<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
MERRILL LYNCH & CO., INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
PROXY
STATEMENT
[IMAGE OF PLANET EARTH]
1997
------------
NOTICE OF THE ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD
APRIL 15, 1997
MERRILL LYNCH & CO., INC.
CONFERENCE AND TRAINING CENTER
PLAINSBORO, NEW JERSEY
[LOGO] MERRILL LYNCH
<PAGE>
GRAPHIC DESCRIPTION FOR COVER
GRAPHIC DEPICTS A HOLLOW GLOBE CONSTRUCTED OF GOLD LATITUDINAL AND LONGITUDINAL
LINES, WITH CONTINENTS IN GOLD. THE WESTERN HEMISPHERE IS CENTERED ON THE
GLOBE.
<PAGE>
[LOGO]
- --------------------------------------------------------------------------------
March 10, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders to be
held at 10:00 A.M., local time, on Tuesday, April 15, 1997, at the Merrill Lynch
& Co., Inc. Conference and Training Center, Plainsboro, New Jersey.
Information regarding the business of the meeting is set forth in the attached
formal Notice of Annual Meeting and Proxy Statement. There will be an
opportunity for stockholders to ask questions about our business and to comment
on any aspect of company affairs properly brought before the meeting.
We cannot stress strongly enough that your vote is important, regardless of the
number of shares you own. Therefore, after you read the Notice of Annual Meeting
and Proxy Statement, and even if you plan to attend the meeting, please complete
and return promptly the enclosed form of proxy to ensure that your shares will
be represented. A return envelope is enclosed for your convenience. Since mail
delays may occur, it is important that the proxy be returned well in advance of
the meeting. You may revoke your proxy at any time before it is exercised at the
meeting. Accordingly, you should sign and return your proxy even if you think
you may decide to attend the meeting and vote your shares in person. Merrill
Lynch will admit to the meeting stockholders of record, persons holding proof of
beneficial ownership or who have been granted proxies, and any other persons
that Merrill Lynch, in its sole discretion, may elect to admit.
We look forward to receiving your vote and seeing you at the meeting. Any
stockholder who needs directions to the meeting, or who has a disability that
may require special assistance, is asked to contact our Corporate Secretary,
Gregory T. Russo, at 100 Church Street, 12th Floor, New York, NY 10080-6512.
Sincerely,
<TABLE>
<S> <C>
/S/ DANIEL P. TULLY /S/ DAVID H. KOMANSKY
DANIEL P. TULLY DAVID H. KOMANSKY
CHAIRMAN OF THE BOARD PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
<PAGE>
[LOGO]
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
TO BE HELD APRIL 15, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of MERRILL LYNCH
& CO., INC. ("ML & Co."), a Delaware corporation, will be held on Tuesday, April
15, 1997, at 10:00 A.M., local time, at the Merrill Lynch & Co., Inc. Conference
and Training Center, 800 Scudders Mill Road, Plainsboro, New Jersey, for the
following purposes:
(1) To elect 5 directors to the Board of Directors to hold office for a term
of 3 years;
(2) To consider approving a proposal to limit the number of stock options
that may be granted to executive officers under the ML & Co. Long-Term
Incentive Compensation Plan;
(3) To consider approving a proposal to amend a definition in the
performance goal formula applicable to annual cash bonuses and grants of
restricted shares and units to executive management;
(4) To consider 2 stockholder proposals; and
(5) To transact such other business as properly may come before the Annual
Meeting and any adjournment thereof.
Only holders of Common Stock of record on the books of ML & Co. at the close of
business on February 25, 1997 are entitled to notice of, and to vote at, the
Annual Meeting and any adjournment thereof. A list of such stockholders will be
available from April 4, 1997 until prior to the meeting, as required by law, at
the office of Merrill Lynch Asset Management located at 800 Scudders Mill Road,
Plainsboro, New Jersey. This list will also be available at the Annual Meeting.
The stock transfer books will not be closed.
Public notice of the date of the Annual Meeting was previously included in ML &
Co.'s Quarterly Report on Form 10-Q for the period ended September 27, 1996,
which was filed with the Securities and Exchange Commission on November 8, 1996,
and in ML & Co.'s Third Quarter Report to stockholders, which was mailed on
November 26, 1996.
By Order of the Board of Directors
GREGORY T. RUSSO
SECRETARY
New York, NY
March 10, 1997
STOCKHOLDERS ARE URGED TO VOTE, SIGN, AND DATE THE ENCLOSED FORM OF PROXY AND TO
RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES.
The Proxy Statement for the Annual Meeting follows this page. For stockholders
who have not previously been sent a copy, enclosed is the Annual Report of ML &
Co. for 1996, which is not proxy soliciting material.
<PAGE>
[LOGO]
- --------------------------------------------------------------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
APRIL 15, 1997
World Financial Center March 10, 1997
North Tower
New York, NY 10281
This Proxy Statement is furnished in connection with the solicitation on behalf
of the Board of Directors of Merrill Lynch & Co., Inc., a Delaware corporation
("ML & Co."), of proxies from holders of ML & Co. Common Stock, par value
$1.33 1/3 per share (the "Common Stock"), eligible to vote at the forthcoming
Annual Meeting of Stockholders, and at any adjournment thereof, on the matters
set forth in the foregoing Notice of Annual Meeting of Stockholders. The Annual
Meeting will be held on Tuesday, April 15, 1997, at 10:00 A.M., local time, at
the Merrill Lynch & Co., Inc. Conference and Training Center, 800 Scudders Mill
Road, Plainsboro, New Jersey.
The close of business on February 25, 1997 has been fixed by the Board of
Directors as the record date for determining the stockholders entitled to notice
of, and to vote at, the Annual Meeting and at any adjournment thereof. On that
date, there were 168,190,091 shares of Common Stock outstanding (excluding
treasury shares), with the holders thereof entitled to one vote per share. The
holders of a majority of the shares of Common Stock entitled to vote at the
Annual Meeting, present in person or by proxy, shall constitute a quorum. To the
knowledge of ML & Co., except as provided below, no person is the beneficial
owner of more than 5% of the outstanding shares of Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
OF BENEFICIAL OWNER OWNERSHIP OF CLASS(1)
- ------------------------------------------------------------------------------- ------------------- -------------
<S> <C> <C>
State Street Bank and Trust Company, Trustee
("State Street")
225 Franklin Street
Boston, Massachusetts 02110
Merrill Lynch & Co., Inc.
Employee Stock Ownership Plan (the "ESOP")............................... 16,996,351(2) 10.1%
Other ML & Co. employee benefit plans...................................... 8,160,417(3) 4.9
Other...................................................................... 1,756,927(4) 1.0
The Equitable Companies Incorporated
(the "Equitable Companies") and related parties
787 Seventh Avenue
New York, New York 10019..................................................... 13,268,645(5) 7.9
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
<PAGE>
(1) Percentages are calculated based on the Common Stock outstanding as of
February 25, 1997.
(2) Information concerning the amount and nature of beneficial ownership is as
of February 25, 1997. As of that date, 13,905,570 shares of Common Stock
held by the ESOP (representing 8.3% of the outstanding shares of Common
Stock) were allocated to participants, and 3,090,781 shares of Common Stock
held by the ESOP (representing 1.8% of the outstanding shares of Common
Stock) were unallocated. Participants have the right to direct the voting of
allocated shares by State Street as a co-trustee of the ESOP. Subject to the
provisions of the ESOP trust agreement, State Street is obligated to vote
unallocated shares, and allocated shares for which it has not received
directions, in the same proportion as directed shares are voted. The trust
agreement also contains provisions regarding the allocation, vesting and
disposition of shares.
(3) Information concerning the amount and nature of beneficial ownership is as
of February 25, 1997. Participants have the right to direct the voting of
shares of Common Stock by State Street as a co-trustee of these plans.
Subject to the provisions of the trust agreements relating to these employee
benefit plans, State Street is obligated to vote shares for which it has not
received directions in the same proportion as directed shares are voted. The
trust agreements also contain provisions regarding the disposition of
shares.
(4) Information concerning the amount and nature of beneficial ownership is as
of December 31, 1996 and was supplied by State Street. As trustee or
discretionary advisor for various collective investment funds for employee
benefit plans and other index accounts not affiliated with ML & Co. and for
various personal trust accounts not affiliated with ML & Co., State Street
has sole voting power over 1,556,047 of such shares, sole dispositive power
over 1,754,997 of such shares, shared voting power over 880 of such shares,
and shared dispositive power over 1,930 of such shares.
(5) Information concerning the amount and nature of beneficial ownership is as
of December 31, 1996 and was supplied by the Equitable Companies and related
parties, including AXA, a French insurance holding company that owns an
interest in the Equitable Companies, and a group of five French mutual
insurance companies (the "Mutuelles AXA") that own an interest in AXA. Such
information indicates that shares are held by subsidiaries or affiliates of
the Equitable Companies as follows: (i) 12,138,665 shares (including 320,000
shares which may be acquired upon the exercise of options) are held on
behalf of client discretionary investment advisory accounts by Alliance
Capital Management L.P. ("Alliance"), which has sole dispositive power over
all such shares, sole voting power over 8,447,745 of such shares, and shared
voting power over 380,200 of such shares; (ii) 1,041,900 shares are held for
investment purposes by The Equitable Life Assurance Society of the United
States ("Equitable Life"), which has sole voting and dispositive power over
all such shares; (iii) 85,000 shares may be acquired upon the exercise of
options held for investment purposes by Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), which is deemed to have sole voting and
dispositive power over such shares; and (iv) 3,080 shares are held on behalf
of client discretionary investment advisory accounts by Wood, Struthers &
Winthrop Management Corp. ("Wood, Struthers & Winthrop"), which has sole
dispositive power over all such shares and shared voting power over 700 of
such shares. Each of AXA, the Mutuelles AXA, as a group, and the Equitable
Companies, by virtue of their relationship to Alliance, Equitable Life, DLJ,
and Wood, Struthers & Winthrop, may be deemed to have sole dispositive power
over 13,268,645 of such shares, sole voting power over 9,574,645 of such
shares, and shared voting power over 380,900 of such shares.
2
<PAGE>
It is the policy of ML & Co. that all proxies, ballots and voting materials that
identify the votes of specific stockholders shall be kept confidential and shall
not be disclosed to ML & Co., its affiliates, directors, officers or employees,
subject to limited exceptions, including (i) disclosure to vote tabulators and
inspectors of election; (ii) disclosure required by law; (iii) where a
stockholder expressly requests disclosure; (iv) in the context of a bona fide
dispute as to the authenticity of the proxy, ballot or vote; and (v) disclosure
of aggregate vote totals at or in connection with the relevant meeting of
stockholders. This policy does not apply in the event of a contested election
for directors, the attempted removal of directors, any solicitation of proxies
in connection with a merger or business combination, or a solicitation of
proxies by anyone other than the Board of Directors of ML & Co. The policy is
not intended to prohibit stockholders from voluntarily disclosing their votes to
ML & Co. or the Board of Directors or to impair the free and voluntary
communication between ML & Co. and its stockholders.
A plurality of the votes of the shares of Common Stock represented at the Annual
Meeting in person or by proxy and entitled to vote is required for the election
of directors. The affirmative vote of a majority of the shares of Common Stock
represented at the Annual Meeting in person or by proxy and entitled to vote is
required to approve the amendments to the Long-Term Incentive Compensation Plan
and the performance goal formula (together, the "ML & Co. Proposals"), the
stockholder proposals and all other matters. All shares of Common Stock
represented by valid proxies received pursuant to this solicitation and not
revoked will be voted in accordance with the choices specified. Where no
specification is made with respect to any item submitted to a vote, such shares
will be voted for the election as directors of ML & Co. of the 5 persons named
under the caption "Election of Directors--Nominees for Election to the Board of
Directors", for the ML & Co. Proposals and against the stockholder proposals.
Since the proxy confers discretionary authority to vote upon other matters that
properly may come before the meeting, shares represented by signed proxies
returned to ML & Co. will be voted in accordance with the judgment of the person
or persons voting the proxies on any other matters that properly may be brought
before the meeting. ML & Co.'s by-laws require prior notification of a
stockholder's intent to submit any business to the meeting. The deadline for
such notification has passed and no such notification has been received.
With regard to the election of directors, votes may be cast in favor or
withheld; votes that are withheld will have no effect on the outcome of the
vote. With regard to other proposals, votes may be cast in favor or against, or
a stockholder may abstain. Abstentions will be counted as shares that are
represented at the meeting and entitled to vote. Abstentions on the ML & Co.
Proposals and the stockholder proposals will have the effect of a negative vote
because such proposals require the affirmative vote of a majority of shares
present in person or by proxy and entitled to vote. Under the rules of the New
York Stock Exchange, Inc. ("NYSE"), brokers who hold shares in street name for
customers have the authority to vote on certain items in the event that they
have not received instructions from beneficial owners. Brokers (other than ML &
Co.'s subsidiary, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"))
that do not receive instructions are entitled to vote on the election of
directors and the ML & Co. Proposals; under NYSE policy, if MLPF&S does not
receive instructions on these items, it is entitled to vote shares only in the
same proportion as the shares voted by all record holders. With respect to the
stockholder proposals, neither MLPF&S nor any other broker may vote shares held
for customers without specific instructions from such customers. Under
applicable Delaware law, a broker non-vote will be disregarded and will have no
effect on the outcome of the vote on the election of directors, the ML & Co.
Proposals or the stockholder proposals.
3
<PAGE>
The execution of a proxy will not affect a stockholder's right to attend the
Annual Meeting and to vote in person. A stockholder who executes a proxy may
revoke it at any time before it is exercised at the meeting by giving notice to
Darryl W. Colletti, Assistant Secretary of ML & Co., at 100 Church Street, 12th
Floor, New York, NY 10080-6512, or by filing another proxy.
The expenses involved in the preparation of proxy materials and the solicitation
on behalf of the Board of Directors of proxies for the Annual Meeting will be
borne by ML & Co. In addition to the solicitation of proxies by mail,
solicitation may be made by certain directors, officers, and other employees of
ML & Co. or of its subsidiaries in person or by telephone or other means of
communication, for which no additional compensation will be paid, and by
Georgeson & Co., Inc. for a fee of $22,000 plus expenses. ML & Co. will
reimburse brokers, including MLPF&S, and other nominees for costs incurred by
them in mailing soliciting materials to the beneficial owners of its stock in
accordance with the rules of the NYSE.
The accounting firm of Deloitte & Touche LLP has been selected by the Board of
Directors, upon the recommendation of the Audit and Finance Committee of the
Board, as the independent public accountants of ML & Co. and its subsidiaries
during the 1997 fiscal year. Representatives of Deloitte & Touche LLP are
expected to be present at the Annual Meeting and will have the opportunity to
make a statement, if they wish, and to answer stockholders' questions.
ELECTION OF DIRECTORS
The Board of Directors of ML & Co. is divided into 3 classes. Each class serves
for a 3-year term and one class of directors is elected each year.
The Board of Directors proposes the election as directors of the 5 persons named
below under "Nominees for Election to the Board of Directors", to hold office
for a term of 3 years ending in 2000. The remaining 10 directors named below
will continue to serve in accordance with their previous elections. It is
intended that shares of Common Stock represented by proxies received in response
to this Proxy Statement will be voted for the election of the nominees listed
below unless otherwise directed by stockholders in their proxies. While it is
not anticipated that any of the nominees will be unable to take office, if that
is the case, such shares will be voted in favor of such other person or persons
proposed by the Board of Directors.
Set forth below is age and biographical information concerning nominees for
election as directors and directors continuing in office. The information as to
outside directorships is based upon information received from the nominees and
directors. Unless otherwise indicated, the offices listed are offices of ML &
Co.
4
<PAGE>
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FOR A 3-YEAR TERM EXPIRING IN 2000
WILLIAM O. BOURKE (69) DIRECTOR SINCE 1987
Corporate Director; Chairman of the Board of Reynolds Metals Company, a
producer of aluminum
products, from April 1988 to May 1992; Chief Executive Officer of that
company from April 1986 to May 1992; President of that company from January
1983 to April 1988. Mr. Bourke also serves as a director of Reynolds Metals
Company, Premark International, Inc., Sonat Inc., and Tupperware
Corporation.
W.H. CLARK (64) DIRECTOR SINCE 1995
Corporate Director; Chairman of the Board of Nalco Chemical Company, a
producer of specialty
chemicals, from 1984 to 1994; Chief Executive Officer of that company from
1982 to 1994; President of that company from 1984 to 1990. Mr. Clark also
serves as a director of Bethlehem Steel Corporation, James River Corporation
of Virginia, Millennium Chemicals Inc., NICOR Inc., Ultramar Diamond
Shamrock Corporation, and USG Corporation.
STEPHEN L. HAMMERMAN (58) DIRECTOR SINCE 1985
Vice Chairman of the Board since April 1992; Executive Vice President from
June 1985 to April 1992;
General Counsel since October 1984; General Counsel of MLPF&S from March
1981 to June 1996.
AULANA L. PETERS (55) DIRECTOR SINCE 1994
Partner in the law firm of Gibson, Dunn & Crutcher since 1988 and from 1980 to
1984; Commissioner
of the U.S. Securities and Exchange Commission from 1984 to 1988. Mrs.
Peters also serves as a director of Callaway Golf Company, Minnesota Mining
and Manufacturing Company (3M), Mobil Corporation, and Northrop Grumman
Corporation.
JOHN J. PHELAN, JR. (65) DIRECTOR SINCE 1991
Corporate Director; Senior Adviser to the Boston Consulting Group since
October 1992; Member of
the Council on Foreign Relations since 1988; President of the International
Federation of Stock Exchanges from January 1991 to January 1993; Chairman
and Chief Executive Officer of the New York Stock Exchange, Inc. from May
1984 to December 1990. Mr. Phelan also serves as a director of Eastman Kodak
Company, Metropolitan Life Insurance Company, and Sonat Inc.
5
<PAGE>
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING IN 1998
HERBERT M. ALLISON, JR. (53) DIRECTOR SINCE 1997
Executive Vice President, Corporate and Institutional Client Group since
January 1995; Executive Vice President, Investment Banking Group from May
1993 to January 1995; Executive Vice President, Finance and Administration
from October 1990 to April 1993; Executive Vice President, Administration
from July 1989 to October 1990. Mr. Allison has been elected President and
Chief Operating Officer, effective April 15, 1997.
EARLE H. HARBISON, JR. (68) DIRECTOR SINCE 1987
Chairman of the Board of Harbison Corporation, a manufacturer of molded
plastic products; Chairman of the Executive Committee of Monsanto Company,
a provider of chemical and agricultural products, pharmaceuticals,
sweeteners, industrial process controls, and man-made fibers, from January
1993 to August 1993; President and Chief Operating Officer of that company
from May 1986 to December 1992. Mr. Harbison also serves as a director of
Harbison Corporation, Angelica Corporation, Mutual of America, National Life
Insurance Company, and RightCHOICE Managed Care, Inc.
WILLIAM R. HOOVER (67) DIRECTOR SINCE 1995
Chairman of the Executive Committee of Computer Sciences Corporation, a
provider of information technology consulting, systems integration and
outsourcing to industry and government; Chairman of the Board of that
company from November 1972 to March 1997; Consultant to that company since
March 1995; its President from November 1969 to March 1995; and its Chief
Executive Officer from November 1972 to March 1995. Mr. Hoover also serves
as a director of Computer Sciences Corporation, Eltron International, Inc.,
Rofin-Sinar Technologies Inc., and Storage Technology Corporation.
ROBERT P. LUCIANO (63) DIRECTOR SINCE 1989
Chairman of the Board of Schering-Plough Corporation, a health and personal
care products company, since January 1984 and its Chief Executive Officer
from February 1982 to January 1996. Mr. Luciano also serves as a director of
Schering-Plough Corporation, AlliedSignal Inc., and C.R. Bard, Inc.
DAVID K. NEWBIGGING (63) DIRECTOR SINCE 1996
Chairman of the Board of Equitas Holdings Limited, the parent company of a
group of reinsurance companies, since 1995; Chairman of the Board and Senior
Managing Director of Jardine, Matheson & Co. Limited, a Hong Kong-based
international trading, industrial and financial services group from 1975 to
1983; Chairman of the Board of Rentokil Group PLC, a United Kingdom-based
international support services group, from 1987 to 1994. Mr. Newbigging also
currently serves as Chairman of Faupel Trading Group PLC, as Deputy Chairman
of Friends' Provident Life Office and Benchmark Group PLC and as a director
of United Meridian Corporation and Wah Kwong Shipping Holdings Ltd.
6
<PAGE>
TERM EXPIRING IN 1999
JILL K. CONWAY (62) DIRECTOR SINCE 1978
Visiting Scholar, Massachusetts Institute of Technology since 1985; President
of Smith College from July 1975 to June 1985. Mrs. Conway also serves as a
director of The Allen Group Inc., Arthur D. Little, Inc., Colgate-Palmolive
Company, and NIKE, Inc.
GEORGE B. HARVEY (65) DIRECTOR SINCE 1993
Corporate Director; Chairman of the Board of Pitney Bowes Inc., a provider of
mailing, office and logistics systems and management and financial services
from 1981 to December 1996; President and Chief Executive Officer of that
company from 1983 to May 1996. Mr. Harvey also serves as a director of
Massachusetts Mutual Life Insurance Company, The McGraw-Hill Companies, Inc.,
and Pfizer Inc.
DAVID H. KOMANSKY (57) DIRECTOR SINCE 1995
Chief Executive Officer since December 1996; President and Chief Operating
Officer since January 1995; Executive Vice President, Debt and Equity
Markets Group from May 1993 to January 1995; Executive Vice President, Debt
Markets Group from June 1992 to April 1993; Executive Vice President,
Equity Markets Group from October 1990 to May 1992. Mr. Komansky has been
elected Chairman of the Board, effective April 15, 1997.
JOHN L. STEFFENS (55) DIRECTOR SINCE 1997
Executive Vice President, Private Client Group since October 1990; Executive
Vice President and President of the Consumer Markets Sector from July 1985 to
October 1990. Mr.Steffens has been elected Vice Chairman of the Board,
effective April 15, 1997.
WILLIAM L. WEISS (67) DIRECTOR SINCE 1993
Corporate Director; Chairman Emeritus of Ameritech Corporation, a provider of
communications and information services; its Chairman of the Board from 1983
to April 1994 and its Chief Executive Officer from 1983 to December 1993.
Mr. Weiss also serves as a director of Abbott Laboratories, The Quaker Oats
Company, and Tenneco Inc.
------------------------
Daniel P. Tully, age 65, has served as a director since 1985 and will continue
to serve as Chairman of the Board until his retirement following the 1997 Annual
Meeting of Stockholders. Mr. Tully has served as Chairman of the Board from June
1993 to the present; Chief Executive Officer from May 1992 to December 1996; and
President and Chief Operating Officer from July 1985 to January 1995.
7
<PAGE>
BOARD OF DIRECTORS COMMITTEES AND MEETINGS
In addition to an Executive Committee, ML & Co. has standing Audit and Finance,
Management Development and Compensation, and Nominating Committees of the Board
of Directors.
The Audit and Finance Committee, which consists of Mr. Bourke, who chairs the
committee, Messrs. Clark, Harvey, Hoover and Newbigging and Mrs. Peters, held 6
meetings during the 1996 fiscal year. This committee has performed the following
functions, among others: monitoring ML & Co.'s system of internal accounting
controls and overseeing and evaluating the internal audit function; recommending
the appointment and monitoring the performance, independence, and fees of ML &
Co.'s independent public accountants and monitoring the professional services
they provide; reviewing the scope of the annual audit with the independent
public accountants and reviewing their reports to management; reviewing ML &
Co.'s annual consolidated financial statements; and overseeing corporate funding
policy, securities offerings, financial commitments and related policies, and
risk management policies and procedures.
The Management Development and Compensation Committee, which consists of Mrs.
Conway, who chairs the committee, and Messrs. Harbison, Luciano, Phelan and
Weiss, held 9 meetings during the 1996 fiscal year. This committee has performed
the following functions, among others: exercising primary responsibility on
behalf of the Board of Directors for reviewing and recommending employee
compensation programs, policies, and practices, including salary, cash
incentive, long-term incentive compensation, stock purchase, retirement, and
health and welfare programs; making grants under the ML & Co. Long-Term
Incentive Compensation Plan and other stock-based compensation plans;
discharging the responsibilities described below under the caption "Management
Development and Compensation Committee Report on Executive Compensation"; and
periodically reviewing management development programs and executive succession
plans.
The Nominating Committee, which consists of Mr. Harbison, who chairs the
committee, Mrs. Conway and Mr. Luciano (all of whom are voting members) and
Messrs. Tully and Komansky (who are non-voting members), held 3 meetings and had
a number of discussions during the 1996 fiscal year. This committee has
performed the following functions: identifying potential candidates to serve on
the Board of Directors with a view toward a desirable balance of expertise among
Board members and recommending to the Board of Directors membership of
committees of the Board and nominees to fill vacancies on the Board. The
Nominating Committee will consider nominees recommended by stockholders. Those
wishing to submit recommendations for the 1998 Annual Meeting of Stockholders
should write to Gregory T. Russo, Secretary, Merrill Lynch & Co., Inc., 12th
Floor, 100 Church Street, New York, NY 10080-6512.
During the 1996 fiscal year, the Board of Directors met 9 times. During 1996,
each director attended at least 75% of the meetings of the Board of Directors
and the committees on which they served except for Mr. Newbigging, who was
elected to the Board in October 1996. Although preexisting travel commitments
prevented Mr. Newbigging's attendance at a special meeting called in November
1996, Mr. Newbigging attended all regularly scheduled Board and committee
meetings during the period that he served as a director.
8
<PAGE>
BENEFICIAL OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table contains certain information regarding beneficial ownership
of Common Stock and Common Stock-linked units by each director, nominee, and
named executive officer and by all current directors and executive officers as a
group. All information is provided as of February 25, 1997.
<TABLE>
<CAPTION>
COMMON STOCK
COMMON STOCK(1) UNITS(2)
------------------ ---------------
<S> <C> <C>
Herbert M. Allison, Jr................................................ 865,516(3) 20,232
William O. Bourke..................................................... 5,000(4) 335
W.H. Clark............................................................ 1,927 837
Jill K. Conway........................................................ 3,354 837
Stephen L. Hammerman.................................................. 566,932(3)(5) 14,443
Earle H. Harbison, Jr................................................. 3,320(4) 501
George B. Harvey...................................................... 3,498 837
William R. Hoover..................................................... 2,645 837
Jerome P. Kenney...................................................... 905,396(3) 15,843
David H. Komansky..................................................... 868,149(3)(4)(5) 24,298
Robert P. Luciano..................................................... 3,920 837
David K. Newbigging................................................... 1,230(6) 780
Aulana L. Peters...................................................... 1,489 2,704
John J. Phelan, Jr.................................................... 3,920 837
John L. Steffens...................................................... 1,003,229(3) 20,232
Daniel P. Tully....................................................... 2,181,897(3)(5) 34,082
William L. Weiss...................................................... 2,786 669
All directors and executive officers of ML & Co. as a group........... 7,733,381(3)(4)(5)(6) 193,809
</TABLE>
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(1) All nominees, directors, and executive officers have sole investment power
and sole voting power over all shares of Common Stock listed, except as
indicated in notes 3, 4, 5, and 6 below. Except for Mr. Tully, whose
beneficial ownership represented 1.3% of the outstanding Common Stock, no
individual director, nominee or executive officer beneficially owned in
excess of 1% of the outstanding Common Stock. The group consisting of all
directors and executive officers of ML & Co. beneficially owned
approximately 4.5% of the outstanding Common Stock. Percentages are based on
the Common Stock outstanding as of February 25, 1997.
(2) Consists of units linked to the value of the Common Stock but payable in
cash at the end of a restricted or deferral period, including Restricted
Units issued under the ML & Co. Long-Term Incentive Compensation Plan,
Deferred Units issued under the ML & Co. Deferred Unit and Stock Unit Plan
for Non-Employee Directors and Stock Units issued under the ML & Co. Fee
Deferral Plan for Non-Employee Directors.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
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(3) Beneficial ownership shown for the following individuals, and for the group
consisting of all directors and executive officers of ML & Co., includes the
indicated number of shares of Common Stock that may be purchased upon the
exercise (presently or within 60 days) of stock options granted under the ML
& Co. Long-Term Incentive Compensation Plan: Mr. Allison (664,509); Mr.
Hammerman (367,073); Mr. Kenney (626,475); Mr. Komansky (634,481); Mr.
Steffens (511,069); Mr. Tully (1,571,915); and all directors and executive
officers of ML & Co. as a group (5,189,715).
(4) Beneficial ownership shown for Messrs. Bourke, Harbison, and Komansky, and
for the group consisting of all directors and executive officers of ML &
Co., excludes shares held by their wives (200 shares in the case of Mr.
Bourke, 2,000 shares in the case of Mr. Harbison, and 1,400 shares in the
case of Mr. Komansky), as to which they may be deemed to have shared
investment and voting power. Each of them has expressly disclaimed
beneficial ownership of the shares held by his wife. Beneficial ownership
for the group consisting of all directors and executive officers of ML & Co.
also excludes 2,364 shares held by the wife of an executive officer not
named in the Summary Compensation Table, as to which such executive officer
may be deemed to have shared investment and voting power but as to which he
has expressly disclaimed beneficial ownership.
(5) Beneficial ownership shown for Mr. Hammerman, and for the group consisting
of all directors and executive officers of ML & Co., includes 18,000 shares
of Common Stock held in trusts as to which Mr. Hammerman has shared voting
and investment power. Beneficial ownership shown for Mr. Komansky, and for
the group consisting of all directors and executive officers of ML & Co.,
includes 576 shares of Common Stock held by a charitable foundation of which
Mr. Komansky and two other executive officers not named in the Summary
Compensation Table act as trustees and as to which they have shared voting
and investment power. Beneficial ownership shown for Mr. Tully, and for the
group consisting of all directors and executive officers of ML & Co.,
includes 16,000 shares of Common Stock held in a trust as to which Mr. Tully
has shared voting and investment power. Beneficial ownership shown for the
group consisting of all directors and executive officers of ML & Co.
includes 1,200 shares of Common Stock held in custodial accounts as to which
an executive officer not named in the Summary Compensation Table has sole
voting and investment power and 1,416 shares of Common Stock held in trusts
as to which such executive officer has shared voting and investment power.
(6) Beneficial ownership shown for Mr. Newbigging, and for the group consisting
of all directors and executive officers of ML & Co., includes 730 shares of
Common Stock deliverable at the end of the deferral period applicable to ML
& Co. Deferred Stock Units issued under the ML & Co. Deferred Unit and Stock
Unit Plan for Non-Employee Directors. These shares are not included for the
purpose of calculating the percentages set forth in note 1 above, as they
cannot be acquired within 60 days.
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ML & CO. PROPOSALS
1. PROPOSAL TO LIMIT THE NUMBER OF STOCK OPTIONS THAT MAY BE GRANTED TO
EXECUTIVE OFFICERS UNDER THE ML & CO. LONG-TERM INCENTIVE COMPENSATION PLAN.
The Board of Directors recommends approval by stockholders of an amendment to
the ML & Co. Long-Term Incentive Compensation Plan (the "Plan") that will limit
the number of stock options that may be granted to an executive officer of ML &
Co. in any one fiscal year (the "Option Limit"). The Option Limit is required to
allow stock options qualifying as performance-based under Section 162(m) of the
Internal Revenue Code and the related regulations to be granted to executive
officers under the Plan after April 1997. Section 162(m) limits the
deductibility of compensation in excess of $1 million, unless such compensation
is performance-based within the meaning of Section 162(m) and the related
regulations. The proposed amendment to the Plan states:
"The maximum aggregate number of shares of Common Stock underlying stock
options to be granted in any one fiscal year to any individual executive
officer, as such term is defined in the regulations promulgated under
Section 162(m) of the Internal Revenue Code, shall be 1,000,000 (one
million), which number shall be adjusted automatically to give effect to
mergers, consolidations, reorganizations, stock dividends, stock splits
or combinations, reclassifications, recapitalizations, or distributions
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."
Since December 1993, ML & Co. has granted stock options under the Plan pursuant
to transition regulations under Section 162(m) that expire on the date of ML &
Co.'s 1997 Annual Meeting. After that date, ML & Co. will no longer be able to
rely on these transition regulations and, in order to continue to comply with
Section 162(m) requirements, must have a shareholder-approved limit on the
number of options issuable under the Plan. Consistent with ML & Co.'s practice
of preserving the full deductibility of executive compensation by determining
compensation awards for executive officers in accordance with performance-based
criteria, the Board of Directors recommends stockholder approval of the Option
Limit. If approved, the Option Limit will be effective for option grants under
the Plan after the date of ML & Co.'s 1997 Annual Meeting.
As of December 27, 1996, 10,945,605 shares of Common Stock remained available
for issuance under the Plan (net of shares subject to issuance upon the exercise
of outstanding stock options). Stock options exercisable for shares of ML & Co.
Common Stock are granted by the Management Development and Compensation
Committee of the Board of Directors as part of the incentive compensation paid
to members of executive management. For a description of the grants and the
criteria used in connection with such grants, see "Management Development and
Compensation Committee Report on Executive Compensation". Grants of stock
options made to certain executive officers of ML & Co. for performance in 1996
are described under the heading "Compensation Tables and Other
Information--Option Grants in Last Fiscal Year". The Plan provides that any
non-qualified stock option issued thereunder shall have an exercise price of not
less than 50% of the fair market value of the underlying shares of Common Stock
on the date of grant. The exercise price of all stock options issued under the
Plan has been the grant date fair market value. Consequently, stock options
directly align the financial interests of
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executives with those of stockholders by providing value to executives only if,
and to the extent that, the price of Common Stock appreciates in the future. On
February 25, 1997, the closing price of the Common Stock on the Consolidated
Transaction Reporting System was $97.875. Non-employee directors are not
eligible to receive grants under the Plan.
The Board believes that it is in the best interests of ML & Co. that
compensation paid to its executive officers under the Plan include Section
162(m)-qualified stock options. Accordingly, the Board recommends that the
Option Limit be adopted.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR the adoption of this proposal.
2. PROPOSAL TO AMEND A DEFINITION IN THE PERFORMANCE GOAL FORMULA APPLICABLE TO
ANNUAL CASH BONUSES AND GRANTS OF RESTRICTED SHARES AND UNITS TO EXECUTIVE
MANAGEMENT.
The Board of Directors recommends approval by stockholders of a change to the
definition of Net Income used in the performance goal formula (the "Formula")
that governs cash and stock bonuses awarded to the Chairman of the Board (the
"Chairman") and/or Chief Executive Officer ("CEO") and the four next highest
paid executive officers (collectively, the "covered officers"). The Formula was
adopted by the Management Development and Compensation Committee ("MDCC") and
was approved by the stockholders at ML & Co.'s 1994 Annual Meeting of
Stockholders. The Formula is intended to allow compensation to the covered
officers to qualify as "performance based" and therefore to continue to be
deductible to ML & Co. under Section 162(m) of the Internal Revenue Code and the
related regulations.
The proposed amendment to the definition of Net Income would exclude from the
calculation of Net Income certain expenses or losses that would, under generally
accepted accounting principles, be considered UNUSUAL IN NATURE OR INFREQUENT IN
OCCURRENCE. These expenses or losses would be excluded from the definition only
to the extent that they appear on the face of ML & Co.'s Consolidated Financial
Statements. This change is intended to provide the MDCC with the discretion to
determine whether a narrowly defined category of unusual expenses or losses
should or should not reduce the compensation paid to the covered officers. The
MDCC currently has the discretion to exclude unusual income items, but not
expense items, in determining executive compensation. Prior to enactment of
Section 162(m), the MDCC would typically review both unusual income and expense
items in determining compensation. The amendment is intended to restore the
MDCC's historical ability to consider all relevant financial factors in
determining compensation and administering the pay-for-performance philosophy of
ML & Co.'s compensation formula.
As amended, the definition of Net Income contained in the Formula would read as
follows:
"NET INCOME means, with respect to any Performance Year, Net Earnings
Applicable to Common Stockholders for ML & Co. as it appears in ML &
Co.'s Statement of Consolidated Earnings contained in ML & Co.'s
Consolidated Financial Statements for such Performance Year adjusted to
eliminate: (i) the cumulative effect of changes in accounting policy
(which include changes in generally accepted accounting principles)
adopted by ML & Co. for the relevant Performance Year; (ii) expenses
classified as "Provisions For Restructuring"; (iii) gains and/or losses
classified as "Discontinued Operations"; (iv) gains or losses classified
as "Extraordinary
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<PAGE>
Items", which may include: (A) profits or losses on the disposal of
assets or segments of the previously separate companies of a business
combination within two years of the date of such combination; (B) gains
on restructuring payables; (C) gains or losses on the extinguishment of
debt; (D) gains or losses from the expropriation of property; (E) gains
or losses that are the direct result of a major casualty; and (F) losses
resulting from a newly enacted law or regulation; and (v) other expenses
or losses which are unusual in nature or infrequent in occurrence.
In each instance, the above-referenced adjustment to Net Income must be
in accordance with generally accepted accounting principles and appear
on the face of ML & Co.'s Statement of Consolidated Earnings contained
in ML & Co.'s Consolidated Financial Statements for such Performance
Year, and said adjustment will be calculated net of related applicable
income tax effect."
As described under the caption "Management Development and Compensation
Committee Report on Executive Compensation", the Formula is used by the MDCC to
determine the MAXIMUM cash bonus and the MAXIMUM dollar value of stock bonus
awards payable to the covered officers. These amounts are computed for the
Chairman and/or CEO by increasing or decreasing maximum bonus amounts for the
prior year by ML & Co.'s year-over-year Average Percentage Change in Performance
(the sum of the percentage change in Net Income and the percentage change in
Return on Equity ("ROE") from one fiscal year to the next, divided by two). The
maximum cash and stock bonus awards for the other covered officers are
calculated as a percentage of the Chairman and/or CEO's maximum amounts (80% for
the Chief Operating Officer and 70% for the Vice Chairmen and Executive Vice
Presidents).
ML & Co. believes that its performance goal formula is one of the most strictly
articulated formulas adopted in response to Section 162(m). Under the Formula,
executive compensation is increased only to the extent that ML & Co.'s
performance increases over a prior year. Similarly, compensation is decreased if
performance declines. Under the Formula, the Committee may REDUCE but not
increase the maximum award values. Moreover, the Formula provides that no cash
or stock bonus amounts will be paid unless ML & Co. achieves a positive Net
Income and a positive ROE for the relevant performance year.
The Board believes the change to the definition of Net Income in the Formula
better reflects ML & Co.'s overall pay-for-performance compensation philosophy.
Under Section 162(m), stockholder approval of this change is required so that
compensation determined in accordance with the Formula can continue to qualify
as "performance-based", thus preserving ML & Co.'s federal tax deduction for
such compensation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR the adoption of this proposal.
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FIRST STOCKHOLDER PROPOSAL
Mrs. Evelyn Y. Davis, Watergate Office Building, 2600 Virginia Ave., N.W., Suite
215, Washington, D.C. 20037, holding 200 shares of Common Stock, has given
notice of her intention to propose the following resolution at the Annual
Meeting:
"RESOLVED: That the stockholders of Merrill Lynch, assembled in Annual
Meeting in person and by proxy, hereby request the Board of Directors to
take the necessary steps to provide for cumulative voting in the election of
directors, which means each stockholder shall be entitled to as many votes
as shall equal the number of shares he or she owns multiplied by the number
of directors to be elected, and he or she may cast all of such votes for a
single candidate, or any two or more of them as he or she may see fit."
The following statement has been submitted by Mrs. Davis in support of the
resolution:
"REASONS: Many states have mandatory cumulative voting, so do National
Banks."
"In addition, many corporations have adopted cumulative voting."
"Last year the owners of 31,623,319 shares, representing approximately 22.5%
of shares voting, voted FOR this proposal."
"If you AGREE, please mark your proxy FOR this resolution."
The Board of Directors recommends a vote AGAINST the adoption of this proposal.
This same proposal has been previously submitted eleven times by its proponent
to ML & Co.'s Annual Meetings of Stockholders. The issue has been consistently
opposed by the Board of Directors and defeated by stockholders every time by a
substantial majority of the votes cast.
The reasons the Board of Directors opposes this resolution are essentially the
same as those stated in the proxy statements for the eleven prior Annual
Meetings at which the proposal was submitted. Under the General Corporation Law
of Delaware (the "Corporation Law"), the state in which ML & Co. is
incorporated, cumulative voting is permissible only if provided for in a
corporation's certificate of incorporation. The general rule under the
Corporation Law, which is followed by many large corporations, is that each
director must be elected by a plurality of the votes of the shares present in
person or represented by proxy.
The Board of Directors would recommend a change in the method of stockholder
voting only if another method would better serve the interests of the
stockholders as a whole. To the contrary, cumulative voting would give
stockholders who seek to support a special interest group the potential to elect
one or more directors representing the interests of that group. Any directors so
elected may view themselves as representatives of the group that elected them
and feel obligated to represent that group's interests, regardless of whether
the furtherance of those interests would benefit all stockholders generally.
This would tend to promote adherence to narrow interests rather than those of
stockholders at large, whereas the election of directors by plurality vote is
designed to produce a board of directors that views its accountability as being
to stockholders generally. Cumulative voting would also create a risk of
promoting factionalism among members of the Board of Directors and may,
therefore, undermine their ability to
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<PAGE>
work together effectively. Accordingly, the Board of Directors regards the
proposed change as not only serving no useful purpose but as being contrary to
the best interests of all ML & Co. stockholders.
For the reasons stated above, THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST
the adoption of this proposal.
SECOND STOCKHOLDER PROPOSAL
Mr. John A. Gearhart and Mrs. Gretchen B. Gearhart, 1010 Park Avenue,
Fayetteville, AR 72701, holding 390 shares of Common Stock, have given notice of
their intention to propose for adoption at the Annual Meeting the following
proposal:
"PROPOSAL: It is recommended that the Board of Directors of Merrill Lynch
provide share owners with the relationship of claims arising from
derivatives to underlying assets when trading for its own account, so that
share owners can evaluate the degree of risk involved."
The following statement has been submitted by Mr. and Mrs. Gearhart in support
of the proposal:
"REASON: A derivative is a contract which, for a fee, transfers a business
or monetary risk, or group of risks, to somebody else when time is of the
essence. The compounding nature of multiple, complex contracts makes
possible "risk free" business operation transactions subject to massive
gains or losses. The basic time frame is the future, hence the vagaries
involved redirect current and future influences and create a complexity that
denies efficient or effective ascertainment of true risk/ reward
relationship. There are periodic financial eruptions among substantial
derivative "players," which can be harmful to other serious investors."
"How are Merrill Lynch share owners protected from the numerous losses
reported by corporations, banks, brokers, and other institutional
investors?"
"The Federal Reserve Board of Kansas City, in its Economic Review for the
Third Quarter of 1993 makes these observations:
Many derivatives promise to deliver the underlying asset in the future.
However, most derivatives are settled by taking offsetting positions in
the derivative security rather than by taking or making delivery of the
underlying asset. As a consequence, there is no effective limit on the
quantity of claims to the underlying asset that can be traded. Indeed,
outstanding futures contracts often promise to deliver many multiples of
the existing quantity of the underlying asset."
"Merrill Lynch should also query its derivative customers to get indications
of risk as the Comptroller of Currency is requesting of banks. It is in the
share owners' interest to know the overall capital adequacy of Merrill Lynch
and its customers' assets in relation to derivatives."
"Stock index futures, a derivative, make a mockery of investment research
(common stock research and SIF betting may oppose one another) and
contribute little or nothing to capital formation. Merrill Lynch should
examine SIF's termination irrespective of what domestic and foreign markets
permit."
The Board of Directors recommends a vote AGAINST the adoption of this proposal.
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<PAGE>
Mr. and Mrs. Gearhart submitted the same proposal to ML & Co.'s 1995 Annual
Meeting of Stockholders. In that year, the Board of Directors opposed this
proposal and it was defeated by stockholders by more than 90% of the votes cast.
The Board of Directors opposes Mr. and Mrs. Gearhart's proposal because it is so
vague and indefinite that any action taken to implement it, if adopted, would
likely be different from the action subjectively envisioned by the proponents or
by any stockholders who voted in its favor. In ML & Co.'s view, the action that
appears to be called for by this proposal has already been substantially
implemented. ML & Co.'s 1996 Annual Report to stockholders provides a
description of derivative financial instruments that ML & Co. owns and trades
and how such instruments relate to underlying assets and liabilities.
The market for derivative financial products has grown substantially over the
last decade. Derivative financial products offer businesses and other clients a
cost-effective and practical means to implement desirable hedging or investment
strategies that would be difficult or impossible to achieve using traditional
investment vehicles.
ML & Co. is a voluntary participant in SEC Chairman Levitt's Derivatives Policy
Group initiatives and has a long-standing commitment to protecting the integrity
and liquidity of the financial markets and maintaining investor confidence. ML &
Co. will continue to work with Congress and regulators to achieve these goals.
For the reasons stated above, THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST
the adoption of this proposal.
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MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION OVERVIEW
As ML & Co. continues to strengthen its position as a global leader in financial
services, and as one of the world's standard-setting companies by every measure
of performance, it must further develop its tradition of leadership to meet the
challenges of business expansion and intensifying global competition. ML & Co.'s
success in maintaining and enhancing its tradition of leadership rests upon its
ability to recruit, retain and motivate high-caliber executives. To that end, ML
& Co. has developed an executive compensation program designed to provide strong
incentives to individuals to achieve superior performance, while ensuring that
all aspects of compensation reflect business unit and company results. By
varying both the annual cash incentive award (cash bonus) and the stock-based
incentive award (stock bonus) directly with changes in ML & Co.'s financial
results and the performance of the individual executives, the incentive
compensation program's focus is made explicit and strongly aligns the interests
of ML & Co.'s executives with those of its stockholders.
POLICIES AND PROCESS
GENERAL
On behalf of the Board of Directors, the Management Development & Compensation
Committee (the "MDCC") is responsible for overseeing all executive officer
compensation programs and plans, including the determination of base salaries,
cash bonuses and stock-based compensation. The MDCC consists of five directors
who have never been employees of ML & Co. and who are not eligible to
participate in any of the MDCC-administered compensation programs or plans.
Each year, the MDCC conducts a broad review of ML & Co.'s executive compensation
programs to ensure that such programs are aligned with ML & Co.'s long-term
strategic and financial goals, annual financial plans and other short-term
objectives. As part of this review, the MDCC assesses the impact of changes in
laws and regulations on the compensation programs for ML & Co.'s executive
officers. The MDCC has access to advice and counsel from independent third
parties. The MDCC also reviews executive management compensation with the other
non-employee members of the Board of Directors. The Board of Directors has the
specific responsibility for approving the compensation of executive management.
Cash and stock bonus opportunities for executives are determined by a formula
that generates a maximum award value that increases or decreases based on
changes in ML & Co.'s Net Income and Return on Equity ("ROE"). The actual awards
granted to an executive by the MDCC may be reduced below, but may not be
increased above, their respective formula maximum amounts. Individual
performance factors taken into consideration in determining the award for a
particular executive include: the executive's contribution to financial results,
productivity, expense and risk control, product innovation, quality of client
service, management development, succession planning, workforce diversity and
strategic planning. The MDCC also considers the extent to which individuals take
a leadership role in
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exemplifying and fostering ML & Co.'s principles of Client Focus, Respect for
the Individual, Teamwork, Responsible Citizenship and Integrity.
TOTAL COMPENSATION
The three elements of total compensation for ML & Co. executives are base
salary, cash bonus and stock bonus. The MDCC has balanced these components of
executive pay to provide ML & Co.'s top executives with a powerful motivation to
maximize the long-term shareholder value of the company.
BASE SALARIES
The MDCC typically reviews executive officer base salaries every three to four
years based on factors determined at that time. Executive officer salaries were
reviewed by the MDCC for 1996. Salary increases were recommended by the MDCC to
the Board and approved by the Board effective January 1, 1996. Base salary
adjustments were made for those executives who experienced significant changes
in responsibilities over the prior three to four years. These adjustments to
base salaries were made within the context of the total compensation opportunity
offered to executive officers. Base salaries continue to be managed so that the
principal compensation opportunity is derived from the cash bonus and stock
bonus awards. For 1996, the base salaries of executive officers named in the
Summary Compensation Table ranged from 9% to 11% of their total annual cash
compensation levels (base salary plus cash bonus). This relationship of salaries
to total annual cash compensation is intended to maximize the motivational value
of the variable portion of performance-based compensation.
INCENTIVE COMPENSATION
ML & Co.'s incentive awards to executive officers are based on a performance
goal formula that increases or decreases the prior year's formula award by the
Average Percentage Change from the prior year in ML & Co.'s Net Income and ROE
(as such terms are defined in the performance goals adopted by the MDCC and
approved by stockholders). The performance goal formula provides an incentive
for executives to work towards both a high return on stockholders' equity and
growth in profits. Use of the formula also allows ML & Co. to comply with IRS
regulations regarding the tax deductibility of executive compensation in excess
of $1 million. Net Income and ROE are among the same performance measures that
are used by the MDCC in determining the funding for annual bonuses for other
bonus-eligible employees.
The MDCC retains the discretion to determine actual awards less than the formula
amount for each executive based on an assessment of the performance factors
listed above under "Policies and Process-General." These factors are considered
collectively by the MDCC and are not weighted in any particular order of
importance. Because this process determines compensation levels based on ML &
Co.'s financial performance and the individual executive officer's performance,
compensation is not targeted to specific competitive levels.
CASH BONUS. ML & Co.'s cash bonus program provides a direct incentive for
executive officers to improve the financial performance of ML & Co. For the 1996
performance year, the MDCC determined
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cash bonuses for each executive officer using the performance goal formula. The
CEO's formula cash bonus for 1996 was determined by adjusting the 1995 formula
cash bonus by the 40% average increase in ML & Co.'s Net Income and ROE from
1995 to 1996. Under the stockholder approved plan, the formula cash bonus
maximums for executive officers (other than the CEO) are established as a
percentage of the CEO's formula cash bonus. This percentage (80% for the Chief
Operating Officer and 70% for other executive officers) reflects the relative
responsibility and accountability of these individuals in relation to that of
the CEO. The Chief Operating Officer received 80% and the executive officers
named in the Summary Compensation Table received between 48% and 65% of the CEO
formula amount for the 1996 performance year.
STOCK BONUS. Stock-based incentive awards are a fundamental component of the
total compensation awarded each year to members of executive management. The
stock bonus, which consists of Restricted Shares, Restricted Units and Stock
Options, aligns executive and stockholder financial interests and provides an
appropriate balance between short-term goals and long-term strategic planning.
Restricted Shares and Restricted Units provide an immediate proprietary interest
and reinforce a long-term orientation in decision making. Restricted Shares are
shares of Common Stock that convey to their holder all the rights of a
stockholder except that they are restricted from being sold, transferred, or
assigned for a period of time after they are granted. In the case of Restricted
Shares granted for the 1996 performance year, the restricted period is five
years, consisting of a three-year vesting period followed by a two-year
restriction on transferability. Restricted Units are similar to Restricted
Shares but are payable in cash at the end of a three-year vesting period and do
not convey voting rights (throughout the remainder of this report, Restricted
Shares and Restricted Units are referred to as "Restricted Shares/ Units").
Stock Options directly align the financial interests of executives with those of
stockholders by rewarding executives only if, and to the extent that, the price
of Common Stock appreciates in the future. Stock Options granted for 1996
performance have a term of ten years and become exercisable in 20% increments
each year over a five-year period.
The stock bonuses granted in January 1997 to executive officers for the 1996
performance year were determined using the same performance goal formula as was
used to determine cash bonuses. That is, for the 1996 performance year, the
formula dollar value of the CEO's stock bonus was determined by adjusting the
formula dollar value of the CEO's 1995 stock bonus by the 40% average increase
in Net Income and ROE from 1995 to 1996. The formula dollar values of the awards
for executive officers other than the CEO were established as a percentage of
the CEO's formula amount (80% for the COO and 70% for other executive officers).
The Chief Operating Officer received 80% and the executive officers named in the
Summary Compensation Table received between 43% and 59% of the CEO formula
amount for the 1996 performance year. Stock ownership levels are not a
consideration in deciding the appropriate stock bonus award for a given
performance year.
Executive officers are also eligible to participate in broad-based plans offered
generally to ML & Co. employees, such as the 401(k) Savings and Investment Plan,
retirement plans, and various health and welfare insurance plans.
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APPROVAL PROCESS
Consistent with the executive compensation policies discussed above, the MDCC
assesses the performance of the CEO and of all other executive officers and
determines awards of Restricted Shares/Units and Stock Options, and approves and
recommends the annual cash and stock bonuses of ML & Co.'s CEO, COO, Vice
Chairmen, and Executive Vice Presidents to the Board of Directors for approval.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER FOR 1996 PERFORMANCE
CASH BONUS
The 1996 performance year cash bonus for the CEO was determined in accordance
with the performance goals referred to above.
ML & Co.'s Net Income in 1996 was $1,572 million which represents a 47.5%
increase from $1,066 million in 1995. ML & Co.'s ROE in 1996 was 26.8%, which
represents a 33.5% increase from ML & Co.'s ROE of 20.1% in 1995. The average
change in these performance measures, rounded to the nearest whole percentage
point, is an increase of 40%. As a result, the CEO's 1995 formula cash bonus of
$4,643,800 was increased by the 40% average change in the performance measures
to produce a 1996 formula cash bonus of $6,501,320. The MDCC awarded the CEO the
full formula cash bonus in recognition of his contribution to ML & Co.'s 1996
financial results as well as the other factors listed above under "Policies and
Process--General" and his leadership in exemplifying and fostering ML & Co.'s
principles of Client Focus, Respect for the Individual, Teamwork, Responsible
Citizenship and Integrity.
The MDCC determined Mr. Tully's base salary for 1996 to be $700,000.
STOCK BONUS
The value of Mr. Tully's stock bonus award for 1996 performance was determined
in accordance with the performance goals referred to above. The dollar value of
the stock bonus was computed by applying the 40% average increase in Net Income
and ROE to the dollar value of Mr. Tully's 1995 stock bonus award of $2,172,100
(which was the 1995 formula maximum amount) resulting in a formula stock bonus
maximum for the 1996 performance year of $3,040,940. Again, in recognition of ML
& Co.'s financial results and the other factors discussed above, the MDCC deemed
it appropriate to award Mr. Tully a stock bonus equal to the full formula value.
The dollar value of the stock bonus is split equally between Restricted
Shares/Units and Stock Options. The actual number of Restricted Shares/Units
awarded was calculated by dividing the dollar value to be paid in Restricted
Shares/Units ($1,520,470) by the average fair market value ($81.85) of a share
of Common Stock over the twenty business days preceding January 20, 1997, the
date the MDCC met to review executive stock awards. The number of Stock Options
awarded for 1996 performance was calculated by dividing the dollar value to be
paid in stock options ($1,520,470) by the same price of Common Stock used to
determine the Restricted Share/Unit grants, and multiplying the result by four.
The multiple of four options to one share/unit is used because the Black-Scholes
value of an ML & Co.
20
<PAGE>
employee Stock Option, taking into account the non-marketability of employee
stock options, has over time averaged approximately 25% of the value of a share
of Common Stock.
The ultimate future value to be realized by the CEO for this long-term incentive
award of Restricted Shares/Units and Stock Options is dependent upon the future
price of the Common Stock and on dividends.
SUMMARY
The CEO's compensation for performance in 1996, valued when it was approved in
January 1997 using the methodology explained above, consisted of:
<TABLE>
<CAPTION>
RESTRICTED
SALARY ANNUAL BONUS SHARES/UNITS* STOCK OPTIONS* TOTAL
- ----------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
$ 700,000 $ 6,501,320 $ 1,520,470 $ 1,520,470 $ 10,242,260
</TABLE>
- ------------------------
* The value of these awards is based on the average fair market value ($81.85)
of a share of Common Stock over the twenty business days preceding January 20,
1997, the date the MDCC met to review these awards. These amounts differ from
the amounts shown in the Summary Compensation Table under the column headed
"Restricted Stock Awards" and in the table entitled "Option Grants in Last
Fiscal Year" under the column headed "Grant Date Present Value" because the
amounts in those tables are required to be based on grant date Common Stock
prices.
MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE
JILL K. CONWAY, CHAIR
EARLE H. HARBISON, JR.
ROBERT P. LUCIANO
JOHN J. PHELAN, JR.
WILLIAM L. WEISS
21
<PAGE>
COMPENSATION TABLES AND OTHER INFORMATION
The following tables set forth information with respect to the Chief Executive
Officer and the four other most highly compensated executive officers of ML &
Co.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS(1)
ANNUAL COMPENSATION
------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
RESTRICTED
STOCK SECURITIES ALL OTHER
AWARDS UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION(2) YEAR SALARY BONUS (3)(4)(5) OPTIONS SATION(6)
- -------------------------------------------- --------- ----------- ------------- ------------- ----------- -----------
Daniel P. Tully............................. 1996 $ 700,000 $ 6,501,320 $ 1,562,874 74,305 $ 444,298
Chairman of the Board 1995 500,000 4,643,800 1,211,811 84,665 219,261
1994 500,000 4,340,000 1,058,682 113,684 144,950
David H. Komansky........................... 1996 500,000 5,201,056 1,250,266 59,445 73,127
President and Chief Executive Officer 1995 300,000 3,715,040 969,472 467,735 42,635
1994 300,000 2,900,000 625,837 67,204 31,250
Herbert M. Allison, Jr...................... 1996 400,000 4,200,000 925,039 43,985 68,607
Executive Vice President 1995 300,000 3,000,000 725,300 50,675 27,759
1994 300,000 2,900,000 625,837 67,204 21,800
Jerome P. Kenney............................ 1996 400,000 3,100,000 668,121 31,765 26,752
Executive Vice President 1995 400,000 2,400,000 557,901 38,980 20,760
1994 400,000 1,700,000 521,537 56,004 18,000
John L. Steffens............................ 1996 400,000 4,200,000 925,039 43,985 447,098
Executive Vice President 1995 400,000 2,900,000 725,300 50,675 220,761
1994 400,000 2,800,000 625,837 67,204 149,250
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
22
<PAGE>
(1) Awards were made in January or February of the succeeding fiscal year for
performance in the year indicated.
(2) During the 1996 fiscal year, Mr. Tully served as Chairman of the Board and
Chief Executive Officer. The Board of Directors elected Mr. Komansky Chief
Executive Officer effective December 28, 1996 and Chairman of the Board
effective April 15, 1997 upon Mr. Tully's retirement. The Board has also
elected Mr. Allison President and Chief Operating Officer and Mr. Steffens
Vice Chairman, in each case effective April 15, 1997.
(3) Amounts shown are for awards granted in February 1997 for performance in
1996, in February 1996 for performance in 1995, and in February 1995 for
performance in 1994. The awards were split equally between Restricted Shares
and Restricted Units. All awards have been valued for this table using
closing prices of Common Stock on the Consolidated Transaction Reporting
System on the effective dates of grant of such awards. The closing price on
the last trading day prior to February 1, 1997, the effective date of the
grant for performance in 1996, was $84.125. All of the shares and units vest
three years following grant and the shares are restricted from
transferability for an additional two years after vesting.
(4) During the applicable vesting and restricted periods, dividends are paid on
Restricted Shares and dividend equivalents are paid on Restricted Units.
Such dividends and dividend equivalents are equal in amount to the dividends
paid on shares of Common Stock.
(5) The number and value of Restricted Shares and Restricted Units held by
executive officers named in the table as of December 27, 1996 are as
follows: Mr. Tully (24,795 shares and 58,273 units-- $6,998,479); Mr.
Komansky (16,868 shares and 34,184 units--$4,301,131); Mr. Allison (14,736
shares and 32,051 units--$3,941,805); Mr. Kenney (11,874 shares and 25,725
units--$3,167,716); and Mr. Steffens (14,736 shares and 32,051
units--$3,941,805). These amounts do not include Restricted Shares and
Restricted Units awarded in 1997 for performance in 1996.
(6) Amounts shown for 1996 consist of the following: (i) contributions made in
1996 by ML & Co. to accounts of employees under the ML & Co. 401(k) Savings
& Investment Plan (including, where applicable, cash payments made because
of limitations imposed by the Internal Revenue Code)-- Mr. Komansky
($1,500); Mr. Allison ($1,500); Mr. Kenney ($1,500); and Mr. Steffens
($1,500); (ii) allocations made in 1996 by ML & Co. to accounts of employees
under the defined contribution retirement program--Mr. Tully ($27,548); Mr.
Komansky ($25,252); Mr. Allison ($22,957); Mr. Kenney ($25,252); and Mr.
Steffens ($27,548); and (iii) distributions received in 1996 on investments
of personal funds in ML & Co.-sponsored employee partnerships--Mr. Tully
($416,750); Mr. Komansky ($46,375); Mr. Allison ($44,150); and Mr. Steffens
($418,050).
23
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED FISCAL YEAR PER SHARE DATE(2) VALUE(3)
- ----------------------------------------------- ------------- ------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Daniel P. Tully................................ 74,305 1.1% $ 81.1875 1/29/2007 $1,973,223
David H. Komansky.............................. 59,445 0.8 81.1875 1/29/2007 1,578,605
Herbert M. Allison, Jr......................... 43,985 0.6 81.1875 1/29/2007 1,168,053
Jerome P. Kenney............................... 31,765 0.5 81.1875 1/29/2007 843,542
John L. Steffens............................... 43,985 0.6 81.1875 1/29/2007 1,168,053
</TABLE>
- ------------------------
(1) Reflects awards made in January 1997 for performance in 1996. Excludes
awards made in January 1996 for performance in 1995 (which were reflected in
ML & Co.'s 1996 Proxy Statement).
(2) All options are exercisable as follows: 20% after one year, 40% after two
years, 60% after three years, 80% after four years, and 100% after five
years.
(3) Valued using a modified Black-Scholes option pricing model. The exercise
price of each option ($81.1875) is equal to the average of the high and low
prices on the Consolidated Transaction Reporting System of a share of Common
Stock on January 29, 1997, the effective date of grant. The assumptions used
for the variables in the model were: 26.87% volatility (which is the
volatility of the Common Stock for the 36 months preceding grant); a 6.78%
risk-free rate of return (which is the yield as of the date of grant on a
U.S. Treasury Strip (zero-coupon bond) maturing in February, 2007, as quoted
in THE WALL STREET JOURNAL); a 1.48% dividend yield (which was the dividend
yield on the date of grant); and a 10-year option term (which is the term of
the option when granted). A discount of 25% was applied to the option value
yielded by the model to reflect the non-marketability of employee options.
The actual gain realized on the options will depend on the future price of
the Common Stock and cannot be accurately forecast by application of an
option pricing model.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
ACQUIRED ON VALUE ----------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ------------- ---------- ------------ --------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Daniel P. Tully.................... 100,000 $4,565,625(2) 1,472,956 273,013 $99,946,774 $ 11,439,893
David H. Komansky.................. 0 0 485,471 574,118 31,153,454 18,946,320
Herbert M. Allison, Jr............. 0 0 600,551 155,418 39,577,176 6,482,134
Jerome P. Kenney................... 0 0 576,046 123,468 38,019,141 5,172,088
John L. Steffens................... 240,000 11,154,375(2) 445,471 157,058 28,377,829 6,564,852
</TABLE>
- ------------------------
(1) This valuation represents the difference between $84.25, the closing price
of the Common Stock on December 27, 1996 on the Consolidated Transaction
Reporting System, and the exercise prices of these options.
(2) This valuation represents the difference between the average of the high and
low prices of the Common Stock on the Consolidated Transaction Reporting
System on the date of exercise and the exercise prices of the options
exercised. Mr. Tully and Mr. Steffens continue to hold the shares received
upon the exercise of these options (net of shares withheld for taxes).
24
<PAGE>
PENSION PLAN ANNUITY
In 1988, the ML & Co. defined benefit pension plan (the "Pension Plan") was
terminated, and a group annuity contract to pay the Pension Plan benefits to the
vested participants was purchased from Metropolitan Life Insurance Company with
a portion of the terminated Pension Plan trust assets. This annuity is payable
at normal retirement (generally age 65) or at an early retirement age in a
reduced amount. ML & Co. participates in the actuarial experience and investment
performance of these annuity assets under an agreement with Metropolitan Life
Insurance Company.
Under the arrangement described above, the executive officers named in the
Summary Compensation Table will be eligible to receive an annuity upon
retirement. Those retiring at age 65 with at least 10 years of Pension Plan
participation will receive up to the annual statutory maximum applicable to the
year in which the annuity payments are made, which, during 1997, is $125,000 (if
born before 1938) and $116,667 (if born between 1938 and 1954). These limits are
adjusted periodically by the Internal Revenue Service for increases in the cost
of living. The compounded annual growth rate of these cost of living increases
has been 3.5% since 1988, the year indexing began. Effective for 1995 and later
years, however, the cost of living adjustment calculation is subject to rounding
rules. These annuity payments, if payable as straight life annuities, will not
exceed the following annual amounts for the following executive officers: Mr.
Tully ($316,168) subject to the statutory maximum ($125,000 in 1997); Mr.
Komansky ($103,655); Mr. Allison ($81,543); Mr. Kenney ($173,456) subject to the
statutory maximum ($116,667 in 1997); and Mr. Steffens ($227,963) subject to the
statutory maximum ($116,667 in 1997). These amounts reflect an offset for
estimated social security benefits in accordance with the provisions of the
terminated Pension Plan.
SUPPLEMENTAL ANNUITY AGREEMENTS
ML & Co. entered into an annuity agreement with Mr. Tully, effective July 24,
1991, which has been amended as of April 30, 1992 and January 27, 1997, to
provide for supplemental defined benefit annuity payments to him and his
surviving spouse. The annuity is payable if Mr. Tully retires or dies while an
executive officer of ML & Co. The annual amount of this annuity will equal
$1,620,000, if payable as a straight life annuity or a 10-year certain and life
annuity, or $1,370,000 if payable as a 50% or 100% joint and survivor life
annuity, in each case as reduced by Mr. Tully's Pension Plan annuity described
above and the combined annuity value at retirement of his account balances
attributable to ML & Co. contributions to the ML & Co. 401(k) Savings &
Investment Plan and the Retirement Accumulation Plan and to the allocations
under the ESOP, and as further reduced by 50% of the annual social security
retirement benefit amount he would receive upon retirement at age 65. The
payment will be made monthly in the form of a life annuity, a 10-year certain
and life annuity or a 50% or 100% joint and survivor life annuity. The survivor
benefits, if applicable, are payable only to a spousal beneficiary.
ML & Co. also entered into an annuity agreement with Mr. Komansky, effective
January 27, 1997, to provide for supplemental defined benefit annuity payments
to him and his surviving spouse. Estimated amounts payable to Mr. Komansky (when
combined with retirement benefits from other sources described in the paragraph
below), assuming payment in the form of a straight life annuity upon
25
<PAGE>
retirement at age 60 or thereafter, can be calculated using the following table
based on his "Highest Consecutive 5-Year Average Compensation" and "Years of
Service":
<TABLE>
<CAPTION>
HIGHEST CONSECUTIVE YEARS OF SERVICE
5-YEAR AVERAGE -------------------------------------------
COMPENSATION 28 32 36
- -------------------------------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
$3,250,000.......................................................... $ 1,137,500 $ 1,300,000 $ 1,462,500
3,750,000.......................................................... 1,312,500 1,500,000 1,620,000
4,250,000.......................................................... 1,487,500 1,620,000 1,620,000
4,750,000.......................................................... 1,620,000 1,620,000 1,620,000
5,250,000.......................................................... 1,620,000 1,620,000 1,620,000
</TABLE>
As of December 27, 1996, Mr. Komansky had highest consecutive 5-year average
compensation of approximately $3.4 million and approximately 28 years of
service. The annuity is payable if Mr. Komansky retires at the age of 60 or
thereafter or dies while employed by ML & Co. The annual amount of his annuity
will be equal to 1.25% of his highest consecutive 5-year average compensation
(excluding stock-based compensation and certain non-recurring cash compensation
awards) multiplied by years of service up to age 65, as reduced by Mr.
Komansky's Pension Plan annuity described above and the combined annuity value
at retirement of his account balances attributable to ML & Co. contributions to
the ML & Co. 401(k) Savings & Investment Plan and the Retirement Accumulation
Plan, and to the allocations under the ESOP and as further reduced by 50% of the
annual social security retirement benefit amount he would receive upon
retirement at age 65. The amount of his annuity, however, together with the
combined annuity value described above, cannot exceed $1,620,000 if payable as a
straight life annuity or a 10-year certain and life annuity, or $1,370,000 if
payable as a 50% or 100% joint and survivor life annuity, in each case subject
to a semi-annual adjustment for inflation until commencement of payment. The
payment will be made monthly in the form of a life annuity or, subject to
reductions, a 10-year certain and life annuity or a 50% or 100% joint and
survivor life annuity. The survivor benefits, if applicable, are payable only to
a spousal beneficiary.
SEVERANCE AGREEMENTS
ML & Co. has severance agreements with certain members of executive and senior
management, including Messrs. Tully, Komansky, Allison, Kenney and Steffens.
These agreements provide for payments and other benefits if there is a Change in
Control (as defined below) of ML & Co., and the employee's employment is
subsequently terminated by ML & Co. or its successor without "Cause" or by the
employee for "Good Reason", including a detrimental change in responsibilities
or a reduction in salary or benefits. The term of each agreement does not exceed
3 years, which term is automatically extended each year for an additional year
until notice to the contrary is given to the employee. Under each agreement, the
employee will receive a lump sum payment equal to the lesser of 2.99 times the
employee's average annual W-2 compensation for the 5 years immediately preceding
the year of the termination of employment or 2.99 times the employee's average
annual salary, bonus and the grant value of stock-based compensation for the
five years immediately preceding the year of the termination of employment. The
employee shall also receive (i) a lump sum payment approximating the value of
life, disability, accident, and medical insurance benefits for 24 months after
termination of employment, and
26
<PAGE>
an amount sufficient to cover any income taxes payable thereon; (ii) a lump sum
payment equal to the retirement contribution, and an amount sufficient to cover
any income taxes payable thereon, that the employee would have been eligible to
receive from ML & Co. under the terms of the ML & Co. retirement program,
consisting of the Retirement Accumulation Plan and the ESOP, and any applicable
ML & Co. contributions to the ML & Co. 401(k) Savings & Investment Plan, or any
successor program or plan that may be in effect at the time of the Change in
Control, determined as if the employee were fully vested thereunder and had
continued (after the date of termination) to be employed for an additional 24
months at the employee's highest annual rate of compensation during the 12
months immediately preceding the date of termination for purposes of determining
the basic contributions and any applicable supplemental contributions; and (iii)
any legal fees and expenses incurred as a result of his termination of
employment. A "Change in Control" of ML & Co. means: (i) any change in control
of a nature required to be reported under the Securities and Exchange
Commission's proxy rules; (ii) the acquisition by any person of the beneficial
ownership of securities representing 30% or more of the combined voting power of
ML & Co.'s then outstanding voting securities; (iii) a change in the composition
of the Board of Directors such that, within a period of 2 consecutive years,
individuals who at the beginning of such 2-year period constituted the Board of
Directors and any new directors elected or nominated by at least 3/4 of the
directors who were either directors at the beginning of the 2-year period or
were so elected or nominated, cease for any reason to constitute at least a
majority of the Board of Directors; or (iv) the liquidation of all or
substantially all of the assets of ML & Co. In addition, if ML & Co. enters into
an agreement, the consummation of which would result in a Change in Control,
then a Change in Control shall be deemed to have occurred with respect to any
participant's termination without "Cause" or for "Good Reason" occurring after
the execution of such agreement and, if such agreement expires or is terminated
prior to consummation of the Change in Control, before such expiration or
termination. Subject to certain limitations contained in the severance
agreements, any payments thereunder would be in addition to amounts payable
under certain stock-based plans, including the ML & Co. Long-Term Incentive
Compensation Plan, which, in the event of a Change in Control, provide for early
vesting and payment if an employee is terminated without cause or leaves for
good reason.
COMPENSATION OF DIRECTORS
ML & Co. directors who are not full-time employees of ML & Co. or an affiliated
corporation receive monthly cash payments at a rate of $35,000 per year in base
compensation and receive transportation to meetings, or reasonable travel
expenses incurred in order to attend. In addition, non-employee directors
receive $15,000 per year for service as members of, or $25,000 per year for
chairing, the Audit and Finance Committee and the MDCC. The director who chairs
the Nominating Committee receives $6,000 per year. Other members of that
committee receive no additional fee. Under the ML & Co. Fee Deferral Plan for
Non-Employee Directors, non-employee directors may defer all or a portion of
their base compensation and committee or chair fees until a specified later date
or until after retirement. At the option of the participant, deferred fees may
be credited with a return based on the performance of selected mutual funds (or,
in the case of fees deferred in 1997, a return based on the performance of a ML
& Co.-sponsored employee partnership) or may be represented by Common Stock
equivalents that are credited with dividend equivalents equal to dividends
declared on the Common Stock. All distributions under the Fee Deferral Plan are
payable in cash.
27
<PAGE>
Under the ML & Co. Non-Employee Directors' Equity Plan (the "Equity Plan"), each
non-employee director who commenced service prior to October 1996 received an
initial grant of restricted stock upon commencement of Board service or, in the
case of directors in service at the inception of the Equity Plan, on November 4,
1992. The number of shares of restricted stock granted was based on a grant
value of $50,000, provided that grants to directors scheduled to retire prior to
the fifth Annual Meeting subsequent to grant were reduced proportionately.
Restricted stock granted under the Equity Plan vests and becomes transferable in
equal annual installments on the date of each of the five Annual Meetings
subsequent to grant (or, in the case of a director scheduled to retire earlier,
such lesser number of Annual Meetings remaining until retirement). Unvested
shares may not be transferred, assigned, pledged or otherwise encumbered, and if
Board service ends prior to scheduled retirement for any reason other than
death, unvested shares are forfeited. In all other respects, holders of
restricted stock under the Equity Plan have the same rights as holders of Common
Stock, including the right to vote and receive dividends. The Equity Plan was
terminated in October 1996; no further grants will be made thereunder.
The Equity Plan has been replaced by the ML & Co. Deferred Unit and Stock Unit
Plan for Non-Employee Directors (the "Unit Plan"). The Unit Plan provides for
grants of Deferred Units (representing ML & Co.'s obligation to pay an amount in
cash equal to the value of one share of Common Stock at the end of the deferral
period) and Deferred Stock Units (representing ML & Co.'s obligation to deliver
one share of Common Stock at the end of the deferral period). Under the Unit
Plan, each non-employee director receives an initial grant of Deferred Units and
Deferred Stock Units upon commencement of Board service and additional grants of
Deferred Units and Deferred Stock Units at the beginning of the month following
the fifth Annual Meeting subsequent to the most recent grant of Deferred Units
or Deferred Stock Units, as applicable. Directors in service at the inception of
the Unit Plan received their initial Deferred Unit grants in August 1996 and
receive their initial Deferred Stock Unit grants at the beginning of the month
following the date their most recent grants of restricted stock under the Equity
Plan become fully vested. The grant value of each grant of Deferred Units or
Deferred Stock Units is $50,000, except that grants to directors scheduled to
retire prior to the fifth Annual Meeting subsequent to grant are reduced
proportionately. Deferred Units and Deferred Stock Units are payable in cash and
Common Stock, respectively, at the end of a 5-year deferral period or upon
earlier cessation of service; provided that payments are prorated if Board
service ends prior to scheduled retirement for any reason other than death.
Participants in the Unit Plan have the option to defer payment of Deferred Units
and Deferred Stock Units, and in the case of Deferred Units, may choose to index
their return after the initial 5-year deferral period to the performance of
selected mutual funds. Deferred Units and Deferred Stock Units are
non-transferable and carry no voting rights, but they receive dividend
equivalents that are credited in the form of additional Deferred Units or
Deferred Stock Units, as applicable.
Each non-employee director who has served for 5 years (or has reached age 65
with at least one year of service), and who thereafter ceases to serve for any
reason other than removal for cause, is eligible to receive a pension benefit.
The beneficiary(ies) or estate of each non-employee director is entitled to
receive a death benefit in the event of such director's death during his or her
term. Both such benefits are based upon the annual base compensation at the time
of the director's cessation of service or death (currently $35,000) plus the
annual grant value of stock-based compensation for non-employee directors at the
time of the director's cessation of service or death (currently $20,000), and
the director's age and length of service. Although the amount and method of
payment of each such benefit cannot be
28
<PAGE>
determined until the time of entitlement, it will not, on an annualized basis,
exceed an amount equal to the sum of the annual base compensation for
non-employee directors at the time of the director's cessation of service or
death plus the annual grant value of stock-based compensation for non-employee
directors at the time of the director's cessation of service or death. ML & Co.
offers comprehensive medical insurance benefits to non-employee directors and
eligible family members, which are comparable to those offered to ML & Co.
employees generally, except that these benefits are provided on a
non-contributory basis and with differences in deductible, coinsurance and
lifetime benefits. ML & Co. also offers life and business travel insurance
benefits to non-employee directors.
From time to time, non-employee directors are offered the option of investing
personal funds in certain ML & Co.-sponsored employee partnerships. The
distributions on such investments received in 1996 by persons who were
non-employee directors during 1996 were: Earle H. Harbison, Jr. ($64,000); and
Aulana L. Peters ($6,400).
CERTAIN TRANSACTIONS
From time to time since the beginning of the 1996 fiscal year, certain directors
and executive officers of ML & Co. and associates of such persons were indebted
to subsidiaries of ML & Co., as customers, in connection with margin account
loans, mortgage loans, revolving lines of credit and other extensions of credit
by ML & Co.'s subsidiaries. These transactions were in the ordinary course of
business; they were substantially on the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons, except that for some credit products interest rates charged were
the same as the lowest interest rates charged other persons or were more
favorable for ML & Co. employees and directors than for other persons; and they
did not involve more than the normal risk of collectibility or present other
unfavorable features. In addition, directors, officers and employees of ML & Co.
are entitled to receive certain discounts or waivers of fees or commissions for
products and services offered by subsidiaries of ML & Co.
From time to time since the beginning of the 1996 fiscal year, ML & Co. and
certain of its subsidiaries have engaged in transactions in the ordinary course
of business with State Street and the Equitable Companies and certain of their
respective affiliates, which are beneficial owners of more than 5% of the
outstanding shares of Common Stock; such transactions were on substantially the
same terms as those prevailing at the time for comparable transactions with
others.
From time to time since the beginning of the 1996 fiscal year, ML & Co., through
certain of its subsidiaries in the ordinary course of business, has performed
investment banking, financial advisory, and other services for certain
corporations with which certain of its directors are affiliated.
From time to time since the beginning of the 1996 fiscal year, legal services
were performed by the law firm of Gibson, Dunn & Crutcher for business
activities of, and litigation matters on behalf of, ML & Co. and its affiliates
and for mutual funds advised by affiliates of ML & Co. Aulana L. Peters, a
director, is a partner of this law firm.
The directors (other than Messrs. Clark, Hoover, and Newbigging) have been named
as defendants in stockholder derivative actions, commenced on December 5, 1994
and now consolidated, purportedly
29
<PAGE>
brought on behalf of ML & Co. in the Supreme Court of the State of New York, New
York County. These actions allege, among other things, breach of fiduciary
duties in connection with ML & Co.'s business activities with the Orange County
Treasurer-Tax Collector. The consolidated action has been dismissed, and an
appeal is pending. In addition, all current directors who were directors at the
time of the transactions described below have been named as defendants in
stockholder derivative actions, commenced October 11, 1991 and now consolidated,
purportedly brought on behalf of ML & Co. in the Supreme Court of the State of
New York, New York County. The plaintiffs allege, among other things, breach of
fiduciary duties in connection with a series of year-end securities transactions
between subsidiaries of ML & Co. and Guarantee Security Life Insurance Company
during the period from 1984 to 1988. In each of the foregoing stockholder
derivative actions, damages in an unspecified amount are sought on behalf of ML
& Co.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the MDCC are Jill K. Conway (Chair), Earle H. Harbison, Jr.,
Robert P. Luciano, John J. Phelan, Jr., and William L. Weiss. None of these
individuals was an officer or employee of ML & Co. or any of its subsidiaries,
and no "compensation committee interlocks" existed during the 1996 fiscal year.
30
<PAGE>
PERFORMANCE GRAPH
The following performance graph compares the performance of ML & Co.'s Common
Stock for the last 5 fiscal years of ML & Co. to that of the S&P 500 Index, the
S&P Financial Index, and an index based on the common stock of the following 11
companies: A.G. Edwards, Inc.; Bankers Trust New York Corporation; The Bear
Stearns Companies Inc.; The Charles Schwab Corporation; Dean Witter, Discover &
Co.; J.P. Morgan & Co. Incorporated; Lehman Brothers Holdings Inc.; Morgan
Stanley Group Inc.; Paine Webber Group Inc.; Salomon Inc; and The Travelers Inc.
(the successor to Primerica Corporation). The graph assumes that the value of
the investment in Common Stock and each index was $100 at December 27, 1991, and
that all dividends were re-invested. Points on the graph represent the
performance as of the last Friday in December of the specified year, ML & Co.'s
fiscal year end. Stock price performances shown on the graph are not necessarily
indicative of future price performances.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ML & CO. S&P 500 INDEX S&P FINANACIAL INDEX 11 COMPANY GROUP
<S> <C> <C> <C> <C>
1991 100 100 100 100
1992 108 112 125 107
1993 153 122 140 135
1994 133 124 135 115
1995 195 170 206 174
1996 327 213 288 249
</TABLE>
31
<PAGE>
OTHER MATTERS
The Board of Directors knows of no business that will be presented for
consideration at the Annual Meeting other than those items stated in the Notice
of Annual Meeting of Stockholders. Should any other matters properly come before
the Annual Meeting or any adjournment thereof, shares represented by the
enclosed form of proxy, if signed and returned, will be voted in accordance with
the judgment of the person or persons voting the proxies.
ML & CO. WILL FURNISH ANY STOCKHOLDER A COPY OF ITS 1996 ANNUAL REPORT ON FORM
10-K (INCLUDING FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES BUT
EXCLUDING OTHER EXHIBITS), WITHOUT CHARGE, UPON REQUEST ADDRESSED TO GREGORY T.
RUSSO, SECRETARY, MERRILL LYNCH & CO., INC., 12TH FLOOR, 100 CHURCH STREET, NEW
YORK, NY 10080-6512.
STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
In accordance with the rules of the Securities and Exchange Commission,
stockholder proposals intended to be presented at the 1998 Annual Meeting of
Stockholders of ML & Co. must be received by ML & Co., at its principal
executive office not later than November 10, 1997, in order to be included in ML
& Co.'s Proxy Statement and form of proxy relating to that meeting.
<TABLE>
<S> <C>
By Order of the Board of
Directors
GREGORY T. RUSSO
SECRETARY
</TABLE>
32
<PAGE>
[LOGO]MERRILL LYNCH
Merrill Lynch & Co., Inc.
World Financial Center
North Tower
New York, NY 10281
<PAGE>
MERRILL LYNCH & CO., INC. PROXY ANNUAL MEETING-APRIL 15, 1997
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Daniel P. Tully, David H. Komansky and Joseph T.
Willett, and each of them individually, as proxies, with power of substitution,
to vote, as specified herein, all the shares of Common Stock of Merrill Lynch &
Co., Inc. held of record by the undersigned at the close of business on February
25, 1997, at the Annual Meeting of Stockholders to be held on April 15, 1997,
and at any adjournment thereof and, in
their discretion, upon other matters
that properly may come before the
meeting. The shares represented by this
proxy will be voted in accordance with
instructions given on the reverse of
this card. If this proxy is signed and
returned without specific instructions
as to any item or all items, it will be
voted for the election of 5 directors,
for proposals (2) and (3), and against
stockholder proposals (4) and (5). The
undersigned hereby revokes any proxy
heretofore given in respect of the same
shares of stock.
<TABLE>
<S> <C>
- ------------------------------------------------------------ ------------------------
(SIGNATURE OF STOCKHOLDER) (DATE)
- ------------------------------------------------------------ ------------------------
(SIGNATURE OF STOCKHOLDER) (DATE)
PLEASE VOTE ON THE REVERSE OF THIS CARD. SIGN, DATE AND RETURN THIS CARD PROMPTLY
USING THE ENCLOSED ENVELOPE. SIGN EXACTLY AS NAME APPEARS ABOVE. EACH JOINT TENANT
SHOULD SIGN. WHEN SIGNING AS ATTORNEY, TRUSTEE, ETC., GIVE FULL TITLE.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
The Board of Directors recommends a
The Board of Directors recommends a vote FOR vote AGAINST
proposals (1), (2) and (3). stockholder proposals (4) and (5).
(1) The election to the Board of Directors of the 5 nominees named below for a (4) Institute cumulative
term of 3 years voting
/ / FOR all nominees listed / / WITHHOLD AUTHORITY (5) Provide stockholders
(except as marked to the to vote for all with relationship of
contrary below) nominees listed derivatives claims to
underlying assets
William O. Bourke, W. H. Clark, Stephen L. Hammerman, Aulana L. Peters and
John J. Phelan, Jr.
(2) Limit the number of stock options / / FOR / / AGAINST / / ABSTAIN
that may be granted to executive
officers
(3) Amend the performance goal formula / / FOR / / AGAINST / / ABSTAIN
for incentive compensation to
executive management
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ONE OR MORE INDIVIDUAL NOMINEES, WRITE THE
NAME(S) OF SUCH PERSON(S) HERE:
<CAPTION>
(1) / / FOR / / AGAINST / / ABSTAIN
/ / FOR / / AGAINST / / ABSTAIN
(2)
(3)
INSTRUCTI
NAME(S) O
</TABLE>
- --------------------------------------------------------------------------------
(TO BE SIGNED ON THE
OTHER SIDE)
<PAGE>
Exhibit 99.1
APPENDIX 1
[PROPOSED FORM OF LONG-TERM INCENTIVE COMPENSATION
PLAN, REFLECTING AMENDMENT FOR OPTION LIMIT]
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" . . . . . . . . . . . . . . . . . . . 1
(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 Subject to the Plan. . . . . . . . . . . . . . . . 4
Section 1.5 Eligibility and Participation . . . . . . . . . . . . . . 5
ARTICLE II - PROVISIONS APPLICABLE TO PERFORMANCE SHARES
AND PERFORMANCE UNITS. . . . . . . . . . . . . . . . . . . . . 5
Section 2.1 Performance Periods and Restricted Periods. . . . . . . . 5
Section 2.2 Performance Objectives. . . . . . . . . . . . . . . . . . 5
Section 2.3 Grants of Performance Shares and Performance Units. . . . 6
i
<PAGE>
Section 2.4 Rights and Benefits During Performance Period . . . . . . 6
Section 2.5 Adjustment with respect to Performance Shares and
Performance Units . . . . . . . . . . . . . . . . . . . . 6
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 . . . . . . . . . . . . . . . . . . . 9
ARTICLE III - PROVISIONS APPLICABLE TO RESTRICTED SHARES
AND RESTRICTED UNITS. . . . . . . . . . . . . . . . . . . . . . 10
Section 3.1 Vesting Periods and Restricted Periods. . . . . . . . . . 10
Section 3.2 Grants of Restricted Shares and Restricted Units. . . . . 10
Section 3.3 Rights and Restrictions Governing Restricted Shares . . . 11
Section 3.4 Rights Governing Restricted Units . . . . . . . . . . . . 11
Section 3.5 Adjustment with respect to Restricted Shares and
Restricted Units. . . . . . . . . . . . . . . . . . . . . 11
Section 3.6 Payment of Restricted Shares and Restricted Units . . . . 11
ii
<PAGE>
(a) Restricted Shares. . . . . . . . . . . . . . . . . . 11
(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. . . . . . . . . . 12
(i) Death, Disability, or Retirement. . . . . . . . 12
(ii) Other Terminations. . . . . . . . . . . . . . . 13
Section 3.8 Extension of Vesting; Deferral of Payment . . . . . . . . 13
ARTICLE IV - PROVISIONS APPLICABLE TO STOCK OPTIONS . . . . . . . . . . . . 13
Section 4.1 Grants of Stock Options . . . . . . . . . . . . . . . . . 13
Section 4.2 Option Documentation. . . . . . . . . . . . . . . . . . . 14
Section 4.3 Exercise Price. . . . . . . . . . . . . . . . . . . . . . 14
Section 4.4 Exercise of Stock Options . . . . . . . . . . . . . . . . 14
(a) Exercisability . . . . . . . . . . . . . . . . . . . 14
(b) Option Period. . . . . . . . . . . . . . . . . . . . 14
(c) Exercise in the Event of Termination of Employment . 14
(i) Death. . . . . . . . . . . . . . . . . . . . . . . . 14
(ii) Disability or Retirement . . . . . . . . . . . . . . 15
(iii) Other Terminations. . . . . . . . . . . . . . . 15
(d) Limitations on Transferability . . . . . . . . . . . 15
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 . . . . . . . . . . . . . . . . . 16
iii
<PAGE>
Section 4.6 Limitation on Shares of Common Stock Received
upon Exercise of Stock Options. . . . . . . . . . . . . . . . . . . . . 17
ARTICLE V - PROVISIONS APPLICABLE TO STOCK APPRECIATION
RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.1 Grants of Stock Appreciation Rights . . . . . . . . . . . 17
Section 5.2 Stock Appreciation Rights Granted in Connection
with Incentive Stock Options. . . . . . . . . . . . . . . . . . . . . . 18
Section 5.3 Payment Upon Exercise of Stock Appreciation Rights. . . . 18
Section 5.4 Termination of Employment . . . . . . . . . . . . . . . . 18
(a) Death. . . . . . . . . . . . . . . . . . . . . . . . 18
(b) Disability . . . . . . . . . . . . . . . . . . . . . 19
(c) Retirement . . . . . . . . . . . . . . . . . . . . . 19
(d) Other Terminations . . . . . . . . . . . . . . . . . 19
ARTICLE VI - PROVISIONS APPLICABLE TO OTHER ML & CO.
SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.1 Grants of Other ML & Co. Securities . . . . . . . . . . . 19
Section 6.2 Terms and Conditions of Conversion or Exchange. . . . . . 20
ARTICLE VII - CHANGES IN CAPITALIZATION . . . . . . . . . . . . . . . . . . 20
ARTICLE VIII - PAYMENTS UPON TERMINATION OF EMPLOYMENT
AFTER A CHANGE IN CONTROL. . . . . . . . . . . . . . . . . . 21
Section 8.1 Value of Payments Upon Termination After a Change in
Control . . . . . . . . . . . . . . . . . . . . . . . . . 21
(a) Performance Shares and Performance Units . . . . . . 21
(b) Restricted Shares and Restricted Units . . . . . . . 22
(c) Stock Options and Stock Appreciation Rights. . . . . 22
(d) Other ML & Co. Securities. . . . . . . . . . . . . . 23
Section 8.2 A Change in Control . . . . . . . . . . . . . . . . . . . 23
Section 8.3 Effect of Agreement Resulting in Change in Control. . . . 24
Section 8.4 Termination for Cause . . . . . . . . . . . . . . . . . . 24
Section 8.5 Good Reason . . . . . . . . . . . . . . . . . . . . . . . 25
iv
<PAGE>
(a) Inconsistent Duties. . . . . . . . . . . . . . . . . 25
(b) Reduced Salary or Bonus Opportunity. . . . . . . . . 25
(c) Relocation . . . . . . . . . . . . . . . . . . . . . 25
(d) Compensation Plans . . . . . . . . . . . . . . . . . 26
(e) Benefits and Perquisites . . . . . . . . . . . . . . 26
(f) No Assumption by Successor . . . . . . . . . . . . . 26
Section 8.6 Effect on Plan Provisions . . . . . . . . . . . . . . . . 26
ARTICLE IX - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 9.1 Designation of Beneficiary. . . . . . . . . . . . . . . . 27
Section 9.2 Employment Rights . . . . . . . . . . . . . . . . . . . . 27
Section 9.3 Nontransferability. . . . . . . . . . . . . . . . . . . . 27
Section 9.4 Withholding . . . . . . . . . . . . . . . . . . . . . . . 28
Section 9.5 Relationship to Other Benefits. . . . . . . . . . . . . . 28
Section 9.6 No Trust or Fund Created. . . . . . . . . . . . . . . . . 28
Section 9.7 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 9.8 Indemnification . . . . . . . . . . . . . . . . . . . . . 28
Section 9.9 Tax Litigation. . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE X - AMENDMENT AND TERMINATION . . . . . . . . . . . . . . . . . . . 28
ARTICLE XI - INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 11.1 Governmental and Other Regulations. . . . . . . . . . . . 29
Section 11.2 Governing Law.. . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE XII - EFFECTIVE DATE AND STOCKHOLDER APPROVAL . . . . . . . . . . . 29
v
<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 or any other
Board committee that has been designated by the Board of Directors to administer
the Plan, or the Board of Directors. The Committee shall be constituted so that
at all relevant times it meets the then applicable requirements of Rule 16b-3
(or its successor) promulgated under the Securities Exchange Act of 1934, as
amended.
(e) "COMMON STOCK" shall mean the Common Stock, par value $1.33 1/3 per
share, of ML & Co. and a "share of COMMON STOCK" shall mean one share of
1
<PAGE>
Common Stock together with, for so long as Rights are outstanding, one Right
(whether trading with the Common Stock or separately).
(f) "DISABILITY," unless otherwise provided herein, shall mean any
physical or mental condition that, in the opinion of the Director of Human
Resources of Merrill Lynch & Co., Inc. (or his functional successor), renders an
employee incapable of engaging in any employment or occupation for which he is
suited by reason of education or training.
(g) "FAIR MARKET VALUE" of shares of Common Stock on any given date(s)
shall be: (a) the mean of the high and low sales prices on the New York Stock
Exchange--Composite Tape of such shares on the date(s) in question, or, if the
shares of Common Stock shall not have been traded on any such date(s), the mean
of the high and low sales prices on the New York Stock Exchange--Composite Tape
on the first day prior thereto on which the shares of Common Stock were so
traded; or (b) if the shares of Common Stock are not traded on the New York
Stock Exchange, such other amount as may be determined by the Committee by any
fair and reasonable means.
"FAIR MARKET VALUE" of any Other ML & Co. Security on any given
date(s) shall be: (a) the mean of the high and low sales prices of such Other ML
& Co. Security on the principal securities exchange on which such Security is
traded on the date(s) in question or, if such Other ML & Co. Security shall not
have been traded on any such exchange on such date(s), the mean of the high and
low sales prices on such exchange on the first day prior thereto on which such
Other ML & Co. Security was so traded; or (b) if the Other ML & Co. Security is
not publicly traded on a securities exchange, such other amount as may be
determined by the Committee by any fair and reasonable means.
(h) "JUNIOR PREFERRED STOCK" shall mean ML & Co.'s Series A Junior
Preferred Stock, par value $1.00 per share.
(i) "OTHER ML & CO. SECURITY" shall mean a financial instrument issued
pursuant to Article VI.
(j) "PARTICIPANT" shall mean any employee who has met the eligibility
requirements set forth in Section 1.5 hereof and to whom a grant has been made
and is outstanding under the Plan.
(k) "PERFORMANCE PERIOD" shall mean, in relation to Performance Shares or
Performance Units, any period, for which performance objectives have been
established, of not less than one nor more than ten consecutive ML & Co. fiscal
years, commencing with the first day of the fiscal year in which such
Performance Shares or Performance Units were granted.
2
<PAGE>
(l) "PERFORMANCE SHARE" shall mean a right, granted to a Participant
pursuant to Article II, that will be paid out as a share of Common Stock.
(m) "PERFORMANCE UNIT" shall mean a right, granted to a Participant
pursuant to Article II, to receive an amount equal to the Fair Market Value of
one share of Common Stock in cash.
(n) "RESTRICTED PERIOD" shall mean, (i) in relation to shares of Common
Stock receivable in payment for Performance Shares, the period beginning at the
end of the applicable Performance Period during which restrictions on the
transferability of such shares of Common Stock are in effect; and (ii) in
relation to Restricted Shares, the period, beginning with the first day of the
month in which Restricted Shares are granted, during which restrictions on the
transferability of such Restricted Shares are in effect and which shall not be
of shorter duration than the Vesting Period applicable to the same Restricted
Shares.
(o) "RESTRICTED SHARE" shall mean a share of Common Stock, granted to a
Participant pursuant to Article III, subject to the restrictions set forth in
Section 3.3 hereof.
(p) "RESTRICTED UNIT" shall mean the right, granted to a Participant
pursuant to Article III, to receive an amount equal to the Fair Market Value of
one share of Common Stock in cash.
(q) "RETIREMENT" shall mean the cessation of employment by the Company (1)
after reaching age 55 and having completed at least 5 years of service; (2)
after reaching age 50 and having completed at least 10 years of service; (3)
after reaching age 45 and having completed at least 15 years of service; or (4)
having completed at least 20 years of service (in each case including approved
leaves of absence of one year or less).
(r) "RIGHTS" means the Rights to Purchase Units of Junior Preferred Stock
issued pursuant to the Rights Agreement.
(s) "RIGHTS AGREEMENT" means the Rights Agreement dated as of December 16,
1987 between ML & Co. and Manufacturers Hanover Trust Company, Rights Agent, as
amended from time to time.
(t) "STOCK APPRECIATION RIGHT" shall mean a right, granted to a
Participant pursuant to Article V, to receive, in cash or shares of Common
Stock, an amount equal to the increase in Fair Market Value, over a specified
period of time, of a specified number of shares of Common Stock.
(u) "STOCK OPTION" shall mean a right, granted to a Participant pursuant
to Article IV, to purchase, before a specified date and at a specified price, a
specified
3
<PAGE>
number of shares of Common Stock. Stock Options may be "INCENTIVE STOCK
OPTIONS," which meet the definition of such in Section 422A of the Code, or
"NONQUALIFIED STOCK OPTIONS," which do not meet such definition.
(v) "VESTING PERIOD" shall mean, in relation to Restricted Shares or
Restricted Units, any period of not less than 12 months beginning with the first
day of the month in which the grant of the applicable Restricted Shares or
Restricted Units is effective, during which such Restricted Shares or Restricted
Units may be forfeited if the Participant terminates employment.
SECTION 1.3 ADMINISTRATION.
(a) The Plan shall be administered by the Committee. Subject to the
provisions of the Plan, the Committee shall have sole and complete authority to:
(i) subject to Section 1.5 hereof, select Participants after receiving the
recommendations of the management of the Company; (ii) determine the number of
Performance Shares, Performance Units, Restricted Shares, Restricted Units,
Stock Appreciation Rights, or Other ML & Co. Securities subject to each grant;
(iii) determine the number of shares of Common Stock subject to each Stock
Option grant; (iv) determine the time or times when grants are to be made or are
to be effective; (v) determine the terms and conditions subject to which grants
may be made; (vi) extend the term of any Stock Option; (vii) provide at the time
of grant that all or any portion of any Stock Option shall be canceled upon the
Participant's exercise of any Stock Appreciation Rights; (viii) prescribe the
form or forms of the instruments evidencing any grants made hereunder, provided
that such forms are consistent with the Plan; (ix) adopt, amend, and rescind
such rules and regulations as, in its opinion, may be advisable for the
administration of the Plan; (x) construe and interpret the Plan and all rules,
regulations, and instruments utilized thereunder; and (xi) make all
determinations deemed advisable or necessary for the administration of the Plan.
All determinations by the Committee shall be final and binding.
(b) The Committee shall act in accordance with the procedures established
for a Committee under ML & Co.'s Certificate of Incorporation and By-Laws or
under any resolution of the Board.
SECTION 1.4 SHARES SUBJECT TO THE PLAN.
The total number of shares of Common Stock that may be distributed under
the Plan shall be 80,000,000 (whether granted as Restricted Shares or reserved
for distribution upon grant of Performance Shares, Stock Options, Stock
Appreciation Rights (to the extent they may be paid out in Common Stock), or
Other ML & Co. Securities), subject to adjustment as provided in Article VII
hereof. Shares of Common Stock distributed under the Plan may be treasury
shares or authorized but unissued shares. To the extent that awards of Other ML
& Co. Securities are convertible into Common Stock or are otherwise equity
securities (or convertible into equity securities)
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of ML & Co., they shall be subject to the limitation expressed above on the
number of shares of Common Stock that can be awarded under the Plan. Any shares
of Common Stock that have been granted as Restricted Shares or that have been
reserved for distribution in payment for Performance Shares but are later
forfeited or for any other reason are not payable under the Plan may again be
made the subject of grants under the Plan. If any Stock Option, Stock
Appreciation Right, or Other ML & Co. Security granted under the Plan expires or
terminates, or any Stock Appreciation Right is paid out in cash, the underlying
shares of Common Stock may again be made the subject of grants under the Plan.
Units payable in cash that are later forfeited or for any reason are not payable
under the Plan may again be the subject of grants under the Plan.
SECTION 1.5 ELIGIBILITY AND PARTICIPATION.
Participation in the Plan shall be limited to officers (who may also be
members of the Board of Directors) and other salaried, key employees of the
Company.
ARTICLE II - PROVISIONS APPLICABLE TO PERFORMANCE SHARES AND
PERFORMANCE UNITS.
SECTION 2.1 PERFORMANCE PERIODS AND RESTRICTED PERIODS.
The Committee shall establish Performance Periods applicable to Performance
Shares and Performance Units and may establish Restricted Periods applicable to
Performance Shares, at its discretion. Each such Performance Period shall
commence with the beginning of a fiscal year in which the Performance Shares and
Performance Units are granted and have a duration of not less than one nor more
than ten consecutive fiscal years. Each such Restricted Period shall commence
with the end of the Performance Period established for such Performance Shares
and shall end on such date as may be determined by the Committee at the time of
grant. There shall be no limitation on the number of Performance Periods or
Restricted Periods established by the Committee, and more than one Performance
Period may encompass the same fiscal year.
SECTION 2.2 PERFORMANCE OBJECTIVES.
At any time before or during a Performance Period, the Committee shall
establish one or more performance objectives for such Performance Period,
provided that such performance objectives shall be established prior to the
grant of any Performance Shares or Performance Units with respect to such
Period. Performance objectives shall be based on one or more measures such as
return on stockholders' equity, earnings, or any other standard deemed relevant
by the Committee, measured internally or relative to other organizations and
before or after extraordinary items, as may be determined by the Committee;
PROVIDED, HOWEVER, that any such measure shall include all accruals for grants
made under the Plan and for all other employee benefit plans of the Company.
The Committee may, in its discretion, establish performance
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objectives for the Company as a whole or for only that part of the Company in
which a given Participant is involved, or a combination thereof. In
establishing the performance objective or objectives for a Performance Period,
the Committee shall determine both a minimum performance level, below which no
Performance Shares or Performance Units shall be payable, and a full performance
level, at or above which 100% of the Performance Shares or Performance Units
shall be payable. In addition, the Committee may, in its discretion, establish
intermediate levels at which given proportions of the Performance Shares or
Performance Units shall be payable. Such performance objectives shall not
thereafter be changed except as set forth in Sections 2.5 and 2.6 and Article
VII hereof.
SECTION 2.3 GRANTS OF PERFORMANCE SHARES AND PERFORMANCE UNITS.
The Committee may select employees to become Participants subject to the
provisions of Section 1.5 hereof and grant Performance Shares or Performance
Units to such Participants at any time prior to or during the first fiscal year
of a Performance Period. Grants shall be deemed to have been made as of the
beginning of the first fiscal year of the Performance Period. Before making
grants, the Committee must receive the recommendations of the management of the
Company, which will take into account such factors as level of responsibility,
current and past performance, and performance potential. Subject to the
provisions of Section 2.7 hereof, a grant of Performance Shares or Performance
Units shall be effective for the entire applicable Performance Period and may
not be revoked. Each grant to a Participant shall be evidenced by a written
instrument stating the number of Performance Shares or Performance Units
granted, the Performance Period, the performance objective or objectives, the
proportion of payments for performance between the minimum and full performance
levels, if any, the Restricted Periods and restrictions applicable to shares of
Common Stock receivable in payment for Performance Shares, and any other terms,
conditions, and rights with respect to such grant. At the time of any grant of
Performance Shares, there shall be reserved out of the number of shares of
Common Stock authorized for distribution under the Plan a number of shares equal
to the number of Performance Shares so granted.
SECTION 2.4 RIGHTS AND BENEFITS DURING PERFORMANCE PERIOD.
The Committee may provide that, during a Performance Period, a Participant
shall be paid cash amounts, with respect to each Performance Share or
Performance Unit held by such Participant, in the same manner, at the same time,
and in the same amount paid, as a dividend on a share of Common Stock.
SECTION 2.5 ADJUSTMENT WITH RESPECT TO PERFORMANCE SHARES AND PERFORMANCE
UNITS.
Any other provision of the Plan to the contrary notwithstanding, the
Committee may at any time adjust performance objectives (up or down) and minimum
or full
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performance levels (and any intermediate levels and proportion of payments
related thereto), adjust the way performance objectives are measured, or shorten
any Performance Period or Restricted Period, if it determines that conditions,
including but not limited to, changes in the economy, changes in competitive
conditions, changes in laws or governmental regulations, changes in generally
accepted accounting principles, changes in the Company's accounting policies,
acquisitions or dispositions, or the occurrence of other unusual, unforeseen, or
extraordinary events, so warrant.
SECTION 2.6 PAYMENT OF PERFORMANCE SHARES AND PERFORMANCE UNITS.
Within 90 days after the end of any Performance Period, the Company shall
determine the extent to which performance objectives established by the
Committee pursuant to Section 2.2 hereof for such Performance Period have been
met during such Performance Period and the resultant extent to which Performance
Shares or Performance Units granted for such Performance Period are payable.
Payment for Performance Shares and Performance Units shall be as follows:
(a) Performance Shares:
(i) If a Restricted Period has been established in relation to
the Performance Shares:
(A) At the end of the applicable Performance Period, one or
more certificates representing the number of shares of Common Stock equal to the
number of Performance Shares payable shall be registered in the name of the
Participant but shall be held by the Company for the account of the employee.
Such shares will be nonforfeitable but restricted as to transferability during
the applicable Restricted Period. During the Restricted Period, the Participant
shall have all rights of a holder as to such shares of Common Stock, including
the right to receive dividends, to exercise Rights, and to vote such Common
Stock and any securities issued upon exercise of Rights, subject to the
following restrictions: (1) the Participant shall not be entitled to delivery
of certificates representing such shares of Common Stock and any other such
securities until the expiration of the Restricted Period; and (2) none of such
shares of Common Stock or Rights may be sold, transferred, assigned, pledged, or
otherwise encumbered or disposed of during the Restricted Period. Any shares of
Common Stock or other securities or property received with respect to such
shares shall be subject to the same restrictions as such shares; provided,
however, that the Company shall not be required to register any fractional
shares of Common Stock payable to any Participant, but will pay the value of
such fractional shares, measured as set forth in Section 2.6(b) below, to the
Participant.
(B) At the end of the applicable Restricted Period, all
restrictions applicable to the shares of Common Stock, and other securities or
property received with respect to such shares, held by the Company for the
accounts of recipients of Performance Shares granted in relation to such
Restricted Period shall lapse, and one
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or more stock certificates for such shares of Common Stock and securities, free
of the restrictions, shall be delivered to the Participant, or such shares and
securities shall be credited to a brokerage account if the Participant so
directs.
(ii) If a Restricted Period has not been established in relation
to the Performance Shares, at the end of the applicable Performance Period, one
or more stock certificates representing the number of shares of Common Stock
equal to the number of Performance Shares payable, free of restrictions, shall
be registered in the name of the Participant and delivered to the Participant,
or such shares shall be credited to a brokerage account if the Participant so
directs.
(b) Performance Units: At the end of the applicable Performance Period, a
Participant shall be paid a cash amount equal to the number of Performance Units
payable, times the mean of the Fair Market Value of Common Stock during the
second calendar month following the end of the Performance Period, unless some
other date or period is established by the Committee at the time of grant.
SECTION 2.7 TERMINATION OF EMPLOYMENT.
(a) Prior to the end of a Performance Period:
(i) Death: If a Participant ceases to be an employee of the
Company prior to the end of a Performance Period by reason of death, any
outstanding Performance Shares or Performance Units with respect to such
Participant shall become payable and be paid to such Participant's beneficiary
or estate, as the case may be, as soon as practicable in the manner set forth in
Sections 2.6(a)(ii) and 2.6(b) hereof, respectively. In determining the extent
to which performance objectives established for such Performance Period have
been met and the resultant extent to which Performance Shares or Performance
Units are payable, the Performance Period shall be deemed to end as of the end
of the fiscal year in which the Participant's death occurred.
(ii) Disability or Retirement: The Disability or Retirement of a
Participant shall not constitute a termination of employment for purposes of
this Article II, and such Participant shall not forfeit any Performance Shares
or Performance Units held by him, provided that following Disability or
Retirement such Participant does not engage in or assist any business that the
Committee, in its sole discretion, determines to be in competition with business
engaged in by the Company during the remainder of the applicable Performance
Period. A Participant who does engage in or assist any business that the
Committee, in its sole discretion, determines to be in competition with business
engaged in by the Company shall be deemed to have terminated employment.
(iii) Other Terminations: If a Participant ceases to be an employee
prior to the end of a Performance Period for any reason other than death, the
Participant
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shall immediately forfeit all Performance Shares and Performance Units
previously granted under the Plan and all right to receive any payment for such
Performance Shares and Performance Units. The Committee may, however, direct
payment in accordance with the provisions of Section 2.6 hereof for a number of
Performance Shares or Performance Units, as it may determine, granted under the
Plan to a Participant whose employment has so terminated (but not exceeding the
number of Performance Shares or Performance Units that could have been payable
had the Participant remained an employee) if it finds that the circumstances in
the particular case so warrant. For purposes of the preceding sentence, the
Performance Period over which performance objectives shall be measured shall be
deemed to end as of the end of the fiscal year in which termination occurred.
(b) After the end of a Performance Period but prior to the end of a
Restricted Period:
(i) Death, Disability, or Retirement: If a Participant
ceases to be an employee of the Company by reason of death or in the case of the
Disability or Retirement of a Participant, the Restricted Period shall be deemed
to have ended and shares held by the Company shall be paid as soon as
practicable in the manner set forth in Section 2.6(a)(i)(B).
(ii) Other Terminations: Terminations of employment for any reason
other than death after the end of a Performance Period but prior to the end of a
Restricted Period shall not have any effect on the Restricted Period, unless the
Committee, in its sole discretion, finds that the circumstances so warrant and
determines that the Restricted Period shall end on an earlier date as determined
by the Committee and that shares held by the Company shall be paid as soon as
practicable following such earlier date in the manner set forth in Section
2.6(a)(i)(B).
(c) Except as otherwise provided in this Section 2.7, termination of
employment after the end of a Performance Period but before the payment of
Performance Shares or Performance Units relating to such Performance Period
shall not affect the amount, if any, to be paid pursuant to Section 2.6 hereof.
Approved leaves of absence of one year or less shall not be deemed to be
terminations of employment under this Section 2.7. Leaves of absence of more
than one year will be deemed to be terminations of employment under this Section
2.7, unless the Committee determines otherwise.
SECTION 2.8 DEFERRAL OF PAYMENT.
The Committee may, in its sole discretion, offer a Participant the right,
by execution of a written agreement, to defer the receipt of all or any portion
of the payment, if any, for Performance Shares or Performance Units. If such an
election to defer is made, the Common Stock receivable in payment for
Performance Shares shall be deferred as stock units equal in number to and
exchangeable, at the end of the
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deferral period, for the number of shares of Common Stock that would have been
paid to the Participant. Such stock units shall represent only a contractual
right and shall not give the Participant any interest, right, or title to any
Common Stock during the deferral period. The cash receivable in payment for
Performance Units or fractional shares receivable for Performance Shares shall
be deferred as cash units. Deferred stock units and cash units may be credited
annually with the appreciation factor contained in the deferred compensation
agreement, which may include dividend equivalents. All other terms and
conditions of deferred payments shall be as contained in the written agreement.
ARTICLE III - PROVISIONS APPLICABLE TO RESTRICTED SHARES AND RESTRICTED
UNITS.
SECTION 3.1 VESTING PERIODS AND RESTRICTED PERIODS.
The Committee shall establish one or more Vesting Periods applicable to
Restricted Shares and Restricted Units and one or more Restricted Periods
applicable to Restricted Shares, at its discretion. Each such Vesting Period
shall have a duration of not less than 12 months, measured from the first day of
the month in which the grant of the applicable Restricted Shares or Restricted
Units is effective. Each such Restricted Period shall have a duration of 12 or
more consecutive months, measured from the first day of the month in which the
grant of the applicable Restricted Shares is effective, but in no event shall
any Restricted Period applicable to a Restricted Share be of shorter duration
than the Vesting Period applicable to such Restricted Share.
SECTION 3.2 GRANTS OF RESTRICTED SHARES AND RESTRICTED UNITS.
The Committee may select employees to become Participants (subject to the
provisions of Section 1.5 hereof) and grant Restricted Shares or Restricted
Units to such Participants at any time. Before making grants, the Committee
must receive the recommendations of the management of the Company, which will
take into account such factors as level of responsibility, current and past
performance, and performance potential.
Subject to the provisions of Section 3.7 hereof, a grant of Restricted
Shares or Restricted Units shall be effective for the entire applicable Vesting
and Restricted Periods and may not be revoked. Each grant to a Participant
shall be evidenced by a written instrument stating the number of Restricted
Shares granted, the Vesting Period, the Restricted Period, the restrictions
applicable to such Restricted Shares, the nature and terms of payment of
consideration, if any, and the consequences of forfeiture that will apply to
such Restricted Shares, and any other terms, conditions, and rights with respect
to such grant. Each grant to a Participant of Restricted Units shall be
evidenced by a written instrument stating the number of Restricted Units
granted, the Vesting Period, and all other terms, conditions and rights with
respect to such grant.
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SECTION 3.3 RIGHTS AND RESTRICTIONS GOVERNING RESTRICTED SHARES.
At the time of grant of Restricted Shares, subject to the receipt by the
Company of any applicable consideration for such Restricted Shares, one or more
certificates representing the appropriate number of shares of Common Stock
granted to a Participant shall be registered either in his name or for his
benefit either individually or collectively with others, but shall be held by
the Company for the account of the Participant. The Participant shall have all
rights of a holder as to such shares of Common Stock, including the right to
receive dividends, to exercise Rights, and to vote such Common Stock and any
securities issued upon exercise of Rights, subject to the following
restrictions: (a) the Participant shall not be entitled to delivery of
certificates representing such shares of Common Stock and any other such
securities until the expiration of the Restricted Period; (b) none of the
Restricted Shares may be sold, transferred, assigned, pledged, or otherwise
encumbered or disposed of during the Restricted Period; and (c) all of the
Restricted Shares shall be forfeited and all rights of the Participant to such
Restricted Shares shall terminate without further obligation on the part of the
Company unless the Participant remains in the continuous employment of the
Company for the entire Vesting Period in relation to which such Restricted
Shares were granted, except as otherwise allowed by Section 3.7 hereof. Any
shares of Common Stock or other securities or property received with respect to
such shares shall be subject to the same restrictions as such Restricted Shares.
SECTION 3.4 RIGHTS GOVERNING RESTRICTED UNITS.
During the Vesting Period for Restricted Units, a Participant shall be
paid, with respect to each Restricted Unit to which such Vesting Period is
applicable, cash amounts in the same manner, at the same time, and in the same
amount paid, as a dividend on a share of Common Stock.
SECTION 3.5 ADJUSTMENT WITH RESPECT TO RESTRICTED SHARES AND RESTRICTED
UNITS.
Any other provision of the Plan to the contrary notwithstanding, the
Committee may at any time shorten any Vesting Period or Restricted Period, if it
determines that conditions, including but not limited to, changes in the
economy, changes in competitive conditions, changes in laws or governmental
regulations, changes in generally accepted accounting principles, changes in the
Company's accounting policies, acquisitions or dispositions, or the occurrence
of other unusual, unforeseen, or extraordinary events, so warrant.
SECTION 3.6 PAYMENT OF RESTRICTED SHARES AND RESTRICTED UNITS.
(a) Restricted Shares: At the end of the Restricted Period, all
restrictions contained in the Restricted Share Agreement and in the Plan shall
lapse as to
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Restricted Shares granted in relation to such Restricted Period, and one or more
stock certificates for the appropriate number of shares of Common Stock, free of
restrictions, shall be delivered to the Participant or such shares shall be
credited to a brokerage account if the Participant so directs.
(b) Restricted Units: At the end of the Vesting Period applicable to
Restricted Units granted to a Participant, a cash amount equivalent in value to
the Fair Market Value of one share of Common Stock on the last day of the
Vesting Period, or during such period as is established by the Committee at the
time of grant, shall be paid, with respect to each such Restricted Unit, to the
Participant, or his beneficiary or estate, as the case may be.
SECTION 3.7 TERMINATION OF EMPLOYMENT.
(a) Prior to the end of a Vesting Period:
(i) Death: If a Participant ceases to be an employee of the
Company prior to the end of a Vesting Period by reason of death, all Restricted
Shares and Restricted Units granted to such Participant are immediately payable
as set forth in Section 3.6.
(ii) Disability or Retirement: The Disability or Retirement of a
Participant shall not constitute a termination of employment for purposes of
this Article III and such Participant shall not forfeit any Restricted Shares or
Restricted Units held by him, provided that, during the remainder of the
applicable Vesting Period, such Participant does not engage in or assist any
business that the Committee, in its sole discretion, determines to be in
competition with business engaged in by the Company. A Participant who does
engage in or assist any business that the Committee, in its sole discretion,
determines to be in competition with business engaged in by the Company shall be
deemed to have terminated employment.
(iii) Other Terminations: If a Participant ceases to be an
employee prior to the end of a Vesting Period for any reason other than death,
the Participant shall immediately forfeit all Restricted Shares and Restricted
Units previously granted with respect to such Vesting Period in accordance with
the provisions of Section 3.2 hereof, unless the Committee, in its sole
discretion, finds that the circumstances in the particular case so warrant and
allows a Participant whose employment has so terminated to retain any or all of
the Restricted Shares or Restricted Units granted to such Participant.
(b) After the end of a Vesting Period but prior to the end of a Restricted
Period:
(i) Death, Disability, or Retirement: If a Participant ceases to
be an employee of the Company by reason of death, or in the case of the
Disability or
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Retirement of a Participant, prior to the end of a Restricted Period, all
Restricted Shares granted to such Participant are immediately payable in the
manner set forth in Section 3.6.
(ii) Other Terminations: Terminations of employment for any reason
other than death after the end of a Vesting Period but prior to the end of a
Restricted Period shall not have any effect on the Restricted Period, unless the
Committee, in its sole discretion, finds that the circumstances so warrant and
determines that the Restricted Period shall end on an earlier date as determined
by the Committee and that shares held by the Company shall be paid as soon as
practicable following such earlier date in the manner set forth in Section 3.6.
(c) Approved leaves of absence of one year or less shall not be deemed to
be terminations of employment under this Section 3.7. Leaves of absence of more
than one year will be deemed to be terminations of employment under this Section
3.7, unless the Committee determines otherwise.
SECTION 3.8 EXTENSION OF VESTING; DEFERRAL OF PAYMENT.
The Committee may, in its sole discretion, offer any Participant the right,
by execution of a written agreement with ML & Co. containing such terms and
conditions as the Committee shall in its sole discretion provide for, to extend
the Vesting Period applicable to all or any portion of such Participant's
Restricted Shares or Restricted Units, to convert all or any portion of such
Participant's Restricted Shares into Restricted Units or to defer the receipt of
all or any portion of the payment, if any, for such Participant's Restricted
Units (including any Restricted Shares converted into Restricted Units). In the
event that any Vesting Period with respect to Restricted Shares is extended
pursuant to this Section 3.8, the Restricted Period with respect to such
Restricted Shares shall be extended to the same date. The provisions of any
written agreement with a Participant pursuant to this Section 3.8 may provide
for the payment or crediting of interest, an appreciation factor or index or
dividend equivalents, as appropriate.
ARTICLE IV - PROVISIONS APPLICABLE TO STOCK OPTIONS.
SECTION 4.1 GRANTS OF STOCK OPTIONS.
The Committee may select employees to become Participants (subject to
Section 1.5 hereof) and grant Stock Options to such Participants at any time;
provided, however, that Incentive Stock Options shall be granted within 10 years
of the earlier of the date the Plan is adopted by the Board or approved by the
stockholders. Before making grants, the Committee must receive the
recommendations of the management of the Company, which will take into account
such factors as level of responsibility, current and past performance, and
performance potential. Subject to the provisions of the Plan, the Committee
shall also determine the number of shares of Common Stock
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to be covered by each Stock Option. The Committee shall have the authority, in
its discretion, to grant "Incentive Stock Options" or "Nonqualified Stock
Options," or to grant both types of Stock Options. Furthermore, the Committee
may grant a Stock Appreciation Right in connection with a Stock Option, as
provided in Article V.
SECTION 4.2 OPTION DOCUMENTATION.
Each Stock Option granted under the Plan shall be evidenced by written
documentation containing such terms and conditions as the Committee may deem
appropriate and are not inconsistent with the provisions of the Plan.
SECTION 4.3 EXERCISE PRICE.
The Committee shall establish the exercise price at the time any Stock
Option is granted at such amount as the Committee shall determine, except that
such exercise price shall not be less than 50% of the Fair Market Value of the
underlying shares of Common Stock on the day a Stock Option is granted and that,
with respect to an Incentive Stock Option, such exercise price shall not be less
than 100% of the Fair Market Value of the underlying shares of Common Stock on
the day such Incentive Stock Option is granted. The exercise price will be
subject to adjustment in accordance with the provisions of Article VII of the
Plan.
SECTION 4.4 EXERCISE OF STOCK OPTIONS.
(a) Exercisability: Stock Options shall become exercisable at
such times and in such installments as the Committee may provide at the time of
grant. The Committee may, however, in its sole discretion accelerate the time
at which a Stock Option or installment may be exercised. A Stock Option may be
exercised at any time from the time first set by the Committee until the close
of business on the expiration date of the Stock Option. Notwithstanding the
foregoing, in no event may a Participant, or a Participant's transferee pursuant
to Section 4.4(d), exercise a Stock Option during the 12-month period following
a hardship withdrawal by the Participant of Elective 401(k) Deferrals as defined
under the Merrill Lynch & Co., Inc. 401(k) Savings & Investment Plan.
(b) Option Period: For each Stock Option granted, the Committee
shall specify the period during which the Stock Option may be exercised,
provided that no Stock Option shall be exercisable after the expiration of 10
years from the date of grant of such Stock Option.
(c) Exercise in the Event of Termination of Employment:
(i) Death: If a Participant ceases to be an employee of the Company by
reason of death prior to the exercise or expiration of Stock Options granted to
him and outstanding on the date of death, such Stock Options may be exercised to
the full
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extent not yet exercised, regardless of whether or not then fully exercisable
under the terms of the grant or under the terms of Section 4.4(a) hereof, by his
estate or beneficiaries, as the case may be, if such Stock Options are
outstanding in his name, or by his transferee pursuant to Section 4.4(d) or such
transferee's estate or beneficiaries, if such Stock Options are outstanding in
the name of such transferee, at any time and from time to time, but in no event
after the expiration date of such Stock Option.
(ii) Disability or Retirement: The Disability or Retirement of a
Participant shall not constitute a termination of employment for purposes of
this Article IV, provided that following Disability or Retirement such
Participant does not engage in or assist any business that the Committee, in its
sole discretion, determines to be in competition with business engaged in by the
Company. A Participant who does engage in or assist any business that the
Committee, in its sole discretion, determines to be competition with business
engaged in by the Company shall be deemed to have terminated employment. In the
case of Incentive Stock Options, Disability shall be as defined in Code Section
22(e)(3).
(iii)Other Terminations: If a Participant ceases to be an employee prior
to the exercise or expiration of a Stock Option for any reason other than death,
all outstanding Stock Options granted to such Participant, whether outstanding
in his name or in the name of another person as a result of a transfer in
accordance with Section 4.4(d), shall expire on the date of such termination of
employment, unless the Committee, in its sole discretion, finds that the
circumstances in the particular case so warrant and determines that the
Participant, his transferee pursuant to Section 4.4(d) or such transferee's
estate or beneficiaries, may exercise any such outstanding Stock Option (to the
extent that any such outstanding Stock Option could have been exercised at the
date of such termination of employment) at any time and from time to time within
up to 5 years after such termination of employment but in no event after the
expiration date of such Stock Option (the "Extended Period"). If a Participant
dies during the Extended Period and prior to the exercise or expiration of a
Stock Option, his estate or beneficiaries, as the case may be, if such Stock
Option is outstanding in his name, or his transferee pursuant to Section 4.4(d)
or such transferee's estate or beneficiaries, if such Stock Option is
outstanding in the name of such transferee, may exercise such Stock Option (to
the extent such Stock Option could have been exercised at the date of
termination of employment) at any time and from time to time, but in no event
after the end of the Extended Period.
(d) Limitations on Transferability: Stock Options are not transferable by
a Participant except by will or the laws of descent and distribution and are
exercisable during his lifetime only by him; provided, however, that the
Committee shall have the authority, in its discretion, to grant (or to sanction
by way of amendment of an existing grant) Stock Options which may be transferred
by the Participant during his lifetime to any member of his immediate family or
to a trust, limited liability corporation, family limited partnership or other
equivalent vehicle, established for the exclusive benefit of
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one or more members of his immediate family, in which case the written
documentation containing the terms and conditions of such Stock Options shall so
state. A transfer of a Stock Option pursuant to this subparagraph may only be
effected by the Corporation at the written request of a Participant and shall
become effective only when recorded in the Corporation's record of outstanding
Stock Options. In the event a Stock Option is transferred as contemplated in
this subparagraph, such Stock Option may not be subsequently transferred by the
transferee except by will or the laws of descent and distribution. In the event
a Stock Option is transferred as contemplated in this subparagraph, such Stock
Option shall continue to be governed by and subject to the terms and limitations
of the Plan and the relevant grant, and the transferee shall be entitled to the
same rights as the Participant under Articles VII, VIII and X hereof, as if no
transfer had taken place. As used in this subparagraph, "immediate family"
shall mean, with respect to any person, any child, stepchild or grandchild, and
shall include relationships arising from legal adoption.
SECTION 4.5 PAYMENT OF PURCHASE PRICE AND TAX LIABILITY UPON EXERCISE;
DELIVERY OF SHARES.
(a) Payment of Purchase Price: The purchase price of the shares as to
which a Stock Option is exercised shall be paid to the Company at the time of
exercise (i) in cash, (ii) by delivering freely transferable shares of Common
Stock already owned by the person exercising the Stock Option having a total
Fair Market Value on the date of exercise equal to the purchase price, (iii) a
combination of cash and shares of Common Stock equal in value to the exercise
price, or (iv) by such other means as the Committee, in its sole discretion, may
determine.
(b) Payment of Taxes: Upon exercise, a Participant may elect to satisfy
any federal, state or local taxes required by law to be withheld that arise as a
result of the exercise of a Stock Option by directing the Company to withhold
from the shares of Common Stock otherwise deliverable upon the exercise of such
Stock Option, such number of shares as shall have a total Fair Market Value, on
the date of exercise, at least equal to the amount of tax to be withheld.
(c) Delivery of Shares: Upon receipt by the Company of the purchase
price, stock certificate(s) for the shares of Common Stock as to which a Stock
Option is exercised (net of any shares withheld pursuant to Section 4.5(b)
above) shall be delivered to the person in whose name the Stock Option is
outstanding or such person's estate or beneficiaries, as the case may be, or
such shares shall be credited to a brokerage account or otherwise delivered, in
such manner as such person or such person's estate or beneficiaries, as the case
may be, may direct.
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SECTION 4.6 LIMITATIONS ON SHARES OF COMMON STOCK RECEIVED UPON EXERCISE
OF 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.
The maximum aggregate number of shares of Common Stock underlying stock
options to be granted in any one fiscal year to any individual executive
officer, as such term is defined in the regulations promulgated under Section
162(m) of the Internal Revenue Code, shall be 1,000,000 (one million), which
number shall be adjusted automatically to give effect to mergers,
consolidations, reorganizations, stock dividends, stock splits or combinations,
reclassifications, recapitalizations, or distributions 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.*
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
* This paragraph is subject to approval by ML & Co.'s stockholders at its 1997
Annual Meeting of Stockholders
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Right over the Fair Market Value of one share of Common Stock on the date such
Stock Appreciation Right was granted, or such other price determined by the
Committee at the time of grant, which shall in no event be less than 50% of the
Fair Market Value of one share of Common Stock on the date such Stock
Appreciation Right was granted. Stock Appreciation Rights are not transferable
by a Participant except by will or the laws of descent and distribution and are
exercisable during his lifetime only by him.
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
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time within l2 months after the date of death but in no event after the
expiration date of such Stock Appreciation Right.
(b) Disability: The Disability of a Participant shall not constitute a
termination of employment for purposes of this Article IV, provided that
following the Disability such Participant does not engage in or assist any
business that the Committee, in its sole discretion, determines to be in
competition with business engaged in by the Company. A Participant who does
engage in or assist any business that the Committee, in its sole 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
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and conditions, if any, upon which such Other ML & Co. Securities may or must be
repurchased by the Company. Before making grants, the Committee must receive
the recommendations of the management of the Company, which will take into
account such factors as level of responsibility, current and past performance,
and performance potential. Each such Other ML & Co. Security shall be issued at
a price that will not exceed the Fair Market Value thereof on the date the
corresponding right or option is granted. Other ML & Co. Securities may bear
interest or pay dividends from such date and at a rate or rates or pursuant to a
formula or formulas fixed by the Committee or 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
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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, 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
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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 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
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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.
(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
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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 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.
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No act or failure to act by the Participant shall be deemed "willful"
unless done, or omitted to be done, by the Participant not in good faith and
without reasonable belief that his action or omission was in the best interest
of the Company.
Notwithstanding the foregoing, the Participant shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
him a copy of a resolution duly adopted by the affirmative vote of not less than
three quarters of the entire membership of the Board of Directors at a meeting
of the Board called and held for such purpose (after reasonable notice to the
Participant and an opportunity for him, together with counsel, to be heard
before the Board of Directors), finding that, in the good faith opinion of the
Board of Directors, the Participant was guilty of conduct set forth above in
clause (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);
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(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 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,
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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 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.
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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.
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
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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 Common Stock available for distribution under
the Plan (other than increases due to an adjustment in accordance with the
Plan). No modification, amendment or termination of the Plan shall adversely
affect the rights of a Participant under a grant previously made to him without
the consent of such Participant.
ARTICLE XI - INTERPRETATION.
SECTION 11.1 GOVERNMENTAL AND OTHER REGULATIONS.
The Plan and any grant hereunder shall be subject to all applicable Federal
and state laws, rules, and regulations and to such approvals by any regulatory
or governmental agency that may, in the opinion of the counsel for the Company,
be required.
SECTION 11.2 GOVERNING LAW.
The Plan shall be construed and its provisions enforced and administered in
accordance with the laws of the State of New York applicable to contracts
entered into and performed entirely in such State.
ARTICLE XII - EFFECTIVE DATE AND STOCKHOLDER APPROVAL.
The Plan shall not be effective unless or until approved by a majority of
the votes cast at a duly held stockholders' meeting at which a quorum
representing a majority of all outstanding voting stock is, either in person or
by proxy present and voting on the Plan.
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Exhibit 99.2
APPENDIX 2
[PROPOSED FORM OF EXECUTIVE OFFICER COMPENSATION PLAN, REFLECTING AMENDMENT TO
PERFORMANCE GOAL FORMULA APPLICABLE TO CASH BONUSES FOR EXECUTIVE MANAGEMENT]
MERRILL LYNCH & CO., INC.
-------------------------
EXECUTIVE OFFICER COMPENSATION PLAN
-----------------------------------
ARTICLE I - GENERAL
SECTION 1.1 PURPOSE
The purposes of the Executive Officer Compensation Plan (the "PLAN") are:
(a) to motivate and reward Participants on an individual basis for their
contributions to the corporate profitability and growth, financial
strength, and return to stockholders of Merrill Lynch & Co., Inc., a
Delaware corporation; and (b) to ensure that Merrill Lynch & Co., Inc.
receives a tax deduction for the compensation paid to its Chairman and/or
Chief Executive Officer and its four additional most highly compensated
Executive Officers whose compensation is disclosed in its annual proxy
statement.
SECTION 1.2 DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings
indicated:
(a) "AVERAGE COMMON STOCKHOLDERS' EQUITY" means, with respect to any
fiscal year, the sum of the month-end common stockholders' equity
(excluding preferred stock) for the month of December of the fiscal
year prior to the fiscal year for which Average Common Stockholders'
Equity is being computed and each of the 12 months in the fiscal year,
as reported by ML & Co., divided by 13.
(b) "AVERAGE PERCENTAGE CHANGE IN PERFORMANCE" means, with respect to any
Performance Year, the percentage change (increase or decrease) in Net
Income from the immediately preceding fiscal year (or the fiscal year
indicated in the proviso to Section 2.1 (b)(2)) plus the percentage
change (increase or decrease) in ROE from the immediately preceding
fiscal year (or the fiscal year indicated in the proviso to Section
2.1 (b)(2)) divided by 2 and rounded to the nearest whole percentage
point.
(c) "AWARD" means the amounts payable to a Participant pursuant to Section
2.2.
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(d) "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of ML &
Co.
(e) "CASH BONUS AMOUNT" means the cash bonus computed for each Participant
in accordance with Section 2.1 (b)(4).
(f) "CEO" means the Chief Executive Officer (or a functional successor) of
ML & Co. as of the end of the relevant Performance Year.
(g) "CHAIRMAN" means the Chairman of the Board (or a functional successor)
of ML & Co. as of the end of the relevant Performance Year.
(h) "CHIEF OPERATING OFFICER" means the Chief Operating Officer (or a
functional successor) of ML & Co. as of the end of the relevant
Performance Year.
(i) "COMMITTEE" means the Management Development and Compensation
Committee of the Board of Directors of ML & Co., or any subcommittee
of the Management Development and Compensation Committee composed of
"outside directors", as such term is defined in Regulation Section
1.162-27(e)(3) or any functional successor thereto.
(j) "IRC" means the Internal Revenue Code of 1986, as amended.
(k) "MAXIMUM CASH BONUS AMOUNT" means, with respect to an individual
Performance Year, the amount derived by performing the calculations
called for in Sections 2.1(b)(2) and (3).
(l) "ML & CO." means Merrill Lynch & Co., Inc. 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 term "ML & Co." shall include any successor thereto.
(m) "NET INCOME" means, with respect to any Performance Year, Net Earnings
Applicable to Common Stockholders for ML & Co. as it appears in ML &
Co.'s Statement of Consolidated Earnings contained in ML & Co.'s
Consolidated Financial Statements for such Performance Year adjusted
to eliminate: (i) the cumulative effect of changes in accounting
policy (which include changes in generally accepted accounting
principles) adopted by ML & Co. for the relevant Performance Year;
(ii) expenses classified as "Provisions for Restructuring"; (iii)
gains and/or losses classified as "Discontinued Operations"; (iv)
gains or losses classified as "Extraordinary Items", which may
include: (A) profits or losses on disposal of assets or segments of
the previously separate companies of a
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business combination within two years of the date of such combination;
(B) gains on restructuring payables (C) gains or losses on the
extinguishment of debt; (D) gains or losses from the expropriation of
property; (E) gains or losses that are the direct result of a major
casualty; and (F) losses resulting from a newly enacted law or
regulation; and (v) other expenses or losses that are unusual in
nature or infrequent in occurrence.
In each instance, the above-referenced adjustment to Net Income must
be in accordance with generally accepted accounting principles and
appear on the face of ML & Co.'s Statement of Consolidated Earnings
contained in ML & Co.'s Consolidated Financial Statements for such
Performance Year, and said adjustment will be calculated net of
related applicable income tax effect.
(n) "RETIREMENT" means the cessation of employment by ML & Co. after
reaching age 55 and having completed at least 10 years of service (or
age 65 and having completed at least 5 years of service), including
approved leaves of absence of one year or less.
(o) "ROE" means, with respect to any fiscal year, the Net Income for such
period, divided by the Average Common Stockholders' Equity for such
period.
(p) "PARTICIPANT" means, any employee of ML & Co. who has met the
eligibility requirements set forth in Section 1.4 hereof.
(q) "PERFORMANCE YEAR" means, the fiscal year of ML & Co. that is being
used to measure whether the Performance Goals outlined in Section
2.1(b) have been met.
(r) "PERMANENT DISABILITY" means any physical or mental condition that, in
the opinion of the Committee, renders an employee incapable of
engaging in any employment or occupation for which the employee is
suited by reason of education or training.
(s) "PRIOR YEAR'S MAXIMUM CASH BONUS AMOUNT" means, (A) for the
Performance Year 1994, the actual cash bonus paid to the Chairman and
CEO with respect to performance in 1993, as reported in the Summary
Compensation Table of ML & Co.'s Proxy Statement for its 1994 Annual
Meeting and (B) for all subsequent Performance Years, the Maximum Cash
Bonus Amount determined under Section 2.1(b) for the fiscal year
immediately preceding the Performance Year (or the fiscal year
indicated in the proviso to Section 2.1(b)(3)).
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SECTION 1.3 ADMINISTRATION
(a) The Plan shall be administered by the Committee. Subject to the
provisions of the Plan, the Committee will have sole and complete
authority to: (i) adopt, amend and rescind such rules and regulations
as, in its opinion, may be advisable for the administration of the
Plan; (ii) construe and interpret the Plan and all rules and
regulations; and, (iii) make all determinations deemed advisable or
necessary for the administration of the Plan. This shall include sole
and complete authority to determine and certify the results of the
calculations of Net Income and ROE (and that the Performance Goals
contained in Section 2.1(b) have been met), and to determine and
certify the calculations of the Maximum Cash Bonus Amount, the Cash
Bonus Amounts for each Participant, and all other calculations
contained in Section 2.1. All determinations and certifications by
the Committee shall be final and binding.
(b) The Committee shall act in accordance with its charter and 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 ELIGIBILITY AND PARTICIPATION
Eligibility to participate in the Plan in any Performance Year shall
be limited to employees of ML & Co. who are determined to be "covered employees"
in accordance with Regulation Section 1.162-27 (c)(2) of the proposed
regulations under Section 162(m) of the IRC and any successor provision in
proposed, temporary or final regulations thereunder.
ARTICLE II - CASH BONUS AWARDS
SECTION 2.1 MAXIMUM CASH BONUSES - PERFORMANCE GOALS
(a) At the end of each Performance Year, the Committee shall determine the
Maximum Cash Bonus Amount and the Cash Bonus Amounts for each
Participant in accordance with Section 2.1(b) and shall certify that
the performance goals contained in such Section 2.1(b) have been met.
(b) PERFORMANCE GOALS
(1) No cash bonus compensation shall be awarded under this Article II
unless ML & Co. shall have positive Net Income and a positive ROE for
the relevant Performance Year.
(2) After ML & Co.'s ROE and Net Income are determined for the
relevant Performance Year, the Committee shall determine the Average
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Percentage Change in Performance for the Performance Year; PROVIDED
THAT, in the event that Net Income and ROE in the prior fiscal year
were not positive, the Committee shall determine the Average
Percentage Change in Performance for the relevant Performance Year,
using Net Income and ROE from the most recent prior fiscal year in
which Net Income and ROE were positive.
(3) The Committee shall determine the Maximum Cash Bonus Amount for
the relevant Performance Year by multiplying the Prior Year's Maximum
Cash Bonus Amount by the Average Percentage Change in Performance plus
1; provided that, in the event that Net Income and ROE in the prior
year were not positive, the Committee shall determine the Maximum Cash
Bonus Amount for the relevant Performance Year by multiplying the
Maximum Cash Bonus Amount from the most recent prior fiscal year in
which Net Income and ROE were positive by the Average Percentage
Change in Performance determined in accordance with the proviso to
Section 2.1(b)(2) plus 1.
(4) The Committee shall determine each Participant's Cash Bonus
Amount by multiplying the Maximum Cash Bonus Amount by (a) 100% for
the Chairman and/or CEO, (b) 80%, for the Chief Operating Officer, and
(c) 70% for each of the other Participants.
(5) The Committee, in its sole discretion, shall have the option of
determining to pay any Participant an Award less than the Cash Bonus
Amount yielded by this Section 2.1(b).
SECTION 2.2 PAYMENT OF AWARDS
Awards shall be paid (if otherwise payable pursuant to this Plan) as soon
as practicable following the end of each Performance Year, but in no event
later than end of the first fiscal quarter following the end of such
Performance Year.
SECTION 2.3 TERMINATION OF EMPLOYMENT
Termination of a Participant's employment prior to the date an Award is
actually paid pursuant to this Plan for any reason other than death,
Permanent Disability, or Retirement shall result in forfeiture of such
Award, and no payment shall be made to any such Participant.
In the event of Death, Permanent Disability or Retirement of a Participant
after the close of a Performance Year but prior to the date an Award is
paid pursuant to this Plan, the Award shall be paid (if otherwise payable
pursuant to this Plan) to the Participant (or his or her beneficiary, as
appropriate), pursuant to Section 2.2 as if the Participant had continued
to be employed through such date.
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ARTICLE III - MISCELLANEOUS
SECTION 3.1 NONTRANSFERABILITY
A Participant's rights under this Plan, including the right to any Awards
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 3.2 WITHHOLDING
ML & Co. shall have the right, before any Award is paid, to deduct or
withhold from any payment under this Plan any Federal, state, local or
other taxes required by law to be withheld or to require the Participant or
his beneficiary or estate, as the case may be, to pay any amount, or the
balance of any amount, required to be withheld.
SECTION 3.3 NO TRUST OR FUND CREATED
Neither the Plan nor any communication in connection herewith shall create
or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between ML & Co. and a Participant or any other
person. To the extent that any person acquires a right to receive Awards
from ML & Co. pursuant to the Plan, such right shall be no greater than the
right of any unsecured creditor of ML & Co.
SECTION 3.4 TAX LITIGATION
ML & Co. will 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 ML & Co. believes to be important to Participants in this
Plan and to conduct any such contest or any litigation arising therefrom to
a final determination.
ARTICLE IV - AMENDMENT AND TERMINATION
The Committee may modify, amend or terminate this Plan at any time,
provided that no modification or amendment of the Plan shall be made of
Articles I or II hereof with respect to a Performance Year that has already
been completed, and provided further that no modification or amendment of
this Plan shall be effective that would (1) increase the cost of this Plan
to ML & Co. or (2) alter the allocation of benefits among Participants
unless such modification or amendment has received approval from ML & Co.
stockholders in accordance with Article VI.
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ARTICLE V - INTERPRETATION
SECTION 5.1 GOVERNING LAW
This 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.
SECTION 5.2 GOVERNMENTAL AND OTHER REGULATIONS
The Plan and any Award hereunder shall be subject to all applicable Federal
and state laws, rules, regulations and to such approvals by any regulatory
or governmental agency that, in the opinion of counsel of ML & Co., may be
required or advisable.
ARTICLE VI - STOCKHOLDER APPROVAL AND EFFECTIVE DATE
The Plan shall not be effective unless and until the Performance Goals and
the eligibility and partipation requirements contained herein are approved
by a majority of the votes cast by ML & Co. stockholders at a duly held
stockholder meeting at which a quorum is present either in person or by
proxy.
Subject to stockholder approval as described herein, the Plan shall be
effective as of January 1, 1994, and shall be applicable for all future
fiscal years of the Company unless amended or terminated by the Company
pursuant to Article IV.
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APPENDIX 3
[AMENDMENT TO PERFORMANCE GOAL FORMULA APPLICABLE TO GRANTS OF
RESTRICTED SHARES AND UNITS TO EXECUTIVE MANAGEMENT]
RESOLUTIONS OF THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE
OF THE MERRILL LYNCH & CO., INC. BOARD OF DIRECTORS
ADOPTED DECEMBER 2, 1996, SUBJECT TO STOCKHOLDER APPROVAL.
RESOLVED, that, having received the recommendation of the Corporation's
management, the Committee hereby amends Section 1(m) of the Executive Officer
Compensation Plan and the Definition of Net Income contained in the Performance
Goals governing the grant of Restricted Shares and Units under the Merrill Lynch
& Co., Inc. Long-Term Incentive Compensation Plan ("LTICP") or successor plans,
adopted in resolutions of the Committee, dated January 17, 1994 and February 28,
1994, and approved by the Corporation's Stockholders on April 19, 1994, to read
in its entirety as follows:
(m) "NET INCOME" means, with respect to any Performance Year, Net
Earnings Applicable to Common Stockholders for ML & Co. as it appears in ML
& Co.'s Statement of Consolidated Earnings contained in ML & Co.'s
Consolidated Financial Statements for such Performance Year adjusted to
eliminate: (i) the cumulative effect of changes in accounting policy (which
include changes in generally accepted accounting principles) adopted by ML
& Co. for the relevant Performance Year; (ii) expenses classified as
"Provisions for Restructuring"; (iii) gains and/or losses classified as
"Discontinued Operations"; (iv) gains or losses classified as
"Extraordinary Items", which may include: (A) profits or losses on disposal
of assets or segments of the previously separate companies of a business
combination within two years of the date of such combination; (B) gains on
restructuring payables (C) gains or losses on the extinguishment of debt;
(D) gains or losses from the expropriation of property; (E) gains or losses
that are the direct result of a major casualty; and (F) losses resulting
from a newly enacted law or regulation; and (v) other expenses or losses
that are unusual in nature or infrequent in occurrence.
In each instance, the above-referenced adjustment to Net Income must be in
accordance with generally accepted accounting principles and appear on the
face of ML & Co.'s Statement of Consolidated Earnings contained in ML &
Co.'s Consolidated Financial Statements for such Performance Year, and said
adjustment will be calculated net of related applicable income tax effect.
