EXHIBIT 99(a)
PRELIMINARY AND SUBJECT TO COMPLETION AND AMENDMENT
ISSUE DATE: APRIL 21, 1995
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 21, 1995)
LOGO
MERRILL LYNCH & CO., INC.
1,500,000
GREATER OF U.S. DOLLAR/DEUTSCHE MARK--U.S. DOLLAR/JAPANESE YEN
PUT CURRENCY WARRANTS, EXPIRING MAY 15, 1997
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Each Greater of U.S. Dollar/Deutsche Mark--U.S. Dollar/Japanese Yen Put
Currency Warrant ("Warrant") will entitle the beneficial owner thereof to
receive from Merrill Lynch & Co., Inc. (the "Company") the cash value, if
positive, (the "Cash Settlement Value") on the Expiration Date (as defined
below), or on such earlier date as described herein, in U.S. dollars of the
greater of (i) the right to sell Deutsche Mark ("DEM") on the Exercise
Date at a price of U.S. $50, which represents an exchange rate of DEM per
U.S. $1.00, and (ii) the right to sell Japanese Yen ("JPY") on the
Exercise Date at a price of U.S. $50, which represents an exchange rate of JPY
per U.S. $1.00. The Warrants will be automatically exercised on the
earlier of the fifth New York Business Day immediately preceding May 15, 1997
(the "Expiration Date") or the New York Business Day immediately preceding the
date of occurrence of certain events in bankruptcy, insolvency or
reorganization involving the Company or the date of the Warrants' expiration
upon delisting from, or permanent suspension from trading on, the American
Stock Exchange unless the Warrants are simultaneously accepted for trading
pursuant to the rules of another national securities exchange (in either case,
the "Exercise Date"). The Warrants are not exercisable at the option of the
Holder. See "Description of the Warrants".
THE WARRANTS INVOLVE A HIGH DEGREE OF RISK, INCLUDING FOREIGN EXCHANGE RISKS
AND THE RISK OF EXPIRING WORTHLESS UNLESS THE DEUTSCHE MARK OR THE JAPANESE
YEN SUFFICIENTLY DEPRECIATES AGAINST THE U.S. DOLLAR. THE WARRANTS ARE NOT
EXERCISABLE AT THE OPTION OF THE HOLDER. INVESTORS THEREFORE SHOULD BE
PREPARED TO SUSTAIN A TOTAL LOSS OF THE PURCHASE PRICE OF THEIR WARRANTS, AND
ARE ADVISED TO CAREFULLY CONSIDER THE INFORMATION UNDER "RISK FACTORS RELATING
TO THE WARRANTS", "DESCRIPTION OF THE WARRANTS", "DESCRIPTION OF THE
WARRANTS--AUTOMATIC EXERCISE PRIOR TO THE EXPIRATION DATE", "EXCHANGE RATES
AND CASH SETTLEMENT VALUES" AND "CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS CONCERNING THE WARRANTS".
Prior to issuance, the Warrants will have been approved for listing by the
American Stock Exchange under the symbol "DMY.WS", subject to official notice
of issuance.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(1) THE COMPANY(2)
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Per Warrant..................... $ $ $
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Total........................... $ $ $
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(1) The "Price to Public" and "Underwriting Discount" for any single
transaction to purchase 250,000 Warrants or more will be $ per Warrant
and $. per Warrant, respectively.
(2) Before deducting expenses payable by the Company.
----------------
The Warrants are offered by the Underwriter, subject to prior sale, when, as
and if delivered to and accepted by the Underwriter, subject to certain other
conditions. The Underwriter reserves the right to reject orders in whole or in
part. It is expected that delivery of the Warrants will be made on or about
May , 1995.
This Prospectus Supplement and related Prospectus may be used by the
Underwriter in connection with offers and sales related to market-making
transactions in the Warrants. The Underwriter may act as principal or agent in
such transactions. Such sales will be made at prices related to prevailing
market prices at the time of sale.
----------------
MERRILL LYNCH & CO.
----------------
The date of this Prospectus Supplement is , 1995.
IN CONNECTION WITH THE OFFERING OF THE WARRANTS, THE UNDERWRITER MAY OVER-
ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF
THE WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
The Commissioner of Insurance of the State of North Carolina has not approved
or disapproved this offering nor has the Commissioner passed upon the accuracy
or adequacy of this Prospectus Supplement or Prospectus.
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PROSPECTUS SUPPLEMENT SUMMARY
The information below is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus Supplement and in the
Prospectus.
THE OFFERING
Securities Offered.......... 1,500,000 Greater of U.S. Dollar/Deutsche Mark--
U.S. Dollar/Japanese Yen Put Currency Warrants
(the "Warrants"), Expiring May 15, 1997.
Cash Settlement Value....... The Cash Settlement Value of a Warrant will be
determined on the Exercise Date as the amount in
U.S. dollars, if positive, which is the greater
of:
DEM Strike Price
(i) U.S. $50 - (U.S. $50 X ----------------); and
DEM Spot Rate
JPY Strike Price
(ii) U.S. $50 - (U.S. $50 X ----------------).
JPY Spot Rate
"DEM Strike Price" means DEM per U.S.
$1.00 and "DEM Spot Rate" means the noon buying
rate on the Exercise Date per U.S. $1.00 in The
City of New York for cable transfers in
Deutsche Marks as certified for customs
purposes by the Federal Reserve Bank of New
York, or, if unavailable, as described herein.
"JPY Strike Price" means JPY per U.S.
$1.00 and "JPY Spot Rate" means the noon buying
rate on the Exercise Date per U.S. $1.00 in The
City of New York for cable transfers in
Japanese Yen as certified for customs purposes
by the Federal Reserve Bank of New York, or, if
unavailable, as described herein.
Automatic Exercise of
Warrants.................... The Warrants will be automatically exercised on
the fifth New York Business Day, as hereinafter
defined, immediately preceding May 15, 1997 or,
if the Warrants are subject to automatic
exercise in the event they cease to be traded
pursuant to the rules of a national securities
exchange or if certain events in bankruptcy,
insolvency or reorganization involving the
Company occur, the New York Business Day
immediately preceding the Early Expiration Date
(as defined herein). The Warrants will be
automatically exercised on the Exercise Date and
are not exercisable at the option of the Holder.
See "Description of the Warrants--Exercise of
Warrants" and "Description of the Warrants--
Automatic Exercise Prior to the Expiration
Date".
Form........................ The Warrants will be in book-entry form and,
accordingly, a beneficial owner will not be
entitled to receive a certificate
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representing such Warrants. See "Description of
the Warrants--Book-Entry Procedures and
Settlement".
Listing..................... Prior to issuance, the Warrants will have been
approved for listing by the American Stock
Exchange, subject to official notice of
issuance.
American Stock Exchange DMY.WS
Symbol......................
Certain Risk Factors........ The Warrants involve a high degree of risk,
including foreign exchange risks and the risk of
expiring worthless. If on the Exercise Date the
DEM Strike Price is greater than or equal to the
DEM Spot Rate (i.e., the Deutsche Mark has not
depreciated relative to the U.S. dollar) and the
JPY Strike Price is greater than or equal to the
JPY Spot Rate (i.e., the Japanese Yen has not
depreciated relative to the U.S. dollar), the
Warrants will expire worthless. Beneficial
owners will bear the foreign exchange risks of
the U.S. dollar as compared to the Deutsche Mark
and the Japanese Yen. INVESTORS THEREFORE SHOULD
BE PREPARED TO SUSTAIN A TOTAL LOSS OF THE
PURCHASE PRICE OF THEIR WARRANTS.
It is not possible to predict the price at which
the Warrants will trade in the secondary market
or whether such market will be liquid or
illiquid. The trading value of a Warrant is
expected to be dependent on the DEM Strike Price
and the JPY Strike Price, as described herein,
and also upon a number of complex interrelated
factors, including the expected value on the
Exercise Date of the Deutsche Mark and the
Japanese Yen in terms of the U.S. dollar, the
volatility of the DEM/U.S.$ and JPY/U.S.$
exchange rates, the time remaining to the
expiration of the Warrants, the correlation
between the DEM/U.S.$ and JPY/U.S.$ exchange
rates and the interest rate differential between
U.S. dollar and Deutsche Mark denominated fixed
income instruments and the interest rate
differential between U.S. dollar and Japanese
Yen denominated fixed income instruments. The
value of any currency, including Deutsche Marks,
Japanese Yen, and U.S. dollars, may be affected
by complex political and economic factors.
In the event that the Warrants are delisted from,
or permanently suspended from trading on, the
American Stock Exchange and the Warrants are not
simultaneously accepted for trading pursuant to
the rules of another national securities
exchange, such Warrants will be automatically
exercised on the New York Business Day (as
defined herein) prior to the day such delisting
or trading suspension becomes effective. At the
time of such automatic exercise, the Warrants
may be out-of-the-money such that the Cash
Settlement Value would equal zero.
The initial public offering price of the Warrants
is expected to be in excess of the price a
commercial user of Deutsche Marks and/or
Japanese Yen might pay in the interbank market
for a comparable option involving significantly
larger amounts of underlying currencies.
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In general, certain risks associated with the
Warrants are similar to those generally
applicable to other options or warrants of
private corporate issuers. The Warrants are not
standardized foreign currency options of the
type issued by a clearing agency regulated by
the Securities and Exchange Commission.
Investors are advised to carefully consider the
foregoing risk factors, and the risks and other
matters discussed under "Risk Factors Relating
to the Warrants", "Description of the Warrants",
"Exchange Rates and Cash Settlement Values" and
"Certain United States Federal Income Tax
Considerations Concerning the Warrants", prior
to purchasing the Warrants.
Investors in Warrants....... The American Stock Exchange recommends that the
Warrants be sold only to investors with options
approved accounts and that its members and
member organizations and registered employees
thereof make certain suitability determinations
before recommending transactions in the
Warrants. It is suggested that investors
considering purchasing the Warrants be
experienced with respect to options and option
transactions and understand the risks of foreign
currency transactions and reach an investment
decision only after carefully considering the
suitability of the Warrants in light of their
particular circumstances. The Warrants are not
suitable for persons solely dependent upon a
fixed income, for individual retirement plan
accounts or for accounts under the Uniform Gift
to Minors Act. INVESTORS SHOULD BE PREPARED TO
SUSTAIN A TOTAL LOSS OF THE PURCHASE PRICE OF
THEIR WARRANTS.
S-5
CERTAIN IMPORTANT INFORMATION CONCERNING THE WARRANTS
A beneficial owner will receive a cash payment upon exercise only if the
Warrants have a Cash Settlement Value in excess of zero on the Exercise Date.
The spot exchange rates of the Deutsche Mark and the Japanese Yen on the
Exercise Date as compared to the U.S. dollar will determine whether the
Warrants have a positive Cash Settlement Value. The Warrants may be "out-of-
the-money" (i.e., their Cash Settlement Value will be zero) when initially sold
and the Warrants will be "in-the-money" (i.e., their Cash Settlement Value will
be greater than zero) on the Exercise Date only if, as of such date, the
Deutsche Mark or the Japanese Yen has depreciated (i.e., it takes more DEM or
JPY to purchase one U.S. dollar) against the U.S. dollar to the extent that one
U.S. dollar is worth more than the DEM Strike Price or the JPY Strike Price. If
on the Exercise Date the DEM Strike Price is greater than or equal to the DEM
Spot Rate (i.e., the Deutsche Mark has not depreciated relative to the U.S.
dollar) and the JPY Strike Price is greater than or equal to the JPY Spot Rate
(i.e., the Japanese Yen has not depreciated relative to the U.S. dollar), the
Warrant will expire worthless and the beneficial owner will have sustained a
total loss of the purchase price of such Warrant. Investors therefore should be
prepared to sustain a total loss of the purchase price of their Warrants.
On April 21, 1995 the Noon Buying Rates of Deutsche Marks and Japanese Yen
quoted by the Federal Reserve Bank of New York were U.S. $1 = DEM 1.3750 and
JPY 82.92, respectively. Beneficial owners of Warrants will be subject to
foreign exchange risks which may have important economic and tax consequences
to them. See "Exchange Rates and Cash Settlement Values" and "Certain United
States Federal Income Tax Considerations Concerning the Warrants".
References herein to "U.S. dollars", "U.S.$" or "$" are to the currency of
the United States of America. References to "Deutsche Mark" or "DEM" are to the
currency of the Federal Republic of Germany. References to "Japanese Yen" and
"JPY" are to the currency of Japan.
RISK FACTORS RELATING TO THE WARRANTS
THE WARRANTS INVOLVE A HIGH DEGREE OF RISK, INCLUDING FOREIGN EXCHANGE RISKS
AND THE RISK OF EXPIRING WORTHLESS. INVESTORS THEREFORE SHOULD BE PREPARED TO
SUSTAIN A TOTAL LOSS OF THE PURCHASE PRICE OF THEIR WARRANTS. IT IS SUGGESTED
THAT INVESTORS CONSIDERING PURCHASING THE WARRANTS BE EXPERIENCED WITH RESPECT
TO OPTIONS AND OPTION TRANSACTIONS AND UNDERSTAND THE RISKS OF FOREIGN CURRENCY
TRANSACTIONS AND REACH AN INVESTMENT DECISION ONLY AFTER CAREFULLY CONSIDERING
ALL THE RISK FACTORS SET FORTH IN THIS SECTION OF THIS PROSPECTUS SUPPLEMENT,
THE SUITABILITY OF THE WARRANTS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES AND
ALL THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS SUPPLEMENT AND IN THE
ACCOMPANYING PROSPECTUS.
Exercise of the Warrants. The Warrants will be automatically exercised on the
Exercise Date and are not exercisable at the option of the Holder.
Automatic Exercise of the Warrants upon Delisting. In the event that the
Warrants are delisted from, or permanently suspended from trading on, the
American Stock Exchange and the Warrants are not simultaneously accepted for
trading pursuant to the rules of another national securities exchange, the
Warrants will expire on the date such delisting or trading suspension becomes
effective and will be automatically exercised on the New York Business Day
immediately preceding the date of such early expiration. At the time of such
automatic exercise, the Warrants may be out-of-the-money such that the Cash
Settlement Value will equal zero.
Offering Price of the Warrants. The initial public offering price of the
Warrants is expected to be in excess of the price a commercial user of, or
dealer in options on, Deutsche Marks or Japanese Yen might pay for a comparable
option involving significantly larger amounts of Deutsche Marks and Japanese
Yen.
Certain Factors Affecting the Value of the Warrants. Each Warrant may have a
Cash Settlement Value of zero at issuance. The difference between the trading
value and the Cash Settlement Value will reflect a
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number of factors, including a "time value" component for the Warrants. The
"time value" of the Warrants will depend upon the time remaining to expiration,
among other factors. The expiration date of the Warrants will be accelerated
should the Warrants be delisted or should their trading on the American Stock
Exchange be suspended permanently unless the Warrants simultaneously are
accepted for trading pursuant to the rules of another national securities
exchange. Any such acceleration would result in the total loss of any otherwise
remaining "time value" and could occur when the Warrants are out-of-the-money,
thus resulting in total loss of the purchase price of the Warrants. See
"Description of the Warrants--Automatic Exercise Prior to the Expiration Date".
Before selling Warrants, beneficial owners should carefully consider the
trading value of the Warrants, the value of the Deutsche Mark and the Japanese
Yen, the probable range of Cash Settlement Values and any related transaction
costs.
It is possible that the trading value of a Warrant may decline significantly
even if there is a decrease in the value of the Deutsche Mark or the Japanese
Yen as compared to the U.S. dollar.
There can be no assurance as to how the Warrants will trade in the secondary
market or whether such market will be liquid. The trading value of a Warrant is
expected to be dependent on the Warrant Strike Prices and also upon a number of
complex interrelated factors, including those listed below. The expected
theoretical effect on the trading value of a Warrant of each of the factors
listed below, assuming in each case that all other factors are held constant,
is as follows:
(1) The DEM/U.S.$ and JPY/U.S.$ exchange rates in the forward
markets. The trading value of the Warrants is expected to depend primarily
on the DEM/U.S.$ and JPY/U.S.$ exchange rates expected on the Exercise
Date. Because the Cash Settlement Value is determined using the DEM/U.S.$
and JPY/U.S.$ exchange rates for immediate transfers (i.e., the spot rates)
on the Exercise Date, the spot rates on other days during the term of the
Warrants may not affect the trading value of the Warrants. If Warrants are
sold prior to the maturity date, the sale price may be at a discount from
the amount expected to be payable to the beneficial owner if the then
current DEM/U.S.$ and JPY/U.S.$ exchange rates at the time of such sale
were to prevail until the Exercise Date because of the possible fluctuation
of the DEM/U.S.$ and JPY/U.S.$ exchange rates between the time of such sale
and the Exercise Date. See "Exchange Rates and Cash Settlement Values" in
this Prospectus Supplement. Furthermore, the price at which a beneficial
owner will be able to sell Warrants prior to the Exercise Date may be at a
discount, which could be substantial, from the purchase price, if, at such
time, the DEM Strike Price and the JPY Strike Price are greater than or
equal to the DEM/U.S.$ exchange rate or the JPY/U.S.$ exchange rate,
respectively, expected on the Exercise Date.
(2) The volatility of the DEM/U.S.$ and JPY/U.S.$ exchange rates. If the
volatility of the DEM/U.S.$ or JPY/U.S.$ exchange rate increases, the
trading value of a Warrant is expected to increase. If such volatility
decreases, the trading value of a Warrant is expected to decrease.
(3) The interest rate differential between U.S. dollar and Deutsche Mark
or Japanese Yen denominated fixed income instruments. If Deutsche Mark
interest rates increase relative to U.S. dollar interest rates, the value
of the Deutsche Mark in terms of the U.S. dollar in the forward market is
expected to decrease and, as a result, the trading value of a Warrant is
expected to increase. If Japanese Yen interest rates increase relative to
U.S. dollar interest rates, the value of the Japanese Yen in terms of the
U.S. dollar in the forward market is expected to decrease and, as a result,
the trading value of a Warrant is expected to increase. If U.S. dollar
interest rates increase relative to Deutsche Mark interest rates or
Japanese Yen interest rates, the trading value of a Warrant is expected to
decrease.
(4) Correlation between DEM/U.S.$ and JPY/U.S.$ exchange rates. The
higher the correlation between changes in the two exchange rates, the lower
the expected value of a Warrant.
(5) The time remaining to the expiration date of the Warrants. As the
time remaining to the expiration date decreases, the trading value of a
Warrant is expected to decrease.
As noted above, these hypothetical scenarios are based on the assumption that
all other factors are held constant. In reality, it is unlikely that only one
factor would change in isolation, since changes in one factor
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usually cause, or result from, changes in others. Some of the factors referred
to above are, in turn, influenced by the political and economic factors
discussed below.
Warrants not Standardized Options Issued by the Options Clearing
Corporation. The Warrants are not standardized foreign currency options of the
type issued by the Options Clearing Corporation (the "OCC"), a clearing agency
regulated by the Securities and Exchange Commission. For example, unlike
purchasers of OCC standardized options who have the credit benefits of
guarantees and margin and collateral deposits by OCC clearing members to
protect the OCC from a clearing member's failure, purchasers of Warrants must
look solely to the Company for performance of its obligations to pay the Cash
Settlement Value on the exercise of Warrants. In addition, OCC standardized
options provide for physical delivery of the underlying foreign currency
(rather than cash settlement in U.S. dollars), and permit immediate
determination of value upon exercise. Further, the market for the Warrants is
not expected to be generally as liquid as the market for some OCC standardized
options.
The Warrants are unsecured contractual obligations of the Company and will
rank on a parity with the Company's other unsecured contractual obligations and
with the Company's unsecured and unsubordinated debt. However, since the
Company is a holding company, the right of the Company, and hence the right of
creditors of the Company (including beneficial owners of the Warrants), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including Merrill
Lynch, Pierce, Fenner & Smith Incorporated, to the Company are restricted by
net capital requirements under the Securities Exchange Act of 1934, as amended,
and under rules of certain exchanges and other regulatory bodies.
General Risk Considerations. Options and warrants provide opportunities for
investment and pose risks to investors as a result of fluctuations in the value
of the currency, security, index or other measure underlying such options or
warrants. In general, certain of the risks associated with the Warrants are
similar to those generally applicable to other options or warrants of private
corporate issuers. However, unlike options or warrants on equities or debt
securities, which are priced primarily on the basis of the value of a single
underlying security, the trading value of a Warrant is likely to reflect
expected exchange rates on the Exercise Date.
The purchaser of a Warrant may lose his entire investment. This risk reflects
the nature of a Warrant as an asset which tends to decline in value over time
and which may, depending on the relative values of the Deutsche Mark and the
Japanese Yen as compared to the U.S. dollar, become worthless when it expires.
Assuming all other factors are held constant, the more a Warrant is out-of-the-
money and the shorter its remaining term to expiration, the greater the risk
that a purchaser of the Warrant will lose all of his investment. This means
that the purchaser of a Warrant who does not sell it in the secondary market
will lose his entire investment in the Warrant if, at expiration, the DEM
Strike Price and the JPY Strike Price are greater than or equal to the DEM Spot
Rate and the JPY Spot Rate, respectively.
The fact that Warrants may become valueless upon expiration means that, in
order to recover and realize a return upon his investment, a purchaser of a
Warrant must generally be correct about the direction, timing and magnitude of
an anticipated exchange rate change affecting the Deutsche Mark or the Japanese
Yen in terms of the U.S. dollar. If the value of the Deutsche Mark or the
Japanese Yen in terms of the U.S. dollar does not decline to an extent
sufficient to cover an investor's cost of the Warrant (i.e., the purchase price
plus transaction costs, if any) before the Warrant expires, the investor will
lose all or a part of his investment in the Warrant upon expiration. Beneficial
owners will thus bear the foreign exchange risks of the U.S. dollar in terms of
the Deutsche Mark and the Japanese Yen.
The American Stock Exchange recommends that Warrants be sold only to
investors with options approved accounts and that its members and member
organizations and registered employees thereof make certain suitability
determinations before recommending transactions in Warrants. It is suggested
that
S-8
investors considering purchasing Warrants be experienced with respect to
options and option transactions and understand the risks of foreign currency
transactions and reach an investment decision only after carefully considering
the suitability of the Warrants in light of their particular circumstances.
Warrants are not suitable for persons solely dependent upon a fixed income, for
individual retirement plan accounts or for accounts under the Uniform Gift to
Minors Act. INVESTORS SHOULD BE PREPARED TO SUSTAIN A TOTAL LOSS OF THE
PURCHASE PRICE OF THEIR WARRANTS.
Currency Exchange Markets. The value of any currency, including the Deutsche
Mark, the Japanese Yen, and the U.S. dollar, may be affected by complex
political and economic factors. The spot exchange rates of the Deutsche Mark
and the Japanese Yen in terms of the U.S. dollar are at any moment a result of
the supply and demand for the three currencies, and changes in the relative
exchange rates result over time from the interaction of many factors directly
or indirectly affecting economic and political conditions in the Federal
Republic of Germany, Japan and the United States, including economic and
political developments in other countries. Of particular importance are the
relative rates of inflation, interest rate levels, the balance of payments and
the extent of governmental surpluses or deficits in the Federal Republic of
Germany, in Japan and in the United States, all of which are in turn sensitive
to the monetary, fiscal and trade policies pursued by the governments of the
Federal Republic of Germany, Japan, the United States and other countries
important to international trade and finance.
Foreign exchange rates can either be fixed by sovereign governments or float.
Exchange rates of most economically developed nations, including the Federal
Republic of Germany and Japan, are permitted to fluctuate in value relative to
the U.S. dollar. Governments, however, sometimes do not allow their currencies
to float freely in response to economic forces. Sovereign governments in fact
use a variety of techniques, such as intervention by a country's central bank
or imposition of regulatory controls or taxes, to affect the exchange rates of
their currencies. Governments may also issue a new currency to replace an
existing currency or alter the exchange rate or relative exchange
characteristics by devaluation or revaluation of a currency. Thus, a special
risk in purchasing the Warrants is that their liquidity, trading value and Cash
Settlement Value could be affected by governmental actions which could change
or interfere with theretofore freely determined currency valuation,
fluctuations in response to other market forces and the movement of currencies
across borders. There will be no adjustment or change in the terms of the
Warrants in the event that exchange rates should become fixed, or in the event
of any devaluation or revaluation or imposition of exchange or other regulatory
controls or taxes, or in the event of other developments affecting the Deutsche
Mark, the Japanese Yen, the U.S. dollar or any other currency. In contrast, the
OCC has reserved the authority to adjust the terms of its standardized options
for certain governmental actions and to impose special exercise settlement
procedures.
The interbank market in foreign currencies is a global, around-the-clock
market. Therefore, the hours of trading for the Warrants will not conform to
the hours during which the Deutsche Mark, the Japanese Yen and U.S. dollar are
traded. To the extent that the American Stock Exchange is closed while the
markets for the Deutsche Mark and the Japanese Yen remain open, significant
price and rate movements may take place in the underlying foreign exchange
markets that will not be reflected immediately in the price of a Warrant on
such exchange. The possibility of such movements should be taken into account
in relating closing prices on the American Stock Exchange for the Warrants to
those in the underlying foreign exchange markets.
There is no systematic reporting of last-sale information for foreign
currencies. Reasonably current bid and offer information is available in
certain brokers' offices, in bank foreign currency trading offices, and to
others who wish to subscribe for this information, but such information will
not necessarily reflect the DEM Noon Buying Rate or the JPY Noon Buying Rate
(each as defined below) used to calculate the DEM Spot Rate and the JPY Spot
Rate. There is no regulatory requirement that those quotations be firm or
revised on a timely basis. The absence of last-sale information and the limited
availability of quotations to individual investors may make it difficult for
many investors to obtain timely, accurate data about the state of the
underlying foreign exchange markets.
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RECENT DEVELOPMENTS
The following summary of certain consolidated financial information
concerning the Company was derived from, and is qualified in its entirety by
reference to, the financial information and data contained in the Company's
Current Report on Form 8-K dated April 18, 1995 (the "Current Report") and
Annual Report on Form 10-K for the year ended December 30, 1994. See
"Incorporation of Certain Documents by Reference" in the accompanying
Prospectus. The Current Report, which includes preliminary unaudited financial
information for the quarter ended March 31, 1995, will be superseded in its
entirety by the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995. The results of operations contained in the Company's Current
Report are unaudited; however, in the opinion of management of the Company,
all adjustments (consisting only of normal recurring accruals) necessary for a
fair statement of the results of operations have been included.
The Company conducts its business in highly volatile markets. Consequently,
the Company's results can be affected by many factors, including general
market conditions, the liquidity of secondary markets, the level and
volatility of interest rates and currency values, the valuation of securities
positions, competitive conditions, and the size, number, and timing of
transactions. In periods of unfavorable market activity, profitability can be
adversely affected because certain expenses remain relatively fixed. As a
result, net earnings and revenues can vary significantly from period to
period. Thus, interim results may not necessarily be representative of the
full year results of operations.
INCOME STATEMENT INFORMATION
(IN THOUSANDS, EXCEPT RATIOS)
THREE MONTHS ENDED
----------------------------
APRIL 1, MARCH 31,
1994 1995
--------------- ------------
Revenues.......................................... $ 4,738,811 $ 5,203,877
Net revenues(1)................................... $ 2,831,828 $ 2,420,485
Earnings before income taxes...................... $ 652,208 $ 378,792
Net earnings ..................................... $ 371,759 $ 227,275
Ratio of earnings to fixed charges(2)............. 1.3 --
BALANCE SHEET INFORMATION(3)
(IN THOUSANDS)
AT DECEMBER 30, AT MARCH 31,
1994 1995
--------------- ------------
Total assets ..................................... $163,749,327 $ --
Long-term borrowings.............................. $ 14,863,383 $ --
Stockholders' equity.............................. $ 5,817,545 $ --
- --------
Notes
(1) Net revenues are revenues net of interest expense.
(2) The ratio of earnings to fixed charges for the three months ended March
31,1995 is not available as of the date of this Prospectus Supplement. For
the year ended December 30, 1994, the ratio of earnings to fixed charges
was 1.2. For the purpose of calculating the ratio of earnings to fixed
charges, "earnings" consists of earnings from continuing operations before
income taxes and fixed charges. "Fixed charges" consists of interest
costs, that portion of rentals estimated to be representative of the
interest factor, and amortization of debt expense.
(3) Balance sheet information for the quarter ended March 31, 1995 is not
available as of the date of this Prospectus Supplement. To finance its
diverse activities, the Company and certain of its subsidiaries borrow
substantial amounts of short-term funds on a regular basis. Although the
amount of short-term borrowings significantly varies with the level of
general business activity, on December 30, 1994, $557,776,000 of bank
loans and $14,758,830,000 of commercial paper were outstanding. In
addition, certain of the Company's subsidiaries lend securities and enter
into repurchase agreements to obtain financing. At December 30, 1994, cash
deposits for securities loaned and securities sold under agreements to
repurchase amounted to $2,180,186,000 and $51,864,594,000, respectively.
From December 31, 1994 to April 18, 1995, long-term borrowings, net of new
issuances and resales, decreased by approximately $608,874,000.
S-10
RESULTS OF OPERATIONS FOR THE PERIOD ENDED MARCH 31, 1995
Financial markets, which steadily weakened throughout 1994, improved in the
first quarter of 1995 on the prospects of a slowing U.S. economy, relatively
stable interest rates, and heightened investor activity. Net earnings were $227
million in the 1995 first quarter, down 39% from the record $372 million in the
1994 first quarter, but up 41% from $162 million in the 1994 fourth quarter.
Total revenues in the 1995 first quarter were $5,204 million, up 10% and 16%
from the 1994 first and fourth quarters, respectively. Net revenues in the 1995
first quarter were $2,420 million, down 15% from the 1994 first quarter, but up
16% from the 1994 fourth quarter. Non-interest expenses were $2,042 million,
down 6% from the 1994 first quarter, but up 11% from the 1994 fourth quarter.
Commission revenues were $685 million for the 1995 first quarter, down 21%
from 1994 first quarter record levels, primarily as a result of lower mutual
fund and listed securities transactions revenues. Mutual fund commissions were
affected by lower volumes and declines in value experienced by most stock and
bond mutual funds throughout 1994. Commissions on listed securities
transactions also decreased, primarily reflecting a change in the mix of
transactions between institutional and retail clients.
Interest and dividend revenues rose 38% from the 1994 first quarter to $3,029
million. Interest expense, which includes dividend expense, increased 46% to
$2,783 million. Net interest profit declined 16% to $246 million as a result of
a significant increase in short-term interest rates, quarter over quarter, and
the continued flattening of the yield curve, which is the difference between
short-term and long-term interest rates. As a result, interest spreads
declined, while financing and hedging costs increased from the 1994 first
quarter.
Principal transactions revenues increased 1% from the first quarter of 1994
to $675 million. Taxable fixed-income trading revenues increased as a result of
higher revenues from corporate bonds and preferred stock and money market
instruments. Trading results were negatively affected by higher interest rates,
leading to a modest loss in mortgage-backed products and lower revenues from
U.S. Government and agencies securities. Net trading results from mortgage-
backed products were positive, however, when combined with related net interest
income. Revenues from interest rate and currency swaps increased due to higher
trading revenues from non-U.S. dollar and U.S. dollar denominated swap
transactions. Municipal securities revenues advanced due to continued demand
for tax-exempt investments. Equities and equity derivatives trading revenues
decreased primarily as a result of lower revenues from international equities.
Foreign exchange and commodities trading revenues decreased due primarily to
lower commodity trading volume.
Investment banking revenues were $248 million, down 44% from the first
quarter of 1994, as domestic and global underwriting volumes industrywide
declined 50% and 44%, respectively, compared to volumes in the 1994 first
quarter. Underwriting activity continued at low levels as relatively higher
interest rates and increased cash flows from strong corporate earnings
continued to decrease demand for debt and equity issuances. Lower underwriting
revenues were reported in most categories, including equities, high yield
securities, and corporate debt and preferred stock. Strategic services
revenues, which include merger and acquisition fees and advisory fees,
benefited from increased merger and acquisition advisory assignments in various
industries.
Asset management and portfolio service fees increased 1% from the 1994 first
quarter to $448 million principally as a result of increased fees earned from
certain mutual fund investor services, variable annuity products, and asset
management activities. Other revenues rose 1% from the 1994 first quarter to
$117 million, reflecting higher income from partnership investments partially
offset by net losses on certain other investments.
Non-interest expenses were $2,042 million, down 6% from the 1994 first
quarter. Compensation and benefits expense, which represented approximately 62%
of non-interest expenses, decreased 11% from the 1994 first quarter, due
primarily to lower levels of variable incentive compensation. Compensation and
benefits expense as a percentage of net revenues was 52.5% in the first quarter
of 1995, compared with 50.5% in the year-ago period.
S-11
Occupancy costs decreased 3% from the 1994 first quarter, benefiting from
continued relocation of support staff to lower cost facilities and reduced
space requirements at the headquarters facility. Other facilities-related
costs, which include communications and equipment rental expense and
depreciation and amortization expense, rose 11% primarily due to increased
usage of market information services, as well as higher depreciation expense
from the purchase of technology-related equipment over the past year.
Advertising and market development expenses decreased 12% from the 1994 first
quarter due to lower discretionary travel costs and reduced production-related
recognition costs. Professional fees increased 5% from the year-ago quarter,
due primarily to higher legal fees, partially offset by lower systems and
management consulting fees. Brokerage, clearing, and exchange fees decreased 3%
from the 1994 first quarter as a result of lower commodity exchange fees
related to reduced trading volume. Other expenses increased 9% from the 1994
first quarter due primarily to a $26 million charge for the write-off of an
asset related to a technology contract.
Income tax expense totaled $152 million in the 1995 first quarter. The
effective tax rate in the 1995 first quarter was 40.0%, compared with 43.0% in
the year-ago period. The decrease in the effective tax rate was attributable to
lower state income taxes and higher tax-exempt interest and dividend income.
BALANCE SHEET INFORMATION
Balance sheet information as of March 31, 1995 is not available as of the
date of this Prospectus Supplement. See the attached Prospectus for a
discussion of certain balance sheet information as of December 30, 1994.
DESCRIPTION OF THE WARRANTS
GENERAL
An aggregate of 1,500,000 Warrants will be issued. The Warrants will be
issued under a Warrant Agreement (the "Warrant Agreement"), to be dated as of
May , 1995, between the Company and Citibank, N.A., as Warrant Agent (the
"Warrant Agent"). The following statements with respect to the Warrants are
summaries of the detailed provisions of the Warrant Agreement, the form of
which is filed as an exhibit to the Registration Statement relating to the
Warrants. Wherever particular provisions of the Warrant Agreement or terms
defined therein are referred to, such provisions or definitions are
incorporated by reference as a part of the statements made, and the statements
are qualified in their entirety by such reference.
A Warrant will not require, or entitle, a beneficial owner to sell or
purchase Deutsche Marks or Japanese Yen to or from the Company. The Company
will make only a U.S. dollar cash settlement, if any, upon automatic exercise
of the Warrants.
The Warrants will expire on May 15, 1997 (the "Expiration Date") or on such
earlier date as described under "Exercise of Warrants" and "Automatic Exercise
Prior to the Expiration Date". The Warrants will be automatically exercised on
the Exercise Date, as set forth under "Exercise of Warrants", and are not
exercisable at the option of the Holder. The term "New York Business Day", as
used herein, means any day other than a Saturday or a Sunday or a day on which
commercial banks in The City of New York are required or authorized by law or
executive order to be closed.
The Warrants are unsecured contractual obligations of the Company and will
rank on a parity with the Company's other unsecured contractual obligations and
with the Company's unsecured and unsubordinated debt. However, since the
Company is a holding company, the right of the Company, and hence the right of
creditors of the Company (including beneficial owners of the Warrants), to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of the
Company itself as a creditor
S-12
of the subsidiary may be recognized. In addition, dividends, loans and advances
from certain subsidiaries, including Merrill Lynch, Pierce, Fenner & Smith
Incorporated, to the Company are restricted by net capital requirements under
the Securities Exchange Act of 1934, as amended, and under rules of certain
exchanges and other regulatory bodies.
EXERCISE OF WARRANTS
The Warrants are not exercisable at the option of the Holder. The Warrants
will be automatically exercised on the fifth New York Business Day immediately
preceding the Expiration Date or, if an Early Expiration Date (as defined
herein) occurs, the New York Business Day immediately preceding the Early
Expiration Date (the "Exercise Date").
The Warrant Agent will obtain the Cash Settlement Value on the Exercise Date
from the Calculation Agent and will pay the Cash Settlement Value of the
Warrants to the Securities Depository by check on the Expiration Date and, if
May 15, 1997 is not a New York Business Day, on the next succeeding New York
Business Day. If an Early Expiration Date occurs, as described below under
"Automatic Exercise Prior to the Expiration Date", the Warrant Agent will pay
the Cash Settlement Value of the Warrants to the Securities Depository by check
on the fifth New York Business Day following the Early Expiration Date. See
"Description of the Warrants--Book-Entry Procedures and Settlement".
CASH SETTLEMENT VALUE
The Cash Settlement Value of a Warrant will be determined on the Exercise
Date as the amount in U.S. dollars, if positive, which is the greater of:
(i) the amount computed by subtracting from U.S. $50 an amount equal to
U.S. $50 times a fraction, the numerator of which is DEM per U.S. $1.00,
and the denominator of which is the DEM Spot Rate on such Exercise Date.
The "DEM Spot Rate" on the Exercise Date will be determined by Merrill
Lynch International Bank, an affiliate of the Company, or successor thereto
(the "Calculation Agent") and will equal (a) the noon buying rate per U.S.
$1.00 in The City of New York on the Exercise Date for cable transfers in
Deutsche Marks as certified for customs purposes by the Federal Reserve
Bank of New York (the "DEM Noon Buying Rate") as reported on page 1FEE of
The Reuter Monitor Money Rates Service (or such page as may replace that
page), or (b) if the DEM Noon Buying Rate does not appear on such page by
1:00 p.m. on the Exercise Date, the DEM Noon Buying Rate on the Exercise
Date as otherwise announced by the Federal Reserve Bank of New York, or (c)
if the Federal Reserve Bank of New York has not quoted such rate by 1:30
p.m. on the Exercise Date, the offered spot rate of Deutsche Marks per U.S.
$1.00 on such date for a transaction amount approximately equivalent to
U.S. $50 times the aggregate number of Warrants issued, quoted at
approximately 1:30 p.m., New York City time, by a leading bank in the
foreign exchange markets as may be selected by the Calculation Agent; and
(ii) the amount computed by subtracting from U.S. $50 an amount equal to
U.S. $50 times a fraction, the numerator of which is JPY per U.S. $1.00,
and the denominator of which is the JPY Spot Rate on such Exercise Date.
The "JPY Spot Rate" on the Exercise Date will be determined by the
Calculation Agent and will equal (a) the noon buying rate per U.S. $1.00 in
The City of New York on the Exercise Date for cable transfers in Japanese
Yen as certified for customs purposes by the Federal Reserve Bank of New
York (the "JPY Noon Buying Rate") as reported on page 1FEE of The Reuter
Monitor Money Rates Service (or such page as may replace that page), or (b)
if the JPY Noon Buying Rate does not appear on such page by 1:00 p.m. on
the Exercise Date, the JPY Noon Buying Rate on the Exercise Date as
otherwise announced by the Federal Reserve Bank of New York, or (c) if the
Federal Reserve Bank of New York has not quoted such rate by 1:30 p.m. on
the Exercise Date, the offered spot rate of Japanese Yen per U.S. $1.00 on
such date for a transaction amount approximately equivalent to U.S. $50
times the aggregate number of Warrants issued, quoted at approximately 1:30
S-13
p.m., New York City time, by a leading bank in the foreign exchange markets
as may be selected by the Calculation Agent.
The Cash Settlement Value will be rounded, if necessary, to the nearest cent
(with one-half cent being rounded upwards).
BOOK-ENTRY PROCEDURES AND SETTLEMENT
Upon issuance, all Warrants will be represented by one registered global
Warrant (the "Global Warrant"). The Global Warrant will be deposited with, or
on behalf of, The Depository Trust Company, as Securities Depository, and
registered in the name of the Securities Depository or a nominee thereof.
Unless and until it is exchanged in whole or in part for Warrants in definitive
form in the limited circumstances described below, the Global Warrant may not
be transferred except as a whole by the Securities Depository to a nominee of
such Securities Depository or by a nominee of such Securities Depository to
such Securities Depository or another nominee of such Securities Depository or
by such Securities Depository or any such nominee to a successor of such
Securities Depository or a nominee of such successor.
The Securities Depository has advised the Company as follows: The Securities
Depository is a limited-purpose trust company organized under the Banking Law
of the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provision of Section 17A of the
Securities Exchange Act of 1934, as amended. The Securities Depository was
created to hold securities of its participants and to facilitate the clearance
and settlement of securities transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. The Securities Depository's participants include securities
brokers and dealers (including the Underwriter), banks, trust companies,
clearing corporations, and certain other organizations, some of whom (and/or
their representatives) own the Securities Depository. Access to the Securities
Depository book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. Persons who are
not participants may beneficially own securities held by the Securities
Depository only through participants.
Ownership of beneficial interests in the Warrants will be limited to entities
which have accounts with the Securities Depository ("Agent Members") or persons
that may hold interests through Agent Members. The Securities Depository has
advised the Company that upon the issuance of the Global Warrant representing
the Warrants, the Securities Depository will credit, on its book-entry
registration and transfer system, the Agent Members' accounts with the
respective aggregate amounts of the Warrants represented by the Global Warrant.
Ownership of beneficial interests in the Global Warrant will be shown on, and
the transfer of such ownership interests will be effected only through, records
maintained by the Securities Depository (with respect to interests of Agent
Members) and on the records of Agent Members (with respect to interests of
persons held through Agent Members). The laws of some states may require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to own,
transfer or pledge beneficial interests in the Global Warrant.
So long as the Securities Depository, or its nominee, is the registered owner
of the Global Warrant, the Securities Depository or its nominee, as the case
may be, will be considered the sole owner or Holder of the Warrants represented
by the Global Warrant for all purposes under the Warrant Agreement. Except as
provided below, owners of beneficial interests in the Global Warrant will not
be entitled to have the Warrants represented by the Global Warrant registered
in their names, will not receive or be entitled to receive physical delivery of
the Warrants in definitive form and will not be considered the owners or
Holders thereof under the Warrant Agreement. Accordingly, each person owning a
beneficial interest in the Global Warrant must rely on the procedures of the
Securities Depository and, if such person is not an Agent Member, on the
procedures of the Agent Member through which such person owns its interest, to
exercise any rights of a
S-14
Holder under the Warrant Agreement. The Company understands that under existing
industry practices, in the event that the Company requests any action of
Holders or that an owner of a beneficial interest in such a Global Warrant
desires to give or take any action which a Holder is entitled to give or take
under the Warrant Agreement, the Securities Depository would authorize the
Agent Members holding the relevant beneficial interests to give or take such
action, and such Agent Members would authorize beneficial owners owning through
such Agent Members to give or take such action or would otherwise act upon the
instructions of beneficial owners through them.
The Cash Settlement Value resulting from the exercise of Warrants registered
in the name of the Securities Depository or its nominee will be paid by the
Warrant Agent to the Securities Depository. None of the Company, the Warrant
Agent or any other agent of the Company or agent of the Warrant Agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests or for supervising
or reviewing any records relating to such beneficial ownership interests. The
Company expects that the Securities Depository, upon receipt of payment of the
Cash Settlement Value in respect of the Global Warrant, will credit the
accounts of the Agent Members with payment in amounts proportionate to their
respective beneficial interests in the Global Warrant, as shown on the records
of the Securities Depository. The Company also expects that payments by Agent
Members to owners of beneficial interests in the Global Warrant will be
governed by standing customer instructions and customary practices, as is now
the case with securities held for the accounts of customers in bearer form or
registered in "street name", and will be the responsibility of such Agent
Members. It is suggested that purchasers of Warrants with accounts at more than
one brokerage firm effect transactions in the Warrants, only through the
brokerage firm or firms which hold that purchaser's Warrants.
If the Securities Depository is at any time unwilling or unable to continue
as depository and a successor Securities Depository is not appointed by the
Company within 90 days or if the Company is subject to certain events in
bankruptcy, insolvency or reorganization, the Company will issue Warrants in
definitive form in exchange for the Global Warrant. In addition, the Company
may at any time determine not to have the Warrants represented by the Global
Warrant and, in such event, will issue Warrants in definitive form in exchange
for the Global Warrant. In any such instance, an owner of a beneficial interest
in the Global Warrant will be entitled to have a number of Warrants equivalent
to such beneficial interest registered in its name and will be entitled to
physical delivery of such Warrants in definitive form.
LISTING OF THE WARRANTS
Prior to issuance, the Warrants will have been approved for listing by the
American Stock Exchange, subject to official notice of issuance. The American
Stock Exchange will expect to cease trading the Warrants on such Exchange as of
the close of business on the Expiration Date.
AUTOMATIC EXERCISE PRIOR TO THE EXPIRATION DATE
In the event that the Warrants are delisted from, or permanently suspended
from trading on, the American Stock Exchange and the Warrants are not
simultaneously accepted for trading pursuant to the rules of another national
securities exchange, the Warrants will expire on the date such delisting or
trading suspension becomes effective (an "Early Expiration Date") and the
Warrants will be automatically exercised on the New York Business Day
immediately preceding such Early Expiration Date, and the Cash Settlement
Value, if any (determined as provided under "Exercise of Warrants"), of such
automatically exercised Warrants will be paid on the fifth New York Business
Day following such Early Expiration Date. Settlement shall otherwise occur as
described under "Book-Entry Procedures and Settlement". The Company will notify
Holders as soon as practicable of such delisting or trading suspension. The
Company has agreed in the Warrant Agreement that it will not seek delisting of
the Warrants or suspension of their trading on the American Stock Exchange.
S-15
The Warrants may also expire on the date of occurrence of certain events in
bankruptcy, insolvency or reorganization involving the Company (any such date
also being an "Early Expiration Date") and the Warrants will be automatically
exercised as of the New York Business Day immediately preceding such Early
Expiration Date. The Cash Settlement Value, if any (determined as provided
under "Cash Settlement Value"), of such automatically exercised Warrants will
be due and payable on the fifth New York Business Day following such Early
Expiration Date. Settlement will otherwise occur as described under "Book-Entry
Procedures and Settlement".
MODIFICATION
The Warrant Agreement and the terms of the Warrants may be amended by the
Company and the Warrant Agent, without the consent of the beneficial owners of
any Warrants, for the purpose of curing any ambiguity, or of curing, correcting
or supplementing any defective or inconsistent provision contained therein, or
in any other manner which the Company may deem necessary or desirable and which
will not materially and adversely affect the interests of the beneficial owners
of the Warrants.
The Company and the Warrant Agent also may modify or amend the Warrant
Agreement and the terms of the Warrants, with the consent of the beneficial
owners of not less than a majority in number of the then outstanding Warrants
affected, provided that no such modification or amendment that changes the DEM
Spot Rate or the JPY Spot Rate so as to adversely affect the beneficial owner,
changes the Expiration Date or otherwise materially and adversely affects the
exercise rights of the beneficial owners of the Warrants or reduces the
percentage of the number of outstanding Warrants, the consent of whose
beneficial owners is required for modification or amendment of a Warrant
Agreement or the terms of Warrants may be made without the consent of the
beneficial owners of Warrants affected thereby.
MERGER AND CONSOLIDATION
The Company may consolidate or merge with or into any other corporation, and
the Company may sell, lease or convey all or substantially all of its assets to
any corporation, provided that the corporation (if other than the Company)
formed by or resulting from any such consolidation or merger or which shall
have received such assets shall be a corporation organized and existing under
the laws of the United States of America or a state thereof and shall assume
payment of the Cash Settlement Value with respect to all unexercised Warrants,
according to their tenor, and the due and punctual performance and observance
of all of the covenants and conditions of the Warrant Agreement and of the
Global Warrant to be performed by the Company.
S-16
EXCHANGE RATES AND CASH SETTLEMENT VALUES
The following table sets forth the monthly averages of the noon buying rates
in New York per U.S. dollar for the Deutsche Mark and the Japanese Yen for the
period from January 1990 through March 1995, and the average of the noon buying
rates in New York per U.S. dollar for the Deutsche Mark and the Japanese Yen
for the period from April 3, 1995 through April 20, 1995. The historical
experience of Deutsche Mark/U.S. dollar and Japanese Yen/U.S. dollar exchange
rates should not be taken as indications of future performance and no assurance
can be given that the values of the Deutsche Mark and the Japanese Yen will not
increase relative to the U.S. dollar and thereby cause the Cash Settlement
Value with respect to the Warrants to equal zero.
DEM/U.S. $1 JPY/U.S. $1
----------- -----------
1990: January........................................ 1.6914 144.98
February....................................... 1.6758 145.69
March.......................................... 1.7053 153.31
April.......................................... 1.6863 158.46
May............................................ 1.6630 154.04
June........................................... 1.6832 153.70
July........................................... 1.6375 149.04
August......................................... 1.5702 147.46
September...................................... 1.5701 138.44
October........................................ 1.5238 129.59
November....................................... 1.4857 129.22
December....................................... 1.4982 133.89
1991: January........................................ 1.5091 133.70
February....................................... 1.4805 130.54
March.......................................... 1.6122 137.39
April.......................................... 1.7027 137.11
May............................................ 1.7199 138.22
June........................................... 1.7828 139.75
July........................................... 1.7852 137.83
August......................................... 1.7435 136.82
September...................................... 1.6933 134.30
October........................................ 1.6893 130.77
November....................................... 1.6208 129.63
December....................................... 1.5630 128.04
1992: January........................................ 1.5788 125.46
February....................................... 1.6186 127.70
March.......................................... 1.6616 132.85
April.......................................... 1.6493 133.54
May............................................ 1.6225 130.77
June........................................... 1.5726 126.84
July........................................... 1.4914 125.88
August......................................... 1.4475 126.23
September...................................... 1.4514 122.60
October........................................ 1.4851 121.17
November....................................... 1.5875 123.88
December....................................... 1.5822 124.04
1993: January........................................ 1.6144 124.99
February....................................... 1.6414 120.76
March.......................................... 1.6466 117.02
April.......................................... 1.5964 112.41
S-17
DEM/U.S. $1 JPY/U.S. $1
----------- -----------
May............................................. 1.6071 110.34
June............................................ 1.6547 107.41
July............................................ 1.7157 107.69
August.......................................... 1.6944 103.77
September....................................... 1.6219 105.57
October......................................... 1.6405 107.02
November........................................ 1.7005 107.88
December........................................ 1.7105 109.91
1994: January......................................... 1.7426 111.44
February........................................ 1.7355 106.30
March........................................... 1.6909 105.10
April........................................... 1.6984 103.48
May............................................. 1.6565 103.75
June............................................ 1.6271 102.53
July............................................ 1.5674 98.44
August.......................................... 1.5646 99.94
September....................................... 1.5491 98.77
October......................................... 1.5195 98.35
November........................................ 1.5396 98.04
December........................................ 1.5716 100.18
1995: January......................................... 1.5302 99.77
February........................................ 1.5022 98.24
March........................................... 1.4061 90.52
April (April 3 through April 20)................ 1.3834 83.86
- --------
Source: January 1990 through March 1995: Federal Reserve Board Statistical
Release G.5(405). April 3, 1995 through April 20, 1995: calculated by
the Company using daily exchange rates as quoted in Federal Reserve
Board Statistical Release H.10(512).
S-18
The following graph sets forth the monthly averages of the noon buying rates
in New York per U.S. dollar for the Deutsche Mark and the Japanese Yen since
January 1990. The historical experience of Deutsche Mark/U.S. dollar and
Japanese Yen/U.S. dollar exchange rates should not be taken as indications of
future performance and no assurance can be given that the values of the
Deutsche Mark and the Japanese Yen will not increase relative to the U.S.
dollar and thereby cause the Cash Settlement Value with respect to the Warrants
to equal zero.
DEM/U.S. $1 AND JPY/U.S. $1 EXCHANGE RATES--HISTORICAL PERFORMANCE
MONTHLY AVERAGES
[The graph sets forth the monthly averages of the noon buying rates in
New York per U.S. dollar for the Deutsche Mark and the Japanese Yen
for the period from January 1990 through March 1995, with the left
vertical axis specifying the buying rate for the Deutsche Mark in a
range from 1.2500 to 2.0000 in increments of .2500 and the right
vertical axis specifying the buying rate for the Japanese Yen in a
range from 75 to 175 in increments of 25, and the horizontal axis
specifying the time period, in increments of four months, from January
1990 to January 1995, and in a two month increment from January 1995
to March 1995.]
On April 21, 1995 the Noon Buying Rates of Deutsche Marks and Japanese Yen
quoted by the Federal Reserve Bank of New York were U.S. $1 = DEM 1.3750 and
JPY 82.92, respectively.
The information presented in this Prospectus Supplement relating to the
exchange rates of the Deutsche Mark and the Japanese Yen as compared to the
U.S. dollar is furnished as a matter of information only. The fluctuations in
the Deutsche Mark/U.S. dollar and the Japanese Yen/U.S. dollar exchange rates
that have occurred in the past are not necessarily indicative of fluctuations
in that rate which may occur over the term of the Warrants.
As discussed under "Description of the Warrants", the spot exchange rate of
the Deutsche Mark or the Japanese Yen in terms of the U.S. dollar on the
Exercise Date will determine the Cash Settlement Value of a Warrant.
Depreciation of the Deutsche Mark or the Japanese Yen in terms of the U.S.
dollar (i.e., appreciation of the U.S. dollar in terms of the Deutsche Mark or
the Japanese Yen) will result in a greater Cash Settlement Value. Conversely,
appreciation of the Deutsche Mark and the Japanese Yen in terms of the U.S.
dollar (i.e., depreciation of the U.S. dollar in terms of the Deutsche Mark and
the Japanese Yen) will result in a lesser or zero Cash Settlement Value of a
Warrant.
Set forth below is an illustration of the Cash Settlement Values of Warrants
at exercise based on a hypothetical DEM Strike Price equal to DEM 1.40 per U.S.
$1 and a hypothetical JPY Strike Price equal to JPY 85 per U.S. $1 and various
hypothetical DEM Spot Rates and JPY Spot Rates. THE ACTUAL CASH
S-19
SETTLEMENT VALUE OF A WARRANT WILL DEPEND ENTIRELY ON THE ACTUAL DEM STRIKE
PRICE AND THE ACTUAL JPY STRIKE PRICE (WHICH WILL BE DETERMINED ON THE DATE THE
WARRANTS ARE PRICED BY THE COMPANY FOR INITIAL OFFERING TO THE PUBLIC), AS WELL
AS ON THE ACTUAL DEM SPOT RATE AND THE ACTUAL JPY SPOT RATE ON THE EXERCISE
DATE. The illustrative Cash Settlement Values in the table do not reflect any
"time value" for a Warrant, which may be reflected in trading value, and are
not necessarily indicative of potential profit or loss, which are also affected
by purchase price and transaction costs.
DEM RATES JPY RATES
HYPOTHETICAL CASH SETTLEMENT HYPOTHETICAL CASH SETTLEMENT CASH SETTLEMENT
DEM SPOT RATES VALUE BASE UPON JPY SPOT RATE VALUE BASED UPON VALUES OF
(DEM/U.S. $1) DEM SPOT RATES (JPY/U.S. $1) JPY SPOT RATES A WARRANT
- -------------- --------------- ------------- ---------------- ---------------
1.60................. $6.25.................. 95................. $5.26................ $6.25
1.50................. 3.33.................. 90................. 2.78................ 3.33
1.42................. 0.70.................. 87................. 1.15................ 1.15
1.40(/1/) or below... 0.00.................. 85(/1/) or below... 0.00................ 0.00
- --------
(/1/) Hypothetical Strike Prices
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
CONCERNING THE WARRANTS
The following is a summary of the principal United States Federal income tax
consequences of the purchase, ownership and disposition of a Warrant. The
following discussion of certain United States Federal income tax consequences
to beneficial owners of the Warrants applies only to a person who holds a
Warrant as a capital asset and does not purport to address the United States
Federal income tax consequences to special classes of investors including
persons who are securities or options dealers, persons who do not hold the
Warrants as capital assets or persons who may hold the Warrants as part of an
integrated transaction (e.g., as part of a hedge or straddle for tax purposes).
Prospective purchasers of Warrants are urged to consult their own tax advisors
as to 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 Warrants arising under the laws of any other taxing
jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Warrant
that is for United States Federal income tax purposes (i) a citizen or resident
of the United States, (ii) a corporation, partnership or other entity created
or organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate or trust the income of which is subject to
United States Federal income taxation regardless of its source or (iv) any
other person whose income or gain in respect of a Warrant is effectively
connected with the conduct of a United States trade or business. As used
herein, the term "non-U.S. Holder" means a beneficial owner of a Warrant that
is not a U.S. Holder.
In the opinion of Brown & Wood, counsel to the Company, although there is no
authority directly dealing with instruments such as the Warrants, a Warrant
should be treated as a nonequity option for purposes of Section 1256 of the
Internal Revenue Code of 1986, as amended (the "Code"), which must be "marked-
to-market". Accordingly, a U.S. Holder of a Warrant will be required to treat
such Warrant as if sold for its fair market value on the last business day of
the U.S. Holder's taxable year and will be required to recognize taxable gain
or loss for that taxable year in an amount equal to the difference between the
fair market value of the Warrant on the last business day of such taxable year
and the U.S. Holder's adjusted tax basis in the Warrant. A U.S. Holder's
adjusted tax basis in a Warrant will equal such U.S. Holder's initial
investment in the Warrant, increased or decreased by any net gain or loss
recognized by the U.S. Holder in respect of the Warrant in prior taxable years.
Any gain or loss recognized by a U.S. Holder of a Warrant in accordance with
the preceding rules will generally be treated as 60 percent long-term capital
gain or loss and 40 percent short-term capital gain or loss.
S-20
Upon the sale, exchange, exercise or expiration of a Warrant, a U.S. Holder
will be required to recognize taxable gain or loss in an amount equal to the
difference between the amount realized upon such sale, exchange, exercise or
expiration and the U.S. Holder's adjusted tax basis in the Warrant. Such gain
or loss would generally be treated as 60 percent long-term capital gain or loss
and 40 percent short-term capital gain or loss.
Despite the foregoing, assuming that the U.S. Holder's functional currency
(as defined in Section 985 of the Code) is the U.S. dollar, any gain or loss
recognized by a U.S. Holder in respect of a Warrant (as described above) will
be treated entirely as ordinary income or loss if the U.S. Holder elects, or
has previously elected, under Section 988 of the Code, to treat its acquisition
of the Warrant as a "Section 988 Transaction" giving rise to foreign currency
gain or loss. This election would extend to certain other contracts which are
subject to Section 1256 of the Code and which are required to be marked-to-
market, including certain regulated futures contracts and nonequity options,
entered into by the U.S. Holder in the current or subsequent taxable years, and
would be irrevocable without the consent of the Internal Revenue Service
("IRS"). A U.S. Holder of Warrants should consult its own tax advisor
concerning the consequences and mechanics of making this election prior to
making such election.
NON-U.S. HOLDERS
Gains realized on the sale, exchange or exercise of a Warrant by a non-U.S.
Holder will not be subject to United States Federal income or withholding tax
in respect of such amounts, assuming the income is not effectively connected
with a United States trade or business of the non-U.S. Holder. Certain other
exceptions may be applicable, and a non-U.S. Holder should consult its own tax
advisor in this regard.
Under current law, the fair market value of a Warrant may be includible in
the estate of an individual non-U.S. Holder for United States Federal estate
tax purposes, unless an applicable estate tax treaty provides otherwise.
Individual non-U.S. Holders should consult their own tax advisors concerning
the United States Federal estate tax consequences, if any, of investing in the
Warrants.
BACKUP WITHHOLDING
A beneficial owner of a Warrant may be subject to backup withholding at the
rate of 31 percent with respect to the gross proceeds upon a sale or exercise
of a Warrant if such beneficial owner fails to supply an accurate taxpayer
identification number and does not establish, when required, that it is an
exempt recipient or a non-U.S. Holder. Any amount withheld under the backup
withholding rules would be allowed as a refund or a credit against the
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
USE OF PROCEEDS
A substantial portion of the proceeds from the sale of the Warrants may be
used to hedge market risks with respect to the payment at expiration of the
Warrants. The Company does not intend to confine its hedging activities to any
particular domestic or foreign exchanges.
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") has
agreed, subject to the terms and conditions of the Underwriting Agreement and a
Terms Agreement, to purchase from the Company all of the Warrants offered
hereby. The Underwriting Agreement and Terms Agreement provide that the
Underwriter will purchase all the Warrants if any are purchased.
The Underwriter has advised the Company that it proposes initially to offer
all or part of the Warrants directly to the public at the offering prices set
forth on the cover page of this Prospectus Supplement and to certain dealers at
such price less a concession not in excess of % of the underwriting discount
applicable to transactions to purchase less than 250,000 Warrants. After the
initial public offering, the public offering prices and concession may be
changed.
S-21
An affiliate of the Underwriter will receive a fee from the Company for
assisting the Company in arranging hedging of the Company's currency risks with
respect to the Warrants.
The underwriting of the Warrants will conform to the requirements set forth
in the applicable sections of Schedule E to the By-Laws of the National
Association of Securities Dealers, Inc.
VALIDITY OF THE WARRANTS
The validity of the Warrants will be passed upon for the Company and for the
Underwriter by Brown & Wood, New York, New York.
S-22
PROSPECTUS
LOGO
MERRILL LYNCH & CO., INC.
DEBT SECURITIES AND WARRANTS
Merrill Lynch & Co., Inc. (the "Company") intends to sell from time to time
up to $2,985,953,046 aggregate principal amount (or net proceeds in the case of
warrants and in the case of securities issued at an original issue discount),
or its equivalent in such foreign currencies or units of two or more
currencies, based on the applicable exchange rate at the time of offering, as
shall be designated by the Company at the time of offering, of its senior debt
securities ("Senior Debt Securities"), subordinated debt securities
("Subordinated Debt Securities" and, together with the Senior Debt Securities,
the "Debt Securities"), warrants to purchase Debt Securities ("Debt Warrants"),
warrants entitling the holders thereof to receive from the Company a payment or
delivery determined by reference to decreases or increases in the level of an
index or portfolio based on one or more equity or debt securities (including
the price or yield of such securities), any statistical measure of economic or
financial performance (including any consumer price, currency or mortgage
index) or the price or value of any commodity or a combination thereof (the
"Index Warrants") and warrants to receive from the Company the cash value in
U.S. dollars of the right to purchase ("Currency Call Warrants") or to sell
("Currency Put Warrants" and, together with the Currency Call Warrants, the
"Currency Warrants") such foreign currencies or units of two or more currencies
as shall be designated by the Company at the time of offering. The Debt
Securities, Debt Warrants, Index Warrants and Currency Warrants, which are
collectively called the "Securities", may be offered either jointly or
separately and will be offered to the public on terms determined by market
conditions at the time of sale and set forth in a prospectus supplement.
The Securities will be unsecured and, except in the case of Subordinated Debt
Securities, will rank equally with all other unsecured and unsubordinated
indebtedness of the Company. The Subordinated Debt Securities will be
subordinated to all existing and future Senior Indebtedness of the Company.
Each issue of Securities may vary, where applicable, as to aggregate
principal amount, maturity date, public offering or purchase price, interest
rate or rates, if any, and timing of payments thereof, provision for
redemption, sinking fund requirements, if any, exercise provisions, currencies
of denomination or currencies otherwise applicable thereto and any other
variable terms and method of distribution. The accompanying Prospectus
Supplement (the "Prospectus Supplement") sets forth the specific terms with
regard to the Securities in respect of which this Prospectus is being
delivered.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The Securities may be sold directly or through Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") as agent or may be
offered and reoffered through, or through underwriting syndicates managed or
co-managed by, one or more of the following: MLPF&S; Bear, Stearns & Co. Inc.;
Donaldson, Lufkin & Jenrette Securities Corporation; The First Boston
Corporation; Goldman, Sachs & Co.; Lehman Brothers Inc.; Morgan Stanley & Co.
Incorporated; Nomura Securities International, Inc.; PaineWebber Incorporated;
and Salomon Brothers Inc, or directly to purchasers by the Company. The Company
has entered into agreements with such firms with respect to the Securities
providing for agency sales of the Securities through MLPF&S or the purchase and
offering from time to time by one or more of such firms, either alone or with
the several members of any syndicate formed by them. Additional agreements
respecting the distribution of the Securities may be entered into from time to
time by the Company. Securities may not be sold without delivery of a
Prospectus Supplement describing such issue of Securities and the method and
terms of offering thereof.
----------------
The date of this Prospectus is April 21, 1995.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Reports, proxy and information statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and New York Regional Office, Seven World Trade
Center, New York, New York 10048. Copies of such material can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Reports, proxy and information
statements and other information concerning the Company may also be inspected
at the offices of the New York Stock Exchange, the American Stock Exchange, the
Chicago Stock Exchange and the Pacific Stock Exchange.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 30, 1994
and Current Reports on Form 8-K dated January 12, 1995, January 23, 1995,
February 8, 1995, February 9, 1995, March 3, 1995, March 9, 1995 and April 18,
1995 filed pursuant to Section 13 of the Exchange Act, are hereby incorporated
by reference into this Prospectus.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering of the Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY
(WITHOUT EXHIBITS OTHER THAN EXHIBITS SPECIFICALLY INCORPORATED BY REFERENCE)
OF ANY OR ALL DOCUMENTS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS.
REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO MR. GREGORY T. RUSSO, SECRETARY,
MERRILL LYNCH & CO., INC., 100 CHURCH STREET, 12TH FLOOR, NEW YORK, NEW YORK
10080-6512; TELEPHONE NUMBER (212) 602-8435.
2
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, insurance, and related services
on a global basis. Its principal subsidiary, Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("MLPF&S"), one of the largest securities firms in the
world, is a leading broker in securities, options contracts, and commodity and
financial futures contracts; a leading dealer in options and in corporate and
municipal securities; a leading investment banking firm that provides advice
to, and raises capital for, its clients; and an underwriter of selected
insurance products. Other subsidiaries provide financial services on a global
basis similar to those of MLPF&S and are engaged in such other activities as
international banking, lending, and providing other investment and financing
services. Merrill Lynch International Incorporated, through subsidiaries and
affiliates, provides investment, financing, and related services outside the
United States and Canada. Merrill Lynch Government Securities Inc. is a primary
dealer in obligations issued or guaranteed by the U.S. Government and by
Federal agencies or instrumentalities. Merrill Lynch Capital Services, Inc.,
Merrill Lynch Derivative Products, Inc., and Merrill Lynch Capital Markets PLC
are the Company's primary derivative product dealers and enter into interest
rate and currency swaps and other derivative transactions as intermediaries and
as principals. Merrill Lynch Asset Management L.P., with its related
affiliates, is one of the largest mutual fund managers in the world and
provides investment advisory services. The Company's insurance underwriting
operations consist of the underwriting of life insurance and annuity products.
Banking, trust, and mortgage lending operations conducted through subsidiaries
of the Company include issuing certificates of deposit, offering money market
deposit accounts, making secured loans, and providing foreign exchange
facilities and other related services.
The principal executive office of the Company is located at World Financial
Center, North Tower, 250 Vesey Street, New York, New York 10281; its telephone
number is (212) 449-1000.
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the Securities
for general corporate purposes. Such uses may include the funding of
investments in, or extensions of credit to, its subsidiaries, the funding of
assets held by the Company or its subsidiaries, including securities
inventories, customer receivables and loans (including business loans, home
equity loans and loans in connection with investment banking-related merger and
acquisition activities) and the lengthening of the average maturity of the
Company's borrowings (including the refunding of maturing indebtedness). The
precise amount and timing of investments in, and extensions of credit to, its
subsidiaries will depend upon their funding requirements and the availability
of other funds to the Company and its subsidiaries. Pending such applications,
the net proceeds will be temporarily invested or applied to the reduction of
short-term indebtedness. A substantial portion of the proceeds from the sale of
any Currency Warrants or Index Warrants may be used to hedge market risks with
respect to such Warrants. Management of the Company expects that it will, on a
recurrent basis, engage in additional financings as the need arises to finance
the growth of the Company or to lengthen the average maturity of its
borrowings. To the extent that Securities being purchased for resale by MLPF&S
are not resold, the aggregate proceeds to the Company and its subsidiaries
would be reduced.
3
SUMMARY FINANCIAL INFORMATION
The following summary of consolidated financial information was derived
from, and is qualified in its entirety by reference to, the financial
statements and other information and data contained in the Company's Annual
Report on Form 10-K for the year ended December 30, 1994. See "Incorporation
of Certain Documents by Reference." The year-end results include 52 weeks for
1990, 1991, 1992, and 1994 and 53 weeks for 1993.
The Company conducts its business in highly volatile markets. Consequently,
the Company's results can be affected by many factors, including general
market conditions, the liquidity of secondary markets, the level and
volatility of interest rates and currency values, the valuation of securities
positions, competitive conditions, and the size, number, and timing of
transactions. In periods of unfavorable market activity, profitability can be
adversely affected because certain expenses remain relatively fixed. As a
result, net earnings and revenues can vary significantly from period to
period.
YEAR ENDED LAST FRIDAY IN DECEMBER
----------------------------------------------------------------
1990 1991 1992 1993 1994
----------- ----------- ------------ ------------ ------------
(IN THOUSANDS, EXCEPT RATIOS)
Revenues................ $11,147,229 $12,352,812 $ 13,412,668 $ 16,588,177 $ 18,233,091
Net revenues............ $ 5,783,329 $ 7,246,468 $ 8,577,401 $ 10,558,230 $ 9,624,521
Earnings before income
taxes and cumulative
effect of changes in
accounting
principles(1).......... $ 282,328 $ 1,017,418 $ 1,621,389 $ 2,424,808 $ 1,729,604
Cumulative effect of
changes in accounting
principles (net of
applicable income
taxes)(1).............. -- -- $ (58,580) $ (35,420) --
Net earnings(1)......... $ 191,856 $ 696,117 $ 893,825 $ 1,358,939 $ 1,016,761
Ratio of earnings to
fixed charges(2)....... 1.1 1.2 1.3 1.4 1.2
Total assets(3)......... $68,129,527 $86,259,343 $107,024,173 $152,910,362 $163,749,327
Long-term borrowings(4). $ 6,341,559 $ 7,964,424 $ 10,871,100 $ 13,468,900 $ 14,863,383
Stockholders' equity.... $ 3,225,430 $ 3,818,088 $ 4,569,104 $ 5,485,913 $ 5,817,545
- --------
(1) Net earnings for 1992 were reduced by $58,580,000 to reflect the adoption
of Statement of Financial Accounting Standards ("SFAS") No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," and
SFAS No. 109, "Accounting for Income Taxes." Net earnings for 1993 were
reduced by $35,420,000 to reflect the adoption of SFAS No. 112, "Employers'
Accounting for Postemployment Benefits."
(2) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consists of earnings from continuing operations before income
taxes and fixed charges. "Fixed charges" consists of interest costs and
that portion of rentals estimated to be representative of the interest
factor.
(3) During 1994, the Company adopted Financial Accounting Standards Board
("FASB") Interpretation No. 39, "Offsetting of Amounts Related to Certain
Contracts," and FASB Interpretation No. 41, "Offsetting of Amounts Related
to Certain Repurchase and Reverse Repurchase Agreements," which increased
assets and liabilities at December 30, 1994 by approximately
$8,500,000,000.
(4) To finance its diverse activities, the Company and certain of its
subsidiaries borrow substantial amounts of short-term funds on a regular
basis. Although the amount of short-term borrowings significantly varies
with the level of general business activity, on December 30, 1994,
$557,776,000 of bank loans and $14,758,830,000 of commercial paper were
outstanding. In addition, certain of the Company's subsidiaries lend
securities and enter into repurchase agreements to obtain financing. At
December 30, 1994, cash deposits for securities loaned and securities sold
under agreements to repurchase amounted to $2,180,186,000 and
$51,864,594,000, respectively.
4
FISCAL YEAR 1994
Financial markets, strong from 1991 through the first six weeks of 1994,
changed significantly after inflationary fears prompted the Federal Reserve to
increase short-term interest rates in February 1994. As the U.S. economy
continued to expand, the Federal Reserve acted to further curb inflation and to
moderate growth by increasing short-term interest rates five additional times
during the year. The combination of rising interest rates, a falling U.S.
dollar, unsettled global stock, bond, and currency markets, reduced foreign
investment in U.S. financial markets, and overall investor caution contributed
to lower earnings for most U.S. securities firms. These conditions affected the
Company's 1994 fourth quarter and full year results. Net earnings for the 1994
fourth quarter were $161.6 million, down 30% from the 1994 third quarter and
down 53% from the 1993 fourth quarter.
Net earnings for 1994 were $1,016.8 million, down 25% from record 1993
earnings of $1,358.9 million. Net earnings for 1993 included a $35.4 million
cumulative effect charge (net of $25.1 million of applicable income tax
benefits) related to the adoption of Statement of Financial Accounting
Standards No. 112, Employers' Accounting for Postemployment Benefits. Earnings
for 1993 before the cumulative effect of the change in accounting principle
were $1,394.4 million. Earnings per common share in 1994 were $4.75 primary and
$4.74 fully diluted, compared with $5.98 primary and $5.95 fully diluted ($6.14
primary and $6.11 fully diluted before the accounting change) in 1993. As
previously reported, 1993 results included a non-recurring pretax lease charge
totaling $103.0 million ($59.7 million after income taxes) related to the
Company's decision not to occupy certain space at the World Financial Center
Headquarters ("Headquarters") facility. This space was sublet in 1994.
Total revenues were $18,233 million, up 10% from 1993. Net revenues (revenues
after interest expense) totaled $9,625 million in 1994, down 9% from 1993.
Commission revenues were $2,871 million, virtually unchanged from $2,894
million in 1993. Higher commission revenues from mutual funds and commodity
transactions were offset by lower revenues from money market instruments,
particularly medium-term notes, and listed securities transactions. Sales of
mutual funds, particularly front-end funds, declined as investors were less
active due to uncertain markets and rising interest rates. For the first time
since 1974, both stock and bond funds fell in value industrywide, on average,
in the same year. Distribution fees from deferred charge funds benefited from
strong mutual fund sales in prior periods, while redemption fees increased as
investors repositioned their portfolios primarily from fixed-income funds to
stock and money market funds. Commissions on listed securities transactions
decreased due to a decline in the relative amount of business by retail clients
versus institutional clients. Other commission revenues declined principally as
a result of lower commissions from money market instruments, partially offset
by higher revenues from commodity transactions.
Interest and dividend revenues increased 35% to $9,578 million from $7,099
million in 1993. Interest expense, which includes dividend expense, rose 43% to
$8,609 million from $6,030 million in 1993. Net interest and dividend profit
decreased 9% to $969 million as a significant increase in short-term interest
rates, year over year, led to a substantial flattening of the yield curve. The
change in the yield curve, the relationship between interest rates and
maturities, resulted from short-term interest rates rising faster than long-
term interest rates in 1994. As a result, interest spreads declined, while
financing and hedging costs increased from 1993.
Principal transactions revenues fell 20% to $2,335 million from the 1993
record $2,920 million due to rising interest rates, a declining U.S. dollar,
and volatile world financial markets. Revenues from taxable fixed-income
securities, equities and equity derivatives, and foreign exchange and
commodities decreased, while interest rate and currency swaps, and municipal
securities revenues increased. Taxable fixed-income revenues declined 52% to
$462 million as higher interest rates, wider credit spreads, and uncertainty in
emerging markets led to reduced demand and lower inventory values. Equities and
equity derivatives trading revenues decreased 28% to $627 million, reflecting
lower trading results in virtually all categories, including a loss in
5
convertible securities. Foreign exchange and commodities revenues, in the
aggregate, declined 31% to $109 million. Weakness in the U.S. dollar versus
other major currencies depressed foreign exchange trading, while commodities
trading revenues benefited from increased volume. Interest rate and currency
swaps revenues advanced 24% to $749 million reflecting higher revenues from
U.S. dollar-denominated swap trading activities, particularly those related to
structured financing transactions. Municipal securities trading revenues
increased 20% to $388 million due to strong retail investor demand for tax-
exempt investments.
Investment banking revenues were $1,239 million, down 32% from $1,831 million
in 1993 due primarily to the effects of rising interest rates and reduced
demand. Underwriting revenues declined in almost all categories, with
significant decreases in equities, corporate bonds and preferred stock, and
convertible securities. Strategic services revenues, which include fees for
debt restructuring, merger and acquisition activity, and other advisory
services, benefited from increased merger and acquisition advisory assignments
in various industries.
Asset management and portfolio services fees rose 12% from $1,558 million in
1993 to a record $1,739 million. Asset management fees advanced due primarily
to an increase in stock funds under management. Portfolio service fees advanced
due to the continued growth in the number of Asset Power (R) accounts, a
product with fees and transaction limits based on asset levels, and increased
revenues from the ML Consults (R) product.
Other revenues were $471 million, up 65% from $285 million in 1993. The
increase in other revenues was attributable to net realized investment gains
related to merchant banking activities of $81 million, compared with unrealized
losses of $133 million in 1993.
Non-interest expenses were $7,895 million, down 3% from $8,133 million in the
year-ago period. Excluding the 1993 non-recurring lease charge totaling $103.0
million, non-interest expenses declined 2%.
Compensation and benefits expense, which represented approximately 63% of
total non-interest expenses, declined 6% due principally to lower incentive and
production-related compensation. Compensation and benefits expense, as a
percentage of net revenues, was 51.5% in 1994, compared with 49.8% in 1993.
Occupancy costs declined 24% (7% excluding the 1993 non-recurring lease
charge) benefiting from continued relocation of support staff to lower-cost
facilities and reduced space requirements at the Headquarters facility. Other
facilities costs, which include communications and equipment rental, and
depreciation and amortization, were up 9% due to increased use of market data,
news, and statistical services and higher depreciation expense from the
acquisition of technology-related equipment.
Advertising and market development expenses were down 1% with discretionary
costs decreasing as business conditions became less favorable. Lower sales
promotion and a reduction in advertising campaigns were partially offset by
increased travel related to international business activities. Professional
fees increased 26% due primarily to the use of system and management
consultants to upgrade technology and processing capabilities in trading,
credit, and customer services, as well as higher legal fees. Brokerage,
clearing, and exchange fees increased 20% reflecting higher international
equity volume and expanded risk management activities related to volatile
global market conditions. Other expenses increased 1% from 1993, due to an
increase in office supplies and postage costs.
Income tax expense totaled $713 million in 1994, down 31% from $1,030 million
in 1993. The effective tax rate was 41.2% in 1994 versus 42.5% in 1993 as a
result of lower state income taxes.
The Company's Annual Report on Form 10-K for the year ended December 30, 1994
describes an action commenced against the Company by Orange County, California
(the "County") and the Orange County Investment Pools (the "Pools"). See
"Incorporation of Certain Documents by Reference". The County and the Pools
seek relief in excess of $2 billion in connection with various securities
transactions between the County and/or the Pools and the Company and its
subsidiaries. Other actions have also been commenced against the Company and
its subsidiaries arising out of the Company's dealings with the County
Treasurer and the Pools.
6
The Company will vigorously contest these actions and believes it has
meritorious defenses. Although the ultimate outcome of these actions cannot be
ascertained at this time and the results of legal proceedings cannot be
predicted with certainty, it is the opinion of management that the resolution
of these actions will not have a material adverse effect on the consolidated
financial condition or results of operations of the Company for the year ended
December 30, 1994.
The Company has also received inquiries from various governmental entities
examining the underlying events and is cooperating with these inquiries.
CERTAIN BALANCE SHEET INFORMATION AS OF DECEMBER 30, 1994
On January 1, 1994, the Company adopted Financial Accounting Standards Board
Interpretation No. 39 ("Interpretation No. 39"), Offsetting of Amounts Related
to Certain Contracts. Interpretation No. 39 affects the financial statement
presentation of balances related to swap, forward, and other similar exchange
or conditional type contracts, and unconditional type contracts. To offset
unconditional contracts, such as resale and repurchase agreements, net cash
settlement of the related receivable and payable balances is also required by
Interpretation No. 39, as modified by Interpretation No. 41, Offsetting of
Amounts Related to Certain Repurchase and Reverse Repurchase Agreements. Prior
to the adoption of these Interpretations, the Company followed industry
practice in reporting balances related to certain types of contracts on a net
basis. Unrealized gains and losses for swap, forward, and other similar
contracts were reported net on the balance sheet by contract type, while
certain receivables and payables related to resale and repurchase agreements
were reported net by counterparty. The effect of these Interpretations
increased assets and liabilities at December 30, 1994 by approximately $8.5
billion.
The Company believes that its equity base is adequate relative to the level
and composition of its assets and the mix of its business.
In the normal course of business, the Company underwrites, trades, and holds
non-investment grade securities in connection with its market-making,
investment banking, and derivative structuring activities. These activities are
subject to risks related to the creditworthiness of the issuers and the
liquidity of the market for such securities, in addition to the usual risks
associated with investing in, extending credit, underwriting, and trading in
investment grade instruments.
At December 30, 1994, the fair value of long and short non-investment grade
trading inventories amounted to $3,309 million and $456 million, respectively,
and in the aggregate (i.e., the sum of long and short trading inventories),
represented 4.3% of aggregate consolidated trading inventories.
At December 30, 1994, the carrying value of extensions of credit provided to
corporations entering into leveraged transactions aggregated $257 million
(excluding unutilized revolving lines of credit and other lending commitments
of $50 million), consisting primarily of senior term and subordinated
financings to 35 medium-sized corporations. At December 30, 1994, the Company
had no bridge loans outstanding. Loans to highly leveraged corporations are
carried at unpaid principal balance less a reserve for estimated losses. The
allowance for loan losses is estimated based on a review of each loan, and
consideration of economic, market, and credit conditions. Direct equity
investments made in conjunction with the Company's investment and merchant
banking activities aggregated $289 million at December 30, 1994, representing
investments in 80 enterprises. Equity investments in privately-held
corporations for which sale is restricted by government or contractual
requirements are carried at the lower of cost or estimated net realizable
value. At December 30, 1994, the Company held interests in partnerships,
totaling $93 million (recorded on the cost basis), that invest in highly
leveraged transactions and non-investment grade securities. Prior to July 1,
1994, the Company had a co-investment arrangement to enter into direct equity
investments. At December 30, 1994, the Company also committed to invest an
additional $80 million in partnerships that invest in leveraged transactions.
7
The Company's insurance subsidiaries hold non-investment grade securities. As
a percentage of total insurance investments, non-investment grade securities
were 5.5% at December 30, 1994. Non-investment grade securities of insurance
subsidiaries were classified as available-for-sale and were carried at fair
value at December 30, 1994.
At December 30, 1994, the largest non-investment grade concentration
consisted of various issues of a South American sovereign totaling $235
million, of which $60 million represented on-balance-sheet hedges for off-
balance-sheet instruments. No one industry sector accounted for more than 21%
of total non-investment grade positions. At December 30, 1994, the Company held
an aggregate carrying value of $292 million in debt and equity securities of
issuers in various stages of bankruptcy proceedings. Approximately 71% of this
amount resulted from the Company's market-making activities in such securities.
8
DESCRIPTION OF DEBT SECURITIES
Unless otherwise specified in a Prospectus Supplement, the Senior Debt
Securities are to be issued under an indenture (the "Chemical Indenture"),
dated as of April 1, 1983, as amended and restated, between the Company and
Chemical Bank (successor by merger to Manufacturers Hanover Trust Company), as
trustee or issued under an indenture (the "Chase Indenture"), dated as of
October 1, 1993 between the Company and The Chase Manhattan Bank, N.A. as
trustee (each, a "Senior Debt Trustee"). The Chemical Indenture and the Chase
Indenture are referred to herein as the "Senior Indentures". The Subordinated
Debt Securities are to be issued under an indenture (the "Subordinated
Indenture"), to be dated as of August 1, 1991, between the Company and
Chemical Bank, as trustee (the "Subordinated Debt Trustee"). The Senior Debt
Securities and Subordinated Debt Securities may also be issued under one or
more other indentures (each, a "Subsequent Indenture") and have one or more
other trustees (each, a "Subsequent Trustee"). Any Subsequent Indenture
relating to Senior Debt Securities will have terms and conditions identical in
all material respects to the above-referenced Senior Indentures and any
Subsequent Indenture relating to Subordinated Debt Securities will have terms
and conditions identical in all material respects to the above-referenced
Subordinated Indenture, including, but not limited to, the applicable terms
and conditions described below. Any Subsequent Indenture relating to a series
of Debt Securities, and the trustee with respect thereto, will be identified
in the applicable Prospectus Supplement. The Senior Indentures, the
Subordinated Indenture and any Subsequent Indentures (whether senior or
subordinated) are referred to herein as the "Indentures"; and the Senior Debt
Trustees, the Subordinated Debt Trustee and any Subsequent Trustees are
referred to herein as the "Trustees". A copy of each Indenture is filed (or,
in the case of a Subsequent Indenture, will be filed) as an exhibit to the
registration statements relating to the Securities (collectively, the
"Registration Statement"). The following summaries of certain provisions of
the Indentures do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all provisions of the respective
Indentures, including the definitions therein of certain terms.
GENERAL
Each Indenture provides that Debt Securities (Senior Debt Securities in the
case of the Senior Indentures or a Subsequent Indenture for Senior Debt
Securities, and Subordinated Debt Securities in the case of the Subordinated
Indenture or a Subsequent Indenture for Subordinated Debt Securities) may be
issued thereunder, without limitation as to aggregate principal amount, in one
or more series, by the Company from time to time upon satisfaction of certain
conditions precedent, including the delivery by the Company to the applicable
Trustee of a resolution of the Board of Directors, or the Executive Committee
thereof, of the Company which fixes or provides for the establishment of terms
of such Debt Securities, including: (1) the aggregate principal amount of such
Debt Securities and whether there is any limit upon the aggregate principal
amount of such Debt Securities that may be subsequently issued; (2) the date
on which such Debt Securities will mature; (3) the principal amount payable
with respect to such Debt Securities whether at maturity or upon earlier
acceleration, and whether such principal amount will be determined with
reference to an index, formula or other method; (4) the rate or rates per
annum (which may be fixed or variable) at which such Debt Securities will bear
interest, if any; (5) the dates on which such interest, if any, will be
payable; (6) the provisions for redemption of such Debt Securities, if any,
the redemption price and any remarketing arrangements relating thereto; (7)
the sinking fund requirements, if any, with respect to such Debt Securities;
(8) whether such Debt Securities are denominated or provide for payment in
United States dollars or a foreign currency or units of two or more of such
foreign currencies; (9) the form (registered or bearer or both) in which such
Debt Securities may be issued and any restrictions applicable to the exchange
of one form for another and to the offer, sale and delivery of such Debt
Securities in either form; (10) whether and under what circumstances the
Company will pay additional amounts ("Additional Amounts") in respect of such
Debt Securities held by a person who is not a U.S. person (as defined in the
Prospectus Supplement, as applicable) in respect of specified taxes,
assessments or other governmental charges and whether the Company has the
option to redeem the affected Debt Securities rather than pay such Additional
Amounts; (11) whether such Debt Securities are to be issued in global form;
(12) the title of the Debt Securities and the series of which such Debt
Securities shall be a part; and (13) the denominations of such Debt
Securities. Reference is made to
9
the Prospectus Supplement for the terms of the Debt Securities being offered
thereby, including whether such Debt Securities are Senior Debt Securities or
Subordinated Debt Securities. Debt Securities may also be issued under the
Indentures upon the exercise of Debt Warrants. See "Description of Debt
Warrants". Nothing in the Indentures or in the terms of the Debt Securities
will prohibit the issuance of securities representing subordinated
indebtedness that is senior or junior to the Subordinated Debt Securities.
The Debt Securities will be issued, to the extent provided in the Prospectus
Supplement, in fully registered form without coupons, and/or in bearer form
with or without coupons, and in denominations set forth in the Prospectus
Supplement. No service charge will be made for any registration of transfer of
registered Debt Securities or exchange of Debt Securities, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charges that may be imposed in connection therewith. Each Indenture provides
that Debt Securities issued thereunder may be issued in global form. If any
series of Debt Securities is issuable in global form, the applicable
Prospectus Supplement will describe the circumstances, if any, under which
beneficial owners of interest in any such global Debt Securities may exchange
such interests for Debt Securities of such series and of like tenor and
principal amount in any authorized form and denomination. Principal of, and
any premium, Additional Amounts and interest on, a global Debt Security will
be payable in the manner described in the applicable Prospectus Supplement.
The provisions of the Indentures described above provide the Company with
the ability, in addition to the ability to issue Debt Securities with terms
different from those of Debt Securities previously issued, to "reopen" a
previous issue of a series of Debt Securities and issue additional Debt
Securities of such series.
The Senior Debt Securities will be unsecured and will rank pari passu with
all other unsecured and unsubordinated indebtedness of the Company. The
Subordinated Debt Securities will be unsecured and will be subordinated to all
existing and future Senior Indebtedness (as defined below) of the Company.
Since the Company is a holding company, the right of the Company, and hence
the right of creditors of the Company (including the Holders of the Debt
Securities), to participate in any distribution of the assets of any
subsidiary upon its liquidation or reorganization or otherwise is necessarily
subject to the prior claims of creditors of the subsidiary, except to the
extent that claims of the Company itself as a creditor of the subsidiary may
be recognized. In addition, dividends, loans and advances from certain
subsidiaries, including MLPF&S, to the Company are restricted by net capital
requirements under the Securities Exchange Act of 1934 and under rules of
certain exchanges and other regulatory bodies.
Principal and interest, premium and Additional Amounts, if any, will be
payable in the manner, at the places and subject to the restrictions set forth
in the applicable Indenture, the Debt Securities and the Prospectus Supplement
relating thereto, provided that payment of any interest and any Additional
Amounts may be made at the option of the Company by check mailed to the
holders of registered Debt Securities at their registered addresses.
Debt Securities may be presented for exchange, and registered Debt
Securities may be presented for transfer, in the manner, at the places and
subject to the restrictions set forth in the applicable Indenture, the Debt
Securities and the Prospectus Supplement relating thereto. Debt Securities in
bearer form and the coupons, if any, pertaining thereto will be transferable
by delivery. No service charge will be made for any transfer or exchange of
Debt Securities, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
MERGER AND CONSOLIDATION
The Company may consolidate or merge with or into any other corporation, and
the Company may sell, lease or convey all or substantially all of its assets
to any corporation, provided that (i) the corporation (if other than the
Company) formed by or resulting from any such consolidation or merger or which
shall have received such assets shall be a corporation organized and existing
under the laws of the United States of America or a state thereof and shall
assume payment of the principal of, and any premium, Additional Amounts or
interest on, the Debt Securities and the performance and observance of all of
the covenants and conditions of the Indentures to be performed or observed by
the Company, and (ii) the Company or such successor corporation, as the case
may be, shall not immediately thereafter be in default under the Indentures.
10
MODIFICATION AND WAIVER
Modification and amendment of each Indenture may be effected by the Company
and the applicable Trustee with the consent of the Holders of 66 2/3% in
principal amount of the Outstanding Debt Securities of each series issued
pursuant to such Indenture and affected thereby, provided that no such
modification or amendment may, without the consent of the Holder of each
Outstanding Debt Security affected thereby, (a) change the Stated Maturity of,
or any installment of interest or Additional Amounts on, any Debt Security or
any premium payable on the redemption thereof, or change the Redemption Price;
(b) reduce the principal amount of, or the interest or Additional Amounts
payable on, any Debt Security or reduce the amount of principal which could be
declared due and payable prior to the Stated Maturity; (c) change the place or
currency of any payment of principal of, or any premium, interest or Additional
Amounts on, any Debt Security; (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any Debt Security; (e) reduce
the percentage in principal amount of the Outstanding Debt Securities of any
series, the consent of whose Holders is required to modify or amend such
Indenture; or (f) modify the foregoing requirements or reduce the percentage of
Outstanding Debt Securities necessary to waive any past default to less than a
majority. No modification or amendment of the Subordinated Indenture or any
Subsequent Indenture for Subordinated Debt Securities may adversely affect the
rights of any Holder of Senior Indebtedness without the consent of such Holder.
Except with respect to certain fundamental provisions, the Holders of at least
a majority in principal amount of Outstanding Debt Securities of any series
may, with respect to such series, waive past defaults under the applicable
Indenture and waive compliance by the Company with certain provisions of such
Indenture.
EVENTS OF DEFAULT
Under each Indenture, the following will be Events of Default with respect to
Debt Securities of any series issued thereunder: (a) default in the payment of
any interest or Additional Amounts upon any Debt Security of that series when
due, continued for 30 days; (b) default in the payment of any principal of or
premium, if any, on any Debt Security of that series when due; (c) default in
the deposit of any sinking fund payment, when due, in respect of any Debt
Security of that series; (d) default in the performance of any other covenant
of the Company contained in such Indenture for the benefit of such series or in
the Debt Securities of such series, continued for 60 days after written notice
as provided in such Indenture; (e) certain events in bankruptcy, insolvency or
reorganization; and (f) any other Event of Default provided with respect to
Debt Securities of that series. The applicable Trustee or the Holders of 25% in
principal amount of the Outstanding Debt Securities of that series may declare
the principal amount (or such lesser amount as may be provided for in the Debt
Securities of that series) of all Outstanding Debt Securities of that series
and the interest accrued thereon and Additional Amounts payable in respect
thereof, if any, to be due and payable immediately if an Event of Default with
respect to Debt Securities of such series shall occur and be continuing at the
time of declaration. At any time after a declaration of acceleration has been
made with respect to Debt Securities of any series but before a judgment or
decree for payment of money due has been obtained by the applicable Trustee,
the Holders of a majority in principal amount of the Outstanding Debt
Securities of that series may rescind any declaration of acceleration and its
consequences, if all payments due (other than those due as a result of
acceleration) have been made and all Events of Default have been remedied or
waived. Any Event of Default with respect to Debt Securities of any series may
be waived by the Holders of a majority in principal amount of all Outstanding
Debt Securities of that series, except in a case of failure to pay principal of
or premium, if any, or interest or Additional Amounts, if any, on any Debt
Security of that series for which payment had not been subsequently made or in
respect of a covenant or provision which cannot be modified or amended without
the consent of the Holder of each Outstanding Debt Security of such series
affected.
The Holders of a majority in principal amount of the Outstanding Debt
Securities of a series may direct the time, method and place of conducting any
proceeding for any remedy available to the applicable Trustee or exercising any
trust or power conferred on such Trustee with respect to Debt Securities of
such series, provided that such direction shall not be in conflict with any
rule of law or the applicable Indenture. Before
11
proceeding to exercise any right or power under an Indenture at the direction
of such Holders, the applicable Trustee shall be entitled to receive from such
Holders reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in complying with any such direction.
The Company will be required to furnish to each Trustee annually a statement
as to the fulfillment by the Company of all of its obligations under the
applicable Indenture.
SPECIAL TERMS RELATING TO THE SENIOR DEBT SECURITIES
LIMITATIONS UPON LIENS
The Senior Indentures provide that the Company may not, and may not permit
any Subsidiary to, create, assume, incur or permit to exist any indebtedness
for borrowed money secured by a pledge, lien or other encumbrance (except for
certain liens specifically permitted by the Senior Indentures) on the Voting
Stock owned directly or indirectly by the Company of any Subsidiary (other than
a Subsidiary which, at the time of incurrence of such secured indebtedness, has
a net worth of less than $3,000,000) without making effective provision whereby
the Outstanding Senior Debt Securities will be secured equally and ratably with
such secured indebtedness.
LIMITATIONS ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS
BY, MLPF&S
The Senior Indentures provide that the Company may not sell, transfer or
otherwise dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell
or otherwise dispose of any of its Voting Stock, unless, after giving effect to
any such transaction, MLPF&S remains a Controlled Subsidiary (defined in the
Senior Indentures to mean a corporation more than 80% of the outstanding shares
of Voting Stock of which are owned directly or indirectly by the Company). In
addition, the Senior Indentures provide that the Company may not permit MLPF&S
to (i) merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or (ii) convey or transfer its properties and assets substantially
as an entirety, except to one or more Controlled Subsidiaries.
SPECIAL TERMS RELATING TO THE SUBORDINATED DEBT SECURITIES
Upon any distribution of assets of the Company resulting from any
dissolution, winding up, liquidation or reorganization, payments on
Subordinated Debt Securities are to be subordinated to the extent provided in
the Subordinated Indenture in right of payment to the prior payment in full of
all Senior Indebtedness, but the obligation of the Company to make payments on
the Subordinated Debt Securities will not otherwise be affected. No payment on
Subordinated Debt Securities may be made at any time when there is a default in
the payment of any principal, premium, interest, Additional Amounts or sinking
fund of or on any Senior Indebtedness. Holders of Subordinated Debt Securities
will be subrogated to the rights of holders of Senior Indebtedness to the
extent of payments made on Senior Indebtedness upon any distribution of assets
in any such proceedings out of the distributive shares of Subordinated Debt
Securities. By reason of such subordination, in the event of a distribution of
assets upon insolvency, certain creditors of the Company may recover more,
ratably, than Holders of Subordinated Debt Securities.
Senior Indebtedness is defined in the Subordinated Indenture as the principal
of, premium, if any, and unpaid interest on (a) indebtedness of the Company
(including indebtedness of others guaranteed by the Company), other than the
Subordinated Debt Securities, whether outstanding on the date of execution of
the Subordinated Indentures or thereafter created, incurred, assumed or
guaranteed, (i) for money owing to banks, (ii) for money borrowed from sources
other than banks or (iii) in connection with the acquisition by the Company or
a subsidiary of assets of any kind except in the ordinary course of business,
unless in the instrument creating or evidencing the same or pursuant to which
the same is outstanding it is provided that such indebtedness is not superior
in right of payment to the Subordinated Debt Securities, and (b) renewals,
extensions, modifications and refundings of any such indebtedness. As of
December 30, 1994, a total of approximately $30.5 billion of the Company's
indebtedness would have been Senior Indebtedness as so defined.
12
DESCRIPTION OF DEBT WARRANTS
The Company may issue, together with Debt Securities, Currency Warrants or
Index Warrants or separately, Debt Warrants for the purchase of Debt
Securities. The Debt Warrants are to be issued under Debt Warrant Agreements
(each a "Debt Warrant Agreement") to be entered into between the Company and a
bank or trust company, as Debt Warrant Agent (the "Debt Warrant Agent"), all as
shall be set forth in the Prospectus Supplement relating to Debt Warrants being
offered thereby. A copy of the form of Debt Warrant Agreement, including the
form of Warrant Certificates representing the Debt Warrants (the "Debt Warrant
Certificates"), reflecting the alternative provisions to be included in the
Debt Warrant Agreements that will be entered into with respect to particular
offerings of Debt Warrants, is filed as an exhibit to the Registration
Statement. The following summaries of certain provisions of the Debt Warrant
Agreement and the Debt Warrant Certificates do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all the
provisions of the Debt Warrant Agreement and the Debt Warrant Certificates,
respectively, including the definitions therein of certain terms.
GENERAL
The applicable Prospectus Supplement will describe the terms of Debt Warrants
offered thereby, the Debt Warrant Agreement relating to such Debt Warrants and
the Debt Warrant Certificates representing such Debt Warrants, including the
following: (1) the designation, aggregate principal amount, price at which such
principal amount may be purchased upon exercise and terms of the Debt
Securities purchasable upon exercise of such Debt Warrants, including whether
such Debt Securities are Senior Debt Securities or Subordinated Debt
Securities, and the procedures and conditions relating to the exercise of such
Debt Warrants; (2) the designation and terms of any related Debt Securities
with which such Debt Warrants are issued, including whether such Debt
Securities are Senior Debt Securities or Subordinated Debt Securities, the
number of such Debt Warrants issued with each such Debt Security, and the
Indenture under which the Debt Securities will be issued; (3) the date, if any,
on and after which such Debt Warrants and the related Debt Securities will be
separately transferable; (4) the date on which the right to exercise such Debt
Warrants shall commence and the date on which such right shall expire (the
"Expiration Date"); (5) if the Debt Securities purchasable upon exercise of
such Debt Warrants are original issue discount Debt Securities, a discussion of
Federal income tax considerations applicable thereto; and (6) 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.
Debt Warrant Certificates will be exchangeable for new Debt Warrant
Certificates of different denominations and Debt Warrants may be exercised at
the corporate trust office of the Debt Warrant Agent or any other office
indicated in the Prospectus Supplement. Prior to the exercise of their Debt
Warrants, holders of Debt Warrants will not have any of the rights of Holders
of the Debt Securities purchasable upon such exercise and will not be entitled
to payments of principal of, and any premium, Additional Amounts or interest
on, the Debt Securities purchasable upon such exercise.
EXERCISE OF DEBT WARRANTS
Each Debt Warrant will entitle the Holder to purchase for cash such principal
amount of Debt Securities at such exercise price as shall in each case be set
forth in, or be determinable as set forth in, the Prospectus Supplement
relating to the Debt Warrants offered thereby. Debt Warrants may be exercised
at any time up to the close of business on the Expiration Date set forth in the
Prospectus Supplement relating to the Debt Warrants offered thereby. After the
close of business on the Expiration Date, unexercised Debt Warrants will become
void.
Debt Warrants may be exercised as set forth in the Prospectus Supplement
relating to the Debt Warrants offered thereby. Upon receipt of payment and the
Debt Warrant Certificate properly completed and duly executed at the corporate
trust office of the Debt Warrant Agent or any other office indicated in the
Prospectus Supplement, the Company will, as soon as practicable, forward the
Debt Securities purchasable
13
upon such exercise. If less than all of the Debt Warrants represented by such
Debt Warrant Certificate are exercised, a new Debt Warrant Certificate will be
issued for the remaining amount of Debt Warrants.
DESCRIPTION OF CURRENCY WARRANTS
The Company may issue, together with Debt Securities, Debt Warrants or Index
Warrants or separately, Currency Warrants either in the form of Currency Put
Warrants entitling the Holders thereof to receive from the Company the cash
settlement value in U.S. dollars of the right to sell a specified amount of a
specified foreign currency or currency units for a specified amount of U.S.
dollars, or in the form of Currency Call Warrants entitling the Holders thereof
to receive from the Company the cash settlement value in U.S. dollars of the
right to purchase a specified amount of a specified foreign currency or units
of two or more currencies for a specified amount of U.S. dollars. The Currency
Warrants are to be issued under a Currency Put Warrant Agreement or a Currency
Call Warrant Agreement, as applicable (each a "Currency Warrant Agreement"), to
be entered into between the Company and a bank or trust company, as Currency
Warrant Agent (the "Currency Warrant Agent"), all as shall be set forth in the
applicable Prospectus Supplement. Copies of the forms of Currency Put Warrant
Agreement and Currency Call Warrant Agreement, including the forms of global
Warrant Certificates representing the Currency Put Warrants and Currency Call
Warrants (the "Currency Warrant Certificates"), reflecting the provisions to be
included in the Currency Warrant Agreements that will be entered into with
respect to particular offerings of Currency Warrants, are filed as exhibits to
the Registration Statement. The following summaries of certain provisions of
the Currency Warrant Agreements and the Currency Warrant Certificates do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all the provisions of the Currency Warrant Agreements and the
Currency Warrant Certificates, respectively, including the definitions therein
of certain terms.
GENERAL
The applicable Prospectus Supplement will describe the terms of Currency
Warrants offered thereby, the Currency Warrant Agreement relating to such
Currency Warrants and the Currency Warrant Certificates representing such
Currency Warrants, including the following: (1) whether such Currency Warrants
shall be Currency Put Warrants, Currency Call Warrants, or both; (2) the
formula for determining the cash settlement value of each Currency Warrant; (3)
the procedures and conditions relating to the exercise of such Currency
Warrants; (4) the circumstances which will cause the Currency Warrants to be
deemed to be automatically exercised; (5) any minimum number of Currency
Warrants which must be exercised at any one time, other than upon automatic
exercise; and (6) the date on which the right to exercise such Currency
Warrants shall commence and the date on which such right shall expire (the
"Expiration Date"), provided that the commencement date and the Expiration Date
may be the same date.
BOOK-ENTRY PROCEDURES AND SETTLEMENT
Except as may otherwise be provided in an applicable Prospectus Supplement,
the Currency Warrants will be issued in the form of global Currency Warrant
Certificates, registered in the name of a depository or its nominee. Beneficial
owners will not be entitled to receive definitive certificates representing
Currency Warrants. Ownership of 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 depository in the name of such brokerage firm or its agent.
Transfer of ownership of any Currency Warrant will be effected only through the
selling beneficial owner's brokerage firm.
EXERCISE OF CURRENCY WARRANTS
Each Currency Warrant will entitle the Holder to the cash settlement value of
such Currency Warrant on the applicable Exercise Date, in each case as such
terms will be defined in the applicable Prospectus Supplement. If a Currency
Warrant has more than one exercise date and is not exercised prior to 1:30
P.M., New York City time, on the fifth New York Business Day preceding the
Expiration Date, Currency Warrants will be deemed automatically exercised.
14
LISTING
Each issue of Currency Warrants will be listed on a national securities
exchange, subject only to official notice of issuance, as a condition of sale
of any such Currency Warrants. In the event that the Currency Warrants are
delisted from, or permanently suspended from trading on, such exchange, the
Expiration Date for such Currency Warrants will be the date such delisting or
trading suspension becomes effective and Currency Warrants not previously
exercised will be deemed automatically exercised on such Expiration Date. The
applicable Currency Warrant Agreement will contain a covenant of the Company
not to seek delisting of the Currency Warrants, or suspension of their trading,
on such exchange.
DESCRIPTION OF INDEX WARRANTS
The Company may issue from time to time Index Warrants consisting of put
warrants (the "Index Put Warrants") or call warrants (the "Index Call
Warrants"). The Index Warrants will entitle the holders to receive from the
Company a payment or delivery, subject to applicable law, determined by
reference to decreases (in the case of Index Put Warrants) or to increases (in
the case of Index Call Warrants) in the level of an index or portfolio based on
one or more equity or debt securities (including the price or yield of such
securities), any statistical measure of economic or financial performance
(including any consumer price, currency or mortgage index) or the price or
value of any commodity or any combination thereof (the "Index"). Unless
otherwise specified in the accompanying Prospectus Supplement, payments, if
any, upon exercise (or deemed exercise) of the Index Warrants will be made in
U.S. dollars. The Index Warrants will be offered on terms to be determined at
the time of sale.
GENERAL
The applicable Prospectus Supplement will describe the Index Warrant
Agreement or Index Warrant Trust Indenture (each as defined below), as the case
may be, relating to the Index Warrants being offered thereby and the terms of
such Index Warrants, including, without limitation: (i) whether the Index
Warrants to be issued will be Index Put Warrants, Index Call Warrants or both;
(ii) the aggregate number and initial public offering price or purchase price;
(iii) the Index for such Index Warrants; (iv) whether the Index Warrants will
be deemed exercised as of a specified date or whether the Index Warrants may be
exercised during a period and the date on which the right to exercise such
Index Warrants commences and the date on which such right expires; (v) the
manner in which such Index Warrants may be exercised and any restrictions on,
or other special provisions relating to, the exercise of such Index Warrants;
(vi) the minimum number, if any, of such Index Warrants exercisable at any one
time; (vii) the maximum number, if any, of such Index Warrants that may,
subject to the Company's election, be exercised by all Index Warrantholders (or
by any person or entity) on any day; (viii) any provisions permitting an Index
Warrantholder to condition an exercise notice on the absence of certain
specified changes in the level of the applicable Index after the exercise date,
any provisions permitting the Company to suspend exercise of such Index
Warrants based on market conditions or other circumstances and any other
special provision relating to the exercise of such Index Warrants; (ix) any
provisions for the automatic exercise of such Index Warrants other than at
expiration; (x) any provisions permitting the Company to cancel such Index
Warrants upon the occurrence of certain events; (xi) any additional
circumstances which would constitute an Event of Default with respect to such
Index Warrants; (xii) the method of determining (a) the payment or delivery, if
any, to be made in connection with the exercise or deemed exercise of such
Index Warrants (the "Settlement Value"), (b) the minimum payment or delivery,
if any, to be made upon expiration of such Index Warrants (the "Minimum
Expiration Value"), (c) the payment or delivery to be made upon the exercise of
any right which the Company may have to cancel such Index Warrants and (d) the
value of the Index; (xiii) in the case of Index Warrants relating to an Index
for which the trading prices of underlying securities, commodities or rates are
expressed in a foreign currency, the method of converting amounts in the
relevant foreign currency or currencies into U.S. dollars (or such other
currency or composite currency in which the Index Warrants are payable); (xiv)
the method of providing for a substitute index or otherwise determining the
payment or delivery, if any, to be made in connection with the exercise of such
Index Warrants if the Index changes or ceases to be made available by
15
its publisher; (xv) the time or times at which payment or delivery, if any,
will be made in respect of such Index Warrants following exercise or deemed
exercise; (xvi) the national securities exchange on which such Index Warrants
will be listed, if any; (xvii) any provisions for issuing such Index Warrants
in other than book-entry form; (xviii) if such Index Warrants are not issued in
book-entry form, the place or places at which payment or delivery on
cancellation, if any, and the Minimum Expiration Value, if any, of such Index
Warrants is to be made by the Company; (xix) certain U.S. federal income tax
consequences relating to such Index Warrants; and (xx) other specific
provisions.
Except as otherwise provided in the applicable Prospectus Supplement, each
issue of Index Warrants will contain the terms set forth below.
The Index Warrants which are issued without a Minimum Expiration Value will
be issued under one or more index warrant agreements (each, an "Index Warrant
Agreement") to be entered into between the Company and a bank or trust company,
as warrant agent (the "Index Warrant Agent"), all as described in the
Prospectus Supplement relating to such Index Warrants. The Index Warrant Agent
will act solely as the agent of the Company under the applicable Index Warrant
Agreement and will not assume any obligation or relationship of agency or trust
for or with any Index Warrantholders. A single bank or trust company may act as
Index Warrant Agent for more than one issue of Index Warrants.
The Index Warrants which are issued with a Minimum Expiration Value will be
issued under one or more index warrant trust indentures (each an "Index Warrant
Trust Indenture") to be entered into between the Company and a corporation (or
other person permitted to so act by the Trust Indenture Act of 1939, as amended
from time to time (the "Trust Indenture Act")), to act as trustee (the "Index
Warrant Trustee"), all as described in the Prospectus Supplement relative to
such Index Warrants. Any Index Warrant Trust Indenture will be qualified under
the Trust Indenture Act. To the extent allowed by the Trust Indenture Act, a
single qualified corporation may act as Index Warrant Trustee for more than one
issue of Index Warrants.
Forms of Index Warrant Agreement and Index Warrant Trust Indenture and the
respective global Index Warrant Certificates related thereto are filed as
exhibits to the Registration Statement. The summaries herein of certain
provisions of the Index Warrant Agreement, the Index Warrant Trust Indenture
and global Index Warrant Certificates do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all the
provisions of the Index Warrant Agreement, the Index Warrant Trust Indenture
and global Index Warrant Certificates, respectively.
The Company will have the right to "reopen" a previous issue of Index
Warrants and to issue additional Index Warrants of such issue without the
consent of any Index Warrantholder.
The Index Warrants involve a high degree of risk, including the risk that the
Index Warrants will expire worthless except for the Minimum Expiration Value,
if any, of such Index Warrants. Investors should therefore be prepared to
sustain a total loss of the purchase price of the Index Warrants (except for
the Minimum Expiration Value, if applicable). Investors who consider purchasing
Index Warrants should be experienced with respect to options and option
transactions and reach an investment decision only after carefully considering
the suitability of the Index Warrants in light of their particular
circumstances and the information set forth below and under "Description of
Index Warrants" as well as additional information contained in the Prospectus
Supplement relating to such Index Warrants.
Unless otherwise provided in the Prospectus Supplement, each Index Warrant
will entitle Index Warrantholders to receive from the Company upon exercise the
Settlement Value of such Index Warrant. Certain Index Warrants issued pursuant
to an Index Warrant Trust Indenture will, if specified in the Prospectus
Supplement, entitle the Index Warrantholder to receive from the Company, under
certain circumstances specified in the Prospectus Supplement, a payment or
delivery equal to the greater of the applicable Settlement Value and a Minimum
Expiration Value of such Index Warrants. In addition, certain Index Warrants
will, if specified in the Prospectus Supplement, entitle Index Warrantholders
to receive from the Company a certain payment or delivery upon cancellation of
the Index Warrants by the Company, upon
16
the occurrence of specified events. In addition, if so specified in the
Prospectus Supplement, following the occurrence of an extraordinary event, the
Settlement Value of an Index Warrant may, at the option of the Company, be
determined on a different basis, including in connection with automatic
exercise at expiration.
Unless otherwise specified in the related Prospectus Supplement, the Index
Warrants will be deemed to be automatically exercised upon expiration or such
earlier date that may be specified. Upon such automatic exercise, Index
Warrantholders will be entitled to receive a payment or delivery equal to the
Settlement Value of the Index Warrants, except that holders of Index Warrants
having a Minimum Expiration Value will be entitled to receive a payment or
delivery equal to the greater of such Settlement Value and the applicable
Minimum Expiration Value. The Minimum Expiration Value may be either a
predetermined payment or delivery or a payment or delivery that varies during
the term of the Index Warrants in accordance with a schedule or formula. Any
Minimum Expiration Value applicable to an issue of Index Warrants, as well as
any additional circumstances resulting in the automatic exercise of such Index
Warrants, will be specified in the related Prospectus Supplement.
If so specified in the Prospectus Supplement, the Index Warrants may be
canceled by the Company, or the exercise or valuation of, or payment or
delivery for, such Index Warrants may be delayed or postponed upon the
occurrence of an extraordinary event. Any extraordinary events relating to an
issue of Index Warrants will be set forth in the related Prospectus Supplement.
Upon cancellation, the related Index Warrantholders will be entitled to receive
only the applicable payment or delivery on cancellation specified in such
Prospectus Supplement. The payment or delivery on cancellation may be either a
predetermined payment or delivery or a payment or delivery that varies during
the term of the Index Warrants in accordance with a schedule or formula.
If the Company defaults with respect to any of its obligations under Index
Warrants which are issued with a Minimum Expiration Value pursuant to an Index
Warrant Trust Indenture, such default may be waived by the Index Warrantholders
of a majority in interest of all outstanding Index Warrants, except a default
in the payment or delivery of the Settlement Value, Minimum Expiration Value or
cancellation payment or delivery (if applicable) on such Index Warrants or in
respect of a covenant or provision of the applicable Index Warrant Trust
Indenture which cannot be modified or amended without the consent of the Index
Warrantholder of each outstanding Index Warrant affected.
The Index Warrants are unsecured contractual obligations of the Company and
will rank pari passu with the Company's other unsecured contractual obligations
and with the Company's unsecured and unsubordinated debt. Since the Company is
a holding company, the right of the Company, and hence the right of creditors
of the Company (including the Holders of the Debt Securities), to participate
in any distribution of the assets of any subsidiary upon its liquidation or
reorganization or otherwise is necessarily subject to the prior claims of
creditors of the subsidiary, except to the extent that claims of the Company
itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Securities
Exchange Act of 1934 and under rules of certain exchanges and other regulatory
bodies.
Certain special United States federal income tax considerations may be
applicable to instruments such as the Index Warrants. The related Prospectus
Supplement will describe such tax considerations. The summary of United States
federal income tax considerations contained in the Prospectus Supplement will
be presented for informational purposes only, however, and will not be intended
as legal or tax advice to prospective purchasers. Prospective purchasers of
Index Warrants are urged to consult their own tax advisors prior to any
acquisition of Index Warrants.
BOOK-ENTRY PROCEDURES AND SETTLEMENT
Except as may otherwise be provided in an applicable Prospectus Supplement,
Index Warrants will be issued in book-entry form and represented by global
Index Warrants, registered in the name of a depository or its nominee. Except
as may otherwise be provided in an applicable Prospectus Supplement, Index
17
Warrantholders will not be entitled to receive definitive certificates
representing Index Warrants, unless the depository is unwilling or unable to
continue as depository or the Company decides to have the Index Warrants
represented by definitive certificates. A beneficial owner's interest in an
Index Warrant represented by a global Index Warrant will be recorded on or
through the records of the brokerage firm or other entity that maintains such
beneficial owner's account. In turn, the total number of Index Warrants held by
an individual brokerage firm or other entity for its clients will be maintained
on the records of the depository in the name of such brokerage firm or other
entity or its agent.
LISTING
Unless otherwise indicated in the Prospectus Supplement, the Index Warrants
will be listed on a national securities exchange as specified in the Prospectus
Supplement. It is expected that such exchange will cease trading an issue of
Index Warrants at the close of business on the related expiration date of such
Index Warrants.
MODIFICATION
Any Index Warrant Agreement or Index Warrant Trust Indenture and the terms of
the related Index Warrants may be amended by the Company and the Index Warrant
Agent or Index Warrant Trustee, as the case may be (which amendment shall take
the form of a supplemental index warrant agreement or supplemental index
warrant trust indenture (collectively referred to as "Supplemental
Agreements")), without the consent of the holders of any Index Warrants, for
the purpose of (i) curing any ambiguity, or of curing, correcting or
supplementing any defective or inconsistent provision contained therein, or of
making any other provisions with respect to matters or questions arising under
the Index Warrant Agreement or Index Warrant Trust Indenture, as the case may
be, which shall not be inconsistent with the provisions thereof or of the Index
Warrants, (ii) evidencing the succession of another corporation to the Company
and the assumption by any such successor of the covenants of the Company
contained in the Index Warrant Agreement or the Index Warrant Trust Indenture,
as the case may be, and the Index Warrants, (iii) appointing a successor
depository, (iv) 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, (v) adding to the covenants of the Company,
for the benefit of the Index Warrantholders or surrendering any right or power
conferred upon the Company under the Index Warrant Agreement or Index Warrant
Trust Indenture, as the case may be, (vi) issuing Index Warrants in definitive
form, or (vii) amending the Index Warrant Agreement or Index Warrant Trust
Indenture, as the case may be, in any manner which the Company may deem to be
necessary or desirable and which will not materially and adversely affect the
interests of the Index Warrantholders.
The Company and the Index Warrant Agent may also amend any Index Warrant
Agreement or Index Warrant Trust Indenture, as the case may be, and the terms
of the related Index Warrants (which amendment shall take the form of a
Supplemental Agreement) with the consent of the Index Warrantholders holding
not less than 66 2/3% in number of the then outstanding unexercised Index
Warrants affected by such amendment, for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of the Index
Warrant Agreement or Index Warrant Trust Indenture, as the case may be, or of
modifying in any manner the rights of the Index Warrantholders; provided that
no such amendment that (i) changes the determination of the Settlement Value or
the payment or delivery to be made on cancellation, if any, or Minimum
Expiration Value, if any, of the Index Warrants (or any aspects of such
determination) so as to reduce the payment or delivery to be made upon exercise
or deemed exercise, (ii) shortens the period of time during which the Index
Warrants may be exercised, or otherwise materially and adversely affects the
exercise rights of the Index Warrantholders or (iii) reduces the number of
outstanding Index Warrants, the consent of whose holders is required for
amendment of the Index Warrant Agreement, the Index Warrant Trust Indenture or
the terms of the related Index Warrants, may be made without the consent of
each Index Warrantholder affected thereby.
18
EVENT OF DEFAULT
Certain events in bankruptcy, insolvency or reorganization of the Company
will constitute an Event of Default with respect to Index Warrants having a
Minimum Expiration Value which are issued under an Index Warrant Trust
Indenture. Upon the occurrence of an Event of Default, the holders of 25% of
unexercised Index Warrants may elect to receive a settlement payment or
delivery for such unexercised Index Warrants, which will immediately become due
to the Index Warrantholders upon such election in an amount equal to the market
value of such Index Warrants (assuming the Company's ability to satisfy its
obligations under such Index Warrants as they would become due) as of the date
the Company is notified of the intended liquidation, as determined by a
nationally recognized securities broker-dealer unaffiliated with the Company
and mutually selected by the Company and the Index Warrant Trustee.
MERGER, CONSOLIDATION, SALE, LEASE OR OTHER DISPOSITIONS
The Company may consolidate or merge with or into any other corporation and
the Company may sell, lease or convey all or substantially all of its assets to
any corporation, provided that (i) the corporation (if other than the Company)
formed by or resulting from any such consolidation or merger or which shall
have received such assets shall be a corporation organized and existing under
the laws of the United States of America or a State thereof and shall assume
the Company's obligations in respect of the payment or delivery of the
Settlement Value (or any Minimum Expiration Value or cancellation payment or
delivery, if applicable) with respect to all the unexercised Index Warrants and
the performance and observance of all of the covenants and conditions of the
Index Warrant Agreement or Index Warrant Trust Indenture, as the case may be,
to be performed or observed by the Company, and (ii) the Company or such
successor corporation, as the case may be, shall not immediately be in default
under the Index Warrant Agreement or Index Warrant Trust Indenture, as the case
may be.
ENFORCEABILITY OF RIGHTS BY INDEX WARRANTHOLDERS
Any Index Warrantholder may, without the consent of the related Index Warrant
Agent, enforce by appropriate legal action, in and for its own behalf, its
right to exercise, and receive payment or delivery for, its Index Warrants.
PLAN OF DISTRIBUTION
The Company may sell Securities (i) through MLPF&S as agent, (ii) to the
public through, or through underwriting syndicates managed by, one or more of
the firms named on the cover page of this Prospectus or (iii) directly to
purchasers. The Prospectus Supplement with respect to the Securities of a
particular series describes the terms of the offering of such Securities,
including the name of the agent or the name or names of any underwriters, the
public offering or purchase price, any discounts and commissions to be allowed
or paid to the agent or underwriters, all other items constituting underwriting
compensation, the discounts and commissions to be allowed or paid to dealers,
if any, and the exchanges, if any, on which the Securities will be listed. Only
the agents or underwriters so named in the Prospectus Supplement are agents or
underwriters in connection with the Securities offered thereby. Under certain
circumstances, the Company may repurchase Securities and reoffer them to the
public as set forth above. The Company may also arrange for repurchases and
resales of such Securities by dealers.
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters to solicit offers by certain institutions to purchase Debt
Securities from the Company pursuant to Delayed Delivery Contracts providing
for payment and delivery on the date stated in the Prospectus Supplement. Each
such contract will be for an amount not less than, and, unless the Company
otherwise agrees, the aggregate principal amount of Debt Securities sold
pursuant to such contracts shall not be more than, the respective amounts
stated in the Prospectus Supplement. Institutions with whom such contracts,
when authorized, may
19
be made include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions, and other
institutions, but shall in all cases be subject to the approval of the Company.
Delayed Delivery Contracts will not be subject to any conditions except that
the purchase by an institution of the Debt Securities covered thereby shall not
at the time of delivery be prohibited under the laws of any jurisdiction in the
United States to which such institution is subject.
The Company has agreed to indemnify the agent and the several underwriters
against certain civil liabilities, including liabilities under the Securities
Act of 1933 (the "Act"), or contribute to payments the agent or the
underwriters may be required to make in respect thereof.
The distribution of Securities will conform to the requirements set forth in
the applicable sections of Schedule E to the By-Laws of the National
Association of Securities Dealers, Inc.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included or incorporated by
reference in the Company's 1994 Annual Report on Form 10-K and incorporated by
reference in this Prospectus, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports incorporated by reference
herein. The information under the caption "Summary Financial Information" for
each of the five years in the period ended December 30, 1994 included in this
Prospectus and the Selected Financial Data under the captions "Operating
Results", "Financial Position" and "Common Share Data" for each of the five
years in the period ended December 30, 1994 included in the 1994 Annual Report
to Stockholders of the Company and incorporated by reference herein, has been
derived from consolidated financial statements audited by Deloitte & Touche
LLP, as set forth in their reports incorporated by reference herein. Such
consolidated financial statements and related financial statement schedules,
such Summary Financial Information and such Selected Financial Data appearing
or incorporated by reference in this Prospectus and the Registration Statement
of which this Prospectus is a part, have been included or incorporated herein
by reference in reliance upon such reports of Deloitte & Touche LLP given upon
their authority as experts in accounting and auditing.
With respect to unaudited interim financial information for the periods
included in any of the Quarterly Reports on Form 10-Q which may be incorporated
herein by reference, Deloitte & Touche LLP have applied limited procedures in
accordance with professional standards for a review of such information.
However, as stated in their report included in any such Quarterly Report on
Form 10-Q and incorporated by reference herein, they did not audit and they do
not express an opinion on such interim financial information. Accordingly, the
degree of reliance on their reports on such information should be restricted in
light of the limited nature of the review procedures applied. Deloitte & Touche
LLP are not subject to the liability provisions of Section 11 of the Act for
any such report on unaudited interim financial information because any such
report is not a "report" or a "part" of the registration statement prepared or
certified by an accountant within the meaning of Sections 7 and 11 of the Act.
20
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND
THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
Prospectus Supplement Summary............................................. S-3
Certain Important Information Concerning the Warrants..................... S-6
Risk Factors Relating to the Warrants..................................... S-6
Recent Developments....................................................... S-10
Description of the Warrants............................................... S-12
Exchange Rates and Cash Settlement Values................................. S-17
Certain United States Federal Income Tax Considerations Concerning the
Warrants................................................................. S-20
Use of Proceeds........................................................... S-21
Underwriting.............................................................. S-21
Validity of Warrants...................................................... S-22
PROSPECTUS
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Merrill Lynch & Co., Inc.................................................. 3
Use of Proceeds........................................................... 3
Summary Financial Information............................................. 4
Description of Debt Securities............................................ 9
Description of Debt Warrants.............................................. 13
Description of Currency Warrants.......................................... 14
Description of Index Warrants............................................. 15
Plan of Distribution...................................................... 19
Experts................................................................... 20
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LOGO
MERRILL LYNCH & CO., INC.
1,500,000
GREATER OF U.S. DOLLAR/DEUTSCHE MARK--U.S. DOLLAR/JAPANESE YEN
PUT CURRENCY WARRANTS,
EXPIRING MAY 15, 1997
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
, 1995
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