<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1995
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------------
THE CHASE MANHATTAN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6711 13-2633613
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NO.)
OF INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
</TABLE>
One Chase Manhattan Plaza, New York, New York 10081
(212) 552-2222
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
<TABLE>
<S> <C> <C>
DEBORAH L. DUNCAN LESTER J. STEPHENS, JR. ARJUN K. MATHRANI
Executive Vice President Senior Vice President Executive Vice President and
and Treasurer and Controller Chief Financial Officer
</TABLE>
RONALD C. MAYER
Secretary
The Chase Manhattan Corporation
One Chase Manhattan Plaza, New York, New York 10081
(212) 552-2222
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
ROBERT B. ADAMS, ESQ. MAUREEN SCANNELL BATEMAN, ESQ.
Senior Vice President General Counsel
and Deputy General Counsel U.S. Trust Corporation
The Chase Manhattan Corporation 114 West 47th Street
One Chase Manhattan Plaza New York, New York 10035
New York, New York 10081
</TABLE>
------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: Upon the effective date of the merger described in this
Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE PRICE(1) FEE(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK, par value $2.00 per share and
Junior Participating Preferred Stock Not
Purchase Rights.......................... 11,725,806 Applicable $363,500,000 $19,026.62
- -----------------------------------------------------------------------------------------------------------
</TABLE>
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(1) Estimated solely for the purpose of computing the registration fee pursuant
to Section 6(b) of the Securities Act of 1933 and Rule 457 thereunder on the
basis of the maximum aggregate consideration payable to stockholders of
U.S. Trust Corporation pursuant to the Merger Agreement.
(2) In accordance with Rule 457(b) under the Securities Act of 1933, the filing
fee paid pursuant to Section 14(g) of the Securities Exchange Act of 1934
and Rule 0-11 thereunder at the time of the filing of the Proxy Statement/
Prospectus contained in this Registration Statement as preliminary proxy
materials of U.S. Trust Corporation has been credited to partially offset
the registration fee that would otherwise be payable.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE CHASE MANHATTAN CORPORATION
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
CAPTION IN PROXY
ITEM OF FORM S-4 STATEMENT/PROSPECTUS
-------------------------------------------------- -------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.................. Facing Page of the Registration
Statement; Cross-Reference Sheet;
Outside Front Cover of Proxy
Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Available Information; Incorporation
of Certain Information by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges,
and Other Information........................... Summary
4. Terms of the Transaction.......................... Summary; The Transactions; The
Merger; Description of Capital Stock
of Chase; Certain Federal Income
Tax Consequences; Comparison of
Certain Rights of Holders of Chase
Common Stock and UST Common Stock
5. Pro Forma Financial Information................... Not Applicable
6. Material Contracts with the Company Being
Acquired........................................ Summary; Relationship with Chase
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters... Not Applicable
8. Interests of Named Experts and Counsel............ Validity of Chase Shares
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..................................... Not Applicable
10. Information with Respect to S-3 Registrants....... Summary; Available Information;
Incorporation of Certain
Information by Reference
11. Incorporation of Certain Information by
Reference....................................... Available Information; Incorporation
of Certain Information by Reference
12. Information with Respect to S-2 or S-3
Registrants..................................... Not Applicable
13. Incorporation of Certain Information by
Reference....................................... Not Applicable
14. Information with Respect to Registrants Other Than
S-3 or S-2 Registrants.......................... Not Applicable
15. Information with Respect to S-3 Companies......... Summary; Available Information;
Incorporation of Certain
Information by Reference
16. Information with Respect to S-2 or S-3
Companies....................................... Not Applicable
17. Information with Respect to Companies Other Than
S-3 or S-2 Companies............................ Not Applicable
18. Information if Proxies, Consents or Authorizations
are to be Solicited............................. Outside Front Cover of Proxy
Statement/Prospectus; Available
Information; Incorporation of
Certain Information by Reference;
Summary; The Special Meeting;
Beneficial Ownership; Certain
Relationships and Related
Transactions
19. Information if Proxies, Consents or Authorizations
are Not to be Solicited, or in an Exchange
Offer........................................... Not Applicable
</TABLE>
<PAGE> 3
[LETTERHEAD OF]
U.S. TRUST CORPORATION
February 9, 1995
To Our Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders of
U.S. Trust Corporation ("UST"), which will be held at the offices of United
States Trust Company of New York, 114 West 47th Street, New York, New York, on
March 22, 1995, at 10:00 A.M., local time. Enclosed are a Notice of Special
Meeting of Stockholders, a Proxy Statement-Prospectus and a Proxy relating to
the Special Meeting.
As we have previously announced, UST has agreed, subject to approval by
UST's stockholders, to sell UST's securities processing businesses and related
back office operations, including the assets and certain of the liabilities
related thereto (collectively, the "Chase Acquired Business") to The Chase
Manhattan Corporation ("Chase") in exchange for shares of Chase common stock,
par value $2.00 per share ("Chase Common Stock"), to be distributed directly to
UST stockholders in a tax-free transaction. Because the transaction is
structured as a tax-free merger (the "Merger") between UST and Chase, all of the
businesses, assets and liabilities of UST other than the Chase Acquired Business
(collectively, the "Core Businesses"), which include UST's asset management,
private banking, special fiduciary, corporate trust and other non-processing
businesses, will be transferred to a newly organized holding company, New USTC
Holdings Corporation ("Spinco"), and the stock of Spinco will be distributed to
UST stockholders on a share-for-share basis prior to the Merger. Accordingly,
UST stockholders will retain their equity interests in the Core Businesses in
the form of stock in Spinco, which will assume the name "U.S. Trust Corporation"
at the time of the transaction.
At the Special Meeting you will be asked to consider and vote upon two
proposals relating to the foregoing transactions which are described in the
Proxy Statement-Prospectus: (i) to approve the distribution described in the
Agreement and Plan of Distribution (the "Distribution Agreement") to be entered
into among UST, Spinco, United States Trust Company of New York and New U.S.
Trust Company of New York, whereby UST will spin off to its stockholders on a
share-for-share basis in a non-taxable distribution (the "Distribution") all the
shares of Spinco, which will own the Core Businesses at the time of the
Distribution; and (ii) to authorize and adopt the Agreement and Plan of Merger
(the "Merger Agreement") dated as of November 18, 1994, between UST and Chase,
whereby UST (which will then hold only the Chase Acquired Business) will be
merged with and into Chase. In the Merger, holders of common stock of UST will
receive for each share owned by them the number of shares of Chase Common Stock
determined as provided in the Merger Agreement.
The proposed Distribution and Merger are described in the accompanying
Proxy Statement-Prospectus, the forepart of which contains a summary of the
terms of the Merger and the Distribution and other information relating to the
transaction. Appendix H to the Proxy Statement-Prospectus contains a description
of the Core Businesses which will be spun off to UST stockholders in the
Distribution and other information relating to Spinco.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS HAS DETERMINED THE
MERGER TO BE FAIR TO AND IN THE BEST INTERESTS OF UST AND ITS STOCKHOLDERS. THE
BOARD OF DIRECTORS HAS APPROVED THE DISTRIBUTION AND THE MERGER AGREEMENT AND
RECOMMENDS THE APPROVAL OF THE DISTRIBUTION AND THE AUTHORIZATION AND ADOPTION
OF THE MERGER AGREEMENT BY UST STOCKHOLDERS.
<PAGE> 4
CS First Boston Corporation, UST's financial advisor in connection with the
Merger, has rendered an opinion to the Board of Directors that, as of the date
of this letter, the consideration to be received by UST stockholders in
connection with the Merger is fair to such stockholders from a financial point
of view.
All stockholders are invited to attend the Special Meeting in person.
Approval of the Distribution and authorization and adoption of the Merger
Agreement require, in each case, the affirmative vote of two-thirds (or 66 2/3%)
of the total number of shares entitled to be voted at the Special Meeting.
Because of the significance of the proposed transaction to UST, your
participation in the meeting, in person or by proxy, is especially important.
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED AT THE SPECIAL MEETING, YOU
ARE URGED TO PROMPTLY COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN
THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. If
you attend the Special Meeting in person, you may, if you wish, vote personally
on all matters brought before the Special Meeting even if you have previously
returned your Proxy.
Sincerely,
H. MARSHALL SCHWARZ
Chairman and Chief Executive Officer
<PAGE> 5
U.S. TRUST CORPORATION
114 WEST 47TH STREET
NEW YORK, NY 10036
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 22, 1995
NOTICE HEREBY IS GIVEN that a Special Meeting of Stockholders of U.S. Trust
Corporation, a New York corporation ("UST"), has been called by the Board of
Directors of UST and will be held at the offices of United States Trust Company
of New York, 114 West 47th Street, New York, New York, in the Auditorium on the
first floor, at 10:00 A.M., local time on March 22, 1995, for the following
purposes:
1. To consider and vote upon a proposal (the "Distribution Proposal")
to approve the distribution described in the Agreement and Plan of
Distribution, to be entered into immediately prior to the Merger (as
defined below), among UST, New USTC Holdings Corporation ("Spinco"), United
States Trust Company of New York and New U.S. Trust Company of New York,
pursuant to which, among other things, immediately prior to the Merger, UST
will spin off to its stockholders on a share-for-share basis in a
non-taxable distribution (the "Distribution") all the shares of Spinco,
which will own at the time of the Distribution all the businesses, assets
and liabilities of UST (collectively, the "Core Businesses") other than its
securities processing business and related back office operations,
including the assets and certain liabilities related thereto (collectively,
the "Chase Acquired Business"), which will be acquired by The Chase
Manhattan Corporation, a Delaware corporation ("Chase"), in the Merger, all
as more fully described in the accompanying Proxy Statement-Prospectus,
including the Appendices thereto.
2. To consider and vote upon a proposal (the "Merger Proposal") to
authorize and adopt the Agreement and Plan of Merger, dated as of November
18, 1994 (as it may be amended, supplemented or otherwise modified from
time to time, the "Merger Agreement"), between UST and Chase, pursuant to
which, among other things, contingent upon and immediately following the
Distribution, UST will be merged with and into Chase upon the terms and
conditions contained in the Merger Agreement (the "Merger"), all as more
fully described in the accompanying Proxy Statement-Prospectus, including
the Appendices thereto.
At the time the Merger becomes effective (the "Effective Time"), (i)
UST (which will then hold only the Chase Acquired Business) will be merged
with and into Chase, with Chase surviving the Merger, (ii) each share of
UST common stock, par value $1.00 per share ("UST Common Stock"),
outstanding immediately prior to the Effective Time (other than any shares
of UST Common Stock owned by Chase or any wholly owned subsidiary of Chase
or UST (other than in a fiduciary, custodial or similar capacity) and any
shares held by UST stockholders who perfect, under New York law, their
right to dissent to the Merger) will be converted into the right to receive
the number of shares of Chase common stock, par value $2.00 per share,
determined as provided in the Merger Agreement, and (iii) each share of UST
Common Stock issued and outstanding immediately prior to the Effective Time
and owned by UST as treasury stock and any shares of UST Common Stock owned
by Chase or any wholly owned subsidiary of Chase or UST (other than in a
fiduciary, custodial or similar capacity) will cease to be outstanding,
will be canceled and retired without payment of any consideration therefor,
and will cease to exist.
3. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
Holders of shares of UST Common Stock will be entitled to dissenters'
rights in connection with the Merger as provided in the Merger Agreement and as
more fully described in the accompanying Proxy Statement-Prospectus.
It is a condition to consummation of the Distribution that the Merger
Agreement have been authorized and adopted by the UST stockholders, and it is a
condition to consummation of the Merger that the Distribution have been approved
by the UST stockholders.
<PAGE> 6
The Proxy Statement-Prospectus and the Appendices thereto (including the
Merger Agreement and the Distribution Agreement attached as Appendix A and
Appendix B thereto, respectively) form a part of this Notice.
Only holders of record of UST Common Stock at the close of business on
February 1, 1995, are entitled to notice of and to vote at the Special Meeting
or any adjournments or postponements thereof. Approval of the Distribution
Proposal and authorization and adoption of the Merger Proposal each requires the
affirmative vote of two-thirds (or 66 2/3%) of the total number of shares
entitled to be voted at the Special Meeting.
By Order of the Board of Directors,
H. MARSHALL SCHWARZ
Chairman and Chief Executive Officer
New York, New York
February 9, 1995
IMPORTANT NOTICES
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT YOU
PLAN TO ATTEND THE SPECIAL MEETING. YOUR PROXY WILL BE REVOCABLE, EITHER IN
WRITING OR BY VOTING IN PERSON AT THE SPECIAL MEETING, AT ANY TIME PRIOR TO ITS
EXERCISE.
THE BOARD OF DIRECTORS OF U.S. TRUST CORPORATION RECOMMENDS THAT
STOCKHOLDERS VOTE TO APPROVE THE DISTRIBUTION AND TO AUTHORIZE AND ADOPT THE
MERGER AGREEMENT.
PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES AT THIS TIME.
<PAGE> 7
U.S. TRUST CORPORATION
PROXY STATEMENT
------------------------------------------------------
THE CHASE MANHATTAN CORPORATION
PROSPECTUS
This Proxy Statement-Prospectus is being furnished to the stockholders of
U.S. Trust Corporation, a New York corporation ("UST"), in connection with the
solicitation of proxies by UST's Board of Directors (the "UST Board") from
holders of outstanding shares of UST common stock, par value $1.00 per share
("UST Common Stock"), for use at the Special Meeting of Stockholders of UST to
be held on March 22, 1995, and at any adjournments or postponements thereof (the
"Special Meeting").
At the Special Meeting, UST stockholders will be asked to consider and vote
upon (i) a proposal (the "Distribution Proposal") to approve the distribution
described in the Agreement and Plan of Distribution to be entered into
immediately prior to the Merger (as defined below), among UST, New USTC Holdings
Corporation, a New York corporation and a wholly owned subsidiary of UST
("Spinco"), United States Trust Company of New York and New U.S. Trust Company
of New York, the form of which is attached as Appendix B to this Proxy
Statement-Prospectus and is incorporated herein by reference (as it may be
amended, supplemented or otherwise modified from time to time, the "Distribution
Agreement"), whereby UST will spin off to its stockholders on a share-for-share
basis, in a non-taxable distribution (the "Distribution"), all the
then-outstanding shares of Spinco, which will own at the time of the
Distribution all the businesses, assets and liabilities of UST other than its
securities processing business and related back office operations (including the
assets and certain liabilities related thereto); and (ii) a proposal (the
"Merger Proposal") to authorize and adopt the Agreement and Plan of Merger,
dated as of November 18, 1994, between UST and The Chase Manhattan Corporation,
a Delaware corporation ("Chase"), which is attached as Appendix A to this Proxy
Statement-Prospectus and is incorporated herein by reference (as it may be
amended, supplemented or otherwise modified from time to time, the "Merger
Agreement"). The Merger Agreement provides, subject to the satisfaction or
waiver of certain conditions, that (i) UST will effect the Distribution pursuant
to the Distribution Agreement and (ii) UST will immediately thereafter be merged
with and into Chase (the "Merger"), with Chase surviving the Merger (sometimes
hereinafter referred to as the "Surviving Corporation"). At the time the Merger
becomes effective (the "Effective Time"), each share of UST Common Stock
outstanding immediately prior to the Effective Time (other than any shares of
UST Common Stock owned by Chase or any wholly owned subsidiary of Chase or UST
(other than in a fiduciary, custodial or similar capacity) and any shares held
by UST stockholders who perfect, under New York law, their right to dissent to
the Merger) will be converted into the right to receive the number of shares of
Chase common stock, par value $2.00 per share ("Chase Common Stock"), equal to
(a) $363,500,000 divided by (b) the product of (i) the greater of (A) the amount
representing the 10-day average of the daily average of the high and low sale
prices for Chase Common Stock on each of the 10 trading days immediately
preceding the last business day before the date on which the Effective Time
occurs (the "Closing Date") and (B) $31.00, multiplied by (ii) the number of
shares of UST Common Stock outstanding immediately prior to the Effective Time.
The maximum number of shares of Chase Common Stock which may be issued to UST
Stockholders in the Merger is 11,725,806 shares. If the market value of Chase
Common Stock on the Closing Date is less than the greater of the Average Value
of Chase Common Stock (as defined below) and $31.00, then the value on the
Closing Date of the aggregate consideration received by UST stockholders in the
Merger will be less than $363,500,000.
UST has agreed to pay Chase a termination payment in the event the Merger
Agreement is terminated for certain specified reasons, including the failure of
UST stockholders to approve the Distribution or to authorize and adopt the
Merger Agreement. See "Summary -- The Transactions -- The Merger".
This Proxy Statement-Prospectus is first being mailed to UST stockholders
on or about February 13, 1995.
This Proxy Statement-Prospectus also constitutes the Prospectus of Chase
under the Securities Act of 1933, as amended, for the public offering of up to
11,725,806 shares of Chase Common Stock to be received by UST stockholders in
the Merger. This Prospectus does not cover resales of such stock, and no person
is authorized to use this Prospectus in connection with any such resale.
------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT-PROSPECTUS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Proxy Statement-Prospectus is February 9, 1995
<PAGE> 8
AVAILABLE INFORMATION
UST and Chase are (and, prior to the Distribution, Spinco will be) subject
to the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and, in accordance therewith, file (and, in the
case of Spinco, will file) reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by UST and Chase (and when filed, by
Spinco) with the Commission can be inspected and copied at the Commission's
public reference room located at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the public reference facilities in the Commission's regional
offices located at: 7 World Trade Center, 13th Floor, New York, New York 10048;
and Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can be obtained at prescribed rates by
writing to the Securities and Exchange Commission, Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, reports, proxy
statements and other information concerning Chase may be inspected at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005, and reports, proxy statements and other information concerning UST
(and when filed, Spinco) may be inspected at the offices of the National
Association of Securities Dealers, Inc. (the "NASD"), 1735 K Street, N.W.,
Washington, D.C. 20006.
Chase has filed a Registration Statement on Form S-4 (including exhibits
and amendments thereto, the "Chase Registration Statement") pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), covering shares of
Chase Common Stock issuable in the Merger. This Proxy Statement-Prospectus
constitutes both the Proxy Statement of UST relating to the solicitation of
proxies for use at the Special Meeting and the Prospectus of Chase filed as part
of the Chase Registration Statement.
This Proxy Statement-Prospectus does not contain all of the information set
forth in the Chase Registration Statement covering the securities offered
hereby, certain portions of which have been omitted pursuant to the rules and
regulations of the Commission, and to which portions reference is hereby made
for further information with respect to Chase and the securities offered hereby.
Statements contained herein concerning any documents which are filed as exhibits
to the Chase Registration Statement are not necessarily complete and, in each
instance, reference is made to the copies of such documents filed as such
exhibits. Each such statement is qualified in its entirety by such reference.
This Proxy Statement-Prospectus does not contain all of the information set
forth in the Registration Statement on Form 10 (the "Form 10") filed by Spinco
with the Commission in connection with the Distribution. Certain important
information relating to the Distribution is set forth in the Information
Statement filed as a part of the Form 10, which Information Statement is a part
of this Proxy Statement-Prospectus and is attached as Appendix H hereto (the
"Information Statement"). See "Additional Information" in the Information
Statement.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATED TO CHASE, EXCLUDING
EXHIBITS UNLESS SPECIFICALLY INCORPORATED HEREIN, ARE AVAILABLE WITHOUT CHARGE
UPON REQUEST TO THE CHASE MANHATTAN CORPORATION, 1 CHASE MANHATTAN PLAZA, NEW
YORK, NEW YORK 10081, ATTENTION: OFFICE OF THE SECRETARY. TELEPHONE REQUESTS MAY
BE DIRECTED TO THE OFFICE OF THE SECRETARY AT (212) 552-6511. DOCUMENTS RELATING
TO UST, EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED HEREIN, ARE
AVAILABLE WITHOUT CHARGE UPON REQUEST TO U.S. TRUST CORPORATION, OFFICE OF THE
SECRETARY, 114 WEST 47TH STREET, NEW YORK, NEW YORK 10036. TELEPHONE REQUESTS
MAY BE DIRECTED TO CAROL STRICKLAND, SECRETARY OF UST, AT (212) 852-1330. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE NO
LATER THAN MARCH 3, 1995.
The following documents filed with the Commission by UST (File No. 0-8709)
are incorporated herein by reference: (a) Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, as amended on Form 10-K/A dated August 19,
1994, including the portions of the U.S. Trust Corporation 1993 Annual Report
incorporated therein ("UST's 1993 Annual Report on Form 10-K"); (b) Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 31, 1994, June 30, 1994
and September 30, 1994 ("UST's
2
<PAGE> 9
Quarterly Reports on Form 10-Q") and (c) Current Reports on Form 8-K dated
November 17, 1994, November 18, 1994 and December 23, 1994.
The following documents filed with the Commission by Chase (File No.
1-5945) are incorporated herein by reference: (a) Annual Report on Form 10-K for
the year ended December 31, 1993, including the portions of The Chase Manhattan
Corporation 1993 Annual Report incorporated therein; (b) Quarterly Reports on
Form 10-Q for the fiscal quarters ended March 31, 1994, June 30, 1994 and
September 30, 1994; (c) Current Reports on Form 8-K dated January 18, 1994,
January 20, 1994, April 18, 1994, April 29, 1994, May 18, 1994, July 18, 1994,
August 3, 1994, August 3, 1994, August 11, 1994, October 18, 1994, November 18,
1994, December 7, 1994, December 14, 1994, January 17, 1995, January 17, 1995
and January 26, 1995; (d) pages 1 through 4 and 7 through 19 (excluding the
sections entitled "Compensation Committee Report on Executive Compensation",
"Performance Graph", "Approval of Auditors" and "1994 Long-Term Incentive Plan")
of the Proxy Statement dated March 11, 1994; (e) the description of Chase Common
Stock contained in Chase's registration statement on Form 10 filed April 11,
1969, as amended by amendments thereto on Form 8 filed on June 20, 1969, April
8, 1988, May 17, 1990 and April 19, 1993, including any amendment or report
filed for the purpose of updating such description prior to the Special Meeting
(the "Chase Form 10"); and (f) the description of the Chase Junior Participating
Preferred Stock Purchase Rights contained in Chase's Form 8-A filed on February
17, 1989, including any amendment or reports filed for the purpose of updating
such description prior to the Special Meeting (the "Chase Form 8-A").
All documents filed by UST or Chase pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the Special
Meeting shall be deemed to be incorporated herein by reference and to be a part
hereof from the date of such filing. Any statement contained herein or in a
document incorporated or deemed to be incorporated herein by reference shall be
deemed to be modified or superseded for purposes hereof to the extent that a
statement contained herein or in any other subsequently filed document which
also is, or is deemed to be, incorporated herein by reference modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed to constitute a part hereof, except as so modified or superseded.
ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS RELATING TO
UST OR SPINCO HAS BEEN SUPPLIED BY UST, AND ALL INFORMATION RELATING TO CHASE
HAS BEEN SUPPLIED BY CHASE.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF UST OR CHASE CONCERNING THE MATTERS BEING CONSIDERED
AT THE SPECIAL MEETING IF NOT CONTAINED IN OR APPENDED TO THIS PROXY
STATEMENT-PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROXY STATEMENT-PROSPECTUS
OR THE SOLICITATION OF A PROXY, BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
AN OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER DELIVERY OF THIS PROXY
STATEMENT-PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES BEING OFFERED
PURSUANT TO THIS PROXY STATEMENT-PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF UST OR
CHASE SINCE THE DATE OF THIS PROXY STATEMENT-PROSPECTUS.
3
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION............................. 2
INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE....................................... 2
SUMMARY........................................... 5
The Companies................................... 5
The Transactions................................ 6
Certain Regulatory Approvals.................... 10
Interests of Certain Persons in the
Transactions.................................. 10
The Special Meeting............................. 10
Certain Federal Income Tax Consequences......... 11
Comparison of Certain Rights of Holders of Chase
Common Stock and UST Common Stock............. 11
Relationship with Chase......................... 11
Special Factors................................. 11
Comparative Per Share Market Information........ 12
Comparative Per Share Data...................... 13
Selected Historical Financial Information....... 14
Recent Developments............................. 16
THE SPECIAL MEETING............................... 23
General......................................... 23
Record Date..................................... 23
Vote Required................................... 23
Voting and Revocation of Proxies................ 24
Solicitation of Proxies......................... 24
Dissenters' Rights.............................. 24
THE TRANSACTIONS.................................. 24
THE COMPANIES..................................... 28
UST............................................. 28
Chase........................................... 28
THE MERGER........................................ 29
Background of the Merger........................ 29
UST's Reasons for the Merger; Recommendation of
the UST Board................................. 31
Opinion of the Financial Advisor to the UST
Board......................................... 32
Chase's Reasons for the Merger.................. 35
Terms of the Merger............................. 35
Effective Time; Closing......................... 37
Exchange of Certificates in the Merger.......... 37
Representations and Warranties.................. 37
Conduct of Business Prior to the Effective Time;
Certain Covenants............................. 38
Certain Regulatory Approvals.................... 42
Stock Exchange Listing.......................... 42
Conditions...................................... 43
Termination; Amendment and Waiver............... 46
Expenses........................................ 47
Accounting Treatment............................ 47
Interests of Certain Persons in the
Transactions.................................. 47
Resales of Chase Common Stock Issued in the
Merger; Affiliates............................ 50
Dissenters' Rights.............................. 50
THE DISTRIBUTION.................................. 52
Background of and Reasons for the
Distribution.................................. 52
Terms of the Contribution Agreement............. 53
Terms of the Distribution Agreement............. 56
Terms of Post Closing Covenants Agreement....... 58
Terms of the Tax Allocation Agreement........... 61
EFFECT OF TRANSACTIONS ON UST EMPLOYEES AND UST
BENEFIT PLANS................................... 61
Transfer of Employment.......................... 61
Transfer of Plans............................... 62
Retained Plans.................................. 62
Severance Arrangements.......................... 63
Transition Bonus Program........................ 64
RELATIONSHIP WITH CHASE........................... 65
Post Closing Covenants Agreement; Tax Allocation
Agreement..................................... 65
Services Agreement.............................. 65
CERTAIN FEDERAL INCOME TAX CONSEQUENCES........... 66
Consequences of the Distribution................ 66
Consequences of the Merger...................... 67
DESCRIPTION OF CAPITAL STOCK OF CHASE............. 68
Chase Common Stock.............................. 68
Chase Preferred Stock........................... 69
Description of Chase Rights Plan................ 69
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF CHASE
COMMON STOCK AND UST COMMON STOCK............... 70
Size and Classification of the Board of
Directors..................................... 71
Stockholder Nominations......................... 71
Duties of Directors............................. 71
Removal of Directors............................ 71
Newly Created Directorships and Vacancies....... 72
Limitation on Directors' Liability.............. 72
Indemnification of Directors and Officers....... 73
Issuance of Rights or Options to Purchase Shares
to Directors, Officers and Employees.......... 74
Loans to Directors.............................. 74
Dividends....................................... 74
Action by Stockholders Through Written
Consent....................................... 74
Special Meetings................................ 75
Cumulative Voting............................... 75
Necessary Vote to Effect Merger (Not Involving
Interested Stockholder)....................... 75
Business Combinations Involving Interested
Stockholders.................................. 75
Appraisal Rights; Dissenters' Rights............ 76
Redeemable Shares............................... 77
Selective Repurchase of Company Stock........... 77
Warrants or Options............................. 77
Preemptive Rights............................... 78
Amendment of Certificate of Incorporation....... 78
Amendment of Bylaws............................. 79
EXPERTS........................................... 79
VALIDITY OF CHASE SHARES.......................... 79
BENEFICIAL OWNERSHIP.............................. 80
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.... 82
OTHER BUSINESS.................................... 82
STOCKHOLDER PROPOSALS............................. 82
INDEX OF DEFINED TERMS............................ 83
Appendix A Agreement and Plan of Merger
Appendix B Agreement and Plan of Distribution
Appendix C Contribution and Assumption Agreement
Appendix D Post Closing Covenants Agreement
Appendix E Tax Allocation Agreement
Appendix F Opinion of Financial Advisor to the
UST Board
Appendix G Sections 910 and 623 of the New York
Business Corporation Law
Appendix H Information Statement Relating to New
USTC Holdings Corporation and the
Distribution
</TABLE>
4
<PAGE> 11
SUMMARY
The following summary is not intended to be complete and is qualified in
its entirety by the more detailed information included elsewhere in this Proxy
Statement-Prospectus, the Appendices hereto and the documents incorporated
herein by reference. STOCKHOLDERS ARE URGED TO READ CAREFULLY THIS PROXY
STATEMENT-PROSPECTUS, INCLUDING THE APPENDICES HERETO AND THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE IN THEIR ENTIRETY.
All information concerning UST and Spinco included in this Proxy
Statement-Prospectus, the Appendices hereto and the documents incorporated
herein by reference has been furnished by UST, and all information concerning
Chase included in this Proxy Statement-Prospectus, the Appendices hereto and the
documents incorporated herein by reference has been furnished by Chase. AN INDEX
OF DEFINED TERMS USED HEREIN IS INCLUDED AT PAGE 83 OF THIS PROXY
STATEMENT-PROSPECTUS.
THE COMPANIES
UST
UST was incorporated in New York in 1977 and became a bank holding company
in 1978. United States Trust Company of New York, a New York bank and trust
company ("USTNY"), UST's principal subsidiary, was created as a trust company by
Special Act of the New York Legislature in 1853. UST, through USTNY and its
other subsidiaries, provides financial services to individuals and institutions.
UST conducts five principal businesses: asset management, private banking,
special fiduciary, corporate trust and securities processing. The assets and
certain liabilities relating to UST's securities processing business and related
back office operations, including certain subsidiaries conducting such business
and operations (collectively, the "Chase Acquired Business"), will constitute
all the businesses, assets and liabilities of UST at the Effective Time. See
"The Distribution". Immediately prior to the time the Distribution is effected
(the "Time of Distribution"), all of UST's other businesses, assets and
liabilities (collectively, the "Core Businesses"), which include UST's asset
management, private banking, special fiduciary, corporate trust and other non-
processing businesses, will be transferred to Spinco. At September 30, 1994, UST
and its consolidated subsidiaries had total assets of approximately $4.0
billion, total deposits of approximately $2.4 billion and shareholders' equity
of approximately $239.6 million. For the nine months ended September 30, 1994,
the Chase Acquired Business accounted for approximately $113.9 million, or 37%,
of UST's consolidated revenues.
UST's principal executive office is located at 114 West 47th Street, New
York, New York 10036 and its telephone number at such office is (212) 852-1000.
Chase
Chase is a bank holding company that was incorporated in Delaware in 1969
and whose principal subsidiary is The Chase Manhattan Bank (National
Association), a national banking association ("CMB"). In addition to CMB, Chase
holds investments in other subsidiaries that provide a variety of financial
services, including commercial and consumer financing, investment banking,
securities trading and investment advisory services. Chase's primary strategy is
that of a global bank with a diversified domestic base serving three
interrelated franchises: global financial services, domestic consumer products
and regional banking in the northeastern United States. Over the last few years,
Chase has focused its business and marketing efforts on two types of
customers -- retail (individuals and small and medium-sized businesses) and
wholesale (primarily large corporations and institutions). At September 30,
1994, Chase and its consolidated subsidiaries had total assets of approximately
$117.1 billion, total deposits of approximately $68.9 billion and shareholders'
equity of approximately $8.4 billion.
Chase's principal executive office is located at 1 Chase Manhattan Plaza,
New York, New York 10081 and its telephone number at such office is (212)
552-2222.
Additional Information
To obtain additional information regarding the businesses of UST and Chase,
see "Available Information", "Incorporation of Certain Information by Reference"
and "The Companies". For information regarding Spinco, see the Information
Statement attached as Appendix H hereto.
5
<PAGE> 12
THE TRANSACTIONS
Pursuant to the transactions described in this Proxy Statement-Prospectus,
Chase will acquire the Chase Acquired Business. The Chase Acquired Business
consists of UST's securities processing business and related back office
operations, including the assets and certain of the liabilities related thereto.
UST's securities processing business (the "Processing Business") consists of the
businesses, assets and certain liabilities related to (i) the unit investment
trust business of USTNY and its affiliates, which includes, among other things,
acting as trustee for "unit investment trusts" (as such term is defined in the
Investment Company Act of 1940, as amended), maintaining custody of securities
and investments for unit trusts and providing other processing support to unit
trusts, (ii) the mutual funds services business of UST and its subsidiaries,
which includes, among other things, providing domestic and global custody,
transfer agency and other administrative services to registered investment
companies and (iii) the institutional asset services business of USTNY and its
affiliates, which includes, among other things, master trust and custody
services, securities lending services, rabbi trust services and certain money
management services. UST's related back office operations (the "Related Back
Office") consists of the businesses, assets and certain liabilities related to
USTNY's Computer Services Division and Securities Services and Trust Operations
Division.
The proposals to be submitted to UST stockholders at the Special Meeting
relate to the sale by UST to Chase of the Processing Business and the Related
Back Office (which together constitute the Chase Acquired Business). Such sale
will be effected pursuant to the Merger, whereby UST will be merged with and
into Chase, and UST stockholders will receive shares of Chase Common Stock in
exchange for their shares of UST Common Stock. Immediately prior to the Merger,
the Core Businesses will be transferred to Spinco and subsidiaries of Spinco,
and all the then outstanding shares of Spinco will be distributed to the then
current UST stockholders in the Distribution on the basis of one share of Spinco
common stock, par value $1.00 per share ("Spinco Common Stock"), for each share
of UST Common Stock. See "The Distribution". At the Time of Distribution, Spinco
will assume the name "U.S. Trust Corporation" and its principal subsidiary, New
U.S. Trust Company of New York, a recently organized entity that at the Time of
Distribution will be a New York bank and trust company ("New Trustco"), will
assume the name "United States Trust Company of New York". Accordingly, UST
stockholders immediately prior to the Merger will retain their equity interests
in the Core Businesses in the form of stock in Spinco, which will acquire the
Core Businesses prior to the Distribution.
The Merger
General. If the Merger Agreement is authorized and adopted by the UST
stockholders and the other conditions to the Merger are satisfied or waived, at
the Effective Time UST (which will then hold only the Chase Acquired Business)
will be merged with and into Chase, with Chase as the Surviving Corporation, and
the separate corporate existence of UST will cease.
Pursuant to the Merger Agreement, at the Effective Time each issued and
outstanding share of UST Common Stock (other than any shares of UST Common Stock
owned by Chase or any wholly owned subsidiary of Chase or UST (other than in a
fiduciary, custodial or similar capacity) and any shares of UST Common Stock
owned by Dissenting Holders (as defined under "The Merger -- Dissenters' Rights"
below)) will be converted into the right to receive the number (rounded to the
nearest one-thousandth) (the "Conversion Number") of fully paid and
nonassessable shares of Chase Common Stock equal to (a) $363,500,000, divided by
(b) the product of (i) the greater of (A) the Average Value of Chase Common
Stock or (B) $31.00, multiplied by (ii) the number of shares of UST Common Stock
outstanding immediately prior to the Effective Time. The term "Average Value of
Chase Common Stock" means the amount representing the 10-day average of the
daily average of the high and low sale prices for Chase Common Stock reported on
the New York Stock Exchange Composite Transaction Tape (the "NYSE Tape"), as
reprinted in The Wall Street Journal, Eastern Edition, on each of the 10 trading
days immediately preceding the last business day before the Closing Date. If the
Average Value of Chase Common Stock is $31.00 or less per share, then an
aggregate of 11,725,806 shares of Chase Common Stock will be issued in the
Merger. Moreover, if the market value of Chase Common Stock on the Closing Date
is less than the greater of the Average Value of Chase Common Stock and $31.00,
as applicable, then the value on the Closing Date of the aggregate consideration
received by UST stockholders in the Merger will be less than $363,500,000. The
6
<PAGE> 13
number of shares of Chase Common Stock to be issued in the Merger will be
determined as of the Closing Date, which date will be after the date of the
Special Meeting.
For example, if the Average Value of Chase Common Stock were $34.375, the
Conversion Number (assuming 9,622,000 shares of UST Common Stock were
outstanding immediately prior to the Effective Time) would be 1.099 shares of
Chase Common Stock per share of UST Common Stock. If the Average Value of Chase
Common Stock were $31.00 or less, the Conversion Number (assuming 9,622,000
shares of UST Common Stock were outstanding immediately prior to the Effective
Time) would be 1.219 shares of Chase Common Stock per share of UST Common Stock.
So long as the Average Value of Chase Common Stock is equal to or greater
than $31.00, if the market value of Chase Common Stock on the Closing Date is
equal to such Average Value of Chase Common Stock, the value received by UST
stockholders in the Merger will be $37.78 per share of UST Common Stock
(assuming 9,622,000 shares of UST Common Stock are outstanding immediately prior
to the Effective Time). If the Average Value of Chase Common Stock is less than
$31.00, UST stockholders will receive 1.219 shares of Chase Common Stock per
share of UST Common Stock. The actual value on the Closing Date of the Chase
Common Stock received by UST stockholders will be equal to (i) the number of
shares of Chase Common Stock issued in the Merger multiplied by (ii) the market
value of Chase Common Stock on the Closing Date.
Under the terms of the Merger Agreement, UST does not have the right to
decline to consummate the Merger solely because the Average Value of Chase
Common Stock or the market value of Chase Common Stock immediately prior to the
Effective Time is substantially less than $31.00. Therefore, if the Merger is
authorized and all other conditions to the Merger are satisfied or waived on or
prior to the Effective Time, UST stockholders will assume the risk of a decline
in Chase Common Stock below $31.00 per share from and after the date of the
Special Meeting. See "The Merger -- Conditions -- Conditions of Obligations of
UST".
As of the Record Date (as defined below), 9,489,309 shares of UST Common
Stock were outstanding. The number of shares of UST Common Stock outstanding at
the Effective Time is subject to change as a result of the exercise of stock
options and the issuance of shares of UST Common Stock, if any, in connection
with any acquisition completed by UST prior to the Closing Date. UST has no
present plan to make any acquisitions in which UST Common Stock would be issued.
See "The Merger -- Conduct of Business Prior to the Effective Time". Neither UST
nor Chase intends to acquire any shares of UST Common Stock prior to the
Effective Time.
Fractional Shares. No fractional shares of Chase Common Stock will be
issued in the Merger. The Merger Agreement provides that each UST stockholder
who otherwise would have been entitled to receive a fractional share of Chase
Common Stock will be entitled to receive, in lieu thereof, an amount in cash
equal to such fraction multiplied by the average of the high and low sale prices
for Chase Common Stock on the business day immediately preceding the Closing
Date, as reported on the NYSE Tape.
Effective Time. The Merger will become effective and the Effective Time
will occur upon the filing of a certificate of merger by the Department of State
of New York and with the Secretary of State of Delaware, or at such time
thereafter as is provided in such certificate of merger. See "The
Merger -- Effective Time; Closing".
Distribution of Merger Consideration; Exchange of Share Certificates. At
or immediately after the Closing Date, Chase will send each UST stockholder a
letter (a "Letter of Instruction") notifying them of the consummation of the
Merger and setting forth instructions for the surrender of certificates that
before the Effective Time represented UST Common Stock. Promptly after receipt
by Chase's exchange agent of certificates surrendered in accordance with the
instructions set forth in the Letter of Instruction, the exchange agent will
distribute to the UST stockholder entitled thereto the certificates representing
shares of Chase Common Stock and a check in lieu of fractional shares into which
the UST Common Stock represented by the surrendered certificate were converted
in the Merger. UST STOCKHOLDERS ARE REQUESTED NOT TO SURRENDER THEIR
CERTIFICATES REPRESENTING OUTSTANDING SHARES OF UST COMMON STOCK FOR EXCHANGE
UNTIL THEY RECEIVE A LETTER OF INSTRUCTION FROM CHASE. See "The
Merger -- Exchange of Certificates in the Merger".
7
<PAGE> 14
Stock Exchange Listing. Chase has agreed in the Merger Agreement to use
its best efforts to cause the shares of Chase Common Stock issued in the Merger
to be approved for listing on the New York Stock Exchange (the "NYSE"), subject
to official notice of issuance, prior to the Effective Time. Such approval for
listing is a condition to each of UST's and Chase's obligation to consummate the
Merger. See "The Merger -- Stock Exchange Listing" and
"-- Conditions -- Conditions to Each Party's Obligation to Effect the Merger".
Conditions. The Merger Agreement provides that the respective obligations
of the parties to effect the Merger are subject to certain conditions, including
the approval of each of the Merger and the Distribution by UST stockholders,
consummation of the Distribution, receipt of certain regulatory approvals and
receipt of a private letter ruling (the "Private Letter Ruling") from the
Internal Revenue Service (the "Service") with respect to the tax-free nature of
the transactions involved in the Distribution. The Merger Agreement provides
that the obligation of each of Chase and UST to effect the Merger is conditioned
upon the absence, since September 30, 1994, of certain material adverse changes.
In the case of Chase, such obligation is conditioned upon the absence of any
material adverse change to the business, properties, assets, results of
operation or financial condition of MF Service Company or the Chase Acquired
Business, each taken as a whole, and in the case of UST, such obligation is
conditioned upon the absence of any such change in Chase and its subsidiaries
taken as a whole. Adverse changes resulting from general economic or market
conditions do not constitute a material adverse change. Therefore, a general
decline in financial markets resulting in a substantial decline in the market
value of Chase Common Stock would not, in and of itself, constitute a material
adverse change. The determination of whether a material adverse change has
occurred, or is the result of general economic or market conditions or
otherwise, is dependent upon specific facts and circumstances. The Merger
Agreement does not provide that UST can decline to consummate the Merger solely
because the Average Value of Chase Common Stock or the market value of Chase
Common Stock immediately prior to the Effective Time is substantially less than
$31.00. See "The Merger -- Conditions".
Termination; Termination Payment. The Merger Agreement may be terminated
at any time prior to the Effective Time, whether before or after authorization
of the Merger and the Merger Agreement by UST stockholders: (a) by mutual
written consent of Chase and UST or (b) by either Chase or UST (i) if, upon a
vote at a duly held UST stockholders' meeting or any adjournment thereof, any
required approval of UST stockholders is not obtained, (ii) if the Merger has
not been consummated on or before November 18, 1995, unless the failure to
consummate the Merger is the result of a wilful and material breach of such
agreement by the party seeking to terminate the Merger Agreement; provided,
however, that the passage of such period will be tolled for any part thereof
(but in no event for more than an additional 90 days) during which any party is
subject to a nonfinal order, decree, ruling or action restraining, enjoining or
otherwise prohibiting the consummation of the Merger or the calling or holding
of the UST stockholders' meeting, or (iii) if any governmental entity has issued
an order, decree or filing or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Merger and such order, decree, ruling
or other action shall have become final and nonappealable. See "The
Merger -- Termination; Amendment and Waiver".
The Merger Agreement provides that after the date of this Proxy
Statement-Prospectus, upon termination of the Merger Agreement for any reason
other than by reason of the failure to satisfy certain conditions set forth
therein or due to a permanent injunction issued at the instance of the United
States Department of Justice, or otherwise due to any default on the part of
Chase or the failure of Chase to obtain all requisite approvals, UST will pay to
Chase, as liquidated damages, and not a penalty, the sum of $7.5 million. Such
$7.5 million termination payment will be payable in the event the UST
stockholders fail to approve the Distribution or to authorize and adopt the
Merger Agreement.
Recommendation of the UST Board. The UST Board has determined the Merger
to be fair to and in the best interests of UST and its stockholders. THE UST
BOARD HAS APPROVED THE DISTRIBUTION AND THE MERGER AGREEMENT AND RECOMMENDS THE
APPROVAL OF THE DISTRIBUTION AND THE AUTHORIZATION AND ADOPTION OF THE MERGER
AGREEMENT BY UST STOCKHOLDERS.
The conclusion of the UST Board with respect to the Merger is based upon a
number of factors. See "The Merger -- Background of the Merger", "-- UST's
Reasons for the Merger; Recommendation of the UST Board" and "-- Opinion of the
Financial Advisor to the UST Board".
8
<PAGE> 15
Opinion of the Financial Advisor to the UST Board. CS First Boston
Corporation ("CS First Boston"), UST's financial advisor, has delivered to the
UST Board its written opinions that, as of November 17, 1994, and as of the date
of this Proxy Statement-Prospectus, the consideration to be received by UST
stockholders in connection with the Merger is fair to such stockholders from a
financial point of view. The full text of the CS First Boston opinion dated the
date hereof, which is substantially identical to the opinion delivered to the
UST Board on November 17, 1994, and sets forth the assumptions made, matters
considered and limits on the review undertaken, is attached as Appendix F to
this Proxy Statement-Prospectus. UST stockholders are urged to read the CS First
Boston opinion in its entirety. UST has agreed to pay CS First Boston a fee in
connection with its services, the amount of which is contingent upon the
consummation of the Merger. See "The Merger -- Opinion of the Financial Advisor
to the UST Board".
Dissenters' Rights. Each holder of UST Common Stock who files a written
objection to the Merger with UST prior to the stockholder vote on the Merger
Proposal, and who does not vote in favor of the Merger, is entitled to the
rights and remedies of dissenting stockholders upon complying with the
procedures set forth in Sections 910 and 623 of the New York Business
Corporation Law (the "NYBCL"), a copy of each of which is attached as Appendix G
hereto. Returning a signed proxy without indicating any voting instructions will
result in such proxy being voted for the Distribution Proposal and the Merger
Proposal and, as a result, cause such UST stockholder to lose his or her right
to dissent. See "The Merger -- Dissenters' Rights" and Appendix G to this Proxy
Statement-Prospectus. The receipt of cash by a dissenting stockholder will be a
taxable event for Federal income tax purposes.
Chase will not be obligated to proceed with the Merger if, as of the date
on which the Effective Time would otherwise occur, more than 5% of the
outstanding shares of UST are held by UST stockholders who have perfected, under
New York law, their right to dissent to the Merger. Chase stockholders in their
capacity as such are not entitled to dissenter's rights in connection with the
Merger.
Accounting Treatment. The Merger will be accounted for by Chase as a
"purchase" for financial accounting purposes in accordance with generally
accepted accounting principles, whereby the purchase price will be allocated
based on the fair values of assets acquired and liabilities assumed. Such
allocations will be made based upon valuations and other studies that have not
been finalized. The excess of the purchase price over the amounts so allocated
will be allocated to goodwill. See "The Merger -- Accounting Treatment".
The Distribution
The Contribution and Assumption Agreement to be entered into between USTNY
and New Trustco prior to the Time of Distribution, the form of which is attached
as Appendix C to this Proxy Statement-Prospectus and is incorporated herein by
reference (as it may be amended, supplemented or otherwise modified from time to
time, the "Contribution Agreement"), together with the Distribution Agreement,
provides for a series of asset and stock transfers and liability assumptions
between and among UST, Spinco and certain of UST's subsidiaries prior to the
Distribution (the "Internal Reorganization"). The purpose and effect of the
Internal Reorganization is to separate the Core Businesses, which are not being
acquired by Chase in the Merger, from the Chase Acquired Business and to
transfer the Core Businesses to Spinco prior to the Time of Distribution.
Accordingly, the Chase Acquired Business will constitute all the businesses,
assets and liabilities of UST at the Effective Time. See "The Distribution".
UST's stockholders are being asked to vote on the Distribution and the Merger
only, and are not being asked to vote on the Internal Reorganization. In the
event the UST stockholders do not approve the Distribution and authorize the
Merger, or the Merger Agreement is otherwise terminated, UST nonetheless
intends, subject to regulatory and other approvals, to effect the Internal
Reorganization. See "The Distribution -- Background of the Distribution".
The Distribution Agreement provides that prior to the Time of Distribution,
UST will cause Spinco to amend its certificate of incorporation to, among other
things, authorize 40,000,000 shares of Spinco Common Stock. See "The
Distribution".
The Distribution will be effected by the distribution to each holder of
record of UST Common Stock, as of the close of the stock transfer books on the
record date for the Distribution (the "Distribution Record Date"), of
certificates representing one share of Spinco Common Stock with respect to each
share of UST Common Stock held by such holder. See "The Distribution -- Terms of
the Distribution Agreement".
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<PAGE> 16
CERTAIN REGULATORY APPROVALS
The regulatory approvals and consents necessary to consummate the Merger,
the Distribution and certain related transactions include the approval of the
Board of Governors of the Federal Reserve System, the Office of the Comptroller
of the Currency ("OCC"), the Federal Deposit Insurance Corporation ("FDIC"), the
Office of Thrift Supervision and the New York State Banking Board. Each of
Chase, UST and Spinco expect to file applications with the applicable regulatory
authorities during February 1995. There can be no assurance that the requisite
regulatory approvals will be obtained at all or in a timely manner to permit
consummation of the Merger. The Merger Agreement may be terminated by UST or
Chase if all requisite regulatory approvals have not been obtained, and all
applicable waiting periods have not expired, by November 18, 1995. There can
also be no assurance that any such approvals will not contain a condition or
requirement which causes such approvals to fail to satisfy the conditions set
forth in the Merger Agreement. There can likewise be no assurance that other
regulatory bodies will not challenge the Merger or, if such a challenge is made,
as to the result thereof. See "The Merger -- Certain Regulatory Approvals" and
"-- Conditions".
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
In considering the recommendation of the UST Board, UST stockholders should
be aware that certain members of UST's management and the UST Board have certain
interests in the Merger and the Distribution that are in addition to the
interests of UST stockholders generally. These interests include certain
payments to be received in respect of UST stock options granted prior to the
date of the Merger Agreement. See "The Merger -- Interests of Certain Persons in
the Transactions" and "Effect of Transactions on UST Employees and UST Benefit
Plans". See also "Management -- Treatment of UST Options" in the Information
Statement attached as Appendix H hereto.
THE SPECIAL MEETING
Time, Place and Date
The Special Meeting will be held at the offices of United States Trust
Company of New York, 114 West 47th Street, New York, New York, in the Auditorium
on the first floor, on March 22, 1995, at 10:00 A.M., local time.
Purpose of Special Meeting
At the Special Meeting, holders of shares of UST Common Stock at the close
of business on the Record Date (as defined below) will be asked (i) to consider
and vote upon the Distribution Proposal, (ii) to consider and vote upon the
Merger Proposal and (iii) to transact such other business as may properly come
before the Special Meeting or any adjournments or postponements thereof.
Record Date; Stockholders Entitled to Vote; Vote Required
The UST Board has fixed the close of business on February 1, 1995, as the
record date (the "Record Date") for the determination of the holders of UST
Common Stock entitled to receive notice of and to vote at the Special Meeting
and at any adjournments or postponements thereof.
As of the Record Date, directors and executive officers of UST owned
beneficially an aggregate of 792,431 shares of UST Common Stock (including
shares issuable upon the exercise of stock options which are currently
exercisable or which become exercisable within 60 days), or approximately 7.93%
of the shares of UST Common Stock outstanding on such date. See "The Special
Meeting -- Vote Required".
As of the Record Date, 9,489,309 shares of UST Common Stock were
outstanding. Each share of UST Common Stock outstanding on the Record Date will
be entitled to one vote upon each matter properly submitted at the Special
Meeting. Approval of the Distribution and the authorization and adoption of the
Merger Agreement require, in each case, the affirmative vote of two-thirds (or
66 2/3%) of the total number of shares entitled to be voted at the Special
Meeting.
It is a condition to consummation of the Distribution that the Merger
Agreement have been authorized and adopted by the UST stockholders, and it is a
condition to consummation of the Merger that the Distribution have been approved
by the UST stockholders.
10
<PAGE> 17
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
UST has requested the Private Letter Ruling from the Service substantially
to the effect that, among other things, the Distribution will qualify as a
tax-free spin-off to UST and its stockholders under Section 355 of the Internal
Revenue Code of 1986, as amended (the "Code"), and that certain asset transfers
involved in the Internal Reorganization will not be taxable transactions.
Receipt of the Private Letter Ruling with respect to the matters described above
is a condition to the respective obligations of UST and Chase to consummate the
Merger. It is expected that the Merger will qualify as a tax-free transaction to
UST and its stockholders. Receipt of opinions of counsel to that effect is a
condition to the respective obligations of UST and Chase to consummate the
Merger. See "The Merger -- Conditions" and "Certain Federal Income Tax
Consequences".
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF CHASE COMMON STOCK AND UST COMMON
STOCK
See "Comparison of Certain Rights of Holders of Chase Common Stock and UST
Common Stock" for a summary of certain significant differences between the
rights of holders of Chase Common Stock and UST Common Stock.
RELATIONSHIP WITH CHASE
In connection with the Distribution, Chase, UST, USTNY, Spinco and New
Trustco will enter into the Post Closing Covenants Agreement, the form of which
is attached as Appendix C to this Proxy Statement-Prospectus and is incorporated
herein by reference (as it may be amended, supplemented or otherwise modified
from time to time, the "Post Closing Covenants Agreement"). In the Post Closing
Covenants Agreement, Chase, UST and USTNY, on the one hand, and Spinco and New
Trustco, on the other hand, will agree to certain indemnification provisions
arising primarily from the conduct of the Chase Acquired Business. Spinco also
will agree to abide by certain noncompetition provisions relating to competing
with Chase in the securities processing business. In addition, at the Time of
Distribution, New Trustco will enter into a services agreement (the "Services
Agreement") pursuant to which, after the Distribution, CMB will furnish
necessary securities processing, custodial and other services to New Trustco and
its affiliates. See "The Merger -- Terms of the Post Closing Covenants
Agreement" and "Relationship with Chase".
SPECIAL FACTORS
After the Merger, holders of UST Common Stock immediately prior to the
Effective Time will hold all of the outstanding capital stock of Spinco and up
to 11,725,806 shares of Chase Common Stock, which will have been acquired in
respect of their former shares of UST Common Stock. Through their holdings of
Spinco Common Stock, the former stockholders of UST will retain their equity
interests in the Core Businesses.
As described above, Chase is a diversified global bank holding company with
global exposure to a wide variety of business including, in addition to
traditional domestic private banking, asset management and corporate trust
services of the kinds provided by UST, commercial and consumer finance,
investment banking, trading and securities processing services. The business of
Chase is substantially different than the business of UST.
In considering whether to approve the Distribution and whether to authorize
and adopt the Merger Agreement, UST stockholders should carefully evaluate
certain factors relating to Spinco. For a discussion of certain factors relating
to Spinco, see "Special Factors" in the Information Statement attached as
Appendix H hereto. UST stockholders are urged to read the Information Statement
in its entirety.
11
<PAGE> 18
COMPARATIVE PER SHARE MARKET INFORMATION
UST Common Stock is quoted on the NASDAQ National Market System under the
symbol "USTC". The table below sets forth, for the fiscal periods indicated, the
high and low sales prices per share of UST Common Stock on the NASDAQ National
Market System as reported in published financial sources and the dividends per
share declared on UST Common Stock. Chase Common Stock is listed and principally
traded on the NYSE under the symbol "CMB". The table below sets forth, for the
fiscal periods indicated, the high and low sale prices per share of Chase Common
Stock in NYSE Composite Transactions as reported in published financial sources
and the dividends per share declared on Chase Common Stock. These prices reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent actual transactions.
<TABLE>
<CAPTION>
UST CHASE
--------------------------------- ---------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fiscal 1992
First Quarter............. $45.750 $42.250 $ .43 $25.250 $17.250 $ .30
Second Quarter............ 50.000 42.750 .43 30.375 20.375 .30
Third Quarter............. 50.875 46.000 .43 29.625 21.625 .30
Fourth Quarter............ 49.750 45.500 .43 30.000 20.750 .30
Fiscal 1993
First Quarter............. $59.000 $49.250 $ .47 $35.625 $27.375 $ .30
Second Quarter............ 59.750 50.250 .47 38.000 28.375 .30
Third Quarter............. 55.500 51.250 .47 37.875 31.375 .30
Fourth Quarter............ 55.000 52.000 .47 38.000 31.125 .30
Fiscal 1994
First Quarter............. $53.250 $49.500 $ .50 $36.625 $30.375 $ .33
Second Quarter............ 53.250 49.750 .50 40.000 31.250 .33
Third Quarter............. 53.000 50.500 .50 38.875 34.625 .40
Fourth Quarter............ 66.000 52.000 .50 37.000 33.500 .40
Fiscal 1995
First Quarter (through
February 8, 1995)...... $67.125 $63.500 $ .50 $35.000 $32.875 $ .40
</TABLE>
The closing price for UST Common Stock on October 21, 1994, the last full
trading day prior to UST's announcement that it was in negotiations to sell its
securities processing business, was $52.375. The closing price for UST Common
Stock and Chase Common Stock on November 17, 1994, the last full trading day
prior to announcement of the execution of the Merger Agreement, was $65.125 and
$36.000, respectively. The closing price for UST Common Stock and Chase Common
Stock on February 8, 1995, the most recent trading date available prior to
printing this Proxy Statement-Prospectus, was $66.500 and $34.875, respectively.
For current price information, UST stockholders are urged to consult publicly
available sources.
Holders of Chase Common Stock are entitled to receive dividends when, as
and if declared by Chase's Board of Directors (the "Chase Board") out of funds
legally available therefor. The timing and amount of any future dividends will
depend on circumstances existing at the time, including earnings, cash
requirements, applicable federal and state laws and regulations and policies and
other factors deemed relevant by the Chase Board, including the amount of
dividends payable to Chase by its subsidiary banks. The payment of dividends to
Chase by its subsidiary banks is subject to various state and federal
limitations. See "The Companies -- Chase".
12
<PAGE> 19
COMPARATIVE PER SHARE DATA
The following table sets forth for Chase Common Stock and UST Common Stock
certain per share historical financial information, for UST certain per share
equivalent pro forma financial information and for Spinco certain per share pro
forma financial information as of and for the nine months ended September 30,
1994 and for the year ended December 31, 1993. Chase and UST pro forma combined
comparative per share data giving effect to the Merger is not considered to be
material to the consolidated financial statements of Chase and, accordingly, has
not been included below. The UST per share equivalent pro forma financial
information is derived from the summary historical financial information of
Chase and is based upon a Conversion Number of 1.083 shares of Chase Common
Stock for each share of UST Common Stock. The Conversion Number is based on the
maximum value of the Chase Common Stock payable in consideration of the Chase
Acquired Business under the terms of the Merger Agreement ($363,500,000) and the
assumption that (i) the number of shares of UST Common Stock outstanding on the
Effective Date will be equal to the number of such shares outstanding at
September 30, 1994 after giving effect to the exercise of options to purchase
approximately 236,000 shares of UST Common Stock (9,622,000) and (ii) the
Average Value of Chase Common Stock on the Effective Date will be equal to the
market value of Chase Common Stock on February 8, 1995 ($34.875).
The following information should be read in conjunction with and is
qualified in its entirety by the consolidated financial statements and
accompanying notes of UST and Chase included in the documents described under
"Incorporation of Certain Information by Reference" and the pro forma condensed
financial information and accompanying notes of Spinco set forth under "Pro
Forma Condensed Financial Statements" herein and included in the Information
Statement attached as Appendix H hereto.
<TABLE>
<CAPTION>
EQUIVALENT
CHASE UST PRO FORMA SPINCO
HISTORICAL HISTORICAL UST SHARE PRO FORMA
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Per Common Share Data
YEAR ENDED DECEMBER 31, 1993
Earnings before cumulative effect of change
in accounting principle(a)........................ $ 1.89 N/A $2.05 N/A
Earnings............................................. 4.79 4.25 5.19 2.22
Dividends............................................ 1.20 1.88 1.30 (c)
NINE MONTHS ENDED SEPTEMBER 30, 1994
Net Income........................................... 4.76 3.68 5.16 2.15
Dividends............................................ 1.06 1.50 1.15 (c)
AS OF SEPTEMBER 30, 1994
Book value........................................... 38.83 25.53(b) 42.05 17.16(b)
</TABLE>
- ---------------
(a) Relates to the adoption of Statement of Financial Accounting Standard No.
109 ("SFAS 109"). Chase adopted SFAS 109 as of January 1, 1993; UST adopted
SFAS 109 as of January 1, 1992 and, accordingly, the adoption had no impact
on UST financial results for the year ended December 31, 1993.
(b) Book value per share for UST Historical is based upon 9,386,000 shares of
UST Common Stock outstanding. Book value per share for Spinco Pro Forma is
based upon 9,622,000 shares of Spinco Common Stock outstanding.
(c) Spinco, as a newly formed corporation, has no history of paying dividends.
It is anticipated that Spinco will initially pay dividends at an annual
rate of approximately $1.00 per share. See "Special Factors -- Dividends
and Dividend Policy" in the Information Statement attached as Appendix H
hereto.
13
<PAGE> 20
SELECTED HISTORICAL FINANCIAL INFORMATION
UST
The selected historical consolidated financial data of UST set forth in the
table below has been derived from the audited financial statements of UST for
each of the five fiscal years through the period ended December 31, 1993 and the
unaudited financial statements of UST for the nine-month periods ended September
30, 1994 and 1993. The selected historical consolidated financial data set forth
below should be read in conjunction with the historical consolidated financial
statements and the notes thereto contained in UST's 1993 Annual Report on Form
10-K, and UST's Quarterly Report on Form 10-Q for the nine months ended
September 30, 1994, which are incorporated by reference herein. The results of
operations for the nine-month period ended September 30, 1994 are not
necessarily indicative of the results to be expected for the full year 1994. See
"Incorporation of Certain Information by Reference", "Available Information" and
"-- Recent Developments". For pro forma financial statements for UST giving
effect to the Distribution, see "Pro Forma Condensed Financial Statements" in
the Information Statement attached as Appendix H hereto. See also "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Information Statement attached as Appendix H hereto.
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED CONDENSED STATEMENT OF INCOME:
Fiduciary and Other Fees..................... $ 220.0 $ 193.7 $ 264.1 $ 235.8 $ 204.9 $ 184.2 $ 177.8
Net Interest Income.......................... 82.4 88.6 116.2 108.9 96.1 89.4 83.3
Provision for Credit Losses.................. (1.5) (3.5) (4.0) (6.0) (6.0) (8.4) (1.6)
Other Income................................. 9.7 6.5 11.9 9.7 8.7 13.0 16.6
-------- -------- -------- -------- -------- -------- --------
Total Operating Income Net of Interest
Expense and Provision for Credit Losses.... 310.6 285.3 388.2 348.4 303.7 278.2 276.1
Total Operating Expenses..................... 247.6 227.8 315.5 289.5 254.9 259.7 232.9
-------- -------- -------- -------- -------- -------- --------
Income from Operations Before Income Tax
Expense and Cumulative Effect of Accounting
Changes.................................... 63.0 57.5 72.7 58.9 48.8 18.5 43.2
Income Tax Expense........................... 26.5 24.4 30.4 22.4 17.4 6.8 12.5
-------- -------- -------- -------- -------- -------- --------
Income from Operations Before Cumulative
Effect of Accounting Changes............... 36.5 33.1 42.3 36.5 31.4 11.7 30.7
Cumulative Effect of Changes in Accounting
for Postretirement Benefits and Income
Taxes...................................... -- -- -- (7.8) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Income................................... $ 36.5 $ 33.1 $ 42.3 $ 28.8 $ 31.4 $ 11.7 $ 30.7
-------- -------- -------- -------- -------- -------- --------
PER COMMON SHARE:
Primary:
Income From Operations Before Cumulative
Effect of Accounting Changes............. $ 3.69 $ 3.35 $ 4.26 $ 3.76 $ 3.32 $ 1.24 $ 3.08
Cumulative Effect of Changes in Accounting
for Postretirement Benefits and Income
Taxes.................................... -- -- -- (.80) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Income................................. $ 3.69 $ 3.35 $ 4.26 $ 2.96 $ 3.32 $ 1.24 $ 3.08
-------- -------- -------- -------- -------- -------- --------
Fully Diluted:
Income From Operations Before Cumulative
Effect of Accounting Changes............. $ 3.68 $ 3.34 $ 4.25 $ 3.74 $ 3.27 $ 1.23 $ 3.07
Cumulative Effect of Changes in Accounting
for Postretirement Benefits and Income
Taxes.................................... -- -- -- (.80) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Income................................. $ 3.68 $ 3.34 $ 4.25 $ 2.94 $ 3.27 $ 1.23 $ 3.07
-------- -------- -------- -------- -------- -------- --------
Cash Dividends Declared Per Share............ $ 1.50 $ 1.41 $ 1.88 $ 1.72 $ 1.60 $ 1.60 $ 1.52
CONSOLIDATED CONDENSED SELECTED STATEMENT OF
CONDITION BALANCES AT PERIOD-END:
Total Assets............................... $ 4,019 $ 3,690 $ 3,186 $ 2,951 $ 2,917 $ 2,778 $ 2,526
Total Deposits............................. 2,383 2,554 2,487 2,355 2,108 2,040 1,987
Long-Term Debt............................. 63 67 65 65 69 71 75
Stockholders' Equity....................... 240 217 229 197 182 166 177
EARNINGS RATIOS (UNAUDITED):
Return on Average Total Assets............. 1.21% 1.16% 1.11% 0.83% 1.09% 0.46% 1.26%
Return on Average Stockholders' Equity..... 21.48% 21.67% 20.47% 15.28% 18.05% 6.75% 17.29%
CAPITAL RATIOS (UNAUDITED):
As a Percentage of Risk-Adjusted Period End
Total Assets:
Tier 1 Capital............................. 14.19% 13.23% 14.08% 13.71% 10.81% 9.90% 9.99%
Total Capital.............................. 15.51% 14.71% 15.47% 15.16% 12.03% 11.22% 11.26%
Tier 1 Leverage.............................. 5.70% 5.11% 5.60% 5.78% 6.68% 6.72% 7.60%
</TABLE>
- ---------------
*Columns may not total due to roundings.
14
<PAGE> 21
CHASE
The selected historical consolidated financial data of Chase set forth in
the table below has been derived from the audited financial statements of Chase
for each of the five fiscal years through the period ended December 31, 1993 and
the unaudited financial statements of Chase for the nine-month periods ended
September 30, 1994 and 1993. The selected historical consolidated financial data
set forth below should be read in conjunction with the historical consolidated
financial statements and the notes thereto contained in Chase's Annual Report on
Form 10-K for the year ended December 31, 1993 and Chase's Quarterly Report on
Form 10-Q for the nine months ended September 30, 1994, which are incorporated
by reference herein. Certain amounts in prior periods have been reclassified to
conform to current presentation. In Chase's opinion, all adjustments, consisting
only of normal recurring accruals, necessary for the fair presentation of the
financial position and results of operations for such nine-month periods have
been made. The results of operations for the nine-month period ended September
30, 1994 are not necessarily indicative of the results to be expected for the
full year 1994. See "Incorporation of Certain Information by Reference",
"Available Information" and "-- Recent Developments". Pro forma financial
statements for Chase giving effect to the Merger are not included in this Proxy
Statement-Prospectus because the Merger will not have a material effect on
Chase.
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED CONDENSED STATEMENT OF
INCOME:
Interest Revenue....................... $ 6,187 $ 6,314 $ 8,468 $ 8,705 $ 9,638 $ 11,572 $ 11,959
Interest Expense....................... 3,402 3,453 4,605 5,141 6,293 8,384 8,934
-------- -------- -------- -------- -------- -------- --------
Net Interest Revenue................... 2,785 2,861 3,863 3,564 3,345 3,188 3,025
Provision for Possible Credit Losses... 410 800 995 1,220 1,085 1,300 1,737
Provision for Loans Held for
Accelerated Disposition............... -- 566 566 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Interest Revenue After Provisions
for Possible Credit Losses and Loans
Held for Accelerated Disposition...... 2,375 1,495 2,302 2,344 2,260 1,888 1,288
Other Operating Revenue................ 2,381 2,072 2,949 2,349 2,167 2,075 1,931
Other Operating Expenses............... 3,197 3,321 4,520 3,868 3,783 4,094 3,688
-------- -------- -------- -------- -------- -------- --------
Income Before Taxes and Cumulative
Effect of Change in Accounting
Principle............................. 1,559 246 731 825 644 (131) (469)
Net Income............................. 976 653 966 639 520 (334) (665)
PER COMMON SHARE:
Primary Earnings (Loss)................ $ 4.76 $ 3.23 $ 4.79 $ 3.46 $ 3.12 $ (3.31) $ (7.94)
Cash Dividends Declared................ 1.06 0.90 1.20 1.20 1.20 2.16 2.36
CONSOLIDATED CONDENSED STATEMENT OF
CONDITION BALANCES AT PERIOD-END:
Total Assets........................... $117,065 $100,595 $102,103 $ 95,862 $ 98,197 $ 98,064 $107,369
Total Deposits......................... 68,922 70,229 71,509 67,224 71,517 70,713 69,073
Intermediate and Long-Term Debt........ 5,031 6,230 5,641 6,913 6,612 6,527 5,718
Redeemable Preferred Stock............. -- -- -- 53 53 53 54
Nonredeemable Preferred Stock.......... 1,400 1,399 1,399 1,477 1,042 842 842
Common Stockholders' Equity............ 7,040 6,220 6,723 5,034 4,282 3,890 4,102
Total Stockholders' Equity............. 8,440 7,619 8,122 6,511 5,324 4,732 4,944
EARNINGS RATIOS (UNAUDITED):
Return on Average Total Assets......... 1.11% 0.86% 0.94% 0.64% 0.52% (0.31%) (0.65%)
Return on Average Common Stockholders'
Equity................................ 17.34% 13.31% 14.59% 11.14% 10.49% (10.03%) (18.11%)
CAPITAL RATIOS (UNAUDITED):
As a Percentage of Risk-Adjusted Period
End Total Assets:
Tier 1 Capital....................... 8.51% 7.94% 8.44% 6.76% 5.32% 4.32% 4.44%
Total Capital........................ 13.22% 12.63% 13.22% 11.12% 9.74% 8.33% 8.87%
Tier 1 Leverage........................ 7.31% 7.48% 7.81% 6.66% 5.28% 4.40% 4.40%
</TABLE>
15
<PAGE> 22
RECENT DEVELOPMENTS
UST
The summary financial data set forth below is derived from the audited
financial statements of UST for the fiscal year ended December 31, 1993, and the
unaudited financial statements of UST for the three-month periods ended December
31, 1994 and 1993, and for the twelve-month period ended December 31, 1994.
Actual results for the year ended December 31, 1994, are subject to the
completion by UST of its financial statements and accompanying footnotes and the
audit of such financial information by its independent accountants. See
"Selected Financial Data", as well as "Pro Forma Condensed Financial Statements"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Information Statement attached as Appendix H hereto.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED DECEMBER
DECEMBER 31, 31,
------------------- -------------------
1994 1993 1994 1993
------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
CONSOLIDATED CONDENSED STATEMENT OF INCOME:
Net Interest Income....................................... $ 26 $ 28 $ 108 $ 116
Provision for Credit Losses............................... 1 1 2 4
------ ------ ------ ------
Net Interest Income After Provision for Credit Losses..... 25 27 106 112
Other Operating Income.................................... 41 76 270 276
Other Operating Expenses.................................. 95 88 342 315
------ ------ ------ ------
Income (Loss) Before Taxes................................ (29) 15 34 73
------ ------ ------ ------
Net Income (Loss)......................................... $ (16) $ 9 $ 21 $ 42
====== ====== ====== ======
PER COMMON SHARE:
Fully diluted............................................. $(1.65) $ 0.92 $ 2.09 $ 4.25
====== ====== ====== ======
Cash Dividends Declared................................... $ 0.50 $ 0.47 $ 2.00 $ 1.88
CONSOLIDATED CONDENSED STATEMENT OF CONDITION:
Total Assets.............................................. $3,223 $3,186
Total Deposits............................................ 2,440 2,487
Long-Term Debt............................................ 61 65
Total Stockholders' Equity................................ 223 229
EARNINGS RATIOS (UNAUDITED):
Return on Average Total Assets............................ (1.60)% 0.96% 0.53% 1.11%
Return on Average Total Stockholders' Equity.............. (27.3)% 17.1% 9.2% 20.5%
CAPITAL RATIOS (UNAUDITED):
As a Percentage of Risk-Adjusted Period End Total Assets:
Tier 1 Capital.......................................... 13.52% 14.08%
Total Capital........................................... 14.79% 15.47%
Tier 1 Leverage........................................... 5.68% 5.60%
</TABLE>
Results of Operations
On January 19, 1995, UST reported a net loss of $15.5 million for the
fourth quarter of 1994, compared to net income of $9.1 million for the fourth
quarter of 1993. On a fully diluted per share basis, the net loss for the fourth
quarter of 1994 was $1.65, compared to net income of $0.92 for the fourth
quarter of 1993. The results of the fourth quarter of 1994 include $50.2 million
($27.9 million after taxes) of charges associated with the pending Merger.
Excluding the aforementioned charges, net income for the fourth quarter of 1994
would have been $12.4 million, or $1.22 on a fully diluted per share basis.
For the year 1994, net income was $21.0 million, a decrease of 50.4% from
$42.3 million of net income for the year 1993. Fully diluted net income per
share for 1994 was $2.09, compared with $4.25 for 1993, a decrease of 50.8%.
Excluding the charges associated with the Merger, net income for 1994 would have
been $48.9 million, or $4.83 on a fully diluted per share basis.
16
<PAGE> 23
Fiduciary and Other Fees
Fiduciary and other fees increased 7.5% to $75.6 million in the fourth
quarter of 1994 from $70.3 million in the fourth quarter of 1993. Fiduciary and
other fees related to the Processing Business increased 7.2% to $25.8 million in
the fourth quarter of 1994 from $24.0 million in the fourth quarter of 1993.
Fiduciary and other fees related to the Core Businesses increased 7.6% to $49.8
million in the fourth quarter of 1994 from $46.3 million in the fourth quarter
of 1993.
For the year 1994, fiduciary and other fees were $295.6 million, an
increase of 11.9% over fiduciary and other fees of $264.1 million in 1993.
Fiduciary and other fees related to the Processing Business increased 10.5% to
$102.7 million in 1994 from $93.0 million in 1993. Fiduciary and other fees
related to the Core Businesses increased 12.7% to $192.9 million in 1994 from
$171.1 million in 1993. Excluding fiduciary and other fees attributable to U.S.
Trust Company of the Pacific Northwest (formerly Capital Trust Company),
acquired on July 7, 1993, fiduciary and other fees related to the Core
Businesses would have increased 10.5% for the year 1994.
Assets Under Management
Total assets under management increased 2.4% to $33.0 billion at December
31, 1994, from $32.2 billion at December 31, 1993. Such assets include $1.9
billion of funds under management for clients of the Processing Business. Assets
held in custody for personal clients increased 4.7% to $8.2 billion at December
31, 1994, from $7.9 billion at December 31, 1993. Corporate trust assets under
trusteeship and agency relationships, including assets administered by UST's
bond immobilization business, increased 4.8% to $159.6 billion at December 31,
1994, from $152.2 billion at December 31, 1993. Total assets under
administration for the Processing Business increased 11.2% to $223.4 billion at
December 31, 1994, from $200.9 billion at December 31, 1993.
Securities Gains (Losses) and Net Interest Income
Under the Merger Agreement, the assets of the Chase Acquired Business
(which includes the Processing Business) will include readily available funds
approximately equal to the liabilities (including deposit liabilities), net of
fixed assets, associated with the Chase Acquired Business. The Chase Acquired
Business deposits provided a long-term source of funds to UST which financed a
portion of UST's long- and medium-term interest earning assets. In anticipation
of consummating the Merger and to substantially effect a rebalancing of UST's
overall asset and liability structure, in the fourth quarter of 1994, UST sold
approximately $800 million of U.S. Government Treasury and Agency securities.
The proceeds from such sales were invested in short-term investment securities
and used to reduce short-term borrowings. Net losses from the sale of securities
in the fourth quarter of 1994 totaled $44.2 million ($23.3 million after taxes),
compared to a net gain of $3.0 million from the sale of securities in the fourth
quarter of 1993. For the year 1994, net losses from the sale of securities
totalled $42.1 million, compared to a net gain from the sale of securities of
$3.0 million for the year 1993.
Net interest income, on a taxable equivalent basis, was $26.8 million in
the fourth quarter of 1994, a decrease of 7.7% from $29.1 million in the fourth
quarter of 1993. Net interest income in 1994, on a taxable equivalent basis, was
$112.8 million, a decrease of 7.6% from $122.1 million in 1993. The principal
reason for the decline in net interest income during the fourth quarter of 1994
and the year 1994 was the reduction ($283 million for the fourth quarter and
$187 million for the year) in the average volume of net non-interest bearing
deposit balances.
The average net non-interest bearing deposit balances of the Processing
Business declined 28.8% to $602 million in the fourth quarter of 1994, compared
to $845 million in the fourth quarter of 1993. The average volume of net
non-interest bearing deposit balances of the Processing Business in 1994 were
$776 million, a 21.1% reduction from $983 million in 1993. Replacing such net
non-interest bearing deposit balances with short-term borrowings caused UST's
net interest income to decline by $3.2 million ($1.7 million after taxes or
$0.18 per fully diluted share) in the fourth quarter of 1994 and $9.0 million
($4.8 million after taxes or $0.47 per fully diluted share) in 1994.
The net yield on interest-earning assets was 3.43% in the fourth quarter of
1994 and 3.49% in the year 1994, compared to 3.86% and 3.95% in the
corresponding 1993 periods. The decline in the net yield reflects
17
<PAGE> 24
the lower level of net non-interest bearing deposit balances and the impact of
the reduction in the investment securities portfolio's maturity structure.
Other Income
Other income was $9.1 million for the fourth quarter of 1994, compared to
$2.4 million for the fourth quarter of 1993, an increase of 282.3%. Other income
was $16.7 million in 1994, compared to $8.9 million in 1993, an increase of
89.0%. This increase was attributable primarily to the sale by UST of its
partnership interest in Financial Technologies International L.P.; a pre-tax
gain of $6.4 million was recorded in the fourth quarter of 1994 ($3.4 million
after taxes or $0.36 per fully diluted share for the fourth quarter and $0.33
per fully diluted share for the year 1994) in connection with this transaction.
Total Revenues
Total revenues (defined as fiduciary and other fees and net interest income
after provision for credit losses, adjusted for securities losses incurred in
anticipation of the Merger) were $109.9 million for the fourth quarter of 1994,
compared with $102.9 million for the fourth quarter of 1993. Total revenues were
$420.5 million for the year 1994, compared with $388.2 million for the year
1993. Core Businesses total revenues were $73.5 million for the fourth quarter
of 1994, an increase of 7.6% over $68.3 million of total revenues in the fourth
quarter of 1993. Core Businesses total revenues for the year 1994 were $270.2
million, an increase of 14.1% over 1993 Core Businesses total revenues of $236.8
million. Total revenues attributable to the Processing Business were $36.4
million for the fourth quarter of 1994, compared with $34.6 million for the
fourth quarter of 1993. Total revenues attributable to the Processing Business
in 1994 were $150.3 million, compared with $151.4 million in 1993.
Operating Expenses
Non-interest operating expenses were $94.3 million in the fourth quarter of
1994, an increase of 7.5% from $87.7 million in the fourth quarter of 1993.
Non-interest operating expenses were $341.9 million in the year 1994, an
increase of 8.4% from $315.5 million in the year 1993. UST incurred $6.0 million
($4.6 million after taxes) in professional fees and other related expenses in
the fourth quarter of 1994 in connection with the proposed Merger. Salaries and
employee benefit expenses, including sales incentives and commissions, increased
$4.3 million, or 8.6%, in the fourth quarter of 1994, and $18.3 million, or
9.7%, in the year 1994, reflecting increases in the size of the asset management
and mutual funds services businesses' professional staffs and related employee
benefit expense. In addition, the expense accrued for UST's stock-based
incentive award plans increased by approximately $500,000 after taxes or $0.05
per share, in the fourth quarter of 1994 as a result of the higher price of UST
Common Stock in the fourth quarter of 1994 following UST's announcement of the
Merger Agreement. For the fourth quarter of 1994, the ratio of total operating
expenses to taxable equivalent total revenues, as deferred ("efficiency ratio")
was 79.6%, compared to 84.1% for the fourth quarter of 1993. For the year 1994,
the comparable efficiency ratio was 79.0%, versus 80.1% for the year 1993. The
calculation of the 1994 efficiency ratios excludes the impact of the pending
Merger on operating income and operating expenses.
Core Businesses operating expenses were $51.7 million during the fourth
quarter of 1994, compared with $49.8 million during the comparable fourth
quarter of 1993. The operating expenses attributable to the Processing Business
were $27.8 million for the fourth quarter of 1994, compared with $32.3 million
for the fourth quarter of 1993. Corporate overhead and other unallocated
expenses were $14.9 million and $5.6 million for the fourth quarters of 1994 and
1993, respectively.
Core Businesses operating expenses were $194.1 million during 1994,
compared with $173.4 million during 1993. The operating expenses attributable to
the Processing Business were $113.6 million for 1994, compared with $110.1
million during 1993. Corporate overhead and other unallocated expenses were
$34.2 million and $32.0 million for 1994 and 1993, respectively.
Income Tax Expense
As a result of the pre-tax loss of $28.6 million in the fourth quarter of
1994, UST recorded a tax benefit of $13.0 million (at a 45.6% effective tax
rate), compared to a tax provision of $6.0 million (at a 39.8% effective
18
<PAGE> 25
tax rate) for the fourth quarter of 1993. The effective tax rate was 39.0% for
the year 1994, compared to 41.8% for the year 1993. The decline in the effective
tax rate from 1993 to 1994 was due to lower state and local income taxes.
Asset Quality and Provision For Credit Losses
Average loans increased $223 million, or 18.9%, to $1.4 billion in the
fourth quarter of 1994, from $1.2 billion in the fourth quarter of 1993.
Residential real estate mortgages accounted for more than 70% of the increase in
the loan portfolio. Average loans increased $212.2 million, or 19.4%, to $1.3
billion in 1994, from $1.1 billion in 1993.
The provision for credit losses was $500,000 in the fourth quarters of both
1994 and 1993. For the year 1994, the provision for credit losses was $2.0
million, compared to $4.0 million for the year 1993.
In the fourth quarter of 1994, net loan charge-offs were $228,000, compared
to net loan charge-offs of $1.4 million in the fourth quarter of 1993. As a
percentage of total average loans for the quarter, net loan charge-offs on an
annualized basis were six basis points in the fourth quarter of 1994, compared
to 46 basis points in the fourth quarter of 1993. For the year 1994, net loan
charge-offs were $694,000, compared to $2.3 million for the year 1993. As a
percentage of total average loans for the year, net loan charge-offs were five
basis points for 1994, compared to 21 basis points for 1993.
The allowance for credit losses at December 31, 1994, was $14.7 million, or
1.12% of total average loans outstanding for 1994, compared with an allowance
for credit losses at December 31, 1993, of $13.4 million, or 1.22% of total
average loans outstanding for 1993. The allowance for credit losses as a
percentage of nonperforming loans amounted to 230.72% at December 31, 1994,
compared to 223.03% at December 31, 1993.
Nonperforming assets were $18.7 million for the year 1994, compared to
$17.5 million for the year 1993. As a percentage of period-end total assets,
total nonperforming assets amounted to 58 basis points for the year 1994,
compared to 55 basis points for the year 1993.
Capital
The Company's Tier 1 capital ratio was 13.52% at December 31, 1994,
compared to 14.08% at December 31, 1993. The total capital ratio was 14.79% at
December 31, 1994, compared to 15.47% at December 31, 1993. The Tier 1 leverage
ratio was 5.68% at December 31, 1994, compared to 5.60% at December 31, 1993.
CHASE
On January 17, 1995, Chase announced its results for the fourth quarter and
full year of 1994. The following is a summary of such results. Chase's
announcement is fully set forth as an exhibit to Chase's Current Report on Form
8-K dated January 17, 1995, which is incorporated herein by reference. Such
Current Report will be superseded by Chase's Annual Report on Form 10-K for the
year ended December 31, 1994. As used in this "Recent Developments" discussion,
the term Chase means The Chase Manhattan Corporation and its consolidated
subsidiaries.
Fourth Quarter and Full Year 1994 Earnings
Chase reported net income of $229 million for the fourth quarter of 1994,
or $1.10 per common share, down 27% from the $313 million, or $1.53 per common
share, reported for the fourth quarter of 1993.
Chase reported a 25% increase in consolidated net income for the full year
of 1994 to $1,205 million, or $5.87 per common share, compared to net income of
$966 million, or $4.79 per common share, for the full year of 1993.
Net Interest Revenue -- Taxable Equivalent Basis. Net interest revenue, on
a taxable equivalent basis, was $911 million for the fourth quarter of 1994,
down $97 million from $1,008 million for the fourth quarter of 1993 which
included $21 million from the sale of Argentine past-due interest ("PDI") bonds.
The net interest
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<PAGE> 26
margin was 3.68% for the fourth quarter of 1994, compared to 4.33% for the
fourth quarter of 1993. Average interest-earning assets for the fourth quarter
of 1994 were $98.1 billion, compared to $92.4 billion for the fourth quarter of
1993. Average loans were $61.2 billion for the fourth quarter of 1994, compared
to $62.4 billion for the fourth quarter of 1993.
Net interest revenue, on a taxable equivalent basis, was $3,714 million for
the full year of 1994, compared to $3,892 million for 1993, which included $163
million of interest revenue from Brazilian and Argentine PDI bonds. The net
interest margin was 3.89% for the full year of 1994, compared to 4.33% (4.15%
excluding PDI bonds) for 1993. The net interest margin decline primarily
reflected the combined effects of a rising interest rate environment as well as
increased competition on loan pricing in certain businesses and a change in the
composition of average interest earning assets. Average interest earning assets
increased approximately $5.6 billion, from $89.9 billion in 1993 to $95.5
billion in 1994, due primarily to growth in securities and other liquid assets
to support trading businesses. Management expects such factors to continue to
impact the net interest margin in 1995.
Other Operating Revenue. Total other operating revenue for the fourth
quarter of 1994 was $672 million, compared to $878 million for the fourth
quarter of 1993. Total other operating revenue for the full year of 1994 was
$3,053 million, compared to $2,949 million for the full year of 1993.
Total fees and commissions for the fourth quarter of 1994 were $492
million, compared to $401 million for the fourth quarter of 1993. Total consumer
banking fees for the fourth quarter of 1994 increased to $167 million, from $110
million for the fourth quarter of 1993. The increase reflected increased
servicing fees from a higher volume of mortgage servicing assets and the absence
of accelerated write-downs of such assets in 1994. Trust and fiduciary fees for
the fourth quarter of 1994 were $145 million, compared to $124 million for the
fourth quarter of 1993. The increase primarily reflected increased customer
transaction volumes in the Global Securities Services business. Investment
banking fee revenue for the fourth quarter of 1994 was $72 million, compared to
$53 million for the fourth quarter of 1993, reflecting improved transaction
volumes.
Total fees and commissions for the full year of 1994 were $1,876 million,
up 20% compared to $1,562 million for the full year of 1993, reflecting
increases in all major categories of fee revenue. Total consumer banking fees,
including credit card and mortgage banking fees, were $638 million, compared to
$457 million for the full year of 1993. Trust and fiduciary fees for the full
year of 1994 were $567 million, compared to $465 million for the full year of
1993. Investment banking fee revenue for the full year of 1994 was $233 million,
compared to $194 million for the full year of 1993.
Total trading revenue for the fourth quarter of 1994 was $32 million, down
significantly from the $168 million for the fourth quarter of 1993. Total
trading revenue for the full year 1994 was $551 million compared with $716
million for 1993. The decline in 1994 trading revenue is attributable to several
factors, the most significant of which was the overall weakness in the global
securities and derivatives markets throughout most of the year. In addition, the
devaluation of the Mexican peso in December 1994, and the subsequent
deterioration of the emerging markets, adversely affected trading revenue in the
fourth quarter, as did the failure by a few counterparties to perform fully
their obligations under derivatives contracts.
The difficult market conditions have continued into early 1995. Although
Chase has reduced its exposure to the emerging markets, management believes that
trading revenue in 1995, particularly in the first quarter, is likely to be
adversely affected by these conditions.
Other revenue for the fourth quarter of 1994 was $148 million, compared to
$309 million for the fourth quarter of 1993. The decrease was due principally to
the absence of significant gains in 1994 from the portfolio of real estate
assets designated for accelerated disposition. Other revenue for the fourth
quarter of 1994 included a gain of $31 million from the sale of mortgage
servicing rights and a gain of approximately $30 million from the sale of the
retail deposit-taking business of Chase Manhattan Bank of Florida, N.A. Other
revenue for the fourth quarter of 1993 included $31 million in losses related to
reducing Chase's cross-border exposure, which was partially offset in interest
revenue by an increase of $21 million.
Other revenue for the full year of 1994 was $626 million, compared to $671
million reported for 1993. Other revenue for 1994 included $104 million of net
gains from sales and repayment of assets held for accelerated disposition,
compared to $291 million for 1993. Corporate finance-related investment gains
were
20
<PAGE> 27
$215 million for the full year of 1994, compared to $259 million for the full
year of 1993. Gains from investment securities were $105 million for the full
year of 1994 and $47 million for 1993.
Other Operating Expenses. Total operating expenses were $1,275 million for
the fourth quarter of 1994, compared to $1,199 million for the fourth quarter of
1993. Operating expenses for fourth quarter 1994 included $105 million related
to a voluntary retirement program offered during the fourth quarter, which was
accepted by approximately 1,200 employees. Also included in fourth quarter 1994
operating expenses were $52 million for productivity initiatives, such as
exiting from certain consumer activities overseas, regionalizing foreign
operations and streamlining domestic infrastructure. For fourth quarter 1993,
operating expenses included $45 million for business-related investments,
including the costs associated with expanding dealer trading activities and
enhanced information systems.
Compared to the same period of 1993, operating expenses for fourth quarter
1994 reflected higher performance related compensation expenses as well as
increased costs of marketing programs in support of Chase's businesses,
particularly credit card, regional banking and global capital markets. In
addition, operating expenses for fourth quarter 1994 included approximately $30
million from the acquisition by Chase of American Residential Holding
Corporation, a mortgage lending company. Operating expenses for the fourth
quarter of 1994 were favorably impacted by $28 million in net revenue from real
estate properties acquired in satisfaction of loans, including loans classified
as in-substance foreclosures ("ORE"), compared to $107 million of net ORE
expenses for the same period in 1993.
Other operating expenses for the full year of 1994 totaled $4,472 million,
compared to $4,202 million for the full year of 1993. 1993 expenses include the
first quarter 1993 provision of $318 million for ORE held for accelerated
disposition. The growth in expenses in 1994 resulted from the funding of
business growth opportunities, particularly in Chase's global securities
services, national consumer products and global markets activities, as well as
from the fourth quarter 1994 voluntary retirement program and productivity
initiatives. Chase's expense to revenue ratio for 1994 was 66%. Although
management has undertaken the fourth quarter 1994 initiatives as well as other
efforts to control expenses, it is unlikely that the expense to revenue ratio
will decline significantly in 1995.
Income Taxes. Chase recorded a net tax benefit of $18 million, compared to
a $173 million expense for the fourth quarter of 1993. The fourth quarter
benefit in 1994 reflected a $70 million reduction of the deferred federal income
tax valuation allowance.
The provision for income taxes for the full year of 1994 was $565 million,
compared to $265 million for 1993. Excluding the tax benefits applicable to the
special provision for the accelerated disposition portfolio, Chase's tax
provision for 1993 would have been approximately $575 million. In addition,
Chase adopted SFAS 109 in the first quarter of 1993 resulting in a $500 million
net benefit recorded as a cumulative effect of a change in accounting
principles.
Provision for Possible Credit Losses and Net Loan Charge-Offs. The
provision for possible credit losses for the fourth quarter of 1994 was $90
million, compared to $195 million for the fourth quarter of 1993. The provision
for possible credit losses for the full year of 1994 was $500 million, compared
to $995 million (excluding the accelerated disposition portfolio) for the full
year of 1993.
Total net loan charge-offs (excluding the accelerated disposition
portfolio) for the fourth quarter of 1994 were $95 million, compared to $679
million for the fourth quarter of 1993. No international net loan charge-offs
were recorded for the fourth quarter of 1994, while $490 million of such
charge-offs were recorded for the fourth quarter of 1993.
Total net loan charge-offs (excluding the accelerated disposition
portfolio) for the full year of 1994 were $517 million, down $820 million from
the $1,337 million charged off for the full year of 1993. Domestic consumer net
loan charge-offs for the full year of 1994 were $370 million, down $24 million
compared to the full year of 1993. Domestic commercial real estate net loan
charge-offs (excluding the accelerated disposition portfolio) for the full year
of 1994 were $125 million, compared to $277 million for the full year of 1993.
International net loan charge-offs for the full year of 1994 were $3 million,
compared to $500 million for the full year of 1993.
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<PAGE> 28
Reserve for Possible Credit Losses. At December 31, 1994, the reserve for
possible credit losses was $1,414 million, or 2.24% of total loans and 214% of
nonaccrual loans, compared to $1,425 million, or 2.36% of total loans and 135%
of nonaccrual loans (excluding the accelerated disposition portfolio), at
December 31, 1993.
Nonaccrual Outstandings and ORE. Total nonaccrual outstandings were $660
million at December 31, 1994, compared to $1,054 million (excluding the
accelerated disposition portfolio) at December 31, 1993. Domestic commercial
real estate nonaccrual outstandings were $266 million at December 31, 1994,
compared to $475 million (excluding the accelerated disposition portfolio) at
December 31, 1993. Other domestic nonaccrual loans outstandings were $244
million at December 31, 1994, compared to $407 million at December 31, 1993.
Total ORE was $257 million at December 31, 1994, compared to $905 million
(excluding the accelerated disposition portfolio) at December 31, 1993.
Domestic Commercial Real Estate Assets. At December 31, 1994, total
domestic commercial real estate assets were $2,306 million, compared to $3,994
million at December 31, 1993. At December 31, 1994, there were no assets
remaining in the accelerated disposition portfolio. At December 31, 1993, $222
million of assets remained in the portfolio.
Chase Summary Financial Data
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- ---------------------------
1994 1993 1994 1993
------ ------ -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C>
CONSOLIDATED CONDENSED STATEMENT OF INCOME:
Interest Revenue...................................... $1,947 $2,155 $ 8,134 $ 8,468
Interest Expense...................................... 1,043 1,153 4,445 4,605
------ ------ -------- --------
Net Interest Revenue.................................. 904 1,002 3,689 3,863
Provision for Possible Credit Losses.................. 90 195 500 995
Provision for Loans Held for Accelerated
Disposition......................................... -- -- -- 566
------ ------ -------- --------
Net Interest Revenue After Provisions for Possible
Credit Losses and Loans Held for Accelerated
Disposition......................................... 814 807 3,189 2,302
Other Operating Revenue............................... 672 878 3,053 2,949
Other Operating Expenses.............................. 1,275 1,199 4,472 4,520
------ ------ -------- --------
Income Before Taxes and Cumulative Effect of Change in
Accounting Principle................................ 211 486 1,770 731
Net Income............................................ 229 313 1,205 966
PER COMMON SHARE:
Primary Earnings...................................... $ 1.10 $ 1.53 $ 5.87 $ 4.79
Cash Dividends Declared............................... 0.40 0.30 1.46 1.20
CONSOLIDATED CONDENSED STATEMENT OF CONDITION:
Total Assets.......................................... $114,038 $102,103
Total Deposits........................................ 69,956 71,509
Intermediate- and Long-Term Debt...................... 5,070 5,641
Nonredeemable Preferred Stock......................... 1,400 1,399
Common Stockholders' Equity........................... 6,959 6,723
Total Stockholders' Equity............................ 8,359 8,122
EARNINGS RATIOS (UNAUDITED):
Return on Average Total Assets*....................... 0.75% 1.18% 1.01% 0.94%
Return on Average Common Stockholders' Equity......... 11.3% 17.9% 15.8% 14.6%
CAPITAL RATIOS (UNAUDITED):
As a Percentage of Risk Adjusted Period End Total
Assets:
Tier 1 Capital...................................... 8.30% 8.44%
Total Capital....................................... 12.78% 13.22%
Tier 1 Leverage....................................... 7.37% 7.81%
</TABLE>
- ---------------
* On January 1, 1994, Chase adopted FASB Interpretation No. 39. As a result of
such adoption, Chase's Trading Account Assets and Liabilities increased
approximately $8 billion at December 31, 1994. This had the effect of
decreasing the return on average total assets ratio and the Tier 1 Leverage
ratio.
22
<PAGE> 29
THE SPECIAL MEETING
GENERAL
This Proxy Statement-Prospectus is being furnished to holders of UST Common
Stock in connection with the solicitation of proxies by the UST Board for use at
the Special Meeting, to be held at the offices of United States Trust Company of
New York, 114 West 47th Street, New York, New York, in the Auditorium on the
first floor, on March 22, 1995, at 10:00 A.M., local time, and any adjournments
or postponements thereof, (i) to consider and vote upon the Distribution
Proposal, (ii) to consider and vote upon the Merger Proposal and (iii) to
transact such other business as may properly come before the Special Meeting or
any adjournments or postponements thereof.
Each copy of this Proxy Statement-Prospectus mailed to holders of UST
Common Stock is accompanied by a form of proxy for use at the Special Meeting.
STOCKHOLDERS ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ACCOMPANYING
PROXY CARD AND RETURN IT PROMPTLY TO UST IN THE ENCLOSED, POSTAGE-PAID ENVELOPE.
This Proxy Statement-Prospectus is also furnished to UST stockholders as
the prospectus of Chase relating to the issuance by Chase of shares of Chase
Common Stock in connection with the Merger.
RECORD DATE
The UST Board has fixed the close of business on February 1, 1995, as the
Record Date for the determination of the holders of UST Common Stock entitled to
receive notice of and to vote at the Special Meeting and at any adjournments or
postponements thereof.
VOTE REQUIRED
As of the Record Date, 9,489,309 shares of UST Common Stock were
outstanding and held by approximately 2,070 holders of record. Each share of UST
Common Stock outstanding on the Record Date will be entitled to one vote upon
each matter to come before the Special Meeting. Approval of the Distribution and
authorization and adoption of the Merger Agreement require, in each case, the
affirmative vote of two-thirds (or 66 2/3%) of the total number of shares
entitled to be voted at the Special Meeting.
The presence in person or by proxy at the Special Meeting of a majority of
the number of shares entitled to be voted is necessary to constitute a quorum
for the transaction of business. Abstentions will be counted as present for
purposes of determining whether a quorum is present. With respect to the
proposals to approve the Distribution and to authorize and adopt the Merger
Agreement, abstentions will have the same effect as a vote against each such
proposal. Under the rules of the NASD, brokers who hold shares in street name
for customers will not have the authority to vote such shares on the
Distribution Proposal or the Merger Proposal unless such brokers receive
specific instructions from the beneficial owners of such shares. While shares as
to which there is a non-vote by a broker will be counted as present for purposes
of a quorum, such non-vote will have the same effect as a vote against approval
of the Distribution and against authorization and adoption of the Merger
Agreement.
It is a condition to the consummation of the Distribution that the Merger
Agreement have been authorized and adopted by the stockholders of UST, and it is
a condition to consummation of the Merger that the Distribution have been
approved by the stockholders of UST.
As of the Record Date, directors and executive officers of UST owned
beneficially an aggregate of 792,431 shares of UST Common Stock (including
shares issuable upon the exercise of employee stock options which are currently
exercisable or which become exercisable within 60 days), or approximately 7.93%
of the shares of UST Common Stock outstanding on such date. See "The
Merger -- Interests of Certain Persons in The Transactions", "Effect of
Transactions on UST Employees and UST Benefit Plans" and "Beneficial Ownership".
23
<PAGE> 30
As of the Record Date, directors and executive officers of Chase did not
beneficially own any shares of UST Common Stock.
VOTING AND REVOCATION OF PROXIES
Shares of UST Common Stock represented by a proxy properly signed and
received at or prior to the Special Meeting, unless subsequently revoked, will
be voted in accordance with the instructions thereon. IF A PROXY IS SIGNED AND
RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS, SHARES OF UST COMMON STOCK
REPRESENTED BY THE PROXY WILL BE VOTED FOR BOTH THE DISTRIBUTION PROPOSAL AND
THE MERGER PROPOSAL. Any proxy given pursuant to this solicitation may be
revoked by the person giving it at any time before the proxy is voted by the
filing of an instrument revoking it or of a duly executed proxy bearing a later
date with the Secretary of UST prior to or at the Special Meeting, or by voting
in person at the Special Meeting. All written notices of revocation and other
communications with respect to revocation of proxies should be addressed to U.S.
Trust Corporation, 114 West 47th Street, New York, New York 10036. Attention:
Office of the Secretary. Attendance at the Special Meeting will not in and of
itself constitute a revocation of a proxy.
The UST Board is not currently aware of any matters to come before the
Special Meeting other than as described herein. If, however, other matters are
properly brought before the Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion to
vote or act thereon according to their best judgment. Proxies voted against the
Distribution Proposal or the Merger Proposal, however, will not be used to vote
in favor of an adjournment to the Special Meeting for the purpose of soliciting
additional votes.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
UST, who will not be specifically compensated for such services, may solicit
proxies from UST stockholders personally or by telephone, telecopy or telegram
or other forms of communication. Brokerage houses, nominees, fiduciaries and
other custodians will be requested to forward soliciting materials to beneficial
owners and will be reimbursed for their reasonable expenses incurred in sending
proxy materials to beneficial owners.
In addition, UST has retained Morrow & Co. to assist in the solicitation of
proxies from its stockholders. The fees to be paid to such firm for such
services by UST are not expected to exceed $7,500, plus reasonable out-of-pocket
costs and expenses. UST will bear the expenses in connection with the
solicitation of proxies for the Special Meeting.
DISSENTERS' RIGHTS
Holders of UST Common Stock will be entitled to dissenters' rights in
connection with the Merger. See "The Merger -- Dissenters' Rights".
THE TRANSACTIONS
Pursuant to the transactions described in this Proxy Statement-Prospectus,
Chase will acquire the Chase Acquired Business, which is comprised of the
Processing Business and the Related Back Office. The Processing Business
consists of (i) the unit investment trust business of USTNY and its affiliates,
which includes, among other things, acting as trustee for "unit investment
trusts" (as such term is defined in the Investment Company Act of 1940, as
amended), maintaining custody of securities and investments for unit trusts and
providing other processing support to unit trusts, (ii) the mutual funds
services business of UST and its subsidiaries, which includes, among other
things, providing domestic and global custody, transfer agency and other
administrative services to registered investment companies and (iii) the
institutional asset services business of USTNY and its affiliates, which
includes, among other things, master trust and custody services, securities
lending services, rabbi trust services and certain money management services.
The Related Back Office consists of USTNY's Computer Services Division and
Securities Services and Trust Operations Division, including, but not limited
to, computer equipment, furniture, fixtures, inventory and supplies and
24
<PAGE> 31
other property (but not including any property related to certain bank
processing services, such as loan processing services, deposit and check
processing services and the like).
The sale of the Chase Acquired Business will be effected through a series
of sequential transactions, including the Distribution and the Merger, all as
set forth in the Merger Agreement. The purpose of this complex structure is to
permit the sale of the Chase Acquired Business to Chase on a tax-free basis to
UST and its stockholders in a transaction in which UST stockholders will receive
Chase Common Stock and will also retain their proportionate equity interests in
the Core Businesses in the form of Spinco Common Stock to be received in the
Distribution. In order to ensure the tax-free nature of the sale, UST (which
will then hold only the Chase Acquired Business) will merge with and into Chase.
Accordingly, a "reverse spinoff" structure was adopted pursuant to which the
Core Businesses will be transferred to Spinco and its subsidiaries and the
common stock of Spinco will, prior to the Merger, be distributed to UST
stockholders in the Distribution. After the Distribution and at the Effective
Time, UST and its remaining subsidiaries, USTNY, Mutual Funds Service Company, a
Delaware corporation ("MF Service Company"), and U.S. Trust Company of Wyoming,
a Wyoming corporation ("UST-WY"), will hold the Chase Acquired Business. Chase
will effectively acquire the Chase Acquired Business in the Merger and the
subsequent merger of USTNY with and into CMB (the "Bank Merger"), pursuant to
which UST and USTNY will be merged with and into Chase and CMB, respectively,
and MF Service Company and UST-WY will become subsidiaries of Chase or CMB.
The current corporate structure of UST and its subsidiaries is as follows:
[CHART]
A chart of the corporate structure of UST shows an oval marked "UST
Stockholders". Underneath the UST Stockholders oval is a box marked "UST",
which is connected to the UST Stockholders oval by a vertical line. The UST
box has a vertical line extending below it to connect it with five separate
boxes indicating wholly owned subsidiaries of UST. The five boxes are marked,
"SPINCO", "UST-WY", "Other Subsidiaries", "MF Service Company", "USTNY (Core
Businesses and Chase Acquired Businesses)"; the last box marked "USTNY (Core
Businesses and Chase Acquired Businesses)" has a box below it marked "NEW
TRUSTCO" which box is connected to the USTNY box by a vertical line indicating
it to be a wholly owned subsidiary of USTNY. A line with arrow points at each
end extends from the box marked "UST" to a separate box marked "Chase"; the
line with the two arrow points is marked with the term "Merger Agreement."
The significant sequential transactions that will be effected in order to
accomplish the Distribution and the Merger, all of which will take place at or
shortly before the Effective Time, are briefly described below:
First, pursuant to the Contribution Agreement, USTNY will assign and
transfer the Core Businesses to New Trustco, which will have been organized
as a wholly owned bank subsidiary of USTNY;
Second, pursuant to the Distribution Agreement, USTNY will dividend
all the stock of New Trustco to UST;
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Third, pursuant to the Distribution Agreement, UST will contribute to
Spinco all the stock of New Trustco, the capital stock of all UST's
subsidiaries (other than USTNY, MF Service Company and UST-WY) and certain
miscellaneous assets of UST, including cash or securities then held by UST;
Following the Internal Reorganization described above, the corporate
structure of UST and its subsidiaries will be as follows:
[CHART]
A chart of corporate structure of UST shows the UST Stockholders oval
connected to the UST box as in the prior chart. Beneath the UST box are
four boxes connected by a vertical line to the UST box indicating each is
a wholly owned subsidiary of UST; the four boxes are marked "SPINCO",
"UST-WY", "MF Service Company" and "USTNY (Chase Acquired Business)". Set
forth below the Spinco box are two boxes denoting wholly owned
subsidiaries of Spinco -- one marked "Other Subsidiaries" and the other
marked "New Trustco (Core Businesses)". A line with arrow points at each
end extends from the box marked UST to a separate box marked Chase; the
line with the two arrow points is marked with the term "Merger Agreement".
Fourth, pursuant to the Distribution Agreement, Spinco will effect a
recapitalization pursuant to which its authorized common stock will be
increased to 40,000,000 shares and the shares then outstanding, all of
which will be held by UST, will be equal to the number of shares of UST
Common Stock outstanding immediately prior to the Distribution;
Fifth, pursuant to the Distribution Agreement, UST will distribute to
each of its stockholders in the Distribution one share of Spinco Common
Stock in respect of each share of UST Common Stock held by such stockholder
on the Distribution Record Date;
Sixth, shortly after the Distribution, the Merger will be consummated
pursuant to the Merger Agreement; and
Seventh, immediately after the Merger, the Bank Merger will be
completed, and USTNY will merge into CMB.
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Following the Distribution, the Merger and the Bank Merger, the
corporate structure of UST and its subsidiaries and Chase and its
subsidiaries (as affected by the Merger and the Bank Merger) will be as
follows:
[CHART]
A chart of corporate structure of Spinco and Chase is set forth. The
UST Stockholders oval has two vertical lines running beneath it; one
connects to a box marked "Spinco" and the second connects to a box marked
"Chase". The vertical line between the UST Stockholders oval and the
Spinco box has "100%" adjacent to it; the vertical line between the UST
Stockholders oval and the Chase box has the words "Stock received in the
Merger" adjacent to it with an asterisk. (The asterisk indicates a
footnote which states "Expected to be less than 7% of the outstanding
shares of Chase Common Stock.") A vertical line extends below the Spinco
box and is connected to two separate boxes marked "Other Subsidiaries" and
"New Trustco (Core Businesses)", indicating wholly owned subsidiaries of
Spinco. Above the Chase box is an oval marked "Other Stockholders of
Chase" which is connected to the Chase box by a vertical line. Beneath
the Chase box is a vertical line connected to a single box marked "CMB
(including Chase Acquired Business through merger of USTNY into CMB)";
beneath the CMB box are two boxes connected by a vertical line to the CMB
box; one such box is marked "UST-WY" and the other box is marked "MF
Service Company", indicating that each is a wholly owned subsidiary of
CMB.
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<PAGE> 34
THE COMPANIES
UST
UST was incorporated in New York in 1977 and became a bank holding company
in 1978. USTNY, UST's principal subsidiary, was created as a trust company by
Special Act of the New York Legislature in 1853. UST, through USTNY and its
other subsidiaries, provides financial services to individuals and institutions.
UST conducts five principal businesses: asset management, private banking,
special fiduciary, corporate trust and securities processing. The Chase Acquired
Business will constitute all the assets and liabilities of UST at the Effective
Time. See "The Distribution". Immediately prior to the Time of Distribution, the
Core Businesses will be transferred to Spinco. At the Time of Distribution, the
Core Businesses, which will be held directly or indirectly by Spinco, will
include the assets and liabilities of, and certain of the subsidiaries
conducting, UST's asset management, private banking, special fiduciary and
corporate trust businesses. At September 30, 1994, UST and its consolidated
subsidiaries had total assets of approximately $4.0 billion, total deposits of
approximately $2.4 billion and shareholders' equity of approximately $239.6
million. For the nine months ended September 30, 1994, the Chase Acquired
Business accounted for approximately $113.9 million, or 37%, of UST's
consolidated revenues. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Information Statement attached as
Appendix H hereto.
The Chase Acquired Business is currently conducted by USTNY utilizing
certain of its assets and by MF Service Company and UST-WY, each of which is
engaged solely in the Processing Business. The Core Businesses, which includes
all subsidiaries of UST not engaged primarily in the Processing Business (other
than USTNY), will be transferred to Spinco (or subsidiaries of Spinco) prior to
the Distribution, and, accordingly, will not be acquired by Chase as a
consequence of the Merger.
UST's principal executive office is located at 114 West 47th Street, New
York, New York 10036 and its telephone number at such office is (212) 852-1000.
CHASE
Chase is a bank holding company that was incorporated in Delaware in 1969
and whose principal subsidiary is CMB. In addition to CMB, Chase holds
investments in other subsidiaries that provide a variety of financial services,
including commercial and consumer financing, investment banking, securities
trading and investment advisory services. Chase's primary strategy is that of a
global bank with a diversified domestic base serving three interrelated
franchises: global financial services, domestic consumer products and regional
banking in the northeastern United States. Over the last few years, Chase has
focused its business and marketing efforts on two types of customers -- retail
(individuals and small and medium-sized businesses) and wholesale (primarily
large corporations and institutions). Chase's business groups serving retail
customers are National Consumer Product Companies, Regional Banking and Global
Private Banking; those serving wholesale customers are Global Corporate Finance,
Global Markets and Transaction and Information Services. In addition to these
core business groups, the Real Estate Finance Sector manages Chase's loan
portfolio related to the domestic commercial real estate business and the LDC
Portfolio Management group oversees Chase's portfolio of cross-border extensions
of credit to refinancing countries. At September 30, 1994, Chase and its
consolidated subsidiaries had total assets of approximately $117.1 billion,
total deposits of approximately $68.9 billion and shareholders' equity of
approximately $8.4 billion.
Chase's ability to pay dividends on its preferred and common stock is
derived from several sources, including, among other sources, dividends from its
banking and nonbanking subsidiaries. The ability of Chase's banking subsidiaries
to pay dividends is subject to certain restrictions.
National banks are subject to various legal limitations which prohibit the
payment of dividends in certain circumstances and restrict the amount that may
be paid without the prior approval of the OCC. Under the provisions of 12 U.S.C.
56, a national bank may not pay a dividend in an amount greater than its
undivided profits. In addition, under the provisions of 12 U.S.C. 60, the
approval of the OCC is required if the total of all dividends declared by a
national bank in any calendar year exceeds such bank's net income for that year,
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combined with its retained net income for the preceding two calendar years, less
any required transfers to surplus.
At September 30, 1994, under the more restrictive of these limitations, CMB
could declare dividends during the remainder of 1994 of approximately $1.3
billion, combined with an additional amount equal to its net income from
September 30, 1994 up to the date of any dividend declaration. Under applicable
state and Federal laws, The Chase Manhattan Bank (USA) ("Chase USA") and Chase
Bank of Maryland ("Chase Maryland") could declare dividends during the remainder
of 1994 of approximately $1 billion and $6 million, respectively, combined with
an additional amount equal to their respective retained net profits from
September 30, 1994 up to the date of any dividend declaration. The payment of
dividends by bank holding companies and their banking subsidiaries may also be
limited by other factors, including applicable regulatory capital guidelines and
leverage limitations.
Chase is a legal entity separate and distinct from CMB and Chase's other
subsidiaries. There are various legal limitations on the extent to which banks,
such as CMB, Chase USA and Chase Maryland, that are insured by the FDIC, may
finance or otherwise supply funds to certain of their affiliates. In particular,
each bank that is a subsidiary of Chase is subject to certain restrictions on
any extensions of credit to, or other covered transactions, such as certain
purchases of assets, with Chase or such affiliates. Such restrictions prevent
banking subsidiaries of Chase from lending to Chase and their affiliates unless
such extensions of credit are secured by collateral in specified amounts and are
made on terms and conditions that are substantially the same as those prevailing
for comparable transactions with non-affiliated companies. Further, such covered
transactions by any such bank are limited in amount as to Chase or any such
affiliate to 10 percent of such bank's capital and surplus and as to Chase and
all such affiliates in the aggregate to 20 percent of such bank's capital and
surplus.
Chase's principal executive office is located at 1 Chase Manhattan Plaza,
New York, New York 10081 and its telephone number at such office is (212)
552-2222.
To obtain additional information concerning the respective businesses of
UST and Chase, including audited and unaudited financial information, see
"Available Information" and "Incorporation of Certain Information by Reference".
For a more detailed description of the businesses to be transferred to Spinco,
including audited and unaudited financial information, see the Information
Statement attached as Appendix H hereto.
THE MERGER
This section of the Proxy Statement-Prospectus describes certain aspects of
the proposed Merger. To the extent that it relates to the Merger Agreement, the
following description does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement, which is attached as Appendix A
to this Proxy Statement-Prospectus and is incorporated herein by reference. As
used in this Proxy Statement-Prospectus, the "Chase Acquired Company To Be
Merged" means UST, together with its subsidiaries, USTNY, MF Service Company and
UST-WY (and any subsidiaries of MF Service Company or UST-WY), which
collectively will own and conduct the Chase Acquired Business at the Effective
Time. ALL UST STOCKHOLDERS ARE URGED TO READ THE MERGER AGREEMENT IN ITS
ENTIRETY.
BACKGROUND OF THE MERGER
UST's management has regularly reviewed possible strategies and
transactions to enhance UST's competitiveness and to position its assets and
businesses in a manner that would increase the value of those assets and of
UST's business and operations, thereby increasing stockholder value. These
strategies included a possible acquisition and joint ventures, internal
restructurings, outsourcing of operational services and the divestiture of one
of its businesses. In December 1993, UST's management determined that UST should
examine the possibility of a divestiture of the Processing Business in its
entirety. The principal reasons for UST's determination to actively pursue this
strategic course of action was the conclusion that the securities processing
business would require significant allocations of capital and financial
resources on an ongoing basis
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<PAGE> 36
to remain competitive, while UST anticipated needs for additional capital and
financial resources to expand its more profitable growth opportunities in the
asset management, private banking, and corporate trust businesses over the
coming years. In addition, UST's management believed that, in light of the size
of its capital, the inherent operating risks in securities processing businesses
generally could, over time, threaten UST's reputation and franchise in the Core
Businesses.
Accordingly, beginning in early 1994, UST explored with counsel and CS
First Boston possible structures for various transactions involving the sale or
other disposition of the Processing Business. During the early summer of 1994,
members of UST's management had informal discussions with a large financial
institution regarding a possible asset swap involving the assets of the
Processing Business, but were unable to agree with such financial institution on
how to proceed with such a transaction. In August 1994, the UST Board determined
to continue to explore various strategic alternatives regarding the Processing
Business, and authorized CS First Boston to prepare materials and contact
companies on a preliminary basis to determine whether a sale of the Processing
Business or its assets to one of such companies was possible at an appropriate
price.
CS First Boston contacted 10 companies, including Chase, on a confidential
basis. On August 17, 1994, after executing confidentiality agreements, certain
nonpublic information concerning the Processing Business and the Related Back
Office was provided to, and initial indications of interest solicited from, all
10 of those companies. On September 6, 1994, UST received indications of
interest from six companies regarding the purchase of the Processing Business
(and, in some cases, the Related Back Office) on both a taxable and non-taxable
basis. Based on the indications of interest, UST invited five of the six
companies to perform a due diligence review of the Processing Business and the
Related Back Office. On October 18, 1994, following completion of due diligence
reviews by all five companies, UST received formal bids for the purchase of the
Processing Business and the Related Back Office from three companies, including
Chase, each of which involved a tax-free transaction structure. On October 21,
1994, following discussions with each of the three bidders regarding certain
aspects of their respective bids, UST received revised bids from Chase and one
other bidder. UST, in consultation with its legal and financial advisors,
considered all aspects of the revised bids, including the consideration offered,
the proposed transaction structure, the proposed treatment of UST employees
(including severance arrangements) and the proposed arrangements for providing
back office services to Spinco.
Based primarily on the consideration offered by Chase, as well as the other
aspects of its bid, UST agreed to enter into exclusive negotiations with Chase
on October 21, 1994, and began immediately thereafter negotiating the terms of a
transaction.
UST continued negotiations with Chase from October 21, 1994 through
November 17, 1994. These negotiations were conducted principally at a number of
meetings attended by representatives of UST and Chase and their respective legal
and/or financial advisors. Negotiations were also conducted telephonically from
time to time during such period. The negotiations focused principally on the
terms of the various documents relating to the Distribution and the Merger, as
well as the terms of a services agreement to be entered into by Spinco and a
subsidiary of Chase at the Effective Time pursuant to which such subsidiary
would provide Spinco with custody and other back office services following the
Merger.
On October 24, 1994, in response to unusually high trading volume in its
stock, UST issued a press release announcing that it was engaged in negotiations
with a third party for the sale of its securities processing business. On
November 16, 1994, in response to an article in the American Banker that
incorrectly described the proposed transaction, UST issued a press release
reiterating its October 24 press release.
On November 17, 1994, the parties reached substantial agreement on the
terms of the transaction. The UST Board considered the terms of the Merger
Agreement and the related documents at a meeting on the evening of November 17,
1994. At the November 17 meeting, CS First Boston made a presentation to the UST
Board regarding the transactions and delivered its fairness opinion. See
"-- Opinion of the Financial Advisor to the UST Board". Following unanimous
approval by the members of the UST Board present at the meeting to consider the
Distribution and the Merger, the Merger Agreement was entered into early on the
morning of November 18, 1994, and the proposed transaction was publicly
announced shortly thereafter.
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UST'S REASONS FOR THE MERGER; RECOMMENDATION OF THE UST BOARD
The UST Board has unanimously determined the Merger to be in the best
interests of and fair to UST and its stockholders. THE UST BOARD HAS APPROVED
THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS ITS AUTHORIZATION AND ADOPTION
BY UST STOCKHOLDERS.
In reaching this determination and recommendation, the UST Board considered
the following factors:
(a) the terms and conditions of the Merger Agreement, including (i)
the amount and form of the consideration, (ii) the terms for determining
the amount of Chase Common Stock to be received in connection with the
Merger by UST stockholders and (iii) the degree of flexibility provided to
UST to conduct the businesses to be transferred to Spinco prior to the
Effective Time;
(b) the existing conditions in, and future prospects of, the
Processing Business and in particular the ongoing capital and financial
requirements of UST's securities processing business and the existing
position of UST as an independent competitor in that industry;
(c) the scale required to maintain or improve margins in securities
processing businesses generally, the growth prospects of UST with and
without the Processing Business, UST's lack of an in-house global custody
capability and other related revenue producing services that could improve
the profitability of the Processing Business, and the potential for
damaging the reputation of UST and its overall franchise business resulting
from the relative difficulty faced by smaller institutions in managing the
inherent operating risks in securities processing businesses generally;
(d) the fact that the Distribution will allow UST stockholders to
retain a continuing interest in UST's asset management, private banking,
special fiduciary and corporate trust businesses through their ownership
interest in Spinco following the Merger;
(e) historical data relating to market prices and trading volumes of
and dividends on UST Common Stock, historical data relating to market
prices and trading volumes of and dividends on Chase Common Stock, market
prices of Chase Common Stock compared to those of certain other publicly
traded companies and Chase's credit ratings;
(f) the regulatory approvals and private letter ruling required for
the Merger, as well as the risks, uncertainties and possible delays
associated with such regulatory approvals and private letter ruling, and
the estimated length of time required to consummate the Merger;
(g) the fact that CS First Boston had solicited 10 companies for the
sale of UST's securities processing business, and that Chase's proposal,
which resulted in the execution of the Merger Agreement, was, in the view
of the UST Board, the most favorable proposal received by UST;
(h) the structure of the Merger and the Distribution, which would
permit UST stockholders to exchange their UST Common Stock for Chase Common
Stock and to receive shares of Spinco Common Stock, in each case on a
tax-free basis;
(i) Chase's willingness to hire approximately 1,120 UST employees,
thereby limiting the number of UST employees whose employment will be
terminated as a result of the transaction;
(j) the terms of the Post Closing Covenants Agreement, including the
indemnification provisions, the minimum capital requirement and the
noncompetition provisions relating to Spinco (see "The Distribution --
Terms of the Post Closing Covenants Agreement");
(k) the terms of the Tax Allocation Agreement to be entered into prior
to the Distribution between Chase, UST and Spinco (the "Tax Allocation
Agreement") (see "The Distribution -- Terms of the Tax Allocation
Agreement");
(l) Chase's ability to provide quality back office services for Spinco
and its subsidiaries following the Merger;
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(m) the terms of the Services Agreement, including the annual base fee
and the renewal option; and
(n) the presentation of CS First Boston delivered to the UST Board at
its meeting on November 17, 1994, including its written opinion dated
November 17, 1994, as updated on the date of this Proxy
Statement-Prospectus, that, as of each such date, the consideration to be
received by UST stockholders in connection with the Merger, which was
determined by arm's-length negotiations between UST and Chase, is fair to
such stockholders from a financial point of view.
The UST Board believes that the factors in paragraphs (b), (c), (d), (f),
(i), (l) and (m) support its determination that the Merger is in the best
interests of UST and its stockholders. In particular, the UST Board believes
that the factors described in paragraphs (b), (c) and (d) support this
determination because the Merger (together with the Distribution) allows UST
stockholders to sell the Processing Business to Chase while maintaining their
equity interests in the Core Businesses. The UST Board also believes that the
factors described in paragraphs (l) and (m) support this determination because
the UST Board believes Chase will provide quality back office services for
Spinco at a cost substantially below the cost that would be required for Spinco
to provide such services to itself.
The UST Board considered the factors in paragraphs (a), (e), (g), (h), (j),
(k) and (n) above in reaching its determination that the consideration to be
received in the Merger by UST stockholders is fair. In particular, the UST Board
believes the terms of the transactions and the amount and form of consideration
to be received in the Merger, taking into account the historical data described
in paragraph (e), allow UST stockholders to receive a fair price for the
Processing Business, and that such belief is supported by CS First Boston's
solicitation process described in paragraph (g) and CS First Boston's fairness
opinion described in paragraph (n).
Based on all of these considerations, and such other matters as the members
of the UST Board deemed relevant, the members of the UST Board present at the
meeting at which the Merger was considered unanimously approved the Merger
Agreement and the transactions contemplated thereby.
The foregoing discussion of the information and factors considered and
given weight by the UST Board is not intended to be exhaustive but is believed
to include all material factors considered by the UST Board. In addition, in
reaching the determination to approve, and to recommend approval and
authorization of, the Distribution and the Merger, the UST Board did not assign
any relative or specific weights to the foregoing factors which were considered,
and individual directors may have given different weights to different factors.
The members of the UST Board present at the meeting at which the Distribution
and the Merger were considered were, however, unanimous in their recommendation
to the holders of UST Common Stock that the Distribution be approved and that
the Merger Agreement be authorized and adopted.
THE UST BOARD RECOMMENDS THAT UST STOCKHOLDERS VOTE FOR APPROVAL OF THE
DISTRIBUTION AND AUTHORIZATION AND ADOPTION OF THE MERGER AGREEMENT.
OPINION OF THE FINANCIAL ADVISOR TO THE UST BOARD
UST retained CS First Boston to act as financial advisor in connection with
the Merger and related matters based upon its qualifications, expertise, and
reputation, as well as CS First Boston's prior investment banking relationship
and familiarity with UST. CS First Boston is an internationally recognized
investment banking firm regularly engaged in the valuation of businesses
(including banks and financial institutions) and their securities in connection
with mergers and acquisitions, leveraged buyouts, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements, and valuations for corporate and other purposes.
On November 17, 1994, at the meeting at which the UST Board approved the
Merger Agreement, and as of the date of this Proxy Statement-Prospectus, CS
First Boston delivered opinions to the UST Board to the effect that, as of such
dates, the consideration to be received by UST stockholders pursuant to the
Merger,
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which was determined by arm's-length negotiations between UST and Chase, was
fair to such stockholders from a financial point of view.
THE FULL TEXT OF THE OPINION DATED AS OF THE DATE OF THIS PROXY
STATEMENT-PROSPECTUS, WHICH SETS FORTH CERTAIN ASSUMPTIONS MADE, MATTERS
CONSIDERED, AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS
APPENDIX F AND SHOULD BE READ IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY
STATEMENT-PROSPECTUS. THE SUMMARY OF THE OPINIONS OF CS FIRST BOSTON SET FORTH
IN THIS PROXY STATEMENT-PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE OPINION ATTACHED HERETO AS APPENDIX F. THE NOVEMBER 17, 1994 OPINION IS
SUBSTANTIALLY IDENTICAL TO THE OPINION ATTACHED HERETO.
In rendering its opinions, CS First Boston (a) reviewed certain publicly
available financial information relating to UST and Chase, (b) reviewed certain
other information, including financial forecasts, provided to it by management
of UST, and met with the management of UST to discuss the Chase Acquired
Business, (c) considered the financial terms of certain transactions in the
processing industry, (d) reviewed publicly available financial and stock market
data for companies providing data processing services and (e) considered such
other information, financial studies, analyses, and investigations, and
financial, economic, and market criteria that it deemed relevant.
CS First Boston, in conducting its analyses and in arriving at its
opinions, did not assume any responsibility for independent verification of any
of the information considered and relied on the completeness and accuracy of
such information in all material respects. With respect to the financial
forecasts, UST management advised CS First Boston, and CS First Boston assumed
without independent verification, that such financial forecasts were reasonably
prepared, reflecting the best currently available estimates and judgments of UST
management as to the future financial performance of the Chase Acquired Business
(and the assumptions and bases therefor). CS First Boston did not assume any
responsibility for conducting, nor did it conduct, a physical inspection,
evaluation or appraisal of any of the properties or assets of UST and did not
make or obtain any such inspection, evaluation or appraisal. The opinions of CS
First Boston are necessarily based on economic, market, and other conditions as
in effect on, and the information made available to CS First Boston as of, the
dates of its analyses. CS First Boston did not express and is not expressing any
opinion as to what the value of the Chase Common Stock or Spinco Common Stock
will be when issued to the UST stockholders in connection with the Merger or the
Distribution, or the prices at which such stock will trade subsequent to such
issuance. CS First Boston assumed, with the consent of UST, that the Merger and
the Distribution will be treated as tax-free transactions.
The following is a brief summary of the analyses performed by CS First
Boston in connection with rendering its opinion dated November 17, 1994:
Discounted Cash Flow Analysis. CS First Boston performed a discounted
cash flow analysis using financial forecasts furnished by UST management,
and based on a number of assumptions including, among other things,
discount rates ranging from 12.0% to 14.0%, and terminal value to earnings
multiples ranging from 8x to 10x applied to 1999 forecasted earnings, with
implied perpetual dividend growth ranging from 0.0% to 4.0%, all of which
were selected by CS First Boston based on its experience in performing such
analysis. This analysis showed values ranging from $235 million to $290
million, compared to an assumed value for the Merger of $363.5 million. The
analysis did not reflect any potential cost savings, including the
elimination of overhead allocated by UST to the Chase Acquired Business.
This analysis did not purport to be indicative of actual or expected values
of the Chase Acquired Business before or after the Merger.
Comparable Transaction Analysis. CS First Boston analyzed certain
financial aspects of certain transactions for which data was available
since 1990. These transactions involved companies engaged in the financial
services data processing business. Data processing services comprise only a
limited component of the Chase Acquired Business. CS First Boston compared
the enterprise value of the businesses sold as a multiple of
last-twelve-month ("LTM") revenues and earnings before income tax
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("EBIT") and the equity value of the businesses sold as a multiple of LTM
net income. For the Merger, CS First Boston assumed an enterprise value and
an equity value of $363.5 million, and used estimated 1994 revenues, EBIT
and net income (each as provided by UST management) for the Chase Acquired
Business. Averages excluded certain outlying multiples. The multiples of
enterprise value to LTM revenues ranged from 0.8x to 1.9x and averaged 1.4x
(compared to a multiple of 2.3x for the Merger). The multiples of
enterprise value to LTM EBIT ranged from 10.2x to 17.7x and averaged 14.1x
(compared to a multiple of 9.3x for the Merger). The multiples of equity
value to LTM net income ranged from 16.6x to 24.3x and averaged 21.5x
(compared to 16.3x for the Merger). In its presentation to the UST Board,
CS First Boston indicated that while this analysis is a customary valuation
methodology, because of dissimilarities between the companies involved and
the Chase Acquired Business, CS First Boston gave less weight to this
methodology in arriving at its opinions.
Comparable Company Analysis. In performing comparable company
analysis, CS First Boston analyzed financial information and ratios of the
following processing companies: First Financial Management Corp, First Data
Corp., SPS Transaction Services, National Data Corp., Equifax, Inc., Fiser
Inc. and Total Systems Services, Inc. (using data as of June 30, 1994,
except for per-share amounts). Among the financial information compared was
information relating to operating margins, net margins, return on average
common equity, return on average total capital and market value as a
multiple of LTM earnings per share, of book value and of earnings per share
estimates. Earnings per share estimates were based on First Call estimates
and longer-term growth estimates were based on Institutional Brokers
Estimate System ("IBES") estimates. First Call and IBES are third-party
data services that monitor and publish estimates produced by selected
research analysts regarding companies of interest to investors. CS First
Boston concluded that the comparison of the Chase Acquired Business to
these companies was not meaningful because of variances in projected
revenue and earnings growth rates and dissimilarity between the businesses
conducted, based on, among other things, differences between each of the
companies' asset and business mix, financial position, operations and
markets.
In arriving at its opinions, CS First Boston performed certain financial
analyses, the material portions of which are summarized above. CS First Boston
believes that these analyses and the summary set forth above must be considered
as a whole and that selecting portions of its analyses could create an
incomplete view of the process underlying its opinions. Moreover, the summary
set forth above does not purport to be a complete description of the analyses
performed by CS First Boston. CS First Boston's opinions are addressed solely to
the UST Board and should not be viewed as a recommendation as how any UST
stockholders should vote. The analyses performed by CS First Boston are not
necessarily indicative of actual values, which may be significantly more or less
favorable than suggested by such analyses. Additionally, analyses relating to
the values of businesses do not purport to be appraisals or to reflect actual
market valuations or trading ranges, which may vary significantly from amounts
set forth above. Actual trading values will depend on several factors, including
events affecting the sectors of the processing industry in which UST competes,
general economic, market and interest rate conditions, and other factors that
generally influence the price of securities. With respect to the comparable
company analysis and comparable transaction analysis summarized above, no
company utilized as a comparison is identical to UST or the Chase Acquired
Business and such analyses necessarily involve complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the acquisition or trading
values of the companies analyzed. In performing its analyses, CS First Boston
made numerous assumptions regarding industry performance, general business, and
economic conditions, and other matters, many of which are beyond the control of
UST. The fact that any specific analysis has been referred to in the summary
above is not meant to indicate that such analysis was given more weight than any
other analyses. CS First Boston's opinion was only one of many factors taken
into consideration by the UST Board.
In connection with its opinion dated as of the date of this Proxy
Statement-Prospectus, CS First Boston confirmed the appropriateness of its
reliance on the analyses used to render its November 17, 1994, opinion by
performing procedures to update certain of such analyses and by reviewing the
assumptions on which such analyses were based and the factors considered in
connection therewith.
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UST and CS First Boston have entered into an agreement relating to the
services to be provided by CS First Boston in connection with the Merger. UST
has agreed to pay CS First Boston fees as follows: (a) a fee of one percent of
the aggregate consideration paid for the Chase Acquired Business plus (b) an
additional advisory fee of $250,000 for future services. In the event the Merger
is not completed as proposed but UST consummates a restructuring or spin-off, a
fee of $500,000 will be payable, in lieu of the fee described in clause (a)
above. UST has also agreed to reimburse CS First Boston for its reasonable
out-of-pocket expenses and to indemnify CS First Boston and its affiliates and
their respective partners, directors, officers, employees, agents, and
controlling persons against certain expenses and liabilities, including
liabilities under the federal securities laws.
In addition to the financial advisory services referred to above, CS First
Boston acted as financial advisor to UST in connection with various acquisition
and divestiture assignments and in connection with the placement of debt
securities, for all of which CS First Boston has received customary
compensation. CS First Boston has also provided certain investment banking
services to Chase for which CS First Boston has received customary compensation.
CHASE'S REASONS FOR THE MERGER
Chase seeks to acquire the Chase Acquired Business to strengthen and expand
its existing transaction and information services business. Chase currently
provides domestic and global custody, cash management, payments, trade services,
trust, and other fiduciary services to corporate and institutional clients
throughout the United States and around the world through its Chase InfoServ
International ("InfoServ") unit. InfoServ's Global Securities Services ("GSS")
unit is a leading provider of domestic and global custody services, with
estimated assets under custody of approximately $1.3 trillion as of the third
quarter of 1994. GSS serves the requirements of global institutional investors,
including pension funds, public retirement funds, endowments and foundations for
custodial, trust, settlement, safekeeping, portfolio reporting, performance
evaluation and investment fund services.
While Chase is already a significant provider of securities processing
services, having particular strength in global custody, the acquisition of the
Chase Acquired Business will allow GSS to expand its presence in certain areas,
including mutual fund accounting, administration, and mutual fund transfer
agency services. Chase expects that by increasing GSS's volume, expanding its
product range and reducing average costs, the Merger will enhance the ability of
GSS and other Chase units to provide custody and other securities processing
services to clients throughout the world.
TERMS OF THE MERGER
The Merger
At the Effective Time, UST and Chase will consummate the Merger in which
UST will be merged with and into Chase. Chase will be the Surviving Corporation
in the Merger, and the separate existence of UST will cease.
Certificate of Incorporation and Bylaws
The Merger Agreement provides that the restated certificate of
incorporation of Chase (the "Chase Certificate of Incorporation") at the
Effective Time will be the restated certificate of incorporation of the
Surviving Corporation until thereafter changed or amended in accordance with
applicable law. The bylaws of Chase (the "Chase Bylaws") in effect at the
Effective Time will be the bylaws of the Surviving Corporation until thereafter
changed or amended in accordance with applicable law.
Directors and Officers
The directors of Chase at the Effective Time will be the directors of the
Surviving Corporation, each to hold office until the earlier of his or her
resignation or removal or until his or her successor is duly elected and
qualified. The officers of Chase at the Effective Time will be the officers of
the Surviving Corporation, each to
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hold office until the earlier of his or her resignation or removal or until his
or her successor is duly appointed and qualified. The current executive officers
of UST will not be employed by the Surviving Corporation following the Merger.
Conversion of UST Common Stock in the Merger
Pursuant to the Merger Agreement, at the Effective Time, each issued and
outstanding share of UST Common Stock (other than any shares of UST Common Stock
owned by Chase or any wholly owned subsidiary of Chase or UST (other than in a
fiduciary, custodial or similar capacity) and any shares of UST Common Stock
owned by Dissenting Holders) will be converted into the right to receive the
Conversion Number of fully paid and nonassessable shares of Chase Common Stock.
The Conversion Number will be equal to the fraction of (a) $363,500,000, divided
by (b) the product of (i) the greater of (A) the Average Value of Chase Common
Stock and (B) $31.00, multiplied by (ii) the number of shares of UST Common
Stock outstanding immediately prior to the Effective Time. The term "Average
Value of Chase Common Stock" means the 10-day average of the daily average of
the high and low sale prices for Chase Common Stock reported on the NYSE Tape.
If the Average Value of Chase Common Stock is $31.00 or less per share, then the
aggregate number of shares of Chase Common Stock to be issued in the Merger will
be fixed at 11,725,806. Moreover, if the market value of Chase Common Stock on
the Closing Date is less than the greater of the Average Value of Chase Common
Stock and $31.00, then the value on the Closing Date of the aggregate
consideration received by UST stockholders in the Merger will be less than
$363,500,000. The number of shares of Chase Common Stock to be issued in the
Merger will be determined as of the Closing Date, which date will be after the
date of the Special Meeting.
For example, if the Average Value of Chase Common Stock were $34.875, the
Conversion Number (assuming 9,622,000 shares of UST Common Stock were
outstanding immediately prior to the Effective Time) would be 1.083 shares of
Chase Common Stock per share of UST Common Stock. If the Average Value of Chase
Common Stock were $31.00 or less, the Conversion Number (assuming 9,622,000
shares of UST Common Stock were outstanding immediately prior to the Effective
Time) would be 1.219 shares of Chase Common Stock per share of UST Common Stock.
So long as the Average Value of Chase Common Stock is equal to or greater
than $31.00, if the market value of Chase Common Stock on the Closing Date is
equal to such Average Value of Chase Common Stock, the value received by UST
stockholders in the Merger will be $37.78 per share of UST Common Stock
(assuming 9,622,000 shares of UST Common Stock are outstanding immediately prior
to the Effective Time). If the Average Value of Chase Common Stock is less than
$31.00, UST stockholders will receive 1.219 shares of Chase Common Stock per
share of UST Common Stock. The actual value on the Closing Date of the Chase
Common Stock received by UST stockholders will be equal to (i) the number of
shares of Chase Common Stock issued in the Merger multiplied by (ii) the market
value of Chase Common Stock on the Closing Date.
Under the terms of the Merger Agreement, UST does not have the right to
decline to consummate the Merger solely because the Average Value of Chase
Common Stock or the market value of Chase Common Stock immediately prior to the
Effective Time is substantially less than $31.00. Therefore, if the Merger is
authorized and all other conditions to the Merger are satisfied or waived on or
prior to the Effective Time, UST stockholders will assume the risk of a decline
in Chase Common Stock below $31.00 per share from and after the date of the
Special Meeting. See "The Merger -- Conditions -- Conditions of Obligations of
UST".
As of the Record Date, 9,489,309 shares of UST Common Stock were
outstanding. The number of shares of UST Common Stock outstanding at the
Effective Time is subject to change as a result of the exercise of stock options
and the issuance of shares of UST Common Stock, if any, in connection with any
acquisitions completed by UST prior to the Closing Date. UST has no present plan
to make any acquisitions in which UST Common Stock would be issued. See "The
Merger -- Conduct of Business Prior to the Effective Time". Neither UST nor
Chase intends to acquire any shares of UST Common Stock prior to the Effective
Time.
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Cash in Lieu of Fractional Shares
No fractional shares of Chase Common Stock will be issued in the Merger.
The Merger Agreement provides that each UST stockholder who otherwise would have
been entitled to receive a fractional share of Chase Common Stock will be
entitled to receive, in lieu thereof, an amount in cash equal to such fraction
multiplied by the average of the high and low sale prices for Chase Common Stock
on the business day immediately preceding the Closing Date, as reported on the
NYSE Tape.
EFFECTIVE TIME; CLOSING
The Merger will become effective and the Effective Time will occur
immediately following the Distribution, upon the filing of a certificate of
merger (the "Certificate of Merger") by the Department of State of New York and
with the Secretary of State of Delaware or at such time thereafter as is
provided in the Certificate of Merger. The Merger Agreement provides that the
closing of the Merger (the "Closing") will take place on the first business day
after the end of the first month ending (i) after April 15, 1995, and (ii) more
than two business days after satisfaction of the conditions to the Merger
Agreement, unless another date is agreed to in writing by UST and Chase. See
"-- Conditions".
EXCHANGE OF CERTIFICATES IN THE MERGER
As soon as practicable after the Effective Time, Chase will cause the
Exchange Agent (as defined in the Merger Agreement) to mail to each holder of
record of a certificate or certificates before the Effective Time representing
outstanding shares of UST Common Stock (the "Certificates") (i) a Letter of
Instruction for use in effecting the surrender of Certificates in exchange for
certificates representing shares of Chase Common Stock and (ii) a form of letter
of transmittal to accompany Certificates transmitted to the Exchange Agent. UST
STOCKHOLDERS ARE REQUESTED NOT TO SURRENDER THEIR CERTIFICATES FOR EXCHANGE
UNTIL SUCH LETTER OF INSTRUCTION IS RECEIVED. Until surrendered, each
Certificate will be deemed at any time after the Effective Time to represent
only the right to receive a certificate representing that number of whole shares
of Chase Common Stock into which the shares of UST Common Stock formerly
represented by such Certificate were converted in the Merger and a cash payment
in lieu of any fractional shares of Chase Common Stock. The holders of
Certificates will not be entitled to receive dividends or other distributions
declared or made after the Effective Time with respect to Chase Common Stock
until such Certificates are surrendered and no cash payment with respect to
fractional shares will be paid to any such holder until such surrender. There
will be paid to the record holder of the Chase Common Stock issued in exchange
for each Certificate, without interest, (i) at the time of such surrender, the
amount of cash payable in lieu of any fractional shares of Chase Common Stock to
which such holder is entitled and the amount of dividends or other distributions
with a record date after the Effective Time theretofore previously paid with
respect to such whole shares of Chase Common Stock and (ii) at the appropriate
payment date, the amount of dividends or other distributions payable with
respect to such whole shares of Chase Common Stock with a record date after the
Effective Time but prior to such surrender.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties thereto. The Merger Agreement includes representations and warranties by
UST as to: the corporate organization of UST and its subsidiaries and the Chase
Acquired Company To Be Merged; the capitalization of UST; the authorization of
the Merger Agreement, the Distribution Agreement, the Contribution Agreement,
the Post Closing Covenants Agreement and the Tax Allocation Agreement (the
Distribution Agreement, the Contribution Agreement, the Post Closing Covenants
Agreement and the Tax Allocation Agreement are referred to herein collectively
as, the "Distribution Documents"); required consents and approvals; the
noncontravention of any agreement, law or charter or bylaw provision by the
Merger Agreement, the Distribution Agreement, the other Distribution Documents
and the consummation by UST of the transactions contemplated thereby; the
absence of the need, except as specified in the Merger Agreement, for
governmental consents to the Merger to be obtained by UST or any of its
subsidiaries; the accuracy of UST's reports and financial statements filed with
the Commission and the accuracy of information supplied by UST for use in
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this Proxy Statement-Prospectus and the Information Statement attached as
Appendix H hereto; the absence of certain changes or events having a material
adverse effect on the Chase Acquired Business; pending or threatened litigation
against UST; absence of certain agreements with bank regulators; compliance by
the Chase Acquired Business with applicable laws; obligations to brokers and
finders; the assets, liabilities and customer agreements of the Chase Acquired
Business; the absence of undisclosed liabilities of, and of material adverse
changes or events relating to, the Chase Acquired Business; the absence of
certain changes to, and the terms, existence, operations, liabilities and
compliance with applicable laws of, UST's employee benefit plans; the lack of
labor controversies relating to UST; the non-applicability of Section 912 of the
NYBCL to the Merger Agreement, the Distribution Agreement, and the other
Distribution Documents and the transactions contemplated thereby; the fact that
the Merger Agreement and the Distribution Agreement and the transactions
contemplated thereby will not result in Chase becoming an "Acquiring Person" or
in a "Triggering Event" or "Distribution Date" occurring under the UST Rights
Plan (as defined in "Conduct of the Business prior to the Effective Time;
Certain Covenants -- UST Rights Plan"); the rights of the Chase Acquired Company
To Be Merged in certain intellectual property; certain tax matters; the
preparation and accuracy of the Chase Acquired Business balance sheets; the
books of account of the Chase Acquired Business; the filing by UST and its
subsidiaries of all necessary government reports; the condition, title and
adequacy of certain properties held by the Chase Acquired Business; the
condition of accounts of UST's investment company customers and the compliance
by UST with governmental filing requirements applicable to investment company
customers; certain information relating to customers of the Chase Acquired
Business; certain matters relating to unit investment trusts; and certain
internal control standards maintained by the Chase Acquired Company To Be
Merged.
The Merger Agreement also includes representations and warranties by Chase
as to: the corporate organization of Chase; the capitalization of Chase; the
authorization of the Merger Agreement; required consents and approvals; the
noncontravention of any agreement, law or charter or bylaw provision by the
Merger Agreement and the consummation by Chase of the transactions contemplated
thereby; the absence of the need, except as specified in the Merger Agreement,
for governmental consents to the Merger to be obtained by Chase; the accuracy of
Chase's reports and financial statements filed with the Commission; the accuracy
of information supplied by Chase for use in this Proxy Statement-Prospectus and
the Information Statement attached as Appendix H hereto; the absence of certain
changes or events having a material adverse effect on Chase; pending or
threatened litigation against Chase; absence of certain agreements with bank
regulators; compliance by Chase with applicable laws; the absence of receipt of
any governmental notification preventing consummation of the Merger; the absence
of a requirement for approval of the Merger by Chase stockholders; and
obligations to brokers and finders.
CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME; CERTAIN COVENANTS
Covenants of UST
Pursuant to the Merger Agreement UST has agreed that, during the period
from the date of the Merger Agreement until the Effective Time, except for the
Distribution and the other transactions expressly provided for in the
Distribution Agreement and the Contribution Agreement, and except as expressly
contemplated or permitted by the Merger Agreement or consented to by Chase in
writing:
(a) UST and its subsidiaries will each carry on the Chase Acquired
Business in the usual, regular and ordinary course consistent with past
practice and use its reasonable efforts to preserve intact the present
business organization, keep available, consistent with past practice, the
services of prospective employees of the Chase Acquired Business following
the Merger and preserve the relationships with customers, suppliers and
others having business dealings with the Chase Acquired Business.
(b) Subject to certain specified exceptions, UST will not, nor will it
permit any subsidiaries of the Chase Acquired Company To Be Merged to, nor
will UST propose to, (i) split, combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other securities
in respect of, in lieu of or in substitution for shares of its capital
stock (other than phantom share units required to be issued under any of
UST's benefit plans) or (ii) other than in connection with the exercise of
stock options
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outstanding as of the date of the Merger Agreement under any of UST's
benefit plans, repurchase, redeem or otherwise acquire, or permit any
subsidiary to repurchase, redeem or otherwise acquire, any shares of
capital stock of UST or any of its subsidiaries.
(c) Subject to certain specified exceptions, the Chase Acquired
Company To Be Merged will not issue, transfer or sell, or authorize or
propose or agree to the issuance, transfer or sale by any of its
subsidiaries of, any shares of its capital stock of any class or other
equity interests or any securities convertible into, or any rights,
warrants, calls, subscriptions, options or other rights or agreements,
commitments or understandings to acquire, any such shares equity interests
or convertible securities.
(d) UST will not, nor will it permit any subsidiaries of the Chase
Acquired Company To Be Merged to, amend or propose to amend its Certificate
of Incorporation or Bylaws.
(e) The Chase Acquired Company To Be Merged will not (i) acquire or
agree to acquire by merging or consolidating with, or by purchasing a
substantial equity interest in or substantial portion of the assets of, or
by any other manner, any business or any corporation or other business
organization that would be directly or indirectly acquired by Chase in the
Merger, (ii) consummate any acquisition within three business days before
or one business day after the Closing Date, or (iii) make any other
investment in any person that would be directly or indirectly acquired by
Chase in the Merger except for investments by the Chase Acquired Company To
Be Merged in its existing wholly owned subsidiaries and investments made in
the ordinary course of business consistent with past practices in an
aggregate amount not exceeding $250,000.
(f) The Chase Acquired Company To Be Merged will not sell, lease or
otherwise dispose of, or agree to sell, lease or otherwise dispose of, any
of the assets of the Chase Acquired Business other than in the ordinary
course of business consistent with past practice and the sale or other
disposition of obsolete equipment.
(g) Subject to certain specified exceptions (including indebtedness to
be assumed by Spinco) the Chase Acquired Company To Be Merged will not
incur (which will not be deemed to include (i) certain refinancing
transactions or (ii) deposits accepted in the ordinary course of business)
any indebtedness for borrowed money or any obligation evidenced by a
promissory note or other instrument or guarantee any such indebtedness or
obligation or issue or sell any debt securities or warrants or rights to
acquire any debt securities of the Chase Acquired Company To Be Merged or
any of its subsidiaries or guarantee any obligations of others.
(h) Except as otherwise provided in or contemplated by the Merger
Agreement, the Distribution Agreement or the Contribution Agreement, and
subject to certain specified exceptions, UST will not, nor will it permit
any of its subsidiaries to (i) adopt any benefit plan or amend any benefit
plan other than a Retained Plan (as defined under "Effect of Transactions
on UST Employees and UST Benefit Plans" below) to the extent such adoption
or amendment (x) would create or increase any liability or obligation on
the part of UST or any of its subsidiaries that will not either (A) be
fully performed or satisfied prior to the Effective Time or (B) be assumed
by Spinco or New Trustco pursuant to the Contribution Agreement or the
Distribution Agreement, or (y) would increase the number of shares of UST
Common Stock (if any) to be issued under such benefit plan or (ii) amend
any Retained Plan in any manner that would increase the liabilities or
obligations of UST or any of its subsidiaries under such Retained Plan or
would increase the number of shares of UST Common Stock to be issued under
such Retained Plan; or (iii) except for normal increases in the ordinary
course of business consistent with past practice, increase the base salary
of any prospective employee of the Chase Acquired Business.
(i) Notwithstanding the fact that such action might otherwise be
permitted under the Merger Agreement, the Chase Acquired Company To Be
Merged will not take any action that would or is reasonably likely to
result in any of the conditions to the Merger not being satisfied or would
materially impair the ability of UST to consummate the Distribution or the
Merger or USTNY to consummate the transactions contemplated by the
Contribution Agreement in accordance with the respective terms thereof or
materially delay such consummation.
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(j) UST will promptly advise Chase orally and in writing of any change
or development or combination of changes or developments that would cause
its representation regarding agreements with bank regulators to be untrue.
UST will, subject to certain exceptions, promptly provide Chase (or its
counsel) copies of all filings made by UST or any of its subsidiaries with
any Federal, state or foreign governmental entity in connection with the
Merger Agreement, the Distribution Agreement, the Contribution Agreement
and the transactions contemplated thereby.
(k) The Chase Acquired Company To Be Merged will not change any of its
accounting principles, policies or procedures, except such changes as may
be required by generally accepted accounting principles.
(l) UST will (i) furnish all information required in connection with
approvals of or filings with bank regulators and other governmental
entities in order to organize Spinco as a bank holding company and New
Trustco as a bank and trust company, (ii) not engage in or allow transfers
of assets or liabilities or engage or enter into other transactions between
the Chase Acquired Company To Be Merged, on the one hand, and Spinco and
its subsidiaries, on the other hand, except as contemplated by the Merger
Agreement, the Distribution Agreement, the Contribution Agreement and the
agreements referred to therein, and (iii) not terminate or amend, or waive
compliance with any obligations under, the Distribution Agreement, the
Contribution Agreement or any of the agreements referred to therein.
(m) UST will not, and will not permit any of its subsidiaries to,
create certain liens relating to the Processing Business.
(n) The Chase Acquired Company To Be Merged will not (i) enter into
other than in the ordinary course of business, any material contract
relating to the Acquired Contribution Assets or Assumed Contribution
Liabilities (each as defined under "-- Terms of the Contribution Agreement"
below) that cannot be assigned, free of liability to the Chase Acquired
Company To Be Merged, to Spinco or one of its subsidiaries in connection
with the transactions contemplated in the Distribution Agreement and
Contribution Agreement; or (ii) enter into, terminate, or modify in any
material respect certain material contracts or certain customer agreements
other than in the ordinary course of business consistent with past practice
and, in the case of such customer agreements, without consultation with
Chase. In addition, UST will notify Chase in writing at least 30 days
before making, or in any way becoming committed to make, any capital
expenditure, or series of related capital expenditures relating to the
Chase Acquired Business in excess of $50,000.
UST has also agreed that, during the period from the date of the Merger
Agreement and continuing to the Effective Time, as to itself and its
subsidiaries, except as Chase shall otherwise agree in writing or as provided in
the Merger Agreement and the Distribution Documents:
(a) UST will not and will not permit its subsidiaries to make certain
changes in the lines of business engaged in by (i) the Chase Acquired
Company To be Merged or any of its subsidiaries as of the date of the
Merger Agreement or (ii) UST and any of its subsidiaries as of the date of
the Merger Agreement.
(b) UST will not, and will not permit any of its subsidiaries to, take
any action, including, without limitation, with respect to the terms of the
Certificate of Incorporation or Bylaws of Spinco, that would or is
reasonably likely to result in any of the conditions to the Merger not
being satisfied or that would materially impair the ability of UST to
consummate the Distribution in accordance with the terms of the
Distribution Agreement or the Merger in accordance with the terms of the
Merger Agreement or would materially delay such consummation or that would
disqualify the Distribution as a tax-free spin-off within the meaning of
Section 355 of the Code.
(c) UST will, or will cause its subsidiaries to, redeem or effect an
in substance defeasance of the 8 1/2% Capital Notes due 2001 (the "Capital
Notes") of USTNY and the 8% Notes due 1996 of UST.
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(d) UST will furnish to Chase certain periodic financial information
budgets, accountants' reports, benefit plan information and ERISA
information.
(e) UST will cause Spinco and New Trustco to execute and deliver the
Post Closing Covenants Agreement and the Services Agreement on the Closing
Date.
Covenants of Chase
Pursuant to the Merger Agreement, Chase has agreed that, during the period
from the date of the Merger Agreement until the Effective Time:
(a) Chase will not take any action that would or is reasonably likely
to result in any of the conditions to the Merger not being satisfied or
that would materially impair the ability of Chase to consummate the Merger
in accordance with the terms of the Merger Agreement or materially delay
such consummation and Chase will, subject to certain exceptions, promptly
provide UST (or its counsel) copies of all filings made by Chase with any
Federal, state or foreign governmental entity in connection with the Merger
Agreement and the transactions contemplated thereby.
(b) Chase will not split, combine or reclassify any of the Chase
Common Stock or authorize the (i) making of any in-kind distribution or
extraordinary cash dividend with respect to the Chase Common Stock, or (ii)
issuance of any other securities in respect of or in exchange for shares of
the Chase Common Stock, provided the foregoing will not prohibit the
issuance of securities of Chase securities convertible into Chase Common
Stock.
(c) Chase will not, and will not permit any of its subsidiaries to,
take or cause or permit to be taken, any action that would disqualify the
Distribution as a tax-free spin-off within the meaning of Section 355 of
the Code.
(d) Notwithstanding the fact that such action might otherwise be
permitted by the Merger Agreement, Chase will not, nor will it permit any
of its subsidiaries to, take any action that would or could reasonably be
expected to result in the failure to satisfy any of the conditions to the
Merger, would materially impair the ability of Chase to consummate the
Merger in accordance with the terms of the Merger Agreement or materially
delay such consummation.
(e) Chase will execute and deliver the Post Closing Covenants
Agreement and will cause CMB to execute and deliver the Services Agreement
on the Closing Date.
Covenants of UST and Chase
The Merger Agreement provides that, during the period from the date of the
Merger Agreement and continuing until the Effective Time:
(a) UST and Chase will not, and will not permit any of their
respective subsidiaries to, take any action that would, or that could
reasonably be expected to, result in (i) any of the representations and
warranties of such party set forth in the Merger Agreement that are
qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that are not so qualified becoming untrue in
any material respect, or (iii) the failure to satisfy any of the conditions
to the Merger.
(b) UST and Chase will promptly advise the other party orally and in
writing of any change or event having, or which, insofar as can reasonably
be foreseen, would have, a material adverse effect on such party and its
subsidiaries taken as a whole.
(c) For purposes of certain tax opinions to be delivered pursuant to
the Merger Agreement, each of Chase and UST will deliver to O'Melveny &
Myers, counsel to Chase, and to Cravath, Swaine & Moore, counsel to UST,
representation letters substantially in the form of the respective letters
provided for by the Merger Agreement, dated as of the Closing Date.
(d) Chase and UST will negotiate and within 60 days after the date of
the Merger Agreement agree on a definitive form of the Services Agreement
substantially in accordance with the terms of the Services
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Agreement Term Sheet entered into by UST and Chase in connection with the
execution of the Merger Agreement (the "Services Agreement Term Sheet").
UST and Chase agreed on January 18, 1995, to extend the date for agreement
on a definitive form of Services Agreement to February 28, 1995.
(e) Chase and UST will each use reasonable efforts to negotiate and to
agree upon, and to cause CMB and USTNY to agree upon, and to execute and
deliver, an agreement providing for the Bank Merger under 12 U.S.C. 215a
and applicable law (the "CMB Bank Merger Agreement"), provided, however,
that the CMB Bank Merger Agreement will provide that consummation of the
Bank Merger is conditioned on occurrence of the Merger and that USTNY and
its affiliates will incur no additional liability or expense in connection
therewith.
UST Rights Plan
In connection with and prior to the execution of the Merger Agreement, UST
amended its Rights Agreement, dated as of January 26, 1988, as amended (the "UST
Rights Agreement"), between UST and First Chicago Trust Company of New York, as
Rights Agent, to provide, among other things, that neither Chase nor any of its
affiliates or associates will be deemed to be an "Acquiring Person" (as defined
in the UST Rights Agreement) and no "Distribution Date" or "Triggering Event"
(each as defined in the UST Rights Agreement) will occur as a result of the
Merger or the transactions contemplated thereby.
CERTAIN REGULATORY APPROVALS
The regulatory approvals and consents necessary to consummate the Merger,
the Distribution and certain related transactions include the approval of the
Board of Governors of the Federal Reserve System, the FDIC, the OCC, the Office
of Thrift Supervision and the New York State Banking Board. Each of Chase, UST
and Spinco expect to file applications with the applicable regulatory
authorities during February 1995. There can be no assurance that such regulatory
approvals will be obtained at all or in a timely manner to permit consummation
of the Merger. The Merger Agreement may be terminated by UST or Chase if all
requisite regulatory approvals have not been obtained, and all applicable
waiting periods have not expired, by November 18, 1995. In considering the
applications, the regulatory authorities are required to assess whether the
Merger would have significant adverse effects on competition, the financial and
managerial resources and future prospects of Chase and Spinco, and whether the
proposed transactions would further the convenience and needs of the communities
to be served by the resulting institutions. In connection with the assessment of
whether the Merger will serve community convenience and needs, the Community
Reinvestment Act ("CRA") provides that the federal banking agencies shall
consider the record of depository institution subsidiaries of a holding company
in meeting the credit needs of their communities, including low- and
moderate-income neighborhoods, consistent with safe and sound operation. UST,
Chase and their respective bank subsidiaries have been determined by their
respective federal banking regulators to have attained satisfactory or better
records of performance under the CRA. In connection with applications filed
recently by Chase with respect to certain internal reorganizations of Chase,
Inner City Press/Community on the Move, a community group located in the Bronx,
New York, has filed a protest alleging that CMB and Chase failed to meet their
obligations under the CRA. Chase has filed responses with the appropriate
agencies. It is possible that this group or another will submit a protest under
the CRA in connection with the applications filed for approval of the
transactions. Such a protest might delay approval of the transactions by the
regulatory authorities. There can also be no assurance that any regulatory
approvals will not contain a condition or requirement which causes such
approvals to fail to satisfy the conditions set forth in the Merger Agreement.
There can likewise be no assurance that other regulatory bodies will not
challenge the Merger or, if such a challenge is made, as to the result thereof.
STOCK EXCHANGE LISTING
Chase has agreed in the Merger Agreement to use its best efforts to cause
the shares of Chase Common Stock to be issued in the Merger to be approved for
listing on the NYSE, subject to official notice of issuance, prior to the
Closing Date. Such approval for listing on the NYSE is a condition to each of
UST's and Chase's obligation to consummate the Merger. See
"-- Conditions -- Conditions to Each Party's Obligation to Effect the Merger"
below.
42
<PAGE> 49
CONDITIONS
Conditions of Obligation of UST and Chase
The Merger Agreement provides that the respective obligation of each party
to effect the Merger is subject to the satisfaction or waiver on or prior to the
Closing Date of the following conditions:
(a) The Merger Agreement shall have been approved and adopted by the
affirmative vote of two-thirds (or 66 2/3%) of the total number of votes
entitled to be cast at the Special Meeting; (b) the shares of Chase Common
Stock issuable to UST stockholders pursuant to the Merger Agreement shall
have been approved for listing on the NYSE, subject to official notice of
issuance; (c) each of Chase and UST shall have obtained all requisite
approvals of, or satisfying all requisite filing requirements with, bank
regulators and other governmental entities, including all requisite
approvals under, and the expiration of all waiting periods in respect of,
the Bank Holding Company Act of 1956, provided, no such approvals shall
impose any condition or restriction upon Chase or Spinco, or any of their
respective subsidiaries, including, without limitation, any requirement to
raise additional capital or to dispose of assets, which would so materially
adversely impact the economic or business benefits of the transactions
contemplated by the Merger Agreement and the Distribution Agreement as to
render inadvisable the consummation of the Merger or the Distribution; (d)
(i) no temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger shall be
in effect and (ii) no action, suit or other proceeding shall be pending or,
to the knowledge of UST and Chase, threatened by any governmental entity
that, if successful, would restrict or prohibit the consummation of the
transactions contemplated by the Merger Agreement or the Distribution
Documents; (e) New Trustco, USTNY and Chase shall have entered into the
Services Agreement; (f) the Chase Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order; and (g) the Distribution shall
have become effective in accordance with the terms of the Distribution
Agreement, the Contribution Agreement and each of the agreements
contemplated thereby.
Conditions of Obligation of Chase
The obligation of Chase to effect the Merger is further subject to the
following conditions, unless waived by Chase:
(a) The representations and warranties of UST set forth in the Merger
Agreement that are qualified as to materiality shall be true and correct,
and the representations and warranties of UST set forth in the Merger
Agreement that are not so qualified shall be true and correct in all
material respects, in each case as of the date of the Merger Agreement and
as of the Closing Date as though made on and as of the Closing Date, except
as otherwise contemplated by the Merger Agreement, except to the extent
that any representation or warranty is made as of a specific date, in which
case such representation and warranty shall be true and correct as of such
date. UST shall have delivered to Chase a certificate (the "UST Bring Down
Certificate"), dated as of the Closing Date and reasonably satisfactory in
form to Chase, setting forth each event that has occurred and each
condition that exists that (i) had not occurred or was not in existence as
of the date of the Merger Agreement and (ii) if it had occurred or was in
existence as of the date of the Merger Agreement would be required to be
disclosed pursuant to certain representations and warranties of UST
contained in the Merger Agreement. In determining the materiality of the
failure of any representation or warranty made by UST to be true when made,
the parties will consider whether the failure can be remedied by a
financial indemnity, whether Spinco or New Trustco is obligated under the
Post Closing Covenants Agreement to indemnify against the failure, and the
financial ability of Spinco or New Trustco, as appropriate, to satisfy any
indemnification obligation.
(b) UST shall have performed in all material respects all obligations
required to be performed by it under the Merger Agreement and the
Distribution Agreement at or prior to the Closing Date.
43
<PAGE> 50
(c) The Service shall have issued and not revoked the Private Letter
Ruling, reasonably satisfactory in form and substance to Chase
substantially to the effect that, on the basis of the facts,
representations, and assumptions existing at the Effective Time:
(i) the contribution by USTNY to New Trustco of certain assets and
the assumption of certain liabilities of USTNY by New Trustco, as
contemplated in the Contribution Agreement, qualifies for Federal income
tax purposes as a tax-free reorganization within the meaning of Section
368(a)(1)(D) of the Code or as tax-free under Section 351 of the Code;
(ii) the distribution of all the capital stock of New Trustco to
UST by USTNY, as contemplated by the Distribution Agreement, is tax-free
for Federal income tax purposes to USTNY under Section 361(a) of the
Code and to UST under Section 355(a) of the Code;
(iii) the contribution by UST to Spinco of certain assets
(including, without limitation, all of the capital stock of New Trustco)
and the assumption of certain liabilities of UST by Spinco, as
contemplated by the Distribution Agreement, qualifies for Federal income
tax purposes as a tax-free reorganization within the meaning of Section
368(a)(1)(D) of the Code or as tax-free under Section 351 of the Code;
and
(iv) the distribution of the stock of Spinco on a pro rata basis to
the holders of UST Common Stock is tax-free for Federal income tax
purposes to UST under Section 361(a) of the Code and to UST's
stockholders under Section 355(a) of the Code.
(d) Chase shall have received an opinion dated the Closing Date of
Cravath, Swaine & Moore, counsel to UST, and/or in-house counsel of UST,
satisfactory to counsel to Chase, with respect to, among other things, the
valid existence and good standing of UST and USTNY, the authority of UST
and USTNY to execute the Merger Agreement and the Distribution Documents,
the execution and enforceability of such agreements and the satisfaction by
UST and USTNY of certain Federal and New York law requirements.
(e) Whether or not any event or change is reflected in the UST Bring
Down Certificate, since September 30, 1994, there shall have been no
material adverse change, and no event that could reasonably be expected to
result in a material adverse change, to the business, properties, assets,
results of operations, or financial condition of MF Service Company or the
Chase Acquired Company To Be Merged, each taken as a whole. For these
purposes, "material adverse change" does not include (i) any adverse change
resulting from economic or market conditions generally affecting businesses
engaged in the same or substantially similar activities as the Chase
Acquired Company To Be Merged or (ii) any adverse change resulting directly
from any action taken by Chase or any subsidiary of Chase except an action
specifically permitted or contemplated by the Merger Agreement (including
the Bank Merger). The Merger Agreement does not include a definition of
"material adverse change". The determination of whether a material adverse
change has occurred, or is the result of general economic or market
conditions or otherwise, is dependent upon specific facts and
circumstances.
(f) Shares owned by Dissenting Holders (as defined under "Dissenters'
Rights" below) will not constitute more than 5% of the aggregate number of
outstanding shares of UST Common Stock.
(g) Each of the Distribution Documents shall have been executed
substantially in the forms attached as Exhibits to the Merger Agreement or
to the Contribution Agreement or, if not included as Exhibits, in the form
mutually agreed to by the parties thereto and Chase.
(h) Chase shall have received an opinion, based on the representation
letters to be delivered by UST and Chase pursuant to the Merger Agreement,
of O'Melveny & Myers, counsel to Chase, to the effect that the Merger will
be treated for Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code, and that Chase and UST will each be
a party to that reorganization within the meaning of Section 368(b) of the
Code.
(i) Since the effective date of the Chase Registration Statement, no
event with respect to UST, any subsidiary of UST or any security holder of
UST shall have occurred which should have been set forth in
44
<PAGE> 51
an amendment to the Chase Registration Statement or a supplement to this
Proxy Statement-Prospectus that has not been set forth in such an amendment
or supplement.
(j) UST shall have delivered letters regarding Rule 145 under the
Securities Act, executed by each affiliate of UST who will acquire shares
of Chase Common Stock in connection with the Merger.
(k) UST's core trust and custody software system utilized by USTNY in
the Processing Business and in its other businesses (the "Asset Management
System") shall comply with material regulatory requirements and certain
other software modifications shall have been completed in all material
respects.
Conditions of Obligation of UST
The Merger Agreement provides that the obligation of UST to effect the
Merger is further subject to the following conditions, unless waived by UST:
(a) The representations and warranties of Chase set forth in the
Merger Agreement that are qualified as to materiality shall be true and
correct, and the representations and warranties of Chase set forth in the
Merger Agreement that are not so qualified shall be true and correct in all
material respects, in each case as of the date of the Merger Agreement and
as of the Closing Date as though made on and as of the Closing Date, except
as otherwise contemplated by the Merger Agreement. Chase shall have
delivered to UST a certificate (the "Chase Bring Down Certificate"), dated
as of the Closing Date and reasonably satisfactory in form to UST, setting
forth each event that has occurred and each condition that exists that (i)
had not occurred or was not in existence as of the date of the Merger
Agreement and (ii) if it had occurred or was in existence as of the date of
the Merger Agreement would be required to be disclosed pursuant certain
representations and warranties of Chase contained in the Merger Agreement.
(b) Chase shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement at or
prior to the Closing Date.
(c) The Service shall have issued and not revoked the Private Letter
Ruling reasonably satisfactory in form and substance to UST.
(d) UST shall have received an opinion dated the Closing Date of
O'Melveny & Myers, counsel to Chase, and/or in-house counsel of Chase,
satisfactory to counsel to UST, with respect to, among other things, the
valid existence and good standing of Chase, the authority of Chase to
execute the Merger Agreement and the transactions contemplated thereby, the
execution and enforceability of the Merger Agreement and the transactions
contemplated thereby and the satisfaction by Chase of certain Federal and
New York law requirements.
(e) Whether or not any event or change is reflected in the Chase Bring
Down Certificate, since September 30, 1994, there shall have been no
material adverse change, and no event that could reasonably be expected to
result in a material adverse change, to the business, properties, assets,
results of operations or financial condition of Chase and its subsidiaries
taken as a whole; provided, that "material adverse change" for this purpose
does not include (i) any adverse change resulting from economic or market
conditions generally affecting businesses engaged in the same or
substantially similar activities as Chase and its subsidiaries or (ii) any
adverse change resulting directly from any action taken by UST or any
subsidiary of UST except an action specifically permitted or contemplated
by the Merger Agreement (including the Bank Merger). The Merger Agreement
does not include a definition of "material adverse change". The
determination of whether a material adverse change has occurred, or is the
result of general economic or market conditions or otherwise, is dependent
upon specific facts and circumstances. In addition, the Merger Agreement
does not provide that UST can decline to consummate the Merger solely
because the Average Value of Chase Common Stock or the market value of
Chase Common Stock immediately prior to the Effective Time is substantially
less than $31.00.
(f) UST shall have received an opinion, based on the representation
letters to be delivered by UST and Chase pursuant to the Merger Agreement,
of Cravath, Swaine & Moore, counsel to UST, to the effect that the Merger
will be treated for Federal income tax purposes as a reorganization within
the
45
<PAGE> 52
meaning of Section 368(a) of the Code, and that Chase and UST will each be
a party to that reorganization within the meaning of Section 368(b) of the
Code.
(g) Since the effective date of the Chase Registration Statement, no
event with respect to Chase, any subsidiary of Chase or any security holder
of Chase shall have occurred which should have been set forth in an
amendment to the Chase Registration Statement or a supplement to this Proxy
Statement-Prospectus that has not been set forth in such an amendment or
supplement.
(h) Each of the Distribution Documents shall have been executed
substantially in the forms attached as Exhibits to the Merger Agreement or
to the Contribution Agreement or, if not included as Exhibits, in the form
mutually agreed to by the parties thereto and Chase.
TERMINATION; AMENDMENT AND WAIVER
Termination
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the Merger and the Merger Agreement by
the stockholders of UST: (a) by mutual written consent of Chase and UST or (b)
by either Chase or UST (i) if, upon a vote at a duly held stockholders' meeting
or any adjournment thereof, any required approval of the stockholders of UST is
not obtained, (ii) if the Merger has not been consummated on or before the date
one year following the date of the Merger Agreement, unless the failure to
consummate the Merger is the result of a wilful and material breach of such
agreement by the party seeking to terminate the Merger Agreement; provided,
however, that the passage of such period will be tolled for any part thereof
(but in no event for more than an additional 90 days) during which any party is
subject to a nonfinal order, decree, ruling or action restraining, enjoining or
otherwise prohibiting the consummation of the Merger or the calling or holding
of the UST stockholders' meeting or (iii) if any governmental entity has issued
an order, decree or filing or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Merger and such order, decree, ruling
or other action shall have become final and nonappealable.
Effect of Termination; Termination Payment by UST
In the event of a termination of the Merger Agreement, the Merger Agreement
will forthwith become void and, except for certain obligations provided for by
the Merger Agreement, there will be no liability or obligation on the part of
UST or Chase; provided, that any such termination will not relieve any party
from liability for wilful breach of the Merger Agreement, the Distribution
Agreement, the Contribution Agreement or any of the transactions contemplated
thereby. If the Merger Agreement is terminated for any reason other than by
reason of the failure to satisfy certain conditions set forth therein or due to
a permanent injunction issued at the instance of the United States Department of
Justice or otherwise due to any default on the part of Chase or failure of Chase
to obtain all requisite approvals, UST will pay to Chase, as liquidated damages,
and not a penalty, the sum of (a) $5,000,000, if such termination occurs on or
before the date that proxy statements relating to the Merger are first mailed to
UST's stockholders, and (b) $7,500,000, if the termination occurs after the date
of such mailing. Such $7,500,000 termination payment will be payable in the
event the UST stockholders fail to approve the Distribution or to authorize and
adopt the Merger Agreement.
Amendment
The Merger Agreement may be amended by the parties thereto at any time
before or after approval and authorization of the matters presented in
connection with the Merger by UST stockholders, but, after any such approval or
authorization, no amendment will be made which by law requires further approval
or authorization by UST stockholders without such further approval or
authorization. The Merger Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties thereto.
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<PAGE> 53
Extension; Waiver
At any time prior to the Effective Time, the parties to the Merger
Agreement may to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties
thereto, (b) waive any inaccuracies in the representations and warranties
contained therein or in any document delivered pursuant thereto or (c) waive
compliance with any of the agreements or conditions contained therein. Each of
UST and Chase has indicated that it will not waive the condition to the Merger
requiring receipt of the Private Letter Ruling from the Service with respect to
the tax-free nature of the Distribution and the Internal Reorganization. See
"Certain Federal Income Tax Consequences -- Consequences of the Merger".
EXPENSES
The Merger Agreement provides that, whether or not the Merger is
consummated, all fees and expenses incurred in connection with the Merger, the
Distribution, the Merger Agreement, the Distribution Agreement and each of the
transactions contemplated thereby will be paid by the party incurring such fees
and expenses, except that expenses incurred in connection with printing and
mailing this Proxy Statement-Prospectus (including the Appendices hereto) will
be shared equally by UST and Chase.
ACCOUNTING TREATMENT
The Merger will be accounted for by Chase as a "purchase" for financial
accounting purposes in accordance with generally accepted accounting principles.
The purchase price (i.e., the Merger consideration) will be allocated based on
the fair values of assets acquired and liabilities assumed. Such allocations
will be made based upon valuations and other studies that have not been
finalized. The excess of the purchase price over the amounts so allocated will
be allocated to goodwill.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
In considering the recommendations of the UST Board, UST stockholders
should be aware that UST's executive officers and members of the UST Board will
have certain interests in the Distribution and the Merger that are in addition
to the interests of UST stockholders generally.
The Merger will constitute a "change in control" of UST with respect to all
options then outstanding under the UST Option Plans (as defined under "Effect of
Transactions on UST Employees and UST Benefit Plans -- Retained Plans" below)
other than any incentive stock options granted under such plans before October
27, 1987. Accordingly, the authorization and adoption of the Merger Agreement by
UST stockholders will, if the Merger is consummated, have the following
consequences with respect to such options:
(a) all such options that had not previously become vested will become
fully vested upon the consummation of the Merger;
(b) the holders of such options will become entitled, at the Effective
Time, to receive a cash payment (the "Cash Payment") with respect to each
of the holders' unexercised options, in an amount equal to the excess of
the "Determined Value" (as defined under "Effect of Transactions on UST
Employees and UST Benefit Plans -- Retained Plans" below) over the exercise
price under such options; and
(c) under the definition of "Determined Value," the amount of the Cash
Payment to be paid to the holders of such options could be greater than the
amount payable to them on the basis of the "Transaction Value" (as defined
under "Effect of Transactions on UST Employees and UST Benefit
Plans -- Retained Plans") for the shares of UST Common Stock subject to
such options (i.e., the amount that would be payable to such holders based
on the average trading prices for shares of Chase Common Stock and Spinco
Common Stock during the 10-day trading period preceding the Closing Date)
if the highest bid price for shares of UST Common Stock at any time during
the twelve-month period ending on the day preceding the Closing Date were
to exceed the Transaction Value (as defined below) for the shares of UST
Common Stock subject to such options.
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<PAGE> 54
As of December 31, 1994, options to purchase a total of 1,253,359 shares of
UST Common Stock, at prices ranging from $27.75 to $53.88 per share, were held
by 341 UST employees, who may become entitled to receive a Cash Payment with
respect to such options upon the consummation of the Merger. Of the options so
held, options to purchase a total of 441,054 shares, at prices ranging from
$30.75 to $53.88 per share, held by 341 employees, were unvested at December 31,
1994, and may become vested as a result of the Merger. Set forth below is a
table showing, for each of UST's executive officers, the total number of shares
subject to options (vested and unvested) held by the officer as of December 31,
1994, for which the officer may become entitled to receive a Cash Payment upon
the Merger, the range of exercise prices under such options, and the number of
such option shares that will not have become vested prior to, but may become
vested as a result of, the Merger.
<TABLE>
<CAPTION>
RANGE OF NO. OF OPTION
TOTAL NO. OF EXERCISE PRICE SHARES TO VEST
NAME OPTION SHARES PER SHARE ON MERGER
----------------------------------------- ------------- --------------- --------------
<S> <C> <C> <C>
H. Marshall Schwarz...................... 93,500 $27.75 - $53.88 21,250
Jeffrey S. Maurer........................ 70,700 $27.75 - $53.88 17,250
Frederick B. Taylor...................... 56,450 $27.75 - $53.88 15,250
Donald M. Roberts........................ 41,000 $27.75 - $53.88 9,250
Frederick S. Wonham...................... 35,500 $30.75 - $53.88 9,250
------- ------
Total.................................... 297,150 $27.75 - $53.88 72,250
======= ======
</TABLE>
As of December 31, 1994, the members of the UST Board (excluding the
persons named in the table above), as a group, held options to purchase a total
of 66,650 shares of UST Common Stock, at prices ranging from $29.58 to $51.60
per share, with respect to which the holders may become entitled to receive a
Cash Payment upon consummation of the Merger. Of the options so held, options to
purchase a total of 13,300 shares, at prices ranging from $46.95 to $51.60 per
share, held by four members of the UST Board, will not have vested before, but
may become vested as a result of, the Merger.
UST currently estimates that the aggregate amount of the Cash Payments to
be made with respect to unexercised stock options will be $39.1 million. See
note (1) to "Pro Forma Condensed Financial Statements -- Notes to Pro Forma
Condensed Financial Statements" in the Information Statement attached as
Appendix H hereto. That amount is based upon various assumptions, including the
Determined Value of the UST Common Stock, the estimated number of stock options
that will be exercised prior to the Closing Date and the exercise price of the
stock options that will remain outstanding as of the Closing Date. As a result,
the actual amount of the Cash Payment will not be known until the Closing Date
and, accordingly, there can be no assurance that the assumptions used to
estimate the cash payment will prove to be correct.
The Merger also will be deemed by the UST Board to constitute a "change in
control" as defined in, and for purposes of, the Annual Incentive Plan of U.S.
Trust Corporation (the "AIP"). Accordingly, the authorization and adoption of
the Merger Agreement will, if the Merger is consummated, result in participants'
previously accrued benefits under the AIP becoming immediately payable at the
Effective Time; and each participant in the AIP will be entitled to receive an
immediate cash payment in an amount equal to his or her account balance under
the plan.
As of December 31, 1994, 53 UST employees had account balances under the
AIP, in the aggregate amount of $7,215,596.40, that will become immediately
payable upon consummation of the Merger. The amounts of the account balances, as
of such date, that will become so payable in the case of UST's executive
officers named below (other than Mr. Schwarz who has no account balance under
the AIP) are as follows:
<TABLE>
<S> <C>
Jeffrey S. Maurer..................................... $ 146,734.88
Frederick B. Taylor................................... 109,038.24
Donald M. Roberts..................................... 1,168,285.29
Frederick S. Wonham................................... 211,424.24
-------------
Total....................................... $1,635,482.65
=============
</TABLE>
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<PAGE> 55
The aggregate amount of the payments to be made with respect to the account
balances of all participants in the AIP has been accrued, and no additional cost
with respect to such payments is required to be reflected in the "Pro Forma
Condensed Financial Statements" in the Information Statement attached as
Appendix H hereto.
UST's 1989 Stock Compensation Plan provides for the award of long-term
incentive compensation to UST's senior officers in the form of performance share
units. The performance share units are earned over a three-year "Performance
Cycle" to the extent that pre-established performance goals for UST are met. The
performance goals for the cycles ending on December 31, 1995 and 1996 (the "1995
and 1996 Performance Cycles") were comprised of a formula based on compound
growth in UST's earnings per share and return on equity. Because of the special
circumstances occurring during the 1995 and 1996 Performance Cycles as a result
of the Distribution and Merger, the UST Board and its Compensation and Benefits
Committee which administers the 1989 Stock Compensation Plan have approved a
recommendation by UST's management that if the Merger is consummated, the
performance goals established for the 1995 and 1996 Performance Cycles will be
deemed to have been met in full, and that all performance share units awarded to
each UST officer for each of the 1995 and 1996 Performance Cycles will be deemed
to be fully earned and payable to the officer if he or she remains in employment
with Spinco, New Trustco or their affiliates until the end of such Performance
Cycle or if he or she leaves such employment before the end of such Performance
Cycle as a result of retirement or termination due to staff reductions
associated with the Distribution and the Merger. Set out below is a table
showing, for each of UST's executive officers, the number of performance share
units awarded for the 1995 and 1996 Performance Cycles (adjusted to reflect
additional performance share units credited to the officers for dividends paid
on UST Common Stock since the date of the award) that will be deemed to be fully
earned and payable to the executive officer if UST stockholders authorize and
adopt the Merger Agreement and if the Merger is consummated.
<TABLE>
<CAPTION>
PERFORMANCE PERFORMANCE
SHARE SHARE
UNITS FOR UNITS FOR
OFFICER 1995 CYCLE 1996 CYCLE
-------------------------------------------- ----------- -----------
<S> <C> <C>
H. Marshall Schwarz......................... 6,592 6,274
Jeffrey S. Maurer........................... 4,472 4,232
Frederick B. Taylor......................... 3,736 3,551
Donald M. Roberts........................... 3,538 3,275
Frederick S. Wonham......................... 3,538 3,275
</TABLE>
UST currently estimates that the amount to be accrued with respect to that
part of the cost relating to these awards that is attributable to the portions
of the 1995 and 1996 Performance Cycles subsequent to the Closing Date, will be
$5.1 million for all UST senior officers as a group, and, approximately $1.0
million in the aggregate for the Executive Officers listed above. See note (1)
to "Pro Forma Condensed Financial Statements -- Notes to Pro Forma Condensed
Financial Statements" in the Information Statement attached as Appendix H
hereto.
For further information concerning the award of performance share units,
see "Management -- Executive Compensation" in the Information Statement attached
as Appendix H hereto.
Two of UST's present executive officers, Donald M. Roberts and Frederick S.
Wonham, will be retiring effective as of the Closing Date. Upon such termination
of their employment, Messrs. Roberts and Wonham will each be entitled to receive
the following separation benefits: (a) an immediate lump-sum cash severance
payment, in an amount equal to $547,200 in the case of Mr. Roberts, and $560,800
in the case of Mr. Wonham, and (b) payment of a supplemental pension, in
addition to the pension payable to them under USTNY's Employees' Retirement Plan
(the "Retirement Plan") and UST's Benefit Equalization Plan. The cash severance
payment to be made to Messrs. Roberts and Wonham represents, for each of them,
the sum of one year's base salary ($342,000), plus an amount ($205,200 in the
case of Mr. Roberts, and $218,900 in the case of Mr. Wonham) equal to 4% of
their present annual base salary for each of their years of service (15 years in
the case of Mr. Roberts, and 16 years in the case of Mr. Wonham) with UST. The
supplemental pension payable to Messrs. Roberts and Wonham, in each case, will
be an amount equal to the excess of
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<PAGE> 56
(x) the additional pension that would be payable to them under the Retirement
Plan's benefit formula if they had completed 25 years of service, over (y) the
additional pension that would be payable to them if they were entitled to
receive an additional pension under the Retirement Plan in an amount that is
actuarially equivalent to the service-based component ($205,200 in the case of
Mr. Roberts, and $218,900 in the case of Mr. Wonham) of the cash severance
payment to be made to them, after adjustment for taxes payable thereon. The
actuarial present value of the supplemental pensions payable to Messrs. Roberts
and Wonham are, respectively, $910,000 and $540,000.
RESALES OF CHASE COMMON STOCK ISSUED IN THE MERGER; AFFILIATES
The Chase Common Stock to be issued to UST stockholders in connection with
the Merger will be freely transferable under the Securities Act, except for
shares issued to any person who may be deemed an "affiliate" of UST within the
meaning of Rule 145 under the Securities Act. In the Merger Agreement, UST has
agreed to use its best efforts to cause each of those persons who may be deemed
affiliates of UST to deliver to Chase on or prior to the Closing Date a written
agreement providing that such persons will not make any sale, transfer or other
disposition of the Chase Common Stock received in connection with the Merger in
violation of the Securities Act or the rules and regulations promulgated
thereunder. If any affiliate refuses to provide such an agreement, Chase will be
entitled to place appropriate legends on the Chase shares to be received by such
affiliates, and to issue stop transfer instructions to Chase's transfer agent in
regard to such shares. This Proxy Statement-Prospectus does not cover any
resales of Chase Common Stock received by affiliates of UST, including certain
family members and related interests.
DISSENTERS' RIGHTS
The following summary of the rights of Dissenting Holders is qualified in
its entirety by reference to Sections 910 and 623 of the NYBCL, copies of each
of which are attached as Appendix G hereto and which should be reviewed by any
UST stockholder wishing to exercise dissenters' rights.
Pursuant to Sections 910 and 623 of the NYBCL, a UST stockholder who
objects to the Merger is entitled to dissent from the Merger and, if the Merger
is consummated, receive payment of the fair value of his or her shares of UST
Common Stock in cash (rather than accept shares of Chase Common Stock), by
complying with the provisions of Section 623 of the NYBCL (a "Dissenting
Holder"). The following summary of the statutory procedures required to be
followed by a UST stockholder in order to perfect his or her rights under
Section 623 of the NYBCL is qualified in its entirety by reference to Section
623 of the NYBCL, the text of which is attached as Appendix G hereto. To
preserve their right to object and receive in cash the fair value of their
shares, UST stockholders must comply with the following procedures. A negative
vote or return of a negative proxy alone is not sufficient. A summary of the
procedure is as follows:
(a) Prior to the Special Meeting, or at the meeting but before the
Merger is submitted to a vote, the Dissenting Holder must file with UST a
written objection to the Merger which includes: (i) a notice of the
Dissenting Holder's election of dissent, (ii) the Dissenting Holder's name
and residence address, (iii) the number and classes of shares as to which
the Dissenting Holder dissents and (iv) a demand for payment of the fair
value of such shares if the Merger is consummated. Prior to the Special
Meeting written objections should be sent to U.S. Trust Corporation,
Attention: Office of the Secretary, 114 West 47th Street, New York, New
York 10036. Stockholders dissenting at the Special Meeting must submit
written objections with the aforementioned information to the Secretary at
the Special Meeting before the Merger is submitted to a vote. A UST
stockholder may not dissent as to less than all the shares as to which he
or she has the right to dissent. A nominee or fiduciary may not dissent on
behalf of any beneficial owner as to less than all the shares of such owner
held of record by such nominee or fiduciary.
(b) The Dissenting Holder must either abstain from voting or vote
against the Merger. A vote for the Merger will cause the UST stockholder to
lose his or her right to dissent. IF A PROXY IS SIGNED AND RETURNED WITHOUT
INDICATING ANY VOTING INSTRUCTIONS, SHARES OF UST COMMON STOCK REPRESENTED
BY THE PROXY WILL BE VOTED FOR BOTH THE DISTRIBUTION PROPOSAL AND THE
MERGER PROPOSAL. THEREFORE, RETURNING
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A SIGNED PROXY WITHOUT VOTING INSTRUCTIONS WILL CAUSE SUCH UST STOCKHOLDER
TO LOSE HIS OR HER RIGHT TO DISSENT.
(c) Within ten days after UST stockholder approval of the Merger, UST
must give written notice thereof by registered mail to each Dissenting
Holder who filed a written objection to the Merger and did not vote in
favor of the Merger.
(d) At the time of the written objection referred to in paragraph (a)
above, or within one month thereafter, a Dissenting Holder must submit all
certificates representing the Dissenting Holder's shares of UST Common
Stock to UST for the purpose of affixing a notation indicating that a
notice of election to dissent has been filed. After making such a notation,
UST will return such certificates to the Dissenting Holder. If such
certificates are not submitted, the holder thereof shall, at the option of
UST exercised by written notice to the stockholder within 45 days of the
filing of the notice of election to dissent, lose the right to dissent
unless a court for good cause otherwise directs.
(e) Within 15 days after the expiration of the period within which UST
stockholders may submit a notice of election to dissent, or within 15 days
after the Effective Time, whichever is later, but in no event later than 90
days after UST stockholder authorization of the Merger, UST shall make a
written offer, by registered mail, to each UST stockholder who filed notice
of election to dissent, to pay for the Dissenting Holder's shares at a
specified price that UST considers to be the fair value of the shares. The
offer shall be made at the same price per share to all Dissenting Holders
and will be accompanied by a statement setting forth the aggregate number
of shares with respect to which notices of election to dissent have been
received and the aggregate number of holders of such shares. If the Merger
has become effective, the offer must be accompanied by an advance payment
of 80% of the offered amount, in the case of each Dissenting Holder who has
submitted certificates for his shares, or a statement that such an advance
payment will be made promptly upon submission of the certificates for his
or her shares in the case of any other Dissenting Holder. Acceptance of
such advance payment by a Dissenting Holder will not constitute a waiver of
his or her right to dissent. If within 30 days after making the offer any
Dissenting Holder and UST agree upon the price to be paid for the shares,
payment of the offered amount or the balance of the offered amount, as the
case may be, must be made by UST within 60 days after the making of the
offer or the Effective Time, whichever is later, upon the surrender of the
certificates representing the Dissenting Holder's shares.
(f) If UST fails to make the offer described in paragraph (e) above or
if the Dissenting Holder and UST fail to agree within 30 days after the
making of such offer on the price to be paid, UST within 20 days after the
expiration of the appropriate time period set forth above, will institute a
special proceeding in the supreme court in the judicial district in which
UST is located to determine the rights of Dissenting Holders and to fix the
fair value of their shares.
(g) If UST fails to institute the special proceeding described in
paragraph (e) above, any Dissenting Holder may do so within 30 days after
the expiration of the 20-day period. If the proceeding is not instituted
within such 30-day period, the Dissenting Holder will lose the right to
dissent unless the court for good cause otherwise directs. All Dissenting
Holders, other than those who agreed with UST as to the price to be paid
for their shares, must be made parties to such proceeding. The court will
determine those Dissenting Holders who have complied with the provisions of
Section 623 of the NYBCL and who are entitled to dissent, and will then
determine the fair value of their shares as of the close of business on the
date prior to the date the Merger was authorized by the UST stockholders.
In fixing the fair value of the shares, the court will consider the nature
of the transaction giving rise to the Dissenting Holder's right to receive
payment for his or her shares and its effect on UST and its stockholders,
the concepts and methods then customary in the relevant securities and
financial markets for determining the fair value of shares of a corporation
engaging in a similar transaction under comparable circumstances, and all
other relevant factors. The court shall determine the fair value of the
shares without a jury and without referral to an appraiser or referee.
(h) Within 60 days after the final determination of the special
proceeding UST must pay the Dissenting Holder the amount found to be due,
with interest thereon from the date the Merger was
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consummated, at such rate as the court finds to be equitable, upon
surrender by the Dissenting Holder of all stock certificates representing
his or her shares. If the court finds that the refusal of any Dissenting
Holder to accept UST's offer of payment for shares was arbitrary, vexatious
or otherwise not in good faith, no interest shall be allowed to him or her.
The parties to the court proceeding will bear their own costs and expenses,
including the fees and expenses of their counsel and of any experts employed by
them, except that the court, in its discretion and under certain conditions, may
assess all or any part of the costs, expenses and fees incurred by Dissenting
Holders against UST, or may assess all or any part of the costs, expenses and
fees incurred by UST against any Dissenting Holders, including any Dissenting
Holders who have withdrawn their notices of election, if the court finds that
their refusal to accept UST's offer was arbitrary, vexatious or otherwise not in
good faith.
A Dissenting Holder continues to retain all rights of a stockholder until
the Effective Time. Upon the consummation of the Merger, each Dissenting Holder
ceases to have any of the rights of a stockholder with respect to his UST Common
Stock other than the right to be paid the fair value of his shares and any other
rights under Section 623 of the NYBCL. Any notice of election to dissent may be
withdrawn by a Dissenting Holder at any time prior to his written acceptance of
UST's offer, but in no case later than 60 days after consummation of the Merger
(or, if UST fails to make a timely offer to pay the Dissenting Holder the fair
value of his shares as provided above, at any time within 60 days after the date
an offer is made), or thereafter with the written consent of UST. Any Dissenting
Holder who withdraws his or her notice of election to dissent or otherwise loses
his or her right to dissent shall thereupon have the right to receive shares of
Chase Common Stock as provided in the Merger Agreement.
A UST stockholder is not required to exercise his or her right to dissent
merely because he or she did not vote in favor of the Merger. A UST stockholder
who has not voted in favor of the Merger may, at his or her election, not pursue
his or her right to dissent, in which case he or she will be bound by the terms
of the Merger Agreement and will receive shares of Chase Common Stock as therein
provided.
After consummation of the Merger, actions to be taken by UST will be taken
by Chase as successor to UST. Under the terms of the Merger Agreement, the
obligation of Chase to consummate the Merger is conditioned on holders of no
more than 5% of the aggregate outstanding shares of UST Common Stock exercising
dissenters' rights.
Under New York law, the dissenters' rights procedure is an exclusive remedy
and a Dissenting Holder who does not perfect his or her right to dissent through
compliance with Section 623 of the NYBCL will be bound by the terms of the
Merger, unless the Merger is unlawful or fraudulent as to him. In view of the
complexity of these provisions of New York law, stockholders who are considering
dissenting from the Merger should consult their legal advisors.
THE DISTRIBUTION
This section of the Proxy Statement-Prospectus describes certain aspects of
the proposed Distribution. To the extent that they relate to the Distribution
Documents, the following descriptions do not purport to be complete and are
qualified in their entirety by reference to the Distribution Documents which are
attached as Appendix B through E to this Proxy Statement-Prospectus and are
incorporated herein by reference. ALL UST STOCKHOLDERS ARE URGED TO READ EACH OF
THE DISTRIBUTION DOCUMENTS IN ITS ENTIRETY.
BACKGROUND OF AND REASONS FOR THE DISTRIBUTION
Because the Processing Business and the Related Back Office were the only
businesses, assets and liabilities of UST that UST and its subsidiaries proposed
to sell, UST determined to effect the Distribution, which will be tax free to
UST stockholders for Federal income tax purposes. UST believes the Distribution
will enable UST stockholders to continue to participate in the values and
prospects of the assets and businesses of Spinco.
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Although the Distribution will not be effected unless the Merger is
authorized and about to occur, the Distribution is separate from the Merger and
Spinco Common Stock to be received by holders of UST Common Stock in the
Distribution does not constitute a part of the Merger consideration.
Consummation of the Distribution is a condition to the Merger. Accordingly, if
the Distribution is not approved by the stockholders of UST at the Special
Meeting, the Merger Agreement could be terminated by Chase or UST and the Merger
would not occur, even if the UST stockholders authorize the Merger.
UST stockholders are being asked to vote on the Distribution and the Merger
only, and are not being asked to vote on the transfer of the Core Businesses to
Spinco. In the event the UST stockholders do not approve the Distribution and do
not authorize and adopt the Merger, or if the Merger is not consummated for any
other reason, UST's management nonetheless intends to transfer the Core
Businesses to Spinco and New Trustco. These transfers would be subject to
regulatory approvals, and the Company would either amend its applications to
such regulatory authorities in connection with the Merger, or file new
applications, to seek such approvals. In addition, UST would amend its
application for a private letter ruling made to the Service to request a ruling
confirming that the distribution to UST of the stock of New Trustco could be
effected as a tax-free internal reorganization without triggering a deferred
gain to UST.
TERMS OF THE CONTRIBUTION AGREEMENT
In connection with the Distribution, USTNY and New Trustco will enter into
the Contribution Agreement. The Contribution Agreement provides for, among other
things, a series of asset and stock transfers between USTNY and New Trustco, and
the assignment to and assumption by New Trustco of liabilities of USTNY relating
to the assets and stock transferred (the "Contribution Asset Transfers"). The
Contribution Asset Transfers are designed to transfer all the businesses, assets
and liabilities of USTNY to New Trustco, other than the businesses, assets and
liabilities included in the Chase Acquired Business.
Contribution Assets and Contribution Liabilities
Pursuant to the terms of the Contribution Agreement, immediately prior to
the Distribution Asset Transfers (as defined under "-- Terms of the Distribution
Agreement -- The Distribution Asset Transfers" below), USTNY will assign,
transfer, convey and contribute to New Trustco, effective as of the Closing, all
the business, properties, assets, goodwill and rights of USTNY, other than the
Chase Assets (as defined below), owned by USTNY on the Closing Date (the
"Contribution Assets"), including: (i) all assets used or held for use primarily
in the Core Businesses; (ii) all agreements entered into by USTNY with customers
or clients of the Core Businesses relating to such businesses; (iii) all
mortgages, loans, overdrafts, lines of credit, rights in respect of letters of
credit and similar assets of the Core Businesses and all rights in respect of
collateral or security (except rights in collateral to the extent that such
rights secure any Chase Assets) for any of the foregoing; (iv) all accrued fees,
accrued interest and accounts receivable, other than those of the Chase Acquired
Business; (v) all real property owned by USTNY and all rights in certain leases;
(vi) all cash on hand, funds available for investment, investments and
securities of USTNY, other than certain investments or funds reflected on the
balance sheet of the Chase Acquired Business at the Time of Distribution; (vii)
USTNY's interest in all lease and licensing agreements, and related support
agreements, with third parties for the use of systems and applications software
(excluding, however, certain data processing licenses and computer leases);
(viii) USTNY's interest in the Asset Management System; (ix) all rights relating
to the Contribution Liabilities (as defined below); (x) all rights relating to
certain abandoned property; (xi) all policies of insurance or similar
agreements; (xii) all collateral posted to secure clearing and other contingent
obligations; and (xiv) all fees or accounts receivable of the Chase Acquired
Business which have been paid on or before the close of business on the day
immediately prior to the Closing Date.
The Contribution Agreement also provides that, subject to certain limited
exceptions, the Contribution Assets will not include any assets of USTNY that
are primarily used, or that are held for use in, or are reasonably necessary for
the conduct by USTNY of, the Chase Acquired Business on the Closing Date (the
"Chase Assets"), including: (i) all customer agreements relating to the
Processing Business; (ii) all accounts receivable and accrued and unpaid fees
under customer agreements owed to USTNY on the Closing Date and arising out of
the Processing Business; (iii) certain agreements by which USTNY is bound that
relate to the
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Chase Acquired Business; (iv) USTNY's lease relating to space in the building
located at 770 Broadway, New York, New York (the "Broadway Lease"); (v) certain
USTNY proprietary systems and application software; and (vi) all rights relating
to Chase Liabilities (as defined below).
In addition, pursuant to the terms of the Contribution Agreement, New
Trustco will assume, subject to certain exceptions, effective as of the Closing,
and will pay, perform and discharge when due and indemnify USTNY and hold USTNY
harmless from and against all liabilities (the "Contribution Liabilities") of
USTNY existing on the Closing Date (other than Chase Liabilities), including:
(i) all liabilities of USTNY relating to or arising out of the Core Businesses;
(ii) all liabilities arising out of any event, occurrence, action or omission
taken or occurring prior to the Closing Date by or with respect to USTNY, its
officers, directors, Board of Trustees, employees, agents or representatives;
(iii) all obligations in respect of the Capital Notes; (iv) any liability which
is attributable to any of the Contribution Assets; (v) all liabilities under
each UST benefit plan that is transferred to New Trustco; (vi) all fees and
expenses of USTNY and its subsidiaries incurred on or before the Contribution
Asset Transfers in connection with the Merger; and (vii) all obligations under
agreements relating to the Chase Acquired Business that are to be performed or
discharged prior to the Closing Date.
The Contribution Agreement also provides that at all times at and after the
Closing, USTNY will, subject to certain exceptions, retain and be solely
responsible for, and USTNY will pay, perform and discharge when due, and
indemnify New Trustco and hold New Trustco harmless from and against the
following liabilities (the "Chase Liabilities"), including: (i) all deposits
arising from the Processing Business; (ii) all liabilities to trade creditors
and accounts payable of the Chase Acquired Business reflected on the balance
sheet of the Chase Acquired Business at the Time of Distribution; (iii) all
liabilities under agreements relating to the Processing Business, subject to
limited exceptions; (iv) (A) all liabilities for amounts required to be paid as
of or after the Effective Time under the terms of UST's 1986 Stock Option Plan
and employer payroll taxes due with respect to such amounts, subject to certain
limits, and (B) all liabilities for amounts payable under the Transition Bonus
Program (as defined under "Effect of Transactions on UST Employees and UST
Benefit Plans" below) maintained by USTNY; (v) all obligations and duties as
lessee under the Broadway Lease arising after the Closing Date; and (vi) certain
obligations relating to certain abandoned property.
Delayed Assets and Delayed Liabilities
The Contribution Agreement provides that to the extent that any consent
with respect to a contract, agreement, lease or other instrument included in the
Contribution Assets that is legally required to effect the transfer thereof to
New Trustco (a "Required Consent"), and that has not been obtained on or prior
to the Closing Date (such contract, agreement, lease or instrument a "Delayed
Asset") will not be transferred as a Contribution Asset, and any related
liability (a "Delayed Liability") will not be assumed by New Trustco as a
Contribution Liability, unless and until such Required Consent has been
obtained. Pursuant to the Contribution Agreement, USTNY will agree that if such
a Required Consent to transfer is not obtained, USTNY will reasonably cooperate
with New Trustco to attempt to provide to New Trustco the benefits under or of
any such Delayed Asset; provided that New Trustco will assume, pay and perform
(and indemnify and hold USTNY harmless from and against) all obligations and
liabilities relating to such Delayed Asset or Delayed Liability and will
promptly reimburse USTNY for all of its actual costs and expenses (including
attorneys' fees and employee salaries and allocable benefits, but not overhead)
in connection with any such arrangement.
USTNY and New Trustco will agree that, on each occasion after the Closing
Date that a Required Consent is obtained with respect to a Delayed Asset, such
Delayed Asset will be transferred and assigned to New Trustco, and all related
Delayed Liabilities will be simultaneously assumed by New Trustco.
Use of Names
The Contribution Agreement provides that after the Closing Date, USTNY will
promptly change the name "USTNY" on all documents, stationery and facilities
relating to the Chase Acquired Business to a name that is not in any way similar
to USTNY's name (or any name or initial confusingly similar to that of any
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existing affiliates of New Trustco). Under the Contribution Agreement, USTNY
will transfer to New Trustco all right, title and interest in and to, and all
rights to use, USTNY's name (or any name or initial similar thereto or of any
existing affiliates of USTNY).
Chase Acquired Business Balance Sheet
Because all the consideration for the sale of the Chase Acquired Business
is being paid directly to UST stockholders in the form of Chase Common Stock,
the Contribution Agreement generally contemplates that the balance sheet assets
of the Chase Acquired Business immediately after the Distribution will be equal
to the balance sheet liabilities of the Chase Acquired Business. In order to
effectuate this, the Contribution Agreement provides, subject to certain
exceptions, that USTNY will retain, and not contribute to New Trustco, an amount
of cash and short-term U.S. Treasury securities (valued at the amount that could
be realized on their disposition) expected to exceed by $5.5 million the amount
by which the balance sheet liabilities of the Chase Acquired Business exceed the
balance sheet assets of the Chase Acquired Business. (Such a mechanism is
necessary because the deposit and other liabilities of the Processing Business
will significantly exceed the assets -- which are comprised principally of
leasehold improvements, furniture, equipment and accounts receivable -- of the
Processing Business, and since no investment assets or funds of USTNY are
specifically allocated to, or considered to be assets of, the Processing
Business for purposes of the Contribution Agreement or Distribution Agreement).
The amount of funds and U.S. Treasury securities to be retained by USTNY is
subject to additional adjustments to compensate for amounts otherwise payable by
one party to the other in connection with the transaction or to compensate for
liabilities assumed by Chase that do not directly relate to the Chase Acquired
Business. Similarly, the amount of funds to be retained by USTNY will be
increased to reflect payment obligations to be retained by USTNY in respect of
certain employee plans, the after-tax cost to Chase of terminating out-of-market
computer equipment leases being acquired in the Merger and certain payments
relating to the leasehold space at 770 Broadway also being acquired by Chase as
a consequence of the Merger.
In order to permit the calculation of the amount of funds and U.S. Treasury
securities to be retained by New Trustco, USTNY will prepare Closing Date
balance sheets for USTNY, MF Service Company and UST-WY. The amounts reflected
therein, to the extent based on estimates or otherwise erroneous, will be
finalized and corrected after the Closing Date, and New Trustco or USTNY will
make any compensating payment to the other party required in connection
therewith.
Conditions of Obligations of New Trustco and USTNY
The Contribution Agreement provides that the respective obligation of each
party to effect the Contribution Asset Transfers is subject to satisfaction or
waiver (which waiver, in the case of USTNY, requires the consent of Chase) prior
to the Closing of the following conditions: (a) all necessary consents or
expirations of waiting periods imposed by any governmental authority shall have
been obtained or shall have occurred; (b) there shall be no suit, action, or
other proceeding pending which has been initiated by any governmental authority
seeking to restrain, prohibit, invalidate or set aside in whole or in part the
consummation of the transactions contemplated by the Contribution Agreement and
no temporary restraining order, preliminary or permanent injunction or other
legal restraint or prohibition preventing the consummation of the transactions
contemplated by the Contribution Agreement shall be in effect; and (c) all
conditions to the consummation of the transactions contemplated by the Merger
Agreement (other than the Asset Transfers (as defined below) and the
Distribution) shall have been satisfied.
Conditions of Obligation of New Trustco
The obligation of New Trustco to accept the Contribution Assets and assume
the Contribution Liabilities is further subject to the following conditions,
unless waived by New Trustco: (a) the representations and warranties of USTNY
set forth in the Contribution Agreement shall be true and correct in all
material respects as of the date of such agreement and as of the Closing as
though made on and as of the Closing (or on or as of the date when made in the
case of any representation or warranty which specifically relates to an earlier
date); (b) USTNY shall have performed or complied in all material respects with
all obligations,
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conditions and covenants required to be performed or complied with by it under
the Contribution Agreement at or prior to the Closing; (c) USTNY shall have
delivered to New Trustco an appropriate bill of sale conveying the Contribution
Assets; (d) the Merger Agreement and each of the Distribution Documents shall
have been executed and shall, subject to consummation of the transactions
contemplated by the Merger Agreement, the Distribution Agreement and the
Contribution Agreement, be effective and in force; and (e) USTNY shall have
amended its organization certificate to change its name.
Conditions of Obligations of USTNY
The obligations of USTNY to assign the Contribution Assets and transfer the
Contribution Liabilities is subject to the following conditions, unless waived
by USTNY (with the consent of Chase): (a) the representations and warranties of
New Trustco set forth in the Contribution Agreement shall be true and correct in
all material respects as of its date and as of the Closing Date as though made
on and as of the Closing Date (or on or as of the date when made in the case of
any representation or warranty which specifically relates to an earlier date);
(b) New Trustco shall have performed or complied in all material respects with
all obligations required to be performed or complied with by it under the
Contribution Agreement at or prior to the Closing; (c) New Trustco shall have
executed and delivered to USTNY an Assumption Agreement relating to the
Contribution Liabilities; and (d) the Merger Agreement and each of the
Distribution Documents shall have been executed and shall, subject to
consummation of the transactions contemplated by the Merger Agreement, the
Distribution Agreement and the Contribution Agreement, be effective and in
force.
TERMS OF THE DISTRIBUTION AGREEMENT
The Distribution Agreement provides for, among other things, (i) the
dividend by USTNY of all the capital stock of New Trustco to UST, and the
subsequent contribution by UST of such capital stock to Spinco and (ii) the
Distribution.
In addition, the Distribution Agreement provides for a series of asset and
stock transfers between and among UST, certain of UST's subsidiaries and Spinco,
and the assignment to and assumption by Spinco of certain liabilities of UST and
certain of its subsidiaries relating to the assets and stock transferred (the
"Distribution Asset Transfers" and, together with the Contribution Asset
Transfers, the "Asset Transfers"). The Distribution Asset Transfers are designed
to transfer the Core Businesses to Spinco.
Recapitalization of Spinco
The Distribution Agreement provides that immediately prior to the Time of
Distribution, UST will appropriately cause Spinco to amend its certificate of
incorporation to, among other things, increase the currently authorized number
of shares of common stock of Spinco and to exchange the 100 shares of such
common stock currently outstanding for a total number of shares of Spinco Common
Stock equal to the total number of shares of UST Common Stock outstanding
immediately prior to the Distribution Record Date.
Method of Effecting the Distribution
The Distribution Agreement provides that the Distribution will be effected
by the distribution to each holder of record of UST Common Stock, as of the
close of the stock transfer books on the Distribution Record Date, of
certificates representing one share of Spinco Common Stock multiplied by the
number of shares of UST Common Stock held by such holder.
Distribution Assets and Distribution Liabilities
Pursuant to the terms of the Distribution Agreement, immediately prior to
the Time of Distribution and immediately following the Contribution Asset
Transfers and the dividend by USTNY of all the stock of New Trustco to UST, UST
will assign, transfer, convey and contribute, or cause the assignment, transfer,
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conveyance and contribution of, the Core Businesses, including the following
(collectively, the "Distribution Assets" and, together with the Contribution
Assets, the "Spinco Assets"), to Spinco:
(a) all of the issued and outstanding capital stock of the following
subsidiaries: (i) New Trustco; (ii) U.S. Trust Company of Florida Savings
Bank, a Florida banking corporation; (iii) U.S.T.L.P.O. Corp., a Delaware
corporation; (iv) Campbell, Cowperthwait & Company, a Delaware corporation;
(v) U.S. Trust Company of California, N.A., a national banking association;
(vi) U.S. Trust Company of New Jersey, a New Jersey banking corporation;
(vii) U.S. Trust Company of Connecticut, a Connecticut banking corporation;
(viii) UST Financial Services Corp., a New York corporation; (ix) CTMC
Holding Company, an Oregon corporation; (x) U.S. Trust Company Limited, a
New York trust company; (xi) Technologies Holding Corporation, a Delaware
corporation; and (xii) UST Risk Management Services Inc., a New York
corporation.
(b) (i) subject to the Retention Amount (as defined under
"-- Retention Amount" below), all cash on hand, investments (subject to
certain exceptions) and securities (subject to certain exceptions) owned
by, or held for the account of, UST; (ii) all patents, trademarks, service
marks and the like, and all rights to the name "U.S. Trust Corporation" or
any other name used or employed by UST or any of its affiliates (other than
MF Service Company); (iii) all equity or debt investments of UST in any
corporation or other business association (other than UST's equity
investments in MF Service Company, USTNY and UST-WY); and (iv) all rights
relating to the Distribution Liabilities (as defined below).
(c) (i) all cash on hand, investments and securities owned by, or held
for the account of, MF Service Company; and (ii) all equity or debt
investments of MF Service Company (other than MF Service Company's equity
interest in Mutual Funds Service Company (Canada) Ltd.) in any corporation
or other business association.
(d) (i) all cash on hand, investments and securities owned by, or held
for the account of UST-WY; (ii) all patents, trademarks, service marks and
the like and all rights with respect to the name "U.S. Trust Company of
Wyoming" or any similar name used or employed by UST-WY or any of its
affiliates; and (iii) all equity or debt investments of UST-WY in any
corporation or other business association.
The Distribution Agreement provides that, notwithstanding any other
provision therein to the contrary, the businesses and assets which are part of
the Core Businesses will not include the Chase Acquired Business on the Closing
Date (other than any names that are Distribution Assets, or any similar names).
The Distribution Agreement also provides that if, after the Time of
Distribution, either party holds assets which by the terms of the Distribution
Agreement, the Contribution Agreement or the Merger Agreement were intended to
be assigned and transferred to, or retained by, the other party, such party will
promptly assign and transfer or cause to be assigned and transferred such assets
to the other party. The Distribution Agreement further provides that, except as
otherwise provided therein or in the Merger Agreement, the Contribution
Agreement, the Post Closing Covenants Agreement or the Tax Allocation Agreement,
at or prior to the Time of Distribution, Spinco will assume, or agree to be
responsible for, all liabilities (the "Distribution Liabilities" and, together
with the Contribution Liabilities, the "Spinco Liabilities") of UST, MF Service
Company and UST-WY other than (i) the certain specified liabilities of MF
Service Company (the "MF Service Company Retained Liabilities") arising before
the Time of Distribution; (ii) the certain specified liabilities of UST-WY (the
"UST-WY Retained Liabilities") arising prior to the Time of Distribution and
(iii) the liabilities and obligations relating to the Retention Amount.
Retention Amount
Pursuant to the terms of the Distribution Agreement, and notwithstanding
the Distribution Asset Transfers, UST will retain, and not distribute or
contribute to Spinco pursuant to the Distribution Asset Transfers, cash funds
equal to the Retention Amount. The Distribution Agreement defines the "Retention
Amount" as the sum of (w) the aggregate amount, determined as of the close of
business on the day immediately prior to the Closing Date, of the cash payments
required to be made with respect to all stock options granted under the 1989
Stock Compensation Plan of U.S. Trust Corporation and the U.S. Trust
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Corporation Stock Option Plan for Non-Employee Directors that have not expired
or that have not been exercised or canceled prior to the Effective Time,
determined in accordance with the relevant provisions of each such plan on the
basis of a "change in control" having occurred thereunder with respect to such
stock options as a result of the Merger; plus (x) the product of (i) the
aggregate amount, determined as of the close of business on the day immediately
prior to the Closing Date, of the cash payments required to be made with respect
to all outstanding account balances under the AIP, determined in accordance with
the relevant provisions of such plan (including any amendment thereof made in
accordance with the terms of the Merger Agreement) on the basis of a "change in
control" having occurred thereunder as a result of the Merger, multiplied by
(ii) 0.68875; plus (y) the aggregate amount, determined as of the close of
business on the day immediately prior to the Closing Date, required to pay any
employer payroll taxes, including for employer's share of FICA and FUTA, due on
amounts payable under the plans referred to in clauses (w) and (x) above; minus
(z) the sum of (i) $5.5 million plus (ii) an amount equal to the amount of MF
Service Company's net worth as reflected on its Closing Date balance sheet plus
(iii) an amount equal to the amount of UST-WY's net worth as reflected on its
Closing Date balance sheet.
Under the Distribution Agreement, UST will retain and be solely responsible
for, and will agree to pay, perform and discharge when due, and indemnify Spinco
and hold Spinco harmless from and against, all liabilities and obligations,
subject to certain limitations, for amounts payable under each of the plans
referred to in clauses (w) and (x)(i) of the foregoing paragraph, and all
liabilities and obligations to pay all employer payroll taxes referred to in
clause (y) of the foregoing paragraph.
Conditions to the Distribution
The obligations of UST and Spinco to consummate the Distribution are
subject to the fulfillment of each of the following conditions: (i) the
recapitalization of Spinco shall have been completed substantially as described
in the Distribution Agreement; (ii) each of the Contribution Agreement, the Post
Closing Covenants Agreement and the Tax Allocation Agreement shall have been
executed and delivered by each of the parties thereto, and the Contribution
Asset Transfers shall have been consummated; (iv) all of the Distribution Asset
Transfers shall have been successfully consummated; (v) each condition to the
Closing of the Merger Agreement, other than the condition requiring the
satisfaction of conditions contained in the Distribution Agreement, shall have
been fulfilled; (vi) the Distribution shall have been approved by the
affirmative vote of the holders of UST Common Stock entitled to cast at least
two-thirds (or 66-2/3%) of the total number of votes entitled to be cast; (vii)
any registration statement filed by Spinco with the Commission in connection
with the issuance of Spinco Common Stock in the Distribution shall have become
effective, and shall not be the subject of any stop order or proceeding by the
Commission seeking a stop order; (viii) the shares of Spinco Common Stock to be
issued in the Distribution shall have designated as a national market system
security on the interdealer quotation system by the NASD; (ix) all necessary
consents or expirations of waiting periods imposed by any governmental authority
shall have been obtained or shall have occurred; and (x) no temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Distribution shall be in effect.
Amendment
The Distribution Agreement provides that UST and the Company may modify or
amend the Distribution Agreement by written agreement, subject to the consent of
Chase.
TERMS OF THE POST CLOSING COVENANTS AGREEMENT
Indemnification by Spinco
Pursuant to the Post Closing Covenants Agreement, Spinco will agree that,
from and after the Effective Time, it will indemnify and hold harmless Chase,
UST and USTNY (collectively, the "Chase Parties") and their respective
directors, officers, employees, affiliates, agents and assigns, as applicable,
against any and all losses, as incurred, for or on account of or arising from:
(a) any breach of or any inaccuracy in any
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representation or warranty of any of Spinco, New Trustco (collectively, the "New
UST Parties"), UST, USTNY and their subsidiaries contained in the Merger
Agreement or any of the Distribution Documents; (b) any breach or nonperformance
of any covenant of (i) the New UST Parties or any of their subsidiaries
contained in the Merger Agreement or the Distribution Documents whether to be
performed before or after the Effective Time or (ii) UST or USTNY or any of
their subsidiaries contained in the Distribution Documents to be performed prior
to the Effective Time; (c) any Spinco Asset or Spinco Liability; (d) any Delayed
Asset or Delayed Liability; (e) any regulatory or compliance violation that
arises out of events, actions or omissions to act of UST or USTNY occurring
prior to the Effective Time and adversely affects a customer account or any
entity that has an interest in such customer account; (f) except for the Chase
Liabilities and the MF Service Company Retained Liabilities, and actions
relating to the Processing Business, claims of any shareholders, directors,
officers, employees or agents of UST and its subsidiaries arising from the
execution by UST or USTNY of the Merger Agreement or the Distribution Documents
and the consummation after the Effective Time of transactions in accordance with
the terms of such documents; (g) any untrue statement or alleged untrue
statement of any material fact contained in this Proxy Statement-Prospectus or
any amendment or supplement hereto, or any omission or alleged omission to state
herein a material fact required to be stated herein or necessary to make the
statements herein, in light of the circumstances under which they were made, not
misleading; but only in each case to the extent based upon information with
respect to the New UST Parties, furnished in writing by or on behalf of the New
UST Parties, or at any time prior to the Effective Time, UST or USTNY, expressly
for use in this Proxy Statement-Prospectus or any amendment or supplement
hereto; and (h) any liability arising (i) from a claim to enforce, or to recover
tort liability arising out of, any Federal, state or local law, rule or
regulation relating to the protection of the environment with respect to any
facility, site, location or business (whether past or present and whether active
or inactive) owned, operated or leased by UST or USTNY or any of their
subsidiaries prior to the Effective Time and (ii) as a result of conditions
existing during or prior to the period of time such facility, site, location or
business was owned, operated or leased by UST or USTNY or any of their
subsidiaries.
Indemnification by New Trustco
Pursuant to the Post Closing Covenants Agreement, New Trustco will agree
that, from and after the Effective Time, it will indemnify and hold harmless the
Chase Parties and their respective directors, officers, employees, affiliates,
agents and assigns, as applicable, against any and all losses, as incurred, for
or on account of or arising from: (a) any breach of or any inaccuracy in any
representation or warranty of New Trustco or USTNY and their subsidiaries
contained in the Merger Agreement or any of the Distribution Documents; (b) any
breach or nonperformance of any covenant of (i) New Trustco contained in the
Merger Agreement or the Distribution Documents whether to be performed before or
after the Effective Time or (ii) USTNY contained in the Merger Agreement or the
Distribution Documents to be performed prior to the Effective Time; (c) any
Contribution Asset or Contribution Liability; (d) any Delayed Asset or Delayed
Liability; (e) any regulatory or compliance violation that arises out of events,
actions or omissions to act of USTNY occurring prior to the Effective Time and
adversely affects a customer account or any entity with an interest in such
customer account; and (f) any liability arising (i) from a claim to enforce, or
to recover tort liability arising out of, any Federal, state or local law, rule
or regulation relating to the protection of the environment with respect to any
facility, site, location or business (whether past or present and whether active
or inactive) owned, operated or leased by USTNY prior to the Effective Time and
(ii) as a result of conditions existing during or prior to the period of time
such facility, site, location or business was owned, operated or leased by
USTNY.
Indemnification by Chase
Pursuant to the Post Closing Covenants Agreement, Chase will agree that,
from and after the Effective Time, it will indemnify and hold harmless the New
UST Parties and their respective directors, officers, employees, affiliates,
agents, and assigns, as applicable, from any and all losses, as incurred, for or
on account of or arising from: (a) any breach of or inaccuracy in any
representation or warranty of Chase contained in the Merger Agreement or any of
the Distribution Documents; (b) any breach or nonperformance of any covenant of
(i) Chase contained in the Merger Agreement or the Distribution Documents
whether to be performed
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before or after the Effective Time or (ii) UST or USTNY or any of their
subsidiaries contained in the Documents to be performed after the Effective
Time; (c) except for losses as to which any of the Chase Parties are entitled to
indemnification, any Chase Asset, any Chase Liability or any MF Service Company
Retained Liability; and (d) any untrue statement or alleged untrue statement of
any material fact contained in this Proxy Statement-Prospectus or any amendment
or supplement hereto, or any omission or alleged omission to state herein a
material fact required to be stated herein or necessary to make the statements
herein, in light of the circumstances under which they were made, not
misleading; but only in each case to the extent based upon information with
respect to the Chase Parties furnished in writing by or on behalf of Chase or,
at any time after the Effective Time, UST or USTNY, expressly for use in this
Proxy Statement-Prospectus or any amendment or supplement hereto.
Indemnification by USTNY
Pursuant to the Post Closing Covenants Agreement, USTNY will agree that,
from and after the Effective Time, it will indemnify and hold harmless the New
UST Parties and their respective directors, officers, employees, affiliates,
agents, and assigns, as applicable, from any and all losses, as incurred, for or
on account of or arising from: (a) any breach or nonperformance of any covenant
of USTNY contained in the Merger Agreement or the Distribution Documents to be
performed after the Effective Time; and (b) except for losses as to which any of
the Chase Parties are entitled to indemnification, any Chase Asset or any Chase
Liability.
Termination and Limitation on Indemnification
The Post Closing Covenants Agreement provides that each party's obligation
to indemnify and hold harmless any other party will terminate, subject to
certain limited exceptions, (a) in the case of indemnification with respect to
the breach of any representation and warranty by any party, two years from the
Closing Date and (b) in the case of indemnification with respect to regulatory
compliance, one year from the Closing Date. The other indemnification provisions
do not terminate.
The Post Closing Covenants Agreement also provides that, notwithstanding
any of its other provisions, neither the New UST Parties nor Chase or USTNY will
be obligated to indemnify any party unless the aggregate amount of all losses
relating to such liability exceeds on a cumulative basis an amount equal to
$500,000 (the "Deductible Amount"), and then only to the extent of any such
excess; provided, that any loss arising from a single indemnification claim in
an amount greater than $50,000 will not be subject to such limitation and will
be excluded from the determination of the Deductible Amount. In addition,
amounts to be indemnified pursuant to certain provisions of the Contribution
Agreement and certain provisions of the Distribution Agreement are not subject
to such limitation.
Minimum Net Worth
Pursuant to the Post Closing Covenants Agreement, Spinco will agree that,
until the later of (a) three years from the date thereof or (b) the date when
the applicable statutes of limitations with respect to all Federal income tax
liabilities of UST for periods ending prior to or on the Closing Date have run,
it will (i) as of any date of determination, maintain consolidated shareholders'
equity of not less than the lesser of (x) $150 million and (y) the greater of
(1) 95% of the consolidated shareholders equity of Spinco at January 1, 1996,
and (2) the sum of (A) $135 million plus, (B) on and after January 1, 1997, the
product of (I) $7.5 million multiplied by (II) the number of the most recent
preceding anniversary of December 31, 1995, and (ii) be a "well capitalized"
bank holding company within the meaning of the regulations of the Board of
Governors of the Federal Reserve System (as in effect on the date of the Post
Closing Covenants Agreement); except that, so long as Spinco's Tier 1 capital
leverage ratio is 4.5% or above, Spinco will not be deemed to be less than "well
capitalized" solely because its Tier 1 capital leverage ratio is less than 5%;
provided, however, that on or before September 30, 1995, the denominator used in
determining Spinco's Tier 1 capital leverage ratio will be the book value of the
average total consolidated assets (net of the allowance for loan losses) of
Spinco following the Distribution.
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Spinco's Noncompetition Agreement
Pursuant to the Post Closing Covenants Agreement, Spinco will agree that,
subject to certain exceptions relating to acquisitions and the conduct of the
asset management, private banking, special fiduciary and corporate trust
businesses by Spinco, until the fourth anniversary of the Effective Time,
neither Spinco nor any subsidiary or affiliate of Spinco will engage in the
Processing Business in the United States or Canada, or own, manage, operate,
control or have an interest greater than 5% of the voting stock or 25% of the
total equity in any enterprise which engages, directly or indirectly, in the
Processing Business in the United States or Canada.
Spinco will also agree that until the third anniversary of the Effective
Time, it will not solicit for employment certain specified employees to be
retained by the Chase Parties or disclose or make use of certain confidential
information related to the Chase Acquired Business.
The noncompetition terms provide that in the event that upon the
acquisition of Spinco or New Trustco by certain unaffiliated parties, Spinco and
New Trustco will cease to be bound by the noncompetition provisions of the Post
Closing Covenants Agreement, and upon six months notice by Chase, Chase may
treat such acquisition as a termination of the Services Agreement by New Trustco
and cease providing services under the Services Agreement on or after six months
thereafter.
For further discussion of the noncompetition terms of the Post Closing
Covenants Agreement, see "The Distribution -- Terms of the Post Closing
Covenants Agreement -- The Company's Noncompetition Agreement" in the
Information Statement attached as Appendix H hereto. Stockholders are urged to
read the Information Statement in its entirety.
TERMS OF THE TAX ALLOCATION AGREEMENT
Prior to the Time of Distribution, Chase, UST and Spinco will enter into a
Tax Allocation Agreement which sets forth each party's rights and obligations
with respect to payments and refunds, if any, of Federal, state, local or
foreign taxes for periods before and after the Distribution and related matters
such as the filing of tax returns and the conduct of the claims made by the
Service and other taxing authorities.
In general, under the Tax Allocation Agreement, Spinco will be responsible
for taxes imposed on UST or any of its subsidiaries with respect to a tax period
ending on or before the Effective Time.
EFFECT OF TRANSACTIONS ON UST EMPLOYEES
AND UST BENEFIT PLANS
TRANSFER OF EMPLOYMENT
Pursuant to the Contribution Agreement, each person who is an employee of
USTNY or any of its affiliates immediately before the Closing will become an
employee of New Trustco, or any affiliate of New Trustco designated by it,
effective as of the Closing, except for any such person employed in the Chase
Acquired Business who, in accordance with the provisions of the Merger
Agreement, has received an offer from Chase to be retained in employment with
the Chase Acquired Business after the Merger and who has accepted such offer.
Chase has offered such continuing employment to approximately 1,120 persons
presently employed by USTNY or its affiliates in the Chase Acquired Business.
Any person who accepts such offer of continuing employment is hereinafter
referred to as a "Retained Employee".
Each present executive officer of UST will become an executive officer of
Spinco at the Time of Distribution except for Donald M. Roberts, a Vice Chairman
and Treasurer of UST, and Frederick S. Wonham, a Vice Chairman of UST, each of
whom will be retiring effective as of the Closing Date. See "The
Merger -- Interests of Certain Persons in the Transactions".
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TRANSFER OF PLANS
The Merger Agreement provides that before the Effective Time, in connection
with the Asset Transfers, UST and USTNY will transfer to Spinco and to New
Trustco, respectively, each employee benefit and executive compensation plan
maintained by it other than any Retained Plan (as defined under "-- Retained
Plans" below) and, in the case of USTNY, the Transition Bonus Program (as
defined under "-- Transition Bonus Program" below). The Merger Agreement also
provides that Spinco and New Trustco will assume and become solely responsible
for all liabilities and obligations of UST and USTNY, respectively, under each
of the plans so transferred to it. The plans to be so transferred (the
"Transferred Plans") include those described below, which will be maintained by
either Spinco or New Trustco.
Plans maintained by UST that will be transferred to Spinco include the
following plans: 1989 Stock Compensation Plan of U.S. Trust Corporation, other
than the provisions thereof relating to stock options; 1988 Long-Term
Performance Plan of U.S. Trust Corporation; Long-Term Performance Plan of U.S.
Trust Corporation; Benefit Equalization Plan of U.S. Trust Corporation;
Supplemental Pension Agreements between U.S. Trust Corporation and Messrs.
Schwarz, Maurer, Roberts, Taylor, Wonham and Abramowitz; Board Members' Deferred
Compensation Plan of U.S. Trust Corporation; Board Members' Retirement Plan of
U.S. Trust Corporation; U.S. Trust Corporation Stock Plan for Non-Officer
Directors; Executive Deferred Compensation Plan of U.S. Trust Corporation; U.S.
Trust Corporation Benefits Protection Trust I; and U.S. Trust Corporation
Benefits Protection Trust II.
Plans maintained by USTNY that will be transferred to New Trustco include
the following plans: 401(k) Plan and ESOP of United States Trust Company of New
York and Affiliated Companies; Employee's Retirement Plan of United States Trust
Company of New York and Affiliated Companies; United States Trust Company of New
York and Affiliated Companies 1981 Stock Option Plan; Incentive Award Plan of
United States Trust Company of New York and Affiliated Companies; 1990 Annual
Incentive Plan of United States Trust Company of New York and Affiliated
Companies; United States Trust Company of New York and Affiliated Companies
Executives' Benefits Protection Trust; 1990 Change in Control and Severance
Policy for Top Tier Officers of United States Trust Company of New York and
Affiliated Companies; 1990 Change in Control and Severance Policy for Officers
and Employees of United States Trust Company of New York and Affiliated
Companies; Employee's Health Benefits Plan of The United States Trust Company of
New York and Affiliated Companies; Employees' Dental Insurance Plan of The
United States Trust Company of New York and Affiliated Companies; Employee's
Flexible Spending Plan of The United States Trust Company of New York and
Affiliated Companies; Employee's Short-Term Disability Plan of The United States
Trust Company of New York and Affiliated Companies; and Employee's Long-Term
Disability Plan of The United States Trust Company of New York and Affiliated
Companies.
For a discussion of changes that will be made in certain of the Transferred
Plans effective after the Distribution and the Merger, see "Executive
Compensation Plans in Effect after the Distribution" in the Information
Statement attached as Appendix H hereto.
RETAINED PLANS
The plans maintained by UST and USTNY that will not be transferred to
Spinco or New Trustco (the "Retained Plans") are the following: all provisions
of the 1989 Stock Compensation Plan of U.S. Trust Corporation relating to stock
options (the "1989 Option Plan"), the U.S. Trust Corporation Stock Option Plan
for Non-Employee Directors (the "Directors Option Plan"), the United States
Trust Company of New York and Affiliated Companies 1986 Stock Option Plan (the
"1986 Option Plan"), the United States Trust Company of New York and Affiliated
Companies 1981 Incentive Stock Option Plan (the "1981 Option Plan"), and the
AIP. The 1989 Option Plan, the Directors Option Plan, the 1986 Option Plan, and
the 1981 Option Plan are hereinafter collectively referred to as the "UST Option
Plans".
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With respect to all options granted under the UST Option Plans other than
any incentive stock options granted before October 27, 1987 under the 1986
Option Plan and the 1981 Option Plan (the "Pre-1987 ISO's"), the Merger will be
treated as the occurrence of a "change in control" of UST, as defined in the UST
Option Plans, with the following consequences:
(a) any option granted under the 1989 Option Plan that had not
previously become vested will become vested, and the holder thereof will be
entitled to exercise such option immediately before the Effective Time with
respect to any or all of the shares of UST Common Stock then subject to the
option;
(b) each option granted under each of the UST Stock Option Plans, to
the extent it has not expired or has not been exercised or cancelled prior
to the Effective Time, will be cancelled as of the Effective Time; and
(c) with respect to each option so cancelled other than any Pre-1987
ISO's, the holder thereof will be entitled to receive a lump-sum cash
payment in an amount equal to the excess of (i) the Determined Value (as
defined below) of the shares of UST Common Stock subject to the option,
over (ii) the aggregate exercise price for such shares. The amount so
payable with respect to each such option, less the amount of taxes required
to be withheld on such amount, will be paid to the holder of such option at
the Effective Time, or as soon thereafter as practicable. UST currently
estimates that the aggregate amount of such payments will be $39.1 million.
See note (1) to "Notes to Pro Forma Condensed Financial Statements" in the
Information Statement attached as Appendix H hereto.
As provided in the UST Option Plans, the "Determined Value" of the shares
of UST Common Stock subject to any option means the product of (i) the greater
of (A) the highest bid price per share of UST Common Stock during the 12-month
period ending on the day immediately preceding the Closing Date, or (B) the
Transaction Value per share of UST Common Stock, multiplied by (ii) the number
of shares of UST Common Stock subject to such option. For purposes of the
foregoing, the "Transaction Value" per share of UST Common Stock shall mean the
sum of (x) the product of the Conversion Number of shares of Chase Common Stock,
multiplied by the Average Value of Chase Common Stock, and (y) the amount
representing the 10-day average of the daily average of the high bid and low
asked prices for a share of Spinco Common Stock in the over-the-counter market
as reported by the National Quotation Bureau Incorporated on a "when-issued"
basis on each of the 10 trading days immediately preceding the Closing Date.
The 1981 Option Plan will be terminated as of the Effective Time. Each of
the other UST Option Plans will be terminated as soon as all payments required
to be made with respect to outstanding options thereunder have been made to the
holders of such options.
The Merger also will be treated as a "change in control" of UST (as defined
in the AIP) for purposes of the AIP. Accordingly, as provided in the AIP, the
entire unpaid balance of each participant's account under the AIP will become
payable in full at the Effective Time. The amount so payable, less the amount of
any taxes required to be withheld on such amount, will be paid to the
participant at the Effective Time or as soon thereafter as practicable. The AIP
will be terminated as soon as such payments have been made to all participants.
See "The Merger -- Interests of Certain Persons in the Transactions" for a
discussion of the effect of these provisions of the Retained Plans on UST's
executive officers and members of the UST Board.
SEVERANCE ARRANGEMENTS
UST anticipates that as a result of the reduced need for personnel in back
office, operational support, and corporate staff areas following the disposition
of the Chase Acquired Business, approximately 150 staff positions in these areas
will be eliminated. New Trustco will provide special severance benefits to each
full-time employee whose employment with New Trustco and its affiliates is
involuntarily terminated within one year following the Closing Date.
Each employee so terminated will receive (a) a lump-sum cash payment in an
amount equal to the sum of (i) 4% of annual base salary for each year of service
with UST and New Trustco, plus (ii) an amount equal
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to two weeks' to one year's base salary depending on the position held by the
employee with New Trustco at the time of termination and, in the case of
non-officer employees, the employee's length of service with UST and New Trustco
(the "Severance Benefit Payment"), (b) professional outplacement counselling
services; (c) continuation of coverage under the medical, dental, life insurance
and disability plans that will be transferred by USTNY to and maintained by New
Trustco, for a period of 3 months to one year following termination, depending
on the position held by the employee with New Trustco at the time of
termination; (d) in the case of each employee so terminated whose age and years
of service total 70 or more, an enhanced pension benefit under the Retirement
Plan, which will be transferred by USTNY to and maintained by New Trustco, in an
amount equal to the excess of (i) the additional pension that would be payable
to the employee under the Retirement Plan if 5 years were added to the
employee's age and years of service, over (ii) the additional pension that would
be payable to the employee under the Retirement Plan if he or she were entitled
thereunder to receive an additional pension in an amount that is actuarially
equivalent to the amount of the portion of the Severance Benefit Payment payable
to the employee that is described in (a)(i) above, after adjustment for taxes
payable on such amount (the "Enhanced Pension Benefit"); and (e) if the
employee's age and years of service total 70 or more and he or she has had at
least 10 years of service, post-retirement medical coverage under the medical
plan that will be transferred by USTNY to, and maintained by, New Trustco.
Pursuant to the Merger Agreement, Chase has agreed to provide special
severance benefits to any Retained Employee whose employment with Chase and its
affiliates is "involuntarily terminated", as defined in the Merger Agreement,
within 2 years following the Closing Date. The benefits so provided will include
(a) a severance payment in an amount determined in the same manner as the
Severance Benefit Payment described above based on the Retained Employee's base
salary and position with UST immediately prior to the Closing, and on the
Retained Employee's years of service with UST; (b) professional outplacement
counselling service; and (c) continuation of coverage under the medical, dental,
life insurance and disability plans maintained by Chase and its affiliates for
their employees, for a period of 3 months to one year following termination,
depending on the position held by the Retained Employee with UST.
In addition, in the case of any Retained Employee so terminated whose age
and years of service with UST immediately prior to the Closing Date total 70 or
more, New Trustco will provide such Retained Employee, under the Retirement
Plan, with the Enhanced Pension Benefit described above, determined on the basis
of the Retained Employee's salary, age and years of service with UST at the
Closing Date. New Trustco will also provide any Retained Employee so terminated
whose age and years of service with UST immediately prior to the Closing Date
total 70 or more and who has had at least 10 years of service with UST,
post-retirement medical coverage under the medical plan that will be transferred
by USTNY to, and maintained by, New Trustco.
The Retirement Plan will be amended to provide that, in the case of each
Retained Employee who has attained age 45 and has had at least 15 years of
service with UST prior to the Closing Date, and who remains employed with Chase
or any of its affiliates for more than 2 years following the Closing Date, such
Retained Employee's period of service with Chase and its affiliates will be
treated as an additional period of service with UST for purposes of determining
whether the Retained Employee has met the Retirement Plan's "Rule of 80"
requirement for eligibility to receive early retirement benefits.
See "Interests of Certain Persons in the Transactions" above for a
description of the separation benefits arrangements with Messrs. Roberts and
Wonham in connection with their retirement from UST effective as of the Closing
Date.
TRANSITION BONUS PROGRAM
As provided in the Merger Agreement, USTNY and its affiliates have adopted
a program (the "Transition Bonus Program") under which certain designated
employees in positions associated with the conduct of the Chase Acquired
Business will be paid bonuses, in amounts ranging from 3 months' to one year's
base salary, if they become Retained Employees and complete specified periods of
service, ranging from 30 to 90 days, with Chase or its affiliates following the
Merger.
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A total of 635 UST employees were designated as eligible for participation
in the Transition Bonus Program. Of this total, 10 employees have not been
offered continuing employment with Chase as of January 1, 1995, and therefore
will not become Retained Employees. Nevertheless, such employees will be
entitled to receive their bonus under the Program if they complete an
agreed-upon period of service with New Trustco following the Merger.
Pursuant to the Merger Agreement, Chase has agreed to bear a portion of the
cost of the bonuses paid to Retained Employees under the Transition Bonus
Program.
UST presently estimates that its costs for severance and related benefits
and for Transition Bonus Program payments will be approximately $12.7 million
and $8.4 million, respectively, or approximately $21.1 million in the aggregate.
However, the ultimate level of these costs will not be precisely determinable
until the Closing Date. The aggregate amount of these costs may range from
approximately $21.1 million to approximately $24 million. See notes (e) and (l)
to "Notes to Pro Forma Condensed Financial Statements" in the Information
Statement attached as Appendix H hereto.
RELATIONSHIP WITH CHASE
Following the Merger, Spinco will continue to have certain relationships
with Chase and its subsidiaries.
POST CLOSING COVENANTS AGREEMENT; TAX ALLOCATION AGREEMENT
In the Post Closing Covenants Agreement and the Tax Allocation Agreement,
Chase, UST and USTNY, on the one hand, and Spinco and New Trustco, on the other
hand, will agree to indemnify each other after the Distribution with respect to
certain losses, damages, claims and liabilities arising primarily from the
conduct of the Chase Acquired Business, as well as certain tax liabilities. See
"The Distribution -- Terms of the Post Closing Covenants Agreement" and
"-- Terms of the Tax Allocation Agreement". In addition, Spinco has agreed,
pursuant to the Post Closing Covenants Agreement not to engage in, or compete
with Chase with respect to, the Chase Acquired Business, subject to certain
limited exceptions, for a period of four years after the Effective Time . See
"The Distribution -- Terms of the Post Closing Covenants Agreement -- Spinco's
Noncompetition Agreement".
SERVICES AGREEMENT
In the Merger, Chase will acquire the Related Back Office, which includes
software and hardware necessary to conduct the Chase Acquired Business. Certain
core software, principally software to operate the Asset Management System, will
be transferred to New Trustco and licensed by New Trustco to USTNY on a
perpetual nonexclusive basis. Although the Related Back Office primarily serves
the Processing Business, it also provides necessary services to the Core
Businesses, all of which will be transferred to New Trustco and its affiliates
pursuant to the Contribution Agreement. Accordingly, prior to the Time of
Distribution, New Trustco and USTNY will enter into the Services Agreement.
Pursuant to the Services Agreement, USTNY will agree to furnish necessary
securities processing, custodial, data processing and other services (the "Back
Office Services"), at agreed upon service levels, to New Trustco and its
affiliates. The Services Agreement will be in a form, and on terms, agreed to by
UST and Chase on or before February 28, 1995, substantially in accordance with
the terms of the Services Agreement Term Sheet entered into on November 18,
1994, between UST and Chase. In the Bank Merger, CMB will acquire the rights,
and assume the obligations, of USTNY under the Services Agreement.
The parties intend that the Back Office Services furnished to New Trustco
and its affiliates under the Services Agreement will include all of the
functions that are currently performed by the Related Back Office, as well as
certain bank processing services, such as loan processing services, deposit and
check processing services (the "Bank Processing Services"). The Back Office
Services may be modified to reflect reasonable evolution or change in the
business of New Trustco and its affiliates. The Back Office Services will not
include any broker dealer services, securities industry banking services or
back-up servicing.
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Under the Services Agreement, CMB will provide the Back Office Services to
New Trustco for an initial term of five years beginning on the Closing Date.
With CMB's consent (which CMB may withhold in its sole discretion), New Trustco
may extend the initial term of the Services Agreement for an additional five
years. If CMB withholds such consent, New Trustco may in any case extend the
term of the Services Agreement for an additional two years.
In consideration of the Back Office Services provided to it under the
Services Agreement, during the initial term, New Trustco will pay to CMB an
annual base fee of $10 million, which is significantly less than New Trustco's
estimate of the annual cost of providing such services itself. The annual base
fee for any additional term after the initial term will be an amount equal to
110% of the total fees paid by New Trustco in the fifth year of the initial
term.
The annual base fee will cover all Back Office Services required by normal
growth of New Trustco and its affiliates, and will include, as well, certain
base levels of systems development and maintenance resources. CMB will charge
New Trustco at rates discounted from CMB's prevailing rates for similar
institutional business for any incremental Back Office Services attributable to
additional growth, evolution in the business of New Trustco and its affiliates,
and certain other new business.
CMB may assign the Bank Processing Services or other data center services
provided under the Services Agreement to a third party, without New Trustco's
consent, provided the third party will also be providing such services to CMB.
CMB may not assign the remaining services to a third party, although it may sell
or transfer responsibility for the Back Office Services together with the sale
or transfer of the Chase business unit providing such Back Office Services. New
Trustco will not have the right to assign the Services Agreement without CMB's
consent.
Either party may terminate the Services Agreement upon a material breach by
the other which has not been cured within 30 days after the expiration of a
15-day informal dispute resolution process initiated by the nonbreaching party.
Either party may terminate in the event that the other party becomes insolvent
or bankrupt or undergoes a change in control.
New Trustco may terminate the Services Agreement for any reason effective
after the end of the first year by giving six months' advance notice. In the
event of such a termination, New Trustco will pay CMB a termination fee of $2.5
million dollars, which fee will be reduced incrementally over the term of the
Services Agreement.
In the event of any termination or expiration of the Services Agreement
(including termination due to any material breach by New Trustco), the Services
Agreement will obligate CMB to provide for up to one year (six months in the
case of a change in control) after the termination or expiration, in
consideration of fees in amounts to be negotiated, reasonably requested
termination assistance to facilitate a smooth transition of the responsibility
for the performance of the Back Office Services to New Trustco or its designee.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
CONSEQUENCES OF THE DISTRIBUTION
UST has requested the Private Letter Ruling from the Service substantially
to the effect that, among other things, the Distribution will qualify as
tax-free to UST and its stockholders under Section 355 of the Code and that the
Asset Transfers involved in the Internal Reorganization will not be taxable
transactions. Receipt of the Private Letter Ruling reasonably satisfactory to
each of UST and Chase is a condition to the respective obligations of UST and
Chase to consummate the Merger. See "The Merger -- Conditions." Assuming that
the Private Letter Ruling is received, the following is a summary of the
material Federal income tax consequences of the Distribution:
1. A UST stockholder will not recognize any income, gain or loss as a
result of the Distribution.
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2. A UST stockholder will apportion the tax basis of his or her UST
Common Stock between such UST Common Stock and Spinco Common Stock received
in the distribution in proportion to the relative fair market values of
such UST Common Stock and Spinco Common Stock on the Distribution Date.
3. A UST stockholder's holding period for the Spinco Common Stock
received in the Distribution will include the period during which such
stockholder held the UST Common Stock with respect to which the
Distribution was made, provided that such UST Common Stock is held as a
capital asset by such stockholder as of the Time of Distribution.
4. No gain or loss will be recognized to UST as a result of the
Distribution.
Current Treasury regulations require each UST stockholder who receives
Spinco Common Stock pursuant to the Distribution to attach to his or her federal
income tax return for the year in which the Distribution occurs a detailed
statement setting forth such data as may be appropriate in order to show the
applicability of Section 355 of the Code to the Distribution. UST (or Spinco on
its behalf) will convey the appropriate information to each UST stockholder of
record as of the Distribution Record Date.
CONSEQUENCES OF THE MERGER
UST has requested the Private Letter Ruling from the Service substantially
to the effect that, among other things, the Merger will qualify as a tax-free
transaction to UST and its stockholders under Section 368(a) of the Code.
Receipt of opinions of counsel to that effect is a condition to the respective
obligations of UST and Chase to consummate the Merger, whether or not the
Service grants the Private Letter Ruling. See "The Merger -- Conditions". The
following is a summary of the material Federal income tax consequences of the
Merger:
1. The Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code.
2. No gain or loss will be recognized by UST as a result of the
Merger.
3. No gain or loss will be recognized by UST stockholders upon the
receipt of Chase Common Stock in exchange for UST Common Stock pursuant to
the Merger, except that holders of UST Common Stock who receive cash upon
exercise of any available dissenters' rights or cash in lieu of fractional
shares will recognize gain or loss equal to the difference between such
cash and the tax basis in their shares subject to dissenters' rights or the
tax basis allocated to their fractional shares of UST Common Stock, and
such gain or loss will constitute capital gain or loss if such UST Common
Stock is held as a capital asset.
4. The tax basis of the Chase Common Stock received by UST
stockholders who exchange their UST Common Stock for Chase Common Stock in
the Merger will be the same as the tax basis of UST Common Stock
surrendered in exchange therefor.
5. The holding period for the shares of Chase Common Stock received in
the Merger will include the period during which the shares of UST Common
Stock surrendered in exchange therefor were held, provided that such shares
of UST Common Stock were held as capital assets at the Effective Time.
It is possible that, as a result of the Merger, certain New York state and
local real property transfer and real estate transfer gains taxes (the "Transfer
Taxes") will be imposed on UST stockholders. UST (or Spinco on UST's behalf)
will pay all such Transfer Taxes, if any, directly to state and local taxing
authorities on behalf of all UST stockholders. Any such payments by UST made on
behalf of UST stockholders would result in dividend income to each UST
stockholder, to the extent of UST's current and accumulated earnings and
profits, as determined for Federal income tax purposes. The amount of such
dividend income attributable to each share of UST Common Stock cannot be
calculated at this time but is not expected to be material. UST will be required
to report any such dividend income to the Service if the aggregate amount of all
dividends received by a UST stockholder in the relevant year (including
dividends attributable to UST's payment of the Transfer Taxes) is $10 or more.
UST will notify each stockholder of the amount of all dividends attributable to
such stockholder on a Form 1099-DIV which will be mailed to such stockholder at
a later date.
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It is a condition to the consummation of both the Distribution and the
Merger that the Private Letter Ruling, in form reasonably satisfactory to each
of UST and Chase, be obtained from the Service which affirms that the
Distribution and the Asset Transfers will be tax-free. Each of UST and Chase has
indicated that it will not waive the condition to the Merger requiring receipt
of the Private Letter Ruling. Consequently, UST will not proceed with either the
Distribution or the Merger if the Private Letter Ruling is not obtained.
The foregoing summary sets forth the material Federal income tax
consequences of the Distribution and the Merger and is included herein for
general information only. To the extent the foregoing summary sets forth
conclusions of law, such conclusions represent the opinion of Cravath, Swaine &
Moore, counsel to UST. Such opinion is based in part on representations provided
by UST and Chase. The summary does not address the Federal income tax
consequences to all categories of UST stockholders, including those who acquired
shares of UST Common Stock pursuant to the exercise of stock options or
otherwise as compensation. EACH UST STOCKHOLDER IS URGED TO CONSULT HIS OR HER
TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
DISTRIBUTION AND THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE,
LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
DESCRIPTION OF CAPITAL STOCK OF CHASE
The following description of certain terms of the capital stock of Chase
does not purport to be complete and is qualified in its entirety by reference to
the Chase Form 10. See "Available Information".
CHASE COMMON STOCK
Under the Chase Certificate of Incorporation, Chase is authorized to issue
500,000,000 shares of Chase Common Stock. At September 30, 1994, 181,289,886
shares of Chase Common Stock were outstanding, 19,011,983 shares of Chase Common
Stock were reserved for issuance pursuant to the Chase Lincoln First Bank, N.A.
1982 Incentive Stock Plan, The Chase Manhattan 1982 Long-Term Incentive Plan,
The Chase Manhattan 1987 Long-Term Incentive Plan and The Chase Manhattan 1994
Long-Term Incentive Plan, 3,310,875 shares of Chase Common Stock were reserved
for issuance pursuant to warrants issued in settlement of a legal action,
14,000,000 shares of Chase Common Stock were reserved for issuance pursuant to
The Chase Manhattan Stock Option Program for Employees, and 9,596,151 shares of
Chase Common Stock were reserved for issuance pursuant to the Chase's Dividend
Reinvestment and Stock Purchase Plan.
Holders of shares of Chase Common Stock are entitled to one vote per share
and, subject to the rights, if any, of holders of shares of the outstanding
series of Chase Preferred Stock (as defined below), have equal rights to
participate in dividends when declared and, in the event of liquidation, in the
net assets of Chase available for distribution to stockholders. See "Description
of Capital Stock of Chase -- Chase Preferred Stock". Chase may not declare any
dividends on, or make any payment on account of the purchase, redemption or
other retirement of, Chase Common Stock unless full cumulative dividends, where
applicable, have been paid or declared and set apart for payment upon all
outstanding shares of Chase Preferred Stock and Chase is not in default or in
arrears with respect to any sinking or other analogous fund or any call for
tender obligations, or any other agreement for the purchase, redemption or other
retirement of any shares of Chase Preferred Stock. Holders of shares of Chase
Common Stock do not have redemption or sinking fund rights, and, none of the
holders of shares of Chase Common Stock is entitled to preemptive rights or
preferential rights to subscribe for shares of Chase Common Stock or any other
securities of Chase, except for certain Junior Participating Preferred Stock
Purchase Rights that are attached to each share of Chase Common Stock, which are
exercisable or transferable separately from shares of Chase Common Stock only
upon the occurrence of certain events including the acquisition by a person or
group of affiliated or associated persons of 20% or more of the outstanding
shares of Chase Common Stock. See "Description of Capital Stock of Chase --
Description of Chase Rights Plan". Shares of Chase Common Stock are fully paid
and nonassessable; however, Federal law (12 U.S.C. 55) provides for the
enforcement of any pro rata assessment of stockholders of a national bank to
cover impairment of capital by sale, to the extent necessary, of the stock of
any assessed stockholder failing to pay his assessment, and Chase, as the
stockholder of CMB and other
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national banking subsidiaries, is subject to such assessment and sale. The
shares of Chase Common Stock are listed on the NYSE. The transfer agent and
registrar for the Chase Common Stock is Mellon Securities Trust Company.
The Chase Certificate of Incorporation includes a "fair price provision"
that would require a 75% stockholder vote for approval of certain business
combinations, including certain mergers, asset sales, security issuances,
recapitalization and liquidations, involving Chase or its subsidiaries and
certain acquiring persons (namely, a person, entity or specified group which
beneficially owns more than 10% of the voting stock of Chase), unless the "fair
price" and other procedural requirements of the provision are met, or unless
approved by a majority of directors who are not affiliated with the acquiring
party. This provision includes a requirement of a 75% stockholder vote to amend
or repeal it. The Chase Certificate of Incorporation also provides for
classification of the Chase Board into three classes and includes related
provisions requiring (i) advance notice of stockholder nominations of directors,
(ii) limitations on filling newly created directorships and vacancies, (iii)
removal of directors only for cause and by vote of the holders of at least 75%
of the shares entitled to vote, (iv) a limitation on action by written consent
of holders of Chase Common Stock other than at a meeting of stockholders and,
(v) a requirement of a 75% stockholder vote to amend or repeal such provisions.
CHASE PREFERRED STOCK
Under the Chase Certificate of Incorporation, Chase is authorized to issue
up to 100,000,000 shares of preferred stock, without par value ("Chase Preferred
Stock"), in one or more series, with such voting powers, full or limited but not
to exceed one vote per share, or without voting powers and with such
designations, preferences and relative, participating, optional or other voting
rights, and qualifications, limitations or restrictions thereof, as shall be
stated and expressed in the resolution or resolutions of the Chase Board
providing for the issue thereof.
At September 30, 1994, there were 56,000,000 shares of Chase Preferred
Stock outstanding and having an aggregate stated value of approximately
$1,400,000,000. The currently outstanding series of Chase Preferred Stock that
have been designated as Chase Preferred Stock are: Preferred Stock, 10 1/2%
Series G, with a stated value of $25 per share, Preferred Stock, 9.76% Series H,
with a stated value of $25 per share, Preferred Stock, 10.84% Series I, with a
stated value of $25 per share, Preferred Stock, 9.08% Series J, with a stated
value of $25 per share, Preferred Stock, 8 1/2% Series K, with a stated value of
$25 per share, Preferred Stock, 8.32% Series L, with a stated value of $25 per
share, Preferred Stock, 8.40% Series M, with a stated value of $25 per share,
and Preferred Stock, Adjustable Rate Series N, with a stated value of $25 per
share. Chase Preferred Stock ranks senior to Chase's authorized but unissued
Junior Participating Preferred Stock.
Holders of shares of Chase Preferred Stock generally have only contingent
voting rights with respect to the election of directors. In the event of
liquidation, before any distribution to the holders of Chase Common Stock, the
holders of the shares of each outstanding series of Chase Preferred Stock
generally are entitled to receive an amount equal to the stated value of such
shares, plus accrued and unpaid dividends. At September 30, 1994, such
preferential amounts were approximately $1.4 billion in the aggregate, exclusive
of any dividend accruals.
DESCRIPTION OF CHASE RIGHTS PLAN
The following description of certain terms of the "Chase Rights Plan" does
not purport to be complete and is qualified in its entirety by reference to the
Rights Agreement, a copy of which was filed as an Exhibit to Chase's Annual
Report on Form 10-K for the year ended December 31, 1988, and is incorporated
herein by reference.
Pursuant to the Rights Agreement dated as of February 15, 1989, there is
attached to each share of Chase Common Stock one Junior Participating Preferred
Stock Purchase Right (a "Right"). Each Right entitles the holder to buy from
Chase one one-hundredth of a share of Junior Participating Preferred Stock at an
exercise price of $125, subject to adjustment.
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The Rights will expire on February 27, 1999, unless redeemed earlier and
will not be exercisable or transferable separately from the shares of Chase
Common Stock to which they are attached until the earlier of (i) 10 days
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired beneficial ownership of
20% or more of the outstanding shares of Chase Common Stock (the "Stock
Acquisition Date") or (ii) 10 business days following a public announcement of
the commencement of a tender offer or exchange offer that would result in the
offeror beneficially owning 25% or more of the outstanding shares of Chase
Common Stock.
The Rights are redeemable, for cash or other consideration deemed
appropriate by the Chase Board, at $0.01 per Right, subject to adjustment, at
any time prior to 10 days after the Stock Acquisition Date, which redemption
period may be extended under certain conditions.
In the event that any person becomes an Acquiring Person other than
pursuant to an offer for all shares of Chase Common Stock which independent
directors of Chase determine to be fair to and in the best interests of Chase
and its stockholders (a "Flip-In Event"), each holder of a Right, other than
Rights beneficially owned by an Acquiring Person and certain transferees (which
Rights will be void), will thereafter have the right to acquire, upon exercise,
shares of Chase Common Stock (or, in certain circumstances, property) having a
value equal to two times the exercise price of the Right. However, Rights will
not be exercisable following the occurrence of a Flip-In Event until such time
as the Rights are no longer redeemable by Chase. At any time after the
occurrence of a Flip-In Event, the Chase Board may exchange the Rights (other
than Rights which have become void as described above), in whole or in part, at
an exchange ratio of one share of Chase Common Stock per Right, subject to
adjustment.
In the event that, at any time following the Stock Acquisition Date, (i)
Chase is acquired in a merger or other business combination transaction in which
Chase is not the surviving corporation (other than a merger which follows an
offer described in the preceding paragraph) or (ii) more than 50% of Chase's
assets or earning power is sold or transferred, each holder of a Right (except
Rights which have become void as set forth above) will thereafter have the right
to acquire, upon exercise, shares of common stock of the acquiring company
having a value equal to two times the exercise price of the Right. Until a Right
is exercised, the holder thereof will have no rights as a stockholder of Chase.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire Chase in a
manner which causes the Rights to become discount Rights unless the offer is
conditional on a substantial number of Rights being acquired.
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF
CHASE COMMON STOCK AND UST COMMON STOCK
The rights of the holders of Chase Common Stock are governed by the Chase
Certificate of Incorporation and the Chase Bylaws and by the Delaware General
Corporation Law (the "DGCL"), while the rights of the holders of UST Common
Stock are governed by UST's certificate of incorporation (the "UST Certificate
of Incorporation") and UST's bylaws (the "UST Bylaws") and by the NYBCL. Upon
consummation of the Merger, the stockholders of UST, a New York corporation,
will become stockholders of Chase, a Delaware corporation. The Chase Certificate
of Incorporation and the Chase Bylaws will remain in effect after the Merger.
Below is a summary of certain differences between the rights of holders of Chase
Common Stock, on the one hand, and UST Common Stock, on the other, resulting
from differences in governing law and the respective Chase and UST certificates
of incorporation and bylaws.
The following summary does not purport to be a complete statement of the
rights of Chase stockholders under the Chase Certificate of Incorporation and
the Chase Bylaws and the DGCL compared with the rights of holders of UST Common
Stock under the UST Certificate of Incorporation and the UST Bylaws and the
NYBCL. This summary is qualified in its entirety by reference to the
certificates of incorporation and bylaws of each of Chase and UST, the DGCL and
the NYBCL.
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SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
The Chase Certificate of Incorporation divides the Chase Board into three
classes of directors, each having staggered three-year terms. However, any
director elected by holders of a class of stock having dividend or liquidation
preferences over the Chase Common Stock is not subject to this provision. The
Chase Bylaws require a minimum of three directors, but the exact number is set
by resolution of the Chase Board. The Chase Board is currently comprised of
eighteen directors.
UST also divides the UST Board into three classes of directors, each having
staggered three-year terms. The UST Board fixes the number of directors above
the minimum number of nine fixed by the UST Bylaws. The UST Board is currently
comprised of twenty-two directors.
STOCKHOLDER NOMINATIONS
The Chase Bylaws, pursuant to authority granted in the Chase Certificate of
Incorporation, permit any stockholder entitled to vote for a director to
nominate director candidates if written notice conforms to the timing and
content requirements established in the Chase Bylaws. The UST Certificate of
Incorporation and UST Bylaws contain no provision permitting nominations of
directors by stockholders.
DUTIES OF DIRECTORS
Section 717(b) of the NYBCL permits a board of directors to consider, in
transacting its business, but without abrogating any duty owed by the board, the
long-term and short-term effects of an action on the corporation; its
stockholders; the potential growth, development, productivity and profitability
of the corporation; current employees; retired employees and other beneficiaries
of the corporation entitled to receive benefits from the corporation; customers
and creditors of the corporation; and the ability of the corporation to provide,
as a going concern, goods, services, employment opportunities and other
contributions to the communities in which it does business. The DGCL does not
contain a similar provision. Delaware courts have permitted directors to
consider various constituencies provided there exists some rationally related
benefit to the stockholders. The Chase and UST Certificates of Incorporation and
Bylaws do not require specific considerations that must underlie decisions made
by their respective boards of directors.
REMOVAL OF DIRECTORS
Generally, under Section 141(k) of the DGCL, holders of a majority of
voting shares may remove any director or the entire board of directors with or
without cause. Corporations with a classified board, like Chase, may limit
removal to circumstances in which there is cause. If the holders of a class of
shares may elect one or more directors, their vote, rather than the vote of all
outstanding shares, may remove the director without cause.
The Chase Certificate of Incorporation and the Chase Bylaws provide for the
removal of any director for cause upon a vote of 75% of the outstanding voting
stock or a majority of the directors. This provision is subject to the rights of
holders of certain shares having dividend or liquidation preferences over Chase
Common Stock.
Section 706 of the NYBCL permits stockholders to remove any or all
directors for cause, and, if the certificate of incorporation or bylaws permits,
without cause. In addition, if allowed by the certificate of incorporation or by
a stockholder-approved bylaw, the board of directors may remove any director for
cause. When a class or series of stock is entitled to elect one or more
directors, any director so elected may be removed only by the applicable vote of
that class or series. The state attorney general or holders of 10% of all
outstanding shares may bring legal action to remove a director for cause.
Any UST director may be removed for cause by vote of the stockholders or by
a majority of all the directors.
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NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Under Section 223 of the DGCL, unless the governing documents of a
corporation provide otherwise, a majority vote of the directors then in office
may fill vacancies and newly created directorships, even if the number of
current directors is less than a quorum or only one director remains. If the
directors filling an open slot on the board constitute less than a majority of
the whole board (as measured before an increase in the size of the board), the
Delaware Court of Chancery may, upon application of stockholders holding at
least 10% of the outstanding voting shares, summarily order an election to fill
the open slots or replace directors chosen by the directors then in office.
Unless otherwise provided in the certificate of incorporation or bylaws, when
one or more directors resign effective at a future date, a majority of directors
then in office, including those who have so resigned, may vote to fill the
vacancy.
The Chase Certificate of Incorporation and the Chase Bylaws permit the
majority of directors in office to fill vacancies and newly created
directorships subject to the rights of holders of shares having certain
preferences over the Chase Common Stock. Directors appointed to these vacant
positions remain in office until the term of their class expires.
Under Section 705 of the NYBCL, the board of directors, even if less than a
quorum, may elect persons to newly created directorships and vacancies occurring
for any reason other than removal without cause, unless the corporation's
governing documents require the stockholders to fill such vacancies. Unless the
certificate of incorporation or a stockholder-approved bylaw provides otherwise,
vacancies due to removal without cause must be filled by a vote of stockholders.
A director elected to fill a vacancy, unless elected by the stockholders, holds
office until the next meeting of stockholders at which the election of directors
is in the regular course of business.
The UST Bylaws provide that newly created directorships resulting from an
increase in the number of directors and by vacancies occurring in the UST Board
for any reason may be filled either by a vote of the stockholders or by a vote
of the majority of the directors then in office, even if such directors do not
constitute a quorum. A director elected to fill a vacancy by a majority vote of
the UST Board shall only hold office until the election of his or her successor
at the stockholder meeting at which the election of directors is in the regular
business.
LIMITATION ON DIRECTORS' LIABILITY
Section 102(b)(7) of the DGCL allows a corporation, through its certificate
of incorporation, to limit or eliminate the personal liability of directors to
the corporation and its stockholders for monetary damages for breach of
fiduciary duty. However, this provision excludes any limitation on liability (i)
for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for wilful or
negligent violation of the laws governing the payment of dividends or the
purchase or redemption of stock or (iv) for any transaction from which the
director derives an improper personal benefit.
The Chase Certificate of Incorporation eliminates a director's liability
for monetary damages for breach of fiduciary duty to the extent permitted by
Delaware law. Any amendment by the stockholders limiting this provision is
effective only as to acts or omissions by a director occurring after the time of
the amendment.
Under Section 402(b) of the NYBCL, a corporation, through its certificate
of incorporation, may limit or eliminate the personal liability of directors to
the corporation or its stockholders for damages for breach of duty. This
limitation on liability is not available if a judgment or final adjudication
against a director establishes that his or her acts or omissions (i) were in bad
faith, (ii) involved intentional misconduct or a knowing violation of law, (iii)
involved financial profit or other advantage to which the director was not
legally entitled, or (iv) violated the laws regarding the declaration of
dividends, the purchase or redemption of shares, certain payments to
stockholders after dissolution and loans to directors.
The UST Certificate of Incorporation eliminates directors' liability to the
extent permitted by law. Any modification of this provision of the UST
Certificate of Incorporation will not affect any right or protection of a
director with respect to an act or omission occurring before or at the time of
the modification.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL provides that a corporation may indemnify any
person made a party or threatened to be made a party to any type of proceeding
(other than an action by or in right of the corporation) because he or she is or
was a director, officer, employee or agent of the corporation or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with such proceeding
if such person acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the corporation; or in a
criminal proceeding, if he or she had no reasonable cause to believe his or her
conduct was unlawful. Expenses incurred by an officer or director (or other
employees or agents as deemed appropriate by the board of directors) in
defending civil or criminal proceedings may be paid by the corporation in
advance of the final disposition of such proceeding upon receipt of an
undertaking by or on behalf of such person to repay such amount if it shall be
ultimately determined that such person is not entitled to be indemnified by the
corporation. To indemnify a party, the corporation must determine that the party
met the applicable standards of conduct. The corporation can make this finding
through (i) a majority vote of directors not parties to the action
notwithstanding that such directors do not constitute a quorum, (ii) in certain
circumstances, the board acting upon written opinion of independent legal
counsel, or (iii) in certain circumstances, the stockholders. The
indemnification rights granted in or pursuant to Section 145 are not exclusive
of other indemnification rights.
The Chase Certificate of Incorporation requires the indemnification of
officers, directors, employees and agents to the extent authorized by Delaware
law. Under this provision, Chase will indemnify the heirs, executors and
administrators of persons qualifying for indemnification. The Chase Certificate
of Incorporation also states that this provision and the Delaware statutory
provision are not exclusive of any other rights such person has to
indemnification.
The Chase Bylaws further amplify the rights of directors and officers to
indemnification. The Chase Bylaws make it clear that if the right is altered or
repealed, it continues to exist with respect to acts or omissions occurring
before or concurrently with such modification or repeal of such right. The Chase
Bylaws limit the rights of any director or officer seeking indemnification with
respect to a proceeding initiated by such officer or director to instances in
which the Chase Board authorized the proceeding. The Chase Bylaws provide for
the payment of all reasonable expenses including reasonable attorney's fees
incurred by a director with respect to a pending, threatened or completed
proceeding in advance of its final disposition provided an undertaking as
required by Delaware law is executed by the officer or director seeking
indemnification. The Chase Bylaws also detail the procedures for seeking
indemnification and expressly authorize proceedings to enforce claims to
indemnification. The Chase Bylaws authorize the corporation to enter agreements
extending indemnification rights to the fullest extent of the law and provide
that the indemnification rights outlined in the Chase Bylaws are not exclusive
of any other indemnification rights.
Section 722 of the NYBCL authorizes the indemnification of officers and
directors if such person (i) acted in good faith; (ii) in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation; and (iii) in a criminal proceeding, without reasonable cause to
believe his or her conduct was unlawful. Under Section 723 of the NYBCL an
officer or director who successfully defends a proceeding is entitled to
indemnification. In certain other circumstances, the corporation must find that
the director or officer met the appropriate standard of conduct. The corporation
may make this finding through (i) the board, acting as a quorum of directors not
parties to the action; (ii) in certain circumstances, the board acting upon the
written opinion of independent legal counsel; or (iii) in certain circumstances,
the stockholders. In some situations, a court, pursuant to Section 724 of the
NYBCL, may award indemnification. Section 725 of the NYBCL sets out the
conditions for advancing the payment of expenses and the circumstances in which
the corporation must notify stockholders when it makes indemnification payments.
Section 721 provides that the indemnification rights granted in the NYBCL are
not exclusive of other indemnification rights as long as those other rights do
not attach when a judgment or other final adjudication establishes that a
director or officer (i) acted in bad faith or with active and deliberate
dishonesty and that such acts were material to the cause of action adjudicated
or (ii) gained a personal financial or other advantage to which the director or
officer was not legally entitled.
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The UST Bylaws provide that UST will indemnify any current or past director
or officer who is party to an actual or threatened action by virtue of such
status. Under the UST Bylaws, UST (i) may not indemnify any director or officer
when a final judgment establishes that such director or officer (A) acted in bad
faith or with active and deliberate dishonesty and that such acts were material
to the cause of action adjudicated or (B) gained a personal financial or other
advantage to which the director or officer was not legally entitled and (ii) is
not required to indemnify any director or officer when (A) the actual or
threatened action was settled without final adjudication or without the consent
of UST or (B) such officer or director is entitled to indemnification pursuant
to an insurance policy without regard to the provision of the UST Bylaws. Any
amendment which prohibits or otherwise limits indemnification rights will not
affect any party until 60 days following his or her notice of such amendment and
will not apply to any act or omission occurring before such 60th day. The UST
Bylaws also permit UST to enter into indemnification agreements with directors,
officers and employees. The UST Bylaws further state that the indemnification
rights provided thereunder are not exclusive of other indemnification rights
protecting a party entitled to indemnification under the UST Bylaws.
ISSUANCE OF RIGHTS OR OPTIONS TO PURCHASE SHARES TO DIRECTORS, OFFICERS AND
EMPLOYEES
The DGCL and the Chase Certificate of Incorporation and Chase Bylaws do not
expressly address the procedure for issuing rights and options to purchase stock
to directors, officers, and employees. Under Section 505(d) of the NYBCL, a
corporation cannot issue rights or options to purchase stock to directors,
officers, or employees without the approval of a majority of all outstanding
voting shares. The UST Certificate of Incorporation and UST Bylaws do not
address this issue.
LOANS TO DIRECTORS
Section 143 of the DGCL allows a Delaware corporation to lend money to or
guarantee an obligation of an officer or employee, including one who acts as a
director, if the assistance is reasonably expected to benefit the corporation.
Such assistance may be provided without stockholder approval. Section 714 of the
NYBCL requires stockholder approval of any loan made by the corporation to a
director. A director seeking a loan is prohibited from voting his or her shares
in such vote of stockholders. The certificate of incorporation and bylaws of
each of Chase and UST do not specifically address loans to directors.
DIVIDENDS
Subject to additional restrictions in a corporation's certificate of
incorporation, Section 170 of the DGCL allows a Delaware corporation to pay
dividends out of surplus or, if there is no surplus, out of its net profits for
the fiscal year in which the dividend is declared or the preceding fiscal year.
Under Section 510 of the NYBCL, a New York corporation may pay dividends only
out of surplus. Both New York and Delaware corporations generally may revalue
assets in connection with the determination of the amount of surplus available
for the declaration and payment of dividends. Neither Chase nor UST has limited
its ability to issue dividends beyond the applicable legal standards governing
dividends. See "The Companies -- Chase".
ACTION BY STOCKHOLDERS THROUGH WRITTEN CONSENT
Under Section 228(a) of the DGCL, unless otherwise provided in a
corporation's certificate of incorporation, any action required to be taken at
an annual or special meeting of the stockholders may be taken in the absence of
a meeting, without prior notice and without a vote. Such action may be taken by
the written consent of stockholders in lieu of meeting setting forth the action
so taken and signed by the holders of outstanding stock representing the number
of shares necessary to take such action at a meeting at which all shares
entitled to vote were present and voted. The Chase Certificate of Incorporation
and Chase Bylaws only permit stockholders of Chase Common Stock to act by
written consent in lieu of annual or special meetings.
Section 615(a) of the NYBCL allows stockholders to act only by unanimous
written consent in lieu of a meeting, unless action by less than unanimous
written consent is authorized in the certificate of incorporation or bylaws. The
UST Bylaws provide that stockholder action may be taken by the written consent
of
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stockholders in lieu of a meeting setting forth the action so taken and signed
by the holders of all outstanding shares entitled to vote thereon.
SPECIAL MEETINGS
Under Section 211(d) of the DGCL and Section 602(c) of the NYBCL, special
meetings of stockholders may be called by the board of directors and by such
other person or persons as may be authorized to do so by the corporation's
certificate of incorporation or bylaws. Under the Chase Bylaws, the Chase Board,
the Chairman of the Board or the President may call a special meeting and the
Secretary or Assistant Secretary must call a special meeting upon the written
request, stating the purpose of the meeting, of holders of at least 25% of the
outstanding stock entitled to vote at such meeting. Under the UST Bylaws, only
the UST Board, the Chairman, the President or a Vice Chairman of the UST Board
may call a special meeting of the stockholders. Only business pertaining to the
purpose of the special meeting, as specified in the call of the meeting, may be
transacted at such meeting.
CUMULATIVE VOTING
Though Section 214 of the DGCL and Section 618 of the NYBCL permit a
certificate of incorporation to provide for cumulative voting for the election
of directors, Chase and UST have not adopted such provisions.
NECESSARY VOTE TO EFFECT MERGER (NOT INVOLVING INTERESTED STOCKHOLDER)
The DGCL requires a majority vote of the shares entitled to vote in order
to effectuate a merger between two Delaware corporations (Section 251(c)) or
between a Delaware corporation and a corporation organized under the laws of
another state (a "foreign corporation") (Section 252(c)). However, unless
required by the certificate of incorporation, Sections 251(f) and 252(e) do not
require a vote of the stockholders of a constituent corporation surviving the
merger if (i) the merger agreement does not amend that corporation's certificate
of incorporation, (ii) each share of that corporation's stock outstanding before
the effective date of the merger is identical to an outstanding or treasury
share of the surviving corporation after the merger, and (iii), in the event the
merger plan provides for the issuance of common stock or securities convertible
into common stock by the surviving corporation, the common stock issued and the
common stock issuable upon conversion of the issued securities do not exceed 20%
of the shares outstanding immediately before the effective date of the merger.
As long as a majority of the disinterested directors approve the merger, the
Chase Certificate of Incorporation does not impose more stringent requirements
for the affirmance of a merger.
Section 903(a)(2) of the NYBCL provides for a merger between two or more
New York corporations upon the approval of the holders of two-thirds (or
66 2/3%) of all outstanding shares entitled to vote on the merger and, in
certain circumstances, of a majority of the holders of all outstanding shares of
each class or series. Pursuant to Section 907(b), where the merger is between
one or more New York corporations and one or more foreign corporations, the
foregoing two-thirds (or 66 2/3%) vote (and the majority vote if applicable) is
required only for the domestic corporation. The foreign corporation must comply
with the applicable provisions of the jurisdiction where it is incorporated. The
UST Certificate of Incorporation and the UST Bylaws do not alter the rules for
approval of a merger unless the transaction involves an interested stockholder
(as discussed below).
BUSINESS COMBINATIONS INVOLVING INTERESTED STOCKHOLDERS
Section 203(a) of the DGCL prohibits a corporation from engaging in any
business combination with an interested stockholder (defined in Section
203(c)(5) as a 15% stockholder) for a period of three years after the date that
stockholder became an interested stockholder unless (i) before that date, the
board of directors of the corporation approved the business combination or the
transaction transforming the stockholder into an interested stockholder, or (ii)
upon consummation of the transaction which resulted in the stockholder becoming
an interested stockholder, that stockholder owned at least 85% of the
outstanding voting stock (excluding shares owned by directors, officers and
certain employee stock plans) or (iii) on or after the date the stockholder
became "interested," the business combination gained the approval of both the
corporation's
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directors and two-thirds (or 66 2/3%) of the outstanding voting shares not owned
by the interested stockholder voted at a meeting and not by written consent.
Section 203(b)(3) of the DGCL permits a Delaware corporation to negate this
provision through an amendment to the certificate of incorporation or bylaws
adopted by a majority of the outstanding voting shares, in addition to any other
required vote. The amendment is not effective for 12 months following its
adoption and does not apply to business combinations with any person who became
an interested stockholder on or before the amendment's adoption. Chase has not
adopted any such amendment.
The Chase Certificate of Incorporation provides for stricter requirements
for business combinations with interested stockholders (as defined therein) or
their affiliates. The Chase Certificate of Incorporation defines an interested
stockholder as a direct or indirect owner of at least 10% of the outstanding
voting shares. Approval of the business combination requires 75% of the
outstanding voting shares. This high threshold is inapplicable if a majority of
the disinterested directors approve the combination or if certain price and
procedural requirements have been satisfied. See "Description of Capital
Stock -- Chase Common Stock".
Section 912 of the NYBCL differs from Delaware law. Under Section 912 an
"interested stockholder" is one that owns at least 20% of the outstanding voting
shares of a corporation. A New York corporation cannot engage in a business
combination with an interested stockholder for five years following the
acquisition date of an interested stockholder's shares unless the directors
approve the business combination or stock acquisition before the stockholder's
stock acquisition date. Following the five year period, a corporation cannot
enter a business combination with an interested stockholder unless (i) the
directors approve the business combination or the stockholder's stock
acquisition before the stockholder's stock acquisition date; (ii) at a meeting
called for such purpose, the holders of a majority of the outstanding shares not
beneficially owned by an interested stockholder or an associate or affiliate of
an interested stockholder approve the business combination; or (iii) the
business combination satisfies certain price and procedural requirements.
Pursuant to Section 912(d), such restrictions do not apply to a corporation that
has exempted itself by amendment to its bylaws approved by a vote of the
majority of holders of outstanding voting stock, excluding the voting stock of
an interested stockholder or an associate or affiliate of an interested
stockholder. Such an amendment will not become effective for 18 months following
its adoption and will not apply to a business combination with an interested
stockholder whose stock acquisition date is on or before the effective date of
the amendment. UST has not adopted any such amendment.
The UST Certificate of Incorporation provides that, to effect a business
combination between UST and an interested stockholder (a holder of 10% of the
outstanding voting shares), 80% of the outstanding voting shares and a majority
of outstanding voting shares held by disinterested stockholders approve the
transaction. The special voting requirement is excused if the business
combination is approved by a majority of the continuing directors. The term
"continuing directors" means those directors not associated with the interested
stockholder who (i) were first elected a director before the time the interested
stockholder became an interested stockholder or (ii) were designated a
continuing director by existing continuing directors. The special vote is also
excused if the business combination satisfies certain procedural and financial
requirements. These procedural requirements also apply in the case of a merger
or consolidation between the corporation and a subsidiary if the resulting
entity would not be subject to the aforementioned requirements after the merger
or consolidation.
APPRAISAL RIGHTS; DISSENTERS' RIGHTS
Shareholders dissenting in specified circumstances from certain major
corporate transactions may be entitled to appraisal rights (the right to receive
the fair value of their shares). Sections 262(a) and (b) of the DGCL provides
for appraisal rights only in the case of a statutory merger or consolidation in
which the petitioning stockholder does not consent to the transaction.
Stockholders of a surviving corporation whose vote was not required under DGCL
Sections 251 and 252 are not entitled to appraisal rights. Unless otherwise
provided for in the certificate of incorporation, stockholders have no appraisal
rights in mergers or consolidations in which they receive shares in the
surviving corporation or shares of another corporation that are publicly listed
or held by more than 2,000 holders of record, cash in lieu of fractional shares
of such stock, or any combination thereof. A corporation may provide in its
certificate of incorporation for appraisal rights in
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<PAGE> 83
the event of a sale of all or substantially all of its assets. Chase has not
extended appraisal rights beyond the statutory requirements.
Pursuant to Section 910 of the NYBCL, a stockholder of a New York
corporation who complies with the applicable statutory procedures provided by
Section 623 of the NYBCL is entitled to receive the fair value of his or her
shares provided the dissenting stockholder does not consent to certain
transactions, including a merger or consolidation; a disposition of all or
substantially all of the assets of a corporation; or a share exchange. No
dissenters' rights exist for stockholders of a parent corporation merging with a
90% owned subsidiary (except under certain circumstances) or stockholders of the
surviving corporation in mergers in which certain substantial rights of
stockholders remain unaffected. Dissenters' rights also do not attach where the
disposition of assets is wholly for cash and conditioned upon the dissolution of
the corporation and the distribution of substantially all of its assets to
stockholders. Under Section 806(b)(6) of the NYBCL, stockholders have
dissenters' rights in the case of certain types of amendments of the certificate
of incorporation. UST has not extended dissenters' rights beyond the statutory
requirements. See "The Merger -- Dissenters' Rights" and Sections 910 and 623 of
the NYBCL, copies of which are attached as Appendix G hereto.
REDEEMABLE SHARES
Pursuant to Section 151(b) of the DGCL, any class of stock may be made
subject to redemption at the option of the corporation or the stockholders, or
upon the happening of a specified event, as long as at the time of redemption
one class of voting stock is not subject to redemption. Section 512(a) of the
NYBCL permits a corporation to issue preferred stock redeemable at the option of
the corporation or the stockholder. Under Sections 512(a), (b) and (c) of the
NYBCL, a corporation may not redeem common stock unless it has outstanding
nonredeemable common stock (except for certain investment and securities
companies and certain government licensees or franchisees), and, unless it is an
investment company, a corporation's common stock may only be redeemed at the
option of the corporation and not at the option of the stockholder. The Chase
and UST Certificates of Incorporation do not address the redemption of common
stock, but each of the Chase Board and the UST Board has broad authority under
its respective certificate of incorporation and bylaws to designate the
characteristics of classes of preferred stock, including redemption
characteristics.
SELECTIVE REPURCHASE OF COMPANY STOCK
The DGCL does not prohibit the selective repurchase by a corporation of its
stock at a premium over market price. Delaware courts have permitted the
repurchase of shares at a premium in certain cases. Section 513(e) of the NYBCL
prohibits a New York corporation, subject to the provisions regarding merger
with an interested stockholder (Section 912), from making certain offers to
purchase stock unless such offer is extended to all stockholders. The
corporation may not purchase more than 10% of its stock from a stockholder who
has beneficially owned the shares for less than two years at a price higher than
the market price unless it is approved by the board of directors and a majority
of all outstanding voting shares. Neither Chase's nor UST's Certificate of
Incorporation or Bylaws refer to selective repurchases of common stock.
WARRANTS OR OPTIONS
Under Section 157 of the DGCL, rights or options to purchase shares of any
class of stock may be authorized by a corporation's board of directors subject
to the provisions of the certificate of incorporation. However, various other
legal requirements would generally make stockholder approval of stock option
plans or warrants either necessary or desirable. The Chase Certificate of
Incorporation and Chase Bylaws do not address the issuance of rights or options.
Section 505 of the NYBCL allows, subject to provisions in the certificate
of incorporation, a corporation to issue rights and options pursuant to
conditions and terms established by the board. Pursuant to the UST Certificate
of Incorporation, only the UST Board can determine the terms and conditions of
rights, options and warrants for shares.
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PREEMPTIVE RIGHTS
Under Section 102(b)(3) of the DGCL, except in certain circumstances not
applicable to Chase, absent an express provision in a corporation's certificate
of incorporation, a stockholder does not, by operation of law, possess
preemptive rights to subscribe to an additional issue of stock. The Chase
Certificate of Incorporation does not grant preemptive rights, except to the
extent that the Chase Certificate of Incorporation authorizes the issuance of
preferred stock with any rights (other than voting rights in excess of one vote
per share) as may be expressed in a resolution adopted by the Chase Board with
respect to the issue of preferred stock by Chase.
Under Section 622 of the NYBCL, unless a certificate of incorporation
provides otherwise, stockholders possess certain preemptive rights by operation
of law. In general, these rights allow stockholders whose unlimited dividend
rights or voting rights would be adversely affected by the issuance of
additional shares of stock to purchase, on terms and conditions set by the board
of directors, that proportion of such new issue of stock necessary to preserve
the relative dividend or voting rights of such stockholders. Unless otherwise
provided in the certificate of incorporation, certain types of stock are not
subject to preemptive rights. The UST Certificate of Incorporation provides that
no holder of UST shares of any class has preemptive rights unless the UST Board
specifically grants such rights.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Section 242 of the DGCL permits a Delaware corporation to amend its
certificate of incorporation in any respect provided the amendment contains only
provisions that would be lawful in an original certificate of incorporation
filed at the time of amendment. To amend a certificate of incorporation, the
board must adopt a resolution presenting the proposed amendment. In addition, a
majority of the shares entitled to vote, as well as a majority of shares by
class of each class entitled to vote, must approve the amendment to make it
effective. When the substantial rights of a class of shares will be affected by
an amendment, the holders of those shares are entitled to vote as a class even
if the shares are non-voting shares. When only one or more series in a class of
shares, and not the entire class, will be adversely affected by an amendment,
only the affected series may vote as a class. The right to vote as a class may
be limited in certain circumstances. Any provision in the certificate of
incorporation which requires a greater vote than required by law cannot be
amended or repealed except by such greater vote. In its resolution proposing an
amendment, the board may insert a provision allowing the board to abandon the
amendment, without concurrence by stockholders, after the amendment has received
stockholder approval but before its filing with the Secretary of State.
With some exceptions, Chase may amend the Chase Certificate of
Incorporation as provided by the Delaware statute. Such exceptions require the
approval of 75% of the outstanding voting stock for certain actions, including
amendments to the provisions governing business combinations with interested
stockholders, the election of directors, and special meetings and actions of
stockholders. See "Description of Capital Stock of Chase -- Chase Common Stock".
Section 801 of the NYBCL provides that a New York corporation may amend its
certificate of incorporation in any respect provided the amendment contains only
provisions that would be lawful if the certificate were an original certificate
filed at the time of the amendment. To enact an amendment, the board of the
corporation must authorize the amendment followed by the authorization of a
majority of the outstanding shares entitled to vote. The board acting alone can
amend the corporation's address or registered agent for service of process. When
an amendment of the certificate would affect the substantial rights of the
holders of a class of stock, Section 804(a) of the NYBCL provides that the
enactment of the amendment requires the approval of a majority of the
outstanding shares of the affected class in addition to a majority of all
outstanding voting shares. If only certain series within any class of shares are
adversely affected by a proposed amendment, then each adversely affected series
may vote on the amendment, but any series within classes of shares which are
unaffected may not vote on the amendment.
The UST Certificate of Incorporation does not vary from the statutory
provisions except with respect to any amendments to the provisions governing
transactions with interested stockholders. An amendment of such provisions
requires the approval of 80% of all outstanding voting shares as well as a
majority of outstanding voting shares held by disinterested stockholders. This
special voting requirement does not apply if a majority of
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continuing directors recommends the amendment. In this circumstance, continuing
directors consist of (i) directors not associated with an interested stockholder
who (a) were first elected a director before the time the interested stockholder
became an interested stockholder or (b) were designated a continuing director by
existing continuing directors or (ii) if no business combination with an
interested stockholder is pending, any director who sat on the board when the
original provision regarding interested stockholders was approved by the
stockholders.
AMENDMENT OF BYLAWS
Section 109(a) of the DGCL provides that the stockholders entitled to vote
have the power to adopt, amend, or repeal bylaws and that, in addition, a
corporation may, in its certificate of incorporation, confer such powers on its
board of directors. In accordance with the Chase Certificate of Incorporation
and the Chase Bylaws, the Chase Board also has authority to make, alter, amend,
or repeal the Chase Bylaws.
Section 601(a) of the NYBCL grants stockholders entitled to elect directors
the power to adopt, amend or repeal bylaws. The board of directors may also
exercise this power if permitted in the certificate of incorporation or by a
stockholder-approved bylaw. Stockholders retain the right to amend or repeal any
bylaw adopted by the board. The UST Bylaws may be amended or repealed by holders
of shares entitled to vote in the election of directors. The UST Board also has
the power to amend the UST Bylaws with the exception of stockholder-approved
Bylaws specifically forbidding amendment or repeal by the UST Board.
EXPERTS
The consolidated statements of condition of UST as of December 31, 1993 and
1992 and the consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1993, incorporated by reference in this Proxy Statement-Prospectus, have been
incorporated herein in reliance on the report, which includes an explanatory
paragraph regarding the adoption of new accounting standards for postretirement
benefits other than pensions and income taxes, of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Chase and its subsidiaries
incorporated in this Proxy Statement-Prospectus and the Chase Registration
Statement by reference to the Chase Annual Report on Form 10-K for the year
ended December 31, 1993, have been incorporated in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
VALIDITY OF CHASE SHARES
The validity of the Chase Common Stock to be issued pursuant to the terms
of the Merger Agreement will be passed upon for Chase by Robert B. Adams, Senior
Vice President and Deputy General Counsel of Chase and CMB. As of September 30,
1994, Mr. Adams was the beneficial owner of or had options to acquire less than
0.1% of the outstanding Chase Common Stock.
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BENEFICIAL OWNERSHIP
The following table sets forth information regarding the beneficial
ownership of UST Common Stock as of December 31, 1994, by (i) each person known
by UST to own more than five percent of either class of the outstanding UST
Common Stock, (ii) each director of UST, (iii) each of the named executive
officers of UST and (iv) all directors and executive officers as a group. Unless
otherwise noted, the persons named in the table have sole voting and investment
power with respect to all shares of UST Common Stock shown as beneficially owned
by them.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ---------------------------- ----------------------- --------
<S> <C> <C>
401(k) Plan and ESOP of 1,335,133 shares (in a 14.13
United States Trust Company fiduciary capacity)(1)
of New York and Affiliated
Companies
114 West 47th Street
New York, New York 10036
GeoCapital Corporation 618,750 shares 6.55
767 Fifth Avenue (with sole dispositive
New York, New York, 10158 power)(2)
United States Trust Company 354,139 shares (in 3.75
of New York and Affiliated fiduciary and agency
Companies capacities)(3)
114 West 47th Street
New York, New York 10036
Eleanor Baum 300(4)(5)
Samuel C. Butler 7,730(4)(5)(6)
Peter O. Crisp 700(4)(5)
Daniel P. Davison 48,095(7)
Philippe de Montebello 800(4)
Paul W. Douglas 1,837(4)(5)
Edwin D. Etherington 8,150
Antonia M. Grumbach 1,300(4)
Frederic C. Hamilton 30,825(4)
Peter L. Malkin 1,200(4)
Jeffrey S. Maurer 19,436(7)(8)(9)
Orson D. Munn 9,500(4)(10)
Donald M. Roberts 35,377(7)(8)(9)
H. Marshall Schwarz 33,625(8)(9)
Philip L. Smith 5,800
John Hoyt Stookey 5,800(4)
Frederick B. Taylor 26,748(7)(8)(9)(11)
Richard F. Tucker 3,325(4)(5)
Carroll L. Wainwright, Jr. 3,600(4)(7)
Robert N. Wilson 950(4)
Frederick S. Wonham 30,404(7)(8)(9)
Ruth A. Wooden 200(4)(5)
All directors and executive
officers as a group
(numbering 22 as a group) 275,702 2.92%
</TABLE>
- ---------------
(1) These shares consist of 1,058,834 shares allocated or attributable to the
individual accounts of participants in the 401(k) Plan and ESOP, who have
voting and dispositive power over such shares, and 276,299 shares which
have not been allocated to participant accounts, as to which shares USTNY,
as Trustee of the Plan, may be deemed to have voting and dispositive power.
An independent fiduciary will be appointed to exercise responsibilities
that otherwise would be exercisable by USTNY, as Trustee of the Plan, with
respect to the voting of shares held in the Plan in connection with the
Distribution Proposal and the Merger Proposal. In February 1995,
contributions in the aggregate amount of
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$4,275,480 were made to the Plan which, under the terms of the Plan, will
be used to purchase additional shares of UST Common Stock for participants'
accounts under the 401(k) portion of the Plan. These shares will be
acquired through purchases in the market. Assuming that the shares are
purchased at an average price of $66 per share, the Plan will hold an
additional 64,780 shares of UST Common Stock as a result of these
contributions. The number of shares set forth in the table above does not
include these 64,780 shares.
(2) Information herein with respect to GeoCapital Corporation ("GCC") has been
obtained from GCC and from GCC's filings with the Commission pursuant to
Section 13(g) of the Exchange Act by GCC, a registered investment advisor,
and Barry K. Fingerhut and Irwin Lieber, by reason of their ownership
interest in GCC. Such filing further discloses that the shares were
acquired in the ordinary course of business and were not acquired for the
purpose of and do not have the effect of changing or influencing the
control of UST and were not acquired in connection with or as a participant
in any transaction having such purpose or effect.
(3) UST, USTNY and their affiliates have sole voting power as to 16,171 of such
shares, shared voting power as to 42,452 of such shares, sole dispositive
power as to 197,237 of such shares and shared dispositive power as to
156,902 of such shares. Such shares do not include any shares held in the
401(k) Plan and ESOP. As a matter of policy, USTNY and its affiliates vote
shares held in an agency capacity only as directed by customers, and where
shares are held as a co-fiduciary, vote such shares as directed by the
other co-fiduciaries. Shares held by UST, USTNY and their affiliates as
sole fiduciary are not voted unless specific voting instructions are given
by a donor or beneficiary pursuant to the governing trust instrument.
(4) Does not include shares subject to non-employee director stock options
exercisable within 60 days of December 31, 1994 as follows: Dr. Baum and
Ms. Wooden each 1,650 shares, Messrs. Crisp and Malkin each 3,350 shares,
Mr. Munn 2,000 shares, Mr. Wilson 4,650 shares and 5,000 shares by each of
the other non-employee directors (as defined in the Plan) other than
Messrs. Etherington and Smith.
(5) Does not include shares attributable to deferred awards under the Board
Members' Deferred Compensation Plan as follows: Dr. Baum 232 shares, Mr.
Butler 8,670 shares, Mr. Crisp 1,232 shares, Mr. Douglas 5,709 shares, Mr.
Tucker 309 shares and Ms. Wooden 179 shares.
(6) Includes 1,250 shares held in a trust of which Mr. Butler is trustee and
4,914 shares held in a trust in which he has a beneficial interest.
(7) Includes 10,254 shares owned by Mr. Davison's wife, 2,500 shares owned by
Mr. Maurer's wife, 638 shares held in trust by Mr. Maurer's wife for their
children, 3,215 shares owned by Mr. Roberts' daughter, 3,989 shares owned
by Mr. Taylor's wife, 300 shares owned by Mr. Wainwright's wife and 2,250
shares owned by Mr. Wonham's children, with respect to which the director
in each case disclaims beneficial ownership.
(8) Does not include shares subject to employee stock options exercisable
within 60 days of December 31, 1994 as follows: Mr. Schwarz 72,250 shares,
Mr. Maurer 53,450 shares, Mr. Taylor 41,200 shares, Mr. Roberts 31,750
shares and Mr. Wonham 26,250 shares.
(9) Does not include shares attributable to deferred awards under the 1989
Stock Compensation Plan and Predecessor Performance Plans as follows: Mr.
Schwarz 78,086 shares, Mr. Maurer 29,008 shares, Mr. Taylor 10,864 shares,
Mr. Roberts 55,186 shares and Mr. Wonham 44,064 shares.
(10) Includes 1,700 shares held in a trust of which Mr. Munn is trustee.
(11) Includes 270 shares held in a trust of which Mr. Taylor is sole trustee and
in which he has a beneficial interest.
Other than as set forth above, UST management is aware of no person who, on
the Record Date, was the beneficial owner of more than 5% of outstanding UST
Common Stock. The total number of shares of UST Common Stock owned by all
directors and executive officers of UST as a group accounted for 790,791 shares
(approximately 7.93% of outstanding shares of UST Common Stock) as of December
31, 1994.*
- ---------------
* Includes shares subject to stock options exercisable within 60 days of
December 31, 1994, and shares attributable to deferred awards under the 1989
Stock Compensation Plan and Predecessor Performance Plans and Board Members'
Deferred Compensation Plan.
81
<PAGE> 88
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Samuel C. Butler, a director of UST, is a partner in the law firm of
Cravath, Swaine & Moore, which is counsel to UST in connection with the
Distribution and the Merger and which performed services for UST in fiscal year
1994. The aggregate amount of fees paid by UST to Cravath, Swaine & Moore was
less than 5% of the law firm's gross revenues for the last fiscal year.
Peter L. Malkin, a director of UST, is a partner in the law firm of Wien,
Malkin & Bettex, which performed services for UST in fiscal year 1994. The
aggregate amount of fees paid by UST to Wien, Malkin & Bettex was less than 5%
of the law firm's gross revenues for the last fiscal year.
Antonia M. Grumbach, a director of UST, is a partner in the law firm of
Patterson, Belknap, Webb & Tyler, which performed services for UST in fiscal
year 1994. The aggregate amount of fees paid by UST to Patterson, Belknap, Webb
& Tyler was less than 5% of the law firm's gross revenues for the last fiscal
year.
Carroll L. Wainwright, Jr., a director of UST, is a consulting partner in
the law firm of Milbank, Tweed, Hadley & McCloy, which performed services for
UST in fiscal year 1994. The aggregate amount of fees paid by UST to Milbank,
Tweed, Hadley & McCloy was less than 5% of the law firm's gross revenues for the
last fiscal year.
OTHER BUSINESS
The UST Board does not intend to present to the Special Meeting any
business other than as described in this Proxy Statement-Prospectus and, at the
time this Proxy Statement-Prospectus was printed, was not aware of any other
matters that properly might be presented to the Special Meeting. If any other
business not described herein properly should come before the Special Meeting,
the persons named in the enclosed proxy card(s) or their substitutes will vote
the shares represented by them in accordance with their best judgment.
Discretionary authority for them to do so is contained in the proxy card(s).
STOCKHOLDER PROPOSALS
UST will hold a 1995 annual meeting of stockholders only if the Merger is
not consummated before the time for such meeting. In the event that such a
meeting is held, as was indicated in the proxy statement for the 1994 annual
meeting of stockholders, stockholder proposals intended to be presented at UST's
1995 annual meeting must have been received by UST at its principal executive
offices by November 11, 1994 in order to be considered for inclusion in UST's
proxy statement and proxy cards for the 1995 annual meeting.
82
<PAGE> 89
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
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<S> <C>
Acquiring Person...................................................................... 70
AIP................................................................................... 48
Asset Management System............................................................... 45
Asset Transfers....................................................................... 56
Average Value of Chase Common Stock................................................... 6
Back Office Services.................................................................. 65
Bank Merger........................................................................... 25
Bank Processing Services.............................................................. 65
Broadway Lease........................................................................ 54
Capital Notes......................................................................... 40
Cash Payment.......................................................................... 47
Certificate of Merger................................................................. 37
Certificates.......................................................................... 37
Chase................................................................................. 1
Chase Acquired Business............................................................... 5
Chase Acquired Company To Be Merged................................................... 29
Chase Assets.......................................................................... 53
Chase Board........................................................................... 12
Chase Bring Down Certificate.......................................................... 45
Chase Bylaws.......................................................................... 35
Chase Certificate of Incorporation.................................................... 35
Chase Common Stock.................................................................... 1
Chase Form 8-A........................................................................ 3
Chase Form 10......................................................................... 3
Chase Liabilities..................................................................... 54
Chase Maryland........................................................................ 29
Chase Parties......................................................................... 58
Chase Preferred Stock................................................................. 69
Chase Registration Statement.......................................................... 2
Chase Rights Plan..................................................................... 69
Chase USA............................................................................. 29
Closing............................................................................... 37
Closing Date.......................................................................... 1
CMB................................................................................... 5
CMB Bank Merger Agreement............................................................. 42
Code.................................................................................. 11
Commission............................................................................ 2
Continuing Directors.................................................................. 76
Contribution Agreement................................................................ 9
Contribution Asset Transfers.......................................................... 53
Contribution Assets................................................................... 53
Contribution Liabilities.............................................................. 54
Conversion Number..................................................................... 6
Core Businesses....................................................................... 5
CRA................................................................................... 42
CS First Boston....................................................................... 9
</TABLE>
83
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<TABLE>
<CAPTION>
TERM PAGE
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<S> <C>
Deductible Amount..................................................................... 60
Delayed Asset......................................................................... 54
Delayed Liability..................................................................... 54
Determined Value...................................................................... 63
DGCL.................................................................................. 70
Directors Option Plan................................................................. 62
Dissenting Holder..................................................................... 50
Distribution.......................................................................... 1
Distribution Agreement................................................................ 1
Distribution Asset Transfers.......................................................... 56
Distribution Assets................................................................... 57
Distribution Documents................................................................ 37
Distribution Liabilities.............................................................. 57
Distribution Proposal................................................................. 1
Distribution Record Date.............................................................. 10
EBIT.................................................................................. 34
Effective Time........................................................................ 1
efficiency ratio...................................................................... 18
Enhanced Pension Benefit.............................................................. 64
Exchange Act.......................................................................... 2
FDIC.................................................................................. 10
Flip-In Event......................................................................... 70
foreign corporation................................................................... 75
Form 10............................................................................... 2
GCC................................................................................... 81
GSS................................................................................... 35
IBES.................................................................................. 34
Information Statement................................................................. 2
InfoServ.............................................................................. 35
interested stockholder................................................................ 76
Internal Reorganization............................................................... 9
Letter of Instruction................................................................. 7
LTM................................................................................... 33
Merger................................................................................ 1
Merger Agreement...................................................................... 1
Merger Proposal....................................................................... 1
MF Service Company.................................................................... 25
MF Service Company Retained Liabilities............................................... 57
NASD.................................................................................. 2
New Trustco........................................................................... 6
New UST Parties....................................................................... 59
NYBCL................................................................................. 9
NYSE.................................................................................. 8
NYSE Tape............................................................................. 6
1981 Option Plan...................................................................... 62
1986 Option Plan...................................................................... 62
1989 Option Plan...................................................................... 62
1995 and 1996 Performance Cycles...................................................... 49
</TABLE>
84
<PAGE> 91
<TABLE>
<CAPTION>
TERM PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
OCC................................................................................... 10
ORE................................................................................... 21
PDI................................................................................... 19
Post Closing Covenants Agreement...................................................... 11
Pre-1987 ISO's........................................................................ 63
Private Letter Ruling................................................................. 8
Processing Business................................................................... 6
Record Date........................................................................... 10
Related Back Office................................................................... 6
Required Consent...................................................................... 54
Retained Employee..................................................................... 61
Retained Plans........................................................................ 62
Retention Amount...................................................................... 57
Retirement Plan....................................................................... 49
Right................................................................................. 69
Securities Act........................................................................ 2
Service............................................................................... 8
Services Agreement.................................................................... 11
Services Agreement Term Sheet......................................................... 42
Severance Benefit Payment............................................................. 64
Special Meeting....................................................................... 1
SFAS 109.............................................................................. 13
Spinco................................................................................ 1
Spinco Assets......................................................................... 57
Spinco Common Stock................................................................... 6
Spinco Liabilities.................................................................... 57
Stock Acquisition Date................................................................ 70
Surviving Corporation................................................................. 1
Tax Allocation Agreement.............................................................. 31
Time of Distribution.................................................................. 5
Transaction Value..................................................................... 63
Transfer Taxes........................................................................ 67
Transferred Plans..................................................................... 62
Transition Bonus Program.............................................................. 64
UST................................................................................... 1
UST Board............................................................................. 1
UST Bring Down Certificate............................................................ 43
UST Bylaws............................................................................ 70
UST Certificate of Incorporation...................................................... 70
UST Common Stock...................................................................... 1
UST Option Plans...................................................................... 62
UST Rights Agreement.................................................................. 42
UST-WY................................................................................ 25
UST-WY Retained Liabilities........................................................... 57
USTNY................................................................................. 5
UST's 1993 Annual Report on Form 10-K................................................. 2
UST's Quarterly Reports on Form 10-Q.................................................. 2
</TABLE>
85
<PAGE> 92
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF NOVEMBER 18, 1994
BETWEEN
THE CHASE MANHATTAN CORPORATION
AND
U.S. TRUST CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 93
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C> <C>
Parties and Recitals................................................................. A-1
ARTICLE I
THE MERGER
SECTION 1.1. The Merger........................................................... A-1
SECTION 1.2. Closing.............................................................. A-2
SECTION 1.3. Effective Time....................................................... A-2
SECTION 1.4. Effects of the Merger................................................ A-2
SECTION 1.5. Certificate of Incorporation and By-laws............................. A-2
SECTION 1.6. Directors............................................................ A-2
SECTION 1.7. Officers............................................................. A-2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1. Effect on Capital Stock.............................................. A-2
SECTION 2.2. Exchange of Certificates............................................. A-3
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of the Company........................ A-5
SECTION 3.2. Representations and Warranties of CMC................................ A-19
ARTICLE IV
COVENANTS
SECTION 4.1. Covenants of the Company with Respect to the Retained Business....... A-23
SECTION 4.2. Covenants of the Company............................................. A-26
SECTION 4.3. Covenants of CMC..................................................... A-27
SECTION 4.4. Mutual Covenants..................................................... A-28
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1. Preparation of Form S-4, Form S-1, Form 10 and the Proxy Statement;
Stockholders Meeting............................................... A-28
SECTION 5.2. Letter of the Company's Accountants.................................. A-29
SECTION 5.3. Letter of CMC's Accountants.......................................... A-29
SECTION 5.4. Access to Information; Confidentiality............................... A-29
SECTION 5.5. Legal Conditions to Distribution and Merger; Legal Compliance........ A-29
SECTION 5.6. Rights Agreement..................................................... A-30
SECTION 5.7. Benefit Plans........................................................ A-31
</TABLE>
A-i
<PAGE> 94
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
SECTION 5.8. Employment Matters................................................... A-31
SECTION 5.9. Employment Agreements................................................ A-33
SECTION 5.10. Fees and Expenses.................................................... A-33
SECTION 5.11. Distribution......................................................... A-33
SECTION 5.12. Public Announcements................................................. A-33
SECTION 5.13. Private Letter Ruling................................................ A-34
SECTION 5.14. Use of Name.......................................................... A-34
SECTION 5.15. UST-CA............................................................... A-34
SECTION 5.16. Affiliates........................................................... A-34
SECTION 5.17. Stock Exchange Listing............................................... A-34
SECTION 5.18. Capital Adequacy..................................................... A-34
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Each Party's Obligation To Effect the Merger........... A-34
SECTION 6.2. Conditions to Obligations of CMC..................................... A-35
SECTION 6.3. Conditions to Obligation of the Company.............................. A-38
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. Termination.......................................................... A-39
SECTION 7.2. Effect of Termination................................................ A-40
SECTION 7.3. Amendment............................................................ A-40
SECTION 7.4. Extension; Waiver.................................................... A-40
SECTION 7.5. Procedure for Termination, Amendment, Extension or Waiver............ A-40
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1. Nonsurvival of Representations and Warranties........................ A-41
SECTION 8.2. Notices.............................................................. A-41
SECTION 8.3. Definitions.......................................................... A-41
SECTION 8.4. Interpretation....................................................... A-42
SECTION 8.5. Counterparts......................................................... A-42
SECTION 8.6. Entire Agreement; No Third-Party Beneficiaries....................... A-42
SECTION 8.7. Governing Law........................................................ A-42
SECTION 8.8. Assignment........................................................... A-42
SECTION 8.9. Enforcement.......................................................... A-42
</TABLE>
A-ii
<PAGE> 95
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit I -- Form of Distribution Agreement [Attached as Appendix B]
Exhibit II -- Form of Contribution Agreement [Attached as Appendix C]
Exhibit III -- Form of Representation Letters [Omitted]
Exhibit IV -- Form of License Agreement [Omitted]
Exhibit V -- Form of Tax Allocation Agreement [Attached as Appendix E]
Exhibit VI -- Form of Post Closing Covenants Agreement [Attached as Appendix D]
Exhibit VII -- Form of Rule 145 Letter [Omitted]
</TABLE>
SCHEDULES [OMITTED]
<TABLE>
<S> <C> <C>
Schedule 3.1(b) -- Subsidiaries
Schedule 3.1(d) -- Consents; Approvals
Schedule 3.1(g) -- Certain Changes or Events
Schedule 3.1(h) -- Litigation; Claims; Proceedings
Schedule 3.1(l) -- Material Contracts; Significant Customers; Customer Agreements; Fee
Schedules
Schedule 3.1(m) -- Changes in Benefit Plans or Collective Bargaining Agreements
Schedule 3.1(n) -- List of Benefit Plans; Compliance
Schedule 3.1(q) -- License Agreements; Intellectual Property
Schedule 3.1(r) -- Tax Matters
Schedule 3.1(t) -- Financial Statements
Schedule 3.1(w) -- Real Property Matters
Schedule 3.1(x) -- Investment Company Customer Accounts
Schedule 3.1(y) -- Investment Company Customers; Changes in Fiscal Year; Shareholder
Approval
Schedule 3.1(a) -- Customer Information
Schedule 3.1(ab) -- Business Information; Uncollected Funds
Schedule 4.1(c) -- Issuance of Securities
Schedule 4.2(c) -- Redemption of Indebtedness of Company
Schedule 5.7 -- Benefit Plans
Schedule 5.8(a) -- Employees of Retained Company
Schedule 5.8(c) -- Certain Severance and Other Benefits
Schedule 5.8(e) -- Transition Bonus Program
</TABLE>
A-iii
<PAGE> 96
AGREEMENT AND PLAN OF MERGER dated as of November 18, 1994 (as amended,
supplemented or otherwise modified from time to time, this "AGREEMENT"), between
THE CHASE MANHATTAN CORPORATION, a Delaware corporation ("CMC"), and U.S. TRUST
CORPORATION, a New York corporation (the "COMPANY").
WHEREAS, the Board of Directors of the Company has approved a plan of
distribution embodied in the form of agreements attached hereto as Exhibit I
(the "DISTRIBUTION AGREEMENT") and Exhibit II (the "CONTRIBUTION AGREEMENT"),
each of which will be entered into prior to the Effective Time (as defined in
Section 1.3), subject to the issuance of a private letter ruling from the
Internal Revenue Service (the "SERVICE") as described in Sections 6.2(c) and
6.3(c) hereof in response to a ruling request to be made by the Company (the
"RULING REQUEST"), pursuant to which (a)(i) all the assets and liabilities of
United States Trust Company of New York, a New York State chartered bank and
trust company and a direct wholly owned subsidiary of the Company ("USTNY"),
other than the assets and liabilities of the Retained Business (as defined in
Section 3.1(l)), will be contributed by USTNY to a wholly owned bank subsidiary
of USTNY to be formed by USTNY (such wholly owned subsidiary of USTNY is
referred to herein as "NEW TRUSTCO") as provided in the Contribution Agreement,
(ii) the capital stock of New Trustco will be distributed by USTNY to the
Company as provided in the Distribution Agreement and (iii) all the assets and
liabilities of the Company (including the capital stock of its direct
subsidiaries at such time (including New Trustco)), other than the assets and
liabilities of the Retained Business, will be contributed to a wholly owned
subsidiary of the Company to be formed by the Company (such wholly owned
subsidiary of the Company is referred to herein as "NEW HOLDINGS") as provided
in the Distribution Agreement (the contributions and distributions referred to
in clauses (i) and (ii) above are referred to collectively herein as the "NEW
TRUSTCO DISTRIBUTION") and (b) all the shares of capital stock of New Holdings
will be distributed on a pro rata basis to the Company's stockholders as
provided in the Distribution Agreement (together with the contribution referred
to in clause (iii), the "NEW HOLDINGS DISTRIBUTION" and, together with the New
Trustco Distribution, the "DISTRIBUTION");
WHEREAS, the respective Boards of Directors of CMC and the Company have
determined that, following the Distribution, the merger of the Company with and
into CMC (the "MERGER") with CMC as the surviving corporation (the "SURVIVING
CORPORATION") would be advantageous and beneficial to their respective
corporations and stockholders;
WHEREAS, for Federal income tax purposes, it is intended that (a) the
Distribution shall qualify as a tax-free distribution within the meaning of
Section 355 of the Internal Revenue Code of 1986, as amended (the "CODE") and
(b) the Merger shall qualify as a reorganization under Section 368(a) of the
Code, and this Agreement is intended to be and is adopted as a plan of
reorganization; and
WHEREAS, immediately following the Merger, it is contemplated that CMC will
cause USTNY to merge with, and into, The Chase Manhattan Bank (National
Association), a national banking association ("CMB") and a wholly owned
subsidiary of CMC (the "BANK MERGER"), and in the Bank Merger CMB would issue
shares of its capital stock in respect of the capital stock of USTNY having a
fair market value, in aggregate, approximately equal to the fair market value of
the capital stock of USTNY immediately before the Bank Merger.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto agree
as follows:
ARTICLE I
THE MERGER
SECTION 1.1. THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the New York Business
Corporation Law (the "NYBCL") and the Delaware General Corporation Law ("DGCL"),
the Company shall be merged with and into CMC at the Effective Time. Following
the Merger, the separate corporate existence of the Company shall cease and CMC
shall continue as the Surviving Corporation and shall succeed to and assume all
the rights and obligations of
<PAGE> 97
the Company in accordance with the NYBCL and the DGCL. Notwithstanding the
foregoing, CMC may elect at any time prior to the Merger, instead of merging the
Company into CMC as provided above, to merge a subsidiary of CMC (including a
subsidiary of CMC to be formed after the date of this Agreement) into the
Company; provided, however, that the Company shall not be deemed to have
breached any of its representations, warranties, covenants or agreements set
forth in this Agreement solely by reason of such election. In such event, the
parties agree to execute an appropriate amendment to this Agreement in order to
reflect the foregoing and, where appropriate, to provide that the Company shall
be the Surviving Corporation.
SECTION 1.2. CLOSING. The closing of the Merger (the "CLOSING") will take
place at 10:00 a.m. (subject to satisfaction or waiver of the conditions set
forth in Article VI on the first Business Day (as defined in the Contribution
Agreement) after the end of the first month ending after April 15, 1995, and
more than two Business Days after satisfaction of the conditions set forth in
Article VI (the "CLOSING DATE")), at the offices of Cravath, Swaine & Moore,
Worldwide Plaza, 825 Eighth Avenue, New York, N.Y. 10019, unless another date or
place is agreed to in writing by the parties hereto.
SECTION 1.3. EFFECTIVE TIME. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VI, the parties
shall file a certificate of merger or other appropriate documents (in any such
case, the "CERTIFICATE OF MERGER") executed in accordance with the relevant
provisions of the NYBCL and the DGCL, and shall make all other filings or
recordings required under the NYBCL and the DGCL. The Merger shall become
effective immediately following the Distribution, upon the filing of the
Certificate of Merger with the New York Secretary of State and the Delaware
Secretary of State or at such other time as the Company and CMC shall agree
should be specified in the Certificate of Merger (the time the Merger becomes
effective being the "EFFECTIVE TIME").
SECTION 1.4. EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in Section 906 of the NYBCL and Section 259 of the DGCL. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time, all
the properties, rights, privileges, powers and franchises of the Company shall
vest in the Surviving Corporation, and all debts, liabilities, obligations and
duties of the Company shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 1.5. CERTIFICATE OF INCORPORATION AND BY-LAWS. (a) The
certificate of incorporation of CMC shall be the certificate of incorporation of
the Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law.
(b) The by-laws of CMC as in effect at the Effective Time shall be the
by-laws of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
SECTION 1.6. DIRECTORS. The directors of CMC at the Effective Time shall
be the directors of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
SECTION 1.7. OFFICERS. The officers of CMC at the Effective Time shall be
the officers of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1. EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares of
Common Stock, par value $1.00 per share, of the Company ("COMPANY COMMON
STOCK"):
(a) Cancellation of Treasury Stock and CMC-Owned Stock. Each share of
Company Common Stock that is owned by the Company or by any subsidiary of
the Company (but not any employee stock ownership plan ("ESOP") or other
Benefit Plan (as defined in Section 3.1(n)) of the Company or any of
A-2
<PAGE> 98
its subsidiaries) and each share of Company Common Stock that is owned by
CMC or any other subsidiary of CMC, excluding, in each case, any such share
held by the Company, CMC or any of their subsidiaries in a fiduciary,
custodial or similar capacity (together, in each case, with the associated
Right (as defined in Section 3.1(c)) shall automatically be canceled and
retired and shall cease to exist, and no common stock, par value $2.00 per
share, of CMC ("CMC COMMON STOCK") or other consideration shall be
delivered in exchange therefor.
(b) Conversion of Company Common Stock. Subject to Section 2.2(e),
each issued and outstanding share of Company Common Stock other than (i)
shares to be canceled in accordance with Section 2.1(a) and (ii) as set
forth in paragraph (c) below, shares that have not been voted in favor of
the approval of this Agreement and with respect to which appraisal rights
shall have been perfected in accordance with Section 623 of the NYBCL
("DISSENTERS' SHARES"), together with the associated Right, shall be
converted into the right to receive a number of fully paid and
nonassessable shares of CMC Common Stock equal to the Conversion Number
(the "MERGER CONSIDERATION"). The term "CONVERSION NUMBER" shall mean a
number, expressed to three decimal places, equal to the fraction of (i)
$363,500,000, divided by (ii) the product of (A) the greater of (1) the
Average Value of CMC Common Stock and (2) $31.00, multiplied by (B) the
number of shares of Company Common Stock outstanding immediately before the
Effective Time. The term "AVERAGE VALUE OF CMC COMMON STOCK" shall mean the
10-day average of the daily average of the high and low prices for CMC
Common Stock reported on the New York Stock Exchange Composite Transaction
Tape, as reprinted in The Wall Street Journal, Eastern Edition (or, if
unavailable, another authoritative source), on each of the 10 trading days
immediately preceding the last Business Day before the date of the
Effective Time. As of the Effective Time, all such shares of Company Common
Stock (and the associated Rights) shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares of Company Common
Stock (and the associated Rights) shall cease to have any rights with
respect thereto, except the right to receive the shares of CMC Common Stock
and any cash in lieu of fractional shares of CMC Common Stock to be issued
or paid in consideration therefor upon surrender of such certificate in
accordance with Section 2.2, without interest.
(c) Shares of Dissenting Stockholders. Notwithstanding anything in
this Agreement to the contrary, no Dissenters' Shares shall be converted as
described in Section 2.1(b) but shall become the right to receive such
consideration as may be determined to be due in respect of such Dissenters'
Shares pursuant to the laws of the State of New York; provided, however,
that any Dissenters' Shares (together with the associated Rights)
outstanding immediately prior to the Effective Time and held by a
stockholder who shall, after the Effective Time, lose his or her right of
appraisal, withdraw his or her demand for appraisal as a matter of right
under NYBCL Section 623, or, with the consent of CMC, otherwise withdraw
his or her demand for appraisal, in either case pursuant to the NYBCL,
shall be deemed to be converted as of the Effective Time into the right to
receive the Merger Consideration. The Company shall give CMC (i) prompt
notice of any written demands for appraisal of shares of Company Common
Stock received by the Company and (ii) the opportunity to direct all
negotiations and proceedings with respect to any such demands. The Company
shall not, without the prior written consent of CMC, voluntarily make any
payment with respect to, or settle, offer to settle or otherwise negotiate,
any such demands.
SECTION 2.2. EXCHANGE OF CERTIFICATES.
(a) Exchange Agent. As of the Effective Time, CMC shall deposit with
CMB or such other bank or trust company as may be designated by CMC (the
"EXCHANGE AGENT"), for the benefit of the holders of shares of Company
Common Stock, for exchange in accordance with this Article II, through the
Exchange Agent, certificates representing the shares of CMC Common Stock
(such shares of CMC Common Stock, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"EXCHANGE FUND") issuable pursuant to Section 2.1 in exchange for
outstanding shares of Company Common Stock. CMC shall provide to the
Exchange Agent, on a timely basis, funds necessary to pay any cash payable
in lieu of fractional shares of CMC Common Stock.
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(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to
mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock (the "CERTIFICATES") whose shares were converted into
the right to receive shares of CMC Common Stock pursuant to Section 2.1 (i)
a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as CMC may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of CMC Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to
such other agent or agents as may be appointed by CMC, together with such
letter of transmittal, duly executed, and such other documents as may
reasonably be required by the Exchange Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of CMC Common Stock which such
holder has the right to receive pursuant to the provisions of this Article
II, and the Certificate so surrendered shall forthwith be canceled. In the
event of a transfer of ownership of Company Common Stock which is not
registered in the transfer records of the Company, a certificate
representing the proper number of shares of CMC Common Stock may be issued
to a person other than the person in whose name the Certificate so
surrendered is registered, if such Certificate shall be properly endorsed
or otherwise be in proper form for transfer and the person requesting such
payment shall pay any transfer or other taxes required by reason of the
issuance of shares of CMC Common Stock to a person other than the
registered holder of such Certificate or establish to the satisfaction of
CMC that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.2, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon
such surrender the certificate representing shares of CMC Common Stock and
cash in lieu of any fractional shares of CMC Common Stock as contemplated
by this Section 2.2. No interest will be paid or will accrue on any cash
payable in lieu of any fractional shares of CMC Common Stock.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to CMC Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of CMC Common Stock represented
thereby and no cash payment in lieu of fractional shares shall be paid to
any such holder pursuant to Section 2.2(e) until the surrender of such
Certificate in accordance with this Article II. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall
be paid to the holder of the certificate representing whole shares of CMC
Common Stock issued in exchange therefor, without interest, (i) at the time
of such surrender, the amount of any cash payable in lieu of a fractional
share of CMC Common Stock to which such holder is entitled pursuant to
Section 2.2(e) and the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such
whole shares of CMC Common Stock and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Time but prior to such surrender and a payment date subsequent to
such surrender payable with respect to such whole shares of CMC Common
Stock.
(d) No Further Ownership Rights in Company Common Stock. All shares
of CMC Common Stock issued upon the surrender for exchange of Certificates
in accordance with the terms of this Article II and any cash paid pursuant
to Section 2.2(c) or 2.2(e) shall be deemed to have been issued and paid in
full satisfaction of all rights pertaining to the shares of Company Common
Stock theretofore represented by such Certificates, and there shall be no
further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Company Common Stock which were
outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation or
the Exchange Agent for any reason, they shall be canceled and exchanged as
provided in this Article II.
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(e) No Fractional Shares.
(i) No certificates or scrip representing fractional shares of CMC
Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the
owner thereof to vote or to any rights of a stockholder of CMC.
(ii) Notwithstanding any other provision of this Agreement, each
holder of shares of Company Common Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a
share of CMC Common Stock (after taking into account all Certificates
registered to such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of CMC
Common Stock multiplied by the average of the high and low prices for
CMC Common Stock on the Business Day immediately before the Closing Date
as reported on the New York Stock Exchange Composite Transaction Tape,
as reprinted in The Wall Street Journal, Eastern Edition.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of the Certificates for six
months after the Effective Time shall be delivered to CMC, upon demand, and
any holders of the Certificates who have not theretofore complied with this
Article II shall thereafter look only to CMC for payment of their claim for
CMC Common Stock, any cash in lieu of fractional shares of CMC Common Stock
and any dividends or distributions with respect to CMC Common Stock.
(g) No Liability. None of CMC, the Company or the Exchange Agent
shall be liable to any person in respect of any shares of CMC Common Stock
(or dividends or distributions with respect thereto) or cash from the
Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to CMC as follows:
(a) Organization, Standing and Corporate Power. As used in this
Agreement, (i) any reference to the Company and its subsidiaries means the
Company and each of its subsidiaries, (ii) any reference to the RETAINED
COMPANY and its subsidiaries means the Company and those of its direct and
indirect subsidiaries included in the Retained Business, including USTNY,
(iii) any reference to the PROCESSING ENTITIES shall mean the Retained
Company and its subsidiaries, but shall not include that portion of the
assets or liabilities and business of the Retained Company and its
subsidiaries that constitutes Acquired Assets, Assumed Liabilities, Delayed
Assets, or Delayed Liabilities (each as defined in the Contribution
Agreement), (iv) any references to subsidiaries of the Retained Company
means the direct and indirect subsidiaries included in the Retained
Business, including USTNY, (v) any reference to New Holdings and its
subsidiaries means New Holdings at the time of the Distribution and those
entities that at the time of Distribution will be direct or indirect
subsidiaries of New Holdings, including New Trustco, and (vi) references to
subsidiaries of New Holdings means those entities that at or immediately
after the Distribution will be direct or indirect subsidiaries of New
Holdings, including New Trustco. As used in this Agreement, any reference
to any event, change or effect having a material adverse effect on or with
respect to an entity (or group of entities taken as a whole) means such
event, change or effect is, or could reasonably be expected to be,
materially adverse to the business, properties, assets, results of
operations or financial condition of such entity (or, if with respect
thereto, of such group of entities taken as a whole) or on the ability of
such entity or group of entities to consummate the transactions
contemplated hereby, including the Distribution and the Merger. The Company
is a bank holding company registered under the Bank Holding Company Act of
1956, as amended (the "BANK HOLDING COMPANY ACT"). USTNY is a wholly owned
subsidiary of the Company and a banking corporation organized under the
laws of the State of New York. Each of the Retained Company and its
subsidiaries is a bank or corporation duly organized,
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validly existing and in good standing under the laws of the jurisdiction of
its incorporation and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now
being conducted. The Retained Company and each of its subsidiaries is duly
qualified or licensed to do business and in good standing in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or
licensing necessary, except where the failure to be so duly qualified or
licensed and in good standing would not in the aggregate have a material
adverse effect on Mutual Funds Service Company, a Delaware corporation
("MFSC"), or on the Retained Company and its subsidiaries taken as a whole.
True, accurate and complete copies of the Certificate of Incorporation and
By-laws of the Retained Company and of each of its subsidiaries, as in
effect on the date hereof, including all amendments thereto, have
heretofore been delivered to CMC. The Company has made available to legal
counsel for CMC true, accurate and complete copies of the minute books of
the Retained Company and each of its subsidiaries as maintained by the
Company or such subsidiary, as the case may be, as of the date hereof for
the period from January 1, 1990 to and including September 30, 1994, and
the Company has no reason to believe that such minute books do not contain
minutes of all meetings of the boards of directors and stockholders of the
Company or the applicable subsidiary for such period.
(b) Subsidiaries. Schedule 3.1(b) lists each subsidiary of the
Retained Company. All the outstanding shares of capital stock of each
subsidiary of the Retained Company have been validly issued and are fully
paid and nonassessable and, except for directors' qualifying shares, if
any, or as set forth in Schedule 3.1(b), are owned by the Retained Company,
by another subsidiary of the Retained Company or by the Retained Company
and another such subsidiary, free and clear of all adverse claims,
restrictions on voting or transfer, pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "LIENS"). Except for the capital stock of the subsidiaries
of the Retained Company and except for the ownership interests set forth in
Schedule 3.1(b), the Retained Business does not include any ownership
interest, directly or indirectly, in any capital stock or other ownership
interest in any corporation, partnership, joint venture or other entity.
The deposits of each subsidiary of the Retained Company that accepts
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC"),
to the extent provided by law.
(c) Capital Structure. As of the Business Day immediately preceding
the date of this Agreement, the authorized capital stock of the Company
consists of 40,000,000 shares of Company Common Stock and 5,000,000 shares
of preferred stock, par value $1.00 per share. At the close of business on
September 30, 1994, (i) 9,386,220 shares of Company Common Stock and no
shares of preferred stock were issued and outstanding, (ii) 2,125,530
shares of Company Common Stock were held by the Company in its treasury,
(iii) 1,790,328 shares of Company Common Stock were reserved for issuance
pursuant to the Benefit Plans of the Company and its subsidiaries and (iv)
300,000 shares of Series A Participating Cumulative Preferred Stock were
reserved for issuance in connection with the rights (the "RIGHTS") to
purchase shares of Series A Participating Cumulative Preferred Stock issued
pursuant to the Rights Agreement dated as of January 26, 1988, as amended
as of December 12, 1989 (as amended from time to time, the "RIGHTS
AGREEMENT"), between the Company and First Chicago Trust Company of New
York, as Rights Agent (the "RIGHTS AGENT"). Except as set forth above, at
the close of business on September 30, 1994, no shares of capital stock or
other voting securities of the Company were issued, reserved for issuance
or outstanding. All outstanding shares of capital stock of the Company are,
and all shares which may be issued pursuant to the Benefit Plans will be,
when issued, duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights. There are not any bonds, debentures,
notes or other indebtedness of the Company or any subsidiary of the
Retained Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on
which stockholders of the Company or such subsidiary, as the case may be,
may vote. Except as set forth above there are not, and except as set forth
above or as contemplated by Section 4.1(e) immediately prior to the
Effective Time there will not be, any securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind
to which the Retained Company or any of its subsidiaries is a party or by
which any of them is bound obligating the Retained Company or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold,
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additional shares of capital stock or other voting securities of the
Retained Company or of any of its subsidiaries or obligating the Retained
Company or any of its subsidiaries to issue, grant, extend or enter into
any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. As of the close of business on the Business Day
immediately preceding the date of this Agreement, there are not any
outstanding contractual obligations of the Retained Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of the Company or any of its subsidiaries. The Company has
delivered to CMC a complete and correct copy of the Rights Agreement as
amended and supplemented to the date of this Agreement.
(d) Authority; Noncontravention. The Company has, and, in the case of
any Documents (as defined in the Contribution Agreement) executed at a
later time, the Company, New Holdings, USTNY and New Trustco will have, the
requisite corporate power and authority (subject to the approvals described
in the next sentence) to enter into this Agreement and the other Documents
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the other Documents and the
consummation by the Company of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the
part of the Company (other than, with respect to the Merger, the approval
and adoption of this Agreement by the affirmative vote of the holders of
Company Common Stock representing 66 2/3% of the shares entitled to vote
(such 66 2/3%, the "REQUISITE STOCKHOLDERS"), formal declaration of the
Distribution by the Company's Board of Directors (which will be obtained
prior to the Distribution) and approval of the Distribution by the
affirmative vote of the Requisite Stockholders). This Agreement has been
duly executed and delivered by the Company and, assuming this Agreement
constitutes a valid and binding obligation of CMC, constitutes a valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms. Each of the other Documents has been, or prior
to the Merger or the other transactions contemplated thereby will be, duly
executed and delivered by each of the Company, USTNY, New Trustco and New
Holdings, as the case may be, and constitutes, or upon such execution and
delivery will constitute, a valid and binding obligation of each of the
Company, USTNY, New Trustco and New Holdings, enforceable against it in
accordance with its terms. None of the execution and delivery of this
Agreement and the other Documents or the consummation of the transactions
contemplated hereby or thereby and compliance with the provisions of this
Agreement and the other Documents will conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration
of any material obligation or to loss of a material benefit under, or
result in the creation of any Lien upon any of the material properties or
assets of (i) New Holdings or the Retained Company or any subsidiary of
either under the certificate of incorporation or by-laws or comparable
charter or organizational documents of the Company, New Holdings or any
subsidiary of either, (ii) the Retained Company or any of its subsidiaries
under any Contract (as defined in the Contribution Agreement) to which the
Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries or any of their assets are bound, (iii) subject to
the governmental filings and other matters referred to in the following
sentence, the Retained Company or any of its subsidiaries, under any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Retained Company, or any of its subsidiaries or their
respective properties or assets (other than, in the case of clauses (ii)
and (iii), any such conflicts, violations, defaults, rights, losses or
Liens that do not relate to Customer Agreements (as defined in the
Contribution Agreement) or that individually or in the aggregate would not
(A) have a material adverse effect on MFSC or on the Processing Entities
taken as a whole, (B) materially impair the ability of the Company or any
of its subsidiaries to perform their obligations under this Agreement or
any of the other Documents to which the Company or such subsidiary is a
party or (C) prevent the consummation of any of the transactions
contemplated by this Agreement or any of the other Documents) or (iv)
subject to the governmental filings and other matters referred to in the
following sentence, New Holdings and its subsidiaries, under any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
New Holdings or any of its subsidiaries or their respective properties or
assets or any Contract to which New Holdings or any of its subsidiaries is
a party (other than, in the case of clause (iv), such conflicts,
violations, defaults, rights, losses or liens that individually or in the
aggregate would not (A) have
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material adverse effect on New Holdings and its subsidiaries taken as a
whole, (B) materially impair the ability of New Holdings or any of its
subsidiaries to perform its obligations under any Document to which it or
any such subsidiary is a party or (C) prevent the consummation of any
transaction contemplated by this Agreement). No consent, approval, order or
authorization of, or registration, declaration or filing with, any Federal,
state or local government or any court, administrative agency or commission
or other governmental authority or agency, or self-regulatory organization,
domestic or foreign (a "GOVERNMENTAL ENTITY"), is required by or with
respect to the Company or any of its subsidiaries in connection with the
execution and delivery of this Agreement and any of the other Documents to
which it is a party or the consummation by the Company or such subsidiary,
as the case may be, of the transactions contemplated hereby or thereby,
except for (i) filings pursuant to the Bank Holding Company Act, (ii) the
filing with the Securities and Exchange Commission ("SEC") of (x) a proxy
statement relating to the approval by the Company's stockholders of this
Agreement (as amended or supplemented from time to time, the "PROXY
STATEMENT"), (y) potentially, a registration statement on Form S-1 relating
to the Distribution and (z) a registration statement on Form 10 (the "FORM
10") under, and such reports under Section 13(a) of, the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), as may be required
in connection with this Agreement, the other Documents and the transactions
contemplated hereby and thereby, (iii) the filing of the Certificate of
Merger with the New York Secretary of State and the Delaware Secretary of
State and appropriate documents with the relevant authorities of other
states in which the Company or any of its subsidiaries is qualified to do
business, (iv) filings or applications with (A) the New York State Banking
Department in connection with the organization of New Trustco, (B) the FDIC
and the Board of Governors of the Federal Reserve System in connection with
obtaining FDIC insurance for New Trustco and having New Trustco become a
member of the Federal Reserve System and (C) various State bank regulatory
authorities in connection with the Distribution, (v) such filings as may be
required in connection with the Gains Taxes (as defined in Section 3.2(c)),
(vi) such consents, approvals, orders, authorizations, registrations,
declarations and filings as are set forth on Schedule 3.1(d) and (vii) such
other consents, approvals, orders, authorizations, registrations,
declarations and filings the absence of which could not reasonably be
expected to have a material adverse effect on MFSC or on the Processing
Entities taken as a whole.
(e) SEC Documents; Undisclosed Liabilities. The Company has filed all
required reports, schedules, forms, statements and other documents with the
SEC since January 1, 1994 (the "SEC DOCUMENTS"). As of their respective
dates (as amended), the SEC Documents complied in all material respects
with the requirements of the Securities Act of 1933 (the "SECURITIES ACT"),
or the Exchange Act, as the case may be, and the rules and regulations of
the SEC promulgated thereunder applicable to such SEC Documents, and none
of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Except to the extent that
information contained in any SEC Document has been revised or superseded by
a later Filed Company SEC Document (as defined in Section 3.1(g)), none of
the SEC Documents contains any untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of the
Company included in the SEC Documents comply as to form in all material
respects with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the
case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a basis consistent during the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated
financial position of the Company and its consolidated subsidiaries as of
the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth in
the Filed Company SEC Documents, neither the Company nor any of its
subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by generally accepted
accounting principles to be set forth on a consolidated balance sheet of
the Company and its consolidated subsidiaries or in the notes thereto and
which, individually or
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in the aggregate, could reasonably be expected to have a material adverse
effect on MFSC or on the Processing Entities taken as a whole.
(f) Information in Disclosure Documents and Registration
Statements. None of the information supplied or to be supplied by the
Company or its representatives for inclusion or incorporation by reference
in (i) the registration statement on Form S-4 to be filed with the SEC by
CMC in connection with the issuance of shares of CMC Common Stock in the
Merger (the "FORM S-4") or in any registration statement on Form S-1 or any
other applicable form to be filed with the SEC by New Holdings in
connection with the distribution of shares of Common Stock, par value $1.00
per share, of New Holdings ("NEW HOLDINGS COMMON STOCK") in the
Distribution (the "FORM S-1") will, at the time such Registration
Statements become effective under the Securities Act and at the Effective
Time, in the case of the Form S-4, and at the time of the meeting of
stockholders of the Company to be held in connection with the Merger and
the Distribution and at the time of the Distribution, in the case of the
Form S-1, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading and (ii) the Proxy Statement will, at the date mailed
to the Company's stockholders and at the time of the meeting of
stockholders to be held in connection with the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The
Proxy Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder,
and the Form S-1 will comply as to form in all material respects with the
provisions of the Securities Act or the Exchange Act, as applicable, and
the rules and regulations thereunder, except that no representation is made
by the Company with respect to statements made therein based on information
supplied by CMC for inclusion in the Proxy Statement or the Form S-1,
respectively, or with respect to information concerning CMC or any of its
Subsidiaries incorporated by reference in the Proxy Statement.
(g) Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Documents filed and publicly available prior to the date of
this Agreement (the "FILED COMPANY SEC DOCUMENTS") or as set forth in
Schedule 3.1(g) or, as of the Closing Date, as disclosed in the Company SEC
Documents filed and publicly available before the Closing Date or in
Schedule 3.1(g) or in the Company Bring Down Certificate (as defined in
Section 6.2(a)), since the date of the most recent audited financial
statements included in the Filed Company SEC Documents, the Processing
Entities have conducted their business only in the ordinary course,
consistent with past practice, and there has not been (i) any material
adverse change in MFSC or in the Processing Entities taken as a whole or
any event that could reasonably be expected to have a material adverse
effect on MFSC or on the Processing Entities taken as a whole, (ii) any
split, combination or reclassification of any of its capital stock or any
issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock
(other than phantom share units issued under any Benefit Plan as defined in
Section 3.1(n)), (iii) (x) any grant by the Company or any of its
subsidiaries of any general increase in the compensation payable to
employees who are listed in Schedule 5.8(a) who are Prospective Retained
Employees (as defined in Section 5.8(a)), other than as provided in Section
5.8(e) of this Agreement, normal increases in base salary, and annual
bonuses consistent with past practices made in the ordinary course of
business and the payment of bonuses for the period from January 1, 1995
through the Closing Date under any amendment made after the date of this
Agreement to the 1990 Annual Incentive Plan or to the Incentive Award Plan
maintained by USTNY, or as was required under employment agreements in
effect as of the date of the most recent audited financial statements
included in the Filed Company SEC Documents or (y) any entry by any of the
Processing Entities into any employment, severance or termination agreement
with any executive officer who is a Prospective Retained Employee, other
than as provided in Section 5.8(c), (iv) any damage, destruction or loss,
whether or not covered by insurance, that has had or is likely to have a
material adverse effect on MFSC or on the Processing Entities taken as a
whole, (v) any change in accounting methods, principles or practices by the
Company or any of its subsidiaries, except insofar as may have been
required (in the opinion of the Company's independent accountants) by a
change in generally accepted accounting principles, (vi) any material
decrease in the
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assets in the custody of or cash deposits held by the Processing Entities
as a result of terminations of Customer (as defined in the Contribution
Agreement) accounts or withdrawals of assets from Customer accounts, other
than such decreases as shall have occurred in the ordinary course or
seasonal fluctuations on a basis consistent with ordinary and general
economic conditions, (vii) any material amendment, modification, or
termination of any Contract, which had it not been so amended, modified or
terminated, would be a Material Contract (as defined in Section 3.1(l)),
(viii) any acquisition of a material asset whose value upon liquidation
would be materially less than its book value, except for such acquisitions
of assets in the ordinary course of business consistent with past practice
as would not, individually or in the aggregate, have a material adverse
effect on MFSC or on the Processing Entities taken as a whole, (ix) any
sale or disposition of any material assets or properties by the Processing
Entities, except in the ordinary course of business, consistent with past
practice, (x) any waiver of any material rights of value by any of the
Processing Entities, without adequate consideration, except for such
waivers in the ordinary course of business consistent with past practice
which would not, individually or in the aggregate, have a material adverse
effect on MFSC or on the Processing Entities taken as a whole or (xi) any
entry into any agreement, arrangement or commitment to take any of the
actions set forth in this Section 3.1(g).
(h) Litigation. On the date of this Agreement, except as set forth in
Schedule 3.1(h), or as disclosed in the Filed Company SEC Documents, and at
the Closing Date, except for the foregoing and claims, investigations,
suits, actions or proceedings arising, or to the knowledge of the Company
first threatened, between the date hereof and the Closing Date and
disclosed in the Company Bring Down Certificate (as defined in Section
6.2(a)), there is no claim, investigation, suit, action or proceeding
pending or, to the knowledge of the Company, threatened, against any of the
Company or its subsidiaries before or by any Governmental Entity or
arbitrator that, individually or in the aggregate, could reasonably be
expected to (i) have a material adverse effect on MFSC or on the Processing
Entities taken as a whole, (ii) materially impair the ability of the
Retained Company or New Holdings or any subsidiary of either to perform any
obligation under this Agreement or any of the other Documents, (iii)
prevent, delay, alter or require the payment of damages in excess of
$100,000 upon the consummation of any or all of the transactions
contemplated hereby or thereby or (iv) result in liability of any or all of
the Processing Entities in excess of, with respect to any individual claim,
investigation, suit, action or proceeding, $100,000 or, with respect to all
such claims, investigations, suits, actions or proceedings, $500,000, nor
is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against any of the Processing
Entities having, or which could reasonably be expected to have, any such
effect. Except as set forth in Schedule 3.1(h), there are no unpaid
judgments, injunctions, orders, arbitration decisions or awards, or other
judicial or administrative mandates outstanding against any of the
Processing Entities. Schedule 3.1(h) also sets forth a brief summary of all
claims, investigations, suits, actions, or proceedings against any of the
Processing Entities that have been settled or otherwise determined at any
time since January 1, 1994 resulting in liability of the Processing
Entities in excess of, with respect to any individual claim, investigation,
suit, action or proceeding, $100,000 or, with respect to all such claims,
investigations, suits, actions or proceedings, $500,000.
(i) Agreements with Regulators. Neither the Company nor any of its
subsidiaries is a party to any written agreement or memorandum of
understanding with, or a party to any commitment letter or similar
undertaking to, or is subject to any order, decree or directive by, or is a
recipient of any extraordinary supervisory letter from, or since January 1,
1993 has been required to adopt any board resolution by, any Federal or
state Governmental Entity charged with the supervision or regulation of
banks or bank holding companies, or engaged in the insurance of bank
deposits (the "BANK REGULATORS") or charged with the supervision or
regulation of transfer agents and securities custodians (together with the
Bank Regulators, the "REGULATORS"), nor has the Company or any of its
subsidiaries been advised by any Regulator that it is contemplating issuing
or requesting (or is considering the appropriateness of issuing or
requesting) any such order, decree, agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter or similar submission
or requiring (or is considering the appropriateness of requiring) the
adoption of any such board resolution.
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(j) Compliance with Applicable Laws. On the date of this Agreement,
except as set forth in Schedule 3.1(j), and at the Closing Date, except for
the foregoing and as set forth in the Company Bring Down Certificate, the
Processing Entities hold all permits, licenses, variances, exemptions,
orders and approvals of, and have made all filings, applications and
registrations with, all Governmental Entities which individually or in the
aggregate are material to the operation of the business of MFSC or of the
Processing Entities taken as a whole (the "RETAINED COMPANY PERMITS"). All
Retained Company Permits are in full force and effect in all material
respects. The Retained Company and its subsidiaries are in compliance with
the terms of the Retained Company Permits, except where the failure so to
comply would not have a material adverse effect on MFSC or on the
Processing Entities taken as a whole. Except as disclosed in the Filed
Company SEC Documents prior to the date of this Agreement, the business of
the Processing Entities is not being conducted in violation of any law,
ordinance or regulation of any Governmental Entity, except for possible
violations that individually or in the aggregate do not, and could not
reasonably be expected to, have a material adverse effect on MFSC or on the
Processing Entities taken as a whole. Except for routine examinations by
Bank Regulators, as of the date of this Agreement, to the knowledge of the
Company, no investigation by any Governmental Entity with respect to the
Retained Company or any of its subsidiaries is pending or threatened, other
than, in each case, those the outcome of which could not reasonably be
expected to have a material adverse effect on MFSC or on the Processing
Entities taken as a whole.
(k) Brokers or Finders. No broker, investment banker, financial
advisor or other person, other than CS First Boston Corporation and S. V.
Murphy & Co., Inc., the fees and expenses of which will be paid by the
Company, is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions
contemplated by this Agreement and the other Documents based upon
arrangements made by or on behalf of the Company.
(l) Retained Business.
(i) The "RETAINED BUSINESS" means the business conducted with
certain assets of the Company and USTNY, MFSC and U.S. Trust Company of
Wyoming, a Wyoming corporation ("UST-WY"), and the liabilities
associated with such assets, in each case other than the Acquired
Assets, the Assumed Liabilities, the Delayed Assets and the Delayed
Liabilities (each as defined in the Contribution Agreement) and the
Acquired Assets and Assumed Liabilities (each as defined in the
Distribution Agreement) and consists of (w) the Related Back Office, (x)
the UIT Business (as defined in the Contribution Agreement), (y) the MFS
Business (as defined in the Contribution Agreement) and (z) the IAS
Business (as defined in the Contribution Agreement, and subject to the
exceptions set forth in such definition).
(ii) At the Effective Time, except for the Acquired Assets, the
Delayed Assets and except as contemplated by the Distribution Agreement,
the Contribution Agreement, the Services Agreement (as defined in the
Contribution Agreement), and the License Agreement (as defined in the
Contribution Agreement), neither New Holdings nor any of its
subsidiaries will use in the conduct of its business or own or have
rights to use any assets or property, whether tangible, intangible or
mixed, which are also used in the conduct of the business of the
Retained Business. At the Effective Time neither New Holdings nor any of
its subsidiaries will be a party to any material agreement, arrangement
or understanding with the Retained Company or any of its subsidiaries
(other than the Documents and agreements specifically contemplated
thereby), including, without limitation, any Material Contract providing
for the furnishing of services or rental of real or personal property to
or from, or otherwise relating to the business or operations of, any of
the Retained Company or any of its subsidiaries or pursuant to which the
Retained Company or any of its subsidiaries may have any material
obligation or liability. After the Effective Time, none of the Retained
Company or any of its subsidiaries will have any liability whatsoever,
direct or indirect, contingent or otherwise, in any way relating to the
business, operations, indebtedness, assets or liabilities of New
Holdings or any of its subsidiaries, except as contemplated by the other
Documents.
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(iii) Except as set forth in Schedule 3.1(l) or, at the Closing
Date, as disclosed in the Company Bring Down Certificate, (w) all
Material Contracts (as defined below), together with all modifications
and amendments thereto, are valid and binding obligations of the parties
thereto and in full force and effect, (x) none of the Material Contracts
contains a provision described in clause (E), (M) or (O) of the
definition of the term "Material Contracts", (y) neither the Retained
Company nor any of its subsidiaries is in breach or default under any
Customer Agreement, except for such breaches or defaults in the ordinary
course of business that do not, and will not with the passage of time,
individually or in the aggregate, have a material adverse effect on MFSC
or on the Processing Entities taken as a whole, or in any material
respect under any other Material Contract and, to the knowledge of the
Company no other party is in material default thereunder and (z) neither
the Retained Company nor any of its subsidiaries has received any notice
of the intention of any significant customer listed in Schedule 3.1(l)
(each such listed customer, a "SIGNIFICANT CUSTOMER") to terminate, or
not to renew, any Customer Agreement or to materially reduce the
required level of services under any such Customer Agreement. Except as
set forth in Schedule 3.1(l) and except for the Customer Agreements and
all Computer Leases (as defined in the Contribution Agreement) or
agreements relating solely to Acquired Assets, neither the Retained
Company nor any subsidiary of the Retained Company is party to any
Contract that is a Material Contract. Except as set forth in Schedule
3.1(l), or, at the Closing Date, as disclosed in the Company Bring Down
Certificate, none of the Customer Agreements with any Significant
Customer, or any other arrangements or understandings relating to the
Company or any of its subsidiaries rendering of Processing Services to
any Significant Customer, contains any undertaking by the Company or any
of its subsidiaries to cap fees at other than the normal level that is
provided for in the relevant Customer Agreement or reimburse or waive
any or all fees thereunder. True and complete copies of each Material
Contract, including standard terms and a current fee schedule for each
Customer Agreement, have been made available to the CMC. Schedule 3.1(l)
also sets forth the fee schedules in effect at December 31, 1993 (with
respect to MFSC only) and September 30, 1994 and any fee adjustments
implemented at any time since January 1, 1994 or presently proposed to
be implemented, with respect to the Significant Customers. Except as set
forth on Schedule 3.1(l), as of the date of this Agreement, and, as of
the Closing Date, as disclosed in the Company Bring Down Certificate,
all understandings with Significant Customers to provide Processing
Services for consideration in excess of $100,000 per annum are
incorporated into duly executed, and to the best of the Company's
knowledge, valid and enforceable written contracts with the Processing
Entities.
As used herein, the term "MATERIAL CONTRACT", shall mean any Contract
to which any of the Processing Entities is a party or by which any of the
Processing Entities or any of the assets of any of the Processing Entities
is bound, that is any of the following: (A) a Contract of employment or a
consulting agreement with any person listed in Schedule 5.8(a) that is
other than "at-will" and contains any term requiring any termination
benefits other than under the Company's generally applicable severance
plan; (B) a Contract with any labor union or association; (C) a Contract
with any affiliate of the Company; (D) a Contract not made in the ordinary
course of business; (E) a Contract containing a covenant not to compete;
(F) a loan or similar agreement relating to the borrowing of money or any
guarantee of indebtedness of any other person in excess of $100,000; (G)
any lease or sublease relating to real property; (H) any Contract not fully
performed for the purchase of any commodity, material, services or
equipment, including without limitation fixed assets, for a price in excess
of $100,000 in the aggregate over the life of the Contract; (I) any license
agreement (as licensor or licensee) providing for future payments in excess
of $100,000; (J) any other Contract which creates future payment
obligations in excess of $100,000; (K) any Customer Agreement; (L) any
Contract with a subcustodian, depositary, or clearing agency; (M) any
Contract that obligates the Retained Company or any of its subsidiaries to
obtain all or a substantial portion of its requirements of any goods or
services from, or supply all or a substantial portion of the requirements
for any goods or services of, any other person; (N) any Contract that is
material to the conduct of the Retained Business; (O) other than the
Broadway Lease (as defined in the Contribution Agreement), the Tremont
Lease (as defined in the Distribution Agreement) or any
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Computer Lease, a put or option Contract that would obligate the Retained
Company or any of its subsidiaries to sell any asset other than an Acquired
Asset or Delayed Asset, to sell any Retained Asset that is reasonably
necessary to the conduct of the Processing Business and Related Back
Office, or to sell any material asset at a bargain price or to buy any
material asset at a material premium and (P) other than the Broadway Lease,
the Tremont Lease or any Computer Lease, any Contract that expressly limits
the right of the Retained Company or any of its subsidiaries to terminate
the Contract upon less than six months' notice or expressly requires it to
pay liquidated damages of more than $100,000 upon early termination.
(m) Absence of Changes in Benefit Plans. Except as set forth in
Schedule 3.1(m) or as disclosed in the Filed Company SEC Documents, since
the date of the most recent audited financial statements included in the
Filed Company SEC Document there has not been any adoption or amendment in
any material respect by the Company or any of its subsidiaries of any
collective bargaining agreement or any Benefit Plan other than any adoption
or amendment of a Benefit Plan that is not prohibited under Section 4.1(h).
(n) Benefit Plans, Employment and Labor Relations.
(i) Schedule 3.1(n) contains a list of all "employee pension
benefit plans" (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) (sometimes referred
to herein as "Pension Plans"), "employee welfare benefit plans" (as
defined in Section 3(1) of ERISA) and all other plans, agreements,
policies or arrangements relating to stock options, stock purchases,
compensation, deferred compensation, severance, and other employee
benefits, in each case maintained or contributed to as of the date of
this Agreement by the Company or any of its subsidiaries or any other
person or entity that, together with the Company, is treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code (a "COMMONLY
CONTROLLED ENTITY") for the benefit of any current or former employees,
officers or directors of the Company or any Commonly Controlled Entity
(collectively, the "BENEFIT PLANS"). The Company has made available to
CMC true, complete and correct copies of (w) each Benefit Plan (or, in
the case of any unwritten Benefit Plans, descriptions thereof), (x) the
most recent annual report on Form 5500 filed with the Internal Revenue
Service with respect to each Benefit Plan (if any such report was
required), (y) the most recent summary plan description for each Benefit
Plan for which such summary plan description is required and (z) each
trust agreement or group annuity contract relating to any Benefit Plan.
(ii) Each Benefit Plan has been administered in all material
respects in accordance with its terms and in compliance in all material
respects with the applicable provisions of ERISA and the Code.
(iii) Neither the Company nor any Commonly Controlled Entity has
incurred a "complete withdrawal" or a "partial withdrawal" (as such
terms are defined in Section 4203 and Section 4205, respectively, of
ERISA) with respect to any "multiemployer plan" (within the meaning of
Section 4001(a)(3) of ERISA) that has led to or could lead to the
imposition of a material withdrawal liability under Section 4201 of
ERISA that remains unpaid as of the date hereof; and neither the Company
nor any Commonly Controlled Entity maintains or contributes to or is
obligated to maintain or contribute to any such multiemployer plan.
(iv) Neither the Company nor any Commonly Controlled Entity has
incurred any material liability, and no event has occurred or set of
circumstances exists that could reasonably result in any material
liability, under Title I or Title IV of ERISA (other than to a Pension
Plan for contributions not yet due or to the Pension Benefit Guaranty
Corporation for payment of premiums not yet due) or under Section 412 or
Chapter 43 of the Code that has not been fully paid as of the date
hereof.
(v) As of the most recent valuation date for any Pension Plan
subject to Section 412 of the Code or Title IV of ERISA, other than any
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA,
the fair market value of the assets of such Pension Plan exceed the
present
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value (determined on the basis of reasonable assumptions employed by the
independent actuary for such Pension Plan) of the "benefit liabilities"
(within the meaning of Section 4001(a)(16) of ERISA) of such Pension
Plan.
(vi) The Company has heretofore provided CMC with access to
complete and correct copies of each contract of employment or consulting
agreement with any person listed in Schedule 5.8(a). Neither the Company
nor any of its subsidiaries is a party to, or is bound by, any Contract
with any labor union or association, including, without limitation, any
collective bargaining, labor or similar agreement. The Company and each
of its subsidiaries is in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment
and wages and hours and are not engaged in any unfair labor practices
except where the failure to so comply or the result of such unfair labor
practice, as the case may be, would not have a material adverse effect
on the Retained Company and its subsidiaries. Except as set forth in
Schedule 3.1(n):
(A) there is no unfair labor practice charge or complaint
against any of the Company and its subsidiaries pending, or to the
knowledge of the Company, threatened before the National Labor
Relations Board;
(B) there has not occurred nor, to the knowledge of the Company,
has there been threatened, a labor strike, request for
representation, work stoppage or lockout;
(C) there is no representation claim or petition pending before
the National Labor Relations Board respecting the employees of any of
the Company and its subsidiaries;
(D) no grievance or any arbitration proceeding arising out of
any collective bargaining agreement to which any of the Company and
its subsidiaries is a party is pending;
(E) no charges with respect to or relating to any of the Company
and its subsidiaries are pending before the Equal Employment
Opportunity Commission or any state, local or foreign agency
responsible for the prevention of unlawful employment practices;
(F) no claims relating to employment or loss of employment with
any of the Company and its subsidiaries are pending in any federal,
state or local court or in any other adjudicatory body and, to the
knowledge of Company, no such claims against any of the Company and
its subsidiaries have been threatened; and
(G) none of the Company and its subsidiaries has received notice
of the intent of any federal, state, local or foreign agency
responsible for the enforcement of labor or employment regulations to
conduct an investigation of or relating to any of the Company and its
subsidiaries, and no such investigation is in progress.
(o) State Takeover Statutes. The Board of Directors of the Company
has approved the Merger, the Distribution, this Agreement and the other
Documents and the transactions contemplated hereby and thereby and such
approval is sufficient to render inapplicable to the Merger, the
Distribution, this Agreement and the other Documents and the transactions
contemplated by this Agreement and such other Documents the provisions of
Section 912 of the NYBCL. To the best of the Company's knowledge, no other
state takeover statute or similar statute or regulation (other than state
banking or financial institution laws and regulations) applies or purports
to apply to the Merger, the Distribution, this Agreement, and the other
Documents or any of the transactions contemplated by this Agreement or such
other Documents.
(p) Rights Agreement. The Company has taken all necessary action to
(i) render the Rights inapplicable to the Merger, the Distribution and the
other transactions contemplated by this Agreement and the other Documents
and (ii) ensure that (A) neither CMC nor any of its affiliates is an
"Acquiring Person" (as defined in the Rights Agreement) and (B) neither a
Distribution Date nor a Triggering Event (each as defined in the Rights
Agreement) will occur by reason of the announcement or consummation of the
Merger or the consummation of any of the other transactions contemplated by
this Agreement and the other Documents.
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(q) Intellectual Property. Except for third-party PC software
installed on servers, workstations and personal computers, Schedule 3.1(q)
sets forth a list of all licenses held by the Processing Entities for all
application and system software utilized in the conduct of the Retained
Business. Except as set forth in Schedule 3.1(q), and subject to obtaining
any required third party consents, the Retained Company and its
subsidiaries own or have, or on the delivery of the License Agreement will
have, rights to use all systems and applications software reasonably
necessary to the conduct of the Processing Business and Related Back Office
in the manner currently being conducted and such use does not, and will not
immediately after the Effective Time, conflict with the rights of others,
except for such conflicts that individually or in the aggregate have not
had and are not reasonably likely to have a material adverse effect on MFSC
or on the Processing Entities taken as a whole.
(r) Taxes. Each of the Company and each of its subsidiaries has filed
all Federal income tax returns and all other material returns and reports
required to be filed by it and has paid (or the Company has paid on its
behalf) all material taxes required to be paid by it, and the most recent
financial statements contained in the Filed Company SEC Documents reflect
an adequate reserve for all taxes payable by the Company and its
subsidiaries for all taxable periods and portions thereof through the date
of such financial statements. Except as disclosed in Schedule 3.1(r), no
deficiencies for any taxes have been proposed, asserted or assessed against
the Company or any of its subsidiaries, and no requests for waivers of the
time to assess any such taxes are pending. The Federal income tax returns
of the Company and each of its subsidiaries consolidated in such returns
have been examined by and settled with the Service for all years through
1987. As used in this Agreement, "TAXES" shall include all Federal, state,
local and foreign income, property, sales, excise and other taxes, tariffs
or governmental charges of any nature whatsoever.
(s) Opinion of Financial Advisor. The Company has received the
opinion of CS First Boston Corporation, dated November 17, 1994, to the
effect that, as of such date, the consideration to be received in the
Merger by the Company's stockholders is fair to the Company's stockholders
from a financial point of view, a signed copy of which opinion has been
delivered to CMC.
(t) September Balance Sheets. Attached as Exhibit 3.1(t) hereto are
the unaudited balance sheets of the Processing Entities on a combined basis
and of MFSC on an individual basis as of September 30, 1994 (the "SEPTEMBER
BALANCE SHEETS"). Such balance sheets have been prepared in accordance with
the Accounting Principles (as set forth in Schedule 1.1A of the
Contribution Agreement) (except as may be indicated in the notes thereto)
and fairly present the combined assets and liabilities of the Processing
Entities and of MFSC as of the date thereof. Except as set forth in the
September Balance Sheets, none of the Processing Entities had as of the
date thereof any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) required by generally accepted
accounting principles to be set forth on a combined balance sheet of the
Processing Entities or a balance sheet of MFSC or in the notes thereto
which, individually or in the aggregate, could reasonably be expected to
have a material adverse effect on MFSC or on the Processing Entities taken
as a whole.
(u) Books of Account. The books of account of the Processing Entities
are maintained in all material respects in compliance with all applicable
legal and accounting requirements.
(v) Reports. Since December 31, 1993, the Company and its
subsidiaries have filed all reports, registrations and statements, together
with any amendments required to be made with respect thereto, that were
required to be filed with any applicable Federal, state, local or foreign
authorities, except where the failure to so file would not, individually or
in the aggregate, have a material adverse effect on the financial
condition, business or results of operations of MFSC or of the Processing
Entities taken as a whole (all such reports and statements are collectively
referred to herein as the "COMPANY REPORTS"). As of their respective dates,
the Company Reports complied with the statutes, rules, regulations and
orders enforced or promulgated by the regulatory authority with which they
were filed except where the failure to comply with such statutes, rules,
regulations and orders would not, individually or in the aggregate, have a
material adverse effect on the financial condition, business or results of
operations of MFSC or of the Processing Entities taken as whole.
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(w) Properties.
(i) Except (A) as may be reflected in the September Balance Sheets,
(B) for any lien for current taxes not yet delinquent, (C) for pledges
to secure deposits of states or municipalities and (D) for such other
Liens as do not materially affect the value of the property reflected in
the September Balance Sheets or acquired since the date of the September
Balance Sheets and which do not, individually or in the aggregate,
materially interfere with or impair the present and continued use of
such property, the Processing Entities have good title, free and clear
of any Liens, to all of the property reflected in the September Balance
Sheets, and all property acquired since the date of the September
Balance Sheets, except such property as has been disposed of (or, in the
case of receivables, collected or paid) in the ordinary course of
business consistent with past practice. As of September 30, 1994, all
the material tangible personal property owned or leased by the
Processing Entities was in good working condition (normal wear and tear
excepted) and was suitable in all material respects for the purposes for
which it was being used. Subject to any necessary consents required with
respect to any Data Processing Licenses, and to appropriate arrangements
with affiliates of New Trustco for the provision of certain services in
the states of California and Oregon, and except for the Acquired Assets
specifically identified in Section 2.2(a) of the Contribution Agreement
and the Acquired Third Party Service Agreements (as defined in the
Contribution Agreement), the Retained Assets and the rights granted
under the License Agreement are adequate to enable the Processing
Entities to conduct the Retained Business immediately following the
Effective Time in substantially the same manner as conducted by the
Company and its subsidiaries immediately prior to the Effective Time
(without taking into account regulatory issues and contractual
obligations to which CMB, or its properties, are subject).
(ii) Schedule 3.1(w) attached hereto sets forth a list as of the
date hereof of all leases of real property, identifying separately each
lease, to which any of the Processing Entities are a party or by which
any of the Processing Entities are bound (collectively, the "LEASES").
The Leases are in full force and effect and neither the Company nor any
subsidiary has received a notice of default or termination with respect
to such Leases. On the date hereof, except as set forth on Schedule
3.1(w) or, on the Closing Date, except as set forth in such Schedule or
as disclosed in the Company Bring Down Certificates, there has not
occurred any event that constitutes, or with the giving of notice or the
passage of time or both, would constitute a breach by the Company or a
subsidiary of the Company of, or default by the Company or a subsidiary
of the Company in, the performance of any covenant, agreement or
condition contained in any Lease, which breach or default would,
individually or in the aggregate, have a material adverse effect on MFSC
or on the Processing Entities taken as a whole. On the date hereof,
except as set forth in Schedule 3.1(w), or, on the Closing Date except
as set forth in such Schedule or, as disclosed in the Company Bring Down
Certificate, the Company has no knowledge of any obligation on its part,
or the part of its subsidiaries, to make material improvements or
material extraordinary payments with respect to such leased premises.
The Leases constitute all the real property reasonably necessary for the
conduct of the Retained Business in the manner heretofore conducted.
None of the Processing Entities owns any real property. All of the real
properties that are subject to the Leases and all of the fixtures and
other improvements thereon are in good operating condition and have been
adequately maintained and neither the Company nor any of its
subsidiaries has received any notice within the last two years that it
is in material violation of any applicable building code, zoning
ordinance or other law or regulation, other than notices as to
violations which have been remedied.
(x) Absence of Certain Conditions. On the date hereof, except as set
forth on Schedule 3.1(x) or, as of the Closing Date, except as set forth in
such Schedule or as disclosed in the Company Bring Down Certificate, there
exists no material "out of balance" or similar condition with respect to
any Investment Company Customer (as defined in Section 3.1(y)) to which
MFSC furnishes Administration Services (as defined in the Post Closing
Covenants Agreement). For purposes of this clause (x), material shall mean
a condition that would cause a net asset value change in any unit of at
least 1/2 of 1% of net asset value.
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(y) Investment Companies.
(i) As used in this Agreement, the term "INVESTMENT COMPANY" shall
have the meaning provided in the Investment Company Act of 1940, as
amended (the "Investment Company Act"), provided that for purposes of
this Agreement the term Investment Company shall include any person that
would be an investment company, as defined in that Act, but for the
exemption contained in Section 3(c)(1), the final clause of Section
3(c)(3) or Section 3(c)(11) of the Investment Company Act. Schedule
3.1(y) is a list, by sponsor, of each Customer which is an Investment
Company ("INVESTMENT COMPANY CUSTOMER") showing, as of September 30,
1994, the type, the net asset value, and the number of stockholders and
other holders of beneficial interests of such Investment Company.
(ii) Except as set forth on Schedule 3.1(y) hereto, no Investment
Company Customer for which any of the Processing Entities has, or has
had, responsibility for preparing or for filing any Federal, State or
local tax return has, since the Processing Entities commenced preparing
or filing such Customers' returns or, to the Company's best knowledge,
since January 1, 1985, changed its fiscal year. In the case of each U.S.
Investment Company Customer identified in Schedule 3.1(y) that has
elected to be treated as a "regulated investment company" under
Subchapter M of Chapter 1 of Subtitle A of the Code and with respect to
which any of the Processing Entities has, or has had, responsibility for
preparing or filing Federal tax returns, to the best knowledge of the
Company, such Investment Company Customer has, at all times since the
end of the most recent taxable year of such Investment Company Customer
that has been closed and for which the statute of limitations for
assessments has expired, qualified as a "regulated investment company"
and each such Investment Company Customer has complied with all
applicable provisions of law necessary to preserve and retain such
Investment Company Customer's election and status as a regulated
investment company or has determined not to retain such status.
(iii) Since January 1, 1990, none of the information or data
furnished by the Company or any of its subsidiaries for inclusion in any
registration statement filed under the Securities Act with respect to
the shares of any U.S. Investment Company Customer contained, as of the
effective date of the registration statement, any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein in order to make the statements therein not misleading. None of
the information furnished by the Company for inclusion in any annual
report, semi-annual report, transition reports, prospectus, proxy
statements or sales literature of any Investment Company Customer, or
any amendment or supplement, as of the respective dates of the report or
other document, included an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements made therein, in the light of the circumstances under which
they were made, not misleading.
(iv) Except as set forth in Schedule 3.1(y), none of the
transactions contemplated by this Agreement or the other Documents will
require the approval of the stockholders, holders of beneficial
interests or other holders of the equity of any Investment Company
Customer or the boards of directors or the trustees of such Investment
Company Customers as a condition to the continued validity of any
underlying Customer Agreement.
(v) Insofar as any of the Processing Entities has legal liability
under an administration, custody, or similar agreement, or otherwise,
for compliance with the matters covered by the following, since January
1, 1990: (A) each of the Processing Entities has or will have on or
prior to the Effective Time, properly prepared in all material respects,
executed and timely filed, all federal, state and local tax returns for
income, franchise, sales, withholding, property, excise and other taxes
applicable to any Investment Company Customer having a due date (taking
into account any extension granted prior to the Effective Time) on or
prior to the Effective Time, and has or will have paid all taxes,
assessments, fees and other governmental charges shown on said returns
or otherwise required to be paid by any Investment Company Customer as
of or prior to the Effective Time; (B) all of such returns are complete
and accurate in all material respects and have been prepared
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substantially in accordance with all applicable legal requirements; (C)
no tax liabilities, disallowances or assessments relating to any
Investment Company Customer have been assessed or proposed or will have
been assessed or proposed as of the Effective Time and none of the
Retained Company or any of its subsidiaries is aware of any basis for
any such assessment; (D) except as set forth in Schedule 3.1(y), the
Federal income tax returns for each Investment Company Customer for
prior periods have not been audited by the Service; (E) any amounts
credited to the reserve account of an Investment Company Customer as a
provision for taxes is adequate for the period to which it pertains; (F)
without limiting the foregoing, each Unit Trust (as defined in the
Contribution Agreement) which does not qualify as a grantor trust under
Subpart E of Subchapter J of the Code, qualifies as a "regulated
investment company" under Section 851 of the Code, and has so qualified
during its entire existence and (G) none of the Unit Trusts is or has
been liable for tax under Section 4982 of the Code.
(vi) Each of the representations and warranties set forth in this
Section 3.1(y), other than those set forth in clauses (i) or (iv), is
made only insofar as the failure of such representation and warranty to
be true with respect to any matter or series of related matters would
have a material adverse effect on MFSC or on the Processing Entities
taken as a whole.
(z) Customers. Schedule 3.1(z) lists with respect to each line of
business (i.e., IAS Business, MFS Business and UIT Business) each current
Customer (or major sponsor in the case of Unit Trusts) and sets forth with
respect to each Customer (or major sponsor in the case of Unit Trusts or
sponsor in the case of any mutual fund complex in the case of MFSC) as of
September 30, 1994:
(i) the approximate aggregate market value (or par value in the
case of Unit Trusts) of net assets held in "Custody" or "Assets
Administered" with the asset values for each of the three categories
separately identified;
(ii) for each MFS Customer, the aggregate market value of net
assets subject to (A) fund administration, (B) fund accounting services
and (C) transfer agency services;
(iii) for each MFS Customer, the fees (segmented by "fund
accounting fees," "fund administration fees," "transfer agency fees" and
"custody fees") earned by the Company for the three quarters ended
September 30, 1994;
(iv) for each IAS Customer, "Fiduciary or other fees" earned by the
Company for the three quarters ended September 30, 1994;
(v) for each UIT Customer, "UIT trustee fees" earned by the Company
for the three quarters ended September 30, 1994; and
(vi) any revenues not specifically allocated to individual
Customers or sponsors separately segmented for each of the IAS Business,
MFS Business and UIT Business.
(aa) Unit Investment Trusts. USTNY is qualified to act as a trustee
of a registered unit investment trust in accordance with the requirements
of Section 26(a)(1) of the Investment Company Act and each trust agreement
relating to a series of a unit investment trust and the standard terms and
conditions incorporated therein. Each of USTNY and MFSC is a transfer agent
registered under Section 17A of the Exchange Act. USTNY is, and immediately
prior to the Effective Time will be, the duly appointed and acting trustee
of each of the Unit Trusts. Except as set forth on Schedule 3.1(z), as of
September 30, 1994, (i) the "calculated lag" for each Customer varied by no
more than $0.05 per $1,000 unit from the "trading lag", (ii) there was no
material difference (defined as 1/2 of 1% of the net asset value) between
the net asset value in the most recent audited financial statements for
each trust and the comparable net asset value used for secondary market
trading and (iii) there is no misstatement of a Customer account (including
an Investment Company account, asset, liability or expense (including trust
related expenses)) that exceeds generally accepted standards of materiality
applicable to the Customer.
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(ab) Standards.
(i) Each of the Retained Company and its subsidiaries maintains
records that in all material respects reflect its and, in cases in which
it holds Customer assets, its Customers' transactions, dispositions and
acquisitions of assets, and receipt of funds and maintains a system of
internal accounting controls, policies and procedures sufficient to make
it reasonable to expect that (A) such transactions are executed in
accordance with its management's general or specific authorization, (B)
such transactions are recorded in conformity with any applicable
accounting principles and in such a manner as to permit preparation of
financial statements in accordance with any applicable accounting
principles and any other criteria applicable to such statements and to
maintain accountability for assets, (C) access to assets is permitted
only in accordance with management's general or specific authorization,
(D) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences and (E) records of such transactions are
retained, protected and duplicated in accordance with prudent banking
and fiduciary practices and applicable regulatory requirements.
(ii) The Company has made available to CMC true, accurate and
complete copies of all internal and external audit control
recommendations and exception items, and deficiency letters from
Governmental Entities, concerning all Customers at any time since
January 1, 1992, and of the response of the Company and its subsidiaries
thereto. Except as set forth on Schedule 3.1(ab), the Company and its
subsidiaries have, to the extent and at or before the times set forth in
such responses, materially complied with or otherwise substantively
addressed such recommendations, exceptions and deficiency items.
(iii) The data and transaction processing services of the Retained
Company are of the quality generally maintained as of the date of this
Agreement by securities processing businesses similarly situated and are
generally adequate for the performance of the Processing Business and
Related Back Office. The Company has delivered to CMC true, accurate and
complete copies of any management reports and any report cards prepared
by the Company or any of its subsidiaries or by any Customer in
connection with the 15 largest (by aggregate revenues billed) Customers
of the Retained Business at any time since August 11, 1994. Schedule
3.1(ab) sets forth for each business unit of the Retained Business as of
the date or dates specified, the following information (in each case by
number of items and dollar amount): (A) as of September 30, 1994,
transactions (financial or otherwise) not processed on the same day, (B)
as of September 30, 1994, reject rate by quality control by error
reason, (C) as of September 30, 1994, any kick-out transactions, (D) as
of September 30, 1994, adjustment transactions processed, (E) as of
September 30, 1994, "as of" trades processed and reasons therefor and
(F) as of September 30, 1994, financial transactions processed,
including, without limitation, purchases, exchanges, transfers and
redemptions by account.
(ac) Accuracy of Representations and Warranties. No representation or
warranty made by the Company or any of its subsidiaries in this Agreement
or the Schedules hereto (which are an integral part hereof) is false or
misleading in any material respect or contains any material misstatement of
fact.
SECTION 3.2. REPRESENTATIONS AND WARRANTIES OF CMC. CMC represents and
warrants to the Company as follows:
(a) Organization, Standing and Corporate Power. CMC is a bank holding
company registered under the Bank Holding Company Act. Each of CMC and CMB
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, in the case of CMC, and the United
States, in the case of CMB, and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
business as now being conducted. Each of CMC and CMB is duly qualified or
licensed to do business and in good standing in each jurisdiction in which
the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except
where the failure to be so duly qualified or licensed and in good standing
would not in the aggregate have a material adverse effect on CMC and its
subsidiaries taken as a whole.
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True, accurate and complete copies of the CMC's certificate of
incorporation and by-laws, as in effect on the date hereof, including all
amendments thereto, have heretofore been made available to the Company.
(b) Capital Structure. As of the Business Day immediately preceding
the date of this Agreement, the authorized capital stock of CMC consists of
500,000,000 shares of CMC Common Stock and 100,000,000 shares of preferred
stock, without par value. At the close of business on September 30, 1994,
(i) 181,289,886 shares of CMC Common Stock and 56,000,000 shares of
preferred stock were issued and outstanding, (ii) 4,000,000 shares of CMC
Common Stock were held by CMC in its treasury, (iii) 19,011,983 shares of
CMC Common Stock were reserved for issuance pursuant to The Chase Lincoln
First Bank, N.A. 1982 Incentive Stock Plan, The Chase Manhattan 1982
Long-Term Incentive Plan, The Chase Manhattan 1987 Long-Term Incentive Plan
and The Chase Manhattan 1994 Long-Term Incentive Plan, 3,310,875 shares of
CMC Common Stock were reserved for issuance pursuant to warrants issued in
settlement of a legal action, 14,000,000 shares of CMC Common Stock were
reserved for issuance pursuant to The Chase Manhattan Stock Option Program
for Employees and 9,596,151 shares of CMC Common Stock were reserved for
issuance pursuant to CMC's Dividend Reinvestment and Stock Purchase Plan
and (iv) 2,500,000 shares of CMC Junior Participating Preferred Stock were
reserved for issuance in connection with the rights to purchase shares of
CMC Junior Participating Preferred Stock pursuant to the Rights Agreement
dated as of February 15, 1989, between CMC and Mellon Securities Trust
Company, as successor Rights Agent. Except as set forth above, at the close
of business on the Business Day immediately preceding the date of this
Agreement, no shares of capital stock or other voting securities of CMC
were issued, reserved for issuance or outstanding. All outstanding shares
of capital stock of CMC are, and all shares which may be issued pursuant to
this Agreement will be, when issued, duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights. There are not
any bonds, debentures, notes or other indebtedness of CMC having the right
to vote (or convertible into, or exchangeable for, securities having the
right to vote) on any matters on which stockholders of CMC may vote. Except
as set forth above, as of the close of business on the Business Day
immediately preceding the date of this Agreement, there are not any
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which CMC or any of its
subsidiaries is a party or by which any of them is bound obligating CMC or
any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting
securities of CMC or obligating CMC or any of its subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. As of the close
of business on the Business Day immediately preceding the date of this
Agreement, there are not any outstanding contractual obligations of CMC or
any of its subsidiaries to repurchase, redeem or otherwise acquire any
shares of capital stock of CMC.
(c) Authority; Noncontravention. CMC has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the other Documents to which it is a party and the
consummation of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of CMC. This
Agreement has been duly executed and delivered by CMC and assuming this
Agreement constitutes a valid and binding obligation of the Company,
constitutes a valid and binding obligation of CMC, enforceable against it
in accordance with its terms. None of the execution and delivery of this
Agreement, the other Documents to which CMC is a party or the consummation
of the transactions contemplated hereby and thereby and compliance with the
provisions of this Agreement or such other Documents will conflict with, or
result in any violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation
or acceleration of any obligation or to loss of a material benefit under,
or result in the creation of any Lien upon any of the properties or assets
of CMC or CMB under, (i) the certificate of incorporation or by-laws of CMC
or the comparable charter or organizational documents of any other
subsidiary of CMC (including CMB), (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license to which CMC or CMB is a party or by which
CMC or CMB or any of their respective assets are bound or (iii) subject to
the governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law,
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ordinance, rule or regulation applicable to CMC, CMB or their respective
properties or assets other than, in the case of clauses (ii) and (iii), any
such conflicts, violations, defaults, rights or Liens that individually or
in the aggregate would not (x) have a material adverse effect on CMC and
its subsidiaries taken as a whole, (y) materially impair the ability of CMC
to perform its obligations under this Agreement or the other Documents to
which it is a party or (z) prevent the consummation of any of the
transactions contemplated by this Agreement or such other Documents to
which it is party. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by or with respect to CMC or any subsidiary of CMC in connection
with the execution and delivery of this Agreement and any of the other
Documents to which it is a party, or the consummation by CMC or CMB of any
of the transactions contemplated hereby and thereby except for (i) filings
pursuant to the Bank Holding Company Act, (ii) the filing with the SEC of
the Form S-4 and such reports under Sections 13 and 16(a) of the Exchange
Act as may be required in connection with this Agreement and the
transactions contemplated by this Agreement, (iii) the filing of the
Certificate of Merger with the New York Secretary of State and the Delaware
Secretary of State and appropriate documents with the relevant authorities
of other states in which the Company is qualified to do business, (iv) such
filings as may be required in connection with the New York State Real
Property Transfer Tax, the New York State Real Property Transfer Gains Tax
and the New York City Real Property Transfer Tax (collectively, the "GAINS
TAXES"), (v) filings or applications with (A) the Board of Governors of the
Federal Reserve System under the Bank Holding Company Act with respect to
the Merger; (B) the Office of the Comptroller of the Currency ("OCC") in
connection with (I) a possible conversion of Chase Cal (as defined in
Section 5.15) into a bank, (II) the Bank Merger, and (III) the assumption
by Chase Cal of custody relationships of UST-Cal in accordance with Section
5.15; (C) the FDIC in connection with a possible conversion of Chase Cal
into a bank; (D) New York State Department of Banking with respect to the
acquisition of USTNY and (E) various state regulatory authorities, (vi)
such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under the "takeover" or "blue
sky" laws of various states, (vii) such filings, consents or approvals as
may be required in connection with qualifying Chase Cal pursuant to Section
5.15 and (viii) such other consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to obtain or
make could not reasonably be expected to have a material adverse effect on
CMC and its subsidiaries taken as a whole.
(d) SEC Documents; Undisclosed Liabilities. CMC has filed all
required reports, schedules, forms, statements and other documents with the
SEC since January 1, 1994 (the "CMC SEC DOCUMENTS"). As of their respective
dates, the CMC SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder applicable
to such CMC SEC Documents, and none of the CMC SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except to the extent that information contained in any CMC SEC
Document has been revised or superseded by a later CMC SEC Document, none
of the CMC SEC Documents contained any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of CMC included in the CMC SEC Documents comply as to form in
all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles
(except, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC) applied on a basis consistent with CMC's financial statements
included in its CMC SEC Documents (except as may be indicated in the notes
thereto) and fairly present the consolidated financial position of CMC and
its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the CMC SEC Documents, neither CMC nor
any of its subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) required by generally
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accepted accounting principles to be set forth on a consolidated balance
sheet of CMC and its consolidated subsidiaries or in the notes thereto and
which, individually or in the aggregate, could reasonably be expected to
have a material adverse effect on CMC and its subsidiaries taken as a
whole.
(e) Information in Disclosure Documents and Registration
Statements. None of the information supplied by CMC or its representatives
for inclusion or incorporation by reference in (i) the Form S-4 will, at
the time the Form S-4 becomes effective under the Securities Act and at the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were
made, not misleading and (ii) the Proxy Statement will, at the date mailed
to stockholders and at the time of the meeting of the Company's
stockholders to be held in connection with the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The
Form S-4 will comply as to form in all material respects with the
provisions of the Securities Act and the rules and regulations thereunder,
except that no representation is made by CMC with respect to statements
made therein based on information supplied by the Company for inclusion in
the Form S-4 or with respect to information concerning the Company or any
of its subsidiaries incorporated by reference in the Form S-4.
(f) Absence of Certain Changes or Events. Except as disclosed in the
CMC SEC Documents filed and publicly available prior to the date of this
Agreement (the "FILED CMC SEC DOCUMENTS") or, as of the Closing Date, as
disclosed in the CMC SEC Documents filed and publicly available before the
Closing Date or in the CMC Bring Down Certificate, (i) since the date of
the most recent audited financial statements included in the Filed CMC SEC
Documents, there has not been any material adverse change in CMC and its
subsidiaries taken as a whole or any event affecting CMC and its
subsidiaries that could reasonably be expected to have such a material
adverse effect, and (ii) there has not been (A) any split, combination or
reclassification of any of CMC's capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, (B) any damage,
destruction or loss, whether or not covered by insurance, that has had or
is likely to have a material adverse effect on CMC and its subsidiaries
taken as a whole, or (C) any change in accounting methods, principles or
practices by CMC materially affecting its assets, liabilities or business,
except insofar as may have been required (in the opinion of the CMC's
independent accountants) by a change in generally accepted accounting
principles.
(g) Litigation. Except as disclosed in the Filed CMC SEC Documents
or, as of the Closing Date, as disclosed in CMC SEC Documents filed and
publicly available before the Closing Date or in the CMC Bring Down
Certificate, there is no claim, investigation, suit, action or proceeding
pending or, to the knowledge of CMC, threatened, against any of CMC or any
of its subsidiaries before or by any Governmental Entity or arbitrator
that, individually or in the aggregate, could reasonably be expected to (i)
have a material adverse effect on CMC and its subsidiaries taken as a
whole, (ii) materially impair the ability of CMC to perform its obligations
under this Agreement or any of the other Documents to which it is a party
or (iii) prevent, delay or alter the consummation of any or all of the
transactions contemplated hereby or thereby, nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator
outstanding against CMC or any of its subsidiaries having, or which could
reasonably be expected to have, any such effect.
(h) Agreements with Bank Regulators. Neither CMC nor CMB is a party
to any written agreement or memorandum of understanding with, or a party to
any commitment letter or similar undertaking to, or is subject to any
order, decree or directive by, or is a recipient of any extraordinary
supervisory letter from, or since January 1, 1993 has been required to
adopt any board resolution by, any Regulator which restricts materially the
conduct of its business, or in any manner relates to its capital adequacy,
its credit policies or its management, except for those the existence of
which has been disclosed to the Company prior to the date of this
Agreement, nor has CMC or CMB been advised by any Regulator that it is
contemplating issuing or requesting (or is considering the appropriateness
of issuing or requesting) any such order, decree, agreement, memorandum or
understanding, extraordinary supervisory
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letter, commitment letter or similar submission, or requiring (or is
considering the appropriateness of requiring) the adoption of any such
board resolution, except as disclosed in writing to the Company prior to
the date hereof.
(i) Compliance with Applicable Laws. CMC and its subsidiaries hold
all permits, licenses, variances, exemptions, orders and approvals of, and
have made all filings, applications and registrations with, all
Governmental Entities which individually or in the aggregate are material
to the operation of the businesses of CMC and its subsidiaries taken as a
whole (the "CMC PERMITS"). All CMC Permits are in full force and effect in
all material respects. CMC and its subsidiaries are in compliance with the
terms of the CMC Permits, except where the failure so to comply would not
have a material adverse effect on CMC and its subsidiaries taken as a
whole. Except as disclosed in the Filed CMC SEC Documents or, as of the
Closing Date, as disclosed in CMC SEC Documents filed and publicly
available before the Closing Date or in the CMC Bring Down Certificate, the
businesses of CMC and its subsidiaries are not being conducted in violation
of any law, ordinance or regulation of any Governmental Entity, except for
possible violations which individually or in the aggregate do not, and
could not reasonably be expected to, have a material adverse effect on CMC
and its subsidiaries taken as a whole. Except for routine examinations by
Bank Regulators, as of the date of this Agreement, to the knowledge of CMC,
no investigation by any Governmental Entity with respect to CMC or any of
its subsidiaries is pending or threatened, other than, in each case, those
the outcome of which could not reasonably be expected to have a material
adverse effect on CMC and its subsidiaries taken as a whole.
(j) Consummation of Transactions. CMC has not received notice from
any Federal or state governmental agency or authority indicating that it
would oppose or not grant or issue its consent or approval, if required,
with respect to the transactions contemplated by this Agreement. To the
best knowledge of CMC, no event has occurred, and no condition exists,
which would materially and adversely affect its ability to effect the
transactions contemplated hereby or to make payment of the Merger
Consideration at the time it would be required to do so under this
Agreement.
(k) Voting Requirements. No action by the stockholders of CMC is
required to approve this Agreement and the transactions contemplated by
this Agreement.
(l) Brokers. No broker, investment banker, financial advisor or other
person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by or on behalf of CMC.
(m) Accuracy of Representations and Warranties. No representation or
warranty made by CMC in this Agreement is false or misleading in any
material respect or contains any material misstatement of fact.
ARTICLE IV
COVENANTS
SECTION 4.1. COVENANTS OF THE COMPANY WITH RESPECT TO THE RETAINED
BUSINESS. During the period from the date of this Agreement and continuing
until the Effective Time, the Company agrees as to itself and its subsidiaries
that, except for the Distribution and the other transactions expressly provided
for in the Distribution Agreement and the Contribution Agreement, as expressly
contemplated or permitted by this Agreement, or to the extent that CMC shall
otherwise consent in writing:
(a) Ordinary Course. The Company and its subsidiaries shall each
carry on the Retained Business in the usual, regular and ordinary course
consistent with past practice and use its reasonable efforts to preserve
intact the present business organization, keep available, consistent with
past practice, the services of Prospective Retained Employees (as defined
in Section 5.8(a)) and preserve the relationships with customers, suppliers
and others having business dealings with the Retained Business, it being
understood that (i) certain employees of the Retained Business will also be
engaged in activities for the businesses to be contributed and distributed
to New Trustco and New Holdings, (ii) the failure of any
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employees of the Retained Business to remain employees of the Retained
Business or become employees of CMC or any affiliate of CMC shall not
constitute a breach of this covenant and (iii) the Retained Company and its
subsidiaries may comply with their respective contractual obligations under
the contracts to which they are parties (provided that the execution of
such contracts by the Retained Company or the applicable subsidiary does
not constitute a breach of, or default under, this Agreement).
(b) Changes in Stock. The Company shall not, nor shall it permit any
subsidiaries of the Retained Company to, nor shall the Company propose to,
(i) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock (other than
phantom share units required to be issued under any Benefit Plan) or (ii)
other than in connection with the exercise of stock options outstanding as
of the date of this Agreement under any Benefit Plan, repurchase, redeem or
otherwise acquire, or permit any subsidiary to repurchase, redeem or
otherwise acquire, any shares of capital stock of the Company or any of its
subsidiaries; provided, however, that the foregoing shall not prohibit the
redemption by MFSC of capital stock issued to the Company or the conversion
of debt or preferred equity of MFSC issued to the Company into common
equity in connection with or in anticipation of the transactions
contemplated by the Distribution Agreement.
(c) Issuance of Securities. Except as set forth in Schedule 4.1(c),
the Retained Company shall not, nor shall the Retained Company permit any
of its subsidiaries to, issue, transfer or sell, or authorize or propose or
agree to the issuance, transfer or sale by the Retained Company or any such
subsidiary of, any shares of its capital stock of any class or other equity
interests or any securities convertible into, or any rights, warrants,
calls, subscriptions, options or other rights or agreements, commitments or
understandings to acquire, any such shares, equity interests or convertible
securities, other than (i) the issuance of shares of Company Common Stock
(x) upon the exercise of stock options outstanding as of the date of this
Agreement pursuant to any Benefit Plan, (y) to make any payment under any
Benefit Plan that is required to be made in the form of shares of Company
Common Stock or (z) to make acquisitions of capital stock or assets of
another entity provided that such acquisition is permitted pursuant to
clause (e) of this Section 4.1 and (ii) issuances by a wholly owned
subsidiary of its capital stock to its parent.
(d) Governing Documents. The Company shall not, nor shall it permit
any subsidiaries of the Retained Company to, amend or propose to amend its
certificate of incorporation (or, if applicable, its articles of
incorporation or other charter document) or by-laws.
(e) No Acquisitions. The Retained Company shall not, nor shall it
permit any of its subsidiaries to, (i) acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial equity
interest in or substantial portion of the assets of, or by any other
manner, any business or any corporation or other business organization that
would be directly or indirectly acquired by CMC in the Merger, (ii)
consummate any acquisition within 3 business days before or 1 business day
after the Closing Date, or (iii) make any other investment in any person
(whether by means of loan, capital contribution, purchase of capital stock,
obligations or other securities, purchase of all or any integral part of
the business of the person or any commitment or option to make an
investment or otherwise) that would be directly or indirectly acquired by
CMC in the Merger except for investments by the Retained Company in its
existing wholly owned subsidiaries and investments made in the ordinary
course of business consistent with past practices in an aggregate amount
not exceeding $250,000.
(f) No Dispositions. The Retained Company shall not, nor shall it
permit any of its subsidiaries to, sell, lease, license, encumber or
otherwise dispose of, or agree to sell, lease, license, encumber or
otherwise dispose of, any of the assets of the Retained Business other than
in the ordinary course of business consistent with past practice and the
sale or other disposition of obsolete equipment.
(g) Indebtedness. The Retained Company shall not, nor shall it permit
any of its subsidiaries to, incur (which shall not be deemed to include (i)
refinancings of existing indebtedness; provided that, such refinancings
shall not increase the aggregate amount of indebtedness, or contain any
terms which are more restrictive in any material respect on the Retained
Company or the applicable subsidiary or
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(ii) deposits accepted in the ordinary course of business by the Retained
Company and its subsidiaries) any indebtedness for borrowed money or any
obligation evidenced by a promissory note or other instrument or guarantee
any such indebtedness or obligation or issue or sell any debt securities or
warrants or rights to acquire any debt securities of the Retained Company
or any of its subsidiaries or guarantee any obligations of others other
than (x) in the ordinary course of business consistent with past practice,
(y) pursuant to existing credit or guaranty agreements or (z) indebtedness
(including indebtedness incurred to fund the in substance defeasance of the
8% Notes due 1996) incurred pursuant to a written agreement that provides
that such indebtedness may be assumed by New Holdings or a subsidiary of
New Holdings and that, upon such assumption, the Retained Company and its
subsidiaries shall have no obligation or liability in respect of such
indebtedness.
(h) Benefit Plans. Except as otherwise provided in or contemplated by
this Agreement, the Distribution Agreement or the Contribution Agreement,
the Company shall not, nor shall it permit any of its subsidiaries to, (i)
adopt any Benefit Plan or amend any Benefit Plan other than a Retained Plan
to the extent such adoption or amendment (x) would create or increase any
liability or obligation on the part of the Company or any of its
subsidiaries that will not either (A) be fully performed or satisfied prior
to the Effective Time or (B) be assumed by New Holdings or New Trustco
pursuant to the Contribution Agreement or the Distribution Agreement or (y)
would increase the number of shares of Company Common Stock (if any) to be
issued under such Benefit Plan; (ii) amend any Retained Plan in any manner
that would increase the liabilities or obligations of the Company or any of
its subsidiaries under such Retained Plan or would increase the number of
shares of Company Common Stock to be issued under such Retained Plan or
(iii) except for normal increases in the ordinary course of business
consistent with past practice, increase the base salary of any Prospective
Retained Employee. Notwithstanding the foregoing, it is understood and
agreed that the Annual Incentive Plan of U.S. Trust Corporation may be
amended so as (i) to provide that each employee who terminated employment
prior to January 1, 1992 shall be entitled at the Effective Time to receive
payment with respect to the then outstanding balance of his or her account
under the plan in an amount up to 120% of such balance and (ii) to increase
the rate of interest to be credited to participants' accounts for 1994 to
compensate for extraordinary charges to the Company's earnings for 1994
required to be recognized in connection with the Merger.
(i) Other Actions. Notwithstanding the fact that such action might
otherwise be permitted pursuant to this Section 4.1, the Retained Company
shall not, nor shall it permit any of its subsidiaries to, take any action
that would or is reasonably likely to result in any of the conditions to
the Merger set forth in Article VI not being satisfied or would materially
impair the ability of the Company to consummate the Distribution or the
Merger or USTNY to consummate the transactions contemplated by the
Contribution Agreement and the Distribution Agreement in accordance with
the terms thereof, or materially delay such consummation.
(j) Advice of Changes; Filings. The Company shall promptly advise CMC
orally and in writing of any change or development or combination of
changes or developments that would cause the representation in Section
3.1(i) to be untrue. The Company shall promptly provide CMC (or its
counsel) copies of all filings (other than those filings, or portions
thereof, which CMC has no reasonable interest in obtaining in connection
with the Merger or the transactions contemplated hereby) made by the
Company or any of its subsidiaries with any Federal, state or foreign
Governmental Entity in connection with this Agreement, the Distribution
Agreement, the Contribution Agreement and the transactions contemplated
hereby and thereby.
(k) Accounting Policies and Procedures. The Retained Company will not
and will not permit any of its subsidiaries to change any of its accounting
principles, policies or procedures, except such changes as may be required,
in the opinion of Coopers & Lybrand L.L.P., the Company's independent
accountants, by generally accepted accounting principles.
(l) New Trustco and New Holdings. The Company shall (i) use its best
efforts to organize New Holdings and New Trustco under the laws of the
State of New York and furnish all information required
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in connection with approvals of or filings with Bank Regulators and other
Governmental Entities in order to organize New Holdings as a bank holding
company and New Trustco as a bank and trust company, (ii) not engage in or
allow transfers of assets or liabilities or engage or enter into other
transactions between the Retained Company and its subsidiaries, on the one
hand, and New Holdings and its subsidiaries, on the other hand, except as
contemplated hereby and by the Distribution Agreement, the Contribution
Agreement and the agreements referred to therein, (iii) abide and cause New
Holdings and its subsidiaries to abide by their respective obligations
under the Distribution Agreement, the Contribution Agreement and the
agreements referred to therein and (iv) not terminate or amend, or waive
compliance with any obligations under, the Distribution Agreement, the
Contribution Agreement or any of the agreements referred to therein.
(m) Liens. The Company shall not, and shall not permit any of its
subsidiaries to, create, incur or assume any Lien on the Retained Assets
(as defined in the Contribution Agreement), except for Liens created,
incurred or assumed in the ordinary course of business consistent with the
past practices of the Company and its subsidiaries.
(n) Material Contracts. The Retained Company shall not, and shall not
permit its subsidiaries to, (i) enter into other than in the ordinary
course of business, any material contract relating to the Acquired Assets
or Assumed Liabilities that cannot be assigned, free of liability to the
Retained Company and its subsidiaries, to New Holdings or one of its
subsidiaries in connection with the transactions contemplated in the
Distribution Agreement and Contribution Agreement or (ii) enter into,
terminate, or modify in any material respect any Material Contract or any
Customer Agreement other than in the ordinary course of business consistent
with past practice and, in the case of any Customer Agreement, without
consultation with CMC. In addition, the Company shall notify CMC in writing
at least 30 days before making, or in any way becoming committed to make,
any capital expenditure, or series of related capital expenditures relating
to the Processing Business and Related Back Office, in excess of $50,000.
SECTION 4.2. COVENANTS OF THE COMPANY. During the period from the date of
this Agreement and continuing to the Effective Time, the Company agrees as to
itself and its subsidiaries that, except as CMC shall otherwise agree in writing
or as provided in the documents:
(a) Change in Business. The Company shall not and shall not permit
its subsidiaries to make any change in the lines of business engaged in by
(i) the Retained Company or any of its subsidiaries as of the date hereof
or (ii) the Company and any of its subsidiaries as of the date hereof that
would, based on the facts and circumstances and conduct of the particular
business, materially increase the potential liability of the Retained
Company or any of its subsidiaries under statutes or legal doctrines
permitting the imposition of liability on a parent corporation in respect
of the liabilities of its subsidiaries.
(b) Actions Affecting Merger or Distribution. The Company shall not,
and shall not permit any of its subsidiaries to, take any action,
including, without limitation, with respect to the terms of the certificate
of incorporation or by-laws of New Holdings, that would or is reasonably
likely to result in any of the conditions to the Merger set forth in
Article VI not being satisfied or that would materially impair the ability
of the Company to consummate the Distribution in accordance with the terms
of the Distribution Agreement or the Merger in accordance with the terms
hereof or would materially delay such consummation or that would disqualify
the Distribution as a tax-free spin-off within the meaning of Section 355
of the Code.
(c) Certain Indebtedness. The Company shall, or shall cause its
subsidiaries to, redeem or effect an in substance defeasance of the
outstanding indebtedness of the Company and its subsidiaries set forth in
Schedule 4.2(c).
(d) Delivery of Certain Information. The Company shall furnish to
CMC:
(i) as soon as available and in any event within 20 days after the
end of each month, (A) reports of the end of month and average monthly
balances of loans and overdrafts, book and collected deposits and funds
able to be invested, (B) a monthly receivables aging report for the
Processing Entities, (C) management profitability reports for the
Processing Businesses and
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management reports for the Computer Services Division, Securities
Services and Trust Operations and Bank Operations units and (D) a
balance sheet as of the end of each month for the Company and its
subsidiaries on a consolidated basis, in each case, substantially in the
form delivered to CMC prior to the date of this Agreement;
(ii) as soon as available, approved 1994 and 1995 capital budgets
for the Processing Business and the Related Back Office (as defined in
the Contribution Agreement) and related reports, in each case in the
form prepared by the Company and its subsidiaries in the ordinary course
of their business and consistent with past practices;
(iii) promptly upon receipt, copies of all reports submitted to the
Company or any of its subsidiaries by independent accountants in
connection with the examination of the financial statements of the
Retained Company;
(iv) promptly after the furnishing of each such document, copies of
any statement or report relating to the Retained Company or any of its
subsidiaries furnished to any other party pursuant to the terms of any
indenture, loan or credit or similar agreement and not otherwise
required to be furnished to CMC;
(v) promptly after request by CMC, information relating to any
employee benefit plan, arrangement, practice, policy or understanding
maintained by the Company, any of its subsidiaries or any Commonly
Controlled Entity for the benefit of any Retained Employee, including,
without limitation, any Benefit Plan and any plan, arrangement,
practice, policy or understanding relating to profit sharing, bonuses,
retainers, consulting, incentives, fringe benefits, perquisites,
automobiles, club memberships, vacation, child care, leaves of absence
(including, without limitation, maternity, paternity, military, medical
or other leaves of absence), insurance and other benefits; and
(vi) promptly after becoming aware thereof, notice of the
occurrence of any event or the existence of any circumstances that could
reasonably result in any material liability on the part of the Company,
any of its subsidiaries or any Commonly Controlled Entity under Title I
or Title IV of ERISA or under Section 412 or Chapter 43 of the Code.
(e) Execution of Post Closing Covenants Agreement and Services
Agreement. The Company shall cause New Holdings and New Trustco to execute
and deliver the Post Closing Covenants Agreement and the Services Agreement
on the Closing Date.
SECTION 4.3. COVENANTS OF CMC. During the period from the date of this
Agreement and continuing until the Effective Time, CMC agrees as to itself and
its subsidiaries that:
(a) Actions Affecting Merger. CMC shall not take any action that
would or is reasonably likely to result in any of the conditions to the
Merger set forth in Article VI not being satisfied or that would materially
impair the ability of CMC to consummate the Merger in accordance with the
terms hereof or materially delay such consummation and CMC shall promptly
provide the Company (or its counsel) copies of all filings (other than
those filings, or portions thereof, which the Company has no reasonable
interest in obtaining in connection with the Merger or the transactions
contemplated hereby) made by CMC with any Federal, state or foreign
Governmental Entity in connection with this Agreement and the transactions
contemplated hereby.
(b) CMC Common Stock. CMC shall not split, combine or reclassify any
of the CMC Common Stock or authorize the (i) making of any in-kind
distribution or extraordinary cash dividend with respect to the CMC Common
Stock or (ii) issuance of any other securities in respect of or in exchange
for shares of the CMC Common Stock, provided the foregoing shall not
prohibit the issuance of securities of CMC convertible into CMC Common
Stock.
(c) Tax Free Spin-Off. CMC shall not, and shall not permit any of its
subsidiaries to, take or cause or permit to be taken, any action that would
disqualify the Distribution as a tax-free spin-off within the meaning of
Section 355 of the Code.
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(d) Other Actions. Notwithstanding the fact that such action might
otherwise be permitted pursuant to this Section 4.3, CMC shall not, nor
shall it permit any of its subsidiaries to, take any action that would or
could reasonably be expected to result in the failure to satisfy any of the
conditions to the Merger set forth in Article VI, would materially impair
the ability of CMC to consummate the Merger in accordance with the terms
hereof or materially delay such consummation.
(e) Execution of Post Closing Covenants Agreement and Services
Agreement. CMC shall execute and deliver the Post Closing Covenants
Agreement and shall cause CMB to execute and deliver the Services Agreement
on the Closing Date.
SECTION 4.4. MUTUAL COVENANTS.
(a) The Company and CMC shall not, and shall not permit any of their
respective subsidiaries to, take any action that would, or that could
reasonably be expected to, result in (i) any of the representations and
warranties of such party set forth in this Agreement that are qualified as
to materiality becoming untrue, (ii) any of such representations and
warranties that are not so qualified becoming untrue in any material
respect or (iii) the failure to satisfy any of the conditions to the Merger
set forth in Article VI.
(b) The Company and CMC shall promptly advise the other party orally
and in writing of any change or event having, or which, insofar as can
reasonably be foreseen, would have, a material adverse effect on such party
and its subsidiaries taken as a whole.
(c) For purposes of the tax opinions to be delivered pursuant to
Section 6.2(h) and 6.3(f), each of CMC and the Company shall deliver to
O'Melveny & Myers, counsel to CMC, and to Cravath, Swaine & Moore, counsel
to the Company, representation letters substantially in the form of the
respective letters set forth in Exhibit III, dated as of the Closing Date.
(d) CMC and the Company agree that they shall negotiate and within 60
days after the date hereof agree on a definitive form of the Services
Agreement substantially in accordance with the terms of that certain
Processing Agreement Term Sheet dated as of the date of this Agreement and
executed by authorized representatives of CMC and the Company (the
"PROCESSING SERVICES TERM SHEET").
(e) CMC and the Company shall each use reasonable efforts to negotiate
and to agree, and to cause CMB and USTNY to agree upon, and to execute and
deliver, an agreement providing for the Bank Merger under 12 U.S.C. 215a
and applicable law ("BANK MERGER AGREEMENT"), provided, however, that the
Bank Merger Agreement shall provide that consummation of the Bank Merger is
conditioned on occurrence of the Merger and that USTNY and its affiliates
shall incur no additional liability or expense in connection therewith.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1. PREPARATION OF FORM S-4, FORM S-1, FORM 10 AND THE PROXY
STATEMENT; STOCKHOLDERS MEETING.
(a) As soon as practicable following the date of this Agreement, the
Company and CMC shall prepare and file with the SEC the Form S-4, the Form
S-1 (if required), the Form 10 and the Proxy Statement. Each of the Company
and CMC shall use its reasonable efforts to have the Form S-4 and Form S-1
(if required) declared effective under the Securities Act, and the Form 10
declared effective under the Exchange Act, as promptly as practicable after
such filing. The Company will use its reasonable efforts to cause the Proxy
Statement to be mailed to the Company's stockholders as promptly as
practicable after the Form S-4, Form S-1 (if required) and Form 10 are
declared effective under the Securities Act and the Exchange Act, as the
case may be. CMC shall also take any action (other than qualifying to do
business in any jurisdiction in which it is not now so qualified) required
to be taken under any applicable state securities laws in connection with
the issuance of CMC Common Stock in the
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Merger and the Company shall furnish all information concerning the Company
and the holders of the Company Common Stock and rights to acquire Company
Common Stock pursuant to the Stock Plans as may be reasonably requested in
connection with any such action.
(b) The Company shall, as soon as practicable following the date on
which the Form S-4, Form S-1 (if required) and Form 10 are declared
effective, duly call, give notice of, convene and hold a meeting of its
stockholders (the "STOCKHOLDERS MEETING") for the purpose of voting upon
the approval and adoption of this Agreement and upon the Distribution. The
Company shall, through its Board of Directors, recommend to its
stockholders approval of this Agreement and the transactions contemplated
by this Agreement.
SECTION 5.2. LETTER OF THE COMPANY'S ACCOUNTANTS. The Company shall use
its best efforts to cause to be delivered to CMC a letter of Coopers & Lybrand
L.L.P., the Company's independent public accountants, dated a date within two
business days before the date on which the Form S-4 shall become effective and
addressed to CMC, in form and substance reasonably satisfactory to CMC and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the Form S-4.
SECTION 5.3. LETTER OF CMC'S ACCOUNTANTS. CMC shall use its best efforts
to cause to be delivered to the Company a letter of Price Waterhouse LLP, CMC's
independent public accountants, dated a date within two business days before the
date on which the Form S-4 shall become effective and addressed to the Company,
in form and substance reasonably satisfactory to the Company and customary in
scope and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Form S-4.
SECTION 5.4. ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) The Company shall, and shall cause its subsidiaries to, afford to
CMC and its officers, employees, accountants, counsel, financial advisors
and other representatives of CMC, reasonable access during the period prior
to the Effective Time to all its properties, books, contracts, commitments,
personnel and records and shall make available to such persons reasonable
facilities (including office space and telephones) in connection therewith.
During the period prior to the Effective Time, the Company shall, and shall
cause its subsidiaries to, furnish promptly to CMC (i) a copy of each
report, schedule, registration statement and other document filed by it
during such period pursuant to the requirements of Section 13(a) and 15(d)
of the Exchange Act, and copies of public portions of each report,
schedule, registration statement, and other document filed by it or any
subsidiary during such period with any state or Federal banking or bank
holding company regulatory authorities, and (ii) all other information
concerning its business, properties and personnel as CMC may reasonably
request; provided that the Company shall not be required to provide
information regarding New Holdings or New Trustco unless such information
relates to liabilities that could be incurred by one of the Processing
Entities in connection with the transactions contemplated by this Agreement
and the other Documents or otherwise has a nontrivial effect on the
Retained Business.
(b) During the period prior to the Effective Time, CMC shall furnish
promptly to the Company a copy of each report, schedule, registration
statement and other document filed by it during such period pursuant to the
requirements of Section 13(a) and 15(d) of the Exchange Act.
(c) Except as required by law, each of the Company and CMC will hold,
and will cause its respective officers, employees, accountants, counsel,
financial advisors and other representatives and affiliates to hold, any
nonpublic information in confidence in accordance with the confidentiality
agreements, dated August 17, 1994 (the "CONFIDENTIALITY AGREEMENTS"),
between CMC and the Company.
SECTION 5.5. LEGAL CONDITIONS TO DISTRIBUTION AND MERGER; LEGAL
COMPLIANCE.
(a) CMC shall use reasonable efforts to comply promptly with all legal
and regulatory requirements which may be imposed on itself or its
respective subsidiaries with respect to the Merger (which actions
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shall include, without limitation, furnishing all information required in
connection with approvals of or filings with Bank Regulators or other
Governmental Entities required to be made or obtained by CMC or its
subsidiaries). Subject to the terms and conditions hereof, CMC will, and
will cause its subsidiaries to, promptly use its reasonable efforts to
obtain any consent, authorization, order or approval of, or any exemption
by, and to satisfy any condition or requirement imposed by, any Bank
Regulator, Governmental Entity or other public or private third party,
required to be obtained, made or satisfied by CMC or any of its
subsidiaries in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement or the Distribution Agreement
(including the Bank Merger).
(b) The Company will use its reasonable efforts to comply promptly
with all legal and regulatory requirements which may be imposed on itself
or its respective subsidiaries with respect to the Distribution and the
Merger (which actions shall include, without limitation, furnishing all
information required in connection with approvals of or filings with Bank
Regulators or other Governmental Entities required to be made or obtained
by the Company or its subsidiaries). Subject to the terms and conditions
hereof, the Company will, and will cause its subsidiaries to, promptly use
its reasonable efforts to obtain any consent, authorization, order or
approval of, or any exemption by, and to satisfy any condition or
requirement imposed by, any Bank Regulator, Governmental Entity or other
public or private third party, required to be obtained, made or satisfied
by the Company or any of its subsidiaries in connection with the
Distribution or the Merger or the taking of any action contemplated thereby
or by this Agreement or the Distribution Agreement, including without
limitation in obtaining the ruling contemplated by the Ruling Request;
provided, however, that the Company and its subsidiaries shall not be
required hereunder to assume or bear any additional liability in connection
with the Bank Merger. The Company agrees that it shall use its reasonable
efforts to take, and to cause its subsidiaries to take, such actions as are
necessary to assure material compliance by the Retained Company and its
subsidiaries with all applicable legal and regulatory requirements relating
to employment and benefits matters and other applicable governmental
regulations (and in this connection will have due regard to any reasonable
request of CMC as to what, if any, such actions should be taken).
(c) Each of the Company and CMC will promptly cooperate with and
furnish information to each other in connection with any such requirements
imposed upon any of them or any of their respective subsidiaries in
connection with the Distribution or the Merger.
(d) Nothing herein shall obligate any party to take any action
pursuant to the foregoing if the taking of such action or such compliance
or the obtaining of such consent, authorization, order, approval or
exemption is likely, in such party's reasonable opinion, (i) to be
materially burdensome to such party and its subsidiaries taken as a whole
or to impact in a materially adverse manner the economic or business
benefits of the transactions contemplated by this Agreement, the Bank
Merger Agreement (in the form agreed to by CMC, the Company, CMB and
USTNY), the Contribution Agreement or the Distribution Agreement so as to
render inadvisable the consummation of the Merger, the Bank Merger, the
Contribution or the Distribution or (ii) to result in the imposition of a
condition or restriction on such party or on the Surviving Corporation of
the type referred to in Section 6.1(c) (it being understood that compliance
by CMC with Section 5.19 shall not constitute such an action). Each of CMC
and Company will promptly cooperate with and furnish information to the
other in connection with any such burden suffered by, or requirement
imposed upon, any of them or any of their subsidiaries in connection with
the foregoing.
SECTION 5.6. RIGHTS AGREEMENT. The Board of Directors of the Company
shall take all further action (in addition to that referred to in Section
3.1(p)) requested in writing by CMC (including, if necessary, redeeming the
Rights immediately prior to the Effective Time or amending the Rights Agreement)
in order to render the Rights inapplicable to the Merger and the other
transactions contemplated by this Agreement and the Distribution Agreement.
Except as requested in writing by CMC, prior to the Stockholders Meeting, the
Board of Directors of the Company shall not (i) amend the Rights Agreement or
(ii) take any action with respect to, or make any determination under, the
Rights Agreement (including a redemption of the Rights).
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SECTION 5.7. BENEFIT PLANS. Before the Effective Time, the Company shall,
and shall cause USTNY to, take all steps necessary to cause each of the Benefit
Plans maintained by the Company or USTNY other than (i) any such Benefit Plan
listed in Schedule 5.7 (the Benefit Plans so listed are hereinafter referred to
as the "RETAINED PLANS") and (ii) the Transition Bonus Plan adopted by the
Retained Company pursuant to Section 5.8(e), to be transferred pursuant to the
Distribution Agreement and the Contribution Agreement to New Holdings and to New
Trustco, respectively, and to cause New Holdings and New Trustco, respectively,
to assume and become solely responsible for all liabilities and obligations of
the Company and USTNY under each of the Benefit Plans so transferred. In the
case of each such Benefit Plan that is transferred to New Holdings or to New
Trustco, the transfer and assumption shall be effected prior to the New Holdings
Distribution. Prior to the Effective Time, Company shall, or shall cause its
subsidiaries to, inform the Retained Employees (as defined in Section 5.8(a)) of
the transfer to, and the assumption by, New Holdings or New Trustco of the
liabilities under, the Benefit Plans under which such Retained Employees are
covered. The Company shall cooperate with CMC, to the extent requested by CMC to
do so, to communicate with the Retained Employees concerning any employee
benefit plans, agreements, practices, policies or arrangements of CMC or any of
its affiliates to which they will be subject after the Effective Time. The
Company shall, and shall cause USTNY to, amend the Retained Plans and take such
other steps as may be necessary to:
(i) cause all stock options granted under the Retained Plans that have
not expired or that have not been exercised or cancelled prior to the
Effective Time, to be cancelled as of the Effective Time;
(ii) cause all payments required under the terms of the Retained Plans
to be made to the holders of stock options that are to be cancelled as of
the Effective Time pursuant to clause (i) above, to be made at the
Effective Time or as soon thereafter as practicable;
(iii) cause payments to be made, at the Effective Time or as soon
thereafter as practicable, to all persons with outstanding balances to
their credit under the Annual Incentive Plan of U.S. Trust Corporation at
the Effective Time, in amounts sufficient to discharge in full the
Company's obligations with respect to such balances; and
(iv) cause each of the Retained Plans other than the Retention Bonus
Program to be terminated as soon as all unexercised options under such Plan
have been cancelled, and all payments to be made with respect to options or
account balances under such Plan have been made, as provided in clauses
(i), (ii) and (iii) above.
SECTION 5.8. EMPLOYMENT MATTERS.
(a) Employment with Retained Business. Schedule 5.8(a) lists all
persons who are presently employed by the Retained Company in positions
associated with the conduct of the Retained Business, and designates those
persons New Holdings or any of its subsidiaries proposes to employ prior to
the Closing. CMC agrees to cause the Retained Company or its affiliates to
offer to retain approximately 1150 of the employees listed in Schedule
5.8(a) in employment after the Closing and CMC has offered, or will offer,
to so employ (i) all employees employed in the MFS Business except for
those identified in writing to the Company by the date of this Agreement,
(ii) all employees employed in the UIT Business except for those identified
in writing to the Company by the date of this Agreement and (iii) all other
employees listed in Schedule 5.8(a) except for those identified in writing
to the Company as soon as possible following the date of this Agreement,
but in any event on or before January 1, 1995. Any person listed in
Schedule 5.8(a) to whom CMC has made, or could make, a timely offer of
continuing employment in accordance with the immediately preceding sentence
is referred to as a "PROSPECTIVE RETAINED EMPLOYEE". In the event that any
of the persons designated on Schedule 5.8(a) as persons New Trustco
proposes to become employed with New Trustco or any of its affiliates prior
to the Closing are also persons CMC proposes to cause its subsidiaries to
offer to retain in employment after the Closing, CMC and the Company agree
that their respective representatives shall use their best efforts to
resolve the conflict as quickly, effectively and fairly as possible. The
offer of continuing employment to be made hereunder shall include provision
for the payment of base salary to each such employee at a rate at least
equal to the rate of base salary in effect for such employee immediately
prior to the Closing. Notwithstanding the foregoing, nothing contained
herein shall be construed as obligating CMC, the
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Surviving Corporation or any of its affiliates (x) to offer employment
after the Closing to any employee listed in Schedule 5.8(a) whose
employment with the Retained Company terminates for any reason prior to the
Closing or (y) to maintain any term or condition of employment (including
base salary) for any period following the Effective Time, except as
provided in Section 5.8(c). Those employees of the Retained Company who
accept such offer of continuing employment with one of CMC's subsidiaries
pursuant to this Agreement are hereinafter referred to as the "RETAINED
EMPLOYEES".
(b) Employee Benefits. CMC agrees that on and after the Effective
Time, the Retained Employees shall be covered under the employee benefit
plans, programs, arrangements and policies (including, without limitation,
any stock option, bonus and incentive compensation plans) maintained by CMC
and its affiliates for their employees (such plans, programs, arrangements,
and policies are hereinafter referred to as "CMC'S PLANS"), upon the same
terms and conditions as are applicable to other personnel employed by CMC
and its affiliates in comparable positions, subject, however, to the
following:
(i) Except as provided in subparagraph (ii) below, service
performed by a Retained Employee for USTNY (or for any affiliate of
USTNY) prior to the Closing (such service is hereinafter referred to as
a Retained Employee's "PRIOR SERVICE") shall be treated as service
performed for CMC and its affiliates for purposes of determining (w) the
Retained Employee's eligibility to participate in any of CMC's Plans,
(x) the Retained Employee's satisfaction of any service requirement that
is a condition for eligibility to receive any benefit provided under any
of CMC's Plans, (y) the Retained Employee's vesting status with respect
to any benefit under any of CMC's Plans and (z) the amount of any
benefit to which the Retained Employee is entitled under any of CMC's
Plans, in any case where the amount of the benefit so provided is
determined, in whole or in part, by reference to the length of a
participant's service with CMC and its affiliates (it being understood
that there shall be no credits to Retained Employees' accounts under
CMC's retirement and thrift plans with respect to any period before the
Closing Date and that no Retained Employee shall be treated as having
been a member of CMC's retirement plan as of any date prior to the
Closing Date).
(ii) In the case of any Retained Employee (x) whose employment with
CMC and its affiliates is terminated within two years following the
Closing Date, (y) whose "attained age" and his or her "Years of Service"
or "units of Credited Service", as those terms are defined in the
Employees' Retirement Plan of United States Trust Company of New York
and Affiliated Companies, immediately prior to the Closing total 70 or
more and (z) who has at least ten years of Prior Service, such Retained
Employee's Prior Service shall not be taken into account for purposes of
such Retained Employee's eligibility to participate in or receive any
benefit provided under any of CMC's Plans that provide post-retirement
welfare benefits.
(iii) Each Retained Employee shall be covered under those of CMC's
Plans that are health and welfare plans without exclusion for
preexisting conditions.
(c) Severance and Other Benefits on Termination. CMC agrees to
provide any Retained Employee whose employment with CMC and its affiliates
is involuntarily terminated (as hereinafter defined) within two years
following the Closing Date with the severance benefits and other benefits
described in Schedule 5.8(c) in lieu of any severance benefits provided
under any of CMC's Plans. For purposes of this Section 5.8(c) and Schedule
5.8(c), a Retained Employee's employment with CMC and its affiliates shall
be treated as having been "involuntarily terminated" if he or she is no
longer employed by CMC or any of its affiliates as a result of the
termination of his or her employment (i) by CMC or any of its affiliates
for any reason other than for cause or (ii) by the Retained Employee after
(A) any reduction in his or her salary or (B) any change, without the
Retained Employee's consent, in location of his or her place of employment
to a location outside the City of New York or, if such place of employment
is not in the City of New York, to a city more than 25 miles distant from
the city in which his or her place of employment is located on the Closing
Date.
(d) Data to be Furnished. At the Closing, the Company shall furnish
CMC with information as to (i) the rate of base salary in effect for each
Retained Employee immediately before the Closing, (ii) each
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Retained Employee's position with the Retained Company immediately before
the Closing and (iii) each Retained Employee's Prior Service. CMC agrees to
furnish New Holdings and New Trustco with such information as they may
request from time to time after the Closing, regarding any Retained
Employee's period of service and base salary with CMC and its affiliates.
(e) Transition Bonus Program. As soon as practicable after the date
of this Agreement, the Company shall cause USTNY and its affiliates
included in the Retained Business to adopt a program (the "TRANSITION BONUS
PROGRAM") pursuant to which each of the employees listed in Schedule 5.8(e)
who becomes a Retained Employee shall be entitled to receive from the
Retained Company a bonus (the "TRANSITION BONUS") in the amount specified
for such employee in Schedule 5.8(e) if the employee completes the period
of service with the Retained Company following the Closing Date that is
specified for such employee in Schedule 5.8(e) (the employee's "REQUIRED
SERVICE"). The Transition Bonus so payable to any such employee shall be
paid in the form of a single lump sum cash payment, as soon as practicable
after the employee completes his or her Required Service. For purposes of
the foregoing, a Retained Employee whose employment with the Retained
Company is involuntarily terminated (as defined in Section 5.8(c)) after
the Closing Date but before he or she has completed his or her Required
Service shall be treated as having completed such Required Service on the
day immediately preceding the date on which his or her employment was so
terminated. As soon as practicable after the date of this Agreement, the
Company shall furnish, or cause its subsidiaries to furnish, each employee
listed in Section 5.8(e) with written notice (the form of which notice
shall be mutually agreed upon in advance by the Company and CMC) advising
the employee of his or her eligibility to participate in the Transition
Bonus Program, the amount of the Transition Bonus he or she may become
entitled to receive and the Required Service he or she must complete to
receive such Bonus.
SECTION 5.9. EMPLOYMENT AGREEMENTS. The Company shall use reasonable
efforts to cause the Retained Company to enter, or to facilitate CMB's or any
affiliates' entry, as applicable, into employment agreements with such of the
Prospective Retained Employees who are then still employees of the Company or
any of its affiliates, as CMC shall have specified to the Company in writing not
less than ten business days before the Closing Date on terms satisfactory to
CMC. Notwithstanding the foregoing, it is understood and agreed that the failure
of any such officer or employee to enter into an employment agreement with CMC
or the Retained Company shall not constitute a breach of this Agreement.
SECTION 5.10. FEES AND EXPENSES. All fees and expenses incurred in
connection with the Merger, the Distribution, this Agreement, the Distribution
Agreement and the transactions contemplated by this Agreement and the other
Documents shall be paid by the party incurring such fees or expenses, whether or
not the Merger is consummated, except that expenses incurred in connection with
printing and mailing the Proxy Statement, the Form S-4, the Form S-1 (if
required) and the Form 10, shall be shared equally by CMC and the Company.
SECTION 5.11. DISTRIBUTION. Prior to the Closing, the Company will (a)
enter into the Distribution Agreement and the agreements contemplated thereby to
which the Company is to be a party and (b) cause each of USTNY, New Holdings and
New Trustco to enter into the Distribution Agreement, the Contribution Agreement
and each of the other Documents to which it is a party. The Company will, and
will cause USTNY, New Holdings and New Trustco to, take all action necessary to
effect the Distribution pursuant to the terms of the Distribution Agreement, the
Contribution Agreement and the other Documents.
SECTION 5.12. PUBLIC ANNOUNCEMENTS. CMC on the one hand, and the Company,
on the other hand, will consult with each other before issuing, and provide each
other the opportunity to review and comment upon, any press release or other
public statements (it being understood that discussions by the parties with
financial analysts or other advisors shall not constitute public statements)
with respect to the transactions contemplated by this Agreement and the
Distribution Agreement, including the Merger, and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by applicable law, court process or by obligations pursuant to
any listing agreement with any national securities exchange.
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SECTION 5.13. PRIVATE LETTER RULING. The Company and CMC each hereby
agree to cooperate with the other party and to use their reasonable best efforts
to obtain the private letter ruling contemplated by Section 6.2(c) of this
Agreement.
SECTION 5.14. USE OF NAME. From and after the Closing Date, CMC (i) shall
promptly change the name on all documents, stationery and facilities relating to
the Retained Business to a name that is not in any way similar to the Company's
or USTNY's names (or any name or initial similar thereto). Nothing in this
Section shall require CMC to undertake to reissue deposits or rewrite
outstanding loans or other agreements or documents except in the ordinary course
of business, it being understood, however, that reasonable efforts will be used
to change names in accordance with the provisions of the first sentence of this
Section.
SECTION 5.15. UST-CA. Prior to the Closing Date, CMC shall use its best
efforts to have The Chase Manhattan Trust Company of California, N.A. ("CHASE
CAL") approved (if not already approved) by the California Department of
Insurance as a "qualified custodian", "qualified depository" and a "qualified
subcustodian", under Section 1104.9 of the California Insurance Code, and to
obtain such other approvals or make such other filings as are necessary to
qualify such bank or trust company to act as trustee and custodian (or
sub-custodian) under the Customer Agreements (as defined in the Contribution
Agreement) with respect to which U.S. Trust Company of California, N.A.
currently acts as trustee and custodian. The Company and CMC shall use their
reasonable best efforts to obtain all necessary consents to substitute Chase Cal
as trustee and custodian under such Customer Agreements.
SECTION 5.16. AFFILIATES. Prior to the Closing Date, the Company shall
deliver to CMC a letter identifying all persons who are, at the time this
Agreement is submitted for approval to the stockholders of the Company,
"affiliates" of the Company for purposes of Rule 145 under the Securities Act.
The Company shall use its best efforts to cause each such person to deliver to
CMC on or prior to the Closing Date a written agreement substantially in the
form attached as Exhibit VII hereto.
SECTION 5.17. STOCK EXCHANGE LISTING. CMC shall use its best efforts to
cause the shares of CMC Common Stock to be issued in the Merger to be approved
for listing on the NYSE, subject to official notice of issuance, prior to the
Closing Date.
SECTION 5.18. CAPITAL ADEQUACY. On the Closing Date, CMC shall ensure
that USTNY, MFSC and UST-WY meet and satisfy all capital adequacy requirements
imposed by applicable law, Bank Regulators and other Governmental Entities.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. This Agreement shall have been approved and
adopted by the affirmative vote or consent of the Requisite Stockholders of
the Company.
(b) NYSE Listing. The shares of CMC Company Stock issuable to the
Company's stockholders pursuant to this Agreement and under the Stock Plans
shall have been approved for listing on the NYSE, subject to official
notice of issuance.
(c) Regulatory Approvals. Each of CMC and the Company shall have
obtained all requisite approvals of, or satisfied all requisite filing
requirements with, Bank Regulators and other Governmental Entities,
including all requisite approvals under, and the expiration of all waiting
periods in respect of, the Bank Holding Company Act. No such approval
applicable to the Merger, the Distribution or the Bank Merger shall impose
any condition or restriction upon CMC or New Holdings, or any of their
respective subsidiaries, including, without limitation, any requirement to
raise additional capital or to dispose of assets, which would so materially
adversely impact the economic or business benefits of the transactions
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contemplated by this Agreement and the Distribution Agreement as to render
inadvisable the consummation of the Merger or the Distribution.
(d) No Injunctions or Restraints. (i) No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect; provided, however, that
each of the parties shall have used its reasonable efforts to prevent the
entry of any such injunction or other order and to appeal as promptly as
possible any such injunction or other order that may be entered and (ii) no
action, suit or other proceeding shall be pending or, to the knowledge of
the Company and CMC, threatened by any Governmental Entity that, if
successful, would restrict or prohibit the consummation of the transactions
contemplated in this Agreement or the other Documents.
(e) Services Agreement. New Trustco, USTNY and CMC shall have entered
into the Services Agreement substantially on the terms and conditions set
forth in the Processing Services Term Sheet (as defined in Section 4.4(d))
of date even herewith.
(f) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
(g) Consummation of the Distribution. The Distribution shall have
become effective in accordance with the terms of the Distribution
Agreement, the Contribution Agreement and each of the agreements
contemplated thereby.
SECTION 6.2. CONDITIONS TO OBLIGATIONS OF CMC. The obligation of CMC to
effect the Merger is further subject to the following conditions, unless waived
by CMC:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement that are qualified as
to materiality shall be true and correct, and the representations and
warranties of the Company set forth in this Agreement that are not so
qualified shall be true and correct in all material respects, in each case
as of the date of this Agreement and as of the Closing Date as though made
on and as of the Closing Date, except as otherwise contemplated by this
Agreement, except to the extent that any representation or warranty shall
be as of a specific date, in which case such representation and warranty
shall be true and correct as of such date, and CMC shall have received a
certificate signed on behalf of the Company by the chief executive officer
and the chief financial officer of the Company to such effect. The Company
shall have delivered to CMC a certificate (the "COMPANY BRING DOWN
CERTIFICATE"), dated as of the Closing Date and reasonably satisfactory in
form to CMC, that sets forth each event that has occurred and each
condition that exists that (i) had not occurred or was not in existence as
of the date of this Agreement and (ii) if it had occurred or was in
existence as of the date of this Agreement would be required to be
disclosed pursuant to Section 3.1(g), (h), (l)(iii), (w) or (x). In
determining the materiality of the failure of any representation or
warranty made by the Company to be true when made, the parties shall
consider whether the failure can be remedied by a financial indemnity,
whether New Holdings or New Trustco is obligated under the Post Closing
Covenants Agreement to indemnify against the failure, and the financial
ability of New Holdings or New Trustco, as appropriate, to satisfy any
indemnification obligation.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement and the Distribution Agreement at or prior to
the Closing Date, and CMC shall have received a certificate signed on
behalf of the Company by the chief executive officer and the chief
financial officer of the Company to such effect.
(c) Private Letter Ruling. The Service shall have issued and not
revoked a private letter ruling (the "PRIVATE LETTER RULING"), reasonably
satisfactory in form and substance to CMC, in response to the Ruling
Request, substantially to the effect that, on the basis of the facts,
representations, and assumptions existing at the Effective Time:
(i) the contribution by USTNY to New Trustco of certain assets and
the assumption of certain liabilities of USTNY by New Trustco, as
contemplated by the Contribution Agreement, will qualify
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for Federal income tax purposes as a tax-free reorganization within the
meaning of Section 368(a)(1)(D) of the Code or as tax-free under Section
351 of the Code;
(ii) the distribution of all the capital stock of New Trustco to
the Company by USTNY, as contemplated by the Distribution Agreement,
will be tax-free for Federal income tax purposes to USTNY under Section
361(a) of the Code and to the Company under Section 355(a) of the Code;
(iii) the contribution by the Company to New Holdings of certain
assets (including, without limitation, all of the capital stock of New
Trustco) and the assumption of certain liabilities of the Company by New
Holdings, as contemplated by the Distribution Agreement, will qualify
for Federal income tax purposes as a tax-free reorganization within the
meaning of Section 368(a)(1)(D) of the Code or as tax-free under Section
351 of the Code; and
(iv) the distribution of the stock of New Holdings on a pro rata
basis to the holders of the Company Common Stock will be tax-free for
Federal income tax purposes to the Company under Section 361(a) of the
Code and to the Company's stockholders under Section 355(a) of the Code.
(d) Opinion of the Company's Counsel. CMC shall have received an
opinion dated the Closing Date of Cravath, Swaine & Moore, counsel to the
Company, and/or in-house counsel of the Company satisfactory to counsel to
CMC, to the effect that:
(i) the Company is a corporation validly existing and in good
standing under the laws of the State of New York; USTNY is a bank and
trust company validly existing and in good standing under the laws of
the State of New York. New Holdings is a corporation validly existing
and in good standing under the laws of the State of New York; and New
Trustco is a bank and trust company validly existing and in good
standing under the laws of the State of New York;
(ii) each of the Company, USTNY, New Holdings and New Trustco
(collectively, the "COMPANY PARTIES") has the power and authority to
execute each Document to which it is a party and to consummate the
transactions contemplated hereby and thereby; the execution and delivery
of the Documents and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by requisite corporate
action on the part of each Company Party that is a party thereto and the
stockholders of each such Company Party and each Document has been duly
executed and delivered by the Company Parties that are party thereto and
constitutes a legal, valid and binding obligation of each such Company
Party, enforceable in accordance with its terms subject to applicable
bankruptcy, insolvency, receivership or other similar laws affecting the
enforcement of creditors, rights generally and subject, as to
enforceability, to general principles of equity, regardless of whether
such enforceability is considered in a proceeding in equity or at law;
(iii) the execution, delivery and performance of the Documents by
each Company Party thereto will not (x) violate any Federal law or the
laws of the State of New York or (y) conflict with any provision of the
certificate of incorporation or by-laws of the applicable Company Party.
Such counsel expresses no opinion, however, as to any violation of any
law or regulation which may have become applicable to any Company Party
as a result of the involvement of CMC or any of its subsidiaries in the
transactions contemplated by this Agreement because of CMC's or any of
its subsidiaries' legal or regulatory status or because of any other
facts specifically pertaining to CMC or any of its subsidiaries; and
(iv) any consent, approval, order or authorization of, any
registration, declaration or filing with, and any waiting period imposed
by, any governmental authority under Federal law or the laws of the
State of New York which is required by or with respect to any Company
Party in connection with the execution and delivery of the Documents by
the Company Parties that are party thereto or the consummation by the
Company Parties of the transactions contemplated hereby or thereby, has
been obtained or made or, in the case of any such waiting period, has
expired. Such counsel expresses no opinion, however, as to any consent
or approval which any Company Party may be required to obtain as a
result of the involvement of the CMC or any of its subsidiaries in the
transactions contemplated by this Agreement because of CMC's or any of
its subsidiaries' legal or
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regulatory status or because of any other facts specifically pertaining
to CMC or any of its subsidiaries.
(e) No Material Adverse Change. Whether or not any event or change is
reflected in the Company Bring Down Certificate, since September 30, 1994,
there shall have been no material adverse change, and no event that could
reasonably be expected to result in a material adverse change, to the
business, properties, assets, results of operations, or financial condition
of MFSC or of the Processing Entities taken as a whole; provided, however
that "material adverse change" for this purpose shall not include (i) any
adverse change resulting from economic or market conditions generally
affecting businesses engaged in the same or substantially similar
activities as the Processing Entities or (ii) any adverse change resulting
directly from any action taken by CMC or any subsidiary of CMC except an
action specifically permitted or contemplated by this Agreement (including
the Bank Merger).
(f) Dissenters' Rights. Dissenters' Shares shall not constitute more
than 5% of the aggregate number of outstanding shares of Company Common
Stock.
(g) Other Documents. Each of the other Documents (other than the
Services Agreement) shall have been executed substantially in the forms
attached as Exhibits hereto or to the Contribution Agreement or, if not
included as Exhibits, in the form mutually agreed to as the parties thereto
and CMC, as the case may be, by the applicable parties thereto (other than
CMC and its affiliates) and shall have become effective in accordance with
its terms. The Company shall have delivered to CMC true, correct and
complete copies of each Document to which the CMC is not a party.
(h) Tax Opinion. CMC shall have received an opinion, based on the
representation letters to be delivered pursuant to Section 4.4(c), of
O'Melveny & Myers, counsel to CMC, to the effect that the Merger will be
treated for Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code, and that CMC and the Company will
each be a party to that reorganization within the meaning of Section 368(b)
of the Code.
(i) Amendments to SEC Documents. Since the effective date of the Form
S-4 or the Proxy Statement, as applicable, no event with respect to the
Company, any subsidiary of the Company or any security holder of the
Company has occurred which should have been set forth in an amendment to
the Form S-4 or a supplement to the Proxy Statement which has not been set
forth in such an amendment or supplement.
(j) Rule 145 Letters. The Company shall have delivered letters
regarding Rule 145 of the Securities Act, substantially in the form of
Exhibit VII hereto, executed by each affiliate of the Company who will
acquire shares of CMC Common Stock in connection with the Merger.
(k) Anti-Virus Software. MFSC shall have installed anti-virus
computer software satisfactory to CMC in its reasonable discretion.
(l) Compliance with Securities Settlement Regulatory Changes.
(i) The Asset Management System shall comply with material
regulatory requirements.
(ii) If the Closing Date occurs before June 1, 1995, software
modifications required to comply with "T+3" ("T+3 MODIFICATIONS") shall
have been completed in all material respects and shall have been
operated in a testing environment reasonably satisfactory to CMC.
(iii) If the Closing Date occurs on or after June 1, 1995, the T+3
Modifications shall have been implemented in production and operating
successfully.
(m) Conversion of Asset Management System. The Asset Management
System shall have been modified to operate in a multi-bank environment to
the reasonable satisfaction of CMC, subject only to such "work-arounds" as
CMC may approve in its reasonable discretion.
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SECTION 6.3. CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of
the Company to effect the Merger is further subject to the following conditions,
unless waived by the Company:
(a) Representations and Warranties. The representations and
warranties of CMC set forth in this Agreement that are qualified as to
materiality shall be true and correct, and the representations and
warranties of CMC set forth in this Agreement that are not so qualified
shall be true and correct in all material respects, in each case as of the
date of this Agreement and as of the Closing Date as though made on and as
of the Closing Date, except as otherwise contemplated by this Agreement,
and the Company shall have received a certificate signed on behalf of CMC
by the chief executive officer and the chief financial officer of CMC to
such effect. CMC shall have delivered to the Company a certificate (the
"CMC BRING DOWN CERTIFICATE"), dated as of the Closing Date and reasonably
satisfactory in form to the Company, that sets forth each event that has
occurred and each condition that exists that (i) had not occurred or was
not in existence as of the date of this Agreement and (ii) if it had
occurred or was in existence as of the date of this Agreement would be
required to be disclosed pursuant to Section 3.2(f), (g) or (i).
(b) Performance of Obligations of CMC. CMC shall have performed in
all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and the Company shall have
received a certificate signed on behalf of CMC by the chief executive
officer and the chief financial officer of CMC to such effect.
(c) Private Letter Ruling. The Service shall have issued and not
revoked the Private Letter Ruling reasonably satisfactory in form and
substance to the Company.
(d) Opinion of CMC's Counsel. The Company shall have received an
opinion dated the Closing Date of O'Melveny & Myers, counsel to CMC, and/or
in-house Counsel of CMC, satisfactory to counsel to the Company to the
effect that:
(i) CMC is a corporation validly existing and in good standing
under the laws of Delaware;
(ii) CMC has the requisite power and authority to execute this
Agreement and to consummate the transactions contemplated hereby; the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby has been duly authorized by all
necessary corporate action on the part of CMC and, if required, its
stockholders; and this Agreement has been duly executed and delivered by
CMC and constitutes a valid and binding obligation of CMC enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
receivership or other similar laws affecting the enforcement of
creditors' rights generally and subject, as to enforceability, to
general principles of equity, regardless of whether such enforceability
is considered in a proceeding in equity or at law;
(iii) the execution, delivery and performance of this Agreement,
the Tax Allocation Agreement and the Post Closing Covenants Agreement by
CMC will not (x) violate any Federal law or any law of the State of
Delaware or (y) conflict with any provision of the certificate of
incorporation or by-laws of CMC. Such counsel expresses no opinion,
however, as to any violation of any law or regulation which may have
become applicable to CMC as a result of the involvement of the Company,
New Holdings and any subsidiary of either in the transactions
contemplated by this Agreement because of the Company's legal or
regulatory status or because of any other facts specifically pertaining
to the Company or any of its subsidiaries; and
(iv) any consent, approval, order or authorization of, any
registration, declaration or filing with, and any waiting period imposed
by, any governmental authority under Federal law or the law of the State
of Delaware, which is required by or with respect to CMC in connection
with the execution and delivery of this Agreement by CMC or the
consummation of the transactions contemplated hereby has been obtained
or made or, in the case of any such waiting period, has expired. Such
counsel expresses no opinion, however, as to any consent or approval
which CMC may be required to obtain as a result of the involvement of
the Company, New Holdings and any subsidiary in the transactions
contemplated by this Agreement because of the Company's, New Holdings'
or any
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subsidiary's legal or regulatory status or because of any other facts
specifically pertaining to the Company or any of its subsidiaries.
(e) No Material Adverse Change. Whether or not any event or change is
reflected in the CMC Bring Down Certificate, since September 30, 1994,
there shall have been no material adverse change, and no event that could
reasonably be expected to result in a material adverse change, to the
business, properties, assets, results of operations or financial condition
of CMC and its subsidiaries taken as a whole, provided, however, that
"material adverse change" for this purpose shall not include (i) any
adverse change resulting from economic or market conditions generally
affecting businesses engaged in the same or substantially similar
activities as CMC and its subsidiaries or (ii) any adverse change resulting
directly from any action taken by the Company or any subsidiary of the
Company except an action specifically permitted or contemplated by this
Agreement (including the Bank Merger).
(f) Tax Opinion. The Company shall have received an opinion, based on
the representation letters to be delivered pursuant to Section 4.4(c), of
Cravath, Swaine & Moore, counsel to the Company, to the effect that the
Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, and that CMC and the
Company will each be a party to that reorganization within the meaning of
Section 368(b) of the Code.
(g) Amendments to SEC Documents. Since the effective date of the Form
S-4 or the Proxy Statement, as applicable, no event with respect to CMC,
any subsidiary of CMC or any security holder of CMC has occurred which
should have been set forth in an amendment to the Form S-4 or a supplement
to the Proxy Statement which has not been set forth in such an amendment or
supplement.
(h) Other Documents. Each of the other Documents (other than the
Services Agreement) shall have been executed substantially in the forms
attached as Exhibits hereto or to the Contribution Agreement or, if not
included as Exhibits, in the form mutually agreed to by the parties thereto
and CMC, as the case may be, by the applicable parties thereto (other than
the Company and its affiliates) and shall have become effective in
accordance with its terms.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of matters
presented in connection with the Merger by the stockholders of the Company:
(a) by mutual written consent of CMC and the Company; or
(b) by either CMC or the Company:
(i) if, upon a vote at a duly held Stockholders Meeting or any
adjournment thereof, any required approval of the stockholders of the
Company shall not have been obtained;
(ii) if the Merger shall not have been consummated on or before the
date one year following the date of this Agreement, unless the failure
to consummate the Merger is the result of a wilful and material breach
of this Agreement by the party seeking to terminate this Agreement;
provided, however, that the passage of such period shall be tolled for
any part thereof (but in no event for more than an additional 90 days)
during which any party shall be subject to a nonfinal order, decree,
ruling or action restraining, enjoining or otherwise prohibiting the
consummation of the Merger or the calling or holding of the Stockholders
Meeting; or
(iii) if any Governmental Entity shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining
or otherwise prohibiting the Merger and such order, decree, ruling or
other action shall have become final and nonappealable.
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SECTION 7.2. EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement by either the
Company or CMC as provided in Section 7.1, this Agreement shall forthwith
become void and have no effect, without any liability or obligation on the
part of CMC or the Company, other than the provisions of Section 3.1(r),
Section 3.2(l), the last two sentences of Section 5.4, Section 5.10, this
Section 7.2 and Article VIII and except to the extent that such termination
results from the wilful and material breach by a party of any of its
representations, warranties, covenants or agreements set forth in this
Agreement, the Distribution Agreement, the Contribution Agreement or any
agreement contemplated hereby or thereby.
(b) If the transactions contemplated by this Agreement are terminated
as provided herein:
(i) CMC shall return all documents and other material received from
the Company or its representatives relating to the transactions
contemplated hereby, whether so obtained before or after the execution
hereof, to the Company; and
(ii) all confidential information received by CMC with respect to
the businesses of the Company shall be treated in accordance with the
Confidentiality Agreement which shall remain in full force and effect
notwithstanding the termination of this Agreement.
(c) CMC has incurred substantial expenses in connection with its
examination of the Company and negotiation of this Agreement and shall
incur substantial expense in connection with its actions to implement the
Merger. If this Agreement is terminated for any reason other than by reason
of the failure to satisfy the conditions set forth in Sections 6.1(b) or
(c); or 6.3(a), (b), (d) (but only if Cravath, Swaine & Moore is prepared
to deliver the opinion referred to in 6.3(f) based on representation
letters delivered to it in good faith), (e), (g) or (h); or due to a
permanent injunction issued at the instance of the United States Department
of Justice; or otherwise due to any default on the part of CMC or failure
of CMC to obtain all requisite approvals, the Company shall pay to CMC, as
liquidated damages, and not a penalty, the sum of (i) $5,000,000, if such
termination occurs on or before the date that proxy statements relating to
the Merger are first mailed to the Company's stockholders and (ii)
$7,500,000, if the termination occurs after the date of such mailing.
SECTION 7.3. AMENDMENT. This Agreement may be amended by the parties at
any time before or after any required approval of matters presented in
connection with the Merger by the stockholders of the Company; provided,
however, that after any such approval, there shall be made no amendment that by
law requires further approval by such stockholders without the further approval
of such stockholders. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties.
SECTION 7.4. EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) subject to the proviso of
Section 7.3, waive compliance with any of the agreements or conditions contained
in this Agreement. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute a waiver of
such rights.
SECTION 7.5. PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER. A
termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement pursuant to Section 7.3 or an extension or waiver pursuant to Section
7.4 shall, in order to be effective, require in the case of CMC or the Company,
action by its Board of Directors or the duly authorized designee of its Board of
Directors.
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ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 8.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 8.2. NOTICES. Any notice, request, instruction or other document
to be given hereunder by any party to any other party shall be in writing and
shall be deemed to have been duly given (a) on the first Business Day occurring
on or after the date of transmission if transmitted by facsimile (upon
confirmation of receipt by journal or report generated by the facsimile machine
of the party giving such notice), (b) on the first Business Day occurring on or
after the date of delivery if delivered personally or (c) on the first Business
Day following the date of dispatch if dispatched by Federal Express or other
next-day courier service. All notices hereunder shall be given as set forth
below, or pursuant to such other instructions as may be designated in writing by
the party to receive such notice:
(a) if to CMC, to
The Chase Manhattan Corporation
One Chase Manhattan Plaza
New York, New York 10081
Attention: Robert M. MacAllister
with a copy (which shall not constitute notice) to:
O'Melveny & Myers
153 East 53rd Street
New York, New York 10022-4611
Attention: William H. Satchell
(b) if to the Company, to
U. S. Trust Corporation
114 West 47th Street
New York, NY 10036
Attention: Maureen Scannell Bateman
with a copy (which shall not constitute notice) to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attention: B. Robbins Kiessling
SECTION 8.3. DEFINITIONS. For purposes of this Agreement:
(a) an "AFFILIATE" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person;
(b) "PERSON" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
and
(c) a "SUBSIDIARY" of any person means another person, an amount of
the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board
of Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first person.
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SECTION 8.4. INTERPRETATION. When a reference is made in this Agreement
to a Section, Exhibit or Schedule, such reference shall be to a Section of, or
an Exhibit or Schedule to, this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
SECTION 8.5. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 8.6. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement, the other Documents and the agreements referred to herein and therein
or required to be delivered in connection with the transactions contemplated by
the Documents and certain side letters of date even herewith exchanged by the
parties in connection with the execution of this Agreement constitute the entire
agreement, and supersede all prior agreements (other than the Confidentiality
Agreement) and understandings, both written and oral, among the parties with
respect to the subject matter of this Agreement, and except for the provisions
of Article II, Section 5.7, Section 5.8 and Section 5.9, this Agreement is not
intended to confer upon any person other than the parties any rights or
remedies.
SECTION 8.7. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York and, insofar as
the Merger is concerned, the Delaware General Corporation Law, regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 8.8. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 8.9. ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of New York, this being in addition to any other remedy to
which they are entitled at law or in equity. In addition, each of the parties
hereto (a) consents to submit itself to the personal jurisdiction of any Federal
court located in the State of New York in the event any dispute arises out of
this Agreement or any of the transactions contemplated by this Agreement, (b)
agrees that it will not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court and (c) agrees that it
will not bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a Federal court sitting
in the State of New York.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, CMC and the Company have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
THE CHASE MANHATTAN CORPORATION
<TABLE>
<S> <C> <C>
By: /s/ DEBORAH L. DUNCAN
-------------------------------------------
Name: Deborah L. Duncan
Title: Executive Vice President and
Treasurer
</TABLE>
ATTEST:
<TABLE>
<S> <C> <C>
/s/ RONALD C. MAYER
-------------------------------------------
Name: Ronald C. Mayer
Title: Secretary
</TABLE>
U.S. TRUST CORPORATION
<TABLE>
<S> <C> <C>
By: /s/ H. MARSHALL SCHWARZ
-------------------------------------------
Name: H. Marshall Schwarz
Title: Chairman and CEO
</TABLE>
ATTEST:
<TABLE>
<S> <C> <C>
/s/ JEFFREY S. MAURER
-------------------------------------------
Name: Jeffrey S. Maurer
Title: President
</TABLE>
A-43
<PAGE> 139
APPENDIX B
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF DISTRIBUTION
DATED AS OF , 1995
AMONG
U.S. TRUST CORPORATION
UNITED STATES TRUST COMPANY OF NEW YORK
NEW USTC HOLDINGS CORPORATION
AND
NEW U.S. TRUST COMPANY OF NEW YORK
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 140
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
RECITALS............................................................................. B-1
ARTICLE I
DEFINITIONS
SECTION 1.1.. Definitions........................................................... B-1
ARTICLE II
CAPITALIZATION OF NEW TRUSTCO;
RECAPITALIZATION OF NEW HOLDINGS; MECHANICS OF SPIN-OFFS
SECTION 2.1 Capitalization of New Trustco......................................... B-2
SECTION 2.2 Recapitalization of New Holdings...................................... B-2
SECTION 2.3 Mechanics of Spin-Offs................................................ B-3
SECTION 2.4 Timing of Spin-Offs................................................... B-3
ARTICLE III
ANCILLARY AGREEMENTS
SECTION 3.1 Tax Matters........................................................... B-3
SECTION 3.2 Services Agreement.................................................... B-3
SECTION 3.3 Post Closing Covenants Agreement...................................... B-3
ARTICLE IV
CERTAIN TRANSACTIONS
SECTION 4.1 Transactions Relating to New Trustco Spin-Off......................... B-3
SECTION 4.2 Transactions Relating to New Holdings Spin-Off........................ B-4
SECTION 4.3 Certain Funds......................................................... B-5
SECTION 4.4 Assumed Liabilities................................................... B-5
SECTION 4.5 Further Assurances.................................................... B-5
SECTION 4.6 Benefit Plans......................................................... B-6
SECTION 4.7 Indebtedness.......................................................... B-6
SECTION 4.8 Certain Custody Arrangements.......................................... B-6
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.1 Representations and Warranties of the Company......................... B-6
SECTION 5.2 Representations and Warranties of New Holdings........................ B-6
ARTICLE VI
CERTAIN COVENANTS
SECTION 6.1 Certain Understandings................................................ B-7
</TABLE>
B-i
<PAGE> 141
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE VII
CONDITIONS
SECTION 7.1 Recapitalization of New Holdings...................................... B-8
SECTION 7.2 Tax Allocation Agreement.............................................. B-8
SECTION 7.3 Certain Transactions.................................................. B-8
SECTION 7.4 Conditions to Merger Satisfied........................................ B-8
SECTION 7.5 Stockholder Approval.................................................. B-8
SECTION 7.6 Registration of New Holdings Shares................................... B-8
SECTION 7.7 Quotation on NASDAQ/NMS............................................... B-8
SECTION 7.8 Regulatory Approvals.................................................. B-8
SECTION 7.9 No Injunctions or Restraints.......................................... B-8
SECTION 7.10 Post Closing Covenants Agreement...................................... B-8
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination........................................................... B-8
SECTION 8.2 Amendments and Waivers................................................ B-9
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Counterparts.......................................................... B-9
SECTION 9.2 Governing Law......................................................... B-9
SECTION 9.3 Notices............................................................... B-9
SECTION 9.4 Captions.............................................................. B-9
SECTION 9.5 Assignment............................................................ B-10
SECTION 9.6 Survival of Representations........................................... B-10
SECTION 9.7 Interpretation........................................................ B-10
EXHIBITS
Exhibit A Assumption Agreement [Omitted]
SCHEDULES
Schedule 4.2(b) Company Assets Assigned to New Holdings [Omitted]
</TABLE>
B-ii
<PAGE> 142
AGREEMENT AND PLAN OF DISTRIBUTION, dated as of , 1995 (this
"DISTRIBUTION AGREEMENT"), among U.S. TRUST CORPORATION, a New York corporation
(the "COMPANY"), UNITED STATES TRUST COMPANY OF NEW YORK, a New York State
chartered bank and trust company and a wholly owned subsidiary of the Company
(including any successor by merger, "USTNY"), NEW USTC HOLDINGS CORPORATION, a
New York corporation and a wholly owned subsidiary of the Company ("NEW
HOLDINGS"), and NEW U.S. TRUST COMPANY OF NEW YORK, a New York State chartered
bank and trust company and a wholly owned subsidiary of USTNY ("NEW TRUSTCO").
RECITALS
WHEREAS, the Company and The Chase Manhattan Corporation, a Delaware
corporation ("CMC") have entered into an Agreement and Plan of Merger, dated as
of November 18, 1994 (the "MERGER AGREEMENT"), providing for the Merger (as
defined in the Merger Agreement) of the Company with and into CMC, with CMC as
the surviving corporation;
WHEREAS, immediately prior to the Effective Time (as defined in Section 1.3
of the Merger Agreement), subject to the satisfaction or waiver of the
conditions set forth in Article VII of this Distribution Agreement, (i) the
Board of Trustees of USTNY expects to distribute as a dividend to the Company
all of the outstanding shares of Common Stock (the "NEW TRUSTCO COMMON STOCK"),
par value $1.00 per share, of New Trustco (the "NEW TRUSTCO SPIN-OFF ") and (ii)
the Board of Directors of the Company expects, following the contribution of the
New Trustco Common Stock and certain other assets by the Company to New
Holdings, to distribute as a dividend to the holders of Common Stock of the
Company, par value $1.00 per share (the "COMPANY COMMON STOCK"), on a pro rata
basis, all of the then outstanding shares of Common Stock (the "NEW HOLDINGS
COMMON STOCK"), par value $1.00 per share, of New Holdings (the "NEW HOLDINGS
SPIN-OFF" and, together with the New Trustco Spin-Off, the "SPIN-OFFS" ); and
WHEREAS, the purpose of the Spin-Offs is to make possible the Merger by
divesting the Company of all businesses and operations other than the Retained
Business (as defined in the Merger Agreement). This Distribution Agreement sets
forth or provides for certain agreements among the Company, USTNY, New Holdings
and New Trustco in consideration of the separation of their ownership.
NOW, THEREFORE, in consideration of the premises, and of the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. As used in this Distribution Agreement, the
following terms shall have the following respective meanings (capitalized terms
used but not defined herein shall have the respective meanings ascribed thereto
in the Contribution Agreement):
"CONTRIBUTION AGREEMENT" shall mean the Contribution and Assumption
Agreement dated as of the date hereof between USTNY and New Trustco, in the
form attached as Exhibit II to the Merger Agreement.
"FAIR MARKET VALUE" shall mean, with respect to any asset or property,
the sale value that would be obtained in an arms length transaction between
an informed and willing seller under no compulsion to sell and an informed
and willing buyer under no compulsion to buy.
"LIMIT AMOUNT" shall mean the sum of (i) the amount described in
clause (w) of Section 4.3, plus (ii) the amount described in clause (x)(i)
of Section 4.3, plus (iii) the amount described in clause (y) of Section
4.3.
<PAGE> 143
"MFSC RETAINED LIABILITIES" shall mean the following:
(i) all liabilities to trade creditors and accounts payable of the
Processing Business, but only to the extent fully liquidated and
reflected on the Final MFSC Balance Sheet;
(ii) all duties, obligations and liabilities under Customer
Agreements relating to the Processing Business, but not any liability
for defaults or damages arising before the Closing Date;
(iii) all duties, obligations and liabilities under Contracts
relating to the Processing Business, but not any liability for defaults
or damages arising before the Closing Date;
(iv) all intercompany obligations of MFSC owing to the Company or
USTNY;
(v) all obligations and duties as a lessee under leases, including
the lease at 73 Tremont Street, Boston, MA, between MFSC, as Lessee, and
Tremont Land Holding Company, Inc., as Lessor (the "TREMONT LEASE"); and
(vi) to the extent not included in (i) through (v) above, any
liabilities to the extent reflected on the Final MFSC Balance Sheet.
Notwithstanding anything to the contrary in this Agreement, MFSC
Retained Liabilities shall not include any liability for Taxes, except as
provided in the Tax Allocation Agreement.
"TIME OF DISTRIBUTION" shall mean the time as of which the Spin-Offs
are effective.
"TRANSFER AGENT" shall mean USTNY, the transfer agent for the Company
Common Stock.
"UST-WY RETAINED LIABILITIES" shall mean the following:
(i) all liabilities to trade creditors and accounts payable of the
Processing Business, but only to the extent fully liquidated and
reflected on the Final UST-WY Balance Sheet;
(ii) all duties, obligations and liabilities under Customer
Agreements relating to the Processing Business, but not any liability
for defaults or damages arising before the Closing Date;
(iii) all duties, obligations and liabilities under Contracts
relating to the Processing Business, but not any liability for defaults
or damages arising before the Closing Date;
(iv) all intercompany obligations of UST-WY owing to the Company or
USTNY; and
(v) to the extent not included in (i) through (iv) above, any
liabilities to the extent reflected on the Final UST-WY Balance Sheet.
Notwithstanding anything to the contrary in this Agreement, UST-WY Retained
Liabilities shall not include any liability for Taxes, except as provided in the
Tax Allocation Agreement.
ARTICLE II
CAPITALIZATION OF NEW TRUSTCO; RECAPITALIZATION
OF NEW HOLDINGS; MECHANICS OF SPIN-OFFS
SECTION 2.1. CAPITALIZATION OF NEW TRUSTCO. The authorized capital stock
of New Trustco currently consists of 100 shares of New Trustco Common Stock, all
of which are issued and outstanding and owned beneficially and of record by
USTNY.
SECTION 2.2. RECAPITALIZATION OF NEW HOLDINGS. (a) The authorized capital
stock of New Holdings currently consists of 100 shares of Common Stock, par
value $1.00 per share (the "EXISTING NEW HOLDINGS COMMON STOCK"), all of which
are issued and outstanding and owned beneficially and of record by the Company.
(b) Immediately prior to the Time of Distribution, the Company shall (i)
appropriately cause New Holdings to amend and restate its Certificate of
Incorporation to, among other things, provide (x) for an
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<PAGE> 144
increase in the number of authorized shares of common stock of New Holdings from
the number of shares of Existing New Holdings Common Stock authorized prior to
such amendment and restatement and (y) that the authorized common stock of New
Holdings shall consist of New Holdings Common Stock and (ii) exchange the 100
shares of Existing New Holdings Common Stock owned by the Company for a total
number of shares of New Holdings Common Stock equal to the total number of
shares of Company Common Stock outstanding as of the Record Date (as defined
below) for the Distribution.
SECTION 2.3. MECHANICS OF SPIN-OFFS. The Spin-Offs shall be effected by
(a)(i) the contribution of certain assets by USTNY to New Trustco, and the
assumption of certain liabilities of USTNY by New Trustco, in each case as
provided in the Contribution Agreement and (ii) the declaration and payment of a
dividend by USTNY of all the outstanding capital stock of New Trustco to the
Company, as provided for in this Distribution Agreement, followed by (b)(i) the
contribution of certain assets (including, without limitation, all of the
capital stock of New Trustco and certain other subsidiaries of the Company) by
the Company to New Holdings, and the assumption of certain liabilities of the
Company by New Holdings, in each case as provided for in this Distribution
Agreement and (ii) the distribution to each holder of record of Company Common
Stock, as of the close of the stock transfer books on the record date designated
by or pursuant to the authorization of the Board of Directors of the Company
(the "RECORD DATE"), of certificates representing one share of New Holdings
Common Stock multiplied by the number of shares of Company Common Stock held by
such holder.
SECTION 2.4. TIMING OF SPIN-OFFS. Immediately prior to the Effective Time
subject to the satisfaction or waiver of the conditions set forth in Article
VII, (a) the Board of Trustees of USTNY shall formally declare the New Trustco
Spin-Off and pay it by delivery of certificates for New Trustco Common Stock to
the Company and (b) the Board of Directors of the Company shall formally declare
the New Holdings Spin-Off and pay it by delivery of certificates for New
Holdings Common Stock to the Transfer Agent for delivery to the holders entitled
thereto. The Spin-Offs shall be deemed to be effective upon notification by the
Company to the Transfer Agent that the Spin-Offs have been declared and that the
Transfer Agent is authorized to proceed with the distribution of New Holdings
Common Stock, which notification the Company agrees to deliver promptly
following such declarations.
ARTICLE III
ANCILLARY AGREEMENTS
SECTION 3.1. TAX MATTERS. Prior to the Time of Distribution, the parties
hereto shall execute and deliver an agreement relating to past and future tax
sharing and certain issues associated therewith in the form attached to the
Merger Agreement as Exhibit V (the "TAX ALLOCATION AGREEMENT").
SECTION 3.2. SERVICES AGREEMENT. Prior to the Time of Distribution, USTNY
and New Trustco shall execute and deliver the Services Agreement (as defined in
the Contribution Agreement).
SECTION 3.3. POST CLOSING COVENANTS AGREEMENT. Prior to the Time of
Distribution, the parties hereto shall execute and deliver the Post Closing
Covenants Agreement in the form attached to the Merger Agreement as Exhibit VI
(the "POST CLOSING COVENANTS AGREEMENT").
ARTICLE IV
CERTAIN TRANSACTIONS
SECTION 4.1. TRANSACTIONS RELATING TO NEW TRUSTCO SPIN-OFF. Immediately
prior to the Time of Distribution, subject to the satisfaction or waiver of the
conditions set forth in Article VII:
(a) USTNY and New Trustco shall execute and deliver the Contribution
Agreement; and
(b) Pursuant to the terms of the Contribution Agreement, USTNY shall
assign, transfer, convey and contribute to New Trustco the assets required
therein to be assigned, transferred, conveyed and
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<PAGE> 145
contributed and, in connection therewith, New Trustco shall assume the
liabilities required therein to be assumed.
SECTION 4.2. TRANSACTIONS RELATING TO NEW HOLDINGS SPIN-OFF. Immediately
prior to the Time of Distribution and immediately after (x) the transfers
described in Section 4.1 and (y) the New Trustco Spin-Off, as provided in
Section 2.3, the Company shall, upon the terms and conditions of this
Distribution Agreement, assign, transfer, convey and contribute (or cause the
assignment, transfer, conveyance or contribution of) the following (the
"ACQUIRED ASSETS") to New Holdings:
(a) all of the issued and outstanding capital stock of the following
subsidiaries:
(i) New Trustco;
(ii) U.S. Trust Co. of Florida Savings Bank, a Florida banking
corporation;
(iii) U.S.T.L.P.O. Corp., a Delaware corporation;
(iv) Campbell, Cowperthwait & Company, a Delaware Corporation;
(v) U.S. Trust Co. of California, N.A., a national banking
association;
(vi) U.S. Trust Co. of New Jersey, a New Jersey banking
corporation;
(vii) U.S. Trust Company of Connecticut, a Connecticut banking
corporation;
(viii) UST Financial Services Corp., a New York corporation;
(ix) CTMC Holding Company, an Oregon corporation;
(x) U.S. Trust Company Limited, a New York banking corporation;
(xi) Technologies Holding Corporation, a Delaware corporation; and
(xii) UST Risk Management Services Inc., a New York corporation;
(b)(i) subject to the provisions of Section 4.3, all monies, cash on
hand, deposits with banks, loans, advances, investments (other than equity
investments described in the parenthetical in Section 4.2(b)(iii)) and
securities (other than securities representing equity investments described
in the parenthetical in Section 4.2(b)(iii)) owned by, or held for the
account of, the Company;
(ii) all patents, patent applications, trademarks, trademark
registrations, service marks, tradenames, copyrights, or licenses with
respect thereto, and all rights to the name "U.S. Trust Corporation" or any
other name used or employed by the Company or any of its Affiliates (other
than Mutual Funds Service Company, a Delaware corporation and a wholly
owned subsidiary of the Company ("MFSC"));
(iii) all equity or debt investments of the Company in any
corporation, joint venture, partnership, trust or other business
association (other than the Company's equity investments in MFSC, USTNY and
U.S. Trust Company of Wyoming, a Wyoming corporation and wholly owned
subsidiary of the Company ("UST-WY"));
(iv) all records prepared in connection with the Merger contemplated
by the Merger Agreement or the sale of the Retained Business, including
bids received from other persons and analyses relating to the Processing
Business and all books of account, general, financial, accounting and
personnel records, files, invoices and similar data owned by the Company on
the Closing Date;
(v) all rights relating to the Assumed Liabilities; and
(vi) all assets identified in Schedule 4.2(b);
(c) (i) all monies, cash on hand, deposits with banks, loans,
advances, investments and securities owned by, or held for the account of,
MFSC; and
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<PAGE> 146
(ii) all equity or debt investments of MFSC (other than MFSC's equity
interest in Mutual Funds Service Company (Canada) Ltd.) in any corporation,
joint venture, partnership, trust or other business association;
(d) (i) all monies, cash on hand, deposits with banks, loans,
advances, investments and securities owned by, or held for the account of,
UST-WY;
(ii) all patents, patent applications, trademarks, trademark
registrations, service marks, tradenames, copyrights, or licenses owned by
UST-WY and all rights with respect to the name "U.S. Trust Co. of Wyoming,"
or any similar name used or employed by UST-WY or any of its Affiliates;
and
(iii) all equity or debt investments of UST-WY in any corporation,
joint venture, partnership, trust or other business association.
Anything herein to the contrary notwithstanding, Acquired Assets do not
include the business, properties, assets, goodwill and rights of the Company of
whatever kind and nature, real or personal, tangible or intangible that are
primarily used or held for use in the Processing Business and the Related Back
Office on the Closing Date (other than any names that are Acquired Assets, and
any similar names).
SECTION 4.3. CERTAIN FUNDS. Notwithstanding the foregoing, the Company
shall retain, and not distribute or contribute to New Holdings pursuant to
Section 4.2, cash funds equal to the Retention Amount. The "RETENTION AMOUNT"
shall mean the sum of (w) the aggregate amount, determined as of the close of
business on the day immediately prior to the Closing Date, of the cash payments
required to be made with respect to all stock options granted under the 1989
Stock Compensation Plan of U.S. Trust Corporation and the U.S. Trust Corporation
Stock Option Plan for Non-Employee Directors that have not expired or that have
not been exercised or cancelled prior to the Effective Time (as defined in the
Merger Agreement), determined in accordance with the relevant provisions of each
such plan on the basis of a "Change in Control" having occurred thereunder with
respect to such stock options as a result of the Merger; plus (x) the product of
(i) the aggregate amount, determined as of the close of business on the day
immediately prior to the Closing Date, of the cash payments required to be made
with respect to all outstanding account balances under the Annual Incentive Plan
of U.S. Trust Corporation, determined in accordance with the relevant provisions
of such plan (including any amendment thereof made in accordance with the last
sentence of Section 4.1(h) of the Merger Agreement) on the basis of a "Change in
Control" having occurred thereunder as a result of the Merger, multiplied by
(ii) 0.68875; plus (y) the aggregate amount, determined as of the close of
business on the day immediately prior to the Closing Date, required to pay any
employer payroll taxes, including the employer's share of FICA and FUTA, due on
amounts payable under the plans referred to in clauses (w) and (x); minus (z)
the sum of (i) $5.5 million plus (ii) an amount equal to the MFSC Equity Amount
plus (iii) an amount equal to the UST-WY Equity Amount.
At all times at and after the Closing, the Company will retain and be
solely responsible for, and the Company hereby agrees to pay, perform and
discharge when due, and indemnify New Holdings and hold New Holdings harmless
from and against, all liabilities and obligations, but not in excess of the
Limit Amount, for amounts payable under each of the plans referred to in clauses
(w) and (x)(i) above, and all liabilities and obligations to pay all employer
payroll taxes referred to in clause (y) above.
SECTION 4.4. ASSUMED LIABILITIES. The parties agree that at or prior to
the Time of Distribution, New Holdings shall execute an assumption agreement
substantially in the form attached hereto as Exhibit A, pursuant to which New
Holdings shall, except as otherwise provided in this Distribution Agreement, the
Merger Agreement, the Contribution Agreement or the Tax Allocation Agreement,
assume, or agree to be responsible for, all liabilities of the Company, UST-WY
and MFSC other than the MFSC Retained Liabilities and the UST-WY Retained
Liabilities arising before the Time of Distribution and the liabilities and
obligations referred to in the second paragraph of Section 4.3 (the "ASSUMED
LIABILITIES") .
SECTION 4.5. FURTHER ASSURANCES. (a) The parties agree that if after the
Time of Distribution, either party holds assets which by the terms hereof or of
the Contribution Agreement or the Merger Agreement were intended to be assigned
and transferred to, or retained by, the other party, such party shall promptly
assign and transfer or cause to be assigned and transferred such assets to the
other party.
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SECTION 4.6. BENEFIT PLANS. Prior to the Time of Distribution, the
Company shall transfer each Benefit Plan (as defined in the Merger Agreement)
maintained by it other than any Retained Plan (as defined in the Merger
Agreement) to New Holdings, and New Holdings agrees to assume and become solely
responsible for all liabilities and obligations of the Company under the Benefit
Plans so transferred.
SECTION 4.7. INDEBTEDNESS. Prior to the Time of Distribution, the Company
shall, and shall cause its subsidiaries to, redeem or defease the indebtedness
set forth in Schedule 4.2(c) to the Merger Agreement.
SECTION 4.8. CERTAIN CUSTODY ARRANGEMENTS. Prior to the Time of
Distribution, the Company shall cause its subsidiary, U.S. Trust of the Pacific
Northwest ("PACIFIC NORTHWEST") to enter a sub-custody agreement (the
"SUB-CUSTODY AGREEMENT") with USTNY. The Sub-custody Agreement, in form and
substance mutually satisfactory to the parties thereto, shall provide, in
substance, (i) that USTNY shall furnish sub-custody services with respect to all
assets of Standard Insurance Company of Oregon required by law to be maintained
with a custodian domiciled in the State of Oregon; (ii) for the pass-through to
USTNY of all revenues received with respect to all such custody services
furnished to such Customer; (iii) for indemnification of Pacific Northwest by
USTNY against all losses, expenses, costs or liabilities associated with or
arising from such relationship, except those resulting from its own gross
negligence and (iv) in the event USTNY or its successor, or any Affiliate, is at
any time eligible to furnish sub-custody services directly to such Customer,
then at the request of USTNY or its successor or any Affiliate, Pacific
Northwest shall use its reasonable best efforts to obtain all necessary consents
to substitute USTNY, any successor, or Affiliate, as the case may be, as trustee
or custodian for such Customer.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to New Holdings as follows:
(a) Organization, Standing and Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New York and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now
being conducted.
(b) Authority. The Company has all requisite power and authority to
execute this Distribution Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Distribution
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary action on the part of the Company and
by the stockholders of the Company. This Distribution Agreement has been
duly executed and delivered by the Company and constitutes a legal, valid
and binding obligation of the Company enforceable against it in accordance
with its terms.
(c) No Conflict. The execution, delivery and performance by the
Company of this Distribution Agreement will not contravene, violate, result
in a breach of or constitute a default under (i) any provision of
applicable law or of the certificate of incorporation or by-laws of the
Company or other charter or organizational documents, (ii) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
the Company or any of its properties or assets, (iii) any Material Contract
(as defined in the Merger Agreement) to which the Company is a party or by
which the Company or any of its properties is bound or (iv) any debt
obligation fully defeased and discharged or fully defeased in substance on
or before the Time of Distribution.
(d) Approvals. No consent, approval, order, authorization of, or
registration, declaration or filing with, any Governmental Entity (as
defined in the Contribution Agreement) is required in connection with the
making or performance by the Company of this Distribution Agreement, except
(i) approval of the Board of Governors of the Federal Reserve System, (ii)
filings with or applications to (A) the FDIC (as defined in the Merger
Agreement) and (B) the Banking Department of the State of New York, (iii)
filing with the Securities and Exchange Commission ("SEC") of (A)
potentially, a registration
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<PAGE> 148
statement on Form S-1 and (B) a Form 10 (as defined in the Merger
Agreement), (iv) filings with various state bank regulatory authorities and
(v) application for (A) designation of the New Holdings Common Stock as
national market system securities on the NASDAQ or (B) listing of the New
Holdings Common Stock on the New York Stock Exchange or the American Stock
Exchange.
SECTION 5.2. REPRESENTATIONS AND WARRANTIES OF NEW HOLDINGS. New Holdings
hereby represents and warrants to the Company as follows:
(a) Organization, Standing and Power. New Holdings is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New York and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now
being conducted.
(b) Authority. New Holdings has all requisite power and authority to
execute this Distribution Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Distribution
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary action on the part of New Holdings
and, to the extent required, by the stockholders of New Holdings. This
Distribution Agreement has been duly executed and delivered by New Holdings
and constitutes a legal, valid and binding obligation of New Holdings
enforceable against it in accordance with its terms.
(c) No Conflict. The execution, delivery and performance by New
Holdings of this Distribution Agreement will not contravene, violate,
result in a breach of or constitute a default under (i) any provision of
applicable law or of the certificate of incorporation or by-laws of New
Holdings or other charter or organizational documents or (ii) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
New Holdings or any of its properties or assets.
(d) Approvals. No consent, approval, order, authorization of, or
registration, declaration or filing with, any Governmental Entity (as
defined in the Contribution Agreement) is required in connection with the
making or performance by New Holding of this Distribution Agreement, except
(i) approval of the Board of Governors of the Federal Reserve System, (ii)
filings with or applications to (A) the FDIC (as defined in the Merger
Agreement and (B) the Banking Department of the State of New York, (iii)
filing with the SEC of (A) potentially, a registration statement on Form
S-1 and (B) a Form 10 (as defined in the Merger Agreement), (iv) filings
with various state bank regulatory authorities and (v) application for (A)
designation of the New Holdings Common Stock as national market system
securities on the NASDAQ, or (B) listing of the New Holdings Common Stock
on the New York Stock Exchange or the American Stock Exchange.
ARTICLE VI
CERTAIN COVENANTS
SECTION 6.1. CERTAIN UNDERSTANDINGS. New Holdings acknowledges that
neither the Company nor any other person has made any representation or
warranty, express or implied, as to the accuracy or completeness of any
information regarding the Acquired Assets or Assumed Liabilities not included in
this Distribution Agreement or the schedules hereto. New Holdings acknowledges
that it will acquire the Acquired Assets without any representation or warranty
as to merchantability or fitness for any particular purpose, in an "as is"
condition and on a "where is" basis.
B-7
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ARTICLE VII
CONDITIONS
The obligations of the Company and New Holdings to consummate the Spin-Offs
shall be subject to the fulfillment of each of the following conditions:
SECTION 7.1. RECAPITALIZATION OF NEW HOLDINGS. The recapitalization of
New Holdings in accordance with Section 2.2 hereof shall have been completed
substantially as described therein.
SECTION 7.2. TAX ALLOCATION AGREEMENT. The Tax Allocation Agreement shall
have been executed and delivered by each of the Company and New Holdings.
SECTION 7.3. CERTAIN TRANSACTIONS. All of the transactions or obligations
contemplated by Sections 4.1 and 4.2 hereof to be consummated or performed at or
prior to the Time of Distribution shall have been successfully consummated or so
performed.
SECTION 7.4. CONDITIONS TO MERGER SATISFIED. Each condition to the
closing of the Merger set forth in Article VI of the Merger Agreement, other
than the condition to each party's obligations set forth in Section 6.1(g)
thereof as to the consummation of the transactions contemplated by this
Distribution Agreement, shall have been satisfied or waived.
SECTION 7.5. STOCKHOLDER APPROVAL. This Distribution Agreement and the
New Holdings Spin-Off shall have been approved and adopted by the affirmative
vote of the holders of Company Common Stock entitled to cast at least 66 2/3% of
the total number of votes entitled to be cast.
SECTION 7.6. REGISTRATION OF NEW HOLDINGS SHARES. Any registration
statement filed by New Holdings with the SEC pursuant to the Securities Act of
1933, as amended (the "SECURITIES ACT"), or the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT"), in connection with the issuance of New Holdings
Common Stock in the New Holdings Spin-Off shall have become effective under the
Securities Act or Exchange Act, as applicable, and shall not be the subject of
any stop order or proceeding by the SEC seeking a stop order.
SECTION 7.7. QUOTATION ON NASDAQ/NMS. The shares of New Holdings Common
Stock to be issued in the New Holdings Spin-Off shall have been designated as
national market system securities on the interdealer quotation system by the
National Association of Securities Dealers, Inc. or listed on the New York or
American Stock Exchanges, subject to official notice of issuance.
SECTION 7.8. REGULATORY APPROVALS. All authorizations, consents, orders
or approvals of, or declarations or filings with, or expirations of waiting
periods imposed by, any governmental authority necessary for the consummation of
the transactions contemplated by this Distribution Agreement shall have been
obtained or filed or shall have occurred.
SECTION 7.9. NO INJUNCTIONS OR RESTRAINTS. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Spin-Offs shall be in effect (each party agreeing to use all
reasonable efforts to have any such order reversed or injunction lifted).
SECTION 7.10. POST CLOSING COVENANTS AGREEMENT. The Post Closing
Covenants Agreement shall have been executed and delivered by each of CMC, the
Company, USTNY, New Holdings and New Trustco.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1. TERMINATION. Notwithstanding anything to the contrary in
this Distribution Agreement, this Distribution Agreement may be terminated and
the transactions contemplated hereby abandoned at any time prior to the Closing
by mutual written consent of the Company and New Holdings in the event the
Merger Agreement is terminated by any party thereto in accordance with the terms
thereof.
B-8
<PAGE> 150
SECTION 8.2. AMENDMENTS AND WAIVERS. This Distribution Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto and consented to by CMC. By an instrument in writing, the parties
hereto may waive compliance by any other party with any term or provision of
this Distribution Agreement that such other party was or is obligated to comply
with or perform; provided that no such waiver by the Company, USTNY, MFSC or
UST-WY shall be effective unless consented to by CMC.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1. COUNTERPARTS. For the convenience of the parties hereto,
this Distribution Agreement may be executed in separate counterparts, each such
counterpart being deemed to be an original instrument, and which counterparts
shall together constitute the same agreement.
SECTION 9.2. GOVERNING LAW. This Distribution Agreement shall be governed
by and construed in accordance with the laws of the State of New York, without
reference to its conflicts of law principles.
SECTION 9.3. NOTICES. Any notice, request, instruction or other document
to be given hereunder by any party to any other party shall be in writing and
shall be deemed to have been duly given (i) on the first Business Day occurring
on or after the date of transmission if transmitted by facsimile (upon
confirmation of receipt by journal or report generated by the facsimile machine
of the party giving such notice), (ii) on the first Business Day occurring on or
after the date of delivery if delivered personally or (iii) on the first
Business Day following the date of dispatch if dispatched by Federal Express or
other next-day courier service. All notices hereunder shall be given as set
forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
If to the Company or USTNY:
c/o The Chase Manhattan Corporation
One Chase Manhattan Plaza
New York, New York 10081
Attention: Robert M. MacAllister
with a copy (which shall not constitute notice) to:
O'Melveny & Myers
153 East 53rd Street
New York, New York 10022
Attention: William H. Satchell
If to New Holdings or New Trustco:
c/o U.S. Trust Corporation
114 West 47th Street
New York, New York 10036
Attention: Maureen Scannell Bateman
with a copy (which shall not constitute notice) to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: B. Robbins Kiessling
SECTION 9.4. CAPTIONS. All Article, Section and paragraph captions herein
are for convenience of reference only, do not constitute part of this
Distribution Agreement and shall not be deemed to limit or otherwise affect any
of the provisions hereof.
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<PAGE> 151
SECTION 9.5. ASSIGNMENT. Except as expressly provided herein, nothing
contained in this Distribution Agreement is intended to confer on any person or
entity other than the parties hereto and their respective successors and
permitted assigns any benefit, rights or remedies under or by reason of this
Distribution Agreement, except that the provisions of Sections 5.1 and 5.2
hereof shall inure to the benefit of the persons referred to therein.
SECTION 9.6. SURVIVAL OF REPRESENTATIONS. The representations and
warranties of New Holdings and New Trustco contained in this Agreement shall
survive the Closing and shall terminate at the close of business two years
following the Closing Date. The representations of the Company and USTNY
contained in this Agreement shall terminate on the Closing Date.
SECTION 9.7. INTERPRETATION. When a reference is made in this
Distribution Agreement to a Section, Schedule or Exhibit, such reference shall
be to a Section, Schedule or Exhibit of this Distribution Agreement unless
otherwise indicated. The table of contents and headings contained in this
Distribution Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Distribution Agreement. Whenever
the words "included", "includes" or "including" are used in this Distribution
Agreement, they shall be deemed to be followed by the words "without
limitation". All accounting terms not defined in this Distribution Agreement
shall have the meanings determined by generally accepted accounting principles.
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<PAGE> 152
IN WITNESS WHEREOF, this Distribution Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first written above.
U.S. TRUST CORPORATION
By:
--------------------------------------
Name:
Title:
UNITED STATES TRUST COMPANY OF
NEW YORK
By:
--------------------------------------
Name:
Title:
NEW USTC HOLDINGS CORPORATION
By:
--------------------------------------
Name:
Title:
NEW U.S. TRUST COMPANY OF NEW YORK
By:
--------------------------------------
Name:
Title:
MUTUAL FUNDS SERVICE COMPANY, for
purposes of Section 4.2(c) only,
By:
--------------------------------------
Name:
Title:
U.S. TRUST COMPANY OF WYOMING, for
purposes of Section 4.2(d) only,
By:
--------------------------------------
Name:
Title:
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<PAGE> 153
APPENDIX C
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONTRIBUTION AND ASSUMPTION AGREEMENT
DATED AS OF , 1995
BETWEEN
UNITED STATES TRUST
COMPANY OF NEW YORK
AND
NEW U.S. TRUST COMPANY OF NEW YORK
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 154
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
RECITALS............................................................................. C-1
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions.......................................................... C-1
ARTICLE II
CONTRIBUTION OF ASSETS AND ASSUMPTION OF LIABILITIES
SECTION 2.1. Contribution......................................................... C-10
SECTION 2.2. Acquired Assets and Retained Assets.................................. C-10
SECTION 2.3. Assumption of Certain Liabilities.................................... C-13
SECTION 2.4. Benefit Plans; Employee Matters...................................... C-14
SECTION 2.5. Capital Notes........................................................ C-14
SECTION 2.6. Delayed Assets and Liabilities....................................... C-15
SECTION 2.7. Estimated and Final Balance Sheets; Eligible Investment Retention.... C-15
ARTICLE III
THE CLOSING
SECTION 3.1. Closing Date......................................................... C-16
SECTION 3.2. Transactions To Be Effected at the Closing........................... C-16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. Representations and Warranties of USTNY.............................. C-17
SECTION 4.2. Representations and Warranties of New Trustco........................ C-17
ARTICLE V
COVENANTS
SECTION 5.1. Items in Transit..................................................... C-18
SECTION 5.2. Further Assurances................................................... C-18
SECTION 5.3. Certain Understandings............................................... C-19
SECTION 5.4. Use of Name.......................................................... C-19
SECTION 5.5. Transferred Processing Receivables................................... C-19
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Each Party's Obligation................................ C-19
SECTION 6.2. Conditions to Obligations of New Trustco............................. C-20
SECTION 6.3. Conditions to the Obligation of USTNY................................ C-20
</TABLE>
C-i
<PAGE> 155
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. Termination.......................................................... C-21
SECTION 7.2. Amendments and Waivers............................................... C-21
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1. Notices.............................................................. C-21
SECTION 8.2. Interpretation....................................................... C-22
SECTION 8.3. Survival of Representations.......................................... C-22
SECTION 8.4. Severability......................................................... C-22
SECTION 8.5. Counterparts......................................................... C-22
SECTION 8.6. Entire Agreement; Third Party Beneficiaries.......................... C-22
SECTION 8.7. Governing Law........................................................ C-22
SECTION 8.8. Consent to Jurisdiction; Waiver of Jury Trial........................ C-22
SECTION 8.9. Certain Disputes..................................................... C-23
SECTION 8.10. Assignment........................................................... C-24
</TABLE>
C-ii
<PAGE> 156
EXHIBITS [OMITTED]
<TABLE>
<S> <C>
Exhibit A Assumption Agreement
Exhibit B Final Balance Sheets
Exhibit C Broadway Sublease Term Sheet
</TABLE>
SCHEDULES [OMITTED]
<TABLE>
<S> <C>
Schedule 1.1A Significant Accounting Principles
Schedule 1.1B Computer Leases
Schedule 1.1C Customers who are Affiliates; Customers through Sub-Agreements
Schedule 1.1D IAS Business Exclusions
Schedule 1.1E September Balance Sheets
Schedule 2.2(a)(v) UST Branch Offices
Schedule 2.2(a)(vi) Acquired Business Leases
Schedule 2.2(a)(xv) Ownership Interests
Schedule 2.2(a)(xxiv) Certain Acquired Assets
</TABLE>
C-iii
<PAGE> 157
CONTRIBUTION AND ASSUMPTION AGREEMENT
CONTRIBUTION AND ASSUMPTION AGREEMENT dated as of , 1995 (the
"AGREEMENT" or "CONTRIBUTION AGREEMENT"), between UNITED STATES TRUST COMPANY OF
NEW YORK, a New York State chartered bank and trust company (including any
successor by merger, "USTNY"), and NEW U.S. TRUST COMPANY OF NEW YORK, a New
York State chartered bank and trust company and a wholly owned subsidiary of
USTNY ("NEW TRUSTCO").
RECITALS
WHEREAS, U.S. Trust Corporation, a New York corporation (the "COMPANY"), of
which USTNY is a wholly owned subsidiary, and The Chase Manhattan Corporation, a
Delaware corporation ("CMC"), have entered into an Agreement and Plan of Merger,
dated as of November 18, 1994 (the "MERGER AGREEMENT"), providing for the Merger
(as defined in the Merger Agreement) of the Company with and into CMC, with CMC
as the surviving corporation;
WHEREAS, immediately prior to the Effective Time (as defined in Section 1.3
of the Merger Agreement), subject to the satisfaction or waiver of the
conditions set forth in Article VI of this Contribution Agreement and the
consummation of the transactions contemplated hereby, (i) the Board of Trustees
of USTNY expects to distribute as a dividend to the Company all of the
outstanding shares of Common Stock (the "NEW TRUSTCO COMMON STOCK"), par value
$1.00 per share, of New Trustco (the "NEW TRUSTCO SPIN-OFF"), (ii) the Board of
Directors of the Company expects to contribute the New Trustco Common Stock and
certain other assets of the Company to New USTC Holdings Corporation, a New York
corporation ("NEW HOLDINGS"), which will be a newly formed wholly owned
subsidiary of the Company, and (iii) the Board of Directors of the Company
expects, following the contribution of the New Trustco Common Stock to New
Holdings, to distribute as a dividend to the holders of Common Stock of the
Company, par value $1.00 per share (the "COMPANY COMMON STOCK"), on a pro rata
basis, all of the then outstanding shares of Common Stock (the "NEW HOLDINGS
COMMON STOCK"), par value $1.00 per share, of New Holdings (the "NEW HOLDINGS
SPIN-OFF" and, together with the New Trustco Spin-Off, the "SPIN-OFFS"); and
WHEREAS, the purpose of the Spin-Offs is to make possible the Merger by
divesting the Company of all businesses and operations other than the Retained
Business (as defined in the Merger Agreement). This Contribution Agreement
provides for the transfer to, and assumption by, New Trustco, in anticipation of
the New Trustco Spin-Off, of the businesses, assets and liabilities of USTNY
other than the Processing Business and the Related Back Office and the assets
and liabilities relating thereto (the "CONTRIBUTION"), and sets forth certain
agreements between USTNY and New Trustco in respect thereof.
NOW, THEREFORE, in consideration of the premises, and of the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. For purposes of this Agreement, the terms
defined in the recitals hereto shall have the meanings assigned to them in such
recitals, and the following terms shall have the meanings set forth below:
"ABANDONED PROPERTY" shall mean any funds or securities which are
payable or deliverable to third parties in connection with USTNY's
activities as trustee, custodian, paying agent or in a similar capacity,
and which have become "abandoned property" within the meaning of the New
York Abandoned Property Law or other applicable Federal or state laws
(regardless of whether such property has been delivered by USTNY to any
governmental authority entitled to or responsible for abandoned property).
"ACCOUNTING PRINCIPLES" shall mean the accounting principles set forth
on Schedule 1.1A hereto.
"ACQUIRED ASSETS" shall have the meaning assigned to such term in
Section 2.2(a).
<PAGE> 158
"ACQUIRED BUSINESS" shall mean all the businesses of USTNY, including
the Asset and Investment Management Business, the Corporate Trust and
Agency Business and the Private Banking Business, other than the Processing
Business and the Related Back Office.
"ACQUIRED THIRD-PARTY SERVICE AGREEMENTS" shall mean the third-party
services agreements related to the Related Back Office and maintained for,
and used predominantly by, the Acquired Business.
"ADJUSTMENT AMOUNT" shall mean the sum of (i) the excess of (A) the
aggregate amount of the Statement Liabilities on the Final Processing
Balance Sheet over (B) the aggregate amount of the Statement Assets
(without inclusion of any Eligible Investments or funds to be retained by
USTNY at the Closing pursuant to Section 2.7(b)), minus(ii) the MFSC Equity
Amount, plus (iii) the Computer Lease Adjustment Amount, plus (iv) the
Retained Bank Plans Amount, plus (v) the Real Property Transfer Tax Amount,
plus (vi) the Transition Bonus Amount, plus (vii) the Post-Retirement
Benefit Adjustment Amount, plus (viii) the Put Adjustment Amount, minus
(ix) the UST-WY Equity Amount, plus (x) the sum of (A) $5.5 million plus
(B) an amount equal to the MFSC Equity Amount plus (C) an amount equal to
the UST-WY Equity Amount.
"AFFILIATE" shall mean, when used with respect to a specified person,
another person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control
with the person specified.
"ANTICIPATION ADVANCES" shall have the meaning assigned to such term
in Section 2.2(b).
"ASSET AND INVESTMENT MANAGEMENT BUSINESS" shall mean the asset and
investment management business of USTNY and its Affiliates ("AIM"), as
conducted in the case of USTNY by its Asset Management Group, which
consists of administration of personal and family trusts and estates,
estate planning services, providing special fiduciary services,
broker-dealer services, custody services with respect to assets managed by
AIM, providing tax services and financial counseling and acting as a
discretionary trustee or an investment manager for stocks, bonds,
separately managed or pooled accounts, common trust funds and other
financial assets for individuals and entities including without limitation,
mutual funds, institutions and employee benefit plans.
"ASSET MANAGEMENT SYSTEM" shall mean the computer software (including
all source and object codes, manuals and related documentation) comprising
the core trust and custody software system utilized by USTNY in the
Processing Business and its other businesses, which system is owned by
Financial Technologies International, L.P. ("FTI"). The Asset Management
System includes both the AMS/Open Product (consisting of the (i) AMS/Open
Customer Information System Product, (ii) AMS/Open Access Security Product,
(iii) Investor Information Workbench Product, (iv) Administrators
Information Workbench Product and (v) Global Securities Industry Relational
Data Model) and the AMS/1 System.
"ASSET MANAGEMENT SYSTEM AGREEMENTS" shall mean any and all agreements
with FTI or any third party relating to the Asset Management System,
including (i) the letter agreement between FTI and USTNY dated August 29,
1994, relating to the AMS/1 system, (ii) the letter agreement between FTI
and USTNY dated August 29, 1994, relating to the AMS/Open Product, and
(iii) the Demonstration and Licensing Agreement between FTI and USTNY dated
August 29, 1994.
"ASSUMED LIABILITIES" shall have the meaning assigned to such term in
Section 2.3(a).
"ASSUMPTION AGREEMENT" shall mean an assumption agreement in the form
of Exhibit A, pursuant to which New Trustco confirms its assumption of, and
its agreement to pay, perform and discharge, the Assumed Liabilities.
"BANK PROCESSING SERVICES" shall mean loan processing services,
deposit processing services, check processing services, payments processing
services, cash management processing services, electronic funds transfer
services, ATM switching and settlement services, related bank records and
retrieval services, and other related processing services.
C-2
<PAGE> 159
"BOOK VALUE" shall mean, with respect to any asset or liability, the
dollar amount thereof reflected in the accounting records of USTNY. The
Book Value of any item shall be determined as of the Closing Date after
adjustments made by USTNY for suspense items, unposted debits and credits
and other similar adjustments or corrections. Without limiting the
foregoing, the Book Value of (i) a Retained Liability shall include all
accrued and unpaid interest thereon as of the Closing Date, (ii) an
overdraft or loan shall reflect adjustments for accrued but unpaid
interest, (iii) a Retained Asset that is a financial asset shall not
include adjustments for reserves in the accounting records of USTNY and
(iv) any other Retained Asset shall be reflected net of applicable
depreciation and amortization.
"BROADWAY LEASE" shall mean the Lease Agreement dated as of June 20,
1980, as amended, between New York Equities, Inc., as Lessor, and USTNY, as
Lessee, relating to space in the building located at 770 Broadway, New
York, New York.
"BROADWAY LEASE PUT" shall mean the letter agreement dated November 8,
1994, between New York Equities Company and USTNY relating to the potential
subletting, at the option of USTNY, to New York Equities Company of certain
floors covered by the Broadway Lease.
"BROADWAY SUBLEASE" shall mean a sublease between USTNY as sublessor,
and New Trustco as sublessee, relating to portions of the premises at 770
Broadway, New York, New York, to be entered into on substantially the terms
set forth on the Term Sheet attached as Exhibit C.
"BUSINESS DAY" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of New York) on which banks
are open for business in New York City.
"CAPITAL NOTES" shall mean the 8 1/2% Capital Notes due 2001 of USTNY.
"CLOSING" shall mean the closing hereunder of the assignment and
transfer of the Acquired Assets and the transfer and assumption of the
Assumed Liabilities.
"CLOSING DATE" shall mean the date on which the Closing occurs.
"CMB" shall mean The Chase Manhattan Bank (National Association), a
national banking association and a wholly owned subsidiary of CMC.
"CMC" shall have the meaning assigned to such term in the Recitals
hereof.
"COMPANY" shall have the meaning assigned to such term in the Recitals
hereof.
"COMPANY COMMON STOCK" shall have the meaning assigned to such term in
the Recitals hereof.
"COMPUTER LEASE" shall mean any lease under which USTNY is the lessee
of data processing equipment or computer hardware used solely or
predominantly to support, or reasonably necessary to the conduct of, the
Processing Business and the Related Back Office. Any lease or licensing
agreement for system or application software that is hard-coded into such
equipment or computer hardware shall constitute a Computer Lease.
"COMPUTER LEASE ADJUSTMENT AMOUNT" shall mean the product of (x) the
aggregate termination payments that would be required to be made to the
lessors under the Computer Leases listed on Schedule 1.1B if such leases
were terminated effective as of the Closing Date, determined in each case
by agreement of New Trustco and CMC in accordance with the terms of the
relevant lease multiplied by (y) 0.585.
"CONTRACTS" shall have the meaning assigned to such term in Section
2.2(b).
"CONTRIBUTION" shall have the meaning assigned to such term in the
Recitals hereof.
"CONTROL" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise, and "Controlling" and "Controlled" shall have meanings
correlative thereto.
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"CORPORATE TRUST AND AGENCY BUSINESS" shall mean the corporate trust
and agency business of USTNY and its Affiliates, which consists of acting
as trustee for the holders of interests representing obligations under
bonds, debentures, leases, structured obligations, derivative and
asset-backed securities, and voting trusts, acting as registrar, tender
agent, voting trustee, solicitation agent, drawing agent, authenticating
agent, warrant agent, paying agent, issuing agent, depositary or exchange
agent for cash, securities or other property (other than Registered
Investment Company securities), acting as fiscal agent under public bond
resolutions, acting as an escrow agent, transfer agent or collateral agent
for public and private corporations, partnerships (but not Registered
Investment Companies) and municipalities and acting as bond immobilization
agent.
"CUSTOMER AGREEMENTS" shall mean any contracts, agreements, trusts,
indentures, arrangements and other understandings between USTNY and any
Customer, including any indirect arrangement under which an Affiliate of
USTNY has appointed USTNY to act as subcustodian, sub-agent or in a similar
capacity, pursuant to which the Processing Business renders Processing
Services to such Customers.
"CUSTOMERS" shall mean the customers and clients (other than Excluded
Customers) of the Processing Business in their capacity as such. Without
limiting the foregoing, the term "Customers" includes, in the case of the
UIT Business, Unit Trusts and sponsors of Unit Trusts; in the case of the
MFS Business, Investment Companies and Investment Company sponsors and
managers; and in the case of the IAS Business, insurance companies, banks,
limited partnerships, endowments, foundations and pension, retirement and
benefit plans. Notwithstanding anything to the contrary contained in this
Agreement, except to the extent specified on Schedule 1.1C, neither the
Company nor any subsidiary of the Company shall be deemed to be a Customer.
Each person who has an indirect customer or client relationship with the
Processing Business through an Affiliate of USTNY that has appointed USTNY
to act as subcustodian, sub-agent or in a similar capacity, shall be deemed
a Customer for purposes hereof and are identified on Schedule 1.1C.
"DATA PROCESSING LICENSE" shall mean a lease or licensing agreement,
and any related support agreements, under which USTNY is the lessee of or
has a license to use systems or application software, which is used to
support, or is reasonably necessary to the conduct of, the UIT Business,
the MFS Business or the IAS Business, other than (i) any such lease or
licensing agreement that is a Computer Lease and (ii) the Asset Management
System Agreements.
"DELAYED ASSET" shall have the meaning assigned to such term in
Section 2.6(a).
"DELAYED LIABILITY" shall have the meaning assigned to such term in
Section 2.6(a).
"DEPOSIT" shall mean a deposit, as defined in 12 U.S.C. 1813(1),
including all uncollected items included in a depositor's balance and
credited on the books of USTNY.
"DISTRIBUTION AGREEMENT" shall mean the Agreement and Plan of
Distribution, substantially in the form of Exhibit I to the Merger
Agreement, to be entered into among the Company, USTNY, New Holdings and
New Trustco, pursuant to which, among other things, the Spin-Offs will be
effected.
"DOCUMENTS" shall mean this Agreement, the Assumption Agreement, the
Merger Agreement, the Distribution Agreement, the Post Closing Covenants
Agreement, the Tax Allocation Agreement, the Services Agreement, the
Forty-Seventh Street Lease Assignment, the Broadway Sublease and the
License Agreement.
"ELIGIBLE INVESTMENTS" shall mean direct obligations of the United
States of America having at the Closing Date a remaining term to maturity
not in excess of one year.
"ESTIMATED BALANCE SHEETS" shall mean the Estimated Processing Balance
Sheet, the Estimated MFSC Balance Sheet and the Estimated UST-WY Balance
Sheet.
"ESTIMATED MFSC BALANCE SHEET" shall mean a balance sheet prepared by
USTNY with respect to the assets and liabilities of MFSC as of the close of
business on the day immediately prior to the Closing Date, but giving
effect to the transfers of assets of MFSC to New Holdings contemplated by
Section 4.2
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of the Distribution Agreement. The Estimated MFSC Balance Sheet shall be in
the form of Exhibit B and shall be prepared in accordance with the
Accounting Principles on the same basis as MFSC's audited balance sheet for
its fiscal year ended December 31, 1993 and in accordance with the
provisions of Section 2.7.
"ESTIMATED UST-WY BALANCE SHEET" shall mean a balance sheet prepared
by USTNY with respect to the assets and liabilities of UST-WY as of the
close of business on the day immediately prior to the Closing Date, but
giving effect to the transfers of assets of UST-WY to New Holdings
contemplated by Section 4.2 of the Distribution Agreement. The Estimated
UST-WY Balance Sheet shall be in the form of Exhibit B and shall be
prepared in accordance with the Accounting Principles on the same basis as
UST-WY's balance sheet for its fiscal year ended December 31, 1993 and in
accordance with the provisions of Section 2.7.
"ESTIMATED PROCESSING BALANCE SHEET" shall mean an estimated balance
sheet prepared by USTNY with respect to the Retained Assets and Retained
Liabilities of USTNY (to the extent they would appear on a balance sheet
prepared in accordance with the Accounting Principles) as of the close of
business on the day immediately prior to the Closing Date. The Estimated
Processing Balance Sheet shall be in the form of Exhibit B, and shall be
prepared in accordance with the provisions of Section 2.7.
"EXCLUDED CUSTOMERS" shall mean Lafayette College Endowment, Hallmark
Cards and Florida Prepaid College Program.
"FEDERAL FUNDS RATE" shall mean, for any day, the weighted average of
the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published on
the next succeeding Business Day by The Wall Street Journal, Eastern
Edition or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day for such
transactions received by CMB from three Federal funds brokers of recognized
standing selected by it.
"FINAL BALANCE SHEETS" shall mean the Final Processing Balance Sheet,
the Final MFSC Balance Sheet and the Final UST-WY Balance Sheet.
"FINAL MFSC BALANCE SHEET" shall mean a balance sheet prepared by
USTNY with respect to the assets and liabilities of MFSC as of the close of
business on the day immediately prior to the Closing Date, but giving
effect to the transfers of assets of MFSC to New Holdings contemplated by
Section 4.2 of the Distribution Agreement. The Final MFSC Balance Sheet
shall be in the form of Exhibit B and shall be prepared in accordance with
the Accounting Principles on the same basis as MFSC's audited balance sheet
for its fiscal year ended December 31, 1993 and in accordance with the
provisions of Section 2.7.
"FINAL PROCESSING BALANCE SHEET" shall mean a balance sheet prepared
by USTNY with respect to the Retained Assets and Retained Liabilities of
USTNY (to the extent they would appear on a balance sheet prepared in
accordance with the Accounting Principles) as of the close of business on
the day immediately prior to the Closing Date. The Final Processing Balance
Sheet shall be in the form of Exhibit B, and shall be prepared in
accordance with the provisions of Section 2.7.
"FINAL UST-WY BALANCE SHEET" shall mean a balance sheet prepared by
USTNY with respect to the assets and liabilities of UST-WY as of the close
of business on the day immediately prior to the Closing Date, but giving
effect to the transfers of assets of UST-WY to New Holdings contemplated by
Section 4.2 of the Distribution Agreement. The Final UST-WY Balance Sheet
shall be in the form of Exhibit B and shall be prepared in accordance with
the Accounting Principles on the same basis as UST-WY's balance sheet for
its fiscal year ended December 31, 1993 and in accordance with the
provisions of Section 2.7.
"FIXTURES" shall mean all leasehold improvements, additions and
alterations to leasehold premises as of the Closing Date.
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"FLOAT AMOUNT" shall mean the amount, as reflected on the Final
Balance Sheets, of any check, draft, payment order or similar item
originating from the Processing Business and payable by or drawn upon a
Customer account at USTNY that has not, as of the close of business on the
day immediately prior to the Closing Date, been paid by or charged against
such account.
"FORTY-SEVENTH STREET LEASE" shall mean, collectively, the Lease dated
as of September 10, 1987, between 46-47 Associates, as Lessor, and USTNY,
as Lessee, relating to space at 114 West 47th Street, New York, New York;
the Subordination Agreement dated as of September 10, 1987, between USTNY
and 1133 Building Corp.; the Right of First Refusal dated as of September
10, 1987, between USTNY and 46-47 Associates; and the Agreement dated as of
September 10, 1987, among USTNY, 46-47 Associates and 1155 Office Building
Corp.; each agreement heretofore entered into by USTNY relating to or
supplementing any of the foregoing; and each amendment, clarification and
modification to or under any of the foregoing, all as set forth, or
incorporated by reference in Exhibits 10.5, 10.6, 10.7 and 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1993, filed with the SEC.
"FORTY-SEVENTH STREET LEASE ASSIGNMENT" shall mean, collectively, the
assignments to New Trustco of, and assumption by New Trustco of, all
USTNY's rights, benefits, duties and obligations under the Forty-Seventh
Street Lease. The Forty-Seventh Street Lease Assignment shall be in such
form as may be agreed to by New Trustco, USTNY and other parties thereto
and approved by CMC.
"FURNITURE AND EQUIPMENT" shall mean the furniture and equipment
(other than equipment subject to a Computer Lease) owned or (to the extent
of the lessee's interest) leased by USTNY as of the Closing Date that, in
each case, is currently used in, or is reasonably necessary for, the
conduct of the Processing Business and Related Back Office.
"GOVERNMENTAL ENTITY" shall mean any Federal, state or local
government or any court, administrative agency or commission or other
governmental authority or agency or self-regulatory agency, domestic or
foreign.
"IAS BUSINESS" shall mean the institutional asset services business of
USTNY and its Affiliates, as conducted by the Company's Institutional Asset
Services Division, which includes master trust and custody services,
zero-balance account services conducted for Customers (including Merrill
Lynch and Nike), securities processing services, global custody services,
on-line accounting and reporting, quantitative analysis, securities lending
services, short term money management services related to custody services,
investment manager services, rabbi trust services, benefit payment services
and portfolio performance evaluation services, in each case, provided to
corporate employee retirement, pension or benefit funds, 401(k) plans,
public funds, endowments and foundations, limited liability companies,
group trusts, insurance companies and financial institutions; provided,
however, that the IAS Business does not include (i) USTNY's corporate,
municipal and employee stock ownership plan trust and agency business, (ii)
the business conducted by CTMC Holding Company, an Oregon corporation, and
U.S. Trust of the Pacific Northwest, an Oregon corporation, in each case,
as described on Schedule 1.1D hereto or (iii) the business conducted by the
Special Fiduciary Division of U.S. Trust of California, as described on
Schedule 1.1D hereto, or, in each case, any assets, liabilities, agreements
or personnel thereof, or used exclusively therewith, and not of, or
reasonably necessary to, the conduct of the Processing Business.
"LICENSE AGREEMENT" shall mean a Software License Agreement
substantially in the form of Exhibit IV to the Merger Agreement.
"LIEN" shall mean any mortgage, lien, pledge, charge, assignment for
security purposes or security interest.
"LIQUIDATION VALUE" shall mean with respect to any unit of any
Eligible Investment on any Business Day, (i) the price at which such unit
is sold on such Business Day or at the opening of the market on the next
following Business Day or (ii) if such unit is not so sold, the average of
the bid price for such unit on
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that Business Day obtained by CMB from three established dealers on the
principal United States inter-dealer market in which such Eligible
Investment is regularly traded.
"MERGER AGREEMENT" shall have the meaning assigned to such term in the
Recitals hereof.
"MFS BUSINESS" shall mean the mutual funds services business of the
Company and its subsidiaries (including MFSC), which includes providing
domestic and global custody, transfer agency, fund accounting, funds
administration, securities lending and related banking and cash management
services to Registered Investment Companies.
"MFSC" shall mean Mutual Funds Service Company, a Delaware corporation
and a wholly owned subsidiary of the Company.
"MFSC EQUITY AMOUNT" shall mean the amount of MFSC's net worth as
shown as a liability on the Estimated MFSC Balance Sheet and the Final MFSC
Balance Sheet, which shall be equal to the excess of (x) the aggregate
assets reflected on such balance sheet over (y) the aggregate liabilities
reflected on such balance sheet.
"NEW HOLDINGS" shall have the meaning assigned to such term in the
Recitals hereof.
"NEW HOLDINGS COMMON STOCK" shall have the meaning assigned to such
term in the Recitals hereof.
"NEW HOLDINGS SPIN-OFF" shall have the meaning assigned to such term
in the Recitals hereof.
"NEW TRUSTCO" shall have the meaning assigned to such term in the
introduction hereof.
"NEW TRUSTCO COMMON STOCK" shall have the meaning assigned to such
term in the Recitals hereof.
"NEW TRUSTCO DOCUMENTS" shall have the meaning assigned to such term
in Section 4.2(b).
"NEW TRUSTCO SPIN-OFF" shall have the meaning assigned to such term in
the Recitals hereof.
"PERSON" shall mean any natural person, corporation, partnership,
business trust, joint venture, association, company or government, or any
agency or political subdivision thereof.
"POST CLOSING COVENANTS AGREEMENT" shall mean an agreement among CMC,
CMB, the Company, USTNY, New Holdings and New Trustco in the form of
Exhibit VI to the Merger Agreement, relating to certain post-closing
obligations of the parties thereto.
"POST-RETIREMENT BENEFIT ADJUSTMENT AMOUNT" shall mean $1,750,000.
"PRIVATE BANKING BUSINESS" shall mean the private banking business of
USTNY and its Affiliates which consists of the provision of a full range of
commercial banking and fiduciary services to individuals, families, family
offices, partnerships and other entities. Services and products provided by
the Private Banking Business include checking accounts, money market
accounts, certificates of deposit, secured and unsecured loans, mortgage
loans, lines of credit, letters of credit, custody and securities
administration services, secured broker loans and cash management services
offered to securities industry participants and financial institutions
(other than Customers).
"PROCESSING BUSINESS" shall mean the UIT Business, the MFS Business
and the IAS Business, collectively.
"PROCESSING BUSINESS ABANDONED PROPERTY" shall mean Abandoned Property
relating to Termination Account Liabilities and to other claims arising
from accounts of Customers.
"PROCESSING SERVICES" shall mean those services which, as of the date
hereof, are being regularly and customarily provided to Customers by the
UIT Business, the MFS Business and the IAS Business.
"PUT ADJUSTMENT AMOUNT" shall mean $250,000.
"REAL PROPERTY TRANSFER TAX AMOUNT" shall mean the product of (i) the
aggregate amount of New York City real property transfer and real property
transfer gains taxes payable by USTNY in connection
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with the transfer to New Trustco of the Forty-Seventh Street Lease and
other leasehold interests as part of the Contribution and in connection
with USTNY's entry into the Broadway Sublease and (ii) 0.585.
"REGISTERED INVESTMENT COMPANY" shall mean an "investment company", as
such term is defined in Section 3 of the Investment Company Act of 1940, as
amended, which is registered as an investment company with the SEC in
accordance with Section 8 of such Act.
"RELATED BACK OFFICE" shall mean USTNY's Computer Services Division
and Securities Services and Trust Operations Division, including the
computer equipment, laser printers, bar coding and mailing machines, other
furniture, fixtures and equipment, inventory and supplies and other
property and assets thereof (but not stationery or other forms or blanks
reflecting USTNY's or any similar name), but not including any furniture,
fixtures, equipment or facilities solely related to providing Bank
Processing Services.
"RELATED SCHEDULES" shall have the meaning assigned to such term in
Section 2.7(b).
"REQUIRED CONSENT" shall mean, with respect to any agreement, lease or
contract, any consent, waiver or agreement of any party thereto (other than
USTNY) or of any other person that is legally required in order to effect
the assignment and transfer thereof to New Trustco, the assumption thereof
by New Trustco, and the release therefrom of USTNY, as contemplated hereby.
For purposes hereof, a Required Consent may be obtained pursuant to a
waiver of consent and release and shall also be deemed to have been
obtained if a person party to such agreement, lease or contract agrees to
enter into (or enters into) an agreement with New Trustco or an Affiliate
of New Trustco (a "SUBSTITUTE AGREEMENT"), which supersedes, and releases
USTNY from, and serves a substantially similar function as, such agreement,
lease or contract.
"RETAINED ASSETS" shall have the meaning assigned to such term in
Section 2.2(b).
"RETAINED BANK PLAN AMOUNT" shall mean the sum of the aggregate
amounts, determined as of the close of business on the day immediately
prior to the Closing Date, of the cash payments (i) required to be made as
of or after the Effective Time under the 1986 Stock Option Plan, plus (ii)
required to pay employer payroll taxes, including the employer's share of
FICA and FUTA, due with respect to the payments described in clause (i)
above.
"RETAINED EMPLOYEES" shall have the meaning assigned to such term in
Section 5.8(a) of the Merger Agreement.
"RETAINED LIABILITIES" shall have the meaning assigned to such term in
Section 2.3(b).
"SEC" shall mean the Securities and Exchange Commission.
"SEPTEMBER BALANCE SHEETS" shall mean the balance sheets of (i) the
Processing Business and the Related Back Office, (ii) MFSC and (iii)
UST-WY, in each case at September 30, 1994, as set forth on Schedule 1.1E
hereto.
"SERVICES AGREEMENT" shall mean an agreement or agreements between
USTNY and New Trustco to be entered into substantially on the terms set
forth in the Services Agreement Term Sheet dated the date of the Merger
Agreement and signed for identification purposes on behalf of the Company
and CMC.
"SPIN-OFFS" shall have the meaning assigned to such term in the
Recitals hereof.
"STATEMENT ASSETS" shall mean all the assets of the Processing
Business and the Related Back Office reflected on the Final Processing
Balance Sheet, including the Eligible Investments and funds to be retained
by USTNY on the Closing Date.
"STATEMENT LIABILITIES" shall mean all the Deposits and other Retained
Liabilities which are reflected on the Final Processing Balance Sheet.
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"SUBSTITUTE AGREEMENT" shall have the meaning assigned to such term in
the definition of the term Required Consent.
"TAX ALLOCATION AGREEMENT" shall mean the Tax Allocation Agreement,
substantially in the form of Exhibit V to the Merger Agreement, to be
entered into among the Company, USTNY, New Holdings and CMC.
"TAXES" shall mean all federal, state, local and foreign income,
property, sales, excise and other taxes, tariffs or governmental charges
(and all penalties and interest relating thereto) imposed by a governmental
authority pursuant to the exercise of its power to tax.
"TERMINATION ACCOUNT LIABILITIES" shall mean (i) Deposit liabilities
of the Processing Business in respect of units of Unit Trusts which have
been redeemed and which are payable upon surrender of the certificates
evidencing such units and (ii) similar Deposit liabilities attributable to
the UIT Business and reflected in the "termination account" on the books
and records of the Processing Business.
"TRANSFERRED PROCESSING RECEIVABLES" shall mean all receivables of the
Processing Business including receivables relating to advances, claims of
payments, extensions of credit, overdrafts and amounts paid on Customer
accounts of paying agents, brokers, depositories or other third parties
outstanding as of the close of business on the day immediately prior to the
Closing Date that, at such time, (i) are subject to any dispute with the
Customer that is the account debtor in respect of such receivable, (ii)
contravene in any material respect any laws, rules or regulations
applicable thereto or (iii) have been assigned to a collection agency or
are more than 120 days past the date of advance or the date payable.
"TRANSITION BONUS AMOUNT" shall mean an amount equal to the product of
(x) the Company's Share of the Program Cost, multiplied by (y) a fraction
equal to 0.68875. For purposes of the foregoing, the "Company's Share of
the Program Cost" shall mean an amount equal to the sum of the products,
determined separately for each employee who is a Retained Employee at the
Effective Time, of (i) the amount of the Transition Bonus specified in
Schedule 5.8(e) of the Merger Agreement for such employee, multiplied by
(ii) a fraction, the numerator of which is the number of days in the period
commencing on the date following the date of the Merger Agreement and
ending on the Closing Date, and the denominator of which is the number of
days in the period commencing on the date following the date of the Merger
Agreement and ending on the last day of the period of such employee's
Required Service, as specified in Schedule 5.8(e) of the Merger Agreement.
"UIT BUSINESS" shall mean the unit investment trust business of USTNY
and its Affiliates, which includes acting as a trustee for Unit Trusts,
maintaining custody of securities and investments for Unit Trusts,
collecting and distributing to unit holders interest, dividend and
principal payments with respect to such securities and investments,
processing unit redemptions and transfers, providing reporting services and
annual reports for Unit Trusts and providing transfer agency and customer
service for certain closed-end bond funds of John Nuveen & Co.,
Incorporated ("NUVEEN").
"UNCOLLECTED ITEMS" shall mean any check, draft, payment order, wire
transfer advice, security transfer advice, provisional credit or advance,
or similar item that has been delivered to, or received in respect of the
Processing Business and Related Back Office as a Deposit on or before the
close of business on the day preceding the Closing Date but which at such
time is in the process of collection or has not yet settled.
"UNIT TRUST" shall mean a "unit investment trust" as such term is
defined in Section 4 of the Investment Company Act of 1940, as amended.
"USTNY" shall have the meaning assigned to such term in the
introduction hereof.
"USTNY DOCUMENTS" shall have the meaning assigned to such term in
Section 4.2(a).
"UST-WY" shall mean U.S. Trust Co. of Wyoming, a Wyoming corporation
and a wholly owned subsidiary of the Company.
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"UST-WY EQUITY AMOUNT" shall mean the amount of UST-WY's net worth as
shown as a liability on the Estimated UST-WY Balance Sheet and the Final
UST-WY Balance Sheet, which shall be equal to the excess of (x) the
aggregate assets reflected on such balance sheet over (y) the aggregate
liabilities reflected on such balance sheet.
"1986 STOCK OPTION PLAN" shall mean the United States Trust Company of
New York and Affiliated Companies 1986 Stock Option Plan.
As used herein, the phrase "close of business on the day immediately
prior to the Closing Date" and similar references shall mean 11:59 p.m. on
the day immediately prior to the Closing Date.
ARTICLE II
CONTRIBUTION OF ASSETS AND ASSUMPTION OF LIABILITIES
SECTION 2.1. CONTRIBUTION. Upon the terms and subject to the conditions
of this Agreement, USTNY hereby assigns, transfers, conveys and contributes to
New Trustco, effective as of the Closing, and New Trustco hereby acquires,
effective as of the Closing, all of USTNY's right, title and interest in, to and
under the Acquired Assets.
SECTION 2.2. ACQUIRED ASSETS AND RETAINED ASSETS. (a) The term "ACQUIRED
ASSETS" means all the business, properties, assets, goodwill and rights of USTNY
of whatever kind and nature, real or personal, tangible or intangible, other
than the Retained Assets, owned by USTNY on the Closing Date, including the
following:
(i) all assets used or held for use primarily in the Acquired Business
of USTNY;
(ii) all contracts, agreements, mortgages, indentures, escrows, trusts
and understandings entered into by USTNY with customers or clients of the
Acquired Business relating to such businesses and all rights, claims and
benefits in connection therewith, including the right to possession of
custodial or trust assets subject thereto;
(iii) all mortgages, loans, overdrafts, lines of credit, rights in
respect of letters of credit and similar assets of the Acquired Business
and all rights in respect of collateral or security (except rights in
collateral to the extent that such rights secure any Retained Assets) for
any of the foregoing;
(iv) all accrued fees, accrued interest or discount, and all accounts
receivable (including all Transferred Processing Receivables), other than
those of the Processing Business and the Related Back Office reflected on
the Final Processing Balance Sheet;
(v) each of the branch offices of USTNY, as set forth on Schedule
2.2(a)(v);
(vi) all real property owned by USTNY and all rights in, to and under
the Forty-Seventh Street Lease, the leasehold estate under the Broadway
Sublease, and the leases listed on Schedule 2.2(a)(vi), and ownership of,
and all rights to, all Fixtures in leasehold premises subject to such
leases or sublease;
(vii) all monies, cash on hand, funds available for investment,
investments, securities, securities purchase agreements, swap agreements,
forward rate agreements, and derivative agreements of, or held for the
account of, USTNY, other than Eligible Investments or funds reflected on
the Final Processing Balance Sheet and retained by USTNY pursuant to
Section 2.7(b);
(viii) all trademarks, trademark registrations, service marks and
trade names which contain the words "United States Trust" or "U.S. Trust"
and all patents, patent applications, trademarks, trademark registrations,
service marks, tradenames, copyrights, or licenses with respect thereto
(except for the patents, patent applications and copyrights relating to the
USTNY proprietary software referred to in Section 2.2(b)(vii)), used or
held for use solely or predominantly for the Acquired Business;
(ix) all rights associated with the Acquired Third-party Service
Agreements;
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(x) certain performance measurement service agreements listed on
Schedule 3.1(q) to the Merger Agreement;
(xi) USTNY's right, title and interest in all lease and licensing
agreements, and related support agreements, with third parties for the use
of systems and applications software, and all copies of the software
(source code and object code), manuals and related documentation covered by
such lease or license agreements, which are in USTNY's possession as of the
Closing Date (excluding Data Processing Licenses and Computer Leases);
(xii) notwithstanding anything to the contrary in Section 2.2(a)(xi)
and Section 2.2(b)(vi), USTNY's right, title and interest in all lease and
licensing agreements, and related support agreements, with third parties
for the use of third party PC software installed on servers, workstations
and personal computers which are part of the Acquired Assets, and all
copies of the software (source code and object code), manuals and related
documentation covered by such lease or license agreements which are in
USTNY's possession as of the Closing Date;
(xiii) USTNY's right, title and interest in the Asset Management
System Agreements and all copies of the Asset Management System in USTNY's
possession as of the Closing Date;
(xiv) all equity or debt investments held for the account of USTNY in
any corporation, joint venture, partnership, trust or other business
association, including the capital stock and other ownership interests set
forth in Schedule 2.2(a)(xv) and all intercompany advances owed to USTNY by
Affiliates of USTNY (other than MFSC);
(xv) all rights of USTNY as adviser, trustee and sponsor in respect of
any mutual fund, common trust fund or collective investment fund sponsored,
managed, advised or maintained by USTNY, including USTNY's Short Term
Investment Fund and the UST Master Money and Government Funds;
(xvi) all records prepared in connection with the Merger contemplated
by the Merger Agreement or the sale of the Processing Business and Related
Back Office, including bids received from other persons and analyses
relating to the Processing Business and Related Back Office, and all books
of account, general, financial, accounting and personnel records, files,
invoices and similar data owned by USTNY relating to the Acquired Business
on the Closing Date;
(xvii) all rights relating to the Assumed Liabilities;
(xviii) all rights relating to Abandoned Property (except Processing
Business Abandoned Property);
(xix) all financial institution bonds, banker's blanket bonds,
policies of insurance or similar agreements, and all proceeds and rights in
respect thereof;
(xx) any special or general reserves or reserves maintained on deposit
with the Federal Reserve System;
(xxi) all recoveries on the charged-off portions of loans and
receivables, including those of the Processing Business;
(xxii) all collateral posted to secure clearing and other contingent
obligations with any clearing or similar organization, including the
Depository Trust Company of New York;
(xxiii) all fees or accounts receivable of the Processing Business and
the Related Back Office which have been paid on or before the close of
business on the day immediately prior to the Closing Date, regardless of
whether still in the process of collection and all claims in respect of
items received in payment of such fees or accounts receivable; and
(xxiv) all assets identified on Schedule 2.2(a)(xxiv).
(b) The term "RETAINED ASSETS" means, subject to the provisions of Section
2.6, all the business, properties, assets, goodwill and rights of USTNY of
whatever kind and nature, real or personal, tangible or
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intangible, that are primarily used, or that are held for use in, or are
reasonably necessary for the conduct by USTNY of, the Processing Business and
the Related Back Office on the Closing Date, including the following (but
excluding the Acquired Assets specifically identified in Section 2.2(a)):
(i) all Customer Agreements and all rights and claims in connection
therewith, including the right to possession of custodial or trust assets
subject to Customer Agreements;
(ii) all accounts receivable and all accrued and unpaid fees under
Customer Agreements owed to USTNY on the Closing Date and arising out of
the operations of or services performed by the Processing Business, but not
the Transferred Processing Receivables;
(iii) all contracts and agreements, commitments and all other
arrangements that are legally binding on the other parties thereto, whether
oral or written ("CONTRACTS") (other than the Asset Management System
Agreements, Customer Agreements, Data Processing Licenses and Computer
Leases), to which USTNY is a party or by which USTNY is bound, that are
referenced in Section 3.1(l) of the Merger Agreement and all other
Contracts that relate to the Processing Business or the Related Back Office
which are not required to be scheduled pursuant to Section 3.1(l) of the
Merger Agreement;
(iv) the Broadway Lease and the Fixtures located in the premises
covered by the Broadway Lease other than Fixtures located in the premises
on the 8th Floor and a portion of the 9th Floor (excluding the cafeteria)
covered by the Broadway Sublease;
(v) the Broadway Lease Put;
(vi) the Furniture and Equipment, the Computer Leases and the Data
Processing Licenses;
(vii) all USTNY proprietary systems and application software
(including all source and object codes, manuals and related documentation)
or licenses or rights of use with respect thereto;
(viii) notwithstanding anything to the contrary in Section 2.2(a)(xi)
and Section 2.2(b)(vii), USTNY's right, title and interest in all lease and
license agreements with third parties for the use of third party PC
software installed on servers, workstations and personal computers which
are part of the Retained Assets, and all copies of the software (source
code and object code), manuals and related documentation covered by such
lease or license agreements which are in USTNY's possession as of the
Closing Date;
(ix) any and all patents, patent applications, trademarks, trademark
registrations, service marks, tradenames, copyrights, or licenses with
respect thereto used or held for use solely or predominantly for the
Processing Business or the Related Back Office, except for any trademarks,
trademark registrations, service marks and tradenames which contain the
words "United States Trust" or "U.S. Trust";
(x) all overdrafts, loans or other extensions of credit made by the
Processing Business to Customers and outstanding on the Closing Date,
including loans and advances made by USTNY to Customers in order to permit
the payment of dividends, principal, interest or other amounts payable in
respect of securities held in custody prior to the actual receipt of
payments from the issuers of or other obligors on such securities
("ANTICIPATION ADVANCES"), but excluding Transferred Processing
Receivables;
(xi) all inventory and supplies owned by USTNY on the Closing Date
that are used or held for use by the Processing Business and the Related
Back Office, but not inventory or supplies with respect to which the name
"U.S. Trust" or a related name is an integral part;
(xii) all Uncollected Items;
(xiii) all Customer files and records;
(xiv) all books of account, general, financial, accounting and
personnel records, files, invoices, and other similar data owned by USTNY
on the Closing Date maintained at the offices of, or used by, the personnel
of the Processing Business and the Related Back Office, or used or held for
use by the Processing Business and the Related Back Office;
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(xv) all rights relating to Retained Liabilities;
(xvi) the portion of FDIC assessments prepaid by USTNY and allocable
to Deposits associated with the Processing Business;
(xvii) all rights of USTNY under this Agreement and the agreements,
instruments and certificates delivered in connection with this Agreement;
(xviii) the Related Back Office; and
(xix) to the extent not included in clauses (i) through (xviii) above,
the Statement Assets, including the Eligible Investments and funds retained
by USTNY pursuant to Section 2.7.
(c) The transfer of the Acquired Assets hereunder is made without recourse
to USTNY. No representation is made by USTNY to New Trustco concerning the
collectibility, quality, enforceability or fitness of any Acquired Assets.
(d) USTNY acknowledges that certain Customer Agreements of the IAS Business
for Cash Management Services (as defined in the Post Closing Covenants
Agreement) relating to collective investment vehicles that will be maintained or
advised by New Trustco are part of the Retained Assets. In each such instance,
each of USTNY and New Trustco shall use its best efforts to have the relevant
Customers of the IAS Business enter into agreements with USTNY in order to
transfer the money management relationship of such Customers to USTNY.
SECTION 2.3. ASSUMPTION OF CERTAIN LIABILITIES. (a) Upon the terms and
subject to the conditions of this Agreement, New Trustco hereby assumes, subject
to Section 2.6, effective as of the Closing, and agrees to pay, perform and
discharge when due and indemnify USTNY and hold USTNY harmless from and against
the Assumed Liabilities. The term "ASSUMED LIABILITIES" shall mean all
liabilities of USTNY existing on the Closing Date, whether current or long-term,
absolute or contingent, matured or unmatured, known or unknown, liquidated or
unliquidated, due or to become due, including the following liabilities, other
than Retained Liabilities:
(i) all liabilities and obligations of USTNY, whether matured or
unmatured, fixed or contingent, relating to or arising out of the Acquired
Business, including all Deposits of such businesses and all liabilities,
duties and obligations in respect of indentures, contracts, leases or other
agreements with customers or clients of, or other persons dealing with,
such businesses;
(ii) all claims, liabilities or litigation arising out of any event,
occurrence, action or omission taken or occurring prior to the Closing Date
by or with respect to USTNY, its officers, directors, Board of Trustees,
employees, agents or representatives;
(iii) all obligations in respect of the Capital Notes;
(iv) any obligation or liability which is attributable to any of the
Acquired Assets or any expense arising from the ownership by New Trustco of
the Acquired Assets;
(v) all liabilities and obligations under each Benefit Plan (as
defined in the Merger Agreement) that is transferred to New Trustco
pursuant to Section 2.4;
(vi) any liability in respect of Abandoned Property other than
Processing Business Abandoned Property;
(vii) all fees and expenses of USTNY and its subsidiaries incurred on
or before the Contribution in connection with the Merger; and
(viii) all duties, obligations and liabilities under Customer
Agreements and Contracts relating to the Processing Business and the
Related Back Office that are to be performed or discharged prior to the
Closing Date.
Notwithstanding anything to the contrary in this Agreement, Assumed
Liabilities shall not include any liability for Taxes, except as provided in the
Tax Allocation Agreement.
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(b) At all times at and after the Closing, USTNY will, subject to Section
2.6, retain and be solely responsible for, and USTNY hereby agrees to pay,
perform and, discharge when due, and indemnify New Trustco and hold New Trustco
harmless from and against, the Retained Liabilities. The term "RETAINED
LIABILITIES" shall mean the following liabilities:
(i) all Deposits arising from the Processing Business, including
Termination Account Liabilities and other Deposit liabilities relating to
Processing Business Abandoned Property and Deposits relating to Uncollected
Items, but only to the extent reflected on the Final Processing Balance
Sheet;
(ii) all liabilities to trade creditors and accounts payable of the
Processing Business and the Related Back Office, but only to the extent
fully liquidated and reflected on the Final Processing Balance Sheet;
(iii) all duties, obligations and liabilities under Customer
Agreements relating to the Processing Business, but not any liability for
defaults or damages arising before the Closing Date;
(iv) all duties, obligations and liabilities under Contracts relating
to the Processing Business and the Related Back Office, but not any
liability for defaults or damages arising before the Closing Date;
(v) (A) all liabilities and obligations for amounts required to be
paid as of or after the Effective Time under the terms of the 1986 Stock
Option Plan and employer payroll taxes due with respect to such amounts,
but not in excess of the Retained Bank Plan Amount, and (B) all liabilities
and obligations for amounts payable under the Transition Bonus Program (as
defined in the Merger Agreement) maintained by USTNY;
(vi) all obligations and duties as lessee under the Broadway Lease,
but not any liability for defaults or damages arising before the Closing
Date;
(vii) escheatment obligations relating to Processing Business
Abandoned Property; and
(viii) to the extent not included in (i) through (vii) above, the
Statement Liabilities.
Notwithstanding anything to the contrary in this Agreement, Retained
Liabilities shall not include any liability for Taxes, except as provided in the
Tax Allocation Agreement.
SECTION 2.4. BENEFIT PLANS; EMPLOYEE MATTERS. (a) Effective as of the
Closing, USTNY shall transfer each Benefit Plan (as defined in the Merger
Agreement) maintained by it, other than any Retained Plan and the Transition
Bonus Program (each as defined in the Merger Agreement), to New Trustco, and New
Trustco shall assume and become solely responsible for all liabilities and
obligations of USTNY and its Subsidiaries under each of the Benefit Plans so
transferred. Effective as of the Closing, each person who immediately prior to
the Closing is an employee of USTNY or any of its Affiliates and who will not be
a Retained Employee as of the Effective Time shall become an employee of New
Trustco or of any Affiliate of New Trustco designated by it.
(b) Notwithstanding the definition of "Retained Bank Plan Amount" contained
in Section 1.1, it is understood that (i) the cash payments required to be made
as of or after the Effective Time under the 1986 Stock Option Plan are payments
with respect only to stock options granted under such plan (other than any
incentive stock options granted under such plan prior to October 27, 1987) and
(ii) such cash payments will be determined in accordance with the provisions of
such plan on the basis of a "Change in Control" being deemed to have occurred
thereunder with respect to such stock options (other than any incentive stock
options granted under such plan prior to October 27, 1987) as a result of the
Merger.
SECTION 2.5. CAPITAL NOTES. Prior to the Closing, USTNY shall (i) have
all obligations of USTNY in respect of the Capital Notes transferred to and
assumed by New Trustco and USTNY irrevocably released and discharged therefrom,
effective as of the Closing Date, in accordance with the terms of the indenture
governing the Capital Notes or (ii) give an effective notice under such
indenture to redeem all the outstanding Capital Notes in accordance with the
terms of such indenture and irrevocably deposit with the trustee under such
indenture funds sufficient to pay all amounts of principal, premium and accrued
interest on the Capital Notes at the stated redemption date thereunder.
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SECTION 2.6. DELAYED ASSETS AND LIABILITIES. (a) To the extent that any
Required Consent with respect to a contract, agreement, lease or other
instrument included in the Acquired Assets has not been obtained on or prior to
the Closing Date, such contract, agreement, lease or instrument (a "DELAYED
ASSET") shall not be transferred as an Acquired Asset hereunder, and any related
liability (a "DELAYED LIABILITY") shall not be assumed by New Trustco as an
Assumed Liability hereunder, unless and until such Required Consent has been
obtained. Notwithstanding the foregoing, if such a Required Consent to transfer
is not obtained, USTNY will reasonably cooperate with New Trustco to attempt to
provide to New Trustco the benefits under or of any such Delayed Asset;
provided, however, that New Trustco shall assume, pay and perform (and indemnify
and hold USTNY harmless from and against) all obligations and liabilities
relating to such Delayed Asset or Delayed Liability and shall promptly reimburse
USTNY for all of its actual costs and expenses (including attorneys' fees and
employee salaries and allocable benefits, but not overhead) in connection with
any such arrangement.
(b) At such time and on each occasion after the Closing Date that a
Required Consent shall be obtained with respect to a Delayed Asset, such Delayed
Asset shall forthwith be transferred and assigned to New Trustco hereunder, and
all related Delayed Liabilities shall be simultaneously assumed by New Trustco
hereunder, whereupon (i) such Delayed Asset shall constitute an Acquired Asset
for all purposes hereunder and (ii) such Delayed Liabilities shall constitute
Assumed Liabilities for all purposes hereunder.
SECTION 2.7. ESTIMATED AND FINAL BALANCE SHEETS; ELIGIBLE INVESTMENT
RETENTION. (a) USTNY shall prepare the Estimated Balance Sheets prior to the
Closing. The Estimated Balance Sheets and Final Balance Sheets shall be prepared
in accordance with the Accounting Principles in substantially the same format as
the September Balance Sheets, and shall set forth, as of the close of business
on the day immediately preceding the Closing Date, the assets and liabilities of
(i) the Processing Business conducted by USTNY and the Related Back Office, the
Processing Business conducted by MFSC and the business conducted by UST-WY, in
each case, recorded at their Book Values; provided, however, that the such
balance sheets (i) shall reflect Anticipation Advances and Uncollected Items but
shall not include any Transferred Processing Receivables, (ii) shall not reflect
any amounts in respect of the Computer Lease Adjustment Amount (or the loss on
termination of Computer Leases relating thereto), the Put Adjustment Amount, the
Retained Bank Plans Amount, the Real Property Transfer Tax Amount, the
Transition Bonus Amount, the Post-Retirement Benefit Adjustment Amount or any
liabilities in respect of Taxes on income, (iii) shall not reflect the leasehold
space (or leasehold improvements in such space) on the 8th Floor and a portion
of the 9th Floor covered by the Broadway Sublease and (iv) shall reflect all
Eligible Investments to be retained by USTNY pursuant to Section 2.7(b) at their
Liquidation Values. The Estimated Balance Sheets and the Final Balance Sheets
described in paragraph (b) below may reflect reasonable estimates of any items
the exact amounts of which are not then known to or reasonably ascertainable to
the extent reasonably agreed to by New Trustco and CMC; provided, however, that
notes to the Estimated Balance Sheets or the Final Balance Sheets, as the case
may be, shall set forth in detail the basis for such estimates.
(b) Not fewer than three Business Days before the Closing, USTNY shall
provide New Trustco and CMC with the Estimated Balance Sheets and drafts of
schedules ("RELATED SCHEDULES") setting forth (i) a listing by series or issue
of the face amount of Eligible Securities, (ii) the Fixtures, Furniture and
Equipment, (iii) the equipment subject to Computer Leases and (iv) all
reasonably necessary detail concerning the components of the Adjustment Amount.
At the Closing, USTNY shall provide New Trustco and CMC with the Final Balance
Sheets and the Related Schedules in the same forms as the Estimated Balance
Sheets and estimated Related Schedules and shall transfer to New Trustco all
funds, securities, investments, loans and other financial assets owned or held
by or for the account of USTNY, other than (i) the funds and Eligible
Investments identified by USTNY on the schedule prepared by USTNY pursuant to
this paragraph (b) and (ii) such overdrafts or loans as are reflected on the
Final Processing Balance Sheet as Statement Assets. Any such transfer of funds
to New Trustco by USTNY shall be made pursuant to a wire transfer of immediately
available funds.
(c) The amount of retained funds plus the aggregate Liquidation Value of
retained Eligible Assets shall equal the Adjustment Amount.
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(d) The parties recognize that the Statement Assets and Statement
Liabilities reflected on the Final Processing Balance Sheet and the amounts of
assets and liabilities reflected on the Final MFSC Balance Sheet and the Final
UST-WY Balance Sheet may not be entirely accurate. As soon as practicable and in
any event within five Business Days after the Closing Date, New Trustco shall
cause to be prepared (in accordance with the provisions of this Agreement) and
provide to USTNY updated Final Balance Sheets and Related Schedules which shall
correct the amounts of any estimates utilized in preparing the Final Balance
Sheets and correct any bookkeeping errors or omissions discovered after the
Closing that affected the Final Balance Sheets or the Related Schedules (such
updated balance sheets and schedules being deemed upon delivery to be the Final
Balance Sheets and Related Schedules). USTNY and its accountants shall have the
right to discuss the preparation of the Final Balance Sheets and Related
Schedules with New Trustco and its accountants and shall be allowed access to
the work papers used in such preparation. USTNY or New Trustco, as the case may
be, shall (except to the extent such party institutes a dispute pursuant to
Section 8.9), not later than the 50th day after the Closing Date, pay to the
other party in immediately available funds an amount equal to the net
adjustment, if any, required to be made to the amount of retained funds and
Liquidation Value (determined as of the Closing Date in accordance with the
definition of such term) of retained Eligible Investments on the basis of such
Final Balance Sheets (with such changes therein as USTNY and New Trustco may
mutually agree in writing prior to such 50th day), plus interest on such amount
for each day during the period from the Closing Date to the date of payment at a
rate per annum (calculated on the basis of a 360-day year) equal to the Federal
Funds Rate in effect on such day.
ARTICLE III
THE CLOSING
SECTION 3.1. CLOSING DATE. The Closing of the sale and transfer of the
Acquired Assets and assumption of the Assumed Liabilities shall take place at
the offices of Cravath, Swaine & Moore, 825 Eighth Avenue, New York, New York
10019, at 10:00 a.m. on the same date as the closing is to occur under the
Merger Agreement.
SECTION 3.2. TRANSACTIONS TO BE EFFECTED AT THE CLOSING. At the Closing:
(a) USTNY shall (x) deliver to New Trustco (i) such appropriately
executed bills of sale, assignments and other instruments of transfer and
conveyance as may be reasonably required effectively to convey the Acquired
Assets to New Trustco in accordance with the provisions of Article II and
(ii) such other documents as may be necessary or appropriate (A) to
demonstrate satisfaction of the conditions and compliance with the
agreements set forth in this Agreement and (B) for the purposes of more
effectively consummating the transactions contemplated by this Agreement,
(y) transfer to New Trustco (by wire transfer of immediately available
funds or in such manner as is customary in the case of securities and
investments) the funds, securities and investments of USTNY other than the
funds and Eligible Investments specified in the schedule prepared by USTNY
pursuant to Section 2.7(b) plus, in the event any Eligible Investments are
so specified, immediately available funds in an amount equal to one day's
interest, calculated at the Federal Funds Rate in effect on the day prior
to the Closing Date, on the Liquidation Value of such Eligible Investments
reflected in the Final Processing Balance Sheet and (z) deliver to New
Trustco (A) an appropriately executed Post Closing Covenants Agreement, (B)
an appropriately executed Broadway Sublease, (C) an appropriately executed
Services Agreement and (D) an appropriately executed License Agreement.
(b) New Trustco shall deliver to USTNY (i) an appropriately executed
Assumption Agreement, together with one or more other instruments of
assumption as may be reasonably required to effect the assumption of the
Assumed Liabilities in accordance with Article II, (ii) such other
documents as may be necessary or appropriate (A) to demonstrate
satisfaction of the conditions and compliance with the agreements set forth
in this Agreement and (B) for the purpose of more effectively consummating
the transactions contemplated by this Agreement, (iii) an appropriately
executed Post Closing Covenants Agreement, (iv) an appropriately executed
Broadway Sublease, (v) an appropriately executed Services Agreement and
(vi) an appropriately executed License Agreement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. REPRESENTATIONS AND WARRANTIES OF USTNY. USTNY hereby
represents and warrants to New Trustco as follows:
(a) Organization, Standing and Power. USTNY is a trust company with
banking powers duly organized, validly existing and in good standing under
the banking laws of the State of New York and has all requisite corporate
power and authority to own, lease and operate its properties and to carry
on its business as now being conducted.
(b) Authority. USTNY has all requisite power and authority to execute
this Agreement and the other Documents to which it is or will be party
(collectively, the "USTNY DOCUMENTS") and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this
Agreement and the other USTNY Documents and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by
all necessary action on the part of USTNY and, to the extent required, by
the stockholders of USTNY. This Agreement has been duly executed and
delivered by USTNY and constitutes, and each of the other USTNY Documents
will be duly executed and delivered by USTNY on or prior to the Closing
Date, and when so executed and delivered will constitute, a legal, valid
and binding obligation of USTNY enforceable against it in accordance with
its terms.
(c) No Conflict. The execution, delivery and performance by USTNY of
this Agreement and the other USTNY Documents (other than the Services
Agreement) will not contravene, violate, result in a breach of or
constitute a default under (i) any provision of applicable law or of the
certificate of incorporation or by-laws of USTNY or its comparable charter
or organizational documents or (ii) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to USTNY or any of its
properties or assets.
(d) Approvals. No consent, approval, order, authorization of, or
registration, declaration or filing with, any Governmental Entity is
required (other than Required Consents of such authority in its capacity as
a customer or client in connection with Acquired Assets) in connection with
the making or performance by USTNY of this Agreement or the other USTNY
Documents, except the approval of the Board of Governors of the Federal
Reserve System and the Banking Department of the State of New York. USTNY
has received written advice from the Banking Department of the State of New
York that the transfer of the fiduciary agency and similar relationships of
USTNY which are included in the Acquired Assets may be transferred to and
assumed by New Trustco as contemplated by this Agreement pursuant to and in
accordance with the provisions of Section 604-a of the Banking Law of the
State of New York.
SECTION 4.2. REPRESENTATIONS AND WARRANTIES OF NEW TRUSTCO. New Trustco
hereby represents and warrants to USTNY as follows:
(a) Organization, Standing and Power. New Trustco is a trust company
with banking powers duly organized, validly existing and in good standing
under the laws of the State of New York and has all requisite corporate
power and authority to own, lease and operate its properties and to carry
out its business as now being conducted.
(b) Authority. New Trustco has all requisite power and authority to
execute this Agreement and the other Documents to which it is or will be a
party (collectively, the "NEW TRUSTCO DOCUMENTS") and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the other New Trustco Documents and the consummation of
the transactions contemplated hereby and thereby have been duly authorized
by all necessary action on the part of New Trustco and, to the extent
required, by the stockholders of New Trustco. This Agreement has been duly
executed and delivered by New Trustco and constitutes, and each other New
Trustco Document will be duly executed and delivered by New Trustco on or
prior to the Closing Date, and when so executed and
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delivered will constitute, a legal, valid and binding obligation of New
Trustco enforceable against it in accordance with its terms.
(c) No Conflict. The execution, delivery and performance by New
Trustco of this Agreement and the other New Trustco Documents will not
contravene, violate, result in a breach of or constitute a default under
(i) any provision of applicable law or of the certificate of incorporation
or by-laws of New Trustco or its comparable charter or organizational
documents and (ii) any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to New Trustco or any of its properties or
assets.
(d) Approvals. No consent, approval, order, authorization of, or
registration, declaration or filing with, any Governmental Entity is
required (other than in its capacity as a customer or a client in
connection with Acquired Assets) in connection with the making or
performance by New Trustco of this Agreement or the other New Trustco
Documents, or the acquisition of the Acquired Assets and assumption of the
Assumed Liabilities as contemplated hereby, except the approval of the
Board of Governors of the Federal Reserve System and the Banking Department
of the State of New York.
ARTICLE V
COVENANTS
SECTION 5.1. ITEMS IN TRANSIT. USTNY shall retain the benefit of and
shall bear the risk of all Uncollected Items and all other items which will
result in Deposits of the Processing Business which are in transit as of the
close of business on the day immediately preceding the Closing Date. Any
payments, transfers of securities, deposits, checks or other items relating to
or constituting part of the Acquired Assets (including the Transferred
Processing Receivables) or Assumed Liabilities, or otherwise paid or delivered
for the account or benefit of the Acquired Business or treasury operations of
USTNY (including any such items in transit or in the process of collection at
the time of the Closing) shall be for the account and benefit of New Trustco. In
furtherance of the foregoing, if funds, securities or other items payable or
deliverable to or for the account of one party in accordance with the foregoing
are received by the other party at any time on or after the Closing Date, such
receiving party shall forthwith remit such funds, securities or other items to
the other party. New Trustco shall be responsible for the payment of any check,
draft, payment order or similar item originating from businesses of USTNY other
than the Processing Business and payable by or drawn upon USTNY which have not,
as of the close of business on the day immediately preceding the Closing Date,
been paid or charged against an account of USTNY. New Trustco shall forthwith
reimburse USTNY for the amount of any item referred to in the immediately
preceding sentence which is paid by or charged to an account of USTNY on or
after the Closing Date. Funds owed to either party pursuant to this Section
shall bear interest (calculated on the basis of a 360-day year) at the Federal
Funds Rate from the Business Day of receipt, in the case of same day funds, or
the next Business Day, in the case of next day funds, by a party of such funds
(or payment by USTNY of funds for the account of New Trustco) until the date of
payment of such funds to the party entitled thereto. All payments pursuant to
this Section shall be made in immediately available funds in New York City or,
in the case of payments made with respect to items received by mistake, of the
same tenor as the receipt. Each party shall provide the other with such
information and evidence of transactions as may be necessary to effectuate the
foregoing provisions.
SECTION 5.2. FURTHER ASSURANCES. (a) Subject to the provisions of Section
2.6, on and after the Closing Date, USTNY shall, with full reimbursement of its
reasonable actual costs and expenses (including attorneys' fees and employee
salaries and allocable benefits, but not overhead), (i) give such further
assurances to New Trustco and shall execute, acknowledge and deliver all such
acknowledgements and other instruments and take such further actions as may be
reasonably necessary or appropriate effectively to vest in New Trustco the full
legal and equitable title to the Acquired Assets and (ii) use its reasonable
best efforts to assist New Trustco in the orderly transition of the operations
acquired by New Trustco. Nothing in this Section shall be construed to require
USTNY to incur, without reimbursement from New Trustco, any costs or expenses in
connection with any such undertakings.
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(b) Subject to the provisions of Section 2.6, on and after the Closing
Date, New Trustco shall, at its expense (except as otherwise specifically
provided by the Documents), (i) give such further assurances to USTNY and shall
execute, acknowledge and deliver all such acknowledgements and other instruments
and take such further actions as may be necessary to relieve and discharge USTNY
effectively from the Assumed Liabilities and (ii) use its reasonable best
efforts to assist USTNY in the transfer to New Trustco of the Acquired Assets
and Assumed Liabilities.
SECTION 5.3. CERTAIN UNDERSTANDINGS. New Trustco acknowledges that
neither USTNY nor any other person has made any representation or warranty,
express or implied, as to the accuracy or completeness of any information
regarding the Acquired Assets or Assumed Liabilities not included in this
Agreement, the Documents or the schedules hereto and thereto. New Trustco
acknowledges that it will acquire the Acquired Assets without any representation
or warranty as to merchantability or fitness for any particular purpose, in an
"as is" condition and on a "where is" basis.
SECTION 5.4. USE OF NAME. From and after the Closing Date, USTNY (i)
shall promptly change the name on all documents, stationery and facilities
relating to the Processing Business and the Related Back Office to a name that
is not in any way similar to USTNY's name (or any name or initial confusingly
similar to that of any existing Affiliates of New Trustco). It is understood
that USTNY is transferring to New Trustco all right, title and interest in and
to, and all rights to use, USTNY's name (or any name or initial similar thereto
or of any existing Affiliates of USTNY). Nothing in this Section shall require
USTNY to undertake to reissue deposits or rewrite outstanding loans, or other
agreements or other documents retained by USTNY on the Closing Date except in
the ordinary course of business, it being understood, however, that reasonable
efforts will be used to change names in accordance with the provisions of the
first sentence of this Section.
SECTION 5.5. TRANSFERRED PROCESSING RECEIVABLES. From and after the
Closing Date, USTNY will use its best efforts to assist New Trustco in the
collection of the Transferred Processing Receivables; provided, however, that
the foregoing shall not require USTNY to incur any actual cost or expense not
reimbursed by New Trustco or to conduct litigation (but USTNY shall cooperate in
such ways as may reasonably be requested by New Trustco, at New Trustco's
expense, in connection with any litigation commenced by New Trustco to collect
such Transferred Processing Receivables).
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. CONDITIONS TO EACH PARTY'S OBLIGATION. The obligation of New
Trustco to accept the Acquired Assets and assume the Assumed Liabilities and the
obligation of USTNY to assign, convey and deliver the Acquired Assets and
Assumed Liabilities to New Trustco shall be subject to the satisfaction (or
waiver by such party, in the case of USTNY only with the consent of CMC) prior
to the Closing of the following conditions:
(a) Regulatory Approvals. All authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations of waiting
periods imposed by, any governmental authority necessary for the
consummation of the transactions contemplated by this Agreement shall have
been obtained or filed or shall have occurred.
(b) No Litigation, Injunctions or Restraints. There shall be no suit,
action, or other proceeding pending which has been initiated by any
governmental authority seeking to restrain, prohibit, invalidate or set
aside in whole or in part the consummation of the transactions contemplated
by this Agreement. No temporary restraining order, preliminary or permanent
injunction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect.
(c) Merger Agreement. At the time of the Closing, all conditions to
the consummation of the transactions contemplated by the Merger Agreement
(other than the closings hereunder and under the Distribution Agreement)
shall have been satisfied (or waived by the party for whose benefit such
condition exists).
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SECTION 6.2. CONDITIONS TO OBLIGATIONS OF NEW TRUSTCO. The obligation of
New Trustco to accept the Acquired Assets and assume the Assumed Liabilities
shall be subject to the satisfaction prior to the Closing of each of the
following conditions, unless waived by New Trustco:
(a) Representations and Warranties. The representations and
warranties of USTNY set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as of the
Closing as though made on and as of the Closing (or on or as of the date
when made in the case of any representation or warranty which specifically
relates to an earlier date), except as otherwise specifically contemplated
by this Agreement, and New Trustco shall have received a certificate signed
by an authorized officer of USTNY, dated the Closing Date, to such effect.
(b) Performance of Obligations of USTNY. USTNY shall have performed
or complied in all material respects with all obligations, conditions and
covenants required to be performed or complied with by it under this
Agreement at or prior to the Closing, and New Trustco shall have received a
certificate signed by an authorized officer of USTNY, dated the Closing
Date, to such effect.
(c) Bill of Sale. USTNY shall have delivered to New Trustco an
appropriate bill of sale conveying the personal property included in the
Acquired Assets, and such other assignments, instruments or documents as
may be necessary or appropriate to confirm the transfer and assignment of
the Acquired Assets, in each case in form and substance reasonably
satisfactory to New Trustco.
(d) Other Agreements. Each of the Documents shall have been executed
and delivered by the parties thereto (other than New Trustco), and shall,
subject to consummation of the transactions contemplated by the Merger
Agreement, the Distribution Agreement and this Agreement, be effective and
in force.
(e) Name Change. USTNY shall have amended its organization
certificate to change its name.
SECTION 6.3. CONDITIONS TO THE OBLIGATION OF USTNY. The obligation of
USTNY to assign, convey, and deliver the Acquired Assets and transfer the
Assumed Liabilities is subject to the satisfaction on and as of the Closing Date
of each of the following conditions, unless waived by USTNY (with the consent of
CMC):
(a) Representations and Warranties. The representations and
warranties of New Trustco set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date (or on or as
of the date when made in the case of any representation or warranty which
specifically relates to an earlier date), except as otherwise specifically
contemplated by this Agreement, and USTNY shall have received a certificate
signed by an authorized officer of New Trustco, dated the Closing Date, to
such effect.
(b) Performance of Obligations of New Trustco. New Trustco shall have
performed or complied in all material respects with all obligations
required to be performed or complied with by it under this Agreement at or
prior to the Closing, and USTNY shall have received a certificate signed by
an authorized officer of New Trustco, dated the Closing Date, to such
effect.
(c) Assumption Agreement. New Trustco shall have executed and
delivered to USTNY the Assumption Agreement.
(d) Other Agreements. Each of the Documents shall have been executed
and delivered by the parties thereto (other than USTNY), and shall, subject
to consummation of the transactions contemplated by the Merger Agreement,
the Distribution Agreement and this Agreement, be effective and in force.
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. TERMINATION. Notwithstanding anything to the contrary in
this Agreement, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing by mutual written
consent of USTNY and New Trustco in the event the Merger Agreement is terminated
by any party thereto in accordance with the terms thereof.
SECTION 7.2. AMENDMENTS AND WAIVERS. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto and consented to by CMC. By an instrument in writing, USTNY or New
Trustco may waive compliance by the other party with any term or provision of
this Agreement that such other party was or is obligated to comply with or
perform; provided that no such waiver by USTNY shall be effective unless
consented to by CMC.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1. NOTICES. Any notice, request, instruction or other document
to be given hereunder by any party to any other party shall be in writing and
shall be deemed to have been duly given (i) on the first Business Day occurring
on or after the date of transmission if transmitted by facsimile (upon
confirmation of receipt by journal or report generated by the facsimile machine
of the party giving such notice), (ii) on the first Business Day occurring on or
after the date of delivery if delivered personally or (iii) on the first
Business Day following the date of dispatch if dispatched by Federal Express or
other next-day courier service. All notices hereunder shall be given as set
forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
(a) if to USTNY, to
c/o The Chase Manhattan Corporation
One Chase Manhattan Plaza
New York, New York 10081
Attention: Robert M. MacAllister
with a copy (which shall not constitute notice) to:
O'Melveny & Myers
153 East 53rd Street
New York, New York 10022
Attention: William H. Satchell
and
(b) if to New Trustco, to
c/o U.S. Trust Corporation
114 West 47th Street
New York, New York 10036
Attention: Maureen Scannell Bateman
with a copy (which shall not constitute notice) to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: B. Robbins Kiessling
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SECTION 8.2. INTERPRETATION. When a reference is made in this Agreement
to a Section, Schedule or Exhibit, such reference shall be to a Section,
Schedule or Exhibit of this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "included", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". All accounting terms not defined in this Agreement shall have the
meanings determined by generally accepted accounting principles.
SECTION 8.3. SURVIVAL OF REPRESENTATIONS. The representations and
warranties of New Trustco contained in Article IV of this Agreement shall
survive the closing and shall terminate at the close of business two years
following the Closing Date. The representations and warranties of USTNY
contained in Article IV of this Agreement shall terminate on the Closing Date.
SECTION 8.4. SEVERABILITY. If any provision of this Agreement, or the
application thereof to any person, place or circumstances, shall be held by a
court of competent jurisdiction to be invalid, unenforceable, or void, the
remainder of this Agreement and such provisions as applied to other persons,
places, and circumstances shall remain in full force and effect; provided,
however, that in the event that the terms and conditions of this Agreement are
materially altered as a result of this Section 8.4, the parties will renegotiate
the terms and conditions of this Agreement to resolve any inequities.
SECTION 8.5. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
SECTION 8.6. ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement,
the Documents and the documents and instruments referred to herein and therein,
or otherwise required pursuant to any Document to be delivered in connection
with the consummation of the transactions contemplated by the Documents, (a)
constitute the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof (except the Confidentiality Agreement dated August 17,
1994 between CMC and the Company and certain letter agreements executed
simultaneously with the Merger Agreement) and (b) except as expressly set forth
herein, this Agreement is not intended to confer upon any person other than the
parties hereto and CMC any rights or remedies hereunder.
SECTION 8.7. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflict of
laws.
SECTION 8.8. CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. (a) Each of
USTNY and New Trustco irrevocably submits to the non-exclusive jurisdiction of
(i) the Supreme Court of the State of New York, New York County and (ii) the
United States District Court for the Southern District of New York located in
the borough of Manhattan in the City of New York, for the purposes of any suit,
action or other proceeding arising out of this Agreement or any transaction
contemplated hereby. Each of USTNY and New Trustco further agrees that any
service of process, summons, notice or document given in accordance with Section
8.1 shall be effective service of process for any action, suit or proceeding in
New York with respect to any matters to which it has submitted to jurisdiction
as set forth above in the immediately preceding sentence. Each of USTNY and New
Trustco irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in (i) the Supreme Court of the State of New
York, New York County or (ii) the United States District Court for the Southern
District of New York, and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.
(b) Each of New Trustco and USTNY hereby waives, to the fullest extent
permitted by applicable law, any right it may have to a trial by jury in respect
of any litigation directly or indirectly arising out of, under or
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in connection with this Agreement or any of the other Documents. Each of New
Trustco and USTNY (i) certifies that no representative, agent or attorney of the
other party has represented, expressly or otherwise, that such other party would
not, in the event of litigation, seek to enforce the foregoing waiver and (ii)
acknowledges that it and the other party hereto has been induced to enter into
this Agreement and the other Documents, as applicable, by, among other things,
the mutual waivers and certifications in this Section 8.8(b).
SECTION 8.9. CERTAIN DISPUTES. (a) Following the delivery of the Final
Balance Sheets and Related Schedules to USTNY, USTNY shall review such balance
sheets and schedules and New Trustco and its accountants shall permit USTNY and
its accountants full access at all reasonable times to all of the working
papers, analyses and schedules utilized or prepared in connection with the
preparation of such balance sheets and schedules. On or before the 50th day
after the Closing Date, USTNY shall, in a written notice to New Trustco, either
accept the Final Balance Sheets and Related Schedules or describe in reasonable
detail any proposed adjustments to such Final Balance Sheets and Related
Schedules and the reasons therefor, and shall include pertinent calculations.
Thereafter, USTNY and its accountants shall permit New Trustco full access at
all reasonable times to all of the working papers, analyses and schedules of
USTNY and its accountants (and relevant personnel) utilized or prepared in
connection with the preparation of such notices of proposed adjustments. If
USTNY shall not give such notice of proposed adjustments within such 50-day
period, USTNY will be deemed irrevocably to have accepted the Final Balance
Sheets and Related Schedules. In the event that USTNY and New Trustco disagree
as to any item or amount (or the computation or determination in accordance with
the terms of this Agreement of any item or amount) reflected, set forth in or
relating to the Final Balance Sheets or Related Schedules, or to the calculation
of the Adjustment Amount as contemplated hereby, then any payments at the time
required to be made under this Agreement shall be made on the basis of such
items or amounts as to which the parties do not disagree. Either party hereto
shall thereupon be entitled to request Ernst & Young (or, if said firm shall
have a conflict due to a relationship with CMC or New Holdings or any of their
subsidiaries or shall be unwilling to act thereunder, such other firm of
nationally recognized independent accountants as USTNY and New Trustco may
jointly designate which does not at the time have a material relationship with
USTNY, New Trustco or their Affiliates) to determine, in accordance with the
provisions of this Agreement, such disputed item or amount (or the computations
or determination thereof). Any such request shall be in writing and shall
specify with particularity the disputed items, amounts or computations being
submitted for determination, and the requesting party shall furnish the other
party hereto with a copy of such request at the same time it is submitted to the
independent accountants. The firm of independent accountants to which any
dispute is referred hereunder shall within 30 days determine, in accordance with
the provisions of this Agreement, the proper amount of any disputed item or
other amount, or the computation thereof, and such determination shall be final,
conclusive and binding on all parties hereto. In acting pursuant to this
Agreement, such firm of independent accountants shall be entitled to the
privileges and immunities of arbitrators. USTNY and New Trustco shall cooperate
fully in assisting such firm in making any determination requested hereunder,
including giving such firm access to all files, books and records relevant
thereto and providing such other information as such firm may reasonably request
in connection with the determination to be made by it hereunder. The fees and
disbursements in connection with such firm's determination shall be borne
equally by USTNY and New Trustco unless the determination requires a party to
make an additional payment in excess of $50,000, in which case the party
required to make such payment shall bear and be responsible for the full amount
of fees and disbursements of such firm. In the event that a determination by
independent accountants pursuant to this Section requires any previously
suspended payment to be made by any party, such payment shall be made promptly
(and in any event within ten Business Days) after receipt by such party from
such independent accountants of written notice of such determination. Such firm
of independent accountants shall promptly and substantially simultaneously
notify USTNY and New Trustco in writing of any determination by it hereunder.
New Trustco and USTNY agree that the settlement of amounts payable pursuant to
this Section will not be considered to be a claim for indemnification pursuant
to the Post Closing Covenants Agreement.
(b) Any amount payable by any party to another party pursuant to Section
8.9(a) shall be paid in immediately available funds in New York City and shall
bear interest (calculated on the basis of a 360-day year) on each day from the
date such amount would originally have been required to be paid hereunder had no
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dispute over such amount existed to the date of payment at the Federal Funds
Rate in effect for each such day during the period involved.
(c) The party having control of the relevant records and financial
information used in connection with any adjustment provided for in this Section
shall certify the accuracy of such records and financial information if so
requested by the other party.
SECTION 8.10. ASSIGNMENT. Neither this Agreement nor any of the rights,
interest or obligations hereunder shall be assigned by either party hereto
without the prior written consent of the other party, except that USTNY may
assign its rights, interest and obligations under this Agreement to any
successor by merger or any entity that acquires substantially all of its assets.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties and their respective successors
(including any bank or trust company which is a successor by merger to USTNY)
and assigns.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, USTNY and New Trustco have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
UNITED STATES TRUST COMPANY
OF NEW YORK
By:
------------------------------------
Name:
Title:
NEW U.S. TRUST COMPANY OF NEW YORK
By:
------------------------------------
Name:
Title:
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APPENDIX D
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- --------------------------------------------------------------------------------
POST CLOSING COVENANTS
AGREEMENT
DATED AS OF , 1995
AMONG
THE CHASE MANHATTAN CORPORATION
U.S. TRUST CORPORATION
UNITED STATES TRUST COMPANY OF NEW YORK
NEW USTC HOLDINGS CORPORATION
AND
NEW U.S. TRUST COMPANY OF NEW YORK
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- --------------------------------------------------------------------------------
<PAGE> 183
POST CLOSING COVENANTS AGREEMENT dated as of , 1995 (the
"AGREEMENT"), among THE CHASE MANHATTAN CORPORATION, a Delaware corporation
("CMC"), U.S. TRUST CORPORATION, a New York corporation (the "COMPANY"), UNITED
STATES TRUST COMPANY OF NEW YORK, a New York State chartered bank and trust
company ("OLD USTNY"), NEW USTC HOLDINGS CORPORATION, a New York corporation
("NEW HOLDINGS") and NEW U.S. TRUST COMPANY OF NEW YORK, a New York State
chartered bank and trust company and wholly owned subsidiary of New Holdings
("NEW TRUSTCO").
R E C I T A L S
WHEREAS, New Holdings and New Trustco are, concurrently with the execution
of this Agreement, entering into an Agreement and Plan of Distribution dated as
of the date hereof ("DISTRIBUTION AGREEMENT");
WHEREAS, Old USTNY and New Trustco are, concurrently with the execution of
this Agreement, entering into a Contribution and Assumption Agreement dated as
of the date hereof ("CONTRIBUTION AGREEMENT");
WHEREAS, the consummation of the transactions contemplated by the
Distribution Agreement and the Contribution Agreement is a condition precedent
of the Merger (as defined below);
WHEREAS, CMC and the Company have entered into an Agreement and Plan of
Merger (the "MERGER AGREEMENT") dated as of November 18, 1994, providing, upon
the terms and subject to the conditions contained therein, for the merger (the
"MERGER") of the Company with and into CMC immediately after the consummation of
the Contribution and the Distribution;
WHEREAS, the execution and delivery of this Agreement by the parties hereto
is a condition to the willingness of the parties to the Contribution Agreement,
the Distribution Agreement and the Merger Agreement to consummate the
Contribution, the Distribution and the Merger;
WHEREAS, CMC desires to enter into this Agreement in consideration for,
among other things, the satisfaction of the aforementioned conditions to the
Merger; and
WHEREAS, the parties to this Agreement have determined that it is necessary
and desirable to set forth certain agreements that will govern various indemnity
matters and other matters that may arise following the Distribution and the
Merger.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, and the above recited consideration and
other good and valuable consideration, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Capitalized terms used in this Agreement without
definitions will have the meanings ascribed to such terms in the Merger
Agreement, and accounting terms used herein and accounting determinations made
hereunder will be used or made as provided in the Merger Agreement. The
following terms shall have the following definitions:
"ACCOUNTING AND VALUATION SERVICES" shall have the meaning assigned to
such term in Section 7.
"ADMINISTRATION SERVICES" shall have the meaning assigned to such term
in Section 7.
"CHASE PARTIES" means CMC, the Company and Old USTNY.
"COMPANY EMPLOYEES" means all employees of Old USTNY and its
affiliates prior to the Effective Time.
"CUSTODY SERVICES" shall have the meaning assigned to such term in
Section 7.
"INDEMNIFIED PARTY" shall have the meaning assigned to such term in
Section 4.
"INDEMNIFYING PARTY" shall have the meaning assigned to such term in
Section 4.
<PAGE> 184
"LOSSES" means any liabilities, claims, actions, suits, proceedings,
judgments, losses, damages, deficiencies and expenses (including reasonable
attorney's fees and expenses of investigation).
"NEW UST PARTIES" means New Holdings and New Trustco.
"THIRD PARTY CLAIM" shall have the meaning assigned to such term in
Section 4.
"TRANSFER AGENT SERVICES" shall have the meaning assigned to such term
in Section 7.
"TRUST SERVICES" shall have the meaning assigned to such term in
Section 7.
SECTION 2. INDEMNIFICATION.
(a) From and after the Effective Time, New Holdings agrees to
indemnify and hold harmless the Chase Parties and their respective
directors, officers, employees, affiliates, agents and assigns, as
applicable, against any and all Losses, as incurred, for or on account of
or arising from or in connection with or otherwise with respect to:
(i) any breach of or any inaccuracy in any representation or
warranty of any of the New UST Parties, the Company, Old USTNY and their
subsidiaries contained in any of the Documents (as defined in the
Distribution Agreement);
(ii) any breach or nonperformance of any covenant of (A) the New
UST Parties or any of their subsidiaries contained in the Documents
whether to be performed before or after the Effective Time or (B) the
Company or Old USTNY or any of their subsidiaries contained in the
Documents to be performed prior to the Effective Time;
(iii) any Acquired Asset or Assumed Liability (each as defined in
the Contribution Agreement and the Distribution Agreement);
(iv) any Delayed Asset or Delayed Liability (each as defined in the
Contribution Agreement);
(v) any regulatory or compliance violation that arises out of
events, actions or omissions to act of the Company or Old USTNY
occurring prior to the Effective Time and adversely affects a Customer
account or any entity that has an interest in such Customer account;
(vi) except for the Retained Liabilities (as defined in the
Contribution Agreement), MFSC Retained Liabilities, UST-WY Retained
Liabilities (each as defined in the Distribution Agreement) and actions
relating to the Processing Business, claims of any shareholders,
directors, officers, employees or agents of the Company and its
subsidiaries arising from the execution by the Company or Old USTNY of
the Documents and the consummation after the Effective Time of
transactions in accordance with the terms of the Documents;
(vii) any untrue statement or alleged untrue statement of any
material fact contained in the Proxy Statement, the Registration
Statement on Form S-4, the Registration Statement on Form 10 and, if
necessary, the Registration Statement on Form S-1 (the Form S-4, the
Form 10 and the Form S-1 collectively, the "Registration Statements") or
any amendment or supplement thereto, or any omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; but only in each case to the
extent based upon information with respect to the New UST Parties, the
Company or Old USTNY furnished in writing by or on behalf of the New UST
Parties, or at any time prior to the Effective Time, the Company or Old
USTNY, expressly for use in the Proxy Statement, the Registration
Statements or any amendment or supplement thereto; and
(viii) any liability arising (A) from a claim to enforce, or to
recover tort liability arising out of, any federal, state or local law,
rule or regulation relating to the protection of the environment with
respect to any facility, site, location or business (whether past or
present and whether active or inactive) owned, operated or leased by the
Company or Old USTNY or any of their subsidiaries prior to the Effective
Date and (B) as a result of conditions existing during or prior to the
period of
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time such facility, site, location or business was owned, operated or
leased by the Company or Old USTNY or any of their subsidiaries.
(b) From and after the Effective Time, New Trustco agrees to indemnify
and hold harmless the Chase Parties and their respective directors,
officers, employees, affiliates, agents and assigns, as applicable, against
any and all Losses, as incurred, for or on account of or arising from or in
connection with or otherwise with respect to:
(i) any breach of or any inaccuracy in any representation or
warranty of New Trustco or Old USTNY and their subsidiaries contained in
any of the Documents;
(ii) any breach or nonperformance of any covenant of (A) New
Trustco contained in the Documents whether to be performed before or
after the Effective Time or (B) Old USTNY contained in the Documents to
be performed prior to the Effective Time;
(iii) any Acquired Asset or Assumed Liability (each as defined in
the Contribution Agreement);
(iv) any Delayed Asset or Delayed Liability (each as defined in the
Contribution Agreement);
(v) any regulatory or compliance violation that arises out of
events, actions or omissions to act of Old USTNY occurring prior to the
Effective Time and adversely affects a Customer account or any entity
with an interest in such Customer account; and
(vi) any liability arising (A) from a claim to enforce, or to
recover tort liability arising out of, any federal, state or local law,
rule or regulation relating to the protection of the environment with
respect to any facility, site, location or business (whether past or
present and whether active or inactive) owned, operated or leased by Old
USTNY prior to the Effective Date and (B) as a result of conditions
existing during or prior to the period of time such facility, site,
location or business was owned, operated or leased by Old USTNY.
(c) CMC agrees to indemnify and hold harmless the New UST Parties and
their respective directors, officers, employees, affiliates, agents and
assigns, as applicable, against any and all Losses, as incurred, for or on
account of or arising from or in connection with or otherwise with respect
to:
(i) any breach of or inaccuracy in any representation or warranty
of CMC contained in any of the Documents;
(ii) any breach or nonperformance of any covenant of (A) CMC
contained in the Documents whether to be performed before or after the
Effective Time or (B) the Company or Old USTNY or any of their
subsidiaries contained in the Documents to be performed after the
Effective Time;
(iii) except for Losses as to which any of the Chase Parties are
entitled to indemnification pursuant to the terms of Section 2(a)
hereof, any Retained Asset (as defined in the Contribution Agreement),
any Retained Liability, any MFSC Retained Liability and any UST-WY
Retained Liability; and
(iv) any untrue statement or alleged untrue statement of any
material fact contained in the Proxy Statement, the Registration
Statements or any amendment or supplement thereto, or any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; but only in
each case to the extent based upon information with respect to the Chase
Parties furnished in writing by or on behalf of CMC or, at any time
after the Effective Time, the Company or Old USTNY, expressly for use in
the Proxy Statement, the Registration Statements or any amendment or
supplement thereto.
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<PAGE> 186
(d) Old USTNY agrees to indemnify and hold harmless the New UST
Parties and their respective directors, officers, employees, affiliates,
agents and assigns, as applicable, against any and all Losses, as incurred,
for or on account of or arising from or in connection with or otherwise
with respect to:
(i) any breach or nonperformance of any covenant of Old USTNY
contained in the Documents to be performed after the Effective Time; and
(ii) except for Losses as to which any of the Chase Parties are
entitled to indemnification pursuant to the terms of Section 2(a)
hereof, any Retained Asset or any Retained Liability.
SECTION 3. TERMINATION OF INDEMNIFICATION. The obligations to indemnify
and hold harmless any party (a) pursuant to Sections 2(a)(i), 2(b)(i) and
2(c)(i) shall terminate on the second anniversary of the date hereof, (b)
pursuant to Sections 2(a)(v) and 2(b)(v) shall terminate on the first
anniversary of the date hereof and (c) pursuant to the other clauses of Sections
2(a), 2(b) and 2(c) and clause 2(d) shall not terminate; provided, however, that
such obligations to indemnify and hold harmless shall not terminate with respect
to any item as to which the person to be indemnified shall have, before the
expiration of the applicable period, previously made a claim by delivering a
notice (pursuant to Section 4 hereof in the case of Third Party Claims)
specifically identifying such claim to the party providing the indemnification.
SECTION 4. PROCEDURE. (a) Any party seeking any indemnification provided
for under this Agreement (the "INDEMNIFIED PARTY") in respect of, arising out of
or involving a claim made by any person against the Indemnified Party (a "THIRD
PARTY CLAIM"), shall notify in writing (and to the extent received, deliver
copies of all related notices and documents (including court papers) to) the
party from whom indemnification is sought (the "INDEMNIFYING PARTY") of the
Third Party Claim within fifteen Business Days after receipt by such Indemnified
Party of written notice of the Third Party Claim; provided, however, that
failure to give such notification shall not affect the indemnification provided
hereunder except to the extent the Indemnifying Party shall have been actually
prejudiced as a result of such failure (except that the Indemnifying Party shall
not be liable for any expenses incurred during the period in which the
Indemnified Party failed to give such notice if such Indemnified Party failed to
give such notice within the allotted fifteen Business Days). Thereafter, the
Indemnified Party shall deliver to the Indemnifying Party, within five Business
Days' time after the Indemnified Party's receipt thereof, copies of all other
notices and documents (including court papers) received by the Indemnified Party
relating to the Third Party Claim.
(b) If a Third Party Claim is made against an Indemnified Party, the
Indemnifying Party shall be entitled to participate in the defense thereof and,
if it so chooses (except as provided in Section 4(c)), to assume the defense
thereof with experienced counsel selected by the Indemnifying Party and
reasonably satisfactory to the Indemnified Party. Should the Indemnifying Party
so elect to assume the defense of a Third Party Claim, the Indemnifying Party
shall not be liable to the Indemnified Party for any legal expenses (except as
provided below and in Section 4(c)) subsequently incurred by the Indemnified
Party in connection with the defense thereof. Notwithstanding the Indemnifying
Party's election to assume the defense of such Third Party Claim, the
Indemnified Party shall have the right to employ separate counsel and to
participate in the defense of such action at its own expense; provided, however,
that the Indemnifying Party shall bear the reasonable fees, costs, and expenses
of such separate counsel if (i) the use of counsel chosen by the Indemnifying
Party to represent the Indemnified Party would present such counsel with a
conflict of interest that would preclude such counsel from representing the
Indemnified Party pursuant to legal canons of ethics or other applicable law;
(ii) the Indemnifying Party shall not have employed counsel reasonably
satisfactory to the Indemnified Party to represent it within 30 days after
notice to the Indemnifying Party of the institution of such Third Party Claim or
(iii) the Indemnifying Party shall authorize the Indemnified Party to employ
separate counsel at the Indemnifying Party's expense. If the Indemnifying Party
chooses to defend or prosecute a Third Party Claim, each party hereto shall
cooperate in the defense or prosecution thereof. Such cooperation shall include
the retention and (upon the Indemnifying Party's request) the provision to the
Indemnifying Party of records and information which are reasonably relevant to
such Third Party Claim, and making employees available (subject to reimbursement
by the Indemnifying Party of actual expenses incurred therewith) on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. If the Indemnifying Party chooses to defend or
prosecute any Third Party Claim, the
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Indemnified Party shall agree to any settlement, compromise or discharge of such
Third Party Claim which the Indemnifying Party may recommend and which by its
terms obligates the Indemnifying Party to pay the full amount of the liability
in connection with such Third Party Claim and releases the Indemnified Party
completely in connection with such Third Party Claim. Whether or not the
Indemnifying Party shall have assumed the defense of a Third Party Claim, so
long as the Indemnifying Party acknowledges in writing its obligation to
indemnify the Indemnified Party with respect to the applicable claims, the
Indemnified Party shall not admit any liability with respect to, or settle,
compromise or discharge, such Third Party Claim without the Indemnifying Party's
prior written consent, which consent may not be withheld unless, in the
Indemnifying Party's good-faith judgment, such settlement, compromise or
discharge is unreasonable in light of such Third Party Claim against, and
defenses available to, the Indemnified Party.
(c) Notwithstanding anything set forth in Section 4(b) to the contrary, in
the event an Indemnified Party reasonably believes and so notifies the
Indemnifying Party in writing that the applicable claim, even if fully
indemnified for, is reasonably likely to have a material adverse effect on the
Indemnified Party's business, financial condition or results of operations, then
the Indemnifying Party shall not have the right to assume the defense of such
claim but shall have the right to employ separate counsel and to participate in
the defense of such action at its own expense. In such an event, the Indemnified
Party and its counsel shall consult, wherever reasonably practicable, with the
Indemnifying Party and its counsel with respect to the status of the claim and
any related litigation.
SECTION 5. LIMITATION ON INDEMNIFICATION. Notwithstanding anything herein
to the contrary, neither the New UST Parties nor CMC or Old USTNY shall have any
liability pursuant to Sections 2(a) and 2(b) or 2(c) and 2(d), respectively,
unless the aggregate amount of all Losses relating thereto exceeds on a
cumulative basis an amount equal to $500,000 (the "DEDUCTIBLE AMOUNT"), and then
only to the extent of any such excess; provided, however, that any Loss arising
from a single indemnification claim (including any single Third Party Claim) in
an amount greater than $50,000 shall not be subject to the limitation of this
Section 5 and shall be excluded from the determination of the Deductible Amount;
provided further, however, that amounts to be indemnified pursuant to Section
2.3 of the Contribution Agreement and Section 4.4 of the Distribution Agreement
shall not be subject to the limitation of this Section 5 and shall be excluded
from the determination of the Deductible Amount. In no event shall any party be
entitled to indemnification for any Loss pursuant to Section 2 to the extent
such party has been indemnified for such Loss pursuant to any other Document.
SECTION 6. MINIMUM NET WORTH. Until the later of (a) three years from the
date hereof or (b) the date when the applicable statutes of limitations with
respect to all Federal income tax liabilities of the Company for periods ending
prior to or on the Closing Date have run, New Holdings shall (i) as of any date
of determination, maintain consolidated shareholders' equity of not less than
the lesser of (x) $150,000,000 and (y) the greater of (1) 95% of the
consolidated shareholders' equity of New Holdings at January 1, 1996, and (2)
the sum of (A) $135,000,000 plus, (B) on and after January 1, 1997, the product
of (I) $7,500,000 multiplied by (II) the number of the most recent preceding
anniversary of December 31, 1995 and (ii) be a "well capitalized" bank holding
company within the meaning of the regulations of the Board of Governors of the
Federal Reserve System (as in effect on the date hereof); except that, so long
as its Tier 1 capital leverage ratio (determined in accordance with regulations
in effect on the date hereof) is 4.5% or above, New Holdings shall not be deemed
to be less than "well capitalized" solely because its Tier 1 capital leverage
ratio is less than 5%; provided, however, that on or before September 30, 1995,
the denominator used in determining New Holding's Tier 1 capital leverage ratio
shall be the book value of the average total consolidated assets (net of the
allowance for loan losses) of New Holdings following the Distribution.
SECTION 7. NONCOMPETITION AND NONSOLICITATION; PROPRIETARY INFORMATION.
(a) Until the fourth anniversary of the Effective Time, neither New
Holdings nor any subsidiary or affiliate of New Holdings shall (i) in any
way, directly or indirectly, engage in the Processing Business in the
United States or Canada, or own, manage, operate, control or have an
interest greater than 5% of the voting stock or 25% of the total equity in
any enterprise which engages, directly or indirectly, in the Processing
Business in the United States or Canada; provided, however, that nothing
contained herein
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shall prohibit New Holdings or any subsidiary or affiliate of New Holdings
from directly or indirectly acquiring a corporation or other entity or
affiliated group of corporations or other entities that is engaged in the
Processing Business (an "ACQUIRED PERSON") so long as during the twelve
month period ending on the last day of the month immediately preceding the
month of such acquisition, revenues earned from the Processing Business by
such Acquired Person constituted no more than 15% of the aggregate revenues
of such Acquired Person; provided, however, than an Acquired Person shall
be subject to this Section 7 only with respect to customers of such
Acquired Person who were not customers on the date immediately preceding
the date such Acquired Person became an affiliate of New Holdings; (ii)
provide any Customer or Institutional Client with any of the following
items in connection with any assets held in custody or safekeeping by CMC
or any affiliate of CMC, except as provided in the Services Agreement: (A)
securities lending and investment of related collateral, (B) securities and
commodities clearing services or (C) foreign exchange services or (iii)
provide any Customer with any of the following items in connection with any
assets with respect to which CMC or any affiliate of CMC provides
Processing Services: (A) cash balance sweep services, (B) except with
respect to assets for which New Holdings or any subsidiary of New Holdings
exercises investment management for Customers listed on Schedule 7.1, Cash
Management or (C) extensions of credit to investment companies and other
commingled investment funds.
(b) Until the third anniversary of the Effective Time, except as
provided in Section 5.8 of the Merger Agreement, neither New Holdings nor
any of its subsidiaries will solicit for employment any person who is, or
after the Effective Time will be, a Retained Employee (other than a
Retained Employee whose employment with CMC and its affiliates or any
successor thereto has been terminated or who has been given notice of
termination) or seek to persuade any such Retained Employee to discontinue
his or her employment with CMC or any of its subsidiaries.
(c) From and after the Effective Time, except as required by law,
neither New Holdings nor any of its subsidiaries nor any of their
respective representatives shall, at any time, make use of, divulge or
otherwise disclose, directly or indirectly, any trade secret, confidential
information or other proprietary data (including any customer list,
employee data, record or financial information constituting a trade secret)
concerning the Processing Business and the Related Back Office (as defined
in the Contribution Agreement) including, without limitation, the business
or policies of Old USTNY and the Company or any of their respective
subsidiaries, other than information that is an Acquired Asset or a Delayed
Asset; provided, however, that nothing in the foregoing shall preclude New
Holdings or any subsidiary or affiliate of New Holdings from providing any
of the services not specifically prohibited herein or from engaging in the
Processing Business from and after the fourth anniversary of the Effective
Time.
(d) In the event that there is a direct or indirect Change of Control,
New Holdings and New Trustco shall cease to be bound by Section 7(a), and
upon six months notice by CMC, CMC may treat such Change of Control as a
termination of the Services Agreement by New Trustco and cease providing
Processing Services under the Services Agreement on or after six months
after the Change of Control.
(e) Notwithstanding any other provision of this Agreement, it is
understood and agreed that the remedy of indemnity payments pursuant to
Section 2 and other remedies at law would be inadequate in the case of any
breach of the covenants contained in Sections 7(a), 7(b), and 7(c) and each
of New Holdings and New Trustco agrees that each of CMC and the Company
shall be entitled to equitable relief, including the remedy of specific
performance, with respect to any breach or attempted breach of such
covenants.
(f) For the purposes of this Section 7:
"ACCOUNTING AND VALUATION SERVICES" shall mean all portfolio
accounting and valuation services including but not limited to the
financial and tax recordkeeping related to income, disbursements,
corporate actions, interest, dividends and expense of customers,
including the calculation of total assets, net assets, net asset value
per share or unit, the preparation of financial statements and related
functions.
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"ADMINISTRATION SERVICES" shall mean any or all of the following:
(i) the maintenance of corporate, trust or partnership books and
records, including Accounting and Valuation Services and Transfer Agent
Services, (ii) the preparation of required regulatory filings and
reports and payments of required governmental fees and expenses, (iii)
the preparation and filing of tax returns, (iv) overseeing the
determination of net asset value calculations, (v) arranging for and
supervising payments of expenses, (vi) the preparation of financial
statements, (vii) the provision of legal and regulatory compliance
services and supervision of regulatory and compliance matters, including
without limitation the preparation and filing of registration statements
and disclosure documents required by federal or state law, (viii) the
preparation of annual and semiannual reports and other shareholder
communications and (ix) corporate secretary and treasury services.
"ASSET AND INVESTMENT MANAGEMENT BUSINESS" shall mean the asset and
investment management business of USTNY and its affiliates ("AIM"), as
conducted in the case of USTNY by its Asset Management Group, which
includes administration of personal and Family trusts and estates,
estate planning services, providing Special Fiduciary Services,
broker-dealer services, custody services with respect to assets managed
by AIM, providing tax services and financial counseling and acting as a
discretionary trustee or an investment manager for stocks, bonds,
separately managed or pooled accounts, common trust funds and other
financial assets for individuals and entities including without
limitation, mutual funds, institutions and employee benefit plans.
"BUNDLED SERVICES" shall mean the provision of Administration
Services, Custody Services or Trust Services as included services,
without separate charge, together with the exercise of Substantial
Management Discretion over 50% or more of the investible assets in the
account for which such included services are provided.
"CASH MANAGEMENT" shall mean short term investment management of
uninvested cash balances in instruments or vehicles having an average
maturity of 180 days or less, including without limitation STIFs or
money market funds.
"CHANGE OF CONTROL" shall mean any direct or indirect acquisition
of New Holdings or New Trustco by any other institution, including
without limitation, a merger of New Holdings or New Trustco with an
unaffiliated institution (or any affiliate of such institution) having
total assets of $2 billion or more or shareholders' equity of $200
million or more.
"CORPORATE TRUST AND AGENCY BUSINESS" shall mean the corporate
trust and agency business of USTNY and its affiliates, which includes
acting as trustee for the holders of interests representing obligations
under bonds, debentures, leases, structured obligations, derivative and
asset-backed securities, and voting trusts, acting as registrar, tender
agent, voting trustee, solicitation agent, drawing agent, authenticating
agent, warrant agent, paying agent, issuing agent, depositary or
exchange agent for cash, securities or other property (other than
registered Investment Company securities), acting as fiscal agent under
public bond resolutions, acting as an escrow agent, transfer agent or
collateral agent for public and private corporations, partnerships (but
not registered Investment Companies) and municipalities and acting as
bond immobilization agent.
"CUSTODY SERVICES" shall mean the provision of custodial trustee,
safekeeping and related services to clients with respect to their cash,
securities or other assets, including (i) custody and safekeeping of
assets, (ii) settlement of securities and asset transactions and
reporting thereof, (iii) determination and collection of income and
entitlements on securities and other assets, (iv) making cash
disbursements and reporting cash transactions, (v) maintenance of
investment ledgers and position and income reports, including account
ledgers, statements of account, asset status lists and investment
reviews, (vi) cash balance sweep services, (vii) securities lending and
investment of related collateral, (viii) securities and commodities
clearing services, (ix) foreign exchange services, and (x) extensions of
credit to (A) Investment Companies for leverage and 12b-1 financing and
(B) other commingled investment funds.
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"FAMILY" shall mean an individual or group of individuals related
by blood, marriage, or similar relationships.
"FAMILY OFFICE" shall mean any corporation, trust, partnership or
other entity established and operated exclusively to manage, or as a
vehicle for the common management of, the assets or affairs of a Family.
A "FAMILY OFFICE" may include foundations or endowments, provided that
when aggregated, all such foundations and endowments shall constitute
less than 50% of: (i) the investible assets of the Family Office and
(ii) the investible assets of Family Members under the management of New
Holdings or any subsidiary or affiliate of New Holdings. "FAMILY OFFICE"
shall also include any employee benefit plan trust maintained
exclusively for the benefit of Family retainers and employees of the
Family Office.
"FAMILY TRUST" shall mean any trust for the benefit of an
individual or Family.
"INSTITUTIONAL CLIENT" shall mean any corporation, trust,
foundation, endowment, limited liability company, partnership or similar
entity having investible assets of $50 million or more, other than a
Family Office.
"PRIVATE BANKING BUSINESS" shall mean the private banking business
of USTNY and its affiliates which includes the provision of a full range
of commercial banking and fiduciary services to individuals, Families,
Family Offices, partnerships and other entities. Services and products
provided by the Private Banking Business include checking accounts,
money market accounts, certificates of deposit, secured and unsecured
loans, mortgage loans, lines of credit, letters of credit, custody and
securities administration services, secured broker loans and Cash
Management services offered to securities industry participants and
financial institutions (other than Customers).
"PROCESSING BUSINESS" shall mean the business of providing
Administration Services, Custody Services or Trust Services; provided,
however, that the term "PROCESSING BUSINESS" shall not include any
services that would, but for this proviso, constitute "PROCESSING
BUSINESS," to the extent such services are provided in connection with
any of the following: (i) any relationship listed in Schedule 7.2; (ii)
assets with respect to which New Holdings or any subsidiary or affiliate
of New Holdings exercises investment management; (iii) individuals,
estates, Family Trusts or Family Offices; (iv) any corporation, limited
liability company, trust, partnership, foundation or endowment or other
entity having, at the time of the acceptance of the relationship,
investible assets of less than $50 million or, at any time the services
are provided other than as Bundled Services, investible assets of less
than $100 million; (v) any collective investment trust maintained
exclusively by New Trustco or another bank or trust company affiliate;
(vi) the Corporate Trust and Agency Business of New Holdings, New
Trustco or any of their affiliates, (vii) subject to clause (iv) above,
the AIM Business; (viii) subject to clause (iv) above, the Private
Banking Business, (ix) any service provided to New Holdings or a
subsidiary or affiliate of New Holdings for its own account or (x) any
relationship for which CMC serves as subcustodian to New Holdings or any
subsidiary or affiliate of New Holdings (other than pursuant to the
Services Agreement). Except as expressly provided, the foregoing clauses
(i) through (x) operate independently and none shall be deemed to limit
the other.
"SPECIAL FIDUCIARY SERVICES" shall mean any special appointment to
act as trustee or as fiduciary with respect to employer or
employer-related securities in which the trustee or fiduciary is
appointed for the express purpose of making a special investment or
voting decision or other discretionary decision with respect to such
employer or employer-related securities.
"SUBSTANTIAL MANAGEMENT DISCRETION" shall mean the actual
management of investible assets, directly or through a subadvisor,
whether or not the manager exercises final decision-making power over
assets.
"TRANSFER AGENT SERVICES" shall mean any or all of the services,
functions or activities of a transfer agent, as defined in Section
3(a)(25) of the Exchange Act, including but not limited to the functions
of dividend disbursing agent, registrar, and shareholder liaison
functions, and (i) the maintenance, updating and operating of
shareholder or equivalent ownership of shares, units or
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partnership interests in such accounts, (ii) the preparation and input
of all orders for purchases, exchanges, redemptions and transfers and
any reconciliations, settlements and mailings relating thereto, (iii)
responding to inquiries from existing and prospective shareholders,
unitholders or partners, (iv) reconciling all internal accounts, such as
incoming cash and settlement wires, (v) tax preparation, materials or
reports for shareholders, unitholders or partners (but not Investment
Companies), and reporting and compliance in connection therewith, (vi)
record-keeping for shareholders, unitholders or partners in accordance
with applicable law, rules and regulations and (vii) other services
customarily performed by a transfer agent.
"TRUST SERVICES" shall mean services provided as a trustee or
custodian consisting of the provision of safekeeping and related
services to clients with respect to their cash, securities or other
assets, including the services denoted under "Custody Services" above,
and the following: (i) portfolio accounting services including but not
limited to financial and tax recordkeeping, (ii) preparation of required
regulatory filings and reports, (iii) provision of performance
measurement and analytical services, including the on-line delivery
thereof and (iv) benefit payments and participant recordkeeping.
SECTION 8. OTHER AGREEMENTS. (a) Old USTNY acknowledges that certain
Customer Agreements (as defined in the Contribution Agreement) of the IAS
Business (as defined in the Contribution Agreement) for Cash Management Services
relating to collective investment vehicles that will be maintained or advised by
New Trustco are part of the Retained Assets. In each such instance, New Trustco
shall use its best efforts to have the relevant Customers (as defined in the
Contribution Agreement) of the IAS Business enter into agreements with New USTNY
in order to transfer the money management relationship of such Customers to New
USTNY.
(b) From and after the Closing Date, Old USTNY shall use its best efforts
to assist New Trustco in the collection of the Transferred Processing
Receivables (as defined in the Contribution Agreement); provided, however, that
the foregoing shall not require Old USTNY to incur any actual cost or expense
not reimbursed by New Trustco or to conduct litigation (but Old USTNY shall
cooperate in such ways as may reasonably be requested by New Trustco, at New
Trustco's expense, in connection with any litigation commenced by New Trustco to
collect such Transferred Processing Receivables).
SECTION 9. VALIDITY. If any provision of this Agreement should, for any
reason whatsoever, be declared invalid or unenforceable by a court of competent
jurisdiction, the validity or enforcement of the remainder of the Agreement
shall not thereby be adversely affected and such provision shall be deemed
deleted herefrom with respect, and only with respect, to the operation of such
provision in the particular jurisdiction in which such adjudication was made;
provided, however, that to the extent any such provision may be made valid and
enforceable in such jurisdiction by limitations on the scope of the activities,
geographical area or time period covered, the parties agree that such provision
instead shall be deemed limited to the extent, and only to the extent, necessary
to make such provision enforceable to the fullest extent permissible under the
laws and public policies applied in such jurisdiction, and any court of
competent jurisdiction is hereby authorized to enforce such provision as so
limited.
SECTION 10. NOTICES. Any notice, request, instruction or other document
to be given hereunder by any party to any other party shall be in writing and
shall be deemed to have been duly given (i) on the first business day occurring
on or after the date of transmission if transmitted by facsimile (upon
confirmation of receipt by journal or report generated by the facsimile machine
of the party giving such notice), (ii) on the first business day occurring on or
after the date of delivery if delivered personally or (iii) on the first
business day following the date of dispatch if dispatched by Federal Express or
other next-day courier service. All
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notices hereunder shall be given as set forth below, or pursuant to such other
instructions as may be designated in writing by the party to receive such
notice:
(i) if to any of the Chase Parties, to
c/o The Chase Manhattan Corporation
One Chase Manhattan Plaza
New York, New York 10081
Attention: Robert M. MacAllister
Facsimile Number: (212) 552-4934
with a copy (which shall not constitute notice) to:
O'Melveny & Myers
153 East 53rd Street
New York, New York 10022
Attention: William H. Satchell
Facsimile Number: (212) 326-2061
(ii) if to any of the New UST Parties, to
c/o U.S. Trust Corporation
114 West 47th Street
New York, New York 10036
Attention: Maureen Scannell Bateman
Facsimile Number: (212) 852-1310
with a copy (which shall not constitute notice) to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: B. Robbins Kiessling
Facsimile Number: (212) 765-0992
SECTION 11. BOOKS AND RECORDS. After the Closing, upon reasonable written
notice, New Trustco and Old USTNY each shall furnish or cause to be furnished to
the other and their respective accountants, counsel and other representatives
access, during normal business hours, to such information (including books and
records) as is reasonably necessary.
SECTION 12. EXPENSES. New Holdings and New Trustco jointly and severally
agree to pay all fees and expenses incurred by the Company and Old USTNY and
their respective affiliates in connection with the negotiation and execution of
the Documents and the performance of the transactions contemplated thereby,
other than transactions performed after the Effective Time.
SECTION 13. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws.
SECTION 14. INTERPRETATION. When a reference is made in this Agreement to
a Section, Schedule or Exhibit, such reference shall be to a Section, Schedule
or Exhibit of this Agreement unless otherwise indicated. The table of contents
and headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "included", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation". All accounting terms not defined in this Agreement shall have the
meanings determined by generally accepted accounting principles.
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SECTION 15. PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
expressed or implied, is intended to confer upon any other Person any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 16. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
day and year first written above.
THE CHASE MANHATTAN CORPORATION
By:
------------------------------------
Name:
Title:
UNITED STATES TRUST COMPANY OF
NEW YORK
By:
------------------------------------
Name:
Title:
NEW U.S. TRUST COMPANY OF NEW YORK
By:
------------------------------------
Name:
Title:
U.S. TRUST CORPORATION
By:
------------------------------------
Name:
Title:
NEW USTC HOLDINGS CORPORATION
By:
------------------------------------
Name:
Title:
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APPENDIX E
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TAX ALLOCATION AGREEMENT
DATED AS OF , 1995
AMONG
U.S. TRUST CORPORATION
NEW USTC HOLDINGS CORPORATION
AND
THE CHASE MANHATTAN CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 195
TAX ALLOCATION AGREEMENT (the "AGREEMENT")
dated as of , 1995, among
U.S. TRUST CORPORATION, a New York corporation
(the "COMPANY"),
NEW USTC HOLDINGS CORPORATION, a New York corporation
("NEW HOLDINGS") and THE CHASE MANHATTAN CORPORATION,
a Delaware corporation ("PARENT").
WHEREAS, the Company is currently the common parent of an affiliated group
of corporations (the "AFFILIATED GROUP") filing consolidated Federal income Tax
returns and unitary or combined state income Tax returns ("CONSOLIDATED
RETURNS"), pursuant to which the Company and one or more other members of the
Affiliated Group pay Taxes on a consolidated, combined or unitary basis
("CONSOLIDATED TAXES");
WHEREAS, on , United States Trust Company of New York, a New
York State chartered bank and trust company ("USTNY") and a wholly owned
subsidiary of the Company, transferred certain assets and liabilities associated
with USTNY's private banking and asset management businesses to New U.S. Trust
Company of New York, a New York State chartered bank and trust company ("NEW
TRUSTCO") and a newly formed, wholly owned subsidiary of USTNY ("CONTRIBUTION
NO. 1");
WHEREAS, immediately thereafter, USTNY distributed the stock of New Trustco
to the Company ("SPINOFF NO. 1") in a transaction intended to qualify as a
tax-free distribution under Section 355 of the Internal Revenue Code of 1986, as
amended (the "CODE");
WHEREAS, immediately thereafter, the Company contributed the stock of New
Trustco, the stock of certain other subsidiaries of the Company and certain
other assets to New Holdings, a newly formed, wholly owned subsidiary of the
Company ("CONTRIBUTION NO. 2");
WHEREAS, the Company intends to distribute all the stock of New Holdings to
its shareholders ("SPINOFF NO. 2") in a transaction intended to qualify as a
tax-free spin-off under Section 355 of the Code (Contribution No.1, Contribution
No.2, Spinoff No.1 and Spinoff No.2 are referred to, collectively, herein as the
"SPINOFFS");
WHEREAS, on the beginning of the first day after the date on which Spinoff
No.2 occurs (the "DISTRIBUTION DATE"), New Holdings and its subsidiaries,
including New Trustco (collectively, the "HOLDINGS GROUP"), will cease to be
members of the Affiliated Group of which the Company is the common parent
corporation, within the meaning of Section 1502 of the Code, and which has
elected to file Consolidated Returns;
WHEREAS, immediately following Spinoff No.2 pursuant to an agreement
between the Company and the Parent, the Company shall merge with the Parent or a
subsidiary of the Parent and USTNY may merge with a subsidiary of the Parent
(collectively, the "MERGER");
WHEREAS, the Company and New Holdings desire to allocate the liability for
the Taxes (including any interest or penalties thereon and additions thereto) of
members of the Affiliated Group for any taxable period (including short taxable
periods and any portion of any taxable period) which period (or portion) ends on
or before the effective date of the Merger (a "PRE-MERGER TAX PERIOD") and to
provide for certain other tax-related matters;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows.
1. Indemnification by the Company and USTNY. The Company and its
subsidiaries, other than USTNY, shall indemnify and hold harmless New
Holdings against any Federal, state, local and foreign income, property,
sales, excise, transfer, withholding, employment or other taxes, tariffs or
governmental charges (and all penalties and interest relating thereto)
imposed by a governmental authority pursuant to the exercise of its power
to tax (collectively, "TAXES") (i) imposed on the Company, USTNY or any of
their respective subsidiaries at the Effective Time of the Merger for any
taxable period (including short taxable periods and any portion of any
taxable period) which period (or portion) begins on or after and
<PAGE> 196
ends after the effective date of the Merger (a "POST-MERGER TAX PERIOD"),
(ii) imposed on any member of the Affiliated Group as a result of the
Merger failing to qualify as a reorganization under Section 368(a) of the
Code solely by reason of one or more actions, other than a Contemplated
Action, taken by the Company, the Parent or any of their respective
subsidiaries after the Merger or (iii) imposed as a result of the Spinoffs
on any member of the Affiliated Group solely by reason of one or more
actions, other than a Contemplated Action, taken by the Company, the Parent
or any of their respective subsidiaries after the Merger. As used herein,
"CONTEMPLATED ACTION" shall mean any action or inaction set forth in the
documents prepared in connection with the Spinoffs and the Merger, and
actions or inactions contemplated to be taken as specified in writing by
the Parent to New Holdings in connection with the preparation of a private
letter ruling request to be completed in connection with the Spinoffs and
the Merger. Except as specifically provided in this Section 1, none of
Parent, the Company nor any of their respective subsidiaries shall have any
obligation to any of New Holdings, New Trustco or any of their respective
subsidiaries for any Taxes arising from or related to the Spinoffs or the
Merger.
2. Indemnification by New Holdings. New Holdings and each direct or
indirect subsidiary thereof, other than New Trustco, shall indemnify and
hold harmless the Parent, the Company, USTNY and each direct or indirect
subsidiary thereof against any and all Taxes, other than Taxes for which
New Holdings, New Trustco and each direct or indirect subsidiary thereof
has been indemnified under Section 1, (i) imposed on any member of the
Affiliated Group with respect to a Pre-Merger Tax Period or (ii) imposed on
Parent, Company and each direct or indirect subsidiary thereof as a result
of the Spinoffs or the Merger.
3. Control of Tax Matters. (a) The Company hereby irrevocably
designates, and agrees to cause each of its subsidiaries to so designate,
New Holdings as its agent to take any and all actions, at New Holdings'
sole expense, necessary or incidental to the preparation of Tax returns and
the filing of claims for refunds or forms relating to any Pre-Merger Tax
Period. For any Straddle Period (as defined in Section 4) of the Company or
any of its subsidiaries that was a member of the Affiliated Group for any
Pre-Merger Tax Period, Parent, at Parent's sole expense, will timely file
(in a manner consistent with past practice of the Company, unless Parent
reasonably determines that such practice is inconsistent with the then
existing state of the law) with the appropriate Taxing authorities all Tax
returns required to be filed.
(b) If requested by New Holdings the Company will, and will cause each
of its subsidiaries that was a member of the Affiliated Group for any
Pre-Merger Tax Period to, and New Holdings will, and will cause each of its
subsidiaries that was a member of the Affiliated Group for any Pre-Merger
Tax Period to, join in the filing of Consolidated Returns for all
Pre-Merger Tax Periods to the extent the Company, New Holdings and their
subsidiaries are respectively eligible to join in such Consolidated
Returns. Such Consolidated Returns will be filed on behalf of the
Affiliated Group by New Holdings or, if so requested by New Holdings, by
the Company.
(c) The Company shall refrain, and shall cause each of its
subsidiaries to refrain, from making any material tax election (including
an election under Section 13261(g)(2) of the Revenue Reconciliation Act of
1993) without the prior written consent of New Holdings that would (i) bind
New Holdings or any member of the Holdings Group or (ii) materially affect
the Tax liability of the Affiliated Group.
(d) Without the prior written consent of Parent, New Holdings shall
refrain, and shall cause each of its subsidiaries to refrain, from making,
filing or amending any Tax return that includes any Pre-Merger Tax Period
that (i) is inconsistent with the existing and historic method used by the
Affiliated Group in calculating the taxable income of the Affiliated Group
and (ii) would materially affect the Tax liability of the Parent, Company
and each direct or indirect subsidiary thereof for any Post-Merger Tax
Period.
4. Allocation Between Taxable Periods. (a) In the case of any
taxable period that includes but does not end on the effective date of the
Merger (a "STRADDLE PERIOD"),
(i) real, personal and intangible property Taxes, other than
transfer and similar Taxes, ("PROPERTY TAXES") allocated to the
Pre-Merger Tax Period shall be equal to the amount of such Property
Taxes for the entire Straddle Period multiplied by a fraction, the
numerator of which is the
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number of days during the Straddle Period that are in the Pre-Merger Tax
Period and the denominator of which is the number of days in the
Straddle Period; and
(ii) all Taxes (other than Property Taxes) for the Pre-Merger Tax
Period shall be computed based on an actual closing of the books as if
such taxable period ended as of the close of business on the effective
date of the Merger and, in the case of any Taxes attributable to the
ownership of any equity interest in any partnership or other "flow
through" entity, based on an actual closing of the books as if the
taxable period of such partnership or other "flow through" entity ended
as of the close of business on the effective date of the Merger;
provided, however, the transfers and transactions (including Taxes
attributable thereto) which occur to effectuate the Spinoffs or the
Merger shall be allocated to the Pre-Merger Tax Period.
(b) In the case of any taxable period other than a Straddle Period,
all income, deductions and other items shall be allocated between the
Pre-Merger Tax Period and the Post-Merger Tax Period in a manner consistent
with applicable tax accounting principles and based on an actual closing of
the books of the Company on the effective date of the Merger except that
(i) allowances or deductions that are calculated on an annual basis (such
as the deductions for amortization, depreciation or capital allowances) and
Property Taxes shall be prorated on a daily basis, (ii) transfers and
transactions (including Taxes attributable thereto) which occur to
effectuate the Spinoffs or the Merger shall be allocated to the Pre-Merger
Tax Period, and (iii) if the effective date of the Merger occurs on a date
other than the first day of a fiscal month of the Company, all income,
deductions and other items for such month (other than amounts attributable
to transactions not in the ordinary course of business and other than
closing adjustments and other similar adjustments) will be prorated on a
daily basis. Any adjustments made by any Taxing authority shall be
allocated in accordance with the principles of this Section 4(b).
(c) Without limiting the foregoing provisions of this Section 4
setting forth the principles for allocating income, gain, loss, deduction,
credits, events or transfers between Pre-Merger and Post-Merger Tax
Periods, and any Straddle Period, New Holdings, Parent, and the Company
shall file, or cause to be filed, all relevant Tax returns and execute, or
cause to be executed, such other documents as may be required by any Taxing
authority, on the basis that the Spinoffs and the Merger shall occur for
Tax purposes as of the close of business on the day before the effective
date of the Merger and refrain from taking any position inconsistent with
such basis with any Taxing authority unless the relevant Taxing authority
will not accept a Tax return filed on such basis, or unless otherwise
required under applicable law after a final determination thereof.
5. Cooperation. The Company agrees to cooperate with New Holdings,
and will cause each of its subsidiaries to so cooperate, in a timely manner
consistent with existing practice in filing any return or consent
contemplated by this Agreement. The Company also agrees to take, and will
cause the appropriate subsidiary to take, such action or actions as New
Holdings may reasonably request, including but not limited to the filing of
requests for the extension of time within which to file tax returns, and to
cooperate in connection with any refund claim with respect to any
Pre-Merger Tax Period. The Company further agrees to furnish timely, and to
cause each of its subsidiaries to so furnish, New Holdings with any and all
information reasonably requested by New Holdings in order to carry out the
provisions of this Agreement. Without limiting the generality of the
foregoing sentence, the Company specifically agrees to provide to New
Holdings promptly, but in any event within 10 days of receipt thereof,
copies of any correspondence or notices received from the Internal Revenue
Service or any other Taxing authority with respect to Taxes of the
Affiliated Group for a Pre-Merger Tax Period. New Holdings agrees to
furnish timely to the Company any and all information requested by the
Company in order to carry out the provisions of this Agreement.
6. Refunds and Carrybacks; Carryforwards. (a) Any refund or
reduction of any Tax that results from any refund or carryback of a loss,
credit or similar item of the Company arising from or attributable to a
PreMerger Tax Period to a Taxable period beginning prior to the effective
date of the Merger shall be for the account of New Holdings. The Company
shall, promptly upon receipt by the Company, pay to New Holdings any such
refund or reduction (whether payable pursuant to a Consolidated Return or
not)
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together with any interest relating thereto at the Federal statutory rate
used by the Internal Revenue Service or the relevant Taxing authority in
computing the interest payable by or to it, regardless of whether such
refund is attributable to a carryback, adjustment or any other factor. The
Company's obligations under this Section 6(a) shall be limited to amounts
(including interest) actually received by the Company with respect to such
refund. A refund or reduction will be considered to have been received by
the Company or its affiliate (i) to the extent that the amount of Taxes
such person would be required to pay but for such refund or carryback is
reduced, or the amount of a Tax refund such person would receive but for
such refund or carryback is increased and (ii) at the time a Tax payment or
refund referred to in clause (i) is actually paid or received, as the case
may be, by the Company or its then existing affiliates. New Holdings and
its direct and indirect subsidiaries shall reimburse Company for any
payment (including any expenses, interest or penalties related thereto)
made by Company under this Section 6(a) promptly upon a determination that
the refund or reduction to which such payment relates was erroneous.
(b) Any refund or reduction of any Tax that results from any
carryforward of a loss, credit or similar item of the Company from a
Taxable period beginning prior to the effective date of the Merger to a
Taxable period beginning on or after the effective date of the Merger shall
be for the account of New Holdings. In the event the Company, USTNY or any
subsidiary of the Company that was a member of the Affiliated Group for a
Pre-Merger Tax Period carries forward such loss, credit or similar item
from a Pre-Merger Tax Period to a taxable period ending after the date of
the Merger, the Company shall pay to New Holdings the Tax benefit
attributable to such carryforward as and when such Tax benefit is realized.
In computing the amount of any such refund or reduction of Tax, the Company
or its affiliate will be deemed to recognize all items of income, gain,
loss, reduction or credit before recognizing any item so carried forward. A
refund or reduction will be considered to have been received by the Company
or its affiliate (i) to the extent that the amount of Taxes such person
would be required to pay but for such carryforward is reduced, or the
amount of a Tax refund such person would receive but for such carryforward
is increased and (ii) at the time a Tax payment or refund referred to in
clause (i) is actually paid or received, as the case may be, by the Company
or its affiliates. Such amount shall be paid by the Company to New Holdings
within five business days of a written request therefor by New Holdings,
which request shall set forth in reasonable detail the computation of such
amount and the date such Tax benefit was received. New Holdings and its
direct and indirect subsidiaries shall reimburse Company for any payment
(including any expenses, interest or penalties related thereto) made by
Company under this Section 6(b) promptly upon a determination that the
refund or reduction to which such payment relates was erroneous.
(c) To the extent Parent reasonably determines that any refund or
reduction received by Company or its direct or indirect subsidiaries which
is payable to New Holdings under this Section 6 is based on a position that
is likely to be successfully challenged by Taxing authorities, Company
shall have the right to require New Holdings to secure its reimbursement
obligation in a manner and for a term reasonably satisfactory to Parent;
provided, further, Company's obligations hereunder to pay such refund to
New Holdings shall be conditioned upon the prior receipt of such security.
Provided, however, if the amount Company or its direct or indirect
subsidiaries must pay to any Taxing authority with respect to any such
refund or reduction exceeds the amount of security, if any, provided the
Company pursuant to this Section 6(c), New Holdings shall pay such excess
to the Company as provided in Sections 6(a) or 6(b), as applicable.
7. Contests. (a) Except as provided below, in the event that any
deficiencies or refund claims arise with respect to a Tax liability of the
Affiliated Group for a Pre-Merger Tax Period, New Holdings shall control
all proceedings with respect thereto. In the event that any issue or issues
are raised during such proceedings that may result, directly or indirectly,
in deficiencies or refund claims related to Taxes that would be required to
be paid by the Company pursuant to Section 1 hereof, both New Holdings and
Parent agree and acknowledge that the contest of any such issue or issues
shall be conducted jointly; provided, however, all major decisions
regarding the conduct of such contest shall be made by Parent. New
Holdings' right to indemnity hereunder shall be conditioned on New
Holdings' compliance with
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Section 4 of the Post Closing Covenants Agreement except that New Holdings'
shall be required to give notice to Parent under Section 4 of the Post
Closing Covenants Agreement upon the receipt of oral or written notice by
New Holdings from any governmental authority or agent thereof of an issue
that may result in Taxes for which a claim for indemnity from Parent,
Company or USTNY may be made under this Agreement.
(b) New Holdings and the Company agree to cooperate in all reasonable
respects with respect to Tax deficiencies or refund claims described in
Sections 6(a) and (b), which cooperation shall include executing and filing
such waivers, consents, forms, court petitions, refund claims, complaints,
powers of attorney and other documents needed from time to time in order to
defend, prosecute or resolve such deficiencies or claims.
8. Computations. Other than determinations of whether there are any
indemnity obligations under this Agreement, all computations or
recomputations of Tax liability and all determinations, computations or
recomputations of any amount or any payment (including, but not limited to,
computations of the amount of the Tax liability, the amount or effect of
any loss, credit or deduction, the effect of a Federal statutory Tax rate
change for a Taxable year, and the amount of any interest, penalties or
additions imposed with respect to any Tax) shall be prepared by New
Holdings and submitted to Parent for its written approval. Any disagreement
as to such computations after submission to the Parent by New Holdings
shall be resolved by a nationally recognized accounting firm, with
expertise in Tax, independent of each of the parties hereto. Without
limiting the foregoing, New Holdings shall calculate the Taxable income of
the Affiliated Group in accordance with the existing and historic
methodology used by the Affiliated Group in calculating Taxable income of
the Affiliated Group and submit such calculation to the Parent in
accordance with the provisions of this Section 8.
9. Offsets. No payment shall be required to be made by either party
to the other pursuant to this Agreement to the extent that there is an
amount then due and payable under this Agreement to the party that is to
make such payment.
10. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole
or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of,
and be enforceable by, the parties hereto and their respective successors
and assigns.
11. Survival. The provisions of this Agreement shall survive the
effective date of the Merger and remain in full force until all periods of
limitations, including any extensions or waiver periods, for all Taxable
periods of the Company and New Holdings prior to or including the effective
date of the Merger have expired.
12. Notices. Any notices, payments or other communications required
by this Agreement shall be made as provided in the Section 10 of the Post
Closing Covenants Agreement; however, copies of such notices, payments or
other communications shall, for both New Holdings and the Company, be sent
to the attention of the Director of Taxes.
13. Governing Law. The principles and provisions of Section 8.7 of
the Merger Agreement shall apply to this Agreement.
14. Entire Agreement. This Agreement (a) constitutes the entire
agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter of
this Agreement and (b) is not intended to confer upon any person other than
the parties hereto any rights or remedies. The parties agree that to the
extent the provisions of any other agreements executed in connection with
the Spinoffs or the Merger are inconsistent with the provisions hereof, the
provisions of this Agreement shall prevail.
15. Counterparts. The principles and provisions of Section 8.5 of
the Merger Agreement shall apply to this Agreement.
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<PAGE> 200
16. Severability. If any provision of this Agreement or the
application of any such provision to any person or circumstances shall be
held invalid, illegal or unenforceable in any respect by a court of
competent jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision hereof.
17. Headings. Headings of sections in this Agreement are inserted
for convenience of reference only and are not intended to be a part of or
to affect the meaning or interpretation of this Agreement.
18. Definitions. Any capitalized term not defined in this Agreement
shall have the meaning given to such term by the Contribution and
Assumption Agreement, the Agreement and Plan of Distribution or the Merger
Agreement.
[Remainder of page intentionally left blank]
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<PAGE> 201
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
U.S. TRUST CORPORATION
By:
--------------------------------------
Name:
Title:
NEW USTC HOLDINGS CORPORATION
By:
--------------------------------------
Name:
Title:
THE CHASE MANHATTAN
CORPORATION
By:
--------------------------------------
Name:
Title:
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<PAGE> 202
APPENDIX F
(LOGO) CS FIRST BOSTON
CS First Boston Corporation 55 East 52nd Street
New York, NY 10055-0186
Telephone 212 909 2000
February 9, 1995
Board of Directors
U.S. Trust Corporation
114 West 47th Street
New York, NY 10036
Dear Members of the Board:
We have acted as financial advisor to U.S. Trust Corporation (the
"Corporation") in connection with the proposed sale (the "Sale") of the unit
investment trust, mutual fund services and institutional asset services
divisions (the "Processing Business") to The Chase Manhattan Corporation
("Chase") pursuant to a Merger Agreement (the "Merger Agreement"), dated as of
November 17, 1994, between the Corporation and Chase, for an aggregate
consideration of $363.5 million of Chase common stock, up to a maximum of
11,721,806 shares. You have asked us to advise you with respect to the fairness
to the Corporation, from a financial point of view, of the consideration to be
received by the shareholders of the Corporation in the Sale.
In arriving at our opinion, we have reviewed certain publicly available
financial information relating to the Corporation and Chase. We have also
reviewed certain other information, including financial forecasts, provided to
us by the management of the Corporation and have met with the Corporation's
senior management to discuss the business and prospects of the Processing
Business.
We have also considered the financial terms of certain other comparable
transactions which have recently been effected and reviewed publicly available
financial and stock market data for companies providing data processing services
which we have compared to the financial data of the Processing Business. We have
also considered such other information, financial studies, analysis and
investigations and financial, economic and market criteria which we deemed
relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, management of the Corporation has advised us, and we have
assumed, that they have been reasonably prepared, reflecting the best currently
available estimates and judgments of the Corporation's management as to the
future financial performance of the Processing Business. In addition, we have
not made an independent evaluation or appraisal of the assets of the Processing
Business, nor have we been furnished with any such evaluations or appraisals.
Our opinion is necessarily based upon financial, economic, market and other
conditions as they exist on the date hereof. We are not expressing any opinion
as to what the value of the Chase common stock actually will be when issued to
the shareholders of the Corporation in connection with the Sale or the prices at
which such Chase common stock will trade subsequent to such issuance. We have
assumed, with your consent, that the Sale will be treated as a tax-free
transaction.
We have acted as financial advisor to the Corporation in connection with
the Sale and will receive a fee for our services, which is contingent in part
upon the consummation of the Sale.
<PAGE> 203
In the past, we have performed certain investment banking services for
Chase and have received customary fees for such services. In the ordinary course
of our business, we may actively trade the debt and equity securities of the
Corporation and Chase for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof, the consideration to be received in the Sale by the shareholders of
the Corporation is fair to the Corporation from a financial point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION
By: /s/ ROBERT M. BAYLIS
--------------------------------------------------------
Robert M. Baylis
Vice Chairman
<PAGE> 204
APPENDIX G
SECTIONS 910 AND 623 OF THE NEW YORK BUSINESS CORPORATION LAW
SEC. 910. RIGHT OF SHAREHOLDER TO RECEIVE PAYMENT FOR SHARES UPON MERGER OR
CONSOLIDATION, OR SALE, LEASE, EXCHANGE OR OTHER DISPOSITION OF ASSETS, OR SHARE
EXCHANGE. (a) A shareholder of a domestic corporation shall, subject to and by
complying with section 623 (Procedure to enforce shareholder's right to receive
payment for shares), have the right to receive payment of the fair value of his
shares and the other rights and benefits provided by such section, in the
following cases:
(1) Any shareholder entitled to vote who does not assent to the taking of
an action specified in subparagraphs (A), (B) and (C).
(A) Any plan of merger or consolidation to which the corporation is a
party; except that the right to receive payment of the fair value of his shares
shall not be available:
(i) To a shareholder of the parent corporation in a merger authorized by
section 905 (Merger of parent and subsidiary corporations), or paragraph (c) of
section 907 (Merger or consolidation of domestic and foreign corporations); and
(ii) To a shareholder of the surviving corporation in a merger authorized
by this article, other than a merger specified in subparagraph (i), unless such
merger effects one or more of the changes specified in subparagraph (b)(6) of
section 806 (Provisions as to certain proceedings) in the rights of the shares
held by such shareholder.
(B) Any sale, lease, exchange or other disposition of all or substantially
all of the assets of a corporation which requires shareholder approval under
section 909 (Sale, lease, exchange or other disposition of assets) other than a
transaction wholly for cash where the shareholders' approval thereof is
conditioned upon the dissolution of the corporation and the distribution of
substantially all of its net assets to the shareholders in accordance with their
respective interests within one year after the date of such transaction.
(C) Any share exchange authorized by section 913 in which the corporation
is participating as a subject corporation: except that the right to receive
payment of the fair value of his shares shall not be available to a shareholder
whose shares have not been acquired in the exchange.
(2) Any shareholder of the subsidiary corporation in a merger authorized by
section 905 or paragraph (c) of section 907, or in a share exchange authorized
by paragraph (g) of section 913, who files with the corporation a written notice
of election to dissent as provided in paragraph (c) of section 623. (Last
amended by L. 1991, Ch. 390, sec. 3.)
SEC. 623. PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE PAYMENT FOR
SHARES.--(a) A shareholder intending to enforce his right under a section of
this chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the meeting
of shareholders at which the action is submitted to a vote, or at such meeting
but before the vote, written objection to the action. The objection shall
include a notice of his election to dissent, his name and residence address, the
number and classes of shares as to which he dissents and a demand for payment of
the fair value of his shares if the action is taken. Such objection is not
required from any shareholder to whom the corporation did not give notice of
such meeting in accordance with this chapter or where the proposed action is
authorized by written consent of shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which term
as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall give
written notice of such authorization or consent by registered mail to each
shareholder who filed written objection or from whom written objection was not
required, excepting any shareholder who voted for or consented in writing to the
proposed action and who thereby is deemed to have elected not to enforce his
right to receive payment for his shares.
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<PAGE> 205
(c) Within twenty days after the giving of notice to him, any shareholder
from whom written objection was not required and who elects to dissent shall
file with the corporation a written notice of such election, stating his name
and residence address, the number and classes of shares as to which he dissents
and a demand for payment of the fair value of his shares. Any shareholder who
elects to dissent from a merger under section 905 (Merger of subsidiary
corporation) or paragraph (c) of section 907 (Merger or consolidation of
domestic and foreign corporations) or from a share exchange under paragraph (g)
of Section 913 (Share exchanges) shall file a written notice of such election to
dissent within twenty days after the giving to him of a copy of the plan of
merger or exchange or an outline of the material features thereof under section
905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as to
which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any beneficial
owner as to less than all of the shares of such owner, as to which such nominee
or fiduciary has a right to dissent, held of record by such nominee or
fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall cease
to have any of the rights of a shareholder except the right to be paid the fair
value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his acceptance
in writing of an offer made by the corporation, as provided in paragraph (g),
but in no case later than sixty days from the date of consummation of the
corporate action except that if the corporation fails to make a timely offer, as
provided in paragraph (g), the time for withdrawing a notice of election shall
be extended until sixty days from the date an offer is made. Upon expiration of
such time, withdrawal of a notice of election shall require the written consent
of the corporation. In order to be effective, withdrawal of a notice of election
must be accompanied by the return to the corporation of any advance payment made
to the shareholder as provided in paragraph (g). If a notice of election is
withdrawn, or the corporate action is rescinded, or a court shall determine that
the shareholder is not entitled to receive payment for his shares, or the
shareholder shall otherwise lose his dissenters' rights, he shall not have the
right to receive payment for his shares and he shall be reinstated to all his
rights as a shareholder as of the consummation of the corporate action,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have expired
or any such dividend or distribution other than in cash has been completed, in
lieu thereof, at the election of the corporation, the fair value thereof in cash
as determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim.
(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the shareholder
or other person who submitted them on his behalf. Any shareholder of shares
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer of a certificate bearing
such notation, each new certificate issued therefor shall bear a similar
notation together with the name of the original dissenting holder of the shares
and a transferee shall acquire no rights in the corporation except those which
the original dissenting shareholder had at the time of transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later (but
in no case later than ninety days from the shareholders' authorization date),
the corporation or, in the case of a merger or consolidation, the surviving or
new corporation, shall make a written offer by registered mail to each
shareholder who has filed such notice of election to pay for his shares at a
specified price which the corporation considers to be their fair value. Such
offer shall be accompanied by a statement setting forth the aggregate number of
shares with respect to which notices of election to dissent have been received
and the aggregate number of holders of such shares. If the corporate action has
been consummated, such offer shall also be accompanied by (1) advance payment to
each such shareholder who has submitted the certificates representing his shares
to the corporation, as provided in paragraph (f), of an amount equal to eighty
percent
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of the amount of such offer, or (2) as to each shareholder who has not yet
submitted his certificates a statement that advance payment to him of an amount
equal to eighty percent of the amount of such offer will be made by the
corporation promptly upon submission of his certificates. If the corporate
action has not been consummated at the time of the making of the offer, such
advance payment or statement as to advance payment shall be sent to each
shareholder entitled thereto forthwith upon consummation of the corporate
action. Every advance payment or statement as to advance payment shall include
advice to the shareholder to the effect that acceptance of such payment does not
constitute a waiver of any dissenters' rights. If the corporate action has not
been consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose share the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than a
twelve-month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the foregoing,
the corporation shall not be required to furnish a balance sheet or profit and
loss statement or statements to any shareholder to whom such balance sheet or
profit and loss statement or statements were previously furnished, nor if in
connection with obtaining the shareholders' authorization for or consent to the
proposed corporate action the shareholders were furnished with a proxy or
information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be paid
for his shares, payment therefor shall be made within sixty days after the
making of such offer or the consummation of the proposed corporate action,
whichever is later, upon the surrender of the certificates for any such shares
represented by certificates.
(h) The following procedure shall apply if the corporation fails to make
such offer within such period of fifteen days, or if it makes the offer and any
dissenting shareholder or shareholders fail to agree with it within the period
of thirty days thereafter upon the price to be paid for their shares.
(1) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a special
proceeding in the supreme court in the judicial district in which the office of
the corporation is located to determine the rights of dissenting shareholders
and to fix the fair value of their shares. If, in the case of merger or
consolidation, the surviving or new corporation is a foreign corporation without
an office in this state, such proceeding shall be brought in the county where
the office of the domestic corporation, whose shares are to be valued, was
located.
(2) If the corporation fails to institute such proceeding within such
period of twenty days, any dissenting shareholder may institute such proceeding
for the same purpose not later than thirty days after the expiration of such
twenty day period. If such proceeding is not instituted within such thirty day
period, all dissenter's rights shall be lost unless the supreme court, for good
cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid for
their shares, shall be made parties to such proceeding, which shall have the
effect of an action quasi in rem against their shares. The corporation shall
serve a copy of the petition in such proceeding upon each dissenting shareholder
who is a resident of this state in the manner provided by law for the service of
a summons, and upon each nonresident dissenting shareholder either by registered
mail and publication, or in such other manner as is permitted by law. The
jurisdiction of the court shall be plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder, as to
whom the corporation requests the court to make such determination, is entitled
to receive payment for his shares. If the corporation does not request any such
determination or if the court finds that any dissenting shareholder is so
entitled, it shall proceed to fix the value of the shares, which, for the
purposes of this section, shall be the fair value as of the close of business on
the day prior to the shareholders' authorization date. In fixing the fair value
of the shares, the court shall consider the nature of the transaction giving
rise to the shareholder's right to receive payment
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for shares and its effects on the corporation and its shareholders, the concepts
and methods then customary in the relevant securities and financial markets for
determining fair value of shares of a corporation engaging in a similar
transaction under comparable circumstances and all other relevant factors. The
court shall determine the fair value of the shares without a jury and without
referral to an appraiser or referee. Upon application by the corporation or by
any shareholder who is a party to the proceeding, the court may, in its
discretion, permit pretrial disclosure, including, but not limited to,
disclosure of any expert's reports relating to the fair value of the shares
whether or not intended for use at the trial in the proceeding and not
withstanding subdivision (d) of section 3101 of the civil practice laws and
rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so determined.
(6) The final order shall include an allowance for interest at such rate as
the court finds to be equitable, from the date the corporate action was
consummated to the date of payment. In determining the rate of interest, the
court shall consider all relevant factors, including the rate of interest which
the corporation would have had to pay to borrow money during the pendency of the
proceeding. If the court finds that the refusal of any shareholder to accept the
corporate offer of payment for his shares was arbitrary, vexatious or otherwise
not in good faith, no interest shall be allowed to him.
(7) Each party to such proceeding shall bear its own costs and expenses,
including the fees and expenses of its counsel and of any experts employed by
it. Notwithstanding the foregoing, the court may, in its discretion, apportion
and assess all or any part of the costs, expenses and fees incurred by the
corporation against any or all of the dissenting shareholders who are parties to
the proceeding, including any who have withdrawn their notices of election as
provided in paragraph (e), if the court finds that their refusal to accept the
corporate offer was arbitrary, vexatious or otherwise not in good faith. The
court may, in its discretion, apportion and assess all or any part of the costs,
expenses and fees incurred by any or all of the dissenting shareholders who are
parties to the proceeding against the corporation if the court finds any of the
following: (A) that the fair value of the shares as determined materially
exceeds the amount which the corporation offered to pay; (B) that no offer or
required advance payment was made by the corporation; (C) that the corporation
failed to institute the special proceeding within the period specified therefor;
or (D) that the action of the corporation in complying with its obligations as
provided in this section was arbitrary, vexatious or otherwise not in good
faith. In making any determination as provided in clause (A), the court may
consider the dollar amount or the percentage, or both, by which the fair value
of the shares as determined exceeds the corporate offer.
(8) Within sixty days after final determination of the proceedings, the
corporation shall pay to each dissenting shareholder the amount found to be due
him, upon surrender of the certificates for any such shares represented by
certificates.
(i) Shares acquired by the corporation upon the payment of the agreed value
therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section 515
(Reacquired shares), except that, in the case of a merger or consolidation, they
may be held and disposed of as the plan of merger or consolidation may otherwise
provide.
(j) No payment shall be made to a dissenting shareholder under this section
at a time when the corporation is insolvent or when such payment would make it
insolvent. In such event, the dissenting shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in such event be deemed
withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if it is
liquidated, be subordinated to the rights of creditors of the corporation, but
have rights superior to the non-dissenting shareholders, and if it is not
liquidated, retain his right to be paid for his shares, which right the
corporation shall be obliged to satisfy when the restrictions of this paragraph
do not apply.
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(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment for
his shares cannot be made because of the restrictions of this paragraph. If the
dissenting shareholder fails to exercise such option as provided, the
corporation shall exercise the option by written notice given to him within
twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment for
his shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by virtue
of share ownership, except as provided in paragraph (e), and except that this
section shall not exclude the right of such shareholder to bring or maintain an
appropriate action to obtain relief on the ground that such corporate action
will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice to
be given by a corporation to a shareholder under this section shall be given in
the manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as provided
in subparagraph (e)(2) of section 907 (Merger or consolidation of domestic and
foreign corporations). (Last amended by L. 1986, Ch 117, sec. 3.)
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APPENDIX H
INFORMATION STATEMENT RELATING TO
NEW USTC HOLDINGS CORPORATION
AND THE DISTRIBUTION
INTRODUCTION
This Information Statement is being furnished to stockholders of U.S. Trust
Corporation, a New York corporation ("UST"), in connection with the contemplated
pro rata distribution (the "Distribution") to UST stockholders of shares of
common stock, par value $1.00 per share ("Company Common Stock"), of New USTC
Holdings Corporation, a New York corporation and wholly owned subsidiary of UST
(the "Company"). The holders of UST common stock, par value $1.00 per share
("UST Common Stock"), will receive one share of Company Common Stock with
respect to each share of UST Common Stock held by such holder on the record date
for the Distribution (the "Distribution Record Date"). The Distribution will
result in 100% of the outstanding shares of Company Common Stock being
distributed to UST stockholders on a share-for-share basis. The Distribution is
being effected by UST in connection with the acquisition by The Chase Manhattan
Corporation, a Delaware corporation ("Chase"), of UST's securities processing
business and related back office operations, including the assets and certain
liabilities related thereto (the "Chase Acquired Business"), pursuant to a
merger (the "Merger") of UST with and into Chase following the Distribution.
At the time of the Distribution, the Company will own all of UST's
businesses, assets and liabilities, other than the Chase Acquired Business
(collectively, the "Core Businesses"). Immediately prior to the time the
Distribution is effected (the "Time of Distribution"), the Core Businesses,
which include UST's asset management, private banking, special fiduciary,
corporate trust and other non-processing businesses, will be transferred to the
Company by UST in accordance with (i) the Contribution and Assumption Agreement
to be entered into prior to the Time of Distribution between United States Trust
Company of New York, a New York bank and trust company and a wholly owned
subsidiary of UST ("USTNY"), and New U.S. Trust Company of New York, a recently
organized entity that at the Time of Distribution will be a New York bank and
trust company and a wholly owned subsidiary of the Company ("New Trustco"), the
form of which is an Exhibit to the Company Form 10 (as defined below) of which
this Information Statement forms a part and which is attached as Appendix C to
the Proxy Statement-Prospectus (the "Proxy Statement-Prospectus") filed by UST
and Chase in connection with the Distribution and the Merger (as such form may
be amended, supplemented or otherwise modified from time to time, the
"Contribution Agreement"), and (ii) the Agreement and Plan of Distribution to be
entered into prior to the Distribution between UST and the Company, the form of
which is an Exhibit to the Company Form 10 and which is attached as Appendix B
to the Proxy Statement-Prospectus (as such form may be amended, supplemented or
otherwise modified from time to time, the "Distribution Agreement"). This
Information Statement is attached as Appendix H to the Proxy
Statement-Prospectus. See "The Company".
No consideration will be paid by UST stockholders for the shares of Company
Common Stock to be received by them in the Distribution. There is currently no
public trading market for the shares of Company Common Stock. The Company
intends to apply for designation of the Company Common Stock as a national
market security on the NASDAQ National Market System (the "National Market
System").
The Distribution has not yet been declared by the UST Board of Directors
(the "UST Board"), and, accordingly, the Distribution Record Date has not yet
been determined. The Distribution is conditioned on, among other things, the
satisfaction of all conditions (other than consummation of the Distribution) to
the parties' obligations to consummate the Merger provided for in the Agreement
and Plan of Merger, dated as of November 18, 1994 (as it may be amended,
supplemented or otherwise modified from time to time, the "Merger Agreement"),
among UST and Chase, which is attached as Appendix A to the Proxy Statement-
Prospectus to which this Information Statement is attached as Appendix H. See
"The Distribution -- Terms of the Distribution Agreement -- Conditions to the
Distribution". Also see "The Merger -- Conditions" in the Proxy
Statement-Prospectus to which this Information Statement is attached as Appendix
H.
The Company has filed a Registration Statement on Form 10 (including
exhibits and amendments thereto, the "Company Form 10") pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), covering
shares of Company Common Stock to be received by UST stockholders in the
Distribution. This Information Statement constitutes both Appendix H to the
Proxy Statement-Prospectus and a part of the Company Form 10.
The date of this Information Statement is February 9, 1995.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION......................... H-1
SUMMARY.............................. H-3
The Company........................ H-3
The Transactions................... H-3
The Distribution................... H-4
SPECIAL FACTORS...................... H-7
Business To Be Conducted by the
Company......................... H-7
Dividends and Dividend Policy...... H-7
Relationship with Chase; Reliance
on Services Agreement........... H-7
Absence of Trading Market.......... H-8
Lack of Historical Information..... H-8
Reliance on Key Personnel.......... H-8
Competition........................ H-8
Government Monetary Policies....... H-8
Bank Holding Company Act of 1956... H-9
Other Federal and State Banking
Regulation...................... H-9
Substantial Stockholders; Certain
Charter Provisions.............. H-10
THE COMPANY.......................... H-11
General............................ H-11
Regulatory Matters................. H-13
Future Conduct of the Business..... H-16
Employees.......................... H-16
Properties......................... H-16
Legal Matters...................... H-17
THE DISTRIBUTION..................... H-17
Background of and Reasons for the
Distribution.................... H-17
Terms of the Contribution
Agreement....................... H-18
Terms of the Distribution
Agreement....................... H-22
Terms of the Post Closing Covenants
Agreement....................... H-24
Terms of the Tax Allocation
Agreement....................... H-27
Certain Federal Income Tax
Consequences.................... H-28
RELATIONSHIP WITH CHASE.............. H-28
Post Closing Covenants Agreement;
Tax Allocation Agreement........ H-28
Services Agreement................. H-28
LISTING AND TRADING OF COMPANY COMMON
STOCK.............................. H-30
CAPITALIZATION....................... H-31
PRO FORMA CONDENSED FINANCIAL
STATEMENTS......................... H-32
PRO FORMA CONDENSED STATEMENT OF
CONDITION.......................... H-33
PRO FORMA CONDENSED STATEMENT OF
INCOME............................. H-34
PRO FORMA CONDENSED STATEMENT OF
AVERAGE BALANCES................... H-36
NOTES TO PRO FORMA CONDENSED
FINANCIAL STATEMENTS............... H-37
SELECTED FINANCIAL DATA.............. H-41
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...................... H-42
Results of Operations.............. H-42
Financial Condition................ H-54
Asset Quality...................... H-59
Accounting Standards Not Yet
Adopted......................... H-60
RECENT DEVELOPMENTS.................. H-61
MANAGEMENT........................... H-65
Directors.......................... H-65
Committees of the Board of
Directors....................... H-68
Compensation of Directors.......... H-69
Executive Officers................. H-70
Executive Compensation............. H-71
BENEFICIAL OWNERSHIP................. H-73
EXECUTIVE COMPENSATION PLANS IN
EFFECT AFTER THE DISTRIBUTION...... H-75
Retirement Benefits................ H-76
401(k) Plan and ESOP............... H-77
Annual Incentive Awards............ H-78
New Stock Options.................. H-78
Other Features of Stock Plan and
Predecessor Performance Plans... H-79
Executive Deferred Compensation
Plan............................ H-82
Change in Control Provisions....... H-82
Benefit Protection Trusts.......... H-83
DESCRIPTION OF CAPITAL STOCK OF THE
COMPANY............................ H-84
Authorized Capital Stock........... H-84
Company Common Stock............... H-84
Preferred Stock.................... H-85
Stockholders Rights Plan........... H-85
No Preemptive Rights............... H-88
Description of Certain Statutory,
Charter and Bylaw Provisions.... H-89
Indemnification and Insurance...... H-90
ADDITIONAL INFORMATION............... H-91
INDEX OF DEFINED TERMS............... H-92
APPENDIX I -- RESTATED CERTIFICATE OF
INCORPORATION OF NEW USTC HOLDINGS
CORPORATION........................ I-1
APPENDIX II -- RESTATED BY-LAWS OF
NEW USTC HOLDINGS CORPORATION...... II-1
</TABLE>
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SUMMARY
The following summarizes certain information contained elsewhere in this
Information Statement. Reference is made to, and this Summary is qualified in
its entirety by, the more detailed information included elsewhere in this
Information Statement, which should be read in its entirety. This Information
Statement is a part of the Company Form 10 and is attached as Appendix H to the
Proxy Statement-Prospectus dated February 9, 1995, of UST and Chase relating to
the Merger of UST with and into Chase, with Chase as the surviving entity. See
"Summary -- The Transactions" below. The Company did not participate in the
preparation of the Proxy Statement-Prospectus, and does not have independent
knowledge of the matters set forth therein, except to the extent the Proxy
Statement-Prospectus contains excerpts from this Information Statement without
material change. Immediately prior to the Distribution described herein, the
Company expects to effect a recapitalization pursuant to which the 100 shares of
common stock of the Company currently outstanding will be exchanged for a total
number of shares of Company Common Stock equal to the total number of shares of
UST Common Stock outstanding as of the Distribution Record Date. See
"Description of the Capital Stock of the Company". Based on the number of shares
of UST Common Stock outstanding on February 1, 1995 (and assuming the exercise
of stock options for 132,691 shares of UST Common Stock prior to the Time of
Distribution), it is estimated that approximately 9,622,000 shares of Company
Common Stock will be distributed to UST stockholders in the Distribution. AN
INDEX OF DEFINED TERMS USED HEREIN IS INCLUDED AT PAGE 92 OF THIS INFORMATION
STATEMENT.
For financial reporting purposes, the Company is a "successor registrant"
to UST and, as a result, all historical financial information of the Company
included in this Information Statement is the historical financial information
of UST. See "Pro Forma Condensed Financial Statements" for pro forma financial
statements for the Company giving effect to the disposition of the Chase
Acquired Business pursuant to the Distribution and the Merger.
THE COMPANY
The Company is a newly formed New York corporation that at the Time of
Distribution will be a bank holding company. At the Time of Distribution, the
Company's businesses, assets and liabilities will consist of the Core
Businesses, which include UST's asset management, private banking, special
fiduciary and corporate trust businesses. The Company will conduct the Core
Businesses primarily through New Trustco, a recently organized entity that at
the Time of Distribution will be a New York bank and trust company and a wholly
owned subsidiary of the Company. The Company was organized in New York in
January 1995. The mailing address of the Company's principal executive offices
is 114 West 47th Street, New York, New York 10036. See "The Company".
THE TRANSACTIONS
The Company is currently a wholly owned subsidiary of UST. UST has entered
into the Merger Agreement whereby, upon the terms and subject to the conditions
set forth therein, UST (which will then hold only the Chase Acquired Business)
will be merged with and into Chase, with Chase as the surviving entity.
Immediately prior to the Merger, the Core Businesses will be transferred to the
Company and subsidiaries of the Company (the "Internal Reorganization"), and all
the then outstanding shares of Company Common Stock will be distributed to the
then current stockholders of UST in the Distribution on the basis of one share
of Company Common Stock for each share of UST Common Stock. See "The
Distribution". At the Time of Distribution, the Company will assume the name
"U.S. Trust Corporation" and its then principal subsidiary, New Trustco, will
assume the name "United States Trust Company of New York". As a consequence of
the Merger, the Chase Acquired Business will be owned by Chase. Accordingly, UST
stockholders immediately prior to the Merger will retain their proportionate
equity interests in UST's Core Businesses in the form of stock in the Company,
which will acquire the Core Businesses prior to the Distribution.
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Pursuant to the Merger Agreement, at the effective time of the Merger (the
"Effective Time") each issued and outstanding share of UST Common Stock (other
than any shares of UST Common Stock owned by Chase or any wholly owned
subsidiary of Chase or UST (other than in a fiduciary, custodial or similar
capacity) or any shares held by stockholders of UST who perfect their right,
under New York law, to dissent to the Merger) will be converted into the right
to receive Chase common stock, par value $2.00 per share ("Chase Common Stock"),
as described under "The Merger -- Terms of the Merger" in the Proxy
Statement-Prospectus.
Each of Chase, UST and USTNY, on the one hand, and the Company and New
Trustco, on the other hand, will agree, pursuant to the Post Closing Covenants
Agreement to be entered into prior to the Distribution by such parties, the form
of which is filed as an Exhibit to the Company Form 10 and which is attached as
Appendix D to the Proxy Statement-Prospectus (as such form may be amended,
supplemented or otherwise modified from time to time, the "Post Closing
Covenants Agreement"), to indemnify each other after the Distribution with
respect to certain losses, damages, claims and liabilities arising primarily
from the conduct of the Chase Acquired Business. See "The Distribution -- Terms
of the Post Closing Covenants Agreement". In addition, each of UST and the
Company will agree, pursuant to the Tax Allocation Agreement to be entered into
prior to the Distribution between Chase, UST and the Company, the form of which
is filed as an Exhibit to the Company Form 10 and which is attached as Appendix
E to the Proxy Statement-Prospectus (as such form may be amended, supplemented
or otherwise modified from time to time, the "Tax Allocation Agreement"), to
indemnify the other against certain tax liabilities. The Contribution Agreement,
the Distribution Agreement, the Post Closing Covenants Agreement and the Tax
Allocation Agreement, which are Exhibits to the Company Form 10 and are attached
as Appendix B through Appendix E to the Proxy Statement-Prospectus, are referred
to collectively herein as, the "Distribution Documents".
The foregoing is a brief summary of certain terms of the Distribution. The
Distribution Documents are more fully described herein under "The Distribution".
A description of the Merger and the Merger Agreement may be found in the Proxy
Statement-Prospectus to which this Information Statement is attached as Appendix
H.
THE DISTRIBUTION
Distributing Company....... UST
Securities to be
Distributed................ All the outstanding shares of Company Common Stock.
Based on the number of shares of UST Common Stock
outstanding as of February 1, 1995 (and assuming
the exercise of stock options for 132,691 shares of
UST Common Stock prior to the Time of
Distribution), it is estimated that approximately
9,622,000 shares of Company Common Stock will be
distributed to UST stockholders in the
Distribution. See "Distribution Ratio" immediately
below.
Distribution Ratio......... One share of Company Common Stock for each share of
UST Common Stock outstanding on the Distribution
Record Date.
Time of Distribution....... The Distribution is expected to be effective
immediately prior to the Effective Time. Stock
certificates for shares of Company Common Stock
will be mailed as soon as practicable after the
Time of Distribution. See "The
Distribution -- Terms of the Distribution
Agreement -- Method of Effecting the Distribution".
Distribution Record Date... It is expected that the Distribution Record Date
will be established as the date on which the Time
of Distribution occurs.
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Trading Market............. The Company expects to apply for designation of the
Company Common Stock as a national market security
on the National Market System. See "Listing and
Trading of Company Common Stock".
Conditions to
Distribution............... Consummation of the Distribution is subject to the
conditions set forth in the Distribution Agreement.
See "The Distribution -- Terms of the Distribution
Agreement -- Conditions to the Distribution".
Tax Consequences........... It is a condition to the Distribution that UST
receive a private letter ruling (the "Private
Letter Ruling") from the Internal Revenue Service
(the "Service"), reasonably satisfactory in form
and substance to UST and Chase, that, among other
things, the receipt of Company Common Stock by UST
stockholders pursuant to the Distribution will be
tax free for Federal income tax purposes. See "The
Distribution -- Certain Federal Income Tax
Consequences".
Dividends After the
Distribution............. As a bank holding company, the Company will be
dependent upon distributions from its subsidiaries
in order to pay cash dividends. Because New Trustco
will be a newly organized bank subsidiary of the
Company, it is not anticipated that it will be able
to pay dividends other than out of its earnings in
respect of periods after the Time of Distribution.
Federal and state regulatory agencies also have the
authority to limit further the Company's banking
subsidiaries' payment of dividends based on other
factors, such as the maintenance of adequate
capital for such banking subsidiaries. The Company
currently anticipates that its annual cash dividend
will be approximately $1.00 per share. The timing
and amount of any future dividends, however, will
depend on circumstances existing at the time,
including earnings, cash requirements, applicable
federal and state laws and regulations and policies
and other factors deemed relevant by the Company's
Board of Directors (the "Company Board"), including
the amount of dividends payable to the Company by
its subsidiary banks. See "Special
Factors -- Dividends and Dividend Policy".
Certain Provisions of the
Company's Charter and
Bylaws................... Certain provisions of the Company's Certificate of
Incorporation, as it is anticipated to be amended
and restated prior to the Distribution
substantially as set forth in the form of the
Restated Certificate of Incorporation of the
Company attached to this Information Statement as
Appendix I (as so amended and restated, the
"Restated Certificate"), and the Company's Bylaws,
as they are anticipated to be amended and restated
prior to the Distribution substantially as set
forth in the form of the Restated Bylaws of the
Company attached to this Information Statement as
Appendix II (as so amended and restated, the
"Restated Bylaws"), may be deemed to have the
effect of making difficult an acquisition of
control of the Company in a transaction not
approved by the Company Board. See "Special
Factors -- Substantial Stockholders; Certain
Charter Provisions" and "Description of Capital
Stock of the Company -- Description of Certain
Statutory, Charter and Bylaw Provisions".
Relationship with Chase
After the Distribution..... In the Post Closing Covenants Agreement, Chase, UST
and USTNY, on the one hand, and the Company and New
Trustco, on the other hand, will agree to certain
indemnification provisions arising primarily from
the conduct of the Chase Acquired Business. The
Company also will agree
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to abide by certain noncompetition provisions
relating to competing with Chase in the securities
processing business. In addition, at the Time of
Distribution, New Trustco will enter into a
services agreement (the "Services Agreement") with
a subsidiary of Chase pursuant to which such
subsidiary will agree to furnish necessary
securities processing, custodial, data processing
and other services to New Trustco and its
affiliates. See "Special Factors -- Relationship
with Chase; Reliance on Services Agreement", "The
Distribution -- Terms of the Post Closing Covenants
Agreement" and "Relationship with Chase".
Special Factors............ Stockholders should carefully consider the matters
discussed under the section entitled "Special
Factors" in this Information Statement.
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SPECIAL FACTORS
BUSINESS TO BE CONDUCTED BY THE COMPANY
Immediately prior to the Time of Distribution, the Core Businesses will be
transferred to, and will comprise all of the businesses, assets and liabilities
of, the Company. The businesses, assets and liabilities of the Company will not
include the Chase Acquired Business, which accounted for approximately $113.9
million, or 37%, of UST's consolidated revenues for the nine months ended
September 30, 1994. As a result, the Company will be substantially smaller than
UST and will derive its revenues from a less diverse group of businesses and
assets. While the Company intends to pursue strategies to expand its businesses,
there can be no assurance that the Company will be successful in implementing
such strategies or that, if implemented, such strategies will result in the
growth of the Company's businesses.
DIVIDENDS AND DIVIDEND POLICY
As a bank holding company, the Company will be dependent upon distributions
from its subsidiaries in order to pay cash dividends. Because New Trustco will
be a newly organized bank subsidiary of the Company, it is not anticipated that
it will be able to pay dividends other than out of its earnings in respect of
periods after the Time of Distribution. Federal and state regulatory agencies
also have the authority to limit further the Company's banking subsidiaries'
payment of dividends based on other factors, such as the maintenance of adequate
capital for such banking subsidiaries. The Company currently anticipates that
its annual cash dividend will be approximately $1.00 per share. The timing and
amount of any future dividends, however, will depend on circumstances existing
at the time, including earnings, cash requirements, applicable federal and state
laws and regulations and policies and other factors deemed relevant by the
Company Board, including the amount of dividends payable to the Company by its
subsidiary banks.
RELATIONSHIP WITH CHASE; RELIANCE ON SERVICES AGREEMENT
In the Post Closing Covenants Agreement and the Tax Allocation Agreement,
Chase, UST and USTNY, on the one hand, and the Company and New Trustco, on the
other hand, will agree to indemnify each other after the Distribution with
respect to certain losses, damages, claims and liabilities arising primarily
from the conduct of the Chase Acquired Business, as well as certain tax
liabilities. See "The Distribution -- Terms of the Post Closing Covenants
Agreement" and "-- Terms of the Tax Allocation Agreement". In addition, the
Company has agreed, pursuant to the Post Closing Covenants Agreement, for a
period of four years after the Effective Time, not to engage in, or compete with
Chase with respect to, the securities processing business, subject to certain
limited exceptions. See "The Distribution -- Terms of the Post Closing Covenants
Agreement -- The Company's Noncompetition Agreement".
As part of the Merger, Chase will acquire UST's related back office
operations. Immediately prior to the Effective Time, Chase's principal bank
subsidiary and New Trustco will enter into the Services Agreement pursuant to
which such subsidiary will furnish necessary securities processing, custodial,
data processing and other services to New Trustco and its affiliates. The
initial term of the Services Agreement will be for five years beginning on the
date of consummation of the Merger (the "Closing Date"), with certain renewal
options. In consideration of the services provided to it under the Services
Agreement, during the initial term, New Trustco will pay to Chase's subsidiary
an annual base fee of $10 million, which is significantly less than New
Trustco's estimate of the annual cost of providing such services to itself. See
"Relationship with Chase".
The Company will have minimal securities processing or back office
capabilities and will rely entirely on Chase to provide such services under the
Services Agreement, including bank processing services for the Company's private
banking clients and custodial and processing services for the Company's asset
and investment management clients. The Company's goodwill and its relationship
with its clients and customers could be adversely affected by any failure or
inability of Chase to provide the level of services required by the Services
Agreement.
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ABSENCE OF TRADING MARKET
There is no existing trading market for the Company Common Stock and there
can be no assurance as to the establishment or continuity of any such market.
The Company expects to apply for designation of the Company Common Stock as a
national market security on the National Market System and such listing, or
listing on the American Stock Exchange or the New York Stock Exchange, is a
condition to consummation of the Distribution. However, there can be no
assurance as to the price at which the Company Common Stock will trade or that
such price will not be significantly below the book value per share of the
Company Common Stock.
LACK OF HISTORICAL INFORMATION
The Company is a newly formed corporation that currently has no operations.
Immediately prior to the Time of Distribution, the businesses, assets and
liabilities of the Company will consist solely of the Core Businesses. For
financial reporting purposes, the Company is a "successor registrant" to UST
and, as a result, the historical financial information of the Company is the
historical financial information of UST. There is no historical information for
the Company on a stand-alone basis that excludes the financial results of the
Chase Acquired Business. The Company expects to begin reporting such information
commencing with its quarterly report for the fiscal quarter ending June 30,
1995.
RELIANCE ON KEY PERSONNEL
The Company's business is managed by key executive officers, the loss of
whom could have a material adverse effect on the Company. The Company believes
that its continued success will depend in large part on its ability to attract
and retain highly skilled and qualified personnel. The Company's management has
principal responsibility for the review of the Company's strategic plan and for
recommendations to the Company Board, which exercises final authority over major
business decisions. Therefore, the Company is dependent upon the ability of its
management to select what it believes are appropriate business opportunities
(including acquisitions) for the Company. In the event that any officers or
directors of the Company cease to be associated with the Company, the Company
will seek to find a qualified person or persons to fill their positions. There
can, however, be no assurance that such individuals could be engaged by the
Company. See "Management".
COMPETITION
The Company's asset management and private banking businesses will compete
with investment counselling firms and with investment bankers and brokers which
offer advisory services and, to some extent, with mutual funds. The trust and
agency business is also highly competitive. Many commercial banks, with larger
capitalizations and deposits, and several smaller specialized banks throughout
the country provide similar fiduciary services.
In both its private banking and its corporate trust activities, the Company
will operate in an intensely competitive environment, both as to service and
price, with other banks principally in the New York metropolitan area,
California, Florida, Texas and the Pacific Northwest.
GOVERNMENT MONETARY POLICIES
Monetary authorities have a significant impact on the operating results of
the Company and other financial service institutions. The decisions of the Board
of Governors of the Federal Reserve System (the "Board of Governors") affect the
supply of money and member bank reserves by means of open market operations in
U.S. Government securities or by changes in the discount rate or reserve
requirements. The Board of Governors' actions have an important influence on the
growth of bank loans and investments and the level of interest charged for loans
and paid on deposits. Because of changing conditions in the money markets, as a
result of actions by the Board of Governors and other regulatory authorities,
interest rates, credit availability, deposit levels and bond and stock prices
may change materially due to circumstances beyond the control of the Company.
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BANK HOLDING COMPANY ACT OF 1956
At the Time of Distribution, the Company will be a bank holding company
within the meaning of the Federal Bank Holding Company Act of 1956, as amended
(the "Bank Holding Company Act"), and will be so registered with the Board of
Governors. As such, the Company will be required to file with the Board of
Governors annual reports and other information and is subject to examination
regarding its business operations and those of its subsidiaries. Further, a bank
holding company and its subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with the extension of credit or provision of
any property or service.
The Bank Holding Company Act requires every bank holding company to obtain
the prior approval of the Board of Governors before acquiring substantially all
the assets of any bank or before acquiring direct or indirect ownership or
control of more than 5% of the voting shares of any bank which is not already
majority-owned. Until September 29, 1995, the Bank Holding Company Act prohibits
the acquisition by a bank holding company of shares of a bank located outside
the state in which the operations of its banking subsidiaries are principally
conducted, unless such an acquisition is specifically authorized by a statute of
the state in which the bank to be acquired is located. The Bank Holding Company
Act also prohibits a bank holding company, with certain exceptions, from
acquiring more than 5% of the voting shares of any company which is not a bank
and from engaging in any business other than banking or managing or controlling
banks or furnishing services to or performing services for its subsidiary banks.
One of the exceptions to this prohibition is engaging in, or acquiring shares of
a company that engages in, activities which the Board of Governors has
determined to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. Under current regulations, bank holding
companies and their subsidiaries are permitted to engage in such banking and
banking-related businesses as equipment leasing, computer service bureau
operations, acting as investment or financial adviser, performing fiduciary,
agency and custodial services, certain types of real estate financing and
providing management consulting advice to non-affiliated banks.
In approving acquisitions by bank holding companies of banks and companies
engaged in banking-related activities, the Board of Governors considers a number
of factors, including the expected benefits to the public such as greater
convenience, increased competition or gains in efficiency, as weighed against
the risks or possible adverse effects such as undue concentration of resources,
decreased or unfair competition, conflicts of interest or unsound banking
practices. The Board of Governors is also empowered to differentiate between
activities commenced de novo and activities commenced through acquisition of a
going concern. The Board of Governors may order a bank holding company to
terminate any activity or its ownership or control of a nonbank subsidiary if
the Board of Governors finds that such activity or ownership or control
constitutes a serious risk to the financial safety, soundness or stability of a
subsidiary bank and is inconsistent with sound banking principles or statutory
purposes.
OTHER FEDERAL AND STATE BANKING REGULATION
The Superintendent of Banks of the State of New York has the discretion to
examine the affairs of the Company for the purpose of determining the financial
condition of New Trustco. Prior to the Time of Distribution, New Trustco and its
operations will be subject to Federal and New York State laws applicable to
commercial banks and trust companies and to regulation and examination by both
Federal and New York banking authorities. Government regulations affecting New
Trustco and its operations will include minimum capital requirements, the
requirement to maintain reserves against deposits, restrictions on the nature
and amount of loans which may be made by New Trustco and restrictions relating
to investments and other activities.
New York banks are barred from acting as a fiduciary in a number of states,
and in a number of other states where they may and do act as a fiduciary, their
activities are limited by state law and regulations.
The Company, through its ownership of a savings bank in Florida, will be a
savings bank holding company. Accordingly, the Company and such savings bank
will be subject to regulation and examination by the Office of Thrift
Supervision. The banking institutions that will be subsidiaries of the Company
in California and Texas are subject to regulation and examination by the Office
of the Comptroller of the
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Currency. The banking institution that will be the Company's New Jersey
subsidiary is subject to regulation and examination by the Banking Department of
the State of New Jersey. The banking institution that will be the Company's
Oregon subsidiary is subject to regulation and examination by the Division of
Finance and Corporate Securities of the State of Oregon.
The Federal Reserve Act and the Federal Deposit Insurance Act impose
certain restrictions on loans by the bank subsidiaries to the Company and each
other. In addition, the Company and its subsidiaries are subject to restrictions
imposed by the Banking Act of 1933 with respect to engaging in certain aspects
of the securities business.
SUBSTANTIAL STOCKHOLDERS; CERTAIN CHARTER PROVISIONS
Immediately following the Distribution, directors and executive officers of
the Company will (assuming the exercise of stock options for 67,975 shares of
UST Common Stock prior to the Time of Distribution) beneficially own shares of
Company Common Stock representing over 3.1% of the voting power of all the
Company's then outstanding voting securities. In addition, immediately following
the Distribution, the 401(k) Plan and ESOP of United States Trust Company of New
York and Affiliated Companies (the "401(k) Plan and ESOP") will beneficially own
shares of Company Common Stock representing over 14.5% of the voting power of
all the Company's then outstanding voting securities. In addition, following the
Merger, the 401(k) Plan and ESOP will, over a period of time, sell shares of
Chase Common Stock it receives in connection with the Merger, and will purchase
shares of Company Common Stock in the open market with the proceeds from the
sale of such shares. See "Beneficial Ownership".
Certain provisions of the Restated Certificate and the Restated Bylaws may
be deemed to have the effect of making difficult an acquisition of control of
the Company in a transaction not approved by the Company Board. These provisions
include the ability of the Company Board to issue shares of preferred stock in
one or more series without further authorization of the Company stockholders and
certain other provisions described under "Description of Capital Stock of the
Company". Many of these provisions are also present in UST's certificate of
incorporation and bylaws as currently in effect, and generally are designed to
permit the Company to develop its businesses and foster its long-term growth
without the disruption caused by the threat of a takeover not deemed by the
Company Board to be in the best interests of the Company and its stockholders.
These provisions may also have the effect of discouraging a third party from
making a tender offer or otherwise attempting to obtain control of the Company
even though such a transaction might be economically beneficial to the Company
and its stockholders. Furthermore, the Company intends, in connection with the
Distribution, to adopt a stockholder rights plan, which may have a similar
effect. See "Description of Capital Stock of the Company -- Stockholder Rights
Plan".
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THE COMPANY
GENERAL
The Company is a newly formed New York corporation that at the Time of
Distribution will be a bank holding company. At the Time of Distribution, the
Company will own the Core Businesses, which include UST's asset management,
private banking, special fiduciary and corporate trust businesses. The Company
will conduct the Core Businesses primarily through New Trustco, a recently
organized entity that at the Time of Distribution will be a New York bank and
trust company and a wholly owned subsidiary of the Company.
The Company was organized in New York in January 1995 and, pursuant to an
exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"), issued 100 shares of common stock, par value
$1.00 per share, to UST on January 23, 1995 for par value. The Company is
currently a wholly owned subsidiary of UST.
Set forth below is a description of UST's businesses that will be
transferred to the Company immediately prior to the Time of Distribution.
Asset Management and Private Banking
UST's principal business is providing asset management services to
individuals, families and institutions and private banking.
In the personal asset management and private banking business, UST's
primary focus is the top 2% wealthiest Americans, those with over $200,000 in
income or $450,000 in investable assets. UST believes (based on syndicated
market research studies conducted by Payment Systems, Inc., an independent
research firm) that this market is growing at 14% to 20% annually and that less
than one-third of the assets in this market are professionally managed. The
personal asset management and private banking business is highly competitive and
comprised of a wide variety of institutions vying for business, including
banking institutions, brokerage firms, investment management companies and
mutual fund companies. No one competitor dominates this market. UST believes
that it differentiates itself from its competitors by providing both investment
management and comprehensive wealth management services. UST's full range of
investment management services for the affluent includes U.S. and international
equities, fixed-income, balanced portfolios, alternative investments, mutual
funds and 401(k) plans. UST also provides private banking, trust and fiduciary
services, estate and tax planning, financial planning, custody, insurance
services and consolidated record keeping.
UST has divided its personal market into three segments and tailored its
products and service delivery to each. Its primary market consists of
individuals with $2 million to $50 million in assets. Investment portfolios for
this market segment are generally individually managed and require the use of a
number of UST's services. UST is currently expanding its line of products for
this market segment by adding a variable annuity product and a venture capital
fund.
For the second segment of UST's personal market -- those customers with
$250,000 to $2 million in assets -- UST provides investment management services,
principally through the "UST Master Fund" family of 25 mutual funds. UST's
"Wealth Management Account" assets now total over $600 million with an average
account balance size of $650,000. UST's private banking services are also
responsible for attracting this portion of UST's market, comprised of generally
younger, earned wealth customers whose assets are expected to grow over time.
The third segment of UST's personal market includes families with over $50
million in assets. UST currently serves well over 100 such families. To help
meet the increasingly sophisticated and complex needs of these families, UST
acquired CTC Consulting, Inc. ("CTC") in July of 1993. CTC provides independent
counseling on investment policy, manager selection and performance measurement.
UST offers an enhanced master custody product for this market, as well as
specialized consulting services for family-owned businesses. UST has also
expanded its family office capabilities to serve clients in this market.
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A major strategic goal of UST's personal asset management and private
banking business for over a decade has been national expansion. Personal asset
management and private banking clients usually require service to be provided at
the local level. Expanding beyond its New York City headquarters to meet these
demands, UST has established offices nationwide in areas UST believes are
comprised of concentrated wealth: California, Connecticut, Florida, New Jersey,
Texas and the Pacific Northwest. UST's future goals include expansion in those
regions where UST currently provides asset management services and in other
areas of wealth concentration and creation.
UST's institutional asset management business provides a wide range of
investment management services directly to institutional clients: domestic and
international equity, fixed-income, money market and balanced portfolios, as
well as structured investments, index funds, alternative investments and cash
management.
UST has placed increased emphasis on the sales effort supporting the
personal asset management business, including in recent years a three-fold
increase in the size of its sales force and the implementation a decade ago of a
generous sales incentive program for all employees. In addition, UST possesses a
dedicated sales force committed to the institutional asset management business.
UST believes providing its investment management services through
third-party distribution channels is an increasingly important aspect of its
asset management business. UST is broadening the distribution of its UST Master
Fund family and its "Excelsior Funds", introduced in 1994 for the institutional
market, through small banks, broker/dealers and private labeling. UST also has a
"wrap" program through which UST's fixed-income investment products are sold by
five brokerage firms and assets now total over $500 million with approximately
900 accounts. UST's proprietary variable annuity, developed jointly with The
Chubb Life Companies ("Chubb"), is linked to clones of the UST Master Funds and
will be sold through over 200 independent third-party distributors, as well as
by UST and Chubb.
In the rapidly growing 401(k) market, UST is currently developing a bundled
product aimed at plans with more than $5 million in assets. UST will provide
investment management for the bundled product -- using a subset of the Excelsior
Funds and an asset allocation model to create a "life stages portfolios"
product. This product will also feature administration by UST, third-party
record keeping and an employee education component.
UST provides private banking services through its four offices in New York
City and through its regional offices in California, Connecticut, Florida, New
Jersey and Texas. Residential mortgages continue to be the principal credit
product in private banking, accounting for nearly two-thirds of the portfolio.
Private banking loans represent almost 90% of UST's total average loans, which
amounted to $1.3 billion in the third quarter of 1994. The remaining loans are
primarily comprised of credit facilities to securities firms and other financial
institutions. UST's credit quality continues to be strong. As a percentage of
total average loans, net loan charge-offs for the first nine months of 1994, on
an annualized basis, were five basis points.
Asset management and private banking customer deposits comprise a principal
source of funds employed to finance the loan portfolio. For the nine-month
period ended September 30, 1994, non-interest bearing asset management and
private banking deposits were approximately $270 million and interest bearing
deposits were approximately $1.2 billion. Historically, these deposits have been
a stable source of funds to UST.
Special Fiduciary Services
UST provides investment, fiduciary and consulting services to employee
benefit plans that invest in employer stocks and to individuals and families
with substantial ownership positions in public or private companies. UST
specializes in providing these services to large, complex plans and believes it
is the leading provider of such services in this segment of the market.
Competition in this segment of the market comes from several financial industry
participants, including primarily other trust companies.
Corporate Trust and Agency
One of the 10 largest corporate trustees in the country, UST is a leader in
providing trust, agency and related services to public and private corporations,
municipalities and financial institutions. Corporate trust
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and agency assets currently total approximately $152 billion. UST's independence
and established long-term relationships are an advantage in the indenture
trusteeship business, where UST concentrates on the high margin segment of the
market. Competitors include money center and regional banks.
During each of the past three years, UST has been the leading trustee in
New York State for new municipal long-term debt and ranks among the top three
trustees nationally.
UST is also a leader in providing trustee services for complex new types of
securities, as well as a provider of bond immobilization services. UST believes
these segments to be two of the fastest growing areas of the corporate trust and
agency business.
UST has strengthened its national presence in the corporate trust and
agency business with the opening of corporate trust offices in California and
Texas.
REGULATORY MATTERS
General
The Company is a legal entity separate and distinct from its subsidiaries.
The ability of holders of debt and equity securities of the Company to benefit
from the distribution of assets of any subsidiary upon the liquidation or
reorganization of such subsidiary is subordinate to prior claims of creditors of
the subsidiary except to the extent that a claim of the Company as a creditor
may be recognized.
There are various statutory and regulatory limitations on the extent to
which banking subsidiaries of the Company can finance or otherwise transfer
funds to the Company or its nonbanking subsidiaries, whether in the form of
loans, extensions of credit, investments or asset purchases. Such transfers by
any subsidiary bank to the Company or any nonbanking subsidiary are limited in
amount to 10% of the bank's capital and surplus and, with respect to the Company
and all such nonbanking subsidiaries, to an aggregate of 20% of each such bank's
capital and surplus. Furthermore, loans and extensions of credit are required to
be secured in specified amounts and are required to be on terms and conditions
consistent with safe and sound banking practices.
There are also regulatory limitations on the payment of dividends directly
or indirectly to the Company from its banking subsidiaries. Under applicable
banking statutes, at December 31, 1994, the banking institutions that will be
subsidiaries of the Company (which do not include USTNY) could have declared
additional dividends of approximately $8.0 million. Because New Trustco will be
a newly organized bank subsidiary of the Company, it is not anticipated that it
will be able to pay dividends other than out of its earnings in respect of
periods after the Time of Distribution. Federal and state regulatory agencies
also have the authority to limit further the Company's banking subsidiaries'
payment of dividends based on other factors, such as the maintenance of adequate
capital for such banking subsidiaries.
Under the policy of the Board of Governors, the Company is expected to act
as a source of financial strength to each subsidiary bank and to commit
resources to support such subsidiary bank in circumstances where it might not do
so absent such policy. In addition, any subordinated loans by the Company to any
of the subsidiary banks would also be subordinate in right of payment to
deposits and obligations to general creditors of such subsidiary bank. Further,
the Crime Control Act of 1990 provides that in the event of the bankruptcy of
the Company, any commitment by the Company to bank regulators to maintain the
capital of a banking subsidiary will be assumed by the bankruptcy trustee and
entitled to a priority of payment.
In addition, as a bank holding company within the meaning of the Bank
Holding Company Act, the Company is required to obtain the prior approval of the
Board of Governors before making certain acquisitions, including the acquisition
of more than 5% of the voting shares of any company that is not a bank (subject
to limited exceptions). See "Special Factors -- Bank Holding Company Act of
1956".
The Company's banking subsidiaries will be subject to other Federal and
state banking regulations, including regulation by the Superintendent of Banks
of the State of New York, the Office of Thrift Supervision, the Comptroller of
the Currency, the Banking Department of the State of New Jersey and the Division
of Finance and Corporate Securities of the State of Oregon. See "Special
Factors -- Other Federal and State Banking Regulation".
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FIRREA
As a result of the enactment of the Financial Institutions Reform, Recovery
and Enforcement Act ("FIRREA") on August 9, 1989, any or all of the Company's
subsidiary banks can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the Federal Deposit Insurance Corporation ("FDIC")
after August 9, 1989, in connection with (a) the default of any other of the
Company's subsidiary banks or (b) any assistance provided by the FDIC to any
other of the Company's subsidiary banks in danger of default. "Default" is
defined generally as the appointment of a conservator or receiver and "in danger
of default" is defined generally as the existence of certain conditions
indicating that a "default" is likely to occur without regulatory assistance.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDICIA"), which was enacted on December 19, 1991, provides for, among other
things, increased funding for the Bank Insurance Fund (the "BIF") of the FDIC
and expanded regulation of depository institutions and their affiliates,
including parent holding companies. A summary of certain provisions of FDICIA
and its implementing regulations is provided below.
Risk Based Deposit Insurance Assessments. A significant portion of the
additional funding to BIF is in the form of borrowings to be repaid by insurance
premiums assessed on BIF members. In addition, the FDICIA provides for an
increase in the ratio of the reserves to insured deposits of the BIF to 1.25% by
the end of the 15-year period that began with the semi-annual assessment period
ending December 31, 1991, also to be financed by insurance premiums. Insurance
premiums for a BIF-Insured institution are based on whether the institution is
within the definition of "well capitalized", "adequately capitalized" or
"undercapitalized". For purposes of the risk-based assessment system, a well
capitalized institution is one that has a total risk-based capital ratio of 10%
or more, a Tier 1 risk-based capital of 6% or more, and a leverage ratio of 5%
or more. An adequately capitalized institution has a total risk-based capital
ratio of 8% or more, a Tier 1 risk-based capital ratio of 4% or more, and a
leverage ratio of 4% or more. An undercapitalized institution is one that does
not meet either of the foregoing definitions. The actual assessment rate
applicable to a particular institution, therefore, depends in part upon the risk
assessment classification so assigned to the institution by the FDIC. At
September 30, 1994, each of the Company's banking subsidiaries was classified as
"well capitalized" under these provisions.
Prompt Corrective Action. The FDICIA also provides the federal banking
agencies with broad powers to take prompt corrective action to resolve problems
of insured depository institutions, depending upon a particular institution's
level of capital. The FDICIA establishes five tiers of capital measurement
ranging from "well capitalized" to "critically undercapitalized". A depository
institution may be deemed to be in a capitalization category that is lower than
is indicated by its actual capital position under certain circumstances. At
September 30, 1994, each depository institution that will be a subsidiary of the
Company was classified as "well capitalized" under the prompt corrective actions
regulations described above.
Any depository institution that is undercapitalized and which fails to meet
regulatory capital requirements specified in the FDICIA must submit a capital
restoration plan guaranteed by the bank holding company controlling such
institution, and the regulatory agencies may place limits on the asset growth
and restrict activities of the institution (including transactions with
affiliates), require the institution to raise additional capital, dispose of
subsidiaries or assets or to be acquired and, ultimately, require the
appointment of a receiver. In addition to the requirement of mandatory
submission of a capital restoration plan, under the FDICIA, an undercapitalized
institution may not pay management fees to any person having control of the
institution nor may an institution, except under certain circumstances and with
prior regulatory approval, make any capital distribution if, after making such
payment or distribution, the institution would be undercapitalized. Further,
undercapitalized depository institutions are subject to restrictions on
borrowing from the Board of Governors.
Undercapitalized and significantly undercapitalized depository institutions
may be subject to a number of requirements and restrictions, including orders to
sell sufficient voting stock to become adequately capitalized,
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requirements to reduce total assets and cessation of receipt of deposits from
correspondent banks. In addition, significantly undercapitalized depository
institutions also are prohibited from awarding bonuses or increasing
compensation of senior executive officers until approval of a capital
restoration plan. Critically undercapitalized depository institutions are
subject to appointment of a receiver or conservator.
Brokered Deposits and Pass-Through Deposit Insurance Limitation. Under the
FDICA, a depository institution that is well capitalized may accept brokered
deposits and offer interest rates on deposits "significantly higher" than the
prevailing rate in its market. A depository institution that is adequately
capitalized may accept brokered deposits if it obtains the prior approval of the
FDIC. An undercapitalized depository institution may not accept brokered
deposits. In the Company's opinion, these limitations do not have a material
effect on the Company.
Safety and Soundness Standards. The FDICIA directs each federal banking
agency to prescribe safety and soundness standards for depository institutions
and depository institution holding companies relating to internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation, a maximum
ratio of classified assets to capital, minimum earnings sufficient to absorb
losses without impairing capital and, to the extent feasible, a minimum ratio of
market value to book value for publicly traded shares. Proposed regulations to
implement the safety and soundness standards were issued in November 1993. The
ultimate cumulative effect of these standards cannot currently be forecast.
The FDICIA also contains a variety of other provisions that may affect the
Company's operations, including new reporting requirements, regulatory standards
for real estate lending, "truth in savings" provisions, and the requirement that
a depository institution give 90 days' prior notice to customers and regulatory
authorities before closing any branch.
Capital Guidelines
Under the capital guidelines adopted by the Board of Governors, the minimum
ratio of total capital to the risk-adjusted assets (including certain
off-balance sheet items, such as standby letters of credit) of a bank holding
company is 8%. At least half of the total capital is to be comprised of common
equity, retained earnings, minority interests in the equity accounts of
consolidated subsidiaries and a limited amount of perpetual preferred stock,
less goodwill ("Tier 1 capital"). The remainder may consist of perpetual debt,
mandatory convertible debt securities, a limited amount of subordinated debt,
other preferred stock and a limited amount of loan loss reserves ("Tier 2
capital"). In addition, the Board of Governors requires a leverage ratio (Tier 1
capital to total assets, net of goodwill) of 3% for bank holding companies that
meet certain specified criteria, including that they have the highest regulatory
rating. Such rule indicates that the minimum leverage ratio should be 1% to 2%
higher for holding companies undertaking major expansion programs or that do not
have the highest regulatory rating. The state chartered and national banking
institutions that will be subsidiaries of the Company are subject to similar
capital requirements.
The federal banking agencies continue to indicate their desire to raise
capital requirements applicable to banking organizations, and recently proposed
amendments to their risk-based capital regulations to provide for the
consideration of interest rate risk in the determination of a bank's minimum
capital requirements. The proposed amendments are intended to require that banks
effectively measure and monitor their interest rate risk and that they maintain
capital adequate for that risk. Under the proposed amendments, banks with
interest rate risk in excess of a defined supervisory threshold would be
required to maintain additional capital beyond that generally required. In
addition, the federal banking agencies recently proposed amendments to their
risk-based capital standards to provide for the concentration of credit risk and
certain risks arising from nontraditional activities, as well as a bank's
ability to manage these risks, as important factors in assessing a bank's
overall capital adequacy.
As of September 30, 1994, the capital ratios of UST and of each of the
institutions that will be subsidiaries of the Company are well capitalized.
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Under FIRREA and FDICIA, failure to meet the minimum regulatory capital
requirements could subject a banking institution to a variety of enforcement
remedies available to federal regulatory authorities, including the termination
of deposit insurance by the FDIC and seizure of the institution.
On September 29, 1994, President Clinton signed into law the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act").
The Interstate Act generally authorizes bank holding companies to acquire banks
located in any state commencing one year after its enactment. In addition, it
generally authorizes national and state chartered banks to merge across state
lines (and to thereby create interstate branches) commencing June 1, 1997. Under
the provisions of the Interstate Act, states are permitted to "opt out" of this
latter interstate branching authority by taking action prior to the commencement
date. States may also "opt in" early (i.e., prior to June 1, 1997) to the
interstate merger provisions. Further, the Interstate Act provides that states
may act affirmatively to permit de novo branching by banking institutions across
state lines.
FUTURE CONDUCT OF THE BUSINESS
Seligman Acquisition
The Company's business strategy is to expand in areas where personal wealth
is concentrated. On January 17, 1995, UST announced that it had agreed to
acquire the individual account business of J.&W. Seligman and Co. and to
purchase J.&W. Seligman Trust Company for up to $20 million in cash. Such
businesses will be transferred to the Company in the Internal Reorganization.
Consistent with its strategy, the Company plans to continue to seek ways to
expand its presence in California, Florida, Texas, the Pacific Northwest and the
greater New York City region, as well as to expand opportunistically into new
areas of wealth concentration.
Following the Distribution, the Company will continue to examine other
strategic alternatives, including possible acquisitions, strategic alliances,
joint ventures and investments in an effort to increase stockholder value.
Use of Names
Immediately following the Merger, the Company will assume the name "U.S.
Trust Corporation", and New Trustco will assume the name "United States Trust
Company of New York". Each of the Company and New Trustco will conduct business
under those names in the future. As part of the Internal Reorganization, the
Company will acquire all trademarks, tradenames and other intellectual property
necessary to the conduct of the Core Businesses.
Relationship with Chase
In addition, pursuant to the Services Agreement, following the Merger, a
subsidiary of Chase will provide the Company with certain essential back office
operations. Pursuant to the Post Closing Covenants Agreement, the Company has
also agreed for a period of four years after the Effective Time not to engage
in, or compete with Chase with respect to, the securities processing business,
subject to limited exceptions. See "Special Factors -- Relationship with Chase;
Reliance on Services Agreement" and "Relationship with Chase".
Management
The management of the Company following the Distribution will be
substantially the same as the management of UST prior to the Distribution.
EMPLOYEES
It is anticipated that immediately following the Distribution, the Company
will employ approximately 1,350 persons.
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PROPERTIES
The Company will lease its principal executive office in New York, New York
which is currently leased by UST. Additional executive offices currently owned
or leased by UST will be transferred to and owned or leased by the Company in
New York, New Jersey, Connecticut, Washington D.C., California, Texas and
Florida. The Company's management believes that all the properties to be owned
or leased by the Company following the Distribution will be adequate for the
Company's business needs and will be in good operating condition.
LEGAL MATTERS
There are various pending and threatened actions and claims against UST and
its subsidiaries for which liability has been denied and which will be
vigorously contested. The Company will assume any liabilities associated with
these actions pursuant to the Contribution Agreement. Included among these are
the following cases:
On December 1, 1994, a complaint was filed against USTNY in the Supreme
Court of the State of New York, County of New York, entitled Ithaca Partners,
L.P. and Gabriel Capital, L.P. v. United States Trust Company. USTNY is Trustee
under an Indenture dated October 1, 1988 (the "Indenture") under which Linter
Textiles Corporation Limited ("Linter Textiles") issued $200 million in
principal amount of Senior Subordinated Debentures (the "Debentures"). Linter
Textiles, a corporation organized under the laws of Australia, was a holding
company for various operating subsidiaries (the "Linter Subsidiaries") and was
also a subsidiary of Linter Group Limited ("Linter Group"). Linter Group, Linter
Textiles and the Linter Subsidiaries are being liquidated under Australian law;
however, based on the parties' contractual priorities, the proceeds of the
liquidation will be insufficient to satisfy the claims of the holders of the
Debentures. The plaintiffs are two limited partners who claim to have purchased
$97.43 million in principal amount of the Debentures. Plaintiffs allege that the
Debentures were issued pursuant to a fraudulent prospectus which failed to
disclose Linter Textiles' intention to incur $323 million (Australian) in senior
indebtedness through guaranties of indebtedness of Linter Group and to cause the
Linter Subsidiaries to guaranty the senior indebtedness. The complaint asserts
that covenants in the Indenture were breached in connection with the execution
of those guaranties and the guaranties of the Debentures delivered by the Linter
Subsidiaries to USTNY in connection therewith and asserts causes of action for
breach of contract and breach of fiduciary duty based on USTNY failing to take
action itself or to advise holders of the Debentures that Linter Textiles and
the Linter Subsidiaries were incurring substantial indebtedness on behalf of the
Linter Group. The complaint seeks unspecified damages measured by the amount of
the diminution from the face value of the Debentures suffered as a result of the
existence of the guaranties of senior indebtedness, plus interest and
plaintiff's expenses incurred in connection with the liquidation proceedings in
Australia.
In July 1990, an action captioned "Official Committee of Unsecured
Creditors of Fulfillment Associates, Inc. v. Louis Freedman et al. v. United
States Trust Company of New York" was brought in the United States Bankruptcy
Court for the Eastern District of New York. The complaint was filed by the
Creditors Committee of Fulfillment Associates, Inc. (the "CCFA") against
stockholders of CCFA who sold their shares in a leveraged buyout financed by
USTNY. The complaint seeks damages in excess of $500,000 and alleges a
fraudulent transfer in the granting of liens to USTNY on the assets of CCFA,
abuse of fiduciary duty by the stockholders and breach of employment agreements
entered into by the stockholders with CCFA. The stockholders have filed a
third-party complaint against USTNY in an unspecified amount seeking
indemnification or contribution for all amounts for which the stockholders may
be held liable to CCFA. USTNY's motion to dismiss the third-party complaint is
pending before the Bankruptcy Court.
THE DISTRIBUTION
This section of the Information Statement describes certain aspects of the
proposed Distribution. To the extent that they relate to the Distribution
Documents, the following descriptions do not purport to be complete and are
qualified in their entirety by reference to the Distribution Documents, which
are Exhibits to the Company Form 10 and are attached as Appendix B through E to
the Proxy Statement-Prospectus and are
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incorporated herein by reference. All stockholders are urged to read the
Distribution Documents in their entirety.
BACKGROUND OF AND REASONS FOR THE DISTRIBUTION
UST's management has regularly reviewed possible strategies and
transactions to enhance UST's competitiveness and to position its assets and
businesses in a manner that would increase the value of those assets and of
UST's businesses and operations, thereby increasing stockholder value. These
strategies included a possible acquisition, joint ventures, internal
restructurings, outsourcing of operational services and divestiture of one of
its businesses. In December 1993, UST's management determined that UST should
examine the possibility of a divestiture of the Processing Business (as defined
below) in its entirety. The principal reasons for UST's determination to
actively pursue this strategic course of action was the conclusion that the
securities processing business would require significant allocations of capital
and financial resources on an ongoing basis to remain competitive, while UST
anticipated needs for additional capital and financial resources to expand its
more profitable growth opportunities in the asset management, private banking,
and corporate trust and agency businesses over the coming years. In addition,
UST's management believed that, in light of the size of its capital, the
inherent operating risks in securities processing businesses generally could,
over time, threaten UST's reputation and franchise in the Core Businesses. The
examination of strategic alternatives culminated in November 1994 with the
execution of the Merger Agreement with Chase. For a discussion of the events
leading up to the execution of the Merger Agreement, see "The
Merger -- Background of the Merger" in the Proxy Statement-Prospectus to which
this Information Statement is attached as Appendix H.
Pursuant to the Merger Agreement and the transactions described therein,
Chase will acquire the Chase Acquired Business, which consists of UST's
securities processing business and related back office operations, including the
assets and certain of the liabilities related thereto. UST's securities
processing business (the "Processing Business") consists of the businesses,
assets and certain liabilities related to (i) the unit investment trust business
of USTNY and its affiliates, which includes, among other things, acting as
trustee for "unit investment trusts" (as such term is defined in the Investment
Company Act of 1940, as amended), maintaining custody of securities and
investments for unit trusts and providing other processing support to unit
trusts, (ii) the mutual funds services business of UST and its subsidiaries,
which includes, among other things, providing domestic and global custody,
transfer agency and other administrative services to registered investment
companies and (iii) the institutional asset services business of USTNY and its
affiliates, which includes, among other things, master trust and custody
services, securities lending services, rabbi trust services and certain money
management services. UST's related back office operations (the "Related Back
Office") consists of the businesses, assets and certain liabilities related to
USTNY's computer services division and securities services and trust operations
division.
The sale of the Chase Acquired Business will be effected through a series
of sequential transactions, including the Distribution and the Merger, all as
set forth in the Merger Agreement. The purpose of this complex structure is to
permit the sale of the Chase Acquired Business on a tax-free basis to UST and
its stockholders in a transaction in which UST stockholders will receive Chase
Common Stock and will also retain their proportionate equity interests in the
Core Businesses in the form of Company Common Stock to be received in the
Distribution. In order to ensure the tax-free nature of the sale, UST (which
will then hold only the Chase Acquired Business) will be merged with and into
Chase. Accordingly, a "reverse spinoff" structure was adopted pursuant to which
the Core Businesses will be transferred to the Company and its subsidiaries and
the Company Common Stock will, prior to the Merger, be distributed to UST
stockholders in the Distribution.
Although the Distribution will not be effected unless the Merger is
approved and about to occur, the Distribution is separate from the Merger and
the Company Common Stock to be received by holders of UST Common Stock in the
Distribution does not constitute a part of the consideration to be received by
UST stockholders in the Merger. Consummation of the Distribution is a condition
to the Merger.
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TERMS OF THE CONTRIBUTION AGREEMENT
In connection with the Distribution, USTNY and New Trustco will enter into
the Contribution Agreement. The Contribution Agreement provides for, among other
things, a series of asset and stock transfers between USTNY and New Trustco, and
the assignment to and assumption by, New Trustco of liabilities of USTNY
relating to the assets and stock transferred (the "Contribution Asset
Transfers"). The Contribution Asset Transfers are designed to transfer all the
assets and liabilities of USTNY to New Trustco, other than the businesses,
assets and liabilities included in the Chase Acquired Business.
Contribution Assets and Contribution Liabilities
Pursuant to the terms of the Contribution Agreement, immediately prior to
the Distribution Asset Transfers (as defined under "-- Terms of the Distribution
Agreement -- The Distribution Asset Transfers" below), USTNY will assign,
transfer, convey and contribute to New Trustco, effective as of the Closing, all
the business, properties, assets, goodwill and rights of USTNY, other than the
Chase Assets (as defined below), owned by USTNY on the Closing Date (the
"Contribution Assets"), including: (i) all assets used or held for use primarily
in the Core Businesses; (ii) all agreements entered into by USTNY with customers
or clients of the Core Businesses relating to such businesses; (iii) all
mortgages, loans, overdrafts, lines of credit, rights in respect of letters of
credit and similar assets of the Core Businesses and all rights in respect of
collateral or security (except rights in collateral to the extent that such
rights secure any Chase Assets) for any of the foregoing; (iv) all accrued fees,
accrued interest and accounts receivable, other than those of the Chase Acquired
Business; (v) all real property owned by USTNY and all rights in certain leases;
(vi) all cash on hand, funds available for investment, investments and
securities of USTNY, other than certain investments or funds reflected on the
balance sheet of the Chase Acquired Business at the Time of Distribution; (vii)
USTNY's interest in all lease and licensing agreements, and related support
agreements, with third parties for the use of systems and applications software
(excluding, however, certain data processing licenses and computer leases);
(viii) USTNY's interest in UST's core trust and custody software system utilized
by USTNY in the Processing Business and its other businesses (the "Asset
Management System"); (ix) all rights relating to the Contribution Liabilities
(as defined below); (x) all rights relating to certain abandoned property; (xi)
all policies of insurance or similar agreements; (xii) all collateral posted to
secure clearing and other contingent obligations ; and (xiv) all fees or
accounts receivable of the Chase Acquired Business which have been paid on or
before the close of business on the day immediately prior to the Closing Date.
The Contribution Agreement also provides that, subject to certain limited
exceptions, the Contribution Assets will not include assets of USTNY that are
primarily used, or that are held for use in, or are reasonably necessary for the
conduct by USTNY of, the Chase Acquired Business on the Closing Date (the "Chase
Assets"), including: (i) all customer agreements relating to the Processing
Business; (ii) all accounts receivable and accrued and unpaid fees under
customer agreements owed to USTNY on the Closing Date and arising out of the
Processing Business; (iii) certain agreements by which USTNY is bound that
relate to the Chase Acquired Business; (iv) USTNY's lease relating to space in
the building located at 770 Broadway, New York, New York (the "Broadway Lease");
(v) certain USTNY proprietary systems and application software; and (vi) all
rights relating to Chase Liabilities (as defined below).
In addition, pursuant to the terms of the Contribution Agreement, New
Trustco will assume, subject to certain exceptions, effective as of the Closing,
and will pay, perform and discharge when due and indemnify USTNY and hold USTNY
harmless from and against all liabilities (the "Contribution Liabilities") of
USTNY existing on the Closing Date (other than Chase Liabilities), including:
(i) all liabilities of USTNY relating to or arising out of the Core Businesses;
(ii) all liabilities arising out of any event, occurrence, action or omission
taken or occurring prior to the Closing Date by or with respect to USTNY, its
officers, directors, Board of Trustees, employees, agents or representatives;
(iii) all obligations in respect of the 8 1/2% Capital Notes due 2001 of USTNY;
(iv) any liability which is attributable to any of the Acquired Contribution
Assets; (v) all liabilities under each UST benefit plan that is transferred to
New Trustco; (vi) all fees and expenses of USTNY and its subsidiaries incurred
on or before the Contribution Asset Transfers in connection with the Merger; and
(vii) all obligations under agreements relating to the Chase Acquired Business
that are to be performed or discharged prior to the Closing Date.
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The Contribution Agreement also provides that at all times at and after the
Closing, USTNY will, subject to certain exceptions, retain and be solely
responsible for, and USTNY will pay, perform and discharge when due, and
indemnify New Trustco and hold New Trustco harmless from and against the
following liabilities (the "Chase Liabilities"): (i) all deposits arising from
the Processing Business; (ii) all liabilities to trade creditors and accounts
payable of the Chase Acquired Business reflected on the balance sheet of the
Chase Acquired Business at the Time of Distribution; (iii) all liabilities under
agreements relating to the Processing Business, subject to limited exceptions;
(iv) (A) all liabilities for amounts required to be paid as of or after the
Effective Time under the terms of UST's 1986 Stock Option Plan and employer
payroll taxes due with respect to such amounts, subject to certain limits and
(B) all liabilities for amounts payable under a transition bonus program
established by the Company in connection with the Merger maintained by USTNY;
(v) all obligations and duties as lessee under the Broadway Lease arising after
the Closing Date; and (vi) certain obligations relating to certain abandoned
property.
Delayed Assets and Delayed Liabilities
The Contribution Agreement provides that to the extent that any consent
with respect to a contract, agreement, lease or other instrument included in the
Contribution Assets that is legally required to effect the transfer thereof to
New Trustco (a "Required Consent"), and that has not been obtained on or prior
to the Closing Date (a "Delayed Asset"), will not be transferred as a
Contribution Asset, and any related liability (a "Delayed Liability") will not
be assumed by New Trustco as a Contribution Liability, unless and until such
Required Consent has been obtained. Pursuant to the Contribution Agreement,
USTNY will agree that if such a Required Consent to transfer is not obtained,
USTNY will reasonably cooperate with New Trustco to attempt to provide to New
Trustco the benefits under or of any such Delayed Asset; provided that New
Trustco will assume, pay and perform (and indemnify and hold USTNY harmless from
and against) all obligations and liabilities relating to such Delayed Asset or
Delayed Liability and will promptly reimburse USTNY for all of its actual costs
and expenses (including attorneys' fees and employee salaries and allocable
benefits, but not overhead) in connection with any such arrangement.
USTNY and New Trustco will agree that, on each occasion after the Closing
Date that a Required Consent is obtained with respect to a Delayed Asset, such
Delayed Asset will be transferred and assigned to New Trustco, and all related
Delayed Liabilities will be simultaneously assumed by New Trustco.
Use of Names
The Contribution Agreement contemplates that after the Closing Date, USTNY
will promptly change the name "USTNY" on all documents, stationery and
facilities relating to the Chase Acquired Business to a name that is not in any
way similar to USTNY's name (or any name or initial confusingly similar to that
of any existing affiliates of New Trustco). Under the Contribution Agreement,
USTNY will transfer to New Trustco all right, title and interest in and to, and
all rights to use, USTNY's name (or any name or initial similar thereto or of
any existing affiliates of USTNY).
Chase Acquired Business Balance Sheet
Because all the consideration for the sale of the Chase Acquired Business
is being paid directly to the UST stockholders in the form of Chase Common
Stock, the Contribution Agreement generally contemplates that the balance sheet
assets of the Chase Acquired Business to be retained by UST after the
Distribution will be equal to the balance sheet liabilities of the Chase
Acquired Business. In order to effectuate this, the Contribution Agreement
provides, subject to certain exceptions, that USTNY will retain, and not
contribute to New Trustco, an amount of cash and short-term U.S. Treasury
securities (valued at the amount that could be realized on their disposition)
expected to exceed by $5.5 million the amount by which the balance sheet
liabilities of the Chase Acquired Business exceed the balance sheet assets of
the Chase Acquired Business. (Such a mechanism is necessary because the deposit
and other liabilities of the Processing Business will significantly exceed the
assets -- which are comprised principally of leasehold improvements, furniture,
equipment and accounts receivable -- of the Processing Business, and since no
investment assets or funds of USTNY are specifically allocated to, or considered
to be assets of, the Processing Business for purposes of the
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Contribution Agreement or Distribution Agreement). The amount of funds and U.S.
Treasury securities to be retained by USTNY is subject to additional adjustments
to compensate for amounts otherwise payable by one party to the other in
connection with the transaction or to compensate for liabilities assumed by
Chase that do not directly relate to the Chase Acquired Business. Similarly, the
amount of funds to be retained by USTNY will be increased to reflect payment
obligations to be retained by USTNY in respect of certain employee plans, the
after-tax cost to Chase of terminating out-of-market computer equipment leases
being acquired in the Merger and certain payments relating to the leasehold
space at 770 Broadway also being acquired by Chase as a consequence of the
Merger.
In order to permit the calculation of the amount of funds and U.S. Treasury
securities to be retained by New Trustco, USTNY will prepare Closing Date
balance sheets for USTNY, MF Service Company and UST-WY. The amounts reflected
therein, to the extent based on estimates or otherwise erroneous, will be
finalized and corrected after the Closing Date, and New Trustco or USTNY will
make any compensating payment to the other party required in connection
therewith.
Conditions of Obligations of New Trustco and USTNY
The Contribution Agreement provides that the respective obligation of each
party to effect the Contribution Asset Transfers is subject to satisfaction or
waiver (which waiver, in the case of USTNY, requires the consent of Chase) prior
to the Closing of the following conditions: (a) all necessary consents or
expirations of waiting periods imposed by any governmental authority shall have
been obtained or shall have occurred; (b) there shall be no suit, action, or
other proceeding pending which has been initiated by any governmental authority
seeking to restrain, prohibit, invalidate or set aside in whole or in part the
consummation of the transactions contemplated by the Contribution Agreement and
no temporary restraining order, preliminary or permanent injunction or other
legal restraint or prohibition preventing the consummation of the transactions
contemplated by the Contribution Agreement shall be in effect; and (c) all
conditions to the consummation of the transactions contemplated by the Merger
Agreement (other than the Asset Transfers (as defined below) and the
Distribution) shall have been satisfied.
Conditions of Obligation of New Trustco
The obligation of New Trustco to accept the Contribution Assets and assume
the Contribution Liabilities is further subject to the following conditions,
unless waived by New Trustco: (a) the representations and warranties of USTNY
set forth in the Contribution Agreement shall be true and correct in all
material respects as of the date of such agreement and as of the Closing as
though made on and as of the Closing (or on or as of the date when made in the
case of any representation or warranty which specifically relates to an earlier
date); (b) USTNY shall have performed or complied in all material respects with
all obligations, conditions and covenants required to be performed or complied
with by it under the Contribution Agreement at or prior to the Closing; (c)
USTNY shall have delivered to New Trustco an appropriate bill of sale conveying
the Contribution Assets; (d) the Merger Agreement and each of the Distribution
Documents shall have been executed and shall, subject to consummation of the
transactions contemplated by the Merger Agreement, the Distribution Agreement
and the Contribution Agreement, be effective and in force; and (e) USTNY shall
have amended its organization certificate to change its name.
Conditions of Obligations of USTNY
The obligations of USTNY to assign the Contribution Assets and transfer the
Contribution Liabilities is further subject to the following conditions, unless
waived by USTNY (with the consent of Chase): (a) the representations and
warranties of New Trustco set forth in the Contribution Agreement shall be true
and correct in all material respects as of the date of such agreement and as of
the Closing Date as though made on and as of the Closing Date (or on or as of
the date when made in the case of any representation or warranty which
specifically relates to an earlier date); (b) New Trustco shall have performed
or complied in all material respects with all obligations required to be
performed or complied with by it under the Contribution Agreement at or prior to
the Closing; (c) New Trustco shall have executed and delivered to USTNY an
Assumption Agreement relating to the Contribution Liabilities; and (d) the
Merger Agreement and each of
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the Distribution Documents shall have been executed and shall, subject to
consummation of the transactions contemplated by the Merger Agreement, the
Distribution Agreement and the Contribution Agreement, be effective and in
force.
TERMS OF THE DISTRIBUTION AGREEMENT
The Distribution Agreement provides for, among other things, (i) the
dividend by USTNY of all the capital stock of New Trustco to UST, and the
subsequent contribution by UST of such capital stock to the Company and (ii) the
Distribution.
In addition, the Distribution Agreement provides for a series of asset and
stock transfers between and among UST, certain of UST's subsidiaries and the
Company, and the assignment to and assumption by the Company of certain
liabilities of UST and certain of its subsidiaries relating to the assets and
stock transferred (the "Distribution Asset Transfers" and, together with the
Contribution Asset Transfers, the "Asset Transfers"). The Distribution Asset
Transfers are designed to transfer the Core Businesses to the Company.
Recapitalization of the Company
The Distribution Agreement provides that immediately prior to the Time of
Distribution, UST will appropriately cause the Company to amend its Certificate
of Incorporation to, among other things, increase the currently authorized
number of shares of common stock of the Company and to exchange the 100 shares
of such common stock currently outstanding for a total number of shares of
Company Common Stock equal to the total number of shares of UST Common Stock
outstanding immediately prior to the Distribution Record Date.
Method of Effecting the Distribution
The Distribution Agreement provides that the Distribution will be effected
by the distribution to each holder of record of UST Common Stock, as of the
close of the stock transfer books on the Distribution Record Date, of
certificates representing one share of Company Common Stock multiplied by the
number of shares of UST Common Stock held by such holder.
Distribution Assets and Distribution Liabilities
Pursuant to the terms of the Distribution Agreement, immediately prior to
the Time of Distribution and immediately following the Contribution Asset
Transfers and the dividend by USTNY of all of the stock of New Trustco to UST,
UST will assign, transfer, convey and contribute, or cause the assignment,
transfer, conveyance and contribution of, the following (collectively, the
"Distribution Assets" and, together with the Contribution Assets, the "Company
Assets") to the Company:
(a) all of the issued and outstanding capital stock of the following
subsidiaries: (i) New Trustco; (ii) U.S. Trust Company of Florida Savings Bank,
a Florida banking corporation; (iii) U.S.T.L.P.O. Corp., a Delaware corporation;
(iv) Campbell, Cowperthwait & Company, a Delaware corporation; (v) U.S. Trust
Company of California, N.A., a national banking association; (vi) U.S. Trust
Company of New Jersey, a New Jersey banking corporation; (vii) U.S. Trust
Company of Connecticut, a Connecticut banking corporation; (viii) UST Financial
Services Corp., a New York trust company; (ix) CTMC Holding Company, an Oregon
corporation; (x) U.S. Trust Company Limited, a New York banking corporation;
(xi) Technologies Holding Corporation, a Delaware corporation; and (xii) UST
Risk Management Services Inc., a New York corporation.
(b)(i) subject to the Retention Amount (as defined under "-- Retention
Amount" below), all cash on hand, investments (subject to certain exceptions)
and securities (subject to certain exceptions) owned by, or held for the account
of, UST; (ii) all patents, trademarks, service marks and the like, and all
rights to the name "U.S. Trust Corporation" or any other name used or employed
by UST or any of its affiliates (other than MF Service Company (as defined
below)); (iii) all equity or debt investments of UST in any corporation or other
business association (other than UST's equity investments in MF Service Company,
a Delaware
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Corporation ("MF Service Company"), USTNY and U.S. Trust Company of Wyoming, a
Wyoming corporation ("UST-WY")); and (iv) all rights relating to the
Distribution Liabilities (as defined below).
(c)(i) all cash on hand, investments and securities owned by, or held for
the account of, MF Service Company; and (ii) all equity or debt investments of
MF Service Company (other than MF Service Company's equity interest in Mutual
Funds Service Company (Canada) Ltd.) in any corporation or other business
association.
(d)(i) all cash on hand, investments and securities owned by, or held for
the account of UST-WY; (ii) all patents, trademarks, service marks and the like
and all rights with respect to the name "U.S. Trust Company of Wyoming" or any
similar name used or employed by UST-WY or any of its affiliates; and (iii) all
equity or debt investments of UST-WY in any corporation or other business
association.
The Distribution Agreement provides that, notwithstanding any other
provision therein to the contrary, the businesses and assets which are a part of
the Core Businesses will not include the business, properties, assets, goodwill
and rights of UST of whatever kind and nature, real or personal, tangible or
intangible that are primarily used or held for use in the Chase Acquired
Business on the Closing Date (other than any names that are Distribution Assets,
and any similar names).
The Distribution Agreement also provides that if, after the Time of
Distribution, either party holds assets which by the terms of the Distribution
Agreement, the Contribution Agreement or the Merger Agreement were intended to
be assigned and transferred to, or retained by, the other party, such party will
promptly assign and transfer or cause to be assigned and transferred such assets
to the other party. The Distribution Agreement further provides that, except as
otherwise provided therein or in the Merger Agreement, the Contribution
Agreement, the Post Closing Covenants Agreement or the Tax Allocation Agreement,
at or prior to the Time of Distribution, the Company will assume, or agree to be
responsible for, all liabilities (the "Distribution Liabilities" and, together
with the Contribution Liabilities, the "Company Liabilities") of UST, MF Service
Company and UST-WY other than (i) the certain specified liabilities of MF
Service Company (the "MF Service Company Retained Liabilities") arising before
the Time of Distribution; (ii) the certain specified liabilities of UST-WY (the
"UST-WY Retained Liabilities") arising before the Time of Distribution and (iii)
the liabilities and obligations relating to the Retention Amount.
Retention Amount
Pursuant to the terms of the Distribution Agreement, and notwithstanding
the Distribution Asset Transfers, UST will retain, and not distribute or
contribute to the Company pursuant to the Distribution Asset Transfers, cash
funds equal to the Retention Amount. The Distribution Agreement defines the
"Retention Amount" as the sum of (w) the aggregate amount, determined as of the
close of business on the day immediately prior to the Closing Date, of the cash
payments required to be made with respect to all stock options granted under the
1989 Stock Compensation Plan of U.S. Trust Corporation and the U.S. Trust
Corporation Stock Option Plan for Non-Employee Directors that have not expired
or that have not been exercised or canceled prior to the Effective Time,
determined in accordance with the relevant provisions of each such plan on the
basis of a "change in control" having occurred thereunder with respect to such
stock options as a result of the Merger; (x) the product of (i) the aggregate
amount, determined as of the close of business on the day immediately prior to
the Closing Date, of the cash payments required to be made with respect to all
outstanding account balances under the Annual Incentive Plan of U.S. Trust
Corporation, determined in accordance with the relevant provisions of such plan
(including any amendment thereof made in accordance with the terms of the Merger
Agreement) on the basis of a "change in control" having occurred thereunder as a
result of the Merger, multiplied by (ii) 0.68875; plus (y) the aggregate amount,
determined as of the close of business on the day immediately prior to the
Closing Date, required to pay any employer payroll taxes, including for
employer's share of FICA and FUTA, due on amounts payable under the plans
referred to in clauses (w) and (x) above; minus (z) the sum of (i) $5.5 million
plus (ii) an amount equal to the amount of MF Service Company's net worth as
reflected on its Closing Date balance sheet plus (iii) an amount equal to the
amount of UST-WY's net worth as reflected on its Closing Date balance sheet.
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Under the Distribution Agreement, UST will retain and be solely responsible
for, and will agree to pay, perform and discharge when due, and indemnify the
Company and hold the Company harmless from and against, all liabilities and
obligations, subject to certain limitations, for amounts payable under each of
the plans referred to in clauses (w) and (x)(i) of the foregoing paragraph, and
all liabilities and obligations to pay all employer payroll taxes referred to in
clause (y) of the foregoing paragraph.
Conditions to the Distribution
The obligations of UST and the Company to consummate the Distribution are
subject to the fulfillment of each of the following conditions: (i) the
recapitalization of the Company shall have been completed substantially as
described in the Distribution Agreement; (ii) each of the Contribution
Agreement, the Post Closing Covenants Agreement and the Tax Allocation Agreement
shall have been executed and delivered by each of the parties thereto, and the
Contribution Asset Transfers shall have been consummated; (iv) all of the
Distribution Asset Transfers shall have been successfully consummated; (v) each
condition to the Closing of the Merger Agreement, other than the condition
requiring the satisfaction of conditions contained in the Distribution
Agreement, shall have been fulfilled; (vi) the Distribution shall have been
approved by the affirmative vote of the holders of UST Common Stock entitled to
cast at least two-thirds (or 66 2/3%) of the total number of votes entitled to
be cast; (vii) any registration statement filed by the Company with the
Commission in connection with the issuance of the Company Common Stock in the
Distribution shall have become effective, and shall not be the subject of any
stop order or proceeding by the Commission seeking a stop order; (viii) the
shares of the Company Common Stock to be issued in the Distribution shall have
designated as a national market system security on the interdealer quotation
system by the National Association of Securities Dealers, Inc. (the "NASD");
(ix) all necessary consents or expirations of waiting periods imposed by any
governmental authority shall have been obtained or shall have occurred; and (x)
no temporary restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Distribution shall be in effect.
Amendment
The Distribution Agreement provides that UST and the Company may modify or
amend the Distribution Agreement by written agreement, subject to the consent of
Chase.
TERMS OF THE POST CLOSING COVENANTS AGREEMENT
Indemnification by the Company
Pursuant to the Post Closing Covenants Agreement, the Company will agree
that, from and after the Effective Time, it will indemnify and hold harmless
Chase, UST and USTNY (collectively, the "Chase Parties") and their respective
directors, officers, employees, affiliates, agents and assigns, as applicable,
against any and all losses, as incurred, for or on account of or arising from:
(a) any breach of or any inaccuracy in any representation or warranty of any of
the Company, New Trustco (collectively, the "New UST Parties"), UST, USTNY and
their subsidiaries contained in the Merger Agreement or any of the Distribution
Documents; (b) any breach or nonperformance of any covenant of (i) the New UST
Parties or any of their subsidiaries contained in the Merger Agreement or the
Distribution Documents whether to be performed before or after the Effective
Time or (ii) UST or USTNY or any of their subsidiaries contained in the
Distribution Documents to be performed prior to the Effective Time; (c) any
Company Asset or Company Liability; (d) any Delayed Asset or Delayed Liability;
(e) any regulatory or compliance violation that arises out of events, actions or
omissions to act of UST or USTNY occurring prior to the Effective Time and
adversely affects a customer account or any entity that has an interest in such
customer account; (f) except for the Chase Liabilities and the MF Service
Company Retained Liabilities, and actions relating to the Processing Business,
claims of any shareholders, directors, officers, employees or agents of UST and
its subsidiaries arising from the execution by UST or USTNY of the Merger
Agreement or the Distribution Documents and the consummation after the Effective
Time of transactions in accordance with the terms of such documents; (g) any
untrue statement or alleged untrue statement of any material fact contained in
the Proxy Statement-
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Prospectus or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; but only in each case to the extent based
upon information with respect to the New UST Parties, furnished in writing by or
on behalf of the New UST Parties, or at any time prior to the Effective Time,
UST or USTNY, expressly for use in the Proxy Statement-Prospectus or any
amendment or supplement thereto; and (h) any liability arising (i) from a claim
to enforce, or to recover tort liability arising out of, any Federal, state or
local law, rule or regulation relating to the protection of the environment with
respect to any facility, site, location or business (whether past or present and
whether active or inactive) owned, operated or leased by UST or USTNY or any of
their subsidiaries prior to the Effective Time and (ii) as a result of
conditions existing during or prior to the period of time such facility, site,
location or business was owned, operated or leased by UST or USTNY or any of
their subsidiaries.
Indemnification by New Trustco
Pursuant to the Post Closing Covenants Agreement, New Trustco will agree
that, from and after the Effective Time, it will indemnify and hold harmless the
Chase Parties and their respective directors, officers, employees, affiliates,
agents and assigns, as applicable, against any and all losses, as incurred, for
or on account of or arising from: (a) any breach of or any inaccuracy in any
representation or warranty of New Trustco or USTNY and their subsidiaries
contained in the Merger Agreement or any of the Distribution Documents; (b) any
breach or nonperformance of any covenant of (i) New Trustco contained in the
Merger Agreement or the Distribution Documents whether to be performed before or
after the Effective Time or (ii) USTNY contained in the Merger Agreement or the
Distribution Documents to be performed prior to the Effective Time; (c) any
Contribution Asset or Contribution Liability; (d) any Delayed Asset or Delayed
Liability; (e) any regulatory or compliance violation that arises out of events,
actions or omissions to act of USTNY occurring prior to the Effective Time and
adversely affects a customer account or any entity with an interest in such
customer account; and (f) any liability arising (i) from a claim to enforce, or
to recover tort liability arising out of, any Federal, state or local law, rule
or regulation relating to the protection of the environment with respect to any
facility, site, location or business (whether past or present and whether active
or inactive) owned, operated or leased by USTNY prior to the Effective Time and
(ii) as a result of conditions existing during or prior to the period of time
such facility, site, location or business was owned, operated or leased by
USTNY.
Indemnification by Chase
Pursuant to the Post Closing Covenants Agreement, Chase will agree that,
from and after the Effective Time, it will indemnify and hold harmless the New
UST Parties and their respective directors, officers, employees, affiliates,
agents, and assigns, as applicable, from any and all losses, as incurred, for or
on account of or arising from: (a) any breach of or inaccuracy in any
representation or warranty of Chase contained in the Merger Agreement or any of
the Distribution Documents; (b) any breach or nonperformance of any covenant of
(i) Chase contained in the Merger Agreement or the Distribution Documents
whether to be performed before or after the Effective Time or (ii) UST or USTNY
or any of their subsidiaries contained in the Distribution Documents to be
performed after the Effective Time; (c) except for losses as to which any of the
Chase Parties are entitled to indemnification, any Chase Asset, any Chase
Liability or any MF Service Company Retained Liability; and (d) any untrue
statement or alleged untrue statement of any material fact contained in the
Proxy Statement-Prospectus or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; but only in each case
to the extent based upon information with respect to the Chase Parties furnished
in writing by or on behalf of Chase or, at any time after the Effective Time,
UST or USTNY, expressly for use in the Proxy Statement-Prospectus or any
amendment or supplement thereto.
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Indemnification by USTNY
Pursuant to the Post Closing Covenants Agreement, USTNY will agree that,
from and after the Effective Time, it will indemnify and hold harmless the New
UST Parties and their respective directors, officers, employees, affiliates,
agents, and assigns, as applicable, from any and all losses, as incurred, for or
on account of or arising from: (a) any breach or nonperformance of any covenant
of USTNY contained in the Merger Agreement or the Distribution Documents to be
performed after the Effective Time; and (b) except for losses as to which any of
the Chase Parties are entitled to indemnification, any Chase Asset or any Chase
Liability.
Termination and Limitation on Indemnification
The Post Closing Covenants Agreement provides that each party's obligation
to indemnify and hold harmless any other party will terminate, subject to
certain limited exceptions, (i) in the case of indemnification with respect to
the breach of any representation and warranty by any party, two years from the
Closing Date and (ii) in the case of indemnification with respect to regulatory
compliance, one year from the Closing Date. The other indemnification provisions
do not terminate.
The Post Closing Covenants Agreement also provides that, notwithstanding
any of its other provisions, neither the New UST Parties nor Chase or USTNY will
be obligated to indemnify any party unless the aggregate amount of all losses
relating to such liability exceeds on a cumulative basis an amount equal to
$500,000 (the "Deductible Amount"), and then only to the extent of any such
excess; provided, that any loss arising from a single indemnification claim in
an amount greater than $50,000 will not be subject to such limitation and will
be excluded from the determination of the Deductible Amount. In addition,
amounts to be indemnified pursuant to certain provisions of the Contribution
Agreement and certain provisions of the Distribution Agreement are not subject
to such limitation.
Minimum Net Worth
Pursuant to the Post Closing Covenants Agreement, the Company will agree
that, until the later of (a) three years from the date thereof or (b) the date
when the applicable statutes of limitations with respect to all Federal income
tax liabilities of UST for periods ending prior to or on the Closing Date have
run, it will (i) as of any date of determination, maintain consolidated
shareholders' equity of not less than the lesser of (x) $150 million and (y) the
greater of (1) 95% of the consolidated shareholders' equity of the Company at
January 1, 1996, and (2) the sum of (A) $135 million plus (B) on and after
January 1, 1997, the product of (I) $7.5 million multiplied by (II) the number
of the most recent preceding anniversary of December 31, 1995, and (ii) be a
"well capitalized" bank holding company within the meaning of the regulations of
the Board of Governors (as in effect on the date of the Post Closing Covenants
Agreement); except that, so long as the Company's Tier 1 capital leverage ratio
is 4.5% or above, the Company will not be deemed to be less than "well
capitalized" solely because its Tier 1 capital leverage ratio is less than 5%;
provided, however, that on or before September 30, 1995, the denominator used in
determining the Company's Tier 1 capital leverage ratio shall be the book value
of the average total consolidated assets (net of the allowance for loan losses)
of the Company following the Distribution.
The Company's Noncompetition Agreement
Pursuant to the Post Closing Covenants Agreement, the Company will agree
that:
(a) Until the fourth anniversary of the Effective Time, neither the Company
nor any subsidiary or affiliate of the Company will (i) in any way, directly or
indirectly, engage in the Restricted Processing Business (as defined below) in
the United States or Canada, or own, manage, operate, control or have an
interest greater than 5% of the voting stock or 25% of the total equity in any
enterprise which engages, directly or indirectly, in the Restricted Processing
Business in the United States or Canada; provided that the Company or any
subsidiary or affiliate of the Company may directly or indirectly acquire a
corporation or other entity or affiliated group of corporations or other
entities that is engaged in the Restricted Processing Business (an "Acquired
Person") so long as during the twelve-month period ending on the last day of the
month immediately preceding the month of such acquisition, revenues earned from
the Restricted Processing
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Business by such Acquired Person constituted no more than 15% of the aggregate
revenues of such Acquired Person, and each Acquired Person will be subject to
the noncompetition provisions of the Post Closing Covenants Agreement only with
respect to customers of such Acquired Person who were not customers on the date
immediately preceding the date such Acquired Person became an affiliate of the
Company; (ii) provide any customer or corporation, trust, foundation, endowment
or similar entity (other than those established and operated exclusively to
manage the assets or affairs of a family (a "Family Office")) having investible
assets of $50 million or more, with any of the following items in connection
with any assets held in custody or safekeeping by Chase or any affiliate, except
as provided in the Services Agreement: (A) securities lending and investment of
related collateral, (B) securities and commodities clearing services or (C)
foreign exchange services; or (iii) provide any customer with any of the
following items in connection with any assets with respect to which Chase or any
affiliate provides Processing Services: (A) cash balance sweep services, (B)
except with respect to assets for which the Company or any subsidiary exercises
investment management for certain customers, certain cash management services or
(C) extensions of credit to investment companies and other commingled investment
funds.
(b) Until the third anniversary of the Effective Time, the Company will not
solicit for employment certain specified employees to be retained by the Chase
Parties. In addition, from and after the Effective Time, neither the Company nor
any of its subsidiaries will disclose or make use of certain confidential
information related to the Processing Business and the Related Back Office.
(c) In the event that there is a direct or indirect Change of Control (as
defined below), the Company and New Trustco will cease to be bound by the
noncompetition provisions of the Post Closing Covenants Agreement, and upon six
months notice by Chase, Chase may treat such Change of Control as a termination
of the Services Agreement by New Trustco and cease providing Restricted
Processing Services under the Services Agreement on or after six months after
the Change of Control.
The following definitions relate to paragraphs (a) through (c) described
above:
"Bundled Services" means the provision of certain administration
services, custody services or trust services as included services, and
without separate charge, together with the exercise of substantial
management discretion over 50% or more of the investible assets in the
account for which such included services are provided.
"Change of Control" means any direct or indirect acquisition of the
Company or New Trustco by any other institution, including without
limitation, a merger of the Company or New Trustco with an unaffiliated
institution (or any affiliate of such institution) having total assets of
$2 billion or more or shareholders' equity of $200 million or more.
"Restricted Processing Business" means the Processing Business;
provided, however, that the term "Restricted Processing Business" shall not
include any services that would, but for this proviso, constitute services
of the "Restricted Processing Business", to the extent such services are
provided in connection with any of the following: (i) certain mutually
agreed upon existing relationships; (ii) assets with respect to which the
Company or any subsidiary or affiliate of the Company exercises investment
management; (iii) individuals, estates, family trusts or Family Offices;
(iv) any corporation, limited liability company, trust, partnership,
foundation or endowment or other entity having, at the time of the
acceptance of the relationship, investible assets of less than $50 million
or, at any time the services are provided other than as Bundled Services,
investible assets of less than $100 million; (v) any collective investment
trust maintained exclusively by New Trustco or another bank or trust
company affiliate; (vi) the corporate trust and agency business of the
Company, New Trustco or any of their affiliates, (vii) subject to clause
(iv) above, the asset and investment management of the Company, New Trustco
or any of their affiliates; (viii) subject to clause (iv) above, the
private banking business of the Company, New Trustco and any of their
affiliates, (ix) any service provided to the Company or a subsidiary or
affiliate of the Company for its own account or (x) any relationship for
which Chase serves as subcustodian to the Company or any subsidiary or
affiliate of the Company (other than pursuant to the Services Agreement).
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TERMS OF THE TAX ALLOCATION AGREEMENT
Prior to the Time of Distribution, Chase, UST and the Company will enter
into a Tax Allocation Agreement which sets forth each party's rights and
obligations with respect to payments and refunds, if any, of Federal, state,
local or foreign taxes for periods before and after the Distribution and related
matters such as the filing of tax returns and the conduct of the claims made by
the Service and other taxing authorities.
In general, under the Tax Allocation Agreement, the Company will be
responsible for taxes imposed on UST or any of its subsidiaries with respect to
a tax period ending on or before the Effective Time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
UST has requested the Private Letter Ruling from the Service substantially
to the effect that, among other things, the Distribution will qualify as
tax-free to UST and its stockholders under Section 355 of the Internal Revenue
Code of 1986, as amended (the "Code") and that the Asset Transfers will not be
taxable transactions. Receipt of the Private Letter Ruling reasonably
satisfactory to each of UST and Chase is a condition to the respective
obligations of UST and Chase to consummate the Merger and it is a condition to
each of the Company's and UST's obligation to consummate the Distribution that
all conditions to the Merger be satisfied. See "The Distribution -- Terms of the
Distribution Agreement -- Conditions to the Distribution". Assuming that the
Private Letter Ruling is received, the following is a summary of the material
Federal income tax consequences of the Distribution:
1. A UST stockholder will not recognize any income, gain or loss as a
result of the Distribution.
2. A UST stockholder will apportion its tax basis for its UST Common
Stock between such UST Common Stock and Company Common Stock received in
the Distribution in proportion to the relative fair market values of such
UST Common Stock and Company Common Stock on the Distribution Date.
3. A UST stockholder's holding period for the Company Common Stock
received in the Distribution will include the period during which such
stockholder held the UST Common Stock with respect to which the
Distribution was made, provided that such UST Common Stock is held as a
capital asset by such stockholder as of the Time of Distribution.
4. No gain or loss will be recognized to UST as a result of the
Distribution.
Current Treasury regulations require each UST stockholder who receives
Company Common Stock pursuant to the Distribution to attach to its federal
income tax return for the year in which the Distribution occurs a detailed
statement setting forth such data as may be appropriate in order to show the
applicability of Section 355 of the Code to the Distribution. UST (or the
Company on its behalf) will convey the appropriate information to each UST
stockholder of record as of the Distribution Record Date.
RELATIONSHIP WITH CHASE
Following the Merger, the Company will continue to have certain
relationships with Chase and its subsidiaries.
POST CLOSING COVENANTS AGREEMENT; TAX ALLOCATION AGREEMENT
In the Post Closing Covenants Agreement and the Tax Allocation Agreement,
Chase, UST and USTNY, on the one hand, and the Company and New Trustco, on the
other hand, will agree to indemnify each other after the Distribution with
respect to certain losses, damages, claims and liabilities arising primarily
from the conduct of the Chase Acquired Business, as well as certain tax
liabilities. See "The Distribution -- Terms of the Post Closing Covenants
Agreement" and "-- Terms of the Tax Allocation Agreement". In addition, the
Company has agreed, pursuant to the Post Closing Covenants Agreement, for a
period of four years after the Effective Time, not to engage in, or compete with
Chase with respect to, the Chase Acquired Business, subject to certain limited
exceptions. See "The Distribution -- Terms of the Post Closing Covenants
Agreement -- The Company's Noncompetition Agreement".
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SERVICES AGREEMENT
In the Merger, Chase will acquire the Related Back Office, which includes
software and hardware necessary to conduct the Chase Acquired Business. Certain
core software, principally software to operate the Asset Management System, will
be transferred to New Trustco and licensed by New Trustco to USTNY on a
perpetual nonexclusive basis. Although the Related Back Office primarily serves
the Processing Business, it also provides necessary services to the Core
Businesses, all of which will be transferred to New Trustco and its affiliates
pursuant to the Contribution Agreement. Accordingly, prior to the Time of
Distribution, New Trustco and USTNY will enter into the Services Agreement.
Pursuant to the Services Agreement, USTNY will agree to furnish necessary
securities processing, custodial, data processing and other services (the "Back
Office Services") to New Trustco and its affiliates. The Services Agreement will
be in a form, and on terms, agreed to by UST and Chase on or before February 28,
1995, substantially in accordance with the terms of the Services Agreement Term
Sheet entered into on November 18, 1994, between UST and Chase. Following the
Merger, USTNY will be merged (the "Bank Merger") with and into The Chase
Manhattan Bank (National Association) ("CMB"). In the Bank Merger, CMB will
acquire the rights, and assume the obligations, of USTNY under the Services
Agreement.
The parties intend that the Back Office Services furnished to New Trustco
and its affiliates under the Services Agreement will include all of the
functions that are currently performed by the Related Back Office, as well as
certain bank processing services, such as loan processing services, deposit and
check processing services (the "Bank Processing Services"). The Back Office
Services may be modified to reflect reasonable evolution or change in the
business of New Trustco and its affiliates. The Back Office Services will not
include any broker dealer services, securities industry banking services or
back-up servicing.
Under the Services Agreement, CMB will provide the Back Office Services to
New Trustco for an initial term of five years beginning on the Closing Date.
With CMB's consent (which CMB may withhold in its sole discretion), New Trustco
may extend the initial term of the Services Agreement for an additional five
years. If CMB withholds such consent, New Trustco may in any case extend the
term of the Services Agreement for an additional two years.
In consideration of the Back Office Services provided to it under the
Services Agreement, during the initial term, New Trustco will pay to CMB an
annual base fee of $10 million, which is significantly less than New Trustco's
estimate of the annual cost of providing such services itself. The annual base
fee for any additional term after the initial term will be an amount equal to
110% of the total fees paid by New Trustco in the fifth year of the initial
term.
The annual base fee will cover all Back Office Services required by normal
growth of New Trustco and its affiliates, and will include, as well, certain
base levels of systems development and maintenance resources. CMB will charge
New Trustco at rates discounted from CMB's prevailing rates for similar
institutional business for any incremental Back Office Services attributable to
additional growth, evolution in the business of New Trustco and its affiliates,
and certain other new business.
CMB may assign the Bank Processing Services or other data center services
provided under the Services Agreement to a third party, without New Trustco's
consent, provided the third party will also be providing such services to CMB.
CMB may not assign the remaining services to a third party, although it may sell
or transfer responsibility for the Back Office Services together with the sale
or transfer of the Chase business unit providing such Back Office Services. New
Trustco will not have the right to assign the Services Agreement without CMB's
consent.
Either party may terminate the Services Agreement upon a material breach by
the other which has not been cured within 30 days after the expiration of a
15-day informal dispute resolution process initiated by the nonbreaching party.
Either party may terminate in the event that the other party becomes insolvent
or bankrupt or undergoes a change of control.
New Trustco may terminate the Services Agreement for any reason effective
after the end of the first year by giving six months' advance notice. In the
event of such a termination, New Trustco will pay CMB a
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<PAGE> 238
termination fee of $2.5 million dollars, which fee will be reduced incrementally
over the term of the Services Agreement.
In the event of any termination or expiration of the Services Agreement
(including termination due to any material breach of New Trustco), the Services
Agreement will obligate CMB to provide for up to one year (six months in the
case of a change in control) after the termination or expiration, in
consideration of fees in amounts to be negotiated, reasonably requested
termination assistance to facilitate a smooth transition of the responsibility
for the performance of the Back Office Services to New Trustco or its designee.
LISTING AND TRADING OF COMPANY COMMON STOCK
There is no existing trading market for the Company Common Stock and there
can be no assurance as to the establishment or continuity of any such market.
The Company expects to apply for listing of the Company Common Stock on the
National Market System. It is a condition to each of the Company's and UST's
obligation to consummate the Distribution that the Company Common Stock shall
have been designated as a security on the National Market System by the NASD, or
listed on the New York or American Stock Exchange subject to official notice of
issuance. See "The Distribution -- Terms of the Distribution
Agreement -- Conditions to the Distribution". However, there can be no assurance
as to the price at which the Company Common Stock will trade or that such price
will not be significantly below the book value per share of the Company Common
Stock.
The Company Common Stock received by UST stockholders pursuant to the
Distribution will be freely transferable under the Securities Act, except for
shares of such Company Common Stock received by any person who may be deemed an
"affiliate" of the Company within the meaning of Rule 145 under the Securities
Act. Persons who may be deemed to be affiliates of the Company after the
Distribution generally include individuals or entities that control, are
controlled by, or are under common control with, the Company, and may include
the directors and principal executive officers of the Company as well as any
principal stockholder of the Company. Persons who are affiliates of the Company
will be permitted to sell their Company Common Stock received pursuant to the
Distribution only pursuant to an effective registration statement under the
Securities Act or pursuant to an exemption from registration, such as the
exemptions afforded by Section 4(2) of the Securities Act and Rule 144
thereunder.
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CAPITALIZATION
The following table sets forth, as of September 30, 1994, the combined
historical capitalization of the Company and its combined capital, as adjusted
to reflect the disposition of the Chase Acquired Business pursuant to the
Distribution and the Merger (the "Disposition") and the other related
restructuring transactions. For financial reporting purposes, the Company is a
"successor registrant" to UST and, as a result, the historical financial
information of the Company set forth below and included elsewhere in this
Information Statement is the historical financial information of UST. This
information should be read in conjunction with the Selected Financial Data and
Pro Forma Condensed Financial Statements included elsewhere in this Information
Statement.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
-------------------------------------------------------
DISPOSITION OTHER COMPANY
HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA
---------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Deposits..................................... $2,383,209 $ (681,250) $ 0 $1,701,959
========= ========= ========= =========
Short-Term Borrowings........................ $1,187,958 $ (824,966) $ 66,852 $ 429,844
========= ========= ========= =========
Long-Term Debt............................... $ 62,574 -- $ (42,403) $ 20,171
========= ========= ========= =========
Stockholders' Equity
Common Stock -- $1.00 Par Value.............. $ 11,512 -- $ (1,890) $ 9,622
Capital Surplus.............................. 70,190 -- (70,190) 0
Retained Earnings............................ 264,806 -- (93,161) 171,645
Treasury Stock at Cost....................... (85,895) -- 85,895 0
Loan to ESOP................................. (16,171) -- -- (16,171)
Unrealized Gain (Loss), Net of Taxes, on
Securities Available for Sale.............. (4,805) -- 4,805 0
---------- ----------- ----------- ----------
Total Stockholders' Equity................... $ 239,637 $ -- $ (74,541) $ 165,096
========= ========= ========= =========
</TABLE>
- ---------------
See "Notes to Pro Forma Condensed Financial Statements" on pages 37 through 40.
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PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed statement of condition as of
September 30, 1994, unaudited pro forma condensed statements of income for the
year ended December 31, 1993 and the nine-month period ended September 30, 1994,
and unaudited pro forma condensed statement of average balances for the
nine-month period ended September 30, 1994 (collectively, the "Pro Forma
Statements"), were prepared to present the estimated effects of the disposition
of the Chase Acquired Business, related restructuring transactions and the
effect of the Services Agreement as if such transactions had occurred for
statement of condition purposes as of September 30, 1994 and for statement of
income purposes as of January 1, 1993.
The "Disposition Adjustments" column in each of the Pro Forma Statements
includes the following:
- the reduction in assets, liabilities and the elimination from
operations of the revenue and expenses related to the disposition of
the Chase Acquired Business, and
- the reduction in Securities and Short-Term Investments and
Short-Term Borrowings arising from the Company's rebalancing of its
asset and liability structure.
The "Other Adjustments" column in each of the Pro Forma Statements includes
the following:
- the balance sheet impact of the nonrecurring adjustments as set
forth in footnote (1) of the Notes to Pro Forma Condensed Financial
Statements, and
- the ongoing impact on the Company's results of operations arising
from the nonrecurring adjustments and the Services Agreement.
All of the pro forma adjustments are based upon available information and
upon certain assumptions that the Company believes are appropriate and include
only "exit costs" as defined in Emerging Issues Task Force Issue 94-3 ("EITF
94-3") that are directly related to the transactions. The information is not
intended to be indicative of the Company's actual results had the transactions
occurred as of the dates indicated above nor do they purport to indicate results
which may be attained in the future.
The Pro Forma Statements and accompanying notes should be read in
conjunction with the historical financial statements and other financial
information relating to UST. For financial reporting purposes, the Company will
be a "successor registrant" to UST and, as a result, the historical financial
information set forth in the Pro Forma Statements is the historical financial
information of UST.
The Distribution will be accounted for by the Company as if UST had
continued in existence, with the carrying amounts of the assets and liabilities
being distributed being accounted for in accordance with generally accepted
accounting principles at their historical values.
H-32
<PAGE> 241
PRO FORMA CONDENSED STATEMENT OF CONDITION
SEPTEMBER 30, 1994
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMPANY
BEFORE
DISPOSITION OTHER OTHER COMPANY
HISTORICAL ADJUSTMENTS(A) ADJUSTMENTS ADJUSTMENTS PRO FORMA(l)
---------- -------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and Cash
Equivalents............. $ 439,819 $ (282,852) $ 156,967 $ (42,545) (b) $ 114,422
Securities................ 1,731,890 (997,945) 733,945 -- 733,945
Net Loans, After Allowance
for Credit Losses....... 1,555,191 (164,448) 1,390,743 -- 1,390,743
Other Assets.............. 291,631 (74,927) 216,704 53,906 (c) 270,610
---------- -------------- ----------- ----------- ------------
Total Assets.............. $4,018,531 $ (1,520,172) $ 2,498,359 $ 11,361 $2,509,720
========= =========== ========= ========= ==========
LIABILITIES
Deposits.................. $2,383,209 $ (681,250) $ 1,701,959 $ -- $1,701,959
Short-Term Borrowings..... 1,187,958 (824,966) 362,992 66,852 (d) 429,844
Accounts Payable and
Accrued Liabilities..... 145,153 (13,956) 131,197 61,453 (e) 192,650
Long-Term Debt............ 62,574 -- 62,574 (42,403)(f) 20,171
---------- -------------- ----------- ----------- ------------
Total Liabilities......... 3,778,894 (1,520,172) 2,258,722 85,902 2,344,624
---------- -------------- ----------- ----------- ------------
STOCKHOLDERS' EQUITY
Common Stock -- $1.00 Par
Value................... 11,512 -- 11,512 (1,890)(g) 9,622
Capital Surplus........... 70,190 -- 70,190 (70,190)(h) 0
Retained Earnings......... 264,806 -- 264,806 (93,161)(i) 171,645
Treasury Stock at Cost.... (85,895) -- (85,895) 85,895 (j) 0
Loan to ESOP.............. (16,171) -- (16,171) -- (16,171)
Unrealized Gain (Loss),
Net of Taxes, on
Securities Available for
Sale.................... (4,805) -- (4,805) 4,805 (k) 0
---------- -------------- ----------- ----------- ------------
Total Stockholders'
Equity.................. 239,637 -- 239,637 (74,541) 165,096
---------- -------------- ----------- ----------- ------------
Total Liabilities and
Stockholders' Equity.... $4,018,531 $ (1,520,172) $ 2,498,359 $ 11,361 $2,509,720
========= =========== ========= ========= ==========
CAPITAL RATIOS
As a Percentage of Risk-Adjusted
Period End Total Assets:
Tier 1 Capital....................................................................... 11.56%
Total Capital........................................................................ 12.64%
Tier 1 Leverage........................................................................... 6.36%
</TABLE>
H-33
<PAGE> 242
PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
REVERSAL
OF BACK COMPANY
OFFICE & BEFORE
DISPOSITION CORPORATE OTHER OTHER COMPANY
HISTORICAL ADJUSTMENTS(M) STAFF(N) ADJUSTMENTS ADJUSTMENTS PRO FORMA(1)
---------- -------------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income....... $ 116,242 $ (53,399) $ -- $ 62,843 $ -- $ 62,843
Provision for Credit
Losses.................. 4,000 -- -- 4,000 -- 4,000
---------- -------------- --------- ----------- ----------- ------------
Net Interest Income After
Provision for Credit
Losses.................. 112,242 (53,399) -- 58,843 -- 58,843
Fees...................... 264,075 (92,938) -- 171,137 -- 171,137
Other Income.............. 11,888 (5,053) -- 6,835 (2,800)(o) 4,035
---------- -------------- --------- ----------- ----------- ------------
Total Revenue............. 388,205 (151,390) -- 236,815 (2,800) 234,015
---------- -------------- --------- ----------- ----------- ------------
Operating Expenses
Salaries and Benefits..... 189,153 (61,855) 19,125 146,423 (36,604)(p) 109,819
Net Occupancy............. 40,035 (9,360) 4,143 34,818 (6,066)(p) 28,752
Other..................... 86,332 (38,915) 23,003 70,420 (11,610)(p) 58,810
---------- -------------- --------- ----------- ----------- ------------
Total Operating
Expenses................ 315,520 (110,130) 46,271 251,661 (54,280) 197,381
---------- -------------- --------- ----------- ----------- ------------
Income Before Income Tax
Expense................. 72,685 (41,260) (46,271) (14,846) 51,480 36,634
Income Tax Expense(q)..... 30,418 (18,567) (20,822) (8,971) 23,166 14,195
---------- -------------- --------- ----------- ----------- ------------
Net Income................ $ 42,267 $ (22,693) $ (25,449) $ (5,875) $ 28,314 $ 22,439
========= ========== ======== ======== ======== ==========
Net Income Per Share:(r)
Primary................. $ 4.26 $ 2.22
========= ==========
Average Shares
Outstanding:
Primary................. 9,968,033 10,253,000
========= ==========
</TABLE>
H-34
<PAGE> 243
PRO FORMA CONDENSED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
REVERSAL
OF BACK COMPANY
OFFICE & BEFORE COMPANY
DISPOSITION CORPORATE OTHER OTHER PRO
HISTORICAL ADJUSTMENTS(M) STAFF(N) ADJUSTMENTS ADJUSTMENTS FORMA(1)
---------- -------------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income....... $ 82,391 $ (32,579) $ -- $ 49,812 $ -- $ 49,812
Provision for Credit
Losses.................. 1,500 -- -- 1,500 -- 1,500
---------- -------------- --------- ----------- ----------- ----------
Net Interest Income After
Provision for Credit
Losses.................. 80,891 (32,579) -- 48,312 -- 48,312
Fees...................... 219,965 (76,931) -- 143,034 -- 143,034
Other Income.............. 9,720 (4,406) -- 5,314 (1,394)(o) 3,920
---------- -------------- --------- ----------- ----------- ----------
Total Revenue............. 310,576 (113,916) -- 196,660 (1,394) 195,266
---------- -------------- --------- ----------- ----------- ----------
Operating Expenses
Salaries and Benefits..... 153,080 (50,439) 14,646 117,287 (27,568)(p) 89,719
Net Occupancy............. 29,445 (7,519) 3,071 24,997 (3,601)(p) 21,396
Other..................... 65,097 (27,861) 16,072 53,308 (5,512)(p) 47,796
---------- -------------- --------- ----------- ----------- ----------
Total Operating
Expenses................ 247,622 (85,819) 33,789 195,592 (36,681) 158,911
---------- -------------- --------- ----------- ----------- ----------
Income Before Income Tax
Expense................. 62,954 (28,097) (33,789) 1,068 35,287 36,355
Income Tax Expense(q)..... 26,441 (12,644) (15,205) (1,408) 15,879 14,471
---------- -------------- --------- ----------- ----------- ----------
Net Income................ $ 36,513 $ (15,453) $ (18,584) $ 2,476 $ 19,408 $ 21,884
========= ========== ======== ======== ======== ==========
Net Income Per Share:(r)
Primary................. $ 3.69 $ 2.15
========= ==========
Average Shares
Outstanding:
Primary................. 9,964,307 10,284,000
========= ==========
</TABLE>
H-35
<PAGE> 244
PRO FORMA CONDENSED STATEMENT OF AVERAGE BALANCES
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DISPOSITION ADJUSTMENTS
---------------------------
CHASE ASSET-
ACQUIRED LIABILITY OTHER COMPANY
HISTORICAL BUSINESS REBALANCING ADJUSTMENTS(T) PRO FORMA
---------- ----------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and Cash
Equivalents.............. $ 344,565 $ (152,994) $ -- $(42,545) $ 149,026
Securities and Short-Term
Investments.............. 1,978,198 (826,813) (425,000) -- 726,385
Net Loans, After Allowance
for Credit Losses........ 1,260,793 1,260,793
Other Assets............... 452,058 (172,658)(s) -- 53,906 333,306
---------- ----------- ----------- -------------- ----------
Total Assets............... $4,035,614 $(1,152,465) $ (425,000) $ 11,361 $2,469,510
========= ========== ========= =========== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits................... $2,985,188 $(1,117,465) $ -- $-- $1,867,723
Short-Term Borrowings...... 591,500 -- (425,000) 66,852 233,352
Accounts Payable and
Accrued Liabilities...... 168,846 (35,000) -- 61,453 195,299
Long-Term Debt............. 62,861 -- -- (42,403) 20,458
Stockholders' Equity....... 227,219 -- -- (74,541) 152,678
---------- ----------- ----------- -------------- ----------
Total Liabilities and
Stockholders' Equity..... $4,035,614 $(1,152,465) $ (425,000) $ 11,361 $2,469,510
========= ========== ========= =========== =========
</TABLE>
H-36
<PAGE> 245
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(a) Disposition Adjustments (Pro Forma Condensed Statement of
Condition) -- The Disposition Adjustments presented in the Pro Forma Condensed
Statement of Condition reflect both the disposition of the Chase Acquired
Business and the rebalancing of the Company's overall asset and liability
structure as a result of the Merger and related restructuring. See "The
Merger -- Terms of the Contribution Agreement" and "-- Terms of the Distribution
Agreement". The Pro Forma Condensed Statement of Average Balances presents the
Company's daily average balance sheet for the nine-month period ended September
30, 1994 adjusted for the Merger, including the rebalancing of the Company's
asset and liability structure and the Other Adjustments.
During the nine-month period ended September 30, 1994, the Chase Acquired
Business generated average non-interest bearing deposits of approximately $1,117
million. Investable Deposits, defined as total average non-interest bearing
deposits less average cash items in the process of collection and average
overdrafts, were approximately $827 million during the nine-month period ended
September 30, 1994. The predictability of the Investable Deposits provided UST
with a long- and medium-term funding source. UST employed a substantial portion
of the Investable Deposits to finance its long-term financial assets, including
approximately $425 million of investment securities, principally U.S. Government
Agency Securities ("Agency Securities"), classified as held to maturity.
Following the execution of the Merger Agreement, the Investable Deposits ceased
to be a long-term source of financing available to UST since they would be
included in the Chase Acquired Business. Accordingly, in anticipation of the
closing of the Merger and the effective transfer of the Chase Acquired Business
to Chase, UST sold approximately $800 million of long- and medium-term U.S.
Government Treasury Securities ("Treasury Securities") and Agency Securities.
The proceeds of such sale will be included in the Chase Acquired Business. (See
note (m)).
(b) Cash and Cash Equivalents -- The $42.5 million adjustment is comprised
of the estimated payments of investment banking, legal, accounting, consulting
and printing professional fees ($12,000,000 -- determined based upon actual
invoices and estimates supplied by the various vendors), the estimated amount of
payments necessary to cash-out holders of outstanding stock options
($39,045,000), and the estimated amount of cash to be received from the exercise
of certain incentive stock options ($8,500,000 -- assumes the exercise of
approximately 236,000 incentive stock options at an average exercise price of
$36.00 per option).
(c) Other Assets -- The $53.9 million increase in Other Assets reflects (i)
certain tax benefits resulting from the Disposition Adjustments and the Other
Adjustments ($66,353,000, reduced by $4,125,000 related to the reversal of
deferred tax benefits previously recorded attributable to the fair value
adjustment for securities available for sale) and (ii) the write-off of the net
book value of premises and equipment ($3,798,000) and computer software
($4,524,000) related to the termination of various leases.
(d) Short-Term Borrowings -- The $66.9 million increase in short-term
borrowings reflects the borrowings required to replace accrued interest and
long-term debt (see notes (e) and (f)), and to replace the shortfall resulting
from the loss incurred on the sale of securities held to maturity.
(e) Accounts Payable and Accrued Liabilities -- The $61.5 million increase
in accounts payable and accrued liabilities includes estimated severance costs
($21,100,000), the estimated present value (discounted at 8%) of the cost of
terminating leases at discontinued locations ($8,202,000), the estimated cost of
terminating computer hardware leases, software licenses and contracts
($28,462,000), the estimated cost of terminating certain incentive compensation
plans ($5,100,000) and an amount to record the reversal in accrued interest
payable related to the redemption and satisfaction and discharge of certain
issues of long-term debt ($1,411,000). The estimated severance costs consist of
$12,700,000 of cash severance payments and the impact of curtailment gains,
enhanced pension credits and cost of living adjustments with respect to the
Company's defined benefit pension and post-retirement benefit plans for
specifically identified employees and $8,400,000 of payments of transition
bonuses to certain UST employees associated with the Chase Acquired Business.
(f) Long-Term Debt -- The $42.4 million reduction in long-term debt
reflects the redemption of the USTNY 8 1/2% Capital Notes Due 2001 and the
satisfaction and discharge of the UST 8% Notes Due 1996.
H-37
<PAGE> 246
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
The cost of redeeming and defeasing this long-term debt is insignificant to the
Company's pro forma results of operations.
(g) Common Stock -- The $1,890,000 decrease in Company Common Stock
reflects the retirement of treasury stock ($2,126,000) offset by the aggregate
par value amount of the shares to be issued pursuant to the exercise of an
estimated 236,000 incentive stock options at an estimated average exercise price
of $36.00 per share ($236,000).
(h) Capital Surplus -- The $70.2 million adjustment reflects the retirement
of treasury stock ($78,454,000) offset, in part, by the amount of cash proceeds
in excess of the par value received in connection with the expected exercise of
236,000 incentive stock options ($8,264,000).
(i) Retained Earnings -- The $93.2 million adjustment reflects the
after-tax impact of the nonrecurring adjustments presented in note (l) below
($87,846,000) and the amount by which the book value of treasury stock retired
exceeds capital surplus ($5,315,000).
(j) Treasury Stock at Cost -- The adjustment of $85.9 million reflects the
retirement of treasury stock.
(k) Unrealized Gain (Loss), Net of Taxes, on Securities Available for
Sale -- The adjustment of $4.8 million ($8.9 million before taxes) reflects the
reversal of unrealized losses on securities available for sale that were
realized upon the sale of such securities.
(l) The Pro Forma Statements of Income exclude the following material
nonrecurring adjustments directly related to the transaction which are expected
to be incurred prior to or as a result of the consummation of the Merger.
However, the Pro Forma Statements of Income do include the effect of such
adjustments on the operations of the Company. The Merger is expected to occur
within the next twelve months.
<TABLE>
<CAPTION>
(MILLIONS)
----------
<S> <C>
Loss on sale of securities held to maturity (see note (d))................ $ 23.0
Loss on sale of securities available for sale (see note (k)).............. 8.9
Severance, post-retirement benefits and related costs (see note (e))...... 21.1
Professional fees (see note (b)).......................................... 12.0
Cost of terminating leases for premises (see notes (c) and (e))........... 12.0
Cost of terminating computer hardware leases, computer software licenses,
contracts and capitalized software (see notes (c) and (e)).............. 33.0
Cost of incentive compensation plans that are being terminated (see note
(e)).................................................................... 5.1
Payout for stock options (see note (b))................................... 39.1
----------
154.2
Applicable tax benefit.................................................... 66.4
----------
Total..................................................................... $ 87.8
========
</TABLE>
In conjunction with the announcement of the Distribution and the Merger,
the Company disclosed that it may incur up to $110 million of restructuring
charges on an after-tax basis in connection with the Distribution and the
Merger. The difference between the $110 million and the charges described above
represents charges that do not presently meet the definition of "exit costs" as
defined by EITF 94-3 and the loss on the sale of securities as described below.
The pro forma adjustments for the loss on the sale of securities ($31.9
million loss before taxes, $16.8 million after taxes) are based upon the market
values of the securities on September 30, 1994. The $110 million of
restructuring charges include an estimated loss for the sale of securities based
upon market values as of the date that the Merger Agreement was announced
(November 18, 1994). The actual loss on the sale of securities, $44.2 million
before taxes, $23.3 million after taxes, was realized between November 21, 1994
and December 9, 1994.
H-38
<PAGE> 247
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
While the amounts set forth above represent the Company's best estimate of
the restructuring costs that will be incurred, the ultimate level of such
charges will not be precisely determinable until the Closing Date. The cost of
terminating computer hardware leases takes into consideration the estimated
residual value of the equipment when it is returned to the lessor. Such residual
values could be severely impacted and the cost of terminating the leases
increased if the manufacturer releases upgraded versions of the equipment prior
to the lease termination date.
The Company continues to review its staffing requirements. This review will
be completed by the Closing Date and may result in lower staffing levels.
Accordingly, the cost of severance and related benefits may range from the above
listed $21.1 million to approximately $24.0 million.
The payout for stock options is based upon various assumptions, including
the Determined Value (as defined under "Effect of Transactions on UST Employees
and UST Benefit Plans -- Retained Plans" in the Proxy Statement-Prospectus to
which this Information Statement is attached as Appendix H) of the shares of UST
Common Stock, the number of stock options that are outstanding as of the Closing
Date and the average exercise price of such outstanding options. As a result,
the actual amount of the cash payment to be made in respect of stock options
will not be determinable until the Closing Date.
Pursuant to the Post Closing Covenants Agreement, the Company has agreed to
maintain a minimum net worth for four years following the Distribution. See "The
Distribution -- Terms of the Post Closing Covenants Agreement -- Minimum Net
Worth". After giving effect to the charges set forth in this note (l), the
Company believes that its initial annual dividend will be $1.00 per share. See
"Special Factors -- Dividends and Dividend Policy".
(m) Disposition Adjustments (Pro Forma Condensed Statement of
Income) -- The Disposition Adjustments reflect the disposition of the Chase
Acquired Business pursuant to the Distribution and the Merger. The Disposition
Adjustments include the revenues and expenses of the Chase Acquired Business as
allocated in accordance with the allocation methodologies utilized by the
Company's internal management reporting system. The amount of net interest
income is based upon the average Investable Deposits multiplied by an
appropriate interest rate. The rate is based upon the rates earned by the
Company's long- and short-term securities. The rates were 5.44% for the
nine-month period ended September 30, 1994, and 5.39% for the year ended
December 31, 1993.
While the average Investable Deposits for the nine-month period were
approximately $827 million, the Investable Deposits are subject to seasonal
fluctuation. Historically, Investable Deposits are higher in the first and third
quarters than in the second and fourth quarters. The Average Investable Deposits
for the first and third quarters of 1994 were $1,119 million and $833 million,
respectively. The Investable Deposits for the second quarter of 1994 were $555
million. During 1993, Investable Deposits for the first and third quarters were
$1,096 million and $1,227 million, respectively, compared with $783 million and
$845 million, for the respective second and fourth quarters of 1993. As a result
of the Investable Deposits' seasonality, the Chase Acquired Business' relative
contribution of net interest income to UST is significantly greater during the
first and third quarters than in the second and fourth quarters. The disposition
of the Chase Acquired Business substantially eliminates the seasonal
fluctuations in the Company's net interest income.
Fees and Other Income represent amounts earned by the Chase Acquired
Business. In addition, fees earned by the Company's asset management business
from customers of the Chase Acquired Business are included in Fees and Other
Income, which fees are expected to be earned by Chase following the Distribution
and the Merger. Expenses reflect direct costs incurred and allocations of other
costs in accordance with the Company's internal management reporting system.
(n) Back Office and Corporate Staff -- The $46.3 million and $33.8 million
of back office and corporate staff charges for the year ended December 31, 1993,
and nine months ended September 30, 1994, respectively, are derived from the
Company's internal management accounting system and represent the amounts
allocated to the Chase Acquired Business for services provided. Back office
support costs include securities processing
H-39
<PAGE> 248
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
and custody, check clearance and computer services processing and support and
corporate staff cost allocations include financial, personnel, legal and general
services support functions. Such back office support costs have been added to
the expenses of the Company Before Other Adjustments because such costs were not
eliminated in connection with the disposition of the Chase Acquired Business.
The estimated downsizing of the corporate staff and the impact of the Services
Agreement are reflected in the Other Adjustments.
(o) Other Income -- Reflects the elimination of certain revenues generated
from computer processing activities conducted for third parties which will no
longer be provided following the Distribution and the Merger.
(p) Salaries and Benefits, Net Occupancy and Other Expenses -- Reflects the
reduction of personnel, net occupancy costs and other expenses, as indicated,
resulting from the Distribution and the Merger, the downsizing of the Company's
corporate staff and the Services Agreement.
(q) Income Taxes -- Income taxes reflected in the Pro Forma Statements of
Income are recorded at the statutory Federal tax rate of 35%, adjusted for the
impact of state and local taxes and nondeductible items. The resulting effective
tax rate for the Company was approximately 39% in both periods presented.
Taxes have been calculated on the "Other Adjustments" in the Pro Forma
Statement of Condition at the statutory Federal tax rate of 35%, adjusted for
state and local taxes and nondeductible items. The resulting effective tax rate
was approximately 43%. The Company anticipates realizing these tax benefits in
the periods in which the adjustments are reported on the Company's tax returns.
(r) Pro Forma Net Income Per Share -- Net income per share has been
calculated on a basis consistent with the Company's past practices and was
determined by dividing "Net Income -- Company Pro Forma" by the estimated fully
diluted average shares outstanding for each period. Estimated fully diluted
average shares outstanding include the actual average shares outstanding for
each of the periods, the assumed exercise of approximately 236,000 stock options
and the dilutive effects of approximately 675,000 phantom shares granted under
the Transferred Plans. Dividends paid on phantom shares have been added back to
net income on an after-tax basis for this calculation.
(s) For the purposes of determining the Pro Forma Condensed Statement of
Average Balances, the Chase Acquired Business average overdrafts are included in
Other Assets.
(t) For the purposes of determining the Pro Forma Condensed Statement of
Average Balances, all Other Adjustments are assumed to have occurred as of
January 1, 1994.
H-40
<PAGE> 249
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company for
each of the five fiscal years through the period ended December 31, 1993 and for
the nine months ended September 30, 1994 and 1993. The information has been
derived from the audited financial statements and the unaudited financial
statements of the Company. For financial reporting purposes, the Company is a
"successor registrant" to UST and as a result, the historical financial
information of the Company set forth below and elsewhere in this Information
Statement is the historical financial information of UST. The selected financial
data of the Company for the nine-month periods ended September 30, 1994 and
1993, in management's opinion, includes all adjustments, consisting of only
normal recurring accruals, necessary for a fair presentation of financial
position and the results of operations of the Company for the unaudited interim
periods. Historical financial information may not be indicative of the Company's
performance following the Distribution. The selected financial data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" which follows this section.
The results for the nine-month period ended September 30, 1994 are not
necessarily indicative of the results to be expected for 1994. See the Pro Forma
Condensed Statements of Income included elsewhere herein for per share data
presented on a pro forma basis, adjusted to reflect the Distribution and the
Merger.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Fiduciary and Other Fees..................... $ 220.0 $ 193.7 $ 264.1 $ 235.8 $ 204.9 $ 184.2 $ 177.8
Net Interest Income.......................... 82.4 88.6 116.2 108.9 96.1 89.4 83.3
Provision for Credit Losses.................. (1.5) (3.5) (4.0) (6.0) (6.0) (8.4) (1.6)
Other Income................................. 9.7 6.5 11.9 9.7 8.7 13.0 16.6
-------- -------- -------- -------- -------- -------- --------
Total Operating Income Net of Interest
Expense and Provision for Credit Losses.... 310.6 285.3 388.2 348.4 303.7 278.2 276.1
Total Operating Expenses..................... 247.6 227.8 315.5 289.5 254.9 259.7 232.9
-------- -------- -------- -------- -------- -------- --------
Income from Operations Before Income Tax
Expense and Cumulative Effect of Accounting
Changes.................................... 63.0 57.5 72.7 58.9 48.8 18.5 43.2
Income Tax Expense........................... 26.5 24.4 30.4 22.4 17.4 6.8 12.5
-------- -------- -------- -------- -------- -------- --------
Income from Operations Before Cumulative
Effect of Accounting Changes............... 36.5 33.1 42.3 36.5 31.4 11.7 30.7
Cumulative Effect of Changes in Accounting
for Postretirement Benefits and Income
Taxes...................................... -- -- -- (7.8) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Income................................... $ 36.5 $ 33.1 $ 42.3 $ 28.8 $ 31.4 $ 11.7 $ 30.7
-------- -------- -------- -------- -------- -------- --------
Per Common Share:
Primary:
Income From Operations Before Cumulative
Effect of Accounting Changes............. $ 3.69 $ 3.35 $ 4.26 $ 3.76 $ 3.32 $ 1.24 $ 3.08
Cumulative Effect of Changes in Accounting
for Postretirement Benefits and Income
Taxes.................................... -- -- -- (.80) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Income................................. $ 3.69 $ 3.35 $ 4.26 $ 2.96 $ 3.32 $ 1.24 $ 3.08
-------- -------- -------- -------- -------- -------- --------
Fully Diluted:
Income From Operations Before Cumulative
Effect of Accounting Changes............. $ 3.68 $ 3.34 $ 4.25 $ 3.74 $ 3.27 $ 1.23 $ 3.07
Cumulative Effect of Changes in Accounting
for Postretirement Benefits and Income
Taxes.................................... -- -- -- (.80) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Income................................. $ 3.68 $ 3.34 $ 4.25 $ 2.94 $ 3.27 $ 1.23 $ 3.07
-------- -------- -------- -------- -------- -------- --------
Cash Dividends Declared Per Share............ 1.50 1.41 1.88 1.72 1.60 1.60 1.52
At Period End:
Total Assets............................... $ 4,019 $ 3,690 $ 3,186 $ 2,951 $ 2,917 $ 2,778 $ 2,526
Total Deposits............................. 2,383 2,554 2,487 2,355 2,108 2,040 1,987
Long-Term Debt............................. 63 67 65 65 69 71 75
Stockholders' Equity....................... 240 217 229 197 182 166 177
Earnings Ratios:
Return on Average Total Assets............. 1.21% 1.16% 1.11% 0.83% 1.09% 0.46% 1.26%
Return on Average Stockholders' Equity..... 21.48% 21.67% 20.47% 15.28% 18.05% 6.75% 17.29%
Capital Ratios:
As a Percentage of Risk-Adjusted Period End
Total Assets:
Tier 1 Capital............................. 14.19% 13.23% 14.08% 13.71% 10.81% 9.90% 9.99%
Total Capital.............................. 15.51% 14.71% 15.47% 15.16% 12.03% 11.22% 11.26%
Tier 1 Leverage.............................. 5.70% 5.11% 5.60% 5.78% 6.68% 6.72% 7.60%
</TABLE>
- ---------------
*Columns may not total due to roundings.
H-41
<PAGE> 250
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For financial reporting purposes, the Company is a "successor registrant"
to UST and, as such, all financial information of the Company included in this
discussion and included elsewhere in this Information Statement is the
historical financial information of UST. Therefore, references to the "Company"
in this discussion are references to "UST" when referring to historical
information.
The following is a discussion of the Company's results of operations and
financial condition for the comparable nine months ended September 30, 1994 and
1993, and for each of the years ended December 31, 1993, 1992 and 1991. See
"Recent Developments" for a discussion of the Company's unaudited results for
the year and three-month period ended December 31, 1994. Where appropriate,
references are made to the Pro Forma Financial Statements, which reflect the
Disposition. Certain items reported in prior periods have been reclassified to
conform to the current presentation.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1993
Net income for the third quarter ended September 30, 1994 was $12.9
million, an increase of 8.6% over the $11.9 million earned in the third quarter
of 1993. For the nine-month period ended September 30, 1994, net income was
$36.5 million, a 10.2% improvement over the $33.1 million of net income for the
same period in 1993.
The Company's return on average stockholders' equity for the first nine
months of 1994 was 21.5%, compared to 21.7% for the first nine months of 1993.
Its return on average total assets was 1.21% for the nine months ended September
30, 1994, versus 1.16% for the nine months ended September 30, 1993.
Net Interest Income (Taxable Equivalent Basis)
<TABLE>
<CAPTION>
THREE-MONTH NINE-MONTH PERIODS
PERIODS ENDED
SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------- -------------------
1994 1993 1994 1993
------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income....................................... $50,378 $45,497 $136,762 $128,674
Taxable Equivalent Adjustment......................... 1,183 1,364 3,554 4,420
------- ------- -------- --------
Total Interest Income................................. 51,561 46,861 140,316 133,094
Interest Expense...................................... 22,365 13,909 54,371 40,115
------- ------- -------- --------
Net Interest Income................................... $29,196 $32,952 $ 85,945 $ 92,979
======= ======= ======== ========
</TABLE>
Net interest income, on a taxable equivalent basis, was $3.8 million lower
in the third quarter of 1994, compared to the third quarter of 1993. For the
first nine months of 1994, net interest income, on a taxable equivalent basis,
was $7.0 million lower than net interest income for the first nine months of
1993.
H-42
<PAGE> 251
<TABLE>
<CAPTION>
THREE-MONTH NINE-MONTH
PERIODS ENDED PERIODS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ---------------
1994 1993 1994 1993
------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Average Volume
Interest Earning Assets..................................... $3,358 $3,391 $3,269 $3,114
Interest Bearing Liabilities................................ 2,153 1,776 2,001 1,691
------ ------ ------ ------
Net Interest Earning Assets................................. $1,205 $1,615 $1,268 $1,423
====== ====== ====== ======
Non-Interest Bearing Deposits............................... $1,607 $1,963 $1,639 $1,776
====== ====== ====== ======
Average Rates (Taxable Equivalent Basis)
Interest Earning Assets..................................... 6.12% 5.50% 5.73% 5.71%
Cost of Funding Interest Earning Assets..................... 2.65 1.63 2.22 1.72
------ ------ ------ ------
Net Yield on Interest Earning Assets........................ 3.47% 3.87% 3.51% 3.99%
====== ====== ====== ======
</TABLE>
The Company's net interest income is sensitive to its volume of
non-interest bearing deposits which are primarily derived from the Processing
Business, as well as to the level of interest rates on interest-earning assets
and interest-bearing liabilities. The Company's level of non-interest bearing
funds (primarily non-interest bearing deposits) for the third quarter of 1994
decreased 25.4% ($411 million) from the same period during 1993. For the first
nine months of 1994, the Company's average volume of non-interest bearing funds
declined 10.9% ($155 million) from the same period during 1993. These declines
were principally a result of a reduction in the amount of the Processing
Business' balances. For the nine month period ended September 30, 1994, the
Processing Business' averaged $1,117 million compared with $1,300 million for
the 1993 period.
The Processing Business' non-interest bearing deposit balances are
seasonal. Historically, non-interest bearing deposit balances related to the
Processing Business are higher in the first and third quarters than in the
second and fourth quarters. The average non-interest bearing deposit balances
for the first and third quarters of 1994 derived from the Processing Business
were approximately $1,370 million and $1,126 million, respectively, compared
with $832 million of average non-interest bearing deposit balances for the
second quarter. As a result, the Processing Business' relative contribution of
net interest income to the Company was significantly higher during each of the
first and third quarters relative to its contribution during the second quarter
of 1994. This seasonality has been evident during each of the three years ended
December 31, 1993.
The volume of the Processing Business' non-interest bearing deposits is
generally inversely related to the level of interest rates. Thus, in periods of
decreasing interest rates, the average balance of non-interest bearing deposits
derived from the Processing Business tends to increase, whereas in periods of
rising interest rates, the average balance typically declines. Interest rates
were low in 1993 and the Processing Business experienced its highest level of
average deposit balances.
The Company's consolidated average non-interest bearing deposit balances
for the third quarter of 1994 were $1,607 million, compared to $1,963 million
for the third quarter of 1993. The Processing Business' average non-interest
bearing deposit balances were $1,126 million and $1,519 million, respectively,
for the third quarter of 1994 and 1993.
The net yield on average interest-earning assets was 3.47% for the third
quarter and 3.51% for the nine months ended September 30, 1994, compared to
3.87% for the third quarter and 3.99% for the nine months ended September 30,
1993. The average interest rate earned on the Company's securities portfolio was
5.43% for the third quarter of 1994, compared to 5.59% for the third quarter of
1993. For the first nine months of 1994, the average interest rate earned in the
Company's securities portfolio was 5.21%, as compared to 5.78% for the first
nine months of 1993. The lower average interest rate earned in the third quarter
and nine-month periods of 1994, as compared with the same periods in 1993,
reflects the reinvestment of the funds obtained from maturities and sales of
securities at lower interest rates and with shorter maturities.
H-43
<PAGE> 252
Fee Income
<TABLE>
<CAPTION>
THREE-MONTH NINE-MONTH PERIODS
PERIODS ENDED
SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------ % -------------------- %
1994 1993 CHANGE 1994 1993 CHANGE
------- ------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Fiduciary and Other Fees:
Core Businesses:
Asset Management.............. $42,354 $38,688 9.5% $127,005 $110,909 14.5%
Corporate Trust and Agency.... 5,465 4,682 16.7 16,029 13,938 15.0
------- ------- -------- --------
Total Core Businesses....... 47,819 43,370 10.3 143,034 124,847 14.6
------- ------- -------- --------
Processing Business:
Funds Services................ 19,072 17,094 11.6 56,533 50,452 12.1
Institutional Asset
Services.................... 6,922 6,099 13.5 20,398 18,442 10.6
------- ------- -------- --------
Total Processing Business... 25,994 23,193 12.1 76,931 68,894 11.7
------- ------- -------- --------
Total Fiduciary and Other Fees..... 73,813 66,563 10.9 219,965 193,741 13.5
Other Income:
Securities Gains (Losses), Net..... 25 (3) -- 2,059 22 --
Other.............................. 3,138 2,123 47.8 7,661 6,486 18.1
------- ------- -------- --------
Total Fee Income................... $76,976 $68,683 12.1% $229,685 $200,249 14.7%
======= ======= ====== ======== ======== ======
</TABLE>
Total fiduciary and other fees increased $7.3 million in the third quarter
of 1994 from the third quarter of 1993. The first nine months of 1994 include
six months, or $3.8 million, of fiduciary and other fees attributable to U.S.
Trust Company of the Pacific Northwest ("Pacific Northwest"), formerly Capital
Trust Company, a trust and investment management firm acquired on July 7, 1993.
Excluding such $3.8 million of fiduciary and other fees, the Core Businesses'
fiduciary and other fee income would have been 11.1% higher than such fee income
for the comparable 1993 period. In the third quarter of 1994, $35.8 million of
the Core Businesses' fiduciary and other fees were related to the market value
of assets held in clients' accounts, compared with $34.7 million in the third
quarter of 1993. For the nine-month period ended September 30, 1994, $107.1
million of the Core Businesses' fiduciary and other fees were related to the
market value of assets held in clients' accounts, compared with $99.6 million
for the nine-month period ended September 30, 1993. The remaining fiduciary and
other fees of the Core Businesses were related to transaction-based services.
Total assets under management increased 5.5% to $32.4 billion at September
30, 1994, compared to $30.7 billion at September 30, 1993. The Processing
Business included approximately $2.6 billion of assets under management as of
September 30, 1994, compared to $1.8 billion as of September 30, 1993.
Substantially all of these assets derive from short-term cash management account
relationships. In addition, the Processing Business included approximately $3.9
billion of assets from security lending relationships with corporate and
institutional custody clients which are reported in the table below under
"Processing Business -- Custody and Other Non-Managed Assets". The average rates
charged for short-term cash management and security lending services are
significantly less than the average rates charged on the entire portfolio of
assets under management. It is anticipated that substantially all of those
assets under management, including the security lending relationships, will be
managed by Chase following the Disposition. Fee income generated by these
activities is included in the Processing Business' fiduciary fees and other
income. Total assets under management and administration increased 7.5% to
$419.3 billion at September 30, 1994, compared to $390.1 billion at September
30, 1993. The following table details assets under management and administration
for the Company and the Processing Business as of September 30, 1994 and 1993.
H-44
<PAGE> 253
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------- %
1994 1993 CHANGE
------ ------ ------
(DOLLARS IN BILLIONS)
<S> <C> <C> <C>
Core Businesses:
Assets Under Management........................................... $ 32.4 $ 30.7 5.5%
Personal Custody.................................................. 7.7 8.5 (8.8)
Corporate and Municipal Trusteeships and Agency Relationships*.... 156.3 147.4 6.0
------ ------
Total Assets Under Management and Administration for the Core
Businesses.................................................. 196.4 186.6 5.3
------ ------ ------
Processing Business:
Custody and Other Non-Managed Assets:
Institutional Services.......................................... 116.0 100.3 15.6
Funds Services**................................................ 106.9 103.2 3.6
------ ------
Total Assets Under Management and Administration for the
Processing Business........................................ 222.9 203.5 9.5
------ ------
Total Assets Under Management and Administration.................. $419.3 $390.1 7.5%
====== ====== =====
</TABLE>
- ---------------
* Includes corporate trust and agency and bond immobilization assets presented
at par value.
** Includes UIT assets presented at par value and mutual fund custody assets
presented at fair market value.
Other Income
Net securities gains in the third quarter of 1994 and both the third
quarter and first nine months of 1993 were negligible. Net securities gains
totaled $2.1 million for the first nine months of 1994, reflecting the sale of
certain securities classified as available for sale, mainly Treasury Securities,
during the first quarter.
See "-- Impact of the Disposition on Liquidity" for a discussion of
securities sold by the Company during the fourth quarter of 1994.
Total Revenues
Total revenues, defined as net interest income after the provision for
credit losses and fee income, for the Core Businesses and the Processing
Business for the nine-month periods ended September 30, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
NINE-MONTH
PERIODS ENDED
SEPTEMBER 30,
---------------------
1994 1993
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Core Businesses Revenues............................... $196,660 $168,476
Processing Business Revenues........................... 113,916 116,832
-------- --------
Total Revenues......................................... $310,576 $285,308
======== ========
</TABLE>
Revenues of the Core Businesses and the Processing Business are based upon
the allocation methodologies utilized by the Company's internal management
reporting system. The amount of net interest income allocated to each business
is based upon the average net deposit balances supplied by each business
multiplied by an appropriate internally-generated interest rate. The "net
deposit" balances consist of both interest and non-interest bearing deposit
balances reduced by overdraft loans and cash items in the process of collection.
The internally-generated interest rate is based upon the actual interest rates
earned by the Company on long-and short-term securities for the relevant period.
Fee revenue is allocated directly to the businesses performing the service from
which the revenue is derived.
H-45
<PAGE> 254
Operating Expenses
<TABLE>
<CAPTION>
THREE-MONTH NINE-MONTH PERIODS
PERIODS ENDED
SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------- % ------------------- %
1994 1993 CHANGE 1994 1993 CHANGE
------- ------- ------ -------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Salaries...................................... $34,253 $30,895 (10.9 )% $100,530 $ 88,311 (13.8 )%
Employee Benefits and Incentive
Compensation................................ 15,787 16,722 5.6 52,550 50,729 (3.6 )
------- ------- -------- --------
Total Salaries and Benefits................... 50,040 47,617 (5.1 ) 153,080 139,040 (10.1 )
Net Occupancy................................. 10,312 9,947 (3.7 ) 29,445 29,442 --
Equipment..................................... 4,794 4,420 (8.5 ) 13,541 13,044 (3.8 )
Other......................................... 17,376 16,344 (6.3 ) 51,556 46,283 (11.4 )
------- ------- -------- --------
Total Operating Expenses...................... $82,522 $78,328 (5.4 )% $247,622 $227,809 (8.7 )%
======== ======== ======= ========= ========= =======
</TABLE>
Operating expenses in the third quarter of 1994 increased $4.2 million to
$82.5 million from the $78.3 million reported in the third quarter of 1993. For
the nine months ended September 30, 1994, operating expenses amounted to $247.6
million, a $19.8 million increase over the $227.8 million incurred in the nine
months ended September 30, 1993. Salaries and employee benefit expenses,
including sales incentives and commissions, increased $2.4 million in the third
quarter and $14.0 million for the first nine months of 1994, as compared to the
same periods in 1993, reflecting increases in the professional staffs of the
asset management and mutual funds services divisions and related employee
benefit expenses. For the third quarter of 1994, the ratio of total operating
expenses to taxable equivalent total operating income, net of interest expense
and provision for credit losses, was 78.1%, compared to 77.8% for the third
quarter of 1993. For the nine months ended September 30, 1994, the ratio of
total operating expenses to taxable equivalent total operating income, net of
interest expense and provision for credit losses, was 78.8%, as compared to
78.6% for the first nine months ended September 30, 1993.
Operating expenses applicable to the Core Businesses and the Processing
Business for the nine-month periods ended September 30, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
NINE-MONTH PERIODS
ENDED SEPTEMBER 30,
----------------------
1994 1993
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Core Businesses:
Salaries and Benefits........................ $ 89,483 $ 79,447
Net Occupancy................................ 15,278 13,784
Other........................................ 37,706 30,394
--------- ---------
Subtotal..................................... 142,467 123,625
--------- ---------
Processing Business:
Salaries and Benefits........................ 50,439 49,216
Net Occupancy................................ 7,519 6,806
Other........................................ 27,861 21,766
--------- ---------
Subtotal..................................... 85,819 77,788
--------- ---------
Corporate Overhead............................. 19,336 26,396
--------- ---------
Total Operating Expenses............. $ 247,622 $ 227,809
======== ========
</TABLE>
Operating expenses associated with the Core Businesses and the Processing
Business are determined by the Company's internal management accounting
information system. The Company's management accounting practices and policies
have been developed and implemented with the objective of reflecting the
economics of the respective businesses. Direct costs are those expenses that can
be directly attributable to a specific
H-46
<PAGE> 255
business activity. Direct expenses include actual salaries and benefits of the
employees of the business, net occupancy costs based upon actual space utilized
and furniture and equipment specifically employed by the business.
The Company has developed methodologies to capture and allocate expenses
that are not directly incurred by the businesses but for which there is a direct
relationship between the level of business activity and the amount of cost
incurred. Such methodologies employ volume or percentage allocation bases or the
activity of other expense or balance sheet accounts. Indirect costs include
computer, securities clearing and bank operations transfer charges which are
allocated on the basis of volume statistics.
Corporate overhead consists of unallocated costs not specifically
attributable to the respective businesses, including financial, legal and other
general purpose corporate expenses.
Income Taxes
The Company's effective tax rate for the 1994 third quarter was 41.1%,
compared with an effective tax rate of 43.1% for the 1993 period. The 1993 tax
rate included the impact of the increase in the federal corporate income tax
rate, which was retroactive to January 1, 1993. For the nine months ended
September 30, 1994, the effective tax rate was 42.0% versus 42.4% in 1993.
YEAR ENDED DECEMBER 31, 1993 COMPARED TO THE YEAR ENDED DECEMBER 31, 1992 AND
YEAR ENDED DECEMBER 31, 1992 COMPARED TO THE YEAR ENDED DECEMBER 31, 1991:
Income from operations for the year ended December 31, 1993 amounted to
$42.3 million, an increase of 15.7% over the $36.5 million earned in the year
ended December 31, 1992. For the year ended December 31, 1992 compared to the
year ended December 31, 1991, income from operations increased 16.4%.
Net Interest Income (Taxable Equivalent Basis)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest Income............................................ $169,600 $173,211 $191,354
Taxable Equivalent Adjustment.............................. 5,810 8,237 10,228
-------- -------- --------
Total Interest Income...................................... 175,410 181,448 201,582
Interest Expense........................................... 53,358 64,323 95,256
-------- -------- --------
Net Interest Income........................................ $122,052 $117,125 $106,326
======== ======== ========
Percentage Increase from Prior Period...................... 4.2% 10.2% 4.8%
======== ======== ========
</TABLE>
Significant influences on the Company's net interest income over the past
three years included: the average balance of net non-interest bearing funds
primarily attributable to the Processing Business; a reduction in the average
yield on short-term and variable rate investments and loans; and an increase in
total interest earning assets.
H-47
<PAGE> 256
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1993 1992 1991
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Average Volume
Interest Earning Assets......................................... $3,086 $2,834 $2,447
Interest Bearing Liabilities.................................... 1,699 1,674 1,606
------ ------ ------
Net Interest Earning Assets..................................... $1,387 $1,160 $ 841
====== ====== ======
Percentage Increase from Prior Period........................... 19.6% 38.0% 12.5%
Non-Interest Bearing Deposits................................... $1,761 $1,508 $1,021
====== ====== ======
Percentage Increase from Prior Period........................... 16.8% 47.7% 11.2%
====== ====== ======
Average Rates (Taxable Equivalent Basis)
Interest Earning Assets......................................... 5.68% 6.40% 8.24%
Cost of Funding Interest Earning Assets......................... 1.73 2.27 3.89
------ ------ ------
Net Yield on Interest Earning Assets............................ 3.95% 4.13% 4.35%
====== ====== ======
</TABLE>
The net yield on interest earning assets is dependent upon the Company's
average level of non-interest bearing funds, the maturity structure of the
Company's interest earning assets and interest bearing liabilities and the
general interest rate environment. If the average volume of such funds is
stable, the net yield will generally be higher in a rising interest rate
environment. Conversely, in a declining interest rate environment, the net yield
will be lower.
Temporary inflows of deposits, mainly related to the Processing Business,
are invested in high quality liquid short-term financial instruments that ensure
the Company an adequate rate of return, while maintaining liquidity and credit
quality to satisfy the eventual outflow of the deposits.
During 1993, average interest earning assets increased by $148 million of
private banking loans and $160 million of short-term financial instruments. The
higher volume of average interest earning assets was funded primarily by
increases in average net non-interest bearing funds, derived principally from
the Processing Business.
The increase in average interest earning assets during 1992 was primarily
attributable to increases in private banking loans ($168 million) and high
quality securities ($365 million). The level of average short-term financial
instruments was reduced during this period ($178 million) and replaced by
Treasury Securities having an average maturity of less than one year. The higher
volume of average interest earning assets was funded mainly by increases in
average net non-interest bearing funds, principally related to the Processing
Business.
H-48
<PAGE> 257
Fee Income
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, % CHANGE
------------------------------ -------------
1993 1992 1991 93-92 92-91
-------- -------- -------- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Fiduciary and Other Fees:
Core Businesses:
Asset Management............................. $152,362 $131,188 $113,031 16.1 % 16.1 %
Corporate Trust and Agency................... 18,775 16,916 15,251 11.0 10.9
-------- -------- --------
Total Core Businesses................... 171,137 148,104 128,282 15.6 15.5
-------- -------- --------
Processing Business:
Funds Services............................... 68,196 63,412 53,603 7.5 18.3
Institutional Asset Services................. 24,742 24,308 23,063 1.2 5.4
-------- -------- --------
Total Processing Business............... 92,938 87,720 76,666 5.9 14.4
-------- -------- --------
Total Fiduciary and Other Fees.................... 264,075 235,824 204,948 12.0 15.1
Other Income:
Securities Gains, Net............................. 3,025 2,801 1,558 8.0 79.8
Other............................................. 8,863 6,939 7,165 27.7 (3.2 )
-------- -------- --------
Total Fees and Other Income....................... $275,963 $245,564 $213,671 12.4 % 14.9 %
======== ======== ======== ==== ====
Total Fees and Other Income as a Percent of
Taxable Equivalent Operating Income, Net of
Interest Expense and Provision for Credit
Losses.......................................... 70.0% 68.8% 68.1%
======== ======== ========
</TABLE>
Fiduciary and other fees are the largest component of both the Core
Businesses and Processing Business revenues. Fee-based services provide a
relatively stable core source of revenues that are less subject to change in
periods of interest rate volatility as compared to net interest income. The
credit loss experience from fee-based activities has been and continues to be
negligible.
Fiduciary fees are based typically on the market value or par value of
assets under management and administration, the volume of securities
transactions, income collection transactions and other services rendered.
Most asset management fees are determined on an incremental scale so that
as the value of a client's portfolio grows in size, the Company receives a
smaller percentage of the increasing value as fee income. Therefore, market
value or other incremental changes in a portfolio's size do not necessarily have
a proportionate impact on the level of fiduciary fees.
For the year ended December 31, 1993, $133.8 million of the Core
Businesses' fiduciary and other fees were related to the market value of assets
held in clients' accounts, compared with $119.8 million and $103.3 million,
respectively, for the years ended December 31, 1992, and 1991. The remaining
fiduciary and other fees of the Core Businesses were related to
transaction-based services.
H-49
<PAGE> 258
The following table provides details of assets under management and
administration for the last six years. Unless otherwise noted, asset values are
measured at their estimated fair value.
<TABLE>
<CAPTION>
COMPOUND
DECEMBER 31, GROWTH
--------------------------------------------------- RATE
1993 1992 1991 1990 1989 1988 88-93
------ ------ ------ ------ ------ ------ --------
(DOLLARS IN BILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Core Businesses:
Assets Under Management............. $ 32.2 $ 26.5 $ 21.9 $ 18.1 $ 18.0 $ 15.3 16.0%
Personal Custody.................... 7.9 6.0 6.8 6.1 4.7 4.2 13.5
Corporate and Municipal Trusteeships
and Agency Relationships*......... 152.2 134.6 121.5 109.6 102.3 89.3 11.3
------ ------ ------ ------ ------ ------
Total Assets Under Management and
Administration for the Core
Businesses..................... 192.3 167.1 150.2 133.8 125.0 108.8 12.1
------ ------ ------ ------ ------ ------
Processing Business:
Custody and Other Non-Managed
Assets:
Institutional Services............ 97.6 92.9 81.8 81.6 68.0 57.9 11.0
Funds Services**.................. 103.3 91.8 84.3 62.4 54.3 51.7 14.9
------ ------ ------ ------ ------ ------
Total Assets Under Management and
Administration for the
Processing Business............ 200.9 184.7 166.1 144.0 122.3 109.6 12.9
------ ------ ------ ------ ------ ------
Total Assets Under Management and
Administration.................... $393.2 $351.8 $316.3 $277.8 $247.3 $218.4 12.5%
====== ====== ====== ====== ====== ====== ========
</TABLE>
- ---------------
* Includes corporate trust and agency and bond immobilization assets presented
at par value.
** Includes UIT assets presented at par value and mutual fund custody assets
presented at fair market value.
Assets Under Management
Assets under management and administration consist primarily of equities,
fixed income instruments and cash. The Company's investment professionals manage
these assets for individual, family, pooled, and mutual funds investment
clients.
Asset management fiduciary fees are derived mainly from investment
management and related services to individuals and institutions. These services
include investment portfolio management, estate and tax planning and personal
custody. Asset management fiduciary fees are based primarily on the market value
of the assets in clients' accounts. In general, fiduciary fees are influenced by
a variety of factors, including growth or decline of stock and bond market
levels, fee increases, revenue from new services, outflow of assets due to
terminating trusts, disbursements, gifts, etc., acquisitions, and new business.
The increase in asset management fiduciary fees during 1993 is related to higher
market values, new business and acquisitions. Assets under management as of
December 31, 1993 increased by 21.8% from assets under management as of December
31, 1992.
Asset management fiduciary fees in 1993 include revenues from Pacific
Northwest, a trust and investment management firm acquired in July 1993, and a
full year of revenues from Campbell, Cowperthwait & Co., Inc. ("Campbell"), an
investment advisory company acquired in December 1992. Asset management
fiduciary fees in 1992 include revenues from Delafield, Harvey, Tabell
("Delafield"), an investment advisory company acquired in April 1992. Fiduciary
fees from these acquisitions amounted to less than 5% and 3% of total asset
management fiduciary fees in 1993 and 1992, respectively. These acquisitions
accounted for 5.6% and 4.0% of assets under management as of December 31, 1993
and 1992, respectively.
As previously noted, the Company believes it is well positioned to increase
fee revenue due to favorable growth rates in the overall affluent market,
expansion into new geographic markets, selective acquisitions, development of
new services, solicitation of new market segments and new business development.
Increases in
H-50
<PAGE> 259
fee revenue are expected to come from the Company's institutional asset
management business, where the Company has developed a dedicated sales force and
has expanded the range of investment products it offers. Another key strategy
for increasing fee revenues is the Company's recently implemented initiative to
broaden the distribution of its investment products via third parties.
Corporate trust and agency activities include the indenture trustee
business for corporate and municipal debt issues, as well as complex new types
of securities. Corporate trust fiduciary fees are affected by the volume of new
debt issuances and redemptions at, or in advance of, maturity of existing
issues. The volume of corporate and municipal trusteeships and agency
relationships (measured by the par value of the outstanding debt) increased
13.1% in 1993 and 10.8% in 1992.
Assets Under Administration -- The Processing Business
Institutional asset services ("IAS") includes master trust and custody
services, securities lending and global custody services to corporate employee
benefit funds, public funds, financial institutions and endowments and
foundations. IAS fiduciary fees are influenced by the market value of its
accounts and transactional activity. IAS assets administered in custody accounts
increased 5.1% in 1993 and 13.6% in 1992.
Funds services provides custody administration, fund accounting and
administration and transfer agent activities for open and closed-end mutual
funds and custodian, recordkeeping, income collection and disbursement, and
transfer agent services for taxable and tax-exempt unit investment trusts.
Funds services assets under administration increased by 12.5% in 1993 and
8.9% in 1992. This increase in assets is primarily attributable to expanded
business with mutual funds, both open and closed-end. The par value of bonds
held in custody for unit investment trusts has declined over the past few years,
reflecting accelerated prerefundings and redemptions of municipal securities
underlying unit investment trusts by issuers taking advantage of decreasing
interest rates during the same period. While this has reduced fee income earned
from unit investment trusts, the redemption activity has also temporarily
increased the volume of non-interest bearing deposits reflecting uninvested
balances derived from these accounts.
Total Revenues
Total revenues, defined as net interest income after the provision for
credit losses and fee income, for the Core Businesses and the Processing
Business for the years ended December 31, 1993, 1992 and 1991 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Core Businesses Revenues................................... $236,815 $206,029 $178,010
Processing Business Revenues............................... 151,390 142,423 125,734
-------- -------- --------
Total Revenues............................................. $388,205 $348,452 $303,744
======== ======== ========
</TABLE>
Revenues of the Core Businesses and the Processing Business are allocated
in accordance with the allocation methodologies utilized by the Company's
internal management reporting system. The amount of net interest income
allocated to each business is based upon the average net deposit balances
supplied by each business multiplied by an appropriate, internally-generated,
interest rate. The "net deposit" balances consist of both interest and
non-interest bearing deposit balances reduced by overdraft loans and cash items
in the process of collection. The internally-generated interest rate is based
upon the actual interest rates earned by the Company on long- and short-term
securities for the relevant period. Fee revenue is allocated directly to the
businesses performing the service from which the revenue is derived.
H-51
<PAGE> 260
Operating Expenses
The following table provides details of operating expenses other than
interest expense and provision for credit losses for the last three years.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Salaries................................................... $120,770 $104,506 $ 93,354
Employee Benefits and Incentive Compensation............... 68,383 60,426 47,877
Net Occupancy.............................................. 40,035 37,420 36,939
Equipment.................................................. 18,536 18,591 19,507
Other...................................................... 67,796 68,589 57,260
-------- -------- --------
Total...................................................... $315,520 $289,532 $254,937
======== ======== ========
Percentage Increase (Decrease) From Prior Period........... 9.0% 13.6% (1.8)%
======== ======== ========
Total Operating Expenses as a Percent of Taxable Equivalent
Operating Income, Net of Interest Expense and Provision
for Credit Losses........................................ 80.1% 81.2% 81.2%
======== ======== ========
</TABLE>
Salaries in 1993 increased 15.6% from 1992 and increased 11.9% in 1992 from
1991. The increases were due mainly to staff additions in the asset management
businesses and Processing Business. The number of full-time equivalent employees
increased 12.1% to 2,574 at December 31, 1993, compared to 2,296 at December 31,
1992. During 1992, the number of full-time equivalent employees increased 8.6%
to 2,296 from 2,114. Excluding the impact of the acquisitions of Delafield,
Campbell and Pacific Northwest, salaries increased by 13.3% in 1993 and 9.9% in
1992.
Employee benefits and incentive compensation increased 14.7% in 1993 from
1992 and increased 26.2% in 1992 compared with 1991. These changes were due
primarily to incentive award plans, which are determined based upon the
Company's financial performance as measured by its return on stockholders'
equity, and to other employee benefits whose expense level is a function of
staffing levels. In addition to the approximately 1,120 of the Company's
employees that will be employed by Chase following the Disposition, the Company
will reduce its staffing levels by approximately 153 employees, which will
reduce corporate staff salaries and related employee benefits and incentive
compensation by an estimated $12.4 million on an annualized basis. It is
anticipated that these employees will be terminated by the Closing Date.
Occupancy charges increased 7.0% in 1993 compared with 1992 and 1.3% in
1992 from 1991. The increases in 1993 and 1992 reflect the impact of the asset
management acquisitions. The Chase Acquired Business includes leased space in
the building located at 770 Broadway and the leased premises of MF Service
Company. As of the Closing Date, the transfer of those premises will reduce the
occupancy expense of the Company by approximately $11 million.
Equipment costs decreased 0.3% in 1993 and 4.7% in 1992 due to reductions
in the rates being charged on leased computer equipment.
Other expenses in 1993 decreased 1.2% compared to 1992, while increasing
19.8% in 1992 compared to 1991. The 1993 decline is a result, in part, of lower
costs related to real estate acquired in debt restructurings.
As part of the Merger, Chase will acquire the Company's back office
operations. The Company will enter into the Services Agreement, pursuant to
which, after the Distribution, CMB will furnish necessary securities processing,
custodial, data processing and other services to the Company. The initial term
of the Services Agreement will be for five years beginning on the Closing Date,
with certain renewal options. In consideration of the services provided to it
under the Services Agreement, during the initial term, the Company will pay
Chase an annual base fee of $10 million, which is significantly less than the
Company's estimate of the annual cost of providing such services to itself. See
"Relationship with Chase".
H-52
<PAGE> 261
Operating expenses applicable to the Core Businesses and the Processing
Business for the years ended December 31, 1993, 1992 and 1991 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Core Businesses:
Salaries and Benefits.................................... $108,481 $ 91,355 $ 77,165
Net Occupancy............................................ 18,778 16,996 16,223
Other.................................................... 46,143 46,652 37,236
-------- -------- --------
Subtotal................................................. 173,402 155,003 130,624
-------- -------- --------
Processing Business:
Salaries and Benefits.................................... 61,855 58,021 50,801
Net Occupancy............................................ 9,360 8,792 9,289
Other.................................................... 38,915 29,152 29,067
-------- -------- --------
Subtotal................................................. 110,130 95,965 89,157
Corporate Overhead......................................... 31,988 38,564 35,156
-------- -------- --------
Total Operating Expenses......................... $315,520 $289,532 $254,937
======== ======== ========
</TABLE>
Operating expenses associated with the Core Businesses and Processing
Business are determined by the Company's internal management accounting
information system. The Company's management accounting practices and policies
have been developed and implemented with the objective of reflecting the
economics of the respective businesses. Direct costs are those expenses that can
be directly attributable to a specific business activity. Direct expenses
include actual salaries and benefits of the employees of the business, net
occupancy costs based upon actual space utilized and furniture and equipment
specifically employed by the business.
The Company has developed methodologies to capture and allocate expenses
that are not directly incurred by the businesses but for which there is a direct
relationship between the level of business activity and the amount of cost
incurred. Such methodologies employ volume or percentage allocation bases or the
activity of other expense or balance sheet accounts. Indirect costs include
computer, securities clearing and bank operations transfer charges which are
allocated on the basis of volume statistics.
Corporate overhead consists of unallocated costs not specifically
attributable to the respective businesses, including financial, legal and other
general purpose corporate expenses.
Operating expenses for the Core Businesses as presented in the Pro Forma
Condensed Statement of Income for the year ended December 31, 1993 were $197.4
million compared with $205.4 million in the above table (Core Businesses
expenses of $173.4 million plus corporate overhead expenses of $32.0 million).
The difference between the amounts is a result of the Pro Forma Condensed
Financial Statements taking into account certain assumptions relating to the
reduction in the corporate staff, the Services Agreement between the Company and
Chase and the reduction in premises leased by the Company. See "Pro Forma
Condensed Financial Statements" and "Notes to Pro Forma Condensed Financial
Statements".
Income Taxes
The effective tax rates on income before income taxes and cumulative effect
of accounting changes for 1993, 1992 and 1991 were 41.8%, 38.0% and 35.7%,
respectively. The increase in the 1993 effective tax rate is due to the decline
in tax-exempt income as a result of maturities and redemptions of state and
municipal bonds and the impact of the increase in the federal corporate income
tax rate that was retroactive to January 1, 1993.
H-53
<PAGE> 262
FINANCIAL CONDITION
Capital and Regulatory Ratios
The Company has maintained its strong capital position throughout the first
nine months of 1994. The ratio of Tier 1 capital at September 30, 1994 to
period-end, risk-adjusted assets (as defined by the Board of Governors) was
14.19%, compared to 13.23% at September 30, 1993. The ratio of total capital at
September 30, 1994 to period-end, risk-adjusted assets was 15.51%. At September
30, 1993, this ratio was 14.71%. The Tier 1 leverage ratio (Tier 1 capital as of
the period end divided by quarterly (3 month) total average assets) was to 5.70%
and 5.11% at September 30, 1994 and 1993, respectively.
After the consummation of the Disposition, the Company expects that its
capital ratios will remain strong. On a pro forma basis as of September 30,
1994, the Company estimates that its ratio of Tier 1 capital to risk-adjusted
assets would have been 11.56%. Its ratio of total capital to risk-adjusted
assets would have been 12.64%. The Tier 1 leverage ratio would have amounted to
6.36%. See "Pro Forma Condensed Financial Statements".
For the nine-month period ended September 30, 1994, 90,000 shares of common
stock were acquired under the Company's share repurchase program at an average
price of $50.81 per share. For the same period during 1993, 110,500 shares were
repurchased at an average cost of $54.00 per share.
One of the principal purposes of the Company's common stock repurchase
program has been to provide a supply of common shares for issuance under the
Company's various common stock incentive and compensation plans. Such common
shares have been acquired through systematic purchases in the open market in
amounts deemed sufficient to satisfy the Company's immediate and near-term
(i.e., less than two years) obligations to issue common shares under its benefit
plans. During the first nine months of 1994, the Company issued 116,795 common
shares under its various stock-based plans.
The adoption of a stock repurchase program by the Company following the
Distribution would be subject to (i) the approval of the Company Board, (ii)
maintaining regulatory ratios necessary to remain "well capitalized", (iii)
maintaining appropriate parent company liquidity and (iv) existing statutory
authority that permits repurchases of shares in an amount that does not exceed
10% of the Company's stockholders' equity at the beginning of the year.
Asset/Liability Management
The principal functions of asset and liability management are to provide
for adequate liquidity, to manage interest rate exposure by maintaining a
prudent relationship between interest sensitive assets and interest sensitive
liabilities, and to manage the size and composition of the balance sheet so as
to maximize net interest income, while complying with bank regulatory agency
capital standards.
As part of its overall asset and liability management process, the Company
uses non-leveraged interest rate swaps and forward rate agreements ("FRAs") as
hedges. Swaps are used to hedge the net yield earned on pools of fixed rate
residential real estate mortgage loans originated in the year of the swap's
inception. The following table provides details, as of September 30, 1994, of
the notional amounts of swaps by maturity and the related average interest rates
paid and received. The Company is a fixed rate payor on all of its swaps.
<TABLE>
<CAPTION>
MATURING
----------------------------------
WITHIN 1 1 TO 5
YEAR YEARS TOTAL
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fixed Pay Swaps............................................ $ 22,000 $ 45,875 $ 67,875
Average Rate Paid.......................................... 8.2949% 6.9952% 7.4165%
Average Rate Received*..................................... 4.9744% 4.9513% 4.9588%
</TABLE>
- ---------------
* Represents the average variable rate that will be received by the Company
based upon the rate in effect at the latest variable rate reset date of each
interest rate swap.
H-54
<PAGE> 263
Customer deposit balances associated with the Processing Business have
provided the Company with a stable, long-term source of funds that historically
has been used to finance fixed-rate loans and investments. In the fourth quarter
of 1994, the Company sold over $800 million of Treasury and Agency Securities in
anticipation of the closing of the Merger and the resultant need to fund the
deposit balances being transferred as part of the Chase Acquired Business. The
Company will retain most, if not all, of its fixed rate loan portfolio. See
"Recent Developments". As a result, the Company's use of interest rate swaps as
an asset/ liability management tool is expected to increase, as a greater
proportion of the Company's fixed rate assets will be funded with short-term
interest bearing liabilities. In addition, the Company may issue term financing
or sell loans to maintain an appropriate matching of its asset/liability
structure.
The Company is currently negotiating a new multi-year $35 million credit
facility which the Company expects will have terms and conditions at least as
favorable as UST's existing credit facility. The Company expects that the new
credit facility will be finalized prior to the Closing Date.
The impact of the Company's hedging activities upon net interest income is
detailed in the following table.
<TABLE>
<CAPTION>
THREE-MONTH PERIODS NINE-MONTH PERIODS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
1994 1993 1994 1993
------- ------- ------- -------
(TAXABLE EQUIVALENT BASIS; DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Interest Income:
As Reported................................. $29,196 $32,952 $85,945 $92,979
Excluding Hedging Activities................ $29,484 $33,388 $88,812 $96,781
Net Yield on Interest Earning Assets:
As Reported................................. 3.47% 3.87% 3.51% 3.99%
Excluding Hedging Activities................ 3.51% 3.94% 3.62% 4.14%
</TABLE>
The preceding table presents the impact of the Company's hedging activities
on net interest income. The difference between the results "As Reported" and
"Excluding Hedging Activities" reflects the cost of utilizing swaps to hedge
interest rate risks and lock in a specified levels of return.
Securities Available for Sale
During the first nine months of 1994, the Company purchased $1,062.4
million of securities (primarily Treasury and Agency Securities ($936.5
million)) classified as available for sale.
The Company's portfolio of securities classified as available for sale is
principally comprised of the following: U.S. Treasury fixed rate obligations
with weighted average original maturities of one and one half years (68%);
Government National Mortgage Association ("GNMA") 15-year fixed rate
mortgage-backed securities ("Fixed Rate GNMAs"); and GNMA adjustable rate
mortgage-backed securities ("GNMA ARMs") (18%); obligations of states and
municipalities (5%) and variable rate collateralized mortgage obligations backed
by GNMAs ("CMOs") (5%). GNMAs are backed by the full faith and credit of the
U.S. Government.
The market value of securities available for sale exceeded their amortized
cost by $16.5 million at December 31, 1993. At September 30, 1994, the amortized
cost of securities available for sale exceeded their market value by $8.9
million. The decrease in market value relative to amortized cost reflected
several factors. First, in the first quarter of 1994, high yielding available
for sale securities (mainly in Treasury Securities) were sold for a $2.0 million
dollar gain, and the proceeds from such sales, together with maturities, calls
and mandatory redemptions of securities of $258.6 million, were reinvested
(mainly in Treasury Securities) at then-lower prevailing interest rates. Second,
since the beginning of 1994, interest rates have gradually increased.
In January 1994, the Company sold $41.9 million of securities available for
sale. There were no sales of securities for the three-month period ended
September 30, 1994.
H-55
<PAGE> 264
Securities Held to Maturity
During the first three months of 1994, the Company purchased $402.1 million
of securities classified as held to maturity, primarily consisting of Agency
Securities ($375.3 million).
In excess of 93% of the Company's securities classified as held to maturity
consist of Fixed Rate GNMAs and GNMA ARMs. The Company acquired $299.6 million
of Fixed Rate GNMAs in 1994. At September 30, 1994, the portfolio of Fixed Rate
GNMAs had a duration of approximately 4.4 years. Approximately 50% of the GNMA
ARMs were acquired in 1992 and 50% in the first three months of 1994. At
September 30, 1994, the portfolio of GNMA ARMs had a duration of approximately
1.3 years.
The market value of securities held to maturity at September 30, 1994 was
$425.0 million, which was $23.0 million less than their carrying amount. At
December 31, 1993, the market value of securities held to maturity was $87.1
million, which exceeded their carrying amount by $300,000. The decline in market
value reflects the increase in interest rates during the period December 31,
1993 through September 30, 1994.
Impact of the Disposition on the Investment Portfolio
The Company anticipates that after the Disposition its securities portfolio
will be concentrated in shorter term Treasury Securities and floating rate CMO's
collateralized by GNMA mortgage pass-through securities. A lesser amount will be
invested in GNMA mortgage pass-through securities and tax exempt state and
municipal obligations. Tax exempt, state and municipal securities are largely
fixed-rate investments with an average life of approximately 4.5 years and a
duration of approximately 3.5 years. GNMA securities are mostly 15 year original
maturity securities and 30 year original maturity securities with remaining
maturity of about 20 years. The average life of the GNMA portfolio is about 6
years and the duration is about 4 years.
The shorter term portfolio of Treasury Securities and floating rate CMO's
will be primarily used for liquidity. The GNMAs and state and municipal
obligations are intended to provide longer term returns with low credit risk.
Mortgage Securities and Prepayment Risk
At September 30, 1994, the Company held GNMA and CMO securities ("mortgage
securities") having a carrying value of approximately $717 million in its
available for sale and held to maturity securities' portfolios. While these
mortgage securities, as well as the Company's residential real estate mortgage
loans ("mortgage loans"), are subject to prepayment risk, management believed
that these were appropriate investments for the Company. Historically,
relatively high levels of non-interest bearing deposits derived from the
Processing Business helped to mitigate the prepayment risk associated with these
holdings.
Impact of the Disposition on Liquidity
Historically, the Company has maintained strong liquidity at both the
parent and the operating subsidiaries. While the Disposition will have a
significant effect on capital resources and the overall asset and liability
structure, the Company believes that it will maintain sufficient liquidity at
each of its active subsidiaries.
In connection with the Disposition, USTNY will redeem its outstanding
8 1/2% Capital Notes Due 2001 (the "Capital Notes"). The funds required to
redeem the Capital Notes will be obtained through normal business operations.
The Company also will defease the $30 million balance of its 8% Notes due 1996.
The funding for such defeasance will be provided by cash on hand, dividends from
subsidiaries, and financing from outside sources now under negotiation. See
"Special Factors".
The Pro Forma Condensed Statement of Condition reflects an increase of
$66.9 million of short-term borrowings as a result of the Disposition and other
adjustments. Approximately $42.2 million is due to the elimination of the
Capital Notes and the 8% Notes Due 1996. The remaining increase in short-term
borrowings is a result of an assumption that the Company initially would
maintain a level of investment securities equal to the carrying amount of
securities that were sold. The after-tax proceeds from the sale were
H-56
<PAGE> 265
$24.6 million less than the carrying amount of the investment securities which
were sold. The amount for this line item is set forth in note (d) to "Notes to
Pro Forma Condensed Financial Statements".
Customer deposit balances associated with the Processing Business have
provided the Company with a stable, long-term source of funds that historically
has been used to finance fixed-rate loans and investments. In the fourth quarter
of 1994, the Company sold over $800 million of Treasury and Agency Securities in
anticipation of the closing of the Merger and the resultant need to fund the
deposit balances being transferred as part of the Chase Acquired Business.
Ongoing liquidity after the Disposition will be supplied by approximately
$1.9 billion of interest and non-interest bearing customer deposits associated
with the Core Businesses. Such customer deposits plus money market borrowings in
excess of the amounts needed to finance the loan portfolio will be invested
primarily in short-term Treasury Securities and floating rate investments.
Interest Rate Sensitivity
Interest rate risk arises from differences in the timing of repricing
assets and liabilities. One measure of interest rate risk is the difference in
asset and liability repricing on a cumulative basis within a specified time
frame. The following table provides the components of the Company's interest
rate sensitivity gaps at September 30, 1994. Gap analysis has inherent
limitations as an analytical tool because it only measures the Company's
exposure at a single point in time. Exposure to interest rates is constantly
changing as a result of the Company's ongoing business and its management
initiatives. Accordingly, the gap table cannot be used to predict the Company's
interest sensitivity position after the Disposition. Certain actions that the
Company has taken in response to the transaction have been described in "--
Impact of the Disposition on Liquidity" section.
H-57
<PAGE> 266
As set forth in the following table, as of September 30, 1994, the Company
had more liabilities repricing than assets (liability sensitive) through one
year. In general, when an enterprise is liability sensitive, its net interest
income will improve in a declining interest rate environment and will decline in
a rising interest rate environment. Conversely, an asset sensitive enterprise,
which the Company is in the 1 - 5 year time period, will realize a benefit in
net interest income if rates are rising and will have lower net interest income
in a falling rate environment.
<TABLE>
<CAPTION>
0-3 4-6 7-12 1-5 OVER
MONTHS MONTHS MONTHS YEARS 5 YEARS TOTAL
---------- --------- --------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest Bearing Deposits with
Banks.............................. $ 74,855 -- -- -- -- $ 74,885
Securities Available for Sale and
Held to Maturity................... 406,389 145,139 234,504 756,599 189,259 1,731,890
Federal Funds Sold and Securities
Purchased Under Agreements to
Resell............................. 6,000 -- -- -- -- 6,000
Loans, Net of Allowance for Credit
Losses............................. 955,188 30,089 55,402 299,556 214,956 1,555,191
Cash and Other Non-Interest Earning
Assets............................. 421,298 26,299 28,679 69,447 104,842 650,565
---------- --------- --------- ---------- --------- ----------
Total Assets......................... 1,863,760 201,527 318,585 1,125,602 509,057 4,018,531
========== ========== ========== ========== ========== ==========
Liabilities and Stockholders' Equity
Non-Interest Bearing Deposits........ 190,948 31,251 62,501 375,748 450,500 1,110,948
Interest Bearing Deposits............ 1,246,101 7,414 11,331 7,415 -- 1,272,261
Federal Funds Purchased, Securities
Sold Under Agreements to Repurchase
and Other Borrowings............... 1,187,958 -- -- -- -- 1,187,958
Accounts Payable and Accrued
Liabilities........................ 34,790 25,450 23,591 29,059 32,263 145,153
Long-Term Debt....................... 1,650 2,737 1,000 52,984 4,203 62,574
Stockholders' Equity................. -- -- -- -- 239,637 239,637
---------- --------- --------- ---------- --------- ----------
Total Liabilities and Stockholders'
Equity............................. 2,661,447 66,852 98,423 465,206 726,603 4,018,531
---------- --------- --------- ---------- --------- ----------
Asset/(Liability) Sensitivity Gap.... (797,687) 134,675 220,162 660,396 (217,546) --
---------- --------- --------- ---------- --------- ----------
Interest Rate Swaps.................. 61,750 (12,125) (3,750) (45,875) -- --
---------- --------- --------- ---------- --------- ----------
Interest Rate Sensitivity Gap........ (735,937) 122,550 216,412 614,521 (217,546) --
---------- --------- --------- ---------- --------- ----------
Cumulative Interest Rate Sensitivity
Gap................................ $ (735,937) $(613,387) $(396,975) $ 217,546 $ -- $ --
========== ========== ========== ========== ========== ==========
</TABLE>
Following the Disposition, the Company will no longer have access to
non-interest bearing deposits derived from the Processing Business and has taken
actions to reduce its exposure to fixed-rate investments through its sale of
held to maturity securities portfolio and to rebalance its asset/liability mix
through the sale of certain available for sale securities. See
"-- Asset/Liability Management".
The Disposition will have no direct impact on the Company's private banking
loan portfolio. Slightly less than 50 percent of the current loan portfolio is
made up of fixed-rate mortgages. The fixed-rate mortgage portfolio has an
average maturity of about 5 years and a duration of about 3.5 years. While it is
anticipated that the portion of fixed-rate loans will remain about constant,
changes in the level and direction of interest rates will cause prepayments of
existing loans and origination of new fixed-rate loans to vary. Consequently,
the proportion of fixed-rate loans may vary from period to period.
H-58
<PAGE> 267
ASSET QUALITY
The Company's loan portfolio is comprised primarily of loans to private
banking customers. Average loans increased $222 million, or 19.8%, to $1.3
billion in the third quarter of 1994, from $1.1 billion in the third quarter of
1993. Residential real estate mortgages accounted for approximately 70% of the
increase in the portfolio.
An analysis of the allowance for credit losses follows.
<TABLE>
<CAPTION>
THREE-MONTH PERIODS NINE-MONTH PERIODS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
1994 1993 1994 1993
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, Beginning of Period.................. $14,017 $14,052 $13,393 $11,676
Provision Charged to Income................... 500 1,000 1,500 3,500
Recoveries.................................... 308 16 742 1,513
Charge-offs................................... (398) (801) (1,208) (2,422)
------- ------- ------- -------
Net (Charge Offs)............................. (90) (785) (466) (909)
------- ------- ------- -------
Balance, End of Period........................ $14,427 $14,267 $14,427 $14,267
======= ======= ======= =======
</TABLE>
The provision for credit losses in the third quarter of 1994 was $500,000,
compared to $1.0 million in the third quarter of 1993. As a percentage of
average loans for the quarter, net charge-offs for the third quarter of 1994, on
an annualized basis, were 3 basis points, compared to 28 basis points for the
third quarter of 1993.
The allowance for credit losses at September 30, 1994, was $14.4 million,
or 1.07% of average loans outstanding for the quarter. The allowance for credit
losses was $13.4 million, or 1.13% of average loans outstanding for the quarter
ended December 31, 1993, and $14.3 million, or 1.27% of average loans
outstanding for the quarter ended September 30, 1993.
The allowance for credit losses as a percentage of nonperforming loans was
268.71% at September 30, 1994, compared to 223.03% at December 31, 1993, and
286.60% at September 30, 1993. The ratio of nonperforming assets to average
loans and real estate owned for the quarter was 1.27% at September 30, 1994,
compared to 1.47% at December 31, 1993 and 1.51% at September 30, 1993. The
improvement in these ratios between December 31, 1993 and September 30, 1994,
reflects a net addition to the allowance for credit losses since December 31,
1993 as the provision has exceeded net loan charge-offs.
Nonperforming assets, which include non-accrual and restructured loans and
real estate acquired in debt restructurings, are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1994 1993 1993
------------- ------------ -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Non-Accrual and Restructured Loans....................... $ 5.4 $ 6.0 $ 5.0
Real Estate Owned Excluding Premises..................... 11.9 11.5 12.1
------ ------ ------
Total Nonperforming Assets............................... $17.3 $ 17.5 $17.1
========== ========== ==========
</TABLE>
After the consummation of the Disposition, the Company plans on maintaining
risk-adjusted capital ratios in excess of the "well capitalized" regulatory
requirement. The Company also plans to maintain a high quality loan and
investment portfolio. It is not anticipated that the Disposition will affect the
quality of the loan portfolio. In addition, the Company anticipates that the
majority of the investment portfolio will be made up of Treasury and Agency
Securities.
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ACCOUNTING STANDARDS NOT YET ADOPTED
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan", ("FAS 114")," issued in May 1993, and
Statement of Financial Accounting Standards No. 118, "Accounting by Creditors
for Impairment of a Loan -- Income Recognition and Disclosures", ("FAS 118")",
an amendment of FAS 114, issued in October 1994, address the accounting by
creditors for impairment of certain loans. FAS 114 requires that impaired loans
be measured based on the present value of expected future cash flows discounted
at the loan's effective interest rate or, as a practical expedient, at the
loan's observable market price or the fair value of the collateral if the loan
is collateral dependent. FAS 118 amends the disclosure requirements of FAS 114
to require information about the recorded investment in certain impaired loans
and amends the income recognition criteria in FAS 114. FAS 114 and FAS 118 are
effective for fiscal years beginning after December 15, 1994. Based upon a
preliminary review of the present loan portfolio, the Company does not believe
that the adoption of FAS 114 and FAS 118 will have a significant impact on the
financial condition or results of operations of the Company.
Statement of Financial Accounting Standards No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments", ("FAS
119"), issued in October 1994, requires new disclosures about derivative
financial instruments and amends certain existing disclosure requirements. FAS
119 is effective for fiscal years ending after December 15, 1994. Since FAS 119
imposes only a disclosure requirement, its adoption will not have any effect on
its present financial condition or its results of operations.
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RECENT DEVELOPMENTS
The summary financial data set forth below is derived from the audited
financial statements of the Company for the fiscal year ended December 31, 1993,
and the unaudited financial statements of the Company for the three-month
periods ended December 31, 1994 and 1993, and for the twelve-month period ended
December 31, 1994. Actual results for the year ended December 31, 1994, are
subject to the completion by the Company of its financial statements and
accompanying footnotes and the audit of such financial information by its
independent accountants. See "Pro Forma Condensed Financial Statements",
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED DECEMBER
DECEMBER 31, 31,
------------------- -------------------
1994 1993 1994 1993
------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
CONSOLIDATED CONDENSED STATEMENT OF INCOME:
Net Interest Income....................................... $ 26 $ 28 $ 108 $ 116
Provision for Credit Losses............................... 1 1 2 4
------ ------ ------ ------
Net Interest Income After Provision for Credit Losses..... 25 27 106 112
Other Operating Income.................................... 41 76 270 276
Other Operating Expenses.................................. 95 88 342 315
------ ------ ------ ------
Income (Loss) Before Taxes................................ (29) 15 34 73
------ ------ ------ ------
Net Income (Loss)......................................... $ (16) $ 9 $ 21 $ 42
====== ====== ====== ======
PER COMMON SHARE:
Fully diluted............................................. $(1.65) $ 0.92 $ 2.09 $ 4.25
====== ====== ====== ======
Cash Dividends Declared................................... $ 0.50 $ 0.47 $ 2.00 $ 1.88
CONSOLIDATED CONDENSED STATEMENT OF CONDITION:
Total Assets.............................................. $3,223 $3,186
Total Deposits............................................ 2,440 2,487
Long-Term Debt............................................ 61 65
Total Stockholders' Equity................................ 223 229
EARNINGS RATIOS:
Return on Average Total Assets............................ (1.60)% 0.96% 0.53% 1.11%
Return on Average Total Stockholders' Equity.............. (27.3)% 17.1% 9.2% 20.5%
CAPITAL RATIOS:
As a Percentage of Risk Adjusted Period End Total Assets:
Tier 1 Capital.......................................... 13.52% 14.08%
Total Capital........................................... 14.79% 15.47%
Tier 1 Leverage........................................... 5.68% 5.60%
</TABLE>
Results of Operations
On January 19, 1995, the Company reported a net loss of $15.5 million for
the fourth quarter of 1994, compared to net income of $9.1 million for the
fourth quarter of 1993. On a fully diluted per share basis, the net loss for the
fourth quarter of 1994 was $1.65, compared to net income of $0.92 for the fourth
quarter of 1993. The results of the fourth quarter of 1994 include $50.2 million
($27.9 million after taxes) of charges associated with the pending Disposition.
Excluding the aforementioned charges, net income for the fourth quarter of 1994
would have been $12.4, million or $1.22 on a fully diluted per share basis.
For the year 1994, net income was $21.0 million, a decrease of 50.4% from
$42.3 million of net income for the year 1993. Fully diluted net income per
share for 1994 was $2.09, compared with $4.25 for in 1993, a decrease of 50.8%.
Excluding the charges associated with the Disposition, net income for 1994 would
have been $48.9 million, or $4.83 on a fully diluted per share basis.
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<PAGE> 270
Fiduciary and Other Fees
Fiduciary and other fees increased 7.5% to $75.6 million in the fourth
quarter of 1994 from $70.3 million in the fourth quarter of 1993. Fiduciary and
other fees related to the Processing Business increased 7.2% to $25.8 million in
the fourth quarter of 1994 from $24.0 million in the fourth quarter of 1993.
Fiduciary and other fees related to the Core Businesses increased 7.6% to $49.8
million in the fourth quarter of 1994 from $46.3 million in the fourth quarter
of 1993.
For the year 1994, fiduciary and other fees were $295.6 million, an
increase of 11.9% over fiduciary and other fees of $264.1 million in 1993.
Fiduciary and other fees related to the Processing Business increased 10.5% to
$102.7 in 1994 from $93.0 million in 1993. Fiduciary and other fees related to
the Core Businesses increased 12.7% to $192.9 million in 1994 from $171.1
million in 1993. Excluding fiduciary and other fees attributable to Pacific
Northwest, acquired on July 7, 1993, fiduciary and other fees related to the
Core Businesses would have increased 10.5% for the year 1994.
Assets Under Management
Total assets under management increased 2.4% to $33.0 billion at December
31, 1994, from $32.2 billion at December 31, 1993. Such assets include $1.9
billion of funds under management for clients of the Processing Business. Assets
held in custody for personal clients increased 4.7% to $8.2 billion at December
31, 1994, from $7.9 billion at December 31, 1993. Corporate trust assets under
trusteeship and agency relationships, including assets administered by the
Company's bond immobilization business, increased 4.8% to $159.6 billion at
December 31, 1994, from $152.2 billion at December 31, 1993. Total assets under
administration for the Processing Business increased 11.2% to $223.4 billion at
December 31, 1994, from $200.9 billion at December 31, 1993.
Securities Gains (Losses) and Net Interest Income
Under the Merger Agreement, the assets of the Chase Acquired Business
(which includes the Processing Business) will include readily available funds
equal to the liabilities (including deposit liabilities) associated with the
Chase Acquired Business. The Chase Acquired Business deposits provided a
long-term source of funds to the Company which financed a portion of the
Company's long- and medium-term interest earning assets. In anticipation of
consummating the Disposition and to substantially effect a rebalancing of the
Company's overall asset and liability structure, in the fourth quarter of 1994,
the Company sold approximately $800 million of Treasury and Agency Securities.
The proceeds from such sales were invested in short-term investment securities
and used to reduce short-term borrowings. Net losses from the sale of securities
in the fourth quarter of 1994 totaled $44.2 million ($23.3 million after taxes),
compared to a net gain of $3.0 million from the sale of securities in the fourth
quarter of 1993. For the year 1994, net losses from the sale of securities
totalled $42.1 million, compared to a net gain from the sale of securities of
$3.0 million for the year 1993.
Net interest income, on a taxable equivalent basis, was $26.8 million in
the fourth quarter of 1994, a decrease of 7.7% from $29.1 million in the fourth
quarter of 1993. Net interest income in 1994, on a taxable equivalent basis, was
$112.8 million, a decrease of 7.6% from $122.1 million in 1993. The principal
reason for the decline of net interest income during the fourth quarter of 1994
and the year 1994 was the reduction ($283 million for the fourth quarter and
$187 million for the year) in the average of net non-interest bearing deposit
balances.
The average net non-interest bearing deposit balances of the Processing
Business declined 28.8% to $602 million in the fourth quarter of 1994, compared
to $845 million in the fourth quarter of 1993. The average volume of net
non-interest bearing deposit balances of the Processing Business in 1994 were
$776 million, a 21.1% reduction from $983 million in 1993. Replacing such net
non-interest bearing deposit balances with short-term borrowings caused the
Company's net interest income to decline by $3.2 million ($1.7 million after
taxes or $0.18 per fully diluted share) in the fourth quarter of 1994 and $9.0
million ($4.8 million after taxes or $0.47 per fully diluted share) in 1994.
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<PAGE> 271
The net yield on interest-earning assets was 3.43% in the fourth quarter of
1994 and 3.49% in the year 1994, compared to 3.86% and 3.95% in the
corresponding 1993 periods. The decline in the net yield reflects the lower
level of net non-interest bearing deposit balances and the impact of the
reduction in the investment securities portfolio's maturity structure.
Other Income
Other income was $9.1 million for the fourth quarter of 1994, compared to
$2.4 million for the fourth quarter of 1993, an increase of 282.3%. Other income
was $16.7 million in 1994, compared to and $8.9 million in 1993, an increase of
89.0%. This increase was attributable primarily to the sale by the Company of
its partnership interest in Financial Technologies International L.P.; a pre-tax
gain of $6.4 million was recorded in the fourth quarter of 1994 ($3.4 million
after taxes or $0.36 per fully diluted share for the fourth quarter and $0.33
per fully diluted share for the year 1994) in connection with this transaction.
Total Revenues
Total revenues (defined as fiduciary and other fees and net interest income
after provision for credit losses, adjusted for securities losses incurred in
anticipation of the Disposition) were $109.9 million for the fourth quarter of
1994, compared with $102.9 million for the fourth quarter of 1993. Total
revenues were $420.5 million for the year 1994, compared with $388.2 million for
the year 1993. Core Businesses total revenues were $73.5 million for the fourth
quarter of 1994, an increase of 7.6% over $68.3 million of total revenues in the
fourth quarter of 1993. Core Businesses total revenues for the year 1994 were
$270.2 million, an increase of 14.1% over 1993 Core Businesses total revenues of
$236.8 million. Total revenues attributable to the Processing Business were
$36.4 million for the fourth quarter of 1994, compared with $34.6 million for
the fourth quarter of 1993. Total revenues attributable to the Processing
Business in 1994 were $150.3 million compared with $151.4 million in 1993.
Operating Expenses
Non-interest operating expenses were $94.3 million in the fourth quarter of
1994, 7.5% higher than the $87.7 million in the fourth quarter of 1993.
Non-interest operating expenses were $341.9 million in the year 1994, an
increase of 8.4% from $315.5 million in the year 1993. The Company incurred $6.0
million ($4.6 million after-taxes) in professional fees and other related
expenses in the fourth quarter of 1994 in connection with the proposed
Disposition. Salaries and employee benefit expenses, including sales incentives
and commissions, increased $4.3 million, or 8.6%, in the fourth quarter of 1994,
and $18.3 million, or 9.7%, in the year 1994, reflecting increases in the size
of the asset management and mutual funds services businesses' professional
staffs and related employee benefit expense. In addition, the expense accrued
for the Company's stock-based incentive award plans increased by approximately
$500,000 after taxes, or $0.05 per share, in the fourth quarter of 1994 as a
result of the higher price of Company Common Stock in the fourth quarter of 1994
following the Company's announcement of the Disposition. For the fourth quarter
of 1994, the ratio of total operating expenses to taxable equivalent total
revenues, as deferred ("efficiency ratio"), was 79.6%, compared to 84.1% for the
fourth quarter of 1993. For the year 1994, the comparable efficiency ratio was
79.0%, versus 80.1% for the year 1993. The calculation of the 1994 efficiency
ratios excludes the impact of the pending Disposition on operating income and
operating expenses.
Core Businesses operating expenses were $51.7 million during the fourth
quarter of 1994, compared with $49.8 million during the comparable fourth
quarter of 1993. The operating expenses attributable to the Processing Business
were $27.8 million for the fourth quarter of 1994, compared with $32.3 million
for the fourth quarter of 1993. Corporate overhead and other unallocated
expenses were $14.9 million and $5.6 million for the fourth quarters of 1994 and
1993, respectively.
Core Businesses operating expenses were $194.1 million during 1994,
compared with $173.4 million during 1993. The operating expenses attributable to
the Processing Business were $113.6 million for 1994, compared with $110.1
million during 1993. Corporate overhead and other unallocated expenses were
$34.2 million and $32.0 million for 1994 and 1993, respectively.
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<PAGE> 272
Income Tax Expense
As a result of the pre-tax loss of $28.6 million in the fourth quarter of
1994, the Company recorded a tax benefit of $13.0 million (or 45.6% effective
tax rate), compared to a tax provision of $6.0 million (or 39.8% effective tax
rate) for the fourth quarter of 1993. The effective tax rate was 39.0% for the
year 1994, compared to 41.8% for the year 1993. The decline in the effective tax
rate from 1993 to 1994 was due to lower state and local income taxes.
Asset Quality and Provision For Credit Losses
Average loans increased $223 million, or 18.9%, to $1.4 billion in the
fourth quarter of 1994, from $1.2 billion in the fourth quarter of 1993.
Residential real estate mortgages accounted for more than 70% of the increase in
the loan portfolio. Average loans increased $212.2 million, or 19.4%, to $1.3
billion in 1994, from $1.1 billion in 1993.
The provision for credit losses was $500,000 in the fourth quarters of both
1994 and 1993. For the year, the provision for credit losses was $2.0 million,
compared to $4.0 million in 1993.
In the fourth quarter of 1994, net loan charge-offs were $228,000, compared
to net loan charge-offs of $1.4 million in the fourth quarter of 1993. As a
percentage of total average loans for the quarter, net loan charge-offs on an
annualized basis were six basis points in the fourth quarter of 1994, compared
to 46 basis points in the fourth quarter of 1993. For the year 1994, net loan
charge-offs were $694,000, compared to $2.3 million in 1993. As a percentage of
total average loans for the year, net loan charge-offs were five basis points
for 1994, compared to 21 basis points for 1993.
The allowance for credit losses at December 31, 1994, was $14.7 million, or
1.12% of total average loans outstanding for the year, compared with an
allowance for credit losses at December 31, 1993, of $13.4 million, or 1.22% of
total average loans outstanding for 1993. The allowance for credit losses as a
percentage of nonperforming loans amounted to 230.72% at December 31, 1994,
compared to 223.03% at December 31, 1993.
Nonperforming assets were $18.7 million for the year 1994, compared to
$17.5 million for the year 1993. As a percentage of period-end total assets,
total nonperforming assets amounted to 58 basis points for the year 1994,
compared to 55 basis points for the year 1993.
Capital
The Company's Tier 1 Capital ratio was 13.52% at December 31, 1994,
compared to 14.08% at December 31, 1993. The Total Capital ratio was 14.79% at
December 31, 1994, compared to 15.47% at December 31, 1993. The Leverage ratio
was 5.68% at December 31, 1994, compared to 5.60% at December 31, 1993.
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MANAGEMENT
DIRECTORS
Following the Distribution, the Company Board will consist of 20 persons,
each of whom will have been elected for a term expiring at the annual meeting of
the Company's stockholders indicated below, and until his or her successor shall
have been elected and qualified. The following table sets forth information
concerning the individuals who will serve as directors of the Company. These
individuals comprise the current UST Board, other than Donald M. Roberts and
Frederick S. Wonham, current executive officers and directors of UST who will
retire as of, and will not continue to serve as directors following, the
Distribution.
<TABLE>
<CAPTION>
TERM EXPIRES AT
NAME AGE ANNUAL MEETING IN
------------------------------------------------------ --- -----------------
<S> <C> <C>
Eleanor Baum.......................................... 54 1996
Samuel C. Butler...................................... 64 1998
Peter O. Crisp........................................ 62 1997
Daniel P. Davison..................................... 70 1997
Philippe de Montebello................................ 58 1996
Paul W. Douglas....................................... 68 1998
Edwin D. Etherington.................................. 70 1996
Antonia M. Grumbach................................... 51 1997
Frederic C. Hamilton.................................. 67 1997
Peter L. Malkin....................................... 61 1997
Jeffrey S. Maurer..................................... 47 1997
Orson D. Munn......................................... 70 1998
H. Marshall Schwarz................................... 58 1998
Philip L. Smith....................................... 61 1998
John Hoyt Stookey..................................... 65 1996
Frederick B. Taylor................................... 53 1996
Richard F. Tucker..................................... 68 1997
Carroll L. Wainwright, Jr. ........................... 69 1998
Robert N. Wilson...................................... 54 1996
Ruth A. Wooden........................................ 48 1998
</TABLE>
Eleanor Baum became dean of engineering at Cooper Union in 1987. Prior to
that, she was dean at Pratt Institute in Brooklyn and worked as an electrical
engineer in the aerospace industry. Dr. Baum is also a director of Allegheny
Power Systems and Avnet, Inc. She is president-elect of the American Society for
Engineering Education and serves on the Board of Governors of the New York
Academy of Sciences. She is a trustee of the Accreditation Board for Engineering
& Technology, is a commissioner of the Engineering Workforce Commission, and an
advisory board member at Duke University, Rice University and the U.S. Merchant
Marine Academy. She is executive director of the Cooper Union Research
Foundation and a fellow of the Institute of Electrical & Electronic Engineers.
Samuel C. Butler joined the law firm of Cravath, Swaine & Moore in 1956 and
was elected a partner of the firm in 1960. He is also a director of Ashland Oil,
Inc., Millipore Corporation and GEICO Corporation. Mr. Butler is a trustee of
the New York Public Library and of the Culver Educational Foundation.
Peter O. Crisp has been general partner of Venrock Associates since 1969.
He is also a director of Apple Computer, Inc., American Superconductor
Corporation, Evans & Sutherland Computer Corp., Long Island Lighting Company,
Inc., Thermedics Inc., Thermo Electron Corp., Thermo Power Corporation and
ThermoTrex Corp. Mr. Crisp serves as a member of the Board of Managers of
Memorial Sloan-Kettering Cancer Center, Memorial Hospital for Cancer and Allied
Diseases and Sloan-Kettering Institute for Cancer Research. He is a trustee of
North Shore University Hospital and of the Teagle Foundation.
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<PAGE> 274
Daniel P. Davison was chairman of the board of Christie, Manson & Woods
International, Inc. from February 1990 to January 1, 1994. He served as
president of UST and USTNY from the spring of 1979 until June 1, 1986, as chief
executive officer from January 1, 1981 through January 1990 and as chairman of
the board from February 1, 1982 until his retirement in February 1990. Prior to
joining UST, he was associated with Morgan Guaranty Trust Company for 23 years,
serving as corporate secretary, general manager of its London office and, in his
final position, as executive vice president in charge of the National Bank
Division. Mr. Davison is also a director of The Atlantic Companies, Burlington
Northern, Inc., Christies International, plc and Prime Property Inc. He is a
trustee and treasurer of the Winston Churchill Foundation of the United States,
Ltd. and of the Florence Gould Foundation. Mr. Davison is also vice chairman and
governor of The Nature Conservancy and trustee of the Waterfowl Foundation.
Philippe de Montebello has been associated with the Metropolitan Museum
of Art since 1963, serving as associate curator for European paintings from
1963 to 1969, vice director for curatorial and educational affairs from 1974 to
1977 and as director since 1978. In the interim of his duties at the
Metropolitan, Mr. de Montebello served as director of the Museum of Fine Arts
in Houston from 1969 to 1974. He is a member of the Advisory Board of the
Skowhegan School of Painting and Sculpture and the Columbia University Advisory
Council-Departments of Art History and Archaeology. Mr. de Montebello is a
trustee of the New York University Institute of Fine Arts and the American
Federation of Arts.
Paul W. Douglas retired as chairman of the board and chief executive
officer of The Pittston Company in September 1991. Prior to joining Pittston in
January 1984, he had been associated with Freeport-McMoRan Inc. following the
merger of Freeport Minerals Company and McMoRan Oil and Gas Company in April
1981. Formerly, he was director of the internal finance section of the ECA
Mission to France. Mr. Douglas is also a director of Holmes Protection Group,
Inc., MacMillan Bloedel Limited of Vancouver, B.C., New York Life Insurance
Company, Phelps Dodge Corporation, Philip Morris Companies, Inc. and South
American Gold and Copper Co. He is a member of The Council on Foreign Relations,
Inc. and a trustee of The International Center for the Disabled and of St.
Luke's-Roosevelt Hospital.
Edwin D. Etherington was president and chief executive officer of the
American Stock Exchange from 1962 to 1966 and president of Wesleyan University
from 1966 to 1970. Earlier, after practicing law in Washington, D.C. and New
York City, he was vice president of the New York Stock Exchange and,
subsequently, a general partner of Pershing & Co. Mr. Etherington was president
(1971) and chairman (1972) of the National Center for Voluntary Action and for
two years was chairman of the National Advertising Review Board. He is a
director of Automatic Data Processing, Inc. and a trustee of The Schumann
Foundation. He also serves as honorary chairman of the Lymes' Youth Service
Bureau and of the Hobe Sound Child Care Center.
Antonia M. Grumbach joined the law firm of Patterson, Belknap, Webb & Tyler
in 1971 and became a partner of the firm in 1979. She is currently serving as
managing partner of the firm. She is vice chairman of the board of trustees of
Teachers College-Columbia University, and a trustee of Milton Academy, the CUNY
Graduate Center Foundation, the William T. Grant Foundation and The Henfield
Foundation. Ms. Grumbach also served as an initial member of the Board of
Advisors of the New York University program on philanthropy and the law.
Frederic C. Hamilton serves as chairman of the board, president and chief
executive officer of Hamilton Oil Company, Inc., chairman of the board of BHP
Petroleum, and chairman of the board of Tejas Gas Corporation. He is also a
director of the American Petroleum Institute and a member of the National
Petroleum Council. Mr. Hamilton is chairman of the Denver Art Museum Foundation
and of the Denver Art Museum, and a trustee of the Boys' Club Foundation and the
Boy Scouts of America Denver Area Council.
Peter L. Malkin joined the predecessor law firm of Wien, Malkin & Bettex in
1958 and became a partner in the firm in 1962. He is also chairman of W & M
Properties, Inc. and is a general partner in the ownership of several New York
City buildings, including the Empire State Building, the Graybar Building, the
Lincoln Building, 1185 Avenue of the Americas, and One Penn Plaza. Mr. Malkin is
founding chairman of the Grand Central Partnership and of the 34th Street
Partnership, a director of the New York City Chamber of Commerce & Industry, a
member of the New York City Partnership, a member of the Board of Overseers of
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<PAGE> 275
Harvard College and a director and member of the Executive Committee of Lincoln
Center for the Performing Arts.
Jeffrey S. Maurer joined USTNY in 1970 and was made manager of the Asset
Management and Private Banking Group in 1988. He was elected senior vice
president in November 1980, executive vice president in May 1986 and president
effective February 1990, and was designated chief operating officer in December
of 1994. Mr. Maurer is a trustee of Alfred University, a director and treasurer
of The Children's Health Fund, a director of The Hebrew Home for the Aged, a
member of the Advisory Board of The Salvation Army of Greater New York and
chairman of the Commerce and Industry Division of the Greater New York Israel
Bond Campaign.
Orson D. Munn was senior vice president and chief investment officer of
Madison Fund, Inc. from May 1981 through February 1983 and was president of
Orson Munn, Inc. from February 1983 until the organization of Munn, Bernhard &
Associates, Inc. in November 1990. Previously, he was president of Piedmont
Advisory Corporation and, upon its merger in 1980 with Lexington Management
Corporation, performed the duties of vice chairman and chief investment officer.
Earlier, Mr. Munn was associated with Wood Walker & Co. for 20 years, serving as
chief executive officer of the company from 1972 to 1974. Mr. Munn is a trustee
of the Waterfowl Research Foundation and is a former member of the Financial
Advisory Committee of the Garden Club of America, a former trustee of the
Village of Southampton and a former director of numerous charities.
H. Marshall Schwarz joined USTNY in 1967 after a seven-year association
with Morgan Stanley & Co. In 1972, he was elected a senior vice president and
head of the Banking Division. He was elected executive vice president and chief
operating officer of USTNY's Bank Group in 1977 and chief operating officer of
the Asset Management Group in 1979. Mr. Schwarz served as president of UST and
USTNY from June 1986 through January 1990 and became chairman and chief
executive officer effective February 1, 1990. He is also a director of Atlantic
Mutual Companies and Bowne & Co., Inc. Mr. Schwarz is chairman of the board of
the American Red Cross in Greater New York and a director of the United Way of
New York City. He is a trustee of Teachers College-Columbia University, Milton
Academy, the Camille and Henry Dreyfus Foundation, Inc. and The Boys' Club of
New York.
Philip L. Smith has been chairman of the board and director of the Golden
Cat Corporation since November 1990. He was chairman of the board, president and
chief executive officer of The Pillsbury Company from August 1988 through
January 1989. Formerly, he had been associated with General Foods Corporation
for over 20 years, serving in his final position as chairman of General Foods
and director of Philip Morris Companies, Inc. Mr. Smith is also a director of
Whirlpool Corporation and Ecolab Corporation.
John Hoyt Stookey served as president of Quantum Chemical from 1975 to 1993
when Quantum was acquired by Hanson Industries, Inc. He continues as chairman of
the board of Quantum, a position he has held since 1986. As Chairman of Quantum,
Mr. Stookey served from 1989 to 1993 as an executive officer of Petrolane
Incorporated, Petrolane Finance Corp. and QJV Corp., affiliates of Quantum,
which companies were reorganized on July 15, 1993 under the U.S. Bankruptcy
Code. Prior to joining Quantum, Mr. Stookey was president of Wallace Clark
Incorporated from 1969 to 1975 and served as the U.S. Representative to both
private and public banks in Mexico. He is also a director of Cypress AMAX
Minerals Co., ACX Technologies and Chesapeake Corporation. Mr. Stookey is the
founder and president of The Berkshire Choral Institute and of Landmark
Volunteers, and trustee of the Glimmerglass Opera, Berkshire School, The Clark
Foundation and The Robert Sterling Clark Foundation.
Frederick B. Taylor joined USTNY in 1966. In 1980, he was elected a senior
vice president and, in 1986, he was elected an executive vice president of UST
and chairman, Investment Policy of USTNY. Mr. Taylor was elected vice chairman
and chief investment officer effective February 1990. He is a member of the New
York Society of Security Analysts and the Association for Investment Management
and Research. Mr. Taylor serves on the board of counselors of White Plains
Hospital and on the senior advisory board of the New York Chapter of the
Arthritis Foundation.
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<PAGE> 276
Richard F. Tucker joined Mobil Corporation in 1961 and retired as vice
chairman in May 1991. He was a director of Mobil from 1971, and president and
chief operating officer of Mobil Oil Corporation from 1986 until his retirement.
Mr. Tucker is also a director of The Perkin-Elmer Corporation. He is trustee
emeritus of Cornell University and a life member of the Board of Overseers of
Cornell Medical College. He is also a trustee of the Aldrich Museum of
Contemporary Art, The Teagle Foundation and the Norwalk Hospital. Mr. Tucker is
a member of the National Academy of Engineering, The Council on Foreign
Relations, Inc. and the Woods Hole Oceanographic Institution.
Carroll L. Wainwright, Jr. joined the law firm of Milbank, Tweed, Hadley &
McCloy in 1952. After serving as assistant counsel to the Governor of New York
from 1959 through 1960, he returned to the firm, becoming a partner in 1963, a
senior partner in 1986 and a consulting partner in 1991. Mr. Wainwright is a
trustee of the American Museum of Natural History, trustee and vice chairman of
The Cooper Union for the Advancement of Science and Art and trustee and former
president of The Boys' Club of New York. He is also an adjunct professor at
Washington and Lee University Law School, a trustee of the Edward John Noble
Foundation, and member of the Distribution Committee of The New York Community
Trust.
Robert N. Wilson joined Johnson & Johnson in 1964. He was appointed to the
Executive Committee in 1983 and was elected to the board of directors in 1986.
Mr. Wilson has been vice chairman of the board of directors of Johnson & Johnson
since 1989. He is a member of the Board of Directors of the Pharmaceutical
Research and Manufacturers Association, of the Alliance for Aging Research and
The Georgetown College Foundation, Inc. He also serves as a trustee of the
Museum of American Folk Art and is a member of the Trilateral Commission. He is
a director of The James Breck Foundation in London, England.
Ruth A. Wooden became president and chief executive officer of The
Advertising Council in August 1987. Prior to joining The Advertising Council,
she was employed with NW Ayer, Inc. for eleven years. Ms. Wooden serves as a
trustee of The Edna McConnell Clark Foundation and of St. Luke's Roosevelt
Hospital Center. She is vice chair of CARE, USA and an advisor to the Columbia
Health Sciences Advisory Council and the Columbia University School of Public
Health Advisory Council.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company Board and the Board of Trustees of New Trustco (the "Board of
Trustees") (together, "the Boards") each will have, among others, a standing
Executive Committee, a standing Audit Committee (in the case of New Trustco,
known as the Examining & Audit Committee) and a standing Compensation and
Benefits Committee. The Executive Committees of the Company Board and the Board
of Trustees (together, the "Executive Committee") will be composed of Mr.
Schwarz (the Committee Chairman) and seven other members, all of whom will be
appointed annually. The Executive Committee will have the power to act for the
Boards when the Boards are not in session and will also serve as a nominating
committee. The Executive Committee will consider nominees for director and
trustee recommended by shareholders who submit the names of recommended nominees
with supporting reasons for such recommendations in writing to the Secretary of
the Company or New Trustco, as the case may be. In addition to Mr. Schwarz, the
Executive Committee will initially consist of Messrs. Butler, Davison, Douglas,
Etherington, Maurer, Stookey and Wainwright.
The Audit Committee of the Company Board and the Examining and Audit
Committee of the Board of Trustees (together, the "Audit Committee") will
provide the Boards with an independent review of the Company's and New Trustco's
accounting policies, the adequacy of financial controls and the reliability of
financial information reported to the public. The Audit Committee will also
conduct examinations of the affairs of the Company and New Trustco as required
by law or as directed by the Boards, will supervise the activities of the
internal auditor and will review the services provided by the independent
auditors. The Audit Committee members, who will be appointed annually, will
initially consist of Messrs. Douglas, de Montebello, Smith, Stookey and Wilson.
The Compensation and Benefits Committee of the Company Board and the Board
of Trustees (together, the "Compensation Committee") will determine compensation
and benefits for officer-trustees, will review salary and benefits changes for
other senior officers and will review employee benefit plans under ERISA and
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other employee benefit plans. The Compensation Committee members, who will be
appointed annually, will initially consist of Messrs. Smith, Hamilton, Tucker
and Wilson and Ms. Wooden.
COMPENSATION OF DIRECTORS
Each director of the Company who is not also an officer of the Company or
of New Trustco will receive an annual retainer fee of $15,000 and an attendance
fee of $1,000 for each meeting attended of the Company Board, of the Board of
Trustees, and of the committees of the respective Boards, other than those
mentioned in the following paragraph, in which cases no attendance fee is
applicable. If the Boards or the Executive Committee of the Company and New
Trustco meet on the same day, only one fee will be paid to a director-trustee
for attendance at both meetings. Under the Stock Plan for Non-Officer Directors,
each director of the Company who is not also an officer of the Company or of New
Trustco will receive 100 Shares of Company Common Stock each February as an
additional part of his or her annual retainer fee.
The Chairman of the Audit Committee will receive an annual retainer of
$12,500 and each member of such committee will receive an annual retainer of
$10,000. The Chairman of the Compensation Committee will receive an annual
retainer of $10,000 and each member of such committee will receive an annual
retainer of $7,000. All directors and trustees will be reimbursed for travel and
other out-of-pocket expenses incurred by them in attending board or committee
meetings.
Directors who are not also officers of the Company or of New Trustco may
defer cash compensation (including meeting attendance fees) for services
rendered as directors of the Company or as trustees of New Trustco or as members
of any Company Board committee. Under the Board Members' Deferred Compensation
Plan certain provisions applicable to amounts so deferred are identical to
provisions applicable to deferred performance share unit awards under the 1989
Stock Compensation Plan of U.S. Trust Corporation. These include provisions
relating to (i) conversion of the deferred amounts into phantom share units or
allocation of such amounts to interest-bearing accounts, (ii) crediting of
dividend equivalents or earnings to such deferred amounts, and (iii) the form
and time of distributions with respect to such deferred amounts. See "Executive
Compensation Plans in Effect after the Distribution -- Other Features of Stock
Plan and Predecessor Performance Plans -- Performance Share Units."
Directors who are not also officers of the Company or of New Trustco who
retire from the Company Board at age 72 with 10 or more years of service on any
of the Boards of UST, USTNY (prior to the Closing Date), the Company or New
Trustco will be paid an annual retirement benefit for life equal to the annual
retainer received as a member of such Boards in his or her last full year of
membership on such Boards. Directors with less than 10 years of service who
retire at age 72 and directors with 15 or more years of service who retire prior
to age 72 will be paid the same annual benefit for the lesser of the number of
years he or she served on such Boards or his or her lifetime.
It is anticipated that the Company will adopt a new stock option plan for
non-employee directors to replace the present U.S. Trust Corporation Stock
Option Plan for Non-Employee Directors (the "UST Directors' Option Plan") which
will be terminated. The terms and conditions on which options will be granted to
directors under the new stock option plan have not yet been decided.
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EXECUTIVE OFFICERS
The following table sets forth certain information concerning the persons
who will serve as executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
H. Marshall Schwarz....................... 58 Chairman and Chief Executive Officer
Jeffrey S. Maurer......................... 47 President and Chief Operating Officer
Frederick B. Taylor....................... 53 Vice Chairman and Chief Investment Officer
John M. Deignan........................... 51 Executive Vice President
John C. Hover, II......................... 51 Executive Vice President
Paul K. Napoli............................ 49 Executive Vice President
Kenneth G. Walsh.......................... 46 Executive Vice President
John L. Kirby............................. 47 Senior Vice President and Treasurer
</TABLE>
The principal occupations and positions for the past five years of each of
the persons named above (other than Messrs. Schwarz, Maurer and Taylor, whose
information is set forth above) are as follows:
John M. Deignan joined USTNY in 1987 and is an Executive Vice President in
charge of the Institutional Asset Services and Securities Services & Trust
Operations Divisions. Prior to joining USTNY in August of 1987, Mr. Deignan was
associated with Dean Witter Reynolds for over 18 years serving in various senior
management roles including Deputy Director of National Operations and Director
of Capital Markets Operations. He received his B.A. degree from St. Bonaventure
University. Mr. Deignan represents USTNY as its senior officer on the New York
Clearing House Steering Committee, serves on the Board of Directors of U.S.
Trust Company Limited and Participants Trust Company, is a member of the U.S.
Trust Management, Emergency Operations, Risk Policy, and Advisory Committees.
John C. Hover, II joined USTNY in 1976 and currently is manager of the
Personal Asset Management and Private Banking Division. He is also a member of
USTNY's Operating, Credit and Asset and Liability Management Committees. He
serves as Chairman of USTC International Corp. Prior to joining USTNY, Mr. Hover
was with Chemical Bank for nine years. He received his B.A. from the University
of Pennsylvania in 1965 and his M.B.A. from The Wharton School in 1967.
Paul K. Napoli joined USTNY in 1983 in the Personal Investment Division. In
1989 he became head of the Asset Management Division and in December 1993 he
headed up the Institutional and Mutual Fund Asset Management Division. At
present, Mr. Napoli is in charge of the Personal Investment Division in New
York. Mr. Napoli also serves on USTNY's Operating Committee and has
responsibility for four of USTNY's affiliates: UST of Connecticut, UST of New
Jersey, Campbell, Cowperthwait & Company and UST Securities Corp. He also serves
on the Special Fiduciary and Broker Relations Committee. Prior to joining USTNY,
Mr. Napoli was a Vice President at The Bank of New York for 11 years. He
received his B.A. from Boston College in 1967 and his M.B.A. from Columbia
University in 1969. He holds the designations of Chartered Financial Analyst and
Certified Trust and Financial Advisor. Mr. Napoli is a member of the New York
Society of Security Analysts, the Association for Investment Management and
Research, and the Rockefeller University Trust and Estate Council.
Kenneth G. Walsh joined USTNY in 1976 and currently is Division Manager of
the Corporate Trust and Agency Division. He is also a member of USTNY's
Operating Committee. Prior to obtaining his current position, Mr. Walsh served
as a Senior Vice President and General Counsel of USTNY. Prior to joining USTNY
in 1976, Mr. Walsh was an associate at the firm of Remsen, Millham & Curran. Mr.
Walsh is a member of the New York State and American Bar Associations and is
admitted to the bars of the U.S. District Court for the Southern District of New
York and the Supreme Court of the United States. He also serves on the New York
Corporate Fiduciaries Association. Mr. Walsh is also on the board of U.S. Trust
of Connecticut. He received his B.S. from St. John's University in 1970, his
J.D. from Brooklyn Law School in 1973, his M.B.A. from St. John's University in
1976, his L.L.M. from New York University in 1981 and attended the Advanced
Management Program at the Harvard Business School in 1989.
John L. Kirby joined USTNY in 1974. He currently heads the Audit Division
and the Risk Policy Office and was head of the Treasury Services Division from
1989 through 1992. He received his B.A. from
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Middlebury College, Vermont, in 1969 and his M.B.A. from the Amos Tuck School at
Dartmouth College in 1974.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid by UST during 1994 to the Company's Chief Executive Officer and the four
other most highly compensated persons who will be executive officers of the
Company, based on salary and bonus earned during 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------------------
ANNUAL
COMPENSATION AWARDS PAYOUTS
-------------------------------- ------------------- ---------
OTHER RESTRICTED STOCK LONG-TERM
ANNUAL STOCK OPTION INCENTIVE ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARDS AWARDS PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) (#) (#) ($) ($)
- ------------------------------------- ---- -------- -------- ------------ ---------- ------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
H. Marshall Schwarz.................. 1994 547,308 257,635 0 0 15,000 465,099 33,177
Chairman, CEO 1993 517,308 304,135 0 0 10,000 545,015 89,641
1992 485,192 305,740 0 0 0 221,688 28,451
Jeffrey S. Maurer.................... 1994 401,539 169,923 0 0 10,000 316,316 23,913
President, COO 1993 381,538 205,923 0 0 6,000 370,669 61,175
1992 359,423 212,029 0 0 15,000 150,617 20,737
Frederick B. Taylor.................. 1994 371,539 151,423 0 3,500 9,000 262,554 21,428
Vice Chairman, 1993 351,539 187,423 0 0 5,000 307,670 48,860
Chief Investment 1992 329,423 183,529 0 0 12,000 126,057 18,527
Officer
John M. Deignan...................... 1994 287,846 110,608 0 0 3,000 187,538 14,392
Executive Vice 1993 274,808 126,260 0 0 3,000 202,184 12,888
President 1992 259,808 112,010 0 0 6,000 84,112 12,040
Paul K. Napoli....................... 1994 272,846 111,358 0 0 3,000 173,286 17,046
Executive Vice 1993 257,769 136,230 0 0 3,000 188,996 13,740
President.......................... 1992 240,808 127,960 0 0 7,500 78,243 12,990
</TABLE>
The following table lists for each of the named executive officers (the
"Named Executive Officers") the payments that comprise the "All Other
Compensation" amounts found in the Summary Compensation Table.
ALL OTHER COMPENSATION
<TABLE>
<CAPTION>
EMPLOYER SUPPLEMENTAL EARNINGS ON
CONTRIBUTION ESOP DEFERRED
TO ESOP(1) AMOUNT(2) AWARDS(3) TOTAL
NAME YEAR ($) ($) ($) ($)
- ----------------------------------- ----- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
H. Marshall Schwarz................ 1994 7,500 19,865 5,812 33,177
Jeffrey S. Maurer.................. 1994 7,500 12,577 3,836 23,913
Frederick B. Taylor................ 1994 7,500 11,077 2,851 21,428
John M. Deignan.................... 1994 7,500 6,892 0 14,392
Paul K. Napoli..................... 1994 7,500 6,142 3,404 17,046
</TABLE>
- ---------------
(1) Represents the amount of the employer contribution made to the ESOP portion
of the 401(k) Plan and ESOP on behalf of each of the Named Executive
Officers for the year indicated.
(2) Represents the amount of the employer contribution, otherwise required under
the ESOP portion of the 401(k) Plan and ESOP, that could not be made to the
Plan on behalf of the Named Executive Officers for 1994 due to certain
limitations imposed under the Code (the "Code Limitations"). This amount is
credited to the officer's account under UST's Executive Deferred
Compensation Plan, and payment is deferred until termination of the
officer's employment. See "Executive Compensation Plans in Effect After the
Distribution -- Executive Deferred Compensation Plan" below for a
description of the Executive Deferred Compensation Plan.
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<PAGE> 280
(3) Represents that portion of the interest accrued on certain previously
deferred incentive plan cash awards which is "above market" interest as
defined in the rules of the Securities Exchange Commission (the
"Commission").
Stock Options
The following table sets forth certain information concerning options
granted during 1994 to the Named Executive Officers, including potential gains
that these officers would realize under two stock price growth-rate assumptions
compounded annually. Under the 5% growth-rate assumption, the indicated values
would be realized if the stock price reached $83.48 per share at the end of the
option term (10 years from grant). Correspondingly, under the 10% growth-rate
assumption, the indicated values would be realized if the stock price reached
$132.93 per share.
OPTION GRANTS IN 1994
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
--------------------------------------------------------- REALIZABLE VALUE OF
NUMBER OF ASSUMED ANNUAL
SECURITIES % OF TOTAL EXERCISE PRICE RATES OF STOCK
UNDERLYING OPTIONS PER SHARE PRICE APPRECIATION
OPTIONS GRANTED TO (MARKET PRICE FOR OPTION TERM(1)
GRANTED(2) (% EMPLOYEES IN AT DATE OF EXPIRATION -------------------
NAME OF SHARES) FISCAL YEAR GRANT)($) DATE 5%($) 10%($)
- -------------------------- -------------- ------------ -------------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
H. Marshall Schwarz....... 15,000 7.7 51.25 01/25/04 483,450 1,225,200
Jeffrey S. Maurer......... 10,000 5.1 51.25 01/25/04 322,300 816,800
Fredrick B. Taylor........ 9,000 4.6 51.25 01/25/04 290,070 735,120
John M. Deignan........... 3,000 1.5 51.25 01/25/04 96,690 245,040
Paul K. Napoli............ 3,000 1.5 51.25 01/25/04 96,690 245,040
</TABLE>
- ---------------
(1) Annual growth-rate assumptions are prescribed by rules of the Commission and
do not reflect actual or projected price appreciation of UST Common Stock.
The actual average annual price appreciation of UST Common Stock over the
last ten years was 13.71%.
(2) Options become exercisable in four equal, cumulative installments in each of
the first through fourth anniversary dates of the date of grant (January 25,
1994).
The following table discloses the aggregated stock option exercises for
each of the Named Executive Officers in the last fiscal year. It also shows the
number of vested and unvested unexercised options and the value of vested and
unvested unexercised in-the-money options.
AGGREGATED OPTION EXERCISES IN 1994 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT YEAR-END(#) YEAR-END($)(2)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------------- ----------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
H. Marshall Schwarz......... 5,500 176,875.00 58,500/35,000 1,585,050/594,025
Jeffrey S. Maurer........... 2,300 81,075.00 39,450/31,250 1,055,692/556,352
Frederick B. Taylor......... 2,550 89,887.50 30,950/25,500 814,850/432,637
John M. Deignan............. 1,000 24,000.00 9,250/9,750 204,715/143,145
Paul K. Napoli.............. 1,500 52,875.00 10,500/10,500 235,402/156,457
</TABLE>
- ---------------
(1) Aggregate market value on the date(s) of exercise less aggregate exercise
price.
(2) Total value of unexercised options is based on the difference between
aggregate market value of UST Common Stock at $63.50 per share, the closing
price on December 30, 1994, and aggregate exercise price.
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<PAGE> 281
Performance Share Units
The following table sets forth certain information concerning long-term
incentive awards granted during 1994 to the Named Executive Officers. The awards
are granted in the form of performance share units under UST's 1989 Stock
Compensation Plan. See "Executive Compensation Plans in Effect After the
Distribution -- Other Features of Stock Plan and Predecessor Performance Plans"
below for a further description of these awards.
LONG-TERM INCENTIVE AWARDS GRANTED IN 1994
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS OF PERFORMANCE SHARE
NUMBER OF PERFORMANCE UNITS
PERFORMANCE PERIOD UNTIL ------------------------------------------------
NAME SHARE UNITS (#) PAYOUT THRESHOLD(#)(1) TARGET(#)(2) MAXIMUM(#)(2)
- ------------------------ --------------- ------------ --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
H. Marshall Schwarz..... 6,042 3 years 3,021 6,042 6,042
Jeffrey S. Maurer....... 4,076 3 years 2,038 4,076 4,076
Frederick B. Taylor..... 3,420 3 years 1,710 3,420 3,420
John M. Deignan......... 2,394 3 years 1,197 2,394 2,394
Paul K. Napoli.......... 2,257 3 years 1,129 2,257 2,257
</TABLE>
- ---------------
(1) Assumes minimum number of performance share units earned in each performance
goal for 1994-96 performance cycle.
(2) Assumes all specified performance targets are reached.
The UST Board and UST's Compensation Committee have approved a
recommendation by UST's management that, if the Merger is consummated, the
performance goals established for the 1993-95 and the 1994-96 performance cycles
will be deemed to have been met in full, and that all performance share units
awarded to each UST officer for each of these performance cycles will be deemed
to be fully earned and payable to the officer if he or she remains in employment
with the Company, New Trustco or their affiliates until the end of such
performance cycle or if he or she leaves such employment before the end of such
performance cycle as a result of retirement or termination due to staff
reductions associated with the Distribution and the Merger.
BENEFICIAL OWNERSHIP
All of the outstanding shares of Company Common Stock are, and will be
prior to the Distribution, held beneficially and of record by UST. Set forth in
the table below is information as of December 31, 1994, with respect to the
number of shares of UST Common Stock beneficially owned by (i) each person or
entity known by the Company to own more than five percent of the outstanding UST
Common Stock, (ii) each person who will be a director of the Company at the Time
of Distribution, (iii) each of the Named Executive Officers of the Company and
(iv) all persons who will be directors and executive officers of the Company at
the Time of Distribution as a group. Because the Distribution will be made on
the basis of one share of Company Common Stock for each share of then
outstanding UST Common Stock, the percentage ownership of each person or entity
named below immediately following the Distribution will be the same as the
percentage ownership of such person or entity immediately prior to the
Distribution. A person or entity is considered to "beneficially own" any shares
(i) over which such person or entity exercises sole or shared voting or
investment power or (ii) which such person or entity has the right to acquire at
any time within 60 days (e.g., through the exercise of employee stock options).
Unless otherwise indicated, each person or entity has sole voting and investment
power with respect to the shares set forth opposite such person's or entity's
name.
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<PAGE> 282
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- --------------------------------------- --------------------------------------- --------
<S> <C> <C>
401(k) Plan and ESOP of United States 1,335,133 shares (in a fiduciary 14.13
Trust Company of New York and capacity)(1)
Affiliated Companies
114 West 47th Street
New York, New York 10036
GeoCapital Corporation 618,750 shares (with sole dispositive 6.55
767 Fifth Avenue power)(2)
New York, New York, 10158
United States Trust Company of New York 354,139 shares (in fiduciary and agency 3.75
and Affiliated Companies capacities)(3)
114 West 47th Street
New York, New York 10036
Eleanor Baum 300(4)(5)
Samuel C. Butler 7,730(4)(5)(6)
Peter O. Crisp 700(4)(5)
Daniel P. Davison 48,095(7)
Philippe de Montebello 800(4)
Paul W. Douglas 1,837(4)(5)
Edwin D. Etherington 8,150
Antonia M. Grumbach 1,300(4)
Frederic C. Hamilton 30,825(4)
Peter L. Malkin 1,200(4)
Jeffrey S. Maurer 19,436(7)(8)(9)
Orson D. Munn 9,500(4)(10)
H. Marshall Schwarz 33,625(8)(9)
Philip L. Smith 5,800
John Hoyt Stookey 5,800(4)
Frederick B. Taylor 26,748(7)(8)(9)(11)
Richard F. Tucker 3,325(4)(5)
Carroll L. Wainwright, Jr. 3,600(4)(7)
Robert N. Wilson 950(4)
Ruth A. Wooden 200(4)(5)
John M. Deignan 5,600(8)(9)
John C. Hover, II 2,925(8)(9)
Paul K. Napoli 6,528(8)(9)
Kenneth G. Walsh 3,309(8)(9)
John L. Kirby 700(8)
All directors and executive officers as
a group (numbering 25 as a group) 228,983 2.42
</TABLE>
- ---------------
(1) These shares consist of 1,058,834 shares allocated or attributable to the
individual accounts of participants in the 401(k) Plan and ESOP, who have
voting and dispositive power over such shares, and 276,299 shares which
have not been allocated to participant accounts, as to which shares USTNY,
as Trustee of the Plan, may be deemed to have voting and dispositive power.
In February 1995, contributions in the aggregate amount of $4,275,480 were
made to the Plan which, under the terms of the Plan, will be used to
purchase additional shares of UST Common Stock for participants' accounts
under the 401(k) portion of the Plan. These shares will be acquired through
purchases in the market. Assuming that the shares are purchased at an
average price of $66 per share, the Plan will hold an additional 64,780
shares of UST Common Stock as a result of these contributions. The number
of shares set forth in the table above does not include these 64,780
shares.
(2) Information herein with respect to GeoCapital Corporation ("GCC") has been
obtained from GCC and from GCC's filings with the Commission pursuant to
Section 13(g) of the Exchange Act by GCC, a registered investment advisor,
and Barry K. Fingerhut and Irwin Lieber, by reason of their ownership
interest in GCC. Such filing further discloses that the shares were
acquired in the ordinary course of business and were not acquired for the
purpose of and do not have the effect of changing or influencing
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<PAGE> 283
the control of UST and were not acquired in connection with or as a
participant in any transaction having such purpose or effect.
(3) UST, USTNY and their affiliates have sole voting power as to 16,171 of such
shares, shared voting power as to 42,452 of such shares, sole dispositive
power as to 197,237 of such shares and shared dispositive power as to
156,902 of such shares. Such shares do not include any shares held in the
401(k) Plan and ESOP. As a matter of policy, USTNY and its affiliates vote
shares held in an agency capacity only as directed by customers, and where
shares are held as a co-fiduciary, vote such shares as directed by the
other co-fiduciaries. Shares held by UST, USTNY and their affiliates as
sole fiduciary are not voted unless specific voting instructions are given
by a donor or beneficiary pursuant to the governing trust instrument.
(4) Does not include shares subject to non-employee director stock options
exercisable within 60 days of December 31, 1994 as follows: Dr. Baum and
Ms. Wooden each 1,650 shares, Messrs. Crisp and Malkin each 3,350 shares,
Mr. Munn 2,000 shares, Mr. Wilson 4,650 shares and 5,000 shares by each of
the other non-employee directors (as defined in the Plan) other than
Messrs. Etherington and Smith.
(5) Does not include shares attributable to deferred awards under the Board
Members' Deferred Compensation Plan as follows: Dr. Baum 232 shares, Mr.
Butler 8,670 shares, Mr. Crisp 1,232 shares, Mr. Douglas 5,709 shares, Mr.
Tucker 309 shares and Ms. Wooden 179 shares.
(6) Includes 1,250 shares held in a trust of which Mr. Butler is trustee and
4,914 shares held in a trust in which he has a beneficial interest.
(7) Includes 10,254 shares owned by Mr. Davison's wife, 2,500 shares owned by
Mr. Maurer's wife, 638 shares held in trust by Mr. Maurer's wife for their
children, 3,989 shares owned by Mr. Taylor's wife and 300 shares owned by
Mr. Wainwright's wife, with respect to which the director in each case
disclaims beneficial ownership.
(8) Does not include shares subject to employee stock options exercisable
within 60 days of December 31, 1994 as follows: Mr. Schwarz 72,250 shares,
Mr. Maurer 53,450 shares, Mr. Taylor 41,200 shares, Mr. Deignan 12,250
shares, Mr. Hover 12,325 shares, Mr. Napoli 13,875 shares, Mr. Walsh 14,500
shares and Mr. Kirby 5,000 shares.
(9) Does not include shares attributable to deferred awards under the 1989
Stock Compensation Plan and Predecessor Performance Plans as follows: Mr.
Schwarz 78,086 shares, Mr. Maurer 29,008 shares, Mr. Taylor 10,864 shares,
Mr. Deignan 5,614 shares, Mr. Hover 2,649 shares, Mr. Napoli 9,063 shares
and Mr. Walsh 7,705 shares.
(10) Includes 1,700 shares held in a trust of which Mr. Munn is trustee.
(11) Includes 270 shares held in a trust of which Mr. Taylor is sole trustee and
in which he has a beneficial interest.
EXECUTIVE COMPENSATION PLANS IN EFFECT AFTER THE DISTRIBUTION
Immediately prior to the Distribution, UST and USTNY will transfer to the
Company and New Trustco, respectively, each employee benefit and executive
compensation plan maintained by it other than any Retained Plan (as defined
under "Effect of Transactions on UST Employees and UST Benefit Plans -- Retained
Plans" in the Proxy Statement-Prospectus to which this Information Statement is
attached as Appendix H), and the Company and New Trustco, respectively, with the
approval of UST as the Company's sole stockholder, will adopt, and will assume
and become solely responsible for all liabilities and obligations of UST or
USTNY under, each of the plans so transferred to it. See "Effect of Transactions
on UST Employees and UST Benefit Plans -- Transfer of Plans" in the Proxy
Statement-Prospectus to which this Information Statement is attached as Appendix
H for a list of the plans to be so transferred.
Set out below is a description of the principal employee benefit and
compensation plans of the Company and New Trustco that will be in effect
following the Distribution and the Merger and in which the Named Executive
Officers will participate.
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RETIREMENT BENEFITS
Each of the Named Executive Officers is (and will continue to be after the
Distribution and Merger) a participant in the Employees' Retirement Plan of
United States Trust Company of New York and Affiliated Companies (the
"Retirement Plan"). The Retirement Plan is a defined benefit pension plan which
is tax-qualified under Section 401(a) of the Code. The Retirement Plan provides
for payment of a pension in an annual amount equal to a specified percentage
(based on the length of a participant's credited service up to a maximum of 35
years) of the participant's average base salary for his highest five consecutive
years of base salary during the last ten plan years prior to retirement or other
termination of employment, reduced by a portion of the participant's annual
Social Security benefit. The table below shows the estimated annual pension
payable under the Retirement Plan's benefit formula upon retirement at age 65 to
persons in specified remuneration and years-of-service classifications who have
elected to receive their pensions under a straight life annuity option. The
amounts shown do not reflect reductions which would be made to offset Social
Security benefits.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL PENSION FOR
REPRESENTATIVE
YEARS OF CREDITED SERVICE
HIGHEST CONSECUTIVE ----------------------------------
FIVE-YEAR 35 OR
AVERAGE BASE SALARY 15 25 MORE
- ------------------- -------- -------- --------
<S> <C> <C> <C>
$ 200,000 $ 67,500 $100,000 $120,000
250,000 84,375 125,000 150,000
300,000 101,250 150,000 180,000
350,000 118,125 175,000 210,000
400,000 135,000 200,000 240,000
450,000 151,875 225,000 270,000
500,000 168,750 250,000 300,000
550,000 185,625 275,000 330,000
600,000 202,500 300,000 360,000
</TABLE>
The table below sets forth the number of years of credited service and the
average base salary, in each case as of the end of 1994, that would be taken
into account in determining the pension payable under the Retirement Plan's
benefit formula to each of the Named Executive Officers.
<TABLE>
<CAPTION>
YEARS AVERAGE
NAME OF SERVICE BASE SALARY
----------------------------------------------- ---------- -----------
<S> <C> <C>
H. Marshall Schwarz............................ 27.9 $ 496,000
Jeffrey S. Maurer.............................. 24 366,000
Frederick B. Taylor............................ 28.6 337,000
John M. Deignan................................ 7 263,400
Paul K. Napoli................................. 11 246,400
</TABLE>
The amount of compensation taken into account in determining each Named
Executive Officer's pension under the Retirement Plan's formula, as shown in the
third column of the table above, represents the average of the rates of base
salary in effect for such officer as of the last day of each of the years 1990
through 1994. In the case of each such Named Executive Officer, the base salary
amounts so taken into account for the years 1992, 1993 and 1994 differ from the
amounts shown in the "Salary" column of the Summary Compensation Table for these
years, in that the latter amounts represent the base salary actually earned by
such Named Executive Officer during each such year, rather than the rate of base
salary in effect for such Named Executive Officer at the end of that year.
The pension amounts otherwise payable from the Retirement Plan are subject
to reduction to the extent necessary to comply with the Code Limitations.
However, in the case of each Named Executive Officer, any pension amount
otherwise payable under the Retirement Plan's benefit formula that cannot be
paid to such Named Executive Officer from the Retirement Plan because of the
Code Limitations will be paid to the officer under the Company's Benefit
Equalization Plan or, in the case of Messrs. Schwarz, Maurer and Taylor,
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under a supplemental pension agreement which UST has entered into with each such
officer and which will be transferred to and assumed by the Company.
401(K) PLAN AND ESOP
The 401(k) Plan and ESOP is a defined contribution pension plan. Employees
are eligible to become participants in the plan following the completion of one
year of service, except that employees are eligible to make tax-deferred
elective contributions from their base salary following the completion of three
months of service. Contributions under the 401(k) Plan and ESOP consist of
annual employer contributions made on behalf of the participants under the
Plan's ESOP feature ("ESOP Contributions"), and tax-deferred elective
contributions made by the participants under the 401(k) Plan and ESOP's 401(k)
feature ("401(k) Contributions").
Under the 401(k) feature of the 401(k) Plan and ESOP, a participant may
elect to have a specified percentage of his or her annual award under the 1990
Annual Incentive Plan of United States Trust Company of New York and Affiliated
Companies (the "1990 Annual Incentive Plan") (or in the case of participants who
are not eligible for awards under the 1990 Annual Incentive Plan, the Incentive
Award Plan of United States Trust Company of New York and Affiliated Companies)
and/or a specified percentage of the participant's base salary, contributed to
the 401(k) Plan and ESOP on his or her behalf as a 401(k) Contribution. All
401(k) Contributions made on behalf of a participant are paid to a trust fund
maintained under the 401(k) Plan and ESOP and invested as directed by the
participant in one or more of six investment funds, including a fund designed
for investment in UST Common Stock (the "U.S.T. Corp. Stock Fund").
The annual ESOP Contribution made to the 401(k) Plan and ESOP on behalf of
each participant is generally equal to 5% of such participant's compensation. In
the case of any participant who is a participant in the 1990 Annual Incentive
Plan, the amount of ESOP contribution to be made for the participant for any
year may not exceed the amount of the participant's award under the 1990 Annual
Incentive Plan for such year. The ESOP feature of the 401(k) Plan and ESOP is
designed to invest in UST Common Stock. The 401(k) Plan and ESOP acquired UST
Common Stock with the proceeds of loans (the "ESOP Loan"), and the shares of UST
Common Stock so acquired were placed in a suspense account. Each year, shares so
acquired are released to the extent the ESOP Loan is repaid, and the shares so
released are allocated among the individual accounts maintained for the ESOP
participants in proportion to the amounts of ESOP Contributions made on their
behalf for the year. The ESOP Loan is repaid with dividends on the UST Common
Stock acquired with the ESOP Loan proceeds, and with the ESOP Contribution, to
the extent determined by the 401(k) Plan and ESOP Committee. Each participant
receives full credit for dividends that are paid on the shares of UST Common
Stock allocated to his or her ESOP account, whether or not such dividend are
used to repay the ESOP Loan. Any ESOP Contributions and dividends not applied to
repay the ESOP Loan are invested in participants' accounts in the U.S.T. Corp.
Stock Fund.
The Code Limitations restrict the amount of the ESOP Contribution that can
be made each year on behalf of any participant. Prior to 1994, the amount of the
ESOP Contribution, which could not be made to the 401(k) Plan and ESOP on behalf
of a participant because of such limitations was provided to the participant
through an award of benefit equalization units under the 1989 Stock Compensation
Plan of U.S. Trust Corporation (the "Stock Plan"). Effective with the ESOP
Contribution to be made to the 401(k) Plan and ESOP Plan for 1994, the portion
of any ESOP Contribution that cannot be so made to the 401(k) Plan and ESOP on
behalf of a participant will be provided to the participant through a credit to
the participant's account under the Executive Deferred Compensation Plan
described below.
A participant's interest in the trust fund under the 401(k) Plan and ESOP
is at all times fully vested. Distributions from the 401(k) Plan and ESOP become
payable upon the participant's retirement, death or other termination of
employment. Withdrawals from the 401(k) portion of a participant's account may
be made after age 59 1/2 or in cases of hardship. Distributions from the 401(k)
Plan and ESOP are made in a lump sum, or, in certain cases, in annual
installments. Such payments are made in cash, except that any shares of UST
Common Stock allocated to the participant's account under the ESOP portion of
the 401(k) Plan and
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ESOP, and shares attributable to the portion of the participant's account that
are invested in the U.S.T. Corp. Stock Fund, may generally be distributed in
kind.
It is anticipated that following the Merger, shares of Chase Common Stock
received in exchange for UST Common Stock held in the ESOP portion of the 401(k)
Plan and ESOP and in the U.S.T. Corp. Stock Fund will be sold, and the proceeds
of such sales will be used to purchase shares of Company Common Stock. The
shares of Company Common Stock so acquired, together with the shares of Company
Common Stock received by the 401(k) Plan and ESOP pursuant to the Distribution,
will be held in the 401(k) Plan and ESOP subject to the same provisions as
applied to the shares of UST Common Stock with respect to which the distributed
shares of Company Common Stock and the shares of Chase Common Stock were
received.
ANNUAL INCENTIVE AWARDS
The 1990 Annual Incentive Plan provides for annual cash awards to be earned
and paid based on the attainment of annual performance objectives established by
the Compensation Committee at the beginning of each year. The Compensation
Committee has the authority to select the officers who will be eligible to
receive awards, to determine the maximum amount available for awards each year,
to establish the performance objectives that must be met in order for awards to
be earned and paid, and to determine the extent to which such performance
objectives have been met. In the Compensation Committee's discretion, the
performance objectives may be based on corporate performance, the participant's
individual performance, or a combination of the two.
Because of the special circumstances that will obtain with respect to the
plan's operations during 1995 as a result of the Distribution and the Merger,
the annual award to be made to a participant under the plan for the year 1995
will consist of two separately determined components, one based on attainment of
performance objectives established for the period from January 1, 1995 to the
Closing Date (the "Pre-Merger Period"), and the second based on attainment of
performance objectives that will be established for the period from the Closing
Date to December 31, 1995 (the "Post-Merger Period"). UST's Compensation
Committee has determined that the aggregate amount available for awards for the
Pre-Merger Period will be based on UST's attainment of certain specified levels
of net income for such period. The amounts to be awarded to individual
participants will be determined at the close of the Pre-Merger Period and will
be based on the evaluation by UST's management and the Compensation Committee of
the participant's personal achievements and contributions. It is anticipated
that the performance goals and maximum award amounts for the Post-Merger Period
will not be established until some time shortly before the Closing Date.
Awards otherwise earned under the plan for any year are reduced (i) by the
amount of the ESOP Contribution to be made to the 401(k) Plan and ESOP on the
participant's behalf for such year, and (ii) by the amount credited to the
participant's account under the Executive Deferred Compensation Plan with
respect to any portion of the participant's ESOP Contribution that cannot be
made to the 401(k) Plan and ESOP for such year because of the Code Limitations.
Awards that are earned under the plan are payable in cash after the close of
each year, except to the extent that the participant has elected, instead, to
have any portion of such award contributed on his or her behalf as a 401(k)
Contribution to the 401(k) Plan and ESOP, or to defer any portion of his or her
award under the Executive Deferred Compensation Plan.
NEW STOCK OPTIONS
The provisions of the Stock Plan to be adopted by the Company will include
provisions for the grant of new stock options. The terms and conditions that
will apply to the new stock options include the following: (a) the aggregate
number of shares of Company Common Stock available for issuance pursuant to the
exercise of options granted during the term of the plan will be limited to
1,300,000 shares; (b) all officers of the Company, New Trustco, and their
affiliates at or above the rank of Vice President will be eligible to receive
grants of options; (c) options granted under the plan may be either options that
qualify as incentive stock options under section 422 of the Code, or
"non-qualified" stock options, as the Compensation Committee determines; (d) the
period within which options granted under the Stock Plan may be exercised may
not exceed 10 years from the date of grant; (e) the purchase price per share at
which options granted
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under the Stock Plan may be exercised shall not be less than the fair market
value of a share of Company Common Stock on the date the option is granted; and
(f) the total number of shares of Company Common Stock with respect to which
options may be granted under the Stock Plan to any officer during any calendar
year may not exceed 250,000 shares.
Subject to the provisions of the Stock Plan, the Compensation Committee
will be authorized to select the officers who are to be granted options; to
determine the number of shares to be covered by each option granted, and the
time or times when and the manner in which each option shall be exercised; to
determine the purchase price per share at which each option shall be exercised;
and to grant options subject to such other terms and conditions, not
inconsistent with the provisions of the Stock Plan, as it deems appropriate.
The adoption of the foregoing provisions for the grant of new stock
options, and the grant of any options pursuant thereto, will be subject to the
approval of the stockholders of the Company at its first meeting of stockholders
following the Distribution and the Merger.
OTHER FEATURES OF STOCK PLAN AND PREDECESSOR PERFORMANCE PLANS
Apart from the present stock option provisions of the Stock Plan which are
not being transferred to the Company, the Stock Plan provides for the award of
stock-based compensation to senior officers of UST, USTNY and other subsidiaries
in two other forms: in shares of restricted stock and in performance share
units. In addition, for years prior to 1994, benefit equalization units were
awarded to officers to provide them with the full benefits to which they would
have been entitled under the ESOP portion of the 401(k) Plan and ESOP but for
the Code Limitations.
The award of benefit equalization units under the Stock Plan has been
discontinued effective with the contribution to be made to the ESOP portion of
the 401(k) Plan and ESOP for the year 1994. No awards of restricted stock or
performance share units will be made under the Stock Plan during the Pre-Merger
Period. The compensation strategies and program to be adopted for the senior
officers of the Company following the Merger are currently under review. No
decision has been made yet as to whether any awards of restricted stock or
performance share units will be made under the Stock Plan after the Merger.
However, the present provisions of the Stock Plan relating to restricted stock,
performance share units and benefit equalization units, and the present
provisions of the Predecessor Performance Plans (as defined below) relating to
deferred awards under those plans, will continue to apply after the Distribution
and the Merger to previously-made awards of these forms of compensation, with
certain modifications to reflect the Distribution and the Merger. These
provisions are summarized below.
Restricted Stock
Recipients of awards of shares of restricted stock are prohibited from
selling, pledging or otherwise disposing of such shares within a period
(typically three years) determined by the Compensation Committee. Restricted
shares are held in the officer's name in a book entry account. During the
restricted period, the officer has all of the rights of a stockholder of UST
with respect to his or her restricted shares, including voting and dividend
rights. Subject to satisfaction of any tax withholding obligation, certificates
evidencing the shares are delivered to the officer free of restrictions at the
conclusion of the restricted period. In the event of the termination of
employment of an officer for any reason, all shares then subject to restrictions
are forfeited unless the Compensation Committee otherwise determines.
If the Merger is consummated, the restrictions applicable with respect to
the restricted shares of UST Common Stock credited under the Stock Plan to all
officers other than Mr. Taylor and Richard E. Brinkmann (who presently serves as
Senior Vice President, Comptroller and Principal Accounting Officer of UST and
who will serve in the same capacities with the Company) will automatically
lapse; and, subject to satisfaction of applicable tax withholding obligations,
certificates for the shares of Company Common Stock and Chase Common Stock
received pursuant to the Distribution and the Merger with respect to the shares
so credited to each such officer will be delivered to the officer free of such
restrictions.
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The restrictions applicable with respect to the restricted shares of UST
Common Stock credited to Messrs. Taylor and Brinkmann will not lapse upon the
consummation of the Merger; and such restrictions will continue to apply with
respect to the shares of Company Common Stock and Chase Common Stock received
pursuant to the Distribution and the Merger with respect to their restricted
shares of UST Common Stock.
Performance Share Units
The Stock Plan provides for the grant of performance share units which are
earned over a 3-year "Performance Cycle" to the extent that pre-established
performance goals for UST are met. Except for any portion of an earned award
that an officer has previously elected to defer, earned awards are paid as soon
as practicable after the close of the Performance Cycle. Awards that are not
deferred are paid in a combination of cash and UST Common Stock, as the
Compensation Committee determines, but at least 50% of a non-deferred award must
be paid in UST Common Stock. Deferred awards are either converted to "phantom
share units" ("PSUs") or credited to the "Interest Portion" of the officer's
account under the plan, as the officer may elect, but at least 50% of any
deferred award must be converted to PSUs.
Earnings are credited to the Interest Portion of a deferred award at
USTNY's prime rate, or at a rate of return matching the rate of return on any
one or more of the investment funds available for investment of the 401(k)
portion of employees' accounts under the 401(k) Plan and ESOP other than the
U.S.T. Corp. Stock Fund, as the officer may select from time to time. The "PSU
Portion" of an officer's deferred award is credited, as of the date of each
dividend payment on UST Common Stock, with dividend equivalents in the form of
additional PSU's.
Payments with respect to deferred awards are made in 10 annual installments
commencing in the year following the officer's retirement or other termination
of employment. Payments with respect to the PSU Portion of a deferred award are
made in the form of shares of UST Common Stock, and payments with respect to the
Interest Portion of a deferred award are made in cash.
If the Merger is consummated, the performance goals established for the
Performance Cycles presently in progress (i.e., those ending at the close of
1995 and 1996), will be deemed to have been fully met, and all performance share
units awarded to each officer for each of the 1995-1996 Performance Cycles will
be deemed to be fully earned and payable to the officer if he or she remains in
employment with the Company, New Trustco or their affiliates until the end of
such Performance Cycle or if he or she leaves such employment before the end of
such Performance Cycle as a result of retirement or termination due to staff
reductions associated with the Distribution and the Merger.
Performance share units were also awarded to officers of UST and USTNY and
their subsidiaries under two predecessor plans that will be transferred to and
adopted by the Company: the 1988 Long-Term Performance Plan of U.S. Trust
Corporation and the Long-Term Performance Plan of U.S. Trust Corporation
(collectively, the "Predecessor Performance Plans"). The provisions of the
Predecessor Performance Plans are substantially the same as those applicable to
the performance share unit feature of the Stock Plan. No Performance Cycles
remain in progress under the Predecessor Performance Plans. However, deferred
awards remain outstanding under these plans, in the form of PSU's and account
balances that are credited with interest under substantially the same provisions
as described above in the case of the "Interest Portion" of deferred awards
under the Stock Plan.
Each performance share unit and each PSU credited to an officer under the
Stock Plan and the Predecessor Performance Plans represents one share of UST
Common Stock, but constitutes only a "phantom" share. It entitles the holder to
be credited with dividend equivalents and to receive one share of UST Common
Stock for each such unit to the officer's credit when distributions are made to
the officer from the plan, but it does not otherwise entitle the officer to any
of the rights of a holder of UST Common Stock. As of the Closing Date, all
performance share units and all PSU's outstanding under the Stock Plan and the
Predecessor Performance Plans will be converted into new units representing
Company Common Stock in the manner described below under "Unit and Share
Adjustments".
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Benefit Equalization Units
For years prior to 1994, the Stock Plan provided for awards to officers of
benefit equalization units ("BEUs") with an aggregate value equal to the amount
of the ESOP contribution that could not be made to the 401(k) Plan and ESOP on
the officer's behalf for any year because of the Code Limitations. The BEUs earn
dividend equivalents with respect to dividends that are paid on UST Common
Stock, and the dividend equivalents attributable to an officer's BEUs are
credited to the officer in the form of additional BEUs. An officer's interest in
the BEUs credited to his account under the plan is fully vested at all times.
Officers receive a distribution with respect to their BEUs upon the termination
of their employment. Distribution is made in the form of shares of UST Common
Stock, and cash for fractional units.
Each BEU credited to an officer represents one share of UST Common Stock,
but constitutes only a "phantom" share. It entitles the holder to be credited
with dividend equivalents and to receive one share of UST Common Stock for each
such unit to the officer's credit when distributions are made to the officer
from the plan, but it does not otherwise entitle the officer to any of the
rights of a holder of UST Common Stock. As of the Closing Date, all BEUs
outstanding under the Stock Plan will be converted into new units representing
Company Common Stock in the manner described below under "Unit and Share
Adjustments".
Unit and Share Adjustments
As of the Closing Date, all performance share units, PSUs and BEUs then
standing to each officer's credit under the Stock Plan and the Predecessor
Performance Plans will be converted, respectively, into new performance share
units, PSUs and BEUs, each one of which will represent one share of Company
Common Stock. The number of such new units (the "New Units") to be credited to
an officer with respect to his or her performance share units, PSUs and BEUs
pursuant to such conversion will be equal to (i) the product of (A) the number
of performance share units, PSUs, or BEUs, as the case may be, standing to the
officer's credit as of the Closing Date, multiplied by (B) the Average Value Per
Share of UST Common Stock (defined below), divided by (ii) the amount
representing the 10-day average of the daily average of the high bid and low
asked prices for a share of Company Common Stock in the over-the-counter market
as reported by the National Quotation Bureau Incorporated on a "when-issued"
basis on each of the 10 trading days immediately preceding the Closing Date. For
purposes of the foregoing, the "Average Value Per Share of UST Common Stock"
shall mean the average of the daily mean between per-share high and low prices
for UST Common Stock on each trading day during the 30-day period ending on the
day immediately preceding the Closing Date, as quoted on the National Market
System.
Authorized Shares
The Company anticipates that as of the Closing Date, the number of
restricted shares of UST Common Stock that will be subject to restrictions that
will lapse upon consummation of the Merger, the number of performance share
units previously awarded with respect to performance cycles that will still be
in progress, and the number of PSU's and BEU's that will remain standing to the
credit of officers under the Stock Plan and Predecessor Performance Plans, will
represent an aggregate of 448,200 shares of UST Common Stock. Because the unit
and share adjustments described above will depend upon the relative trading
prices for the UST Common Stock and the Company Common Stock (on a "when-issued"
basis) during the 30-day and 10-day periods, respectively, ending on the day
before the Closing Date, the Company will not be able to determine, until such
preceding day, the exact number of shares of Company Common Stock that will be
needed for issuance under the Stock Plan and Predecessor Performance Plans to
satisfy the obligations of UST that the Company will be assuming. The Company
presently anticipates that the Stock Plan and the Predecessor Performance Plans,
as adopted by the Company, will provide for an aggregate of 850,000 shares of
Company Common Stock to be available for issuance under the plans with respect
to those previously-granted stock-based awards, in addition to the 1,300,000
shares of Company Common Stock that will be available for the new stock options
described above.
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EXECUTIVE DEFERRED COMPENSATION PLAN
The Executive Deferred Compensation Plan of U.S. Trust Corporation (the
"Executive Deferred Compensation Plan") is a nonqualified plan of deferred
compensation. All officers at or above the rank of Vice President whose total
annual compensation (as defined in the plan) exceeds $150,000 are eligible to
participate in the plan. The plan permits each eligible officer to elect to
defer portions of the officer's award for any year under the 1990 Annual
Incentive Plan and a portion of certain other incentive payments. The Executive
Deferred Compensation Plan also provides for the crediting to an eligible
officer's account under the plan of (i) amounts equal to the portion of the ESOP
contribution for 1994 or any later year that cannot be made on the officer's
behalf to the 401(k) Plan and ESOP because of the Code Limitations, and (ii) if
the officer has so elected in accordance with the provisions of the plan,
amounts equal to the payments that otherwise would have been made to the officer
with respect to his or her unexercised stock options under the UST Option Plans
(as defined under "Effect of Transactions on UST Employees and UST Benefit Plans
- -- Retained Plans" in the Proxy Statement-Prospectus), and/or with respect to
the officer's account balance under the AIP (as so defined), as a result of the
Merger constituting a "change in control" as defined in the UST Option Plans and
the AIP.
A participant's deferred amounts under the Executive Deferred Compensation
Plan are credited with interest at rates of return chosen by the participant
from among the rates of return on the investment funds available for investment
of the 401(k) portion of employees' accounts under the 401(k) Plan and ESOP
other than the U.S.T. Corp. Stock Fund.
Deferred amounts under the Executive Deferred Compensation Plan become
payable upon a participant's termination of employment. Payment of deferred
amounts generally will be made in a single cash lump sum. However, if employment
is terminated by reason of retirement or death and the participant has so
elected, payment will be made in ten annual cash installments. In the case of
amounts payable upon retirement, a participant also may elect to receive payment
in 15 annual cash installments. Participants whose employment with the Company,
New Trustco or their affiliates terminates prior to the end of 1995 as a result
of staff reductions associated with the Distribution and the Merger also may
elect to receive payment of their deferred amounts in 10 annual cash
installments.
CHANGE IN CONTROL PROVISIONS
Various compensation and benefit plans under which the Named Executive
Officers will be covered will contain provisions pursuant to which payment of
the benefits provided under the plan would be accelerated in the event of a
"change in control" of the Company (as defined in the Stock Plan), unless the
Company Board otherwise determines prior to the date of the change in control
(or not later than 45 days thereafter in certain circumstances). As defined in
the Stock Plan, a "change in control" means that any of the following events has
occurred: (i) 20% or more of the shares of Company Common Stock have been
acquired by any person (as defined in Section 3(a)(9) of the Exchange Act) other
than directly from the Company; (ii) there has been a merger or equivalent
combination after which 49% or more of the voting stock of the surviving
corporation is held by persons other than former stockholders of the Company; or
(iii) 20% or more of the directors elected by stockholders to the Company Board
are persons who were not nominated by management in the most recent proxy
statement of the Company.
Specifically, upon such a change in control (a) the restrictions applicable
to all restricted stock previously awarded under the Stock Plan would lapse, and
a cash payment would be made for each share of restricted stock equal to the
Determined Value (as defined in the Stock Plan) of a share of Company Common
Stock; (b) each new stock option granted under the Stock Plan at least six
months prior to the change in control would be cancelled in return for a cash
payment equal to the excess of the Determined Value of the shares of Company
Common Stock subject to the option over the aggregate purchase price of such
shares under the terms of the option; (c) all other new stock options
outstanding under the Stock Plan would become immediately and fully exercisable;
(d) all performance share units awarded under the Stock Plan for the performance
cycle in which the change in control occurs would be deemed to have been earned
in full, and a cash payment would be made for each such performance share unit
in an amount equal to the Determined
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Value of a share of Company Common Stock; (e) all previously deferred awards of
performance share units under the Stock Plan would become immediately payable in
the form of a cash payment in an amount equal to the sum of the Interest Portion
(as defined in the Stock Plan) of such awards and the Determined Value of the
number of shares of Company Common Stock corresponding to the number of units
included in the Phantom Share Unit Portion (as defined in the Stock Plan) of
such awards; (f) all benefit equalization units previously granted under the
Stock Plan would become immediately payable in the form of a cash payment in an
amount equal to the Determined Value of the number of shares of Company Common
Stock corresponding to the number of benefit equalization units credited to the
participant; (g) all awards under the 1990 Annual Incentive Plan for the year in
which the change in control occurs would be deemed to have been earned in full,
and would be immediately payable in the form of a cash payment; and (h) the
balance of each participant's account under the Executive Deferred Compensation
Plan would become immediately payable in full in the form of a cash payment.
The Retirement Plan provides that if the Retirement Plan is terminated
within four years after the occurrence of a change in control, any surplus
funding in the Retirement Plan would be applied (subject to applicable Code and
other tax qualification requirements applicable to the Retirement Plan) to
provide pro rata increases in the accrued pension benefits of all qualified
participants in the Retirement Plan, including the Named Executive Officers.
The supplemental pension agreements with Messrs. Schwarz, Maurer and Taylor
provide that in the event of the involuntary termination of any such officer's
employment following a change in control, such officer would receive from the
Company an immediate lump sum cash payment equal to the actuarial present value
of the supplemental pension that would have been payable to such officer under
the agreement at his normal retirement date if he had remained employed with the
Company until that date, at the rate of annual compensation in effect for such
officer immediately prior to such termination of his employment.
In addition, under the 1990 Change in Control and Severance Policy, each of
the Named Executive Officers would be entitled to receive severance benefits in
the event of any such Named Executive Officer's involuntary termination of
employment within two years following a change in control. In such event, each
such Named Executive Officer would be entitled to receive a cash payment in an
amount equal to the sum of (a) two times such Named Executive Officer's then
current annual base salary, (b) the average of the highest three of the previous
five years awards to such Named Executive Officer under the 1990 Annual
Incentive Plan and predecessor plan and (c) 25 times such Named Executive
Officer's then current weekly base salary.
BENEFIT PROTECTION TRUSTS
UST has established the U.S. Trust Corporation Benefits Protection Trust I
and the U.S. Trust Corporation Benefits Protection Trust II, and USTNY has
established the United States Trust Company of New York and Affiliated Companies
Executives Benefits Protection Trust, for the purposes of assisting UST and
USTNY in meeting their obligations under certain of the benefit and compensation
plans maintained by them. As adopted by the Company and New Trustco, these
trusts will cover the benefits described above under "Change in Control
Provisions" that become payable to certain officers (including the Named
Executive Officers) upon the occurrence of a "change in control" as defined
above under "Change in Control Provisions". The U.S. Trust Corporation Benefits
Protection Trust I also will cover benefits payable under the Board Members'
Deferred Compensation Plan with respect to the "Interest Portion" of a board
member's deferred amounts under that plan.
Upon the occurrence of a change in control, the trust funds would be used
to make benefit payments to the officers and board members in accordance with
the provisions of the applicable plans and the trust agreements. However, at all
time prior to payment to the officers and board members, all assets held in the
trusts will remain subject to the claims of the Company's and New Trustco's
respective creditors.
The trusts are intended to qualify as "grantor trusts" with the meaning of
the Code, with the consequence that the Company and New Trustco will be treated
as owners of all of the assets and income of the trusts for federal income tax
purposes.
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No contributions have been made to the trusts as yet. It is anticipated
that following the Merger, a variable premium life insurance policy that UST
presently maintains to fund benefits payable to officers and board members with
respect to the Interest Portion of their deferred amounts under the Stock Plan,
Predecessor Performance Plans and the Board Members' Deferred Compensation Plan
will be contributed to the U.S. Trust Corporation Benefits Protection Trust I.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
AUTHORIZED CAPITAL STOCK
In accordance with the Distribution Agreement, UST will appropriately cause
the Company to amend the Certificate of Incorporation of the Company in effect
prior to the Distribution to, among other things, increase the currently
authorized number of shares of common stock of the Company and to exchange the
100 shares of such common stock currently outstanding for a total number of
shares of Company Common Stock, equal to the total number of shares of UST
Common Stock outstanding immediately prior to the Distribution Record Date. See
"The Distribution -- Terms of the Distribution Agreement". Under the Restated
Certificate, the total number of shares of all classes of stock that the Company
will have authority to issue is 45,000,000 of which 40,000,000 may be shares of
Company Common Stock, and 5,000,000 may be shares of preferred stock of the
Company, par value $1.00 per share (the "Company Preferred Stock").
Based on the number of shares of UST Common Stock outstanding as of
February 1, 1995 (and assuming the exercise of stock options for 132,691 shares
prior to the Time of Distribution), it is estimated that approximately 9,622,000
shares of Company Common Stock will be distributed to UST stockholders in the
Distribution. No shares of the preferred stock of UST, par value $1.00 per share
(the "UST Preferred Stock") were outstanding at February 1, 1995. All the shares
of Company Common Stock to be distributed to UST stockholders in the
Distribution will be fully paid and non-assessable.
The Restated Certificate consists of provisions relating to the Company,
including, among others, those relating to Company Common Stock, Company
Preferred Stock, the Stockholder Rights Plan, preemptive rights and
indemnification and insurance, which are substantially similar to the provisions
of the UST Certificate of Incorporation currently in effect. The following
summary describes material provisions of, but does not purport to be complete
and is subject to, and qualified in its entirety by, the Restated Certificate
and the Restated Bylaws attached hereto as Appendix I and Appendix II,
respectively, and by applicable provisions of law.
COMPANY COMMON STOCK
Holders of shares of Company Common Stock will be entitled to one vote per
share and, subject to the voting rights, if any, of any Company Preferred Stock
issued, such voting rights will be exclusive. See "-- Preferred Stock". Except
as provided by law or by the Restated Certificate, any corporate action other
than election of directors must be authorized by a majority of votes cast at a
meeting of stockholders by holders of shares entitled to vote. Whenever
directors are to be elected by the stockholders, they will be elected at a
meeting of the stockholders by a plurality of the votes cast by the holders of
shares entitled to vote. Holders of shares of Company Common Stock do not have
cumulative voting rights for the election of directors, and, as a result, a
holder or group of holders of more than 50% of Company Common Stock entitled to
vote may elect 100% of the Company Board, in which case holders of the remaining
shares of Company Common Stock would be unable to elect any person as a
director.
Holders of shares of Company Common Stock will be entitled, subject to the
rights, if any, of holders of shares of any Company Preferred Stock issued, to
have equal rights to participate in dividends when declared and, in the event of
liquidation, in the net assets of the Company available for distribution to
stockholders. See "-- Preferred Stock". The Company may not declare any
dividends on, or make any payment on account of the purchase, redemption or
other retirement of, Company Common Stock unless full cumulative dividends,
where applicable, have been paid or declared and set apart for payment upon all
outstanding shares of Company Preferred Stock. Holders of shares of Company
Common Stock do not have redemption or sinking
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fund rights, and none of the holders of shares of Company Common Stock is
entitled to preemptive rights or preferential rights to subscribe for shares of
Company Common Stock or any other securities of the Company, except for certain
Series A Participating Cumulative Preferred Stock Purchase Rights (as defined
below) that will be distributed immediately following the Distribution as a
dividend to holders of Company Common Stock, which will be exercisable or
transferable separately from shares of Company Common Stock only upon the
occurrence of certain events including the acquisition by a person or group of
affiliated or associated persons of 20% or more of the outstanding shares of
Company Common Stock. See "-- Stockholder Rights Plan" below. Shares of Company
Common Stock will be fully paid and nonassessable. The Company intends to apply
for the listing of the Company Common Stock on the National Market System. See
"Listing and Trading of Company Common Stock". New Trustco will be the transfer
agent and registrar for the Company Common Stock.
The Restated Certificate will include a "fair price provision" that would
require, as a condition to the consummation of certain business combinations,
including, among others, certain mergers, asset sales, security issuances,
recapitalization and liquidations, involving the Company or its subsidiaries and
certain acquiring persons (namely, a person, entity or specified group which
beneficially owns more than 10% of the voting stock of the Company (such person
or persons, an "Interested Stockholder")), unless the "fair price" and other
procedural requirements of the provision are met, the affirmative vote of both
(i) the holders of at least 80% of the combined voting power of the then
outstanding voting shares of the Company and (ii) the holders of at least a
majority of the combined voting power of the then outstanding voting shares of
the Company held by stockholders who are not Interested Stockholders or
affiliates or associates of Interested Stockholders, in each case voting
together as a single class. Such vote will be in addition to any other
stockholder vote required and is required notwithstanding that no vote may
otherwise be required, or that some lesser percentage may be specified by law,
by the Restated Certificate, by the Restated Bylaws, or otherwise.
PREFERRED STOCK
The Company Board may authorize the issuance of Company Preferred Stock in
one or more series, which series may have such voting powers, if any, and such
designations, preferences and relative, participating, optional or other special
rights, and qualifications, or restrictions thereof, as the Company Board shall
establish in its resolution providing for the issuance of such series. Any
series of Company Preferred Stock issued by the Company may have dividend,
dissolution and other preferences over the Company Common Stock and may be
convertible into shares of Company Common Stock. The Company has no present
plans to issue any Company Preferred Stock. The Company, will, however, at or
immediately following the Time of Distribution, designate a series of Company
Preferred Stock as Series A Participating Cumulative Preferred Stock (the
"Series A Preferred Stock") in connection with its stockholder rights plan. See
"-- Stockholder Rights Plan -- Series A Preferred Stock" below.
STOCKHOLDER RIGHTS PLAN
The Rights Agreement
The Company expects that the Company Board will, at or immediately
following the Time of Distribution, declare a dividend distribution of one
Series A Participating Cumulative Preferred Stock Purchase Right (a "Right") for
each outstanding share of Company Common Stock distributed to UST stockholders
pursuant to the Distribution, under a Rights Agreement (the "Rights Agreement")
between the Company and a rights agent, substantially in the form of the Rights
Agreement, dated January 26, 1988, as amended, between UST and First Chicago
Trust Company of New York, as Rights Agent (the "UST Rights Agreement"). Each
Right will entitle the holder to purchase from the Company one one-hundredth (or
1/100th) of a share of Series A Preferred Stock (the "Preferred Shares") at a
purchase price of $100, subject to adjustment (the "Purchase Price").
The Rights will not be exercisable or transferable separately from the
shares of Company Common Stock to which they are attached until the earlier of
(i) the date on which a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired beneficial ownership of 20% or more of the
outstanding shares
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of Company Common Stock (such event, a "Triggering Event") or (ii) 10 days
following (A) the date of approval under the Bank Holding Company Act, (B) the
date of notice of nondisapproval under the Change in Bank Control Act or (C) the
expiration, without a notice of disapproval having been issued, of the prior
notification period under the Change in Bank Control Act, in each case for any
person or group of affiliated or associated persons to acquire beneficial
ownership of 25% or more of the outstanding shares of Company Common Stock (the
earlier of such dates being called the "Distribution Date").
The Rights Agreement will provide that, as soon as practicable following
the Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of Company Common Stock as of
the close of business on the Distribution Date (and to each initial record
holder of certain Company Common Stock originally issued after the Distribution
Date), and such separate Right Certificates alone will thereafter evidence the
Rights.
The Rights will not be exercisable until the Distribution Date and the
Company anticipates that, pursuant to the Rights Agreement, the Rights will
expire on July 3, 2005 (the "Expiration Date"), unless earlier redeemed by the
Company as described below.
The number of Preferred Shares or other securities issuable upon exercise
of a Right will be subject to adjustment from time to time in the event of (i)
the declaration of a stock dividend payable in Preferred Shares or a
subdivision, combination or reclassification of the Preferred Shares, (ii) the
issuance of certain rights, options or warrants to holders of Company Common
Stock or Equivalent Shares (as defined in the Rights Agreement) to subscribe for
or purchase Company Common Stock or Equivalent Shares at a price per share less
than the then-current market value of such Company Common Stock or Equivalent
Shares or (iii) the distribution to holders of Company Common Stock or
Equivalent Shares of cash (excluding regular periodic cash dividends at a rate
not in excess of 125% of the rate of the last regular cash dividend theretofore
paid) or evidences of indebtedness, assets or securities or subscription rights,
options or warrants (other than those referred to above). The Purchase Price and
the number of Preferred Shares or other securities issuable upon exercise of the
Rights are subject to adjustment from time to time in the event of the
declaration of a stock dividend on the Company Common Stock payable in Company
Common Stock or a subdivision or combination of the Company Common Stock prior
to the Distribution Date. In the event of a combination of the outstanding
Company Common Stock into a smaller number of Company Common Stock prior to the
Distribution Date, the number of Rights associated with each outstanding Company
Common Stock will be proportionately reduced.
The Preferred Shares will be authorized to be issued in fractions which are
an integral multiple of one one-hundredth (or 1/100th) of a Preferred Share. The
Company may, but is not required to, issue fractions of shares upon the exercise
of Rights, and in lieu of fractional shares, the Company may issue certificates
or utilize a depository arrangement as provided by the terms of the Rights
Agreement and the Preferred Shares and, in the case of fractions other than one
one-hundredth (or 1/100th) of a Preferred Share or integral multiples thereof,
may make a cash payment based on the market price of such shares.
In the event the Company is acquired in a merger or other business
combination or 50% or more of its assets or assets representing 50% or more of
its earning power are sold, leased, exchanged or otherwise transferred (in one
or more transactions) to a publicly traded corporation, each Right will entitle
its holder to purchase, other than Rights beneficially owned by an Acquiring
Person (which Rights will be void), for the Purchase Price, that number of
common shares of such corporation which at the time of the transaction would
have a market value of twice the Purchase Price. In the event the Company is
acquired in a merger or other business combination or 50% or more of its assets
or assets representing 50% or more of the earning power of the Company are sold,
leased, exchanged or otherwise transferred (in one or more transactions) to an
entity that is not a publicly traded corporation, each Right will entitle its
holder to purchase, other than Rights beneficially owned by an Acquiring Person
(which Rights will be void), for the Purchase Price, at such holder's option,
(i) that number of shares of such entity (or, at such holder's option, of the
surviving corporation in such acquisition, which could be the Company) which at
the time of the transaction would have a book value of twice the Purchase Price
or (ii) if such entity has an affiliate which has publicly traded
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common shares, that number of common shares of such affiliate which at the time
of the transaction would have a market value of twice the Purchase Price.
In the event that any person becomes an Acquiring Person, each holder of a
Right, other than Rights beneficially owned by an Acquiring Person (which Rights
will be void), will thereafter have the right, upon exercise, to purchase for
the Purchase Price, that number of one one-hundredths (or 1/100ths) of a
Preferred Share equal in number to the number of shares of Company Common Stock
having a value equal to two times the Purchase Price of the Right.
In the event that any Acquiring Person or any affiliate or associate of any
Acquiring Person merges or otherwise combines with the Company in a transaction
in which the Company is the surviving corporation and all of the Company Common
Stock remains outstanding and unchanged, each holder of a Right, other than
Rights beneficially owned by an Acquiring Person (which Rights will be void),
will thereafter have the right to acquire, upon exercise, shares of common stock
of the acquiring company having a value equal to two times the Purchase Price of
the Right.
In addition, the Company Board may, at its option, after such time as there
is an Acquiring Person, and provided that such Acquiring Person is not the
beneficial owner of 50% or more of the outstanding shares of Company Common
Stock, exchange all or part of the Rights, other than Rights beneficially owned
by such Acquiring Person (which rights will be void), for such number of shares
of Company Common Stock equal to the aggregate market value on the date of such
exchange equal to the Purchase Price.
The Rights will be redeemable, for cash or other consideration deemed
appropriate by the Company Board, at $0.01 per Right, subject to adjustment, at
any time (the "Redemption Price"); provided, that upon the earlier of the date
of (i) notice of approval under the Bank Holding Company Act, (ii) notice of
nondisapproval under the Change in Bank Control Act or (iii) the expiration,
without a notice of disapproval having been issued, of the prior notification
period under the Change in Bank Control Act, in each case for any person or
group of affiliated or associated persons to acquire beneficial ownership of 25%
or more of the outstanding shares of Company Common Stock, and thereafter until
the earliest of (A) the occurrence of a Triggering Event or (B) the Expiration
Date, the Rights may be redeemed only if (1) there are disinterested directors
then in office and (2) the Company Board, with the concurrence of a majority of
the disinterested directors then in office, determines that such redemption is,
in their judgment, in the best interests of the Company and its stockholders.
Immediately upon the action of the Company Board electing to redeem the
Rights, the Company will make an announcement thereof, and upon such election,
the right to exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
At any time prior to the Distribution Date, the Company may, without the
approval of any holder of the Rights, supplement or amend any provision of the
Rights Agreement (including the date on which the Distribution Date shall
occur), except that no supplement or amendment shall be made which reduces the
Redemption Price or provides for an earlier Expiration Date. However, at any
time when any person has received notice of approval under the Bank Holding
Company Act or notice of nondisapproval under the Change in Bank Control Act, to
acquire beneficial ownership of 25% or more of the outstanding shares of Company
Common Stock, the Rights Agreement may be supplemented or amended only if the
Company Board, with the concurrence of a majority of disinterested directors,
determines that such supplement or amendment is in the best interests of the
Company and its stockholders.
The Rights may have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
in a manner which causes the Rights to become discount Rights unless the offer
is conditioned on a substantial number of Rights being acquired.
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Series A Preferred Stock
The Company will be authorized to issue Series A Preferred Stock in
connection with the Rights issued under the Rights Agreement. See "-- Authorized
Capital Stock" and "-- Preferred Stock". The holders of Series A Preferred Stock
will be entitled to all the rights and privileges set forth in the Restated
Certificate, certain features of which are described below.
The holders of Series A Preferred Stock will be entitled to receive (i)
quarterly cumulative dividends in an amount per share equal to $25 less
dividends received pursuant to the following clause (ii) and (ii) cash dividends
on each payment date for cash dividends on Company Common Stock in an amount per
share equal to the Formula Number (as defined below) then in effect times the
per share amount of all cash dividends then to be paid on each share of Company
Common Stock.
Holders of Series A Preferred Stock will be entitled to vote on each matter
on which holders of Company Common Stock will be entitled to vote, and will have
the number of votes equal to the Formula Number then in effect for each share of
Series A Preferred Stock held. Holders of Series A Preferred Stock will have
certain special voting rights in the election of directors when the equivalent
of six quarterly dividends are in default. Whenever quarterly dividends or
distributions on Series A Preferred Stock are in arrears, the Company's right to
declare or pay dividends or other distributions on, and to redeem or purchase
any shares of stock ranking junior to or on a parity with Series A Preferred
Stock is subject to certain restrictions.
Upon any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, the holders of any Series A Preferred Stock will be
entitled to receive, before any distribution is made to holders of shares of
stock ranking junior to Series A Preferred Stock or any distribution (other than
a ratable distribution) is made to the holders of stock ranking on a parity with
Series A Preferred Stock, an amount equal to the accrued dividends thereon plus
the greater of (i) $100 per share or (ii) an amount per share equal to the
Formula Number then in effect times the amount per share to be distributed to
holders of Company Common Stock.
Series A Preferred Stock will be redeemable, in whole, at the option of the
Company Board, at any time at which the Company Board determines that no person
beneficially owns more than 10% of the outstanding shares of capital stock of
the Company generally entitled to vote in the election of directors of the
Company, at a cash price equal to 125% of the product of the Formula Number
times the average market price of Company Common Stock during the preceding 30
days plus accrued and unpaid dividends.
The initial Formula Number will be 100 (the "Formula Number"). In the event
the Company declares a dividend on the Company Common Stock payable in Company
Common Stock, or effects the subdivision, combination or reclassification of the
outstanding Company Common Stock (including any reclassification in connection
with a merger in which the Company is the surviving corporation), the Formula
Number will be appropriately adjusted. In the event of a consolidation, merger
or other transaction in which the Company Common Stock is exchanged for or
converted into other securities, cash or any other property, Series A Preferred
Stock will be similarly exchanged or converted in an amount per share equal to
the Formula Number then in effect times the amount per share of securities, cash
or other property into which each share of Company Common Stock is changed or
converted.
Series A Preferred Stock will be issuable in whole shares or in any
fraction of a share that is one one-hundredth (or 1/100th) of a share or any
integral multiple of such fraction, subject to certain adjustments. In lieu of
issuing fractional shares, the Company may issue certificates of depositary
receipts evidencing such authorized fractions of shares or, in the case of
fractions other than one one-hundredth (or 1/100th) and integral multiples
thereof, pay registered holders cash equal to the same fraction of the current
market value of a share of Company Preferred Stock (if any are outstanding) or
the equivalent number of shares of Company Common Stock.
NO PREEMPTIVE RIGHTS
No holder of any stock of any class of the Company authorized at the time
of Distribution will then have any preemptive right to subscribe to any
securities of any kind or class.
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DESCRIPTION OF CERTAIN STATUTORY, CHARTER AND BYLAW PROVISIONS
Certain Statutory Provisions of the NYBCL
Section 912 of the New York Business Corporation Law ("NYBCL") governs
certain transactions between New York corporations and interested stockholders.
Under Section 912 of the NYBCL, an "interested stockholder" is one that owns at
least 20% of the outstanding voting shares of a corporation. A New York
corporation cannot engage in a business combination with an interested
stockholder for five years following the acquisition date of an interested
stockholder's shares unless the directors approve the business combination or
stock acquisition before the stockholder's stock acquisition date. Following the
five year period, a corporation cannot enter a business combination with an
interested stockholder unless (i) the directors approve the business combination
or the stockholder's stock acquisition before the stockholder's stock
acquisition date (ii) at a meeting called for such purpose, the holders of a
majority of shares not beneficially owned by an interested stockholder or an
associate or affiliate of an interested stockholder approve the business
combination or (iii) the business combination satisfies certain price and
procedural requirements. Pursuant to Section 912(d) of the NYBCL, such
restrictions do not apply to a corporation that has exempted itself by amendment
to its bylaws approved by a vote of the majority of holders of outstanding
voting stock, excluding the voting stock of an interested stockholder or an
associate or affiliate of an interested stockholder. Such an amendment will not
become effective for 18 months following its adoption and will not apply to a
business combination with an interested stockholder whose stock acquisition date
is on or before the effective date of the amendment. The Restated Certificate
contains specific provisions governing certain transactions between the Company
and interested stockholders. See "-- Company Common Stock".
Classified Board of Directors; Nomination of Directors
The provisions of the Restated Bylaws will be substantially similar to the
provisions of UST's Bylaws, as amended, currently in effect (the "UST Bylaws").
The Restated Bylaws provide for the Company's Board of Directors to be divided
into three classes of directors, as nearly equal as possible, serving staggered
three-year terms. As a result, approximately one-third of the members of the
Company Board will be elected each year. See "Management -- Directors". This
provision could prevent a party who acquires outstanding voting stock of the
Company having majority voting power from obtaining control of the Company Board
until the second annual stockholders' meeting following the date the acquiror
obtains the controlling interest, and thus could have the effect of discouraging
a potential acquiror from making a tender offer or otherwise attempting to
obtain control of the Company. Accordingly, this provision could increase the
likelihood that incumbent directors will retain their positions. In addition,
the Restated Bylaws will contain a provision whereby Company stockholders may
nominate directors for election to the Company Board provided that written
notice of such election conforms to certain timing and content restrictions set
forth in the Restated Bylaws (the UST Bylaws contain no such provision governing
stockholder nominations).
Number of Directors; Removal; Vacancies
The Restated Bylaws provide that the number of directors, in any case not
less than nine, will be determined from time to time by a majority of the entire
Company Board or at any annual or special meeting of the stockholders entitled
to vote for the election of directors. Newly created directorships resulting
from an increase in the number of directors and vacancies occurring in the
Company Board for any reason may be filled either by vote of the stockholders or
by vote of a majority of the directors then in office, even if such directors do
not constitute a quorum. An election for a directorship filled by a majority
vote of the Company Board will occur at the next stockholder meeting including
the election of directors as regular business. The Restated Bylaws further
provide that any director may be removed for cause either by vote of the
stockholders or by a majority of the entire Company Board.
Annual Meetings' Stockholder Action by Unanimous Consent; Special Meetings
The annual meeting of the stockholders of the Company for the election of
directors and the transaction of such other business as may properly come before
the meeting will be held on a date which is no later than
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six months after the close of the Company's preceding fiscal year (but in no
event later than thirteen months after the last annual meeting) and at such
place within or without the State of New York as may be fixed by the Company
Board.
The Restated Bylaws provide that stockholder action may be taken at an
annual or special meeting of stockholders and that action may be taken by the
written consent of stockholders in lieu of a meeting setting forth the action so
taken and signed by the holders of all outstanding shares entitled to vote
thereon. The Restated Bylaws will provide that special meetings of the Company's
stockholders may only be called by the Company Board or by the Chairman of the
Board, by the President or by a Vice Chairman of the Board. Only business
pertaining to the purpose of the special meeting, as specified in the call of
the meeting, can be transacted at such meeting. Stockholders will not be
entitled to call a special meeting or to require the Company Board to call a
special meeting of stockholders.
Amendment of Certain Charter and Bylaw Provisions
The Restated Bylaws provide that the Company Board may amend or repeal and
new Bylaws may be adopted (i) by vote of the holders of the shares at the time
entitled to vote in the election of directors at any annual meeting of the
stockholders or at any special meeting of the stockholders called for that
purpose or (ii) by the Company Board at any meeting of the Company Board, except
in the case of any particular provision at any time adopted by the stockholders
and specified as not subject to amendment or repeal by the Company Board.
Preferred Stock
Under the Restated Certificate, the Company Board will have the authority
to provide by resolution for the issuance of shares of one or more series of
Company Preferred Stock and to fix the terms and conditions of each such series.
See "Description of Capital Stock of the Company -- Preferred Stock". The
authorized shares of Company Preferred Stock, as well as authorized but unissued
shares of Company Common Stock, will be available for issuance without further
action by the Company's stockholders, unless stockholder action is required by
applicable law or by the rules of a stock exchange on which any series of the
Company's stock may then be listed.
These provisions will give the Company Board the power to approve the
issuance of a series of Company Preferred Stock that could, depending on its
terms, either impede or facilitate the completion of a merger, tender offer or
other takeover attempt. For example, the issuance of new shares might impede a
business combination if the terms of those shares include voting rights which
would enable a holder to block business combinations. Conversely, the issuance
of new shares might facilitate a business combination if those shares have
general voting rights sufficient to cause an applicable percentage vote
requirement to be satisfied.
INDEMNIFICATION AND INSURANCE
Section 722 of the NYBCL authorizes the indemnification of officers and
directors if such person (i) acted in good faith, (ii) in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and (iii) in a criminal proceeding, without reasonable cause to
believe his or her conduct was unlawful. Under Section 723 of the NYBCL an
officer or director who successfully defends a proceeding is entitled to
indemnification. In certain other circumstances, the corporation must find that
the director or officer met an appropriate standard of conduct. The corporation
may make this finding through (i) the board, acting as a quorum of directors not
parties to the action, (ii) in certain circumstances, the board acting upon the
written opinion of independent legal counsel or (iii) in certain circumstances,
the stockholders. In some situations, a court, pursuant to Section 724 of the
NYBCL, may award indemnification. Section 725 of the NYBCL sets out the
conditions for advancing the payment of expenses and the circumstances in which
the corporation must notify stockholders when it makes indemnification payments.
Section 721 provides that the indemnification rights granted under the NYBCL are
not exclusive of other indemnification rights as long as such other rights do
not attach when a judgment or other final adjudication establishes that a
director or officer (i) acted in bad faith or with active and deliberate
dishonesty and that
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such acts were material to the cause of action adjudicated or (ii) gained a
personal financial or other advantage to which the director or officer was not
legally entitled.
The Restated Bylaws will provide that the Company will indemnify any
current or past director or officer who is party to an actual or threatened
action by virtue of such status. Under the Restated Bylaws, the Company will not
(i) indemnify any director or officer when a final judgment establishes that the
director or officer (A) acted in bad faith or with active and deliberate
dishonesty and that such acts were material to the cause of action adjudicated
or (B) gained a personal financial or other advantage to which the director or
officer was not legally entitled and (ii) be required to indemnify any director
or officer when (A) the actual or threatened action was settled without final
adjudication or without the consent of the Company or (B) the party is entitled
to indemnification pursuant to an insurance policy without regard to the
indemnification provisions of the Restated Bylaws. Any amendment which prohibits
or otherwise limits indemnification rights will not affect any party until 60
days following his or her notice of such amendment and will not apply to any act
or omission occurring before such 60th day. The Restated Bylaws also permit the
Company to enter into indemnification agreements with directors, officers and
employees. The Restated Bylaws further state that the indemnification rights
provided thereunder are not exclusive of other indemnification rights protecting
a party entitled to indemnification under the Restated Bylaws.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
10 under the Exchange Act with respect to the shares of Company Common Stock to
be distributed to UST stockholders in the Distribution. This Information
Statement, while forming a part of the Company Form 10, does not contain all of
the information set forth in the Company Form 10 and the exhibits and schedules
thereto.
The Company Form 10 and the exhibits thereto are available for inspection
and copying at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the
Regional Offices of the Commission at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such information will be
obtainable by mail from the Public Reference Branch of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
Following the Distribution, the Company will be subject to the
informational requirements of the Exchange Act, and, in accordance therewith,
will file reports, proxy statements and other information with the Commission
that will be available for inspection and copying at the Commission's public
reference facilities referred to above. Copies of such material will be
obtainable by mail at prescribed rates by writing to the Public Reference Branch
of the Commission at the address referred to above. In addition, it is expected
that reports, proxy statements and other information concerning the Company will
be available for inspection at the offices of the NASD, 1735 K Street, N.W.,
Washington, D.C. 20006.
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
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<S> <C>
Acquired Person....................................................................... 26
Acquiring Person...................................................................... 85
Agency Securities..................................................................... 37
Asset Management System............................................................... 19
Asset Transfers....................................................................... 22
Audit Committee....................................................................... 68
Average Value Per Share of UST Common Stock........................................... 81
Back Office Services.................................................................. 29
Bank Holding Company Act.............................................................. 9
Bank Merger........................................................................... 29
Bank Processing Services.............................................................. 29
BEUs.................................................................................. 81
BIF................................................................................... 14
Board of Governors.................................................................... 8
Board of Trustees..................................................................... 68
Boards................................................................................ 68
Broadway Lease........................................................................ 19
Bundled Services...................................................................... 27
Campbell.............................................................................. 50
Capital Notes......................................................................... 56
CCFA.................................................................................. 17
Change of Control..................................................................... 27
Chase................................................................................. 1
Chase Acquired Business............................................................... 1
Chase Assets.......................................................................... 19
Chase Common Stock.................................................................... 4
Chase Liabilities..................................................................... 20
Chase Parties......................................................................... 24
Chubb................................................................................. 12
Closing Date.......................................................................... 7
CMB................................................................................... 29
CMOs.................................................................................. 55
Code.................................................................................. 28
Code Limitations...................................................................... 71
Commission............................................................................ 72
Company............................................................................... 1
Company Assets........................................................................ 22
Company Board......................................................................... 5
Company Common Stock.................................................................. 1
Company Form 10....................................................................... 1
Company Liabilities................................................................... 23
Company Preferred Stock............................................................... 84
Compensation Committee................................................................ 68
Contribution Agreement................................................................ 1
Contribution Asset Transfers.......................................................... 19
Contribution Assets................................................................... 19
Contribution Liabilities.............................................................. 19
</TABLE>
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<TABLE>
<CAPTION>
TERM PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
Core Businesses....................................................................... 1
CTC................................................................................... 11
Debentures............................................................................ 17
Deductible Amount..................................................................... 26
Default............................................................................... 14
Delafield............................................................................. 50
Delayed Asset......................................................................... 20
Delayed Liability..................................................................... 20
Disposition........................................................................... 31
Disposition Adjustments............................................................... 32
Distribution.......................................................................... 1
Distribution Agreement................................................................ 1
Distribution Asset Transfers.......................................................... 22
Distribution Assets................................................................... 22
Distribution Date..................................................................... 86
Distribution Documents................................................................ 4
Distribution Liabilities.............................................................. 23
Distribution Record Date.............................................................. 1
Effective Time........................................................................ 4
EITF 94-3............................................................................. 32
ESOP Contributions.................................................................... 77
ESOP Loan............................................................................. 77
Exchange Act.......................................................................... 1
Executive Committee................................................................... 68
Executive Deferred Compensation Plan.................................................. 82
Expiration Date....................................................................... 86
Family Office......................................................................... 27
FAS 114............................................................................... 60
FAS 118............................................................................... 60
FAS 119............................................................................... 60
FDIC.................................................................................. 14
FDICIA................................................................................ 14
FIRREA................................................................................ 14
Fixed Rate GNMAs...................................................................... 55
Formula Number........................................................................ 88
FRAs.................................................................................. 54
401(k) Contributions.................................................................. 77
401(k) Plan and ESOP.................................................................. 10
GCC................................................................................... 74
GNMA.................................................................................. 55
GNMA ARMs............................................................................. 55
IAS................................................................................... 51
Indenture............................................................................. 17
Interested Stockholder................................................................ 85
Internal Reorganization............................................................... 3
Interstate Act........................................................................ 16
Investable deposits................................................................... 37
Linter Group.......................................................................... 17
</TABLE>
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<TABLE>
<CAPTION>
TERM PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
Linter Subsidiaries................................................................... 17
Linter Textiles....................................................................... 17
Merger................................................................................ 1
Merger Agreement...................................................................... 1
MF Service Company.................................................................... 23
MF Service Company Retained Liabilities............................................... 23
mortgage loans........................................................................ 56
mortgage securities................................................................... 56
Named Executive Officers.............................................................. 71
NASD.................................................................................. 24
National Market System................................................................ 1
Net deposit balances.................................................................. 45
New Trustco........................................................................... 1
New Units............................................................................. 81
New UST Parties....................................................................... 24
1990 Annual Incentive Plan............................................................ 77
NYBCL................................................................................. 89
Pacific Northwest..................................................................... 44
Post Closing Covenants Agreement...................................................... 4
Post-Merger Period.................................................................... 78
Predecessor Performance Plans......................................................... 80
Preferred Shares...................................................................... 85
Pre-Merger Period..................................................................... 78
Private Letter Ruling................................................................. 5
Pro Forma Statements.................................................................. 32
Processing Business................................................................... 18
Proxy Statement-Prospectus............................................................ 1
PSUs.................................................................................. 80
Purchase Price........................................................................ 85
Redemption Price...................................................................... 87
Related Back Office................................................................... 18
Required Consent...................................................................... 20
Restated Bylaws....................................................................... 5
Restated Certificate.................................................................. 5
Restricted Processing Business........................................................ 27
Retention Amount...................................................................... 23
Retirement Plan....................................................................... 76
Right................................................................................. 85
Rights Agreement...................................................................... 85
Right Certificates.................................................................... 86
Securities Act........................................................................ 11
Series A Preferred Stock.............................................................. 85
Service............................................................................... 5
Services Agreement.................................................................... 6
Stock Plan............................................................................ 77
Tax Allocation Agreement.............................................................. 4
Tier 1 capital........................................................................ 15
Tier 2 capital........................................................................ 15
</TABLE>
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<TABLE>
<CAPTION>
TERM PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
Time of Distribution.................................................................. 1
Treasury Securities................................................................... 37
Triggering Event...................................................................... 86
UST................................................................................... 1
UST Board............................................................................. 1
UST Bylaws............................................................................ 89
UST Common Stock...................................................................... 1
U.S.T. Corp. Stock Fund............................................................... 77
UST Directors' Option Plan............................................................ 69
UST Preferred Stock................................................................... 84
UST Rights Agreement.................................................................. 85
USTNY................................................................................. 1
UST-WY................................................................................ 23
UST-WY Retained Liabilities........................................................... 23
</TABLE>
H-96
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APPENDIX I
<PAGE> 305
APPENDIX I
RESTATED
CERTIFICATE OF INCORPORATION
OF
NEW USTC HOLDINGS CORPORATION
UNDER SECTION 807 OF THE
BUSINESS CORPORATION LAW
The undersigned, being the Chairman of the Board and the Secretary,
respectively, of NEW USTC HOLDINGS CORPORATION (the "Corporation"), hereby
certify:
1. The name of the Corporation, which is the name under which it was
formed, is NEW USTC HOLDINGS CORPORATION.
2. The certificate of incorporation of the Corporation was filed by the
Department of State on January 20, 1995 (the "Certificate of Incorporation").
3. The Certificate of Incorporation is hereby amended to effect the
following changes authorized by Article 8 of the Business Corporation Law:
(a) To make additions to the corporate purposes of the Corporation, as set
forth in Article FIRST of this restated certificate of incorporation (this
"Restated Certificate of Incorporation");
(b) To grant authority to the Board of Directors to establish and designate
the relative rights, preferences and limitations of each class of shares, as set
forth in Article FOURTH of this Restated Certificate of Incorporation;
(c) To establish a series of Preferred Shares of the Corporation, the
Series A Participating Cumulative Preferred Shares, and to designate the rights,
preferences and limitations of such shares, as set forth in Article FOURTH of
this Restated Certificate of Incorporation;
(d) To increase the aggregate number of shares which the Corporation shall
have authority to issue from 100 Common Shares, par value $1 per share, to
45,000,000 shares, consisting of 40,000,000 Common Shares, par value $1 per
share and 5,000,000 Preferred Shares, par value $1 per share, as set forth in
Article FOURTH of this Restated Certificate of Incorporation;
(e) To add a new Article FIFTH designating no preferential, preemptive or
other subscription right for shares issued by the Corporation;
(f) To add a new Article SEVENTH designating the first calendar year for
reporting by the Corporation under certain provisions of the Tax Law; and
(g) To add a new Article EIGHTH relating to transactions between the
Corporation and interested shareholders.
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4. The text of the Certificate of Incorporation is hereby amended and
restated to read as herein set forth in full:
RESTATED
CERTIFICATE OF INCORPORATION
OF
NEW USTC HOLDINGS CORPORATION
UNDER SECTION 402 OF THE BUSINESS CORPORATION LAW
FIRST: The name of the Corporation is NEW USTC HOLDINGS CORPORATION.
SECOND: The purpose or purposes for which the Corporation is formed are to
engage in any lawful act or activity for which corporations may be organized
under the Business Corporation Law, to engage in the business of a bank holding
company under the Federal Bank Holding Company Act of 1956, as heretofore
amended and as the same may hereafter be amended (the "Bank Holding Company
Act"), and to engage in any lawful act or activity which is or hereafter may be
permitted to be performed by a bank holding company under the Bank Holding
Company Act; provided that the Corporation is not formed to engage in any
activity requiring the consent or approval of any state official, department,
board, agency or other body without such consent or approval first being
obtained.
THIRD: The office of the Corporation in the State of New York is to be
located in the City and County of New York.
FOURTH: The aggregate number of shares of all classes which the Corporation
shall have the authority to issue is 45,000,000 shares consisting of 40,000,000
Common Shares, par value $1 per share, and 5,000,000 Preferred Shares, par value
$1 per share.
The designations and the relative rights, preferences and limitations of
the shares of each class, and the authority hereby vested in the Board of
Directors of the Corporation to establish and to fix the numbers, designations
and relative rights, preferences and limitations of each series of Preferred
Shares, are as follows:
1. The Preferred Shares may be issued from time to time by the Board of
Directors in one or more series and, subject only to the provisions of this
Article FOURTH and the limitations prescribed by law, the Board of Directors is
expressly authorized, prior to issuance, in the resolution or resolutions
providing for the issue of, or providing for a change in the number of, shares
of any particular series, and by filing a certificate of amendment of the
Certificate of Incorporation of the Corporation pursuant to the Business
Corporation Law, to establish or change the number of shares to be included in
each such series and to fix the designation and relative voting, dividend,
liquidation and other rights, preferences and limitations of the shares of each
such series. The authority of the Board of Directors with respect to each series
shall include, but shall not be limited to, determination of the following:
(a) the distinctive serial designation of such series and the number of
shares constituting such series (provided that the aggregate number of shares
constituting all series of Preferred Shares shall not exceed the aggregate
number of Preferred Shares authorized above);
(b) the times at which and the conditions under which dividends shall be
payable on shares of such series, the annual dividend rate thereon, whether
dividends shall be cumulative and, if so, from which date or dates, and the
status of such dividends as participating or non-participating;
(c) whether the shares of such series shall be redeemable and, if so, the
terms and conditions of such redemption, including the date or dates upon and
after which such shares shall be redeemable, and the amount per share payable in
case of redemption, which amount may vary under different conditions and at
different redemption dates;
(d) the obligation, if any, of the Corporation to retire shares of such
series pursuant to a sinking fund or redemption or purchase account;
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(e) whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or shares of any series
of any class, and, if so, the terms and conditions of such conversion or
exchange, including the price or prices or the rate or rates of conversion or
exchange and the terms of adjustment thereof, if any;
(f) whether the shares of such series shall have voting rights, in addition
to the voting rights otherwise provided by law, and, if so, the terms of such
voting rights;
(g) the rights of the shares of such series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation; and
(h) any other relative rights, preferences and limitations of such series.
2. All Preferred Shares shall be of equal rank with each other regardless
of series. In case the stated dividends and the amounts payable on liquidation
are not paid in full, the Preferred Shares of all series shall share ratably in
the payment of dividends including accumulations, if any, in accordance with the
sums which would be payable on such shares if all dividends were declared and
paid in full, and in any distribution of assets other than by way of dividends
in accordance with the sums which would be payable in such distribution if all
sums payable were discharged in full.
3. The Preferred Shares of any one series shall be identical with each
other in all respects except as to the dates from which cumulative dividends, if
any, thereon shall be cumulative.
4. Subject to the rights of the Preferred Shares, dividends may be paid
upon the Common Shares as and when declared by the Board of Directors out of any
funds legally available therefor.
5. Upon any liquidation, dissolution or winding up of the affairs of the
Corporation (which shall not be deemed to include a consolidation or merger of
the Corporation, or the sale of all or substantially all of the Corporation's
assets, into, with or to any other corporation or Corporations), whether
voluntary or involuntary, and after the holders of the Preferred Shares shall
have been paid in full the amounts, if any, to which they respectively shall be
entitled or provision for such payment shall have been made, the remaining net
assets of the Corporation shall be distributed pro rata to the holders of the
Common Shares.
6. There is hereby established a series of the Corporation's authorized
Preferred Shares, to be designated as the Series A Participating Cumulative
Preferred Shares, par value $1 per share. The relative rights, preferences and
limitations of the Series A Preferred Shares, insofar as not already fixed by
any other provision of this Certificate of Incorporation shall, as fixed by the
Board of Directors of the Corporation in the exercise of authority conferred by
this Certificate of Incorporation, and as permitted by Section 502 of the
Business Corporation Law, be as follows:
(i) Designation and Number of Shares. The shares of such series shall be
designated as "Series A Participating Cumulative Preferred Shares" (the "Series
A Preferred Shares"). The par value of each share of the Series A Preferred
Shares shall be $1. The number of shares initially constituting the Series A
Preferred Shares shall be 300,000; provided, however, that the number of Series
A Preferred Shares may be increased, by an amendment of this paragraph (i) of
this Section 6, approved by the Board of Directors of the Corporation, if within
the authority of the Board of Directors of the Corporation under Article FOURTH
of the Certificate of Incorporation, to such greater number of Series A
Preferred Shares as are at any time issuable upon exercise of the Rights (the
"Rights") issued pursuant to the Rights Agreement dated as of , 1995, between
the Corporation and First Chicago Trust Company of New York, as Rights Agent
(the "Rights Agreement").
(ii) Dividends or Distributions.
(a) subject to the prior and superior rights of the holders of shares of
any other series of Preferred Shares or other class or series of capital stock
of the Corporation ranking prior and superior to the Series A Preferred Shares
with respect to dividends, the holders of shares of the Series A Preferred
Shares shall be entitled to receive, when, as and if declared by the Board of
Directors, out of the assets of the Corporation legally available therefor, (1)
quarterly dividends payable in cash on the first day of March, June, September
and
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December in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or a fraction of a share of the Series A
Preferred Shares, in the amount of $25 per whole share (rounded to the nearest
cent) less the amount of all cash dividends declared on the Series A Preferred
Shares pursuant to the following clause (2) since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
the Series A Preferred Shares, and (3) dividends payable in cash on the payment
date for each cash dividend declared on the Common Shares in an amount per whole
share (rounded to the nearest cent) equal to the Formula Number then in effect
times the cash dividends then to be paid on each Common Share. In addition, if
the Corporation shall pay any dividend or make any distribution on the Common
Shares payable in assets, securities or other forms of noncash consideration
(other than dividends or distributions solely in Common Shares), then, in each
such case, the Corporation shall simultaneously pay or make on each outstanding
whole share of the Series A Preferred Shares a dividend or distribution in like
kind equal to the Formula Number then in effect times such dividend or
distribution on each Common Share. As used in this Section 6, the "Formula
Number" shall be 100; provided, however, that if at any time after , 1995, the
Corporation shall (i) declare or pay any dividend on the Common Shares payable
in Common Shares or make any distribution on the Common Shares in Common Shares,
(ii) subdivide (by a stock split or otherwise) the outstanding Common Shares
into a larger number of Common Shares or (iii) combine (by a reverse stock split
or otherwise) the outstanding Common Shares into a smaller number of Common
Shares, then in each such event the Formula Number shall be adjusted to a number
determined by multiplying the Formula Number in effect immediately prior to such
event by a fraction, the numerator of which is the number of Common Shares that
are outstanding immediately after such event and the denominator of which is the
number of Common Shares that are outstanding immediately prior to such event
(and rounding the result to the nearest whole number); and provided, further,
that if at any time after , 1995, the Corporation shall issue any shares
of its capital stock in a reclassification or change of the outstanding Common
Shares (including any such reclassification or change in connection with a
merger in which the Corporation is the surviving corporation), then in each such
event the Formula Number shall be appropriately adjusted to reflect such
reclassification or change;
(b) the Corporation shall declare a dividend or distribution on the Series
A Preferred Shares as provided in paragraph (ii)(a) above immediately prior to
or at the same time it declares a dividend or distribution on the Common Shares
(other than a dividend or distribution solely in Common Shares); provided,
however, that, in the event no dividend or distribution (other than a dividend
or distribution in Common Shares) shall have been declared on the Common Shares
during the period between any Quarterly Dividend Payment Date and the next
Quarterly Dividend Payment Date, a dividend of $25 per share on the Series A
Preferred Shares shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Preferred Shares entitled to
receive a dividend or distribution declared thereon, which record date shall be
the same as the record date for any corresponding dividend or distribution on
the Common Shares;
(c) dividends shall begin to accrue and be cumulative on outstanding Series
A Preferred Shares from and after the Quarterly Dividend Payment Date next
preceding the date of original issue of such Series A Preferred Shares;
provided, however, that dividends on Series A Preferred Shares which are
originally issued after the record date for the determination of holders of
Series A Preferred Shares entitled to receive a quarterly dividend and on or
prior to the next succeeding Quarterly Dividend Payment Date shall begin to
accrue and be cumulative from and after such Quarterly Dividend Payment Date.
Notwithstanding the foregoing, dividends on Series A Preferred Shares which are
originally issued prior to the record date for the first Quarterly Dividend
Payment, shall be calculated as if cumulative from and after the March 1, June
1, September 1 or December 1, as the case may be, next preceding the date of
original issuance of such Series A Preferred Shares. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Preferred Shares in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding;
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(d) so long as any shares of the Series A Preferred Shares are outstanding,
no dividends or other distributions shall be declared, paid or distributed, or
set aside for payment or distribution, on the Common Shares unless, in each
case, the dividend required by this paragraph (ii) to be declared on the Series
A Preferred Shares shall have been declared and paid or set apart;
(e) the holders of the shares of Series A Preferred Shares shall not be
entitled to receive any dividends or other distributions except as provided
herein.
(iii) Voting Rights. The holders of shares of Series A Preferred Shares
shall have the following voting rights:
(a) each holder of Series A Preferred Shares shall be entitled to a number
of votes equal to the Formula Number then in effect, for each share of the
Series A Preferred Shares held of record on each matter on which holders of the
Common Shares or shareholders generally are entitled to vote, multiplied by the
number of votes per share which the holders of the Common Shares or shareholders
generally then have with respect to such matter;
(b) except as otherwise provided herein or by applicable law, the holders
of shares of Series A Preferred Shares and the holders of shares of Common
Shares shall vote together as one class for the election of directors of the
Corporation and on all other matters submitted to a vote of shareholders of the
Corporation;
(c) if at the time of any annual meeting of shareholders for the election
of directors, the equivalent of six quarterly dividends (whether or not
consecutive) payable on any share or shares of Series A Preferred Shares are in
default, the number of directors constituting the Board of Directors of the
Corporation shall be increased by two, subject to any limitation set forth in
this Certificate of Incorporation on the maximum number of directors then
allowable. In addition to voting together with the holders of Common Shares for
the election of other directors of the Corporation, the holders of record of the
Series A Preferred Shares, voting separately as a class to the exclusion of the
holders of Common Shares, shall be entitled at said meeting of shareholders (and
at each subsequent annual meeting of shareholders), unless all dividends in
arrears have been paid or declared and set apart for payment prior thereto, to
vote for the election of such additional directors, if any, of the Corporation,
the holders of any Series A Preferred Shares being entitled to cast a number of
votes per share of the Series A Preferred Shares equal to the Formula Number.
Until the default in payments of all dividends which permitted the election of
said directors shall cease to exist any director who shall have been so elected
pursuant to the next preceding sentence may be removed at any time by, and be
removed without cause only by, the affirmative vote of the holders of the Series
A Preferred Shares at the time entitled to cast a majority of the votes entitled
to be cast for the election of any such director at a special meeting of such
holders called for that purpose, and any vacancy thereby created may be filled
by the vote of such holders. If and when such default shall cease to exist, the
holders of the Series A Preferred Shares shall be divested of the foregoing
special voting rights, subject to revesting in the event of each and every
subsequent like default in payments of dividends. Upon the termination of the
foregoing special voting rights, the terms of office of all persons who may have
been elected director pursuant to said special voting rights shall forthwith
terminate, and the number of directors constituting the Board of Directors shall
be reduced by two or such other number of directors as shall have been added
pursuant to the provisions of this subsection (c). The voting rights granted by
this subsection (c) shall be in addition to any other voting rights granted to
the holders of the Series A Preferred Shares in this paragraph (iii);
(d) except as provided herein, in paragraph (xi) or by applicable law,
holders of Series A Preferred Shares shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Shares as set forth herein) for authorizing or
taking any corporate action.
(iv) Certain Restrictions.
(a) whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Shares as provided in paragraph (ii) of this
Section 6 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A Preferred
Shares outstanding shall have been paid in full, the Corporation shall not
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(1) declare or pay dividends on, make any other distributions on, or redeem
or purchase or otherwise acquire for consideration any shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Preferred Shares;
(2) declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Shares, except dividends
paid ratably on the Series A Preferred Shares and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(3) redeem or purchase or otherwise acquire for consideration shares of any
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Shares provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such parity stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or winding up)
to the Series A Preferred Shares; or
(4) purchase or otherwise acquire for consideration any shares of Series A
Preferred Shares, or any shares of stock ranking on a parity with the Series A
Preferred Shares, except in accordance with a purchase offer made in writing or
by publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes;
(b) the Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under subparagraph (a) of this
paragraph (iv), purchase or otherwise acquire such shares at such time and in
such manner.
(v) Liquidation Rights. Upon the liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, no distribution shall be made
(1) to the holders of shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution, or winding up) to the Series A Preferred Shares
unless, prior thereto, the holders of Series A Preferred Shares shall have
received an amount equal to the accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment, plus an amount
equal to the greater of (x) $100 per share or (y) an aggregate amount per share
equal to the Formula Number then in effect times the aggregate amount to be
distributed per share to holders of Common Shares, or (2) to the holders of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Shares, except
distributions made ratably on the Series A Preferred Shares and all other such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up.
(vi) Consolidation, Merger, etc. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the Common
Shares are exchanged for or changed into other stock or securities, cash or any
other property, then in any such case the then outstanding shares of Series A
Preferred Shares shall at the same time be similarly exchanged or changed in an
amount per share equal to the Formula Number then in effect times the aggregate
amount of stock, securities, cash or any other property (payable in kind), as
the case may be, into which or for which each Common Share is exchanged or
changed.
(vii) Redemption; No Sinking Fund.
(a) the Series A Preferred Shares shall not be redeemable at the option of
the Corporation except as set forth in this paragraph (vii). The outstanding
Series A Preferred Shares may be redeemed at the option of the Board of
Directors as a whole, but not in part, at any time at which, in the good faith
determination of the Board of Directors no person beneficially owns more than
10% of the aggregate voting power represented by all the outstanding shares of
capital stock of the Corporation generally entitled to vote in the election of
Directors of the Corporation, at a cash price per share equal to (i) 125% of the
product of the Formula Number times the Market Value (as such term is
hereinafter defined) of the Common Shares, plus (ii) all dividends which on the
redemption date have accrued on the shares to be redeemed and have not been paid
or declared and a sum sufficient for the payment thereof set apart, without
interest. The "Market Value" on any date shall be
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deemed to be the average of the daily closing prices, per share, of the Common
Shares for the 30 consecutive Trading Days immediately prior to the date in
question. The closing price for each Trading Day shall be the last sale price,
regular way, or, in case no such sale take place on such Trading Day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system if the
Common Shares are listed or admitted to trading on a national securities
exchange or, if the Common Shares are not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or such other system then in use, or, if on any such Trading
Day the Common Shares are not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in the Common Shares selected by the Board of Directors of the
Corporation. If on any such Trading Day no market maker is making a market in
the Common Shares, the closing price of such Common Shares on such Trading Day
shall be deemed to be the fair value of the Common Shares as determined in good
faith by the Board of Directors of the Corporation. "Trading Day" shall mean a
day on which the principal national securities exchange on which the Common
Shares are listed or admitted to trading is open for the transaction of business
or, if the Common Shares are not listed or admitted to trading on any national
securities exchange, a Monday, Tuesday, Wednesday, Thursday or Friday which is
not a day on which banking institutions in the Borough of Manhattan, The City of
New York, are authorized or obligated by law or executive order to close;
(b) the shares of Series A Preferred Shares shall not be subject to or
entitled to the operation of a retirement or sinking fund.
(viii) Ranking. The Series A Preferred Shares shall rank equally and on a
parity with all other series of Preferred Shares of the Corporation with respect
to the payment of dividends and distribution of assets upon the liquidation,
dissolution or winding up of the Corporation.
(ix) Fractional Shares. The Series A Preferred Shares shall be issuable
upon exercise of the Rights issued pursuant to the Rights Agreement in whole
shares or in any fraction of a share that is one one-hundredth (1/100th) of a
share or any integral multiple of such fraction which shall entitle the holder,
in proportion to such holder's fractional shares, to receive dividends, exercise
voting rights, participate in distributions and to have the benefit of all other
rights of holders of Series A Preferred Shares. The Corporation, prior to the
first issuance of a share or a fraction of a share of Series A Preferred Shares,
may elect (1) to issue certificates evidencing such authorized fraction of a
share of Series A Preferred Shares or (2) to issue depository receipts
evidencing such authorized fraction of a share of Series A Preferred Shares
pursuant to an appropriate agreement between the Corporation and a depository
selected by the Corporation, provided that such agreement shall provide that the
holders of such depository receipts shall have all the rights, privileges and
preferences to which they are entitled as holders of the Series A Preferred
Shares.
(x) Reacquired Shares. Any Series A Preferred Shares purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and cancelled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Shares,
without designation as to series until such shares are once more designated as
part of a particular series by resolution of the Board of Directors.
(xi) Amendment. None of the powers, preferences and relative,
participating, optional and other special rights of the Series A Preferred
Shares as provided herein shall be amended in any manner which would alter or
change the powers, preferences, rights or privileges of the holders of Series A
Preferred Shares so as to affect them adversely without the affirmative vote of
the holders of at least 66 2/3% of the outstanding Series A Preferred Shares,
voting as a separate class; provided, however, that no such amendment approved
by the holders of at least 66 2/3% of the outstanding Series A Preferred Shares
shall be deemed to apply to the powers, preferences, rights or privileges of any
holder of Series A Preferred Shares originally issued upon exercise of the
Rights after the time of such approval without the approval of such holder.
FIFTH: No holder of shares of the Corporation of any class, now or
hereafter authorized, shall have any preferential, preemptive or other right to
subscribe for, purchase or receive any shares of the Corporation of
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any class, now or hereafter authorized, or any options or warrants for such
shares, or any rights, to subscribe to or purchase such shares, or any
securities convertible into or exchangeable for such shares, which may at any
time be issued, sold or offered for sale by the Corporation other than as the
Board of Directors in its discretion may from time to time determine on such
terms and conditions as the Board of Directors may from time to time fix.
SIXTH: The Secretary of State is designated as agent of the Corporation
upon whom process against it may be served. The mail post office address to
which the Secretary of State shall mail a copy of any process against the
Corporation served upon him or her is 114 West 47th Street, New York, New York
10036.
SEVENTH: The accounting period which the Corporation intends to establish
as its first calendar or fiscal year for reporting the franchise tax imposed by
Article Nine-A of the Tax Law of the State of New York is the period ending
December 31, 1995.
EIGHTH: (A) Except as provided in paragraph (B), the affirmative vote, at a
meeting of the shareholders of the Corporation, of (i) the holders of at least
80% of the combined voting power of the then outstanding Voting Shares (as
hereinafter defined) of the Corporation and (ii) the holders of at least a
majority of the combined voting power of the then outstanding Voting Shares of
the Corporation held by Disinterested Shareholders (as hereinafter defined), in
each case voting together as a single class, shall be required prior to and as a
condition to the consummation of any Business Combination (as hereinafter
defined). Such vote shall be in addition to any shareholder vote required
without reference to this Article EIGHTH, and shall be required notwithstanding
that no vote may otherwise be required, or that some lesser percentage may be
specified, by law, by this certificate of incorporation, by the Corporation's
bylaws or otherwise.
(B) The provisions of paragraph (A) shall not apply to a particular
Business Combination, and such Business Combination shall require only such
shareholder vote or approval (if any) as would be required without reference to
this Article EIGHTH, if either (I) the Business Combination shall have been
approved by a majority of the Continuing Directors (as hereinafter defined),
whether such approval is given before or after the transaction in which the
Interested Shareholder (as hereinafter defined) became an Interested
Shareholder, or (II) all the conditions set forth in subparagraphs (1) through
(5) below are satisfied.
(1) The transaction constituting the Business Combination shall provide
that the holders of Common Shares shall receive a consideration in exchange for
their Common Shares, and the aggregate amount of cash and the Fair Market Value
(as hereinafter defined) as of the date of the consummation of the Business
Combination of consideration other than cash to be received per share by holders
of Common Shares in such Business Combination shall be at least equal to the
highest of the following:
(a) (if applicable) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid in order to
acquire any Common Shares of which the Interested Shareholder is the Beneficial
Owner (as hereinafter defined) which were acquired (i) within the two-year
period immediately prior to the date of the first public announcement of the
proposed Business Combination (the "Announcement Date") or (ii) in the
transaction in which the Interested Shareholder became an Interested
Shareholder, whichever is higher;
(b) the Fair Market Value per Common Share on the Announcement Date or on
the date on which the Interested Shareholder became an Interested Shareholder,
whichever is higher; and
(c) (if applicable) the price per share equal to the Fair Market Value per
Common Share determined pursuant to clause (b) immediately preceding multiplied
by the ratio of (i) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid in order to
acquire any Common Shares of which the Interested Shareholder is the Beneficial
Owner which were acquired within the two-year period immediately prior to the
Announcement Date to (ii) the Fair Market Value per Common Share on the first
day in such two-year period on which the Interested Shareholder was the
Beneficial Owner of any Common Shares.
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(2) If the transaction constituting the Business Combination shall provide
that the holders of any class of outstanding Voting Shares other than Common
Shares shall receive a consideration in exchange for their shares, the aggregate
amount of cash and the Fair Market Value as of the date of the consummation of
the Business Combination of consideration other than cash to be received per
share by holders of such Voting Shares shall be at least equal to the highest of
the following (it being intended that the requirements of this subparagraph
(B)(2) shall be met with respect to every class of outstanding Voting Shares
other than Common Shares, whether or not the Interested Shareholder is the
Beneficial Owner of any shares of a particular class of such Voting Shares):
(a) (if applicable) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid in order to
acquire any shares of such class of Voting Shares of which the Interested
Shareholder is the Beneficial Owner which were acquired (i) within the two-year
period immediately prior to the Announcement Date or (ii) in the transaction in
which the Interested Shareholder became an Interested Shareholder, whichever is
higher;
(b) (if applicable) the highest preferential amount per share to which the
holders of shares of such class of Voting Shares are entitled in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(c) the Fair Market Value per share of such class of Voting Shares on the
Announcement Date or on the date on which the Interested Shareholder became an
Interested Shareholder, whichever is higher; and
(d) (if applicable) the price per share equal to the Fair Market Value per
share of such class of Voting Shares determined pursuant to clause (c)
immediately preceding multiplied by the ratio of (i) the highest per share price
(including any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid in order to acquire any shares of such class of Voting Shares of
which the Interested Shareholder is the Beneficial Owner which were acquired
within the two-year period immediately prior to the Announcement Date to (ii)
the Fair Market Value per share of such class of Voting Shares on the first day
in such two-year period on which the Interested Shareholder was the Beneficial
Owner of any shares of such class of Voting Shares.
(3) The consideration to be received in such Business Combination by
holders of a particular class of outstanding Voting Shares (including Common
Shares) shall be in cash or in the same form as was previously paid in order to
acquire shares of such class of Voting Shares of which the Interested
Shareholder is the Beneficial Owner and, if the Interested Shareholder is the
Beneficial Owner of shares of any class of Voting Shares which were acquired
with varying forms of consideration, the form of consideration to be received by
holders of such class of Voting Shares shall be either cash or the form used to
acquire the largest number of shares of such class of Voting Shares of which the
Interested Shareholder is the Beneficial Owner.
(4) After such Interested Shareholder became an Interested Shareholder and
prior to the consummation of such Business Combination, (a) such Interested
Shareholder shall not have received the benefit, directly or indirectly (except
proportionately as a shareholder), of any loans, advances, guarantees, pledges
or other financial assistance or tax credits provided by the Corporation or any
Subsidiary (as hereinafter defined), or made any major change in the
Corporation's business or equity capital structure or entered into any contract,
arrangement or understanding with the Corporation, except any such change,
contract, arrangement or understanding as may have been approved by a majority
of the Continuing Directors, (b) except as approved by a majority of the
Continuing Directors, there shall have been no failure to declare and pay at the
regular date therefor any full quarterly dividend (whether or not cumulative) on
any outstanding Preferred Shares or other shares of the Corporation entitled to
a preference over Common Shares as to dividends or upon liquidation; (c) there
shall have been (i) no reduction in the annual rate of dividends paid on the
Common Shares (except as necessary to reflect any subdivision of the Common
Shares), unless approved by a majority of the Continuing Directors, and (ii) an
increase in such annual rate of dividends (as necessary to prevent any such
reduction) in the event of any reclassification (including any reverse stock
split), recapitalization, reorganization or similar transaction which has the
effect of reducing the number of outstanding Common Shares, unless the failure
so to increase such annual rate is approved by a majority of the Continuing
Directors; (d) such Interested Shareholder shall not have become the Beneficial
Owner of any additional
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Voting Shares subsequent to the transaction in which it became an Interested
Shareholder; and (e) there shall have always been at least three Continuing
Directors on the Board of Directors of the Corporation.
(5) Whether or not required by law, a proxy or information statement
complying with the requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") shall have been mailed to all holders of Voting
Shares for the purpose of soliciting shareholder approval of such Business
Combination at least 30 days prior to the consummation thereof. Such proxy or
information statement shall contain at the front thereof, in a prominent place,
any recommendations as to the advisability (or inadvisability) of the Business
Combination which the Continuing Directors, or any of them, may have furnished
to the Corporation in writing and, if deemed advisable by a majority of the
Continuing Directors, an opinion of a reputable investment banking firm as to
the fairness (or lack of fairness) of the terms of such Business Combination
from the point of view of the Disinterested Shareholders (such investment
banking firm to be selected by a majority of the Continuing Directors, to be
furnished with all information it reasonably requests and to be paid a
reasonable fee by the Corporation for its services following the receipt by the
Corporation of such opinion).
(C) For the purposes of this Article EIGHTH:
(1) The term "Business Combination" means (i) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition to or with an Interested
Shareholder (in a single transaction or a series of related transactions) of all
or a Substantial Part (as hereinafter defined) of the assets of the Corporation
(including without limitation any securities of a Subsidiary) or all or a
Substantial Part of the assets of a Subsidiary; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition to or with the Corporation or to
or with a Subsidiary (in a single transaction or a series of related
transactions) of all or a Substantial Part of the assets of an Interested
Shareholder; (iii) any merger or consolidation of the Corporation or any
Subsidiary into or with an Interested Shareholder or into or with another
Corporation or company which, after such merger or consolidation, would be an
Affiliate (as hereinafter defined) of an Interested Shareholder, in each case
irrespective of which Corporation or company is the surviving entity in such
merger or consolidation; (iv) the issuance or transfer of any securities of the
Corporation or a Subsidiary by the Corporation or a Subsidiary to an Interested
Shareholder, with the exception of securities which, when aggregated with all
such securities so issued or transferred within the preceding five years to such
Interested Shareholder and the Affiliates and Associates (as hereinafter
defined) of such Interested Shareholder, or any of them, have a Fair Market
Value of less than $13 million, determined in each case as of the time of each
issuance or transfer in question and with the exception of an issuance of
securities upon conversion of convertible securities of the Corporation or of a
Subsidiary which were not acquired by the Interested Shareholder (or any such
Affiliate or Associate) from the Corporation or any Subsidiary; (v) any
reclassification of securities (including any reverse stock split or
consolidation of shares), recapitalization, reorganization, merger or
consolidation of the Corporation with any of its Subsidiaries, or any similar
transaction (whether or not with or into or otherwise involving an Interested
Shareholder) which has the effect, directly or indirectly, of increasing the
proportionate amount of the outstanding shares or amount of any class of equity
security of the Corporation or any Subsidiary which is directly or indirectly
owned by any Interested Shareholder; (vi) any merger of the Corporation into a
Subsidiary, or any consolidation between the Corporation and a Subsidiary,
unless the surviving or consolidated corporation or company, as the case may be,
has a provision in its certificate of incorporation identical or substantially
similar to this Article EIGHTH; (vii) the adoption of any plan or proposal for
the liquidation or dissolution of the Corporation proposed by or on behalf of
any Interested Shareholder or any Affiliate or Associate of any Interested
Shareholder; or (viii) any agreement, contract or other arrangement providing
for any of the transactions hereinabove described in this definition of Business
Combination.
(2) "Interested Shareholder" at any particular time means, with respect to
any Business Combination, any Person (as hereinafter defined) (other than the
Corporation or any Subsidiary) who or which (i) is the Beneficial Owner of 10%
or more of the outstanding Voting Shares, (ii) is an Affiliate of the
Corporation and at any time within the preceding five years was the Beneficial
Owner of 10% or more of the then outstanding Voting Shares or (iii) is at such
time an assignee of or has otherwise succeeded to the beneficial ownership of
any Voting Shares of which any Interested Shareholder was the Beneficial Owner
at any time within the two-year period immediately prior to the date in
question, if such assignment or succession shall have occurred in
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the course of a transaction or series of related transactions not involving any
public offering within the meaning of the Securities Act of 1933, as amended
(the "Securities Act"). "Person" means any individual, firm, corporation,
company or other entity.
(3) A Person shall be considered the "Beneficial Owner" of any Voting
Shares (i) which are owned beneficially (whether or not owned of record) by such
Person or by any Affiliate or Associate of such Person, (ii) which such Person
or any Affiliate or Associate of such Person has (a) the right to acquire
(whether such right is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (b) the right to vote pursuant to any agreement, arrangement or
understanding, or (iii) which are owned beneficially (whether or not owned of
record) by any other Person with which such first-mentioned Person or any of its
Affiliates or Associates has any agreement, arrangement or understanding with
respect to acquiring, holding, voting or disposing of any Voting Shares or
acquiring, holding or disposing of all or a Substantial Part of the assets of
the Corporation or a Subsidiary. For the purpose only of determining whether a
Person is the Beneficial Owner of 10% or more of the outstanding Voting Shares,
such outstanding shares shall be deemed to include any Voting Shares which may
be issuable pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants, options or otherwise
and of which such Person is deemed to be the Beneficial Owner pursuant to the
foregoing provisions of this subparagraph (3). In addition to such provisions,
for all purposes of this Article EIGHTH, a Person shall be deemed to be the
Beneficial Owner of Voting Shares if such Person is deemed the beneficial owner
thereof pursuant to Rule 13d-3 under the Exchange Act.
(4) For the purpose of determining whether a Person is an Interested
Shareholder pursuant to subparagraph (2) of this paragraph (C), the number of
Voting Shares deemed to be outstanding shall include shares of which the
Interested Shareholder is deemed the Beneficial Owner through application of
subparagraph (3) of this paragraph (C) but shall not include any other Voting
Shares which may be issuable pursuant to any agreement, arrangement or
understanding, or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise.
(5) "Disinterested Shareholder" means a shareholder of the Corporation who
is not an Interested Shareholder or an Affiliate or an Associate of an
Interested Shareholder.
(6) The term "Voting Shares" means shares of the Corporation entitled to
vote generally in the election of directors, considered for the purposes of this
Article EIGHTH as one class.
(7) The term "Substantial Part" as used with reference to the assets of the
Corporation, of any Subsidiary or of any Interested Shareholder means assets
having a value of more than 5% of the total consolidated assets of the
Corporation and its Subsidiaries as of the end of the Corporation's most recent
fiscal year ended prior to the time the determination is being made.
(8) For purposes of paragraph (B) of this Article EIGHTH, in the event of a
Business Combination upon consummation of which the Corporation would be the
surviving corporation or company or would continue to exist (unless it is
provided, contemplated or intended that as part of such Business Combination or
within one year after consummation thereof a plan of liquidation or dissolution
of the Corporation will be adopted or effected), the term "consideration other
than cash to be received" shall include (without limitation) Common Shares of
the Corporation retained by shareholders of the Corporation other than
Interested Shareholders who are parties to such Business Combination.
(9) "Continuing Director" means a member of the Board of Directors of the
Corporation who is not an Affiliate or an Associate of an Interested Shareholder
and not a representative or nominee of an Interested Shareholder and who either
(i) was first elected as a director prior to the date as of which an Interested
Shareholder who or which proposes to enter into or be a party to or involved in
a Business Combination became an Interested Shareholder or (ii) was designated
(before his initial election as a director) as a continuing Director by a
majority of the then Continuing Directors.
(10) "Affiliate" means a Person who directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, another Person and in addition means any "affiliate" as
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that term is defined in Rule 12b-2 under the Exchange Act (the term "registrant"
in such Rule 12b-2 meaning in this case the Corporation).
(11) "Associate" means (i) any corporation, company or organization of
which a Person is an officer or partner or is, directly or indirectly, the
Beneficial Owner of 5% or more of any class (or series thereof) of equity
securities, (ii) any trust or other estate in which a Person has a 5% or larger
beneficial interest of any nature or as to which a Person serves as trustee or
in a similar fiduciary capacity, (iii) any spouse of a Person, (iv) any relative
of a Person, or any relative of a spouse of a Person, who has the same residence
as such Person or spouse, and (v) any "associate" as that term is defined in
such Rule 12b-2 (the term "registrant" in such Rule 12b-2 meaning in this case
the Corporation).
(12) "Subsidiary" means any corporation or company of which a majority of
any class (or series thereof) of equity security (as defined in Rule 3a11-1
under the Exchange Act) is owned, directly, or indirectly, by the Corporation;
provided, however, that for the purposes of the definition of Interested
Shareholder set forth in subparagraph (2) of this paragraph (C), the term
"Subsidiary" shall mean only a corporation or company of which a majority of
each class (or series thereof) of equity security is owned, directly or
indirectly, by the Corporation.
(13) "Fair Market Value" means: (1) in the case of shares, the highest
closing sale price during the 30-day period immediately preceding the date in
question of a share on the Composite Tape for New York Stock Exchange Listed
Stocks, or, if such class of shares is not quoted on the Composite Tape, on the
New York Stock Exchange, or if such class is not listed on such Exchange, on the
principal United States securities exchange registered under the Exchange Act on
which such stock is listed, or, if such stock is not listed on any such
exchange, the highest closing sale price (or highest closing bid quotation if
such closing sale price is not reported) with respect to such shares during the
30-day period preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotation System or any system then in use,
or if no such quotations are available, the fair market value on the date in
question of a share as determined by a majority of the Continuing Directors in
good faith; and (2) in the case of property other than cash or shares, the fair
market value of such property on the date in question as determined by a
majority of the Continuing Directors in good faith.
(14) As used in the definition of Business Combination, a "series of
related transactions" shall be deemed to include not only a series of
transactions with the same Interested Shareholder but also a series of separate
transactions with an Interested Shareholder and any Affiliate or Associate of
such Interested Shareholder.
(15) An Interested Shareholder shall be deemed to have acquired a share of
the Corporation at the time when such Interested Shareholder became the
Beneficial Owner thereof. With respect to shares owned by Affiliates, Associates
or other Persons whose ownership is attributed to an Interested Shareholder
under the foregoing definition of Beneficial Owner, if the price paid by such
Interested Shareholder for such shares is not determinable, the price so paid
shall be deemed to be the higher of (a) the price paid upon acquisition thereof
by the Affiliate, Associate or other Person or (b) the market price of the
shares in question at the time when the Interested Shareholder became the
Beneficial Owner thereof.
(D) A majority of the Continuing Directors shall have the power to
determine for the purposes of this Article EIGHTH, on the basis of information
known to them, (i) whether a Person is an Interested Shareholder, (ii) the
number of Voting Shares of which any Person is the Beneficial Owner, (iii)
whether a Person is an Affiliate or Associate of another, (iv) whether a Person
has an agreement, arrangement or understanding with another as to the matters
referred to in subparagraph (3) of paragraph (C), (v) whether the assets subject
to any Business Combination constitute a "Substantial Part" as hereinabove
defined, (vi) whether two or more transactions constitute a "series of related
transactions" as hereinabove defined and (vii) any matters referred to in
subparagraph (15) of paragraph (C). Any such determination made in good faith
shall be binding and conclusive on all parties.
(E) Any amendment, change or repeal of this Article EIGHTH, or any other
amendment of this certificate of incorporation which would have the effect of
modifying or permitting circumvention of this
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Article EIGHTH, shall require the affirmative vote, at a meeting of shareholders
of the Corporation, of (i) the holders of at least 80% of the combined voting
power of the then outstanding Voting Shares and (ii) the holders of at least a
majority of the combined voting power of the then outstanding Voting Shares held
by Disinterested Shareholders, in each case voting together as a single class;
provided, however, that this paragraph (E) shall not apply to, and such 80% vote
and such majority vote shall not be required for, any such amendment, change or
repeal recommended to shareholders by a majority of the Continuing Directors and
any such amendment, change or repeal so recommended shall require only the vote,
if any, required under the applicable provisions of the New York Business
Corporation Law. For purposes of this paragraph (E) only, if at the time when
any such amendment, change or repeal is under consideration there is no proposed
Business Combination (in which event clause (i) of the definition of Continuing
Director in subparagraph (C)(9) above would be inapplicable), the "Continuing
Directors" shall be deemed to be those persons who were members of the Board of
Directors of the Corporation at the time when the amendment of this certificate
of incorporation to add this Article EIGHTH was approved by shareholders plus
those persons who are Continuing Directors pursuant to clause (ii) of
subparagraph (C)(9).
(F) Nothing contained in this Article EIGHTH shall be construed to relieve
any Interested Shareholder from any fiduciary obligation imposed by law.
(G) The fact that any Business Combination complies with the provisions of
this Article EIGHTH shall not be construed to impose any fiduciary obligation on
the Board of Directors, or any member thereof, to approve such Business
Combination or to recommend its adoption or approval by the shareholders of the
Corporation.
NINTH: No director of the Corporation shall be personally liable to the
Corporation or its shareholders or any of them for damages for any breach of
duty in such capacity, except as may otherwise be required by applicable law.
Any repeal or modification of this Article NINTH shall not adversely affect any
right or protection of a director of the Corporation with respect to any act or
omission occurring prior to, or at the time of, such repeal or modification.
5. This Restated Certificate of Incorporation and the amendments set forth
herein have been duly authorized by the Board of Directors by unanimous written
consent, followed by the unanimous written consent of the shareholders of the
Corporation pursuant to Sections 708(b) and 615(a), respectively, of the
Business Corporation Law.
IN WITNESS WHEREOF, the undersigned have executed this Restated Certificate
of Incorporation on this th day of , 1995 and affirmed that the
statements made herein are true under penalties of perjury.
--------------------------------------
H. Marshall Schwarz
Chairman of the Board
--------------------------------------
Carol A. Strickland
Secretary
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APPENDIX II
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APPENDIX II
RESTATED
BY-LAWS
OF
NEW USTC HOLDINGS CORPORATION
ARTICLE I
SHAREHOLDERS
SECTION 1.01. Annual Meeting. The annual meeting of the shareholders of
New USTC Holdings Corporation (the "Corporation") for the election of directors
and the transaction of such other business as may properly come before the
meeting shall be held on a date which is no later than six months after the
close of the Corporation's preceding fiscal year (but in no event later than 13
months after the last annual meeting) and at such place within or without the
State of New York as shall be fixed by the Board of Directors.
SECTION 1.02. Special Meetings. Except as otherwise provided by law, a
special meeting of the shareholders may be called by the Board of Directors, by
the Chairman of the Board, by the President or by a Vice Chairman of the Board.
Any such call or request shall state the purpose or purposes of the proposed
meeting, and the business transacted at such meeting shall be confined to the
purpose or purposes stated in the call. Special meetings shall be held at such
place within or without the State of New York and on such date as may be
specified in the call thereof, but any special meeting may be called and held in
conjunction with an annual meeting of the shareholders.
SECTION 1.03. Record Date for Meetings and Other Purposes. For the purpose
of determining the shareholders entitled to notice of or to vote at any meeting
of shareholders or any adjournment thereof, or to express consent to or dissent
from any proposal without a meeting, or for the purpose of determining
shareholders entitled to receive payment of any dividend or the allotment of any
rights, or for the purpose of any other action, the Board of Directors may fix
in advance a date as the record date for any such determination of shareholders.
Such date shall not be more than 50 nor less than 10 days before the date of
such meeting, nor more than 50 days prior to any other action.
If no record date is so fixed by the Board of Directors, (a) the record
date for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders shall be at the close of business on the day next
preceding the day on which notice is given or, if no notice is given, the day on
which the meeting is held, and (b) the record date for determining shareholders
for any other purpose shall be at the close of business on the day on which the
resolution of the Board of Directors relating thereto is adopted.
A determination of shareholders of record entitled to notice of or to vote
at any meeting of shareholders made in accordance with this Section shall apply
to any adjournment thereof, unless the Board of Directors fixes a new record
date under this Section for the adjourned meeting.
SECTION 1.04. Notice of Meetings. Whenever shareholders are required or
permitted to take any action at a meeting, written notice shall be given stating
the place, date and hour of the meeting and, unless it is the annual meeting,
indicating that it is being issued by or at the direction of the person or
persons calling the meeting. Notice of a special meeting shall also state the
purpose or purposes for which the meeting is called. If at any meeting action is
proposed which would if taken entitle shareholders fulfilling the requirements
of Section 623 of the New York Business Corporation Law to receive payment for
their shares, the notice of such meeting shall include a statement of that
purpose and to that effect. A copy of the notice of any meeting shall be given
personally or by mail not less than 10 nor more than 50 days before the date of
the meeting to each shareholder entitled to vote at such meeting. If mailed,
such notice is given when deposited in the United States mail with postage
thereon prepaid directed to the shareholder at his address as it appears on
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the record of shareholders, or, if he shall have filed with the Secretary of the
Corporation a written request that notices to him be mailed to some other
address, then directed to him at such other address.
When a meeting is adjourned to another time or place, it shall not be
necessary to give any notice of the adjourned meeting if the time and place to
which the meeting is adjourned are announced at the meeting at which the
adjournment is taken, and at the adjourned meeting any business may be
transacted that might have been transacted on the original date of the meeting.
However, if after the adjournment the Board of Directors fixes a new record date
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each shareholder of record on the new record date entitled to notice under this
Section.
SECTION 1.05. Waivers of Notice. Notice of any meeting of shareholders
need not be given to any shareholder who submits a signed waiver of notice, in
person or by proxy, whether before or after the meeting. The attendance of any
shareholder at a meeting, in person or by proxy, without protesting prior to the
conclusion of the meeting the lack of notice of such meeting shall constitute a
waiver of notice by him.
SECTION 1.06. List of Shareholders at Meetings. A list of shareholders as
of the record date, certified by the Secretary or transfer agent of the
Corporation, shall be produced at any meeting of shareholders upon the request
thereat or prior thereto of any shareholder. If the right to vote at any meeting
is challenged, the inspectors of election, or person presiding thereat, shall
require such list of shareholders to be produced as evidence of the right of the
persons challenged to vote at such meeting, and all persons who appear from such
list to be shareholders entitled to vote thereat may vote at such meeting.
SECTION 1.07. Quorum at Meetings. Except as otherwise provided by law, the
holders of a majority of the shares entitled to vote thereat shall constitute a
quorum at any meeting of shareholders for the transaction of any business, but
the shareholder present may adjourn the meeting despite the absence of a quorum.
When a quorum is once present to organize a meeting it shall not be broken by
the subsequent withdrawal of any shareholders.
SECTION 1.08. Presiding Officer and Secretary. At any meeting of the
shareholders, if neither the Chairman of the Board, the President, a Vice
Chairman of the Board nor a person designated by the Board of Directors to
preside at the meeting shall be present, the shareholders shall appoint a
presiding officer for the meeting. If neither the Secretary nor an Assistant
Secretary be present, the appointee of the person presiding at the meeting shall
act as secretary of the meeting.
SECTION 1.09. Nomination of Directors. Only persons who are nominated in
accordance with the procedures set forth in this Section 1.09 shall be eligible
for election as directors at any meeting of shareholders held for the election
of directors (an "Election Meeting"). Nominations of persons for election to the
Board of Directors of the Corporation may be made at an Election Meeting by or
at the direction of the Board of Directors or by a shareholder of the
Corporation who was a shareholder of record at the time of giving of notice
provided for in this Section 1.09, who is entitled to vote for the election of
directors at such Election Meeting and who complies with the notice procedures
set forth in this Section 1.09. Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the Corporation. To be timely, a shareholder's
notice must be delivered to or mailed and received at the principal office of
the Corporation not less than 60 days nor more than 90 days prior to such
Election Meeting; provided, however, that in the event the election Meeting is
not held within 10 business days of the date set in these By-laws for the
election of directors and less than 70 days' notice or prior public announcement
of the date of such Election Meeting is given or made to shareholders, notice by
the shareholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
such Election Meeting was mailed or such public announcement was made.
Notwithstanding anything in the foregoing sentence to the contrary, in the event
that the number of directors to be elected to the Board of Directors of the
Corporation at such Election Meeting is increased or there is a vacancy to be
filled at such Election Meeting in a class of directors whose terms do not
expire at such Election Meeting and there is no public announcement at least 70
days prior to such Election Meeting naming all of the nominees for director or
specifying the size of the enlarged Board of Directors or the number of
directors to be elected, a shareholder's notice required by this Section 1.09
shall also be considered timely, but only with respect to nominees for any
positions created by such increase or
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vacancy, if it shall be delivered to or mailed and received at the principal
office of the Corporation not later than the close of business on the 10th day
following the day on which such public announcement is first made by the
Corporation.
Such shareholder's notice to the Secretary of the Corporation shall set
forth (a) as to each person whom the shareholder proposes to nominate for
election or re-election as a director, (i) the name, age, business address and
residence address of such person, (ii) the principal occupation or employment of
such person, (iii) the class and number of shares of the Corporation which are
owned beneficially by such person and (iv) any other information concerning such
person that is required to be disclosed in connection with the solicitation of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (including without limitation such person's written consent
to being named in the proxy statement as a nominee and to serving as a director
if elected); and (b) as to the shareholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination is made, (i) the name and address
of such shareholder, as they appear on the Corporation's books, and of such
beneficial owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such shareholder and by such
beneficial owner. At the request of the Board of Directors, any person nominated
by the Board of Directors for election as a director shall furnish to the
Secretary of the Corporation that information required to be set forth in a
shareholder's notice of nomination which pertains to such nominee.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section
1.09. In the event that a person is validly designated as a nominee in
accordance with the foregoing and shall thereafter become unable or unwilling to
stand for election to the Board of Directors, the Board of Directors or the
shareholder who proposed such nominee, as the case may be, may designate a
substitute nominee. The presiding officer of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the provisions of this Section 1.09 and if the presiding officer
should so determine, he or she shall declare to the meeting that the defective
nomination shall be disregarded. In addition to the provisions of this Section
1.09, a shareholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth herein.
SECTION 1.10. Public Announcement. For purposes of this Article I, "public
announcement" shall mean disclosure in a communication sent by first class mail
to shareholders, in a press releases reported by the Dow Jones News Service,
Reuters Information Services, Inc., Associated Press or a comparable national
news service or in a document filed by the Corporation with the Securities and
Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
SECTION 1.11. Proxies. Every shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting may authorize
another person or persons to act for him by proxy. Every proxy shall be signed
by the shareholder or his attorney-in-fact. No proxy shall be valid after the
expiration of 11 months from the date thereof unless otherwise provided in the
proxy. Every proxy shall be revocable at the pleasure of the shareholder
executing it, except as otherwise provided by law. Proxies shall be delivered to
the Secretary of the Corporation or, if inspectors are appointed to act at a
meeting, to the inspectors.
SECTION 1.12. Inspectors. The Board of Directors in advance of any meeting
of shareholders may appoint one or more inspectors to act at the meeting or any
adjournment thereof. If inspectors are not so appointed, the person presiding at
the meeting may, and on the request of any shareholder entitled to vote thereat
shall, appoint one or more inspectors. In case any person appointed fails to
appear or act, the vacancy may be filled by appointment made by the Board in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum and the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right
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to vote, count and tabulate all votes, ballots or consents, determine the result
and do such acts as are proper to conduct the election or vote with fairness to
all shareholders. On request of the person presiding at the meeting or any
shareholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, question or matter determined by them and execute a
certificate of any fact found by them.
SECTION 1.13. Voting. Whenever directors are to be elected by the
shareholders, they shall be elected by a plurality of the votes cast at a
meeting of shareholders by the holders of shares entitled to vote in the
election. Whenever any corporate action other than the election of directors is
to be taken by vote of the shareholders, it shall, except as otherwise required
by law, be authorized by a majority of the votes cast at a meeting of
shareholders by the holder of shares entitled to vote thereon.
Except as otherwise may be provided in the certificate of incorporation of
the Corporation, every shareholder of record shall be entitled at every meeting
of shareholders to one vote for every share standing in his name on the record
of shareholders. Upon the demand of any shareholder, the vote at any election of
directors or upon any other question shall be by ballot, but otherwise the
method of voting shall be discretionary with the person presiding at the
meeting.
SECTION 1.14. Written Consent of Shareholders Without a Meeting. Whenever
shareholders are required or permitted to take any action by vote, such action
may be taken without a meeting on written consent setting forth the action so
taken and signed by the holders of all outstanding shares entitled to vote
thereon. The provisions of this Section shall not be construed to alter or
modify any provision of law or of the certificate of incorporation of the
Corporation under which the written consent of the holders of less than all
outstanding shares is sufficient for corporate action.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.01. Number and Qualification of Directors. The business of the
Corporation shall be managed under the direction of a Board of Directors,
consisting of such number of directors, not less than nine, as shall be fixed
from time to time by resolution adopted by a majority of the entire Board or at
any annual or special meeting of the shareholders entitled to vote for the
election of directors; provided that no decrease in the number of directors
shall shorten the term of any incumbent director. Each director shall be at
least 18 years of age. No person shall be eligible for election or qualified to
remain in office as a director who shall have attained the age of 72 years, and
any director in office shall retire as such upon attaining the age of 72 years.
SECTION 2.02. Classification and Term of Directors. The directors shall be
elected for terms of three years and shall be divided into three classes, as
nearly equal in number as possible, with the terms of office of one class
expiring each year on the date of the annual meeting of shareholders. At each
annual meeting of shareholders, directors to replace those whose terms expire at
such annual meeting shall be elected to hold office until the third succeeding
annual meeting thereafter, but each director, of whatever class, shall hold
office until a successor shall have been elected and qualify. Any increase or
decrease in the number of directors shall be so apportioned among the classes as
to make all classes as nearly equal in number as possible. When the number of
directors is increased by the Board and any newly created directorships are
filled by the Board, there shall be no classification of the additional
directors until the next annual meeting of shareholders.
SECTION 2.03. Newly Created Directorships and Vacancies. Newly created
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board for any reason may be filled either by vote of
the shareholders or by vote of a majority of the directors then in office,
although less than a quorum exists. A director elected to fill a vacancy, or to
fill a newly created directorship, shall be elected to hold office until the
next meeting of shareholders at which the election of directors is in the
regular order of business, and until a successor has been elected and qualified.
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SECTION 2.04. Resignations. Any director may resign from office at any
time by delivering a resignation in writing to the Chairman of the Board, the
President, a Vice Chairman of the Board or the Secretary of the Corporation, and
the acceptance of such resignation, unless required by the terms thereof, shall
not be necessary to make such resignation effective.
SECTION 2.05. Removal of Directors. Any director may be removed for cause
either by vote of the shareholders or by a majority of the entire Board.
SECTION 2.06. Meetings. Meetings of the Board, regular or special, may be
held at any place within or without the State of New York as the Board from time
to time may fix or as shall be specified in the respective notice or waivers of
notice thereof. Within 15 days following each annual meeting of shareholders for
the election of directors, and annual meeting of the Board for the appointment
of officers and the transaction of such other business as may properly come
before the meeting shall be held. Such annual meeting of the Board shall be the
regular meeting of the Board next following the annual meeting of shareholders,
unless a special meeting of the Board shall in the meantime have been duly
called and held for such purposes. The Board may fix times and places for
regular meetings of the Board, and no notice of such meetings need be given.
Special meetings of the Board shall be held whenever called by the Chairman of
the Board, the President, a Vice Chairman of the Board or by at least one-third
of the directors at the time in office. Notice of the time and place of each
such meeting shall be given by the Secretary or by a person calling the meeting
to each director by mailing the same not later than the second day before the
meeting or personally or by telegraphing, cabling or telephoning the same not
later than the day before the meeting. A notice or waiver of notice need not
specify the purpose or purposes of any regular or special meeting of the Board.
Notice of a meeting need not be given to any director who submits a signed
waiver of notice whether before or after the meeting, or who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him. A majority of the directors present, whether or not a quorum is present,
may adjourn any meeting to another time and place. Notice of any adjournment of
a meeting of the Board shall be given to the directors who were not present at
the time of the adjournment and, unless such time and place are announced at the
meeting, to the other directors.
SECTION 2.07. Quorum and Voting. One-third of the entire Board shall
constitute a quorum for the transaction of any business. Except as otherwise
provided by law or by these By-laws, the vote of a majority of the directors
present at a meeting at the time of the vote, if a quorum is present at such
time, shall be the act of the Board.
SECTION 2.08. Written Consents and Meetings by Telephone. Any action
required or permitted to be taken by the Board or any committee thereof may be
taken without a meeting if all members of the Board or the committee consent in
writing to the adoption of a resolution authorizing the action. The resolution
and the written consents thereto by the members of the Board or committee shall
be filed with the minutes of the proceedings of the Board or committee. Any one
or more members of the Board or any committee thereof may participate in a
meeting of such Board or committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at a meeting.
SECTION 2.09. Compensation of Directors. Directors who are not officers of
the Corporation shall be entitled to receive such compensation for services to
the Corporation in their capacities as such or otherwise in such amounts as may
be fixed from time to time by the Board. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
SECTION 2.10. Entire Board. As used in these By-laws, the term "entire
Board" means the total number of directors which the Corporation would have if
there were no vacancies.
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ARTICLE III
COMMITTEES
SECTION 3.01. Executive Committee. The Board, by resolution adopted by a
majority of the entire Board, may appoint an Executive Committee, consisting of
three or more directors including the Chairman of the Board and President, which
shall have all the authority of the Board when the Board is not in session,
except as may be otherwise provided by law or limited by resolution of the
Board. Minutes of each meeting of the Executive Committee shall be kept and
shall be submitted to the first regular meeting of the Board following the
meeting of the Executive Committee. The Executive Committee may adopt its own
rules of procedure and shall fix the time and place, within or without the State
of New York, of its meetings. No notice of any regular meetings of the Executive
Committee shall be required. The Executive Committee shall serve at the pleasure
of the Board.
SECTION 3.02. Other Committees. The Board, by resolution adopted by a
majority of the entire Board, may designate from among its members one or more
other committees, each consisting of three or more directors, and each of which,
to the extent provided in the resolution, shall have all the authority of the
Board except as otherwise limited by law. The Board may authorize the Chief
Executive Officer to appoint, from time to time, such other committees
consisting of directors, officers, or other persons and having such powers,
duties and functions as the Board may determine. Each such committee and each
member thereof shall serve at the pleasure of the Board, or in the case of any
committee appointed by the Chief Executive Officer, at the pleasure of the Chief
Executive Officer. A majority of the members of any such committee shall
determine its rules of procedure and the time and place of its meetings, unless
the Board, or in the case of any committee appointed by the Chief Executive
Officer, the Chief Executive Officer, shall otherwise provide.
SECTION 3.03. Quorum and Voting. A majority of the members of a committee
shall constitute a quorum for the transaction of business, and the vote of a
majority of the members present at the time of the vote, if a quorum is present
at such time, shall be the act of the committee.
SECTION 3.04. Committee Membership. The Board, or in the case of any
committee appointed by the Chief Executive Officer, the Chief Executive Officer,
may fill any vacancy in a committee and may designate one or more persons as
alternate members of a committee who may replace any absent member or members at
any meeting of such committee.
ARTICLE IV
OFFICERS, AGENTS AND EMPLOYEES
SECTION 4.01. General Provisions. The officers of the Corporation shall
include a Chairman of the Board, a President, one or more Vice Chairmen of the
Board, a Secretary, a Treasurer, one or more Vice Presidents (any one or more of
whom may be designated Executive Vice President, Senior Vice President or by
some other special designation), a Comptroller, and an Auditor, and such other
officers, including but not by way of limitation one or more Assistant
Secretaries, Assistant Treasurers and Assistant Comptrollers, as may be elected
or appointed in accordance with the provisions of these By-laws.
The Chairman of the Board, the President, the Vice Chairmen of the Board,
Executive Vice Presidents (each of the foregoing officers being referred to
hereinafter as an "Executive Officer"), one or more other Vice Presidents, the
Secretary, the Treasurer and such other officers, if any, as the Board may
determine, shall be elected by the Board at the annual meeting of the Board
following each annual meeting of shareholders. Each such officer shall hold
office until the next annual election of officers and until a successor is
elected and shall have qualified. Any two or more offices other than the office
of President and Secretary may be held by the same person.
The Board from time to time may appoint the other officers provided for in
these By-laws and such other officers as it shall deem fit. The Chairman of the
Board, or in his absence the President, may appoint such further officers below
the rank of Vice President with such titles and duties as may be specified upon
appointment.
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All officers of the Corporation may be removed or their authority suspended
by the Board, and officers appointed by the Chairman of the Board or the
President may also be removed or their authority suspended by the Chairman of
the Board, or in his absence the President, in any such case, at any time, with
or without cause. Such removal without cause shall be without prejudice to such
person's contract rights, if any, but the appointment of any person as an
officer of the Corporation shall not of itself create contract rights. A vacancy
in any office may be filled in the manner prescribed in these By-laws for
election or appointment to such office.
The compensation of officers shall be fixed by the Board; provided that
this power may be delegated to any officer as to persons under his direction or
control.
All other agents and employees of the Corporation shall be appointed, their
duties prescribed and their compensation fixed, by the Chairman of the Board or
the President, or any officer authorized to do so by either of them.
The Board may require any officer, agent or employee to give security for
the faithful performance of his duties.
SECTION 4.02. Powers and Duties of the Chairman of the Board and the
President. The Chairman of the Board and the President shall be elected from
among the members of the Board, and one of them shall be designated by the Board
as Chief Executive Officer. The Chief Executive Officer shall have general
supervision of the business and affairs of the Corporation which shall in every
case be subject to the direction and control of the Board. The Chairman of the
Board, or in his absence the President, shall preside at all meetings of the
shareholders and of the Board.
SECTION 4.03. Duties of Other Officers. The officers of the Corporation
other than the Chief Executive Officer shall participate in the management of
the business and affairs of the Corporation as directed, and in the order of
seniority as determined, by the Board. They shall perform such duties as may be
assigned to them by the Board, the Chief Executive Officer or any officer
authorized by the Board or the Chief Executive Officer to do so, or as may be
prescribed by law or by these By-laws.
SECTION 4.04. Secretary. The Secretary shall keep the minutes of all
meetings of the Board and of the Executive Committee, shall have custody of the
corporate seal, shall give notices of meetings required by these By-laws, shall
perform such other duties as may be assigned to him from time to time by the
Board or the Chief Executive Officer and, in general, shall perform those duties
incident to the office of Secretary. In the absence of the Secretary, an
Assistant Secretary shall have the authority to perform the duties of the
Secretary.
SECTION 4.05. Treasurer. The Treasurer shall have responsibility for the
care and custody of all moneys, funds and other property of the Corporation
which may come into his hands, shall perform such other duties as may be
assigned to him from time to time by the Board or the Chief Executive Officer
and, in general, shall perform those duties incident to the office of Treasurer.
In the absence of the Treasurer, an Assistant Treasurer shall have the authority
to perform the duties of the Treasurer.
SECTION 4.06. Comptroller. The Comptroller shall exercise general
supervision over all accounting functions of the Corporation, including
preparation of its required tax returns and reports to supervisory authorities.
He shall be responsible to the Chief Executive Officer and may report directly
to the Board or to the Executive Committee on such matters as in his judgment
should be brought to their attention. In the absence of the Comptroller, an
Assistant Comptroller shall have the authority to perform the duties of the
Comptroller.
SECTION 4.07. Auditor. The Auditor shall exercise supervision over the
Auditing Department, and he shall review and evaluate all existing controls and
procedures and be responsible for reporting on the adequacy of controls, systems
and protective procedures and devices to insure the accuracy of records and the
safety of assets owned or managed by the Corporation. He shall be responsible to
the Chief Executive Officer and to the Board and shall report directly to the
Board, the Executive Committee or an Audit Committee of the Board on such
matters as in his judgment should be brought to their attention.
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SECTION 4.08. Delegation of Duties. In case of the absence of any officer
of the Corporation or for any other reason that the Board of Directors may deem
sufficient, the Board may confer for the time being any of the authority and
duties of such officer upon any other officer or upon any director.
ARTICLE V
INDEMNIFICATION
The Corporation shall indemnify any person made or threatened to be made a
party to any action or proceeding, whether civil or criminal, and whether or not
by or in the right of the Corporation or of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, by reason of the fact that such person, his
testator or intestate, is or was a director or officer of the Corporation or
served any other corporation of any type or kind, domestic or foreign, or any
partnership, joint venture, trust, employee benefit plan or other enterprise in
any capacity at the request of the Corporation, against judgments, fines,
amounts paid in settlement and reasonable expenses, including attorneys' fees,
actually and necessarily incurred as a result of such action or proceeding, or
any appeal therein; provided that (a) no indemnification may be made to or on
behalf of any person if a judgment or other final adjudication adverse to such
person establishes that his acts were committed in bad faith or were the result
of active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled, (b) no indemnification shall be
required in connection with the settlement of any pending or threatened action
or proceeding, or any other disposition thereof except a final adjudication,
unless the Corporation has consented to such settlement or other disposition and
(c) the Corporation shall not be obligated to indemnify any person by reason of
the adoption of this Article V if and to the extent such person is entitled to
be indemnified under a policy of insurance as such policy would apply in the
absence of the adoption of this Article V.
Reasonable expenses, including attorneys' fees, incurred in defending any
action or proceeding, whether threatened or pending, shall be paid or reimbursed
by the Corporation in advance of the final disposition thereof upon receipt of
an undertaking by or on behalf of the person seeking indemnification to repay
such amount to the Corporation to the extent, if any, such person is ultimately
found not to be entitled to indemnification.
Notwithstanding any other provision hereof, no repeal of this Article V, or
amendment hereof or any other corporate action or agreement which prohibits or
otherwise limits the right of any person to indemnification or advancement or
reimbursement of expenses hereunder, shall be effective as to any person until
the 60th day following notice to such person of such action, and no such repeal
or amendment or other corporate action or agreement shall deprive any person of
any right hereunder arising out of any alleged or actual act or omission
occurring prior to such 60th day.
The Corporation is hereby authorized, but shall not be required, to enter
into agreements with any of its directors, officers or employees providing for
rights to indemnification and advancement and reimbursement of reasonable
expenses, including attorneys' fees, to the extent permitted by law, but the
Corporation's failure to do so shall not in any manner affect or limit the
rights provided for by this Article V or otherwise.
For purposes of this Article V, the term "Corporation" shall include any
legal successor to the Corporation, including any corporation which acquires all
or substantially all of the assets of the Corporation in one or more
transactions. For purposes of this Article V, the Corporation shall be deemed to
have requested a person to serve an employee benefit plan where the performance
by such person of his duties to the Corporation or any subsidiary thereof also
imposes duties on, or otherwise involves services by, such person to the plan or
participants or beneficiaries of the plan, and excise taxes assessed on a person
with respect to an employee benefit plan pursuant to applicable law shall be
considered fines.
The rights granted pursuant to or provided by the foregoing provisions of
this Article V shall be in addition to and shall not be exclusive of any other
rights to indemnification and expenses to which any person may otherwise be
entitled under any statute, rule, regulation, certificate of incorporation,
bylaw, agreement or otherwise.
II-8
<PAGE> 327
ARTICLE VI
SHARES OF THE CORPORATION
SECTION 6.01. Certificates for Shares. The shares of the Corporation shall
be represented by certificates in such form as shall be determined by the Board
of Directors, signed by the Chairman of the Board, the President, a Vice
Chairman of the Board or a Vice President and the Secretary or an Assistant
Secretary or the Treasurer or Assistant Treasurers of the Corporation. Such
certificates shall be sealed with the seal of the Corporation or a facsimile
thereof and shall contain such information as is required by law to be stated
thereon. The signatures of the officers upon a certificate may be facsimiles if
the certificate is countersigned by a transfer agent or registered by a
registrar other than the Corporation itself or its employee. In case any officer
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer at
the time of issue. All certificates for shares shall be consecutively numbered
or otherwise identified. All certificates exchanged or surrendered to the
Corporation for transfer shall be canceled.
SECTION 6.02. Record of Shareholders. The Corporation shall keep at the
office of the Corporation in the State of New York a record containing the names
and addresses of all shareholders, the number and class of shares held by each
and the dates when they respectively became the owners of record thereof. The
Corporation shall be entitled to treat the persons in whose names shares stand
on the record of shareholders as the owners thereof for all purposes.
SECTION 6.03. Transfer of Shares. Transfers of shares on the record of
shareholders of the Corporation shall be made only upon surrender to the
Corporation of the certificate or certificates for such shares, duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer.
SECTION 6.04. Lost, Stolen or Destroyed Certificates. The Board of
Directors, in its discretion, may require the owner (or his legal
representatives) of any certificate representing shares of the Corporation
alleged to have been lost, stolen, or destroyed to give the Corporation a bond
in such sum as the Board may direct sufficient to indemnify the Corporation
against any liability or expense which it may incur by reason of the original
certificate remaining outstanding, as a condition of the issuance of a new
certificate for shares in the place of any certificate alleged to have been
lost, stolen or destroyed. Proper and legal evidence of such loss, theft or
destruction shall be procured for the Board if required. The Board in its
discretion may refuse to issue such new certificate save upon the order of a
court having jurisdiction in such matters.
ARTICLE VII
SEAL
The Board shall provide a seal for the Corporation which the Corporation
may use by causing it or a facsimile to be affixed or impressed or reproduced in
any other manner. Any officer of the Corporation shall have the power to use and
attest the corporate seal.
ARTICLE VIII
CONTRACTS, CHECKS, DRAFTS, ETC.
SECTION 8.01. Contracts, Etc. Except as otherwise provided in these
By-laws or by law, all checks, orders, contracts, leases, notes, drafts and
other documents and instruments in connection with the business of the
Corporation may be signed by any Executive Officer of the Corporation or by such
other officer, employee or agent thereunto authorized by resolution of the Board
of Directors, or in writing by the Chief Executive Officer, or by an officer or
officers designated by him subject to such restrictions as the Chief Executive
Officer shall prescribe.
SECTION 8.02. Auditor. Notwithstanding the foregoing, the Auditor shall
have no power to sign checks, vouchers, agreements or other documents or
instruments on behalf of the Corporation, except that the
II-9
<PAGE> 328
Auditor is authorized to certify in the name of, or on behalf of, the
Corporation, in its own right or in a fiduciary or representative capacity, as
to the accuracy and completeness of any account, schedule of assets, or other
document, instrument or paper requiring such certification and to sign in the
name of, or behalf of, the Corporation reports and responses to any regulatory
authority.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall be the calendar year.
ARTICLE X
AMENDMENTS
These By-laws may be amended or repealed and new By-laws may be adopted (a)
by vote of the holders of the shares at the time entitled to vote in the
election of directors at any annual meeting of the shareholders or at any
special meeting of the shareholders called for that purpose, or (b) by the Board
of Directors at any meeting of the Board, except in the case of any particular
provision at any time adopted by the shareholders and specified as not subject
to amendment or repeal by the Board. If any By-law regulating an impending
election of directors is adopted, amended or repealed by the Board, there shall
be set forth in the notice of the next meeting of shareholders for the election
of directors the By-law so adopted, amended or repealed, together with a concise
statement of the changes made.
II-10
<PAGE> 329
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware provides for the
indemnification of directors and officers of corporations organized thereunder
in certain circumstances. In addition, said Section 145 grants to each such
corporation the power to indemnify its directors and officers against liability
for certain of their acts.
The Restated Certificate of Incorporation and By-Laws of the Registrant
provide that directors and officers of the Registrant shall be indemnified to
the fullest extent permitted by the laws of the State of Delaware against
liability for certain of their acts.
Directors' and officers' liability insurance has also been obtained by the
Registrant, the effect of which is to indemnify the directors and officers of
the Registrant against certain damages and expenses because of certain claims
made against them caused by their negligent act, error or omission.
ITEM 21. EXHIBITS
The exhibits to this Registration Statement are listed in the Exhibit Index
which immediately follows the signature pages to this Registration Statement and
which is incorporated herein by reference.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request;
(5) To supply by means of a post-effective amendment all information
concerning a material transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration
statement when it became effective, and
(6) That, for purposes of determining any liability under the Act,
each filing of the Registrant's annual report and UST's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities
II-1
<PAGE> 330
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 20 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE> 331
POWER OF ATTORNEY
THE REGISTRANT AND EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY
AUTHORIZES ANY AGENT FOR SERVICE NAMED IN THIS REGISTRATION STATEMENT TO FILE
ONE OR MORE AMENDMENTS (INCLUDING, WITHOUT LIMITATION, POST-EFFECTIVE
AMENDMENTS) TO THIS REGISTRATION STATEMENT, WHICH AMENDMENTS MAY MAKE SUCH
CHANGES IN THIS REGISTRATION STATEMENT AS SUCH AGENT FOR SERVICE DEEMS
APPROPRIATE, AND THE REGISTRANT AND EACH SUCH PERSON HEREBY APPOINTS ANY SUCH
AGENT FOR SERVICE AS ATTORNEY-IN-FACT TO EXECUTE IN THE NAME AND ON BEHALF OF
THE REGISTRANT AND EACH SUCH PERSON, INDIVIDUALLY AND IN EACH CAPACITY STATED
BELOW, ANY SUCH AMENDMENTS TO THIS REGISTRATION STATEMENT.
------------------------------
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK, ON THE 9TH DAY OF FEBRUARY, 1995.
THE CHASE MANHATTAN CORPORATION
By: /s/ THOMAS G. LABRECQUE
------------------------------------
THOMAS G. LABRECQUE
(CHAIRMAN OF THE BOARD)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------------ ------------------------------- ------------------
<C> <S> <C>
/s/ THOMAS G. LABRECQUE Director, Chairman of the Board February 9, 1995
- ------------------------------------------ (Principal Executive Officer)
(THOMAS G. LABRECQUE)
/s/ RICHARD J. BOYLE Director February 9, 1995
- ------------------------------------------
(RICHARD J. BOYLE)
/s/ M. ANTHONY BURNS Director February 9, 1995
- ------------------------------------------
(M. ANTHONY BURNS)
/s/ JOAN GANZ COONEY Director February 9, 1995
- ------------------------------------------
(JOAN GANZ COONEY)
/s/ JAIRO A. ESTRADA Director February 9, 1995
- ------------------------------------------
(JAIRO A. ESTRADA)
/s/ JAMES L. FERGUSON Director February 9, 1995
- ------------------------------------------
(JAMES L. FERGUSON)
/s/ EDWARD S. FINKELSTEIN Director February 9, 1995
- ------------------------------------------
(EDWARD S. FINKELSTEIN)
/s/ H. LAURANCE FULLER Director February 9, 1995
- ------------------------------------------
(H. LAURANCE FULLER)
/s/ WILLIAM H. GRAY, III Director February 9, 1995
- ------------------------------------------
(WILLIAM H. GRAY, III)
</TABLE>
II-3
<PAGE> 332
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------------ ------------------------------- ------------------
<C> <S> <C>
Director
- ------------------------------------------
(DAVID T. KEARNS)
/s/ DELANO E. LEWIS Director February 9, 1995
- ------------------------------------------
(DELANO E. LEWIS)
/s/ PAUL W. MCAVOY Director February 9, 1995
- ------------------------------------------
(PAUL W. MCAVOY)
/s/ JOHN H. MCARTHUR Director February 9, 1995
- ------------------------------------------
(JOHN H. MCARTHUR)
/s/ DAVID T. MCLAUGHLIN Director February 9, 1995
- ------------------------------------------
(DAVID T. MCLAUGHLIN)
/s/ EDMUND T. PRATT, JR. Director February 9, 1995
- ------------------------------------------
(EDMUND T. PRATT, JR.)
/s/ HENRY B. SCHACHT Director February 9, 1995
- ------------------------------------------
(HENRY B. SCHACHT)
/s/ DONALD H. TRAUTLEIN Director February 9, 1995
- ------------------------------------------
(DONALD H. TRAUTLEIN)
/s/ ARJUN K. MATHRANI Executive Vice President and February 9, 1995
- ------------------------------------------ Chief Financial Officer
(ARJUN K. MATHRANI) (Principal Financial Officer)
/s/ LESTER J. STEPHENS, JR. Senior Vice President February 9, 1995
- ------------------------------------------ and Controller
(LESTER J. STEPHENS, JR.) (Principal Accounting Officer)
</TABLE>
II-4
<PAGE> 333
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
2.1 Agreement and Plan of Merger, dated as of November 18, 1994, by and between The
Chase Manhattan Corporation and U.S. Trust Corporation (filed as Appendix A to
the Proxy Statement/Prospectus).
4.1 Rights Agreement dated as of February 15, 1989 relating to the Junior
Participating Preferred Stock Purchase Rights of The Chase Manhattan
Corporation (incorporated herein by reference to Exhibit 28 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1988, File No.
1-5495).
4.2 Form of Certificate of Common Stock (incorporated herein by reference to
Exhibit 4.15 to the Registrant's Registration Statement on Form S-3, No.
33-55295).
5.1 Opinion of Robert B. Adams, Esq., Senior Vice President and Deputy General
Counsel of the Registrant.
8.1 Opinion of Cravath, Swaine & Moore.
23.1 Consent of Robert B. Adams, Esq. (included in Exhibit 5.1).
23.2 Consent of Cravath, Swaine & Moore (included in Exhibit 8.1).
23.3 Consent of Price Waterhouse LLP.
23.4 Consent of Coopers & Lybrand L.L.P.
23.5 Consent of CS First Boston Corporation.
24.1 Power of Attorney of certain officers and directors (included in Part II to the
Registration Statement).
99.1 Proxy Card of U.S. Trust Corporation.
</TABLE>
II-5
<PAGE> 1
EXHIBIT 5.1
-----------
The Chase Manhattan Corporation Robert B. Adams
1 Chase Manhattan Plaza Senior Vice President and
New York, New York 10081 Deputy General Counsel
February 8, 1995
The Chase Manhattan Corporation
1 Chase Manhattan Plaza
New York, New York 10081
Re: Registration Statement on Form S-4
-----------------------------------
Dear Sirs:
I am the Deputy General Counsel of The Chase Manhattan Corporation, a
Delaware corporation (the "Company"), and have acted as counsel to the Company
in connection with the registration by the Company under the Securities Act of
1933, as amended (the "Act"), of up to 11,725,806 shares of its common stock,
par value $2.00 per share (the "Common Stock"), and the attached Junior
Participating Preferred Stock Purchase Rights (the "Rights"), being registered
under a registration statement on Form S-4 (the "Registration Statement") to
which this opinion is being filed as an exhibit. Such shares of Common Stock
and Rights are proposed to be issued pursuant to the Agreement and Plan of
Merger, dated as of November 18, 1994, between the Company and U.S. Trust
Corporation, a New York corporation, which is included in Appendix A to the
Proxy Statement/Prospectus that is part of the Registration Statement.
I or members of the Company's Legal Department have examined and
relied upon originals or copies, certified or otherwise identified to our
satisfaction, of such documents, corporate records, certificates and
instruments relating to the Company as I have deemed relevant and necessary to
the opinion hereinafter set forth. In such examination, we have assumed the
genuineness and authenticity of all documents examined by us and all signatures
thereon, the legal capacity of all persons executing such documents, the
conformity to originals of all copies of documents submitted to us and the
truth and correctness of any representation and warranties contained therein.
Based upon the foregoing and having regard to legal considerations
which I deem relevant, I am of the opinion that when (i) the Registration
Statement relating to the shares of the Common Stock and attached Rights has
become effective under the Act and (ii) the shares of Common Stock and attached
Rights are issued and sold in the manner referred to in the Registration
Statement then:
1. the shares of Common Stock will be duly authorized, legally issued,
fully paid and nonassessable; and
2. the Rights will be validly issued.
I am admitted to the Bar of the State of New York and express no
opinion as to the law of any jurisdiction other than the law of the State of
New York, the General Corporation Law of the State of Delaware and the federal
laws of the United States of America.
I hereby consent to the inclusion of this opinion as an exhibit to the
Registration Statement and to the reference to me under the caption "Validity
of Chase Shares" in the Registration Statement.
Very truly yours,
/s/ Robert B. Adams
----------------------
Robert B. Adams
<PAGE> 1
Exhibit 8.1
CRAVATH, SWAINE & MOORE
WORLDWIDE PLAZA
825 EIGHTH AVENUE
NEW YORK, NY 10019-7475
TELEPHONE: (212) 474-1000
FACSIMILE: (212) 474-3700
-----
[LETTERHEAD]
WRITER'S DIRECT DIAL NUMBER
February 9, 1995
Agreement and Plan of Merger
Dated as of November 18, 1994,
Between The Chase Manhattan Corporation
and U.S. Trust Corporation
Dear Sirs:
We refer to the Joint Proxy Statement/Prospectus dated as of February
9, 1995 (the "Proxy Statement-Prospectus") filed by you with the Securities and
Exchange Commission (the "Commission"), relating to the above-referenced
Agreement and Plan of Merger dated as of November 18, 1994 (the "Merger
Agreement"), between The Chase Manhattan Corporation, a Delaware corporation
("Chase"), and U.S. Trust Corporation, a New York corporation ("UST"), and to
the statements made therein under the heading "The Merger--Certain Federal
Income Tax Considerations". We confirm that the statements set forth under
such heading represent our opinion as to the matters discussed therein.
For purposes of this opinion, we have assumed that (i) the proposed
merger (the "Merger") of UST with and into Chase pursuant to the Merger
Agreement will be consummated in the manner contemplated by the Proxy
Statement-Prospectus and in accordance with the provisions of the Merger
Agreement, (ii) the statements concerning the Merger set forth in the Proxy
Statement-Prospectus (including the purposes of the parties for consummating
the Merger) are accurate and complete, (iii) the representations made to us by
UST and Chase in their respective letters to us dated February 8, 1995, and
delivered to us for purposes of this opinion are accurate and complete and (iv)
as of the effective time of the Merger, the Internal Revenue Service shall have
issued and not revoked a private letter ruling in satisfaction of one of the
conditions to the obligations of UST and Chase under the Merger Agreement,
substantially to
<PAGE> 2
the effect that, among other things, the distribution by UST to its
stockholders of all of the outstanding shares of a newly organized holding
company immediately prior to the Merger will qualify as a tax-free distribution
under Section 355 of the Internal Revenue Code of 1986, as amended.
The opinions expressed herein are based upon existing statutory,
regulatory and judicial authority, any of which may be changed at any time with
retroactive effect. In addition, our opinions are based solely on the
documents that we have examined, the additional information that we have
obtained, and the statements contained in the letters from UST and Chase
referred to above, which we have assumed are true on the date hereof and will
be true on the date on which the Merger is consummated. Our opinions cannot be
relied upon if any of the facts pertinent to the Federal income tax treatment
of the Merger stated in such documents or in such additional information is, or
later becomes, inaccurate, or if any of the statements contained in the letters
from UST or Chase referred to above are, or later become, inaccurate.
This opinion is being provided solely for the benefit of UST. No other
person or party shall be entitled to rely on this opinion.
We are aware that we are referred to under the heading "The
Merger--Certain Federal Income Tax Consequences" in the Proxy
Statement-Prospectus, and we hereby consent to such use of our name therein and
the filing of this opinion as Exhibit 8.1 to the Proxy Statement-Prospectus.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Securities Act of
1993, as amended, or the rules and regulations of the Commission promulgated
thereunder.
Very truly yours,
/s/ Cravath, Swaine & Moore
---------------------------
Cravath, Swaine & Moore
U.S. Trust Corporation
114 West 47th Street
New York, NY 10036
Attention: Maureen Scannell Bateman, Esq.
235A
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy
Statement-Prospectus constituting part of this Registration Statement on Form
S-4 of The Chase Manhattan Corporation of our report dated January 19, 1994
appearing on page 57 of The Chase Manhattan Corporation 1993 Annual Report on
Form 10-K for the year ended December 31, 1993. We also consent to the reference
to us under the heading "Experts" in such Proxy Statement-Prospectus.
PRICE WATERHOUSE LLP
New York, New York
February 9, 1995
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to (a) the incorporation by reference, in the Proxy
Statement Prospectus of U.S. Trust Corporation and The Chase Manhattan
Corporation, which is part of the Registration Statement on Form S-4 of The
Chase Manhattan Corporation, of our report dated January 19, 1994, on our audits
of the consolidated financial statements of U.S. Trust Corporation and
Subsidiaries as of December 31, 1993 and 1992, and for the years ended December
31, 1993, 1992, and 1991, which report is included in Exhibit 13 of the Annual
Report on Form 10-K of U.S. Trust Corporation for the year ended December 31,
1993, as amended on Form 10-K/A dated August 19, 1994; and (b) the reference to
our firm appearing under the caption "Experts" in the Proxy Statement-Prospectus
constituting a part of the Registration Statement on Form S-4.
COOPERS & LYBRAND, L.L.P.
New York, New York
February 9, 1995
<PAGE> 1
EXHIBIT 23.5
CONSENT OF CS FIRST BOSTON CORPORATION
We hereby consent to the inclusion in the Proxy Statement-Prospectus
constituting part of this Registration Statement of our letter to the Board of
Directors of U.S. Trust Corporation and to the references made to such letter
and to the firm in such Proxy Statement-Prospectus. In giving such consent, we
do not thereby admit that we come within the category of persons whose consent
is required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder.
CS FIRST BOSTON CORPORATION
/s/ Richard E. Thornburgh
New York, New York
February 9, 1995
<PAGE> 1
EXHIBIT 99.1
U.S. TRUST U.S. TRUST CORPORATION
PROXY
PROXY SOLICITED BY BOARD OF DIRECTORS FOR SPECIAL MEETING OF STOCKHOLDERS
UNITED STATES TRUST COMPANY OF NEW YORK,
114 WEST 47TH STREET, NEW YORK, NEW YORK
WEDNESDAY, MARCH 22, 1995, 10:00 A.M. NEW YORK TIME
The undersigned appoints WILLIAM M. THROOP, JR. and EDWARD B. PENNFIELD, or
either of them, each with power of substitution, to attend the Special Meeting
of Stockholders of U.S. Trust Corporation and to vote the shares of Common
Stock the undersigned would be entitled to vote if personally present, upon the
matters shown on the reverse side, which are described in the Proxy
Statement-Prospectus, and upon all other matters which may come before the
Special Meeting of Stockholders of U.S. Trust Corporation, or any adjournment
or postponement thereof. This proxy revokes all prior proxies given by the
undersigned. The undersigned acknowledges receipt of the Proxy
Statement-Prospectus dated February 9, 1995 and the related Notice of Special
Meeting of Stockholders.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES
(SEE REVERSE SIDE) BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. YOUR SHARES CANNOT BE
VOTED UNLESS YOU SIGN AND RETURN THIS PROXY.
(SEE REVERSE SIDE)
<TABLE>
<S> <C> <C>
/x/ Please mark your The Board of Directors Recommends
vote with an X. a Vote "FOR" Items 1 and 2
1. APPROVAL OF THE DISTRIBUTION described in the Agreement and Plan of Distribution among the Company, New USTC Holdings
Corporation ("Spinco"), United States Trust Company of New York and New U.S. Trust Company of New York, pursuant to which,
among other things, immediately prior to the Merger (as defined below), the Company will distribute to its stockholders on a
share-for-share basis in a non-taxable distribution (the "Distribution") all the shares of Spinco.
FOR AGAINST ABSTAIN
/ / / / / /
2. AUTHORIZATION AND ADOPTION OF THE AGREEMENT AND PLAN OF MERGER, dated as of November 18, 1994 (the "Merger Agreement"),
between the Company and The Chase Manhattan Corporation ("Chase") pursuant to which, among other things, immediately following the
Distribution, the remaining Company will be merged (the "Merger") with and into Chase upon the terms and conditions contained in
the Merger Agreement.
FOR AGAINST ABSTAIN As described in the Proxy Statement-
/ / / / / / Prospectus, the Distribution and the
Merger are for the purpose of effecting
the sale of the Company's securities pro-
cessing business to Chase.
Authorization of the Merger by stockholders
is a condition of the Distribution, and
approval of the Distribution by stockholders
is a condition of the Merger.
- -----------------------------------------------------------------------------------------------------------------------------------
SIGNATURE(S) PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE. DATE
NOTE: Please sign exactly as your name or names appear hereon. Please add your title if you are signing as Attorney,
Administrator, Executor, Guardian, Trustee or in any other representative capacity.
</TABLE>
