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Confidential Treatment Requested BAC-ML-HOG R-502{0001 11 4

\L-t1los
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Conf idential Treatment Requested BAC-ML-HOG R-502-00001 I 69

 Fro¡n: EMRoth@wlrk.com
Sent: Friday, December 19,2008 l:48 AM (GMT)
To: búan.t.m oyni han@b ankofamerica. com
Cc: EDllerlihy@wlrk.com; NGDemrn@rvlrk,com; PCHein@wlrk.com; RKim@w'lrk.com;
MCruest@wlrk.com
Subjcct: Talking points - PRIVILECED AND CONFIDENTIAL
Athchi 1329514_l.DOC

<<1329514 I.DOC>> Brian - As discussed, a dralt of Ken's litigation-rehted talking points. Eric

t,t i+++++++++{.++++,}+,}*++lti¡¡++++'t++,1 ++ù++++ti*+++ù+l++'i+'l'ù++++++++++*tt

Any tæ( advice contained in this cornmunication is not intended or written to be used, and cannot be used, for
ûre purpose of avoiding tax penalties and is not intended to be used or refened lo in promoting, rnarketing or
rçoórrmending a partnership or ottrer entity, investrncnt pla¡ or arrarigement.
*¡rll*tat*tÍl***rrrl**ùrt*ttrl'lúrùrt*tt¡t¡l*,arÊt,0.t tttr.*ù*t*lttL*ÙaÙxll¡¡*rù¡l**tl¡¡t¡
please be advised that this transrnittal may be a confidential attomey-client communication or may otherwise be
privilegcd or confidential lf you are not ihe intended recipìent, please cio not reacl, copy or re-tr¿nsrnit this
'oom¡nùnioation.
Tf you havc received this communioation in €nor, please notifr us by e-mail
delete this message and any
ftelpdesk@wlrk.corn) or by tdephorre (call us collect L.2'12-4034357) and
muätt-"nir. Thank you in advanoe for ycnrr cooperátion and assistance.

wlnr'.wlrkcqn
***********!t***t*l***t****'i********r'{<**'f*****+*****å*********+*****,È**

Gonfidential Treatner¡t Requestcd BAC -ML-HO O R-502-æ00091 7

 PRTVILEGED AND CONFIDENTTAL

TalkingPoints

Given the very poor performance ofMER in the tbunh guarl€r, we have asked
our leg,al team to focus on the company's rights under the Merger Agreement and the applicable
law, including whether we are obligated to ctose on the transaction.

At first blus6 t¡ose of us who arelt't larvyers miglrt think that these tenible lìlurlh
quarter numbe.rs - an $12.5 billion dollar after-tax loss - gives rise to a "material adverse
change" and gives w the right to walk away frorn the merger.

Dut if we do ter¡ninate the Merger Agreement, we ca¡ expsct MER to initiate liti-
gation.

Our merger agreement is governed by Deliaware law, and the Delaware courts
have addressed the rrcaning of "material advcrsc change" swcral timcs.

MER will likely argue that the Delaw-a¡e courts have set up a vcry higþ threshold
firr proving ¿'MAC" -- lhul l-hc ucquiror nccds to show that "unkntlwn wcnts' have trcurrcd
thaf ,,subJantially threaten lhe ovõrail earnings potential of the targel' in what thc courts
call *a durationally significant manner.'

And MER will no doubt point out ihat, applying this standard, no Delaware court
h¿s ever found that a MAC ocq¡rred permitting an acquiror to terminate a merger agreoment.

l. Unknown wenls

Focusing first on the issue of 'l¡nknown events," if this matterwent to litig*ion

ì,vilh MER. \,vGcan expeot that they would argue that when we entercd into the Merger Agree-
ment, our rid" *ut aware of the vólatility inherent in IvIER's business as well as the significant
dislocafions in thc finanoial markets that were already affccting the l¡usincss of MER and its
competitors.

We can also expect MER to argue that BAC was aware nol only of these general
riskg buf the specific risks inherent in the business lines that have resuhed in MER's large losses
in Q4.

MER's Q4 losses are largely attribumble to lhe weak state of the credit markets-
For cxamplc, thc widcning of crcdit sprcads hes rc*¡ltcd in MER bcing rcquircd to-writc down
some $3.ó billion of o,poures to n¡onolines and other insurers and snother $1.4 billion on their
oorrelation book.

Gonf ldentia I Trcatnent Requested

BAC,ML-H OG R-502-0000091 I
 MER would thal BAC was â\¡/are of the risk inherent in these po-
rc doubt claim
tential exposures because they were all on MER's books at ttre time we engaged in due diligence.
For exarnple, through the first 3 quarters of 2008, MER wrote down $7.2 billion on its monoline
insurer exposure,

In addition, anolher significant portion of the expected Q4 loss is attributable to

"hung de¿ls'' -- sonìe $1.4 billion in LBO debtlhat MER h¿s been unableto syndicale. MER
would argue that BAC was aware at the time the Merger Agreement was signed tbat lvlER had a
number of "hung deals" on its books and that MER had already taken sizable rnarks on a number
ofthese deals.

2.'Durational significance-
Thcn, thtre is thc i*suc ofl"durationul significancc."

MER will point out that ¡ short-term earnings decline - no matter how scvere
- is not enough to prove aMAC because the courts aßsurîe that an acquiror is purchasing the
tsrget a.s part of a long-term stratery.

MER will say that the test is whether the adverse chan¡¡e will be "consec¡uential to
the company's earnings poì¡¡er over a commercially reasonable period," which is "meazured in
years rather than months."

So we can expect MERto claim that, in order to prove a MAC herg BAC must
show that the losses that MF.R has s¡ffered in Q4 are goìng to persis. "signifieantly into the f¡¡-
ture" and that its profitability will be negatively irnpacted for ycars, not noulhs.

It is not clcer that we would be able to prove that

As I have nored- MER'S Q4 losses a¡e largely attributable to the extremely chal-
lenging condirions in the credit markets - the widening of credit sprcads has resrlted in MER
being required to rnake huge credit valuation adjustments on its c.redit default swaps wi¡h finan-
cial guarantors and 1o take write{owns on its so'called correlæion book.

MER will assert that credit spreads will eventually narrow, and that the perfor-
manoe ofMER s credit desk and proprietary trading operation will improve as a result.

MER will also argue thst, cv€n if you assume a static market, ovsrtimg as you
get closer to maturity, the losses that M.bR has incuúed on its correlation book will be recotped
(assurning no delaults by counterparlies).

Gonf identia I Trcaùnenl Requested BAC -ML-H OG R-502.0000091 9

 3. asubl¡ntial thrcat to ovemll eernings potentiel'

And, then there is the issue of showing a "substantial threat" to MER s "ov€trall
earningp potential-

MER will argue that the Delaware courts derermine whether a MAC has occured
based on an examilration of üp targÊt's business as a whole. Even if one or two divisions of a
company are rnaterially impaired, the court will not ñnd a MAC unless il concludes that the
company's profìtability as a u'hole has been rnaterially irnpairecl as a resuh.

firere is no question that MDR's fixed incorne desk has had an awful quarter, but
MER will ¡ìssen that otlrer ponions of the l,fER business are nol performing badly.

For exanrptg rcvenues from Global Wealth l\zfanagernerl, are exPected to come in
at $2.E billion for Q4, not fa¡ bclowthe Q3 ¡wcnues of $3.0 billion'

Equity troding r€venues are o<pected to conre in ¡t $t.2 billion for Q4, only
slightly lcss than thc $1.36 billion in Q3 rcvcnucs.

There is no question that MER's problems in Q4 have reduced its Tier I capital
by eome $12 billion. MER will point out, how-ever, that it is eligible to receive $10 billion in
TARP rnoney, which provides a signifìcant offset to thst amount.

4.'Disproportionately âdverce"

In deciding whether there has been a MAC here, the Delaware courts will also
consider tbe temts of the Merger Agreement to see whether and how it modifïes tbeir deliniúon
of a MAC.

The Merger Agreement here has a fairly standard can'e oul fiom úe definition of
a N{AC for changes in general business, economic or ma¡ket conditions, including chonges in the
' credir and securities markets, except 1o lhe extent lhat tb€ effects of these chançs are "dispro-
portionately adversd' to MER relalive 1o others in the industry.

Whilewe would point to the fact that Coldman Sachs and Morgan Stanley had
better fourth quarters than MER - their respective losses for the quarter were about $2 billion
after-tax, not $12 billion - MER would malre a number of counter-argumerts, inoluding that the
comparable companies in the indr¡stry should include Lehrnar\ which of course went bankntp¡
and that therelevant time period is "measured in years, not months."

5. Other rclevent f¡ctors

Gonfidential Treatner¡l Reguested BAC -ML-HOG R-502{10000920

 Putting to one side the difliculry of proving a MAC under Delaware law, ourlaw-
yers point out other factors that we ought to consider in deciding whether to go to court over this
deal.

One thing to keep in mind is the potential dow'nside if we litigate this and lose. lf
we walk away from this deal, it is very likely that MER will either file a chapter I I paition or
will receive a government bailout. Our litigation adversary might well be a chapter I I trustee or
the federal government - whicb would create a differenl litigation dynamic than if our adversary
is the current MER management and board.

The other thing to keep in rnind is that MER måy tåke the position that, if we fail
to show thal a MAC has occurred, it is entitled to an order of "specific performance" -- that is,
an order that requires us to close on the deal on the originally negotiated teflns.

Our lawyers at Ìilachtell advise us tha, several years ago, in the tBP-Tyson case,
lhey succeed in getting the Delaware courl to order specific performance of a rnerger agreement
only 2 % months rfter the buyer declared a MAC.

The potenúal danger here is that, if we declare a N{AC and MER's business loses
even more value as a res.¡lt because, for example, retail customers pull their funds out, and then
we ütþte the MAC issue and lose, we could be required to close on a deal where MER is worth
even less than it is today.

If MER fails to obtain specific perfornance, it will argue thal it is entitled to col-
lect substantial damages on the ground that the BAC's failure to consummate the merger led to
MER's demise.

Conf identia I Treaùnenl Requested BAC-ML-HOGR-502{n000921

 From: Brenner, Teresa -Legal
Sent: Friclay, December 19,200ß 8:50 PM (GMT)
To: Moynihan, Brian T <bri an.t.moynihan@bankofamerica-co¡È
Subject: Re: Uprlated Meeting logistics

l.^

ns (other dran ore) came from Torn Ba"1et 8t tþ l'fY Fed and
olved in each case Tom cled, no lire of çestioning evolved very
rvcll forTom. Tonr obscn,cd il¡crc had nclcrbcrn a succcssful MAC casc bcforc. and Eric rcqpodci û¡Âtail casts art factlall¡'
U.rã, rt¡ tl¡t o¡æ essentiah¡ could be tbe f¡¡st due to ungnitrde a¡rd duration of ñrturc losteamils. Baxter asked if we had counsel
othcr ihan Waclncll or if Bd ái4 a¡d wc aôiscd wc did nõt. Hc also stcd wlpn rvc stafcd discrssions wilh Wrcl¡tcll on lhis, ¡rrd Eric
said tlis wcck. Scott Ah.arcz asicd about cquitablc rernodics a¡d sccurcd to bc rnorr conccrncil about a s¡ccifo pcrliurpact ol DÄC-
Res-pectrulto,æandtenorfromallalthoughe¡rlerisabitprickly, Saìdt.bq,'dgelbæktousifthq-hadotherc¡uestiom.

--- Origin¡l Mcswç ---

Frou: Mo¡rrihan, Briâ¡¡ T
To: Brcnner, Teresa -Iægat
Scnt Fri Dcc 19 15:33:34 2008
Subjcct: Rc: Updalcd Mcctittg logistics

On wíhfed. AIV quick comments.

Privclcgcd and conßdcnlial.

Bria¡t

Sent using Bl:rkBerry

---OrigIBl Mcssrgc ---

From: Brenrær, Teresa -Legal
fe; þley¡ihen. B¡ianT
Scnt Fri Dec 19 15:32:3? 2008
Sub.þct: Re: Updated Meeting logistics

Yes. lVe¡usl finished. lVill call lvfh oven'ietl'

---Origi¡nl Mcsaç ---

Fm¡n: Mo-virihan, Brian T
To: Rrcnner, Teresir -l e¡Pl
Serû Fri Dec l9 15: 13:32 2008
Subþct: RE: Updated Mædng logistics

Aæ ¡'ou on? I will not be joining'

---Ðri ginat Messaße----

Fronr: Bren¡æ¿ Teresa -Legal
Scnt Frid.ay- Dæo¡ùc¡ l9- 2008 2:36 PM
To : lennifer.bnrnsl@trich.fib. ory
Cc: Moynilan Brim T:'cm¡otb14rvl¡1.-co¡n'
Subjcct: Updaloal tvlæting logistics

Jcurilcr,

Gonf identia I Trcatment Reguested BAC -ML-H O O R-502-00000938

 Thanlis forthe c¡rll nnrnents agp. We will be meeting irt 3 p.m. Lod.ry wirl yur andyourcolleilguesusing lle s¿me brltgelinc alld
passcodc, wlúc\ Ior caso of rc.lcrcrrc, arc:

REDÂCTED

l-ook for*'ard to spcaking uiÚr you.

Ttnnks,
Tcrcsr

--- Origirnl Mcssågs ---

F¡ou¡: B¡cn¡nÉ Tcrcsa -Lcgal
To: Jennifer.burns(örichfrb.orgl <jennifer. burnl.alrichfib,org>
Cc : Movnihtnt. Brim T.. b¡n¡otb(d.,wl¡k-coIn' <crruo tlu@.' r l rlc cour>
Sent Fri Dec 19 12:51:59 2008
Srrbict: Meeling logislics

Jeoúfer.

As çe discussed, we r,rill be rneeting at l:30 p.m. today usir4¡ tbe follorving bridgeline---

REDÀCTED

TTnnf, you for senling this infonnatbn to your collellagu€s n'Do s'ilI bs joining ns.

lunks-
Teresa

Gonf identia t Treatment Reguested BAC -ML-H OO R-502 {0000939

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Confidential Treatment Requested HOGR-00471690

 Frorn: NGDemmo@wlrk.com
Senl: Sunday, Decernber 21 ,2008 12:O6 AM (GMT)
To: joe-price@bankofa¡neri ca. com; brian-t.molmihan@bankofamerica- com

Cc.: EDHerli hy@wl rk.com ; EMRoth @wlrk,com; RKim@wl rk com, MÇ1r e st@wl rk. com
SubJect: PRIVILEGED
Atlach: 1330076 l.DOC

Atbched are draff talking points. Note lhat nobody ebe at WLRK (incbding Eric RotQ las yet had a chance to review
theie yel. lt probably nãi"s ser¡se to get back on the phone - maybe at B if lhat works for people - to run lhtough
comments.
*+***********¡ß*t****¡*****t*t***¡F**:l*{<r¡*rÈ{<+ttl.***1.**â¡t************#¡},t**
Any tax advice contained in this communication is not intended orwritten to be used, and cannotbe used, for
theþurpose of avoiding tax penalties and is not intended to be used or referred to in promoting,'marketing or
recornmending a partnership or other ent¡ty, investment plan or arrangement.
il+:l++tr*¡it{.++++r+rt+++!rt++tt+l;!t+tt+*++rt+*l+!l|lrr++t rÍ+¡f'+++l.l.tl.l+++l¿ttttË+l|
please be adviserJ that this transmittal may be a confidential attomey-client communicâtion or may otherwise be
privileged or confidential. lf you are not tle intended recipìent, please do not read, copy or re-transmit this
äornmunication. If you have received this communication in eno¡ please notify us by e-mail
and delete this message and any
ftelpdesk(@wtrk.corn) or by rdephone (call us collecl ù212-4034357)
aflachmenls. Thank you in advance foryour cooperation and assistance.

www.wlrk.corn
+++++++++++++++l+++*'i++++**++*++++*++**++++*++++*+++++++f+*++++++++*+*

Gonfidentiat Trcatment Reguested BAC -ML-H O O R-502 {n000940

 PRTVTLEGED Æ\TD C ONFIDENIIAL
ATTORNEY $fORK PRODUCT
WLR&.K DRAt'-l': 12120108

KL/HP Discussion

¡ I'm sorry to call so flate/early], but I wanted to touch base.

. I know that there are a lot of people at the Treasury and Fed working hard this weekend, and
we very much appreciate this.

. Our people have likewise been working hard. We are still ofthe view that there has been a
MAC at Merritl - and every day their numbers gøt worse. That said. and even thouglr there
is no way to make up tbr the dramatic across-the-board decline at Menill that bas come to
liglrt. we think that we uray be able to rnove lorward il we can do souretlúng that at least pro'
vides BAC with sorne prolect¡on frorn the capital hole that Merrìll Lynch has created.

o While still prelirninary, our suggestion is lhat we ring-fence certain Merrill Lynch assets [and
increase the current $10 billion TARP preferred investment commilmenl to $[-] - the addi-
tional $[ I being the amount of tbe capital hole created by the Merrill fourlh quarter loss.
The warrant coverage would increase accordingly].

. The ring-fencing would be similar to the Citi structure, excepl úat

"shrn t list" of the v¡t,st assets]. [Ioe Prioe] will provide the asset delails to the Fed
and to your team;

around $[-];
> BAC would take the first $[ I of losses, wift a combination of Treazury and the
FDIC sharin g[90]% of the losses after that point, up 1o a maximum of $[ l. The
ranainder would be funded by the Fed with a non-recourse loal subject to a [10]%
loss sharing by BACr.

al_l% dividend rate. split bct$'een the Treasury and the FDIC as you delermine,

r Tnaddition, even though this is a Menill problem, we are prepared to commit to reduce our
comrnon stock dividend to a penny/quaner and keep ìt at that level as long as r¡rc hal'e TARP
prefenul stock outstandi ng'

r [Similarl¡ we are also prepared to [announce that executive management bonuses at BAC
will be zero for 2008 [(as was lhe case with executive managernenl bonuses at Menill)]l [-
allernatittely- commit to provide our executive managem€nt compensation plan, including
bonuses, to the Fetl f<rr its approval]. \le will also engage in a rcnewed, top{obottorn re-
vierv of Merrill management and take appropriate staffing action based on thal review]

. Finally, it goes without saying that a very substantial purchase price reduction to the Merrill
stockholders would be highly appropriate. Howover, we think it would be better for the sys

' Do we vant to 6et into rhis level of detail vith HP?

Not¿ tlxt we ¿:tm letwe the'L4RP prulerecl reþrence in this c*xtntent even ilve don't requcst odditional'l''1RP
2

prc.fcrred-

Gonf idential Treatmenl Requested BAC -ML-HOG R-502{¡0000941

 ten if we closed on lil ralher lhaÍ weit the couple of months or so that it would take to go
back to the stockholders.

Assuming that somefting along these lines cor¡ld work for both the govemment and BAC,
we would clearly have 1o *ork quiokly to get everylhing docurnenle.d in time. In addition,
this proposal does raise a number of questions, including the process for moving forward
givcn the nu¡nber ofparties involved. whether Treasury still has TARP hrnds available to
corn¡rit to this conc€pt¡ ar¡d if not how we could revise the approach to fit the facts.

Gonf idential Treatmenl RequesH BAC -ML-HOG R-502-{10000942