, only the
holders of the percentage of the aggregate stated liquidation amount of
the Trust Securities which is at least equal to the percentage required
under the limited partnership agreement may direct the property trustee
to give consent or take action on behalf of ML Trust. See "Description
of the Partnership Preferred Securities--Voting Rights".
The property trustee shall notify all holders of the TOPrS of any notice
of any Partnership Enforcement Event received from ML&Co., as general partner
with respect to the partnership preferred securities and the Affiliate
Investment Instruments. The notice shall state that the Partnership Enforcement
Event also constitutes a Trust Enforcement Event. Except with respect to
directing the time, method, and place of conducting a proceeding for a remedy
as described above, the property trustee shall be under no obligation to take
any of the actions described in immediately preceding clauses above unless the
property trustee has obtained an opinion of independent tax counsel to the
effect that as a result of that action, ML Trust will not fail to be classified
as a grantor trust for United States Federal income tax purposes and that after
that action each holder of Trust Securities will continue to be treated as
owning an undivided beneficial ownership interest in the partnership preferred
securities.
A waiver of a Partnership Enforcement Event with respect to the
partnership preferred securities held by the property trustee will constitute a
waiver of the corresponding Trust Enforcement Event.
Any required approval or direction of holders of the TOPrS may be given
at a separate meeting of holders of the TOPrS convened for that purpose, at a
meeting of all of the holders of Trust Securities or pursuant to written
consent. The regular trustees will cause a notice of any meeting at which
holders of the TOPrS are entitled to vote, or of any matter upon which action
by written consent of the holders is to be taken, to be mailed to each holder
of record of the TOPrS. Each notice will include a statement setting forth the
following information:
(1) the date of the meeting or the date by which any action is to be
taken;
(2) a description of any resolution proposed for adoption at the meeting
on which the holders are entitled to vote or of the matter upon
which written consent is sought; and
(3) instructions for the delivery of proxies or consents.
No vote or consent of the holders of the TOPrS will be required for ML Trust to
redeem and cancel the TOPrS or distribute partnership preferred securities in
accordance with the declaration.
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Notwithstanding that holders of the TOPrS are entitled to vote or consent
under any of the circumstances described above, any of the Trust Securities
that are beneficially owned at that time by ML&Co. or any entity directly or
indirectly controlled by, or under direct or indirect common control with,
ML&Co., except for TOPrS purchased or acquired by ML&Co. or its affiliates in
connection with transactions effected by or for the account of customers of
ML&Co. or any of its subsidiaries or in connection with the distribution or
trading of the TOPrS, shall not be entitled to vote or consent and shall, for
purposes of any vote or consent, be treated as if the Trust Securities were not
outstanding; provided, however, that persons, other than affiliates of ML&Co.,
to whom ML&Co. or any of its subsidiaries have pledged the TOPrS may vote or
consent with respect to the pledged TOPrS pursuant to the terms of the pledge.
The procedures by which holders of the TOPrS represented by the global
certificates may exercise their voting rights are described below. See "--Book-
Entry Only Issuance--The Depository Trust Company".
Holders of the TOPrS will have no rights to appoint or remove the
trustees, who may be appointed, removed or replaced solely by ML&Co., as the
holder of all of the common securities.
Merger, Consolidation or Amalgamation of ML Trust
ML Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other entity, except as
described below. ML Trust may, with the consent of a majority of the regular
trustees and without the consent of the holders of the Trust Securities, the
property trustee or the Delaware trustee consolidate, amalgamate, merge with or
into, or be replaced by a trust organized as such under the laws of any State
of the United States; provided, that:
(1) if ML Trust is not the surviving entity, the successor entity
either:
. expressly assumes all of the obligations of ML Trust under the
Trust Securities, or
. substitutes for the TOPrS other securities having substantially
the same terms as the TOPrS, so long as the successor securities
rank the same as the Trust Securities rank with respect to
distributions, assets and payments,
(2) ML&Co. expressly acknowledges a trustee of the successor entity
possessing the same powers and duties as the property trustee as the
holder of the partnership preferred securities,
(3) the TOPrS or any successor securities are listed, or any successor
securities will be listed upon notification of issuance, on any
national securities exchange or with another organization on which
the TOPrS are then listed or quoted,
(4) any merger, consolidation, amalgamation or replacement does not
cause the TOPrS, including any successor securities, to be
downgraded by any nationally recognized statistical rating
organization,
(5) any merger, consolidation, amalgamation or replacement does not
adversely affect the rights, preferences and privileges of the
holders of the TOPrS, including any successor securities, in any
material respect,
(6) the successor entity has a purpose substantially identical to that
of ML Trust,
(7) ML&Co. guarantees the obligations of the successor entity under the
successor securities to the same extent as provided by the Trust
Guarantee and
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(8) before any merger, consolidation, amalgamation or replacement,
ML&Co. has received an opinion of a nationally recognized
independent counsel to ML Trust experienced in these matters to
the effect that:
. any merger, consolidation, amalgamation or replacement will
not adversely affect the rights, preferences and privileges
of the holders of the TOPrS, including any successor
securities, in any material respect, other than with
respect to any dilution of the holders' interest in the new
entity,
. following any merger, consolidation, amalgamation or
replacement, neither ML Trust nor the successor entity will
be required to register as an investment company under the
Investment Company Act,
. following any merger, consolidation, amalgamation or
replacement, ML Trust, or any successor trust, will not be
classified as an association or a publicly traded
partnership taxable as a corporation for United States
Federal income tax purposes, and
. following any merger, consolidation, amalgamation or
replacement, ML Partnership will not be classified as an
association or a publicly traded partnership taxable as a
corporation for United States Federal income tax purposes.
Notwithstanding the foregoing, ML Trust shall not, except with the consent of
holders of 100% in liquidation amount of the TOPrS, consolidate, amalgamate,
merge with or into, or be replaced by any other entity or permit any other
entity to consolidate, amalgamate, merge with or into, or replace it, if any
consolidation, amalgamation, merger or replacement would cause ML Trust or the
successor entity to be classified as an association or a publicly traded
partnership taxable as a corporation for United States Federal income tax
purposes.
Modification of the Declaration
The declaration may be modified and amended if approved by a majority of
the regular trustees, and in the circumstances described in the declaration,
the property trustee and the Delaware trustee. However, if any proposed
amendment provides for, or the regular trustees otherwise propose to effect,
(1) any action that would adversely affect the powers, preferences or
special rights of the Trust Securities, whether by way of
amendment to the declaration or otherwise, or
(2) the dissolution, winding-up or termination of ML Trust other than
under the terms of the declaration,
then, in each case, the holders of the Trust Securities voting together as a
single class will be entitled to vote on the amendment or proposal and the
amendment or proposal shall not be effective except with the approval of at
least a majority in liquidation amount of the Trust Securities affected;
provided, further that if any amendment or proposal referred to in clause (2)
above would adversely affect only the TOPrS or the common securities, then only
the affected class will be entitled to vote on the amendment or proposal and
the amendment or proposal shall not be effective except with the approval of a
majority in liquidation amount of that class of Trust Securities.
The declaration may be amended without the consent of the holders of the
Trust Securities to:
. cure any ambiguity,
. correct or supplement any provision in the declaration that may be
defective or inconsistent with any other provision of the
declaration,
. add to the restrictions or obligations of the sponsor,
25
. conform to any change in the Investment Company Act, the Trust
Indenture Act or the rules or regulations under either law and
. modify, eliminate and add to any provision of the declaration to
the extent as may be necessary or desirable;
provided that no amendment shall have a material adverse effect on the rights,
preferences or privileges of the holders of the Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made
to the declaration if the amendment or modification would
. cause ML Trust to fail to be classified as a grantor trust for
United States Federal income tax purposes,
. cause ML Partnership to be classified as an association or
publicly traded partnership taxable as a corporation for those
purposes,
. reduce or otherwise adversely affect the powers of the property
trustee, or
. cause ML Trust or ML Partnership to be deemed an investment
company which is required to be registered under the Investment
Company Act.
Book-Entry Only Issuance--The Depository Trust Company
Description of the Global Certificates
DTC will act as securities depository for the TOPrS and, to the extent
distributed to the holders of the TOPrS, the partnership preferred securities.
The TOPrS will be issued only as fully-registered securities registered in the
name of Cede & Co. (DTC's nominee). One or more fully-registered global
certificates, representing the total aggregate number of TOPrS, will be issued
and will be deposited with DTC.
DTC Procedures
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. DTC holds securities that its participants
deposit with DTC. DTC also facilitates the settlement among participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
Participants in DTC include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. DTC is owned
by a number of its participants and by the NYSE, the American Stock Exchange,
Inc., and the National Association of Securities Dealers, Inc. Access to the
DTC system is also available to others such as securities brokers and dealers,
banks and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. The rules
applicable to DTC and its participants are on file with the SEC.
Purchases of the TOPrS within the DTC system must be made by or through
participants, which will receive a credit for the TOPrS on DTC's records. The
ownership interest of each beneficial owner of the TOPrS is in turn to be
recorded on the participants' and indirect participants' records. Beneficial
owners will not receive written confirmation from DTC of their purchases, but
beneficial owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the participants or indirect participants through which the beneficial
owners purchased TOPrS. Transfers of ownership interests in the TOPrS are to be
accomplished by entries made on the books of participants and
26
indirect participants acting on behalf of beneficial owners. Beneficial owners
will not receive certificates representing their ownership interests in the
TOPrS, except in the event that use of the book-entry system for the TOPrS is
discontinued.
DTC has no knowledge of the actual beneficial owners of the TOPrS; DTC's
records reflect only the identity of the participants to whose accounts the
TOPrS are credited, which may or may not be the beneficial owners. The
participants and indirect participants will remain responsible for keeping
account of their holdings on behalf of their customers.
So long as DTC, or its nominee, is the registered owner or holder of a
global certificate, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the TOPrS being represented for all purposes under
the declaration and the TOPrS. No beneficial owner of an interest in a global
certificate will be able to transfer that interest except in accordance with
DTC's applicable procedures, in addition to those provided for under the
declaration.
DTC has advised ML&Co. that it will take any action permitted to be taken
by a holder of the TOPrS, including the presentation of the TOPrS for exchange
as described below, only at the direction of one or more participants to whose
account the DTC interests in the global certificates are credited and only in
respect of such portion of the aggregate liquidation amount of the TOPrS as to
which the participant or participants has or have given the direction. Also, if
there is a Trust Enforcement Event under the TOPrS, DTC will exchange the
global certificates for certificated securities, which it will distribute to
its participants in accordance with its customary procedures.
Conveyance of notices and other communications by DTC to participants, by
participants to indirect participants, and by participants and indirect
participants to beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Redemption notices in respect of the TOPrS held in book-entry form will
be sent to Cede & Co. If less than all of the TOPrS are being redeemed, DTC
will determine the amount of the interest of each participant to be redeemed in
accordance with its procedures.
Although voting with respect to the TOPrS is limited, in those cases
where a vote is required, neither DTC nor Cede & Co. will itself consent or
vote with respect to the TOPrS. Under its usual procedures, DTC would mail an
omnibus proxy to ML Trust as soon as possible after the record date. The
omnibus proxy assigns Cede & Co.'s consenting or voting rights to those
participants to whose accounts the TOPrS are allocated on the record date
identified in a listing attached to the omnibus proxy.
Distributions on the TOPrS held in book-entry form will be made to DTC in
immediately available funds. DTC's practice is to credit participants' accounts
on the relevant payment date in accordance with their respective holdings shown
on DTC's records unless DTC has reason to believe that it will not receive
payments on the payment date. Payments by participants and indirect
participants to beneficial owners will be governed by standing instructions and
customary practices and will be the responsibility of the participants and
indirect participants and not of DTC, ML Trust or ML&Co., subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of any distributions to DTC is the responsibility of ML Trust,
disbursement of those payments to participants is the responsibility of DTC,
and disbursement of those payments to the beneficial owners is the
responsibility of participants and indirect participants.
Except as described, a beneficial owner of an interest in a global
certificate will not be entitled to receive physical delivery of the TOPrS.
Accordingly, each beneficial owner must rely on the procedures of DTC to
exercise any rights under the TOPrS.
27
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the global certificates among participants
of DTC, DTC is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither ML&Co.
nor ML Trust will have any responsibility for the performance by DTC or its
participants or indirect participants under the rules and procedures governing
DTC. DTC may discontinue providing its services as securities depository with
respect to the TOPrS at any time by giving notice to ML Trust. Under these
circumstances, in the event that a successor securities depository is not
obtained, the TOPrS certificates are required to be printed and delivered to
the property trustee. Additionally, ML Trust, with the consent of ML&Co., may
decide to discontinue use of the system of book-entry transfers through DTC or
any successor depository. In that event, certificates for the TOPrS will be
printed and delivered to the property trustee. In each of the above
circumstances, ML&Co. will appoint a paying agent with respect to the TOPrS.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. These laws
may impair the ability to transfer beneficial interests in the global TOPrS as
represented by a global certificate.
The information in this section concerning DTC and DTC's system has been
obtained from sources that ML&Co. believes to be reliable, but ML&Co. takes no
responsibility for the accuracy of the information.
Payment
Payments in respect of the TOPrS represented by the global certificates
shall be made to DTC, which shall credit the relevant accounts at DTC on the
scheduled payment dates or, in the case of certificated securities, if any,
payments shall be made by check mailed to the address of the holder entitled to
receive the payment as the holder's address shall appear on the register. The
paying agent shall be permitted to resign as paying agent upon 30 days written
notice to the regular trustees. In the event that The Chase Manhattan Bank
shall no longer be the paying agent, the regular trustees shall appoint a
successor to act as paying Agent which shall be a bank or trust company.
Registrar, Transfer Agent, and Paying Agent
The property trustee will act as registrar, transfer Agent and paying
agent for the TOPrS.
Registration of transfers of the TOPrS will be effected without charge by
or on behalf of ML Trust, but upon payment and with the giving of any indemnity
as ML Trust or ML&Co. may require, in respect of any tax or other government
charges which may be imposed in relation to it.
ML Trust will not be required to register or cause to be registered the
transfer of the TOPrS after the TOPrS have been called for redemption.
Information Concerning the Property Trustee
The property trustee, before the occurrence of a default with respect to
the Trust Securities, undertakes to perform only the duties as are specifically
set forth in the declaration and, after default, shall exercise the same degree
of care as a prudent individual would exercise in the conduct of his or her own
affairs. Subject to these provisions, the property trustee is under no
obligation to exercise any of the powers vested in it by the declaration at the
request of any holder of the TOPrS, unless offered reasonable indemnity by the
holder against the costs, expenses and liabilities which might be incurred in
connection with the exercise of any powers. The holders of the TOPrS will not
be required to offer any indemnity in the event the holders, by exercising
their voting rights, direct the property trustee to take any action following a
Trust Enforcement Event.
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Governing Law
The declaration and the TOPrS will be governed by, and construed in
accordance with, the internal laws of the State of Delaware.
Miscellaneous
The regular trustees are authorized and directed to conduct the affairs
of and to operate ML Trust in such a way that ML Trust will not be deemed to be
an investment company required to be registered under the Investment Company
Act or characterized as other than a grantor trust for United States Federal
income tax purposes. In this connection, the regular trustees are authorized to
take any action, not inconsistent with applicable law, the certificate of trust
or the declaration that the regular trustees determine in their discretion to
be necessary or desirable for those purposes as long as such action does not
adversely affect the interests of the holders of the TOPrS.
Holders of the TOPrS have no preemptive rights.
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DESCRIPTION OF THE TRUST GUARANTEE
Set forth below is a summary of material information concerning the Trust
Guarantee which will be executed and delivered by ML&Co. for the benefit of the
holders from time to time of the TOPrS. The summary is not complete and is
subject in all respects to the provisions of, and is qualified in its entirety
by reference to, the Trust Guarantee, which is filed as an exhibit to the
registration statement of which this prospectus is a part. The Trust Guarantee
incorporates by reference the terms of, and will be qualified as an indenture
under, the Trust Indenture Act. The Chase Manhattan Bank, as the trust
guarantee trustee, will hold the Trust Guarantee for the benefit of the holders
of the TOPrS and will act as indenture trustee for the purposes of compliance
with the Trust Indenture Act.
Under the Trust Guarantee, ML&Co. will irrevocably agree, on a
subordinated basis and to the extent set forth in the Trust Guarantee, to pay
in full to the holders of the TOPrS, except to the extent paid by ML Trust, as
and when due, regardless of any defense, right of set off or counterclaim which
ML Trust may have or assert, the following payments (the "Trust Guarantee
Payments"), without duplication:
. any accumulated and unpaid distributions on the TOPrS to the extent
ML Trust has funds available for distribution,
. the redemption price with respect to any TOPrS called for redemption
by ML Trust, to the extent ML Trust has funds available for payment,
and
. upon a voluntary or involuntary dissolution, winding-up or
termination of ML Trust, other than in connection with the
distribution of partnership preferred securities to the holders of
the TOPrS or the redemption of all of the TOPrS, the lesser of:
(1) the aggregate of the liquidation amount and all accumulated and
unpaid distributions on the TOPrS and
(2) the amount of assets of ML Trust remaining available for
distribution to holders of the TOPrS upon the liquidation of ML
Trust.
ML&Co.'s obligation to make a Trust Guarantee Payment may be satisfied by
direct payment of the required amounts by ML&Co. to the holders of the TOPrS or
by causing ML Trust to pay these amounts to holders.
The Trust Guarantee will be a guarantee on a subordinated basis with
respect to the TOPrS from the time of issuance of the TOPrS but will only apply
to any payment of distributions or the redemption price, or to payments upon
the dissolution, winding-up or termination of ML Trust, to the extent ML Trust
shall have funds available. If ML Partnership fails to declare distributions on
the partnership preferred securities, ML Trust would lack available funds for
the payment of distributions or amounts payable on redemption of the TOPrS or
otherwise, and in such event holders of the TOPrS would not be able to rely
upon the Trust Guarantee for payment of these amounts. Instead, holders of the
TOPrS will have the remedies described under "Description of the TOPrS--Trust
Enforcement Events", including the right to direct the trust guarantee trustee
to enforce the restriction of payments by ML&Co. and its finance subsidiaries
on its capital stock. See "--Obligations of ML&Co." below.
The Guarantees, when taken together with the debentures issued by ML&Co.
and ML&Co.'s obligations to pay all fees and expenses of ML Trust and ML
Partnership, constitute a guarantee to the extent set forth in this prospectus
by ML&Co. of the distribution, redemption and liquidation payments payable to
the holders of the TOPrS. The Guarantees do not apply, however, to current
distributions by ML Partnership unless and until these distributions are
declared by ML Partnership out of funds legally available for payment or to
liquidating distributions unless there are assets available for payment in ML
Partnership, each as more fully described under "Risk Factors--Insufficient
Income or Assets Available to Partnership".
30
Obligations of ML&Co.
Under the Trust Guarantee, ML&Co. will agree that, if
. for any distribution period, full distributions on a cumulative basis
on any TOPrS have not been paid,
. an event of default by any Investment Affiliate in respect of any
Affiliate Investment Instrument has occurred and is continuing, or
. it is in default of its obligations under the Trust Guarantee, the
Partnership Guarantee or any Investment Guarantee,
then, during that period:
. it may not declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation
payment with respect to, any of its capital stock or comparable
equity interest, except for:
(1) dividends or distributions in shares of, or options, warrants
or rights to subscribe for or purchase shares of, its capital
stock, and conversions or exchanges of common stock of one
class into common stock of another class,
(2) redemptions or purchases of any rights pursuant to the rights
agreement dated as of December 2, 1997 between ML&Co. and The
Chase Manhattan Bank (the "Rights Agreement") and the issuance
of preferred stock under those rights and
(3) purchases or acquisitions by ML&Co. or its affiliates in
connection with transactions effected by or for the account of
customers of ML&Co. or any of its subsidiaries or in
connection with the distribution or trading of its capital
stock or comparable equity interest; and
. it may not make, permit any finance subsidiary to make, or make any
payments that would enable any finance subsidiary to make, any
payment of any dividends on, any distribution with respect to, or any
redemption, purchase or other acquisition of, or any liquidation
payment with respect to, any preferred security or comparable equity
interest of any finance subsidiary.
Events of Default; Enforcement of Trust Guarantee
An event of default under the Trust Guarantee will occur upon the failure
of ML&Co. to perform any of its payment or other obligations set forth in the
Trust Guarantee.
The holders of a majority in liquidation amount of the TOPrS have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the trust guarantee trustee or to direct the exercise of
any trust or power conferred upon the trust guarantee trustee under the trust
guarantee. If the trust guarantee trustee fails to enforce its rights under the
Trust Guarantee after a holder of the TOPrS has made a written request, the
holder may institute a legal proceeding directly against ML&Co. to enforce the
trust guarantee trustee's rights under the Trust Guarantee, without first
instituting a legal proceeding against ML Trust, the trust guarantee trustee or
any other person or entity. In any event, if ML&Co. has failed to make a
guarantee payment under the Trust Guarantee, a holder of the TOPrS may directly
institute a proceeding in the holder's own name against ML&Co. for enforcement
of the Trust Guarantee for payment.
Status of the Trust Guarantee; Subordination
The Trust Guarantee will constitute an unsecured obligation of ML&Co. and
will rank subordinate and junior in right of payment to all other liabilities
of ML&Co. and will rank equally with the most senior
31
preferred stock, if any, issued from time to time by ML&Co., with similar
guarantees issued by ML&Co. in connection with:
. the $275,000,000 aggregate liquidation amount of 7 3/4% Trust
Originated Preferred Securities issued by Merrill Lynch Preferred
Capital Trust I,
. the $300,000,000 aggregate liquidation amount of 8% Trust Originated
Preferred Securities issued by Merrill Lynch Preferred Capital Trust
II,
. the $750,000,000 aggregate liquidation amount of 7% Trust Originated
Preferred Securities issued by Merrill Lynch Preferred Capital Trust
III,
. the $400,000,000 aggregate liquidation amount of 7.12% Trust
Originated Preferred Securities issued by Merrill Lynch Preferred
Capital Trust IV,
. the $850,000,000 aggregate liquidation amount of 7.28% Trust
Originated Preferred Securities issued by Merrill Lynch Preferred
Capital Trust V,
. the (Yen)10,000,000,000 aggregate liquidation amount of Trust
Originated Preferred Securities issued by Merrill Lynch Yen TOPrS
Trust I, and
. with any guarantee now or hereafter entered into by ML&Co. in respect
of any preferred stock of any other Finance Subsidiary.
"Finance Subsidiary" means Merrill Lynch Preferred Capital Trust I,
Merrill Lynch Preferred Capital Trust II, Merrill Lynch Preferred Capital Trust
III, Merrill Lynch Preferred Capital Trust IV, Merrill Lynch Preferred Capital
Trust V, Merrill Lynch Yen TOPrS Trust I and any other wholly-owned subsidiary
of ML&Co. the principal purpose of which is to raise capital for ML&Co. by
issuing securities that are guaranteed by ML&Co. and the proceeds of which are
loaned to or invested in ML&Co. or one or more of its affiliates.
Accordingly, the rights of the holders of the TOPrS to receive payments
under the Trust Guarantee will be subject to the rights of the holders of any
obligations of ML&Co. that are senior in priority to the obligations under the
Trust Guarantee. Furthermore, the holders of obligations of ML&Co. that are
senior to the obligations under the Trust Guarantee, including, but not limited
to, obligations constituting senior indebtedness of ML&Co., will be entitled to
the same rights upon payment default or dissolution, liquidation and
reorganization in respect of the Trust Guarantee that inure to the holders of
senior indebtedness as against the holders of the ML&Co. Debenture. The terms
of the TOPrS that each holder of the TOPrS, by acceptance, agrees to the
subordination provisions and other terms of the Trust Guarantee.
The Trust Guarantee will constitute a guarantee of payment and not of
collection. That is, the guaranteed party may directly institute a legal
proceeding against ML&Co. to enforce its rights under the Trust Guarantee
without instituting a legal proceeding against any other person or entity.
Amendments and Assignment
Except with respect to any changes that do not materially adversely
affect the rights of holders of the TOPrS, in which case no vote will be
required, the Trust Guarantee may be amended only with the prior approval of
the holders of at least a majority in liquidation amount of all the outstanding
TOPrS. The manner of obtaining any approval of holders of the TOPrS will be as
set forth under "Description of the TOPrS--Voting Rights". All guarantees and
agreements contained in the Trust Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of ML&Co. and shall inure to the
benefit of the holders of the TOPrS then outstanding. Except in connection with
permitted merger or consolidation of ML&Co. with or into another entity or
permitted sale, transfer or lease of ML&Co.'s assets to another entity in which
the surviving corporation, if other than ML&Co., assumes ML&Co.'s obligations
under the Trust Guarantee, ML&Co. may not assign its rights or delegate its
obligations under the Trust Guarantee without the prior approval of the holders
of at least a majority of the aggregate stated liquidation amount of the TOPrS
then outstanding.
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Termination of The Trust Guarantee
The Trust Guarantee will terminate as to each holder of the TOPrS upon:
. full payment of the redemption price of all the TOPrS,
. distribution of the partnership preferred securities held by ML Trust
to the holders of the TOPrS or
. full payment of the amounts payable in accordance with the
declaration upon liquidation of ML Trust.
The Trust Guarantee will continue to be effective or will be reinstated,
as the case may be, if at any time any holder of the TOPrS must restore payment
of any sum paid under the TOPrS or the Trust Guarantee.
Information Concerning the Trust Guarantee Trustee
The trust guarantee trustee, before the occurrence of a default with
respect to the Trust Guarantee, undertakes to perform only those duties as are
specifically set forth in the Trust Guarantee and, after default with respect
to the Trust Guarantee, shall exercise the same degree of care as a prudent man
would exercise in the conduct of his own affairs. Subject to that provision,
the trust guarantee trustee is under no obligation to exercise any of the
powers vested in it by the Trust Guarantee at the request of any holder of
TOPrS unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred in connection with the exercise of those
powers.
Governing Law
The Trust Guarantee will be governed by, and construed in accordance
with, the internal laws of the State of New York.
33
DESCRIPTION OF THE PARTNERSHIP PREFERRED SECURITIES
All of the partnership interests in ML Partnership, other than the
partnership preferred securities acquired by ML Trust, are owned directly by
ML&Co. Initially, ML&Co. will be the sole general partner of ML Partnership.
The limited partnership agreement authorizes and creates the partnership
preferred securities, which represent limited partner interests in ML
Partnership. The limited partner interests represented by the partnership
preferred securities will have a preference with respect to distributions and
amounts payable on redemption or liquidation over ML&Co.'s interest in ML
Partnership.
Except as otherwise described in this prospectus or provided in the
limited partnership agreement, the limited partnership agreement does not
permit ML Partnership to issue any additional partnership interests or to incur
any indebtedness.
The summary of certain material terms and provisions of the partnership
preferred securities set forth below does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the limited
partnership agreement, which is filed as an exhibit to the registration
statement of which this prospectus is a part, and the Delaware Limited
Partnership Act.
Distributions
Holders of partnership preferred securities will be entitled to receive
cumulative cash distributions, if, as and when declared by ML&Co., as general
partner, in its sole discretion out of assets of ML Partnership legally
available for payment. The distributions payable on each partnership preferred
security will be fixed at a rate per annum of % of the stated liquidation
preference of $25 per partnership preferred security. Distributions not paid on
the scheduled payment date will accumulate and compound quarterly at the rate
per annum equal to %. The amount of distributions payable for any period will
be computed on the basis of a 360-day year of twelve 30-day months.
Distributions on the partnership preferred securities will be payable
quarterly in arrears on , , , and of each year, commencing
, . If distributions are not declared and paid when scheduled, the
accumulated distributions shall be paid to the holders of record of partnership
preferred securities as they appear on the books and records of ML Partnership
on the record date with respect to the payment date for the partnership
preferred securities.
ML Partnership's earnings available for distribution to the holders of
the partnership preferred securities will be limited to payments made on the
Affiliate Investment Instruments and Investment Guarantees and payments on
other eligible debt securities in which ML Partnership has invested from time
to time. See "--Partnership Investments". To the extent that the issuers and,
where applicable, ML&Co., as guarantor, of the securities in which ML
Partnership invests fail to make any payment in respect of the securities or,
if applicable, the guarantees, ML Partnership will not have sufficient funds to
pay and will not declare or pay distributions on the partnership preferred
securities, in which event the Partnership Guarantee will not apply to those
distributions until ML Partnership has sufficient funds available for
distribution. See "Description of the Partnership Guarantee". In addition,
distributions on the partnership preferred securities may be declared and paid
only as determined in the sole discretion of ML&Co. as general partner of ML
Partnership. If ML Partnership fails to declare and pay distributions on the
partnership preferred securities out of funds legally available for
distribution, ML Trust will not have sufficient funds to make distributions on
the TOPrS, in which event the Trust Guarantee will not apply to those
distributions until ML Trust has sufficient funds available. In addition, ML
Partnership may not have sufficient funds to pay current or liquidating
distributions on the partnership preferred securities if:
. at any time that ML Partnership is receiving current payments in
respect of the securities held by ML Partnership including the
debentures, ML&Co., in its sole discretion, does not declare
distributions on the partnership preferred securities and ML
Partnership receives insufficient
34
amounts to pay the additional compounded distributions that will
accumulate in respect of the partnership preferred securities,
. ML Partnership reinvests the proceeds received in respect of the
debentures upon their retirement or at their maturities in Affiliate
Investment Instruments that do not generate income in an amount that is
sufficient to pay full distributions in respect of the partnership
preferred securities, or
. ML Partnership invests in debt securities of Investment Affiliates that
are not guaranteed by ML&Co. and that cannot be liquidated by ML
Partnership for an amount sufficient to pay any distributions in full.
Distributions on the partnership preferred securities will be payable to
holders as they appear on the books and records of ML Partnership on the
relevant record dates, which, as long as the TOPrS remain or, in the event
that ML Trust is liquidated in connection with a Trust Special Event, as long
as the partnership preferred securities remain, in book-entry only form, will
be one Business Day before the relevant payment dates. In the event the TOPrS,
or in the event that ML Trust is liquidated in connection with a Trust Special
Event, the partnership preferred securities, shall not continue to remain in
book-entry only form, the relevant record dates shall be the 15th day of the
month of the relevant payment dates. In the event that any date on which
distributions are payable on the partnership preferred securities is not a
Business Day, then payment of the distribution payable on that date will be
made on the next succeeding day that is a Business Day and without any
interest or other payment in respect of any delay, except that, if that
Business Day is in the next succeeding calendar year, that payment shall be
made on the immediately preceding Business Day, in each case with the same
force and effect as if made on that date.
Partnership Enforcement Events
If one or more of the following events shall occur and be continuing
(each a "Partnership Enforcement Event"):
. The non-payment of distributions on the partnership preferred
securities for six consecutive quarterly periods,
. ML&Co. is in default on any of its obligations under the Partnership
Guarantee or any Investment Guarantee or
. an Investment Event of Default occurs and is continuing on any
Affiliate Investment Instrument,
then the property trustee, for so long as the partnership preferred securities
are held by the property trustee, will have the right, or holders of the
partnership preferred securities will be entitled by the vote of a majority in
aggregate liquidation preference of the holders:
. under the limited partnership agreement to enforce the terms of the
partnership preferred securities, including the right to appoint and
authorize a special representative of ML Partnership and the limited
partners to enforce:
(1) ML Partnership's creditors' rights and other rights with respect to
the Affiliate Investment Instruments and the Investment Guarantees,
(2) the rights of the holders of the partnership preferred securities
under the Partnership Guarantee and
(3) the rights of the holders of the partnership preferred securities
to receive distributions on the partnership preferred securities,
only if and to the extent declared out of funds legally available
for distribution, and
. under the Partnership Guarantee to enforce the terms of the
Partnership Guarantee, including the right to enforce the covenant
restricting certain payments by ML&Co. and Finance Subsidiaries.
35
If the special representative fails to enforce its rights under the
Affiliate Investment Instruments after a holder of partnership preferred
securities has made a written request, the holder of record of partnership
preferred securities may directly institute a legal proceeding against ML&Co.
to enforce the rights of the special representative and ML Partnership under
the Affiliate Investment Instruments without first instituting any legal
proceeding against the special representative, ML Partnership or any other
person or entity. In any event, if a Partnership Enforcement Event has occurred
and is continuing and this event is attributable to the failure of an
Investment Affiliate to make any required payment when due on any Affiliate
Investment Instrument, then a holder of partnership preferred securities may on
behalf of ML Partnership directly institute a proceeding against the Investment
Affiliate with respect to the Affiliate Investment Instrument for enforcement
of payment. A holder of partnership preferred securities may also bring a
direct action against ML&Co. to enforce the holder's right under the
Partnership Guarantee. See "Description of the Partnership Guarantee--Events of
Default; Enforcement of Partnership Guarantee".
Under no circumstances, however, shall the special representative have
authority to cause ML&Co. to declare distributions on the partnership preferred
securities. As a result, although the special representative may be able to
enforce ML Partnership's creditors' rights to accelerate and receive payments
in respect of the Affiliate Investment Instruments and the Investment
Guarantees, ML Partnership would be entitled to reinvest those payments in
additional Affiliate Investment Instruments, subject to satisfying the
reinvestment criteria described under "--Partnership Investments", and Eligible
Debt Securities, rather than declaring and making distributions on the
partnership preferred securities. The special representative shall not, by
virtue of acting in such capacity, be admitted as a general partner in ML
Partnership or otherwise be deemed to be a general partner in ML Partnership
and shall have no liability for the debts, obligations or liabilities of ML
Partnership.
Partnership Investments
ML Partnership will use approximately 99% of the proceeds from the
issuance of the partnership preferred securities and ML&Co.'s contemporaneous
capital contribution to purchase the debentures and the remaining 1% of the
initial partnership proceeds will be used to purchase Eligible Debt Securities.
ML Partnership's purchase of the debentures will occur contemporaneously with
the issuance of the partnership preferred securities.
The initial Affiliate Investment Instruments purchased by the Partnership
will consist of two or more debt instruments. ML&Co. anticipates that
approximately 85% of the Initial Partnership Proceeds will be used to purchase
a debenture of ML&Co. (the "ML&Co. Debenture"), and approximately 14% of the
initial partnership proceeds will be used to purchase debentures of one or more
eligible controlled affiliates of ML&Co. Each debenture is expected to have a
term of 20 years and to provide for interest payable on , , and
of each year, commencing , at market rates for the debentures. The
debentures will be general unsecured debt obligations of the relevant issuer,
except that the ML&Co. Debenture will rank subordinate and junior to all senior
indebtedness of ML&Co.
The payment of interest on each of the debentures may be deferred at any
time, and from time to time, by the relevant issuer for a period not exceeding
six consecutive quarters. If an issuer were to defer the payment of interest,
interest would continue to accrue and compound at the stated interest rate on
the applicable debenture. The debentures will contain covenants appropriate for
unsecured debt securities issued or guaranteed by similar borrowers pursuant to
a public offering or private placement under Rule 144A of the Securities Act of
a comparable debt security, including a limitation on consolidation, merger and
sale or conveyance of assets. The debentures will contain redemption provisions
that correspond to the redemption provisions applicable to the partnership
preferred securities, including an option to redeem the debentures by the
relevant issuer, in whole or in part, from time to time, on or after , ,
and following the occurrence of a Partnership Special Event, in each case, in
the same manner described under "Optional Redemption" and " Partnership Special
Event Redemption". The debentures, and any other Affiliate Investment
Instruments that are debt instruments acquired by ML Partnership in the future,
will also contain customary events of default, including:
36
. events of default for defaults in payments on the securities when
due, provided that no default shall occur upon a valid deferral of an
interest payment by an issuer,
. defaults in the performance of the relevant issuer's obligations
under its debenture or Affiliate Investment Instruments, as the case
may be, and
. certain bankruptcy, insolvency or reorganization events, subject to
customary exceptions and grace periods.
The payment of interest and principal when due and other payment terms of
the debentures other than the ML&Co. Debenture, will be guaranteed to the
extent described in this prospectus (each, an "Investment Guarantee") by ML&Co.
for the benefit of the holders of partnership preferred securities. See "--
Investment Guarantees".
ML Partnership will invest approximately 1% of the initial partnership
proceeds in eligible debt securities. These eligible debt securities will
comprise cash or book-entry securities, negotiable instruments, or other
securities of entities not affiliated with ML&Co. which evidence any of the
following:
. any security issued or guaranteed as to principal or interest by the
United States, or by a person controlled or supervised by and acting
as an instrumentality of the Government of the United States pursuant
to authority granted by the Congress of the United States, or any
certificate of deposit for any of the foregoing;
. commercial paper issued pursuant to Section 3(a)(3) of the Securities
Act and having, at the time of the investment or contractual
commitment to invest therein, a rating from each of Standard & Poor's
Ratings Services, a division of the McGraw-Hill Companies, Inc.
("S&P") and Moody's Investors Service, Inc. ("Moody's") in the
highest investment rating category granted by such rating agency and
having a maturity not in excess of nine months;
. demand deposits, time deposits and certificates of deposit which are
fully insured by the Federal Deposit Insurance Corporation;
. repurchase obligations with respect to any security that is a direct
obligation of, or fully guaranteed by, the Government of the United
States of America or any agency or instrumentality thereof, the
obligations of which are backed by the full faith and credit of the
United States of America, in either case entered into with a
depository institution or trust company which is an Eligible
Institution and the deposits of which are insured by the FDIC; and
. any other security which is identified as a permitted investment of a
finance subsidiary pursuant to Rule 3a-5 under the Investment Company
Act at the time it is acquired by ML Partnership.
"Eligible Institution" means, a depository institution organized under
the laws of the United States or any one of the states thereof or the District
of Columbia, or any domestic branch of a foreign bank, which has either:
. a long-term unsecured debt rating of AA or better by S&P and Aa or
better by Moody's or
. a short-term unsecured debt rating or a certificate of deposit rating
of A-1+ by S&P and P-1 by Moody's,
and whose deposits are insured by the FDIC or whose the parent has a long-term
or short-term unsecured debt rating which signifies investment grade and whose
deposits are insured by the FDIC.
ML Partnership may, from time to time and subject to the restrictions
described below, reinvest payments received with respect to the Affiliate
Investment Instruments and the eligible debt securities in additional Affiliate
Investment Instruments and eligible debt securities. As of the date of this
prospectus,
37
ML&Co., as the General Partner, does not intend to cause ML Partnership to
reinvest regularly scheduled, periodic payments of interest or dividends
received by ML Partnership in the manner described below, although there can be
no assurance that ML&Co.'s intention in respect of any reinvestments will not
change in the future.
The fairness of specific terms of all Affiliate Investment Instruments
will be passed upon by an independent financial advisor which will be a
nationally recognized accounting firm, bank or investment banking firm that
does not, and whose directors, officers, employees and affiliates do not, have
a direct or indirect material equity interest in ML&Co. or any of its
subsidiaries.
ML Partnership may reinvest in additional Affiliate Investment
Instruments only if certain procedures and criteria are satisfied with respect
to each Affiliate Investment Instrument, including the satisfaction of the
following conditions:
(1) ML Partnership did not hold debt securities of the issuer of the
proposed Affiliate Investment Instrument within the three-year
period ending on the date of proposed investment;
(2) there was never a default on any debt obligation of, or arrearages of
dividends on preferred stock issued by, the issuer of the proposed
Affiliate Investment Instrument that was previously or is currently
owned by ML Partnership;
(3) the applicable terms and provisions with respect to the proposed
Affiliate Investment Instrument have been determined by the
independent financial advisor to be at least as favorable as terms
which could be obtained by ML Partnership in a public offering or
private placement under Rule 144A of the Securities Act of a
comparable security issued by the relevant Investment Affiliate and
guarantees, if any; and
(4) the requesting Investment Affiliate shall not be deemed to be an
investment company by reason of Section 3(a) or 3(b) of the Investment
Company Act or is otherwise an eligible recipient of funds directly or
indirectly from ML Trust pursuant to an order issued by the SEC.
The term "Investment Affiliate" means ML&Co. or any corporation,
partnership, limited liability company or other entity that is controlled by
ML&Co., other than ML Partnership or ML Trust. If ML Partnership is unable to
reinvest payments and proceeds from Affiliate Investment Instruments in
additional Affiliate Investment Instruments meeting the above criteria, ML
Partnership may only invest those funds in eligible debt securities, subject to
restrictions of applicable law, including the Investment Company Act.
Investment Guarantees
ML&Co. will agree to execute and deliver an Investment Guarantee, on a
subordinated basis, for the benefit of the holders of partnership preferred
securities with respect to each debenture issued by an Investment Affiliate,
other than the ML&Co. Debenture, to the extent set forth below. The Investment
Guarantees shall be enforceable regardless of any defense, right of set-off or
counterclaim that ML&Co. may have or assert. The Investment Guarantees will be
full and unconditional guarantees, to the extent set forth in this prospectus,
with respect to the applicable Debentures from the time of issuance. To the
extent that, as described above, ML Partnership invests in additional Affiliate
Investment Instruments, the determination as to whether the Affiliate
Investment Instrument will contain an Investment Guarantee will be made at the
date of its issuance and will be based, among other things, upon its approval
by the independent financial advisor in accordance with the reinvestment
criteria described above.
The Investment Guarantees will constitute guarantees of payment and not
of collection. That is, the guaranteed party may directly institute a legal
proceeding against ML&Co. to enforce its rights under the applicable Investment
Guarantee without instituting a legal proceeding against any other person or
entity. If no special representative has been appointed to enforce any
Investment Guarantee, ML&Co. as general partner has
38
the right to enforce the Investment Guarantee on behalf of the holders of the
partnership preferred securities. The holders of not less than a majority in
aggregate liquidation preference of the partnership preferred securities have
the right to direct the time, method and place of conducting any proceeding for
any remedy available in respect of any Investment Guarantee, including the
giving of directions to ML&Co. as general partner or the special
representative, as the case may be. If ML&Co. or the special representative
fails to enforce any Investment Guarantee as above provided, any holder of the
TOPrS may institute its own legal proceeding to enforce that Investment
Guarantee. No Investment Guarantee will be discharged except by payment in full
of all amounts guaranteed by such Investment Guarantee, without duplication of
amounts previously paid by the relevant Investment Affiliate.
Amendments and Assignment
Except with respect to any changes that do not adversely affect the
rights of holders of partnership preferred securities, in which case no consent
will be required, the Investment Guarantees may be amended only with the prior
approval of the holders of not less than a majority in liquidation preference
of the outstanding partnership preferred securities, provided that for so long
as the property trustee of ML Trust is the holder of the partnership preferred
securities, no amendment will be effective without the prior written approval
of a majority in liquidation amount of the outstanding TOPrS. All guarantees
and agreements contained in the Investment Guarantees shall bind the
successors, assigns, receivers, trustees and representatives of ML&Co. and
shall inure to the benefit of the holders of partnership preferred securities.
Except in connection with any permitted merger or consolidation of ML&Co. with
or into another entity or any permitted sale, transfer or lease of ML&Co.'s
assets to another entity in which the surviving corporation, if other than
ML&Co., assumes ML&Co.'s obligations under the Investment Guarantees, ML&Co.
may not assign its rights or delegate its obligations under the Investment
Guarantees without the prior approval of the holders of at least a majority of
the aggregate stated liquidation preference of the partnership preferred
securities then outstanding.
Status of the Investment Guarantees
ML&Co.'s obligations under the Investment Guarantees will constitute
unsecured obligations of ML&Co. and will rank subordinate and junior in right
of payment to all other liabilities of ML&Co. and will rank equally with the
most senior preferred stock, if any, issued from time to time by ML&Co., with
similar guarantees issued by ML&Co. in connection with:
. the $275,000,000 aggregate liquidation amount of 7 3/4% Trust
Originated Preferred Securities issued by Merrill Lynch Preferred
Capital Trust I,
. the $300,000,000 aggregate liquidation amount of 8% Trust Originated
Preferred Securities issued by Merrill Lynch Preferred Capital Trust
II,
. the $750,000,000 aggregate liquidation amount of 7% Trust Originated
Preferred Securities issued by Merrill Lynch Preferred Capital Trust
III,
. the $400,000,000 aggregate liquidation amount of 7.12% Trust
Originated Preferred Securities issued by Merrill Lynch Preferred
Capital Trust IV,
. the $850,000,000 aggregate liquidation amount of 7.28% Trust
Originated Preferred Securities issued by Merrill Lynch Preferred
Capital Trust V,
. the (Yen)10,000,000,000 aggregate liquidation amount of Trust
Originated Preferred Securities issued by Merrill Lynch Yen TOPrS
Trust I, and
. with any guarantee now or hereafter entered into by ML&Co. in respect
of any preferred stock of any other Finance Subsidiary.
Accordingly, the rights of the holders of the debentures to receive
payments under the Investment Guarantees will be subject to the rights of the
holders of any obligations that are senior in priority to the obligations under
the Investment Guarantees. Furthermore, the holders of obligations of ML&Co.
that are senior to the obligations under the Investment Guarantees, including,
but not limited to, obligations constituting
39
Senior Indebtedness, will be entitled to the same rights upon payment default
or dissolution, liquidation and reorganization in respect of the Investment
Guarantees that inure to the holders of senior indebtedness as against the
holders of the ML&Co. Debenture. The terms of the debentures provide that each
holder of debentures, by acceptance thereof, agrees to the subordination
provisions and other terms of the Investment Guarantees.
Governing Law
The Investment Guarantees will be governed by and construed in accordance
with the laws of the State of New York.
Optional Redemption
The partnership preferred securities are redeemable, at the option of
ML&Co., as general partner, in whole or in part, from time to time, on or
after , , upon not less than 30 nor more than 60 days notice, at an amount
per partnership preferred security equal to $25 plus accumulated and unpaid
distributions. If ML Partnership redeems partnership preferred securities in
accordance with their terms, ML Trust will redeem the Trust Securities at the
redemption price. If:
. a partial redemption would result in the delisting of the TOPrS,
. ML Trust is liquidated in connection with a Trust Special Event, or
. a partial redemption would result in the delisting of the partnership
preferred securities,
then, in each case, ML Partnership may only redeem the partnership preferred
securities in whole.
Partnership Special Event Redemption
If, at any time, a Partnership Tax Event or a Partnership Investment
Company Event (each as defined below, and each a "Partnership Special Event")
occurs and is continuing, ML&Co. shall, within 90 days following the occurrence
of such Partnership Special Event, elect to either:
. redeem the partnership preferred securities in whole, but not in
part, upon not less than 30 or more than 60 days notice at the
redemption price, provided that, if at the time there is available to
ML Partnership the opportunity to eliminate, within the 90-day
period, the Partnership Special Event by taking some ministerial
action, such as filing a form or making an election, or pursuing some
other similar reasonable measure that in the sole judgment of ML&Co.
has or will cause no adverse effect on ML Partnership, ML Trust or
ML&Co., ML&Co. will pursue that measure in lieu of redemption; or
. cause the partnership preferred securities to remain outstanding,
provided that in the case of this clause, the ML&Co. shall pay any
and all costs and expenses incurred by or payable by ML Partnership
attributable to the Partnership Special Event.
"Partnership Tax Event" means that ML&Co. shall have requested and
received an opinion of nationally recognized independent tax counsel
experienced in these matters to the effect that there has been a Tax Action
which affects any of the events described in (1) through (3) below and that
there is more than an insubstantial risk that:
(1) ML Partnership is, or will be, subject to United States Federal
income tax with respect to income accrued or received on the
Affiliate Investment Instruments or the eligible debt securities,
(2) ML Partnership is, or will be, subject to more than a minimal amount
of other taxes, duties or other governmental charges or
40
(3) interest payable by an Investment Affiliate with respect to the
Affiliate Investment Instrument issued by that Investment Affiliate
to ML Partnership is not, or will not be, deductible by the
Investment Affiliate for United States Federal income tax purposes.
Recently, the IRS asserted that the interest payable on a security issued
in similar circumstances as the issuance of the debentures by the Investment
Affiliates to ML Partnership was not deductible for United States Federal
income tax purposes. The taxpayer in that case has filed a petition in the
United States Tax Court challenging the IRS's position on this matter. If this
matter were to be litigated and the Tax Court were to sustain the IRS's
position on this matter, the judicial decision could constitute a Partnership
Tax Event, which could result in an early redemption of the partnership
preferred securities.
"Partnership Investment Company Event" means that ML&Co. shall have
requested and received an opinion of nationally recognized independent legal
counsel experienced in these matters to the effect that as a result of the
occurrence on or after the date of this prospectus of a Change in Investment
Company Act Law, ML Partnership is or will be considered an investment company
which is required to be registered under the Investment Company Act.
Redemption Procedures
ML Partnership may not redeem fewer than all the outstanding partnership
preferred securities unless all accumulated and unpaid distributions have been
paid on all partnership preferred securities for all quarterly distribution
periods terminating on or before the date of redemption.
If ML Partnership gives a notice of redemption in respect of partnership
preferred securities, which notice will be irrevocable, then, by 12:00 noon,
New York City time, on the redemption date, ML Partnership:
. if the partnership preferred securities are in book entry form with
DTC, will deposit irrevocably with DTC funds sufficient to pay the
applicable redemption price and will give DTC irrevocable
instructions and authority to pay the redemption price in respect of
the partnership preferred securities held through DTC in global form,
or
. if the partnership preferred securities are held in certificated
form, will deposit with the paying agent for the partnership
preferred securities funds sufficient to pay any amount in respect of
any partnership preferred securities in certificated form and will
give the paying agent irrevocable instructions and authority to pay
these amounts to the holders of partnership preferred securities upon
surrender of their certificates.
See "Description of the TOPrS--Book-Entry Only Issuance--The Depository Trust
Company".
If notice of redemption shall have been given and funds deposited as
required, then upon the date of the deposit, all rights of holders of such
partnership preferred securities so called for redemption will cease, except
the right of the holders of such partnership preferred securities to receive
the redemption price, but without interest on that redemption price. In the
event that any date fixed for redemption of partnership preferred securities is
not a Business Day, then payment of the redemption price payable on that date
will be made on the next succeeding day that is a Business Day, and without any
interest or other payment in respect of any delay, except that, if that
Business Day falls in the next calendar year, the payment will be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on the date fixed for redemption. In the event that payment of the
redemption price in respect of partnership preferred securities is improperly
withheld or refused and not paid either by ML Partnership or by ML&Co. under
the Partnership Guarantee described under "Description of the Partnership
Guarantee," distributions on the partnership preferred securities will continue
to accumulate, from the original redemption date to the date of payment.
41
Subject to the foregoing and applicable law, including, without
limitation, United States Federal securities laws, ML&Co. or any of its
subsidiaries may at any time and from time to time purchase outstanding
partnership preferred securities by tender, in the open market or by private
agreement.
Liquidation Distribution Upon Dissolution
In the event of any voluntary or involuntary dissolution, winding-up or
termination of ML Partnership, the holders of the partnership preferred
securities at the time will be entitled to receive out of the assets of ML
Partnership available for distribution to partners after satisfaction of
liabilities of creditors as required by the Delaware Partnership Act, before
any distribution of assets is made to ML&Co. as General Partner, an amount
equal to, in the case of holders of partnership preferred securities, the
aggregate of the stated liquidation preference of $25 per partnership preferred
security plus accumulated and unpaid distributions on the partnership preferred
securities to the date of payment.
Under the Limited Partnership Agreement, ML Partnership shall be
dissolved and its affairs shall be wound up:
. upon the bankruptcy of ML&Co.,
. upon the assignment by ML&Co. of its entire interest in ML
Partnership when the assignee is not admitted to ML Partnership as a
general partner of ML Partnership in accordance with the limited
partnership agreement, or the filing of a certificate of dissolution
or its equivalent with respect to ML&Co., or the revocation of
ML&Co.'s charter and the expiration of 90 days after the date of
notice to ML&Co. of revocation without a reinstatement of its
charter, or if any other event occurs that causes the General Partner
to cease to be a general partner of ML Partnership under the Delaware
Limited Partnership Act, unless the business of ML Partnership is
continued in accordance with the Delaware Limited Partnership Act,
. if ML Partnership has redeemed or otherwise purchased all the
partnership preferred securities,
. upon the entry of a decree of judicial dissolution or
. upon the written consent of all partners of ML Partnership.
Voting Rights
Except as provided below and under "Description of the Partnership
Guarantee--Amendments and Assignment" and as otherwise required by law and the
Limited Partnership Agreement, the holders of the partnership preferred
securities will have no voting rights.
Not later than 30 days after any Partnership Enforcement Event occurs,
ML&Co. will convene a meeting for the purpose of appointing a special
representative. If ML&Co. fails to convene a meeting within the 30-day period,
the holders of 10% in liquidation preference of the outstanding partnership
preferred securities will be entitled to convene a meeting. The provisions of
the limited partnership agreement relating to the convening and conduct of the
meetings of the partners will apply with respect to any meeting. In the event
that, at any meeting, holders of less than a majority in aggregate liquidation
preference of partnership preferred securities entitled to vote for the
appointment of a special representative vote for the appointment, no special
representative shall be appointed. Any special representative appointed shall
cease to be a special representative of ML Partnership and the limited partners
if:
. ML Partnership, or ML&Co. pursuant to the Partnership Guarantee,
shall have paid in full all accumulated and unpaid distributions on
the partnership preferred securities,
. any event of default under any Affiliate Investment Instruments shall
have been cured, and
42
. ML&Co. is in compliance with all its obligations under the
Partnership Guarantee and ML&Co., in its capacity as the general
partner, shall continue the business of ML Partnership without
dissolution.
Notwithstanding the appointment of the special representative, ML&Co.
shall continue as General Partner and shall retain all rights under the limited
partnership agreement, including the right not to declare, in its sole
discretion, the payment of distributions on the partnership preferred
securities, for which the failure to declare distributions would not constitute
a default under the limited partnership agreement.
If any proposed amendment to the limited partnership agreement provides
for, or ML&Co. otherwise proposes to effect,
. any action that would adversely affect the powers, preferences or
special rights of the partnership preferred securities, whether by
way of amendment to the limited partnership agreement or otherwise,
including, without limitation, the authorization or issuance of any
limited partner interests in ML Partnership ranking, as to
participation in the profits or distributions or in the assets of ML
Partnership, senior to the partnership preferred securities, or
. the dissolution, winding-up or termination of ML Partnership, other
than:
(A) in connection with the occurrence of a Partnership Special
Event or
(B) as described under "Merger, Consolidation or Amalgamation of
the Partnership" below,
then the holders of outstanding partnership preferred securities will be
entitled to vote on any amendment or proposal of ML&Co., but not on any other
amendment or proposal, as a class, and no amendment or proposal shall be
effective without the approval of the holders of a majority in liquidation
preference of the outstanding partnership preferred securities having a right
to vote on the matter; provided, however, that if the property trustee on
behalf of ML Trust is the holder of the partnership preferred securities, any
amendment or proposal not excepted by clauses (A) and (B) above shall not be
effective without the prior or concurrent approval of the holders of a majority
in liquidation amount of the outstanding TOPrS having a right to vote on the
matters.
ML&Co. shall not
. direct the time, method and place of conducting any proceeding for
any remedy available,
. waive any event of default that is waivable under the Affiliate
Investment Instruments,
. exercise any right to rescind or annul a declaration that the
principal of any Affiliate Investment Instruments shall be due and
payable,
. waive the breach of the obligation by ML&Co. to restrict certain
payments by ML&Co., or
. consent to any amendment, modification or termination of any
Affiliate Investment Instrument, where such consent shall be required
from the investor,
without, in each case, obtaining the prior approval of the holders of at least
a majority in liquidation preference of the partnership preferred securities;
provided, however, that if the property trustee on behalf of ML Trust is the
holder of the partnership preferred securities, any waiver, consent or
amendment or other action shall not be effective without the prior or
concurrent approval of at least a majority in liquidation amount of the
outstanding TOPrS having a right to vote on these matters. ML&Co. shall not
revoke any action previously authorized or approved by a vote of the holders of
the partnership preferred securities without the approval of the revocation by
a majority in liquidation preference of the outstanding partnership preferred
securities. ML&Co. shall notify all holders of the partnership preferred
securities of any notice of an event of default received with respect to any
Affiliate Investment Instrument.
43
Any required approval of holders of partnership preferred securities may
be given at a separate meeting of holders of partnership preferred securities
convened for that purpose, at a meeting of all of the partners in ML
Partnership or pursuant to written consent. ML Partnership will cause a notice
of any meeting at which holders of partnership preferred securities are
entitled to vote, or of any matter upon which action by written consent of the
holders is to be taken, to be mailed to each holder of record of partnership
preferred securities. Each notice will include a statement setting forth
. the date of the meeting or the date by which action is to be taken,
. a description of any resolution proposed for adoption at the meeting
on which holders are entitled to vote or of the matters upon which
written consent is sought and
. instruction for the delivery of proxies or consents.
No vote or consent of the holders of partnership preferred securities
will be required for ML Partnership to redeem and cancel partnership preferred
securities in accordance with the limited partnership agreement.
Notwithstanding that holders of partnership preferred securities are
entitled to vote or consent under any of the circumstances described above, any
of the partnership preferred securities at such time that are beneficially
owned by ML&Co. or by any entity directly or indirectly controlled by, or under
direct or indirect common control with, ML&Co., except for partnership
preferred securities purchased or acquired by ML&Co. or its affiliates in
connection with transactions effected by or for the account of customers of
ML&Co. or any of its subsidiaries or in connection with the distribution or
trading of such partnership preferred securities; shall not be entitled to vote
or consent and shall, for purposes of any vote or consent, be treated as if
they were not outstanding, provided, however, that persons, other than
affiliates of ML&Co., to whom ML&Co. or any of its subsidiaries have pledged
partnership preferred securities may vote or consent with respect to the
pledged partnership preferred securities under the terms of the pledge.
Holders of the partnership preferred securities will have no rights to
remove or replace ML&Co. as general partner.
Merger, Consolidation or Amalgamation of ML Partnership
ML Partnership may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other body, except as
described below. ML Partnership may, without the consent of the holders of the
partnership preferred securities, consolidate, amalgamate, merge with or into,
or be replaced by a limited partnership, limited liability company or trust
organized as such under the laws of any state of the United States of America,
provided that:
. the successor entity either:
(A) expressly assumes all of the obligations of ML Partnership under
the partnership preferred securities or
(B) substitutes for the partnership preferred securities other
securities having substantially the same terms as the partnership
preferred securities so long as the partnership successor
securities are not junior to any other equity securities of the
successor entity, with respect to participation in the profits
and distributions, and in the assets, of the successor entity,
. the Investment Affiliates expressly acknowledge the successor entity
as the holder of the Affiliate Investment Instruments,
. the partnership preferred securities or any partnership successor
securities are listed, or any partnership successor securities will
be listed upon notification of issuance, on any national securities
exchange or other organization on which the partnership preferred
securities, if so listed, are then listed,
44
. the merger, consolidation, amalgamation or replacement does not cause
the TOPrS or, in the event that ML Trust is liquidated in connection
with a Trust Special Event, the partnership preferred securities or
any partnership successor securities, to be downgraded by any
nationally recognized statistical rating organization,
. the merger, consolidation, amalgamation or replacement does not
adversely affect the powers, preferences and other special rights of
the holders of the TOPrS or partnership preferred securities,
including any partnership successor securities, in any material
respect, other than, in the case of the partnership preferred
securities, with respect to any dilution of the holders' interest in
the new resulting entity,
. the successor entity has a purpose substantially identical to that of
ML Partnership,
. before the merger, consolidation, amalgamation or replacement, ML&Co.
has received an opinion of nationally recognized independent counsel
to ML Partnership experienced in these matters to the effect that:
(A) the successor entity will be treated as a partnership for United
States Federal income tax purposes,
(B) the merger, consolidation, amalgamation or replacement would not
cause ML Trust to be classified as an association taxable as a
corporation for United States Federal income tax purposes,
(C) following the merger, consolidation, amalgamation or replacement,
ML&Co. and such successor entity will be in compliance with the
Investment Company Act without registering as an investment
company, and
(D) the merger, consolidation, amalgamation or replacement will not
adversely affect the limited liability of the holders of the
partnership preferred securities and
. ML&Co. guarantees the obligations of the successor entity under the
partnership successor securities at least to the extent provided by
the Partnership Guarantee.
Book-Entry and Settlement
If the partnership preferred securities are distributed to holders of the
TOPrS in connection with the involuntary or voluntary dissolution, winding-up
or liquidation of ML Trust as a result of the occurrence of a Trust Special
Event, the partnership preferred securities will be issued in the form of one
or more global partnership securities registered in the name of DTC as the
depository or its nominee. For a description of DTC and the specific terms of
the Depository arrangements, see "Description of the TOPrS--Book-Entry Only
Issuance--The Depository Trust Company". As of the date of this prospectus, the
description therein of DTC's book-entry system and DTC's practices as they
relate to purchases, transfers, notices and payments with respect to the TOPrS
apply in all material respects to any partnership preferred securities
represented by one or more global partnership securities.
Registrar, Transfer Agent and Paying Agent
ML&Co. will act as registrar, transfer agent and paying agent for the
partnership preferred securities for so long as the partnership preferred
securities are held by ML Trust or, if ML Trust is liquidated in connection
with a Trust Special Event, for so long as the partnership preferred securities
remain in book-entry only form. In the event the partnership preferred
securities are distributed in connection with a Trust Special Event and the
book-entry system for the partnership preferred securities is discontinued, it
is anticipated that The Chase Manhattan Bank or one of its affiliates will act
as registrar, transfer agent and paying agent for the partnership preferred
securities.
Registration of transfers of partnership preferred securities will be
effected without charge by or on behalf of ML Partnership, but upon payment,
with the giving of such indemnity as ML Partnership or ML&Co. may require, in
respect of any tax or other governmental charges that may be imposed in
relation to it.
45
ML Partnership will not be required to register or cause to be registered
the transfer of partnership preferred securities after such partnership
preferred securities have been called for redemption.
Miscellaneous
ML&Co. is authorized and directed to conduct its affairs and to operate
ML Partnership in such a way that:
. ML Partnership will not be deemed to be an investment company required
to be registered under the Investment Company Act or characterized as
an association taxable as a corporation for United States Federal
income tax purposes,
. the Affiliate Investment Instruments will be treated as indebtedness
of their respective issuers for United States Federal income tax
purposes and
. ML Partnership will not be treated as an association or as a publicly
traded partnership, within the meaning of Section 7704 of the Code,
taxable as a corporation.
In this connection, ML&Co. as general partner is authorized to take any
action, not inconsistent with applicable law, the certificate of limited
partnership of ML Partnership or the limited partnership agreement, that it
determines in its discretion to be necessary or desirable for the foregoing
purposes as long as any action does not adversely affect the interests of the
holders of the partnership preferred securities.
46
DESCRIPTION OF THE PARTNERSHIP GUARANTEE
Set forth below is a summary of the material information concerning the
Partnership Guarantee (the "Partnership Guarantee") that will be executed and
delivered by ML&Co. for the benefit of the holders from time to time of
partnership preferred securities. The summary is not complete and is subject
in all respects to the provisions of, and is qualified in its entirety by
reference to, the Partnership Guarantee, which is filed as an exhibit to the
registration statement of which this prospectus is a part. ML&Co. will hold
the Partnership Guarantee for the benefit of the holders of the partnership
preferred securities.
Terms of the Partnership Guarantee
Under the Partnership Guarantee, ML&Co. will irrevocably agree, on a
subordinated basis to the extent set forth in this prospectus, to pay in full
to the holders of the partnership preferred securities, without duplication of
amounts previously paid by ML Partnership, as and when due, regardless of any
defense, right of set-off or counterclaim that ML Partnership may have or
assert, the following payments (the "Partnership Guarantee Payments"):
. any accumulated and unpaid distributions that previously have been
declared on ML Partnership preferred securities out of funds legally
available for distribution,
. the redemption price with respect to any partnership preferred
securities called for redemption by ML Partnership out of funds
legally available for that purpose, and
. upon a liquidation of ML Partnership, the lesser of:
(A) the aggregate of the liquidation preference and all
accumulated and unpaid distributions on the partnership
preferred securities to the date of payment and
(B) the amount of assets of ML Partnership, after satisfaction of
all liabilities, remaining available for distribution to
holders of partnership preferred securities in liquidation of
ML Partnership.
ML&Co.'s obligation to make a Partnership Guarantee Payment may be
satisfied by direct payment of the required amounts by ML&Co. to the holders
of partnership preferred securities or by causing ML Partnership to pay these
amounts to holders.
The Partnership Guarantee will be a guarantee on a subordinated basis
with respect to the partnership preferred securities from the time of issuance
of the partnership preferred securities but will not apply to any payment of
distributions or the redemption price, or to payments upon the dissolution,
winding-up or termination of ML Trust, except to the extent ML Partnership
shall have funds available for these purposes. If Investment Affiliates,
including, where applicable, ML&Co., as guarantor, of the Affiliate Investment
Instruments in which ML Partnership invests fail to make any payment in
respect of the securities or, if applicable, guarantees, ML Partnership may
not declare or pay dividends on the partnership preferred securities. In such
event, holders of the partnership preferred securities would not be able to
rely upon the Partnership Guarantee for payment of these amounts. Instead,
holders of the partnership preferred securities
will have the remedies described in this prospectus under "Description of the
Partnership Preferred Securities--Partnership Enforcement Events", including the
right to direct ML&Co. or the special representative, as the case may be, to
enforce the covenant restricting certain payments by ML&Co. and Finance
Subsidiaries. See "--Covenants of ML&Co." below.
The Guarantees, when taken together with the ML&Co. Debenture and
ML&Co.'s obligations to pay all fees and expenses of ML Trust and ML
Partnership, constitute a guarantee to the extent set forth in this prospectus
by ML&Co. of the distribution, redemption and liquidation payments payable to
the holders of the TOPrS. The Guarantees do not apply, however, to current
distributions by ML Partnership unless and until
47
distributions are declared by ML Partnership out of funds legally available for
payment or to liquidating distributions unless there are assets available for
payment in ML Partnership.
Obligations of ML&Co.
Under the Partnership Guarantee, ML&Co. will agree that if:
. for any distribution period, full distributions on a cumulative basis
on any partnership preferred securities have not been paid or declared
and set apart for payment,
. an event of default by any Investment Affiliate in respect of any
Affiliate Investment Instrument has occurred and is continuing, or
. ML&Co. is in default of its obligations under any Guarantee,
then, during that period,
. ML&Co. may not declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation
payment with respect to, any of its capital stock or comparable
equity interest, except for:
. dividends or distributions in shares of, or options, warrants or
rights to subscribe for or purchase shares of, its capital stock,
and conversions or exchanges of common stock of one class into
common stock of another class,
. redemptions or purchases of any rights under the Rights Agreement
and the issuance of preferred stock pursuant to those rights and
. purchases or acquisitions by ML&Co. or its affiliates in
connection with transactions effected by or for the account of
customers of ML&Co. or any of its subsidiaries or in connection
with the distribution or trading of such capital stock or
comparable equity interest and
. ML&Co. may not make, permit any Finance Subsidiary to make, or
make any payments that would enable any Finance Subsidiary to
make, any payment of any dividends on, any distribution with
respect to, or any redemption, purchase or other acquisition of,
or any liquidation payment with respect to, any preferred security
or comparable equity interest of any Finance Subsidiary.
Events of Default; Enforcement of Partnership Guarantee
An event of default under the Partnership Guarantee will occur upon the
failure of ML&Co. to perform any of its payment or other obligations
thereunder.
The holders of a majority in liquidation amount of the partnership
preferred securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the special
representative in respect of the Partnership Guarantee or to direct the
exercise of any trust or power conferred upon the special representative under
the Partnership Guarantee. If the special representative fails to enforce its
rights under the Partnership Guarantee, after a holder of partnership preferred
securities has made a written request, such holder of partnership preferred
securities may institute a legal proceeding directly against ML&Co. to enforce
the special representative's rights under the Partnership Guarantee without
first instituting a legal proceeding against ML Partnership, the special
representative or any other person or entity. Notwithstanding the foregoing, if
ML&Co. has failed to make a guarantee payment, a holder of partnership
preferred securities may directly institute a proceeding against ML&Co. for
enforcement of the Partnership Guarantee for the payment.
48
Status of the Partnership Guarantee; Subordination
The Partnership Guarantee will constitute an unsecured obligation of
ML&Co. and will rank subordinate and junior in right of payment to all other
liabilities of ML&Co. and will rank equally with the most senior preferred
stock issued from time to time by ML&Co., with similar guarantees issued by
ML&Co. in connection with
. the $275,000,000 aggregate liquidation amount of 7 3/4% Trust
Originated Preferred Securities issued by Merrill Lynch Preferred
Capital Trust I,
. the $300,000,000 aggregate liquidation amount of 8% Trust Originated
Preferred Securities issued by Merrill Lynch Preferred Capital Trust
II,
. the $750,000,000 aggregate liquidation amount of 7% Trust Originated
Preferred Securities issued by Merrill Lynch Preferred Capital Trust
III,
. the $400,000,000 aggregate liquidation amount of 7.12% Trust
Originated Preferred Securities issued by Merrill Lynch Preferred
Capital Trust IV,
. the $850,000,000 aggregate liquidation amount of 7.28% Trust
Originated Preferred Securities issued by Merrill Lynch Preferred
Capital Trust V,
. the (Yen)10,000,000,000 aggregate liquidation amount of Trust
Originated Preferred Securities issued by Merrill Lynch Yen TOPrS
Trust I, and
. with any guarantee now or hereafter entered into by ML&Co. in respect
of any preferred stock of any other Finance Subsidiary.
Accordingly, the rights of the holders of partnership preferred
securities to receive payments under the Partnership Guarantee will be subject
to the rights of the holders of any obligations of ML&Co. that are senior in
priority to the obligations under the Partnership Guarantee. Furthermore, the
holders of obligations of ML&Co. that are senior to the obligations under the
Partnership Guarantee, including, but not limited to, obligations constituting
senior indebtedness, will be entitled to the same rights upon payment default
or dissolution, liquidation and reorganization in respect of the Partnership
Guarantee that inure to the holders of senior indebtedness as against the
holders of the ML&Co. Debenture. The limited partnership agreement provides
that each holder of partnership preferred securities, by their acceptance,
agrees to the subordination provisions and other terms of the Partnership
Guarantee.
The Partnership Guarantee will constitute a guarantee of payment and not
of collection. That is, the guaranteed party may directly institute a legal
proceeding against ML&Co. to enforce its rights under the Partnership Guarantee
without instituting a legal proceeding against any other person or entity.
The Partnership Guarantee will be deposited with ML&Co. to be held for
the benefit of the holders of the partnership preferred securities. In the
event of the appointment of a special representative to, among other things,
enforce the Partnership Guarantee, the special representative may take
possession of the Partnership Guarantee for that purpose. If no special
representative has been appointed to enforce the Partnership Guarantee, ML&Co.
has the right to enforce the Partnership Guarantee on behalf of the holders of
the partnership preferred securities.
Amendments and Assignment
Except with respect to any changes that do not adversely affect the
rights of holders of partnership preferred securities, in which case no consent
will be required, the Partnership Guarantee may be amended only with the prior
approval of the holders of not less than a majority in liquidation preference
of the outstanding partnership preferred securities. All guarantees and
agreements contained in the Partnership Guarantee shall bind the successors,
assigns, receivers, trustees and representatives of ML&Co. and shall inure to
the benefit of
49
the holders of the partnership preferred securities then outstanding. Except in
connection with any permitted merger or consolidation of ML&Co. with or into
another entity or any permitted sale, transfer or lease of ML&Co.'s assets to
another entity in which the surviving corporation, if other than ML&Co.,
assumes ML&Co.'s obligations under the Partnership Guarantee, ML&Co. may not
assign its rights or delegate its obligations under the Partnership Guarantee
without the prior approval of the holders of at least a majority of the
aggregate stated liquidation preference of the partnership preferred securities
then outstanding.
Termination of the Partnership Guarantee
The Partnership Guarantee will terminate and be of no further force and
effect as to the partnership preferred securities upon:
. full payment of the redemption price of all partnership preferred
securities, or
. full payment of the amounts payable in accordance with the Limited
Partnership Agreement upon liquidation of ML Partnership.
The Partnership Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of partnership
preferred securities must in accordance with the Delaware Limited Partnership
Act restore payment of any sums paid under the partnership preferred securities
or the Partnership Guarantee. The Delaware Limited Partnership Act provides
that a limited partner of a limited partnership who wrongfully receives a
distribution may be liable to the limited partnership for the amount of such
distribution.
Governing Law
The Partnership Guarantee will be governed by and construed in accordance
with the internal laws of the State of New York.
UNITED STATES FEDERAL INCOME TAXATION
In the opinion of Brown & Wood LLP, tax counsel to ML&Co., ML Trust and
ML Partnership ("Tax Counsel"), the following summary accurately describes the
material United States Federal income tax consequences that may be relevant to
the purchase, ownership and disposition of the TOPrS. Unless otherwise stated,
this summary deals only with the TOPrS held as capital assets by United States
Persons who purchase the TOPrS upon original issuance. As used in this
prospectus, a "United States Person" means a person that is a (1) citizen or
resident of the United States, (2) a corporation or a partnership (including an
entity treated as a corporation or partnership for United States Federal income
tax purposes) created or organized in or under the laws of the United States,
any state thereof or the District of Columbia (unless, in the case of a
partnership, Treasury regulations are adopted that provide otherwise), (3) an
estate whose income is subject to United States federal income tax regardless
of its source, or (4) 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. Notwithstanding clause (4) of the previous sentence, to
the extent provided in Treasury regulations, certain trusts in existence on
August 20, 1996, and treated as United States persons prior to such date, that
elect to continue to be treated as United States persons will also be a United
States Person. The tax treatment of a holder may vary depending on its
particular situation.
This summary does not address all the tax consequences that may be
relevant to holders who may be subject to special tax treatment, such as banks,
real estate investment trusts, regulated investment companies, insurance
companies, dealers in securities or currencies, tax-exempt investors, or
foreign investors. This summary does not include any description of any
alternative minimum tax consequences or the tax laws of any state or local
government or of any foreign government that may be applicable to the TOPrS.
This summary is based on the Internal Revenue Code of 1986 as amended (the
"Code"), the Treasury regulations promulgated under the Code and administrative
and judicial interpretations of the Code, as of the date of this prospectus,
all of which are subject to change, possibly on a retroactive basis.
50
The TOPrS are not being marketed to persons that are not United States
Persons ("non-United States Persons") and, consequently, the following
discussion does not discuss the tax consequences that might be relevant to non-
United States Persons. Moreover, in order to protect ML Trust and ML
Partnership from potential adverse consequences, non-United States Persons will
be subject to withholding on distributions on the TOPrS at a rate of 30%. In
determining a holder's status, the United States entity otherwise required to
withhold taxes may rely on an IRS Form W-8, an IRS Form W-8BEN, an IRS Form W-
9, or a holder's certification of its non-foreign status signed under penalty
of perjury. After December 31, 2000, holders may no longer use IRS Form W-8 to
certify their status as a non-United States Person. Non-United States Persons
should consult their tax advisors as to the specific United States Federal
income tax consequences of the purchase, ownership, and disposition of TOPrS.
Tax Counsel has advised that there is no authority directly on point
dealing with securities similar to the TOPrS or transactions of the type
described in this prospectus and that the opinions of Tax Counsel are not
binding on the IRS or the courts, either of which could take a contrary
position. No rulings have been or will be sought from the IRS. Accordingly,
there can be no assurance that the IRS will not challenge the opinions
expressed in this tax section or that a court would not sustain a challenge to
these opinions. Nevertheless, Tax Counsel has advised that it is of the view
that, if challenged, the opinions expressed in this tax section would be
sustained by a court with jurisdiction in a properly presented case.
Holders should consult their tax advisors with respect to the tax
consequences to them of the purchase, ownership and disposition of the TOPrS,
including the tax consequences under state, local, foreign, and other tax laws
and the possible effects of changes in United States federal or other tax laws.
For a discussion of the possible redemption of the TOPrS or redemption of the
partnership preferred securities upon the occurrence of certain tax events see
"Description of the TOPrS--Trust Special Event Redemption or Distribution" and
"Description of the Partnership Preferred Securities--Partnership Special Event
Redemption" respectively.
Classification of ML Trust
Tax Counsel is of the opinion that, under current law, and based on
certain representations made by ML Trust as well as certain facts and
assumptions with respect to the transaction described in this prospectus, ML
Trust will be classified for United States Federal income tax purposes as a
grantor trust and not as an association taxable as a corporation. Accordingly,
for United States Federal income tax purposes, each holder of the TOPrS will be
considered the owner of an undivided interest in the partnership preferred
securities held by ML Trust. As a result of this treatment, each holder of the
TOPrS will be required to include in its gross income its distributive share of
income attributable to ML Partnership. This amount will generally be equal to a
holder's allocable share of amounts accrued on the partnership preferred
securities. No amount included in income with respect to the TOPrS will be
eligible for the corporate dividends-received deduction.
Classification of the Partnership
Tax Counsel is of the opinion that, under current law, and based on
certain representations made by the ML Trust as well as certain facts and
assumptions with respect to the transaction described in this prospectus, ML
Partnership will be classified for United States Federal income tax purposes as
a partnership and not as an association or publicly traded partnership taxable
as a corporation.
Tax Counsel's opinion is based on certain factual assumptions relating to
the organization and operation of ML Partnership and is conditioned upon
certain representations made by ML&Co. as General Partner and ML Partnership as
to factual matters, including the organization and the operation of ML
Partnership and the type and frequency of investments made by ML Partnership.
ML&Co. as general partner has represented that it intends to operate ML
Partnership in a manner that will enable ML Partnership to be classified as a
partnership for all future taxable periods in which any partnership preferred
securities remain outstanding. In particular, under the limited partnership
agreement, the
51
general partner cannot take any action that would cause ML Partnership to
constitute a "publicly traded partnership" taxable as a corporation.
Accordingly, it is expected that ML Partnership will continue to qualify as a
partnership and, therefore, will not constitute a publicly traded partnership
taxable as a corporation for all taxable years in which any partnership
preferred securities remain outstanding.
Classification of the Debentures
ML Partnership, ML&Co., the relevant Investment Affiliates and the
holders of the Trust Securities (by acceptance of a beneficial interest in a
Trust Security) will agree to treat the Debentures as indebtedness of the
relevant issuer for all United States tax purposes. In connection with the
issuance of the Debentures, Tax Counsel will issue its opinion that, under
current law, and based on certain representations, facts and assumptions to be
set forth in such opinion, the Debentures will be classified as indebtedness of
the relevant issuer for United States Federal income tax purposes.
Income and Deductions
Because ML Trust will be classified as a grantor trust for United States
federal income tax purposes, holders of TOPrS will be considered to own an
undivided interest in the partnership preferred securities held by ML Trust. As
a result of this treatment, a holder of TOPrS will be required to take into
income their proportionate share of income attributable to ML Partnership. A
holder's distributive share of income attributable to ML Partnership generally
will be substantially equal to the amount of the cash distributions that
accumulate with respect to the TOPrS. Accordingly, if quarterly distributions
on the TOPrS are paid currently, the amount of income recognized by a holder
during a taxable year generally will be substantially equal to the cash
distributions received by the holder of the TOPrS.
The nature and timing of the income that is allocated to holders of the
TOPrS will, however, depend on the United States Federal income tax
characterization of the investments held by ML Partnership during the relevant
period. Because ML Partnership will be an accrual basis taxpayer for United
States Federal income tax purposes, income will accrue on the TOPrS and will be
allocated to holders of the TOPrS on a daily accrual basis, generally at a rate
that is expected to be equal to (and that will not be greater than) the
distribution rate on the TOPrS, regardless of the holders' method of
accounting. Actual cash distributions on the TOPrS will not, however, be
separately reported as taxable income to the holders at the time they are
received.
If distributions on the partnership preferred securities are not made
currently, the corresponding distributions on the TOPrS will not be made
currently. Because ML Partnership is an accrual basis taxpayer it can be
expected that during a period in which interest payments on the Debentures or
distributions on ML Partnership preferred securities are deferred (for whatever
reason), holders will generally recognize income in advance of their receipt of
any cash distributions with respect to their TOPrS. The amount of income that
will be allocated to holders of TOPrS during any such deferral period will
equal their pro rata share of the amount of distributions accruing on the
partnership preferred securities during the deferral period.
ML Partnership does not presently intend to make a Section 754 election.
Accordingly, a subsequent purchaser of the TOPrS who does not purchase the
TOPrS at initial issuance will not be permitted to adjust the tax basis in his
allocable share of ML Partnership's assets so as to reflect any difference
between his purchase price for the TOPrS and his share of ML Partnership's
underlying tax basis in its assets. As a result, a holder of the TOPrS may be
required to report a larger or smaller amount of income from holding the TOPrS
than would otherwise be appropriate based upon the holder's purchase price for
the TOPrS.
Receipt of Partnership Preferred Securities Upon Liquidation of ML Trust
Under certain circumstances, as described under the caption "Description
of the TOPrS--Trust Special Event Redemption or Distribution", partnership
preferred securities may be distributed to holders of The TOPrS in exchange for
their TOPrS and in liquidation of ML Trust. Unless the liquidation of ML Trust
52
occurs as a result of ML Trust being subject to United States Federal income
tax with respect to income accrued or received on the partnership preferred
securities, a distribution to holders under these circumstances would, for
United States Federal income tax purposes, be treated as a nontaxable event to
each holder. Each holder would receive an aggregate tax basis in the
partnership preferred securities equal to the holder's aggregate tax basis in
its TOPrS with a holding period in the partnership preferred securities so
received in liquidation of ML Trust that would include the period during which
the TOPrS were held. If, however, the liquidation of ML Trust were to occur
because ML Trust is subject to United States Federal income tax with respect to
income accrued or received on the partnership preferred securities, the
distribution of partnership preferred securities to holders by ML Trust would
likely be a taxable event to each holder, and a holder would recognize gain or
loss as if the holder had exchanged its TOPrS for the partnership preferred
securities it received upon the liquidation of ML Trust. Gain or loss to each
holder would be equal to the difference between the holder's aggregate tax
basis in its TOPrS surrendered in the exchange and the aggregate fair market
value of the partnership preferred securities received in the exchange.
Redemption of TOPrS for Cash
Under certain circumstances, as described under the caption "Description
of the TOPrS--Mandatory Redemption", "Description of the TOPrS--Trust Special
Event Redemption or Distribution" and "Description of the Partnership Preferred
Securities--Partnership Special Event Redemption", the General Partner may
cause ML Partnership to redeem the partnership preferred securities for cash,
in which event ML Trust shall simultaneously apply the cash received to redeem
the TOPrS. Under current law, this redemption of the TOPrS would constitute,
for United States Federal income tax purposes, a taxable disposition, and a
holder would recognize gain or loss as if the holder had sold its proportionate
interest in the redeemed partnership preferred securities for an amount of cash
equal to the proceeds received upon redemption. See "--Disposition of TOPrS".
Disposition of TOPrS
A holder that sells TOPrS will recognize gain or loss equal to the
difference between the amount realized on the sale of the TOPrS and the
holder's adjusted tax basis in the TOPrS sold. Gain or loss to the seller will
be a capital gain or loss and will be a long-term capital gain or loss if the
TOPrS have been held for more than one year at the time of the sale. A holder
will be required to include accumulated but unpaid distributions on the
partnership preferred securities through the date of disposition in income as
ordinary income, and to add this amount to the adjusted tax basis of its TOPrS.
A holder's tax basis in its TOPrS generally will equal
. the amount paid by the holder for its TOPrS,
. increased by the amount includible in income by the holder with
respect to its TOPrS, and
. reduced by the amount of cash or other property distributed to the
holder with respect to its TOPrS.
A holder who acquires TOPrS at different prices may be required to maintain a
single aggregate adjusted tax basis in all of his TOPrS and, upon sale or other
disposition of some of his TOPrS, to allocate a pro rata portion of such
aggregate tax basis to the TOPrS sold, rather than maintaining a separate tax
basis in each TOPrS for purposes of computing gain or loss on a sale of that
TOPrS.
Other Partnership Provisions
Section 708. Under Section 708 of the Code, ML Partnership will be
deemed to terminate for United States Federal income tax purposes if 50% or
more of the capital and profits interests in ML Trust are sold or exchanged
within a 12-month period. Pursuant to final Treasury regulations issued on May
9, 1997, if a deemed termination under Section 708 were to occur, ML
Partnership would be considered to have contributed
53
its assets to a new partnership in return for partnership interests therein and
then to have distributed those new partnership interests to the partners of the
old partnership in liquidation thereof.
Section 701. The Department of Treasury has promulgated regulations
under Section 701 of the Code that generally permit it to recast a transaction
or disregard a partnership if a partnership is formed or availed of in
connection with a transaction a principal purpose of which is to reduce
substantially the present value of the partners' aggregate federal tax
liability in a manner that is inconsistent with the intent of the partnership
provisions of the Code or to treat a partnership as an aggregate of its
partners as appropriate to carry out the purpose of any provision of the Code
or the Treasury regulations thereunder. ML Partnership has been formed for, and
will engage in, activities typical for partnerships. Although there is no
precedent that applies to the transactions contemplated herein, Tax Counsel
believes that ML Partnership is not of the type intended to fall within the
scope of these regulations.
Information Reporting and Backup Withholding
Income on the TOPrS will be reported to holders on an IRS Form 1099,
which form should be mailed to holders of TOPrS by January 31 following each
calendar year. Payments made on and proceeds from the sale of TOPrS may be
subject to a "back-up" withholding tax of 31% unless the holder complies with
certain identification requirements. Any withheld amount generally will be
allowed as a credit against the holder's United States Federal income tax,
provided the required information is timely filed with the IRS.
New Withholding Regulations
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the back-up withholding
and information reporting rules described above. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
2000, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
54
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement, ML
Trust has agreed to sell to each of the underwriters named below, and each of
the underwriters, for whom MLPF&S and are acting as representatives, has
severally agreed to purchase the number of TOPrS set forth opposite its name
below. In the purchase agreement, the several underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all the TOPrS
offered by this prospectus if any of the TOPrS are purchased. In the event of
default by an underwriter, the purchase agreement provides that, in certain
circumstances, the purchase commitments of the non-defaulting underwriters may
be increased or the purchase agreement may be terminated.
Underwriters Number of TOPrS
------------ ---------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................
-----
Total..................................................
=====
Commission and Discounts
The underwriters propose to offer the TOPrS to the public at the public
offering price set forth on the cover page of this prospectus, and, to certain
dealers at that price less a concession not in excess of $ per TOPrS;
provided, that the concession for sales of 10,000 or more TOPrS to any single
purchaser will be $ per TOPrS. The underwriters may allow, and such dealers
may reallow, a discount not in excess of $ per TOPrS to certain brokers and
dealers. After the TOPrS are released for sale to the public, the offering
price, concession and discount may be changed. Proceeds to be received by
ML&Co. will be net of the underwriting discount and expenses payable by ML&Co.
In view of the fact that the proceeds of the sale of the TOPrS will
ultimately be used to purchase the investment instruments of ML&Co. and its
subsidiaries, the purchase agreement provides that ML&Co. will pay as
compensation to the underwriters, an amount in immediately available funds of
$ per TOPrS (or $ in the aggregate) for the accounts of the several
underwriters; provided that, such compensation in respect of sales by any
underwriter of 10,000 or more TOPrS to any single purchaser will be $ per
TOPrS. Therefore, to the extent of any such sales, the actual amount of
underwriters' compensation will be less than the aggregate amount specified in
the preceding sentence.
Listing
Application will be made to list the TOPrS on the NYSE. Trading of the
TOPrS on the NYSE is expected to commence within a 30-day period after the
initial delivery of the TOPrS. The representatives have advised ML Trust that
they intend to make a market in the TOPrS prior to the commencement of trading
on the NYSE. The representatives will have no obligation to make a market in
the TOPrS, however, and may cease market making activities, if commenced, at
any time.
Before this offering there has been no public market for the TOPrS. In
order to meet one of the requirements for listing the TOPrS on the NYSE, the
underwriters will undertake to sell lots of 100 or more TOPrS to a minimum of
400 beneficial holders, that there will be at least one million units of TOPrS
outstanding and that the TOPrS will have a minimum market value of $4,000,000.
55
Price Stabilization, Short Positions and Penalty Bids
In connection with the offering, the underwriters are permitted to engage
in certain transactions that stabilize the market price of the TOPrS. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the market price of the TOPrS. If an underwriter creates a short
position in the TOPrS in connection with the offering, i.e., if it sells more
TOPrS than are set forth on the cover page of this prospectus, the underwriter
may reduce that short position by purchasing TOPrS in the open market. In
general, purchases of a security for the purpose of stabilization or to reduce
a short position could cause the price of the security to be higher than it
might be in the absence of such purchases.
The underwriters may also impose a penalty bid on certain underwriters
and selling group members. This means that if an underwriter purchases TOPrS in
the open market to reduce the underwriter's short position or to stabilize the
price of the TOPrS, they may reclaim the amount of the selling concession from
the underwriters and selling group members who sold those TOPrS as part of the
offering. The imposition of a penalty bid might have an effect on the price of
a security to the extent that it were to discourage resales of the security.
Neither ML&Co. nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the TOPrS. In addition, neither ML&Co.
nor any of the underwriters makes any representation that the underwriters will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
Miscellaneous
ML Trust, ML&Co., and ML Partnership have agreed to indemnify the
underwriters against, or contribute to payments that the underwriters may be
required to make in respect of, certain liabilities, including liabilities
under the Securities Act.
Because MLPF&S, one of the underwriters in the offering, is an affiliate
of ML&Co. and a member of the National Association of Securities Dealers, Inc.,
the offering of TOPrS will be conducted pursuant to the applicable sections of
Rule 2810 of the Conduct Rules of the NASD. The underwriters may not confirm
sales to any discretionary account without the prior specific written approval
of the customer.
Certain of the underwriters and their affiliates engage in transactions
with, and perform services for, ML&Co. in the ordinary course of business and
have engaged, and may in the future engage, in commercial banking and
investment banking transactions with ML&Co. MLPF&S may use this prospectus for
offers and sales related to market-making transactions in the TOPrS. MLPF&S may
act as principal or agent in these transactions, and the sales will be made at
prices related to prevailing market prices at the time of sale.
WHERE YOU CAN FIND MORE INFORMATION
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 by visiting
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 further
information about the public reference rooms. You may also inspect our SEC
reports and other information at the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the TOPrS and other securities. For further information on ML&Co. and the
TOPrS, you should refer to our registration statement and its exhibits. This
prospectus summarizes material provisions of contracts and other documents that
we refer you to. Because the prospectus may not contain all the information
that you may find important, you should
56
review the full text of these documents. We have included copies of these
documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to incorporate by reference the information we file
with them, which means:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to
those documents; and
. information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Exchange Act:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly report on Form 10-Q for the period ended March 31, 2000;
and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000 and May 24, 2000.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering
is completed or after the date of this initial registration statement and
before the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. any reports filed under Section 15(d) of the Exchange Act.
You should rely only on information contained or incorporated by
reference in this prospectus. We have not, and MLPF&S has not, authorized any
other person to provide you with different information. If anyone provides you
with different or inconsistent information, you should not rely on it. We are
not, and MLPF&S is not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date of this prospectus only. Our business, financial
condition and results of operations may have changed since that date.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc.,
222 Broadway, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
LEGAL MATTERS
Certain matters of Delaware law relating to the legality of the TOPrS,
the validity of ML Trust Agreement, the formation of ML Trust and ML
Partnership and the legality under state law of the TOPrS and the partnership
preferred securities are being passed upon by Skadden, Arps, Slate, Meagher &
Flom (Delaware), special Delaware counsel to ML Trust, the Partnership and
ML&Co. The legality under state law
57
of The Trust Guarantee, the Partnership Guarantee, the ML&Co. Debenture and the
Investment Guarantees with respect to the Affiliate Debentures will be passed
upon on behalf of ML Trust, ML Partnership and ML&Co. by Brown & Wood LLP, New
York, New York. The validity of the TOPrS, the partnership preferred securities
and the Trust Guarantee and the Partnership Guarantee will be passed upon on
behalf of the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New
York, New York, counsel to the underwriters.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference from the Annual Report on
Form 10-K of Merrill Lynch & Co., Inc. and subsidiaries for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which express an unqualified
opinion and which report on the consolidated financial statements includes an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing. The balance sheets of Merrill
Lynch Preferred Funding VI, L.P. and Merrill Lynch Preferred Capital Trust VI
as of December 31, 1999 incorporated by reference in this prospectus have also
been audited by Deloitte & Touche LLP and have been incorporated by reference
in reliance upon such reports of Deloitte & Touche LLP given upon their
authority as experts in accounting and auditing.
58
INDEX OF DEFINED TERMS
Defined Terms Page No.
- ------------- --------
Affiliate Debentures...................................................
Affiliate Investment Instruments.......................................
Business Day...........................................................
Change in Investment Company Act Law...................................
Code...................................................................
Eligible Institution...................................................
Finance Subsidiary.....................................................
Investment Affiliate...................................................
Investment Company Act.................................................
Investment Guarantee...................................................
ML&Co..................................................................
ML&Co. Debenture.......................................................
ML Partnership.........................................................
Moody's................................................................
Partnership Enforcement Event..........................................
Partnership Guarantee..................................................
Partnership Guarantee Payments.........................................
Partnership Investment Company Event...................................
Partnership Special Event..............................................
Partnership Tax Event..................................................
Rights Agreement.......................................................
S&P....................................................................
Special Event..........................................................
Tax Action.............................................................
Tax Counsel............................................................
TOPrS..................................................................
Trust Enforcement Event................................................
Trust Guarantee........................................................
Trust Guarantee Payments...............................................
Trust Investment Company Event.........................................
Trust Securities.......................................................
Trust Special Event....................................................
Trust Tax Event........................................................
United States Person...................................................
59
INDEX TO FINANCIAL STATEMENTS
Page No.
--------
MERRILL LYNCH PREFERRED FUNDING VI, L.P.
Independent Auditors' Report......................................... F-
Balance Sheet as of December 31, 1999................................ F-
Note to Balance Sheet as of December 31, 1999........................ F-
Balance Sheet as of March 31, 2000................................... F-
Note to Balance Sheet as of March 31, 2000........................... F-
MERRILL LYNCH PREFERRED CAPITAL TRUST VI
Independent Auditors' Report......................................... F-
Balance Sheet as of December 31, 1999................................ F-
Note to Balance Sheet as of December 31, 1999........................ F-
Balance Sheet as of March 31, 2000................................... F-
Note to Balance Sheet as of March 31, 2000........................... F-
F-1
INDEPENDENT AUDITORS' REPORT
To the General Partner and Initial Limited Partner of
Merrill Lynch Preferred Funding VI, L.P.
We have audited the accompanying balance sheet of Merrill Lynch Preferred
Funding VI, L.P. (the "Partnership") as of December 31, 1999. This balance
sheet is the responsibility of the Partnership's management. Our responsibility
is to express an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of the Partnership as of December
31, 1999, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
New York, New York
March 28, 2000
F-2
BALANCE SHEET
OF MERRILL LYNCH PREFERRED FUNDING VI, L.P.
December 31, 1999
Assets.................................................................. $ --
=====
Partnership Securities
Limited partner interest.............................................. $ 85
General partner interest.............................................. 15
100
Less: Receivables from partners for subscribed partnership interests.... (100)
-----
$ --
=====
NOTE TO BALANCE SHEET OF MERRILL LYNCH PREFERRED FUNDING VI, L.P.
Merrill Lynch Preferred Funding VI, L.P. (the "Partnership") is a limited
partnership that was formed under the Delaware Revised Uniform Limited
Partnership Act on December 7, 1998 for the exclusive purposes of purchasing
certain eligible debt instruments of Merrill Lynch & Co., Inc. ("ML&Co.") and
wholly owned subsidiaries of ML&Co. (the "Affiliate Investment Instruments")
with the proceeds from the sale of Partnership Preferred Securities (the
"Partnership Preferred Securities") to Merrill Lynch Preferred Capital Trust VI
(the "Trust") and a capital contribution from ML&Co. in exchange for the
general partnership interest in the Partnership (collectively, the "Partnership
Proceeds"). The Partnership Proceeds will be used initially to purchase debt
instruments from ML&Co. and certain domestic wholly owned subsidiaries of
ML&Co., retaining 1% in unaffiliated debt securities. The Partnership shall
have a perpetual existence subject to certain termination events.
The Partnership Preferred Securities will be redeemable for cash, at the
option of the Partnership, in whole or in part, from time to time, after a
certain date to be determined. Except as provided in the Limited Partnership
Agreement and Partnership Preferred Securities Guarantee Agreement, and as
otherwise provided by law, the holders of the Partnership Preferred Securities
will have no voting rights.
ML&Co. serves as the sole general partner of the Partnership. ML&Co., in
its capacity as General Partner of the Partnership, has agreed to pay all fees
and expenses related to the organization and operations of the Partnership
(including any taxes, duties, assessments or government charges of whatever
nature (other than withholding taxes) imposed by the United States or any other
domestic taxing authority upon the Partnership) and the offering of the
Partnership Preferred Securities and be responsible for all debts and other
obligations of the Partnership (other than with respect to the Partnership
Preferred Securities). The General Partner has agreed to indemnify certain
officers and agents of the Partnership.
F-3
BALANCE SHEET
OF MERRILL LYNCH PREFERRED FUNDING VI, L.P.
March 31, 2000
(unaudited)
Assets.................................................................. $ --
=====
Partnership Securities
Limited partner interest.............................................. $ 85
General partner interest.............................................. 15
100
Less: Receivables from partners for subscribed partnership interests.... (100)
-----
$ --
=====
NOTE TO BALANCE SHEET OF MERRILL LYNCH PREFERRED FUNDING VI, L.P.
Merrill Lynch Preferred Funding VI, L.P. (the "Partnership") is a limited
partnership that was formed under the Delaware Revised Uniform Limited
Partnership Act on December 7, 1998 for the exclusive purposes of purchasing
certain eligible debt instruments of Merrill Lynch & Co., Inc. ("ML&Co.") and
wholly owned subsidiaries of ML&Co. (the "Affiliate Investment Instruments")
with the proceeds from the sale of Partnership Preferred Securities (the
"Partnership Preferred Securities") to Merrill Lynch Preferred Capital Trust VI
(the "Trust") and a capital contribution from ML&Co. in exchange for the
general partnership interest in the Partnership (collectively, the "Partnership
Proceeds"). The Partnership Proceeds will be used initially to purchase debt
instruments from ML&Co. and certain domestic wholly owned subsidiaries of
ML&Co., retaining 1% in unaffiliated debt securities. The Partnership shall
have a perpetual existence subject to certain termination events.
The Partnership Preferred Securities will be redeemable for cash, at the
option of the Partnership, in whole or in part, from time to time, after a
certain date to be determined. Except as provided in the Limited Partnership
Agreement and Partnership Preferred Securities Guarantee Agreement, and as
otherwise provided by law, the holders of the Partnership Preferred Securities
will have no voting rights.
ML&Co. serves as the sole general partner of the Partnership. ML&Co., in
its capacity as General Partner of the Partnership, has agreed to pay all fees
and expenses related to the organization and operations of the Partnership
(including any taxes, duties, assessments or government charges of whatever
nature (other than withholding taxes) imposed by the United States or any other
domestic taxing authority upon the Partnership) and the offering of the
Partnership Preferred Securities and be responsible for all debts and other
obligations of the Partnership (other than with respect to the Partnership
Preferred Securities). The General Partner has agreed to indemnify certain
officers and agents of the Partnership.
F-4
INDEPENDENT AUDITORS' REPORT
To the Trustees of
Merrill Lynch Preferred Capital Trust VI
We have audited the accompanying balance sheet of Merrill Lynch Preferred
Capital Trust VI (the "Trust") as of December 31, 1999. This balance sheet is
the responsibility of the Trust's management. Our responsibility is to express
an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of the Trust as of December 31,
1999, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
New York, New York
March 28, 2000
F-5
BALANCE SHEET OF
MERRILL LYNCH PREFERRED CAPITAL TRUST VI
December 31, 1999
Assets...................................................................... $ 0
===
Trust securities............................................................ $ 0
===
NOTE TO BALANCE SHEET OF MERRILL LYNCH PREFERRED CAPITAL TRUST VI
Merrill Lynch Preferred Capital Trust VI (the "Trust") is a statutory
business trust formed on December 7, 1998 under the laws of the State of
Delaware for the exclusive purposes of (i) issuing the Trust Originated
Preferred Securities (the "TOPrS") and the common securities (together with the
TOPrS, the "Trust Securities") representing undivided beneficial ownership
interests in the assets of the Trust, (ii) purchasing Partnership Preferred
Securities (the "Partnership Preferred Securities") representing the limited
partnership interests of Merrill Lynch Preferred Funding VI, L.P. (the
"Partnership") with the proceeds from the sale of the Trust Securities, and
(iii) engaging in only those other activities necessary or incidental thereto.
The Trust has a perpetual existence, subject to certain termination events as
provided in the Declaration of Trust under which it was formed. Subsequent to
December 31, 1999, the Trust intends to issue and sell its TOPrS in a public
offering and to issue and sell its common securities to Merrill Lynch & Co.,
Inc. ("ML&Co"). No TOPrS have been issued as of December 31, 1999.
The proceeds from the Trust's sale of the Trust Securities will be used
to purchase the Partnership Preferred Securities from the Partnership. The
Partnership Preferred Securities will be redeemable for cash, at the option of
the Partnership, in whole or in part, from time to time, after a certain date
to be determined. Upon any redemption of the Partnership Preferred Securities,
the TOPrS will be redeemed, in whole or in part, as applicable. Holders of the
TOPrS will have limited voting rights and will not be entitled to vote to
appoint, remove or replace, or to increase or decrease the number of, trustees,
which voting rights are vested exclusively in the holder of the common
securities.
ML&Co. will be obligated to pay compensation to the underwriters of the
offering of the TOPrS. ML&Co. will pay all fees and expenses related to the
organization and operations of the Trust (including any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States or any other domestic taxing authority upon
the Trust) and the offering of the TOPrS and be responsible for all debts and
other obligations of the Trust (other than the Trust Securities). ML&Co. has
also agreed to indemnify the Trustees and certain other persons.
F-6
BALANCE SHEET OF
MERRILL LYNCH PREFERRED CAPITAL TRUST VI
March 31, 2000
(unaudited)
Assets...................................................................... $ 0
===
Trust securities............................................................ $ 0
===
NOTE TO BALANCE SHEET OF MERRILL LYNCH PREFERRED CAPITAL TRUST VI
Merrill Lynch Preferred Capital Trust VI (the "Trust") is a statutory
business trust formed on December 7, 1998 under the laws of the State of
Delaware for the exclusive purposes of (i) issuing the Trust Originated
Preferred Securities (the "TOPrS") and the common securities (together with the
TOPrS, the "Trust Securities") representing undivided beneficial ownership
interests in the assets of the Trust, (ii) purchasing Partnership Preferred
Securities (the "Partnership Preferred Securities") representing the limited
partnership interests of Merrill Lynch Preferred Funding VI, L.P. (the
"Partnership") with the proceeds from the sale of the Trust Securities, and
(iii) engaging in only those other activities necessary or incidental thereto.
The Trust has a perpetual existence, subject to certain termination events as
provided in the Declaration of Trust under which it was formed. Subsequent to
March 31, 2000, the Trust intends to issue and sell its TOPrS in a public
offering and to issue and sell its common securities to Merrill Lynch & Co.,
Inc. ("ML&Co"). No TOPrS have been issued as of March 31, 2000.
The proceeds from the Trust's sale of the Trust Securities will be used
to purchase the Partnership Preferred Securities from the Partnership. The
Partnership Preferred Securities will be redeemable for cash, at the option of
the Partnership, in whole or in part, from time to time, after a certain date
to be determined. Upon any redemption of the Partnership Preferred Securities,
the TOPrS will be redeemed, in whole or in part, as applicable. Holders of the
TOPrS will have limited voting rights and will not be entitled to vote to
appoint, remove or replace, or to increase or decrease the number of, trustees,
which voting rights are vested exclusively in the holder of the common
securities.
ML&Co. will be obligated to pay compensation to the underwriters of the
offering of the TOPrS. ML&Co. will pay all fees and expenses related to the
organization and operations of the Trust (including any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States or any other domestic taxing authority upon
the Trust) and the offering of the TOPrS and be responsible for all debts and
other obligations of the Trust (other than the Trust Securities). ML&Co. has
also agreed to indemnify the Trustees and certain other persons.
F-7
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
Merrill Lynch Preferred Capital Trust VI
% Trust Originated Preferred Securities
"TOPrS"
Liquidation Amount $25 per TOPrS
guaranteed to the extent described in this prospectus by
Merrill Lynch & Co., Inc.
--------------
PROSPECTUS
--------------
Merrill Lynch & Co.
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained in this prospectus supplement is not complete and may +
+be changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus supplement and the accompanying prospectus is not an offer to sell +
+these securities and it is not soliciting an offer to buy these securities in +
+any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus Supplement dated June 7, 2000
PROSPECTUS SUPPLEMENT
(To prospectus dated , 2000)
$
[LOGO]
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series B
Due Nine Months or More from Date of Issue
-----------
The notes:
. We will offer notes from time to time and specify the terms and
conditions of each issue of notes in a pricing supplement.
. The notes may bear interest at fixed or floating rates or may not bear
any interest.
. If the notes bear interest at a floating rate, the floating rate may be
based on one or more indices or formulas plus or minus a fixed amount
or multiplied by a factor.
. The notes will be senior unsecured debt securities of ML&Co.
. The notes will have stated maturities of nine months or more from the
date they are originally issued.
. We will specify whether the notes can be redeemed or repaid before
their maturity and whether they are subject to mandatory redemption,
redemption at the option of ML&Co. or repayment at the option of the
holder of the notes.
. We will pay amounts due on the notes in U.S. dollars or any other
consideration described in the applicable pricing supplement.
Investing in the notes involves risks that are described in the "Risk
Factors" section beginning on page S-3 of this prospectus supplement.
-----------
Per Note Total
-------- -----
Public offering price........................... 100% $
Agent's discounts and commissions............... 0.5%-.60% $
Proceeds, before expenses, to ML&Co. ........... 99.95%-99.40% $
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement, the accompanying prospectus or any pricing
supplement is truthful or complete. Any representation to the contrary is a
criminal offense.
We may sell notes to the agent referred to below as principal for resale at
varying or fixed offering prices or through the agent as agent using its
reasonable efforts on our behalf. We may also sell notes without the assistance
of the agent, whether acting as principal or as agent.
If we sell other securities referred to in the accompanying prospectus, the
amount of notes that we may offer and sell under this prospectus supplement may
be reduced.
-----------
Merrill Lynch & Co.
-----------
The date of this prospectus supplement is , 2000.
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Risk Factors............................................................... S-
Description of the Notes................................................... S-
United States Federal Income Taxation...................................... S-
Plan of Distribution....................................................... S-
Validity of the Notes...................................................... S-
Prospectus
Page
----
Merrill Lynch & Co., Inc. ...............................................
Use of Proceeds..........................................................
Ratio of Earnings to Fixed Charges and Ratios of Earnings to Combined
Fixed Charges and Preferred Stock Dividends.............................
The Securities...........................................................
Description of Debt Securities...........................................
Description of Debt Warrants.............................................
Description of Currency Warrants.........................................
Description of Index Warrants............................................
Description of Preferred Stock...........................................
Description of Depositary Shares.........................................
Description of Preferred Stock Warrants..................................
Description of Common Stock..............................................
Description of Common Stock Warrants.....................................
Plan of Distribution.....................................................
Where You Can Find More Information......................................
Incorporation of Information We File With the SEC........................
Experts..................................................................
References in this prospectus supplement to "ML&Co.", "we", "us" and
"our" are to Merrill Lynch & Co., Inc.
References in this prospectus supplement to "MLPF&S" are to the agent,
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
S-2
RISK FACTORS
Your investment in the notes involves certain risks. In consultation with
your own financial and legal advisers, you should carefully consider, among
other matters, the following discussion of risks before deciding whether an
investment in the notes is suitable for you. The notes are not an appropriate
investment for you if you are unsophisticated with respect to their significant
components and interrelationships.
Structure Risks of Notes Indexed to Interest Rate, Currency or Other Indices or
Formulas
If you invest in notes indexed to one or more interest rate, currency or
other indices or formulas, there will be significant risks not associated with
a conventional fixed rate or floating rate debt security. These risks include
fluctuation of the indices or formulas and the possibility that you will
receive a lower, or no, amount of principal, premium or interest and at
different times than you expected. We have no control over a number of matters,
including economic, financial and political events, that are important in
determining the existence, magnitude and longevity of these risks and their
results. In addition, if an index or formula used to determine any amounts
payable in respect of the notes contains a multiplier or leverage factor, the
effect of any change in that index or formula will be magnified. In recent
years, values of certain indices and formulas have been volatile and volatility
in those and other indices and formulas may be expected in the future. However,
past experience is not necessarily indicative of what may occur in the future.
Redemption May Adversely Affect Your Return on the Notes
If your notes are redeemable at our option we may choose to redeem your
notes at times when prevailing interest rates are relatively low. In addition,
if your notes are subject to mandatory redemption, we may be required to redeem
your notes at times when prevailing interest rates are also relatively low. As
a result, you generally will not be able to reinvest the redemption proceeds in
a comparable security at an effective interest rate as high as that of the
notes.
There May Not Be Any Trading Market for Your Notes; Many Factors Affect the
Trading Market and Value of Your Notes
We cannot assure you a trading market for your notes will ever develop or
be maintained. In addition to our own creditworthiness, many other factors may
affect the trading market value of, and trading market for, your notes. These
factors include:
. the complexity and volatility of the index or formula
applicable to your notes,
. the method of calculating the principal, premium and interest
in respect of your notes,
. the time remaining to the maturity of your notes,
. the outstanding amount of your notes,
. any redemption features of your notes,
. the amount of other securities linked to the index or formula
applicable to your notes, and
. the level, direction and volatility of market interest rates
generally.
In addition, notes that are designed for specific investment objectives
or strategies often experience a more limited trading market and more price
volatility. There may be a limited number of buyers when you decide to sell
your notes. This may affect the price you receive for your notes or your
ability to sell your notes at all. You should not purchase notes unless you
understand and know you can bear all of the investment risks related to your
notes.
S-3
Our Credit Ratings May Not Reflect All Risks of an Investment in the Notes
Our credit ratings are an assessment of our ability to pay our
obligations. Consequently, real or anticipated changes in our credit ratings
will generally affect the market value of your notes. Our credit ratings,
however, may not reflect the potential impact of risks related to structure,
market or other factors discussed above on the value of your notes.
DESCRIPTION OF THE NOTES
The notes will be issued as a series of debt securities under a senior
indenture, dated as of October 1, 1993, as amended (the "1993 Indenture"),
between ML&Co. and The Chase Manhattan Bank, as trustee. The term "senior debt
securities," as used in this prospectus supplement, refers to all securities
issued and issuable from time to time under ML&Co.'s senior indentures and
includes the notes. The senior debt securities and ML&Co.'s senior indentures
are more fully described in the accompanying prospectus. The following summary
of the material provisions of the notes and of the 1993 Indenture is not
complete and is qualified in its entirety by reference to the 1993 Indenture, a
copy of which has been filed as an exhibit to the registration statement of
which this prospectus supplement and the accompanying prospectus are a part.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement, the accompanying prospectus and any
pricing supplement. Neither we nor MLPF&S has authorized any other person to
provide you with different or additional information. If anyone provides you
with different or additional information, you should not rely on it. Neither we
nor MLPF&S is making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that the
information contained or incorporated by reference in this prospectus
supplement, the accompanying prospectus and any pricing supplement is accurate
only as of the date on the front cover of the applicable pricing supplement.
The following description of notes will apply unless otherwise specified
in an applicable pricing supplement.
Terms of the Notes
All senior debt securities, including the notes, issued and to be issued
under ML&Co.'s senior indentures will be unsecured general obligations of
ML&Co. and will rank equally with all other unsecured and unsubordinated
indebtedness of ML&Co. from time to time outstanding. Because ML&Co. is a
holding company, the right of ML&Co. and its creditors, including the holders
of the notes, to participate in any distribution of the assets of any
subsidiary upon its liquidation or reorganization or otherwise is necessarily
subject to the prior claims of creditors of that subsidiary, except to the
extent that a bankruptcy court may recognize the claims of ML&Co. itself as a
creditor of that subsidiary. In addition, dividends, loans and advances to
ML&Co. from certain subsidiaries, including MLPF&S, are restricted by net
capital requirements under the Securities Exchange Act of 1934, as amended, and
under rules of certain exchanges and other regulatory bodies.
ML&Co.'s senior indentures do not limit the aggregate principal amount of
senior debt securities which ML&Co. may issue. ML&Co. may issue its senior debt
securities from time to time as a single series or in two or more separate
series up to the aggregate principal amount from time to time authorized by
ML&Co. for each series. ML&Co. may, from time to time, without the consent of
the holders of the notes, provide for the issuance of notes or other senior
debt securities under its senior indentures in addition to the $ aggregate
principal amount of notes offered by this prospectus supplement. As of March
31, 2000, ML&Co. had $ billion aggregate principal amount of notes issued and
outstanding. The aggregate principal amount of notes which may be offered and
sold by this prospectus supplement may be reduced by the sale by ML&Co. of
other securities under the registration statement of which this prospectus
supplement and the accompanying prospectus are a part.
S-4
The notes will be offered on a continuing basis and will mature on a day
nine months or more from the date of their issue (the "stated maturity date"),
as selected by the purchaser and agreed to by ML&Co., or on any date before the
stated maturity date on which the principal or an installment of principal of a
note becomes due and payable, whether by the declaration of acceleration, call
for redemption at the option of ML&Co., notice of repayment at the option of
the holder or otherwise (the stated maturity date or such prior date, as the
case may be, is referred to as, a "Maturity"). Interest-bearing notes will bear
interest at either fixed or floating rates as specified in the applicable
pricing supplement. Some notes may not bear interest. In addition, notes may be
issued at significant discounts from their principal amount payable at
Maturity.
Unless otherwise specified in the applicable pricing supplement, the
notes will be denominated in United States dollars and ML&Co. will make
payments of principal of, and premium, if any, and interest on, the notes in
United States dollars.
Interest rates offered by ML&CO. with respect to the notes may differ
depending upon, among other factors, the aggregate principal amount of notes
purchased in any single transaction. ML&Co. may offer notes with similar
variable terms but different interest rates concurrently at any time. ML&Co.
also may concurrently offer notes having different variable terms to different
investors. Interest rates, interest rate formulae and other variable terms of
the notes are subject to change by ML&Co. from time to time, but no change will
affect any note already issued or as to which ML&Co. has accepted an offer to
purchase.
Each note will be issued in fully registered book-entry form or
certificated form, in denominations of $1,000 and integral multiples of $1,000.
Notes in book-entry form may be transferred or exchanged only through a
participating member of The Depository Trust Company, also known as DTC, or any
other depository as is identified in an applicable pricing supplement. See "--
Book-Entry Notes". Registration of transfer of notes in certificated form will
be made at the corporate trust office of the trustee. There will be no service
charge for any registration of transfer or exchange of notes, but ML&Co. may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection with any transfer or exchange, other than
exchanges pursuant to the 1993 Indenture not involving any transfer.
ML&Co. will make payments of principal of, and premium and interest, if
any, on notes in book-entry form through the trustee to the depository or its
nominee. See "--Book-Entry Notes". Unless otherwise specified in the applicable
pricing supplement, a beneficial owner of notes in book-entry form that are
denominated in a currency other than United States dollars (a "Specified
Currency") electing to receive payments of principal or any premium or interest
in that Specified Currency must notify the participant of DTC through which its
interest is held on or before the applicable regular record date, in the case
of a payment of interest, and on or before the sixteenth day, whether or not a
Business Day, as defined below, before its stated maturity date, in the case of
principal or premium, of the beneficial owner's election to receive all or a
portion of any payment in a Specified Currency. The participant must notify the
depository of any election on or before the third Business Day after the
regular record date. The depository will notify the paying agent of the
election on or before the fifth Business Day after the regular record date. If
complete instructions are received by the participant and forwarded to the
depository, and forwarded by the depository to the paying agent, on or before
the relevant dates, the beneficial owner of the notes in book-entry form will
receive payments in the Specified Currency.
In the case of notes in certificated form, ML&Co. will make payment of
principal or premium, if any, due at Maturity of each note in immediately
available funds upon presentation of the note and, in the case of any repayment
on an optional repayment date, upon submission of a duly completed election
form if and as required by the provisions described below, at the corporate
trust office of the trustee in the Borough of Manhattan, The City of New York,
or at any other place as ML&Co. may designate. Payment of interest due at
Maturity of the notes in certificated form will be made to the person to whom
payment of the principal thereof will be made. Payment of interest due on notes
in certificated form other than at Maturity will be made at the corporate trust
office of the trustee or, at the option of ML&Co., may be made by check mailed
to the address
S-5
of the person entitled to receive payment as the address shall appear in the
security register. Notwithstanding the immediately preceding sentence, a holder
of $1,000,000 or more in aggregate principal amount of notes in certificated
form, whether having identical or different terms and provisions will, at the
option of ML&Co., be entitled to receive interest payments, other than at
Maturity, by wire transfer of immediately available funds if appropriate wire
transfer instructions have been received in writing by the trustee not less
than 15 days prior to the applicable interest payment date. Any wire
instructions received by the trustee shall remain in effect until revoked by
the applicable holder.
"Business Day" means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which commercial banks are authorized or
required by law, regulation or executive order to close in The City of New
York; provided, however, that, with respect to non-United States dollar-
denominated notes, the day is also not a day on which commercial banks are
authorized or required by law, regulation or executive order to close in the
Principal Financial Center, as defined below, of the country issuing the
Specified Currency or, if the Specified Currency is Euro, the day is also a day
on which the Trans-European Automated Real-time Gross Settlement Express
Transfer (TARGET) System is open; provided, further, that, with respect to
notes as to which LIBOR is an applicable Interest Rate Basis, the day is also a
London Banking Day. "London Banking Day" means a day on which commercial banks
are open for business, including dealings in the LIBOR Currency, as defined
below, in London.
"Principal Financial Center" means:
(1) the capital city of the country issuing the Specified Currency,
except that with respect to United States dollars, Australian
dollars, Canadian dollars, Deutsche marks, Dutch guilders,
Italian lire, South African rand and Swiss francs, the "Principal
Financial Center" will be The City of New York, Sydney and
Melbourne, Toronto, Frankfurt, Amsterdam, Milan, Johannesburg and
Zurich, respectively, or
(2) the capital city of the country to which the LIBOR Currency
relates, except that with respect to United States dollars,
Australian dollars, Canadian dollars, Deutsche marks, Dutch
guilders, Italian lire, Portuguese escudos, South African rand
and Swiss francs, the "Principal Financial Center" will be The
City of New York, Sydney, Toronto, Frankfurt, Amsterdam, Milan,
London, Johannesburg and Zurich, respectively.
Redemption at the Option of ML&Co.
The notes will not be subject to any sinking fund. ML&Co. may redeem the
notes at its option before their stated maturity date only if an initial
redemption date is specified in the applicable pricing supplement. If so
indicated in the applicable pricing supplement, ML&Co. may redeem the notes at
its option on any date on and after the applicable initial redemption date
specified in the applicable pricing supplement. On and after the initial
redemption date, if any, ML&Co. may redeem the related note at any time in
whole or from time to time in part at its option at the applicable redemption
price referred to below together with interest on the principal of the
applicable note payable to the redemption date, on notice given, unless
otherwise specified in the applicable pricing supplement, not more than 60 nor
less than 30 days before the redemption date. ML&Co. will redeem the notes in
increments of $1,000, provided that any remaining principal amount will be an
authorized denomination of the applicable note. Unless otherwise specified in
the applicable pricing supplement, the redemption price with respect to a note
will initially mean a percentage, the initial redemption percentage, of the
principal amount of the note to be redeemed specified in the applicable pricing
supplement and shall decline at each anniversary of the initial redemption date
by a percentage specified in the applicable pricing supplement, of the
principal amount to be redeemed until the redemption price is 100% of the
principal amount.
Repayment at the Option of the Holder
If so indicated in an applicable pricing supplement, ML&Co. will repay
the notes in whole or in part at the option of the holders of the notes on any
optional repayment date specified in the applicable pricing
S-6
supplement. If no optional repayment date is indicated with respect to a note,
it will not be repayable at the option of the holder before its stated maturity
date. Any repayment in part will be in an amount equal to $1,000 or integral
multiples of $1,000, provided that any remaining principal amount will be an
authorized denomination of the applicable note. The repurchase price for any
note so repurchased will be 100% of the principal amount to be repaid, together
with interest on the principal of the applicable note payable to the date of
repayment. For any note to be repaid, the trustee must receive, at its office
maintained for such purpose in the Borough of Manhattan, The City of New York,
currently the corporate trust office of the trustee, not more than 60 nor less
than 30 days before the optional repayment date, the particular note being
repaid:
. in the case of a note in certificated form, the form entitled
"Option to Elect Repayment" duly completed, or
. in the case of a note in book-entry form, instructions to that
effect from the applicable beneficial owner thereof to the
depository and forwarded by the depository.
Notices of elections from a holder to exercise the repayment option must be
received by the trustee by 5:00 p.m., New York City time, on the last day for
giving such notice. Exercise of the repayment option by the holder of a note
will be irrevocable.
Only the depository may exercise the repayment option in respect of
global securities representing notes in book-entry form. Accordingly,
beneficial owners of global securities that desire to have all or any portion
of the notes in book-entry form represented by global securities repaid must
instruct the participant through which they own their interest to direct the
depository to exercise the repayment option on their behalf by forwarding the
repayment instructions to the trustee as discussed above. In order to ensure
that the instructions are received by the trustee on a particular day, the
applicable beneficial owner must so instruct the participant through which it
owns its interest before that participant's deadline for accepting instructions
for that day. Different firms may have different deadlines for accepting
instructions from their customers. Accordingly, beneficial owners of notes in
book-entry form should consult the participants through which they own their
interest for the respective deadlines. All instructions given to participants
from beneficial owners of notes in book-entry form relating to the option to
elect repayment will be irrevocable. In addition, at the time instructions are
given, each beneficial owner will cause the participant through which it owns
its interest to transfer its interest in the global security or securities
representing the related notes in book-entry form, on the depository's records,
to the trustee. See "--Book-Entry Notes".
If applicable, ML&Co. will comply with the requirements of Section 14(e)
of the Exchange Act and the rules promulgated thereunder and any other
securities laws or regulations in connection with any repayment at the option
of the holder.
ML&Co. may at any time purchase notes at any price or prices in the open
market or otherwise. Notes so purchased by ML&Co. may, at the discretion of
ML&Co., be held, resold or surrendered to the trustee for cancellation.
Interest
Each interest-bearing note will bear interest from the date of issue at
the rate per annum, in the case of a fixed rate note, or pursuant to the
interest rate formula, in the case of a floating rate note, in each case as
stated in the applicable pricing supplement until the principal of the note is
paid or made available for payment. Interest will be payable in arrears on each
interest payment date specified in the applicable pricing supplement on which
an installment of interest is due and payable and at Maturity. The first
payment of interest on any note originally issued between a regular record date
and the related interest payment date will be made on the interest payment date
immediately following the next succeeding regular record date to the holder on
the next succeeding regular record date. The regular record date will be the
fifteenth calendar day, whether or not a Business Day, immediately preceding
the related interest payment date.
S-7
Fixed Rate Notes
Each fixed rate note will bear interest from, and including, the date of
issue, at the rate per annum stated on the face of the note until the principal
amount of the note is paid or made available for payment. Interest payments on
fixed rate notes will equal the amount of interest accrued from and including
the immediately preceding interest payment date in respect of which interest
has been paid or from, and including, the date of issue, if no interest has
been paid with respect to the applicable fixed rate notes, to, but excluding,
the applicable interest payment date or Maturity, as the case may be. Unless
otherwise specified in the applicable pricing supplement, interest on fixed
rate notes will be computed on the basis of a 360-day year of twelve 30-day
months.
Interest on fixed rate notes will be payable semiannually on May 15 and
November 15 of each year and at Maturity. If any interest payment date or the
Maturity of a fixed rate note falls on a day that is not a Business Day, the
related payment of principal, premium, if any, or interest will be made on the
next succeeding Business Day as if made on the date the applicable payment was
due, and no interest will accrue on the amount payable for the period from and
after the interest payment date or Maturity, as the case may be.
Floating Rate Notes
Interest on floating rate notes will be determined by reference to the
applicable Interest Rate Basis or Interest Rate Bases, which may be one or more
of:
. the CD Rate,
. the CMT Rate,
. the Commercial Paper Rate,
. the Eleventh District Cost of Funds Rate,
. the Federal Funds Rate,
. LIBOR,
. the Prime Rate,
. the Treasury Rate, or
. any other Interest Rate Basis or interest rate formula that is
specified in the applicable pricing supplement.
A floating rate note may bear interest with respect to two or more
Interest Rate Bases.
Each applicable pricing supplement will specify certain terms of the
floating rate note being delivered, including:
. whether the floating rate note is
. a "Regular Floating Rate Note",
. a "Inverse Floating Rate Note" or
. a "Floating Rate/Fixed Rate Note",
. the Interest Rate Basis or Bases,
. the Initial Interest Rate,
. the Interest Reset Dates,
. the interest payment dates,
S-8
. the period to maturity of the instrument or obligation with respect
to which the Interest Rate Basis or Bases will be calculated (the
"Index Maturity"),
. the Maximum Interest Rate and Minimum Interest Rate, if any,
. the number of basis points to be added to or subtracted from the
related Interest Rate Basis or Bases (the "Spread"),
. the percentage of the related Interest Rate Basis or Bases by which
the Interest Rate Basis or Bases will be multiplied to determine the
applicable interest rate (the "Spread Multiplier"), and
. if one or more of the specified Interest Rate Bases is LIBOR, the
LIBOR Currency, the Index Maturity and the Designated LIBOR Page.
The interest rate borne by the floating rate notes will be determined as
follows:
Regular Floating Rate Notes. Unless a floating rate note is designated as
a Floating Rate/Fixed Rate Note, an Inverse Floating Rate Note or as having an
Addendum attached or as having "Other Provisions" apply relating to a different
interest rate formula, it will be a "Regular Floating Rate Note" and will bear
interest at the rate determined by reference to the applicable Interest Rate
Basis or Bases:
. plus or minus the applicable Spread, if any, and/or
. multiplied by the applicable Spread Multiplier, if any.
Commencing on the first Interest Reset Date, the rate at which interest on the
Regular Floating Rate Note will be payable will be reset as of each Interest
Reset Date; provided, however, that the interest rate in effect for the period
from the date of issue to the first Interest Reset Date will be the Initial
Interest Rate.
Floating Rate/Fixed Rate Notes. If a floating rate note is designated as
a "Floating Rate/Fixed Rate Note", it will bear interest at the rate determined
by reference to the applicable Interest Rate Basis or Bases:
. plus or minus the applicable Spread, if any, and/or
. multiplied by the applicable Spread Multiplier, if any.
Commencing on the first Interest Reset Date, the rate at which interest on the
Floating Rate/Fixed Rate Note will be payable will be reset as of each Interest
Reset Date; provided, however, that:
. the interest rate in effect for the period from the date of issue to
the first Interest Reset Date will be the Initial Interest Rate, and
. the interest rate in effect commencing on, and including, the date on
which interest begins to accrue on a fixed rate basis to Maturity
will be the Fixed Interest Rate, if the rate is specified in the
applicable pricing supplement, or if no Fixed Interest Rate is
specified, the interest rate in effect on the Floating Rate/Fixed
Rate Note on the day immediately preceding the date on which interest
begins to accrue on a fixed rate basis.
Inverse Floating Rate Notes. If a floating rate note is designated as an
"Inverse Floating Rate Note" it will bear interest equal to the Fixed Interest
Rate specified in the related pricing supplement minus the rate determined by
reference to the applicable Interest Rate Basis or Bases:
. plus or minus the applicable Spread, if any, and/or
. multiplied by the applicable Spread Multiplier, if any;
provided, however, that the interest rate on the applicable Inverse Floating
Rate Note will not be less than zero percent. Commencing on the first Interest
Reset Date, the rate at which interest on the Inverse Floating Rate
S-9
Note is payable will be reset as of each Interest Reset Date; provided,
however, that the interest rate in effect for the period from the date of issue
to the first Interest Reset Date will be the Initial Interest Rate.
The interest rate derived from an Interest Rate Basis will be determined
in accordance with the applicable provisions below. The interest rate in effect
on each day will be based on:
. if the day is an Interest Reset Date, the interest rate determined as
of the Interest Determination Date (as defined below) immediately
preceding the applicable Interest Reset Date, or
. if the day is not an Interest Reset Date, the interest rate
determined as of the Interest Determination Date immediately
preceding the most recent Interest Reset Date.
Interest Reset Dates. The applicable pricing supplement will specify the
dates on which the interest rate on the related floating rate note will be
reset (each, an "Interest Reset Date"). The Interest Reset Date will be, in the
case of floating rate notes which reset:
. daily--each Business Day;
. weekly--the Wednesday of each week, with the exception of weekly
reset Floating Rate Notes as to which the Treasury Rate is an
applicable Interest Rate Basis, which will reset the Tuesday of each
week, except as described below under "--Interest Determination
Dates";
. monthly--the third Wednesday of each month, with the exception of
monthly reset Floating Rate Notes as to which the Eleventh District
Cost of Funds Rate is an applicable Interest Rate Basis, which will
reset on the first calendar day of the month;
. quarterly--the third Wednesday of March, June, September and December
of each year;
. semiannually--the third Wednesday of the two months specified in the
applicable pricing supplement; and
. annually--the third Wednesday of the month specified in the
applicable pricing supplement;
provided, however, that with respect to Floating Rate/Fixed Rate Notes, the
rate of interest will not reset after the applicable date on which interest on
a fixed rate basis begins to accrue.
If any Interest Reset Date for any floating rate note would otherwise be
a day that is not a Business Day, the applicable Interest Reset Date will be
postponed to the next succeeding day that is a Business Day, except that in the
case of a floating rate note as to which LIBOR is an applicable Interest Rate
Basis, if the Business Day falls in the next succeeding calendar month, then
the applicable Interest Reset Date will be the immediately preceding Business
Day. In addition, in the case of a floating rate note for which the Treasury
Rate is an applicable Interest Rate Basis if the Interest Determination Date
would otherwise fall on an Interest Reset Date, then the applicable Interest
Reset Date will be postponed to the next succeeding Business Day.
Maximum and Minimum Interest Rates. A floating rate note may also have
either or both of the following:
. a maximum numerical limitation, or ceiling, on the rate at which
interest may accrue during any interest period (a "Maximum Interest
Rate"), and
. a minimum numerical limitation, or floor, on the rate at which
interest may accrue during any period (a "Minimum Interest Rate").
The 1993 Indenture is, and any notes issued under the 1993 Indenture will
be, governed by and construed in accordance with the laws of the State of New
York. Under present New York law, the maximum rate of interest is 25% per annum
on a simple interest basis. This limit may not apply to securities in which
$2,500,000 or more has been invested. While ML&Co. believes that New York law
would be given effect by a
S-10
state or federal court sitting outside of New York, state laws frequently
regulate the amount of interest that may be charged to and paid by a borrower,
including, in some cases, corporate borrowers. It is suggested that prospective
investors consult their personal advisors with respect to the applicability of
these laws. ML&Co. has agreed for the benefit of the beneficial owners of the
notes, to the extent permitted by law, not to claim voluntarily the benefits of
any laws concerning usurious rates of interest against a beneficial owner of
the notes.
Interest Payments. Each applicable pricing supplement will specify the
dates on which interest will be payable. Each floating rate note will bear
interest from the date of issue at the rates specified in the applicable
floating rate note until the principal of the applicable note is paid or
otherwise made available for payment. The interest payment dates with respect
to floating rate notes will be, in the case of floating rate notes which reset:
. daily, weekly or monthly--the third Wednesday of each month or on the
third Wednesday of March, June, September and December of each year,
as specified in the applicable pricing supplement;
. quarterly--the third Wednesday of March, June, September and December
of each year;
. semiannually--the third Wednesday of the two months of each year
specified in the applicable pricing supplement;
. annually--the third Wednesday of the month of each year specified in
the applicable pricing supplement; and
. at Maturity.
If any interest payment date for any floating rate note, other than an
interest payment date at Maturity, would otherwise be a day that is not a
Business Day, the interest payment date will be postponed to the next
succeeding day that is a Business Day except that in the case of a floating
rate note as to which LIBOR is an applicable Interest Rate Basis, if the
Business Day falls in the next succeeding calendar month, the applicable
interest payment date will be the immediately preceding Business Day. If the
Maturity of a floating rate note falls on a day that is not a Business Day, the
payment of principal, premium, if any, and interest will be made on the next
succeeding Business Day, and no interest on such payment will accrue for the
period from and after the Maturity.
All percentages resulting from any calculation on floating rate notes
will be rounded to the nearest one hundred-thousandth of a percentage point,
with five one-millionths of a percentage point rounded upwards. For example,
9.876545%, or .09876545, would be rounded to 9.87655%, or .0987655. All dollar
amounts used in or resulting from any calculation on floating rate notes will
be rounded to the nearest cent with one-half cent being rounded upward.
Interest payments on floating rate notes will equal the amount of
interest accrued from and including the immediately preceding interest payment
date in respect of which interest has been paid or from and including the date
of issue, if no interest has been paid, to but excluding the related interest
payment date or Maturity.
With respect to each floating rate note, accrued interest is calculated
by multiplying its principal amount by an accrued interest factor. The accrued
interest factor is computed by adding the interest factor calculated for each
day in the period for which accrued interest is being calculated.
. In the case of notes for which the Interest Rate Basis is the CD
Rate, the Commercial Paper Rate, the Eleventh District Cost of Funds
Rate, the Federal Funds Rate, LIBOR or the Prime Rate, the interest
factor for each day will be computed by dividing the interest rate
applicable to each day by 360.
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. In the case of notes for which the Interest Rate Basis is the CMT
Rate or the Treasury Rate, the interest factor for each day will be
computed by dividing the interest rate applicable to each day by the
actual number of days in the year.
. The interest factor for notes for which the interest rate is
calculated with reference to two or more Interest Rate Bases will be
calculated in each period in the same manner as if only one of the
applicable Interest Rate Bases applied.
Interest Determination Dates. The interest rate applicable to each
interest reset period commencing on the Interest Reset Date with respect to
that interest reset period will be the rate determined as of the applicable
"Interest Determination Date".
. The Interest Determination Date with respect to the Federal Funds
Rate and the Prime Rate will be the Business Day immediately
preceding the related Interest Reset Date.
. The Interest Determination Date with respect to the CD Rate, the CMT
Rate and the Commercial Paper Rate will be the second Business Day
preceding the related Interest Reset Date.
. The Interest Determination Date with respect to the Eleventh District
Cost of Funds Rate will be the last working day of the month
immediately preceding the related Interest Reset Date on which the
Federal Home Loan Bank of San Francisco publishes the Index, as
defined below.
. The Interest Determination Date with respect to LIBOR will be the
second London Business Day preceding the related Interest Reset Date.
. The Interest Determination Date with respect to the Treasury Rate
will be the day in the week in which the related Interest Reset Date
falls on which day Treasury Bills, as defined below, are normally
auctioned. Treasury Bills are normally sold at auction on Monday of
each week, unless that day is a legal holiday, in which case the
auction is normally held on the following Tuesday, except that the
auction may be held on the preceding Friday; provided, however, that
if an auction is held on the Friday of the week preceding the
Interest Reset Date, the related Interest Determination Date will be
the preceding Friday.
. The Interest Determination Date pertaining to a floating rate note
the interest rate of which is determined with reference to two or
more Interest Rate Bases will be the latest Business Day which is at
least two Business Days before the related Interest Reset Date for
the applicable floating rate note on which each Interest Reset Basis
is determinable. Each Interest Rate Basis will be determined on the
Interest Determination Date, and the applicable interest rate will
take effect on the related Interest Reset Date.
Calculation Date. MLPF&S will be the calculation agent. Upon the request
of the holder of any floating rate note, the calculation agent will provide the
interest rate then in effect and, if determined, the interest rate that will
become effective as a result of a determination made for the next Interest
Reset Date with respect to that floating rate note. Unless otherwise specified
in the applicable pricing supplement, the calculation date, if applicable,
pertaining to any Interest Determination Date will be the earlier of:
. the tenth calendar day after the applicable Interest Determination
Date, or, if the tenth calendar day is not a Business Day, the next
succeeding Business Day, or
. the Business Day preceding the applicable Interest Payment Date or
Maturity, as the case may be.
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CD Rate. CD Rate Notes will bear interest at the rates, calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any,
specified in the applicable CD Rate Notes and in any applicable pricing
supplement.
"CD Rate" means:
(1) the rate on the applicable Interest Determination Date for
negotiable United States dollar certificates of deposit having
the Index Maturity specified in the applicable pricing supplement
as published in H.15(519), as defined below, under the heading
"CDs (secondary market)", or
(2) if the rate referred to in clause (1) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the applicable Interest Determination Date for negotiable
United States dollar certificates of deposit of the Index
Maturity specified in the applicable pricing supplement as
published in H.15 Daily Update, as defined below, or other
recognized electronic source used for the purpose of displaying
the applicable rate, under the caption "CDs (secondary market)",
or
(3) if the rate referred to in clause (2) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the applicable Interest Determination Date calculated by
the calculation agent as the arithmetic mean of the secondary
market offered rates as of 10:00 A.M., New York City time, on the
applicable Interest Determination Date, of three leading non-bank
dealers in negotiable United States dollar certificates of
deposit in The City of New York, which may include the agent or
its affiliates, selected by the calculation agent for negotiable
United States dollar certificates of deposit of major United
States money center banks for negotiable certificates of deposit
with a remaining maturity closest to the Index Maturity specified
in the applicable pricing supplement in an amount that is
representative for a single transaction in that market at that
time, or
(4) if the dealers selected by the calculation agent are not quoting
as mentioned in clause (3) above, the CD Rate in effect on the
applicable Interest Determination Date.
"H.15(519)" means the weekly statistical release designated as H.15(519),
or any successor publication, published by the Board of Governors of the
Federal Reserve System.
"H.15 Daily Update" means the daily update of H.15(519), available
through the world-wide-web site of the Board of Governors of the Federal
Reserve System at http://www.bog.frb.fed.us/releases/h15/update, or any
successor site or publication.
CMT Rate. CMT Rate Notes will bear interest at the rates, calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any,
specified in the applicable CMT Rate and in any applicable pricing supplement.
"CMT Rate" means:
(1) if CMT Telerate Page 7051 is specified in the applicable pricing
supplement:
(a) the percentage equal to the yield for United States Treasury
securities at "constant maturity" having the Index Maturity
specified in the applicable pricing supplement as published
in H.15(519) under the caption "Treasury Constant
Maturities", as the yield is displayed on Bridge Telerate,
Inc., or any successor service, on page 7051, or any other
page as may replace page 7051 on that service ("Telerate
Page 7051"), for the applicable Interest Determination Date,
or
(b) if the rate referred to in clause 1(a) does not appear on
Telerate Page 7051, the percentage equal to the yield for
United States Treasury securities at "constant maturity"
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having the Index Maturity specified in the applicable pricing
supplement and for the applicable Interest Determination Date
as published in H.15(519) under the caption "Treasury Constant
Maturities", or
(c) if the rate referred to in clause 1(b) does not appear in
H.15(519), the rate on the applicable Interest Determination
Date for the period of the Index Maturity specified in the
applicable pricing supplement as may then be published by
either the Federal Reserve System Board of Governors or the
United States Department of the Treasury that the calculation
agent determines to be comparable to the rate which would
otherwise have been published in H.15(519), or
(d) if the rate referred to in clause 1(c) is not published, the
rate on the applicable Interest Determination Date calculated
by the calculation agent as a yield to maturity based on the
arithmetic mean of the secondary market bid prices at
approximately 3:30 P.M., New York City time, on the applicable
Interest Determination Date of three leading primary United
States government securities dealers in The City of New York,
which may include the agent or its affiliates (each, a
"Reference Dealer"), selected by the calculation agent from
five Reference Dealers selected by the calculation agent and
eliminating the highest quotation, or, in the event of
equality, one of the highest, and the lowest quotation or, in
the event of equality, one of the lowest, for United States
Treasury securities with an original maturity equal to the
Index Maturity specified in the applicable pricing supplement,
a remaining term to maturity no more than 1 year shorter than
the Index Maturity specified in the applicable pricing
supplement and in a principal amount that is representative
for a single transaction in the securities in the market at
that time, or
(e) if fewer than five but more than two of the prices referred to
in clause 1(d) are provided as requested, the rate on the
applicable Interest Determination Date calculated by the
calculation agent based on the arithmetic mean of the bid
prices obtained and neither the highest nor the lowest of the
quotations shall be eliminated, or
(f) if fewer than three prices referred to in clause 1(d) are
provided as requested, the rate on the applicable Interest
Determination Date calculated by the calculation agent as a
yield to maturity based on the arithmetic mean of the
secondary market bid prices as of approximately 3:30 P.M., New
York City time, on the applicable Interest Determination Date
of three Reference Dealers selected by the calculation agent
from five Reference Dealers selected by the calculation agent
and eliminating the highest quotation or, in the event of
equality, one of the highest and the lowest quotation or, in
the event of equality, one of the lowest, for United States
Treasury securities with an original maturity greater than the
Index Maturity specified in the applicable pricing supplement,
a remaining term to maturity closest to the Index Maturity
specified in the applicable pricing supplement and in a
principal amount that is representative for a single
transaction in the securities in the market at that time, or
(g) if fewer than five but more than two prices referred to in
clause 1(f) are provided as requested, the rate on the
applicable Interest Determination Date calculated by the
calculation agent based on the arithmetic mean of the bid
prices obtained and neither the highest nor the lowest of the
quotations will be eliminated, or
(h) if fewer than three prices referred to in clause 1(f) are
provided as requested, the CMT Rate in effect on the
applicable Interest Determination Date.
(2) if CMT Telerate Page 7052 is specified in the applicable pricing
supplement:
(a) the percentage equal to the one-week or one-month, as
specified in the applicable pricing supplement, average yield
for United States Treasury securities at "constant maturity"
having the Index Maturity specified in the applicable pricing
supplement as published in
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H.15(519) opposite the caption "Treasury Constant Maturities",
as the yield is displayed on Bridge Telerate, Inc., or any
successor service, on page 7052, or any other page as may
replace page 7052 on that service ("Telerate Page 7052"), for
the week or month, as applicable, ended immediately preceding
the week or month, as applicable, in which the related Interest
Determination Date falls, or
(b) if the rate referred to in clause 2(a) does not appear on
Telerate Page 7052, the percentage equal to the one-week or
one-month, as specified in the applicable CMT Rate Note and
the applicable pricing supplement, average yield for United
States Treasury securities at "constant maturity" having the
Index Maturity specified in the applicable pricing supplement
and for the week or month, as applicable, preceding the
applicable Interest Determination Date as published in
H.15(519) opposite the caption "Treasury Constant Maturities,"
or
(c) if the rate referred to in clause 2(b) does not appear in
H.15(519), the one-week or one-month, as specified, average
yield for United States Treasury securities at "constant
maturity" having the Index Maturity specified in the
applicable pricing supplement as otherwise announced by the
Federal Reserve Bank of New York for the week or month, as
applicable, ended immediately preceding the week or month, as
applicable, in which the related Interest Determination Date
falls, or
(d) if the Federal Reserve Bank of New York does not publish the
rate referred to in clause 2(c), the rate on the applicable
Interest Determination Date calculated by the calculation
agent as a yield to maturity based on the arithmetic mean of
the secondary market bid prices at approximately 3:30 P.M.,
New York City time, on the applicable Interest Determination
Date of three Reference Dealers selected by the calculation
agent from five Reference Dealers selected by the calculation
agent and eliminating the highest quotation, or, in the event
of equality, one of the highest, and the lowest quotation or,
in the event of equality, one of the lowest, for United States
Treasury securities with an original maturity equal to the
Index Maturity specified in the applicable pricing supplement,
a remaining term to maturity no more than 1 year shorter than
the Index Maturity specified in the applicable pricing
supplement and in a principal amount that is representative
for a single transaction in the securities in the market at
that time, or
(e) if fewer than five but more than two of the prices referred to
in clause 2(d) are provided as requested, the rate on the
applicable Interest Determination Date calculated by the
calculation agent based on the arithmetic mean of the bid
prices obtained and neither the highest nor the lowest of the
questions shall be eliminated, or
(f) if fewer than three prices referred to in clause 2(d) are
provided as requested, the rate on the applicable Interest
Determination Date calculated by the calculation agent as a
yield to maturity based on the arithmetic mean of the
secondary market bid prices as of approximately 3:30 P.M., New
York City time, on the applicable Interest Determination Date
of three Reference Dealers selected by the calculation agent
from five Reference Dealers selected by the calculation agent
and eliminating the highest quotation or, in the event of
equality, one of the highest and the lowest quotation or, in
the event of equality, one of the lowest, for United States
Treasury securities with an original maturity greater than the
Index Maturity specified in the applicable CMT Rate Note and
the applicable pricing supplement, a remaining term to
maturity closest to the Index Maturity specified in the
applicable pricing supplement and in a principal amount that
is representative for a single transaction the securities in
the market at the time, or
(g) if fewer than five but more than two prices referred to in
clause 2(f) are provided as requested, the rate will be
calculated by the calculation agent based on the arithmetic
S-15
mean of the bid prices obtained and neither the highest or the
lowest of the quotations will be eliminated, or
(h) if fewer than three prices referred to in clause 2(f) are
provided as requested, the CMT Rate in effect on the
applicable Interest Determination Date.
If two United States Treasury securities with an original maturity
greater than the Index Maturity specified in the applicable CMT Rate Note and
the applicable pricing supplement have remaining terms to maturity equally
close to the Index Maturity specified in the applicable CMT Rate Note and the
applicable pricing supplement, the quotes for the United States Treasury
security with the shorter original remaining term to maturity will be used.
Commercial Paper Rate. "Commercial Paper Rate" means:
(1) the Money Market Yield as defined below on the applicable Interest
Determination Date of the rate for commercial paper having the
Index Maturity specified in the applicable pricing supplement as
published in H.15(519) under the caption "Commercial Paper-
Nonfinancial", or
(2) if the rate referred to in clause (1) is not published by 3:00
P.M., New York City time, on the related calculation date, the
Money Market Yield on the applicable Interest Determination Date of
the rate for commercial paper having the Index Maturity specified
in the applicable pricing supplement as published in H.15 Daily
Update, or other recognized electronic source used for the purpose
of displaying the applicable rate, under the caption "Commercial
Paper--Nonfinancial", or
(3) if the rate referred to in clause (2) is not published by 3:00
P.M., New York City time, on the related calculation date, the
Money Market Yield of the arithmetic mean of the offered rates,
calculated by the calculation agent, at approximately 11:00 A.M.,
New York City time, on the applicable Interest Determination Date
of three leading dealers of United States commercial paper in The
City of New York, which may include the agent and its affiliates,
selected by the calculation agent for commercial paper having the
Index Maturity specified in the applicable pricing supplement
placed for industrial issuers whose bond rating is "Aa", or the
equivalent, from a nationally recognized statistical rating
organization, or
(4) if the dealers selected by the calculation agent are not quoting as
mentioned in clause (3), the Commercial Paper Rate in effect on the
applicable Interest Determination Date.
"Money Market Yield" means a yield calculated in accordance with the
following formula and expressed as a percentage:
D X 360
Money Market Yield = ----------- X 100
360-(D X M)
where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the interest period for which interest is being
calculated.
Eleventh District Cost of Funds Rate. "Eleventh District Cost of Funds
Rate" means:
(1) the rate equal to the monthly weighted average cost of funds for
the calendar month immediately preceding the month in which the
applicable Interest Determination Date falls as set forth under
the caption "11th District" on the display on Bridge Telerate,
Inc., or any successor service, on page 7058 or any other page as
may replace page 7058 on that service
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("Telerate Page 7058") as of 11:00 A.M., San Francisco time, on the
applicable Interest Determination Date, or
(2) if the rate referred to in clause (1) does not appear on Telerate
Page 7058 on the related Interest Determination Date, the monthly
weighted average cost of funds paid by member institutions of the
Eleventh Federal Home Loan Bank District that was most recently
announced (the "Index") by the Federal Home Loan Bank of San
Francisco as the cost of funds for the calendar month immediately
preceding the applicable Interest Determination Date, or
(3) if the Federal Home Loan Bank of San Francisco fails to announce
the Index on or before the applicable Interest Determination Date
for the calendar month immediately preceding the applicable
Interest Determination Date, the Eleventh District Cost of Funds
Rate in effect on the applicable Interest Determination Date.
Federal Funds Rate. "Federal Funds Rate" means:
(1) the rate on the applicable Interest Determination Date for United
States dollar federal funds as published in H.15(519) under the
heading "Federal Funds (Effective)", as displayed on Bridge
Telerate, Inc. or any successor service on page 120 or any other
page as may replace the specified page on that service ("Telerate
Page 120"), or
(2) if the rate referred to in clause (1) does not appear on Telerate
Page 120 or is not published by 3:00 P.M., New York City time, on
the related calculation date, the rate on the applicable Interest
Determination Date for United States dollar federal funds as
published in H.15 Daily Update, or other recognized electronic
source used for the purpose of displaying the applicable rate,
under the caption "Federal Funds/Effective Rate", or
(3) if the rate referred to in clause (2) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the applicable Interest Determination Date calculated by
the calculation agent as the arithmetic mean of the rates for the
last transaction in overnight United States dollar federal funds
arranged by three leading brokers of United States federal funds
transactions in The City of New York, which may include the agent
or its affiliates, selected by the calculation agent before 9:00
A.M., New York City time, on the applicable Interest
Determination Date, or
(4) if the brokers selected by the calculation agent are not quoting
as mentioned in clause (3), the Federal Funds Rate in effect on
the applicable Interest Determination Date.
LIBOR. "LIBOR" means:
(1) if "LIBOR Telerate" is specified in the applicable pricing
supplement or if neither "LIBOR Reuters" nor "LIBOR Telerate" is
specified in the applicable pricing supplement as the method for
calculating LIBOR, LIBOR will be the rate for deposits in the
LIBOR Currency, as defined below, having the Index Maturity
specified in the applicable pricing supplement, commencing on the
related Interest Reset Date, that appears on the Designated LIBOR
Page, as defined below, as of 11:00 A.M., London time, on the
applicable Interest Determination Date, or
(2) if "LIBOR Reuters" is specified in the applicable pricing
supplement, LIBOR will be the arithmetic mean of the offered
rates for deposits in the LIBOR Currency having the Index
Maturity specified in the applicable pricing supplement,
commencing on the related Interest Reset Date, that appear on the
Designated LIBOR Page specified in the applicable pricing
supplement as of 11:00 A.M., London time, on the applicable
Interest Determination Date. If the Designated LIBOR Page by its
terms provides only for a single rate, then the single rate will
be used, or
S-17
(3) with respect to an Interest Determination Date on which fewer
than two offered rates appear, or no rate appears, as the case
may be, on the Designated LIBOR Page as specified in clauses (1)
and (2), respectively, the rate calculated by the calculation
agent as the arithmetic mean of at least two quotations obtained
by the calculation agent after requesting the principal London
offices of each of four major reference banks, which may include
affiliates of the agent, in the London interbank market to
provide the calculation agent with its offered quotation for
deposits in the LIBOR Currency for the period of the Index
Maturity specified in the applicable pricing supplement,
commencing on the related Interest Reset Date, to prime banks in
the London interbank market at approximately 11:00 A.M., London
time, on the applicable Interest Determination Date and in a
principal amount that is representative for a single transaction
in the applicable LIBOR Currency in that market at that time, or
(4) if fewer than two quotations referred to in clause (3) are
provided, the rate on the applicable Interest Determination Date
calculated by the calculation agent as the arithmetic mean of the
rates quoted at approximately 11:00 A.M., in the applicable
Principal Financial Center, on the applicable Interest
Determination Date by three major banks, which may include
affiliates of the agent, in the applicable Principal Financial
Center selected by the calculation agent for loans in the LIBOR
Currency to leading European banks, having the Index Maturity
specified in the applicable pricing supplement and in a principal
amount that is representative for a single transaction in the
applicable LIBOR Currency in that market at that time, or
(5) if the banks selected by the calculation agent are not quoting as
mentioned in clause (4), LIBOR in effect on the applicable
Interest Determination Date.
"LIBOR Currency" means the currency specified in the applicable pricing
supplement as to which LIBOR will be calculated or, if no currency is
specified in the applicable pricing supplement, United States dollars.
"Designated LIBOR Page" means either:
. if "LIBOR Telerate" is designated in the applicable pricing
supplement or neither "LIBOR Reuters" nor "LIBOR Telerate" is
specified in the applicable pricing supplement as the method for
calculating LIBOR, the display on Bridge Telerate, Inc. or any
successor service on the page specified in such pricing supplement
or any page as may replace the specified page on that service for
the purpose of displaying the London interbank rates of major banks
for the applicable LIBOR Currency, or
. if "LIBOR Reuters" is specified in the applicable pricing
supplement, the display on the Reuter Monitor Money Rates Service or
any successor service on the page specified in the applicable
pricing supplement or any other page as may replace the specified
page on that service for the purpose of displaying the London
interbank rates of major banks for the applicable LIBOR Currency.
Prime Rate. "Prime Rate" means:
(1) the rate on the applicable Interest Determination Date as
published in H.15(519) under the heading "Bank Prime Loan", or
(2) if the rate referred to in clause (1) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the applicable Interest Determination Date published as
H.15 Daily Update, or such other recognized electronic source
used for the purpose of displaying the applicable rate under the
caption "Bank Prime Loan", or
(3) if the rate referred to in clause (2) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate calculated by the calculation agent as the arithmetic mean
of the rates of interest publicly announced by each bank that
appears on the Reuters Screen US
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PRIME 1 Page, as defined below, as the particular bank's prime
rate or base lending rate as of 11:00 A.M., New York City time, on
the applicable Interest Determination Date, or
(4) if fewer than four rates referred to in clause (3) appear on
Reuters Screen US Prime 1 Page by 3:00 P.M., New York City time,
on the related calculation date, the rate on the applicable
Interest Determination Date calculated by the calculation agent
as the arithmetic mean of the prime rates or base lending rates
quoted on the basis of the actual number of days in the year
divided by a 360-day year as of the close of business on the
applicable Interest Determination Date by three major banks,
which may include affiliates of the agent, in The City of New
York selected by the calculation agent, or
(5) if the banks selected by the calculation agent are not quoting as
mentioned in clause (4), the Prime Rate in effect on the
applicable Interest Determination Date.
"Reuters Screen US PRIME 1 Page" means the display on the Reuter Monitor
Money Rates Service or any successor service on the "US PRIME 1" Page or other
page as may replace the US PRIME 1 Page on that service for the purpose of
displaying prime rates or base lending rates of major United States banks.
Treasury Rate. Treasury Rate Notes will bear interest at the rates,
calculated with reference to the Treasury Rate and the Spread and/or Spread
Multiplier, if any, specified in the applicable Treasury Rate Notes and in any
applicable pricing supplement.
"Treasury Rate" means:
(1) the rate from the auction held on the applicable Interest
Determination Date (the "Auction") of direct obligations of the
United States ("Treasury Bills") having the Index Maturity
specified in the applicable pricing supplement as published under
the caption "INVESTMENT RATE" on the display on Bridge Telerate,
Inc. or any successor service on page 56 or any other page as may
replace page 56 on that service ("Telerate Page 56") or page 57
or any other page as may replace page 57 on that service
("Telerate Page 57"), or
(2) if the rate referred to in clause (1) is not published by 3:00
P.M., New York City time, on the related calculation date, the
Bond Equivalent Yield, as defined below, of the rate for the
applicable Treasury Bills as published in H.15 Daily Update, or
other recognized electronic source used for the purpose of
displaying the applicable rate, under the caption "U.S.
Government Securities/Treasury Bills/Auction High", or
(3) if the rate referred to in clause (2) is not published by 3:00
P.M., New York City time, on the related calculation date, the
Bond Equivalent Yield of the auction rate of the applicable
Treasury Bills announced by the United States Department of the
Treasury, or
(4) if the rate referred to in clause (3) is not announced by the
United States Department of the Treasury, or if the Auction is
not held, the Bond Equivalent Yield of the rate on the applicable
Interest Determination Date of the applicable Treasury Bills
published in H.15(519) under the caption "U.S. Government
Securities/Treasury Bills/Secondary Market", or
(5) if the rate referred to in clause (4) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the applicable Interest Determination Date of the
applicable Treasury Bills as published in H.15 Daily Update, or
other recognized electronic source used for the purpose of
displaying the applicable rate, under the caption "U.S.
Government Securities/Treasury Bills/Secondary Market", or
(6) if the rate referred to in clause (5) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the applicable Interest Determination Date calculated by
the calculation agent as the Bond Equivalent Yield of the
arithmetic mean of the secondary market bid rates, as of
approximately 3:30 P.M., New York City time, on the applicable
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Interest Determination Date, of three primary United States
government securities dealers, which may include the agent or its
affiliates, selected by the calculation agent, for the issue of
Treasury Bills with a remaining maturity closest to the Index
Maturity specified in the applicable pricing supplement, or
(7) if the dealers selected by the calculation agent are not quoting
as mentioned in clause (6), the Treasury Rate in effect on the
applicable Interest Determination Date.
"Bond Equivalent Yield" means a yield calculated in accordance with the
following formula and expressed as a percentage:
Bond Equivalent Yield = D X N X 100
-----------
360-(D X M)
where "D" refers to the applicable per annum rate for Treasury Bills quoted on
a bank discount basis and expressed as a decimal, "N" refers to 365 or 366, as
the case may be, and "M" refers to the actual number of days in the interest
period for which interest is being calculated.
Other Provisions; Addenda
Any provisions with respect to an issue of notes, including the
determination of one or more Interest Rate Bases, the specification of one or
more Interest Rate Bases, the calculation of the interest rate applicable to a
floating rate note, the applicable interest payment dates, the stated maturity
date, any redemption or repayment provisions or any other matter relating to
the applicable notes may be modified by the terms as specified under "Other
Provisions" on the face of the applicable notes or in an Addendum relating to
the applicable notes, if so specified on the face of the applicable notes and
in the applicable pricing supplement.
Original Issue Discount Notes
ML&Co. may from time to time offer notes at a price less than their
redemption price at Maturity, resulting in the applicable notes being treated
as if they were issued with original issue discount for federal income tax
purposes ("Original Issue Discount Notes"). Original Issue Discount Notes may
currently pay no interest or interest at a rate which at the time of issuance
is below market rates. Additional considerations relating to any Original
Issue Discount Notes will be specified in the applicable pricing supplement.
Amortizing Notes
ML&Co. may from time to time offer notes ("Amortizing Notes"), with
amounts of principal and interest payable in installments over the term of the
notes. Unless otherwise specified in the applicable pricing supplement,
interest on each Amortizing Note will be computed on the basis of a 360-day
year of twelve 30-day months. Payments with respect to Amortizing Notes will
be applied first to interest due and payable on the Amortizing Notes and then
to the reduction of the unpaid principal amount of the Amortizing Notes.
Further information concerning additional terms and conditions of any issue of
Amortizing Notes will be specified in the applicable pricing supplement. A
table setting forth repayment information in respect of each Amortizing Note
will be specified in the applicable pricing supplement.
Linked Notes
ML&Co. may from time to time offer notes ("Linked Notes") the principal
value of which at Maturity will be determined by reference to:
(a) one or more equity or debt securities, including, but not limited
to, the price or yield of such securities,
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(b) any statistical measure of economic or financial performance,
including, but not limited to, any currency, consumer price or
mortgage index, or
(c) the price or value of any commodity or any other item or index or
any combination,
(collectively, the "Linked Securities"). The payment or delivery of any
consideration on any Linked Note at Maturity will be determined by the
decrease or increase, as applicable, in the price or value of the applicable
Linked Securities. The terms of and any additional considerations, including
any material tax consequences, relating to any Linked Notes will be specified
in the applicable pricing supplement.
Extendible Maturity Notes
ML&Co. may from time to time offer notes ("Extendible Maturity Notes")
with the option to extend the maturity of the notes to one or more dates
indicated in the notes and the applicable pricing supplement. The terms of and
any additional considerations relating to any Extendible Maturity Notes will
be specified in the applicable pricing supplement.
Book-Entry Notes
Description of the Global Securities
Upon issuance, all notes in book-entry form having the same date of
issue, Maturity and otherwise having identical terms and provisions will be
represented by one or more fully registered global notes (the "Global Notes").
Each Global Note will be deposited with, or on behalf of, The Depository Trust
Company as depository registered in the name of the depository or a nominee of
the depository. Unless and until it is exchanged in whole or in part for notes
in certificated form, no Global Note may be transferred except as a whole by
the depository to a nominee of the depository or by a nominee of the
depository to the depository or another nominee of the depository or by the
depository or any such nominee to a successor of the depository or a nominee
of the successor.
DTC Procedures
The following is based on information furnished by the depository:
The depository will act as securities depository for the notes in book-
entry form. The notes in book-entry form will be issued as fully registered
securities registered in the name of Cede & Co., the depository's partnership
nominee. One fully registered Global Note will be issued for each issue of
notes in book-entry form, each in the aggregate principal amount of the issue,
and will be deposited with the depository. If, however, the aggregate
principal amount of any issue exceeds $400,000,000, one Global Note will be
issued with respect to each $400,000,000 of principal amount and an additional
Global Note will be issued with respect to any remaining principal amount of
the issue.
The depository is a limited-purpose trust company organized under the
New York Banking Law, a "banking organization" within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. The depository holds securities that its participants deposit
with the depository. The depository also facilitates the settlement among
participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct participants of the depository include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. The depository is owned by a number of its
direct participants and by the New York Stock Exchange, Inc., the American
Stock Exchange, Inc., and the National Association of Securities Dealers, Inc.
Access to the depository's system is also available
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to others such as securities brokers and dealers, banks and trust companies
that clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly. The rules applicable to the
depository and its participants are on file with the SEC.
Purchasers of notes in book-entry form under the depository's system must
be made by or through direct participants, which will receive a credit for
those notes in book-entry form on the depository's records. The ownership
interest of each actual purchaser of each note in book-entry form represented
by a Global Note is, in turn, to be recorded on the records of direct
participants and indirect participants. Beneficial owners in book-entry form
will not receive written confirmation from the depository of their purchase,
but beneficial owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their holdings,
from the direct participants or indirect participants through which the
beneficial owner entered into the transaction. Transfers of ownership interests
in a Global Note representing notes in book-entry form are to be accomplished
by entries made on the books of participants acting on behalf of beneficial
owners. Beneficial owners of a Global Note representing notes in book-entry
form will not receive notes in certificated form representing their ownership
interests therein, except in the event that use of the book-entry system for
such notes in book-entry form is discontinued.
To facilitate subsequent transfers, all Global Notes representing notes
in book-entry form which are deposited with, or on behalf of, the depository
are registered in the name of the depository's nominee, Cede & Co. The deposit
of Global Notes with, or on behalf of, the depository and their registration in
the name of Cede & Co. effect no change in beneficial ownership. The depository
has no knowledge of the actual beneficial owners of the Global Notes
representing the notes in book-entry form; the depository's records reflect
only the identity of the direct participants to whose accounts such notes in
book-entry form are credited, which may or may not be the beneficial owners.
The participants will remain responsible for keeping account of their holdings
on behalf of their customers.
Conveyance of notices and other communications by the depository to
direct participants, by direct participants to indirect participants, and by
direct participants and indirect participants to beneficial owners, will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Neither the depository nor Cede & Co. will consent or vote with respect
to the Global Notes representing the notes in book-entry form. Under its usual
procedures, the depository mails an omnibus proxy to ML&Co. as soon as possible
after the applicable record date. The omnibus proxy assigns Cede & Co.'s
consenting or voting rights to those direct participants, identified in a
listing attached to the omnibus proxy, to whose accounts the notes in book-
entry form are credited on the applicable record date.
ML&Co. will make principal, premium, if any, and/or interest, if any,
payments on the Global Notes representing the notes in book-entry form in
immediately available funds to the depository. The depository's practice is to
credit direct participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the depository's records
unless the depository has reason to believe that it will not receive payment on
the applicable payment date. Payments by participants to beneficial owners will
be governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or registered
in "street name", and will be the responsibility of the applicable participant
and not of the depository, the trustee or ML&Co., subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
principal, premium, if any, and/or interest, if any, to the depository is the
responsibility of ML&Co. and the trustee, disbursement of payments to direct
participants will be the responsibility of the depository, and disbursement of
payments to the beneficial owners will be the responsibility of direct
participants and indirect participants.
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If applicable, redemption notices shall be sent to Cede & Co. If less
than all of the notes in book-entry form of like tenor and terms are being
redeemed, the depository's practice is to determine by lot the amount of the
interest of each direct participant in the issue to be redeemed.
A beneficial owner will give notice of any option to elect to have its
notes in book-entry form repaid by ML&Co., through its participant, to the
trustee, and will effect delivery of the applicable notes in book-entry form by
causing the direct participant to transfer the participant's interest in the
Global Note notes in book-entry form, on the depository's records, to the
trustee.
The depository may discontinue providing its services as securities
depository with respect to the notes in book-entry form at any time by giving
reasonable notice to ML&Co. or the trustee. In the event that a successor
securities depository is not obtained, notes in certificated form are required
to be printed and delivered.
ML&Co. may decide to discontinue use of the system of book-entry
transfers through the depository or a successor securities depository. In that
event, notes in certificated form will be printed and delivered.
The laws of some states may require that certain purchasers of securities
take physical delivery of securities in definitive form. Such limits and such
laws may impair the ability to own, transfer or pledge beneficial interests in
Global Notes.
So long as the depository, or its nominee, is the registered owner of a
Global Note, the depository or its nominee, as the case may be, will be
considered the sole owner or holder of the notes represented by such Global
Note for all purposes under the 1993 Indenture. Except as provided below,
beneficial owners of a Global Note will not be entitled to have the notes
represented by a Global Note registered in their names, will not receive or be
entitled to receive physical delivery of the notes in definitive form and will
not be considered the owners or holders thereof under the 1993 Indenture.
Accordingly, each person owning a beneficial interest in a Global Note must
rely on the procedures of the depository and, if that person is not a
participant, on the procedures of the participant through which that person
owns its interest, to exercise any rights of a holder under the 1993 Indenture.
ML&Co. understands that under existing industry practices, in the event that
ML&Co. requests any action of holders or that an owner of a beneficial interest
in a Global Note desires to give or take any action which a holder is entitled
to give or take under the 1993 Indenture, the depository would authorize the
participants holding the relevant beneficial interests to give or take the
desired action, and the participants would authorize beneficial owners owning
through the participants to give or take the desired action or would otherwise
act upon the instructions of beneficial owners.
Exchange for Notes in Certificated Form
If:
(a) the depository is at any time unwilling or unable to continue as
depository and a successor depository is not appointed by ML&Co.
within 60 days,
(b) ML&Co. executes and delivers to the trustee a company order to the
effect that the Global Notes shall be exchangeable, or
(c) an Event of Default has occurred and is continuing with respect to
the notes,
the Global Note or Global Notes will be exchangeable for notes in certificated
form of like tenor and of an equal aggregate principal amount, in denominations
of $1,000 and integral multiples of $1,000. The certificated notes will be
registered in the name or names as the depository instructs the trustee. It is
expected that instructions may be based upon directions received by the
depository from participants with respect to ownership of beneficial interests
in Global Notes.
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The information in this section concerning the depository and the
depository's system has been obtained from sources that ML&Co. believes to be
reliable, but ML&Co. takes no responsibility for the accuracy of the
information.
UNITED STATES FEDERAL INCOME TAXATION
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change, including changes in effective dates, or possible differing
interpretations. It deals only with notes held as capital assets and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, regulated investment companies, dealers in
securities or currencies, persons holding notes as a hedge against currency
risks or as a position in a "straddle" for tax purposes, or persons whose
functional currency is not the United States dollar. It also does not deal with
holders other than original purchasers, except where otherwise specifically
noted. Persons considering the purchase of the notes should consult their own
tax advisors concerning the application of United States Federal income tax
laws to their particular situations as well as any consequences of the
purchase, ownership and disposition of the notes arising under the laws of any
other taxing jurisdiction.
As used in this prospectus, the term "U.S. Holder" means a beneficial
owner of a note that is for United States Federal income tax purposes:
(1) a citizen or resident of the United States,
(2) 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),
(3) an estate whose income is subject to United States Federal income
tax regardless of its source,
(4) 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
(5) 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 (4) above in existence on August 20,
1996 that elect to be treated as a United States person will also be a U.S.
Holder for purposes of the following discussion. As used herein, the term "non-
U.S. Holder" means a beneficial owner of a note that is not a U.S. Holder.
U.S. Holders
Payments of Interest. Payments of interest on a note generally will be
taxable to a U.S. Holder as ordinary interest income at the time such payments
are accrued or are received (in accordance with the U.S. Holder's regular
method of tax accounting).
Original Issue Discount. The following summary is a general discussion of
the United States Federal income tax consequences to U.S. Holders of the
purchase, ownership and disposition of notes issued with original issue
discount ("Discount Notes"). The following summary is based upon final Treasury
regulations (the "OID Regulations") released by the Internal Revenue Service on
January 27, 1994, as amended on June 11, 1996, under the original issue
discount provisions of the Code.
S-24
For United States Federal income tax purposes, original issue discount is
the excess of the stated redemption price at maturity of a note over its issue
price, if such excess equals or exceeds a de minimis amount (generally 1/4 of
1% of the note's stated redemption price at maturity multiplied by the number
of complete years to its maturity from its issue date or, in the case of a note
providing for the payment of any amount other than qualified stated interest
(as defined below) prior to maturity, multiplied by the weighted average
maturity of the note). The issue price of each note of an issue of notes equals
the first price at which a substantial amount of the notes has been sold
(ignoring sales to bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters, placement agents, or wholesalers). The
stated redemption price at maturity of a note is the sum of all payments
provided by the note other than "qualified stated interest" payments. The term
"qualified stated interest" generally means stated interest that is
unconditionally payable in cash or property (other than debt instruments of the
issuer) at least annually at a single fixed rate. In addition, under the OID
Regulations, if a note bears interest for one or more accrual periods at a rate
below the rate applicable for the remaining term of the note (e.g., notes with
teaser rates or interest holidays), and if the greater of either the resulting
foregone interest on the note or any "true" discount on the note (i.e., the
excess of the note's stated principal amount over its issue price) equals or
exceeds a specified de minimis amount, then the stated interest on the note
would be treated as original issue discount rather than qualified stated
interest.
Payments of qualified stated interest on a note are taxable to a U.S.
Holder as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting). A U.S. Holder of a Discount Note must include original issue
discount in income as ordinary interest for United States Federal income tax
purposes as it accrues under a constant yield method in advance of receipt of
the cash payments attributable to such income, regardless of the U.S. Holder's
regular method of tax accounting. In general, the amount of original issue
discount included in income by the initial U.S. Holder of a Discount Note is
the sum of the daily portions of original issue discount with respect to the
Discount Note for each day during the taxable year (or portion of the taxable
year) on which the U.S. Holder held the Discount Note. The "daily portion" of
original issue discount on any Discount Note is determined by allocating to
each day in any accrual period a ratable portion of the original issue discount
allocable to that accrual period. An "accrual period" may be of any length and
the accrual periods may vary in length over the term of the Discount Note,
provided that each accrual period is no longer than one year and each scheduled
payment of principal or interest occurs either on the final day of an accrual
period or on the first day of an accrual period. The amount of original issue
discount allocable to each accrual period is generally equal to the difference
between
. the product of the Discount Note's adjusted issue price at the
beginning of such accrual period and its yield to maturity
(determined on the basis of compounding at the close of each
accrual period and appropriately adjusted to take into account
the length of the particular accrual period) and
. the amount of any qualified stated interest payments allocable
to such accrual period.
The "adjusted issue price" of a Discount Note at the beginning of any accrual
period is the sum of the issue price of the Discount Note plus the amount of
original issue discount allocable to all prior accrual periods minus the amount
of any prior payments on the Discount Note that were not qualified stated
interest payments. Under these rules, U.S. Holders generally will have to
include in income increasingly greater amounts of original issue discount in
successive accrual periods.
A U.S. Holder who purchases a Discount Note for an amount that is greater
than its adjusted issue price as of the purchase date and less than or equal to
the sum of all amounts payable on the Discount Note after the purchase date
other than payments of qualified stated interest, will be considered to have
purchased the Discount Note at an "acquisition premium". Under the acquisition
premium rules, the amount of original issue discount which such U.S. Holder
must include in its gross income with respect to such Discount Note for any
taxable year (or portion thereof in which the U.S. Holder holds the Discount
Note) will be reduced (but not below zero) by the portion of the acquisition
premium properly allocable to the period.
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Under the OID Regulations, Floating Rate Notes and Indexed Notes
(hereinafter "Variable Notes") are subject to special rules whereby a Variable
Note will qualify as a "variable rate debt instrument" if
. its issue price does not exceed the total noncontingent
principal payments due under the Variable Note by more than a
specified de minimis amount and
. it provides for stated interest, paid or compounded at least
annually, at current values of:
. one or more qualified floating rates,
. a single fixed rate and one or more qualified floating
rates,
. a single objective rate, or
. a single fixed rate and a single objective rate that is a
qualified inverse floating rate.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Note is denominated. Although a multiple of a qualified floating rate
will generally not itself constitute a qualified floating rate, a variable rate
equal to the product of a qualified floating rate and a fixed multiple that is
greater than .65 but not more than 1.35 will constitute a qualified floating
rate. A variable rate equal to the product of a qualified floating rate and a
fixed multiple that is greater than .65 but not more than 1.35, increased or
decreased by a fixed rate, will also constitute a qualified floating rate. In
addition, under the OID Regulations, two or more qualified floating rates that
can reasonably be expected to have approximately the same values throughout the
term of the Variable Note (e.g., two or more qualified floating rates with
values within 25 basis points of each other as determined on the Variable
Note's issue date) will be treated as a single qualified floating rate.
Notwithstanding the foregoing, a variable rate that would otherwise constitute
a qualified floating rate but which is subject to one or more restrictions such
as a maximum numerical limitation (i.e., a cap) or a minimum numerical
limitation (i.e., a floor) may, under certain circumstances, fail to be treated
as a qualified floating rate under the OID Regulations unless such cap or floor
is fixed throughout the term of the note. An "objective rate" is a rate that is
not itself a qualified floating rate but which is determined using a single
fixed formula that is based on objective financial or economic information. A
rate will not qualify as an objective rate if it is based on information that
is within the control of the issuer (or a related party) or that is unique to
the circumstances of the issuer (or a related party), such as dividends,
profits, or the value of the issuer's stock (although a rate does not fail to
be an objective rate merely because it is based on the credit quality of the
issuer). A "qualified inverse floating rate" is any objective rate where such
rate is equal to a fixed rate minus a qualified floating rate, as long as
variations in the rate can reasonably be expected to inversely reflect
contemporaneous variations in the qualified floating rate. The OID Regulations
also provide that if a Variable Note provides for stated interest at a fixed
rate for an initial period of one year or less followed by a variable rate that
is either a qualified floating rate or an objective rate and if the variable
rate on the Variable Note's issue date is intended to approximate the fixed
rate (e.g., the value of the variable rate on the issue date does not differ
from the value of the fixed rate by more than 25 basis points), then the fixed
rate and the variable rate together will constitute either a single qualified
floating rate or objective rate, as the case may be.
If a Variable Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OID Regulations, and
if the interest on a Variable Note is unconditionally payable in cash or
property (other than debt instruments of the issuer) at least annually, then
all stated interest on the Variable Note will constitute qualified stated
interest and will be taxed accordingly. Thus, a Variable Note that provides for
stated interest at either a single qualified floating rate or a single
objective rate throughout the term thereof and that qualifies as a "variable
rate debt instrument" under the OID Regulations will generally not be treated
as having been issued with original issue discount unless the Variable Note is
issued at a "true" discount (i.e., at a price below the Variable Note's stated
principal amount) in excess of a specified de minimis amount. The amount of
qualified stated interest and the amount of original issue discount, if any,
that accrues during an accrual period on such a
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Variable Note is determined under the rules applicable to fixed rate debt
instruments by assuming that the variable rate is a fixed rate equal to
(1) in the case of a qualified floating rate or qualified inverse
floating rate, the value as of the issue date, of the qualified
floating rate or qualified inverse floating rate, or
(2) in the case of an objective rate (other than a qualified inverse
floating rate), a fixed rate that reflects the yield that is
reasonably expected for the Variable Note.
The qualified stated interest allocable to an accrual period is increased (or
decreased) if the interest actually paid during an accrual period exceeds (or
is less than) the interest assumed to be paid during the accrual period
pursuant to the foregoing rules.
In general, any other Variable Note that qualifies as a "variable rate
debt instrument" will be converted into an "equivalent" fixed rate debt
instrument for purposes of determining the amount and accrual of original issue
discount and qualified stated interest on the Variable Note. The OID
Regulations generally require that such a Variable Note be converted into an
"equivalent" fixed rate debt instrument by substituting any qualified floating
rate or qualified inverse floating rate provided for under the terms of the
Variable Note with a fixed rate equal to the value of the qualified floating
rate or qualified inverse floating rate, as the case may be, as of the Variable
Note's issue date. Any objective rate (other than a qualified inverse floating
rate) provided for under the terms of the Variable Note is converted into a
fixed rate that reflects the yield that is reasonably expected for the Variable
Note. In the case of a Variable Note that qualifies as a "variable rate debt
instrument" and provides for stated interest at a fixed rate in addition to
either one or more qualified floating rates or a qualified inverse floating
rate, the fixed rate is initially converted into a qualified floating rate (or
a qualified inverse floating rate, if the Variable Note provides for a
qualified inverse floating rate). Under such circumstances, the qualified
floating rate or qualified inverse floating rate that replaces the fixed rate
must be such that the fair market value of the Variable Note as of the Variable
Note's issue date is approximately the same as the fair market value of an
otherwise identical debt instrument that provides for either the qualified
floating rate or qualified inverse floating rate rather than the fixed rate.
Subsequent to converting the fixed rate into either a qualified floating rate
or a qualified inverse floating rate, the Variable Note is then converted into
an "equivalent" fixed rate debt instrument in the manner described above.
Once the Variable Note is converted into an "equivalent" fixed rate debt
instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a U.S. Holder
of the Variable Note will account for such original issue discount and
qualified stated interest as if the U.S. Holder held the "equivalent" fixed
rate debt instrument. Each accrual period appropriate adjustments will be made
to the amount of qualified stated interest or original issue discount assumed
to have been accrued or paid with respect to the "equivalent" fixed rate debt
instrument in the event that such amounts differ from the actual amount of
interest accrued or paid on the Variable Note during the accrual period.
If a Variable Note does not qualify as a "variable rate debt instrument"
under the OID Regulations, then the Variable Note would be treated as a
contingent payment debt obligation. On June 11, 1996, the Treasury Department
issued final regulations (the "CPDI Regulations") concerning the proper United
States Federal income tax treatment of contingent payment debt instruments. In
general, the CPDI Regulations would cause the timing and character of income,
gain or loss reported on a contingent payment debt instrument to substantially
differ from the timing and character of income, gain or loss reported on a
contingent payment debt instrument under general principles of current United
States Federal income tax law. Specifically, the CPDI Regulations generally
require a U.S. Holder of such an instrument to include future contingent and
noncontingent interest payments in income as such interest accrues based upon a
projected payment schedule. Moreover, in general, under the CPDI Regulations,
any gain recognized by a U.S. Holder on the sale, exchange, or retirement of a
contingent payment debt instrument will be treated as ordinary income and all
or a
S-27
portion of any loss realized could be treated as ordinary loss as opposed to
capital loss (depending upon the circumstances). The CPDI Regulations apply to
debt instruments issued on or after August 13, 1996. The proper United States
Federal income tax treatment of Variable Notes that are treated as contingent
payment debt obligations will be more fully described in the applicable pricing
supplement. Furthermore, any other special United States Federal income tax
considerations, not otherwise discussed herein, which are applicable to any
particular issue of notes will be discussed in the applicable pricing
supplement.
ML&Co. may issue notes which;
. may be redeemable at the option of ML&Co. prior to their stated
maturity (a "call option") and/or
. may be repayable at the option of the holder prior to their
stated maturity (a "put option").
Notes containing such features may be subject to rules that differ from the
general rules discussed above. Investors intending to purchase notes with such
features should consult their own tax advisors, since the original issue
discount consequences will depend, in part, on the particular terms and
features of the purchased notes.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions.
Foreign-Currency Notes. The United States Federal income tax consequences
of the purchase, ownership and disposition of notes providing for payments
denominated in a currency other than U.S. dollars will be more fully described
in the applicable pricing supplement.
Short-Term Notes. Notes that have a fixed maturity of one year or less
("Short-Term Notes") will be treated as having been issued with original issue
discount. In general, an individual or other cash method U.S. Holder is not
required to accrue such original issue discount unless the U.S. Holder elects
to do so. If such an election is not made, any gain recognized by the U.S.
Holder on the sale, exchange or maturity of the Short-Term Note will be
ordinary income to the extent of the original issue discount accrued on a
straight-line basis, or upon election under the constant yield method (based on
daily compounding), through the date of sale or maturity, and a portion of the
deductions otherwise allowable to the U.S. Holder for interest on borrowings
allocable to the Short-Term Note will be deferred until a corresponding amount
of income is realized. U.S. Holders who report income for United States Federal
income tax purposes under the accrual method, and certain other holders
including banks and dealers in securities, are required to accrue original
issue discount on a Short-Term Note on a straight-line basis unless an election
is made to accrue the original issue discount under a constant yield method
(based on daily compounding).
Market Discount. If a U.S. Holder purchases a note, other than a Discount
Note, for an amount that is less than its issue price (or, in the case of a
subsequent purchaser, its stated redemption price at maturity) or, in the case
of a Discount Note, for an amount that is less than its adjusted issue price as
of the purchase date, such U.S. Holder will be treated as having purchased the
note at a "market discount", unless such market discount is less than a
specified de minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat
any partial principal payment (or, in the case of a Discount Note, any payment
that does not constitute qualified stated interest) on, or any gain realized on
the sale, exchange, retirement or other disposition of, a note as ordinary
income to the extent of the lesser of:
. the amount of such payment or realized gain or
S-28
. the market discount which has not previously been included in
income and is treated as having accrued on the note at the time
of such payment or disposition.
Market discount will be considered to accrue ratably during the period from the
date of acquisition to the maturity date of the note, unless the U.S. Holder
elects to accrue market discount on the basis of semiannual compounding.
A U.S. Holder may be required to defer the deduction of all or a portion
of the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a note with market discount until the maturity of the Note or
certain earlier dispositions, because a current deduction is only allowed to
the extent the interest expense exceeds an allocable portion of market
discount. A U.S. Holder may elect to include market discount in income
currently as it accrues (on either a ratable or semiannual compounding basis),
in which case the rules described above regarding the treatment as ordinary
income of gain upon the disposition of the note and upon the receipt of certain
cash payments and regarding the deferral of interest deductions will not apply.
Generally, such currently included market discount is treated as ordinary
interest for United States Federal income tax purposes. Such an election will
apply to all debt instruments acquired by the U.S. Holder on or after the first
day of the taxable year to which such election applies and may be revoked only
with the consent of the IRS.
Premium. If a U.S. Holder purchases a note for an amount that is greater
than the sum of all amounts payable on the note after the purchase date other
than payments of qualified stated interest, the U.S. Holder will be considered
to have purchased the note with "amortizable bond premium" equal in amount to
such excess. A U.S. Holder may elect to amortize such premium using a constant
yield method over the remaining term of the note and may offset interest
otherwise required to be included in respect of the note during any taxable
year by the amortized amount of such excess for the taxable year. However, if
the note may be optionally redeemed after the U.S. Holder acquires it at a
price in excess of its stated redemption price at maturity, special rules would
apply which could result in a deferral of the amortization of some bond premium
until later in the term of the note. Any election to amortize bond premium
applies to all taxable debt obligations then owned and thereafter acquired by
the U.S. Holder and may be revoked only with the consent of the IRS.
Disposition of a Note. Except as discussed above, upon the sale, exchange
or retirement of a note, a U.S. Holder generally will recognize taxable gain or
loss equal to the difference between the amount realized on the sale, exchange
or retirement (other than amounts representing accrued and unpaid interest) and
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 the U.S. Holder's initial investment in
the note increased by any original issue discount included in income (and
accrued market discount, if any, if the U.S. Holder has included such market
discount in income) and decreased by the amount of any payments, other than
qualified stated interest payments, received and amortizable bond premium taken
with respect to the note. Such gain or loss generally will be long-term capital
gain or loss if the note were held for more than one year. Long-term capital
gains of individuals are subject to reduced capital gain rates while short-term
capital gains are subject to ordinary income rates. The deductibility of
capital losses is subject to certain limitations. Prospective investors should
consult their own tax advisors concerning these tax law provisions.
Non-U.S. Holders
A non-U.S. Holder will not be subject to United States Federal income
taxes on payments of principal, premium (if any) or interest (including
original issue discount, if any) on a note, unless such non-U.S. Holder is a
direct or indirect 10% or greater shareholder of ML&Co., a controlled foreign
corporation related to ML&Co. or a bank receiving interest described in section
881(c)(3)(A) of the Code. To qualify for the exemption from taxation, the last
United States payor in the chain of payment prior to payment to a non-U.S.
Holder (the "Withholding Agent") must have received in the year in which a
payment of interest or principal occurs, or in either of the two preceding
calendar years, a statement that (1) is signed by the beneficial owner of the
note
S-29
under penalties of perjury, (2) certifies that such owner is not a U.S. Holder
and (3) provides the name and address of the beneficial owner. The statement
may be made on an IRS Form W-8, IRS Form W-8 BEN or a substantially similar
form, and the beneficial owner must inform the Withholding Agent of any change
in the information on the statement within 30 days of such change. If a note is
held through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8, IRS Form W-8 BEN or the substitute
form provided by the beneficial owner to the organization or institution. The
Treasury Department is considering implementation of further certification
requirements aimed at determining whether the issuer of a debt obligation is
related to holders thereof. To claim an exemption from United States
withholding for interest or proceeds from sale paid after December 31, 2000, a
non-U.S. Holder may no longer use the IRS Form W-8 to certify its status as a
non-U.S. Holder.
On October 6, 1997, the Treasury issued new regulations (the "New
Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
2000, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations. After December
31, 2000, interest accrued under the OID Regulations will not be subject to
withholding upon sale or exchange (other than a redemption) of a note unless
the Withholding Agent knows or has reason to know that such instrument was sold
with the principal purpose of avoiding tax.
Generally, a non-U.S. Holder will not be subject to United States Federal
income taxes on any amount which constitutes capital gain upon retirement or
disposition of a note, provided the gain is not effectively connected with the
conduct of a trade or business in the United States by the non-U.S. Holder.
Certain other exceptions may be applicable, and a non-U.S. Holder should
consult its tax advisor in this regard.
The notes will not be includible in the estate of a non-U.S. Holder
unless the individual is a direct or indirect 10% or greater shareholder of
ML&Co. or, at the time of such individual's death, payments in respect of the
notes would have been effectively connected with the conduct by such individual
of a trade or business in the United States.
Backup Withholding
Backup withholding of United States Federal income tax at a rate of 31%
may apply to payments made in respect of the notes to registered owners who are
not "exempt recipients" and who fail to provide certain identifying
information, such as the registered owner's taxpayer identification number, in
the required manner.
Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the notes to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance with
the identification procedures described in the preceding section would
establish an exemption from backup withholding for those non-U.S. Holders who
are not exempt recipients.
In addition, upon the sale of a note to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either:
. the broker determines that the seller is a corporation or other
exempt recipient or
. the seller provides, in the required manner, certain
identifying information and, in the case of a non-U.S. Holder,
certifies that such seller is a non-U.S. Holder (and certain
other conditions are met).
S-30
Such a sale must also be reported by the broker to the IRS, unless
either:
. the broker determines that the seller is an exempt recipient or
. the seller certifies its non-U.S. status (and certain other
conditions are met).
After December 31, 2000, interest accrued under the OID Regulations will not be
subject to withholding upon sale or exchange (other than a redemption) of a
note unless the Withholding Agent knows or has reason to know that such
instrument was sold with the principal purpose of avoiding tax. Certification
of the registered owner's non-U.S. status would be made normally on an IRS Form
W-8, IRS Form W-8 BEN under penalties of perjury, although in certain cases it
may be possible to submit other documentary evidence. After December 31, 2000,
a registered owner may no longer use an IRS Form W-8 to certify to its non-U.S.
status. In addition, prospective U.S. Holders are strongly urged to consult
their own tax advisors with respect to the New Withholding Regulations. See "
United States Federal Income Taxation--Non-U.S. Holders".
Any amounts withheld under the backup withholding rules from a payment to
a beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
PLAN OF DISTRIBUTION
ML&Co. is offering the notes for sale on a continuing basis through the
agent, MLPF&S, who will purchase the notes, as principal, from ML&Co., for
resale to investors and other purchasers at varying prices relating to
prevailing market prices at the time of resale as determined by the agent, or,
if so specified in an applicable pricing supplement, for resale at a fixed
public offering price. Unless otherwise specified in an applicable pricing
supplement, any note sold to the agent as principal will be purchased by the
agent at a price equal to 100% of the principal amount of the note less a
percentage of the principal amount equal to the commission applicable to an
agency sale as described below of a note of identical maturity. If agreed to by
ML&Co. and the agent, the agent may utilize its reasonable efforts on an agency
basis to solicit offers to purchase the notes at 100% of the principal amount
of the notes, unless otherwise specified in an applicable pricing supplement.
ML&Co. will pay a commission to the agent, ranging from .050% to .600% of the
principal amount of a note, depending upon its stated maturity or, with respect
to a note for which the stated maturity is in excess of 30 years, a commission
as agreed upon by ML&Co. and the agent at the time of sale, sold through the
agent.
The agent may sell notes it has purchased from ML&Co. as principal to
other dealers for resale to investors, and may allow any portion of the
discount received in connection with such purchases from ML&Co. to such
dealers. After the initial public offering of notes, the public offering price,
in the case of notes to be resold at a fixed public offering price, the
concession and the discount allowed to dealers may be changed.
ML&Co. reserves the right to withdraw, cancel or modify the offer made by
this prospectus supplement without notice and may reject orders, in whole or in
part, whether placed directly with ML&Co. or through the agent. The agent will
have the right, in its discretion reasonably exercised, to reject in whole or
in part any offer to purchase notes received by the agent.
Unless otherwise specified in an applicable pricing supplement, payment
of the purchase price of the notes will be required to be made in immediately
available funds in U.S. dollars or the Specified Currency, as the case may be,
in New York City on the date of settlement.
No Note will have an established trading market when issued. Unless
specified in the applicable pricing supplement, ML&Co. will not list the notes
on any securities exchange. The agent may from time to time purchase and sell
notes in the secondary market, but the agent is not obligated to do so, and
there can be
S-31
no assurance that there will be a secondary market for the notes or liquidity
in the secondary market if one develops. From time to time, the agent may make
a market in the notes.
The agent may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, as amended. ML&Co. has agreed to indemnify the agent
against or to make contributions relating to certain civil liabilities,
including liabilities under the Securities Act, or to contribute to payments
the agent may be required to make in respect thereof. ML&Co. has agreed to
reimburse the agent for certain expenses.
From time to time, ML&Co. may issue and sell other securities described
in the accompanying prospectus, and the amount of notes that ML&Co. may offer
and sell under this prospectus supplement may be reduced as a result of such
sales.
In connection with the offering of notes purchased by the agent as
principal on a fixed price basis, the agent is permitted to engage in certain
transactions that stabilize the price of the notes. These transactions may
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the notes. If the agent creates a short position in the notes in
connection with the offering, i.e., if it sells notes in an aggregate principal
amount exceeding that set forth in the applicable pricing supplement, then the
agent may reduce that short position by purchasing notes in the open market. In
general, purchases of notes for the purpose of stabilization or to reduce a
short position could cause the price of the notes to be higher than in the
absence of these purchases.
Neither ML&Co. nor the agent make any representation or prediction as to
the direction or magnitude of any effect that the transactions described above
may have on the price of the notes. In addition, neither ML&Co. nor the agent
makes any representation that the agent will engage in any such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
The distribution of the notes will conform to the requirements set forth
in the applicable sections of Rule 2720 of the Conduct Rules of the NASD.
VALIDITY OF THE NOTES
The validity of the notes will be passed upon for ML&Co. and the agent by
Brown & Wood LLP, New York, New York.
S-32
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[LOGO]
$
Merrill Lynch & Co., Inc.
Medium-Term Notes,
Series B
-------------------------------
PROSPECTUS SUPPLEMENT
-------------------------------
Merrill Lynch & Co.
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may sell these securities until the registration statement filed with the +
+ Securities and Exchange Commission is effective. This prospectus is not an +
+ offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated June 7, 2000
P R O S P E C T U S
- -------------------
Merrill Lynch & Co., Inc.
Senior Debt Securities
This prospectus is to be used by Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, our wholly-owned subsidiary, when making
offers and sales related to market-making transactions in our outstanding senior
debt securities listed below and the senior debt securities that we will issue
in the future.
Redeemable Notes
----------------
$1,650,000,000 of 6% Notes due February 12, 2003; $125,000,000 of 6 3/8% Notes due September 8, 2006;
$750,000,000 Floating Rate Notes due June 24, 2003; $700,000,000 6 1/2% Notes due July 15, 2018;
$500,000,000 6% Notes due November 15, 2004; $1,000,000,000 6 7/8% Notes due November 15, 2018; and
$500,000,000 6% Notes due July 15, 2005; $33,015,000 of 8.40% Notes due November 1, 2019.
Non-Redeemable Notes
--------------------
$150,000,000 of 6.70% Notes due August 1, 2000; $200,000,000 of 6 1/4% Notes due January 15, 2006;
$500,000,000 of 6% Notes due January 15, 2001; $200,000,000 of 7% Notes due March 15, 2006;
$250,000,000 of 6% Notes due March 1, 2001; $350,000,000 of 7 3/8% Notes due May 15, 2006;
$300,000,000 of 6 1/2% Notes due April 1, 2001; $500,000,000 of 7% Notes due January 15, 2007;
$225,000,000 of 8% Notes due February 1, 2002; $150,000,000 of 8% Notes due June 1, 2007;
$150,000,000 of 7 3/8% Notes due August 17, 2002; $250,000,000 of 6.56% Notes due December 16, 2007;
$250,000,000 of 6.64% Notes due September 19, 2002; $250,000,000 of 7% Notes due April 27, 2008;
$300,000,000 of Floating Rate Notes due February 4, 2003; $150,000,000 of 6 1/4% Notes due October 15, 2008;
$200,000,000 of 6 7/8% Notes due March 1, 2003; $500,000,000 of 6 3/8% Notes due October 15, 2008;
$500,000,000 of 6.55% Notes due August 1, 2004; $250,000,000 of 6 3/4% Notes due June 1, 2028; and
$2,000,000,000 of 6% Notes due February 17, 2009.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The sale price of the securities will be the prevailing market
price at the time of sale.
____________________
Merrill Lynch & Co.
____________________
The date of this prospectus is , 2000.
TABLE OF CONTENTS
MERRILL LYNCH & CO., INC.................................................. 3
RATIO OF EARNINGS TO FIXED CHARGES........................................ 4
DESCRIPTION OF SENIOR DEBT SECURITIES..................................... 5
OTHER TERMS............................................................... 20
WHERE YOU CAN FIND MORE INFORMATION....................................... 23
INCORPORATION OF INFORMATION WE FILE WITH THE SEC......................... 23
PLAN OF DISTRIBUTION...................................................... 24
EXPERTS................................................................... 24
2
MERRILL LYNCH & CO., INC.
We are a holding company that, through our U.S. and non-U.S. subsidiaries
and affiliates such as Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Merrill Lynch Government Securities Inc., Merrill Lynch Capital Services, Inc.,
Merrill Lynch International, Merrill Lynch Capital Markets Bank Ltd., Merrill
Lynch Asset Management LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping services.
We provide these products and services to a wide array of clients,
including individual investors, small businesses, corporations, governments,
governmental agencies and financial institutions.
Our principal executive office is located at 4 World Financial Center, New
York, New York 10080; our telephone number is (212) 449-1000.
If you want to find more information about us, please see the sections
entitled "Where You Can Find More Information" and "Incorporation of Information
We File with the SEC" in this prospectus.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
senior debt securities described in this prospectus.
3
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, we acquired the outstanding shares of Midland Walwyn Inc., in a
transaction accounted for as a pooling-of-interests. The following information
for the fiscal years 1995 through 1997 has been restated as if the two entities
had always been combined.
The following table sets forth our historical ratios of earnings to fixed
charges for the periods indicated:
For the Three
Year Ended Last Friday in December Months Ended
1995 1996 1997 1998 1999 March 31, 2000
--- ---- ---- ---- ---- --------------
Ratio of earnings to fixed charges(a).. 1.2 1.2 1.2 1.1 1.3 1.4
__________
(a) The effect of combining Midland Walwyn did not change the ratios reported
for the fiscal years 1995 through 1997.
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges, excluding capitalized interest and preferred security
dividend requirements of subsidiaries. "Fixed charges" consist of interest
costs, the interest factor in rentals, amortization of debt issuance costs,
preferred security dividend requirements of subsidiaries, and capitalized
interest.
4
DESCRIPTION OF SENIOR DEBT SECURITIES
The senior debt securities were issued as a series of senior debt
securities under the 1983 Indenture, dated as of April 1, 1983, as amended and
restated, between ML&Co. and The Chase Manhattan Bank, as trustee. A copy of
the 1983 Indenture is filed as an exhibit to the registration statement relating
to the senior debt securities of which this prospectus is a part. The following
summaries of certain provisions of the 1983 Indenture are not complete and are
subject to, and qualified in their entirety by reference to, all provisions of
the 1983 Indenture, including the definitions of terms in the 1983 Indenture.
Series of senior debt securities may from time to time be issued under the
1983 Indenture, without limitation as to aggregate principal amount, in one or
more series and upon terms as ML&Co. may establish under the provisions of the
1983 Indenture.
The 1983 Indenture and each series of the senior debt securities are
governed by and construed in accordance with the laws of the State of New York.
Under present New York law the maximum rate of interest is 25% per annum on
a simple interest basis. This limit may not apply to senior debt securities in
which $2,500,000 or more has been invested. While ML&Co. believes that New York
law would be given effect by a state or Federal court sitting outside of New
York, state laws frequently regulate the amount of interest that may be charged
to and paid by a borrower, including, in some cases, corporate borrowers.
ML&Co. agrees for the benefit of the holders of its senior debt securities, to
the extent permitted by law, not to claim voluntarily the benefits of any laws
concerning usurious rates of interest against a holder of senior debt
securities.
Outstanding senior debt securities are issuable only in fully registered
form without coupons, in denominations of $1,000 and integral multiples of
$1,000, unless otherwise indicated. No service charge will be made for any
registration of transfer or exchange of senior debt securities, but ML&Co. may
require payment of a sum sufficient to cover any tax or other governmental
charges that may be imposed in connection with any registration, transfer or
exchange.
ML&Co. may issue senior debt securities with terms different from those of
senior debt securities previously issued, and issue additional senior debt
securities of a previously issued series of senior debt securities.
The senior debt securities are unsecured and rank equally with all other
unsecured and unsubordinated indebtedness of ML&Co. However, because ML&Co. is
a holding company, the rights of ML&Co. and its creditors, including the holders
of senior debt securities, to participate in any distribution of the assets of
any subsidiary upon its liquidation or reorganization or otherwise is
necessarily subject to the prior claims of creditors of the subsidiary, except
to the extent that claims of ML&Co. itself as a creditor of the subsidiary may
be recognized. In addition, dividends, loans and advances from certain
subsidiaries, including MLPF&S, to ML&Co. are restricted by net capital
requirements under the Exchange Act, and under rules of exchanges and other
regulatory bodies.
Principal, premium and interest on the senior debt securities will be
payable at the office of the trustee in New York City so designated, provided
that, unless otherwise set forth below, payment of interest may be made at the
option of ML&Co. by check mailed to the address of the person entitled to that
payment as shown on the security register. In addition, the transfer of the
senior debt securities is and will be registrable, and senior debt securities
are and will be exchangeable at the trustee's designated office.
Unless otherwise specified with respect to a particular series of senior
debt securities, the senior debt securities are not subject to any sinking fund
and are not redeemable before maturity.
5
Book-Entry Securities
Specified series of the senior debt securities have been issued in global
form and are considered book-entry securities. Beneficial owners of these
senior debt securities will not receive physical delivery of these securities
nor may they be entitled to have these securities registered in their name.
These book-entry securities are represented by one or more fully registered
global securities. Each global security has been deposited with, or on behalf
of, The Depository Trust Company, also known as DTC, as depositary, registered
in the name of DTC or its nominee. Unless and until it is exchanged in whole or
in part for senior debt securities in definitive form, no global security may be
transferred except as a whole by the depositary to a nominee of the depositary
or by a nominee of the depositary to the depositary or another nominee of the
depositary or by the depositary or any nominee to a successor of the depositary
or a nominee of that successor.
In some cases, investors of outstanding senior debt securities have elected
to hold interests in the global notes through either the depositary in the
United States or Clearstream Banking, societe anonyme (referred to as
"Clearstream, Luxembourg"), and Morgan Guaranty Trust Company of New York,
Brussels Office, as operator of the Euroclear System, if they are participants
in these systems, or indirectly through organizations which are participants in
these systems. Clearstream, Luxembourg and Euroclear hold interests on behalf
of their participants through customers' securities accounts in Clearstream,
Luxembourg's and Euroclear's names on the books of their respective
depositaries, which in turn will hold these interests in customers' securities
accounts in the depositaries' names on the books of the depositary. Citibank,
N.A. acts as depositary for Clearstream, Luxembourg and The Chase Manhattan Bank
acts as depositary for Euroclear.
DTC Procedures
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants deposit with DTC. DTC also facilitates
the settlement among participants of securities transactions, such as transfers
and pledges, in deposited securities through electronic computerized book-entry
changes in participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct participants of DTC include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. DTC is owned by a number of its direct
participants and by the New York Stock Exchange, Inc., the American Stock
Exchange Inc. and the National Association of Securities Dealers, Inc. Access
to DTC's system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a direct participant, either directly or indirectly. The
rules applicable to DTC and its participants are on file with the SEC.
Purchases of securities under DTC's system must be made by or through
direct participants, which will receive a credit for the securities on DTC's
records. The ownership interest of each beneficial owner is in turn to be
recorded on the records of direct and indirect participants. Beneficial owners
will not receive written confirmation from DTC of their purchase, but beneficial
owners are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
participants or indirect participants through which the beneficial owner entered
into the transaction. Transfers of ownership interests in the securities are to
be accomplished by entries made on the books of participants acting on behalf of
beneficial owners.
To facilitate subsequent transfers, all securities deposited with DTC are
registered in the name of DTC's partnership nominee, Cede & Co. The deposit of
securities with DTC and their registration in the name of Cede & Co. effect no
change in beneficial ownership. DTC has no knowledge of the actual beneficial
owners of the securities; DTC's records reflect only the identity of the direct
participants to whose accounts the securities are credited, which may or may not
be the beneficial owners. The participants are responsible for keeping account
of their holdings on behalf of their customers.
6
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct and
indirect participants to beneficial owners are governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the
securities. Under its usual procedures, DTC mails an omnibus proxy to ML&Co. as
soon as possible after the applicable record date. The omnibus proxy assigns
Cede & Co.'s consenting or voting rights to those direct participants identified
in a listing attached to the omnibus proxy to whose accounts the securities are
credited on the record date.
Principal, premium, if any, and/or interest, if any, payments on the senior
debt securities will be made in immediately available funds to DTC. DTC's
practice is to credit direct participants' accounts on the applicable payment
date in accordance with their respective holdings shown on the Depositary's
records unless DTC has reason to believe that it will not receive payment on
that date. Payments by participants to beneficial owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in "street
name", and will be the responsibility of that participant and not of DTC, the
trustee or ML&Co., subject to any statutory or regulatory requirements as may be
in effect from time to time. Payment of principal, premium, if any, and/or
interest, if any, to DTC is the responsibility of ML&Co. or the trustee,
disbursement of these payments to direct participants is the responsibility of
DTC, and disbursement of these payments to the beneficial owners is the
responsibility of direct and indirect participants.
Exchange for Certificated Securities
If the depositary is at any time unwilling or unable to continue as
depositary and
(a) a successor depositary is not appointed by ML&Co. within 60 days,
(b) ML&Co. executes and delivers to the trustee a company order to the
effect that the global notes shall be exchangeable, and
(c) an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to the senior debt securities,
the global notes will be exchangeable for senior debt securities in definitive
form of like tenor and of an equal aggregate principal amount, in denominations
of $1,000 and integral multiples of $1,000. The definitive securities will be
registered in the name or names as the depositary shall instruct the trustee.
It is expected that these instructions may be based upon directions received by
the depositary from participants with respect to ownership of beneficial
interests in the global notes.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, senior debt securities
in definitive form will be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that ML&Co. believes to be reliable, but ML&Co. takes no
responsibility for its accuracy.
Clearstream, Luxembourg
Clearstream, Luxembourg has advised ML&Co. that it is incorporated under
the laws of Luxembourg as a professional depositary. Clearstream, Luxembourg
holds securities for its participating organizations and facilities the
clearance and settlement of securities transactions between Clearstream,
Luxembourg participants through electronic book-entry changes in accounts of
Clearstream, Luxembourg participants, thereby eliminating the need for physical
movement of certificates. Clearstream, Luxembourg provides to its
7
participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Clearstream, Luxembourg interfaces with domestic markets
in several countries. As a professional depositary, Clearstream, Luxembourg is
subject to regulation by the Luxembourg Monetary Institute. Clearstream,
Luxembourg participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. Indirect access to
Clearstream, Luxembourg is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Clearstream, Luxembourg participant either directly or
indirectly.
Distributions with respect to the book-entry securities held beneficially
through Clearstream, Luxembourg are credited to cash accounts of Clearstream,
Luxembourg participants in accordance with its rules and procedures, to the
extent received by the U.S. depositary for Clearstream, Luxembourg.
Euroclear
Euroclear has advised ML&Co. that it was created in 1968 to hold securities
for participants of Euroclear and to clear and settle transactions between
Euroclear participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Euroclear includes various other services, including securities lending
and borrowing and interfaces with domestic markets in several countries.
Euroclear is operated by the Brussels, Belgium office of Morgan Guaranty Trust
Company of New York (the "Euroclear Operator"), under contract with Euro-clear
Clearance Systems S.C., a Belgian cooperative corporation (the "Cooperative").
All operations are conducted by the Euroclear Operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with the
Euroclear Operator, not the Cooperative. The Cooperative establishes policy for
Euroclear on behalf of Euroclear participants. Euroclear participants include
banks, central banks, securities brokers and dealers and other professional
financial intermediaries. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
Terms and Conditions only on behalf of Euroclear participants, and has no record
of or relationship with persons holding through Euroclear participants.
Distributions with respect to book-entry securities held beneficially
through Euroclear are credited to the cash accounts of Euroclear participants in
accordance with the Terms and Conditions, to the extent received by the U.S.
depositary for Euroclear.
Clearance and Settlement Procedures
Secondary market trading between DTC participants will occur in the
ordinary way in accordance with the depositary's rules and will be settled in
immediately available funds using the depositary's Same-Day Funds Settlement
System. Secondary market trading between Clearstream, Luxembourg participants
and/or Euroclear participants will occur in the ordinary way in accordance with
the applicable rules and operating
8
procedures of Clearstream, Luxembourg and Euroclear and will be settled using
the procedures applicable to conventional eurobonds in immediately available
funds.
Cross-market transfers between persons holding directly or indirectly
through the depositary on the one hand, and directly or indirectly through
Clearstream, Luxembourg or Euroclear participants, on the other, will be
effected in the depositary in accordance with the depositary's rules on behalf
of the relevant European international clearing system by its U.S. depositary;
however, any cross-market transactions will require delivery of instructions to
the relevant European international clearing system by the counterparty in that
system in accordance with its rules and procedures and within its established
deadlines. The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to its U.S.
depositary to take action to effect final settlement on its behalf by delivering
or receiving book-entry securities in the depositary, and making or receiving
payment in accordance with normal procedures for same-day funds settlement
applicable to the depositary. Clearstream, Luxembourg and Euroclear participants
may not deliver instructions directly to the depositary.
Because of time-zone differences, credits of book-entry securities received
in Clearstream, Luxembourg or Euroclear as a result of a transaction with a DTC
participant will be made during subsequent securities settlement processing and
will be credited on the business day following the depositary settlement date.
Any credits or transactions in book-entry securities settled during processing
will be reported to the relevant Euroclear or Clearstream, Luxembourg
participants on that business day. Cash received in Clearstream, Luxembourg or
Euroclear as a result of sales of securities by or through a Clearstream,
Luxembourg participant or a Euroclear participant to a DTC participant will be
received with value on the depositary settlement date but will be available in
the relevant Clearstream, Luxembourg or Euroclear cash account only as of the
business day following settlement in the depositary.
Although the depositary, Clearstream, Luxembourg and Euroclear have agreed
to the foregoing procedures in order to facilitate transfers of book-entry
securities among participants of the depositary, Clearstream, Luxembourg and
Euroclear, they are under no obligation to perform or continue to perform these
procedures and these procedures may be discontinued at any time.
Notices
Notices to holders of outstanding senior debt securities will be sent by
mail to the registered holders and will be published, whether the securities are
in global or definitive form, and so long as the securities are listed on the
Luxembourg Stock Exchange, in a daily newspaper of general circulation in
Luxembourg. It is expected that publication will be made in Luxembourg in the
Luxembourg Wort. Any notice shall be deemed to have been given on the date of
publication or, if published more than once, on the date of the first
publication. So long as senior debt securities are listed on the Luxembourg
Stock Exchange, any change in the Luxembourg Paying Agent and Transfer Agent
will be published in Luxembourg in the manner set forth above.
Further Issues
ML&Co. may from time to time, without notice to or the consent of the
registered holders of any series of outstanding senior debt securities, create
and issue additional senior debt securities ranking equally with the original
series of senior debt securities in all respects other than the payment of
interest accruing before the originally issue date of the additional senior debt
securities. The new issue of senior debt securities may be consolidated and form
a single series with the original issue of the securities of that series and
have the same terms as to status, redemption or otherwise as the senior debt
securities of the original series.
9
Payment of Additional Amounts
Unless otherwise stated, ML&Co. will, subject to the exceptions and
limitations set forth below, pay as additional interest on the senior debt
securities, additional amounts in order for the net payment of the principal of
and interest on the senior debt securities to a holder who is a non-United
States person, after deduction for any present or future tax, assessment or
other governmental charge of the United States of a political subdivision or
taxing authority in or of any United States political subdivision, imposed by
withholding with respect to the payment, will not be less than the amount
provided in the senior debt securities to be then due and payable; provided,
however, that the foregoing obligation to pay additional amounts shall not
apply:
(1) to any tax, assessment, or other governmental charge that is
imposed or withheld solely by reason of the holder, or a fiduciary,
settlor, beneficiary, member or shareholder of the holder if the holder is
an estate, trust, partnership or corporation, or a person holding a power
over an estate or trust administered by a fiduciary holder, being
considered as:
(a) being or having been present or engaged in a trade or
business in the United States or having had a permanent establishment
in the United States;
(b) having a current or former relationship with the Untied
States, including a relationship as a citizen or resident of the
United States;
(c) being or having been a foreign or domestic personal holding
company, a passive foreign investment company or a controlled foreign
corporation with respect to the United States or a corporation that
has accumulated earnings to avoid United States federal income tax;
(d) being or having been a "10-percent shareholder" of ML&Co. as
defined in section 871 (h)(3) of the United States Internal Revenue
Code or any successor provisions; or
(e) being a bank receiving payments on an extension of credit
made pursuant to a loan agreement entered into in the ordinary course
of its trade or business.
(2) to any holder that is not the sole beneficial owner of the
securities, or any portion of the securities, or that is a fiduciary or
partnership, but only to the extent that a beneficiary or settlor with
respect to the fiduciary, a beneficial owner or member of the partnership
would not have been entitled to the payment of an additional amount had the
beneficiary, settlor, beneficial owner or member received directly its
beneficial or distributive share of the payment;
(3) to any tax, assessment, or other governmental charge that is
imposed or withheld solely by reason of the failure of the holder or any
other person to comply with certification, identification or information
reporting requirements concerning the nationality, residence, identity or
connection with the United States of the holder or beneficial owner of the
security, if compliance is required by statute, by regulation of the United
States Treasury Department or by an applicable income tax treaty to which
the United States is a party as a precondition to exemption from tax,
assessment or other governmental charge;
(4) to any tax, assessment or other governmental charge that is
imposed otherwise than by withholding by ML&Co. or a paying agent from the
payment;
(5) to any tax, assessment or other governmental charge that is
imposed or withheld solely by reason of a change in law, regulation, or
administrative or judicial interpretation that
10
becomes effective more than 15 days after the payment becomes due or is
duly provided for, whichever occurs later;
(6) to any estate, inheritance, gift, sales, excise, transfer, wealth
or personal property tax or similar tax, assessment or other governmental
charge;
(7) to any tax, assessment or other governmental charge required to
be withheld by any payment agent from any payment of principal of or
interest on any senior debt security, if that payment can be made without
any withholding by any other payment agent; or
(8) in the case of any combination of items (1), (2), (3), (4), (5),
(6) and (7).
Some of the outstanding senior debt securities are subject in all cases to
any tax, fiscal or other law or regulation or administrative or judicial
interpretation applicable to the payments due and payable. Except as
specifically provided under this heading "--Payment of Additional Amounts" and
under the heading "--Redemption for Tax Reasons", ML&Co. will not be required to
make any payment with respect to any tax, assessment or other governmental
charge imposed by any government or a political subdivision or taxing authority.
As used under this heading "--Payment of Additional Amounts" and "--
Redemption for Tax Reasons", the term "United States" means the United States of
America, including the States and the District of Columbia, and its territories,
its possessions and other areas subject to its jurisdiction.
"United States person" means any individual who is a citizen or resident of
the United States, a corporation, partnership or other entity created or
organized in or under the laws of the United States, any state of the United
States or the District of Columbia, other than a partnership that is not treated
as a United States person under any applicable Treasury regulations, any estate
the income of which is subject to United States federal income taxation
regardless of its source, or any trust if a court within the United States is
able to exercise primary supervision over the administration of the trust and
one or more United States persons have the authority to control all substantial
decision of the trust. Notwithstanding the preceding sentence, to the extent
provided in the Treasury regulations, certain trusts in existence on August 20,
1996, and treated as United States persons before that date that elect to
continue to be treated as United States persons will also be a United States
person.
"Non-United States person" means a person who is not a United States
person.
Redemption for Tax Reasons
As designated, some of the outstanding senior debt securities provide that,
if, as a result of any change in, or amendment to, the laws, or any regulations
or rulings promulgated under those laws, of the United States or any political
subdivision or taxing authority in or of the United States, or any change in, or
amendments to, an official position regarding the applicable or interpretation
of those laws, regulations or rulings, which change or amendment is announced or
becomes effective on or after the date the applicable series of senior debt
securities were initially issued, ML&Co. becomes or, based upon a written
opinion of independent counsel selected by ML&Co., will become obligated to pay
additional amounts as described in this prospectus under the heading "--Payment
of Additional Amounts" with respect to those securities, then ML&Co. may, at its
option redeem, as a whole, but not in part, the securities on not less than 30
nor more than 60 days prior notice, at a redemption price equal to 100% of their
principal amount, together with interest accrued but unpaid to the date fixed
for redemption.
11
Tax Considerations
It is suggested that you should reach an investment decision regarding the
senior debt securities only after carefully considering the suitability of the
senior debt securities in the light of your particular circumstances.
You should also consider the tax consequences, if any, of investing in the
Securities and should consult your tax advisor.
Redeemable Notes
Terms and Provisions Applicable to Each Series of Redeemable Notes
The specific terms and provisions applicable to each series of redeemable
notes of ML&Co. are described below. The title of each series of the redeemable
notes designates the interest rate and maturity date of that series of notes.
Each series of redeemable notes bears interest at a specified rate payable
through their stated maturity date to the persons in whose names the notes are
registered on the record date preceding each interest payment date as indicated
below. If any interest payment date or the stated maturity date falls on a day
that is not a Business Day, as defined below, the related payment of principal
or interest will be made on the next succeeding Business Day as if made on the
date the payment was due, and no interest will accrue on the amount so payable
for the period from and after that interest payment date or stated maturity
date, as the case may be. Unless otherwise stated below, "Business Day" with
respect to any place of payment means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in that place of
payment are authorized or obligated by law to close.
The redeemable notes are subject to redemption by ML&Co. or repayment at
the option of their holders before their stated maturity dates as indicated
below. Beneficial interests in any redeemable notes that are book-entry
securities may be acquired, or subsequently transferred, only in denominations
of $1,000 and integral multiples of $1,000.
Terms and Provisions of 6% Notes due February 12, 2003
The stated maturity date for the 6% Notes due February 12, 2003 is February
12, 2003.
These notes of this series bear interest from February 12, 1998 and are
payable semiannually on February 12 and August 12 of each year and at maturity,
to the persons in whose names the notes are registered on the preceding July 29
and January 29, respectively.
The notes of this series are not subject to redemption by ML&Co. before
maturity unless the events described under the section entitled "--Redemption
for Tax Reasons" occur.
In the event definitive notes are issued, the holders of these notes will
be able to receive payments on the notes and effect transfers of the notes at
the offices of Chase Manhattan Bank Luxembourg S.A. or its successor as paying
agent in Luxembourg.
ML&Co. has appointed Chase Manhattan Bank Luxembourg S.A. as a paying agent
in Luxembourg with respect to this series of notes, and as long as these notes
are listed on the Luxembourg Stock Exchange, ML&Co. will maintain a paying agent
in Luxembourg and any change in the Luxembourg paying agent and transfer agent
will be published in Luxembourg. See "--Notices".
12
Terms and Provisions of Floating Rate Notes due June 24, 2003
The Floating Rate Notes due June 24, 2003 will mature on June 24, 2003.
The notes of this series are not subject to redemption by ML&Co. before
maturity unless the events described in the section entitled "--Redemption for
Tax Reasons" occur.
In the event definitive notes are issued, the holders of these notes will
be able to receive payments on the notes and effect transfers of the notes at
the offices of Chase Manhattan Bank Luxembourg S.A. or its successor as paying
agent in Luxembourg.
ML&Co. has appointed Chase Manhattan Bank Luxembourg S.A. as a paying agent
in Luxembourg with respect to notes, and as long as the notes are listed on the
Luxembourg Stock Exchange, ML&Co. will maintain a paying agent in Luxembourg and
any change in the Luxembourg paying agent and transfer agent will be published
in Luxembourg. See "--Notices".
This series of notes bear interest from June 24, 1998 until their maturity,
payable in arrears on March 24, June 24, September 24 and December 24 of each
year and at maturity, to the persons in whose names the Notes are registered on
the preceding March 9, June 9, September 9 and December 9, respectively;
provided, however, that interest payable at maturity will be payable to the
person to whom principal shall be payable. Interest payable on each interest
payment date will include interest accrued from and including the first day of
the interest period relating to that interest payment date to and including the
last day of that interest period. Each interest period comprises the period
beginning on and including June 24, 1998 and ending on and including the day
preceding the first interest payment date, and, thereafter, each successive
period beginning on and including each interest payment date and ending on and
including the day preceding the next succeeding interest payment date.
With respect to this series of notes, "Business Day", with respect to any
place of payment, means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which banking institutions in that place of
payment are authorized or required by law, regulation or executive order to
close, and which day is also a London Business Day.
"London Business Day" means any day, other than a Saturday or a Sunday, on
which commercial banks and foreign exchange markets settle payments in London,
England.
The per annum rate of interest with respect to this series of notes will be
reset on each interest reset date and will be LIBOR plus 0.15%. Each interest
payment date will be an interest reset date.
13
The interest rate applicable to each interest period will be the rate
determined on the interest determination date applicable to that interest
period. The interest determination date applicable to any interest reset date
will be the second London Business Day preceding that interest reset date.
With respect to each interest reset date, "LIBOR" will be determined by
MLPF&S as the calculation agent for an interest determination date and will be
the rate for deposits in United States dollars having a maturity of three months
beginning on the second London Business Day immediately following that interest
determination date that appears on Telerate Page 3750 as of 11:00 A.M., London
time, on that interest determination date.
If fewer than two offered rates appear, or no rate appears, as applicable,
the calculation agent will request the principal London offices of each of four
major reference banks in the London interbank market, as selected by the
calculation agent, to provide the Calculation Agent with its offered quotation
for deposits in United States dollars having a maturity of three months
beginning on the second London Business Day immediately following that interest
determination date, to prime banks in the London interbank market at
approximately 11:00 A.M., London time, on that interest determination date and
in a principal amount that is representative for a single transaction in United
States dollars in that market at that time. If at least two quotations are
provided, LIBOR determined on that interest determination date will be the
arithmetic mean of those quotations. If fewer than two quotations are provided,
LIBOR determined on that interest determination date will be the arithmetic mean
of the rates quoted at approximately 11:00 A.M., in The City of New York, on
that interest determination date by three major banks in The City of New York
selected by the calculation agent for loans in United States dollars to leading
European banks, having a maturity of three months and in a principal amount that
is representative for a single transaction in United States dollars in that
market at that time; provided, however, that if the banks so selected by the
calculation agent are not quoting as mentioned in this sentence, LIBOR
determined on that interest determination date will be LIBOR in effect on that
interest determination date.
"Telerate Page 3750" means page 3750 on the Bridge Telerate, or any other
service or services as may be nominated by the British Bankers' Association for
the purpose of displaying London interbank offered rates for United States
dollars, for the purpose of displaying the London interbank rates of major banks
for United States dollars.
Interest on this series of notes will be computed and paid on the basis of
the actual number of days for which interest accrues in each interest period
divided by 360.
All percentages resulting from any calculation on the 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 any calculation on the notes will be rounded to the
nearest cent, with one-half cent being rounded upward.
ML&Co. will notify the Luxembourg Stock Exchange or will cause the
Luxembourg Stock Exchange to be notified of the interest rate, the interest
amount that will accrue, and commencement and ending dates for each interest
period as soon as practicable after the determination is made.
Terms and Provisions of 6% Notes due November 15, 2004
The 6% Notes due November 15, 2004 will mature on November 15, 2004.
The notes of this series bear interest and are payable semiannually on May
15 and November 15 of each year and at maturity, to the persons in whose names
the notes are registered on the preceding May 1 and November 1, respectively.
14
The notes of this series are not subject to redemption by ML&Co. before
maturity unless the events described in the section entitled "--Redemption for
Tax Reasons" occur.
In the event definitive notes are issued, the holders will be able to
receive payments on the notes and effect transfers of the notes at the offices
of Chase Manhattan Bank Luxembourg S.A. or its successor as paying agent in
Luxembourg with respect to the notes.
ML&Co. has appointed Chase Manhattan Bank Luxembourg S.A. as a paying agent
in Luxembourg with respect to the notes, and as long as the notes are listed on
the Luxembourg Stock Exchange, ML&Co. will maintain a paying agent in Luxembourg
and any change in the Luxembourg paying agent and transfer agent will be
published in Luxembourg. See "--Notices".
Terms and Provisions of 6% Notes due July 15, 2005
The 6% Notes due July 15, 2005 will mature at par on July 15, 2005.
The notes of this series bear interest and are payable semiannually on
January 15 and July 15 of each year and at maturity, to the persons in whose
names the notes are registered on the preceding December 31 and June 30,
respectively.
The notes of this series are not subject to redemption by ML&Co. before
maturity unless the events described in the section entitled "--Redemption for
Tax Reasons" occur.
In the event definitive notes are issued, the holders will be able to
receive payments on the notes and effect transfers of the notes at the offices
of Chase Manhattan Bank Luxembourg S.A. or its successor as paying agent in
Luxembourg with respect to the notes.
ML&Co. has appointed Chase Manhattan Bank Luxembourg S.A. as a paying agent
in Luxembourg with respect to the notes, and as long as the notes are listed on
the Luxembourg Stock Exchange, ML&Co. will maintain a paying agent in Luxembourg
and any change in the Luxembourg paying agent and transfer agent will be
published in Luxembourg. See "--Notices".
Terms and Provisions of 6 3/8% Notes due September 8, 2006
The 6 3/8% Notes due September 8, 2006 will mature on September 8, 2006
unless redeemed earlier as provided below.
The notes of this series bear interest and are payable semiannually on each
March 8 and September 8 to the persons in whose names the notes are registered
on the preceding February 23 and August 23, respectively.
The notes are subject to redemption at the option of ML&Co. on or after
September 8, 2003, in whole or in part in increments of $1,000, at a redemption
price of 100% of the principal amount of the notes to be redeemed plus accrued
interest to but excluding the date of redemption. Notice of redemption of the
notes shall be given not less than 30 or more than 60 days before the date of
redemption to each holder of the notes to be redeemed.
Terms and Provisions of 6 1/2% Notes due July 15, 2018
The 6 1/2% Notes due July 15, 2018 will mature on July 15, 2018.
15
The notes of this series bear interest and are payable semiannually on
January 15 and July 15 of each year and at maturity, to the persons in whose
names the notes are registered on the preceding December 31 and June 30,
respectively.
The notes of this series are not subject to redemption by ML&Co. before
maturity unless the events described in the section entitled "--Redemption for
Tax Reasons" occur.
In the event definitive notes are issued, the holders will be able to
receive payments on the notes and effect transfers of the notes at the offices
of Chase Manhattan Bank Luxembourg S.A. or its successor as paying agent in
Luxembourg with respect to the notes.
ML&Co. has appointed Chase Manhattan Bank Luxembourg S.A. as a paying agent
in Luxembourg with respect to the notes, and as long as the notes are listed on
the Luxembourg Stock Exchange, ML&Co. will maintain a paying agent in Luxembourg
and any change in the Luxembourg paying agent and transfer agent will be
published in Luxembourg. See "--Notices".
Terms and Provisions of 6 7/8% Notes due November 15, 2018
The 6 7/8% Notes due November 15, 2018 will mature on November 15, 2018.
The notes of this series bear interest and are payable semiannually on May
15 and November 15 of each year and at maturity, to the persons in whose names
the notes are registered on the preceding May 1 and November 1, respectively.
The notes of this series are not subject to redemption by ML&Co. before
maturity unless the events described in the section entitled "--Redemption for
Tax Reasons" occur.
In the event definitive notes are issued, the holders will be able to
receive payments on the notes and effect transfers of the notes at the offices
of Chase Manhattan Bank Luxembourg S.A. or its successor as paying agent in
Luxembourg with respect to the notes.
ML&Co. has appointed Chase Manhattan Bank Luxembourg S.A. as a paying agent
in Luxembourg with respect to the notes, and as long as the notes are listed on
the Luxembourg Stock Exchange, ML&Co. will maintain a paying agent in Luxembourg
and any change in the Luxembourg paying agent and transfer agent will be
published in Luxembourg. See "--Notices".
Terms and Provisions of 8.40% Notes due November 1, 2019
The 8.40% Notes due November 1, 2019 will mature on November 1, 2019.
The notes of this series bear interest and are payable semiannually on each
May 1 and November 1 to the persons in whose names the notes are registered on
the preceding April 15 and October 15, respectively.
The notes are not redeemable by ML&Co. before maturity unless $20,000,000
or less of aggregate principal amount of the notes are outstanding, in which
case the notes are redeemable at any time on or after November 1, 1994, in whole
but not in part, on at least 15 days and not more than 60 days prior notice at a
redemption price of 100% of principal amount of the notes plus accrued interest
to the date of redemption.
16
Non-Redeemable Notes
Each series of Non-Redeemable Notes bears interest at a specified rate
payable semiannually through maturity to the persons in whose names the notes
are registered on the regular record date preceding each interest payment date.
The Non-Redeemable Notes are not subject to redemption by ML&Co. or repayment at
the option of their holders before their stated maturity dates, and are issuable
and transferable in denominations of $1,000 and any integral multiple of $1,000.
Beneficial interests in Non-Redeemable Notes that are book-entry securities may
be acquired, or subsequently transferred, only in denominations of $1,000 and
integral multiples of $1,000. The title of each series of Non-Redeemable Notes
designates the interest rate or interest rate basis and maturity date of that
series of notes.
Non-Redeemable Fixed Rate Notes
Series Interest Payment Dates Regular Record Dates
------ ---------------------- --------------------
6.70% Notes due August 1, 2000* February 1 and August 1 January 15 and July 15
6% Notes due January 15, 2001* January 15 and July 15 January 1 and July 1
6% Notes due March 1, 2001* March 1 and September 1 February 15 and August 15
6 1/2% Notes due April 1, 2001* April 1 and October 1 March 15 and September 15
8% Notes due February 1, 2002 February 1 and August 1 January 15 and July 15
7 3/8% Notes due August 17, 2002* February 17 and August 17 February 2 and August 2
6.64% Notes due September 19, 2002* March 19 and September 19 March 4 and September 4
8.30% Notes due November 1, 2002 May 1 and November 1 April 15 and October 15
6% Notes due February 12, 2003* February 12 and August 12 January 29 and July 29
6 7/8% Notes due March 1, 2003* March 1 and September 1 February 15 and August 15
6.55% Notes due August 1, 2004* February 1 and August 1 January 15 and July 15
6 1/4% Notes due January 15, 2006* January 15 and July 15 January 1 and July 1
7% Notes due March 15, 2006* March 15 and September 15 March 1 and September 1
7 3/8% Notes due May 15, 2006* May 15 and November 15 May 1 and November 1
7% Notes due January 15, 2007* January 15 and July 15 January 1 and July 1
8% Notes due June 1, 2007 June 1 and December 1 May 15 and November 15
6.56% Notes due December 16, 2007* June 16 and December 16 June 1 and December 1
7% Notes due April 27, 2008* April 27 and October 27 April 12 and October 12
6 1/4% Notes due October 15, 2008* April 15 and October 15 March 31 and September 30
6 3/8% Notes due October 15, 2008* April 15 and October 15 April 1 and October 1
6 3/4% Notes due June 1, 2028* June 1 and December 1 May 15 and November 15
6% Notes due February 17, 2009* February 1 and August 1 February 17 and August 17
__________________
*Book-Entry Securities
Non-Redeemable Floating Rate Notes due February 4, 2003
The Floating Rate Notes due February 4, 2003 will mature on February 4,
2003.
17
The notes of this series are not subject to redemption by ML&Co. before
their maturity.
The notes bear interest payable in arrears on February 4, May 4, August 4
and November 4 of each year until maturity. Interest payable on each interest
payment date will include interest accrued from and including the first day of
the interest period relating to that interest payment date to and including the
last day of that interest period. Each interest period comprises the period
beginning on and including the original issue date of the notes and ending on
and including the day preceding the first interest payment date, and,
thereafter, each successive period beginning on and including each interest
payment date and ending on and including the day preceding the next succeeding
interest payment date.
With respect to this series of notes, "Business Day", with respect to any
place of payment, means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which banking institutions in that place of
payment are authorized or required by law, regulation or executive order to
close, and which day is also a London Business Day.
"London Business Day" means any day, other than a Saturday or a Sunday, on
which commercial banks and foreign exchange markets settle payments in London,
England.
The per annum rate of interest with respect to this series of notes will be
reset on each interest reset date and will be LIBOR plus 0.2%. Each interest
payment date will be an interest reset date.
The interest rate applicable to each interest period will be the rate
determined on the interest determination date applicable to that interest
period. The interest determination date applicable to any interest reset date
will be the second London Business Day preceding that interest reset date.
With respect to each interest reset date, "LIBOR" will be determined by
MLPF&S as the calculation agent for an interest determination date and will be
the rate for deposits in United States dollars having a maturity of three months
beginning on the second London Business Day immediately following that interest
determination date that appears on Telerate Page 3750 as of 11:00 A.M., London
time, on that interest determination date.
If fewer than two offered rates appear, or no rate appears, as applicable,
the calculation agent will request the principal London offices of each of four
major reference banks in the London interbank market, as selected by the
calculation agent, to provide the Calculation Agent with its offered quotation
for deposits in United States dollars having a maturity of three months
beginning on the second London Business Day immediately following that interest
determination date, to prime banks in the London interbank market at
approximately 11:00 A.M., London time, on that interest determination date and
in a principal amount that is representative for a single transaction in United
States dollars in that market at that time. If at least two quotations are
provided, LIBOR determined on that interest determination date will be the
arithmetic mean of those quotations. If fewer than two quotations are provided,
LIBOR determined on that interest determination date will be the arithmetic mean
of the rates quoted at approximately 11:00 A.M., in The City of New York, on
that interest determination date by three major banks in The City of New York
selected by the calculation agent for loans in United States dollars to leading
European banks, having a maturity of three months and in a principal amount that
is representative for a single transaction in United States dollars in that
market at that time; provided, however, that if the banks so selected by the
calculation agent are not quoting as mentioned in this sentence, LIBOR
determined on that interest determination date will be LIBOR in effect on that
interest determination date.
"Telerate Page 3750" means page 3750 on the Bridge Telerate, or any other
service or services as may be nominated by the British Bankers' Association for
the purpose of displaying London interbank offered rates for United States
dollars, for the purpose of displaying the London interbank rates of major banks
for United States dollars.
18
Interest on this series of notes will be computed and paid on the basis of
the actual number of days for which interest accrues in each interest period
divided by the actual number of days in the relevant year.
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 any calculation on the notes will be rounded to the
nearest cent, with one-half cent being rounded upward.
19
OTHER TERMS
Limitations Upon Liens
ML&Co. may not, and may not permit any majority-owned subsidiary to,
create, assume, incur or permit to exist any indebtedness for borrowed money
secured by a pledge, lien or other encumbrance, other than those liens
specifically permitted by the 1983 Indenture, on the Voting Stock owned directly
or indirectly by ML&Co. of any majority-owned subsidiary, other than a majority-
owned subsidiary which, at the time of the incurrence of the secured
indebtedness, has a net worth of less than $3,000,000, unless the outstanding
senior debt securities are secured equally and ratably with the secured
indebtedness.
"Voting Stock" is defined in the 1983 Indenture as the stock of the class
or classes having general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of a
corporation provided that, for the purposes of the 1983 Indenture, stock that
carries only the right to vote conditionally on the occurrence of an event is
not considered voting stock whether or not the event has happened.
Limitation on Disposition of Voting Stock of, and Merger and Sale of Assets by,
MLPF&S
ML&Co. may not sell, transfer or otherwise dispose of any Voting Stock of
MLPF&S or permit MLPF&S to issue, sell or otherwise dispose of any of its Voting
Stock, unless, after giving effect to any transaction, MLPF&S remains a
Controlled Subsidiary.
"Controlled Subsidiary" is defined in the 1983 Indenture to mean a
corporation more than 80% of the outstanding shares of Voting Stock of which are
owned directly or indirectly by ML&Co.
In addition, ML&Co. may not permit MLPF&S to:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. convey or transfer its properties and assets substantially as an
entirety, except to one or more Controlled Subsidiaries.
Merger and Consolidation
ML&Co. may consolidate or merge with or into any other corporation and
ML&Co. may sell, lease or convey all or substantially all of its assets to any
corporation, provided that:
. the resulting corporation, if other than ML&Co., is a corporation
organized and existing under the laws of the United States of America or
any U.S. state and assumes all of ML&Co.'s obligations to:
. pay any amounts due and payable or deliverable with respect to all
the senior debt securities; and
. perform and observe of all of ML&Co.'s obligations under the 1983
Indenture, and
. ML&Co. or the successor corporation, as the case may be, is not,
immediately after any consolidation or merger, in default under the 1983
Indenture.
20
Modification and Waiver
ML&Co. and the trustee may modify and amend the 1983 Indenture with the
consent of holders of at least 66 2/3% in principal amount of each outstanding
series of senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 Indenture may:
. change the stated maturity date of the principal of, or any installment
of interest or Additional Amounts payable on, any senior debt security
or any premium payable on redemption, or change the redemption price;
. reduce the principal amount of, or the interest or Additional Amounts
payable on, any senior debt security or reduce the amount of principal
which could be declared due and payable before the stated maturity date;
. change the place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any senior debt security;
. impair the right to institute suit for the enforcement of any payment on
or with respect to any senior debt security;
. reduce the percentage in principal amount of the outstanding senior debt
securities of any series, the consent of whose holders is required to
modify or amend the 1983 Indenture; or
. modify the foregoing requirements or reduce the percentage of
outstanding senior debt securities necessary to waive any past default
to less than a majority.
No modification or amendment of ML&Co.'s Subordinated Indenture or any
Subsequent Indenture for subordinated debt securities may adversely affect the
rights of any holder of ML&Co.'s senior indebtedness without the consent of each
holder affected. The holders of at least a majority in principal amount of
outstanding senior debt securities of any series may, with respect to that
series, waive past defaults under the 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under "--
Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. default in the performance of any other obligation of ML&Co. contained
in the 1983 Indenture for the benefit of that series or in the senior
debt securities of that series, continuing for 60 days after written
notice as provided in the 1983 Indenture;
. specified events in bankruptcy, insolvency or reorganization of ML&Co.;
and
. any other Event of Default provided with respect to senior debt
securities of that series which are not inconsistent with the 1983
Indenture.
21
If an Event of Default occurs and is continuing for any series of senior
debt securities, other than as a result of the bankruptcy, insolvency or
reorganization of ML&Co., the trustee or the holders of at least 25% in
principal amount of the outstanding senior debt securities of that series may
declare all amounts, or any lesser amount provided for in the senior debt
securities, due and payable or deliverable immediately. At any time after a
declaration of acceleration has been made with respect to senior debt securities
of any series but before the trustee has obtained a judgment or decree for
payment of money, the holders of a majority in principal amount of the
outstanding senior debt securities of that series may rescind any declaration of
acceleration and its consequences, if all payments due, other than those due as
a result of acceleration, have been made and all Events of Default have been
remedied or waived.
Any Event of Default with respect to any series of debt securities may be
waived by the holders of a majority in principal amount or aggregate issue price
of the outstanding senior debt securities of that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of that Indenture without the consent
of each holder of each outstanding security of each series of senior
debt securities affected.
The holders of a majority in principal amount of the outstanding senior
debt securities of a series may direct the time, method and place of conducting
any proceeding for any remedy available to the trustee or exercising any trust
or power conferred on the trustee with respect to those senior debt securities,
provided that any direction shall not be in conflict with any rule of law or the
1983 Indenture. Before proceeding to exercise any right or power under the 1983
Indenture at the direction of the holders, the trustee shall be entitled to
receive from the holders reasonable security or indemnification against the
costs, expenses and liabilities which might be incurred by it in complying with
any direction.
The senior debt securities issued under the 1983 Indenture do not have the
benefit of any cross-default provisions with other indebtedness of ML&Co.
ML&Co. is required to furnish to the trustee annually a statement as to the
fulfillment by ML&Co. of all of its obligations under the 1983 Indenture.
22
WHERE YOU CAN FIND MORE INFORMATION
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 by visiting
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 further information
about the public reference rooms. You may also inspect our SEC reports and other
information at the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the senior debt securities. For further information on ML&Co. and the senior
debt securities, you should refer to our registration statement and its
exhibits. This prospectus summarizes material provisions of contracts and other
documents that we refer you to. Because the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement of which this prospectus is a part.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to incorporate by reference the information we file with
them, which means:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Exchange Act:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly report on Form 10-Q for the period ended March 31, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000, March
31, 2000, April 17, 2000, May 3, 2000 and May 24, 2000.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting;
and
. any reports filed under Section 15(d) of the Exchange Act.
You should rely only on information contained or incorporated by reference
in this prospectus. We have not, and MLPF&S has not, authorized any other
person to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. We are not,
and MLPF&S is not, making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted.
23
You should assume that the information appearing in this prospectus is
accurate as of the date of this prospectus only. Our business, financial
condition and results of operations may have changed since that date.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 222
Broadway, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales of the
senior debt securities and is to be used by MLPF&S when making offers and sales
related to market-making transactions in the senior debt securities.
MLPF&S may act as principal or agent in these market-making transactions.
The distribution of the senior debt securities will conform to the
requirements set forth in the applicable sections of Rule 2720 of the Conduct
Rules of the NASD.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference from the Annual Report on
Form 10-K of Merrill Lynch & Co., Inc. and subsidiaries for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which express an unqualified
opinion and which report on the consolidated financial statements includes an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), which are incorporated herein by reference, and have been so incorporated
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
With respect to unaudited interim financial information for the periods
included in the Quarterly Reports on Form 10-Q which are incorporated herein by
reference, Deloitte & Touche LLP have applied limited procedures in accordance
with professional standards for a review of such information. However, as
stated in their report included in such Quarterly Reports on Form 10-Q and
incorporated by reference herein, they did not audit and they do not express an
opinion on such interim financial information. Accordingly, the degree of
reliance on their report on such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP is
not subject to the liability provisions of Section 11 of the Securities Act of
1933, as amended, for their reports on unaudited interim financial information
because such report is not a "report" or a "part" of the Registration Statement
prepared or certified by an accountant within the meaning of Sections 7 and 11
of the Securities Act of 1933, as amended.
24
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated June 7, 2000
PROSPECTUS [LOGO] Merrill Lynch
- ----------
PROTECTED GROWTH(SM) INVESTING
Pursuit of Growth, Protection of Principal
Merrill Lynch & Co., Inc.
Medium-Term Notes
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
our wholly-owned subsidiary, will use this prospectus when making offers and
sales related to market-making transactions in the following securities.
. The final terms and conditions of each issue of . The notes bear interest at fixed or floating rates or
notes are specified in the applicable pricing may not bear any interest. If the notes bear interest
supplement. at a floating rate, the floating rate is based on one or
more indices or formulas plus or minus a fixed amount or
. The notes are senior unsecured debt securities of multiplied by a factor.
ML&Co.
. The notes have stated maturities of nine months . Whether the notes are redeemable or repayable before
or more from the date they were originally their maturity and whether they are subject to mandatory
issued. redemption, redemption at the option of ML&Co. or
repayment at the option of the holder of the notes is
. We will pay amounts due on the notes in U.S. specified in the applicable pricing supplement.
dollars or any other consideration described in the
applicable pricing supplement.
Investing in the notes involves certain risks.
See "Risk Factors" on page 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The sale price of the notes will be the prevailing market price at the time
of sale.
___________________
Merrill Lynch & Co.
___________________
The date of this prospectus is , 2000.
TABLE OF CONTENTS
RISK FACTORS.............................................................. 3
MERRILL LYNCH & CO., INC.................................................. 4
RATIO OF EARNINGS TO FIXED CHARGES........................................ 5
DESCRIPTION OF NOTES...................................................... 5
OTHER TERMS............................................................... 13
WHERE YOU CAN FIND MORE INFORMATION....................................... 17
INCORPORATION OF INFORMATION WE FILE WITH THE SEC......................... 17
PLAN OF DISTRIBUTION...................................................... 17
EXPERTS................................................................... 18
2
RISK FACTORS
Your investment in the notes will include certain risks. In consultation
with your own financial and legal advisers, you should carefully consider, among
other matters, the following discussion of risks before deciding whether an
investment in the notes is suitable for you. The notes are not an appropriate
investment for you if you are unsophisticated with respect to the significant
components of their relationship.
Structure Risks of Notes Indexed to Interest Rate, Currency or Other Indices or
Formulas
If you invest in notes indexed to one or more interest rate, currency or
other indices or formulas, there will be significant risks not associated with a
conventional fixed rate or floating rate debt security. These risks include
fluctuation of the indices or formulas and the possibility that you will receive
a lower, or no, amount of principal, premium or interest and at different times
than you expected. We have no control over a number of matters, including
economic, financial and political events, that are important in determining the
existence, magnitude and longevity of these risks and their results. In
addition, if an index or formula used to determine any amounts payable in
respect of the notes contains a multiplier or leverage factor, the effect of any
change in that index or formula will be magnified. In recent years, values of
certain indices and formulas have been volatile and volatility in those and
other indices and formulas may be expected in the future. However, past
experience is not necessarily indicative of what may occur in the future.
Redemption May Adversely Affect Your Return on the Notes
If your notes are redeemable at our option or are otherwise subject to
mandatory redemption, we may, in the case of optional redemption, or must, in
the case of mandatory redemption, choose to redeem your notes at times when
prevailing interest rates may be relatively low. Accordingly, you generally
will not be able to reinvest the redemption proceeds in a comparable security at
an effective interest rate as high as that of the notes.
There May Be an Uncertain Trading Market for Your Notes; Many Factors Affect the
Trading Value of Your Notes
We cannot assure you a trading market for your notes will continue to
exist. Many factors independent of our creditworthiness may affect the trading
market of your notes. These factors include:
. the complexity and volatility of the index or formula applicable to
the notes,
. the method of calculating the principal, premium and interest in
respect of the notes,
. the time remaining to the maturity of the notes,
. the outstanding amount of the notes,
. the redemption features of the notes,
. the amount of other securities linked to the index or formula
applicable to the notes, and
. the level, direction and volatility of market interest rates
generally.
In addition, because some notes were designed for specific investment
objectives or strategies, these notes will have a more limited trading market
and experience more price volatility. There may be a limited number of buyers
for these notes. This may affect the price you receive for these notes or your
ability to sell these notes at all. You should not purchase notes unless you
understand and know you can bear the related investment risks.
3
Our Credit Ratings May Not Reflect All Risks of an Investment in the Notes
Our credit ratings are an assessment of our ability to pay our obligations.
Consequently, real or anticipated changes in our credit ratings will generally
affect the market value of your notes. Our credit ratings, however, may not
reflect the potential impact of risks related to structure, market or other
factors discussed above on the value of your notes.
MERRILL LYNCH & CO., INC.
We are a holding company that, through our U.S. and non-U.S. subsidiaries
and affiliates such as Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Merrill Lynch Government Securities Inc., Merrill Lynch Capital Services, Inc.,
Merrill Lynch International, Merrill Lynch Capital Markets Bank Ltd., Merrill
Lynch Asset Management LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping services.
We provide these products and services to a wide array of clients,
including individual investors, small businesses, corporations, governments,
governmental agencies and financial institutions.
Our principal executive office is located at 4 World Financial Center, New
York, New York 10080; our telephone number is (212) 449-1000.
If you want to find more information about us, please see the sections
entitled "Where You Can Find More Information" and "Incorporation of Information
We File with the SEC" in this prospectus.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
notes described in this prospectus.
4
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, we acquired the outstanding shares of Midland Walwyn Inc., in a
transaction accounted for as a pooling-of-interests. The following information
for the fiscal years 1995 through 1997 has been restated as if the two entities
had always been combined.
The following table sets forth our historical ratios of earnings to fixed
charges for the periods indicated:
For the Three
Year Ended Last Friday in December Months Ended
1995 1996 1997 1998 1999 March 31, 2000
---- ---- ---- ---- ---- --------------
Ratio of earnings to fixed charges(a).... 1.2 1.2 1.2 1.1 1.3 1.4
__________
(a) The effect of combining Midland Walwyn did not change the ratios reported
for the fiscal years 1995 through 1997.
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges, excluding capitalized interest and preferred security
dividend requirements of subsidiaries. "Fixed charges" consist of interest
costs, the interest factor in rentals, amortization of debt issuance costs,
preferred security dividend requirements of subsidiaries, and capitalized
interest.
5
DESCRIPTION OF NOTES
Terms of the Notes
"Pricing supplement", as used herein, means a prospectus supplement
relating to an individual issue of the notes, as filed with the SEC.
The terms and conditions described below apply to each note unless
otherwise specified in the applicable pricing supplement.
Except as provided in the applicable pricing supplement, the notes are
denominated in U.S. dollars. If provided in the applicable pricing supplement,
notes may be denominated in a foreign currency or in units of two or more
currencies ("Multi-Currency Notes").
Except as provided in the applicable pricing supplement:
. the notes were issued only in fully registered form without coupons;
. floating rate notes and Zero Coupon Notes, as defined, were issued in
denominations of $25,000 or any amount in excess of $25,000 which is
an integral multiple of $1,000; and
. fixed rate notes were issued in denominations of $1,000 or any
integral multiple in excess of $1,000.
Unless otherwise specified in the applicable pricing supplement:
. principal and interest, if any, is payable,
. the transfer of the notes is registrable, and
. the notes are exchangeable for notes bearing identical terms and
provisions,
at the office of the trustee in The City of New York designated for such
purpose, provided that ML&Co., at its option, may pay interest, other than
interest payable at maturity or on any date of redemption or repayment, by check
mailed to the address of the person entitled to receive payment as shown on the
security register. ML&Co. will pay the principal and interest payable at
maturity or the date of redemption or repayment on each note upon maturity,
redemption or repayment, as the case may be, in immediately available funds
against presentation of the note at the office of the trustee maintained for
that purpose.
Notwithstanding the preceding two sentences, ML&Co. may pay interest on a
note which bears interest at a floating rate at maturity or earlier redemption
or repayment by wire transfer of immediately available funds to a designated
account maintained in the United States upon:
(1) receipt of written notice by the trustee from the holder of the
applicable note not less than one Business Day before the due date of
the relevant principal payment; and
(2) presentation of the note at the corporate trust office of the trustee
in the Borough of Manhattan, The City of New York, or at any other
place as ML&Co. may designate.
A holder of not less than $1,000,000 aggregate principal amount of floating rate
notes may by written notice to the trustee at the corporate trust office or at
such other address as ML&Co. will give notice in writing not less than 15 days
before an interest payment date, arrange to have the interest payable on all
notes held by that holder on the relevant interest payment date, and all
subsequent interest payment dates until written notice to the contrary is given
6
to the trustee, made by wire transfer of immediately available funds to a
designated account maintained in the United States.
Except as provided in the applicable pricing supplement, "Business Day"
means any day that is not a Saturday or Sunday and that, in The City of New
York, is neither a legal holiday nor a day on which banking institutions are
authorized or obligated by law or regulation to close.
Repayment at Option of Holder
If so indicated in an applicable pricing supplement, notes are repayable by
ML&Co. in whole or in part at the option of the holders of the notes on their
respective optional repayment dates specified in the applicable pricing
supplement. If no optional repayment date is indicated with respect to a note,
that note is not repayable at the option of the holder before maturity. Any
repayment in part will be in increments of $1,000 provided that any remaining
principal amount of the applicable note will be an authorized denomination of
the applicable note. The repurchase price for any note repurchased is 100% of
the principal amount to be repaid, together with interest payable to the date of
repayment.
Notwithstanding anything to the contrary in this prospectus, if repayable
at the option of the holder, a note is repayable only on an interest payment
date. If any optional repayment date specified with respect to a note is not an
interest payment date, whether because the payment date is not a Business Day or
otherwise, the applicable repayment date will, instead of being the date
specified, be the interest payment date nearest the specified optional repayment
date whether the applicable interest payment date precedes or succeeds the
specified optional repayment date. In the event that an equal number of days
separates a specified optional repayment date and the preceding interest payment
date, on the one hand, and the succeeding interest payment date, on the other
hand, the optional repayment date will be the succeeding interest payment date.
In order for a note which is by its terms repayable at the option of the
holder to be repaid before maturity, ML&Co. must receive at the corporate trust
office of the trustee, or at any other address of which ML&Co. will from time to
time notify the holders of the notes, during the period from and including the
20th Business Day preceding the applicable optional repayment date up to and
including the close of business on the 16th Business Day preceding the
applicable optional repayment date:
(1) the applicable note with the information under the caption "option to
elect repayment" duly completed, or
(2) a telegram, telex, facsimile transmission or letter from a member of a
national securities exchange or the National Association of Securities
Dealers, Inc. or a commercial bank or a trust company in the United
States of America dated no later than the 16th Business Day preceding
the applicable optional repayment date and setting forth the name of
the holder of the note, the principal amount of the note, the amount
of the note to be repaid, a statement that the option to elect
repayment is being exercised and a guarantee that the note with the
information required under the caption "option to elect repayment"
duly completed will be received at the above-mentioned office of the
trustee, not later than the 5th Business Day after the date of the
telegram, telex, facsimile transmission or letter and note, duly
completed, is received at the office of the trustee by the 5th
Business Day.
A holder's effective exercise of the repayment option will be irrevocable.
A holder of a note will not be permitted to transfer or exchange that note or,
in the event that a note is to be repaid in part, that portion of the note to be
repaid, after exercise of the repayment option. ML&Co. will make all
determinations with respect to all questions as to the validity, eligibility,
including time of receipt and acceptance of any note for repayment. All such
determinations will be final, binding and non-appealable. ML&Co. has the right
to offer for resale any note acquired by it pursuant to the foregoing
arrangements. Accordingly, ML&Co. may not satisfy the indebtedness evidenced by
any note repurchased by it by such repurchase.
7
Redemption at Option of ML&Co.
The notes do not have a sinking fund but are redeemable at the option of
ML&Co. if a redemption date is specified in the applicable notes and in the
applicable pricing supplement. If indicated in an applicable pricing supplement,
the notes are subject to redemption by ML&Co. on and after their respective
redemption dates specified in the applicable pricing supplement. On and after
the redemption date, if any, the related note is redeemable in whole or in part
at the option of ML&Co. on notice given not more than 60 nor less than 30 days
before the date of redemption in the case of fixed rate notes, or on notice
given not more than 30 nor less than 15 days before the date of redemption in
the case of floating rate notes. Any redemption in part will be in increments of
$1,000 provided that any remaining principal amount of the applicable note will
be an authorized denomination of the applicable note. The redemption price is
equal to 100% of the principal amount to be redeemed, together with interest
payable to the date of redemption. Notwithstanding the above, however, floating
rate notes, if redeemable at the option of ML&Co., are redeemable only on
interest payment dates occurring on or after the applicable redemption dates.
Interest Rate
Each note bears interest at the rate per annum, or pursuant to the interest
rate formula, stated in the applicable note and in the applicable pricing
supplement until the principal of the note is paid or made available for
payment. Interest is payable on each interest payment date and at maturity or,
if applicable, upon redemption or repayment. Interest is payable to the person
in whose name a note is registered at the close of business on the regular
record date next preceding each interest payment date; provided, however,
interest payable at maturity or, if applicable, upon redemption or repayment
will be payable to the person to whom principal will be payable. Except as
provided in the applicable pricing supplement, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, referred to in this prospectus as MLPF&S, is the calculation
agent with respect to floating rate notes.
Each floating rate note bears interest at rates determined by reference to
an interest rate formula, which may be adjusted by a Spread or Spread Multiplier
, each as defined below, unless otherwise specified in the applicable note. A
floating rate note may also have either or both of the following:
. a maximum limitation, or ceiling, on the rate at which interest which
may accrue during any interest period; and
. a minimum limitation, or floor, on the rate at which interest which
may accrue during any interest period.
The applicable pricing supplement designates either a fixed rate of
interest per annum payable on the applicable note, in which case the note is a
fixed rate note, or one of the following base rates, as applicable to the
relevant floating rate note:
. the commercial paper index rate, in which case the note is a
Commercial Paper Index Rate Note,
. the federal funds rate, in which case the note is a Federal Funds Rate
Note,
. the prime rate, in which case the note is a Prime Rate Note,
. the treasury index rate, in which case the note is a Treasury Index
Rate Note,
. LIBOR, in which case the note is a LIBOR Note, or
. such other interest rate formula as is set forth in the applicable
pricing supplement.
Except as specified in the applicable pricing supplement, floating rate
notes have daily, weekly, monthly, quarterly, semiannual or annual resets of the
rate of interest.
8
Fixed Rate Notes
Each fixed rate note bears interest at the rate per annum stated on the
face of the applicable note until the principal of the note is paid or made
available for payment. Except as provided in the applicable pricing supplement,
interest is payable semi-annually on May 15 and November 15 of each year and at
maturity, or on the date of redemption or repayment if a fixed rate note is
redeemed by ML&Co. or repaid at the holder's option prior to maturity. Interest
is computed on the basis of a 360-day year of twelve 30-day months. Interest is
payable to the person in whose name a fixed rate note is registered at the close
of business on the May 1 or November 1 regular record date next preceding the
May 15 or November 15 interest payment date. Interest rates are subject to
change by ML&Co. from time to time, but no change will affect any fixed rate
note previously issued or as to which ML&Co. has accepted an offer to purchase.
Any payment of principal or interest required to be made on an interest
payment date, at maturity or earlier redemption or repayment of a fixed rate
note which is not a Business Day need not be made on that day, but may be made
on the next succeeding Business Day with the same force and effect as if made on
the interest payment date, maturity date or date of redemption or repayment, as
the case may be. No interest will accrue with respect to the payment for the
period from and after the applicable interest payment date, maturity date or
date of redemption or repayment.
Floating Rate Notes
The applicable pricing supplement specifies:
. the base rate or other interest rate formula,
. the Spread, or Spread Multiplier, if any, and
. the maximum or minimum interest rate limitation, if any, applicable to
each floating rate note.
In addition, the pricing supplement specifies for each floating rate note the
following terms, if applicable: the initial interest rate, the interest payment
dates, the Index Maturity, Interest Reset Dates, optional repayment dates,
redemption date and any other variable term applicable to the note.
The interest rate on each floating rate note is calculated by reference to
the specified interest rate formula:
(1) plus or minus the number of basis points specified in the applicable
pricing supplement as being applicable to the interest rate for the
relevant floating rate note (the "Spread"), if any, or
(2) multiplied by the percentage of the base rate applicable to the
interest rate for the applicable floating rate note (the "Spread
Multiplier"), if any.
"Index Maturity" means, the period to maturity of the instrument or
obligation on which the interest rate formula is based, as specified in the
applicable pricing supplement.
"Regular record date" with respect to floating rate notes means the 15th
day, whether or not a Business Day, before the applicable interest payment date.
The "calculation date", if applicable, with respect to any Interest
Determination Date as specified with respect to each base rate is the earlier
of:
. the tenth calendar day after the Interest Determination Date or,
if the tenth calendar day is not a Business Day, the next
succeeding Business Day, or
. the Business Day before the interest payment date on which the
accrued interest will be payable.
9
Except as otherwise provided herein with respect to LIBOR Notes or in the
applicable pricing supplement, if any Interest Reset Date for any floating rate
note would otherwise be a day that is not a Business Day, that Interest Reset
Date will be postponed to the next succeeding day that is a Business Day.
Each floating rate note bears interest from the date of issue at the rates
determined as described below until the principal of the note is paid or
otherwise made available for payment. The rate of interest on a floating rate
note is reset each Interest Reset Date applicable to the note; provided,
however, that except in the case of floating rate notes which reset daily, the
interest rate in effect for the ten days immediately before maturity, redemption
or repayment, as the case may be, will be the interest rate in effect on the
tenth day preceding such maturity, redemption or repayment, as the case may be.
Except as otherwise provided herein or in the applicable pricing supplement, the
rate of interest determined on an Interest Reset Date with respect to a floating
rate note will be applicable on and after the applicable Interest Reset Date to,
but not including, the next succeeding Interest Reset Date, or until the date of
maturity or date of redemption or repayment, as the case may be.
If an interest payment date with respect to any floating rate note falls on
a day that is not a Business Day with respect to the note, that interest payment
date will be the following day that is a Business Day, except that in the case
of a LIBOR Note, if such day falls in the next calendar month, the interest
payment date will be the preceding day that is a Business Day. If the maturity
date or date of redemption or repayment of any floating rate note falls on a day
that is not a Business Day, the payment of interest and principal may be made on
the next succeeding Business Day, and no interest on that payment will accrue
for the period from and after the maturity date or the date of redemption or
repayment.
Except as provided in the applicable pricing supplement, interest payments
on floating rate notes will be the amount of interest accrued from, and
including, the next preceding interest payment date in respect of which interest
has been paid to, but excluding, the interest payment date. With respect to a
floating rate note, accrued interest from the last date to which interest has
been paid is calculated by multiplying the principal amount of the applicable
floating rate note by an accrued interest factor. The accrued interest factor is
computed by adding the interest factors, calculated for each day, from the last
date to which interest has been paid, to the date for which accrued interest is
being calculated. The interest factor for each day is computed by dividing the
interest rate applicable to each day by 360, in the case of Commercial Paper
Index Rate Notes, Federal Funds Rate Notes, Prime Rate Notes and LIBOR Notes, or
by the actual number of days in the year, in the case of Treasury Index Rate
Notes.
All percentages resulting from any calculation on floating rate notes will
be rounded, if necessary, to the nearest one hundred-thousandth of a percentage
point, with five one-millionths of a percentage point rounded upward. For
example, 9.876545% or .09876545 would be rounded to 9.87655% or .0987655. All
dollar amounts used in or resulting from calculations on floating rate notes
will be rounded to the nearest cent with one-half cent being rounded upward.
Upon the request of the holder of any floating rate note, the calculation
agent will provide the interest rate then in effect and, if determined, the
interest rate which will become effective as a result of a determination made
with respect to the most recent Interest Determination Date with respect to the
applicable note.
Commercial Paper Index Rate Notes
Commercial Paper Index Rate Notes bear interest at the interest rates,
calculated with reference to the Commercial Paper Index Rate and the Spread or
Spread Multiplier, if any, specified in the applicable pricing supplement.
Unless otherwise indicated in the applicable pricing supplement,
"Commercial Paper Index Rate" means, with respect to any Interest Determination
Date relating to a Commercial Paper Index Rate Note, the Money Market Yield
calculated as described below of the rate on that date for commercial paper
having the Index Maturity specified in the applicable pricing supplement as such
rate is published by the Board of Governors of the Federal Reserve System in
"Statistical Release H.15(519), Selected Interest Rates" or any successor
publication of the Board of Governors of the Federal Reserve System
("H.15(519)"), under the heading "Commercial Paper". In the event that such rate
is not published by 9:00 A.M. New York City time on the calculation date
pertaining to the applicable Interest Determination Date, then the Commercial
Paper Index Rate will be the Money Market Yield of the rate on
10
that Interest Determination Date for commercial paper having the Index Maturity
as published by the Federal Reserve Bank of New York in its daily statistical
release, "Composite 3:30 P.M. Quotations for U.S. Government Securities"
("Composite Quotations") under the heading "Commercial Paper". If by 3:00 P.M.,
New York City time, on the applicable calculation date such rate is not yet
published in either H.15(519) or Composite Quotations, the Commercial Paper
Index Rate for that Interest Determination Date will be calculated by the
calculation agent and will be the Money Market Yield of the arithmetic mean of
the offered rates of three leading dealers of commercial paper in The City of
New York selected by the calculation agent as of 11:00 A.M., New York City time,
on that Interest Determination Date for commercial paper having the specified
Index Maturity placed for an industrial issuer whose bond rating is "AA" or the
equivalent from a nationally recognized rating agency. If the dealers selected
by the calculation agent are not quoting as mentioned in the preceding sentence,
the Commercial Paper Index Rate will be the Commercial Paper Index Rate in
effect on such Interest Determination Date.
"Money Market Yield" means the yield calculated in accordance with the
following formula and expressed as a percentage:
D x 360
Money Market Yield = ----------------- x 100
360 - (D x X x M)
where "D" refers to the per annum rate for commercial paper quoted on a bank
discount basis and expressed as a decimal; and "M" refers to the actual number
of days in the interest period for which interest is being calculated.
The Interest Determination Date pertaining to an Interest Reset Date on a
Commercial Paper Index Rate Note is the Business Day before the Interest Reset
Date.
Federal Funds Rate Notes
Federal Funds Rate Notes bear interest at the interest rates, calculated
with reference to the Federal Funds Rate and the Spread, or Spread Multiplier,
if any, specified in the applicable pricing supplement.
Unless otherwise indicated in the applicable pricing supplement, "Federal
Funds Rate" means, with respect to any Interest Determination Date relating to a
Federal Funds Rate Note, the rate on that date for Federal Funds as published by
the Board of Governors of the Federal Reserve System in "Statistical Release
H.15(519), Selected Interest Rates" ("H.15(519)") or any successor publication
under the heading "Federal Funds (Effective)" or, if not so published by 9:00
A.M., New York City time, on the calculation date pertaining to the applicable
Interest Determination Date, the Federal Funds Rate will be the interest rate on
the Interest Determination Date as published by the Federal Reserve Bank of New
York in its daily statistical release, "Composite 3:30 P.M. Quotations for U.S.
Government Securities" ("Composite Quotations") under the heading "Federal
Funds/Effective Rate". If such rate is not yet published by 9:00 A.M. on the
calculation date pertaining to the applicable Interest Determination Date, the
Federal Funds Rate for the applicable Interest Determination Date will be the
rate on the applicable Interest Determination Date made publicly available by
the Federal Reserve Bank of New York which is equivalent to the rate which
appears in H.15(519) under the heading "Federal Funds (Effective)". If the rate
described in the preceding sentence is not made publicly available by the
Federal Reserve Bank of New York by 9:00 A.M. on the calculation date, the
Federal Funds Rate will be the last Federal Funds Rate in effect before the
applicable Interest Determination Date.
The rate of interest on a Federal Funds Rate Note is reset on each Interest
Reset Date applicable to the note. Unless otherwise specified in the applicable
pricing supplement, with respect to Federal Funds Rate Notes, each Business Day
is an Interest Reset Date. The Interest Determination Date pertaining to an
Interest Reset Date on a Federal Funds Rate Note is the Business Day before the
applicable Interest Reset Date.
Prime Rate Notes
Prime Rate Notes bear interest at the interest rates, calculated with
reference to the Prime Rate and the Spread, or Spread Multiplier, if any,
specified in the applicable pricing supplement.
11
Unless otherwise indicated in the applicable pricing supplement, "Prime
Rate" means, with respect to any Interest Determination Date relating to a Prime
Rate Note, the arithmetic mean of the prime rates quoted on the basis of the
actual number of days in the year divided by a 360-day year as of the close of
business on the Interest Determination Date by three major money center banks in
The City of New York selected by the calculation agent. If fewer than three
quotations are provided, the Prime Rate will be calculated by the calculation
agent and will be determined as the arithmetic mean on the basis of the prime
rates quoted in The City of New York on the calculation date by three substitute
banks or trust companies organized and doing business under the laws of the
United States, or any State thereof, and unaffiliated with ML&Co., having total
equity capital of at least $500 million and being subject to supervision or
examination by a Federal or State authority, selected by the calculation agent.
If the substitute banks or trust companies selected by the calculation agent are
not quoting as mentioned in the preceding sentence, the Prime Rate will be the
Prime Rate in effect on such Interest Determination Date relating to a Prime
Rate Note.
The Interest Determination Date pertaining to an Interest Reset Date on a
Prime Rate Note is the Business Day before the applicable Interest Reset Date.
LIBOR Notes
LIBOR Notes bear interest at the interest rates calculated with reference
to LIBOR and the Spread or Spread Multiplier, if any, specified in the
applicable pricing supplement.
Unless otherwise indicated in the applicable pricing supplement, LIBOR,
with respect to any Interest Determination Date relating to a LIBOR Note will
equal the arithmetic mean as determined by the calculation agent of the offered
rates which appear as of 11:00 A.M., London time, on the Reuters Screen LIBOR
Page on the Reuter Monitor Money Rates Service for deposits in United States
dollars for the period of the Index Maturity specified in the applicable pricing
supplement commencing on the second day on which dealings in deposits in United
States dollars are transacted in the London interbank market (a "London Banking
Day") immediately following the applicable Interest Determination Date;
provided, however, that if fewer than two quotations appear, the calculation
agent will request the principal London office of four major banks in the London
interbank market selected by the calculation agent to provide the calculation
agent with a quotation of their offered rates at approximately 11:00 A.M.,
London time, on the applicable Interest Determination Date for deposits in
United States dollars for the period of the applicable Index Maturity and in a
principal amount equal to an amount that is representative for a single
transaction in such market at such time commencing on the second London Banking
Day immediately following the applicable Interest Determination Date. If at
least two quotations are provided, LIBOR for the applicable Interest
Determination Date will equal the arithmetic mean of the quotations. If fewer
than two quotations are provided, LIBOR for the applicable Interest
Determination Date will equal the arithmetic mean of the rates quoted by three
major banks in The City of New York, as selected by the calculation agent, at
approximately 11:00 A.M., New York City time, on the applicable Interest
Determination Date for loans to leading European banks in United States dollars
for the period of the applicable Index Maturity and in a principal amount equal
to an amount that is representative for a single transaction in such market at
such time commencing on the second London Banking Day following the Interest
Determination Date. If the banks selected by the calculation agent are not
quoting as mentioned in the preceding sentence, LIBOR for the applicable
Interest Determination Date will be LIBOR in effect on such Interest
Determination Date.
The Interest Determination Date pertaining to an Interest Reset Date on a
LIBOR Note is the second London Banking Day next preceding the applicable
Interest Reset Date.
Treasury Index Rate Notes
Treasury Index Rate Notes bear interest at the interest rates, calculated
with reference to the Treasury Index Rate and the Spread or Spread Multiplier,
if any, specified in the applicable pricing supplement.
Unless otherwise indicated in the pricing supplement, "Treasury Index Rate"
means, with respect to any Interest Determination Date relating to a Treasury
Index Rate Note, the per annum discount rate for direct obligations of the
United States with a maturity of thirteen weeks ("91-day Treasury bills"),
expressed as a bond equivalent on the basis of a year of 365 or 366 days, at the
91-day Treasury bill auction occurring on the applicable
12
Interest Determination Date as published by the Board of Governors of the
Federal Reserve System in "Statistical Release H.15(519), Selected Interest
Rates", or any successor publication, under the heading "Treasury bills--auction
average (investment)" or if not published by 9:00 A.M. New York City time on the
calculation date as reported by the United States Department of the Treasury.
Treasury bills are usually sold at auction on Monday of each week unless that
day is a legal holiday in which case the auction is usually held on the
following Tuesday, except that the auction may be held on the preceding Friday.
The day of each auction of 91-day Treasury bills, unless otherwise
specified in the pricing supplement, is an Interest Determination Date provided
that the results of the auction are published or reported, and each Business Day
following such an Interest Determination Date is a Treasury Index Rate Note
Interest Reset Date. The rate of interest applicable to Treasury Index Rate
Notes will therefore not be reset during any period in which auctions are not
held or the results of auctions are not so published or reported.
Zero Coupon Notes
Notes which do not bear interest ("Zero Coupon Notes") were initially
offered at a substantial discount from their principal amount at maturity. There
are no periodic payments of interest. The calculation of the accrual of Original
Issue Discount, as defined below, in the period during which a Zero Coupon Note
remains outstanding, is on a semiannual bond equivalent basis using a year
composed of twelve 30-day months. Upon maturity, Original Issue Discount will
cease to accrue on a Zero Coupon Note.
Limitation of Claims in Bankruptcy: If a bankruptcy proceeding is commenced
in respect of ML&Co., the claim of the holder of a Zero Coupon Note with respect
to the principal amount thereof may, under Section 502(b)(2) of Title 11 of the
United States Code, be limited to the issue price of the Zero Coupon Note plus
that portion of the Original Issue Discount that is amortized from the date of
issue to the commencement of the proceeding.
OTHER TERMS
ML&Co. issued the notes as a series of securities under an Indenture, dated
as of April 1, 1983, as amended and restated (the "1983 Indenture"), between
ML&Co. and The Chase Manhattan Bank, as trustee. All of the securities issued
under the 1983 Indenture are referred to in this prospectus as the "senior debt
securities". A copy of the 1983 Indenture is filed as an exhibit to the
registration statement relating to the notes of which this prospectus is a part.
The following summaries of the material provisions of the 1983 Indenture are not
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the 1983 Indenture, including the definition of terms in the
1983 Indenture.
ML&Co. may issue series of senior debt securities from time to time under
the 1983 Indenture, without limitation as to aggregate principal amount, in one
or more series and upon such terms as ML&Co. may establish under to the
provisions of the 1983 Indenture.
The 1983 Indenture and the notes are governed by and construed in
accordance with the laws of the State of New York.
ML&Co. may issue senior debt securities with terms different from those of
senior debt securities previously issued, and reopen a previously issued series
of senior debt securities and issue additional senior debt securities of a
previously issued series of senior debt securities.
The senior debt securities are unsecured and rank equally with all other
unsecured and unsubordinated indebtedness of ML&Co.. However, since ML&Co. is a
holding company, the right of ML&Co. and its creditors, including the holders of
senior debt securities, to participate in any distribution of the assets of any
subsidiary upon its liquidation or reorganization or otherwise are necessarily
subject to the prior claims of creditors of the subsidiary, except to the extent
that a bankruptcy court may recognize claims of ML&Co. itself as a creditor of
the subsidiary. In addition, dividends, loans and advances from certain
subsidiaries, including MLPF&S, to ML&Co. are restricted
13
by net capital requirements under the Securities Exchange Act of 1934, as
amended, and under rules of certain exchanges and other regulatory bodies.
Limitations Upon Liens
ML&Co. may not, and may not permit any majority-owned subsidiary to,
create, assume, incur or permit to exist any indebtedness for borrowed money
secured by a pledge, lien or other encumbrance, other than those liens
specifically permitted by the 1983 Indenture, on the Voting Stock owned directly
or indirectly by ML&Co. of any majority-owned subsidiary, other than a majority-
owned subsidiary which, at the time of the incurrence of the secured
indebtedness, has a net worth of less than $3,000,000, unless the outstanding
senior debt securities are secured equally and ratably with the secured
indebtedness.
"Voting Stock" is defined in the 1983 Indenture as the stock of the class
or classes having general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of a
corporation provided that, for the purposes of the 1983 Indenture, stock that
carries only the right to vote conditionally on the occurrence of an event is
not considered voting stock whether or not the event has happened.
Limitation on Disposition of Voting Stock of, and Merger and Sale of Assets by,
MLPF&S
ML&Co. may not sell, transfer or otherwise dispose of any Voting Stock of
MLPF&S or permit MLPF&S to issue, sell or otherwise dispose of any of its Voting
Stock, unless, after giving effect to any such transaction, MLPF&S remains a
Controlled Subsidiary.
"Controlled Subsidiary" is defined in the 1983 Indenture to mean a
corporation more than 80% of the outstanding shares of Voting Stock of which are
owned directly or indirectly by ML&Co.
In addition, ML&Co. may not permit MLPF&S to:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. convey or transfer its properties and assets substantially as an
entirety, except to one or more Controlled Subsidiaries.
Merger and Consolidation
ML&Co. may consolidate or merge with or into any other corporation and
ML&Co. may sell, lease or convey all or substantially all of its assets to any
corporation, provided that:
. the resulting corporation, if other than ML&Co., is a corporation
organized and existing under the laws of the United States of America
or any U.S. state and assumes all of ML&Co.'s obligations to:
. pay any amounts due and payable or deliverable with respect to all
the senior debt securities; and
. perform and observe of all of ML&Co.'s obligations under the 1983
Indenture, and
. ML&Co. or the successor corporation, as the case may be, is not,
immediately after any consolidation or merger, in default under the
1983 Indenture.
Modification and Waiver
ML&Co. and the trustee may modify and amend the 1983 Indenture with the
consent of holders of at least 66 2/3% in principal amount of each outstanding
series of senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 Indenture may:
14
. change the stated maturity date of the principal of, or any installment
of interest or Additional Amounts payable on, any senior debt security
or any premium payable on redemption, or change the redemption price;
. reduce the principal amount of, or the interest or Additional Amounts
payable on, any senior debt security or reduce the amount of principal
which could be declared due and payable before the stated maturity date;
. change the place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any senior debt security;
. impair the right to institute suit for the enforcement of any payment on
or with respect to any senior debt security;
. reduce the percentage in principal amount of the outstanding senior debt
securities of any series, the consent of whose holders is required to
modify or amend the 1983 Indenture; or
. modify the foregoing requirements or reduce the percentage of
outstanding senior debt securities necessary to waive any past default
to less than a majority.
No modification or amendment of ML&Co.'s Subordinated Indenture or any
Subsequent Indenture for subordinated debt securities may adversely affect the
rights of any holder of ML&Co.'s senior indebtedness without the consent of each
holder affected. The holders of at least a majority in principal amount of
outstanding senior debt securities of any series may, with respect to that
series, waive past defaults under the 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under "--
Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. default in the performance of any other obligation of ML&Co. contained
in the 1983 Indenture for the benefit of that series or in the senior
debt securities of that series, continuing for 60 days after written
notice as provided in the 1983 Indenture;
. specified events in bankruptcy, insolvency or reorganization of ML&Co.;
and
. any other Event of Default provided with respect to senior debt
securities of that series which are not inconsistent with the 1983
Indenture.
If an Event of Default occurs and is continuing for any series of senior
debt securities, other than as a result of the bankruptcy, insolvency or
reorganization of ML&Co., the trustee or the holders of at least 25% in
principal amount of the outstanding senior debt securities of that series may
declare all amounts, or any lesser amount provided for in the senior debt
securities, due and payable or deliverable immediately. At any time after a
declaration of acceleration has been made with respect to senior debt securities
of any series but before the trustee has obtained a judgment or decree for
payment of money, the holders of a majority in principal amount of the
outstanding senior debt securities of that series may rescind any declaration of
acceleration and its consequences, if
15
all payments due, other than those due as a result of acceleration, have been
made and all Events of Default have been remedied or waived.
The holders of a majority in principal amount or aggregate issue price of
the outstanding debt securities of that series may waive any Event of Default
with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of the 1983 Indenture without the
consent of each holder of each outstanding security of each series of
debt securities affected.
The holders of a majority in principal amount of the outstanding senior
debt securities of a series may direct the time, method and place of conducting
any proceeding for any remedy available to the trustee or exercising any trust
or power conferred on the trustee with respect to those senior debt securities,
provided that any direction shall not be in conflict with any rule of law or the
1983 Indenture. Before proceeding to exercise any right or power under the 1983
Indenture at the direction of the holders, the trustee shall be entitled to
receive from the holders reasonable security or indemnification against the
costs, expenses and liabilities which might be incurred by it in complying with
any direction.
The notes and other series of senior debt securities issued under the 1983
Indenture do not have the benefit of any cross-default provisions with other
indebtedness of ML&Co.
ML&Co. is required to furnish to the trustee annually a statement as to the
fulfillment by ML&Co. of all of its obligations under the 1983 Indenture.
16
WHERE YOU CAN FIND MORE INFORMATION
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 by visiting
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for more information on
the public reference rooms and their copy charges. You may also inspect our SEC
reports and other information at the New York Stock Exchange, 20 Broad Street,
New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the notes. For further information on ML&Co. and the notes, you should refer to
our registration statement and its exhibits. This prospectus summarizes material
provisions of contracts and other documents that we refer you to. Because the
prospectus may not contain all the information that you may find important, you
should review the full text of these documents. We have included copies of these
documents as exhibits to our registration statement of which this prospectus is
a part.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to incorporate by reference the information we file with
them, which means:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Exchange Act:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly report on Form 10-Q for the period ended March 31, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000, March
31, 2000, April 17, 2000, May 3, 2000 and May 24, 2000.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting;
and
. any reports filed under Section 15(d) of the Exchange Act.
You should rely only on information contained or incorporated by reference
in this prospectus. We have not, and MLPF&S has not, authorized any other person
to provide you with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. We are not, and
17
MLPF&S is not, making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date of this prospectus only. Our business, financial
condition and results of operations may have changed since that date.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 222
Broadway, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales of the
notes and is to be used by MLPF&S when making offers and sales related to
market-making transactions in the notes.
MLPF&S may act as principal or agent in these market-making transactions.
The distribution of the notes will conform to the requirements set forth in
the applicable sections of Rule 2720 of the Conduct Rules of the NASD.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference from the Annual Report on
Form 10-K of Merrill Lynch & Co., Inc. and subsidiaries for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which express an unqualified
opinion and which report on the consolidated financial statements includes an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), which are incorporated herein by reference, and have been so incorporated
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
With respect to unaudited interim financial information for the periods
included in the Quarterly Reports on Form 10-Q which are incorporated herein by
reference, Deloitte & Touche LLP have applied limited procedures in accordance
with professional standards for a review of such information. However, as
stated in their report included in such Quarterly Reports on Form 10-Q and
incorporated by reference herein, they did not audit and they do not express an
opinion on such interim financial information. Accordingly, the degree of
reliance on their report on such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP is
not subject to the liability provisions of Section 11 of the Securities Act of
1933, as amended, for their reports on unaudited interim financial information
because such report is not a "report" or a "part" of the Registration Statement
prepared or certified by an accountant within the meaning of Sections 7 and 11
of the Securities Act of 1933, as amended.
18
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with the+
+ Securities and Exchange Commission is effective. This prospectus is not an +
+ offer to sell these securities and it is soliciting an offer to buy these +
+ securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated June 7, 2000
PROSPECTUS
- ----------
Merrill Lynch & Co., Inc.
AMEX Oil Index(SM)
Stock Market Annual Reset Term(SM) Notes
due December 29, 2000
"SMART Notes(SM)"
This prospectus is to be used by Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, our wholly-owned subsidiary, when making
offers and sales related to market-making transactions in the SMART Notes.
The SMART Notes:
. 100% principal protection at maturity
. Interest payment on each June 30 and December 30
. We will pay interest on the SMART Notes at a rate equal to the
product of 85% and the percentage increase, if any, in the AMEX
Oil Index
. For each $1,000 principal amount of the SMART Notes that you
own, you will receive not less than $20 per year
. The SMART Notes are listed on the American Stock Exchange under
the symbol "MOI.F"
Investing in the SMART Notes involves risks.
See "Risk Factors" beginning on page 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The sale price of the SMART Notes will be the prevailing market price at
the time of sale.
________________________
Merrill Lynch & Co.
________________________
The date of this prospectus is , 2000.
(SM)"SMART Notes" and "Stock Market Annual Reset Term" are service marks of
Merrill Lynch & Co., Inc.
(SM)"Oil Index" is a registered service mark of the American Stock Exchange,
Inc.
TABLE OF CONTENTS
Page
----
RISK FACTORS........................................................... 3
MERRILL LYNCH & CO., INC............................................... 6
RATIO OF EARNINGS TO FIXED CHARGES..................................... 7
DESCRIPTION OF THE SMART NOTES......................................... 8
THE AMEX OIL INDEX..................................................... 13
OTHER TERMS............................................................ 15
WHERE YOU CAN FIND MORE INFORMATION.................................... 19
INCORPORATION OF INFORMATION WE FILE WITH THE SEC...................... 19
PLAN OF DISTRIBUTION................................................... 20
EXPERTS................................................................ 20
2
RISK FACTORS
Your investment in the SMART Notes will involve risks. You should
carefully consider the following discussion of risks before investing in the
SMART Notes. In addition, you should reach an investment decision with regard
to the SMART Notes only after consulting with your legal and tax advisers and
considering the suitability of the SMART Notes in the light of your particular
circumstances.
You may not earn a return on your investment
If the arithmetic mean of the quarterly closing values of the AMEX Oil
Index applicable to each December payment date, determined in the manner set
forth in this prospectus, does not exceed the closing value of the AMEX Oil
Index on the last business day of the immediately preceding calendar year by
more than approximately 2.35%, at maturity you receive no more than $20 for each
$1,000 principal amount of your SMART Notes on that December payment date. This
will be true even if at some point during the time the calculation agent
determines the interest payable on the SMART Notes for each December payment
date, the arithmetic mean of the quarterly closing values of the AMEX Oil Index
for that year exceeded the closing value of the AMEX Oil Index on the last
business day of the immediately preceding calendar year by more than 2.35%.
You will receive no less than $20 for each $1,000 principal amount of your
SMART Notes and we will repay you 100% of the principal amount of your SMART
Notes at maturity. Therefore, the amount that we pay you at maturity may be
less than the return you could earn on other investments. Your yield may be
less than the yield you would earn if you bought a senior non-callable debt
security of Merrill Lynch & Co., Inc. with the same maturity date. Your
investment may not reflect the full opportunity cost to you when you take into
account factors that affect the time value of money.
The amount payable on the SMART Notes based on the AMEX Oil Index will not
produce the same return as if you purchased the stocks underlying the AMEX Oil
Index and held them for a similar period because of the following:
. the AMEX Oil Index does not reflect the payment of dividends on the
stocks underlying it,
. the annual amount payable is limited to 85% multiplied by the percentage
increase in the AMEX Oil Index during any relevant period, but will not
be less than $20 per $1,000 principal amount of the SMART Notes,
. the arithmetic mean of the quarterly closing values of the AMEX Oil
Index for each calendar year may not reflect the full percentage
increase in the AMEX Oil Index during any relevant period because it is
an average of the AMEX Oil Index at various points in time, and
. the amounts payable on the SMART Notes do not reflect changes in the
AMEX Oil Index for the period between the determination of the
arithmetic mean of the quarterly closing values of the AMEX Oil Index
applicable to each December payment date and the determination of the
closing value of the AMEX Oil Index on the last business day of the
preceding calendar year for the next December payment date.
There may be an uncertain trading market for the SMART Notes in the future
Although the SMART Notes are listed on the AMEX under the symbol "MOI.F,"
you cannot assume that a trading market will continue to exist for the SMART
Notes. If a trading market does continue to exist, there can be no assurance
that there will be liquidity in the trading market. The continued existence of
a trading market for the SMART Notes will depend on our financial performance,
and other factors, such as the increase, if any, in the value of the index. We
expect that the secondary market for the SMART Notes, including prices in that
market, will likely be affected by our creditworthiness and by a number of other
factors. It is possible to view the SMART Notes as the economic equivalent of a
debt obligation plus a series of cash settlement options; however, the SMART
Notes may
3
trade in the secondary market at a discount from the aggregate value of these
economic components, if these economic components were valued and capable of
being traded separately.
If the trading market for the SMART Notes is limited and you do not wish to
hold your investment until maturity, there may be a limited number of buyers for
your SMART Notes. This may affect the price you receive if you sell before
maturity.
Many factors affect the trading value of the SMART 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 SMART 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 SMART
Notes caused by another factor and that the effect of one factor may magnify the
decrease in the trading value of the SMART Notes caused by another factor. For
example, an increase in U.S. interest rates may offset some or all of any
increase in the trading value of the SMART Notes attributable to another factor,
such as an increase in the value of the index.
Relative level of the AMEX Oil Index. We expect that the trading value of
the SMART Notes will depend significantly on the extent of the excess of the
expected average of the quarterly closing values of the AMEX Oil Index for a
calendar year over the closing value of the AMEX Oil Index on the last business
day of the preceding calendar year. If, however, you sell your SMART Notes at a
time when this excess exists, the price you receive may nevertheless be at a
discount from the amount expected to be payable if this excess were to prevail
until the next December payment date. Furthermore, the price at which you will
be able to sell SMART Notes before a December payment date may be at a discount,
which could be substantial, from the principal amount of your SMART Notes, if,
at that time, the AMEX Oil Index is below, equal to or not sufficiently above
the closing value of the AMEX Oil Index on the last business day of the
immediately preceding calendar year before that December payment date. The level
of the AMEX Oil Index will depend on the prices of the stocks underlying the
AMEX Oil Index which, in turn, will be affected by factors affecting the oil
industry, see "The AMEX Oil Index--Oil Industry Sector".
Changes in the volatility of the index are expected to affect the trading
value of the SMART Notes. If the volatility of the AMEX Oil Index increases, we
expect the trading value of the SMART Notes to increase. If the volatility of
the AMEX Oil Index decreases, we expect the trading value of the SMART Notes to
decrease.
Changes in the levels of U.S. interest rates are expected to affect the
trading value of the SMART Notes. In general, if U.S. interest rates increase,
we expect the value of the SMART Notes to decrease. If U.S. interest rates
decrease, we expect the value of the SMART Notes to increase. Interest rates may
also affect the U.S. economy, and, in turn, the level of the AMEX Oil Index.
Rising interest rates may lower the level of the AMEX Oil Index and, thus, the
value of the SMART Notes. Falling interest rates may increase the level of the
AMEX Oil Index and, thus, may increase the value of the SMART Notes.
Time remaining to December payment dates. We anticipate that before each
December payment date, the SMART Notes may trade at a value above which may be
inferred from the level of U.S. interest rates and the AMEX Oil Index. This
difference will reflect a "time premium" due to expectations concerning the
level of the AMEX Oil Index during the period before each December payment date.
As the time remaining to each December payment date decreases, however, this
time premium may decrease, thus decreasing the trading value of the SMART Notes.
As the time remaining to maturity of the SMART Notes decreases, the "time
premium" associated with the SMART Notes will decrease. As the number of
remaining December payment dates decreases, the cumulative value of all the
annual rights to receive an amount that reflects participation in the payments
in excess of the minimum annual interest payment of $20 per $1,000 principal
amount will decrease, thus decreasing the value of the SMART Notes.
Changes in dividend yields of the stocks included in the index are expected
to affect the trading value of the SMART Notes. A number of complex
relationships between the relative values of the SMART Notes and
4
dividend rates are likely to exist. If dividend rates on the stocks comprising
the AMEX Oil Index increase, the value of the annual right to receive an amount
that reflects participation in the average appreciation of the AMEX Oil Index
above the annual starting value is expected to decrease, and consequently, we
expect the value of the SMART Notes to decrease. Conversely, if dividend rates
on the stocks comprising the AMEX Oil Index decrease, the value of the annual
right to receive such an amount is expected to increase and, therefore, the
value of the SMART Notes is expected to increase. In general, however, because
the majority of issuers of stocks underlying the AMEX Oil Index are organized in
the United States, rising U.S. corporate dividend rates may increase the AMEX
Oil Index and, in turn, increase the value of the SMART Notes. Conversely,
falling U.S. dividend rates may decrease the AMEX Oil Index and, in turn,
decrease the value of the SMART Notes.
Changes in our credit ratings may affect the trading value of the SMART
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 SMART Notes. However, because your return
on your SMART Notes is dependent upon factors in addition to our ability to pay
our obligations under the SMART Notes, such as the percentage increase in the
value of the index at maturity, an improvement in our credit ratings will not
reduce investment risks related to the SMART Notes.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the SMART Notes of a given change in most of
the factors listed above will be less if it occurs later in the term of the
SMART Notes than if it occurs earlier in the term of the SMART Notes. However,
we expect that the effect on the trading value of the SMART Notes of a given
increase in the value of the index will be greater if it occurs later in the
term of the SMART Notes than if it occurs earlier in the term of the SMART
Notes.
Amounts payable on the MITTS Securities may be limited by state law
The indenture under which the SMART Notes are issued is governed by New
York State law. New York has usury laws that limit the amount of interest that
can be charged and paid on loans, which includes debt securities like the SMART
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 the benefit of the holders of the SMART Notes, to the
extent permitted by law, not to voluntarily claim the benefits of any laws
concerning usurious rates of interest.
5
MERRILL LYNCH & CO., INC.
We are a holding company that, through our U.S. and non-U.S. subsidiaries
and affiliates such as Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Merrill Lynch Government Securities Inc., Merrill Lynch Capital Services, Inc.,
Merrill Lynch International, Merrill Lynch Capital Markets Bank Ltd., Merrill
Lynch Asset Management LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services ;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping services.
We provide these products and services to a wide array of clients,
including individual investors, small businesses, corporations, governments,
governmental agencies and financial institutions.
Our principal executive office is located at 4 World Financial Center, New
York, New York 10080; our telephone number is (212) 449-1000.
If you want to find more information about us, please see the sections
entitled "Where You Can Find More Information" and "Incorporation of Information
We File with the SEC" in this prospectus.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
SMART Notes described in this prospectus.
6
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, we acquired the outstanding shares of Midland Walwyn Inc., in a
transaction accounted for as a pooling-of-interests. The following information
for the fiscal years 1995 through 1997 has been restated as if the two entities
had always been combined.
The following table sets forth our historical ratios of earnings to fixed
charges for the periods indicated:
For the Three
Year Ended Last Friday in December Months Ended
1995 1996 1997 1998 1999 March 31, 2000
---- ---- ---- ---- ---- --------------
Ratio of earnings to fixed charges(a)........ 1.2 1.2 1.2 1.1 1.3 1.4
______________
(a) The effect of combining Midland Walwyn did not change the ratios reported
for the fiscal years 1995 through 1997.
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges, excluding capitalized interest and preferred security
dividend requirements of subsidiaries. "Fixed charges" consist of interest
costs, the interest factor in rentals, amortization of debt issuance costs,
preferred security dividend requirements of subsidiaries, and capitalized
interest.
7
DESCRIPTION OF THE SMART NOTES
The SMART Notes were issued as a series of Senior Debt Securities under the
1983 Indenture which is more fully described this prospectus.
The SMART Notes will mature, and the principal of the SMART Notes will be
repayable at par, on December 29, 2000.
The SMART Notes are not subject to redemption before maturity by ML&Co. or
at the option of any beneficial owner. Upon the occurrence of an Event of
Default with respect to the SMART Notes, however, beneficial owners of the SMART
Notes or the Trustee may accelerate the maturity of the SMART Notes, as
described under "Description of SMART Notes--Events of Default and Acceleration"
and "Other Terms--Events of Default" in this prospectus.
The SMART Notes are transferable in denominations of $1,000 and integral
multiples of $1,000.
Interest Payments
For each full calendar year, ML&Co. will pay interest in an amount equal to
the following for each $1,000 principal amount of SMART Notes:
$1,000 x Average Percent Change x Participation Rate
provided, however, that the per annum amount payable as a result of the
foregoing on the SMART Notes will not be less than the Minimum Annual Payment of
$20 per $1,000 principal amount of SMART Notes on a per annum basis or 2% per
annum.
The "Participation Rate" equals 85%.
The "Average Percent Change" applicable to the determination of the amount
payable in any calendar year will equal:
Ending Average Value - Starting Annual Value
--------------------------------------------
Starting Annual Value
The "Starting Annual Value" applicable to the determination of the amount
payable in a calendar year will equal the closing value of the AMEX Oil Index on
the last AMEX Business Day in the immediately preceding calendar year as
determined by State Street Bank and Trust Company or the calculation agent.
The "Ending Average Value" applicable to the determination of the amount
payable in a calendar year will equal the arithmetic average or arithmetic mean
of the Quarterly Values of the AMEX Oil Index for each calendar quarter during
such year as determined by the calculation agent.
The "Quarterly Value" for any of the first three calendar quarters in a
calendar year will be the closing value of the AMEX Oil Index on the last
scheduled AMEX Business Day in any such calendar quarter; provided, however,
that if a Market Disruption Event has occurred on the last scheduled AMEX
Business Day in that calendar quarter, the Quarterly Value for that calendar
quarter will be the closing value of the AMEX Oil Index on the next succeeding
scheduled AMEX Business Day regardless of whether a Market Disruption Event
occurs on that day.
The "Quarterly Value" for the fourth calendar quarter in a calendar year
will be the closing value of the AMEX Oil Index on the seventh scheduled AMEX
Business Day preceding the end of that calendar quarter; provided, however, that
if a Market Disruption Event has occurred on the seventh scheduled AMEX Business
Day, the Quarterly Value for that calendar quarter will be the closing value of
the AMEX Oil Index on the sixth scheduled AMEX Business Day preceding the end of
that calendar quarter regardless of whether a Market Disruption Event occurs on
that day. The calculation agent will determine scheduled AMEX Business Days.
8
If the Ending Average Value applicable to the applicable December payment
date does not exceed the Annual Starting Value by more than approximately 2.35%,
beneficial owners of the SMART Notes will receive only the Minimum Annual
Payment on that December payment date, even if the value of the AMEX Oil Index
at some point between the determination of the applicable Starting Annual Value
and the determination of the applicable Ending Average Value exceeded that
Starting Annual Value by more than approximately 2.35%.
"Calculation Day" is any day on which a Starting Annual Value or a closing
value of the AMEX Oil Index for a calendar quarter is required to be calculated.
An "AMEX Business Day" is a day on which the AMEX is open for trading. All
determinations made by the calculation agent shall be at the sole discretion of
the calculation agent and, in the absence of manifest error, shall be conclusive
for all purposes and binding on ML&Co. and beneficial owners of the SMART Notes.
All percentages resulting from any calculation on the SMART 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 any calculation will be rounded to the nearest cent with
one-half cent being rounded upwards.
Adjustments to the Index; Market Disruption Event
If at any time the method of calculating the AMEX Oil Index, or its value,
is changed in a material respect, or if the AMEX Oil Index is in any other way
modified so that the index does not, in the opinion of the calculation agent,
fairly represent the value of the AMEX Oil Index had no changes or modifications
been made, then, from and after that time, the calculation agent shall, at the
close of business in New York, New York, on each Calculation Day, make any
adjustments as, in the good faith judgment of the calculation agent, may be
necessary in order to arrive at a calculation of a value of a stock index
comparable to the AMEX Oil Index as if no changes or modifications had been
made, and calculate the closing value with reference to the AMEX Oil Index, as
adjusted. Accordingly, if the method of calculating the AMEX Oil Index is
modified so that the value of the index is a fraction or a multiple of what it
would have been if it had not been modified, e.g., due to a split in the index,
then the calculation agent shall adjust the index in order to arrive at a value
of the AMEX Oil Index as if it had not been modified, e.g., as if a split had
not occurred.
"Market Disruption Event" means either of the following events, as
determined by the calculation agent:
(a) the suspension or material limitation on trading during the last
half hour of trading in any of the component stocks, or
depository receipts representing those stocks, included in the
AMEX Oil Index on any national securities exchange in the United
States, or
(b) the suspension or material limitation, in each case during the
last half hour of trading whether by reason of movements in price
exceeding levels permitted by the relevant exchange or otherwise,
in:
. futures contracts related to the AMEX Oil Index which are
traded on any exchange or board of trade in the United States,
or
. option contracts related to the AMEX Oil Index which are
traded on the AMEX.
For the purposes of clause (a) above, any limitations on trading during
significant market fluctuations under New York Stock Exchange Rule 80A, or any
applicable rule or regulation enacted or promulgated by the NYSE, the AMEX or
any other self regulatory organization or the SEC of similar scope as determined
by the calculation agent, will be considered ''material''.
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular business hours of
the relevant exchange.
9
Interest Payment Dates
ML&Co. will make semiannual interest payments on the SMART Notes on June 30
of each year ("June Payment Dates") and December 31 of each year and at maturity
("December Payment Dates"), except as described in this prospectus, to the
persons in whose names the SMART Notes are registered on the immediately
preceding June 29 or December 30, and, at maturity, to the person to whom the
principal is payable. For each Note, ML&Co. will pay half of the Minimum Annual
Payment for each calendar year on the June Payment Date, and will pay the
balance of the annual amount payable on each Note for that year on the December
Payment Date.
Notwithstanding the foregoing, if it is known at least three Business Days
before December 31 that December 31 will not be a Business Day, the amount
payable by ML&Co. with respect to a December Payment Date for the SMART Notes
will be made on the Business Day immediately preceding that December 31 to the
persons in whose names the SMART Notes are registered on the second Business Day
immediately preceding that December 31.
Discontinuance of the AMEX Oil Index
If the AMEX discontinues publication of the AMEX Oil Index and the AMEX or
another entity publishes a successor or substitute index that the calculation
agent determines, in its sole discretion, to be comparable to the AMEX Oil Index
(a "Successor Index"), then, upon the calculation agent's notification of any
determination to the Trustee and ML&Co., the calculation agent will substitute
the Successor Index as calculated by the AMEX or any other entity for the AMEX
Oil Index and calculate the annual amount payable as described above under
"Interest Payments". Upon any selection by the calculation agent of a Successor
Index, ML&Co. shall cause notice to be given to holders of the SMART Notes.
If the AMEX discontinues publication of the AMEX Oil Index and a Successor
Index is not selected by the calculation agent or is no longer published on any
of the Calculation Days, the value to be substituted for the AMEX Oil Index for
any Calculation Day used to calculate the annual amount payable will be a value
computed by the calculation agent for each Calculation Day in accordance with
the procedures last used to calculate the AMEX Oil Index before any
discontinuance. If a Successor Index is selected or the calculation agent
calculates a value as a substitute for the AMEX Oil Index the Successor Index or
value shall be substituted for the AMEX Oil Index for all purposes, including
for purposes of determining whether a Market Disruption Event exists.
If the AMEX discontinues publication of the AMEX Oil Index before the
period during which the amount payable with respect to any year is to be
determined and the calculation agent determines that no Successor Index is
available at that time, then on each AMEX Business Day until the earlier to
occur of:
(a) the determination of the amount payable with respect to that year or
(b) a determination by the calculation agent that a Successor Index is
available, the calculation agent shall determine the value that would
be used in computing the amount payable with respect to that year as
described in the preceding paragraph as if that day were a Calculation
Day.
The calculation agent will cause notice of each such value to be published not
less often than once each month in The Wall Street Journal, or another newspaper
of general circulation, and arrange for information with respect to these values
to be made available by telephone. Notwithstanding these alternative
arrangements, discontinuance of the publication of the AMEX Oil Index may
adversely affect trading in the SMART Notes.
Events of Default and Acceleration
In case an Event of Default with respect to any SMART Notes shall have
occurred and be continuing, the amount payable to a beneficial owner of a Note
upon any acceleration permitted by the SMART Notes, will equal:
(a) the principal amount of each SMART Note, plus
10
(b) an additional amount, if any, of interest calculated as though the
date of early repayment were a December Payment Date and prorated
through the date of early repayment on the basis of a year consisting
of 360 days of twelve 30-day months.
If Quarterly Values have been calculated before the early redemption date for
the calendar year in which any early redemption date occurs, these Quarterly
Values shall be averaged with the value of the AMEX Oil Index determined with
respect to that date of early redemption. If no Quarterly Values have been
calculated before the early redemption date for the calendar year in which the
early redemption date occurs, the Ending Average Value for that calendar year
will be the value of the AMEX Oil Index determined with respect to the date of
early redemption. The Minimum Supplemental Redemption Amount with respect to any
early redemption date will be an amount equal to the interest which would have
accrued on the SMART Notes from and including January 1 in the calendar year in
which the early redemption date occurs, to but excluding the date of early
redemption at an annualized rate of 2%, calculated on a semiannual bond
equivalent basis.
If a bankruptcy proceeding is commenced in respect of 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, if any, of contingent interest calculated as though the date
of the commencement of the proceeding were the maturity date of the SMART Notes.
In case of default in payment at the maturity date of the SMART Notes
whether at their stated maturity or upon acceleration, from and after the
maturity date the SMART Notes shall bear interest, payable upon demand of the
holders, at the rate of 7% per annum to the extent that payment of interest
shall be legally enforceable, on the unpaid amount due and payable on that date
in accordance with the terms of the SMART Notes to the date payment of that
amount has been made or duly provided for.
Global Securities
Description of the Global Securities.
Beneficial owners of the SMART Notes may not receive physical delivery of
the securities nor may they be entitled to have the securities registered in
their names. The SMART Notes are represented by one or more fully registered
global securities. Each global security has been deposited with, or on behalf
of, The Depository Trust Company or DTC (DTC, together with any successor
thereto, being a "depositary"), as depositary, registered in the name of Cede &
Co. (DTC's partnership nominee). Unless and until it is exchanged in whole or in
part for SMART Notes in definitive form, no global security may be transferred
except as a whole by the depositary to a nominee of the depositary or by a
nominee of the depositary to such depositary or another nominee of the
depositary or by the depositary or any nominee to a successor of such depositary
or a nominee of that successor.
So long as DTC, or its nominee, is a registered owner of a global security,
DTC or its nominee, as the case may be, will be considered the sole owner or
holder of the SMART Notes represented by a global security for all purposes
under the 1983 Indenture. Except as provided below, the beneficial owners of the
securities represented by a global security are not entitled to have the SMART
Notes represented by the global security registered in their names, will not
receive or be entitled to receive physical delivery of the SMART Notes in
definitive form and are not considered the owners or holders under the 1983
Indenture, including for purposes of receiving any reports delivered by ML&Co.
or the trustee under the 1983 Indenture. Accordingly, each person owning a
beneficial interest in a global security must rely on the procedures of DTC and,
if that person is not a participant of DTC on the procedures of the participant
through which that person owns its interest, to exercise any rights of a Holder
under the 1983 Indenture. ML&Co. understands that under existing industry
practices, in the event that ML&Co. requests any action of holders or that an
owner of a beneficial interest in a global security desires to give or take any
action which a holder is entitled to give or take under the 1983 Indenture, DTC
would authorize the participants holding the relevant beneficial interests to
give or take action, and those participants would authorize beneficial owners
owning through those participants to give or take action or would otherwise act
upon the instructions of beneficial owners. Conveyance of notices and other
communications by DTC to participants, by participants to indirect participants
and by participants and indirect participants to beneficial owners are governed
by arrangements among them, subject to any statutory or regulatory requirements
as may be in effect from time to time.
11
DTC Procedures
The following is based on information furnished by DTC:
DTC is the securities depositary for the securities. The securities have
been issued as fully registered securities registered in the name of Cede & Co.
(DTC's partnership nominee). One or more fully registered global securities have
been issued for the SMART Notes in the aggregate principal amount of that issue,
and has been deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants deposit with DTC. DTC also facilitates
the settlement among participants of securities transactions, such as transfers
and pledges, in deposited securities through electronic computerized book-entry
changes in participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct participants of DTC include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. DTC is owned by a number of its direct
participants and by the NYSE, the AMEX and the National Association of
Securities Dealers, Inc. Access to the DTC's system is also available to others
such as securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a direct participant, either
directly or indirectly. The rules applicable to DTC and its participants are on
file with the SEC.
Purchases of securities under DTC's system must be made by or through
direct participants, which will receive a credit for the securities on DTC's
records. The ownership interest of each beneficial owner is in turn to be
recorded on the records of direct and indirect participants. Beneficial owners
will not receive written confirmation from DTC of their purchase, but beneficial
owners are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
participants or indirect participants through which such beneficial owner
entered into the transaction. Transfers of ownership interests in the securities
are to be accomplished by entries made on the books of participants acting on
behalf of beneficial owners.
To facilitate subsequent transfers, all securities deposited with DTC are
registered in the name of DTC's partnership nominee, Cede & Co. The deposit of
securities with DTC and their registration in the name of Cede & Co. effect no
change in beneficial ownership. DTC has no knowledge of the actual beneficial
owners of the securities; DTC's records reflect only the identity of the direct
participants to whose accounts such securities are credited, which may or may
not be the beneficial owners. The participants are responsible for keeping
account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct and
indirect participants to beneficial owners are governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the
securities. Under its usual procedures, DTC mails an omnibus proxy to ML&Co. as
soon as possible after the applicable record date. The omnibus proxy assigns
Cede & Co.'s consenting or voting rights to those direct participants identified
in a listing attached to the omnibus proxy to whose accounts the securities are
credited on the record date.
Principal, premium, if any, and/or interest, if any, payments on the SMART
Notes will be made in immediately available funds to DTC. DTC's practice is to
credit direct participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the depositary's records
unless DTC has reason to believe that it will not receive payment on such date.
Payments by participants to beneficial owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name", and
will be the responsibility of such participant and not of DTC, the trustee or
ML&Co., subject to any statutory or regulatory requirements as may be in effect
from time to time. Payment of principal, premium, if any, and/or interest, if
any, to DTC is the responsibility of ML&Co. or the trustee, disbursement of such
payments to direct participants is the responsibility of DTC, and disbursement
of such payments to the beneficial owners is the responsibility of direct and
indirect participants.
12
Exchange for Certificated Securities
If
(a) the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
(b) ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, and
(c) an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to the securities,
the global securities will be exchangeable for securities in definitive form of
like tenor and of an equal aggregate principal amount, in denominations of
$1,000 and integral multiples of $1,000. The definitive securities will be
registered in such name or names as the depositary shall instruct the trustee.
It is expected that such instructions may be based upon directions received by
the depositary from participants with respect to ownership of beneficial
interests in the global securities.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, SMART Notes in definitive
form will be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that ML&Co. believes to be reliable, but ML&Co. takes no
responsibility for its accuracy.
THE AMEX OIL INDEX
The AMEX Oil Index is a price-weighted stock index, i.e., an Underlying
Stock's weight in the index is based on its price per share rather than the
total market capitalization of the issuer, calculated, published and
disseminated by the AMEX that measures the composite price performance of
selected common stocks of widely-held corporations involved in various segments
of the oil industry. The AMEX Oil Index was originally published by the AMEX as
the Oil and Gas Index. In September 1984, the AMEX changed the Oil and Gas Index
from a market-weighted index to a price-weighted index and deleted all companies
engaged exclusively in gas exploration and production activities. The Oil and
Gas Index was then renamed the Oil Index. At March 24, 1994, the calculation of
the value of the AMEX Oil Index was based on the relative value of the aggregate
market price of the common stocks of sixteen companies engaged in various
segments of the oil industry.
The AMEX may from time to time, with approval of the SEC, add companies to,
or delete companies from, the AMEX Oil Index to fulfill the above-stated
intention of providing an indication of price movements of common stock of
corporations engaged in various segments of the oil industry. The level of the
AMEX Oil Index is calculated once per day using last sale prices only, i.e., not
special "bid quotes" or special "ask quotes" which are used in connection with
other stock indices.
The level of the AMEX Oil Index is disseminated via the Consolidated Tape
Authority Network-B also known as the "AMEX Tape". The AMEX Tape Symbol for the
AMEX Oil Index is "XOI".
Computation of the AMEX Oil Index
At March 24, 1994, the AMEX computed the AMEX Oil Index as of a particular
time as follows:
(a) the market price of one share of each component stock is determined as
of such time;
(b) the market prices of all component stocks as of such time (as
determined under clause (a) above) are aggregated;
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(c) the aggregate amount (as determined under clause (b) above) is divided
by 3.47874.
While the AMEX employed the above methodology to calculate the AMEX Oil
Index at March 24, 1994, no assurance can be given that the AMEX will not modify
or change such methodology in a manner that may affect the amounts payable on
any December Payment Date to beneficial owners of the SMART Notes.
In order to maintain continuity in the level of the AMEX Oil Index in the
event of certain changes due to non-market factors affecting the Underlying
Stocks, such as the addition or deletion of stocks, substitution of stocks,
stock dividends, stock splits or distributions of assets to stockholders, the
divisor used in calculating the AMEX Oil Index is adjusted in a manner designed
to prevent any instantaneous change or discontinuity in the level of the AMEX
Oil Index. Thereafter, the divisor remains at the new value until a further
adjustment is necessary as the result of another change. As a result of each
such change affecting any component stock, the divisor is adjusted in such a way
that the level of the AMEX Oil Index immediately after any change will equal the
level of the AMEX Oil Index immediately prior to the change.
Component stocks may be deleted or added by the AMEX with approval of the
SEC. However, to maintain continuity in the AMEX Oil Index, the policy of the
AMEX is generally not to alter the composition of the component stocks except
when a component stock is deleted due to:
(a) bankruptcy of the issuer,
(b) merger of the issuer with, or acquisition of the issuer by, another
company,
(c) delisting of such stock, or
(d) failure of such stock to meet, upon periodic review by the AMEX,
market value and trading volume criteria established by the AMEX (as
such may change from time to time).
Upon deletion of a stock from the component stocks, the AMEX may select a
suitable replacement for such deleted component stock. The policy of the AMEX is
to announce any such change in advance via distribution of an information
circular.
The use of and reference to the AMEX Oil Index in connection with the SMART
Notes has been consented to by the AMEX, the publisher of the AMEX Oil Index
and, in connection with that consent, the AMEX has requested that the following
information appear in this prospectus. The AMEX is under no obligation to
continue the calculation and dissemination of the AMEX Oil Index. The SMART
Notes are not sponsored, endorsed, sold or promoted by the AMEX. No inference
should be drawn from the information contained in this prospectus that the AMEX
makes any representation or warranty, implied or express, to ML&Co., beneficial
owners of the SMART Notes or any member of the public regarding the advisability
of investing in securities generally or in the SMART Notes in particular or the
ability of the AMEX Oil Index to track general stock market performance. The
AMEX has no obligation to take the needs of ML&Co. or beneficial owners of the
SMART Notes into consideration in determining, composing or calculating the AMEX
Oil Index. The AMEX is not responsible for, and has not participated, in the
determination or calculation of the equation by which the SMART Notes with
respect to the annual payments will be determined. The AMEX has no obligation or
liability in connection with the administration, marketing or trading of the
SMART Notes. The AMEX disclaims all responsibility for any errors or omissions
in the calculation and dissemination of the AMEX Oil Index or the manner in
which the index is applied in determining the annual payments with respect to
the SMART Notes.
None of ML&Co., the calculation agent, MLPF&S nor the trustee accepts any
responsibility for the calculation, maintenance or publication of the AMEX Oil
Index or any Successor Index.
You should review the historical prices of the securities underlying the
Amex Oil Index. The historical prices of the securities should not be taken as
an indication of future performance, and no assurance can be given that the
prices of the securities will increase sufficiently to cause the beneficial
owners of the SMART Notes to
14
receive an amount in excess of the Minimum Annual Payment on any December
Payment Date and at the maturity of the SMART Notes.
Oil Industry Sector
The oil industry is subject to varying degrees of regulatory, political and
economic risk which may affect the price of the stocks of the companies in the
industry. These risks depend on a number of factors including the countries in
which a particular company conducts its activities, evolving levels of
governmental regulation, and litigation with respect to environmental and other
matters. All segments of the oil industry are competitive, including
manufacturing, distribution and marketing of petroleum products and
petrochemicals. In addition, the oil industry competes with other industries in
supplying the energy needs of various types of consumers. Refining margins or
the difference between the price of products and the price of crude oil, and
marketing margins or the difference between the wholesale and retail price of
petroleum products, also affect companies engaged in the oil industry.
The profitability of companies engaged in the oil industry is directly
affected by the worldwide price of oil and related petroleum products which, in
turn, depends upon the worldwide demand for oil and related petroleum products.
Environmental regulation is a significant factor affecting profitability of
companies engaged in the oil industry. In the U.S., companies engaged in the oil
industry are subject to substantial environmental regulation by federal, state,
and local authorities. Federal regulations include the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended or
also known as CERCLA or Superfund, the Superfund Amendments and Reauthorizations
Act of 1986, and the Resource Conservation Recovery Act of 1976.
In the United States and elsewhere, various laws and regulations are either
now in force, in standby status or under consideration, with respect to such
matters as price controls, crude oil and refined product allocations, refined
product specifications, environmental, health and safety regulations,
retroactive and prospective tax increases, cancellation of contract rights,
expropriation of property, divestiture of certain operations, foreign exchange
rate restrictions as to the convertibility of currencies, tariffs and other
international trade restrictions. Other regulations such as the U.S. Federal
Clean Air Act Amendments of 1990 may have a substantial impact on companies
engaged in the oil industry despite the fact that they do not impose direct
regulations. Finally, regional regulations like those proposed by California's
South Coast Air Quality Management District may have substantial effects on the
oil industry as well.
OTHER TERMS
The SMART Notes were issued as a series of senior debt securities under the
1983 Indenture, dated as of April 1, 1983, as amended and restated, between
ML&Co. and The Chase Manhattan Bank, as trustee. A copy of the 1983 Indenture
is filed as an exhibit to the registration statement relating to the SMART Notes
of which this prospectus is a part. The following summaries of the material
provisions of the 1983 Indenture are not complete and are subject to, and
qualified in their entirety by reference to, all provisions of the 1983
Indenture, including the definitions of terms in the 1983 Indenture.
Series of senior debt securities may from time to time be issued under the
1983 Indenture, without limitation as to aggregate principal amount, in one or
more series and upon terms as ML&Co. may establish under the provisions of the
1983 Indenture.
The 1983 Indenture and the SMART Notes are governed by and construed in
accordance with the laws of the State of New York.
ML&Co. may issue senior debt securities with terms different from those of
senior debt securities previously issued, and issue additional senior debt
securities of a previously issued series of senior debt securities.
15
The senior debt securities are unsecured and rank equally with all other
unsecured and unsubordinated indebtedness of ML&Co. However, because ML&Co. is
a holding company, the rights of ML&Co. and its creditors, including the holders
of senior debt securities, to participate in any distribution of the assets of
any subsidiary upon its liquidation or reorganization or otherwise is
necessarily subject to the prior claims of creditors of the subsidiary, except
to the extent that claims of ML&Co. itself as a creditor of the subsidiary may
be recognized. In addition, dividends, loans and advances from certain
subsidiaries, including MLPF&S, to ML&Co. are restricted by net capital
requirements under the Exchange Act, and under rules of exchanges and other
regulatory bodies.
Limitations Upon Liens
ML&Co. may not, and may not permit any majority-owned subsidiary to,
create, assume, incur or permit to exist any indebtedness for borrowed money
secured by a pledge, lien or other encumbrance, other than those liens
specifically permitted by the 1983 Indenture, on the Voting Stock owned directly
or indirectly by ML&Co. of any majority-owned subsidiary, other than a majority-
owned subsidiary which, at the time of the incurrence of the secured
indebtedness, has a net worth of less than $3,000,000, unless the outstanding
senior debt securities are secured equally and ratably with the secured
indebtedness.
"Voting Stock" is defined in the 1983 Indenture as the stock of the class
or classes having general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of a
corporation provided that, for the purposes of the 1983 Indenture, stock that
carries only the right to vote conditionally on the occurrence of an event is
not considered voting stock whether or not the event has happened.
Limitation on Disposition of Voting Stock of, and Merger and Sale of Assets by,
MLPF&S
ML&Co. may not sell, transfer or otherwise dispose of any Voting Stock of
MLPF&S or permit MLPF&S to issue, sell or otherwise dispose of any of its Voting
Stock, unless, after giving effect to any such transaction, MLPF&S remains a
Controlled Subsidiary.
"Controlled Subsidiary" is defined in the 1983 Indenture to mean a
corporation more than 80% of the outstanding shares of Voting Stock of which are
owned directly or indirectly by ML&Co.
In addition, ML&Co. may not permit MLPF&S to:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. convey or transfer its properties and assets substantially as an
entirety, except to one or more Controlled Subsidiaries.
Merger and Consolidation
ML&Co. may consolidate or merge with or into any other corporation and
ML&Co. may sell, lease or convey all or substantially all of its assets to any
corporation, provided that:
. the resulting corporation, if other than ML&Co., is a corporation
organized and existing under the laws of the United States of America
or any U.S. state and assumes all of ML&Co.'s obligations to:
. pay any amounts due and payable or deliverable with respect to
all the Senior Debt Securities; and
. perform and observe of all of ML&Co.'s obligations under the 1983
Indenture, and
. ML&Co. or the successor corporation, as the case may be, is not,
immediately after any consolidation or merger, in default under the
1983 Indenture.
16
Modification and Waiver
ML&Co. and the trustee may modify and amend the 1983 Indenture with the
consent of holders of at least 66 2/3% in principal amount of each outstanding
series of debt securities affected. However, without the consent of each holder
of any outstanding debt security affected, no amendment or modification to any
Indenture may:
. change the stated maturity date of the principal of, or any
installment of interest or Additional Amounts payable on, any senior
debt security or any premium payable on redemption, or change the
redemption price;
. reduce the principal amount of, or the interest or Additional Amounts
payable on, any senior debt security or reduce the amount of principal
which could be declared due and payable before the stated maturity
date;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. reduce the percentage in principal amount of the outstanding senior
debt securities of any series, the consent of whose holders is
required to modify or amend the 1983 Indenture; or
. modify the foregoing requirements or reduce the percentage of
outstanding senior debt securities necessary to waive any past default
to less than a majority.
No modification or amendment of ML&Co.'s Subordinated Indenture or any
Subsequent Indenture for subordinated debt securities may adversely affect the
rights of any holder of ML&Co.'s senior indebtedness without the consent of each
holder affected. The holders of at least a majority in principal amount of
outstanding senior debt securities of any series may, with respect to that
series, waive past defaults under the Indenture and waive compliance by ML&Co.
with provisions in the 1983 Indenture, except as described under "--Events of
Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. default in the performance of any other obligation of ML&Co. contained
in the Indenture for the benefit of that series or in the senior debt
securities of that series, continuing for 60 days after written notice
as provided in the 1983 Indenture;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. any other Event of Default provided with respect to senior debt
securities of that series which are not inconsistent with the 1983
Indenture.
If an Event of Default occurs and is continuing for any series of senior
debt securities, other than as a result of the bankruptcy, insolvency or
reorganization of ML&Co., the trustee or the holders of at least 25% in
principal
17
amount of the outstanding senior debt securities of that series may declare all
amounts, or any lesser amount provided for in the senior debt securities, due
and payable or deliverable immediately. At any time after a declaration of
acceleration has been made with respect to senior debt securities of any series
but before the trustee has obtained a judgment or decree for payment of money,
the holders of a majority in principal amount of the outstanding senior debt
securities of that series may rescind any declaration of acceleration and its
consequences, if all payments due, other than those due as a result of
acceleration, have been made and all Events of Default have been remedied or
waived.
The holders of a majority in principal amount or aggregate issue price of
the outstanding debt securities of any series of senior debt securities may
waive an Event of Default for that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation or provision of any Indenture which cannot
be modified under the terms of that Indenture without the consent of
each holder of each series of debt securities affected.
The holders of a majority in principal amount of the outstanding senior
debt securities of a series may direct the time, method and place of conducting
any proceeding for any remedy available to the trustee or exercising any trust
or power conferred on the trustee with respect to those senior debt securities,
provided that any direction shall not be in conflict with any rule of law or the
1983 Indenture. Before proceeding to exercise any right or power under the 1983
Indenture at the direction of the holders, the trustee shall be entitled to
receive from the Holders reasonable security or indemnification against the
costs, expenses and liabilities which might be incurred by it in complying with
any direction.
The SMART Notes and other series of senior debt securities issued under the
1983 Indenture do not have the benefit of any cross-default provisions with
other indebtedness of ML&Co.
ML&Co. is required to furnish to the trustee annually a statement as to the
fulfillment by ML&Co. of all of its obligations under the 1983 Indenture.
18
WHERE YOU CAN FIND MORE INFORMATION
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 by visiting
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 further information
about the public reference rooms. You may also inspect our SEC reports and other
information at the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the SMART Notes and other securities. For further information on ML&Co. and the
SMART Notes, you should refer to our registration statement and its exhibits.
This prospectus summarizes material provisions of contracts and other documents
that we refer you to. Because the prospectus may not contain all the information
that you may find important, you should review the full text of these documents.
We have included copies of these documents as exhibits to our registration
statement of which this prospectus is a part.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to incorporate by reference the information we file with
them, which means:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Exchange Act:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly report on Form 10-Q for the period ended March 31, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000 and May 24, 2000.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. any reports filed under Section 15(d) of the Exchange Act.
You should rely only on information contained or incorporated by reference
in this prospectus. We have not, and MLPF&S has not, authorized any other person
to provide you with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. We are not, and
19
MLPF&S is not, making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date of this prospectus only. Our business, financial
condition and results of operations may have changed since that date.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 222
Broadway, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales of the
SMART Notes and is to be used by MLPF&S when making offers and sales related to
market-making transactions in the SMART Notes.
MLPF&S may act as principal or agent in these market-making transactions.
The SMART Notes may be offered on the AMEX or off the exchange in
negotiated transactions or otherwise.
The distribution of the SMART Notes will conform to the requirements set
forth in the applicable sections of Rule 2720 of the Conduct Rules of the NASD.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference from the Annual Report on
Form 10-K of Merrill Lynch & Co., Inc. and subsidiaries for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which express an unqualified
opinion and which report on the consolidated financial statements includes an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), which are incorporated herein by reference, and have been so incorporated
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
With respect to unaudited interim financial information for the periods
included in the Quarterly Reports on Form 10-Q which are incorporated herein by
reference, Deloitte & Touche LLP have applied limited procedures in accordance
with professional standards for a review of such information. However, as
stated in their report included in such Quarterly Reports on Form 10-Q and
incorporated by reference herein, they did not audit and they do not express an
opinion on such interim financial information. Accordingly, the degree of
reliance on their report on such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP is
not subject to the liability provisions of Section 11 of the Securities Act of
1933, as amended, for their reports on unaudited interim financial information
because such report is not a "report" or a "part" of the Registration Statement
prepared or certified by an accountant within the meaning of Sections 7 and 11
of the Securities Act of 1933, as amended.
20
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated June 7, 2000
PROSPECTUS
- -----------
Merrill Lynch & Co., Inc.
S&P 500 Market Index Target-Term Securities(R)
due May 10, 2001
"MITTS(R) Securities"
$10 principal amount
This prospectus is to be used by Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, our wholly-owned subsidiary, when making
offers and sales related to market-making transactions in the MITTS Securities.
The MITTS Securities: Payment at Maturity:
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount equal to
. Senior unsecured debt securities of Merrill Lynch the sum of the principal amount of each unit and an
& Co., Inc. additional amount based on the percentage increase, if
. Linked to the value of the S&P 500 Index. any, in the value of the index, adjusted as described
. The MITTS Securities are listed on the New York in this prospectus.
Stock Exchange under the symbol "MIX". . You will receive no less than the principal amount
of your MITTS Securities.
Investing in the MITTS Securities involves risks.
See "Risk Factors" beginning on page 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The sale price of the MITTS Securities will be the prevailing market price
at the time of sale.
_______________
Merrill Lynch & Co.
_______________
The date of this prospectus is , 2000.
"MITTS" and "Market Index Target-Term Securities" are registered service marks
owned by Merrill Lynch & Co., Inc.
"Standard & Poor's(R)", "Standard & Poor's 500", "S&P 500(R)", "S&P(R)" and
"500", are trademarks of The McGraw-Hill Companies, Inc. and have been licensed
for use by Merrill Lynch Capital Services, Inc. and ML&Co. is an authorized
sublicensee.
TABLE OF CONTENTS
Page
----
RISK FACTORS........................................................ 3
MERRILL LYNCH & CO., INC............................................ 6
RATIO OF EARNINGS TO FIXED CHARGES.................................. 7
DESCRIPTION OF THE MITTS SECURITIES................................. 8
THE INDEX........................................................... 14
OTHER TERMS......................................................... 16
WHERE YOU CAN FIND MORE INFORMATION................................. 19
INCORPORATION OF INFORMATION WE FILE WITH THE SEC................... 19
PLAN OF DISTRIBUTION................................................ 20
EXPERTS............................................................. 20
2
RISK FACTORS
Your investment in MITTS Securities will involve risks. You should
carefully consider the following discussion of risks before investing in the
MITTS Securities. In addition, you should reach an investment decision with
regard to the MITTS Securities only after consulting with your legal and tax
advisers and considering the suitability of the MITTS Securities in the light of
your particular circumstances.
You may not earn a return on your investment
You should be aware that at maturity we will pay you no more than $10 for
each unit of the MITTS Securities you own if the average value of the index over
five trading days shortly before the maturity date is less than 638.26, the
value of the index on the date the MITTS Securities were priced. This will be
true even if at some time during the life of the MITTS Securities, the value of
the index, as adjusted, was higher than 638.26 but later falls below 638.26.
Your yield may be lower than the yield on a standard debt security of comparable
maturity
The amount we pay you at maturity may be less than the return you could
earn on other investments. Your yield may be less than the yield you would earn
if you bought a standard senior non-callable debt security of Merrill Lynch &
Co., Inc. with the same maturity date. Your investment may not reflect the full
opportunity cost to you when you take into account factors that affect the time
value of money.
Your return will not reflect the return of owning the stocks included in the
index
Your return will not reflect the return you would realize if you actually
owned the stock underlying the index and received the dividends paid on those
stocks because the index does not reflect the payment of dividends on the stocks
underlying it.
There may be an uncertain trading market for the MITTS Securities in the future
Although the MITTS Securities are listed on the NYSE under the symbol "IX,"
you cannot assume that a trading market will continue to exist for the MITTS
Securities. If a trading market in the MITTS Securities continues to exist, you
cannot assume that there will be liquidity in the trading market. The continued
existence of a trading market for the MITTS Securities will depend on our
financial performance and other factors such as the appreciation, if any, of the
value of the index.
If a limited trading market for the MITTS Securities exists, and you do not
wish to hold your investment until maturity, fewer buyers may want to purchase
your MITTS Securities. This may affect the price you receive if you sell before
maturity.
Many factors affect the trading value of the MITTS Securities; 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 MITTS Securities 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 MITTS
Securities caused by another factor and that the effect of one factor may
magnify the decrease in the trading value of the MITTS Securities caused by
another factor. For example, an increase in U.S. interest rates may offset some
or all of any increase in the trading value of the MITTS Securities attributable
to another factor, such as an increase in the value of the index. The following
paragraphs describe the expected effect on the trading value of the MITTS
Securities given a change in a specific factor, assuming all other conditions
remain constant:
3
Changes in the levels of U.S. interest rates are expected to affect the
trading value of the MITTS Securities. Because we will pay, at a minimum, the
principal amount per unit of MITTS Securities at maturity, we expect the trading
value of the MITTS Securities will likely be affected by changes in interest
rates. In general, we anticipate that if U.S. interest rates increase, the
trading value of the MITTS Securities will decrease. If U.S. interest rates
decrease, we expect the trading value of the MITTS Securities to increase.
Interest rates may also affect the U.S. economy, and, in turn, the value of the
index. Rising interest rates may lower the value of the index and, thus, the
MITTS Securities. Falling interest rates may increase the value of the index
and, thus, may increase the value of the MITTS Securities.
Changes in the volatility of the index are expected to affect the trading
value of the MITTS Securities. If the volatility of the index increases, we
expect that the trading value of the MITTS Securities will increase. If the
volatility of the index decreases, we expect that the trading value of the MITTS
Securities will decrease.
As the time remaining to maturity of the MITTS Securities decreases, the
"time premium" associated with the MITTS Securities will decrease. We believe
that before maturity the MITTS Securities may trade at a value above that which
you may expect based upon the level of interest rates and the index. This
difference will reflect a "time premium" due to expectations concerning the
value of the index during the period prior to maturity of the MITTS Securities.
As the time remaining to maturity of the MITTS Securities decreases, however, we
expect this time premium to decrease, thus decreasing the trading value of the
MITTS Securities. In addition, the price at which you may be able to sell MITTS
Securities prior to maturity may be at a discount, which may be substantial,
from the principal amount of the MITTS Securities if the value of the index is
below, equal to, or not sufficiently above 638.26.
Changes in dividend yields of the stocks included in the index are expected
to affect the trading value of the MITTS Securities. If dividend rates on the
stocks included in the index increase, we expect the value of the MITTS
Securities to decrease. Conversely, if dividend rates on the stocks included in
the index decrease, we expect the value of the MITTS Securities to increase.
However, in general, rising U.S. corporate dividend rates may increase the value
of the index and, in turn, increase the value of the MITTS Securities.
Conversely, falling U.S. dividend rates may decrease the value of the index and,
in turn, decrease the value of the MITTS Securities.
In general, assuming all relevant factors are held constant, the effect on
the trading value of the MITTS Securities of a given change in interest rates,
index volatility and/or dividend rates of stocks comprising the index is
expected to be less if it occurs later in the term of the MITTS Securities than
if it occurs earlier in the term of the MITTS Securities. We expect that the
effect on the trading value of the MITTS Securities of a given appreciation of
the index in excess of 638.26 to be greater if it occurs later in the term of
the MITTS Securities than if it occurs earlier in the term of the MITTS
Securities, assuming all other relevant factors are held constant.
Amounts payable on the MITTS Securities may be limited by state law
New York State laws govern the indenture under which the MITTS Securities
were issued. New York has usury laws that limit the amount of interest that can
be charged and paid on loans, which includes debt securities like the MITTS
Securities. Under present New York law, the maximum rate of interest is 25% per
annum on a simple interest basis. This limit may not apply to debt securities in
which $2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state or
Federal court sitting outside of New York, many other states also have laws that
regulate the amount of interest that may be charged to and paid by a borrower.
We will promise, for your benefit, to the extent permitted by law, not to
voluntarily claim the benefits of any laws concerning usurious rates of
interest.
The Index
Political, economic and other developments that affect the stocks included
in the index may adversely affect the value of the index and therefore the value
of the MITTS Securities.
4
Potential conflicts
Our wholly-owned subsidiary, Merrill Lynch, Pierce, Fenner & Smith or
MLPF&S, or its affiliates may from time to time engage in transactions involving
the stocks underlying the index for their proprietary accounts and for other
accounts under their management, which may influence the value of these stocks
and therefore the value of the MITTS Securities. MLPF&S and its affiliates will
also be the counterparties to the hedge of ML&Co.'s obligations under the MITTS
Securities. Accordingly, under some circumstances, conflicts of interest may
arise between MLPF&S's responsibilities as calculation agent with respect to the
MITTS Securities and its obligations under its hedge and its status as a
subsidiary of ML&Co. Under some circumstances, the duties of MLPF&S as
calculation agent could conflict with the interests of MLPF&S as an affiliate of
the issuer of the MITTS Securities, Merrill Lynch & Co., Inc., and with the
interests of the holders of the MITTS Securities.
5
MERRILL LYNCH & CO., INC.
We are a holding company that, through our U.S. and non-U.S. subsidiaries
and affiliates such as Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Merrill Lynch Government Securities Inc., Merrill Lynch Capital Services, Inc.,
Merrill Lynch International, Merrill Lynch Capital Markets Bank Ltd., Merrill
Lynch Asset Management LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping services.
We provide these products and services to a wide array of clients,
including individual investors, small businesses, corporations, governments,
governmental agencies and financial institutions.
Our principal executive office is located at 4 World Financial Center, New
York, New York 10080; our telephone number is (212) 449-1000.
If you want to find more information about us, please see the sections
entitled "Where You Can Find More Information" and "Incorporation of Information
We File with the SEC" in this prospectus.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
MITTS Securities described in this prospectus.
6
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, we acquired the outstanding shares of Midland Walwyn Inc., in a
transaction accounted for as a pooling-of-interests. The following information
for the fiscal years 1995 through 1997 has been restated as if the two entities
had always been combined.
The following table sets forth our historical ratios of earnings to fixed
charges for the periods indicated:
Year Ended Last Friday in December For the Three
Months Ended
1995 1996 1997 1998 1999 March 31, 2000
---- ---- ---- ---- ---- --------------
Ratio of earnings to fixed charges(a).... 1.2 1.2 1.2 1.1 1.3 1.4
__________
(a) The effect of combining Midland Walwyn did not change the ratios reported
for the fiscal years 1995 through 1997.
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges, excluding capitalized interest and preferred security
dividend requirements of subsidiaries. "Fixed charges" consist of interest
costs, the interest factor in rentals, amortization of debt issuance costs,
preferred security dividend requirements of subsidiaries, and capitalized
interest.
7
DESCRIPTION OF THE MITTS SECURITIES
On May 13, 1996, ML&Co. issued $110,000,000 aggregate principal amount of
S&P 500 MITTS Securities due May 10, 2001. The MITTS Securities were issued as
a series of senior debt securities under the 1983 Indenture which is more fully
described in this prospectus.
The MITTS Securities will mature on May 10, 2001.
While at maturity a beneficial owner of a MITTS Security will receive the
principal amount of the MITTS Security plus the Supplemental Redemption Amount
described below, if any, there will be no other payment of interest, periodic or
otherwise. See "- Payment at Maturity" below.
The MITTS Securities are not subject to redemption by ML&Co. or at the
option of any beneficial owner before maturity. Upon the occurrence of an Event
of Default with respect to the MITTS Securities, beneficial owners of the MITTS
Securities may accelerate the maturity of the MITTS Securities, as described
under "- Events of Default and Acceleration" and "Other Terms - Events of
Default" in this prospectus.
The MITTS Securities were issued in denominations of whole units.
Payment at Maturity
At the maturity date, a beneficial owner of a MITTS Security will be
entitled to receive the principal amount of each unit plus the Supplemental
Redemption Amount, if any, all as provided below. If the Ending Index Value does
not exceed the Starting Index Value, a beneficial owner of a MITTS Security will
be entitled to receive only the principal amount of its MITTS Securities.
The "Supplemental Redemption Amount" for a MITTS Security will be
determined by the calculation agent and will equal:
Principal Amount X Ending Index Value--Starting Index Value X Participation Rate
----------------------------------------
Starting Index Value
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The "Starting Index Value" equals 638.26, which was the closing value of
the S&P 500 Index (the "Index") on the date the MITTS Securities were priced by
ML&Co. for initial sale to the public (the "Pricing Date").
The "Participation Rate" equals 110%.
The "Ending Index Value" will be determined by the calculation agent and
will equal the average or arithmetic mean of the closing values of the Index
determined on each of the first five Calculation Days during the Calculation
Period. If there are fewer than five Calculation Days, then the Ending Index
Value will equal the average or arithmetic mean of the closing values of the
Index on these Calculation Days. If there is only one Calculation Day, then the
Ending Index Value will equal the closing value of the Index on that Calculation
Day. If no Calculation Days occur during the Calculation Period because of
Market Disruption Events, then the Ending Index Value will equal the closing
value of the Index determined on the last scheduled Index Business Day in the
Calculation Period, regardless of the occurrences of a Market Disruption Event
on that day.
The "Calculation Period" means the period from and including the seventh
scheduled Index Business Day prior to the maturity date to and including the
second scheduled Index Business Day prior to the maturity date.
"Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
8
For purposes of determining the Ending Index Value, an "Index Business Day"
is a day on which the New York Stock Exchange and the American Stock Exchange
are open for trading and the Index or any Successor Index, as defined below, is
calculated and published.
All determinations made by the calculation agent shall be at the sole
discretion of the calculation agent and, absent a determination by the
calculation agent of a manifest error, shall be conclusive for all purpose and
binding on ML&Co. and beneficial owners of the MITTS Securities.
Hypothetical Returns
The following table illustrates, for a range of hypothetical Ending Index
Values,
. the total amount payable at maturity for each $10 principal amount of
MITTS Securities,
. the total rate of return to beneficial owners of the MITTS Securities,
. the pretax annualized rate of return to beneficial owners of MITTS
Securities, and
. the pretax annualized rate of return of an investment in the stocks
underlying the Index, which includes an assumed aggregate dividend yield
of 2.20% per annum, as more fully described below.
Total Amount Pretax Pretax Annualized
Percentage Change Payable at Maturity Annualized Rate Rate of Return of
Hypothetical Ending Over the Starting Per $10 Principal of Return on Stocks Underlying
Index Value Index Value Amount of Securities the Securities(1) the Index(1)(2)
----------- ----------- -------------------- ---------------- ---------------
319.13 -50% $10.00 0.00% -11.41%
382.96 -40% $10.00 0.00% -7.89%
446.78 -30% $10.00 0.00% -4.89%
510.61 -20% $10.00 0.00% -2.25%
574.43 -10% $10.00 0.00% 0.09%
638.26(3) 0% $10.00 0.00% 2.21%
702.09 10% $11.10 2.10% 4.15%
765.91 20% $12.20 4.02% 5.94%
829.74 30% $13.30 5.80% 7.61%
893.56 40% $14.40 7.44% 9.16%
957.39 50% $15.50 8.97% 10.62%
1,021.22 60% $16.60 10.42% 12.00%
1,085.04 70% $17.70 11.77% 13.30%
1,148.87 80% $18.80 13.05% 14.54%
1,212.69 90% $19.90 14.27% 15.72%
1,276.52 100% $21.00 15.43% 16.84%
1,340.35 110% $22.10 16.53% 17.92%
1,404.17 120% $23.20 17.59% 18.95%
___________________
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes
. an investment of a fixed amount in the stocks underlying the Index with
the allocation of the amount reflecting the current relative weights of the
stocks in the Index;
. a percentage change in the aggregate price of the stocks that equals the
percentage change in the Index from the Starting Index Value to the
relevant hypothetical Ending Index Value;
. a constant dividend yield of 2.20% per annum, paid quarterly from the
date of initial delivery of MITTS Securities, applied to the value of the
Index at the end of each quarter assuming the value increases or decreases
linearly from the Starting Index Value to the applicable hypothetical
Ending Index Value;
. no transaction fees or expenses;
. a term for the MITTS Securities from May 13, 1996 to May 10, 2001; and
. a final Index value equal to the Ending Index Value. The aggregate
dividend yield of the stocks underlying the Index as of May 7, 1996 was
approximately 2.20%.
(3) The Starting Index Value.
9
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the resulting total and
pretax annualized rate of return will depend entirely on the actual Ending Index
Value determined by the calculation agent as provided in this prospectus.
Adjustments to the Index; Market Disruption Events
If at any time the method of calculating the Index, or its value, is
changed in any material respect, or if the Index is in any other way modified so
that the Index does not, in the opinion of the calculation agent, fairly
represent the value of the Index had these changes or modifications not been
made, then, from and after that time, the calculation agent shall, at the close
of business in New York, New York, on each date that the closing value with
respect to the Ending Index Value is to be calculated, make any adjustments as,
in the good faith judgment of the calculation agent, may be necessary in order
to arrive at a calculation of a value of a stock index comparable to the Index
as if the changes or modifications had not been made, and calculate the closing
value with reference to the Index, as adjusted. Accordingly, if the method of
calculating the Index is modified so that the value of the Index is a fraction
or a multiple of what it would have been if it had not been modified, for
example, due to a split in the Index, then the calculation agent shall adjust
the Index in order to arrive at a value of the Index as if it had not been
modified, for example, as if the split had not occurred.
"Market Disruption Event" means either of the following events, as
determined by the calculation agent:
(a) the suspension or material limitation in trading for more than two
hours of trading in 100 or more of the securities included in the S&P 500 Index,
or
(b) the suspension or material limitation on trading for more than two
hours of trading, whether by reason of movements in price otherwise exceeding
levels permitted by the relevant exchange or otherwise, in
(1) futures contracts related to the Index which are traded on the
Chicago Mercantile Exchange or
(2) option contracts related to the Index which are traded on the
Chicago Board Options Exchange, Inc.
A limitation on the hours in a trading day and/or number of days of trading
will not constitute a Market Disruption Event if it results from an announced
change in the regular business hours of the relevant exchange.
For the purposes of clause (a) above, any limitations on trading during
significant market fluctuations under New York Stock Exchange Rule 80A, or any
applicable rule or regulation enacted or promulgated by the NYSE or any other
self regulatory organization or the SEC of similar scope as determined by the
calculation agent, will be considered "material".
Discontinuance of the Index
If S&P discontinues publication of the Index and S&P or another entity
publishes a successor or substitute index that the calculation agent determines,
in its sole discretion, to be comparable to the Index (any successor or
substitute index is referred to as a ''Successor Index''), then, upon the
calculation agent's notification of the determination to the trustee and ML&Co.,
the calculation agent will substitute the Successor Index as calculated by S&P
or any other entity for the Index. Upon any selection by the calculation agent
of a Successor Index, ML&Co. shall cause notice to be given to holders of the
MITTS Securities.
If S&P discontinues publication of the Index and a Successor Index is not
selected by the calculation agent or is no longer published on any of the
Calculation Days, the value to be substituted for the Index for any Calculation
Day used to calculate the Supplemental Redemption Amount at maturity will be a
value computed by the calculation agent for each Calculation Day in accordance
with the procedures last used to calculate the Index before the discontinuance.
If a Successor Index is selected or the calculation agent calculates a value as
a substitute
10
for the Index as described below, the Successor Index or value shall be
substituted for the Index for all purposes, including for purposes of
determining whether a Market Disruption Event exists.
If S&P discontinues publication of the Index before the period during which
the Supplemental Redemption Amount is to be determined and the calculation agent
determines that no Successor Index is available at that time, then on each
Business Day until the earlier to occur of:
. the determination of the Ending Index Value and
. a determination by the calculation agent that a Successor Index
is available,
the calculation agent shall determine the value that would be used in computing
the Supplemental Redemption Amount as described in the preceding paragraph as if
that day were a Calculation Day. The calculation agent will cause notice of each
value to be published not less often than once each month in The Wall Street
Journal, or another newspaper of general circulation, and arrange for
information with respect to the values to be made available by telephone.
Despite these alternative arrangements, discontinuance of the publication
of the Index may adversely affect trading in the MITTS Securities.
Events of Default and Acceleration
In case an Event of Default with respect to any MITTS Securities has
occurred and is continuing, the amount payable to a beneficial owner of a MITTS
Security upon any acceleration permitted by the MITTS Securities, with respect
to each $10 principal amount per unit, will be equal to the initial issue price
($10) per unit and an additional amount of contingent interest calculated as
though the date of early repayment were the stated maturity date of the MITTS
Securities. See "- Payment at Maturity" in this prospectus. If a bankruptcy
proceeding is commenced in respect of ML&Co., the claim of the beneficial owner
of a MITTS Security may be limited, under Section 502(b)(2) of Title 11 of the
United States Code, to the principal amount per unit of the MITTS Security plus
an additional amount of contingent interest calculated as though the date of the
commencement of the proceeding were the maturity date of the MITTS Securities.
In case of default in payment of the MITTS Securities, whether at the
stated maturity or upon acceleration, from and after the maturity date the MITTS
Securities shall bear interest, payable upon demand of the beneficial owners
thereof, at the rate of 8% per annum, to the extent that payment of any interest
shall be legally enforceable, on the unpaid amount due and payable on that date
in accordance with the terms of the MITTS Securities to the date payment of any
amount has been made or duly provided for.
Global Securities
Description of the Global Securities
Beneficial owners of the MITTS Securities may not receive physical delivery
of the MITTS Securities nor may they be entitled to have the MITTS Securities
registered in their names. The MITTS Securities currently are represented by one
or more fully registered global securities. Each global security was deposited
with, or on behalf of, The Depository Trust Company or DTC, DTC together with
any successor thereto, being a "depositary", as depositary, registered in the
name of Cede & Co., DTC's partnership nominee. Unless and until it is exchanged
in whole or in part for MITTS Securities in definitive form, no global security
may be transferred except as a whole by the depositary to a nominee of the
depositary or by a nominee of the depositary to the depositary or another
nominee of the depositary or by the depositary or any nominee to a successor of
the depositary or a nominee of that successor.
So long as DTC, or its nominee, is a registered owner of a global security,
DTC or its nominee, as the case may be, will be considered the sole owner or
holder of the MITTS Securities represented by a global security for all purposes
under the 1983 Indenture. Except as provided below, the beneficial owners of the
MITTS Securities
11
represented by a global security will not be entitled to have the MITTS
Securities represented by the global security registered in their names, will
not receive or be entitled to receive physical delivery of the MITTS Securities
in definitive form and will not be considered the owners or holders under the
1983 Indenture, including for purposes of receiving any reports delivered by
ML&Co. or the trustee under the 1983 Indenture. Accordingly, each person owning
a beneficial interest in a global security must rely on the procedures of DTC
and, if that person is not a participant of DTC on the procedures of the
participant through which that person owns its interest, to exercise any rights
of a holder under the 1983 Indenture. ML&Co. understands that under existing
industry practices, in the event that ML&Co. requests any action of holders or
that an owner of a beneficial interest in a global security desires to give or
take any action which a holder is entitled to give or take under the 1983
Indenture, DTC would authorize the participants holding the relevant beneficial
interests to give or take any action, and the participants would authorize
beneficial owners owning through those participants to give or take action or
would otherwise act upon the instructions of beneficial owners. Conveyance of
notices and other communications by DTC to participants, by participants to
indirect participants and by participants and indirect participants to
beneficial owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
DTC Procedures
The following is based on information furnished by DTC:
DTC is the securities depositary for the MITTS Securities. The MITTS
Securities were issued as fully registered securities registered in the name of
Cede & Co., DTC's partnership nominee. One or more fully registered global
securities were issued for the MITTS Securities in the aggregate principal
amount of the MITTS Securities, and were deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered under to the provisions of Section 17A of the Securities and Exchange
Act of 1934, as amended. DTC holds securities that its participants deposit with
DTC. DTC also facilitates the settlement among participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
participants of DTC include securities brokers and dealers, banks, trust
companies, clearing corporations and other organizations. DTC is owned by a
number of its direct participants and by the NYSE, the AMEX and the National
Association of Securities Dealers, Inc. Access to the DTC's system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly. The rules applicable to DTC and its
participants are on file with the SEC.
Purchases of MITTS Securities under DTC's system must be made by or through
direct participants, which will receive a credit for the MITTS Securities on
DTC's records. The ownership interest of each beneficial owner is in turn to be
recorded on the records of direct and indirect participants. Beneficial owners
will not receive written confirmation from DTC of their purchase, but beneficial
owners are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
participants or indirect participants through which the beneficial owner entered
into the transaction. Transfers of ownership interests in the MITTS Securities
are to be accomplished by entries made on the books of participants acting on
behalf of beneficial owners.
To facilitate subsequent transfers, all MITTS Securities deposited with DTC
are registered in the name of DTC's partnership nominee, Cede & Co. The deposit
of MITTS Securities with DTC and their registration in the name of Cede & Co.
effect no change in beneficial ownership. DTC has no knowledge of the actual
beneficial owners of the MITTS Securities; DTC's records reflect only the
identity of the direct participants to whose accounts the MITTS Securities are
credited, which may or may not be the beneficial owners. The participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
12
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct and
indirect participants to beneficial owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the MITTS
Securities. Under its usual procedures, DTC mails an omnibus proxy to ML&Co. as
soon as possible after the applicable record date. The omnibus proxy assigns
Cede & Co.'s consenting or voting rights to those direct participants identified
in a listing attached to the omnibus proxy to whose accounts the MITTS
Securities are credited on the record date identified in a listing attached to
the omnibus proxy.
Principal, premium, if any, and/or interest, if any, payments on the MITTS
Securities will be made in immediately available funds to DTC. DTC's practice is
to credit direct participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the depositary's records
unless DTC has reason to believe that it will not receive payment on that date.
Payments by participants to beneficial owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name", and
will be the responsibility of the participant and not of DTC, the trustee or
ML&Co., subject to any statutory or regulatory requirements as may be in effect
from time to time. Payment of principal, premium, if any, and/or interest, if
any, to DTC is the responsibility of ML&Co. or the trustee, disbursement of
payments to direct participants is the responsibility of DTC, and disbursement
of payments to the beneficial owners is the responsibility of direct and
indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
. an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to the MITTS Securities,
the global securities will be exchangeable for MITTS Securities in definitive
form of like tenor and of an equal aggregate principal amount, in denominations
of $10 and integral multiples of $10. The definitive MITTS Securities will be
registered in the name or names as the depositary shall instruct the trustee. It
is expected that instructions may be based upon directions received by the
depositary from participants with respect to ownership of beneficial interests
in the global securities.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, MITTS Securities in
definitive form will be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that ML&Co. believes to be reliable, but ML&Co. takes no
responsibility for its accuracy.
Same-Day Settlement and Payment
All payments of principal and the Supplemental Redemption Amount, if any,
will be made by ML&Co. in immediately available funds so long as the MITTS
Securities are maintained in book-entry form.
13
THE INDEX
Standard & Poor's publishes the Index. The Index is intended to provide an
indication of the pattern of common stock price movement. The calculation of
the value of the Index, discussed below in further detail, is based on the
relative value of the aggregate market value of the common stocks of 500
companies as of a particular time compared to the aggregate average market value
of the common stocks of 500 similar companies during the base period of the
years 1941 through 1943. Standard & Poor's chooses companies for inclusion in
the Index with the aim of achieving a distribution by broad industry groupings
that approximates the distribution of these groupings in the common stock
population of the NYSE, which Standard & Poor's uses as an assumed model for the
composition of the total market. Relevant criteria employed by Standard &
Poor's include the viability of the particular company, the extent to which that
company represents the industry group to which it is assigned, the extent to
which the market price of that company's common stock is generally responsive to
changes in the affairs of the respective industry and the market value and
trading activity of the common stock of that company. The Index is comprised of
the common stocks of companies in four main groups: Industrials, Utilities,
Transportation and Financial. Standard & Poor's may from time to time, in its
sole discretion, add companies to, or delete companies from, the Index to
achieve the objectives stated above.
The Index does not reflect the payment of dividends on the stocks included
in the Index. Because of this, and due to the application of the Adjustment
Factor, the return on the MITTS Securities will not be the same that you would
receive if you were to purchase these stocks and hold them for a period equal to
the term of the MITTS Securities.
Computation of the Index
Standard & Poor's currently computes the Index as of a particular time as
follows:
(a) the product of the market price per share and the number of then
outstanding shares of each component stock is determined as of that
time (referred to as the "market value" of that stock);
(b) the market values of all component stocks as of that time are
aggregated;
(c) the mean average of the market values as of each week in the base
period of the years 1941 through 1943 of the common stock of each
company in a group of 500 substantially similar companies is
determined;
(d) the mean average market values of all these common stocks over the
base period are aggregated (the aggregate amount being referred to as
the "base value");
(e) the current aggregate market value of all component stocks is divided
by the Base Value; and
(f) the resulting quotient, expressed in decimals, is multiplied by ten.
While Standard & Poor's currently employs the above methodology to
calculate the Index, no assurance can be given that Standard & Poor's will not
modify or change this methodology in a manner that may affect the Supplemental
Redemption Amount, if any, payable to beneficial owners of MITTS Securities upon
maturity or otherwise.
Standard & Poor's adjusts the foregoing formula to offset the effects of
changes in the market value of a component stock that are determined by Standard
& Poor's to be arbitrary or not due to true market fluctuations. These changes
may result from causes such as:
. the issuance of stock dividends,
. the granting to shareholders of rights to purchase additional shares
of stock,
14
. the purchase of shares by employees pursuant to employee benefit
plans,
. consolidations and acquisitions,
. the granting to shareholders of rights to purchase other securities of
ML&Co.,
. the substitution by Standard & Poor's of particular component stocks
in the Index, and
. other reasons.
In these cases, Standard & Poor's first recalculates the aggregate market value
of all component stocks, after taking account of the new market price per share
of the particular component stock or the new number of outstanding shares of
that stock or both, as the case may be, and then determines the new base value
in accordance with the following formula:
New Market Value
Old Base Value X ---------------- = New Base Value
Old Market Value
The result is that the base value is adjusted in proportion to any change
in the aggregate market value of all component stocks resulting from the causes
referred to above to the extent necessary to negate the effects of these causes
upon the Index.
15
OTHER TERMS
ML&Co. issued the MITTS Securities as a series of senior debt securities
under the 1983 Indenture, dated as of April 1, 1983, as amended and restated,
between ML&Co. and The Chase Manhattan Bank, as trustee. A copy of the 1983
Indenture is filed as an exhibit to the registration statement relating to the
MITTS Securities of which this prospectus is a part. The following summaries of
the material provisions of the 1983 Indenture are not complete and are subject
to, and qualified in their entirety by reference to, all provisions of the 1983
Indenture, including the definitions of terms in the 1983 Indenture.
ML&Co. may issue series of senior debt securities from time to time under
the 1983 Indenture, without limitation as to aggregate principal amount, in one
or more series and upon terms as ML&Co. may establish under the provisions of
the 1983 Indenture.
The 1983 Indenture and the MITTS Securities are governed by and construed
in accordance with the laws of the State of New York.
ML&Co. may issue senior debt securities with terms different from those of
senior debt securities previously issued, and issue additional senior debt
securities of a previously issued series of senior debt securities.
The senior debt securities are unsecured and rank equally with all other
unsecured and unsubordinated indebtedness of ML&Co. However, because ML&Co. is
a holding company, the rights of ML&Co. and its creditors, including the holders
of senior debt securities, to participate in any distribution of the assets of
any subsidiary upon its liquidation or reorganization or otherwise are
necessarily subject to the prior claims of creditors of the subsidiary, except
to the extent that a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. In addition, dividends, loans and advances from
certain subsidiaries, including MLPF&S, to ML&Co. are restricted by net capital
requirements under the Exchange Act, and under rules of exchanges and other
regulatory bodies.
Limitations Upon Liens
ML&Co. may not, and may not permit any majority-owned subsidiary to,
create, assume, incur or permit to exist any indebtedness for borrowed money
secured by a pledge, lien or other encumbrance, other than those liens
specifically permitted by the 1983 Indenture, on the Voting Stock owned directly
or indirectly by ML&Co. of any majority-owned subsidiary, other than a majority-
owned subsidiary which, at the time of the incurrence of the secured
indebtedness, has a net worth of less than $3,000,000, unless the outstanding
senior debt securities are secured equally and ratably with the secured
indebtedness.
"Voting Stock" is defined in the 1983 Indenture as the stock of the class
or classes having general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of a
corporation provided that, for the purposes of the 1983 Indenture, stock that
carries only the right to vote conditionally on the occurrence of an event is
not considered voting stock whether or not the event has happened.
Limitation on Disposition of Voting Stock of, and Merger and Sale of Assets by,
MLPF&S
ML&Co. may not sell, transfer or otherwise dispose of any Voting Stock of
MLPF&S or permit MLPF&S to issue, sell or otherwise dispose of any of its Voting
Stock, unless, after giving effect to any such transaction, MLPF&S remains a
Controlled Subsidiary.
"Controlled Subsidiary" is defined in the 1983 Indenture to mean a
corporation more than 80% of the outstanding shares of Voting Stock of which are
owned directly or indirectly by ML&Co.
16
In addition, ML&Co. may not permit MLPF&S to:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. convey or transfer its properties and assets substantially as an
entirety, except to one or more Controlled Subsidiaries.
Merger and Consolidation
ML&Co. may consolidate or merge with or into any other corporation and
ML&Co. may sell, lease or convey all or substantially all of its assets to any
corporation, provided that:
. the resulting corporation, if other than ML&Co., is a corporation
organized and existing under the laws of the United States of America
or any U.S. state and assumes all of ML&Co.'s obligations to:
. pay any amounts due and payable or deliverable with respect to
all the senior debt securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. ML&Co. or the successor corporation, as the case may be, is not,
immediately after any consolidation or merger, in default under the
1983 Indenture.
Modification and Waiver
ML&Co. and the trustee may modify and amend the 1983 Indenture with the
consent of holders of at least 66 2/3% in principal amount of each outstanding
series of senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 Indenture may:
. change the stated maturity date of the principal of, or any
installment of interest or Additional Amounts payable on, any senior
debt security or any premium payable on redemption, or change the
redemption price;
. reduce the principal amount of, or the interest or Additional Amounts
payable on, any senior debt security or reduce the amount of principal
which could be declared due and payable before the stated maturity
date;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. reduce the percentage in principal amount of the outstanding senior
debt securities of any series, the consent of whose holders is
required to modify or amend the 1983 Indenture; or
. modify the foregoing requirements or reduce the percentage of
outstanding senior debt securities necessary to waive any past default
to less than a majority.
No modification or amendment of ML&Co.'s Subordinated Indenture or any
Subsequent Indenture for subordinated debt securities may adversely affect the
rights of any holder of ML&Co.'s senior indebtedness without the consent of each
holder affected. The holders of at least a majority in principal amount of
outstanding senior debt securities of any series may, with respect to that
series, waive past defaults under the 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under
"--Events of Default".
17
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. default in the performance of any other obligation of ML&Co. contained
in the 1983 Indenture for the benefit of that series or in the senior
debt securities of that series, continuing for 60 days after written
notice as provided in the 1983 Indenture;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. any other Event of Default provided with respect to senior debt
securities of that series which are not inconsistent with the 1983
Indenture.
If an Event of Default occurs and is continuing for any series of senior
debt securities, other than as a result of the bankruptcy, insolvency or
reorganization of ML&Co., the trustee or the holders of at least 25% in
principal amount of the outstanding senior debt securities of that series may
declare all amounts, or any lesser amount provided for in the senior debt
securities, due and payable or deliverable immediately. At any time after a
declaration of acceleration has been made with respect to senior debt securities
of any series but before the trustee has obtained a judgment or decree for
payment of money, the holders of a majority in principal amount of the
outstanding senior debt securities of that series may rescind any declaration of
acceleration and its consequences, if all payments due, other than those due as
a result of acceleration, have been made and all Events of Default have been
remedied or waived.
The holders of a majority in principal amount or aggregate issue price of
the outstanding senior debt securities of that series may waive any Event of
Default with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of that Indenture without the
consent of each holder of each outstanding security of each series of
senior debt securities affected.
The holders of a majority in principal amount of the outstanding senior
debt securities of a series may direct the time, method and place of conducting
any proceeding for any remedy available to the trustee or exercising any trust
or power conferred on the trustee with respect to those senior debt securities,
provided that any direction shall not be in conflict with any rule of law or the
1983 Indenture. Before proceeding to exercise any right or power under the 1983
Indenture at the direction of the holders, the trustee shall be entitled to
receive from the holders reasonable security or indemnification against the
costs, expenses and liabilities which might be incurred by it in complying with
any direction.
The MITTS Securities and other series of senior debt securities issued
under the 1983 Indenture do not have the benefit of any cross-default provisions
with other indebtedness of ML&Co.
ML&Co. is required to furnish to the trustee annually a statement as to the
fulfillment by ML&Co. of all of its obligations under the 1983 Indenture.
18
WHERE YOU CAN FIND MORE INFORMATION
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 by visiting
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 further information
about the public reference rooms. You may also inspect our SEC reports and other
information at the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the MITTS Securities and other securities. For further information on ML&Co. and
the MITTS Securities, you should refer to our registration statement and its
exhibits. This prospectus summarizes material provisions of contracts and other
documents that we refer you to. Because the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement of which this prospectus is a part.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to incorporate by reference the information we file with
them, which means:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Exchange Act:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly report on Form 10-Q for the period ended March 31, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000 and May 24, 2000.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. any reports filed under Section 15(d) of the Exchange Act.
You should rely only on information contained or incorporated by reference
in this prospectus. We have not, and MLPF&S has not, authorized any other
person to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. We are not,
and MLPF&S is not, making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted.
19
You should assume that the information appearing in this prospectus is
accurate as of the date of this prospectus only. Our business, financial
condition and results of operations may have changed since that date.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 222
Broadway, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales of the
MITTS Securities and is to be used by MLPF&S when making offers and sales
related to market-making transactions in the MITTS Securities.
MLPF&S may act as principal or agent in these market-making transactions.
The MITTS Securities offered on the NYSE or off the exchange in negotiated
transactions or otherwise.
The distribution of the MITTS Securities will conform to the requirements
set forth in the applicable sections of Rule 2720 of the Conduct Rules of the
NASD.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference from the Annual Report on
Form 10-K of Merrill Lynch & Co., Inc. and subsidiaries for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which express an unqualified
opinion and which report on the consolidated financial statements includes an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), which are incorporated herein by reference, and have been so incorporated
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
With respect to unaudited interim financial information for the periods
included in the Quarterly Reports on Form 10-Q which are incorporated herein by
reference, Deloitte & Touche LLP have applied limited procedures in accordance
with professional standards for a review of such information. However, as
stated in their report included in such Quarterly Reports on Form 10-Q and
incorporated by reference herein, they did not audit and they do not express an
opinion on such interim financial information. Accordingly, the degree of
reliance on their report on such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP is
not subject to the liability provisions of Section 11 of the Securities Act of
1933, as amended, for their reports on unaudited interim financial information
because such report is not a "report" or a "part" of the Registration Statement
prepared or certified by an accountant within the meaning of Sections 7 and 11
of the Securities Act of 1933, as amended.
20
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with the+
+ Securities and Exchange Commission is effective. This prospectus is not an +
+ offer to sell these securities and it is not soliciting an offer to buy these+
+ securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated June 7, 2000
PROSPECTUS
- ----------
Merrill Lynch & Co., Inc.
6 1/4% STRUCTURED YIELD PRODUCT EXCHANGEABLE FOR STOCK(SM) due July 1, 2001
"STRYPES(SM)"
Payable with Shares of Common Stock of IMC Global Inc.
or an equivalent amount in cash
____________________
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
our wholly-owned subsidiary, will use this prospectus when making offers and
sales related to market-making transactions in the STRYPES.
The issue price of each STRYPES was $38.25, which was the last sale price
of one share of common stock, par value $1.00 per share, of IMC on July 2, 1996,
as reported on the New York Stock Exchange. The STRYPES will mature on July 1,
2001.
What you will receive before July 1, 2001:
. On each January 1, April 1, July 1 and October 1, beginning October 1, 1996,
we will pay you interest on the STRYPES in cash at the rate of 6 1/4% per
year.
. We may not redeem the STRYPES at any time before July 1, 2001.
What you will receive on July 1, 2001:
. For each STRYPES you own, you will receive a percentage of each type of
reference property or an equivalent amount in cash. The reference property
will initially be one share of common stock of IMC, which may be adjusted
before July 1, 2001. The adjustments that may be made to the reference
property are more fully described in this prospectus.
If the value of the reference property is: You will receive:
(a) greater than or equal to $46.28 82.65% of each type of reference property
(b) less than $46.28 but greater than $38.25 a percentage of each type of reference
property equal to $38.25
(c) less than or equal to $38.25 100% of each type of reference property
Investing in the STRYPES involves risks, including the risk that your investment
may result in a loss. See "Risk Factors" beginning on page 3.
The STRYPES are listed on the NYSE under the symbol "IGL".
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The sale price of the STRYPES will be the prevailing price at the time of
sale.
____________________
Merrill Lynch & Co.
____________________
The date of this prospectus is , 2000.
"STRYPES" and "Structured Yield Product Exchangeable for Stock" are registered
service marks owned by ML&Co.
TABLE OF CONTENTS
RISK FACTORS............................................................... 3
MERRILL LYNCH & CO., INC................................................... 7
RATIO OF EARNINGS TO FIXED CHARGES......................................... 8
IMC GLOBAL INC............................................................. 9
DESCRIPTION OF THE STRYPES................................................. 9
OTHER TERMS................................................................ 17
CERTAIN ARRANGEMENTS WITH GVI.............................................. 20
INCORPORATION OF INFORMATION WE FILE WITH THE SEC.......................... 21
PLAN OF DISTRIBUTION....................................................... 22
EXPERTS.................................................................... 22
2
RISK FACTORS
Your investment in the STRYPES will involve risks. You should carefully
consider the following discussion of risks before investing in the STRYPES. In
addition, you should reach an investment decision with regard to the STRYPES
only after consulting with your legal and tax advisors and considering the
suitability of the STRYPES in the light of your particular circumstances.
You may suffer a loss on your investment
You should be aware that at maturity the amount you will receive may be
less than the amount you paid for the STRYPES, which was $38.25 per STRYPES. If
the value of the reference property is less than $38.25, the amount you will
receive will be less than the amount you paid for the STRYPES and, therefore,
your investment in the STRYPES will result in a loss to you. When you invest in
the STRYPES, you assume the risk that the market value of the reference property
may decline, and that the decline could be substantial. You should review the
prospectus of IMC, which is attached to this prospectus. The prospectus of IMC
describes the shares of common stock of IMC, including the preferred stock
purchase rights associated with the shares, that you may receive as a holder of
the STRYPES on the maturity date.
Your investment in the STRYPES may differ from an investment in other debt
securities
The terms of the STRYPES differ from those of ordinary debt securities
because the value of the reference property or the equivalent amount in cash
that you will receive on the maturity date is not fixed, but is based on the
value of the reference property. Please review the section entitled
"Description of the STRYPES".
There may be a limited opportunity for equity appreciation
Your opportunity for equity appreciation may be greater if you made a
direct investment in the common stock of IMC because the value of the reference
property is subject to market fluctuations. The amount you will receive on the
maturity date will only exceed the amount you paid for the STRYPES, which was
$38.25 per STRYPES, if the value of the reference property exceeds the threshold
appreciation price of $46.28. The threshold appreciation price of $46.28
represents an appreciation of 21% over the initial price of $38.25. In
addition, you will only be entitled to receive on the maturity date 82.65%,
which is the percentage equal to the initial price of $38.25 divided by the
threshold appreciation price of $46.28, of any appreciation of the value of the
reference property in excess of the threshold appreciation price of $46.28.
Please review the section entitled "Description of the STRYPES".
There are many factors affecting the trading prices of the STRYPES
The trading prices of the STRYPES in the secondary market will be directly
affected by the trading prices of the common stock of IMC in the secondary
market. It is impossible to predict whether the price of the common stock of
IMC will rise or fall because several factors may influence the trading prices
of the common stock of IMC. These factors include:
. IMC's operating results and prospects;
. complex and interrelated political, economic, financial and other
factors and market conditions that can affect (1) the capital markets
generally, (2) the market segment of which IMC is a part, or (3) the
NYSE, on which the common stock of IMC is traded, including the level
of, and fluctuations in, the trading prices of stocks generally and
sales of substantial amounts of the common stock of IMC in the market
subsequent to the offering of the STRYPES or the perception that these
sales could occur; and
3
. other events that are difficult to predict and are beyond our control.
Investing in the STRYPES may affect the market for the common stock of IMC
Any market that develops for the STRYPES is likely to influence and be
influenced by the market for common stock of IMC. For example, the price of
common stock of IMC could become more volatile and could be depressed:
. by investors' anticipation of the potential distribution into the market
of substantial amounts of common stock of IMC on the maturity date,
. by possible sales of common stock of IMC by investors who view the
STRYPES as a more attractive means of equity participation in IMC, and
. by hedging or arbitrage trading activity that may develop involving the
STRYPES and the common stock of IMC.
There may be illiquidity of the STRYPES in the secondary market
It is not possible to predict how the STRYPES will trade in the secondary
market or whether the secondary market for the STRYPES will be liquid or
illiquid. The STRYPES are novel securities and there is currently no secondary
market for the STRYPES. Although the STRYPES are listed on the NYSE under the
symbol "IGL", you cannot assume (1) that an active trading market for the
STRYPES will develop, (2) that listing on the NYSE will provide you with
liquidity of investment, (3) that the STRYPES will not later be delisted or (4)
that trading of the STRYPES on the NYSE will not be suspended. If the NYSE
delists the STRYPES or suspends the trading of the STRYPES, we will apply for
listing of the STRYPES on another national securities exchange or for quotation
on another trading market. If the STRYPES are not listed or traded on any
securities exchange or trading market, or if trading of the STRYPES is
suspended, pricing information for the STRYPES may be more difficult to obtain
and the liquidity of the STRYPES may be adversely affected.
As a holder of STRYPES, you have no stockholder's rights with respect to the
common stock of IMC or the reference property
You will not be entitled to any rights, including voting rights and rights
to receive any dividends, interest or other distributions, with respect to the
common stock of IMC or the reference property until we have delivered the
reference property on the maturity date. In addition, you will not be entitled
to any rights if the applicable record date for the exercise of any rights
occurs before we deliver the reference property. For example, if an amendment
is proposed to the restated certificate of incorporation of IMC and the record
date for determining the stockholders of record entitled to vote on the
amendment occurs before we deliver the reference property, you, as a holder of
the STRYPES, will not be entitled to vote on the proposed amendment.
IMC has no obligations with respect to the STRYPES
We are not affiliated with IMC. IMC has no obligations with respect to the
STRYPES or amounts to be paid to you, including any obligation to take our needs
or yours, as a holder of the STRYPES, into consideration for any reason. IMC
will not receive any of the proceeds of this offering of the STRYPES. IMC is
not responsible for, and has not participated in, the determination of the
timing of, prices for or quantities of the STRYPES to be issued, or the
determination or calculation of the amount receivable by holders of the STRYPES
on the maturity date. In addition, IMC is not involved with the administration
or trading of the STRYPES.
4
There may be a dilution of common stock of IMC
The reference property or the equivalent amount of cash that you are
entitled to receive on the maturity date is subject to adjustment for events
such as:
. a merger or consolidation in which IMC is not the surviving or resulting
corporation,
. the liquidation, dissolution, winding up or bankruptcy of IMC,
. stock splits and combinations, stock dividends, and
. other actions of IMC that modify its capital structure.
Please review the section entitled "Description of the STRYPES--Reference
Property Adjustments".
The reference property or equivalent amount of cash that you may receive on
the maturity date will not be adjusted for other events, such as offerings of
common stock of IMC for cash or in connection with acquisitions. IMC is not
restricted from issuing additional shares of common stock of IMC during the term
of the STRYPES and has no obligation to consider the interests of the holders of
the STRYPES for any reason. Additional issuances may materially and adversely
affect the price of the common stock of IMC. Because of the relationship of
the amount of the reference property or cash to be received on maturity to the
price of the common stock of IMC, other events may adversely affect the trading
price of the STRYPES.
The tax treatment of STRYPES is uncertain
Because of an absence of authority as to the proper characterization of the
STRYPES, their ultimate tax treatment is uncertain. Accordingly, you cannot
assume that any particular characterization and treatment of the STRYPES will be
accepted by the Internal Revenue Service or upheld by a court. However, it is
the opinion of Brown & Wood LLP, counsel to ML&Co., that the characterization
and tax treatment of the STRYPES described in this prospectus, while not the
only reasonable characterization and tax treatment, is based on reasonable
interpretations of law currently in effect and, even if successfully challenged
by the IRS, will not result in the imposition of penalties.
The 1983 indenture, which is more fully described in this prospectus, will
require that if you are subject to U.S. Federal income tax, that you include
currently in income, for U.S. Federal income tax purposes, payments denominated
as interest that are made with respect to a STRYPES in accordance with your
regular method of tax accounting. The 1983 indenture also requires ML&Co. and
holders to treat each STRYPES for tax purposes as a unit consisting of:
. a debt instrument with a fixed principal amount unconditionally payable
on the maturity date equal to the issue price of the STRYPES and bearing
interest at the stated interest rate on the STRYPES, and
. a forward purchase contract under which you agree to use the principal
payment due on the debt instrument to purchase on the maturity date the
reference property which ML&Co. is obligated under the STRYPES to
deliver at that time, subject to ML&Co.'s right to deliver cash instead
of the reference property.
The 1983 indenture also requires that upon the acquisition of a STRYPES and upon
your sale or other disposition of a STRYPES before the maturity date, the amount
paid or realized by you be allocated between the debt instrument and the forward
purchase contract based upon their relative fair market values, as determined on
the date of acquisition or disposition. For these purposes, with respect to
acquisitions of STRYPES in connection with the original issuance of the STRYPES,
ML&Co. and you agree to allocate
5
$37.045 of the entire initial purchase price of a STRYPES to the debt instrument
and to allocate the remaining $1.205 of the entire initial purchase price of a
STRYPES to the forward purchase contract. As a result of this allocation, the
debt instrument will be treated as having been issued with original issue
discount for U.S. Federal income tax purposes.
The appropriate character and timing of income, gain or loss to be
recognized on a STRYPES is uncertain. You should consult your own tax adviser
concerning the application of the U.S. federal income tax laws to your
particular situation and any consequences of the purchase, ownership and
disposition of the STRYPES arising under the laws of any other taxing
jurisdiction.
Our holding company structure may affect your right to participate in any
distribution of assets of any subsidiary
Since we are a holding company, our right and the right of our creditors,
including you, as a holder of STRYPES, to participate in any distribution of
the assets of any subsidiary upon its liquidation or reorganization or otherwise
is necessarily subject to the prior claims of creditors of the subsidiary,
except to the extent a bankruptcy court may recognize our claims as a creditor
of the subsidiary. In addition, dividends, loans and advances from certain
subsidiaries, including MLPF&S, to us are restricted by net capital requirements
under the Exchange Act and under rules of exchanges and other regulatory bodies.
6
MERRILL LYNCH & CO., INC.
We are a holding company that, through our U.S. and non-U.S. subsidiaries
and affiliates such as Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Merrill Lynch Government Securities Inc., Merrill Lynch Capital Services, Inc.,
Merrill Lynch International, Merrill Lynch Capital Markets Bank Ltd., Merrill
Lynch Asset Management LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping services.
We provide these products and services to a wide array of clients,
including individual investors, small businesses, corporations, governments,
governmental agencies and financial institutions.
Our principal executive office is located at 4 World Financial Center, New
York, New York 10080; our telephone number is (212) 449-1000.
If you want to find more information about us, please see the sections
entitled "Where You Can Find More Information" and "Incorporation of Information
We File with the SEC" in this prospectus.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
STRYPES described in this prospectus.
7
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, we acquired the outstanding shares of Midland Walwyn Inc., in a
transaction accounted for as a pooling-of-interests. The following information
for the fiscal years 1995 through 1997 has been restated as if the two entities
had always been combined.
The following table sets forth our historical ratios of earnings to fixed
charges for the periods indicated:
Year Ended Last Friday in December For the Three
Months Ended
1995 1996 1997 1998 1999 March 31, 2000
--------- -------- -------- -------- ---------- -------------------
Ratio of earnings to fixed charges(a).......... 1.2 1.2 1.2 1.1 1.3 1.4
__________
(a) The effect of combining Midland Walwyn did not change the ratios reported
for the fiscal years 1995 through 1997.
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges, excluding capitalized interest and preferred security
dividend requirements of subsidiaries. "Fixed charges" consist of interest
costs, the interest factor in rentals, amortization of debt issuance costs,
preferred security dividend requirements of subsidiaries, and capitalized
interest.
8
IMC GLOBAL INC.
IMC is one of the world's leading producers of crop nutrients for the
international agricultural community. It is also one of the largest
distributors in the United States of crop nutrients and related products through
its retail and wholesale distribution networks. IMC mines, processes and
distributes potash in the United States and Canada, and is a joint venture
partner in IMC-Agrico Company, a leading producer, marketer and distributor of
phosphate crop nutrients and a leading producer and marketer of animal feed
ingredients. IMC's retail distribution network, which extends principally to
corn and soybean farmers in the Midwestern and Southeastern United States, is
one of the largest distributors of crop nutrients and related products in the
United States. IMC also manufactures nitrogen-based and other high-value crop
nutrients which are marketed on a wholesale basis principally in the Midwestern
and Southeastern United States. In addition, IMC sells specialty lawn and
garden, turf, and nursery products on a national basis and ice-melter products
in the Midwest and Eastern snow-belt states.
IMC is subject to the informational requirements of the Exchange Act.
Accordingly, IMC files reports, proxy and information statements and other
information with the SEC. Copies of these materials can be inspected and copied
at the public reference facilities maintained by the SEC at the addresses
specified under "Where You Can Find More Information". Reports, proxy and
information statements and other information concerning IMC may also be
inspected at the offices of the NYSE.
ML&Co. is not affiliated with IMC, and IMC has no obligations with respect
to the STRYPES. This prospectus relates only to the STRYPES offered hereby and
does not relate to IMC or the common stock of IMC. IMC has filed a registration
statement on Form S-3 with the SEC covering the shares of common stock of IMC
that may be received by a holder of STRYPES on the maturity date. The
prospectus of IMC constituting a part of the registration statement includes
information relating to IMC and the common stock of IMC, including risk factors
relevant to an investment in the common stock of IMC. The prospectus of IMC does
not constitute a part of this prospectus, nor is it incorporated by reference
herein.
DESCRIPTION OF THE STRYPES
ML&Co. issued the STRYPES as a series of senior debt securities under the
1983 indenture, which is more fully described in this prospectus. The following
summary of material provisions of the 1983 indenture does not purport to be
complete and is qualified in its entirety by reference to the 1983 indenture. A
copy of the 1983 indenture is filed as an exhibit to the registration statement
of which this prospectus is a part.
Each STRYPES, was issued at a price of $38.25 (the "Initial Price"), bears
interest at the rate of 6 1/4% of the issue price per annum, or $2.3908 per
annum, from July 9, 1996, or from the most recent Interest Payment Date to which
interest has been paid or provided for, until the maturity date or the earlier
date on which the STRYPES are repaid under the terms of the STRYPES. Interest
on the STRYPES is payable in cash quarterly in arrears on January 1, April 1,
July 1 and October 1, beginning October 1, 1996, and on the maturity date (each,
an "Interest Payment Date"), to the persons in whose names the STRYPES are
registered at the close of business on the fifteenth calendar day, whether or
not a Business Day, immediately preceding the Interest Payment Date. Interest
on the STRYPES will be computed on the basis of a 360-day year of twelve 30-day
months. If an Interest Payment Date falls on a day that is not a Business Day,
the interest payment to be made on the Interest Payment Date will be made on the
next succeeding Business Day with the same force and effect as if made on the
Interest Payment Date, and no additional interest will accrue as a result of the
delayed payment.
The maturity date of the STRYPES is July 1, 2001. On the maturity date,
ML&Co. will pay and discharge each STRYPES by delivering to the holder of the
STRYPES a percentage of each type of Reference Property determined in accordance
with the formula described below. ML&Co. will have the right to deliver,
9
with respect to all, but not less than all, Reference Property deliverable on
the maturity date, cash with an equal value.
(a) If the Reference Property Value (as defined below) is greater than or
equal to $46.28 (the "Threshold Appreciation Price"), the holder of
the STRYPES will receive 82.65% of each type of Reference Property;
(b) If the Reference Property Value is less than the Threshold
Appreciation Price but is greater than the Initial Price, the holder
of the STRYPES will receive a percentage of each type of Reference
Property, allocated as proportionately as practicable, so that the
aggregate value of the Reference Property is equal to the Initial
Price; and
(c) If the Reference Property Value is less than or equal to the Initial
Price, the holder of the STRYPES will receive 100% of each type of
Reference Property.
Accordingly, there can be no assurance that the amount receivable by holders of
the STRYPES on the maturity date will be equal to or greater than the issue
price of the STRYPES. If the Reference Property Value is less than the Initial
Price, the amount receivable on the maturity date will be less than the issue
price paid for the STRYPES, in which case an investment in STRYPES will result
in a loss.
Notwithstanding the foregoing, ML&Co. may, in lieu of delivering the
applicable percentage of each type of Reference Property, deliver cash in an
amount equal to the sum of:
(a) for any portion of the Reference Property consisting of cash that is
otherwise deliverable on the maturity date, the amount of cash,
without interest thereon,
(b) for any portion of the Reference Property consisting of property other
than cash or Reference Securities that is otherwise deliverable on the
maturity date, the fair market value, as determined by a nationally
recognized independent investment banking firm retained for this
purpose by ML&Co., as of the third Trading Day preceding the maturity
date of the property, and
(c) for any portion of the Reference Property consisting of a Reference
Security (as defined below) that is otherwise deliverable on the
maturity date, except as described under "Reference Property
Adjustments" below, an amount equal to the average Closing Price (as
defined below) per unit of the Reference Security on the 20 Trading
Days immediately before, but not including, the second Trading Day
preceding the maturity date multiplied by the number of units of the
Reference Security constituting part of the Reference Property,
subject to ML&Co.'s agreement contained in the Purchase Agreement to
deliver on the maturity date the form of consideration that the ML&Co.
Subsidiary (as defined below) receives from GVI.
The right to deliver cash, if exercised by ML&Co., must be exercised with
respect to all Reference Property otherwise deliverable on the maturity date in
payment of all outstanding STRYPES. On or before the sixth Business Day before
the maturity date, ML&Co. will notify The Depository Trust Company and the
trustee and publish a notice in The Wall Street Journal or another daily
newspaper of national circulation stating whether the STRYPES will be paid and
discharged by delivery of the applicable percentage of each type of Reference
Property or cash. At the time the notice is published, the Reference Property
Value will not have been determined. If ML&Co. elects to deliver Reference
Property, holders of the STRYPES will be responsible for the payment of any and
all brokerage costs upon the subsequent sale of Reference Property.
The term "Reference Property" initially means one share of common stock of
IMC and shall be subject to adjustment from time to time before the maturity
date to reflect the addition or substitution of any cash, securities and/or
other property resulting from the application of the adjustment provisions
described herein. See "--Reference Property Adjustments" below. The term
"Reference Security" means, at any time, any security (as defined in Section
2(1) of the Securities Act) then constituting part of the Reference Property.
10
The term "Reference Property Value" means, subject to the adjustment provisions
described below, the sum of
(a) for any portion of the Reference Property consisting of cash, the
amount of cash,
(b) for any portion of the Reference Property consisting of property other
than cash or Reference Securities, the fair market value, which will
be determined by a nationally recognized independent investment
banking firm retained for this purpose by ML&Co., as of the third
Trading Day preceding the maturity date of the property, and
(c) for any portion of the Reference Property consisting of a Reference
Security, an amount equal to the average Closing Price per unit of the
Reference Security on the 20 Trading Days immediately before, but not
including, the second Trading Day preceding the maturity date
multiplied by the number of units of the Reference Security
constituting part of the Reference Property.
The "Closing Price" of any Reference Security on any date of determination
means (1) the closing sale price or, if no closing price is reported, the last
reported sale price of the Reference Security on the NYSE on the date of
determination or, (2) if the Reference Security is not listed for trading on the
NYSE on any date, as reported in the composite transactions for the principal
United States securities exchange on which the Reference Security is so listed,
or (3) if the Reference Security is not so listed on a United States national or
regional securities exchange, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System, or (4) if the Reference
Security is not so reported, the last quoted bid price for the Reference
Security in the over-the-counter market as reported by the National Quotation
Bureau or similar organization, or (5) if a bid price is not available, the
market value of the Reference Security on a date as determined by a nationally
recognized independent investment banking firm retained for this purpose by
ML&Co.
A "Trading Day" is defined as a day on which the Reference Security the
Closing Price of which is being determined (A) is not suspended from trading on
any national or regional securities exchange or association or over-the-counter
market at the close of business and (B) has traded at least once on the national
or regional securities exchange or association or over-the-counter market that
is the primary market for the trading of the Reference Security.
For illustrative purposes only, the following table shows the number of
shares of common stock of IMC or the amount of cash that a holder of STRYPES
would receive for each STRYPES at various Reference Property Values. The table
assumes that there will be no Reference Property adjustments as described below
and, accordingly, that on the maturity date the Reference Property will consist
of one share of common stock of IMC. There can be no assurance that the
Reference Property Value will be within the range set forth below. Given the
Initial Price of $38.25 and the Threshold Appreciation Price of $46.28, a
STRYPES holder would receive on the maturity date the following number of shares
of common stock of IMC per STRYPES or, if ML&Co. elects to pay and discharge the
STRYPES with cash, the amount of cash per STRYPES:
Reference Number of Shares
Property of IMC Common Amount
Value Stock of Cash
----- ----- -------
$35.00 1.0000 $35.00
38.25 1.0000 38.25
42.00 0.9107 38.25
46.28 0.8265 38.25
50.00 0.8265 41.33
11
Reference Property Adjustments
The Reference Property is subject to adjustment if an issuer of a Reference
Security shall:
(1) subdivide or split the outstanding units of the Reference Security
into a greater number of units;
(2) combine the outstanding units of the Reference Security into a smaller
number of units;
(3) issue by reclassification of units of the Reference Security any units
of another security of the issuer;
(4) issue rights or warrants to all holders of the Reference Security
entitling them, for a period expiring before the fifteenth calendar
day following the maturity date, to subscribe for or purchase any of
its securities or other property, other than rights to purchase units
of the Reference Security pursuant to a plan for the reinvestment of
dividends or interest; or
(5) pay a dividend or make a distribution to all holders of the Reference
Security of cash, securities or other property, excluding any cash
dividend on any Reference Security consisting of capital stock that
does not constitute an Extraordinary Cash Dividend (as defined below),
excluding any payment of interest on any Reference Security consisting
of an evidence of indebtedness and excluding any dividend or
distribution referred to in clause (1), (2), (3) or (4) above), or
issue to all holders of the Reference Security rights or warrants to
subscribe for or purchase any of its securities or other property
(other than those referred to in clause (4) above). Any of the
foregoing cash, securities or other property or rights or warrants are
referred to in this prospectus as the "Distributed Assets".
In the case of the events referred to in clauses (1), (2) and (3) above, the
Reference Property shall be adjusted to include the number of units of the
Reference Security and/or other security of the issuer which a holder of units
of the Reference Security would have owned or been entitled to receive
immediately following any event had a holder held, immediately before the event,
the number of units of the Reference Security constituting part of the Reference
Property immediately before the event. Each adjustment shall become effective
immediately after the effective date for subdivision, split, combination or
reclassification, as the case may be. Each adjustment shall be made
successively.
In the case of the event referred to in clause (4) above, the Reference
Property shall be adjusted to include an amount in cash equal to the fair market
value, which shall be determined in the manner described below, as of the fifth
Business Day, except as provided below, following the date on which rights or
warrants are received by securityholders entitled thereto (the "Receipt Date"),
of each right or warrant multiplied by the product of (A) the number of rights
or warrants issued for each unit of the Reference Security and (B) the number of
units of the Reference Security constituting part of the Reference Property on
the date of issuance of the rights or warrants, immediately before issuance,
without interest thereon. For purposes of the foregoing, the fair market value
of each right or warrant shall be the quotient of:
(1) the highest net bid, as of approximately 10:00 A.M., New York City
time, on the fifth Business Day following the Receipt Date for
settlement three Business Days later, by a recognized securities
dealer in The City of New York selected by or on behalf of ML&Co.,
from three or a fewer number of dealers as may be providing bids,
recognized dealers selected by or on behalf of ML&Co., for the
purchase by a quoting dealer of the number of rights or warrants (the
"Aggregate Number") that a holder of the Reference Security would
receive if the holder held, as of the record date for determination of
stockholders entitled to receive rights or warrants, a number of units
of the Reference Security equal to the product of
(A) the aggregate number of Outstanding STRYPES as of a record date
and (B) the number of units of the Reference Security
constituting part of the Reference Property, divided by
12
(2) the Aggregate Number.
Each adjustment shall become effective on the fifth Business Day following
the Receipt Date of the rights or warrants. If for any reason ML&Co. is unable
to obtain the required bid on the fifth Business Day following the Receipt Date,
it shall attempt to obtain the bid at successive intervals of three months and
on the third Trading Day before the maturity date until it is able to obtain the
required bid. From the date of issuance of the rights or warrants until the
required bid is obtained, the Reference Property shall include the number of
rights or warrants issued for each unit of the Reference Security multiplied by
the number of units of the Reference Security constituting part of the Reference
Property on the date of issuance of the rights or warrants, immediately before
the issuance, and the rights or warrants constituting part of the Reference
Property shall be deemed for all purposes hereof to have a fair market value of
zero.
In the case of the event referred to in clause (5) above, the Reference
Property shall be adjusted to include, from and after a dividend, distribution
or issuance, (a) in respect of that portion, if any, of the Distributed Assets
consisting of cash, the amount of Distributed Assets consisting of cash received
for each unit of the Reference Security multiplied by the number of units of the
Reference Security constituting part of the Reference Property on the date of a
dividend, distribution or issuance, immediately before a dividend, distribution
or issuance, without interest thereon, plus (b) in respect of that portion, if
any, of the Distributed Assets which are other than cash, the number or amount
of each type of Distributed Assets other than cash received with respect to each
unit of the Reference Security multiplied by the number of units of the
Reference Security constituting part of the Reference Property on the date of a
dividend, distribution or issuance, immediately before the dividend,
distribution or issuance.
An "Extraordinary Cash Dividend" means, with respect to any consecutive 12-
month period, the amount, if any, by which the aggregate amount of all cash
dividends on any Reference Security consisting of capital stock occurring in a
12-month period or, if the Reference Security was not outstanding at the
commencement of the 12-month period, occurring in a shorter period during which
the Reference Security was outstanding, exceeds on a per share basis 12% of the
average of the Closing Prices per share of the Reference Security over a 12-
month period or a shorter period during which the Reference Security was
outstanding; provided that, for purposes of this definition, the amount of cash
dividends paid on a per share basis will be appropriately adjusted to reflect
the occurrence during the period of any stock dividend or distribution of shares
of capital stock of the issuer of the Reference Security or any subdivision,
split, combination or reclassification of shares of the Reference Security.
In the event of a "Reorganization Event", which is:
(A) any consolidation or merger of an issuer of a Reference Security with or
into another entity, except for a merger or consolidation in which the
issuer is the continuing corporation and in which the Reference Security
outstanding immediately before the merger or consolidation is not
exchanged for cash, securities or other property of the issuer or another
entity,
(B) any statutory exchange of securities of an issuer of a Reference Security
with another entity, except in connection with a merger or acquisition,
or
(C) any liquidation, dissolution, winding up or bankruptcy of an issuer of a
Reference Security, excluding any distribution in the event referred to
in clause (5) above,
the Reference Property shall be adjusted to include, from and after the
effective date for a Reorganization Event, in lieu of the number of units of the
Reference Security constituting part of the Reference Property immediately
before the effective date for a Reorganization Event, the amount or number of
any cash, securities and/or other property owned or received in a Reorganization
Event with respect to each unit of the Reference Security multiplied by the
number of units of the Reference Security constituting part of the Reference
Property immediately before the effective date for a Reorganization Event.
13
No adjustments will be made for other events, such as offerings of common
stock of IMC by IMC for cash or in connection with acquisitions. Likewise, no
adjustments will be made for any sales of common stock of IMC by GVI.
ML&Co. is required, within ten Business Days following the occurrence of an
event that requires an adjustment to the Reference Property (or if ML&Co. is not
aware of the occurrence of an event, as soon as practicable after becoming so
aware), to provide written notice to the trustee and to the holders of the
STRYPES of the occurrence of an event and a statement in reasonable detail
setting forth the amount or number of each type of Reference Security and other
property then constituting part of the Reference Property.
Fractional Interests
No fractional units of any Reference Security will be delivered if ML&Co.
pays and discharges the STRYPES by delivering Reference Property. In lieu of
any fractional unit otherwise deliverable in respect of all STRYPES of any
holder on the maturity date, a holder shall be entitled to receive an amount in
cash equal to the value of a fractional unit based on the average Closing Price
per unit of the Reference Security on the 20 Trading Days immediately before,
but not including, the second Trading Day preceding the maturity date.
To the extent practicable, ML&Co. will deliver fractional interests of any
Reference Property other than cash or a Reference Security if ML&Co. pays and
discharges the STRYPES by delivering Reference Property. If a delivery of
fractional interests is not practicable, in lieu of delivering any fractional
interest otherwise deliverable in respect of all STRYPES to any holder on the
maturity date, ML&Co. will deliver holder shall be entitled to receive an amount
in cash equal to the value of the fractional interest based on the fair market
value (as determined by a nationally recognized independent investment banking
firm retained for this purpose by ML&Co.) as of the third Trading Day preceding
the maturity date of the Reference Property other than cash or a Reference
Security.
Redemption, Sinking Fund and Payment Before Maturity
The STRYPES are not subject to redemption by ML&Co. before the maturity
date and do not contain sinking fund or other mandatory redemption provisions.
The STRYPES are not subject to payment before the maturity date at the option of
the holder.
Ranking
The STRYPES are unsecured obligations and will rank equally with all other
unsecured and unsubordinated indebtedness of ML&Co.
There are no contractual restrictions on the ability of ML&Co. or its
subsidiaries to incur additional secured or unsecured debt. However, borrowings
by certain subsidiaries, including MLPF&S, are restricted by net capital
requirements under the Exchange Act and under rules of certain exchanges and
other regulatory bodies.
Purchase Agreement
GVI is obligated, under the Purchase Agreement described in "Certain
Arrangements with GVI", to deliver to the ML&Co. Subsidiary (as defined below)
immediately before the maturity date the Reference Property required by ML&Co.
to pay and discharge all of the STRYPES, including any STRYPES issued pursuant
to the over-allotment option granted by ML&Co. to MLPF&S. In lieu of delivering
the Reference Property immediately before the maturity date, GVI has the right
to satisfy its obligation under the Purchase Agreement by delivering cash in an
amount equal to the value of the Reference Property immediately before the
maturity date. The right to deliver cash, if exercised by GVI, must be
exercised with respect to all of the Reference Property deliverable under the
Purchase Agreement.
14
Securities Depository
Description of the Global Securities
The STRYPES are represented by one or more fully registered global
securities. Each global security has been deposited with, or on behalf of, The
Depository Trust Company or DTC (DTC, together with any successor thereto, being
a "depositary"), as depositary, registered in the name of Cede & Co. (DTC's
partnership nominee). Unless and until it is exchanged in whole or in part for
STRYPES in definitive form, no global security may be transferred except as a
whole by the depositary to a nominee of the depositary or by a nominee of the
depositary to the depositary or another nominee of the depositary or by the
depositary or any nominee to a successor of the depositary or a nominee of that
successor.
So long as DTC, or its nominee, is a registered owner of a global security,
DTC or its nominee, as the case may be, will be considered the sole owner or
holder of the STRYPES represented by a global security for all purposes under
the 1983 indenture. Except as provided below, the beneficial owners of the
STRYPES represented by a global security are not entitled to have the STRYPES
represented by the global security registered in their names, will not receive
or be entitled to receive physical delivery of the STRYPES in definitive form
and are not considered the owners or holders thereof under the 1983 indenture,
including for purposes of receiving any reports delivered by ML&Co. or the
trustee under the 1983 indenture. Accordingly, each person owning a beneficial
interest in a global security must rely on the procedures of DTC and, if the
person is not a participant of DTC on the procedures of the participant through
which the person owns its interest, to exercise any rights of a holder under the
1983 indenture. ML&Co. understands that under existing industry practices, in
the event that ML&Co. requests any action of holders or that an owner of a
beneficial interest in a global security desires to give or take any action
which a holder is entitled to give or take under the 1983 indenture, DTC would
authorize the participants holding the relevant beneficial interests to give or
take action, and those participants would authorize beneficial owners owning
through such participants to give or take action or would otherwise act upon the
instructions of beneficial owners. Conveyance of notices and other
communications by DTC to participants, by participants to indirect participants
and by participants and indirect participants to beneficial owners are governed
by arrangements among them, subject to any statutory or regulatory requirements
as may be in effect from time to time.
DTC Procedures
The following is based on information furnished by DTC:
DTC is the securities depositary for the STRYPES. The STRYPES have been
issued as fully registered securities registered in the name of Cede & Co.
(DTC's partnership nominee). One or more fully registered global securities
have been issued for the STRYPES in the aggregate principal amount of such
issue, and has been deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the 1934 Act. DTC holds
securities that its participants deposit with DTC. DTC also facilitates the
settlement among participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct participants of DTC include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. DTC is owned by a number of its direct
participants and by the NYSE, the AMEX and the National Association of
Securities Dealers, Inc. Access to the DTC's system is also available to others
such as securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a direct participant, either
directly or indirectly. The rules applicable to DTC and its participants are on
file with the SEC.
15
Purchases of STRYPES under DTC's system must be made by or through direct
participants, which will receive a credit for the STRYPES on DTC's records. The
ownership interest of each beneficial owner is in turn to be recorded on the
records of direct and indirect participants. Beneficial owners will not receive
written confirmation from DTC of their purchase, but beneficial owners are
expected to receive written confirmations providing details of the transaction,
as well as periodic statements of their holdings, from the direct participants
or indirect participants through which such beneficial owner entered into the
transaction. Transfers of ownership interests in the STRYPES are to be
accomplished by entries made on the books of participants acting on behalf of
beneficial owners.
To facilitate subsequent transfers, all STRYPES deposited with DTC are
registered in the name of DTC's partnership nominee, Cede & Co. The deposit of
STRYPES with DTC and their registration in the name of Cede & Co. effect no
change in beneficial ownership. DTC has no knowledge of the actual beneficial
owners of the STRYPES; DTC's records reflect only the identity of the direct
participants to whose accounts such STRYPES are credited, which may or may not
be the beneficial owners. The participants are responsible for keeping account
of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct and
indirect participants to beneficial owners are governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the
STRYPES. Under its usual procedures, DTC mails an omnibus proxy to ML&Co. as
soon as possible after the applicable record date. The omnibus proxy assigns
Cede & Co.'s consenting or voting rights to those direct participants identified
in a listing attached to the omnibus proxy to whose accounts the STRYPES are
credited on the record date.
Principal, premium, if any, and/or interest, if any, payments on the
STRYPES will be made in immediately available funds to DTC. DTC's practice is to
credit direct participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the depositary's records
unless DTC has reason to believe that it will not receive payment on such date.
Payments by participants to beneficial owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name", and
will be the responsibility of such participant and not of DTC, the trustee or
ML&Co., subject to any statutory or regulatory requirements as may be in effect
from time to time. Payment of principal, premium, if any, and/or interest, if
any, to DTC is the responsibility of ML&Co. or the trustee, disbursement of such
payments to direct participants is the responsibility of DTC, and disbursement
of such payments to the beneficial owners is the responsibility of direct and
indirect participants.
Exchange for Certificated Securities
If
(a) the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
(b) ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, and
(c) an Event of Default under the 1983 indenture has occurred and is
continuing with respect to the STRYPES,
the global securities will be exchangeable for STRYPES in definitive form of
like tenor and of an equal aggregate principal amount. The definitive STRYPES
will be registered in such name or names as the depositary shall instruct the
trustee. It is expected that such instructions may be based upon directions
received by the depositary from participants with respect to ownership of
beneficial interests in the global securities.
16
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, STRYPES in definitive
form will be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that ML&Co. believes to be reliable, but ML&Co. takes no
responsibility for its accuracy.
Governing Law
The 1983 indenture and the STRYPES will be governed by, and construed in
accordance with, the laws of the State of New York.
Listing
The STRYPES have been listed on the NYSE under the symbol "IGL".
OTHER TERMS
ML&Co. issued the STRYPES as a series of senior debt securities under the
1983 indenture, dated as of April 1, 1983, as amended and restated, between
ML&Co. and The Chase Manhattan Bank, as trustee. A copy of the 1983 indenture
is filed as an exhibit to the registration statement relating to the STRYPES of
which this prospectus is a part. The following summaries of the material
provisions of the 1983 indenture are not complete and are subject to, and
qualified in their entirety by reference to, all provisions of the 1983
indenture, including the definitions of terms in the 1983 indenture.
ML&Co. may issue series of senior debt securities from time to time under
the 1983 indenture, without limitation as to aggregate principal amount, in one
or more series and upon terms as ML&Co. may establish under the provisions of
the 1983 indenture.
The 1983 indenture and the STRYPES are governed by and construed in
accordance with the laws of the State of New York.
ML&Co. may issue senior debt securities with terms different from those of
senior debt securities previously issued, and issue additional senior debt
securities of a previously issued series of senior debt securities.
The senior debt securities are unsecured and rank equally with all other
unsecured and unsubordinated indebtedness of ML&Co. However, because ML&Co. is
a holding company, the rights of ML&Co. and its creditors, including the holders
of senior debt securities, to participate in any distribution of the assets of
any subsidiary upon its liquidation or reorganization or otherwise are
necessarily subject to the prior claims of creditors of the subsidiary, except
to the extent that a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. In addition, dividends, loans and advances from
certain subsidiaries, including MLPF&S, to ML&Co. are restricted by net capital
requirements under the Exchange Act, and under rules of exchanges and other
regulatory bodies.
Limitations Upon Liens
ML&Co. may not, and may not permit any majority-owned subsidiary to,
create, assume, incur or permit to exist any indebtedness for borrowed money
secured by a pledge, lien or other encumbrance, other than those liens
specifically permitted by the 1983 indenture, on the Voting Stock owned directly
or indirectly by ML&Co. of any majority-owned subsidiary, other than a majority-
owned subsidiary which, at the time of the incurrence of the secured
indebtedness, has a net worth of less than $3,000,000, unless the outstanding
senior debt securities are secured equally and ratably with the secured
indebtedness.
17
"Voting Stock" is defined in the 1983 Indenture as the stock of the class
or classes having general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of a
corporation provided that, for the purposes of the 1983 Indenture, stock that
carries only the right to vote conditionally on the occurrence of an event is
not considered voting stock whether or not the event has happened.
Limitation on Disposition of Voting Stock of, and Merger and Sale of Assets by,
MLPF&S
ML&Co. may not sell, transfer or otherwise dispose of any Voting Stock of
MLPF&S or permit MLPF&S to issue, sell or otherwise dispose of any of its Voting
Stock, unless, after giving effect to any such transaction, MLPF&S remains a
Controlled Subsidiary.
"Controlled Subsidiary" is defined in the 1983 indenture to mean a
corporation more than 80% of the outstanding shares of Voting Stock of which are
owned directly or indirectly by ML&Co.
In addition, ML&Co. may not permit MLPF&S to:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. convey or transfer its properties and assets substantially as an
entirety, except to one or more Controlled Subsidiaries.
Merger and Consolidation
ML&Co. may consolidate or merge with or into any other corporation and
ML&Co. may sell, lease or convey all or substantially all of its assets to any
corporation, provided that:
. the resulting corporation, if other than ML&Co., is a corporation
organized and existing under the laws of the United States of America
or any U.S. state and assumes all of ML&Co.'s obligations to:
. pay any amounts due and payable or deliverable with respect to
all the Senior Debt Securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
indenture, and
. ML&Co. or the successor corporation, as the case may be, is not,
immediately after any consolidation or merger, in default under the
1983 indenture.
Modification and Waiver
ML&Co. and the trustee may modify and amend the 1983 indenture with the
consent of holders of at least 66 2/3% in principal amount of each outstanding
series of debt securities affected. However, without the consent of each holder
of any outstanding debt security affected, no amendment or modification to any
indenture may:
. change the stated maturity date of the principal of, or any
installment of interest or Additional Amounts payable on, any senior
debt security or any premium payable on redemption, or change the
redemption price;
. reduce the principal amount of, or the interest or Additional Amounts
payable on, any senior debt security or reduce the amount of principal
which could be declared due and payable before the stated maturity
date;
18
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. reduce the percentage in principal amount of the outstanding senior
debt securities of any series, the consent of whose holders is
required to modify or amend the 1983 indenture; or
. modify the foregoing requirements or reduce the percentage of
outstanding senior debt securities necessary to waive any past default
to less than a majority.
No modification or amendment of ML&Co.'s Subordinated indenture or any
Subsequent indenture for subordinated debt securities may adversely affect the
rights of any holder of ML&Co.'s senior indebtedness without the consent of each
holder affected. The holders of at least a majority in principal amount of
outstanding senior debt securities of any series may, with respect to that
series, waive past defaults under the 1983 indenture and waive compliance by
ML&Co. with provisions in the 1983 indenture, except as described under "--
Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. default in the performance of any other obligation of ML&Co. contained
in the 1983 indenture for the benefit of that series or in the senior
debt securities of that series, continuing for 60 days after written
notice as provided in the 1983 indenture;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. any other Event of Default provided with respect to senior debt
securities of that series which are not inconsistent with the 1983
indenture.
If an Event of Default occurs and is continuing for any series of senior debt
securities, other than as a result of the bankruptcy, insolvency or
reorganization of ML&Co., the trustee or the holders of at least 25% in
principal amount of the outstanding senior debt securities of that series may
declare all amounts, or any lesser amount provided for in the senior debt
securities, due and payable or deliverable immediately. At any time after a
declaration of acceleration has been made with respect to senior debt securities
of any series but before the trustee has obtained a judgment or decree for
payment of money, the holders of a majority in principal amount of the
outstanding senior debt securities of that series may rescind any declaration of
acceleration and its consequences, if all payments due, other than those due as
a result of acceleration, have been made and all Events of Default have been
remedied or waived.
The holders of a majority in principal amount or aggregate issue price of
the outstanding debt securities of that series may waive any Event of Default
with respect to that series, except a default:
19
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation or provision of any indenture which cannot
be modified under the terms of that indenture without the consent of
each holder of each series of debt securities affected.
The holders of a majority in principal amount of the outstanding senior
debt securities of a series may direct the time, method and place of conducting
any proceeding for any remedy available to the trustee or exercising any trust
or power conferred on the trustee with respect to those senior debt securities,
provided that any direction shall not be in conflict with any rule of law or the
1983 indenture. Before proceeding to exercise any right or power under the 1983
indenture at the direction of the holders, the trustee shall be entitled to
receive from the holders reasonable security or indemnification against the
costs, expenses and liabilities which might be incurred by it in complying with
any direction.
The STRYPES and other series of senior debt securities issued under the
1983 indenture do not have the benefit of any cross-default provisions with
other indebtedness of ML&Co.
ML&Co. is required to furnish to the trustee annually a statement as to the
fulfillment by ML&Co. of all of its obligations under the 1983 indenture.
CERTAIN ARRANGEMENTS WITH GVI
ML&Co., Merrill Lynch Mortgage Capital Inc., our wholly-owned subsidiary
(the "ML&Co. Subsidiary"), and GVI have entered into a purchase agreement (the
"Purchase Agreement"). Under the Purchase Agreement, GVI is obligated to
deliver to the ML&Co. Subsidiary immediately before the maturity date the
Reference Property required by ML&Co. to pay and discharge all of the STRYPES.
In lieu of delivering the Reference Property immediately before the maturity
date, GVI has the right to satisfy its obligation under the Purchase Agreement
by delivering cash in an amount equal to the value of the Reference Property
immediately before the maturity date. The right to deliver cash, if exercised
by GVI, must be exercised with respect to all of the Reference Property
deliverable under the Purchase Agreement. Under the Purchase Agreement, ML&Co.
has agreed to pay and discharge the STRYPES by delivering to the holders of the
STRYPES on the maturity date the form of consideration that the ML&Co.
Subsidiary receives from GVI. The consideration to be paid by the ML&Co.
Subsidiary under the Purchase Agreement is $153,382,017 in the aggregate, which
was paid to GVI on July 9, 1996. No other consideration is payable by the
ML&Co. Subsidiary to GVI in connection with its acquisition of the Reference
Property under the Purchase Agreement or the performance of the Purchase
Agreement by GVI. ML&Co. has agreed with GVI that, without the prior consent of
GVI, it will not amend the 1983 indenture in any respect that would adversely
affect any obligation of GVI under the Purchase Agreement, including, without
limitation, increasing the consideration that GVI is obligated to deliver under
the Purchase Agreement.
Until such time, if any, as GVI shall have delivered the Reference Property
to the ML&Co. Subsidiary under the terms of the Purchase Agreement, GVI will
retain all ownership rights with respect to the Reference Property held by it
(including, without limitation, voting rights and rights to receive any
dividends, interest or other distributions in respect thereof).
GVI has no obligations with respect to the STRYPES or amounts to be paid to
holders of the STRYPES, including any obligation to take our needs or yours, as
holders of the STRYPES, into consideration in determining whether to deliver the
Reference Property or cash or for any other reason. The Purchase Agreement
among ML&Co., the ML&Co. Subsidiary and GVI is a commercial transaction and does
not create any rights in, or for the benefit of, any holder of STRYPES.
20
In the event GVI does not perform under the Purchase Agreement, ML&Co. will
be required to otherwise acquire the Reference Property for delivery to the
holders of the STRYPES on the maturity date, unless it elects to exercise its
option to deliver cash with an equal value.
WHERE YOU CAN FIND MORE INFORMATION
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 by visiting
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 further
information about the public reference rooms. You may also inspect our SEC
reports and other information at the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the STRYPES and other securities. For further information on ML&Co. and the
STRYPES, you should refer to our registration statement and its exhibits. This
prospectus summarizes material provisions of contracts and other documents that
we refer you to. Because the prospectus may not contain all the information
that you may find important, you should review the full text of these documents.
We have included copies of these documents as exhibits to our registration
statement of which this prospectus is a part.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to incorporate by reference the information we file with
them, which means:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Exchange Act:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly report on Form 10-Q for the period ended March 31, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000 and May 24, 2000.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. any reports filed under Section 15(d) of the Exchange Act.
21
You should rely only on information contained or incorporated by reference
in this prospectus. We have not, and MLPF&S has not, authorized any other
person to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. We are not,
and MLPF&S is not, making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date of this prospectus only. Our business, financial
condition and results of operations may have changed since that date.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 222
Broadway, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales of the
STRYPES and is to be used by MLPF&S when making offers and sales related to
market-making transactions in the STRYPES.
MLPF&S may act as principal or agent in these market-making transactions.
The STRYPES may be offered on the NYSE or off the exchange in negotiated
transactions or otherwise.
The distribution of the STRYPES will conform to the requirements set forth
in the applicable sections of Rule 2720 of the Conduct Rules of the NASD.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference from the Annual Report on
Form 10-K of Merrill Lynch & Co., Inc. and subsidiaries for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which express an unqualified
opinion and which report on the consolidated financial statements includes an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), which are incorporated herein by reference, and have been so incorporated
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
With respect to unaudited interim financial information for the periods
included in the Quarterly Reports on Form 10-Q which are incorporated herein by
reference, Deloitte & Touche LLP have applied limited procedures in accordance
with professional standards for a review of such information. However, as
stated in their report included in such Quarterly Reports on Form 10-Q and
incorporated by reference herein, they did not audit and they do not express an
opinion on such interim financial information. Accordingly, the degree of
reliance on their report on such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP is
not subject to the liability provisions of Section 11 of the Securities Act of
1933, as amended, for their reports on unaudited interim financial information
because such report is not a "report" or a "part" of the Registration Statement
prepared or certified by an accountant within the meaning of Sections 7 and 11
of the Securities Act of 1933, as amended.
22
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated June 7, 2000
PROSPECTUS
- ----------
Merrill Lynch & Co., Inc.
Top Ten Yield Market Index Target-Term Securities(R)
due August 15, 2006
"MITTS(R) Securities"
$10 principal amount per unit
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
our wholly-owned subsidiary, will use this prospectus when making offers and
sales related to market-making transactions in the MITTS Securities.
The MITTS Securities: Payment at Maturity:
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount equal to
. Senior unsecured debt securities of Merrill Lynch the sum of the principal amount of each unit and an
& Co., Inc. additional amount based on the percentage increase, if
. Linked to the value of the Top Ten Yield Index. any, in the value of the index as described in this
. The MITTS Securities are listed on the American prospectus.
Stock Exchange under the symbol "MTT". . You will receive the principal amount of your MITTS
Securities, plus an amount no less than $2.40 per
unit, representing a minimum yield-to-maturity of
2.16% per year.
Investing in the MITTS Securities involves risks.
See "Risk Factors" beginning on page 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The sale price of the MITTS Securities will be the prevailing market price
at the time of sale.
_______________
Merrill Lynch & Co.
_______________
The date of this prospectus is , 2000.
"MITTS" and "Market Index Target-Term Securities" are registered service marks
of Merrill Lynch & Co., Inc.
TABLE OF CONTENTS
Page
----
RISK FACTORS............................................................ 3
MERRILL LYNCH & CO., INC................................................ 6
RATIO OF EARNINGS TO FIXED CHARGES...................................... 7
DESCRIPTION OF THE MITTS SECURITIES..................................... 8
THE INDEX............................................................... 15
OTHER TERMS............................................................. 19
WHERE YOU CAN FIND MORE INFORMATION..................................... 22
INCORPORATION OF INFORMATION WE FILE WITH THE SEC....................... 22
PLAN OF DISTRIBUTION.................................................... 23
EXPERTS................................................................. 23
2
RISK FACTORS
Your investment in the MITTS Securities will involve risks. You should
carefully consider the following discussion of risks before investing in the
MITTS Securities. In addition, you should reach an investment decision with
regard to the MITTS Securities only after consulting with your legal and tax
advisers and considering the suitability of the MITTS Securities in the light of
your particular circumstances.
You may not earn a return on your investment
You may not earn a return on your investment. You should be aware that at
maturity if the average value of the index over five trading days shortly before
the maturity date does not exceed 100 by more than 24%, we will pay you no more
than $10 plus $2.40 for each unit of your MITTS Securities. This will be true
even if, at some time during the life of the MITTS Securities the value of the
index exceeded 124.
Your yield may be lower than the yield on a standard debt security of comparable
maturity
The amount we pay you at maturity may be less than the return you could
earn on other investments. Your yield may be less than the yield you would earn
if you bought a standard senior non-callable Merrill Lynch & Co., Inc. debt
security with the same maturity. Your investment may not reflect the full
opportunity cost to you when you take into account factors that affect the time
value of money.
Your return will not reflect the return of owning the stocks included in the
index
While the index does reflect the payment of dividends on the stocks
underlying the index as described in more detail below, the yield based on the
index to the maturity of the MITTS Securities will not produce the same yield as
if you purchased the underlying stocks and held them for a similar period. At
the end of each calendar quarter, the dividends accrued on the stocks underlying
the index will be incorporated into the index by adjusting the share multipliers
of these stocks and these amounts will then be subject to the price movements of
the stocks. In addition, as described in more detail below, at the end of each
calendar quarter, an amount equal to 0.4375% of the current value of the index
will be deducted from the value of the index, provided that:
. there was no deduction at the end of the calendar quarter ending in
September 1996 and the deduction at the end of the calendar quarter
ending in December 1996 was increased to reflect the quarterly rate of
0.4375% prorated for the period from the date of the issuance of the
MITTS Securities through the end of the calendar quarter in December
1996, and
. there will be a prorated amount deducted on July 31, 2006 equal to
0.1507% of the then current index value to reflect the quarterly rate
of 0.4375% for the period from July 1, 2006 through July 31, 2006.
Although the index is based on stocks that are selected based on dividends paid,
you will not receive any interest, periodic or otherwise, on the MITTS
Securities before their maturity.
There may be an uncertain trading market for the MITTS Securities in the future
Although the MITTS Securities are listed on the NYSE under the symbol
"MTT," you cannot assume that a trading market will continue to exist for the
MITTS Securities. If a trading market in the MITTS Securities continues to
exist, you cannot assume that there will be liquidity in the trading market. The
continued existence of a trading market for the MITTS Securities will depend on
our financial performance and other factors such as the appreciation, if any, of
the value of the index.
3
If the trading market for the MITTS Securities is limited and you do not
wish to hold your investment until maturity, there may be a limited number of
buyers for your MITTS Securities. This may affect the price you receive if you
sell before maturity.
Many factors affect the trading value of the MITTS Securities; 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 MITTS Securities 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 MITTS
Securities caused by another factor and that the effect of one factor may
magnify the decrease in the trading value of the MITTS Securities caused by
another factor. For example, an increase in U.S. interest rates may offset some
or all of any increase in the trading value of the MITTS Securities attributable
to another factor, such as an increase in the value of the index. The following
paragraphs describe the expected impact on the trading value of the MITTS
Securities given a change in a specific factor, assuming all other conditions
remain constant.
The value of the index is expected to affect the trading value of the MITTS
Securities. We expect that the market value of the MITTS Securities will depend
substantially on the amount by which the index exceeds the starting index value.
If you choose to sell your MITTS Securities when the value of the index exceeds
the starting index value, you may receive substantially less than the amount
that would be payable at maturity based on that index value because of the
expectation that the index will continue to fluctuate until the ending index
value is determined. If you choose to sell your MITTS Securities when the value
of the index is below the starting index value, you may receive less than the
$10 principal amount per unit of MITTS Securities. In general, rising Japanese
dividend rates, or dividends per share, may increase the value of the index
while falling Japanese dividend rates may decrease the value of the index.
Political, economic and other developments that affect the stocks underlying the
index may also affect the value of the index and the value of the MITTS
Securities.
Changes in the levels of U.S. interest rates are expected to affect the
trading value of the MITTS Securities. Because we will pay, at a minimum, the
principal amount per unit of the MITTS Securities at maturity, we expect that
changes in interest rates will affect the trading value of the MITTS Securities.
In general, if U.S. interest rates increase, we expect that the trading value of
the MITTS Securities will decrease and, conversely, if U.S. interest rates
decrease, we expect the trading value of the MITTS Securities will increase.
Interest rates may also affect the U.S. economy, and, in turn, the value of the
index. Rising interest rates may lower the value of the index and, thus, may
decrease the trading value of the MITTS Securities. Falling interest rates may
increase the value of the index, and, thus may increase the trading value of the
MITTS Securities.
Changes in the volatility of the index are expected to affect the trading
value of the MITTS Securities. Volatility is the term used to describe the size
and frequency of market fluctuations. If the volatility of the index increases,
we expect that the trading value of the MITTS Securities will increase. If the
volatility of the index decreases, we expect that the trading value of the MITTS
Securities will decrease.
As the time remaining to maturity of the MITTS Securities decreases, the
"time premium" associated with the MITTS Securities will decrease. We anticipate
that before the maturity of the MITTS Securities, the MITTS Securities may trade
at a value above that which would be expected based on the level of interest
rates and the index. This difference will reflect a "time premium" due to
expectations concerning the value of the index during the period prior to
maturity of the MITTS Securities. However, as the time remaining to maturity of
the MITTS Securities decreases, we expect that this time premium will decrease,
lowering the trading value of the MITTS Securities.
Changes in dividend yields of the stocks included in the index are expected
to affect the trading value of the MITTS Securities. If dividend yields on the
stocks comprising the index increase, we expect that the value of the MITTS
Securities will decrease. Conversely, if dividend yields on the stocks
comprising the index decrease, we expect that the value of the MITTS Securities
will increase.
4
Changes in our credit ratings may affect the trading value of the MITTS
Securities. 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 MITTS Securities. However, because your return
on your MITTS Securities is dependent upon factors in addition to our ability to
pay our obligations under the MITTS Securities, such as the percentage increase
in the value of the index at maturity, an improvement in our credit ratings will
not reduce investment risks related to the MITTS Securities.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the MITTS Securities of a given change in
most of the factors listed above will be less if it occurs later in the term of
the MITTS Securities than if it occurs earlier in the term of the MITTS
Securities except that we expect that the effect on the trading value of the
MITTS Securities of a given increase in the value of the index will be greater
if it occurs later in the term of the MITTS Securities than if it occurs earlier
in the term of the MITTS Securities.
Amounts payable on the MITTS Securities may be limited by state law
New York State laws govern the indenture under which the MITTS Securities
are issued. New York has usury laws that limit the amount of interest that can
be charged and paid on loans, which includes debt securities like the MITTS.
Under present New York law, the maximum rate of interest is 25% per annum on a
simple interest basis. This limit may not apply to debt securities in which
$2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state or
Federal court sitting outside of New York, many other states also have laws that
regulate the amount of interest that may be charged to and paid by a borrower.
We will promise, for the benefit of the MITTS holders, to the extent permitted
by law, not to voluntarily claim the benefits of any laws concerning usurious
rates of interest.
Purchases and sales by us and our affiliates may affect your return
We and our affiliates may from time to time buy or sell the stocks
underlying the index for our own accounts for business reasons or in connection
with hedging our obligations under the MITTS. These transactions could affect
the price of these stocks and the value of the index in a manner that be adverse
to your investment in the MITTS Securities.
Potential conflicts of interest
Our subsidiary, Merrill Lynch, Pierce, Fenner & Smith Incorporated, or
MLPF&S, is our agent for the purposes of calculating the value of the index and
the amount payable to you at maturity. In some circumstances, MLPF&S's role as
our subsidiary and its responsibilities as calculation agent for the MITTS
Securities could give rise to conflicts of interests. These conflicts could
occur, for instance, in connection with its determination as to whether the
value of the index can be calculated on a particular trading day, or in
connection with judgments that it would be required to make in the event of a
discontinuance of the index. See "Description of the MITTS Securities--
Adjustments to the Index; Market Disruption Events" and "--Discontinuance of the
Index" in this prospectus. MLPF&S is required to carry out its duties as
calculation agent in good faith and using its reasonable judgment. However, you
should be aware that because 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 amounts due at maturity
on the MITTS Securities. This subsidiary expects to make a profit in connection
with this arrangement. We did not seek competitive bids for this arrangement
from unaffiliated parties.
5
MERRILL LYNCH & CO., INC.
We are a holding company that, through our U.S. and non-U.S. subsidiaries
and affiliates such as Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Merrill Lynch Government Securities Inc., Merrill Lynch Capital Services, Inc.,
Merrill Lynch International, Merrill Lynch Capital Markets Bank Ltd., Merrill
Lynch Asset Management LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping services.
We provide these products and services to a wide array of clients,
including individual investors, small businesses, corporations, governments,
governmental agencies and financial institutions.
Our principal executive office is located at 4 World Financial Center, New
York, New York 10080; our telephone number is (212) 449-1000.
If you want to find more information about us, please see the sections
entitled "Where You Can Find More Information" and "Incorporation of Information
We File with the SEC" in this prospectus.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
MITTS Securities described in this prospectus.
6
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, we acquired the outstanding shares of Midland Walwyn Inc., in a
transaction accounted for as a pooling-of-interests. The following information
for the fiscal years 1995 through 1997 has been restated as if the two entities
had always been combined.
The following table sets forth our historical ratios of earnings to fixed
charges for the periods indicated:
For the Three
Year Ended Last Friday in December Months Ended
1995 1996 1997 1998 1999 March 31, 2000
---- ---- ---- ---- ---- --------------
Ratio of earnings to fixed charges(a).......... 1.2 1.2 1.2 1.1 1.3 1.4
__________
(a) The effect of combining Midland Walwyn did not change the ratios reported
for the fiscal years 1995 through 1997.
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges, excluding capitalized interest and preferred security
dividend requirements of subsidiaries. "Fixed charges" consist of interest
costs, the interest factor in rentals, amortization of debt issuance costs,
preferred security dividend requirements of subsidiaries, and capitalized
interest.
7
DESCRIPTION OF THE MITTS SECURITIES
On August 26, 1996, ML&Co. issued $35,000,000 aggregate principal amount,
or 3,500,000 units of the MITTS Securities.
The MITTS Securities were issued as a series of senior debt securities
under the 1983 Indenture which is more fully described in this prospectus.
The MITTS Securities will mature on August 15, 2006.
While at maturity a beneficial owner of a MITTS Security will receive the
principal amount of each MITTS Security plus the Supplemental Redemption Amount
described below, if any, ML&Co. will make no other payment of interest, periodic
or otherwise. See "- Payment at Maturity" below.
The MITTS Securities are not subject to redemption by ML&Co. or at the
option of any beneficial owner before to maturity. Upon the occurrence of an
Event of Default with respect to the MITTS Securities, beneficial owners of the
MITTS Securities may accelerate the maturity of the MITTS Securities, as
described under "- Events of Default and Acceleration" and "Other Terms - Events
of Default" in this prospectus.
The MITTS Securities were issued in denominations of whole units.
Payment at Maturity
At the maturity date, a beneficial owner of a MITTS Security will be
entitled to receive the principal amount of each unit plus a supplemental
redemption amount as provided below. If the ending index value does not exceed
the starting index value by more than 24%, a beneficial owner of a MITTS
Security will be entitled to receive only the principal amount of its MITTS
Securities and the minimum supplemental redemption amount.
The "Index" is the Top Ten Yield Index, described more fully on pages 15-
19.
The "Supplemental Redemption Amount" for a MITTS Security will be
determined by the calculation agent and will equal:
Principal Amount X Ending Index Value - Starting Index Value
-----------------------------------------
Starting Index Value
provided, however, that in no event will the Supplemental Redemption Amount be
less than $2.40 per $10 principal amount of the MITTS Securities.
The "Starting Index Value" was set at 100.
The "Minimum Supplemental Redemption Amount" is equivalent to a rate of
return of 2.16% per annum calculated on a semi-annual bond equivalent basis.
The "Ending Index Value" will be determined by the calculation agent and
will equal the average or arithmetic mean of the closing values of the Index
determined on each of the first five Calculation Days during the Calculation
Period. If there are fewer than five Calculation Days, then the Ending Index
Value will equal the average, or arithmetic mean, of the closing values of the
Index on these Calculation Days, and if there is only one Calculation Day, then
the Ending Index Value will equal the closing value of the Index on that
Calculation Day. If no Calculation Days occur during the Calculation Period,
then the Ending Index Value will equal the closing value of the Index determined
on the last scheduled Index Business Day in the Calculation Period, regardless
of the occurrence of a Market Disruption Event on that day.
8
The "Calculation Period" means the period from and including the seventh
scheduled Index Business Day prior to the maturity date to and including the
second scheduled Index Business Day prior to the maturity date.
"Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
An "Index Business Day" is a day on which the NYSE and the AMEX are open
for trading and the index or any successor index, as defined on page 11 below,
is calculated and published.
All determinations made by the calculation agent shall be at the sole
discretion of the calculation agent and, absent a determination by the
calculation agent of a manifest error, shall be conclusive for all purposes and
binding on ML&Co. and beneficial owners of the MITTS Securities.
Hypothetical Returns
The following table illustrates, for a range of hypothetical Ending Index
Values:
. the percentage change from the Starting Index Value to the Ending
Index Value;
. the total amount payable per unit of MITTS Securities;
. the total rate of return on the MITTS Securities;
. the pretax annualized rate of return on the MITTS Securities; and
. the pretax annualized rate of return of an investment in the stocks
underlying the Index, as adjusted from time to time, that
experience the same price changes and dividend payments necessary
to produce the indicated hypothetical ending index value, which
reflects a deduction from the value of the Index at the end of each
calendar quarter equal to 0.4375% of the then current Index value.
The pretax annualized rate of return of the stocks underlying the Index
illustrated below is intended to reflect the return that might be earned by an
investor who seeks to replicate the Index return by trading in the actual stocks
underlying the Index and differs from the pretax annualized rate of return on
the MITTS Securities because of the percentage deducted from the value of the
Index each calendar quarter equal to 0.4375% of the then current Index value.
Investors seeking to replicate the Index return by trading in the actual
underlying stocks would not incur this periodic deduction although they might
incur commissions and other transaction-related costs.
9
Total Pretax Pretax Annualized
Percentage Change Amount Annualized Rate of Rate of Return of
Hypothetical Ending Over the Starting Payable at Return on the MITTS Stock Underlying
Index Value Index Value Maturity Securities(1) Index(1)(2)
----------- ----------- -------- ------------- -----------
50 -50% $12.40 2.16% -5.09%
60 -40% $12.40 2.16% -3.31%
70 -30% $12.40 2.16% -1.80%
80 -20% $12.40 2.16% -0.47%
90 -10% $12.40 2.16% 0.70%
100 (3) 0% $12.40 2.16% 1.75%
110 10% $12.40 2.16% 2.71%
120 20% $12.40 2.16% 3.59%
130 30% $13.00 2.64% 4.41%
140 40% $14.00 3.39% 5.16%
150 50% $15.00 4.10% 5.87%
160 60% $16.00 4.76% 6.53%
170 70% $17.00 5.38% 7.15%
180 80% $18.00 5.97% 7.74%
190 90% $19.00 6.52% 8.30%
200 100% $20.00 7.05% 8.84%
210 110% $21.00 7.56% 9.35%
220 120% $22.00 8.04% 9.83%
230 130% $23.00 8.50% 10.30%
240 140% $24.00 8.94% 10.74%
250 150% $25.00 9.37% 11.17%
260 160% $26.00 9.78% 11.58%
270 170% $27.00 10.17% 11.98%
280 180% $28.00 10.56% 12.37%
290 190% $29.00 10.93% 12.74%
300 200% $30.00 11.28% 13.10%
310 210% $31.00 11.63% 13.44%
320 220% $32.00 11.97% 13.78%
330 230% $33.00 12.29% 14.11%
340 240% $34.00 12.61% 14.43%
350 250% $35.00 12.92% 14.74%
360 260% $36.00 13.22% 15.04%
370 270% $37.00 13.51% 15.33%
380 280% $38.00 13.80% 15.62%
390 290% $39.00 14.07% 15.90%
400 300% $40.00 14.34% 16.17%
- ------------
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes, in addition to the price changes and dividend
payments described above:
(a) an initial investment of a fixed amount in the Top Ten Yield Stocks
with the allocation of this amount reflecting an equal dollar-weighted
portfolio of the stocks in the Index;
(b) a reconstruction of this portfolio investment on each Anniversary Date
so as to be an equal-dollar weighted portfolio of the ten common
stocks in the DJIA having the highest Dividend Yield on the second
scheduled Index Business Day prior to each Anniversary Date,
(c) a compounded quarterly rate of return on the stocks which is greater
than the compounded quarterly return on the Index by 0.4375%, the
amount of the quarterly deduction applied to the Index, with dividends
being reinvested on a quarterly basis
(d) no transaction fees or expenses;
(e) an investment term equal to the term of the securities; and
(f) a final Index value equal to the Ending Index Value.
(3) The Starting Index Value.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the pretax annualized
rate of return resulting therefrom will depend entirely on the actual Ending
Index Value determined by the calculation agent as provided in this prospectus.
Historical data regarding the Index is included in this prospectus under "The
Index--Historical Data on the Index".
10
Adjustments to the Index; Market Disruption Events
If at any time the AMEX changes its method of calculating the Index, or the
Index's value changes in any material respect, or if the Index is in any other
way modified so that the Index does not, in the opinion of the calculation
agent, fairly represent the value of the Index had these changes or
modifications not been made, then, from and after that time, the calculation
agent shall, at the close of business in New York, New York, on each date that
the closing value with respect to the Ending Index Value is to be calculated,
make any adjustments as, in the good faith judgment of the calculation agent,
may be necessary in order to arrive at a calculation of a value of a stock index
comparable to the Index as if any changes or modifications had not been made,
and calculate the closing value with reference to the Index, as adjusted.
Accordingly, if the method of calculating the Index is modified so that the
value of the Index is a fraction or a multiple of what it would have been if it
had not been modified, for example, due to a split in the Index, then the
calculation agent shall adjust the Index in order to arrive at a value of the
Index as if it had not been modified, for example, as if the split had not
occurred.
"Market Disruption Event" means either of the following events, as
determined by the calculation agent:
(a) the suspension or material limitation on trading for more than two
hours of trading or during the period one-half hour prior to the close
of trading, or
(b) the suspension or material limitation, in each case, for more than two
hours of trading, whether by reason of movements in price otherwise
exceeding levels permitted by the relevant exchange or otherwise, in
(1) futures contracts related to the Index, or options on futures
contracts, which traded on any major U.S. exchange, or
(2) option contracts related to the Index which are traded on any
major U.S. exchange.
For the purposes of clause (a) above, any limitations on trading during
significant market fluctuations under New York Stock Exchange Rule 80A, or any
applicable rule or regulation enacted or promulgated by the NYSE or any other
self regulatory organization or the SEC of similar scope as determined by the
calculation agent, will be considered "material".
In some circumstances, the duties of MLPF&S as calculation agent in
determining the existence of Market Disruption Events could conflict with the
interests of MLPF&S as a subsidiary of ML&Co.
Discontinuance of the Index
If the AMEX discontinues publication of the Index and the AMEX or another
entity publishes a successor or substitute index that the calculation agent
determines, in its sole discretion, to be comparable to the Index (that index
being referred to as a "Successor Index"), then, upon the calculation agent's
notification of its determination to the Trustee, as defined below, and ML&Co.,
the calculation agent will substitute the Successor Index as calculated by the
AMEX or other entity for the Index and calculate the Ending Index Value as
described above under "Payment at Maturity". Upon any selection by the
calculation agent of a Successor Index, ML&Co. shall cause notice thereof to be
given to Holders of the MITTS Securities.
If the AMEX discontinues publication of the Index and a Successor Index is
not selected by the calculation agent or is no longer published on any of the
Calculation Days, the value to be substituted for the Index for any Calculation
Day used to calculate the Supplemental Redemption Amount at maturity will be a
value computed by the calculation agent for each Calculation Day in accordance
with the procedures last used to calculate the Index prior to any
discontinuance. If a Successor Index is selected or the calculation agent
11
calculates a value as a substitute for the Index as described below, that
Successor Index or value shall be substituted for the Index for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
If the AMEX discontinues publication of the Index prior to the period
during which the Supplemental Redemption Amount is to be determined and the
calculation agent determines that no Successor Index is available at that time,
then on each Business Day until the earlier to occur of:
(a) the determination of the Ending Index Value, and
(b) a determination by the calculation agent that a Successor Index is
available.
The calculation agent shall determine the value that would be used in computing
the Supplemental Redemption Amount as described in the preceding paragraph as if
that day were a Calculation Day. The calculation agent will cause notice of
each value to be published not less often than once each month in The Wall
Street Journal, or another newspaper of general circulation, (the "WSJ"), and
arrange for information with respect to these values to be made available by
telephone. Notwithstanding these alternative arrangements, discontinuance of
the publication of the Index may adversely affect trading in the MITTS
Securities.
Events of Default and Acceleration
If an event of default with respect to any MITTS Securities has occurred
and is continuing, the amount payable to a beneficial owner of a MITTS Security
upon any acceleration permitted by the MITTS Securities, with respect to each
$10 principal amount per unit, will be equal to the principal amount per unit
and the Supplemental Redemption Amount, if any, calculated as though the date of
early repayment were the stated maturity date of the MITTS Securities. See "-
Payment at Maturity" in this prospectus. If a bankruptcy proceeding is
commenced in respect of ML&Co., the claim of the beneficial owner of a MITTS
Security may be limited, under Section 502(b)(2) of Title 11 of the United
States Code, to the principal amount per unit of the MITTS Security plus an
additional amount of contingent interest calculated as though the date of the
commencement of the proceeding were the maturity date of the MITTS Securities.
In case of default in payment of the MITTS Securities, whether at the
stated maturity or upon acceleration, from and after the maturity date the MITTS
Securities shall bear interest, payable upon demand of the beneficial owners
thereof, at the rate of 7.76% per annum, to the extent that payment of any
interest shall be legally enforceable, on the unpaid amount due and payable on
that date in accordance with the terms of the MITTS Securities to the date
payment of any amount has been made or duly provided for.
Global Securities
Description of the Global Securities
Beneficial owners of the MITTS Securities may not receive physical delivery
of the MITTS Securities nor may they be entitled to have the MITTS Securities
registered in their names. The MITTS Securities currently are represented by
one or more fully registered global securities. Each global security was
deposited with, or on behalf of, The Depository Trust Company or DTC, together
with any successor, (being a "depositary"), as depositary, registered in the
name of Cede & Co., DTC's partnership nominee. Unless and until it is exchanged
in whole or in part for MITTS Securities in definitive form, no global security
may be transferred except as a whole by the depositary to a nominee of the
depositary or by a nominee of the depositary to the depositary or another
nominee of the depositary or by the depositary or any nominee to a successor of
the depositary or a nominee of that successor.
12
So long as DTC, or its nominee, is a registered owner of a global security,
DTC or its nominee, as the case may be, will be considered the sole owner or
holder of the MITTS Securities represented by a global security for all purposes
under the 1983 Indenture. Except as provided below, the beneficial owners of
the MITTS Securities represented by a global security will not be entitled to
have the MITTS Securities represented by the global security registered in their
names, will not receive or be entitled to receive physical delivery of the MITTS
Securities in definitive form and will not be considered the owners or holders
under the 1983 Indenture, including for purposes of receiving any reports
delivered by ML&Co. or the trustee under the 1983 Indenture. Accordingly, each
person owning a beneficial interest in a global security must rely on the
procedures of DTC and, if that person is not a participant of DTC on the
procedures of the participant through which that person owns its interest, to
exercise any rights of a holder under the 1983 Indenture. ML&Co. understands
that under existing industry practices, in the event that ML&Co. requests any
action of holders or that an owner of a beneficial interest in a global security
desires to give or take any action which a holder is entitled to give or take
under the 1983 Indenture, DTC would authorize the participants holding the
relevant beneficial interests to give or take any action, and the participants
would authorize beneficial owners owning through those participants to give or
take action or would otherwise act upon the instructions of beneficial owners.
Conveyance of notices and other communications by DTC to participants, by
participants to indirect participants and by participants and indirect
participants to beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
DTC Procedures
The following is based on information furnished by DTC:
DTC is the securities depositary for the MITTS Securities. The MITTS
Securities were issued as fully registered securities registered in the name of
Cede & Co., DTC's partnership nominee. One or more fully registered global
securities were issued for the MITTS Securities in the aggregate principal
amount of the MITTS Securities, and were deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered under to the provisions of Section 17A of the Securities and Exchange
Act of 1934, as amended. DTC holds securities that its participants deposit
with DTC. DTC also facilitates the settlement among participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
participants of DTC include securities brokers and dealers, banks, trust
companies, clearing corporations and other organizations. DTC is owned by a
number of its direct participants and by the NYSE, the AMEX and the National
Association of Securities Dealers, Inc. Access to DTC's system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly. The rules applicable to DTC and its
participants are on file with the SEC.
Purchases of MITTS Securities under DTC's system must be made by or through
direct participants, which will receive a credit for the MITTS Securities on
DTC's records. The ownership interest of each beneficial owner is in turn to be
recorded on the records of direct and indirect participants. Beneficial owners
will not receive written confirmation from DTC of their purchase, but beneficial
owners are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
participants or indirect participants through which the beneficial owner entered
into the transaction. Transfers of ownership interests in the MITTS Securities
are to be accomplished by entries made on the books of participants acting on
behalf of beneficial owners.
13
To facilitate subsequent transfers, all MITTS Securities deposited with DTC
are registered in the name of DTC's partnership nominee, Cede & Co. The deposit
of MITTS Securities with DTC and their registration in the name of Cede & Co.
effect no change in beneficial ownership. DTC has no knowledge of the actual
beneficial owners of the MITTS Securities; DTC's records reflect only the
identity of the direct participants to whose accounts the MITTS Securities are
credited, which may or may not be the beneficial owners. The participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct and
indirect participants to beneficial owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the MITTS
Securities. Under its usual procedures, DTC mails an omnibus proxy to ML&Co. as
soon as possible after the applicable record date. The omnibus proxy assigns
Cede & Co.'s consenting or voting rights to those direct participants identified
in a listing attached to the omnibus proxy to whose accounts the MITTS
Securities are credited on the record date identified in a listing attached to
the omnibus proxy.
Principal, premium, if any, and/or interest, if any, payments on the MITTS
Securities will be made in immediately available funds to DTC. DTC's practice
is to credit direct participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the depositary's records
unless DTC has reason to believe that it will not receive payment on that date.
Payments by participants to beneficial owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name", and
will be the responsibility of the participant and not of DTC, the Trustee or
ML&Co., subject to any statutory or regulatory requirements as may be in effect
from time to time. Payment of principal, premium, if any, and/or interest, if
any, to DTC is the responsibility of ML&Co. or the trustee, disbursement of
payments to direct participants is the responsibility of DTC, and disbursement
of payments to the beneficial owners is the responsibility of direct and
indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to
the effect that the global securities shall be exchangeable, or
. an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to the MITTS Securities,
the global securities will be exchangeable for MITTS Securities in definitive
form of like tenor and of an equal aggregate principal amount, in denominations
of $10 and integral multiples of $10. The definitive MITTS Securities will be
registered in the name or names as the depositary shall instruct the trustee.
It is expected that instructions may be based upon directions received by the
depositary from participants with respect to ownership of beneficial interests
in the global securities.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, MITTS Securities in
definitive form will be printed and delivered.
14
The information in this section concerning DTC and DTC's system has been
obtained from sources that ML&Co. believes to be reliable, but ML&Co. takes no
responsibility for its accuracy.
Same-Day Settlement and Payment
All payments of principal and the Supplemental Redemption Amount, if any,
will be made by ML&Co. in immediately available funds so long as the MITTS
Securities are maintained in book-entry form.
THE INDEX
Top Ten Yield Index
AMEX will calculate and disseminate the value of the Index on any Index
Business Day; the Index will equal the Top Ten Yield Portfolio Value plus the
Current Quarter Dividends (as defined below) as of that Index Business Day. The
Top Ten Yield Portfolio Value will equal the sum of the products of the most
recently available market price and the applicable Share Multiplier for each Top
Ten Yield Stock. The AMEX will generally calculate and disseminate the value of
the Index based on the most recently reported prices of the stocks underlying
the Index, as reported by the exchange or trading system on which the underlying
stocks are listed or traded, at approximately 15-second intervals during the
AMEX's business hours and the end of each Index Business Day via the
Consolidated Tape Association's Network B.
The "Dividend Yield" for each common stock is determined by the AMEX by
annualizing the last quarterly or semi-annual ordinary cash dividend for which
the ex-dividend date has occurred, excluding any extraordinary dividend as
determined by the AMEX in its sole discretion, and dividing the result by the
last available sale price for each stock on its primary exchange on the date the
Dividend Yield is to be determined.
Annual Top Ten Yield Portfolio Reconstitution
As of the close of business on each Anniversary Date, as defined below,
through the applicable Anniversary Date in 2005, the content of the Top Ten
Yield Portfolio shall be reconstituted to include the ten common stocks in the
DJIA having the highest Dividend Yield (the "New Stocks") on the second
scheduled Index Business Day prior to the Anniversary Date (the "Annual
Determination Date"), provided, however, that the AMEX will only add a stock
having characteristics as of the Annual Determination Date that will permit the
Index to remain within the criteria specified in the AMEX rules and within the
applicable rules of the Securities and Exchange Commission. These criteria and
rules will apply only on an Annual Determination Date to exclude a proposed New
Stock. If a proposed New Stock does not meet these criteria or rules, the AMEX
will replace it with the common stock in the DJIA with the next highest Dividend
Yield which does meet these criteria and rules. These criteria currently
provide, among other things:
. that each component stock must have a minimum market value of at least
$75 million, except that up to 10% of the component securities in the
Index may have a market value of $50 million;
. that each component stock must have an average monthly trading volume
in the preceding six months of not less than 1,000,000 shares, except
that up to 10% of the component stocks in the Index may have an
average monthly trading volume of 500,000 shares or more in the last
six months;
. 90% of the Index's numerical Index value and at least 80% of the total
number of component stocks will meet the then current criteria for
standardized option trading set forth in the rules of the AMEX; and
15
. all component stocks will either be listed on the AMEX, the NYSE, or
traded through the facilities of the National Association of
Securities Dealers Automated Quotation System and reported as National
Market System securities.
The AMEX will determine the Share Multiplier for each New Stock and will
indicate the number of shares of each New Stock, given the closing market price
of the New Stock on the Anniversary Date, required to be included in the
calculation of the Top Ten Yield Portfolio Value so that each New Stock
represents approximately an equal percentage of a value equal to the Index in
effect at the close of business on the Anniversary Date. As an example, if the
Index in effect at the close of business on an Anniversary Date equaled 200,
then each of the ten New Stocks relating to the Anniversary Date would be
allocated a portion of the value of the Index equal to 20 and if the closing
market price of one the New Stock on the Anniversary Date was 40, the applicable
Share Multiplier would be 0.5. If the Index equaled 80, then each of the ten
New Stocks would be allocated a portion of the value of the Index equal to 8 and
if the closing market price of one New Stock on the Anniversary Date was 40, the
applicable Share Multiplier would be 0.2. The last Anniversary Date on which
this reconstitution will occur will be the Anniversary Date in 2005, which will
be approximately one year prior to the maturity date of the MITTS Securities.
"Anniversary Date" shall mean the anniversary date of the date the MITTS
Securities are initially issued; provided, however, that if this date is not an
Index Business Day or a Market Disruption Event occurs on that date, then the
Anniversary Date for that year shall mean the immediately succeeding Index
Business Day on which a Market Disruption Event does not occur. "Top Ten Yield
Stock" at any time shall mean the stocks contained in the Top Ten Yield
Portfolio at that time.
Dow Jones Industrial Average
The DJIA is comprised of 30 common stocks chosen by the editors of the WSJ
as representative of the broad market of American industry generally. The
companies are major factors in their industries and their stocks are typically
widely held by individuals and institutional investors. Changes in the
composition of the DJIA are made entirely by the editors of the WSJ without
consultation with the companies, the stock exchange or any official agency or
ML&Co. For the sake of continuity, changes are made infrequently. Most
substitutions have result from mergers, but from time to time, changes may be
made to achieve a better representation. The components of the DJIA may be
changed at any time for any reason. Dow Jones & Company, Inc., publisher of the
WSJ, is not affiliated with ML&Co, has not participated in any way in the
creation of the MITTS Securities or in the selection of stocks to be included in
the Top Ten Yield Portfolio and has not reviewed or approved any information
included in this prospectus.
The first DJIA, consisting of 12 stocks, was published in the WSJ in 1896.
The list grew to 20 stocks in 1916 and to 30 stocks on October 1, 1928. For two
periods of 17 consecutive years each, there were no changes to the list; March
15, 1939-July 2, 1956 and June 2, 1959-August 8, 1976.
ML&Co or its affiliates may presently or from time to time engage in
business with one or more of the issuers of the Top Ten Yield Portfolio stocks,
including extending loans to, or making equity investments in, these issuers or
providing advisory services to these issuers, including merger and acquisition
advisory services. In the course of this business, ML&Co or its affiliates may
acquire non-public information with respect to these issuers and, in addition,
one or more affiliates of ML&Co may publish research reports with respect to
these issuers. ML&Co does not make any representation to any purchaser of MITTS
Securities with respect to any matters whatsoever relating to these issuers.
Any prospective purchaser of MITTS Securities should undertake an independent
investigation of the issuers of the Top Ten Yield Portfolio stocks as in its
judgment is appropriate to make an informed decision with respect to an
investment in the MITTS Securities. The composition of the Index does not
reflect any investment or sell recommendations of ML&Co or its affiliates.
16
Cash Dividends
Current Quarter Dividend
As described above, the value of the Index will include an amount
reflecting Current Quarter Dividends. "Current Quarter Dividends" for any day
will be determined by the AMEX and will equal the sum of the Dividend Payment
for each Top Ten Yield Stock. The "Dividend Payment" with respect to a Top Ten
Yield Stock for any day will equal the sum of the products of:
. each dividend paid by the issuer of that Top Ten Yield Stock on one
share of that Top Ten Yield Stock during the Current Quarter, not
including any reinvestment thereof, multiplied by
. the Share Multiplier applicable to that Top Ten Yield Stock at the
time each dividend is paid. A dividend will be considered paid by an
issuer at the open of business on the ex-dividend date, generally, the
trading day on which the market price of the stock reflects the
payment of the dividend. "Current Quarter" shall mean the period from
and including August 9, 1996 through December 31, 1996, and after
December 31, 1996, from and including the first day of the then
current calendar quarter containing the day on which the applicable
Dividend Payment is being determined to and including the day on which
the applicable Dividend Payment is being determined.
Quarterly Stock Dividend
As of the first day of the start of each calendar quarter, the AMEX will
allocate the Current Quarter Dividends as of the end of the immediately
preceding calendar quarter to each then outstanding Top Ten Yield Stock. The
amount of the Current Quarter Dividends allocated to each Top Ten Yield Stock
will equal the percentage of the value of that Top Ten Yield Stock contained in
the Top Ten Yield Portfolio relative to the value of the entire Top Ten Yield
Portfolio based on the closing market price on the last Index Business Day in
the immediately preceding calendar quarter. The AMEX will increase the Share
Multiplier of each outstanding Top Ten Yield Stock to reflect the number of
shares, or portion of a share, that the amount of the Current Quarter Dividend
allocated to that Top Ten Yield Stock can purchase of each Top Ten Yield Stock
based on the closing market price on the last Index Business Day in the
immediately preceding calendar quarter.
Quarterly Deduction
At the end of each calendar quarter, the Index will be reduced by a value
equal to 0.4375% of the then current Index, provided that:
. there was no deduction at the end of the calendar quarter ending in
September 1996 and the deduction at the end of the calendar quarter
ending in December 1996 was increased to reflect the quarterly rate of
0.4375% prorated for the period from the date of the issuance of the
MITTS Securities through the end of the calendar quarter in December
1996, and
. the Index will be reduced at the close of business on July 31, 2006 by
a value equal to 0.1507% of the closing value of the Index on that
date. With respect to the period ending December 31, 1996, the
quarterly rate of 0.4375% will be prorated by multiplying it by a
factor equal to the result of dividing the number of days in the
period from the date the MITTS Securities are issued through the
calendar quarter ending in December 1996 by 90.
17
Adjustments to the Share Multiplier and Top Ten Yield Portfolio
The Share Multiplier with respect to any Top Ten Yield Stock and the Top
Ten Yield Portfolio will be adjusted as follows:
1. If a Top Ten Yield Stock is subject to a stock split or reverse stock
split, then once the split has become effective, the Share Multiplier relating
to that Top Ten Yield Stock will be adjusted to equal the product of the number
of shares issued with respect to one share of that Top Ten Yield Stock and the
prior multiplier.
2. If a Top Ten Yield Stock is subject to a stock dividend, defined as an
issuance of additional shares of the Top Ten Yield Stock, that is given equally
to all holders of shares of the issuer of that Top Ten Yield Stock, then once
the dividend has become effective and that Top Ten Yield Stock is trading ex-
dividend, AMEX will adjust the Share Multiplier so that the new Share Multiplier
shall equal the former Share Multiplier plus the product of the number of shares
of that Top Ten Yield Stock issued with respect to one share of that Top Ten
Yield Stock and the prior multiplier.
3. If the issuer of a Top Ten Yield Stock is being liquidated or is
subject to a proceeding under any applicable bankruptcy, insolvency or other
similar law, that Top Ten Yield Stock will continue to be included in the Top
Ten Yield Portfolio so long as a Market Price for that Top Ten Yield Stock is
available. If a market price is no longer available for a Top Ten Yield Stock
for whatever reason, including the liquidation of the issuer of Top Ten Yield
Stock or the subjection of the issuer of that Top Ten Yield Stock to a
proceeding under any applicable bankruptcy, insolvency or other similar law,
then the value of that Top Ten Yield Stock will equal zero in connection with
calculating the Top Ten Yield Portfolio Value for so long as no market price is
available, and no attempt will be made to immediately find a replacement stock
or increase the value of the Top Ten Yield Portfolio to compensate for the
deletion of that Top Ten Yield Stock. If a market price is no longer available
for a Top Ten Yield Stock as described above, the Top Ten Yield Portfolio Value
will be computed based on the remaining Top Ten Yield Stocks for which market
prices are available and no new stock will be added to the Top Ten Yield
Portfolio until the annual reconstitution of the Top Ten Yield Portfolio. As a
result, there may be periods during which the Top Ten Yield Portfolio contains
fewer than ten Top Ten Yield Stocks.
4. If the issuer of a Top Ten Yield Stock has been subject to a merger or
consolidation and is not the surviving entity or is nationalized, then a value
for that Top Ten Yield Stock will be determined at the time the issuer is merged
or consolidated or nationalized and will equal the last available market price
for that Top Ten Yield Stock and that value will be constant until the Top Ten
Yield Portfolio is reconstituted. At that time, no adjustment will be made to
the Share Multiplier of that Top Ten Yield Stock.
5. If the issuer of a Top Ten Yield Stock issues to all of its
shareholders equity securities that are publicly traded of an issuer other than
the issuer of the Top Ten Yield Stock, then the new equity securities will be
added to the Top Ten Yield Portfolio as a new Top Ten Yield Stock. The Share
Multiplier for that new Top Ten Yield Stock will equal the product of the
original Share Multiplier with respect to the Top Ten Yield Stock for which the
new Top Ten Yield Stock is being issued (the "Original Top Ten Yield Stock") and
the number of shares of the new Top Ten Yield Stock issued with respect to one
share of the Original Top Ten Yield Stock.
No adjustments of any Share Multiplier of a Top Ten Yield Stock will be
required unless the adjustment would require a change of at least 1% in the
Share Multiplier then in effect. The Share Multiplier resulting from any of the
adjustments specified above will be rounded to the nearest ten-thousandth with
five hundred-thousandths being rounded upward.
The AMEX expects that no adjustments to the Share Multiplier of any Top Ten
Yield Stock or to the Top Ten Yield Portfolio will be made other than those
specified above, however, the AMEX may at its
18
discretion make adjustments to maintain the value of the Index if events would
otherwise alter the value of the Index despite no change in the market prices of
the Top Ten Yield Stocks.
Historical Performance of the Index
You should review the historical performance of the Index. The historical
performance of the Index should not be taken as an indication of future
performance, and no assurance can be given that the Index will increase
sufficiently to cause the beneficial owners of the MITTS Securities to receive
an amount in excess of the principal amount at the maturity of the MITTS
Securities.
OTHER TERMS
ML&Co. issued the MITTS Securities as a series of senior debt securities
under the 1983 Indenture, dated as of April 1, 1983, as amended and restated,
between ML&Co. and The Chase Manhattan Bank, as trustee. A copy of the 1983
Indenture is filed as an exhibit to the registration statement relating to the
MITTS Securities of which this prospectus is a part. The following summaries of
the material provisions of the 1983 Indenture are not complete and are subject
to, and qualified in their entirety by reference to, all provisions of the 1983
Indenture, including the definitions of terms in the 1983 Indenture.
ML&Co. may issue series of senior debt securities from time to time under
the 1983 Indenture, without limitation as to aggregate principal amount, in one
or more series and upon terms as ML&Co. may establish under the provisions of
the 1983 Indenture.
The 1983 Indenture and the MITTS Securities are governed by and construed
in accordance with the laws of the State of New York.
ML&Co. may issue senior debt securities with terms different from those of
senior debt securities previously issued, and issue additional senior debt
securities of a previously issued series of senior debt securities.
The senior debt securities are unsecured and rank equally with all other
unsecured and unsubordinated indebtedness of ML&Co. However, because ML&Co. is
a holding company, the rights of ML&Co. and its creditors, including the holders
of senior debt securities, to participate in any distribution of the assets of
any subsidiary upon its liquidation or reorganization or otherwise are
necessarily subject to the prior claims of creditors of the subsidiary, except
to the extent that a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. In addition, dividends, loans and advances from
certain subsidiaries, including MLPF&S, to ML&Co. are restricted by net capital
requirements under the Exchange Act, and under rules of exchanges and other
regulatory bodies.
Limitations Upon Liens
ML&Co. may not, and may not permit any majority-owned subsidiary to,
create, assume, incur or permit to exist any indebtedness for borrowed money
secured by a pledge, lien or other encumbrance, other than those liens
specifically permitted by the 1983 Indenture, on the Voting Stock owned directly
or indirectly by ML&Co. of any majority-owned subsidiary, other than a majority-
owned subsidiary which, at the time of the incurrence of the secured
indebtedness, has a net worth of less than $3,000,000, unless the outstanding
senior debt securities are secured equally and ratably with the secured
indebtedness.
"Voting Stock" is defined in the 1983 Indenture as the stock of the class
or classes having general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of a
corporation provided that, for the purposes of the 1983 Indenture, stock that
carries only the right to vote conditionally on the occurrence of an event is
not considered voting stock whether or not the event has happened.
19
Limitation on Disposition of Voting Stock of, and Merger and Sale of Assets by,
MLPF&S
ML&Co. may not sell, transfer or otherwise dispose of any Voting Stock of
MLPF&S or permit MLPF&S to issue, sell or otherwise dispose of any of its Voting
Stock, unless, after giving effect to any transaction, MLPF&S remains a
Controlled Subsidiary.
"Controlled Subsidiary" is defined in the 1983 Indenture to mean a
corporation more than 80% of the outstanding shares of Voting Stock of which are
owned directly or indirectly by ML&Co.
In addition, ML&Co. may not permit MLPF&S to:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. convey or transfer its properties and assets substantially as an
entirety, except to one or more Controlled Subsidiaries.
Merger and Consolidation
ML&Co. may consolidate or merge with or into any other corporation and
ML&Co. may sell, lease or convey all or substantially all of its assets to any
corporation, provided that:
. the resulting corporation, if other than ML&Co., is a corporation
organized and existing under the laws of the United States of America
or any U.S. state and assumes all of ML&Co.'s obligations to:
. pay any amounts due and payable or deliverable with respect to
all the senior debt securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. ML&Co. or the successor corporation, as the case may be, is not,
immediately after any consolidation or merger, in default under the
1983 Indenture.
Modification and Waiver
ML&Co. and the trustee may modify and amend the 1983 Indenture with the
consent of holders of at least 66 2/3% in principal amount of each outstanding
series of senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 Indenture may:
. change the stated maturity date of the principal of, or any
installment of interest or Additional Amounts payable on, any senior
debt security or any premium payable on redemption, or change the
redemption price;
. reduce the principal amount of, or the interest or Additional Amounts
payable on, any senior debt security or reduce the amount of principal
which could be declared due and payable before the stated maturity
date;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
20
. reduce the percentage in principal amount of the outstanding senior
debt securities of any series, the consent of whose holders is
required to modify or amend the 1983 Indenture; or
. modify the foregoing requirements or reduce the percentage of
outstanding senior debt securities necessary to waive any past default
to less than a majority.
No modification or amendment of ML&Co.'s Subordinated Indenture or any
Subsequent Indenture for subordinated debt securities may adversely affect the
rights of any holder of ML&Co.'s senior indebtedness without the consent of each
holder affected. The holders of at least a majority in principal amount of
outstanding senior debt securities of any series may, with respect to that
series, waive past defaults under the 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under "--
Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. default in the performance of any other obligation of ML&Co. contained
in the 1983 Indenture for the benefit of that series or in the senior
debt securities of that series, continuing for 60 days after written
notice as provided in the 1983 Indenture;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. any other Event of Default provided with respect to senior debt
securities of that series which are not inconsistent with the 1983
Indenture.
If an Event of Default occurs and is continuing for any series of senior debt
securities, other than as a result of the bankruptcy, insolvency or
reorganization of ML&Co., the trustee or the holders of at least 25% in
principal amount of the outstanding senior debt securities of that series may
declare all amounts, or any lesser amount provided for in the senior debt
securities, due and payable or deliverable immediately. At any time after a
declaration of acceleration has been made with respect to senior debt securities
of any series but before the trustee has obtained a judgment or decree for
payment of money, the holders of a majority in principal amount of the
outstanding senior debt securities of that series may rescind any declaration of
acceleration and its consequences, if all payments due, other than those due as
a result of acceleration, have been made and all Events of Default have been
remedied or waived.
The holders of a majority in principal amount or aggregate issue price of
the outstanding senior debt securities of that series may waive any Event of
Default with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of that Indenture without the
consent of each holder of each outstanding security of each series of
senior debt securities affected.
21
The holders of a majority in principal amount of the outstanding senior
debt securities of a series may direct the time, method and place of conducting
any proceeding for any remedy available to the trustee or exercising any trust
or power conferred on the trustee with respect to those senior debt securities,
provided that any direction shall not be in conflict with any rule of law or the
1983 Indenture. Before proceeding to exercise any right or power under the 1983
Indenture at the direction of the holders, the trustee shall be entitled to
receive from the holders reasonable security or indemnification against the
costs, expenses and liabilities which might be incurred by it in complying with
any direction.
The MITTS Securities and other series of senior debt securities issued
under the 1983 Indenture do not have the benefit of any cross-default provisions
with other indebtedness of ML&Co.
ML&Co. is required to furnish to the trustee annually a statement as to the
fulfillment by ML&Co. of all of its obligations under the 1983 Indenture.
WHERE YOU CAN FIND MORE INFORMATION
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 by visiting
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 further
information about the public reference rooms. You may also inspect our SEC
reports and other information at the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the MITTS Securities and other securities. For further information on ML&Co.
and the MITTS Securities, you should refer to our registration statement and its
exhibits. This prospectus summarizes material provisions of contracts and other
documents that we refer you to. Because the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement of which this prospectus is a part.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to incorporate by reference the information we file with
them, which means:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Exchange Act:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly report on Form 10-Q for the period ended March 31, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000 and May 24, 2000.
22
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. any reports filed under Section 15(d) of the Exchange Act.
You should rely only on information contained or incorporated by reference
in this prospectus. We have not, and MLPF&S has not, authorized any other
person to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. We are not,
and MLPF&S is not, making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date of this prospectus only. Our business, financial
condition and results of operations may have changed since that date.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 222
Broadway, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales of the
MITTS Securities and is to be used by MLPF&S when making offers and sales
related to market-making transactions in the MITTS Securities.
MLPF&S may act as principal or agent in these market-making transactions.
The MITTS Securities may be offered on the AMEX or off the exchange in
negotiated transactions or otherwise.
The distribution of the MITTS Securities will conform to the requirements
set forth in the applicable sections of Rule 2720 of the Conduct Rules of the
NASD.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference from the Annual Report on
Form 10-K of Merrill Lynch & Co., Inc. and subsidiaries for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which express an unqualified
opinion and which report on the consolidated financial statements includes an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), which are incorporated herein by reference, and have been so incorporated
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
With respect to unaudited interim financial information for the periods
included in the Quarterly Reports on Form 10-Q which are incorporated herein by
reference, Deloitte & Touche LLP have applied limited procedures in accordance
with professional standards for a review of such information. However, as
stated in their report included in such Quarterly Reports on Form 10-Q and
incorporated by reference herein, they did not audit and they do not express an
opinion on such interim financial information. Accordingly, the degree of
reliance on their report on such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP is
not subject to the liability provisions of Section 11 of the Securities Act of
1933, as amended, for their reports on unaudited interim financial information
because such report is not a "report" or a "part" of the Registration Statement
prepared or certified by an accountant within the meaning of Sections 7 and 11
of the Securities Act of 1933, as amended.
23
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated June 7, 2000
PROSPECTUS
- ----------
Merrill Lynch & Co., Inc.
Technology Market Index Target-Term Securities(R)
due August 15, 2001
"MITTS(R) Securities"
$10 principal amount
The MITTS Securities: Payment at Maturity:
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount
. Senior unsecured debt securities of Merrill equal to the sum of the principal amount of each
Lynch & Co., Inc. unit and an additional amount based on the
. Linked to the value of the Chicago Board of percentage increase, if any, in the value of the
Options Exchange Technology Index, as further index, adjusted as described in this prospectus.
described in this prospectus. . At maturity you will receive no less than the
. The MITTS Securities are listed on the Chicago principal amount of your MITTS Securities and no
Board of Options Exchange and the New York Stock more than $20.
Exchange under the symbol "TKM".
Investing in the MITTS Securities involves risks.
See "Risk Factors" beginning on page 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The sale price of the MITTS Securities will be the prevailing market price
at the time of sale.
_______________
Merrill Lynch & Co.
_______________
The date of this prospectus is , 2000.
"MITTS" and "Market Index Target-Term Securities" are service marks of Merrill
Lynch & Co., Inc.
* The use and reference of the term "CBOE Technology Index" in this
prospectus has been consented to by the CBOE. The "CBOE Technology Index"
is a service mark of the CBOE.
TABLE OF CONTENTS
Page
----
RISK FACTORS........................................................... 3
MERRILL LYNCH & CO., INC............................................... 6
RATIO OF EARNINGS TO FIXED CHARGES..................................... 7
DESCRIPTION OF SECURITIES.............................................. 8
THE INDEX.............................................................. 13
OTHER TERMS............................................................ 15
INCORPORATION OF INFORMATION WE FILE WITH THE SEC...................... 19
PLAN OF DISTRIBUTION................................................... 20
EXPERTS................................................................ 20
2
RISK FACTORS
Your investment in the MITTS Securities will involve risks. You should
carefully consider the following discussion of risks before investing in the
MITTS Securities. In addition, you should reach an investment decision with
regard to the MITTS Securities only after consulting with your legal and tax
advisers and considering the suitability of the MITTS Securities in the light of
your particular circumstances.
You may not earn a return on your investment
You should be aware that at maturity we will pay you no more than $10 for
each unit of the MITTS Securities you own if the average value of the index over
five trading days shortly before the maturity date is less than 189.48.
Your yield may be lower than the yield on a standard debt security of comparable
maturity
The amount we pay you at maturity may be less than the return you could
earn on other investments. Your yield may be less than the yield you would earn
if you bought a standard senior non-callable debt security of Merrill Lynch &
Co., Inc. with the same maturity date. Your investment may not reflect the full
opportunity cost to you when you take into account factors that affect the time
value of money.
Yield on the MITTS Securities is subject to a maximum amount
Because the amount, in addition to the principal amount of the MITTS
Securities, if any, we will pay you at maturity, will not exceed $10 per unit of
MITTS Securities, you will not benefit from index increases in excess of
approximately 125% of the closing index value on the date the MITTS Securities
were priced for initial sale to the public.
Your return will not reflect the return of owning the stocks included in the
index
The index does not reflect the payment of dividends on the stocks
underlying it and therefore the yield based on the index to the maturity of the
MITTS Securities will not produce the same yield as if you purchased the
underlying stocks and held them for a similar period.
There may be an uncertain trading market for the MITTS Securities
ML&Co. has listed the MITTS Securities on the Chicago Board of Options
Exchange and the NYSE under the trading symbol "TKM". You cannot assume that a
trading market will continue to exist for the MITTS Securities. If a trading
market in the MITTS Securities continues to exist, there can be no assurance
that there will be liquidity in the trading market. The continued existence of a
trading market for the MITTS Securities will depend on our financial
performance, and other factors such as the increase, if any, in the value of the
index.
If a limited trading market for the MITTS Securities exists, and you do not
wish to hold your investment until maturity, fewer buyers may want to purchase
your MITTS Securities. This may affect the price you receive if you sell before
maturity.
Many factors affect the trading value of the MITTS Securities; 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 MITTS Securities is expected to depend
substantially on the extent of the appreciation, if any, of the index over
189.48. If, however, you sell your MITTS Securities prior to the maturity date
at a time when the index exceeds 189.48, the price you receive may be at a
substantial discount from the amount expected to be payable if the excess of the
index over 189.48 were to prevail until maturity of the MITTS Securities because
of the possible fluctuation of the index between the time of the sale and the
time that the MITTS Securities mature. Furthermore, the price at which you will
be able to sell the MITTS Securities prior to maturity may be at a discount,
which could be substantial, from the principal amount thereof, if, at that time,
the index is below, equal to, or not sufficiently above 189.48. The $20
limitation on
3
payment at maturity of the MITTS Securities may adversely affect the secondary
market value of the MITTS Securities. A discount could also result from rising
interest rates.
The trading value of the MITTS Securities 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 MITTS
Securities caused by another factor and that the effect of one factor may
magnify the decrease in the trading value of the MITTS Securities caused by
another factor. For example, an increase in U.S. interest rates may offset some
or all of any increase in the trading value of the MITTS Securities attributable
to another factor, such as an increase in the value of the index. The following
paragraphs describe the expected impact on the trading value of the MITTS
Securities given a change in a specific factor, assuming all other conditions
remain constant.
Changes in the levels of U.S. interest rates are expected to affect the
trading value of the MITTS Securities. Because we will pay, at a minimum, the
principal amount per unit of MITTS Securities at maturity, we expect the trading
value of the MITTS Securities will likely be affected by changes in interest
rates. In general, we anticipate that if U.S. interest rates increase, the
trading value of the MITTS Securities is expected to decrease. Conversely, if
U.S. interest rates decrease, the trading value of the MITTS Securities is
expected to increase. Interest rates may also affect the U.S. economy, and, in
turn, the value of the Index. Rising interest rates may lower the value of the
index and, thus, may decrease the trading value of the MITTS Securities. Falling
interest rates may increase the value of the index and, thus, may increase the
trading value of the MITTS Securities.
Changes in the volatility of the index are expected to affect the trading
value of the MITTS Securities. If the volatility of the index increases, we
expect that the trading value of the MITTS Securities will increase. If the
volatility of the index decreases, we expect that the trading value of the MITTS
Securities will decrease.
As the time remaining to maturity of the MITTS Securities decreases, the
"time premium" associated with the MITTS Securities will decrease. We believe
that before maturity the MITTS Securities may trade at a value above that which
you may expect from the level of interest rates and the index. This difference
will reflect a "time premium" due to expectations concerning the value of the
index during the period prior to maturity of the MITTS Securities. As the time
remaining to maturity of the MITTS Securities decreases, however, we expect this
time premium to decrease, thus decreasing the trading value of the MITTS
Securities. In addition, the price at which you may be able to sell your MITTS
Securities prior to maturity may be at a discount, which may be substantial,
from the principal amount of the MITTS Securities if the value of the index is
below, equal to, or not sufficiently above 189.48.
Changes in dividend yields of the stocks included in the portfolio are
expected to affect the trading value of the MITTS Securities. If dividend rates
on the stocks included in the index increase, we expect the trading value of the
MITTS Securities to decrease. Conversely, if dividend rates on the stocks
included in the index decrease, we expect the value of the MITTS Securities to
increase. However, in general, rising U.S. corporate dividend rates may increase
the value of the index and, in turn, increase the trading value of the MITTS
Securities. Conversely, falling U.S. corporate dividend rates may decrease the
value of the index and, in turn, decrease the trading value of the MITTS
Securities.
The impact of the factors specified above, excluding the value of the
index, may offset, partially or in whole, any increase in the trading value of
the MITTS Securities that is attributable to an increase in the value of the
index. For example, an increase in U.S. interest rates may cause the MITTS
Securities to trade at a discount from their initial offering price, even if the
index has appreciated significantly. In addition, the impact of a given factor
may change depending on the prevailing value of the index relative to 189.48 and
on the time remaining to maturity. In general, assuming all relevant factors are
held constant, the effect on the trading value of the MITTS Securities of a
given change in interest rates, index volatility and/or dividend rates of stocks
comprising the index is expected to be less if it occurs later in the term of
the MITTS Securities than if it occurs earlier in the term of the MITTS
Securities. We expect that the effect on the trading value of the MITTS
Securities of a given appreciation of the index in excess of value of the MITTS
Securities to be greater if it occurs later in the term of the MITTS Securities
than if it occurs earlier in the term of the MITTS Securities, assuming all
other relevant factors are held constant.
4
Many factors affect the value of the index
Political, economic and other developments that affect the stocks included
in the index may adversely affect the value of the index and the value of the
MITTS Securities. Since the stocks included in the index are of companies
involved in various aspects of the high technology industry segment, factors
affecting this industry segment may affect the value of the index and therefore
the trading value of the MITTS Securities.
Amounts payable on the MITTS Securities may be limited by state law
New York State laws govern the indenture under which the MITTS Securities
are issued. New York has usury laws that limit the amount of interest that can
be charged and paid on loans, which includes debt securities like the MITTS
Securities. Under present New York law, the maximum rate of interest is 25% per
annum on a simple interest basis. This limit may not apply to debt securities in
which $2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state or
Federal court sitting outside of New York, many other states also have laws that
regulate the amount of interest chargeable to and payable by a borrower. We will
promise, for the benefit of the MITTS Securities holders, to the extent
permitted by law, not to voluntarily claim the benefits of any laws concerning
usurious rates of interest.
Potential conflicts
Our wholly-owned subsidiary, Merrill Lynch, Pierce, Fenner and Smith, or
MLPF&S, or its affiliates may from time to time engage in transactions involving
the stocks underlying the index for their proprietary accounts and for other
accounts under their management, which may influence the value of the stocks and
therefore the value of the MITTS Securities. MLPF&S and its affiliates will also
be the counterparties to the hedge of ML&Co.'s obligations under the MITTS
Securities. Accordingly, in some circumstances, conflicts of interest may arise
between MLPF&S's responsibilities as calculation agent with respect to the MITTS
Securities and its obligations under its hedge and its status as a subsidiary of
ML&Co. In some circumstances, the duties of MLPF&S as calculation agent could
conflict with the interests of MLPF&S as an affiliate of the issuer of the MITTS
Securities, Merrill Lynch & Co., Inc., and with the interests of the holders of
the MITTS Securities.
5
MERRILL LYNCH & CO., INC.
We are a holding company that, through our U.S. and non-U.S. subsidiaries
and affiliates such as Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Merrill Lynch Government Securities Inc., Merrill Lynch Capital Services, Inc.,
Merrill Lynch International, Merrill Lynch Capital Markets Bank Ltd., Merrill
Lynch Asset Management LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping services.
We provide these products and services to a wide array of clients,
including individual investors, small businesses, corporations, governments,
governmental agencies and financial institutions.
Our principal executive office is located at 4 World Financial Center, New
York, New York 10080; our telephone number is (212) 449-1000.
If you want to find more information about us, please see the sections
entitled "Where You Can Find More Information" and "Incorporation of Information
We File with the SEC" in this prospectus.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
MITTS Securities described in this prospectus.
6
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, we acquired the outstanding shares of Midland Walwyn Inc., in a
transaction accounted for as a pooling-of-interests. The following information
for the fiscal years 1995 through 1997 has been restated as if the two entities
had always been combined.
The following table sets forth our historical ratios of earnings to fixed
charges for the periods indicated:
For the Three
Year Ended Last Friday in December Months Ended
1995 1996 1997 1998 1999 March 31, 2000
--------- -------- -------- -------- ---------- -------------------
Ratio of earnings to fixed charges(a).. 1.2 1.2 1.2 1.1 1.3 1.4
__________
(a) The effect of combining Midland Walwyn did not change the ratios reported
for the fiscal years 1995 through 1997.
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges, excluding capitalized interest and preferred security
dividend requirements of subsidiaries. "Fixed charges" consist of interest
costs, the interest factor in rentals, amortization of debt issuance costs,
preferred security dividend requirements of subsidiaries, and capitalized
interest.
7
DESCRIPTION OF SECURITIES
On August 12, 1996, ML&Co. issued $25,000,000 aggregate principal amount of
Technology MITTS Securities due August 15, 2001. The MITTS Securities were
issued as a series of senior debt securities under the 1983 Indenture which is
more fully described in this prospectus.
The MITTS Securities will mature on August 15, 2001.
While at maturity a beneficial owner of a MITTS Security will receive the
principal amount of that MITTS Security plus the Supplemental Redemption Amount
described below, if any, there will be no other payment of interest, periodic or
otherwise. See "-- Payment at Maturity" below.
The MITTS Securities are not subject to redemption by ML&Co. or at the
option of any beneficial owner before maturity. Upon the occurrence of an Event
of Default with respect to the MITTS Securities, beneficial owners of the MITTS
Securities may accelerate the maturity of the MITTS Securities, as described
under "- Events of Default and Acceleration" and "Other Terms - Events of
Default" in this prospectus.
The MITTS Securities were issued in denominations of whole units.
Payment at Maturity
At the maturity date, a beneficial owner of a MITTS Security will be
entitled to receive the principal amount of each unit plus the Supplemental
Redemption Amount, if any, all as provided below. If the Ending Index Value does
not exceed the Benchmark Index Value, a beneficial owner of a MITTS Security
will be entitled to receive only the principal amount of its MITTS Securities.
The "Supplemental Redemption Amount" for a MITTS Security will be
determined by the calculation agent and will equal:
Ending Index Value - Benchmark Index Value
Principal Amount X ------------------------------------------
Benchmark Index Value
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero or more than $10 per $10 principal amount of MITTS Securities.
The "Benchmark Index Value" equals 189.48. The Benchmark Index Value was
determined on the date the MITTS Securities were priced for initial sale to the
public (the "Pricing Date") by multiplying the closing value of the CBOE
Technology Index (the "Index") on the Pricing Date by a factor equal to 112.5%.
The "Ending Index Value" will be determined by calculation agent and will
equal the average or arithmetic mean of the closing values of the Index
determined on each of the first five Calculation Days during the Calculation
Period. If there are fewer than five Calculation Days, then the Ending Index
Value will equal the average or arithmetic mean of the closing values of the
Index on those Calculation Days. If there is only one Calculation Day, then the
Ending Index Value will equal the closing value of the Index on that Calculation
Day. If no Calculation Days occur during the Calculation Period because of
Market Disruption Events, then the Ending Index Value will equal the closing
value of the Index determined on the last scheduled Index Business Day in the
Calculation Period, regardless of the occurrence of a Market Disruption Event on
that day.
The "Calculation Period" means the period from and including the seventh
scheduled Index Business Day before the maturity date to and including the
second scheduled Index Business Day before the maturity date.
"Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
8
For purposes of determining the Ending Index Value, an "Index Business Day"
is a day on which the NYSE is open for trading and trading generally occurs in
the over-the-counter market for equity securities and the Index or any Successor
Index, as defined on page 10 below, is calculated and published.
All determinations made by the calculation agent shall be at the sole
discretion of the calculation agent and, absent a determination by the
calculation agent of a manifest error, shall be conclusive for all purposes and
binding on ML&Co. and beneficial owners of the MITTS Securities.
Hypothetical Returns
The following table illustrates, for a range of hypothetical Ending Index
Values,
. the total amount payable at maturity for each $10 principal amount of
MITTS Securities,
. the pretax annualized rate of return to beneficial owners of MITTS
Securities, and
. the pretax annualized rate of return of an investment in the stocks
underlying the Index, which includes an assumed aggregate dividend
yield of 0.20% per annum, as more fully described below.
Total Pretax Pretax Annualized
Percentage Change Amount Annualized Rate of Rate of Return of
Hypothetical Ending Over the Starting Payable at Return on the Stocks Underlying
Index Value Index Value Maturity MITTS Securities(1) the Index(1)(2)
------------------- ----------------- ---------- ------------------- -----------------
84.22 -50% $10.00 0.00% -13.20%
101.06 -40% $10.00 0.00% -9.77%
117.90 -30% $10.00 0.00% -6.81%
134.74 -20% $10.00 0.00% -4.22%
151.59 -10% $10.00 0.00% -1.90%
168.43 (3) 0% $10.00 0.00% 0.20%
185.27 10% $10.00 0.00% 2.12%
202.12 20% $10.67 1.30% 3.88%
218.96 30% $11.56 2.92% 5.52%
235.80 40% $12.44 4.41% 7.05%
252.65 50% $13.33 5.82% 8.49%
269.49 60% $14.22 7.15% 9.84%
286.33 70% $15.11 8.41% 11.12%
303.17 80% $16.00 9.61% 12.33%
320.02 90% $16.89 10.74% 13.48%
336.86 100% $17.78 11.83% 14.58%
353.70 110% $18.67 12.86% 15.63%
370.55 120% $19.56 13.85% 16.64%
387.39 130% $20.00 14.33% 17.60%
404.23 140% $20.00 14.33% 18.53%
421.08 150% $20.00 14.33% 19.43%
- --------------
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes
(a) an investment of a fixed amount in the stocks underlying the Index
with the allocation of that amount reflecting the relative weights of
the stocks in the Index;
(b) a percentage change in the aggregate price of the stocks that equals
the percentage change in the Index from the closing value of the Index
on the Pricing Date to the relevant hypothetical Ending Index Value;
(c) a constant dividend yield of 0.20% per annum, paid quarterly from the
date of initial delivery of MITTS Securities, applied to the value of
the Index at the end of each quarter assuming the value increases or
decreases linearly from the closing value of the Index on the Pricing
Date to the applicable hypothetical
9
Ending Index Value;
(d) no transaction fees or expenses;
(e) an investment term equal to the term of the MITTS Securities; and
(f) a final Index value equal to the Ending Index Value. The aggregate
dividend yield of the stocks underlying the Index as of August 7, 1996
was approximately 0.20%.
(3) The closing value of the Index on the Pricing Date.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the resulting pretax
annualized rate of return will depend entirely on the actual Ending Index Value
determined by the calculation agent as provided in this prospectus.
Adjustments to the Index; Market Disruption Events
If at any time the method of calculating its Index, or its value, is
changed in any material respect, or if the Index is in any other way modified so
that the Index does not, in the opinion of the calculation agent, fairly
represent the value of the Index had the changes or modifications not been made,
then, from and after that time, the calculation agent shall, at the close of
business in New York, New York, on each date that the closing value with respect
to the Ending Index Value is to be calculated, make any adjustments as, in the
good faith judgment of the calculation agent, may be necessary in order to
arrive at a calculation of a value of a stock index comparable to the Index as
if the changes or modifications had not been made, and calculate the closing
value with reference to the Index, as adjusted. Accordingly, if the method of
calculating the Index is modified so that the value of the Index is a fraction
or a multiple of what it would have been if it had not been modified for
example, due to a split in the Index, then the calculation agent shall adjust
the Index in order to arrive at a value of the Index as if it had not been
modified for example, as if the split had not occurred.
"Market Disruption Event" means either of the following events, as
determined by the calculation agent:
(a) the suspension or material limitation on trading for more than two
hours of trading in 5 or more of the securities included in the Index, or
(b) the suspension or material limitation, in each case, for more than
two hours of trading, whether by reason of movements in price otherwise
exceeding levels permitted by the relevant exchange or otherwise, in option
contracts on the Index which are traded on the Chicago Board Options Exchange,
Inc.
For the purposes of clause (a) above, any limitations on trading during
significant market fluctuations under New York Stock Exchange Rule 80A, or any
applicable rule or regulation enacted or promulgated by the NYSE or any other
self regulatory organization or the SEC of similar scope as determined by the
calculation agent, will be considered "material".
For the purposes of this definition, a limitation on the hours in a
trading day and/or number of days of trading will not constitute a Market
Disruption Event if it results from an announced change in the regular business
hours of the relevant exchange.
Discontinuance of the Index
If the CBOE discontinues publication of the Index and the CBOE or
another entity publishes a successor or substitute index that the calculation
agent determines, in its sole discretion, to be comparable to the Index (a
"Successor Index"), then, upon the calculation agent's notification of the
determination to the trustee and ML&Co., the calculation agent will substitute
the Successor Index as calculated by the CBOE or any other entity for the Index
and calculate the Ending Index Value as described above under "Payment at
Maturity". Upon any selection by the calculation agent of a Successor Index,
ML&Co. shall cause notice to be given to holders of the MITTS Securities.
If the CBOE discontinues publication of the Index and a Successor Index
is not selected by the calculation agent or is no longer published on any of the
Calculation Days, the value to be substituted for the Index for any Calculation
Day used to calculate the Supplemental Redemption Amount at maturity will be a
value computed by the calculation agent for each Calculation Day in accordance
with the procedures last used to calculate the Index
10
before any discontinuance. If a Successor Index is selected or the calculation
agent calculates a value as a substitute for the Index as described below, the
Successor Index or value shall be substituted for the Index for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
If the CBOE discontinues publication of the Index before the period during
which the calculation agent is to calculate the Supplemental Redemption Amount
and the calculation agent determines that no Successor Index is available at
that time, then on each Business Day until the earlier to occur of the
determination of the Ending Index Value and a determination by the calculation
agent that a Successor Index is available, the calculation agent shall determine
the value that would be used in computing the Supplemental Redemption Amount as
described in the preceding paragraph as if that day were a Calculation Day. The
calculation agent will cause notice of each value to be published not less often
than once each month in The Wall Street Journal, or another newspaper of general
circulation, and arrange for information with respect to these values to be made
available by telephone. Despite these alternative arrangements, discontinuance
of the publication of the Index may adversely affect trading in the MITTS
Securities.
Events of Default and Acceleration
In case an Event of Default with respect to any MITTS Securities shall have
occurred and be continuing, the amount payable to a beneficial owner of a
Security upon any acceleration permitted by the MITTS Securities, with respect
to each $10 principal amount thereof, will be equal to the principal amount plus
an additional amount of contingent interest calculated as though the date of
early repayment were the maturity date of the MITTS Securities. See "Description
of Securities--Payment at Maturity" in this prospectus. If a bankruptcy
proceeding is commenced in respect of ML&Co., the claim of the beneficial owner
of a Security may be limited, under Section 502(b)(2) of Title 11 of the United
States Code, to the principal amount of the Security plus an additional amount
of contingent interest calculated as though the date of the commencement of the
proceeding were the maturity date of the MITTS Securities.
In case of default in payment at the maturity date of the MITTS Securities,
whether at their stated maturity or upon acceleration, from and after the
maturity date the MITTS Securities shall bear interest, payable upon demand of
the beneficial owners thereof, at the rate of 7.76%, per annum to the extent
that payment of any interest shall be legally enforceable, on the unpaid amount
due and payable on that date in accordance with the terms of the MITTS
Securities to the date payment of that amount has been made or duly provided
for.
Global Securities
Description of the Global Securities
Beneficial owners of the MITTS Securities may not receive physical delivery
of the MITTS Securities nor may they be entitled to have the MITTS Securities
registered in their names. The MITTS Securities currently are represented by one
or more fully registered global securities. Each global security was deposited
with, or on behalf of, The Depository Trust Company or DTC (DTC, together with
any successor, a "depositary"), as depositary, registered in the name of Cede &
Co. (DTC's partnership nominee). Unless and until it is exchanged in whole or in
part for MITTS Securities in definitive form, no global security may be
transferred except as a whole by the depositary to a nominee of the depositary
or by a nominee of the depositary to the depositary or another nominee of the
depositary or by the depositary or any nominee to a successor of the depositary
or a nominee of that successor.
So long as DTC, or its nominee, is a registered owner of a global security,
DTC or its nominee, as the case may be, will be considered the sole owner or
Holder of the MITTS Securities represented by a global security for all purposes
under the 1983 Indenture. Except as provided below, the beneficial owners of the
MITTS Securities represented by a global security will not be entitled to have
the MITTS Securities represented by the global security registered in their
names, will not receive or be entitled to receive physical delivery of the MITTS
Securities in definitive form and will not be considered the owners or Holders
under the 1983 Indenture, including for purposes of receiving any reports
delivered by ML&Co. or the trustee under the 1983 Indenture. Accordingly, each
person owning a beneficial interest in a global security must rely on the
procedures of DTC and, if that person is not a participant of DTC on the
procedures of the participant through which that person owns its interest, to
exercise any rights of a Holder under the 1983 Indenture. ML&Co. understands
that under existing industry practices, in the event that ML&Co. requests any
action of Holders or that an owner of a beneficial interest in a global security
desires to
11
give or take any action which a Holder is entitled to give or take under the
1983 Indenture, DTC would authorize the participants holding the relevant
beneficial interests to give or take any action, and the participants would
authorize beneficial owners owning through those participants to give or take
action or would otherwise act upon the instructions of beneficial owners.
Conveyance of notices and other communications by DTC to participants, by
participants to indirect participants and by participants and indirect
participants to beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
DTC Procedures
The following is based on information furnished by DTC:
DTC is the securities depositary for the MITTS Securities. The MITTS
Securities were issued as fully registered securities registered in the name of
Cede & Co., DTC's partnership nominee. One or more fully registered global
securities were issued for the MITTS Securities in the aggregate principal
amount of the MITTS Securities, and were deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered under to the provisions of Section 17A of the Securities and Exchange
Act of 1934, as amended. DTC holds securities that its participants deposit with
DTC. DTC also facilitates the settlement among participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
participants of DTC include securities brokers and dealers, banks, trust
companies, clearing corporations and other organizations. DTC is owned by a
number of its direct participants and by the NYSE, the AMEX and the National
Association of Securities Dealers, Inc. Access to the DTC's system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly. The rules applicable to DTC and its
participants are on file with the SEC.
Purchases of MITTS Securities under DTC's system must be made by or through
direct participants, which will receive a credit for the MITTS Securities on
DTC's records. The ownership interest of each beneficial owner is in turn to be
recorded on the records of direct and indirect participants. Beneficial owners
will not receive written confirmation from DTC of their purchase, but beneficial
owners are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
participants or indirect participants through which the beneficial owner entered
into the transaction. Transfers of ownership interests in the MITTS Securities
are to be accomplished by entries made on the books of participants acting on
behalf of beneficial owners.
To facilitate subsequent transfers, all MITTS Securities deposited with DTC
are registered in the name of DTC's partnership nominee, Cede & Co. The deposit
of MITTS Securities with DTC and their registration in the name of Cede & Co.
effect no change in beneficial ownership. DTC has no knowledge of the actual
beneficial owners of the MITTS Securities; DTC's records reflect only the
identity of the direct participants to whose accounts the MITTS Securities are
credited, which may or may not be the beneficial owners. The participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct and
indirect participants to beneficial owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the MITTS
Securities. Under its usual procedures, DTC mails an omnibus proxy to ML&Co. as
soon as possible after the applicable record date. The omnibus proxy assigns
Cede & Co.'s consenting or voting rights to those direct participants identified
in a listing attached to the omnibus proxy to whose accounts the MITTS
Securities are credited on the record date identified in a listing attached to
the omnibus proxy.
12
Principal, premium, if any, and/or interest, if any, payments on the MITTS
Securities will be made in immediately available funds to DTC. DTC's practice is
to credit direct participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the depositary's records
unless DTC has reason to believe that it will not receive payment on that date.
Payments by participants to beneficial owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name", and
will be the responsibility of the participant and not of DTC, the trustee or
ML&Co., subject to any statutory or regulatory requirements as may be in effect
from time to time. Payment of principal, premium, if any, and/or interest, if
any, to DTC is the responsibility of ML&Co. or the trustee, disbursement of
payments to direct participants is the responsibility of DTC, and disbursement
of payments to the beneficial owners is the responsibility of direct and
indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
. an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to the MITTS Securities,
the global securities will be exchangeable for MITTS Securities in definitive
form of like tenor and of an equal aggregate principal amount, in denominations
of $10 and integral multiples of $10. The definitive MITTS Securities will be
registered in the name or names as the depositary shall instruct the trustee. It
is expected that instructions may be based upon directions received by the
depositary from participants with respect to ownership of beneficial interests
in the global securities.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, MITTS Securities in
definitive form will be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that ML&Co. believes to be reliable, but ML&Co. takes no
responsibility for its accuracy.
Same-Day Settlement and Payment
ML&Co. will make all payments of principal and the Supplemental Redemption
Amount, if any, in immediately available funds so long as the MITTS Securities
are maintained in book-entry form.
THE INDEX
Unless otherwise stated, all information in this prospectus on the Index is
derived from the CBOE or other publicly available sources. This information
reflects the policies of the CBOE as stated in those sources and the policies
are subject to change by the CBOE.
The Index is a price-weighted stock index designed, developed, maintained
and operated by, and is a service mark of, the CBOE. The Index is designed to
provide an indication of the composite price performance of the common stocks of
companies involved in the U.S. high technology industry segment for example,
companies involved in the design and manufacture of high technology components
and systems.
The value of the Index is reported on the AMEX and Bloomberg under the
symbol "TXX" and on Reuters under the symbol ".TXX".
The Index consists of the stocks of issuers involved in various aspects of
the high technology industry segment, including:
13
. computer services,
. telecommunications equipment,
. server software and hardware,
. design software,
. PC software and hardware,
. networking, peripherals, and
. semiconductors.
The CBOE selects companies for inclusion in the Index with the aim of
representing the spectrum of companies that develop components and systems that
define high technology. Relevant criteria employed by the CBOE include:
. the viability of the particular company,
. the extent to which that company represents the high technology
sector,
. the extent to which the market price of that company's common stock is
generally responsive to changes in the affairs of the technology
sector, and
. the market value and trading activity of the common stock of that
company.
Computation of the Index
The Index is a price-weighted index for example, the weight in the Index of
a stock underlying the Index (an "Underlying Stock") is based on its price per
share rather than the total market capitalization of the issuer of that stock,
and reflects changes in the prices of the Underlying Stocks relative to the
index base date, January 3, 1995, when the Index equaled 100.00. Specifically,
the Index value is calculated by:
. totaling the prices of a single share of each of the Underlying Stocks
(the "Market Price Aggregate"), and
. dividing the Market Price Aggregate by the Index Divisor.
The Index Divisor was originally chosen to result in an Index value of 100 on
January 3, 1995, and is subject to periodic adjustments as set forth below. The
stock prices used to calculate the Index are those reported by a primary market
for the Underlying Stocks.
The CBOE adjusts the foregoing Index Divisor to negate the effects of
changes in the price of an Underlying Stock that are determined by the CBOE to
be arbitrary and not due to market fluctuations. These adjustments may result
from stock splits, consolidations and acquisitions, the grant to shareholders of
the right to purchase other securities of the issuer for example, spinoffs and
rights issuances. The CBOE may also adjust the Index Divisor because of the
substitution of an Underlying Security. The CBOE first recalculates the Market
Price Aggregate and then determines a new Index Divisor based on the following
formula:
New Market Price Aggregate
Old Divisor X -------------------------- = New Divisor
Old Market Price Aggregate
14
The Index will be maintained by the CBOE. The Index is reviewed on
approximately a monthly basis by the CBOE staff. The CBOE may change the
composition of the Index at any time to reflect changes affecting the components
of the Index or the technology industry generally. If it becomes necessary to
remove a stock from the Index for example, because of a takeover or merger, the
CBOE will only add a stock having characteristics that will permit the Index to
remain within the maintenance criteria specified in CBOE Rules and within the
applicable rules of the Commission.
Additionally, as of the first trading day of each January and July, no
single security may account for over 25% of the weight of the Index and no five
securities may account for over 50% of the weight of the Index. Furthermore,
each component security must be a reported security as defined in Rule 11Aa3-1
of the Exchange Act. Finally, at least 90% of the weight of the Index and 80% of
the number of components in the Index must be eligible for standardized options
trading pursuant to CBOE Rules or, if currently listed for options trading, must
meet the applicable maintenance standards specified in CBOE Rules. The CBOE will
also take into account the capitalizations, liquidity, volatility, and name
recognition of any proposed replacement stock.
Absent prior approval of the SEC, the CBOE will not increase to more than
40, or decrease to fewer than 20, the number of stocks in the Index.
Additionally, the CBOE will not make any change in the composition of the Index
that would cause fewer than 90% of the stocks by weight, or fewer than 80% of
the total number of stocks in the index, to qualify as stocks eligible for
equity options trading under CBOE rules.
The CBOE is under no obligation to continue the calculation and
dissemination of the Index and the method by which the Index is calculated and
the name "CBOE Technology Index" may be changed at the discretion of the CBOE.
The MITTS Securities are not sponsored, endorsed, sold or promoted by the CBOE.
No inference should be drawn from the information contained in this prospectus
that the CBOE makes any representation or warranty, implied or express, to
ML&Co., the beneficial owners of MITTS Securities or any member of the public
regarding the advisability of investing in securities generally or in the MITTS
Securities in particular or the ability of the Index to track general stock
market performance. The CBOE has no obligation to take the needs of ML&Co. or
the beneficial owners of MITTS Securities into consideration in determining,
composing or calculating the Index. The CBOE is not responsible for, and has not
participated in the determination of the timing of prices for or quantities of,
the MITTS Securities to be issued or in the determination or calculation of the
equation by which the Supplemental Redemption Amount is determined. The CBOE has
no obligation or liability in connection with the administration, marketing or
trading of the MITTS Securities.
The use of and reference to the Index in connection with the MITTS
Securities have been consented to by the CBOE.
Except in the limited circumstance described in this prospectus, none of
ML&Co., the trustee, the calculation agent or the underwriter has undertaken
independent diligence of the calculation, maintenance or publication of the
Index or any Successor Index. The CBOE disclaims all responsibility for any
inaccuracies in the data on which the Index is based and any mistakes or errors
or omissions in the calculation or dissemination of the Index and for the manner
in which the Index is used in determining the Supplemental Redemption Amount, if
any.
A potential investor should review the historical performance of the Index.
The historical performance of the Index should not be taken as an indication of
future performance, and no assurance can be given that the Index will increase
sufficiently to cause the beneficial owners of the MITTS Securities to receive
an amount in excess of the principal amount at the maturity of the MITTS
Securities.
OTHER TERMS
ML&Co. issued the MITTS Securities as a series of senior debt securities
under the 1983 Indenture, dated as of April 1, 1983, as amended and restated,
between ML&Co. and The Chase Manhattan Bank, as trustee. A copy of the 1983
Indenture is filed as an exhibit to the registration statement relating to the
MITTS Securities of which this prospectus is a part. The following summaries of
the material provisions of the 1983 Indenture are not complete and are subject
to, and qualified in their entirety by reference to, all provisions of the 1983
Indenture, including the definitions of terms in the 1983 Indenture.
15
ML&Co. may issue series of senior debt securities from time to time under
the 1983 Indenture, without limitation as to aggregate principal amount, in one
or more series and upon terms as ML&Co. may establish under the provisions of
the 1983 Indenture.
The 1983 Indenture and the MITTS Securities are governed by and construed
in accordance with the laws of the State of New York.
ML&Co. may issue senior debt securities with terms different from those of
senior debt securities previously issued, and issue additional senior debt
securities of a previously issued series of senior debt securities.
The senior debt securities are unsecured and rank equally with all other
unsecured and unsubordinated indebtedness of ML&Co. However, because ML&Co. is
a holding company, the rights of ML&Co. and its creditors, including the holders
of senior debt securities, to participate in any distribution of the assets of
any subsidiary upon its liquidation or reorganization or otherwise are
necessarily subject to the prior claims of creditors of the subsidiary, except
to the extent that a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. In addition, dividends, loans and advances from
certain subsidiaries, including MLPF&S, to ML&Co. are restricted by net capital
requirements under the Exchange Act, and under rules of exchanges and other
regulatory bodies.
Limitations Upon Liens
ML&Co. may not, and may not permit any majority-owned subsidiary to,
create, assume, incur or permit to exist any indebtedness for borrowed money
secured by a pledge, lien or other encumbrance, other than those liens
specifically permitted by the 1983 Indenture, on the Voting Stock owned directly
or indirectly by ML&Co. of any majority-owned subsidiary, other than a majority-
owned subsidiary which, at the time of the incurrence of the secured
indebtedness, has a net worth of less than $3,000,000, unless the outstanding
senior debt securities are secured equally and ratably with the secured
indebtedness.
"Voting Stock" is defined in the 1983 Indenture as the stock of the class
or classes having general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of a
corporation provided that, for the purposes of the 1983 Indenture, stock that
carries only the right to vote conditionally on the occurrence of an event is
not considered voting stock whether or not the event has happened.
Limitation on Disposition of Voting Stock of, and Merger and Sale of Assets by,
MLPF&S
ML&Co. may not sell, transfer or otherwise dispose of any Voting Stock of
MLPF&S or permit MLPF&S to issue, sell or otherwise dispose of any of its Voting
Stock, unless, after giving effect to any such transaction, LPF&S remains a
Controlled Subsidiary.
"Controlled Subsidiary" is defined in the 1983 Indenture to mean a
corporation more than 80% of the outstanding shares of Voting Stock of which are
owned directly or indirectly by ML&Co.
In addition, ML&Co. may not permit MLPF&S to:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. convey or transfer its properties and assets substantially as an
entirety, except to one or more Controlled Subsidiaries.
Merger and Consolidation
ML&Co. may consolidate or merge with or into any other corporation and
ML&Co. may sell, lease or convey all or substantially all of its assets to any
corporation, provided that:
. the resulting corporation, if other than ML&Co., is a corporation
organized and existing under the laws of the United States of America
or any U.S. state and assumes all of ML&Co.'s obligations to:
16
. pay any amounts due and payable or deliverable with respect to
all the senior debt securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. ML&Co. or the successor corporation, as the case may be, is not,
immediately after any consolidation or merger, in default under the
1983 Indenture.
Modification and Waiver
ML&Co. and the trustee may modify and amend the 1983 Indenture with the
consent of holders of at least 66 2/3% in principal amount of each outstanding
series of senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 Indenture may:
. change the stated maturity date of the principal of, or any
installment of interest or Additional Amounts payable on, any senior
debt security or any premium payable on redemption, or change the
redemption price;
. reduce the principal amount of, or the interest or Additional Amounts
payable on, any senior debt security or reduce the amount of principal
which could be declared due and payable before the stated maturity
date;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. reduce the percentage in principal amount of the outstanding senior
debt securities of any series, the consent of whose holders is
required to modify or amend the 1983 Indenture; or
. modify the foregoing requirements or reduce the percentage of
outstanding senior debt securities necessary to waive any past default
to less than a majority.
No modification or amendment of ML&Co.'s Subordinated Indenture or any
Subsequent Indenture for subordinated debt securities may adversely affect the
rights of any holder of ML&Co.'s senior indebtedness without the consent of each
holder affected. The holders of at least a majority in principal amount of
outstanding senior debt securities of any series may, with respect to that
series, waive past defaults under the 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under "--
Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. default in the performance of any other obligation of ML&Co. contained
in the 1983 Indenture for the benefit of that series or in the senior
debt securities of that series, continuing for 60 days after written
notice as provided in the 1983 Indenture;
17
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. any other Event of Default provided with respect to senior debt
securities of that series which are not inconsistent with the 1983
Indenture.
If an Event of Default occurs and is continuing for any series of senior
debt securities, other than as a result of the bankruptcy, insolvency or
reorganization of ML&Co., the trustee or the holders of at least 25% in
principal amount of the outstanding senior debt securities of that series may
declare all amounts, or any lesser amount provided for in the senior debt
securities, due and payable or deliverable immediately. At any time after a
declaration of acceleration has been made with respect to senior debt securities
of any series but before the trustee has obtained a judgment or decree for
payment of money, the holders of a majority in principal amount of the
outstanding senior debt securities of that series may rescind any declaration of
acceleration and its consequences, if all payments due, other than those due as
a result of acceleration, have been made and all Events of Default have been
remedied or waived.
The holders of a majority in principal amount or aggregate issue price of
the outstanding senior debt securities of that series may waive any Event of
Default with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of that Indenture without the
consent of each holder of each outstanding security of each series of
senior debt securities affected.
The holders of a majority in principal amount of the outstanding senior
debt securities of a series may direct the time, method and place of conducting
any proceeding for any remedy available to the trustee or exercising any trust
or power conferred on the trustee with respect to those senior debt securities,
provided that any direction shall not be in conflict with any rule of law or the
1983 Indenture. Before proceeding to exercise any right or power under the 1983
Indenture at the direction of the holders, the trustee shall be entitled to
receive from the holders reasonable security or indemnification against the
costs, expenses and liabilities which might be incurred by it in complying with
any direction.
The MITTS Securities and other series of senior debt securities issued
under the 1983 Indenture do not have the benefit of any cross-default provisions
with other indebtedness of ML&Co.
ML&Co. is required to furnish to the trustee annually a statement as to the
fulfillment by ML&Co. of all of its obligations under the 1983 Indenture.
18
WHERE YOU CAN FIND MORE INFORMATION
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 by visiting
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 further information
about the public reference rooms. You may also inspect our SEC reports and other
information at the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the MITTS Securities and other securities. For further information on ML&Co. and
the MITTS Securities, you should refer to our registration statement and its
exhibits. This prospectus summarizes material provisions of contracts and other
documents that we refer you to. Because the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement of which this prospectus is a part.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to incorporate by reference the information we file with
them, which means:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Exchange Act:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly report on Form 10-Q for the period ended March 31, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000 and May 24, 2000.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering is
completed or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. any reports filed under Section 15(d) of the Exchange Act.
You should rely only on information contained or incorporated by reference
in this prospectus. We have not, and MLPF&S has not, authorized any other
person to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. We are not,
and MLPF&S is not, making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date of this prospectus only. Our business, financial
condition and results of operations may have changed since that date.
19
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 222
Broadway, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales of the
MITTS Securities and is to be used by MLPF&S when making offers and sales
related to market-making transactions in the MITTS Securities.
MLPF&S may act as principal or agent in these market-making transactions.
The MITTS Securities may be offered on the CBOE or NYSE or off the
exchanges in negotiated transactions or otherwise.
The distribution of the MITTS Securities will conform to the requirements
set forth in the applicable sections of Rule 2720 of the Conduct Rules of the
NASD.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference from the Annual Report on
Form 10-K of Merrill Lynch & Co., Inc. and subsidiaries for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which express an unqualified
opinion and which report on the consolidated financial statements includes an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), which are incorporated herein by reference, and have been so incorporated
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
With respect to unaudited interim financial information for the periods
included in the Quarterly Reports on Form 10-Q which are incorporated herein by
reference, Deloitte & Touche LLP have applied limited procedures in accordance
with professional standards for a review of such information. However, as
stated in their report included in such Quarterly Reports on Form 10-Q and
incorporated by reference herein, they did not audit and they do not express an
opinion on such interim financial information. Accordingly, the degree of
reliance on their report on such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP is
not subject to the liability provisions of Section 11 of the Securities Act of
1933, as amended, for their reports on unaudited interim financial information
because such report is not a "report" or a "part" of the Registration Statement
prepared or certified by an accountant within the meaning of Sections 7 and 11
of the Securities Act of 1933, as amended.
20
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ This information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with the+
+ Securities and Exchange Commission is effective. This prospectus is not an +
+ offer to sell these securities and it is not soliciting an offer to buy these+
+ securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated June 7, 2000
PROSPECTUS
- ----------
Merrill Lynch & Co., Inc.
Healthcare/Biotechnology Portfolio
Market Index Target-Term Securities(R)
due October 31, 2001
"MITTS(R) Securities"
$10 principal amount
This prospectus is to be used by Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, our wholly-owned subsidiary, when making
offers and sales related to market-making transactions in the MITTS Securities.
The MITTS Securities: Payment at Maturity:
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount equal to
. Senior unsecured debt securities Merrill Lynch & the sum of the principal amount of each unit and an
Co., Inc. additional amount based on the percentage increase, if
. Linked to the value of the any, in the value of the portfolio, adjusted as
Healthcare/Biotechnology Portfolio, as described in described in this prospectus.
this prospectus. . You will receive no less than the principal amount
. The MITTS Securities are listed on the American of your MITTS Securities.
Stock Exchang