Hey all, I'd like to report back and say that mercenaries do count for getting the items based on characters killed. Interestingly, 350... does not count. It's also pretty important who you kill off if your going to do this. You don't want to lose anyone that is required for sidequests later on or for other peoples promotions or some such. This means you need to keep Sherlock, Leon, Adel, Ward and Christine alive. There are probably others as well. I would say good candidates to get rid early on are Kramer, Axel(after the chapter 3 main mission), Daoud, and Esteban. There are probably some others that you can get rid of in the first 4 chapters if you don't plan to use them.
Some minor spoilers about 350... below