<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 29, 1995
------------------
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.
175,716,794 shares of Common Stock*
(as of the close of business on November 3, 1995)
* Does not include 4,375,113 unallocated reversion 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. 29, SEPT. 30, INCREASE
(In Thousands, Except Per Share Amounts) 1995 1994 (DECREASE)
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Commissions ............................. $ 829,125 $ 673,551 23%
Interest and dividends .................. 3,003,864 2,438,760 23
Principal transactions .................. 663,139 653,691 1
Investment banking ...................... 353,760 245,489 44
Asset management and portfolio
service fees .......................... 484,056 431,374 12
Other ................................... 97,202 87,358 11
---------- ---------- ----
Total Revenues .......................... 5,431,146 4,530,223 20
Interest Expense ...................... 2,748,708 2,227,978 23
---------- ---------- ----
Net Revenues ............................ 2,682,438 2,302,245 17%
---------- ---------- ----
NON-INTEREST EXPENSES
Compensation and benefits ............... 1,392,445 1,179,031 18
Occupancy ............................... 113,461 106,366 7
Communications and equipment rental ..... 122,474 110,945 10
Depreciation and amortization ........... 92,707 83,301 11
Advertising and market development ...... 102,012 96,321 6
Professional fees ....................... 113,832 88,799 28
Brokerage, clearing, and exchange fees... 88,663 82,690 7
Other ................................... 171,367 165,270 4
---------- ---------- ----
Total Non-Interest Expenses ............. 2,196,961 1,912,723 15
---------- ---------- ----
EARNINGS BEFORE INCOME TAXES ............ 485,477 389,522 25
Income tax expense ...................... 185,121 157,943 17
---------- ---------- ----
NET EARNINGS ............................ $ 300,356 $ 231,579 30%
========== ========== ====
NET EARNINGS APPLICABLE TO COMMON
STOCKHOLDERS .......................... $ 288,585 $ 229,861 26%
========== ========== ====
EARNINGS PER COMMON SHARE:
Primary ............................... $ 1.47 $ 1.10 34%
========== ========== ====
Fully diluted ......................... $ 1.46 $ 1.10 33%
========== ========== ====
DIVIDEND PAID PER COMMON SHARE .......... $ .26 $ .23
========== ==========
AVERAGE SHARES USED IN COMPUTING EARNINGS
PER COMMON SHARE:
Primary ............................... 196,395 209,030
========== ==========
Fully diluted ......................... 197,157 209,030
========== ==========
</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. 29, SEPT. 30, INCREASE
(In Thousands, Except Per Share Amounts) 1995 1994 (DECREASE)
----------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Commissions ................................................. $ 2,279,432 $ 2,232,328 2%
Interest and dividends ...................................... 9,328,638 6,955,987 34
Principal transactions ...................................... 1,952,572 1,881,235 4
Investment banking .......................................... 937,603 1,011,890 (7)
Asset management and portfolio
service fees .............................................. 1,396,988 1,307,532 7
Other ....................................................... 324,784 360,362 (10)
----------- ----------- ----
Total Revenues .............................................. 16,220,017 13,749,334 18
Interest Expense .......................................... 8,567,902 6,217,542 38
----------- ----------- ----
Net Revenues ................................................ 7,652,115 7,531,792 2
----------- ----------- ----
NON-INTEREST EXPENSES
Compensation and benefits ................................... 3,971,088 3,825,998 4
Occupancy ................................................... 332,823 327,948 1
Communications and equipment rental ......................... 351,065 322,391 9
Depreciation and amortization ............................... 267,344 238,067 12
Advertising and market development .......................... 284,265 294,071 (3)
Professional fees ........................................... 318,110 270,101 18
Brokerage, clearing, and exchange fees....................... 266,396 256,645 4
Other ....................................................... 532,455 522,179 2
----------- ----------- ----
Total Non-Interest Expenses ................................. 6,323,546 6,057,400 4
----------- ----------- ----
EARNINGS BEFORE INCOME TAXES ................................ 1,328,569 1,474,392 (10)
Income tax expense .......................................... 518,142 619,245 (16)
----------- ----------- ----
NET EARNINGS ................................................ $ 810,427 $ 855,147 (5)%
=========== =========== ====
NET EARNINGS APPLICABLE TO COMMON
STOCKHOLDERS .............................................. $ 774,802 $ 850,553 (9)%
=========== =========== ====
EARNINGS PER COMMON SHARE:
Primary ................................................... $ 3.95 $ 3.98 (1)%
=========== =========== ====
Fully diluted ............................................. $ 3.90 $ 3.97 (2)%
=========== =========== ====
DIVIDENDS PAID PER COMMON SHARE ............................. $ .75 $ .66
=========== ===========
AVERAGE SHARES USED IN COMPUTING EARNINGS
PER COMMON SHARE:
Primary ................................................... 196,280 213,935
=========== ===========
Fully diluted ............................................. 198,755 214,050
=========== ===========
</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. 29, DEC. 30,
ASSETS 1995 1994
- ------------------------------------------------------------- ------------ ------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS.................................... $ 2,932,966 $ 2,311,743
------------ ------------
CASH AND SECURITIES SEGREGATED FOR REGULATORY PURPOSES
OR DEPOSITED WITH CLEARING ORGANIZATIONS................... 5,360,550 4,953,062
------------ ------------
MARKETABLE INVESTMENT SECURITIES............................. 2,321,681 2,325,453
------------ ------------
TRADING ASSETS, AT FAIR VALUE
Corporate debt and preferred stock........................... 18,254,829 14,818,157
Contractual agreements....................................... 11,463,086 9,519,105
U.S. Government and agencies................................. 8,992,533 8,196,584
Non-U.S. governments and agencies............................ 8,946,106 6,468,341
Equities and convertible debentures.......................... 9,875,225 6,263,492
Mortgages and mortgage-backed................................ 2,923,718 5,223,809
Municipals................................................... 996,174 1,291,688
Money markets................................................ 1,551,538 957,589
------------ ------------
Total........................................................ 63,003,209 52,738,765
------------ ------------
RESALE AGREEMENTS............................................ 45,501,860 44,459,036
------------ ------------
SECURITIES BORROWED.......................................... 23,619,471 20,993,302
------------ ------------
RECEIVABLES
Customers (net of allowance for doubtful accounts of
$47,754 in 1995 and $42,290 in 1994)....................... 14,941,065 14,030,466
Brokers and dealers.......................................... 10,999,592 6,486,879
Interest and other........................................... 4,005,927 4,360,693
------------ ------------
Total........................................................ 29,946,584 24,878,038
------------ ------------
INVESTMENTS OF INSURANCE SUBSIDIARIES........................ 5,709,734 5,719,345
LOANS, NOTES, AND MORTGAGES (NET OF ALLOWANCE FOR
LOAN LOSSES OF $181,806 IN 1995 AND $180,799 IN 1994)...... 2,672,601 1,586,718
OTHER INVESTMENTS............................................ 949,015 887,626
PROPERTY, LEASEHOLD IMPROVEMENTS, AND EQUIPMENT
(NET OF ACCUMULATED DEPRECIATION AND AMORTIZATION
OF $2,167,374 IN 1995 AND $1,867,476 IN 1994).............. 1,608,225 1,587,639
OTHER ASSETS................................................. 1,846,791 1,308,600
------------ ------------
TOTAL ASSETS................................................. $185,472,687 $163,749,327
============ ============
</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. 29, DEC. 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
- ------------------------------------------------------------- ------------ ------------
<S> <C> <C>
LIABILITIES
REPURCHASE AGREEMENTS........................................ $ 54,274,118 $ 51,864,594
------------ ------------
COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS............. 31,762,286 26,439,645
------------ ------------
TRADING LIABILITIES, AT FAIR VALUE
U.S. Government and agencies................................. 10,169,694 15,989,928
Contractual agreements....................................... 11,550,244 8,381,946
Non-U.S. governments and agencies............................ 7,507,530 4,009,757
Equities and convertible debentures.......................... 6,197,449 3,990,146
Corporate debt and preferred stock........................... 1,772,335 2,564,192
Municipals................................................... 100,523 165,906
------------ ------------
Total........................................................ 37,297,775 35,101,875
------------ ------------
CUSTOMERS.................................................... 10,527,590 11,608,891
INSURANCE.................................................... 5,443,687 5,689,513
BROKERS AND DEALERS.......................................... 14,973,504 4,637,957
OTHER LIABILITIES AND ACCRUED INTEREST....................... 8,959,967 7,725,924
LONG-TERM BORROWINGS......................................... 16,156,414 14,863,383
------------ ------------
TOTAL LIABILITIES............................................ 179,395,341 157,931,782
------------ ------------
STOCKHOLDERS' EQUITY
PREFERRED STOCKHOLDERS' EQUITY............................... 618,800 618,800
------------ ------------
COMMON STOCKHOLDERS' EQUITY
Common stock, par value $1.33 1/3 per share;
authorized: 500,000,000 shares;
issued: 1995 and 1994 - 236,330,162 shares................. 315,105 315,105
Paid-in capital.............................................. 1,216,025 1,196,093
Foreign currency translation adjustment...................... (29,596) 3,703
Net unrealized gains (losses) on investment securities
available-for-sale (net of applicable income tax
expense (benefit) of $3,284 in 1995 and ($30,924)
in 1994)................................................... 6,404 (56,957)
Retained earnings............................................ 6,246,482 5,605,616
------------ ------------
Subtotal................................................. 7,754,420 7,063,560
Less:
Treasury stock, at cost:
1995 - 56,453,746 shares;
1994 - 48,423,944 shares................................. 1,998,751 1,627,108
Unallocated ESOP reversion shares, at cost:
1995 - 4,375,113 shares;
1994 - 6,427,091 shares.................................. 68,908 101,227
Employee stock transactions................................ 228,215 136,480
------------ ------------
TOTAL COMMON STOCKHOLDERS' EQUITY............................ 5,458,546 5,198,745
------------ ------------
TOTAL STOCKHOLDERS' EQUITY................................... 6,077,346 5,817,545
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................... $185,472,687 $163,749,327
============ ============
BOOK VALUE PER COMMON SHARE.................................. $ 31.30 $ 28.87
============ ============
</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. 29, SEPT. 30,
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................................. $ 810,427 $ 855,147
Noncash items included in earnings:
Depreciation and amortization.............................. 267,344 238,067
Policyholder reserves...................................... 224,651 275,000
Other...................................................... 534,011 582,145
(Increase) decrease in operating assets:
Trading assets............................................. (9,275,063) (2,307,058)
Cash and securities segregated for regulatory purposes
or deposited with clearing organizations................. (407,488) (1,243,832)
Securities borrowed........................................ (2,626,169) (1,560,915)
Customers.................................................. (926,245) (47,985)
Maturities and sales of trading investment securities...... - 128,387
Purchases of trading investment securities................. - (125,079)
Other...................................................... (1,086,283) (1,611,000)
Increase (decrease) in operating liabilities:
Trading liabilities........................................ 1,339,791 14,304,785
Customers.................................................. (2,240,957) (3,050,557)
Insurance.................................................. (566,309) (1,673,863)
Other...................................................... 8,253,781 1,839,959
------------ ------------
CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES............. (5,698,509) 6,603,201
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from (payments for):
Maturities of available-for-sale securities................ 1,171,015 2,147,478
Sales of available-for-sale securities..................... 864,936 1,031,715
Purchases of available-for-sale securities................. (1,993,383) (1,771,271)
Maturities of held-to-maturity securities.................. 890,111 1,211,609
Purchases of held-to-maturity securities................... (767,122) (1,590,946)
Purchase of Smith New Court, net of cash acquired.......... (601,486) -
Other investments and other assets......................... (145,528) (235,280)
Property, leasehold improvements, and equipment............ (255,634) (287,758)
------------ ------------
CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES............. (837,091) 505,547
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments for):
Repurchase agreements, net of resale agreements............ 1,366,700 (9,083,444)
Commercial paper and other short-term borrowings........... 5,322,641 1,046,652
Issuance and resale of long-term borrowings................ 7,616,340 9,063,820
Settlement and repurchase of long-term borrowings.......... (6,369,126) (6,827,946)
Common stock transactions.................................. (610,172) (604,154)
Dividends.................................................. (169,560) (136,604)
------------ ------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES............. 7,156,823 (6,541,676)
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS........................ 621,223 567,072
Cash and cash equivalents, beginning of year................. 2,311,743 1,783,408
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................... $ 2,932,966 $ 2,350,480
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Income taxes totaled $356,533 in 1995 and $1,051,784 in 1994.
Interest totaled $8,308,770 in 1995 and $6,138,752 in 1994.
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCIAL ACTIVITY:
As part of the consideration for Smith New Court, the Corporation issued
approximately $115 million of unsecured floating rate notes due December 31,
2000 (the "Notes"). The Notes are redeemable at the option of the holders on any
quarterly interest payment date on or after December 31, 1996.
See Notes to Consolidated Financial Statements
6
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 29, 1995
BASIS OF PRESENTATION
The consolidated financial statements, prepared in accordance with generally
accepted accounting principles, include the accounts of Merrill Lynch & Co.,
Inc. and all significant subsidiaries (collectively referred to as the
"Corporation"). All material intercompany balances and transactions have been
eliminated. The December 30, 1994 consolidated balance sheet was derived from
the audited financial statements. The interim consolidated financial statements
for the three- and nine-month periods ended September 29, 1995 are unaudited;
however, in the opinion of the management of the Corporation, all adjustments,
consisting only of normal recurring accruals, necessary for a fair statement of
the results of operations have been included.
These unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements included in the Corporation's
Annual Report on Form 10-K for the year ended December 30, 1994 ("1994 10-K").
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 reclassified, where appropriate, to conform to
the 1995 presentation.
ACCOUNTING CHANGES
In the second quarter of 1995, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing
Rights". SFAS No. 122 amends SFAS No. 65, "Accounting for Certain Mortgage
Banking Activities", to require that a mortgage banking enterprise recognize
rights to service mortgage loans as separate assets for originated as well as
purchased mortgages. Additionally, SFAS No. 122 requires that a mortgage banking
enterprise assess its capitalized mortgage servicing rights for impairment based
on the fair value of those rights. The impact of this pronouncement on the
Corporation's financial statements as of September 29, 1995 was not material.
In the first quarter of 1995, the Corporation adopted SFAS No. 114, "Accounting
by Creditors for Impairment of a Loan", and SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures". SFAS
No. 114 establishes accounting standards for creditors to measure the impairment
of certain loans. 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 impact of these
pronouncements on the Corporation's financial statements as of September 29,
1995 was not material.
7
<PAGE>
INVESTMENTS
The Corporation's investments in debt and certain equity securities are
classified as 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 are carried at
amortized cost. Restricted equity investment securities are reported at the
lower of cost or net realizable value.
The table that follows provides the activity for the net unrealized gains
(losses) recorded in stockholders' equity for available-for-sale investments:
<TABLE>
<CAPTION>
Sept. 29, Dec. 30,
(In thousands) 1995 1994
- -------------- -------- ---------
<S> <C> <C>
Net unrealized gains (losses) on investment
securities available-for-sale $261,618 $(410,068)
Adjustments for policyholder liabilities (95,832) 214,537
Adjustments for deferred policy acquisition costs (68,217) 73,802
Deferred income tax (expense) benefit (34,208) 43,417
-------- ---------
Net activity 63,361 (78,312)
Net unrealized (losses) gains on investment
securities classified as available-for-sale,
beginning of year (56,957) 21,355
-------- ---------
Net unrealized gains (losses) on investment
securities classified as available-for-sale,
end of period $ 6,404 $ (56,957)
======== =========
</TABLE>
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 primarily
support 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 Investments". These adjustments
are recorded in stockholders' equity and assume that the unrealized gain or loss
on available-for-sale securities was realized.
In the 1995 third quarter, gross realized gains and losses related to available-
for-sale investment securities were $9.7 million and $9.3 million, respectively,
compared to $14.0 million and $6.6 million, respectively, in the 1994 third
quarter. For the nine-month period ended September 29, 1995, gross realized
gains and losses related to available-for-sale investment securities were $21.6
million and $19.8 million, respectively, compared to $20.0 million and $14.3
million, respectively, for the nine-month period ended September 30, 1994. The
cost basis of each investment sold is specifically identified for purposes of
computing realized gains and losses. Net unrealized gains from trading
investment securities included in the 1995 three- and nine-month Statements of
Consolidated Earnings were $31 thousand and $54 thousand, respectively, compared
to gains of $2.4 million and losses of $9.1 million, respectively, for the 1994
three- and nine-month periods.
8
<PAGE>
INTEREST AND DIVIDEND EXPENSE
Interest expense includes payments in lieu of dividends of $2.4 million and
$4.8 million for the third quarters of 1995 and 1994, respectively. For the
nine-month periods ended September 29, 1995 and September 30, 1994, payments in
lieu of dividends were $8.6 million and $19.5 million, respectively.
COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS
Commercial paper and other short-term borrowings at September 29, 1995 and
December 30, 1994 follow:
<TABLE>
<CAPTION>
Sept. 29, Dec. 30,
(In millions) 1995 1994
- ------------- -------- -------
<S> <C> <C>
Commercial paper $16,048 $14,759
Demand and time deposits 8,814 7,578
Securities loaned 4,453 2,180
Bank loans and other 2,447 1,923
------- -------
Total $31,762 $26,440
======= =======
</TABLE>
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 equity and commodity price risk, and to meet
trading and financing needs. Derivative contracts often involve commitments to
swap future interest payment streams, to purchase or sell financial instruments
or commodities at specified terms on a specified date, or to exchange
currencies. In addition, the Corporation purchases and writes options on a wide
range of financial instruments such as securities, currencies, futures, and
various market indices.
9
<PAGE>
The contractual or notional amounts of derivative financial instruments provide
only a measure of involvement in these types of transactions and do not
represent the amounts subject to the various risks set forth below. The
contractual or notional amounts of these instruments used for trading purposes
by type of risk follow:
<TABLE>
<CAPTION>
(In billions)
- ------------- Interest Rate Currency Equity Price Commodity Price
Sept. 29, 1995 Risk (a) Risk (a) Risk Risk
- -------------- ------------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
Swap agreements $786 $ 98 $ 5 $ 4
Futures contracts $215 $ 1 $ 5 $ 4
Options held $ 50 $ 28 $33 $ 4
Options written $100 $ 39 $33 $ 9
Forward contracts $ 38 $131 $ - $33
December 30, 1994
- -----------------
Swap agreements $653 $ 73 $ 2 $ 2
Futures contracts $172 $ - $ 2 $ 2
Options held $ 75 $ 22 $22 $12
Options written $ 74 $ 22 $21 $ 7
Forward contracts $ 29 $103 $ - $ 7
</TABLE>
(a) A number of the Corporation's foreign currency contracts are subject to both
interest rate and currency risk.
The contractual or notional amounts of derivative financial instruments used
for purposes other than trading follow:
<TABLE>
<CAPTION>
(In billions) Sept. 29, December 30,
- ------------- 1995 1994
--------- ------------
<S> <C> <C>
Interest rate swap contracts $32 $22
Foreign exchange contracts $ 2 $ 3
Equity options held $ 1 $ 1
</TABLE>
Most of the above transactions are entered into with the Corporation's swaps and
foreign exchange dealer subsidiaries which intermediate interest rate and
currency risk with third parties in the normal course of their trading
activities.
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 29, 1995, letters of credit aggregating $1,702
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 29, 1995 would not have a
material effect on the consolidated financial condition of the Corporation.
10
<PAGE>
REGULATORY REQUIREMENTS
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a registered
broker-dealer and a subsidiary of the Corporation, is subject to Net Capital
Rule 15c3-1 under the Securities Exchange Act of 1934. Under the alternative
method permitted by this rule, the minimum required net capital, as defined,
shall not be less than 2% of aggregate debit items arising from customer
transactions. At September 29, 1995, MLPF&S's regulatory net capital of $1,278
million was 9% of aggregate debit items, and its regulatory net capital in
excess of the minimum required was $989 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 under the Government Securities Act of 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 29, 1995,
MLGSI's liquid capital of $720 million was 253% of its total market and credit
risk, and liquid capital in excess of the minimum required was $379 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 total financial resources requirement of
the SFA. At September 29, 1995, MLIL's regulatory capital was $1,328 million and
exceeded the minimum requirement by $313 million.
LITIGATION MATTER
On January 12, 1995, an action was commenced in the United States Bankruptcy
Court for the Central District of California by Orange County, California
("Orange County") and The Orange County Investment Pools (the "Pools"), both of
which filed bankruptcy petitions in that Court on December 6, 1994, against the
Corporation and certain of its subsidiaries in connection with the Corporation's
business activities with Orange County. In addition, other actions have been
brought against the Corporation and/or certain of its officers, directors, and
employees and certain of its subsidiaries in Federal and state courts in
California, New York, and Illinois. Some of these actions are class actions and
stockholder derivative actions brought by persons alleging harm to themselves or
to the Corporation arising out of the Corporation's dealings with Orange County
and the Pools, or from the purchase of debt instruments issued by Orange County
that were underwritten by MLPF&S. See "Commitments and Contingencies" in the
notes to the audited consolidated financial statements contained in the 1994
10-K as well as "Legal Proceedings" in the Corporation's 1994 10-K and 1995
quarterly reports on Form 10-Q.
SMITH NEW COURT PLC
During the 1995 third quarter, Merrill Lynch Investments PLC, a wholly-owned
subsidiary of the Corporation, acquired substantially all of the outstanding
shares of Smith New Court PLC ("Smith New Court"), a U.K.-based global
securities firm, for approximately $800 million. As a result of the acquisition,
the
11
<PAGE>
Corporation recorded approximately $550 million of goodwill, which is being
amortized on a straight-line basis over 15 years. The Corporation's third
quarter 1995 results include those of Smith New Court since mid-August 1995, as
well as approximately $4 million of goodwill amortization and approximately $7
million of integration costs related to the acquisition.
12
<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 29, 1995, and the
related condensed statements of consolidated earnings for the three- and nine-
month periods ended September 29, 1995 and September 30, 1994 and consolidated
cash flows for the nine-month periods ended September 29, 1995 and September 30,
1994. 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 30, 1994, 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 27, 1995, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 30, 1994 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ Deloitte & Touche LLP
New York, New York
November 10, 1995
13
<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, which were particularly weak during the last half of
1994, improved during 1995 as a result of a steadying U.S. economy, declining
interest rates, and heightened investor activity. Inflationary fears eased
throughout 1995 as key U.S. economic statistics indicated that the economy was
stabilizing with slow to moderate growth, and the Federal Reserve decreased
interest rates in July following seven rate increases since February 1994.
Investors reacted favorably to these events and were more active in stock and
bond markets during 1995, particularly in the second and third quarters.
Retail investor activity increased as long-term interest rates generally
declined in the 1995 second and third quarters and domestic equity markets
advanced to record levels. As a result, commission revenues and asset management
and portfolio service fees increased industrywide. Sales of mutual funds
benefited from strong U.S. equity markets and a shift from foreign to domestic
stock funds. Heightened investor activity and appreciated asset values also
contributed to increased fee-based revenues during the period.
The Dow Jones Industrial Average ("DJIA") daily closing index for the 1995
third quarter averaged 4,688, 23% above the 1994 third quarter average closing
index and 7% above the 1995 second quarter average close. The DJIA reached a
record high close of 4,802 during the 1995 third quarter and closed at 4,789 at
quarter-end, up 25% from the 1994 third quarter close. The New York Stock
Exchange ("NYSE") average daily trading volume was a record 341 million shares
in the 1995 third quarter, 24% above the average volume in the 1994 third
quarter. The Nasdaq composite index also showed significant gains, particularly
in the technology sector, advancing 37% from the third quarter of 1994 and 12%
from the 1995 second quarter, to close at 1,044. The Nasdaq average daily
trading volume was a record 443 million shares in the 1995 third quarter, 58%
above the average volume in the 1994 third quarter.
In the bond markets, the yield on the 30-year U.S. Treasury bond rose to
almost 7% during the 1995 third quarter before closing at 6.50% at the end of
the quarter. The 1995 third quarter close was down from 6.62% at the end of the
1995 second quarter and 7.82% from the end of the 1994 third quarter.
14
<PAGE>
Domestic underwriting volume was up industrywide in the 1995 third quarter to
$212.7 billion, with issuances of stocks and bonds increasing 9% from the 1995
second quarter and 45% from the 1994 third quarter, according to Securities Data
Co. Investment banking revenues, particularly underwritings, benefited from
increased issuer activity in the 1995 third quarter attributable to robust
domestic equity markets and heightened investor demand. New stock offerings
reached their highest levels since the first quarter of 1994, benefiting from
the rise in stock prices throughout 1995. Issuances of investment-grade debt
increased, particularly in the U.S. government agency sector, due to favorable
bond yields coupled with a continued flattening of the yield curve. Asset-backed
securities issuances continued at a record pace, primarily due to expansion of
the credit card segment. Issuances of mortgage-backed securities, which tend to
be longer term and more volatile than asset-backed securities, improved somewhat
from the beginning of 1995, but remained weak when compared to a year ago.
Underwriting activity in municipal securities remained weak in 1995 as
discussions on possible tax law changes reduced investor demand for tax-exempt
investments.
Strategic services revenues continued to improve in the 1995 third quarter due
to record merger and acquisition volume, with increased activity in various
industries, including banking, media and entertainment, utilities, and
healthcare.
Although trading volumes were higher in the 1995 third quarter as compared to
the 1994 third quarter, trading results were mixed. Trading results in equity
securities improved industrywide from the 1994 third quarter, due to strong
gains and higher volumes across most major stock market indices. Convertible
securities benefited from low interest rates, rising stock prices, and increased
demand. Foreign exchange trading revenues improved as the U.S. dollar recovered
against the Japanese yen and German mark, while trading revenues from municipal
securities were weak due to low interest rates and reduced investor demand.
The Corporation's 1995 third quarter net earnings were up 30% from third quarter
levels of a year ago, and up 6% from the 1995 second quarter. These improved
results were attributable to favorable market conditions and the Corporation's
diversified global revenue base, appropriate risk management activities, and
continued efforts to control fixed expenses and discretionary costs.
THIRD QUARTER 1995 VERSUS THIRD QUARTER 1994
The discussion that follows emphasizes the comparison between the third quarters
of 1995 and 1994 and presents additional information on the comparison between
the respective nine-month periods, when relevant.
Net earnings for the 1995 third quarter were $300.4 million, up $68.8 million
(30%) from the $231.6 million reported in last year's third quarter. Third
quarter earnings per common share were $1.47 primary and $1.46 fully diluted,
compared with $1.10 primary and fully diluted in the 1994 third quarter. After
deducting preferred stock dividends, net earnings applicable to common
stockholders in the 1995 third quarter totaled $288.6 million, up $58.7 million
(26%) from $229.9 million in the prior year's quarter. The Corporation's
weighted average shares outstanding declined from the 1994 third quarter due
primarily to share repurchases. The Corporation repurchased 27.1
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<PAGE>
million shares of its common stock since the end of the 1994 third quarter,
including 1.7 million shares in the 1995 third quarter.
For the first nine months of 1995, net earnings were $810.4 million, down $44.7
million (5%) from the $855.1 million reported in the prior year period. Earnings
per common share were $3.95 primary and $3.90 fully diluted, compared to $3.98
primary and $3.97 fully diluted in the comparable 1994 period. After deducting
preferred stock dividends, net earnings applicable to common stockholders in
the first three quarters of 1995 totaled $774.8 million, down $75.8 million
(9%) from $850.6 million in the comparable 1994 period.
During the 1995 third quarter, Merrill Lynch Investments PLC, a wholly-owned
subsidiary of the Corporation, acquired substantially all of the outstanding
shares of Smith New Court PLC ("Smith New Court"), a U.K.-based global
securities firm, for approximately $800 million. As a result of the acquisition,
the Corporation recorded approximately $550 million of goodwill, which is being
amortized on a straight-line basis over 15 years. The Corporation's third
quarter 1995 results include those of Smith New Court since mid-August 1995, as
well as approximately $4 million of goodwill amortization and approximately
$7 million of integration costs related to the acquisition.
The Corporation's pretax profit margin in the 1995 third quarter was 18.1%
versus 16.9% in the year-ago period. The net profit margin increased to 11.2% in
the 1995 third quarter, compared with 10.1% in the 1994 third quarter. Total
revenues increased 20% from the 1994 third quarter to $5,431 million, with
increases in all operating revenue categories. Revenues after interest expense
(net revenues) increased 17% from the year-ago period to $2,682 million. Non-
interest expenses totaled $2,197 million in the 1995 third quarter, up 15% from
the year-earlier period as increased profitability and business activity led to
higher levels of compensation and benefits expense.
Commission revenues were $829 million, up 23% from the 1994 third quarter.
Commissions from listed securities increased 28% to $404 million as a result of
higher volumes. Mutual fund commissions were up 16% from the year-ago period to
$252 million. Mutual fund sales increased, particularly in offshore, fixed
income, and equity funds, as investors were more active due to improved
performance in both the stock and bond markets. Revenues from mutual fund sales
for the 1995 nine-month period, however, were down 7% from the comparable 1994
period to $656 million, as most stock and bond mutual funds declined in value
after the strong 1994 first quarter, affecting volume through the first quarter
of 1995.
Other commission revenues increased 22% from the 1994 third quarter to $173
million due primarily to increased commissions from over-the-counter securities,
options, and insurance products, partially offset by lower commissions from
commodities transactions.
Net interest and dividend profit rose 21% from the 1994 third quarter to $255
million as a result of higher levels of interest-earning assets relative to
interest-bearing liabilities. Interest and dividend revenues advanced 23% over
the year-ago period to $3,004 million due primarily to growth in collateralized
lending activities, partially offset by declining interest rates. Interest
expense, which includes dividend expense, rose 23% from the 1994 third quarter
to $2,749 million as a result of increased levels of
16
<PAGE>
interest-bearing liabilities primarily related to the Corporation's funding
activities, partially offset by a decrease in interest rates.
Significant components of interest and dividend revenues and interest expense
for the three- and nine-month periods ended September 29, 1995 and September
30, 1994 follow:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------- -----------------------
(In millions) Sept. 29, Sept. 30, Sept. 29, Sept. 30,
- ------------- 1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest and
dividend revenues:
Trading assets $ 867 $ 881 $2,877 $2,620
Resale agreements 613 494 2,154 1,205
Securities borrowed 846 532 2,359 1,635
Margin lending 359 268 1,017 721
Other 319 264 922 775
------ ------ ------ ------
Total 3,004 2,439 9,329 6,956
------ ------ ------ ------
Interest expense:
Borrowings 1,162 827 3,299 2,429
Repurchase agreements 833 658 2,804 1,675
Trading liabilities 492 547 1,692 1,505
Other 262 196 773 609
------ ------ ------ ------
Total 2,749 2,228 8,568 6,218
------ ------ ------ ------
Net interest and
dividend profit $ 255 $ 211 $ 761 $ 738
====== ====== ====== ======
</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,
liability, and liquidity management strategies, substantially all U.S. dollar
and foreign currency denominated fixed-rate, long-term borrowings are swapped
into floating interest rate liabilities. These liability hedges are in the form
of interest rate and currency swap agreements. Interest obligations on variable-
rate debt may also be 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,
decreased interest expense by approximately $13 million and $32 million for the
1995 three- and nine-month periods, respectively, and approximately $40 million
and $156 million for the 1994 three- and nine-month periods, respectively.
Principal transactions revenues increased 1% from the 1994 third quarter to $663
million. Taxable fixed-income trading revenues totaled $145 million, down 16%
from a year ago. Non-U.S. governments and agencies securities benefited from
higher trading activity, particularly in Australian government instruments.
Trading revenues from money market products benefited from increased variable
and floating rate note activity in European markets. High-yield debt trading
revenues increased due to higher revenues from bank loan trading as a result of
improvements in credit ratings of certain issuers. Trading revenues from
corporate bonds and preferred stock advanced due primarily to higher demand for
fixed-rate preferred issues. Taxable fixed-income principal transactions
revenues were negatively affected by a loss in mortgage-backed securities due to
reduced market liquidity for non-generic products. Nevertheless, trading results
from mortgage-backed products, which include net interest revenues, were
positive. Trading revenues in U.S.
17
<PAGE>
Government and agencies securities were down from a year ago as lower interest
rates in the current quarter reduced volatility. Taxable fixed-income trading
revenues were up 2% to $439 million for the first nine months of 1995 compared
to the year-ago period, as higher revenues from corporate bonds and preferred
stock, non-U.S. governments and agencies, and high-yield debt were
substantially offset by declines in mortgage-backed products and U.S.
Government and agencies securities.
Interest rate and currency swap revenues decreased 22% from the 1994 third
quarter to $160 million. Trading revenues from U.S. dollar denominated
transactions were down due to reduced volume and lower margins. Interest rate
and currency swap revenues were up 6% to $589 million for the first nine months
of 1995, primarily due to increased trading activity in non-U.S. dollar
denominated transactions compared to the year-ago period.
Equities and equity derivatives trading revenues increased 64% from the 1994
third quarter to $256 million. International equities trading revenues
increased due to improved market conditions in the U.K. as well as Smith New
Court activity. Over-the-counter equities trading revenues benefited from
increased Nasdaq volume, primarily driven by technology stocks. Trading
revenues from convertible securities increased as a result of higher trading
volumes. Trading revenues in equity derivatives were down due to less favorable
market conditions.
Municipal securities revenues declined 29% from last year's third quarter to
$69 million as discussions of possible tax law changes weakened retail investor
demand for tax-exempt investments.
Foreign exchange and commodities trading revenues increased 41% from the 1994
third quarter to $33 million. Increases in foreign exchange trading revenues,
which resulted from higher customer volume caused by the strengthening of the
U.S. dollar versus the Japanese yen and the German mark, were partially offset
by a decrease in commodities trading activity.
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 "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.
18
<PAGE>
The table that follows provides information on aggregate trading profits,
including net interest for the three and nine months ended September 29, 1995
and September 30, 1994. Principal transactions revenues are based on financial
reporting categories. Interest revenue and expense components are based on
financial 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
Transactions Revenue Trading
(In millions) Revenues (Expense) Revenue
- ------------- ------------------- ------------------ -----------------
Three Months 1995 1994 1995 1994 1995 1994
- ------------ ------ ------ ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Taxable fixed-income $ 145 $ 171 $ 56 $ 60 $ 201 $ 231
Interest rate and currency
swaps 160 205 (22) (11) 138 194
Equity and equity
derivatives 256 156 (12) (31) 244 125
Municipals 69 98 1 1 70 99
Foreign exchange and
commodities 33 24 (5) 1 28 25
------ ------ ----- ----- ------ ------
Total $ 663 $ 654 $ 18 $ 20 $ 681 $ 674
====== ====== ===== ===== ====== ======
Nine Months
- -----------
Taxable fixed-income $ 439 $ 429 $ 218 $ 274 $ 657 $ 703
Interest rate and currency
swaps 589 557 (51) 5 538 562
Equity and equity
derivatives 649 546 (55) (84) 594 462
Municipals 210 275 (1) 5 209 280
Foreign exchange and
commodities 66 74 (16) 1 50 75
------ ------ ----- ----- ------ ------
Total $1,953 $1,881 $ 95 $ 201 $2,048 $2,082
====== ====== ===== ===== ====== ======
</TABLE>
Investment banking revenues were $354 million, up 44% from the 1994 third
quarter. Underwriting revenues for the 1995 third quarter were $263 million, up
42% from the 1994 third quarter as higher revenues from equities, high-yield
debt, and corporate bond and preferred stock issuances were partially offset by
declines in convertible securities and private placement issuances.
The Corporation remained the top underwriter of debt and equity securities, in
the aggregate, with a 1995 third quarter market share of 16.5% domestically and
13.9% worldwide, and a nine-month market share of 15.7% domestically and 12.5%
worldwide, according to Securities Data Co.
Strategic services revenues rose 52% from the 1994 third quarter to $91
million, benefiting from increased merger and acquisition advisory assignments
primarily in the healthcare, media, and manufacturing sectors.
Investment banking revenues were $938 million for the 1995 nine-month period,
down 7% from the comparable 1994 period, as domestic and global industrywide
underwriting volumes were down 6% and 8%, respectively, compared to volumes in
the first nine months of 1994. Underwriting revenues were lower, particularly
in equities, private placements, high-yield securities, and mortgage-backed
products. Strategic services revenues, strong throughout
19
<PAGE>
1995, advanced 36% over the year-ago period due to increased merger and
acquisition activity.
Asset management and portfolio service fees rose 12% from the 1994 third
quarter to a record $484 million, due to increases in asset management, mutual
fund transfer agency, and mortgage servicing fees.
Asset management fees increased 10% from the 1994 third quarter to $220 million
due primarily to growth in money market and stock funds. Assets under
management by Merrill Lynch Asset Management, L.P. ("MLAM") rose 13% to $189
billion at quarter-end, compared with $167 billion at the close of the 1994
third quarter, reflecting both inflows of client assets and higher portfolio
values.
Mutual fund transfer agency fees rose 24% from the 1994 third quarter to $35
million due to increases in both the number of accounts and the average annual
fees generated per account. Mortgage servicing fees rose 82% to $14 million.
Other revenues were $97 million, up 11% from $87 million reported in the 1994
third quarter due to small net investment gains in the 1995 third quarter.
Other revenues were down 10% to $325 million for the first nine months,
compared with $360 million for the first nine months of 1994. The first nine
months of 1995 included $10 million of net realized investment gains, compared
with $53 million of net realized investment gains in the first nine months of
1994.
Non-interest expenses were $2,197 million, up 15% from the 1994 third quarter.
Compensation and benefits expense increased 18% from the 1994 third quarter to
$1,392 million, due to higher production-related and incentive compensation as
well as additional salary and benefits expense. Production-related compensation
was up due to strong volumes in many businesses, while incentive compensation
increased with improved profitability. The increase in salary and benefits
expense is due primarily to the addition of approximately 1,500 Smith New Court
personnel. Overall, headcount increased by approximately 2,000 employees from
the 1994 third quarter to approximately 45,400 at the end of the 1995 third
quarter. Compensation and benefits expense as a percentage of net revenues was
51.9% as compared with 51.2% in the year-ago period.
Occupancy costs increased 7% from the 1994 third quarter to $113 million, due
to international growth and increases in rent related to additional Smith New
Court facilities. Communications and equipment rental expense was up 10% to
$122 million due to higher levels of business activity and increased use of
market information services as well as increases in equipment rentals primarily
related to Smith New Court. Depreciation and amortization expense rose 11% from
the 1994 third quarter to $93 million due to additional purchases of
technology-related equipment over the past year.
Advertising and market development expense increased 6% to $102 million as a
result of increased international travel and advertising and sales promotion
primarily related to the integration of Smith New Court. Professional fees
increased 28% to $114 million due to higher legal fees and system development
costs. Brokerage, clearing, and exchange fees were up 7% to $89 million as a
result of higher volumes. Other expenses totaled
20
<PAGE>
$171 million, up 4% from the 1994 third quarter due, in part, to goodwill
amortization related to Smith New Court.
Income tax expense was $185 million in the 1995 third quarter. The effective
tax rate in the 1995 third quarter was 38.1%, compared with 40.5% in the year-
ago period. The decrease in the effective tax rate was primarily attributable
to lower state income taxes, increases in tax-exempt interest and deductions
for dividends received, and expanded international business activities.
The reasons underlying changes in expense categories for the first nine months
of 1995 are similar to those noted for the 1995 third quarter, unless otherwise
noted herein. Advertising and market development expense decreased 3% from the
comparable 1994 period as a result of reduced travel and recognition program
costs, partially offset by increases in certain advertising programs.
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, obtains committed, unsecured, revolving credit facilities
(the "Credit Facilities"), issues term debt, concentrates debt issuance through
Merrill Lynch & Co., Inc. (the "Parent"), and pursues expansion and
diversification of funding sources.
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 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 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 include liquidating
cash equivalents, securitizing additional home equity and other mortgage loan
assets, and drawing on Credit Facilities. At September 29, 1995, the Credit
Facilities totaled $5.5 billion and have not been drawn upon.
As an additional measure, the Corporation regularly reviews the level and mix
of its assets and liabilities to ascertain its ability to conduct core
businesses beyond one year without reliance on issuing new unsecured debt or
drawing upon Credit Facilities. The composition of the Corporation's asset mix
provides flexibility in managing liquidity, since most of the Corporation's
assets turn over frequently and are generally match-funded with a liability
whose cash flow characteristics closely match those of the asset. At September
29, 1995, approximately _____% 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 Credit Facilities, and the overall
21
<PAGE>
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, time differences, or other business considerations dictate
otherwise. The benefits of this strategy are: a) lower financing costs from the
reduced risks of a diversified asset and business base; b) simplicity, control,
and wider name recognition for banks, creditors, and rating agencies; and c)
flexibility to meet varying funding requirements within subsidiaries.
The third element is to expand and diversify the Corporation's funding
instruments and its investor and creditor base. The Corporation maintains
strict concentration standards for short-term lenders, which include limits for
any single investor. The Corporation's funding programs benefit from the
ability to market commercial 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 $16.0 billion and $14.8 billion at September 29, 1995
and December 30, 1994, respectively, which represented 9% of total assets at
both third quarter-end 1995 and year-end 1994.
At September 29, 1995, total long-term debt was $16.2 billion compared with
$14.9 billion at year-end 1994. At September 29, 1995, 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 1995, the Corporation issued $6.8 billion in
long-term debt. During the same period, maturities and repurchases were $5.4
billion. In addition, approximately $817 million of the Corporation's
securities held by subsidiaries were sold and $982 million were purchased.
Expected maturities of long-term debt over the next 12 months are $5.7 billion
as of September 29, 1995.
Approximately $34.3 billion of the Corporation's indebtedness at September 29,
1995 is considered senior indebtedness as defined under various indentures.
As part of the Corporation's overall liquidity program, its insurance
subsidiaries regularly review the funding requirements of their contractual
obligations for in-force, fixed-rate life insurance and annuity contracts and
expected future acquisition and maintenance expenses for all contracts. The
22
<PAGE>
liquidity and duration of the fixed-rate asset and liability portfolios are
closely monitored.
During the past few years, the Corporation's 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, thereby
reducing the risk profile and liquidity demands on the insurance subsidiaries.
The insurance subsidiaries maintain predominantly high quality, liquid
investment portfolios to fund various business activities. At September 29,
1995, approximately 83% of invested assets of insurance subsidiaries were
considered liquid by management.
In the 1995 nine-month period, the Corporation's cash and cash equivalents
increased by approximately $621 million to $2,933 million. Cash of $7,157
million was provided from financing activities in the first nine months of
1995. During the same period, the Corporation used $5,699 million and $837
million for operating and investing activities, respectively.
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 $6.1 billion at September 29,
1995, including $5.5 billion in common equity, supplemented by $618.8 million
in preferred equity. The Corporation's average leverage ratio, computed as the
ratio of average month-end assets to average month-end stockholders' equity,
was 32.6x and 32.4x for the first nine months of 1995 and 1994, respectively.
The Corporation's leverage ratio at the end of the 1995 and 1994 third quarters
was 30.5x and 29.5x, respectively.
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 19.2x and 19.3x for the first nine months
of 1995 and 1994, respectively. The Corporation's adjusted leverage ratio at
the end of the 1995 and 1994 third quarters was 19.1x and 17.6x, respectively.
The Corporation operates in many regulated businesses that require various
minimum levels of capital to conduct business. (See Regulatory Requirements
Note to Consolidated Financial Statements - Unaudited.) The Corporation's
broker-dealer, insurance, and futures commission merchant activities are
subject to regulatory requirements which may restrict the free flow of funds to
affiliates. Regulatory approval is required for certain transactions, including
payment of dividends in excess of certain established levels, making affiliated
investments, and entering into management and service agreements with
affiliated companies.
The Corporation's overall capital needs are continually reviewed to ensure that
its capital base can support the estimated risks 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.
23
<PAGE>
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 changes in its balance sheet
using point-in-time and average daily balances. Average daily balances are
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 financial statement balances. The increase in
average balance sheet levels during the first nine months of 1995 was
attributable to many factors, including increased trading and related hedging
and funding activities.
For the first nine months of 1995, average assets were $189 billion, up 5%
versus $180 billion for the 1994 fourth quarter. Average liabilities rose 5% to
$184 billion from $175 billion for the 1994 fourth quarter.
The major components of the net growth of average assets and liabilities are
summarized in the table below:
<TABLE>
<CAPTION>
Increase in
(In millions) Average Assets Percent Increase
- ------------- --------------------- ----------------
<S> <C> <C>
Trading assets $ 5,665 10 %
Resale agreements $ 4,571 8 %
<CAPTION>
Increase(Decrease) in Percent Increase
Average Liabilities (Decrease)
--------------------- ----------------
<S> <C> <C>
Repurchase agreements $ 6,964 11 %
Trading liabilities $ 3,403 10 %
Securities loaned $(1,757) (29)%
</TABLE>
In managing its balance sheet, the Corporation strives to match-fund its
interest-earning assets with interest-bearing liabilities having similar
maturities. The Corporation generally match-funds its repurchase
agreements/resale agreements and its securities borrowed/securities loaned
business, for example, earning an interest spread on these transactions. In the
first nine months of 1995, inventory levels were higher due to increases in
trading activity. On-balance-sheet hedges, included in trading assets and
liabilities, were also up due, in part, to increased market activity during
1995. 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 1995 as a result of their increased use as funding sources for
the higher levels of trading assets and liabilities, respectively. Securities
loaned transactions were down primarily due to a decrease in their use to
fund trading assets. In addition, at September 29, 1995 and December 30,
1994 there were $3.1 billion and $1.1 billion, respectively, of securities
borrowed/loaned with the same counterparties that the Corporation did not
offset. In practice, the application of FASB
24
<PAGE>
Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts",
varies among financial institutions with some entities offsetting these
balances.
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.
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 investment banking,
market-making, and derivative structuring activities. During the past four
years, the Corporation has increased its non-investment grade trading
inventories to satisfy client demand for higher-yielding investments, including
emerging markets and other international securities.
Non-investment grade securities have been defined as debt and preferred equity
securities rated as BB+ or lower, or equivalent ratings by recognized credit
rating agencies, certain sovereign debt in emerging markets, amounts due under
various derivative contracts from non-investment grade counterparties, and those
non-rated securities that, in the opinion of management, are non-investment
grade. At September 29, 1995, long and short non-investment grade trading
inventories accounted for 5.1% of aggregate consolidated trading inventories,
compared with 4.3% at year-end 1994. 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 and subordinated debt, as well as bridge
financing on a select and limited basis. In addition, the Corporation syndicates
loans for non-investment grade counterparties or counterparties engaged in
highly leveraged transactions. In connection with these syndications, the
Corporation may retain a residual portion of these loans. 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 considerations of economic, market, and credit conditions. At
September 29, 1995 and December 30, 1994, there were no bridge loans
outstanding.
The Corporation holds non-investment grade securities, direct equity investments
in leveraged companies, and interests in partnerships that invest in leveraged
transactions. 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. The Corporation has also committed to
participate in limited partnerships that invest in leveraged transactions.
Future commitments to participate in limited partnerships and other direct
equity investments will be determined on a select and limited basis.
The Corporation's involvement in non-investment grade securities and highly
leveraged transactions is subject to risks related to the creditworthiness of
the issuers of and the liquidity of the market for such securities, in addition
to the usual risks associated with investing in, financing,
25
<PAGE>
underwriting, and trading investment grade instruments. The Corporation
recognizes such risks and, whenever possible, employs strategies to mitigate
exposures.
The specific components and overall level of non-investment grade and highly
leveraged positions may vary significantly from period to period as a result of
inventory turnover, investment sales, and asset redeployment. The Corporation
continually 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. The
Corporation also uses certain non-investment grade trading inventories,
principally non-U.S. governments and agencies securities, 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 to
support fixed-rate liabilities. As a percentage of total insurance investments,
non-investment grade securities were 3.7%, compared with 5.5% at year-end 1994.
Non-investment grade securities of insurance subsidiaries are classified as
available-for-sale and are carried at fair value.
A summary of the Corporation's non-investment grade holdings and highly
leveraged transactions is provided below:
<TABLE>
<CAPTION>
SEPTEMBER 29, DECEMBER 30,
(In millions) 1995 1994
- ------------------------------------------ ------------- ------------
<S> <C> <C>
Non-investment grade trading assets $4,725 $3,309
Non-investment grade trading liabilities 406 456
Non-investment grade investments
of insurance subsidiaries 212 314
Loans (net of allowance for
loan losses) (A) 327 257
Equity investments (B) 228 289
Partnership interests 109 93
- ------------------------------------------ ------------- ------------
Additional commitments to invest in
partnerships $ 81 $ 80
Unutilized revolving lines of
credit and other lending
commitments 92 50
- ------------------------------------------ ------------- ------------
</TABLE>
(A) Represented outstanding loans to 36 and 35 medium-sized companies at
September 29, 1995 and December 30, 1994, respectively.
(B) Invested in 81 and 80 enterprises at September 29, 1995 and December 30,
1994, respectively.
At September 29, 1995, the largest non-investment grade concentration consisted
of government and corporate obligations of a South American sovereign totaling
$503 million, of which $456 million represented on-balance-sheet hedges for off-
balance-sheet instruments. No one industry sector accounted for more than 27% of
total non-investment grade positions.
26
<PAGE>
Included in the table above are debt and equity securities of issuers in various
stages of bankruptcy proceedings or in default. At September 29, 1995, the
carrying value of these securities totaled $310 million, of which 83% resulted
from the Corporation's market-making activities in such securities.
27
<PAGE>
STATISTICAL DATA
Selected statistical data for the last five quarters is presented below for
informational purposes:
<TABLE>
<CAPTION>
(Dollars in millions, 3rd Qtr. 4th Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr.
except per share amounts) 1994 1994 1995 1995 1995
- ------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PRIVATE CLIENT ACCOUNTS (A):
Assets in Worldwide
Private Client Accounts $571,000 $568,000 $603,000 $643,000 $675,000
Assets in Domestic
Private Client Accounts $539,000 $537,000 $571,000 $608,000 $639,000
Assets under Professional
Management:
Money Markets $ 67,000 $ 67,000 $ 71,000 $ 76,000 $ 80,000
Equities 38,000 37,000 38,000 42,000 44,000
Fixed Income 38,000 36,000 37,000 38,000 39,000
Private Portfolio 19,000 20,000 20,000 20,000 22,000
Insurance 5,000 4,000 4,000 4,000 4,000
-------- -------- -------- -------- --------
Subtotal 167,000 164,000 170,000 180,000 189,000
ML Consults 15,400 14,400 14,900 15,700 16,500
-------- -------- -------- -------- --------
TOTAL $182,400 $178,400 $184,900 $195,700 $205,500
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------
UNDERWRITING (B):
Global Debt and Equity:
Volume $ 30,200 $ 21,300 $ 27,800 $ 32,400 $ 41,600
Market Share 13.0% 10.0% 12.2% 11.8% 13.9%
U.S. Domestic Debt and Equity:
Volume $ 24,600 $ 18,000 $ 24,500 $ 27,200 $ 35,200
Market Share 16.7% 15.3% 16.9% 14.3% 16.5%
- ----------------------------------------------------------------------------------------------------
FULL-TIME EMPLOYEES:
U.S. Domestic 38,650 38,700 38,550 38,200 38,900
International 5,000 5,100 5,050 5,100 6,500
-------- -------- -------- -------- --------
TOTAL 43,650 43,800 43,600 43,300 45,400
======== ======== ======== ======== ========
Financial Consultants and
Account Executives Worldwide 13,300 13,400 13,500 13,600 13,700
Support Personnel to Producer
Ratio (C) 1.46 1.46 1.44 1.41 1.38
INCOME STATEMENT:
Net Earnings $ 231.6 $ 161.6 $ 227.3 $ 282.8 $ 300.4
Annualized Return on Average
Common Stockholders' Equity 16.9% 11.5% 16.7% 21.0% 21.5%
Earnings Per Common Share:
Primary $ 1.10 $ .76 $ 1.08 $ 1.40 $ 1.47
Fully Diluted $ 1.10 $ .75 $ 1.08 $ 1.39 $ 1.46
BALANCE SHEET:
Total Assets $168,395 $163,749 $176,733 $174,853 $185,473
Total Stockholders' Equity $ 5,705 $ 5,818 $ 5,704 $ 5,883 $ 6,077
SHARE INFORMATION (IN THOUSANDS):
Weighted Average Shares
Outstanding:
Primary 209,030 203,157 199,178 193,267 196,395
Fully Diluted 209,030 203,618 199,178 195,159 197,157
Common Shares Outstanding(D) 192,812 181,479 176,521 175,460 175,501
Shares Repurchased 4,058 12,512 9,309 3,571 1,689
- ----------------------------------------------------------------------------------------------------
</TABLE>
(A) Client accounts were redefined in 1994 to include certain institutional
private portfolio accounts.
(B) Full credit to book manager. All market share data is derived from
Securities Data Co.
(C) Support personnel includes sales assistants.
(D) Does not include 6,816,714, 6,427,091, 5,306,924, 4,809,014 and 4,375,113
unallocated reversion shares held in the Employee Stock Ownership Plan at
period end September 30, 1994, December 30, 1994, March 31, 1995, June 30,
1995, and September 29, 1995, respectively, which are not considered
outstanding for accounting purposes.
28
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
Since the filing of the Corporation's 1994 10-K and of the Corporation's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 (the "Second
Quarter 1995 10-Q"), the following events have taken place with respect to
several of the actions reported therein. Capitalized terms used herein without
definition have the meanings set forth in the 1994 10-K.
Orange County Litigation. The following developments have occurred since the
- -------------------------
filing of the Second Quarter 1995 10-Q with respect to the civil actions filed
against or on behalf of the Corporation arising out of the Corporation's
business activities with Orange County related to transactions entered into on
behalf of Orange County and the Pools.
In the Orange County Action that commenced on January 12, 1995, the Bankruptcy
Court dismissed the amended complaint filed by Orange County on June 6, 1995. On
October 25, 1995, Orange County filed a second amended complaint. John M.W.
Moorlach, Orange County's Treasurer-Tax Collector also is named as a plaintiff
in the second amended complaint.
In the Darling Action, which was dismissed on July 6, 1995 by the Superior Court
of the State of California, County of Orange, a notice of appeal was filed on
September 11, 1995.
On September 15, 1995, an action was commenced in the Superior Court of the
State of California, County of San Francisco, by twelve California public
entities (the "Atascadero Action"). Named as defendants are the Corporation,
certain subsidiaries of the Corporation and an employee of the Corporation. The
complaint alleges, among other things, that the defendants committed fraud,
deceit, negligence, negligent misrepresentation, breach of fiduciary duty, aided
and abetted a breach of fiduciary duty, and violated California Penal Code
Section 496 and the California Unfair Business Practice Act, in connection with
the Corporation's business activities with Orange County and the Pools.
Injunctive relief, recission, restitution and damages in excess of $50 million
are sought.
On September 28, 1995, a purported class action was commenced in the Superior
Court of the State of California, County of Orange, asserting claims brought
under Sections 25400, 25401, 25500, 25501 and 25504.1 of the California
Corporations Code that had been dismissed without prejudice on July 17, 1995 by
the United States District Court for the Central District of California in the
federal Smith Action. Damages in an unspecified amount are sought.
Pittleman Derivative Action. On November 3, 1995, a derivative action was
- ----------------------------
commenced in the Supreme Court of the State of New York, New York County, by the
stockholder Sheldon Pittleman on behalf of Merrill Lynch & Co., Inc., naming as
defendants certain present and former directors of the Corporation. Damages in
an unspecified amount are sought on behalf of the Corporation. The complaint
alleges, among other things, claims for breach of fiduciary duty,
indemnification and corporate waste in connection with (a) certain of the
Corporation's municipal finance activities, including certain contractual
arrangements that led to (1) a civil settlement of
29
<PAGE>
approximately $12 million with the United States Attorney for the District of
Massachusetts, the Massachusetts Attorney General and the Securities and
Exchange Commission ("SEC") and (2) issuance by the SEC of an order censuring
the Corporation's subsidiary, MLPF&S, and an order directing MLPF&S to cease and
desist from committing or causing any violation or future violation of Rule G-17
of the Municipal Securities Rulemaking Board, to which MLPF&S consented without
admitting or denying any of the findings or allegations contained in the order
and (b) certain basket trading activities in Japan that led to administrative
sanctions by Japanese securities regulators consisting of a 48-hour suspension
of arbitrage trading by Merrill Lynch for its own account in Japan.
For more detailed information regarding litigation matters involving the
Corporation, see "Item 3. - Legal Proceedings" in the 1994 10-K.
ITEM 5. OTHER INFORMATION
-----------------
The 1996 Annual Meeting of Stockholders will be held at 10:00 a.m. on Tuesday,
April 16, 1996 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 1,
1996 and no later than February 26, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
(4) Instruments defining the rights of security holders, including
indentures:
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. 1996 Deferred Compensation
Agreement for a Select Group of Eligible Employees, dated as of
August 14, 1995.
(ii) Merrill Lynch & Co., Inc. Long-Term Incentive Compensation Plan,
as amended on October 23, 1995.
30
<PAGE>
(11) Statement re: computation of per common share earnings.
(12) Statement re: computation of ratios.
(15) Letter re: unaudited interim financial information.
(27) Financial Data Schedule. (The Financial Data Schedule to be contained
in this Exhibit 27 is required to be submitted only in the
Corporation's electronic filing of this Quarterly Report on Form 10-Q
by means of the EDGAR System and therefore is herein omitted.)
(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 18, 1995 for the purpose of filing the
Preliminary Unaudited Earnings Summary of the Corporation for the
three-month period ended June 30, 1995.
(ii) Current Report dated July 21, 1995 for the purpose of reporting on an
acquisition to be made by the Corporation.
(iii) Current Report dated August 1, 1995 for the purpose of filing the
form of Registrant's 6.7% Notes due August 1, 2000.
(iv) Current Report dated August 2, 1995 for the purpose of filing the
Preliminary Unaudited Consolidated Balance Sheet of the Corporation
as of June 30, 1995.
(v) Current Report dated September 19, 1995 for the purpose of filing the
form of Registrant's 6.64% Notes due September 19, 2002.
31
<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 10, 1995 By: /s/ Joseph T. Willett
---------------------
Joseph T. Willett
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
32
<PAGE>
INDEX TO EXHIBITS
Exhibits
10(i) Form of Merrill Lynch & Co., Inc. 1996 Deferred Compensation Agreement
for a Select Group of Eligible Employees, dated as of August 14, 1995.
10(ii) Merrill Lynch & Co., Inc. Long-Term Incentive Compensation Plan, as
amended on October 23, 1995.
11 Statement re: computation of per common share earnings.
12 Statement re: computation of ratios.
15 Letter re: unaudited interim financial information.
27 Financial Data Schedule. (The Financial Data Schedule to be contained
in this Exhibit 27 is required to be submitted only in the
Corporation's electronic filing of this Quarterly Report on Form 10-Q
by means of the EDGAR System and therefore is herein omitted.)
<PAGE>
EXHIBIT 10(i)
MERRILL LYNCH & CO., INC.
1996 DEFERRED COMPENSATION PLAN
FOR A SELECT GROUP OF ELIGIBLE EMPLOYEES
DATED AS OF AUGUST 14, 1995
<PAGE>
MERRILL LYNCH & CO., INC.
1996 DEFERRED COMPENSATION PLAN
FOR A SELECT GROUP OF ELIGIBLE EMPLOYEES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
I. GENERAL..................................................... 1
1.1 Purpose and Intent.......................................... 1
1.2 Definitions................................................. 1
II. ELIGIBILITY................................................. 4
2.1 Eligible Employees.......................................... 4
(a) General Rule................................................ 4
(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......................... 5
(c) Application of Election..................................... 5
3.2 Crediting to Accounts....................................... 5
3.3 Minimum Requirements for Deferral........................... 5
(a) Minimum Requirements........................................ 5
(b) Failure to Meet Requirements................................ 6
3.4 Benchmark Return Options; Adjustment of Accounts............ 6
(a) Selection of Benchmark Return Options....................... 6
(b) Adjustment of Accounts...................................... 6
(c) Annual Charge............................................... 7
3.5 Rescission of Deferral Election............................. 7
(a) Prior to December 1, 1995................................... 7
(b) Adverse Tax Determination................................... 7
(c) Rescission For Amounts Not Yet Earned....................... 7
IV. STATUS OF DEFERRED AMOUNTS AND ACCOUNT...................... 8
4.1 No Trust or Fund Created; General Creditor Status........... 8
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................................... 9
(a) Death or Retirement......................................... 9
(b) Other Termination of Employment............................. 9
(c) Leave of Absence, Transfer or Disability.................... 9
(d) Discretion to Alter Payment Date............................ 9
5.3 Withholding of Taxes........................................ 9
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
5.4 Beneficiary ............................................ 9
(a) Designation of Beneficiary.............................. 9
(b) Change in Beneficiary................................... 10
(c) Default Beneficiary..................................... 10
(d) If the Beneficiary Dies During Payment.................. 10
5.5 Hardship Distributions.................................. 10
5.6 Domestic Relations Orders............................... 11
VI. ADMINISTRATION OF THE PLAN.............................. 11
6.1 Powers of the Administrator............................. 11
6.2 Payments on Behalf of an Incompetent.................... 11
6.3 Corporate Books and Records Controlling................. 11
VII. MISCELLANEOUS PROVISIONS................................ 12
7.1 Litigation.............................................. 12
7.2 Headings Are Not Controlling............................ 12
7.3 Governing Law........................................... 12
7.4 Amendment and Termination............................... 12
</TABLE>
-ii-
<PAGE>
MERRILL LYNCH & CO., INC.
1996 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 1996, and
payable after January 1, 1996, as a result of the Participant's production
credit level, or such other similar items of compensation as the Administrator
shall designate as "Adjusted Compensation" for purposes of this Plan.
"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, except as provided in Section 5.6, the amounts
of Compensation actually deferred by the Participant under this Plan.
"Election Year" means the 1995 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. 1996 Deferred Compensation
Plan for a Select Group of Eligible Employees.
"Plan Year" means the Fiscal Year ending in 1996.
"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 to a new
Eligible Employee during the Plan Year upon commencement of employment, in
addition to base pay and other Compensation, to induce him or her to become an
employee of the Company, or any similar item of compensation as the
Administrator shall designate as "Sign-On Bonus" for purposes of this Plan.
"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, or such other similar items of compensation as the
Administrator shall designate as "Variable Incentive Compensation" for purposes
of this Plan.
3
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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 1995 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 employed as an Investment Manager
for Merrill Lynch Asset Management, (E) is a non-producing employee in the
Senior Manager or Senior Consultant Band (Q Band) or above, or (F) 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 of the Election Year or, in the event
such date is not a business day, the immediately preceding business day;
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.
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(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.
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. No interest will accrue, nor will any adjustment be made to the Account,
for the period until the Deferred Amounts are credited.
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, 1995,
(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 immediately prior to the Fiscal Year
ending in the Election Year for the Fiscal Year ending in the Plan
Year) would have resulted in an annual deferral of less than
$15,000, or
(iii) the greater of (A) the sum of (1) the "Medicare wages" amount
listed on the Participant's W-2 form for the Plan Year and (2) any
Compensation that is accelerated which the Participant may receive in
December of the Election Year which would have been payable in the
Plan Year in the absence of the action of the Company to accelerate
the payment, and (B) the Participant's Eligible Compensation for the
Plan Year, 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).
Condition (ii) shall not be construed to require a Participant's elections to
result in an actual deferral of at least $15,000.
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5
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(b) FAILURE TO MEET REQUIREMENTS. If the requirements of Section
3.3(a)(i) or (ii) are not met by a Participant to whom such requirements are
applicable, such Participant's Deferred Amounts, if any, will be paid to such
Participant, without adjustment to reflect the performance of any Selected
Benchmark Return Option, as soon as practicable after it has been determined
that the requirements have not been met. If the requirements of Section
3.3(a)(iii) are not met by a Participant, the greater of such Participant's
Deferred Amounts or Account Balance will be paid to such Participant as soon as
practicable after it has been determined that the requirements have not been
met.
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 procedures 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.
(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;
6
<PAGE>
(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 portion 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.
3.5 RESCISSION OF DEFERRAL ELECTION.
(a) PRIOR TO DECEMBER 1, 1995. A deferral election hereunder may be
rescinded at the request of a Participant only (i) on or before December 1,
1995, 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, 1995 and November 30, 1995), agrees to the rescission
of the election. In the event the Administrator agrees to the recission, the
Deferred Amounts, if any, credited to the Participant's Account will be paid to
the Participant as soon as practicable thereafter subject to 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.
7
<PAGE>
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.
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
payment to be made, or in the number of annual installments (not to exceed 15)
chosen by the Participant to commence, (i) in the month following the month of
the Participant's Retirement or death, (ii) in any month and year selected by
the Participant after the end of 1996 or (iii) in any month in the calendar
year following the Participant's Retirement; provided that no election may
result in the payment (in the case of a single payment) or commencement of
payment (in the case of installment payments) later than the month following
the Participant's 70th birthday. The amount of each annual installment, if
applicable, shall be determined by multiplying the Account Balance as of the
last day of the month immediately preceding the month in which the payment is
to be made by a fraction, the numerator of which is one and the denominator of
which is the number of remaining installment payments (including the
installment payment to be made).
8
<PAGE>
5.2 TERMINATION OF EMPLOYMENT.
(a) DEATH OR RETIREMENT. Upon a Participant's death or Retirement prior
to payment, the Account Balance will be paid, in accordance with the
Participant's elections and as provided in Section 5.1, to the Participant (in
the event of Retirement) or to the Participant's beneficiary (in the event of
death); provided, however, that in the event that a beneficiary of the
-------- -------
Participant's Account is the Participant's estate or is otherwise not a natural
person, the applicable portion of the Account Balance will be paid in a single
payment to such beneficiary notwithstanding any election of installment
payments.
(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 single payment, as soon
thereafter as is practicable, notwithstanding the Participant's elections
hereunder.
(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.
(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.
9
<PAGE>
(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 dies, 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.
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.
10
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5.6 DOMESTIC RELATIONS ORDERS.
Notwithstanding the Participant's elections hereunder, ML & Co. will pay
to, or to the Participant for the benefit of, the Participant's spouse or
former spouse the portion of the Participant's Account Balance specified in a
valid court order entered in a domestic relations proceeding involving the
Participant's divorce or legal separation. Such payment will be made net of
any amounts the Company may be required to withhold under applicable federal,
state or local law. After such payment, references herein to the Participant's
"Deferred Amounts" (including, without limitation, for purposes of determining
the Annual Charge applicable to any remaining Account Balance) shall mean the
Participant's original Deferred Amounts times an amount equal to one minus a
fraction, the numerator of which is the gross amount (prior to withholding)
paid pursuant to the order, and the denominator of which is the Participant's
Account Balance immediately prior to payment.
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, Sign-On Bonus, Eligible Compensation, the Deferred
Amounts, the Account Balance, the designation of a beneficiary, or any other
matters.
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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 reduced by the current year's Annual Charge, or pro rata portion thereof,
as set forth in Section 3.4(c)) as of the date of such amendment or
termination.
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EXHIBIT 10(ii)
AS AMENDED THROUGH OCTOBER 23, 1995
MERRILL LYNCH & CO., INC.
-------------------------
LONG-TERM INCENTIVE COMPENSATION PLAN
-------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
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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
</TABLE>
(i)
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<TABLE>
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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
</TABLE>
(ii)
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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 Extension of Vesting; 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
</TABLE>
(iii)
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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 and Tax Liability Upon Exercise;
Delivery of Shares....................................... 16
(a) Payment of Purchase Price..................................... 16
(b) Payment of Taxes.............................................. 16
(c) Delivery of Shares............................................ 17
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.................................................... 19
(c) Retirement.................................................... 19
(d) Other Terminations............................................ 19
</TABLE>
(iv)
<PAGE>
<TABLE>
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<S> <C>
ARTICLE VI - PROVISIONS APPLICABLE TO OTHER ML & CO.
SECURITIES................................................... 19
Section 6.1 Grants of Other ML & Co. Securities....................... 19
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
</TABLE>
(v)
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<TABLE>
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Section 9.2 Employment Rights........................................... 27
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..................................... 28
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
</TABLE>
(vi)
<PAGE>
MERRILL LYNCH & CO., INC.
-------------------------
LONG-TERM INCENTIVE COMPENSATION PLAN
-------------------------------------
ARTICLE I - GENERAL
SECTION 1.1 PURPOSE.
-------
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.
1
<PAGE>
(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
2
<PAGE>
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.
3
<PAGE>
(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 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
*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.
4
<PAGE>
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 by the Committee, and more than one Performance
Period may encompass the same fiscal year.
*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.
5
<PAGE>
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
- -------- -------
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
Performance Shares, there shall be reserved out of the number of shares of
Common
6
<PAGE>
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.
- ------
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.
-----
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:
------------------
(i) If a Restricted Period has been established in relation to the
-------------------------------------------
Performance Shares:
(A) At the end of the applicable Performance Period, one or more
-----------------------------------------------
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 shares of Common Stock, including
the right to receive dividends, to exercise Rights,
7
<PAGE>
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
- -------- -------
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
----------------------------------------------
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 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
-----------------
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 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
8
<PAGE>
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).
9
<PAGE>
(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.
10
<PAGE>
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.
11
<PAGE>
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.
12
<PAGE>
(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.
13
<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.
14
<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
15
<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 AND TAX LIABILITY UPON EXERCISE;
----------------------------------------------------------
DELIVERY OF SHARES.
-------------------
(a) PAYMENT OF PURCHASE PRICE. 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.
(b) PAYMENT OF TAXES. Upon exercise, a Participant, may elect to satisfy
any federal, state or local taxes required by law to be withheld that arise as a
result of the exercise of a Stock Option by directing the Company to withhold
from the shares of Common Stock otherwise deliverable upon the exercise of such
Stock Option, such number of shares as shall have a total Fair Market Value, on
the date of exercise, at
16
<PAGE>
least equal to the amount of tax to be withheld; provided that, with respect to
any officer of ML & Co., as defined in Rule 16a-1 under the Securities Exchange
Act of 1934, the Committee shall have the right to disapprove such election.
(c) DELIVERY OF SHARES. 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 (net of any shares withheld pursuant to Section 4.5(b) above) shall
be delivered to the Participant or such shares shall be credited to a brokerage
account or otherwise delivered, in such manner as such Participant may direct.
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
17
<PAGE>
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.
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.
18
<PAGE>
(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 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
19
<PAGE>
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 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,
20
<PAGE>
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 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,
21
<PAGE>
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").
(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
22
<PAGE>
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
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
23
<PAGE>
indirectly, of securities of ML & Co. representing 30% or more of the combined
voting 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.
24
<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
25
<PAGE>
this Plan, the Company's retirement program, Employee Stock Purchase
Plan, 1978 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
26
<PAGE>
Shares, Restricted Shares, Stock Options, or Other ML & Co. Securities for which
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.
ARTICLE X - AMENDMENT AND TERMINATION.
The Board of Directors or the Committee (but no other committee of the Board
of Directors) may modify, amend or terminate the Plan at any time, except that,
to the
28
<PAGE>
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 an adjustment 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
<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. 29, Sept. 30, Sept, 29, Sept. 30,
1995 1994 1995 1994
--------- ---------- -------- --------
<S> <C> <C> <C> <C>
PRIMARY:
Net earnings....................................................... $300,356 $231,579 $810,427 $855,147
Preferred stock dividends.......................................... (11,771) (1,718) (35,625) (4,594)
-------- -------- -------- --------
Net earnings applicable to common stockholders..................... $288,585 $229,861 $774,802 $850,553
======== ======== ======== ========
Weighted average shares outstanding:
Common Stock..................................................... 175,620 194,062 177,218 198,353
Assuming issuance of shares relating to
employee incentive plans....................................... 20,775 14,968 19,062 15,582
-------- ------- -------- -------
Total shares....................................................... 196,395 209,030 196,280 213,935
======== ======== ======== =======
Per common share amounts:
Net earnings....................................................... $ 1.47 $ 1.10 $ 3.95 $ 3.98
======== ======== ======== ========
FULLY DILUTED:
Net earnings....................................................... $300,356 $231,579 $810,427 $855,147
Preferred stock dividends.......................................... (11,771) (1,718) (35,625) (4,594)
-------- -------- -------- --------
Net earnings applicable to common stockholders..................... $288,585 $229,861 $774,802 $850,553
======== ======== ======== ========
Weighted average shares outstanding:
Common stock..................................................... 175,620 194,062 177,218 198,353
Assuming issuance of shares relating to
employee incentive plans....................................... 21,537 14,968 21,537 15,697
-------- -------- -------- --------
Total shares....................................................... 197,157 209,030 198,755 214,050
======== ======== ======== ========
Per common share amounts:
Net earnings...................................................... $ 1.46 $ 1.10 $ 3.90 $ 3.97
======== ======== ======== ========
</TABLE>
METHOD OF COMPUTATION: In accordance with Accounting Principles Board Opinion
No. 15, the modified treasury stock method was used to
calculate per common share earnings.
<PAGE>
EXHIBIT 12
<PAGE>
EXHIBIT 12
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(Dollars In Thousands)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended Ended
-------------------------- --------------------------
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
1995 1994 1995 1994
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Pretax earnings from continuing operations........... $ 485,477 $ 389,522 $ 1,328,569 $1,474,392
---------- ---------- ----------- ----------
Deduct equity in undistributed net earnings
of unconsolidated subsidiaries..................... - (3,218) - (15,666)
---------- ---------- ----------- ----------
Total pretax earnings from continuing
operations......................................... 485,477 386,304 1,328,569 1,458,726
---------- ---------- ----------- ----------
Add:
Fixed charges
Interest (A)..................................... 2,746,297 2,223,203 8,559,298 6,198,030
Other (B)........................................ 36,334 33,300 105,302 104,043
---------- ---------- ----------- ----------
Total fixed charges................................ 2,782,631 2,256,503 8,664,600 6,302,073
---------- ---------- ----------- ----------
Preferred stock dividend requirements.............. 19,016 2,887 58,402 7,921
---------- ---------- ----------- ----------
Total combined fixed charges and
preferred stock dividends....................... 2,801,647 2,259,390 8,723,002 6,309,994
---------- ---------- ----------- ----------
Pretax earnings before fixed charges................. $3,268,108 $2,642,807 $ 9,993,169 $7,760,799
========== ========== =========== ==========
Pretax earnings before combined fixed
charges and preferred stock dividends.............. $3,287,124 $2,645,694 $10,051,571 $7,768,720
========== ========== =========== ==========
Ratio of earnings to fixed charges................... 1.17 1.17 1.15 1.23
========== ========== =========== ==========
Ratio of earnings to combined fixed charges
and preferred stock dividends...................... 1.17 1.17 1.15 1.23
========== ========== =========== ==========
</TABLE>
(A) There was no capitalized interest for the 1995 and 1994 periods.
(B) Other fixed charges consist of the interest factor in rentals, amortization
of debt expense, and preferred stock dividend requirements of majority-owned
subsidiaries.
<PAGE>
EXHIBIT 15
<PAGE>
EXHIBIT 15
November 10, 1995
Merrill Lynch & Co., Inc.
World Financial Center
North Tower
New York, NY 10281
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 29, 1995 and for the three- and nine-month periods ended September 29,
1995 and September 30, 1994 as indicated in our report dated November 10, 1995;
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 29, 1995, 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. 33-51829 (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))
<PAGE>
Registration Statement No. 33-56427 (1994 Deferred Compensation Plan for a
Select Group of Eligible Employees)
Registration Statement No. 33-55155 (1995 Deferred Compensation Plan for a
Select Group of Eligible Employees)
Registration Statement No. 33-60989 (1996 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
Registration Statement No. 33-60413
Registration Statement No. 33-61559
<PAGE>
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. 33-27594
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
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
EXHIBIT 27
The Financial Data Schedule to be contained in this Exhibit 27 is required to be
submitted only in the Corporation's electronic filing of this Quarterly Report
on Form 10-Q by means of the EDGAR System and therefore is herein omitted.
<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
29, 1995 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-29-1995
<PERIOD-START> DEC-31-1994
<PERIOD-END> SEP-29-1995
<CASH> 2,932,966
<RECEIVABLES> 29,946,584
<SECURITIES-RESALE> 45,501,860
<SECURITIES-BORROWED> 23,619,471
<INSTRUMENTS-OWNED> 74,366,637<F1>
<PP&E> 1,608,225
<TOTAL-ASSETS> 185,472,687
<SHORT-TERM> 27,308,918
<PAYABLES> 25,501,094
<REPOS-SOLD> 54,274,118
<SECURITIES-LOANED> 4,453,368
<INSTRUMENTS-SOLD> 37,297,775
<LONG-TERM> 16,156,414
<COMMON> 315,105
0
618,800
<OTHER-SE> 5,143,441
<TOTAL-LIABILITY-AND-EQUITY> 185,472,687
<TRADING-REVENUE> 1,952,572
<INTEREST-DIVIDENDS> 9,328,638
<COMMISSIONS> 2,279,432
<INVESTMENT-BANKING-REVENUES> 937,603
<FEE-REVENUE> 1,396,988
<INTEREST-EXPENSE> 8,567,902
<COMPENSATION> 3,971,088
<INCOME-PRETAX> 1,328,569
<INCOME-PRE-EXTRAORDINARY> 810,427
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 810,427
<EPS-PRIMARY> 3.95
<EPS-DILUTED> 3.90
<FN>
<F1>FINANCIAL INSTRUMENTS OWNED INCLUDES COMMODITY CONTRACTS BUT EXCLUDES PHYSICAL
COMMODITIES AND REAL ESTATE OWNED TOTALING $289,603.
</FN>
</TABLE>
