Exhibit 10(ii) MERRILL LYNCH & CO., INC. PROGRAM FOR DEFERRAL OF STOCK OPTION GAINS FOR A SELECT GROUP OF ELIGIBLE EMPLOYEES Dated as of September 17, 1997 MERRILL LYNCH & CO., INC. PROGRAM FOR DEFERRAL OF STOCK OPTION GAINS FOR A SELECT GROUP OF ELIGIBLE EMPLOYEES Table of Contents Page ---- I. GENERAL ...............................................................1 1.1 Purpose and Intent .............................................1 1.2 Definitions ....................................................1 II. ELIGIBILITY ...........................................................3 2.1 Eligible Employees .............................................3 2.2 Representation and Warranty by Participant .....................3 III. DEFERRAL ELECTIONS.....................................................3 3.1 Deferral Elections .............................................3 (a) Making Elections .........................................3 (b) Deemed Exercise...........................................4 (c) Effect of Deferral Followed by a Deemed Exercise..........4 (d) Irrevocability of Deferral Election ......................4 3.2 Minimum Requirements for Deferral ..............................4 3.3 Recission of Deferral Election..................................5 (a) Prior to Deemed Exercise..................................5 (b) Adverse Tax Determination.................................5 IV. CASH/STOCK UNIT ACCOUNTS ..............................................5 4.1 Creation and Crediting to Accounts .............................5 4.2 Dividend Equivalents ...........................................5 4.3 Changes in Capitalization ......................................5 V. STATUS OF ACCOUNT......................................................6 5.1 Status .........................................................6 5.2 Non-Assignability ..............................................6 5.3 Effect of Deferral on Benefits Under Pension and Welfare Benefit Plans...........................................6 VI. PAYMENT OF ACCOUNT ....................................................7 6.1 Payment Date ...................................................7 (a) Regular Payment Elections.................................7 (b) Modified Installment Payments.............................7 6.2 Manner of Payment ..............................................7 6.3 Termination of Employment ......................................7 (a) Death or Retirement ......................................7 (b) Other Termination of Employment ..........................8 (c) Leave of Absence, Transfer or Disability .................8 (d) Discretion to Alter Payment Date .........................8 6.4 Withholding of Taxes ...........................................8 -i- Page ---- 6.5 Beneficiary ....................................................8 (a) Designation of Beneficiary ...............................8 (b) Change in Beneficiary ....................................8 (c) Default Beneficiary ......................................9 (d) If the Beneficiary Dies During Payment ...................9 6.6 Hardship Distributions .........................................9 6.7 Domestic Relations Orders ......................................9 VII. ADMINISTRATION OF THE PLAN ............................................10 7.1 Powers of the Committee and the Administrator ..................10 (a) General...................................................10 (b) Limitation of Liability...................................10 7.2 Optional Rabbi Trust............................................10 7.3 Payments on Behalf of an Incompetent ...........................10 7.4 Corporate Books and Records Controlling ........................10 VII. MISCELLANEOUS PROVISIONS ..............................................11 8.1 Litigation .....................................................11 8.2 Headings Are Not Controlling ...................................11 8.3 Governing Law ..................................................11 8.4 Amendment and Termination ......................................11 Exhibit A Form of Deferral Agreement -ii- MERRILL LYNCH & CO., INC. PROGRAM FOR DEFERRAL OF STOCK OPTION GAINS FOR A SELECT GROUP OF ELIGIBLE EMPLOYEES 1.1 Purpose and Intent. The purpose of the Plan is to encourage the employees who are integral to the success of the business of the Company to continue their employment and their alignment with Merrill Lynch & Co., Inc. Common Stock by providing them with the ability to defer receipt of option gains with respect to non-qualified stock options granted under the Merrill Lynch & Co., Inc. Long-Term Incentive Compensation Plan and the Merrill Lynch & Co., Inc. Long-Term Incentive Compensation Plan for Managers and Producers (collectively, "LTICP"). It is intended that the Plan be unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of Title I of ERISA, and all decisions concerning who is to be considered a member of that select group and how the Plan shall be administered and interpreted shall be consistent with this intention. 1.2 Definitions. For the purpose of the Plan, the following terms shall have the meanings indicated. "Administrator" means the Director of Human Resources of ML & Co., or his functional successor, or any other person or committee designated as Administrator of the Plan by the Management Development and Compensation Committee of the Board of Directors. "Affiliate" means any corporation, partnership, or other organization of which ML & Co. owns or controls, directly or indirectly, not less than 50% of the total combined voting power of all classes of stock or other equity interests. "Account Balances" means the Participant's Stock Unit Account Balance and Cash Unit Account Balance. "Board of Directors" means the Board of Directors of ML & Co. or any duly authorized Committee thereof. "Cash/Stock Unit Account" means the reserve account established on the books and records of ML & Co. to record the Participant's Stock Unit Account Balance and Cash Unit Account Balance. "Cash Unit" means an entry in a Participant's Cash Unit Account Balance representing the Company's obligation to pay an amount in cash equal to the value of one share of Common Stock. "Cash Unit Account Balance" means, as of any date, the number of Cash Units credited to the Participant in connection with the payment of dividend equivalents on Stock Units and/or Cash Units in accordance with Section 4.2, as adjusted to any changes in capitalization in accordance with Section 4.2 and any payments made from the Cash Unit Account Balance to the Participant prior to that date. "Code" means the U.S. Internal Revenue Code of 1986, as amended from time to time. "Committee" means the Management Development and Compensation Committee of the Board of the Directors. Except as may be required by law, any function of the Committee may be delegated to the Administrator. "Common Stock" means the Common Stock, par value $1.33 1/3 per share of ML & Co., together with (for so long they are outstanding) one Right to Purchase Units of Series A Junior Preferred Stock, par value $1.00 per share, of ML & Co. issued pursuant to the Rights Agreement dated as of December 16, 1987 between ML & Co. and Manufacturers Hanover Trust Company, Rights Agent, as amended. "Company" means ML & Co. and all of its Affiliates. "Covered Options" means the particular non-qualified options granted under LTICP as to which a Participant has elected to defer gains. "Deemed Exercise" means the conversion of Covered Options to the right to receive the Stock Units. "Deferral Election" means a Participant's election to defer the gain on non qualified stock options granted under LTICP as described in Section 3.1 and Exhibit A hereto. "Eligible Employee" means an employee eligible to make a deferral under the Plan, as determined in Article II hereof. "ERISA" means the U.S. Employee Retirement Income Security Act of 1974, as amended from time to time. "Fair Market Value" of Common Stock on any given date means (a) the mean of the high and low sales prices on the New York Stock Exchange--Composite Tape on the date(s) in question, or, if the Common Stock shall not have been traded on any such date(s), the mean of the high and low sales prices on the New York Stock Exchange--Composite Tape on the first day prior thereto on which the Common Stock was so traded; or (b) such other amount as may be determined by the Administrator by any fair and reasonable means. "Fiscal Month" means the monthly period used by ML & Co. for financial accounting purposes. "Fiscal Year" means the annual period used by ML & Co. for financial accounting purposes. "ML & Co." means Merrill Lynch & Co., Inc. "Officer(s)" means all officers of ML & Co., as such term is defined in Rule 16a-1 under the Securities Exchange Act of 1934. "Participant" means an Eligible Employee who elects to defer under the Plan. "Plan" means this Merrill Lynch & Co., Inc. Program for Deferral of Stock Option Gains for a Select Group of Eligible Employees. "Rabbi Trust" means the Trust that may be established, at the option of the Administrator, to receive the delivery of shares otherwise issuable upon the exercise of Covered Options as provided hereunder and to hold such shares (or the proceeds thereof) until payment of amounts pursuant to this Plan. "Retirement" means a Participant's (i) termination of employment with the Company for reasons other than for cause on or after the Participant's 65th birthday, or (ii) resignation on or after the Participant's 55th birthday if the Participant has at least 10 years of service, or (iii) resignation at any age with the express approval of the Administrator, which will be granted only if the termination is found by the Administrator to be in, or not contrary to, the best interests of the Company. "Stock Unit" means an entry in a Participant's Stock Unit Account Balance representing the Company's obligation to make payment to a Participant in the form of one share of Common Stock in accordance with the Plan. "Stock Unit Account Balance" means, as of any date, the number of Stock Units credited to a Participant's Cash/Stock Unit Account as adjusted to any changes in capitalization in accordance with Section 4.2 and any payments made from the Stock Unit Account Balance to the Participant prior to that date. ARTICLE II ELIGIBILITY 2.1 Eligible Employees. Initially participation in this Plan shall be limited to employees of the Company who were granted non-qualified Stock Options in 1989, provided that the Administrator, in his sole discretion, may expand such eligibility to include additional employees who are generally eligible to participate in the Merrill Lynch & Co., Inc. Deferred Compensation Plans for a Select Group of Eligible Employees, and such other employees as the Administrator may, in sole discretion, determined. 2.2 Representation and Warranty by Participant. The deferral opportunity being offered hereby has not been and will not be registered under the Securities Act of 1933 (the "Securities Act") and is being offered to "accredited investors" (within the meaning of Rule 501(a)(6) under the Securities Act) in reliance on the exemption from registration provided by Section 4(2) of the Securities Act. Accordingly, when submitting his or her election form to the Administrator or his designee, each Participant must represent and warrant to ML & Co. that he or she is a natural person who had an individual income in excess of $200,000 in the most recent calendar year then ended and has a reasonable expectation of reaching the same income level in the current calendar year. This requirement is in addition to, and not a substitute for, the eligibility requirements set forth in Section 2.1. ARTICLE III DEFERRAL ELECTIONS 3.1 Deferral Elections. (a) Making Elections. Eligible employees can elect to defer receipt of the gain to which such Participant would otherwise be entitled on exercise of any non-qualified options granted to such employees under LTICP. Deferral Elections shall be made by submitting to the Administrator or his designee the form attached hereto as Exhibit A. (i) Each Deferral Election must be made at least 90 days prior to the Deemed Exercise of the Covered Options to which the Deferral Election relates and must specify the particular Stock Options (including the date of grant) to which such Deferral Election relates and the number of Shares issuable upon exercise of such Stock Options. (ii) To be effective, each Deferral Election must be made (A) in or prior to the taxable year immediately prior to the expiration of such Covered Option and (B) at least six (6) months prior to the date of such expiration. (iii) To be effective, each Deferral Election must defer the gain on a minimum of 1,000 options. (b) Deemed Exercise. When a Deferral Election has been made, Covered Options, while remaining subject to all other terms and conditions of LTICP, may only be exercised subject to the Deemed Exercise procedures in this Plan. Covered Options will not be converted to Units in accordance with Section 4.1 until a Deemed Exercise has occurred. To effect a Deemed Exercise, Participants must prove ownership of previously held shares of Common Stock (owned for a period of not less than six months) having a Fair Market Value on the Deemed Exercise date equal to the total Exercise Price. The date on which such Deemed Exercise occurs will determine the number of Stock Units credited to a Participant in accordance with Section 4.1. (c) Effect of a Deferral Followed by a Deemed Exercise. Upon a Deemed Exercise of all or a portion of the Covered Options to which such Deferral Election relates, a Participant will be credited with a number of Stock Units determined in accordance with Section 4.1 [and a like number of shares of Common Stock shall be held for delivery in the Treasury of ML & Co.] and, if the Administrator determines, delivered to a Rabbi Trust established in accordance with Section 8.1 hereof for payment to the Participant in accordance with Article VI hereof. (d) Irrevocability of Deferral Election. Except as provided in Sections 3.3 and 6.6 and 6.7, an election made under Section 3.1(a) is irrevocable once submitted to the Administrator or his designee. Once a Participant elects to defer the gains on all or a portion of a Stock Option, any gains will be deferred whenever a Deemed Exercise of a Stock Option occurs. 3.2 Minimum Requirements for Deferral. Minimum Requirements. Notwithstanding any other provision of the Plan, no deferral will be effected under the Plan with respect to a Participant if: (a) the Participant is not an Eligible Employee when the election is made, (b) the greater of (A) the sum of (1) the compensation amount listed on the Participant's W-2 form for the most recent calendar year, and (2) any incentive compensation that is accelerated which the Participant may receive in the current calendar year that would have been payable in next calendar year in the absence of the action of the Company to accelerate the payment, and (B) the Participant's Eligible Compensation for the next calendar year, is less than $200,000. 3.3 Rescission of Deferral Election. (a) Prior to Deemed Exercise. A deferral election hereunder will be rescinded if a Participant's employment terminates prior to a Deemed Exercise. In addition, a deferral election may be rescinded at the request of the Participant prior to a Deemed Exercise, if the Administrator, in his sole discretion and upon evidence of such basis that he finds persuasive (including a material applicable change in the Participant's U.S. Federal and/or foreign income tax rate during the relevant period), agrees to the rescission of the election. In the event of a rescission under this Section 3.3(a), no deferral will be effected under the Plan. (b) Adverse Tax Determination. Notwithstanding the provisions of Section 3.3(a), a deferral election may be rescinded at any time if (i) a final determination is made by a court or other governmental body of competent jurisdiction that the election was ineffective to defer income for purposes of U.S. Federal, state, local or foreign income taxation and the time for appeal from this determination has expired, and (ii) the Administrator, in his sole discretion, decides, upon the Participant's request and upon evidence of the occurrence of the events described in (i) hereof that he finds persuasive, to rescind the election. Upon any such rescission, the Account Balance will be paid to the Participant as soon as practicable. ARTICLE IV CASH/STOCK UNIT ACCOUNTS 4.1 Creation and Crediting to Accounts A Cash/Stock Unit Account shall be created for each Participant who has deferred under the Plan and effected a Deemed Exercise. As soon as practicable after the Deemed Exercise (but in no event later than the end of the following month), a Participant's Stock Unit Account Balance will be credited with a number of Stock Units (or fractions thereof) equal to: (1) the aggregate Fair Market Value (on the date of Deemed Exercise) of the number of Covered Option shares that are the subject of the Deemed Exercise; (2) minus: (A) the aggregate Exercise Price of the shares subject to the Covered Option; and (B) any FICA or Medicare taxes due upon such exercise (unless the Administrator determines that such taxes should be payable in some other manner); (3) divided by the Fair Market Value of the Common Stock on such Date. Cash Units will be credited to a Participant's Cash Unit Account Balance in accordance with Section 4.2. 4.2 Dividend Equivalents. Whenever a cash dividend is paid on a share of Common Stock, the Participant's Cash/Stock Unit Account shall be credited, on the payment date for such cash dividend, with the number of Cash Units determined by multiplying the per share amount of the cash dividend by the Participant's Stock Unit Account Balance and Cash Unit Account Balance (expressed in Stock Units and Cash Units, respectively), on the record date for such cash dividend and dividing the result by the price per share of Common Stock used for purposes of the reinvestment of such cash dividend in the Merrill Lynch & Co., Inc. Dividend Reinvestment Program, and rounding the result to the nearest 1/100th of a Unit (with .005 being rounded upwards). 4.3 Changes in Capitalization. Any other provision of the Plan to the contrary notwithstanding, if any change shall occur in or affect shares of Common Stock on account of a merger, consolidation, reorganization, stock dividend, stock split or combination, reclassification, recapitalization, or distribution to holders of shares of Common Stock (other than cash dividends) including, without limitation, a merger or other reorganization event in which the shares of Common Stock cease to exist, or, if in the opinion of the Board of Directors, after consultation with the Company's independent public accountants, changes in the Company's accounting policies, acquisitions, divestitures, distributions, or other unusual or extraordinary items have disproportionately and materially affected the value of shares of Common Stock or Stock or Cash Units, the Committee shall make such adjustments, if any, that it may deem necessary or equitable in each Participant's Cash/Stock Unit Account in order to preserve the full benefits of the Plan for the Participants, taking into account any factors that the Committee, in its sole discretion, considers relevant. In the event of a change in the presently authorized shares of Common Stock that is limited to a change in the designation thereof or a change of authorized shares with par value into the same number of shares with a different par value or into the same number of shares without par value, the shares resulting from any such change shall be deemed to be shares of Common Stock within the meaning of the Plan. In the event of any other change affecting the shares of Common Stock or Stock or Cash Units, such adjustment shall be made as may be deemed equitable by the Committee to give proper effect to such event. ARTICLE V STATUS OF ACCOUNT 5.1 Status. Nothing contained herein and no action taken pursuant hereto will be construed to create any kind or a fiduciary relationship between ML & Co. and any Participant, the Participant's beneficiary or estate, or any other person. Title to and beneficial ownership of any funds represented by any Account Balance will at all times remain with the Company, or in the event a Rabbi Trust is established, in the Rabbi Trust, and available to the creditors of the Company in the event of a bankruptcy. No person will, by virtue of the provisions of the Plan, have any interest whatsoever in any specific assets of the Company. TO THE EXTENT THAT ANY PERSON ACQUIRES A RIGHT TO RECEIVE PAYMENTS FROM THE COMPANY UNDER THE PLAN, SUCH RIGHT WILL BE NO GREATER THAN THE RIGHT OF ANY UNSECURED GENERAL CREDITOR OF THE COMPANY. 5.2 Non-Assignability. The Participant's right or the right of any other person to any Account Balance or any other benefits hereunder cannot be assigned, alienated, sold, garnished, transferred, pledged, or encumbered except by a written designation of beneficiary under the Plan, by written will, or by the laws of descent and distribution. 5.3 Effect of Deferral on Benefits Under Pension and Welfare Benefit Plans. The effect of deferral on pension and welfare benefit plans in which the Participant may be a participant will depend upon the provisions of each such plan, as amended from time to time. ARTICLE VI PAYMENT OF ACCOUNT 6.1 Payment Date. (a) Regular Payment Elections. Subject to Section 7.1(b), the Participant's Account Balances will be paid by ML & Co., as elected by the Participant at the time of his or her deferral election, either in a single payment to be made, or in the number of annual installment payments (not to exceed 15) chosen by the Participant to commence, (i) in the month following the month of the Participant's Retirement or death, (ii) in any month and year selected by the Participant after the end of 1998 or (iii) in any month in the calendar year following the Participant's Retirement; provided that no member of Executive Management shall elect to receive the payment (in the case of a single payment) or commencement of payment (in the case of installment payments) earlier than a date which is six months and one day after the earliest to occur of Retirement, Death or other termination of employment. The amount of each annual installment payment, if applicable, shall be determined by multiplying the Fair Market Value of the Account Balances as of the last day of the month immediately preceding the month in which the payment is to be made by a fraction, the numerator of which is one and the denominator of which is the number of remaining installment payments (including the installment payment to be made) and rounding the result to the nearest whole Stock Unit of Cash Unit as the case may be. (b) Modified Installment Payments. If the Participant had elected (at the time of deferral) to receive at least 11 but no more than 15 annual Installment Payments in accordance with Section 7.1(a), then such Participant's Account Balances, will be paid in modified installment payments, such modified installment payments to commence at least six months and one day following the Participant's Retirement or upon the Participant's death. The modified installment payments shall be computed in accordance with the last sentence of Section 7.1(a) and will in all other respects be treated like regular installment payments under the Plan. 6.2 Manner of Payment. Payments of Stock Unit Account Balances will be made in the form of one share of Common Stock for each Stock Unit to be paid, [with any fractional Stock Units paid in cash.] Payments of Cash Units will be made in cash. The amount of such cash payment shall be determined by multiplying the number of Cash Units to be paid by the Fair Market Value of a share of Common Stock on the last business day immediately prior to the day on which payment is to be made and rounding the result up to the nearest whole cent. 6.3 Termination of Employment. (a) Death or Retirement. If the Participant dies or begins Retirement prior to payment, then the Account Balances will be paid, in accordance with the Participant's elections and as provided in Sections 6.1 and 6.2, to the Participant (in the event of Retirement) or to the Participant's beneficiary (in the event of death), provided, however, that in the event that a beneficiary of the Participant's Account is the Participant's estate or is otherwise not a natural person, then (i) if the Participant has elected a regular payment election pursuant to Section 6.1(a), the applicable portion of the Account Balances will be paid in a single payment to such beneficiary notwithstanding any election of installment payments, and (ii) if the Participant has elected modified installment payments pursuant to Section 6.1(b), the applicable portion of the Cash/Stock Unit Account, if applicable, will continue to be payable as modified installment payments, but only to a single person consisting of the administrator or executor of the Participant's estate or another person lawfully designated by the administrator or executor (and in the event no such person is designated within a reasonable time, payment will be made in a lump sum). (b) Other Termination of Employment. If the Participant's employment terminates at any time for any reason other than death or Retirement, the Account Balances will be paid to the Participant in a single payment in the manner specified in Section 6.2, as soon thereafter as is practicable, notwithstanding the Participant's elections hereunder. (c) Leave of Absence, Transfer or Disability. The Participant's employment will not be considered as terminated if the Participant is on an approved leave of absence or if the Participant transfers or is transferred but remains in the employ of the Company or if the Participant is eligible to receive disability payments under the ML & Co. Basic Long-Term Disability Plan. (d) Discretion to Alter Payment Date. Notwithstanding the provisions of Sections 6.3(a) and (b), if the Participant's employment terminates for any reason, the Administrator may, in his sole discretion, direct that the Account Balances be paid at some other time or that it be paid in installments; provided, that no such direction that adversely affects the rights of the Participant or his or her beneficiary under the Plan shall be implemented without the consent of the affected Participant or beneficiary. This direction may be revoked by the Administrator at any time in his sole discretion. 6.4 Withholding of Taxes. ML & Co. will deduct or withhold from any payment to be made or deferred hereunder any U.S. Federal, state or local or foreign income or employment taxes required by law to be withheld or require the Participant or the Participant's beneficiary to pay any amount, or the balance of any amount, required to be withheld, provided that when any payments are made to Participants in connection with a deferral (either as a result of a revocation of such deferral by the Corporation or otherwise) all federal state or local taxes required by law that arise as a result of such payout shall be paid either (A) by applying the cash payable from the Cash Unit Account Balance or, (B) in the event (A) does not yield sufficient cash to pay such taxes, by withholding from the number of shares otherwise deliverable, such number of shares as shall have a Fair Market Value (as such term is defined in LTICP) on the date of such payout at least equal to the amount of tax to be withheld 6.5 Beneficiary. (a) Designation of Beneficiary. The Participant may designate, in a writing delivered to the Administrator or his designee before the Participant's death, a beneficiary to receive payments in the event of the Participant's death. The Participant may also designate a contingent beneficiary to receive payments in accordance with the Plan if the primary beneficiary does not survive the Participant. The Participant may designate more than one person as the Participant's beneficiary or contingent beneficiary, in which case (i) no contingent beneficiary would receive any payment unless all of the primary beneficiaries predeceased the Participant, and (ii) the surviving beneficiaries in any class shall share in any payments in proportion to the percentages of interest assigned to them by the Participant. (b) Change in Beneficiary. The Participant may change his or her beneficiary or contingent beneficiary (without the consent of any prior beneficiary) in a writing delivered to the Administrator or his designee before the Participant's death. Unless the Participant states otherwise in writing, any change in beneficiary or contingent beneficiary will automatically revoke such prior designations of the Participant's beneficiary or of the Participant's contingent beneficiary, as the case may be, under the Plan only; and any designations under other deferral agreements or plans of the Company will remain unaffected. (c) Default Beneficiary. In the event a Participant does not designate a beneficiary, or no designated beneficiary survives the Participant, the Participant's beneficiary shall be the Participant's surviving spouse, if the Participant is married at the time of his or her death and not subject to a court-approved agreement or court decree of separation, or otherwise the person or persons designated to receive benefits on account of the Participant's death under the ML & Co. Basic Group Life Insurance Plan (the "Life Insurance Plan"). However, if an unmarried Participant does not have coverage in effect under the Life Insurance Plan, or the Participant has assigned his or her death benefit under the Life Insurance Plan, any amounts payable to the Participant's beneficiary under the Plan will be paid to the Participant's estate. (d) If the Beneficiary Dies During Payment. If a beneficiary who is receiving or is entitled to receive payments hereunder dies after the Participant but before all the payments have been made, the portion of the Account Balances to which that beneficiary was entitled will be paid as soon as practicable in one lump sum to such beneficiary's estate and not to any contingent beneficiary the Participant may have designated; provided, however, that if the beneficiary was receiving modified installment payments pursuant to Section 6.1(b), the applicable portion of the Index Account Balances will continue to be paid as modified installment payments, but only to a single person consisting of the administrator or executor of the beneficiary's estate or another person lawfully designated by the administrator or executor (and in the event no such person is designated within a reasonable time, payment will be made in a lump sum). 6.6 Hardship Distributions. ML & Co. may pay to the Participant, on such terms and conditions as the Administrator may establish, such part or all of the Account Balances as he may, in his sole discretion based upon substantial evidence submitted by the Participant, determine necessary to alleviate hardship caused by an unanticipated emergency or necessity outside of the Participant's control affecting the Participant's personal or family affairs. Such payment will be made only at the Participant's written request and with the express approval of the Administrator, and in the case of an Officer of ML & Co., with the approval of the Committee, and will be made on the date selected by the Administrator in his sole discretion. The Account Balances remaining, if any, will continue to be governed by the terms of the Plan. Hardship shall be deemed to exist only on account of expenses for medical care (described in Code Section 213(d)) of the Participant, the Participant's spouse or the Participant's dependents (described in Code Section 152); payment of unreimbursed tuition and related educational fees for the Participant, the Participant's spouse or the Participant's dependents; the need to prevent the Participant's eviction from or, foreclosure on, the Participant's principal residence; unreimbursed damages resulting from a natural disaster; or such other financial need deemed by the Administrator in his sole discretion to be immediate and substantial. 6.7 Domestic Relations Orders. Notwithstanding the Participant's elections hereunder, ML & Co. will pay to, or to the Participant for the benefit of, the Participant's spouse or former spouse the portion of the Participant's Account Balances specified in a valid court order entered in a domestic relations proceeding involving the Participant's divorce or legal separation. Such payment will be made net of any amounts the Company may be required to withhold under applicable federal, state or local law. ARTICLE VII ADMINISTRATION OF THE PLAN 7.1 Powers of the Committee and the Administrator. (a) General. The Committee and the Administrator shall administer the Plan in accordance with its terms, and will have all powers necessary to accomplish said purpose. The Administrator shall have full power, discretion and authority to interpret and construe, and to administer all aspect of the Plan that do not relate to Executive Officers of the Company. The Administrator shall administer the Plan so as to ensure that it provides deferred compensation for the Participant as a member of a select group of management or highly compensated employees within the meaning of Title I of ERISA. The Administrator's interpretations and construction hereof, and actions hereunder, including any determinations regarding the amount or recipient of any payments, will be binding and conclusive on all persons for all purposes. (b) Limitation of Liability. Each member of the Committee and the Administrator shall be entitled to, in good faith, rely or act upon any report or other information furnished to him or her by any officer or other employee of the Company, independent certified accountants, consultants, legal counsel or other professional retained by the Company to assist in the administration of the Plan. No member of the Committee, the Administrator, or any officers or employee of the Company acting on behalf of the Committee shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and such persons shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to such action determination or interpretation. 7.2 Optional Rabbi Trust Creation of Trust. The Administrator, at any time, may authorize the establishment of a Rabbi Trust to hold shares representing the shares deferred under this Plan on such terms and conditions as the Administrator shall approve. The trustee of the Rabbi Trust shall be a party unaffiliated with the Company. If a Rabbi Trust has been established, upon any Deemed Exercise, a number of shares equal to the number of Stock Units credited in Section 4.1 hereof shall be delivered by the Company to the Rabbi Trust. 7.3 Payments on Behalf of an Incompetent. If the Administrator finds that any person who is entitled to any payment hereunder is a minor or is unable to care for his or her affairs because of disability or incompetency, payment of the Unit Account Balance may be made to anyone found by the Administrator to be the committee or other authorized representative of such person, or to be otherwise entitled to such payment, in the manner and under the conditions that the Administrator determines. Such payment will be a complete discharge of the liabilities of ML & Co. hereunder with respect to the amounts so paid. 7.4 Corporate Books and Records Controlling. The books and records of the Company will be controlling in the event a question arises hereunder concerning the amount of the Account Balance(s), Eligible Compensation, the designation of a beneficiary, or any other matters. ARTICLE VIII MISCELLANEOUS PROVISIONS 8.1 Litigation. The Company shall have the right to contest, at its expense, any ruling or decision, administrative or judicial, on an issue that is related to the Plan and that the Administrator believes to be important to Participants, and to conduct any such contest or any litigation arising therefrom to a final decision. 8.2 Headings Are Not Controlling. The headings contained in the Plan are for convenience only and will not control or affect the meaning or construction of any of the terms or provisions of the Plan. 8.3 Governing Law. To the extent not preempted by applicable U.S. Federal law, the Plan will be construed in accordance with and governed by the laws of the State of New York as to all matters, including, but not limited to, matters of validity, construction, and performance. 8.4 Amendment and Termination. ML & Co. reserves the right to amend or terminate the Plan at any time through the Administrator, except that no such amendment or termination shall adversely affect the right of the Participant to his or her Account Balance(s) as of the date of such amendment or termination. In addition, this Plan may be terminated by the Company and all deferrals hereunder will be rescinded in the event that the Administrator determines in good faith, after consultation with the Controller of ML & Co. (or such person's functional successor) and the Company's independent public accountants, that generally accepted accounting principles are likely to require the Company to recognize the net exercise value of such Stock Options as a charge to Earnings on ML & Co.'s consolidated financial statements. In the event such termination, the Account Balances will be paid to the Participant as soon as practicable. Exhibit A MERRILL LYNCH & CO., INC. Agreement for the Deferral of Stock Option Gains Agreement, made as of ______________, between Merrill Lynch & Co., Inc. (ML & Co.) and _________________ I. Stock Option Deferral Conversions The Participant hereby irrevocably elects (a "Deferral Election") to defer, pursuant to this Agreement the outstanding nonqualified stock options ("Stock Options") specified in Section II, and upon Deemed Exercise of such Stock Options, receive an unfunded and unsecured right to receive shares of Common Stock otherwise issuable upon the exercise of the Stock Options ("Shares") as deferred compensation. For the specified Stock Options, the term "Deemed Exercise" will be used to describe the process where instructions are received from the Participant to convert these Stock Options on a specific day into a right to receive Shares from ML & Co. on a deferred basis. II. Election of Covered Options Each Deferral Election must be made at least 90 days prior to the Deemed Exercise of the Covered Options to which it the Deferral Election relates and must specify the particular Stock Options (including the date of grant) to which such Deferral Election relates and the number of Shares issuable upon exercise of such Stock Options. To be effective each Deferral Election must be made must be made (A) in or prior to the taxable year immediately prior to the expiration of such Covered Option and (B) at least six (6) months prior to the date of such expiration. To make a Deferral Election, the Participant shall select by grant year the number of Stock Options (minimum 1,000 options for each grant) from which the gain will be deferred. Such options must be then currently outstanding and will be deferred in accordance with this Agreement and the Merrill Lynch & Co., Inc. Program for the Deferral of Stock Option Gains. The irrevocable election made in Section I above shall cover the Stock Option grants selected by the Participants and the selected Option grants shall be referred to collectively as the "Covered Options". This election is irrevocable unless your employment terminates prior to the Deemed Exercise. I elect to defer the gain from the Deemed Exercise of my stock option grants as follows: Option # of Options Grant Date (Minimum 1,000) ---------- --------------- ------------------------ --------------------------- ------------------------ --------------------------- ------------------------ --------------------------- III. Form of Distribution Check one of the following boxes and, if applicable, enter the number of installment payments. |_| Lump Sum |_| Annual Installments for |_| |_| years (maximum of 15) |_| Modified Installment payments for |_| |_| years (minimum of 11; maximum of 15) IV. Timing of Distribution Check one of the following boxes and, if applicable, enter the specific month and year in which you want to receive your distribution. Note: If you selected Modified Installment Payments in Section III, do not fill out this section. Your annual distributions will commence on the last business day of the sixth month following your retirement or death. You do not have the option of specifying some other time for commencement of payment. I elect that my benefits under the plan be distributed as soon as practicable in (or beginning): |_| The sixth month following my retirement. |_| The month of ________________ in the calendar year following my retirement, but no earlier than six months after my retirement. |_| The month and year of ____________________ , _______________, which will not be earlier than six months after my retirement. - -------------------------------------------------------------------------------- By executing this Agreement, the Employee acknowledges that he or she will not exercise Covered Options in any manner other than as specified herein and that the Employee had read the Merrill Lynch & Co., Inc. Program for the Deferral of Stock Option Gains ("Plan") and agrees that the terms and conditions of such Plan are incorporated herein by reference and made part of this Agreement. - ------------------ -------------------- -------------- Employee Name Employee Signature Date