SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED March 27, 1998
--------------
COMMISSION FILE NUMBER 1-7182
--------------
MERRILL LYNCH & CO., INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-2740599
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
WORLD FINANCIAL CENTER, NORTH TOWER,
NEW YORK, NEW YORK 10281-1332
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 449-1000
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES |X| NO |_|
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
345,991,939 shares of Common Stock
(as of the close of business on May 1, 1998)
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
---------------------------
MARCH 27, MARCH 28, PERCENT (1)
(Dollars in Millions, Except Per Share Amounts) 1998 1997 INC./(DEC.)
--------- --------- -----------
<S> <C> <C> <C>
REVENUES
Commissions .......................................... $ 1,377 $ 1,115 23.5%
Interest and dividends ............................... 4,742 3,848 23.2
Principal transactions ............................... 1,152 1,063 8.3
Investment banking ................................... 801 608 31.8
Asset management and portfolio service fees .......... 970 646 50.2
Other ................................................ 124 171 (27.5)
--------- --------- ---------
Total Revenues ....................................... 9,166 7,451 23.0
Interest Expense ..................................... 4,564 3,610 26.4
--------- --------- ---------
Net Revenues ......................................... 4,602 3,841 19.8
--------- --------- ---------
NON-INTEREST EXPENSES
Compensation and benefits ............................ 2,375 1,988 19.5
Communications and equipment rental .................. 198 158 25.7
Occupancy ............................................ 135 120 12.1
Depreciation and amortization ........................ 126 105 19.7
Professional fees .................................... 263 198 33.1
Advertising and market development ................... 172 144 19.4
Brokerage, clearing, and exchange fees ............... 150 118 27.1
Goodwill amortization ................................ 55 15 N/M
Other ................................................ 254 229 10.8
--------- --------- ---------
Total Non-Interest Expenses .......................... 3,728 3,075 21.3
--------- --------- ---------
EARNINGS BEFORE INCOME TAXES AND
DIVIDENDS ON PREFERRED SECURITIES
ISSUED BY SUBSIDIARIES ............................... 874 766 14.0
Income Tax Expense ..................................... 332 291 14.1
Dividends on Preferred Securities Issued by Subsidiaries 24 9 136.7
--------- --------- ---------
NET EARNINGS ........................................... $ 518 $ 466 11.4%
========= ========= =========
NET EARNINGS APPLICABLE TO
COMMON STOCKHOLDERS .................................. $ 509 $ 455 11.9%
========= ========= =========
EARNINGS PER COMMON SHARE (2)
Basic .............................................. $ 1.49 $ 1.37
========= =========
Diluted ............................................ $ 1.30 $ 1.17
========= =========
DIVIDEND PAID PER COMMON SHARE (2) ..................... $ .20 $ .15
========= =========
AVERAGE SHARES USED IN COMPUTING EARNINGS
PER COMMON SHARE (2)
Basic .............................................. 340.6 331.2
========= =========
Diluted ............................................ 390.9 389.6
========= =========
</TABLE>
"(1) Percentages are based on actual numbers before rounding."
"(2) Share and per share amounts for the 1997 first quarter have been restated
for the two-for-one common stock split, effected in the form of a 100%
stock dividend, paid on May 30, 1997."
See Notes to Consolidated Financial Statements
2
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
MARCH 27, DECEMBER 26,
ASSETS 1998 1997
- ------------------------------------------------------------------------------- -------- --------
<S> <C> <C>
CASH AND CASH EQUIVALENTS ...................................................... $ 5,400 $ 5,032
-------- --------
CASH AND SECURITIES SEGREGATED FOR REGULATORY PURPOSES
OR DEPOSITED WITH CLEARING ORGANIZATIONS ..................................... 10,502 12,384
-------- --------
MARKETABLE INVESTMENT SECURITIES ............................................... 3,131 3,309
-------- --------
TRADING ASSETS, AT FAIR VALUE
Corporate debt and preferred stock ........................................... 33,732 32,501
Equities and convertible debentures .......................................... 30,691 23,617
Contractual agreements ....................................................... 22,527 21,205
U.S. Government and agencies ................................................. 11,295 9,832
Non-U.S. governments and agencies ............................................ 10,608 9,755
Mortgages, mortgage-backed, and asset-backed ................................. 9,463 7,312
Other ........................................................................ 2,990 2,556
-------- --------
121,306 106,778
Securities received as collateral, net of securities pledged as collateral.... 12,490 --
-------- --------
Total trading assets ......................................................... 133,796 106,778
-------- --------
SECURITIES PLEDGED AS COLLATERAL ............................................... 16,452 --
-------- --------
RECEIVABLES UNDER RESALE AGREEMENTS ............................................ 73,815 70,262
-------- --------
RECEIVABLES UNDER SECURITIES BORROWED TRANSACTIONS ............................. 45,070 35,366
-------- --------
OTHER RECEIVABLES
Customers (net of allowance for doubtful accounts of
$49 in 1998 and $50 in 1997) ................................................ 29,140 26,529
Brokers and dealers .......................................................... 5,866 5,100
Interest and other ........................................................... 8,622 8,114
-------- --------
Total ........................................................................ 43,628 39,743
-------- --------
INVESTMENTS OF INSURANCE SUBSIDIARIES .......................................... 4,714 4,833
LOANS, NOTES, AND MORTGAGES (net of allowance for
loan losses of $132 in 1998 and $130 in 1997) ................................ 5,635 4,310
OTHER INVESTMENTS .............................................................. 2,132 1,826
PROPERTY, LEASEHOLD IMPROVEMENTS, AND EQUIPMENT
(net of accumulated depreciation and amortization
of $3,028 in 1998 and $2,910 in 1997) ........................................ 2,215 2,074
GOODWILL (net of accumulated amortization of
$180 in 1998 and $131 in 1997)................................................ 5,412 5,455
OTHER ASSETS ................................................................... 1,522 1,447
-------- --------
TOTAL ASSETS ................................................................... $353,424 $292,819
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
LIABILITIES, PREFERRED SECURITIES ISSUED BY SUBSIDIARIES, MARCH 27, DECEMBER 26,
AND STOCKHOLDERS' EQUITY 1998 1997
- ------------------------------------------------------------------ --------- ---------
LIABILITIES
<S> <C> <C>
PAYABLES UNDER REPURCHASE AGREEMENTS AND
SECURITIES LOANED TRANSACTIONS ................................. $ 95,296 $ 77,875
--------- ---------
COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS ................. 49,867 44,850
--------- ---------
TRADING LIABILITIES, AT FAIR VALUE
Contractual agreements ......................................... 19,502 20,632
U.S. Government and agencies ................................... 15,350 18,182
Equities and convertible debentures ............................ 21,337 15,724
Non-U.S. governments and agencies .............................. 10,080 9,720
Corporate debt, preferred stock, and other ..................... 5,634 5,818
--------- ---------
Total .......................................................... 71,903 70,076
--------- ---------
OBLIGATION TO RETURN SECURITIES RECEIVED AS COLLATERAL ........... 28,942 --
--------- ---------
OTHER PAYABLES
Customers ...................................................... 17,390 16,519
Brokers and dealers ............................................ 8,551 4,112
Interest and other ............................................. 18,971 22,625
--------- ---------
Total .......................................................... 44,912 43,256
--------- ---------
LIABILITIES OF INSURANCE SUBSIDIARIES ............................ 4,594 4,716
LONG-TERM BORROWINGS ............................................. 47,532 43,090
--------- ---------
TOTAL LIABILITIES ................................................ 343,046 283,863
--------- ---------
PREFERRED SECURITIES ISSUED BY SUBSIDIARIES ...................... 1,377 627
--------- ---------
STOCKHOLDERS' EQUITY
PREFERRED STOCKHOLDERS' EQUITY ................................... 425 425
--------- ---------
COMMON STOCKHOLDERS' EQUITY
Common stock, par value $1.33 1/3 per share;
authorized: 500,000,000; issued: 472,660,324 shares .......... 630 630
Paid-in capital ................................................ 1,360 1,065
Accumulated other comprehensive income (net of tax) ............ (25) (34)
Retained earnings .............................................. 9,925 9,485
--------- ---------
11,890 11,146
Less: Treasury stock, at cost:
1998 - 127,929,023 shares; 1997 - 137,578,035 shares 2,452 2,804
Employee stock transactions .............................. 862 438
--------- ---------
TOTAL COMMON STOCKHOLDERS' EQUITY ................................ 8,576 7,904
--------- ---------
TOTAL STOCKHOLDERS' EQUITY ....................................... 9,001 8,329
--------- ---------
TOTAL LIABILITIES, PREFERRED SECURITIES ISSUED BY SUBSIDIARIES,
AND STOCKHOLDERS' EQUITY ....................................... $ 353,424 $ 292,819
========= =========
BOOK VALUE PER COMMON SHARE ...................................... $ 24.92 $ 23.64
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------
(Dollars in Millions) MARCH 27, MARCH 28,
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ...................................................... $ 518 $ 466
Noncash items included in earnings:
Depreciation and amortization ................................... 126 105
Policyholder reserves ........................................... 58 62
Other ........................................................... 371 289
(Increase) decrease in operating assets:
Trading assets .................................................. (14,528) (17,504)
Cash and securities segregated for regulatory purposes
or deposited with clearing organizations ...................... 1,882 (1,855)
Receivables under securities borrowed transactions .............. (9,704) (6,025)
Customer receivables ............................................ (2,606) (2,459)
Sales of trading investment securities .......................... 256 344
Purchases of trading investment securities ...................... (164) (329)
Other ........................................................... (2,869) (3,389)
Increase (decrease) in operating liabilities:
Trading liabilities ............................................. 1,827 7,237
Payables under securities loaned transactions ................... 3,969 2,472
Liabilities of insurance subsidiaries ........................... (175) (118)
Customer payables ............................................... 871 1,698
Other ........................................................... 6,197 3,030
--------- ---------
CASH USED FOR OPERATING ACTIVITIES ................................ (13,971) (15,976)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from (payments for):
Maturities of available-for-sale securities ..................... 1,000 756
Sales of available-for-sale securities .......................... 659 605
Purchases of available-for-sale securities ...................... (1,799) (1,778)
Maturities of held-to-maturity securities ....................... 237 231
Purchases of held-to-maturity securities ........................ (179) (175)
Acquisition, net of cash acquired ............................... (5,220) --
Other investments and other assets .............................. (435) (134)
Property, leasehold improvements, and equipment ................. (267) (141)
--------- ---------
CASH USED FOR INVESTING ACTIVITIES ................................ (6,004) (636)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments for):
Repurchase agreements, net of resale agreements ................. 10,110 5,470
Commercial paper and other short-term borrowings ................ 5,017 8,019
Issuance and resale of long-term borrowings ..................... 7,763 5,757
Settlement and repurchase of long-term borrowings ............... (3,145) (1,606)
Issuance of subsidiaries' preferred securities .................. 750 300
Redemption of remarketed preferred stock ........................ -- (194)
Common stock transactions ....................................... (74) (294)
Dividends ....................................................... (78) (61)
--------- ---------
CASH PROVIDED BY FINANCING ACTIVITIES ............................. 20,343 17,391
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS ............................. 368 779
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ...................... 5,032 3,375
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD .......................... $ 5,400 $ 4,154
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Income taxes .................................................... $ 95 $ 19
Interest ........................................................ 4,275 3,256
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 27, 1998
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
================================================================================
Basis of Presentation
- --------------------------------------------------------------------------------
The Consolidated Financial Statements include the accounts of Merrill Lynch &
Co., Inc. ("ML & Co.") and subsidiaries (collectively, "Merrill Lynch"). All
material intercompany balances have been eliminated. The December 26, 1997
consolidated balance sheet was derived from the audited financial statements.
The interim consolidated financial statements for the three-month periods are
unaudited; however, in the opinion of Merrill Lynch management, all adjustments,
consisting only of normal recurring accruals, necessary for a fair statement of
the results of operations have been included.
These unaudited financial statements should be read in conjunction with the
audited financial statements included in Merrill Lynch's Annual Report on Form
10-K for the year ended December 26, 1997. The nature of Merrill Lynch's
business is such that the results of any interim period are not necessarily
indicative of results for a full year. Prior period financial statements have
been reclassified, where appropriate, to conform to the 1998 presentation.
================================================================================
New Accounting Pronouncements
- --------------------------------------------------------------------------------
Merrill Lynch adopted Statement of Financial Accounting Standards ("SFAS") No.
127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125", which requires balance sheet recognition of collateral related to certain
secured financing transactions entered into after December 31, 1997. The
adoption of such provisions creates the following additional captions on Merrill
Lynch's balance sheet:
o Securities received as collateral, net of securities pledged as collateral;
o Securities pledged as collateral; and
o Obligation to return securities received as collateral.
The balances recognized in these captions primarily represent securities
received as collateral in term resale agreements for which the collateral
provider does not have the explicit contractual right to substitute.
In March 1998, the AICPA's Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 requires
capitalization of certain internal use software costs. The SOP, which is
effective January 1, 1999, was early adopted by Merrill Lynch in the 1998 first
quarter and was not material to the
.
6
<PAGE>
================================================================================
Earnings Per Share
- --------------------------------------------------------------------------------
In 1997, Merrill Lynch adopted SFAS No. 128, "Earnings Per Share", which
requires reporting basic and diluted EPS. Information relating to these
computations follows:
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
---------------------
MARCH 27, MARCH 28,
1998 1997
- --------------------------------------------------------------------------------
Net earnings $ 518 $ 466
Preferred stock dividends 9 11
-------- --------
Net earnings applicable to
common stockholders $ 509 $ 455
======== ========
- --------------------------------------------------------------------------------
(shares in thousands)
Weighted-average shares
outstanding 340,571 331,156
-------- --------
Effect of dilutive instruments:
Employee stock options 28,948 30,850
FCCAAP shares 16,831 22,192
Restricted units 4,496 5,336
ESPP shares 90 94
-------- --------
Dilutive potential common shares 50,365 58,472
-------- --------
Total weighted-average
diluted shares 390,936 389,628
======== ========
- --------------------------------------------------------------------------------
Basic earnings per share $ 1.49 $ 1.37
Diluted earnings per share 1.30 1.17
- --------------------------------------------------------------------------------
================================================================================
Comprehensive Income
- --------------------------------------------------------------------------------
In 1997, Merrill Lynch adopted SFAS No. 130, "Reporting Comprehensive Income",
which requires reporting of comprehensive income in the financial statements.
The components of comprehensive income are as follows:
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
--------------------
MARCH 27, MARCH 28,
1998 1997
- --------------------------------------------------------------------------------
Net earnings $ 518 $ 466
----- -----
Other comprehensive income, net of tax:
Foreign currency translation
adjustment 15 (2)
Net unrealized (losses) gains on
investment securities available-for-sale (6) 4
----- -----
Total other comprehensive income 9 2
----- -----
Comprehensive income $ 527 $ 468
===== =====
- --------------------------------------------------------------------------------
7
<PAGE>
================================================================================
Short-Term Borrowings
- --------------------------------------------------------------------------------
Short-term borrowings at March 27, 1998 and December 26, 1997 are presented
below:
- --------------------------------------------------------------------------------
MARCH 27, DECEMBER 26,
1998 1997
- --------------------------------------------------------------------------------
PAYABLES UNDER REPURCHASE AGREEMENTS
AND SECURITIES LOANED TRANSACTIONS
Repurchase agreements $84,496 $71,044
Securities loaned transactions 10,800 6,831
------- -------
Total $95,296 $77,875
======= =======
COMMERCIAL PAPER AND OTHER SHORT-TERM
BORROWINGS
Commercial paper $32,310 $30,379
Demand and time deposits 11,054 10,531
Bank loans and other 6,503 3,940
------- -------
Total $49,867 $44,850
======= =======
- --------------------------------------------------------------------------------
================================================================================
Preferred Securities Issued by Subsidiaries
- --------------------------------------------------------------------------------
In January 1998, Merrill Lynch Preferred Capital Trust III (the "Trust"), a
subsidiary of ML & Co., issued $750 of 7% Trust Originated Preferred
Securities (Service Mark). The Trust holds preferred securities of a limited
partnership, which is also a subsidiary of ML & Co. The assets of the limited
partnership consist primarily of debt securities of ML & Co. and one of its
subsidiaries. ML & Co. has guaranteed, on a subordinated basis, certain payments
by the Trust and the limited partnership.
================================================================================
Derivatives and Other Commitments
- --------------------------------------------------------------------------------
Merrill Lynch enters into various derivative contracts to meet clients' needs
and to manage its own market risks. Derivative contracts often involve future
commitments to exchange interest payment streams or currencies (such as interest
rate and currency swaps or foreign exchange forwards) or to purchase or sell
other financial instruments at specified terms on a specified date. Options, for
example, can be purchased or written on a wide range of financial instruments
such as securities, currencies, futures, and various market indices.
8
<PAGE>
The notional or contractual amounts of derivatives provide only a measure of
involvement in these types of transactions and represent neither the amounts
subject to the various types of market risk nor the future cash requirements
under these instruments. The notional or contractual amounts of derivatives used
for trading purposes by type of risk follow:
- --------------------------------------------------------------------------------
INTEREST EQUITY COMMODITY
RATE CURRENCY PRICE PRICE
(in billions) RISK (1)(2) RISK (3) RISK RISK
- --------------------------------------------------------------------------------
MARCH 27, 1998
- --------------
Swap agreements $1,569 $ 160 $ 10 $ 6
Forward contracts 85 241 1 6
Futures contracts 307 1 12 2
Options purchased 204 79 57 10
Options written 158 79 48 10
DECEMBER 26, 1997
- -----------------
Swap agreements $1,482 $ 159 $ 17 $ 2
Forward contracts 59 196 1 15
Futures contracts 202 1 15 2
Options purchased 99 71 60 3
Options written 133 73 44 3
- --------------------------------------------------------------------------------
"(1) Certain derivatives subject to interest rate risk are also exposed to the
credit spread risk of the underlying financial instrument."
"(2) Forward contracts subject to interest rate risk principally represent "To
Be Announced" mortgage pools that bear interest rate as well as principal
prepayment risk."
"(3) Included in the currency risk category are certain contracts that are also
subject to interest rate risk."
The notional or contractual amounts of derivatives used to hedge exposure
related to borrowings or other non-trading activities follow:
- --------------------------------------------------------------------------------
MARCH 27, DECEMBER 26,
(in billions) 1998 1997
- --------------------------------------------------------------------------------
Interest rate derivatives (1) $61 $53
Currency derivatives (1) 17 10
Equity derivatives 4 3
- --------------------------------------------------------------------------------
"(1) Includes swap contracts totaling $2 billion in notional amount that contain
embedded options hedging callable debt at both dates."
Most of these derivatives are entered into with Merrill Lynch's derivative
dealer subsidiaries, which intermediate interest rate, currency, and equity
risks with third parties in the normal course of their trading activities.
In the normal course of business, Merrill Lynch enters into underwriting
commitments, when-issued transactions, and commitments to extend credit.
Settlement of these commitments as of March 27, 1998 would not have a material
effect on the consolidated financial condition of Merrill Lynch.
9
<PAGE>
================================================================================
Regulatory Requirements
- --------------------------------------------------------------------------------
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a registered
broker-dealer and a subsidiary of ML & Co., is subject to the net capital
requirements of Rule 15c3-1 of the Securities Exchange Act of 1934. Under the
alternative method permitted by this rule, the minimum required net capital, as
defined, shall not be less than 2% of aggregate debit items arising from
customer transactions. At March 27, 1998, MLPF&S's regulatory net capital of
$2,119 was 9% of aggregate debit items, and its regulatory net capital in excess
of the minimum required was $1,657.
Merrill Lynch Government Securities Inc. ("MLGSI"), a primary dealer in U.S.
Government securities and a subsidiary of ML & Co., is subject to the capital
adequacy requirements of the Government Securities Act of 1986. This rule
requires dealers to maintain liquid capital in excess of market and credit risk,
as defined, by 20% (a 1.2-to-1 capital-to-risk standard). At March 27, 1998,
MLGSI's liquid capital of $1,268 was 250% of its total market and credit risk,
and liquid capital in excess of the minimum required was $660.
Merrill Lynch International ("MLI"), a registered U.K. broker-dealer and a
subsidiary of Merrill Lynch, is subject to capital requirements of the
Securities and Futures Authority ("SFA"). Financial resources, as defined, must
exceed the total financial resources requirement of the SFA. At March 27, 1998,
MLI's financial resources were $4,225 and exceeded the minimum requirement by
$828.
================================================================================
Interest Expense
- --------------------------------------------------------------------------------
Interest expense includes payments in lieu of dividends of $5.0 and $2.1 for the
first quarters of 1998 and 1997, respectively.
================================================================================
Litigation Matters
- --------------------------------------------------------------------------------
An action is pending in the United States District Court for the Central
District of California by Orange County, California (the "County"), which filed
a bankruptcy petition in the United States Bankruptcy Court for the Central
District of California on December 6, 1994, against ML & Co. and certain of its
subsidiaries in connection with Merrill Lynch's business activities with the
Orange County Treasurer-Tax Collector. In addition, other actions are pending
against or on behalf of ML & Co. and/or certain of its officers, directors, and
employees and certain of its subsidiaries in federal and state courts in
California and New York. These include class actions and stockholder derivative
actions brought by persons alleging harm to themselves or to Merrill Lynch
arising out of Merrill Lynch's dealings with the Orange County Treasurer-Tax
Collector, or from the purchase of debt instruments issued by the County that
were underwritten by ML & Co.'s subsidiary, MLPF&S. See "Commitments and
Contingencies" in the notes to Merrill Lynch's audited consolidated financial
statements contained in the 1997 10-K, as well as "Legal Proceedings" in the
1997 10-K and this Quarterly Report on Form 10-Q.
================================================================================
Subsequent Event
- --------------------------------------------------------------------------------
On April 14, 1998, stockholders approved the proposal to amend ML & Co.'s
Certificate of Incorporation to increase the authorized number of shares of
Common Stock from 500 million to 1 billion.
10
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
Merrill Lynch & Co., Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
Merrill Lynch & Co., Inc. and subsidiaries ("Merrill Lynch") as of March 27,
1998, and the related condensed consolidated statements of earnings and cash
flows for the three-month periods ended March 27, 1998 and March 28, 1997. These
financial statements are the responsibility of the management of Merrill Lynch &
Co., Inc.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Merrill Lynch as of December 26,
1997, and the related consolidated statements of earnings, changes in
stockholders' equity and cash flows for the year then ended (not presented
herein); and in our report dated February 23, 1998, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 26, 1997 is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
/s/ Deloitte & Touche LLP
New York, New York
May 8, 1998
11
<PAGE>
- --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. ("ML & Co." and, together with its subsidiaries and
affiliates, "Merrill Lynch") is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, advisory, insurance, and related
services worldwide. Merrill Lynch conducts its businesses in global financial
markets that are influenced by numerous unpredictable factors including economic
conditions and monetary policy, the liquidity of global markets, international
and regional political events, regulatory developments, the competitive
environment, and investor sentiment. These conditions or events can
significantly affect the volatility of financial markets. While greater
volatility increases risk, it may also increase order flow in businesses such as
trading and brokerage. Revenues and net earnings may vary significantly from
period to period due to these unpredictable factors and the resulting market
volatility.
The financial services industry continues to be affected by the intensifying
competitive environment, as demonstrated by consolidation through mergers and
acquisitions, as well as diminishing margins in many mature products and
services. In addition, the recent relaxation of banks' barriers to entry into
the securities industry and expansion by insurance companies into traditional
brokerage products, coupled with the possible reform of the Glass-Steagall laws
regarding separation of commercial and investment banking activities, have
increased the number of companies competing for a similar customer base.
Global financial markets were generally strong during 1997, except for the 1997
fourth quarter when the devaluation of certain Asian currencies led to
significant volatility and overall declines in global equity markets. This
downward trend continued into early 1998, but stabilized throughout the
remainder of the 1998 first quarter. The strengthening of Asian markets,
combined with continued low interest rates and inflation in many countries,
propelled U.S. and European equity markets to record highs in the 1998 first
quarter.
Long-term U.S. interest rates at the end of the 1998 first quarter, as evidenced
by the yield on the 30-year U.S. Treasury bond, remained relatively flat
compared to year-end 1997, despite volatility during the quarter. Overall,
however, interest rates remained lower compared to both the 1997 fourth quarter
and the year-ago period. The decrease in interest rates was attributable to low
inflation despite strong economic growth and low unemployment. Credit spreads,
which represent the risk premiums paid by issuers based on credit rating or
perception, narrowed less during the 1998 first quarter relative to the year-ago
period. Global interest rates, following the trend in the U.S., were generally
lower during the 1998 first quarter, when compared to both the 1997 fourth and
first quarters.
U.S. equity markets, which posted significant overall gains in 1997, continued
to advance in the 1998 first quarter, driven by low interest rates and strong
performances in the technology and financial services sectors. During the 1998
first quarter, the Dow Jones Industrial Average reached a new high, increasing
11.3% from year-end 1997. In addition, the Nasdaq Composite Index and the S&P
500 (Registered Trademark) hit record levels, up 16.9% and 13.5% from year-end
1997 and 50.3% and 45.5% from the 1997 first quarter end, respectively.
Global equity markets rose on average approximately 13% during the first quarter
of 1998, as measured by the Dow Jones World Index (Registered Trademark). Low
interest rates and inflation, combined with prospects of strong corporate
earnings, led to significant gains in European markets during the 1998 first
quarter. Despite only modest returns in Japan and Hong Kong, the Asian markets
rebounded from 1997 price declines due in part to balance sheet restructurings.
In Latin American markets, lingering concerns over the Asian market events led
to further declines during the 1998 first quarter.
Global underwriting volume reached a new high in the 1998 first quarter as low
interest rates, combined with investor demand for higher credit quality
investments, led to record debt and equity issuances. Underwriting revenues for
the same period, however, rose only slightly, as debt offerings, which typically
yield much lower fees than equity issuances, dominated underwriting activity
during the quarter.
12
<PAGE>
Strategic services activities remained strong during the 1998 first quarter,
reflecting a continuation of the high level of merger and acquisition activity
experienced in 1997. Driven by a generally favorable stock market, ongoing
industry consolidations, as well as other competitive and economic factors,
companies continued to seek strategic alliances to increase earnings growth and
expand into new markets and businesses.
Due to the volatility of the financial services industry, Merrill Lynch
continually evaluates its businesses across varying market conditions for
profitability and alignment with long-term strategic objectives. Merrill Lynch
seeks to mitigate the effect of market downturns by expanding its global
presence, developing and maintaining long-term client relationships, closely
monitoring costs and risks, and continuing to diversify revenue sources.
================================================================================
Results of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED INCREASE
--------------------------------------- 1Q98 VERSUS
MARCH 27, DECEMBER 26, MARCH 28, ------------------
(in millions, except per share amounts) 1998 1997 1997 4Q97 1Q97
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $9,166 $8,123 $7,451 12.8% 23.0%
Net revenues 4,602 3,868 3,841 19.0 19.8
Pretax earnings 874 729 766 19.9 14.0
Net earnings 518 466 466 11.2 11.4
Net earnings applicable
to common stockholders 509 456 455 11.5 11.9
Earnings per common share (1):
Basic 1.49 1.37 1.37 8.8 8.8
Diluted 1.30 1.17 1.17 11.1 11.1
Return on average common
stockholders' equity 24.8% 23.9% 28.3%
Effective tax rate 38.0% 34.3% 38.0%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
"(1) Per share amounts for the 1997 first quarter have been restated for the
two-for-one common stock split, effected in the form of a 100% stock
dividend, paid on May 30, 1997."
The discussion that follows emphasizes the comparison between the first quarters
of 1998 and 1997.
Merrill Lynch's net earnings were a record $518 million in the 1998 first
quarter, up 11% from $466 million in the 1997 first quarter. Record revenues
were achieved in commissions, principal transactions, and asset management and
portfolio service fees. Increases in revenues were partially offset by higher
costs primarily related to the fourth quarter 1997 acquisition of Mercury Asset
Management ("Mercury"), variable compensation, and technology-related expenses.
Merrill Lynch believes that earnings measures that exclude the effect of
goodwill amortization, a non-cash charge, are the most relevant indicators of
the company's performance because they best illustrate the firm's operating
results and ability to support growth. Earnings excluding the effect of goodwill
amortization were $573 million in the 1998 first quarter, 19% above the 1997
first quarter. On the same basis, diluted earnings per share were $1.44 in the
1998 first quarter, up 19% from $1.21 in the 1997 first quarter, and return on
average common equity was approximately 26.9% for the 1998 first quarter.
Despite strong revenue growth in the U.S., non-U.S. net revenues continued to
increase to approximately 30% of Merrill Lynch's total net revenues in the 1998
first quarter, compared with approximately 24% in the 1997 first quarter. Recent
acquisitions, including Mercury and Smith New Court PLC, have positively
affected revenues from fee-based and non-U.S. equities and equity derivatives
activities. In addition, Merrill Lynch's four key strategic priorities as a
percentage of net revenues for the 1998 first quarter were as follows:
13
<PAGE>
- --------------------------------------------------------------------------------
PERCENTAGE OF NET REVENUES
BY STRATEGIC PRIORITY
- --------------------------------------------------------------------------------
Corporate and Institutional Client 43%
U.S. Private Client 41
International Private Client 5
Asset Management 11
---
100%
===
- --------------------------------------------------------------------------------
Merrill Lynch continued to expand into non-U.S. markets with the announcement in
February that it would launch a new business in Japan to serve individual
investors, through the planned opening of approximately 30 offices and the
hiring of about 2,000 new employees, including 600 Financial Consultants.
Expansion in this region is expected to further enhance both Merrill Lynch's
Private Client and Asset Management activities.
Commissions revenues are summarized as follows:
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
----------------------
MARCH 27, MARCH 28, %
(in millions) 1998 1997 INC.
- --------------------------------------------------------------------------------
Listed and
over-the-counter $ 770 $ 625 23%
Mutual funds 431 344 25
Other 176 146 20
------ ------
Total $1,377 $1,115 23
====== ======
- --------------------------------------------------------------------------------
Commissions revenues from listed and over-the-counter securities increased as a
result of higher trading volumes on many stock exchanges around the world.
Mutual fund commissions revenues rose due to higher distribution fees and strong
sales of U.S. funds.
14
<PAGE>
Significant components of interest and dividend revenues and interest expense
follow:
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
----------------------
MARCH 27, MARCH 28,
(in millions) 1998 1997
- --------------------------------------------------------------------------------
INTEREST AND DIVIDEND REVENUES
Trading assets $1,312 $1,226
Resale agreements 1,359 931
Securities borrowed 894 832
Margin lending 661 451
Other 516 408
------ ------
Total 4,742 3,848
------ ------
INTEREST EXPENSE
Repurchase agreements 1,541 1,063
Borrowings 1,361 980
Trading liabilities 761 753
Securities loaned 483 535
Other 418 279
------ ------
Total 4,564 3,610
------ ------
NET INTEREST AND
DIVIDEND PROFIT $ 178 $ 238
====== ======
- --------------------------------------------------------------------------------
Interest and dividend revenues and expenses are a function of the level and mix
of interest-earning assets and interest-bearing liabilities and the prevailing
level, term structure, and volatility of interest rates. Net interest and
dividend profit decreased 25% from the 1997 first quarter, primarily as a result
of increased financing costs related to the Mercury acquisition.
Merrill Lynch hedges certain of its long- and short-term borrowings, primarily
with interest rate and currency swaps, to better match the interest rate
characteristics of the borrowings to the assets funded by borrowing proceeds.
The effect of this hedging activity, which is included in "Borrowings" above,
increased (decreased) interest expense by $29 million and $(6) million for the
1998 and 1997 first quarters, respectively.
15
<PAGE>
Principal transactions revenues were up 8% from the 1997 first quarter to $1.2
billion due to higher trading revenues from equities and equity derivatives,
interest rate and currency swaps, and foreign exchange instruments, partially
offset by lower revenues from many fixed income products.
The table that follows provides information on aggregate trading revenues,
including related net interest. Interest revenue and expense amounts are based
on financial reporting categories and management's assessment of the cost to
finance trading positions, after consideration of the underlying liquidity of
these positions.
- --------------------------------------------------------------------------------
PRINCIPAL NET INTEREST NET
TRANSACTIONS REVENUES TRADING
(in millions) REVENUES (EXPENSES) REVENUES
- --------------------------------------------------------------------------------
1998 FIRST QUARTER
- ------------------
Equities and equity derivatives $ 440 $(39) $ 401
Interest rate and currency swaps 395 (73) 322
Taxable fixed-income 182 63 245
Foreign exchange and commodities 71 1 72
Municipals 64 6 70
------ ---- ------
Total $1,152 $(42) $1,110
====== ==== ======
1997 FIRST QUARTER
- ------------------
Equities and equity derivatives $ 316 $(30) $ 286
Interest rate and currency swaps 310 (30) 280
Taxable fixed-income 325 79 404
Foreign exchange and commodities 30 4 34
Municipals 82 5 87
------ ---- ------
Total $1,063 $ 28 $1,091
====== ==== ======
- --------------------------------------------------------------------------------
Trading and related hedging and financing activities affect the recognition of
both principal transactions revenues and net interest and dividend profit. In
assessing the profitability of its trading activities, Merrill Lynch aggregates
net interest and principal transactions revenues. For financial reporting
purposes, however, realized and unrealized gains and losses on trading
positions, including hedges, are recorded in principal transactions revenues.
The net interest carry (i.e., the spread representing interest earned less
financing costs) for trading positions, including hedges, is recorded either as
principal transactions revenues or net interest profit, depending on the nature
of the specific instruments. Changes in the composition of trading inventories
and hedge positions can cause the recognition of revenues within these
categories to fluctuate.
Equities and equity derivatives trading revenues were $440 million, up 39% from
the 1997 first quarter due to higher revenues from non-U.S. equities,
convertible securities, and equity derivatives. The increase in revenues from
non-U.S. equities and convertible securities was attributable to higher
transaction volume and price appreciation, while the growth in equity
derivatives revenues was due to increased customer demand compared with the same
period a year ago.
Interest rate and currency swap trading revenues rose 27% to $395 million,
primarily due to higher dollar-denominated derivative volume attributable in
part to U.S. interest rate volatility, increased customer demand for complex
derivative products, and greater activity in emerging market-related
derivatives.
Taxable fixed-income trading revenues were down 44% to $182 million as a result
of lower trading revenues from money market instruments, corporate bonds and
preferred stock, and mortgage-backed products. The decrease in money market
instruments revenues was attributable to the continued weakening of certain
Asian positions. Trading revenues from corporate bonds and preferred stock
decreased due to reduced compression of credit spreads relative to the 1997
first quarter and continued uncertainty in the Asian markets. The decrease in
mortgage-backed revenues resulted
16
<PAGE>
from a less favorable market environment compared to the year-ago period.
Nevertheless, net trading results from mortgage-backed revenues, which include
net interest revenues, were relatively unchanged.
Foreign exchange and commodities trading revenues were up 136% to $71 million,
attributable mainly to fluctuations in the U.S. dollar versus the Indonesian
rupiah and Malaysian ringgit. Municipal securities trading revenues were down
23% to $64 million due to lower customer demand.
A summary of Merrill Lynch's investment banking revenues follows:
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
--------------------
MARCH 27, MARCH 28, %
(in millions) 1998 1997 INC.
- --------------------------------------------------------------------------------
Underwriting $ 588 $ 452 30%
Strategic services 213 156 36
------ ------
Total $ 801 $ 608 32
====== ======
- --------------------------------------------------------------------------------
Underwriting revenues were up from 1997 first quarter levels due to increases in
equity, defined asset fund, and convertible issuances. Benefiting from higher
underwriting volume, Merrill Lynch retained its position as the leading
underwriter of total U.S. and global debt and equity offerings. Merrill Lynch's
underwriting market share information based on transaction value follows:
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
--------------------------------
MARCH 27, 1998 MARCH 28, 1997
-------------- --------------
MARKET MARKET
SHARE RANK SHARE RANK
- --------------------------------------------------------------------------------
U.S. PROCEEDS
Debt 15.6% 1 15.3% 1
Equity 16.1 1 18.8 1
Debt and Equity 16.3 1 15.7 1
GLOBAL PROCEEDS
Debt 12.7 1 12.8 1
Equity 16.8 1 16.7 1
Debt and Equity 13.5 1 12.7 1
- --------------------------------------------------------------------------------
"Source: Securities Data Co. ("SDC") statistics based on full credit to book
manager."
17
<PAGE>
Strategic services revenues remained strong, benefiting from increased merger
and acquisition activity due to consolidations within and across various
industries and significant gains in market share of completed transactions from
a year ago. These favorable market conditions enabled Merrill Lynch to extend
its lead in global investment banking, ranking No. 1 for the first time in both
announced and completed global mergers and acquisitions. Merrill Lynch's merger
and acquisition market share information based on transaction value follows:
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
-------------------------------------
MARCH 27, 1998 MARCH 28, 1997
----------------- ----------------
MARKET MARKET
SHARE RANK SHARE RANK
- --------------------------------------------------------------------------------
COMPLETED
TRANSACTIONS
U.S 39.3% 1 18.4% 2
Global 28.4 1 11.2 3
ANNOUNCED
TRANSACTIONS
U.S 26.4 2 42.3 1
Global 22.1 1 29.6 1
- --------------------------------------------------------------------------------
"Source: SDC statistics based on full credit to both target and acquiring
companies' advisors."
Merrill Lynch's asset management and portfolio service fees are summarized
below:
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
--------------------
MARCH 27, MARCH 28, %
(in millions) 1998 1997(1) INC.
- --------------------------------------------------------------------------------
Asset management fees $512 $284 81%
Portfolio service fees 252 178 42
Account fees 112 104 7
Other fees 94 80 18
---- ----
Total $970 $646 50
==== ====
- --------------------------------------------------------------------------------
Total assets in client accounts or under management reached an industry record
$1.3 trillion at quarter end. The changes in these balances are described below.
- --------------------------------------------------------------------------------
NET CHANGES DUE TO
-----------------------
MARCH 28, NEW ASSET MARCH 27,
(in billions) 1997 MONEY (1) APPRECIATION 1998
- --------------------------------------------------------------------------------
Total assets in client accounts
or under management $868 $275 (2) $185 $1,328
Total assets under management 247 207 34 488
- --------------------------------------------------------------------------------
"(1) Includes $167 billion of assets related to the fourth quarter 1997
acquisition of Mercury."
"(2) Includes $17 billion of assets related to the third quarter 1997
acquisition of MasterWorks, a 401(k) service provider."
Asset management fees increased significantly due to the integration of Mercury,
net asset appreciation, and strong inflows of client assets. Portfolio service
fees benefited from growth in client accounts and asset levels from various
asset-based fee products, including Merrill Lynch Consults (Registered
Trademark), Mutual Fund Advisor (Service Mark), and Asset Power (Registered
Trademark). Account fees rose due to an increase in the number of customer and
custodial accounts. Other fee-based revenues were up due primarily to higher
revenues from transfer agency activities.
18
<PAGE>
Other revenues were $124 million, down 27% from the 1997 first quarter due to
lower realized gains from merchant banking activities.
Merrill Lynch's non-interest expenses are summarized below:
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
---------------------
MARCH 27, MARCH 28,
(in millions) 1998 1997
- --------------------------------------------------------------------------------
Compensation and benefits $2,375 $1,988
------ ------
Non-interest expenses,
excluding compensation and
benefits:
Communications and
equipment rental 198 158
Occupancy 135 120
Depreciation and amortization 126 105
Professional fees 263 198
Advertising and market
development 172 144
Brokerage, clearing, and
exchange fees 150 118
Goodwill amortization 55 15
Other 254 229
------ ------
Total non-interest expenses,
excluding compensation
and benefits 1,353 1,087
------ ------
Total non-interest expenses $3,728 $3,075
====== ======
Compensation and benefits
as a percentage of net revenues 51.6% 51.8%
Compensation and benefits as a
percentage of pretax earnings
before compensation and benefits 73.1% 72.2%
- --------------------------------------------------------------------------------
Non-interest expenses were up 21% from the 1997 first quarter. Approximately 25%
of the increase in non-interest expenses was attributable to the integration and
ongoing operating costs of Mercury.
The largest expense category, compensation and benefits expense, rose 19% from
the 1997 first quarter due to higher production-related and incentive
compensation, and increased headcount. Production-related compensation was up
due to strong business volume, while incentive compensation rose as a result of
increased profitability. In addition, approximately 600 and 5,900 employees,
respectively, were added since the end of the 1997 fourth and first quarters,
resulting in total employees of approximately 57,200 at the end of the 1998
first quarter. Headcount increased due to acquisitions, strategic business
expansion, and growth in existing businesses. The ratio of support employees and
sales assistants to producers increased from 1.52 at first quarter-end 1997 to
1.58 at first quarter-end 1998.
Facilities-related costs, which include communications and equipment rental,
occupancy, and depreciation and amortization rose 20% to $459 million, as
increased business volume, continued emphasis on technology initiatives, and
global expansion led to higher costs.
19
<PAGE>
Professional fees were up 33% to $263 million, attributable principally to
higher systems and management consulting costs related to various technology
projects, including the Year 2000 and European Monetary Union initiatives, as
well as other systems and strategic market studies. Advertising and market
development expense rose 19% primarily as a result of increased advertising
costs, partly related to the Roth IRA campaign, and higher travel costs related
to business development. Brokerage, clearing, and exchange fees increased 27%
due to higher global securities trading volume and $18 million in custody and
clearing costs for Mercury. Goodwill amortization, a non-cash charge, increased
$40 million due to the Mercury acquisition. Other expenses were up 11%,
primarily due to higher office supplies and postage costs.
Income tax expense was $332 million in the 1998 first quarter, up 14% from the
same period a year ago. The effective tax rate was 38.0%, unchanged from the
1997 first quarter.
================================================================================
Liquidity and Liability Management
- --------------------------------------------------------------------------------
The primary objective of Merrill Lynch's funding policies is to assure liquidity
at all times. Merrill Lynch's liquidity management strategy has three key
components:
1. Maintain alternative funding sources such that all debt obligations
maturing within one year can be funded when due without issuing new
unsecured debt or liquidating any business assets;
2. Concentrate unsecured, general purpose borrowings at the ML & Co. level;
and
3. Expand and diversify Merrill Lynch's funding programs.
Merrill Lynch's primary alternative funding sources to unsecured borrowings are
repurchase agreements and secured bank loans, which require pledging
unhypothecated marketable securities. Other funding alternatives include
liquidating cash equivalents; securitizing loan assets; and drawing on
committed, unsecured bank credit facilities that, at March 27, 1998, totaled
$6.8 billion and were not drawn upon. To finance the purchase of Mercury,
Merrill Lynch obtained additional short-term bank credit facilities totaling 2.0
billion British pounds (approximately $3.3 billion), which were drawn upon
during the 1998 first quarter. These borrowings were repaid in full in April
1998.
Merrill Lynch regularly reviews the level and mix of its assets and liabilities
to assess its ability to conduct core business activities without issuing new
unsecured debt or drawing upon its bank credit facilities. The mix of assets and
liabilities provides flexibility in managing liquidity since a significant
portion of assets turns over frequently and is typically match-funded with
liabilities having similar maturities and cash flow characteristics. At March
27, 1998, substantially all of Merrill Lynch's assets were considered readily
marketable by management.
Merrill Lynch concentrates its unsecured, general purpose borrowings at the ML &
Co. level, except where tax regulations, time zone differences, or other
business considerations make this impractical. The benefits of this strategy are
enhanced control, reduced financing costs, wider name recognition by creditors,
and enhanced flexibility to meet variable funding requirements of subsidiaries.
Merrill Lynch also strives to expand and diversify its funding programs and
investor and creditor base. Merrill Lynch benefits by distributing its debt
through its own sales force to a large, diversified customer base. Additionally,
Merrill Lynch maintains strict concentration standards for short-term
borrowings, including limits for any single investor.
Commercial paper is the major source of short-term general purpose funding.
Commercial paper outstanding totaled $32.3 billion at March 27, 1998 and $30.4
billion at December 26, 1997, which was equal to 9% and 10% of total assets at
first quarter-end 1998 and year-end 1997, respectively.
Outstanding long-term debt at March 27, 1998 increased to $47.5 billion from
$43.1 billion at December 26, 1997. Major components of the change in long-term
debt for the 1998 first quarter follow:
- --------------------------------------------------------------------------------
(in billions)
- --------------------------------------------------------------------------------
December 26, 1997 $43.1
Issuances 7.4
Maturities (2.7)
Other (0.3)
-----
March 27, 1998 (1) $47.5
=====
- --------------------------------------------------------------------------------
"(1) At the end of the 1998 first quarter, $33.5 billion of long-term debt had
maturity dates beyond one year."
Approximately $85.1 billion of indebtedness at March 27, 1998 is considered
senior indebtedness as defined under various indentures.
At March 27, 1998, Merrill Lynch's senior long-term debt, preferred stock, and
Trust Originated Preferred Securities (Service Mark) ("TOPrS" (Registered
Trademark)) were rated by recognized credit rating agencies, as follows:
20
<PAGE>
- --------------------------------------------------------------------------------
SENIOR PREFERRED STOCK
DEBT AND TOPRS
RATING AGENCY RATINGS RATINGS
- --------------------------------------------------------------------------------
Duff & Phelps Credit Rating Co. AA AA-
Fitch IBCA, Inc. AA AA-
Japan Rating & Investment Information, Inc. (1) AA Not Rated
Moody's Investors Service, Inc. Aa3 aa3
Standard & Poor's AA- A
Thomson BankWatch, Inc. AA+ Not Rated
- --------------------------------------------------------------------------------
"(1) Effective April 1, 1998, the Japan Bond Research Institute merged with
Nippon Investors Service to form the Japan Rating & Investment
Information, Inc."
As part of an overall liquidity management strategy, Merrill Lynch's insurance
subsidiaries regularly review the funding requirements of their contractual
obligations for in-force, fixed-rate life insurance and annuity contracts as
well as expected future acquisition and maintenance expenses for all contracts.
The insurance subsidiaries market primarily variable life insurance and
variable annuity products. These products are not subject to the interest rate,
asset/liability matching, or credit risks attributable to fixed-rate products,
thereby reducing the insurance subsidiaries' risk profile and liquidity demands.
At March 27, 1998, approximately 82% of invested assets of insurance
subsidiaries were considered liquid by management.
================================================================================
Capital Resources and Capital Adequacy
- --------------------------------------------------------------------------------
Among U.S. institutions engaged primarily in the global securities business,
Merrill Lynch is one of the most highly capitalized, with $8.6 billion in common
equity and $425 million in preferred stock at March 27, 1998. In January 1998, a
subsidiary of ML & Co. issued $750 million of perpetual TOPrS. These
subsidiary-issued preferred securities, in addition to $627 million in
outstanding preferred securities of other subsidiaries, further strengthen
Merrill Lynch's equity capital base.
Merrill Lynch's leverage ratios were as follows:
- --------------------------------------------------------------------------------
ADJUSTED
LEVERAGE LEVERAGE
RATIO(1) RATIO(2)
- --------------------------------------------------------------------------------
PERIOD-END
March 27, 1998 34.1x 19.8x
December 26, 1997 32.7x 20.9x
AVERAGE (3)
Three months ended March 27, 1998 36.9x 20.6x
Year ended December 26, 1997 35.5x 21.5x
- --------------------------------------------------------------------------------
"(1) Total assets to total stockholders' equity and preferred securities issued
by subsidiaries."
"(2) Total assets less (a) securities received as collateral, net of securities
pledged as collateral, (b) securities pledged as collateral, (c)
receivables under (i) resale agreements and (ii) securities borrowed
transactions, to total stockholders' equity and preferred securities
issued by subsidiaries."
"(3) Computed using month-end balances."
21
<PAGE>
Overall capital needs are continually reviewed to ensure that Merrill Lynch's
capital base can support the estimated risks of its businesses as well as the
regulatory and legal capital requirements of its subsidiaries. Statistically-
based product risk models are used to estimate potential losses arising from
market and credit risks. These dynamic models incorporate changes in business
risk into Merrill Lynch's equity requirements. Based upon these analyses and
other criteria, management believes that Merrill Lynch's equity capital base is
adequate.
No common stock repurchases were made during the 1998 first quarter; Merrill
Lynch repurchased 7.5 million shares of common stock during the 1997 first
quarter. Remaining authority to repurchase shares under the share repurchase
program is 9.8 million shares. Merrill Lynch will continue to manage share
repurchases, taking into account capital needs and the effect of employee stock
issuances.
Merrill Lynch operates in many regulated businesses that require various minimum
levels of capital (see "Regulatory Requirements" section in Notes to the
Consolidated Financial Statements - Unaudited). Merrill Lynch's broker-dealer,
banking, insurance, and futures commission merchant activities are subject to
regulatory requirements that may restrict the free flow of funds to affiliates.
Regulatory approval is generally required for paying dividends in excess of
certain established levels, making affiliated investments, and entering into
management and service agreements with affiliated companies.
================================================================================
Capital Projects and Expenditures
- --------------------------------------------------------------------------------
Merrill Lynch continually prepares for the future by expanding its operations
and investing in new technology to improve service to clients. To support
business expansion, for example, Merrill Lynch plans to build a new European
headquarters in London with expected costs of approximately $650 million.
Completion of this facility is expected to occur in 2001. During 1997, Merrill
Lynch approved a plan to construct an office complex in central New Jersey to
consolidate certain operations. Construction costs are estimated at
approximately $325 million, and completion of this facility is anticipated in
2000.
Significant technology initiatives include Trusted Global Advisor (Service
Mark)("TGA"(Service Mark)), and Year 2000 and European Monetary Union ("EMU")
systems compliance. The TGA system, a technology platform for Financial
Consultants, is expected to be available to all U.S. Financial Consultants by
the end of the 1998 third quarter. New system applications will be added to the
platform at various times throughout the year. The projected remaining
expenditures for development and installation of the TGA system are
approximately $165 million.
The modifications for Year 2000 systems compliance are proceeding according to
plan and are expected to be completed in early 1999. Based on information
currently available, the remaining costs are estimated at $175 million and will
cover hardware and software upgrades, systems consulting, and computer
maintenance. These expenditures are not expected to have a material adverse
impact on Merrill Lynch's financial position, results of operations, or cash
flows in future periods. However, the failure of securities exchanges, clearing
organizations, vendors, clients, or regulators to resolve their own processing
issues in a timely manner could result in a material financial risk to the
company. Merrill Lynch is devoting necessary resources to address all Year 2000
issues in a timely manner.
As of January 1, 1999, the "euro" is expected to be adopted as the national
currency of participating member states of the EMU. Since participating member
states' local currencies will continue to be legal tender until July 2002,
systems must be modified to handle conversion issues between the euro and the
existing local currencies. Remaining costs to ensure EMU capability are
estimated at approximately $75 million. Merrill Lynch expects to be EMU-capable
by the end of the 1998 fourth quarter.
22
<PAGE>
================================================================================
Average Assets and Liabilities
- --------------------------------------------------------------------------------
Merrill Lynch monitors changes in its balance sheet using average daily balances
that are determined on a settlement date basis and reported for management
information purposes. Financial statement balances are recorded on a trade date
basis as required under generally accepted accounting principles. The following
discussion compares changes in settlement date average daily balances. These
changes were consistent with the growth in the financial statement balances from
fourth quarter 1997 to first quarter 1998.
For the first three months of 1998, average total assets were $372 billion, up
24% from $300 billion for the 1997 fourth quarter. Average total liabilities
rose 24% to $362 billion from $291 billion for the 1997 fourth quarter. The
major components in the growth of average total assets and liabilities for the
first three months of 1998 are summarized as follows:
- --------------------------------------------------------------------------------
INCREASE IN PERCENT
(in millions) AVERAGE ASSETS INCREASE
- --------------------------------------------------------------------------------
Trading assets $30,414 27%
Securities pledged as collateral 20,763 N/M
Receivables under
resale agreements and securities
borrowed transactions 13,094 11
Goodwill and organization costs 4,825 N/M
- --------------------------------------------------------------------------------
INCREASE IN PERCENT
AVERAGE LIABILITIES INCREASE
- --------------------------------------------------------------------------------
Obligation to return securities
received as collateral $43,336 N/M
Payables under repurchase
agreements and securities
loaned transactions 13,778 14%
Trading liabilities 8,128 13
Long-term borrowings 3,042 7
- --------------------------------------------------------------------------------
"N/M - Not Meaningful"
Statement of Financial Accounting Standards ("SFAS") No. 127 requires Merrill
Lynch to recognize collateral on certain resale and repurchase agreements. Due
to the adoption of SFAS No. 127, trading assets and securities pledged as
collateral increased $22 billion and $21 billion, respectively. The offset to
the growth in average assets was a $43 billion increase in the obligation to
return securities received as collateral (for more information on SFAS No. 127,
see "New Accounting Pronouncements" section in Notes to the Consolidated
Financial Statements - Unaudited).
In addition, during the first quarter of 1998, trading assets and liabilities
(which include on-balance-sheet hedges used to manage trading risks) rose as
volume increased, benefiting from higher customer demand. Receivables under
resale agreements and securities borrowed transactions and payables under
repurchase agreements and securities loaned transactions rose to meet higher
funding requirements for increased trading activity. These transactions
increased as a result of expanded matched-book activity, primarily involving
foreign governments and agencies. Goodwill and organization costs were higher
primarily as a result of the acquisition of Mercury.
Assets are funded through diversified sources which include repurchase
agreements and securities loaned transactions, commercial paper and other
unsecured short-term borrowings, long-term borrowings, preferred securities
issued by subsidiaries, and equity. In addition to the increase in repurchase
agreements and securities loaned transactions, the growth in average assets was
funded by higher long-term borrowings, particularly medium-term notes.
23
<PAGE>
================================================================================
Non-Investment Grade Holdings and Highly Leveraged Transactions
- --------------------------------------------------------------------------------
Non-investment grade holdings and highly leveraged transactions involve risks
related to the creditworthiness of the issuers or counterparties and the
liquidity of the market for such investments. Merrill Lynch recognizes these
risks and, whenever possible, employs strategies to mitigate exposures. The
specific components and overall level of non-investment grade and highly
leveraged positions may vary significantly from period to period as a result of
inventory turnover, investment sales, and asset redeployment.
- --------------------------------------------------------------------------------
"Non-Investment Grade Holdings"
In the normal course of business, Merrill Lynch underwrites, trades, and holds
non-investment grade cash instruments in connection with its investment banking,
market-making, and derivative structuring activities. Non-investment grade
trading inventories have continued to increase to satisfy growing client demand
for higher-yielding investments, including emerging market and other non-U.S.
securities. Non-investment grade holdings have been defined as debt and
preferred equity securities rated as BB+ or lower, or equivalent ratings by
recognized credit rating agencies, certain sovereign debt in emerging markets,
amounts due under derivative contracts from non-investment grade counterparties,
and other instruments that, in the opinion of management, are non-investment
grade.
The following table summarizes positions with non-investment grade issuers (for
cash instruments) or counterparties (for derivatives in a gain position), which
are carried at fair value.
- --------------------------------------------------------------------------------
MARCH 27, DECEMBER 26,
(in millions) 1998 1997
- --------------------------------------------------------------------------------
Trading assets:
Cash instruments $13,382 $12,993
Derivatives (1) 3,030 3,079
Trading liabilities - cash instruments 3,313 2,962
Marketable investment securities 364 648
Insurance subsidiaries' investments 208 192
- --------------------------------------------------------------------------------
"(1) Collateral of $654 and $599 was obtained at March 27, 1998 and December 26,
1997, respectively, to reduce risk related to these derivative balances."
Included in the preceding table are debt and equity securities and bank loans of
companies in various stages of bankruptcy proceedings or in default. At March
27, 1998, the carrying value of such debt and equity securities totaled $102
million, of which 45% resulted from Merrill Lynch's market-making activities in
such securities. This compared with $142 million at December 26, 1997, of which
56% related to market-making activities. In addition, Merrill Lynch held
distressed bank loans totaling $384 million and $432 million at March 27, 1998
and December 26, 1997, respectively.
Derivatives may also expose Merrill Lynch to credit risk related to the
underlying security where a derivative contract can either synthesize ownership
of the underlying security (e.g., long total return swap) or potentially force
ownership of the underlying security (e.g., short put option). In addition,
derivatives may subject Merrill Lynch to credit spread risk, in that changes in
credit quality of the underlying securities may offset the derivatives' fair
values.
A summary of exposures related to derivatives with non-investment grade
underlying securities follows:
24
<PAGE>
- --------------------------------------------------------------------------------
MARCH 27, DECEMBER 26,
(in millions) 1998 1997
- --------------------------------------------------------------------------------
Derivative fair values:
Trading assets (1) $ 64 $ 62
Trading liabilities 134 62
Derivative notionals (off-balance-sheet) (2) 2,222 3,257
- --------------------------------------------------------------------------------
"(1) The preceding table includes $44 and $42 at March 27, 1998 and December
26, 1997, respectively, of credit risk exposures to non-investment grade
counterparties."
"(2) Represents amount subject to strike or reference price."
Merrill Lynch engages in hedging strategies to reduce its exposure associated
with non-investment grade positions by purchasing an option to sell the related
security or by entering into other offsetting derivative contracts. Merrill
Lynch also uses non-investment grade trading inventories, principally non-U.S.
governments and agencies securities, to hedge the exposure arising from
structured derivative transactions.
A summary of cash instruments and derivatives used to hedge the credit risk of
non-investment grade positions follows:
- --------------------------------------------------------------------------------
MARCH 27, DECEMBER 26,
(in millions) 1998 1997
- --------------------------------------------------------------------------------
Trading assets - cash instruments $ 952 $1,312
Derivative notionals (off-balance-sheet) (1) 3,948 4,235
- --------------------------------------------------------------------------------
"(1) Represents amount subject to strike or reference price."
At March 27, 1998, the largest non-investment grade concentration consisted of
various sovereign and corporate issues of a South American country totaling $907
million.
- --------------------------------------------------------------------------------
"Highly Leveraged Transactions"
Merrill Lynch provides financing and advisory services to, and invests in,
companies entering into leveraged transactions, which may include leveraged
buyouts, recapitalizations, and mergers and acquisitions. Merrill Lynch provides
extensions of credit to leveraged companies in the form of senior and
subordinated debt, as well as bridge financing on a select basis. In addition,
Merrill Lynch syndicates loans for non-investment grade companies or in
connection with highly leveraged transactions and may retain a residual portion
of these loans.
Merrill Lynch holds direct equity investments in leveraged companies and
interests in partnerships that invest in leveraged transactions. Merrill Lynch
has also committed to participate in limited partnerships that invest in
leveraged transactions. Future commitments to participate in limited
partnerships and other direct equity investments will be made on a select basis.
A summary of loans, investments, and commitments related to highly leveraged
transactions follows:
- --------------------------------------------------------------------------------
MARCH 27, DECEMBER 26,
(In millions) 1998 1997
- --------------------------------------------------------------------------------
Loans (net of allowance for loan losses) (1) $659 $467
Equity investments (2) 159 170
Partnership interests 181 82
Bridge loan 30 --
Additional commitments to invest in partnerships 62 60
Unutilized revolving lines of credit and other
lending commitments 650 485
- --------------------------------------------------------------------------------
"(1) Represented outstanding loans to 51 and 48 companies at March 27, 1998 and
December 26, 1997, respectively."
"(2) Invested in 77 and 72 enterprises at March 27, 1998 and December 26, 1997,
respectively."
At March 27, 1998, no one industry sector accounted for more than 28% of total
non-investment grade positions and highly leveraged transactions.
25
<PAGE>
================================================================================
Statistical Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. 1ST QTR.
1997 1997 1997 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLIENT ACCOUNTS (IN BILLIONS):
U.S. Client Assets $ 818 $ 886 $ 960 $ 979 $ 1,086
Non-U.S. Client Assets 50 54 58 225 242
-------- -------- -------- -------- --------
Total Assets in Client Accounts or
Under Management $ 868 $ 940 $ 1,018 $ 1,204 $ 1,328
======== ======== ======== ======== ========
Assets Under Management:
MLAM (a):
Money Market $ 99 $ 98 $ 105 $ 107 $ 117
Equity 62 68 73 72 80
Fixed-Income 43 45 46 48 53
Private Portfolio 40 43 45 49 55
Insurance 3 3 3 3 3
-------- -------- -------- -------- --------
Total $ 247 257 $ 272 $ 279 $ 308
Mercury -- -- -- 167 180
-------- -------- -------- -------- --------
Total Assets Under Management $ 247 $ 257 $ 272 $ 446 $ 488
======== ======== ======== ======== ========
ML Consults (Registered Trademark) $ 21 $ 24 $ 26 $ 27 $ 31
Mutual Fund Advisor (Service Mark) and
Asset Power (Registered Trademark) $ 10 $ 12 $ 14 $ 15 $ 18
401(k) Assets $ 47 $ 51 $ 71 $ 74 $ 80
- -------------------------------------------------------------------------------------------------------------------------
UNDERWRITING (DOLLARS IN BILLIONS) (b):
Global Debt and Equity:
Volume $ 57 $ 62 $ 68 $ 64 $ 92
Market Share 12.7% 12.9% 13.4% 14.8% 13.5%
U.S. Debt and Equity:
Volume $ 46 $ 50 $ 59 $ 56 $ 78
Market Share 15.7% 16.0% 15.8% 16.7% 16.3%
- -------------------------------------------------------------------------------------------------------------------------
FULL-TIME EMPLOYEES:
U.S 42,900 43,500 45,000 45,800 46,100
Non-U.S 8,400 8,900 9,200 10,800 11,100
-------- -------- -------- -------- --------
Total 51,300 52,400 54,200 56,600 57,200
======== ======== ======== ======== ========
Financial Consultants and
Account Executives Worldwide 14,600 14,800 15,200 15,300 15,300
Support Personnel to
Producer ratio (c) 1.52 1.54 1.53 1.57 1.58
- -------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT:
Net Earnings (in millions) $ 466 $ 481 $ 493 $ 466 $ 518
Annualized Return on Average
Common Stockholders' Equity 28.3% 28.5% 27.3% 23.9% 24.8%
Earnings per Common Share:
Basic $ 1.37 $ 1.43 $ 1.46 $ 1.37 $ 1.49
Diluted $ 1.17 $ 1.25 $ 1.25 $ 1.17 $ 1.30
- -------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET (IN MILLIONS):
Total Assets $247,603 $268,036 $288,430 $292,819 $353,424
Total Stockholders' Equity $ 6,925 $ 7,268 $ 7,797 $ 8,329 $ 9,001
- -------------------------------------------------------------------------------------------------------------------------
SHARE INFORMATION (IN THOUSANDS):
Weighted Average Shares Outstanding:
Basic 331,156 329,901 330,958 333,853 340,571
Diluted 389,628 378,901 387,643 390,822 390,936
Common Shares Outstanding 330,921 329,048 332,352 335,082 344,731
Shares Repurchased (d) 7,474 5,588 240 0 0
- -------------------------------------------------------------------------------------------------------------------------
"(a) Merrill Lynch Asset Management."
"(b) Full credit to book manager. Market share data derived from Securities Data
Co."
"(c) Support personnel includes sales assistants."
"(d) Does not include shares either (i) owned by employees and used to pay for
the exercise of stock options or (ii) stock withheld from employee stock
option exercises to pay associated taxes."
</TABLE>
26
<PAGE>
[Intentionally Left Blank]
27
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Since the filing of ML & Co.'s 1997 Form 10-K, the following events have taken
place with respect to the NASDAQ Antitrust Litigation described therein. On
March 23, 1998, plaintiffs in this action agreed to the Proposed Settlement with
the remaining defendant that had not previously agreed to such settlement, and
on March 30, 1998, the court preliminarily approved the settlement.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 14, 1998, ML & Co. held its Annual Meeting of Stockholders, at which
88.4% of the shares of Common Stock, par value $1.33 1/3 per share (the "Common
Stock"), outstanding and eligible to vote, either in person or by proxy, were
represented, constituting a quorum. At this Annual Meeting, the following
matters were voted upon: (i) the election of five directors to the Board of
Directors to hold office for a term of three years; (ii) the approval to amend
ML & Co.'s Certificate of Incorporation to increase the authorized number of
shares of Common Stock from 500,000,000 to 1,000,000,000; and (iii) a
stockholder proposal concerning cumulative voting in the election of directors.
Proxies for the Annual Meeting of Stockholders were solicited by the Board of
Directors pursuant to Regulation 14A of the Securities Exchange Act of 1934.
The stockholders elected all five nominees to three-year terms as members of the
Board of Directors as set forth in ML & Co.'s Proxy Statement. There was
no solicitation in opposition to such nominees. The votes cast for or withheld
from the election of directors were as follows: Herbert M. Allison, Jr. received
293,877,140 votes in favor and 8,860,725 votes were withheld; Earle H. Harbison,
Jr. received 293,861,362 votes in favor and 8,876,503 votes were withheld;
William R. Hoover received 293,888,188 votes in favor and 8,849,677 votes were
withheld; Robert P. Luciano received 293,893,171 votes in favor and 8,844,694
votes were withheld; and David K. Newbigging received 293,909,360 votes in favor
and 8,828,505 votes were withheld.
The stockholders approved the proposal to amend ML & Co.'s Certificate of
Incorporation to increase the authorized number of shares of Common Stock from
500,000,000 to 1,000,000,000. The votes cast for and against, as well as the
number of abstentions, for this proposal were as follows: 285,356,956 votes in
favor, 16,259,306 votes against, and 1,121,603 shares abstained.
The stockholders did not approve the stockholder proposal concerning cumulative
voting in election of directors. The votes cast for and against, as well as the
number of abstentions and broker non-votes, for this proposal were as follows:
56,960,000 votes in favor, 186,136,028 votes against, 8,521,651 shares
abstained, and 51,120,186 shares represented broker non-votes.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(3)(i) ML & Co.'s Restated Certificate of Incorporation effective as of
April 28, 1998
(4) Instruments defining the rights of security holders, including
indentures:
28
<PAGE>
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, ML & CO.
hereby undertakes to furnish to the Securities and Exchange
Commission, upon request, copies of the instruments defining the
rights of holders of long-term debt securities of ML & Co. that
authorize an amount of securities constituting 10% or less of the
total assets of ML & Co. and its subsidiaries on a consolidated
basis.
(10) Merrill Lynch & Co., Inc. Deferred Unit and Stock Unit Plan for
Non-Employee Directors
(11) Statement re: computation of per share earnings
(12) Statement re: computation of ratios
(15) Letter re: unaudited interim financial information
(27) Financial Data Schedule
(b) Reports on Form 8-K
The following Current Reports on Form 8-K were filed by ML & Co. with the
Commission during the quarterly period covered by this Report:
(i) Current Report dated January 20, 1998 for the purpose of filing
ML & Co.'s Preliminary Unaudited Earnings Summaries for the
three- and twelve-month periods ended
December 26, 1997.
(ii) Current Report dated January 30, 1998 for the purpose of filing
the form of ML & Co.'s 7 7/8% STRYPES due February 1, 2001.
(iii) Current Report dated February 4, 1998 for the purpose of filing
ML & Co.'s Floating Rate Notes due February 4, 2003.
(iv) Current Report dated February 12, 1998 for the purpose of filing
ML & Co.'s 6% Notes due February 12, 2003.
(v) Current Report dated February 23, 1998 for the purpose of filing
the Preliminary Unaudited Consolidated Balance Sheet of ML & Co.
as of December 26, 1997.
(vi) Current Report dated March 19, 1998 for the purpose of filing
the Oracle Corporation Indexed Callable Protected Growth
Securities(SM) due March 31, 2003 of ML & Co.
29
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MERRILL LYNCH & CO., INC.
-------------------------
(Registrant)
Date: May 8, 1998 By: /s/ E. Stanley O'Neal
------------------------
E. Stanley O'Neal
Executive Vice President and
Chief Financial Officer
30
<PAGE>
INDEX TO EXHIBITS
Exhibits
3(i) ML & Co.'s Restated Certificate of Incorporation effective as of April
28, 1998
10 Merrill Lynch & Co., Inc. Deferred Unit and Stock Unit Plan for
Non-Employee Directors
11 Statement re: computation of per share earnings
12 Statement re: computation of ratios
15 Letter re: unaudited interim financial information
27 Financial Data Schedule
Exhibit 3(i)
RESTATED
CERTIFICATE OF INCORPORATION
OF
MERRILL LYNCH & CO., INC.
----------------------------
April 28, 1998
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
MERRILL LYNCH & CO., INC.
--------------------------------
MERRILL LYNCH & CO., INC., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is Merrill Lynch & Co., Inc.
2. The date of filing of its original Certificate of Incorporation with
the Secretary of State was March 27, 1973.
3. In accordance with the provisions of Section 245 of the General
Corporation Law of the State of Delaware, the Board of Directors of the
Corporation duly adopted this Restated Certificate of Incorporation on April 14,
1998, at a meeting duly convened.
4. This Restated Certificate of Incorporation only restates and integrates
and does not further amend the provisions of the Certificate of Incorporation of
the Corporation as heretofore amended or supplemented, and there is no
discrepancy between such provisions and the provisions of this Restated
Certificate of Incorporation, except as permitted by Section 245(c) of the
General Corporation Law of the State of Delaware.
5. The text of the Restated Certificate of Incorporation is as follows:
ARTICLE I
NAME
The name of the Corporation is Merrill Lynch & Co., Inc.
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The registered office of the Corporation in the State of Delaware is
located at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of
<PAGE>
New Castle. The name and address of the Corporation's registered agent is The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801.
ARTICLE III
CORPORATE PURPOSES
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
CAPITAL STOCK
SECTION 1. Shares, Classes and Series Authorized. The total number of
shares of all classes of capital stock which the Corporation shall have
authority to issue is one billion, twenty-five million (1,025,000,000) shares,
of which one billion (1,000,000,000) shares shall be Common Stock of the par
value of one dollar and thirty-three and one-third cents ($1.33 1/3) each
(hereinafter called "Common Stock") and twenty-five million (25,000,000) shares
shall be Preferred Stock of the par value of one dollar ($1.00) each
(hereinafter called "Preferred Stock").
The Preferred Stock is hereby authorized to be issued from time to time in
one or more series, the shares of each series to have such voting powers, full
or limited, or no voting powers, and such designations, preferences and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions thereof and may be convertible into, or exchangeable
for, at the option of either the holder or the Corporation or upon the happening
of a specified event, shares of any other class or classes or any other series
of the same or any other class or classes of capital stock of the Corporation at
such price or prices or at such rate or rates of exchange and with such
adjustments as shall be stated and expressed in the Certificate of Incorporation
or in any amendment thereto or in the resolution or resolutions adopted by the
Board of Directors providing for the issue thereof.
SECTION 2. Description of Capital Stock. The following is a description of
each of the classes of capital stock which the Corporation has authority to
issue with the designations, preferences, voting powers and participating,
optional or other special rights and the qualifications, limitations or
restrictions thereof:
<PAGE>
THE PREFERRED STOCK
A. RIGHTS AND RESTRICTIONS OF PREFERRED STOCK. Authority is hereby
expressly vested in the Board of Directors of the Corporation, subject to the
provisions of this Article IV and to the limitations prescribed by law, to
authorize the issue from time to time of one or more series of Preferred Stock
and with respect to each such series to fix by resolution or resolutions adopted
by the affirmative vote of a majority of the whole Board of Directors providing
for the issue of such series the voting powers, full or limited, if any, of the
shares of such series and the designations, preferences and relative,
participating, optional or other special rights and the qualifications,
limitations or restrictions thereof. The authority of the Board of Directors
with respect to each series shall include, but not be limited to, the
determination or fixing of the following:
(a) The designation of such series.
(b) The dividend rate of such series, the conditions and dates upon
which such dividends shall be payable, the relation which such dividends
shall bear to the dividends payable on any other class or classes or
series of the Corporation's capital stock, and whether such dividends
shall be cumulative or non-cumulative.
(c) Whether the shares of such series shall be subject to redemption
for cash, property or rights, including securities of any other
corporation, by the Corporation at the option of either the Corporation or
the holder or both or upon the happening of a specified event, and, if
made subject to any such redemption, the times or events, prices and other
terms and conditions of such redemption.
(d) The terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series.
(e) Whether or not the shares of such series shall be convertible
into, or exchangeable for, at the option of either the holder or the
Corporation or upon the happening of a specified event, shares of any
other class or classes or of any other series of the same or any other
class or classes of the Corporation's capital stock, and, if provision be
made for conversion or exchange, the times or events, prices, rates,
adjustments and other terms and conditions of such conversions or
exchanges.
(f) The restrictions, if any, on the issue or reissue of any
additional Preferred Stock.
(g) The rights of the holders of the shares of such series upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation.
(h) The provisions as to voting, optional and/or other special
rights and preferences, if any.
<PAGE>
Pursuant to the authority conferred by this Section, the following series of
Preferred Stock have been designated, each such series consisting of such number
of shares, with such voting powers and with such designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof as are stated and expressed in the exhibit
with respect to such series attached hereto as specified below and incorporated
herein by reference:
Exhibit A Series A Junior Preferred Stock
Exhibit B 9% Cumulative Preferred Stock, Series A
COMMON STOCK
B. RIGHTS AND RESTRICTIONS OF COMMON STOCK. The powers, preferences,
rights, qualifications, limitations or restrictions thereof in respect to the
Common Stock are as follows:
(a) The Common Stock is junior to the Preferred Stock and is subject
to all the powers, rights, privileges, preferences and priorities of the
Preferred Stock as herein or in any resolution or resolutions adopted by
the Board of Directors pursuant to authority expressly vested in it by the
provisions of Section 2 of this Article.
(b) The Common Stock shall have voting rights for the election of
directors and for all other purposes, each holder of Common Stock being
entitled to one vote for each share thereof held by such holder, except as
otherwise required by law.
C. INCREASE OR DECREASE IN AMOUNT OF AUTHORIZED SHARES. The number of
authorized shares of any class or classes of capital stock of the Corporation
may be increased or decreased by an amendment to this Certificate of
Incorporation authorized by the affirmative vote of the holders of a majority of
the shares of the Common Stock outstanding and entitled to vote thereon and,
except as expressly provided in the Certificate of Incorporation or in any
resolution or resolutions adopted by the Board of Directors pursuant to
authority expressly vested in it by the provisions of Section 2 of this Article
with respect to the Preferred Stock and except as otherwise provided by law, no
vote by holders of capital stock of the Corporation other than the Common Stock
shall be required to approve such action.
D. SHARES ENTITLED TO MORE OR LESS THAN ONE VOTE. If any class or series
of the Corporation's capital stock shall be entitled to more or less than one
vote for any share, on any matter, every reference in this Certificate of
Incorporation and in any relevant provision of law to a majority or other
proportion of stock shall refer to such majority or other proportion of the
votes of such stock.
<PAGE>
ARTICLE V
DENIAL OF PREEMPTIVE RIGHTS
No holder of any class of capital stock of the Corporation, whether now or
hereafter authorized, shall be entitled, as such, as a matter of right, to
subscribe for or purchase any part of any new or additional issue of capital
stock of the Corporation of any class whatsoever, or of securities convertible
into or exchangeable for capital stock of the Corporation of any class
whatsoever, whether now or hereafter authorized, or whether issued for cash,
property or services.
ARTICLE VI
RESTRICTION ON DIVIDENDS
Dividends may be declared or paid upon the shares of the Corporation's
capital stock either (1) out of its surplus, determined as provided under the
General Corporation Law of the State of Delaware, or (2) in case there shall be
no such surplus, out of its net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year.
A director shall be fully protected in relying in good faith upon the
books of account or other records of the Corporation or statements prepared by
any of its officials or by independent public accountants or by an appraiser
selected with reasonable care by the Board of Directors as to the value and
amount of the assets, liabilities and/or net profits of the Corporation, or any
other facts pertinent to the existence and amount of surplus or other funds from
which dividends might properly be declared and paid, or with which the
Corporation's capital stock might properly be purchased or redeemed.
ARTICLE VII
STOCKHOLDER VOTE REQUIRED IN CONNECTION
WITH CERTAIN BUSINESS COMBINATIONS
SECTION 1. Vote Generally Required. Notwithstanding anything contained
herein or in the General Corporation Law of the State of Delaware, and subject
to the provisions of Section 3 of this Article VII, the Corporation shall not
(a) merge or consolidate with any one or more corporations, joint-stock
associations or non-stock corporations (other than in a merger not requiring any
vote of stockholders of the Corporation under the General Corporation Law of the
State of Delaware), (b) sell, lease or exchange all or substantially all of its
property and assets, or (c) dissolve,
<PAGE>
unless the Board of Directors shall, at a meeting duly called, adopt a
resolution, by the affirmative vote of at least two-thirds (2/3) of the entire
Board of Directors, approving such action and unless such action shall be
approved at a meeting by the affirmative vote of the holders of a majority of
the shares of the Common Stock outstanding and entitled to vote thereon and,
except as expressly provided in the Certificate of Incorporation or in any
resolution or resolutions adopted by the Board of Directors pursuant to
authority expressly vested in it by the provisions of Section 2 of Article IV
with respect to the Preferred Stock and except as otherwise provided by law, no
vote by holders of capital stock of the Corporation other than the Common Stock
shall be required to approve such action.
SECTION 2. Certain Definitions. For the purposes of this Article:
(a) "Business Combination" means:
(i) any merger or consolidation of the Corporation or any
Subsidiary with (a) an Interested Stockholder or (b) any other
Person (whether or not itself an Interested Stockholder) that
is, or after such merger or consolidation would be, an
Affiliate or Associate of an Interested Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series
of transactions) to or with, or proposed by or on behalf of, an
Interested Stockholder or an Affiliate or Associate of an
Interested Stockholder of any assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value of not less
than $100,000,000; or
(iii) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of
any securities of the Corporation or any Subsidiary to, or
proposed by or on behalf of, an Interested Stockholder or an
Affiliate or Associate of an Interested Stockholder in exchange
for cash, securities or other property (or a combination
thereof) having an aggregate Fair Market Value of not less than
$100,000,000; or
(iv) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation, or any spinoff
or split-up of any kind of the Corporation or any Subsidiary,
proposed by or on behalf of an Interested Stockholder or an
Affiliate or Associate of an Interested Stockholder; or
(v) any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation,
or any merger or consolidation of the Corporation with any
Subsidiary or any other transaction (whether or not with or
into or otherwise involving an Interested Stockholder) that has
the effect, directly or indirectly, of increasing the
percentage of the outstanding shares of (a) any class
<PAGE>
of equity securities of the Corporation or any Subsidiary or
(b) any class of securities of the Corporation or any
Subsidiary convertible into or exchangeable for equity
securities of the Corporation or any Subsidiary, that are
directly or indirectly owned by an Interested Stockholder and
all of its Affiliates and Associates; or
(vi) any agreement, contract or other arrangement
providing for any one or more of the actions specified in
clauses (i) through (v) of this Section 2(a).
(b) "Affiliate" or "Associate" have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in
effect on January 1, 1986.
(c) "Beneficial Owner" has the meaning ascribed to such term in Rule
13d-3 of the General Rules and Regulations under the Exchange Act, as in
effect on January 1, 1986.
(d) "Continuing Director" means (i) any member of the Board of
Directors who (a) is neither the Interested Stockholder involved in the
Business Combination as to which a determination of Continuing Directors
is provided hereunder, nor an Affiliate, Associate, employee, agent, or
nominee of such Interested Stockholder, or the relative of any of the
foregoing, and (b) was a member of the Board of Directors prior to the
time that such Interested Stockholder became an Interested Stockholder,
and (ii) any successor of a Continuing Director described in clause (i)
who is recommended or elected to succeed a Continuing Director by the
affirmative vote of a majority of Continuing Directors then on the Board
of Directors.
(e) "Fair Market Value" means: (i) in the case of stock, the average
of the closing sale prices during the 30-day period immediately preceding
the date in question of a share of such stock on the Composite Tape for
New York Stock Exchange-Listed Stocks, or, if such stock is not reported
on the Composite Tape, on the New York Stock Exchange, or, if such stock
is not listed on such Exchange, on the principal United States securities
exchange registered under the Exchange Act on which such stock is listed,
or, if such stock is not listed on any such exchange, the average of the
closing bid quotations with respect to a share of such stock during the
30-day period preceding the date in question on the National Association
of Securities Dealers, Inc. Automated Quotations System or any similar
interdealer quotation system then in use, or, if no such quotation is
available, the fair market value on the date in question of a share of
such stock as determined by a majority of the Continuing Directors in good
faith; and (ii) in the case of property other than cash or stock, the fair
market value of such property on the date in question as determined by a
majority of the Continuing Directors in good faith.
<PAGE>
(f) "Interested Stockholder" means any person (other than the
Corporation or any Subsidiary, any employee benefit plan maintained by the
Corporation or any Subsidiary or any trustee or fiduciary with respect to
any such plan when acting in such capacity) that:
(i) is, or was at any time within the two-year period
immediately prior to the date in question, the Beneficial Owner
of 5% or more of the voting power of the then outstanding
shares of Voting Stock of the Corporation and who did not
become the Beneficial Owner of such amount of Voting Stock
pursuant to a transaction that was approved by the affirmative
vote of a majority of the entire Board of Directors; or
(ii) is an assignee of, or has otherwise succeeded to,
any shares of Voting Stock of the Corporation of which an
Interested Stockholder was the Beneficial Owner at any time
within the two-year period immediately prior to the date in
question, if such assignment or succession shall have occurred
in the course of a transaction, or series of transactions, not
involving a public offering within the meaning of the
Securities Act of 1933, as amended.
For the purpose of determining whether a Person is an Interested
Stockholder, the outstanding Voting Stock of the Corporation shall include
unissued shares of Voting Stock of the Corporation of which the Interested
Stockholder is the Beneficial Owner but shall not include any other shares
of Voting Stock of the Corporation that may be issuable pursuant to any
agreement, arrangement or understanding, or upon the exercise of
conversion rights, warrants or options, or otherwise, to any Person who is
not the Interested Stockholder.
(g) A "Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well
as any syndicate or group deemed to be a person under Section 14(d)(2) of
the Exchange Act.
(h) "Subsidiary" means any corporation of which the Corporation
owns, directly or indirectly, (i) a majority of the outstanding shares of
equity securities of such corporation, or (ii) shares having a majority of
the voting power represented by all of the outstanding shares of Voting
Stock of such corporation. For the purpose of determining whether a
corporation is a Subsidiary, the outstanding Voting Stock and shares of
equity securities thereof shall include unissued shares of which the
Corporation is the Beneficial Owner but shall not include any other shares
of Voting Stock of such corporation that may be issuable pursuant to any
agreement, arrangement or understanding, or upon the exercise of
conversion rights, warrants or options, or otherwise, to any Person other
than the Corporation.
<PAGE>
(i) "Voting Stock" means outstanding shares of capital stock of the
relevant corporation entitled to vote generally in the election of
directors.
SECTION 3. Greater Vote for Business Combinations. In addition to any
affirmative vote required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of record of outstanding shares representing at
least eighty percent (80%) of the voting power of the then outstanding shares of
the Voting Stock of the Corporation, voting together as a single class, shall be
required to approve any Business Combination. Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
SECTION 4. Powers of Continuing Directors. The Continuing Directors shall
have the power and duty to determine, on the basis of information known to them
after reasonable inquiry, all facts necessary to determine compliance with this
Article, including, without limitation, (A) whether a Person is an Interested
Stockholder, (B) the number of shares of Voting Stock of the Corporation
beneficially owned by any Person, (C) whether a Person is an Affiliate or
Associate of another and (D) whether the assets that are the subject of any
Business Combination have, or the consideration to be received for the issuance
or transfer of securities by the Corporation or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value of not less than $100,000,000;
and the good faith determination of the Continuing Directors on such matters
shall be conclusive and binding for all the purposes of this Article.
SECTION 5. No Effect on Fiduciary Obligations. Nothing contained in this
Article shall be construed to relieve the members of the Board of Directors or
an Interested Stockholder from any fiduciary obligation imposed by law.
SECTION 6. Amendment or Repeal. Notwithstanding the fact that a lesser
percentage may be specified by the General Corporation Law of Delaware, the
affirmative vote of the holders of record of outstanding shares representing at
least eighty percent (80%) of the voting power of all the outstanding shares of
the Voting Stock of the Corporation, voting together as a single class, shall be
required to amend, alter or repeal any provision of, or to adopt any provision
or provisions inconsistent with, any provision of this Article.
ARTICLE VIII
CORPORATE EXISTENCE
The Corporation is to have perpetual existence.
<PAGE>
ARTICLE IX
NO LIABILITY OF HOLDERS OF CAPITAL STOCK FOR CORPORATE DEBTS
The holders of the capital stock of the Corporation shall not be
personally liable for the payment of the Corporation's debts and the private
property of the holders of the capital stock of the Corporation shall not be
subject to the payment of debts of the Corporation to any extent whatsoever.
ARTICLE X
BOARD OF DIRECTORS
SECTION 1. Powers of Board of Directors. In furtherance and not in
limitation of the powers conferred by statute, the Board of Directors of the
Corporation is expressly authorized:
(a) To make, alter, amend or repeal the By-Laws, except as otherwise
expressly provided in any By-Law made by the holders of the capital stock
of the Corporation entitled to vote thereon. Any By-Law may be altered,
amended or repealed by the holders of the capital stock of the Corporation
entitled to vote thereon at any annual meeting or at any special meeting
called for that purpose.
(b) To authorize and cause to be executed mortgages and liens upon
the real and personal property of the Corporation.
(c) To determine the use and disposition of any surplus and net
profits of the Corporation, including the determination of the amount of
working capital required, to set apart out of any of the funds of the
Corporation, whether or not available for dividends, a reserve or reserves
for any proper purpose and to abolish any such reserve in the manner in
which it was created.
(d) To designate, by resolution passed by a majority of the whole
Board of Directors, one or more committees, each committee to consist of
two or more directors of the Corporation, which, to the extent provided in
the resolution designating the committee or in the By-Laws of the
Corporation, shall, subject to the limitations prescribed by law, have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation and may
authorize the seal of the Corporation to be affixed to all papers which
may require it. Such committee or committees shall have such name or names
as may be provided in the By-Laws of the Corporation or as may be
determined from time to time by resolution adopted by the Board of
Directors.
(e) To grant or assume rights or options entitling the holders
thereof to purchase from the Corporation shares of its capital stock of
any class or series (to be evidenced by or in such instrument or
instruments as shall be approved by
<PAGE>
the Board of Directors); the terms upon which, the time or times at or
within which, the persons to whom, and the price or prices at which any
such rights or options may be issued and any such shares may be purchased
from the Corporation upon the exercise of any such right or option, shall
be such as shall be fixed in a resolution or resolutions adopted by the
Board of Directors providing for the creation and issue of such rights or
options. In the absence of actual fraud in the transaction, the judgment
of the Board of Directors as to the consideration for the issuance of such
rights or options and the sufficiency thereof shall be conclusive. No such
rights or options shall be invalidated or in any way affected by the fact
that any director shall be a grantee thereof or shall vote for the
issuance of such rights or options to himself or for any plan pursuant to
which he may receive any such rights or options.
(f) To adopt or assume such plans as may, from time to time, be
approved by it for the purchase by officers or employees of the
Corporation and of any corporation either affiliated with or a subsidiary
of the Corporation of shares of capital stock of the Corporation of any
class or series; the terms upon which and the price or prices at which
shares may be purchased from the Corporation pursuant to such a plan shall
be such as shall be fixed by the Board of Directors in the plan. No such
plan which is not at the time of adoption unreasonable or unfair shall be
invalidated or in any way affected because any director shall be entitled
to purchase shares of capital stock of the Corporation thereunder and
shall vote for any such plan.
(g) To adopt or assume and carry out such plans as may from time to
time be approved by it for the distribution among the officers or
employees of the Corporation and of any corporation which is a subsidiary
of the Corporation, or any of them, in addition to their regular salaries
or wages, of part of the earnings of the Corporation and of any
corporation which is a subsidiary of the Corporation, or any of them, in
consideration for or in recognition of the services rendered by such
officers or employees or as an inducement to future efforts. No such plan
which is not at the time of adoption or assumption unreasonable or unfair
shaIl be invalidated or in any way affected because any director shall be
a beneficiary thereunder or shall vote for any plan under which he may
benefit or for any distribution thereunder in which he may participate.
(h) To adopt such pension, retirement, deferred compensation or
other employee benefit plans or provisions as may, from time to time, be
approved by it, providing for pensions, retirement income, deferred
compensation or other benefits for officers or employees of the
Corporation and of any corporation which is a subsidiary of the
Corporation, or any of them, in consideration for or in recognition of the
services rendered by such officers or employees or as an inducement to
future efforts. No such plan or provision, which is not at the time of
adoption unreasonable or unfair, shall be invalidated or in any way
affected because any director shall be a beneficiary thereunder or shall
vote for any plan or provision under which he may benefit.
<PAGE>
(i) To exercise, in addition to the powers and authorities
hereinbefore or by law conferred upon it, any such powers and authorities
and do all such acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the provisions of the laws of the
State of Delaware and of the Certificate of Incorporation and of the
By-Laws of the Corporation.
SECTION 2. Classified Board. At the 1986 annual meeting of holders of
capital stock of the Corporation, the directors shall be divided into three
classes, with respect to the time that they severally hold office, as nearly
equal in number as possible, with the initial term of office of the first class
of directors to expire at the 1987 annual meeting of holders of capital stock of
the Corporation, the initial term of office of the second class of directors to
expire at the 1988 annual meeting of holders of capital stock of the Corporation
and the initial term of office of the third class of directors to expire at the
1989 annual meeting of holders of capital stock of the Corporation. Commencing
with the 1987 annual meeting of holders of capital stock of the Corporation,
directors elected to succeed those directors whose terms have thereupon expired
shall be elected for a term of office to expire at the third succeeding annual
meeting of holders of capital stock of the Corporation after their election. If
the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain or attain, if possible, the
equality of the number of directors in each class, but in no case will a
decrease in the number of directors shorten the term of any incumbent director.
If such equality is not possible, the increase or decrease shall be apportioned
among the classes in such a way that the difference in the number of directors
in any two classes shall not exceed one.
SECTION 3. Nominations. Subject to the rights of holders of any series of
Preferred Stock or any other class of capital stock of the Corporation (other
than the Common Stock) then outstanding, nominations for the election of
directors may be made by the affirmative vote of a majority of the entire Board
of Directors or by any stockholder of record entitled to vote generally in the
election of directors. However, any stockholder of record entitled to vote
generally in the election of directors may nominate one or more persons for
election as directors at a meeting only if written notice of such stockholder's
intent to make such nomination or nominations has been given, either by personal
delivery or by United States mail, postage prepaid, to the Secretary of the
Corporation not less than 50 days nor more than 75 days prior to the meeting;
provided, that in the event that less than 60 days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
meeting was mailed or such public disclosure was made, whichever first occurs.
Each such notice to the Secretary shall set forth: (i) the name and address of
record of the stockholder who
<PAGE>
intends to make the nomination; (ii) a representation that the stockholder is a
holder of record of shares of the Corporation's capital stock entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (iii) the name, age,
business and residence addresses, and principal occupation or employment of each
proposed nominee; (iv) a description of all arrangements or understandings
between the stockholder and each proposed nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (v) such other information
regarding each proposed nominee as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission; and (vi) the written consent of each proposed nominee to serve as a
director of the Corporation if so elected. The Corporation may require any
proposed nominee to furnish such other information as may reasonably be required
by the Corporation to determine the eligibility of such proposed nominee to
serve as a director of the Corporation. The presiding officer of the meeting
may, if the facts warrant, determine that a nomination was not made in
accordance with the foregoing procedure, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded.
SECTION 4. Removal of Directors. Subject to the rights of the holders of
any series of Preferred Stock or any other class of capital stock of the
Corporation (other than the Common Stock) then outstanding, (i) any director, or
the entire Board of Directors may be removed from office at any time, but only
for cause, by the affirmative vote of the holders of record of outstanding
shares representing at least 80% of the voting power of all the shares of
capital stock of the Corporation then entitled to vote generally in the election
of directors, voting together as a single class, and (ii) any director may be
removed from office at any time, but only for cause, by the affirmative vote of
a majority of the entire Board of Directors.
SECTION 5. Vacancies. Subject to the rights of the holders of any series
of Preferred Stock or any other class of capital stock of the Corporation (other
than the Common Stock) then outstanding, any vacancies in the Board of Directors
for any reason, including by reason of any increase in the number of directors,
shall, if occurring prior to the expiration of the term of office of the class
in which such vacancy occurs, be filled only by the Board of Directors, acting
by the affirmative vote of a majority of the remaining directors then in office,
although less than a quorum, and any directors so elected shall hold office
until the next election of the class for which such directors have been elected
and until their successors are elected and qualify.
SECTION 6. Preferred Stock. Whenever the holders of any one or more series
of Preferred Stock issued by the Corporation shall have the right, voting
separately by class or series, to elect directors at an annual or a special
meeting of holders of capital stock of the Corporation, the nomination,
election, term of office, filling of vacancies and other features of such
directorships shall be governed by this Article X unless
<PAGE>
expressly otherwise provided by the resolution or resolutions providing for the
creation of such series.
ARTICLE XI
MEETINGS OF STOCKHOLDERS AND DIRECTORS;
ELECTIONS OF DIRECTORS; CORPORATION BOOKS
SECTION 1. Stockholders' Meetings. Meetings of holders of capital stock of
the Corporation may be held outside the State of Delaware if the By-Laws so
provide. Any action required or permitted to be taken by the holders of capital
stock of the Corporation must be effected at a duly called annual or special
meeting of holders of capital stock of the Corporation and may not be effected
by any consent in writing by such holders. Meetings of holders of capital stock
of the Corporation may be called only by the Board of Directors pursuant to a
resolution adopted by the affirmative vote of a majority of the entire Board of
Directors.
SECTION 2. Directors' Meetings, Consents and Elections. Meetings of the
Board of Directors and of any committee thereof may be held outside the State of
Delaware if the By-Laws so provide. Any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting as provided by statute, if the By-Laws of the
Corporation so provide. The elections of directors need not be by ballot unless
the By-Laws of the Corporation so provide.
SECTION 3. Books of the Corporation. Except as otherwise provided by law,
the books of the Corporation may be kept outside the State of Delaware at such
place or places as may be designated from time to time by the Board of Directors
or in the By-Laws of the Corporation.
ARTICLE XII
TRANSACTIONS WITH DIRECTORS AND OFFICERS
No contract or transaction between the Corporation and one or more of its
directors or officers, or between the Corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the board or
committee thereof which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose if (a) the material
facts as to his relationship or interest and as to the contract or transaction
are disclosed or are known to the Board of Directors or the committee,
<PAGE>
and the Board of Directors or the committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum, or (b) the material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders, or (c) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved or ratified by the Board of Directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
ARTICLE XIII
LIMITATION OF DIRECTORS' LIABILITY; INDEMNIFICATION
BY CORPORATION; INSURANCE
SECTION 1. Limitation of Directors' Liability. (a) No director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except, to the
extent provided by applicable law, for liability (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is hereafter
amended to authorize corporate action further limiting or eliminating the
personal liability of directors, then the liability of each director of the
Corporation shall be limited or eliminated to the full extent permitted by the
Delaware General Corporation Law as so amended from time to time.
(b) Neither the amendment nor repeal of this Section 1, nor the adoption
of any provision of the Certificate of Incorporation inconsistent with this
Section 1, shall eliminate or reduce the effect of this Section 1, in respect of
any matter occurring, or any cause of action, suit or claim that, but for this
Section 1, would accrue or arise, prior to such amendment, repeal or adoption of
an inconsistent provision.
SECTION 2. Indemnification by Corporation. (a) The Corporation shall
indemnify any person who is or was a director or officer of the Corporation, or
is or was serving at the request of the Corporation as a director, officer or
trustee of another corporation, trust or other enterprise, with respect to
actions taken or omitted by such person in any capacity in which such person
serves the Corporation or such other corporation, trust or other enterprise, to
the full extent authorized or permitted by law, as now or hereafter in effect,
and such right to indemnification shall continue as to a person who has
<PAGE>
ceased to be a director, officer or trustee, as the case may be, and shall inure
to the benefit of such person's heirs, executors and personal and legal
representatives; provided, however, that, except for proceedings to enforce
rights to indemnification, the Corporation shall not be obligated to indemnify
any person in connection with a proceeding (or part thereof) initiated by such
person unless such proceeding (or part thereof) was authorized in advance, or
unanimously consented to, by the Board of Directors of the Corporation. Any
person who is or was a director or officer of a subsidiary of the Corporation
shall be deemed to be serving in such capacity at the request of the Corporation
for purposes of this Section 2.
(b) Directors and officers of the Corporation shall have the right to be
paid by the Corporation expenses incurred in defending or otherwise
participating in any proceeding in advance of its final disposition. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, advance such expenses to any person who is or was serving at the
request of the Corporation as a director, officer or trustee of another
corporation, trust or other enterprise.
(c) The Corporation may, to the extent authorized from time to time by the
Board of Directors, provide rights to indemnification and to the advancement of
expenses to employees and agents of the Corporation and to any person serving at
the request of the Corporation as an employee or agent of another corporation,
trust or other enterprise.
(d) The rights to indemnification and to the advancement of expenses
conferred in this Section 2 shall not be exclusive of any other right that any
person may have or hereafter acquire under this Restated Certificate of
Incorporation, the by-laws, any statute, agreement, vote of stockholders or
disinterested directors, or otherwise.
(e) Any repeal or modification of this Section 2 by the stockholders of
the Corporation shall not adversely affect any rights to indemnification and to
advancement of expenses that any person may have at the time of such repeal or
modification with respect to any acts or omissions occurring prior to such
repeal or modification.
SECTION 3. Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation or any subsidiary of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, trustee, employee or
agent of another corporation, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation shall have the power to
indemnify him against such liability under the provisions of Section 2 of this
Article XIII.
<PAGE>
ARTICLE XIV
COMPROMISE OR ARRANGEMENT BETWEEN CORPORATION
AND ITS CREDITORS OR STOCKHOLDERS
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting
of the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders of this Corporation, as the case may be, and also on this
Corporation.
ARTICLE XV
RESERVATION OF RIGHT TO AMEND CERTIFICATE OF INCORPORATION
The Corporation reserves the right to amend, alter, change or repeal any
provisions contained in this Certificate of Incorporation in the manner now or
hereafter prescribed by law, and all the provisions of this Certificate of
Incorporation and all rights and powers conferred in this Certificate of
Incorporation on stockholders, directors and officers are subject to this
reserved power, provided that the affirmative vote of the holders of record of
outstanding shares representing at least 80% of the voting power of all of the
shares of capital stock of the Corporation then entitled to vote generally in
the election of directors, voting together as a single class, shall be required
to amend, alter, change, or repeal any provision of, or to adopt any provision
or provisions inconsistent with, Section 2(A) of Article IV, Article X, Article
XI, Article XIII or this Article XV of this Certificate of Incorporation unless
such amendment, alteration, repeal or adoption of any inconsistent provision or
provisions is declared advisable by the Board of Directors by the affirmative
vote of at least seventy-five percent (75%) of
<PAGE>
the entire Board of Directors, notwithstanding the fact that a lesser percentage
may be specified by the General Corporation Law of Delaware, and provided
further that any amendment, alteration, change, repeal or adoption of any
provision or provisions inconsistent with Article VII may only be made in
accordance with the provisions thereof.
IN WITNESS WHEREOF, said MERRILL LYNCH & CO., INC. has caused this
certificate to be signed by a Vice Chairman of the Board, with its corporate
seal to be hereunto duly affixed and to be attested by an Assistant Secretary
this 28th day of April, 1998.
MERRILL LYNCH & CO., INC.
/s/ Stephen L. Hammerman
----------------------------------
By: Stephen L. Hammerman
Vice Chairman of the Board
CORPORATE SEAL
Attest: /s/ Lawrence M. Egan, Jr.
--------------------------------
By: Lawrence M. Egan, Jr.
Assistant Secretary
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATION OF THE VOTING POWERS,
DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS AND QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS OF THE SERIES A JUNIOR
PREFERRED STOCK
-----------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
-----------------------------------------------------
We, Stephen L. Hammerman, Executive Vice President and Stephen M.M.
Miller, Secretary of Merrill Lynch & Co., Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), DO HEREBY CERTIFY:
that, pursuant to authority conferred upon the Board of Directors of
the Corporation by its Restated Certificate of Incorporation (the
"Certificate"), and, pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, said Board of Directors, at a duly
called meeting held on December 16, 1987, at which a quorum was present and
acted throughout, adopted the following resolutions, which resolutions remain in
full force and effect on the date hereof creating a series of 2,000,000 shares
of Preferred Stock having a par value of $1.00 per share, designated as Series A
Junior Preferred Stock (the "Series A Preferred Stock") out of the class of
25,000,000 shares of preferred stock of the par value of $1.00 per share (the
"Preferred Stock"):
RESOLVED that pursuant to the authority vested in the Board of
Directors in accordance with the provisions of the Certificate, the Board of
Directors does hereby create, authorize and provide for the issuance of the
Series A Preferred Stock having the voting powers, designation, relative,
participating, optional and other special rights, preferences, and
qualifications, limitations and restrictions thereof that are set forth as
follows:
Section 1. Designation and Amount. The shares of such series shall
be designated as "Series A Junior Preferred Stock" ("Series A Preferred Stock")
and the number of shares constituting such series shall be 2,000,000.
Section 2. Dividends and Distributions. (A) Subject to the prior and
superior rights of the holders of any shares of any other series of Preferred
Stock or any other shares of preferred stock of the Corporation ranking prior
and superior to the shares of Series A Preferred Stock with respect to
dividends, each holder of one one-hundredth (1/100) of a share (a "Unit") of
Series A Preferred Stock shall be entitled
<PAGE>
to receive, when, as and if declared by the Board of Directors out of funds
legally available for that purpose, (i) quarterly dividends payable in cash on
the 30th day of February, May, August and November in each year (each such date
being a "Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of such Unit of Series A
Preferred Stock, in an amount per Unit (rounded to the nearest cent) equal to
the greater of (a) $0.25 or (b) subject to the provision for adjustment
hereinafter set forth, the aggregate per share amount of all cash dividends
declared on shares of the Common Stock since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of a Unit of Series A Preferred Stock, and (ii)
subject to the provision for adjustment hereinafter set forth, quarterly
distributions (payable in kind) on each Quarterly Dividend Payment Date in an
amount per Unit equal to the aggregate per share amount of all non-cash
dividends or other distributions (other than a dividend payable in shares of
Common Stock or a subdivision of the outstanding shares of Common Stock, by
reclassification or otherwise) declared on shares of Common Stock since the
immediately preceding Quarterly Dividend Payment Date, or with respect to the
first Quarterly Dividend Payment Date, since the first issuance of a Unit of
Series A Preferred Stock. In the event that the Corporation shall at any time
after December 16, 1987 (the "Rights Declaration Date") (i) declare any dividend
on outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock or (iii) combine outstanding shares
of Common Stock into a smaller number of shares, then in each such case the
amount to which the holder of a Unit of Series A Preferred Stock was entitled
immediately prior to such event pursuant to the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which shall
be the number of shares of Common Stock that are outstanding immediately after
such event and the denominator of which shall be the number of shares of Common
Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on
Units of Series A Preferred Stock as provided in paragraph (A) above immediately
after it declares a dividend or distribution on the shares of Common Stock
(other than a dividend payable in shares of Common Stock); provided, however,
that, in the event no dividend or distribution shall have been declared on the
Common Stock during the period between any Quarterly Dividend Payment Date and
the next subsequent Quarterly Dividend Payment Date, a dividend of $0.25 per
Unit on the Series A Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and shall be cumulative on each
outstanding Unit of Series A Preferred Stock from the Quarterly Dividend Payment
Date next preceding the date of issuance of such Unit of Series A Preferred
Stock, unless the date of issuance of such Unit is prior to the record date for
the first Quarterly Dividend Payment Date, in which case, dividends on such Unit
shall begin to accrue from the date of issuance of such Unit, or unless the date
of issuance is a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of Units of Series A Preferred Stock
entitled to receive a quarterly dividend and
<PAGE>
before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on Units of Series A Preferred Stock in an amount less than the aggregate
amount of all such dividends at the time accrued and payable on such Units shall
be allocated pro rata on a unit-by-unit basis among all Units of Series A
Preferred Stock at the time outstanding. The Board of Directors may fix a record
date for the determination of holders of Units of Series A Preferred Stock
entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be no more than 30 days prior to the date fixed for the
payment thereof.
Section 3. Voting Rights. The holders of Units of Series A Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each Unit of Series A Preferred Stock shall entitle the holder thereof to
one vote on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on outstanding shares of Common Stock
payable in shares of Common Stock, (ii) subdivide outstanding shares of Common
Stock or (iii) combine the outstanding shares of Common Stock into a smaller
number of shares, then in each such case the number of votes per Unit to which
holders of Units of Series A Preferred Stock were entitled immediately prior to
such event shall be adjusted by multiplying such number by a fraction the
numerator of which shall be the number of shares of Common Stock outstanding
immediately after such event and the denominator of which shall be the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders
of Units of Series A Preferred Stock and the holders of shares of Common Stock
shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) (i) If at any time dividends on any Units of Series A
Preferred Stock shall be in arrears in an amount equal to six quarterly
dividends thereon, then during the period (a "default period") from the
occurrence of such event until such time as all accrued and unpaid dividends for
all previous quarterly dividend periods and for the current quarterly dividend
period on all Units of Series A Preferred Stock then outstanding shall have been
declared and paid or set apart for payment, all holders of Units of Series A
Preferred Stock, voting separately as a class, shall have the right to elect two
Directors.
(ii) During any default period, such voting rights of the
holders of Units of Series A Preferred Stock may be exercised initially at a
special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at
any annual meeting of stockholders, and thereafter at annual meetings of
stockholders, provided that neither such voting rights nor any right of the
holders of Units of Series A Preferred Stock to
<PAGE>
increase, in certain cases, the authorized number of Directors may be exercised
at any meeting unless one-third of the outstanding Units of Preferred Stock
shall be present at such meeting in person or by proxy. The absence of a quorum
of the holders of Common Stock shall not affect the exercise by the holders of
Units of Series A Preferred Stock of such rights. At any meeting at which the
holders of Units of Series A Preferred Stock shall exercise such voting right
initially during an existing default period, they shall have the right, voting
separately as a class, to elect Directors to fill up to two vacancies in the
Board of Directors, if any such vacancies may then exist, or, if such right is
exercised at an annual meeting, to elect two Directors. If the number which may
be so elected at any special meeting does not amount to the required number, the
holders of the Series A Preferred Stock shall have the right to make such
increase in the number of Directors as shall be necessary to permit the election
by them of the required number. After the holders of Units of Series A Preferred
Stock shall have exercised their right to elect Directors during any default
period, the number of Directors shall not be increased or decreased except as
approved by a vote of the holders of Units of Series A Preferred Stock as herein
provided or pursuant to the rights of any equity securities ranking senior to
the Series A Preferred Stock.
(iii) Unless the holders of Series A Preferred Stock shall,
during an existing default period, have previously exercised their right to
elect Directors, the Board of Directors may order, or any stockholder or
stockholders owning in the aggregate not less than 25% of the total number of
Units of Series A Preferred Stock outstanding may request, the calling of a
special meeting of the holders of Units of Series A Preferred Stock, which
meeting shall thereupon be called by the Secretary of the Corporation. Notice of
such meeting and of any annual meeting at which holders of Units of Series A
Preferred Stock are entitled to vote pursuant to this paragraph (C)(iii) shall
be given to each holder of record of Units of Series A Preferred Stock by
mailing a copy of such notice to him at his last address as the same appears on
the books of the Corporation. Such meeting shall be called for a time not
earlier than 20 days and not later than 60 days after such order or request or
in default of the calling of such meeting within 60 days after such order or
request, such meeting may be called on similar notice by any stockholder of
stockholders owning in the aggregate not less than 25% of the total number of
outstanding Units of Series A Preferred Stock. Notwithstanding the provisions of
this paragraph (C)(iii), no such special meeting shall be called during the 60
days immediately preceding the date fixed for the next annual meeting of the
stockholders.
(iv) During any default period, the holders of shares of
Common Stock, and other classes or series of stock of the Corporation, if
applicable, shall continue to be entitled to elect all the Directors until the
holders of Units of Series A Preferred Stock shall have exercised their right to
elect two Directors voting as a separate class, after the exercise of which
right (x) the Directors so elected by the holders of Units of Series A Preferred
Stock shall continue in office until their successors shall have been elected by
such holders or until the expiration of the default period, and (y) any vacancy
in the Board of Directors may (except as provided in paragraph (C)(ii) of this
Section 3) be filled by vote of a majority of the remaining Directors
theretofore elected by the holders of the class of capital stock which elected
<PAGE>
the Director whose office shall have become vacant. References in this paragraph
(C) to Directors elected by the holders of a particular class of capital stock
shall include Directors elected by such Directors to fill vacancies as provided
in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x)
the right of the holders of Units of Series A Preferred Stock as a separate
class to elect Directors shall cease, (y) the term of any Directors elected by
the holders of Units of Series A Preferred Stock as a separate class shall
terminate, and (z) the number of Directors shall be such number as may be
provided for in the Certificate or by-laws irrespective of any increase made
pursuant to the provisions of paragraph (C)(ii) of this Section 3 (such number
being subject, however, to change thereafter in any manner provided by law or in
the Certificate or by-laws). Any vacancies in the Board of Directors effected by
the provisions of clauses (y) and (z) in the preceding sentence may be filled by
a majority of the remaining Directors.
(vi) The provisions of this paragraph (C) shall govern the
election of Directors by holders of Units of Preferred Stock during any default
period notwithstanding any provisions of the Certificate to the contrary,
including, without limitation, the provisions of Article X of the Certificate.
(D) Except as set forth herein, holders of Units of Series A
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Shares of Common Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions. (A) Whenever quarterly dividends or
other dividends or distributions payable on Units of Series A Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on outstanding
Units of Series A Preferred Stock shall have been paid in full, the Corporation
shall not
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
junior stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of parity stock, except dividends paid ratably on Units of
Series A Preferred Stock and shares of all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to
which the holders of such Units and all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any parity stock, provided, however, that the Corporation may at
any time redeem, purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any junior stock;
(iv) purchase or otherwise acquire for consideration any Units of
Series A Preferred Stock, except in accordance with a purchase offer made
in writing or
<PAGE>
by publication (as determined by the Board of Directors) to all holders of
such Units.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any Units of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
Units shall, upon their cancellation, become authorized but unissued Units of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (i) to the holders of shares of
junior stock unless the holders of Units of Series A Preferred Stock shall have
received, subject to adjustment as hereinafter provided in paragraph (B), the
greater of either (a) $.01 per Unit plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not earned or declared, to the
date of such payment, or (b) the amount equal to the aggregate per share amount
to be distributed to holders of shares of Common Stock, or (ii) to the holders
of shares of parity stock, unless simultaneously therewith distributions are
made ratably on Units of Series A Preferred Stock and all other shares of such
parity stock in proportion to the total amounts to which the holders of Units of
Series A Preferred Stock are entitled under clause (i)(a) of this sentence and
to which the holders of shares of such parity stock are entitled, in each case
upon such liquidation, dissolution or winding up.
(B) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on outstanding shares of Common Stock
payable in shares of Common Stock, (ii) subdivide outstanding shares of Common
Stock, or (iii) combine outstanding shares of Common Stock into a smaller number
of shares, then in each such case the aggregate amount to which holders of Units
of Series A Preferred Stock were entitled immediately prior to such event
pursuant to clause (i)(b) of paragraph (A) of this Section 6 shall be adjusted
by multiplying such amount by a fraction the numerator of which shall be the
number of shares of Common Stock that are outstanding immediately after such
event and the denominator of which shall be the number of shares of Common Stock
that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or converted into other stock or
securities, cash and/or any other property, then in any such case Units of
Series A Preferred
<PAGE>
Stock shall at the same time be similarly exchanged for or converted into an
amount per Unit (subject to the provision for adjustment hereinafter set forth)
equal to the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is converted or exchanged. In the event the Corporation
shall at any time after the Rights Declaration Date (i) declare any dividend on
outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock, or (iii) combine outstanding
Common Stock into a smaller number of shares, then in each such case the amount
set forth in the immediately preceding sentence with respect to the exchange or
conversion of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which shall be the number
of shares of Common Stock that are outstanding immediately after such event and
the denominator of which shall be the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. Redemption. The Units of Series A Preferred Stock shall
not be redeemable.
Section 9. Ranking. The Units of Series A Preferred Stock shall rank
junior to the Corporation's Remarketed Preferred Stock and to all other series
of the Preferred Stock and to any other class of preferred stock that hereafter
may be issued by the Corporation as to the payment of dividends and the
distribution of assets, unless the terms of any such series or class shall
provide otherwise.
Section 10. Amendment. The Certificate, including, without
limitation, this resolution, shall not hereafter be amended, either directly or
indirectly, or through merger or consolidation with another corporation, in any
manner that would alter or change the powers, preferences or special rights of
the Series A Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding Units
of Series A Preferred Stock, voting separately as a class.
Section 11. Fractional Shares. The Series A Preferred Stock may be
issued in Units or other fractions of a share, which Units or fractions shall
entitle the holder, in proportion to such holder's fractional shares, to
exercise voting rights, receive dividends, participate in distributions and to
have the benefit of all other rights of holders of Series A Preferred Stock,
Section 12. Certain Definitions. As used herein with respect to the
Series A Preferred Stock, the following terms shall have the following meanings:
(A) The term "Common Stock" shall mean the class of stock
designated as the common stock, par value $1.33 1/3 per share, of the
Corporation at the date hereof or any other class of stock resulting from
successive changes or reclassification of the common stock.
(B) The term "junior stock" (i) as used in Section 4, shall
mean the Common Stock and any other class or series of capital stock of the
Corporation
<PAGE>
hereafter authorized or issued over which the Series A Preferred Stock has
preference or priority as to the payment of dividends and (ii) as used in
Section 6, shall mean the Common Stock and any other class or series of capital
stock of the Corporation over which the Series A Preferred Stock has preference
or priority in the distribution of assets on any liquidation, dissolution or
winding up of the Corporation.
(C) The term "parity stock" (i) as used in Section 4, shall
mean any class or series of stock of the Corporation hereafter authorized or
issued ranking pari passu with the Series A Preferred Stock as to dividends and
(ii) as used in Section 6, shall mean any class or series of capital stock
ranking pari passu with the Preferred Stock in the distribution of assets or any
liquidation, dissolution or winding up.
<PAGE>
EXHIBIT B
MERRILL LYNCH & CO., INC.
-------------------------
CERTIFICATE OF DESIGNATIONS
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
-------------------------
9% CUMULATIVE PREFERRED STOCK, SERIES A
(Par Value $1.00 Per Share)
-------------------------
MERRILL LYNCH & CO., INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), HEREBY CERTIFIES that the
following resolutions were duly adopted by the Board of Directors of the
Corporation and by the Executive Committee of the Board of Directors, pursuant
to authority conferred upon the Board of Directors by the provisions of the
Restated Certificate of Incorporation, as amended, of the Corporation, which
authorize the issuance of up to 25,000,000 shares of preferred stock, par value
$1.00 per share, and pursuant to authority conferred upon the Executive
Committee of the Board of Directors in accordance with Section 141(c) of the
General Corporation Law of the State of Delaware, by Article IV, Section 1 of
the By-laws of the Corporation and by the resolutions of the Board of Directors
set forth herein, at a meeting of the Board of Directors duly held on April 19,
1994, by unanimous written consent to corporate action of the Board of Directors
dated August 22, 1994, and by unanimous written consent of the Executive
Committee dated November 2, 1994:
1. The Board of Directors on April 19, 1994 adopted the following
resolutions authorizing the Executive Committee of the Board of Directors to act
on behalf of the Board of Directors in connection with the designation, issuance
and sale of up to 100,000 shares of preferred stock of the Corporation in one or
more series (the "Preferred Stock") and depositary shares representing interests
in the Preferred Stock (the "Depositary Shares"), either directly or in exchange
for other obligations of the Corporation undertaken in connection with the
issuance of preferred units that may be issued by a limited liability company
affiliated with the Corporation, upon such terms as may be deemed appropriate by
the Executive Committee, including, but not limited to, determinations with
respect to classes and series, dividend and liquidation rights and preferences
(provided that the aggregate liquidation preference of the Preferred Stock, does
not exceed $600,000,000), stated value, denomination, redemption and conversion
or exchange features and to take all such actions in connection therewith as
such Committee may deem necessary or appropriate:
"RESOLVED, that the Board of Directors hereby authorizes and
empowers the Executive Committee to take all such actions as may be
necessary or appropriate for the issuance and sale of up to 100,000 shares
of the Corporation's
<PAGE>
Preferred Stock, par value $1.00 per share (the "Preferred Shares"), in
one or more series, either directly or in exchange for other obligations
of the Corporation undertaken in connection with the issuance of preferred
units that may be issued by a limited liability company affiliated with
the Corporation (the "LLC Units"); provided that the aggregate liquidation
preference of such Preferred Shares shall not exceed $600,000,000;"
"FURTHER RESOLVED, that the Executive Committee may approve the
issuance of the Preferred Shares upon such terms as may be deemed
appropriate by the Executive Committee, including, but not limited to,
determinations with respect to classes and series, dividend and
liquidation rights and preferences, stated value, denomination, redemption
and conversion or exchange features, and may provide for the issuance of
depositary shares representing interests in the Preferred Shares in order
to accommodate retail marketing; provided, however, that the Preferred
Shares shall not have voting rights except (i) in the event that dividends
are in arrears for six consecutive quarters, the number of the
Corporation's directors shall be increased by two and the holders of the
Preferred Shares shall be entitled, voting as a class, to elect two
directors of the Corporation to serve until such time as such arrearages
are paid in full or (ii) as otherwise required by law;"
2. The Board of Directors, by unanimous written consent to corporate
action dated August 22, 1994, adopted the following resolution amending the
second resolution set forth in paragraph 1 above:
"RESOLVED, that the resolution attached hereto as Exhibit A, which
was adopted at the meeting of the Board of Directors duly called and held
on April 19, 1994, is hereby amended by deleting the word "consecutive" in
the third line of the proviso and inserting the words "or the requirements
of any stock exchange on which the Preferred Shares may be listed" at the
end thereof prior to the semicolon."
3. The Executive Committee of the Board of Directors, by unanimous written
consent to corporate action dated November 2, 1994, adopted the following
resolution pursuant to the authority conferred upon the Executive Committee by
the resolution of the Board of Directors set forth in paragraph 1 above adopted
pursuant to Article 4, Section 1 of the By-laws of the Corporation and Section
141(c) of the General Corporation Law of the State of Delaware:
"RESOLVED, that the issue of a series of preferred stock, par value
$1.00 per share, of the Corporation is hereby authorized and the
designation, preferences and privileges, relative, participating, optional
and other special rights, and qualifications, limitations and restrictions
thereof, in addition to those set forth in the Restated Certificate of
Incorporation, as amended, of the Corporation, are hereby fixed as
follows:
9% CUMULATIVE PREFERRED STOCK, SERIES A
<PAGE>
(1) Number of Shares and Designation. 42,500 shares of
the preferred stock, par value $1.00 per share, of the Corporation
are hereby constituted as a series of preferred stock, par value
$1.00 per share, designated as 9% Cumulative Preferred Stock, Series
A (hereinafter called the "Preferred Stock, Series A").
(2) Dividends. (a) The holders of shares of the
Preferred Stock, Series A, shall be entitled to receive, as, if and
when declared by the Board of Directors of the Corporation (or a
duly authorized Committee thereof), out of assets of the Corporation
legally available for the payment of dividends, cash dividends at
the rate set forth below in this Section (2) applied to the amount
of $10,000 per share. Such dividends shall be cumulative from the
date of original issue of such shares, whether or not in any
Dividend Period or Dividend Periods (as defined in subsection (b) of
this Section (2)) there are assets of the Corporation legally
available for the payment thereof, and shall be payable quarterly,
as, if and when declared by the Board of Directors of the
Corporation (or a duly authorized Committee thereof), on March 30,
June 30, September 30, and December 30 of each year, commencing on
December 30, 1994; provided that if any such payment date is not a
business day, dividends (if declared) on the Preferred Stock, Series
A, will be paid on the immediately succeeding business day, without
interest. Each such dividend shall be payable to the holders of
record of shares of the Preferred Stock, Series A, as they appear on
the stock register of the Corporation on such record dates, which
shall be the fifteenth day immediately preceding the payment date
thereof, or such other date not more than 30 nor less than 15 days
preceding the payment dates thereof, as shall be fixed by the Board
of Directors of the Corporation (or a duly authorized Committee
thereof). Dividends on account of arrears for any past Dividend
Periods may be declared and paid at any time, without reference to
any regular dividend payment date, to holders of record on such
date, not exceeding 45 days preceding the payment date thereof, as
may be fixed by the Board of Directors of the Corporation (or a duly
authorized Committee thereof).
(b) (i) Dividend periods ("Dividend Periods") shall
commence on March 30, June 30, September 30, and December 30 of each
year (other than the initial Dividend Period which shall commence on
the date of original issue of the Preferred Stock, Series A) and
shall end on and include the calendar day next preceding the first
day of the next Dividend Period. The dividend rate on the shares of
Preferred Stock, Series A, for the period from the date of original
issue thereof to and including December 30, 1994, and for each
Dividend Period thereafter shall be 9% per annum.
(ii) The amount of dividends payable for each full
Dividend Period for the Preferred Stock, Series A, shall be computed
by dividing the dividend rate of 9% per annum by four, rounded to
the nearest one-
<PAGE>
hundredth of a percent, with five one-thousandths rounded upwards,
and applying the resulting rate to the amount of $10,000 per share.
The amount of dividends payable for the initial Dividend Period on
the Preferred Stock, Series A, or any other period shorter than a
full Dividend Period on the Preferred Stock, Series A, shall be
computed on the basis of 30-day months, a 360-day year and the
actual number of days elapsed in any period of less than one month.
The amount of dividends payable on the Preferred Stock, Series A,
shall be rounded to the nearest cent, with one-half cent being
rounded upwards.
(c) So long as any shares of the Preferred Stock, Series
A, are outstanding, no full dividends shall be declared or paid or
set apart for payment on the preferred stock of the Corporation of
any series ranking, as to dividends, on a parity with or junior to
the Preferred Stock, Series A, for any period unless full cumulative
dividends have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for
such payment on the Preferred Stock, Series A, for all Dividend
Periods terminating on or prior to the date of payment of such full
cumulative dividends. When dividends are not paid in full, as
aforesaid, upon the shares of the Preferred Stock, Series A, and any
other preferred stock ranking on a parity as to dividends with the
Preferred Stock, Series A, all dividends declared upon shares of the
Preferred Stock, Series A, and any other preferred stock ranking on
a parity as to dividends (whether cumulative or noncumulative) shall
be declared pro rata so that the amount of dividends declared per
share on the Preferred Stock, Series A, and such other preferred
stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the shares of the Preferred Stock,
Series A, and such other preferred stock bear to each other. Holders
of shares of the Preferred Stock, Series A, shall not be entitled to
any dividends, whether payable in cash, property or stock, in excess
of full cumulative dividends, as herein provided, on the Preferred
Stock, Series A. No interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or payments on
the Preferred Stock, Series A, which may be in arrears.
(d) So long as any shares of the Preferred Stock, Series
A, are outstanding, no dividends (other than dividends or
distributions paid in shares of, or options, warrants or rights to
subscribe for or purchase shares of, the Common Stock or another
stock of the Corporation ranking junior to the Preferred Stock,
Series A, as to dividends and upon liquidation and other than as
provided in subsection (c) of this Section (2)) shall be declared or
paid or set aside for payment or other distribution declared or made
upon the Common Stock or upon any other stock of the Corporation
ranking junior to or on a parity with the Preferred Stock, Series A,
as to dividends or upon liquidation, nor shall any Common Stock nor
any other stock of the Corporation ranking junior to or on parity
with the Preferred Stock, Series A, as to dividends or upon
liquidation be redeemed, purchased or otherwise acquired, other than
in connection with the distribution or trading thereof, for
<PAGE>
any consideration (or any moneys be paid to or made available for a
sinking fund for the redemption of any shares of any such stock) by
the Corporation (except by conversion into or exchange for stock of
the Corporation ranking junior to the Preferred Stock, Series A, as
to dividends and upon liquidation) unless, in each case, full
cumulative dividends on all outstanding shares of the Preferred
Stock, Series A, shall have been declared and paid for all Dividend
Periods terminating on or prior to the date of payment of such full
cumulative dividends.
(3) Liquidation Preference. (a) In the event of any
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, before any payment or distribution of the
assets of the Corporation or proceeds thereof (whether capital or
surplus) shall be made to or set apart for the holders of any series
or class or classes of stock of the Corporation ranking junior to
the Preferred Stock, Series A, upon liquidation, dissolution, or
winding up, the holders of the shares of the Preferred Stock, Series
A, shall be entitled to receive $10,000 per share plus an amount
equal to all dividends (whether or not earned or declared) accrued
and unpaid thereon to the date of final distribution to such holders
but such holders shall not be entitled to any further payment. If,
upon any liquidation, dissolution, or winding up of the Corporation,
the assets of the Corporation, or proceeds thereof, distributable
among the holders of the shares of the Preferred Stock, Series A,
shall be insufficient to pay in full the preferential amount
aforesaid and liquidating payments on any other shares of preferred
stock ranking, as to liquidation, dissolution or winding up, on a
parity with the Preferred Stock, Series A, then such assets, or the
proceeds thereof, shall be distributed among the holders of shares
of Preferred Stock, Series A, and any such other preferred stock
ratably in accordance with the respective amounts which would be
payable on such shares of Preferred Stock, Series A, and any such
other preferred stock if all amounts payable thereon were paid in
full. For the purposes of this Section (3), a consolidation or
merger of the Corporation with one or more corporations shall not be
deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary, of the Corporation.
(b) Subject to the rights of the holders of shares of
any series or class or classes of stock ranking on a parity with or
prior to the Preferred Stock, Series A, upon liquidation,
dissolution or winding up, upon any liquidation, dissolution or
winding up of the Corporation, after payment shall have been made in
full to the holders of Preferred Stock, Series A, as provided in
this Section (3), but not prior thereto, any other series of class
or classes of stock ranking junior to the Preferred Stock, Series A,
upon liquidation shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any and
all assets remaining to be paid or distributed, and the holders of
the Preferred Stock, Series A, shall not be entitled to share
therein.
<PAGE>
(4) Redemption. (a) The Preferred Stock, Series A, may
not be redeemed prior to December 30, 2004. At any time or from time
to time on and after December 30, 2004, the Corporation, at its
option, may redeem shares of the Preferred Stock, Series A, as a
whole or in part, at a redemption price of $10,000 per share,
together in each case with accrued and unpaid dividends (whether or
not earned or declared) to the date fixed for redemption.
(b) In the event the Corporation shall redeem shares of
Preferred Stock, Series A, notice of such redemption shall be given
by first class mail, postage prepaid, mailed not less than 30 nor
more than 60 days prior to the redemption date, to each holder of
record of the shares to be redeemed, at such holder's address as the
same appears on the stock register of the Corporation. Each such
notice shall state: (1) the redemption date; (2) the number of
shares of Preferred Stock, Series A, to be redeemed and, if less
than all the shares held by such holder are to be redeemed, the
number of such shares to be redeemed from such holder; (3) the
redemption price; (4) the place or places where certificates for
such shares are to be surrendered for payment of the redemption
price; and (5) that dividends on the shares to be redeemed shall
cease to accrue on such redemption date. Notice having been mailed
as aforesaid, from and after the redemption date (unless default
shall be made by the Corporation in providing money for the payment
of the redemption price) dividends on the shares of the Preferred
Stock, Series A, so called for redemption shall cease to accrue, and
said shares shall no longer be deemed to be outstanding, and all
rights of the holders thereof as stockholders of the Corporation
(except the right to receive from the Corporation the redemption
price) shall cease. The Corporation's obligation to provide moneys
in accordance with the preceding sentence shall be deemed fulfilled
if, on or before the redemption date, the Corporation shall deposit
with a bank or trust company (which may be an affiliate of the
Corporation) having an office in the Borough of Manhattan, City of
New York, having a capital and surplus of at least $50,000,000,
funds necessary for such redemption, in trust, with irrevocable
instructions that such funds be applied to the redemption of the
shares of Preferred Stock, Series A, so called for redemption. Any
interest accrued on such funds shall be paid to the Corporation from
time to time. Any funds so deposited and unclaimed at the end of two
years from such redemption date shall be released or repaid to the
Corporation, after which the holder or holders of such shares of
Preferred Stock, Series A, so called for redemption shall look only
to the Corporation for payment of the redemption price.
Upon surrender, in accordance with said notice, of the
certificates for any such shares so redeemed (properly endorsed or
assigned for transfer, if the Board of Directors of the Corporation
shall so require and the notice shall so state), such shares shall
be redeemed by the Corporation at the applicable redemption price
aforesaid. If less than all the outstanding shares of Preferred
Stock, Series A, are to be redeemed, shares to be
<PAGE>
redeemed shall be selected by the Board of Directors of the
Corporation (or a duly authorized committee thereof) from
outstanding shares of Preferred Stock, Series A, not previously
called for redemption by lot or pro rata or by any other method
determined by the Board of Directors of the Corporation (or a duly
authorized committee thereof) to be equitable. If fewer than all the
shares represented by any certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares
without charge to the holder thereof.
(c) In no event shall the Corporation redeem less than
all the outstanding shares of Preferred Stock, Series A, pursuant to
subsection (a) of this Section (4) unless full cumulative dividends
on all outstanding shares of the Preferred Stock, Series A, shall
have been or all contemporaneously declared and paid or declared and
a sum sufficient for payment thereof set apart for such payment for
all Dividend Periods terminating on or prior to the date of payment
of such full cumulative dividends.
(5) Voting Rights. The Preferred Stock, Series A, shall
have no voting rights, except as hereinafter set forth or as
otherwise from time to time required by law. Whenever dividends
payable on the Preferred Stock, Series A, shall be in arrears for
such number of dividend periods, whether or not consecutive, which
shall in the aggregate contain a number of months equivalent to six
calendar quarters, the holders of outstanding shares of the
Preferred Stock, Series A, shall have the exclusive right, voting as
a class with holders of shares of all other series of preferred
stock ranking on a parity with the Preferred Stock, Series A, either
as to dividends or the distribution of assets upon liquidation,
dissolution or winding up and upon which like voting rights have
been conferred and are exercisable, to vote for the election of two
additional directors at the next annual meeting of stockholders and
at each subsequent annual meeting of stockholders. At elections for
such directors, each holder of the Preferred Stock, Series A, shall
be entitled to one vote for each share held (the holders of shares
of any other series of preferred stock ranking on such a parity
being entitled to such number of votes, if any, for each share of
stock held as may be granted to them). Upon the vesting of such
right of such holders, the maximum authorized number of members of
the Board of Directors shall automatically be increased by two and
the two vacancies so created shall be filled by vote of the holders
of such outstanding shares of Preferred Stock, Series A, (either
alone or together with the holders of shares of all other series of
preferred stock ranking on such a parity) as hereinafter set forth.
The right of such holders of such shares of the Preferred Stock,
Series A, voting as a class with holders of shares of all other
series of preferred stock ranking on such a parity, to elect members
of the Board of Directors of the Corporation as aforesaid shall
continue until all past dividends accumulated on such shares of
Preferred Stock, Series A, shall have been paid in full. Upon
payment in full of such dividends, such voting rights shall
terminate except as
<PAGE>
expressly provided by law, subject to re-vesting in the event of
each and every subsequent default in the payment of dividends as
aforesaid.
Upon termination of the right of the holders of the
Preferred Stock, Series A, to vote for directors as herein provided,
the term of office of all directors then in office elected by such
holders will terminate immediately. If the office of any director
elected by such holders voting as a class becomes vacant by reason
of death, resignation, retirement, disqualification, removal from
office or otherwise, the remaining director elected by such holders
voting as a class may choose a successor who shall hold office for
the unexpired term in respect of which such vacancy occurred.
Whenever the term of office of the directors elected by such holders
voting as a class shall end and the special voting rights shall have
expired, the number of directors shall be such number as may be
provided for in the By-laws irrespective of any increase made
pursuant to the provisions hereof.
So long as any shares of the Preferred Stock, Series A,
remain outstanding, the affirmative vote or consent of the holders
of at least two-thirds of the shares of the Preferred Stock, Series
A, outstanding at the time (voting as a class with all other series
of preferred stock ranking on a parity with the Preferred Stock,
Series A, either as to dividends or the distribution of assets upon
liquidation, dissolution or winding up and upon which like voting
rights have been conferred and are exercisable), given in person or
by proxy, either in writing or at any meeting called for the
purpose, shall be necessary to permit, effect or validate any one or
more of the following:
(i) the authorization, creation or issuance, or any
increase in the authorized or issued amount, of any class or series
of stock ranking prior to the Preferred Stock, Series A, with
respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up; or
(ii) the amendment, alteration or repeal, whether by
merger, consolidation or otherwise, of any of the provisions of the
Restated Certificate of Incorporation, as amended, or of the
resolutions set forth in a Certificate of Designations for such
Preferred Stock, Series A, which would materially and adversely
affect any right, preference, privilege or voting power of the
Preferred Stock, Series A, or of the holders thereof; provided,
however, that any increase in the amount of authorized preferred
stock or the creation and issuance, or an increase in the authorized
or issued amount, of other series of preferred stock, or any
increase in the amount of authorized shares of Preferred Stock,
Series A, in each case ranking on a parity with or junior to the
Preferred Stock, Series A, with respect to the payment of dividends
and the distribution of assets upon liquidation, dissolution or
winding up, shall not be deemed to materially and adversely affect
such rights, preferences, privileges or voting powers.
<PAGE>
The foregoing voting provisions shall not apply if, at or
prior to the time when the act with respect to which such vote would
otherwise be required shall be effected, all outstanding shares of
Preferred Stock, Series A, shall have been redeemed or sufficient
funds shall have been deposited in trust to effect such a redemption
which is scheduled to be consummated within three months after the
time that such rights would otherwise be exercisable.
(6) Record Holders. The Corporation and the transfer
agent for the Preferred Stock, Series A, may deem and treat the
record holder of any share of such Preferred Stock as the true and
lawful owner thereof for all purposes, and neither the Corporation
nor such transfer agent shall be affected by any notice to the
contrary.
(7) Ranking. Any class or classes of stock of the
Corporation shall be deemed to rank:
(i) on a parity with the Preferred Stock, Series A, as
to dividends or as to distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates,
dividend payment dates, or redemption or liquidation prices per
share thereof be different from those of the Preferred Stock, Series
A, if the holders of such class of stock and the Preferred Stock,
Series A, shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up,
as the case may be, in proportion to their respective dividend rates
or liquidation prices, without preference or priority one over the
other; and
(ii) junior to the Preferred Stock, Series A, as to
dividends or as to the distribution of assets upon liquidation,
dissolution or winding up, if such stock shall be Common Stock or if
the holders of Preferred Stock, Series A, shall be entitled to
receipt of dividends or of amounts distributable upon dissolution,
liquidation or winding up, as the case may be, in preference or
priority to the holders of shares of such stock.
(8) Exclusion of Other Rights. Unless otherwise required
by law, shares of Preferred Stock, Series A, shall not have any
rights, including preemptive rights, or preferences other than those
specifically set forth herein or as provided by applicable law.
(9) Notices. All notices or communications unless
otherwise specified in the By-laws of the Corporation or the
Restated Certificate of Incorporation, as amended, shall be
sufficiently given if in writing and delivered in person or by first
class mail, postage prepaid. Notice shall be deemed given on the
earlier of the date received or the date such notice is mailed."
Exhibit 10
MERRILL LYNCH & CO., INC. DEFERRED UNIT AND STOCK UNIT PLAN FOR
NON-EMPLOYEE DIRECTORS
Article I - General
Section 1.1 Purposes.
The purposes of the Merrill Lynch & Co., Inc. Deferred Unit and
Stock Unit Plan for Non-Employee Directors (the "Plan") are (a) to provide an
incentive to highly qualified individuals to serve as Directors of Merrill Lynch
& Co., Inc. ("ML & Co.") and (b) to further align the interests of Non-Employee
Directors with the stockholders of ML & Co.
Section 1.2 Definitions.
For the purpose of the Plan, the following terms shall have the
meanings indicated.
"Account(s)" means a Participant's Mutual Fund Index Account and/or
Deferred Unit/Stock Unit Account.
"Account Balance(s)" means the Participant's Deferred Unit Account
Balance, Deferred Stock Unit Account Balance and/or Mutual Fund Index
Account Balance.
"Administrator" means the Director of Human Resources of ML & Co.,
or his or her functional successor.
"Affiliate" means any corporation, partnership, or other
organization of which ML & Co. owns or controls, directly or indirectly,
not less than 50% of the total combined voting power of all classes of
stock or other equity interests.
"Annual Meeting" means the Annual Meeting of Stockholders of ML &
Co.
"annuitized payments" has the meaning specified in Section 2.5(b).
"Board of Directors" or "Board" shall mean the Board of Directors of
ML & Co.
"Business Day" shall mean any day on which the New York Stock
Exchange is open for business.
"Change in Control" means a change in control of ML & Co. of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether
or not ML & Co. is then subject to such reporting requirement; provided,
however, that, without limitation, a Change in Control shall be deemed to
have occurred if:
(a) any individual, partnership, firm, corporation, association,
trust, unincorporated organization or other entity, or any syndicate or
group deemed to be a person under Section 14(d)(2) of the Exchange Act,
other than ML & Co.'s employee stock ownership plan, is or
<PAGE>
becomes the "beneficial owner" (as defined in Rule 13d-3 of the General
Rules and Regulations under the Exchange Act), directly or indirectly, of
securities of ML & Co. representing 30% or more of the combined voting
power of ML & Co.'s then outstanding securities entitled to vote in the
election of directors of ML & Co.;
(b) during any period of two consecutive years (not including any
period prior to the adoption of this Plan), individuals who at the
beginning of such period constituted the Board of Directors and any new
Directors whose election by the Board of Directors or nomination for
election by the stockholders of ML & Co. was approved by a vote of at
least three quarters of the Directors then still in office who either were
directors at the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason to
constitute at least a majority thereof; or
(c) all or substantially all of the assets of ML & Co. are
liquidated or distributed.
"Code" means the U.S. Internal Revenue Code of 1986, as amended from
time to time.
"Common Stock" means the Common Stock, par value $1.33 1/3 per
share, of ML & Co. and a "share of Common Stock" shall mean one share of
Common Stock together with, for so long as Rights are outstanding, one
Right (whether trading with the Common Stock or separately).
"Company" means ML & Co. and all of its Affiliates.
"Current Market Value" per share of Common Stock for any date means
the average of the Daily Market Prices of a share of Common Stock for each
Business Day for which such Daily Market Prices are available during a
period commencing on a date 21 consecutive Business Days prior to such
date and ending on the second Business Day prior to such date.
"Daily Market Price" of shares of Common Stock on any date means:
(a) the mean of the high and low sales prices reported on the New York
Stock Exchange--Composite Tape (or, if shares of Common Stock are not
traded on the New York Stock Exchange, the mean of the high and low sales
prices reported on any securities exchange or quotation service on which
the shares of Common Stock are listed or traded) of such shares on the
date in question, or (b) if shares of Common Stock are not then listed or
admitted to trading on any securities exchange as to which reported sales
prices are available, the mean of reported high bid and low asked prices
on such date, as reported by a reputable quotation service, or by The Wall
Street Journal, Eastern Edition or a newspaper of general circulation in
the Borough of Manhattan, City and State of New York.
"Deferred Stock Unit" means a unit representing ML & Co.'s
obligation to deliver one share of Common Stock in accordance with the
terms of the Plan.
"Deferred Stock Unit Account Balance" means, with respect to a
particular grant as of any date, the Deferred Stock Units credited to a
Participant's Deferred Unit/Stock Unit Account, adjusted in accordance
with Section 3.1 to reflect the addition of dividend equivalents and any
changes in capitalization and adjusted for any payments to the Participant
in respect of Deferred Stock Units.
2
<PAGE>
"Deferred Unit" means a unit representing ML & Co.'s obligation to
pay an amount in cash equal to the value of one share of Common Stock in
accordance with the terms of the Plan.
"Deferred Unit Account Balance" means, with respect to a particular
grant as of any date, the Deferred Units credited to a Participant's
Deferred Unit/Stock Unit Account, adjusted in accordance with Section 3.1
to reflect the addition of dividend equivalents and any changes in
capitalization and adjusted for any payments to the Participant in respect
of Deferred Units or optional deferrals into a Mutual Fund Index Account
prior to that date.
"Deferred Unit/Stock Unit Account" means the reserve account
established on the books and records of ML & Co. to record a Participant's
Deferred Unit Account Balance and Deferred Stock Unit Account Balance.
"Determination Date" has the meaning specified in Section 2.5(b).
"Director" means a member of the Board.
"Disability" means any physical or mental condition that in the
opinion of the Administrator renders a Director incapable of continuing to
serve on the Board.
"Early Separation" means ceasing to serve as a Director of ML & Co.
prior to scheduled Retirement for any reason other than death or
Disability.
"End of Service Date" means the date on which a Participant ceases
to serve as a Director for any reason.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Executive Committee" means the Executive Committee of the Board of
Directors.
"Holding Period" has the meaning specified in Section 2.3(a).
"Initial Payment Date" has the meaning specified in Section 2.5(b).
"Junior Preferred Stock" means ML & Co.'s Series A Junior Preferred
Stock, par value $1.00 per share.
"modified installment payments" has the meaning specified in Section
2.5(b).
"Mutual Fund Index Account" means the reserve account established on
the books and records of ML & Co. to record a Participant's Mutual Fund
Index Account Balance.
"Mutual Fund Index Account Balance" means, with respect to a
particular grant as of any date, the deferred amounts, if any, credited to
a Participant's Mutual Fund Index Account pursuant to Section 2.4(b),
adjusted in accordance with Section 3.2 to reflect the performance of the
Participant's Selected Mutual Fund Index Account Return Options and
adjusted for any payments made from the Mutual Fund Index Account to the
Participant prior to that date.
3
<PAGE>
"Mutual Fund Index Account Return Options" means such Merrill Lynch
mutual funds or other investment vehicles as the Administrator may from
time to time designate for the purpose of indexing Mutual Fund Index
Accounts hereunder. In the event a Mutual Fund Index Account Return Option
ceases to exist or is no longer to be a Mutual Fund Index Account Return
Option, the Administrator may designate a substitute Mutual Fund Index
Account Return Option for such discontinued option.
"Net Asset Value" means, with respect to each Mutual Fund Index
Account Return Option that is a mutual fund or other commingled investment
vehicle for which such values are determined in the normal course of
business, the net asset value, on the date in question, of the Mutual Fund
Index Account Return Option for which the value is to be determined.
"Non-Employee Director" means a member of the Board who is not
employed by ML & Co. or any corporation, partnership, or other
organization of which ML & Co. owns or controls, directly or indirectly,
not less than 50% of the total combined voting power of all classes of
stock or other equity interests or any successor thereto.
"Participant" means each Non-Employee Director to whom a grant of
Deferred Units or Deferred Stock Units has been made under the Plan.
"Retirement" means ceasing to serve as a Director of ML & Co. on the
date of the Annual Meeting next following the calendar year of such
Director's seventieth birthday, or at such other time as may subsequently
be established as the normal retirement date for Non-Employee Directors.
"Retirement Annual Meeting" means, with respect to any Retiring
Non-Employee Director, the Annual Meeting coincident with such Director's
Retirement.
"Retirement Fraction" means, with respect to any Retiring
Non-Employee Director, a fraction whose numerator is the number of Annual
Meetings (including the Retirement Annual Meeting) remaining until such
Director's Retirement, and whose denominator is five.
"Retiring Non-Employee Director" means a Non-Employee Director whose
Retirement Annual Meeting will occur prior to, or will be the fifth Annual
Meeting following, the effective date of any grant of Deferred Units or
Deferred Stock Units to such Director.
"Rights" means the Rights to Purchase Units of Series A Junior
Preferred Stock, par value $1.00 per share, of ML & Co. issued pursuant to
the Rights Agreement dated as of December 16, 1987 between ML & Co. and
Manufacturers Hanover Trust Company, Rights Agent, as amended from time to
time.
"Selected Mutual Fund Index Account Return Option" means a Mutual
Fund Index Account Return Option selected by a Participant in accordance
with Section 3.2(a).
"Tender Offer" means an offer to purchase all or a portion of the
outstanding shares of Common Stock that is subject to Section 14D of the
Exchange Act, provided that such offer, if consummated, would result in a
Change in Control.
4
<PAGE>
Section 1.3 Shares Subject to the Plan.
(a) Reservation of Shares. The total number of shares of Common Stock that
shall be reserved for issuance in payment of Deferred Stock Units under the Plan
shall be 200,000, subject to adjustment for changes in capitalization of ML &
Co. as provided in subparagraph (b) below. Shares of Common Stock issued under
the Plan shall only be shares previously issued and reacquired by ML & Co. and
held in its treasury.
(b) Changes in Common Stock. If any change is made in the terms or
provisions of the Common Stock (or the Rights of Junior Preferred Stock) subject
to the Plan (whether by reason of reorganization, merger, consolidation,
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares, change in corporate structure, or otherwise), then appropriate
adjustments shall be made to the maximum number of shares of Common Stock and
Rights subject to and reserved under the Plan without any action by the Board of
Directors.
Article II - Deferred Units and Deferred Stock Units; Optional Deferral of
Payment
Section 2.1 Deferred Unit Grants.
(a) Initial Grants. Each Non-Employee Director who is a member of the
Board on the effective date of the Plan shall have a Deferred Unit/Stock Unit
Account established in his or her name and be granted and have credited to such
account as of the date this Plan becomes effective the number of Deferred Units
obtained by dividing $50,000 by the Current Market Value per share of Common
Stock on such date and rounding the result upwards to the nearest whole Deferred
Unit; provided, however, that the dollar amount used to determine the grant to
any Retiring Non-Employee Director shall be $50,000 multiplied by the Retirement
Fraction applicable to such Retiring Non-Employee Director.
(b) New Director Grants. Each person who becomes a Non-Employee Director
after this Plan becomes effective shall, on the date when such person becomes a
Non-Employee Director and without any action by the Board of Directors, have a
Deferred Unit/Stock Unit Account established in his or her name and be granted
and have credited to such account the number of Deferred Units obtained by
dividing $50,000 by the Current Market Value per share of Common Stock on such
date and rounding the result upwards to the nearest whole Deferred Unit;
provided, however, that the dollar amount used to determine the grant to any
Retiring Non-Employee Director shall be $50,000 multiplied by the Retirement
Fraction applicable to such Retiring Non-Employee Director.
(c) Subsequent Grants. Effective on the close of business on the first
Business Day of the month next following the date of the fifth Annual Meeting
following the grant of Deferred Units to a Non-Employee Director pursuant to
Section 2.1(a) or (b), as applicable, and, thereafter, effective on the date of
the fifth Annual Meeting following the grant of Deferred Units to a Non-Employee
Director pursuant to this Section 2.1 (c), any Director then serving as a
Non-Employee Director shall, without any action by the Board of Directors, be
granted and have credited to his or her Deferred Unit/Stock Unit Account on such
date the number of Deferred Units obtained by dividing $50,000 by the Current
Market Value per share of Common Stock on such date and rounding the result
upwards to the nearest whole Deferred Unit; provided, however, that the dollar
amount used to determine the grant to any Retiring Non-Employee Director shall
be $50,000 multiplied by the Retirement Fraction applicable to such Retiring
Non-Employee Director.
5
<PAGE>
(d) Annual Grants. (i) Effective on the close of business on the first
Business Day of the month next following the date of each Annual Meeting any
Director then serving as a Non-Employee Director shall, without any action by
the Board of Directors, be granted and have credited to his or her Deferred
Unit/Stock Unit Account on such date the number of Deferred Units obtained by
dividing $10,000 by the Current Market Value per share of Common Stock on such
date and rounding the result upwards to the nearest whole Deferred Unit. (ii)
Each person who becomes a Non-Employee Director on a date other than the date of
an Annual Meeting, shall, on the date when such person becomes a Non-Employee
Director and without any action by the Board of Directors, have a Deferred
Unit/Stock Unit Account established in his or her name and be granted and have
credited to such account the number of Deferred Units obtained by dividing
$10,000 by the Current Market Value per share of Common Stock on such date and
rounding the result upwards to the nearest whole Deferred Unit.
Section 2.2 Deferred Stock Unit Grants.
In the event that ML & Co. determines to amend the Merrill Lynch & Co.,
Inc. Non-Employee Directors' Equity Plan (the "Equity Plan") to eliminate future
grants thereunder, then, without any action by the Board of Directors, each
Director serving as a Non-Employee Director on the effective dates set forth in
Section 2.2(a), (b) or (c) below, shall be granted and have credited to his or
her Deferred Unit/Stock Unit Account the number of Deferred Stock Units obtained
by dividing $50,000 by the Current Market Value per share of Common Stock on
such date and rounding the result upwards to the nearest whole Deferred Stock
Unit, effective as follows:
(a) Continuing Director Initial Grants. For each Non-Employee Director who
has received a grant under the Equity Plan, effective on the close of business
on the first Business Day of the month next following the date of the Annual
Meeting upon which such Director's grant under the Equity Plan becomes fully
vested;
(b) New Director Grants. For each Non-Employee Director who has not
received a grant under the Equity Plan, effective on the date that such Director
joins the Board of Directors; and
(c) Subsequent Grants. For each Non-Employee Director who has received a
grant of Deferred Stock Units under Section 2.2(a) or (b), effective on the
close of business on the first Business Day of the month next following the date
of the fifth Annual Meeting following the grant of Deferred Stock Units to a
Non-Employee Director pursuant to Section 2.2(a) or (b), as applicable, and,
thereafter, effective on the close of business on the date of the fifth Annual
Meeting following the grant of Deferred Stock Units to a Non-Employee Director
pursuant to this Section 2.2(c);
provided, however, that, in each case, the dollar amount used to determine the
grant to any Retiring Non-Employee Director shall be $50,000 multiplied by the
Retirement Fraction applicable to such Retiring Non-Employee Director.
Section 2.3 Payment of Deferred Units and Deferred Stock Units.
(a) Payment of Units Upon Expiration of Holding Period. Unless deferred at
the option of the Participant in accordance with Section 2.4(a) hereof, the
Deferred Unit Account Balance and Deferred Stock Unit Account Balance with
respect to a particular grant will become
6
<PAGE>
payable upon the expiration of the holding period with respect to such grant
(the "Holding Period"), which shall expire on the earlier of: (i) the date of
the fifth Annual Meeting following the date of such grant, and (ii) a
Participant's End of Service Date. The Deferred Units will be paid in cash. The
amount of such cash payment shall be determined by multiplying the number of
Deferred Units to be paid by the Current Market Value per share of Common Stock
for the last day of the month immediately preceding the month in which payment
is to be made and rounding the result to the nearest whole cent. The Deferred
Stock Units will be paid in shares of Common Stock. One share of Common Stock
will be delivered for each Deferred Stock Unit to be paid, after rounding any
fractional Deferred Stock Unit upwards to the nearest whole share.
(b) Reduced Payment upon Early Separation. In the event of a Participant's
Early Separation, the amount payable to such Participant pursuant to paragraph
2.3(a) with respect to grants made pursuant to Sections 2.1(a)-(c) and Section
2.2 hereof shall be reduced by multiplying the relevant Account Balance(s) by a
fraction, the numerator of which shall be 1 plus the number of Annual Meetings
that have occurred since the date of the relevant grant, and the denominator of
which shall be 5 or, in the case of a Retiring Non-Employee Director, the number
of Annual Meetings from the relevant grant date to and including the Retirement
Annual Meeting. No such reduction shall be applied to any Account Balance(s)
relating to grants whose Holding Periods have expired prior to the date of Early
Separation.
Section 2.4 Optional Deferral of Payment.
(a) Optional Deferral of Payment. A Participant shall have the option to
defer the payment of all or a portion of any Deferred Unit or Deferred Stock
Unit grant upon the expiration of the relevant Holding Period for later payment
in accordance with Section 2.5 by submitting to the Administrator or his or her
designee such forms as the Administrator shall prescribe by no later than one
year prior to the expiration of the relevant Holding Period. No such deferral
election shall become effective if the Holding Period expires prior to the fifth
Annual Meeting following the date of the relevant grant as a result of the
Participant's Early Separation, death or Disability.
(1) With respect to Deferred Units, a Participant may elect: (i) to have
all or a portion of his or her Deferred Unit Account Balance retained as
Deferred Units in his or her Deferred Unit/Stock Unit Account for payment at a
later date, or (ii) to have all or a portion of his or her Deferred Unit Account
Balance credited (either at the expiration of the Holding Period or upon some
specified subsequent date) to a Mutual Fund Index Account in accordance with
Section 2.4(b).
(2) With respect to Deferred Stock Units, a Participant may elect to have
all or a portion of his or her Deferred Stock Unit Account Balance retained as
Deferred Stock Units in his or her Deferred Unit/Stock Unit Account for payment
at a later date.
(b) Crediting to Mutual Fund Index Account. If a Participant elects,
pursuant to Section 2.4(a), to defer all or a portion of his or her Deferred
Unit Account Balance into a Mutual Fund Index Account, then, as soon as
practicable (but in no event later than the end of the following month) after
the expiration of the Holding Period applicable to such Participant's Deferred
Unit grant, a Mutual Fund Index Account will be established in the Participant's
name and will be credited with a dollar amount determined by multiplying the
relevant number of Deferred Units by the Current Market Value per share of
Common Stock on the last day of the month immediately preceding the month in
which the Holding Period expires and rounding the result to the nearest
7
<PAGE>
whole cent. Mutual Fund Index Account Balances may not subsequently be converted
to Deferred Units or Deferred Stock Units.
(c) Irrevocability of Deferral Election. Except as provided in Sections
2.4(d) or (e) or Section 2.5, an election to defer the payment of all or a
portion of a Participant's Deferred Unit Account Balance or Deferred Stock Unit
Account Balance made pursuant to Section 2.4(a)(1) or (2) shall be irrevocable
once submitted to the Administrator or his or her designee.
(d) Rescission of Deferral Election Prior to the Expiration of the Holding
Period. An optional deferral election may be rescinded at the request of the
Participant only (i) prior to the expiration of the Holding Period with respect
to any grant of Deferred Units or Deferred Stock Units, and (ii) if the
Administrator, in his or her sole discretion and upon evidence of such basis
that he or she finds persuasive (including a material applicable change in the
Participant's U.S. Federal and/or foreign income tax rate during the period
between the deferral election and the expiration of the Holding Period), agrees
to the rescission of the election. In the event of a rescission under this
Section 2.4(d), no deferral will be effected under the Plan and the Participant
will be paid the Deferred Units or Deferred Stock Units in accordance with
Section 2.4(a).
(e) Rescission of Deferral Election Caused by an Adverse Tax
Determination. Notwithstanding the provisions of Section 2.4(c), a deferral
election may be rescinded at any time if (i) a final determination is made by a
court or other governmental body of competent jurisdiction that the election was
ineffective to defer income for purposes of U.S. Federal, state, local or
foreign income taxation and the time for appeal from this determination has
expired, and (ii) the Administrator, in his or her sole discretion, decides,
upon the Participant's request and upon evidence of the occurrence of the events
described in clause (i) hereof that he or she finds persuasive, to rescind the
election. Upon such rescission, the relevant Account Balance(s) will be paid to
the Participant as soon as practicable as provided herein.
Section 2.5 Payment of Amounts Optionally Deferred.
(a) Regular Payment Elections. A Participant's Account Balance(s) will be
paid by ML & Co., as elected by the Participant at the time of his or her
optional deferral election, either in a single payment to be made, or in the
number of annual installment payments (not to exceed 15) chosen by the
Participant to commence, (i) in the month following the month of the
Participant's End of Service Date or death, (ii) in any month and year selected
by the Participant after the scheduled expiration of the Holding Period (i.e.,
without taking into account the possibility of Early Separation, death or
Disability) or (iii) in any month in the calendar year following the
Participant's End of Service Date, but in no event may the date elected under
clause (i), (ii) or (iii) result in the payment (in the case of a single
payment) or commencement of payments (in the case of installment payments) later
than the month following the Participant's 72nd birthday. The amount of each
annual installment payment, if applicable, shall be determined by multiplying
the Account Balance(s) as of the last day of the month immediately preceding the
month in which the payment is to be made by a fraction, the numerator of which
is one and the denominator of which is the number of remaining installment
payments (including the installment payment to be made) and rounding the result
to the nearest whole Deferred Unit, Deferred Stock Unit or cent, as the case may
be.
(b) Modified Installment Payments. In lieu of one of the regular payment
elections provided for in Section 2.5(a), a Participant may elect to receive his
or her Deferred Unit Account Balance or Mutual Fund Index Account Balance in at
least 11 but no more than 15 annual
8
<PAGE>
installment payments ("modified installment payments"), such modified
installment payments to commence on the last business day in March in the year
following the Participant's End of Service Date (the "Initial Payment Date").
The modified installment payments shall be computed in accordance with the last
sentence of Section 2.5(a) and will in all other respects be treated like
regular installment payments under the Plan. By electing modified installment
payments, the Participant agrees that at any time prior to the last day of
February immediately preceding a Participant's Initial Payment Date (the
"Determination Date"), ML & Co. shall have the right, without the consent of
Participant or any beneficiary, to change the Participant's method of payment to
11 annuitized payments ("annuitized payments"), in the event that the
Administrator, in his or her sole discretion, determines that such a change is
necessary or appropriate in order to preserve the intended state tax benefits of
the modified installment payments to the Participant or any beneficiary. In the
event that the Administrator determines that annuitized payments shall be made,
the amount of the annuitized payments will be determined by applying the
Discount Rate, as defined below, to the value of the Deferred Unit Account
Balance (determined as provided in Section 2.5(c)) or Mutual Fund Index Account
Balance, as applicable, as of the Determination Date to create a stream of 11
equal annual payments. If annuitized payments are to be made, then the Deferred
Unit Account Balance or Mutual Fund Index Account Balance, as applicable, shall
cease to be adjusted pursuant to Article III as of the Determination Date and
the Company's only obligation to the Participant shall be to make the annuitized
payments when due. As used herein, Discount Rate shall mean ML & Co.'s
then-applicable after-tax cost of borrowing and is defined as (A) x (B), where
(A) is equal to 1 minus ML & Co.'s then-effective tax rate, expressed as a
decimal, and (B) is equal to the sum of: (i) the annual yield on the
then-current 5-year U.S. Treasury Note, and (ii) a spread (which will not be
less than 0.10%) indicative of ML & Co.'s borrowing cost for transactions of
similar structure and average maturity to the annuity, as determined by ML & Co.
(c) Form of Payment. Deferred Units payable pursuant to this Section 2.5
will be paid in cash. Except as otherwise provided in Section 2.5(b), the amount
of any such cash payment shall be determined by multiplying the number of
Deferred Units to be paid by the Current Market Value per share of Common Stock
for the last day of the month immediately preceding the month in which payment
is to be made and rounding the result to the nearest whole cent. Deferred Stock
Units payable pursuant to this Section 2.5 will be paid in shares of Common
Stock. One share of Common Stock will be delivered for each Deferred Stock Unit
to be paid, after rounding any fractional Deferred Stock Unit upwards to the
nearest whole share. Amounts deferred as Mutual Fund Index Account Balances will
be paid in cash as provided in Section 2.5(a) or (b), whichever is applicable.
(d) Death Prior to Payment. If the Participant dies prior to payment of
any or all amounts optionally deferred, then the Account Balance(s) will be paid
to the Participant's beneficiary in accordance with the Participant's election
of either installment payments, modified installment payments or a single
payment, provided, however, that, in the event that a beneficiary of the
Participant's Account Balance(s) is the Participant's estate or is otherwise not
a natural person, then (i) if the Participant has elected a regular payment
election pursuant to Section 2.5(a), the applicable portion of the Account
Balance(s) will be paid in a single payment to such beneficiary, and (ii) if the
Participant has elected modified installment payments pursuant to Section
2.5(b), the applicable portion of the Account Balance(s) will continue to be
paid as modified installment payments or annuitized payments, as the case may
be, but only to a single person consisting of the administrator or executor of
the Participant's estate or another person lawfully designated by the
9
<PAGE>
administrator or executor (and in the event no such person is designated within
a reasonable time, payment will be made in a lump sum).
(e) Discretion to Alter Payment Date. Notwithstanding the other provisions
of this Section 2.5, if the Participant ceases to be a Director for any reason,
the Administrator may, in his or her sole discretion, direct that the Account
Balance(s), except for any Deferred Unit Account Balance resulting from a grant
pursuant to Section 2.1(a) (but not any subsequent optional deferral thereof),
be paid at some other time or that it be paid in installments; provided, that no
such direction that adversely affects the rights of the Participant or his or
her beneficiary under this Plan shall be implemented without the consent of the
affected Participant or beneficiary. This direction may be revoked by the
Administrator at any time in his or her sole discretion.
(f) Hardship Distributions. ML & Co. may pay to the Participant, on such
terms and conditions as the Administrator may establish, such part or all of the
Account Balance(s), except for any Deferred Unit Account Balance resulting from
a grant pursuant to Section 2.1(a) (but not any subsequent optional deferral
thereof), as the Administrator may, in his or her sole discretion based upon
substantial evidence submitted by the Participant, determine necessary to
alleviate hardship caused by an unanticipated emergency or necessity outside of
the Participant's control affecting the Participant's personal or family
affairs. Such payment will be made only at the Participant's written request and
with the express approval of the Administrator and will be made on the date
selected by the Administrator in his or her sole discretion. The balance of the
Account(s), if any, will continue to be governed by the terms of this Plan.
Hardship shall be deemed to exist only on account of expenses for medical care
(described in Code Section 213(d)) of the Participant, the Participant's spouse
or the Participant's dependents (described in Code Section 152); payment of
unreimbursed tuition and related educational fees for the Participant, the
Participant's spouse or the Participant's dependents; the need to prevent the
Participant's eviction from, or foreclosure on, the Participant's principal
residence; unreimbursed damages resulting from a natural disaster; or such other
financial need deemed by the Administrator in his or her sole discretion to be
immediate and substantial.
Section 2.6 Beneficiary.
(a) Designation of Beneficiary. The Participant may designate, in a
writing delivered to the Administrator or his or her designee before the
Participant's death, a beneficiary to receive payments under the Plan in the
event of the Participant's death. The Participant may also designate a
contingent beneficiary to receive payments under the Plan if the primary
beneficiary does not survive the Participant. The Participant may designate more
than one person as the Participant's beneficiary or contingent beneficiary, in
which case (i) no contingent beneficiary would receive any payment unless all of
the primary beneficiaries predeceased the Participant, and (ii) the surviving
beneficiaries in any class shall share in any payments in proportion to the
percentages of interest assigned to them by the Participant.
(b) Change in Beneficiary. The Participant may change his or her
beneficiary or contingent beneficiary (without the consent of any prior
beneficiary) in a writing delivered to the Administrator or his or her designee
before the Participant's death. Unless the Participant states otherwise in
writing, any change in beneficiary or contingent beneficiary will automatically
revoke such prior designations of the Participant's beneficiary or of the
Participant's contingent beneficiary, as the case may be, under this Plan only;
and any designations under other deferral agreements or plans of the Company
will remain unaffected.
10
<PAGE>
(c) Default Beneficiary. In the event a Participant does not designate a
beneficiary, or no designated beneficiary survives the Participant, the
Participant's beneficiary shall be the Participant's surviving spouse, if the
Participant is married at the time of his or her death and not subject to a
court-approved agreement or court decree of separation, or otherwise the person
or persons designated to receive benefits on account of the Participant's death
under the ML & Co. pre-retirement death benefit for Non-Employee Directors,
unless the rights to such benefit have been assigned, in which case any amounts
payable to the Participant's beneficiary under the Plan will be paid to the
Participant's estate.
(d) If the Beneficiary Dies During Payment. If a beneficiary who is
receiving or is entitled to receive payments hereunder dies after the
Participant but before all the payments have been made, the portion of the
Account Balance(s) to which that beneficiary was entitled will be paid as soon
as practicable in a single payment to such beneficiary's estate and not to any
contingent beneficiary the Participant may have designated; provided, however,
that if the beneficiary was receiving modified installment payments or
annuitized payments pursuant to Section 2.5(b), the applicable portion of the
Account Balance(s) will continue to be paid as modified installment payments or
annuitized payments, as the case may be, but only to a single person consisting
of the administrator or executor of the beneficiary's estate or another person
lawfully designated by the administrator or executor (and in the event no such
person is designated within a reasonable time, payment will be made in a lump
sum).
Section 2.7 Domestic Relations Orders.
Notwithstanding the Participant's elections hereunder, ML & Co. will pay
to, or to the Participant for the benefit of, the Participant's spouse or former
spouse the portion of the Participant's Account Balance(s) specified in a valid
court order entered in a domestic relations proceeding involving the
Participant's divorce or legal separation; provided that no portion of the
Account Balance(s) that may be subject to reduction pursuant to Section 2.3(b)
will be so distributed. Any such payment will be made net of any amounts the
Company may be required to withhold under applicable federal, state or local
law.
Section 2.8 Withholding of Taxes.
ML & Co. will deduct or withhold from any payment to be made or deferred
hereunder any U.S. Federal, state or local or foreign income or employment taxes
required by law to be withheld or require the Participant or the Participant's
beneficiary to pay any amount, or the balance of any amount, required to be
withheld.
Article III - Adjustment of Account(s)
Section 3.1 Adjustment of Deferred Unit/Stock Unit Accounts.
(a) Dividend Equivalents. Whenever a cash dividend is paid on a share of
Common Stock, a Participant's Deferred Unit/Stock Unit Account will be adjusted
by adding to the Deferred Unit Account Balance or Deferred Stock Unit Account
Balance, as applicable, the number of Deferred Units or Deferred Stock Units
determined by multiplying the per share amount of the cash dividend by the
Deferred Unit Account Balance or Deferred Stock Unit Account Balance, as
applicable, on the record date for the cash dividend, dividing the result by the
price per share of Common Stock used for purposes of the reinvestment of such
cash dividend in the Merrill Lynch &
11
<PAGE>
Co., Inc. Dividend Reinvestment Program currently administered by Group Employee
Services, or if at any time there is no Dividend Reinvestment Program, the Daily
Market Price of a share of Common Stock on the date the cash dividend is paid,
and rounding the result to the nearest 1/100th of a Deferred Unit or Deferred
Stock Unit as the case may be (with .005 being rounded upwards); provided that,
if a Participant's Deferred Unit Account Balance or Deferred Stock Unit Account
Balance is reduced to zero in accordance with the Plan between the record date
and the payment date for such cash dividend, then, in lieu of such adjustment to
the Participant's Deferred Unit/Stock Unit Account, the dividend equivalent
amount with respect to such record date will be determined by multiplying the
per share amount of the cash dividend by the Deferred Unit Account Balance or
Deferred Stock Unit Account Balance on the record date for the cash dividend and
rounding the result to the nearest whole cent, which amount shall be applied as
follows: (i) the amount relating to any Deferred Units or Deferred Stock Units,
as the case may be, with respect to which distribution has been made to the
Participant under the Plan shall be paid to the Participant in cash, and (ii)
the amount relating to the portion, if any, of the Deferred Unit Account Balance
that is credited to the Participant's Mutual Fund Index Account in accordance
with the Plan shall be credited to such Mutual Fund Index Account, in each case,
at the same time as such cash dividend is paid to the holders of the Common
Stock.
(b) Changes in Capitalization. Any other provision of the Plan to the
contrary notwithstanding, if any change shall occur in or affect shares of
Common Stock (or the Rights or Junior Preferred Stock) on account of a merger,
consolidation, reorganization, stock dividend, stock split or combination,
reclassification, recapitalization, or distribution to holders of shares of
Common Stock (other than cash dividends), including, without limitation, a
merger or other reorganization event in which the shares of Common Stock cease
to exist, then appropriate adjustments shall be made, without any action by the
Board of Directors, to the Deferred Units and Deferred Stock Units, as shall be
necessary to maintain the proportionate interest of the Participants and to
preserve, without increasing, the value of their Account Balance(s). In the
event of a change in the presently authorized shares of Common Stock that is
limited to a change in the designation thereof or a change of authorized shares
with par value into the same number of shares with a different par value or into
the same number of shares without par value, the shares resulting from any such
change shall be deemed to be shares of Common Stock within the meaning of the
Plan.
Section 3.2 Adjustment of Mutual Fund Index Accounts; Mutual Fund Index
Account Return Options.
(a) Selection of Mutual Fund Index Account Return Options. At the time of
his or her optional deferral election pursuant to Section 2.4(a), the
Participant must select one or more Mutual Fund Index Account Return Options and
the percentage of the Participant's Mutual Fund Index Account to be adjusted to
reflect the performance of each Selected Mutual Fund Index Account Return
Option. A Participant may, by complying with such procedures as the
Administrator may prescribe, including procedures specifying the frequency with
respect to which such changes may be effected (but not more than twelve times in
any calendar year), change the Selected Mutual Fund Index Account Return Options
to be applicable with respect to his or her Mutual Fund Index Account.
(b) Adjustment of Mutual Fund Index Accounts. While a Participant's Mutual
Fund Index Account does not represent the Participant's ownership of, or any
ownership interest in, any particular assets, the Mutual Fund Index Account
shall be adjusted to reflect the investment experience of the Participant's
Selected Mutual Fund Index Account Return Options in the same
12
<PAGE>
manner as if investments in accordance with the Participant's elections had
actually been made through the ML Benefit Services Platform and ML II Core
Recordkeeping System, or any successor system used for keeping records of
Participants' Mutual Fund Index Accounts (the "ML II System"). In adjusting
Mutual Fund Index Accounts, the timing of receipt of Participant instructions by
the ML II System shall control the timing and pricing of the notional
investments in the Participant's Selected Mutual Fund Index Account Return
Options in accordance with the rules of operation of the ML II System and its
requirements for placing corresponding investment orders, as if orders to make
corresponding investments were actually to be made, except that in connection
with the crediting of deferred amounts to the Participant's Mutual Fund Index
Account and distributions from the Mutual Fund Index Account, deferral
allocation instructions shall be treated as if received by the ML II System
prior to the close of transactions through the ML II System on the relevant day.
Each Selected Mutual Fund Index Account Return Option shall be valued using the
Net Asset Value of the Selected Mutual Fund Index Account Return Option as of
the relevant day, provided, that, in valuing a Selected Mutual Fund Index
Account Return Option for which a Net Asset Value is not computed, the value of
the security involved for determining Participants' rights under the Plan shall
be the price reported for actual transactions in that security through the ML II
System on the relevant day, without giving effect to any transaction charges or
costs associated with such transactions, provided, further, that, if there are
no such transactions effected through the ML II System on the relevant day, the
value of the security shall be:
(i) if the security is listed for trading on one or more national
securities exchanges, the average of the high and low sale
prices for that day on the principal exchange for such
security, or if such security is not traded on such principal
exchange on that day, the average of the high and low sales
prices on such exchange on the first day prior thereto on
which such security was so traded;
(ii) if the security is not listed for trading on a national
securities exchange but is traded in the over-the-counter
market, the average of the highest and lowest bid prices for
such security on the relevant day; or
(iii) if neither clause (i) nor (ii) applies, the value determined
by the Administrator by whatever means he or she considers
appropriate in his or her sole discretion.
Article IV - Status of Accounts
Section 4.1 No Trust or Fund Created; General Creditor Status.
Nothing contained herein and no action taken pursuant hereto will be
construed to create a trust or separate fund of any kind or a fiduciary
relationship between ML & Co. and any Participant, the Participant's beneficiary
or estate, or any other person. Title to and beneficial ownership of any funds
represented by the Account Balance(s) will at all times remain in ML & Co.; such
funds will continue for all purposes to be a part of the general funds of ML &
Co. and may be used for any corporate purpose. No person will, by virtue of the
provisions of this Plan, have any interest whatsoever in any specific assets of
the Company. TO THE EXTENT THAT ANY PERSON ACQUIRES A RIGHT TO RECEIVE PAYMENTS
FROM ML & CO. UNDER THIS PLAN, SUCH RIGHT WILL BE NO GREATER THAN THE RIGHT OF
ANY UNSECURED GENERAL CREDITOR OF ML & CO.
13
<PAGE>
Section 4.2 Non-Assignability.
The Participant's right or the right of any other person to the Account
Balance(s) or any other benefits hereunder cannot be assigned, alienated, sold,
garnished, transferred, pledged, or encumbered except by a written designation
of beneficiary under this Plan, by written will, or by the laws of descent and
distribution.
Section 4.3 Effect on Benefits Under Pension and Welfare Benefit Plans.
The effect of the grants, deferrals and payments under the Plan on pension
and welfare benefit plans in which the Participant may be a participant will
depend upon the provisions of each such plan, as amended from time to time.
Article V - Change in Control
Section 5.1 Payment of Account Balance(s) upon Change in Control.
(a) Payment of Account Balance(s). Notwithstanding any other provision of
this Plan, in the event that (i) ML & Co. receives a Tender Offer Statement on
Schedule 14D-1 under the Securities Exchange Act of 1934 relating to a Tender
Offer or (ii) a Change in Control shall occur, the Participant's Account
Balance(s), except for any Deferred Unit Account Balance resulting from a grant
pursuant to Section 2.1(a) (but not any subsequent optional deferral thereof),
will be paid to the Participant in a lump sum promptly after the receipt of such
Tender Offer Statement or the occurrence of such Change in Control, and in any
event, not later than 30 days thereafter.
(b) Manner of Payment. Payment of Account Balance(s) pursuant to Section
5.1(a) shall be made in the following manner:
(1) With respect to Deferred Units and Deferred Stock Units, payment shall
be made in cash and shall be calculated as if any applicable Holding Period had
expired. The amount of the cash payment shall be determined by multiplying the
number of Deferred Units and Deferred Stock Units in the Participant's Deferred
Unit/Stock Unit Account by the Daily Market Price per share of Common Stock on
the date of the event specified in Section 5.1(a)(i) or (ii), as the case may
be, or, if higher, the highest Daily Market Price per share of Common Stock on
any day during the 90-day period ending on such date.
(2) Any Mutual Fund Index Account Balance shall be valued as of the date
of the event specified in 5.1(a), and such amount shall be paid in cash.
Article VI - Administration of the Plan
Section 6.1 Powers of the Administrator.
The Administrator has full power and authority to interpret, construe, and
administer this Plan. The Administrator's interpretations and construction
hereof, and actions hereunder, including any determinations regarding the amount
or recipient of any payments, will be binding and conclusive on all persons for
all purposes. The Administrator will not be liable to any person for any action
taken or omitted in connection with the interpretation and administration of
this Plan
14
<PAGE>
unless attributable to his or her willful misconduct or lack of good faith. The
Administrator may designate persons to carry out the specified responsibilities
of the Administrator and shall not be liable for any act or omission of a person
as designated.
Section 6.2 Payments on Behalf of an Incompetent.
If the Administrator finds that any person who is presently entitled to
any payment hereunder is a minor or is unable to care for his or her affairs
because of disability or incompetency, payment of the Account Balance(s) may be
made to anyone found by the Administrator to be the committee or other
authorized representative of such person, or to be otherwise entitled to such
payment, in the manner and under the conditions that the Administrator
determines. Such payment will be a complete discharge of the liabilities of ML &
Co. hereunder with respect to the amounts so paid.
Section 6.3 Corporate Books and Records Controlling.
The books and records of the Company will be controlling in the event a
question arises hereunder concerning Account Balance(s), deferral elections,
beneficiary designations, or any other matters.
Article VII - Miscellaneous Provisions
Section 7.1 Litigation.
The Company shall have the right to contest, at its expense, any ruling or
decision, administrative or judicial, on an issue that is related to the Plan
and that the Administrator believes to be important to Participants, and to
conduct any such contest or any litigation arising therefrom to a final
decision.
Section 7.2 Headings Are Not Controlling.
The headings contained in this Plan are for convenience only and will not
control or affect the meaning or construction of any of the terms or provisions
of this Plan.
Section 7.3 Governing Law.
To the extent not preempted by applicable U.S. Federal law, this Plan will
be construed in accordance with and governed by the laws of the State of New
York as to all matters, including, but not limited to, matters of validity,
construction, and performance.
Section 7.4 Amendment and Termination.
The Board of Directors, or, if permitted pursuant to Rule 16b-3 under the
Exchange Act, the Executive Committee may amend or terminate this Plan at any
time, provided that no amendment or termination may be made that would adversely
affect the right of a Participant to his or her Account Balance(s) as of the
date of such amendment or termination.
15
<PAGE>
Article VIII - Effective Date
The Plan shall be effective as of August 12, 1996.
16
EXHIBIT 11
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
COMPUTATION OF PER COMMON SHARE EARNINGS
(In Millions, Except Per Share Amounts)
FOR THE THREE MONTHS
ENDED
-----------------------
MARCH 27, MARCH 28,
1998 1997
------- -------
EARNINGS
Net earnings ................................. $ 518 $ 466
Preferred stock dividends .................... (9) (11)
------- -------
Net earnings applicable to common stockholders $ 509 $ 455
======= =======
WEIGHTED-AVERAGE SHARES OUTSTANDING .......... 340.6 331.2
------- -------
EFFECT OF DILUTIVE INSTRUMENTS
Employee stock options ..................... 28.9 30.8
FCCAAP shares .............................. 16.8 22.2
Restricted units ........................... 4.5 5.3
ESPP shares ................................ 0.1 0.1
------- -------
DILUTIVE POTENTIAL COMMON SHARES ............. 50.3 58.4
------- -------
TOTAL WEIGHTED-AVERAGE DILUTED SHARES ........ 390.9 389.6
======= =======
BASIC EARNINGS PER SHARE ..................... $ 1.49 $ 1.37
======= =======
DILUTED EARNINGS PER SHARE ................... $ 1.30 $ 1.17
======= =======
Note: Share and per share amounts for the 1997 first quarter have been restated
for the two-for-one common stock split, effected in the form of a 100%
stock dividend, paid on May 30, 1997.
EXHIBIT 12
MERRILL LYNCH & CO., INC. AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(Dollars in Millions)
THREE MONTHS ENDED
---------------------
MARCH 27, MARCH 28,
1998 1997
------ ------
Pretax earnings from
continuing operations $ 874 $ 766
Add: Fixed charge 4,642 3,672
------ ------
Pretax earnings before fixed charges $5,516 $4,438
====== ======
Fixed charges:
Interest $4,559 $3,608
Other(A) 83 64
------ ------
Total fixed charges 4,642 3,672
Preferred stock dividend
requirements 16 17
------ ------
Total combined fixed charges and
preferred stock dividends $4,658 $3,689
====== ======
Ratio of earnings to fixed charges 1.19 1.21
Ratio of earnings to combined
fixed charges and preferred
stock dividends 1.18 1.20
(A) Other fixed charges consist of the interest factor in rentals,
amortization of debt expense, and preferred stock dividend requirements of
majority-owned subsidiaries.
EXHIBIT 15
May 8, 1998
Merrill Lynch & Co., Inc.
World Financial Center
North Tower
New York, NY 10281
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim consolidated
financial information of Merrill Lynch & Co., Inc. and subsidiaries as of March
27, 1998 and for the three-month period ended March 27, 1998 and March 28, 1997
as indicated in our report dated May 8, 1998; because we did not perform an
audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended March 27, 1998, is
incorporated by reference in the following documents, as amended:
Filed on Form S-8:
Registration Statement No. 33-41942 (1986 Employee Stock Purchase Plan)
Registration Statement No. 33-17908 (Incentive Equity Purchase Plan)
Registration Statement No. 33-33336 (Long Term Incentive Compensation
Plan)
Registration Statement No. 33-51831 (Long Term Incentive Compensation
Plan)
Registration Statement No. 33-51829 (401(k) Savings and Investment Plan)
Registration Statement No. 33-54154 (Non-Employee Directors' Equity Plan)
Registration Statement No. 33-54572 (401(k) Savings and Investment Plan
(Puerto Rico))
Registration Statement No. 33-56427 (Amended and Restated 1994 Deferred
Compensation Plan for a Select Group of Eligible Employees)
Registration Statement No. 33-55155 (1995 Deferred Compensation Plan for a
Select Group of Eligible Employees)
<PAGE>
Registration Statement No. 33-60989 (1996 Deferred Compensation Plan for a
Select Group of Eligible Employees)
Registration Statement No. 333-09779 (1997 Deferred Compensation Plan for
a Select Group of Eligible Employees)
Registration Statement No. 333-32209 (1998 Deferred Compensation Plan for
a Select Group of Eligible Employees)
Registration Statement No. 333-00863 (401(k) Savings & Incentive Plan)
Registration Statement No. 333-13367 (Restricted Stock Plan For Former
Employees of Hotchkis and Wiley)
Registration Statement No. 333-15009 (1997 KECALP Deferred Compensation
Plan for a Select Group of Eligible Employees)
Registration Statement No. 333-17099 (Deferred Unit and Stock Unit Plan
for Non-Employee Directors)
Registration Statement No. 333-18915 (Long Term Incentive Compensation
Plan for Managers & Producers)
Registration Statement No. 333-33125 (Employee Stock Purchase Plan for
Employees of Merrill Lynch Partnerships)
Registration Statement No. 333-41425 (401(k) Savings & Investment Plan)
Filed on Form S-3:
Debt Securities
Registration Statement No. 33-54218
Registration Statement No. 2-78338
Registration Statement No. 2-89519
Registration Statement No. 2-83477
Registration Statement No. 33-03602
Registration Statement No. 33-17965
Registration Statement No. 33-27512
Registration Statement No. 33-35456
<PAGE>
Registration Statement No. 33-42041
Registration Statement No. 33-45327
Registration Statement No. 33-49947
Registration Statement No. 33-51489
Registration Statement No. 33-52647
Registration Statement No. 33-60413
Registration Statement No. 33-61559
Registration Statement No. 33-65135
Registration Statement No. 333-13649
Registration Statement No. 333-25255
Registration Statement No. 333-28537
Registration Statement No. 333-44173
Medium Term Notes
Registration Statement No. 2-96315
Registration Statement No. 33-03079
Registration Statement No. 33-05125
Registration Statement No. 33-09910
Registration Statement No. 33-16165
Registration Statement No. 33-19820
Registration Statement No. 33-23605
Registration Statement No. 33-27594
Registration Statement No. 33-38879
<PAGE>
Other Securities
Registration Statement No. 33-33335 (Common Stock)
Registration Statement No. 33-45777 (Common Stock)
Registration Statement No. 33-55363 (Preferred Stock)
Registration Statement No. 333-02275 (Long Term Incentive Compensation
Plan)
Registration Statement No. 333-16603 (TOPrS)
Registration Statement No. 333-20137 (TOPrS)
Registration Statement No. 333-24889 (LTIC and LTICPMP)
Registration Statement No. 333-36651 (Hotchkis and Wiley Resale)
Registration Statement No. 333-42859 (TOPrS)
We are also aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
/s/ Deloitte & Touche LLP
New York, New York
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-25-1998
<PERIOD-START> DEC-27-1997
<PERIOD-END> MAR-27-1998
<CASH> 5,400
<RECEIVABLES> 43,628
<SECURITIES-RESALE> 73,815
<SECURITIES-BORROWED> 45,070
<INSTRUMENTS-OWNED> 165,780<F1>
<PP&E> 2,215
<TOTAL-ASSETS> 353,424
<SHORT-TERM> 49,867
<PAYABLES> 25,941
<REPOS-SOLD> 84,496
<SECURITIES-LOANED> 10,800
<INSTRUMENTS-SOLD> 100,845<F2>
<LONG-TERM> 47,532
0
425
<COMMON> 630
<OTHER-SE> 7,946
<TOTAL-LIABILITY-AND-EQUITY> 353,424<F3>
<TRADING-REVENUE> 1,152
<INTEREST-DIVIDENDS> 4,742
<COMMISSIONS> 1,377
<INVESTMENT-BANKING-REVENUES> 801
<FEE-REVENUE> 970
<INTEREST-EXPENSE> 4,564
<COMPENSATION> 2,375
<INCOME-PRETAX> 874
<INCOME-PRE-EXTRAORDINARY> 518
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 518
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.30
<FN>
<F1>
Includes $12,490 of securities received as collateral, net of securities pledged
as collateral, and $16,452 of securities pledged as collateral, recorded
pursuant to the provisions of Statement of Financial Accounting Standards No.
127 ("SFAS No. 127").
<F2>
Includes $28,942 in obligation to return securities received as collateral,
recorded pursuant to the provisions of SFAS No. 127.
<F3>
Includes $1,377 in Preferred Securities issued by Subsidiaries.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-26-1997
<PERIOD-START> DEC-28-1996
<PERIOD-END> DEC-26-1997
<CASH> 5,032
<RECEIVABLES> 39,743
<SECURITIES-RESALE> 70,262
<SECURITIES-BORROWED> 35,366
<INSTRUMENTS-OWNED> 120,455
<PP&E> 2,074
<TOTAL-ASSETS> 292,819
<SHORT-TERM> 44,850
<PAYABLES> 20,631
<REPOS-SOLD> 71,044
<SECURITIES-LOANED> 6,831
<INSTRUMENTS-SOLD> 70,076
<LONG-TERM> 43,090
0
425
<COMMON> 630
<OTHER-SE> 7,274
<TOTAL-LIABILITY-AND-EQUITY> 292,819<F1>
<TRADING-REVENUE> 3,769
<INTEREST-DIVIDENDS> 17,087
<COMMISSIONS> 4,667
<INVESTMENT-BANKING-REVENUES> 2,749
<FEE-REVENUE> 2,789
<INTEREST-EXPENSE> 16,062
<COMPENSATION> 7,962
<INCOME-PRETAX> 3,050
<INCOME-PRE-EXTRAORDINARY> 1,906
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,906
<EPS-PRIMARY> 5.63<F2>
<EPS-DILUTED> 4.83<F2>
<FN>
<F1>
Includes $627 in Preferred Securities issued by Subsidiaries.
<F2>
The quarterly earnings per share calculations for 1997 have been restated for
the adoption of Statement of Financial Accounting Standards No. 128, "Earnings
Per Share", as follows:
1Q97 2Q97 3Q97 4Q97
---- ---- ---- ----
Basic 1.37 1.43 1.46 1.37
Diluted 1.17 1.25 1.25 1.17
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-START> DEC-30-1995
<PERIOD-END> DEC-27-1996
<CASH> 3,375
<RECEIVABLES> 29,794
<SECURITIES-RESALE> 58,402
<SECURITIES-BORROWED> 24,692
<INSTRUMENTS-OWNED> 87,130
<PP&E> 1,670
<TOTAL-ASSETS> 213,016
<SHORT-TERM> 36,582
<PAYABLES> 15,165
<REPOS-SOLD> 62,669
<SECURITIES-LOANED> 2,751
<INSTRUMENTS-SOLD> 43,545
<LONG-TERM> 26,102
0
619
<COMMON> 315
<OTHER-SE> 5,958
<TOTAL-LIABILITY-AND-EQUITY> 213,016<F1>
<TRADING-REVENUE> 3,454
<INTEREST-DIVIDENDS> 12,899
<COMMISSIONS> 3,786
<INVESTMENT-BANKING-REVENUES> 1,945
<FEE-REVENUE> 2,261
<INTEREST-EXPENSE> 11,895
<COMPENSATION> 6,704
<INCOME-PRETAX> 2,566
<INCOME-PRE-EXTRAORDINARY> 1,619
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,619
<EPS-PRIMARY> 4.65<F2>
<EPS-DILUTED> 4.11<F2>
<FN>
<F1>
Includes $327 in Preferred Securities Issued by Subsidiaries, which is
classified between Total Liabilities and Stockholders' Equity.
<F2>
Amount has been restated for the adoption of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." In addition, 1996 quarterly earnings
per share information has been restated as follows:
1Q96 2Q96 3Q96 4Q96
---- ---- ---- ----
Basic 1.15 1.24 .95 1.32
Diluted 1.01 1.10 .84 1.14
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1995
<PERIOD-START> DEC-31-1994
<PERIOD-END> DEC-29-1995
<CASH> 3,091
<SECURITIES> 20,645
<RECEIVABLES> 28,791
<ALLOWANCES> 44,257
<INVENTORY> 60,103<F1>
<CURRENT-ASSETS> 71,080
<PP&E> 1,605
<DEPRECIATION> 2,239
<TOTAL-ASSETS> 176,857
<CURRENT-LIABILITIES> 33,350
<BONDS> 17,340
0
619
<COMMON> 615
<OTHER-SE> 5,207
<TOTAL-LIABILITY-AND-EQUITY> 176,857
<SALES> 2,519
<TOTAL-REVENUES> 21,513
<CGS> 8,454
<TOTAL-COSTS> 19,702
<OTHER-EXPENSES> 697
<LOSS-PROVISION> 1,890
<INTEREST-EXPENSE> 11,248
<INCOME-PRETAX> 1,811
<INCOME-TAX> 697
<INCOME-CONTINUING> 1,114
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,114
<EPS-PRIMARY> 3.02<F2>
<EPS-DILUTED> 2.71<F2>
<FN>
<F1>
Financial Instruments Owned includes commodity contracts but excludes physical
commodities and real estate owned totalling $140.
<F2>
Amount has been restated for the adoption of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." In addition, 1995 quarterly earnings
per share information has been restated as follows:
1Q95 2Q95 3Q95 4Q95
---- ---- ---- ----
Basic .60 .77 .82 .83
Diluted .53 .70 .73 .75
</FN>
</TABLE>
