Filed Pursuant to Rule 424(b)(5)
Registration No. 333-83374
Subject to Completion
Preliminary Prospectus Supplement dated April 1, 2002
PROSPECTUS SUPPLEMENT
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(To prospectus dated April 1, 2002)
[LOGO]
Protected Growth/SM/ Investing
Pursuit of Growth, Protection of Principal
2,500,000 Units
Merrill Lynch & Co., Inc.
Callable Market Index Target-Term Securities(R)
due April , 2009
Linked to the Amex Biotechnology Index/SM/
"Callable MITTS(R) Securities"
$10 principal amount per unit
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The Callable MITTS Securities: Payment at the stated maturity:
. 100% principal protection at . On the stated maturity date, if
maturity. the Callable MITTS Securities
have notpreviously been called,
. Callable in September 2005 at the for each unit of the Callable
option of Merrill Lynch & Co., Inc. MITTS Securities you own we will
pay you an amount equal to the
. No payments before the stated sum of the principal amount of
maturity date unless called. each unit and an additional
amount based on the percentage
. Senior unsecured debt securities increase, if any, in the value
of Merrill Lynch & Co., Inc. of the Amex Biotechnology
Index/SM/.
. Linked to the value of the Amex
Biotechnology Index/SM/ Payment if called by Merrill Lynch & Co.,
(index symbol "BTK"). Inc.:
. We have applied to have the . If Merrill Lynch & Co., Inc.
Callable MITTS Securities listed elects in September 2005 to call
on the American Stock Exchange your Callable MITTS Securities,
under the trading symbol "BMA". you will receive a cash payment
expected to be between $12.00 and
. Expected closing date: April , 2002. $12.50 per unit.
Investing in the Callable MITTS Securities involves risks that are
described in the "Risk Factors" section beginning on page S-8 of this prospectus
supplement.
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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 supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
Per unit Total
-------- -----
Public offering price (1).............................. $10.00 $25,000,000
Underwriting discount.................................. $ $
Proceeds, before expenses, to Merrill Lynch & Co., Inc. $ $
(1)The public offering price and the underwriting discount for any
single transaction to purchase 100,000 units or more will be $
per unit and $ per unit, respectively.
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Merrill Lynch & Co.
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The date of this prospectus supplement is April , 2002.
"MITTS" and "Market Index Target-Term Securities" are registered service marks
and "Protected Growth" is a service mark of Merrill Lynch & Co., Inc.
"Amex Biotechnology Index/SM/" is a service mark of the American Stock Exchange
and has been licensed for use for certain purposes by Merrill Lynch, Pierce,
Fenner & Smith Incorporated. The Callable MITTS(R) Securities are not
sponsored, endorsed, sold or promoted by the American Stock Exchange.
TABLE OF CONTENTS
Prospectus Supplement
Page
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SUMMARY INFORMATION--Q&A................................................................................ S-4
What are the Callable MITTS Securities?.............................................................. S-4
What will I receive on the stated maturity date of the Callable MITTS Securities?.................... S-4
How does the call feature work?...................................................................... S-5
Will I receive interest payments on the Callable MITTS Securities?................................... S-5
Who publishes the Amex Biotechnology Index and what does the Amex Biotechnology Index
measure?........................................................................................... S-6
How has the Amex Biotechnology Index performed historically?......................................... S-6
What about taxes?.................................................................................... S-6
Will the Callable MITTS Securities be listed on a stock exchange?.................................... S-7
What is the role of MLPF&S?.......................................................................... S-7
Who is ML&Co.?....................................................................................... S-7
Are there any risks associated with my investment?................................................... S-7
RISK FACTORS............................................................................................ S-8
You may not earn a return on your investment......................................................... S-8
The Callable MITTS Securities are subject to early call.............................................. S-8
Your yield may be lower than the yield on a standard debt security of comparable maturity............ S-8
Your return will not reflect the return of owning the Amex Biotechnology Stocks...................... S-8
Risk factors specific to companies included in the Amex Biotechnology Index.......................... S-8
There may be an uncertain trading market for the Callable MITTS Securities........................... S-9
Many factors affect the trading value of the Callable MITTS Securities; these factors interrelate in
complex ways and the effect of any one factor may offset or magnify the effect of another factor... S-9
Amounts payable on the Callable MITTS Securities may be limited by state law......................... S-10
Purchases and sales by us and our affiliates may affect your return.................................. S-11
Potential conflicts.................................................................................. S-11
Tax consequences..................................................................................... S-11
DESCRIPTION OF THE CALLABLE MITTS SECURITIES............................................................ S-12
Payment at maturity.................................................................................. S-12
Early call of the Callable MITTS Securities at the option of ML&Co................................... S-13
Hypothetical returns................................................................................. S-14
Adjustments to the Amex Biotechnology Index; Market Disruption Events................................ S-15
Discontinuance of the Amex Biotechnology Index....................................................... S-15
Events of Default and Acceleration................................................................... S-16
Depositary........................................................................................... S-17
Same-Day Settlement and Payment...................................................................... S-19
THE AMEX BIOTECHNOLOGY INDEX............................................................................ S-19
Historical Data on the Amex Biotechnology Index...................................................... S-20
License Agreement.................................................................................... S-21
UNITED STATES FEDERAL INCOME TAXATION................................................................... S-22
General.............................................................................................. S-22
U.S. Holders......................................................................................... S-23
Hypothetical Table................................................................................... S-25
Non-U.S. Holders..................................................................................... S-25
Backup withholding................................................................................... S-26
ERISA CONSIDERATIONS.................................................................................... S-26
USE OF PROCEEDS AND HEDGING............................................................................. S-27
WHERE YOU CAN FIND MORE INFORMATION..................................................................... S-27
UNDERWRITING............................................................................................ S-27
S-2
Page
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VALIDITY OF THE CALLABLE MITTS SECURITIES................................. S-28
INDEX OF DEFINED TERMS.................................................... S-29
Prospectus
MERRILL LYNCH & CO., INC.................................................. 2
USE OF PROCEEDS........................................................... 2
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS................................... 3
THE SECURITIES............................................................ 3
DESCRIPTION OF DEBT SECURITIES............................................ 4
DESCRIPTION OF DEBT WARRANTS.............................................. 10
DESCRIPTION OF CURRENCY WARRANTS.......................................... 12
DESCRIPTION OF INDEX WARRANTS............................................. 14
DESCRIPTION OF PREFERRED STOCK............................................ 19
DESCRIPTION OF DEPOSITARY SHARES.......................................... 24
DESCRIPTION OF PREFERRED STOCK WARRANTS................................... 28
DESCRIPTION OF COMMON STOCK............................................... 30
DESCRIPTION OF COMMON STOCK WARRANTS...................................... 34
PLAN OF DISTRIBUTION...................................................... 36
WHERE YOU CAN FIND MORE INFORMATION....................................... 37
INCORPORATION OF INFORMATION WE FILE WITH THE SEC......................... 37
EXPERTS................................................................... 38
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SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this prospectus supplement and the accompanying prospectus to
help you understand the Callable Market Index Target-Term Securities(R) due
April , 2009 linked to the Amex Biotechnology Index/SM/ (the "Callable MITTS
Securities"). You should carefully read this prospectus supplement and the
accompanying prospectus of Merrill Lynch & Co., Inc. to fully understand the
terms of the Callable MITTS Securities and the tax and other considerations
that are important to you in making a decision about whether to invest in the
Callable MITTS Securities. You should carefully review the "Risk Factors"
section, which highlights certain risks associated with an investment in the
Callable MITTS Securities, to determine whether an investment in the Callable
MITTS Securities is appropriate for you.
References in this prospectus supplement to "ML&Co.", "we", "us" and
"our" are to Merrill Lynch & Co., Inc. and references to "MLPF&S" are to
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
What are the Callable MITTS Securities?
The Callable MITTS Securities will be a series of senior debt securities
issued by ML&Co. and will not be secured by collateral. The Callable MITTS
Securities will rank equally with all of our other unsecured and unsubordinated
debt. The Callable MITTS Securities will mature on April , 2009 unless called
by ML&Co. in September 2005.
Each unit of Callable MITTS Securities represents $10 principal amount of
Callable MITTS Securities. You may transfer the Callable MITTS Securities only
in whole units. You will not have the right to receive physical certificates
evidencing your ownership except under limited circumstances. Instead, we will
issue the Callable MITTS Securities in the form of a global certificate, which
will be held by The Depository Trust Company, also known as DTC, or its
nominee. Direct and indirect participants in DTC will record your ownership of
the Callable MITTS Securities. You should refer to the section entitled
"Description of the Callable MITTS Securities--Depositary" in this prospectus
supplement.
What will I receive on the stated maturity date of the Callable MITTS
Securities?
We have designed the Callable MITTS Securities for investors who want to
protect their investment by receiving at least the principal amount of their
investment at maturity and who also want to participate in possible increases
in the Amex Biotechnology Index (the "Amex Biotechnology Index" or the
"Index"). On the stated maturity date, if we have not called the Callable MITTS
Securities, you will receive a cash payment equal to the sum of two amounts:
the "principal amount" and the "Supplemental Redemption Amount", if any.
Principal Amount
The "principal amount" per unit is $10.
Supplemental Redemption Amount
The "Supplemental Redemption Amount" per unit will equal:
( Ending Value - Starting Value )
$10 x ( ----------------------------- )
( Starting Value )
but will not be less than zero.
The "Starting Value" means the closing value of the Index on the date the
Callable MITTS Securities are priced for initial sale to the public (the
"Pricing Date"). We will disclose the Starting Value to you in the final
prospectus supplement delivered to you in connection with sales of the Callable
MITTS Securities.
The "Ending Value" means the average, arithmetic mean, of the value of
the Index at the close of the market on five business days shortly before the
maturity of the Callable MITTS Securities. We may calculate the Ending Value by
reference to fewer than five or even a single day's closing value if, during
the period shortly before the stated maturity date of the Callable MITTS
Securities, there is a disruption in the trading of a sufficient number of
stocks included in the Index (the "Amex Biotechnology Stocks") or certain
futures, options or other contracts relating to the Amex Biotechnology Stocks
or the Index itself.
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For more specific information about the Supplemental Redemption Amount,
please see the section entitled "Description of the Callable MITTS Securities"
in this prospectus supplement.
We will pay you a Supplemental Redemption Amount only if we do not call
the Callable MITTS Securities during September 2005 and only if the Ending
Value is greater than the Starting Value. If the Ending Value is less than, or
equal to, the Starting Value, the Supplemental Redemption Amount will be zero.
We will pay you the principal amount of your Callable MITTS Securities
regardless of whether any Supplemental Redemption Amount is payable.
Examples
Here are two examples of Supplemental Redemption Amount calculations. If we
call the Callable MITTS Securities during the Call Period, you will receive
only the Call Price and you will not be entitled to receive any payment on
the stated maturity date.
Example 1--On the stated maturity date, the hypothetical Ending Value is less
than the hypothetical Starting Value:
Hypothetical Starting Value: 500.33
Hypothetical Ending Value at maturity: 400.26
( 400.26 - 500.33 ) (Supplemental
Supplemental Redemption Amount (per unit) = $10 x ( --------------- ) = $0.00 Redemption
( 500.33 ) Amount cannot
be less than zero)
Total payment on the stated maturity date (per unit) = $10.00 + $0.00 = $10.00
Example 2--On the stated maturity date, the hypothetical Ending Value is
greater than the hypothetical Starting Value:
Hypothetical Starting Value: 500.33
Hypothetical Ending Value at maturity: 900.59
( 900.59 - 500.33 )
Supplemental Redemption Amount (per unit) = $10 x ( --------------- ) = $8.00
( 500.33 )
Total payment on the stated maturity date (per unit) = $10.00 + $8.00 = $18.00
How does the call feature work?
We may elect to call the Callable MITTS Securities at $ per unit (the
"Call Price"), on any Business Day during the month of September 2005 (the "Call
Period") by giving notice to the trustee of the Callable MITTS Securities as
described in this prospectus supplement and specifying the date on which the
Call Price will be paid (the "Payment Date"). We expect the Call Price to be in
the range of $12.00 to $12.50 per unit. We will disclose the Call Price to you
in the final prospectus supplement delivered in connection with sales of the
Callable MITTS Securities. The Payment Date will be no later than the twentieth
Business Day after the call election. The Call Price represents a total rate of
return on your Callable MITTS Securities expected to be between 20% and 25%,
assuming you purchased the Callable MITTS Securities at the principal amount of
$10 per unit.
If we elect to call your Callable MITTS Securities during the Call
Period, you will receive only the Call Price and you will not receive a
Supplemental Redemption Amount based on increases in the Index. If we do not
call the Callable MITTS Securities during the Call Period, the principal amount
plus the Supplemental Redemption Amount, if any, that you receive at the stated
maturity date may be greater than or less than the Call Price.
Will I receive interest payments on the Callable MITTS Securities?
You will not receive any interest payments on the Callable MITTS
Securities, but will instead
S-5
receive the principal amount plus the Supplemental Redemption Amount, if any,
at maturity, or the Call Price if the Callable MITTS Securities are called
during the Call Period. We have designed the Callable MITTS Securities for
investors who are willing to forego market interest payments on the Callable
MITTS Securities, such as floating interest rates paid on standard senior
non-callable debt securities, in exchange for the ability to participate in
possible increases in the Index.
Who publishes the Amex Biotechnology Index and what does the Amex Biotechnology
Index measure?
The Index is calculated and disseminated by the AMEX under the symbol
"BTK". The Index is designed to measure the performance of a cross section of
companies in the biotechnology industry
that are primarily involved in the use of biological processes to develop
products or provide services. The Index is equal-dollar weighted, designed to
ensure that each of its component securities is represented in approximate
equal dollar value. To ensure that each component stock continues to represent
approximate equal market value, adjustments are made quarterly after the close
of trading on the third Friday of January, April, July and October. For more
specific information about the Index and equal-dollar weighting, please see the
section entitled "The Amex Biotechnology Index" in this prospectus supplement.
The Callable MITTS Securities are debt obligations of ML&Co., and an
investment in the Callable MITTS Securities does not entitle you to any
ownership interest in the Amex Biotechnology Stocks.
How has the Amex Biotechnology Index performed historically?
We have provided a table and a graph showing the month-end closing values
of the Index from January 1997 through March 2002 in the section entitled "The
Amex Biotechnology Index--Historical Data on the Amex Biotechnology Index" in
this prospectus supplement. We have provided this information to help you
evaluate how the Index has performed in various economic environments. However,
any historical upward or downward trend in the level of the Index during this
historical period is not an indication that the Index is more or less likely to
increase or decrease at any time during the term of the Callable MITTS
Securities.
What about taxes?
Each year, you will be required to pay taxes on ordinary income from the
Callable MITTS Securities over their term based upon an estimated yield for the
Callable MITTS Securities, even though you will not receive any payments from
us until maturity or earlier call. We have determined this estimated yield, in
accordance with regulations issued by the U.S. Treasury Department, solely in
order for you to figure the amount of taxes that you will owe each year as a
result of owning Callable MITTS Securities. This estimated yield is neither a
prediction nor a guarantee of what the actual Supplemental Redemption Amount
will be, or that the actual Supplemental Redemption Amount will even exceed
zero. We have determined that this estimated yield will equal % per annum,
compounded semiannually.
Based upon this estimated yield, if you pay your taxes on a calendar year
basis and if you buy a Callable MITTS Security for $10 and hold the Callable
MITTS Security until maturity, you will be required to pay taxes on the
following amounts of ordinary income from the Callable MITTS Securities each
year: $ in 2002, $ in 2003, $ in 2004, $ in 2005, $ in 2006,
$ in 2007, $ in 2008 and $ in 2009. However, in 2009, if we have not
called the Callable MITTS Securities, the amount of ordinary income that you
will be required to pay taxes on from owning each Callable MITTS Security may
be greater or less than $ , depending upon the Supplemental Redemption Amount,
if any, you receive. Also, if the Supplemental Redemption Amount is less than
$ , you may have a loss which you could deduct against other income you may
have in 2009, but under current tax regulations, you would neither be required
nor allowed to amend your tax returns for prior years. For further information,
see the section entitled "United States Federal Income
S-6
Taxation" in this prospectus supplement.
Will the Callable MITTS Securities be listed on a stock exchange?
We have applied to have the Callable MITTS Securities listed on the AMEX
under the trading symbol "BMA". The listing of the Callable MITTS Securities on
the AMEX will not necessarily ensure that a liquid trading market will be
available for the Callable MITTS Securities. You should review the section
entitled "Risk Factors--There may be an uncertain trading market for the
Callable MITTS Securities" in this prospectus supplement.
What is the role of MLPF&S?
Our subsidiary MLPF&S is the underwriter for the offering and sale of the
Callable MITTS Securities. After the initial offering, MLPF&S intends to buy
and sell Callable MITTS Securities to create a secondary market for holders of
the Callable MITTS Securities, and may stabilize or maintain the market price
of the Callable MITTS Securities during the initial distribution of the
Callable MITTS Securities. However, MLPF&S will not be obligated to engage in
any of these market activities or continue them once it has started.
MLPF&S will also be our agent for purposes of calculating, among other
things, the Ending Value and the Supplemental Redemption Amount. Under certain
circumstances, these duties could result in a conflict of interest between
MLPF&S' status as a subsidiary of ML&Co. and its responsibilities as
calculation agent.
Who is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various subsidiaries
and affiliated companies that provide investment, financing, insurance and
related services on a global basis. For information about ML&Co., see the
section entitled "Merrill Lynch & Co., Inc." in the accompanying prospectus.
You should also read the other documents of ML&Co. 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 supplement.
Are there any risks associated with my investment?
Yes, an investment in the Callable MITTS Securities is subject to risks.
Please refer to the section entitled "Risk Factors" in this prospectus
supplement.
S-7
RISK FACTORS
Your investment in the Callable MITTS Securities will involve risks. You
should carefully consider the following discussion of risks before deciding
whether an investment in the Callable MITTS Securities is suitable for you.
You may not earn a return on your investment
You should be aware that if the Ending Value does not exceed the Starting
Value, the Supplemental Redemption Amount will be zero. This will be true even
if the value of the Index was higher than the Starting Value at some time
during the life of the Callable MITTS Securities but later falls to or below
the Starting Value. If the Supplemental Redemption Amount is zero and the
Callable MITTS Securities are not called by us prior to the stated maturity
date, we will pay you only the principal amount of your Callable MITTS
Securities.
The Callable MITTS Securities are subject to early call
We may elect to call all of the Callable MITTS Securities by giving
notice on any Business Day during the Call Period. We are likely to call the
Callable MITTS Securities during the Call Period if the secondary market price
of the Callable MITTS Securities is approximately equal to or above the Call
Price during that period. In the event that we elect to call the Callable MITTS
Securities, you will receive only the Call Price and no Supplemental Redemption
Amount based on the value of the Index.
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 other standard senior non-callable debt securities of ML&Co. with
the same stated 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 Amex Biotechnology Stocks
The return on your Callable MITTS Securities will not reflect the
dividends you would receive if you actually owned the stocks included in the
Index because the value of the Index is calculated by reference to the prices
of the Amex Biotechnology Stocks without taking into consideration the value of
dividends paid on those stocks.
Risk factors specific to companies included in the Amex Biotechnology Index
The stock prices of some of the companies included in the Index (the
"Biotechnology Companies") have been and may continue to be volatile. These
stock prices could be subject to wide fluctuations in response to a variety of
factors, including the following:
. general market fluctuations;
. actual or anticipated variations in the quarterly operating results
of the Biotechnology Companies;
. announcements of technological innovations or new services offered by
competitors of the Biotechnology Companies;
. changes in financial estimates by securities analysts;
. regulatory or legal developments, including significant litigation
matters, affecting the Biotechnology Companies or the industries in
which they operate;
S-8
. announcements by competitors of the Biotechnology Companies of
significant acquisitions, strategic partnerships, joint ventures or
capital commitments; and
. departures of key personnel of the Biotechnology Companies.
The international operations of some of the Biotechnology Companies
expose them to risks associated with instability and changes in economic and
political conditions, foreign currency fluctuations, changes in foreign
regulations and other risks inherent to international business. Some of the
Biotechnology Companies have international operations, which are essential
parts of their businesses. The risks of international business that these
companies are exposed to include the following:
. general economic, social and political conditions;
. the difficulty of enforcing intellectual property rights and
agreements and collecting receivables through certain foreign legal
systems;
. differing tax rates, tariffs, exchange controls or other similar
restrictions;
. currency fluctuations;
. changes in, and compliance with, domestic and foreign laws and
regulations which impose a range of restrictions on operations, trade
practices, foreign trade and international investment decisions; and
. reductions in the number or capacity of personnel in international
markets.
There may be an uncertain trading market for the Callable MITTS Securities
We have applied to have the Callable MITTS Securities listed on the AMEX
under the trading symbol "BMA". While there have been a number of issuances of
series of Market Index Target-Term Securities, trading volumes have varied
historically from one series to another and it is therefore impossible to
predict how the Callable MITTS Securities will trade. You cannot assume that a
trading market will develop for the Callable MITTS Securities. If a trading
market does develop, there can be no assurance that there will be liquidity in
the trading market. The development of a trading market for the Callable MITTS
Securities will depend on our financial performance and other factors such as
the change in value of the Index.
If the trading market for the Callable MITTS Securities is limited, there
may be a limited number of buyers for your Callable MITTS Securities if you do
not wish to hold your investment until maturity. This may affect the price you
receive.
Many factors affect the trading value of the Callable 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 Callable 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 Callable MITTS Securities caused by another factor and that the effect of
one factor may exacerbate the decrease in the trading value of the Callable
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 Callable 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 market value of the Callable MITTS Securities given a
change in a specific factor, assuming all other conditions remain constant.
Changes in the value of the Index are expected to affect the trading
value of the Callable MITTS Securities. We expect that the market value of the
Callable MITTS Securities will depend substantially on the amount, if any, by
which the value of the Index exceeds the Starting Value. If you choose to sell
your Callable
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MITTS Securities when the value of the Index exceeds the Starting Value, you
may receive substantially less than the amount that would be payable at
maturity based on that price because of the expectation that the value of the
Index will continue to fluctuate until the Ending Value is determined. If you
choose to sell your Callable MITTS Securities when the value of the Index is
below, or not sufficiently above, the Starting Value, you may receive less than
the $10 principal amount per unit of Callable MITTS Securities.
Changes in the levels of interest rates are expected to affect the
trading value of the Callable MITTS Securities. Because we will pay, at a
minimum, the principal amount per unit of Callable MITTS Securities at
maturity, we expect that changes in interest rates will affect the trading
value of the Callable MITTS Securities. In general, if U.S. interest rates
increase, we expect that the trading value of the Callable MITTS Securities
will decrease and, conversely, if U.S. interest rates decrease, we expect that
the trading value of the Callable MITTS Securities will increase. Rising
interest rates may lower the value of the Index and, thus, the Callable MITTS
Securities. Falling interest rates may increase the value of the Index and,
thus, may increase the value of the Callable MITTS Securities.
Changes in the volatility of the Index are expected to affect the trading
value of the Callable MITTS Securities. Volatility is the term used to
describe the size and frequency of price and/or market fluctuations. If the
volatility of the value of the Index increases or decreases, the trading value
of the Callable MITTS Securities may be adversely affected.
As the time remaining to maturity of the Callable MITTS Securities
decreases, the "time premium" associated with the Callable MITTS Securities
will decrease. We anticipate that before their maturity, the Callable MITTS
Securities may trade at a value above that which would be expected based on the
level of interest rates and the value of the Index. This difference will
reflect a "time premium" due to expectations concerning the value of the Index
during the period before the stated maturity of the Callable MITTS Securities.
However, as the time remaining to the stated maturity of the Callable MITTS
Securities decreases, we expect that this time premium will decrease, lowering
the trading value of the Callable MITTS Securities.
Changes in our credit ratings may affect the trading value of the
Callable 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 Callable MITTS Securities. However,
because your return on your Callable MITTS Securities is dependent upon factors
in addition to our ability to pay our obligations under the Callable MITTS
Securities, such as the percentage increase, if any, in the value of the Index
at maturity, an improvement in our credit ratings will not reduce the other
investment risks related to the Callable MITTS Securities.
In general, assuming all relevant factors are held constant, we expect
that the effect on the trading value of the Callable 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 Callable MITTS Securities than if it occurs earlier in
the term of the Callable MITTS Securities. However, we expect that the effect
on the trading value of the Callable MITTS Securities of a given change in the
value of the Index will be greater if it occurs later in the term of the
Callable MITTS Securities than if it occurs earlier in the term of the Callable
MITTS Securities.
Amounts payable on the Callable MITTS Securities may be limited by state law
New York State law governs the 1983 Indenture under which the Callable
MITTS Securities will be 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 Callable 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.
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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 promise, for the benefit of the holders of the Callable MITTS
Securities, to the extent permitted by law, not to voluntarily claim the
benefits of any laws concerning usurious rates of interest.
Purchases and sales by us and our affiliates may affect your return
We and our affiliates may from time to time buy or sell the Amex
Biotechnology Stocks or futures, options or other contracts relating to those
stocks or the Index itself for our own accounts for business reasons and expect
to enter into such transactions in connection with hedging our obligations
under the Callable MITTS Securities. These transactions could affect the prices
of the Amex Biotechnology Stocks, and in turn, the value of the Index in a
manner that would be adverse to your investment in the Callable MITTS
Securities. Any purchases by us, our affiliates or others on our behalf on or
before the Pricing Date may temporarily increase the prices of the Amex
Biotechnology Stocks and the value of the Index. Temporary increases in the
market prices of the Amex Biotechnology Stocks and the value of the Index may
also occur as a result of the purchasing activities of other market
participants. Consequently, the prices of the Amex Biotechnology Stocks and the
value of the Index may decline subsequent to the Pricing Date, reducing the
value of the Index and therefore the market value of the Callable MITTS
Securities.
Potential conflicts
Our subsidiary, MLPF&S, is our agent for the purposes of calculating the
Ending Value and the Supplemental Redemption Amount. Under certain
circumstances, MLPF&S' role as our subsidiary and its responsibilities as
calculation agent for the Callable MITTS Securities could give rise to
conflicts of interest. 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 the
sections entitled "Description of the Callable MITTS Securities--Adjustments to
the Amex Biotechnology Index; Market Disruption Events" and "--Discontinuance
of the Amex Biotechnology Index" in this prospectus supplement. 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 Callable 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.
ML&Co. or its affiliates may presently or from time to time engage in
business with one or more of the Biotechnology Companies including extending
loans to, or making equity investments in, the Biotechnology Companies or
providing advisory services to the Biotechnology Companies, including merger
and acquisition advisory services. In the course of business, ML&Co. or its
affiliates may acquire non-public information relating to the Biotechnology
Companies and, in addition, one or more affiliates of ML&Co. may publish
research reports about the Biotechnology Companies. ML&Co. does not make any
representation to any purchasers of the Callable MITTS Securities regarding any
matters whatsoever relating to the Biotechnology Companies. Any prospective
purchaser of the Callable MITTS Securities should undertake an independent
investigation of the Biotechnology Companies as in its judgment is appropriate
to make an informed decision regarding an investment in the Callable MITTS
Securities. The composition of the Index does not reflect any investment or
sell recommendations of ML&Co. or its affiliates.
Tax consequences
You should consider the tax consequences of investing in the Callable
MITTS Securities. See the section entitled "United States Federal Income
Taxation" in this prospectus supplement.
S-11
DESCRIPTION OF THE CALLABLE MITTS SECURITIES
ML&Co. will issue the Callable MITTS Securities as a series of senior
debt securities under the 1983 Indenture, which is more fully described in the
accompanying prospectus. Unless called by ML&Co. during the Call Period, the
Callable MITTS Securities will mature on April , 2009.
Unless the Callable MITTS Securities are called during the Call Period,
at the stated maturity a beneficial owner of a Callable MITTS Security will
receive the sum of the principal amount of the Callable MITTS Security plus the
Supplemental Redemption Amount, if any. There will be no payment of interest,
periodic or otherwise. See the section entitled "--Payment at maturity".
The Callable MITTS Securities may be called by ML&Co. as described below,
but are not subject to redemption at the option of any beneficial owner before
maturity. If an Event of Default occurs with respect to the Callable MITTS
Securities, registered holders of the Callable MITTS Securities may accelerate
the maturity of the Callable MITTS Securities, as described under the sections
entitled "--Events of Default and Acceleration" in this prospectus supplement
and "Description of Debt Securities--Events of Default" in the accompanying
prospectus of ML&Co.
ML&Co. will issue the Callable MITTS Securities in denominations of whole
units, each with a principal amount of $10.00.
The Callable MITTS Securities will not have the benefit of any sinking
fund.
Payment at maturity
If we do not call the Callable MITTS Securities during the Call Period, a
beneficial owner of a Callable MITTS Security will be entitled to receive, at
the stated maturity, the principal amount of each Callable MITTS Security plus
the Supplemental Redemption Amount, if any, all as provided below. If the
Ending Value does not exceed the Starting Value, a beneficial owner of a
Callable MITTS Security will be entitled to receive only the principal amount
of the Callable MITTS Security.
Determination of the Supplemental Redemption Amount
The "Supplemental Redemption Amount" for a Callable MITTS Security will
be determined by the calculation agent and will equal:
( Ending Value Starting Value )
principal amount of each Callable MITTS Security ($10 per unit) X ( ---------------------------- )
( Starting Value )
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The "Starting Value" means the closing value of the Index on the Pricing
Date.
The "Ending Value" will be determined by the calculation agent and will
equal the average, arithmetic mean, of the closing values of the Index
determined on each of the first five Calculation Days during the Calculation
Period. If there are fewer than five Calculation Days during the Calculation
Period, then the Ending Value will equal the average, arithmetic mean, of the
closing values of the Index on those Calculation Days. If there is only one
Calculation Day during the Calculation Period, then the Ending Value will equal
the closing value of the Index on that Calculation Day. If no Calculation Days
occur during the Calculation Period, then the
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Ending 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 prior to the maturity date to and including the
second scheduled Index Business Day prior to the maturity date.
A "Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
An "Index Business Day" means any day on which the New York Stock
Exchange, AMEX and The Nasdaq National Market are open for trading and the
Index or any successor index is calculated and published.
All determinations made by the calculation agent shall be at the sole
discretion of the calculation agent and, absent a determination by the
calculation agent of a manifest error, shall be conclusive for all purposes and
binding on ML&Co. and the holders and beneficial owners of the Callable MITTS
Securities.
Early call of the Callable MITTS Securities at the option of ML&Co.
During the Call Period, which is the month of September 2005, ML&Co., in
its sole discretion, may elect to call the Callable MITTS Securities, in whole
but not in part, in exchange for a cash payment expected to be between $12.00
and $12.50 per unit, by giving notice to the trustee on any Business Day during
the Call Period. The Call Price represents a total rate of return on your
Callable MITTS Securities expected to be between 20% and 25%, assuming you
purchased the Callable MITTS Securities at the principal amount of $10 per unit.
If we elect to call your Callable MITTS Securities during the Call
Period, you will receive only the Call Price and you will not receive a
Supplemental Redemption Amount based on the value of the Index. If we do not
call the Callable MITTS Securities, the principal amount plus the Supplemental
Redemption Amount, if any, that you receive at the stated maturity may be
greater than or less than the Call Price. ML&Co. may elect to call the Callable
MITTS Securities on any Business Day during the Call Period by giving notice to
the trustee and specifying the date on which the Call Price shall be paid. The
Payment Date shall be no later than the twentieth Business Day after the call
election. The trustee will provide notice of the call election to the
registered holders of the Callable MITTS Securities, specifying the Payment
Date, no less than 15 calendar days prior to the Payment Date. While the
Callable MITTS Securities are held at the depositary, the registered holder
will be the depositary, and the depositary will receive the notice of the call.
As more fully described below under "--Depositary", the depositary will forward
this notice to its participants which will pass it on to the beneficial owners.
You should compare the features of the Callable MITTS Securities to other
available investments before deciding to purchase the Callable MITTS
Securities. Due to the uncertainty as to whether the Callable MITTS Securities
will earn a Supplemental Redemption Amount or be called during the Call Period,
the return on your investment with respect to the Callable MITTS Securities may
be higher or lower than the return available on other securities issued by
ML&Co. or by others. We suggest that you reach an investment decision only
after carefully considering the suitability of the Callable MITTS Securities in
light of your particular circumstances. See the section entitled "United States
Federal Income Taxation".
S-13
Hypothetical returns
The following table illustrates, for a hypothetical Starting Value and a
range of hypothetical Ending Values of the Index:
. the percentage change from the hypothetical Starting Value to the
hypothetical Ending Values,
. the total amount payable at maturity of the Callable MITTS Securities,
. the total rate of return to beneficial owners of the Callable MITTS
Securities,
. the pretax annualized rate of return to beneficial owners of the
Callable MITTS Securities, and
. the pretax annualized rate of return of an investment in Amex
Biotechnology Stocks.
The table below assumes an initial investment of $10 in the Callable
MITTS Securities and the Amex Biotechnology Stocks. This table also assumes the
Callable MITTS Securities are not called by ML&Co.
Pretax
Percentage Total Amount Annualized
change from the Payable at Total Rate Rate of Pretax annualized
hypothetical Maturity per of Return on Return on rate of return
Starting Value to Callable the Callable the Callable of the
Hypothetical hypothetical MITTS MITTS MITTS Amex Biotechnology
Ending Value Ending Value Security Securities Securities(1) Stocks (1)(2)
- ------------ ----------------- ------------ ------------ ------------- ------------------
100.07 -80% $10.00 0.00% 0.00% 21.69%
200.13 -60% $10.00 0.00% 0.00% 12.65%
300.20 -40% $10.00 0.00% 0.00% 7.15%
400.26 -20% $10.00 0.00% 0.00% 3.16%
500.33(3) 0% $10.00 0.00% 0.00% 0.00%
600.40 20% $12.00 20.00% 2.62% 2.62%
700.46 40% $14.00 40.00% 4.86% 4.86%
800.53 60% $16.00 60.00% 6.82% 6.82%
900.59 80% $18.00 80.00% 8.57% 8.57%
1,000.66 100% $20.00 100.00% 10.14% 10.14%
1,100.73 120% $22.00 120.00% 11.58% 11.58%
1,200.79 140% $24.00 140.00% 12.90% 12.90%
1,300.86 160% $26.00 160.00% 14.12% 14.12%
1,400.92 180% $28.00 180.00% 15.25% 15.25%
1,500.99 200% $30.00 200.00% 16.31% 16.31%
- --------
(1)The annualized rates of return are calculated on a semiannual bond
equivalent basis.
(2)This rate of return assumes:
(a)a percentage change in the aggregate price of the stocks that equals
the percentage change in the Index from the Starting Value to the
relevant hypothetical Ending Value;
(b)no dividends are paid on the Amex Biotechnology Stocks during the
term of the Callable MITTS Securities;
(c)no transaction fees or expenses; and
(d)an investment term of April 1, 2002 to April 1, 2009.
(3)This is the hypothetical Starting Value of the Index for purposes of this
table. The actual Starting Value will be the closing value of the Index on
the Pricing Date and will be disclosed in the final prospectus supplement
delivered to you in connection with sales of the Notes.
S-14
The preceding figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors in the Callable MITTS
Securities and the resulting total and pretax annualized rates of return will
depend on the actual Starting Value, Ending Value and term of your investment.
Adjustments to the Amex Biotechnology Index; Market Disruption Events
If at any time the AMEX changes its method of calculating the Index, or
the value of the Index 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 those 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 of the Index is to be calculated, make those 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 those changes or modifications had not been made, and calculate the
closing value with reference to the Index, as so 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,
e.g., due to a split, 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, 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 for more than two
hours of trading, or during the one-half hour period preceding the
close of trading, on the applicable exchange, in 20% or more of the
Amex Biotechnology Stocks (without taking into account any extended
or after-hours trading session); or
(B)the suspension or material limitation, in each case, for more than
two hours of trading, or during the one-half hour period preceding
the close of trading, on the applicable exchange (without taking into
account any extended or after-hours trading session), whether by
reason of movements in price otherwise exceeding levels permitted by
the relevant exchange or otherwise, in option contracts or futures
contracts related to Amex Biotechnology Stocks or the Index, or any
successor index or stocks included in any successor index, which are
traded on any major U.S. exchange.
For the purpose of the above definition:
(1)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, and
(2)for the purpose of clause (A) above, any limitations on trading
during significant market fluctuations under NYSE 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".
As a result of the terrorist attacks, the financial markets were closed
from September 11, 2001 through September 14, 2001 and values of the Index are
not available for such dates. Such market closures would have constituted
Market Disruption Events.
Discontinuance of the Amex Biotechnology 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 (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
S-15
entity for the Index and calculate the closing 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
Callable MITTS Securities.
In the event that the AMEX discontinues publication of the Index and:
. the calculation agent does not select a successor index, or
. the successor index is no longer published on any of the Calculation
Days,
the calculation agent will compute a substitute value for the Index in
accordance with the procedures last used to calculate the Index 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 will be used as a substitute 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 before the maturity
date 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 Value, or
. a determination by the calculation agent that a successor index is
available,
the calculation agent will 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.
A "Business Day" is any day on which the NYSE, AMEX and The Nasdaq
National Market are open for trading.
Notwithstanding these alternative arrangements, discontinuance of the
publication of the Index may adversely affect trading in the Callable MITTS
Securities.
Events of Default and Acceleration
In case an Event of Default with respect to any Callable MITTS Securities
has occurred and is continuing, the amount payable to a beneficial owner of a
Callable MITTS Security upon any acceleration permitted by the Callable MITTS
Securities, with respect to each $10 principal amount of the Callable MITTS
Securities, will be equal to the principal amount and the Supplemental
Redemption Amount, if any, calculated as though the date of early repayment was
the stated maturity date of the Callable MITTS Securities, provided, however,
if the acceleration occurs before the end of the Call Period, the maximum
amount payable with respect to each Callable MITTS Security will be the Call
Price. If a bankruptcy proceeding is commenced in respect of ML&Co., the claim
of the beneficial owner of a Callable MITTS Security may be limited, under
Section 502(b)(2) of Title 11 of the United States Code, to the principal
amount of the Callable 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 Callable MITTS Securities.
In case of default in payment of the Callable MITTS Securities, whether
at the stated maturity or upon acceleration, from and after the maturity date
the Callable MITTS Securities will bear interest, payable upon demand of their
beneficial owners, at the rate of % per annum, to the extent that payment of
any interest is legally enforceable, on the unpaid amount due and payable on
that date in accordance with the terms of the Callable MITTS Securities to the
date payment of that amount has been made or duly provided for.
S-16
Depositary
Description of the Global Securities
Upon issuance, all Callable MITTS Securities will be represented by one
or more fully registered global securities. Each global security will be
deposited with, or on behalf of, DTC (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
Callable 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 Callable MITTS Securities represented by the global
security for all purposes under the 1983 Indenture. Except as provided below,
the beneficial owners of the Callable MITTS Securities represented by a global
security will not be entitled to have the Callable MITTS Securities registered
in their names, will not receive or be entitled to receive physical delivery of
the Callable MITTS Securities in definitive form and will not be considered the
owners or holders of the Callable MITTS Securities 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 that action, and those participants would authorize beneficial owners
owning through those participants to give or take that 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 will act as securities depositary for the Callable MITTS Securities.
The Callable MITTS Securities will be issued as fully registered securities
registered in the name of Cede & Co., DTC's partnership nominee. One or more
fully registered global securities will be issued for the Callable MITTS
Securities in the aggregate principal amount of such issue, and will be
deposited with DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC holds securities that its participants deposit with DTC. DTC also
facilitates the settlement among participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct participants
of DTC 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 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.
S-17
Purchases of the Callable MITTS Securities under DTC's system must be
made by or through direct participants, which will receive a credit for the
Callable 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 or indirect participants through
which the beneficial owner entered into the transaction. Transfers of ownership
interests in the Callable MITTS Securities are to be made by entries on the
books of participants acting on behalf of beneficial owners.
To facilitate subsequent transfers, all Callable MITTS Securities
deposited with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Callable 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 Callable
MITTS Securities; DTC's records reflect only the identity of the direct
participants to whose accounts the Callable MITTS Securities are credited,
which may or may not be the beneficial owners. The participants will remain
responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Callable 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 Callable MITTS Securities are credited on the record date.
Principal, premium, if any, and/or interest, if any, and payments made in
cash on the Callable 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 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 those payments to direct participants
will be the responsibility of DTC, and disbursement of those payments to the
beneficial owners will be the responsibility of direct participants 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 Callable MITTS Securities,
S-18
the global securities will be exchangeable for Callable 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 Callable
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.
DTC may discontinue providing its services as securities depositary with
respect to the Callable MITTS Securities at any time by giving reasonable
notice to ML&Co. or the trustee. Under these circumstances, in the event that a
successor securities depositary is not obtained, Callable MITTS Security
certificates are required to be printed and delivered.
ML&Co. may decide to discontinue use of the system of book-entry
transfers through DTC or a successor securities depositary. In that event,
Callable MITTS Security certificates 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
Settlement for the Callable MITTS Securities will be made by the
underwriter in immediately available funds. ML&Co. will make all payments of
principal and the Supplemental Redemption Amount, if any, in immediately
available funds so long as the Callable MITTS Securities are maintained in
book-entry form.
THE AMEX BIOTECHNOLOGY INDEX
The Index is calculated and disseminated by the AMEX under the symbol
"BTK". The AMEX generally calculates and disseminates the value of the Index at
approximately 15-second intervals during the AMEX's business hours and at the
end of each Index Business Day via the Consolidated Tape Association's Network
B.
The Index is designed to measure the performance of a cross section of
companies in the biotechnology industry that are primarily involved in the use
of biological processes to develop products or provide services. The Index is
equal-dollar weighted, designed to ensure that each of its component securities
is represented in approximate equal dollar value. Equal-dollar weighting was
established by designating the number of shares of each component security that
represented approximately $10,000 in market value, based on closing prices on
October 18, 1991 (e.g., a stock that closed at $20 per share would be
represented in the Index by 500 shares for a total market value of $10,000).
The aggregate value of the stocks was reduced by a divisor to establish an
index benchmark value of 200.00. To ensure that each component stock continues
to represent approximate equal market value, adjustments are made quarterly
after the close of trading on the third Friday of January, April, July and
October. As of March 28, 2002 the Index was composed of shares of the following
companies (the trading symbol of each company is listed in parentheses):
Affymetrix, Inc. (AFFX); Amgen Inc. (AMGN); Applera Corporation (CRA); Biogen,
Inc. (BGEN); Cephalon, Inc. (CEPH); Chiron Corporation (CHIR); COR
Therapeutics, Inc. (CORR); Genentech, Inc. (DNA); Genzyme Corporation (GENZ);
Gilead Sciences, Inc. (GILD); Human Genome Sciences, Inc. (HGSI); IDEC
Pharmaceuticals Corporation (IDPH); Immunex Corporation (IMNX); Medimmune, Inc.
(MEDI); Millennium Pharmaceuticals, Inc. (MLNM); Protein Design Labs, Inc.
(PDLI) and Vertex Pharmaceuticals Incorporated (VRTX).
S-19
Historical Data on the Amex Biotechnology Index
The following table sets forth the value of the Index at the end of each
month (the "Historical Month-End Closing Values") in the period from January
1997 through March 2002. All historical data presented in the following table
were calculated by the AMEX. We have provided this historical information to
help you evaluate the behavior of the Index in various economic environments;
however, these historical data on the Index are not necessarily indicative of
the future performance of the Index or what the value of the Callable MITTS
Securities may be. Any historical upward or downward trend in the level of the
Index during any period set forth below is not an indication that the Index is
more or less likely to increase or decrease at any time during the term of the
Callable MITTS Securities.
Historical Month-End Closing Values
1997 1998 1999 2000 2001 2002
------ ------ ------ ------ ------ ------
January.................... 166.13 157.44 196.47 433.40 625.18 500.02
February................... 163.75 160.70 176.81 701.46 592.04 479.19
March...................... 139.54 174.56 186.95 499.90 470.24 500.33
April...................... 131.29 175.16 191.13 487.31 568.04
May........................ 148.82 161.27 201.10 468.93 602.46
June....................... 142.52 146.84 214.34 644.23 611.70
July....................... 138.03 137.98 250.49 591.44 529.72
August..................... 152.36 104.51 268.80 773.30 533.57
September.................. 176.53 139.39 252.74 769.72 450.43
October.................... 169.31 164.10 262.75 734.14 548.68
November................... 165.47 163.63 288.09 580.40 605.00
December................... 162.42 185.13 391.44 634.32 580.58
The following graph sets forth the historical performance of the Index
presented in the table above. Past movements of the Index are not necessarily
indicative of the future Index values. The closing value of the Amex
Biotechnology Index on March 28, 2002 was 500.33.
[THE GRAPH APPEARING HERE SETS FORTH THE HYPOTHETICAL HISTORICAL PERFORMANCE OF
THE AMEX BIOTECHNOLOGY INDEX FROM JANUARY 1997 THROUGH MARCH 2002. THE VERTICAL
AXIS HAS A RANGE OF NUMBERS FROM 0 TO 800 IN INCREMENTS OF 100. THE HORIZONTAL
AXIS HAS A RANGE OF DATES FROM JANUARY 1997 TO MARCH 2002 IN INCREMENTS OF ONE
MONTH.]
S-20
License Agreement
The "Amex Biotechnology Index/SM/" is a service mark of the AMEX and is
used with the permission of the AMEX. The AMEX in no way sponsors, endorses or
is otherwise involved in the Callable MITTS Securities and disclaims any
liability to any party for any inaccuracy in the data on which the Index is
based, for any mistakes, errors, or omissions in the calculation and/or
dissemination of the Index, or for the manner in which they are applied in
connection with the Callable MITTS Securities.
Unless otherwise stated, all information herein on the Index is derived
from the AMEX or other publicly available sources.
S-21
UNITED STATES FEDERAL INCOME TAXATION
Set forth in full below is the opinion of Sidley Austin Brown & Wood LLP,
counsel to ML&Co., as to certain United States Federal income tax consequences
of the purchase, ownership and disposition of the Callable MITTS Securities.
This opinion is based upon laws, regulations, rulings and decisions now in
effect, all of which are subject to change (including retroactive changes in
effective dates) or possible differing interpretations. The discussion below
deals only with Callable MITTS Securities 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, traders in securities that elect to mark to market,
tax-exempt entities, persons holding Callable MITTS Securities in a
tax-deferred or tax-advantaged account, or persons holding Callable MITTS
Securities as a hedge against currency risks, as a position in a "straddle" or
as part of a "hedging" or "conversion" transaction for tax purposes. It also
does not deal with holders other than original purchasers (except where
otherwise specifically noted in this prospectus supplement). The following
discussion also assumes that the issue price of the Callable MITTS Securities,
as determined for United States Federal income tax purposes, equals the
principal amount thereof. Persons considering the purchase of the Callable
MITTS Securities should consult their own tax advisors concerning the
application of the United States Federal income tax laws to their particular
situations as well as any consequences of the purchase, ownership and
disposition of the Callable MITTS Securities arising under the laws of any
other taxing jurisdiction.
As used in this prospectus supplement, the term "U.S. Holder" means a
beneficial owner of a Callable MITTS Security that is for United States Federal
income tax purposes (a) a citizen or resident of the United States, (b) a
corporation, partnership or other entity treated as a corporation or a
partnership created or organized in or under the laws of the United States, any
state thereof or the District of Columbia (other than a partnership that is not
treated as a United States person under any applicable Treasury regulations),
(c) an estate the income of which is subject to United States Federal income
taxation regardless of its source, (d) 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 (e) any other person whose income or
gain in respect of a Callable MITTS Security is effectively connected with the
conduct of a United States trade or business. Notwithstanding clause (d) of the
preceding sentence, to the extent provided in Treasury regulations, certain
trusts in existence on August 20, 1996, and treated as United States persons
prior to that date that elect to continue to be treated as United States
persons also will be U.S. Holders. As used herein, the term "non-U.S. Holder"
means a beneficial owner of a Callable MITTS Security that is not a U.S. Holder.
General
There are no statutory provisions, regulations, published rulings or
judicial decisions addressing or involving the characterization, for United
States Federal income tax purposes, of the Callable MITTS Securities or
securities with terms substantially the same as the Callable MITTS Securities.
However, although the matter is not free from doubt, under current law, each
Callable MITTS Security should be treated as a debt instrument of ML&Co. for
United States Federal income tax purposes. ML&Co. currently intends to treat
each Callable MITTS Security as a debt instrument of ML&Co. for United States
Federal income tax purposes and, where required, intends to file information
returns with the Internal Revenue Service in accordance with this treatment, in
the absence of any change or clarification in the law, by regulation or
otherwise, requiring a different characterization of the Callable MITTS
Securities. Prospective investors in the Callable MITTS Securities should be
aware, however, that the IRS is not bound by ML&Co.'s characterization of the
Callable MITTS Securities as indebtedness, and the IRS could possibly take a
different position as to the proper characterization of the Callable MITTS
Securities for United States Federal income tax purposes. The following
discussion of the principal United States Federal income tax consequences of
the purchase, ownership and disposition of the Callable MITTS Securities is
based upon the assumption that each Callable MITTS Security will be treated as
a debt instrument of ML&Co. for United States Federal income tax purposes. If
the Callable MITTS Securities are not in fact treated as debt instruments of
ML&Co. for United States Federal income tax purposes, then the United States
Federal income tax treatment of the purchase, ownership and disposition of the
Callable MITTS Securities
S-22
could differ from the treatment discussed below with the result that the timing
and character of income, gain or loss recognized in respect of a Callable MITTS
Security could differ from the timing and character of income, gain or loss
recognized in respect of a Callable MITTS Security had the Callable MITTS
Securities in fact been treated as debt instruments of ML&Co. for United States
Federal income tax purposes.
U.S. Holders
On June 11, 1996, the Treasury Department issued final regulations (the
"Final Regulations") concerning the proper United States Federal income tax
treatment of contingent payment debt instruments such as the Callable MITTS
Securities, which apply to debt instruments issued on or after August 13, 1996
and, accordingly, will apply to the Callable MITTS Securities. In general, the
Final Regulations cause the timing and character of income, gain or loss
reported on a contingent payment debt instrument to substantially differ from
the timing and character of income, gain or loss reported on a contingent
payment debt instrument under general principles of prior United States Federal
income tax law. Specifically, the Final Regulations generally require a U.S.
Holder of such an instrument to include future contingent and noncontingent
interest payments in income as that interest accrues based upon a projected
payment schedule. Moreover, in general, under the Final Regulations, any gain
recognized by a U.S. Holder on the sale, exchange, or retirement of a
contingent payment debt instrument is treated as ordinary income, and all or a
portion of any loss realized could be treated as ordinary loss as opposed to
capital loss (depending upon the circumstances). The Final Regulations provide
no definitive guidance as to whether or not an instrument is properly
characterized as a debt instrument for United States Federal income tax
purposes.
In particular, solely for purposes of applying the Final Regulations to
the Callable MITTS Securities, ML&Co. has determined that the projected payment
schedule for the Callable MITTS Securities will consist of payment on the
maturity date of the principal amount thereof and a projected Supplemental
Redemption Amount equal to $ per unit (the "Projected Supplemental Redemption
Amount"). This represents an estimated yield on the Callable MITTS Securities
equal to % per annum, compounded semiannually. Accordingly, during the term
of the Callable MITTS Securities, a U.S. Holder of a Callable MITTS Security
will be required to include in income the sum of the daily portions of interest
on the Callable MITTS Security that are deemed to accrue at this estimated
yield for each day during the taxable year (or portion of the taxable year) on
which the U.S. Holder holds the Callable MITTS Security. The amount of interest
that will be deemed to accrue in any accrual period (i.e., generally each
six-month period during which the Callable MITTS Securities are outstanding)
will equal the product of this estimated yield (properly adjusted for the
length of the accrual period) and the Callable MITTS Security's adjusted issue
price (as defined below) at the beginning of the accrual period. The daily
portions of interest will be determined by allocating to each day in the
accrual period the ratable portion of the interest that is deemed to accrue
during the accrual period. In general, for these purposes a Callable MITTS
Security's adjusted issue price will equal the Callable MITTS Security's issue
price (i.e., $10), increased by the interest previously accrued on the Callable
MITTS Security. At maturity of a Callable MITTS Security, in the event that the
actual Supplemental Redemption Amount, if any, exceeds $ per unit (i.e., the
Projected Supplemental Redemption Amount), a U.S. Holder will be required to
include the excess of the actual Supplemental Redemption Amount over $ per
unit (i.e., the Projected Supplemental Redemption Amount) in income as ordinary
interest on the stated maturity date. Alternatively, in the event that the
actual Supplemental Redemption Amount, if any, is less than $ per unit (i.e.,
the Projected Supplemental Redemption Amount), the excess of $ per unit
(i.e., the Projected Supplemental Redemption Amount) over the actual
Supplemental Redemption Amount will be treated first as an offset to any
interest otherwise includible in income by the U.S. Holder with respect to the
Callable MITTS Security for the taxable year in which the stated maturity date
occurs to the extent of the amount of that includible interest. Further, a U.S.
Holder will be permitted to recognize and deduct, as an ordinary loss that is
not subject to the limitations applicable to miscellaneous itemized deductions,
any remaining portion of the Projected Supplemental Redemption Amount (i.e.,
$ per unit) in excess of the actual Supplemental Redemption Amount that is
not treated as an interest offset pursuant to the foregoing rules. In addition,
U.S. Holders purchasing a Callable MITTS Security at a price that differs from
the adjusted issue price of the Callable
S-23
MITTS Security as of the purchase date (e.g., subsequent purchases) will be
subject to rules providing for certain adjustments to the foregoing rules and
these U.S. Holders should consult their own tax advisors concerning these rules.
Upon the sale, redemption, or exchange of a Callable MITTS Security prior
to the stated maturity date, a U.S. Holder will be required to recognize
taxable gain or loss in an amount equal to the difference, if any, between the
amount realized by the U.S. Holder upon such sale, redemption, or exchange and
the U.S. Holder's adjusted tax basis in the Callable MITTS Security as of the
date of disposition. A U.S. Holder's adjusted tax basis in a Callable MITTS
Security generally will equal such U.S. Holder's initial investment in the
Callable MITTS Security increased by any interest previously included in income
with respect to the Callable MITTS Security by the U.S. Holder. Any taxable
gain will be treated as ordinary income. Any taxable loss will be treated as
ordinary loss to the extent of the U.S. Holder's total interest inclusions on
the Callable MITTS Security. Any remaining loss generally will be treated as
long-term or short-term capital loss (depending upon the U.S. Holder's holding
period for the Callable MITTS Security). All amounts includible in income by a
U.S. Holder as ordinary interest pursuant to the Final Regulations will be
treated as original issue discount.
All prospective investors in the Callable MITTS Securities should consult
their own tax advisors concerning the application of the Final Regulations to
their investment in the Callable MITTS Securities. Investors in the Callable
MITTS Securities may also obtain the projected payment schedule, as determined
by ML&Co. for purposes of applying the Final Regulations to the Callable MITTS
Securities, by submitting a written request for such information to Merrill
Lynch & Co., Inc., Corporate Secretary's Office, 222 Broadway, 17th Floor, New
York, New York 10038, (212) 670-0432, corporatesecretary@exchange.ml.com.
The projected payment schedule (including both the Projected Supplemental
Redemption Amount and the estimated yield on the Callable MITTS Securities) has
been determined solely for United States Federal income tax purposes (i.e., for
purposes of applying the Final Regulations to the Callable MITTS Securities),
and is neither a prediction nor a guarantee of what the actual Supplemental
Redemption Amount will be, or that the actual Supplemental Redemption Amount
will even exceed zero.
S-24
Hypothetical Table
The following table sets forth the amount of interest that would be
deemed to have accrued with respect to each unit of the Callable MITTS
Securities during each accrual period over an assumed term of approximately
seven years for the Callable MITTS Securities based upon a hypothetical
projected payment schedule for the Callable MITTS Securities (including both a
hypothetical Projected Supplemental Redemption Amount and a hypothetical
estimated yield equal to 6.245% per annum (compounded semiannually)) as
determined by ML&Co. for purposes of illustrating the application of the Final
Regulations to the Callable MITTS Securities as if the Callable MITTS
Securities had been issued on April 1, 2002 and were scheduled to mature on
April 1, 2009. The following table is for illustrative purposes only. The
actual projected payment schedule for the Callable MITTS Securities (including
both the actual Projected Supplemental Redemption Amount and the actual
estimated yield) will be determined by ML&Co. on the date the Callable MITTS
Securities are priced for initial sale to the public and will depend upon
actual market interest rates (and thus ML&Co.'s borrowing costs for debt
instruments with comparable maturities) as of that date. The actual projected
payment schedule for the Callable MITTS Securities (including both the actual
Projected Supplemental Redemption Amount and the actual estimated yield) and
the actual tax accrual table will be set forth in the final prospectus
supplement delivered to investors in connection with the sales of the Callable
MITTS Securities:
Total interest
deemed to have
accrued on the
Interest deemed to Callable
accrue during MITTS Securities as
accrual period of the end of accrual
Accrual Period (per unit) period (per unit)
-------------- ------------------ ---------------------
April 1, 2002 through September 30, 2002 $0.3114 $0.3114
October 1, 2002 through March 31, 2003.. $0.3220 $0.6334
April 1, 2003 through September 30, 2003 $0.3320 $0.9654
October 1, 2003 through March 31, 2004.. $0.3424 $1.3078
April 1, 2004 through September 30, 2004 $0.3531 $1.6609
October 1, 2004 through March 31, 2005.. $0.3641 $2.0250
April 1, 2005 through September 30, 2005 $0.3755 $2.4005
October 1, 2005 through March 31, 2006.. $0.3872 $2.7877
April 1, 2006 through September 30, 2006 $0.3992 $3.1869
October 1, 2006 through March 31, 2007.. $0.4118 $3.5987
April 1, 2007 through September 30, 2007 $0.4246 $4.0233
October 1, 2007 through March 31, 2008.. $0.4379 $4.4612
April 1, 2008 through September 30, 2008 $0.4516 $4.9128
October 1, 2008 through April 1, 2009... $0.4643 $5.3771
- --------
Hypothetical Projected Supplemental Redemption Amount = $5.3771 per unit.
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 Callable MITTS Security, 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 Internal Revenue Code of 1986, as
amended. However, income allocable to non-U.S. Holders will generally be
subject to annual tax reporting on IRS Form 1042-S. For a non-U.S. Holder to
qualify for the exemption from taxation, any person, U.S. or foreign, that has
control, receipt or custody of an amount subject to withholding, or who can
disburse or make payments of an amount subject to withholding (the "Withholding
Agent") must have received a statement that (a) is signed by the beneficial
owner of the Callable MITTS Security under penalties of perjury, (b) certifies
that such owner is a non-U.S. Holder and (c) provides the name and address of
the beneficial owner. The statement may generally be made on IRS Form W-8BEN
(or other applicable form) or a substantially similar
S-25
form, and the beneficial owner must inform the Withholding Agent of any change
in the information on the statement within 30 days of that change by filing a
new IRS Form W-8BEN (or other applicable form). Generally, a Form W-8BEN
provided without a U.S. taxpayer identification number will remain in effect
for a period starting on the date the form is signed and ending on the last day
of the third succeeding calendar year, unless a change in circumstances makes
any information on the form incorrect. If a Callable MITTS Security 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. Under certain circumstances, the signed statement must
be accompanied by a copy of the applicable IRS Form W-8BEN (or other applicable
form) or the substitute form provided by the beneficial owner to the
organization or institution.
Under current law, a Callable MITTS Security 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 such Callable MITTS Security would have been
effectively connected with the conduct by such individual of a trade or
business in the United States.
Backup withholding
Backup withholding at the applicable statutory rate of United States
Federal income tax may apply to payments made in respect of the Callable MITTS
Securities 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 Callable MITTS
Securities 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 Callable MITTS Security to (or through) a
broker, the broker must withhold on the entire purchase price, unless either
(a) the broker determines that the seller is a corporation or other exempt
recipient or (b) the seller provides, in the required manner, certain
identifying information (e.g., an IRS Form W-9) and, in the case of a non-U.S.
Holder, certifies that such seller is a non-U.S. Holder (and certain other
conditions are met). Such a sale must also be reported by the broker to the
IRS, unless either (a) the broker determines that the seller is an exempt
recipient or (b) the seller certifies its non-U.S. status (and certain other
conditions are met). Certification of the registered owner's non-U.S. status
would be made normally on an IRS Form W-8BEN (or other applicable form) under
penalties of perjury, although in certain cases it may be possible to submit
other documentary evidence.
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.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and Section 4975 of the Internal Revenue Code, as amended (the
"Code") prohibit various transactions between certain parties and the assets of
employee benefit plans, unless an exemption is available; governmental plans
may be subject to similar prohibitions. Because transactions between a plan and
ML&Co. may be prohibited absent an exemption, each fiduciary, by its purchase
of any Callable MITTS Security on behalf of any plan, represents on behalf of
itself and the plan, that the acquisition, holding and any subsequent
disposition of the Callable MITTS Security will not result in a violation of
ERISA, the Code or any other applicable law or regulation.
S-26
USE OF PROCEEDS AND HEDGING
The net proceeds from the sale of the Callable MITTS Securities will be
used as described under "Use of Proceeds" in the accompanying prospectus and to
hedge market risks of ML&Co. associated with its obligation to pay the
principal amount and any Supplemental Redemption Amount.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the SEC. Our
SEC filings are available over the Internet at the SEC's web site at
http://www.sec.gov. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an
active link. You may also read and copy any document we file at the SEC's
public reference rooms in Washington, D.C., New York, New York, and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for more information on the
public reference rooms and their copy charges. You may also inspect our SEC
reports and other information at the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the Callable MITTS Securities and other securities. For further information on
ML&Co. and the Callable MITTS Securities, you should refer to our registration
statement and its exhibits. The prospectus accompanying this prospectus
supplement 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.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not, and the underwriter 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 the
underwriter 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
supplement and the accompanying prospectus is accurate as of the date on the
front cover of this prospectus supplement only. Our business, financial
condition and results of operations may have changed since that date.
UNDERWRITING
MLPF&S has agreed, subject to the terms and conditions of the
underwriting agreement and a terms agreement, to purchase from ML&Co. $
aggregate principal amount of Callable MITTS Securities. The underwriting
agreement provides that the obligations of the underwriter are subject to
certain conditions and that the underwriter will be obligated to purchase all
of the Callable MITTS Securities if any are purchased.
The underwriter has advised ML&Co. that it proposes initially to offer
all or part of the Callable MITTS Securities directly to the public at the
offering prices set forth on the cover page of this prospectus supplement and
to certain dealers at that price less a concession not in excess of % of the
original public offering price of the Callable MITTS Securities. The
underwriter may allow, and the dealers may reallow, a discount not in excess of
% of the original public offering price of the Callable MITTS Secrities to
certain dealers. After the initial public offering, the public offering prices,
concessions and discounts may be changed. The underwriter is offering the
Callable MITTS Securities subject to receipt and acceptance and subject to the
underwriter's right to reject any order in whole or in part. Proceeds to be
received by ML&Co. will be net of the underwriting discount and expenses
payable by ML&Co.
S-27
MLPF&S, a broker-dealer subsidiary of ML&Co. is a member of the National
Association of Securities Dealers, Inc. and will participate in distributions
of the Callable MITTS Securities. Accordingly, offerings of the Callable MITTS
Securities will conform to the requirements of Rule 2720 of the Conduct Rules
of the NASD.
The underwriter is permitted to engage in certain transactions that
stabilize the price of the Callable MITTS Securities. These transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Callable MITTS Securities.
If the underwriter creates a short position in the Callable MITTS
Securities in connection with the offering, i.e., if it sells more units of the
Callable MITTS Securities than are set forth on the cover page of this
prospectus supplement, the underwriter may reduce that short position by
purchasing units of the Callable MITTS Securities in the open market. In
general, purchases of a security for the purpose of stabilization or to reduce
a short position could cause the price of the security to be higher than it
might be in the absence of these purchases. "Naked" short sales are sales in
excess of the underwriter's overallotment option or, where no overallotment
exists, sales in excess of the number of units an underwriter has agreed to
purchase from the issuer. Because the underwriter has no overallotment option,
it would be required to closeout a short position in the Callable MITTS
Securities by purchasing Callable MITTS Securities in the open market. Neither
ML&Co. nor the underwriter 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 Callable MITTS Securities. In addition, neither ML&Co.
nor the underwriter makes any representation that the underwriter will engage
in these transactions or that these transactions, once commenced, will not be
discontinued without notice.
MLPF&S may use this prospectus supplement and the accompanying prospectus
for offers and sales related to market-making transactions in the Callable
MITTS Securities. MLPF&S may act as principal or agent in these transactions,
and the sales will be made at prices related to prevailing market prices at the
time of sale.
VALIDITY OF THE CALLABLE MITTS SECURITIES
The validity of the Callable MITTS Securities will be passed upon for
ML&Co. and for the underwriter by Sidley Austin Brown & Wood LLP, New York, New
York.
S-28
INDEX OF DEFINED TERMS
Page
----
Amex Biotechnology Index.................................................. S-4
Amex Biotechnology Stocks................................................. S-4
Biotechnology Companies................................................... S-8
Business Day.............................................................. S-16
Calculation Day........................................................... S-13
Calculation Period........................................................ S-13
Call Period............................................................... S-5
Call Price................................................................ S-5
Callable MITTS(R) Securities.............................................. S-1
Code...................................................................... S-26
depositary................................................................ S-17
DTC....................................................................... S-4
Ending Value.............................................................. S-4
ERISA..................................................................... S-26
Final Regulations......................................................... S-23
Historical Month-End Closing Values....................................... S-20
Index..................................................................... S-4
Index Business Day........................................................ S-13
Market Disruption Event................................................... S-15
ML&Co..................................................................... S-4
MLPF&S.................................................................... S-4
non-U.S. Holder........................................................... S-22
Payment Date.............................................................. S-5
Pricing Date.............................................................. S-4
principal amount.......................................................... S-4
Projected Supplemental Redemption Amount.................................. S-23
Starting Value............................................................ S-4
successor index........................................................... S-15
Supplemental Redemption Amount............................................ S-4
U.S. Holder............................................................... S-22
Withholding Agent......................................................... S-25
S-29
P R O S P E C T U S
-------------------
[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;
. preferred stock;
. depositary shares; and
. common stock.
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.
-----------------
You should read this prospectus and the prospectus supplement or the term
sheet relating to the specific issue of securities carefully before you invest.
-----------------
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 April 1, 2002.
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 Investment Managers, L.P., Merrill Lynch Investment Managers Limited,
Merrill Lynch Bank U.S.A., Merrill Lynch Bank & Trust Co. and Merrill Lynch
International Bank Limited, provides investment, financing, advisory,
insurance, and related products and services 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;
. origination, brokerage, dealer and related activities in swaps, options,
forwards, exchange-traded futures, other derivatives and foreign
exchange products;
. securities clearance and settlement services;
. equity, debt, foreign exchange and economic research;
. private equity investing activities;
. banking, trust and lending services, including commercial and mortgage
lending and related services;
. insurance underwriting and sales; 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.
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RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog") through
an exchange offer followed by a merger of a wholly-owned subsidiary of ML&Co.
with and into Herzog. The merger was accounted for as a pooling-of-interests
under generally accepted accounting principles in the United States of America.
The following information for the fiscal years 1997 through 1999 has been
restated by the management of ML&Co. to give effect to the merger.
The following table sets forth our 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
----------------------------------
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
Ratio of earnings to fixed charges ........................ 1.2 1.1 1.3 1.3 1.1
Ratio of earnings to combined fixed
charges and preferred stock dividends ................... 1.2 1.1 1.3 1.3 1.1
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 amortization of 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 amortization of 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
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. 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. The terms will be described in a prospectus
supplement or term sheet relating to the specific issue of securities.
ML&Co. will offer up to $10,000,000,000 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 JPMorgan
Chase 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 JPMorgan Chase
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
JPMorgan Chase 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;
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. 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.
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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 senior or subordinated debt securities
under a separate indenture which provides for a single issue of zero coupon
convertible senior or 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:
. pay or deliver the principal of, and any premium, Additional Amounts,
Maturity Consideration and interest on, the debt securities; and
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. 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 or debt securities;
. 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.
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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 liens 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.
8
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 December 28, 2001, a total of approximately $81.7 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;
9
. subdivisions and combinations of ML&Co. common stock;
. 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.
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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:
. 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.
11
Book-Entry Procedures
Except as may otherwise be provided in the applicable prospectus supplement,
the Debt Warrants will be issued in the form of global debt warrant
certificates, registered in the name of a depositary or its nominee. Except as
may otherwise be provided in the applicable prospectus supplement, beneficial
owners will not be entitled to receive definitive certificates representing
Debt Warrants unless the depositary is unwilling or unable to continue as
depositary or 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
12
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.
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, as set forth 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.
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, as set forth 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.
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ML&Co. has filed forms of the index warrant agreement and the 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 the 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 the 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");
. 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;
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. 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
. 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
16
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;
. 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;
17
. 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
. 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.
18
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 December 28, 2001, 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".
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.
19
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 December 28, 2001, 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.
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
20
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.
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.
21
As of December 28, 2001, subsidiaries of ML&Co. had outstanding
approximately $2.695 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.
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
/SM/ Service mark of Merrill Lynch & Co., Inc.
22
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 up of ML&Co.
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.
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.
23
Outstanding Preferred Stock
As of December 28, 2001, 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 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.
24
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.
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
25
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 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.
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
26
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 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
27
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:
. the offering price or prices;
28
. 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 may 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.
29
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.
30
Terms of the Common Stock
Under ML&Co.'s restated certificate of incorporation, ML&Co. is authorized
to issue up to 3,000,000,000 shares of common stock, par value $1.33 1/3 per
share. As of December 28, 2001, there were 962,533,498 shares of common stock
and 4,195,407 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 December 28, 2001, 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 December 28, 2001, subsidiaries of ML&Co. had outstanding
approximately $2.695 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 11 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.
33
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, may, if in registered form,
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 purchase common stock, holders of the
Common Stock Warrants will not have any rights of holders of common
34
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.
Any at the market offering of Common Stock will be through MLPF&S, acting as
principal or as agent for ML&Co. 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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an
active link. You may also read and copy any document we file 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 described in this prospectus and other securities. For further
information on ML&Co. and these 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 (other than information in the documents that is
deemed not to be filed):
. annual report on Form 10-K for the year ended December 28, 2001; and
. current reports on Form 8-K dated January 9, 2002, January 16, 2002,
January 13, 2002, January 23, 2002, January 29, 2002, February 1, 2002,
February 8, 2002, February 11, 2002, February 21, 2002, February 26,
2002, March 1, 2002, March 7, 2002, March 13, 2002, March 15, 2002,
March 20, 2002, March 22, 2002 and March 28, 2002.
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 (other than information in the documents that is deemed not to be
filed):
. 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.
37
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.
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 28, 2001 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included 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.
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[LOGO]
2,500,000 Units
Merrill Lynch & Co., Inc.
Callable Market Index Target-Term Securities(R)
due April , 2009
Linked to the Amex Biotechnology Index/SM/
("Callable MITTS(R) Securities")
$10 principal amount per unit
-------------------------------
PROSPECTUS SUPPLEMENT
-------------------------------
Merrill Lynch & Co.
April , 2002
"MITTS" and "Market Index Target-Term Securities" are registered service marks
of Merrill Lynch & Co., Inc.
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