SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 27, 1996
------------------
COMMISSION FILE NUMBER 1-7182
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MERRILL LYNCH & CO., INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-2740599
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
WORLD FINANCIAL CENTER, NORTH TOWER,
NEW YORK, NEW YORK 10281-1332
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 449-1000
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO ___
---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
164,698,292 shares of Common Stock*
(as of the close of business on November 1, 1996)
* Does not include 2,093,251 unallocated reversion shares held in the
Employee Stock Ownership Plan that are not considered outstanding for
accounting purposes.
<PAGE>
Part I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
--------------------
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS (UNAUDITED)
FOR THE THREE
MONTHS ENDED
--------------------
SEPT. 27, SEPT. 29, PERCENT(1)
(In Millions, Except Per Share Amounts) 1996 1995 INCREASE
-------- --------- ----------
REVENUES
Commissions ................................ $ 860 $ 829 4%
Interest and dividends ..................... 3,357 3,004 12
Principal transactions ..................... 818 663 23
Investment banking ......................... 471 354 33
Asset management and portfolio
service fees .............................. 570 484 18
Other ...................................... 125 97 28
------ ------
Total Revenues ............................. 6,201 5,431 14
Interest Expense .......................... 3,108 2,749 13
------ ------
Net Revenues ............................... 3,093 2,682 15
------ ------
NON-INTEREST EXPENSES
Compensation and benefits .................. 1,612 1,392 16
Communications and equipment rental ........ 141 123 15
Occupancy .................................. 116 113 3
Depreciation and amortization .............. 104 93 12
Professional fees .......................... 152 114 33
Advertising and market development ......... 125 102 22
Brokerage, clearing, and exchange fees ..... 103 89 17
Other ...................................... 218 171 27
------ ------
Total Non-Interest Expenses ................ 2,571 2,197 17
------ ------
EARNINGS BEFORE INCOME TAXES ............... 522 485 8
Income tax expense ......................... 191 185 3
------ ------
NET EARNINGS ............................... $ 331 $ 300 10
====== ======
NET EARNINGS APPLICABLE TO COMMON
STOCKHOLDERS .............................. $ 319 $ 289 11
====== ======
EARNINGS PER COMMON SHARE:
Primary .................................. $ 1.69 $ 1.47 15
====== ======
Fully diluted ............................ $ 1.68 $ 1.46 15
====== ======
DIVIDEND PAID PER COMMON SHARE ............. $ .30 $ .26
====== ======
AVERAGE SHARES USED IN COMPUTING EARNINGS
PER COMMON SHARE:
Primary .................................. 189.2 196.4
====== ======
Fully diluted ............................ 190.6 197.2
====== ======
(1) Percentages are based on actual numbers before rounding.
See Notes to Consolidated Financial Statements
2
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS (UNAUDITED)
FOR THE NINE
MONTHS ENDED
--------------------
SEPT. 27, SEPT. 29, PERCENT(1)
(In Millions, Except Per Share Amounts) 1996 1995 INCREASE
-------- --------- ----------
REVENUES
Commissions ............................... $ 2,819 $ 2,279 24%
Interest and dividends .................... 9,407 9,329 1
Principal transactions .................... 2,709 1,952 39
Investment banking ........................ 1,428 938 52
Asset management and portfolio
service fees ............................. 1,661 1,397 19
Other ..................................... 386 325 19
------- -------
Total Revenues ............................ 18,410 16,220 14
Interest Expense ........................ 8,675 8,568 1
------- -------
Net Revenues .............................. 9,735 7,652 27
------- -------
NON-INTEREST EXPENSES
Compensation and benefits ................. 5,044 3,971 27
Communications and equipment rental ....... 409 351 16
Occupancy ................................. 345 333 4
Depreciation and amortization ............. 300 266 12
Professional fees ......................... 422 318 33
Advertising and market development ........ 364 284 28
Brokerage, clearing, and exchange fees .... 310 267 17
Other ..................................... 650 533 22
------- -------
Total Non-Interest Expenses ............... 7,844 6,323 24
------- -------
EARNINGS BEFORE INCOME TAXES .............. 1,891 1,329 42
Income tax expense ........................ 717 519 38
------- -------
NET EARNINGS .............................. $ 1,174 $ 810 45
======= =======
NET EARNINGS APPLICABLE TO COMMON
STOCKHOLDERS ............................. $ 1,139 $ 775 47
======= =======
EARNINGS PER COMMON SHARE:
Primary ................................. $ 5.91 $ 3.95 50
======= =======
Fully diluted ........................... $ 5.89 $ 3.90 51
======= =======
DIVIDENDS PAID PER COMMON SHARE ........... $ .86 $ .75
======= =======
AVERAGE SHARES USED IN COMPUTING EARNINGS
PER COMMON SHARE:
Primary ................................. 192.6 196.3
======= =======
Fully diluted ........................... 193.3 198.8
======= =======
(1) Percentages are based on actual numbers before rounding.
See Notes to Consolidated Financial Statements
3
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in Millions, Except Per Share Amounts) SEPT. 27, DEC. 29,
ASSETS 1996 1995
- ------------------------------------------------------ -------- --------
CASH AND CASH EQUIVALENTS ............................ $ 2,835 $ 3,091
-------- --------
CASH AND SECURITIES SEGREGATED FOR REGULATORY PURPOSES
OR DEPOSITED WITH CLEARING ORGANIZATIONS ............ 5,238 5,412
-------- --------
MARKETABLE INVESTMENT SECURITIES ..................... 2,158 2,365
-------- --------
TRADING ASSETS, AT FAIR VALUE
Corporate debt and preferred stock ................... 22,878 17,581
Contractual agreements ............................... 12,038 11,833
Equities and convertible debentures .................. 13,771 10,843
Non-U.S. governments and agencies .................... 8,596 6,744
U.S. Government and agencies ......................... 9,253 6,672
Mortgages, mortgage-backed, and asset-backed ......... 4,247 3,749
Money markets ........................................ 1,802 1,680
Municipals ........................................... 1,007 1,001
-------- --------
Total ................................................ 73,592 60,103
-------- --------
RESALE AGREEMENTS .................................... 55,873 44,257
-------- --------
SECURITIES BORROWED .................................. 25,968 20,645
-------- --------
RECEIVABLES
Customers (net of allowance for doubtful accounts of
$50 in 1996 and $37 in 1995) ........................ 17,211 14,783
Brokers and dealers .................................. 7,319 9,267
Interest and other ................................... 4,605 4,741
-------- --------
Total ................................................ 29,135 28,791
-------- --------
INVESTMENTS OF INSURANCE SUBSIDIARIES ................ 5,373 5,619
LOANS, NOTES, AND MORTGAGES (NET OF ALLOWANCE FOR
LOAN LOSSES OF $142 IN 1996 AND $131 IN 1995) ....... 3,060 2,172
OTHER INVESTMENTS .................................... 1,084 961
PROPERTY, LEASEHOLD IMPROVEMENTS, AND EQUIPMENT
(NET OF ACCUMULATED DEPRECIATION AND AMORTIZATION
OF $2,431 IN 1996 AND $2,239 IN 1995) ............... 1,629 1,605
OTHER ASSETS ......................................... 1,966 1,836
-------- --------
TOTAL ASSETS ......................................... $207,911 $176,857
======== ========
See Notes to Consolidated Financial Statements
4
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in Millions, Except Per Share Amounts) SEPT. 27, DEC. 29,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- --------------------------------------------------- -------- --------
LIABILITIES
REPURCHASE AGREEMENTS ............................. $ 65,123 $ 56,817
-------- --------
COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS... 36,699 29,546
-------- --------
TRADING LIABILITIES, AT FAIR VALUE
Contractual agreements ............................ 10,209 10,907
U.S. Government and agencies ...................... 14,509 9,089
Equities and convertible debentures ............... 7,049 6,642
Non-U.S. governments and agencies ................. 6,506 4,418
Corporate debt and preferred stock ................ 3,030 2,199
Municipals ........................................ 31 95
-------- --------
Total ............................................. 41,334 33,350
-------- --------
CUSTOMERS ......................................... 10,091 11,391
INSURANCE ......................................... 5,051 5,391
BROKERS AND DEALERS ............................... 6,320 6,366
OTHER LIABILITIES AND ACCRUED INTEREST ............ 12,577 10,515
LONG-TERM BORROWINGS .............................. 24,098 17,340
-------- --------
TOTAL LIABILITIES ................................. 201,293 170,716
-------- --------
STOCKHOLDERS' EQUITY
PREFERRED STOCKHOLDERS' EQUITY .................... 619 619
-------- --------
COMMON STOCKHOLDERS' EQUITY
Common stock, par value $1.33 1/3 per share;
authorized: 500,000,000 shares;
issued: 1996 and 1995 - 236,330,162 shares ..... 315 315
Paid-in capital ................................... 1,306 1,237
Foreign currency translation adjustment ........... 1 11
Net unrealized gains on investment securities
available-for-sale (net of applicable income tax
expense of $9 in 1996 and $13 in 1995) ......... 7 25
Retained earnings ................................. 7,484 6,492
-------- --------
Subtotal ..................................... 9,113 8,080
Less:
Treasury stock, at cost:
1996 - 68,607,716 shares;
1995 - 60,929,278 shares ................ 2,735 2,241
Unallocated ESOP reversion shares, at cost:
1996 - 2,093,251 shares;
1995 - 4,012,519 shares ................. 33 63
Employee stock transactions .................... 346 254
-------- --------
TOTAL COMMON STOCKHOLDERS' EQUITY ................. 5,999 5,522
-------- --------
TOTAL STOCKHOLDERS' EQUITY ........................ 6,618 6,141
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........ $207,911 $176,857
======== ========
BOOK VALUE PER COMMON SHARE ....................... $ 36.38 $ 32.41
======== ========
See Notes to Consolidated Financial Statements
5
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-------------------------
(In Millions) SEPT. 27, SEPT. 29,
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ...................................................... $ 1,174 $ 810
Noncash items included in earnings:
Depreciation and amortization .................................. 300 266
Policyholder reserves .......................................... 204 224
Other .......................................................... 519 534
(Increase) decrease in operating assets:
Trading assets ................................................. (13,460) (9,275)
Cash and securities segregated for regulatory purposes
or deposited with clearing organizations ...................... 173 (407)
Securities borrowed ............................................ (5,323) (2,626)
Customers ...................................................... (2,445) (926)
Other .......................................................... 917 (1,086)
Increase (decrease) in operating liabilities:
Trading liabilities ............................................ 7,984 1,340
Customers ...................................................... (1,301) (2,241)
Insurance ...................................................... (463) (566)
Other .......................................................... 1,911 8,254
-------- --------
CASH USED FOR OPERATING ACTIVITIES ................................ (9,810) (5,699)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from (payments for):
Maturities of available-for-sale securities .................... 2,205 1,171
Sales of available-for-sale securities ......................... 867 865
Purchases of available-for-sale securities ..................... (2,973) (1,993)
Maturities of held-to-maturity securities ...................... 638 890
Purchases of held-to-maturity securities ....................... (353) (767)
Purchase of Smith New Court, net of cash acquired .............. -- (601)
Other investments and other assets ............................. (385) (146)
Property, leasehold improvements, and equipment ................ (323) (256)
-------- --------
CASH USED FOR INVESTING ACTIVITIES ................................ (324) (837)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments for):
Repurchase agreements, net of resale agreements ................ (3,310) 1,367
Commercial paper and other short-term borrowings ............... 7,153 5,323
Issuance and resale of long-term borrowings .................... 11,992 7,616
Settlement and repurchase of long-term borrowings .............. (5,046) (6,369)
Common stock transactions ...................................... (729) (610)
Dividends ...................................................... (182) (170)
-------- --------
CASH PROVIDED BY FINANCING ACTIVITIES ............................. 9,878 7,157
-------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS .................. (256) 621
Cash and cash equivalents, beginning of year ...................... 3,091 2,312
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD .......................... $ 2,835 $ 2,933
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Income taxes totaled $867 in 1996 and $357 in 1995.
Interest totaled $8,387 in 1996 and $8,309 in 1995.
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 27, 1996
(DOLLARS IN MILLIONS)
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Merrill Lynch &
Co., Inc. and subsidiaries (collectively referred to as the "Corporation"). All
material intercompany balances have been eliminated. The December 29, 1995
consolidated balance sheet was derived from the audited financial statements.
The interim consolidated financial statements for the three- and nine-month
periods are unaudited; however, in the opinion of the management of the
Corporation, all adjustments, consisting only of normal recurring accruals,
necessary for a fair statement of the results of operations have been included.
These unaudited financial statements should be read in conjunction with the
audited financial statements included in the Corporation's Annual Report on Form
10-K for the year ended December 29, 1995 ("1995 10-K"). Because of the nature
of the Corporation's business, the results of any interim period are not
necessarily indicative of results for a full year. Prior period financial
statements have been reclassified, where appropriate, to conform to the 1996
presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards("SFAS") No. 123, "Accounting for
Stock-Based Compensation", which is effective for fiscal years beginning after
December 15, 1995. The Corporation has decided not to adopt the cost recognition
provisions of SFAS No. 123 but will disclose, as required, the pro forma impact
of these provisions in its 1996 year-end financial statements.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities", which is
effective for transactions occurring after December 31, 1996. The Corporation
has not yet quantified the impact of adopting SFAS No. 125.
COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS
Commercial paper and other short-term borrowings at September 27, 1996 and
December 29, 1995 are presented below:
Sept. 27, Dec. 29,
1996 1995
--------- ---------
Commercial paper $20,208 $16,969
Demand and time deposits 8,648 8,182
Securities loaned 5,067 2,857
Bank loans and other 2,776 1,538
------- -------
Total $36,699 $29,546
======= =======
7
<PAGE>
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Corporation enters into various derivative contracts and other instruments
with off-balance-sheet risk to meet clients' needs and to manage its own market
risks.
Derivatives
- -----------
Derivative contracts often involve future commitments to exchange interest
payment streams or currencies (such as interest rate and currency swaps or
foreign exchange forwards) or to purchase or sell other financial instruments at
specified terms on a specified date. Options, for example, can be purchased or
written on a wide range of financial instruments such as securities, currencies,
futures, and various market indices.
The contractual or notional amounts of derivatives provide only a measure of
involvement in these types of transactions and represent neither the amounts
subject to the various types of market risk, nor the future cash requirements
under these instruments. The contractual or notional amounts of derivatives used
for trading purposes by type of risk follow:
(Notional amounts in billions)
- ------------------------------
Interest Rate Currency Equity Price Commodity
September 27, 1996 Risk(1)(2) Risk (3) Risk Price Risk
- ------------------ --------------- ---------- ------------ ----------
Swap agreements $1,167 $ 140 $ 12 $ 3
Futures contracts 142 2 5 16
Options purchased 104 60 38 4
Options written 111 57 35 4
Forward contracts 37 160 -- 6
December 29, 1995
- -----------------
Swap agreements $ 851 $ 106 $ 7 $ 3
Futures contracts 215 1 2 2
Options purchased 45 24 38 5
Options written 64 24 41 6
Forward contracts 33 118 -- 25
(1) Certain derivatives subject to interest rate risk are also exposed to
credit risk of the underlying financial instrument, such as total return
swaps and similar instruments.
(2) Forward contracts subject to interest rate risk mainly represent "To Be
Announced" mortgage pools that bear interest rate as well as principal
prepayment risk.
(3) Included in the currency risk category are certain contracts that are also
subject to interest rate risk.
The contractual or notional amounts of derivative financial instruments used for
financing and other non-trading purposes follow:
(Notional amounts in billions)
- ------------------------------ Sept. 27, Dec. 29,
1996 1995
--------- ------------
Interest rate derivatives(1) $34 $31
Foreign currency derivatives(1) 2 3
Equity derivatives 3 1
(1) Includes options embedded in swap contracts that hedge callable debt
totaling $1 billion notional.
8
<PAGE>
A majority of these transactions are entered into with the Corporation's swap
and foreign exchange dealer subsidiaries, which intermediate interest-rate and
currency risk with third parties in the normal course of their trading
activities.
Other Financial Instruments with Off-Balance-Sheet Risk
- -------------------------------------------------------
In the normal course of business, the Corporation also enters into underwriting
commitments, when-issued transactions, and commitments to extend credit.
Settlement of these commitments as of September 27, 1996 would not have a
material effect on the consolidated financial condition of the Corporation.
Subsequent to quarter-end, the Corporation extended a $2,000 loan commitment to
a company in connection with a proposed acquisition transaction. As of November
5, 1996, the Corporation's commitment had been reduced to approximately $500
through syndication. The Corporation continues to syndicate the loan but may
retain a residual portion.
REGULATORY REQUIREMENTS
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a registered
broker-dealer and a subsidiary of the Corporation, is subject to the net capital
requirements of Rule 15c3-1 under the Securities Exchange Act of 1934. Under the
alternative method permitted by this rule, the minimum required net capital, as
defined, shall not be less than 2% of aggregate debit items arising from
customer transactions. At September 27, 1996, MLPF&S's regulatory net capital of
$1,454 was 10% of aggregate debit items, and its regulatory net capital in
excess of the minimum required was $1,152.
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 requirements of the Government Securities Act of 1986. This
rule requires dealers to maintain liquid capital in excess of market and credit
risk, as defined, by 20% (a 1.2-to-1 capital-to-risk standard). At September 27,
1996, MLGSI's liquid capital of $777 was 244% of its total market and credit
risk, and liquid capital in excess of the minimum required was $395.
Merrill Lynch International ("MLI"), a United Kingdom registered broker-dealer
and a subsidiary of the Corporation, is subject to the capital requirements of
the Securities and Futures Authority ("SFA") of the United Kingdom. Financial
resources, as defined, must exceed the total financial resources requirement of
the SFA. At September 27, 1996, MLI's financial resources were $1,367 and
exceeded the minimum requirement by $371.
INTEREST AND DIVIDEND EXPENSE
Interest expense includes payments in lieu of dividends of $3.0 and $2.4 for the
third quarters of 1996 and 1995, respectively. For the nine-month periods ended
September 27, 1996 and September 29, 1995, payments in lieu of dividends were
$6.1 and $8.6, respectively.
LITIGATION MATTER
An action is pending in the United States District Court for the Central
District of California by Orange County, California (the "County") which filed a
bankruptcy petition in the United States Bankruptcy Court for the Central
District of California on December 6, 1994, against the Corporation and certain
of its subsidiaries in connection with the Corporation's business activities
with the Orange County Treasurer-Tax Collector. In addition, other actions are
pending against the Corporation and/or certain of its
9
<PAGE>
officers, directors, and employees and certain of its subsidiaries in federal
and 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 Orange
County Treasurer-Tax Collector, or from the purchase of debt instruments issued
by the County that were underwritten by the Corporation's subsidiary, MLPF&S.
See "Commitments and Contingencies" in the notes to the Corporation's audited
consolidated financial statements contained in the 1995 10-K as well as "Legal
Proceedings" in the 1995 10-K and the 1996 quarterly reports on Form 10-Q.
10
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
Merrill Lynch & Co., Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
Merrill Lynch & Co., Inc. and subsidiaries as of September 27, 1996, and the
related condensed statements of consolidated earnings for the three-and
nine-month periods ended September 27, 1996 and September 29, 1995 and
consolidated cash flows for the nine-month periods ended September 27, 1996 and
September 29, 1995. These financial statements are the responsibility of the
management of Merrill Lynch & Co., Inc.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Merrill Lynch & Co., Inc. and
subsidiaries as of December 29, 1995, and the related statements of consolidated
earnings, changes in consolidated stockholders' equity and consolidated cash
flows for the year then ended (not presented herein); and in our report dated
February 26, 1996, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 29, 1995 is
fairly stated, in all materials respects, in relation to the consolidated
balance sheet from which it has been derived.
/s/ Deloitte & Touche LLP
New York, New York
November 8, 1996
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
Merrill Lynch & Co., Inc. and its subsidiaries (collectively referred to as the
"Corporation") conduct their businesses in global financial markets that are
influenced by a number of factors, including economic and market conditions,
political events, and investor sentiment. The reaction of issuers and investors
to a particular condition or event is unpredictable and can increase volatility
in the marketplace. While higher volatility increases 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 exchange rates, 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 quarter to quarter, and from year to year.
Global financial markets were affected by a slowdown during the 1996 third
quarter after a strong first half. A brief midsummer U.S. stock market
correction combined with increased uncertainty over the direction of U.S.
interest rates led to lower trading and underwriting volumes, particularly in
equities, compared with the first six months of 1996. As a result, industrywide
revenues from such activities declined from first-half highs. Nevertheless,
issuer and investor demand was stronger than in the year-ago quarter.
U.S. equity markets, which declined in the middle of the 1996 third quarter,
recovered in September to record price levels. Mutual fund inflows in the 1996
third quarter were below the record levels of the first half of 1996, but
improved in September as markets recovered. During the quarter, the Dow Jones
Industrial Average and Nasdaq Composite Index reached record highs.
U.S. bond markets, which advanced strongly on steady declines in interest rates
throughout 1995, became more volatile during the first nine months of 1996.
Inflationary fears and uncertainty as to whether the Federal Reserve would raise
short-term interest rates led to higher long-term interest rates and increased
market volatility, particularly in the 1996 third quarter.
Global equity markets, as measured by the Dow Jones World Index, rose
approximately 7% during the first nine months of 1996. Most Asian and European
equity markets advanced during the 1996 third quarter, with the U.K. having the
largest increase due to relatively low interest and inflation rates and strong
corporate profits. Interest rates in most global markets rose during the 1996
nine-month period, but remained low relative to the comparable year-ago period.
U.S. underwriting volume in the 1996 third quarter was up compared with the 1995
third quarter. Third quarter volume, however, was down from the first two
quarters of 1996, reflecting uncertainty regarding the direction of interest
rates as well as the summer slowdown.
Strategic services activities remained strong throughout the first nine months
of 1996. In the third quarter of 1996, announced mergers and acquisitions
activity totaled $154 billion, the third-strongest quarter ever and the sixth
consecutive quarter of activity totaling $100 billion or more, according to
12
<PAGE>
Securities Data Co. ("SDC"). Factors contributing to the increased level of
merger and acquisition activity included steady economic growth, relatively low
inflation and interest rates, appreciated stock values, and increased
integration and globalization of businesses.
Consistent with industry trends, the Corporation's 1996 third quarter net
earnings were up 10% from the 1995 third quarter, but 24% below record net
earnings for the 1996 second quarter. The Corporation's businesses are evaluated
across market cycles for profitability and alignment with long-term strategic
objectives. The Corporation seeks to mitigate the effect of market downturns by
expanding its global presence, developing long-term client relationships,
closely monitoring costs and risks, and continuing to diversify revenue sources.
THIRD QUARTER 1996 VERSUS THIRD QUARTER 1995
A summary of quarterly and year-to-date results of operations follow:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- ---------------------------------
(In millions, Sept 27, Sept 29, % Sept 27, Sept 29, %
except per share 1996 1995 Incr./(Dec.) 1996 1995 Incr.
amounts) -------- -------- ------------ ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net earnings $ 331 $ 300 10% $ 1,174 $ 810 45%
Net earnings
applicable to common
stockholders $ 319 $ 289 11 $ 1,139 $ 775 47
Earnings per common
share:
Primary $ 1.69 $ 1.47 15 $ 5.91 $ 3.95 50
Fully diluted $ 1.68 $ 1.46 15 $ 5.89 $ 3.90 51
Annualized return on
average common
stockholders' equity 21.5% 21.5% -- 26.3% 19.7% 34
Pretax margin 16.9% 18.1% (7) 19.4% 17.4% 12
Net profit margin 10.7% 11.2% (4) 12.1% 10.6% 14
</TABLE>
The discussion that follows emphasizes the comparison between the third quarters
of 1996 and 1995 and presents additional information on the comparison between
the nine-month periods, where considered appropriate.
Total revenues increased 14% from the 1995 third quarter to $6.2 billion, with
increases in all major categories, including record revenues in asset management
and portfolio service fees. Net revenues (revenues after interest expense)
increased 15% from the year-ago period to $3.1 billion.
13
<PAGE>
Commissions revenues are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- ---------------------------------
(In millions) Sept 27, Sept 29, % Sept 27, Sept 29, %
- ------------- 1996 1995 Incr./(Dec.) 1996 1995 Incr.
-------- -------- ------------ ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Listed and over-the-
counter $ 444 $ 441 1% $1,508 $1,220 24%
Mutual funds 285 252 13 894 656 36
Other 131 136 (4) 417 403 4
------ ------ ------ ------
Total $ 860 $ 829 4 $2,819 $2,279 24
====== ====== ====== ======
</TABLE>
Commissions revenues from mutual funds rose due to higher distribution fees
primarily related to prior period sales of U.S. funds.
Significant components of interest and dividend revenues and interest expense
follow:
Three Months Ended Nine Months Ended
------------------ -------------------
(In millions) Sept 27, Sept 29, Sept 27, Sept 29,
- ------------- 1996 1995 1996 1995
-------- -------- -------- --------
Interest and
dividend revenues:
Trading assets $1,096 $ 867 $3,040 $2,877
Resale agreements 756 613 2,160 2,154
Securities borrowed 778 846 2,098 2,359
Margin lending 379 359 1,120 1,017
Other 348 319 989 922
------ ------ ------ ------
Total 3,357 3,004 9,407 9,329
------ ------ ------ ------
Interest expense:
Borrowings 1,312 1,162 3,559 3,299
Repurchase agreements 915 833 2,617 2,804
Trading liabilities 656 492 1,788 1,692
Other 225 262 711 773
------ ------ ------ ------
Total 3,108 2,749 8,675 8,568
------ ------ ------ ------
Net interest and
dividend profit $ 249 $ 255 $ 732 $ 761
====== ====== ====== ======
The Corporation hedges its long-term payment obligations with interest-rate and
currency swaps. The effect of these hedges, which is included in "Borrowings"
above, decreased interest expense by approximately $17 million and $62 million
for the 1996 three- and nine-month periods, respectively, and approximately $13
million and $32 million, respectively, for the 1995 three- and nine-month
periods.
Interest and dividend revenues and expenses are a function of the level and mix
of interest-earning assets and interest-bearing liabilities and the prevailing
level, term structure, and volatility of interest rates. Net interest and
dividend profit was down 2% from the 1995 third quarter primarily as a result of
reduced levels of net interest-earning assets.
Principal transactions revenues were up 23% from the 1995 third quarter to $818
million due to increases in most product categories.
14
<PAGE>
Trading, hedging, and financing activities affect the recognition of both
principal transactions revenues and net interest and dividend profit. In
assessing the profitability of its trading activities, the Corporation views net
interest and principal transactions revenues 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 less
financing costs) for trading positions, including hedges, is recorded either as
principal transactions revenues or net interest profit, depending on the nature
of the specific instruments. Changes in the composition of trading inventories
and hedge positions can cause the recognition of revenues within these
categories to fluctuate.
The following table provides information on aggregate trading profits, including
related net interest. Interest revenue and expense components are based on
financial reporting categories and management's assessment of the cost to
finance trading positions, after consideration of the underlying liquidity of
these positions.
<TABLE>
<CAPTION>
Principal Net Interest Net
(In millions) Transactions Revenue Trading
- ------------- Revenues (Expense) Revenue
----------------- ------------------ -----------------
Three Months 1996 1995 1996 1995 1996 1995
- ------------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Equity and equity
derivatives $ 236 $ 256 $ 2 $ (15) $ 238 $ 241
Taxable fixed-income 262 145 70 52 332 197
Interest rate and
currency swaps 193 160 (21) (17) 172 143
Municipals 89 69 5 1 94 70
Foreign exchange and
commodities 38 33 (4) (1) 34 32
------ ------ ------ ------ ------ ------
Total $ 818 $ 663 $ 52 $ 20 $ 870 $ 683
====== ====== ====== ====== ====== ======
Nine Months
- -----------
Equity and equity
derivatives $ 874 $ 649 $ (48) $ (47) $ 826 $ 602
Taxable fixed-income 771 439 195 214 966 653
Interest rate and
currency swaps 698 589 (39) (60) 659 529
Municipals 257 210 8 -- 265 210
Foreign exchange and
commodities 109 65 (10) (3) 99 62
------ ------ ------ ------ ------ ------
Total $2,709 $1,952 $ 106 $ 104 $2,815 $2,056
====== ====== ====== ====== ====== ======
</TABLE>
Equities and equity derivative trading revenues were $236 million, down 8% from
the 1995 third quarter due principally to lower trading revenues from
over-the-counter and other U.S. equity securities, partially offset by higher
trading revenues in equity derivatives. Trading revenues from over-the-counter
and other U.S. equity securities were down as a result of less favorable market
conditions. Equity derivatives revenues rose due to increased order flow.
Taxable fixed-income trading revenues increased to $262 million, up 81% from the
1995 third quarter, primarily due to higher revenues from mortgage-
15
<PAGE>
backed products and money market instruments. The increase in mortgage-backed
securities trading revenues was attributable to improved liquidity and increased
customer demand, compared with the year-ago period. Trading revenues from money
market instruments benefited from increased floating-rate note activity in
European markets.
Interest rate and currency swap trading revenues increased 21% to $193 million
due to higher volume from both U.S. dollar-denominated and commodity swap
transactions. Municipal securities trading revenues were up 29% from last year's
third quarter to $89 million primarily due to increased investor demand for
tax-advantaged products. Foreign exchange and commodities trading revenues, in
the aggregate, increased to $38 million, up 12% from the 1995 third quarter.
Higher volume led to increased foreign exchange trading revenues as the U.S.
dollar strengthened versus the Japanese yen and German mark.
A summary of the Corporation's investment banking revenues follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ -------------------------------
(In millions) Sept 27, Sept 29, % Sept 27, Sept 29, %
- ------------- 1996 1995 Incr. 1996 1995 Incr.
-------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Underwriting $ 346 $ 263 32% $1,108 $ 676 64%
Strategic services 125 91 37 320 262 22
------ ------ ------ ------
Total $ 471 $ 354 33 $1,428 $ 938 52
====== ====== ====== ======
</TABLE>
Underwriting revenues advanced from the 1995 third quarter due to higher
transaction volume and an increase in the number of offerings lead-managed by
the Corporation. The Corporation retained its position as top underwriter of
total debt and equity securities in the 1996 third quarter with market shares of
17.1% in the U.S. and 14.3% globally, compared with 17.5% in the U.S. and 14.4%
globally in the 1995 third quarter, according to SDC. SDC statistics are based
on full credit to book manager.
Strategic services revenues advanced to a record for the second straight
quarter, benefiting from strong merger and acquisition activity and significant
gains in market share. For transactions completed during the 1996 third quarter,
the Corporation was the third-ranked advisor globally with a 17.0% market share,
up from the ninth position and a 6.2% market share in last year's third quarter,
according to SDC. SDC gives full credit to both target and acquiring companies'
advisors based on transaction value.
The Corporation's asset management and portfolio service fees are summarized
below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ -------------------------------
(In millions) Sept 27, Sept 29, % Sept 27, Sept 29, %
- ------------- 1996 1995 Incr. 1996 1995 Incr.
-------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Asset management fees $ 247 $ 220 12% $ 731 $ 630 16%
Portfolio service fees 157 124 27 445 344 29
Other fees 166 140 18 485 423 15
------ ------ ------ ------
Total $ 570 $ 484 18 $1,661 $1,397 19
====== ====== ====== ======
</TABLE>
Asset management fees, which include fees earned on mutual funds sponsored by
the Corporation and third parties, increased due to strong inflows of client
assets during the past year and net asset appreciation. Total assets in
16
<PAGE>
worldwide private client accounts reached a record $779 billion at quarter-end,
compared with $675 billion at the end of the 1995 third quarter. Assets under
management were $213 billion at quarter-end, compared with $189 billion a year
ago.
Portfolio service fees also benefited from inflows of client assets. Increases
in the number of accounts and asset levels led to higher fee revenues for both
Merrill Lynch Consults (registered trademark), a personalized portfolio
management service, and Asset Power (registered trademark), an asset-based fee
product. Other fee-based revenues were up primarily due to increased revenues
from mortgage servicing and mutual fund transfer agency activities.
Other revenues were $125 million, up 28% from $97 million in the 1995 third
quarter. The increase was primarily attributable to gains on sales from Real
Estate Mortgage Investment Conduit ("REMIC") transactions and partnership
investments.
Non-interest expenses were $2.6 billion, up 17% from the 1995 third quarter. The
largest expense category, compensation and benefits expense, increased 16% from
the 1995 third quarter to $1.6 billion due to higher incentive and salary-
related compensation. Incentive compensation increased due to improved
profitability. The increase in salary-related compensation was primarily due to
the addition of approximately 3,400 employees since the 1995 third quarter,
resulting in approximately 48,800 employees at the end of the 1996 third
quarter. Business acquisitions were responsible for approximately 30% of the
year-over-year increase. Compensation and benefits expense was 52.1% of net
revenues, compared with 51.9% in the year-ago period.
Non-interest expenses, excluding compensation and benefits, increased 19% to
$959 million. A significant component of this increase related to strategic
investments in technology - particularly the Trusted Global Advisor ("TGA")
initiative, a new technology platform that will enable Financial Consultants to
provide enhanced services to clients.
Communications and equipment rental expense increased 15% from the 1995 third
quarter to $141 million due to increased computer maintenance costs related to
TGA and other system initiatives, as well as higher levels of business activity.
Depreciation and amortization expense rose 12% from the 1995 third quarter to
$104 million due primarily to purchases of technology-related equipment over the
past year. Professional fees increased 33% to $152 million primarily as a result
of higher systems development costs related to upgrading technology and
processing capabilities, including TGA, and management consulting costs.
Occupancy costs were up 3% to $116 million as a result of international growth.
Advertising and market development expense rose 22% to $125 million due to
increased international travel and higher production-related recognition
programs. Brokerage, clearing, and exchange fees were up 17% to $103 million,
driven by increased trading volume, particularly in international equity
markets. Other expenses totaled $218 million, up 27% from the 1995 third
quarter, due in part to provisions related to various business activities.
Income tax expense was $191 million in the 1996 third quarter. The effective tax
rate in the 1996 third quarter was 36.6%, compared with 38.1% in the year-ago
period. The decrease in the effective tax rate was primarily attributable to
expanded international business activities and increased dividends qualifying
for the Federal dividends received deduction.
17
<PAGE>
For the first nine months of 1996, non-interest expenses increased 24% to $7.8
billion. Compensation and benefits, the largest expense category, was up 27% to
$5.0 billion due to higher incentive and variable compensation related to
improved profitability and business volume. In addition, a 7% increase in the
number of full-time employees also contributed to higher salary-related
compensation. Compensation and benefits expense was 51.8% of net revenues for
the first nine months of 1996 versus 51.9% for the comparable 1995 period.
Non-interest expenses, excluding compensation and benefits, increased 19% from
the first nine months of 1995 due primarily to higher systems development and
maintenance costs, increased levels of global business activity, and provisions
related to various business activities.
LIQUIDITY AND LIABILITY MANAGEMENT
The primary objective of the Corporation's funding policies is to assure
liquidity at all times. 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,
uncommitted bank loans, and the current portion of long-term debt, can be funded
when due without issuing new unsecured debt or liquidating any business assets.
The most significant alternative funding sources are proceeds from executing
repurchase agreements and obtaining secured bank loans, both principally
employing unencumbered investment grade marketable securities. Other alternative
funding sources include liquidating cash equivalents; securitizing additional
home equity and other mortgage loan assets; and drawing on committed, unsecured,
revolving credit facilities ("Credit Facilities"), which at September 27, 1996
totaled $6.0 billion and had not been drawn upon.
As an additional measure, the Corporation regularly reviews the level and mix of
its assets and liabilities to ascertain its ability to conduct core businesses
beyond one year without reliance on issuing new unsecured debt or drawing upon
Credit Facilities. The Corporation's asset mix provides considerable flexibility
in managing liquidity since a significant portion of the Corporation's assets
turn over frequently and is typically funded with liabilities whose cash flow
characteristics closely match those of the assets. Management considers that
approximately 96% of the Corporation's assets at September 27, 1996 were readily
marketable.
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
Corporation's insurance subsidiaries primarily market variable life insurance
and variable annuity products. These products are not subject 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. At September 27, 1996, approximately 86% of invested
assets of insurance subsidiaries were considered liquid by management.
The second element of the Corporation's liquidity strategy is to concentrate
general purpose borrowings at the Merrill Lynch & Co., Inc. level, except where
tax regulations, time zone differences, or other business considerations make
this impractical. The benefits of this strategy are lower financing costs;
simplicity, control, and wider name recognition by creditors; and flexibility to
meet varying funding requirements within subsidiaries.
18
<PAGE>
The third element is to expand and diversify the Corporation's funding
instruments and its investor and creditor base. The Corporation's funding
programs benefit from the ability to market its debt instruments through its own
sales force to a large, diversified customer base. The Corporation maintains
strict concentration standards for short-term lenders, which include limits for
any single investor. Commercial paper remains the Corporation's major source of
short-term general purpose funding. Commercial paper outstanding totaled $20.2
billion at September 27, 1996 and $17.0 billion at December 29, 1995, which was
10% of total assets on both dates.
At September 27, 1996, total long-term debt was $24.1 billion, compared with
$17.3 billion at year-end 1995. At September 27, 1996, the Corporation's senior
long-term debt was rated by seven recognized credit rating agencies, as follows:
Rating Agency Rating
- --------------------------------------------------------------------------------
Duff & Phelps Credit Rating Co.(1) AA
Fitch Investors Service, L.P. AA
IBCA Ltd. AA-
Japan Bond Research Institute AA
Moody's Investors Service, Inc.(2) A1
Standard & Poor's Ratings Group A+
Thomson BankWatch, Inc.(3) AA+
- --------------------------------------------------------------------------------
(1) Upgraded from AA- during the 1996 third quarter.
(2) Upgraded to Aa3 in October 1996.
(3) Upgraded from AA during the 1996 third quarter.
During the first nine months of 1996, the Corporation issued $11.4 billion in
long-term debt. During the same period, maturities and repurchases were $4.6
billion. In addition, approximately $597 million of the Corporation's long-term
debt securities held in inventory by subsidiaries were sold and $479 million
were purchased. At September 27, 1996, $18.5 billion of term debt had maturity
dates beyond one year.
Approximately $47.7 billion of the Corporation's indebtedness at September 27,
1996 was considered senior indebtedness as defined under various indentures.
CAPITAL RESOURCES AND CAPITAL ADEQUACY
The Corporation remains one of the most highly capitalized institutions whose
business is primarily in the securities industry. Total stockholders' equity was
$6.6 billion at September 27, 1996, consisting of $6.0 billion in common equity
and $619 million in preferred stock.
The Corporation reacquired 4.6 million shares and 15.2 million shares of its
common stock in the third quarter and first nine months of 1996, respectively,
compared with 1.7 million shares and 14.6 million shares in the corresponding
1995 periods.
19
<PAGE>
The Corporation's leverage ratios were as follows:
Adjusted
Leverage Leverage
Ratio(1) Ratio(2)
- --------------------------------------------------------------------------------
Period-end
September 27, 1996 31.4x 19.1x
December 29, 1995 28.8x 18.2x
Average (3)
Nine months ended
September 27, 1996 33.6x 20.1x
Year ended
December 29, 1995 32.7x 19.5x
- --------------------------------------------------------------------------------
(1) Ratio of total assets to total stockholders' equity.
(2) Ratio of total assets, less resale agreements and securities borrowed, to
total stockholders' equity.
(3) Computed using month-end balances.
The Corporation operates in many regulated businesses that require various
minimum levels of capital to conduct business. (See Regulatory Requirements Note
to the Consolidated Financial Statements - Unaudited.) The Corporation's
broker-dealer, banking, insurance, and Futures Commission Merchant activities
are subject to regulatory requirements that may restrict the free flow of funds
to affiliates. Regulatory approval is required for 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 determined primarily 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 changes in its balance sheet
using average daily balances which are determined on a settlement date basis
from management information systems. Financial statement balances are recorded
on a trade date basis as required under generally accepted accounting
principles. The discussion compares changes in settlement date average daily
balances, not quarter-end balances.
For the first nine months of 1996, average daily assets were $208 billion, up 6%
versus $197 billion in the 1995 fourth quarter. Average daily liabilities rose
6% to $202 billion from $191 billion for the 1995 fourth quarter.
20
<PAGE>
The major components in the growth of average daily assets and liabilities are
summarized as follows:
Increase in
(In millions) Average Assets Percent Increase
- ------------- ------------------ ----------------
Resale agreements and
securities borrowed $10,921 13%
Increase in
Average Liabilities Percent Increase
------------------- ----------------
Repurchase agreements and
securities loaned $ 5,828 8%
Long-term borrowings $ 4,058 23%
In managing its balance sheet, the Corporation strives to match-fund its
interest-earning assets with interest-bearing liabilities having similar
maturities and cash flow characteristics (e.g., repurchase and resale
agreements). In the 1996 period, transactions related to repurchase and
securities loaned activities and resale and securities borrowed activities rose
as a result of an increase in match-funded activity involving primarily U.S.
Government and agencies securities. In addition, securities borrowed
transactions increased to facilitate security deliveries to customers.
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. A portion of the 1996 nine-month increase in average assets was funded
through an increase in long-term borrowings, including medium-term notes.
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 activities. During the past three years, the
Corporation has increased its non-investment grade trading inventories to
satisfy client demand for higher-yielding investments, including emerging market
and other international securities.
Non-investment grade securities have been defined as debt and preferred equity
securities rated 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 other
instruments that, in the opinion of management, are non-investment grade. At
September 27, 1996, long and short non-investment grade inventories accounted
for 8.5% of aggregate consolidated trading inventories, compared with 6.8% at
year-end 1995. 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, which may include leveraged
buyouts, recapitalizations, and mergers and acquisitions. The Corporation
extends 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 in
21
<PAGE>
connection with highly leveraged transactions. The Corporation may retain a
residual portion of such syndicated loans.
The Corporation holds direct equity investments in leveraged companies and
interests in partnerships that invest in leveraged transactions. The Corporation
has also committed to participate in limited partnerships that invest in
leveraged transactions. Future commitments to participate in limited
partnerships and other direct equity investments will be determined on a select
basis.
Investment in non-investment grade securities and involvement in highly
leveraged transactions subject the Corporation to risks related to the
creditworthiness of the issuers and the liquidity of the market for such
securities. 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.
The Corporation's insurance subsidiaries hold non-investment grade securities.
As a percentage of total insurance investments, non-investment grade securities
were 4.7%, compared with 4.2% at year-end 1995. Non-investment grade securities
of insurance subsidiaries are classified as available-for-sale and are carried
at fair value.
22
<PAGE>
A summary of the Corporation's non-investment grade holdings and highly
leveraged transactions follows:
September 27, December 29,
(In millions) 1996 1995
- --------------------------------------------------------------------------------
Trading assets (1) $8,912 $5,991
Trading liabilities (1) 879 353
Insurance subsidiaries' investments 254 234
Loans (net of allowance for
loan losses) (2) 269 489
Equity investments (3) 153 211
Partnership interests 112 91
- --------------------------------------------------------------------------------
Additional commitments to invest in
partnerships $ 74 $ 79
Bridge loan commitments (4) 176 --
Unutilized revolving lines of
credit and other lending
commitments 109 127
- --------------------------------------------------------------------------------
(1) The Corporation engages in hedging strategies to reduce its exposure
associated with owning a non-investment grade position by selling short
the related equity security or by entering into an offsetting derivative
contract. 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 may be obtained to reduce credit risk related to these
transactions.
(2) Represented outstanding loans to 38 and 30 large- and medium-sized
companies at September 27, 1996 and December 29, 1995, respectively.
(3) Invested in 61 and 62 enterprises at September 27, 1996 and December 29,
1995, respectively.
(4) Subsequent to September 27, 1996, the bridge loan commitments were
canceled by the counterparties. In addition, subsequent to September 27,
1996, the Corporation entered into a bridge loan commitment for $90
million to a non-investment grade counterparty. The Corporation intends to
syndicate the loan, if extended, and may retain a residual portion.
At September 27, 1996, the largest non-investment grade concentration consisted
of various sovereign and corporate issues of a South American country totaling
$1,186 million, which primarily represented hedges of other financial
instruments. No one industry sector accounted for more than 20% of total
non-investment grade positions.
Included in the preceding table are debt and equity securities and bank loans of
companies in various stages of bankruptcy proceedings or in default. At
September 27, 1996, the carrying value of the debt and equity securities totaled
$144 million, of which 50% resulted from the Corporation's market making
activities in such securities. This compared with $177 million at December 29,
1995, of which 70% related to market making activities. In addition, the
Corporation held distressed bank loans totaling $385 million and $274 million at
quarter- and year-end, respectively.
23
<PAGE>
Statistical Data
Selected statistical data for the last five quarters is presented below for
informational purposes:
<TABLE>
<CAPTION>
3RD QTR. 4TH QTR. 1ST QTR. 2ND QTR. 3RD QTR.
1995 1995 1996 1996 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PRIVATE CLIENT ACCOUNTS
(IN BILLIONS):
Assets in Worldwide
Private Client Accounts $ 675 $ 703 $ 731 $ 756 $ 779
Assets in U.S. Private
Client Accounts $ 639 $ 665 $ 692 $ 714 $ 735
Assets under Professional
Management:
Money Markets $ 80 $ 82 $ 89 $ 84 $ 86
Equities 44 47 51 53 54
Fixed Income 39 41 41 41 42
Private Portfolio 22 22 23 25 27
Insurance 4 4 4 4 4
-------- -------- -------- -------- --------
Subtotal 189 196 208 207 213
ML Consults 17 17 18 19 20
Mutual Fund Advisor and
Asset Power 5 6 7 7 8
-------- -------- -------- -------- --------
TOTAL $ 211 $ 219 $ 233 $ 233 $ 241
======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------
UNDERWRITING
(DOLLARS IN BILLIONS)(A):
Global Debt and Equity:
Volume $ 41 $ 45 $ 45 $ 47 $ 45
Market Share 14.4% 15.1% 11.9% 12.9% 14.3%
U.S. Debt and Equity:
Volume $ 34 $ 39 $ 39 $ 39 $ 36
Market Share 17.5% 20.2% 16.0% 16.1% 17.1
- -------------------------------------------------------------------------------------------------------
FULL-TIME EMPLOYEES:
U.S 38,900 39,250 39,400 39,900 41,400
International 6,500 6,750 7,000 7,100 7,400
-------- -------- -------- -------- --------
TOTAL 45,400 46,000 46,400 47,000 48,800
======== ======== ======== ======== ========
Financial Consultants and
Account Executives Worldwide 13,700 13,900 13,900 14,000 14,300
Support Personnel to
Producer Ratio (B) 1.38 1.43 1.46 1.47 1.48
INCOME STATEMENT:
Net Earnings (in millions) $ 300 $ 303 $ 409 $ 433 $ 331
Annualized Return on Average
Common Stockholders' Equity 21.5% 21.1% 28.2% 29.2% 21.5%
Earnings per Common Share:
Primary $ 1.47 $ 1.49 $ 2.03 $ 2.19 $ 1.69
Fully Diluted $ 1.46 $ 1.49 $ 2.03 $ 2.19 $ 1.68
BALANCE SHEET (IN MILLIONS):
Total Assets $185,473 $176,857 $195,884 $205,175 $207,911
Total Stockholders' Equity $ 6,077 $ 6,141 $ 6,364 $ 6,514 $ 6,618
SHARE INFORMATION (IN THOUSANDS):
Weighted Average Shares
Outstanding:
Primary 196,395 195,148 196,225 192,933 189,210
Fully Diluted 197,157 195,148 196,225 192,933 190,634
Common Shares Outstanding (C) 175,501 171,388 173,040 168,924 165,629
Shares Repurchased 1,720 5,362 4,543 6,060 4,552
- -------------------------------------------------------------------------------------------------------
</TABLE>
(A) Full credit to book manager. All market share data are derived from
Securities Data Co.
(B) Support personnel includes sales assistants.
(C) Does not include 4,375, 4,013, 2,895, 2,529 and 2,093 unallocated reversion
shares held in the Employee Stock Ownership Plan at September 29, 1995,
December 29, 1995, March 29, 1996, June 28, 1996 and September 27, 1996,
respectively, which are not considered outstanding for accounting purposes.
24
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Since the filing of the Corporation's 1995 10-K and of the Corporation's
Quarterly Report on Form 10-Q for the quarter ended June 28, 1996 (the "Second
Quarter 1996 10-Q"), the following events have taken place with respect to
several of the actions reported therein. Capitalized terms used herein without
definition have the meanings set forth in the 1995 10-K.
Orange County Litigation. On October 17, 1996, on the Corporation's motion, the
United States District Court for the Central District of California withdrew the
prior automatic reference to the Bankruptcy Court of the Orange County Action.
The case is now pending in the District Court.
The amended complaint filed in the Atascadero Federal Court Action has been
served.
On August 7, 1996, the Supreme Court of the State of New York, New York County,
dismissed the Wilson Actions. On September 11, 1996, a notice of appeal was
filed.
On September 4, 1996, the Circuit Court of Cook County, Illinois, Chancery
Division, dismissed the Kemper Action without prejudice pursuant to agreement of
the parties.
For more detailed information regarding litigation matters involving the
Corporation, see "Item 3. - Legal Proceedings" in the 1995 10-K.
Item 5. Other Information
The 1997 Annual Meeting of Stockholders will be held at 10:00 a.m. on
Tuesday, April 15, 1997 at the Merrill Lynch & Co., Inc. Conference and Training
Center, 800 Scudders Mill Road, Plainsboro, New Jersey. Any stockholder of
record entitled to vote generally for the election of directors may nominate one
or more persons for election as a director at such meeting only if proper
written notice of such stockholder's intent to make such nomination or
nominations, in accordance with the provisions of the Corporation's Certificate
of Incorporation, has been given to the Secretary of the Corporation, 100 Church
Street, 12th Floor, New York, New York 10080-6512, no earlier than January 30,
1997 and no later than February 24, 1997. In addition, in accordance with
provisions of the Corporation's By-Laws, any stockholder intending to bring any
other business before the meeting must advise the Corporation in writing of the
stockholder's intent to do so on or before February 24, 1997. In order to be
included in the Corporation's proxy statement, stockholder proposals must be
submitted in writing to the Corporation on or before November 11, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
25
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(4) Instruments defining the rights of security holders, including
indentures:
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the
Corporation hereby undertakes to furnish to the SEC, upon
request, copies of the instruments defining the rights of
holders of long-term debt securities of the Corporation that
authorize an amount of securities constituting 10% or less of
the total assets of the Corporation and its subsidiaries on a
consolidated basis.
(10) Material Contracts
(i) Merrill Lynch & Co., Inc. Long-Term Incentive
Compensation Plan, as amended on October 21, 1996.
(ii) Merrill Lynch & Co., Inc. Equity Capital Accumulation
Plan, as amended on October 21, 1996.
(iii) Merrill Lynch & Co., Inc. 1997 KECALP Deferred
Compensation Plan For A Select Group of Eligible
Employees.
(iv) Merrill Lynch & Co., Inc. Deferred Unit and Stock
Unit Plan For Non-Employee Directors
(11) Statement re: computation of per common share earnings.
(12) Statement re: computation of ratios.
(15) Letter re: unaudited interim financial information.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
The following Current Reports on Form 8-K were filed by the Corporation
with the SEC during the quarterly period covered by this Report:
(i) Current Report dated July 9, 1996 for the purpose of filing
the form of Registrant's 6 1/4% STRYPES due July 1, 2001
Payable with Shares of Common Stock of IMC Global Inc.
(ii) Current Report dated July 16, 1996 for the purpose of filing
the Preliminary Unaudited Earnings Summary of the Corporation
for the three-month period ended June 28, 1996.
(iii) Current Report dated July 31, 1996 for the purpose of filing
the Preliminary Unaudited Consolidated Balance Sheet of the
Corporation as of June 28, 1996.
(iv) Current Report dated August 12, 1996 for the purpose of filing
the form of Registrant's Technology Market Index Target-Term
Securities due August 15, 2001 and the form of Registrant's
Top Ten Yield Market Index Target-Term Securities due August
15, 2006.
26
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MERRILL LYNCH & CO., INC.
----------------------------
(Registrant)
Date: November 8, 1996 By: /s/Joseph T. Willett
---------------------------------
Joseph T. Willett
Senior Vice President
Chief Financial Officer
27
Exhibit 10(i)
As amended through October 21, 1996
MERRILL LYNCH & CO., INC.
-------------------------
LONG-TERM INCENTIVE COMPENSATION PLAN
-------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
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
Section 2.2 Performance Objectives........................................ 5
Section 2.3 Grants of Performance Shares and Performance Units............ 6
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Section 2.4 Rights and Benefits During Performance Period................. 6
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........................ 8
(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
Section 3.2 Grants of Restricted Shares and Restricted Units.............. 10
Section 3.3 Rights and Restrictions Governing Restricted Shares........... 11
Section 3.4 Rights Governing Restricted Units............................. 11
Section 3.5 Adjustment with respect to Restricted Shares and
Restricted Units.............................................. 11
Section 3.6 Payment of Restricted Shares and Restricted Units............. 12
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(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.............................. 12
(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..................... 13
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................................................ 14
Section 4.4 Exercise of Stock Options..................................... 14
(a) Exercisability........................................ 14
(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.............................. 15
(d) Limitations on Transferability........................ 16
Section 4.5 Payment of Purchase Price and Tax Liability Upon
Exercise; Delivery of Shares.................................. 16
(a) Payment of Purchase Price............................. 16
(b) Payment of Taxes...................................... 16
(c) Delivery of Shares.................................... 17
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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
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................................................. 21
(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
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(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
Section 9.3 Nontransferability............................................ 27
Section 9.4 Withholding................................................... 27
Section 9.5 Relationship to Other Benefits................................ 28
Section 9.6 No Trust or Fund Created...................................... 28
Section 9.7 Expenses...................................................... 28
Section 9.8 Indemnification............................................... 28
Section 9.9 Tax Litigation................................................ 28
ARTICLE X - AMENDMENT AND TERMINATION........................................ 28
ARTICLE XI - INTERPRETATION.................................................. 29
Section 11.1 Governmental and Other Regulations............................ 29
Section 11.2 Governing Law................................................. 29
ARTICLE XII - EFFECTIVE DATE AND STOCKHOLDER APPROVAL........................ 29
v
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MERRILL LYNCH & CO., INC.
LONG-TERM INCENTIVE COMPENSATION PLAN
ARTICLE I - GENERAL
Section 1.1 Purpose.
The purposes of the Long-Term Incentive Compensation Plan (the "Plan")
are: (a) to enhance the growth and profitability of Merrill Lynch & Co., Inc., a
Delaware corporation ("ML & Co."), and its subsidiaries by providing the
incentive of long-term rewards to key employees who are capable of having a
significant impact on the performance of ML & Co. and its subsidiaries; (b) to
attract and retain employees of outstanding competence and ability; (c) to
encourage long-term stock ownership by employees; and (d) to further the
identity of interests of such employees with those of stockholders of ML & Co.
Section 1.2 Definitions.
For the purpose of the Plan, the following terms shall have the meanings
indicated:
(a) "Board of Directors" or "Board" shall mean the Board of Directors of
ML & Co.
(b) "Code" shall mean the Internal Revenue Code of l986, as amended,
including any successor law thereto.
(c) "Company" shall mean ML & Co. and any corporation, partnership, or
other organization of which ML & Co. owns or controls, directly or indirectly,
not less than 50% of the total combined voting power of all classes of stock or
other equity interests. For purposes of this Plan, the terms "ML & Co." and
"Company" shall include any successor thereto.
(d) "Committee" shall mean the Management Development and Compensation
Committee of the Board of Directors, or its functional successor or any other
Board committee that has been designated by the Board of Directors to administer
the Plan, or the Board of Directors. 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.
(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
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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.
(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
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.
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(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 (1)
after reaching age 55 and having completed at least 5 years of service; (2)
after reaching age 50 and having completed at least 10 years of service; (3)
after reaching age 45 and having completed at least 15 years of service; or (4)
having completed at least 20 years of service (in each case 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.
(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
3
<PAGE>
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 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 shares. 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)
4
<PAGE>
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. 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.
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
5
<PAGE>
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 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
6
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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, 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
7
<PAGE>
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 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
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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).
(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
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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.
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.
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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.
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
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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.
(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
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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.
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
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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.
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. Notwithstanding the
foregoing, in no event may a Participant, or a Participant's transferee pursuant
to Section 4.4(d), 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. 401(k) 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 Stock Options granted to
him and outstanding on the date of death, such Stock Options may be exercised to
the full
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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, if such Stock Options are
outstanding in his name, or by his transferee pursuant to Section 4.4(d) or such
transferee's estate or beneficiaries, if such Stock Options are outstanding in
the name of such transferee, 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
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 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, whether outstanding
in his name or in the name of another person as a result of a transfer in
accordance with Section 4.4(d), 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, his transferee pursuant to Section 4.4(d) or such transferee's
estate or beneficiaries, may exercise any such outstanding Stock Option (to the
extent that any such outstanding Stock Option could have been exercised 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, if such Stock
Option is outstanding in his name, or his transferee pursuant to Section 4.4(d)
or such transferee's estate or beneficiaries, if such Stock Option is
outstanding in the name of such transferee, may exercise such Stock Option (to
the extent such Stock Option could have been exercised 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.
(d) Limitations on Transferability: 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; provided, however, that the
Committee shall have the authority, in its discretion, to grant (or to sanction
by way of amendment of an existing grant) Stock Options which may be transferred
by the Participant during his lifetime to any member of his immediate family or
to a trust, limited liability corporation, family limited partnership or other
equivalent vehicle, established for the exclusive benefit of
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one or more members of his immediate family, in which case the written
documentation containing the terms and conditions of such Stock Options shall so
state. A transfer of a Stock Option pursuant to this subparagraph may only be
effected by the Corporation at the written request of a Participant and shall
become effective only when recorded in the Corporation's record of outstanding
Stock Options. In the event a Stock Option is transferred as contemplated in
this subparagraph, such Stock Option may not be subsequently transferred by the
transferee except by will or the laws of descent and distribution. In the event
a Stock Option is transferred as contemplated in this subparagraph, such Stock
Option shall continue to be governed by and subject to the terms and limitations
of the Plan and the relevant grant, and the transferee shall be entitled to the
same rights as the Participant under Articles VII, VIII and X hereof, as if no
transfer had taken place. As used in this subparagraph, "immediate family" shall
mean, with respect to any person, any child, stepchild or grandchild, and shall
include relationships arising from legal adoption.
Section 4.5 Payment of Purchase Price and Tax Liability Upon Exercise;
Delivery of Shares.
(a) Payment of Purchase Price: The purchase price of the shares as to
which a Stock Option is exercised shall be paid to the Company at the time of
exercise (i) in cash, (ii) by delivering freely transferable shares of Common
Stock already owned by the person exercising the Stock Option having a total
Fair Market Value on the date of exercise equal to the purchase price, (iii) a
combination of cash and shares of Common Stock equal in value to the exercise
price, or (iv) by such other means as the Committee, in its sole discretion, may
determine.
(b) Payment of Taxes: Upon exercise, a Participant may elect to satisfy
any federal, state or local taxes required by law to be withheld that arise as a
result of the exercise of a Stock Option by directing the Company to withhold
from the shares of Common Stock otherwise deliverable upon the exercise of such
Stock Option, such number of shares as shall have a total Fair Market Value, on
the date of exercise, at least equal to the amount of tax to be withheld.
(c) Delivery of Shares: Upon receipt by the Company of the purchase price,
stock certificate(s) for the shares of Common Stock as to which a Stock Option
is exercised (net of any shares withheld pursuant to Section 4.5(b) above) shall
be delivered to the person in whose name the Stock Option is outstanding or such
person's estate or beneficiaries, as the case may be, or such shares shall be
credited to a brokerage account or otherwise delivered, in such manner as such
person or such person's estate or beneficiaries, as the case may be, may direct.
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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 Section 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.
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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
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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 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
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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 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,
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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").
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(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
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Common Stock on the date such Stock Appreciation Right was granted,
or such other price determined by the Committee at the time of
grant.
(d) Other ML & Co. Securities.
Any payment for Other ML & Co. Securities under this Section 8.1(d) shall
be calculated as if any relevant Vesting or Restricted Periods or other
applicable conditions dependent on the passage of time and relating to the
exercisability of any right or option to purchase Other ML & Co. Securities, or
relating to the full and unconditional ownership of such Other ML & Co.
Securities themselves, had been met on the first day of the month in which the
Participant's employment is terminated. The amount of any payment to a
Participant pursuant to this Section 8.1(d) shall be reduced by the amount of
any payment previously made to the Participant with respect to the Other ML &
Co. Securities, exclusive of ordinary dividend payments, resulting by operation
of law from the Change in Control, including, without limitation, payments
resulting from a merger pursuant to state law. The value of the Participant's
Other ML & Co. Securities payable pursuant to this Section 8.1(d) shall be
(i) in the case of an option or right to purchase such Other
ML & Co. Security, for each underlying Other ML & Co. Security, the
excess of the Fair Market Value of such Other ML & Co. Security on
the day the Participant's employment is terminated, or, if higher,
the Pre-CIC Value, over the exercise price of such option or right;
and
(ii) in the case of the Other ML & Co. Security itself (where
there is no outstanding option or right relating to such Other ML &
Co. Security), the Fair Market Value of the Other ML & Co. Security
on the day the Participant's employment is terminated, or, if
higher, the Pre-CIC Value.
Section 8.2 A Change in Control.
A "Change in Control" shall mean a change in control of ML & Co. of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not the Company is then
subject to such reporting requirement; provided, however, that, without
limitation, a Change in Control shall be deemed to have occurred if:
(a) any individual, partnership, firm, corporation, association, trust,
unincorporated organization or other entity, or any syndicate or group deemed to
be a person under Section 14(d)(2) of the Exchange Act, other than the Company's
employee stock ownership plan, is or becomes the "beneficial owner" (as defined
in Rule 13d-3 of the General Rules and Regulations under the Exchange Act),
directly or indirectly, of securities of ML & Co. representing 30% or more of
the combined voting
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power of ML & Co.'s then outstanding securities entitled to vote in the election
of directors of ML & Co.;
(b) during any period of two consecutive years (not including any period
prior to the Effective Date of this Plan) individuals who at the beginning of
such period constituted the Board of Directors and any new directors, whose
election by the Board of Directors or nomination for election by the
stockholders of ML & Co. was approved by a vote of at least three quarters of
the directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority thereof; or
(c) all or substantially all of the assets of ML & Co. are liquidated or
distributed.
Section 8.3 Effect of Agreement Resulting in Change in Control.
If ML & Co. executes an agreement, the consummation of which would result
in the occurrence of a Change in Control as described in Section 8.2, then, with
respect to a termination of employment without Cause or for Good Reason
occurring after the execution of such agreement (and, if such agreement expires
or is terminated prior to consummation, prior to such expiration or termination
of such agreement), a Change in Control shall be deemed to have occurred as of
the date of the execution of such agreement.
Section 8.4 Termination for Cause.
Termination of the Participant's employment by the Company for "Cause"
shall mean termination upon:
(a) the willful and continued failure by the Participant substantially to
perform his duties with the Company (other than any such failure resulting from
the Participant's incapacity due to physical or mental illness or from the
Participant's Retirement or any such actual or anticipated failure resulting
from termination by the Participant for Good Reason) after a written demand for
substantial performance is delivered to him by the Board of Directors, which
demand specifically identifies the manner in which the Board of Directors
believes that he has not substantially performed his duties; or
(b) the willful engaging by the Participant in conduct that is
demonstrably and materially injurious to the Company, monetarily or otherwise.
No act or failure to act by the Participant shall be deemed "willful"
unless done, or omitted to be done, by the Participant not in good faith and
without reasonable belief that his action or omission was in the best interest
of the Company.
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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
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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
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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, or the transferee of a Stock Option pursuant to Section
4.4(d), 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 or Stock Option transferee, may
also designate an alternate beneficiary to receive payments if the primary
beneficiary does not survive the Participant or Stock Option transferee. A
Participant or Stock Option transferee 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 or Stock Option
transferee at any time by filing a written statement of such change or
revocation with the Company. If a Participant or Stock Option transferee 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.
Except as provided in Section 4.4(d), 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
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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 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(ii)
As amended through October 21, 1996
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, or any other
Board committee that has been designated by the Board of Directors to administer
the Plan or the Board of Directors. 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.
(d) "Common Stock" shall mean the Common Stock, par value $1.33 1/3 per
share, of ML & Co.
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(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.
(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.
(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.
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(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 (1)
after reaching age 55 and having completed at least 5 years of service; (2)
after reaching age 50 and having completed at least 10 years of service; (3)
after reaching age 45 and having completed at least 15 years of service; or (4)
having completed at least 20 years of service (in each case 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.
(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
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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 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
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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.
(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
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<PAGE>
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 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
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<PAGE>
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 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.
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<PAGE>
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 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.
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<PAGE>
(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 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.
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<PAGE>
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 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
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<PAGE>
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 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
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(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.
(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:
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(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 accordance with the Company's normal vacation policy
in effect at the time of the Change in Control.
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(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.
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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.
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
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reimbursement as directors of ML & Co. pursuant to its Certificate of
Incorporation, By-Laws, or resolutions of its Board of Directors or
stockholders.
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
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Exhibit 10(iii)
MERRILL LYNCH & CO., INC. DEFERRED UNIT AND STOCK UNIT PLAN FOR
NON-EMPLOYEE DIRECTORS
Article I - General
Section 1.1 Purposes.
The purposes of the Merrill Lynch & Co., Inc. Deferred Unit and
Stock Unit Plan for Non-Employee Directors (the "Plan") are (a) to provide an
incentive to highly qualified individuals to serve as Directors of Merrill Lynch
& Co., Inc. ("ML & Co.") and (b) to further align the interests of Non-Employee
Directors with the stockholders of ML & Co.
Section 1.2 Definitions.
For the purpose of the Plan, the following terms shall have the
meanings indicated.
"Account(s)" means a Participant's Mutual Fund Index Account and/or
Deferred Unit/Stock Unit Account.
"Account Balance(s)" means the Participant's Deferred Unit Account
Balance, Deferred Stock Unit Account Balance and/or Mutual Fund Index
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.
"annuitized payments" has the meaning specified in Section 2.5(b).
"Board of Directors" or "Board" shall mean the Board of Directors of
ML & Co.
"Business Day" shall mean any day on which the New York Stock
Exchange 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
<PAGE>
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.;
(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" 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).
"Company" means ML & Co. and all of its Affiliates.
"Current Market Value" per share of Common Stock for any date means
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 date means:
(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 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 such date, 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 Stock Unit" means a unit representing ML & Co.'s
obligation to deliver one share of Common Stock in accordance with the
terms of the Plan.
"Deferred Stock Unit Account Balance" means, with respect to a
particular grant as of any date, the Deferred Stock Units credited to a
Participant's Deferred Unit/Stock Unit Account, adjusted in accordance
with Section 3.1 to reflect the addition of dividend equivalents and any
changes in capitalization and adjusted for any payments to the Participant
in respect of Deferred Stock Units.
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"Deferred Unit" means a unit representing ML & Co.'s obligation to
pay an amount in cash equal to the value of one share of Common Stock in
accordance with the terms of the Plan.
"Deferred Unit Account Balance" means, with respect to a particular
grant as of any date, the Deferred Units credited to a Participant's
Deferred Unit/Stock Unit Account, adjusted in accordance with Section 3.1
to reflect the addition of dividend equivalents and any changes in
capitalization and adjusted for any payments to the Participant in respect
of Deferred Units or optional deferrals into a Mutual Fund Index Account
prior to that date.
"Deferred Unit/Stock Unit Account" means the reserve account
established on the books and records of ML & Co. to record a Participant's
Deferred Unit Account Balance and Deferred Stock Unit Account Balance.
"Determination Date" has the meaning specified in Section 2.5(b).
"Director" means a member of the Board.
"Disability" means any physical or mental condition that in the
opinion of the Administrator renders a Director incapable of continuing to
serve on the Board.
"Early Separation" means ceasing to serve as a Director of ML & Co.
prior to scheduled Retirement for any reason other than death or
Disability.
"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, as
amended.
"Executive Committee" means the Executive Committee of the Board of
Directors.
"Holding Period" has the meaning specified in Section 2.3(a).
"Initial Payment Date" has the meaning specified in Section 2.5(b).
"Junior Preferred Stock" means ML & Co.'s Series A Junior Preferred
Stock, par value $1.00 per share.
"modified installment payments" has the meaning specified in Section
2.5(b).
"Mutual Fund Index Account" means the reserve account established on
the books and records of ML & Co. to record a Participant's Mutual Fund
Index Account Balance.
"Mutual Fund Index Account Balance" means, with respect to a
particular grant as of any date, the deferred amounts, if any, credited to
a Participant's Mutual Fund Index Account pursuant to Section 2.4(b),
adjusted in accordance with Section 3.2 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.
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"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.
"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 Mutual Fund
Index Account Return Option for which the value is to be determined.
"Non-Employee Director" means a member of the Board who is not
employed by ML & Co. or 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 or any successor thereto.
"Participant" means each Non-Employee Director to whom a grant of
Deferred Units or Deferred Stock Units has been made under the Plan.
"Retirement" means ceasing to serve as a Director of ML & Co. on the
date of the Annual Meeting next following the calendar year of such
Director's seventieth birthday, or at such other time as may subsequently
be established as the normal retirement date for Non-Employee Directors.
"Retirement Annual Meeting" means, with respect to any Retiring
Non-Employee Director, the Annual Meeting coincident with such Director's
Retirement.
"Retirement Fraction" means, with respect to any Retiring
Non-Employee Director, a fraction whose numerator is the number of Annual
Meetings (including the Retirement Annual Meeting) remaining until such
Director's Retirement, and whose denominator is five.
"Retiring Non-Employee Director" means a Non-Employee Director whose
Retirement Annual Meeting will occur prior to, or will be the fifth Annual
Meeting following, the effective date of any grant of Deferred Units or
Deferred Stock Units to such Director.
"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 a Participant in accordance
with Section 3.2(a).
"Tender Offer" means 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.
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Section 1.3 Shares Subject to the Plan.
(a) Reservation of Shares. The total number of shares of Common Stock that
shall be reserved for issuance in payment of Deferred Stock Units under the Plan
shall be 200,000, subject to adjustment for changes in capitalization of ML &
Co. as provided in subparagraph (b) below. Shares of Common Stock issued under
the Plan shall only be shares previously issued and reacquired by ML & Co. and
held in its treasury.
(b) Changes in Common Stock. If any change is made in the terms or
provisions of the Common Stock (or the Rights of Junior Preferred Stock) subject
to the Plan (whether by reason of reorganization, merger, consolidation,
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares, change in corporate structure, or otherwise), then appropriate
adjustments shall be made to the maximum number of shares of Common Stock and
Rights subject to and reserved under the Plan without any action by the Board of
Directors.
Article II - Deferred Units and Deferred Stock Units; Optional Deferral of
Payment
Section 2.1 Deferred Unit Grants.
(a) Initial Grants. Each Non-Employee Director who is a member of the
Board on the effective date of the Plan shall have a Deferred Unit/Stock Unit
Account established in his or her name and be granted and have credited to such
account as of the date this Plan becomes effective the number of Deferred Units
obtained by dividing $50,000 by the Current Market Value per share of Common
Stock on such date and rounding the result upwards to the nearest whole Deferred
Unit; provided, however, that the dollar amount used to determine the grant to
any Retiring Non-Employee Director shall be $50,000 multiplied by the Retirement
Fraction applicable to such Retiring Non-Employee Director.
(b) New Director Grants. Each person who becomes a Non-Employee Director
after this Plan becomes effective shall, on the date when such person becomes a
Non-Employee Director and without any action by the Board of Directors, have a
Deferred Unit/Stock Unit Account established in his or her name and be granted
and have credited to such account the number of Deferred Units obtained by
dividing $50,000 by the Current Market Value per share of Common Stock on such
date and rounding the result upwards to the nearest whole Deferred Unit;
provided, however, that the dollar amount used to determine the grant to any
Retiring Non-Employee Director shall be $50,000 multiplied by the Retirement
Fraction applicable to such Retiring Non-Employee Director.
(c) Subsequent Grants. Effective on the first Business Day of the month
next following the date of the fifth Annual Meeting following the grant of
Deferred Units to a Non-Employee Director pursuant to Section 2.1(a) or (b), as
applicable, and, thereafter, effective on the first Business Day of the month
next following the date of the fifth Annual Meeting following the grant of
Deferred Units to a Non-Employee Director pursuant to this Section 2.1 (c), any
Director then serving as a Non-Employee Director shall, without any action by
the Board of Directors, be granted and have credited to his or her Deferred
Unit/Stock Unit Account on such date the number of Deferred Units obtained by
dividing $50,000 by the Current Market Value per share of Common Stock on such
date and rounding the result upwards to the nearest whole Deferred Unit;
provided, however, that the dollar amount used to determine the grant to any
Retiring Non-Employee Director
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shall be $50,000 multiplied by the Retirement Fraction applicable to such
Retiring Non-Employee Director.
Section 2.2 Deferred Stock Unit Grants.
In the event that ML & Co. determines to amend the Merrill Lynch & Co.,
Inc. Non-Employee Directors' Equity Plan (the "Equity Plan") to eliminate future
grants thereunder, then, without any action by the Board of Directors, each
Director serving as a Non-Employee Director on the effective dates set forth in
Section 2.2(a), (b) or (c) below, shall be granted and have credited to his or
her Deferred Unit/Stock Unit Account the number of Deferred Stock Units obtained
by dividing $50,000 by the Current Market Value per share of Common Stock on
such date and rounding the result upwards to the nearest whole Deferred Stock
Unit, effective as follows:
(a) Continuing Director Initial Grants. For each Non-Employee Director who
has received a grant under the Equity Plan, effective on the first Business Day
of the month next following the date of the Annual Meeting upon which such
Director's grant under the Equity Plan becomes fully vested;
(b) New Director Grants. For each Non-Employee Director who has not
received a grant under the Equity Plan, effective on the date that such Director
joins the Board of Directors; and
(c) Subsequent Grants. For each Non-Employee Director who has received a
grant of Deferred Stock Units under Section 2.2(a) or (b), effective on the
first Business Day of the month next following the date of the fifth Annual
Meeting following the grant of Deferred Stock Units to a Non-Employee Director
pursuant to Section 2.2(a) or (b), as applicable, and, thereafter, effective on
the first Business Day of the month next following the date of the fifth Annual
Meeting following the grant of Deferred Stock Units to a Non-Employee Director
pursuant to this Section 2.2(c);
provided, however, that, in each case, the dollar amount used to determine the
grant to any Retiring Non-Employee Director shall be $50,000 multiplied by the
Retirement Fraction applicable to such Retiring Non-Employee Director.
Section 2.3 Payment of Deferred Units and Deferred Stock Units.
(a) Payment of Units Upon Expiration of Holding Period. Unless deferred at
the option of the Participant in accordance with Section 2.4(a) hereof, the
Deferred Unit Account Balance and Deferred Stock Unit Account Balance with
respect to a particular grant will become payable upon the expiration of the
holding period with respect to such grant (the "Holding Period"), which shall
expire on the earlier of: (i) the date of the fifth Annual Meeting following the
date of such grant, and (ii) a Participant's End of Service Date. The Deferred
Units will be paid in cash. The amount of such cash payment shall be determined
by multiplying the number of Deferred 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 payment is to be made and rounding the result to
the nearest whole cent. The Deferred Stock Units will be paid in shares of
Common Stock. One share of Common Stock will be delivered for each Deferred
Stock Unit to be paid, after rounding any fractional Deferred Stock Unit upwards
to the nearest whole share.
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(b) Reduced Payment upon Early Separation. In the event of a Participant's
Early Separation, the amount payable to such Participant pursuant to paragraph
2.3(a) shall be reduced by multiplying the relevant Account Balance(s) by a
fraction, the numerator of which shall be 1 plus the number of Annual Meetings
that have occurred since the date of the relevant grant, and the denominator of
which shall be 5 or, in the case of a Retiring Non-Employee Director, the number
of Annual Meetings from the relevant grant date to and including the Retirement
Annual Meeting. No such reduction shall be applied to any Account Balance(s)
relating to grants whose Holding Periods have expired prior to the date of Early
Separation.
Section 2.4 Optional Deferral of Payment.
(a) Optional Deferral of Payment. A Participant shall have the option to
defer the payment of all or a portion of any Deferred Unit or Deferred Stock
Unit grant upon the expiration of the relevant Holding Period for later payment
in accordance with Section 2.5 by submitting to the Administrator or his or her
designee such forms as the Administrator shall prescribe by no later than one
year prior to the expiration of the relevant Holding Period. No such deferral
election shall become effective if the Holding Period expires prior to the fifth
Annual Meeting following the date of the relevant grant as a result of the
Participant's Early Separation, death or Disability.
(1) With respect to Deferred Units, a Participant may elect: (i) to have
all or a portion of his or her Deferred Unit Account Balance retained as
Deferred Units in his or her Deferred Unit/Stock Unit Account for payment at a
later date, or (ii) to have all or a portion of his or her Deferred Unit Account
Balance credited (either at the expiration of the Holding Period or upon some
specified subsequent date) to a Mutual Fund Index Account in accordance with
Section 2.4(b).
(2) With respect to Deferred Stock Units, a Participant may elect to have
all or a portion of his or her Deferred Stock Unit Account Balance retained as
Deferred Stock Units in his or her Deferred Unit/Stock Unit Account for payment
at a later date.
(b) Crediting to Mutual Fund Index Account. If a Participant elects,
pursuant to Section 2.4(a), to defer all or a portion of his or her Deferred
Unit Account Balance into a Mutual Fund Index Account, then, as soon as
practicable (but in no event later than the end of the following month) after
the expiration of the Holding Period applicable to such Participant's Deferred
Unit grant, a Mutual Fund Index Account will be established in the Participant's
name and will be credited with a dollar amount determined by multiplying the
relevant number of Deferred Units by the Current Market Value per share of
Common Stock on the last day of the month immediately preceding the month in
which the Holding Period expires and rounding the result to the nearest whole
cent. Mutual Fund Index Account Balances may not subsequently be converted to
Deferred Units or Deferred Stock Units.
(c) Irrevocability of Deferral Election. Except as provided in Sections
2.4(d) or (e) or Section 2.5, an election to defer the payment of all or a
portion of a Participant's Deferred Unit Account Balance or Deferred Stock Unit
Account Balance made pursuant to Section 2.4(a)(1) or (2) shall be irrevocable
once submitted to the Administrator or his or her designee.
(d) Rescission of Deferral Election Prior to the Expiration of the Holding
Period. An optional deferral election may be rescinded at the request of the
Participant only (i) prior to the expiration of the Holding Period with respect
to any grant of Deferred Units or Deferred Stock Units, and (ii) if the
Administrator, in his or her sole discretion and upon evidence of such basis
that
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he or she finds persuasive (including a material applicable change in the
Participant's U.S. Federal and/or foreign income tax rate during the period
between the deferral election and the expiration of the Holding Period), agrees
to the rescission of the election. In the event of a rescission under this
Section 2.4(d), no deferral will be effected under the Plan and the Participant
will be paid the Deferred Units or Deferred Stock Units in accordance with
Section 2.4(a).
(e) Rescission of Deferral Election Caused by an Adverse Tax
Determination. Notwithstanding the provisions of Section 2.4(c), 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 or her sole discretion, decides,
upon the Participant's request and upon evidence of the occurrence of the events
described in clause (i) hereof that he or she finds persuasive, to rescind the
election. Upon such rescission, the relevant Account Balance(s) will be paid to
the Participant as soon as practicable as provided herein.
Section 2.5 Payment of Amounts Optionally Deferred.
(a) Regular Payment Elections. A Participant's Account Balance(s) will be
paid by ML & Co., as elected by the Participant at the time of his or her
optional 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 after the scheduled expiration of the Holding Period (i.e.,
without taking into account the possibility of Early Separation, death or
Disability) 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 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) and rounding the result
to the nearest whole Deferred Unit, Deferred Stock Unit or cent, as the case may
be.
(b) Modified Installment Payments. In lieu of one of the regular payment
elections provided for in Section 2.5(a), a Participant may elect to receive his
or her Deferred Unit Account Balance or Mutual Fund Index Account Balance in at
least 11 but no more than 15 annual installment payments ("modified installment
payments"), such modified installment payments to commence on the last business
day in March in the year following the Participant's End of Service Date (the
"Initial Payment Date"). The modified installment payments shall be computed in
accordance with the last sentence of Section 2.5(a) and will in all other
respects be treated like regular installment payments under the Plan. By
electing modified installment payments, the Participant agrees that at any time
prior to the last day of February immediately preceding a Participant's Initial
Payment Date (the "Determination Date"), ML & Co. shall have the right, without
the consent of Participant or any beneficiary, to change the Participant's
method of payment to 11 annuitized payments ("annuitized payments"), in the
event that the Administrator, in his or her sole discretion, determines that
such a change is necessary or appropriate in order to preserve the intended
state tax benefits of the modified installment payments to the Participant or
any beneficiary. In the event that the Administrator determines that annuitized
payments shall be
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made, the amount of the annuitized payments will be determined by applying the
Discount Rate, as defined below, to the value of the Deferred Unit Account
Balance (determined as provided in Section 2.5(c)) or Mutual Fund Index Account
Balance, as applicable, as of the Determination Date to create a stream of 11
equal annual payments. If annuitized payments are to be made, then the Deferred
Unit Account Balance or Mutual Fund Index Account Balance, as applicable, shall
cease to be adjusted pursuant to Article III as of the Determination Date and
the Company's only obligation to the Participant shall be to make the annuitized
payments when due. As used herein, Discount Rate shall mean ML & Co.'s
then-applicable after-tax cost of borrowing and is defined as (A) x (B), where
(A) is equal to 1 minus ML & Co.'s then-effective tax rate, expressed as a
decimal, and (B) is equal to the sum of: (i) the annual yield on the
then-current 5-year U.S. Treasury Note, and (ii) a spread (which will not be
less than 0.10%) indicative of ML & Co.'s borrowing cost for transactions of
similar structure and average maturity to the annuity, as determined by ML & Co.
(c) Form of Payment. Deferred Units payable pursuant to this Section 2.5
will be paid in cash. Except as otherwise provided in Section 2.5(b), the amount
of any such cash payment shall be determined by multiplying the number of
Deferred 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 payment
is to be made and rounding the result to the nearest whole cent. Deferred Stock
Units payable pursuant to this Section 2.5 will be paid in shares of Common
Stock. One share of Common Stock will be delivered for each Deferred Stock Unit
to be paid, after rounding any fractional Deferred Stock Unit upwards to the
nearest whole share. Amounts deferred as Mutual Fund Index Account Balances will
be paid in cash as provided in Section 2.5(a) or (b), whichever is applicable.
(d) Death Prior to Payment. If the Participant dies prior to payment of
any or all amounts optionally deferred, then the Account Balance(s) will be paid
to the Participant's beneficiary in accordance with the Participant's election
of either installment payments, modified 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, then (i) if the Participant has elected a regular payment
election pursuant to Section 2.5(a), the applicable portion of the Account
Balance(s) will be paid in a single payment to such beneficiary, and (ii) if the
Participant has elected modified installment payments pursuant to Section
2.5(b), the applicable portion of the Account Balance(s) will continue to be
paid as modified installment payments or annuitized payments, as the case may
be, but only to a single person consisting of the administrator or executor of
the Participant's estate or another person lawfully designated by the
administrator or executor (and in the event no such person is designated within
a reasonable time, payment will be made in a lump sum).
(e) Discretion to Alter Payment Date. Notwithstanding the other provisions
of this Section 2.5, if the Participant ceases to be a Director for any reason,
the Administrator may, in his or her sole discretion, direct that the Account
Balance(s), except for any Deferred Unit Account Balance resulting from a grant
pursuant to Section 2.1(a) (but not any subsequent optional deferral thereof),
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.
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(f) 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(s), except for any Deferred Unit Account Balance resulting from
a grant pursuant to Section 2.1(a) (but not any subsequent optional deferral
thereof), as the Administrator may, in his or her 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 or her sole discretion. The balance of the
Account(s), 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 or her sole discretion to be
immediate and substantial.
Section 2.6 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 under the Plan in the
event of the Participant's death. The Participant may also designate a
contingent beneficiary to receive payments under the 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
10
<PAGE>
as soon as practicable in a single payment to such beneficiary's estate and not
to any contingent beneficiary the Participant may have designated; provided,
however, that if the beneficiary was receiving modified installment payments or
annuitized payments pursuant to Section 2.5(b), the applicable portion of the
Account Balance(s) will continue to be paid as modified installment payments or
annuitized payments, as the case may be, but only to a single person consisting
of the administrator or executor of the beneficiary's estate or another person
lawfully designated by the administrator or executor (and in the event no such
person is designated within a reasonable time, payment will be made in a lump
sum).
Section 2.7 Domestic Relations Orders.
Notwithstanding the Participant's elections hereunder, ML & Co. will pay
to, or to the Participant for the benefit of, the Participant's spouse or former
spouse the portion of the Participant's Account Balance(s) specified in a valid
court order entered in a domestic relations proceeding involving the
Participant's divorce or legal separation; provided that no portion of the
Account Balance(s) that may be subject to reduction pursuant to Section 2.3(b)
will be so distributed. Any such payment will be made net of any amounts the
Company may be required to withhold under applicable federal, state or local
law.
Section 2.8 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.
Article III - Adjustment of Account(s)
Section 3.1 Adjustment of Deferred Unit/Stock Unit Accounts.
(a) Dividend Equivalents. Whenever a cash dividend is paid on a share of
Common Stock, a Participant's Deferred Unit/Stock Unit Account will be adjusted
by adding to the Deferred Unit Account Balance or Deferred Stock Unit Account
Balance, as applicable, the number of Deferred Units or Deferred Stock Units
determined by multiplying the per share amount of the cash dividend by the
Deferred Unit Account Balance or Deferred Stock Unit Account Balance, as
applicable, 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 Deferred Unit or Deferred Stock Unit as the case may be (with .005
being rounded upwards); provided that, if a Participant's Deferred Unit Account
Balance or Deferred Stock Unit Account Balance is 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 to the Participant's Deferred
Unit/Stock Unit Account, the dividend equivalent amount with respect to such
record date will be determined by multiplying the per share amount of the cash
dividend by the Deferred Unit Account Balance or Deferred Stock Unit Account
Balance on the record date for the cash dividend and rounding the result to the
nearest whole cent, which amount shall be applied as follows: (i) the amount
relating to any Deferred Units or Deferred Stock Units, as the case may be, with
respect to which distribution
11
<PAGE>
has been made to the Participant under the Plan shall be paid to the Participant
in cash, and (ii) the amount relating to the portion, if any, of the Deferred
Unit Account Balance that is credited to the Participant's Mutual Fund Index
Account in accordance with the Plan shall be credited to such Mutual Fund Index
Account, in each case, at the same time 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 (or the Rights or Junior Preferred 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, then appropriate adjustments shall be made, without any action by the
Board of Directors, to the Deferred Units and Deferred Stock Units, as shall be
necessary to maintain the proportionate interest of the Participants and to
preserve, without increasing, the value of their Account Balance(s). 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.
Section 3.2 Adjustment of Mutual Fund Index Accounts; Mutual Fund Index
Account Return Options.
(a) Selection of Mutual Fund Index Account Return Options. At the time of
his or her optional deferral election pursuant to Section 2.4(a), 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
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
12
<PAGE>
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.
Article IV - Status of Accounts
Section 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(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.
Section 4.2 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.
13
<PAGE>
Section 4.3 Effect on Benefits Under Pension and Welfare Benefit Plans.
The effect of the grants, deferrals and payments under the Plan 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 - Change in Control
Section 5.1 Payment of Account Balance(s) upon Change in Control.
(a) Payment of Account Balance(s). 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, the Participant's Account
Balance(s), except for any Deferred Unit Account Balance resulting from a grant
pursuant to Section 2.1(a) (but not any subsequent optional deferral thereof),
will be paid to the Participant in a lump sum promptly 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) Manner of Payment. Payment of Account Balance(s) pursuant to Section
5.1(a) shall be made in the following manner:
(1) With respect to Deferred Units and Deferred Stock Units, payment shall
be made in cash and shall be calculated as if any applicable Holding Period had
expired. The amount of the cash payment shall be determined by multiplying the
number of Deferred Units and Deferred Stock Units in the Participant's Deferred
Unit/Stock Unit Account by the Daily Market Price per share of Common Stock on
the date of the event specified in Section 5.1(a)(i) or (ii), as the case may
be, or, if higher, the highest Daily Market Price per share of Common Stock on
any day during the 90-day period ending on such date.
(2) Any Mutual Fund Index Account Balance shall be valued as of the date
of the event specified in 5.1(a), and such amount shall be paid in cash.
Article VI - Administration of the Plan
Section 6.1 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.
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<PAGE>
Section 6.2 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.
Section 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 Account Balance(s), deferral elections,
beneficiary designations, or any other matters.
Article VII - Miscellaneous Provisions
Section 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.
Section 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.
Section 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.
Section 7.4 Amendment and Termination.
The Board of Directors, or, if permitted pursuant to Rule 16b-3 under the
Exchange Act, the Executive Committee may amend or terminate this Plan at any
time, provided that no amendment or termination may be made that would adversely
affect the right of a Participant to his or her Account Balance(s) as of the
date of such amendment or termination.
Article VIII - Effective Date
The Plan shall be effective as of August 12, 1996.
15
<PAGE>
Exhibit 10(iv)
MERRILL LYNCH & CO., INC.
1997 KECALP DEFERRED COMPENSATION PLAN
FOR A SELECT GROUP OF ELIGIBLE EMPLOYEES
DATED AS OF OCTOBER 29, 1996
<PAGE>
MERRILL LYNCH & CO., INC.
1997 KECALP DEFERRED COMPENSATION PLAN
FOR A SELECT GROUP OF ELIGIBLE EMPLOYEES
Table of Contents
Page
----
I. GENERAL ............................................................. 1
1.1 Purpose and Intent ........................................... 1
1.2 Definitions .................................................. 1
II. ELIGIBILITY ......................................................... 6
2.1 Eligible Employees ........................................... 6
(a) General Rule ........................................... 6
(b) Individuals First Employed During
Election Year or Plan Year ............................. 6
(c) Disqualifying Factors .................................. 6
III. DEFERRAL ELECTIONS; ACCOUNTS ........................................ 6
3.1 Deferral Elections ........................................... 6
(a) Timing and Manner of Making of Elections ............... 6
(b) Irrevocability of Deferral Election .................... 7
(c) Application of Election ................................ 7
3.2 Crediting to Accounts ........................................ 7
(a) Benchmark Return Account................................ 7
(b) KECALP Unit Account..................................... 7
3.3 Requirements for Deferral .................................... 7
(a) Requirements ........................................... 7
(b) Failure to Meet Requirements ........................... 8
(c) Pro Rata Reduction of Deferred Amounts.................. 8
3.4 Return Options; Adjustment of Accounts ....................... 8
(a) Section of KECALP Return Option......................... 8
(b) Selection of Benchmark Return Options .................. 9
(c) Selection of the Leverage Percentage.................... 9
(d) Adjustment of KECALP Unit Account....................... 9
(e) Adjustment of Debit Account............................. 10
(f) Adjustment of Benchmark Return Account.................. 10
(g) Charges ................................................ 11
3.5 Rescission of Deferral Election .............................. 11
(a) Adverse Tax Determination .............................. 11
(b) Rescission During the Interim Period For
Amounts Not Yet Earned ................................. 11
IV. STATUS OF DEFERRED AMOUNTS AND ACCOUNT .............................. 12
4.1 No Trust or Fund Created; General Creditor Status ............ 12
4.2 Non-Assignability ............................................ 12
4.3 Effect of Deferral on Benefits Under Pension and
Welfare Benefit Plans ..................................... 12
V. PAYMENT OF ACCOUNTS ................................................. 12
5.1 Manner of Payment ............................................ 12
-i-
<PAGE>
Page
----
5.2 Termination of Employment .................................... 13
(a) Death or Retirement .................................... 13
(b) Other Termination of Employment - Forfeiture
of Leverage ............................................ 13
(c) Leave of Absence, Transfer or Disability ............... 13
(d) Discretion to Alter Payment Date ....................... 13
5.3 Withholding of Taxes ......................................... 13
5.4 Beneficiary .................................................. 14
(a) Designation of Beneficiary ............................. 14
(b) Change in Beneficiary .................................. 14
(c) Default Beneficiary .................................... 14
(d) If the Beneficiary Dies During Payment ................. 14
5.5 Hardship Distributions ....................................... 14
5.6 Domestic Relations Orders .................................... 15
VI. ADMINISTRATION OF THE PLAN .......................................... 15
6.1 Powers of the Administrator .................................. 15
6.2 Payments on Behalf of an Incompetent ......................... 15
6.3 Corporate Books and Records Controlling ...................... 15
VII. MISCELLANEOUS PROVISIONS ............................................ 16
7.1 Litigation ................................................... 16
7.2 Headings Are Not Controlling ................................. 16
7.3 Governing Law ................................................ 16
7.4 Amendment and Termination .................................... 16
-ii-
<PAGE>
MERRILL LYNCH & CO., INC.
1997 KECALP 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 purposes of the Plan, the following terms shall have the meanings
indicated.
"Account Balances" means, as of any date, the Benchmark Return Account
Balance, the Debit Account Balance and the KECALP Unit Account Balance.
"Accounts" means the Benchmark Return Account, the KECALP Unit Account and
the Debit Account.
"Adjusted Compensation" means the financial consultant incentive
compensation, account executive incentive compensation or estate planning and
business insurance specialist (or other similar titles established by National
Sales Management) incentive compensation, in each case exclusive of base salary,
earned by a Participant during the Fiscal Year ending in 1997, and payable after
January 1, 1997, as a result of the Participant's production credit level, or
such other similar items of compensation as the Administrator shall designate as
"Adjusted Compensation" for purposes of this Plan.
"Administrator" means the Director of Human Resources of ML & Co., or his
functional successor, or any other person or committee designated as
Administrator of the Plan by the MDCC.
"Affiliate" means any corporation, partnership, or other organization of
which ML & Co. owns or controls, directly or indirectly, not less than 50% of
the total combined voting power of all classes of stock or other equity
interests.
"Annual Charge" means the charge provided for in Section 3.4(g)(i).
"Applicable Federal Rate" means the applicable federal rate for short-term
(0-3 years) obligations of the United States Treasury established in January of
each year.
"Available Benchmark Return Account Balance" means amounts in the
Benchmark Return Account after each of the debit balances recorded in the Debit
Account has been reduced to zero.
<PAGE>
"Average Leveraged Principal Amount" means, for each Participant, for any
period, the sum of the Leveraged Principal Amounts outstanding at the end of
each day in the period divided by the number of days in such period.
"Benchmark Return Account" means the reserve account for each Participant
established on the books and records of ML & Co. to record the Participant's
Benchmark Return Account Balance under the Plan.
"Benchmark Return Account Balance" means, as of any date, the Deferred
Amounts credited to a Participant's Benchmark Return Account, adjusted to
reflect (1) the performance of the Participant's Selected Benchmark Return
Options as provided in Section 3.4(f); (2) balances transferred to the KECALP
Unit Account, as provided in Section 3.2(b) at the closing of Merrill Lynch
KECALP L.P. 1997; (3) distributions with respect to units in the KECALP Unit
Account made in accordance with Section 3.4(d); (4) chargeoffs of any debit
balance (the aggregate accrued Annual Charge or the Leveraged Principal Amount,
as the case may be) recorded the Debit Account as provided in Section 3.4(e);
and (5) any payouts to the Participant under Article V hereof.
"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 Benchmark Return 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.
"Career Retirement" means a Participant's termination of employment with
the Company for reasons other than for cause on or after: (i) the Participant's
55th birthday, if the Participant has at least 5 years of service; (ii) the
Participant's 50th birthday, if the Participant has at least 10 years of
service; (iii) the Participant's 45th birthday, if the Participant has at least
15 years of service, or (iv) at any age, if the Participant has at least 20
years of service, provided that, in each case, following such termination such
Participant does not engage in any activity that, in the sole judgment of the
Administrator, is in competition with the business of the Company.
"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).
"Debit Account" means, as, the debit account established for each
Participant on the books and records of ML & Co. with a KECALP Unit Account to
record the Participant's Debit Account Balance under the Plan.
"Debit Account Balance" means, as of any date the negative balance, if
any, representing each of: (1) the aggregate Annual Charge, accrued in
accordance with Section 3.4(g)(i); and (2) any Leveraged Principal Amount
(together with any pro rata Interest Amounts determined in accordance with
Section 3.4(g)(ii), if applicable), as reduced by any distributions from the
KECALP Unit Account or chargeoffs against the Benchmark Return Account, in
accordance with Section 3.4(e).
2
<PAGE>
"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 1996 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.
"Excess Deferral Amounts" means, for each Participant deferring Adjusted
Compensation, the additional amounts advanced to the Participant by the Company
for crediting to the Participant's KECALP Unit Account, such amounts to equal
the amounts that would actually have been deferred under the Plan from the
Participant's Projected Remaining Adjusted Compensation (taking into account
deferrals under other deferred compensation plans) if such Projected Remaining
Adjusted Compensation had been earned prior to the closing of Merrill Lynch
KECALP L.P. 1997.
"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).
"Initial Leveraged Amount" means the initial dollar amount by which of a
Participant's deferral is leveraged as determined in accordance with Section
3.4(c).
"Interim Period" means the period beginning on the date the Participant
elects to defer compensation under the Plan and ending on either (1) the date of
the closing of Merrill Lynch KECALP L.P. 1997 or (2) the date that KECALP Inc.,
the general partner of Merrill Lynch KECALP L.P. 1997 receives notice from the
SEC that its request to amend the exemptive order for the KECALP partnerships to
allow ML & Co. to invest in Merrill Lynch KECALP L.P. 1997 has been denied.
"Interest" means the interest accruing on a Participant's Average
Leveraged Principal Amount at the Applicable Federal Rate.
3
<PAGE>
"Interest Amounts" means, for any Participant, as of any date, the amount
of Interest that has accrued to such date on such Participant's Average
Leveraged Principal Amount, from the date on which a Participant's Leveraged
Principal Amount is established, or from the most recent date that Interest
Amounts were added to the Leverage Principal Amount.
"KECALP Return Option" means the option of indexing returns hereunder to
the performance of Merrill Lynch KECALP L.P. 1997, on a leveraged or unleveraged
basis.
"KECALP Unit Account" means the reserve account for each Participant who
has chosen the KECALP Return Option, established on the books and records of ML
& Co. to record such Participant's KECALP Unit Account Balance.
"Leveraged or Unleveraged Unit Distributions" means the distributions from
the KECALP Unit Account attributable to the leveraged or unleveraged portion (as
the case may be) of a Participant's KECALP Unit Account.
"Leverage-Eligible Participants" means persons who have at least $400,000
of Total Compensation for the Election Year and otherwise qualify, in accordance
with standards determined by the Administrator, to select the KECALP Return
Option on a leveraged basis.
"Leverage Percentage" means the percentage of leverage chosen by a
Leverage-Eligible Participant, which percentage will be subject to the limits
determined by the Administrator.
"Leveraged Principal Amount" means a Participant's Initial Leveraged
Amount, if any, plus, to the extent applicable, the amount of any Excess
Deferral Amounts not repaid with actual deferrals of Adjusted Compensation by
the end of January 1998, or any as adjusted to reflect the addition of Interest
Amounts (or any pro rata Interest Amounts) determined in accordance with Section
3.4(g)(ii).
"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.
"Net Asset Value" means, (1) 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, and (2) with respect to the KECALP Return Option, the
net asset value as determined periodically by the General Partner of Merrill
Lynch KECALP L.P. 1997.
"Partial Year Adjusted Compensation" means the actual amount of Adjusted
Compensation earned by a Participant during the period from December 28, 1996 to
the last day of the fiscal month prior to the closing of Merrill Lynch KECALP
L.P. 1997.
"Participant" means an Eligible Employee who has elected to defer
Compensation under the Plan.
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"Plan" means this Merrill Lynch & Co., Inc. 1997 KECALP Deferred
Compensation Plan for a Select Group of Eligible Employees.
"Plan Year" means the Fiscal Year ending in 1997.
"Projected Remaining Adjusted Compensation" means, for any Participant,
the amount determined by annualizing such Participant's Partial Year Adjusted
Compensation and subtracting such Participant's Partial Year Adjusted
Compensation from such annualized amount.
"Retirement" means a Participant's termination of employment with the
Company for reasons other than for cause (i) on or after the Participant's 65th
birthday, or (ii) on or after the Participant's 55th birthday, if the
Participant has at least 10 years of service; or (iii) with the express approval
of the Administrator, which will be granted only if such termination is found by
the Administrator to be in, or not contrary to, the best interests of the
Company.
"SEC" means the Securities and Exchange Commission.
"Selected Benchmark Return Option" means a Benchmark Return Option
selected by the Participant in accordance with Section 3.4(b).
"Sign-On Bonus" means a single-sum amount paid or payable to a new
Eligible Employee during the Plan Year upon commencement of employment that is
to be paid during the Interim Period, in addition to base pay and other
Compensation, to induce him or her to become an employee of the Company, or any
similar item of compensation as the Administrator shall designate as "Sign-On
Bonus" for purposes of this Plan.
"Total Compensation" means Eligible Compensation plus the grant value, as
determined by ML & Co. at the time of grant, of stock-based awards that are
granted 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, are considered earned during the Plan Year regardless of when they are
actually granted or paid to the Participant.
"Undistributed Deferred Amounts" means, as on any date on which the Annual
Charge is determined, a Participant's Deferred Amounts (exclusive of any
appreciation or depreciation) minus for each distribution from the Plan prior to
such date, an amount equal to the product of the Deferred Amounts and a fraction
the numerator of which is the amount of such distribution and the denominator of
which is the combined Net Asset Value (prior to distribution) of the
Participant's Benchmark Return Account and KECALP Unit Account as of the date of
the relevant distribution.
"Variable Incentive Compensation" means the variable incentive
compensation or office manager incentive compensation that is paid in cash to
certain employees of the Company, generally in January or February of the Plan
Year with respect to the prior Fiscal Year, which, for purposes of this Plan, is
considered earned during the Plan Year regardless of when it is actually paid to
the Participant, or such other similar items of compensation as the
Administrator shall designate as "Variable Incentive Compensation" for purposes
of this Plan.
"401(k) Plan" means the Merrill Lynch & Co., Inc. 401(k) Savings &
Investment Plan.
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ARTICLE II
ELIGIBILITY
2.1 Eligible Employees.
(a) General Rule. An individual is an Eligible Employee if he or she (i)
is a Full-Time Domestic Employee or a Full-Time Expatriate Employee, (ii) has at
least $200,000 of Eligible Compensation for the Election Year, (iii) has
attained at least the title of Vice President, Director or Managing Director, or
holds a National Sales Management position with the Company (a "National Sales
Manager"), and (iv) (A) is a financial consultant or an estate planning and
business insurance specialist (or other similar title established by National
Sales Management), who was a member in 1996 of the Chairman's Club, the Charles
E. Merrill Circle, the Society of Eagles, the Falcons Club or the Win Smith
Fellows, (B) is a National Sales Manager, (C) is a member of the International
Private Banking Group, (D) is employed as an Investment Manager for Merrill
Lynch Asset Management, (E) is a non-producing employee in Band 1 or 2, or (F)
is a producing employee in grade 95 or above; provided, that non-producing
employees in Band 1 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 during the Interim
Period of 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) Disqualifying Factors. An individual shall not, however, be an
Eligible Employee if either (i) 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 or (ii)
within 13 months prior to the deadline for submission of elections specified in
Section 3.1(a), the individual has made a hardship withdrawal of Elective 401(k)
Deferrals as defined under the 401(k) Plan.
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 November 18th of the Election Year or, in the event such date is not
a business day, the immediately preceding business day; provided, however, that
the Eligible Employee's election to defer a Sign-On Bonus
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during the Interim Period 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.
3.2 Crediting to Accounts.
(a) Benchmark Return Account. A Participant's Deferred Amounts will be
credited to the Participant's Benchmark Return Account (to the extent they are
not credited directly to the Participant's KECALP Unit Account or applied
against the Participant's Excess Deferral Amount as provided in Section 3.2(b)),
as soon as practicable (but in no event later than the end of the following
month) after the last day of the Fiscal Month during which such Deferred Amounts
would, but for deferral, have been paid and will be accounted for in accordance
with Section 3.4. No interest will accrue, nor will any adjustment be made to a
Benchmark Return Account, for the period until the Deferred Amounts are
credited.
(b) KECALP Unit Account. Upon the closing of Merrill Lynch KECALP L.P.
1997, Participants will have their KECALP Unit Accounts credited with a whole
number of units determined by dividing by $1,000 the sum of the following: (1)
the Benchmark Return Account Balance, as of the day prior to the closing date;
(2) any additional Deferred Amounts which have not yet been credited to the
Benchmark Return Account as of such date; (3) the Participant's Excess Deferral
Amounts, if applicable; and (4) the Participant's Initial Leveraged Amount
(computed in accordance with Section 3.4(c)). Any amounts not applied to the
KECALP Unit Account will remain in the Benchmark Return Account (or be applied
to reduce negative balances in the Debit Account). No fractional units will be
credited.
Excess Deferral Amounts shall be deemed advances of Deferred Amounts
hereunder. Accordingly, actual amounts of Adjusted Compensation deferred, in
accordance with a Participant's elections, after the crediting of the
Participant's KECALP Unit Account, will be applied against such advances and no
such deferrals shall be credited to the Participant's Benchmark Return Account
until such advances are repaid. To the extent that Excess Deferral Amounts have
not been repaid at the end of the Plan Year, such unpaid Excess Deferral Amounts
shall be added to the Debit Account as either an Initial Leveraged Amount or
Leveraged Principal Amount (whether or not such Participant was initially a
Leverage-Eligible Participant).
3.3 Requirements for Deferral.
(a) 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,
1996,
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(ii) the Participant's election, as applied to the Participant's
Variable Incentive Compensation (determined by substituting the
Election Year for the Plan Year) or Adjusted Compensation
(determined by substituting the Fiscal Year immediately prior to
the Fiscal Year ending in the Election Year for the Fiscal Year
ending in the Plan Year) would have resulted in an annual
deferral of less than $15,000,
(iii) the greater of (A) the sum of (1) the "Medicare wages" amount
listed on the Participant's W-2 form for the Plan Year, and (2)
any Compensation that is accelerated that the Participant may
receive in December of the Election Year that would have been
payable in the Plan Year in the absence of the action of the
Company to accelerate the payment, and (B) the Participant's
Eligible Compensation for the Plan Year, is less than $200,000
(except in the circumstances provided for in the proviso to
Section 2.1(a); or
(iv) it is determined by the Administrator that the SEC will not
agree by September 30, 1997 to allow an investment by ML & Co.
in Merrill Lynch KECALP L.P. 1997;
provided, that any Participant who first becomes an employee of the Company
during the Plan Year shall not be required to satisfy conditions (i) and (ii).
Condition (ii) shall not be construed to require a Participant's elections to
result in an actual deferral of at least $15,000. In the event that condition
(iv) has not occurred by September 30, 1997, but occurrence is expected within
1997, the Administrator shall have the discretion to extend the date to a later
date in 1997.
(b) Failure to Meet Requirements. If the requirements of Section 3.3(a)(i)
or (ii) are not met by a Participant to whom such requirements are applicable,
such Participant's Deferred Amounts, if any, will be paid to such Participant,
without adjustment to reflect the performance of any Selected Benchmark Return
Option, as soon as practicable after it has been determined that the
requirements have not been met. If the requirements of Section 3.3(a)(iii) are
not met by a Participant, the greater of such Participant's Deferred Amounts or
Benchmark Return Account Balance will be paid to such Participant as soon as
practicable after it has been determined that the requirements have not been
met. If the requirements of Section 3.3(a)(iv) are not met, such Participant's
Benchmark Return Account Balance will be paid to such Participant as soon as
practicable after it has been determined that the requirement have not been met.
(c) Pro Rata Reduction of Deferred Amounts. In addition, in the event that
the Administrator determines that, as a result of amounts deferred that are
benchmarked to the KECALP Return Option, the size of Merrill Lynch KECALP L.P.
1997 would exceed $250 million, the Administrator may direct that the number of
unleveraged units to be credited to the KECALP Unit Accounts for all persons who
have chosen the KECALP Return Option, be reduced proportionately to reduce the
size of Merrill Lynch KECALP L.P. to less than $250. In such event, to the
extent that actual Deferred Amounts are reduced, the related Deferred Amounts
will be returned to Participants as soon as practicable and the Participant's
Initial Leveraged Amount will be recomputed in accordance with Section 3.4(c)
based on such reduced Deferred Amounts.
3.4 Return Options; Adjustment of Accounts.
(a) Selection of KECALP Return Option. Coincident with the Participant's
election to defer Compensation, the Participant will give a preliminary
indication of interest in selecting the KECALP Return Option. During a 30-day
period following the receipt by a Participant of the final Prospectus for
Merrill Lynch KECALP L.P. 1997, Participants will be required to confirm their
selection of the KECALP Return Option (and designate any Leverage Percentage) or
may instead elect to have
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their Deferred Amounts benchmarked to the Benchmark Return Options, provided
that such benchmarking shall be on an unleveraged basis. Participants should be
aware that choosing to defer using the KECALP Return Option is contingent upon
the agreement by the SEC that the exemptive order for the KECALP partnerships
can be amended to allow ML & Co. to invest in Merrill Lynch KECALP L.P. 1997 to
hedge is obligations to Participants. In addition, once the closing of Merrill
Lynch KECALP L.P. 1997 has occurred, Participants who have chosen the KECALP
Return Option will not be able to change their election.
(b) 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 Benchmark
Return Account to be adjusted to reflect the performance of each Selected
Benchmark Return Option during the Interim Period and at all other times when
there is a positive Benchmark Return Account Balance. 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. When selecting Selected Benchmark Return Options,
Participants should be aware that the performance of the Selected Benchmark
Return Options will affect their Benchmark Return Account Balance during the
Interim Period, which may result in a smaller or larger allocation to the KECALP
Return Option than was originally intended.
(c) Selection of the Leverage Percentage. Prior to the closing of the
offering of Merrill Lynch KECALP L.P. 1997, Leverage-Eligible Participants will
commit to selecting the KECALP Return Option on a leveraged basis and will
choose the Leverage Percentage, in accordance with standards determined by the
Administrator, by submitting such forms as the Administrator shall prescribe. On
the day prior to the closing of Merrill Lynch KECALP L.P. 1997, the
Administrator will determine each Leverage-Eligible Participant's Initial
Leveraged Amount by applying such Participant's Leverage Percentage to the sum
of (1) the dollar value of a Participant's Benchmark Return Account Balance (and
any additional Deferred Amounts not credited to such Benchmark Return Account)
plus, if applicable, (2) such Participant's Excess Deferral Amounts. This
Initial Leveraged Amount will be converted into units in the KECALP Unit Account
in accordance with Section 3.2(b) at the closing of Merrill Lynch KECALP L.P.
1997. The Initial Leveraged Amount will be recorded as the Leveraged Principal
Amount, to which amount Interest Amounts will be added annually in accordance
with Section 3.4(g)(ii).
(d) Adjustment of KECALP Unit Account. While a Participant with a KECALP
Unit Account will receive quarterly statements of the estimated value of the
KECALP Unit Account, such statement will be for recordkeeping purposes only and
will not represent the Participant's ownership of, or any ownership interest in,
Merrill Lynch KECALP L.P. 1997. Whenever a distribution is paid on an actual
unit of Merrill Lynch KECALP L.P. 1997, an amount equal to such per unit
distribution times the number of units in the Participant's KECALP Unit Account
will be applied first against any Debit Account Balance, as provided in Section
3.4(e) and then, if any portion of such distribution remains after each debit
balance in the Debit Account is reduced to zero, be credited to the
Participant's Benchmark Return Account. Because the KECALP Return Option is
illiquid, no payouts shall be made from the KECALP Unit Account. Payouts to
Participants under Article V hereof will be made only from amounts credited to a
Participant's Benchmark Return Account after the Debit Account Balance is
reduced to zero. The KECALP Unit Account and the Debit Account will also be
adjusted in accordance with Section 5.2 hereof in the event of a Participant's
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termination of his employment at Merrill Lynch, (other than as a result of
death, disability, Career Retirement, or Retirement).
(e) Adjustment of Debit Account. Any negative Debit Account Balance shall
be charged off as soon as possible against either (i) any positive balance in a
Participant's Benchmark Return Account or (ii) any distributions from the KECALP
Unit Account. Reductions of the Debit Account Balance, as provided in the
foregoing sentence shall be deemed to be applied first to reduce the debit
balance attributable to accrued Annual Charges and then, after all such accrued
Annual Charges have been satisfied, to reduce any Leverage Principal Amount.
(f) Adjustment of Benchmark Return Account. While the Participant's
Accounts do not represent the Participant's ownership of, or any ownership
interest in, any particular assets, the Benchmark Return Account shall be
adjusted to reflect credits or debits relating to distributions with respect to
the KECALP Unit Account or the chargeoffs against the Debit Account and to
reflect the investment experience of the Participant's Selected Benchmark Return
Options in the same manner as if investments or dispositions 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 Benchmark Return Accounts, the timing of receipt of Participant
instructions or credits or debits relating to distributions or chargeoffs with
respect to the KECALP Unit Account or the Debit Account 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 or
dispositions were actually to be made, except that in connection with the
crediting of Deferred Amounts or distributions to the Participant's Benchmark
Return Account and distributions from or debits to the Benchmark Return 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.
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All debits and charges against the Benchmark Return Account shall be applied as
a pro rata reduction of the portion of the Benchmark Return Account Balance
indexed to each of the Participant's Selected Benchmark Return Options.
(g) Charges:
(i) 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 Undistributed Deferred
Amounts (exclusive of any appreciation or depreciation) shall be
applied to reduce the Benchmark Return Account Balance (but not
below zero). To the extent the Benchmark Return Account Balance is
insufficient to satisfy the Annual Charge, the unpaid portion will
accrue as a negative balance in the Debit Account.
(ii) Interest Amounts. As of the last day of each Fiscal Year, Interest
Amounts computed by the Administrator shall be added to the
Leveraged Principal Amount. If on any date the Leveraged Principal
Amount would be discharged completely as a result of distributions
or chargeoffs, Interest Amounts will be computed though such date
and added to the Leveraged Principal Amount as of such date.
3.5 Rescission of Deferral Election.
(a) Adverse Tax Determination. Notwithstanding the provisions of Section
3.1(b), 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. In the event that such rescission occurs during the
Interim Period or in the event that a Participant has chosen not to select the
KECALP Return Option, upon such rescission, the Benchmark Return 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. In the event that
such rescission occurs after the Interim Period, the Available Benchmark Return
Account Balance will be repaid to the Participant and further payments will be
made as additional amounts become credited to the Benchmark Return Account.
(b) Rescission During the Interim Period For Amounts Not Yet Earned.
During the Interim Period, 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. In addition, in the event a Participant receives a hardship
withdrawal under the 401(k) Plan, the Administrator shall, as of the date the
Participant's Elective 401(k) Deferrals (as defined in the 401(k) Plan) are
suspended under the 401(k) Plan as a result of such hardship withdrawal,
terminate the Participant's deferrals under this Plan in accordance with the
preceding sentence as if the Participant had requested rescission in writing. In
each case, amounts previously deferred will continue to be governed by the terms
of this Plan.
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ARTICLE IV
STATUS OF DEFERRED AMOUNTS AND ACCOUNTS
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 any Account Balance will at all times remain in ML & Co.; such
funds will continue for all purposes to be a part of the general funds of ML &
Co. and may be used for any corporate purpose. No person will, by virtue of the
provisions of this Plan, have any interest whatsoever in any specific assets of
the Company. TO THE EXTENT THAT ANY PERSON ACQUIRES A RIGHT TO RECEIVE PAYMENTS
FROM ML & CO. UNDER THIS PLAN, SUCH RIGHT WILL BE NO GREATER THAN THE RIGHT OF
ANY UNSECURED GENERAL CREDITOR OF ML & CO.
4.2 Non-Assignability.
The Participant's right or the right of any other person to Account
Balances 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 ACCOUNTS
5.1 Manner of Payment.
By choosing the KECALP Return Option, Participants are electing to receive
payouts as amounts become available as a result of distributions with respect to
the KECALP Unit Account. Participants will be able to elect either (A) to
receive payouts as the distributions with respect to the KECALP Unit Account are
made (once a Participant's Debit Account Balance has been reduced to zero) or
(B) to receive payouts as the distributions with respect to the KECALP Unit
Account are made (once a Participant's Debit Account Balance has been reduced to
zero) but in no event prior to a month and year specified by the Participant or
the month of March in the year following Retirement, provided that no election
may result in the commencement of payment later than the month following the
Participant's 70th birthday (other than as a result of the timing of
distributions with respect to the KECALP Unit Account). Persons who decline to
confirm their choice of the KECALP Return Option following the receipt of a
final Prospectus for Merrill Lynch KECALP L.P. 1997 will receive their Benchmark
Return Account Balance in a lump sum on a date specified in their initial
election, which may be either (X) a month and date specified by such Participant
or (Y) the month of March in the year following such Participant's Retirement,
provided that, in each case such payment shall not occur until after January 31,
2000.
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5.2 Termination of Employment.
(a) Death or Retirement. Upon a Participant's death or Retirement prior to
payment, the Available Benchmark Return Account Balance will be paid, in
accordance with the Participant's elections and as provided in Section 5.1, as
applicable, to the Participant (in the event of Retirement) or to the
Participant's beneficiary (in the event of death); provided, however, that in
the event that a Participant, who has died, had specified a date prior to which
payments would not be made and the beneficiary of the Participant's Account is
the Participant's estate or is otherwise not a natural person, then, such
specified date will be ignored and such payments made as available in accordance
with clause (A) of the first sentence of Section 5.1.
(b) Other Termination of Employment - Forfeiture of Leverage. If the
Participant's employment terminates at any time for any reason other than death
or Retirement, then, notwithstanding the Participant's elections hereunder, any
Available Benchmark Return Account Balance will be paid to the Participant, as
soon as practicable, in a single payment if all distributions have been made
with respect to the KECALP Unit Account or as available, as soon thereafter as
is practicable, notwithstanding the Participant's elections hereunder. In the
event that a Participant's employment terminates at any time for any reason
other than death, disability, Career Retirement, or Retirement, such Participant
will forfeit all rights to the leveraged portion of such Participant's KECALP
Unit Account, including any future Leveraged Distributions, unless the
Administrator, in his sole discretion, determines that such forfeiture would be
detrimental to Merrill Lynch based on the Net Asset Value of the KECALP Unit
Account. In the event of such forfeiture, the Participant's KECALP Unit Account
Balance and Debit Account Balance will be restated by the Administrator, as of
the date of termination, to reflect what such balances would have been had the
Participant selected no leverage under Section 3.4(c). To the extent necessary,
the Participant's Benchmark Return Account Balance will also be adjusted, as of
the date of the termination, to credit the Participant with the amount of any
Unleveraged Distributions that were previously applied to the repayment of the
Leveraged Principal Amount and any Interest Amounts and, to the extent
necessary, any Leveraged Distributions paid out to the Participant will be
stated as a negative balance in the Participant's Debit Account. Leveraged and
Unleveraged Distributions shall be deemed to have been applied and distributed
proportionately. All calculations hereunder shall be made by the Administrator
and shall be final and determinative.
(c) Leave of Absence, Transfer or Disability. The Participant's employment
will not be considered 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, if the Participant's employment terminates for any reason, the
Administrator may, in his sole discretion, direct that any Available the
Benchmark Return Account Balance be paid at some other time; 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
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may 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 will 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 either 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 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 a 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 payments have been made, the portion of the
Benchmark Return Account to which that beneficiary was entitled will be paid as
soon as practicable in one lump sum or as available (in the event that all
distributions have not been made with respect to the KECALP Unit Account) 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 a Participant's Available
Benchmark Return 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
Participant's Accounts, 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
14
<PAGE>
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.
5.6 Domestic Relations Orders.
Notwithstanding the Participant's elections hereunder, ML & Co. will pay
to, or to the Participant for the benefit of, the Participant's spouse or former
spouse the portion of the Participant's Available Benchmark Return Account
Balance specified in a valid court order entered in a domestic relations
proceeding involving the Participant's divorce or legal separation. Such payment
will be made net of any amounts the Company may be required to withhold under
applicable federal, state or local law. any such payment shall be deemed a
distribution under the Plan for purposes of the definition of Undistributed
Deferred Amounts.
ARTICLE VI
ADMINISTRATION OF THE PLAN
6.1 Powers of the Administrator.
The Administrator has full power and authority to interpret, construe and
administer this Plan so as to ensure that it provides deferred compensation for
the Participant as a member of a select group of management or highly
compensated employees within the meaning of Title I of ERISA. The
Administrator's interpretations and construction hereof, and actions hereunder,
including any determinations regarding the amount or recipient of any payments,
will be binding and conclusive on all persons for all purposes. The
Administrator will not be liable to any person for any action taken or omitted
in connection with the interpretation and administration of this Plan unless
attributable to his willful misconduct or lack of good faith. The Administrator
may designate persons to carry out the specified responsibilities of the
Administrator and shall not be liable for any act or omission of a person as
designated.
6.2 Payments on Behalf of an Incompetent.
If the Administrator finds that any person who is entitled to any payment
hereunder is a minor or is unable to care for his or her affairs because of
disability or incompetency, payment of the Account Balance may be made to anyone
found by the Administrator to be the committee or other authorized
representative of such person, or to be otherwise entitled to such payment, in
the manner and under the conditions that the Administrator determines. Such
payment will be a complete discharge of the liabilities of ML & Co. hereunder
with respect to the amounts so paid.
6.3 Corporate Books and Records Controlling.
The books and records of the Company will be controlling in the event a
question arises hereunder concerning the amount of Adjusted Compensation,
Incentive Compensation, Sign-On Bonus, Eligible Compensation, the Deferred
Amounts, the Account Balance, the designation of a beneficiary, or any other
matters.
15
<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 Balances
(as reduced by the current year's Charges, or pro rata portion thereof, as set
forth in Section 3.4(g)) as of the date of such amendment or termination.
16
EXHIBIT 11
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
COMPUTATION OF PER COMMON SHARE EARNINGS
(In Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended Ended
--------------------- ---------------------
Sept 27, Sept 29, Sept 27, Sept 29,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
EARNINGS
Net earnings ................................. $ 331 $ 300 $ 1,174 $ 810
Preferred stock dividends .................... (12) (11) (35) (35)
------- ------- -------- -------
Net earnings applicable to common stockholders $ 319 $ 289 $ 1,139 $ 775
======= ======= ======== =======
PRIMARY WEIGHTED AVERAGE SHARES
Common stock ................................. 167.7 175.6 170.4 177.2
Assuming issuance of shares relating to
employee incentive plans .................... 21.5 20.8 22.2 19.1
------- ------- -------- -------
Total shares ................................. 189.2 196.4 192.6 196.3
======= ======= ======== =======
PRIMARY EARNINGS PER SHARE ................... $ 1.69 $ 1.47 $ 5.91 $ 3.95
======= ======= ======== =======
Fully Diluted Weighted Average Shares
Common stock ................................. 167.7 175.6 170.4 177.2
Assuming issuance of shares relating to
employee incentive plans ..................... 22.9 21.6 22.9 21.6
------- ------- -------- -------
Total shares ................................. 190.6 197.2 193.3 198.8
======= ======= ======== =======
FULLY DILUTED EARNINGS PER SHARE ............. $ 1.68 $ 1.46 $ 5.89 $ 3.90
======= ======= ======== =======
</TABLE>
Note: Primary and fully diluted earnings per share are based on actual numbers
before rounding
EXHIBIT 12
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(Dollars In Millions)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended Ended
---------------------------------------------
Sept. 27, Sept. 29, Sept. 27, Sept. 29,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total pretax earnings from continuing
operations ................................ $ 522 $ 485 $ 1,891 $ 1,329
------- ------- ------- -------
Add:
Fixed Charges
Interest ............................. 3,104 2,746 8,669 8,559
Other (A) ............................ 40 37 117 105
------- ------- ------- -------
Total fixed charges ....................... 3,144 2,783 8,786 8,664
Preferred stock dividend requirements ..... 18 19 56 58
------- ------- ------- -------
Total combined fixed charges and
preferred stock dividends ................ 3,162 2,802 8,842 8,722
Pretax earnings before fixed charges ...... $ 3,666 $ 3,268 $10,677 $ 9,993
======= ======= ======= =======
Pretax earnings before combined fixed
charges and preferred stock dividends .... $ 3,684 $ 3,287 $10,733 $10,051
======= ======= ======= =======
Ratio of earnings to fixed charges ........ 1.17 1.17 1.22 1.15
Ratio of earnings to combined fixed charges
and preferred stock dividends ............ 1.17 1.17 1.21 1.15
</TABLE>
(A) Other fixed charges consist of the interest factor in rentals,
amortization of debt expense, and preferred stock dividend requirements of
majority-owned subsidiaries.
Exhibit 15
November 8, 1996
Merrill Lynch & Co., Inc.
World Financial Center
North Tower
New York, NY 10281
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim consolidated
financial information of Merrill Lynch & Co., Inc. and subsidiaries as of
September 27, 1996 and for the three and nine-month periods ended September 27,
1996 and September 29, 1995 as indicated in our report dated November 8, 1996;
because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended September 27, 1996, is
incorporated by reference in the following documents, as amended:
Filed on Form S-8:
Registration Statement No. 33-41942 (1986 Employee Stock Purchase Plan)
Registration Statement No. 33-17908 (Incentive Equity Purchase Plan)
Registration Statement No. 33-33336 (Long Term Incentive Compensation Plan)
Registration Statement No. 33-51831 (Long Term Incentive Compensation Plan)
Registration Statement No. 33-02275 (Long Term Incentive Compensation Plan)
Registration Statement No. 33-51829 (401(k) Savings and Investment Plan)
Registration Statement No. 33-54154 (Non-Employee Directors' Equity Plan)
Registration Statement No. 33-54572 (401(k) Savings and Investment Plan
(Puerto Rico))
<PAGE>
Registration Statement No. 33-56427 (Amended and Restated 1994 Deferred
Compensation Plan for a Select Group of Eligible Employees)
Registration Statement No. 33-55155 (1995 Deferred Compensation Plan for a
Select Group of Eligible Employees)
Registration Statement No. 33-60989 (1996 Deferred Compensation Plan for a
Select Group of Eligible Employees)
Registration Statement No. 333-09779 (1997 Deferred Compensation Plan for a
Select Group of Eligible Employees)
Registration Statement No. 33-00863 (401(k) Savings & Incentive Plan)
Registration Statement No. 333-13367 (Restricted Stock Plan For Former
Employees of Hotchkis and Wiley)
Registration Statement No. 333-15009 (1997 KECALP Deferred Compensation
Plan for a Select Group of Eligible Employees)
Filed on Form S-3:
Debt Securities
Registration Statement No. 33-54218
Registration Statement No. 2-78338
Registration Statement No. 2-89519
Registration Statement No. 2-83477
Registration Statement No. 33-03602
Registration Statement No. 33-17965
Registration Statement No. 33-27512
Registration Statement No. 33-35456
Registration Statement No. 33-42041
Registration Statement No. 33-45327
Registration Statement No. 33-49947
Registration Statement No. 33-51489
<PAGE>
Registration Statement No. 33-52647
Registration Statement No. 33-60413
Registration Statement No. 33-61559
Registration Statement No. 33-65135
Registration Statement No. 333-13649
Medium Term Notes
Registration Statement No. 2-96315
Registration Statement No. 33-03079
Registration Statement No. 33-05125
Registration Statement No. 33-09910
Registration Statement No. 33-16165
Registration Statement No. 33-19820
Registration Statement No. 33-23605
Registration Statement No. 33-27549
Registration Statement No. 33-38879
Other Securities
Registration Statement No. 33-19975 (Remarketed Preferred Stock, Series C)
Registration Statement No. 33-33335 (Common Stock)
Registration Statement No. 33-45777 (Common Stock)
Registration Statement No. 33-55363 (Preferred Stock)
We are also aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
/s/ Deloitte & Touche LLP
New York, New York
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-START> DEC-30-1995
<PERIOD-END> SEP-27-1996
<CASH> 2,835
<RECEIVABLES> 29,135
<SECURITIES-RESALE> 55,873
<SECURITIES-BORROWED> 25,968
<INSTRUMENTS-OWNED> 85,108
<PP&E> 1,629
<TOTAL-ASSETS> 207,911
<SHORT-TERM> 31,632
<PAYABLES> 16,411
<REPOS-SOLD> 65,123
<SECURITIES-LOANED> 5,067
<INSTRUMENTS-SOLD> 41,334
<LONG-TERM> 24,098
0
619
<COMMON> 315
<OTHER-SE> 5,684
<TOTAL-LIABILITY-AND-EQUITY> 207,911
<TRADING-REVENUE> 2,709
<INTEREST-DIVIDENDS> 9,407
<COMMISSIONS> 2,819
<INVESTMENT-BANKING-REVENUES> 1,428
<FEE-REVENUE> 1,661
<INTEREST-EXPENSE> 8,675
<COMPENSATION> 5,044
<INCOME-PRETAX> 1,891
<INCOME-PRE-EXTRAORDINARY> 1,174
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,174
<EPS-PRIMARY> 5.91
<EPS-DILUTED> 5.89
</TABLE>
