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