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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 1994 Commission file number 1-7182
MERRILL LYNCH & CO., INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-2740599
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
World Financial Center
North Tower
250 Vesey Street
New York, New York 10281
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 449-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
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Common Stock, par value $1.33 1/3 New York Stock Exchange; Chicago Stock
Exchange; The Pacific Stock Exchange;
The Paris Stock Exchange; London Stock
Exchange; and The Tokyo Stock Exchange
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Depositary Shares representing New York Stock Exchange
1/400th share of 9% Cumulative
Preferred Stock, Series A
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Rights to Purchase Series New York Stock Exchange; Chicago Stock
A Junior Preferred Stock Exchange; The Pacific Stock Exchange;
The Paris Stock Exchange; London Stock
Exchange; and The Tokyo Stock Exchange
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S&P 500 Market Index Target-Term New York Stock Exchange
Securities ("MITTS") due August 29,
1997; S&P 500 MITTS due July 31,
1998; European Portfolio MITTS due
June 30, 1999; Global Telecommuni-
cations Portfolio MITTS due October 15,
1998; Stock Market Annual Reset Term
Notes ("SMART Notes") due December 31,
1997; SMART Notes due December 31, 1999
(Series A); Global Bond Linked
Securities ("GloBLS") due December 31,
1998; Equity Participation Securities
with Minimum Return Protection due
June 30, 1999; Currency Protected
Notes ("CPNs") due December 31, 1998
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Constant Maturity U.S. American Stock Exchange
Treasury Yield Increase Warrants
("CMTs"), expiring August 25, 1995;
Japan Index Equity Participation
Securities with Minimum Return
Protection due January 31, 2000; AMEX
Hong Kong 30 Index Call Warrants with
Optional Reset, expiring December 15,
1995; U.S. Dollar/Deutsche Mark Put
Currency Warrants, expiring March 15,
1995; AMEX Oil Index SMART Notes due
December 29, 2000; CMTs, expiring
January 25, 1996; Nikkei Stock Index
300 Call Warrants, expiring
February 3, 1997
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
[Cover page 1 of 2 pages]
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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 .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 24, 1995, the aggregate market value of the voting stock held
by non-affiliates of the Registrant was approximately $7.98 billion.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date: 181,705,446 shares
of Common Stock (as of March 24, 1995) (includes 6,427,091 shares held by
Merrill Lynch & Co., Inc. Employee Stock Ownership Plan that are not considered
outstanding for accounting purposes)
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the Merrill Lynch & Co., Inc. 1994 Annual Report to
Stockholders (for the fiscal year ended December 30, 1994) are incorporated in
Parts I and II by reference.
Certain portions of the Merrill Lynch & Co., Inc. Proxy Statement for its 1995
Annual Meeting of Stockholders dated March 13, 1995 are incorporated in Parts
III and IV by reference.
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* All amounts of shares of Common Stock presented herein reflect the two-for-one
Common Stock split, effected in the form of a 100% stock dividend, paid on
November 24, 1993.
[Cover page 2 of 2 pages]
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PART I
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ITEM 1. BUSINESS
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OVERVIEW
Merrill Lynch & Co., Inc., a Delaware corporation ("ML & Co."),/*/ is a holding
company formed in 1973 that, through its subsidiaries and affiliates, provides
investment, financing, insurance, and related services on a global basis. Such
services include securities brokering, trading, and underwriting; investment
banking and other corporate finance advisory activities, including loan
syndication; investment advisory and other asset management services; trading of
foreign exchange instruments, futures, commodities, and derivatives; securities
clearance services; banking, trust, and lending services; and insurance sales
and underwriting services.
The Corporation conducts its business from its World Headquarters facility in
New York City, additional principal locations in New Jersey, various United
States regional offices, numerous retail sales offices, and locations
throughout the world. At December 30, 1994, ML & Co. employed approximately
43,800 people.
Financial information concerning ML & Co. for each of the three fiscal years
ended on the last Friday in December of 1994, 1993 and 1992 is set forth on page
30 of the 1994 Annual Report to Stockholders (the "Annual Report") and is
incorporated herein by reference. Financial information with respect to ML & Co.
by revenue category, including the amount of total revenue contributed by
classes of similar products or services that accounted for 10% or more of its
consolidated revenues in any one of its last three fiscal years, is set forth on
page 76 of the Annual Report and is incorporated herein by reference. In
addition, financial information with respect to ML & Co.'s operations by
geographic area set forth in the Notes to Consolidated Financial Statements
under the caption "Industry and Global Operations" on pages 74-75 of the Annual
Report is incorporated herein by reference.
The financial services industry is highly competitive and highly regulated. It
is directly affected by general economic conditions, trends in business and
finance, government regulation, and investor sentiment, as well as by interest
rate changes and currency volatility, both domestically and internationally. The
Corporation's financial services revenues are particularly sensitive to industry
conditions, including those mentioned above and the volume of securities
transactions and securities price levels. In addition, its business is subject
to foreign exchange rate fluctuations, restrictive regulations by foreign
governments, and other factors inherent in international operations.
Furthermore, its business activities are subject to varying degrees of risk and
profitability depending upon the nature of the activity and the extent to which
it has placed its capital at risk in the conduct of a variety of transactions,
including dealer transactions, investment banking, derivative transactions,
syndicated and bridge loan financing, and other related transactions. The
discussion on highly leveraged transactions set forth on pages 40-41 of the
Annual Report under the caption "Non-Investment Grade Holdings and Highly
Leveraged Transactions" and the information in the Notes to Consolidated
Financial Statements under the caption "Concentrations of Credit Risk" on pages
61-62 of the Annual Report are incorporated herein by reference.
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/*/ Unless the context otherwise requires, Merrill Lynch & Co., Inc. and its
consolidated subsidiaries are referred to herein as "ML & Co." or the
"Corporation." In addition, the Consolidated Financial Statements and
related Notes thereto and Management's Discussion and Analysis of Financial
Condition and Results of Operations, which are incorporated herein by
reference, refer to Merrill Lynch & Co., Inc. and its consolidated
subsidiaries as the "Corporation".
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ML & Co. conducts its business activities though a number of highly integrated
subsidiaries and affiliates which frequently participate in the facilitation and
consummation of a single transaction. The business activities of certain
significant ML & Co. subsidiaries are described below.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), which traces its
origin to a brokerage business founded in 1820, is one of the largest securities
firms in the world. It is a leading broker in securities, options contracts, and
commodity and financial futures contracts; a leading dealer in options and in
corporate and municipal securities; a leading investment banking firm that
provides advice to, and raises capital for, its clients; and an underwriter of
selected insurance products. Merrill Lynch Canada Inc. ("Merrill Lynch Canada"),
a subsidiary of MLPF&S, provides certain of these services in Canada.
BROKERAGE TRANSACTIONS. A significant portion of MLPF&S's revenues are generated
by the commissions that it earns as a broker (i.e., agent) for investors in the
purchase and sale of corporate securities, primarily common and preferred stocks
and bonds traded on securities exchanges or in the over-the-counter markets.
MLPF&S also acts as a broker for investors in the purchase and sale of mutual
funds, money market instruments, government securities, corporate and high yield
bonds, municipal securities, and futures and options, including option contracts
for the purchase and sale of various types of securities. MLPF&S provides such
services to institutional and individual investors.
MLPF&S has established commission rates for all brokerage services that it
performs. For accounts that are actively traded, however, MLPF&S's policy is to
negotiate commissions based on economies of size and the complexity of the
particular trading transaction and, additionally, for its institutional
customers, based on the competitive environment and trading opportunities.
MLPF&S customers participating in the Blueprint/SM/ program can purchase certain
equity securities, mutual funds, and precious metals at a lower cost due to
order processing efficiencies.
As of December 30, 1994, there were approximately 7.1 million retail and
institutional customer accounts worldwide at MLPF&S as compared to 6.9 million
accounts as of year-end 1993. In the United States and Canada, these accounts
were served by approximately 12,300 retail financial consultants and
institutional account executives, including trainees (as compared to
approximately 12,100 at year-end 1993), in more than 500 offices worldwide. In
the rest of the world, these accounts were served through Merrill Lynch
International Incorporated and its subsidiaries by approximately 1,125 retail
financial consultants and institutional account executives at various
international locations which are linked with the communications and trading
network of MLPF&S.
MLPF&S, as a futures commission merchant, introduces customers to its affiliate
Merrill Lynch Futures Inc. ("MLF") for the purchase and sale of futures
contracts and options on such futures contracts in substantially all exchange-
traded commodity and financial futures products. MLPF&S and certain of its
affiliates may also take proprietary market positions in futures and futures
options in certain instances. MLF holds memberships on all major commodity and
financial futures exchanges and clearing associations in the United States and
it also carries positions reflecting trades executed on exchanges outside of the
United States.
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All futures and futures options transactions are cleared through and carried by
MLF and other ML & Co. subsidiaries engaged in futures clearing activities. As a
result of their membership in the clearing associations of various futures
exchanges, these ML & Co. entities have potentially significant financial
exposure in the event that other members of futures clearing houses default
materially in their obligations to such clearing houses. In addition, as with
any margin transaction, the risk of loss to MLF and its customers from the
trading of futures contracts is greater than the risk in cash securities
transactions, primarily as a result of the low initial margin requirements (good
faith deposits) relative to the nominal value of the actual futures contracts.
MLF may have financial exposure if a customer fails to meet a margin call. Net
worth requirements, financial reviews, margin procedures, and other credit
standards established for MLF customer futures accounts are intended to limit
any exposure to MLF resulting from its trading in futures accounts. The
discussion of Merrill Lynch's credit and risk management policies set forth on
pages 45-48 of the Annual Report under the captions "Credit" and "Risk
Management" is incorporated herein by reference.
DEALER TRANSACTIONS. MLPF&S regularly makes a market in the common stock of
approximately 900 United States corporations and in approximately 375 different
foreign securities traded in the over-the-counter markets. Its market-making
activities are conducted with customers and other dealers. In addition, as a
block positioner, MLPF&S regularly acts as a market-maker in certain listed
securities. MLPF&S is also a dealer in municipal, mortgage-backed, asset-backed,
and corporate fixed-income securities. MLPF&S engages in certain commodity-
related transactions, such as purchase and repurchase transactions and precious
metals consignments as a principal.
As an adjunct to its trading activities, MLPF&S places its capital at risk by
engaging in block positioning to facilitate transactions in large blocks of
listed and over-the-counter securities and by engaging, from time to time, in
arbitrage transactions for its own account. In its block positioning activities,
MLPF&S purchases securities, or sells securities short for its own account,
without having full commitments for their resale or covering purchase, thereby
employing its capital to effect large transactions. Such positioning activities
are undertaken after analyzing a given security's marketability and any
positions taken typically are liquidated as soon as practicable. In addition,
MLPF&S facilitates various trading strategies involving the purchase and sale of
financial futures contracts and options and, in connection with this activity,
it may establish positions for its own account and risk.
Other ML & Co. subsidiaries act as dealers in certain specified securities,
including governmental obligations and derivative products, engage in interest
rate and foreign currency swaps and derivative products transactions with third
parties on a principal or an intermediary basis, and act as foreign exchange
dealers. For further information on ML & Co.'s dealer activities, see "Merrill
Lynch Government Securities Inc.", "Merrill Lynch Capital Services, Inc. and
Merrill Lynch Derivative Products, Inc.", and "Banking, Trust and Mortgage
Lending Activities."
INVESTMENT BANKING. MLPF&S is a major investment banking firm that participates
in every aspect of investment banking and acts in principal, agency, and
advisory capacities. It underwrites the sale of securities to the public and
arranges for the private placement of securities with investors. MLPF&S also
provides a broad range of financial and corporate advisory services, including
advice on mergers and acquisitions, project financing, mortgage and lease
financing, capital structure, and specific financing opportunities.
MLPF&S and its affiliates provide advice, valuation, and financing assistance
and engage in the underwriting and private placement of high-yield securities in
connection with leveraged
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buyouts and other acquisition-related transactions. MLPF&S and its affiliates
have, from time to time, taken principal positions in such transactions. In
addition, credit in the form of senior and subordinated debt, as well as bridge
financing on a select and limited basis, may be extended to clients of MLPF&S
and its affiliates. Substantial funds may be provided to such clients on a
temporary basis until permanent financing is obtained. Before MLPF&S and its
affiliates take any such positions, an analysis is performed to establish the
underlying creditworthiness of the particular client and the liquidity of the
market for securities that may be issued in connection with any such financings
and to determine the likelihood of refinancing the transaction within a
reasonable period. Additionally, MLPF&S and its affiliates occasionally retain
equity interests in the subject companies in connection with their non-
investment grade underwriting and merchant banking activities. The information
set forth on pages 40-41 of the Annual Report under the caption "Non-Investment
Grade Holdings and Highly Leveraged Transactions" and in the Notes to
Consolidated Financial Statements under the caption "Concentrations of Credit
Risk" on pages 61-62 of the Annual Report is incorporated herein by reference.
The Corporation, through various subsidiaries and affiliates, including Merrill
Lynch Capital Partners, Inc. ("MLCP") and Merrill Lynch Capital Corporation ("ML
Capital Corp."), has made investments in equity and debt securities in
acquisition transactions, including leveraged buyouts, for which MLPF&S has
acted as financial advisor or underwriter. MLCP, an affiliate of MLPF&S, acts
as the general partner of two leveraged buyout funds, Merrill Lynch Capital
Appreciation Fund I and Merrill Lynch Capital Appreciation Fund II (the
"Funds"). The primary objective of the Funds is the realization of long-term
capital appreciation through the acquisition of equity interests in companies.
For both of these MLCP-managed Funds, the investment periods have expired and no
new investment opportunities are being sought. The Funds' investments have been
funded by their respective limited partners and, for each limited partnership
investment made by any MLCP-sponsored partnership, ML & Co. (through affiliates)
has co-invested up to 20% of the aggregate MLCP-sponsored investments made.
Through its subsidiaries and affiliates, including MLPF&S, ML & Co. may
underwrite, trade, invest, and make markets in certain securities of issuers in
which the Funds have an investment. In addition, it may provide financial
advisory services to these issuers. The Funds together hold investments in
approximately 26 privately held or public companies and the aggregate carrying
value of the investments of MLCP and its affiliates (directly or indirectly
through the Funds) was approximately $276 million as of year-end 1994.
ML Capital Corp. has been a participant in middle-market leveraged acquisitions.
Utilizing ML & Co.'s capital, this subsidiary, as principal, has provided senior
and subordinated financing to, and acquired equity interests in, a number of
companies, approximately 40 of which remained in the portfolio as of year-end
1994. Currently, ML Capital Corp. is not seeking new investment opportunities.
MARGIN LENDING. MLPF&S also provides financing to clients, including margin
lending and other extensions of credit. In a margin-based transaction, MLPF&S
extends credit to the customer for a portion of the market value of the
securities in the customer's account up to the limit imposed by internal MLPF&S
policies and applicable margin regulations. Any margin loan made by MLPF&S is
collateralized by securities in the customer's margin account. Interest on
margin loans is an important source of revenue for MLPF&S. To finance margin
loans, MLPF&S uses funds on which it pays interest (including borrowings from ML
& Co.), funds on which it does not pay interest, including its own capital,
funds derived from customers' free credit balances to the extent permitted by
regulations, and funds derived from securities loaned.
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SECURITIES AND ECONOMIC RESEARCH. The Global Securities Research and Economics
Group of MLPF&S ("MLPF&S Research Group") provides its institutional and retail
sales forces and customers with current information on investments and
securities markets and equity, fixed income, and economic research services on a
global basis. Through its Securities Research Division, the MLPF&S Research
Group also provides technical market and quantitative analysis, convertible
securities analysis, investment and fixed income strategy, high yield debt
securities research, credit research on municipal securities, preferred stock
and corporate bonds, and futures research information. By means of a computer-
based retrieval system available in each MLPF&S branch or affiliate office,
current information and investment opinions on the common equity securities of
approximately 1,700 corporations worldwide are readily available to all MLPF&S
retail and institutional customers through their financial consultants and
account executives.
SECURITIES CLEARING SERVICES. Through its subsidiaries Broadcort Capital Corp.
("BCC") and Wagner Stott Clearing Corp. ("WSCC"), MLPF&S provides securities
clearing services. BCC provides these services to approximately 75 unaffiliated
broker-dealers. Those utilizing BCC's clearing services may also execute
transactions through BCC's fixed-income desk and participate in unit investment
trust fund underwritings sponsored by MLPF&S. While the broker-dealer firm
retains all sales functions with their customers, BCC services the customers'
accounts and handles all settlement and credit aspects of transactions.
WSCC clears transactions for specialists and market makers on various national
and regional stock exchanges; clears commodities futures transactions for
clients through a divisional clearing arrangement with MLF and other futures
commissions merchants; and clears transactions of arbitrageurs, customers, and
other professional trading entities. WSCC, which is a futures commissions
merchant, also clears commodity futures transactions for its clients on the
Philadelphia Board of Trade through the Intermarket Clearing Corporation.
OTHER ACTIVITIES. In 1994, MLPF&S sold more than $28.8 billion of mutual funds,
including income, balanced, and growth funds, of which approximately $15.9
billion represented sales of mutual funds that are advised by Merrill Lynch
Asset Management, L.P. and its affiliates.
MLPF&S also sponsors "Defined Asset Funds/SM/", a series of funds that are unit
investment trusts registered under the Investment Company Act of 1940. These
funds have invested in municipal obligations, corporate fixed-income securities,
U.S. Government obligations, U.S. equity securities, and foreign equity and debt
securities.
In addition, MLPF&S offers the Merrill Lynch Consults(R) service for an annual
fee to individual and institutional clients with at least $100,000 to invest.
Through the Merrill Lynch Consults service, MLPF&S assists these clients in
identifying their investment objectives so that appropriate third party
investment managers can be selected based on those stated objectives. In
addition, periodic performance reports are provided on the managed account. More
than 25 of the investment managers participating in the Merrill Lynch Consults
service manage portfolios in seven risk categories using varying proportions of
equity and fixed-income instruments. At the end of 1994, approximately $14.4
billion was held in 78,500 client accounts subscribing to the Merrill Lynch
Consults service.
MLPF&S also provides Cash Management Account(R) financial services (the "CMA(R)
account service") in all MLPF&S retail offices. Through Visa(R) cards issued by
Merrill Lynch National Financial and Merrill Lynch Bank & Trust Co. and through
checking services provided by Bank One, Columbus, N.A., participating customers
may access information concerning the
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securities and balances in their CMA accounts and the loan value of margin
securities in such account (if a margin account). The CMA account service also
provides a vehicle for the automatic investment of free credit balances in
shares of the CMA money market funds or the automatic deposit of funds through
the associated Insured Savings Account. The CMA account service money market
funds are managed by Merrill Lynch Asset Management, L.P. At the end of 1994,
MLPF&S had more than 1,331,000 CMA accounts for its United States customers,
with aggregate assets of approximately $265 billion (as compared to
approximately $268 billion at year-end 1993). In addition, there are
approximately 40,000 CMA accounts held by the Corporation's clients outside the
United States with aggregate assets of more than $12 billion.
MLPF&S also offers the Capital Builder/SM/ Account service, ("CBA(R) account")
which was developed to meet the needs of the new investor, through all MLPF&S
retail offices. At the end of 1994, MLPF&S had more than 306,000 CBA accounts
with assets of approximately $12 billion.
MERRILL LYNCH INTERNATIONAL INCORPORATED
Merrill Lynch International Incorporated ("MLI"), through its subsidiaries,
provides comprehensive investment, financing, and related services on a global
basis outside the United States and Canada to governments, corporations, other
institutions, and individual investors.
MLI's worldwide trading operations, particularly in London and Tokyo, make it
one of the largest dealers and secondary market-makers in Eurobonds and other
internationally traded securities and futures and a significant participant in
the over-the-counter equity derivatives business. MLI also engages in foreign
exchange transactions (including options on foreign currencies) as a dealer and
consequently assumes principal positions in numerous currencies and related
options. MLI and its subsidiaries and affiliated companies are members of
various foreign stock and futures exchanges. The investment, financing, and
market-making operations of MLI and its affiliates are conducted through a
network of offices, including representative and liaison offices, located in
32 countries outside the United States and Canada. This office network services
major "money center" institutions as well as thousands of smaller regional
institutions and individual investors.
Information on international banking and foreign exchange activities of MLI and
certain of its subsidiaries is set forth below under the caption "Banking, Trust
and Mortgage Lending Activities."
MERRILL LYNCH ASSET MANAGEMENT, L.P.
ML & Co.'s asset management activities are conducted through, or managed by,
Merrill Lynch Asset Management, L.P. and Fund Asset Management, L.P. and related
subsidiaries (together, "MLAM"). MLAM constitutes the investment management arm
of ML & Co., and is one of the largest mutual fund managers in the world. In
1994, sales of equity and bond funds managed by MLAM approximated $15.9 billion,
as compared with $19.4 billion in 1993.
MLAM's other major business activity is separate account management. Assets
under management were $24.3 billion at the end of 1994 (which amount includes
approximately $4.4 billion of general account assets managed on behalf of
insurance companies affiliated with MLAM) as compared to approximately $23.6
billion in 1993 (which amount includes
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approximately $6.0 billion of general account assets managed on behalf of
insurance companies affiliated with MLAM). By the end of 1994, total assets
under management approximated $164 billion, as compared with $161 billion at
year-end 1993.
At the end of 1994, MLAM managed 210 portfolios representing a wide variety of
investment objectives ranging from money market funds to long-term taxable and
tax-exempt fixed income funds, along a broad spectrum of quality ratings and
maturities. In addition, MLAM offers a wide variety of equity funds which in the
aggregate invest in more than 40 markets globally. MLAM open-end funds, other
than money-market funds, are generally offered pursuant to the Merrill Lynch
Select Pricing/SM/ System which allows investors four purchase alternatives.
MERRILL LYNCH GOVERNMENT SECURITIES INC.
Merrill Lynch Government Securities Inc. ("MLGSI") is a primary dealer in
obligations issued or guaranteed by the United States Government and by Federal
agencies or other government-sponsored entities, including Government National
Mortgage Association ("GNMA"), Federal National Mortgage Association ("FNMA"),
and Federal Home Loan Mortgage Corporation ("FHLMC"). It is one of 38 primary
dealers in government securities that reports its positions and activities daily
to the Federal Reserve Bank of New York. It is a dealer in GNMA, FNMA and FHLMC
mortgage-backed-pass-through certificates and deals in futures, options and
forward contracts for its own account, to hedge its own risk, and to facilitate
customers' transactions.
MLGSI's transactions in obligations of the United States Government, Federal
agencies and government-sponsored entities involve large dollar amounts and
small dealer spreads. As an integral part of its business, MLGSI enters into
repurchase agreements whereby it obtains funds by pledging its own securities as
collateral. The repurchase agreements provide financing for MLGSI's dealer
inventory and serve as short-term investments for MLGSI's customers. MLGSI also
enters into reverse repurchase agreements whereby it lends funds against the
pledge of collateral by customers. Such agreements provide MLGSI with needed
collateral and provide MLGSI's customers with temporary liquidity for their
investments in United States Government and agency securities.
MERRILL LYNCH CAPITAL SERVICES, INC. AND MERRILL LYNCH DERIVATIVE PRODUCTS, INC.
Merrill Lynch Capital Services, Inc. ("MLCS") and Merrill Lynch Derivative
Products, Inc. ("MLDP") are ML & Co.'s primary derivative product dealers and
act as intermediaries and principals in a variety of interest-rate, currency,
and other derivative transactions. Another subsidiary, Merrill Lynch Capital
Markets PLC, engages in the equity derivatives business in the over-the-counter
markets.
MLCS primarily acts as a counterparty for certain derivative financial products,
including interest rate currency and commodity swaps, caps and floors, currency
options, credit derivatives, and certain equity-linked contracts. MLCS maintains
positions in interest-bearing securities, equity securities of U.S. issuers,
financial futures, and forward contracts primarily to hedge assets and
liabilities. In the normal course of its business, MLCS enters into repurchase
and resale agreements with certain affiliated companies.
MLDP acts as an intermediary for certain derivative products, including interest
rate and currency swaps between MLCS and highly-rated counterparties. Its
activities address the increasing desire of swap customers to limit their
trading to dealers with the highest credit
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quality. MLDP has been assigned an Aaa, AAA, and AAA counterparty rating by the
rating agencies, Moody's Investors Service, Inc., Standard & Poor's Ratings
Group and Fitch Investors Service, Inc., respectively. Customers meeting certain
credit criteria enter into swaps with MLDP, and, in turn, MLDP enters into
offsetting mirror swaps with MLCS. However, MLCS is required to provide MLDP
with collateral to meet certain exposures MLDP may have to MLCS.
For additional information regarding the Corporation's derivatives business,
including its accounting, risk and credit policies, see pages 44-45 of the
Annual Report under the caption "Derivative Financial Instruments", which
information is incorporated herein by reference.
MERRILL LYNCH MONEY MARKETS INC.
ML & Co., through Merrill Lynch Money Markets Inc. ("MLMMI"), provides a full
range of origination, trading and marketing services with respect to money
market instruments such as commercial paper, bankers' acceptances and
certificates of deposit. MLMMI also originates medium-term notes issued by
domestic and non-United States corporations and short- and medium-term notes
issued by financial institutions, and through MLPF&S, it trades and markets such
notes. It is also a commercial paper dealer for domestic and non-U.S.
corporations and financial institutions. MLMMI also acts as a dealer for
domestic and non-U.S. financial institutions in the certificate of deposit and
bankers' acceptance markets and in connection with the purchase of certificates
of deposit from Federally-insured depository institutions. Such instruments are
resold to certain institutional customers such as thrift institutions, banks,
insurance companies, pension plans, and state and local governments. MLMMI, in
cooperation with MLPF&S, originates the placement of certificates of deposit
issued by such depository institutions that are sold to a broad range of retail
customers of MLPF&S.
MERRILL LYNCH MORTGAGE CAPITAL INC.
Merrill Lynch Mortgage Capital Inc. ("MLMCI") is a dealer in whole loan
mortgages and mortgage servicing. MLMCI, through its CMO Passport(R) service,
provides dealers and investors with general indicative information and analytic
capability with respect to collateralized mortgage obligations ("CMOs") and
asset-backed securities. As an integral part of its business, MLMCI enters into
repurchase agreements whereby it obtains funds by pledging its own whole loans
as collateral. The repurchase agreements provide financing for MLMCI's inventory
and serve as short-term investments for MLMCI's customers. MLMCI also enters
into reverse repurchase agreements through which it makes loans to customers
collateralized by loan mortgages providing customers with temporary liquidity
for their investments in secured whole loans. MLMCI enters into reverse
repurchase agreements at interest rates that are fractionally higher than those
provided for repurchase agreements.
ML FUTURES INVESTMENT PARTNERS INC.
Another ML & Co. subsidiary, ML Futures Investment Partners Inc. ("MLFIP"),
serves principally as the general partner and commodity pool operator of
commodity pools for which MLF acts as commodity broker and MLPF&S acts as
selling agent. MLFIP also structures and sponsors managed futures investments to
meet a variety of client objectives. MLFIP is one of the largest managed futures
sponsors in the world as measured by assets under its management and by its
financial resources. MLFIP is an integrated business, whose capabilities include
research, trading, finance, systems, operations, sales, and marketing. MLFIP's
responsibilities include selecting and monitoring trading advisors, as well as
allocating and reallocating capital among them. As of December 30, 1994, there
was approximately $1.2
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billion in equity invested or to be invested in 48 domestic and international
commodity futures funds which MLFIP has sponsored or been selected to manage (as
compared to approximately $1.3 billion in equity invested or to be invested in
35 commodity futures funds worldwide which MLFIP sponsored or had been selected
to manage at the end of 1993).
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
Through Merrill Lynch Business Financial Services Inc. ("MLBFS"), the
Corporation provides financing services to small- and medium-sized businesses in
conjunction with the Working Capital Management/SM/ account ("WCMA(R) Account"),
which MLPF&S provides to business customers. The WCMA Account combines business
checking, borrowing, investment, and electronic funds transfer services into one
account for participating business customers. As of December 30, 1994, there
were more than 112,300 WCMA Accounts which in the aggregate had investment
assets of more than $35 billion. In addition to providing qualifying customers
with short-term working capital financing through the WCMA Commercial Line of
Credit, MLBFS offers assistance to business customers with their term lending,
equipment, and other asset-based financing needs. In 1994, MLBFS originated more
than $453 million in new commercial loans for business customers. As of December
30, 1994, total outstanding loans were $612 million, of which approximately 97%
were secured by tangible assets pledged by customers.
INSURANCE ACTIVITIES
ML & Co.'s operations in insurance services consist of the underwriting of life
insurance and annuity products by Merrill Lynch Life Insurance Company ("MLLIC")
and ML Life Insurance Company of New York ("ML Life") and the sale of life
insurance and annuity products through Merrill Lynch Life Agency Inc. and other
insurance agencies affiliated or associated with MLPF&S.
MLLIC, an Arkansas stock life insurance company, is authorized to underwrite
insurance and annuities products in 49 states, the District of Columbia, Guam
and the U.S. Virgin Islands which are marketed to MLPF&S customers. Although
authorized, it does not presently underwrite accident and health insurance. At
year-end 1994, MLLIC had approximately $10.8 billion of life insurance in force
as compared with $10.9 billion at year-end 1993. At year-end 1994, MLLIC had
annuity contracts in force of approximately $6 billion in value as compared with
$6.1 billion at year-end 1993.
ML Life, a New York stock life insurance company, is authorized to underwrite
life insurance, annuities and accident and health insurance in nine states;
however, it does not presently underwrite accident and health insurance. At
year-end 1994, ML Life had approximately $2.1 billion of life insurance in
force, compared to $850 million of life insurance in force at year-end 1993. In
1994, ML Life agreed to reinsure approximately $1.3 billion of yearly renewable
term insurance of an unaffiliated insurer. At year-end 1994, ML Life had annuity
contracts in force of approximately $457 million in value, as compared with $533
million at year-end 1993.
Through agency agreements with certain insurance companies, licensed affiliate
insurance agencies and other insurance agencies associated with MLPF&S sell life
and health insurance and annuities products. A significant portion of these
sales consists of products underwritten by MLLIC and ML Life.
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BANKING, TRUST AND MORTGAGE LENDING ACTIVITIES
Merrill Lynch Bank & Trust Co. and Merrill Lynch National Financial, both
Federal Deposit Insurance Corporation-insured institutions, issue certificates
of deposit and money market deposit accounts (including the Insured Savings
Account for the CMA(R) account service), make and purchase secured loans, and
issue Visa(R) cards.
Merrill Lynch International Bank Limited ("MLIB"), a United Kingdom bank with
branch offices in Germany, Singapore, Bahrain, and Luxembourg, provides foreign
exchange trading and collateralized lending services and accepts deposits.
Merrill Lynch International Bank, an Edge Act corporation, provides foreign
exchange trading services to corporations and institutions. Merrill Lynch Bank
(Suisse) S.A., a Swiss bank, provides loans, deposits, portfolio management, and
individual client services to international private banking clients. Merrill
Lynch Bank A.G., a German bank with a branch office in Japan, engages in capital
markets activities such as underwriting, foreign exchange, and swap and other
derivative transactions.
The Corporation provides personal trust, employee benefit trust and custodial
services in certain states through five state-chartered trust companies. Trust
services outside of the United States are provided by Merrill Lynch Bank and
Trust Company (Cayman) Limited.
Merrill Lynch Credit Corporation ("MLCC") provides real estate-based lending
products enabling clients to purchase and refinance their homes as well as to
manage their other personal credit needs. MLCC offers a variety of adjustable-
rate and fixed-rate first mortgage loans throughout the United States, including
the PrimeFirst(R) mortgage program. In addition, MLCC originates and services
home equity credit lines and other mortgage loans as well as services mortgage
loans for affiliated and unaffiliated financial institutions. MLCC uses a
variety of financing techniques to fund its loan portfolio, including
securitizing its mortgages for sale into the secondary marketplace. MLCC also
provides securities-based lending through its Omega/SM/ account, a personal line
of credit using eligible securities as collateral that is accessible by VISA(R)
card and by check.
COMPETITION
All aspects of ML & Co.'s business are intensely competitive. Through its
subsidiaries, in the United States and internationally, it competes directly
with other domestic and foreign investment banking and securities firms, brokers
and dealers in securities and commodities, and with commercial banks,
particularly in its derivative and wholesale capital markets businesses. Many of
the Corporation's international competitors may have competitive advantages in
their home markets. Through its subsidiaries, it also competes indirectly for
investment funds with mutual fund management companies, insurance companies,
finance and investment advisory companies, and banks. Its competitive position
depends to an extent on prevailing worldwide economic conditions and domestic
and foreign governmental policies.
ML & Co. competes for customers on the basis of price, the range of products
that it offers, the quality of its services, its financial resources, and
product innovation. Financial services companies also compete to attract and
retain successful financial consultants and other revenue-producing personnel.
There is increased competition from sources other than those traditionally
engaged in the securities business, such as commercial banks and insurance
companies. Certain United States judicial and regulatory actions in recent years
concerning, among other things, the
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authority of bank affiliates to engage in securities underwriting and brokerage
activities have resulted in increased competition in those aspects of MLPF&S's
business. In addition, domestic legislative proposals are made from time to time
which, if enacted, would also result in increased competition from commercial
banks and their affiliates.
The Corporation's insurance businesses operate in highly competitive
environments. Many companies, both stock and mutual, are older, larger and have
more substantial financial resources and larger agency relationships than do the
Corporation's insurance subsidiaries.
REGULATION
The Corporation's business, as with that of its competitors, is subject to
stringent regulation by the Securities and Exchange Commission (the "SEC" or the
"Commission"), the Commodity Futures Trading Commission ("CFTC"), and other
Federal and state agencies which are charged with the protection of the
securities markets and the interest of those participating in those markets.
MLPF&S, those ML & Co. subsidiaries engaged in securities clearing services, and
Merrill Lynch Specialists Inc., a ML & Co. subsidiary acting as a specialist on
certain securities exchanges, are also subject to regulation by the National
Association of Securities Dealers, Inc. (the "NASD") and by the securities
exchanges of which each is a member.
Certain of ML & Co.'s subsidiaries, including MLPF&S, are regulated as broker-
dealers under the laws of the jurisdictions in which they operate. Those ML &
Co. entities that are broker-dealers registered with the SEC and members of the
United States national securities exchanges are subject to Net Capital Rule
15c3-1 under the Securities Exchange Act of 1934 (the "Exchange Act") which is
designed to measure the general financial condition and liquidity of a broker-
dealer. Under this rule, they are required to maintain the minimum net capital
deemed necessary to meet broker-dealers' continuing commitments to customers and
others. Under certain circumstances, this rule limits the ability of ML & Co. to
make withdrawals of capital from such broker-dealers. Additional information
regarding net capital requirements, set forth in the Notes to Consolidated
Financial Statements under the caption "Regulatory Requirements and Dividend
Restrictions" appearing on page 69 of the Annual Report, is incorporated herein
by reference.
Broker-dealers are also subject to other regulations covering the operations of
their business, including sales and trading practices, use of client funds and
securities, and conduct of directors, officers, and employees. The Corporation
is also subject to the temporary risk assessment rules adopted by the SEC under
the Market Reform Act of 1990, which require, among other things, that certain
broker-dealers maintain and preserve records and other information, describe
risk management policies and procedures, and report on the financial condition
of certain affiliates whose financial and securities activities are reasonably
likely to have a material impact on the financial and operating condition of the
broker-dealer.
Violations of the stringent regulations governing the actions of a broker-dealer
can result in the revocation of broker-dealer licenses, the imposition of
censures or fines, the issuance of cease and desist orders, and the suspension
or expulsion from the securities business of a firm, its officers or employees.
With the enactment of the Insider Trading and Securities Fraud Enforcement Act
of 1988, the SEC and the securities exchanges have intensified their regulation
of broker-dealers, emphasizing in particular the need for supervision and
control by broker-dealers of their employees. In addition, the SEC, various
banking regulators, the Financial Accounting Standards Board and Congressional
committees, among others, are increasing regulation of, and disclosure for, the
derivatives business. In March 1995, a committee known as the Derivatives Policy
Group (the "DPG"), consisting of representatives of ML & Co. and five other
major U.S. securities firms, agreed to implement a voluntary oversight
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framework to address issues raised by the OTC derivatives activities of
unregulated affiliates of SEC-registered broker-dealers and CFTC-registered
futures commission merchants. The DPG was formed in August 1994 at the
suggestion of SEC Chairman Arthur Levitt and worked closely with Chairman Levitt
and CFTC Chairman Mary Shapiro and their senior staffs in developing its
voluntary oversight approach. The DPG's framework for voluntary oversight
includes (1) implementation of internal management controls relating to
derivatives; (2) periodic reports to regulators (on a confidential basis) on OTC
derivatives portfolios with respect to risk exposures, including reports on
credit concentration and quality; (3) development of a framework for estimating
risk in relation to capital; and (4) guidelines for dealing with counterparties
other than professional dealers in OTC derivatives. Additional legislation and
regulations, changes in rules promulgated by the SEC or other governmental
regulatory authorities and self-regulatory organizations or changes in the
interpretation or enforcement of laws and rules may directly affect the manner
of operation and profitability of the Corporation.
Certain of the ML & Co. subsidiaries, including MLPF&S and MLAM, are registered
as investment advisers with the SEC and with certain states requiring such
registration.
The Corporation's registered government securities dealer is also subject to
regulation by the NASD and the Chicago Board of Trade and is required to
maintain minimum net capital pursuant to rules of the U.S. Department of the
Treasury. The Corporation's futures commission merchants are regulated by the
CFTC, the National Futures Association ("NFA") and the commodity exchanges of
which each is a member. The CFTC and the NFA impose net capital requirements on
these companies. MLFIP is registered with the CFTC and is a member of the NFA in
such capacities.
Merrill Lynch Canada is an investment dealer in Canada and is regulated under
the laws of the Canadian provinces by securities authorities and by the
Investment Dealers Association of Canada. It is also a member of all major
Canadian exchanges and is subject to their rules and regulations.
ML Life is subject to extensive regulation and supervision by the New York State
Insurance Department. MLLIC is subject to extensive regulation and supervision
by the Insurance Department of the State of Arkansas. Both MLLIC and ML Life are
subject to similar regulation in the other states in which they are licensed.
Merrill Lynch Bank & Trust Co. is regulated primarily by the State of New Jersey
and by the Federal Deposit Insurance Corporation. Merrill Lynch National
Financial is regulated primarily by the State of Utah and by the Federal Deposit
Insurance Corporation. The Corporation's trust companies are subject to
regulation by the governmental agencies in the states in which they are
incorporated. The Corporation's subsidiaries engaged in banking activities
outside the United States are regulated by various governmental entities in the
particular jurisdiction where they are chartered, incorporated and/or conduct
their business activities.
ITEM 2. PROPERTIES
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The executive offices and a significant portion of ML & Co.'s business
activities are located in a building on 250 Vesey Street (the "North Tower") in
the World Financial Center ("WFC") in New York City. Additional offices,
operations and functions are located at 225 Liberty Street (the "South Tower")
in the WFC. An ML & Co. affiliate is a partner in the partnership that holds the
ground lessee's interest (including the right to grant occupancy and possession
to tenants) in the North Tower. The North Tower and the South Tower are each
occupied under separate
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leases held by an ML & Co. affiliate. Both the North and South Tower leases
commenced in 1988. The aggregate rent (net of rental income to be received from
the sublease of approximately two-thirds of the South Tower) is approximately
$122 million for each of the first 15 years and approximately $179 million for
each of the remaining 10 years of the leases. The ML & Co. affiliate is also
primarily responsible for all of the operating expenses for the North and South
Towers.
ML & Co. affiliates also occupy additional principal locations in New Jersey at
which certain of the Corporation's business activities are conducted, including
owned facilities in Plainsboro on 240 acres and in Somerset on 35 acres (which
is the replacement facility for leased locations in Somerset where two leases
expired in 1994 and one expires in 1995); a leased facility in Piscataway (lease
expiring in 2005) and a leased facility in Jersey City (lease expiring in 2007,
exclusive of renewals) in which an ML & Co. affiliate holds an interest in
partnerships that own the land and the building and in which another ML & Co.
affiliate holds the lease for office space housing support functions. Other
significant facilities are at three New York City locations held by MLPF&S under
leases expiring in 2000, 2007 and 2024, exclusive of extensions. Affiliates of
ML & Co. also own significant facilities in Lakewood, Colorado and Jacksonville,
Florida.
Insurance activities are conducted by insurance subsidiaries of ML & Co. at
locations in Plainsboro, New Jersey (fee-owned facility), Jacksonville, Florida
(fee-owned facility), New York City (lease expiring in 2000), Springfield,
Massachusetts (sublease expiring in 1997) and at additional locations at MLPF&S
branch offices throughout the United States which service MLPF&S branch offices.
Merrill Lynch Europe Limited leases a building with approximately 250,000 square
feet at Ropemaker Place, London. The lease commenced in 1987 and continues for
25 years with a right to cancel in the year 2002. This building serves as the
headquarters for ML & Co.'s European and Middle Eastern operations.
MLJ leases 90,000 square feet of office space in Tokyo. The lease, which expires
in the year 2003, can be canceled at any time on six-months notice.
Substantially all other offices, including more than 500 branch offices, of ML &
Co.'s subsidiaries throughout the world, are located in leased premises. The
information regarding lease commitments of ML & Co. (including commitments for
leases of premises), set forth in the Notes to Consolidated Financial Statements
under the caption "Commitments and Contingencies-Leases" on page 74 of the
Annual Report, is hereby incorporated by reference.
ITEM 3. LEGAL PROCEEDINGS
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ML & Co. and certain of its subsidiaries, including MLPF&S, have been named as
parties in a number of civil actions, including the following, arising out of
their business activities. Each of the following actions is reported as of
March 24, 1995.
ORANGE COUNTY LITIGATION. The following actions have been filed against or on
behalf of the Corporation in connection with the Corporation's business
activities with Orange County, California ("Orange County") relating to
transactions entered into on behalf of Orange County and the funds controlled by
the Orange County Treasurer-Tax Collector (the "Pools"). Bankruptcy petitions
were filed on behalf of Orange County and the Pools in the United States
Bankruptcy Court for the Central District of California (the "Bankruptcy Court")
on December 6, 1994. These actions include, in the order summarized below, an
action in the names of Orange County and the Pools; actions by investors and
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participants in the Pools and Orange County taxpayers; actions by investors in
the Corporation or affiliated entities; and actions by holders of bonds or other
debt instruments issued by or on behalf of Orange County and other public
entities with funds controlled by the Orange County Treasurer-Tax Collector.
On January 12, 1995, an action was commenced in the Bankruptcy Court in the
names of Orange County and the Pools against the Corporation and certain of its
subsidiaries (the "Orange County Action"). The complaint alleges, among other
things, that various securities transactions between Orange County and/or the
Pools and the Corporation and its subsidiaries violated California law and are
null and void, that the Corporation and its subsidiaries committed violations of
Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder and
breach of fiduciary duty. Damages in excess of $2 billion and injunctive and
declaratory relief are sought.
On March 1, 1995, the parties entered into an agreement pursuant to which the
proceeds from the sale of securities purchased by the Corporation from Orange
County pursuant to certain master repurchase agreements are to be used to
purchase short-term United States Treasury Bills or United States Treasury Notes
that will be identifiable and held separate and subject to any rights that the
Corporation may have in the master repurchase agreements. This agreement may be
terminated by the Corporation upon 30 days written notice.
On December 13, 1994, a purported class action was commenced in the Superior
Court of the State of California, Orange County, on behalf of individuals whose
funds were deposited with the Orange County Treasurer pursuant to proceedings in
California Superior Court (the "DeLeon Action"). On December 27, 1994, this
complaint was amended to include as additional plaintiffs those individuals who
invested funds in the Pools representing deferred compensation and/or retirement
funds. The DeLeon Action names as defendants a subsidiary of the Corporation, an
employee of the Corporation, Robert L. Citron, formerly the Treasurer-Tax
Collector of Orange County, Matthew Raabe, formerly the Assistant to the
Treasurer-Tax Collector of Orange County, and Steven E. Lewis, the Auditor-
Controller of Orange County and alleges, among other things, that the defendants
affiliated with the Corporation committed fraud and breach of fiduciary duty in
connection with the Corporation's business activities with Orange County.
Damages in an unspecified amount are sought.
On December 16, 1994, a purported class action was commenced in the United
States District Court for the Central District of California on behalf of
persons whose funds were deposited in the Pools pursuant to proceedings in
California Superior Court. A companion action was commenced in the Superior
Court for the State of California, Orange County, on January 10, 1995 (the
"Small Action"). The Corporation, a subsidiary of the Corporation, an employee
of the Corporation, and Robert L. Citron are named defendants in both actions.
The federal complaint alleges, among other things, that the Corporation and the
defendants affiliated with the Corporation committed violations of Sections
10(b) and 20 of the Exchange Act and Rule 10b-5 promulgated thereunder and
Sections 25400 and 25500 of the California Corporations Code (the "California
Code") and breach of fiduciary duty in connection with the Corporation's
business activities with Orange County and the Pools. The state complaint
alleges claims for breach of fiduciary duty and fraud. Damages in an unspecified
amount are sought. On January 26, 1995, the federal complaint was dismissed
without prejudice.
On January 9, 1995, a purported class action was commenced in the United States
District Court for the Central District of California on behalf of all investors
and participants in the Pools between January 1, 1993 and December 6, 1994 (the
"Schools Excess Liability Fund Action" or "SELF Action"), naming a subsidiary of
the Corporation, an employee of the Corporation
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and Robert Citron as defendants. The complaint alleges, among other things, that
the defendants affiliated with the Corporation committed violations of Sections
10(b) and 20 of the Exchange Act and Rule 10b-5 promulgated thereunder, Sections
25400 and 25500 of the California Code, breaches of fiduciary duties, fraud,
negligence and negligent misrepresentation in connection with the Corporation's
business activities with Orange County. Damages in an unspecified amount are
sought.
On March 3, 1995, a purported class action was commenced in the United States
District Court for the Central District of California on behalf of 31
municipalities in Orange County that have deposited funds in the Pools, as well
as "any political subdivision which invested funds in the Pools through the
municipalities" (the "Huntington Beach Action"). Named as defendants are the
Corporation, certain subsidiaries of the Corporation, and an employee of the
Corporation. The complaint alleges that various securities transactions between
Orange County and/or the Pools and the Corporation violated California law and
are null and void. The complaint further alleges, among other things, that the
defendants violated Sections 10(b) and 20 of the Exchange Act and Rule 10b-5
promulgated thereunder, New York Stock Exchange Rule 405, Article III, Section 2
of the National Association of Securities Dealers' Rules of Fair Practice,
Sections 25400 and 25500 of the California Code, Sections 1573, 1709 and 1710 of
the California Civil Code, Section 27100.1 of the California Government Code,
and committed common law fraud and deceit, breach of fiduciary duty, and aided
and abetted a breach of fiduciary duty, in connection with the Corporation's
business activities with Orange County and the Pools. In the alternative, the
complaint alleges that the defendants breached an "implied covenant of good
faith and fair dealing owed to the Pool participants" as third-party
beneficiaries. Damages in an unspecified amount are sought.
On January 23, 1995, a purported class action was commenced in the Superior
Court of the State of California, Orange County, on behalf of Orange County
taxpayers (the "Darling Action"). The defendants are a subsidiary of the
Corporation, Robert L. Citron, Matthew Raabe, Steven E. Lewis, and Jeffrey
Leifer, allegedly Orange County's primary debt advisor. The complaint alleges,
among other things, that the subsidiary of the Corporation committed waste and
gross mismanagement, breach of fiduciary duty, conspired to commit ultra vires
acts, and violated Section 17200 of the California Business and Professions Code
in connection with the Corporation's business activities with Orange County.
Damages in an unspecified amount are sought.
Beginning on December 5, 1994, five purported derivative actions on behalf of
the Corporation were commenced in the Supreme Court of the State of New York,
New York County (the "Wilson Actions"). Named as defendants in one or more of
these actions are a total of 22 present or past directors, officers or employees
of the Corporation or its subsidiaries. The complaints allege, among other
things, breach of fiduciary duty and oversight failures in connection with the
Corporation's business activities with Orange County. The Corporation is named
as a nominal defendant in these actions. Damages in an unspecified amount are
sought on behalf of the Corporation against the individuals named as defendants.
On January 12, 1995, a purported derivative action was commenced in the Superior
Court of the State of California, Los Angeles County (the "Lewis Action"). Named
as defendants are 13 present or past directors and/or officers of the
Corporation. The complaint alleges, among other things, breach of fiduciary duty
in connection with the Corporation's business activities with Orange County. The
Corporation and certain of its subsidiaries are nominal defendants in this
action. Damages in an unspecified amount are sought on behalf of the Corporation
and certain of its subsidiaries against the individuals named as defendants.
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On December 16, 1994, a purported class action was commenced in the United
States District Court for the Southern District of New York on behalf of
purchasers of the Corporation's common stock between March 17, 1994 and December
6, 1994 (the "Balan Action"). The defendants are the Corporation and three of
its directors and officers. The complaint alleges, among other things,
violations of Sections 10(b) and 20 of the Exchange Act and Rule 10b-5
promulgated thereunder in connection with the Corporation's disclosure with
respect to its business activities with Orange County and the Pools. Damages in
an unspecified amount are sought.
On December 13, 1994, a purported class action was commenced in the Supreme
Court of the State of New York, New York County on behalf of individuals who
owned interests in the Merrill Lynch California Municipal Bond Fund (the "Fund")
of the Merrill Lynch California Municipal Series Trust from January 1994 through
December 1, 1994 (the "McDermott Action"). The defendants are the Corporation,
certain of its subsidiaries and the Fund. The complaint alleges, among other
things, fraud and negligent misrepresentation in connection with the
Corporation's disclosure with respect to its business activities with Orange
County and the Pools. Damages in an unspecified amount are sought.
Beginning on December 8, 1994, ten purported class actions were commenced in the
United States District Court for the Central District of California on behalf of
individuals who purchased bonds or other debt instruments issued by or on behalf
of Orange County or other public entities with funds controlled by the Orange
County Treasurer-Tax Collector during various periods of time (the "Smith
Action"). As amended most recently on February 27, 1995 in a First Amended
Consolidated Class Action Complaint, the purported class includes all persons
who purchased bonds or other debt instruments between July 1, 1992 and December
6, 1994 that were issued by Orange County or the other public entities. Named as
defendants are the Corporation, an employee of the Corporation, PaineWebber,
Inc., CS First Boston Corp., Smith Barney, Inc., Lehman Brothers, Inc.,
Donaldson Lufkin & Jenrette, Inc., Kidder, Peabody & Co., Inc., Stone &
Youngberg, Rauscher Pierce Refsnes, Inc., Leifer Capital, Inc., Fieldman Rolapp
& Associates, Inc., CGMS, Inc., and O'Brien Partners, Inc. The First Amended
Consolidated Class Action Complaint alleges, among other things, violations of
Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder and
Sections 25400-25401, 25500-25501 and 25504.1 of the California Code, with
respect to disclosure made in connection with the sale of bonds and other debt
instruments issued by Orange County and the other public entities.
On March 13, 1995, an action was commenced in the Circuit Court of Cook County,
Illinois, Chancery Division, by five money market mutual funds managed by Kemper
Financial Services, Inc.: Cash Account Trust, Cash Equivalent Fund, Kemper
Investors Fund, Kemper Money Market Fund, and Kemper Portfolios (the "Kemper
Action"). Named as defendants are a subsidiary of the Corporation and an
employee of the Corporation. The complaint alleges, among other things, that the
defendants violated Sections 12A, 12F, 12G and 12I of the Illinois Securities
Act and committed common law fraud with respect to disclosure made in connection
with the issuance and sale of 1994-5 Taxable Notes that were issued by Orange
County on July 8, 1994. Recission and damages in an unspecified amount are
sought.
The Corporation has also received formal and informal inquiries from various
governmental entities examining the events underlying the above described
litigation and is cooperating with these inquiries.
GSLIC LITIGATION. Several legal proceedings have arisen from certain securities
trading transactions that occurred at year-end 1984, 1985, 1986 and 1988 between
MLPF&S and
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MLGSI and a Florida insurance company, Guarantee Security Life Insurance Company
("GSLIC"), which was taken into liquidation. A principal focus of the
allegations in the following civil proceedings is an assertion that GSLIC's
purpose in engaging in the year-end transactions was to distort its apparent
financial condition. It is claimed that GSLIC's former officers and employees
improperly took assets from the company and its investment portfolio declined
substantially in value before its true financial condition became known to
insurance regulators, GSLIC's policyholders, and the creditors of GSLIC and its
parent company, Transmark USA, Inc. ("Transmark").
On December 20, 1991, an action was commenced by the Florida Department of
Insurance as Receiver of GSLIC (the "Receiver") in the Fourth Judicial Circuit
Court in Duval County, Florida naming former officers, directors, and
shareholders of GSLIC and Transmark, GSLIC's former outside attorneys and
accountants, MLPF&S, MLGSI and a former managing director of MLPF&S as
defendants (the "Receiver Action"). The complaint alleges state law claims
against the above-mentioned Merrill Lynch defendants for fraud, breach of
fiduciary duty, conspiracy, and aiding and abetting a breach of duty arising
from their involvement in the year-end trades with GSLIC, alleges that GSLIC was
damaged in excess of $300 million, and seeks relief in an unspecified amount
from the Merrill Lynch defendants.
Substantially the same defendants are named in two consolidated lawsuits brought
in federal court in Jacksonville, Florida on October 15, 1991 and on February
28, 1992 on behalf of an uncertified alleged class of purchasers of GSLIC
insurance policies and annuities between 1984 and 1991 (the "Haag/Levine
Action"). The complaint alleges substantially the same claims as the Receiver
Action as well as claims grounded in the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and Section 10(b) of the Exchange Act and seeks
unspecified money damages. The court has stayed the Haag/Levine Action pending
the resolution of the Receiver Action.
The Resolution Trust Corporation ("RTC"), as receiver for four failed savings
institutions (CenTrust Association Savings Bank, Imperial Savings Association,
FarWest Savings and Loan Association, and Columbia Savings and Loan Association)
in January and April, 1993 filed civil actions in federal court in Jacksonville,
Florida against ML & Co., MLPF&S, MLGSI, a former MLPF&S managing director and
former officers, directors and employees of Transmark and GSLIC (the "RTC
Action"). The action seeks to recover damages as a result of purchases by the
four above-named institutions of securities issued by Transmark, GSLIC's parent
corporation. The claims alleged are substantially similar to those in the
Haag/Levine action mentioned above. In April, 1993, Trans-Resources Inc., a
company that alleges it also purchased Transmark securities, filed a complaint
in the federal court in Jacksonville, Florida substantially following the
allegations of the RTC Action and names substantially the same defendants (the
"Trans-Resources Action"). The RTC Action and Trans-Resources Action each seek
compensatory and punitive damages in unspecified amounts, trebling of damages
under the RICO claim, rescissory relief, and reimbursement of costs of suit.
In October 1991, two ML & Co. stockholders, Charles Miller and Kenneth Steiner,
commenced derivative actions, now consolidated, in New York State Supreme Court,
naming as defendants all present directors of ML & Co. who were directors at the
time of the year-end securities transactions in question, among others. The
plaintiffs assert claims for breach of fiduciary duties in connection with the
year-end securities transactions with GSLIC and other claims against Transmark
and one of Transmark's principals. The damages sought in this action are
unspecified. The defendants' motions to dismiss on various grounds were denied.
However, the court has stayed the action for all purposes pending a resolution
of the above-mentioned related litigation in Florida.
17
<PAGE>
****
The Corporation believes it has strong defenses to, and will vigorously contest,
the actions described above. Although the ultimate outcome of the actions
described above and other civil actions, arbitration proceedings and claims
pending against the Corporation or its subsidiaries as of March 24, 1995 cannot
be ascertained at this time and the results of legal proceedings cannot be
predicted with certainty, it is the opinion of the management of the Corporation
that the resolution of these actions will not have a material adverse effect on
the financial condition or the results of operations of the Corporation as set
forth in the consolidated financial statements contained herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None.
- ------- ---------------------------------------------------
18
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
The following table sets forth certain information concerning executive officers
of ML & Co. as of March 24, 1995.
<TABLE>
<CAPTION>
NAME AND AGE PRESENT TITLE AND PRINCIPAL OCCUPATION SINCE MARCH
1990/*/
<S> <C>
Herbert M. Allison, Jr., 51 Executive Vice President, Corporate and
Institutional Business Group since January, 1995;
Executive Vice President, Investment Banking Group
from May, 1993 to January, 1995; Executive Vice
President, Finance and Administration from
October, 1990 to April, 1993; Executive Vice
President, Administration from July, 1989 to
October, 1990.
Edward L. Goldberg, 54 Executive Vice President, Operations, Systems and
Telecommunications since April, 1991 (and
responsible for Corporate Real Estate and
Purchasing since March, 1993); Director and
Executive Vice President of MLPF&S since May,
1991; from January, 1991 to April, 1991, performed
senior management responsibilities in the
Operations, Systems and Telecommunications
Division; Senior Vice President of Equity Markets,
Professional Securities Services Group of MLPF&S,
September, 1988 to December, 1990.
Stephen L. Hammerman, 56 Vice Chairman of the Board since April, 1992;
Executive Vice President from June, 1985 to April,
1992; General Counsel since October, 1984; General
Counsel of MLPF&S since March, 1981.
Jerome P. Kenney, 53 Executive Vice President, Corporate Strategy,
Credit and Research since May, 1993; Executive
Vice President, Corporate Strategy and Research
from October, 1990 to April, 1993; Executive Vice
President and President of the Capital Markets
Sector from September, 1984 to October, 1990.
</TABLE>
- ----------
/*/ Unless otherwise indicated, the offices listed are of ML & Co. Under ML &
Co.'s By-Laws, elected officers are elected annually to hold office until
their successors are elected and qualify; all Executive Officers are elected
by the Board of Directors.
19
<PAGE>
<TABLE>
<CAPTION>
NAME AND AGE PRESENT TITLE AND PRINCIPAL OCCUPATION SINCE MARCH
1990/*/
<S> <C>
David H. Komansky, 55 President and Chief Operating Officer since
January, 1995; President and Chief Executive
Officer of MLPF&S since February, 1995; Executive
Vice President, Debt and Equity Markets Group from
May, 1993 to January, 1995; Executive Vice
President, Debt Markets Group from June, 1992 to
April, 1993; Executive Vice President, Equity
Markets Group from October, 1990 to May, 1992;
Senior Vice President and National Sales Director
of MLPF&S from February, 1988 to October, 1990.
Winthrop H. Smith, Jr., 45 Executive Vice President, International since
June, 1992; National Sales Director of Eastern
Division from November, 1990 to May, 1992;
Regional Director of Mid-Atlantic Region from
July, 1985 to November, 1990.
John L. Steffens, 53 Executive Vice President, Private Client Group
since October, 1990; Executive Vice President and
President of the Consumer Markets Sector from
July, 1985 to October, 1990.
Daniel P. Tully, 63 Chairman of the Board since June, 1993; Chief
Executive Officer since May, 1992; President and
Chief Operating Officer from July, 1985 to
January, 1995; Chairman of the Board, President,
and Chief Executive Officer of MLPF&S from July,
1985 to February, 1995.
Joseph T. Willett, 43 Chief Financial Officer since April, 1993;
Controller since April, 1992; Senior Vice
President since February, 1991; Treasurer from
February, 1991 to April, 1992; First Vice
President of MLPF&S from January, 1988 to
February, 1991.
Arthur Zeikel, 62 Executive Vice President, Asset Management Group
since October, 1990; Director, Corporate Strategy
from July, 1988 to October, 1990; President and
Chief Investment Officer of Merrill Lynch Asset
Management since November, 1976.
</TABLE>
- ----------
/*/ Unless otherwise indicated, the offices listed are of ML & Co. Under ML &
Co.'s By-Laws, elected officers are elected annually to hold office until
their successors are elected and qualify; all Executive Officers are elected
by the Board of Directors.
20
<PAGE>
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
In response to this Item 5, the information set forth in the Notes to
Consolidated Financial Statements under the caption "Regulatory
Requirements and Dividend Restrictions" on page 69 of the Annual
Report; the information on page 78 of the Annual Report under the
caption "Dividends Per Common Share" and the caption "Stockholder
Information" is incorporated herein by reference. The Common Stock of
ML & Co. (trading symbol MER) is listed on the following stock
exchanges: New York Stock Exchange, Chicago Stock Exchange, Pacific
Stock Exchange, Paris Stock Exchange, London Stock Exchange and Tokyo
Stock Exchange.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
In response to this Item 6, the information contained in the financial
table "Selected Financial Data" on page 30 of the Annual Report
excluding the financial ratios and the other data set forth therein
under the headings "Financial Ratios" and "Other Statistics" and the
information set forth on page 76 of the Annual Report is incorporated
herein by reference and should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto on pages 49-75
in the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
In response to this Item 7, the financial information set forth under
the caption "Financial Ratios-Leverage" on page 30 of the Annual
Report, the discussion on pages 32-48 of the Annual Report and the
information in the Notes to Consolidated Financial Statements under the
caption "Regulatory Requirements and Dividend Restrictions" on page 69
of the Annual Report is incorporated herein by reference and such
information should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto on pages 49-75 in the Annual
Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
In response to this Item 8, the information set forth in the
Consolidated Financial Statements and the Notes thereto on pages 49-75
in the Annual Report, the Independent Auditors' Report on page 75 in
the Annual Report and the information on page 78 of the Annual Report
under the caption "Quarterly Information" is incorporated by reference
herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- --------------------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
None.
21
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
In response to this Item 10, the information set forth under the
caption "Election of Directors" on pages 5-8 of ML & Co.'s Proxy
Statement dated March 13, 1995 (the "Proxy Statement") and the
information set forth in Part I hereof under the caption "Executive
Officers of the Registrant" is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
In response to this Item 11, the information set forth under the
caption "Executive Compensation" on pages 13-26 of the Proxy Statement
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
In response to this Item 12, the information set forth on pages 1-2
and the information set forth under the caption "Election of
Directors" on pages 5-8 of the Proxy Statement is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
In response to this Item 13, the information set forth on pages 24-25
of the Proxy Statement under the caption "Certain Transactions" is
incorporated herein by reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- ---------------------------------------------------------------------------
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
1. Financial Statements
The financial statements are listed on page F-1 hereof by reference to
the corresponding page number in the Annual Report.
2. Financial Statement Schedules
THE FINANCIAL STATEMENT SCHEDULES REQUIRED TO BE FILED HEREUNDER ARE
LISTED ON PAGE F-1 HEREOF AND THE SCHEDULES INCLUDED HEREWITH APPEAR ON
PAGES F-2 THROUGH F-8 HEREOF.
22
<PAGE>
3. EXHIBITS
Certain of the following exhibits were previously filed as exhibits to
other reports or registration statements filed by the Registrant and are
incorporated herein by reference to such reports or registration
statements as indicated parenthetically below by the appropriate report
reference date or registration statement number. For convenience,
Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K, Current
Reports on Form 8-K and Registration Statements on Form S-3 are
designated herein as "10-Q," "10-K," "8-K" and "S-3," respectively.
(3) ARTICLES OF INCORPORATION AND BY-LAWS.
(i) (a) Restated Certificate of Incorporation of ML & Co., as amended
April 24, 1987 (Exhibit 3(i) to 10-K for fiscal year ended
December 25, 1992 ("1992 10-K")).
(b) Certificate of Amendment, dated April 29, 1993, of the
Certificate of Incorporation of ML & Co. (Exhibit 3(i) to
10-Q for the quarter ended March 26, 1993 ("1st Quarter
1993 10-Q")).
(c) Form of certificate representing the 9% Cumulative Preferred
Stock, Series A, par value $1.00 per share, of ML & Co. (the
"9% Preferred Stock") (Exhibit 4(i) to 10-Q for the quarter
ended September 30, 1994 ("3rd Quarter 1994 10-Q")).
(d) Form of Depositary Receipt evidencing the Depositary Shares
for the 9% Preferred Stock (Exhibit 4(ii) to 3rd Quarter
1994 10-Q).
(e) Certificate of Designation of ML & Co. establishing the
rights, preferences, privileges, qualifications, restrictions
and limitations relating to the 9% Preferred Stock (Exhibit
4(iii) to 3rd Quarter 1994 10-Q).
(f) Deposit Agreement, dated as of November 3, 1994 among
ML & Co., Citibank, N.A. as Depositary, and the holders
from time to time of the Depositary Receipts (Exhibit 4(iv)
to 3rd Quarter 1994 10-Q).
(g) Certificate of Designation, dated March 30, 1988 for
Remarketed Preferred Stock, Series C (Exhibit 3(ii) to 1st
Quarter 1993 10-Q).
(h) Certificate of Designation, dated December 17, 1987 for
Series A Junior Preferred Stock (Exhibit 3(f) to S-3 (File
No. 33-19975)).
(i) Form of Rights Agreement, dated as of December 16, 1987
between ML & Co. and Chemical Bank (successor by merger to
Manufacturers Hanover Trust Company) (Exhibit 3(iv) to 1992
10-K).
(ii) By-Laws of ML & Co., effective as of October 25, 1993
(Exhibit 3(i) to 10-Q for the quarter ended September 24,
1993 ("3rd Quarter 1993 10-Q")).
23
<PAGE>
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES.
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant
hereby undertakes to furnish to the Securities and Exchange
Commission, upon request, copies of the instruments defining the
rights of holders of long-term debt securities of the Registrant, none
of which instruments (including the Exhibits listed in 4(iv) to (xv)
below), authorize an amount of securities that exceed 10% of the total
assets of the Registrant and its subsidiaries on a consolidated basis.
For convenience purposes, the Registrant hereby files as Exhibits
4(iv) through (xv) the form of each long-term security issued by the
Registrant from January 1, 1994 through March 24, 1995.
(i) Senior Indenture, dated as of April 1, 1983, as amended and
restated, between ML & Co. and Chemical Bank (successor by
merger to Manufacturers Hanover Trust Company) (Exhibit 99(c)
to ML & Co.'s Registration Statement on Form 8-A dated July
20, 1992).
(ii) Supplemental Indenture to the Senior Indenture, dated as of
March 15, 1990, between ML & Co. and Chemical Bank (successor
by merger to Manufacturers Hanover Trust Company) (Exhibit
99(c) to ML & Co.'s Registration Statement on Form 8-A dated
July 20, 1992).
(iii) Senior Indenture, dated as of October 1, 1993, between ML &
Co. and the Chase Manhattan Bank, N.A. (Exhibit 4 to 8-K dated
October 7, 1993).
(iv) Form of ML & Co.'s 6 1/4% Notes due January 15, 2006 (Exhibit
4 to 8-K dated January 20, 1994).
(v) Form of ML & Co.'s Japan Index Equity Participation Securities
with Minimum Return Protection due January 31, 2000 (Exhibit 4
to 8-K dated January 27, 1994).
(vi) Form of ML & Co.'s Index Warrant Agreement, including form of
Global Warrant Certificate, relating to ML & Co.'s Constant
Maturity U.S. Treasury Yield Increase Warrants expiring August
25, 1995 (Exhibit 4 to 8-K dated February 3, 1994).
(vii) Form of ML & Co.'s Constant Maturity Treasury Rate Indexed
Notes due March 24, 1997 (Exhibit 4 to 8-K dated March 24,
1994).
(viii) Form of ML & Co.'s 6 3/8% Notes due March 30, 1999 (Exhibit 4
to 8-K dated March 30, 1994).
(ix) Form of ML & Co.'s AMEX Oil Index Stock Market Annual Reset
Term Notes due December 29, 2000 (Exhibit 4 to 8-K dated March
31, 1994).
24
<PAGE>
(x) Form of ML & Co.'s Index Warrant Agreement, including form of
Global Warrant Certificate, relating to ML & Co.'s Constant
Maturity U.S. Treasury Yield Increase Warrants expiring
January 25, 1996 (Exhibit 4 to 8-K dated November 3, 1994).
(xi) Form of ML & Co.'s 8 3/8% Notes due February 9, 2000 (Exhibit
4 to 8-K dated February 9, 1995).
(xii) Form of ML & Co.'s Index Warrant Agreement, including form of
Global Warrant Certificate, relating to ML & Co.'s Nikkei
Stock Index 300 Call Warrants expiring February 3, 1997
(Exhibit 4 to 8-K dated February 8, 1995).
(xiii) Form of ML & Co.'s Japanese Yen Swap Rate Linked Medium-Term
Notes, Series B (Exhibit 4(xviii) to 10-K for the fiscal year
ended December 31, 1993 (the "1993 10-K")).
*(xiv) Form of ML & Co.'s Constant Maturity Treasury Rate Indexed
Medium-Term Notes, Series B.
*(xv) Form of ML & Co.'s Constant Maturity Treasury Rate Indexed
Medium-Term Notes II, Series B.
(10) MATERIAL CONTRACTS.
COMPENSATION PLANS AND ARRANGEMENTS:
-----------------------------------
*(i) ML & Co. 1978 Incentive Equity Purchase Plan, as amended
through January 16, 1995.
*(ii) Form of ML & Co. Amended and Restated 1994 Deferred
Compensation Agreement for a Select Group of Eligible
Employees, as amended through November 10, 1994.
*(iii) ML & Co. Long-Term Incentive Compensation Plan, as amended
through December 5, 1994.
*(iv) ML & Co. Equity Capital Accumulation Plan, as amended through
December 5, 1994.
(v) ML & Co. Executive Officer Compensation Plan (Exhibit 10(i) to
ML & Co.'s Proxy Statement for the 1994 Annual Meeting of
Stockholders contained in ML & Co.'s Schedule 14A filed on
March 14, 1994 ("1994 Proxy Statement")).
- ----------
*Filed herewith.
25
<PAGE>
(vi) Written description of Retirement Program for Non-Employee
Directors of ML & Co., as amended June 29, 1988 (Page 23 of ML
& Co.'s Proxy Statement for the 1995 Annual Meeting of
Stockholders contained in ML & Co.'s Schedule 14A filed on
March 10, 1995 ("1995 Proxy Statement")).
(vii) ML & Co. Non-Employee Directors' Equity Plan (Exhibit 10(iv)
to 3rd Quarter 1992 10-Q for the quarter ended September 25,
1992 (the "3rd Quarter 1992 10-Q")).
(viii) Executive Annuity Agreement, dated July 24, 1991, by and
between ML & Co. and Daniel P. Tully (Exhibit 10(iii) to 2nd
Quarter 1991 10-Q for the quarter ended June 28, 1991 (the
"2nd Quarter 1991 10-Q")).
(ix) Amendment, dated April 30, 1992, to Executive Annuity
Agreement, dated July 24, 1991, by and between ML & Co. and
Daniel P. Tully (Exhibit 10(ii) to 2nd Quarter 1992 10-Q for
the quarter ended June 26, 1992).
(x) Form of Severance Agreement between ML & Co. and certain of
its directors and executive officers (Exhibit 10(i) to 3rd
Quarter 1992 10-Q).
(xi) Form of Indemnification Agreement entered into with all
current directors of ML & Co. and to be entered into with all
future directors of ML & Co. (Exhibit 10(xi) to 1993 10-K).
(xii) Written description of ML & Co.'s incentive compensation
programs (Exhibit 10(xii) to 1993 10-K).
(xiii) Written description of ML & Co.'s compensation policy for
directors (Page 13 of ML & Co.'s 1995 Proxy Statement).
(xiv) Merrill Lynch KECALP Growth Investments Limited Partnership
1983 (Exhibit 1(b) to Registration Statement on Form N-2 (File
No. 2-81619)).
(xv) Merrill Lynch KECALP L.P. 1984 (Exhibit 1(b) to Registration
Statement on Form N-2 (File No. 2-87962)).
(xvi) Merrill Lynch KECALP L.P. 1986 (Exhibit 1(b) to Registration
Statement on Form N-2 (File No. 2-99800)).
(xvii) Merrill Lynch KECALP L.P. 1987 (Exhibit 1(b) to Registration
Statement on Form N-2 (File No. 33-11355)).
(xviii) Merrill Lynch KECALP L.P. 1989 (Exhibit 1(b) to Registration
Statement on Form N-2 (File No. 33-26561)).
(xix) Merrill Lynch KECALP L.P. 1991 (Exhibit 1(b) to Registration
Statement on Form N-2 (File No. 33-39489)).
(xx) Merrill Lynch KECALP L.P. 1994 (Exhibit 1(a)(ii) to
Registration Statement on Form N-2 (File No. 33-51825)).
26
<PAGE>
(xxi) Form of ML & Co. 1994 Deferred Restricted Unit Agreement for
Executive Officers (Exhibit 10(i) to 10-Q for the quarter
ended April 1, 1994 (the "1st Quarter 1994 10-Q")).
*(xxii) Form of ML & Co. 1995 Deferred Compensation Agreement for a
Select Group of Eligible Employees.
*(xxiii) Form of ML & Co. Fee Deferral Plan for Non-Employee Directors,
as amended through February 24, 1995.
-- 10(xxiv) to (xxv) intentionally omitted --
AGREEMENTS RELATING TO THE WORLD FINANCIAL CENTER:
- -------------------------------------------------
(xxvi) The following documents relate to the Registrant's occupation
of office space in buildings at the World Financial Center,
New York, New York:
(a) Reimbursement Agreement between Olympia & York Tower D
Company and Merrill Lynch/WFC/L, Inc. ("WFC/L"), dated
as of August 24, 1984 (Exhibit 10(i) to 8-K dated
January 22, 1990).
(b) Reimbursement Agreement between Olympia & York Tower B
Company ("B Company") and WFC/L, dated as of August 24,
1984 (Exhibit 10(ii) to 8-K dated January 22, 1990).
+(c) Agreement of Lease (with respect to Parcel D), dated as
of February 26, 1988, between WFC Tower D Company
(formerly known as Olympia & York Tower D Company) ("D
Company") and WFC/L (Exhibit 10(xxx)(c) to 1992 10-K).
+(d) Guaranty and Assumption Agreement, dated as of February
26, 1988 between ML & Co. and D Company (Exhibit
19(xxx)(d) to 1992 10-K).
+(e) Agreement of Lease (with respect to Parcel B), dated as
of September 29, 1988 between B Company and WFC/L
(Exhibit 10(i) to 1st Quarter 1993 10-Q).
+(f) Guaranty and Assumption Agreement, dated as of
September 29, 1988 between ML & Co. and B Company
(Exhibit 10(ii) to 1st Quarter 1993 10-Q).
+(g) Restated and Amended Partnership Agreement of D
Company, executed on December 24, 1986 (Exhibit
10(xxx)(g) to 1992 10-K).
- ----------
*Filed herewith.
+Confidential treatment has been obtained for portions of this exhibit.
27
<PAGE>
+(h) Agreement of Sublease, dated as of September 29, 1988
between WFC/L and Olympia & York Tower B Lease Company
(Exhibit 10(iii) to 1st Quarter 1993 10-Q).
+(i) Agreement of Sublease (with respect to a portion of
Parcel B), dated November 26, 1990 between WFC/L and
Nomura Holding America, Inc. (Exhibit 10(xxvi)(i) to
1993 10-K).
+(j) Agreement of Sublease (with respect to a portion of
Parcel B), dated December 17, 1993 between WFC/L and
Deloitte & Touche (Exhibit 10(xxvi)(j) to 1993 10-K ).
(xxvii) The following are amendments to certain of the documents that
are related to Registrant's occupation of office space in
buildings at the World Financial Center, New York, New York:
(a) First Amendment to Building D Agreement to Lease,
Leasehold Improvements Agreement and Reimbursement
Agreement (with respect to Parcel D), dated as of July
12, 1985 between D Company and WFC/L (Exhibit 10(iii)
to 8-K dated January 22, 1990).
(b) First Amendment to Building B Agreement to Lease,
Reimbursement Agreement, Second Amendment to Leasehold
Improvements Agreement (with respect to Parcel B),
dated as of July 12, 1985 between B Company and WFC/L
(Exhibit 10(iv) to 8-K dated January 22, 1990).
(c) Second Amendment to Reimbursement Agreement (with
respect to Parcel D), dated as of February 26, 1988
between D Company and WFC/L (Exhibit 10(iv) to 1st
Quarter 1993 10-Q).
+(d) Amended and Restated Second Amendment to Reimbursement
Agreement (with respect to Parcel B), dated as of
September 29, 1988 between B Company and WFC/L
(Exhibit 10(v) to 1st Quarter 1993 10-Q).
(e) Amendment of Agreement of Lease (with respect to
Parcel D), dated as of September 29, 1988 between D
Company and WFC/L (Exhibit 10(vi) to 1st Quarter 1993
10-Q).
(f) First Amendment to Agreement of Sublease, dated as of
September 29, 1988, between WFC/L and Olympia & York
Tower B Lease Company (Exhibit 10(v) to 1st Quarter
1989 10-Q for the quarter ended March 24, 1989).
- ----------
+Confidential treatment has been obtained for portions of this exhibit.
28
<PAGE>
(g) Letter Amendment to the Restated and Amended
Partnership Agreement of WFC Tower D Company, dated as
of February 26, 1988, between O&Y Tower D Holding
Company I ("O&Y I") (which has succeeded to the
interest of O&Y U.S. Development Corp.), O&Y Tower D
Holding Company II ("O&Y II") and HQ North Company,
Inc. (formerly known as O&Y Delta Corp.) ("HQ North")
(Exhibit 10(vii) to 1st Quarter 1993 10-Q).
(h) Third Amendment to Restated and Amended Partnership
Agreement of WFC Tower D Company, dated as of July 12,
1990, among O&Y I, O&Y II and HQ North (Exhibit
10(xxix)(i) to 1990 10-K for the fiscal year ended
December 28, 1990 ("1990 10-K")).
+(i) Second Amendment, dated as of December 26, 1990, to
Agreement of Sublease, dated as of September 29, 1988
between WFC/L and Olympia & York Tower B Lease Company
(Exhibit 10(xxix)(j) to 1990 10-K).
+(j) Second Amendment, dated as of January 5, 1994 to
Agreement of Sublease (with respect to a portion of
Parcel B), dated November 26, 1990 between WFC/L and
Nomura Holding America, Inc. (Exhibit 10(xxvii)(j) to
1993 10-K).
In addition to the foregoing agreements, various guarantees, security agreements
and related documents were granted by or to Olympia & York Developments Limited
and by or to O & Y Equity Corp. to or by ML & Co. in connection with the World
Financial Center transactions. Exhibits to the documents listed in items (xxvi)
and (xxvii) above have been omitted, except where such exhibits are material to
the transactions.
* (11) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS.
* (12) STATEMENT RE COMPUTATION OF RATIOS.
* (13) 1994 ANNUAL REPORT TO STOCKHOLDERS.
* (21) SUBSIDIARIES OF THE REGISTRANT.
* (23) CONSENT OF INDEPENDENT AUDITORS.
* (27) FINANCIAL DATA SCHEDULE.
- ----------
+Confidential treatment has been obtained for portions of this exhibit.
*Filed herewith.
29
<PAGE>
(B) REPORTS ON FORM 8-K
The following Current Reports on Form 8-K were filed by the Registrant
during the fourth quarter of 1994 with the Commission under the caption
"Item 5. Other Events":
(i) Current Report on Form 8-K, dated October 18, 1994, for the purpose
of filing Preliminary Unaudited Earnings Summaries for the three-and
nine-month periods ended September 30, 1994.
(ii) Current Report on Form 8-K, dated October 31, 1994, for the purpose
of filing ML & Co.'s Preliminary Unaudited Consolidated Balance
Sheet as of September 30, 1994 and statements regarding computation
of ratios.
(iii) Current Report on Form 8-K, dated November 3, 1994, for the purpose
of filing the form of Warrant Agreement between ML & Co. and
Citibank, N.A., dated as of November 3, 1994, including a form of
Warrant certificate and the opinion of counsel relating thereto.
(iv) Current Report on Form 8-K, dated November 3, 1994, for the purpose
of filing the form of ML & Co.'s 9% Preferred Stock and Depositary
Shares, including certificate evidencing the 9% Preferred Stock, the
form of Depositary Receipt, the form of Certificate of Designation
relating to the 9% Preferred Stock, and the form of Deposit
Agreement.
INDEMNIFICATION
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933 (the "Act"), the
undersigned Registrant hereby undertakes as follows:
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
30
<PAGE>
DESCRIPTION OF COMMON STOCK
The authorized capital stock of ML & Co. consists of 500,000,000 shares of
common stock, par value $1.33 1/3 per share ("Common Stock"), and 25,000,000
shares of preferred stock, par value $1.00 per share, issuable in series
("Preferred Stock"). As of March 24, 1995, 181,705,446 shares of Common Stock
were outstanding. The shares of Common Stock have no preemptive or conversion
rights, redemption provisions or sinking fund provisions. The outstanding shares
of Common Stock are duly and validly issued, fully paid and nonassessable. Each
share is eligible to participate in the Rights under the Rights Agreement
referenced below, to the extent specified therein, to purchase certain
securities upon the occurrence of certain events specified in such Rights
Agreement.
The Board of Directors of ML & Co., without further action by stockholders, has
the authority to issue all of the 25,000,000 shares of Preferred Stock, which
are currently authorized, from time to time in one or more series and, with
respect to each such series, has authority to fix the powers (including voting
power), designations, preferences as to dividends and liquidation, and relative,
participating, optional or other special rights and the qualifications,
limitations or restrictions thereof. As of March 24, 1995, there were 17,000,000
Depositary Shares issued, each representing a one-four hundredth interest in a
share of the 9% Preferred Stock. The 9% Preferred Stock is a single series
consisting of 42,500 shares with an aggregate liquidation preference of
$425,000,000. As of March 24, 1995, there were 42,500 shares of 9% Preferred
Stock outstanding. From time to time, share positions in the Depositary Shares
may be established in connection with the market-making activities of MLPF&S. As
of March 24, 1995, approximately 800,000 Depositary Shares were held for this
purpose. As of March 24, 1995, there were 3,000 shares of ML & Co.'s Remarketed
Preferred/SM/ Stock (the "Remarketed Preferred Stock") issued, of which 1,938
were outstanding. The 9% Preferred Stock and Remarketed Preferred Stock have
dividend and liquidation preference over the Common Stock and over the Series A
Junior Preferred Stock issuable pursuant to a Rights Agreement, dated as of
December 16, 1987 between ML & Co. and Chemical Bank (successor by merger to
Manufacturers Hanover Trust Company), which is set forth herein as Exhibit
3(i)(i).
31
<PAGE>
MERRILL LYNCH & CO., INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
ITEMS (14)(A)(1) AND (14)(A)(2)
<TABLE>
<CAPTION>
PAGE REFERENCE
----------------------------
FORM 10-K ANNUAL REPORT
------------ --------------
FINANCIAL STATEMENTS
- --------------------
<S> <C> <C>
Statements of Consolidated Earnings, Year Ended
Last Friday in December 1994, 1993 and 1992 49
Consolidated Balance Sheets, December 30, 1994
and December 31, 1993 50-51
Statements of Changes in Consolidated
Stockholders' Equity, Year Ended Last Friday in 52-53
December 1994, 1993 and 1992
Statements of Consolidated Cash Flows, Year Ended
Last Friday in December 1994, 1993 and 1992 54
Notes to Consolidated Financial Statements 55-75
Independent Auditors' Report 75
FINANCIAL STATEMENT SCHEDULES
- -----------------------------
Independent Auditors' Report F-2
Schedule I Condensed Financial Information of F-3 to F-8
Registrant
Specifically incorporated elsewhere herein by
reference are certain portions of the following
unaudited items:
(i) Selected Financial Data 30
(ii) Management's Discussion and Analysis 32-48
(iii) Five-Year Financial Summary 76
(iv) Quarterly Information 78
</TABLE>
Schedules not listed are omitted because of the absence of the conditions under
which they are required or because the information is included in the
consolidated financial statements and notes thereto which are incorporated
herein by reference to the Registrant's Annual Report.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Merrill Lynch & Co., Inc.:
We have audited the consolidated financial statements of Merrill Lynch & Co.,
Inc. and subsidiaries (the "Company") as of December 30, 1994 and December 31,
1993 and for each of the three years in the period ended December 30, 1994 and
have issued our report thereon dated February 27, 1995; such consolidated
financial statements and report are included in your 1994 Annual Report to
Stockholders and are incorporated herein by reference. Our audits also included
Schedule I listed in the Index to Financial Statements and Financial Statement
Schedules. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
New York, New York
February 27, 1995
F-2
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
---------------------------------------------
MERRILL LYNCH & CO., INC.
-------------------------
(Parent Company Only)
---------------------
CONDENSED STATEMENTS OF EARNINGS
--------------------------------
YEARS ENDED DECEMBER 30, 1994, DECEMBER 31 1993, AND DECEMBER 25, 1992
----------------------------------------------------------------------
(Dollars in Thousands)
----------------------
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ---------
(52 Weeks) (53 Weeks) (52 Weeks)
<S> <C> <C> <C>
REVENUES
Management service fees (from affiliates).............................. $ 264,997 $ 260,156 $ 230,452
Interest (principally from affiliates)................................. 1,423,201 921,394 724,562
Other.................................................................. 13,886 4,107 5,231
---------- ---------- ----------
Total Revenues......................................................... 1,702,084 1,185,657 960,245
Interest Expense....................................................... 1,514,038 948,223 856,038
---------- ---------- ----------
Net Revenues........................................................... 188,046 237,434 104,207
---------- ---------- ----------
NON-INTEREST EXPENSES
Compensation and benefits.............................................. 186,278 205,839 193,032
Other.................................................................. 228,718 355,494 265,583
---------- ---------- ----------
Total Non-Interest Expenses............................................ 414,996 561,333 458,615
---------- ---------- ----------
LOSS BEFORE INCOME TAX BENEFITS, EQUITY IN EARNINGS
OF AFFILIATES AND CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES............................................... (226,950) (323,899) (354,408)
INCOME TAX BENEFITS................................................... (20,814) (105,243) (153,765)
LOSS BEFORE EQUITY IN EARNINGS OF AFFILIATES
AND CUMULATIVE EFFECT OF CHANGES IN ---------- ---------- ----------
ACCOUNTING PRINCIPLES................................................... (206,136) (218,656) (200,643)
EQUITY IN EARNINGS OF AFFILIATES........................................ 1,222,897 1,613,015 1,153,048
EARNINGS BEFORE CUMULATIVE EFFECT OF ---------- ---------- ---------
CHANGES IN ACCOUNTING PRINCIPLES........................................ 1,016,761 1,394,359 952,405
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING
PRINCIPLES (NET OF APPLICABLE INCOME TAXES
OF $25,075 IN 1993 AND $55,291 IN 1992)............................... - (35,420) (58,580)
---------- ---------- ----------
NET EARNINGS............................................................ $1,016,761 $1,358,939 $ 893,825
========== ========== ==========
NET EARNINGS APPLICABLE TO
COMMON STOCKHOLDERS.................................................... $1,004,050 $1,353,558 $ 887,486
========== ========== ==========
</TABLE>
See Notes to Condensed Financial Statements
F-3
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
---------------------------------------------
MERRILL LYNCH & CO., INC.
------------------------
(Parent Company Only)
---------------------
CONDENSED BALANCE SHEETS
------------------------
DECEMBER 30, 1994 AND DECEMBER 31, 1993
---------------------------------------
(Dollars in Thousands, Except Per Share Amounts)
------------------------------------------------
<TABLE>
<CAPTION>
1994 1993
-------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents .................................................. $ 88,049 $ 78,438
Loans to, receivables from and preference securities
of affiliates ........................................................... 33,058,979 31,666,915
Investments in affiliates, at equity ....................................... 5,721,971 5,421,164
Property, leasehold improvements and equipment (net of accumulated
depreciation and amortization of $266,206 in 1994 and $264,090 in 1993).. 252,362 281,777
Other receivables and assets ............................................... 1,023,140 740,653
--------------- -----------
TOTAL ASSETS ............................................................... $ 40,144,501 $ 38,188,947
=============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Commercial paper and other short-term borrowings ........................... $ 14,747,039 $ 15,725,247
Loans from and payables to affiliates ...................................... 2,137,010 1,312,214
Other liabilities and accrued interest ..................................... 2,154,171 2,041,270
Long-term borrowings ....................................................... 15,288,736 13,624,303
--------------- ------------
Total Liabilities .......................................................... 34,326,956 32,703,034
--------------- ------------
STOCKHOLDERS' EQUITY
Preferred Stockholders' Equity: ........................................... 618,800 193,800
--------------- -----------
Common Stockholders' Equity:
Common stock, par value $1.33 1/3 per share; authorized: 500,000,000
shares; issued: 1994 and 1993 - 236,330,162 shares; ................ 315,105 315,105
Paid-in capital ....................................................... 1,196,093 1,156,367
Foreign currency translation adjustment ............................... 3,703 (18,305)
Net unrealized (losses) gains on investment securities available-for-
sale (net of applicable income tax (benefit) expense of
$(30,924) in 1994 and $12,493 in 1993) ............................. (56,957) 21,355
Retained earnings ..................................................... 5,605,616 4,777,142
--------------- ------------
Subtotal ........................................................... 7,063,560 6,251,664
Less: Treasury stock, at cost:
1994- 48,423,944 shares;
1993- 23,408,139 shares ...................................... 1,627,108 695,788
Unallocated ESOP reversion shares, at cost:
1994- 6,427,091 shares;
1993- 8,932,332 shares ....................................... 101,227 140,684
Employee stock transactions ..................................... 136,480 123,079
--------------- ------------
Total Common Stockholders' Equity ........................................ 5,198,745 5,292,113
--------------- ------------
Total Stockholders' Equity ............................................... 5,817,545 5,485,913
--------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................... $ 40,144,501 $ 38,188,947
=============== ============
</TABLE>
See Notes to Condensed Financial Statements
F-4
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
---------------------------------------------
MERRILL LYNCH & CO., INC.
-------------------------
(Parent Company Only)
---------------------
CONDENSED STATEMENTS OF CASH FLOWS
----------------------------------
YEARS ENDED DECEMBER 30, 1994, DECEMBER 31, 1993, AND DECEMBER 25, 1992
-----------------------------------------------------------------------
(Dollars in Thousands)
----------------------
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings ..................................... $ 1,016,761 $ 1,358,939 $ 893,825
Noncash items included in earnings:
Cumulative effect of changes in
accounting principles ........................ -- 35,420 58,580
Equity in earnings of affiliates ............... (1,222,897) (1,613,015) (1,153,048)
Depreciation and amortization .................. 38,660 39,448 40,883
Deferred income taxes .......................... (7,206) (84,501) 31,738
Other .......................................... 64,305 188,470 70,805
(Increase) decrease in:
Intercompany receivables, net of
payables ..................................... 507,950 (7,808,864) (4,022,763)
Investments in affiliates ...................... (90,196) (175,772) (120,976)
Other operating assets, net of
liabilities .................................. (954,688) (802,053) (862,532)
Proceeds from dividends from
affiliates ................................... 946,722 913,554 1,067,091
Cash provided by (used for) ---------- ------------ -----------
operating activities ....................... 299,411 (7,948,374) (3,996,397)
---------- ------------ -----------
Cash flows from investing activities:
Proceeds from (payments for):
Investment securities .......................... -- 7,774 --
Property, leasehold improvements
and equipment ................................ (33,379) (21,526) (25,146)
----------- ----------- -----------
Cash used for investing activities ............. (33,379) (13,752) (25,146)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from (payments for):
Commercial paper and other short-term
borrowings .................................... (978,208) 6,009,955 1,562,823
Issuance and resale of long-term
borrowings .................................... 8,450,602 7,282,252 5,813,405
Settlement and repurchases of long-
term borrowings ............................... (6,917,341) (4,590,455) (3,032,843)
Repurchases of Remarketed
Preferred stock ............................... -- -- (11,700)
Issuance of Preferred Stock ..................... 425,000 -- --
Other common stock transactions ................. (1,048,187) (510,975) (189,301)
Dividends ....................................... (188,287) (152,777) (126,237)
----------- ----------- ----------
Cash (used for) provided by financing activities. (256,421) 8,038,000 4,016,147
----------- ----------- ----------
Increase (decrease) in cash and cash equivalents .... 9,611 75,874 (5,396)
Cash and cash equivalents, beginning of year ........ 78,438 2,564 7,960
---------- ---------- ----------
Cash and cash equivalents, end of year .............. $ 88,049 $ 78,438 $ 2,564
========== ========== ==========
</TABLE>
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Income taxes totaled $1,056,559 in 1994, $1,003,871 in 1993, and $543,796
in 1992.
Interest totaled $1,489,648 in 1994, $897,498 in 1993, and $877,817 in 1992.
See Notes to Condensed Financial Statements
F-5
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
---------------------------------------------
MERRILL LYNCH & CO., INC.
-------------------------
(Parent Company Only)
---------------------
NOTES TO CONDENSED FINANCIAL STATEMENTS
---------------------------------------
(Dollars in Thousands, except per share amounts)
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
The condensed financial statements of Merrill Lynch & Co., Inc. (the "Parent
Company") should be read in conjunction with the consolidated financial
statements of Merrill Lynch & Co., Inc. and subsidiaries (the "Corporation") and
the notes thereto incorporated elsewhere herein by reference. Where appropriate,
prior years' financial statements have been reclassified to conform to the 1994
presentation.
DIVIDENDS RECEIVED FROM AFFILIATES
Cash dividends totaling $946,722, $913,554 and $1,067,091 were received from
consolidated subsidiaries in 1994, 1993 and 1992, respectively.
LONG-TERM BORROWINGS AND GUARANTEES
Reference is made to pages 67 and 68 of the Annual Report for additional
information on Parent Company long-term borrowings. At December 30, 1994, Parent
Company borrowings totaling $425,353 were held for purposes of resale by
affiliates which also purchased $2,172,150 and resold $1,902,200 of such
borrowings during the year.
In certain instances, the Parent Company guarantees obligations of subsidiaries
that may include obligations associated with foreign exchange forward contracts
and swap transactions.
Substantially all of the Parent Company's fixed-rate long-term borrowings are
swapped into floating interest rates. These swaps, generally made with an
affiliated dealer in such instruments, are used to hedge interest rate and
foreign currency exposures associated with long-term borrowings. At December
30, 1994 and December 31, 1993, the notional amounts of these instruments were
$15,915,491 and $11,904,797, respectively.
F-6
<PAGE>
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
---------------------------------------------
MERRILL LYNCH & CO., INC.
-------------------------
(Parent Company Only)
---------------------
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
---------------------------------------------------
(Dollars in Thousands, except per share amounts)
ACCOUNTING CHANGES
During the fourth quarter of 1993, the Parent Company adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS No. 112") and SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". SFAS No. 112 was effective
as of the 1993 first quarter. The cumulative effect of this change in accounting
principle, reported in the Condensed Statements of Earnings, resulted in a
charge of $35,420 (net of applicable income tax benefits), including $31,970
(net of applicable income tax benefits) from equity in earnings of affiliates.
SFAS No. 115 was effective as of the last day of the 1993 fiscal year. The
effect of this change, reported in the Condensed Balance Sheet under
Stockholders' Equity, was an increase of $21,355 (net of applicable income
taxes), all from equity in affiliates.
In 1992, the Parent Company adopted SFAS No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" and SFAS No. 109, "Accounting for
Income Taxes". These accounting changes were effective as of the 1992 first
quarter. The cumulative effect of these changes, reported in the Condensed
Statements of Earnings, resulted in a net charge of $58,580 (net of applicable
income taxes), including a net charge of $61,083 (net of applicable income
taxes) from equity in earnings of affiliates.
Reference is made to pages 57 and 58 of the Annual Report for additional
information on Accounting Changes.
NON-INTEREST EXPENSES - OTHER
The Parent Company recorded a non-recurring occupancy charge totaling $103,000
($59,700 after income taxes) in the 1993 first quarter. The non-recurring
charge related to the Corporation's decision not to occupy certain office space
at its World Financial Center Headquarters facility and, instead, to offer for
sublease the unused space to third parties. This space was sublet in 1994.
F-7
<PAGE>
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
---------------------------------------------
MERRILL LYNCH & CO., INC.
-------------------------
(Parent Company Only)
---------------------
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
---------------------------------------------------
(Dollars in Thousands, except per share amounts)
STOCKHOLDERS' EQUITY
In the 1994 fourth quarter, the Corporation issued 17,000,000 Depositary Shares,
each representing a one-four hundredth interest in a share of 9% Cumulative
Preferred Stock, Series A, $10,000 liquidation preference per share ("9%
Preferred Stock"). The 9% Preferred Stock is a single series consisting of
42,500 shares with an aggregate liquidation preference of $425,000. At December
30, 1994, 42,500 shares, represented by 17,000,000 Depositary Shares, were
outstanding.
During 1993 the Corporation's Board of Directors declared a two-for-one common
stock split, effected in the form of a 100 percent stock dividend. In addition,
stockholders of the Corporation approved an increase in the authorized number of
shares of common stock from 200 million to 500 million shares. The Corporation
also issued 1,637,314 shares of common stock in connection with certain employee
benefit plans.
Reference is made to page 65 and 66 of the Annual Report for additional
information on Stockholders' Equity.
F-8
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 27th day of March,
1995.
MERRILL LYNCH & CO., INC.
By: /s/ Daniel P. Tully
---------------------------------
Daniel P. Tully
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities indicated on the 27th day of March, 1995.
Signature Title
--------- -----
/s/ Daniel P. Tully Chairman of the Board,
- ---------------------------- Chief Executive Officer
(Daniel P. Tully) and Director
/s/ David H. Komansky President,
- ---------------------------- Chief Operating Officer and
(David H. Komansky) Director
/s/ Joseph T. Willett Senior Vice President,
- ---------------------------- Chief Financial Officer and
(Joseph T. Willett) Controller
/s/ William O. Bourke Director
- ----------------------------
(William O. Bourke)
/s/ Jill K. Conway Director
- ----------------------------
(Jill K. Conway)
/s/ Stephen L. Hammerman Director
- ----------------------------
(Stephen L. Hammerman)
/s/ Robert A. Hanson Director
- ----------------------------
(Robert A. Hanson)
/s/ Earle H. Harbison, Jr. Director
- ----------------------------
(Earle H. Harbison, Jr.)
<PAGE>
/s/ George B. Harvey Director
- -------------------------
(George B. Harvey)
/s/ Robert P. Luciano Director
- -------------------------
(Robert P. Luciano)
/s/ Aulana L. Peters Director
- -------------------------
(Aulana L. Peters)
/s/ John J. Phelan, Jr. Director
- -------------------------
(John J. Phelan, Jr.)
/s/ Charles A. Sanders Director
- -------------------------
(Charles A. Sanders)
/s/ William L. Weiss Director
- -------------------------
(William L. Weiss)
<PAGE>
INDEX TO EXHIBITS
Certain of the following exhibits were previously filed as exhibits to other
reports or registration statements filed by the Registrant and are incorporated
herein by reference to such reports or registration statements as indicated
parenthetically below by the appropriate report reference date or registration
statement number. For convenience, Quarterly Reports on Form 10-Q, Annual
Reports on Form 10-K, Current Reports on Form 8-K and Registration Statements on
Form S-3 are designated herein as "10-Q," "10-K," "8-K" and "S-3," respectively.
EXHIBIT
- -------
(3) ARTICLES OF INCORPORATION AND BY-LAWS.
(i) (a) Restated Certificate of Incorporation of ML & Co., as amended
April 24, 1987 (Exhibit 3(i) to 10-K for fiscal year ended
December 25, 1992 ("1992 10-K")).
(b) Certificate of Amendment, dated April 29, 1993, of the
Certificate of Incorporation of ML & Co. (Exhibit 3(i) to 10-Q
for the quarter ended March 26, 1993 ("1st Quarter 1993 10-Q")).
(c) Form of certificate representing the 9% Cumulative Preferred
Stock, Series A, par value $1.00 per share, of ML & Co.
(the "9% Preferred Stock") (Exhibit 4(i) to 10-Q for the
quarter ended September 30, 1994 ("3rd Quarter 1994 10-Q")).
(d) Form of Depositary Receipt evidencing the Depositary Shares for
the 9% Preferred Stock (Exhibit 4(ii) to 3rd Quarter 1994
10-Q).
(e) Certificate of Designation of ML & Co. establishing the
rights, preferences, privileges, qualifications, restrictions and
limitations relating to the 9% Preferred Stock (Exhibit 4(iii)
to 3rd Quarter 1994 10-Q).
(f) Deposit Agreement, dated as of November 3, 1994 among
ML & Co., Citibank, N.A. as Depositary, and the holders from
time to time of the Depositary Receipts (Exhibit 4(iv) to 3rd
Quarter 1994 10-Q).
(g) Certificate of Designation, dated March 30, 1988 for Remarketed
Preferred Stock Series C (Exhibit 3(ii) to 1st Quarter 1993
10-Q).
(h) Certificate of Designation, dated December 17, 1987 for Series A
Junior Preferred Stock (Exhibit 3(f) to S-3 (File No. 33-19975)).
(i) Form of Rights Agreement, dated as of December 16, 1987 between
ML & Co. and Chemical Bank (successor by merger to Manufacturers
Hanover Trust Company) (Exhibit 3(iv) to 1992 10-K).
(ii) By-Laws of ML & Co., effective as of October 25, 1993 (Exhibit
3(i) to 10-Q for the quarter ended September 24, 1993 ("3rd
Quarter 1993 10-Q")).
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES.
(i) Senior Indenture, dated as of April 1, 1983, as amended and
restated, between ML & Co. and Chemical Bank (successor by merger
to Manufacturers Hanover Trust Company) (Exhibit 99(c) to ML &
Co.'s Registration Statement on Form 8-A dated July 20, 1992).
<PAGE>
EXHIBIT
- -------
(ii) Supplemental Indenture to the Senior Indenture, dated as of March
15, 1990, between ML & Co. and Chemical Bank (successor by
merger to Manufacturers Hanover Trust Company) (Exhibit 99(c) to
ML & Co.'s Registration Statement on Form 8-A dated July 20,
1992).
(iii) Senior Indenture, dated as of October 1, 1993, between ML & Co.
and the Chase Manhattan Bank, N.A. (Exhibit 4 to 8-K dated
October 7, 1993).
(iv) Form of ML & Co.'s 6 1/4% Notes due January 15, 2006 (Exhibit 4
to 8-K dated January 20, 1994).
(v) Form of ML & Co.'s Japan Index Equity Participation Securities
with Minimum Return Protection due January 31, 2000 (Exhibit 4 to
8-K dated January 27, 1994).
(vi) Form of ML & Co.'s Index Warrant Agreement, including form of
Global Warrant Certificate, relating to ML & Co.'s Constant
Maturity U.S. Treasury Yield Increase Warrants expiring August
25, 1995 (Exhibit 4 to 8-K dated February 3, 1994).
(vii) Form of ML & Co.'s Constant Maturity Treasury Rate Indexed Notes
due March 24, 1997 (Exhibit 4 to 8-K dated March 24, 1994).
(viii) Form of ML & Co.'s 6 3/8% Notes due March 30, 1999 (Exhibit 4 to
8-K dated March 30, 1994).
(ix) Form of ML & Co.'s AMEX Oil Index Stock Market Annual Reset Term
Notes due December 29, 2000 (Exhibit 4 to 8-K dated March 31,
1994).
(x) Form of ML & Co.'s Index Warrant Agreement, including form of
Global Warrant Certificate, relating to ML & Co.'s Constant
Maturity U.S. Treasury Yield Increase Warrants expiring January
25, 1996 (Exhibit 4 to 8-K dated November 3, 1994).
(xi) Form of ML & Co.'s 8 3/8% Notes due February 9, 2000 (Exhibit 4
to 8-K dated February 9, 1995).
(xii) Form of ML & Co.'s Index Warrant Agreement, including form of
Global Warrant Certificate, relating to ML & Co.'s Nikkei Stock
Index 300 Call Warrants expiring February 3, 1997 (Exhibit 4 to
8-K dated February 8, 1995).
(xiii) Form of ML & Co.'s Japanese Yen Swap Rate Linked Medium-Term
Notes, Series B (Exhibit 4(xviii) to 10-K for the fiscal year
ended December 31, 1993 (the "1993 10-K")).
*(xiv) Form of ML & Co.'s Constant Maturity Treasury Rate Indexed
Medium-Term Notes, Series B.
*(xv) Form of ML & Co.'s Constant Maturity Treasury Rate Indexed
Medium-Term Notes II, Series B.
- ----------
*Filed herewith.
E-2
<PAGE>
EXHIBIT
- -------
(10) MATERIAL CONTRACTS.
COMPENSATION PLANS AND ARRANGEMENTS:
-----------------------------------
*(i) ML & Co. 1978 Incentive Equity Purchase Plan, as amended through
January 16, 1995.
*(ii) Form of ML & Co. Amended and Restated 1994 Deferred Compensation
Agreement for a Select Group of Eligible Employees, as amended
through November 10, 1994.
*(iii) ML & Co. Long-Term Incentive Compensation Plan, as amended
through December 5, 1994.
*(iv) ML & Co. Equity Capital Accumulation Plan, as amended through
December 5, 1994.
(v) ML & Co. Executive Officer Compensation Plan (Exhibit 10(i) to
ML & Co.'s Proxy Statement for the 1994 Annual Meeting of
Stockholders contained in ML & Co.'s Schedule 14A filed on March
14, 1994 ("1994 Proxy Statement")).
(vi) Written description of Retirement Program for Non-Employee
Directors of ML & Co., as amended June 29, 1988 (Page 23 of ML &
Co.'s Proxy Statement for the 1995 Annual Meeting of
Stockholders contained in ML & Co.'s Schedule 14A filed on March
10, 1995 ("1995 Proxy Statement")).
(vii) ML & Co. Non-Employee Directors' Equity Plan (Exhibit 10(iv) to
3rd Quarter 1992 10-Q for the quarter ended September 25, 1992
(the "3rd Quarter 1992 10-Q")).
(viii) Executive Annuity Agreement, dated July 24, 1991, by and between
ML & Co. and Daniel P. Tully (Exhibit 10(iii) to 2nd Quarter
1991 10-Q for the quarter ended June 28, 1991 (the "2nd Quarter
1991 10-Q")).
(ix) Amendment, dated April 30, 1992, to Executive Annuity Agreement,
dated July 24, 1991, by and between ML & Co. and Daniel P. Tully
(Exhibit 10(ii) to 2nd Quarter 1992 10-Q for the quarter ended
June 26, 1992).
(x) Form of Severance Agreement between ML & Co. and certain of its
directors and executive officers (Exhibit 10(i) to 3rd Quarter
1992 10-Q).
(xi) Form of Indemnification Agreement entered into with all current
directors of ML & Co. and to be entered into with all future
directors of ML & Co. (Exhibit 10(xi) to 1993 10-K).
(xii) Written description of ML & Co.'s incentive compensation
programs (Exhibit 10(xii) to 1993 10-K).
(xiii) Written description of ML & Co.'s compensation policy for
directors (Page 13 of ML & Co.'s 1995 Proxy Statement).
- ----------
*Filed herewith.
E-3
<PAGE>
EXHIBIT
- -------
(xiv) Merrill Lynch KECALP Growth Investments Limited Partnership
1983 (Exhibit 1(b) to Registration Statement on Form N-2 (File
No. 2-81619)).
(xv) Merrill Lynch KECALP L.P. 1984 (Exhibit 1(b) to Registration
Statement on Form N-2 (File No. 2-87962)).
(xvi) Merrill Lynch KECALP L.P. 1986 (Exhibit 1(b) to Registration
Statement on Form N-2 (File No. 2-99800)).
(xvii) Merrill Lynch KECALP L.P. 1987 (Exhibit 1(b) to Registration
Statement on Form N-2 (File No. 33-11355)).
(xviii) Merrill Lynch KECALP L.P. 1989 (Exhibit 1(b) to Registration
Statement on Form N-2 (File No. 33-26561)).
(xix) Merrill Lynch KECALP L.P. 1991 (Exhibit 1(b) to Registration
Statement on Form N-2 (File No. 33-39489)).
(xx) Merrill Lynch KECALP L.P. 1994 (Exhibit 1(a)(ii) to Registration
Statement on Form N-2 (File No. 33-51825)).
(xxi) Form of ML & Co. 1994 Deferred Restricted Unit Agreement for
Executive Officers (Exhibit 10(i) to 10-Q for the quarter ended
April 1, 1994 (the "1st Quarter 1994 10-Q")).
*(xxii) Form of ML & Co. 1995 Deferred Compensation Agreement for a
Select Group of Eligible Employees.
*(xxiii) Form of ML & Co. Fee Deferral Plan for Non-Employee Directors,
as amended through February 24, 1995.
-- 10(xxiv) to (xxv) intentionally omitted --
AGREEMENTS RELATING TO THE WORLD FINANCIAL CENTER:
- -------------------------------------------------
(xxvi) The following documents relate to the Registrant's occupation of
office space in buildings at the World Financial Center, New
York, New York:
(a) Reimbursement Agreement between Olympia & York Tower D Company
and Merrill Lynch/WFC/L, Inc. ("WFC/L"), dated as of August
24, 1984 (Exhibit 10(i) to 8-K dated January 22, 1990).
(b) Reimbursement Agreement between Olympia & York Tower B Company
("B Company") and WFC/L, dated as of August 24, 1984 (Exhibit
10(ii) to 8-K dated January 22, 1990).
+(c) Agreement of Lease (with respect to Parcel D), dated as of
February 26, 1988, between WFC Tower D Company (formerly known
as Olympia & York Tower D Company) ("D Company") and WFC/L
(Exhibit 10(xxx)(c) to 1992 10-K).
- ----------
*Filed herewith.
+Confidential treatment has been obtained for portions of this exhibit.
E-4
<PAGE>
EXHIBIT
- -------
+(d) Guaranty and Assumption Agreement, dated as of February 26,
1988 between ML & Co. and D Company (Exhibit 19(xxx)(d) to
1992 10-K).
+(e) Agreement of Lease (with respect to Parcel B), dated as of
September 29, 1988 between B Company and WFC/L (Exhibit 10(i)
to 1st Quarter 1993 10-Q).
+(f) Guaranty and Assumption Agreement, dated as of September 29,
1988 between ML & Co. and B Company (Exhibit 10(ii) to 1st
Quarter 1993 10-Q).
+(g) Restated and Amended Partnership Agreement of D Company,
executed on December 24, 1986 (Exhibit 10(xxx)(g) to 1992
10-K).
+(h) Agreement of Sublease, dated as of September 29, 1988 between
WFC/L and Olympia & York Tower B Lease Company (Exhibit
10(iii) to 1st Quarter 1993 10-Q).
+(i) Agreement of Sublease (with respect to a portion of Parcel B),
dated November 26, 1990 between WFC/L and Nomura Holding
America, Inc. (Exhibit 10(xxvi)(i) to 1993 10-K).
+(j) Agreement of Sublease (with respect to a portion of Parcel B),
dated December 17, 1993 between WFC/L and Deloitte & Touche
(Exhibit 10(xxvi)(j) to 1993 10-K).
(xxvii) The following are amendments to certain of the documents that
are related to the Registrant's occupation of office space in
buildings at the World Financial Center, New York, New York:
(a) First Amendment to Building D Agreement to Lease,
Leasehold Improvements Agreement and Reimbursement
Agreement (with respect to Parcel D), dated as of July
12, 1985 between D Company and WFC/L (Exhibit 10(iii)
to 8-K dated January 22, 1990).
(b) First Amendment to Building B Agreement to Lease,
Reimbursement Agreement, Second Amendment to Leasehold
Improvements Agreement (with respect to Parcel B),
dated as of July 12, 1985 between B Company and WFC/L
(Exhibit 10(iv) to 8-K dated January 22, 1990).
(c) Second Amendment to Reimbursement Agreement (with
respect to Parcel D), dated as of February 26, 1988
between D Company and WFC/L (Exhibit 10(iv) to 1st
Quarter 1993 10-Q).
+(d) Amended and Restated Second Amendment to Reimbursement
Agreement (with respect to Parcel B), dated as of
September 29, 1988 between B Company and WFC/L (Exhibit
10(v) to 1st Quarter 1993 10-Q).
(e) Amendment of Agreement of Lease (with respect to Parcel
D), dated as of September 29, 1988 between D Company
and WFC/L (Exhibit 10(vi) to 1st Quarter 1993 10-Q).
- ----------
+Confidential treatment has been obtained for portions of this exhibit.
E-5
<PAGE>
EXHIBIT
- -------
(f) First Amendment to Agreement of Sublease, dated as of September
29, 1988, between WFC/L and Olympia & York Tower B Lease
Company (Exhibit 10(v) to 1st Quarter 1989 10-Q for the quarter
ended March 24, 1989).
(g) Letter Amendment to the Restated and Amended Partnership
Agreement of WFC Tower D Company, dated as of February 26,
1988, between O&Y Tower D Holding Company I ("O&Y I") (which
has succeeded to the interest of O&Y U.S. Development Corp.),
O&Y Tower D Holding Company II ("O&Y II") and HQ North
Company, Inc. (formerly known as O&Y Delta Corp.) ("HQ North")
(Exhibit 10(vii) to 1st Quarter 1993 10-Q).
(h) Third Amendment to Restated and Amended Partnership Agreement
of WFC Tower D Company, dated as of July 12, 1990, among O&Y I,
O&Y II and HQ North (Exhibit 10(xxix)(i) to 1990 10-K for the
fiscal year ended December 28, 1990 ("1990 10-K")).
+(i) Second Amendment, dated as of December 26, 1990, to Agreement
of Sublease, dated as of September 29, 1988 between WFC/L and
Olympia & York Tower B Lease Company (Exhibit 10(xxix)(j) to
1990 10-K).
+(j) Second Amendment, dated as of January 5, 1994 to Agreement of
Sublease (with respect to a portion of Parcel B), dated
November 26, 1990 between WFC/L and Nomura Holding America,
Inc. (Exhibit 10(xxvii)(j) to 1993 10-K).
* (11) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS.
* (12) STATEMENT RE COMPUTATION OF RATIOS.
* (13) 1994 ANNUAL REPORT TO STOCKHOLDERS.
* (21) SUBSIDIARIES OF THE REGISTRANT.
* (23) CONSENT OF INDEPENDENT AUDITORS.
* (27) FINANCIAL DATA SCHEDULE. (THE FINANCIAL DATA SCHEDULE TO BE
CONTAINED IN THIS EXHIBIT 27 IS REQUIRED
TO BE SUBMITTED ONLY IN THE REGISTRANT'S
ELECTRONIC FILING OF THIS ANNUAL REPORT ON
FORM 10-K BY MEANS OF THE EDGAR SYSTEM.)
- ----------
+Confidential treatment has been obtained for portions of this exhibit.
*Filed herewith.
E-6
<PAGE>
EXHIBIT (4)(xiv)
FLOATING RATE GLOBAL MEDIUM-TERM NOTE
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE THEREOF.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST
COMPANY (THE "DEPOSITORY") TO A NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY
OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.
OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
REGISTERED CUSIP No. ______________ PRINCIPAL AMOUNT
No. BFLR___ $____________________________
MERRILL LYNCH & CO., INC.
MEDIUM-TERM NOTE,
SERIES B
(Floating Rate)
INTEREST RATE BASIS: ORIGINAL ISSUE DATE: STATED MATURITY:
Constant Maturity
Treasury Rate
INDEX MATURITY: INITIAL INTEREST RATE: SPREAD:
INITIAL INTEREST RESET DATE: INTEREST PAYMENT DATES:
SPREAD MULTIPLIER: INTEREST RESET DATES:
MAXIMUM INTEREST RATE: MINIMUM INTEREST RATE: INITIAL REDEMPTION DATE:
INITIAL REDEMPTION ANNUAL REDEMPTION OPTIONAL REPAYMENT
PERCENTAGE: PERCENTAGE REDUCTION: DATE(S):
<PAGE>
CALCULATION AGENT: IF INTEREST RATE BASIS
(Merrill Lynch, Pierce, IS LIBOR:
Fenner & Smith Incorporated, INDEX CURRENCY:
unless otherwise specified)
DESIGNATED LIBOR PAGE:
[ ] Reuters Page: _________
[ ] Telerate Page: _________
INTEREST CALCULATION: DAY COUNT CONVENTION
[ ] Regular Floating Rate Note [ ] Actual/360 for the period
[ ] Floating Rate/Fixed Rate from to .
Fixed Rate Commencement Date: [ ] Actual/Actual to the period
Fixed Interest Rate: from to .
[ ] Inverse Floating Rate Note
Fixed Interest Rate:
ADDENDUM ATTACHED: DENOMINATIONS:
[X] Yes (Integral multiples of $1,000,
unless otherwise specified)
[ ] No
IF INTEREST RATE BASIS OTHER PROVISIONS:
IS PRIME RATE:
[ ] Prime Rate--Major Banks
[ ] Prime Rate--H.15
2
<PAGE>
MERRILL LYNCH & CO., INC., a Delaware corporation ("Issuer" or the
"Company," which terms include any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to pay to CEDE &
CO., or registered assigns, the principal sum of
DOLLARS on the Stated Maturity specified above (except to the extent redeemed or
repaid prior to the Stated Maturity Date), and to pay interest thereon, at a
rate per annum equal to the Initial Interest Rate specified above until the
Initial Interest Reset Date specified above and thereafter at a rate per annum
determined in accordance with the provisions hereof and any Addendum relating
hereto depending upon the Interest Rate Basis or Bases, and such other terms
specified above, until the principal hereof is paid or duly made available for
payment. Reference herein to "this Note", "hereof", "herein" and comparable
terms shall include an Addendum hereto if an Addendum is specified above.
The Company will pay interest on each Interest Payment Date specified
above, commencing on the first Interest Payment Date specified above next
succeeding the Original Issue Date specified above, and on the Stated Maturity
or any Redemption Date or Optional Repayment Date (as defined below) (the date
of each such Stated Maturity, Redemption Date and Optional Repayment Date and
the date on which principal or an installment of principal is due and payable by
declaration of acceleration pursuant to the Indenture being referred to
hereinafter as a "Maturity" with respect to principal payable on such date);
provided, however, that if the Original Issue Date is between a Regular Record
- -------- -------
Date (as defined below) and the next succeeding Interest Payment Date, interest
payments will commence on the second Interest Payment Date succeeding the
Original Issue Date; and provided further, that if an Interest Payment Date
-------- -------
(other than an Interest Payment Date at Maturity) would fall on a day that is
not a Business Day (as defined below), such Interest Payment Date shall be
postponed to the following day that is a Business Day, except that in the case
the Interest Rate Basis is LIBOR, as indicated above, if such next Business Day
falls in the next calendar month, such Interest Payment Date shall be the next
preceding day that is a Business Day. Except as provided above, interest
payments will be made on the Interest Payment Dates shown above. Unless
otherwise specified above, the "Regular Record Date" shall be the date 15
calendar days (whether or not a Business Day) prior to the applicable Interest
Payment Date. Interest on this Note will accrue from and including the Original
Issue Date specified above, at the rates determined from time to time as
specified herein, until the principal hereof has been paid or made available for
payment. If the Maturity falls on a day which is not a Business Day as defined
below, the payment due on such Maturity will be paid on the next succeeding
Business Day with the same force and effect as if made on such Maturity and no
interest shall accrue with respect to such payment for the period from and after
such Maturity. The interest so payable and punctually paid or duly provided for
on any Interest Payment Date will as provided in the Indenture be paid to the
Person in whose name this Note (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such Interest
Payment Date. Any such interest which is payable, but not punctually paid or
duly provided for on any Interest Payment Date (herein called "Defaulted
Interest"), shall forthwith cease to be payable to the registered Holder on such
Regular Record Date, and may be paid to the Person in whose name this Note (or
one or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to the Holder of this Note not less
than 10 days prior to such Special Record Date, or may be paid at any time in
any other lawful manner, all as more fully provided in the Indenture.
Payment of the principal of and interest on this Note will be made at
the Office or Agency of the Company maintained by the Company for such purpose
in the Borough of Manhattan, The City of New York, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.
Unless the certificate of authentication hereon has been executed by
or on behalf of The Chase Manhattan Bank (National Association), the Trustee
with respect to the Notes under the Indenture, or its successor thereunder, by
the manual signature of one of its authorized officers, this Note shall not be
entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.
This Note is one of a duly authorized issue of Securities (hereinafter
called the "Securities") of the Company designated as its Medium-Term Notes,
Series B (the "Notes"). The Securities are issued and to be issued under an
indenture (the "Indenture") dated as of October 1, 1993, between the Company and
The Chase Manhattan Bank (National Association) (herein called the "Trustee",
which term includes any successor Trustee under the
3
<PAGE>
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights thereunder of the
Company, the Trustee and the Holders of the Notes and the terms upon which the
Notes are to be authenticated and delivered. The terms of individual Notes may
vary with respect to interest rates or interest rate formulas, issue dates,
maturity, redemption, repayment, currency of payment and otherwise as provided
in the Indenture.
The Notes are issuable only in registered form without coupons in
denominations of, unless otherwise specified above, $1,000 and integral
multiples thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Notes are exchangeable for a like aggregate
principal amount of Notes as requested by the Holder surrendering the same. If
(x) the Depository is at any time unwilling or unable to continue as depository
and a successor depository is not appointed by the Company within 60 days, (y)
the Company executes and delivers to the Trustee a Company Order to the effect
that this Note shall be exchangeable or (z) an Event of Default has occurred and
is continuing with respect to the Notes, this Note shall be exchangeable for
Notes in definitive form of like tenor and of an equal aggregate principal
amount, in authorized denominations. Such definitive Notes shall be registered
in such name or names as the Depository shall instruct the Trustee. If
definitive Notes are so delivered, the Company may make such changes to the form
of this Note as are necessary or appropriate to allow for the issuance of such
definitive Notes.
This Note is not subject to any sinking fund.
This Note may be subject to repayment at the option of the Holder
prior to its Stated Maturity on the Holder's Optional Repayment Date(s), if any,
indicated on the face hereof. If no Holder's Optional Repayment Dates are set
forth on the face hereof, this Note may not be so repaid at the option of the
Holder hereof prior to the Stated Maturity. On any Holder's Optional Repayment
Date, this Note shall be repayable in whole or in part in an amount equal to
$1,000 or integral multiples thereof (provided that any remaining principal
amount shall be an authorized denomination) at the option of the Holder hereof
at a repayment price equal to 100% of the principal amount to be repaid,
together with interest thereon payable to the date of repayment. For this Note
to be repaid in whole or in part at the option of the Holder hereof, this Note
must be received, with the form entitled "Option to Elect Repayment" below duly
completed, by the Trustee at its office at 4 Chase MetroTech Center, Brooklyn,
New York 11245, Attention: Corporate Trust Administration, or such address which
the Company shall from time to time notify the Holders of the Medium-Term Notes
(the "Corporate Trust Office"), not more than 60 nor less than 30 days prior to
a Holder's Optional Repayment Date. This Note must be received by the Trustee
by 5:00 P.M., New York City time, on the last day for giving such notice.
Exercise of such repayment option by the Holder hereof shall be irrevocable. In
the event of payment of this Note in part only, a new Note for the unpaid
portion hereof shall be issued in the name of the Holder hereof upon the
surrender hereof.
This Note may be redeemed at the option of the Company prior to its
Stated Maturity on any date on and after the Initial Redemption Date, if any,
specified on the face hereof (the "Redemption Date"). If no Initial Redemption
Date is set forth on the face hereof, this Note may not be redeemed at the
option of the Company prior to the Stated Maturity. On and after the Initial
Redemption Date, if any, this Note may be redeemed at any time in whole or from
time to time in part in increments of $1,000 or integral multiples thereof
(provided that any remaining principal amount shall be an authorized
denomination) at the option of the Company at the applicable Redemption Price
(as defined below) together with interest thereon payable to the Redemption
Date, on notice given not more than 60 nor less than 30 days prior to the
Redemption Date. In the event of redemption of this Note in part only, a new
Note for the unredeemed portion hereof shall be issued in the name of the Holder
hereof upon the surrender hereof.
If this Note is redeemable at the option of the Company prior to its
Stated Maturity, the "Redemption Price" shall initially be the Initial
Redemption Percentage, specified on the face hereof, of the principal amount of
this Note to be redeemed and shall decline at each anniversary of the Initial
Redemption Date by the Annual Redemption Percentage Reduction, if any, specified
on the face hereof, of the principal amount to be redeemed until the Redemption
Price is 100% of such principal amount.
The interest rate borne by this Note shall be determined as follows:
4
<PAGE>
1. If this Note is designated as a Regular Floating Rate Note above,
then, except as described below, this Note shall bear interest at the rate
determined by reference to the applicable Interest Rate Basis shown above
(i) plus or minus the applicable Spread, if any, and/or (ii) multiplied by
the applicable Spread Multiplier, if any, specified and applied in the
manner described above. Commencing on the Initial Interest Reset Date, the
rate at which interest on this Note is payable shall be reset as of each
Interest Reset Date specified above; provided, however, that the interest
-------- -------
rate in effect for the period from the Original Issue Date to the Initial
Interest Reset Date will be the Initial Interest Rate.
2. If this Note is designated as a Floating Rate/Fixed Rate Note
above, then, except as described below, this Note shall bear interest at
the rate determined by reference to the applicable Interest Rate Basis
shown above (i) plus or minus the applicable Spread, if any, and/or (ii)
multiplied by the applicable Spread Multiplier, if any, specified and
applied in the manner described above. Commencing on the Initial Interest
Reset Date, the rate at which interest on this Note is payable shall be
reset as of each Interest Reset Date specified above; provided, however,
-------- -------
that (i) the interest rate in effect for the period from the Original Issue
Date to the Initial Interest Reset Date shall be the Initial Interest Rate,
and (ii) the interest rate in effect commencing on, and including, the
Fixed Rate Commencement Date to the Maturity shall be the Fixed Interest
Rate, if such a rate is specified above, or if no such Fixed Interest Rate
is so specified, the interest rate in effect hereon on the day immediately
preceding the Fixed Rate Commencement Date.
3. If this Note is designated as an Inverse Floating Rate Note above,
then, except as described below, this Note will bear interest equal to the
Fixed Interest Rate indicated above minus the rate determined by reference
to the applicable Interest Rate Basis shown above (i) plus or minus the
applicable Spread, if any, and/or (ii) multiplied by the applicable Spread
Multiplier, if any, specified and applied in the manner described above;
provided, however, that unless otherwise specified on the face hereof, the
-------- -------
interest rate hereon will not be less than zero percent. Commencing on the
Initial Interest Reset Date, the rate at which interest on this Note is
payable shall be reset as of each Interest Reset Date specified above;
provided, however, that the interest rate in effect for the period from the
-------- -------
Original Issue Date to the Initial Interest Reset Date shall be the Initial
Interest Rate.
4. Notwithstanding the foregoing, if this Note is designated above as
having an Addendum attached, the Note shall bear interest in accordance
with the terms described in such Addendum.
Except as provided above, the interest rate in effect on each day shall be
(a) if such day is an Interest Reset Date, the interest rate determined as of
the Interest Determination Date (as defined below) immediately preceding such
Interest Reset Date or (b) if such day is not an Interest Reset Date, the
interest rate determined as of the Interest Determination Date immediately
preceding the immediately preceding Interest Reset Date. Each Interest Rate
Basis shall be the rate determined in accordance with the applicable provision
below. If any Interest Reset Date (which term includes the term Initial
Interest Reset Date unless the context otherwise requires) would otherwise be a
day that is not a Business Day, such Interest Reset Date shall be postponed to
the next succeeding day that is a Business Day, except that if an Interest Rate
Basis specified on the face hereof is LIBOR and such next Business Day falls in
the next succeeding calendar month, such Interest Reset Date shall be the next
preceding Business Day.
Unless otherwise specified above, interest payable on this Note on any
Interest Payment Date shall be the amount of interest accrued from and including
the next preceding Interest Payment Date in respect of which interest has been
paid (or from and including the Original Issue Date specified above, if no
interest has been paid), to but excluding the related Interest Payment Date;
provided, however, that the interest payments on Maturity will include interest
- -------- -------
accrued to but excluding such Maturity. Unless otherwise specified above,
accrued interest hereon shall be an amount calculated by multiplying the face
amount hereof by an accrued interest factor. Such accrued interest factor shall
be computed by adding the interest factor calculated for each day from the date
of issue or from the last date to which interest shall have been paid or duly
provided for, to the date for which accrued interest is being calculated.
Unless otherwise specified above, the interest factor for each such day shall be
computed by dividing the interest rate applicable to such day by 360, if the Day
Count Convention specified above is "Actual/360" for the period specified
thereunder or by the actual number of days in the year if the Day Count
Convention specified above is "Actual/Actual" for the period specified
thereunder. Unless otherwise specified above, the interest factor for each such
day shall be computed by dividing the interest rate applicable to such day by
360, if the Interest Rate
5
<PAGE>
Basis specified above is the CD Rate, the Commercial Paper Rate, the Eleventh
District Cost of Funds Rate, the Federal Funds Rate, LIBOR or the Prime Rate for
the period specified thereunder, or by the actual number of days in the year if
the Interest Rate Basis specified above is the Treasury Rate for the period
specified thereunder. Unless otherwise specified above, the interest factor for
Notes for which the interest rate is calculated with reference to two or more
Interest Rate Bases will be calculated in each period in the same manner as if
only one of the applicable Interest Rate Bases applied.
Unless otherwise specified above, the "Interest Determination Date" with
respect to the CD Rate and the Commercial Paper Rate shall be the second
Business Day preceding each Interest Reset Date; the "Interest Determination
Date" with respect to the Federal Funds Rate and the Prime Rate shall be the
Business Day immediately preceding each Interest Reset Date; the "Interest
Determination Date" with respect to LIBOR shall be the second London Business
Day (as defined below) preceding each Interest Reset Date; the "Interest
Determination Date" with respect to the Eleventh District Cost of Funds Rate
shall be the last working day of the month immediately preceding each Interest
Reset Date on which the Federal Home Loan Bank of San Francisco (the "FHLB of
San Francisco") publishes the Index (as defined below); and the "Interest
Determination Date" with respect to the Treasury Rate shall be the day in the
week in which the related Interest Reset Date falls on which day Treasury bills
(as defined below) are normally auctioned (Treasury bills are normally sold at
auction on Monday of each week, unless that day is a legal holiday, in which
case the auction is normally held on the following Tuesday, except that such
auction may be held on the preceding Friday); provided, however, that if an
-------- -------
auction is held on the Friday of the week preceding the related Interest Reset
Date, the related Interest Determination Date shall be such preceding Friday;
and provided, further, that if an auction shall fall on any Interest Reset Date,
-------- -------
then the related Interest Reset Date shall instead be the first Business Day
following such auction. If the interest rate of this Note is determined with
reference to two or more Interest Rate Bases, the Interest Determination Date
pertaining to this Note will be the latest Business Day which is at least two
Business Days prior to such Interest Reset Date on which each Interest Rate
Basis shall be determinable. Each Interest Rate Basis shall be determined and
compared on such date, and the applicable interest rate shall take effect on the
related Interest Reset Date.
Unless otherwise specified above, the "Calculation Date", if applicable,
pertaining to any Interest Determination Date will be the earlier of (i) the
tenth calendar day after such Interest Determination Date or, if such day is not
a Business Day, the next succeeding Business Day, or (ii) the Business Day
preceding the applicable Interest Payment Date or date of Maturity, as the case
may be. All calculations on this Note shall be made by the Calculation Agent
specified above or such successor thereto as is duly appointed by the Company.
All percentages resulting from any calculation on this Note will be rounded
to the nearest one hundred-thousandth of a percentage point, with five one-
millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) would be rounded to 9.87655% (or .0987655)), and all dollar amounts
used in or resulting from such calculation will be rounded to the nearest cent
(with one-half cent being rounded upward).
As used herein, "Business Day" means any day other than a Saturday or
Sunday or any other day on which banks in The City of New York are generally
authorized or obligated by law or executive order to close and, if the
applicable Interest Rate Basis shown above is LIBOR, is also a London Business
Day.
As used herein, "London Business Day" means any day (a) if the Index
Currency specified above is other than the European Currency Unit ("ECU"), on
which dealings in deposits in such Index Currency are transacted in the London
interbank market or (b) if the Index Currency specified above is the ECU, that
is not designated as an ECU Non-Settlement Day by the ECU Banking Association in
Paris or otherwise generally regarded in the ECU interbank market as a day on
which payments on ECUs shall not be made.
Determination of CD Rate. If an Interest Rate Basis for this Note is the
------------------------
CD Rate, as indicated above, the CD Rate shall be determined on the applicable
Interest Determination Date (a "CD Rate Interest Determination Date"), as the
rate on such date for negotiable certificates of deposit having the Index
Maturity specified above as published by the Board of Governors of the Federal
Reserve System in "Statistical Release H.15(519), Selected Interest Rates" or
any successor publication ("H.15(519)") under the heading "CDs (Secondary
Market)", or, if not so published by 3:00 P.M., New York City time, on the
related Calculation Date, the rate on such CD Rate Interest Determination Date
for negotiable certificates of deposit of the Index Maturity specified above as
published by the Federal Reserve Bank of New York in its statistical daily
release "Composite 3:30 P.M. Quotations for U.S.
6
<PAGE>
Government Securities" or any successor publication ("Composite Quotations")
under the heading "Certificates of Deposit". If such rate is not yet published
in either H.15(519) or the Composite Quotations by 3:00 P.M., New York City
time, on the related Calculation Date, then the CD Rate on such CD Rate Interest
Determination Date will be calculated by the Calculation Agent and will be the
arithmetic mean (rounded to the nearest one hundred-thousandth of a percentage
point, with five one millionths of a percentage point rounded upwards) of the
secondary market offered rates as of 10:00 A.M., New York City time, on such CD
Rate Interest Determination Date of three leading non-bank dealers in negotiable
U.S. dollar certificates of deposit in The City of New York selected by the
Calculation Agent for negotiable certificates of deposit of major United States
money market banks with a remaining maturity closest to the Index Maturity
designated above in an amount that is representative for a single transaction in
that market at that time; provided, however, that if the dealers selected as
-------- -------
aforesaid by the Calculation Agent are not quoting as set forth above, the CD
Rate determined on such CD Rate Interest Determination Date shall be the CD Rate
in effect on such CD Rate Interest Determination Date.
Determination of Commercial Paper Rate. If an Interest Rate Basis for this
--------------------------------------
Note is the Commercial Paper Rate, as indicated above, the Commercial Paper Rate
shall be determined on the applicable Interest Determination Date (a "Commercial
Paper Rate Interest Determination Date"), as the Money Market Yield (as defined
below) on such date of the rate for commercial paper having the Index Maturity
specified above as published in H.15(519), under the heading "Commercial Paper".
In the event such rate is not published by 3:00 P.M., New York City time, on the
related Calculation Date, then the Commercial Paper Rate shall be the Money
Market Yield on such Commercial Paper Rate Interest Determination Date of the
rate for commercial paper having the Index Maturity shown above as published in
Composite Quotations under the heading "Commercial Paper" (with an Index
Maturity of one month or three months being deemed to be equivalent to an Index
Maturity of 30 days or 90 days, respectively). If by 3:00 P.M., New York City
time, on the related Calculation Date such rate is not yet published in either
H.15(519) or Composite Quotations, then the Commercial Paper Rate for such
Commercial Paper Rate Interest Determination Date shall be as calculated by the
Calculation Agent and shall be the Money Market Yield of the arithmetic mean
(rounded to the nearest one hundred-thousandth of a percentage point, with five
one millionths of a percentage point rounded upwards) of the offered rates at
approximately 11:00 A.M., New York City time, on such Commercial Paper Rate
Interest Determination Date of three leading dealers of commercial paper in The
City of New York selected by the Calculation Agent for commercial paper having
the Index Maturity specified above placed for an industrial issuer whose bond
rating is "AA", or the equivalent, from a nationally recognized securities
rating agency; provided, however, that if the dealers selected as aforesaid by
-------- -------
the Calculation Agent are not quoting as mentioned in this sentence, the
Commercial Paper Rate determined on such Commercial Paper Rate Interest
Determination Date shall be the rate in effect on such Commercial Paper Rate
Interest Determination Date.
"Money Market Yield" shall be a yield (expressed as a percentage)
calculated in accordance with the following formula:
Money Market Yield = D x 360 x 100
------------
360-(D x M)
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the interest period for which interest is being calculated.
Eleventh District Cost of Funds Rate. If an Interest Rate Basis for this
------------------------------------
Note is the Eleventh District Cost of Funds Rate, as indicated above, the
Eleventh District Cost of Funds Rate shall be determined on the applicable
Interest Determination Date (an "Eleventh District Cost of Funds Rate Interest
Determination Date"), and shall be the rate equal to the monthly weighted
average cost of funds for the calendar month preceding such Eleventh District
Cost of Funds Rate Interest Determination Date as set forth under the caption
"11th District" on Telerate Page 7058 as of 11:00 A.M., San Francisco time, on
such Eleventh District Cost of Funds Rate Interest Determination Date. If such
rate does not appear on Telerate Page 7058 on any related Eleventh District Cost
of Funds Rate Interest Determination Date, the Eleventh District Cost of Funds
Rate for such Eleventh District Cost of Funds Rate Interest Determination Date
shall be the monthly weighted average cost of funds paid by member institutions
of the Eleventh Federal Home Loan Bank District that was most recently announced
(the "Index") by the FHLB of San Francisco as such cost of funds for the
calendar month preceding the date of such announcement. If the FHLB of San
7
<PAGE>
Francisco fails to announce such rate for the calendar month immediately
preceding such Eleventh District Cost of Funds Rate Interest Determination Date,
then the Eleventh District Cost of Funds Rate for such Eleventh District Cost of
Funds Rate Interest Determination Date shall be the Eleventh District Cost of
Funds Rate in effect on such Eleventh District Cost of Funds Rate Interest
Determination Date.
Determination of Federal Funds Rate. If an Interest Rate Basis for this
-----------------------------------
Note is the Federal Funds Rate, as indicated above, the Federal Funds Rate shall
be determined on the applicable Interest Determination Date (a "Federal Funds
Rate Interest Determination Date"), and shall be the rate on that date for
Federal Funds as published in H.15(519) under the heading "Federal Funds
(Effective)" or, if not so published by 3:00 P.M., New York City time, on the
related Calculation Date, the rate on such Federal Funds Rate Interest
Determination Date, as published in Composite Quotations under the heading
"Federal Funds/Effective Rate." If such rate is not yet published in either
H.15(519) or Composite Quotations by 3:00 P.M., New York City time, on the
related Calculation Date, the Federal Funds Rate for such Federal Funds Rate
Interest Determination Date shall be calculated by the Calculation Agent and
shall be the arithmetic mean (rounded to the nearest one hundred-thousandth of a
percentage point, with five one millionths of a percentage point rounded
upwards) of the rates for the last transaction in overnight United States dollar
federal funds arranged by three leading brokers of federal funds transactions in
The City of New York selected by the Calculation Agent prior to 9:00 A.M., New
York City time on such Federal Funds Rate Interest Determination Date; provided,
--------
however, that if the brokers selected as aforesaid by the Calculation Agent are
- -------
not quoting as mentioned in this sentence, the Federal Funds Rate determined on
such Federal Funds Rate Interest Determination Date shall be the Federal Funds
Rate in effect on such Federal Funds Rate Interest Determination Date.
Determination of LIBOR. If an Interest Rate Basis for this Note is LIBOR,
----------------------
as indicated above, LIBOR will be determined on the applicable Interest
Determination Date (a "LIBOR Interest Determination Date"), and will be, either:
(a) if "LIBOR Reuters" is specified above, the arithmetic mean (rounded to the
nearest one hundred-thousandth of a percentage point, with five one millionths
of a percentage point rounded upwards) of the offered rates (unless the
specified Designated LIBOR Page (as defined below) by its terms provides only
for a single rate, in which case such single rate shall be used) for deposits in
the Index Currency having the Index Maturity designated above, commencing on the
second London Business Day immediately following that LIBOR Interest
Determination Date, that appear on the Designated LIBOR Page specified above as
of 11:00 A.M. London time, on that LIBOR Interest Determination Date, if at
least two such offered rates appear (unless, as aforesaid, only a single rate is
required) on such Designated LIBOR Page, or (b) if "LIBOR Telerate" is specified
above, the rate for deposits in the Index Currency having the Index Maturity
designated above commencing on the second London Business Day immediately
following that LIBOR Interest Determination Date, that appears on the Designated
LIBOR Page specified above as of 11:00 A.M. London time, on that LIBOR Interest
Determination Date. If, as described in the immediately preceding sentence,
fewer than two offered rates appear, or no rate appears, LIBOR in respect of the
related LIBOR Interest Determination Date will be determined as if the parties
had specified the rate described in the immediately succeeding paragraph.
With respect to a LIBOR Interest Determination Date on which fewer than two
offered rates appear, or no rate appears, as the case may be, the Calculation
Agent shall request the principal London offices of each of four major reference
banks in the London interbank market, as selected by the Calculation Agent, to
provide the Calculation Agent with its offered quotation for deposits in the
Index Currency for the period of the Index Maturity shown above, commencing on
the second London Business Day immediately following such LIBOR Interest
Determination Date, to prime banks in the London interbank market at
approximately 11:00 A.M., London time, on such LIBOR Interest Determination Date
and in a principal amount that is representative for a single transaction in the
Index Currency in such market at such time. If at least two such quotations are
provided, LIBOR determined on such LIBOR Interest Determination Date shall be
the arithmetic mean (rounded to the nearest one hundred-thousandth of a
percentage point, with five one millionths of a percentage point rounded
upwards) of such quotations as determined by the Calculation Agent. If fewer
than two quotations are provided, LIBOR determined on such LIBOR Interest
Determination Date shall be calculated by the Calculation Agent as the
arithmetic mean (rounded to the nearest one hundred-thousandth of a percentage
point, with five one millionths of a percentage point rounded upwards) of the
rates quoted at approximately 11:00 A.M. (or such other time specified above
under "OTHER PROVISIONS") in the applicable Principal Financial Center(s), on
such LIBOR Interest Determination Date by three major banks in such Principal
Financial Center(s) selected by the Calculation Agent for loans in the Index
Currency to leading European banks having the Index Maturity specified above and
in a principal amount that is representative
8
<PAGE>
for a single transaction in the Index Currency in such market at such time;
provided, however, that if the banks selected as aforesaid by the Calculation
- -------- -------
Agent are not quoting as mentioned in this sentence, LIBOR determined on such
LIBOR Interest Determination Date shall be LIBOR in effect on such LIBOR
Interest Determination Date.
"Index Currency" means the currency (including composite currencies)
specified above as the currency for which LIBOR shall be calculated. If no such
currency is specified above, the Index Currency shall be U.S. dollars.
"Designated LIBOR Page" means either (a) if "LIBOR Reuters" is designated
above, the display on the Reuters Monitor Money Rates Service for the purpose of
displaying the London interbank rates of major banks for the applicable Index
Currency, or (b) if "LIBOR Telerate" is designated above, the display on the Dow
Jones Telerate Service (or such other service or services as may be nominated by
the British Bankers' Association for the purpose of displaying London interbank
offered rates for the Index Currency) for the purpose of displaying the London
interbank rates of major banks for the applicable Index Currency. If neither
LIBOR Reuters nor LIBOR Telerate is specified above, LIBOR for the applicable
Index Currency will be determined as if LIBOR Telerate (and, in the case U.S.
dollars is the Index Currency, Page 3750) had been specified.
"Principal Financial Center" will be, unless otherwise specified above, the
following city or cities for the related Index Currency:
Principal
Financial
Index Currency Center(s)
-------------- ---------
Australian Dollar Sydney
Belgian Franc Brussels
Canadian Dollar Toronto
Danish Krone Copenhagen
Dutch Guilder Amsterdam
Finnish Markka Helsinki
French Franc Paris
Hong Kong Dollar Hong Kong
Italian Lira Milan
Luxembourg Franc Brussels and Luxembourg
New Zealand Dollar Wellington and Auckland
Norwegian Krone Oslo
Spanish Peseta Madrid
Sterling London
Swedish Krona Stockholm
Swiss Franc Zurich
U.S. Dollar New York
Yen Tokyo
Determination of Prime Rate. "Prime Rate" means the rate determined by the
---------------------------
Calculation Agent in accordance with the provisions set out in clause (i) or in
clause (ii) below, depending upon whether such rate is specified as "Prime Rate-
- -Major Banks" or as "Prime Rate--H.15" on the face hereof:
(i) If an Interest Rate Basis for this Note is the "Prime Rate--Major
Banks", as indicated above, the Prime Rate shall be determined on the
applicable Interest Determination Date (a "Prime Rate Interest
Determination Date") as the arithmetic mean (rounded to the nearest one
hundred-thousandth of a percentage point, with five one millionths of a
percentage point rounded upwards) determined by the Calculation Agent of
the prime rates of interest publicly announced by three major banks in The
City of New York, as selected by the Calculation Agent, as its United
States dollar prime rate or base lending rate as in effect for that day.
Each change in the prime rate or base lending rate of any bank so announced
by such bank will be effective as of the effective date of the announcement
or, if no effective date is specified, as of the date of the announcement.
If fewer than three such quotations are provided, the Prime Rate shall be
calculated by the Calculation Agent and shall be determined as the
arithmetic mean (rounded to the
9
<PAGE>
nearest one hundred-thousandth of a percentage point, with five one
millionths of a percentage point rounded upwards) determined by the
Calculation Agent on the basis of the prime rates quoted in The City of New
York by three substitute banks or trust companies organized and doing
business under the laws of the United States, or any state thereof, each
having total equity capital of at least $500 million and being subject to
supervision or examination by a federal or state authority, selected by the
Calculation Agent to quote such rate or rates; provided, however, that if
-------- -------
the banks or trust companies selected as aforesaid by the Calculation Agent
are not quoting as mentioned in this sentence, the Prime Rate determined on
such Prime Rate Interest Determination Date shall be the Prime Rate in
effect on such Prime Rate Interest Determination Date.
(ii) If an Interest Rate Basis for this Note is "Prime Rate--H.15",
as indicated above, "Prime Rate" means, with respect to any Prime Rate
Interest Determination Date, the rate on such date as such rate is
published in H.15(519) under the heading "Bank Prime Loan". If such rate
is not published prior to 3:00 P.M., New York City time, on the related
Calculation Date, then the Prime Rate shall be the arithmetic mean (rounded
to the nearest one hundred-thousandth of a percentage point, with five one
millionths of a percentage point rounded upwards) of the rates of interest
publicly announced by each bank that appears on the Reuters Screen NYMF
Page as such bank's prime rate or base lending rate as in effect for that
Prime Rate Interest Determination Date. If fewer than four such rates but
more than one such rate appear on the Reuters Screen NYMF Page for such
Prime Rate Interest Determination Date, the Prime Rate shall be the
arithmetic mean (rounded to the nearest one hundred-thousandth of a
percentage point, with five one millionths of a percentage point rounded
upwards) of the prime rates quoted on the basis of the actual number of
days in the year divided by a 360-day year as of the close of business on
such Prime Rate Interest Determination Date by four major money center
banks in The City of New York selected by the Calculation Agent. If fewer
than two such rates appear on the Reuters Screen NYMF Page, the Prime Rate
will be determined by the Calculation Agent on the basis of the rates
furnished in The City of New York by three substitute banks or trust
companies organized and doing business under the laws of the United States,
or any state thereof, having total equity capital of at least $500 million
and being subject to supervision or examination by federal or state
authority, selected by the Calculation Agent to provide such rate or rates;
provided, however, that if the banks or trust companies selected as
-------- -------
aforesaid are not quoting as mentioned in this sentence, the Prime Rate for
such Prime Rate Interest Determination Date will be the Prime Rate in
effect on such Prime Rate Interest Determination Date.
"Reuters Screen NYMF Page" means the display designated as page "NYMF" page
on that service for the purpose of displaying prime rates or base lending rates
of major United States banks.
Determination of Treasury Rate. If an Interest Rate Basis for this Note is
------------------------------
the Treasury Rate, as specified above, the Treasury Rate shall be determined on
the applicable Interest Determination Date (a "Treasury Rate Interest
Determination Date") as the rate applicable to the most recent auction of direct
obligations of the United States ("Treasury Bills") having the Index Maturity
specified above, as such rate is published in H.15(519) under the heading
"Treasury Bills -- auction average (investment)" or, if not so published by 3:00
P.M., New York City time, on the related Calculation Date, the auction average
rate (expressed as a bond equivalent on the basis of a year of 365 or 366 days,
as applicable, and applied on a daily basis) as otherwise announced by the
United States Department of the Treasury. In the event that the results of the
auction of Treasury Bills having the Index Maturity specified above are not
reported as provided by 3:00 P.M., New York City time, on such Calculation Date,
or if no such auction is held in a particular week, then the Treasury Rate
hereon shall be calculated by the Calculation Agent and shall be a yield to
maturity (expressed as a bond equivalent on the basis of a year of 365 or 366
days, as applicable, and applied on a daily basis) of the arithmetic mean
(rounded to the nearest one hundred-thousandth of a percentage point, with five
one millionths of a percentage point rounded upwards) of the secondary market
bid rates, as of approximately 3:30 P.M., New York City time, on such Treasury
Rate Interest Determination Date of three leading primary United States
government securities dealers as selected by the Calculation Agent for the issue
of Treasury Bills with a remaining Maturity closest to the Index Maturity
specified above; provided, however, that if the dealers selected as aforesaid by
-------- -------
the Calculation Agent are not quoting as mentioned in this sentence, the
Treasury Rate for such Treasury Rate Interest Determination Date will be the
Treasury Rate in effect on such Treasury Rate Interest Determination Date.
10
<PAGE>
Any provisions contained herein with respect to the determination of one or
more Interest Rate Bases, the specification of one or more Interest Rate Bases,
calculation of the Interest Rate applicable to this Note, its payment dates or
any other matter relating hereto may be modified by the terms as specified above
under "Other Provisions" or in an Addendum relating hereto if so specified
above.
Notwithstanding the foregoing, the interest rate hereon shall not be
greater than the Maximum Interest Rate, if any, or less than the Minimum
Interest Rate, if any, specified above. The Calculation Agent shall calculate
the interest rate hereon in accordance with the foregoing on or before each
Calculation Date. The interest rate on this Note will in no event be higher
than the maximum rate permitted by New York law, as the same may be modified by
United States law of general application.
Unless otherwise above, Merrill Lynch, Pierce, Fenner & Smith Incorporated
will be the "Calculation Agent". At the request of the Holder hereof, the
Calculation Agent shall provide to the Holder hereof the interest rate hereon
then in effect and, if determined, the interest rate which shall become
effective as of the next Interest Reset Date with respect to this Note.
If an Event of Default (as defined in the Indenture) with respect to the
Notes shall occur and be continuing, the principal of all the Notes may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of 66 2/3% in aggregate principal amount of the
Securities at any time Outstanding, as defined in the Indenture, of each series
affected thereby. The Indenture also contains provisions permitting the Holders
of specified percentages in aggregate principal amount of the Securities of each
series at the time Outstanding, on behalf of the Holders of all the Securities
of each series, to waive compliance by the Company with certain provisions of
the Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Note shall be
conclusive and binding upon such Holder and upon all future Holders of this Note
and of any Note issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof whether or not notation of such consent or waiver is
made upon this Note.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the time, place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations set forth
therein and on the face hereof, the transfer of this Note may be registered on
the Security Register of the Company, upon surrender of this Note for
registration of transfer at the office or agency of the Company in the Borough
of Manhattan, The City of New York, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company duly executed
by, the Holder hereof or by his attorney duly authorized in writing, and
thereupon one or more new Notes of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Indenture and the Notes shall be governed by and construed in
accordance with the laws of the State of New York.
11
<PAGE>
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed, manually or in facsimile, and an imprint or facsimile of its corporate
seal to be imprinted hereon.
Dated: ________________
MERRILL LYNCH & CO., INC.
-------------------------
By: __________________________________
Theresa Lang
Treasurer
[FACSIMILE OF SEAL]
Attest:
By: __________________________________
Gregory T. Russo
Secretary
CERTIFICATE OF AUTHENTICATION
This is one of the Securities
of the series designated therein
referred to in the within-mentioned
Indenture.
THE CHASE MANHATTAN BANK
(National Association)
as Trustee
By: _____________________________________
Authorized Officer
12
<PAGE>
OPTION TO ELECT REPAYMENT
The undersigned hereby irrevocably request(s) and instruct(s) the
Company to repay this Note (or portion hereof specified below) pursuant to its
terms at a price equal to the principal amount hereof together with interest to
the repayment date, to the undersigned, at
-------------------------------------
- --------------------------------------------------------------------------------
(Please print or typewrite name and address of the undersigned)
For this Note to be repaid, the Trustee must receive at its Corporate Trust
Office, or at such other place or places of which the Company shall from time to
time notify the Holder of this Note, not more than 60 nor less than 30 days
prior to an Optional Repayment Date, if any, shown on the face of this Note,
this Note with this "Option to Elect Repayment" form duly completed. This Note
must be received by the Trustee by 5:00 P.M., New York City time, on the last
day for giving such notice.
If less than the entire principal amount of this Note is to be repaid,
specify the portion hereof (which shall be in an amount equal to $1,000 or an
integral multiple thereof, provided that any remaining principal amount shall be
an authorized denomination) which the Holder elects to have repaid and specify
the denomination or denominations (which shall be in an amount equal to an
authorized denomination) of the Notes to be issued to the Holder for the portion
of this Note not being repaid (in the absence of any such specification, one
such Note will be issued for the portion not being repaid).
$___________________________
_____________________________________________
NOTICE: The signature on this Option to
Date ______________________ Elect Repayment must correspond with the
name as written upon the face of this Note
in every particular, without alteration or
enlargement or any change whatever.
13
<PAGE>
ASSIGNMENT/TRANSFER FORM
------------------------
FOR VALUE RECEIVED the undersigned registered Holder hereby sell(s),
assign(s) and transfer(s) unto (insert Taxpayer Identification No.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print or typewrite name and address including postal zip code of
assignee)
- --------------------------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing attorney to
------------------------------------------
transfer said Note on the books of the Company with full power of substitution
in the premises.
Dated: _______________
____________________________________________
NOTICE: The signature of the registered
Holder to this assignment must correspond
with the name as written upon the face of
the within instrument in every particular,
without alteration or enlargement or any
change whatsoever.
14
<PAGE>
MERRILL LYNCH & CO., INC.
MEDIUM-TERM NOTES, SERIES B
ADDENDUM FOR CONSTANT MATURITY TREASURY RATE INDEXED NOTES
The "Interest Determination Date" with respect to the Constant Maturity
Treasury Rate shall be the second Business Day preceding each Interest Reset
Date.
Determination of the Constant Maturity Treasury Rate. If an Interest Rate
----------------------------------------------------
Basis for the attached Note is the Constant Maturity Treasury Rate, as indicated
on such Note, the Constant Maturity Treasury Rate shall be determined on the
applicable Interest Determination Date as follows:
(i) The one-week average yield on United States Treasury securities at
"constant maturity", as published in the most recent H.15(519) (as defined
below) available on the applicable Interest Determination Date, with
respect to such Interest Reset Date, provided that such H.15(519) was first
available not earlier than ten calendar days prior to such Interest
Determination Date, in the column entitled "Week Ending" for the most
recent date opposite the heading "Treasury constant maturities" for the
Index Maturity specified on the attached Note.
(ii) If the latest H.15(519) available on the applicable Interest
Determination Date with respect to such Interest Reset Date was first
available earlier than ten calendar days prior to such Interest
Determination Date, the Constant Maturity Treasury Rate shall be such
United States Treasury constant maturity rate (or other United States
Treasury rate) for the Index Maturity specified on the attached Note for
such Interest Determination Date (a) as may then be published by either the
Board of Governors of the Federal Reserve System or the United States
Department of Treasury, and (b) that the Calculation Agent determines to be
comparable to the rate formerly published in H.15(519).
(iii) If the Constant Maturity Treasury Rate as described in clause (ii)
is not published on the Interest Determination Date, the Constant Maturity
Treasury Rate shall be a yield to maturity for direct noncallable fixed
rate obligations of the United States ("Treasury Notes") most recently
issued with an original maturity of approximately the Index Maturity
specified on the attached Note and an original issue date within the
immediately preceding year based on the yield (which yield is based on
asked prices) for such issue of Treasury Notes for such Interest
Determination Date, as published by the Federal Reserve Bank of New York in
its daily statistical release entitled "Composite 3:30 P.M. Quotations for
U.S. Government Securities" (or any successor or similar publication
selected by the Calculation Agent published by the Board of Governors of
the Federal Reserve System, the Federal Reserve Bank of New York or any
other Federal Reserve Bank or affiliated entity).
(iv) If the Constant Maturity Treasury Rate as described in clause (iii) is
not published on the Interest Determination Date, the Constant Maturity
Treasury Rate shall be calculated by the Calculation Agent and shall be a
yield to a maturity (expressed as a bond equivalent and as a decimal
rounded, if necessary, to the nearest one hundred-thousandth of a
percentage point with five one-millionths of a percentage point rounded up,
on the basis of a year of 365 or 366 days, as applicable, and applied on a
daily basis) based on the arithmetic mean of the secondary market bid
prices as of approximately 3:30 p.m., New York City Time, on such Interest
Determination Date of three primary United States government securities
dealers in The City of New York selected by the Calculation Agent (from
five such dealers and eliminating the highest quotation (or, in the event
of equality, one of the highest) and the lowest quotation (or, in the event
of equality, one of the lowest) for Treasury Notes with an original
maturity of approximately the Index Maturity specified on the attached Note
and an original issue date within the immediately preceding year. If three
or four (and not five) of such dealers are quoting as described in this
clause (iv), then the Constant
A-1
<PAGE>
Maturity Treasury Rate shall be based on the arithmetic mean of the bid
prices obtained and neither the highest nor the lowest of such quotations
will be eliminated.
(v) If fewer than three dealers selected by the Calculation Agent are
quoting as described in clause (iv), the Constant Maturity Treasury Rate
shall be calculated by the Calculation Agent and shall be a yield to
maturity (expressed as a bond equivalent and as a decimal rounded, if
necessary, to the nearest one hundred-thousandth of a percentage point with
five one-millionths of a percentage point rounded up, on the basis of a
year of 365 or 366 days, as applicable, and applied on a daily basis) based
on the arithmetic mean of the secondary market bid prices as of
approximately 3:30 p.m., New York City Time, on the applicable Interest
Determination Date of three leading primary United States government
securities dealers in The City of New York selected by the Calculation
Agent (from five such dealers and eliminating the highest quotation (or, in
the event of equality, one of the highest) and the lowest quotation (or, in
the event of equality, one of the lowest)) for Treasury Notes with an
original maturity of approximately ten years and a remaining term to
maturity closest to the Index Maturity specified on the attached Note. If
three or four (and not five) of such dealers are quoting as described in
this clause (v), then the Constant Maturity Treasury Rate shall be based on
the arithmetic mean of the bid prices obtained and neither the highest nor
the lowest of such quotations will be eliminated.
(vi) If fewer than three dealers selected by the Calculation Agent are
quoting as described in clause (v), the Constant Maturity Treasury Rate
shall be the Constant Maturity Treasury Rate in effect on the preceding
Interest Reset Date (or, in the case of the initial Interest Determination
Date, the one-week average yield on United States Treasury securities at
"constant maturity" for the Index Maturity specified on the attached Note,
as published in the most recent H.15(519)).
In the case of clause (v), if two Treasury Notes with an original
maturity of approximately ten years have remaining terms to maturity
equally close to the Index Maturity specified on the attached Note, the
quotes for the Treasury Note with the shorter remaining term to maturity
shall be used.
"H.15(519)" means the weekly statistical release designated as such,
published by the Board of Governors of the Federal Reserve System.
A-2
<PAGE>
EXHIBIT (4)(xv)
FLOATING RATE GLOBAL MEDIUM-TERM NOTE
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE THEREOF.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST
COMPANY (THE "DEPOSITORY") TO A NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY
OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.
OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
REGISTERED CUSIP No. ______________ PRINCIPAL AMOUNT
No. BFLR___ $____________________
MERRILL LYNCH & CO., INC.
MEDIUM-TERM NOTE,
SERIES B
(Floating Rate)
INTEREST RATE BASIS: ORIGINAL ISSUE DATE: STATED MATURITY:
Constant Maturity
Treasury Rate
INDEX MATURITY: INITIAL INTEREST RATE: SPREAD:
INITIAL INTEREST RESET DATE: INTEREST PAYMENT DATES:
SPREAD MULTIPLIER: INTEREST RESET DATES:
MAXIMUM INTEREST RATE: MINIMUM INTEREST RATE: INITIAL REDEMPTION DATE:
INITIAL REDEMPTION ANNUAL REDEMPTION OPTIONAL REPAYMENT
PERCENTAGE: PERCENTAGE REDUCTION: DATE(S):
<PAGE>
CALCULATION AGENT: IF INTEREST RATE BASIS
(Merrill Lynch, Pierce, IS LIBOR:
Fenner & Smith Incorporated, INDEX CURRENCY:
unless otherwise specified)
DESIGNATED LIBOR PAGE:
[ ] Reuters Page: _________
[ ] Telerate Page: _________
INTEREST CALCULATION: DAY COUNT CONVENTION
[ ] Regular Floating Rate Note [ ] Actual/360 for the period
[ ] Floating Rate/Fixed Rate from to .
Fixed Rate Commencement Date: [ ] Actual/Actual to the period
Fixed Interest Rate: from to .
[ ] Inverse Floating Rate Note
Fixed Interest Rate:
ADDENDUM ATTACHED: DENOMINATIONS:
[X] Yes (Integral multiples of $1,000,
unless otherwise specified)
[ ] No
IF INTEREST RATE BASIS OTHER PROVISIONS:
IS PRIME RATE:
[ ] Prime Rate--Major Banks
[ ] Prime Rate--H.15
2
<PAGE>
MERRILL LYNCH & CO., INC., a Delaware corporation ("Issuer" or the
"Company," which terms include any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to pay to CEDE &
CO., or registered assigns, the principal sum of
DOLLARS on the Stated Maturity specified above (except to the extent redeemed or
repaid prior to the Stated Maturity Date), and to pay interest thereon, at a
rate per annum equal to the Initial Interest Rate specified above until the
Initial Interest Reset Date specified above and thereafter at a rate per annum
determined in accordance with the provisions hereof and any Addendum relating
hereto depending upon the Interest Rate Basis or Bases, and such other terms
specified above, until the principal hereof is paid or duly made available for
payment. Reference herein to "this Note", "hereof", "herein" and comparable
terms shall include an Addendum hereto if an Addendum is specified above.
The Company will pay interest on each Interest Payment Date specified
above, commencing on the first Interest Payment Date specified above next
succeeding the Original Issue Date specified above, and on the Stated Maturity
or any Redemption Date or Optional Repayment Date (as defined below) (the date
of each such Stated Maturity, Redemption Date and Optional Repayment Date and
the date on which principal or an installment of principal is due and payable by
declaration of acceleration pursuant to the Indenture being referred to
hereinafter as a "Maturity" with respect to principal payable on such date);
provided, however, that if the Original Issue Date is between a Regular Record
- -------- -------
Date (as defined below) and the next succeeding Interest Payment Date, interest
payments will commence on the second Interest Payment Date succeeding the
Original Issue Date; and provided further, that if an Interest Payment Date
-------- -------
(other than an Interest Payment Date at Maturity) would fall on a day that is
not a Business Day (as defined below), such Interest Payment Date shall be
postponed to the following day that is a Business Day, except that in the case
the Interest Rate Basis is LIBOR, as indicated above, if such next Business Day
falls in the next calendar month, such Interest Payment Date shall be the next
preceding day that is a Business Day. Except as provided above, interest
payments will be made on the Interest Payment Dates shown above. Unless
otherwise specified above, the "Regular Record Date" shall be the date 15
calendar days (whether or not a Business Day) prior to the applicable Interest
Payment Date. Interest on this Note will accrue from and including the Original
Issue Date specified above, at the rates determined from time to time as
specified herein, until the principal hereof has been paid or made available for
payment. If the Maturity falls on a day which is not a Business Day as defined
below, the payment due on such Maturity will be paid on the next succeeding
Business Day with the same force and effect as if made on such Maturity and no
interest shall accrue with respect to such payment for the period from and after
such Maturity. The interest so payable and punctually paid or duly provided for
on any Interest Payment Date will as provided in the Indenture be paid to the
Person in whose name this Note (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such Interest
Payment Date. Any such interest which is payable, but not punctually paid or
duly provided for on any Interest Payment Date (herein called "Defaulted
Interest"), shall forthwith cease to be payable to the registered Holder on such
Regular Record Date, and may be paid to the Person in whose name this Note (or
one or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to the Holder of this Note not less
than 10 days prior to such Special Record Date, or may be paid at any time in
any other lawful manner, all as more fully provided in the Indenture.
Payment of the principal of and interest on this Note will be made at
the Office or Agency of the Company maintained by the Company for such purpose
in the Borough of Manhattan, The City of New York, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.
Unless the certificate of authentication hereon has been executed by
or on behalf of The Chase Manhattan Bank (National Association), the Trustee
with respect to the Notes under the Indenture, or its successor thereunder, by
the manual signature of one of its authorized officers, this Note shall not be
entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.
This Note is one of a duly authorized issue of Securities (hereinafter
called the "Securities") of the Company designated as its Medium-Term Notes,
Series B (the "Notes"). The Securities are issued and to be issued under an
indenture (the "Indenture") dated as of October 1, 1993, between the Company and
The Chase Manhattan Bank (National Association) (herein called the "Trustee",
which term includes any successor Trustee under the
3
<PAGE>
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights thereunder of the
Company, the Trustee and the Holders of the Notes and the terms upon which the
Notes are to be authenticated and delivered. The terms of individual Notes may
vary with respect to interest rates or interest rate formulas, issue dates,
maturity, redemption, repayment, currency of payment and otherwise as provided
in the Indenture.
The Notes are issuable only in registered form without coupons in
denominations of, unless otherwise specified above, $1,000 and integral
multiples thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Notes are exchangeable for a like aggregate
principal amount of Notes as requested by the Holder surrendering the same. If
(x) the Depository is at any time unwilling or unable to continue as depository
and a successor depository is not appointed by the Company within 60 days, (y)
the Company executes and delivers to the Trustee a Company Order to the effect
that this Note shall be exchangeable or (z) an Event of Default has occurred and
is continuing with respect to the Notes, this Note shall be exchangeable for
Notes in definitive form of like tenor and of an equal aggregate principal
amount, in authorized denominations. Such definitive Notes shall be registered
in such name or names as the Depository shall instruct the Trustee. If
definitive Notes are so delivered, the Company may make such changes to the form
of this Note as are necessary or appropriate to allow for the issuance of such
definitive Notes.
This Note is not subject to any sinking fund.
This Note may be subject to repayment at the option of the Holder
prior to its Stated Maturity on the Holder's Optional Repayment Date(s), if any,
indicated on the face hereof. If no Holder's Optional Repayment Dates are set
forth on the face hereof, this Note may not be so repaid at the option of the
Holder hereof prior to the Stated Maturity. On any Holder's Optional Repayment
Date, this Note shall be repayable in whole or in part in an amount equal to
$1,000 or integral multiples thereof (provided that any remaining principal
amount shall be an authorized denomination) at the option of the Holder hereof
at a repayment price equal to 100% of the principal amount to be repaid,
together with interest thereon payable to the date of repayment. For this Note
to be repaid in whole or in part at the option of the Holder hereof, this Note
must be received, with the form entitled "Option to Elect Repayment" below duly
completed, by the Trustee at its office at 4 Chase MetroTech Center, Brooklyn,
New York 11245, Attention: Corporate Trust Administration, or such address which
the Company shall from time to time notify the Holders of the Medium-Term Notes
(the "Corporate Trust Office"), not more than 60 nor less than 30 days prior to
a Holder's Optional Repayment Date. This Note must be received by the Trustee
by 5:00 P.M., New York City time, on the last day for giving such notice.
Exercise of such repayment option by the Holder hereof shall be irrevocable. In
the event of payment of this Note in part only, a new Note for the unpaid
portion hereof shall be issued in the name of the Holder hereof upon the
surrender hereof.
This Note may be redeemed at the option of the Company prior to its
Stated Maturity on any date on and after the Initial Redemption Date, if any,
specified on the face hereof (the "Redemption Date"). If no Initial Redemption
Date is set forth on the face hereof, this Note may not be redeemed at the
option of the Company prior to the Stated Maturity. On and after the Initial
Redemption Date, if any, this Note may be redeemed at any time in whole or from
time to time in part in increments of $1,000 or integral multiples thereof
(provided that any remaining principal amount shall be an authorized
denomination) at the option of the Company at the applicable Redemption Price
(as defined below) together with interest thereon payable to the Redemption
Date, on notice given not more than 60 nor less than 30 days prior to the
Redemption Date. In the event of redemption of this Note in part only, a new
Note for the unredeemed portion hereof shall be issued in the name of the Holder
hereof upon the surrender hereof.
If this Note is redeemable at the option of the Company prior to its
Stated Maturity, the "Redemption Price" shall initially be the Initial
Redemption Percentage, specified on the face hereof, of the principal amount of
this Note to be redeemed and shall decline at each anniversary of the Initial
Redemption Date by the Annual Redemption Percentage Reduction, if any, specified
on the face hereof, of the principal amount to be redeemed until the Redemption
Price is 100% of such principal amount.
The interest rate borne by this Note shall be determined as follows:
4
<PAGE>
1. If this Note is designated as a Regular Floating Rate Note above,
then, except as described below, this Note shall bear interest at the rate
determined by reference to the applicable Interest Rate Basis shown above
(i) plus or minus the applicable Spread, if any, and/or (ii) multiplied by
the applicable Spread Multiplier, if any, specified and applied in the
manner described above. Commencing on the Initial Interest Reset Date, the
rate at which interest on this Note is payable shall be reset as of each
Interest Reset Date specified above; provided, however, that the interest
-------- -------
rate in effect for the period from the Original Issue Date to the Initial
Interest Reset Date will be the Initial Interest Rate.
2. If this Note is designated as a Floating Rate/Fixed Rate Note
above, then, except as described below, this Note shall bear interest at
the rate determined by reference to the applicable Interest Rate Basis
shown above (i) plus or minus the applicable Spread, if any, and/or (ii)
multiplied by the applicable Spread Multiplier, if any, specified and
applied in the manner described above. Commencing on the Initial Interest
Reset Date, the rate at which interest on this Note is payable shall be
reset as of each Interest Reset Date specified above; provided, however,
-------- -------
that (i) the interest rate in effect for the period from the Original Issue
Date to the Initial Interest Reset Date shall be the Initial Interest Rate,
and (ii) the interest rate in effect commencing on, and including, the
Fixed Rate Commencement Date to the Maturity shall be the Fixed Interest
Rate, if such a rate is specified above, or if no such Fixed Interest Rate
is so specified, the interest rate in effect hereon on the day immediately
preceding the Fixed Rate Commencement Date.
3. If this Note is designated as an Inverse Floating Rate Note above,
then, except as described below, this Note will bear interest equal to the
Fixed Interest Rate indicated above minus the rate determined by reference
to the applicable Interest Rate Basis shown above (i) plus or minus the
applicable Spread, if any, and/or (ii) multiplied by the applicable Spread
Multiplier, if any, specified and applied in the manner described above;
provided, however, that unless otherwise specified on the face hereof, the
-------- -------
interest rate hereon will not be less than zero percent. Commencing on the
Initial Interest Reset Date, the rate at which interest on this Note is
payable shall be reset as of each Interest Reset Date specified above;
provided, however, that the interest rate in effect for the period from the
-------- -------
Original Issue Date to the Initial Interest Reset Date shall be the Initial
Interest Rate.
4. Notwithstanding the foregoing, if this Note is designated above as
having an Addendum attached, the Note shall bear interest in accordance
with the terms described in such Addendum.
Except as provided above, the interest rate in effect on each day shall be
(a) if such day is an Interest Reset Date, the interest rate determined as of
the Interest Determination Date (as defined below) immediately preceding such
Interest Reset Date or (b) if such day is not an Interest Reset Date, the
interest rate determined as of the Interest Determination Date immediately
preceding the immediately preceding Interest Reset Date. Each Interest Rate
Basis shall be the rate determined in accordance with the applicable provision
below. If any Interest Reset Date (which term includes the term Initial
Interest Reset Date unless the context otherwise requires) would otherwise be a
day that is not a Business Day, such Interest Reset Date shall be postponed to
the next succeeding day that is a Business Day, except that if an Interest Rate
Basis specified on the face hereof is LIBOR and such next Business Day falls in
the next succeeding calendar month, such Interest Reset Date shall be the next
preceding Business Day.
Unless otherwise specified above, interest payable on this Note on any
Interest Payment Date shall be the amount of interest accrued from and including
the next preceding Interest Payment Date in respect of which interest has been
paid (or from and including the Original Issue Date specified above, if no
interest has been paid), to but excluding the related Interest Payment Date;
provided, however, that the interest payments on Maturity will include interest
- -------- -------
accrued to but excluding such Maturity. Unless otherwise specified above,
accrued interest hereon shall be an amount calculated by multiplying the face
amount hereof by an accrued interest factor. Such accrued interest factor shall
be computed by adding the interest factor calculated for each day from the date
of issue or from the last date to which interest shall have been paid or duly
provided for, to the date for which accrued interest is being calculated.
Unless otherwise specified above, the interest factor for each such day shall be
computed by dividing the interest rate applicable to such day by 360, if the Day
Count Convention specified above is "Actual/360" for the period specified
thereunder or by the actual number of days in the year if the Day Count
Convention specified above is "Actual/Actual" for the period specified
thereunder. Unless otherwise specified above, the interest factor for each such
day shall be computed by dividing the interest rate applicable to such day by
360, if the Interest Rate
5
<PAGE>
Basis specified above is the CD Rate, the Commercial Paper Rate, the Eleventh
District Cost of Funds Rate, the Federal Funds Rate, LIBOR or the Prime Rate for
the period specified thereunder, or by the actual number of days in the year if
the Interest Rate Basis specified above is the Treasury Rate for the period
specified thereunder. Unless otherwise specified above, the interest factor for
Notes for which the interest rate is calculated with reference to two or more
Interest Rate Bases will be calculated in each period in the same manner as if
only one of the applicable Interest Rate Bases applied.
Unless otherwise specified above, the "Interest Determination Date" with
respect to the CD Rate and the Commercial Paper Rate shall be the second
Business Day preceding each Interest Reset Date; the "Interest Determination
Date" with respect to the Federal Funds Rate and the Prime Rate shall be the
Business Day immediately preceding each Interest Reset Date; the "Interest
Determination Date" with respect to LIBOR shall be the second London Business
Day (as defined below) preceding each Interest Reset Date; the "Interest
Determination Date" with respect to the Eleventh District Cost of Funds Rate
shall be the last working day of the month immediately preceding each Interest
Reset Date on which the Federal Home Loan Bank of San Francisco (the "FHLB of
San Francisco") publishes the Index (as defined below); and the "Interest
Determination Date" with respect to the Treasury Rate shall be the day in the
week in which the related Interest Reset Date falls on which day Treasury bills
(as defined below) are normally auctioned (Treasury bills are normally sold at
auction on Monday of each week, unless that day is a legal holiday, in which
case the auction is normally held on the following Tuesday, except that such
auction may be held on the preceding Friday); provided, however, that if an
-------- -------
auction is held on the Friday of the week preceding the related Interest Reset
Date, the related Interest Determination Date shall be such preceding Friday;
and provided, further, that if an auction shall fall on any Interest Reset Date,
-------- -------
then the related Interest Reset Date shall instead be the first Business Day
following such auction. If the interest rate of this Note is determined with
reference to two or more Interest Rate Bases, the Interest Determination Date
pertaining to this Note will be the latest Business Day which is at least two
Business Days prior to such Interest Reset Date on which each Interest Rate
Basis shall be determinable. Each Interest Rate Basis shall be determined and
compared on such date, and the applicable interest rate shall take effect on the
related Interest Reset Date.
Unless otherwise specified above, the "Calculation Date", if applicable,
pertaining to any Interest Determination Date will be the earlier of (i) the
tenth calendar day after such Interest Determination Date or, if such day is not
a Business Day, the next succeeding Business Day, or (ii) the Business Day
preceding the applicable Interest Payment Date or date of Maturity, as the case
may be. All calculations on this Note shall be made by the Calculation Agent
specified above or such successor thereto as is duly appointed by the Company.
All percentages resulting from any calculation on this Note will be rounded
to the nearest one hundred-thousandth of a percentage point, with five one-
millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) would be rounded to 9.87655% (or .0987655)), and all dollar amounts
used in or resulting from such calculation will be rounded to the nearest cent
(with one-half cent being rounded upward).
As used herein, "Business Day" means any day other than a Saturday or
Sunday or any other day on which banks in The City of New York are generally
authorized or obligated by law or executive order to close and, if the
applicable Interest Rate Basis shown above is LIBOR, is also a London Business
Day.
As used herein, "London Business Day" means any day (a) if the Index
Currency specified above is other than the European Currency Unit ("ECU"), on
which dealings in deposits in such Index Currency are transacted in the London
interbank market or (b) if the Index Currency specified above is the ECU, that
is not designated as an ECU Non-Settlement Day by the ECU Banking Association in
Paris or otherwise generally regarded in the ECU interbank market as a day on
which payments on ECUs shall not be made.
Determination of CD Rate. If an Interest Rate Basis for this Note is the
------------------------
CD Rate, as indicated above, the CD Rate shall be determined on the applicable
Interest Determination Date (a "CD Rate Interest Determination Date"), as the
rate on such date for negotiable certificates of deposit having the Index
Maturity specified above as published by the Board of Governors of the Federal
Reserve System in "Statistical Release H.15(519), Selected Interest Rates" or
any successor publication ("H.15(519)") under the heading "CDs (Secondary
Market)", or, if not so published by 3:00 P.M., New York City time, on the
related Calculation Date, the rate on such CD Rate Interest Determination Date
for negotiable certificates of deposit of the Index Maturity specified above as
published by the Federal Reserve Bank of New York in its statistical daily
release "Composite 3:30 P.M. Quotations for U.S.
6
<PAGE>
Government Securities" or any successor publication ("Composite Quotations")
under the heading "Certificates of Deposit". If such rate is not yet published
in either H.15(519) or the Composite Quotations by 3:00 P.M., New York City
time, on the related Calculation Date, then the CD Rate on such CD Rate Interest
Determination Date will be calculated by the Calculation Agent and will be the
arithmetic mean (rounded to the nearest one hundred-thousandth of a percentage
point, with five one millionths of a percentage point rounded upwards) of the
secondary market offered rates as of 10:00 A.M., New York City time, on such CD
Rate Interest Determination Date of three leading non-bank dealers in negotiable
U.S. dollar certificates of deposit in The City of New York selected by the
Calculation Agent for negotiable certificates of deposit of major United States
money market banks with a remaining maturity closest to the Index Maturity
designated above in an amount that is representative for a single transaction in
that market at that time; provided, however, that if the dealers selected as
-------- -------
aforesaid by the Calculation Agent are not quoting as set forth above, the CD
Rate determined on such CD Rate Interest Determination Date shall be the CD Rate
in effect on such CD Rate Interest Determination Date.
Determination of Commercial Paper Rate. If an Interest Rate Basis for this
--------------------------------------
Note is the Commercial Paper Rate, as indicated above, the Commercial Paper Rate
shall be determined on the applicable Interest Determination Date (a "Commercial
Paper Rate Interest Determination Date"), as the Money Market Yield (as defined
below) on such date of the rate for commercial paper having the Index Maturity
specified above as published in H.15(519), under the heading "Commercial Paper".
In the event such rate is not published by 3:00 P.M., New York City time, on the
related Calculation Date, then the Commercial Paper Rate shall be the Money
Market Yield on such Commercial Paper Rate Interest Determination Date of the
rate for commercial paper having the Index Maturity shown above as published in
Composite Quotations under the heading "Commercial Paper" (with an Index
Maturity of one month or three months being deemed to be equivalent to an Index
Maturity of 30 days or 90 days, respectively). If by 3:00 P.M., New York City
time, on the related Calculation Date such rate is not yet published in either
H.15(519) or Composite Quotations, then the Commercial Paper Rate for such
Commercial Paper Rate Interest Determination Date shall be as calculated by the
Calculation Agent and shall be the Money Market Yield of the arithmetic mean
(rounded to the nearest one hundred-thousandth of a percentage point, with five
one millionths of a percentage point rounded upwards) of the offered rates at
approximately 11:00 A.M., New York City time, on such Commercial Paper Rate
Interest Determination Date of three leading dealers of commercial paper in The
City of New York selected by the Calculation Agent for commercial paper having
the Index Maturity specified above placed for an industrial issuer whose bond
rating is "AA", or the equivalent, from a nationally recognized securities
rating agency; provided, however, that if the dealers selected as aforesaid by
-------- -------
the Calculation Agent are not quoting as mentioned in this sentence, the
Commercial Paper Rate determined on such Commercial Paper Rate Interest
Determination Date shall be the rate in effect on such Commercial Paper Rate
Interest Determination Date.
"Money Market Yield" shall be a yield (expressed as a percentage)
calculated in accordance with the following formula:
Money Market Yield = D x 360 x 100
------------
360-(D x M)
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the interest period for which interest is being calculated.
Eleventh District Cost of Funds Rate. If an Interest Rate Basis for this
------------------------------------
Note is the Eleventh District Cost of Funds Rate, as indicated above, the
Eleventh District Cost of Funds Rate shall be determined on the applicable
Interest Determination Date (an "Eleventh District Cost of Funds Rate Interest
Determination Date"), and shall be the rate equal to the monthly weighted
average cost of funds for the calendar month preceding such Eleventh District
Cost of Funds Rate Interest Determination Date as set forth under the caption
"11th District" on Telerate Page 7058 as of 11:00 A.M., San Francisco time, on
such Eleventh District Cost of Funds Rate Interest Determination Date. If such
rate does not appear on Telerate Page 7058 on any related Eleventh District Cost
of Funds Rate Interest Determination Date, the Eleventh District Cost of Funds
Rate for such Eleventh District Cost of Funds Rate Interest Determination Date
shall be the monthly weighted average cost of funds paid by member institutions
of the Eleventh Federal Home Loan Bank District that was most recently announced
(the "Index") by the FHLB of San Francisco as such cost of funds for the
calendar month preceding the date of such announcement. If the FHLB of San
7
<PAGE>
Francisco fails to announce such rate for the calendar month immediately
preceding such Eleventh District Cost of Funds Rate Interest Determination Date,
then the Eleventh District Cost of Funds Rate for such Eleventh District Cost of
Funds Rate Interest Determination Date shall be the Eleventh District Cost of
Funds Rate in effect on such Eleventh District Cost of Funds Rate Interest
Determination Date.
Determination of Federal Funds Rate. If an Interest Rate Basis for this
-----------------------------------
Note is the Federal Funds Rate, as indicated above, the Federal Funds Rate shall
be determined on the applicable Interest Determination Date (a "Federal Funds
Rate Interest Determination Date"), and shall be the rate on that date for
Federal Funds as published in H.15(519) under the heading "Federal Funds
(Effective)" or, if not so published by 3:00 P.M., New York City time, on the
related Calculation Date, the rate on such Federal Funds Rate Interest
Determination Date, as published in Composite Quotations under the heading
"Federal Funds/Effective Rate." If such rate is not yet published in either
H.15(519) or Composite Quotations by 3:00 P.M., New York City time, on the
related Calculation Date, the Federal Funds Rate for such Federal Funds Rate
Interest Determination Date shall be calculated by the Calculation Agent and
shall be the arithmetic mean (rounded to the nearest one hundred-thousandth of a
percentage point, with five one millionths of a percentage point rounded
upwards) of the rates for the last transaction in overnight United States dollar
federal funds arranged by three leading brokers of federal funds transactions in
The City of New York selected by the Calculation Agent prior to 9:00 A.M., New
York City time on such Federal Funds Rate Interest Determination Date; provided,
--------
however, that if the brokers selected as aforesaid by the Calculation Agent are
- -------
not quoting as mentioned in this sentence, the Federal Funds Rate determined on
such Federal Funds Rate Interest Determination Date shall be the Federal Funds
Rate in effect on such Federal Funds Rate Interest Determination Date.
Determination of LIBOR. If an Interest Rate Basis for this Note is LIBOR,
----------------------
as indicated above, LIBOR will be determined on the applicable Interest
Determination Date (a "LIBOR Interest Determination Date"), and will be, either:
(a) if "LIBOR Reuters" is specified above, the arithmetic mean (rounded to the
nearest one hundred-thousandth of a percentage point, with five one millionths
of a percentage point rounded upwards) of the offered rates (unless the
specified Designated LIBOR Page (as defined below) by its terms provides only
for a single rate, in which case such single rate shall be used) for deposits in
the Index Currency having the Index Maturity designated above, commencing on the
second London Business Day immediately following that LIBOR Interest
Determination Date, that appear on the Designated LIBOR Page specified above as
of 11:00 A.M. London time, on that LIBOR Interest Determination Date, if at
least two such offered rates appear (unless, as aforesaid, only a single rate is
required) on such Designated LIBOR Page, or (b) if "LIBOR Telerate" is specified
above, the rate for deposits in the Index Currency having the Index Maturity
designated above commencing on the second London Business Day immediately
following that LIBOR Interest Determination Date, that appears on the Designated
LIBOR Page specified above as of 11:00 A.M. London time, on that LIBOR Interest
Determination Date. If, as described in the immediately preceding sentence,
fewer than two offered rates appear, or no rate appears, LIBOR in respect of the
related LIBOR Interest Determination Date will be determined as if the parties
had specified the rate described in the immediately succeeding paragraph.
With respect to a LIBOR Interest Determination Date on which fewer than two
offered rates appear, or no rate appears, as the case may be, the Calculation
Agent shall request the principal London offices of each of four major reference
banks in the London interbank market, as selected by the Calculation Agent, to
provide the Calculation Agent with its offered quotation for deposits in the
Index Currency for the period of the Index Maturity shown above, commencing on
the second London Business Day immediately following such LIBOR Interest
Determination Date, to prime banks in the London interbank market at
approximately 11:00 A.M., London time, on such LIBOR Interest Determination Date
and in a principal amount that is representative for a single transaction in the
Index Currency in such market at such time. If at least two such quotations are
provided, LIBOR determined on such LIBOR Interest Determination Date shall be
the arithmetic mean (rounded to the nearest one hundred-thousandth of a
percentage point, with five one millionths of a percentage point rounded
upwards) of such quotations as determined by the Calculation Agent. If fewer
than two quotations are provided, LIBOR determined on such LIBOR Interest
Determination Date shall be calculated by the Calculation Agent as the
arithmetic mean (rounded to the nearest one hundred-thousandth of a percentage
point, with five one millionths of a percentage point rounded upwards) of the
rates quoted at approximately 11:00 A.M. (or such other time specified above
under "OTHER PROVISIONS") in the applicable Principal Financial Center(s), on
such LIBOR Interest Determination Date by three major banks in such Principal
Financial Center(s) selected by the Calculation Agent for loans in the Index
Currency to leading European banks having the Index Maturity specified above and
in a principal amount that is representative
8
<PAGE>
for a single transaction in the Index Currency in such market at such time;
provided, however, that if the banks selected as aforesaid by the Calculation
- -------- -------
Agent are not quoting as mentioned in this sentence, LIBOR determined on such
LIBOR Interest Determination Date shall be LIBOR in effect on such LIBOR
Interest Determination Date.
"Index Currency" means the currency (including composite currencies)
specified above as the currency for which LIBOR shall be calculated. If no such
currency is specified above, the Index Currency shall be U.S. dollars.
"Designated LIBOR Page" means either (a) if "LIBOR Reuters" is designated
above, the display on the Reuters Monitor Money Rates Service for the purpose of
displaying the London interbank rates of major banks for the applicable Index
Currency, or (b) if "LIBOR Telerate" is designated above, the display on the Dow
Jones Telerate Service (or such other service or services as may be nominated by
the British Bankers' Association for the purpose of displaying London interbank
offered rates for the Index Currency) for the purpose of displaying the London
interbank rates of major banks for the applicable Index Currency. If neither
LIBOR Reuters nor LIBOR Telerate is specified above, LIBOR for the applicable
Index Currency will be determined as if LIBOR Telerate (and, in the case U.S.
dollars is the Index Currency, Page 3750) had been specified.
"Principal Financial Center" will be, unless otherwise specified above, the
following city or cities for the related Index Currency:
Principal
Financial
Index Currency Center(s)
-------------- ---------
Australian Dollar Sydney
Belgian Franc Brussels
Canadian Dollar Toronto
Danish Krone Copenhagen
Dutch Guilder Amsterdam
Finnish Markka Helsinki
French Franc Paris
Hong Kong Dollar Hong Kong
Italian Lira Milan
Luxembourg Franc Brussels and Luxembourg
New Zealand Dollar Wellington and Auckland
Norwegian Krone Oslo
Spanish Peseta Madrid
Sterling London
Swedish Krona Stockholm
Swiss Franc Zurich
U.S. Dollar New York
Yen Tokyo
Determination of Prime Rate. "Prime Rate" means the rate determined by the
---------------------------
Calculation Agent in accordance with the provisions set out in clause (i) or in
clause (ii) below, depending upon whether such rate is specified as "Prime Rate-
- -Major Banks" or as "Prime Rate--H.15" on the face hereof:
(i) If an Interest Rate Basis for this Note is the "Prime Rate--Major
Banks", as indicated above, the Prime Rate shall be determined on the
applicable Interest Determination Date (a "Prime Rate Interest
Determination Date") as the arithmetic mean (rounded to the nearest one
hundred-thousandth of a percentage point, with five one millionths of a
percentage point rounded upwards) determined by the Calculation Agent of
the prime rates of interest publicly announced by three major banks in The
City of New York, as selected by the Calculation Agent, as its United
States dollar prime rate or base lending rate as in effect for that day.
Each change in the prime rate or base lending rate of any bank so announced
by such bank will be effective as of the effective date of the announcement
or, if no effective date is specified, as of the date of the announcement.
If fewer than three such quotations are provided, the Prime Rate shall be
calculated by the Calculation Agent and shall be determined as the
arithmetic mean (rounded to the
9
<PAGE>
nearest one hundred-thousandth of a percentage point, with five one
millionths of a percentage point rounded upwards) determined by the
Calculation Agent on the basis of the prime rates quoted in The City of New
York by three substitute banks or trust companies organized and doing
business under the laws of the United States, or any state thereof, each
having total equity capital of at least $500 million and being subject to
supervision or examination by a federal or state authority, selected by the
Calculation Agent to quote such rate or rates; provided, however, that if
-------- -------
the banks or trust companies selected as aforesaid by the Calculation Agent
are not quoting as mentioned in this sentence, the Prime Rate determined on
such Prime Rate Interest Determination Date shall be the Prime Rate in
effect on such Prime Rate Interest Determination Date.
(ii) If an Interest Rate Basis for this Note is "Prime Rate--H.15",
as indicated above, "Prime Rate" means, with respect to any Prime Rate
Interest Determination Date, the rate on such date as such rate is
published in H.15(519) under the heading "Bank Prime Loan". If such rate
is not published prior to 3:00 P.M., New York City time, on the related
Calculation Date, then the Prime Rate shall be the arithmetic mean (rounded
to the nearest one hundred-thousandth of a percentage point, with five one
millionths of a percentage point rounded upwards) of the rates of interest
publicly announced by each bank that appears on the Reuters Screen NYMF
Page as such bank's prime rate or base lending rate as in effect for that
Prime Rate Interest Determination Date. If fewer than four such rates but
more than one such rate appear on the Reuters Screen NYMF Page for such
Prime Rate Interest Determination Date, the Prime Rate shall be the
arithmetic mean (rounded to the nearest one hundred-thousandth of a
percentage point, with five one millionths of a percentage point rounded
upwards) of the prime rates quoted on the basis of the actual number of
days in the year divided by a 360-day year as of the close of business on
such Prime Rate Interest Determination Date by four major money center
banks in The City of New York selected by the Calculation Agent. If fewer
than two such rates appear on the Reuters Screen NYMF Page, the Prime Rate
will be determined by the Calculation Agent on the basis of the rates
furnished in The City of New York by three substitute banks or trust
companies organized and doing business under the laws of the United States,
or any state thereof, having total equity capital of at least $500 million
and being subject to supervision or examination by federal or state
authority, selected by the Calculation Agent to provide such rate or rates;
provided, however, that if the banks or trust companies selected as
-------- -------
aforesaid are not quoting as mentioned in this sentence, the Prime Rate for
such Prime Rate Interest Determination Date will be the Prime Rate in
effect on such Prime Rate Interest Determination Date.
"Reuters Screen NYMF Page" means the display designated as page "NYMF" page
on that service for the purpose of displaying prime rates or base lending rates
of major United States banks.
Determination of Treasury Rate. If an Interest Rate Basis for this Note is
------------------------------
the Treasury Rate, as specified above, the Treasury Rate shall be determined on
the applicable Interest Determination Date (a "Treasury Rate Interest
Determination Date") as the rate applicable to the most recent auction of direct
obligations of the United States ("Treasury Bills") having the Index Maturity
specified above, as such rate is published in H.15(519) under the heading
"Treasury Bills -- auction average (investment)" or, if not so published by 3:00
P.M., New York City time, on the related Calculation Date, the auction average
rate (expressed as a bond equivalent on the basis of a year of 365 or 366 days,
as applicable, and applied on a daily basis) as otherwise announced by the
United States Department of the Treasury. In the event that the results of the
auction of Treasury Bills having the Index Maturity specified above are not
reported as provided by 3:00 P.M., New York City time, on such Calculation Date,
or if no such auction is held in a particular week, then the Treasury Rate
hereon shall be calculated by the Calculation Agent and shall be a yield to
maturity (expressed as a bond equivalent on the basis of a year of 365 or 366
days, as applicable, and applied on a daily basis) of the arithmetic mean
(rounded to the nearest one hundred-thousandth of a percentage point, with five
one millionths of a percentage point rounded upwards) of the secondary market
bid rates, as of approximately 3:30 P.M., New York City time, on such Treasury
Rate Interest Determination Date of three leading primary United States
government securities dealers as selected by the Calculation Agent for the issue
of Treasury Bills with a remaining Maturity closest to the Index Maturity
specified above; provided, however, that if the dealers selected as aforesaid by
-------- -------
the Calculation Agent are not quoting as mentioned in this sentence, the
Treasury Rate for such Treasury Rate Interest Determination Date will be the
Treasury Rate in effect on such Treasury Rate Interest Determination Date.
10
<PAGE>
Any provisions contained herein with respect to the determination of one or
more Interest Rate Bases, the specification of one or more Interest Rate Bases,
calculation of the Interest Rate applicable to this Note, its payment dates or
any other matter relating hereto may be modified by the terms as specified above
under "Other Provisions" or in an Addendum relating hereto if so specified
above.
Notwithstanding the foregoing, the interest rate hereon shall not be
greater than the Maximum Interest Rate, if any, or less than the Minimum
Interest Rate, if any, specified above. The Calculation Agent shall calculate
the interest rate hereon in accordance with the foregoing on or before each
Calculation Date. The interest rate on this Note will in no event be higher
than the maximum rate permitted by New York law, as the same may be modified by
United States law of general application.
Unless otherwise above, Merrill Lynch, Pierce, Fenner & Smith Incorporated
will be the "Calculation Agent". At the request of the Holder hereof, the
Calculation Agent shall provide to the Holder hereof the interest rate hereon
then in effect and, if determined, the interest rate which shall become
effective as of the next Interest Reset Date with respect to this Note.
If an Event of Default (as defined in the Indenture) with respect to the
Notes shall occur and be continuing, the principal of all the Notes may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of 66 2/3% in aggregate principal amount of the
Securities at any time Outstanding, as defined in the Indenture, of each series
affected thereby. The Indenture also contains provisions permitting the Holders
of specified percentages in aggregate principal amount of the Securities of each
series at the time Outstanding, on behalf of the Holders of all the Securities
of each series, to waive compliance by the Company with certain provisions of
the Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Note shall be
conclusive and binding upon such Holder and upon all future Holders of this Note
and of any Note issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof whether or not notation of such consent or waiver is
made upon this Note.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the time, place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations set forth
therein and on the face hereof, the transfer of this Note may be registered on
the Security Register of the Company, upon surrender of this Note for
registration of transfer at the office or agency of the Company in the Borough
of Manhattan, The City of New York, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company duly executed
by, the Holder hereof or by his attorney duly authorized in writing, and
thereupon one or more new Notes of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Indenture and the Notes shall be governed by and construed in
accordance with the laws of the State of New York.
11
<PAGE>
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed, manually or in facsimile, and an imprint or facsimile of its corporate
seal to be imprinted hereon.
Dated: ________________
MERRILL LYNCH & CO., INC.
-------------------------
By: __________________________
Theresa Lang
Treasurer
[FACSIMILE OF SEAL]
Attest:
By: __________________________
Gregory T. Russo
Secretary
CERTIFICATE OF AUTHENTICATION
This is one of the Securities
of the series designated therein
referred to in the within-mentioned
Indenture.
THE CHASE MANHATTAN BANK
(National Association)
as Trustee
By: _____________________________________
Authorized Officer
12
<PAGE>
OPTION TO ELECT REPAYMENT
The undersigned hereby irrevocably request(s) and instruct(s) the
Company to repay this Note (or portion hereof specified below) pursuant to its
terms at a price equal to the principal amount hereof together with interest to
the repayment date, to the undersigned, at
-------------------------------------
- --------------------------------------------------------------------------------
(Please print or typewrite name and address of the undersigned)
For this Note to be repaid, the Trustee must receive at its Corporate Trust
Office, or at such other place or places of which the Company shall from time to
time notify the Holder of this Note, not more than 60 nor less than 30 days
prior to an Optional Repayment Date, if any, shown on the face of this Note,
this Note with this "Option to Elect Repayment" form duly completed. This Note
must be received by the Trustee by 5:00 P.M., New York City time, on the last
day for giving such notice.
If less than the entire principal amount of this Note is to be repaid,
specify the portion hereof (which shall be in an amount equal to $1,000 or an
integral multiple thereof, provided that any remaining principal amount shall be
an authorized denomination) which the Holder elects to have repaid and specify
the denomination or denominations (which shall be in an amount equal to an
authorized denomination) of the Notes to be issued to the Holder for the portion
of this Note not being repaid (in the absence of any such specification, one
such Note will be issued for the portion not being repaid).
$___________________________ _____________________________________
NOTICE: The signature on this Option to
Date ______________________ Elect Repayment must correspond with the
name as written upon the face of this Note
in every particular, without alteration or
enlargement or any change whatever.
13
<PAGE>
ASSIGNMENT/TRANSFER FORM
------------------------
FOR VALUE RECEIVED the undersigned registered Holder hereby sell(s),
assign(s) and transfer(s) unto (insert Taxpayer Identification No.) ___________
_______________________________________________________________________________
(Please print or typewrite name and address including postal zip code of
assignee)
_______________________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing __________________________ attorney to transfer said Note on the
books of the Company with full power of substitution in the premises.
Dated: _______________ _________________________________________
NOTICE: The signature of the registered
Holder to this assignment must correspond
with the name as written upon the face of
the within instrument in every particular,
without alteration or enlargement or any
change whatsoever.
14
<PAGE>
MERRILL LYNCH & CO., INC.
MEDIUM-TERM NOTES, SERIES B
ADDENDUM FOR CONSTANT MATURITY TREASURY RATE INDEXED NOTES
The "Interest Determination Date" with respect to the Constant Maturity
Treasury Rate shall be the second Business Day preceding each Interest Reset
Date.
Determination of the Constant Maturity Treasury Rate. If an Interest Rate
----------------------------------------------------
Basis for the attached Note is the Constant Maturity Treasury Rate, as indicated
on such Note, the Constant Maturity Treasury Rate shall be determined on the
applicable Interest Determination Date as follows:
(i) The Constant Maturity Treasury Rate will equal the rate which
appears on Telerate Page 7052, "WEEKLY AVG YIELDS ON TREASURY CONSTANT
MATURITIES", under the column corresponding to the Index Maturity specified
above and in the row opposite the date of the last Business Day of the week
prior to the Interest Determination Date appearing in the column entitled
"WEEK END", which appears as of 5:00 P.M., New York City time, on the
applicable Interest Determination Date. "Telerate Page 7052" means the
display designated as page 7052 on the Dow Jones Telerate Service (or such
page as may replace page 7052 on that service). The rate which appears on
Telerate Page 7052 under the column corresponding to the Index Maturity is
the rate described in paragraph (ii) below published in the most recent
H.15(519) (as defined below).
(ii) If the Constant Maturity Treasury Rate as described in clause (i)
is not available by 5:00 P.M., New York City time, on the applicable
Interest Determination Date, the Constant Maturity Treasury Rate will equal
the one-week average yield on United States Treasury securities at
"constant maturity", as published in the most recent H.15(519) in the
column entitled "Week Ending" for the date of the last Business Day of the
week prior to the Interest Determination Date and opposite the heading
"Treasury constant maturities" for the Index Maturity specified above.
(iii) If the most recent date appearing on Telerate Page 7052 under
the column entitled "WEEK END" described in clause (i) above is a date
other than the date of the last Business Day of the week prior to the
Interest Determination Date and if the most recent H.15(519) available on
the applicable Interest Determination Date as described in clause (ii)
above does not contain a heading for the date of the last Business Day of
the week prior to the Interest Determination Date under the column entitled
"Week Ending", the Constant Maturity Treasury Rate will be such United
States Treasury constant maturity rate (or other United States Treasury
rate) for the Index Maturity specified above for such Interest
Determination Date (a) as may then be published by either the Board of
Governors of the Federal Reserve System or the United States Department of
Treasury, and (b) that the Calculation Agent determines to be comparable to
the rate formerly published in H.15(519).
(iv) If the Constant Maturity Treasury Rate as described in clause
(iii) is not published on the Interest Determination Date, the Constant
Maturity Treasury Rate will be a yield to maturity for direct noncallable
fixed rate obligations of the United States ("Treasury Notes") most
recently issued with an original maturity of approximately the Index
Maturity specified above and an original issue date within the immediately
preceding year based on the yield (which yield is based on asked prices)
for such issue of Treasury Notes for such Interest Determination Date, as
published by the Federal Reserve Bank of New York in its daily statistical
release entitled "Composite 3:30 P.M. Quotations for U.S. Government
Securities" (or any successor or similar publication selected by the
Calculation Agent published by the Board of Governors of the Federal
Reserve System, the Federal Reserve Bank of New York or any other Federal
Reserve Bank or affiliated entity).
A-1
<PAGE>
(v) If the Constant Maturity Treasury Rate as described in clause (iv)
is not published on the Interest Determination Date, the Constant Maturity
Treasury Rate will be calculated by the Calculation Agent and will be a
yield to maturity (expressed as a bond equivalent and as a decimal
rounded, if necessary, to the nearest one hundred-thousandth of a
percentage point with five one-millionths of a percentage point rounded up,
on the basis of a year of 365 or 366 days, as applicable, and applied on a
daily basis) based on the arithmetic mean of the secondary market bid
prices as of approximately 3:30 P.M., New York City time, on such Interest
Determination Date of three primary United States government securities
dealers in The City of New York selected by the Calculation Agent (from
five such dealers and eliminating the highest quotation (or, in the event
of equality, one of the highest) and the lowest quotation (or, in the event
of equality, one of the lowest)) for Treasury Notes with an original
maturity of approximately the Index Maturity specified above and an
original issue date within the immediately preceding year. If three or
four (and not five) of such dealers are quoting as described in this clause
(v), then the Constant Maturity Treasury Rate will be based on the
arithmetic mean of the bid prices obtained and neither the highest nor the
lowest of such quotations will be eliminated.
(vi) If fewer than three dealers selected by the Calculation Agent are
quoting as described in clause (v), the Constant Maturity Treasury Rate
will be calculated by the Calculation Agent and will be a yield to maturity
(expressed as a bond equivalent and as a decimal rounded, if necessary, to
the nearest one hundred-thousandth of a percentage point with five one-
millionths of a percentage point rounded up, on the basis of a year of 365
or 366 days, as applicable, and applied on a daily basis) based on the
arithmetic mean of the secondary market bid prices as of approximately 3:30
P.M., New York City time, on the applicable Interest Determination Date of
three leading primary United States government securities dealers in The
City of New York selected by the Calculation Agent (from five such dealers
and eliminating the highest quotation (or, in the event of equality, one of
the highest) and the lowest quotation (or, in the event of equality, one of
the lowest)) for Treasury Notes with an original maturity of approximately
ten years and a remaining term to maturity closest to the Index Maturity
specified above. If three or four (and not five) of such dealers are
quoting as described in this clause (vi), then the Constant Maturity
Treasury Rate will be based on the arithmetic mean of the bid prices
obtained and neither the highest nor the lowest of such quotations will be
eliminated.
(vii) If fewer than three dealers selected by the Calculation Agent
are quoting as described in clause (vi), the Constant Maturity Treasury
Rate will be the Constant Maturity Treasury Rate in effect on the preceding
Interest Reset Date (or, in the case of the initial Interest Determination
Date, the one-week average yield on United States Treasury securities at
"constant maturity" for the Index Maturity specified above, as published in
the most recent H.15(519)).
In the case of clause (vi), if two Treasury Notes with an original
maturity of approximately ten years have remaining terms to maturity
equally close to the Index Maturity specified above, the quotes for the
Treasury Note with the shorter remaining term to maturity will be used.
"H.15(519)" means the weekly statistical release designated as such,
published by the Board of Governors of the Federal Reserve System.
A-2
<PAGE>
EXHIBIT (10)(i)
As amended through January 16, 1995
MERRILL LYNCH & CO., INC.
-------------------------
1978 INCENTIVE EQUITY PURCHASE PLAN
-----------------------------------
<PAGE>
MERRILL LYNCH & CO., INC.
-------------------------
1978 INCENTIVE EQUITY PURCHASE PLAN
-----------------------------------
1. PURPOSE AND EFFECT OF PLAN.
--------------------------
The purpose of this 1978 Incentive Equity Purchase Plan (the "Plan") is to
secure for Merrill Lynch & Co., Inc., a Delaware corporation (the "Company"),
and its stockholders the benefits of the incentive inherent in Common Stock
ownership by selected employees of the Company and its subsidiaries who will be
responsible for continued long-term growth and to stimulate the efforts of such
employees by encouraging capital appreciation and giving suitable recognition to
services which will contribute materially to the success of the Company. It is
intended that the Plan will aid in retaining, encouraging and attracting
employees of exceptional ability because of the opportunity offered to acquire a
proprietary interest in the business.
2. SHARES RESERVED FOR THE PLAN.
----------------------------
No further shares of Common Stock, par value $1.33 1/3 per share, of the
Company ("Common Stock") may be sold under the Plan, the sale of shares under
the Plan having been discontinued; provided, however, that the Plan shall
-------- -------
continue in effect with respect to all Book Value Shares sold under the Plan
prior to January 16, 1995, and the rights and obligations of the holders of such
Book Value Shares, and the rights and obligations of the Company with respect
such Book Value Shares, under the Plan and the related agreements of sale shall
be unaffected by the discontinuation of the sale of shares under the Plan. For
purposes of the Plan, the terms "Market Shares" and "Book Value Shares" shall
have the following meanings: "Market Shares" shall mean shares of Common Stock
of the Company for which there is a generally recognized trading market and
which are freely transferable; "Book Value Shares" shall mean shares of Common
Stock of the Company, which shall be shares of the same class as Market Shares
and which shall have all of the same designations, preferences and relative,
participating, optional or other rights, and qualifications, limitations or
restrictions thereon (including, without limitation, voting, dividend and
liquidation rights), as Market Shares, except that they shall not be
transferable except to the Company and except that they shall be subject to the
repurchase provisions set forth in Section 5 hereof and in the repurchase
agreement referred to therein. Book Value Shares shall include any shares
issued in respect of any Book Value Shares by reason of dividends thereon or
splits, combinations or reclassifications thereof.
1
<PAGE>
3. ADMINISTRATION OF THE PLAN.
--------------------------
(a) The Plan shall be administered by a committee, to be known as the
Management Development and Compensation Committee (the "Committee"), of not less
than three members appointed by and composed of members of the Board of
Directors of the Company. Members of the Committee shall not be eligible to
participate in the Plan while serving on the Committee, nor shall they have been
eligible to participate in the Plan for a period of one year prior to the
commencement of their service on the Committee. The Committee shall have full
authority, from time to time: (1) subject to the provisions of Section 4
hereof, to determine, after receiving the recommendations of the management of
the Company, which of the employees of the Company or any of its present or
future subsidiaries shall participate in the Plan and the extent and terms of
such participation; (2) to prescribe the form or forms of the instruments and
repurchase agreements evidencing any sale or rights under the Plan (which forms
shall be consistent with the Plan); (3) to adopt, amend, and rescind such rules
and regulations as, in its opinion, may be advisable in the administration of
the Plan; and (4) to construe and interpret the Plan, the rules and regulations
and the instruments and repurchase agreements utilized under the Plan and to
make all other determinations deemed necessary or advisable for the
administration of the Plan. The Committee's interpretation and construction of
any provision of the Plan or any instrument or repurchase agreement utilized
thereunder and any determination by the Committee pursuant to any provision of
the Plan or any such instrument or repurchase agreement shall be final and
conclusive.
(b) Any offer of Book Value Shares under the Plan shall be in writing and
shall be entirely discretionary and nothing in the Plan shall be deemed to give
any officer or employee any right to purchase any shares. All decisions,
determinations, and implementation by the Committee shall be final and binding.
(c) The Committee shall hold meetings at such times and places as it may
determine. The Committee may request advice or assistance or employ such other
persons as are necessary for proper administration of the Plan. A quorum of the
Committee shall consist of a majority of its members and the Committee may act
by vote of a majority of its members at a meeting at which a quorum is present,
or without a meeting by a written consent to the action taken signed by all
members of the Committee. The Board of Directors may from time to time appoint
members of the Committee in substitution of members previously appointed and may
fill vacancies, however caused, in the Committee.
2
<PAGE>
4. ELIGIBILITY AND PARTICIPATION.
-----------------------------
(a) Subject to the provisions of this Plan, Book Value Shares may be sold
only to such employees of the Company or any of its present or future
subsidiaries (defined to include any corporation, partnership or other
organization of which the Company 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) who, (i) in the opinion of the Committee, after
receiving the recommendations of the management of the Company, exercise such
functions or discharge such responsibilities that they merit consideration as
selected employees; and (ii) have not made, during the 12-month period preceding
the Purchase Date with respect to any offer of Book Value Shares hereunder, a
hardship withdrawal of Elective 401(k) Deferrals as defined under the Merrill
Lynch & Co., Inc. Savings & Investment Plan.
(b) An eligible employee may be sold Book Value Shares hereunder and may
thereafter be sold additional Book Value Shares if the Committee shall so
determine.
5. SALES OF BOOK VALUE SHARES.
--------------------------
Book Value Shares may be sold to eligible employees from time to time upon
the following terms and conditions:
(a) The purchase price for each Book Value Share shall be the Book Value
Per Share on the Valuation Date next preceding the Purchase Date such Book Value
Share is purchased by an eligible employee.
"Book Value Per Share" as of any given date, for purposes of the Plan, shall
mean the common stockholders' equity as reported in the consolidated financial
statements of the Company (as distributed to stockholders of the Company) at the
Valuation Date coincident with or next preceding such given date (except as
provided in clause (d)), in each case divided by the number of shares of the
Common Stock of the Company outstanding as of such Valuation Date (excluding
treasury stock and shares of Series A Junior Preferred Stock, par value $1.00
per share, if any), which calculation shall be made before giving effect to the
sale or repurchase of Book Value Shares on such Valuation Date; provided,
however, that the Book Value Per Share, only for purposes of calculating the
price at which Book Value Shares will be repurchased by the Company under clause
(d), may be adjusted to such an extent as may be determined by the Committee to
preserve the benefit of the arrangement for the Company, its employees and
stockholders, if in the opinion of the Committee, after consultation with the
Company's independent public accountants, changes in the Company's accounting
policies, acquisitions or other unusual or extraordinary items have
disproportionately and materially affected the number of shares of Common Stock
outstanding or the Company's common stockholders' equity. "Valuation Date", for
purposes of the Plan, shall mean the last day of each quarterly accounting
period then utilized by the Company. "Purchase Date", for purposes of the Plan,
shall mean a date
3
<PAGE>
fixed by the Committee in connection with each offer of a Book Value Share under
the Plan, provided, however, that such date shall be at least seven business
days before the Valuation Date immediately next succeeding the Valuation Date
utilized for calculating the purchase price of such Book Value Share pursuant to
clause (a).
(b) An employee who is offered the right, through a written offer, to
purchase Book Value Shares under the Plan must irrevocably agree on or prior to
the Purchase Date set forth in such offer to purchase any or all of the number
of Book Value Shares indicated in such offer; provided, however, that if an
offer is not accepted in full it must be accepted in a number of shares which is
an integral multiple of 100. Book Value Shares shall be sold to an employee
only upon the simultaneous receipt by the Company of the full purchase price for
such shares, determined in accordance with clause (a), and a repurchase
agreement, in form satisfactory to the Committee, executed by the employee and
containing the restrictions set forth in clause (c), providing for the resale to
the Company of the Book Value Shares so purchased upon the terms specified in
clause (d), and containing such other provisions as the Committee shall
determine. The purchase price for Book Value Shares shall be payable in cash
or, at the discretion of the Committee, all or part of the purchase price may be
paid through the assignment and delivery to the Company of Market Shares (valued
at the Fair Market Value thereof on the date of such delivery in accordance with
clause (i)).
(c) Book Value Shares may not be sold, assigned or transferred, but may be
pledged or otherwise encumbered.
(d) Each employee purchasing any Book Value Shares shall agree that upon
the earlier of (i) termination of such employee's employment for any reason
other than retirement or disability (as both terms are defined by the Committee)
or death or (ii) the lapse of a period of five years from the date of such
employee's retirement or disability or (iii) the lapse of a period of six months
from the date of such employee's death or (iv) the delivery of a written request
by the Committee or the delivery of a written request by such employee to the
Company (provided, however, that such request may not be made by such employee
until a period of at least six months has elapsed since such Book Value Shares
were purchased by such employee) or, in the case of death, the legal
representative of such employee's estate, such employee or his estate, as the
case may be, shall, on a date specified by the Committee, within thirty days of
such termination, lapse or request, unless such Book Value Shares have been
surrendered pursuant to clause (f), sell to the Company, and the Company shall
repurchase, all Book Value Shares then owned by such employee or his estate, as
the case may be; provided, however, that in the case of a request pursuant to
(iv) above, such request may state that only a particular number of Book Value
Shares (in integral multiples of 100) shall be sold to the Company whereupon
only such number of Book Value Shares shall be sold to the Company and
repurchased by the Company. Any purchase by the Company pursuant to this clause
(d) shall be at a price per share equal to the Book Value Per Share as of the
Valuation Date coincident with or next preceding the date of
4
<PAGE>
such termination, lapse or request; provided, however, that if the Board of
Directors has ordered the preparation of, or has received, consolidated
financial statements of the Company certified by the Company's independent
public accountants since such Valuation Date, the Book Value Per Share shall be
based on such certified financial statements until the next succeeding Valuation
Date. Payment for Book Value Shares repurchased, less any applicable transfer
taxes and amounts required to be withheld pursuant to Section 13 hereof, shall
be made by the Company, as promptly as the amount of such payment becomes
ascertainable, in cash, or, in the discretion of the Committee, in a number of
Market Shares or other securities issued by the Company having an aggregate Fair
Market Value as at the business day preceding the date of resale to the Company
equal to the amount payable to the employee (except that an employee whose
employment was terminated due to retirement or disability, or the estate of such
employee, may request that the Company's obligation be satisfied by the delivery
of Market Shares, but the decision to deliver any such Market Shares shall be in
the sole discretion of the Committee) or in a combination of the foregoing;
provided, however, that in the event the payment is to be made in securities
issued by the Company other than Market Shares, notice of such payment shall be
delivered to the employee or his estate, as the case may be, at least ten
business days prior to the intended date of payment by the Company. In the event
that the Committee has given notice that payment is to be made in other than
cash or Market Shares, then at any time after a termination, lapse or request
under this clause (d) and the surrender of Book Value Shares hereunder, and
until five business days prior to the intended date of payment by the Company,
such Book Value Shares may be surrendered pursuant to clause (f) and the
surrender under this clause (d) shall be deemed withdrawn.
(e) Each certificate issued in respect of Book Value Shares sold under the
Plan shall be registered in the name of the employee, and shall bear a legend
that includes the following language:
"The transferability of this certificate and the shares of stock
represented hereby is restricted and the shares are subject to the further
terms and conditions contained in the Merrill Lynch & Co., Inc. 1978
Incentive Equity Purchase Plan and in a repurchase agreement executed
pursuant thereto. A copy of such Plan is on file in the office of the
Secretary of Merrill Lynch & Co., Inc."
(f) At any time, or from time to time, any employee or, in the case of
death, the legal representative of the employee's estate, may surrender to the
Company any Book Value Shares then owned by such employee or estate, as the case
may be, and request that such shares be released from the restrictions and
rights contained in the governing repurchase agreement. As soon as practicable
after receipt of the foregoing, the Company shall deliver to such employee or
estate, as the case may be, for each Book Value Share surrendered, a number of
Market Shares equal to the quotient (not to exceed 1.00) obtained by dividing
the Book Value Per Share at which such Book Value Share was purchased by the
employee from the Company by the Fair Market
5
<PAGE>
Value per share of Common Stock on the business day immediately preceding the
Purchase Date on which such Book Value Share was purchased by the employee;
provided, however, that under no circumstances shall the Company be required, in
connection with any surrender, pursuant to this clause (f), to deliver a number
of Market Shares in excess of the number of Book Value Shares surrendered.
(g) The Company shall not be obligated to deliver any fractional Market
Shares under this Plan as a result of the repurchase of any Book Value Shares
under clause (d) or the surrender of any Book Value Shares under clause (f), but
instead shall deliver to the employee or estate, as the case may be, an amount
of cash equal to the corresponding fraction of the Fair Market Value per share
of Common Stock on the date of surrender of such Book Value Shares. In
addition, the number of Market Shares deliverable to an employee or estate, as
the case may be, shall be reduced for any applicable transfer taxes and amounts
required to be withheld pursuant to Section 13 hereof.
(h) After the delivery of Market Shares to an employee or the estate of an
employee under either clause (d) or (f), the repurchase agreement or agreements
previously entered into between the Company and such employee or estate, as the
case may be, shall continue in full force and effect, but only as to the Book
Value Shares, if any, which the employee continues to own.
(i) For purposes of the Plan, "Fair Market Value" of any security on any
given date shall be determined by the Committee by any fair and reasonable
means, including (a) if the security is not listed for trading on a national
securities exchange but is traded in the over-the-counter market, the mean of
the highest and lowest bid prices for such security on the date in question, or
if there are no such bid prices for such security on such date, the mean of the
highest and lowest bid prices on the first day prior thereto on which such
prices appear, or (b) if the security is listed for trading on one or more
national securities exchanges, the mean of the high and low sales prices on the
principal such exchange on the date in question, or if such security shall not
have been traded on such principal exchange on such date, the mean of the high
and low sales prices on such principal exchange on the first day prior thereto
on which such security was so traded, provided, however, if the Distribution
-------- -------
Date (as defined in the Rights Agreement dated as of December 16, 1987) (the
"Rights Agreement") between the Company and Manufacturers Hanover Trust Company
shall have occurred and the Rights (as defined in the Rights Agreement) shall
then be represented by separate certificates rather than by certificates
representing the Common Stock, there shall be added to such value as determined
in (a) or (b) above, as the case may be, (i) if the Rights are not listed for
trading on a national securities exchange but are traded in the over-the-counter
market, the mean of the highest and lowest bid prices of the Rights on the date
in question, or, if there are no such bid prices for the Rights on such date,
the mean of the highest and lowest bid prices on the first date prior thereto on
which such prices appear or (ii) if the Rights are listed for trading on one or
more national securities exchanges, the mean of the high and low sales prices of
the Rights on the
6
<PAGE>
principal such exchange on the date in question, or if the Rights shall not have
been traded on such principal exchange on such date, the mean of the high and
low sales prices on such principal exchange on the first day prior thereto on
which the Rights were so traded.
6. RIGHTS NOT TRANSFERABLE.
-----------------------
No rights granted under the Plan or repurchase agreements are assignable or
transferable by an employee other than by will or the laws of descent and
distribution.
7. TAX LITIGATION.
--------------
The Company shall have the right to contest, at its expense, any tax ruling
or decision, administrative or judicial on an issue which is related to the Plan
or any repurchase agreement and which the Committee believes to be important to
holders of shares of Common Stock sold under the Plan, and to conduct any such
contest or any litigation arising therefrom to a final decision.
8. AMENDMENT OF THE PLAN.
---------------------
The Board of Directors or the Committee (but no other committee of the Board
of Directors) may from time to time alter, amend, modify, suspend or discontinue
the Plan or alter or amend any and all of the repurchase agreements entered into
hereunder; provided, however, that no change shall be made in the maximum number
of shares which may be sold under the Plan (other than adjustments made pursuant
to Section 9 hereof), the method by which the price at which Book Value Shares
may be sold or repurchased is determined, the method of ascertaining Book Value
Per Share (other than adjustments made pursuant to Section 5 hereof) or the
terms of the exchange of Book Value Shares for Market Shares without the
approval of the holders of a majority of the shares of Common Stock represented
in person or by proxy at a meeting of stockholders. No amendment or
modification of the Plan or any repurchase agreement shall operate so as to
adversely affect any employee with respect to Book Value Shares already
purchased without the consent of such employee.
9. ADJUSTMENT IN CASE OF CHANGES AFFECTING THE COMMON STOCK.
--------------------------------------------------------
In the event of a subdivision or consolidation of outstanding shares of
Common Stock or other capital adjustment, or the payment of a stock dividend
thereon, the number of shares reserved or authorized to be reserved under the
Plan shall be increased or reduced proportionately and the Book Value Per Share
and the terms of the exchange of Book Value Shares for Market Shares increased
or reduced proportionately, and such other adjustments shall be made as may be
deemed necessary or equitable by the Committee. Subject to any required action
by the stockholders of the Company, if the Company shall be the surviving or
resulting corporation in any merger or consolidation, any repurchase agreement
under the Plan
7
<PAGE>
shall cover the shares which the employee receives upon the merger or
consolidation in respect of the shares covered by the repurchase agreement. In
the event of a change in the Company's presently authorized Common Stock which
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 Common Stock within the meaning of the
Plan. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Committee to give
proper effect to such event.
10. GOVERNMENTAL AND OTHER REGULATIONS.
----------------------------------
The Plan, and the sale of shares hereunder, and the Company's obligation to
repurchase or exchange shares, shall be subject to all applicable Federal and
state laws, rules and regulations, and to such approvals by any regulatory or
governmental agency which may, in the opinion of counsel for the Company, be
required.
11. INDEMNIFICATION OF COMMITTEE.
----------------------------
Service on the Committee shall constitute service as a Director of the
Company so that members of the Committee shall be entitled to indemnification
and reimbursement as Directors of the Company pursuant to its Certificate of
Incorporation, By-Laws or resolutions of its Board of Directors or stockholders.
12. EFFECTIVE DATE.
--------------
The Plan shall not become effective unless and until approved by the vote of
the holders of a majority of the shares of Common Stock represented in person or
by proxy at the meeting of stockholders to which it is presented.
13. WITHHOLDING.
-----------
Amounts paid or shares delivered under the Plan shall be reduced by any sums
required to be withheld by the Company.
8
<PAGE>
EXHIBIT (10)(ii)
DATED AS OF NOVEMBER 10, 1994
MERRILL LYNCH & CO., INC.
-------------------------
AMENDED AND RESTATED
--------------------
1994 DEFERRED COMPENSATION AGREEMENT
------------------------------------
FOR A SELECT GROUP OF ELIGIBLE EMPLOYEES
----------------------------------------
<PAGE>
MERRILL LYNCH & CO., INC.
AMENDED AND RESTATED
1994 DEFERRED COMPENSATION AGREEMENT
FOR A SELECT GROUP OF ELIGIBLE EMPLOYEES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
RECITALS....................................................................... 1
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 Agreement Year 4
(c) Wages Subject to Legal Process................................... 4
III. DEFERRAL ELECTIONS; ACCOUNTS..................................... 5
3.1 Deferral Elections............................................... 5
(a) Timing and Manner of Making of Elections......................... 5
(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, 1994........................................ 7
(b) Adverse Tax Determination........................................ 7
(c) Rescission For Amounts Not Yet Earned............................ 8
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
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
5.3 Withholding of Taxes....................... 9
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
VI. ADMINISTRATION OF THE AGREEMENT............ 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................... 11
7.1 Litigation................................. 11
7.2 Headings Are Not Controlling............... 11
7.3 Governing Law.............................. 12
7.4 Amendment and Termination.................. 12
7.5 Agreement Binding on Successors and Assigns 12
7.6 Invalidity of Provisions................... 12
</TABLE>
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<PAGE>
MERRILL LYNCH & CO., INC.
AMENDED AND RESTATED
1994 DEFERRED COMPENSATION AGREEMENT
FOR A SELECT GROUP OF ELIGIBLE EMPLOYEES
WHEREAS, Merrill Lynch & Co., Inc. ("ML & Co.") has entered into agreements
to defer compensation with certain of its employees or the employees of its
affiliates;
WHEREAS, ML & Co. now wishes to amend and restate such agreements to
increase the flexibility and benefit of such agreements to the participants
therein in order to encourage the participants to continue their employment;
NOW, THEREFORE, effective November 10, 1994, all agreements collectively
known as the Merrill Lynch & Co., Inc. 1994 Deferred Compensation Agreement for
a Select Group of Eligible Employees are hereby amended and restated in their
entirety as set forth below:
ARTICLE I
GENERAL
1.1 PURPOSE AND INTENT.
The purpose of the Agreement 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 Agreement 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 Agreement shall be administered and interpreted shall
be consistent with this intention.
1.2 DEFINITIONS.
For the purpose of the Agreement, 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
Agreement.
"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 period from October 1, 1993 to
December 31 1994, and payable after January 1, 1994, as a result of the
Participant's production credit level.
<PAGE>
"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 Agreement 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.
"Agreement" means this Merrill Lynch & Co., Inc. Amended and Restated 1994
Deferred Compensation Agreement for a Select Group of Eligible Employees.
"Agreement Year" means the Fiscal Year ending in 1995.
"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.
"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, FCCAAP Payment 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 Agreement).
"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 Agreement.
"Deferred Amounts" means the amounts of Compensation actually deferred by
the Participant under this Agreement.
"Election Year" means the 1993 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
Agreement, 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.
"FCCAAP" means the Merrill Lynch 1984 Asset Accumulation Award Plan.
2
<PAGE>
"FCCAAP Payment" means the amount of cash, if any, that would, but for
deferral under this Agreement, be payable to the Participant as soon as
practicable following January 1, 1995 in accordance with the terms of Section 8
of FCCAAP (including a Proportional Amount of any Forfeited Amount).
"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 Agreement (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 Agreement.
"MDCC" means the Management Development and Compensation Committee of the
Board of Directors.
"ML & Co." means Merrill Lynch & Co., Inc.
"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 Agreement.
"Remaining Deferred Amounts" means a Participant's Deferred Amounts times
a fraction equal to the number of remaining installment payments divided by the
total number of installment payments.
"Retirement" means a Participant's (i) termination of employment with the
Company for reasons other than for cause on or after the Participant's 65th
birthday, or (ii) resignation on or after the Participant's 55th birthday if
the Participant has at least 10 years of service, or (iii) resignation at any
age with the express approval of the Administrator, which will be granted only
if the termination is found by the Administrator to be in, or not contrary to,
the best interests of the Company.
"Selected Benchmark Return Option" means a Benchmark Return Option
selected by the Participant in accordance with Section 3.4.
"Sign-On Bonus" means a single-sum amount paid or payable during the
Agreement Year upon commencement of employment to a new Eligible Employee, in
addition to base pay and other Compensation, to induce him or her to become an
employee of the Company.
3
<PAGE>
"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
Agreement Year with respect to the prior Fiscal Year, which for purposes of
this Agreement is considered earned during the Agreement Year regardless of
when it is actually paid to the Participant.
ARTICLE II
ELIGIBILITY
2.1 ELIGIBLE EMPLOYEES.
(a) GENERAL RULE. An individual is an Eligible Employee if he or she (i)
is a Full-Time Domestic Employee or a Full-Time Expatriate Employee, (ii) has
at least $200,000 of Eligible Compensation for the Election Year, (iii) has
attained at least the title of Vice President, Director or Managing Director,
or holds a National Sales Management position with the Company (a "National
Sales Manager"), and (iv) (A) is a financial consultant or an estate planning
and business insurance specialist, who was a member in 1993 of the Chairman's
Club, the Charles E. Merrill Circle, the Society of Eagles, the Falcons Club or
the Win Smith Fellows, (B) is a National Sales Manager (C) is a member of the
International Private Banking Group, (D) is a non-producing employee in the
Senior Manager or Senior Consultant Band (Q Band) or above, or (E) is a
producing employee in grade 95 or above; provided, that non-producing employees
--------
in the Director Band (R Band) or above and producing employees in grade 97 or
above (or their executive equivalents) shall not be required to meet condition
(ii) hereof, and provided, further, that employees who were 1993 Win Smith
-------- -------
Fellows shall not be required to meet condition (iii) hereof.
(b) INDIVIDUALS FIRST EMPLOYED DURING ELECTION YEAR OR AGREEMENT 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
Agreement 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.
4
<PAGE>
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 Agreement must be
received by the Administrator or such person as he may designate for the
purpose by no later than September 30, 1993; provided, however, that the
-------- -------
Eligible Employee's election to defer a Sign-On Bonus must be part of such
Eligible Employee's terms and conditions of employment agreed to prior to the
Eligible Employee's first day of employment with the Company.
(b) IRREVOCABILITY OF DEFERRAL ELECTION. Except as provided in Sections
3.5 and 5.5, an election to defer the receipt of any Compensation made under
Section 3.1(a) is irrevocable once submitted to the Administrator or his
designee. The Administrator's acceptance of an election to defer Compensation
shall not, however, affect the contingent nature of such Compensation under the
plan or program under which such Compensation is payable.
(c) APPLICATION OF ELECTION. The Participant's Deferral Percentage will
be applied to each payment of Compensation to which the Participant's deferral
election applies, provided, that the aggregate of the Participant's Deferred
--------
Amounts shall not exceed the Participant's Maximum Deferral. If a Participant
has made deferral elections with respect to more than one category of
Compensation, this Section 3.1(c) shall be applied separately with respect to
each such category.
3.2 CREDITING TO ACCOUNTS.
A Participant's Deferred Amounts will be credited to the Participant's
Account, as soon as practicable (but in no event later than 90 days) after the
last day of the Fiscal Month during which such Deferred Amounts would, but for
deferral, have been paid and will be accounted for in accordance with Section
3.4.
3.3 MINIMUM REQUIREMENTS FOR DEFERRAL.
(a) MINIMUM REQUIREMENTS. Notwithstanding any other provision of this
Agreement, no deferral will be effected under this Agreement with respect to a
Participant if:
(i) the Participant is not an Eligible Employee as of December 31, 1993,
(ii) the Participant's election as applied to the Participant's Variable
Incentive Compensation (determined by substituting the Election Year
for the Agreement Year) or Adjusted Compensation (determined by
substituting the Fiscal Year ending in 1992 for the Fiscal Year
ending in 1994) would have resulted in an annual deferral of less
than $15,000, or
5
<PAGE>
(iii) the greater of (A) the sum of (1) the compensation amount listed
on the Participant's W-2 form for 1994 and (2) any Compensation
that is accelerated which the Participant may receive in December
1993 which would have been payable in calendar year 1994 in the
absence of the action of the Company to accelerate the payment,
and (B) the Participant's Eligible Compensation for calendar year
1995, is less than $200,000;
provided, that any Participant who first becomes an employee of the Company
--------
during the Agreement Year shall not be required to satisfy conditions (i) and
(ii).
(b) FAILURE TO MEET REQUIREMENTS. If any of the requirements of Section
3.3(a) are not met by a Participant, the Deferred Amounts will be paid to the
Participant, without adjustment to reflect the performance of any Selected
Benchmark Return Option, as soon as practicable after it has been determined
that the requirement has not been met provided, however, that if the
-------- -------
Participant fails to meet the requirements of Section 3.3(a)(iii), the
Participant will receive the greater of the Deferred Amounts or the Account
Balance.
3.4 BENCHMARK RETURN OPTIONS; ADJUSTMENT OF ACCOUNTS.
(a) SELECTION OF BENCHMARK RETURN OPTIONS. Coincident with the
Participant's election to defer Compensation, the Participant must select one
or more Benchmark Return Options and the percentage of the Participant's
Account to be adjusted to reflect the performance of each Selected Benchmark
Return Option. All elections of Selected Benchmark Return Options shall be in
multiples of 10% unless the Administrator determines that lower increments are
administratively feasible, in which case such lower increment shall apply. A
Participant may, by complying with such 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 Agreement 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:
6
<PAGE>
(i) if the security is listed for trading on one or more national
securities exchanges, the average of the high and low sale prices
for that day on the principal exchange for such security, or if
such security is not traded on such principal exchange on that
day, the average of the high and low sales prices on such
exchange on the first day prior thereto on which such security
was so traded;
(ii) if the security is not listed for trading on a national
securities exchange but is traded in the over-the-counter market,
the average of the highest and lowest bid prices for such
security on the relevant day; or
(iii) if neither clause (i) nor (ii) applies, the value determined by
the Administrator by whatever means he considers appropriate in
his sole discretion.
(c) ANNUAL CHARGE. As of the last day of each Fiscal Year or such earlier
day in December as the Administrator shall determine, an Annual Charge of 2.0%
of the Participant's Deferred Amounts (exclusive of any appreciation or
depreciation determined under Section 3.4 (b)) shall be applied to reduce the
Account Balance (but not below zero). In the event that the Participant elects
to have the Account Balance paid in installments, this Annual Charge will be
charged on the Remaining Deferred Amounts after giving effect to the
installment payments. In the event that the Account Balance is paid out
completely during a Fiscal Year prior to the date that the Annual Charge is
assessed, a pro rata Annual Charge will be deducted from amounts to be paid to
--------
the Participant to cover that fraction of the Fiscal Year that Deferred Amounts
(or Remaining Deferred Amounts in the case of installment payments) were
maintained hereunder. The Annual Charge shall be applied as a pro rata
--------
reduction of the Account Balance indexed to each of the Participant's Selected
Benchmark Return Options. In applying the Annual Charge, the pricing
principles set forth in Section 3.4(b) will be followed.
3.5 RESCISSION OF DEFERRAL ELECTION.
(a) PRIOR TO DECEMBER 1, 1993. A deferral election hereunder may be
rescinded at the request of a Participant only (i) on or before December 1,
1993, 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, 1993 and December 1, 1993), agrees to the rescission
of the election. The Deferred Amounts will be paid to the Participant as soon
as practicable subject to a reduction for any applicable withholding taxes.
(b) ADVERSE TAX DETERMINATION. Notwithstanding the provisions of Section
3.5(a), a deferral election may be rescinded at any time if (i) a final
determination is made by a court or other governmental body of competent
jurisdiction that the election was ineffective to defer income for purposes of
U.S. Federal, state, local or foreign income taxation and the time for appeal
from this determination has expired, and (ii) the Administrator, in his sole
discretion, decides, upon the Participant's request and upon evidence of the
occurrence of the events described in (i) hereof that he finds persuasive, to
rescind the election. Upon such rescission, the Account Balance, including any
adjustment for performance of the Selected Benchmark Return Options will be
paid to the Participant as soon as practicable, and no additional amounts will
be deferred pursuant to this Agreement.
(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
7
<PAGE>
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
Agreement.
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 Agreement, 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 AGREEMENT, 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 Agreement, by written will, or by the laws of descent
and distribution.
4.3 EFFECT OF DEFERRAL ON BENEFITS UNDER PENSION AND WELFARE BENEFIT PLANS.
The effect of deferral on pension and welfare benefit plans in which the
Participant may be a participant will depend upon the provisions of each such
plan, as amended from time to time.
ARTICLE V
PAYMENT OF ACCOUNT
5.1 PAYMENT DATE.
A Participant's Account Balance will be paid by ML & Co., as elected by
the Participant at the time of his or her deferral election, either in a single
sum to be paid, or in the number of annual installments (not to exceed 15)
chosen by the Participant to commence, as specified, (i) in the month following
the month of the Participant's Retirement or death, (ii) in any month and year
selected by the Participant after the end of 1994, (iii) in any month in the
calendar year following the Participant's Retirement, but in no event may the
date elected under clause (i), (ii) or (iii) result in payment (in the case of
a single sum) 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 any, shall be a fraction of the Account Balance as
of the last day of the month immediately preceding the month in which the
payment is to be made, the numerator of such
8
<PAGE>
fraction shall be one and the denominator of such fraction shall be the number
of remaining installments (including the installment to be made).
5.2 TERMINATION OF EMPLOYMENT.
(a) DEATH OR RETIREMENT. If the Participant dies or retires prior to
payment, then the Account Balance will be paid to the Participant in accordance
with the Participant's election (in the event of Retirement) or to the
Participant's beneficiary (in the event of death) in accordance with the
Participant's election of either installment payments or a lump sum, provided,
--------
however, that in the event that a beneficiary of the Participant's Account
-------
Balance is the Participant's estate or is otherwise not a natural person, the
applicable portion of the Account Balance will be paid in lump sum to such
beneficiary.
(b) OTHER TERMINATION OF EMPLOYMENT. If the Participant's employment
terminates at any time for any reason other than death or Retirement, the
Account Balance will be paid to the Participant, in a lump sum, as soon
thereafter as is practicable.
(c) LEAVE OF ABSENCE, TRANSFER OR DISABILITY. The Participant's
employment will not be considered as terminated if the Participant is on an
approved leave of absence or if the Participant transfers or is transferred but
remains in the employ of the Company or if the Participant is eligible to
receive disability payments under the ML & Co. Basic Long-Term Disability Plan.
(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 Agreement 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 Agreement if the primary beneficiary does not
survive the Participant. The Participant may designate more than one person as
the Participant's beneficiary or contingent beneficiary, in which case (i) no
contingent beneficiary would receive any payment unless all of the primary
beneficiaries predeceased the Participant, and (ii) the surviving beneficiaries
in any class shall share in any payments in proportion to the percentages of
interest assigned to them by the Participant.
(b) CHANGE IN BENEFICIARY. The Participant may change his or her
beneficiary or contingent beneficiary (without the consent of any prior
beneficiary) in a writing delivered to the
9
<PAGE>
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 Agreement only; and any designations under other
deferral agreements or plans of the Company will remain unaffected.
(c) DEFAULT BENEFICIARY. Effective January 1, 1995, 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 Agreement
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 Agreement. 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
<PAGE>
ARTICLE VI
ADMINISTRATION OF THE AGREEMENT
6.1 POWERS OF THE ADMINISTRATOR.
The Administrator has full power and authority to interpret, construe, and
administer this Agreement 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 Agreement
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, FCCAAP Payment, Sign-On Bonus, Eligible Compensation,
the Deferred Amounts, the Account Balance, the designation of a beneficiary, or
any other matters.
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
Agreement 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 Agreement are for convenience only and will
not control or affect the meaning or construction of any of the terms or
provisions of this Agreement.
11
<PAGE>
7.3 GOVERNING LAW.
To the extent not preempted by applicable U.S. Federal law, this Agreement
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 Agreement at any time, except that no such amendment or
termination shall adversely affect the right of a Participant to his or her
Account Balance as of the date of such amendment or termination.
7.5 AGREEMENT BINDING ON SUCCESSORS AND ASSIGNS.
This Agreement will be binding upon and inure to the benefit of ML & Co.
and its successors and assigns; the Participant and the Participant's heirs,
executors, administrators and legal representatives; and the Participant's
beneficiary(ies) and the heirs, executors, administrators and legal
representatives of such beneficiary(ies).
7.6 INVALIDITY OF PROVISIONS.
If any provision of this Agreement or the application thereof shall for
any reason be invalid or unenforceable, such provision shall be limited only to
the extent necessary in the circumstances to make it valid and enforceable. In
any event, the remaining provisions of this Agreement will continue in full
force and effect.
12
<PAGE>
EXHIBIT (10)(iii)
AS AMENDED THROUGH DECEMBER 5, 1994
MERRILL LYNCH & CO., INC.
-------------------------
LONG-TERM INCENTIVE COMPENSATION PLAN
-------------------------------------
<PAGE>
TABLE OF CONTENTS
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
(i)
<PAGE>
PAGE
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
(ii)
<PAGE>
PAGE
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................... 12
(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
(iii)
<PAGE>
PAGE
Section 4.4 Exercise of Stock Options......................... 15
(a) Exercisability....................................... 15
(b) Option Period........................................ 15
(c) Exercise in the Event of Termination
of Employment........................................ 15
(i) Death.............................................. 15
(ii) Disability or Retirement.......................... 15
(iii) Other Terminations............................... 16
Section 4.5 Payment of Purchase Price Upon Exercise
and Delivery of Shares........................................ 16
Section 4.6 Limitation on Fair Market Value of Shares of
Common Stock Received upon Exercise of
Incentive Stock Options....................................... 17
ARTICLE V - PROVISIONS APPLICABLE TO STOCK APPRECIATION
RIGHTS........................................................... 17
Section 5.1 Grants of Stock Appreciation Rights............... 17
Section 5.2 Stock Appreciation Rights Granted in
Connection with Incentive Stock Options....................... 18
Section 5.3 Payment Upon Exercise of Stock Appreciation
Rights........................................................ 18
Section 5.4 Termination of Employment........................ 18
(a) Death............................................ 18
(b) Disability....................................... 18
(c) Retirement....................................... 19
(d) Other Terminations............................... 19
ARTICLE VI - PROVISIONS APPLICABLE TO OTHER ML & CO.
SECURITIES....................................................... 19
Section 6.1 Grants of Other ML & Co. Securities............... 19
(iv)
<PAGE>
PAGE
Section 6.2 Terms and Conditions of Conversion or
Exchange................................................. 20
ARTICLE VII - CHANGES IN CAPITALIZATION....................... 20
ARTICLE VIII - PAYMENTS UPON TERMINATION OF EMPLOYMENT AFTER
A CHANGE IN CONTROL...................................... 21
Section 8.1 Value of Payments Upon Termination After a
Change in Control........................................ 21
(a) Performance Shares and Performance Units........ 21
(b) Restricted Shares and Restricted Units.......... 22
(c) Stock Options and Stock Appreciation Rights..... 22
(d) Other ML & Co. Securities....................... 23
Section 8.2 A Change in Control.......................... 23
Section 8.3 Effect of Agreement Resulting in Change
in Control..................................... 24
Section 8.4 Termination for Cause........................ 24
Section 8.5 Good Reason.................................. 25
(a) Inconsistent Duties............................. 25
(b) Reduced Salary or Bonus Opportunity............. 25
(c) Relocation...................................... 25
(d) Compensation Plans.............................. 25
(e) Benefits and Perquisites........................ 26
(f) No Assumption by Successor...................... 26
Section 8.6 Effect on Plan Provisions.................... 26
ARTICLE IX - MISCELLANEOUS.................................... 27
Section 9.1 Designation of Beneficiary................... 27
Section 9.2 Employment Rights............................ 27
(v)
<PAGE>
PAGE
Section 9.3 Nontransferability................... 27
Section 9.4 Withholding.......................... 27
Section 9.5 Relationship to Other Benefits....... 28
Section 9.6 No Trust or Fund Created............. 28
Section 9.7 Expenses............................. 28
Section 9.8 Indemnification...................... 28
Section 9.9 Tax Litigation....................... 28
ARTICLE X - AMENDMENT AND TERMINATION................. 29
ARTICLE XI - INTERPRETATION........................... 29
Section 11.1 Governmental and Other Regulations.. 29
Section 11.2 Governing Law....................... 29
ARTICLE XII - EFFECTIVE DATE AND STOCKHOLDER APPROVAL. 29
(vi)
<PAGE>
MERRILL LYNCH & CO., INC.
-------------------------
LONG-TERM INCENTIVE COMPENSATION PLAN
-------------------------------------
ARTICLE I - GENERAL
SECTION 1.1 PURPOSE.
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The purposes of the Long-Term Incentive Compensation Plan (the "PLAN") are:
(a) to enhance the growth and profitability of Merrill Lynch & Co., Inc., a
Delaware corporation ("ML & CO."), and its subsidiaries by providing the
incentive of long-term rewards to key employees who are capable of having a
significant impact on the performance of ML & Co. and its subsidiaries; (b) to
attract and retain employees of outstanding competence and ability; (c) to
encourage long-term stock ownership by employees; and (d) to further the
identity of interests of such employees with those of stockholders of ML & Co.
SECTION 1.2 DEFINITIONS.
-----------
For the purpose of the Plan, the following terms shall have the meanings
indicated:
(a) "BOARD OF DIRECTORS" or "BOARD" shall mean the Board of Directors of ML
& Co.
(b) "CODE" shall mean the Internal Revenue Code of l986, as amended,
including any successor law thereto.
(c) "COMPANY" shall mean ML & Co. and any corporation, partnership, or
other organization of which ML & Co. owns or controls, directly or indirectly,
not less than 50% of the total combined voting power of all classes of stock or
other equity interests. For purposes of this Plan, the terms "ML & Co." and
"Company" shall include any successor thereto.
(d) "COMMITTEE" shall mean the Management Development and Compensation
Committee of the Board of Directors, or its functional successor, unless some
other Board committee has been designated by the Board of Directors to
administer the Plan. The Committee shall be constituted so that at all relevant
times it meets the then applicable requirements of Rule 16b-3 (or its successor)
promulgated under the Securities Exchange Act of 1934, as amended.
1
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(e) "COMMON STOCK" shall mean the Common Stock, par value $1.33 1/3 per
share, of ML & Co. and a "SHARE OF COMMON STOCK" shall mean one share of Common
Stock together with, for so long as Rights are outstanding, one Right (whether
trading with the Common Stock or separately).
(f) "DISABILITY," unless otherwise provided herein, shall mean any physical
or mental condition that, in the opinion of the Director of Human Resources of
Merrill Lynch & Co., Inc. (or his functional successor), renders an employee
incapable of engaging in any employment or occupation for which he is suited by
reason of education or training, provided that, in the case of any officer of ML
& Co., as defined in Rule 16a-1 under the Securities Exchange Act of 1934, such
determination shall be made by the Committee following recommendation by the
Director of Human Resources.
(g) "FAIR MARKET VALUE" of shares of Common Stock on any given date(s)
shall be: (a) the mean of the high and low sales prices on the New York Stock
Exchange--Composite Tape of such shares on the date(s) in question, or, if the
shares of Common Stock shall not have been traded on any such date(s), the mean
of the high and low sales prices on the New York Stock Exchange--Composite Tape
on the first day prior thereto on which the shares of Common Stock were so
traded; or (b) if the shares of Common Stock are not traded on the New York
Stock Exchange, such other amount as may be determined by the Committee by any
fair and reasonable means.
"FAIR MARKET VALUE" of any Other ML & Co. Security on any given
date(s) shall be: (a) the mean of the high and low sales prices of such Other ML
& Co. Security on the principal securities exchange on which such Security is
traded on the date(s) in question or, if such Other ML & Co. Security shall not
have been traded on any such exchange on such date(s), the mean of the high and
low sales prices on such exchange on the first day prior thereto on which such
Other ML & Co. Security was so traded; or (b) if the Other ML & Co. Security is
not publicly traded on a securities exchange, such other amount as may be
determined by the Committee by any fair and reasonable means.
(h) "JUNIOR PREFERRED STOCK" shall mean ML & Co.'s Series A Junior
Preferred Stock, par value $1.00 per share.
(i) "OTHER ML & CO. SECURITY" shall mean a financial instrument issued
pursuant to Article VI.
(j) "PARTICIPANT" shall mean any employee who has met the eligibility
requirements set forth in Section 1.5 hereof and to whom a grant has been made
and is outstanding under the Plan.
(k) "PERFORMANCE PERIOD" shall mean, in relation to Performance Shares or
Performance Units, any period, for which performance objectives have been
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 Stock distributed under the Plan may be treasury
shares or authorized but unissued
/*/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>
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 UPON EXERCISE AND
--------------------------------------------
DELIVERY OF SHARES.
-------------------
The purchase price of the shares as to which a Stock Option is exercised
shall be paid to the Company at the time of exercise (i) in cash, (ii) by
delivering freely transferable shares of Common Stock already owned by the
employee having a total Fair Market Value on the day prior to the date of
exercise equal to the purchase price, (iii) a combination of cash and shares of
Common Stock equal in value to the exercise price, or (iv) by such other means
as the Committee, in its sole discretion, may determine. Upon receipt by the
Company of the purchase price, stock certificate(s) for the shares of Common
Stock as to which a Stock Option is exercised shall be delivered to the
Participant, or such shares shall be credited to a brokerage account or
otherwise delivered, in such manner as the Participant may direct.
16
<PAGE>
SECTION 4.6 LIMITATION ON FAIR MARKET VALUE OF SHARES OF COMMON STOCK
----------------------------------------------------------
RECEIVED UPON EXERCISE OF INCENTIVE STOCK OPTIONS.
-------------------------------------------------
The aggregate Fair Market Value (determined at the time an Incentive Stock
Option is granted) of the shares of Common Stock with respect to which an
Incentive Stock Option is exercisable for the first time by a Participant during
any calendar year (under all plans of the Company) shall not exceed $100,000 or
such other limit as may be established from time to time under the Code.
ARTICLE V - PROVISIONS APPLICABLE TO STOCK APPRECIATION RIGHTS.
SECTION 5.1 GRANTS OF STOCK APPRECIATION RIGHTS.
-----------------------------------
The Committee may select employees to become Participants (subject to the
provisions of Sections 1.5 hereof) and grant Stock Appreciation Rights to such
Participants at any time. Before making grants, the Committee must receive the
recommendations of the management of the Company, which will take into account
such factors as level of responsibility, current and past performance, and
performance potential. The Committee shall have the authority to grant Stock
Appreciation Rights in connection with a Stock Option or independently. The
Committee may grant Stock Appreciation Rights in connection with a Stock Option,
either at the time of grant or by amendment, in which case each such right shall
be subject to the same terms and conditions as the related Stock Option and
shall be exercisable only at such times and to such extent as the related Stock
Option is exercisable. A Stock Appreciation Right granted in connection with a
Stock Option shall entitle the holder to surrender to the Company the related
Stock Option unexercised, or any portion thereof, and receive from the Company
in exchange therefor an amount equal to the excess of the Fair Market Value of
one share of the Common Stock on the day preceding the surrender of such Stock
Option over the Stock Option exercise price times the number of shares
underlying the Stock Option, or portion thereof, that is surrendered. A Stock
Appreciation Right granted independently of a Stock Option shall entitle the
holder to receive upon exercise an amount equal to the excess of the Fair Market
Value of one share of Common Stock on the day preceding the exercise of the
Stock Appreciation Right over the Fair Market Value of one share of Common Stock
on the date such Stock Appreciation Right was granted, or such other price
determined by the Committee at the time of grant, which shall in no event be
less than 50% of the Fair Market Value of one share of Common Stock on the date
such Stock Appreciation Right was granted. Stock Appreciation Rights are not
transferable by a Participant except by will or the laws of descent and
distribution and are exercisable during his lifetime only by him.
17
<PAGE>
SECTION 5.2 STOCK APPRECIATION RIGHTS GRANTED IN CONNECTION WITH
-----------------------------------------------------
INCENTIVE STOCK OPTIONS.
------------------------
(a) Stock Appreciation Rights granted in connection with Incentive Stock
Options must expire no later than the last date the underlying Incentive Stock
Option can be exercised.
(b) Such Stock Appreciation Rights may be granted for no more than 100% of
the difference between the exercise price of the underlying Incentive Stock
Option and the Fair Market Value of the Common Stock subject to the underlying
Incentive Stock Option at the time the Stock Appreciation Right is exercised.
(c) Such Stock Appreciation Rights are transferable only to the extent and
at the same time and under the same conditions as the underlying Incentive Stock
Options.
(d) Such Stock Appreciation Rights may be exercised only when the
underlying Incentive Stock Options may be exercised.
(e) Such Stock Appreciation Rights may be exercised only when the Fair
Market Value of the shares of Common Stock subject to the Incentive Stock
Options exceeds the exercise price of the Incentive Stock Options.
SECTION 5.3 PAYMENT UPON EXERCISE OF STOCK APPRECIATION RIGHTS.
---------------------------------------------------
The Company's obligation to any Participant exercising a Stock Appreciation
Right may be paid in cash or shares of Common Stock, or partly in cash and
partly in shares, at the sole discretion of the Committee.
SECTION 5.4 TERMINATION OF EMPLOYMENT.
-------------------------
(a) Death: If a Participant ceases to be an employee of the Company prior
-----
to the exercise or expiration of a Stock Appreciation Right outstanding in his
name on the date of death, such Stock Appreciation Right may be exercised to the
full extent not yet exercised, regardless of whether or not then fully
exercisable under the terms of the grant, by his estate or beneficiaries, as the
case may be, at any time and from time to time within l2 months after the date
of death but in no event after the expiration date of such Stock Appreciation
Right.
(b) Disability: The Disability of a Participant shall not constitute a
----------
termination of employment for purposes of this Article IV, provided that
following the Disability such Participant does not engage in or assist any
business that the Committee, in its sole discretion, determines to be in
competition with business engaged in by the Company. A Participant who does
engage in or assist any business that the Committee, in its sole
18
<PAGE>
discretion, determines to be in competition with business engaged in by the
Company shall be deemed to have terminated employment.
(c) Retirement: The Retirement of a Participant shall not constitute a
----------
termination of employment for purposes of this Article IV, provided that
following Retirement such Participant does not engage in or assist any business
that the Committee, in its sole discretion, determines to be in competition with
business engaged in by the Company, and such Participant may exercise any Stock
Appreciation Right outstanding in his name at any time and from time to time
within 5 years after the date his Retirement commenced but in no event after the
expiration date of such Stock Appreciation Right. A Participant who does engage
in or assist any business that the Committee, in its sole discretion, determines
to be in competition with business engaged in by the Company shall be deemed to
have terminated employment.
(d) Other Terminations: If a Participant ceases to be an employee prior to
------------------
the exercise or expiration of a Stock Appreciation Right for any reason other
than death, all outstanding Stock Appreciation Rights granted to such
Participant shall expire on the date of such termination of employment, unless
the Committee, in its sole discretion, determines that he may exercise any such
outstanding Stock Appreciation Right (to the extent that he was entitled to do
so at the date of such termination of such employment) at any time and from time
to time within up to 5 years after such termination of employment but in no
event after the expiration date of such Stock Appreciation Right.
ARTICLE VI - PROVISIONS APPLICABLE TO OTHER ML & CO. SECURITIES.
SECTION 6.1 GRANTS OF OTHER ML & CO. SECURITIES.
-----------------------------------
Subject to the provisions of the Plan and any necessary action by the Board
of Directors, the Committee may select employees to become Participants (subject
to the provisions of Section 1.5 hereof) and grant to Participants Other ML &
Co. Securities or the right or option to purchase Other ML & Co. Securities on
such terms and conditions as the Committee shall determine, including, without
limitation, the period such rights or options may be exercised, the nature and
terms of payment of consideration for such Other ML & Co. Securities, whether
such Other ML & Co. Securities shall be subject to any or all of the provisions
of Article III of the Plan applicable to Restricted Shares and/or Restricted
Units, the consequences of termination of employment, and the terms and
conditions, if any, upon which such Other ML & Co. Securities may or must be
repurchased by the Company. Before making grants, the Committee must receive
the recommendations of the management of the Company, which will take into
account such factors as level of responsibility, current and past performance,
and performance potential. Each such Other ML & Co. Security shall be issued at
a price that will not
19
<PAGE>
exceed the Fair Market Value thereof on the date the corresponding right or
option is granted. Other ML & Co. Securities may bear interest or pay dividends
from such date and at a rate or rates or pursuant to a formula or formulas fixed
by the Committee or any necessary action of the Board. Any applicable conversion
or exchange rate with respect to Other ML & Co. Securities shall be fixed by, or
pursuant to a formula determined by, the Committee or any necessary action of
the Board at each date of grant and may be predicated upon the attainment of
financial or other performance goals.
SECTION 6.2 TERMS AND CONDITIONS OF CONVERSION OR EXCHANGE.
----------------------------------------------
Each Other ML & Co. Security may be convertible or exchangeable on such
date and within such period of time as the Committee, or the Board if necessary,
determines at the time of grant. Other ML & Co. Securities may be convertible
into or exchangeable for (i) shares of Preferred Stock of ML & Co. or (ii) other
securities of ML & Co. or any present or future subsidiary of ML & Co., whether
or not convertible into shares of Common Stock, as the Committee, or the Board
if necessary, determines at the time of grant (or at any time prior to the
conversion or exchange date).
ARTICLE VII - CHANGES IN CAPITALIZATION.
Any other provision of the Plan to the contrary notwithstanding, if any
change shall occur in or affect shares of Common Stock or Performance Units,
Restricted Units, Stock Options, Stock Appreciation Rights, or Other ML & Co.
Securities on account of a merger, consolidation, reorganization, stock
dividend, stock split or combination, reclassification, recapitalization, or
distribution to holders of shares of Common Stock (other than cash dividends)
including, without limitation, a merger or other reorganization event in which
the shares of Common Stock cease to exist, or, if in the opinion of the
Committee, after consultation with the Company's independent public accountants,
changes in the Company's accounting policies, acquisitions, divestitures,
distributions, or other unusual or extraordinary items have disproportionately
and materially affected the value of shares of Common Stock or Performance
Units, Restricted Units, Stock Options, Stock Appreciation Rights, or Other ML &
Co. Securities, the Committee shall make such adjustments, if any, that it may
deem necessary or equitable in (a) the maximum number of shares of Common Stock
available for distribution under the Plan; (b) the number of shares subject to
or reserved for issuance under outstanding Performance Share, Restricted Share,
and Stock Option grants; (c) the performance objectives for the Performance
Periods not yet completed, including the minimum, intermediate, and full
performance levels and portion of payments related thereto; and (d) any other
terms or provisions of any outstanding grants of Performance Shares, Performance
Units, Restricted Shares, Restricted Units, Stock Options, Stock Appreciation
Rights, or Other ML & Co. Securities, in order to preserve the full benefits of
such grants for the Participants, taking into account inflation, interest rates,
and any other factors that the Committee, in its sole discretion, considers
relevant. In the event of a change in the presently
20
<PAGE>
authorized shares of Common Stock that is limited to a change in the designation
thereof or a change of authorized shares with par value into the same number of
shares with a different par value or into the same number of shares without par
value, the shares resulting from any such change shall be deemed to be shares of
Common Stock within the meaning of the Plan. In the event of any other change
affecting the shares of Common Stock, Performance Units, Restricted Units, Stock
Options, Stock Appreciation Rights, or Other ML & Co. Securities, such
adjustment shall be made as may be deemed equitable by the Committee to give
proper effect to such event.
ARTICLE VIII - PAYMENTS UPON TERMINATION OF EMPLOYMENT AFTER A
CHANGE IN CONTROL.
SECTION 8.1 VALUE OF PAYMENTS UPON TERMINATION AFTER A CHANGE
--------------------------------------------------
IN CONTROL.
-----------
Any other provision of the Plan to the contrary notwithstanding and
notwithstanding any election to the contrary previously made by the Participant,
in the event a Change in Control shall occur and thereafter the Company shall
terminate the Participant's employment without Cause or the Participant shall
terminate his employment with the Company for Good Reason, the Participant shall
be paid the value of his Performance Shares, Performance Units, Restricted
Shares, Restricted Units, Stock Options, Stock Appreciation Rights, and Other ML
& Co. Securities in a lump sum in cash, promptly after termination of his
employment but, without limiting the foregoing, in no event later than 30 days
thereafter. Payments shall be calculated as set forth below:
(a) Performance Shares and Performance Units.
----------------------------------------
Any payment for Performance Shares and Performance Units pursuant to this
Section 8.1(a) shall be calculated by applying performance objectives for any
outstanding Performance Shares and Performance Units as if the applicable
Performance Period and any applicable Restricted Period had ended on the first
day of the month in which the Participant's employment is terminated. The
amount of any payment to a Participant pursuant to this Section 8.1(a) shall be
reduced by the amount of any payment previously made to the Participant with
respect to the Performance Shares and Performance Units, exclusive of ordinary
dividend payments, resulting by operation of law from the Change in Control,
including, without limitation, payments resulting from a merger pursuant to
state law. The value of the Performance Shares and Performance Units payable
pursuant to this Section 8.1(a) shall be the amount equal to the number of
Performance Shares and Performance Units payable in accordance with the
preceding sentence multiplied by the Fair Market Value of a share of Common
Stock on the day the Participant's employment is terminated or, if higher, the
highest Fair Market Value of a share of the Common Stock on any day during the
90-day period ending on the date of the Change in Control (the "Pre-CIC Value").
21
<PAGE>
(b) Restricted Shares and Restricted Units.
--------------------------------------
Any payment under this Section 8.1(b) shall be calculated as if all the
relevant Vesting and Restricted Periods had been fully completed immediately
prior to the date on which the Participant's employment is terminated. The
amount of any payment to a Participant pursuant to this Section 8.1(b) shall be
reduced by the amount of any payment previously made to the Participant with
respect to the Restricted Shares and Restricted Units, exclusive of ordinary
dividend payments, resulting by operation of law from the Change in Control,
including, without limitation, payments resulting from a merger pursuant to
state law. The value of the Participant's Restricted Shares and Restricted
Units payable pursuant to this Section 8.1(b) shall be the amount equal to the
number of the Restricted Shares and Restricted Units outstanding in a
Participant's name multiplied by the Fair Market Value of a share of Common
Stock on the day the Participant's employment is terminated or, if higher, the
Pre-CIC Value.
(c) Stock Options and Stock Appreciation Rights.
-------------------------------------------
Any payment for Stock Options and Stock Appreciation Rights pursuant to
this Section 8.1(c) shall be calculated as if all such Stock Options and Stock
Appreciation Rights, regardless of whether or not then fully exercisable under
the terms of the grant, became exercisable immediately prior to the date on
which the Participant's employment is terminated. The amount of any payment to
a Participant pursuant to this Section 8.1(c) shall be reduced by the amount of
any payment previously made to a Participant with respect to the Stock Options
and Stock Appreciation Rights, exclusive of any ordinary dividend payments,
resulting by operation of law from the Change in Control, including, without
limitation, payments resulting from a merger pursuant to state law. The value
of the Participant's Stock Options and Stock Appreciation Rights payable
pursuant to this Section 8.1(c) shall be
(i) in the case of a Stock Option, for each underlying share of Common
Stock, the excess of the Fair Market Value of a share of Common Stock
on the day the Participant's employment is terminated, or, if higher,
the Pre-CIC Value, over the per share exercise price for such Stock
Option;
(ii) in the case of a Stock Appreciation Right granted in tandem with
a Stock Option, the Fair Market Value of a share of Common Stock on
the day the Participant's employment is terminated, or, if higher, the
Pre-CIC value, over the Stock Option exercise price; and
(iii) in the case of a Stock Appreciation Right granted independently
of a Stock Option, the Fair Market Value of a share of Common Stock on
the day the Participant's employment is terminated, or, if higher, the
Pre-CIC value, over the Fair Market Value of one share of Common Stock
on the
22
<PAGE>
date such Stock Appreciation Right was granted, or such other price
determined by the Committee at the time of grant.
(d) Other ML & Co. Securities.
-------------------------
Any payment for Other ML & Co. Securities under this Section 8.1(d) shall
be calculated as if any relevant Vesting or Restricted Periods or other
applicable conditions dependent on the passage of time and relating to the
exercisability of any right or option to purchase Other ML & Co. Securities, or
relating to the full and unconditional ownership of such Other ML & Co.
Securities themselves, had been met on the first day of the month in which the
Participant's employment is terminated. The amount of any payment to a
Participant pursuant to this Section 8.1(d) shall be reduced by the amount of
any payment previously made to the Participant with respect to the Other ML &
Co. Securities, exclusive of ordinary dividend payments, resulting by operation
of law from the Change in Control, including, without limitation, payments
resulting from a merger pursuant to state law. The value of the Participant's
Other ML & Co. Securities payable pursuant to this Section 8.1(d) shall be
(i) in the case of an option or right to purchase such Other ML & Co.
Security, for each underlying Other ML & Co. Security, the excess of
the Fair Market Value of such Other ML & Co. Security on the day the
Participant's employment is terminated, or, if higher, the Pre-CIC
value, over the exercise price of such option or right; and
(ii) in the case of the Other ML & Co. Security itself (where there is
no outstanding option or right relating to such Other ML & Co.
Security), the Fair Market Value of the Other ML & Co. Security on the
day the Participant's employment is terminated, or, if higher, the
Pre-CIC value.
SECTION 8.2 A CHANGE IN CONTROL.
-------------------
A "CHANGE IN CONTROL" shall mean a change in control of ML & Co. of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), whether or not the Company is then
subject to such reporting requirement; provided, however, that, without
-------- -------
limitation, a Change in Control shall be deemed to have occurred if:
(a) any individual, partnership, firm, corporation, association, trust,
unincorporated organization or other entity, or any syndicate or group deemed to
be a person under Section 14(d)(2) of the Exchange Act, other than the Company's
employee stock ownership plan, is or becomes the "beneficial owner" (as defined
in Rule 13d-3 of the General Rules and Regulations under the Exchange Act),
directly or indirectly, of securities of ML & Co. representing 30% or more of
the combined voting
23
<PAGE>
power of ML & Co.'s then outstanding securities entitled to vote in the election
of directors of ML & Co.;
(b) during any period of two consecutive years (not including any period
prior to the Effective Date of this Plan) individuals who at the beginning of
such period constituted the Board of Directors and any new directors, whose
election by the Board of Directors or nomination for election by the
stockholders of ML & Co. was approved by a vote of at least three quarters of
the directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority thereof; or
(c) all or substantially all of the assets of ML & Co. are liquidated or
distributed.
SECTION 8.3 EFFECT OF AGREEMENT RESULTING IN CHANGE IN CONTROL.
--------------------------------------------------
If ML & Co. executes an agreement, the consummation of which would result
in the occurrence of a Change in Control as described in Section 8.2, then, with
respect to a termination of employment without Cause or for Good Reason
occurring after the execution of such agreement (and, if such agreement expires
or is terminated prior to consummation, prior to such expiration or termination
of such agreement), a Change in Control shall be deemed to have occurred as of
the date of the execution of such agreement.
SECTION 8.4 TERMINATION FOR CAUSE.
---------------------
Termination of the Participant's employment by the Company for "CAUSE"
shall mean termination upon:
(a) the willful and continued failure by the Participant substantially to
perform his duties with the Company (other than any such failure resulting from
the Participant's incapacity due to physical or mental illness or from the
Participant's Retirement or any such actual or anticipated failure resulting
from termination by the Participant for Good Reason) after a written demand for
substantial performance is delivered to him by the Board of Directors, which
demand specifically identifies the manner in which the Board of Directors
believes that he has not substantially performed his duties; or
(b) the willful engaging by the Participant in conduct that is demonstrably
and materially injurious to the Company, monetarily or otherwise.
No act or failure to act by the Participant shall be deemed "willful"
unless done, or omitted to be done, by the Participant not in good faith and
without reasonable belief that his action or omission was in the best interest
of the Company.
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 this Plan, the Company's retirement program, Employee Stock Purchase
Plan, 1978
25
<PAGE>
Incentive Equity Purchase Plan, Equity Capital Accumulation Plan, Canadian
Capital Accumulation Plan, Management Capital Accumulation Plan, limited
partnership offerings, cash incentive compensation or any other plans adopted
prior to the Change in Control, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect to such plan
in connection with the Change in Control, or the failure by the Company to
continue the Participant's participation therein on at least as favorable a
basis, both in terms of the amount of benefits provided and the level of his
participation relative to other Participants, as existed immediately prior to
the Change in Control;
(e) Benefits and Perquisites. The failure of the Company to continue to
------------------------
provide the Participant with benefits at least as favorable as those enjoyed by
the Participant under any of the Company's retirement, life insurance, medical,
health and accident, disability, deferred compensation or savings plans in which
the Participant was participating immediately prior to the Change in Control;
the taking of any action by the Company that would directly or indirectly
materially reduce any of such benefits or deprive the Participant of any
material fringe benefit enjoyed by him immediately prior to the Change in
Control, including, without limitation, the use of a car, secretary, office
space, telephones, expense reimbursement, and club dues; or the failure by the
Company to provide the Participant with the number of paid vacation days to
which the Participant is entitled on the basis of years of service with the
Company in accordance with the Company's normal vacation policy in effect
immediately prior to the Change in Control;
(f) No Assumption by Successor. The failure of ML & Co. to obtain a
--------------------------
satisfactory agreement from any successor to assume and agree to perform a
Participant's employment agreement as contemplated thereunder or, if the
business of the Company for which his services are principally performed is sold
at any time after a Change in Control, the purchaser of such business shall fail
to agree to provide the Participant with the same or a comparable position,
duties, compensation, and benefits as provided to him by the Company immediately
prior to the Change in Control.
SECTION 8.6 EFFECT ON PLAN PROVISIONS.
-------------------------
In the event of a Change in Control, no changes in the Plan, or in any
documents evidencing grants of Performance Shares, Performance Units, Restricted
Shares, Restricted Units, Stock Options, Stock Appreciation Rights, or Other ML
& Co. Securities and no adjustments, determinations or other exercises of
discretion by the Committee or the Board of Directors, that were made subsequent
to the Change in Control and that would have the effect of diminishing a
Participant's rights or his payments under the Plan or this Article shall be
effective, including, but not limited to, any changes, determinations or other
exercises of discretion made to or pursuant to the Plan. Once a Participant has
received a payment pursuant to this Article VIII, shares of Common Stock that
were reserved for issuance in connection with any Performance Shares, Restricted
Shares, Stock Options, or Other ML & Co. Securities for which
26
<PAGE>
payment is made shall no longer be reserved and shares of Common Stock that are
Restricted Shares or that are restricted and held by the Company pursuant to
Section 2.6(a)(i), for which payment has been made, shall no longer be
registered in the name of the Participant and shall again be available for
grants under the Plan. If the Participant's employment is terminated without
Cause or for Good Reason after a Change in Control, any election to defer
payment for Performance Shares or Performance Units pursuant to Section 2.8
hereof or Restricted Shares or Restricted Units pursuant to Section 3.8 hereof
shall be null and void.
ARTICLE IX - MISCELLANEOUS.
SECTION 9.1 DESIGNATION OF BENEFICIARY.
--------------------------
A Participant may designate, in a writing delivered to ML & Co. before his
death, a person or persons to receive, in the event of his death, any rights to
which he would be entitled under the Plan. A Participant may also designate an
alternate beneficiary to receive payments if the primary beneficiary does not
survive the Participant. A Participant may designate more than one person as
his beneficiary or alternate beneficiary, in which case such persons would
receive payments as joint tenants with a right of survivorship. A beneficiary
designation may be changed or revoked by a Participant at any time by filing a
written statement of such change or revocation with the Company. If a
Participant fails to designate a beneficiary, then his estate shall be deemed to
be his beneficiary.
SECTION 9.2 EMPLOYMENT RIGHTS.
-----------------
Neither the Plan nor any action taken hereunder shall be construed as
giving any employee of the Company the right to become a Participant, and a
grant under the Plan shall not be construed as giving any Participant any right
to be retained in the employ of the Company.
SECTION 9.3 NONTRANSFERABILITY.
------------------
A Participant's rights under the Plan, including the right to any amounts
or shares payable, may not be assigned, pledged, or otherwise transferred
except, in the event of a Participant's death, to his designated beneficiary or,
in the absence of such a designation, by will or the laws of descent and
distribution.
SECTION 9.4 WITHHOLDING.
-----------
The Company shall have the right, before any payment is made or a
certificate for any shares is delivered or any shares are credited to any
brokerage account, to deduct or withhold from any payment under the Plan any
Federal, state, local or other taxes, including transfer taxes, required by law
to be withheld or to require the
27
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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.
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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 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.
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EXHIBIT (10)(iv)
As amended through December 5, 1994
MERRILL LYNCH & CO., INC.
-------------------------
EQUITY CAPITAL ACCUMULATION PLAN
--------------------------------
<PAGE>
EXHIBIT (10)(iv)
AS AMENDED THROUGH DECEMBER 5, 1994
MERRILL LYNCH & CO., INC.
-------------------------
EQUITY CAPITAL ACCUMULATION PLAN
--------------------------------
1. PURPOSE.
-------
The purposes of the Equity Capital Accumulation 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 (which will be realized through continued
employment and, in the case of Performance Shares, upon attainment of
established performance objectives) 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; and (c) to further the identity of interests of such employees
with those of stockholders of ML & Co.
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) "COMPANY" shall mean ML & Co. and shall include each of its present
or future subsidiaries, which are defined to include any corporation,
partnership, or other organization in which ML & Co. has a proprietary
interest by reason of stock ownership or otherwise, but only if ML & Co.
owns or controls, directly or indirectly, stock or other interests
possessing not less than 50% of the total combined voting power of all
classes of stock or other equity interests in such corporation, partnership,
or organization.
(c) "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. It shall consist of three or more members of the Board
who are not officers or in the employ of the Company, who are not eligible,
and for a period of one year prior to the commencement of their service on
the Committee have not been eligible, to participate in the Plan and who are
disinterested persons within the terms of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934. Committee members shall serve at the
pleasure of the Board of Directors.
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(d) "COMMON STOCK" shall mean the Common Stock, par value $1.33 1/3 per
share, of ML & Co.
(e) "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.
(f) "FAIR MARKET VALUE" of Common Stock on any given date(s) shall be:
(a) if Common Stock is not listed for trading on a national securities
exchange but is traded in the over-the-counter market, the mean of the
highest and lowest bid prices for the Common Stock on the date(s) in
question, or, if there are no such bid prices for the Common Stock on any
such date(s), the mean of the highest and lowest bid prices on the first day
prior thereto on which such prices appear; (b) if the Common Stock is listed
for trading on one or more national securities exchanges, the mean of the
high and low sales prices on the principal such exchange on the date(s) in
question, or, if the Common Stock shall not have been traded on such
principal exchange on any such date(s), the mean of the high and low sales
prices on such principal exchange on the first day prior thereto on which
the Common Stock was so traded; provided, however, if the Distribution Date
-------- -------
(as defined in the Rights Agreement) shall have occurred and the Rights
shall then be represented by separate certificates rather than by
certificates representing the Common Stock, there shall be added to such
value calculated in accordance with (a) or (b) above, as the case may be,
(i) if the Rights are not listed for trading on a national securities
exchange but are traded in the over-the-counter market, the mean of the
highest and lowest bid prices of the Rights on the date(s) in question, or,
if there are no such bid prices for the Rights on any such date(s), the mean
of the highest and lowest bid prices on the first day prior thereto on which
such prices appear or (ii) if the Rights are listed for trading on one or
more national securities exchanges, the mean of the high and low sales
prices of the Rights on the principal such exchange on the date(s) in
question, or if the Rights shall not have been traded on such principal
exchange on any such date(s), the mean of the high and low sales prices on
such principal exchange on the first day prior thereto on which the Rights
were so traded; or (c) such other amount as may be determined by the
Committee by any fair and reasonable means.
(g) "JUNIOR PREFERRED STOCK" shall mean ML & Co.'s Series A Junior
Preferred Stock, par value $1.00 per share.
2
<PAGE>
(h) "PARTICIPANT" shall mean any employee who has met the eligibility
requirements set forth in Section 5 hereof and to whom a grant has been made
and is outstanding under the Plan.
(i) "PERFORMANCE PERIOD" shall mean, in relation to Performance Shares,
any period, for which performance objectives have been established, of not
less than three nor more than five consecutive ML & Co. fiscal years,
commencing with the first day of the fiscal year in which such Performance
Shares were granted.
(j) "PERFORMANCE SHARE" shall mean a unit granted to a Participant deemed
to be equivalent in value to the Fair Market Value of one share of Common
Stock.
(k) "RESTRICTED PERIOD" shall mean any period of not less than 12 nor more
than 60 consecutive months, commencing with the first day of the month in
which Restricted Shares are granted, during which restrictions on such
Restricted Shares are in effect.
(l) "RESTRICTED SHARE" shall mean a share of Common Stock and one Right
granted to a Participant subject to the restrictions set forth in Section 7
hereof.
(m) "RETIREMENT" shall mean the cessation of employment by the Company
after reaching age 55 and having completed at least 10 years of service,
including approved leaves of absence of one year or less.
(n) "RIGHTS" means the Rights to Purchase Units of Series A Junior
Preferred Stock issued pursuant to the Rights Agreement.
(o) "RIGHTS AGREEMENT" means the Rights Agreement dated as of December 16,
1987 between ML & Co. and Manufacturers Hanover Trust Company, Rights Agent.
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 5 hereof, select Participants after receiving
the recommendations of the management of the Company; (ii) determine the
number of Performance Shares or Restricted Shares subject to each grant;
(iii) determine the time or times when grants are to be made; (iv) determine
the terms and conditions subject to which grants may be made; (v) prescribe
the form or forms of the instruments evidencing any grants made hereunder,
provided that such forms are consistent with the Plan; (vi) adopt, amend,
and rescind such rules and regulations as, in its opinion, may be advisable
for the administration of the Plan; (vii) construe and interpret the Plan,
the rules and regulations, and the instruments utilized under the Plan; and
(viii) make all determinations deemed advisable or necessary for the
administration of the Plan. All determinations by the Committee shall be
final and binding.
3
<PAGE>
(b) The Committee shall hold meetings at such times and places as it may
determine. The Committee may request advice or assistance or employ such
other persons as are necessary for proper administration of the Plan. A
quorum of the Committee shall consist of a majority of its members, and the
Committee may act by vote of a majority of its members at a meeting at which
a quorum is present or without a meeting by a written consent to the action
taken signed by all members of the Committee. The Board of Directors may
from time to time appoint members to the Committee in substitution of
members previously appointed and fill any vacancies, however caused, in the
Committee.
4. SHARES SUBJECT TO THE PLAN.
--------------------------
The total number of shares of Common Stock which may be issued under the
Plan shall be 26,200,000/*/ (whether granted as Restricted Shares or
reserved for issuance upon grant of Performance Shares), subject to
adjustment as provided in Section 8 hereof. Any Performance Shares or
Restricted Shares that have been granted 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. Shares of Common Stock issued under the Plan may be
treasury shares or authorized but unissued shares.
5. ELIGIBILITY AND PARTICIPATION.
-----------------------------
Participation in the Plan shall be limited to officers (who may also be
members of the Board of Directors) or other full-time, salaried, key
employees of the Company who, in the opinion of the Committee, after
receiving the recommendations of the management of the Company, exercise
such functions or discharge such responsibilities that they merit
consideration as employees selected to receive grants and become
Participants under the Plan. Performance Shares shall be granted only to
those employees recognized by the Committee as members of the executive
management group. Restricted Shares shall be granted only to those
employees recognized by the Committee as members of general management or as
professional employees and to other employees who, in the opinion of the
Committee (based on the recommendations of the management of the Company),
have made or are in a position to make a contribution to the Company that
warrants such a grant.
6. PROVISIONS APPLICABLE TO PERFORMANCE SHARES.
-------------------------------------------
(a) PERFORMANCE PERIODS. The Committee shall establish Performance
Periods at its discretion. Each such Performance Period shall commence with
the beginning of a fiscal year and have a duration of not less than three
nor more than five consecutive fiscal years. There shall be no limitation
on the number of Performance
/*/Shares under the Plan were adjusted (as of October 22, 1993) for the
Company's 2 for 1 stock split, effected in the form of a stock dividend. As
of such date and giving effect to the stock split, 2,807,920 shares remained
available for issuance under the Plan.
4
<PAGE>
Periods established by the Committee, and more than one Performance Period
may encompass the same fiscal year, but no more than one Performance Period
for any Performance Shares granted to any one Participant can commence in
the same fiscal year.
(b) 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 with respect to
such Period. Performance objectives shall be based on one or more measures
such as return on stockholders' equity, growth in earnings per share, 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 shall be
payable, and a full performance level, at or above which 100% of the
Performance Shares shall be payable. In addition, the Committee may, in its
discretion, establish intermediate levels at which given proportions of the
Performance Shares shall be payable. Such performance objectives shall not
thereafter be changed except as set forth in Sections 6(d), 6(e), and 8
hereof.
(c) GRANTS OF PERFORMANCE SHARES. The Committee may select employees to
become Participants (subject to the provisions of Section 5 hereof) and
grant Performance Shares to 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 6(e) hereof, a grant of Performance Shares 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 granted, the Performance Period, the
performance objective or objectives, the proportion of payments for
performance between the minimum and full performance levels, if any, 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 for issuance the
number of whole shares of Common Stock authorized for issuance under this
Plan equal to at least one-half of the Performance Shares so granted.
5
<PAGE>
(d) ADJUSTMENT OF PERFORMANCE OBJECTIVES. Any other provision of the Plan
to the contrary notwithstanding, at any time during a Performance Period, the
Committee may adjust (up or down) the performance objectives and minimum or full
performance levels (and any intermediate levels and proportion of payments
related thereto) for such Period or may adjust the way such performance
objectives are measured if it determines that conditions, including but not
limited to changes in the economy, 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. Notwithstanding any
provision of this Section 6(d) to the contrary, the performance objectives shall
be determined without taking into account any Units of Junior Preferred Stock
that may be outstanding at the time of such calculation.
(e) TERMINATION OF EMPLOYMENT.
(i) If a Participant ceases to be an employee of the Company prior to
the end of any Performance Period by reason of death, any outstanding
Performance Shares with respect to such Participant shall become payable and
be paid to such Participant's beneficiary or estate, as the case may be, in
accordance with the provisions of Section 6(f) hereof. In computing
Performance Shares payable, if any, to such Participant's beneficiary or
estate, as the case may be, the Performance Period shall be deemed to end as
of the end of the fiscal year in which the Participant's death occurred.
The Disability or Retirement of a Participant shall not constitute a
termination of employment for purposes of the Plan and such Participant
shall not forfeit any Performance Shares held by him, provided that the
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.
(ii) If a Participant ceases to be an employee prior to the end of a
Performance Period for any reason other than death, the Participant
immediately forfeits all Performance Shares granted under the Plan and all
right to receive any payment for such Performance Shares, except that the
Committee may, within six months after such termination, direct payment in
accordance with the provisions of Section 6(f) hereof for a number of
Performance Shares, as it may determine, granted under the Plan to a
Participant whose employment has so terminated (but not exceeding the number
of Performance Shares 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 this provision, the Performance Period
shall be deemed to end as of the end of the fiscal year in which termination
occurred. Termination of employment after the end of a Performance Period
but before the payment of Performance Shares relating to such Performance
Period shall not affect
6
<PAGE>
the amount, if any, to be paid pursuant to Section 6(f) hereof. Approved
leaves of absence of one year or less shall not be deemed to be terminations
under this Section. Leaves of absence of more than one year will be deemed
to be terminations under this Section unless the Committee determines
otherwise.
(f) PAYMENT OF PERFORMANCE SHARES. Within 90 days after the end or deemed
end of any Performance Period, the Company shall determine the extent to
which performance objectives established by the Committee pursuant to
Section 6(b) hereof for such Performance Period have been met during such
Performance Period and the resultant extent to which Performance Shares
granted for such Performance Period are payable. Payment to a Participant
or his beneficiary or estate, as the case may be, for any Performance Shares
which have been granted to such Participant and which are determined to be
payable shall be made, as soon as practicable after the end of the
Performance Period and the determination of both the extent to which
performance objectives have been met and the value of the Performance Shares
payable, as follows: (i) a certificate for the number of shares of Common
Stock equal to one-half the number of Performance Shares payable shall be
delivered to the Participant or his beneficiary or estate, as the case may
be, or such shares shall be credited to a brokerage account if the
Participant or his beneficiary or estate, as the case may be, so directs,
and (ii) cash equal to one-half of the value of Performance Shares payable,
valued at the mean of the Fair Market Value of Common Stock during the
calendar month of February next following the end or deemed end of the
Performance Period, shall be paid to the Participant or his beneficiary or
estate, as the case may be; provided, however, that the Company shall not be
-------- -------
required to deliver any fractional shares of Common Stock to any Participant
under (i) above, but will pay the value of such fractional shares, measured
as set forth in (ii) above, to the Participant or his beneficiary or estate,
as the case may be.
(g) DEFERRAL OF PAYMENT. If the Committee, in its sole discretion, offers
a Participant the right to defer, then, within 90 days after any grant of
Performance Shares but in any event before the end of the fiscal year in
which the grant is made, any Participant may elect, by execution of a
written agreement, to defer all or any portion of the payment, if any, for
such Performance Shares. If such an election is made, the stock portion of
any payment for Performance Shares shall be deferred as stock units equal in
number to and convertible, at the end of the deferral period, into the
number of shares of Common Stock which would have been paid to the
Participant. Such stock units represent only a contractual right and do not
give the Participant any interest, right, or title to any Common Stock
during the deferral period. During the period of deferral of stock units,
the Company shall, for each stock unit, periodically credit a cash amount to
the Participant's account. Such cash amount shall be paid in the same
manner and at the same time, and be measured by the amount paid, as a
dividend on a share of Common Stock, plus, if any shares of Junior Preferred
Stock shall then be outstanding, the amount, if any, paid on one one-
hundredth of a share of Junior Preferred Stock. A Participant's right to
receive such cash amount is a contractual right only. Any such cash amounts
shall be deferred as cash in the manner
7
<PAGE>
set forth for the deferral of the cash portion of any payment for
Performance Shares. The cash portion of any payment for Performance Shares
shall be deferred as cash units and credited annually with the appreciation
factor contained in the Deferred Compensation Program of the Company for the
year of grant. All other terms and conditions of deferred payments shall be
the same as those contained in such Deferred Compensation Program.
7. PROVISIONS APPLICABLE TO RESTRICTED SHARES.
------------------------------------------
(a) RESTRICTED PERIOD. The Committee shall establish one or more
Restricted Periods at its discretion, provided no Restricted Period shall
have a duration of less than 12 nor more than 60 consecutive months,
measured from the first day of the month in which Restricted Shares are
granted with respect to such Restricted Period, provided that, for any
officer of ML & Co., as defined in Rule 16a-1 under the Securities Exchange
Act of 1934, such Restricted Period may not be less than 36 months.
(b) GRANTS OF RESTRICTED SHARES. The Committee may select employees to
become Participants (subject to the provisions of Section 5 hereof) and
grant Restricted Shares to 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 7(d) hereof, a grant of Restricted
Shares shall be effective for the entire applicable Restricted Period 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
Restricted Period, the restrictions applicable to such Restricted Shares,
and any other terms, conditions, and rights with respect to such grant.
(c) RESTRICTIONS. At the time of grant of Restricted Shares, one or more
certificates representing the appropriate number of shares of Common Stock
and the appropriate number of Rights 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 and Rights, including the right to receive
dividends, the right to exercise the Rights for Junior Preferred Stock and
the right to vote such Common Stock and Junior Preferred Stock, subject to
the following restrictions: (i) subject to Section 7(d) hereof, the
Participant shall not be entitled to delivery of the stock or Rights
certificates until the expiration of the Restricted Period; (ii) none of the
Restricted Shares may be sold, transferred, assigned, pledged, or otherwise
encumbered or disposed of during the Restricted Period; and (iii) 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 Restricted Period in relation to
which such Restricted Shares were granted, except as
8
<PAGE>
allowed by Section 7(d) hereof. Any shares of Common Stock, Rights, or
Junior Preferred Stock or other securities or property received as a result
of a stock distribution to holders of Restricted Shares or as a stock
dividend on Restricted Shares shall be subject to the same restrictions as
such Restricted Shares.
(d) TERMINATION OF EMPLOYMENT. If a Participant ceases to be an employee
of the Company prior to the end of a Restricted Period by reason of death,
all restrictions contained in the Restricted Share Agreement(s) and in the
Plan shall lapse as to all Restricted Shares granted to such Participant,
and a certificate for such shares shall be delivered or such shares shall be
credited as set forth in Section 7(e) hereof. The Disability or Retirement
of a Participant shall not constitute a termination of employment for
purposes of the Plan and such Participant shall not forfeit any Restricted
Shares 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 Restricted 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. If
a Participant ceases to be an employee prior to the end of a Restricted
Period for any reason other than death, the Participant shall immediately
forfeit all Restricted Shares previously granted in accordance with the
provisions of Section 7(c) hereof, except that the Committee may, if it
finds that the circumstances in the particular case so warrant, allow a
Participant whose employment has so terminated to retain any or all of the
Restricted Shares granted to such Participant, and all restrictions
contained in the Restricted Share Agreement and in the Plan shall lapse as
to such Restricted Shares, and a certificate for such shares shall be
delivered or such shares shall be credited as set forth in Section 7(e)
hereof. Approved leaves of absence of one year or less shall not be deemed
terminations or interruptions in continuous service under this Section.
Leaves of absence of more than one year will be deemed to be terminations
under this Section unless the Committee determines otherwise.
(e) PAYMENT OF RESTRICTED SHARES. At the end of the Restricted Period or
at such earlier time as provided for in Section 7(d) hereof, 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 a stock certificate for the appropriate number of shares of
Common Stock, free of the restrictions, shall be delivered to the
Participant or his beneficiary or estate, as the case may be, or such shares
shall be credited to a brokerage account if the Participant or his
beneficiary or estate, as the case may be, so directs.
(f) SHORTENING OF RESTRICTED PERIOD. Any other provision of the Plan to
the contrary notwithstanding, the Committee may at any time shorten any
Restricted Period to no less than 12 months if it determines that
conditions, including but not limited to, changes in the economy, changes in
competitive conditions, changes in laws or
9
<PAGE>
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, provided that, for any officer of ML &
Co., as defined in Rule 16a-1 under the Securities Exchange Act of 1934,
such Restricted Period may not be less than 36 months.
8. CHANGES IN CAPITALIZATION.
-------------------------
Any other provision of the Plan to the contrary notwithstanding, if any
change shall occur in or affect Common Stock on account of a merger,
consolidation, reorganization, stock dividend, stock split or combination,
reclassification, recapitalization, or distribution to holders of Common
Stock (other than cash dividends) including, without limitation, a merger or
other reorganization event in which the Common Stock ceases 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 Common Stock, 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 issuance under the Plan; (b) the number of
shares subject to or reserved for issuance under outstanding Performance and
Restricted Share grants; and (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. In the
event of a change in the presently authorized Common Stock which 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 Common Stock within the meaning of the
Plan. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Committee to give
proper effect to such event.
9. PAYMENTS UPON TERMINATION OF EMPLOYMENT AFTER A CHANGE IN CONTROL.
-----------------------------------------------------------------
(a) 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 in a lump
sum in cash, as promptly as possible after termination of his employment;
provided, however, that if the Participant, at least 30 days prior to such
termination, has made an election in writing pursuant to this Section,
payment may be made in the number of annual installments (not to exceed 5)
specified in such election. For Performance Shares granted prior to January
1, 1988, any payment under this Section shall be calculated as if the
maximum performance objectives for the Performance Period had been met in
full and as if all the relevant
10
<PAGE>
Performance Periods had been fully completed on the first day of the month
in which the Participant's employment is terminated; for Performance Shares
granted on or after January 1, 1988, any payment under this Section shall be
calculated by applying performance objectives for any outstanding
Performance Shares as if the applicable Performance Period had ended on the
first day of the month in which the Participant's employment is terminated.
The value of the Performance Shares payable pursuant to this Section shall
be the amount equal to the number of Performance Shares payable in
accordance with the preceding sentence multiplied by the Fair Market Value
of a share of the Common Stock on the day the Participant's employment is
terminated or, if higher, the highest Fair Market Value of a share of the
Common Stock on any day during the 90-day period ending on the date of the
Change in Control (the "Pre-CIC Value").
(b) 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 all of his Restricted Shares in a
lump sum in cash as promptly as possible after termination of his
employment; provided, however, that if the Participant, at least 30 days
-------- -------
prior to such termination, has made an election in writing pursuant to this
Section, payment may be made in the number of annual installments (not to
exceed 5) specified in such election. Any payment under this Section shall
be calculated as if all the relevant Restricted Periods had been fully
completed 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 shall be reduced by the amount of any payment
previously made to the Participant with respect to the Restricted Shares,
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 payable pursuant to this Section shall be the amount equal
to the number of the Restricted Shares outstanding in a Participant's name
multiplied by the Fair Market Value of the Common Stock on the day the
Participant's employment is terminated or, if higher, the Pre-CIC Value.
(c) A "CHANGE IN CONTROL" shall mean a change in control 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:
(i) 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, is
or becomes the "beneficial owner" (as defined in Rule 13d-3 of the General
Rules and Regulations under the
11
<PAGE>
Exchange Act), directly or 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.; or
(ii) during any period of two consecutive years 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.
(d) If ML & Co. executes an agreement, the consummation of which would
result in the occurrence of a Change in Control as described in paragraph
(c), 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.
(e) Termination of the Participant's employment by the Company for "CAUSE"
shall mean termination upon:
(i) the willful and continued failure by the Participant substantially
to perform his duties with the Company (other than 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
(ii) the willful engaging by the Participant in conduct which 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.
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 (i) or (ii) of the first sentence of
this Subsection and specifying the particulars thereof in detail.
12
<PAGE>
(f) "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:
(i) the assignment to the Participant of any duties inconsistent with
his position, duties, responsibilities and status with the Company as in
effect immediately prior to a Change in Control, a change in his reporting
responsibilities, titles or offices as in effect immediately prior to the
Change in Control, or any removal of the Participant from or any failure to
reelect him to any of such positions;
(ii) a reduction by the Company of the Participant's base salary as in
effect just prior to the Change in Control;
(iii) the relocation of the office of the Company where the
Participant was employed at the time of the Change in Control (the "CIC
LOCATION") to a location more than fifty miles away from the CIC Location,
or the Company's requiring the Participant to be based more than fifty miles
away from the CIC Location (except for required travel on the Company's
business to an extent substantially consistent with the Participant's
business travel obligations just prior to the Change in Control);
(iv) the failure of the Company to continue in effect any benefit or
compensation plan, including but not limited to this Plan or the Company's
retirement program, the Payroll-Based Stock Ownership Plan for Employees of
Merrill Lynch & Co., Inc. and Affiliates, the Company's Employee Stock
Purchase Plan, 1978 Incentive Equity Purchase Plan, Career Compensation
Plan, Canadian Capital Accumulation Plan, Management Capital Accumulation
Plan, limited partnership offerings, cash incentive compensation or deferred
compensation programs, in which the Participant is participating at the time
of the Change in Control or any substitute 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 participation of the Participant therein on at least as favorable a
basis, in terms of both the amount of benefits provided and the level of his
participation relative to other Participants, as existed at the time of the
Change in Control; or
(v) 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 at the time of the Change in Control, the
taking of any action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive the Participant of any
material fringe benefit enjoyed by him at the time of the Change in Control,
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
13
<PAGE>
accordance with the Company's normal vacation policy in effect at the time
of the Change in Control.
(g) In the event of a Change in Control, no changes in the Plan, or in any
documents evidencing grants of Performance Shares or Restricted Shares, 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 Section shall be effective,
including, but not limited to, any changes, determinations or other
exercises of discretion made to or pursuant to Sections 2(f), 3, 6, 7, 8 or
19 of the Plan. Once a Participant has received a payment pursuant to this
Section, shares of Common Stock that were reserved for issuance in
connection with any Performance Shares for which payment is made shall no
longer be reserved and shares of Common Stock that are Restricted Shares 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 pursuant to Section 6(g) hereof shall be null and void.
10. DESIGNATION OF BENEFICIARY.
--------------------------
A Participant may designate, in 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.
11. 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.
12. 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.
14
<PAGE>
13. 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, or local taxes, including transfer taxes, required by law to
be withheld or to require the 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.
14. 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.
15. 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.
16. EXPENSES.
--------
The expenses of administering the Plan shall be borne by the Company.
17. 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.
15
<PAGE>
18. 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.
19. 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 the maximum number of shares of Common Stock available for
issuance under the Plan may not be increased (other than increases due to
adjustments in accordance with the Plan) without approval of the holders of
a majority of shares of Common Stock represented in person or by proxy at a
meeting of the stockholders. 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.
20. 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 which may, in the opinion of the counsel
for the Company, be required.
21. GOVERNING LAW.
-------------
The Plan shall be construed and its provisions enforced and administered
in accordance with the laws of the State of New York.
22. EFFECTIVE DATE.
--------------
The Plan shall not be effective unless or until approved by the vote of
the holders of a majority of the shares of Common Stock represented in
person or by proxy at a meeting of the stockholders to which it is
presented.
16
<PAGE>
EXHIBIT (10)(xxii)
MERRILL LYNCH & CO., INC.
-------------------------
1995 DEFERRED COMPENSATION PLAN
-------------------------------
FOR A SELECT GROUP OF ELIGIBLE EMPLOYEES
----------------------------------------
<PAGE>
MERRILL LYNCH & CO., INC.
1995 DEFERRED COMPENSATION PLAN
FOR A SELECT GROUP OF ELIGIBLE EMPLOYEES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
I. GENERAL................................................................ 1
1.1 Purpose and Intent................................................. 1
1.2 Definitions........................................................ 1
II. ELIGIBILITY............................................................ 3
2.1 Eligible Employees................................................. 3
(a) General Rule.................................................. 3
(b) Individuals First Employed During Election Year or Plan Year.. 4
(c) Wages Subject to Legal Process................................ 4
III. DEFERRAL ELECTIONS; ACCOUNTS........................................... 4
3.1 Deferral Elections................................................. 4
(a) Timing and Manner of Making of Elections...................... 4
(b) Irrevocability of Deferral Election........................... 4
(c) Application of Election....................................... 4
3.2 Crediting to Accounts.............................................. 5
3.3 Minimum Requirements for Deferral.................................. 5
(a) Minimum Requirements.......................................... 5
(b) Failure to Meet Requirements.................................. 5
3.4 Benchmark Return Options; Adjustment of Accounts................... 5
(a) Selection of Benchmark Return Options......................... 5
(b) Adjustment of Accounts........................................ 6
(c) Annual Charge................................................. 6
3.5 Rescission of Deferral Election.................................... 7
(a) Prior to December 1, 1994..................................... 7
(b) Adverse Tax Determination..................................... 7
(c) Rescission For Amounts Not Yet Earned......................... 7
IV. STATUS OF DEFERRED AMOUNTS AND ACCOUNT................................. 7
4.1 No Trust or Fund Created; General Creditor Status.................. 7
4.2 Non-Assignability.................................................. 8
4.3 Effect of Deferral on Benefits Under Pension and
Welfare Benefit Plans............................................ 8
V. PAYMENT OF ACCOUNT..................................................... 8
5.1 Payment Date....................................................... 8
5.2 Termination of Employment.......................................... 8
(a) Death or Retirement........................................... 8
(b) Other Termination of Employment............................... 8
(c) Leave of Absence, Transfer or Disability...................... 8
(d) Discretion to Alter Payment Date.............................. 9
5.3 Withholding of Taxes............................................... 9
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
5.4 Beneficiary ..................................................... 9
(a) Designation of Beneficiary.................................. 9
(b) Change in Beneficiary....................................... 9
(c) Default Beneficiary......................................... 9
(d) If the Beneficiary Dies During Payment...................... 9
5.5 Hardship Distributions........................................... 10
VI. ADMINISTRATION OF THE PLAN........................................... 10
6.1 Powers of the Administrator...................................... 10
6.2 Payments on Behalf of an Incompetent............................. 10
6.3 Corporate Books and Records Controlling.......................... 10
VII. MISCELLANEOUS PROVISIONS............................................. 11
7.1 Litigation....................................................... 11
7.2 Headings Are Not Controlling..................................... 11
7.3 Governing Law.................................................... 11
7.4 Amendment and Termination........................................ 11
</TABLE>
-ii-
<PAGE>
MERRILL LYNCH & CO., INC.
1995 DEFERRED COMPENSATION PLAN
FOR A SELECT GROUP OF ELIGIBLE EMPLOYEES
ARTICLE I
GENERAL
1.1 PURPOSE AND INTENT.
The purpose of the Plan is to encourage the employees who are integral to
the success of the business of the Company to continue their employment by
providing them with flexibility in meeting their future income needs. It is
intended that this Plan be unfunded and maintained primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees within the meaning of Title I of ERISA, and all decisions
concerning who is to be considered a member of that select group and how this
Plan shall be administered and interpreted shall be consistent with this
intention.
1.2 DEFINITIONS.
For the purpose of the Plan, the following terms shall have the meanings
indicated.
"Account Balance" means, as of any date, the Deferred Amounts credited to
a Participant's Account, adjusted in accordance with Section 3.4 to reflect the
performance of the Participant's Selected Benchmark Return Options, the Annual
Charge and any payments made from the Account to the Participant prior to that
date.
"Account" means the reserve account established on the books and records
of ML & Co. for each Participant to record the Participant's interest under the
Plan.
"Adjusted Compensation" means the financial consultant incentive
compensation, account executive incentive compensation, or estate planning and
business insurance specialist incentive compensation, in each case exclusive of
base salary, earned by a Participant during the Fiscal Year ending in 1995, and
payable after January 1, 1995, as a result of the Participant's production
credit level.
"Administrator" means the Director of Human Resources of ML & Co., or his
functional successor, or any other person or committee designated as
Administrator of the Plan by the MDCC.
"Affiliate" means any corporation, partnership, or other organization of
which ML & Co. owns or controls, directly or indirectly, not less than 50% of
the total combined voting power of all classes of stock or other equity
interests.
"Annual Charge" means the charge to the Participant's Account provided for
in Section 3.4(c).
"Benchmark Return Options" means such Merrill Lynch mutual funds or other
investment vehicles as the Administrator may from time to time designate for
the purpose of indexing Accounts hereunder. In the event a Benchmark Return
Option ceases to exist or is no longer to be a Benchmark Return Option, the
Administrator may designate a substitute Benchmark Return Option for such
discontinued option.
<PAGE>
"Board of Directors" means the Board of Directors of ML & Co.
"Code" means the U.S. Internal Revenue Code of 1986, as amended from time
to time.
"Company" means ML & Co. and all of its Affiliates.
"Compensation" means, as relevant, a Participant's Adjusted Compensation,
Variable Incentive Compensation and/or Sign-On Bonus. In no event shall a
Participant's base pay be considered Compensation (i.e., an amount subject to
deferral under this Plan).
"Deferral Percentage" means the percentage (which shall be in whole
percentage increments and not more than 90%), specified by the Participant to
be the percentage of each payment of Compensation he or she wishes to defer
under the Plan.
"Deferred Amounts" means the amounts of Compensation actually deferred by
the Participant under this Plan.
"Election Year" means the 1994 calendar year.
"Eligible Compensation" means a Participant's "eligible compensation" as
determined, from time to time, for purposes of ML & Co.'s Basic Group Life
Insurance Plan.
"Eligible Employee" means an employee eligible to defer amounts under this
Plan, as determined under Section 2.1 hereof.
"ERISA" means the U.S. Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Fiscal Month" means the monthly period used by ML & Co. for financial
accounting purposes.
"Fiscal Year" means the annual period used by ML & Co. for financial
accounting purposes.
"Full-Time Domestic Employee" means a full-time employee of the Company
paid from the Company's domestic based payroll (other than any U.S. citizen or
"green card" holder who is employed outside the United States).
"Full-Time Expatriate Employee" means a U.S. citizen or "green card"
holder employed by the Company outside the United States and selected by the
Administrator as eligible to participate in the Plan (subject to the other
eligibility criteria).
"Maximum Deferral" means the whole dollar amount specified by the
Participant to be the amount of Compensation he or she elects to be deferred
under the Plan.
"MDCC" means the Management Development and Compensation Committee of the
Board of Directors.
"ML & Co." means Merrill Lynch & Co., Inc.
2
<PAGE>
"Net Asset Value" means, with respect to each Benchmark Return Option that
is a mutual fund or other commingled investment vehicle for which such values
are determined in the normal course of business, the net asset value, on the
date in question, of the Selected Benchmark Return Option for which the value
is to be determined.
"Participant" means an Eligible Employee who has elected to defer
Compensation under the Plan.
"Plan" means this Merrill Lynch & Co., Inc. 1995 Deferred Compensation
Plan for a Select Group of Eligible Employees.
"Plan Year" means the Fiscal Year ending in 1995.
"Remaining Deferred Amounts" means a Participant's Deferred Amounts times
a fraction equal to the number of remaining installment payments divided by the
total number of installment payments.
"Retirement" means a Participant's (i) termination of employment with the
Company for reasons other than for cause on or after the Participant's 65th
birthday, or (ii) resignation on or after the Participant's 55th birthday if
the Participant has at least 10 years of service, or (iii) resignation at any
age with the express approval of the Administrator, which will be granted only
if the termination is found by the Administrator to be in, or not contrary to,
the best interests of the Company.
"Selected Benchmark Return Option" means a Benchmark Return Option
selected by the Participant in accordance with Section 3.4.
"Sign-On Bonus" means a single-sum amount paid or payable during the Plan
Year upon commencement of employment to a new Eligible Employee, in addition to
base pay and other Compensation, to induce him or her to become an employee of
the Company.
"Variable Incentive Compensation" means the variable incentive
compensation or office manager incentive compensation that is paid in cash to
certain employees of the Company generally in January or February of the Plan
Year with respect to the prior Fiscal Year, which for purposes of this Plan is
considered earned during the Plan Year regardless of when it is actually paid
to the Participant.
ARTICLE II
ELIGIBILITY
2.1 ELIGIBLE EMPLOYEES.
(a) GENERAL RULE. An individual is an Eligible Employee if he or she (i)
is a Full-Time Domestic Employee or a Full-Time Expatriate Employee, (ii) has
at least $200,000 of Eligible Compensation for the Election Year, (iii) has
attained at least the title of Vice President, Director or Managing Director,
or holds a National Sales Management position with the Company (a "National
Sales Manager"), and (iv) (A) is a financial consultant or an estate planning
and business insurance specialist, who was a member in 1994 of the Chairman's
Club, the Charles E. Merrill Circle, the Society of Eagles, the Falcons Club or
the Win Smith Fellows, (B) is a National Sales Manager (C) is a member of the
International Private Banking Group, (D) is a non-producing employee in the
Senior
3
<PAGE>
Manager or Senior Consultant Band (Q Band) or above, or (E) is a producing
employee in grade 95 or above; provided, that non-producing employees
--------
in the Director Band (R Band) or above and producing employees in grade 97 or
above (or their executive equivalents) shall not be required to meet condition
(ii) hereof, and provided, further, that employees who were 1994 Win Smith
-------- -------
Fellows shall not be required to meet condition (iii) hereof.
(b) INDIVIDUALS FIRST EMPLOYED DURING ELECTION YEAR OR PLAN YEAR. Subject
to the approval of the Administrator in his sole discretion, an individual who
is first employed by the Company during the Election Year or the Plan Year is
an Eligible Employee if his or her Eligible Compensation is greater than
$200,000 and he or she is either employed as a National Sales Manager or is to
be nominated for at least the title of Vice President, Director or Managing
Director at the first opportunity following his or her commencement of
employment with the Company.
(c) WAGES SUBJECT TO LEGAL PROCESS. An individual shall not, however, be
an Eligible Employee if as of the deadline for submission of elections
specified in Section 3.1(a) the individual's wages have been attached or are
being garnished or are otherwise restrained pursuant to legal process.
ARTICLE III
DEFERRAL ELECTIONS; ACCOUNTS
3.1 DEFERRAL ELECTIONS.
(a) TIMING AND MANNER OF MAKING OF ELECTIONS. An election to defer
Compensation for payment in accordance with Section 5.1 shall be made by
submitting to the Administrator such forms as the Administrator may prescribe.
Each election submitted must specify a Maximum Deferral and a Deferral
Percentage with respect to each category of Compensation to be deferred. All
elections by a Participant to defer Compensation under the Plan must be
received by the Administrator or such person as he may designate for the
purpose by no later than September 30, 1994; provided, however, that the
-------- -------
Eligible Employee's election to defer a Sign-On Bonus must be part of such
Eligible Employee's terms and conditions of employment agreed to prior to the
Eligible Employee's first day of employment with the Company.
(b) IRREVOCABILITY OF DEFERRAL ELECTION. Except as provided in Sections
3.5 and 5.5, an election to defer the receipt of any Compensation made under
Section 3.1(a) is irrevocable once submitted to the Administrator or his
designee. The Administrator's acceptance of an election to defer Compensation
shall not, however, affect the contingent nature of such Compensation under the
plan or program under which such Compensation is payable.
(c) APPLICATION OF ELECTION. The Participant's Deferral Percentage will
be applied to each payment of Compensation to which the Participant's deferral
election applies, provided, that the aggregate of the Participant's Deferred
--------
Amounts shall not exceed the Participant's Maximum Deferral. If a Participant
has made deferral elections with respect to more than one category of
Compensation, this Section 3.1(c) shall be applied separately with respect to
each such category.
4
<PAGE>
3.2 CREDITING TO ACCOUNTS.
A Participant's Deferred Amounts will be credited to the Participant's
Account, as soon as practicable (but in no event later than 90 days) after the
last day of the Fiscal Month during which such Deferred Amounts would, but for
deferral, have been paid and will be accounted for in accordance with Section
3.4.
3.3 MINIMUM REQUIREMENTS FOR DEFERRAL.
(a) MINIMUM REQUIREMENTS. Notwithstanding any other provision of this
Plan, no deferral will be effected under this Plan with respect to a
Participant if:
(i) the Participant is not an Eligible Employee as of December 31, 1994,
(ii) the Participant's election as applied to the Participant's Variable
Incentive Compensation (determined by substituting the Election Year
for the Plan Year) or Adjusted Compensation (determined by
substituting the Fiscal Year ending in 1993 for the Fiscal Year
ending in 1995) would have resulted in an annual deferral of less
than $15,000, or
(iii) the greater of (A) the sum of (1) the compensation amount listed
on the Participant's W-2 form for 1995 and (2) any Compensation that
is accelerated which the Participant may receive in December 1994
which would have been payable in calendar year 1995 in the absence of
the action of the Company to accelerate the payment, and (B) the
Participant's Eligible Compensation for calendar year 1996, is less
than $200,000;
provided, that any Participant who first becomes an employee of the Company
--------
during the Plan Year shall not be required to satisfy conditions (i) and (ii).
(b) FAILURE TO MEET REQUIREMENTS. If any of the requirements of Section
3.3(a) are not met by a Participant, the Deferred Amounts will be paid to the
Participant, without adjustment to reflect the performance of any Selected
Benchmark Return Option, as soon as practicable after it has been determined
that the requirement has not been met provided, however, that if the
-------- -------
Participant fails to meet the requirements of Section 3.3(a) (iii), the
Participant will receive the greater of the Deferred Amounts or the Account
Balance.
3.4 BENCHMARK RETURN OPTIONS; ADJUSTMENT OF ACCOUNTS.
(a) SELECTION OF BENCHMARK RETURN OPTIONS. Coincident with the
Participant's election to defer Compensation, the Participant must select one
or more Benchmark Return Options and the percentage of the Participant's
Account to be adjusted to reflect the performance of each Selected Benchmark
Return Option. All elections of Selected Benchmark Return Options shall be in
multiples of 10% unless the Administrator determines that lower increments are
administratively feasible, in which case such lower increment shall apply. A
Participant may, by complying with such procedure as the Administrator may
prescribe on a uniform and nondiscriminatory basis, including procedures
specifying the frequency with respect to which such changes may be effected
(but not more than twelve times in any calendar year), change the Selected
Benchmark Return Options to be applicable with respect to his or her Account.
5
<PAGE>
(b) ADJUSTMENT OF ACCOUNTS. While each Participant's Account does not
represent the Participant's ownership of, or any ownership interest in, any
particular assets, the Account shall be adjusted to reflect the investment
experience of the Participant's Selected Benchmark Return Options in the same
manner as if investments in accordance with the Participant's elections had
actually been made through the ML Benefit Services Platform and ML II Core
Recordkeeping System, or any successor system used for keeping records of
Participants' Accounts (the "ML II System"). In adjusting Accounts, the timing
of receipt of Participant instructions by the ML II System shall control the
timing and pricing of the notional investments in the Participant's Selected
Benchmark Return Options in accordance with the rules of operation of the ML II
System and its requirements for placing corresponding investment orders, as if
orders to make corresponding investments were actually to be made, except that
in connection with the crediting of Deferred Amounts to the Participant's
Account and distributions from the Account, appropriate deferral allocation
instructions shall be treated as received from the Participant prior to the
close of transactions through the ML II System on the relevant day. Each
Selected Benchmark Return Option shall be valued using the Net Asset Value of
the Selected Benchmark Return Option as of the relevant day, provided, that, in
--------
valuing a Selected Benchmark Return Option for which a Net Asset Value is not
computed, the value of the security involved for determining Participants'
rights under the Plan shall be the price reported for actual transactions in
that security through the ML II System on the relevant day, without giving
effect to any transaction charges or costs associated with such transactions,
provided, further, that, if there are no such transactions effected through the
-------- -------
ML II System on the relevant day, the value of the security shall be:
(i) if the security is listed for trading on one or more national
securities exchanges, the average of the high and low sale prices
for that day on the principal exchange for such security, or if
such security is not traded on such principal exchange on that
day, the average of the high and low sales prices on such
exchange on the first day prior thereto on which such security
was so traded;
(ii) if the security is not listed for trading on a national
securities exchange but is traded in the over-the-counter
market, the average of the highest and lowest bid prices for
such security on the relevant day; or
(iii) if neither clause (i) nor (ii) applies, the value
determined by the Administrator by whatever means he considers
appropriate in his sole discretion.
(c) ANNUAL CHARGE. As of the last day of each Fiscal Year or such earlier
day in December as the Administrator shall determine, an Annual Charge of 2.0%
of the Participant's Deferred Amounts (exclusive of any appreciation or
depreciation determined under Section 3.4 (b)) shall be applied to reduce the
Account Balance (but not below zero). In the event that the Participant elects
to have the Account Balance paid in installments, this Annual Charge will be
charged on the Remaining Deferred Amounts after giving effect to the
installment payments. In the event that the Account Balance is paid out
completely during a Fiscal Year prior to the date that the Annual Charge is
assessed, a pro rata Annual Charge will be deducted from amounts to be paid to
--------
the Participant to cover that fraction of the Fiscal Year that Deferred Amounts
(or Remaining Deferred Amounts in the case of installment payments) were
maintained hereunder. The Annual Charge shall be applied as a pro rata
--------
reduction of the Account Balance indexed to each of the Participant's Selected
Benchmark Return Options. In applying the Annual Charge, the pricing
principles set forth in Section 3.4(b) will be followed.
6
<PAGE>
3.5 RESCISSION OF DEFERRAL ELECTION.
(a) PRIOR TO DECEMBER 1, 1994. A deferral election hereunder may be
rescinded at the request of a Participant only (i) on or before December 1,
1994, and (ii) if the Administrator, in his sole discretion and upon evidence
of such basis that he finds persuasive (including a material applicable change
in the Participant's U.S. Federal and/or foreign income tax rate during the
period between October 1, 1994 and November 30, 1994), agrees to the rescission
of the election. The Deferred Amounts will be paid to the Participant as soon
as practicable subject to a reduction for any applicable withholding taxes.
(b) ADVERSE TAX DETERMINATION. Notwithstanding the provisions of Section
3.5(a), a deferral election may be rescinded at any time if (i) a final
determination is made by a court or other governmental body of competent
jurisdiction that the election was ineffective to defer income for purposes of
U.S. Federal, state, local or foreign income taxation and the time for appeal
from this determination has expired, and (ii) the Administrator, in his sole
discretion, decides, upon the Participant's request and upon evidence of the
occurrence of the events described in (i) hereof that he finds persuasive, to
rescind the election. Upon such rescission, the Account Balance, including any
adjustment for performance of the Selected Benchmark Return Options will be
paid to the Participant as soon as practicable, and no additional amounts will
be deferred pursuant to this Plan.
(c) RESCISSION FOR AMOUNTS NOT YET EARNED. Upon the Participant's written
request, the Administrator may in his sole discretion terminate any deferral
elections made hereunder with respect to compensation not yet earned and no
further amounts will be deferred. Amounts previously deferred will continue to
be governed by the terms of this Plan.
ARTICLE IV
STATUS OF DEFERRED AMOUNTS AND ACCOUNT
4.1 NO TRUST OR FUND CREATED; GENERAL CREDITOR STATUS.
Nothing contained herein and no action taken pursuant hereto will be
construed to create a trust or separate fund of any kind or a fiduciary
relationship between the ML & Co. and any Participant, the Participant's
beneficiary or estate, or any other person. Title to and beneficial ownership
of any funds represented by the Account Balance will at all times remain in ML
& Co.; such funds will continue for all purposes to be a part of the general
funds of ML & Co. and may be used for any corporate purpose. No person will,
by virtue of the provisions of this Plan, have any interest whatsoever in any
specific assets of the Company. TO THE EXTENT THAT ANY PERSON ACQUIRES A RIGHT
TO RECEIVE PAYMENTS FROM ML & CO. UNDER THIS PLAN, SUCH RIGHT WILL BE NO
GREATER THAN THE RIGHT OF ANY UNSECURED GENERAL CREDITOR OF ML & CO.
7
<PAGE>
4.2 NON-ASSIGNABILITY.
The Participant's right or the right of any other person to the Account
Balance or any other benefits hereunder cannot be assigned, alienated, sold,
garnished, transferred, pledged, or encumbered except by a written designation
of beneficiary under this Plan, by written will, or by the laws of descent and
distribution.
4.3 EFFECT OF DEFERRAL ON BENEFITS UNDER PENSION AND WELFARE BENEFIT PLANS.
The effect of deferral on pension and welfare benefit plans in which the
Participant may be a participant will depend upon the provisions of each such
plan, as amended from time to time.
ARTICLE V
PAYMENT OF ACCOUNT
5.1 PAYMENT DATE.
A Participant's Account Balance will be paid by ML & Co., as elected by
the Participant at the time of his or her deferral election, either in a single
sum, or in the number of annual installments (not to exceed 15) chosen by the
Participant to commence, as specified, (i) in the month following the month of
the Participant's Retirement or death, (ii) in any month or year selected by
the Participant after the end of 1995, (iii) in any month in the calendar year
following the Participant's Retirement, but in no event may the date elected
under clause (i), (ii) or (iii) result in commencement of payments later than
the month following the Participant's 70th birthday. The amount of each annual
installment, if any, shall be a fraction of the Account Balance as of the last
day of the month immediately preceding the month in which the payment is to be
made, the numerator of such fraction shall be one and the denominator of such
fraction shall be the number of remaining installments (including the
installment to be made).
5.2 TERMINATION OF EMPLOYMENT.
(a) DEATH OR RETIREMENT. If the Participant dies or retires prior to
payment, then the Account Balance will be paid to the Participant in accordance
with the Participant's election (in the event of Retirement) or to the
Participant's beneficiary (in the event of death) in accordance with the
Participant's election of either installment payments or a lump sum, provided,
--------
however, that in the event that a beneficiary of the Participant's Account
-------
Balance is the Participant's estate or is otherwise not a natural person, the
applicable portion of the Account Balance will be paid in lump sum to such
beneficiary.
(b) OTHER TERMINATION OF EMPLOYMENT. If the Participant's employment
terminates at any time for any reason other than death or Retirement, the
Account Balance will be paid to the Participant, in a lump sum, as soon
thereafter as is practicable.
(c) LEAVE OF ABSENCE, TRANSFER OR DISABILITY. The Participant's
employment will not be considered as terminated if the Participant is on an
approved leave of absence or if the Participant transfers or is transferred but
remains in the employ of the Company or if the Participant is eligible to
receive disability payments under the ML & Co. Basic Long-Term Disability Plan.
8
<PAGE>
(d) DISCRETION TO ALTER PAYMENT DATE. Notwithstanding the provisions of
Sections 5.2(a) and (b), if the Participant's employment terminates for any
reason, the Administrator may, in his sole discretion, direct that the Account
Balance be paid at some other time or that it be paid in installments;
provided, that no such direction that adversely affects the rights of the
--------
Participant or his or her beneficiary under this Plan shall be implemented
without the consent of the affected Participant or beneficiary. This direction
may be revoked by the Administrator at any time in his sole discretion.
5.3 WITHHOLDING OF TAXES.
ML & Co. will deduct or withhold from any payment to be made or deferred
hereunder any U.S. Federal, state or local or foreign income or employment
taxes required by law to be withheld or require the Participant or the
Participant's beneficiary to pay any amount, or the balance of any amount,
required to be withheld.
5.4 BENEFICIARY.
(a) DESIGNATION OF BENEFICIARY. The Participant may designate, in a
writing delivered to the Administrator or his designee before the Participant's
death, a beneficiary to receive payments in the event of the Participant's
death. The Participant may also designate a contingent beneficiary to receive
payments in accordance with this Plan if the primary beneficiary does not
survive the Participant. The Participant may designate more than one person as
the Participant's beneficiary or contingent beneficiary, in which case (i) no
contingent beneficiary would receive any payment unless all of the primary
beneficiaries predeceased the Participant, and (ii) the surviving beneficiaries
in any class shall share in any payments in proportion to the percentages of
interest assigned to them by the Participant.
(b) CHANGE IN BENEFICIARY. The Participant may change his or her
beneficiary or contingent beneficiary (without the consent of any prior
beneficiary) in a writing delivered to the Administrator or his designee before
the Participant's death. Unless the Participant states otherwise in writing,
any change in beneficiary or contingent beneficiary will automatically revoke
prior such designations of the Participant's beneficiary or of the
Participant's contingent beneficiary, as the case may be, under this Plan only;
and any designations under other deferral agreements or plans of the Company
will remain unaffected.
(c) DEFAULT BENEFICIARY. In the event a Participant does not designate a
beneficiary, or no designated beneficiary survives the Participant, the
Participant's beneficiary shall be the Participant's surviving spouse, if the
Participant is married at the time of his or her death and not subject to a
court-approved agreement or court decree of separation, or otherwise the person
or persons designated to receive benefits on account of the Participant's death
under the ML & Co. Basic Group Life Insurance Plan (the "Life Insurance Plan").
However, if an unmarried Participant does not have coverage in effect under the
Life Insurance Plan, or the Participant has assigned his or her death benefit
under the Life Insurance Plan, any amounts payable to the Participant's
beneficiary under the Plan will be paid to the Participant's estate.
(d) IF THE BENEFICIARY DIES DURING PAYMENT. If a beneficiary who is
receiving or is entitled to receive payments hereunder dies after the
Participant but before all the payments have been made, the portion of the
Account Balance to which that beneficiary was entitled will be paid as soon as
practicable in one lump sum to such beneficiary's estate and not to any
contingent beneficiary the Participant may have designated.
9
<PAGE>
5.5 HARDSHIP DISTRIBUTIONS.
ML & Co. may pay to the Participant, on such terms and conditions as the
Administrator may establish, such part or all of the Account Balance as he may,
in his sole discretion based upon substantial evidence submitted by the
Participant, determine necessary to alleviate hardship caused by an
unanticipated emergency or necessity outside of the Participant's control
affecting the Participant's personal or family affairs. Such payment will be
made only at the Participant's written request and with the express approval of
the Administrator and will be made on the date selected by the Administrator in
his sole discretion. The balance of the Account, if any, will continue to be
governed by the terms of this Plan. Hardship shall be deemed to exist only on
account of expenses for medical care (described in Code Section 213(d)) of the
Participant, the Participant's spouse or the Participant's dependents
(described in Code Section 152); payment of unreimbursed tuition and related
educational fees for the Participant, the Participant's spouse or the
Participant's dependents; the need to prevent the Participant's eviction from
or, foreclosure on, the Participant's principal residence; unreimbursed damages
resulting from a natural disaster; or such other financial need deemed by the
Administrator in his sole discretion to be immediate and substantial.
ARTICLE VI
ADMINISTRATION OF THE PLAN
6.1 POWERS OF THE ADMINISTRATOR.
The Administrator has full power and authority to interpret, construe, and
administer this Plan so as to ensure that it provides deferred compensation for
the Participant as a member of a select group of management or highly
compensated employees within the meaning of Title I of ERISA. The
Administrator's interpretations and construction hereof, and actions hereunder,
including any determinations regarding the amount or recipient of any payments,
will be binding and conclusive on all persons for all purposes. The
Administrator will not be liable to any person for any action taken or omitted
in connection with the interpretation and administration of this Plan unless
attributable to his willful misconduct or lack of good faith. The
Administrator may designate persons to carry out the specified responsibilities
of the Administrator and shall not be liable for any act or omission of a
person as designated.
6.2 PAYMENTS ON BEHALF OF AN INCOMPETENT.
If the Administrator finds that any person who is entitled to any payment
hereunder is a minor or is unable to care for his or her affairs because of
disability or incompetency, payment of the Account Balance may be made to
anyone found by the Administrator to be the committee or other authorized
representative of such person, or to be otherwise entitled to such payment, in
the manner and under the conditions that the Administrator determines. Such
payment will be a complete discharge of the liabilities of ML & Co. hereunder
with respect to the amounts so paid.
6.3 CORPORATE BOOKS AND RECORDS CONTROLLING.
The books and records of the Company will be controlling in the event a
question arises hereunder concerning the amount of Adjusted Compensation,
Incentive Compensation, Eligible Compensation, the Deferred Amounts, the
Account Balance, the designation of a beneficiary, or any other matters.
10
<PAGE>
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 LITIGATION.
The Company shall have the right to contest, at its expense, any ruling or
decision, administrative or judicial, on an issue that is related to the Plan
and that the Administrator believes to be important to Participants, and to
conduct any such contest or any litigation arising therefrom to a final
decision.
7.2 HEADINGS ARE NOT CONTROLLING.
The headings contained in this Plan are for convenience only and will not
control or affect the meaning or construction of any of the terms or provisions
of this Plan.
7.3 GOVERNING LAW.
To the extent not preempted by applicable U.S. Federal law, this Plan will
be construed in accordance with and governed by the laws of the State of New
York as to all matters, including, but not limited to, matters of validity,
construction, and performance.
7.4 AMENDMENT AND TERMINATION.
ML & Co., through the Administrator, reserves the right to amend or
terminate this Plan at any time, except that no such amendment or termination
shall adversely affect the right of a Participant to his or her Account Balance
as of the date of such amendment or termination.
11
<PAGE>
EXHIBIT (10)(xxiii)
AS AMENDED THROUGH FEBRUARY 24, 1995
MERRILL LYNCH & CO., INC.
-------------------------
FEE DEFERRAL PLAN
-----------------
FOR NON-EMPLOYEE DIRECTORS
--------------------------
<PAGE>
MERRILL LYNCH & CO., INC.
FEE DEFERRAL PLAN FOR NON-EMPLOYEE DIRECTORS
TABLE OF CONTENTS
PAGE
----
I. GENERAL.................................................... 1
1.1 Purpose.................................................... 1
1.2 Definitions................................................ 1
II. DEFERRAL ELECTIONS; ACCOUNT(S)............................. 5
2.1 Deferral Elections......................................... 5
(a) Timing and Manner of Making of Elections................... 5
(b) Irrevocability of Deferral Elections....................... 5
2.2 Crediting to Accounts...................................... 5
(a) Mutual Fund Index Deferred Amounts......................... 5
(b) ML Stock Unit Deferred Amounts............................. 5
2.3 Adjustment of Mutual Fund Index Accounts; Mutual Fund Index
Account Return Options..................................... 6
(a) Selection of Mutual Fund Index Account Return Options...... 6
(b) Adjustment of Mutual Fund Index Accounts................... 6
2.4 Adjustment of ML Stock Unit Accounts....................... 7
(a) Dividend Equivalents....................................... 7
(b) Changes in Capitalization.................................. 7
2.5 Rescission of Mutual Fund Index Deferral Elections......... 7
(a) Adverse Tax Determination.................................. 7
(b) Rescission For Amounts Not Yet Earned...................... 7
(c) No Rescission of ML Stock Unit Deferral Elections.......... 8
III. STATUS OF ACCOUNT(S)....................................... 8
3.1 No Trust or Fund Created; General Creditor Status.......... 8
3.2 Non-Assignability.......................................... 8
3.3 Effect of Deferral on Benefits Under Pension and
Welfare Benefit Plans...................................... 8
IV. PAYMENT OF ACCOUNT(S)...................................... 8
4.1 Payment.................................................... 8
(a) Payment Election........................................... 8
(b) Payment of ML Stock Units.................................. 9
(c) Death Prior to Payment..................................... 9
(d) Discretion to Alter Payment Date for Mutual Fund Index
Account Balance............................................ 9
4.2 Change in Control.......................................... 9
(a) Payment of Mutual Fund Index Account Balance............... 9
(b) ML Stock Unit Account Balance Unaffected................... 9
4.3 Withholding of Taxes....................................... 9
4.4 Beneficiary ............................................... 10
(a) Designation of Beneficiary................................. 10
(b) Change in Beneficiary...................................... 10
i
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PAGE
----
(c) Default Beneficiary................................ 10
(d) If the Beneficiary Dies During Payment............. 10
V. ADMINISTRATION OF THE PLAN......................... 10
5.1 Powers of the Administrator........................ 10
5.2 Payments on Behalf of an Incompetent............... 11
5.3 Corporate Books and Records Controlling............ 11
VI. MISCELLANEOUS PROVISIONS........................... 11
6.1 Litigation......................................... 11
6.2 Headings Are Not Controlling....................... 11
6.3 Governing Law...................................... 11
6.4 Amendment and Termination.......................... 11
ii
<PAGE>
MERRILL LYNCH & CO., INC.
FEE DEFERRAL PLAN
FOR NON-EMPLOYEE DIRECTORS
ARTICLE I
GENERAL
1.1 PURPOSE.
The purpose of the Plan is to provide non-employee Directors of Merrill
Lynch & Co., Inc. ("ML & Co.") with flexibility in meeting their future income
needs, and to provide an additional incentive to highly qualified individuals to
serve as Directors.
1.2 DEFINITIONS.
For the purpose of the Plan, the following terms shall have the meanings
indicated.
"Account(s)" with respect to any Plan Year means the Participant's Mutual
Fund Index Account and/or ML Stock Unit Account.
"Account Balance(s)" with respect to any Plan Year means the Participant's
Mutual Fund Index Account Balance and/or ML Stock Unit Account Balance.
"Administrator" means the Director of Human Resources of ML & Co., or his
or her functional successor.
"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 Meeting" means the annual meeting of stockholders of ML & Co.
"Board of Directors" or "Board" means the Board of Directors of Merrill
Lynch & Co., Inc.
"Business Day" shall mean any day on which the New York Stock Exchange,
Inc. is open for business.
"Change in Control" means 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 Exchange Act, whether or not ML & Co. 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 ML
& Co.'s employee stock ownership plan, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 of the General Rules and Regulations under the Exchange
Act), directly or indirectly, of securities of ML & Co. representing 30% or more
of the combined voting power of ML & Co.'s then outstanding securities entitled
to vote in the election of directors of ML & Co.;
<PAGE>
(b) during any period of two consecutive years (not including any
period prior to the adoption 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.
"Code" means the U.S. Internal Revenue Code of 1986, as amended from time
to time.
"Common Stock" means the Common Stock, par value $1.33 1/3 per share, of ML
& Co., and a "share of Common Stock" means one share of Common Stock together
with, for so long as Rights are outstanding, the number of Rights then
associated with one share of Common Stock (whether trading with the Common Stock
or separately).
"Company" means ML & Co. and all of its Affiliates.
"Current Market Value" per share of Common Stock for any date, shall mean
the average of the Daily Market Prices of a share of Common Stock for each
Business Day for which such Daily Market Prices are available during a period
commencing on a date 21 consecutive Business Days prior to such date and ending
on the second Business Day prior to such date.
"Daily Market Price" of shares of Common Stock on any given date(s) shall
be: (a) the mean of the high and low sales prices reported on the New York Stock
Exchange--Composite Tape (or, if shares of Common Stock are not traded on the
New York Stock Exchange, the mean of the high and low sales prices reported on
any securities exchange or quotation service on which the shares of Common Stock
are listed or traded) of such shares on the date(s) in question or (b) if shares
of Common Stock are not then listed or admitted to trading on any securities
exchange as to which reported sales prices are available, the mean of reported
high bid and low asked prices on any such date(s), as reported by a reputable
quotation service, or by The Wall Street Journal, Eastern Edition or a newspaper
of general circulation in the Borough of Manhattan, City and State of New York.
"Deferred Amounts" with respect to any Plan Year means the Participant's
Mutual Fund Index Deferred Amounts and/or ML Stock Unit Deferred Amounts.
"Director" means a member of the Board of Directors.
"Election Year" with respect to any Plan Year, means the calendar year
immediately preceding the Plan Year.
"End of Service Date" means the date on which a Participant ceases to serve
as a Director for any reason.
"Exchange Act" means the Securities Exchange Act of 1934.
"Executive Committee" means the Executive Committee of the Board of
Directors.
2
<PAGE>
"Fees" means the annual cash base compensation, committee membership fees,
if any, and committee chair fees, if any, payable to a Participant for service
on the Board and any committees of the Board during the relevant Plan Year.
"ML Stock Unit" means a unit representing ML & Co.'s obligation to pay an
amount equal to the then Current Market Value of a share of Common Stock in cash
in accordance with the terms of the Plan.
"ML Stock Unit Account" with respect to any Plan Year, means the reserve
account established for such Plan Year on the books and records of ML & Co. to
record a Participant's ML Stock Unit Account Balance with respect to such Plan
Year.
"ML Stock Unit Account Balance" with respect to any Plan Year means, as of
any date, the ML Stock Units credited to a Participant's ML Stock Unit Account
for such Plan Year, adjusted in accordance with Section 2.4 to reflect the
addition of dividend equivalents and any changes in capitalization and adjusted
for any payments made from the ML Stock Unit Account to the Participant prior to
that date.
"ML Stock Unit Deferral Percentage" with respect to any Plan Year means the
percentage specified by the Participant to be the percentage of each payment of
Fees he or she wishes to defer into an ML Stock Unit Account under the Plan
during such Plan Year.
"ML Stock Unit Deferred Amounts" with respect to any Plan Year means the
dollar amounts of Fees actually deferred by the Participant into an ML Stock
Unit Account under this Plan for such Plan Year.
"Mutual Fund Index Account" with respect to any Plan Year, means the
reserve account established for such Plan Year on the books and records of ML &
Co. to record a Participant's Mutual Fund Index Account Balance with respect to
such Plan Year.
"Mutual Fund Index Account Balance" with respect to any Plan Year means, as
of any date, the Mutual Fund Index Deferred Amounts credited to a Participant's
Mutual Fund Index Account for such Plan Year, adjusted in accordance with
Section 2.3 to reflect the performance of the Participant's Selected Mutual Fund
Index Account Return Options and adjusted for any payments made from the Mutual
Fund Index Account to the Participant prior to that date.
"Mutual Fund Index Account 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 Mutual Fund Index Accounts hereunder. In
the event a Mutual Fund Index Account Return Option ceases to exist or is no
longer to be a Mutual Fund Index Account Return Option, the Administrator may
designate a substitute Mutual Fund Index Account Return Option for such
discontinued option. In no event may the Administrator designate as a Mutual
Fund Index Account Return Option any equity security of ML & Co. or any security
that would be deemed to be a "derivative security" as defined in Rule 16a-1 of
the Exchange Act with respect to any ML & Co. equity security.
"Mutual Fund Index Deferral Percentage" with respect to any Plan Year means
the percentage specified by the Participant to be the percentage of each payment
of Fees he or she wishes to defer into a Mutual Fund Index Account under the
Plan during such Plan Year.
3
<PAGE>
"Mutual Fund Index Deferred Amounts" with respect to any Plan Year means
the dollar amounts of Fees actually deferred by the Participant into a Mutual
Fund Index Account under this Plan for such Plan Year.
"Net Asset Value" means, with respect to each Mutual Fund Index Account
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 Mutual Fund Index Account Return
Option for which the value is to be determined.
"Non-Employee Director" means a Director who is not employed by the
Company.
"Participant" with respect to any Plan Year, means a Non-Employee Director
who has elected to defer Fees under the Plan for such Plan Year.
"Plan" means this Merrill Lynch & Co., Inc. Fee Deferral Plan for Non-
Employee Directors.
"Plan Year" means any calendar year for which Non-Employee Directors are
offered the opportunity to defer Fees under the Plan.
"Rights" means the Rights to Purchase Units of Series A Junior Preferred
Stock, par value $1.00 per share, of ML & Co. issued pursuant to 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.
"Selected Mutual Fund Index Account Return Option" means a Mutual Fund
Index Account Return Option selected by the Participant in accordance with
Section 2.3.
"Tender Offer" shall mean an offer to purchase all or a portion of the
outstanding shares of Common Stock that is subject to Section 14D of the
Exchange Act, provided that such offer, if consummated, would result in a Change
in Control.
4
<PAGE>
ARTICLE II
DEFERRAL ELECTIONS; ACCOUNT(S)
2.1 DEFERRAL ELECTIONS.
(a) TIMING AND MANNER OF MAKING OF ELECTIONS. An election to defer Fees
for payment in accordance with Section 4.1 shall be made by submitting to the
Administrator such forms as the Administrator may prescribe. Each election
submitted must specify a Mutual Fund Index Deferral Percentage and/or a ML Stock
Unit Deferral Percentage, which will be applied to reduce all payments of Fees
during the Plan Year. All elections by a Participant to defer Fees under the
Plan must be received by the Administrator or such person as he or she may
designate for the purpose by the date specified by the Administrator, which
shall be no later than the last Business Day of the Election Year; provided,
--------
however, that any Non-Employee Director who is first nominated for election to
- -------
the Board at the Annual Meeting occurring in the Plan Year may make an election
to defer Fees for the Plan Year by submitting the appropriate forms to the
Administrator or his designee no later than ten business days prior to the date
of such Annual Meeting.
(b) IRREVOCABILITY OF DEFERRAL ELECTIONS. Except as provided in Section
2.5, an election to defer the receipt of any Fees made under Section 2.1(a) is
irrevocable once submitted to the Administrator or his or her designee.
Furthermore, an election to defer Fees into a Mutual Fund Index Account may not
subsequently be changed to an election to defer Fees into a ML Stock Unit
Account, and an election to defer Fees into a ML Stock Unit Account may not
subsequently be changed to an election to defer Fees into a Mutual Fund Index
Account.
2.2 CREDITING TO ACCOUNTS.
(a) MUTUAL FUND INDEX DEFERRED AMOUNTS. A Participant's Mutual Fund Index
Deferred Amounts will be credited to the Participant's Mutual Fund Index Account
as a dollar-denominated balance as soon as practicable (but in no event later
than 90 days) after the last day of the calendar month with respect to which
such Mutual Fund Index Deferred Amounts would, but for deferral, have been paid,
and will be accounted for in accordance with Section 2.3. Mutual Fund Index
Deferred Amounts may not subsequently be converted to ML Stock Unit Deferred
Amounts.
(b) ML STOCK UNIT DEFERRED AMOUNTS. A Participant's ML Stock Unit Deferred
Amounts will be converted to ML Stock Units and credited to the Participant's ML
Stock Unit Account as soon as practicable (but in no event later than 90 days)
after the last day of the calendar month with respect to which such ML Stock
Unit Deferred Amounts would, but for deferral, have been paid, and will be
accounted for in accordance with Section 2.4. The number of ML Stock Units to
be credited will be determined by dividing the ML Stock Unit Deferred Amounts
for the relevant calendar month by the Daily Market Price per share of Common
Stock for the last Business Day in such calendar month and rounding the result
to the nearest 1/100th of an ML Stock Unit (with .005 being rounded upwards).
ML Stock Unit Deferred Amounts may not subsequently be converted to Mutual Fund
Index Deferred Amounts.
5
<PAGE>
2.3 ADJUSTMENT OF MUTUAL FUND INDEX ACCOUNTS; MUTUAL FUND INDEX ACCOUNT RETURN
OPTIONS.
(a) SELECTION OF MUTUAL FUND INDEX ACCOUNT RETURN OPTIONS. Coincident with
the Participant's election to defer Fees into a Mutual Fund Index Account, the
Participant must select one or more Mutual Fund Index Account Return Options and
the percentage of the Participant's Mutual Fund Index Account to be adjusted to
reflect the performance of each Selected Mutual Fund Index Account Return
Option. A Participant may, by complying with such procedures as the
Administrator may prescribe, 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 Mutual Fund Index Account Return Options
to be applicable with respect to his or her Mutual Fund Index Account.
(b) ADJUSTMENT OF MUTUAL FUND INDEX ACCOUNTS. While a Participant's
Mutual Fund Index Account does not represent the Participant's ownership of, or
any ownership interest in, any particular assets, the Mutual Fund Index Account
shall be adjusted to reflect the investment experience of the Participant's
Selected Mutual Fund Index Account 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' Mutual
Fund Index Accounts (the "ML II System"). In adjusting Mutual Fund Index
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 Mutual Fund Index Account 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 Mutual
Fund Index Deferred Amounts to the Participant's Mutual Fund Index Account and
distributions from the Mutual Fund Index Account, deferral allocation
instructions shall be treated as if received by the ML II System prior to the
close of transactions through the ML II System on the relevant day. Each
Selected Mutual Fund Index Account Return Option shall be valued using the Net
Asset Value of the Selected Mutual Fund Index Account Return Option as of the
relevant day, provided, that, in valuing a Selected Mutual Fund Index Account
--------
Return Option for which a Net Asset Value is not computed, the value of the
security involved for determining Participants' rights under the Plan shall be
the price reported for actual transactions in that security through the ML II
System on the relevant day, without giving effect to any transaction charges or
costs associated with such transactions, provided, further, that, if there are
-------- -------
no such transactions effected through the ML II System on the relevant day, the
value of the security shall be:
(i) if the security is listed for trading on one or more national
securities exchanges, the average of the high and low sale prices
for that day on the principal exchange for such security, or if
such security is not traded on such principal exchange on that
day, the average of the high and low sales prices on such exchange
on the first day prior thereto on which such security was so
traded;
(ii) if the security is not listed for trading on a national securities
exchange but is traded in the over-the-counter market, the average
of the highest and lowest bid prices for such security on the
relevant day; or
(iii) if neither clause (i) nor (ii) applies, the value
determined by the Administrator by whatever means he or she
considers appropriate in his or her sole discretion.
6
<PAGE>
2.4 ADJUSTMENT OF ML STOCK UNIT ACCOUNTS.
(a) DIVIDEND EQUIVALENTS. Whenever a cash dividend is paid on a share of
Common Stock, a Participant's ML Stock Unit Account will be adjusted by adding
to the ML Stock Unit Account the number of ML Stock Units determined by
multiplying the per share amount of the cash dividend by the ML Stock Unit
Account Balance on the record date for the cash dividend, dividing the result by
the price per share of Common Stock used for purposes of the reinvestment of
such cash dividend in the Merrill Lynch & Co., Inc. Dividend Reinvestment
Program currently administered by Group Employee Services, or if at any time
there is no Dividend Reinvestment Program, the Daily Market Price of a share of
Common Stock on the date the cash dividend is paid, and rounding the result to
the nearest 1/100th of a ML Stock Unit (with .005 being rounded upwards);
provided that, if the Participant's ML Stock Unit Account Balance is fully
- --------
distributed (i.e., reduced to zero) in accordance with the Plan between the
----
record date and the payment date for such cash dividend, then, in lieu of such
adjustment, the Participant will be paid the amount of cash determined by
multiplying the per share amount of the cash dividend by the ML Stock Unit
Account Balance on the record date for the cash dividend and rounding the result
to the nearest whole cent, at the same time and in the same manner as such cash
dividend is paid to the holders of the Common Stock.
(b) 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 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, the Executive Committee shall make
such adjustments to ML Stock Unit Accounts, if any, as shall be necessary to
maintain the proportionate interest of the Participants and to preserve, without
exceeding, the value of their ML Stock Unit Account Balances. 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.
2.5 RESCISSION OF MUTUAL FUND INDEX DEFERRAL ELECTIONS.
(a) ADVERSE TAX DETERMINATION. Notwithstanding the provisions of Section
2.1(b), an election to defer Fees into a Mutual Fund Index Account 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 or her sole discretion, decides, upon the
Participant's request and upon evidence of the occurrence of the events
described in (i) hereof that he or she finds persuasive, to rescind the
election. Upon such rescission, the Mutual Fund Index Account Balance will be
paid to the Participant as soon as practicable, and no additional amounts will
be deferred into the Participant's Mutual Fund Index Account pursuant to this
Plan.
(b) RESCISSION FOR AMOUNTS NOT YET EARNED. Upon the Participant's written
request, the Administrator may in his or her sole discretion terminate any
election to defer Fees into a Mutual Fund Index Account made hereunder with
respect to Fees not yet earned and no further amounts will be deferred into the
Participant's Mutual Fund Index Account. Fees previously deferred into the
Mutual Fund Index Account will continue to be governed by the terms of this
Plan.
7
<PAGE>
(c) NO RESCISSION OF ML STOCK UNIT DEFERRAL ELECTIONS. No rescission of an
election to defer Fees into an ML Stock Unit Account shall be permitted under
the Plan.
ARTICLE III
STATUS OF ACCOUNT(S)
3.1 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(s) 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.
3.2 NON-ASSIGNABILITY.
The Participant's right or the right of any other person to the Account
Balance(s) 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; provided, however, that the specified portion of the Participant's
-------- -------
Account(s) will be paid to the Participant's spouse or former spouse to the
extent directed by a valid court order entered in a domestic relations
proceeding involving the Participant's divorce or legal separation.
3.3 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 IV
PAYMENT OF ACCOUNT(S)
4.1 PAYMENT.
(a) PAYMENT ELECTION. A Participant's Account Balance(s) will be paid in
cash 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 installment payments (not to exceed 15) chosen by the Participant to
commence, (i) in the month following the month of the Participant's End of
Service Date or death, (ii) in any month and year selected by the Participant
not less than seven months after the end of the Plan Year or (iii) in any month
in the calendar year following the Participant's End of Service Date, but in no
event may the date elected under clause (i), (ii) or (iii) result in the
8
<PAGE>
payment (in the case of a single payment) or commencement of payments (in the
case of installment payments) later than the month following the Participant's
72nd birthday. The amount of each annual installment payment, if applicable,
shall be determined by multiplying the Account Balance(s) 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).
(b) PAYMENT OF ML STOCK UNITS. ML Stock Units will be paid only in cash.
The amount of any payment of ML Stock Units (whether pursuant to the
Participant's election or otherwise pursuant to the Plan) will be determined by
multiplying the number of ML Stock Units to be paid by the Current Market Value
per share of Common Stock for the last day of the month immediately preceding
the month in which the payment is to be made and rounding the result to the
nearest whole cent.
(c) DEATH PRIOR TO PAYMENT. If the Participant dies prior to payment, then
the Account Balance(s) will be paid to the Participant's beneficiary in
accordance with the Participant's election of either installment payments or a
single payment, provided, however, that in the event that a beneficiary of the
-------- -------
Participant's Account Balance(s) is the Participant's estate or is otherwise not
a natural person, the applicable portion of the Account Balance(s) will be paid
in a single payment to such beneficiary.
(d) DISCRETION TO ALTER PAYMENT DATE FOR MUTUAL FUND INDEX ACCOUNT BALANCE.
Notwithstanding the other provisions of this Section 4.1, if the Participant
ceases to be a Director for any reason, the Administrator may, in his or her
sole discretion, direct that any Mutual Fund Index 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 or her sole discretion. This Section 4.1(d)
shall not be applicable to the payment of any ML Stock Unit Account Balance.
4.2 CHANGE IN CONTROL.
(a) PAYMENT OF MUTUAL FUND INDEX ACCOUNT BALANCE. Notwithstanding any
other provision of this Plan, in the event that (i) ML & Co. receives a Tender
Offer Statement on Schedule 14D-1 under the Securities Exchange Act of 1934
relating to a Tender Offer or (ii) a Change in Control shall occur, any Mutual
Fund Index Account Balance will be paid to the Participant in a lump sum as soon
as practicable after the receipt of such Tender Offer Statement or the
occurrence of such Change in Control, and in any event, not later than 30 days
thereafter.
(b) ML STOCK UNIT ACCOUNT BALANCE UNAFFECTED. The occurrence of an event
specified in Section 4.2(a)(i) or (ii) hereof shall have no effect on the timing
of payment or the obligation of ML & Co. to pay a Participant's ML Stock Unit
Account Balance, which shall continue to be governed by Section 4.1 hereof.
4.3 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.
9
<PAGE>
4.4 BENEFICIARY.
(a) DESIGNATION OF BENEFICIARY. The Participant may designate, in a
writing delivered to the Administrator or his or her designee before the
Participant's death, a beneficiary to receive payments in the event of the
Participant's death. The Participant may also designate a contingent
beneficiary to receive payments in accordance with this Plan if the primary
beneficiary does not survive the Participant. The Participant may designate
more than one person as the Participant's beneficiary or contingent beneficiary,
in which case (i) no contingent beneficiary would receive any payment unless all
of the primary beneficiaries predeceased the Participant, and (ii) the surviving
beneficiaries in any class shall share in any payments in proportion to the
percentages of interest assigned to them by the Participant.
(b) CHANGE IN BENEFICIARY. The Participant may change his or her
beneficiary or contingent beneficiary (without the consent of any prior
beneficiary) in a writing delivered to the Administrator or his or her designee
before the Participant's death. Unless the Participant states otherwise in
writing, any change in beneficiary or contingent beneficiary will automatically
revoke such prior 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. pre-retirement death benefit for Non-Employee Directors,
unless the rights to such benefit have been assigned, in which case any amounts
payable to the Participant's beneficiary under the Plan will be paid to the
Participant's estate.
(d) IF THE BENEFICIARY DIES DURING PAYMENT. If a beneficiary who is
receiving or is entitled to receive payments hereunder dies after the
Participant but before all the payments have been made, the portion of the
Account Balance(s) to which that beneficiary was entitled will be paid as soon
as practicable in a single payment to such beneficiary's estate and not to any
contingent beneficiary the Participant may have designated.
ARTICLE V
ADMINISTRATION OF THE PLAN
5.1 POWERS OF THE ADMINISTRATOR.
The Administrator has full power and authority to interpret, construe, and
administer this Plan. 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 or her 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.
10
<PAGE>
5.2 PAYMENTS ON BEHALF OF AN INCOMPETENT.
If the Administrator finds that any person who is presently 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(s) 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.
5.3 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 the Deferred Amounts, the
Account Balance(s), the designation of a beneficiary, or any other matters.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1 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.
6.2 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.
6.3 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.
6.4 AMENDMENT AND TERMINATION.
The Executive Committee may amend or terminate this Plan at any time,
provided that no amendment or termination may be made that (i) would cause the
- --------
ML Stock Units to be deemed to be "derivative securities" as defined in Rule
16a-1 of the Exchange Act with respect to any ML & Co. equity security or (ii)
adversely affect the right of a Participant to his or her Account Balance(s) as
of the date of such amendment or termination.
11
<PAGE>
EXHIBIT 11
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
------------------------------------------
Computation of Earnings Per Common Share
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended Last Friday in December
----------------------------------------------------------
1994 (A) 1993 (A) 1992 (A) 1991 1990
---------- ---------- ---------- ---------- ----------
(52 Weeks) (53 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
<S> <C> <C> <C> <C> <C>
Primary:
Earnings before cumulative
effect of changes in accounting
principles $1,016,761 $1,394,359 $952,405 $696,117 $191,856
Cumulative effect of changes in
accounting principles - (35,420) (58,580) - -
---------- ---------- -------- -------- --------
Net earnings 1,016,761 1,358,939 893,825 696,117 191,856
Preferred stock dividends (12,711) (5,381) (6,339) (17,725) (23,924)
---------- ---------- -------- -------- --------
Net earnings applicable to
common stockholders $1,004,050 $1,353,558 $887,486 $678,392 $167,932
========== ========== ======== ======== ========
Weighted average shares outstanding:
Common stock 195,661 209,276 207,730 204,754 205,220
Assuming issuance of shares relating
to employee incentive plans 15,580 17,055 18,672 20,596 5,832
---------- ---------- -------- -------- --------
Total shares 211,241 226,331 226,402 225,350 211,052
========== ========== ======== ======== ========
Per common share amounts:
Earnings before cumulative
effect of changes in accounting
principles $ 4.75 $ 6.14 $ 4.18 $ 3.01 $ .80
Cumulative effect of changes in
accounting principles - (.16) (.26) - -
---------- ---------- -------- -------- --------
Net earnings $ 4.75 $ 5.98 $ 3.92 $ 3.01 $ .80
========== ========== ======== ======== ========
Fully diluted:
Earnings before cumulative
effect of changes in accounting
principles $1,016,761 $1,394,359 $952,405 $696,117 $191,856
Cumulative effect of changes in
accounting principles - (35,420) (58,580) - -
---------- ---------- -------- -------- --------
Net earnings 1,016,761 1,358,939 893,825 696,117 191,856
Preferred stock dividends (12,711) (5,381) (6,339) (17,725) (23,924)
---------- ---------- -------- -------- --------
Net earnings applicable to common
stockholders $1,004,050 $1,353,558 $887,486 $678,392 $167,932
========== ========== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Weighted average shares outstanding:
Common stock 195,661 209,276 207,730 204,754 205,220
Assuming issuance of shares relating
to employee incentive plans 16,034 18,204 19,124 25,162 5,832
---------- ---------- -------- -------- --------
Total shares 211,695 227,480 $226,854 229,916 211,052
========== ========== ======== ======== ========
Per common share amounts:
Earnings before cumulative
effect of changes in accounting
principles $ 4.74 $ 6.11 $ 4.17 $ 2.95 $ .80
Cumulative effect of changes in
accounting principles - (.16) (.26) - -
--------- --------- -------- -------- --------
Net earnings $ 4.74 $ 5.95 $ 3.91 $ 2.95 $ .80
========= ========= ======== ======== ========
</TABLE>
(A) In accordance with Accounting Principles Board Opinion No. 15, the modified
treasury stock method was used to calculate Per Common Share Earnings in
1994, 1993, and 1992.
<PAGE>
EXHIBIT 12
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
------------------------------------------
Computation of Ratio of Earnings to Fixed Charges
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended Last Friday in December
-------------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ---------- ---------- ---------- ----------
(52 Weeks) (53 weeks) (52 weeks) (52 weeks) (52 weeks)
<S> <C> <C> <C> <C> <C>
Pretax earnings from
continuing operations $ 1,729,604 $2,424,808 $1,621,389 $1,017,418 $ 282,328
Deduct equity in undistributed
net earnings of unconsolidated
subsidiaries (18,817) (13,029) (12,913) (10,677) (9,429)
----------- ---------- ---------- ---------- ----------
Total pretax earnings from
continuing operations 1,710,787 2,411,779 1,608,476 1,006,741 272,899
----------- ---------- ---------- ---------- ----------
Add: Fixed charges:
Interest 8,585,832 6,008,511 4,822,711 5,073,824 5,343,107
Amortization of debt expense 2,738 3,921 4,232 4,366 3,890
Capitalized interest - - - 929 555
----------- ---------- ---------- ---------- ----------
Total interest 8,588,570 6,012,432 4,826,943 5,079,119 5,347,552
Interest factor in rents 128,744 141,654 141,546 141,438 135,038
----------- ---------- ---------- ---------- ----------
Total fixed charges 8,717,314 6,154,086 4,968,489 5,220,557 5,482,590
----------- ---------- ---------- ---------- ----------
Pretax earnings before fixed charges
(excluding capitalized interest) $10,428,101 $8,565,865 $6,576,965 $6,226,369 $5,754,934
=========== ========== ========== ========== ==========
Ratio of earnings to fixed charges 1.20 1.39 1.32 1.19 1.05
=========== ========== ========== ========== ==========
</TABLE>
<PAGE>
EXHIBIT 13
<TABLE>
<CAPTION>
=======================================================================================================
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------
(Dollars in Thousands, Year Ended Last Friday in December
Except Per Share Amounts) 1990 1991 1992 1993 1994
- -------------------------------------------------------------------------------------------------------
(52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks) (52 Weeks)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Total Revenues $ 11,147,229 $ 12,352,812 $ 13,412,668 $ 16,588,177 $ 18,233,091
Net Revenues $ 5,783,329 $ 7,246,468 $ 8,577,401 $ 10,558,230 $ 9,624,521
Net Earnings $ 191,856 $ 696,117 $ 893,825 $ 1,358,939 $ 1,016,761
Pretax Margin (a) 4.9% 14.0% 18.9% 23.0% 18.0%
Profit Margin (b) 3.3% 9.6% 11.1% 13.2% 10.6%
Return on Average Common
Stockholders' Equity 5.8% 20.8% 22.0% 27.3% 18.6%
- -------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Total Assets $ 68,129,527 $ 86,259,343 $107,024,173 $152,910,362 $163,749,327
Total Stockholders' Equity $ 3,225,430 $ 3,818,088 $ 4,569,104 $ 5,485,913 $ 5,817,545
- -------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Primary Earnings $ .80 $ 3.01 $ 3.92 $ 5.98 $ 4.75
Fully Diluted Earnings $ .80 $ 2.95 $ 3.91 $ 5.95 $ 4.74
Dividends Paid $ .50 $ .50 $ .575 $ .70 $ .89
Book Value $ 14.99 $ 17.88 $ 21.37 $ 26.17 $ 28.87
- -------------------------------------------------------------------------------------------------------
OTHER STATISTICS(c)
Assets Under Management $110,000,000 $124,000,000 $139,000,000 $161,000,000 $164,000,000
Assets in Domestic Private
Client Accounts $361,000,000 $422,000,000 $463,000,000 $527,000,000 $537,000,000
Assets in Worldwide Private
Client Accounts $377,000,000 $440,000,000 $487,000,000 $557,000,000 $568,000,000
- -------------------------------------------------------------------------------------------------------
COMMON SHARES
OUTSTANDING(d) 199,669,270 205,443,636 207,202,688 203,989,691 181,479,127
- -------------------------------------------------------------------------------------------------------
</TABLE>
(a) Earnings Before Income Taxes and Cumulative Effect of Changes in Accounting
Principles to Net Revenues.
(b) Earnings Before Cumulative Effect of Changes in Accounting Principles to Net
Revenues.
(c) Client accounts have been redefined to include certain institutional private
portfolio accounts.
(d) Does not include 16,071,968, 13,636,820, 11,201,672, 8,932,332, and
6,427,091 unallocated reversion shares held in the Employee Stock Ownership
Plan at year-end 1990, 1991, 1992, 1993, and 1994, respectively, which are
not considered outstanding for accounting purposes.
- --------------------------------------------------------------------------------
Graph titled "NET EARNINGS AND PER SHARE AMOUNTS"
Presented is side by side bar graphs (in millions, except per share amounts)
showing Merrill Lynch & Co., Inc.'s earnings per share amounts of $0.80, $3.01,
$3.92, $5.98, and $4.75 for the years ended 1990 through 1994, respectively and
Merrill Lynch & Co., Inc.'s net earnings of $192, $696, $894, $1,359, and $1,017
for the years ended 1990 through 1994, respectively.
- --------------------------------------------------------------------------------
Graph titled "BOOK VALUE PER COMMON SHARE"
Presented is a bar graph showing Merrill Lynch & Co., Inc.'s book value per
common share for the past five years of $14.99, $17.88, $21.37, $26.17, and
$28.87 at year-end 1990 through 1994, respectively.
- --------------------------------------------------------------------------------
1
<PAGE>
================================================================================
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Last Friday in December
-------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Amounts) 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------------------
(52 Weeks) (53 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues $ 18,233,091 $ 16,588,177 $ 13,412,668 $ 12,352,812 $ 11,147,229
Interest Expense 8,608,570 6,029,947 4,835,267 5,106,344 5,363,900
------------ ------------ ------------ ------------ ------------
Net Revenues 9,624,521 10,558,230 8,577,401 7,246,468 5,783,329
Non-Interest Expenses 7,894,917 8,133,422 6,956,012 6,229,050 5,501,001
------------ ------------ ------------ ------------ ------------
Earnings Before Income Taxes and Cumulative Effect
of Changes in Accounting Principles 1,729,604 2,424,808 1,621,389 1,017,418 282,328
Income Tax Expense 712,843 1,030,449 668,984 321,301 90,472
------------ ------------ ------------ ------------ ------------
Earnings Before Cumulative Effect of Changes in
Accounting Principles $ 1,016,761 $ 1,394,359 $ 952,405 $ 696,117 $ 191,856
============ ============ ============ ============ ============
Net Earnings $ 1,016,761 $ 1,358,939 $ 893,825 $ 696,117 $ 191,856
============ ============ ============ ============ ============
Net Earnings Applicable to Common Stockholders $ 1,004,050 $ 1,353,558 $ 887,486 $ 678,392 $ 167,932
============ ============ ============ ============ ============
- --------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Total Assets $163,749,327 $152,910,362 $107,024,173 $ 86,259,343 $ 68,129,527
Short-Term Borrowings (a) $ 78,304,239 $ 79,632,477 $ 51,179,530 $ 38,697,544 $ 27,340,915
Long-Term Borrowings $ 14,863,383 $ 13,468,900 $ 10,871,100 $ 7,964,424 $ 6,341,559
Total Stockholders' Equity $ 5,817,545 $ 5,485,913 $ 4,569,104 $ 3,818,088 $ 3,225,430
- --------------------------------------------------------------------------------------------------------------------------
TAX INFORMATION
Other Taxes, Principally Payroll and Property $ 254,862 $ 223,377 $ 221,930 $ 191,291 $ 169,457
Total Taxes (b) $ 967,705 $ 1,253,826 $ 890,914 $ 512,592 $ 259,929
- --------------------------------------------------------------------------------------------------------------------------
COMMON SHARE DATA
Primary:
Earnings Before Cumulative Effect of Changes in
Accounting Principles $ 4.75 $ 6.14 $ 4.18 $ 3.01 $ .80
============ ============ ============ ============ ============
Net Earnings $ 4.75 $ 5.98 $ 3.92 $ 3.01 $ .80
============ ============ ============ ============ ============
Fully Diluted:
Earnings Before Cumulative Effect of Changes in
Accounting Principles $ 4.74 $ 6.11 $ 4.17 $ 2.95 $ .80
============ ============ ============ ============ ============
Net Earnings $ 4.74 $ 5.95 $ 3.91 $ 2.95 $ .80
============ ============ ============ ============ ============
Weighted Average Shares Outstanding:
Primary 211,241,000 226,331,000 226,402,000 225,350,000 211,052,000
Fully Diluted 211,695,000 227,480,000 226,854,000 229,916,000 211,052,000
Shares Outstanding at Year-End (c) 181,479,127 203,989,691 207,202,688 205,443,636 199,669,270
Shares Repurchased 29,988,523 16,345,568 10,653,858 5,919,852 11,779,712
Average Share Repurchase Price $ 37.96 $ 42.55 $ 24.36 $ 19.70 $ 10.32
Book Value $ 28.87 $ 26.17 $ 21.37 $ 17.88 $ 14.99
Total Taxes (b) $ 4.58 $ 5.54 $ 3.94 $ 2.27 $ 1.23
Dividends Paid $ .89 $ .70 $ .575 $ .50 $ .50
- --------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Pretax Margin (d) 18.0% 23.0% 18.9% 14.0% 4.9%
Profit Margin (e) 10.6% 13.2% 11.1% 9.6% 3.3%
Common Dividend Payout Ratio 17.5% 10.9% 13.5% 15.2% 61.8%
Return on Average Assets 0.6% 1.0% 0.8% 0.8% 0.3%
Return on Average Common Stockholders' Equity 18.6% 27.3% 22.0% 20.8% 5.8%
Leverage 32.0x 27.4x 25.1x 24.1x 22.9x
Adjusted Leverage (f) 18.9x 16.6x 15.9x 16.3x 15.3x
- --------------------------------------------------------------------------------------------------------------------------
OTHER STATISTICS
Number of Full-Time Employees 43,800 41,900 40,100 38,300 39,000
Number of Financial Consultants and Account
Executives 13,400 13,100 12,700 12,100 11,800
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Short-Term Borrowings include repurchase agreements, and commercial paper
and other short-term borrowings.
(b) Excludes $25,075 and $73,065 of income taxes in 1993 and 1992,
respectively, related to the cumulative effect of changes in accounting
principles.
(c) Does not include 6,427,091, 8,932,332, 11,201,672, 13,636,820, and
16,071,968 unallocated reversion shares held in the Employee Stock
Ownership Plan at year-end 1994, 1993, 1992, 1991, and 1990, respectively,
which are not considered outstanding for accounting purposes.
(d) Earnings Before Income Taxes and Cumulative Effect of Changes in Accounting
Principles to Net Revenues.
(e) Earnings Before Cumulative Effect of Changes in Accounting Principles to
Net Revenues.
(f) Average total assets less resale agreements and securities borrowed, to
average total stockholders' equity.
--------------------
2
<PAGE>
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
BUSINESS ENVIRONMENT
Merrill Lynch & Co., Inc. and its subsidiaries (collectively referred to as
the "Corporation") conduct their businesses in global financial markets that
are influenced by a number of factors including economic and market
conditions, political events, and investor sentiment. The reaction of issuers
and investors to a particular condition or event is unpredictable and can
create volatility in the marketplace. While higher volatility can increase
risk, it may also increase order flow, which drives many of the Corporation's
businesses. Other global market and economic conditions, including the
liquidity of secondary markets, the level and volatility of interest rates,
currency and security valuations, competitive conditions, and the size, number,
and timing of transactions may also affect earnings. As a result, revenues and
net earnings can vary significantly from year to year, and from quarter to
quarter.
Financial markets, strong from 1991 through the first six weeks of
1994, changed significantly after inflationary fears prompted the Federal
Reserve to increase short-term interest rates in February 1994. As the U.S.
economy continued to expand, the Federal Reserve acted to further curb
inflation and to moderate growth by increasing short-term interest rates five
additional times during the year. The combination of rising interest rates, a
falling U.S. dollar, unsettled global stock, bond, and currency markets,
reduced foreign investment in U.S. financial markets, and overall investor
caution contributed to lower earnings for most U.S. securities firms.
Institutional trading results were affected by rising interest rates and
volatility in world currency and securities markets. Trading in interest-
sensitive products and equities, particularly convertible securities, was
generally lower industrywide. Foreign exchange trading decreased due to a
weakening in the U.S. dollar versus other major currencies. Values of emerging
market inventories declined due primarily to higher interest rates, increased
political uncertainty, and the devaluation of the Mexican peso in the 1994
fourth quarter. Trading in swaps and other derivative products continued at
relatively strong levels as global investors continued to use these instruments
to manage exposure to changes in interest rates and currency values. Reaction to
highly publicized losses, however, resulted in reduced activity in certain
complex or structured derivatives transactions.
Investment banking results were mixed in 1994. Underwriting volumes were
down sharply, while merger and acquisition and advisory assignments increased,
approaching the record transaction value levels of 1988. Domestic underwriting
volumes for debt and equity securities declined to their lowest levels since
1991. In 1994, new domestic stock and bond issuance volume fell 33% to $711
billion industrywide, with initial public offerings down 41% from last year.
Worldwide, aggregate underwriting volume for new stock and bond issues decreased
27% from 1993.
Strategic services revenues were strong in 1994 and benefited from
increased merger and acquisition and advisory services activity, primarily in
the healthcare, communication, defense, and financial services industries.
Companies seeking strategic alliances were helped by a stronger economy, higher
cash flows related to recent balance sheet restructurings and improved operating
results, and attractive market values of target companies. Many European
multinational companies continued to increase their presence in the U.S. through
acquisition or joint venture activities. Cross-border merger and acquisition
activity, particularly in Europe, increased as global financial markets
developed and trade liberalization continued. Frontier barriers were lowered
within Europe and Latin America, the European Union expanded to 15 countries,
and the North American Free Trade Agreement entered its second year. Further
development of global financial markets improved the access to capital. The
privatization of state-run enterprises by a record number of countries continued
to provide financing for reinvestment to stimulate economic growth.
Institutional and individual investors continued to diversify their
portfolios, but remained cautious as market conditions changed. As interest
rates increased throughout 1994, investors redirected assets from longer-term
bond funds to stock funds and more liquid investments, such as short-term U.S.
Treasury securities and money market instruments. Foreign investors were less
active in U.S. markets, while international mutual funds continued to attract
new U.S. investors.
The financial services industry is cyclical. As a result, the
Corporation's businesses are evaluated across market cycles for profitability
and alignment with long-term strategic objectives. Fiscal 1994 was
characterized by adverse financial markets and changing economic conditions.
The Corporation seeks to mitigate the effect of market cycles by closely
monitoring costs and risks, continuing to diversify revenue sources, and
expanding its global presence.
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Unsettled global financial markets in 1994 contributed to reduced volumes for
many of the Corporation's businesses. These business conditions contributed to
progressively lower quarterly net earnings for the Corporation in 1994. Net
earnings for 1994 were $1.02 billion or $4.75 per common share primary ($4.74
fully diluted), down 25% from record 1993 earnings of $1.36 billion or $5.98 per
common share primary ($5.95 fully diluted). In 1992, net earnings were $893.8
million or $3.92 per common share primary ($3.91 fully diluted).
The 1993 results included the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits."
The cumulative effect of this change in accounting principle decreased 1993 net
earnings by $35.4 million or $.16 per common share primary and fully diluted.
Earnings before the cumulative effect charge were $1.39 billion or $6.14 per
common share primary ($6.11 fully diluted).
Results for 1993 also included a non-recurring first quarter pretax
lease charge totaling $103.0 million ($59.7 million after income taxes),
related to the Corporation's decision not to occupy certain space at the World
Financial Center Headquarters ("Headquarters") facility. This space was sublet
during 1994.
--------------------
3
<PAGE>
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
In 1992, the Corporation adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" and SFAS No. 109, "Accounting for
Income Taxes." The cumulative effect of these changes in accounting principles
reduced 1992 net earnings by $58.6 million or $.26 per common share primary and
fully diluted. Earnings before the cumulative effect adjustment were $952.4
million or $4.18 per common share primary ($4.17 fully diluted).
Pretax earnings in 1994 were $1.73 billion, down 29% from $2.42 billion
reported in 1993. In 1992, pretax earnings were $1.62 billion. The pretax profit
margin on net revenues was 18.0% in 1994, compared with 23.0% in 1993 and 18.9%
in 1992.
Total revenues for 1994 were $18.23 billion, up 10% and 36%, respectively,
from the previous record levels of 1993 and 1992. In 1994, net revenues
(revenues after interest expense) totaled $9.62 billion, down 9% from $10.56
billion in 1993. Net revenues in 1992 were $8.58 billion.
- --------------------------------------------------------------------------------
Graph titled "NET REVENUE CATEGORIES AND COMPENSATION AND BENEFITS"
Presented are side by side bar graphs comparing Merrill Lynch & Co., Inc.'s net
revenue categories with compensation and benefits expense levels for the past
five years. Graph is presented in billions with net revenues comprised of
commissions, principal transactions, investment banking, asset management and
portfolio service fees, net interest, and other. The graph shows total net
revenues of $5.8, $7.2, $8.6, $10.6, and $9.6 for the years ended 1990 through
1994, respectively, and compensation and benefits of $3.1, $3.9, $4.4, $5.3, and
$5.0 for the years ended 1990 through 1994, respectively.
- --------------------------------------------------------------------------------
Non-interest expenses were $7.89 billion in 1994, down 3% from 1993
and up 13% from 1992. Excluding the non-recurring 1993 pretax lease
charge of $103.0 million, non-interest expenses declined 2% from 1993. In
1994, many expense categories decreased as business activity slowed.
Incentive compensation declined due to lower profitability, while production-
related Financial Consultant compensation and advertising expenses were affected
by lower business volumes. Occupancy costs benefited from relocations to lower-
cost facilities and last year's decision to vacate and sublet additional
Headquarters space.
The Corporation actively manages its expense structure by monitoring the
mix of variable and fixed expenses. In 1994, certain discretionary projects were
reduced based on market conditions.
The after-tax profit margin in 1994 was 10.6%, compared with 13.2%
(12.9% after the cumulative effect of accounting change) in 1993 and
11.1% (10.4% after the cumulative effect of accounting changes) in 1992. The
Corporation's return on average common stockholders' equity was 18.6% in 1994,
compared with 27.3% and 22.0% in 1993 and 1992, respectively.
The 1994 financial statements contain limited reclassification and
format changes. Prior years' financial statements have been reclassified to
conform to the presentation for the current period. (See Basis of Presentation
in the Notes to Consolidated Financial Statements.)
The following discussion provides details of major categories of revenues
and expenses and other pertinent information regarding the Corporation's
business activities, financial condition, liquidity, and risks.
- --------------------------------------------------------------------------------
COMMISSIONS
Commission revenues were $2.87 billion in 1994, virtually unchanged from
$2.89 billion reported in 1993. Higher commission revenues from mutual funds
and commodity transactions were offset by lower revenues from money market
instruments, particularly medium-term notes, and listed securities
transactions.
Mutual fund commissions increased 4% in 1994 to $879 million due primarily
to higher distribution and redemption fees offset by lower levels of mutual fund
sales. Revenues from front-end mutual funds were down 31% to $343 million. As
stock and bond mutual fund net asset values declined during 1994, investors
became more conservative, directing both existing and new funds into alternative
short-term investments such as U.S. Treasury bills and other money market
instruments. For the first time since 1974, both stock and bond funds fell in
value, on average, in the same year. U.S. stock funds, including dividends, lost
1.69% in value and taxable bond funds fell 3.70%, industrywide. For global
investors, stock funds declined 0.71% and bond funds fell 7.45% in 1994.
Distribution fees from deferred-charge funds increased 58% to $460 million based
on increased asset levels primarily attributable to strong fund sales in prior
periods. Redemption fees increased 34% to $76 million as clients repositioned
invested assets.
Commissions from listed securities were $1.36 billion, down 3% from 1993.
Although volume was up on domestic stock exchanges, the Corporation's domestic
listed securities commission revenues were 5% lower in 1994. This decline
reflects a change in the relative amount of transactions by institutional
clients versus retail clients. In 1994, domestic stock market activity, as
measured by New York Stock Exchange ("NYSE") average daily trading volume, was
291 million shares. This average daily trading volume was 10% higher than 1993.
The Dow Jones Industrial Average ("DJIA") daily closing index for 1994 averaged
3,794, 8% above the 1993 daily average close. Revenues from listed
--------------------
4
<PAGE>
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
securities on international stock exchanges increased as a result of higher
demand and the Corporation's expanded presence in financial markets
worldwide.
Commissions on commodities transactions increased 21% to $217 million
due to an increase in commodity-related hedge activities. Commissions on money
market instruments declined 34% in 1994 to $109 million primarily due to
lower demand for higher commission products. The continued rise in interest
rates during the period led investors to seek liquidity and principal
protection in shorter-term instruments.
Other commission revenues, consisting primarily of over-the-counter,
option, and insurance products, increased 2% to $305 million from $300 million
in 1993.
In 1993, commission revenues advanced 19% from 1992 due primarily to
the continued growth of listed securities transactions and increased sales of
mutual funds, regulated commodities contracts, and over-the-counter
securities. Listed securities commissions benefited from increased market
participation as investors repositioned their investment portfolios to enhance
potential yield and growth opportunities. Mutual fund commissions rose as
individual investors shifted maturing certificates of deposit and other
low-yielding cash investments into domestic and global equity mutual funds
and, to a lesser extent, fixed-income mutual funds. Other commission revenues
advanced 9% from 1992 levels.
- --------------------------------------------------------------------------------
INTEREST AND DIVIDENDS
Significant components of interest and dividend revenues and interest expense
for 1994, 1993, and 1992, follow:
<TABLE>
<CAPTION>
================================================================================
(IN MILLIONS) 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and dividend revenues:
Trading assets $3,431 $2,493 $2,007
Securities borrowed 2,285 1,521 823
Resale agreements 1,807 1,161 1,066
Margin lending 1,018 779 598
Other 1,037 1,145 1,312
- --------------------------------------------------------------------------------
Subtotal 9,578 7,099 5,806
- --------------------------------------------------------------------------------
Interest expense:
Borrowings 3,381 2,515 1,697
Repurchase agreements 2,414 1,383 1,225
Trading liabilities 1,997 1,252 931
Other 817 880 982
- --------------------------------------------------------------------------------
Subtotal 8,609 6,030 4,835
- --------------------------------------------------------------------------------
Net interest and dividend profit $ 969 $1,069 $ 971
====== ====== ======
- --------------------------------------------------------------------------------
</TABLE>
Included in the "Borrowings" caption above is interest related to hedges
on the Corporation's borrowings. As part of the Corporation's asset,
liability, and liquidity management strategies, substantially all fixed-rate,
long-term borrowings are swapped into floating interest rates, while virtually
all foreign currency-denominated fixed-rate obligations are swapped into U.S.
dollar variable 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,
reduced interest expense for 1994, 1993, and 1992 by $153 million, $326 million,
and $246 million, respectively.
Interest and dividend revenues increased 35% in 1994 to $9.58 billion
due to higher average levels of interest-earning assets, principally
inventories and resale agreements, as well as increased interest rates.
Interest expense, which includes dividend expense, increased 43% to $8.61
billion due to increased levels of interest-bearing liabilities, primarily
related to the Corporation's funding and hedging activities, and higher
interest rates. Net interest and dividend profit declined 9% to $969 million
as a significant increase in short-term interest rates, year over year, led to
a substantial flattening of the yield curve. The change in the yield curve,
the relationship between interest rates and maturities, resulted from
short-term interest rates rising faster than long-term interest rates during
1994. The one-year U.S. Treasury bill rate, for example, increased from
3.58% at December 31, 1993 to 7.16% at December 30, 1994, while the
30-year U.S. Treasury bond yield increased from 6.35% to 7.88% during the
same period. As a result, interest spreads declined, while financing and
hedging costs increased from 1993.
In 1993, net interest and dividend profit increased 10% over 1992 to
$1.07 billion. Contributing to this increase were the expansion of
collateralized borrowing and lending activities, growth in trading inventories
and on-balance-sheet hedges, the increased availability of interest-free funds
due to a larger equity base, and reduced funding costs due to lower interest
rates and improved credit ratings.
- --------------------------------------------------------------------------------
PRINCIPAL TRANSACTIONS
Principal transactions revenues fell 20% from 1993 record levels to $2.33
billion in 1994. Rising interest rates, a declining U.S. dollar, and
volatile world financial markets led to lower trading results in many
products. Revenues from taxable fixed-income securities, equities and equity
derivatives, and foreign exchange and commodities decreased, while interest
rate and currency swaps, and municipal securities revenues increased.
Taxable fixed-income trading revenues declined 52% in 1994 to $462
million as higher interest rates, wider credit spreads, and uncertainty in
emerging markets led to reduced demand and lower inventory values. U.S.
Government and agencies securities revenues were down 7% to $253 million.
Corporate bonds and preferred stock revenues, in the aggregate, decreased 72%
to $111 million and were affected by wider credit spreads and lower
trading volume. Non-U.S. governments and agencies revenues were down 89% to
$20 million due primarily to increased interest rates, political uncertainty,
and the devaluation of the Mexican peso in the 1994 fourth quarter.
High-yield bond revenues declined 61% to $27 million. Rising interest rates
reduced inventory values and market liquidity, and renewed credit concerns
related to lower quality issues.
--------------------
5
<PAGE>
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Equities and equity derivatives trading revenues were $627 million, 28%
lower than 1993. Trading revenues were down in virtually all categories,
including convertible securities, which reported a $66 million loss for the
year. Rising interest rates combined with falling equity values contributed to
the loss. Approximately 40% of this loss occurred in the 1994 fourth quarter
as the Corporation reduced inventory levels to limit exposure to interest rate
volatility. Lower revenues were also reported for foreign and over-the-counter
equities.
Foreign exchange and commodities revenues, in the aggregate, declined
31% to $109 million. Weakness in the U.S. dollar versus other major
currencies depressed foreign exchange trading, while commodities trading
revenues benefited from increased volume.
Revenues from interest rate and currency swaps rose 24% to $749 million
due to the continued growth of these products as effective risk management
tools, enhanced market liquidity, and increased global demand. (See discussion
of Derivative Financial Instruments.) The revenue increase is primarily
attributable to U.S. dollar-denominated swap trading activities. U.S.
dollar-denominated swap trading revenues increased as institutional clients
continued to use these instruments to manage interest rate risk, which
included the restructuring of existing contracts as the interest rate
environment changed. Non-dollar swap trading revenues declined due to currency
and interest rate volatility, particularly in European markets, partially
offset by higher volume.
Municipal securities revenues increased 20% to $388 million due to strong
retail investor demand for tax-exempt investments. Higher interest rates led
to increased after-tax returns for this product in 1994.
In 1993, principal transactions revenues reached record levels, up 35%
from 1992 to $2.92 billion. Taxable fixed-income trading revenues increased
31% due to favorable market conditions for corporate bonds and preferred
stocks, and non-U.S. governments and agencies securities. Revenues from
interest rate and currency swaps advanced 55%, benefiting from increased
volume and market growth, as well as an expanding product base. Equities and
equity derivatives revenues rose 42% principally on the strength of increases
in revenues from international equities and improvement in revenues from U.S.
over-the-counter markets. Municipal securities revenues increased 20% based on
increased client demand for tax-exempt securities.
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 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.
The table that follows provides information on aggregate trading profits,
including net interest. 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) REVENUE (EXPENSE) REVENUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1994
Taxable fixed-income $ 462 $371 $ 833
Interest rate and currency
swaps 749 (24) 725
Equities and equity derivatives 627 (107) 520
Municipals 388 7 395
Foreign exchange and
commodities 109 (9) 100
------ ---- ------
TOTAL $2,335 $238 $2,573
====== ==== ======
- --------------------------------------------------------------------------------
1993
Taxable fixed-income $ 964 $412 $1,376
Interest rate and currency
swaps 605 28 633
Equities and equity derivatives 871 (45) 826
Municipals 322 -- 322
Foreign exchange and
commodities 158 (1) 157
------ ---- ------
TOTAL $2,920 $394 $3,314
====== ==== ======
- --------------------------------------------------------------------------------
1992
Taxable fixed-income $ 736 $366 $1,102
Interest rate and currency
swaps 390 75 465
Equities and equity derivatives 614 (23) 591
Municipals 268 (1) 267
Foreign exchange and
commodities 158 2 160
------ ---- ------
TOTAL $2,166 $419 $2,585
====== ==== ======
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT BANKING
Investment banking revenues were $1.24 billion in 1994, down 32% from
record 1993 levels. Market conditions were significantly different in 1994
compared with the prior two
--------------------
6
<PAGE>
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
years. In 1992 and 1993, low interest rates were the key factor behind the
surge in underwriting activity. As interest rates moved higher and share
prices fell, issuers and investors became more selective, leading to reduced
volumes for most products. As a result, underwriting of domestic debt and
equity securities declined industrywide to the lowest level since 1991.
Underwriting revenues declined in almost all categories, with significant
decreases in equities, corporate bonds and preferred stock, and convertible
securities. Partially offsetting these declines were higher underwriting
revenues from asset-backed securities. Equity issuances, especially initial
public stock offerings, were adversely affected by reduced demand attributable
primarily to investor caution. Higher interest rates curtailed debt issuance,
particularly refinancings. In 1994, new stocks and bonds issued in domestic
markets totaled $711 billion, a 33% decline from 1993. Domestic initial public
offerings were 41% lower in 1994 compared with 1993.
Despite unfavorable market conditions and lower volumes, the Corporation
retained its position as top underwriter for the seventh consecutive year
domestically and sixth consecutive year globally. The Corporation's domestic
and global share of underwriting volume in 1994 was 16.5% and 12.6%,
respectively, versus 16.4% and 12.8% in the year-earlier period, according
to Securities Data Co.
Foreign issuers continued to access U.S. capital markets in 1994. New
issues from outside the U.S. accounted for more than 30% of equities sold in
domestic markets industrywide. International underwriting activity also
benefited from privatizations of state-owned industries in Europe and Latin
America. In 1994, international equity underwritings represented 16% of
the Corporation's total equity underwritings, compared with 5% in 1993.
Strategic services revenues, which include fees for debt restructuring,
merger and acquisition activity, and other advisory services, increased 36% to
$251 million. Companies worldwide sought strategic partners to capitalize on
business opportunities attributable to lower trade barriers and to promote
growth and financial strength. In 1994, the volume of announced global
mergers and acquisitions advisory deals reached $534 billion industrywide. The
Corporation's market share of announced global deals was 10.3% in 1994, up
from 7.9% in 1993, according to Securities Data Co.
In 1993, investment banking revenues increased 23% from 1992 to a record
$1.83 billion, as lower interest rates and higher share prices spurred
underwriting activity. These favorable conditions led to significant balance
sheet refinancings and reissuance of debt by corporate treasurers, and increased
demand for equity securities. Strategic services revenues grew 5% to $184
million in 1993.
- --------------------------------------------------------------------------------
ASSET MANAGEMENT AND
PORTFOLIO SERVICE FEES
Revenues from asset management and portfolio service fees rose 12% in 1994
to a record $1.74 billion as a result of higher fees earned from asset
management activities and other fee-based services.
Asset management fees, which include fees earned on mutual funds sponsored
by the Corporation and third parties, increased 12% from 1993 to $794 million.
In 1994, approximately 90% of asset management fees were attributable to Merrill
Lynch-sponsored funds. During the period, assets under management increased in
money market and equity funds, but decreased in bond funds as investors
redeployed assets. Despite lower asset values, assets under management by
Merrill Lynch Asset Management ("MLAM") increased due principally to new money
investments in 1994.
The Corporation's strategy of advising clients to (i) prepare a plan to
establish financial objectives; (ii) begin saving early and methodically to
achieve short- and long-term financial goals; (iii) use mutual funds as long-
term investments; and (iv) allocate assets by type (i.e., stocks, bonds, cash)
and by region (i.e., domestic and international) to achieve greater after-tax
returns and diversification, contributed to increased levels of assets under
management.
Assets under management by MLAM increased 2%, or $3 billion, to $164
billion. As indicated earlier, the increase was attributable to money market
and stock funds, which grew by $8 billion to $104 billion. Bond funds,
representing 22% of assets under management, declined $6 billion in 1994 to
$36 billion. Assets under management also include private portfolio assets of
$20 billion and investments of insurance subsidiaries totaling $4 billion.
Private portfolio assets represent funds related to privately managed
individual and institutional accounts. Investments of insurance subsidiaries
support the insurance liabilities for fixed-rate life insurance and annuity
products.
Portfolio service fees increased 19% in 1994 to $438 million based on the
continued growth of products offering multiple investment services. Fees from
Merrill Lynch Consults (Registered Trademark) ("ML Consults"), a portfolio
management service, increased 4% in 1994 to $306 million due primarily to higher
asset levels during the 1994 first quarter. Fee levels during the remainder of
the year declined due to a reduction in asset levels and a decrease in the
number of accounts. At December 30, 1994, asset values for ML Consults were
$14.4 billion, down 15% from 1993. The approximate number of accounts totaled
78,500, compared with 87,000 at year-end 1993. Fee revenues also advanced in
Mutual Fund Advisor ("MFA (Service Mark)"), a personalized portfolio management
service, and Asset Power (Registered Trademark), a product with fees and
transaction limits based on asset levels. Combined revenues from MFA and Asset
Power accounts increased 177% to $36 million. Assets under management for these
products totaled $3 billion representing approximately 22,900 accounts. Other
portfolio service fees, principally insurance and trust fees, increased 57% to
$96 million.
Other fee-based revenues were up 5% from 1993 to $508 million due primarily
to increased revenues from transfer agency, CMA (Registered Trademark), IRA, and
Keogh fees.
Total client assets in worldwide private client accounts were $568 billion
at year-end 1994 compared with $557 billion at year-end 1993. In 1994, client
accounts were redefined to include certain institutional private portfolio
accounts
--------------------
7
<PAGE>
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
managed by the Corporation. Prior years' client account assets have been
restated.
In 1993, asset management and portfolio service fee revenues rose 24% to
$1.56 billion, principally as a result of increased fees earned from asset
management activities, the ML Consults portfolio management service, and other
fee-based services. Asset management fees increased 21% to $706 million due
principally to growth in stock and bond funds. In 1993, revenues from ML
Consults advanced 66% to $294 million as the total number of accounts grew 36%
to 87,000. Other fee-based revenues were up 8% to $483 million due to
increased revenues from mortgage servicing, insurance, and custodial fees for
retirement accounts.
- --------------------------------------------------------------------------------
OTHER REVENUES
Other revenues increased 65% in 1994 to $471 million. Other revenues
include investment gains and losses, transaction processing fees, and proxy
activities.
In 1994, net realized investment gains related to merchant banking
activities were $81 million, compared with $133 million of net investment
losses a year ago. In certain instances, sales of merchant banking positions
are subject to restrictions, limiting the Corporation's ability to dispose of
these investments until required holding periods expire. In 1994, restrictions
applicable to certain investments lapsed and market conditions changed,
enabling the Corporation to dispose of certain merchant banking investments.
Merchant banking positions are carried at the lower of cost or estimated net
realizable value. Loss provisions related to these investments are established,
as appropriate, to reduce the carrying value to estimated net realizable value.
(See discussion of Non-Investment Grade Holdings and Highly Leveraged
Transactions.) Revenues generated from transaction processing, proxy services,
and other activities declined 7% in 1994 to $390 million.
In 1993, other revenues were up 1% to $285 million due primarily to
higher fees generated from growth in home equity loan activity, partially
offset by higher net investment losses related primarily to provisions for
merchant banking investments.
- --------------------------------------------------------------------------------
NON-INTEREST EXPENSES
Non-interest expenses declined 3% in 1994 to $7.89 billion. Excluding the 1993
first quarter non-recurring lease charge of $103.0 million, non-interest
expenses declined 2%.
Compensation and benefits, the largest expense, declined 6% to $4.95
billion as lower incentive and production-related Financial Consultant
compensation was partially offset by increases in base wages, severance, and
Financial Consultant up-front hiring bonuses. Incentive compensation decreased
with lower profitability, while production-related compensation was down due to
volume declines in certain products.
The Corporation regularly evaluates its staffing levels given business
conditions. At year-end 1994, full-time personnel totaled 43,800 compared with
41,900 at year-end 1993. Hirings in 1994 consisted primarily of producers and
selected support staff in private client and international business areas. The
increase in personnel was concentrated in early 1994 with nearly 70% of the
hirings occurring before July. In the second half of 1994, approximately 53% of
the additional hirings were recent graduates, the result of the annual
recruiting cycle. Selected reductions in personnel related to overall business
contraction contributed to a charge for severance expense totaling $66 million
in 1994. Compensation and benefits, as a percentage of net revenues, was 51.5%
compared with 49.8% in 1993. The Corporation's ratio of support employees and
sales assistants to producers increased to 1.46 to 1 in 1994, from 1.43 to 1 in
1993.
Occupancy costs declined 24% (7% excluding the non-recurring lease
charge), benefiting from continued relocation of support staff to lower-cost
facilities and reduced space requirements at the Headquarters facility.
Communications and equipment rental expenses were 12% higher in 1994 due
to increased use of market data, news, and statistical services. Depreciation
and amortization expense rose 5% due primarily to the acquisition of
technology-related equipment that is depreciated over shorter useful
lives.
Advertising and market development expenses were down 1% with
discretionary costs decreasing as business conditions became less favorable.
Lower sales promotion costs and a reduction in advertising campaigns were
partially offset by increased travel related to international business
activities.
Professional fees increased 26% from a year ago, due primarily to the use
of system and management consultants to upgrade technology and processing
capabilities in trading, credit, and customer systems, as well as higher legal
fees.
Brokerage, clearing, and exchange fees increased 20% from 1993 due to
higher international equity volume and expanded risk management activities
related to volatile global market conditions. Other expenses were up 1% due
primarily to an increase in office supplies and postage costs.
In 1993, non-interest expenses increased 17% to $8.13 billion. Excluding
the 1993 first quarter non-recurring lease charge, non-interest expenses rose
15%. Favorable markets, increased business volumes, and record profitability
contributed to a 20% increase in compensation and benefits expense. Occupancy
costs rose 20% as a result of the non-recurring lease charge (down 2% excluding
the non-recurring lease charge). Communications and equipment rental expense
increased 5% due to the expanded use of telephone, market data, and news
services. Depreciation and amortization expense rose 10% due to replacement of
technology-related equipment. Advertising and market development expenses rose
25% reflecting higher sales promotion costs, recognition programs, and business
travel. Professional fees increased 13% due to increased use of system and
management consultants, and higher employment agency fees. Brokerage, clearing,
and exchange fees were up 1% as a result of increased trading volume. Other
expenses rose 5% in 1993 principally as a result of additions to loss provisions
related to litigation and claims, offset by a reduction in loss provisions
related to specific business activities.
--------------------
8
<PAGE>
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
INCOME TAXES
The Corporation's 1994 income tax provision was $713 million and
represented a 41.2% effective tax rate. In 1993 and 1992, income tax
provisions were $1.03 billion and $669 million, respectively, representing
effective tax rates of 42.5% in 1993 and 41.3% in 1992. The effective
tax rate in 1994 decreased primarily as a result of lower state income
taxes. In 1993, the effective tax rate was higher as legislation increased
the Federal statutory tax rate from 34.0% to 35.0%.
The Corporation records deferred tax assets for the effects of temporary
differences between the tax basis of an asset or liability and its reported
amount in the financial statements. To recognize these deferred tax assets,
the Corporation anticipates future taxable income. The Corporation assessed
its ability to realize its deferred tax assets primarily on a strong earnings
history and the absence of negative evidence as discussed in SFAS No. 109,
"Accounting for Income Taxes." During the last 12 years, average
pretax earnings were $788 million per year. Accordingly, the Corporation
believes it is more likely than not that its deferred tax asset will be
realized.
In 1992, the Corporation adopted SFAS No. 109. As a result of adopting
this accounting pronouncement, the Corporation recorded a $17.8 million
cumulative effect benefit in 1992. The cumulative effect adjustment
recognizes the utilization of previously unrecorded state and local tax
benefits. All available alternative minimum tax credits and net operating loss
tax benefit carryforwards from prior years were utilized by the end of
1992.
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Stockholders' equity at December 30, 1994 increased 6% to $5.82 billion from
$5.49 billion at year-end 1993. The increase in 1994 was principally the result
of net earnings and the issuance of $425 million 9% Preferred Stock, Series A
(see Stockholders' Equity in the Notes to Consolidated Financial Statements).
These advances were primarily offset by an increase in treasury stock related to
the Corporation's share repurchase program, common and preferred dividends
declared by the Corporation, and a fair value adjustment related to SFAS No.
115, "Accounting for Investments in Certain Debt and Equity Securities."
In 1994, the Corporation repurchased approximately 30 million common shares
at an average price of $37.96 per share to meet share requirements under
employee benefit plans, to make appropriate adjustments to the Corporation's
capital structure, and for other general corporate purposes.
The Corporation granted a total of approximately 1.4 million shares of
common stock during 1994 to certain employees under the Long-Term Incentive
Compensation Plan and the Equity Capital Accumulation Plan.
In 1993, the Corporation adopted SFAS No. 115, which increased
stockholders' equity by $21 million (see Accounting Changes in the Notes to
Consolidated Financial Statements). In the 1993 fourth quarter, the
Corporation's Board of Directors declared a two-for-one common stock split
effected in the form of a 100% stock dividend. In the second quarter of 1993,
stockholders of the Corporation approved an increase in the authorized number of
common shares from 200 million to 500 million shares. In addition, 1,637,314
shares of common stock were issued in 1993 under certain employee benefit plans.
At December 30, 1994, total common shares outstanding, excluding the
unallocated Employee Stock Ownership Plan ("ESOP") reversion common shares,
amounted to 181.5 million, 11% lower than the 204.0 million shares
outstanding at December 31, 1993. The decrease was principally
attributable to common stock repurchases. Including unallocated ESOP reversion
shares, total outstanding common shares were 187.9 million at the end of
1994. Total outstanding common shares, including unallocated ESOP reversion
shares, and commitments for shares related to employee benefit plans (whether
or not specific awards of such shares have been made) approximated 300.6
million at December 30, 1994. Subsequent to year-end, the Corporation
amended the Incentive Equity Purchase Plan by reducing the number of shares
authorized to zero. This amendment reduced committed amounts by approximately
24 million shares.
- --------------------------------------------------------------------------------
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 regulated 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 December 30, 1994, the Credit Facilities totaled $5.3 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
--------------------
9
<PAGE>
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
without reliance on issuing new unsecured debt or drawing upon Credit
Facilities. The composition of the Corporation's asset mix provides a great
degree of flexibility in managing liquidity. The Corporation's liquidity
position is enhanced since most of the Corporation's assets turn over
frequently or are match-funded with a liability whose cash flow
characteristics closely match those of the asset. At December 30, 1994,
approximately 3% of the Corporation's assets, principally certain other
investments, and fixed and other assets, were considered not readily
marketable by management. The Corporation monitors the liquidity of assets,
the quality of Credit Facilities, and the overall level of equity and term
debt in assessing financial strength and capital adequacy at any point in
time.
The second element of the Corporation's liquidity strategy is to
concentrate all general purpose borrowings at the Parent level, except where
tax regulations, time differences, or other business considerations make this
impractical. 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 by 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 $14.8 billion at December 30, 1994 and $14.9
billion at December 31, 1993, which represented 9% and 10% of total
assets at year-end 1994 and 1993, respectively.
Total term debt issuance in 1994 exceeded 1993 levels as the Corporation
continued to be active in both domestic debt markets and Euro markets through
public issues and private placements. Foreign currency denominations and
interest rate indices were hedged, as required, to match the economic
characteristics of the Corporation's assets. Outstanding term debt at December
30, 1994 grew to $14.9 billion from $13.5 billion at December 31, 1993.
At December 30, 1994, the Corporation's senior long-term debt was rated
by seven recognized credit rating agencies, as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATING AGENCY RATING
- ------------- ------
<S> <C>
Duff & Phelps Credit Rating Co. AA-
Fitch Investors Service, Inc. AA
IBCA Ltd. AA-
The Japan Bond Research Institute AA
Moody's Investors Service, Inc. A1
Standard & Poor's Ratings Group A+
Thomson BankWatch, Inc. AA
- --------------------------------------------------------------------------------
</TABLE>
The Corporation issued $8.5 billion of long-term debt during 1994.
During the same period, maturities and repurchases were $6.9 billion. In
addition, approximately $1.9 billion of the Corporation's securities held by
subsidiaries were sold and $2.2 billion were purchased. At December 30,
1994, $6.1 billion of term debt had maturity dates in 1995 and $8.8
billion of term debt had maturity dates beyond one year. The average maturity
on all outstanding term debt was 3.0 years, compared with 2.9 years at
year-end 1993. Approximately $30.5 billion of the Corporation's indebtedness
at December 30, 1994 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
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 their various business activities.
At December 30, 1994, approximately 81% of invested assets of insurance
subsidiaries were considered liquid by management.
- --------------------------------------------------------------------------------
CAPITAL RESOURCES AND
CAPITAL ADEQUACY
The Corporation remains one of the most highly capitalized institutions in the
U.S. securities industry with an equity base of $5.82 billion at December 30,
1994, including $5.20 billion in common equity supplemented by $619 million in
preferred stock. The Corporation's average leverage ratios, computed as the
ratio of average month-end assets to average month-end stockholders' equity,
were 32.0x and 27.4x for 1994 and 1993, respectively. The Corporation's leverage
ratios at the end of 1994 and 1993 were 28.1x and 27.9x, respectively. During
1994, leverage ratios were affected by the adoption of Financial Accounting
Standards Board Interpretation ("Interpretation") No. 39, "Offsetting of Amounts
Related to Certain Contracts," as modified by Interpretation No. 41, "Offsetting
of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements." The
effect of these Interpretations increased assets by approximately $8.5 billion
at December 30, 1994.
To compute the Corporation's average adjusted leverage ratio, resale
agreements and securities borrowed transactions are subtracted from total
assets. The average adjusted leverage ratios were 18.9x and 16.6x for
1994 and 1993, respectively. The Corporation's adjusted leverage ratios at
the end of 1994 and 1993 were 16.9x and 17.5x, respectively.
--------------------
10
<PAGE>
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The Corporation operates in many regulated businesses that require various
minimum levels of capital to conduct business (see Regulatory Requirements and
Dividend Restrictions in the Notes to Consolidated Financial Statements). 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.
- --------------------------------------------------------------------------------
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 continually. The Corporation monitors and manages the change of its
balance sheet using point-in-time 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 year-end balances. The
reasons underlying changes in average balances, however, are similar to those
underlying changes in year-end balances.
The increase in average balance sheet levels in 1994 was attributable to
many factors, including the effect of Interpretation No. 39, expanded
match-funding of repurchase and resale agreements, and increased trading
activity, particularly in the 1994 first quarter. In 1994, average daily
assets were $182 billion, up 29% from $141 billion in 1993. Average daily
liabilities in 1994 rose 30% to $177 billion from $137 billion in 1993.
Excluding the effect of Interpretation No. 39, average assets and liabilities
increased by approximately $28 billion, or 20%, in 1994. Interpretation No. 39
primarily affected balances related to contractual agreements and resale and
repurchase agreements. Although average asset and liability levels have
increased year over year, these balances have each declined 4% from first
quarter 1994 peak levels. The decrease corresponds with lower levels of business
activity after the 1994 first quarter.
The major components in the growth of average daily assets and liabilities
are summarized as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCREASE
IN AVERAGE PERCENT
DAILY ASSETS INCREASE
-------------- --------
<S> <C> <C>
(IN MILLIONS)
Resale agreements $17,856 48%
Trading assets 17,217 37
Securities borrowed 2,489 11
Customer receivables 2,397 21
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INCREASE
IN AVERAGE PERCENT
DAILY LIABILITIES INCREASE
----------------- --------
<S> <C> <C>
Repurchase agreements $20,345 39%
Trading liabilities 12,393 56
Commercial paper and other
short-term borrowings 3,142 14
Long-term borrowings 2,941 23
- --------------------------------------------------------------------------------
</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 match-funds its repurchase agreements/resale
agreements and its securities borrowed/securities loaned business, for example,
earning an interest spread on these transactions. Repurchase and resale
agreements rose during 1994 as a result of an increase in match-funded
transactions involving foreign securities and an increase in collateralized
lending activities to facilitate client demand.
In 1994, inventory levels were up due to the effect of Interpretation
No. 39 and increases in trading activity. On-balance-sheet hedges included in
trading liabilities also advanced due, in part, to increased market volatility
during 1994. The Corporation uses hedges principally to reduce risk in
connection with its trading activities. Securities borrowed increased primarily
to facilitate deliveries to customers. Customer receivables also advanced as
trading volume, on average, was higher.
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
three years, the Corporation increased its non-investment grade trading
inventories to satisfy client demand for higher-yielding investments,
including emerging market and other international securities.
--------------------
11
<PAGE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
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
non-rated securities which, in the opinion of management, are non-investment
grade. At December 30, 1994, long and short non-investment grade inventories
accounted for 4.3% of aggregate consolidated trading inventories, compared with
4.6% at year-end 1993 and 4.2% at year-end 1992. 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. 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 year-end 1994,
1993, and 1992, no bridge loans were 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. Prior to July 1,
1994, the Corporation had a co-investment arrangement to enter into direct
equity investments. The Corporation also has committed to participate in
limited partnerships that invest in leveraged transactions. Future commitments
to participate in limited partnerships 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 and the liquidity of the market for such
securities, in addition to the usual risks associated with investing in,
financing, underwriting, and trading investment grade instruments. The
Corporation recognizes such risks and, 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 5.5% at year-end
1994, compared with 5.8% at year-end 1993 and 4.5% at year-end 1992.
Non-investment grade securities of insurance subsidiaries are classified as
available-for-sale and are carried at fair value. Prior to year-end 1993,
investments of insurance subsidiaries were carried at amortized cost.
A summary of the Corporation's non-investment grade holdings and highly
leveraged transactions at year-end 1994, 1993, and 1992 follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(IN MILLIONS) 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-investment grade
trading assets $3,309 $3,129 $1,723
Non-investment grade
trading liabilities 456 214 209
Non-investment grade investments
of insurance subsidiaries 314 458 409
Loans (net of allowance for loan
losses) (a) 257 435 822
Equity investments (b) 289 276 360
Partnership interests 93 92 120
- --------------------------------------------------------------------------------
Additional commitments to invest
in partnerships $ 80 $ 19 $ 27
Additional co-investment
commitments -- 49 89
Unutilized revolving lines of credit
and other lending commitments 50 49 75
- --------------------------------------------------------------------------------
</TABLE>
(a) Represented outstanding loans to 35, 42, and 50 medium-sized companies at
year-end 1994, 1993, and 1992, respectively.
(b) Invested in 80, 82, and 103 enterprises at year-end 1994, 1993, and 1992,
respectively.
At December 30, 1994, the largest non-investment grade concentration
consisted of various issues of a South American sovereign totaling $235
million, of which $60 million represented on-balance-sheet hedges for
off-balance-sheet instruments. No one industry sector accounted for more than
21% of total non-investment grade positions. Included in the table above are
debt and equity securities of issuers in various stages of bankruptcy
proceedings or in default. At December 30, 1994, the carrying value of these
securities totaled $292 million, of which 71% resulted from the
Corporation's market-making activities in such securities.
- --------------------------------------------------------------------------------
CASH FLOWS
The Statements of Consolidated Cash Flows classifies the flow of cash into
three broad activities: operating, investing, and financing. The Corporation's
net cash flows are principally associated with operating and financing
activities, which
--------------------
12
<PAGE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
support the Corporation's trading, customer, and investment banking activities.
Cash flows from investing activities are primarily related to the Corporation's
insurance business.
The Corporation's cash and cash equivalents totaled $2.3 billion at
December 30, 1994, an increase of $0.5 billion and $1.1 billion, respectively,
from the end of 1993 and 1992.
Cash flows from operating activities in 1994 totaled $7.4 billion. Cash
was provided from an increase in trading liabilities totaling $5.6 billion,
primarily related to hedge activities, and a decrease in trading assets
consistent with business levels, totaling $6.6 billion. Trading assets and
trading liabilities exclude the effect of Interpretation No. 39. Net earnings
adjusted for noncash items also provided cash of $2.4 billion. Cash used for
remaining operating assets and liabilities totaled $7.2 billion and related
primarily to securities borrowed transactions, insurance liabilities, and
customer-related activity.
Cash flows from investing activities in 1994 totaled $0.3 billion. Cash
of $1.1 billion, principally related to net proceeds from sales and
maturities of investment securities, was provided from investing activities.
Cash used to acquire property, leasehold improvements, equipment, and other
assets totaled $0.8 billion.
The Corporation's financing activities used cash of $7.2 billion in
1994. Cash of $12.1 billion was used for payments under repurchase
agreements, net of resale agreements, repurchases of common stock, and stock
dividend payments. Offsetting these amounts was cash totaling $4.9 billion
provided by proceeds from commercial paper and issuance of long-term
borrowings and preferred stock.
In 1993, cash and cash equivalents increased $0.5 billion to $1.8 billion.
Cash used for operating activities totaled $17.1 billion, cash provided by
investing activities totaled $0.4 billion, and cash provided by financing
activities totaled $17.2 billion. In 1993, the decrease in cash from operating
activities reflected net increases in operating assets consistent with an
increase in the level of business activity. Cash provided from investing
activities represented a reduction in insurance investments offset by net
purchases of marketable investment securities, property, leasehold improvements,
and equipment, and other assets. Cash provided from financing activities was
used to fund the growth in the Corporation's balance sheet to accommodate
business levels. Cash was provided from repurchase agreements, net of resale
agreements, commercial paper, and other short- and long-term borrowings.
Financing activities used cash for share repurchases and stock dividends.
Cash and cash equivalents increased $0.2 billion to $1.3 billion in 1992.
Cash used for operating activities totaled $5.2 billion, while financing
activities provided cash of $5.4 billion. Cash from investing activities was
virtually unchanged.
- --------------------------------------------------------------------------------
RECENT DEVELOPMENTS
New Accounting Pronouncements
In May 1993, the Financial Accounting Standards Board ("FASB") issued SFAS No.
114, "Accounting by Creditors for Impairment of a Loan." SFAS No. 114, effective
for fiscal years beginning after December 15, 1994, establishes accounting
standards for creditors to measure the impairment of certain loans.
In October 1994, the FASB issued SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures." SFAS No. 118 amends
SFAS No. 114 to allow creditors to use existing methods for recognizing interest
income on an impaired loan, rather than the method originally required by SFAS
No. 114.
The Corporation has evaluated the impact of these pronouncements on its
financial statements as of December 30, 1994 and has determined that the
effect is not material.
- -------------------------------------------------------------------------------
Business
As disclosed in the Corporation's Current Report on Form 8-K dated January 12,
1995 filed pursuant to the Securities Exchange Act of 1934, certain actions have
been filed against the Corporation by Orange County, California and The Orange
County Investment Pools as well as by others in connection with the
Corporation's business activities with Orange County or from the purchase of
debt instruments issued by Orange County that were underwritten by the
Corporation's subsidiary, Merrill Lynch, Pierce, Fenner & Smith Incorporated.
The information set forth under the caption "Litigation" in the Notes to
Consolidated Financial Statements is incorporated by reference herein. Although
the ultimate outcome of these actions cannot be ascertained at this time and the
results of legal proceedings cannot be predicted with certainty, it is the
opinion of management that the resolution of these actions will not have a
material adverse effect on the financial condition or the results of operations
of the Corporation as set forth in the consolidated financial statements
contained herein. The Corporation does not believe that the Orange County matter
will have a material impact on its business activities.
- --------------------------------------------------------------------------------
GLOBAL OPERATIONS
The Corporation has continued to strategically expand its international
business activities in 1994 to capitalize on the further globalization of
financial markets, the increase in cross-border transactions, and the demand
for global investments. The Corporation's international activities are
organized as follows: Europe and the Middle East, Latin America and Canada,
and the Asia Pacific region which includes Japan and Australia. In 1994, the
Corporation's international businesses were influenced by market conditions
comparable to those that negatively affected the Corporation's U.S. operating
results, including rising interest rates, volatile world currency and
securities markets, and investor sentiment. Accordingly, international results
in each of the Corporation's primary geographic regions decreased from 1993
levels. (See Industry and Global Operations in the Notes to Consolidated
Financial Statements.)
- --------------------------------------------------------------------------------
Europe and the Middle East
The Corporation operates in Europe and the Middle East as a dealer in
fixed-income securities, swaps and other derivatives, foreign exchange,
equities, commodities, and Eurobonds. The Corporation also provides investment
banking, private banking, and research services.
--------------------
13
<PAGE>
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The Corporation continued to expand its businesses in Europe and the
Middle East. In 1994, the Corporation's capital market activities spread to the
emerging markets of Eastern Europe, Russia, Portugal, Greece, and South Africa.
These markets will require additional capital and investment, providing
financing opportunities for the Corporation. The Corporation has also expanded
its trading and banking activities in Western Europe through memberships on
major European exchanges such as the London, Frankfurt, and Zurich stock
exchanges, and the Paris and German futures exchanges. Moreover, the Corporation
became a gilt-edged market-maker in the United Kingdom and established a French
government bond trading presence in Paris during the year.
In 1994, total revenues for Europe and the Middle East were $3.5 billion,
up 11% from 1993. Net revenues totaled $1.1 billion, down 16% from 1993. The
region's earnings before income taxes were $176 million for 1994, compared with
$481 million in 1993, a decrease of 63%.
Trading results for the region declined from 1993. Fixed-income securities
were negatively affected by rising interest rates. Losses were recorded in
structured money market products and equity-linked warrants. Partially
offsetting these declines were higher revenues from commodities trading
activities. Investment banking revenues were virtually unchanged although volume
in sovereign and equity issuances increased.
The decrease in earnings before income taxes is attributable to higher
financing and other trading-related costs and an increase in compensation and
benefits expense. The number of full-time employees increased from 2,449 at
year-end 1993 to 2,857 at the end of 1994 to support business expansion.
In 1993, total revenues were $3.1 billion, up 67% from $1.9 billion
in 1992, while net revenues were $1.4 billion, up 42% from $953 million in
1992. Earnings before income taxes were $481 million in 1993 compared with $181
million in 1992, an increase of 166%.
In 1993, this region benefited from market volatility in Europe and falling
interest rates. As a result, corporate debt, government bonds, and swaps and
other derivatives trading revenues increased. Customer lending revenues,
portfolio management fees, and commissions also rose during the period. In 1993,
the Corporation increased staffing by 14% to support strategic expansion in this
region.
- --------------------------------------------------------------------------------
Canada and Latin America
In Canada, the Corporation provides investment banking and research,
securities and commodities brokerage, and market-making services, particularly
in corporate and government bonds and money market instruments. In Latin
America, the Corporation provides international banking, brokerage, trust, and
investment banking services. Included in the Latin America region are certain
offices located in the U.S. which primarily service Latin American clients.
Latin America has been a region of growth for the Corporation. The Corporation
has expanded its presence in this region primarily through increased private
client, investment banking, and equity trading activities.
Total revenues for Canada and Latin America increased to $617 million for
1994, up 17% from $526 million in 1993, while net revenues decreased 12% to $333
million in 1994. Earnings before income taxes were $137 million, down 2% from
1993. Investment banking activities in Latin America were lower than a year ago
due to market and political uncertainties in the region. The devaluation of the
Mexican peso affected securities valuations and investor demand, particularly in
the 1994 fourth quarter. This trend continued into the 1995 first quarter. The
region benefited from the continued growth of matched-book activity and fixed-
income trading in Canada, as well as equity sales to private banking clients in
Latin America. Staffing increased from 751 at year-end 1993 to 834 at December
30, 1994. The staffing increase was primarily in Latin America, which continued
to expand its range of products and client services. Certain of these hires
represented the foundation for an expanded equity trading operation, which
commenced in Brazil during early 1995.
In 1993, total revenues were $526 million, up 39% from $378 million in
1992. Net revenues were $377 million in 1993, up 46% from $259 million in
1992. Earnings before income taxes were $139 million versus $89 million in
1992, a 56% increase. Most of the growth was in principal transactions
revenues, primarily Canadian government bonds, as well as increases in
commission revenues related to private banking clients in Latin America.
Staffing increased to 751 in 1993, compared with 663 in 1992 to
facilitate expansion.
- --------------------------------------------------------------------------------
Asia Pacific
In the Asia Pacific region, the Corporation has a variety of operating centers
serving a broad retail and institutional client base. In Japan and China, the
focus is principally on institutional business opportunities, while in other
locations, such as Taiwan, Korea, Hong Kong, Singapore, and Australia, both
retail and institutional businesses are conducted. The Corporation has
securities and futures exchange memberships in the major financial centers and
has increased its trading and product capacity in Tokyo, Hong Kong, and
Singapore. Moreover, the Corporation recently expanded its presence in India,
Indonesia, and Thailand through strategic investments and joint ventures.
Total revenues for the Asia Pacific region in 1994 were $963 million, up
10% from 1993. Net revenues and earnings before income taxes were $554 million
and $75 million, down 19% and 61% from 1993, respectively. Trading results in
this region were mixed, with higher revenues from non-dollar swaps, equity
derivatives, and Australian debt offset by lower revenues from Japanese
Government Bonds ("JGB"). The decline in JGB trading revenues was attributable
to rising interest rates which also affected net interest profit in 1994.
In 1994, the number of full-time employees increased 17% to 1,383.
This strategic growth increased expense levels during 1994 contributing to
lower earnings before income taxes.
Total revenues for 1993 were $879 million versus $374 million in 1992.
Net revenues were $683 million in 1993
--------------------
14
<PAGE>
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
compared with $309 million in 1992. Earnings before income taxes were $191
million in 1993 versus a $3 million loss in 1992. Higher revenues in 1993,
primarily in equity arbitrage and JGB and Australian debt trading, contributed
to these improved results.
- --------------------------------------------------------------------------------
DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation, as a dealer, trades derivatives and provides clients with
customized products. These transactions allow clients to manage their exposure
to interest rate, currency, and security and commodity price risks. The
Corporation also uses derivative financial instruments to manage and hedge its
own interest rate, currency, and other risks related to its proprietary
trading strategies, client transactions, and non-trading activities.
SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments," defines derivative financial instruments as
futures, forwards, swaps, or option contracts, or other financial instruments
with similar characteristics.
The definition excludes all on-balance-sheet receivables and payables,
including those that "derive" their values or contractually required cash flows
from the price of some other security or index, such as mortgage-backed
securities, interest-only and principal-only obligations, and indexed debt
instruments. Derivative financial instruments, unlike non-derivative (or cash)
financial instruments, have both on- and off-balance-sheet implications,
depending upon the nature of the contract. Forward contracts, for example, are
treated as off-balance-sheet in terms of notional amounts, with only unrealized
gains and losses included in trading assets or liabilities. Derivatives can be
traded on an exchange or negotiated in the over-the-counter markets. Futures
contracts and certain options are examples of exchange-listed derivatives traded
or issued by the Corporation. Swap contracts, including swap options, caps,
collars, and floors, forward contracts, and certain equity derivatives are
examples of over-the-counter derivatives traded, issued, and used by the
Corporation.
The Corporation conducts derivative activities through a number of wholly
owned subsidiaries as part of its client-driven and proprietary business
transactions. Merrill Lynch Capital Services, Inc. ("MLCS") is the Corporation's
principal swaps dealer. Merrill Lynch Capital Markets PLC ("MLCM") is the
primary equity derivatives dealer of the Corporation. Merrill Lynch Derivative
Products, Inc., a "AAA" rated entity, is the Corporation's swap subsidiary which
provides credit intermediation for interest rate and currency swaps, options,
and similar transactions between highly rated counterparties and MLCS. In
connection with these derivative activities, certain of these subsidiaries
purchase and sell interest-bearing and equity securities for hedging purposes.
The Corporation, directly or through its subsidiaries, enters into
derivatives transactions to hedge certain trading positions, including other
derivatives. As an end-user, the Corporation also hedges its fixed-rate and
foreign currency-denominated debt issuances by entering into variable interest
rate swaps and foreign currency agreements with MLCS. MLCS then enters into
other contracts with third parties as part of the Corporation's trading and risk
management strategies. The Corporation also hedges equity-related exposures
embedded in certain of its debt instruments with equity derivatives transacted
primarily through MLCM.
Derivatives facilitate risk transfer and enhance liquidity in the
marketplace. For issuers, derivatives provide cost-effective funding
alternatives, while for investors, derivatives provide alternative investment
options and the ability to hedge risk. Market participants include dealers, such
as banks and other financial institutions, and end-users such as corporations,
governments, pension funds, government agencies, and other institutions.
Increased market participation and competition has helped to increase
liquidity in conventional derivatives, such as interest rate swaps. Widespread
acceptance has also contributed to the development of more complex products
structured for specific clients. Rapid growth, complexity, and highly
publicized losses have contributed to a perception that these products possess
additional risk to users and to financial markets. Although different in form,
both derivative and non-derivative financial instruments are subject to market,
credit, operational, and other similar risks. Credit considerations, for
example, exist for a corporate bond and an interest rate swap. In addition, both
of these instruments are sensitive to market risk due to movements in interest
rates which affect their respective pricing. The risks inherent in both types of
instruments need to be managed in a manner consistent with a company's overall
risk management policies.
- --------------------------------------------------------------------------------
Management Review
Management plays an important role in monitoring the Corporation's derivative
activities by setting market risk and credit limits, reviewing new products,
and establishing accounting, credit, and risk policies. Similar to other
financial products, presentations on derivatives are made to senior management
and the Board of Directors. These presentations include reviews of pricing
models and may address current business issues and industry developments and
provide details of other specific issues that are important to the Corporation
in managing its derivatives business.
- -------------------------------------------------------------------------------
Accounting and Valuation
Notional amounts of derivative contracts provide a common basis for compiling
outstanding transactions. Notional amounts are not recorded on the balance
sheet and do not represent a measure of the Corporation's risk. Derivatives
used in a dealer capacity and to hedge other trading positions are
marked-to-market. The unrealized gain or loss is recorded in trading assets or
liabilities on the Consolidated Balance Sheets with the related income or loss
reported in principal transactions revenues. Derivatives used to hedge the
issuance of borrowings by the Corporation are generally recorded on an accrual
basis. Interest is accrued into income or expense over the life of the
contract, which generally matches the maturity of the related debt issue.
--------------------
15
<PAGE>
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The fair value of a derivative contract represents the amount the
Corporation would have to pay a third party to assume its obligations under the
contract or the amount a third party would pay to receive the Corporation's
benefits under the contract. The Corporation's derivative transactions are
generally marked-to-market by pricing models based on the present value of
future cash flows using mid-market valuations with adjustments, as required, for
credit, liquidity, and ongoing costs. These adjustments are integral components
of the mark-to-market process.
Certain products may require additional market valuation adjustments. New,
complex products, where no established two-way market exists, may create a
need for liquidity adjustments. Modeling a complex product involves multiple
variables and assumptions, the precision of which will evolve over time. The
Corporation does not recognize the market value of these contracts determined
solely by the pricing model during the early stages of a product's life. Due
to limited markets for certain new, complex products, the pricing model may
not have the precision associated with a model for an existing product. As
these products develop, pricing models will be refined and hedging strategies
modified, based on experience, to more closely correlate the market movement
of these instruments.
Further valuation adjustments are recorded for significant derivative
product positions. These adjustments acknowledge the difficulty in disposing
of any large trading position in a short time period.
Most of the Corporation's derivative products are relatively short-term in
nature. At year-end 1994, the weighted average maturity of the Corporation's
derivative contracts, based on notional or contractual amounts, was 2.29
years, compared with 2.62 years at year-end 1993. Administrative costs are
incurred to service periodic cash streams and maintain hedges over the life of
the contract. A portion of income related to longer-term contracts is
recognized as the costs related to these contracts are incurred.
Sources of derivative revenues and their related components are regularly
reviewed by product, with profitability measured net of related hedging
activities.
The Corporation has an independent Global Risk Management Group which
develops pricing and risk management models to measure market risk. (See Risk
Management discussion.)
Operational risks for derivative instruments require ongoing review. These
instruments reset periodically based on variable interest rates, amortizing
principals, or variations in other factors. The Corporation ensures that
periodic payments/receipts on these instruments are based on appropriate
variables and that mark-to-market valuations reflect the most current
data.
- --------------------------------------------------------------------------------
Credit
The Corporation actively manages its credit risk for derivative activities.
The Credit Division ("Corporate Credit") is responsible for establishing client
limits and collateral requirements and for monitoring credit exposures.
Corporate Credit works with the business units to develop and refine credit risk
measurement models, analyze potential credit exposures for complex transactions,
and establish credit enhancement provisions. Credit enhancements protect the
Corporation against counterparty credit difficulties. Such provisions generally
require counterparties to post additional collateral if the counterparty credit
rating is downgraded, or if certain key ratios or covenants are not met.
The notional or contractual values of derivative transactions do not
represent exposure to credit risk. Credit risk represents the amount of
accounting loss that the Corporation would incur if a counterparty failed to
perform its obligations under contractual terms and the collateral held, if
any, was deemed worthless. The Corporation, however, requires collateral from
its counterparties to mitigate credit risk, when appropriate. From an economic
standpoint, credit risk is evaluated net of related collateral. Credit
exposures are analyzed to assess current and potential credit risk. Current
credit exposure represents the replacement cost of those contracts in a gain
position, while potential credit exposures are based on estimates of future
replacement costs over the remaining life of the contract. Credit exposure
considerations are embedded in the mark-to-market process.
Whenever possible, the Corporation executes the International Swaps and
Derivatives Association, Inc. master agreement, or its equivalent, which
contains netting provisions ("master netting agreements"). Master netting
agreements help reduce overall credit exposure to counterparties. Master
netting agreements provide, in certain instances, protection in bankruptcy and
may enable receivables and payables with the same counterparty to be presented
net on the Consolidated Balance Sheets. This provides for a more meaningful
balance sheet presentation of credit exposure. Obtaining executed master
netting agreements, however, remains a problem for the industry. Often several
months will elapse before a master netting agreement is executed. The industry
is actively trying to resolve this issue and determine whether such agreements
provide bankruptcy protection across all jurisdictions.
Derivative credit exposures are aggregated with credit exposures related
to non-derivative transactions to assess the total exposure to each
counterparty and compliance with country, industry, and product limits.
Specific reserves may be required for exposures to weaker counterparties, as
appropriate, and are reviewed as part of the Corporation's Reserve Committee
process.
- --------------------------------------------------------------------------------
RISK MANAGEMENT
The Corporation operates in dynamic businesses that are subject to many risks
that are continually monitored and evaluated. The Corporation's management has
developed corporate governance policies and procedures that require specific
areas and units to assist in the identification, assessment, and control of
these risks. The Corporation's independent Global Risk Management Group
("Risk Management") is primarily responsible for monitoring market exposure,
trading limits, and concentration levels (see Market Risk below). Credit risk
is monitored primarily by Corporate
--------------------
16
<PAGE>
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Credit in conjunction with business unit personnel (see Credit Risk below).
Other units, including Finance, Corporate Audit, Operations, and Law and
Compliance ("Units"), perform oversight reviews, each critical to managing
risk.
In addition to independent risk management responsibilities, senior
management from these Units takes an active role in the oversight of the risk
management process through, among other things, the Reserve Committee of Senior
Management ("Reserve Committee"). The Reserve Committee monitors valuation and
certain other risks associated with assets and liabilities. The Corporation
establishes reserves in the Consolidated Balance Sheets for existing conditions,
events, or circumstances that may reduce the carrying value of an asset or incur
a liability. The Reserve Committee, chaired by the Chief Financial Officer,
reviews and approves firmwide reserve levels, as well as reserve methodologies.
The Reserve Committee meets monthly to review current market conditions and act
on specific issues brought to its attention by Finance, Corporate Credit, Risk
Management, and business unit personnel.
The Corporation's reserves take into account management's judgment and are
generally recorded based on (i) specific identification of risks and exposures,
(ii) formulas, (iii) aging, concentration, and liquidity analyses, or (iv)
combinations of these three methods.
Finance personnel, who report to the Chief Financial Officer, work closely
with business managers to establish appropriate levels of reserves commensurate
with business risks and activities. Reserves may be established as a result of
changes in counterparty credit rating or status, market volatility, the
liquidity of a product in a particular market, significant product
concentration, or the age of an inventory position. Trading inventories are
monitored for aging and concentration levels in specific issues and issuers.
Finance personnel independently review the pricing of trading inventories
and contractual arrangements, as well as monitor other asset and liability
valuations. Any specific issues requiring action are brought to the attention of
trading management and, as appropriate, the Reserve Committee.
Corporate Audit, which reports to the Audit and Finance Committee of the
Board of Directors, provides management with an independent assessment of the
Corporation's operations and control environment through reviews of business
and operational areas.
Within the Law and Compliance Division, Compliance establishes procedures
and policies encompassing conduct, ethics, and business practices. The
Corporation also maintains policies governing external regulatory requirements.
Law and Compliance conducts education programs, monitors the Corporation's
businesses, evaluates supervisory procedures, and recommends internal
disciplinary action when necessary. The Corporation's training and awareness
programs emphasize protection of clients' interests and preservation of the
Corporation's integrity. Law and Compliance reports to the Vice Chairman and
General Counsel.
Legal counsel within the organization are responsible for establishing
reserves for potential litigation exposures based on specific reviews of cases
or claims and consultations with outside counsel. The Corporation evaluates
potential claims and assesses the likelihood of loss. Other loss contingencies
are evaluated individually with reserves estimated based on the Corporation's
assessment of probable loss exposure.
- --------------------------------------------------------------------------------
Market Risk
The Corporation incurs market risk primarily in connection with its trading
activities. Disclosing methods for assessing and managing risk provide useful
information on market risk exposures. Disclosures of derivatives alone, however,
do not provide users of financial statements with a complete analysis of market
risk. Derivative and cash financial instruments are subject to similar market
and credit risks and are used together as part of trading and risk management
strategies.
Market risk affects trading inventory values through changes in interest
rates, credit spreads, equity, commodity, and currency prices, liquidity, and
market volatility. The Corporation's trading activities are primarily client
order flow driven rather than proprietary, with hedging transactions executed
when appropriate. This strategy helps reduce market risk and volatility in
principal transactions revenues.
Risk Management monitors the Corporation's exposure to potential losses in
the value of its trading inventories due to adverse market movements. Risk
Management is headed by a Senior Vice President, who is a member of the
Executive Management Committee and reports directly to the President and Chief
Operating Officer. Risk Management sets and monitors all trading limits,
actively monitors trading and inventory exposures, approves new products in
conjunction with the Corporation's new product review process, and has the
authority to require changes in limits and specific trading desk exposures or
to veto proposed transactions.
Risk Management is organized along product lines with independent
professionals responsible for maintaining daily contact with specific trading
areas. Trading systems and complementary risk monitoring systems allow these
professionals to track established limit levels and exposures. Certain classes
of transactions, including new financial products, proposed equity, emerging
market, and high-yield underwritings, and bridge loans are subject to prior
approval from Risk Management.
Trading limits are customized for each product. Existing trading positions
are regularly compared with limits established by Risk Management. In addition,
individual product areas have established more specific trading limits. Risk
Management information systems monitor compliance with trading limits.
Trading systems are designed to assist traders in mitigating market and
other risks prevalent in trading. Risk Management also has access to trading
systems to allow for monitoring of positions and for performing computerized
analytics on various market situations and conditions.
Risk Management uses an analytical technique known as stress simulations
to measure and monitor exposure to market risk across all trading areas.
Stress simulations estimate gains or losses each trading area could experience
under both moderate and severe market movements.
--------------------
17
<PAGE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Each simulation considers a specific change in interest rates, credit
spreads, equity prices, foreign exchange rates, commodity prices, or
volatilities, holding all other variables constant. Each trading area provides
Risk Management with daily information on the expected gain or loss from these
different stress scenarios. Based on these simulations, market risks can be
monitored firmwide and portfolios rebalanced, as necessary.
Stress simulations provide hypothetical results under different market
scenarios. The Corporation, however, views actual results as the best
indicator of risk management performance. Analyzing actual net product
revenues over time best illustrates the Corporation's tolerance for risk and
the effectiveness of its risk management strategies. The nature of the
Corporation's trading-related activities, principally client order flow,
combined with its risk management strategies, helps reduce volatility in net
product revenues. A distribution of weekly net product revenues (primarily
principal transactions revenues, net interest, and selling concessions) for the
last two years prior to the balance sheet date is presented in the graph below.
- --------------------------------------------------------------------------------
Graph titled "DISTRIBUTION OF WEEKLY NET REVENUES BY PRODUCT"
Presented is a bar graph showing Merrill Lynch & Co. Inc.'s distribution of
weekly net product revenues by product for the past two years. The graph
illustrates the number of weeks that net product revenues (primarily principal
transactions revenues, net interest, and selling concessions) fell within the
specified dollar ranges for each product presented below.
<TABLE>
<CAPTION>
$(10)-0 $0-20 $20-40 $40-60 over $60
<S> <C> <C> <C> <C> <C>
Foreign Exchange & Commodities 16 89 0 0 0
Municipals 2 103 0 0 0
Interest Rate & Currency Swaps 3 91 11 0 0
Equities & Equity Derivatives 0 6 57 34 8
Taxable Fixed-Income 1 11 53 30 10
</TABLE>
- --------------------------------------------------------------------------------
Credit Risk
Credit risk, the risk that a counterparty will fail to perform under its
contractual commitments, is monitored primarily by Corporate Credit in
conjunction with business unit personnel. Corporate Credit is headed by a
Senior Vice President who reports directly to the Executive Vice President
responsible for Corporate Strategy, Credit, and Research.
Corporate Credit is centralized and organized geographically, and within
each region, along industry lines. Credit officers perform credit analysis,
set credit limits by country and by counterparty, approve specific
transactions, recommend credit reserves, manage credit exposures, and
participate in the new product review process. Credit analysis, in many cases,
is enhanced by due diligence meetings with counterparties. Many types of
transactions, including most derivatives, are reviewed and subject to prior
approval from Corporate Credit.
Within Corporate Credit, prescribed levels of authority have been
established for approval of standard transactions. Required authority levels
are governed by the counterparty's credit quality, as well as the maturity and
potential risk of the transaction. Transactions which exceed prescribed levels
must be approved by the Credit Committee, which is composed of several
Directors of Credit and the Chief Credit Officer.
The credit system tracks information from automated and manual sources.
This system aggregates credit exposure with each counterparty for various
legal entities and maintains overall counterparty limits, specific product
limits, and identifies limit review dates by counterparty. Detailed
information on firmwide inventory positions and transactions executed,
including current and potential credit exposure, is updated frequently and
compared with limits. Collateral, which reduces the Corporation's credit
exposure, is obtained as needed and tracked on the credit system. The system
enables Corporate Credit, in conjunction with the business units, to monitor
counterparty, product, industry, country, and credit quality
concentrations.
Corporate Credit also monitors credit exposures related to the
Corporation's loan services, including mortgages and home equity lines of
credit, customer margin accounts, extensions of credit to high-net-worth
individuals, and working capital facilities to small businesses, as well as
merchant banking-related activities from prior periods. Reserves are estimated
based on specific identification of exposures, formulas, and aging
analyses.
--------------------
18
<PAGE>
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
- --------------------------------------------------------------------------------
Concentration Risk
Concentration risk, the risk that the Corporation's businesses will be
dependent upon a single source of revenue, product, or market, is periodically
reviewed as part of the Corporation's ongoing strategic and business planning
process. In recent years, the Corporation has diversified its revenue sources
to ensure that it is less dependent on any single financial product, customer
base, or market to generate revenues.
- --------------------------------------------------------------------------------
Graph titled "FEE-BASED REVENUES AS A PERCENTAGE OF FIXED AND SEMI-FIXED
EXPENSES"
Presented is a bar graph showing Merrill Lynch & Co., Inc.'s fee-based revenues
as a percentage of fixed and semi-fixed expenses. The graph is presented in
millions with fixed and semi-fixed expenses of $3,392, $3,338, $3,656, $4,103,
and $4,320 for the years ended 1990 through 1994 respectively. Fee-based
revenues as a percentage of fixed and semi-fixed expenses are expressed as lines
across the bars and were 43%, 51%, 55%, 59%, and 68% for the years ended 1990
through 1994, respectively. Fee-based revenues include principally asset
management and portfolio service fees and net margin interest.
- --------------------------------------------------------------------------------
Operational Risk
Operational risk focuses on the Corporation's ability to accumulate, process,
and communicate information necessary to conduct business in a global market
environment. These risks are monitored on both a local and centralized basis.
Central to management of its operational risk, the Corporation maintains
backup facilities worldwide. Information systems provide operational risk
assessments on transactions in major markets. This technology allows the
Corporation to promptly respond to changing market conditions worldwide. As
required, systems and equipment are updated for changes in technology. This
enables the Corporation to compete effectively in the dynamic financial
services industry. Exception reports are also used to manage operational risk,
highlight reconciliation issues, and enable the Corporation to identify
instances where additional collateral is required. These reports also help
identify potential business risk exposures and promote compliance with both
internal management policies and regulatory requirements. Operations personnel
provide support and control for trading, clearance, and settlement activities,
and perform custodial functions for customer and proprietary assets.
Operations personnel who are responsible for entering trades report to an
operations or business manager, not to the traders.
Reserves for operational errors are established based on the nature of the
transaction and specific identification of exposure. Many of these reserves
are based on an aging analysis. Reserves on dividend and interest receivables,
for example, gradually accrete to 100% over specified time frames in accordance
with internal guidelines. Other operational exposures related to processing
errors are analyzed for potential reserves on a case-by-case basis.
--------------------
19
<PAGE>
================================================================================
STATEMENTS OF CONSOLIDATED EARNINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Last Friday in December
-------------------------------------
(Dollars in Thousands,
Except Per Share Amounts) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
(52 Weeks) (53 Weeks) (52 Weeks)
<S> <C> <C> <C>
REVENUES
Commissions $ 2,870,541 $ 2,894,228 $ 2,422,084
Interest and dividends 9,577,561 7,099,155 5,806,710
Principal transactions 2,334,924 2,920,439 2,165,725
Investment banking 1,239,465 1,831,253 1,484,067
Asset management and portfolio service fees 1,739,452 1,557,778 1,252,829
Other 471,148 285,324 281,253
----------- ----------- -----------
Total Revenues 18,233,091 16,588,177 13,412,668
Interest Expense 8,608,570 6,029,947 4,835,267
----------- ----------- -----------
NET REVENUES 9,624,521 10,558,230 8,577,401
----------- ----------- -----------
NON-INTEREST EXPENSES
Compensation and benefits 4,951,839 5,255,258 4,364,454
Occupancy 436,168 572,936 477,754
Communications and equipment rental 432,214 385,809 366,161
Depreciation and amortization 325,121 308,499 281,228
Advertising and market development 374,619 376,881 301,146
Professional fees 367,003 290,324 256,887
Brokerage, clearing, and exchange fees 337,512 280,712 277,166
Other 670,441 663,003 631,216
----------- ----------- -----------
TOTAL NON-INTEREST EXPENSES 7,894,917 8,133,422 6,956,012
----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES 1,729,604 2,424,808 1,621,389
Income tax expense 712,843 1,030,449 668,984
----------- ----------- -----------
EARNINGS BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 1,016,761 1,394,359 952,405
Cumulative Effect of Changes in Accounting Principles
(net of applicable income taxes of $25,075 in 1993 and $55,291 in 1992) -- (35,420) (58,580)
----------- ----------- -----------
NET EARNINGS $ 1,016,761 $ 1,358,939 $ 893,825
=========== =========== ===========
NET EARNINGS APPLICABLE TO COMMON STOCKHOLDERS $ 1,004,050 $ 1,353,558 $ 887,486
=========== =========== ===========
- --------------------------------------------------------------------------------------------------------------------
PRIMARY EARNINGS PER COMMON SHARE
Earnings Before Cumulative Effect of Changes in Accounting Principles $ 4.75 $ 6.14 $ 4.18
Cumulative Effect of Changes in Accounting Principles -- (.16) (.26)
----------- ----------- -----------
NET EARNINGS $ 4.75 $ 5.98 $ 3.92
=========== =========== ===========
FULLY DILUTED EARNINGS PER COMMON SHARE
Earnings Before Cumulative Effect of Changes in Accounting Principles $ 4.74 $ 6.11 $ 4.17
Cumulative Effect of Changes in Accounting Principles -- (.16) (.26)
----------- ----------- -----------
NET EARNINGS $ 4.74 $ 5.95 $ 3.91
=========== =========== ===========
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
--------------------
20
<PAGE>
================================================================================
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 30, December 31,
-------------------------------
(Dollars in Thousands,
Except Per Share Amounts) 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS $ 2,311,743 $ 1,783,408
------------ ------------
CASH AND SECURITIES SEGREGATED FOR REGULATORY PURPOSES OR DEPOSITED WITH CLEARING
ORGANIZATIONS 4,953,062 4,069,424
------------ ------------
MARKETABLE INVESTMENT SECURITIES 2,325,453 1,749,254
------------ ------------
TRADING ASSETS, AT FAIR VALUE
Corporate debt and preferred stock 14,818,157 15,758,207
Contractual agreements 9,519,105 1,005,877
U.S. Government and agencies 8,196,584 7,287,081
Non-U.S. governments and agencies 6,468,341 9,260,725
Equities and convertible debentures 6,263,492 6,806,539
Mortgages and mortgage-backed 5,223,809 6,486,464
Municipals 1,291,688 1,606,097
Money markets 957,589 3,337,839
------------ ------------
TOTAL 52,738,765 51,548,829
------------ ------------
RESALE AGREEMENTS 44,459,036 38,137,528
------------ ------------
SECURITIES BORROWED 20,993,302 19,001,061
------------ ------------
RECEIVABLES
Customers (net of allowance for doubtful accounts of $42,290 in 1994 and
$47,953 in 1993) 14,030,466 13,242,875
Brokers and dealers 6,486,879 7,292,332
Interest and other 4,360,693 2,758,768
------------ ------------
TOTAL 24,878,038 23,293,975
------------ ------------
INVESTMENTS OF INSURANCE SUBSIDIARIES 5,719,345 7,841,444
LOANS, NOTES, AND MORTGAGES (NET OF ALLOWANCE FOR LOAN LOSSES OF $180,799 IN 1994 AND
$142,414 IN 1993) 1,586,718 2,083,553
OTHER INVESTMENTS 887,626 873,806
PROPERTY, LEASEHOLD IMPROVEMENTS, AND EQUIPMENT (NET OF ACCUMULATED DEPRECIATION AND
AMORTIZATION OF $1,867,476 IN 1994 AND $1,677,334 IN 1993) 1,587,639 1,506,964
OTHER ASSETS 1,308,600 1,021,116
------------ ------------
TOTAL ASSETS $163,749,327 $152,910,362
============ ============
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
--------------------
21
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 30, December 31,
-------------------------------
1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
REPURCHASE AGREEMENTS $ 51,864,594 $ 56,418,148
------------ ------------
COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS 26,439,645 23,214,329
------------ ------------
TRADING LIABILITIES, AT FAIR VALUE
U.S. Government and agencies 15,989,928 12,183,271
Contractual agreements 8,381,946 351,025
Non-U.S. governments and agencies 4,009,757 1,762,154
Equities and convertible debentures 3,990,146 3,953,850
Corporate debt and preferred stock 2,564,192 3,226,031
Municipals 165,906 184,041
------------ ------------
TOTAL 35,101,875 21,660,372
------------ ------------
CUSTOMERS 11,608,891 13,571,379
INSURANCE 5,689,513 7,405,673
BROKERS AND DEALERS 4,637,957 4,862,584
OTHER LIABILITIES AND ACCRUED INTEREST 7,725,924 6,823,064
LONG-TERM BORROWINGS 14,863,383 13,468,900
------------ ------------
TOTAL LIABILITIES 157,931,782 147,424,449
------------ ------------
STOCKHOLDERS' EQUITY
Preferred Stockholders' Equity 618,800 193,800
------------ ------------
Common Stockholders' Equity
Common stock, par value $1.33 1/3 per share; authorized: 500,000,000 shares;
issued: 1994 and 1993--236,330,162 shares 315,105 315,105
Paid-in capital 1,196,093 1,156,367
Foreign currency translation adjustment 3,703 (18,305)
Net unrealized (losses) gains on investment securities available-for-sale (net of
applicable income tax (benefit) expense of $(30,924) in 1994 and $12,493 in 1993) (56,957) 21,355
Retained earnings 5,605,616 4,777,142
------------ ------------
Subtotal 7,063,560 6,251,664
Less:
Treasury stock, at cost:
1994--48,423,944 shares
1993--23,408,139 shares 1,627,108 695,788
Unallocated ESOP reversion shares, at cost:
1994-- 6,427,091 shares
1993-- 8,932,332 shares 101,227 140,684
Employee stock transactions 136,480 123,079
------------ ------------
TOTAL COMMON STOCKHOLDERS' EQUITY 5,198,745 5,292,113
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 5,817,545 5,485,913
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $163,749,327 $152,910,362
============ ============
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
--------------------
22
<PAGE>
================================================================================
STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Last Friday in December
--------------------------------------
(Dollars in Thousands,
Except Per Share Amounts) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKHOLDERS' EQUITY
9% CUMULATIVE PREFERRED STOCK, SERIES A
$10,000 LIQUIDATION PREFERENCE PER SHARE
Balance, beginning of year $ -- $ -- $ --
Issued (42,500 shares in 1994) 425,000 -- --
---------- ---------- ----------
BALANCE, END OF YEAR (42,500 SHARES IN 1994) 425,000 -- --
---------- ---------- ----------
REMARKETED PREFERRED STOCK, SERIES C
$100,000 LIQUIDATION PREFERENCE PER SHARE
Balance, beginning and end of year (3,000 shares in 1994,
1993, and 1992) 300,000 300,000 300,000
---------- ---------- ----------
REMARKETED PREFERRED TREASURY STOCK, AT COST
Balance, beginning of year (1,062 shares in 1994 and 1993;
945 shares in 1992) (106,200) (106,200) (94,500)
Treasury stock purchased (117 shares in 1992) -- -- (11,700)
---------- ---------- ----------
BALANCE, END OF YEAR (1,062 SHARES IN 1994, 1993,
AND 1992) (106,200) (106,200) (106,200)
---------- ---------- ----------
BALANCE, END OF YEAR 193,800 193,800 193,800
---------- ---------- ----------
TOTAL PREFERRED STOCKHOLDERS' EQUITY $ 618,800 $ 193,800 $ 193,800
========== ========== ==========
COMMON STOCKHOLDERS' EQUITY
COMMON STOCK, PAR VALUE $1.33 1/3
Balance, beginning of year (236,330,162 shares in 1994;
234,692,848 in 1993 and 1992) $ 315,105 $ 312,922 $ 312,922
Issued for employee benefit plans (1,637,314 shares in 1993) -- 2,183 --
---------- ---------- ----------
BALANCE, END OF YEAR (236,330,162 SHARES IN 1994
AND 1993; 234,692,848 IN 1992) $ 315,105 $ 315,105 $ 312,922
========== ========== ==========
PAID-IN CAPITAL
Balance, beginning of year $1,156,367 $1,081,469 $999,612
Issuance of stock:
To employees (9,290) (2,456) (6,116)
For other activity, including employee stock grants 12,827 13,645 56,326
To ESOP (including allocation of shares in 1994, 1993,
and 1992) 36,189 63,709 31,647
---------- ---------- ----------
BALANCE, END OF YEAR $1,196,093 $1,156,367 $1,081,469
========== ========== ==========
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance, beginning of year $ (18,305) $ (6,129) $ 10,219
Translation adjustment (a) 22,008 (12,176) (16,348)
---------- ---------- ----------
BALANCE, END OF YEAR $ 3,703 $ (18,305) $ (6,129)
========== ========== ==========
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
--------------------
23
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Last Friday in December
--------------------------------------
1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET UNREALIZED (LOSSES) GAINS ON INVESTMENT SECURITIES
AVAILABLE-FOR-SALE (NET OF APPLICABLE INCOME TAXES)
Balance, beginning of year $ 21,355 $ -- $ --
Net unrealized (losses) gains on investment securities
available-for-sale (410,068) 254,030 --
Other adjustments (b) 331,756 (232,675) --
----------- ---------- ----------
BALANCE, END OF YEAR $ (56,957) $ 21,355 $ --
=========== ========== ==========
RETAINED EARNINGS
Balance, beginning of year $ 4,777,142 $3,570,980 $2,803,392
Net earnings 1,016,761 1,358,939 893,825
Cash dividends declared:
9% Cumulative Preferred stock (6,163) -- --
Remarketed Preferred stock (6,391) (5,290) (6,745)
Common stock ($.89 per share in 1994; $.70 in 1993;
$.575 in 1992) (175,733) (147,487) (119,492)
----------- ---------- ----------
BALANCE, END OF YEAR $ 5,605,616 $4,777,142 $3,570,980
=========== ========== ==========
COMMON TREASURY STOCK, AT COST
Balance, beginning of year (23,408,139 shares in 1994;
16,288,488 in 1993; 15,612,392 in 1992) $ (695,788) $ (286,599) $ (167,507)
Treasury stock purchased (29,988,523 shares in 1994;
16,345,568 in 1993; 10,653,858 in 1992) (1,138,467) (695,431) (259,526)
Issued out of treasury (net of reacquisitions):
Employees (1,026,321 shares in 1994; 955,391 in 1993;
1,272,014 in 1992) 42,509 33,299 34,421
Employee stock grants (3,946,397 shares in 1994;
8,270,526 in 1993; 8,705,748 in 1992) 164,638 252,943 106,013
----------- ---------- ----------
BALANCE, END OF YEAR (48,423,944 SHARES IN 1994;
23,408,139 IN 1993; 16,288,488 IN 1992) $(1,627,108) $ (695,788) $ (286,599)
=========== ========== ==========
UNALLOCATED ESOP REVERSION SHARES, AT COST
Balance, beginning of year (8,932,332 shares in 1994;
11,201,672 in 1993; 13,636,820 in 1992) $ (140,684) $ (176,426) $ (214,780)
Allocation of shares to participants (2,505,241 shares in 1994;
2,269,340 in 1993; 2,435,148 in 1992) 39,457 35,742 38,354
----------- ---------- ----------
BALANCE, END OF YEAR (6,427,091 SHARES IN 1994;
8,932,332 IN 1993; 11,201,672 IN 1992) $ (101,227) $ (140,684) $ (176,426)
=========== ========== ==========
EMPLOYEE STOCK TRANSACTIONS
Balance, beginning of year $ (123,079) $ (120,913) $ (131,270)
Net issuance of employee stock grants (120,512) (115,251) (105,342)
Amortization of employee stock grants 100,367 106,867 109,908
Repayment of employee loans 6,744 6,218 5,791
----------- ---------- ----------
BALANCE, END OF YEAR $ (136,480) $ (123,079) $ (120,913)
=========== ========== ==========
TOTAL COMMON STOCKHOLDERS' EQUITY $ 5,198,745 $5,292,113 $4,375,304
=========== ========== ==========
TOTAL STOCKHOLDERS' EQUITY $ 5,817,545 $5,485,913 $4,569,104
=========== ========== ==========
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Net of income tax (expense) benefit of $(7,513) in 1994, $(1,837) in 1993,
and $386 in 1992.
(b) Other adjustments consist of policyholder liabilities, deferred policy
acquisition costs, and deferred income taxes.
See Notes to Consolidated Financial Statements
--------------------
24
<PAGE>
================================================================================
STATEMENTS OF CONSOLIDATED CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Last Friday in December
------------------------------------------
(Dollars in Thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 1,016,761 $ 1,358,939 $ 893,825
Noncash items included in earnings:
Cumulative effect of changes in accounting principles -- 35,420 58,580
Depreciation and amortization 325,121 308,499 281,228
Policyholder reserves 353,871 516,741 624,012
Other 658,372 683,276 795,220
(Increase) decrease in operating assets:
Trading assets 6,610,064 (19,829,640) (6,794,804)
Cash and securities segregated for regulatory purposes or
deposited with clearing organizations (883,638) (644,713) (70,120)
Securities borrowed (1,992,241) (5,435,258) (1,734,088)
Customers (826,440) (3,481,056) (2,409,415)
Maturities and sales of trading investment securities 197,376 -- --
Purchases of trading investment securities (213,040) -- --
Other (272,544) (3,708,028) (550,705)
Increase (decrease) in operating liabilities:
Trading liabilities 5,641,503 7,088,268 4,977,122
Customers (1,962,488) 3,673,980 (340,505)
Insurance (1,855,494) (2,028,539) (1,221,883)
Other 607,296 4,354,789 276,785
------------ ------------ ------------
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 7,404,479 (17,107,322) (5,214,748)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from (payments for):
Maturities of available-for-sale securities 2,609,577 -- --
Sales of available-for-sale securities 1,377,234 -- --
Purchases of available-for-sale securities (2,296,355) -- --
Maturities of held-to-maturity securities 1,964,580 -- --
Purchases of held-to-maturity securities (2,536,824) -- --
Maturities and sales of investments by insurance subsidiaries -- 3,983,077 3,904,587
Purchases of investments by insurance subsidiaries -- (2,438,571) (3,304,652)
Marketable investment securities -- (575,284) (828,647)
Other investments and other assets (390,651) (176,322) 344,263
Property, leasehold improvements, and equipment (405,796) (406,348) (131,246)
------------ ------------ ------------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 321,765 386,552 (15,695)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments for):
Repurchase agreements, net of resale agreements (10,875,062) 10,872,443 (1,770,519)
Commercial paper and other short-term borrowings 3,225,316 4,445,206 4,593,854
Issuance and resale of long-term borrowings 10,352,802 7,861,813 6,773,739
Settlement and repurchases of long-term borrowings (9,089,491) (5,263,104) (3,861,745)
Issuance of 9% Cumulative Preferred stock 425,000 -- --
Repurchases of Remarketed Preferred stock -- -- (11,700)
Common stock transactions (1,048,187) (510,975) (189,301)
Dividends (188,287) (152,777) (126,237)
------------ ------------ ------------
CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (7,197,909) 17,252,606 5,408,091
------------ ------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 528,335 531,836 177,648
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,783,408 1,251,572 1,073,924
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,311,743 $ 1,783,408 $ 1,251,572
============ ============ ============
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Supplemental Disclosure of Cash Flow Information
Cash paid for:
Income taxes totaled $1,189,999 in 1994, $1,031,980 in 1993, and $590,481 in
1992.
Interest totaled $8,452,103 in 1994, $5,788,218 in 1993, and $4,753,336 in 1992.
See Notes to Consolidated Financial Statements
--------------------
25
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
================================================================================
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Merrill Lynch & Co., Inc. has established comprehensive accounting policies for
the parent company and its subsidiaries. These policies, which incorporate
prevailing industry practices, are in accordance with generally accepted
accounting principles and provide guidance on the recognition of revenues and
expenses, the valuation of assets, and the recording of liabilities and
reserves. A description of significant accounting policies follows.
- --------------------------------------------------------------------------------
Basis of Presentation
The consolidated financial statements 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.
Certain limited classification and format changes have been implemented in
the 1994 consolidated financial statements. Prior years' financial statements
have been reclassified to conform to the 1994 presentation.
- --------------------------------------------------------------------------------
Trading Instruments
Trading assets and trading liabilities, including commitments for securities
sold but not yet purchased, are recorded on a trade date basis at fair value.
Fair value is based on quoted market prices, pricing models (utilizing
indicators of general market conditions or other economic measurements), or
management's estimates of amounts to be realized on settlement, assuming
current market conditions and an orderly disposition over a reasonable period of
time.
Derivative financial instruments include futures, forwards, options, and
swaps including swap options, caps, collars, and floors. Derivatives held for
trading or to hedge trading inventory positions are marked-to-market daily.
Market values for exchange-traded derivatives, principally futures and certain
options, are based on quoted market prices. Market values for over-the-counter
("OTC") derivative financial instruments, principally forwards, options, and
swaps, are based on pricing models using mid-market valuations adjusted, as
required, to reflect amounts which would be received from or paid to a third
party in settlement of the contracts. These adjustments are integral components
of the mark-to-market process and relate to credit spreads, market liquidity,
concentrations, close-out costs associated with unmatched positions, and funding
and administrative costs incurred over the life of the instrument.
Unrealized gains and losses from derivative transactions are reported
separately as assets and liabilities unless a legal right of setoff exists under
a master netting arrangement enforceable at law. Balances related to swap and
forward transactions and foreign currency options are included in "Contractual
agreements" on the Consolidated Balance Sheets. All other contract balances are
recorded with the related trading asset or liability. The fair value of equity
options purchased, for example, is recorded in the "Equities and convertible
debentures" trading asset caption.
The Corporation enters into when-issued and delayed delivery transactions.
Unrealized gains and losses from these transactions are recorded in the related
trading asset or liability account, respectively.
Principal transactions revenues are recognized on a trade date basis and
include net unrealized gains or losses from marking-to-market trading
instruments, including derivative contracts, when-issued and delayed delivery
transactions, and hedge positions related to trading activities. Realized
trading gains and losses and the interest amounts on the related instruments are
also included in current period earnings as principal transactions revenues and
interest revenues and expenses, respectively.
- --------------------------------------------------------------------------------
Financing and Related Activities
The Corporation's objective is to match-fund the interest sensitivity of its
assets and liabilities. Funding is principally obtained from commercial paper,
repurchase agreements, and long-term borrowings. The Corporation uses derivative
financial instruments to manage interest rate, foreign currency, and other
exposures. Derivatives which modify the interest rate characteristics of
specified assets and liabilities are accounted for on an accrual basis, with
amounts to be paid or received recognized as adjustments to interest income or
expense. Realized gains and losses on early terminations of interest rate
contracts are deferred and amortized over the remaining lives of the hedged
assets or liabilities. Unrealized gains and losses on all other derivatives are
recognized currently. At December 30, 1994, there were no deferred amounts
related to terminated contracts.
Repurchase and resale agreements are accounted for as collateralized
financing transactions and are recorded at their contractual amounts, plus
accrued interest. The Corporation's policy is to obtain possession of collateral
with a market value equal to or in excess of the principal amount loaned under
resale agreements. Collateral is valued daily and the Corporation may require
counterparties to deposit additional collateral or return collateral pledged,
when appropriate, to ensure that the market value of the underlying collateral
remains sufficient.
Securities borrowed and securities loaned are recorded at the amount of
cash collateral advanced or received. Securities borrowed transactions require
the Corporation to provide the counterparty with collateral in the form of cash,
letters of credit, or other securities. The Corporation receives collateral in
the form of cash or other securities for securities loaned transactions. For
cash and noncash collateral transactions, the fee received or paid by the
Corporation is recorded in the Statements of Consolidated Earnings as interest
income or interest expense. The Corporation monitors the market value of
securities borrowed or loaned against the collateral value daily.
Substantially all collateralized financing activities are transacted under
master netting agreements which give the Corporation the right, in the event of
default, to liquidate collateral held and to setoff receivables and payables
with the same counterparty. For financial reporting purposes, the
--------------------
26
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in Thousands, Except Per Share Amounts)
Corporation offsets certain receivables and payables with the same counterparty
on the Consolidated Balance Sheets.
- --------------------------------------------------------------------------------
Investment Securities
The Corporation holds debt and equity investments principally in non-broker-
dealer subsidiaries. These investments are classified as held-to-maturity,
trading, or available-for-sale. Held-to-maturity investments are debt securities
which the Corporation has the positive intent and ability to hold to maturity.
These investments are recorded at amortized cost unless a decline in value is
deemed other than temporary, in which case the carrying value is adjusted. The
amortization of premium or accretion of discount, as well as any unrealized loss
deemed other than temporary, is included in current period earnings.
Debt and equity securities purchased principally for the purpose of resale
in the near term are recorded as trading investments at fair value. Unrealized
gains or losses on these investments are included in earnings of the current
period.
Other debt and equity securities which are not categorized as held-to-
maturity or trading are classified as available-for-sale and reported at fair
value. Unrealized gains or losses on these securities are reported as a separate
component of stockholders' equity, net of applicable income taxes and other
related items.
Restricted equity investment securities or equity investment securities
without available market quotations are reported at the lower of cost or
estimated net realizable value. Realized gains and losses and unrealized losses
resulting from adjustments in carrying values are included in current period
earnings.
The Corporation periodically reviews its investment securities for
appropriate classification. Investment securities transferred among categories,
although infrequent, are recorded at fair value. The cost basis of each
investment sold is specifically identified for purposes of computing realized
gains and losses.
- --------------------------------------------------------------------------------
Commissions and Related Expenses
Commissions charged for executing customer transactions are accrued on a trade
date basis and included in current period earnings. Production-related
compensation and benefits expense is accrued to match revenue recognition.
- --------------------------------------------------------------------------------
Investment Banking
Underwriting revenues and fees for mergers and acquisitions and advisory
assignments are recorded when services for the transaction are substantially
completed. Deal-related expenses are deferred and later expensed to match
revenue recognition.
- --------------------------------------------------------------------------------
Income Taxes
Merrill Lynch & Co., Inc. and certain of its wholly owned subsidiaries file a
consolidated Federal income tax return. The Corporation uses the asset and
liability method in providing income taxes on all transactions that have been
recognized in the consolidated financial statements. The asset and liability
method requires that deferred taxes be adjusted to reflect the tax rates at
which future taxable amounts will be settled or realized. The effects of tax
rate changes on future deferred tax liabilities and deferred tax assets, as well
as other changes in income tax laws, are recognized in net earnings in the
period such changes are enacted. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be realized.
The Corporation does not provide for deferred income taxes on the undistributed
earnings of foreign subsidiaries that are considered to be permanent in
duration.
- --------------------------------------------------------------------------------
Property, Leasehold Improvements, and Equipment
Property (excluding land), leasehold improvements, and equipment are reported
at historical cost, net of accumulated depreciation and amortization. Land is
reported at historical cost.
Depreciation and amortization are computed using the straight-line method.
Property and equipment are depreciated over the estimated useful lives of the
assets, while leasehold improvements are amortized over the lesser of the
estimated economic useful life of the asset or the term of the lease. Most of
the Corporation's fixed assets are technology-based and have shorter lives,
generally three to five years. Maintenance and repair costs are expensed as
incurred.
Facilities-related depreciation and amortization expense was $135,485,
$140,340, and $130,448 in 1994, 1993, and 1992, respectively. Non-facilities-
related depreciation and amortization expense for 1994, 1993, and 1992 was
$189,636, $168,159, and $150,780, respectively.
- --------------------------------------------------------------------------------
Insurance
Insurance liabilities are future benefits payable under annuity and interest-
sensitive life contracts and include deposits received plus interest credited
during the contract accumulation period, the present value of future payments
for contracts which have annuitized, and a mortality provision for certain
products. Certain policyholder liabilities are also adjusted for those
investments classified as available-for-sale (see discussion that follows).
Interest crediting rates range from 2.8% to 10.0%. Liabilities for unpaid claims
and claim adjustment expenses are based on the experience of the Corporation.
Policy deposits are recorded as insurance liabilities when received. Policy
withdrawal, maintenance, and other fees are recognized as revenue when earned.
Substantially all investments of insurance subsidiaries, principally debt
securities, are classified as available-for-sale and recorded at fair value.
These investments support the Corporation's in-force, universal life-type
contracts as defined by Statement of Financial Accounting Standards ("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." The Corporation records an adjustment to deferred acquisition
costs and policyholder account balances which, when combined, are equal to the
adjustment that would have been recorded if those available-for-sale investments
had been sold at their estimated
--------------------
27
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in Thousands, Except Per Share Amounts)
fair values and the proceeds reinvested at current yields. The corresponding
credits or charges for these adjustments are recorded as unrealized gains or
losses in stockholders' equity, net of applicable income tax expense or benefit.
Prior to December 31, 1993, these investments were recorded at amortized cost.
Certain variable costs related to the sale or acquisition of new and
renewal insurance contracts have been deferred to the extent such costs are
deemed recoverable from future income. Deferred costs are amortized, based on
actuarial factors, over the lives of the contracts in proportion to the
estimated gross profit expected to be realized for each group of contracts.
The Corporation maintains separate accounts representing segregated funds
held for purposes of funding variable annuity and variable life contracts.
Subsidiaries of the Corporation receive various administrative and advisory fees
for managing such funds. Separate account assets are accounted for as customer
assets since the contract holders bear the risk of ownership, consistent with
the Corporation's other investment products. Accordingly, separate account
assets and the related liabilities are not consolidated with the assets and
liabilities of the Corporation.
- --------------------------------------------------------------------------------
Translation of Foreign Currencies
Assets and liabilities of foreign subsidiaries are translated at year-end
currency exchange rates, while revenues and expenses are translated at average
currency exchange rates during the year. Adjustments that result from
translating foreign currency financial statements, net of hedging gains or
losses and related tax effects, are reported as a separate component of
stockholders' equity. Gains or losses resulting from the effect of exchange rate
changes on foreign currency transactions are included in earnings of the current
period.
- --------------------------------------------------------------------------------
Cash Flows
For purposes of the Statements of Consolidated Cash Flows, the Corporation
defines cash equivalents as short-term, highly liquid securities and interest-
earning deposits with original maturities of less than 90 days.
- --------------------------------------------------------------------------------
Interest Expense
Interest expense includes payments in lieu of dividends of $22,738, $21,436, and
$12,556 in 1994, 1993, and 1992, respectively.
================================================================================
OTHER SIGNIFICANT EVENTS
Accounting Changes
On January 1, 1994, the Corporation adopted FASB Interpretation ("Interpreta-
tion") No. 39, "Offsetting of Amounts Related to Certain Contracts."
Interpretation No. 39 affects the financial statement presentation of balances
related to swap, forward, and other similar exchange or conditional type
contracts, and unconditional type contracts. The Corporation is generally
required to report separately on the Consolidated Balance Sheets unrealized
gains as assets, and unrealized losses as liabilities. For exchange or
conditional contracts, netting is permitted only when a legal right of setoff
exists with the same counterparty under a master netting arrangement enforceable
at law. To offset unconditional contracts, such as resale and repurchase
agreements, net cash settlement of the related receivable and payable balances
is also required by Interpretation No. 39, as modified by Interpretation No. 41,
"Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase
Agreements."
Prior to the adoption of these Interpretations, the Corporation followed
industry practice in reporting balances related to certain types of contracts on
a net basis. Unrealized gains and losses for swap, forward, and other similar
contracts were reported net on the Consolidated Balance Sheets by contract type,
while certain receivables and payables related to resale and repurchase
agreements were reported net by counterparty. At December 30, 1994, assets and
liabilities increased approximately $8,500,000 for the effect of these
Interpretations.
In 1993, the Corporation adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," and SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities."
SFAS No. 112 establishes accrual accounting standards for employer-provided
benefits which cover former or inactive employees after employment but before
retirement ("postemployment benefits"). Prior to 1993, the Corporation
accounted for such costs on a modified "pay-as-you-go" basis. The cumulative
effect of this change in accounting principle reported in the 1993 Statement of
Consolidated Earnings resulted in a charge of $35,420 (net of applicable income
tax benefits of $25,075). The incremental effect of adopting SFAS No. 112 on the
1993 results of operations was not material.
SFAS No. 115 requires certain subsidiaries of the Corporation, principally
insurance and banking, to classify their investments in debt and qualifying
equity securities into three categories: held-to-maturity, trading, or
available-for-sale. Prior to adoption, these subsidiaries recorded investments
in debt securities at amortized cost and investments in equity securities at the
lower of cost or estimated net realizable value. At December 31, 1993, the
increase to stockholders' equity for available-for-sale investments totaled
$21,355 (net of $12,493 applicable income taxes). The impact of trading
investments on the Corporation's financial statements was not material.
In 1992, the Corporation adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting for
Income Taxes."
SFAS No. 106 requires accrual accounting for postretirement benefits,
primarily health care and life insurance benefits. The cumulative effect of this
change in accounting principle, reported in the 1992 Statement of Consolidated
Earnings, resulted in a charge of $76,354 (net of related income tax benefits of
$55,291). The adoption of SFAS No. 106 increased compensation and benefits
expense in 1992 by $8,500.
SFAS No. 109 changed the conditions under which deferred tax assets are
recognized. The cumulative effect of this change in accounting principle
reported in the 1992
--------------------
28
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in Thousands, Except Per Share Amounts)
Statement of Consolidated Earnings was an increase to earnings of $17,774, and
related principally to recognition of deferred state and local tax benefits.
- --------------------------------------------------------------------------------
Occupancy Charge
The Corporation recorded a non-recurring pretax charge totaling $103,000
($59,700 after income taxes) in the 1993 first quarter. The non-recurring charge
related to the Corporation's decision not to occupy certain office space at its
World Financial Center Headquarters facility and, instead, to sublease the
unused space to third parties. This space was sublet in 1994.
================================================================================
TRADING ACTIVITIES
The Corporation trades both derivative and cash financial instruments. While
trading activities are primarily generated by client order flow, the Corporation
also takes proprietary positions in interest rate, foreign exchange, debt,
equity, and commodity instruments based on expectations of future market
movements and conditions. The Corporation's trading strategies rely on the joint
management of its client-driven and proprietary transactions, along with the
hedging and financing of these positions.
Detailed information on principal transactions revenues by product category
follows/(1)/:
<TABLE>
<CAPTION>
========================================================================
(In Millions) 1994 1993 1992
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Interest rate and currency swaps $ 749 $ 605 $ 390
Equities and equity derivatives 627 871 614
Taxable fixed-income 462 964 736
Municipals 388 322 268
Foreign exchange and commodities 109 158 158
------ ------ ------
TOTAL $2,335 $2,920 $2,166
====== ====== ======
- ------------------------------------------------------------------------
</TABLE>
/(1)/ The revenue amounts presented include gains and losses from cash
instruments and related derivatives, including swaps, forwards, futures,
and options.
Interest revenues and expense are integral components of trading
activities. In assessing the profitability of financial instruments, the
Corporation views net interest and principal transactions activity in the
aggregate. (See "Principal Transactions" section of Management's Discussion
and Analysis-unaudited for further information on the Corporation's net trading
results.)
================================================================================
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
Certain trading-related financial instruments have market and/or credit risk in
excess of amounts recorded on the Consolidated Balance Sheets. Financial
instruments with off-balance-sheet risk include derivatives, securities sold but
not yet purchased, and certain commitments.
SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments," defines a derivative as a futures, forward,
swap, or option contract, or other financial instrument with similar
characteristics. The SFAS No. 119 definition excludes all on-balance-sheet
receivables and payables, including those that "derive" their values or
contractually required cash flows from the price of some other security or
index, such as mortgage-backed securities, interest-only and principal-only
obligations, and indexed debt instruments. It also excludes option features
embedded in on-balance-sheet receivables or payables. Conversion features and
call provisions embedded in a convertible bond, for example, would not qualify
as a derivative under the SFAS No. 119 definition.
Derivative contracts often involve future commitments to exchange interest
payment streams, to purchase or sell other financial instruments (including
mortgage-backed securities) 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. Options can require the writer to purchase
or sell a specified financial instrument or commodity, or to make a cash payment
based on changes in a reference index or interest rate. Different forward
commitment and option terms can also be combined to meet specialized needs.
Interest rate caps and floors provide the purchaser with protection against
rising and falling interest rates, respectively. Interest rate collars combine a
cap and a floor, providing the purchaser with a predetermined interest rate
range. Swap options provide the purchaser with an option to enter into or to
cancel an existing swap contract in the future. The Corporation enters into
various derivative financial instruments to meet clients' needs and to manage
its own interest rate, currency, and market risks. (See "Derivative Financial
Instruments" and "Risk Management" sections of Management's Discussion and
Analysis-unaudited.)
- --------------------------------------------------------------------------------
Market Risk
Market risk is the potential change in value caused by movements in interest
rates, foreign exchange rates, or market prices of the underlying financial
instrument. The level of market risk is influenced by the volatility and
liquidity in the markets in which financial instruments are traded.
The Corporation seeks to control market risk by developing and refining
hedging strategies that correlate price and currency movements of trading
inventories and related hedges. In many cases, derivative financial instruments
are used to hedge other on- and off-balance-sheet transactions. The notional or
contractual amounts of derivative financial instruments provide only a measure
of involvement in these types of transactions and do not represent the amounts
subject to market risk.
A discussion of market risk related to derivative financial instruments
used for trading purposes by risk type and class of instrument as of December
30, 1994 follows.
Interest Rate Risk
Interest rate risk arises from the possibility that changes in interest rates
will affect the value of financial instruments. Interest rate swap contracts are
a common interest rate risk management tool. Eurodollar and U.S. Treasury
securities
--------------------
29
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in Thousands, Except Per Share Amounts)
futures are also effective in managing interest rate risk. The decision to
manage interest rate risk using futures or swap contracts, as opposed to buying
or selling short U.S. Treasury securities, depends on current market conditions
and funding considerations.
The table that follows summarizes the Corporation's derivative financial
instruments with interest rate risk:
<TABLE>
<CAPTION>
================================================================
(In Billions) NOTIONAL AMOUNT
- ----------------------------------------------------------------
<S> <C>
Swap agreements $653
Futures contracts $172
Options held $ 75
Options written $ 74
Forward contracts $ 29
- ----------------------------------------------------------------
</TABLE>
Included in interest rate swap agreements are caps, collars, and floors,
swap options, basis swaps, and leveraged swap contracts. Basis swaps are a type
of interest rate swap agreement where rates received and paid are variable based
on different index rates. Leveraged swaps are another type of interest rate swap
where changes in the variable rate are multiplied by a contractual leverage
factor, such as four times three-month LIBOR (London Interbank Offered Rate).
The Corporation's exposure to interest rate risk resulting from these leverage
factors is hedged with other financial instruments.
The forward contracts category principally contains "To Be Announced"
mortgage pools which bear interest rate as well as principal prepayment risk.
Currency Risk
Currency risk arises from the possibility that fluctuations in foreign exchange
rates will affect the value of financial instruments. Foreign exchange forwards
and options are commonly used to manage currency risk. Currency swaps are also
used primarily in situations where a long-dated forward market is not available
or where the end-user needs a customized instrument to hedge a foreign currency
cash flow stream. Parties to a currency swap initially exchange principal
amounts in two currencies, agreeing to exchange interest payments and to re-
exchange the currencies at a future date and agreed-upon rate.
The Corporation's derivative financial instruments with currency risk are
presented below:
<TABLE>
<CAPTION>
===============================================================
(In Billions) NOTIONAL AMOUNT
- ---------------------------------------------------------------
<S> <C>
Forward contracts $103
Swap agreements $ 73
Options held $ 22
Options written $ 22
- ---------------------------------------------------------------
</TABLE>
A number of the Corporation's foreign currency contracts included above are
subject to both interest rate and currency risk. The Corporation's foreign
exchange contracts relate primarily to major currencies such as the Japanese
yen, German mark, and British pound.
Equity Price Risk
Equity price risk arises from the possibility that equity prices will fluctuate,
affecting the value of contracts which derive their value from a stock index, a
particular stock, or a defined basket of stocks.
The notional amounts of derivative financial instruments subject to equity
price risk follow:
<TABLE>
<CAPTION>
===============================================================
(In Billions) NOTIONAL AMOUNT
- ---------------------------------------------------------------
<S> <C>
Options held $22
Options written $21
Swap agreements $ 2
Futures contracts $ 2
- ---------------------------------------------------------------
</TABLE>
Commodity Price Risk
The Corporation views its commodity contracts as financial instruments since
they are generally settled in cash and not by delivery of the underlying
commodity. Market risk results from the possibility that the price of the
underlying commodity may rise or fall. The notional amounts of derivative
financial instruments subject to commodity price risk are summarized as follows:
<TABLE>
<CAPTION>
===============================================================
(In Billions) NOTIONAL AMOUNT
===============================================================
<S> <C>
Options held $12
Options written $ 7
Forward contracts $ 7
Swap agreements $ 2
Futures contracts $ 2
- ---------------------------------------------------------------
</TABLE>
Cash flows from commodity swaps are based on the difference between an
agreed-upon fixed price, and a price that varies with changes in a specified
commodity index. Commodity contracts held relate principally to natural
resources and base metals.
Most of the Corporation's off-balance-sheet derivative trading transactions
are short-term with a weighted average maturity of approximately 2.29 years as
of December 30, 1994 and 2.62 years as of December 31, 1993. The remaining
maturities for notional or contractual amounts outstanding for swaps, futures,
forwards, and other derivatives follow:
- --------------------------------------------------------------------------------
Graph titled "REMAINING MATURITIES OF SWAPS AND DERIVATIVES"
Presented is a bar graph showing Merrill Lynch & Co., Inc.'s remaining
maturities of swaps and derivatives. The graph is presented in billions with
swaps and derivatives comprised of swap contracts, futures contracts, forward
contracts, options written, and options purchased. Remaining maturities for
these products in the aggregate total $1,300, $729, $511, $359, $251, $169,
$136, and $103 at year-end December 1994 through December 2000, and after 2000,
respectively.
- --------------------------------------------------------------------------------
30
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in Thousands, Except Per Share Amounts)
At December 31, 1993, the notional amount of swap agreements including swap
options, caps, collars, and floors was $560 billion. Notional amounts of
forward, futures, and written option contracts were $154 billion, $105 billion,
and $72 billion, respectively, at December 31, 1993.
In addition to futures, forward, swap, and option contracts, the
Corporation enters into commitments to sell securities not yet purchased which
are recorded as trading liabilities on the Consolidated Balance Sheets. The
Corporation is exposed to off-balance-sheet risk that potential market price
increases will cause the ultimate obligations under these commitments to exceed
the amount recognized on the balance sheet.
================================================================================
FINANCING AND OTHER NON-TRADING ACTIVITIES
The Corporation issues dollar and foreign currency-denominated debt with both
variable and fixed-rate interest payment obligations. The Corporation enters
into swap agreements to convert fixed-rate interest payments on its debt
obligations into variable rate payments, while virtually all foreign currency-
denominated fixed-rate obligations are swapped into variable rate dollar
liabilities. Interest obligations on variable rate long-term debt and commercial
paper may also be modified through basis swaps, which change the underlying
interest rate basis or reset frequency. The Corporation also issues callable
debt and debt which is linked to the performance of an equity or commodity index
(e.g., S&P 500 or ENMET (Service Mark)) or an industry basket of stocks (e.g.,
telecommunication stocks). These features in a debt instrument are often
referred to as embedded options. The contingent components of these indexed and
callable debt issuances and the related hedges are recorded at amounts which
approximate fair value.
For other non-trading activities, the Corporation uses interest rate swaps
to modify the interest rate characteristics of specified repurchase, resale, and
certain customer transactions. The Corporation also uses currency swaps to hedge
investments in and loans to international subsidiaries.
The notional amounts of derivative financial instruments used by the
Corporation for purposes other than trading as of December 30, 1994 follow:
<TABLE>
<CAPTION>
========================================================
(In Billions) NOTIONAL AMOUNT
- --------------------------------------------------------
<S> <C>
Interest rate swap contracts/(1)/ $22
Foreign exchange swap contracts/(1)/ $ 3
Equity options held $ 1
- --------------------------------------------------------
</TABLE>
/(1)/ Includes options embedded in swap contracts on callable debt totaling
$1 billion notional.
Most of the above transactions are entered into with the Corporation's
swaps and foreign exchange dealer subsidiaries which intermediate the interest
rate and currency risk with third parties in the normal course of their trading
activities.
================================================================================
CREDIT RISK AND CONCENTRATIONS OF CREDIT RISK
Credit Risk
Credit risk is the amount of accounting loss that the Corporation would incur if
a counterparty failed to perform its obligations under contractual terms and the
collateral held, if any, was deemed worthless. From an economic standpoint,
however, credit risk is evaluated net of collateral. The Corporation also
attempts to control credit risk by monitoring credit exposures, limiting
transactions with specific counterparties, and continually assessing the
creditworthiness of counterparties.
Credit risk is limited to the current cost of replacing those contracts in
a gain position (i.e., the accounting loss). The notional or contractual values
of futures, forward, and swap contracts do not represent exposure to credit
risk. For futures contracts, the Corporation usually does not intend to take or
make physical delivery of the underlying security, asset, or index. Since
futures contracts are exchange-traded and require daily cash settlement, the
related risk of accounting loss is limited to a one-day net positive change in
market value. Option contracts can be exchange-traded or OTC contracts.
Purchased options have credit risk to the extent of their replacement cost.
Written options represent a potential obligation of the Corporation and,
accordingly, do not subject the Corporation to credit risk.
At December 30, 1994, credit risk related to trading derivatives is
recorded on the Consolidated Balance Sheet. At December 31, 1993, prior to the
adoption of Interpretation No. 39, $6.7 billion of credit risk was not required
to be recorded on the Consolidated Balance Sheet.
To reduce credit risk, the Corporation requires collateral, principally
U.S. Government and agencies securities, on certain derivative transactions.
Presented below is a table of counterparty credit ratings for the replacement
cost (net of $863,000 collateral) of derivatives contracts in a gain position by
maturity at December 30, 1994.
<TABLE>
<CAPTION>
================================================================================
Years to Maturity CROSS-
--------------------------------- MATURITY
(In Millions) 0-3 3-5 5-7 Over 7 NETTING/(1)/ TOTAL
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CREDIT
RATING/(2)/
AAA $ 602 $ 337 $ 10 $ 7 $ (60) $ 896
AA+/AA 448 125 84 288 (177) 768
AA- 1,307 467 237 625 (163) 2,473
A+/A 842 1,022 314 531 (251) 2,458
A- 770 204 142 543 (309) 1,350
BBB 483 215 32 82 (31) 781
BB+ 290 53 230 82 (85) 570
Other 155 15 5 9 (1) 183
------ ------ ------ ------ ------- ------
TOTAL $4,897 $2,438 $1,054 $2,167 $(1,077) $9,479
====== ====== ====== ====== ======= ======
- --------------------------------------------------------------------------------
</TABLE>
/(1)/ Represents netting of payable balances with receivable balances for the
same counterparty across maturity year categories. Receivable and payable
balances with the same counterparty in the same maturity category,
however, are net within the maturity category.
/(2)/ Represents rating agency equivalent.
--------------------
31
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in Thousands, Except Per Share Amounts)
At December 30, 1994, 92% of such contracts were with investment grade
counterparties. Counterparty credit ratings for the replacement cost (net of
collateral) of contracts in a gain position, after consideration of master
netting agreements, are summarized by contract in the graph that follows:
- --------------------------------------------------------------------------------
Graph titled "CREDIT QUALITY OF DERIVATIVE COUNTERPARTIES"
Presented is a bar graph showing Merrill Lynch & Co., Inc.'s credit quality of
derivatives counterparties. The graph, presented in millions is comprised of the
replacement cost of swap contracts, forward contracts, and options purchased at
year-end 1994 totaling $896, $768, $2,473, $2,458, $1,350, $781, $570, and $183
with counterparties rated AAA (rating agency equivalent), AA+/AA, AA-, A+/A, A-,
BBB, BB+, and other, respectively.
- --------------------------------------------------------------------------------
In the normal course of business, the Corporation incurs credit risk when
executing, settling, and financing various customer security and commodity
transactions. Execution of these transactions includes the purchase and sale
(including "short sales") of securities, the writing of options, and the
purchase and sale of commodity and financial futures contracts. These activities
may expose the Corporation to off-balance-sheet risk arising from the potential
that customers or counterparties may fail to satisfy their obligations. In these
situations, the Corporation may be required to purchase or sell financial
instruments at unfavorable market prices to satisfy obligations to its customers
or counterparties. The Corporation seeks to control the risks associated with
its customer activities by requiring customers to maintain margin collateral in
compliance with regulatory and internal guidelines.
Liabilities to other brokers and dealers related to unsettled transactions
(i.e., securities failed to receive) are recorded at the amount for which the
securities were acquired and are paid upon receipt of the securities from other
brokers or dealers. In the case of aged securities failed to receive, the
Corporation may purchase the underlying security in the market and seek
reimbursement for losses from the counterparty.
The Corporation borrows and lends securities to finance securities
transactions and to facilitate the settlement process, utilizing both securities
owned by the Corporation and securities owned by customers collateralizing
margin debt. In addition, securities transactions are financed through resale
and repurchase agreements, generally collateralized by U.S. Government and
agencies securities, medium-term notes, asset-backed securities, or certain non-
U.S. governments and agencies securities.
The market value of securities owned by the Corporation that have been
loaned or were collateralizing either repurchase agreements or obligations
associated with various settlement processes at December 30, 1994 and December
31, 1993, was $37,350,000, and $45,373,000, respectively.
The Corporation is also exposed to off-balance-sheet credit risk from
various commitments and guarantees. In the normal course of business, the
Corporation enters into commitments to extend credit, predominantly at variable
interest rates, in connection with certain merchant banking and loan syndication
transactions. Customers may also be extended lines of credit collateralized by
first and second mortgages on real estate, certain liquid assets of small
businesses, or securities. The Corporation also issues various guarantees to
counterparties in connection with certain leasing, securitization, and other
transactions. These commitments and guarantees usually have a fixed expiration
date and are contingent on certain contractual conditions that may require
payment of a fee by the counterparty. Once commitments are drawn upon or
guarantees are issued, the Corporation may require the counterparty to post
collateral depending upon creditworthiness and market conditions. The
contractual amounts of these commitments and guarantees represent the amounts at
risk should the contract be fully drawn upon, the client default, and the value
of the existing collateral become worthless.
The total amount of outstanding commitments and guarantees may not
represent future cash requirements as guarantees and commitments may expire
without being drawn upon.
At December 30, 1994 and December 31, 1993, the Corporation had the
following commitments and guarantees:
<TABLE>
<CAPTION>
==================================================================
(In Millions) 1994 1993
- ------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit $2,072 $1,248
Third party guarantees $ 520 $ 587
- ------------------------------------------------------------------
</TABLE>
The fair value of the outstanding guarantees was $22,000 at December 30,
1994 and $39,000 at December 31, 1993.
- --------------------------------------------------------------------------------
Concentrations of Credit Risk
The Corporation provides brokerage, investment, financing, insurance, and
related services to a diverse group of domestic and foreign clients that
includes governments, corporations, and institutional and individual investors.
As a market-maker, the Corporation takes principal positions in U.S. and non-
U.S. government securities and corporate obligations.
The Corporation measures its exposure to credit risk associated with these
transactions on an individual counterparty basis, as well as by groups of
counterparties that share similar attributes. Concentrations of credit risk can
be affected by changes in geographic, industry, or economic factors. To
alleviate the potential for risk concentration, credit limits are established
and monitored in light of changing counterparty and market conditions.
At December 30, 1994, the Corporation's most significant concentration of
credit risk was with the U.S. Government and its agencies. This concentration
arises from trading and holding investment securities. Total holdings of U.S.
--------------------
32
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in Thousands, Except Per Share Amounts)
Government and agencies securities were $8,648,000 or 5% of total assets at
December 30, 1994 and $8,533,000 or 6% of total assets at December 31, 1993.
At December 30, 1994, the Corporation had concentrations of credit risk
with other counterparties including an Asian and two European sovereigns, each
rated AA or above, or having equivalent ratings by recognized credit rating
agencies. The total exposure to these counterparties, excluding collateral held,
was $2,615,000 or 1.6% of total assets. In addition, at December 30, 1994, the
Corporation had concentrations of credit risk related to resale agreements with
two financial institutions and two pension programs totaling $2,401,000 and
$1,988,000, respectively. The Corporation held collateral, consisting of U.S.
Government and agencies securities, with market values in excess of contractual
amounts. Excluding the collateral, these concentrations represented 2.7% of
total assets.
At December 31, 1993, the Corporation had concentrations of credit risk
with an Asian, a European, and a Latin American sovereign totaling $3,498,000 or
2.3% of total assets, excluding collateral held.
In addition to these specific exposures, the Corporation's most significant
industry credit concentration is domestic and foreign financial institutions.
Financial institutions include other brokers and dealers, commercial banks,
automobile financing companies, insurance companies, and mutual funds. This
concentration arises in the normal course of the Corporation's brokerage,
trading, financing, and underwriting activities.
In connection with its mortgage trading activities, the Corporation had
resale agreements collateralized by whole loans totaling $1,900,000 and
$3,400,000 with mortgage bankers, banks, and thrifts at December 30, 1994 and
December 31, 1993, respectively. The collateral had a market value of $2,100,000
at December 30, 1994 and $3,800,000 at December 31, 1993.
Additionally, the Corporation monitors regional exposures worldwide. Within
these regions, sovereign governments represent the most significant credit
concentration, followed by financial and non-financial institutions.
In conjunction with its investment and merchant banking activities, the
Corporation, from time to time, provides short-term bridge financing, other
extensions of credit, and equity investments to facilitate leveraged
transactions. In the normal course of business, the Corporation also purchases,
sells, and makes markets in non-investment grade securities. These activities
expose the Corporation to a higher degree of credit risk than is associated with
investing, extending credit, underwriting, and trading in investment grade
instruments. At December 30, 1994, the Corporation's aggregate exposure to
credit risk (both on- and off-balance-sheet) associated with non-investment
grade securities, high-yield financings, and highly leveraged transactions
amounted to $4,848,000. (See "Non-Investment Grade Holdings and Highly Leveraged
Transactions" section of Management's Discussion and Analysis-unaudited.)
================================================================================
FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 30, 1994 and December 31, 1993, approximately 99% and 98% of
financial instrument assets are carried at fair value or amounts which
approximate fair value. Assets carried at amounts which approximate fair value
consist predominantly of short-term financial instruments, which include cash
and cash equivalents, cash and securities segregated for regulatory purposes or
deposited with clearing organizations, resale agreements, securities borrowed,
and receivables. Similarly, short-term liabilities, including repurchase
agreements, other short-term borrowings, customers, brokers and dealers, and
other liabilities and accrued interest, are carried at amounts which approximate
fair value.
Trading assets and liabilities, including derivative financial instruments,
are carried at fair value. Fair value for these instruments is estimated using
market quotations for traded instruments, market quotations of similarly traded
instruments, and pricing models. Market quotations for traded instruments are
obtained from various sources, including the major securities exchanges and
dealers. Pricing models, which consider the time value and volatility of the
underlying financial instrument, are used to value derivatives and other
contractual agreements.
The table below presents the 1994 12-month average fair values for the
Corporation's derivative financial instruments used for trading purposes:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
AVERAGE
FAIR VALUE
----------------------
(In Millions) ASSETS LIABILITIES
- ---------------------------------------------------------
<S> <C> <C>
Swap agreements $8,349 $7,023
Forward contracts $1,358 $1,365
Options $1,714 $1,643
- ---------------------------------------------------------
</TABLE>
Derivative financial instruments used to hedge borrowings and other non-
trading activities are recorded on an accrual basis. The fair value of these
instruments and the related hedges is estimated using current market prices and
pricing models. At December 30, 1994, the carrying and fair values of these
instruments were as follows:
<TABLE>
<CAPTION>
=========================================================
(In Thousands) CARRYING VALUE FAIR VALUE
- ---------------------------------------------------------
<S> <C> <C>
Long-term borrowings $14,863,383 $14,368,524
Related derivative assets (133,343) (168,371)
Related derivative liabilities 65,703 546,884
----------- -----------
TOTAL $14,795,743 $14,747,037
=========== ===========
Commercial paper $14,758,830 $14,754,630
Related derivative liabilities (144) 6,116
----------- -----------
TOTAL $14,758,686 $14,760,746
=========== ===========
Other non-trading liabilities $ 1,634,800 $ 1,605,477
Related derivative assets 282 (3,587)
Related derivative liabilities (3,237) 23,337
----------- -----------
TOTAL $ 1,631,845 $ 1,625,227
=========== ===========
- ---------------------------------------------------------
</TABLE>
The fair value of derivative assets hedging matched-book financing activity
was $966 and exceeded the carrying value by $1,467 at December 30, 1994.
--------------------
33
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in Thousands, Except Per Share Amounts)
At December 31, 1993, the combined fair value of each non-trading activity,
including related hedges, approximated their combined carrying value.
Marketable investment securities principally include U.S. Government and
agencies securities, municipal securities, commercial paper, medium-term notes,
and corporate debt held by subsidiaries of the Corporation to meet rating agency
and other requirements. The fair value of these investment securities is
estimated using market quotations. At December 30, 1994 and December 31, 1993,
carrying value approximated fair value.
Insurance subsidiaries' investments are carried at fair value, which is
generally estimated by market quotes obtained from exchanges for listed
securities or dealers for unlisted securities.
Other financial instruments with carrying values different than fair values
are presented below:
<TABLE>
<CAPTION>
====================================================================================================
DECEMBER 30, 1994 DECEMBER 31, 1993
------------------------- ------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Merchant banking equity and debt portfolio $ 556,458 $ 763,524 $ 780,665 $ 996,581
Loans, notes, and mortgages (excluding loans
related to merchant banking) $ 1,417,202 $ 1,428,412 $ 1,628,225 $ 1,639,551
Excess mortgage servicing rights $ 107,022 $ 154,207 $ 72,117 $ 117,823
- ----------------------------------------------------------------------------------------------------
</TABLE>
In connection with its merchant banking activities, the Corporation holds
certain equity instruments, including partnership interests (included in other
investments in the Consolidated Balance Sheets), and loans consisting primarily
of senior and subordinated debt. Fair value for equity instruments is estimated
using various methods including earnings multiples, cash flow analyses, and
review of underlying financial conditions and other market factors. These
instruments may be subject to restrictions (e.g., minority ownership, consent of
other investors) which may limit the Corporation's ability to realize currently
the estimated fair value. Accordingly, the Corporation's current estimate of
fair value and its ultimate realization on these instruments may differ. Loans
made in connection with merchant banking activities are carried at unpaid
principal balances less a reserve for estimated losses. Fair value is estimated
using discounted cash flows.
The Corporation's estimate of fair value for its loans, notes, and
mortgages (excluding loans made in connection with merchant banking activities)
is determined based on loan characteristics. For certain homogeneous categories
of loans, including residential mortgages and home equity loans, fair value is
estimated using market price quotations or previously executed transactions for
securities backed by similar loans adjusted for credit risk and other individual
loan characteristics. For the Corporation's variable rate loan receivables,
carrying value approximates fair value.
Other assets include capitalized excess mortgage servicing rights.
Capitalized excess servicing represents the net present value of estimated
future servicing rights for mortgages securitized by the Corporation. Fair value
is computed based on the present value of estimated future servicing revenues,
using current market assumptions for discount rates, prepayment speeds, default
estimates, and interest rates.
The Corporation holds a passive minority interest in a privately-held
limited partnership that provides information services. Due to the lack of a
ready market for this investment and contractual restrictions on the disposition
of the Corporation's interest, the fair value of this investment is not readily
determinable as of December 30, 1994. It is the opinion of management, however,
that the fair value of this investment significantly exceeds the carrying value
of $38,513.
================================================================================
INVESTMENTS
The Corporation has several broad categories of investments on its Consolidated
Balance Sheets, including investments of insurance subsidiaries, marketable
investment securities, and other investments.
The Corporation's insurance subsidiaries have investments which are used to
fund policyholder liabilities. Marketable investment securities consist of
equity and debt securities held for rating agency purposes or to manage cash
flows related to certain liabilities of the Corporation's banking subsidiaries.
Other investments consist principally of equity and debt securities which were
acquired primarily in connection with prior years' merchant banking activities.
Certain merchant banking investments are subject to restrictions which may limit
the Corporation's ability to realize its investment until such restrictions
expire.
A reconciliation of the Corporation's investment securities to those
reported on the Consolidated Balance Sheets follows:
<TABLE>
<CAPTION>
======================================================================
DECEMBER 30, DECEMBER 31,
1994 1993
- ----------------------------------------------------------------------
<S> <C> <C>
Investments of
insurance subsidiaries:
Available-for-sale $4,189,653 $6,088,443
Trading -- 164,620
Non-qualifying 1,529,692 1,588,381
---------- ----------
TOTAL $5,719,345 $7,841,444
========== ==========
Marketable investment
securities:
Available-for-sale $ 486,071 $ 471,862
Trading 32,139 --
Held-to-maturity 1,807,243 1,277,392
---------- ----------
TOTAL $2,325,453 $1,749,254
========== ==========
Other investments:
Available-for-sale $ 105,665 $ 151,801
Held-to-maturity 26,377 16,635
Non-qualifying 755,584 705,370
---------- ----------
TOTAL $ 887,626 $ 873,806
========== ==========
- ----------------------------------------------------------------------
</TABLE>
--------------------
34
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in Thousands, Except Per Share Amounts)
Information regarding investment securities subject to SFAS No. 115 follows:
<TABLE>
<CAPTION>
================================================================================
AVAILABLE-FOR-SALE
--------------------------------------------
COST/ GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
Corporate debt $3,009,029 $21,194 $(142,926) $2,887,297
U.S. Government and agencies 365,055 1,260 (6,473) 359,842
Municipals 225,034 7,587 (11,174) 221,447
Mortgage-backed securities 1,239,498 11,897 (40,592) 1,210,803
Foreign government debt 4,198 -- (213) 3,985
Other debt securities 49,427 990 -- 50,417
---------- ------- --------- ----------
Total debt securities 4,892,241 42,928 (201,378) 4,733,791
Equity securities 45,186 6,181 (3,769) 47,598
---------- ------- --------- ----------
TOTAL $4,937,427 $49,109 $(205,147) $4,781,389
========== ======= ========= ==========
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================
HELD-TO-MATURITY
- --------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
Corporate debt $1,187,784 $ 179 $(17,138) $1,170,825
U.S. Government and agencies 104,127 18 (1,146) 102,999
Municipals 783 10 -- 793
Foreign government debt 27,725 -- (429) 27,296
Mortgage-backed securities 496,679 5 (15,608) 481,076
Other debt securities 16,522 6 -- 16,528
---------- ------ -------- ----------
TOTAL $1,833,620 $ 218 $(34,321) $1,799,517
========== ====== ======== ==========
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================
AVAILABLE-FOR-SALE
--------------------------------------------
COST/ GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993
Corporate debt $3,516,922 $173,206 $(21,644) $3,668,484
U.S. Government and agencies 366,690 1,128 (55) 367,763
Municipals 233,595 12,646 (1,152) 245,089
Mortgage-backed securities 2,294,935 91,144 (4,214) 2,381,865
Foreign government debt -- -- -- --
Other debt securities -- -- -- --
---------- -------- -------- ----------
Total debt securities 6,412,142 278,124 (27,065) 6,663,201
Equity securities 45,934 6,591 (3,620) 48,905
---------- -------- -------- ----------
TOTAL $6,458,076 $284,715 $(30,685) $6,712,106
========== ======== ======== ==========
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================
HELD-TO-MATURITY
---------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993
Corporate debt $ 601,452 $ 1,455 $ (648) $ 602,259
U.S. Government and agencies 203,992 246 (42) 204,196
Municipals 778 46 -- 824
Foreign government debt 2,992 40 -- 3,032
Mortgage-backed securities 483,966 7,887 -- 491,853
Other debt securities 847 41 (1) 887
---------- ------- ------ ----------
TOTAL $1,294,027 $ 9,715 $ (691) $1,303,051
========== ======= ====== ==========
- --------------------------------------------------------------------------------
</TABLE>
--------------------
35
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in Thousands, Except Per Share Amounts)
The carrying value and estimated fair value of debt securities at December
30, 1994 by contractual maturity for available-for-sale and held-to-maturity
investment securities follow:
<TABLE>
<CAPTION>
=========================================================================================
AVAILABLE-FOR-SALE HELD-TO-MATURITY
----------------------------------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 424,562 $ 425,091 $ 783,695 $ 775,635
Due after one year through five years 1,491,434 1,449,079 551,271 540,831
Due after five years through ten years 1,332,579 1,260,251 181 181
Due after ten years 404,168 388,567 1,794 1,794
---------- ---------- ---------- ----------
Subtotal 3,652,743 3,522,988 1,336,941 1,318,441
Mortgage-backed securities 1,239,498 1,210,803 496,679 481,076
---------- ---------- ---------- ----------
TOTAL/(1)/ $4,892,241 $4,733,791 $1,833,620 $1,799,517
========== ========== ========== ==========
- -----------------------------------------------------------------------------------------
</TABLE>
/(1)/ Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
prepayment penalties.
For registrants subject to the information reporting requirements of the
Securities Exchange Act of 1934, there are additional requirements under SFAS
No. 115. The Corporation's insurance subsidiaries are required to adjust
deferred acquisition costs and certain policyholder liabilities associated with
investments classified as available-for-sale. These investments primarily
support in-force, universal life-type contracts under SFAS No. 97. These
adjustments are recorded in stockholders' equity and assume that the unrealized
gain or loss on available-for-sale securities were realized. The table that
follows provides the components of the amount recorded in stockholders' equity
for available-for-sale investments.
<TABLE>
<CAPTION>
================================================================================
1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Net unrealized (losses) gains on investment securities
available-for-sale $(410,068) $ 254,030
Adjustments for policyholder liabilities 214,537 (205,495)
Adjustments for deferred policy acquisition costs 73,802 (14,687)
Deferred income tax benefit (expense) 43,417 (12,493)
--------- ---------
Net activity (78,312) 21,355
Net unrealized gains on investment securities classified
as available-for-sale, beginning of year 21,355 --
--------- ---------
Net unrealized (losses) gains on investment securities
classified as available-for-sale, end of year $ (56,957) $ 21,355
========= =========
- --------------------------------------------------------------------------------
</TABLE>
During 1994, certain available-for-sale investments were sold. The gross
proceeds from the sale of these investments were $1,377,234 with gross realized
gains and losses totaling $30,593 and $33,737, respectively. At December 30,
1994, the Corporation had $32,139 of trading investment securities which were
recorded at fair value. The Corporation's insurance subsidiaries hold policy
loans and other non-qualifying investments totaling $1,529,692. The estimated
fair value of all investments of insurance subsidiaries was $5,719,345 at
December 30, 1994, with gross unrealized gains of $33,439 and gross unrealized
losses of $190,752. Net unrealized losses from trading investment securities
included in the 1994 Statement of Consolidated Earnings was $7,331.
================================================================================
STOCKHOLDERS' EQUITY
Preferred Equity
The Corporation is authorized to issue 25,000,000 shares of undesignated
preferred stock, $1.00 par value per share. In 1994, the Corporation's Board of
Directors (the "Board") delegated to the Executive Committee of the Board the
authority to authorize the issuance, from time to time, of up to 100,000 shares
of previously undesignated preferred stock having an aggregate liquidation
preference not to exceed $600,000.
- --------------------------------------------------------------------------------
9% Cumulative Preferred Stock, Series A
In the 1994 fourth quarter, the Corporation issued 17,000,000 Depositary Shares,
each representing a one-four-hundredth interest in a share of 9% Cumulative
Preferred Stock, Series A, $10,000 liquidation preference per share ("9%
Preferred Stock"). The 9% Preferred Stock is a single series consisting of
42,500 shares with an aggregate liquidation preference of $425,000. At December
30, 1994, 42,500 shares, represented by 17,000,000 Depositary Shares, were
outstanding. At December 30, 1994, Depositary Shares held by the Corporation for
market-making purposes were not material.
Dividends on the 9% Preferred Stock are cumulative from the date of
original issue and are payable quarterly when declared by the authority of the
Board. Total dividends declared on the 9% Preferred Stock in 1994 were $6,163.
The 9% Preferred Stock is redeemable on or after December 30, 2004 at the option
of the Corporation. The Corporation may redeem the 9% Preferred Stock, in whole
or in part, at a redemption price equal to $10,000 per share, plus accrued and
unpaid dividends (whether or not declared), to the date fixed for redemption.
--------------------
36
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in Thousands, Except Per Share Amounts)
- --------------------------------------------------------------------------------
Remarketed Preferred(Service Mark) Stock, Series C
The Corporation previously issued 3,000 shares of Remarketed Preferred
("RP(Registered Trademark)") stock, Series C of which 1,938 shares were
outstanding as of December 30, 1994.
At the end of each dividend period, the RP stock is subject to a
remarketing process. As part of the remarketing process, both the dividend
period and the dividend rate may be adjusted for periods of generally seven or
49 days with a maximum dividend rate payable dependent on the credit rating
assigned to the RP stock. Dividends on the RP stock are cumulative and payable
when declared by the authority of the Board. Dividend rates in effect during
1994 on the RP stock ranged from 2.40% to 5.20% per annum. The maximum dividend
rate on the RP stock ranges from 115% to 250% of the "AA" Composite Commercial
Paper Rate based on the Standard & Poor's Ratings Group and Moody's Investors
Service, Inc. credit ratings on the date on which the dividend rate is reset.
Total dividends declared in 1994 on shares of RP stock were $6,391. The
Corporation may redeem the RP stock, in whole or in part, on any dividend
payment date at a redemption price of $100,000 per share, plus accumulated
dividends.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a
subsidiary of the Corporation, acts as one of the remarketing agents for the RP
stock. As a market-maker, MLPF&S may occasionally acquire a temporary position
in the RP stock. At December 30, 1994, the RP stock held by MLPF&S for the
purpose of resale was not material.
- --------------------------------------------------------------------------------
Stockholder Rights Plan
The Corporation's Stockholder Rights Plan provides for the distribution of
preferred purchase rights ("Rights") to common stockholders which separate
from the common stock ten days following: (a) an announcement of an acquisition
by a person or group ("acquiring party") of 20% or more of the outstanding
common shares of the Corporation; or (b) the commencement of a tender or
exchange offer for 30% or more of the common shares outstanding. One-half of a
Right is attached to each outstanding share of common stock and will attach to
all subsequently issued shares. The Rights entitle the holder to purchase
fractions of a share ("Units") of Series A Junior Preferred Stock, par value
$1.00 per share, at an exercise price of $100 per Unit. The Units are
nonredeemable and have voting privileges and certain preferential dividend
rights. The exercise price and the number of Units issuable are subject to
adjustment to prevent dilution.
If, after the Rights have been distributed either the acquiring party holds
25% or more of the Corporation's outstanding shares or the Corporation is a
party to a business combination or other specifically defined transaction, each
Right (other than those held by the acquiring party) will entitle the holder to
receive, upon exercise, Units of preferred stock or shares of common stock of
the surviving company with a value equal to two times the exercise price of the
Right. The Rights expire December 16, 1997 and are redeemable at the option of a
majority of the independent directors of the Corporation at $.01 per Right at
any time until the tenth day following an announcement of the acquisition of 20%
or more of the Corporation's common stock.
Shares outstanding and balances for each issue of preferred stock are
presented below:
<TABLE>
<CAPTION>
=================================================================================
SHARES OUTSTANDING BALANCE AT
- ---------------------------------------------------------------------------------
DEC. 30, DEC. 31, DEC. 30, DEC. 31,
1994 1993 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9% Cumulative Preferred Stock, Series A 42,500 -- $425,000 $ --
Remarketed Preferred Stock, Series C 1,938 1,938 193,800 193,800
------ ----- -------- --------
TOTAL 44,438 1,938 $618,800 $193,800
====== ===== ======== ========
- ---------------------------------------------------------------------------------
</TABLE>
All shares of currently outstanding preferred stock constitute one and the
same class and have equal rank and priority over common stockholders as to
dividends and in the event of liquidation.
- --------------------------------------------------------------------------------
Common Equity
On October 11, 1993, the Board declared a two-for-one common stock split,
effected in the form of a 100% dividend. The new shares were distributed on
November 24, 1993 to stockholders of record on October 22, 1993. The par value
of these shares remained at $1.33 1/3 per share. Accordingly, an adjustment
totaling $157,553 from paid-in capital to common stock was required to preserve
the par value of the post-split shares. All share and per share data presented
in this Annual Report to Stockholders reflect the effect of the split.
In 1993, stockholders of the Corporation approved an increase in the
authorized number of shares of common stock from 200 million to 500 million
shares. In addition, the Corporation issued 1,637,314 shares of common stock in
connection with certain employee benefit plans.
================================================================================
PER COMMON SHARE COMPUTATION
The Corporation computed earnings per common share using the modified treasury
stock method ("modified method") in accordance with Accounting Principles
Board Opinion No. 15. The modified method is used when the number of shares
obtainable upon exercise of outstanding options, warrants, and their equivalents
exceed 20% of the Corporation's outstanding common stock.
Under this method, all options, warrants, and their equivalents are assumed
exercised (whether dilutive or anti-dilutive) with the aggregate proceeds
obtained used to repurchase up to 20% of the Corporation's outstanding common
stock, subject to certain limitations. If the combined effect of the assumed
exercise is dilutive, all options, warrants, and their equivalents are included
in the computation.
Primary earnings per common share is computed by dividing net earnings,
after deducting preferred stock dividend requirements of $12,711, $5,381, and
$6,339 for 1994, 1993, and 1992, respectively, by the weighted average number of
common shares and common stock equivalents outstanding during each year. Shares
of common stock issuable under various employee stock plans are considered
common stock equivalents (incremental shares).
--------------------
37
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in Thousands, Except Per Share Amounts)
The weighted average number of common shares and incremental shares
included in the primary and fully diluted per common share computations follow:
<TABLE>
<CAPTION>
================================================================================
1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Primary:
Weighted average common shares 195,661,000 209,276,000 207,730,000
Incremental shares 15,580,000 17,055,000 18,672,000
----------- ----------- -----------
TOTAL 211,241,000 226,331,000 226,402,000
=========== =========== ===========
Fully Diluted:
Weighted average common shares 195,661,000 209,276,000 207,730,000
Incremental shares 16,034,000 18,204,000 19,124,000
----------- ----------- -----------
TOTAL 211,695,000 227,480,000 226,854,000
=========== =========== ===========
- --------------------------------------------------------------------------------
</TABLE>
================================================================================
COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS
Commercial paper and other short-term borrowings at December 30, 1994 and
December 31, 1993 are presented below:
<TABLE>
<CAPTION>
================================================================================
1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Commercial paper $14,758,830 $14,895,540
Demand and time deposits 7,577,492 5,946,244
Securities loaned 2,180,186 1,047,059
Bank loans and other 1,923,137 1,325,486
----------- -----------
TOTAL $26,439,645 $23,214,329
=========== ===========
- --------------------------------------------------------------------------------
</TABLE>
The Corporation's weighted average interest rate on commercial paper and
other short-term borrowings, including repurchase agreements, was 4.74% in 1994
and 4.20% in 1993.
The weighted average interest rate on these borrowings modified through
swap agreements was 4.76% and 4.18% in 1994 and 1993, respectively.
================================================================================
LONG-TERM BORROWINGS
Long-term borrowings at December 30, 1994 and December 31, 1993 consisted of the
following:
<TABLE>
<CAPTION>
================================================================================
1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. dollar-denominated fixed-rate obligations
due 1995 to 2019 at interest rates ranging
from 4.75% to 10.375% $ 4,982,736 $ 5,814,146
Foreign currency-denominated fixed-rate obligations
due 1995 to 2001 at interest rates ranging from
4.40% to 12.10% 725,425 684,637
U.S. dollar-denominated variable rate obligations 890,457 782,055
Foreign currency-denominated variable rate obligations 110,058 97,554
U.S. dollar-denominated medium-term notes 6,934,075 5,983,837
Foreign currency-denominated medium-term notes 1,220,632 106,671
----------- -----------
TOTAL $14,863,383 $13,468,900
=========== ===========
- --------------------------------------------------------------------------------
</TABLE>
Rates and maturities presented are as of December 30, 1994.
Maturities of long-term borrowings at December 30, 1994 consisted of the
following:
<TABLE>
<CAPTION>
=================================================
MATURITIES
- -------------------------------------------------
<S> <C>
1995 $ 6,136,504
1996 1,466,360
1997 1,300,051
1998 722,806
1999 2,187,600
2000 and thereafter 3,050,062
-----------
TOTAL $14,863,383
===========
- -------------------------------------------------
</TABLE>
At December 30, 1994, variable interest rates were obtained through
interest rate and foreign currency swap contracts on $5,623,511 or 99% of the
Corporation's $5,708,161 total U.S. dollar-denominated and foreign currency-
denominated fixed-rate obligations. The effective weighted average interest rate
on these fixed-rate obligations swapped into variable rate obligations was 4.54%
in 1994. The Corporation's remaining fixed-rate long-term obligation totaled
$84,650 and had an interest rate of 11.93% in 1994.
Included in U.S. dollar-denominated variable rate obligations are various
equity-linked indexed instruments issued by the Corporation. Payments on these
instruments may be linked to a specific index (e.g., S&P 500) or industry basket
of stocks (e.g., telecommunications stocks). These instruments may be exchange
listed or sold privately.
The effective weighted average interest rates on the Corporation's U.S.
dollar-denominated variable rate
--------------------
38
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in Thousands, Except Per Share Amounts)
obligations and the Corporation's foreign currency-denominated variable rate
obligations were 4.53% and 4.54%, respectively, in 1994. Variable interest rates
are generally based on rates such as LIBOR, the "AA" Commercial Paper
Composite Rate, the U.S. Treasury Bill Rate, or the Federal Funds Rate ("Fed
Funds").
The effective weighted average interest rate on all medium-term notes was
4.40% in 1994. Maturities of medium-term notes currently range from nine months
to 30 years from the date of issue.
Certain long-term borrowing agreements contain provisions whereby the
borrowings are redeemable at the option of the holder at specified dates prior
to maturity. Pursuant to these provisions, long-term borrowings that may be
redeemed prior to maturity in 1995 and 1996 total $159,500 and $24,764,
respectively. Management believes, however, that a significant portion of such
borrowings may remain outstanding beyond their earliest redemption date.
Subsequent to year-end 1994 and through February 21, 1995, long-term
borrowings, net of new issuances and resales, decreased approximately $417,770.
(See Financing and Other Non-Trading Activities Note to the Consolidated
Financial Statements.)
================================================================================
INCOME TAXES
Income tax provisions (benefits) on earnings before the cumulative effect of
changes in accounting principles consisted of:
<TABLE>
<CAPTION>
===========================================================================
1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal: Current $ 679,816 $ 877,903 $ 435,093
Deferred (149,925) (274,517) (59,007)
State and
Local: Current 158,287 376,085 252,498
Deferred 2,332 (57,760) (20,868)
Foreign: Current 4,603 163,690 65,271
Deferred 17,730 (54,952) (4,003)
--------- ---------- ---------
TOTAL $ 712,843 $1,030,449 $ 668,984
========= ========== =========
- --------------------------------------------------------------------------------
</TABLE>
A reconciliation of the statutory Federal income tax to the Corporation's
income tax provision for earnings before the cumulative effect of accounting
changes follows:
<TABLE>
<CAPTION>
===========================================================================
1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax at statutory rates $605,361 $ 848,683 $551,272
State and local income taxes, net 104,402 206,911 152,876
Tax-exempt interest (18,351) (16,228) (13,706)
Dividends received deduction (17,284) (8,249) (23,730)
Foreign operations 22,663 2,704 5,636
Pension plan transaction 14,445 13,705 14,885
Other, net 1,607 (17,077) (18,249)
-------- ---------- --------
TOTAL $712,843 $1,030,449 $668,984
======== ========== ========
- ---------------------------------------------------------------------------
</TABLE>
The Omnibus Budget Reconciliation Act of 1993 increased the corporate
statutory tax rate to 35.0% retroactive to January 1, 1993.
For financial reporting purposes, the Corporation had no unrecognized net
operating loss or alternative minimum tax benefit carryforwards at December 30,
1994.
Deferred income taxes are provided for the effects of temporary differences
between the tax basis of an asset or liability and its reported amount in the
financial statements. These temporary differences result in taxable or
deductible amounts in future years. Details of the Corporation's deferred tax
assets and liabilities follow:
<TABLE>
<CAPTION>
===========================================================================
1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
DEFERRED TAX ASSETS:
Valuation of inventory, investments,
and receivables $ 638,448 $ 658,768 $ 441,656
Deferred compensation 192,245 91,200 114,390
Other 337,449 246,682 148,047
---------- ---------- ----------
Subtotal 1,168,142 996,650 704,093
Valuation allowance -- (2,500) --
---------- ---------- ----------
Deferred tax asset net of valuation
allowance 1,168,142 994,150 704,093
---------- ---------- ----------
DEFERRED TAX LIABILITIES:
Lease transactions 112,956 74,445 141,149
Accelerated tax depreciation 92,048 113,578 137,881
Unrealized gains on trading inventory 29,007 35,707 41,019
Other 73,398 87,409 136,461
---------- ---------- ----------
Subtotal 307,409 311,139 456,510
---------- ---------- ----------
Net deferred tax asset $ 860,733 $ 683,011 $ 247,583
========== ========== ==========
- --------------------------------------------------------------------------------
</TABLE>
Income tax benefits of $5,095, $75,150, and $114,487 were allocated to
stockholders' equity related to employee compensation transactions for 1994,
1993, and 1992, respectively.
Earnings before income taxes include approximately $48,000, $395,000, and
$130,000 of earnings attributable to foreign entities for 1994, 1993, and 1992,
respectively. Cumulative undistributed earnings of foreign subsidiaries were
approximately $674,000 at December 30, 1994. No deferred Federal income taxes
have been provided for the undistributed earnings as these earnings have been,
and will continue to be, reinvested in the Corporation's foreign operations.
Assuming utilization of foreign tax credits, the Corporation estimates that
approximately $86,000 of Federal income taxes and $28,000 of foreign withholding
taxes would be incurred on the repatriation of the foreign subsidiaries'
earnings.
================================================================================
REVOLVING CREDIT FACILITIES
The Corporation has obtained committed, unsecured, revolving credit facilities
aggregating $5,330,000 under agreements with 85 banks. The agreements contain
covenants that require, among other things, that the Corporation maintain
specified levels of net worth, as defined in the agreements, on
--------------------
39
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in Thousands, Except Per Share Amounts)
the date of an advance. To date, there have never been any borrowings under
current or prior revolving credit facilities.
The credit quality, amounts, and terms of the credit facilities are
continually monitored and modified as warranted by business conditions. Under
the existing agreements, the credit facilities mature as follows: $1,060,000 in
March 1995; $1,325,000 in May 1995; $1,230,000 in June 1995; and $1,715,000 in
October 1995. At maturity, the Corporation may convert amounts then borrowed, if
any, into term loans which would mature in two years.
================================================================================
REGULATORY REQUIREMENTS AND DIVIDEND RESTRICTIONS
MLPF&S, a registered broker-dealer, is subject to Net Capital Rule 15c3-1
under the Securities Exchange Act of 1934 ("SEA"). 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 December 30, 1994, MLPF&S's regulatory net capital of
$1,422,766 was 12% of aggregate debit items, and its regulatory net
capital in excess of the minimum required was $1,178,873.
In addition to amounts presented in the accompanying Consolidated Balance
Sheets as cash and securities segregated for regulatory purposes or deposited
with clearing organizations, securities with a market value of $168,148,
primarily collateralizing resale agreements, have been segregated in a special
reserve bank account for the exclusive benefit of customers pursuant to the
Reserve Formula requirements of SEA Rule 15c3-3.
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 December 30, 1994,
MLGSI's liquid capital of $931,869 was 307% of its total market and credit risk,
and liquid capital in excess of the minimum required was $568,117.
Merrill Lynch International Limited ("MLIL") is a United Kingdom
registered broker-dealer and 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 December 30,
1994, MLIL's regulatory capital was $1,325,054, and exceeded the minimum
requirement by $382,422.
The Corporation's insurance subsidiaries are subject to various regulatory
restrictions that limit the amount available for distribution as dividends. As
of December 30, 1994, $489,513, representing 85% of the insurance subsidiaries'
net assets, was unavailable for distribution to the Corporation.
In addition, over 40 U.S. and non-U.S. subsidiaries are subject to
regulatory requirements promulgated by the regulatory and exchange authorities
of the countries in which they operate. These regulatory restrictions may limit
the amounts that these subsidiaries can pay in dividends or advance to the
Corporation. At December 30, 1994, restricted net assets of all subsidiaries
were $4,190,608. In addition, to satisfy rating agency standards, a subsidiary
of the Corporation must also meet certain minimum capital requirements. At
December 30, 1994, this minimum capital requirement was $368,111.
There are no restrictions on the Corporation's present ability to pay
dividends on common stock, other than (a) the Corporation's obligation first to
make dividend payments on its preferred stock; and (b) the governing provisions
of the Delaware General Corporation Law.
================================================================================
EMPLOYEE BENEFIT PLANS
The Corporation provides retirement benefits to its employees worldwide through
defined contribution plans, a group annuity contract, and international defined
benefit plans. The Corporation reserves the right to amend or terminate these
plans at any time.
- --------------------------------------------------------------------------------
Defined Contribution Plans
The U.S. defined contribution plans consist of the Retirement Accumulation Plan
("RAP"), the Employee Stock Ownership Plan ("ESOP"), and the 401(k) Savings
& Investment Plan ("SIP"). The RAP, ESOP, and SIP cover substantially all U.S.
employees who have met the age and service requirements.
In 1989, the Corporation established the RAP and the ESOP, collectively
known as the "Retirement Program," for the benefit of eligible employees. An
employee becomes eligible for participation and is automatically enrolled in the
Retirement Program as of the enrollment date coincident with, or next following,
the attainment of age 21 and the completion of one year of service. A separate
retirement account is maintained for each participant. Participants become
vested upon completion of five years of service or upon attaining age 65.
Vesting also occurs immediately upon death or disability.
In 1989, the Corporation sold 24,341,470 shares of common stock to the ESOP
trust. The ESOP trust acquired the shares with residual funds from a terminated
defined benefit pension plan ("Reversion Shares") and loan proceeds from a
subsidiary of the Corporation ("Leveraged Shares").
The Corporation credits a participant's account and records pension expense
in conjunction with the Retirement Program based on years of service, age, and
eligible compensation. Allocations to participants' accounts of Leveraged
Shares, Reversion Shares, and cash, if necessary, are made quarterly to fund
this expense. Quarterly ESOP allocations are based on participants' receipt of
Basic and Supplemental Credits under the Retirement Program, multiplied by the
fair market value of the shares released. In addition, certain participants are
eligible to receive Additional Supplemental Credits which are provided only
through cash contributions to the RAP. Leveraged and Reversion Shares are
released in accordance with the terms of the ESOP. If the fair market value of
ESOP shares released does not fund the Retirement Program liability, cash
contributions are made to the RAP. Generally, only cash contributions are
deductible for tax
--------------------
40
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in Thousands, Except Per Share Amounts)
purposes. Reversion Shares held in the ESOP are being allocated to participants'
accounts over a period of not more than eight years, ending in 1997. Leveraged
Shares held in the ESOP are allocated to participants' accounts as principal on
the loan is repaid. The loan to the ESOP trust, due September 5, 1999, bears
interest at 9.1% per annum, with principal and interest payable quarterly upon
receipt of dividends on certain shares of common stock or other cash
contributions.
ESOP shares are considered allocated, committed, or unallocated. Allocated
shares have been assigned to individual participants' accounts, committed shares
will be released at a future scheduled date and are not legally released at the
date of the balance sheet, and unallocated shares have not been released,
committed, or allocated to participants' accounts. As of December 30, 1994, the
ESOP had 13,082,396 allocated, 387,539 committed, and 6,427,091 unallocated
Reversion Shares. In addition, the ESOP had 1,812,906 allocated, 92,958
committed, and 2,538,580 unallocated Leveraged Shares. The unallocated portion
of shares purchased with the remaining residual funds of $101,227 from the
terminated defined benefit pension plan and the $39,835 outstanding loan to the
ESOP trust, which is included in employee stock transactions, are included as
reductions to stockholders' equity.
Interest incurred on the ESOP debt during 1994, 1993, and 1992 amounted to
$3,977, $4,675, and $5,119, respectively. Dividends on all Leveraged and
unallocated and committed Reversion ESOP shares used for debt service amounted
to $10,531, $10,044, and $9,678 in 1994, 1993, and 1992, respectively. Dividends
on allocated Reversion ESOP shares are credited to participants' accounts. Com-
pensation costs funded with ESOP shares amounted to $109,463, $109,655, and
$77,451 in 1994, 1993, and 1992, respectively.
Employees can participate in the SIP by contributing, on a tax deferred
basis, up to 15% of their eligible compensation but not more than the maximum
annual amount allowed by law. The Corporation's contributions are equal to one-
half of the first 4% of each participant's eligible compensation contributed to
the SIP, up to a maximum of fifteen hundred dollars annually. No corporate
contributions are made for participants who are also Employee Stock Purchase
Plan participants.
- --------------------------------------------------------------------------------
Group Annuity Contract
In the U.S., the Corporation has purchased a group annuity contract from
Metropolitan Life Insurance Company ("Metropolitan") which guarantees the
payment of benefits vested under a defined benefit plan terminated in accordance
with the applicable provisions of the Employee Retirement Income Security Act of
1974. At December 30, 1994, a substantial portion of the assets of Metropolitan
supporting the annuity were invested in U.S. Government and agencies securities.
The Corporation, under a supplemental agreement, may be responsible for, or
benefit from, actuarial experience and investment performance of these annuity
assets.
- --------------------------------------------------------------------------------
International Defined Benefit Plans
Employees of certain non-U.S. subsidiaries participate in various local plans.
These pension plans provide benefits that are generally based on years of
credited service and a percentage of the employee's eligible compensation during
the final years of employment. The Corporation's funding policy has been to
contribute annually the amount necessary to satisfy local funding standards.
- --------------------------------------------------------------------------------
Pension Plan Cost and Funded Status
Pension cost includes the following components:
<TABLE>
<CAPTION>
================================================================================
1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Defined benefit plans/(1)/:
Service cost for benefits earned during
the year/(2)/ $ 16,345 $ 12,328 $ 11,333
Interest cost on projected benefit
obligation 91,529 89,115 84,366
Actual return on plan assets 146,134 (281,022) (107,549)
Deferral and amortization of
unrecognized items (243,702) 188,700 21,441
--------- --------- ---------
Total defined benefit plan cost 10,306 9,121 9,591
Defined contribution plan cost 164,025 146,148 133,264
--------- --------- ---------
Total pension cost/(3)/ $ 174,331 $ 155,269 $ 142,855
========= ========= =========
- --------------------------------------------------------------------------------
</TABLE>
/(1)/ The following actuarial assumptions were used in calculating the defined
benefit cost (credit) and benefit obligations. Weighted average rates as
of the beginning of the year are:
<TABLE>
<CAPTION>
================================================================================
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 8.1% 6.7% 7.9%
Rate of compensation increase (not
applicable to terminated plan) 6.0% 5.9% 6.3%
Expected long-term rate of return
on plan assets 8.2% 6.7% 7.6%
- --------------------------------------------------------------------------------
</TABLE>
/(2)/ The Corporation calculated service cost using the projected unit credit
method based on years of service to date.
/(3)/ Total pension cost excludes supplemental retirement and other benefit plan
costs.
--------------------
41
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in Thousands, Except Per Share Amounts)
The funded status of the defined benefit plans (including the terminated plan)
follows:
<TABLE>
<CAPTION>
=========================================================================================================
1994 1993
------------------------ ------------------------
PENSION PLANS IN WHICH: PENSION PLANS IN WHICH:
------------------------ ------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEEDED BENEFITS EXCEEDED BENEFITS
ACCUMULATED EXCEEDED ACCUMULATED EXCEEDED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested accumulated benefit obligation $(1,189,096) $(32,826) $(1,266,994) $(33,072)
Non-vested accumulated benefit obligation (1,817) (4,024) (3,903) (4,877)
----------- -------- ----------- --------
Accumulated benefit obligation (1,190,913) (36,850) (1,270,897) (37,949)
Effect of assumed increase in compensation levels (13,291) (18,369) (17,430) (17,309)
----------- -------- ----------- --------
Projected benefit obligation (1,204,204) (55,219) (1,288,327) (55,258)
Plan assets at fair value 1,284,467 14,630 1,445,016 12,503
----------- -------- ----------- --------
Plan assets in excess of (less than) projected
benefit obligation 80,263 (40,589) 156,689 (42,755)
Unrecognized net liability at transition 3,542 2,707 3,460 1,368
Unrecognized net loss (gain) 73,872 3,335 (13,526) 13,224
Unrecognized prior service cost (benefit) 4,369 (1,612) (2,833) (1,594)
----------- -------- ----------- --------
Prepaid (accrued) benefit cost $ 162,046 $(36,159) $ 143,790 $(29,757)
=========== ======== =========== ========
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Supplemental Retirement and Other Benefit Plans
The Corporation also has supplemental retirement and other benefit plans. The
unfunded projected benefit obligation was $7,987 and $8,959 in 1994 and 1993,
respectively. Supplemental retirement and other benefit plan costs were $1,408,
$1,469, and $1,305 in 1994, 1993, and 1992, respectively.
- --------------------------------------------------------------------------------
Postretirement Benefits Other Than Pensions
The Corporation provides health and life insurance benefits to retired
employees. The health care component is contributory, with retiree contributions
adjusted periodically. The life insurance component of the plan is
noncontributory. The accounting for health care anticipates future changes in
cost-sharing provisions. The Corporation pays claims as incurred. Full-time
employees of the Corporation become eligible for these benefits upon attainment
of age 55 and completion of ten years of service. The Corporation reserves the
right to amend or terminate these programs at any time. As of December 30, 1994,
the plan had not been funded. Net periodic postretirement benefit expense
included the following components:
<TABLE>
<CAPTION>
============================================================
1994 1993
- ------------------------------------------------------------
<S> <C> <C>
Service cost $ 3,947 $ 4,593
Amortization of unrecognized gain (235) --
Interest cost on accumulated
postretirement benefit obligation 9,074 11,254
------- -------
TOTAL $12,786 $15,847
======= =======
- ------------------------------------------------------------
</TABLE>
The amounts recognized for the Corporation's postretirement benefit plans
follow:
<TABLE>
<CAPTION>
================================================================================
1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 52,486 $ 58,597
Fully eligible active plan participants 34,627 36,769
Other active plan participants 40,749 42,254
-------- --------
Subtotal 127,862 137,620
Unrecognized net gain from past experience
different from that assumed and from
changes in assumptions 31,660 16,900
-------- --------
Postretirement benefits accrued liability $159,522 $154,520
======== ========
- --------------------------------------------------------------------------------
</TABLE>
The following actuarial assumptions were used in calculating the
postretirement benefit cost and obligations. Rates as of the beginning of the
year are:
<TABLE>
<CAPTION>
===========================================================================
1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C>
Discount rate 8.2% 6.8%
Health care cost trend rates (assumed to decrease
gradually until the year 2000 and remain constant
thereafter):
Pre-65 11.0%- 12.0%-
6.0% 5.5%
Post-65 9.0%- 10.0%-
6.0% 4.5%
- ---------------------------------------------------------------------------
</TABLE>
--------------------
42
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in Thousands, Except Per Share Amounts)
The assumed health care cost trend rate has a significant effect on the
amounts reported above. Increasing the assumed trend rate by one percentage
point per year would increase the accumulated postretirement benefit obligation
as of December 30, 1994 and December 31, 1993 by $16,807 and $19,312,
respectively, and increase the aggregate of service and interest costs for 1994
and 1993 by $1,948 and $2,659, respectively.
- --------------------------------------------------------------------------------
Postemployment Benefits
The Corporation provides certain postemployment benefits for employees on
extended leave due to injury or illness and for terminated employees. The
Corporation is mandated by state regulation to provide reimbursements for
medical costs, rehabilitation costs, and certain lost wages to employees in the
event of work-related illness or injury. Employees that are disabled due to non-
work-related illness or injury are entitled to salary continuation, medical
coverage, and life insurance. Federal law requires the Corporation to offer
continued medical coverage to all terminated employees for up to 18 months. The
Corporation also provides severance benefits to terminated employees. Full-time
employees are eligible for all of these benefits as of their first day of
employment. Nevertheless, the Corporation reserves the right to amend or
terminate its internal plans at any time. The Corporation funds these benefit
requirements through a combination of self-insured and insured plans.
The Corporation recognized $75,703 and $79,199 in 1994 and 1993,
respectively (excluding the 1993 cumulative effect adjustment), of
postemployment benefits expense, which included severance costs for terminated
employees of $65,763 in 1994 and $59,500 in 1993. Although all full-time
employees are eligible for severance benefits, no additional amounts were
accrued as of December 30, 1994 since future severance costs are not reasonably
estimable.
================================================================================
EMPLOYEE STOCK PLANS
The Corporation's primary employee incentive stock plans are: (i) the Merrill
Lynch & Co., Inc. Long-Term Incentive Compensation Plan ("LTICP"); (ii) the
Merrill Lynch & Co., Inc. Equity Capital Accumulation Plan ("ECAP"); and (iii)
the Financial Consultant Capital Accumulation Award Plan ("FCCAAP"). The
Corporation also offers its employees the option of purchasing shares of common
stock under the Merrill Lynch & Co., Inc. Employee Stock Purchase Plan
("ESPP").
- --------------------------------------------------------------------------------
LTICP AND ECAP
Restricted Shares and Units
LTICP and ECAP provide for grants of equity and equity-related instruments to
certain key employees of the Corporation. LTICP provides for the issuance of,
among other instruments, Restricted Shares and Restricted Units. ECAP provides
for the issuance of, among other instruments, Restricted Shares. Restricted
Shares and Restricted Units are restricted from being sold, transferred, or
assigned until the end of a restricted period and are subject to forfeiture
during a vesting period for LTICP grants or the restricted period for ECAP
grants. Restricted Shares, which may be issued under LTICP and ECAP, are shares
of common stock of the Corporation and are subject to identical restrictions.
Restricted Units, which are issued under LTICP, are also subject to these
restrictions and are payable in cash. Each Restricted Unit is deemed equivalent
in fair market value to one share of common stock of the Corporation. Restricted
Shares are entitled to the same dividends as other shares of common stock of the
Corporation. Amounts equivalent to cash dividends payable on Restricted Shares
are payable to holders of Restricted Units. LTICP also allows for the issuance
of Nonqualified Stock Options (discussion to follow), Incentive Stock Options,
Performance Shares, Performance Units, Stock Appreciation Rights, and other ML &
Co. Securities. As of December 30, 1994, no grants of these additional
instruments, other than Nonqualified Stock Options, had been granted under
LTICP. ECAP also provides for the issuance of Performance Shares. At December
30, 1994 and December 31, 1993, there were no ECAP Performance Shares
outstanding.
Up to 80,000,000 shares of the Corporation's common stock and 80,000,000
units payable in cash had been authorized for issuance under LTICP and up to
26,200,000 shares of the Corporation's common stock had been authorized for
issuance under ECAP. At December 30, 1994, there were 25,818,379 shares
available (net of shares reserved for issuance upon the exercise of stock
options) for issuance under LTICP. At December 30, 1994, there were 3,342,439
shares available for issuance to employees under ECAP. The activity with respect
to Restricted Shares and Restricted Units for LTICP and Restricted Shares for
ECAP for the years ended December 30, 1994 and December 31, 1993 follows:
<TABLE>
<CAPTION>
===================================================================================
LTICP ECAP
---------------------- ----------
RESTRICTED RESTRICTED RESTRICTED
SHARES UNITS SHARES
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, beginning of 1993 4,918,230 5,083,318 6,962,698
Granted--1993 1,720,818 1,765,306 67,638
Paid, forfeited, or released from
contingencies (4,906,894) (4,950,356) (4,938,546)
--------- --------- ---------
Outstanding, end of 1993 1,732,154 1,898,268 2,091,790
Granted--1994 1,355,638 1,495,948 6,360
Paid, forfeited, or released from
contingencies (136,991) (180,822) (157,654)
--------- --------- ---------
Outstanding, end of 1994 2,950,801 3,213,394 1,940,496
========= ========= =========
- -----------------------------------------------------------------------------------
</TABLE>
In 1995, 1,677,394 and 1,692,028 LTICP Restricted Shares and Units,
respectively, and 39,588 ECAP Restricted Shares were granted to eligible
employees.
--------------------
43
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in Thousands, Except Per Share Amounts)
- --------------------------------------------------------------------------------
Stock Options
LTICP also provides for the issuance of Nonqualified Stock Options. Stock
Options granted in 1989 through 1994 generally become exercisable over four
years in equal installments commencing one year after the date of grant. The
exercise price of these options is equal to 100% of the fair market value of a
share of common stock on the date of grant. The Stock Options expire ten years
after their grant date.
At December 30, 1994, 14,301,246 options were exercisable at prices ranging
from $10.6875 to $40.6250. During 1994, the fair market value of shares acquired
by the exercise of Stock Options ranged from $33.000 to $44.625. The activity
for Nonqualified Stock Options under LTICP for the years ended December 30, 1994
and December 31, 1993 was as follows:
<TABLE>
<CAPTION>
============================================================
SHARES SUBJECT TO OPTION
------------------------
1994 1993
- ------------------------------------------------------------
<S> <C> <C>
Balance, beginning of year 27,004,771 27,408,324
Granted 4,527,100 5,862,666
Exercised (2,649,411) (5,742,374)
Forfeited or surrendered (474,527) (523,845)
---------- ----------
Balance, end of year 28,407,933 27,004,771
========== ==========
- ------------------------------------------------------------
</TABLE>
In January 1995, eligible participants were granted Nonqualified Stock Options
for 5,330,212 common shares.
- --------------------------------------------------------------------------------
FCCAAP
Under FCCAAP and its predecessor plans, eligible employees in the Corporation's
private client group are granted awards generally based upon their prior year's
performance. Payment for an award is contingent upon continued employment for a
period of time and is subject to forfeiture during that period. The award is
payable ten years from the date of grant in either common shares of the
Corporation or in cash, whichever is greater, based on the market value of the
Corporation's common stock. Although the first grant is scheduled to be paid in
1996, under certain circumstances partially vested grants may be partially paid,
but only in cash, prior to the scheduled payment dates.
A total of 20,222,830 shares of the Corporation's common stock are
authorized for issuance under the FCCAAP. Shares of common stock issuable under
the FCCAAP and predecessor plans may only be from shares held as treasury stock.
At December 30, 1994, shares subject to awards made to eligible employees
totaled 14,302,494 under such plans, with 5,589,439 shares available for
issuance.
- --------------------------------------------------------------------------------
ESPP
ESPP allows eligible employees to invest from 1% to 10% of their eligible
compensation to purchase the Corporation's common stock at a price equal to 85%
of its fair market value. These purchases are made on four quarterly investment
dates through payroll deductions. Up to 25,000,000 shares of the Corporation's
common stock have been authorized for issuance under ESPP.
The activity in ESPP for the two most recent fiscal years was as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
ESPP SHARES
---------------------
1994 1993
- ------------------------------------------------------------
<S> <C> <C>
Available, beginning of year 6,930,356 7,914,788
Purchased through plan (1,072,907) (984,432)
---------- ---------
Available, end of year 5,857,449 6,930,356
========== =========
- ------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Incentive Equity Purchase Plan
The Incentive Equity Purchase Plan ("IEPP") allows selected employees to
purchase shares of the Corporation's common stock ("Book Value Shares") at a
price equal to book value per share (as of a valuation date preceding the
purchase date). These shares, once held for six months, may be sold back to the
Corporation at book value (adjusted for certain nonrecurring events) as of a
date preceding the sale, or exchanged at any time for a specified number of
freely transferable shares of common stock of the Corporation, the number of
which is determined by the ratio of book value to market value at the time of
the purchase. Up to 30,000,000 shares of the Corporation's common stock have
been authorized for issuance under IEPP. At December 30, 1994, 23,967,799 shares
of the Corporation's common stock were available for purchase under IEPP. Book
Value Shares outstanding as of December 30, 1994 and December 31, 1993 were
1,372,700 and 1,464,900, respectively. Subsequent to year-end, the Corporation
amended IEPP by reducing the remaining number of shares authorized to zero. In
addition, Book Value Shares surrendered under IEPP, including Book Value Shares
resold to the Corporation and any net difference between Book Value Shares
surrendered and market shares received, may not be reused under IEPP. No further
offerings under IEPP will be made; however, Book Value Shares outstanding under
IEPP remain unaffected by the amendment.
================================================================================
COMMITMENTS AND CONTINGENCIES
Litigation
There are numerous civil actions, arbitration proceedings, and claims pending
against the Corporation as of December 30, 1994, some of which involve claims
for substantial amounts.
In addition, on January 12, 1995, an action was commenced in the United
States Bankruptcy Court for the Central District of California (the "Bankruptcy
Court") by Orange County, California (the "County") and The Orange County
Investment Pools (the "Pools"), both of which filed bankruptcy petitions in
the Bankruptcy Court on December 6, 1994, against the Corporation and certain of
its subsidiaries in connection with the Corporation's business activities with
the County.
The County and the Pools seek relief totaling in excess of $2 billion in
connection with various securities transactions between the County and/or the
Pools and the Corporation
--------------------
44
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in Thousands, Except Per Share Amounts)
and its subsidiaries. The complaint alleges, among other things, that these
transactions violated California law and should be adjudged null and void, that
the Corporation and its subsidiaries violated Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and that the
Corporation and its subsidiaries breached a fiduciary duty owed to the County
and/or the Pools.
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 the United States District Court for the Central District of
California, the United States District Court for the Southern District of New
York, and in the state courts in California and New York. These include 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
the County and the Pools, or from the purchase of debt instruments issued by the
County that were underwritten by the Corporation's subsidiary, MLPF&S.
Although the ultimate outcome of these matters cannot be ascertained at
this time and the results of legal proceedings cannot be predicted with
certainty, it is the opinion of management that the resolution of these matters
will not have a material adverse effect on the consolidated financial statements
of the Corporation contained herein. Item 3, "Legal Proceedings," in the
Corporation's 1994 Annual Report on Form 10-K, which is unaudited and available
upon request after filing, contains additional information concerning pending
lawsuits.
- --------------------------------------------------------------------------------
Leases
The Corporation has entered into various noncancelable long-term lease
agreements for premises and equipment that expire through 2024, including the
World Financial Center ("WFC") headquarters. The Corporation has also entered
into various noncancelable short-term lease agreements which are primarily
monthly commitments of less than one year under equipment leases. Future minimum
rental commitments with initial or remaining noncancelable lease terms exceeding
one year are presented below:
<TABLE>
<CAPTION>
====================================================================
WFC OTHER TOTAL
- --------------------------------------------------------------------
<S> <C> <C> <C>
Minimum Rental
Commitments:
1995 $ 124,553 $181,826 $ 306,379
1996 $ 125,067 $174,137 $ 299,204
1997 $ 125,580 $156,350 $ 281,930
1998 $ 129,766 $139,735 $ 269,501
1999 $ 142,503 $125,746 $ 268,249
Thereafter $2,303,293 $621,554 $2,924,847
- --------------------------------------------------------------------
</TABLE>
Total minimum rental commitments have not been reduced by $1,086,576 of
minimum sublease rentals to be received in the future under noncancelable
subleases.
Rent expense after sublease revenue for each of the last three years is
presented below:
<TABLE>
<CAPTION>
====================================================================
1994 1993 1992
- --------------------------------------------------------------------
<S> <C> <C> <C>
Rent expense $394,782 $412,623 $416,692
Less: sublease revenue (78,634) (60,239) (55,988)
-------- -------- --------
Net rent expense $316,148 $352,384 $360,704
======== ======== ========
- --------------------------------------------------------------------
</TABLE>
================================================================================
Other Commitments
In the normal course of business, the Corporation enters into when-issued
transactions and underwriting commitments. Settlement of these transactions as
of December 30, 1994, would not have a material effect on the consolidated
financial condition of the Corporation.
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. A standby letter of credit represents the guarantee of an
obligation to a beneficiary on the part of an issuer. Letters of credit
aggregated $1,161,093 at December 30, 1994.
The Corporation provides an investment certificate program for Financial
Consultants. Under this program, Financial Consultants meeting minimum
production and asset gathering criteria are issued an investment certificate
with a face amount of $100. Such certificates mature ten years from date issued
and are payable if certain performance requirements are achieved. Failure to
achieve such performance requirements and to be continuously employed by the
Corporation for the ten-year period results, with certain exceptions, in the
certificates expiring. The certificates bear interest commencing with the date
the performance requirements are achieved. Financial Consultants who do not
initially meet the eligibility requirements become eligible to receive similar
certificates upon meeting such requirements. As of December 30, 1994, the
Corporation had $147,372 accrued under this plan.
The Corporation has service agreements with providers of communications and
data processing services. Under the terms of these agreements, the Corporation
receives various communications and market data services. As of December 30,
1994, minimum fee commitments under these contracts aggregated $54,600.
================================================================================
INDUSTRY AND GLOBAL OPERATIONS
The Corporation operates principally in the financial services industry and
services individual and institutional clients. These services, due to certain
legal requirements, are conducted through various subsidiaries including those
operating as brokers and dealers, insurance companies, and banks.
The Corporation operates in both international and domestic markets. The
Corporation's international business activities operate through regional offices
in the Americas, including Latin America and Canada; Europe and the Middle
--------------------
45
<PAGE>
================================================================================
East; and Asia Pacific. In Canada, the Corporation is a broker for securities
and commodities and a market-maker for bonds and money market instruments. The
Corporation also provides investment banking and research for Canadian
customers.
The Latin American region provides international banking, brokerage, and
trust services and has been instrumental in the privatization of many Latin
American companies. Europe and Middle Eastern operations offer international
investment and private banking services, research, and dealer services in
Eurobonds, derivatives, equity and fixed-income securities, futures, commodity
contracts, and options.
The Corporation's Asia Pacific operations conduct business throughout
various countries including Japan, Australia, Hong Kong, Singapore, and China.
The Corporation has exchange memberships in the region's major financial
centers. Traditional retail and institutional services are provided in virtually
all locations.
Although no one method of allocating revenues, expenses, and assets is
completely precise, the principal methodology used in preparing international
data set forth below includes the following: (i) commission revenues are
recorded at the location of the sales force; (ii) trading revenues are
principally recorded at the location of the trader; (iii) investment banking
revenues are recorded at the location of the client; and (iv) asset management
and portfolio service fees are recorded at the location of the fund manager.
Earnings before income taxes include the allocation of certain shared expenses
among regions. In addition, intercompany transfers are based primarily on
service agreements.
The information presented below, in management's judgment, provides a
reasonable representation of each region's contribution to the consolidated
amounts.
<TABLE>
<CAPTION>
=================================================================================================
GLOBAL
OPERATIONS 1994 1993 1992 1994 1993 1992
- -------------------------------------------------------------------------------------------------
(In Millions) TOTAL REVENUES NET REVENUES
-------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Canada and Latin America $ 617 $ 526 $ 378 $ 333 $ 377 $ 259
Europe and Middle East 3,464 3,111 1,867 1,134 1,358 953
Asia Pacific 963 879 374 554 683 309
------- ------- ------- -------- -------- --------
Subtotal 5,044 4,516 2,619 2,021 2,418 1,521
United States 13,754 13,475 11,685 7,703 9,309 7,833
Eliminations (565) (1,403) (891) (99) (1,169) (777)
------- ------- ------- -------- -------- --------
TOTAL $18,233 $16,588 $13,413 $ 9,625 $ 10,558 $ 8,577
======= ======= ======= ======== ======== ========
<CAPTION>
EARNINGS BEFORE
INCOME TAXES TOTAL ASSETS
--------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Canada and Latin America $ 137 $ 139 $ 89 $ 4,216 $ 5,658 $ 2,145
Europe and Middle East 176 481 181 44,297 37,107 15,645
Asia Pacific 75 191 (3) 11,389 8,546 2,865
------- ------- ------- -------- -------- --------
Subtotal 388 811 267 59,902 51,311 20,655
United States 1,342 1,614 1,354 108,147 106,132 88,835
Eliminations -- -- -- (4,300) (4,533) (2,466)
------- ------- ------- -------- -------- --------
TOTAL $ 1,730 $ 2,425 $ 1,621 $163,749 $152,910 $107,024
======= ======= ======= ======== ======== ========
- -------------------------------------------------------------------------------------------------
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Merrill Lynch & Co., Inc.:
We have audited the accompanying consolidated balance sheets of Merrill Lynch &
Co., Inc. and subsidiaries as of December 30, 1994 and December 31, 1993 and the
related statements of consolidated earnings, changes in consolidated
stockholders' equity and consolidated cash flows for each of the three years in
the period ended December 30, 1994. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Corporation and its
subsidiaries at December 30, 1994 and December 31, 1993, and the results of
their operations and their cash flows for each of the three years in the period
ended December 30, 1994 in conformity with generally accepted accounting
principles.
As discussed in the note to the consolidated financial statements entitled
"Accounting Changes," in 1993 the Corporation and its subsidiaries changed
their method of accounting for postemployment benefits and their method of
accounting for certain investments in debt and equity securities to conform with
Statements of Financial Accounting Standards No. 112 and No. 115, respectively,
and in 1992 changed their method of accounting for postretirement benefits other
than pensions and their method of accounting for income taxes to conform with
Statements of Financial Accounting Standards No. 106 and No. 109, respectively.
/s/ Deloitte & Touche LLP
New York, New York
February 27, 1995
--------------------
46
<PAGE>
================================================================================
FIVE-YEAR FINANCIAL SUMMARY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Last Friday in December
-----------------------------------------------------------------------------------------------------
(Dollars in Thousands) 1990 1991 1992 1993 1994
- ---------------------------------------------------------------------------------------------------------------------------------
REVENUES (52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks) (52 Weeks)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMMISSIONS
Listed securities $ 840,650 7.6% $1,064,977 8.6% $1,147,142 8.6% $1,404,110 8.5% $1,361,144 7.5%
Mutual funds 389,524 3.5 519,089 4.2 667,519 5.0 846,213 5.1 878,741 4.8
Commodities 144,916 1.3 146,704 1.2 142,509 1.1 178,733 1.1 216,613 1.2
Money market instruments 189,963 1.7 175,980 1.4 190,525 1.4 165,028 1.0 109,278 0.6
Other 204,101 1.8 259,551 2.1 274,389 2.0 300,144 1.8 304,765 1.7
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total 1,769,154 15.9 2,166,301 17.5 2,422,084 18.1 2,894,228 17.5 2,870,541 15.8
INTEREST AND DIVIDENDS 5,944,706 53.3 5,761,061 46.7 5,806,710 43.3 7,099,155 42.8 9,577,561 52.5
PRINCIPAL TRANSACTIONS
Interest rate and currency
swaps 170,430 1.5 239,895 2.0 389,460 2.9 605,293 3.7 749,167 4.1
Equities and equity
derivatives 332,380 3.0 533,763 4.3 614,445 4.6 870,603 5.2 626,293 3.4
Taxable fixed-income 594,970 5.4 818,841 6.6 735,724 5.5 963,847 5.8 462,450 2.6
Municipals 258,370 2.3 246,605 2.0 268,020 2.0 322,543 1.9 387,735 2.1
Foreign exchange and
commodities 102,831 0.9 66,624 0.5 158,076 1.1 158,153 1.0 109,279 0.6
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total 1,458,981 13.1 1,905,728 15.4 2,165,725 16.1 2,920,439 17.6 2,334,924 12.8
INVESTMENT BANKING
Underwriting 534,835 4.8 1,020,310 8.2 1,308,787 9.8 1,646,960 9.9 988,454 5.4
Strategic services 260,609 2.3 155,682 1.3 175,280 1.3 184,293 1.1 251,011 1.4
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total 795,444 7.1 1,175,992 9.5 1,484,067 11.1 1,831,253 11.0 1,239,465 6.8
ASSET MANAGEMENT AND
PORTFOLIO SERVICE FEES 815,739 7.3 1,003,904 8.1 1,252,829 9.3 1,557,778 9.4 1,739,452 9.5
OTHER 363,205 3.3 339,826 2.8 281,253 2.1 285,324 1.7 471,148 2.6
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
TOTAL REVENUES 11,147,229 100.0 12,352,812 100.0 13,412,668 100.0 16,588,177 100.0 18,233,091 100.0
INTEREST EXPENSE 5,363,900 48.1 5,106,344 41.3 4,835,267 36.0 6,029,947 36.4 8,608,570 47.2
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
NET REVENUES 5,783,329 51.9 7,246,468 58.7 8,577,401 64.0 10,558,230 63.6 9,624,521 52.8
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
NON-INTEREST
EXPENSES
Compensation and
benefits 3,077,485 53.2 3,867,849 53.4 4,364,454 50.9 5,255,258 49.8 4,951,839 51.5
Occupancy 519,156 9.0 473,562 6.5 477,754 5.6 572,936 5.4 436,168 4.5
Communications and
equipment rental 375,432 6.5 356,850 4.9 366,161 4.3 385,809 3.6 432,214 4.5
Depreciation and
amortization 289,361 5.0 276,125 3.8 281,228 3.3 308,499 2.9 325,121 3.4
Advertising and market
development 225,712 3.9 249,844 3.5 301,146 3.5 376,881 3.6 374,619 3.9
Professional fees 233,565 4.0 235,344 3.3 256,887 3.0 290,324 2.7 367,003 3.8
Brokerage, clearing, and
exchange fees 234,031 4.1 239,828 3.3 277,166 3.2 280,712 2.7 337,512 3.5
Other 546,259 9.4 529,648 7.3 631,216 7.3 663,003 6.3 670,441 6.9
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
TOTAL NON-INTEREST EXPENSES 5,501,001 95.1 6,229,050 86.0 6,956,012 81.1 8,133,422 77.0 7,894,917 82.0
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
EARNINGS BEFORE INCOME
TAXES AND CUMULATIVE
EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES 282,328 4.9 1,017,418 14.0 1,621,389 18.9 2,424,808 23.0 1,729,604 18.0
Income Tax Expense 90,472 1.6 321,301 4.4 668,984 7.8 1,030,449 9.8 712,843 7.4
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
EARNINGS BEFORE CUMULATIVE
EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES 191,856 3.3 696,117 9.6 952,405 11.1 1,394,359 13.2 1,016,761 10.6
Cumulative Effect of
Changes in Accounting
Principles, Net of
Income Taxes -- -- -- -- (58,580) (.7) (35,420) (.3) -- --
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
NET EARNINGS $ 191,856 3.3% $ 696,117 9.6% $ 893,825 10.4% $1,358,939 12.9% $1,016,761 10.6%
========== ===== ========== ===== ========== ===== ========== ===== ========== =====
</TABLE>
- --------------------------------------------------------------------------------
*Revenues and Interest Expense are presented as a percentage of Total Revenues.
Non-Interest Expenses, Cumulative Effect of Changes in Accounting Principles,
and Earnings are presented as a percentage of Net Revenues.
--------------------
47
<PAGE>
================================================================================
STATISTICAL DATA
Selected statistical data for the last five fiscal years is presented for
informational purposes below.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Last Friday in December
----------------------------------------------------------------------
(Dollars in Millions) 1990 1991 1992 1993 1994
- ----------------------------------------------------------------------------------------------------------------------------
(52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks) (52 Weeks)
<S> <C> <C> <C> <C> <C>
PRIVATE CLIENT ACCOUNTS (a):
Assets in Worldwide Private Client Accounts $377,000 $440,000 $487,000 $557,000 $568,000
Assets in Domestic Private Client Accounts $361,000 $422,000 $463,000 $527,000 $537,000
Assets under Professional Management:
Money Markets $ 66,000 $ 67,000 $ 67,000 $ 66,000 $ 67,000
Equities 9,000 12,000 16,000 30,000 37,000
Fixed Income 20,000 27,000 35,000 42,000 36,000
Private Portfolio 8,000 11,000 13,000 17,000 20,000
Insurance 7,000 7,000 8,000 6,000 4,000
-------- -------- -------- -------- --------
Subtotal 110,000 124,000 139,000 161,000 164,000
ML Consults 2,100 5,200 12,200 16,900 14,400
-------- -------- -------- -------- --------
TOTAL $112,100 $129,200 $151,200 $177,900 $178,400
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------
UNDERWRITING (b):
Global Debt and Equity:
Volume $ 60,600 $110,500 $151,000 $193,200 $137,800
Market Share 11.5% 12.7% 13.0% 12.8% 12.6%
U.S. Domestic Debt and Equity:
Volume $ 55,000 $100,300 $140,600 $173,800 $117,000
Market Share 17.5% 17.0% 16.5% 16.4% 16.5%
- ----------------------------------------------------------------------------------------------------------------------------
FULL-TIME EMPLOYEES:
Domestic 35,323 34,721 36,111 37,513 38,726
International 3,677 3,579 3,989 4,387 5,074
-------- -------- -------- -------- --------
TOTAL 39,000 38,300 40,100 41,900 43,800
======== ======== ======== ======== ========
Financial Consultants and Account Executives
Worldwide 11,800 12,100 12,700 13,100 13,400
COMPENSATION MEASURES:
Support Personnel to Producer Ratio (c) 1.55 1.47 1.44 1.43 1.46
Net Revenues per Employee (d) $148 $189 $214 $252 $220
Pretax Earnings per Employee (d) $ 7 $ 27 $ 40 $ 58 $ 39
Compensation and Benefits Expense as a % of
Net Revenues 53.2% 53.4% 50.9% 49.8% 51.5%
Compensation and Benefits Expense as a % of
Total Non-Interest Expenses 55.9% 62.1% 62.7% 64.6% 62.7%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Client accounts have been redefined 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) Dollars in thousands.
--------------------
48
<PAGE>
================================================================================
QUARTERLY INFORMATION
- --------------------------------------------------------------------------------
Presented below are the unaudited results of operations of the Corporation by
quarter for 1994 and 1993. The first quarter of 1993 has been restated for the
adoption of Statement of Financial Accounting Standards No. 112 (see Accounting
Changes in the Notes to Consolidated Financial Statements). The quarterly
information is prepared in conformity with generally accepted accounting
principles and reflects all adjustments (which consist of only normal recurring
adjustments except as noted above, and the 1993 first quarter non-recurring
$103,000 pretax lease charge related to the Corporation's decision not to occupy
certain floors at its headquarters facility) that are, in the opinion of
management, necessary for a fair presentation of the results of operations for
the periods presented. The nature of the Corporation's business is such that the
results of an interim period are not necessarily indicative of results for a
full year.
================================================================================
<TABLE>
<CAPTION>
For the Quarter Ended
----------------------------------------------------------------------------------------------
(Dollars in Thousands, DEC. 30, SEPT. 30, JULY 1, APRIL 1, DEC. 31, SEPT. 24, JUNE 25, MAR. 26,
Except Per Share Amounts) 1994 1994 1994 1994 1993 1993 1993 1993
- ----------------------------------------------------------------------------------------------------------------------------------
(13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks) (14 Weeks) (13 Weeks) (13 Weeks) (13 Weeks)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenues $4,483,757 $4,530,223 $4,480,300 $4,738,811 $4,526,136 $4,140,048 $3,963,009 $3,958,984
Interest Expense 2,391,028 2,227,978 2,082,581 1,906,983 1,768,139 1,506,428 1,408,512 1,346,868
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Revenues 2,092,729 2,302,245 2,397,719 2,831,828 2,757,997 2,633,620 2,554,497 2,612,116
Non-Interest Expenses 1,837,517 1,912,723 1,965,057 2,179,620 2,160,717 1,991,321 1,959,589 2,021,795
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings Before Income Taxes and
Cumulative Effect of Change in
Accounting Principle 255,212 389,522 432,662 652,208 597,280 642,299 594,908 590,321
Income Tax Expense 93,598 157,943 180,853 280,449 250,041 282,612 249,861 247,935
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings Before Cumulative Effect
of Change in Accounting Principle 161,614 231,579 251,809 371,759 347,239 359,687 345,047 342,386
Cumulative Effect of Change in
Accounting Principle (Net of
Applicable Income Taxes) -- -- -- -- -- -- -- (35,420)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Earnings $ 161,614 $ 231,579 $ 251,809 $ 371,759 $ 347,239 $ 359,687 $ 345,047 $ 306,966
========== ========== ========== ========== ========== ========== ========== ==========
==================================================================================================================================
Earnings Per Common Share:
Primary $ .76 $ 1.10 $ 1.18 $ 1.68 $ 1.53 $ 1.57 $ 1.52 $ 1.35
========== ========== ========== ========== ========== ========== ========== ==========
Fully Diluted $ .75 $ 1.10 $ 1.18 $ 1.68 $ 1.53 $ 1.56 $ 1.51 $ 1.35
========== ========== ========== ========== ========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The 1993 first quarter includes the cumulative effect of a change in accounting
principle of $(.16) per common share primary and fully diluted.
================================================================================
DIVIDENDS PER COMMON SHARE
(Declared and paid)
<TABLE>
<CAPTION>
==============================================================================
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 $.20 $.23 $.23 $.23
- ------------------------------------------------------------------------------
1993 $.15 $.175 $.175 $.20
- ------------------------------------------------------------------------------
</TABLE>
There are no restrictions on the Corporation's present ability to pay dividends
on common stock, other than (a) the Corporation's obligation first to make
dividend payments on its preferred stock and (b) the governing provisions of the
Delaware General Corporation Law. Certain subsidiaries' ability to declare
dividends may also be limited (see Regulatory Requirements and Dividend
Restrictions in the Notes to Consolidated Financial Statements).
================================================================================
STOCKHOLDER INFORMATION
Consolidated Transaction Reporting System prices for the specified calendar
quarters are noted below.
================================================================================
<TABLE>
<CAPTION>
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
HIGH LOW HIGH LOW HIGH LOW HIGH LOW
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 $45 5/8 $36 1/2 $40 1/2 $34 1/4 $40 7/8 $34 1/4 $41 1/8 $32 1/4
- ----------------------------------------------------------------------------------------------------
1993 $37 1/16 $28 $40 15/16 $33 5/8 $50 7/8 $39 9/16 $51 3/16 $41 3/4
- ----------------------------------------------------------------------------------------------------
</TABLE>
The approximate number of record holders of common stock as of February 3, 1995
was 12,160.
--------------------
49
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
------------------------------
The following are subsidiaries of ML & Co. as of March 24, 1995 and the states
or jurisdictions in which they are organized. Indentation indicates the
principal parent of each subsidiary. Except as otherwise specified, in each
case ML & Co. owns, directly or indirectly, at least 99% of the voting
securities of each subsidiary. The names of particular subsidiaries have been
omitted because, considered in the aggregate as a single subsidiary, they would
not constitute, as of the end of the year covered by this report, a "significant
subsidiary" as that term is defined in Rule 1.02(v) of Regulation S-X, under the
Securities Exchange Act of 1934.
<TABLE>
<CAPTION>
STATE OR JURIS-
NAME DICTION OF ENTITY
- ---- -----------------
<S> <C>
Merrill Lynch & Co., Inc....................................... Delaware
Merrill Lynch, Pierce, Fenner & Smith Incorporated/1/........ Delaware
Broadcort Capital Corp.................................... Delaware
Merrill Lynch & Co., Canada Ltd........................... Ontario
Merrill Lynch Canada Incorporated/Incorporee............ Nova Scotia
Merrill Lynch Life Agency Inc./2/......................... Washington
Merrill Lynch Princeton Incorporated...................... Delaware
ROC Denver, Inc........................................... Delaware
R.O.C. Florida, Inc....................................... Florida
ROC Texas, Inc............................................ Texas
Wagner Stott Clearing Corp./3/............................ Delaware
Green Equity, Inc............................................ New Jersey
Merrill Lynch Bank & Trust Co................................ New Jersey
Merrill Lynch Capital Services, Inc.......................... Delaware
Merrill Lynch Derivative Products, Inc./4/................... Delaware
Merrill Lynch Government Securities Inc...................... Delaware
Merrill Lynch Government Securities of Puerto Rico S.A.... Delaware
Merrill Lynch Money Markets Inc........................... Delaware
Merrill Lynch Group, Inc..................................... Delaware
HQ North Company, Inc..................................... New York
Investor Protection Insurance Company..................... Vermont
Merrill Lynch Capital Partners, Inc....................... Delaware
Merrill Lynch Fiduciary Services, Inc..................... New York
Merrill Lynch Futures Inc................................. Delaware
</TABLE>
- ----------
/1/ MLPF&S also conducts business as "Merrill Lynch & Co."
/2/ Similarly named affiliates and subsidiaries that engage in the sale of life
insurance and annuity products are incorporated in various other
jurisdictions.
/3/ The preferred stock of the corporation is owned by an unaffiliated group of
investors.
/4/ ML & Co. owns 100% of this corporation's outstanding common voting stock.
100% of the outstanding preferred voting stock is held by outside parties.
The board of directors consist of 10 members, 9 of which are ML & Co.
employees and 1 of which represents outside parties.
<PAGE>
<TABLE>
<CAPTION>
STATE OR JURIS-
NAME DICTION OF ENTITY
- ---- -----------------
<S> <C>
MERRILL LYNCH & CO., INC.
MERRILL LYNCH GROUP, INC. (CONT'D)
Merrill Lynch, Hubbard Inc./5/...................... Delaware
Merrill Lynch Insurance Group, Inc.................. Delaware
Merrill Lynch Life Insurance Company.............. Arkansas
ML Life Insurance Company of New York............. New York
Merrill Lynch International Finance Corporation..... New York
Merrill Lynch International Bank Limited.......... England
Merrill Lynch Bank (Suisse) S.A................. Switzerland
Merrill Lynch Trust Company (Jersey) Limited.... Jersey,
Channel Islands
Merrill Lynch L.P. Holdings, Inc.................... Delaware
Merrill Lynch MBP Inc............................... Delaware
Merrill Lynch Mortgage Capital Inc.................. Delaware
Merrill Lynch National Financial.................... Utah
Merrill Lynch Private Capital Inc./6/............... Delaware
Merrill Lynch Trust Company......................... New Jersey
Merrill Lynch Business Financial Services Inc..... Delaware
Merrill Lynch Credit Corporation.................. Delaware
Merrill Lynch Home Equity Acceptance, Inc....... Delaware
Merrill Lynch Trust Company......................... Florida
Merrill Lynch Trust Company of America.............. Illinois
Merrill Lynch Trust Company of California........... California
Merrill Lynch Trust Company of Texas................ Texas
Merrill Lynch/WFC/L, Inc............................ New York
ML Futures Investment Partners Inc.................. Delaware
ML IBK Positions Inc................................ Delaware
Merrill Lynch Capital Corporation/7/........... Delaware
ML Leasing Equipment Corp./8/....................... Delaware
Merlease Leasing Corp............................. Delaware
Merrill Lynch Venture Capital Inc................. Delaware
Princeton Services, Inc./9/......................... Delaware
Merrill Lynch International Incorporated............... Delaware
Merrill Lynch GFX, Inc.............................. Delaware
Merrill Lynch International (Australia) Limited..... New South Wales
Merrill Lynch International Bank.................... United States
Merrill Lynch International Holdings Inc............ Delaware
</TABLE>
- ----------
/5/ This corporation has more than 30 direct or indirect subsidiaries operating
in the United States and serving as either general partners or associate
general partners of real estate limited partnerships.
/6/ This corporation has 12 subsidiaries which have engaged in direct principal
lending and investment management.
/7/ This company has 10 subsidiaries holding or having a direct or indirect
interest in specific investments on its behalf.
/8/ This corporation has more than 45 direct or indirect subsidiaries operating
in the United States and serving as either general partners or associate
general partners of limited partnerships.
/9/ This corporation is the general partner of Merrill Lynch Asset Management,
L.P. (whose limited partner is ML & Co.).
2
<PAGE>
<TABLE>
<CAPTION>
STATE OR JURIS-
NAME DICTION OF ENTITY
- ---- -----------------
<S> <C>
MERRILL LYNCH & CO., INC.
MERRILL LYNCH INTERNATIONAL INCORPORATED
Merrill Lynch Bank (Austria) Aktiengesellschaft A.G....... Austria
Merrill Lynch Bank and Trust Company (Cayman) Limited..... Cayman Islands,
British West Indies
Merrill Lynch International & Co./10/................... Netherlands Antilles
Merrill Lynch Capital Markets A.G......................... Switzerland
Merrill Lynch Europe Limited.............................. England
Merrill Lynch International Limited..................... England
Merrill Lynch Capital Markets PLC....................... England
Merrill Lynch, Pierce, Fenner & Smith
(Brokers & Dealers) Limited.......................... England
Merrill Lynch Europe Ltd.................................. Cayman Islands,
British West Indies
Merrill Lynch Holding GmbH/11/............................ Fed. Rep. of Germany
Merrill Lynch Bank A.G.................................. Fed. Rep. of Germany
Merrill Lynch GmbH...................................... Fed. Rep. of Germany
Merrill Lynch Holding S.A.F............................... France
Merrill Lynch Capital Markets (France) S.A.............. France
Merrill Lynch Hong Kong Securities Limited................ Hong Kong
Merrill Lynch Japan Incorporated............................ Delaware
Merrill Lynch Specialists Inc.................................. Delaware
</TABLE>
- ----------
/10/ A partnership among subsidiaries of ML & Co.
/11/ ML & Co. holds a 50% interest in this corporation, with the remaining 50%
interest held by an outside party.
3
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the following Registration
Statements of Merrill Lynch & Co., Inc. of our reports dated February 27, 1995
included in and incorporated by reference in this Annual Report on Form 10-K of
Merrill Lynch & Co., Inc. for the year ended December 30, 1994.
Filed on Form S-8:
Registration Statement No. 33-41942 (1986 Employee Stock Purchase Plan)
Registration Statement No. 33-17908 (Incentive Equity Purchase Plan)
Registration Statement No. 33-33336 (Long Term Incentive Compensation Plan)
Registration Statement No. 33-51831 (Long Term Incentive Compensation Plan)
Registration Statement No. 33-48846 (401(k) Savings and Investment Plan)
Registration Statement No. 33-51829 (401(k) Savings and Investment Plan)
Registration Statement No. 33-54154 (Non-Employee Directors' Equity Plan)
Registration Statement No. 33-54572 (401(k) Savings and Investment Plan
(Puerto Rico))
Registration Statement No. 33-56427 (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)
<PAGE>
Filed on Form S-3:
Debt Securities
Registration Statement No. 33-54218
Registration Statement No. 2-78338
Registration Statement No. 2-89519
Registration Statement No. 2-83477
Registration Statement No. 33-03602
Registration Statement No. 33-17965
Registration Statement No. 33-27512
Registration Statement No. 33-35456
Registration Statement No. 33-42041
Registration Statement No. 33-45327
Registration Statement No. 33-49947
Registration Statement No. 33-51489
Registration Statement No. 33-52647
Medium Term Notes
Registration Statement No. 2-96315
Registration Statement No. 33-03079
Registration Statement No. 33-05125
Registration Statement No. 33-09910
Registration Statement No. 33-16165
Registration Statement No. 33-19820
<PAGE>
Registration Statement No. 33-23605
Registration Statement No. 33-27549
Registration Statement No. 33-38879
Other Securities
Registration Statement No. 33-19975 (Remarketed Preferred Stock, Series C)
Registration Statement No. 33-33335 (Common Stock)
Registration Statement No. 33-45777 (Common Stock)
Registration Statement No. 33-55363 (Preferred Stock)
/s/ Deloitte & Touche LLP
New York, New York
March 27, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MERRILL
LYNCH & CO., INC.'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 30,
1994.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-30-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-30-1994
<CASH> 2,311,743
<RECEIVABLES> 24,878,038
<SECURITIES-RESALE> 44,459,036
<SECURITIES-BORROWED> 20,993,302
<INSTRUMENTS-OWNED> 63,099,943<F1>
<PP&E> 1,587,639
<TOTAL-ASSETS> 163,749,327
<SHORT-TERM> 24,259,459
<PAYABLES> 16,246,848
<REPOS-SOLD> 51,864,594
<SECURITIES-LOANED> 2,180,186
<INSTRUMENTS-SOLD> 35,101,875
<LONG-TERM> 14,863,383
<COMMON> 315,105
0
618,800
<OTHER-SE> 4,883,640
<TOTAL-LIABILITY-AND-EQUITY> 163,749,327
<TRADING-REVENUE> 2,334,924
<INTEREST-DIVIDENDS> 9,577,561
<COMMISSIONS> 2,870,541
<INVESTMENT-BANKING-REVENUES> 1,239,465
<FEE-REVENUE> 1,739,452
<INTEREST-EXPENSE> 8,608,570
<COMPENSATION> 4,951,839
<INCOME-PRETAX> 1,729,604
<INCOME-PRE-EXTRAORDINARY> 1,016,761
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,016,761
<EPS-PRIMARY> 4.75
<EPS-DILUTED> 4.74
<FN>
<F1>Financial instruments owned includes commodity contracts but excludes
physical commodities and real estate owned totaling $157,964.
</FN>
</TABLE>
