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 MARCH 29, 1996
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COMMISSION FILE NUMBER 1-7182
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MERRILL LYNCH & CO., INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-2740599
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(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
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(Address of principal executive offices) (Zip Code)
(212) 449-1000
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Registrant's telephone number, including area code
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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.
171,380,936 shares of Common Stock*
-----------
(as of the close of business on May 3, 1996)
* Does not include 2,895,319 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
--------------------
<TABLE>
<CAPTION>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS (UNAUDITED)
FOR THE THREE MONTHS ENDED
---------------------------------- PERCENT(1)
MARCH 29, MARCH 31, INCREASE
(In Millions, Except Per Share Amounts) 1996 1995 (DECREASE)
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Commissions............................................. $ 989 $ 685 44%
Interest and dividends.................................. 3,010 3,030 (1)
Principal transactions.................................. 982 675 46
Investment banking...................................... 378 249 52
Asset management and portfolio
service fees........................................... 538 448 20
Other.................................................. 122 117 4
------ ------ -------
Total Revenues.......................................... 6,019 5,204 16
Interest Expense...................................... 2,758 2,783 (1)
------ ------ -------
Net Revenues............................................ 3,261 2,421 35
------ ------ -------
NON-INTEREST EXPENSES
Compensation and benefits............................... 1,691 1,270 33
Communications and equipment rental..................... 131 111 17
Occupancy............................................... 116 110 5
Depreciation and amortization........................... 98 86 14
Professional fees....................................... 130 99 32
Advertising and market development...................... 114 86 33
Brokerage, clearing, and exchange fees.................. 106 84 27
Other................................................... 204 195 4
------ ------ --------
Total Non-Interest Expenses............................. 2,590 2,041 27
------ ------ --------
EARNINGS BEFORE INCOME TAXES............................ 671 380 77
Income tax expense...................................... 262 152 73
------ ------ --------
NET EARNINGS............................................ $ 409 $ 228 80%
====== ====== ========
NET EARNINGS APPLICABLE TO COMMON
STOCKHOLDERS........................................... $ 398 $ 215
====== ======
EARNINGS PER COMMON SHARE:
Primary............................................... $ 2.03 $ 1.08
====== ======
Fully diluted......................................... $ 2.03 $ 1.08
====== ======
DIVIDEND PAID PER COMMON SHARE.......................... $ .26 $ .23
====== ======
AVERAGE SHARES USED IN COMPUTING EARNINGS
PER COMMON SHARE:
Primary............................................... 196.2 199.2
====== ======
Fully diluted......................................... 196.2 199.2
====== ======
</TABLE>
(1) Percentages are based on actual numbers before rounding.
See Notes to Consolidated Financial Statements
2
<PAGE>
<TABLE>
<CAPTION>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in Millions, Except Per Share Amounts) MARCH 29, DEC. 29,
ASSETS 1996 1995
-------------------------------------------------------------- -------- --------
<S> <C> <C>
CASH AND CASH EQUIVALENTS..................................... $ 2,633 $ 3,091
-------- --------
CASH AND SECURITIES SEGREGATED FOR REGULATORY PURPOSES
OR DEPOSITED WITH CLEARING ORGANIZATIONS..................... 5,099 5,412
-------- --------
MARKETABLE INVESTMENT SECURITIES.............................. 2,307 2,365
-------- --------
TRADING ASSETS, AT FAIR VALUE
Corporate debt and preferred stock............................ 18,386 17,581
Contractual agreements........................................ 10,285 11,833
Equities and convertible debentures........................... 13,295 10,843
Non-U.S. governments and agencies............................. 6,820 6,744
U.S. Government and agencies.................................. 7,952 6,672
Mortgages, mortgage-backed, and asset-backed.................. 2,990 3,749
Money markets................................................. 1,465 1,680
Municipals.................................................... 876 1,001
-------- --------
Total......................................................... 62,069 60,103
-------- --------
RESALE AGREEMENTS............................................. 52,880 44,257
-------- --------
SECURITIES BORROWED........................................... 24,814 20,645
-------- --------
RECEIVABLES
Customers (net of allowance for doubtful accounts of
$41 in 1996 and $37 in 1995)................................. 14,988 14,783
Brokers and dealers........................................... 14,117 9,267
Interest and other............................................ 4,458 4,741
-------- --------
Total......................................................... 33,563 28,791
-------- --------
INVESTMENTS OF INSURANCE SUBSIDIARIES......................... 5,432 5,619
LOANS, NOTES, AND MORTGAGES (NET OF ALLOWANCE FOR
LOAN LOSSES OF $131 IN 1996 AND 1995)........................ 2,503 2,172
OTHER INVESTMENTS............................................. 987 961
PROPERTY, LEASEHOLD IMPROVEMENTS, AND EQUIPMENT
(NET OF ACCUMULATED DEPRECIATION AND AMORTIZATION
OF $2,253 IN 1996 AND $2,239 IN 1995)........................ 1,602 1,605
OTHER ASSETS.................................................. 1,995 1,836
-------- --------
TOTAL ASSETS.................................................. $195,884 $176,857
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in Millions, Except Per Share Amounts) MARCH 29, DEC. 29,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
-------------------------------------------------------------- -------- --------
<S> <C> <C>
LIABILITIES
REPURCHASE AGREEMENTS......................................... $ 61,657 $ 56,817
-------- --------
COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS.............. 30,669 29,546
-------- --------
TRADING LIABILITIES, AT FAIR VALUE
Contractual agreements........................................ 9,132 10,907
U.S. Government and agencies.................................. 12,443 9,089
Equities and convertible debentures........................... 7,834 6,642
Non-U.S. governments and agencies............................. 6,231 4,418
Corporate debt and preferred stock............................ 1,994 2,199
Municipals.................................................... 69 95
-------- --------
Total ...................................................... 37,703 33,350
-------- --------
CUSTOMERS..................................................... 10,599 11,391
INSURANCE..................................................... 5,232 5,391
BROKERS AND DEALERS........................................... 12,808 6,366
OTHER LIABILITIES AND ACCRUED INTEREST........................ 10,626 10,515
LONG-TERM BORROWINGS.......................................... 20,226 17,340
-------- --------
TOTAL LIABILITIES............................................. 189,520 170,716
-------- --------
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............................................... 1,322 1,237
Foreign currency translation adjustment....................... (21) 11
Net unrealized gains on investment securities
available-for-sale (net of applicable income tax
expense of $2 in 1996 and $13 in 1995)..................... 4 25
Retained earnings............................................. 6,845 6,492
-------- --------
Subtotal................................................. 8,465 8,080
Less:
Treasury stock, at cost:
1996 - 60,394,639 shares;
1995 - 60,929,278 shares............................ 2,224 2,241
Unallocated ESOP reversion shares, at cost:
1996 - 2,895,319 shares;
1995 - 4,012,519 shares............................. 46 63
Employee stock transactions................................ 450 254
-------- --------
TOTAL COMMON STOCKHOLDERS' EQUITY............................. 5,745 5,522
-------- --------
TOTAL STOCKHOLDERS' EQUITY.................................... 6,364 6,141
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................... $195,884 $176,857
======== ========
BOOK VALUE PER COMMON SHARE................................... $ 33.38 $ 32.41
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
--------------------------
(In Millions) MARCH 29, MARCH 31,
1996 1995
-------- ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.......................................................... $ 409 $ 228
Noncash items included in earnings:
Depreciation and amortization...................................... 98 86
Policyholder reserves.............................................. 70 77
Other.............................................................. 201 231
(Increase) decrease in operating assets:
Trading assets..................................................... (1,951) (4,838)
Cash and securities segregated for regulatory purposes
or deposited with clearing organizations.......................... 313 (604)
Securities borrowed................................................ (4,169) (4,206)
Customers.......................................................... (212) 899
Other.............................................................. (5,033) (2,490)
Increase (decrease) in operating liabilities:
Trading liabilities................................................ 4,353 2,707
Customers.......................................................... (792) (623)
Insurance.......................................................... (175) (171)
Other.............................................................. 6,559 2,084
------ ------
CASH USED FOR OPERATING ACTIVITIES.................................... (329) (6,620)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from (payments for):
Maturities of available-for-sale securities........................ 710 287
Sales of available-for-sale securities............................. 558 432
Purchases of available-for-sale securities......................... (1,151) (680)
Maturities of held-to-maturity securities.......................... 187 224
Purchases of held-to-maturity securities........................... (62) (345)
Other investments and other assets................................. (376) (128)
Property, leasehold improvements, and equipment.................... (95) (91)
------ ------
CASH USED FOR INVESTING ACTIVITIES.................................... (229) (301)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments for):
Repurchase agreements, net of resale agreements.................... (3,783) 4,615
Commercial paper and other short-term borrowings................... 1,123 4,047
Issuance and resale of long-term borrowings........................ 4,572 2,094
Settlement and repurchase of long-term borrowings.................. (1,558) (2,719)
Common stock transactions.......................................... (198) (412)
Dividends.......................................................... (56) (54)
------ ------
CASH PROVIDED BY FINANCING ACTIVITIES................................. 100 7,571
------ ------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS...................... (458) 650
Cash and cash equivalents, beginning of year.......................... 3,091 2,312
------ ------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............................. $2,633 $2,962
====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Income taxes totaled $25 in 1996 and $0 in 1995.
Interest totaled $2,656 in 1996 and $2,594 in 1995.
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 29, 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-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"). The nature of the
Corporation's business is such that the results of any interim period are not
necessarily indicative of results for a full year. Prior period financial
statements have been reclassified, where appropriate, to conform to the 1996
presentation.
COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS
Commercial paper and other short-term borrowings at March 29, 1996 and December
29, 1995 are presented below:
March 29, Dec. 29,
1996 1995
-------- --------
Commercial paper $17,222 $16,969
Demand and time deposits 8,141 8,182
Securities loaned 3,768 2,857
Bank loans and other 1,538 1,538
------- -------
Total $30,669 $29,546
======= =======
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Corporation enters into various derivative contracts to meet clients' needs
and to manage its own market risks. 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.
6
<PAGE>
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:
<TABLE>
<CAPTION>
(In billions)
- -------------
Interest Rate Currency Equity Price Commodity Price
March 29, 1996 Risk(1)(2) Risk (3) Risk Risk
- -------------- ---------------- -------------- ------------ ----------------
<S> <C> <C> <C> <C>
Swap agreements $ 964 $ 109 $ 16 $ 3
Futures contracts 175 1 7 2
Options purchased 56 34 30 3
Options written 80 34 31 2
Forward contracts 36 130 - 22
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
</TABLE>
(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 principally represent "To
Be Announced" mortgage pools which bear interest rate as well as principal
prepayment risk.
(3) Included in the currency risk category are certain contracts which 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:
(In billions) March 29, December 29,
- ------------- 1996 1995
---------- ------------
Interest rate swap contracts(1) $28 $31
Foreign exchange contracts(1) $ 2 $ 3
Equity options purchased $ 1 $ 1
(1) Includes options embedded in swap contracts which hedge callable debt
totaling $1 billion notional.
Most of the above 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.
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 March 29, 1996 would not have a material
effect on the consolidated financial condition of the Corporation.
7
<PAGE>
REGULATORY REQUIREMENTS
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a registered
broker-dealer and a subsidiary of the Corporation, is subject to Net Capital
Rule 15c3-1 under the Securities Exchange Act of 1934. Under the alternative
method permitted by this rule, the minimum required net capital, as defined,
shall not be less than 2% of aggregate debit items arising from customer
transactions. At March 29, 1996, MLPF&S's regulatory net capital of $1,809 was
13% of aggregate debit items, and its regulatory net capital in excess of the
minimum required was $1,525.
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 March 29,
1996, MLGSI's liquid capital of $797 was 217% of its total market and credit
risk, and liquid capital in excess of the minimum required was $356.
Merrill Lynch International ("MLI"), a United Kingdom registered broker-dealer
and a subsidiary of the Corporation, is subject to 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 March 29, 1996, MLI's financial resources were $1,330 and exceeded
the minimum requirement by $512.
INTEREST AND DIVIDEND EXPENSE
Interest expense includes payments in lieu of dividends of $1.6 and $2.4 for the
first quarters of 1996 and 1995, respectively.
LITIGATION MATTER
On January 12, 1995, an action was commenced in the United States Bankruptcy
Court for the Central District of California by Orange County, California (the
"County") and the Orange County Investment Pools (the "Pools"), both of which
filed bankruptcy petitions in that Court on December 6, 1994, against the
Corporation and certain of its subsidiaries in connection with the Corporation's
business activities with the Orange County Treasurer-Tax Collector. In addition,
other actions have been brought against the Corporation and/or certain of its
officers, directors, and employees and certain of its subsidiaries in federal
and state courts in California, Illinois, 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
audited consolidated financial statements contained in the 1995 10-K as well as
"Legal Proceedings" in the 1995 10-K and this Quarterly Report on Form 10-Q.
8
<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 March 29, 1996, and the related
condensed statements of consolidated earnings and consolidated cash flows for
the three-month periods ended March 29, 1996 and March 31, 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 material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ Deloitte & Touche LLP
New York, New York
May 10, 1996
9
<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 year to year, and from quarter to quarter.
Global financial markets were generally strong during 1995, led by a stable U.S.
economy, declining interest rates, and heightened investor activity. Market
expectations for additional declines in interest rates continued through
February 1996, fueling further market advances, strong investor and issuer
activity, higher fee-based revenues, and improved trading profits industrywide.
In March 1996, inflationary fears were stirred by the release of U.S. economic
statistics indicating stronger than anticipated growth and the Federal Reserve's
decision to hold short-term interest rates at current levels. This led to
increases in long-term interest rates and greater market volatility.
U.S. equity markets, which posted significant gains in 1995, continued to
advance in the 1996 first quarter, as individual investors deposited record
amounts into mutual funds, boosting demand for new issuances and driving many
domestic stock indices to record levels. During the quarter, the Dow Jones
Industrial Average and the Nasdaq Composite Index reached record highs. In
addition, record average daily trading volumes were achieved on the New York
Stock Exchange and Nasdaq.
U.S. bond markets, which advanced strongly on steady declines in interest rates
throughout 1995, became more volatile in the first quarter of 1996. Long-term
interest rates remained low in the first two months of 1996, but rose markedly
in March 1996. The U.S. Treasury yield curve (the relationship between interest
rates and maturities), which flattened throughout 1995, steepened in March as
long-term interest rates increased more than short-term rates. Despite the
intra-quarter increase in interest rates, the overall level of interest rates
for the 1996 first quarter remained low relative to the year-ago period.
International equity markets rose an average of 3% during the quarter, as
measured by the Dow Jones World Stock Index, with mixed performances in
individual markets. Most Asian and European markets advanced, but Japanese and
U.K. stocks both ended the quarter virtually unchanged from 1995 year-end levels
in U.S. dollar terms. Interest rates in most global bond markets rose within the
quarter, after declining throughout 1995, but remained low relative to the 1995
first quarter.
10
<PAGE>
U.S. underwriting volume, which was weak in the first quarter of 1995,
strengthened throughout the remainder of the year, and remained robust in the
1996 first quarter. Rising stock prices and relatively low interest rates
continued to create attractive market conditions for issuers, while demand for
new issues benefited from record inflows of cash into mutual funds during the
quarter.
Strategic services activities remained strong during the 1996 first quarter,
reflecting a continuation of the high level of merger and acquisition activity
experienced in 1995. Driven by globalization and other competitive and economic
factors, companies continued to seek strategic alliances to increase earnings
growth and expand into new markets or businesses.
The strong financial markets and improved economic conditions that characterized
1995 continued into the first quarter of 1996. Nevertheless, the financial
services industry is cyclical. As a result, the Corporation's businesses are
evaluated across market cycles for profitability and alignment with long-term
strategic objectives. 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.
FIRST QUARTER 1996 VERSUS FIRST QUARTER 1995
Net earnings for the 1996 first quarter were a record $409 million, up $181
million (80%) from the $228 million reported in last year's first quarter. First
quarter earnings per common share were $2.03 primary and fully diluted, compared
with $1.08 primary and fully diluted in the 1995 first quarter. After deducting
preferred stock dividends, net earnings applicable to common stockholders in the
1996 first quarter totaled $398 million, up $183 million (85%) from $215 million
in the prior year's quarter. Annualized return on average common stockholders'
equity was 28.2% in the 1996 first quarter versus 16.7% in the year-ago period.
The Corporation's pretax profit margin in the 1996 first quarter was 20.6%
versus 15.6% a year ago. The net profit margin increased to 12.6% in the 1996
first quarter, compared with 9.4% in the 1995 first quarter.
Total revenues increased 16% from the 1995 first quarter to $6.0 billion, with
record revenues in commissions, principal transactions, and asset management and
portfolio service fees. Net revenues (revenues after interest expense) increased
35% from the year-ago period to $3.3 billion.
Commissions revenues are summarized as follows:
Three Months Ended
-----------------------
(In millions) March 29, March 31, Percent
1996 1995 Increase
--------- --------- --------
Listed and over-the-counter $548 $365 50%
Mutual funds 299 187 60
Other 142 133 7
---- ----
Total $989 $685 44
==== ====
11
<PAGE>
Commissions revenues from listed and over-the-counter securities rose to record
levels due to higher trading volumes on most major U.S. and international
exchanges and the Corporation's expanded global market presence. Mutual fund
commissions revenues were also a record due primarily to strong sales of both
domestic and offshore funds.
Significant components of interest and dividend revenues and interest expense
for the three-month periods ended March 29, 1996 and March 31, 1995 follow:
Three Months Ended
-------------------------
(In millions) March 29, March 31,
- ------------- 1996 1995
--------- ---------
Interest and
dividend revenues:
Trading assets $ 958 $ 940
Securities borrowed 676 686
Resale agreements 689 771
Margin lending 373 325
Other 314 308
------ ------
Subtotal 3,010 3,030
------ ------
Interest expense:
Borrowings 1,117 1,011
Repurchase agreements 847 956
Trading liabilities 552 575
Other 242 241
------ ------
Subtotal 2,758 2,783
------ ------
Net interest and
dividend profit $ 252 $ 247
====== ======
The Corporation hedges its long-term payment obligations with interest rate and
currency swaps. The effect of these hedges, which is included in the
"Borrowings" caption above, decreased interest expense by approximately $22
million for the 1996 first quarter and increased interest expense by
approximately $3 million for the 1995 first quarter.
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 for the 1996 first quarter was up slightly from the 1995 first
quarter, as increases in net interest-earning assets were substantially offset
by the effect of lower interest rates.
Principal transactions revenues were up 46% from the 1995 first quarter to a
record $982 million, as higher investor activity and market volatility led to
increases in virtually all trading products.
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 versus
financing costs) for trading positions,
<PAGE>
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 revenue (expense). 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.
Principal Net Interest Net
(In millions) Transactions Revenue Trading
- ------------- Revenues (Expense) Revenue
-------- --------- -------
1996 First Quarter
- ------------------
Equities and equity
derivatives $347 $(19) $ 328
Taxable fixed-income 265 53 318
Interest rate and
currency swaps 255 (10) 245
Municipals 75 1 76
Foreign exchange and
commodities 40 (4) 36
---- ---- ------
Total $982 $ 21 $1,003
==== ==== ======
1995 First Quarter
- ------------------
Equities and equity
derivatives $166 $(28) $ 138
Taxable fixed-income 164 81 245
Interest rate and
currency swaps 234 (18) 216
Municipals 90 (1) 89
Foreign exchange and
commodities 21 (3) 18
---- ---- ------
Total $675 $ 31 $ 706
==== ==== ======
Equities and equity derivatives trading revenues, in the aggregate, were $347
million, up 109% from the 1995 first quarter, as trading revenues from most
equity products increased, due primarily to higher trading volume and rising
stock prices. International equities trading revenues, in particular, benefited
from the addition of trading activity related to Smith New Court PLC ("Smith New
Court"), which was acquired in the third quarter of 1995.
Taxable fixed-income trading revenues increased to $265 million, up 62% from the
first quarter of 1995, primarily due to higher revenues from non-U.S.
governments and agencies, mortgage-backed securities, and high-yield bonds.
Non-U.S. governments and agencies trading revenues advanced due to improved
results from trading of Japanese Government Bonds, as well as increased trading
volume in certain Latin American emerging markets as credit ratings improved and
investors sought higher returns. Mortgage-backed securities trading revenues
increased due primarily to improved liquidity and increased customer demand
compared with the year-ago period. Trading revenues from high-yield bonds were
up due to lower interest rates and improved credit ratings of certain issuers.
Interest rate and currency swap trading revenues increased 9% to $255 million
due to higher trading revenues from non-U.S. dollar-denominated
13
<PAGE>
transactions, partially offset by decreases in revenues from U.S.
dollar-denominated transactions. Foreign exchange and commodities trading
revenues, in the aggregate, rose to $40 million, up 94% from the 1995 first
quarter, as foreign exchange trading revenues continued to benefit from the
strengthening of the U.S. dollar versus other major currencies. Municipal
securities trading revenues declined 17% to $75 million primarily due to
continued weak investor demand for tax-exempt investments.
A summary of the Corporation's investment banking revenues follows:
Three Months Ended
----------------------
(In millions) March 29, March 31, Percent
- ------------- 1996 1995 Increase/(Decrease)
--------- --------- -------------------
Underwriting revenues $294 $162 82%
Strategic services revenues 84 87 (3)
---- ----
Total $378 $249 52
==== ====
Underwriting revenues benefited from strong levels of debt and equity
underwriting industrywide, with higher fees from convertibles, corporate bonds
and preferred stock, equities, and high-yield securities. The Corporation
retained its position as top underwriter of total debt and equity securities in
the 1996 first quarter with market shares of 16.1% domestically and 11.9%
globally, according to Securities Data Co.
Strategic services revenues were down slightly from a year ago, but remained
comparable to record 1995 levels, benefiting from continued strong merger and
acquisition activity.
A summary of the Corporation's asset management and portfolio service fees is
presented below:
Three Months Ended
------------------------
(In millions) March 29, March 31, Percent
- ------------- 1996 1995 Increase
--------- --------- --------
Asset management fees $239 $200 19%
Portfolio service fees 140 107 31
Other fees 159 141 13
---- ----
Total $538 $448 20
==== ====
Asset management fees, which include fees earned on mutual funds sponsored by
the Corporation and third parties, increased due primarily to strong inflows of
client assets. Total assets in worldwide private client accounts were a record
$732 billion at quarter-end, compared with $603 billion at first quarter-end
1995. Assets under management by Merrill Lynch Asset Management were a record
$208 billion at quarter-end, compared with $170 billion a year ago.
Portfolio service fees also benefited from inflows of client assets. Increased
numbers of accounts and asset levels led to higher fee revenues for Merrill
Lynch Consults(Registered Trademark) and Mutual Fund Advisor(Service Mark),
which are personalized portfolio management services, and Asset Power(Registered
Trademark), an asset-based fee product. Other fee-based revenues were up due
primarily to increased revenues from mutual fund transfer agency and mortgage
servicing activities.
14
<PAGE>
Other revenues were $122 million, up 4% from $117 million reported in the 1995
first quarter.
Non-interest expenses were $2.6 billion, up 27% from the 1995 first quarter. The
largest expense category, compensation and benefits expense, increased 33% from
the 1995 first quarter to $1.7 billion due to higher incentive and
production-related compensation as well as a 6% increase in the number of
full-time employees. Incentive compensation increased with improved
profitability, while production-related compensation was up due to heightened
activity and strong volumes in many businesses. Overall, headcount increased by
approximately 2,800 employees from the 1995 first quarter to approximately
46,400 at the end of the 1996 first quarter due primarily to the addition of
employees through business acquisitions, including Smith New Court, and
selective hirings. Compensation and benefits expense as a percentage of net
revenues was 51.8%, compared with 52.5% in the year-ago period.
Non-interest expenses, excluding compensation and benefits, increased 17% to
$899 million. Communications and equipment rental expense increased 17% from the
1995 first quarter to $131 million, due to higher levels of business activity
and increased use of market data services. Occupancy costs were up 5% to $116
million due to international growth, including the addition of Smith New Court
facilities. Depreciation and amortization expense rose 14% from the 1995 first
quarter to $98 million due primarily to purchases of technology-related
equipment over the past year.
Professional fees increased 32% to $130 million primarily as a result of higher
systems development costs related to upgrading technology and processing
capabilities. Advertising and market development expense rose 33% to $114
million. Increased international travel and higher advertising and client
promotion costs contributed to this advance. Brokerage, clearing, and exchange
fees were up 27% to $106 million, driven by higher trading volume, particularly
in international markets. Other expenses totaled $204 million, up 4% from the
1995 first quarter primarily due to goodwill amortization related to Smith New
Court.
Income tax expense was $262 million in the 1996 first quarter. The effective tax
rate in the 1996 first quarter was 39.0%, compared with 40.0% in the year-ago
period. The decrease in the effective tax rate was primarily attributable to
increases in dividends qualifying for the Federal dividends received deduction,
lower state taxes, and expanded international 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 element 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 the proceeds from
executing repurchase agreements and obtaining
15
<PAGE>
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 March 29, 1996 totaled $5.7 billion and have not
been drawn upon.
As an additional measure, the Corporation regularly reviews the level and mix of
its assets and liabilities to ascertain its ability to conduct core businesses
beyond one year without reliance on issuing new unsecured debt or drawing upon
Credit Facilities. The composition of the Corporation's asset mix provides a
great degree of flexibility in managing liquidity. The Corporation's liquidity
position is enhanced since a significant portion of the Corporation's assets
turn over frequently and are typically funded with liabilities whose cash flow
characteristics closely match those of the assets. At March 29, 1996,
approximately 97% of the Corporation's assets were considered readily marketable
by management.
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 March 29, 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.
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 $17.2
billion at March 29, 1996 and $17.0 billion at December 29, 1995, which
represented 9% and 10% of total assets at first quarter-end 1996 and year-end
1995, respectively.
16
<PAGE>
At March 29, 1996, total long-term debt was $20.2 billion, compared with $17.3
billion at year-end 1995. At March 29, 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. AA-
Fitch Investors Service, L.P. AA
IBCA Ltd. AA-
Japan Bond Research Institute AA
Moody's Investors Service, Inc. A1
Standard & Poor's Ratings Group A+
Thomson BankWatch, Inc. AA
During the first three months of 1996, the Corporation issued $4.2 billion in
long-term debt. During the same period, maturities and repurchases were $1.3
billion. In addition, approximately $341 million of the Corporation's long-term
debt securities held by subsidiaries were sold and $305 million were purchased.
At March 29, 1996, $14.1 billion of term debt had maturity dates beyond one
year.
Approximately $39.2 billion of the Corporation's indebtedness at March 29, 1996
is 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 U.S. securities industry. The Corporation has an
equity base of $6.4 billion at March 29, 1996, including over $5.7 billion in
common equity, supplemented by $619 million in preferred stock.
The Corporation's leverage ratios are as follows:
Adjusted
Leverage Leverage
Ratio(1) Ratio(2)
-------- --------
Period-end
March 29, 1996 30.8x 18.6x
December 29, 1995 28.8x 18.2x
Average (3)
Three months ended
March 29, 1996 32.8x 20.0x
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.
17
<PAGE>
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 primarily determined by order flow and fluctuate
daily, sometimes significantly, depending upon volume and demand. The liquidity
and maturity characteristics of assets and liabilities are monitored
continually. The Corporation monitors and manages the change of its balance
sheet using average daily balances. Average daily balances are derived from the
Corporation's management information system, which summarizes balances on a
settlement date basis. Financial statement balances, as required under generally
accepted accounting principles, are recorded on a trade date basis. The
discussion that follows compares the changes in settlement date average daily
balances, not quarter-end balances.
For the first three months of 1996, average daily assets were $200 billion, up
1% versus $197 billion for the 1995 fourth quarter. Average daily liabilities
rose 1% to $194 billion from $191 billion for the 1995 fourth quarter.
The major components in the growth of average daily assets and liabilities
for the 1996 first quarter are summarized as follows:
Increase in
(In millions) Average Assets Percent Increase
- ------------- -------------- ----------------
Resale agreements and
securities borrowed $3,040 4%
Increase in
Average Liabilities Percent Increase
------------------- ----------------
Repurchase agreements and
securities loaned $1,104 1%
Long-term borrowings $1,668 9%
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, such as repurchase and resale
agreements. In the 1996 first quarter, repurchase and securities loaned
18
<PAGE>
transactions and resale and securities borrowed transactions rose as a result of
an increase in match-funded activity involving primarily U.S. Government and
agencies securities. In addition, resale and 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 first quarter 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 structuring 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 as BB+ or lower, or equivalent ratings by recognized credit
rating agencies, certain sovereign debt in emerging markets, amounts due under
various derivative contracts from non-investment grade counterparties, and other
instruments that, in the opinion of management, are non-investment grade. At
March 29, 1996, long and short non-investment grade inventories accounted for
6.6% of aggregate consolidated trading inventories, compared with 6.3% 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
provides extensions of credit to leveraged companies in the form of senior and
subordinated debt, as well as bridge financing on a select and limited basis. In
addition, the Corporation syndicates loans for non-investment grade
counterparties or in connection with highly leveraged transactions. In
connection with these syndications, the Corporation may retain a residual
portion of these 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
and limited basis.
Investment in non-investment grade securities and involvement in highly
leveraged transactions subject the Corporation to additional 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.
19
<PAGE>
The specific components and overall level of non-investment grade and highly
leveraged positions may vary significantly from period to period as a result of
inventory turnover, investment sales, and asset redeployment. The Corporation
continually monitors credit risk by individual issuer and industry
concentration.
In certain instances, 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,
consisting principally of U.S. Government securities, may be obtained to reduce
credit risk related to these transactions.
The Corporation's insurance subsidiaries hold non-investment grade securities.
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.
A summary of the Corporation's highly leveraged transactions and non-investment
grade holdings follows:
MARCH 29, DECEMBER 29,
(In millions) 1996 1995
- -------------------------------------------------------------------------------
Trading assets $6,026 $5,489
Trading liabilities 529 353
Insurance subsidiaries' investments 257 234
Loans (net of allowance for
loan losses) (1) 517 489
Bridge loans (2) 90 -
Equity investments (3) 189 211
Partnership interests 82 91
- ------------------------------------------------------------------------------
Additional commitments to invest in
partnerships $ 83 $ 79
Unutilized revolving lines of
credit and other lending
commitments 75 127
- ------------------------------------------------------------------------------
(1) Represented outstanding loans to 34 and 30 medium-sized companies at March
29, 1996 and December 29, 1995, respectively.
(2) Subsequent to March 29, 1996, the Corporation entered into a bridge loan
commitment for $100 million to a non-investment grade counterparty. The
Corporation intends to syndicate the commitment and may retain a residual
portion of the loan.
(3) Invested in 62 enterprises at both March 29, 1996 and December 29, 1995.
At March 29, 1996, the largest non-investment grade concentration consisted of
various issues of a South American sovereign totaling $764 million, which
primarily represented on-balance-sheet hedges for off-balance-sheet
20
<PAGE>
instruments. No one industry sector accounted for more than 31% of total non-
investment grade positions. Included in the preceding table are debt and equity
securities of issuers in various stages of bankruptcy proceedings or in default.
At March 29, 1996, the carrying value of these securities totaled $169, of which
80% resulted from the Corporation's market making activities in such securities.
21
<PAGE>
STATISTICAL DATA
Selected statistical data for the last five quarters is presented below for
informational purposes:
<TABLE>
<CAPTION>
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. 1ST QTR.
1995 1995 1995 1995 1996
-------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
PRIVATE CLIENT ACCOUNTS
(IN BILLIONS):
Assets in Worldwide
Private Client Accounts $ 603 $ 643 $ 675 $ 703 $ 732
Assets in U.S. Private
Client Accounts $ 571 $ 608 $ 639 $ 665 $ 692
Assets under Professional
Management:
Money Markets $ 71 $ 76 $ 80 $ 82 $ 89
Equities 38 42 44 47 51
Fixed Income 37 38 39 41 41
Private Portfolio 20 20 22 22 23
Insurance 4 4 4 4 4
-------- -------- -------- -------- --------
Subtotal 170 180 189 196 208
ML Consults 15 16 17 17 18
Mutual Fund Advisor and
Asset Power 4 4 5 6 7
-------- -------- -------- -------- --------
TOTAL $ 189 $ 200 $ 211 $ 219 $ 233
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
UNDERWRITING
(DOLLARS IN BILLIONS)(A):
Global Debt and Equity:
Volume $ 29 $ 33 $ 41 $ 45 $ 44
Market Share 12.8% 12.2% 14.4% 15.3% 11.9%
U.S. Debt and Equity:
Volume $ 26 $ 28 $ 34 $ 40 $ 38
Market Share 18.1% 15.3% 17.5% 20.6% 16.1%
- -----------------------------------------------------------------------------------------------------------------------
FULL-TIME EMPLOYEES:
U.S. 38,550 38,200 38,900 39,250 39,400
International 5,050 5,100 6,500 6,750 7,000
-------- -------- -------- -------- --------
TOTAL 43,600 43,300 45,400 46,000 46,400
======== ======== ======== ======== ========
Financial Consultants and
Account Executives Worldwide 13,500 13,600 13,700 13,800 13,700
Support Personnel to
Producer ratio (B) 1.44 1.41 1.38 1.43 1.46
INCOME STATEMENT:
Net Earnings (in millions) $ 228 $ 283 $ 300 $ 303 $ 409
Annualized Return on Average
Common Stockholders' Equity 16.7% 21.0% 21.5% 21.1% 28.2%
Earnings per Common Share:
Primary $ 1.08 $ 1.40 $ 1.47 $ 1.49 $ 2.03
Fully Diluted $ 1.08 $ 1.39 $ 1.46 $ 1.49 $ 2.03
BALANCE SHEET (IN MILLIONS):
Total Assets $176,733 $174,853 $185,473 $176,857 $195,884
Total Stockholders' Equity $ 5,704 $ 5,883 $ 6,077 $ 6,141 $ 6,364
SHARE INFORMATION (IN THOUSANDS):
Weighted Average Shares
Outstanding:
Primary 199,178 193,267 196,395 195,148 196,225
Fully Diluted 199,178 195,159 197,157 195,148 196,225
Common Shares Outstanding (C) 176,521 175,460 175,501 171,388 173,040
Shares Repurchased 9,309 3,571 1,689 5,443 4,543
- -----------------------------------------------------------------------------------------------------------------------
</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 5,307, 4,809, 4,375, 4,013, and 2,895 unallocated
reversion shares held in the Employee Stock Ownership Plan at period end
March 31, 1995, June 30, 1995, September 29, 1995, December 29, 1995, and
March 29, 1996, respectively, which are not considered outstanding for
accounting purposes.
22
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
Orange County Litigation. The following developments have
------------------------
occurred since the filing of the 1995 Form 10-K with respect to civil actions
filed against or on behalf of the Corporation arising out of the Corporation's
business activities with Orange County related to transactions entered into on
behalf of Orange County and the Pools. Capitalized terms used herein without
definition have meanings set forth in the 1995 Form 10-K.
In the Atascadero State Court Action, an amended complaint was
filed on April 10, 1996, adding two employees of the Corporation as defendants
and adding claims for common law conversion and violations of Sections 25400,
25401, 25500, and 25501 of the California Code and RICO.
In the Atascadero Federal Court Action, an amended complaint was
filed on March 22, 1996, adding two employees of the Corporation as defendants
and adding a claim for common law conversion.
On April 1, 1996, the Smith Federal Court Action was dismissed
without prejudice. The proposed settlements reached among plaintiffs and certain
of the defendants other than the Corporation and the employee of the Corporation
named as a defendant have been withdrawn.
GSLIC Litigation. The following development has occurred since
----------------
the filing of the 1995 10-K with respect to the GSLIC Litigation. On
May 2, 1996, the Haag/Levine Action against all defendants was dismissed with
prejudice.
For more detailed information regarding litigation matters
involving the Corporation and its subsidiaries, see "Item 3. - Legal
Proceedings" in the 1995 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
On April 16, 1996, the Corporation held its Annual Meeting of
Stockholders, at which 90.5% of the shares of Common Stock, par value $1.33 1/3
per share, outstanding and eligible to vote, either in person or by proxy, were
represented, constituting a quorum. At this Annual Meeting, the following
matters were voted upon: (i) the election of four directors to the Board of
Directors to hold office for a term of three years; (ii) a stockholder proposal
concerning cumulative voting in the election of directors; and (iii) a
stockholder proposal concerning declassification of the Corporation's Board of
Directors. Proxies for the Annual Meeting of Stockholders were solicited by the
Board of Directors pursuant to Regulation 14A of the Securities Exchange Act of
1934.
The stockholders elected all four nominees to three year terms
as members of the Board of Directors as set forth in the Corporation's Proxy
Statement. There was no solicitation in opposition to such nominees. The votes
cast for or withheld from
23
<PAGE>
the election of directors were as follows: Jill K. Conway received 158,408,430
votes in favor and 2,555,953 votes were withheld; George B. Harvey received
158,939,713 votes in favor and 2,024,670 votes were withheld; David H. Komansky
received 158,838,230 votes in favor and 2,126,153 votes were withheld; and
William L. Weiss received 158,931,618 votes in favor and 2,032,765 votes were
withheld.
The stockholders did not approve the stockholder proposal
concerning cumulative voting in election of directors. The votes cast for and
against, as well as the number of abstentions and broker non-votes, for this
proposal were as follows: 31,623,319 votes in favor, 108,923,181 votes against,
2,668,691 shares abstained, and 17,749,192 shares represented broker non-votes.
The stockholders did not approve the stockholder proposal
concerning declassification of the Corporation's Board of Directors. The votes
cast for and against, as well as the number of abstentions and broker non-votes,
for this proposal were as follows: 45,488,137 votes in favor, 95,769,854 votes
against, 1,957,200 shares abstained, and 17,749,192 shares represented broker
non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
(4) Instruments defining the rights of security holders,
including indentures:
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the
Corporation hereby undertakes to furnish to the Securities
and Exchange Commission (the "Commission"), upon request,
copies of the instruments defining the rights of holders
of long-term debt securities of the Corporation that
authorize an amount of securities constituting 10% or less
of the total assets of the Corporation and its
subsidiaries on a consolidated basis.
(10) Material Contracts
(i) Merrill Lynch & Co., Inc. Long-Term Incentive
Compensation Plan, as amended on April 16, 1996.
(ii) Merrill Lynch & Co., Inc. Equity Capital Accumulation
Plan, as amended on April 16, 1996.
(11) Statement re: computation of per share earnings.
(12) Statement re: computation of ratios.
(15) Letter re: unaudited interim financial information.
(27) Financial Data Schedule.
24
<PAGE>
(b) Reports on Form 8-K
The following Current Reports on Form 8-K were filed by the Corporation
with the Commission during the quarterly period covered by this Report:
(i) Current Report dated January 17, 1996 for the purpose of
filing the form of Registrant's 6% Notes due January 15,
2001.
(ii) Current Report dated January 22, 1996 for the purpose of
filing the Preliminary Unaudited Earnings Summaries of the
Corporation for the three- and twelve-month periods ended
December 29, 1995.
(iii) Current Report dated February 7, 1996 for the purpose of
filing the form of Registrant's AMEX Hong Kong 30 Index
Equity Participation Notes due February 16, 1999.
(iv) Current Report dated February 29, 1996 for the purpose of
filing the form of Registrant's 6% Notes due March 1,
2001.
(v) Current Report dated March 1, 1996 for the purpose of
filing certain summary financial information of the
Corporation as of December 29, 1995.
(vi) Current Report dated March 12, 1996 for the purpose of
filing the audited financial statements of the Corporation
for its 1995 fiscal year.
(vii) Current Report dated March 18, 1996 for the purpose of
filing the form of Registrant's 7% Notes due March 15,
2006.
25
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MERRILL LYNCH & CO., INC.
-------------------------
(Registrant)
Date: May , 1996 By: /s/ Joseph T. Willett
--- -------------------------
Joseph T. Willett
Senior Vice President
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
Exhibits
(10) Material Contracts
(i) Merrill Lynch & Co., Inc. Long-Term Incentive Compensation Plan,
as amended on April 16, 1996.
(ii) Merrill Lynch & Co., Inc. Equity Capital Accumulation Plan, as
amended on April 16, 1996.
(11) Statement re: computation of per share earnings.
(12) Statement re: computation of ratios.
(15) Letter re: unaudited interim financial information.
(27) Financial Data Schedule.
EXHIBIT 10(i)
AS AMENDED THROUGH APRIL 16, 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
(i)
<PAGE>
PAGE
Section 2.2 Performance Objectives . . . . . . . . . . . . . . . . . 5
Section 2.3 Grants of Performance Shares and Performance Units . . 6
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
(ii)
<PAGE>
PAGE
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
(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
(iii)
<PAGE>
PAGE
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
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
(iv)
<PAGE>
PAGE
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
(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
(v)
<PAGE>
PAGE
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
(vi)
<PAGE>
MERRILL LYNCH & CO., INC.
-------------------------
LONG-TERM INCENTIVE COMPENSATION PLAN
-------------------------------------
ARTICLE I - GENERAL
SECTION 1.1 PURPOSE.
-------
The purposes of the Long-Term Incentive Compensation Plan (the "PLAN")
are: (a) to enhance the growth and profitability of Merrill Lynch & Co.,
Inc., a Delaware corporation ("ML & CO."), and its subsidiaries by providing
the incentive of long-term rewards to key employees who are capable of having
a significant impact on the performance of ML & Co. and its subsidiaries; (b)
to attract and retain employees of outstanding competence and ability; (c) to
encourage long-term stock ownership by employees; and (d) to further the
identity of interests of such employees with those of stockholders of ML &
Co.
SECTION 1.2 DEFINITIONS.
-----------
For the purpose of the Plan, the following terms shall have the meanings
indicated:
(a) "BOARD OF DIRECTORS" or "BOARD" shall mean the Board of Directors
of ML & Co.
(b) "CODE" shall mean the Internal Revenue Code of l986, as amended,
including any successor law thereto.
(c) "COMPANY" shall mean ML & Co. and any corporation, partnership, or
other organization of which ML & Co. owns or controls, directly or
indirectly, not less than 50% of the total combined voting power of all
classes of stock or other equity interests. For purposes of this Plan, the
terms "ML & Co." and "Company" shall include any successor thereto.
(d) "COMMITTEE" shall mean the Management Development and Compensation
Committee of the Board of Directors, or its functional successor, unless some
other Board committee has been designated by the Board of Directors to
administer the Plan. The Committee shall be constituted so that at all
relevant times it meets the then applicable requirements of Rule 16b-3 (or
its successor) promulgated under the Securities Exchange Act of 1934, as
amended.
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(e) "COMMON STOCK" shall mean the Common Stock, par value $1.33 1/3 per
share, of ML & Co. and a "SHARE OF COMMON STOCK" shall mean one share of
Common Stock together with, for so long as Rights are outstanding, one Right
(whether trading with the Common Stock or separately).
(f) "DISABILITY," unless otherwise provided herein, shall mean any
physical or mental condition that, in the opinion of the Director of Human
Resources of Merrill Lynch & Co., Inc. (or his functional successor), renders
an employee incapable of engaging in any employment or occupation for which
he is suited by reason of education or training, provided that, in the case
of any officer of ML & Co., as defined in Rule 16a-1 under the Securities
Exchange Act of 1934, such determination shall be made by the Committee
following recommendation by the Director of Human Resources.
(g) "FAIR MARKET VALUE" of shares of Common Stock on any given date(s)
shall be: (a) the mean of the high and low sales prices on the New York
Stock Exchange--Composite Tape of such shares on the date(s) in question, or,
if the shares of Common Stock shall not have been traded on any such date(s),
the mean of the high and low sales prices on the New York Stock Exchange--
Composite Tape on the first day prior thereto on which the shares of Common
Stock were so traded; or (b) if the shares of Common Stock are not traded on
the New York Stock Exchange, such other amount as may be determined by the
Committee by any fair and reasonable means.
"FAIR MARKET VALUE" of any Other ML & Co. Security on any given
date(s) shall be: (a) the mean of the high and low sales prices of such Other
ML & Co. Security on the principal securities exchange on which such Security
is traded on the date(s) in question or, if such Other ML & Co. Security
shall not have been traded on any such exchange on such date(s), the mean of
the high and low sales prices on such exchange on the first day prior thereto
on which such Other ML & Co. Security was so traded; or (b) if the Other ML &
Co. Security is not publicly traded on a securities exchange, such other
amount as may be determined by the Committee by any fair and reasonable
means.
(h) "JUNIOR PREFERRED STOCK" shall mean ML & Co.'s Series A Junior
Preferred Stock, par value $1.00 per share.
(i) "OTHER ML & CO. SECURITY" shall mean a financial instrument issued
pursuant to Article VI.
(j) "PARTICIPANT" shall mean any employee who has met the eligibility
requirements set forth in Section 1.5 hereof and to whom a grant has been
made and is outstanding under the Plan.
(k) "PERFORMANCE PERIOD" shall mean, in relation to Performance Shares
or Performance Units, any period, for which performance objectives have been
established, of not less than one nor more than ten consecutive ML & Co.
fiscal years,
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commencing with the first day of the fiscal year in which such Performance
Shares or Performance Units were granted.
(l) "PERFORMANCE SHARE" shall mean a right, granted to a Participant
pursuant to Article II, that will be paid out as a share of Common Stock.
(m) "PERFORMANCE UNIT" shall mean a right, granted to a Participant
pursuant to Article II, to receive an amount equal to the Fair Market Value
of one share of Common Stock in cash.
(n) "RESTRICTED PERIOD" shall mean, (i) in relation to shares of Common
Stock receivable in payment for Performance Shares, the period beginning at
the end of the applicable Performance Period during which restrictions on the
transferability of such shares of Common Stock are in effect; and (ii) in
relation to Restricted Shares, the period, beginning with the first day of
the month in which Restricted Shares are granted, during which restrictions
on the transferability of such Restricted Shares are in effect and which
shall not be of shorter duration than the Vesting Period applicable to the
same Restricted Shares.
(o) "RESTRICTED SHARE" shall mean a share of Common Stock, granted to a
Participant pursuant to Article III, subject to the restrictions set forth in
Section 3.3 hereof.
(p) "RESTRICTED UNIT" shall mean the right, granted to a Participant
pursuant to Article III, to receive an amount equal to the Fair Market Value
of one share of Common Stock in cash.
(q) "RETIREMENT" shall mean the cessation of employment by the Company
(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); provided that any person who
at the time of such cessation of employment is an officer of ML & Co., as
defined in Rule 16a-1 under the Securities Exchange Act of 1934 must qualify
under subclause (1) hereof to be eligible for "Retirement".
(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
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<PAGE>
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 number of shares of Common Stock. Stock Options
may be "INCENTIVE STOCK OPTIONS," which meet the definition of such in
Section 422A of the Code, or "NONQUALIFIED STOCK OPTIONS," which do not meet
such definition.
(v) "VESTING PERIOD" shall mean, in relation to Restricted Shares or
Restricted Units, any period of not less than 12 months beginning with the
first day of the month in which the grant of the applicable Restricted Shares
or Restricted Units is effective, during which such Restricted Shares or
Restricted Units may be forfeited if the Participant terminates employment.
SECTION 1.3 ADMINISTRATION.
--------------
(a) The Plan shall be administered by the Committee. Subject to the
provisions of the Plan, the Committee shall have sole and complete authority
to: (i) subject to Section 1.5 hereof, select Participants after receiving
the recommendations of the management of the Company; (ii) determine the
number of Performance Shares, Performance Units, Restricted Shares,
Restricted Units, Stock Appreciation Rights, or Other ML & Co. Securities
subject to each grant; (iii) determine the number of shares of Common Stock
subject to each Stock Option grant; (iv) determine the time or times when
grants are to be made or are to be effective; (v) determine the terms and
conditions subject to which grants may be made; (vi) extend the term of any
Stock Option; (vii) provide at the time of grant that all or any portion of
any Stock Option shall be canceled upon the Participant's exercise of any
Stock Appreciation Rights; (viii) prescribe the form or forms of the
instruments evidencing any grants made hereunder, provided that such forms
are consistent with the Plan; (ix) adopt, amend, and rescind such rules and
regulations as, in its opinion, may be advisable for the administration of
the Plan; (x) construe and interpret the Plan and all rules, regulations, and
instruments utilized thereunder; and (xi) make all determinations deemed
advisable or necessary for the administration of the Plan. All
determinations by the Committee shall be final and binding.
(b) The Committee shall act in accordance with the procedures
established for a Committee under ML & Co.'s Certificate of Incorporation and
By-Laws or under any resolution of the Board.
SECTION 1.4 SHARES AND UNITS SUBJECT TO THE PLAN.
------------------------------------
The total number of shares of Common Stock that may be distributed under
the Plan shall be 80,000,000 (whether granted as Restricted Shares or
reserved for distribution upon grant of Performance Shares, Stock Options,
Stock Appreciation Rights (to the extent they may be paid out in Common
Stock), or Other ML & Co.
4
<PAGE>
Securities), subject to adjustment as provided in Article VII hereof. Shares
of Common Stock distributed under the Plan may be treasury shares or
authorized but unissued shares. The total number of units payable in cash
under the Plan, including Performance Units, Restricted Units, and Stock
Appreciation Rights (to the extent they are paid out in cash) shall be
80,000,000. To the extent that awards of Other ML & Co. Securities are
convertible into Common Stock or are otherwise equity securities (or
convertible into equity securities) of ML & Co., they shall be subject to the
limitation expressed above on the number of shares of Common Stock that can
be awarded under the Plan; otherwise, they shall be treated as if they were
awards of units payable in cash under the Plan and subject to the foregoing
limitation thereon. Any shares of Common Stock that have been granted as
Restricted Shares or that have been reserved for distribution in payment for
Performance Shares but are later forfeited or for any other reason are not
payable under the Plan may again be made the subject of grants under the
Plan. If any Stock Option, Stock Appreciation Right, or Other ML & Co.
Security granted under the Plan expires or terminates, or any Stock
Appreciation Right is paid out in cash, the underlying shares of Common Stock
may again be made the subject of grants under the Plan. Units payable in
cash that are later forfeited or for any reason are not payable under the
Plan may again be the subject of grants under the Plan.
SECTION 1.5 ELIGIBILITY AND PARTICIPATION.
-----------------------------
Participation in the Plan shall be limited to officers (who may also be
members of the Board of Directors) and other salaried, key employees of the
Company.
ARTICLE II - PROVISIONS APPLICABLE TO PERFORMANCE SHARES AND
PERFORMANCE UNITS.
SECTION 2.1 PERFORMANCE PERIODS AND RESTRICTED PERIODS.
------------------------------------------
The Committee shall establish Performance Periods applicable to
Performance Shares and Performance Units and may establish Restricted Periods
applicable to Performance Shares, at its discretion. Each such Performance
Period shall commence with the beginning of a fiscal year in which the
Performance Shares and Performance Units are granted and have a duration of
not less than one nor more than ten consecutive fiscal years. Each such
Restricted Period shall commence with the end of the Performance Period
established for such Performance Shares and shall end on such date as may be
determined by the Committee at the time of grant. There shall be no
limitation on the number of Performance Periods or Restricted Periods
established 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
5
<PAGE>
that such performance objectives shall be established prior to the grant of
any Performance Shares or Performance Units with respect to such Period.
Performance objectives shall be based on one or more measures such as return
on stockholders' equity, earnings, or any other standard deemed relevant by
the Committee, measured internally or relative to other organizations and
before or after extraordinary items, as may be determined by the Committee;
provided, however, that any such measure shall include all accruals for
-------- -------
grants made under the Plan and for all other employee benefit plans of the
Company. The Committee may, in its discretion, establish performance
objectives for the Company as a whole or for only that part of the Company in
which a given Participant is involved, or a combination thereof. In
establishing the performance objective or objectives for a Performance
Period, the Committee shall determine both a minimum performance level, below
which no Performance Shares or Performance Units shall be payable, and a full
performance level, at or above which 100% of the Performance Shares or
Performance Units shall be payable. In addition, the Committee may, in its
discretion, establish intermediate levels at which given proportions of the
Performance Shares or Performance Units shall be payable. Such performance
objectives shall not thereafter be changed except as set forth in Sections
2.5 and 2.6 and Article VII hereof.
SECTION 2.3 GRANTS OF PERFORMANCE SHARES AND PERFORMANCE
--------------------------------------------
UNITS.
-----
The Committee may select employees to become Participants subject to the
provisions of Section 1.5 hereof and grant Performance Shares or Performance
Units to such Participants at any time prior to or during the first fiscal
year of a Performance Period. Grants shall be deemed to have been made as of
the beginning of the first fiscal year of the Performance Period. Before
making grants, the Committee must receive the recommendations of the
management of the Company, which will take into account such factors as level
of responsibility, current and past performance, and performance potential.
Subject to the provisions of Section 2.7 hereof, a grant of Performance
Shares or Performance Units shall be effective for the entire applicable
Performance Period and may not be revoked. Each grant to a Participant shall
be evidenced by a written instrument stating the number of Performance Shares
or Performance Units granted, the Performance Period, the performance
objective or objectives, the proportion of payments for performance between
the minimum and full performance levels, if any, the Restricted Periods and
restrictions applicable to shares of Common Stock receivable in payment for
Performance Shares, and any other terms, conditions, and rights with respect
to such grant. At the time of any grant of Performance Shares, there shall
be reserved out of the number of shares of Common 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
6
<PAGE>
Unit held by such Participant, in the same manner, at the same time, and in
the same amount paid, as a dividend on a share of Common Stock.
SECTION 2.5 ADJUSTMENT WITH RESPECT TO PERFORMANCE SHARES AND
-------------------------------------------------
PERFORMANCE UNITS.
------------------
Any other provision of the Plan to the contrary notwithstanding, the
Committee may at any time adjust performance objectives (up or down) and
minimum or full performance levels (and any intermediate levels and
proportion of payments related thereto), adjust the way performance
objectives are measured, or shorten any Performance Period or Restricted
Period, if it determines that conditions, including but not limited to,
changes in the economy, changes in competitive conditions, changes in laws or
governmental regulations, changes in generally accepted accounting
principles, changes in the Company's accounting policies, acquisitions or
dispositions, or the occurrence of other unusual, unforeseen, or
extraordinary events, so warrant.
SECTION 2.6 PAYMENT OF PERFORMANCE SHARES AND PERFORMANCE
---------------------------------------------
UNITS.
-----
Within 90 days after the end of any Performance Period, the Company
shall determine the extent to which performance objectives established by the
Committee pursuant to Section 2.2 hereof for such Performance Period have
been met during such Performance Period and the resultant extent to which
Performance Shares or Performance Units granted for such Performance Period
are payable. Payment for Performance Shares and Performance Units shall be as
follows:
(a) Performance Shares:
------------------
(i) If a Restricted Period has been established in relation
-------------------------------------------
to the Performance Shares:
(A) At the end of the applicable Performance Period, one or
-----------------------------------------------
more certificates representing the number of shares of Common Stock equal to
the number of Performance Shares payable shall be registered in the name of
the Participant but shall be held by the Company for the account of the
employee. Such shares will be nonforfeitable but restricted as to
transferability during the applicable Restricted Period. During the
Restricted Period, the Participant shall have all rights of a holder as to
such shares of Common Stock, including the right to receive dividends, to
exercise Rights, 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
7
<PAGE>
shall not be required to register any fractional shares of Common Stock
payable to any Participant, but will pay the value of such fractional shares,
measured as set forth in Section 2.6(b) below, to the Participant.
(B) At the end of the applicable Restricted Period, all
----------------------------------------------
restrictions applicable to the shares of Common Stock, and other securities
or property received with respect to such shares, held by the Company for the
accounts of recipients of Performance Shares granted in relation to such
Restricted Period shall lapse, and one or more stock certificates for such
shares of Common Stock and securities, free of the restrictions, shall be
delivered to the Participant, or such shares and securities shall be credited
to a brokerage account if the Participant so directs.
(ii) If a Restricted Period has not been established in relation to
-----------------------------------------------
the Performance Shares, at the end of the applicable Performance Period, one
or more stock certificates representing the number of shares of Common Stock
equal to the number of Performance Shares payable, free of restrictions,
shall be registered in the name of the Participant and delivered to the
Participant, or such shares shall be credited to a brokerage account if the
Participant so directs.
(b) Performance Units: At the end of the applicable Performance Period,
-----------------
a Participant shall be paid a cash amount equal to the number of Performance
Units payable, times the mean of the Fair Market Value of Common Stock during
the second calendar month following the end of the Performance Period, unless
some other date or period is established by the Committee at the time of
grant.
SECTION 2.7 TERMINATION OF EMPLOYMENT.
-------------------------
(a) Prior to the end of a Performance Period:
(i) Death: If a Participant ceases to be an employee of the
-----
Company prior to the end of a Performance Period by reason of death, any
outstanding Performance Shares or Performance Units with respect to such
Participant shall become payable and be paid to such Participant's
beneficiary or estate, as the case may be, as soon as practicable in the
manner set forth in Sections 2.6(a)(ii) and 2.6(b) hereof, respectively. In
determining the extent to which performance objectives established for such
Performance Period have been met and the resultant extent to which
Performance Shares or Performance Units are payable, the Performance Period
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
8
<PAGE>
the applicable Performance Period. A Participant who does engage in or
assist any business that the Committee, in its sole discretion, determines to
be in competition with business engaged in by the Company shall be deemed to
have terminated employment.
(iii) Other Terminations: If a Participant ceases to be an
------------------
employee prior to the end of a Performance Period for any reason other than
death, the Participant shall immediately forfeit all Performance Shares and
Performance Units previously granted under the Plan and all right to receive
any payment for such Performance Shares and Performance Units. The Committee
may, however, direct payment in accordance with the provisions of Section 2.6
hereof for a number of Performance Shares or Performance Units, as it may
determine, granted under the Plan to a Participant whose employment has so
terminated (but not exceeding the number of Performance Shares or Performance
Units that could have been payable had the Participant remained an employee)
if it finds that the circumstances in the particular case so warrant. For
purposes of the preceding sentence, the Performance Period over which
performance objectives shall be measured shall be deemed to end as of the end
of the fiscal year in which termination occurred.
(b) After the end of a Performance Period but prior to the end of a
Restricted Period:
(i) Death, Disability, or Retirement: If a Participant ceases
--------------------------------
to be an employee of the Company by reason of death or in the case of the
Disability or Retirement of a Participant, the Restricted Period shall be
deemed to have ended and shares held by the Company shall be paid as soon as
practicable in the manner set forth in Section 2.6(a)(i)(B).
(ii) Other Terminations: Terminations of employment for any reason
------------------
other than death after the end of a Performance Period but prior to the end
of a Restricted Period shall not have any effect on the Restricted Period,
unless the Committee, in its sole discretion, finds that the circumstances so
warrant and determines that the Restricted Period shall end on an earlier
date as determined by the Committee and that shares held by the Company shall
be paid as soon as practicable following such earlier date in the manner set
forth in Section 2.6(a)(i)(B).
(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.
9
<PAGE>
SECTION 2.8 DEFERRAL OF PAYMENT.
-------------------
The Committee may, in its sole discretion, offer a Participant the
right, by execution of a written agreement, to defer the receipt of all or
any portion of the payment, if any, for Performance Shares or Performance
Units. If such an election to defer is made, the Common Stock receivable in
payment for Performance Shares shall be deferred as stock units equal in
number to and exchangeable, at the end of the deferral period, for the number
of shares of Common Stock that would have been paid to the Participant. Such
stock units shall represent only a contractual right and shall not give the
Participant any interest, right, or title to any Common Stock during the
deferral period. The cash receivable in payment for Performance Units or
fractional shares receivable for Performance Shares shall be deferred as cash
units. Deferred stock units and cash units may be credited annually with the
appreciation factor contained in the deferred compensation agreement, which
may include dividend equivalents. All other terms and conditions of deferred
payments shall be as contained in the written agreement.
ARTICLE III - PROVISIONS APPLICABLE TO RESTRICTED SHARES AND
RESTRICTED UNITS.
SECTION 3.1 VESTING PERIODS AND RESTRICTED PERIODS.
--------------------------------------
The Committee shall establish one or more Vesting Periods applicable to
Restricted Shares and Restricted Units and one or more Restricted Periods
applicable to Restricted Shares, at its discretion. Each such Vesting Period
shall have a duration of not less than 12 months, measured from the first day
of the month in which the grant of the applicable Restricted Shares or
Restricted Units is effective. Each such Restricted Period shall have a
duration of 12 or more consecutive months, measured from the first day of the
month in which the grant of the applicable Restricted Shares is effective,
but in no event shall any Restricted Period applicable to a Restricted Share
be of shorter duration than the Vesting Period applicable to such Restricted
Share.
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
10
<PAGE>
and terms of payment of consideration, if any, and the consequences of
forfeiture that will apply to such Restricted Shares, and any other terms,
conditions, and rights with respect to such grant. Each grant to a
Participant of Restricted Units shall be evidenced by a written instrument
stating the number of Restricted Units granted, the Vesting Period, and all
other terms, conditions and rights with respect to such grant.
SECTION 3.3 RIGHTS AND RESTRICTIONS GOVERNING RESTRICTED
--------------------------------------------
SHARES.
-------
At the time of grant of Restricted Shares, subject to the receipt by the
Company of any applicable consideration for such Restricted Shares, one or
more certificates representing the appropriate number of shares of Common
Stock granted to a Participant shall be registered either in his name or for
his benefit either individually or collectively with others, but shall be
held by the Company for the account of the Participant. The Participant
shall have all rights of a holder as to such shares of Common Stock,
including the right to receive dividends, to exercise Rights, and to vote
such Common Stock and any securities issued upon exercise of Rights, subject
to the following restrictions: (a) the Participant shall not be entitled to
delivery of certificates representing such shares of Common Stock and any
other such securities until the expiration of the Restricted Period; (b) none
of the Restricted Shares may be sold, transferred, assigned, pledged, or
otherwise encumbered or disposed of during the Restricted Period; and (c) all
of the Restricted Shares shall be forfeited and all rights of the Participant
to such Restricted Shares shall terminate without further obligation on the
part of the Company unless the Participant remains in the continuous
employment of the Company for the entire Vesting Period in relation to which
such Restricted Shares were granted, except as otherwise allowed by Section
3.7 hereof. Any shares of Common Stock or other securities or property
received with respect to such shares shall be subject to the same
restrictions as such Restricted Shares.
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
11
<PAGE>
policies, acquisitions or dispositions, or the occurrence of other unusual,
unforeseen, or extraordinary events, so warrant.
SECTION 3.6 PAYMENT OF RESTRICTED SHARES AND RESTRICTED
-------------------------------------------
UNITS.
-----
(a) Restricted Shares: At the end of the Restricted Period, all
-----------------
restrictions contained in the Restricted Share Agreement and in the Plan
shall lapse as to Restricted Shares granted in relation to such Restricted
Period, and one or more stock certificates for the appropriate number of
shares of Common Stock, free of restrictions, shall be delivered to the
Participant or such shares shall be credited to a brokerage account if the
Participant so directs.
(b) Restricted Units: At the end of the Vesting Period applicable to
----------------
Restricted Units granted to a Participant, a cash amount equivalent in value
to the Fair Market Value of one share of Common Stock on the last day of the
Vesting Period, or during such period as is established by the Committee at
the time of grant, shall be paid, with respect to each such Restricted Unit,
to the Participant, or his beneficiary or estate, as the case may be.
SECTION 3.7 TERMINATION OF EMPLOYMENT.
-------------------------
(a) Prior to the end of a Vesting Period:
(i) Death: If a Participant ceases to be an employee of the
-----
Company prior to the end of a Vesting Period by reason of death, all
Restricted Shares and Restricted Units granted to such Participant are
immediately payable as set forth in Section 3.6.
(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
12
<PAGE>
terminated to retain any or all of the Restricted Shares or Restricted Units
granted to such Participant.
(b) After the end of a Vesting Period but prior to the end of a
Restricted Period:
(i) Death, Disability, or Retirement: If a Participant ceases to
--------------------------------
be an employee of the Company by reason of death, or in the case of the
Disability or Retirement of a Participant, prior to the end of a Restricted
Period, all Restricted Shares granted to such Participant are immediately
payable in the manner set forth in Section 3.6.
(ii) Other Terminations: Terminations of employment for any reason
------------------
other than death after the end of a Vesting Period but prior to the end of a
Restricted Period shall not have any effect on the Restricted Period, unless
the Committee, in its sole discretion, finds that the circumstances so
warrant and determines that the Restricted Period shall end on an earlier
date as determined by the Committee and that shares held by the Company shall
be paid as soon as practicable following such earlier date in the manner set
forth in Section 3.6.
(c) Approved leaves of absence of one year or less shall not be deemed
to be terminations of employment under this Section 3.7. Leaves of absence
of more than one year will be deemed to be terminations of employment under
this Section 3.7, unless the Committee determines otherwise.
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.
13
<PAGE>
ARTICLE IV - PROVISIONS APPLICABLE TO STOCK OPTIONS.
SECTION 4.1 GRANTS OF STOCK OPTIONS.
-----------------------
The Committee may select employees to become Participants (subject to
Section 1.5 hereof) and grant Stock Options to such Participants at any time;
provided, however, that Incentive Stock Options shall be granted within 10
years of the earlier of the date the Plan is adopted by the Board or approved
by the stockholders. Before making grants, the Committee must receive the
recommendations of the management of the Company, which will take into
account such factors as level of responsibility, current and past
performance, and performance potential. Subject to the provisions of the
Plan, the Committee shall also determine the number of shares of Common Stock
to be covered by each Stock Option. The Committee shall have the authority,
in its discretion, to grant "Incentive Stock Options" or "Nonqualified Stock
Options," or to grant both types of Stock Options. Furthermore, the
Committee may grant a Stock Appreciation Right in connection with a Stock
Option, as provided in Article V.
SECTION 4.2 OPTION DOCUMENTATION.
--------------------
Each Stock Option granted under the Plan shall be evidenced by written
documentation containing such terms and conditions as the Committee may deem
appropriate and are not inconsistent with the provisions of the Plan.
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
14
<PAGE>
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 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
15
<PAGE>
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 established for the exclusive benefit of 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 day prior to the date of exercise
equal to the purchase price, (iii) a combination of cash and shares of Common
Stock equal in value to the exercise price, or (iv) by such other means as
the Committee, in its sole discretion, may determine.
(b) Payment of Taxes: Upon exercise, a Participant may elect to
----------------
satisfy any federal, state or local taxes required by law to be withheld that
arise as a result of the exercise of a Stock Option by directing the Company
to withhold from the shares of Common Stock otherwise deliverable upon the
exercise of such Stock Option, such number of shares as shall have a total
Fair Market Value, on the day prior to the date of exercise, at least equal
to the amount of tax to be withheld; provided that, with respect to any
officer of ML & Co., as defined in Rule 16a-1 under the Securities Exchange
Act of 1934, the Committee shall have the right to disapprove such election.
16
<PAGE>
(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.
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
17
<PAGE>
Right was granted. Stock Appreciation Rights are not transferable by a
Participant except by will or the laws of descent and distribution and are
exercisable during his lifetime only by him.
SECTION 5.2 STOCK APPRECIATION RIGHTS GRANTED IN CONNECTION WITH
-----------------------------------------------------
INCENTIVE STOCK OPTIONS.
------------------------
(a) Stock Appreciation Rights granted in connection with Incentive
Stock Options must expire no later than the last date the underlying
Incentive Stock Option can be exercised.
(b) Such Stock Appreciation Rights may be granted for no more than 100%
of the difference between the exercise price of the underlying Incentive
Stock Option and the Fair Market Value of the Common Stock subject to the
underlying Incentive Stock Option at the time the Stock Appreciation Right is
exercised.
(c) Such Stock Appreciation Rights are transferable only to the extent
and at the same time and under the same conditions as the underlying
Incentive Stock Options.
(d) Such Stock Appreciation Rights may be exercised only when the
underlying Incentive Stock Options may be exercised.
(e) Such Stock Appreciation Rights may be exercised only when the Fair
Market Value of the shares of Common Stock subject to the Incentive Stock
Options exceeds the exercise price of the Incentive Stock Options.
SECTION 5.3 PAYMENT UPON EXERCISE OF STOCK APPRECIATION RIGHTS.
---------------------------------------------------
The Company's obligation to any Participant exercising a Stock
Appreciation Right may be paid in cash or shares of Common Stock, or partly
in cash and partly in shares, at the sole discretion of the Committee.
SECTION 5.4 TERMINATION OF EMPLOYMENT.
-------------------------
(a) Death: If a Participant ceases to be an employee of the Company
-----
prior to the exercise or expiration of a Stock Appreciation Right outstanding
in his name on the date of death, such Stock Appreciation Right may be
exercised to the full extent not yet exercised, regardless of whether or not
then fully exercisable under the terms of the grant, by his estate or
beneficiaries, as the case may be, at any time and from time to time within
l2 months after the date of death but in no event after the expiration date
of such Stock Appreciation Right.
(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
18
<PAGE>
discretion, determines to be in competition with business engaged in by the
Company. A Participant who does engage in or assist any business that the
Committee, in its sole discretion, determines to be in competition with
business engaged in by the Company shall be deemed to have terminated
employment.
(c) Retirement: The Retirement of a Participant shall not constitute a
----------
termination of employment for purposes of this Article IV, provided that
following Retirement such Participant does not engage in or assist any
business that the Committee, in its sole discretion, determines to be in
competition with business engaged in by the Company, and such Participant may
exercise any Stock Appreciation Right outstanding in his name at any time and
from time to time within 5 years after the date his Retirement commenced but
in no event after the expiration date of such Stock Appreciation Right. A
Participant who does engage in or assist any business that the Committee, in
its sole discretion, determines to be in competition with business engaged in
by the Company shall be deemed to have terminated employment.
(d) Other Terminations: If a Participant ceases to be an employee
------------------
prior to the exercise or expiration of a Stock Appreciation Right for any
reason other than death, all outstanding Stock Appreciation Rights granted to
such Participant shall expire on the date of such termination of employment,
unless the Committee, in its sole discretion, determines that he may exercise
any such outstanding Stock Appreciation Right (to the extent that he was
entitled to do so at the date of such termination of such employment) at any
time and from time to time within up to 5 years after such termination of
employment but in no event after the expiration date of such Stock
Appreciation Right.
ARTICLE VI - PROVISIONS APPLICABLE TO OTHER ML & CO. SECURITIES.
SECTION 6.1 GRANTS OF OTHER ML & CO. SECURITIES.
-----------------------------------
Subject to the provisions of the Plan and any necessary action by the
Board of Directors, the Committee may select employees to become Participants
(subject to the provisions of Section 1.5 hereof) and grant to Participants
Other ML & Co. Securities or the right or option to purchase Other ML & Co.
Securities on such terms and conditions as the Committee shall determine,
including, without limitation, the period such rights or options may be
exercised, the nature and terms of payment of consideration for such Other ML
& Co. Securities, whether such Other ML & Co. Securities shall be subject to
any or all of the provisions of Article III of the Plan applicable to
Restricted Shares and/or Restricted Units, the consequences of termination of
employment, and the terms and conditions, if any, upon which such Other ML &
Co. Securities may or must be repurchased by the Company. Before making
grants, the Committee must receive the recommendations of the management of
the Company, which will take into account 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
19
<PAGE>
and at a rate or rates or pursuant to a formula or formulas fixed by the
Committee or any necessary action of the Board. Any applicable conversion or
exchange rate with respect to Other ML & Co. Securities shall be fixed by, or
pursuant to a formula determined by, the Committee or any necessary action of
the Board at each date of grant and may be predicated upon the attainment of
financial or other performance goals.
SECTION 6.2 TERMS AND CONDITIONS OF CONVERSION OR EXCHANGE.
----------------------------------------------
Each Other ML & Co. Security may be convertible or exchangeable on such
date and within such period of time as the Committee, or the Board if
necessary, determines at the time of grant. Other ML & Co. Securities may be
convertible into or exchangeable for (i) shares of Preferred Stock of ML &
Co. or (ii) other securities of ML & Co. or any present or future subsidiary
of ML & Co., whether or not convertible into shares of Common Stock, as the
Committee, or the Board if necessary, determines at the time of grant (or at
any time prior to the conversion or exchange date).
ARTICLE VII - CHANGES IN CAPITALIZATION.
Any other provision of the Plan to the contrary notwithstanding, if any
change shall occur in or affect shares of Common Stock or Performance Units,
Restricted Units, Stock Options, Stock Appreciation Rights, or Other ML & Co.
Securities on account of a merger, consolidation, reorganization, stock
dividend, stock split or combination, reclassification, recapitalization, or
distribution to holders of shares of Common Stock (other than cash dividends)
including, without limitation, a merger or other reorganization event in
which the shares of Common Stock cease to exist, or, if in the opinion of the
Committee, after consultation with the Company's independent public
accountants, changes in the Company's accounting policies, acquisitions,
divestitures, distributions, or other unusual or extraordinary items have
disproportionately and materially affected the value of shares of Common
Stock or Performance Units, Restricted Units, Stock Options, Stock
Appreciation Rights, or Other ML & Co. Securities, the Committee shall make
such adjustments, if any, that it may deem necessary or equitable in (a) the
maximum number of shares of Common Stock available for distribution under the
Plan; (b) the number of shares subject to or reserved for issuance under
outstanding Performance Share, Restricted Share, and Stock Option grants; (c)
the performance objectives for the Performance Periods not yet completed,
including the minimum, intermediate, and full performance levels and portion
of payments related thereto; and (d) any other terms or provisions of any
outstanding grants of Performance Shares, Performance Units, Restricted
Shares, Restricted Units, Stock Options, Stock Appreciation Rights, or Other
ML & Co. Securities, in order to preserve the full benefits of such grants
for the Participants, taking into account inflation, interest rates, and any
other factors that the Committee, in its sole discretion, considers relevant.
In the event of a change in the presently 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,
20
<PAGE>
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").
(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
21
<PAGE>
on which the Participant's employment is terminated. The amount of any
payment to a Participant pursuant to this Section 8.1(b) shall be reduced by
the amount of any payment previously made to the Participant with respect to
the Restricted Shares and Restricted Units, exclusive of ordinary dividend
payments, resulting by operation of law from the Change in Control,
including, without limitation, payments resulting from a merger pursuant to
state law. The value of the Participant's Restricted Shares and Restricted
Units payable pursuant to this Section 8.1(b) shall be the amount equal to
the number of the Restricted Shares and Restricted Units outstanding in a
Participant's name multiplied by the Fair Market Value of a share of Common
Stock on the day the Participant's employment is terminated or, if higher,
the Pre-CIC Value.
(c) Stock Options and Stock Appreciation Rights.
-------------------------------------------
Any payment for Stock Options and Stock Appreciation Rights pursuant to
this Section 8.1(c) shall be calculated as if all such Stock Options and
Stock Appreciation Rights, regardless of whether or not then fully
exercisable under the terms of the grant, became exercisable immediately
prior to the date on which the Participant's employment is terminated. The
amount of any payment to a Participant pursuant to this Section 8.1(c) shall
be reduced by the amount of any payment previously made to a Participant with
respect to the Stock Options and Stock Appreciation Rights, exclusive of any
ordinary dividend payments, resulting by operation of law from the Change in
Control, including, without limitation, payments resulting from a merger
pursuant to state law. The value of the Participant's Stock Options and
Stock Appreciation Rights payable pursuant to this Section 8.1(c) shall be
(i) in the case of a Stock Option, for each
underlying share of Common Stock, the excess of the
Fair Market Value of a share of Common Stock on the
day the Participant's employment is terminated, or,
if higher, the Pre-CIC Value, over the per share
exercise price for such Stock Option;
(ii) in the case of a Stock Appreciation Right granted in
tandem with a Stock Option, the Fair Market Value of
a share of Common Stock on the day the Participant's
employment is terminated, or, if higher, the Pre-CIC
Value, over the Stock Option exercise price; and
(iii) in the case of a Stock Appreciation Right
granted independently of a Stock Option, the Fair
Market Value of a share of Common Stock on the day
the Participant's employment is terminated, or, if
higher, the Pre-CIC Value, over the Fair Market
Value of one share of Common Stock on the date such
Stock Appreciation Right was granted, or such other
price determined by the Committee at the time of
grant.
22
<PAGE>
(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 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
23
<PAGE>
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.
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
24
<PAGE>
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 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
25
<PAGE>
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 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
26
<PAGE>
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 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.
27
<PAGE>
SECTION 9.5 RELATIONSHIP TO OTHER BENEFITS.
------------------------------
No payment under the Plan shall be taken into account in determining any
benefits under any retirement, group insurance, or other employee benefit
plan of the Company. The Plan shall not preclude the stockholders of ML &
Co., the Board of Directors or any committee thereof, or the Company from
authorizing or approving other employee benefit plans or forms of incentive
compensation, nor shall it limit or prevent the continued operation of other
incentive compensation plans or other employee benefit plans of the Company
or the participation in any such plans by Participants in the Plan.
SECTION 9.6 NO TRUST OR FUND CREATED.
------------------------
Neither the Plan nor any grant made hereunder shall create or be
construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company and a Participant or any other person. To
the extent that any person acquires a right to receive payments from the
Company pursuant to a grant under the Plan, such right shall be no greater
than the right of any unsecured general creditor of the Company.
SECTION 9.7 EXPENSES.
--------
The expenses of administering the Plan shall be borne by the Company.
SECTION 9.8 INDEMNIFICATION.
---------------
Service on the Committee shall constitute service as a member of the
Board of Directors so that members of the Committee shall be entitled to
indemnification and reimbursement as directors of ML & Co. pursuant to its
Certificate of Incorporation, By-Laws, or resolutions of its Board of
Directors or stockholders.
SECTION 9.9 TAX LITIGATION.
--------------
The Company shall have the right to contest, at its expense, any tax
ruling or decision, administrative or judicial, on any issue that is related
to the Plan and that the Company believes to be important to Participants in
the Plan and to conduct any such contest or any litigation arising therefrom
to a final decision.
ARTICLE X - AMENDMENT AND TERMINATION.
The Board of Directors or the Committee (but no other committee of the
Board of Directors) may modify, amend or terminate the Plan at any time,
except that, to the 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
28
<PAGE>
Common Stock available for distribution under the Plan (other than increases
due to an adjustment in accordance with the Plan). No modification,
amendment or termination of the Plan shall adversely affect the rights of a
Participant under a grant previously made to him without the consent of such
Participant.
ARTICLE XI - INTERPRETATION.
SECTION 11.1 GOVERNMENTAL AND OTHER REGULATIONS.
----------------------------------
The Plan and any grant hereunder shall be subject to all applicable
Federal and state laws, rules, and regulations and to such approvals by any
regulatory or governmental agency that may, in the opinion of the counsel for
the Company, be required.
SECTION 11.2 GOVERNING LAW.
-------------
THE PLAN SHALL BE CONSTRUED AND ITS PROVISIONS ENFORCED AND ADMINISTERED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
ENTERED INTO AND PERFORMED ENTIRELY IN SUCH STATE.
ARTICLE XII - EFFECTIVE DATE AND STOCKHOLDER APPROVAL.
The Plan shall not be effective unless or until approved by a majority
of the votes cast at a duly held stockholders' meeting at which a quorum
representing a majority of all outstanding voting stock is, either in person
or by proxy present and voting on the Plan.
29
EXHIBIT 10(ii)
AS AMENDED THROUGH APRIL 16, 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, unless some
other Board committee has been designated by the Board of Directors to
administer the Plan. It shall consist of three or more members of the Board
who are not officers or in the employ of the Company, who are not eligible,
and for a period of one year prior to the commencement of their service on
the Committee have not been eligible, to participate in the Plan and who are
disinterested persons within the terms of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934. Committee members shall serve at the
pleasure of the Board of Directors.
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(d) "COMMON STOCK" shall mean the Common Stock, par value $1.33 1/3 per
share, of ML & Co.
(e) "DISABILITY," unless otherwise provided herein, shall mean any
physical or mental condition that, in the opinion of the Director of Human
Resources of Merrill Lynch & Co., Inc. (or his functional successor), renders
an employee incapable of engaging in any employment or occupation for which
he is suited by reason of education or training, provided that, in the case
of any officer of ML & Co., as defined in Rule 16a-1 under the Securities
Exchange Act of 1934, such determination shall be made by the Committee
following recommendation by the Director of Human Resources.
(f) "FAIR MARKET VALUE" of Common Stock on any given date(s) shall be:
(a) if Common Stock is not listed for trading on a national securities
exchange but is traded in the over-the-counter market, the mean of the
highest and lowest bid prices for the Common Stock on the date(s) in
question, or, if there are no such bid prices for the Common Stock on any
such date(s), the mean of the highest and lowest bid prices on the first day
prior thereto on which such prices appear; (b) if the Common Stock is listed
for trading on one or more national securities exchanges, the mean of the
high and low sales prices on the principal such exchange on the date(s) in
question, or, if the Common Stock shall not have been traded on such
principal exchange on any such date(s), the mean of the high and low sales
prices on such principal exchange on the first day prior thereto on which the
Common Stock was so traded; provided, however, if the Distribution Date (as
-------- -------
defined in the Rights Agreement) shall have occurred and the Rights shall
then be represented by separate certificates rather than by certificates
representing the Common Stock, there shall be added to such value calculated
in accordance with (a) or (b) above, as the case may be, (i) if the Rights
are not listed for trading on a national securities exchange but are traded
in the over-the-counter market, the mean of the highest and lowest bid prices
of the Rights on the date(s) in question, or, if there are no such bid prices
for the Rights on any such date(s), the mean of the highest and lowest bid
prices on the first day prior thereto on which such prices appear or (ii) if
the Rights are listed for trading on one or more national securities
exchanges, the mean of the high and low sales prices of the Rights on the
principal such exchange on the date(s) in question, or if the Rights shall
not have been traded on such principal exchange on any such date(s), the mean
of the high and low sales prices on such principal exchange on the first day
prior thereto on which the Rights were so traded; or (c) such other amount as
may be determined by the Committee by any fair and reasonable means.
(g) "JUNIOR PREFERRED STOCK" shall mean ML & Co.'s Series A Junior
Preferred Stock, par value $1.00 per share.
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(h) "PARTICIPANT" shall mean any employee who has met the eligibility
requirements set forth in Section 5 hereof and to whom a grant has been made
and is outstanding under the Plan.
(i) "PERFORMANCE PERIOD" shall mean, in relation to Performance Shares,
any period, for which performance objectives have been established, of not
less than three nor more than five consecutive ML & Co. fiscal years,
commencing with the first day of the fiscal year in which such Performance
Shares were granted.
(j) "PERFORMANCE SHARE" shall mean a unit granted to a Participant
deemed to be equivalent in value to the Fair Market Value of one share of
Common Stock.
(k) "RESTRICTED PERIOD" shall mean any period of not less than 12 nor
more than 60 consecutive months, commencing with the first day of the month
in which Restricted Shares are granted, during which restrictions on such
Restricted Shares are in effect.
(l) "RESTRICTED SHARE" shall mean a share of Common Stock and one Right
granted to a Participant subject to the restrictions set forth in Section 7
hereof.
(m) "RETIREMENT" shall mean the cessation of employment by the Company
(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); provided that any person who
at the time of such cessation of employment is an officer of ML & Co., as
defined in Rule 16a-1 under the Securities Exchange Act of 1934 will not be
eligible for "Retirement" hereunder unless they have reached the age of 55
and have completed 10 years of service, including approved leaves of absence
of one year or less.
(n) "RIGHTS" means the Rights to Purchase Units of Series A Junior
Preferred Stock issued pursuant to the Rights Agreement.
(o) "RIGHTS AGREEMENT" means the Rights Agreement dated as of December
16, 1987 between ML & Co. and Manufacturers Hanover Trust Company, Rights
Agent.
3. ADMINISTRATION.
--------------
(a) The Plan shall be administered by the Committee. Subject to the
provisions of the Plan, the Committee shall have sole and complete authority
to: (i) subject to Section 5 hereof, select Participants after receiving the
recommendations of the management of the Company; (ii) determine the number
of Performance Shares or Restricted Shares subject to each grant; (iii)
determine the time or times when grants are to be made; (iv) determine the
terms and conditions subject to which grants may be
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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 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.
4
<PAGE>
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 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,
5
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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 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
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<PAGE>
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 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
7
<PAGE>
the same manner and at the same time, and be measured by the amount paid,
as a dividend 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 th cash
portion of any payment for Performance Shares. The cash portion of any
payment for Performance Shares shall be deferred as cash units and
credited annually with the appreciation factor contained in the
Deferred Compensation Program of the Company for the year of grant. All
other terms and conditions of deferred payments shall be the same as those
contained in such Deferred Compensation Program.
7. PROVISIONS APPLICABLE TO RESTRICTED SHARES.
------------------------------------------
(a) RESTRICTED PERIOD. The Committee shall establish one or more
Restricted Periods at its discretion, provided no Restricted Period shall
have a duration of less than 12 nor more than 60 consecutive months, measured
from the first day of the month in which Restricted Shares are granted with
respect to such Restricted Period, provided that, for any officer of ML &
Co., as defined in Rule 16a-1 under the Securities Exchange Act of 1934, such
Restricted Period may not be less than 36 months.
(b) GRANTS OF RESTRICTED SHARES. The Committee may select employees to
become Participants (subject to the provisions of Section 5 hereof) and grant
Restricted Shares to Participants at any time. Before making grants, the
Committee must receive the recommendations of the management of the Company,
which will take into account such factors as level of responsibility, current
and past performance, and performance potential. Subject to the provisions
of Section 7(d) hereof, a grant of Restricted Shares shall be effective for
the entire applicable Restricted Period and may not be revoked. Each grant
to a Participant shall be evidenced by a written instrument stating the
number of Restricted Shares granted, the Restricted Period, the restrictions
applicable to such Restricted Shares, and any other terms, conditions, and
rights with respect to such grant.
(c) RESTRICTIONS. At the time of grant of Restricted Shares, one or
more certificates representing the appropriate number of shares of Common
Stock and the appropriate number of Rights granted to a Participant shall be
registered either in his name or for his benefit either individually or
collectively with others, but shall be held by the Company for the account of
the Participant. The Participant shall have all rights of a holder as to
such shares of Common Stock and Rights, including the right to receive
dividends, the right to exercise the Rights for Junior Preferred Stock and
the right to vote such Common Stock and Junior Preferred Stock, subject to
the following restrictions: (i) subject to Section 7(d) hereof, the
Participant shall not be entitled to delivery of the stock or Rights
certificates until the expiration of the Restricted Period; (ii) none of the
Restricted Shares may be sold, transferred, assigned, pledged, or
8
<PAGE>
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.
(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.
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(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.
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
10
<PAGE>
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 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
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Change in Control shall be deemed to have occurred if:
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<PAGE>
(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
(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
12
<PAGE>
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:
(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
13
<PAGE>
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.
(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.
14
<PAGE>
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
15
<PAGE>
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.
16
EXHIBIT 11
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(In Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------
March 29, March 31,
1996 1995
------- -------
<S> <C> <C>
EARNINGS
Net earnings.................................................... $ 409 $ 228
Preferred stock dividends....................................... (11) (13)
------- -------
Net earnings applicable to
common stockholders............................................ $ 398 $ 215
======= =======
PRIMARY WEIGHTED AVERAGE SHARES
Common stock.................................................... 172.8 180.4
Assuming issuance of shares relating to
employee incentive plans....................................... 23.4 18.8
------- -------
Total shares.................................................... 196.2 199.2
======= =======
PRIMARY EARNINGS PER SHARE...................................... $ 2.03 $ 1.08
======= =======
FULLY DILUTED WEIGHTED AVERAGE SHARES
Common stock................................................... 172.8 180.4
Assuming issuance of shares relating to
employee incentive plans....................................... 23.4 18.8
------- -------
Total shares.................................................... 196.2 199.2
======= =======
FULLY DILUTED EARNINGS PER SHARE................................ $ 2.03 $ 1.08
======= =======
</TABLE>
NOTE: In accordance with Accounting Principles Board Opinion No. 15, the
modified treasury stock method was used to calculate per common share
earnings.
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)
For the Three Months
Ended
----------------------
March 29, March 31,
1996 1995
--------- --------
Pretax earnings from
continuing operations $ 671 $ 380
Add:
Fixed charges
Interest 2,756 2,781
Other(A) 39 35
------ ------
Total fixed charges 2,795 2,816
Preferred stock dividend
requirements 19 20
------ ------
Total combined fixed charges and
preferred stock dividends 2,814 2,836
------ ------
Pretax earnings before fixed charges $3,466 $3,196
====== ======
Pretax earnings before combined
fixed charges and preferred
stock dividends $3,485 $3,216
====== ======
Ratio of earnings to fixed charges 1.24 1.13
Ratio of earnings to combined
fixed charges and preferred
stock dividends 1.24 1.13
(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
May 10, 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 March
29, 1996 and for the three-month periods ended March 29, 1996 and March 31, 1995
as indicated in our report dated May 10, 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 March 29, 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. 33-51829 (401(k) Savings and Investment Plan)
Registration Statement No. 33-54154 (Non-Employee Directors' Equity Plan)
Registration Statement No. 33-54572 (401(k) Savings and Investment Plan
(Puerto Rico))
<PAGE>
Registration Statement No. 33-56427 (1994 Deferred Compensation Plan
for a Select Group of Eligible Employees)
Registration Statement No. 33-55155 (1995 Deferred Compensation Plan
for a Select Group of Eligible Employees)
Registration Statement No. 33-60989 (1995 Deferred Compensation Plan
for a Select Group of Eligible Employees)
Registration Statement No. 33-00863 (401(k) Savings & Incentive Plan)
Filed on Form S-3:
Debt Securities
Registration Statement No. 33-54218
Registration Statement No. 2-78338
Registration Statement No. 2-89519
Registration Statement No. 2-83477
Registration Statement No. 33-03602
Registration Statement No. 33-17965
Registration Statement No. 33-27512
Registration Statement No. 33-35456
Registration Statement No. 33-42041
Registration Statement No. 33-45327
Registration Statement No. 33-49947
Registration Statement No. 33-51489
Registration Statement No. 33-52647
Registration Statement No. 33-60413
Registration Statement No. 33-61559
<PAGE>
Registration Statement No. 33-65135
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> 3-MOS
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-START> DEC-30-1995
<PERIOD-END> MAR-29-1996
<CASH> 2,633
<RECEIVABLES> 33,563
<SECURITIES-RESALE> 52,880
<SECURITIES-BORROWED> 24,814
<INSTRUMENTS-OWNED> 73,118<F1>
<PP&E> 1,602
<TOTAL-ASSETS> 195,884
<SHORT-TERM> 26,901
<PAYABLES> 23,407
<REPOS-SOLD> 61,657
<SECURITIES-LOANED> 3,768
<INSTRUMENTS-SOLD> 37,703
<LONG-TERM> 20,226
0
619
<COMMON> 315
<OTHER-SE> 5,430
<TOTAL-LIABILITY-AND-EQUITY> 195,884
<TRADING-REVENUE> 982
<INTEREST-DIVIDENDS> 3,010
<COMMISSIONS> 989
<INVESTMENT-BANKING-REVENUES> 378
<FEE-REVENUE> 538
<INTEREST-EXPENSE> 2,758
<COMPENSATION> 1,691
<INCOME-PRETAX> 671
<INCOME-PRE-EXTRAORDINARY> 409
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 409
<EPS-PRIMARY> 2.03
<EPS-DILUTED> 2.03
<FN>
<F1> Financial Instruments Owned includes commodity contracts but excludes
physical commodities and real estate owned totaling $180.
<FN>
</TABLE>
