-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JQeYeJQgUlozsPKmKg98jHY300mC7XwctEC1DSf5lM1G5hN9hD7gnkXadvRconHK 7YcmtV0Ywhs1sO9350UbpQ== 0000950130-99-001234.txt : 19990308 0000950130-99-001234.hdr.sgml : 19990308 ACCESSION NUMBER: 0000950130-99-001234 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990414 FILED AS OF DATE: 19990305 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERRILL LYNCH & CO INC CENTRAL INDEX KEY: 0000065100 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 132740599 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 001-07182 FILM NUMBER: 99557977 BUSINESS ADDRESS: STREET 1: 250 VESEY ST STREET 2: WORLD FINANCIAL CTR N TOWER CITY: NEW YORK STATE: NY ZIP: 10281-1334 BUSINESS PHONE: 2124491000 MAIL ADDRESS: STREET 1: 250 VESEY STREET STREET 2: WORLD FINACIAL CENTER FLR 23 CITY: NEW YORK STATE: NY ZIP: 10281 DEF 14A 1 DEFINITIVE PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(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 Section 240.14a-11(c) or Section 240.14a-12 Merrill Lynch & Co., Inc. - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: ------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: ------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): ------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: ------------------------------------------------------------------------- (5) Total fee paid: ------------------------------------------------------------------------- [_] Fee paid previously with preliminary materials. [_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: ------------------------------------------------------------------------- (3) Filing Party: ------------------------------------------------------------------------- (4) Date Filed: ------------------------------------------------------------------------- Notes: LOGO Merrill Lynch [ART APPEARS HERE] 1999 PROXY STATEMENT Notice of the Annual Meeting of Stockholders to be held April 14, 1999 Merrill Lynch & Co., Inc. Conference and Training Center Plainsboro, New Jersey GRAPHICS APPENDIX LIST PAGE WHERE GRAPHIC APPEARS DESCRIPTION OF GRAPHIC OR CROSS REFERENCE - -------------------------------------------------------------------------------- Cover Sphere with Merrill Lynch Bull Logo in blue superimposed within such sphere. - -------------------------------------------------------------------------------- [LOGO] MERRILL LYNCH - ------------------------------------------------------------------------------- March 5, 1999 Dear Stockholder: You are cordially invited to attend the Annual Meeting of Stockholders to be held at 10:00 A.M., local time, on Wednesday, April 14, 1999, at the Merrill Lynch Conference and Training Center, Plainsboro, New Jersey. Information regarding the business of the meeting is set forth in the Notice of Annual Meeting and Proxy Statement that follows this letter. 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. After you have 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. 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. If you need directions to the meeting, or have a disability that may require special assistance, please contact our Corporate Secretary, Andrea L. Dulberg, at 100 Church Street, 12th Floor, New York, NY 10080-6512. Sincerely, /s/ David H. Komansky /s/ Herbert M. Allison, Jr. DAVID H. KOMANSKY HERBERT M. ALLISON, JR. Chairman of the Board and President and Chief Operating Chief Executive Officer Officer [LOGO] MERRILL LYNCH - ------------------------------------------------------------------------------- NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 14, 1999 NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of MERRILL LYNCH & CO., INC. ("Merrill Lynch"), a Delaware corporation, will be held on Wednesday, April 14, 1999, at 10:00 A.M., local time, at the Merrill Lynch Conference and Training Center, 800 Scudders Mill Road, Plainsboro, New Jersey, for the following purposes: (1) To elect five directors to the Board of Directors to hold office for a term of three years; (2) To consider a stockholder proposal; and (3) 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 Merrill Lynch at the close of business on February 24, 1999 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 1, 1999 until prior to the meeting, as required by law, at the offices of Merrill Lynch Asset Management L.P. located at 800 Scudders Mill Road, Plainsboro, New Jersey. This list will also be available at the Annual Meeting. The stock transfer books of Merrill Lynch will not be closed. Public notice of the date of the Annual Meeting was previously included in Merrill Lynch's Quarterly Report on Form 10-Q for the period ended September 25, 1998, filed with the Securities and Exchange Commission ("SEC") on November 9, 1998, and in Merrill Lynch's Report to Shareholders for the first six months of 1998 mailed to stockholders on August 26, 1998. By Order of the Board of Directors ANDREA L. DULBERG Secretary New York, New York March 5, 1999 STOCKHOLDERS ARE URGED TO VOTE, SIGN, AND DATE THE ENCLOSED FORM OF PROXY AND TO RETURN IT IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. The Proxy Statement for the Annual Meeting follows this page. Except for those who have previously received copies, included with this Proxy Statement and Notice is Merrill Lynch's 1998 Annual Report, which is not considered proxy soliciting material. [LOGO] MERRILL LYNCH - ------------------------------------------------------------------------------- PROXY STATEMENT ANNUAL MEETING OF STOCKHOLDERS APRIL 14, 1999 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 ("Merrill Lynch"), of proxies from those holders of Merrill Lynch 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 Wednesday, April 14, 1999, at 10:00 A.M., local time, at the Merrill Lynch Conference and Training Center, 800 Scudders Mill Road, Plainsboro, New Jersey. BENEFICIAL OWNERS The Board of Directors has fixed the close of business on February 24, 1999 as the record date for determining those stockholders entitled to notice of, and to vote at, the Annual Meeting and at any adjournment thereof. On that date, there were 364,223,359 shares of Common Stock outstanding (excluding treasury shares, and including 4,414,794 shares of a Merrill Lynch subsidiary that are exchangeable at any time into, and carry voting rights equivalent to, the Common Stock). Holders of Common Stock are entitled to one vote per share. Holders of a majority of the shares of Common Stock entitled to vote at the Annual Meeting, present in person or by proxy, constitute a quorum. To the knowledge of Merrill Lynch, except as provided below, no person is the beneficial owner of more than 5% of the outstanding shares of Common Stock. BENEFICIAL OWNERSHIP TABLE
AMOUNT AND NATURE NAME AND ADDRESS OF BENEFICIAL PERCENT OF BENEFICIAL OWNER OWNERSHIP OF CLASS(1) ------------------- ----------------- ----------- 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").................... 26,347,616(2) 7.2% Other Merrill Lynch employee benefit plans...... 21,129,127(3) 5.8% Other........................................... 6,074,121(4) 1.7%
Footnotes to Beneficial Ownership Table (1) Percentages are calculated based on the Common Stock outstanding as of February 24, 1999. (2) Information concerning the amount and nature of the beneficial ownership of the Common Stock is as of February 24, 1999. As of that date, 25,525,048 shares of Common Stock held by the ESOP were allocated to participants (representing 7.0% of the outstanding shares of Common Stock), and 822,568 shares of Common Stock held by the ESOP were unallocated (representing .2% of the outstanding shares of Common Stock). 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 that allocated shares for which it has received directions are voted. The trust agreement also contains provisions regarding the allocation, vesting, and disposition of shares. (3) Information concerning the amount and nature of the beneficial ownership of the Common Stock is as of February 24, 1999. 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 that allocated shares for which it has received directions are voted. The trust agreements also contain provisions regarding the disposition of shares. (4) Information concerning the amount and nature of the beneficial ownership of the Common Stock is as of December 31, 1998 and was supplied by means of a Schedule 13G Information Statement by State Street. As trustee or discretionary advisor for various personal trust accounts and various collective investment funds for employee benefit plans and other index accounts not affiliated with Merrill Lynch, State Street has sole voting power over 4,272,438 of such shares, sole dispositive power over 4,769,493 of such shares, shared voting power over 1,427,783 of such shares, and shared dispositive power over 1,304,628 of such shares. 2 VOTING REQUIREMENTS AND OTHER INFORMATION ABOUT THE MEETING The vote required for the election of directors is 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. The vote required for the approval of a stockholder proposal as described herein (the "Stockholder Proposal") and all other matters is 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. 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 Merrill Lynch of the five persons named under the caption Election of Directors-- Nominees for Election to the Board of Directors and AGAINST the Stockholder Proposal. 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 Merrill Lynch 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. Merrill Lynch'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 of the specific candidates or withheld; votes that are withheld will have no effect on the outcome of the election. With regard to other types of matters requiring stockholder action, 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 Stockholder Proposal will have the effect of a negative 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 Merrill Lynch's subsidiary, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), that do not receive instructions are entitled to vote on the election of directors. Under NYSE policy, if MLPF&S does not receive instructions on the election of directors, it is entitled to vote shares held by it on behalf of customers only in the same proportion that the shares voted by all other record holders are voted. With respect to the Stockholder Proposal, 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 have no effect on the outcome of the vote on the election of directors or the Stockholder Proposal. 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 proper written notice to Darryl W. Colletti, Assistant Secretary of Merrill Lynch, at 100 Church Street, 12th Floor, New York, NY 10080-6512, or by filing another proxy. It is the policy of Merrill Lynch that all proxies, ballots, and voting materials that identify the votes of specific stockholders be kept confidential and not be disclosed to Merrill Lynch, its affiliates, directors, officers, or employees, subject to limited exceptions, including (i) disclosure to vote tabulators and 3 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. The policy is not intended to prohibit stockholders from voluntarily disclosing their votes to Merrill Lynch or the Board of Directors or to impair the free and voluntary communication between Merrill Lynch and its stockholders. 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 Merrill Lynch. In addition to the solicitation of proxies by mail, solicitation may be made by certain directors, officers, and other employees of Merrill Lynch or of its subsidiaries in person or by telephone or other means of communication, for which no additional compensation will be paid, and will be made by Georgeson & Co., Inc. for which a fee of $22,000 plus expenses will be paid. Merrill Lynch will reimburse brokers, including MLPF&S, and other nominees for costs incurred by them in mailing soliciting materials to the beneficial owners of the Common 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 of Directors, as the independent public accountants of Merrill Lynch and its subsidiaries during the 1999 fiscal year. Representatives of Deloitte & Touche LLP are expected to be present at the Annual Meeting with the opportunity to make a statement, if they desire to do so, and to answer stockholders' questions. ELECTION OF DIRECTORS The Board of Directors is divided into three classes. Each class serves for a three-year term and one class of directors is elected each year. The Board of Directors proposes the election as directors of the five persons named below under Nominees for Election to the Board of Directors. These persons are to hold office for a term of three years ending in 2002. The remaining eight directors named below will continue to serve in accordance with their previous elections. The biographical information presented for the director nominees and for the directors continuing in office is based upon information received from the nominees and directors. Unless otherwise indicated, the offices listed are offices of Merrill Lynch. 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. 4 NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS FOR A THREE-YEAR TERM EXPIRING IN 2002 JILL K. CONWAY (64) DIRECTOR SINCE 1978 Visiting Scholar, Massachusetts Institute of Technology since 1985; President of Smith College from July 1975 to June 1985. Mrs. Conway serves as a director of Allen Telecom Inc., Arthur D. Little, Inc., Colgate-Palmolive Company, and NIKE, Inc. GEORGE B. HARVEY (67) 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 1983 to December 1996; President and Chief Operating Officer of Pitney Bowes Inc. from 1981 to May 1996. Mr. Harvey serves as a director of Massachusetts Mutual Life Insurance Company, The McGraw-Hill Companies, Inc., and Pfizer Inc. DAVID H. KOMANSKY (59) DIRECTOR SINCE 1995 Chairman of the Board since April 1997; Chief Executive Officer since December 1996; President and Chief Operating Officer from January 1995 to April 1997; 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. JOHN L. STEFFENS (57) DIRECTOR SINCE 1997 Vice Chairman of the Board, Head of U.S. Private Client Group since April 1997; Executive Vice President, Private Client Group from October 1990 to April 1997. WILLIAM L. WEISS (69) DIRECTOR SINCE 1993 Corporate Director; Chairman Emeritus of Ameritech Corporation ("Ameritech"), a provider of communications and information services; Chairman of the Board of Ameritech from 1983 to April 1994; Chief Executive Officer of Ameritech from 1983 to December 1993. Mr. Weiss serves as a director of Abbott Laboratories, The Quaker Oats Company, and Tenneco Inc. 5 MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE WITH TERMS EXPIRING IN 2000 W.H. CLARK (66) DIRECTOR SINCE 1995 Corporate Director; Chairman of the Board of Nalco Chemical Company ("Nalco"), a producer of specialty chemicals, from 1984 to 1994; Chief Executive Officer of Nalco from 1982 to 1994; President of Nalco from 1984 to 1990. Mr. Clark serves as a director of Bethlehem Steel Corporation, Fort James Corporation, Millennium Chemicals Inc., Ultramar Diamond Shamrock Corporation, and USG Corporation. STEPHEN L. HAMMERMAN (61) DIRECTOR SINCE 1985 Vice Chairman of the Board since April 1992; General Counsel since October 1984; General Counsel of MLPF&S from March 1981 to June 1996. AULANA L. PETERS (57) 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 serves as a director of Callaway Golf Company, Minnesota Mining and Manufacturing Company (3M), Mobil Corporation, and Northrop Grumman Corporation. JOHN J. PHELAN, JR. (67) 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 New York Stock Exchange, Inc. from May 1984 to December 1990. Mr. Phelan serves as a director of Eastman Kodak Company, Metropolitan Life Insurance Company, and Sonat Inc. 6 WITH TERMS EXPIRING IN 2001 HERBERT M. ALLISON, JR. (55) DIRECTOR SINCE 1997 President and Chief Operating Officer since April 1997; Executive Vice President, Corporate and Institutional Client Group from January 1995 to April 1997; Executive Vice President, Investment Banking Group from May 1993 to January 1995; Executive Vice President, Finance and Administration from October 1990 to April 1993. WILLIAM R. HOOVER (69) DIRECTOR SINCE 1995 Chairman of the Executive Committee of Computer Sciences Corporation ("CSC"), a provider of information technology consulting, systems integration and outsourcing to industry and government, since March 1997 and Consultant since March 1995; Chairman of the Board of CSC from November 1972 to March 1997; President of CSC from November 1969 to March 1995; Chief Executive Officer of CSC from November 1972 until March 1995. Mr. Hoover serves as a director of CSC, Rofin-Sinar Technologies, Inc., and Storage Technology Corporation. ROBERT P. LUCIANO (65) DIRECTOR SINCE 1989 Corporate Director; Chairman of the Board of Schering-Plough Corporation, a health and personal care products company, from January 1984 to November 1998; Chief Executive Officer of Schering-Plough Corporation from February 1982 to January 1996. Mr. Luciano serves as a director of Schering-Plough Corporation, AlliedSignal Inc., and C.R. Bard, Inc. DAVID K. NEWBIGGING (65) DIRECTOR SINCE 1996 Chairman of the Board of Friends' Provident Life Office, a United Kingdom based life assurance company; Chairman of the Board of Equitas Holdings Limited, the parent company of a group of reinsurance companies based in the United Kingdom, from 1995 to 1998; 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, an international support services group based in the United Kingdom, from 1987 to 1994. Mr. Newbigging serves as the Chairman of the Board of Faupel Trading Group PLC, the Deputy Chairman of Benchmark Group PLC, and as a director of Ocean Energy, Inc. and Wah Kwong Shipping Holdings Ltd. --------------------- Earle H. Harbison, Jr., age 70, has served as a director since 1987 and will continue to serve as a director until the 1999 Annual Meeting of Stockholders. Mr. Harbison has been Chairman of the Board of Harbison Corporation, a manufacturer of molded plastic products, since September 1993. Mr. Harbison serves as a director of Harbison Corporation, Angelica Corporation, Mutual of America, National Life Insurance Company, and RightCHOICE Managed Care, Inc. 7 MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS During the 1998 fiscal year, the Board of Directors met twelve times. In addition to an Executive Committee, the Merrill Lynch Board of Directors has standing Audit and Finance, Management Development and Compensation, Public Policy and Responsibility, and Nominating Committees. The Audit and Finance Committee is comprised of Mr. Phelan, its Chairman, Mrs. Peters and Messrs. Clark, Hoover, and Newbigging. This committee held nine meetings during the 1998 fiscal year. This committee performs the following functions, among others: monitoring Merrill Lynch'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 Merrill Lynch's independent public accountants and monitoring professional services they provide; reviewing the scope of the annual audit with the independent public accountants and reviewing their reports with management; reviewing Merrill Lynch's annual consolidated financial statements; overseeing Merrill Lynch's corporate funding policy, securities offerings, financial commitments and related policies; and monitoring compliance with risk management and compliance policies and procedures. The Management Development and Compensation Committee is comprised of Mr. Luciano, its Chairman, Mrs. Conway and Messrs. Harbison, Harvey, and Weiss. This committee held nine meetings during the 1998 fiscal year. This committee performs the following functions, among others: 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 Merrill Lynch 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 reviewing management development programs and executive succession plans. The Public Policy and Responsibility Committee is comprised of Mr. Weiss, its Chairman, Mrs. Peters and Mr. Newbigging. This committee held two meetings during the 1998 fiscal year. This committee's function is to assist the Board of Directors and senior management in overseeing Merrill Lynch's fulfillment internationally of its principles of Respect for the Individual, Teamwork, Responsible Citizenship, and Integrity by reviewing and, where appropriate, making recommendations about: Merrill Lynch's political and charitable contributions policies and practices and Merrill Lynch's policies and actions as they relate to social and public policy issues that affect Merrill Lynch's business throughout the world. The Nominating Committee is comprised of Mrs. Conway, its Chairwoman, Messrs. Harbison and Luciano (who are voting members) and Mr. Komansky (who is a non- voting member). This committee did not meet during the 1998 fiscal year but its members did conduct discussions over the course of the year. This committee performs 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 making recommendations to the Board relating to the 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 2000 Annual Meeting of Stockholders should write to Andrea L. Dulberg, Secretary, Merrill Lynch & Co., Inc., 100 Church Street, 12th Floor, New York, NY 10080-6512. 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, director nominee, and executive officer named in the Summary Compensation Table herein as well as by all current directors and executive officers as a group. All information is provided as of February 24, 1999.
COMMON STOCK COMMON STOCK(1) UNITS(2) --------------- ------------ Herbert M. Allison, Jr. .................... 1,903,271(3)(4) 22,297 W.H. Clark.................................. 5,154 1,828 Jill K. Conway.............................. 7,753 1,828 Stephen L. Hammerman........................ 1,159,591(3)(5) 13,032 Earle H. Harbison, Jr. ..................... 7,098(4) 1,140 George B. Harvey............................ 7,606 1,889 William R. Hoover........................... 5,290 1,828 David H. Komansky........................... 2,132,250(3) 28,157 Robert P. Luciano........................... 8,985 1,905 David K. Newbigging......................... 5,999 3,247 E. Stanley O'Neal........................... 308,174(3) 19,032 Jeffrey M. Peek............................. 494,819(3) 14,967 Aulana L. Peters............................ 1,978 7,253 John J. Phelan, Jr. ........................ 8,985 1,828 John L. Steffens............................ 2,106,598(3) 18,812 William L. Weiss............................ 5,793 1,484 All Merrill Lynch directors and executive officers as a group........................ 11,948,808(3)(4)(5) 198,805
- ---------------- (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, and 5 below. No individual director, 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 Merrill Lynch beneficially owned approximately 3.1% of the outstanding Common Stock. The beneficial ownership information shown in this table for the following individuals and for the group consisting of all directors and executive officers of Merrill Lynch includes the indicated number of shares of Common Stock deliverable at the end of the restricted or deferral period applicable to (i) Deferred Stock Units issued under the Merrill Lynch Deferred Unit and Stock Unit Plan for Non-Employee Directors; (ii) Stock Units under the Merrill Lynch Program for Deferral of Stock Option Gains for a Select Group of Eligible Employees; or (iii) Restricted Units issued in 1999 under the Merrill Lynch Long-Term Incentive Compensation Plan: Mr. Allison (150,772); Mr. Hammerman (7,239); Mr. Komansky (316,343); Mr. O'Neal (9,040); Mr. Peek (8,687); Mr. Steffens (10,947); Mrs. Conway (1,145); Mr. Harbison (458); Mr. Harvey (442); Mr. Luciano (1,145); Mr. Newbigging (1,499); Mr. Phelan (1,145); Mr. Weiss (221); and all directors and executive officers of Merrill Lynch as a group (543,036). These shares are not included for the purpose of calculating the percentages set forth in the first paragraph of this note 1 as they cannot be acquired within 60 days of February 24, 1999. 9 Footnotes to Directors and Executive Officers Beneficial Ownership Table Continued (2) Consists of units linked to the value of the Common Stock but payable only in cash at the end of the restricted or deferral period applicable to (i) Restricted Units issued prior to 1999 under the Merrill Lynch Long-Term Incentive Compensation Plan; (ii) Deferred Units issued under the Merrill Lynch Deferred Unit and Stock Unit Plan for Non-Employee Directors; (iii) Stock Units under the Merrill Lynch Fee Deferral Plan for Non-Employee Directors; or (iv) Cash Units under the Merrill Lynch Program for Deferral of Stock Option Gains for a Select Group of Eligible Employees. (3) The beneficial ownership information in the table shown for the following individuals and for the group consisting of all directors and executive officers of Merrill Lynch includes the indicated number of shares of Common Stock that may be purchased upon the exercise (presently or within 60 days of February 24, 1999) of Stock Options granted under the Merrill Lynch Long-Term Incentive Compensation Plan: Mr. Allison (1,412,010); Mr. Hammerman (766,779); Mr. Komansky (1,371,825); Mr. O'Neal (215,741); Mr. Peek (299,155); Mr. Steffens (1,112,211); and all directors and executive officers of Merrill Lynch as a group (7,451,463). (4) The beneficial ownership information shown for Messrs. Allison and Harbison excludes shares held by the wives of these individuals (13,800 shares in the case of Mr. Allison, and 4,000 shares in the case of Mr. Harbison). Each 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 Merrill Lynch excludes these amounts. (5) The beneficial ownership information shown for Mr. Hammerman includes 36,000 shares held in trusts as to which Mr. Hammerman has shared voting and investment power, and 3,000 shares held by a charitable foundation as to which Mr. Hammerman has shared voting and investment power. The beneficial ownership information shown for the group consisting of all directors and executive officers of Merrill Lynch reflects these shares and also includes the following shares: 12,329 shares held by charitable foundations as to which an executive officer has shared voting and investment power; and 5,232 shares held in custodial accounts as to which an executive officer has shared voting and investment power. 10 STOCKHOLDER PROPOSAL Mrs. Evelyn Y. Davis, Watergate Office Building, 2600 Virginia Ave., N.W., Suite 215, Washington, D.C. 20037, holding 400 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 56,960,000 shares, representing approximately 23.4% of shares voting, voted FOR this proposal." "If you AGREE, please mark your proxy FOR this resolution." --------------------- FOR THE REASONS STATED BELOW, THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE ADOPTION OF THIS STOCKHOLDER PROPOSAL. This proposal, which has been submitted by this proponent to Merrill Lynch's Annual Meetings of Stockholders for the fourteenth time, has been consistently opposed by the Board of Directors and has been defeated by stockholders by a substantial majority of the votes cast on each occasion. As previously discussed in past statements in opposition, the Board of Directors opposes this proposal because it believes that it is contrary to the best interests of all of the stockholders. Under the General Corporation Law of Delaware, Merrill Lynch's state of incorporation, the general rule is that each director must be elected by a plurality of the votes of the shares present in person or represented by proxy. Cumulative voting is permissible only if specifically provided for in a corporation's certificate of incorporation. Many public companies, including a substantial majority of the thirty companies included in the Dow Jones Industrial Average, do not provide for cumulative voting. The Board of Directors believes that the current method of voting at stockholders' meetings that is based on plurality of the votes cast better serves the interests of the stockholders of Merrill Lynch as a whole. The election of directors by plurality vote is consistent with the view that a board of directors is accountable to stockholders generally. 11 In contrast, cumulative voting may enhance the ability of those seeking to support a special interest group to elect one or more directors representing the interests of that group. Any directors so elected may view themselves as representatives of the special interest group that elected them and under an obligation to represent that group's interests, regardless of whether the furtherance of those interests would benefit all stockholders generally. This could tend to promote adherence to more narrow interests rather than those of stockholders at large. In addition, the use of cumulative voting and the resulting election of directors who represent particular groups of stockholders may create a risk of promoting factionalism among members of the Board of Directors and may, therefore, undermine their ability to work together effectively. In its Statement on Corporate Governance, The Business Roundtable reports that the adoption of cumulative voting is generally not recommended for large publicly- owned corporations because of the concerns of promoting special interests and the potential for factionalism. It is for these reasons that the Board of Directors regards the proposed change in voting method as being contrary to the best interests of Merrill Lynch stockholders. 12 MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION OVERVIEW Merrill Lynch operates in a highly competitive and dynamic industry, in which a company's success is largely attributable to the quality of its leaders. To attract, develop and retain the leadership needed to excel as a world-class company in this industry, Merrill Lynch's executive compensation program is designed to recognize individual and company results, and to reward superior performance. The program encourages the creation of shareholder value by linking executives' annual cash bonuses and stock bonuses to the year-to-year change in the company's financial results. POLICIES AND PROCESS GENERAL The Management Development and Compensation Committee (the "MDCC") is responsible for administering all executive officer compensation programs and plans, including the determination and approval of base salaries, cash bonuses and stock bonuses. The MDCC is comprised of five directors who have never been employees of Merrill Lynch 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 Merrill Lynch's executive compensation programs to ensure that they are aligned with Merrill Lynch'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 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. TOTAL COMPENSATION The three elements of total compensation for Merrill Lynch executives are base salary, cash bonus and stock bonus. The MDCC has balanced these components of executive pay to provide Merrill Lynch's top executives with a powerful incentive to maximize the long-term shareholder value of Merrill Lynch. BASE SALARIES Executive officer base salaries are typically reviewed every three to four years based on factors determined by the MDCC at the time of review. Executive officer salaries were not reviewed by the MDCC for 1998. As a portion of their total annual cash compensation, the base salaries of executive officers named in the Summary Compensation Table ranged from 7% to 13% of their total 1998 cash compensation levels (base salary plus annual bonus). This relationship of salaries to total annual cash compensation is intended to maximize the motivational value of the incentive compensation components of the program. 13 INCENTIVE COMPENSATION Merrill Lynch's incentive awards to executive officers are determined based on a shareholder-approved performance goal formula that complies with Internal Revenue Service regulations regarding the tax deductibility of executive officer compensation in excess of $1 million. This formula is used to determine the annual cash bonus and stock bonus of the Chief Executive Officer (the "CEO") by increasing or decreasing the prior year's cash and stock bonus formula amounts by the average year-over-year percentage change in Merrill Lynch's Net Income and Return on Equity ("ROE"). The cash bonus and stock bonus formula amounts for all other executive officers are established as a percentage of the CEO's formula bonus amounts. These percentages, 80% for the Chief Operating Officer (the "COO") and 70% for other executive officers, reflect the relative responsibility and accountability of these individuals in relation to that of the CEO. This approach provides an incentive for executives to focus their efforts on achieving both a high return on stockholders' equity and growth in profits. The MDCC retains the discretion to determine actual awards that are less than the formula amounts for each executive based on an assessment of the factors influencing the formula and each executive's performance. Performance factors taken into consideration include: strategic planning, quality of client service, market share, corporate reputation, financial results, fixed expense control, capital allocation, profit margins, compliance and risk control, management development, workforce diversity, technology and innovation. The MDCC also considers the extent to which individuals take a leadership role in exemplifying and fostering Merrill Lynch's principles of Client Focus, Respect for the Individual, Teamwork, Responsible Citizenship, and Integrity. These factors are considered collectively by the MDCC and are not weighted in any particular order of importance. CASH BONUS. The cash bonus program provides a direct incentive for executive officers to improve the financial performance of Merrill Lynch by varying their formula bonus amounts with the change in Net Income and ROE. For the 1998 performance year, the MDCC determined cash bonuses for each executive officer using the performance goal formula. STOCK BONUS. The stock bonus program is a significant component of the total compensation awarded each year to members of executive management. While the amount of the stock bonus is based on the financial results of Merrill Lynch for the performance year, the ultimate value of the stock bonus is dependent on future stock price performance. As such, the stock bonus, consisting of Restricted Units and Stock Options, aligns executive and stockholder financial interests and encourages an appropriate balance between short-term goals and long-term strategic planning. Executive officers are also eligible to participate in broad-based plans offered generally to Merrill Lynch employees, including retirement, investment, health, and other employee benefit plans. 14 APPROVAL PROCESS Consistent with the executive compensation policies discussed above, the MDCC assesses the performance of the CEO and all other executive officers and recommends the annual cash and stock bonus amounts for these individuals to the Board of Directors for approval. COMPENSATION OF THE CHIEF EXECUTIVE OFFICER FOR 1998 PERFORMANCE Following an examination in July of 1998 of the trend in the CEO's pay at Merrill Lynch in relation to that of CEOs at other leading financial services companies, the Board of Directors approved a special adjustment to the CEO's 1997 compensation formula amount to become effective with the 1998 performance year. The adjustment was made to recognize that the compensation of Merrill Lynch's CEO had fallen meaningfully behind the median amount provided to CEOs at Merrill Lynch's public competitors. The approved adjustment was awarded in the form of Stock Options to ensure that any value actually realized from this adjustment is conditioned on future stock price appreciation. The 1998 performance year cash and stock bonuses for the CEO were determined in accordance with the performance goal formula referenced above. For 1998, Merrill Lynch's Net Income as defined by the formula was $1,663 million. Because the formula definition of Net Income excludes expenses related to all unusual and non-recurring items, the Board decided to reduce Net Income for the purpose of determining actual 1998 CEO compensation by an amount that includes costs related to the 1998 staff reduction initiative. After this $293 million adjustment, the Net Income amount used to determine actual CEO compensation was $1,370 million, producing a 1998 ROE of 14.9%. The average change in this Net Income and ROE from 1997 rounded to the nearest whole percentage point, represents a decrease of 36%. The 36% decrease applied to the CEO's 1997 cash bonus of $7,086,439 produced an actual 1998 cash bonus of $4,535,321. Applying the same 36% decrease to the CEO's 1997 restricted stock award of $1,657,312 produced a 1998 Restricted Unit award of $1,060,328. The actual number of Restricted Units granted was calculated by dividing the dollar value to be paid in Restricted Units by the average fair market value ($70.80) of a share of Common Stock over the twenty business days preceding January 14, 1999, the date the MDCC met to review executive stock awards. Applying the 36% formula decrease to the 1997 adjusted Stock Option award of $5,657,312 produced a 1998 Stock Option award of $3,621,032. The number of Stock Options granted for 1998 performance was calculated by dividing the dollar value to be paid in Stock Options by the same price of Common Stock used to determine the Restricted Unit grant, and multiplying the result by four. The multiple of four options to one share equivalent is used because the Black-Scholes value of a Merrill Lynch 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. 15 SUMMARY The CEO's compensation for performance in 1998, based on the methodology described above and valued when it was approved in January 1999, consisted of:
SALARY CASH BONUS RESTRICTED UNITS* STOCK OPTIONS* TOTAL ------ ---------- ----------------- -------------- ---------- $700,000 $4,535,321 $1,060,328 $3,621,032 $9,916,681
- --------------------- * The value of these awards is based on the average fair market value ($70.80) of Common Stock over twenty business days preceding January 14, 1999, the date the MDCC met to review the awards. These amounts differ from the amounts shown in the Summary Compensation Table under the column headed "Restricted Stock Awards" and from the amounts shown in the table entitled Option Grants Made in Last Fiscal Year under the column headed "Grant Date Present Value" because the amounts in those tables are required to be based on the grant date Common Stock price. MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE ROBERT P. LUCIANO, CHAIRMAN JILL K. CONWAY EARLE H. HARBISON, JR. GEORGE B. HARVEY WILLIAM L. WEISS --------------------- COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The members of the MDCC are named above. None of these individuals has ever been an officer or employee of Merrill Lynch or any of its subsidiaries and no "compensation committee interlocks" existed during the 1998 fiscal year. 16 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 Merrill Lynch. SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION AWARDS(1) ------------------------ ----------------------- RESTRICTED STOCK/UNIT SECURITIES AWARDS UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION(2) YEAR SALARY BONUS(1) (3)(4)(5) OPTIONS(6) COMPENSATION(7) - ------------------------------ ---- -------- ---------- ----------------------- --------------- David H. Komansky....... 1998 $700,000 $4,535,321 $ 1,104,554 204,580 $ 35,725 Chairman of the Board 1997 642,424 7,086,439 1,524,325 96,395 39,771 and Chief Executive 1996 500,000 5,201,056 1,250,266 118,890 73,127 Officer Herbert M. Allison, Jr.. 1998 $500,000 $3,628,257 $ 883,673 163,660 $ 35,350 President and Chief 1997 471,212 5,669,151 1,219,460 377,120 38,621 Operating Officer 1996 400,000 4,200,000 925,039 87,970 68,607 John L. Steffens........ 1998 $400,000 $3,385,000 $ 807,341 131,355 $151,700 Vice Chairman 1997 400,000 4,750,000 988,724 62,525 120,634 1996 400,000 4,200,000 925,039 87,790 447,098 E. Stanley O'Neal....... 1998 $300,000 $2,830,000 $ 666,700 108,475 $112,005 Executive Vice 1997 268,333 4,300,000 988,724 62,525 23,383 President Jeffrey M. Peek......... 1998 $210,000 $2,800,000 $ 640,666 104,235 $199,645 Executive Vice 1997 210,000 3,840,000 965,828 40,715 162,293 President
- --------------------- (1) Awards were made in January or February of the succeeding fiscal year for performance in the year indicated. (2) On April 15, 1997, Mr. Komansky became Chairman of the Board, Mr. Allison became President and Chief Operating Officer, Mr. Steffens became Vice Chairman, and Mr. O'Neal became an Executive Vice President. Mr. Peek became an Executive Vice President of Merrill Lynch effective December 10, 1997. Mr. O'Neal became Chief Financial Officer of Merrill Lynch effective March 1, 1998. No 1996 compensation information is reported for Messrs. O'Neal and Peek because they were not executive officers in that year. (3) All awards have been valued for this table using closing prices of Common Stock on the Consolidated Transaction Reporting System on the grant dates of such awards. The closing price on February 1, 1999, the effective date of the grants for performance in 1998, was $73.75. All Restricted Shares and Restricted Units vest three years following grant and all Restricted Shares and those Restricted Units granted in 1999 may not be transferred for an additional two years after vesting. Restricted Shares are shares of Common Stock that convey to the holder all the rights of a stockholder except that they are restricted from being sold, transferred, or assigned for a period 17 Footnotes to Summary Compensation Table Continued of time after they are granted. Restricted Units are similar to Restricted Shares but do not convey voting rights. Awards in 1999 consisted of Restricted Units, payable in cash or shares of Common Stock at the end of five years. Prior to 1999, awards were split equally between Restricted Shares and Restricted Units payable in cash at the end of a three-year vesting period. (4) During the applicable vesting and/or 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 25, 1998 are as follows: Mr. Komansky (60,648 shares and 43,846 units--$7,503,975); Mr. Allison (50,108 shares and 33,304 units--$5,990,024); Mr. Steffens (48,284 shares and 31,480 units--$5,728,052); Mr. O'Neal (49,350 shares and 32,188 units--$5,855,448); and Mr. Peek (40,413 shares and 23,249 units-- $4,571,727). These amounts do not include Restricted Units awarded in 1999 for performance in fiscal year 1998. (6) In the case of Mr. Allison, the 1997 amount includes a grant of 300,000 Stock Options to recognize Mr. Allison's increased accountability for creating shareholder value following his appointment as President and Chief Operating Officer on April 15, 1997. (7) Amounts shown for 1998 consist of the following: (i) contributions made in 1998 by Merrill Lynch to accounts of employees under the Merrill Lynch 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. Steffens ($1,500); and Mr. Peek ($1,500); (ii) allocations made in 1998 by Merrill Lynch to accounts of employees under the defined contribution retirement program-- Mr. Komansky ($17,600); Mr. Allison ($17,600); Mr. Steffens ($19,200); Mr. O'Neal ($6,400); and Mr. Peek ($9,600); and (iii) distributions received in 1998 on investments by the named executives of their own personal funds in Merrill Lynch-sponsored employee partnerships--Mr. Komansky ($16,625); Mr. Allison ($16,250); Mr. Steffens ($131,000); Mr. O'Neal ($105,605); and Mr. Peek ($188,545). 18 STOCK OPTION GRANTS MADE 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/) ---- ---------- ------------ --------- ---------- ---------- David H. Komansky....... 204,580 0.7% $72.34375 1/25/2009 $5,144,300 Herbert M. Allison, Jr.. 163,660 0.6 72.34375 1/25/2009 4,115,340 John L. Steffens........ 131,355 0.4 72.34375 1/25/2009 3,303,009 E. Stanley O'Neal....... 108,475 0.4 72.34375 1/25/2009 2,727,676 Jeffrey M. Peek......... 104,235 0.4 72.34375 1/25/2009 2,621,058
- --------------------- (1) Includes awards made in January 1999 for performance in 1998. Awards made in January 1998 for performance in 1997 are excluded (which awards, for Messrs. Komansky, Allison, Steffens, and O'Neal, were reflected in Merrill Lynch's 1998 Proxy Statement). (2) All Stock Options become 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 Stock Option ($72.34375) 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 25, 1999, the date of grant. The assumptions used for the variables in the model were: 35.49% volatility (which is the volatility of the Common Stock for the 120 months preceding grant); a 5.05% 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 2009, as quoted in The Wall Street Journal); a 1.33% 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 stock options. The actual gain that executives will realize on their Stock Options will depend on the future price of the Common Stock and cannot be accurately forecast by application of an option pricing model. AGGREGATED STOCK OPTION EXERCISES MADE IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS SHARES END AT FISCAL YEAR-END(/1/) ACQUIRED ON VALUE ------------------------- ------------------------- NAME EXERCISE REALIZED(/2/) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ------------- ----------- ------------- ----------- ------------- David H. Komansky....... 220,000 $14,188,125 1,108,072 786,391 $57,994,330 $30,731,567 Herbert M. Allison, Jr. 0 0 1,275,120 541,908 76,651,882 10,427,336 John L. Steffens........ 0 0 1,128,240 227,313 66,737,260 7,340,373 E. Stanley O'Neal....... 0 0 165,800 163,917 8,530,922 4,602,376 Jeffrey M. Peek......... 32,000 2,106,998 274,592 138,823 15,535,967 4,254,692
- --------------------- (1) This valuation represents the difference between $71.81250, the closing price on December 24, 1998 on the Consolidated Transaction Reporting System of a share of Common Stock, and the exercise prices of these Stock Options. (2) These valuations represent the difference between the average of the high and low prices on the Consolidated Transaction Reporting System on the date of exercise of a share of Common Stock, and the exercise prices of the Stock Options exercised. Mr. Komansky elected to defer the gain received upon the exercise of certain Stock Options (net of shares withheld for taxes) pursuant to the Merrill Lynch Program for Deferral of Stock Option Gains for a Select Group of Eligible Employees and continues to hold 197,274 Stock Units which are payable in Common Stock. 19 PENSION PLAN ANNUITY In 1988, the Merrill Lynch 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. Merrill Lynch 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 1999, is $121,334 (for those 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 3.2% since 1988, the year indexing began. Effective for 1995 and later years, however, the cost of living adjustment calculation is subject to rounding rules. The annuity payments, if payable as straight life annuities, will not exceed the following annual amounts for the following executive officers: Mr. Komansky ($103,655); Mr. Allison ($81,543); Mr. Steffens ($227,963); Mr. O'Neal ($5,679); and Mr. Peek ($54,825). These amounts reflect an offset for estimated social security benefits in accordance with the provisions of the terminated Pension Plan. SUPPLEMENTAL ANNUITY AGREEMENT Merrill Lynch has 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 retirement at age 60 or thereafter, can be calculated using the following table based on his highest consecutive five-year average compensation and his years of service:
HIGHEST CONSECUTIVE YEARS OF SERVICE 5-YEAR AVERAGE -------------------------------- COMPENSATION 30 33 36 ------------------- ---------- ---------- ---------- $3,250,000..................................... $1,218,750 $1,340,625 $1,462,500 3,750,000..................................... 1,406,250 1,546,875 1,620,000 4,250,000..................................... 1,593,750 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
20 As of December 25, 1998, Mr. Komansky's highest consecutive five-year average compensation was approximately $4.3 million and he had approximately 30 years of service. The annuity is payable if Mr. Komansky retires at the age of 60 or thereafter or dies while employed by Merrill Lynch. The annual amount of his annuity will be equal to 1.25% of his highest consecutive five-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 Merrill Lynch contributions to the Merrill Lynch 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 (computed as of his actual retirement date if earlier than 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 Merrill Lynch has severance agreements with certain members of executive and senior management. These agreements provide for payments and other benefits if there is a Change in Control (as defined below) of Merrill Lynch, and the employee's employment is subsequently terminated by Merrill Lynch 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 three 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 five 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 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 Merrill Lynch under the terms of the Merrill Lynch retirement program (which consists of the Retirement Accumulation Plan and the ESOP, and any applicable Merrill Lynch contributions to the Merrill Lynch 401(k) Savings & Investment Plan, or any successor program or plan that may be in effect at the time of the Change in Control), such amount to be 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 the employee's termination of employment. 21 Under the terms of the agreements, a "Change in Control" of Merrill Lynch means: (i) any change in control of a nature required to be reported under the SEC'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 Merrill Lynch's then outstanding voting securities; (iii) a change in the composition of the Board of Directors such that, within a period of two consecutive years, individuals who at the beginning of such two-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 two-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 Merrill Lynch. In addition, if Merrill Lynch 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 Merrill Lynch Long-Term Incentive Compensation Plan, which, in the event of a Change in Control (as defined in that plan), provide for early vesting and payment if an employee is terminated without cause or leaves for good reason. COMPENSATION OF DIRECTORS Those Merrill Lynch directors who are not full-time employees of Merrill Lynch or an affiliated corporation receive monthly cash payments at a rate of $55,000 per year in base compensation and receive transportation to meetings or reimbursement of reasonable travel expenses incurred to attend the meetings. In addition, non-employee directors receive $15,000 for chairing the Audit and Finance Committee and the MDCC. The directors chairing the Nominating Committee and the Public Policy and Responsibility Committee receive $10,000 per year for providing this service. The other members of committees receive no additional compensation. Under the Merrill Lynch Fee Deferral Plan for Non-Employee Directors, non- employee directors may defer all or a portion of their base compensation and committee chair fees until a specified later date or until after retirement. At the option of the participant, deferred fees (i) may be credited with a return based on the performance of selected mutual funds (or a return based on the performance of certain Merrill Lynch-sponsored employee partnerships), or (ii) 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. Under the Merrill Lynch Deferred Unit and Stock Unit Plan for Non-Employee Directors (the "Unit Plan") non-employee directors receive grants of Deferred Units (representing Merrill Lynch'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 Merrill Lynch's obligation to deliver one share of Common Stock at the end of the deferral period). Under the Unit Plan, each non-employee director 22 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. The Unit Plan replaced the Merrill Lynch Non- Employee Directors' Equity Plan (the "Equity Plan"), described below. 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 that their most recent grants of restricted stock under the Equity Plan became fully vested. The grant value of such grants 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. In addition, commencing April 1998, each director became eligible for an annual $10,000 grant of Deferred Units under the Unit Plan. Deferred Units and Deferred Stock Units are payable in cash and Common Stock, respectively, at the end of a five-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 five-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. Under the predecessor of the Unit Plan, the Merrill Lynch 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 vested and became 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 can not be transferred, assigned, pledged, or otherwise encumbered, and are forfeited if Board service ends prior to scheduled retirement for any reason other than death. 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 and no further grants will be made thereunder. Each non-employee director who has served for five 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 $55,000) 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 $30,000), and the director's age and length of service. Although the amount and method of payment of each such 23 benefit cannot be 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. Merrill Lynch offers comprehensive medical insurance benefits to non-employee directors and eligible family members, which are comparable to those offered to Merrill Lynch employees generally except that these benefits are provided on a non-contributory basis and with differences in deductible, coinsurance, and lifetime benefits. Merrill Lynch 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 their own personal funds in certain Merrill Lynch-sponsored employee partnerships. The distributions on such investments received in 1998 by persons who were non-employee directors participating during 1998 were as follows: Earle H. Harbison, Jr. ($45,000) and Aulana L. Peters ($2,400). CERTAIN TRANSACTIONS Since the beginning of the 1998 fiscal year, certain directors and executive officers of Merrill Lynch and associates of such persons were, from time to time, indebted to Merrill Lynch as customers in connection with margin account loans, mortgage loans, revolving lines of credit, and other extensions of credit by Merrill Lynch's subsidiaries. These transactions were in the ordinary course of business and they were substantially on the same terms (including as to interest rates and collateral provisions) as those prevailing at the time for comparable transactions with other persons, except that for some credit products, the interest rates charged were the same as the lowest of the interest rates charged to other persons or were the same as those charged to Merrill Lynch employees. In addition, these transactions did not involve more than the normal risk of collectibility and did not present other unfavorable features. Directors, officers, and employees of Merrill Lynch are entitled to receive certain discounts or waivers of fees or commissions for products and services offered by subsidiaries of Merrill Lynch. From time to time since the beginning of the 1998 fiscal year, Merrill Lynch and certain of its subsidiaries have engaged in transactions in the ordinary course of business with the beneficial owner of more than 5% of the outstanding shares of Common Stock, State Street and certain of its affiliates. Such transactions were on substantially the same terms as those prevailing at the time for comparable transactions with other persons. Since the beginning of the 1998 fiscal year, Merrill Lynch, through certain of its subsidiaries, has from time to time performed, in the ordinary course of its business, 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 1998 fiscal year, legal services were performed by the law firm of Gibson, Dunn & Crutcher for business activities of, and litigation matters on behalf of, Merrill Lynch and its affiliates and for mutual funds advised by affiliates of Merrill Lynch. Aulana L. Peters, a director, is a partner of this law firm. 24 In each of the following stockholder derivative actions, damages in an unspecified amount are sought on behalf of Merrill Lynch. The current directors have been named as defendants in a stockholder derivative action commenced on October 13, 1998, purportedly brought on behalf of Merrill Lynch in the Supreme Court of the State of New York, New York County. The action alleges, among other things, that the defendants breached their fiduciary duties in that they allegedly failed to prevent Merrill Lynch from engaging in excessively risky business transactions with hedge funds. In stockholder derivative actions, commenced October 11, 1991 and now consolidated, purportedly brought on behalf of Merrill Lynch in the Supreme Court of the State of New York, New York County, all current directors who were also directors at the time of the transactions described in this paragraph have been named as defendants. The plaintiffs allege, among other things, breach of fiduciary duties in connection with a series of year-end securities transactions between subsidiaries of Merrill Lynch and Guarantee Security Life Insurance Company during the period from 1984 to 1988. On January 5, 1999, the Supreme Court of the State of New York, Appellate Division, reversed a lower court dismissal of this action. 25 PERFORMANCE GRAPH The following performance graph compares the performance of the Common Stock for Merrill Lynch's last five fiscal years to that of the S&P 500 Index, the S&P Financial Index, and an index based on the common stock of the following nine companies: A.G. Edwards, Inc., Bankers Trust New York Corporation, The Bear Stearns Companies Inc., The Charles Schwab Corporation, Morgan Stanley Dean Witter & Co., J.P. Morgan & Co. Incorporated, Lehman Brothers Holdings Inc., Paine Webber Group Inc., and Citigroup Inc.* (the "Peer Group"). The graph assumes that the value of the investment in Common Stock and each of the three named indexes was $100 at December 31, 1993, 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, the day of Merrill Lynch's fiscal year-end. Stock price performances shown on the graph are not necessarily indicative of future price performances. [GRAPH APPEARS HERE]
1993 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- ---- Merrill Lynch 100 87 127 214 348 374 S&P 500 Index 100 101 139 174 219 288 S&P Financial Index 100 97 148 204 277 320 Peer Group* 100 85 135 194 296 350
- -------------------- * In 1998, Travelers Group Inc., which was part of the Peer Group, merged with Citicorp, which had not previously been part of the Peer Group, to form Citigroup Inc. 26 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. STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING In accordance with the rules of the SEC, stockholder proposals intended to be presented at the 2000 Annual Meeting of Stockholders of Merrill Lynch must be received by Merrill Lynch at its principal executive offices not later than November 8, 1999 in order to be included in Merrill Lynch's Proxy Statement and form of proxy relating to that meeting. The persons named as proxies for the 2000 Annual Meeting of Stockholders will generally have discretionary authority to vote on any matter presented by a stockholder for action at the meeting. In the event that Merrill Lynch receives notice of (i) a nomination for the election of a director at least 50 and no more than 75 days prior to the Annual Meeting or (ii) any other type of stockholder proposal at least 50 days prior to the Annual Meeting, then, so long as Merrill Lynch includes in its proxy statement advice on the nature of the matter and how the named proxies intend to vote the shares for which they have received discretionary authority, such proxies may exercise discretionary authority with respect to such matter, except to the extent limited by the SEC's rules governing shareholder proposals. By Order of the Board of Directors ANDREA L. DULBERG Secretary 27 [LOGO] Merrill Lynch Merrill Lynch & Co., Inc. World Financial Center North Tower New York, NY 10281-1332 www.ml.com MERRILL LYNCH & CO., INC. PROXY ANNUAL MEETING-APRIL 14, 1999 PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Herbert M. Allison, Jr., Stephen L. Hammerman and E. Stanley O'Neal, 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 24, 1999, at the Annual Meeting of Stockholders to be held on April 14, 1999, 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 AND AGAINST THE STOCKHOLDER PROPOSAL. 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 VOTE FOR THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL (1). STOCKHOLDER PROPOSAL (2). =================================================================================================================================== (1) The election to the Board of Directors of the 5 nominees (2) Institute cumulative voting FOR AGAINST ABSTAIN named below for a term of 3 years [ ] [ ] [ ] [ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY (except as marked to the to vote for all contrary below) nominees listed Jill K. Conway, George B. Harvey, David H. Komansky, John L. Steffens and William L. Weiss INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ONE OR MORE INDIVIDUAL NOMINEES, WRITE THE NAME(S) OF SUCH PERSON(S) HERE: __________________________________________________________ (To be signed on the other side)
-----END PRIVACY-ENHANCED MESSAGE-----