<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1994
------------------
Commission File Number 1-7182
-------------
MERRILL LYNCH & CO., INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-2740599
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
WORLD FINANCIAL CENTER, NORTH TOWER,
NEW YORK, NEW YORK 10281-1332
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 449-1000
- -------------------------------------------------------------------------------
Registrant's telephone number, including area code
- -------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
- -------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
190,470,498 shares of Common Stock*
(as of the close of business on November 4, 1994)
* Does not include 6,816,714 unallocated shares held in the Employee Stock
Ownership Plan that are not considered outstanding for accounting purposes.
<PAGE>
Part I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. Financial Statements
--------------------
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
---------------------------------- PERCENT
SEPT. 30, SEPT. 24, INCREASE
(In Thousands, Except Per Share Amounts) 1994 1993 (DECREASE)
------------- ------------- ----------
<S> <C> <C> <C>
REVENUES
Commissions............................. $ 673,551 $ 696,036 (3)%
Interest and dividends.................. 2,438,760 1,765,784 38
Principal transactions.................. 653,691 740,539 (12)
Investment banking...................... 245,489 452,165 (46)
Asset management and portfolio
service fees........................... 431,374 396,458 9
Other................................... 87,358 89,066 (2)
---------- ---------- -------
Total Revenues.......................... 4,530,223 4,140,048 9
Interest Expense...................... 2,227,978 1,506,428 48
---------- ---------- -------
Net Revenues............................ 2,302,245 2,633,620 (13)
---------- ---------- -------
NON-INTEREST EXPENSES
Compensation and benefits............... 1,179,031 1,296,829 (9)
Occupancy............................... 106,366 116,862 (9)
Communications and equipment rental..... 110,945 98,140 13
Depreciation and amortization........... 83,301 73,780 13
Advertising and market development...... 96,321 98,900 (3)
Professional fees....................... 88,799 70,807 25
Brokerage, clearing, and exchange fees.. 82,690 68,283 21
Other................................... 165,270 167,720 (1)
---------- ---------- -------
Total Non-Interest Expenses............. 1,912,723 1,991,321 (4)
---------- ---------- -------
EARNINGS BEFORE INCOME TAXES............ 389,522 642,299 (39)
Income tax expense...................... 157,943 282,612 (44)
---------- ---------- -------
NET EARNINGS............................ $ 231,579 $ 359,687 (36)%
========== ========== =======
NET EARNINGS APPLICABLE TO COMMON
STOCKHOLDERS........................... $ 229,861 $ 358,416
========== ==========
EARNINGS PER COMMON SHARE:
Primary............................... $ 1.10 $ 1.57
========== ==========
Fully diluted......................... $ 1.10 $ 1.56
========== ==========
DIVIDEND PAID PER COMMON SHARE.......... $ .23 $ .175
========== ==========
AVERAGE SHARES USED IN COMPUTING
EARNINGS PER COMMON SHARE:
Primary............................... 209,030 228,380
========== ==========
Fully diluted......................... 209,030 229,619
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
------------------------------- PERCENT
SEPT. 30, SEPT. 24, INCREASE
(In Thousands, Except Per Share Amounts) 1994 1993 (DECREASE)
----------- ----------- ------------
<S> <C> <C> <C>
REVENUES
Commissions........................................... $ 2,232,328 $ 2,088,553 7%
Interest and dividends................................ 6,955,987 5,056,186 38
Principal transactions................................ 1,881,235 2,245,392 (16)
Investment banking.................................... 1,011,890 1,311,367 (23)
Asset management and portfolio
service fees......................................... 1,307,532 1,139,007 15
Other................................................. 360,362 221,536 63
----------- ----------- --------
Total Revenues........................................ 13,749,334 12,062,041 14
Interest Expense.................................... 6,217,542 4,261,808 46
----------- ----------- --------
Net Revenues.......................................... 7,531,792 7,800,233 (3)
----------- ----------- --------
NON-INTEREST EXPENSES
Compensation and benefits............................. 3,825,998 3,840,423 -
Occupancy............................................. 327,948 456,634 (28)
Communications and equipment rental................... 322,391 286,052 13
Depreciation and amortization......................... 238,067 216,819 10
Advertising and market development.................... 294,071 271,203 8
Professional fees..................................... 270,101 197,831 37
Brokerage, clearing, and exchange fees................ 256,645 209,668 22
Other................................................. 522,179 494,075 6
----------- ----------- --------
Total Non-Interest Expenses........................... 6,057,400 5,972,705 1
----------- ----------- --------
EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE................................. 1,474,392 1,827,528 (19)
Income tax expense.................................... 619,245 780,408 (21)
----------- ----------- --------
EARNINGS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE....................... 855,147 1,047,120 (18)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (NET OF
APPLICABLE INCOME TAXES OF $25,075).................. - (35,420) N/M
----------- ----------- --------
NET EARNINGS.......................................... $ 855,147 $ 1,011,700 (15)%
=========== =========== ========
NET EARNINGS APPLICABLE TO COMMON
STOCKHOLDERS......................................... $ 850,553 $ 1,007,755
=========== ===========
PRIMARY EARNINGS PER COMMON SHARE:
Earnings Before Cumulative Effect
of Change in Accounting Principle.................. $ 3.98 $ 4.61
Cumulative Effect of Change in
Accounting Principle............................... - (.16)
----------- -----------
NET EARNINGS.......................................... $ 3.98 $ 4.45
=========== ===========
FULLY DILUTED EARNINGS PER COMMON SHARE:
Earnings Before Cumulative Effect
of Change in Accounting Principle.................. $ 3.97 $ 4.58
Cumulative Effect of Change in
Accounting Principle............................... - (.16)
----------- -----------
NET EARNINGS.......................................... $ 3.97 $ 4.42
=========== ===========
DIVIDENDS PAID PER COMMON SHARE....................... $ .66 $ .50
=========== ===========
AVERAGE SHARES USED IN COMPUTING EARNINGS
PER COMMON SHARE:
Primary............................................. 213,935 226,635
=========== ===========
Fully diluted....................................... 214,050 228,144
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Per Share Amounts) SEPT. 30, DEC. 31,
ASSETS 1994 1993
- -------------------------------------------------------------- ------------ ------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS..................................... $ 2,350,480 $ 1,783,408
------------ ------------
CASH AND SECURITIES SEGREGATED FOR REGULATORY PURPOSES
OR DEPOSITED WITH CLEARING ORGANIZATIONS..................... 5,313,256 4,069,424
------------ ------------
MARKETABLE INVESTMENT SECURITIES.............................. 2,146,744 1,749,254
------------ ------------
TRADING INVENTORIES, AT FAIR VALUE
Corporate debt, contractual agreements,
and preferred stock.......................................... 25,560,618 16,764,084
Non-U.S. governments and agencies............................. 6,354,539 9,260,725
U.S. Government and agencies.................................. 6,538,910 7,287,081
Equities and convertible debentures........................... 7,110,871 6,806,539
Mortgages and mortgage-backed................................. 5,716,300 6,486,464
Money markets................................................. 1,595,807 3,337,839
Municipals.................................................... 978,842 1,606,097
------------ ------------
Total......................................................... 53,855,887 51,548,829
------------ ------------
RESALE AGREEMENTS............................................. 47,438,355 38,137,528
------------ ------------
SECURITIES BORROWED........................................... 20,561,976 19,001,061
------------ ------------
RECEIVABLES
Customers (net of allowance for doubtful accounts of
$47,110 in 1994 and $47,953 in 1993)......................... 13,252,840 13,242,875
Brokers and dealers........................................... 9,380,993 7,292,332
Interest and other............................................ 2,818,136 2,758,768
------------ ------------
Total......................................................... 25,451,969 23,293,975
------------ ------------
INVESTMENTS OF INSURANCE SUBSIDIARIES......................... 6,029,482 7,841,444
LOANS, NOTES, AND MORTGAGES (NET OF ALLOWANCE FOR
LOAN LOSSES OF $201,001 IN 1994 AND $142,414 IN 1993)........ 1,595,448 2,083,553
OTHER INVESTMENTS............................................. 857,353 873,806
PROPERTY, LEASEHOLD IMPROVEMENTS, AND EQUIPMENT
(NET OF ACCUMULATED DEPRECIATION AND AMORTIZATION
OF $1,829,552 IN 1994 AND $1,677,334 IN 1993)................ 1,556,655 1,506,964
OTHER ASSETS.................................................. 1,237,301 1,021,116
------------ ------------
TOTAL ASSETS.................................................. $168,394,906 $152,910,362
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Per Share Amounts) SEPT. 30, DEC. 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
- ----------------------------------------------------------- ------------ ------------
<S> <C> <C>
LIABILITIES
REPURCHASE AGREEMENTS...................................... $ 56,635,531 $ 56,418,148
------------ ------------
COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS........... 24,260,981 23,214,329
------------ ------------
COMMITMENTS FOR SECURITIES SOLD BUT NOT YET PURCHASED, AT
FAIR VALUE
U.S. Government and agencies............................... 16,220,950 12,183,271
Equities and convertible debentures........................ 5,135,063 3,953,850
Corporate debt, contractual agreements,
and preferred stock....................................... 12,930,569 3,577,056
Non-U.S. governments and agencies.......................... 1,485,145 1,762,154
Municipals................................................. 193,430 184,041
------------ ------------
Total...................................................... 35,965,157 21,660,372
------------ ------------
CUSTOMERS.................................................. 10,520,822 13,571,379
INSURANCE.................................................. 5,823,306 7,405,673
BROKERS AND DEALERS........................................ 6,240,925 4,862,584
OTHER LIABILITIES AND ACCRUED INTEREST..................... 7,395,476 6,823,064
LONG-TERM BORROWINGS....................................... 15,847,957 13,468,900
------------ ------------
TOTAL LIABILITIES.......................................... 162,690,155 147,424,449
------------ ------------
STOCKHOLDERS' EQUITY
PREFERRED STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00 per share
(Liquidation preference $100,000 per share);
authorized: 25,000,000 shares;
issued: 1994 and 1993 - 3,000 shares;
outstanding: 1994 and 1993 - 1,938 shares................ 193,800 193,800
------------ ------------
COMMON STOCKHOLDERS' EQUITY
Common stock, par value $1.33 1/3 per share;
authorized: 500,000,000 shares;
issued: 1994 and 1993 - 236,330,162 shares............... 315,105 315,105
Paid-in capital............................................ 1,211,125 1,156,367
Foreign currency translation adjustment.................... 4,466 (18,305)
Net unrealized (losses) gains on investment securities
available-for-sale (net of applicable income tax
(benefit) expense of $(24,751) in 1994 and
$12,493 in 1993)......................................... (45,409) 21,355
Retained earnings.......................................... 5,495,685 4,777,142
------------ ------------
Subtotal............................................... 6,980,972 6,251,664
Less:
Treasury stock, at cost:
1994 - 36,701,040 shares;
1993 - 23,408,139 shares............................ 1,203,212 695,788
Unallocated ESOP shares, at cost:
1994 - 6,816,714 shares;
1993 - 8,932,332 shares............................. 107,363 140,684
Employee stock transactions.............................. 159,446 123,079
------------ ------------
TOTAL COMMON STOCKHOLDERS' EQUITY.......................... 5,510,951 5,292,113
------------ ------------
TOTAL STOCKHOLDERS' EQUITY................................. 5,704,751 5,485,913
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................. $168,394,906 $152,910,362
============ ============
BOOK VALUE PER COMMON SHARE................................ $ 28.80 $ 26.17
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
----------------------------
(In Thousands) SEPT. 30, SEPT. 24,
1994 1993
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.............................................. $ 855,147 $ 1,011,700
Noncash items included in earnings:
Cumulative effect of change in accounting principle..... - 35,420
Depreciation and amortization........................... 238,067 216,819
Policyholder reserves................................... 275,000 408,469
Other................................................... 582,145 330,543
(Increase) decrease in operating assets:
Trading inventories..................................... (2,307,058) (12,013,948)
Cash and securities segregated for regulatory purposes
or deposited with clearing organizations............... (1,243,832) 100,729
Securities borrowed..................................... (1,560,915) (3,765,484)
Customers............................................... (47,985) (2,997,529)
Maturities and sales of trading investment securities... 128,387 -
Purchases of trading investment securities.............. (125,079) -
Other................................................... (1,611,000) (7,769,183)
Increase (decrease) in operating liabilities:
Commitments for securities sold but not yet purchased... 14,304,785 5,303,761
Customers............................................... (3,050,557) 1,698,954
Insurance............................................... (1,673,863) (1,357,822)
Other................................................... 1,839,959 6,982,091
----------- -----------
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES.......... 6,603,201 (11,815,480)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from (payments for):
Maturities of available-for-sale securities............. 2,147,478 -
Sales of available-for-sale securities.................. 1,031,715 -
Purchases of available-for-sale securities.............. (1,771,271) -
Maturities of held-to-maturity securities............... 1,211,609 -
Purchases of held-to-maturity securities................ (1,590,946) -
Maturities and sales of investments by insurance
subsidiaries........................................... - 2,438,380
Purchases of investments by insurance subsidiaries...... - (1,573,895)
Marketable investment securities........................ - (581,583)
Other investments and other assets...................... (235,280) (31,765)
Property, leasehold improvements, and equipment......... (287,758) (274,850)
----------- -----------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES.......... 505,547 (23,713)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments for):
Repurchase agreements, net of resale agreements......... (9,083,444) 6,388,005
Commercial paper and other short-term borrowings........ 1,046,652 3,955,312
Issuance and resale of long-term borrowings............. 9,063,820 6,379,240
Settlement and repurchase of long-term borrowings....... (6,827,946) (4,262,303)
Other common stock transactions......................... (604,154) (57,834)
Dividends............................................... (136,604) (109,213)
----------- -----------
CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES.......... (6,541,676) 12,293,207
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS..................... 567,072 454,014
Cash and cash equivalents, beginning of year.............. 1,783,408 1,251,572
----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................. $ 2,350,480 $ 1,705,586
=========== ============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Income taxes totaled $1,051,784 in 1994 and $796,974 in 1993.
Interest totaled $6,138,752 in 1994 and $4,135,163 in 1993.
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
The decrease in unrealized gain on investment securities available-for-sale
totaled $66,764.
See Notes to Consolidated Financial Statements
6
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1994
BASIS OF PRESENTATION
The consolidated financial statements, prepared in accordance with generally
accepted accounting principles, include the accounts of Merrill Lynch & Co.,
Inc. and its subsidiaries (collectively referred to as the "Corporation"). All
material intercompany balances and transactions have been eliminated. The
December 31, 1993 consolidated balance sheet was derived from the audited
financial statements. The interim consolidated financial statements for the
three- and nine-month periods are unaudited; however, in the opinion of the
management of the Corporation, all adjustments necessary for a fair statement
of the results of operations have been included. The adjustments consist of
normal recurring accruals and a non-recurring pretax lease charge of $103.0
million ($59.7 million after income taxes) previously reported in the 1993
first quarter.
These unaudited financial statements should be read in conjunction with the
audited financial statements included in the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1993. The nature of the
Corporation's business is such that the results of any interim period are not
necessarily indicative of results for a full year. Prior period financial
statements have been restated (see Note on Accounting Changes) and
reclassified, where appropriate, to conform to the 1994 presentation.
ACCOUNTING CHANGES
On January 1, 1994, the Corporation 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. The
Corporation is generally required to report separately on the balance sheet
unrealized gains as assets, and unrealized losses as liabilities. For exchange
or conditional contracts, netting is permitted only when a legal right of
setoff exists with the same counterparty under a master netting arrangement.
For unconditional contracts, such as resale and repurchase agreements, net cash
settlement of the related receivable and payable balances is also required.
Prior to the adoption of Interpretation No. 39, the Corporation 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. At September 30, 1994, assets
and liabilities increased approximately $12.0 billion for the effect of
Interpretation No. 39.
7
<PAGE>
The Corporation adopted Statement of Financial Accounting Standards ("SFAS")
No. 112, "Employers' Accounting for Postemployment Benefits", effective as of
the 1993 first quarter. The cumulative effect of this change in accounting
principle, reported in the 1993 Statement of Consolidated Earnings, resulted in
a charge (net of applicable income tax benefit) of $35.4 million. The 1993
year-to-date Statement of Consolidated Earnings has been restated to reflect
the impact of this pronouncement.
INVESTMENTS
On December 31, 1993, the Corporation adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". SFAS No. 115 requires
certain subsidiaries of the Corporation, principally insurance and banking, to
classify their investments in debt and qualifying equity securities into three
categories: "trading", "available-for-sale", or "held-to-maturity".
Investments that are classified as trading and available-for-sale are recorded
at fair value. Investments in debt securities classified as held-to-maturity
continue to be carried at amortized cost. Other investments, including
restricted equity securities, are excluded from the provisions of SFAS No. 115
and are classified as non-qualifying investments. Restricted equity investment
securities are reported at the lower of cost or net realizable value.
The Corporation has several broad categories of investments on its Consolidated
Balance Sheets, including investments of insurance subsidiaries, marketable
investment securities, and other investments. A reconciliation of the
Corporation's investment securities to those reported in the Consolidated
Balance Sheets is presented below:
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
(In thousands) 1994 1993
- -------------- ---------- ----------
<S> <C> <C>
Investments of insurance subsidiaries:
Available-for-sale $4,380,956 $6,088,443
Trading 153,217 164,620
Non-qualifying 1,495,309 1,588,381
---------- ----------
Total $6,029,482 $7,841,444
========== ==========
Marketable investment securities:
Available-for-sale $ 518,632 $ 471,862
Held-to-maturity 1,628,112 1,277,392
---------- ----------
Total $2,146,744 $1,749,254
========== ==========
Other investments:
Available-for-sale $ 93,795 $ 151,801
Held-to-maturity 16,559 16,635
Non-qualifying 746,999 705,370
---------- ----------
Total $ 857,353 $ 873,806
========== ==========
</TABLE>
For registrants subject to the information reporting requirements of the
Securities Exchange Act of 1934, there are additional requirements under SFAS
No. 115. The Corporation's insurance subsidiaries are required to adjust
deferred acquisition costs and certain policyholder liabilities associated with
investments classified as available-for-sale. These investments are primarily
in-force, universal life-type contracts under SFAS No. 97, "Accounting and
Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for
Realized Gains and Losses from the Sale of
8
<PAGE>
Investments". Adjustments to these investments are recorded in stockholders'
equity and assume that the unrealized gain or loss on available-for-sale
securities was realized.
The table that follows provides the components of the net unrealized (loss)
gain recorded in stockholders' equity for available-for-sale investments:
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
(In thousands) 1994 1993
- -------------- ---------- ----------
<S> <C> <C>
Net unrealized (losses) gains
on investment securities
available-for-sale $(335,431) $ 254,030
Adjustments for:
Policyholder liabilities 183,504 (205,495)
Deferred policy acquisition costs 47,919 (14,687)
Deferred income taxes 37,244 (12,493)
--------- ---------
Net activity for the period (66,764) 21,355
Net unrealized gains on investment
securities classified as
available-for-sale, beginning
of year 21,355 -
--------- ---------
Net unrealized (losses) gains
on investment securities
classified as available-for-sale,
end of period $ (45,409) $ 21,355
========= =========
</TABLE>
In the 1994 third quarter, gross realized gains and losses related to
available-for-sale investment securities were $14.0 million and $6.6 million,
respectively. For the nine-month period ended September 30, 1994, gross
realized gains and losses related to available-for-sale investment securities
were $20.0 million and $14.3 million, respectively. The cost basis of each
investment sold is specifically identified for purposes of computing realized
gains and losses. Net unrealized gains and losses from trading investment
securities included in the 1994 three- and nine-month Statements of
Consolidated Earnings were gains of $2.4 million and losses of $9.1 million,
respectively.
INTEREST AND DIVIDEND EXPENSE
Interest expense includes payments in lieu of dividends of $4.8 million and
$5.9 million for the third quarters of 1994 and 1993, respectively. For the
nine-month periods ended September 30, 1994 and September 24, 1993, payments in
lieu of dividends were $19.5 million and $15.2 million, respectively.
COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS
Commercial paper and other short-term borrowings at September 30, 1994 and
December 31, 1993 follow:
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
(In millions) 1994 1993
- ------------- --------- --------
<S> <C> <C>
Commercial paper $13,600 $14,896
Demand and time deposits 7,086 5,946
Securities loaned 2,128 1,047
Bank loans and other 1,447 1,325
------- -------
Total $24,261 $23,214
======= =======
</TABLE>
9
<PAGE>
COMMITMENTS
The Corporation enters into certain contractual agreements, referred to as
"derivatives" or off-balance-sheet financial instruments, involving futures,
forwards (including mortgage-backed securities requiring forward settlement),
options, and swap transactions, including swap options, caps, collars, and
floors. The Corporation uses derivatives in conjunction with on-balance-sheet
financial instruments to facilitate customer transactions, manage its own
interest rate, currency, and market risk, and to meet trading and financing
needs. Derivative contracts often involve future commitments to swap interest
payment streams, to purchase or sell other financial instruments at specified
terms on a specified date, or to exchange currencies. In addition, the
Corporation writes options on a wide range of financial instruments such as
securities, currencies, futures, and various market indices.
The contractual or notional amounts of these instruments are set forth below:
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
(In billions) 1994 1993
- ------------- --------- --------
<S> <C> <C>
Forward contracts $137 $154
Futures contracts 404 105
Swap agreements 800 560
Options written 107 72
</TABLE>
In the normal course of business, the Corporation obtains letters of credit
to satisfy various collateral requirements in lieu of the Corporation
depositing securities or cash. At September 30, 1994, letters of credit
aggregating $1,467 million were used for this purpose.
In the normal course of business, the Corporation also enters into
underwriting commitments, when-issued transactions, and commitments to extend
credit.
Settlement of these commitments as of September 30, 1994 would not have a
material effect on the consolidated financial condition of the Corporation.
REGULATORY REQUIREMENTS
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a broker-dealer
and a subsidiary of the Corporation, is subject to the Securities and Exchange
Commission's Net Capital Rule. Under the alternative method permitted by this
rule, the minimum required net capital, as defined, shall not be less than 2% of
aggregate debit balances arising from customer transactions. At September 30,
1994, MLPF&S's regulatory net capital of $1,387 million was 11% of aggregate
debit balances, and its regulatory net capital in excess of the minimum required
was $1,144 million.
Merrill Lynch Government Securities Inc. ("MLGSI"), a primary dealer in U.S.
Government securities and a subsidiary of the Corporation, is subject to the
Capital Adequacy Rule required by the Government Securities Act of
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<PAGE>
1986. This rule requires dealers to maintain liquid capital in excess of market
and credit risk, as defined, by 20% (a 1.2-to-1 capital-to-risk standard). At
September 30, 1994, MLGSI's liquid capital of $918 million was 247% of its total
market and credit risk, and liquid capital in excess of the minimum required was
$471 million.
Merrill Lynch International Limited ("MLIL"), a United Kingdom registered
broker-dealer and a subsidiary of the Corporation, is subject to capital
requirements of the Securities and Futures Authority ("SFA"). Regulatory
capital, as defined, must exceed the financial resources requirement of the SFA.
At September 30, 1994, MLIL's regulatory capital was $1,518 million, and
exceeded the minimum requirement by $362 million.
SUBSEQUENT EVENT
The Corporation is authorized to issue 25 million shares of undesignated
preferred stock, par value $1.00 per share. The Corporation's Board of
Directors (the "Board") delegated to the Executive Committee of the Board the
authority to authorize the issuance, from time to time, of up to 100,000 shares
of previously undesignated preferred stock (having an aggregate liquidation
preference not to exceed $600 million) in one or more offerings.
Subsequent to quarter-end, the Corporation completed the public offering of 17
million Depositary Shares, each representing a one-four hundredth interest in a
share of 9% Cumulative Preferred Stock, Series A, $10,000 liquidation preference
per share ("9% Preferred Stock"). The 9% Preferred Stock is a single series
consisting of 42,500 shares with an aggregate liquidation preference of $425
million. At the time of issuance, this series was rated A by Duff & Phelps
Credit Rating Co., A+ by Fitch Investors Services, Inc., A by IBCA Ltd., "a1" by
Moody's Investors Service, Inc., and A- by Standard & Poor's Ratings Group.
Dividends on the 9% Preferred Stock are cumulative from the date of original
issue and are payable quarterly. The 9% Preferred Stock is not redeemable
prior to December 30, 2004 and, on or after that date, will be redeemable at
the option of the Corporation in whole or, from time to time, in part. The
Corporation intends to use the net proceeds from the sale of the Depositary
Shares for general corporate purposes.
11
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
- -------------------------------
To the Board of Directors and Stockholders of
Merrill Lynch & Co., Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
Merrill Lynch & Co., Inc. and subsidiaries as of September 30, 1994, and the
related condensed statements of consolidated earnings for the three- and
nine-month periods ended September 30, 1994 and September 24, 1993 and
consolidated cash flows for the nine-month periods ended September 30, 1994 and
September 24, 1993. These financial statements are the responsibility of the
management of Merrill Lynch & Co., Inc.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Merrill Lynch & Co., Inc. and
subsidiaries as of December 31, 1993, and the related statements of consolidated
earnings, changes in consolidated stockholders' equity and consolidated cash
flows for the year then ended (not presented herein); and in our report dated
February 28, 1994, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balanced sheet as of December 31, 1993 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
As discussed in the note to the condensed consolidated financial statements
entitled, "Accounting Changes", in 1993 the Corporation and its subsidiaries
changed their method of accounting for postemployment benefits to conform with
Statement of Financial Accounting Standards No. 112.
/s/ Deloitte & Touche LLP
November 10, 1994
New York, New York
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Merrill Lynch & Co., Inc. and its subsidiaries (collectively referred to as the
"Corporation") conduct their businesses in global financial markets that are
influenced by a number of factors including economic and market conditions,
political events, and investor sentiment. The reaction of issuers and investors
to a particular condition or event is unpredictable and can create volatility in
the marketplace. While higher volatility can increase risk, it may also increase
order flow, which drives many of the Corporation's businesses. Other global
market and economic conditions, including the liquidity of secondary markets,
the level and volatility of interest rates, currency and security valuations,
competitive conditions, and the size, number, and timing of transactions may
also affect earnings. As a result, revenues and net earnings can vary
significantly from year to year, and from quarter to quarter.
Financial markets, strong throughout 1993 and the first six weeks of 1994,
weakened during the remainder of the nine-month period ended September 30,
1994, with lower volumes affecting most revenue categories. Rising U.S.
interest rates, a weak U.S. dollar, and unsettled global stock, bond, and
currency markets continued to dampen investor and issuer activity in the 1994
third quarter.
Underwriting volume in the 1994 third quarter declined industry-wide to the
lowest level since the 1991 first quarter. Domestic equity issuances decreased
from the 1993 third quarter, including a 47% industry-wide decline in volume for
initial public stock offerings, principally as a result of reduced demand.
Higher interest rates continued to reduce debt issuances, particularly
refinancings, leading to a 50% decrease industry-wide in underwriting of
domestic debt from last year's third quarter. Strategic services revenues
benefited from increased merger and acquisition activity in the
telecommunication, entertainment, financial services, and transportation
industries.
Trading results in equity and interest-sensitive products were generally
lower industry-wide. Equity trading was primarily affected by lower revenues
from convertible securities and reduced demand for over-the-counter issues.
Continued uncertainty in world currency markets reduced foreign exchange
trading. Revenues from municipal securities increased due to more attractive
tax-exempt yields, while revenues from swaps and other derivatives remained at
relatively strong levels.
Stock market activity, as measured by New York Stock Exchange ("NYSE") average
daily trading volume, was 274 million shares in the 1994 third quarter. Third
quarter trading volume was slightly above the 1994 second quarter average of 273
million shares and 9% higher than the 1993 third quarter average of 252 million
shares. Fee-based revenues benefited from continued growth in assets under
management.
The Dow Jones Industrial Average ("DJIA") daily closing index for the 1994
third quarter averaged 3,802, 4% above the 1994 second quarter average closing
index and 6% above the 1993 third quarter average close. In the bond market,
the price of the 30-year U.S. Treasury bond continued to decline, with the
yield rising to 7.82% at the end of the 1994 third
13
<PAGE>
quarter, compared with 7.61% at the end of the 1994 second quarter and 6.03% at
the end of the 1993 third quarter.
The Corporation's 1994 third quarter net earnings were 8% below net earnings
for the 1994 second quarter and 36% below the record net earnings for the 1993
third quarter. Although profitability declined during the 1994 third quarter,
a diversified revenue base, strong market positions across numerous product
lines, and appropriate cost and risk management reduced the effect of difficult
financial markets on the Corporation's operating results.
THIRD QUARTER 1994 VERSUS THIRD QUARTER 1993 AND NINE MONTHS 1994
VERSUS NINE MONTHS 1993
The discussion that follows emphasizes the comparison between the third quarters
of 1994 and 1993, with additional information on the nine-month periods
presented where appropriate.
Net earnings for the 1994 third quarter were $231.6 million, down $128.1 million
(36%) from the $359.7 million reported in last year's record third quarter.
Third quarter earnings per common share were $1.10 primary and fully diluted,
compared with $1.57 primary and $1.56 fully diluted in the 1993 third quarter.
After deducting preferred stock dividends, net earnings applicable to common
stockholders in the 1994 third quarter totaled $229.9 million, down $128.5
million (36%) from $358.4 million in the prior year's quarter. The Corporation
repurchased 4.1 million shares of its common stock in the 1994 third quarter
compared with 2.6 million shares in the 1993 third quarter.
The Corporation's pretax profit margin in the 1994 third quarter was 16.9%
versus 24.4% in the year-ago period. The net profit margin decreased to 10.1%
in the 1994 third quarter compared with 13.7% in the 1993 third quarter. Total
revenues increased 9% from the 1993 third quarter to $4,530 million, while
revenues after interest expense (net revenues), declined 13% from the year-ago
period to $2,302 million. Non-interest expenses totaled $1,913 million in the
1994 third quarter, down 4% from the year-earlier period.
For the first nine months of 1994, net earnings were $855.1 million, down 15%
($156.6 million) from the record $1,011.7 million reported in last year's
comparable nine-month period. Net earnings for the 1993 period 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
("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits". Earnings
before the cumulative effect of the change in accounting principle decreased 18%
from the $1,047.1 million reported in the corresponding 1993 period. Earnings
per common share for the first nine months of 1994 were $3.98 primary and $3.97
fully diluted versus $4.45 primary and $4.42 fully diluted ($4.61 primary and
$4.58 fully diluted, excluding the 1993 cumulative effect adjustment) in the
prior year's period. The Corporation's weighted average common shares decreased
during the first nine months of 1994 as 17.4 million shares of common stock were
repurchased, compared with 7.2 million shares in the corresponding 1993 period.
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<PAGE>
Net earnings applicable to common stockholders were $850.6 million, down
$157.2 million (16%) from the $1,007.8 million ($1,043.2 million before the
1993 cumulative effect adjustment) reported in the 1993 nine-month period.
The Corporation's 1994 year-to-date pretax profit margin was 19.6% compared with
23.4% in the corresponding 1993 period. The net profit margin decreased to
11.4% from 13.0% (13.4% before the 1993 cumulative effect adjustment) in the
1993 nine-month period. Net revenues decreased 3% in the first nine months of
1994 to $7,532 million. Total revenues increased 14% to $13,749 million, while
non-interest expenses rose 1% from the 1993 nine-month period to $6,057 million.
As previously reported, 1993 nine-month results included a non-recurring
pretax lease charge totaling $103.0 million ($59.7 million after income taxes)
related to the Corporation's decision not to occupy certain office space at its
World Financial Center Headquarters ("Headquarters") facility. An agreement to
sublet this space was entered into in the 1993 fourth quarter.
Commission revenues decreased 3% from the 1993 third quarter to $674 million.
Commissions from listed securities decreased 5% to $316 million reflecting a
change in the mix of transactions between institutional and retail clients.
Mutual fund commissions rose 2% from the year-ago quarter to $217 million,
benefiting from increased distribution fees and redemption fees earned on mutual
funds sold in prior periods. Other commissions revenues declined 6% from the
1993 third quarter to $141 million due primarily to lower commissions from money
market instruments.
Commission revenues increased 7% from the 1993 nine-month period to $2,232
million, principally on the strength of higher commissions from mutual funds
managed by the Corporation.
Interest and dividend revenues advanced 38% over the year-ago third quarter
period to $2,439 million due to increases in interest rates, higher levels of
fixed-income inventories, and increases in collateralized lending activities.
Interest expense, which includes dividend expense, rose 48% to $2,228 million
as a result of higher interest rates and increased levels of interest-bearing
liabilities primarily related to the Corporation's funding and hedging
activities. Net interest profit declined 19% to $211 million as a result of a
significant increase in short-term interest rates, quarter over quarter, and
the continued flattening of the yield curve - the difference between short-term
and long-term interest rates. The one-year U.S. Treasury bill rate, for
example, increased from 3.34% at September 24, 1993 to 5.94% at September 30,
1994, while the 30-year U.S. Treasury bond yield increased from 6.03% to 7.82%
during the same period. As a result, interest spreads declined, while financing
and hedging costs increased from the 1993 third quarter.
15
<PAGE>
The significant components of interest and dividend revenues and interest
expense for the quarter and year-to-date periods follow:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------- ---------------------
(In millions) Sept. 30, Sept. 24, Sept. 30, Sept. 24,
- ------------- 1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest and
dividend revenues:
Trading inventories $ 881 $ 583 $2,620 $1,708
Resale agreements 494 276 1,205 861
Securities borrowed 532 440 1,635 1,049
Margin lending 268 188 721 562
Other 264 278 775 876
------ ------ ------ ------
Total 2,439 1,765 6,956 5,056
------ ------ ------ ------
Interest expense:
Borrowings 827 693 2,429 1,784
Repurchase agreements 658 319 1,675 957
Commitments for securities
sold but not yet purchased 547 291 1,505 847
Other 196 203 609 674
------ ------ ------ ------
Total 2,228 1,506 6,218 4,262
------ ------ ------ ------
Net interest and
dividend profit $ 211 $ 259 $ 738 $ 794
====== ====== ====== ======
</TABLE>
Included in the "Borrowings" caption above is interest related to hedges on
the Corporation's long-term borrowings. As part of the Corporation's asset and
liability management strategy, substantially all fixed-rate, long-term
borrowings are swapped into floating interest rates, while virtually all
foreign currency denominated fixed-rate obligations are swapped into U.S.
dollar floating-rate liabilities. These liability hedges are usually in the
form of interest rate and currency swap agreements. Interest obligations on
variable-rate debt may also be effectively modified through swap agreements
that change the underlying interest rate basis or reset frequency. Contractual
agreements used to modify payment obligations, principally related to long-term
borrowings, reduced interest expense for the three- and nine-month periods
ended September 30, 1994 by $40 million and $156 million, respectively, and $82
million and $243 million, respectively, for the comparable 1993 periods.
Principal transactions revenues declined 12% from the prior year period to
$654 million due to the negative effects of rising U.S. interest rates,
volatility in world currency markets, and reduced demand for certain equity
products. Fixed-income and foreign exchange trading revenues, in the
aggregate, decreased 5% to $528 million. Fixed-income trading was virtually
unchanged from a year-ago, with higher revenues from municipal securities and
swaps and derivatives offset by lower revenues from corporate bonds and
preferred stock, and non-U.S. governments and agencies securities. Trading
results in mortgage-backed products improved from the 1993 third quarter despite
difficult market conditions in the mortgage-backed securities market.
Municipal securities revenues advanced 43% to $99 million due to strong retail
investor demand for tax-exempt investments. Swaps and derivatives revenues,
which represented 39% of total principal transactions revenues in the 1994 third
quarter and 37% for the first nine months of 1994, benefited from increased
volume, primarily in dollar swaps. Revenues from corporate bonds and preferred
stock, and non-U.S. governments and agencies securities were down primarily as a
result of lower volume and rising interest rates. Foreign exchange trading
revenues decreased due to weakness in the U.S. dollar versus other major
currencies.
16
<PAGE>
Equity and commodities trading revenues, in the aggregate, decreased 31% to
$126 million due primarily to lower trading revenues in foreign equities,
principally warrants, and a modest loss in convertible securities.
For the first nine months of 1994, fixed-income and foreign exchange trading
revenues, in the aggregate, decreased 16% to $1,432 million. Lower revenues
from corporate bonds and preferred stock, non-U.S. governments and agencies
securities, and money market instruments were partially offset by higher
revenues from swaps and derivatives, municipal securities, mortgage-backed
securities, and U.S. Government and agencies securities.
Equity and commodities trading revenues, in the aggregate, decreased 16% to
$449 million for the 1994 year-to-date period. Contributing to this decline was
a loss from convertible securities, partially offset by higher revenues from
foreign equities and commodities trading.
Trading, hedging, and financing activities affect the recognition of both
principal transactions revenues and net interest and dividend profit. In
assessing the profitability of financial instruments, the Corporation views net
interest and principal transactions components in the aggregate. For financial
reporting purposes, however, realized and unrealized gains and losses on trading
positions, including hedges, are recorded in principal transactions revenues.
The net interest carry (i.e., the spread representing interest earned versus
financing costs on financial instruments) for trading positions, including
hedges, is recorded either as principal transactions revenues or net interest
profit, depending on the nature of the specific position. Interest income or
expense on a U.S. Treasury security, for example, is reflected in net interest,
while any realized or unrealized gain or loss is included in principal
transactions. Financial instruments requiring forward settlement, such as
mortgage-backed "to be announced" mortgage pools, have interest components built
into their market value; any change in the market value, however, is recorded in
principal transactions revenues. Changes in the composition of trading
inventories and hedge positions can cause the recognition of revenues within
these categories to fluctuate. Consequently, net interest and principal
transactions revenue components should be evaluated collectively.
17
<PAGE>
The table that follows provides information on aggregate trading profits,
including net interest for the three- and nine-months ended September 30, 1994
and September 24, 1993, respectively. Principal transactions revenues are
derived from external reporting categories. Interest revenue and expense
components are based on external reporting categories and management's
assessment of the cost to finance trading positions, which considers the
underlying liquidity of these positions.
<TABLE>
<CAPTION>
Principal Net Interest Net
(In millions) Transactions Revenue Trading
- ------------- Revenues (Expense) Revenue
----------------- ---------------- ------------------
1994 1993 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Three Months
- ------------
Fixed-income and foreign
exchange $ 276 $ 331 $ 62 $ 92 $ 338 $ 423
Swaps and derivatives (1) 252 227 (39) (9) 213 218
------ ------ ------ ------ ------ ------
Sub-total 528 558 23 83 551 641
Equities and commodities 126 183 (3) (4) 123 179
------ ------ ------ ------ ------ ------
Total $ 654 $ 741 $ 20 $ 79 $ 674 $ 820
====== ====== ====== ====== ====== ======
Nine Months
- -----------
Fixed-income and foreign
exchange $ 727 $1,131 $ 281 $ 303 $1,008 $1,434
Swaps and derivatives (1) 705 577 (77) 19 628 596
------ ------ ------ ------ ------ ------
Sub-total 1,432 1,708 204 322 1,636 2,030
Equities and commodities 449 537 (3) (8) 446 529
------ ------ ------ ------ ------ ------
Total $1,881 $2,245 $ 201 $ 314 $2,082 $2,559
====== ====== ====== ====== ====== ======
</TABLE>
(1) Swaps and derivatives revenues represent transactions recorded by the
Corporation's primary subsidiaries dealing in derivatives.
Investment banking revenues were $245 million, down 46% from the third quarter
of 1993. Underwriting activity slowed as industry-wide volume in the 1994 third
quarter declined to first quarter 1991 levels. Higher interest rates continued
to decrease debt issuance, particularly refinancings. Equity issuances,
especially initial public stock offerings, were affected by reduced demand and
investor caution. As a result, underwriting revenues decreased 54% to $185
million. Lower revenues were reported in most categories, including equities,
and corporate debt and preferred stock. Partially offsetting these declines were
higher revenues from asset-backed securities and private placements.
Despite a 51% decline in domestic underwriting volume and a 43% decrease in
global underwriting volume from the 1993 third quarter, the Corporation remained
the top underwriter of total debt and equity securities in the 1994 third
quarter with a market share of 17.2% domestically and 13.2% worldwide, according
to Securities Data Co. For the year-to-date period, the Corporation's market
share of total debt and equity securities was 16.7% domestically and 13.3%
worldwide.
Strategic services revenues rose 32% from the 1993 third quarter to $60
million, benefiting from increased merger and acquisition advisory assignments
in various industries, including entertainment and real estate.
Asset management and portfolio service fees advanced 9% from the 1993 third
quarter to $431 million. Fees earned from asset management activities,
transfer agency fees, and other fee-based services contributed to the advance.
Asset management fees increased 10% to $201 million due primarily
18
<PAGE>
to growth in sales of stock funds. Assets under management by Merrill Lynch
Asset Management ("MLAM") rose 8% to $167 billion at quarter-end, compared with
$155 billion at the close of the 1993 third quarter. Included in MLAM managed
assets are stock and bond funds which grew by 15% from the end of the 1993 third
quarter to $76 billion at the comparable 1994 quarter-end.
Assets under management by MLAM increased 4% in the 1994 third quarter from
$161 billion at the end of the 1994 second quarter. Inflows of client assets
and higher portfolio values contributed to the advance during the quarter.
Asset levels in money market and equity funds increased during the 1994 third
quarter, while assets invested in bond funds decreased during the same period.
Revenues from Merrill Lynch Consults(Registered Trademark) ("ML Consults")
declined 5% from the 1993 third quarter to $74 million as the number of accounts
decreased 4% to 82,800 at quarter-end. Asset levels for ML Consults were $15.5
billion, down 6% from the 1993 third quarter and up 1% from the 1994 second
quarter. Fees earned on the ML Consults product are based on a percentage of
assets under management. Weak market conditions, including volatility in stock
and bond markets, have contributed to a decline in the number of accounts. Other
fee-based revenues rose 15% to $156 million on the strength of higher transfer
agency, Asset Power(Registered Trademark), and insurance fees.
Other revenues were $87 million, down 2% from $89 million reported in the 1993
third quarter. For the 1994 nine-month period, other revenues rose 63% to $360
million due to $53 million of net realized investment gains in the 1994 period,
compared with $107 million of net investment losses in the comparable 1993
period.
Non-interest expenses were $1,913 million, down 4% from the 1993 third quarter.
Compensation and benefits expense decreased 9% from the 1993 third quarter to
$1,179 million as lower incentive and production-related compensation was
partially offset by increases in base salaries. Incentive compensation decreased
with lower profitability, while production-related compensation was down due to
volume declines in certain businesses. The advance in base salaries is primarily
attributable to a 6% increase in personnel from last year's third quarter. The
majority of these hirings occurred during the last quarter of 1993 and the first
quarter of 1994. Compensation and benefits expense as a percentage of net
revenues was 51.2% compared with 49.2% in the year-ago period.
Occupancy costs decreased 9% from the 1993 third quarter to $106 million,
benefiting from continued relocation of support staff to lower cost facilities
and reduced space requirements at the Headquarters facility. Communications and
equipment rental expenses increased 13% to $111 million due primarily to
increased usage of market data, news, and statistical services. Depreciation
and amortization expense rose 13% over the 1993 third quarter to $83 million
due to the purchase of technology-related equipment.
Advertising and market development expenses decreased 3% to $96 million as
lower sales promotion and recognition costs were partially offset by increased
travel costs related to international business activity. Professional fees
increased 25% to $89 million. Systems and management consultants continue to
be used to upgrade technology and processing
19
<PAGE>
capabilities in trading, credit, and customer systems. Brokerage, clearing, and
exchange fees advanced 21% to $83 million. Increased clearinghouse fees related
to higher levels of risk management activities and higher international equity
volume contributed to this advance. Other expenses totaled $165 million, down 1%
from the 1993 third quarter.
Income tax expense totaled $158 million in the 1994 third quarter. The
effective tax rate in the 1994 third quarter was 40.5%, compared with 44.0% in
the year-ago period. The 1993 third quarter effective tax rate was affected by
a 2 percentage point cumulative, retroactive adjustment for Federal tax
legislation enacted in August 1993.
For the first nine months of 1994, non-interest expenses rose 1% to $6,057
million (3% excluding the non-recurring pretax lease charge of $103.0 million).
Trends in all expense categories are similar to those of the third quarter
comparisons unless otherwise noted.
Compensation and benefits expense, which represented 63% of non-interest
expenses, was virtually unchanged from the 1993 nine-month period. Higher base
wages and benefits expense related to the increase in the number of full-time
employees was offset by lower levels of variable compensation.
Occupancy costs decreased 7% (28% including the $103.0 million non-recurring
lease charge). Other facilities-related costs, which include communications
and equipment rental expense and depreciation and amortization expense,
increased 11%.
Advertising and market development expenses rose 8% from the 1993 nine-month
period as a result of increased travel costs related to international business
activity and higher recognition program costs. These expenses were partially
offset by a reduction in advertising costs. Professional fees were up 37% from
the year-ago period due primarily to increased systems consulting fees related
to technology improvements.
Brokerage, clearing, and exchange fees were up 22% from the prior-year
period. Other expenses increased 6% due, in part, to increased provisions
related to various business activities.
The effective tax rate for the 1994 nine-month period was 42.0% versus 42.7%
in the comparable 1993 period.
LIQUIDITY AND LIABILITY MANAGEMENT
The primary objective of the Corporation's funding policies is to assure
liquidity at all times. To strengthen liquidity, the Corporation maintains a
strong capital base, issues term debt, obtains committed backup credit
facilities, concentrates debt issuance through Merrill Lynch & Co., Inc. (the
"Parent"), and pursues expansion and diversification of investors, funding
instruments, and creditors.
There are three key elements to the Corporation's liquidity strategy. The
first is to maintain alternative funding sources such that all debt obligations
maturing within one year, including commercial paper and the current portion of
term debt, can be funded when due without issuing new unsecured debt or
liquidating any business assets. The most significant
20
<PAGE>
alternative funding sources are the proceeds from executing repurchase
agreements ("repos") and obtaining secured bank loans, both principally
employing unencumbered investment-grade marketable securities. The calculation
of proceeds available from repos and secured bank loans takes into account both
a conservative estimate of excess collateral required by secured lenders, and
regulatory restrictions on upstreaming cash from subsidiaries to the Parent. The
ability to execute this secured funding is demonstrated by the Corporation's
routine use of repo markets to finance inventory and by periodic tests of
secured borrowing procedures with banks. Other alternative funding sources could
include liquidating cash equivalents, securitizing additional home equity and
PrimeFirst(Registered Trademark) loans, and drawing upon committed, unsecured
credit facilities. At September 30, 1994, committed, unsecured revolving credit
facilities totaled $5.0 billion. These facilities have not been drawn upon.
As an additional measure, the Corporation regularly reviews its assets and
liabilities to ascertain its ability to conduct core businesses without reliance
on issuing new unsecured debt or drawing upon committed credit facilities for
terms beyond one year. The composition of the Corporation's asset mix provides a
great degree of flexibility in managing liquidity. The Corporation's liquidity
position is enhanced since most of the Corporation's assets turn over frequently
or are match-funded with a liability whose cash flow characteristics closely
match those of the asset. At September 30, 1994, approximately 3% of the
Corporation's assets, principally certain other investments, and fixed and other
assets, were considered not readily marketable by management. The Corporation
monitors the liquidity of assets, the quality of committed credit facilities,
and the overall level of equity and term debt in assessing financial strength
and capital adequacy at any point in time.
The second element of the Corporation's liquidity strategy is to concentrate all
general purpose borrowing at the Parent level, except where tax regulations or
time differences make this impractical. The benefits of this guideline are: a)
the lower financing costs that result from the reduced risks of a diversified
asset and business base; b) the simplicity, control, and wider name recognition
for banks, creditors, and rating agencies; and c) the flexibility to meet
variable funding requirements within subsidiaries.
The third element is to expand and diversify funding sources and to maintain
strict concentration standards for short-term lenders, which include limits for
any single lender. The Corporation's funding programs benefit from the ability
to market commerical paper through its own sales force to a large, diversified
customer base and the financial creativity of the Corporation's capital markets
and private client operations. Commercial paper remains the Corporation's major
source of short-term general purpose funding. Commercial paper outstanding
totaled $13.6 billion at September 30, 1994 and $14.9 billion at December 31,
1993, which represented 8% and 10% of total assets at third quarter-end 1994 and
year-end 1993, respectively.
21
<PAGE>
At September 30, 1994, total long-term debt was $15.8 billion compared with
$13.5 billion at year-end 1993. As of November 4, 1994, the Corporation's senior
long-term debt was rated by seven recognized credit rating agencies as follows:
Rating Agency Rating
------------- ------
Duff & Phelps Credit Rating Co. AA-
Fitch Investors Service, Inc. AA
IBCA Ltd. AA-
Japan Bond Research Institute AA
Moody's Investors Service, Inc. A1
Standard & Poor's Ratings Group A+
Thomson BankWatch, Inc. AA
During the first nine months of 1994, the Corporation issued $7.6 billion in
long-term debt. During the same period, maturities and repurchases were $4.9
billion. In addition, approximately $1.4 billion of the Corporation's
securities held by subsidiaries were sold and $1.9 billion were purchased.
Expected maturities of long-term debt over the next 12 months are $6.8 billion
as of September 30, 1994.
Approximately $30.2 billion of the Corporation's indebtedness at September
30, 1994 is considered senior indebtedness as defined under various indentures.
A liquidity model has been developed for the Corporation's insurance
subsidiaries as part of the overall liquidity program. The primary liquidity
requirements of such companies involve the funding of contractual obligations
for in-force, fixed-rate life insurance and annuity contracts and the payment of
acquisition and maintenance expenses for all contracts. The liquidity and
duration of these fixed-rate asset and liability portfolios are closely
monitored. The insurance subsidiaries maintain predominantly high quality,
liquid investment portfolios to fund their various business activities. At
September 30, 1994, the insurance subsidiaries held $5.9 billion in invested
assets, 61% of which were considered liquid.
During the past few years, the insurance subsidiaries have changed the mix
of products offered to policyholders. Currently, variable life insurance and
variable annuity products are actively marketed. These products do not subject
the insurance subsidiaries to the interest rate, asset/liability matching, and
credit risks attributable to fixed-rate products. Variable products reduce the
risk profile and liquidity demands on the insurance subsidiaries as they are
predominantly invested in mutual funds.
In the 1994 nine-month period, the Corporation's cash and cash equivalents
increased approximately $567 million to $2,350 million. Cash of $6,603 million
and $506 million was provided from operating activities and investing
activities, respectively, in the first nine months of 1994. During the same
period, the Corporation used $6,542 million for financing activities.
22
<PAGE>
CAPITAL RESOURCES AND CAPITAL ADEQUACY
The Corporation remains one of the most highly capitalized institutions in the
U.S. securities industry with an equity base of $5.7 billion at September 30,
1994, including $5.5 billion in common equity, supplemented by $0.2 billion in
preferred stock. (See Subsequent Event Note to the Consolidated Financial
Statements). The Corporation's average leverage ratio, computed as the ratio of
average month-end assets to average month-end stockholders' equity, was 32.4x
and 26.6x for the first nine months of 1994 and 1993, respectively. The
Corporation's leverage ratio at the end of the 1994 third quarter was 29.5x. The
leverage ratio was affected by Financial Accounting Standards Board
Interpretation No. 39 ("Interpretation No. 39"), "Offsetting of Amounts Related
to Certain Contracts" (see Accounting Changes Note to the Consolidated Financial
Statements), which increased assets by approximately $12.0 billion at September
30, 1994.
To compute the Corporation's average adjusted leverage ratio, resale
agreements and securities borrowed transactions are subtracted from total
assets. The average adjusted leverage ratio was 19.3x and 16.2x for the first
nine months of 1994 and 1993, respectively. The Corporation's adjusted
leverage ratio at the end of the 1994 third quarter was 17.6x.
The Corporation operates in many regulated businesses that require various
minimum levels of capital to conduct business. (See Regulatory Requirements
Note to the Consolidated Financial Statements). Certain activities of the
Corporation's insurance subsidiaries are subject to other regulatory approvals
which may restrict the free flow of funds to affiliates. Regulatory approval
is required for payments of dividends in excess of certain established levels,
making affiliated investments, and entering into management and service
agreements with affiliated companies.
The Corporation reviews its overall capital needs to ensure that its equity
base can support the estimated needs of its businesses as well as the
regulatory and legal capital requirements of subsidiaries. Based upon these
analyses, management believes that the Corporation's equity base is adequate.
ASSETS AND LIABILITIES
The Corporation manages its balance sheet and risk limits according to
market conditions and business needs subject to profitability and control of
risk. Asset and liability levels are primarily determined by order flow and
fluctuate daily, sometimes significantly, depending upon volume and demand.
The liquidity and maturity characteristics of assets and liabilities are
monitored continuously. The Corporation monitors and manages the growth of its
balance sheet using point-in-time and average daily balances. Average daily
balances were derived from the Corporation's management information system
which summarizes balances on a settlement date basis. Financial statement
balances, as required under generally accepted accounting principles, are
recorded on a trade date basis. The discussion that follows compares the
changes in settlement date average daily balances, not quarter-end balances.
The reasons underlying the changes in average balances, however, are similar to
those underlying changes in quarter-end balances. The increase in average
balance sheet levels during the first nine months of 1994 was attributable to
many
23
<PAGE>
factors, including the effect of Interpretation No. 39, increased trading
activity, particularly in the 1994 first quarter, and expanded match-funding of
repurchase and resale agreements.
For the first nine months of 1994, average assets were $183 billion, up 13%
versus $162 billion for the 1993 fourth quarter. Average liabilities rose 14%
to $178 billion from $157 billion for the 1993 fourth quarter. Excluding the
effect of Interpretation No. 39, average assets and liabilities increased by
approximately $8 billion in the 1994 year-to-date period. Interpretation No.
39 primarily affected balances related to contractual agreements and resale and
repurchase agreements. Compared with balance sheet levels at 1994 second
quarter-end, average assets and liabilities both decreased 1% as a result of
declines in business volumes.
The major components in the growth of average assets and liabilities for the
first nine months of 1994 are summarized in the table below:
<TABLE>
<CAPTION>
Increase in Percent
(In millions) Average Assets Increase
- ------------- -------------- --------
<S> <C> <C>
Trading inventories $9,994 18%
Resale agreements $9,973 22%
Securities borrowed $ 757 3%
</TABLE>
<TABLE>
<CAPTION>
Increase in Percent
Average Liabilities Increase
------------------- --------
<S> <C> <C>
Repurchase agreements $14,598 25%
Commitments for securities sold
but not yet purchased $ 8,562 33%
Long-term borrowings $ 1,874 14%
</TABLE>
In managing its balance sheet, the Corporation strives to match-fund its
interest-earning assets with interest-bearing liabilities having similar
maturities. For example, the Corporation match-funds its repurchase
agreements/resale agreements and its securities borrowed/securities loaned
business, earning an interest spread on these transactions. In the first nine
months of 1994, inventory levels increased due to the effect of Interpretation
No. 39 and increases in trading activity, particularly during the 1994 first
quarter. On-balance-sheet hedges, included in trading inventories and
commitments for securities sold but not yet purchased, also advanced due, in
part, to increased market volatility during 1994. The Corporation uses hedges
principally to reduce risk in connection with its trading activities. Repurchase
and resale agreements rose during the first nine months of 1994 as a result of
an increase in match-funded transactions involving foreign and emerging market
securities. Securities borrowed and loaned levels also increased during the
period.
The Corporation's assets, based on liquidity and maturity characteristics, are
funded through diversified sources which include repurchase agreements,
commercial paper and other short-term borrowings, long-term borrowings, and
equity.
24
<PAGE>
NON-INVESTMENT GRADE HOLDINGS AND HIGHLY LEVERAGED TRANSACTIONS
In the normal course of business, the Corporation underwrites, trades, and
holds non-investment grade securities in connection with its market-making,
investment banking, and derivative structuring activities. As a result of the
improved liquidity and credit ratings of issuers in this market, the
Corporation has increased its non-investment grade trading inventories to
satisfy customer demand for higher-yielding investments.
For purposes of this discussion, non-investment grade securities have been
defined as debt and preferred equity securities rated by Standard and Poor's
Ratings Group as BB+ or lower and by Moody's Investors Service, Inc. as Ba1 or
lower (or equivalent ratings for other instruments and non-U.S. securities),
certain sovereign debt issued in emerging markets, amounts due under various
derivative contracts from non-investment grade counterparties, as well as
non-rated securities which, in the opinion of management, are non-investment
grade. At September 30, 1994, long and short non-investment grade trading
inventories accounted for 4.2% of aggregate consolidated trading inventories,
compared with 4.6% at year-end 1993. Non-investment grade trading inventories
are carried at fair value.
The Corporation provides financing and advisory services to, and invests in,
companies entering into leveraged transactions. Examples of leveraged
transactions may include leveraged buyouts, recapitalizations, and mergers and
acquisitions. The Corporation provides extensions of credit to leveraged
companies in the form of senior term and subordinated debt, as well as bridge
financing on a select and limited basis. In addition, the Corporation may
syndicate loans for non-investment grade counterparties or counterparties
engaged in highly leveraged transactions. Loans to highly leveraged companies
are carried at unpaid principal balances 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. At September 30,
1994 and December 31, 1993, there were no bridge loans outstanding.
The Corporation holds direct equity investments in leveraged companies,
interests in partnerships that invest in leveraged transactions, and
non-investment grade securities. Equity investments in privately-held
companies for which sale is restricted by government or contractual
requirements are carried at the lower of cost or estimated net realizable
value. Prior to July 1, 1994, the Corporation had a co-investment arrangement
to enter into direct equity investments. The Corporation also has committed to
participate in limited partnerships that invest in leveraged transactions.
Future commitments to participate in limited partnerships will be determined on
a select and limited basis.
The Corporation's involvement in highly leveraged transactions and non-
investment grade securities is 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, financing, underwriting, and
trading investment grade instruments. The Corporation recognizes such risks and,
when possible, develops strategies to mitigate its exposures.
25
<PAGE>
The specific components and overall level of highly leveraged and non-investment
grade positions may vary significantly from period to period as a result of
inventory turnover, investment sales, and asset redeployment. The Corporation
continuously monitors credit risk by individual issuer and industry
concentration. In addition, valuation policies provide for recognition of
market liquidity, as well as the trading pattern of specific securities. In
certain instances, the Corporation will hedge the exposure associated with
owning a high-yield or non-investment grade position by selling short the
related equity security, and in other instances, the Corporation uses non-
investment grade inventories to reduce exposure related to structured derivative
transactions.
The Corporation uses certain non-investment grade trading inventories,
principally non-U.S. governments and agencies securities, to accommodate client
demand and to hedge the exposure arising from structured derivative
transactions. Collateral, consisting principally of U.S. Government securities,
may be obtained to reduce credit risk related to these transactions.
The Corporation's insurance subsidiaries hold non-investment grade securities.
At September 30, 1994, non-investment grade insurance investments declined to
$386 million from $458 million as of December 31, 1993. As a percentage of
total insurance investments, non-investment grade investments were 6.4%,
compared with 5.8% at year-end 1993. Non-investment grade securities of
insurance subsidiaries classified as trading or available-for-sale are carried
at fair value.
A summary of the Corporation's highly leveraged transactions and non-investment
grade holdings is provided below:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
(In millions) 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Non-investment grade trading inventories $3,271 $3,129
Non-investment grade commitments for
securities sold but not yet purchased 496 214
Non-investment grade investments
of insurance subsidiaries 386 458
Loans (net of allowance for
loan losses)(A),(C) 283 435
Equity investments(B) 284 276
Partnership interests 98 92
- -------------------------------------------------------------------------------
Additional commitments to invest in
partnerships $ 74 $ 19
Additional co-investment commitments 7 49
Unutilized revolving lines of
credit and other lending
commitments(C),(D) 131 49
- -------------------------------------------------------------------------------
</TABLE>
(A) Represented outstanding loans to 37 and 42 medium-sized companies at
September 30, 1994 and at December 31, 1993, respectively.
(B) Invested in 81 and 82 enterprises at September 30, 1994 and at December
31, 1993, respectively.
(C) Subsequent to quarter-end, the Corporation assigned $111 million of a
$126 million commitment to third parties. As part of this transaction, a
$38 million loan receivable was repaid. The Corporation has funded $7.7
million of its remaining $15 million commitment.
(D) Subsequent to quarter-end, the Corporation committed to provide up to
$70.3 million of financing to a non-investment grade counterparty.
26
<PAGE>
At September 30, 1994, the largest non-investment grade concentration consisted
of various issues of a Latin American sovereign totaling $271 million, of which
$74 million represented on-balance-sheet hedges for off-balance-sheet
instruments. No one industry sector accounted for more than 15% of total non-
investment grade positions. Included in the table above are debt and equity
securities of issuers in various stages of bankruptcy proceedings or in default.
At September 30, 1994, the carrying value of these securities totaled $254
million, of which 59% resulted from the Corporation's market-making activities.
RECENT ACCOUNTING DEVELOPMENTS
In May 1993, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan". SFAS No. 114,
effective for fiscal years beginning after December 15, 1994, establishes
accounting standards for creditors to measure the impairment of certain loans.
A loan is impaired when it is probable that a creditor will be unable to
collect all amounts due under the terms of the loan agreement. Impairment is
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate, or the observable market price, or the fair
value of the underlying collateral if the loan is collateral dependent.
In October 1994, the FASB issued SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures". SFAS No. 118 amends
SFAS No. 114 to allow creditors to use existing methods for recognizing interest
income on an impaired loan, rather than the method originally required by SFAS
No. 114. The Corporation has evaluated the impact of these pronouncements on its
financial condition as of September 30, 1994 and has determined that the effect
is not material.
27
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 5. OTHER INFORMATION
-----------------
The 1995 Annual Meeting of Stockholders will be held at 10:30 a.m. on
Tuesday, April 18, 1995 at the Merrill Lynch & Co., Inc. Conference and Training
Center, 800 Scudders Mill Road, Plainsboro, New Jersey. Any stockholder of
record entitled to vote generally for the election of directors may nominate one
or more persons for election as a director at such meeting only if proper
written notice of such stockholder's intent to make such nomination or
nominations, in accordance with the provisions of Merrill Lynch & Co., Inc.'s
Certificate of Incorporation, has been given to the Secretary of the
Corporation, 100 Church Street, 12th Floor, New York, New York 10080-6512, no
earlier than February 2, 1995 and no later than February 27, 1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
(4) Instruments defining the rights of security holders, including
indentures:
(i) Form of certificate representing the 9% Cumulative Preferred
Stock, Series A, par value $1.00 per share, of the Corporation
(the "9% Preferred Stock") (incorporated herein by reference to
Exhibit 99(a) of the Corporation's Registration Statement on
Form 8-A dated November 4, 1994 (the "November 1994 Form 8-A")).
(ii) Form of Depositary Receipt evidencing the Depositary Shares for
the 9% Preferred Stock (incorporated herein by reference to
Exhibit 99(b) of the November 1994 Form 8-A).
(iii) Certificate of Designation of the Corporation establishing the
rights, preferences, privileges, qualifications, restrictions
and limitations relating to the 9% Preferred Stock (incorporated
herein by reference to Exhibit 99(c) of the November 1994 Form
8-A).
(iv) Deposit Agreement, dated as of November 3, 1994 among the
Corporation, Citibank, N.A. as
28
<PAGE>
Depositary, and the holders from time to time of the Depositary
Receipts (incorporated herein by reference to Exhibit 99(d) of
the November 1994 Form 8-A).
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the
Corporation hereby undertakes to furnish to the Securities and
Exchange Commission (the "Commission"), upon request, copies of the
instruments defining the rights of holders of long-term debt
securities of the Corporation that authorize an amount of securities
constituting 10% or less of the total assets of the Corporation and
its subsidiaries on a consolidated basis.
(10) Material Contracts
(i) Form of Merrill Lynch & Co., Inc. 1995 Deferred Compensation
Agreement for a Select Group of Eligible Employees.
(ii) Merrill Lynch & Co., Inc. Long Term Incentive Compensation Plan,
as amended on October 14, 1994.
(11) Statement re computation of per share earnings.
(12) Statement re computation of ratios.
(15) Letter re unaudited interim financial information.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
The following Current Reports on Form 8-K were filed by the Corporation
with the Commission during the quarterly period covered by this Report:
(i) Current Report dated July 19, 1994 for the purpose of filing the
Preliminary Unaudited Earnings Summary of the Corporation for
the three months ended July 1, 1994.
(ii) Current Report dated August 2, 1994 for the purpose of filing
the Preliminary Unaudited Consolidated Balance Sheet of the
Corporation as of July 1, 1994.
29
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MERRILL LYNCH & CO., INC.
-------------------------
(Registrant)
Date: November 11, 1994 By: /s/ Joseph T. Willett
----------------------
Joseph T. Willett
Senior Vice President and
Chief Financial Officer
30
<PAGE>
INDEX TO EXHIBITS
Exhibits
(4) Instruments defining the rights of security holders, including indentures:
(i) Form of certificate representing the 9% Preferred Stock
(incorporated herein by reference to Exhibit 99(a) of the November
1994 Form 8-A).
(ii) Form of Depositary Receipt evidencing the Depositary Shares for the
9% Preferred Stock (incorporated herein by reference to Exhibit
99(b) of the November 1994 Form 8-A).
(iii) Certificate of Designation of the Corporation establishing the
rights, preferences, privileges, qualifications, restrictions and
limitations relating to the 9% Preferred Stock (incorporated herein
by reference to Exhibit 99(c) of the November 1994 Form 8-A).
(iv) Deposit Agreement, dated as of November 3, 1994 among the
Corporation, Citibank, N.A. as Depositary, and the holders from time
to time of the Depositary Receipts (incorporated herein by reference
to Exhibit 99(d) of the November 1994 Form 8-A).
(10) Material Contracts
(i) Form of Merrill Lynch & Co., Inc. 1995 Deferred Compensation
Agreement for a Select Group of Eligible Employees.
(ii) Merrill Lynch & Co., Inc. Long Term Incentive Compensation Plan, as
amended on October 14, 1994.
(11) Statement re computation of per share earnings.
(12) Statement re computation of ratios.
(15) Letter re unaudited interim financial information.
(27) Financial Data Schedule.
31
<PAGE>
EXHIBIT 10(i)
MERRILL LYNCH & CO., INC.
1995 DEFERRED COMPENSATION PLAN
FOR A SELECT GROUP OF ELIGIBLE EMPLOYEES
<PAGE>
MERRILL LYNCH & CO., INC.
1995 DEFERRED COMPENSATION PLAN
FOR A SELECT GROUP OF ELIGIBLE EMPLOYEES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
I. GENERAL............................................................ 1
1.1 Purpose and Intent............................................ 1
1.2 Definitions................................................... 1
II. ELIGIBILITY........................................................ 3
2.1 Eligible Employees............................................ 3
(a) General Rule............................................. 3
(b) Individuals First Employed During Election
Year or Plan Year....................................... 4
(c) Wages Subject to Legal Process........................... 4
III. DEFERRAL ELECTIONS; ACCOUNTS....................................... 4
3.1 Deferral Elections............................................ 4
(a) Timing and Manner of Making of Elections................. 4
(b) Irrevocability of Deferral Election...................... 4
(c) Application of Election.................................. 4
3.2 Crediting to Accounts......................................... 5
3.3 Minimum Requirements for Deferral............................. 5
(a) Minimum Requirements..................................... 5
(b) Failure to Meet Requirements............................. 5
3.4 Benchmark Return Options; Adjustment of Accounts.............. 5
(a) Selection of Benchmark Return Options.................... 5
(b) Adjustment of Accounts................................... 6
(c) Annual Charge............................................ 6
3.5 Rescission of Deferral Election............................... 7
(a) Prior to December 1, 1994................................ 7
(b) Adverse Tax Determination................................ 7
(c) Rescission For Amounts Not Yet Earned.................... 7
IV. STATUS OF DEFERRED AMOUNTS AND ACCOUNT............................. 7
4.1 No Trust or Fund Created; General Creditor Status............. 7
4.2 Non-Assignability............................................. 8
4.3 Effect of Deferral on Benefits Under Pension and
Welfare Benefit Plans........................................ 8
V. PAYMENT OF ACCOUNT................................................. 8
5.1 Payment Date.................................................. 8
5.2 Termination of Employment..................................... 8
(a) Death or Retirement...................................... 8
(b) Other Termination of Employment.......................... 8
(c) Leave of Absence, Transfer or Disability................. 8
(d) Discretion to Alter Payment Date......................... 9
5.3 Withholding of Taxes.......................................... 9
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
5.4 Beneficiary ............................................... 9
(a) Designation of Beneficiary............................ 9
(b) Change in Beneficiary................................. 9
(c) Default Beneficiary................................... 9
(d) If the Beneficiary Dies During Payment................ 9
5.5 Hardship Distributions..................................... 10
VI. ADMINISTRATION OF THE PLAN...................................... 10
6.1 Powers of the Administrator................................ 10
6.2 Payments on Behalf of an Incompetent....................... 10
6.3 Corporate Books and Records Controlling.................... 10
VII. MISCELLANEOUS PROVISIONS........................................ 11
7.1 Litigation................................................. 11
7.2 Headings Are Not Controlling............................... 11
7.3 Governing Law.............................................. 11
7.4 Amendment and Termination.................................. 11
</TABLE>
-ii-
<PAGE>
MERRILL LYNCH & CO., INC.
1995 DEFERRED COMPENSATION PLAN
FOR A SELECT GROUP OF ELIGIBLE EMPLOYEES
ARTICLE I
GENERAL
1.1 PURPOSE AND INTENT.
The purpose of the Plan is to encourage the employees who are integral to
the success of the business of the Company to continue their employment by
providing them with flexibility in meeting their future income needs. It is
intended that this Plan be unfunded and maintained primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees within the meaning of Title I of ERISA, and all decisions
concerning who is to be considered a member of that select group and how this
Plan shall be administered and interpreted shall be consistent with this
intention.
1.2 DEFINITIONS.
For the purpose of the Plan, the following terms shall have the meanings
indicated.
"Account Balance" means, as of any date, the Deferred Amounts credited to
a Participant's Account, adjusted in accordance with Section 3.4 to reflect the
performance of the Participant's Selected Benchmark Return Options, the Annual
Charge and any payments made from the Account to the Participant prior to that
date.
"Account" means the reserve account established on the books and records
of ML & Co. for each Participant to record the Participant's interest under the
Plan.
"Adjusted Compensation" means the financial consultant incentive
compensation, account executive incentive compensation, or estate planning and
business insurance specialist incentive compensation, in each case exclusive of
base salary, earned by a Participant during the Fiscal Year ending in 1995, and
payable after January 1, 1995, as a result of the Participant's production
credit level.
"Administrator" means the Director of Human Resources of ML & Co., or his
functional successor, or any other person or committee designated as
Administrator of the Plan by the MDCC.
"Affiliate" means any corporation, partnership, or other organization of
which ML & Co. owns or controls, directly or indirectly, not less than 50% of
the total combined voting power of all classes of stock or other equity
interests.
"Annual Charge" means the charge to the Participant's Account provided for
in Section 3.4(c).
"Benchmark Return Options" means such Merrill Lynch mutual funds or other
investment vehicles as the Administrator may from time to time designate for
the purpose of indexing Accounts hereunder. In the event a Benchmark Return
Option ceases to exist or is no longer to be a Benchmark Return Option, the
Administrator may designate a substitute Benchmark Return Option for such
discontinued option.
<PAGE>
"Board of Directors" means the Board of Directors of ML & Co.
"Code" means the U.S. Internal Revenue Code of 1986, as amended from time
to time.
"Company" means ML & Co. and all of its Affiliates.
"Compensation" means, as relevant, a Participant's Adjusted Compensation,
Variable Incentive Compensation and/or Sign-On Bonus. In no event shall a
Participant's base pay be considered Compensation (i.e., an amount subject to
deferral under this Plan).
"Deferral Percentage" means the percentage (which shall be in whole
percentage increments and not more than 90%), specified by the Participant to
be the percentage of each payment of Compensation he or she wishes to defer
under the Plan.
"Deferred Amounts" means the amounts of Compensation actually deferred by
the Participant under this Plan.
"Election Year" means the 1994 calendar year.
"Eligible Compensation" means a Participant's "eligible compensation" as
determined, from time to time, for purposes of ML & Co.'s Basic Group Life
Insurance Plan.
"Eligible Employee" means an employee eligible to defer amounts under this
Plan, as determined under Section 2.1 hereof.
"ERISA" means the U.S. Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Fiscal Month" means the monthly period used by ML & Co. for financial
accounting purposes.
"Fiscal Year" means the annual period used by ML & Co. for financial
accounting purposes.
"Full-Time Domestic Employee" means a full-time employee of the Company
paid from the Company's domestic based payroll (other than any U.S. citizen or
"green card" holder who is employed outside the United States).
"Full-Time Expatriate Employee" means a U.S. citizen or "green card"
holder employed by the Company outside the United States and selected by the
Administrator as eligible to participate in the Plan (subject to the other
eligibility criteria).
"Maximum Deferral" means the whole dollar amount specified by the
Participant to be the amount of Compensation he or she elects to be deferred
under the Plan.
"MDCC" means the Management Development and Compensation Committee of the
Board of Directors.
"ML & Co." means Merrill Lynch & Co., Inc.
2
<PAGE>
"Net Asset Value" means, with respect to each Benchmark Return Option that
is a mutual fund or other commingled investment vehicle for which such values
are determined in the normal course of business, the net asset value, on the
date in question, of the Selected Benchmark Return Option for which the value
is to be determined.
"Participant" means an Eligible Employee who has elected to defer
Compensation under the Plan.
"Plan" means this Merrill Lynch & Co., Inc. 1995 Deferred Compensation
Plan for a Select Group of Eligible Employees.
"Plan Year" means the Fiscal Year ending in 1995.
"Remaining Deferred Amounts" means a Participant's Deferred Amounts times
a fraction equal to the number of remaining installment payments divided by the
total number of installment payments.
"Retirement" means a Participant's (i) termination of employment with the
Company for reasons other than for cause on or after the Participant's 65th
birthday, or (ii) resignation on or after the Participant's 55th birthday if
the Participant has at least 10 years of service, or (iii) resignation at any
age with the express approval of the Administrator, which will be granted only
if the termination is found by the Administrator to be in, or not contrary to,
the best interests of the Company.
"Selected Benchmark Return Option" means a Benchmark Return Option
selected by the Participant in accordance with Section 3.4.
"Sign-On Bonus" means a single-sum amount paid or payable during the Plan
Year upon commencement of employment to a new Eligible Employee, in addition to
base pay and other Compensation, to induce him or her to become an employee of
the Company.
"Variable Incentive Compensation" means the variable incentive
compensation or office manager incentive compensation that is paid in cash to
certain employees of the Company generally in January or February of the Plan
Year with respect to the prior Fiscal Year, which for purposes of this Plan is
considered earned during the Plan Year regardless of when it is actually paid
to the Participant.
ARTICLE II
ELIGIBILITY
2.1 ELIGIBLE EMPLOYEES.
(a) GENERAL RULE. An individual is an Eligible Employee if he or she (i)
is a Full-Time Domestic Employee or a Full-Time Expatriate Employee, (ii) has
at least $200,000 of Eligible Compensation for the Election Year, (iii) has
attained at least the title of Vice President, Director or Managing Director,
or holds a National Sales Management position with the Company (a "National
Sales Manager"), and (iv) (A) is a financial consultant or an estate planning
and business insurance specialist, who was a member in 1994 of the Chairman's
Club, the Charles E. Merrill Circle, the Society of Eagles, the Falcons Club or
the Win Smith Fellows, (B) is a National Sales Manager (C) is a member of the
International Private Banking Group, (D) is a non-producing employee in the
Senior
3
<PAGE>
Manager or Senior Consultant Band (Q Band) or above, or (E) is a producing
employee in grade 95 or above; provided, that non-producing employees in the
--------
Director Band (R Band) or above and producing employees in grade 97 or above
(or their executive equivalents) shall not be required to meet condition (ii)
hereof, and provided, further, that employees who were 1994 Win Smith Fellows
-------- -------
shall not be required to meet condition (iii) hereof.
(b) INDIVIDUALS FIRST EMPLOYED DURING ELECTION YEAR OR PLAN YEAR. Subject
to the approval of the Administrator in his sole discretion, an individual who
is first employed by the Company during the Election Year or the Plan Year is
an Eligible Employee if his or her Eligible Compensation is greater than
$200,000 and he or she is either employed as a National Sales Manager or is to
be nominated for at least the title of Vice President, Director or Managing
Director at the first opportunity following his or her commencement of
employment with the Company.
(c) WAGES SUBJECT TO LEGAL PROCESS. An individual shall not, however, be
an Eligible Employee if as of the deadline for submission of elections
specified in Section 3.1(a) the individual's wages have been attached or are
being garnished or are otherwise restrained pursuant to legal process.
ARTICLE III
DEFERRAL ELECTIONS; ACCOUNTS
3.1 DEFERRAL ELECTIONS.
(a) TIMING AND MANNER OF MAKING OF ELECTIONS. An election to defer
Compensation for payment in accordance with Section 5.1 shall be made by
submitting to the Administrator such forms as the Administrator may prescribe.
Each election submitted must specify a Maximum Deferral and a Deferral
Percentage with respect to each category of Compensation to be deferred. All
elections by a Participant to defer Compensation under the Plan must be
received by the Administrator or such person as he may designate for the
purpose by no later than September 30, 1994; provided, however, that the
-------- -------
Eligible Employee's election to defer a Sign-On Bonus must be part of such
Eligible Employee's terms and conditions of employment agreed to prior to the
Eligible Employee's first day of employment with the Company.
(b) IRREVOCABILITY OF DEFERRAL ELECTION. Except as provided in Sections
3.5 and 5.5, an election to defer the receipt of any Compensation made under
Section 3.1(a) is irrevocable once submitted to the Administrator or his
designee. The Administrator's acceptance of an election to defer Compensation
shall not, however, affect the contingent nature of such Compensation under the
plan or program under which such Compensation is payable.
(c) APPLICATION OF ELECTION. The Participant's Deferral Percentage will
be applied to each payment of Compensation to which the Participant's deferral
election applies, provided, that the aggregate of the Participant's Deferred
--------
Amounts shall not exceed the Participant's Maximum Deferral. If a Participant
has made deferral elections with respect to more than one category of
Compensation, this Section 3.1(c) shall be applied separately with respect to
each such category.
4
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3.2 CREDITING TO ACCOUNTS.
A Participant's Deferred Amounts will be credited to the Participant's
Account, as soon as practicable (but in no event later than 90 days) after the
last day of the Fiscal Month during which such Deferred Amounts would, but for
deferral, have been paid and will be accounted for in accordance with Section
3.4.
3.3 MINIMUM REQUIREMENTS FOR DEFERRAL.
(a) MINIMUM REQUIREMENTS. Notwithstanding any other provision of this
Plan, no deferral will be effected under this Plan with respect to a
Participant if:
(i) the Participant is not an Eligible Employee as of December 31, 1994,
(ii) the Participant's election as applied to the Participant's Variable
Incentive Compensation (determined by substituting the Election Year
for the Plan Year) or Adjusted Compensation (determined by
substituting the Fiscal Year ending in 1993 for the Fiscal Year
ending in 1995) would have resulted in an annual deferral of less
than $15,000, or
(iii) the greater of (A) the sum of (1) the compensation amount listed on
the Participant's W-2 form for 1995 and (2) any Compensation that is
accelerated which the Participant may receive in December 1994 which
would have been payable in calendar year 1995 in the absence of the
action of the Company to accelerate the payment, and (B) the
Participant's Eligible Compensation for calendar year 1996, is less
than $200,000;
provided, that any Participant who first becomes an employee of the Company
--------
during the Plan Year shall not be required to satisfy conditions (i) and (ii).
(b) FAILURE TO MEET REQUIREMENTS. If any of the requirements of Section
3.3(a) are not met by a Participant, the Deferred Amounts will be paid to the
Participant, without adjustment to reflect the performance of any Selected
Benchmark Return Option, as soon as practicable after it has been determined
that the requirement has not been met provided, however, that if the
-------- -------
Participant fails to meet the requirements of Section 3.3(a) (iii), the
Participant will receive the greater of the Deferred Amounts or the Account
Balance.
3.4 BENCHMARK RETURN OPTIONS; ADJUSTMENT OF ACCOUNTS.
(a) SELECTION OF BENCHMARK RETURN OPTIONS. Coincident with the
Participant's election to defer Compensation, the Participant must select one
or more Benchmark Return Options and the percentage of the Participant's
Account to be adjusted to reflect the performance of each Selected Benchmark
Return Option. All elections of Selected Benchmark Return Options shall be in
multiples of 10% unless the Administrator determines that lower increments are
administratively feasible, in which case such lower increment shall apply. A
Participant may, by complying with such procedure as the Administrator may
prescribe on a uniform and nondiscriminatory basis, including procedures
specifying the frequency with respect to which such changes may be effected
(but not more than twelve times in any calendar year), change the Selected
Benchmark Return Options to be applicable with respect to his or her Account.
5
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(b) ADJUSTMENT OF ACCOUNTS. While each Participant's Account does not
represent the Participant's ownership of, or any ownership interest in, any
particular assets, the Account shall be adjusted to reflect the investment
experience of the Participant's Selected Benchmark Return Options in the same
manner as if investments in accordance with the Participant's elections had
actually been made through the ML Benefit Services Platform and ML II Core
Recordkeeping System, or any successor system used for keeping records of
Participants' Accounts (the "ML II System"). In adjusting Accounts, the timing
of receipt of Participant instructions by the ML II System shall control the
timing and pricing of the notional investments in the Participant's Selected
Benchmark Return Options in accordance with the rules of operation of the ML II
System and its requirements for placing corresponding investment orders, as if
orders to make corresponding investments were actually to be made, except that
in connection with the crediting of Deferred Amounts to the Participant's
Account and distributions from the Account, appropriate deferral allocation
instructions shall be treated as received from the Participant prior to the
close of transactions through the ML II System on the relevant day. Each
Selected Benchmark Return Option shall be valued using the Net Asset Value of
the Selected Benchmark Return Option as of the relevant day, provided, that, in
--------
valuing a Selected Benchmark Return Option for which a Net Asset Value is not
computed, the value of the security involved for determining Participants'
rights under the Plan shall be the price reported for actual transactions in
that security through the ML II System on the relevant day, without giving
effect to any transaction charges or costs associated with such transactions,
provided, further, that, if there are no such transactions effected through the
-------- -------
ML II System on the relevant day, the value of the security shall be:
(i) if the security is listed for trading on one or more national
securities exchanges, the average of the high and low sale prices
for that day on the principal exchange for such security, or if
such security is not traded on such principal exchange on that
day, the average of the high and low sales prices on such
exchange on the first day prior thereto on which such security
was so traded;
(ii) if the security is not listed for trading on a national
securities exchange but is traded in the over-the-counter market,
the average of the highest and lowest bid prices for such
security on the relevant day; or
(iii) if neither clause (i) nor (ii) applies, the value determined by
the Administrator by whatever means he considers appropriate in
his sole discretion.
(c) ANNUAL CHARGE. As of the last day of each Fiscal Year or such earlier
day in December as the Administrator shall determine, an Annual Charge of 2.0%
of the Participant's Deferred Amounts (exclusive of any appreciation or
depreciation determined under Section 3.4 (b)) shall be applied to reduce the
Account Balance (but not below zero). In the event that the Participant elects
to have the Account Balance paid in installments, this Annual Charge will be
charged on the Remaining Deferred Amounts after giving effect to the
installment payments. In the event that the Account Balance is paid out
completely during a Fiscal Year prior to the date that the Annual Charge is
assessed, a pro rata Annual Charge will be deducted from amounts to be paid to
--------
the Participant to cover that fraction of the Fiscal Year that Deferred Amounts
(or Remaining Deferred Amounts in the case of installment payments) were
maintained hereunder. The Annual Charge shall be applied as a pro rata
--------
reduction of the Account Balance indexed to each of the Participant's Selected
Benchmark Return Options. In applying the Annual Charge, the pricing
principles set forth in Section 3.4(b) will be followed.
6
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3.5 RESCISSION OF DEFERRAL ELECTION.
(a) PRIOR TO DECEMBER 1, 1994. A deferral election hereunder may be
rescinded at the request of a Participant only (i) on or before December 1,
1994, and (ii) if the Administrator, in his sole discretion and upon evidence
of such basis that he finds persuasive (including a material applicable change
in the Participant's U.S. Federal and/or foreign income tax rate during the
period between October 1, 1994 and November 30, 1994), agrees to the rescission
of the election. The Deferred Amounts will be paid to the Participant as soon
as practicable subject to a reduction for any applicable withholding taxes.
(b) ADVERSE TAX DETERMINATION. Notwithstanding the provisions of Section
3.5(a), a deferral election may be rescinded at any time if (i) a final
determination is made by a court or other governmental body of competent
jurisdiction that the election was ineffective to defer income for purposes of
U.S. Federal, state, local or foreign income taxation and the time for appeal
from this determination has expired, and (ii) the Administrator, in his sole
discretion, decides, upon the Participant's request and upon evidence of the
occurrence of the events described in (i) hereof that he finds persuasive, to
rescind the election. Upon such rescission, the Account Balance, including any
adjustment for performance of the Selected Benchmark Return Options will be
paid to the Participant as soon as practicable, and no additional amounts will
be deferred pursuant to this Plan.
(c) RESCISSION FOR AMOUNTS NOT YET EARNED. Upon the Participant's written
request, the Administrator may in his sole discretion terminate any deferral
elections made hereunder with respect to compensation not yet earned and no
further amounts will be deferred. Amounts previously deferred will continue to
be governed by the terms of this Plan.
ARTICLE IV
STATUS OF DEFERRED AMOUNTS AND ACCOUNT
4.1 NO TRUST OR FUND CREATED; GENERAL CREDITOR STATUS.
Nothing contained herein and no action taken pursuant hereto will be
construed to create a trust or separate fund of any kind or a fiduciary
relationship between ML & Co. and any Participant, the Participant's
beneficiary or estate, or any other person. Title to and beneficial ownership
of any funds represented by the Account Balance will at all times remain in ML
& Co.; such funds will continue for all purposes to be a part of the general
funds of ML & Co. and may be used for any corporate purpose. No person will, by
virtue of the provisions of this Plan, have any interest whatsoever in any
specific assets of the Company. TO THE EXTENT THAT ANY PERSON ACQUIRES A RIGHT
TO RECEIVE PAYMENTS FROM ML & CO. UNDER THIS PLAN, SUCH RIGHT WILL BE NO
GREATER THAN THE RIGHT OF ANY UNSECURED GENERAL CREDITOR OF ML & CO.
7
<PAGE>
4.2 NON-ASSIGNABILITY.
The Participant's right or the right of any other person to the Account
Balance or any other benefits hereunder cannot be assigned, alienated, sold,
garnished, transferred, pledged, or encumbered except by a written designation
of beneficiary under this Plan, by written will, or by the laws of descent and
distribution.
4.3 EFFECT OF DEFERRAL ON BENEFITS UNDER PENSION AND WELFARE BENEFIT PLANS.
The effect of deferral on pension and welfare benefit plans in which the
Participant may be a participant will depend upon the provisions of each such
plan, as amended from time to time.
ARTICLE V
PAYMENT OF ACCOUNT
5.1 PAYMENT DATE.
A Participant's Account Balance will be paid by ML & Co., as elected by
the Participant at the time of his or her deferral election, either in a single
sum, or in the number of annual installments (not to exceed 15) chosen by the
Participant to commence, as specified, (i) in the month following the month of
the Participant's Retirement or death, (ii) in any month or year selected by
the Participant after the end of 1995, (iii) in any month in the calendar year
following the Participant's Retirement, but in no event may the date elected
under clause (i), (ii) or (iii) result in commencement of payments later than
the month following the Participant's 70th birthday. The amount of each annual
installment, if any, shall be a fraction of the Account Balance as of the last
day of the month immediately preceding the month in which the payment is to be
made, the numerator of such fraction shall be one and the denominator of such
fraction shall be the number of remaining installments (including the
installment to be made).
5.2 TERMINATION OF EMPLOYMENT.
(a) DEATH OR RETIREMENT. If the Participant dies or retires prior to
payment, then the Account Balance will be paid to the Participant in accordance
with the Participant's election (in the event of Retirement) or to the
Participant's beneficiary (in the event of death) in accordance with the
Participant's election of either installment payments or a lump sum, provided,
--------
however, that in the event that a beneficiary of the Participant's Account
-------
Balance is the Participant's estate or is otherwise not a natural person, the
applicable portion of the Account Balance will be paid in lump sum to such
beneficiary.
(b) OTHER TERMINATION OF EMPLOYMENT. If the Participant's employment
terminates at any time for any reason other than death or Retirement, the
Account Balance will be paid to the Participant, in a lump sum, as soon
thereafter as is practicable.
(c) LEAVE OF ABSENCE, TRANSFER OR DISABILITY. The Participant's
employment will not be considered as terminated if the Participant is on an
approved leave of absence or if the Participant transfers or is transferred but
remains in the employ of the Company or if the Participant is eligible to
receive disability payments under the ML & Co. Basic Long-Term Disability Plan.
8
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(d) DISCRETION TO ALTER PAYMENT DATE. Notwithstanding the provisions of
Sections 5.2(a) and (b), if the Participant's employment terminates for any
reason, the Administrator may, in his sole discretion, direct that the Account
Balance be paid at some other time or that it be paid in installments;
provided, that no such direction that adversely affects the rights of the
--------
Participant or his or her beneficiary under this Plan shall be implemented
without the consent of the affected Participant or beneficiary. This direction
may be revoked by the Administrator at any time in his sole discretion.
5.3 WITHHOLDING OF TAXES.
ML & Co. will deduct or withhold from any payment to be made or deferred
hereunder any U.S. Federal, state or local or foreign income or employment
taxes required by law to be withheld or require the Participant or the
Participant's beneficiary to pay any amount, or the balance of any amount,
required to be withheld.
5.4 BENEFICIARY.
(a) DESIGNATION OF BENEFICIARY. The Participant may designate, in a
writing delivered to the Administrator or his designee before the Participant's
death, a beneficiary to receive payments in the event of the Participant's
death. The Participant may also designate a contingent beneficiary to receive
payments in accordance with this Plan if the primary beneficiary does not
survive the Participant. The Participant may designate more than one person as
the Participant's beneficiary or contingent beneficiary, in which case (i) no
contingent beneficiary would receive any payment unless all of the primary
beneficiaries predeceased the Participant, and (ii) the surviving beneficiaries
in any class shall share in any payments in proportion to the percentages of
interest assigned to them by the Participant.
(b) CHANGE IN BENEFICIARY. The Participant may change his or her
beneficiary or contingent beneficiary (without the consent of any prior
beneficiary) in a writing delivered to the Administrator or his designee before
the Participant's death. Unless the Participant states otherwise in writing,
any change in beneficiary or contingent beneficiary will automatically revoke
prior such designations of the Participant's beneficiary or of the
Participant's contingent beneficiary, as the case may be, under this Plan only;
and any designations under other deferral agreements or plans of the Company
will remain unaffected.
(c) DEFAULT BENEFICIARY. In the event a Participant does not designate a
beneficiary, or no designated beneficiary survives the Participant, the
Participant's beneficiary shall be the Participant's surviving spouse, if the
Participant is married at the time of his or her death and not subject to a
court-approved agreement or court decree of separation, or otherwise the person
or persons designated to receive benefits on account of the Participant's death
under the ML & Co. Basic Group Life Insurance Plan (the "Life Insurance Plan").
However, if an unmarried Participant does not have coverage in effect under the
Life Insurance Plan, or the Participant has assigned his or her death benefit
under the Life Insurance Plan, any amounts payable to the Participant's
beneficiary under the Plan will be paid to the Participant's estate.
(d) IF THE BENEFICIARY DIES DURING PAYMENT. If a beneficiary who is
receiving or is entitled to receive payments hereunder dies after the
Participant but before all the payments have been made, the portion of the
Account Balance to which that beneficiary was entitled will be paid as soon as
practicable in one lump sum to such beneficiary's estate and not to any
contingent beneficiary the Participant may have designated.
9
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5.5 HARDSHIP DISTRIBUTIONS.
ML & Co. may pay to the Participant, on such terms and conditions as the
Administrator may establish, such part or all of the Account Balance as he may,
in his sole discretion based upon substantial evidence submitted by the
Participant, determine necessary to alleviate hardship caused by an
unanticipated emergency or necessity outside of the Participant's control
affecting the Participant's personal or family affairs. Such payment will be
made only at the Participant's written request and with the express approval of
the Administrator and will be made on the date selected by the Administrator in
his sole discretion. The balance of the Account, if any, will continue to be
governed by the terms of this Plan. Hardship shall be deemed to exist only on
account of expenses for medical care (described in Code Section 213(d)) of the
Participant, the Participant's spouse or the Participant's dependents
(described in Code Section 152); payment of unreimbursed tuition and related
educational fees for the Participant, the Participant's spouse or the
Participant's dependents; the need to prevent the Participant's eviction from
or, foreclosure on, the Participant's principal residence; unreimbursed damages
resulting from a natural disaster; or such other financial need deemed by the
Administrator in his sole discretion to be immediate and substantial.
ARTICLE VI
ADMINISTRATION OF THE PLAN
6.1 POWERS OF THE ADMINISTRATOR.
The Administrator has full power and authority to interpret, construe, and
administer this Plan so as to ensure that it provides deferred compensation for
the Participant as a member of a select group of management or highly
compensated employees within the meaning of Title I of ERISA. The
Administrator's interpretations and construction hereof, and actions hereunder,
including any determinations regarding the amount or recipient of any payments,
will be binding and conclusive on all persons for all purposes. The
Administrator will not be liable to any person for any action taken or omitted
in connection with the interpretation and administration of this Plan unless
attributable to his willful misconduct or lack of good faith. The
Administrator may designate persons to carry out the specified responsibilities
of the Administrator and shall not be liable for any act or omission of a
person as designated.
6.2 PAYMENTS ON BEHALF OF AN INCOMPETENT.
If the Administrator finds that any person who is entitled to any payment
hereunder is a minor or is unable to care for his or her affairs because of
disability or incompetency, payment of the Account Balance may be made to
anyone found by the Administrator to be the committee or other authorized
representative of such person, or to be otherwise entitled to such payment, in
the manner and under the conditions that the Administrator determines. Such
payment will be a complete discharge of the liabilities of ML & Co. hereunder
with respect to the amounts so paid.
6.3 CORPORATE BOOKS AND RECORDS CONTROLLING.
The books and records of the Company will be controlling in the event a
question arises hereunder concerning the amount of Adjusted Compensation,
Incentive Compensation, Eligible Compensation, the Deferred Amounts, the
Account Balance, the designation of a beneficiary, or any other matters.
10
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ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 LITIGATION.
The Company shall have the right to contest, at its expense, any ruling or
decision, administrative or judicial, on an issue that is related to the Plan
and that the Administrator believes to be important to Participants, and to
conduct any such contest or any litigation arising therefrom to a final
decision.
7.2 HEADINGS ARE NOT CONTROLLING.
The headings contained in this Plan are for convenience only and will not
control or affect the meaning or construction of any of the terms or provisions
of this Plan.
7.3 GOVERNING LAW.
To the extent not preempted by applicable U.S. Federal law, this Plan will
be construed in accordance with and governed by the laws of the State of New
York as to all matters, including, but not limited to, matters of validity,
construction, and performance.
7.4 AMENDMENT AND TERMINATION.
ML & Co., through the Administrator, reserves the right to amend or
terminate this Plan at any time, except that no such amendment or termination
shall adversely affect the right of a Participant to his or her Account Balance
as of the date of such amendment or termination.
11
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EXHIBIT 10(ii)
As amended
as of
October 14, 1994
MERRILL LYNCH & CO., INC.
-------------------------
LONG-TERM INCENTIVE COMPENSATION PLAN
-------------------------------------
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TABLE OF CONTENTS
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ARTICLE I - GENERAL..................................................... 1
Section 1.1 Purpose................................................ 1
Section 1.2 Definitions............................................ 1
(a) "Board of Directors" or "Board"........................... 1
(b) "Code".................................................... 1
(c) "Company"................................................. 1
(d) "Committee"............................................... 1
(e) "Common Stock"............................................ 2
(f) "Disability".............................................. 2
(g) "Fair Market Value"....................................... 2
(h) "Junior Preferred Stock".................................. 2
(i) "Other ML & Co. Security"................................. 2
(j) "Participant"............................................. 2
(k) "Performance Period"...................................... 2
(l) "Performance Share"....................................... 3
(m) "Performance Unit"........................................ 3
(n) "Restricted Period"....................................... 3
(o) "Restricted Share"........................................ 3
(p) "Restricted Unit"......................................... 3
(q) "Retirement".............................................. 3
(r) "Rights".................................................. 3
(s) "Rights Agreement"........................................ 3
(t) "Stock Appreciation Right"................................ 3
(u) "Stock Option"............................................ 4
(v) "Vesting Period".......................................... 4
Section 1.3 Administration......................................... 4
Section 1.4 Shares and Units Subject to the Plan................... 4
Section 1.5 Eligibility and Participation.......................... 5
ARTICLE II - PROVISIONS APPLICABLE TO PERFORMANCE SHARES AND
PERFORMANCE UNITS............................................. 5
Section 2.1 Performance Periods and Restricted Periods............. 5
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Section 2.2 Performance Objectives................................. 6
Section 2.3 Grants of Performance Shares and Performance Units..... 6
Section 2.4 Rights and Benefits During Performance Period.......... 7
Section 2.5 Adjustment with respect to Performance
Shares and Performance Units........................... 7
Section 2.6 Payment of Performance Shares and
Performance Units...................................... 7
(a) Performance Shares........................................ 7
(i) If a Restricted Period has been established.......... 7
(ii) If a Restricted Period has not been established...... 8
(b) Performance Units......................................... 8
Section 2.7 Termination of Employment.............................. 8
(a) Prior to the end of a Performance Period.................. 8
(i) Death................................................ 8
(ii) Disability or Retirement............................. 9
(iii) Other Terminations................................... 9
(b) After the end of a Performance Period but
prior to the end of a Restricted Period................... 9
(i) Death, Disability, or Retirement..................... 9
(ii) Other Terminations................................... 9
Section 2.8 Deferral of Payment.................................... 10
ARTICLE III - PROVISIONS APPLICABLE TO RESTRICTED SHARES
AND RESTRICTED UNITS...................................... 10
Section 3.1 Vesting Periods and Restricted Periods................. 10
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Section 3.2 Grants of Restricted Shares and
Restricted Units.................................. 11
Section 3.3 Rights and Restrictions Governing
Restricted Shares................................. 11
Section 3.4 Rights Governing Restricted Units................. 12
Section 3.5 Adjustment with respect to Restricted
Shares and Restricted Units....................... 12
Section 3.6 Payment of Restricted Shares and
Restricted Units.................................. 12
(a) Restricted Shares................................. 12
(b) Restricted Units.................................. 12
Section 3.7 Termination of Employment......................... 12
(a) Prior to the end of a Vesting Period ............. 12
(i) Death........................................ 12
(ii) Disability or Retirement..................... 13
(iii) Other Terminations........................... 13
(b) After the end of a Vesting Period but
prior to the end of a Restricted Period........... 13
(i) Death, Disability, or Retirement............. 13
(ii) Other Terminations........................... 13
Section 3.8 Deferral of Payment............................... 14
ARTICLE IV - PROVISIONS APPLICABLE TO STOCK OPTIONS.................... 14
Section 4.1 Grants of Stock Options........................... 14
Section 4.2 Option Documentation.............................. 14
Section 4.3 Exercise Price.................................... 15
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Section 4.4 Exercise of Stock Options........................ 15
(a) Exercisability................................... 15
(b) Option Period.................................... 15
(c) Exercise in the Event of Termination
of Employment.................................... 15
(i) Death....................................... 15
(ii) Disability or Retirement.................... 15
(iii) Other Terminations.......................... 16
Section 4.5 Payment of Purchase Price Upon Exercise
and Delivery of Shares........................... 16
Section 4.6 Limitation on Fair Market Value of Shares of
Common Stock Received upon Exercise of
Incentive Stock Options.......................... 17
ARTICLE V - PROVISIONS APPLICABLE TO STOCK APPRECIATION
RIGHTS............................................................... 17
Section 5.1 Grants of Stock Appreciation Rights.............. 17
Section 5.2 Stock Appreciation Rights Granted in
Connection with Incentive Stock Options.......... 18
Section 5.3 Payment Upon Exercise of Stock Appreciation
Rights........................................... 18
Section 5.4 Termination of Employment........................ 18
(a) Death............................................ 18
(b) Disability....................................... 18
(c) Retirement....................................... 19
(d) Other Terminations............................... 19
ARTICLE VI - PROVISIONS APPLICABLE TO OTHER ML & CO.
SECURITIES........................................................... 19
Section 6.1 Grants of Other ML & Co. Securities.............. 19
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Section 6.2 Terms and Conditions of Conversion or
Exchange........................................ 20
ARTICLE VII - CHANGES IN CAPITALIZATION............................... 20
ARTICLE VIII - PAYMENTS UPON TERMINATION OF EMPLOYMENT AFTER
A CHANGE IN CONTROL................................................. 21
Section 8.1 Value of Payments Upon Termination After a
Change in Control............................... 21
(a) Performance Shares and Performance Units........ 21
(b) Restricted Shares and Restricted Units.......... 22
(c) Stock Options and Stock Appreciation Rights..... 22
(d) Other ML & Co. Securities....................... 23
Section 8.2 A Change in Control............................ 23
Section 8.3 Effect of Agreement Resulting in Change
in Control...................................... 24
Section 8.4 Termination for Cause........................... 24
Section 8.5 Good Reason..................................... 25
(a) Inconsistent Duties............................. 25
(b) Reduced Salary or Bonus Opportunity............. 25
(c) Relocation...................................... 25
(d) Compensation Plans.............................. 25
(e) Benefits and Perquisites........................ 26
(f) No Assumption by Successor...................... 26
Section 8.6 Effect on Plan Provisions....................... 26
ARTICLE IX - MISCELLANEOUS............................................ 27
Section 9.1 Designation of Beneficiary...................... 27
Section 9.2 Employment Rights............................... 27
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Section 9.3 Nontransferability.............................. 27
Section 9.4 Withholding..................................... 27
Section 9.5 Relationship to Other Benefits.................. 28
Section 9.6 No Trust or Fund Created........................ 28
Section 9.7 Expenses........................................ 28
Section 9.8 Indemnification................................. 28
Section 9.9 Tax Litigation.................................. 28
ARTICLE X - AMENDMENT AND TERMINATION................................. 29
ARTICLE XI - INTERPRETATION........................................... 29
Section 11.1 Governmental and Other Regulations............. 29
Section 11.2 Governing Law.................................. 29
ARTICLE XII - EFFECTIVE DATE AND STOCKHOLDER APPROVAL................. 29
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MERRILL LYNCH & CO., INC.
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LONG-TERM INCENTIVE COMPENSATION PLAN
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ARTICLE I - GENERAL
SECTION 1.1 PURPOSE.
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The purposes of the Long-Term Incentive Compensation Plan (the "PLAN") are:
(a) to enhance the growth and profitability of Merrill Lynch & Co., Inc., a
Delaware corporation ("ML & CO."), and its subsidiaries by providing the
incentive of long-term rewards to key employees who are capable of having a
significant impact on the performance of ML & Co. and its subsidiaries; (b) to
attract and retain employees of outstanding competence and ability; (c) to
encourage long-term stock ownership by employees; and (d) to further the
identity of interests of such employees with those of stockholders of ML & Co.
SECTION 1.2 DEFINITIONS.
-----------
For the purpose of the Plan, the following terms shall have the meanings
indicated:
(a) "BOARD OF DIRECTORS" or "BOARD" shall mean the Board of Directors of ML
& Co.
(b) "CODE" shall mean the Internal Revenue Code of l986, as amended,
including any successor law thereto.
(c) "COMPANY" shall mean ML & Co. and any corporation, partnership, or
other organization of which ML & Co. owns or controls, directly or indirectly,
not less than 50% of the total combined voting power of all classes of stock or
other equity interests. For purposes of this Plan, the terms "ML & Co." and
"Company" shall include any successor thereto.
(d) "COMMITTEE" shall mean the Management Development and Compensation
Committee of the Board of Directors, or its functional successor, unless some
other Board committee has been designated by the Board of Directors to
administer the Plan. The Committee shall be constituted so that at all relevant
times it meets the then applicable requirements of Rule 16b-3 (or its successor)
promulgated under the Securities Exchange Act of 1934, as amended.
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(e) "COMMON STOCK" shall mean the Common Stock, par value $1.33 1/3 per
share, of ML & Co. and a "SHARE OF COMMON STOCK" shall mean one share of Common
Stock together with, for so long as Rights are outstanding, one Right (whether
trading with the Common Stock or separately).
(f) "DISABILITY," unless otherwise provided herein, shall mean any physical
or mental condition that, in the opinion of the Director of Human Resources of
Merrill Lynch & Co., Inc. (or his functional successor), renders an employee
incapable of engaging in any employment or occupation for which he is suited by
reason of education or training, provided that, in the case of any officer of ML
& Co., as defined in Rule 16a-1 under the Securities Exchange Act of 1934, such
determination shall be made by the Committee following recommendation by the
Director of Human Resources.
(g) "FAIR MARKET VALUE" of shares of Common Stock on any given date(s)
shall be: (a) the mean of the high and low sales prices on the New York Stock
Exchange--Composite Tape of such shares on the date(s) in question, or, if the
shares of Common Stock shall not have been traded on any such date(s), the mean
of the high and low sales prices on the New York Stock Exchange--Composite Tape
on the first day prior thereto on which the shares of Common Stock were so
traded; or (b) if the shares of Common Stock are not traded on the New York
Stock Exchange, such other amount as may be determined by the Committee by any
fair and reasonable means.
"FAIR MARKET VALUE" of any Other ML & Co. Security on any given
date(s) shall be: (a) the mean of the high and low sales prices of such Other ML
& Co. Security on the principal securities exchange on which such Security is
traded on the date(s) in question or, if such Other ML & Co. Security shall not
have been traded on any such exchange on such date(s), the mean of the high and
low sales prices on such exchange on the first day prior thereto on which such
Other ML & Co. Security was so traded; or (b) if the Other ML & Co. Security is
not publicly traded on a securities exchange, such other amount as may be
determined by the Committee by any fair and reasonable means.
(h) "JUNIOR PREFERRED STOCK" shall mean ML & Co.'s Series A Junior
Preferred Stock, par value $1.00 per share.
(i) "OTHER ML & CO. SECURITY" shall mean a financial instrument issued
pursuant to Article VI.
(j) "PARTICIPANT" shall mean any employee who has met the eligibility
requirements set forth in Section 1.5 hereof and to whom a grant has been made
and is outstanding under the Plan.
(k) "PERFORMANCE PERIOD" shall mean, in relation to Performance Shares or
Performance Units, any period, for which performance objectives have been
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established, of not less than one nor more than ten consecutive ML & Co. fiscal
years, commencing with the first day of the fiscal year in which such
Performance Shares or Performance Units were granted.
(l) "PERFORMANCE SHARE" shall mean a right, granted to a Participant
pursuant to Article II, that will be paid out as a share of Common Stock.
(m) "PERFORMANCE UNIT" shall mean a right, granted to a Participant
pursuant to Article II, to receive an amount equal to the Fair Market Value of
one share of Common Stock in cash.
(n) "RESTRICTED PERIOD" shall mean, (i) in relation to shares of Common
Stock receivable in payment for Performance Shares, the period beginning at the
end of the applicable Performance Period during which restrictions on the
transferability of such shares of Common Stock are in effect; and (ii) in
relation to Restricted Shares, the period, beginning with the first day of the
month in which Restricted Shares are granted, during which restrictions on the
transferability of such Restricted Shares are in effect and which shall not be
of shorter duration than the Vesting Period applicable to the same Restricted
Shares.
(o) "RESTRICTED SHARE" shall mean a share of Common Stock, granted to a
Participant pursuant to Article III, subject to the restrictions set forth in
Section 3.3 hereof.
(p) "RESTRICTED UNIT" shall mean the right, granted to a Participant
pursuant to Article III, to receive an amount equal to the Fair Market Value of
one share of Common Stock in cash.
(q) "RETIREMENT" shall mean the cessation of employment by the Company
after reaching age 55 and having completed at least 5 years of service,
including approved leaves of absence of one year or less.
(r) "RIGHTS" means the Rights to Purchase Units of Junior Preferred Stock
issued pursuant to the Rights Agreement.
(s) "RIGHTS AGREEMENT" means the Rights Agreement dated as of December 16,
1987 between ML & Co. and Manufacturers Hanover Trust Company, Rights Agent, as
amended from time to time.
(t) "STOCK APPRECIATION RIGHT" shall mean a right, granted to a Participant
pursuant to Article V, to receive, in cash or shares of Common Stock, an amount
equal to the increase in Fair Market Value, over a specified period of time, of
a specified number of shares of Common Stock.
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(u) "STOCK OPTION" shall mean a right, granted to a Participant pursuant to
Article IV, to purchase, before a specified date and at a specified price, a
specified number of shares of Common Stock. Stock Options may be "INCENTIVE
STOCK OPTIONS," which meet the definition of such in Section 422A of the Code,
or "NONQUALIFIED STOCK OPTIONS," which do not meet such definition.
(v) "VESTING PERIOD" shall mean, in relation to Restricted Shares or
Restricted Units, any period of not less than 12 months beginning with the first
day of the month in which the grant of the applicable Restricted Shares or
Restricted Units is effective, during which such Restricted Shares or Restricted
Units may be forfeited if the Participant terminates employment.
SECTION 1.3 ADMINISTRATION.
--------------
(a) The Plan shall be administered by the Committee. Subject to the
provisions of the Plan, the Committee shall have sole and complete authority to:
(i) subject to Section 1.5 hereof, select Participants after receiving the
recommendations of the management of the Company; (ii) determine the number of
Performance Shares, Performance Units, Restricted Shares, Restricted Units,
Stock Appreciation Rights, or Other ML & Co. Securities subject to each grant;
(iii) determine the number of shares of Common Stock subject to each Stock
Option grant; (iv) determine the time or times when grants are to be made or are
to be effective; (v) determine the terms and conditions subject to which grants
may be made; (vi) extend the term of any Stock Option; (vii) provide at the time
of grant that all or any portion of any Stock Option shall be canceled upon the
Participant's exercise of any Stock Appreciation Rights; (viii) prescribe the
form or forms of the instruments evidencing any grants made hereunder, provided
that such forms are consistent with the Plan; (ix) adopt, amend, and rescind
such rules and regulations as, in its opinion, may be advisable for the
administration of the Plan; (x) construe and interpret the Plan and all rules,
regulations, and instruments utilized thereunder; and (xi) make all
determinations deemed advisable or necessary for the administration of the Plan.
All determinations by the Committee shall be final and binding.
(b) The Committee shall act in accordance with the procedures established
for a Committee under ML & Co.'s Certificate of Incorporation and By-Laws or
under any resolution of the Board.
SECTION 1.4 SHARES AND UNITS SUBJECT TO THE PLAN.
------------------------------------
The total number of shares of Common Stock that may be distributed under
the Plan shall be 80,000,000* (whether granted as Restricted Shares or
reserved for distribution upon grant of Performance Shares, Stock Options, Stock
Appreciation
*The net number of shares that remain available for distribution and reserved
for issuance under the Plan as of October 22, 1993 was 59,001,220, adjusted (as
of such date) for ML & Co.'s 2 for 1 stock split, effected in the form of a
stock dividend.
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Rights (to the extent they may be paid out in Common Stock), or Other ML & Co.
Securities), subject to adjustment as provided in Article VII hereof. Shares of
Common Stock distributed under the Plan may be treasury shares or authorized but
unissued shares. The total number of units payable in cash under the Plan,
including Performance Units, Restricted Units, and Stock Appreciation Rights (to
the extent they are paid out in cash) shall be 80,000,000.* To the extent that
awards of Other ML & Co. Securities are convertible into Common Stock or are
otherwise equity securities (or convertible into equity securities) of ML & Co.,
they shall be subject to the limitation expressed above on the number of shares
of Common Stock that can be awarded under the Plan; otherwise, they shall be
treated as if they were awards of units payable in cash under the Plan and
subject to the foregoing limitation thereon. Any shares of Common Stock that
have been granted as Restricted Shares or that have been reserved for
distribution in payment for Performance Shares but are later forfeited or for
any other reason are not payable under the Plan may again be made the subject of
grants under the Plan. If any Stock Option, Stock Appreciation Right, or Other
ML & Co. Security granted under the Plan expires or terminates, or any Stock
Appreciation Right is paid out in cash, the underlying shares of Common Stock
may again be made the subject of grants under the Plan. Units payable in cash
that are later forfeited or for any reason are not payable under the Plan may
again be the subject of grants under the Plan.
SECTION 1.5 ELIGIBILITY AND PARTICIPATION.
-----------------------------
Participation in the Plan shall be limited to officers (who may also be
members of the Board of Directors) and other salaried, key employees of the
Company.
ARTICLE II - PROVISIONS APPLICABLE TO PERFORMANCE SHARES AND
PERFORMANCE UNITS.
SECTION 2.1 PERFORMANCE PERIODS AND RESTRICTED PERIODS.
------------------------------------------
The Committee shall establish Performance Periods applicable to Performance
Shares and Performance Units and may establish Restricted Periods applicable to
Performance Shares, at its discretion. Each such Performance Period shall
commence with the beginning of a fiscal year in which the Performance Shares and
Performance Units are granted and have a duration of not less than one nor more
than ten consecutive fiscal years. Each such Restricted Period shall commence
with the end of the Performance Period established for such Performance Shares
and shall end on such date as may be determined by the Committee at the time of
grant. There shall be no limitation on the number of Performance Periods or
Restricted Periods established
*The net number of units that remain available for distribution under the
Plan, as of October 22, 1993, was 70,157,928, adjusted (as of such date) for
ML&Co.'s 2 for 1 stock split, effected in form of a stock dividend.
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by the Committee, and more than one Performance Period may encompass the same
fiscal year.
SECTION 2.2 PERFORMANCE OBJECTIVES.
----------------------
At any time before or during a Performance Period, the Committee shall
establish one or more performance objectives for such Performance Period,
provided that such performance objectives shall be established prior to the
grant of any Performance Shares or Performance Units with respect to such
Period. Performance objectives shall be based on one or more measures such as
return on stockholders' equity, earnings, or any other standard deemed relevant
by the Committee, measured internally or relative to other organizations and
before or after extraordinary items, as may be determined by the Committee;
provided, however, that any such measure shall include all accruals for grants
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made under the Plan and for all other employee benefit plans of the Company.
The Committee may, in its discretion, establish performance objectives for the
Company as a whole or for only that part of the Company in which a given
Participant is involved, or a combination thereof. In establishing the
performance objective or objectives for a Performance Period, the Committee
shall determine both a minimum performance level, below which no Performance
Shares or Performance Units shall be payable, and a full performance level, at
or above which 100% of the Performance Shares or Performance Units shall be
payable. In addition, the Committee may, in its discretion, establish
intermediate levels at which given proportions of the Performance Shares or
Performance Units shall be payable. Such performance objectives shall not
thereafter be changed except as set forth in Sections 2.5 and 2.6 and Article
VII hereof.
SECTION 2.3 GRANTS OF PERFORMANCE SHARES AND PERFORMANCE UNITS.
--------------------------------------------------
The Committee may select employees to become Participants subject to the
provisions of Section 1.5 hereof and grant Performance Shares or Performance
Units to such Participants at any time prior to or during the first fiscal year
of a Performance Period. Grants shall be deemed to have been made as of the
beginning of the first fiscal year of the Performance Period. Before making
grants, the Committee must receive the recommendations of the management of the
Company, which will take into account such factors as level of responsibility,
current and past performance, and performance potential. Subject to the
provisions of Section 2.7 hereof, a grant of Performance Shares or Performance
Units shall be effective for the entire applicable Performance Period and may
not be revoked. Each grant to a Participant shall be evidenced by a written
instrument stating the number of Performance Shares or Performance Units
granted, the Performance Period, the performance objective or objectives, the
proportion of payments for performance between the minimum and full performance
levels, if any, the Restricted Periods and restrictions applicable to shares of
Common Stock receivable in payment for Performance Shares, and any other terms,
conditions, and rights with respect to such grant. At the time of any grant of
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Performance Shares, there shall be reserved out of the number of shares of
Common Stock authorized for distribution under the Plan a number of shares equal
to the number of Performance Shares so granted.
SECTION 2.4 RIGHTS AND BENEFITS DURING PERFORMANCE PERIOD.
---------------------------------------------
The Committee may provide that, during a Performance Period, a Participant
shall be paid cash amounts, with respect to each Performance Share or
Performance Unit held by such Participant, in the same manner, at the same time,
and in the same amount paid, as a dividend on a share of Common Stock.
SECTION 2.5 ADJUSTMENT WITH RESPECT TO PERFORMANCE SHARES AND PERFORMANCE
-------------------------------------------------------------
UNITS.
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Any other provision of the Plan to the contrary notwithstanding, the
Committee may at any time adjust performance objectives (up or down) and minimum
or full performance levels (and any intermediate levels and proportion of
payments related thereto), adjust the way performance objectives are measured,
or shorten any Performance Period or Restricted Period, if it determines that
conditions, including but not limited to, changes in the economy, changes in
competitive conditions, changes in laws or governmental regulations, changes in
generally accepted accounting principles, changes in the Company's accounting
policies, acquisitions or dispositions, or the occurrence of other unusual,
unforeseen, or extraordinary events, so warrant.
SECTION 2.6 PAYMENT OF PERFORMANCE SHARES AND PERFORMANCE
---------------------------------------------
UNITS.
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Within 90 days after the end of any Performance Period, the Company shall
determine the extent to which performance objectives established by the
Committee pursuant to Section 2.2 hereof for such Performance Period have been
met during such Performance Period and the resultant extent to which Performance
Shares or Performance Units granted for such Performance Period are payable.
Payment for Performance Shares and Performance Units shall be as follows:
(a) Performance Shares:
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(i) If a Restricted Period has been established in relation to the
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Performance Shares:
(A) At the end of the applicable Performance Period, one or more
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certificates representing the number of shares of Common Stock equal to the
number of Performance Shares payable shall be registered in the name of the
Participant but shall be held by the Company for the account of the employee.
Such shares will be nonforfeitable but restricted as to transferability during
the applicable Restricted Period. During the Restricted Period, the Participant
shall have all rights of a holder as to such
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shares of Common Stock, including the right to receive dividends, to exercise
Rights, and to vote such Common Stock and any securities issued upon exercise of
Rights, subject to the following restrictions: (1) the Participant shall not be
entitled to delivery of certificates representing such shares of Common Stock
and any other such securities until the expiration of the Restricted Period; and
(2) none of such shares of Common Stock or Rights may be sold, transferred,
assigned, pledged, or otherwise encumbered or disposed of during the Restricted
Period. Any shares of Common Stock or other securities or property received with
respect to such shares shall be subject to the same restrictions as such shares;
provided, however, that the Company shall not be required to register any
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fractional shares of Common Stock payable to any Participant, but will pay the
value of such fractional shares, measured as set forth in Section 2.6(b) below,
to the Participant.
(B) At the end of the applicable Restricted Period, all restrictions
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applicable to the shares of Common Stock, and other securities or property
received with respect to such shares, held by the Company for the accounts of
recipients of Performance Shares granted in relation to such Restricted Period
shall lapse, and one or more stock certificates for such shares of Common Stock
and securities, free of the restrictions, shall be delivered to the Participant,
or such shares and securities shall be credited to a brokerage account if the
Participant so directs.
(ii) If a Restricted Period has not been established in relation to
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the Performance Shares, at the end of the applicable Performance Period, one or
more stock certificates representing the number of shares of Common Stock equal
to the number of Performance Shares payable, free of restrictions, shall be
registered in the name of the Participant and delivered to the Participant, or
such shares shall be credited to a brokerage account if the Participant so
directs.
(b) Performance Units: At the end of the applicable Performance Period, a
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Participant shall be paid a cash amount equal to the number of Performance Units
payable, times the mean of the Fair Market Value of Common Stock during the
second calendar month following the end of the Performance Period, unless some
other date or period is established by the Committee at the time of grant.
SECTION 2.7 TERMINATION OF EMPLOYMENT.
-------------------------
(a) Prior to the end of a Performance Period:
(i) Death: If a Participant ceases to be an employee of the Company
-----
prior to the end of a Performance Period by reason of death, any outstanding
Performance Shares or Performance Units with respect to such Participant shall
become payable and be paid to such Participant's beneficiary or estate, as the
case may be, as soon as practicable in the manner set forth in Sections
2.6(a)(ii) and 2.6(b) hereof, respectively. In determining the extent to
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which performance objectives established for such Performance Period have been
met and the resultant extent to which Performance Shares or Performance Units
are payable, the Performance Period shall be deemed to end as of the end of the
fiscal year in which the Participant's death occurred.
(ii) Disability or Retirement: The Disability or Retirement of a
------------------------
Participant shall not constitute a termination of employment for purposes of
this Article II, and such Participant shall not forfeit any Performance Shares
or Performance Units held by him, provided that following Disability or
Retirement such Participant does not engage in or assist any business that the
Committee, in its sole discretion, determines to be in competition with business
engaged in by the Company during the remainder of the applicable Performance
Period. A Participant who does engage in or assist any business that the
Committee, in its sole discretion, determines to be in competition with business
engaged in by the Company shall be deemed to have terminated employment.
(iii) Other Terminations: If a Participant ceases to be an employee
------------------
prior to the end of a Performance Period for any reason other than death, the
Participant shall immediately forfeit all Performance Shares and Performance
Units previously granted under the Plan and all right to receive any payment for
such Performance Shares and Performance Units. The Committee may, however,
direct payment in accordance with the provisions of Section 2.6 hereof for a
number of Performance Shares or Performance Units, as it may determine, granted
under the Plan to a Participant whose employment has so terminated (but not
exceeding the number of Performance Shares or Performance Units that could have
been payable had the Participant remained an employee) if it finds that the
circumstances in the particular case so warrant. For purposes of the preceding
sentence, the Performance Period over which performance objectives shall be
measured shall be deemed to end as of the end of the fiscal year in which
termination occurred.
(b) After the end of a Performance Period but prior to the end of a
Restricted Period:
(i) Death, Disability, or Retirement: If a Participant ceases to be an
--------------------------------
employee of the Company by reason of death or in the case of the Disability or
Retirement of a Participant, the Restricted Period shall be deemed to have ended
and shares held by the Company shall be paid as soon as practicable in the
manner set forth in Section 2.6(a)(i)(B).
(ii) Other Terminations: Terminations of employment for any reason
------------------
other than death after the end of a Performance Period but prior to the end of a
Restricted Period shall not have any effect on the Restricted Period, unless the
Committee, in its sole discretion, finds that the circumstances so warrant and
determines that the Restricted Period shall end on an earlier date as determined
by the Committee and that shares held by the Company shall be paid as soon as
practicable following such earlier date in the manner set forth in Section
2.6(a)(i)(B).
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(c) Except as otherwise provided in this Section 2.7, termination of
employment after the end of a Performance Period but before the payment of
Performance Shares or Performance Units relating to such Performance Period
shall not affect the amount, if any, to be paid pursuant to Section 2.6 hereof.
Approved leaves of absence of one year or less shall not be deemed to be
terminations of employment under this Section 2.7. Leaves of absence of more
than one year will be deemed to be terminations of employment under this Section
2.7, unless the Committee determines otherwise.
SECTION 2.8 DEFERRAL OF PAYMENT.
-------------------
The Committee may, in its sole discretion, offer a Participant the right,
by execution of a written agreement, to defer the receipt of all or any portion
of the payment, if any, for Performance Shares or Performance Units. If such an
election to defer is made, the Common Stock receivable in payment for
Performance Shares shall be deferred as stock units equal in number to and
exchangeable, at the end of the deferral period, for the number of shares of
Common Stock that would have been paid to the Participant. Such stock units
shall represent only a contractual right and shall not give the Participant any
interest, right, or title to any Common Stock during the deferral period. The
cash receivable in payment for Performance Units or fractional shares receivable
for Performance Shares shall be deferred as cash units. Deferred stock units
and cash units may be credited annually with the appreciation factor contained
in the deferred compensation agreement, which may include dividend equivalents.
All other terms and conditions of deferred payments shall be as contained in the
written agreement.
ARTICLE III - PROVISIONS APPLICABLE TO RESTRICTED SHARES AND
RESTRICTED UNITS.
SECTION 3.1 VESTING PERIODS AND RESTRICTED PERIODS.
--------------------------------------
The Committee shall establish one or more Vesting Periods applicable to
Restricted Shares and Restricted Units and one or more Restricted Periods
applicable to Restricted Shares, at its discretion. Each such Vesting Period
shall have a duration of not less than 12 months, measured from the first day of
the month in which the grant of the applicable Restricted Shares or Restricted
Units is effective. Each such Restricted Period shall have a duration of 12 or
more consecutive months, measured from the first day of the month in which the
grant of the applicable Restricted Shares is effective, but in no event shall
any Restricted Period applicable to a Restricted Share be of shorter duration
than the Vesting Period applicable to such Restricted Share.
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SECTION 3.2 GRANTS OF RESTRICTED SHARES AND RESTRICTED UNITS.
------------------------------------------ -----
The Committee may select employees to become Participants (subject to the
provisions of Section 1.5 hereof) and grant Restricted Shares or Restricted
Units to such Participants at any time. Before making grants, the Committee
must receive the recommendations of the management of the Company, which will
take into account such factors as level of responsibility, current and past
performance, and performance potential.
Subject to the provisions of Section 3.7 hereof, a grant of Restricted
Shares or Restricted Units shall be effective for the entire applicable Vesting
and Restricted Periods and may not be revoked. Each grant to a Participant
shall be evidenced by a written instrument stating the number of Restricted
Shares granted, the Vesting Period, the Restricted Period, the restrictions
applicable to such Restricted Shares, the nature and terms of payment of
consideration, if any, and the consequences of forfeiture that will apply to
such Restricted Shares, and any other terms, conditions, and rights with respect
to such grant. Each grant to a Participant of Restricted Units shall be
evidenced by a written instrument stating the number of Restricted Units
granted, the Vesting Period, and all other terms, conditions and rights with
respect to such grant.
SECTION 3.3 RIGHTS AND RESTRICTIONS GOVERNING RESTRICTED SHARES.
---------------------------------------------------
At the time of grant of Restricted Shares, subject to the receipt by the
Company of any applicable consideration for such Restricted Shares, one or more
certificates representing the appropriate number of shares of Common Stock
granted to a Participant shall be registered either in his name or for his
benefit either individually or collectively with others, but shall be held by
the Company for the account of the Participant. The Participant shall have all
rights of a holder as to such shares of Common Stock, including the right to
receive dividends, to exercise Rights, and to vote such Common Stock and any
securities issued upon exercise of Rights, subject to the following
restrictions: (a) the Participant shall not be entitled to delivery of
certificates representing such shares of Common Stock and any other such
securities until the expiration of the Restricted Period; (b) none of the
Restricted Shares may be sold, transferred, assigned, pledged, or otherwise
encumbered or disposed of during the Restricted Period; and (c) all of the
Restricted Shares shall be forfeited and all rights of the Participant to such
Restricted Shares shall terminate without further obligation on the part of the
Company unless the Participant remains in the continuous employment of the
Company for the entire Vesting Period in relation to which such Restricted
Shares were granted, except as otherwise allowed by Section 3.7 hereof. Any
shares of Common Stock or other securities or property received with respect to
such shares shall be subject to the same restrictions as such Restricted Shares.
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SECTION 3.4 RIGHTS GOVERNING RESTRICTED UNITS.
---------------------------------
During the Vesting Period for Restricted Units, a Participant shall be
paid, with respect to each Restricted Unit to which such Vesting Period is
applicable, cash amounts in the same manner, at the same time, and in the same
amount paid, as a dividend on a share of Common Stock.
SECTION 3.5 ADJUSTMENT WITH RESPECT TO RESTRICTED SHARES AND RESTRICTED
------------------------------------------------------------
UNITS.
-----
Any other provision of the Plan to the contrary notwithstanding, the
Committee may at any time shorten any Vesting Period or Restricted Period, if it
determines that conditions, including but not limited to, changes in the
economy, changes in competitive conditions, changes in laws or governmental
regulations, changes in generally accepted accounting principles, changes in the
Company's accounting policies, acquisitions or dispositions, or the occurrence
of other unusual, unforeseen, or extraordinary events, so warrant.
SECTION 3.6 PAYMENT OF RESTRICTED SHARES AND RESTRICTED UNITS.
-------------------------------------------------
(a) Restricted Shares: At the end of the Restricted Period, all
-----------------
restrictions contained in the Restricted Share Agreement and in the Plan shall
lapse as to Restricted Shares granted in relation to such Restricted Period, and
one or more stock certificates for the appropriate number of shares of Common
Stock, free of restrictions, shall be delivered to the Participant or such
shares shall be credited to a brokerage account if the Participant so directs.
(b) Restricted Units: At the end of the Vesting Period applicable to
----------------
Restricted Units granted to a Participant, a cash amount equivalent in value to
the Fair Market Value of one share of Common Stock on the last day of the
Vesting Period, or during such period as is established by the Committee at the
time of grant, shall be paid, with respect to each such Restricted Unit, to the
Participant, or his beneficiary or estate, as the case may be.
SECTION 3.7 TERMINATION OF EMPLOYMENT.
-------------------------
(a) Prior to the end of a Vesting Period:
(i) Death: If a Participant ceases to be an employee of the Company
-----
prior to the end of a Vesting Period by reason of death, all Restricted Shares
and Restricted Units granted to such Participant are immediately payable as set
forth in Section 3.6.
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(ii) Disability or Retirement: The Disability or Retirement of a
------------------------
Participant shall not constitute a termination of employment for purposes of
this Article III and such Participant shall not forfeit any Restricted Shares or
Restricted Units held by him, provided that, during the remainder of the
applicable Vesting Period, such Participant does not engage in or assist any
business that the Committee, in its sole discretion, determines to be in
competition with business engaged in by the Company. A Participant who does
engage in or assist any business that the Committee, in its sole discretion,
determines to be in competition with business engaged in by the Company shall be
deemed to have terminated employment.
(iii) Other Terminations: If a Participant ceases to be an employee
------------------
prior to the end of a Vesting Period for any reason other than death, the
Participant shall immediately forfeit all Restricted Shares and Restricted Units
previously granted with respect to such Vesting Period in accordance with the
provisions of Section 3.2 hereof, unless the Committee, in its sole discretion,
finds that the circumstances in the particular case so warrant and allows a
Participant whose employment has so terminated to retain any or all of the
Restricted Shares or Restricted Units granted to such Participant.
(b) After the end of a Vesting Period but prior to the end of a Restricted
Period:
(i) Death, Disability, or Retirement: If a Participant ceases to be
--------------------------------
an employee of the Company by reason of death, or in the case of the Disability
or Retirement of a Participant, prior to the end of a Restricted Period, all
Restricted Shares granted to such Participant are immediately payable in the
manner set forth in Section 3.6.
(ii) Other Terminations: Terminations of employment for any reason
------------------
other than death after the end of a Vesting Period but prior to the end of a
Restricted Period shall not have any effect on the Restricted Period, unless the
Committee, in its sole discretion, finds that the circumstances so warrant and
determines that the Restricted Period shall end on an earlier date as determined
by the Committee and that shares held by the Company shall be paid as soon as
practicable following such earlier date in the manner set forth in Section 3.6.
(c) Approved leaves of absence of one year or less shall not be deemed to
be terminations of employment under this Section 3.7. Leaves of absence of more
than one year will be deemed to be terminations of employment under this Section
3.7, unless the Committee determines otherwise.
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<PAGE>
SECTION 3.8 EXTENSION OF VESTING; DEFERRAL OF PAYMENT.
-----------------------------------------
The Committee may, in its sole discretion, offer any Participant the right,
by execution of a written agreement with ML & Co. containing such terms and
conditions as the Committee shall in its sole discretion provide for, to extend
the Vesting Period applicable to all or any portion of such Participant's
Restricted Shares or Restricted Units, to convert all or any portion of such
Participant's Restricted Shares into Restricted Units or to defer the receipt of
all or any portion of the payment, if any, for such Participant's Restricted
Units (including any Restricted Shares converted into Restricted Units). In the
event that any Vesting Period with respect to Restricted Shares is extended
pursuant to this Section 3.8, the Restricted Period with respect to such
Restricted Shares shall be extended to the same date. The provisions of any
written agreement with a Participant pursuant to this Section 3.8 may provide
for the payment or crediting of interest, an appreciation factor or index or
dividend equivalents, as appropriate.
ARTICLE IV - PROVISIONS APPLICABLE TO STOCK OPTIONS.
SECTION 4.1 GRANTS OF STOCK OPTIONS.
-----------------------
The Committee may select employees to become Participants (subject to
Section 1.5 hereof) and grant Stock Options to such Participants at any time;
provided, however, that Incentive Stock Options shall be granted within 10 years
of the earlier of the date the Plan is adopted by the Board or approved by the
stockholders. Before making grants, the Committee must receive the
recommendations of the management of the Company, which will take into account
such factors as level of responsibility, current and past performance, and
performance potential. Subject to the provisions of the Plan, the Committee
shall also determine the number of shares of Common Stock to be covered by each
Stock Option. The Committee shall have the authority, in its discretion, to
grant "Incentive Stock Options" or "Nonqualified Stock Options," or to grant
both types of Stock Options. Furthermore, the Committee may grant a Stock
Appreciation Right in connection with a Stock Option, as provided in Article V.
SECTION 4.2 OPTION DOCUMENTATION.
--------------------
Each Stock Option granted under the Plan shall be evidenced by written
documentation containing such terms and conditions as the Committee may deem
appropriate and are not inconsistent with the provisions of the Plan.
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<PAGE>
SECTION 4.3 EXERCISE PRICE.
--------------
The Committee shall establish the exercise price at the time any Stock
Option is granted at such amount as the Committee shall determine, except that
such exercise price shall not be less than 50% of the Fair Market Value of the
underlying shares of Common Stock on the day a Stock Option is granted and that,
with respect to an Incentive Stock Option, such exercise price shall not be less
than 100% of the Fair Market Value of the underlying shares of Common Stock on
the day such Incentive Stock Option is granted. The exercise price will be
subject to adjustment in accordance with the provisions of Article VII of the
Plan.
SECTION 4.4 EXERCISE OF STOCK OPTIONS.
-------------------------
(a) EXERCISABILITY. Stock Options shall become exercisable at such times
and in such installments as the Committee may provide at the time of grant. The
Committee may, however, in its sole discretion accelerate the time at which a
Stock Option or installment may be exercised. A Stock Option may be exercised
at any time from the time first set by the Committee until the close of business
on the expiration date of the Stock Option. Stock Options are not transferable
by a Participant except by will or the laws of descent and distribution and are
exercisable during his lifetime only by him. Notwithstanding the foregoing, in
no event may a Participant exercise a Stock Option during the 12-month period
following a hardship withdrawal by the Participant of Elective 401(k) Deferrals
as defined under the Merrill Lynch & Co., Inc. Savings & Investment Plan.
(b) OPTION PERIOD. For each Stock Option granted, the Committee shall
specify the period during which the Stock Option may be exercised, provided that
no Stock Option shall be exercisable after the expiration of 10 years from the
date of grant of such Stock Option.
(c) EXERCISE IN THE EVENT OF TERMINATION OF EMPLOYMENT.
(i) Death: If a Participant ceases to be an employee of the Company
-----
by reason of death prior to the exercise or expiration of a Stock
Option outstanding in his name on the date of death, such Stock Option
may be exercised to the full extent not yet exercised, regardless of
whether or not then fully exercisable under the terms of the grant or
under the terms of Section 4.4(a) hereof, by his estate or
beneficiaries, as the case may be, at any time and from time to time,
but in no event after the expiration date of such Stock Option.
(ii) Disability or Retirement: The Disability or Retirement of a
------------------------
Participant shall not constitute a termination of employment for
purposes of this Article IV, provided that following Disability or
Retirement such
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<PAGE>
Participant does not engage in or assist any business that the
Committee, in its sole discretion, determines to be in competition
with business engaged in by the Company, and such Participant may
exercise any Stock Option outstanding in his name at any time and from
time to time, but in no event after the expiration date of such Stock
Option. A Participant who does engage in or assist any business that
the Committee, in its sole discretion, determines to be competition
with business engaged in by the Company shall be deemed to have
terminated employment. In the case of Incentive Stock Options,
Disability shall be as defined in Code Section 22(e)(3).
(iii) Other Terminations: If a Participant ceases to be an employee
------------------
prior to the exercise or expiration of a Stock Option for any reason
other than death, all outstanding Stock Options granted to such
Participant shall expire on the date of such termination of
employment, unless the Committee, in its sole discretion, finds that
the circumstances in the particular case so warrant and determines
that the Participant may exercise any such outstanding Stock Option
(to the extent that he was entitled to do so at the date of such
termination of employment) at any time and from time to time within up
to 5 years after such termination of employment but in no event after
the expiration date of such Stock Option (the "Extended Period"). If
a Participant dies during the Extended Period and prior to the
exercise or expiration of a Stock Option, his estate or beneficiaries,
as the case may be, may exercise such Stock Option (to the extent that
the Participant was entitled to do so at the date of termination of
employment) at any time and from time to time, but in no event after
the end of the Extended Period.
SECTION 4.5 PAYMENT OF PURCHASE PRICE UPON EXERCISE AND
--------------------------------------------
DELIVERY OF SHARES.
-------------------
The purchase price of the shares as to which a Stock Option is exercised
shall be paid to the Company at the time of exercise (i) in cash, (ii) by
delivering freely transferable shares of Common Stock already owned by the
employee having a total Fair Market Value on the day prior to the date of
exercise equal to the purchase price, (iii) a combination of cash and shares of
Common Stock equal in value to the exercise price, or (iv) by such other means
as the Committee, in its sole discretion, may determine. Upon receipt by the
Company of the purchase price, stock certificate(s) for the shares of Common
Stock as to which a Stock Option is exercised shall be delivered to the
Participant, or such shares shall be credited to a brokerage account or
otherwise delivered, in such manner as the Participant may direct.
-16-
<PAGE>
SECTION 4.6 LIMITATION ON FAIR MARKET VALUE OF SHARES OF COMMON STOCK
----------------------------------------------------------
RECEIVED UPON EXERCISE OF INCENTIVE STOCK OPTIONS.
-------------------------------------------------
The aggregate Fair Market Value (determined at the time an Incentive Stock
Option is granted) of the shares of Common Stock with respect to which an
Incentive Stock Option is exercisable for the first time by a Participant during
any calendar year (under all plans of the Company) shall not exceed $100,000 or
such other limit as may be established from time to time under the Code.
ARTICLE V - PROVISIONS APPLICABLE TO STOCK APPRECIATION RIGHTS.
SECTION 5.1 GRANTS OF STOCK APPRECIATION RIGHTS.
-----------------------------------
The Committee may select employees to become Participants (subject to the
provisions of Sections 1.5 hereof) and grant Stock Appreciation Rights to such
Participants at any time. Before making grants, the Committee must receive the
recommendations of the management of the Company, which will take into account
such factors as level of responsibility, current and past performance, and
performance potential. The Committee shall have the authority to grant Stock
Appreciation Rights in connection with a Stock Option or independently. The
Committee may grant Stock Appreciation Rights in connection with a Stock Option,
either at the time of grant or by amendment, in which case each such right shall
be subject to the same terms and conditions as the related Stock Option and
shall be exercisable only at such times and to such extent as the related Stock
Option is exercisable. A Stock Appreciation Right granted in connection with a
Stock Option shall entitle the holder to surrender to the Company the related
Stock Option unexercised, or any portion thereof, and receive from the Company
in exchange therefor an amount equal to the excess of the Fair Market Value of
one share of the Common Stock on the day preceding the surrender of such Stock
Option over the Stock Option exercise price times the number of shares
underlying the Stock Option, or portion thereof, that is surrendered. A Stock
Appreciation Right granted independently of a Stock Option shall entitle the
holder to receive upon exercise an amount equal to the excess of the Fair Market
Value of one share of Common Stock on the day preceding the exercise of the
Stock Appreciation Right over the Fair Market Value of one share of Common Stock
on the date such Stock Appreciation Right was granted, or such other price
determined by the Committee at the time of grant, which shall in no event be
less than 50% of the Fair Market Value of one share of Common Stock on the date
such Stock Appreciation Right was granted. Stock Appreciation Rights are not
transferable by a Participant except by will or the laws of descent and
distribution and are exercisable during his lifetime only by him.
-17-
<PAGE>
SECTION 5.2 STOCK APPRECIATION RIGHTS GRANTED IN CONNECTION WITH
-----------------------------------------------------
INCENTIVE STOCK OPTIONS.
------------------------
(a) Stock Appreciation Rights granted in connection with Incentive Stock
Options must expire no later than the last date the underlying Incentive Stock
Option can be exercised.
(b) Such Stock Appreciation Rights may be granted for no more than 100% of
the difference between the exercise price of the underlying Incentive Stock
Option and the Fair Market Value of the Common Stock subject to the underlying
Incentive Stock Option at the time the Stock Appreciation Right is exercised.
(c) Such Stock Appreciation Rights are transferable only to the extent and
at the same time and under the same conditions as the underlying Incentive Stock
Options.
(d) Such Stock Appreciation Rights may be exercised only when the
underlying Incentive Stock Options may be exercised.
(e) Such Stock Appreciation Rights may be exercised only when the Fair
Market Value of the shares of Common Stock subject to the Incentive Stock
Options exceeds the exercise price of the Incentive Stock Options.
SECTION 5.3 PAYMENT UPON EXERCISE OF STOCK APPRECIATION RIGHTS.
---------------------------------------------------
The Company's obligation to any Participant exercising a Stock Appreciation
Right may be paid in cash or shares of Common Stock, or partly in cash and
partly in shares, at the sole discretion of the Committee.
SECTION 5.4 TERMINATION OF EMPLOYMENT.
-------------------------
(a) Death: If a Participant ceases to be an employee of the Company prior
-----
to the exercise or expiration of a Stock Appreciation Right outstanding in his
name on the date of death, such Stock Appreciation Right may be exercised to the
full extent not yet exercised, regardless of whether or not then fully
exercisable under the terms of the grant, by his estate or beneficiaries, as the
case may be, at any time and from time to time within l2 months after the date
of death but in no event after the expiration date of such Stock Appreciation
Right.
(b) Disability: The Disability of a Participant shall not constitute a
----------
termination of employment for purposes of this Article IV, provided that
following the Disability such Participant does not engage in or assist any
business that the Committee, in its sole discretion, determines to be in
competition with business engaged in by the Company. A Participant who does
engage in or assist any business that the Committee, in its sole
-18-
<PAGE>
discretion, determines to be in competition with business engaged in by the
Company shall be deemed to have terminated employment.
(c) Retirement: The Retirement of a Participant shall not constitute a
----------
termination of employment for purposes of this Article IV, provided that
following Retirement such Participant does not engage in or assist any business
that the Committee, in its sole discretion, determines to be in competition with
business engaged in by the Company, and such Participant may exercise any Stock
Appreciation Right outstanding in his name at any time and from time to time
within 5 years after the date his Retirement commenced but in no event after the
expiration date of such Stock Appreciation Right. A Participant who does engage
in or assist any business that the Committee, in its sole discretion, determines
to be in competition with business engaged in by the Company shall be deemed to
have terminated employment.
(d) Other Terminations: If a Participant ceases to be an employee prior to
------------------
the exercise or expiration of a Stock Appreciation Right for any reason other
than death, all outstanding Stock Appreciation Rights granted to such
Participant shall expire on the date of such termination of employment, unless
the Committee, in its sole discretion, determines that he may exercise any such
outstanding Stock Appreciation Right (to the extent that he was entitled to do
so at the date of such termination of such employment) at any time and from time
to time within up to 5 years after such termination of employment but in no
event after the expiration date of such Stock Appreciation Right.
ARTICLE VI - PROVISIONS APPLICABLE TO OTHER ML & CO. SECURITIES.
SECTION 6.1 GRANTS OF OTHER ML & CO. SECURITIES.
-----------------------------------
Subject to the provisions of the Plan and any necessary action by the Board
of Directors, the Committee may select employees to become Participants (subject
to the provisions of Section 1.5 hereof) and grant to Participants Other ML &
Co. Securities or the right or option to purchase Other ML & Co. Securities on
such terms and conditions as the Committee shall determine, including, without
limitation, the period such rights or options may be exercised, the nature and
terms of payment of consideration for such Other ML & Co. Securities, whether
such Other ML & Co. Securities shall be subject to any or all of the provisions
of Article III of the Plan applicable to Restricted Shares and/or Restricted
Units, the consequences of termination of employment, and the terms and
conditions, if any, upon which such Other ML & Co. Securities may or must be
repurchased by the Company. Before making grants, the Committee must receive
the recommendations of the management of the Company, which will take into
account such factors as level of responsibility, current and past performance,
and performance potential. Each such Other ML & Co. Security shall be issued at
a price that will not
-19-
<PAGE>
exceed the Fair Market Value thereof on the date the corresponding right or
option is granted. Other ML & Co. Securities may bear interest or pay dividends
from such date and at a rate or rates or pursuant to a formula or formulas fixed
by the Committee or any necessary action of the Board. Any applicable conversion
or exchange rate with respect to Other ML & Co. Securities shall be fixed by, or
pursuant to a formula determined by, the Committee or any necessary action of
the Board at each date of grant and may be predicated upon the attainment of
financial or other performance goals.
SECTION 6.2 TERMS AND CONDITIONS OF CONVERSION OR EXCHANGE.
----------------------------------------------
Each Other ML & Co. Security may be convertible or exchangeable on such
date and within such period of time as the Committee, or the Board if necessary,
determines at the time of grant. Other ML & Co. Securities may be convertible
into or exchangeable for (i) shares of Preferred Stock of ML & Co. or (ii) other
securities of ML & Co. or any present or future subsidiary of ML & Co., whether
or not convertible into shares of Common Stock, as the Committee, or the Board
if necessary, determines at the time of grant (or at any time prior to the
conversion or exchange date).
ARTICLE VII - CHANGES IN CAPITALIZATION.
Any other provision of the Plan to the contrary notwithstanding, if any
change shall occur in or affect shares of Common Stock or Performance Units,
Restricted Units, Stock Options, Stock Appreciation Rights, or Other ML & Co.
Securities on account of a merger, consolidation, reorganization, stock
dividend, stock split or combination, reclassification, recapitalization, or
distribution to holders of shares of Common Stock (other than cash dividends)
including, without limitation, a merger or other reorganization event in which
the shares of Common Stock cease to exist, or, if in the opinion of the
Committee, after consultation with the Company's independent public accountants,
changes in the Company's accounting policies, acquisitions, divestitures,
distributions, or other unusual or extraordinary items have disproportionately
and materially affected the value of shares of Common Stock or Performance
Units, Restricted Units, Stock Options, Stock Appreciation Rights, or Other ML &
Co. Securities, the Committee shall make such adjustments, if any, that it may
deem necessary or equitable in (a) the maximum number of shares of Common Stock
available for distribution under the Plan; (b) the number of shares subject to
or reserved for issuance under outstanding Performance Share, Restricted Share,
and Stock Option grants; (c) the performance objectives for the Performance
Periods not yet completed, including the minimum, intermediate, and full
performance levels and portion of payments related thereto; and (d) any other
terms or provisions of any outstanding grants of Performance Shares, Performance
Units, Restricted Shares, Restricted Units, Stock Options, Stock Appreciation
Rights, or Other ML & Co. Securities, in order to preserve the full benefits of
such grants for the Participants, taking into account inflation, interest rates,
and any other factors that the Committee, in its sole discretion, considers
relevant. In the event of a change in the presently
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<PAGE>
authorized shares of Common Stock that is limited to a change in the designation
thereof or a change of authorized shares with par value into the same number of
shares with a different par value or into the same number of shares without par
value, the shares resulting from any such change shall be deemed to be shares of
Common Stock within the meaning of the Plan. In the event of any other change
affecting the shares of Common Stock, Performance Units, Restricted Units, Stock
Options, Stock Appreciation Rights, or Other ML & Co. Securities, such
adjustment shall be made as may be deemed equitable by the Committee to give
proper effect to such event.
ARTICLE VIII - PAYMENTS UPON TERMINATION OF EMPLOYMENT AFTER A
CHANGE IN CONTROL.
SECTION 8.1 VALUE OF PAYMENTS UPON TERMINATION AFTER A CHANGE
--------------------------------------------------
IN CONTROL.
-----------
Any other provision of the Plan to the contrary notwithstanding and
notwithstanding any election to the contrary previously made by the Participant,
in the event a Change in Control shall occur and thereafter the Company shall
terminate the Participant's employment without Cause or the Participant shall
terminate his employment with the Company for Good Reason, the Participant shall
be paid the value of his Performance Shares, Performance Units, Restricted
Shares, Restricted Units, Stock Options, Stock Appreciation Rights, and Other ML
& Co. Securities in a lump sum in cash, promptly after termination of his
employment but, without limiting the foregoing, in no event later than 30 days
thereafter. Payments shall be calculated as set forth below:
(a) Performance Shares and Performance Units.
----------------------------------------
Any payment for Performance Shares and Performance Units pursuant to this
Section 8.1(a) shall be calculated by applying performance objectives for any
outstanding Performance Shares and Performance Units as if the applicable
Performance Period and any applicable Restricted Period had ended on the first
day of the month in which the Participant's employment is terminated. The
amount of any payment to a Participant pursuant to this Section 8.1(a) shall be
reduced by the amount of any payment previously made to the Participant with
respect to the Performance Shares and Performance Units, exclusive of ordinary
dividend payments, resulting by operation of law from the Change in Control,
including, without limitation, payments resulting from a merger pursuant to
state law. The value of the Performance Shares and Performance Units payable
pursuant to this Section 8.1(a) shall be the amount equal to the number of
Performance Shares and Performance Units payable in accordance with the
preceding sentence multiplied by the Fair Market Value of a share of Common
Stock on the day the Participant's employment is terminated or, if higher, the
highest Fair Market Value of a share of the Common Stock on any day during the
90-day period ending on the date of the Change in Control (the "Pre-CIC Value").
-21-
<PAGE>
(b) Restricted Shares and Restricted Units.
--------------------------------------
Any payment under this Section 8.1(b) shall be calculated as if all the
relevant Vesting and Restricted Periods had been fully completed immediately
prior to the date on which the Participant's employment is terminated. The
amount of any payment to a Participant pursuant to this Section 8.1(b) shall be
reduced by the amount of any payment previously made to the Participant with
respect to the Restricted Shares and Restricted Units, exclusive of ordinary
dividend payments, resulting by operation of law from the Change in Control,
including, without limitation, payments resulting from a merger pursuant to
state law. The value of the Participant's Restricted Shares and Restricted
Units payable pursuant to this Section 8.1(b) shall be the amount equal to the
number of the Restricted Shares and Restricted Units outstanding in a
Participant's name multiplied by the Fair Market Value of a share of Common
Stock on the day the Participant's employment is terminated or, if higher, the
Pre-CIC Value.
(c) Stock Options and Stock Appreciation Rights.
-------------------------------------------
Any payment for Stock Options and Stock Appreciation Rights pursuant to
this Section 8.1(c) shall be calculated as if all such Stock Options and Stock
Appreciation Rights, regardless of whether or not then fully exercisable under
the terms of the grant, became exercisable immediately prior to the date on
which the Participant's employment is terminated. The amount of any payment to
a Participant pursuant to this Section 8.1(c) shall be reduced by the amount of
any payment previously made to a Participant with respect to the Stock Options
and Stock Appreciation Rights, exclusive of any ordinary dividend payments,
resulting by operation of law from the Change in Control, including, without
limitation, payments resulting from a merger pursuant to state law. The value
of the Participant's Stock Options and Stock Appreciation Rights payable
pursuant to this Section 8.1(c) shall be
(i) in the case of a Stock Option, for each underlying share of Common
Stock, the excess of the Fair Market Value of a share of Common Stock
on the day the Participant's employment is terminated, or, if higher,
the Pre-CIC Value, over the per share exercise price for such Stock
Option;
(ii) in the case of a Stock Appreciation Right granted in tandem with
a Stock Option, the Fair Market Value of a share of Common Stock on
the day the Participant's employment is terminated, or, if higher, the
Pre-CIC Value, over the Stock Option exercise price; and
(iii) in the case of a Stock Appreciation Right granted independently
of a Stock Option, the Fair Market Value of a share of Common Stock on
the day the Participant's employment is terminated, or, if higher, the
Pre-CIC Value, over the Fair Market Value of one share of Common Stock
on the
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<PAGE>
date such Stock Appreciation Right was granted, or such other price
determined by the Committee at the time of grant.
(d) Other ML & Co. Securities.
-------------------------
Any payment for Other ML & Co. Securities under this Section 8.1(d) shall
be calculated as if any relevant Vesting or Restricted Periods or other
applicable conditions dependent on the passage of time and relating to the
exercisability of any right or option to purchase Other ML & Co. Securities, or
relating to the full and unconditional ownership of such Other ML & Co.
Securities themselves, had been met on the first day of the month in which the
Participant's employment is terminated. The amount of any payment to a
Participant pursuant to this Section 8.1(d) shall be reduced by the amount of
any payment previously made to the Participant with respect to the Other ML &
Co. Securities, exclusive of ordinary dividend payments, resulting by operation
of law from the Change in Control, including, without limitation, payments
resulting from a merger pursuant to state law. The value of the Participant's
Other ML & Co. Securities payable pursuant to this Section 8.1(d) shall be
(i) in the case of an option or right to purchase such Other ML & Co.
Security, for each underlying Other ML & Co. Security, the excess of
the Fair Market Value of such Other ML & Co. Security on the day the
Participant's employment is terminated, or, if higher, the Pre-CIC
value, over the exercise price of such option or right; and
(ii) in the case of the Other ML & Co. Security itself (where there is
no outstanding option or right relating to such Other ML & Co.
Security), the Fair Market Value of the Other ML & Co. Security on the
day the Participant's employment is terminated, or, if higher, the
Pre-CIC value.
SECTION 8.2 A CHANGE IN CONTROL.
-------------------
A "CHANGE IN CONTROL" shall mean a change in control of ML & Co. of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), whether or not the Company is then
subject to such reporting requirement; provided, however, that, without
-------- -------
limitation, a Change in Control shall be deemed to have occurred if:
(a) any individual, partnership, firm, corporation, association, trust,
unincorporated organization or other entity, or any syndicate or group deemed to
be a person under Section 14(d)(2) of the Exchange Act, other than the Company's
employee stock ownership plan, is or becomes the "beneficial owner" (as defined
in Rule 13d-3 of the General Rules and Regulations under the Exchange Act),
directly or indirectly, of securities of ML & Co. representing 30% or more of
the combined voting
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<PAGE>
power of ML & Co.'s then outstanding securities entitled to vote in the election
of directors of ML & Co.;
(b) during any period of two consecutive years (not including any period
prior to the Effective Date of this Plan) individuals who at the beginning of
such period constituted the Board of Directors and any new directors, whose
election by the Board of Directors or nomination for election by the
stockholders of ML & Co. was approved by a vote of at least three quarters of
the directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority thereof; or
(c) all or substantially all of the assets of ML & Co. are liquidated or
distributed.
SECTION 8.3 EFFECT OF AGREEMENT RESULTING IN CHANGE IN CONTROL.
--------------------------------------------------
If ML & Co. executes an agreement, the consummation of which would result
in the occurrence of a Change in Control as described in Section 8.2, then, with
respect to a termination of employment without Cause or for Good Reason
occurring after the execution of such agreement (and, if such agreement expires
or is terminated prior to consummation, prior to such expiration or termination
of such agreement), a Change in Control shall be deemed to have occurred as of
the date of the execution of such agreement.
SECTION 8.4 TERMINATION FOR CAUSE.
---------------------
Termination of the Participant's employment by the Company for "CAUSE"
shall mean termination upon:
(a) the willful and continued failure by the Participant substantially to
perform his duties with the Company (other than any such failure resulting from
the Participant's incapacity due to physical or mental illness or from the
Participant's Retirement or any such actual or anticipated failure resulting
from termination by the Participant for Good Reason) after a written demand for
substantial performance is delivered to him by the Board of Directors, which
demand specifically identifies the manner in which the Board of Directors
believes that he has not substantially performed his duties; or
(b) the willful engaging by the Participant in conduct that is demonstrably
and materially injurious to the Company, monetarily or otherwise.
No act or failure to act by the Participant shall be deemed "willful"
unless done, or omitted to be done, by the Participant not in good faith and
without reasonable belief that his action or omission was in the best interest
of the Company.
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<PAGE>
Notwithstanding the foregoing, the Participant shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
him a copy of a resolution duly adopted by the affirmative vote of not less than
three quarters of the entire membership of the Board of Directors at a meeting
of the Board called and held for such purpose (after reasonable notice to the
Participant and an opportunity for him, together with counsel, to be heard
before the Board of Directors), finding that, in the good faith opinion of the
Board of Directors, the Participant was guilty of conduct set forth above in
clause (a) or (b) of the first sentence of this Section 8.4 and specifying the
particulars thereof in detail.
SECTION 8.5 GOOD REASON.
-----------
"GOOD REASON" shall mean the Participant's termination of his employment
with the Company if, without the Participant's written consent, any of the
following circumstances shall occur:
(a) Inconsistent Duties. A meaningful and detrimental alteration in the
-------------------
Participant's position or in the nature or status of his responsibilities
(including those as a director of ML & Co., if any) from those in effect
immediately prior to the Change in Control;
(b) Reduced Salary or Bonus Opportunity. A reduction by the Company in the
-----------------------------------
Participant's annual base salary as in effect immediately prior to the Change in
Control; a failure by the Company to increase the Participant's salary at a rate
commensurate with that of other key executives of the Company; or a reduction in
the Participant's annual cash bonus below the greater of (i) the annual cash
bonus that he received, or to which he was entitled, immediately prior to the
Change in Control, or (ii) the average annual cash bonus paid to the Participant
by the Company for the three years preceding the year in which the Change in
Control occurs;
(c) Relocation. The relocation of the office of the Company where the
----------
Participant is employed at the time of the Change in Control (the "CIC
Location") to a location that in his good faith assessment is an area not
generally considered conducive to maintaining the executive offices of a company
such as ML & Co. because of hazardous or undesirable conditions including
without limitation a high crime rate or inadequate facilities, or to a location
that is more than twenty-five (25) miles away from the CIC Location or the
Company's requiring the Participant to be based more than twenty-five (25) miles
away from the CIC Location (except for required travel on the Company's business
to an extent substantially consistent with his customary business travel
obligations in the ordinary course of business prior to the Change in Control);
(d) Compensation Plans. The failure by the Company to continue in effect
------------------
any compensation plan in which the Participant participates, including but not
limited to this Plan, the Company's retirement program, Employee Stock Purchase
Plan, 1978
-25-
<PAGE>
Incentive Equity Purchase Plan, Equity Capital Accumulation Plan, Canadian
Capital Accumulation Plan, Management Capital Accumulation Plan, limited
partnership offerings, cash incentive compensation or any other plans adopted
prior to the Change in Control, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect to such plan
in connection with the Change in Control, or the failure by the Company to
continue the Participant's participation therein on at least as favorable a
basis, both in terms of the amount of benefits provided and the level of his
participation relative to other Participants, as existed immediately prior to
the Change in Control;
(e) Benefits and Perquisites. The failure of the Company to continue to
------------------------
provide the Participant with benefits at least as favorable as those enjoyed by
the Participant under any of the Company's retirement, life insurance, medical,
health and accident, disability, deferred compensation or savings plans in which
the Participant was participating immediately prior to the Change in Control;
the taking of any action by the Company that would directly or indirectly
materially reduce any of such benefits or deprive the Participant of any
material fringe benefit enjoyed by him immediately prior to the Change in
Control, including, without limitation, the use of a car, secretary, office
space, telephones, expense reimbursement, and club dues; or the failure by the
Company to provide the Participant with the number of paid vacation days to
which the Participant is entitled on the basis of years of service with the
Company in accordance with the Company's normal vacation policy in effect
immediately prior to the Change in Control;
(f) No Assumption by Successor. The failure of ML & Co. to obtain a
--------------------------
satisfactory agreement from any successor to assume and agree to perform a
Participant's employment agreement as contemplated thereunder or, if the
business of the Company for which his services are principally performed is sold
at any time after a Change in Control, the purchaser of such business shall fail
to agree to provide the Participant with the same or a comparable position,
duties, compensation, and benefits as provided to him by the Company immediately
prior to the Change in Control.
SECTION 8.6 EFFECT ON PLAN PROVISIONS.
-------------------------
In the event of a Change in Control, no changes in the Plan, or in any
documents evidencing grants of Performance Shares, Performance Units, Restricted
Shares, Restricted Units, Stock Options, Stock Appreciation Rights, or Other ML
& Co. Securities and no adjustments, determinations or other exercises of
discretion by the Committee or the Board of Directors, that were made subsequent
to the Change in Control and that would have the effect of diminishing a
Participant's rights or his payments under the Plan or this Article shall be
effective, including, but not limited to, any changes, determinations or other
exercises of discretion made to or pursuant to the Plan. Once a Participant has
received a payment pursuant to this Article VIII, shares of Common Stock that
were reserved for issuance in connection with any Performance Shares, Restricted
Shares, Stock Options, or Other ML & Co. Securities for which
-26-
<PAGE>
payment is made shall no longer be reserved and shares of Common Stock that are
Restricted Shares or that are restricted and held by the Company pursuant to
Section 2.6(a)(i), for which payment has been made, shall no longer be
registered in the name of the Participant and shall again be available for
grants under the Plan. If the Participant's employment is terminated without
Cause or for Good Reason after a Change in Control, any election to defer
payment for Performance Shares or Performance Units pursuant to Section 2.8
hereof or Restricted Shares or Restricted Units pursuant to Section 3.8 hereof
shall be null and void.
ARTICLE IX - MISCELLANEOUS.
SECTION 9.1 DESIGNATION OF BENEFICIARY.
--------------------------
A Participant may designate, in a writing delivered to ML & Co. before his
death, a person or persons to receive, in the event of his death, any rights to
which he would be entitled under the Plan. A Participant may also designate an
alternate beneficiary to receive payments if the primary beneficiary does not
survive the Participant. A Participant may designate more than one person as
his beneficiary or alternate beneficiary, in which case such persons would
receive payments as joint tenants with a right of survivorship. A beneficiary
designation may be changed or revoked by a Participant at any time by filing a
written statement of such change or revocation with the Company. If a
Participant fails to designate a beneficiary, then his estate shall be deemed to
be his beneficiary.
SECTION 9.2 EMPLOYMENT RIGHTS.
-----------------
Neither the Plan nor any action taken hereunder shall be construed as
giving any employee of the Company the right to become a Participant, and a
grant under the Plan shall not be construed as giving any Participant any right
to be retained in the employ of the Company.
SECTION 9.3 NONTRANSFERABILITY.
------------------
A Participant's rights under the Plan, including the right to any amounts
or shares payable, may not be assigned, pledged, or otherwise transferred
except, in the event of a Participant's death, to his designated beneficiary or,
in the absence of such a designation, by will or the laws of descent and
distribution.
SECTION 9.4 WITHHOLDING.
-----------
The Company shall have the right, before any payment is made or a
certificate for any shares is delivered or any shares are credited to any
brokerage account, to deduct or withhold from any payment under the Plan any
Federal, state, local or other taxes, including transfer taxes, required by law
to be withheld or to require the
-27-
<PAGE>
Participant or his beneficiary or estate, as the case may be, to pay any amount,
or the balance of any amount, required to be withheld.
SECTION 9.5 RELATIONSHIP TO OTHER BENEFITS.
------------------------------
No payment under the Plan shall be taken into account in determining any
benefits under any retirement, group insurance, or other employee benefit plan
of the Company. The Plan shall not preclude the stockholders of ML & Co., the
Board of Directors or any committee thereof, or the Company from authorizing or
approving other employee benefit plans or forms of incentive compensation, nor
shall it limit or prevent the continued operation of other incentive
compensation plans or other employee benefit plans of the Company or the
participation in any such plans by Participants in the Plan.
SECTION 9.6 NO TRUST OR FUND CREATED.
------------------------
Neither the Plan nor any grant made hereunder shall create or be construed
to create a trust or separate fund of any kind or a fiduciary relationship
between the Company and a Participant or any other person. To the extent that
any person acquires a right to receive payments from the Company pursuant to a
grant under the Plan, such right shall be no greater than the right of any
unsecured general creditor of the Company.
SECTION 9.7 EXPENSES.
--------
The expenses of administering the Plan shall be borne by the
Company.
SECTION 9.8 INDEMNIFICATION.
---------------
Service on the Committee shall constitute service as a member of the Board
of Directors so that members of the Committee shall be entitled to
indemnification and reimbursement as directors of ML & Co. pursuant to its
Certificate of Incorporation, By-Laws, or resolutions of its Board of Directors
or stockholders.
SECTION 9.9 TAX LITIGATION.
--------------
The Company shall have the right to contest, at its expense, any tax ruling
or decision, administrative or judicial, on any issue that is related to the
Plan and that the Company believes to be important to Participants in the Plan
and to conduct any such contest or any litigation arising therefrom to a final
decision.
-28-
<PAGE>
ARTICLE X - AMENDMENT AND TERMINATION.
The Board of Directors may modify, amend, or terminate the Plan at any time
except that, to the extent then required by applicable law, rule, or regulation,
approval of the holders of a majority of shares of Common Stock represented in
person or by proxy at a meeting of the stockholders will be required to increase
the maximum number of shares of Common Stock available for distribution under
the Plan (other than increases due to adjustments in accordance with the Plan).
No modification, amendment, or termination of the Plan shall adversely affect
the rights of a Participant under a grant previously made to him without the
consent of such Participant.
ARTICLE XI - INTERPRETATION.
SECTION 11.1 GOVERNMENTAL AND OTHER REGULATIONS.
----------------------------------
The Plan and any grant hereunder shall be subject to all applicable Federal
and state laws, rules, and regulations and to such approvals by any regulatory
or governmental agency that may, in the opinion of the counsel for the Company,
be required.
SECTION 11.2 GOVERNING LAW.
-------------
THE PLAN SHALL BE CONSTRUED AND ITS PROVISIONS ENFORCED AND ADMINISTERED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
ENTERED INTO AND PERFORMED ENTIRELY IN SUCH STATE.
ARTICLE XII - EFFECTIVE DATE AND STOCKHOLDER APPROVAL.
The Plan shall not be effective unless or until approved by a majority of
the votes cast at a duly held stockholders' meeting at which a quorum
representing a majority of all outstanding voting stock is, either in person or
by proxy present and voting on the Plan.
-29-
<PAGE>
EXHIBIT 11
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
------------------------------------------
COMPUTATION OF PER COMMON SHARE EARNINGS
----------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended Ended
-------------------- ---------------------
Sept. 30, Sept. 24, Sept. 30, Sept. 24,
1994 1993 1994 1993
(A) (A) (A) (A)(B)
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Primary:
Earnings before cumulative ef-
fect of change in accounting
principle.................... $231,579 $359,687 $855,147 $1,047,120
Cumulative effect of change in
accounting principle......... - - - (35,420)
-------- -------- -------- ----------
Net earnings................... 231,579 359,687 855,147 1,011,700
Remarketed Preferred stock
dividends.................... (1,718) (1,271) (4,594) (3,945)
-------- -------- -------- ----------
Net earnings applicable to
common stockholders.......... $229,861 $358,416 $850,553 $1,007,755
======== ======== ======== ==========
Weighted average shares out-
standing:
Common stock................ 194,062 211,438 198,353 209,962
Assuming issuance of shares
relating to employee
incentive plans........... 14,968 16,942 15,582 16,673
-------- -------- -------- ----------
Total shares................... 209,030 228,380 213,935 226,635
======== ======== ======== ==========
Per common share amounts:
Earnings before cumulative
effect of change in account-
ing principle............... $ 1.10 $ 1.57 $ 3.98 $ 4.61
Cumulative effect of change
in accounting principle..... - - - (.16)
-------- -------- -------- ----------
Net earnings................... $ 1.10 $ 1.57 $ 3.98 $ 4.45
======== ======== ======== ==========
Fully diluted:
Earnings before cumulative ef-
fect of change in accounting
principle.................... $231,579 $359,687 $855,147 $1,047,120
Cumulative effect of change in
accounting principle......... - - - (35,420)
-------- -------- -------- ----------
Net earnings................... 231,579 359,687 855,147 1,011,700
Remarketed Preferred stock
dividends.................... (1,718) (1,271) (4,594) (3,945)
-------- -------- -------- ----------
Net earnings applicable to
common stockholders.......... $229,861 $358,416 $850,553 $1,007,755
======== ======== ======== ==========
Weighted average shares out-
standing:
Common stock................ 194,062 211,438 198,353 209,962
Assuming issuance of shares
relating to employee
incentive plans........... 14,968 18,181 15,697 18,182
-------- -------- -------- ----------
Total shares................... 209,030 229,619 214,050 228,144
======== ======== ======== ==========
Per common share amounts:
Earnings before cumulative
effect of change in account-
ing principle............... $ 1.10 $ 1.56 $ 3.97 $ 4.58
Cumulative effect of change
in accounting principle..... - - - (.16)
-------- -------- -------- ----------
Net earnings................... $ 1.10 $ 1.56 $ 3.97 $ 4.42
======== ======== ======== ==========
</TABLE>
(A) In accordance with Accounting Principles Board Opinion No. 15, the modified
treasury stock method was used to calculate per common share earnings.
(B) 1993 results have been restated for the adoption of Statement of Financial
Accounting Standards No. 112.
<PAGE>
EXHIBIT 12
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
------------------------------------------
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended Ended
---------------------- ----------------------
Sept. 30, Sept. 24, Sept. 30, Sept. 24,
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Pretax earnings from continuing
operations.................... $ 389,522 $ 642,299 $1,474,392 $1,827,528
Deduct equity in undistributed
net earnings of unconsolidated
subsidiaries.................. (3,218) (3,598) (15,666) (12,136)
---------- ---------- ---------- ----------
Total pretax earnings from con-
tinuing operations............ 386,304 638,701 1,458,726 1,815,392
---------- ---------- ---------- ----------
Add: Fixed Charges (A)
Interest................ 2,223,203 1,500,574 6,198,030 4,246,643
Amortization of debt
expense............... 512 930 2,080 3,066
---------- ---------- ---------- ----------
Total interest............ 2,223,715 1,501,504 6,200,110 4,249,709
Interest factor in rents.. 31,017 34,259 96,822 104,975
---------- ---------- ---------- ----------
Total fixed charges............ 2,254,732 1,535,763 6,296,932 4,354,684
---------- ---------- ---------- ----------
Pretax earnings before fixed
charges....................... $2,641,036 $2,174,464 $7,755,658 $6,170,076
========== ========== ========== ==========
Ratio of earnings to fixed
charges....................... 1.17 1.42 1.23 1.42
========== ========== ========== ==========
</TABLE>
(A) There was no capitalized interest for the 1994 and 1993 periods.
<PAGE>
EXHIBIT 15
November 10, 1994
Merrill Lynch & Co., Inc.
World Financial Center
North Tower
New York, New York 10281-1332
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim consolidated
financial information of Merrill Lynch & Co., Inc. and subsidiaries as of
September 30, 1994 and for the three- and nine-month periods ended September 30,
1994 and September 24, 1993 as indicated in our report dated November 10, 1994;
because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, is
incorporated by reference in the following documents, as amended:
Filed on Form S-8:
Registration Statement No. 33-41942 (1986 Employee Stock Purchase Plan)
Registration Statement No. 33-17908 (Incentive Equity Purchase Plan)
Registration Statement No. 33-33336 (Long Term Incentive Compensation Plan)
Registration Statement No. 33-51831 (Long Term Incentive Compensation Plan)
Registration Statement No. 33-48846 (401(k) Savings and Investment Plan)
Registration Statement No. 33-51829 (401(k) Savings and Investment Plan)
Registration Statement No. 33-54154 (Non-Employee Directors' Equity Plan)
Registration Statement No. 33-54572 (401(k) Savings and Investment Plan
(Puerto Rico))
Registration Statement No. 33-55155 (1995 Deferred Compensation Plan
for a Select Group of Eligible Employees)
Filed on Form S-3:
Debt Securities
Registration Statement No. 33-54218
Registration Statement No. 2-78338
Registration Statement No. 2-89519
Registration Statement No. 2-83477
Registration Statement No. 33-03602
Registration Statement No. 33-17965
Registration Statement No. 33-27512
Registration Statement No. 33-35456
Registration Statement No. 33-42041
Registration Statement No. 33-45327
Registration Statement No. 33-49947
Registration Statement No. 33-51489
Registration Statement No. 33-52647
Medium Term Notes
Registration Statement No. 2-96315
Registration Statement No. 33-03079
Registration Statement No. 33-05125
Registration Statement No. 33-09910
Registration Statement No. 33-16165
Registration Statement No. 33-19820
Registration Statement No. 33-23605
Registration Statement No. 33-27549
Registration Statement No. 33-38879
Other Securities
Registration Statement No. 33-19975 (Remarketed Preferred Stock, Series C)
Registration Statement No. 33-33335 (Common Stock)
Registration Statement No. 33-45777 (Common Stock)
Registration Statement No. 33-55363 (Preferred Stock)
We are also aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
/s/ Deloitte & Touche LLP
New York, New York
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MERRILL
LYNCH & CO., INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER
30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 2,350,480
<RECEIVABLES> 25,451,969
<SECURITIES-RESALE> 47,438,355
<SECURITIES-BORROWED> 20,561,976
<INSTRUMENTS-OWNED> 64,239,692
<PP&E> 1,556,655
<TOTAL-ASSETS> 168,394,906
<SHORT-TERM> 22,132,750
<PAYABLES> 16,761,747
<REPOS-SOLD> 56,635,531
<SECURITIES-LOANED> 2,128,231
<INSTRUMENTS-SOLD> 35,965,157
<LONG-TERM> 15,847,957
<COMMON> 315,105
0
193,800
<OTHER-SE> 5,195,846
<TOTAL-LIABILITY-AND-EQUITY> 168,394,906
<TRADING-REVENUE> 1,881,235
<INTEREST-DIVIDENDS> 6,955,987
<COMMISSIONS> 2,232,328
<INVESTMENT-BANKING-REVENUES> 1,011,890
<FEE-REVENUE> 1,307,532
<INTEREST-EXPENSE> 6,217,542
<COMPENSATION> 3,825,998
<INCOME-PRETAX> 1,474,392
<INCOME-PRE-EXTRAORDINARY> 855,147
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 855,147
<EPS-PRIMARY> 3.98
<EPS-DILUTED> 3.97
<FN>
Note: Financial instruments owned excludes items not defined as financial
instruments in SFAS No. 105, as amended by SFAS No. 107, totaling
$245,222 and includes financial instrument investments. </FN>
</TABLE>
