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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File #0-9623
UST Corp.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2436093
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
40 Court Street, Boston, Massachusetts 02108
(Address of principal executive offices) (Zip Code)
(617) 726-7000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.625
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by Reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The number of shares of common stock held by nonaffiliates of the registrant as
of March 8, 1999 was 38,154,996 for an aggregate market value of $810,793,665.
At March 8, 1999, there were 42,664,732 shares of common stock outstanding, par
value $0.625 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement for the 1999 Annual Meeting are
incorporated by reference in Items 10, 11, 12 and 13 of Part III.
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table of contents
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PART I
item 1 Business 3
item 2 Properties 9
item 3 Legal Proceedings 9
item 4 Submission of Matters to a Vote of Security Holders 9
PART II
item 5 Market for the Registrant's Common Stock and Related Security Holder Matters 10
item 6 Selected Financial Data 11
item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 12
Financial Condition at December 31, 1998 12
Results of Operations 23
item 7a Quantitative and Qualitative Disclosures About Market Risk 32
item 8 Financial Statements and Supplementary Material 33
item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 67
PART III
item 10 Directors and Executive Officers of the Registrant 68
item 11 Executive Compensation 69
item 12 Security Ownership of Certain Beneficial Owners and Management 69
item 13 Certain Relationships and Related Transactions 70
PART IV
item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 71
Signatures 75
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</TABLE>
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PART I
item 1. business
general description of business
UST Corp. (the "Company"), a bank holding company registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"), was
organized as a Massachusetts business corporation in 1967. The Company is also
subject to examination by, and is required to file reports with, the
Commissioner of Banks of the Commonwealth of Massachusetts (the "Massachusetts
Commissioner"). As of December 31, 1998, the Company's banking subsidiaries were
USTrust and United States Trust Company ("USTC"), each headquartered in Boston
and chartered under Massachusetts law. USTrust and USTC are sometimes hereafter
collectively referred to as the "Subsidiary Banks. " All of the capital stock of
the Subsidiary Banks is owned directly or indirectly by the Company. In
addition, the Company owns, directly or indirectly through its Subsidiary Banks,
all of the outstanding stock of seven active nonbanking subsidiaries, all
Massachusetts corporations: Firestone Financial Corp. ("Firestone") (and its
Canadian subsidiary, Firestone Financial Canada, Ltd.), UST Leasing Corporation,
UST Capital Corp., UST Realty Trust, Inc., UST Auto Lease Corp. and Cambridge
Trade Finance Corp. as well as seven subsidiaries which hold foreclosed real
estate and real estate owned by the Company and its subsidiaries and six
subsidiaries which are passive holders of securities. All of the subsidiaries,
except Firestone Financial Canada Ltd. (which was organized under the laws of
the Canadian province of Ontario) were organized under Massachusetts law.
The Company engages in one line of business, that of providing financial
services through its banking and nonbanking subsidiaries. A broad range of
financial services is provided principally to individuals and small- and
medium-sized companies in New England including those located in low- and
moderate-income neighborhoods within the Company's defined Community
Reinvestment Act assessment area. In addition, an important component of the
Company's financial services is the provision of trust and money management
services to professionals, corporate executives, nonprofit organizations, labor
unions, foundations, mutual funds and owners of closely-held businesses most of
whom are located in the New England region.
As of the close of business on December 31, 1998, the Company's total
assets were approximately $5.9 billion and USTrust, the lead bank, represented
more than 99 percent of the Company's consolidated assets.
the subsidiary banks
The Subsidiary Banks are engaged in a general banking business and accept
deposits which are insured by the Federal Deposit Insurance Corporation ("FDIC")
under the Bank Insurance Fund and the Savings Association Insurance Fund.
USTrust provides a full range of commercial and consumer financial services.
USTC, which has full banking powers and accepts deposits which are insured by
the FDIC, focuses its activities on providing trust, money management and
venture capital services.
recent developments
Pending Acquisition of Brewer & Lord LLP
On December 17, 1998, USTrust entered into an Acquisition Agreement with Brewer
& Lord LLP, and its limited partners, a Massachusetts limited liability
partnership headquartered in Norwell, Massachusetts and engaged in the insurance
agency business. Pursuant to the terms of the Acquisition Agreement, USTrust
will acquire Brewer & Lord for cash by causing a newly-formed Massachusetts
limited liability company to be merged with Brewer & Lord, with the limited
liability company as the surviving entity to be known as "Brewer & Lord LLC."
Through its nine offices, Brewer & Lord provides personal, commercial and
employee benefit-related insurance products to consumers and businesses located
primarily in Massachusetts. Subject to the receipt of required regulatory
approvals, including those of the Massachusetts Commissioner of Banks and the
Massachusetts Commissioner of Insurance, USTrust anticipates that it will
complete the acquisition of Brewer & Lord during the second quarter of 1999.
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business services
The Subsidiary Banks provide a broad range of banking services including
deposit, investment, cash management, payroll, wire transfer, leasing, merchant
credit card and lending services throughout New England. Commercial and
industrial lending takes the form primarily of direct loans and includes lines
of credit, revolving credit, domestic and foreign letters of credit, term loans,
mortgage loans, receivable, inventory and equipment loans and other specialized
lending services. Furthermore, the Company provides additional services to small
business customers through utilization of government sponsored and assisted loan
programs. USTrust is certified by the SBA as a "Small Business Administration
Lender." Through Firestone and UST Leasing Corp., the Company provides small
business equipment finance and lease services. The Company also intends to begin
in 1999 to provide leasing services for "large ticket" equipment financing to
customers located both in New England and throughout the United States. USTC
provides deposit services and other banking services, but focuses its activities
on money management, trust and venture capital services. In 1998, the Company,
through a newly organized subsidiary, Cambridge Trade Finance Corp., began
offering short-term financing in connection with international transactions
involving import and export of goods. The Company provides a broad range of cash
management services to a number of municipalities and government agencies in
Massachusetts. At December 31, 1998, the combined lending limit to a single
borrower of USTrust was approximately $75 million.
consumer services
Consumer services are provided by the Subsidiary Banks to customers in their
geographic areas. These services include savings and checking accounts, NOW and
money market accounts, consumer loans, credit cards (through a private label
arrangement), ATM and debit cards, safe deposit box facilities, travelers'
checks and foreign exchange into several major foreign currencies. Consumer
loans include home equity loans and lines of credit, automobile loans, personal
loans and loans to finance education costs as well as open-ended credit. The
Company also provides residential mortgage origination services. Furthermore,
USTrust maintains a residential mortgage servicing capacity for its own
portfolio and for third parties. As of December 31, 1998, the aggregate
principal amount of mortgages serviced by the Company for its own account was
approximately $1.1 billion. The Company also offers automobile leasing services
to customers through UST Auto Lease Corp. Automobile loan and lease volume
increased substantially in 1998 and reached a level of approximately $1.0
billion as of December 31, 1998. The Subsidiary Banks currently have an
aggregate of 87 offices and the Company maintains an automated teller machine
system which, through membership in various networks, provides the Company's
customers with access to their accounts at locations throughout the world. Most
of the Company's proprietary ATM machines provide information to customers in
English, Spanish and Portuguese, and also provide information adapted for the
visually impaired. As of December 31, 1998, the Company operated a network of
117 ATMs. In addition, through its membership in the SUM surcharge free network,
USTrust customers have access to almost 1,200 ATMs in Massachusetts at which a
surcharge is not imposed on USTrust customers.
investment services
The Investment Group located at USTrust was formed in 1994. The Investment Group
utilizes the services of Commonwealth Financial Network, an unaffiliated,
licensed broker-dealer, and offers to customers investments in mutual funds
(whose investments are managed by nonaffiliated third parties), Treasury Bills,
Treasury Notes, corporate bonds, state, federal and municipal bonds and variable
annuities as well as discount brokerage services.
real estate loans and services
The Subsidiary Banks and UST Realty Trust, Inc., a real estate investment trust
(REIT), provide a broad range of industrial and commercial real estate lending
services and other related financial products. The Company also provides real
estate construction loans to developers of projects in the cities and towns
served by USTrust's branch system. In addition, as previously noted, USTrust is
engaged in residential mortgage origination and servicing.
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asset and money management and trust services
Asset and money management, custodial and trust services are provided by USTC.
In addition, USTC provides services as executor, administrator and trustee of
estates and acts, under the terms of agreements, in various capacities such as
escrow agent, bond trustee and trustee and agent of pension, profit sharing and
other employee benefit trusts. At December 31, 1998, the total assets under
management of USTC were approximately $3.5 billion. Approximately 30% of total
assets under management are those of clients who have requested that their
assets be managed with specified social as well as financial investment
objectives in mind. USTC also serves as investment adviser to a balanced mutual
fund, the Boston Balanced Fund.
securities portfolios maintained by the company
The Subsidiary Banks, both directly and through wholly-owned Massachusetts
securities corporations, maintain securities portfolios consisting primarily of
U.S. Treasury, U.S. Government Agency, and corporate and municipal securities.
The Subsidiary Banks own an aggregate of six Massachusetts securities
corporations. As Massachusetts securities corporations, these subsidiaries make
exclusively passive investments and serve the Company by buying, selling,
dealing in and holding securities eligible for investment by the Subsidiary
Banks
All of the Company's securities are deemed "available-for-sale" which
enhances the liquidity position of the Company and allows for flexibility in
management of interest rate risk. The securities portfolios of the Subsidiary
Banks also include certain other equity investments to the extent allowed within
limits prescribed by Massachusetts and federal law. Such investments currently
include, among others, equity interests in the Massachusetts Housing Investment
Corporation's Limited Partnership Equity Fund for Affordable Housing. The
Treasury Division of the Company provides securities portfolio advisory services
to the Company's Subsidiary Banks. USTrust is also a member of the Federal Home
Loan Bank of Boston. This membership provides USTrust with access to an
additional source of funds.
principal nonbanking subsidiaries
Firestone Financial Corp. organized in 1965 and which became a subsidiary of
USTrust in 1997, provides small business equipment financing services to
companies headquartered throughout the United States. Firestone's principal
market consists of small businesses that operate various types of coin-operated
amusement equipment and vending machines, as well as owners/operators of
dry-cleaning, coin-operated laundry equipment and amusement rides. Firestone
also provides similar services to Canadian companies through its wholly-owned
subsidiary, Firestone Financial Canada Ltd., a Canadian entity. As of December
31, 1998, Firestone's total assets were approximately $89 million.
UST Leasing Corporation, a subsidiary of USTrust organized in 1987,
provides a broad range of equipment leasing services to corporations
headquartered throughout the United States. UST Leasing Corporation offers a
line of leasing products designed to meet the needs of the Company's small
business customers and other business entities with similar needs. As of
December 31, 1998, UST Leasing Corporation's total assets were approximately $80
million.
UST Auto Lease Corp., a subsidiary of USTrust organized in 1997, provides
automobile leasing services to consumers and corporations headquartered
throughout New England. As of December 31, 1998, UST Auto Lease Corp.'s total
assets were approximately $97 million.
UST Realty Trust, Inc., an indirect subsidiary of USTrust, was organized in
1998. It functions as a real estate investment trust (REIT) which holds, and may
from time to time originate, real estate loans and participations in such loans.
UST Capital Corp., organized in 1961 and acquired by the Company in 1969,
is a subsidiary of USTC and is a licensed Small Business Investment Company. It
specializes in equity and long-term debt financing for growth-oriented
companies.
Cambridge Trade Finance Corp., organized in 1998, is a direct subsidiary of
the Company. It is primarily engaged in short-term financing of international
transactions involving import and export of goods.
competitive conditions
The Company's banking and nonbanking subsidiaries face substantial competition
throughout Massachusetts. This competition is provided by commercial banks,
savings banks, credit unions, consumer finance companies, mortgage companies,
insurance companies and agencies, mutual funds, government agencies, investment
management companies,
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investment advisors, brokers and investment bankers. Most of these entities are
actively engaged in marketing various types of loans, deposits, investment
products and other financial services. Quality of service to customers, price of
products, breadth of its range of products and services and ease of
accessibility to facilities are among the principal methods of meeting
competition in the banking and financial services industries.
supervision and regulation of the company and its subsidiaries
general
As a bank holding company registered under the Bank Holding Company Act of 1956,
as amended (the "BHC Act"), the Company is subject to substantial regulation and
supervision by the Federal Reserve Board. As state-chartered banks, the
Subsidiary Banks are subject to substantial regulation and supervision by the
FDIC and the applicable state bank regulatory agency. Such regulatory oversight
is often intended primarily for the protection of depositors or is aimed at
carrying out broad public policy goals that may not be directly related to the
financial services provided by the Company and its subsidiaries. Supervision,
regulation and examination of the Subsidiary Banks by the bank regulatory
agencies is not intended for the protection of the Company's security holders.
Federal and state banking and other laws impose a number of requirements and
restrictions on the business operations, investments and other activities of
depository institutions and their affiliates.
general supervision and regulation
The Company, as a bank holding company under the BHC Act, is registered with the
Federal Reserve Board and is regulated under the provisions of the BHC Act.
Under the BHC Act the Company is prohibited, with certain exceptions, from
acquiring direct or indirect ownership or control of more than 5 percent of the
voting shares of any company which is not a bank and from engaging in any
business other than that of banking, managing or controlling banks or furnishing
services to, or acquiring premises for, its Subsidiary Banks, except that the
Company may engage in, and own voting shares of companies engaging in, certain
activities determined by the Federal Reserve Board, by order or by regulation,
to be so closely related to banking or to managing or controlling banks "as to
be a proper incident thereto."
The Company is required by the BHC Act to file with the Federal Reserve
Board an annual report and such additional reports and notices as the Federal
Reserve Board may require. The Federal Reserve Board also makes periodic
inspections of the Company and its subsidiaries. The BHC Act requires every bank
holding company to obtain the prior approval of the Federal Reserve Board before
it may acquire substantially all of the assets of any bank, or ownership or
control of any voting shares of any bank, if, after such acquisition, it would
own or control, directly or indirectly, more than 5 percent of the voting shares
of such bank.
Because the Company is also a bank holding company under the Massachusetts
General Laws, the Massachusetts Commissioner has authority to require certain
reports from the Company from time to time and to examine the Company and each
of its subsidiaries. The Massachusetts Commissioner also has enforcement powers
designed to prevent banks from engaging in unfair methods of competition or
unfair or deceptive acts or practices involving consumer transactions. Prior
approval of the Massachusetts Board of Bank Incorporation is also required
before the Company may acquire any additional banks located in Massachusetts or
in other jurisdictions.
The location of nonbank subsidiaries of the Company is not restricted
geographically under the BHC Act. The Riegle-Neal Interstate Banking and
Branching Act of 1994 ("the Riegle-Neal Act") permits adequately capitalized and
managed bank holding companies to acquire control of banks in any state.
Additionally, as of June 1, 1997, the Riegle-Neal Act authorizes banks to branch
across state lines, provided that individual states did not elect to "opt out"
of interstate banking entirely. In 1996, Massachusetts adopted legislation (the
"Massachusetts Interstate Act") pursuant to which Massachusetts "opted in" to
interstate banking. The Massachusetts Interstate Act also allows Massachusetts
banks to establish and maintain branches through a merger or consolidation with
or by the purchase of the whole or any part of the assets or stock of any
out-of-state bank or through de novo branch establishment in any state other
than Massachusetts so long as such state permits Massachusetts banks to operate
in the same manner in such state.
The Subsidiary Banks, whose deposits are insured by the FDIC, and the
subsidiaries of such banks are subject to a number of regulatory restrictions,
including certain restrictions upon: (i) extensions of credit to the Company and
the Company's nonbanking affiliates (collectively with the Company, the
"Affiliates"); (ii) the purchase of assets from
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Affiliates; (iii) the issuance of a guarantee or acceptance of a letter of
credit on behalf of Affiliates; and (iv) investments in stock or other
securities issued by Affiliates or acceptance thereof as collateral for an
extension of credit. In addition, all transactions among the Company and its
direct and indirect subsidiaries must be made on an arm's length basis and
valued on fair market terms. During those periods when assessments are made by
the FDIC to banks placed in the same risk category as the Subsidiary Banks, the
Subsidiary Banks pay deposit insurance premiums to the FDIC.
Federal Reserve Board policy requires bank holding companies to serve as a
source of strength to their subsidiary banks by standing ready to use available
resources to provide adequate capital funds to subsidiary banks during periods
of financial stress or adversity. A bank holding company also can be liable
under certain provisions of the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") for the capital deficiencies of an
undercapitalized bank subsidiary. In the event of a bank holding company's
bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, the trustee will be
deemed to have assumed and is required to cure immediately any deficit under any
commitment by the debtor to any of the federal banking agencies to maintain the
capital of an insured depository institution, and any claim for breach of such
obligation will generally have priority over most other unsecured claims. Under
the cross-guarantee provisions of the Federal Deposit Insurance Act, if any or
all of the Subsidiary Banks were placed in conservatorship or receivership, the
Company, as direct or indirect sole stockholder, would likely lose its
investment in the applicable Subsidiary Bank or Subsidiary Banks, and, in
addition, its investment in its other Subsidiary Bank or Subsidiary Banks would
be at risk.
In addition, under both Section 106 of the 1970 Amendments to the BHC Act
and regulations which have been issued by the Federal Reserve Board, the Company
and its subsidiaries are prohibited from engaging in certain tie-in arrangements
in connection with any extension of credit, lease or sale of any property or the
furnishing of any service. Various consumer laws and regulations also affect the
operations of the Subsidiary Banks.
The Subsidiary Banks, which are chartered under Massachusetts law, are
subject to federal requirements to maintain cash reserves against deposits, and
to State mandated restrictions upon the nature and amount of loans which may be
made by the banks (including restrictions upon loans to "insiders" of the
Company and its Subsidiary Banks) as well as to restrictions relating to
dividends, investments, branching and other bank activities.
FDICIA prescribes the supervisory and regulatory actions that will be taken
against undercapitalized insured depository institutions for the purpose of
promptly resolving problems at such institutions at the least possible long-term
loss to the FDIC. Five categories of depository institutions have been
established by FDICIA in accordance with their capital levels: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized." The federal banking
agencies have adopted uniform regulations to implement the prompt regulatory
action provisions of FDICIA.
FDICIA requires the appropriate regulatory agencies to take specific
actions against significantly undercapitalized institutions and undercapitalized
institutions that fail to submit acceptable capital restoration plans. An
undercapitalized institution is required to submit a capital restoration plan
for acceptance by the appropriate federal banking agency and will be subject to
close monitoring of both its condition and compliance with, and progress made
pursuant to, its capital restoration plan. An institution that fails to submit
an acceptable plan may be placed into conservatorship or receivership unless its
capital restoration plan is accepted. An undercapitalized institution will also
be subject to restrictions on asset growth, acquisitions, branching, new
activities, capital distributions and the payment of management fees. As of
December 31, 1998 both USTrust and USTC qualified as "well capitalized." (For
further information regarding the Company's and the Subsidiary Banks'
capitalization, please refer to Note 17 to Consolidated Financial Statements of
this Form 10-K.)
An insured institution that receives a less-than-satisfactory rating for
capital adequacy, asset quality, management, earnings, liquidity or sensitivity
to market risk may be deemed by its appropriate federal banking regulator to be
engaging in an unsafe or unsound practice for purposes of issuing an order to
cease and desist or to take certain affirmative actions. If the unsafe or
unsound practice is likely to weaken the institution, cause insolvency or
substantial dissipation of assets or earnings or otherwise seriously prejudice
the interest of depositors or the FDIC, a receiver or conservator could be
appointed. Finally, subject to certain exceptions, FDICIA requires critically
undercapitalized institutions to be placed into receivership or conservatorship
within 90 days after becoming critically undercapitalized.
The status of the Company as a registered bank holding company does not
exempt it from certain federal and state laws and regulations applicable to
corporations generally, including, without limitation, certain provisions of the
federal securities laws and the Massachusetts corporate laws. Federal bank
regulatory agencies, including the Federal Reserve Board and the FDIC, have
broad enforcement powers to restrict the activities of financial institutions,
and to impose or seek the imposition of civil and/or criminal penalties upon
financial institutions, the individuals who manage or control such institutions
and "institution affiliated parties" of such entities.
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Pursuant to the Federal Community Reinvestment Act ("CRA") and similar
provisions of Massachusetts law, regulatory authorities review the performance
of the Company and its Subsidiary Banks in meeting the credit needs of the
communities served by the Subsidiary Banks. The applicable regulatory
authorities consider compliance with this law in connection with applications
for, among other things, approval of branches, branch relocations and
acquisitions of banks and bank holding companies. Currently the FDIC's CRA
rating of USTrust is "outstanding"; the FDIC does not rate USTC which it regards
as a "special purpose" bank. The Massachusetts Commissioner currently has given
USTrust a CRA rating of "outstanding" and USTC a CRA rating of "satisfactory."
In 1998, the Massachusetts Legislature adopted legislation which, for the
first time, authorizes Massachusetts chartered banks, such as the Subsidiary
Banks, to sell a broad range of insurance products. Shortly after the enactment
of this legislation and the promulgation of the enabling regulations, USTrust
announced its proposed acquisition of Brewer & Lord LLP. See "Recent
Developments - Pending Acquisition of Brewer & Lord LLP" above.
From time to time various proposals are made in the United States Congress,
as well as state legislatures, which would alter the powers of, and place
restrictions on, different types of bank organizations as well as bank and
nonbank activities. Such legislative proposals include proposals related to
expansion of bank powers and increased consumer compliance disclosure
requirements. From time to time, federal legislation is proposed which, if
adopted, would grant bank holding companies broader powers with respect to
insurance and securities activities. Under proposed federal legislation, broader
cross-ownership would be authorized among banking, insurance and securities
companies. At this time it is unclear whether such legislation (in any form)
will be adopted in the near term.
Over the past several years, the federal and state banking regulatory
agencies have issued guidance to the banking industry with respect to
appropriate measures which financial institutions should take to address risks
associated with the so-called "Year 2000" issue. In 1998 and 1999, the agencies
performed and are continuing to perform on-site visitations to determine each
bank or bank holding company's Year 2000 readiness. Failure to address any Year
2000 readiness deficiencies and concerns raised by the bank regulatory agencies
could have material adverse consequences to the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Year
2000" for a further discussion of these matters.
governmental policies, economic conditions and credit risk concentration
The earnings and business of the Company's subsidiaries are and will be affected
by a number of external influences, including general economic conditions in the
United States and particularly in New England and the policies of various
regulatory authorities of the United States, including the Federal Reserve
Board. The Federal Reserve Board regulates the supply of money and of bank
credit to influence general economic conditions within the United States and
throughout the world. From time to time, the Federal Reserve Board takes
specific steps to dampen domestic inflation and to control the country's money
supply. The instruments of monetary policy employed by the Federal Reserve Board
for these purposes (including the level of cash reserves, which banks, including
nonmember banks such as the Subsidiary Banks, are required to maintain against
deposits) influence in various ways the interest rates paid on interest-bearing
liabilities and the interest received on earning assets, and the overall level
of bank loans, investments and deposits. During 1998, the Massachusetts economy
was extremely robust: employment levels remained high; interest rates were at
historically low levels; levels of disposable income were high and capital
expenditures were strong. There can be no assurance that these strong local
economic conditions will continue. In addition, the impact upon the future
business and earnings of the Company of prospective economic conditions
throughout the United States, and of the policies of the Federal Reserve Board
as well as other federal regulatory authorities, cannot be predicted accurately.
During the period 1990 through 1993, the Company's primary loan market, the
New England region, suffered from a weak economic environment. The economic
climate contributed to a decline in real estate values and adversely affected
the net worth of certain borrowing customers of the Subsidiary Banks and the
Company's collateral position with respect to certain loans. The New England
regional economy, including the Company's principal markets, improved in the
mid-1990's, which aided the Company's loan workout efforts over the past several
years.
Most of the Company's loans outstanding are from borrowers located in its
Community Reinvestment Act delineated communities in Massachusetts and a
substantial portion of these loans are various types of real estate loans; still
others have real estate as additional collateral. At year-end 1998, the
Company's exposure to credit risk from borrowers who had real estate as their
primary collateral support included $1.8 billion of loans.
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general
No significant portion of the loans or deposits of any of the Company's Banking
Subsidiaries results from one or several accounts, the loss of which would
materially affect its business. The Company does not experience significant
seasonal fluctuations in its business. At December 31, 1998, The Federal Home
Loan Bank of Boston was a significant provider of funds to the Company. The
Company, however, does not believe that it would experience serious difficulty,
at this time, if it were required to find a source of funds to replace The
Federal Home Loan Bank of Boston.
employees
As of December 31, 1998, the Company and its subsidiaries had approximately
2,100 full-time and part-time employees.
item 2. properties
USTrust owns and occupies a twelve-story, 119,456 square foot brick and steel
building constructed in 1915 and located at Government Center, 30-40 Court
Street, Boston, Massachusetts, which houses the banking premises of USTrust,
USTC and the offices of the Company and most of its nonbanking subsidiaries.
The Company currently leases a three-story brick office building of
approximately 37,900 square feet at 196 Broadway, Cambridge, Massachusetts, all
of which is used by USTrust, as well as 34,423 square feet in an adjacent office
tower at 141 Portland Street, Cambridge, Massachusetts. USTrust also leases
approximately 26,080 square feet of space at 25-55 Court Street, Boston,
Massachusetts, which is used primarily to house staff support services. In
addition, USTrust leases 30,000 square feet at 315 University Avenue, Westwood,
Massachusetts to house its consumer lending staff. The Company also owns a
66,000 square foot building at 212 Elm Street, Somerville, Massachusetts and a
43,400 square foot building at 716 Main Street, Waltham, Massachusetts, each of
which is used to house both a branch and support staff functions for the
Company.
All of USTrust's branches are located in Eastern Massachusetts. Of its 87
branches, 44 locations are owned by USTrust and the remaining branch offices of
USTrust occupy leased premises.
The 1999 annual leasehold commitment for all premises leased by the
Company's subsidiaries, totals approximately $8.3 million not including expenses
related to tax or maintenance escalation provisions. Refer to Note 19 to the
Notes to Consolidated Financial Statements of this Form 10-K.
In March 1999 the Company completed its due diligence with respect to the
proposed purchase of a new 123,000 square foot operations center at 20 Cabot
Road, Medford, Massachusetts. The results of that due diligence were
satisfactory and the Company expects to complete the purchase of the foregoing
property in mid-1999. Subsequent to that purchase, late in 1999, the Company
plans to sublease most of the space currently occupied by USTrust at the
Cambridge, Massachusetts locations discussed above.
item 3. legal proceedings
In the ordinary course of operations, the Company and its subsidiaries become
defendants in a variety of judicial and administrative proceedings. In the
opinion of management, however, there is no proceeding pending, or to the
knowledge of management threatened, which is likely to result in a material
adverse change in the financial condition or results of operations of the
Company and its subsidiaries.
item 4. submission of matters to a vote of security holders
None.
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PART II
item 5. market for the registrant's common stock and related security holder
matters
The common stock of the Company is traded over-the-counter and its price is
quoted on the Nasdaq National Market System. During the period January 1, 1997,
to December 31, 1998, the range of high and low sales prices for the Company's
common stock was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997
----------------------------------------------------
Low High Low High
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1st Quarter $24.438 $28.375 $18.125 $21.938
2nd Quarter 25.625 30.187 18.625 23.250
3rd Quarter 16.500 28.125 20.938 26.125
4th Quarter 17.500 25.375 24.250 29.625
- --------------------------------------------------------------------------------
</TABLE>
Such over-the-counter market quotations reflect interdealer prices, without
retail markup, markdown or commission and may not represent actual transactions.
The number of holders of record of common stock of the Company was 3,853 at
December 31, 1998.
The Company declared cash dividends totaling $0.38 per share to each holder
of its common stock in 1997, and $0.54 per share to each holder of its common
stock in 1998. The amounts of the foregoing dividends have been restated to
reflect pooling-of-interests accounting treatment. Future dividends will depend
upon the financial condition and earnings of the Company and its subsidiaries,
their need for funds and other factors, including applicable government
regulations and the absence of regulatory objection.
10
<PAGE> 11
item 6. selected financial data
- --------------------------------------------------------------------------------
consolidated summary of selected financial data (1)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------------
(Dollars in thousands, except share amounts) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings data:
Interest income $ 428,645 $ 408,735 $ 355,412 $ 330,650 $ 286,061
Interest expense 176,330 178,205 164,519 146,630 110,733
---------- ----------- ----------- ---------- -----------
Net interest income 252,315 230,530 190,893 184,020 175,328
Provision (credit) for possible loan losses 2,239 3,100 (15,495) 15,920 28,024
---------- ----------- ----------- ---------- -----------
Net interest income after provision for possible loan losses 250,076 227,430 206,388 168,100 147,304
Noninterest income 48,804 41,674 42,636 39,266 39,191
Noninterest expense 209,233 190,244 159,649 153,796 159,994
---------- ----------- ----------- ---------- -----------
Income before income taxes 89,647 78,860 89,375 53,570 26,501
Income tax provision 34,361 28,644 32,762 19,732 10,545
---------- ----------- ----------- ---------- -----------
Net income $ 55,286 $ 50,216 $ 56,613 $ 33,838 $ 15,956
========== =========== =========== ========== ===========
Per share data:
Basic earnings per share $ 1.30 $ 1.20 $ 1.38 $ 0.82 $ 0.39
Diluted earnings per share $ 1.28 $ 1.18 $ 1.35 $ 0.81 $ 0.38
Cash dividend declared per share $ 0.54 $ 0.38 $ 0.29 $ 0.14 $ 0.08
Weighted average basic shares outstanding 42,378 41,760 41,061 41,090 40,800
Weighted average diluted shares outstanding 43,290 42,708 41,861 41,973 41,532
Consolidated average balances (2):
Total assets $5,589,034 $ 5,272,992 $ 4,648,202 $4,220,373 $ 4,084,363
Loans 4,090,568 3,718,167 3,066,626 2,892,980 2,728,017
Deposits 3,368,351 3,328,386 3,345,541 3,207,240 3,180,604
Funds borrowed (3) 884,140 829,830 838,979 583,066 501,799
Stockholders' investment 517,127 451,348 416,648 376,697 351,052
Consolidated ratios:
Net income to average total assets 0.99% 0.95% 1.22% 0.80% 0.39%
Net income to average stockholders' investment 10.69% 11.13% 13.59% 8.98% 4.55%
Average stockholders' investment to average total assets 9.25% 8.56% 8.96% 8.93% 8.60%
Net chargeoffs to average loans 0.1% 0.0% 0.0% 0.8% 1.0%
Reserve for possible loan losses to period end loans 1.5% 1.7% 1.8% 2.9% 3.2%
Average earning assets to average total assets 95.05% 94.86% 95.24% 94.87% 93.55%
Dividend payout ratio 42.19% 32.20% 21.48% 17.28% 21.05%
</TABLE>
(1) This information should be read in connection with Management's Discussion
and Analysis of Financial Condition and Results of Operations appearing
elsewhere in this Form 10-K. All applicable prior-period data has been
restated to reflect certain acquisitions as poolings of interests. Refer to
Note 2 to the Notes to Consolidated Financial Statements for a discussion
of acquisitions.
(2) Average balances include the effect of fair value adjustments under SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."
(3) Funds borrowed include federal funds purchased, repurchase agreements,
borrowings from the Federal Home Loan Bank and other borrowings.
- --------------------------------------------------------------------------------
11
<PAGE> 12
item 7. management's discussion and analysis of financial condition and results
of operations
The following discussion should be read in conjunction with the financial
statements, notes, and tables included elsewhere in this Form 10-K for the
fiscal year ended December 31, 1998. Certain amounts reported for prior periods
have been reclassified to conform to the 1998 presentation. All applicable
prior-period financial data presented has been restated to reflect the 1998
acquisitions of Somerset Savings Bank ("Somerset") and Affiliated Community
Bancorp, Inc. ("Affiliated"), and the 1997 acquisitions of Walden Bancorp, Inc.
("Walden") and Firestone Financial Corp. ("Firestone") as poolings of interests.
The discussion contains certain forward-looking statements regarding the future
performance of the Company. All forward-looking information is inherently
uncertain and actual results may differ materially from the assumptions,
estimates or expectations reflected or contained in the forward-looking
information. Please refer to "Cautionary Statement Regarding Forward-looking
Information" in this Form 10-K for a further discussion.
highlights
For the third consecutive year, the Company's acquisition activities continued
to significantly impact its financial condition and results of operations. In
1998, the Company completed the acquisitions of Somerset, a $524 million
Massachusetts savings bank, and Affiliated, a $1.1 billion multi-bank holding
company. Also during the year, Somerset and the subsidiary banks of Affiliated
were merged with and into USTrust, the principal banking subsidiary of the
Company. In December 1998, the Company announced the execution of a definitive
agreement to acquire Brewer & Lord LLP, an eastern Massachusetts-based
independent insurance agency. Refer to Note 2 to the Notes to Consolidated
Financial Statements for a further discussion of acquisitions.
Net income for the year ended December 31, 1998, was $55.3 million, or
$1.28 per diluted share, compared with $50.2 million, or $1.18 per diluted share
last year. Results included merger-related and restructuring charges of $19.6
million in 1998 and $16.2 million in 1997. Excluding these merger-related and
restructuring charges in both years, 1998 after-tax income would have been $70.5
million, or $1.63 per diluted share, an increase of 14 percent over the $61.7
million, or $1.44 per diluted share last year. This year's earnings reflect a
$21.8 million, or 9 percent increase in net interest income due to earning asset
growth and favorable changes in liability mix and funding costs. Noninterest
income improved $7.1 million, or 17 percent, due to net realized gains from the
sale of securities and loans of $3.6 million and higher income from several
fee-based services. Asset quality continued to improve, and as a result, the
provision for possible loan loss decreased almost $1 million this year from
1997. Noninterest expense, excluding merger-related and restructuring charges,
increased $15.6 million. This reflects $5.4 million in Year 2000 readiness
expense and higher operating costs due to volume growth during a year of
transition as operating systems and processes of the acquired banks were
converted to USTrust.
financial condition at december 31, 1998
assets
Total assets at December 31, 1998 were $5.901 billion, a 7 percent increase from
$5.533 billion a year ago. Loans reflect growth of 8 percent, or $329 million to
$4.296 billion at year end. Growth in other assets reflects an investment in
bank-owned life insurance of $30 million. The investment provides life insurance
to the Company on certain executives and a favorable tax-exempt cash flow. Total
securities increased $82 million to $1.290 billion. Partially offsetting these
increases in assets was a $73 million decrease in federal funds sold to help
fund the growth in other earning assets.
12
<PAGE> 13
Loans
The following table presents the composition of the loan portfolio:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
December 31,
--------------------------------------------------------------
(Dollars in thousands) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and financial $1,413,808 $1,076,980 $ 955,868 $ 821,790 $ 855,102
Commercial real estate:
Construction 55,989 109,787 109,818 102,053 93,136
Developer, investor and land 498,200 540,924 615,627 659,715 661,032
Commercial lease financing 76,053 56,260 46,480 31,663 28,858
Consumer:
Residential mortgage 1,085,353 1,371,021 1,376,112 979,983 974,179
Home equity 120,020 134,874 129,441 115,958 111,588
Indirect automobile installment (1) 909,605 605,486 302,044 197,148 90,255
Other consumer (1) 38,712 45,914 48,368 39,579 42,024
Indirect automobile lease financing 98,363 26,283
---------- ---------- ---------- ---------- ----------
Total loans (2) 4,296,103 3,967,529 3,583,758 2,947,889 2,856,174
Reserve for possible loan losses (65,274) (68,539) (65,979) (84,245) (91,860)
---------- ---------- ---------- ---------- ----------
$4,230,829 $3,898,990 $3,517,779 $2,863,644 $2,764,314
========== ========== ========== ========== ==========
</TABLE>
(1) Indirect automobile installment loans represent loans that have been
underwritten by the Company and originated, or sourced, by qualifying
in-market automobile dealers. Automobile loans originated directly by the
Company are not significant and are included with other consumer loans.
(2) Excluded from the loan balances at December 31, 1997, 1996 and 1995 were
$4.0 million, $12.4 million and $14.2 million, respectively, in loans
held-for-sale, recorded at net realizable value and classified in other
assets.
- --------------------------------------------------------------------------------
The Company's commercial loan and lease portfolios totaled $2.044 billion
at December 31, 1998, an increase of 15 percent, or $260 million over 1997. The
increase was due to net new loan originations and advances during the year and
the purchase of an $80 million commercial loan portfolio in the first quarter.
This year's commercial loan and lease growth was a strong improvement over the
1997 growth of 3 percent, or $56 million.
Residential loans decreased $286 million during 1998 to $1.085 billion due
to high levels of prepayment and normal amortization. The low interest rate
environment accelerated prepayment in this portfolio. A component of the
Affiliated acquisition was the residential mortgage loan origination division of
Lexington Savings Bank. Following the merger of Lexington with and into USTrust
during the fourth quarter of 1998, the Company began the expansion of
residential mortgage origination activities throughout all of USTrust branch and
retail service outlets. Prior to this acquisition, the Company's subsidiary
banks did not originate residential mortgages.
The indirect automobile loan portfolio experienced continued strong growth
in 1998. This portfolio totaled $910 million at December 31, 1998, and reflects
growth of 50 percent, or $304 million, this year compared with $303 million, in
1997. Management expects both the dollar volume and rate of growth in this
portfolio to moderate in 1999. The origination of these loans is subject to the
Company's credit quality standards and these loans are not what is referred to
in the industry as "subprime" automobile loans.
Beginning in the second half of 1997, indirect automobile lease financing
was made available through existing client automobile dealers. This portfolio
totaled $98 million at December 31, 1998, compared with $26 million a year ago.
These leases are also subject to the Company's credit quality standards and are
not "subprime" automobile leases.
13
<PAGE> 14
Loan Maturity Distribution
The following table reflects the maturity and interest sensitivity of
commercial and financial, and commercial real estate loans, at December 31,
1998:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
After 1 Year
(Dollars in thousands) 1 Year or Less through 5 Years After 5 Years Total
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and financial $716,686 $466,983 $230,139 $1,413,808
Commercial real estate:
Construction 23,114 28,826 4,049 55,989
Developer, investor and land 85,878 218,052 194,270 498,200
-------- -------- -------- ----------
$825,678 $713,861 $428,458 $1,967,997
======== ======== ======== ==========
Interest sensitivity of above loans
With predetermined interest rates $395,071 $498,370 $170,591 $1,064,032
With floating interest rates 455,778 209,379 238,808 903,965
-------- -------- -------- ----------
$850,849 $707,749 $409,399 $1,967,997
======== ======== ======== ==========
- --------------------------------------------------------------------------------------------------
</TABLE>
The Company does not have an automatic rollover (renewal) policy for
maturing loans. Renewal requests are reviewed and approved in substantially the
same manner as applications by new customers for extensions of credit.
Additionally, any renewal of a loan rated Substandard or lower in the Company's
credit risk rating profile, requires the Workout Loan Department head approval
and for certain size loans and circumstances, the approval of the Senior Credit
Committee and Board of Directors.
Securities
Securities totaled $1.290 billion at December 31, 1998, an increase of $82
million from a year earlier. The increase reflects net purchases of $351 million
in 15-year U.S. Agency mortgage-backed securities while other securities
decreased $277 million. Upon the completion of the Somerset and Affiliated
acquisitions, the Company redesignated a total of $168 million of former
Somerset and Affiliated securities from held-to-maturity to securities
available-for-sale, consistent with the Company's historical policy of carrying
all securities as available-for-sale.
Included in the increase in securities was an increase in unrealized gain
on securities available-for-sale of $8 million to $13 million at December 31,
1998. The improvement reflects favorable pricing changes in bond and certain
equity investments during the year. Refer to Note 1 to the Notes to Consolidated
Financial Statements for a further discussion of the unrealized valuation
adjustment to market value of securities available-for-sale.
The change in the market value of securities available-for-sale also had
the effect of increasing stockholders' investment by $4 million. The unrealized
gain reported as part of stockholders' investment was $8 million, net of tax at
December 31, 1998.
The Company has a policy of purchasing securities primarily rated A, or
better, by Moody's Investors Services and U.S. Government securities to minimize
credit risk. As of December 31, 1998, $1.0 billion of the Company's
mortgage-backed securities were issued by agencies or sponsored agencies of the
U.S. Government, and $4 million were investment grade mortgage-backed securities
issued by nongovernment agencies. At December 31, 1998, none of the Company's
mortgage-backed securities would be classified as "high risk" under Federal
Financial Institutions Examination Council guidelines. All securities, however,
carry interest rate risk which affects their market value such that as market
yields increase, the value of the Company's securities declines and vice versa.
Additionally, mortgage-backed securities carry prepayment risk where expected
yields may not be achieved due to an inability to re-invest the proceeds from
unexpected prepayment at comparable yields. Moreover, such mortgage-backed
securities may not benefit from price appreciation in periods of declining rates
to the same extent as the remainder of the portfolio. Refer to Note 1 to the
Notes to Consolidated Financial Statements, "Summary of Significant Accounting
Policies" of this Form 10-K for a further discussion of prepayment risk. At
December 31, 1998, the aggregate fair value of any individual issuer's
securities,
14
<PAGE> 15
other than an agency or sponsored agency of the U.S. Government, did not exceed
10 percent of the Company's stockholders' investment. The following table sets
forth the book value of the securities owned by the Company:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
December 31,
----------------------
(Dollars in thousands) 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Available-for-sale:
Mortgage-backed securities $1,077,543 $535,714
U.S. Treasury and other U.S. Government agencies and corporations 45,578 213,132
Obligations of states and political subdivisions* 6,828 2,024
Other securities 159,668 196,566
---------- --------
Total available-for-sale $1,289,617 $947,436
========== ========
Held-to-maturity:
Mortgage-backed securities $182,774
U.S. Treasury and other U.S. Government agencies and corporations 54,687
Other securities 22,846
--------
Total held-to-maturity $260,307
========
* Nontaxable
- -------------------------------------------------------------------------------------------------
</TABLE>
The following table presents maturities for the Company's debt securities
at December 31, 1998, and the approximate weighted tax equivalent yields (at the
statutory federal tax rate of 35 percent). Mortgage-backed securities are shown
at their remaining contractual principal maturities but are expected to have
shorter average lives. Considering this, the Company estimates the average life
of the entire portfolio to be approximately 4 years. Yields presented in this
table have been computed using the amortized cost of the securities.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Securities Maturing In
----------------------------------------------------------------------------
1 Year or Less After 1-Yr. through 5 5-Yrs. through 10 10 Yrs. or More
----------------------------------------------------------------------------
(Dollars in thousands) Balance Yield% Balance Yield% Balance Yield% Balance Yield%
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-sale:
Mortgage-backed securities $ 5,135 6.38% $ 34,995 6.48% $131,221 5.92% $897,159 5.95%
U.S. Treasury and other U.S. Government
agencies and corporations 4,959 4.49% 26,995 6.16% 13,165 6.94%
Obligations of states and political subdivisions 6,152 3.83% 401 4.43% 251 5.14%
Other debt securities 20 6.00% 37,907 6.57% 350 5.36% 17,726 6.91%
------- -------- -------- --------
Total $16,266 4.97% $100,298 6.42% $144,987 6.01% $914,885 6.00%
======= ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
liquidity and funding
Liquidity involves the Company's ability to raise or gain access to funds in
order to fulfill its existing and anticipated financial obligations. It may be
provided through amortization, maturity or sale of assets such as loans and
securities available-for-sale, liability sources such as increased deposits,
utilization of the Federal Home Loan Bank credit facility, borrowings from the
Federal Reserve Bank of Boston, purchased or other borrowed funds, and access to
the capital markets. The Company's securities portfolio is classified entirely
as available-for-sale, which provides the flexibility to sell certain securities
based upon changes in economic or market conditions, interest rate risk and the
Company's financial position and liquidity.
At December 31, 1998, liquidity, which includes excess cash, federal funds
sold and unpledged securities, totaled approximately $758 million, or 13 percent
of total assets.
The funds needed to support the Company's loan and securities portfolios
are provided through a combination of commercial and retail deposits and
short-term borrowings. Total deposits increased $68 million, or 2 percent,
15
<PAGE> 16
to $4.234 billion since December 31, 1997. Noninterest-bearing deposits
increased $65 million while savings deposit growth, which includes NOW, money
market and regular savings, increased $216 million. These areas of deposit
growth reflect the Company's innovative deposit products and promotional
initiatives, as well as the synergies of a larger branch network, augmented by
acquisitions. Certificates of deposit decreased $214 million as the Company is
intentionally less competitive with these higher cost products. The savings
deposit balances also reflect a shift from NOW to money market deposits of
approximately $60 million since the beginning of the year. This reflects the
addition of the Affiliated banks and Somerset to USTrust's overnight deposit
sweep process. This process transfers certain NOW account balances to money
market accounts on a nightly basis and then returns the balances to a NOW
account status the following morning. The effect of this process, which has no
impact on an individual customer's account status, is a reduction of the cash
reserve balances required to be maintained at the Federal Reserve Bank. This
process has become a customary procedure for most large institutions and has
Federal Reserve Board approval. Short-term and other borrowings, which consist
principally of federal funds purchased, securities sold under agreement to
repurchase, and borrowings from the Federal Home Loan Bank, increased $246
million to $1.062 billion to support loan growth and securities purchases.
As shown in the Consolidated Statements of Cash Flows, cash and cash
equivalents increased $6 million during 1998. Cash provided by operations
resulted largely from net income earned during the year. Cash used by investing
activities was due to an excess of purchases of securities and increased loan
volume over cash provided by securities sales and maturities, and reduction in
federal funds sold. Cash provided by financing activities was provided primarily
by increases in nontime deposits and borrowings, partially offset by reductions
in certificates of deposit.
At December 31, 1998, the Company on an unconsolidated basis had $5 million
in cash and due from banks and $15 million in short-term securities purchased
under agreement to resell, compared with $6 million and $4 million,
respectively, at December 31, 1997. The increase in excess funds was primarily
due to the receipt of $24 million in dividends from subsidiaries during the year
partially reduced by dividends paid to shareholders of $17 million. In addition,
a $1 million capital contribution and $2 million demand loan was granted to one
subsidiary, Cambridge Trade Finance Corp. ("CTFC"). CTFC, a new company formed
during the year, is a Massachusetts-based trade finance corporation specializing
in serving small- to mid-sized importers and exporters throughout New England.
Deposits
The following table sets forth the remaining maturities of certificates of
deposit in the amount of $100 thousand or more at December 31, 1998:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Dollars in thousands)
- --------------------------------------------------------------------------------
<S> <C>
Less than three months $185,656
Three to six months 39,437
Six to twelve months 37,958
Over twelve months 37,492
--------
Total $300,543
========
- --------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
Short-term Borrowings
The Company's short-term borrowings consist primarily of federal funds
purchased, securities sold under agreements to repurchase and FHLB borrowings.
These instruments generally range from overnight to one month in duration.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
At December 31, For the Year Ended December 31,
----------------------------------------------------------------------------------
Weighted Average Maximum Amount Average Amount Weighted Average
(Dollars in thousands) Balance Interest Rate at Any Month End Outstanding Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal funds purchased:
1998 $278,695 4.94% $353,415 $138,706 4.45%
1997 79,027 5.58% 80,071 71,543 5.43%
1996 92,677 5.73% 92,677 68,551 5.35%
Securities sold under agreements to repurchase:
1998 $498,372 4.11% $498,372 $353,669 4.35%
1997 276,264 4.65% 288,498 265,921 4.61%
1996 238,044 4.73% 287,993 228,260 4.70%
FHLB borrowings:
1998 $200,000 5.53% $396,500 $259,566 5.60%
1997 249,264 5.80% 249,264 142,214 5.39%
1996 212,300 5.61% 484,800 216,695 5.71%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
interest rate risk
Volatility in interest rates requires the Company to manage interest rate risk
that arises from differences in the timing of repricing of assets and the
liabilities. Management monitors and adjusts the difference between
interest-sensitive assets and interest-sensitive liabilities ("GAP" position)
within various time frames. An institution with more assets repricing than
liabilities within a given time frame is considered asset sensitive ("positive
GAP") and in time frames with more liabilities repricing than assets it is
liability sensitive ("negative GAP"). Within GAP limits established by the Board
of Directors, the Company seeks to balance the objective of insulating the net
interest margin from rate exposure with that of taking advantage of anticipated
changes in rates in order to enhance income. The Company's policy is to limit
its one-year cumulative GAP position to 2.5 times equity, presently equal to
approximately 23 percent of total assets. The Company has historically managed
its interest rate GAP primarily by lengthening or shortening the maturity
structure of its securities portfolio.
The Company's GAP presentation may not reflect the degree to which
interest-earning assets and core deposit costs respond to changes in market
interest rates. The Company's rate-sensitive assets consist primarily of loans
tied to either the prime rate, the London Interbank Offered Rate ("LIBOR") or
treasury bill index.
The following table summarizes the Company's GAP position at December 31,
1998. The majority of loans are included in 0-30 days as they reprice in
response to changes in the interest rate environment. Interest-bearing deposits
are classified according to their expected interest rate sensitivity. Actual
sensitivity of these deposits is reviewed periodically and adjustments are made
in the Company's GAP analysis as management deems appropriate. Securities and
noninterest-bearing deposits are categorized according to their expected lives
based on published industry prepayment estimates in the case of securities and
current management estimates for noninterest-bearing deposits. Securities are
evaluated in conjunction with the Company's asset/liability management strategy
and may be purchased or sold in response to expected or actual changes in
interest rates, credit risk, prepayment risk, loan growth and similar factors.
The reserve for possible loan losses is included in the "Over 1 Year" category
of loans. At December 31, 1998, the one-year cumulative GAP position was
negative at $223 million, or approximately 4 percent of total assets.
During 1998, the average life of earning assets was extended through
reductions in federal funds sold and replacement and build-up in the securities
portfolio of longer-term securities containing reduced economic risk from
prepayment. In addition, the average life of interest-bearing liabilities was
shortened as long-term borrowings were replaced at maturity with short-term or
overnight borrowings. This positioning has allowed the Company to take advantage
of the falling interest rate environment that has resulted in lower funding
costs while maintaining yield on earning assets.
17
<PAGE> 18
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Interest Sensitivity Periods
--------------------------------------------------------------
(Dollars in millions) 0-30 Days 31-90 Days 91-365 Days Over 1 Year Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans, net of reserve $ 1,298 $ 237 $ 869 $1,827 $4,231
Federal funds sold 8 8
Securities 44 85 178 983 1,290
Other assets 3 3 366 372
------- ------- ------ ------ ------
Total assets $ 1,353 $ 322 $1,050 $3,176 $5,901
======= ======= ====== ====== ======
Interest-bearing deposits $ 859 $ 261 $ 614 $1,652 $3,386
Borrowed funds 1,009 10 23 20 1,062
Noninterest-bearing deposits 157 690 847
Other liabilities and stockholders' equity 15 591 606
------- ------- ------ ------ ------
Total liabilities and equity $ 2,040 $ 271 $ 637 $2,953 $5,901
------- ------- ------ ------ ======
GAP for period $ (687) $ 51 $ 413 $ 223
======= ======= ====== ======
Cumulative GAP $ (687) $ (636) $ (223) $ 0
======= ======= ====== ======
As a percent of total assets (11.64%) (10.78%) (3.78%)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The Company also uses simulation analysis to measure the exposure of net
interest income to changes in interest rates over a relatively short (i.e., 12
month) time horizon. Simulation analysis involves projecting future interest
income and expense from the Company's assets, liabilities, and off-balance sheet
positions under various scenarios. The Company's limits on interest rate risk
specify that, if interest rates were to shift immediately up or down 200 basis
points, estimated net interest income for the next 12 months should decline by
less than 10 percent. The following table reflects the Company's estimated
exposure as a percentage of estimated net interest income, and consequently net
income, for the next 12 months, assuming the indicated immediate shifts in
interest rates:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Estimated Exposure as a Percentage of Net Interest Income
---------------------------------------------------------
Rate Change (Basis Points) December 31,1998
- -----------------------------------------------------------------------------------------------
<S> <C>
+200 (3.4%)
-200 (0.4%)
- -----------------------------------------------------------------------------------------------
</TABLE>
As shown in the table above, the effect of a large fluctuation downward of
200 basis points, given the Company's liability-sensitive balance sheet
position, would produce a minimal 0.4 percent decrease in net interest income
over the next 12 months. A market rate shift upward would reduce net interest
income by 3.4 percent over the next 12 months. A restated estimated exposure as
of December 31, 1997 for acquisitions accounted for as poolings of interests is
not included in the table above as such information is not readily determinable.
Shortcomings are inherent in any simulation analysis. Certain assets, such
as adjustable rate loans, have features which restrict changes in interest
rates. Additionally, the proportion of fixed-rate loans in the Company's
portfolio could increase in future periods if market interest rates remain at or
decrease below current levels due to refinance activity. Further, in the event
of a change in interest rates, early withdrawal and prepayment levels could
deviate significantly from those assumed in the analysis. Finally, the ability
of some borrowers to repay their adjustable rate loans may decrease in the event
of interest rate increases.
On January 31, 1997, the Securities and Exchange Commission issued final
rules governing disclosure requirements for financial instruments, including
derivatives. This new release requires more detailed disclosure than required in
SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair Value
of Financial Instruments." However, the additional disclosures are only required
when material. As of December 31, 1998 and 1997, the positive fair value of
derivatives outstanding was immaterial to the Company's financial statements as
a whole and, therefore, these additional disclosures are not presented.
18
<PAGE> 19
capital
There are three capital requirements that banks and bank holding companies must
meet. Two requirements take into consideration risks inherent in assets for both
on- and off-balance sheet items on a risk-weighted basis ("risk-based assets").
Risk weightings are as determined by banking regulators for the industry. Under
these requirements, the Company must meet minimum Tier 1 and Total risk-based
capital ratios (capital, as defined in the regulations, divided by risk-based
assets) of 4 percent and 8 percent, respectively. Tier 1 capital is essentially
shareholders' investment, net of intangible assets and Tier 2 capital is the
allowable portion of the loan loss reserve (as defined) and discounted
subordinated debt. Total capital is the combination of Tier 1 and Tier 2. The
third requirement is a leverage capital ratio, defined as Tier 1 capital divided
by total average assets, net of intangibles. All but the most highly-rated banks
are required to maintain a minimum of 4 percent. The Company has not been
notified of a specific requirement above the minimum. All three capital ratios
are calculated excluding the effect of unrealized gain/loss on securities
available-for-sale. Management believes, as of December 31, 1998, that the
Company and its subsidiary banks meet all of their respective capital adequacy
requirements. Refer to Note 17 to the Notes to Consolidated Financial Statements
of this Form 10-K for a further discussion of capital requirements.
In 1998, the Company declared quarterly cash dividends totaling $23
million, or $0.54 per share, to stockholders. Also, during the year the
Company's subsidiaries declared dividends payable to the Company totaling $37
million, $2 million from USTC and $35 million from USTrust and second tier bank
holding companies of the Company.
In 1995, the Company adopted a shareholder rights plan and in 1998 the
Company's Board of Directors approved a stock repurchase program. Refer to Note
17 to the Notes to Consolidated Financial Statements for a discussion.
credit quality and reserve for possible loan losses
Credit quality of the commercial loan and lease portfolios is quantified by a
corporate credit rating system designed to parallel regulatory criteria and
categories of loan risk. Individual lenders monitor their loans to ensure
appropriate rating assignments are made on a timely basis. Risk ratings and
quality of both commercial and consumer credit portfolios are also assessed on a
regular basis by an independent Loan Review Department which reports to the
Company's Board of Directors through its Asset Quality Committee. Loan Review
personnel conduct ongoing portfolio trend analyses and individual credit reviews
to evaluate loan risk and compliance with corporate lending policies. Results
and recommendations from this process provide senior management and the Board of
Directors and its Asset Quality Committee with independent information on loan
portfolio condition. The Asset Quality Committee monitors asset quality
throughout the year and actively reviews the large credit exposures. Consumer
loan quality is evaluated on the basis of delinquent data due to the large
number of such loans and relatively small size of individual credits. Historical
trend analysis reports are reviewed on a monthly basis by senior lending
officers and the Company's Board of Directors.
At December 31, 1998, substandard loans totaled $50 million, compared with
$53 million at year-end 1997. Loans reported as substandard include loans
classified as Substandard or Doubtful, as determined by the Company in its
internal credit risk rating profile. Under the Company's definition, Substandard
loans, which include loans on nonaccrual, are characterized by the distinct
possibility that some loss will be sustained if the credit deficiencies are not
corrected. The Substandard classification, however, does not necessarily imply
ultimate loss for each individual loan so classified. Loans classified as
Doubtful have all the weaknesses inherent in Substandard loans with the added
characteristic that the weaknesses make collection of 100 percent of the assets
questionable and improbable.
At December 31, 1998, Substandard and Doubtful loans were $48 million and
$2 million, respectively. Substandard loans include $35 million of accruing
commercial and commercial real estate loans, of which 91 percent were current
with respect to contractual principal and interest payments, and $13 million in
loans that were on nonaccrual and included in nonperforming assets. All of the
loans rated Doubtful were on nonaccrual and included in nonperforming assets.
Also, at December 31, 1998, loans rated Special Mention in the Company's
internal risk rating profile amounted to $34 million, all of which were current.
Special Mention loans, as defined by the Company, have potential weaknesses that
deserve management's close attention. If left uncorrected, these potential
weaknesses may result in deterioration of the repayment prospects for the
assets.
As of year-end 1998, approximately 63 percent of loans classified as
Substandard or Doubtful were collateralized by real estate, and the remainder
were collateralized by accounts receivable, inventory, equipment and other
business assets. Of the loans secured by real estate, approximately 38 percent
were collateralized by owner-occupied commercial properties, approximately 56
percent were collateralized by other commercial real estate, and approximately 2
percent by residential real estate. The remaining loans were collateralized by
real estate under construction or raw land.
19
<PAGE> 20
The upcoming Year 2000 event has prompted the Company to establish a
comprehensive process of customer interaction designed to provide information on
borrower readiness for the Year 2000. It is the Company's position that the Year
2000 business problem presents an additional credit consideration. Accordingly,
the evaluation program parallels existing credit practices. An additional
rating, "the Millennium Rating," has been established to assess the Year 2000
readiness of each credit and to identify loans which represent Year 2000 risk.
Any loans which have been determined to have "Millennium Special Mention" or
"Millennium Substandard" ratings will be reviewed and a determination will be
made if any remedial action is necessary. In some cases, an addition to the
reserve for possible loan losses may be necessary. For a further discussion of
the Year 2000 issue, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Nonperforming Assets
The following table sets forth the Company's total nonperforming assets and
performance measures regarding key indicators of asset quality:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
December 31,
------------------------------------------------
(Dollars in thousands) 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming assets:
Nonaccruals:
Commercial and financial $ 4,843 $11,963 $24,819 $15,998 $ 39,029
Commercial real estate:
Construction 1,274 315 929 1,348 1,130
Developer, investor and land 6,654 6,180 7,331 7,313 27,346
Commercial lease financing 2,422 237
Consumer:
Residential mortgage 5,323 11,518 10,841 9,528 9,825
Home equity 443 698 522 831 673
Indirect automobile installment 2,827 1,866 778 446 134
Other consumer 181 315 78 134 61
------- ------- ------- ------- --------
Total nonaccrual 23,967 33,092 45,298 35,598 78,198
Accruing loans 90 days or more past due 2,423 1,069 1,134 714 3,037
Other property owned ("OPO"), net (1) 4,660 7,046 11,031 16,817 39,794
Restructured loans (2) 141 17,443 20,401 43,494 55,080
------- ------- ------- ------- --------
Total nonperforming assets $31,191 $58,650 $77,864 $96,623 $176,109
======= ======= ======= ======= ========
Reserve for possible loan losses $65,274 $68,539 $65,979 $84,245 $ 91,860
Net chargeoffs $ 5,451 $ 540 $ 667 $24,081 $ 28,553
OPO reserve $ 5,657 $ 3,628 $ 3,147 $ 4,760 $ 8,867
Ratios:
Reserve to nonaccrual loans 272.3% 207.1% 145.7% 236.7% 117.5%
Reserve to total of nonaccrual loans, accruing loans 90 days
or more past due and restructured loans 246.0% 132.8% 98.7% 105.6% 67.4%
Reserve to period-end loans 1.5% 1.7% 1.8% 2.9% 3.2%
Nonaccrual loans to period-end loans 0.6% 0.8% 1.3% 1.2% 2.7%
Nonaccrual loans and accruing loans over 90 days past due
to period-end loans 0.6% 0.9% 1.3% 1.2% 2.9%
Nonperforming assets to period-end loans and OPO 0.7% 1.5% 2.2% 3.3% 6.1%
Nonperforming assets to total assets 0.5% 1.1% 1.5% 2.2% 4.2%
Net chargeoffs to average loans 0.1% 0.0% 0.0% 0.8% 1.0%
OPO reserve to OPO 54.8% 34.0% 22.2% 22.1% 18.2%
</TABLE>
(1) Included in other property owned ("OPO") are other real estate owned,
automobiles, and equipment acquired through foreclosure or in settlement of
loans. The balance is stated net of a valuation reserve. Refer to Note 1 to the
Notes to Consolidated Financial Statements for a discussion of OPO.
(2) Restructured loans are those where interest rates and/or principal
repayments have been restructured to defer or reduce payment as a result of
financial difficulties of the borrower.
- --------------------------------------------------------------------------------
20
<PAGE> 21
As exhibited in the preceding table, total nonperforming assets were
reduced $27 million in 1998 to $31 million. The decrease was led by a $17
million reduction in restructured loans and a reduction in nonaccrual commercial
loans and residential mortgage loans. These reductions were due in part to the
sale of $21 million in substandard commercial and residential loans during the
third quarter of 1998. The indirect automobile loan increase from 1997 reflected
the substantial increase in balances outstanding of these loans. The reserve to
total nonaccrual loans, accruing loans 90 days or more past due and restructured
loans improved to 246.0 percent at December 31, 1998, compared with 132.8
percent a year ago. Reserve to total loans decreased to 1.5 percent from 1.7
percent a year ago.
The Company's consumer loan delinquency rates (greater than 30 days past
due including nonaccruals) continue to remain at favorable levels. The
delinquency rate for the indirect automobile loans, the second largest component
of the Company's consumer loan portfolio was 3.03 percent at December 31, 1998,
compared with 3.20 percent at December 31, 1997. The Company anticipates that
the current high growth rate experienced in the indirect automobile loan
portfolio will subside in future periods. This factor, combined with the
eventual maturity of the existing portfolio, will likely result in an increase
in the delinquency rate in future periods.
At December 31, 1998, total impaired loans were $13.4 million, comprised of
$.6 million that required a reserve for possible loan losses of $.3 million, and
$12.8 million that did not require a related reserve. The Company has defined
impaired loans as commercial and commercial real estate loans recognized by the
Company as nonaccrual and restructured. Refer to Notes 1 and 6 to the Notes to
Consolidated Financial Statements of this Form 10-K for a further discussion on
SFAS No. 114. The amount of interest on December 31, 1998 impaired loans that
would have been recorded had the loans been paying in accordance with their
original terms during 1998 was approximately $2.6 million. The amount of
interest income on these loans included in net income in 1998 was approximately
$1.2 million.
Reserve for Possible Loan Losses
The Company maintains a reserve for possible loan losses to absorb future
chargeoffs of loans and leases in the existing portfolio. The reserve is
increased when a loan loss provision is recorded in the income statement. When a
loan, or portion thereof, is considered uncollectible, it is charged against the
reserve. Recoveries on amounts previously charged-off are added to the reserve
when collected. Adequacy of the reserve for possible loan losses is determined
using a consistent, systematic methodology which analyzes the size and risk of
the loan and lease portfolio. Factors include historical loss experience and
asset quality, as reflected by delinquency trends, nonaccrual and restructured
loans and the Company's credit risk rating profile. Consideration is also given
to the current and expected economic conditions and, in particular, how such
conditions affect the types of credits in the portfolio and the market area in
general. The analysis includes sensitivity testing and a written conclusion.
No portion of the reserve is restricted to any loan or group of loans, and
the entire reserve is available to absorb realized losses. The amount and timing
of realized losses and future reserve allocations may vary from current
estimates. An allocation of the reserve for possible loan losses and ratio of
loans in each category to total loans at December 31, 1994 through 1998 is
presented below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------------- --------------------- --------------------- --------------------- --------------------
Loans as Loans as Loans as Loans as Loans as
a Percent a Percent a Percent a Percent a Percent
Allocation of Total Allocation of Total Allocation of Total Allocation of Total Allocation of Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
----------- --------- -------------------- ---------------------- --------------------- --------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amount of loan loss
reserve:
Commercial and
financial.......... $21,762 32.9% $20,232 27.2% $18,652 26.7% $23,043 27.9% $34,203 30.0%
Commercial real
estate:
Construction..... 862 1.3% 1,900 2.8% 1,410 3.0% 1,636 3.4% 1,790 3.3%
Developer,
investor
and land....... 7,668 11.6% 8,831 13.6% 10,759 17.2% 14,784 22.4% 21,038 23.1%
Commercial lease
financing........ 1,685 1.8% 974 1.4% 634 1.3% 408 1.1% 181 1.0%
Consumer*.......... 30,152 52.4% 27,657 55.0% 21,967 51.8% 17,374 45.2% 14,233 42.6%
Unallocated........ 3,145 8,945 12,557 27,000 20,415
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total........ $65,274 100.0% $68,539 100.0% $65,979 100.0 $84,245 100.0% $91,860 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
* Consumer loans include indirect automobile installment loans and leases.
<PAGE> 22
The reserve for possible loan losses was $65.3 million at December 31,
1998, down $3.3 million from a year ago. Net chargeoffs of $5.5 million were
partially offset by a $2.2 million provision for possible loan losses during the
year. Reserve allocated to commercial and financial loans increased from 1997
due to volume growth in these loans and reserve allocated to consumer loan
increased due to growth in the indirect automobile portfolio. The unallocated
portion of the reserve at year end was $3.1 million, or 5 percent of the
reserve, down from $8.9 million, or 13 percent, of the reserve a year ago. The
decrease in the unallocated portion is a direct result of the improving asset
quality trend. The ratio of nonperforming assets to total assets has continued
to decline from 2.2 percent in 1995 to 1.5 percent in 1996, 1.1 percent in 1997
and 0.5 percent in 1998. This improvement in asset quality, allowed the Company
to reduce the level of unallocated reserves maintained during this time frame.
The Company expects to continue to maintain reserve levels that are consistent
with asset quality and the risk inherent within the loan portfolios.
A summary of loan loss experience for the years ended December 31, 1994
through 1998 is presented below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
December 31,
-----------------------------------------------------------------
(Dollars in thousands) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve for loan losses at beginning of period $ 68,539 $ 65,979 $ 84,245 $ 91,860 $ 91,374
---------- ---------- ---------- ---------- ----------
Chargeoffs:
Commercial and financial 3,238 2,106 5,034 11,330 17,309
Commercial real estate:
Construction 38 591 276
Developer, investor and land 2,598 607 2,719 18,116 14,190
Commercial lease financing 457
Consumer:
Residential mortgage 1,584 1,033 1,816 2,128 2,834
Home equity 94 116 51 1,270 119
Indirect automobile installment 5,059 2,793 1,736 844 806
Other consumer 1,652 1,062 262 240 427
Indirect automobile lease financing 145
---------- ---------- ---------- ---------- ----------
Total chargeoffs 14,827 7,755 11,618 34,519 35,961
---------- ---------- ---------- ---------- ----------
Recoveries:
Commercial and financial 1,921 3,271 4,964 6,018 4,746
Commercial real estate:
Construction 87 14 654 205 142
Developer, investor and land 5,078 2,024 3,260 2,096 1,227
Commercial lease financing 137
Consumer:
Residential mortgage 822 1,124 1,260 1,350 289
Home equity 35 12 23 46 48
Indirect automobile installment 1,084 685 707 642 820
Other consumer 212 85 83 81 136
---------- ---------- ---------- ---------- ----------
Total recoveries 9,376 7,215 10,951 10,438 7,408
---------- ---------- ---------- ---------- ----------
Net chargeoffs 5,451 540 667 24,081 28,553
Provision (credit) for possible loan losses 2,239 3,100 (15,495) 15,920 28,024
Reserve of (sold) acquired banks and other transfers (53) (2,104) 546 1,015
---------- ---------- ---------- ---------- ----------
Reserve for loan losses at end of period $ 65,274 $ 68,539 $ 65,979 $ 84,245 $ 91,860
========== ========== ========== ========== ==========
Average loans $4,090,568 $3,718,167 $3,066,626 $2,892,980 $2,728,017
========== ========== ========== ========== ==========
Ratio of net chargeoffs to average loans 0.1% 0.0% 0.0% 0.8% 1.0%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
results of operations
comparison of 1998 with 1997
For the year ended December 31, 1998, net income was $55.3 million, or $1.28
diluted earnings per share, compared with $50.2 million, or $1.18 diluted
earnings per share, for the year ended December 31, 1997. Operating results
included charges of $8.1 million and $4.4 million in 1998 and 1997,
respectively, for certain nondeductible merger-related expenses and pre-tax
charges of $11.5 million and $11.8 million in 1998 and 1997, respectively, for
restructuring charges related to acquisitions. The 1998 charges were recorded in
connection with the Somerset and Affiliated acquisitions while the 1997 charges
were incurred primarily for the Walden acquisition. Excluding merger-related and
restructuring charges, 1998 net income was $70.5 million, or $1.63 diluted
earnings per share, compared with $61.7 million, or $1.44 diluted earnings per
share last year.
Net income for 1998, including the aforementioned merger-related and
restructuring charges, produced a return on average stockholders' investment of
10.69 percent compared with 11.13 percent in 1997, and a return on average
assets of 0.99 percent compared with 0.95 percent last year. Operating return on
average equity (excluding merger-related and restructuring charges) was 13.63
percent, just below the 13.66 percent earned in 1997. The positive effect of
this year's earnings increase on this performance ratio was offset by the effect
of a $66 million increase in average equity from earnings retained during the
year. Operating return on average assets was 1.26 percent this year compared
with 1.17 percent last year.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Return on Average
----------------------------------------
Assets Stockholders' Investment
----------------------------------------
Year Ended December 31, 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income 4.51% 4.37% 48.79% 51.08%
Provision for possible loan losses 0.04 0.06 0.43 0.69
---- ---- ----- -----
Net interest income after provision for possible loan losses 4.47 4.31 48.36 50.39
Noninterest income 0.87 0.79 9.44 9.23
Noninterest expense 3.74 3.60 40.46 42.15
---- ---- ----- -----
Income before income tax 1.60 1.50 17.34 17.47
Income tax provision 0.61 0.55 6.65 6.34
---- ---- ----- -----
Net income 0.99% 0.95% 10.69% 11.13%
==== ==== ===== =====
</TABLE>
Net Interest Income Analysis
The Company's net interest income on a fully taxable equivalent basis was $253.5
million in 1998, an increase of 9 percent, or $21.6 million over 1997. The
increase over last year was due to a combination of earning asset growth,
favorable changes in earning asset and deposit mix, noninterest-bearing and
low-cost deposit growth and lower borrowing costs. The table below presents the
following information: average earning assets and average interest-bearing
liabilities supporting earning assets; and interest income and interest expense
expressed as a percentage of the related asset or liability. The average
balances and the rates presented include the effect of fair value adjustments
under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."
23
<PAGE> 24
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31,
--------------------------------------------------------------------------------------------
1998 1997 1996
--------------------------------------------------------------------------------------------
Average Average Average Average Average Average
(Dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash and due from banks $ 121,483 $ 120,775 $ 127,758
Federal funds sold and other 59,657 $ 3,910 6.55% 89,201 $ 5,191 5.82% 51,956 $ 2,791 5.36%
Securities:
Taxable 1,114,095 70,645 6.34 1,151,361 73,935 6.42 1,277,991 78,892 6.17
Nontaxable and preferential
rate income (1) 48,132 3,278 6.81 43,016 3,294 7.66 30,227 2,541 8.41
---------- -------- ---------- -------- ---------- --------
Total securities 1,162,227 73,923 6.36 1,194,377 77,229 6.47 1,308,218 81,433 6.22
Loans (1) (2) 4,090,568 352,006 8.61 3,718,167 327,689 8.81 3,066,626 272,459 8.86
Reserve for possible loan losses (68,508) (67,332) (81,227)
---------- ---------- ----------
Net loans 4,022,060 3,650,835 2,985,399
Other assets 223,606 217,804 174,871
---------- -------- ---------- -------- ---------- --------
Total assets/interest income $5,589,033 $429,839 $5,272,992 $410,109 $4,648,202 $356,683
========== ======== ========== ======== ========== ========
Liabilities and Stockholders' Investment
Deposits:
Noninterest-bearing $ 756,212 $ 609,118 $ 464,181
NOW 120,247 $ 1,695 1.41% 153,185 $ 1,916 1.25% 340,961 $ 4,329 1.27%
Money market 817,553 19,945 2.44 729,523 17,431 2.39 410,308 13,310 3.24
Regular savings 917,063 25,856 2.82 862,743 24,359 2.82 656,976 16,559 2.51
Time 1,513,488 82,604 5.46 1,582,935 88,081 5.56 1,473,115 83,463 5.65
---------- -------- ---------- -------- ---------- --------
Total interest-bearing deposits 3,368,351 130,100 3.86 3,328,386 131,787 3.96 2,881,360 117,661 4.07
---------- ---------- ----------
Total deposits 4,124,563 3,937,504 3,345,541
Short-term and other borrowings 884,140 46,230 5.23 829,830 46,418 5.59 838,979 46,858 5.57
Other liabilities 63,203 54,310 47,034
Stockholders' investment 517,127 451,348 416,648
---------- -------- ---------- -------- ---------- --------
Total liabilities and stockholders'
investment/interest expense $5,589,033 $176,330 3.15% $5,272,992 $178,205 3.38% $4,648,202 $164,519 3.53%
========== ======== ========== ======== ========== ========
Earning assets - interest income $5,312,452 $429,839 8.09% $5,001,745 $410,109 8.20% $4,426,800 $356,683 8.04%
Interest-bearing liabilities -
interest expense $4,252,491 176,330 4.15% $4,158,216 178,205 4.29% $3,720,339 164,519 4.41%
-------- -------- --------
Net interest spread (3) 3.94% 3.91% 3.63%
Net interest margin (4) $253,509 4.77% $231,904 4.64% $192,164 4.33%
======== ======== ========
</TABLE>
(1) Interest on loans to and obligations of states and political subdivisions
is not subject to federal income tax and certain dividend income from
equity securities receive preferential tax treatment. In order to make
pretax yields comparable to fully taxable loans and securities, a tax
equivalent adjustment is utilized. The adjustment is based on a 35 percent
federal income tax rate and includes applicable state taxes, net of federal
tax benefit.
(2) Average loan balance includes nonaccrual loans, such that the negative
income effect is included in the calculation of average rates.
(3) Net interest spread is the excess of the interest rate on average earning
assets over the interest rate on average interest-bearing liabilities.
(4) Net interest margin is the excess of the interest earned over interest
expense divided by average earning assets.
- --------------------------------------------------------------------------------
24
<PAGE> 25
As reflected in the foregoing table, average loans increased 10 percent, or
$372 million to $4.091 billion this year. As exhibited in the table below, loan
growth was the largest contributor to the improvement in net interest income
over 1997. Lower-yielding average assets, such as securities decreased $32
million and Federal funds sold decreased $30 million. Average low-cost savings
deposits, including regular savings, NOW and money market, increased 6 percent,
or $109 million from 1997, while average high-cost certificates of deposit
decreased $69 million. The positive differential between average total earning
assets and average total interest-bearing liabilities increased $216 million
from 1997 due to an increase in noninterest-bearing deposits as well as retained
earnings and contributed to the increase in net interest income. The increases
in average low-cost and noninterest-bearing deposits reflects the Company's
success at attracting these deposits with its very competitive deposit account
fee structure. The effect on net interest income from these favorable changes in
volume of interest-earning assets and interest-bearing and noninterest-bearing
liabilities was an increase of $26.4 million for the year ended December 31,
1998 compared with 1997.
Yield on earning assets declined 11 basis points to 8.09 percent in 1998. A
decrease in yield on loans of 20 basis points from 1997 was the largest factor
affecting total earning asset yield. Loan yields, in particular rates on new
commercial loans, continue to reflect the effect of competitive pressure on loan
pricing. The Company expects that such competitive pressure will continue into
next year. In general, market interest rates were on a downward trend during
1998. During the latter half of 1998, the Federal Reserve Board announced
interest rate cuts in the rate charged to member banks for borrowings from the
Federal Reserve. As a result, the Company's subsidiary banks, consistent with
most banks across the country, decreased the prime lending rate a total of 75
basis points. Such rate decreases are expected to continue to reduce yield on
earning assets in future periods. The cost of interest-bearing liabilities
decreased 14 basis points this year to 4.15 percent. Rates on the low-cost
deposits, NOW, money market and regular savings were maintained or increased
from 1997 as part of a strategy to promote growth in this deposit category. The
average cost of time certificates of deposit decreased 10 basis points compared
to a year ago, as older certificates matured and repriced at the current lower
offering rates. The Company expects to continue to adjust rates on new
certificates as well as some savings products consistent with the general trend
in interest rates. Borrowing costs decreased 36 basis points compared with a
year ago due to the replacement of long-term, higher rate borrowings with
short-term or overnight borrowings. This is expected to continue to allow the
Company to take advantage of falling interest rates and thereby reduce funding
costs. The net effect of rate changes on net interest income for the year ended
December 31, 1998 compared with the same period in 1997, was a decrease of $4.8
million.
As a result of the aforementioned yield, cost and volume changes, the
interest rate margin and spread increased slightly from 4.64 percent and 3.91
percent in 1997 to 4.77 percent and 3.94 percent in 1998, respectively. The
Company expects to maintain the current level of net interest margin and spread
through the next year. The combination of the Company's balance sheet
positioning and ability to adjust certain funding costs are expected to aid in
this effort. Although such expectations, which are subject to the volatility of
market interest rates, may not be realized. Refer to the caption "Interest Rate
Risk" in this Form 10-K for a further discussion of balance sheet positioning.
25
<PAGE> 26
The following table attributes changes in interest income and interest
expense to changes in interest rates and changes in the volume of
interest-earning assets and interest-bearing liabilities for the year ended
December 31, 1998 when compared with the year ended December 31, 1997. Changes
attributable to both rate and volume are allocated on a weighted basis.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) From Year Ended December 31, 1997
-----------------------------------------------------
Year Ended Amount Due to Changes in
-------------------------------
(Dollars in thousands) December 31, 1998 Total Change Volume Rate
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans* $352,006 $24,317 $32,194 $(7,877)
Interest on securities:
Taxable 70,645 (3,290) (2,371) (919)
Nontaxable and preferential rate income* 3,278 (16) 369 (385)
Interest on federal funds sold and other 3,910 (1,281) (1,876) 595
-------- ------- ------- -------
Total interest income* 429,839 19,730 28,316 (8,586)
Interest expense:
Interest on NOW, money market and regular savings deposits 47,496 3,790 2,785 1,005
Interest on time deposits 82,604 (5,477) (3,813) (1,664)
Interest on borrowings 46,230 (188) 2,939 (3,127)
-------- ------- ------- -------
Total interest expense 176,330 (1,875) 1,911 (3,786)
-------- ------- ------- -------
Net interest income $253,509 $21,605 $26,405 $(4,800)
======== ======= ======= =======
</TABLE>
* Fully taxable equivalent at the federal income tax rate of 35 percent and
includes applicable state taxes net of federal benefit. The tax equivalent
adjustment on loans was approximately $.2 million and on nontaxable and
preferential rate income securities was approximately $1.0 million.
- --------------------------------------------------------------------------------
Noninterest Income
Total noninterest income was $48.8 million, $7.1 million higher than 1997.
Realized net gains on sales of securities, including $2.1 million in realized
gains on venture capital investments, were $3.9 million this year compared with
realized net losses of $1.2 million in 1997. The Company's three key fee-based
businesses showed strong improvement over 1997. Asset management fees increased
$2.1 million, or 16 percent, due to growth in balances under management from new
business and favorable market results. Assets under management increased $380
million during the year to $3.5 billion. Deposit account service charges
increased $1.2 million, or 11 percent, due to increased revenue from NSF charges
and growth in demand deposit and nontime savings deposits. Corporate services
income rose $.5 million, or 8 percent, due to growth in commercial cash
management services. Gains from loan sales this year were $.7 million, which
includes gains on sale of fixed rate residential mortgage loans in the secondary
market and gain on sale of substandard loans. Gains on sale of loans in 1997
were mostly from the sale of substandard loans.
Noninterest Expense
Total noninterest expense was $209.2 million, an increase of $19.0 million over
1997. Restructuring charges of $11.5 million were incurred in 1998 in connection
with the Somerset and Affiliated acquisitions and the result of management's
integration plan. These costs related to activities that had no future economic
benefit to the Company and were incremental to other costs incurred in the
conduct of the Company's business. The nature of these expenses included charges
for severance payments to former Somerset and Affiliated executives and staff,
processing systems conversions and deconversion costs, customer communications
related to the effect of the acquisitions and new account information,
write-offs of certain assets such as signage and incompatable computer
equipment, and other expenses directly associated with the integration of the
acquired institutions. Similar restructuring charges of $11.8 million for the
year ended December 31, 1997 were incurred in connection with the Walden
acquisition.
Acquisition and merger-related expenses, a nondeductible expense for tax
purposes, of $8.1 million, were incurred in 1998 in connection with the Somerset
and Affiliated acquisitions. These expenses included professional, legal,
accounting and investment banking services directly incurred in connection with
the acquisition transactions. Acquisition and merger-related expense of $4.4
million was incurred in 1997 primarily in connection with Walden and Firestone
acquisitions.
The increase in total noninterest expense in 1998 also reflects Year 2000
readiness expense of $5.4 million compared to a nominal expense in 1997. Also
higher were personnel costs of $6.6 million, computer equipment depreciation and
26
<PAGE> 27
maintenance costs of $1.8 million, and increased data processing costs of $1.9
million. These operating expense increases are primarily the result of volume
growth across the Company. In addition, the merger with and into USTrust and
integration and conversion of the operating systems of the acquired banks, did
not occur until late in the year. As a result, the Company's noninterest expense
does not reflect the full cost savings and efficiencies associated with the
acquisitions. The Company expects additional operating efficiencies related to
acquisitions to be realized in the first half of 1999.
Other noninterest expense approximated last year's level of $27 million.
Communication expenses such as postage, telephone, and stationery and supplies,
which aggregate approximately $11 million in 1998, are the largest components.
Also included in other noninterest expense in 1998 were $2.7 million in one-time
costs in connection with the upgrade of the Company's automated branch platform
and teller systems and a writedown to net realizable value of a branch building
held for sale. These increases were offset with lower legal reserve provisions
and checkbook charges than 1997.
The operating efficiency ratio, which excludes realized gains/losses on
sales of securities and loans, merger-related and restructuring expenses and
foreclosed asset expense, was 62.8 percent in 1998 compared with 63.3 percent in
1997. Excluding Year 2000 readiness expense, the 1998 ratio would further
improve to 61.0 percent. The Company expects to focus on operating efficiencies
in 1999 in an effort to further improve efficiency ratios.
Year 2000
The Year 2000 issue, which is common to most corporations, concerns the
potential inability of computer-based systems, including among others, computer
hardware, embedded chips, and computer software programs, to recognize properly
and process date-sensitive information involving 20th and 21st century dates.
State of Readiness
In 1997, the Company assembled a project team of senior officers and outside
consultants to assess the impact of the Year 2000 problem on its systems and
certain systems of its customers, vendors and other parties that service or
otherwise interact with the Company and to develop a Year 2000 Readiness Program
consistent with the five phases set out in Regulatory Guidance. A national
public accounting firm was engaged by the Company to focus on assisting in
initial project development and progress assessment. The Company's Year 2000
Readiness Program contains a number of discrete segments, including among
others, Awareness, Assessment, Project Planning, Remediation, Unit Test
Plans, Unit Testing, Integration Testing, System Implementation, Commercial
(including evaluation and monitoring stages), Funds Providers and Capital
Markets, Retail, Contingency Plans for Information Systems and Contingency Plans
for Business Continuation.
The Awareness and Assessment phases, Project Planning for all aspects and
Unit Test Plans for mission critical systems have been completed. Mission
critical systems are defined by the Company as those vital to the successful
continuance of core business activities. Test Plans for noncritical applications
are in process of development and are expected to be substantially completed
during the second quarter of 1999. Inventory and Year 2000 readiness assessment
of all information and noninformation systems and applications have been
completed and all third-party vendors who provide applications to the Company
have been contacted. Efforts to bring the major operating systems, and certain
outsourced applications into compliance with Year 2000 requirements have or will
be accomplished primarily through the installation of updated or replacement
programs developed by third parties. In addition, the status of all Company
facilities and all significant third-party providers of goods and services to
the Company has been assessed. Starting in March 1998, the Company retained the
services of Atlantic Data Services, Inc., and certain additional outside
advisors and programmers to augment the Company's efforts in addressing its Year
2000 compliance.
The Remediation Phase, wherein software and hardware are either modified or
replaced, was substantially completed by year-end 1998 for mission critical
applications. The Company successfully installed among other mission critical
applications systems, a new commercial loan system and upgraded versions of its
transaction deposit, certificate of deposit, ACH, wire transfer, general ledger
and mortage processing systems. In addition, the Company has upgraded or
replaced all of its mission critical mainframe operating systems that were not
Year 2000 compliant and upgraded its broadly distributed PC network, operating,
and office systems. One exception was the branch teller system, which the
Company discovered through its Unit Testing procedures did not properly process
the leap year date February 29, 2000. The Company expects to receive a new
version before the end of April 1999. The second exception is the Company is
awaiting the remediation and test results of the systems utilized by a
third-party vendor that provides mutual fund and annuity broker and dealer
services to the Company. The Year 2000 readiness results are expected from this
service provider by March 31, 1999. The Remediation phase for nonmission
critical applications is presently scheduled to be completed by September 30,
1999.
Unit Testing of individual mission critical systems was substantially
completed by December 31, 1998. Unit Testing for nonmission critical systems is
expected to be substantially complete by the end of the first half of 1999.
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<PAGE> 28
To help achieve the completion of testing for nonmission critical applications,
the Company has engaged the services of an additional third-party vendor,
Command Systems, Inc. The targeted completion date for Integrating Testing for
mission critical systems is March 31, 1999, and for nonmission critical systems
the end of the third quarter of 1999. Integration testing involves the testing
of applications on an integrated basis with systems interacting or exchanging
data in a future date environment.
As part of the System Implementation phase, the Company has generally put
mission critical applications into production as soon as remediation or
replacement installation was completed. As of year-end 1998, the process of
system implementation was substantially complete with all but three of the
remediated systems placed into production. These three, ATM, installment loan
and installment loan origination, are scheduled to be installed by June 30,
1999.
The Company has put in place a substantial program for evaluating potential
additional credit risk that might arise should any of its large commercial
customers experience their own Year 2000 issues. The initial portion of the
Commercial Phase, which included the evaluation of credit risk stemming from
problems borrowers may have in resolving their own Year 2000 issues, has been
completed. Monitoring of the remediation efforts of high risk customers will be
ongoing. During the monitoring stage the Company has implemented a course of
action and procedures designed to reduce any increased potential credit risk as
a result of borrowers' Year 2000 issues. The Company is communicating with its
major borrowing relationships on a quarterly basis and evaluating credit risk
related to Year 2000 issues based on responses from these customers. Risk
mitigation plans will be developed during 1999 for those customers whose Year
2000 credit risk component remains high. Such plans will utilize the normal
process that the Company employs to manage credit risk.
The Company continues an active program of evaluation, assessment and
monitoring of the state of readiness of the Company's Funds Providers and the
Capital Markets. This program has been expanded to include development of
alternative sources of funds should the Company require them over year-end 1999.
However, there are no funds providers that, on an individual basis or in the
aggregate, are material to the Company except for the Federal Home Loan Bank
("FHLB") of Boston. The FHLB continues to communicate with the Company and
report on their state of Year 2000 readiness, which currently is on track with
its management's schedule. The Company has put in place contingency plans for
additional funding through large brokered certificates of deposit from
investment houses as well as made arrangements to increase the Company's
availability of fund borrowings from the Federal Reserve Bank of Boston.
The Retail segment is largely focused on customer communications as to the
state of the Company's Year 2000 readiness and ensuring adequate cash
availability is maintained over year-end 1999. The initial communications have
been distributed and the process is ongoing. Customer and community
communications will receive greater emphasis during 1999. This will include
personal communication with selected large customers, training for internal
staff, placement of FDIC brochures in the banking branches, a regular Year 2000
update on the Company's web site and frequent written communication with
customers by use of statement inserts or other means.
Risks of Year 2000 Issues
The Company has yet to identify any application or operating system or
third-party support which appears unlikely to be Year 2000 compliant or for
which a suitable alternative cannot be implemented. Since, however, the Company
is heavily dependent on such software and third parties, there are risks that
the Company's operations could be disrupted by adverse developments affecting
the operations of these third parties. Such risks include, among other matters,
an inability to process and underwrite loan applications, to credit deposits and
withdrawals from deposit accounts, to credit loan payments or track
delinquencies, to properly reconcile and record daily activity or to engage in
normal banking activities, including branch and ATM operations. A failure in any
one of these could have a material effect on the Company. Additionally,
commercial borrowers whose operations depend on automated systems could
experience Year 2000 compliance problems affecting their ability to repay. It is
not possible to quantify the magnitude of any potential increased credit risk at
this time. It is, therefore, possible that the Company's financial condition and
results of operations could be adversely affected by increases in problem loans
and credit losses in future periods and require the Company to record additional
loan loss provisions. The Company also faces financial risk from its fund
providers as the Year 2000 problem may produce some deposit contraction forcing
a change to alternative and higher cost funding sources. Finally, to the extent
that certain utility and communication services utilized by the Company face
Year 2000 problems, the Company's operations could be disrupted.
Ultimately, an estimation of the efforts of the Company in addressing the
Year 2000 issue in a successful and timely manner depends to a large extent not
only on the corrective measures that it undertakes, but also on the efforts
undertaken by businesses and other independent entities who provide data to, or
receive data from, the Company as borrowers,
28
<PAGE> 29
vendors or customers. If the Company's Year 2000 Readiness Program were
unsuccessful, it would have a material adverse effect on its future operating
results and the financial condition. Accordingly, the Company's Board of
Directors is actively involved in monitoring management's efforts to address
Year 2000 readiness and has instructed management to allocate appropriate
resources to address these matters.
Bank regulatory agencies have issued guidance as to the standards they will
use when assessing Year 2000 readiness. The failure of a financial institution,
such as the Company, to take appropriate steps to address deficiencies in their
Year 2000 project management process could result in regulatory enforcement
actions which could have a material adverse effect on the institution, result in
the imposition of civil money penalties, or result in the delay (or receipt of
an unfavorable or critical evaluation of management of a financial institution
in connection with regulatory review) of applications seeking to acquire other
entities or otherwise expand the institution's activities.
The most serious impact on the Company's operations, however, would result
if basic services such as telecommunications, electric power, and services
provided by other financial institutions and governmental agencies were
disrupted. Some public disclosure about readiness preparation among basic
infrastructure and other suppliers is now available; however, the Company is
unable at this time to estimate the likelihood of significant disruptions among
our basic infrastructure suppliers. In view of the unknown probability of
occurrence and impact on operations, the Company considers the loss of basic
infrastructure services to be the most reasonably likely worst case Year 2000
scenario.
Costs to Address the Year 2000 Issue
The Company has made resolution of Year 2000 issues a top priority, and has
committed substantial financial, technical and management resources to the
project.
The Company believes that it will be able to modify or replace any affected
systems in time to minimize any detrimental effects on its operations. The
Company expects that it will incur costs to replace existing hardware and
software which will be capitalized and amortized in accordance with the
Company's existing accounting policy while maintenance or modification costs
will be expensed as incurred. At December 31, 1998, Year 2000 external readiness
expense totaled $5.5 million, nearly all of which was recorded during 1998.
Although total external costs for the entire project have yet to be determined,
the Company expects to incur, as current operating expense (including the above
$5.5 million), costs in the range of $9 to $10 million to assure Year 2000
readiness. This estimate represents an increase over the September 30, 1998
estimate of $7 to $8 million and results primarily from additional third-party
costs to be incurred in the testing phase. These costs and estimates do not
include internal costs incurred for Year 2000 matters. Such internal costs,
which are not separately tracked by the Company, consist principally of payroll
costs of its information systems group. Capital expenditures for new equipment
and software purchases are expected to total an additional $1 million. This
estimate does not include the cost of a number of system installations
previously planned by the Company in the normal course of business. Costs of the
Year 2000 project are based on current estimates and actual results could vary
significantly from such estimates. As a result of the focus on the Year 2000
Readiness Program, the Company has deferred some proposed systems projects but
none that has had or is likely to have a material adverse impact on its
operations.
Contingency Plans
The Company has three types of contingency plans: Remediation, Business
Continuation and Event Management. Remediation Contingency Plans address the
failure to complete remediation of an internal Mission Critical application or
failure of a third-party service provider to complete remediation of a Mission
Critical application. Remediation Contingency Plans for all mission critical
technology systems were completed in 1998. As a result of substantial completion
of the Remediation, Unit Testing and System Implementation segments on mission
critical systems, the number of systems still on the remediation contingency
list is minimal. Business Continuation Plans are based largely on existing
Disaster Recovery Plans, but include additional planning and materials that
address those conditions that are unique to Year 2000. Lastly, the Company is
working on an Event Management Plan that addresses how the Company will manage
risks prior to year end; how it will respond to any infrastructure failures
should they occur during the century change over, and how the Company will
communicate with customers on the status of operations during the end of 1999
through the beginning of 2000. Business Continuation Plans and the basic Event
Management Plan are expected to be completed by June 30, 1999.
Income Taxes
The Company recorded income taxes of $34.4 million compared with $28.6 million
in 1997 due mostly to the higher level of pre-tax income this year. The
effective tax rate for 1998 was 38.3 percent compared with 36.3 percent last
year.
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<PAGE> 30
The effective tax rate in 1998 and 1997 was influenced by $8.1 million and $4.4
million, respectively, in nondeductible acquisition and merger-related expenses.
Excluding such charges, the effective tax rates were 35.2 percent and 34.4
percent, respectively, in 1998 and 1997. This year's effective rate was higher
than 1997 due to utilization of certain net operating loss carryforwards at one
of the acquired institutions last year. Refer to Note 15 to the Notes to
Consolidated Financial Statements of this Form 10-K for a further discussion of
income taxes.
As of December 31, 1998, other assets included deferred tax assets of
approximately $18.5 million, which are expected to be realized against future
taxable income. Management believes that it is more likely than not that the
Company will realize the benefit of these deferred assets.
Fair Value of Financial Instruments
The methods and assumptions used to estimate the fair value of each class of
financial instruments as of December 31, 1998 and 1997, in accordance with SFAS
No. 107, "Disclosures about Fair Value of Financial Instruments," are discussed
in Note 22 to the Notes to Consolidated Financial Statements of this Form 10-K.
Financial Instruments do not include all of the assets and liabilities recorded
on a company's balance sheet. Therefore, the aggregate fair value amounts of the
Financial Instruments do not represent the underlying value of a company.
As a result of those assumptions and valuation methodologies, the estimated
fair value of Financial Instrument assets as of December 31, 1998 and 1997 was
$5.55 billion and $5.28 billion, respectively, or $62 million and $57 million,
respectively, in excess of carrying value. The increase in excess of fair value
over the carrying value of Financial Instrument assets of $5 million is
primarily attributed, in the opinion of management, to lower market interest
rates for loans at year-end 1998. The estimated fair value of Financial
Instrument liabilities as of December 31, 1998 and 1997 was $5.31 billion and
$4.99 billion, respectively, or $11 million and $3 million, respectively, higher
than carrying value. The net increase in fair value of Financial Instrument
liabilities was primarily due to lower rates on certificates of deposit at
year-end 1998 compared with year-end 1997.
comparison of 1997 with 1996
Net Interest Income Analysis
The Company's net interest income on a fully taxable equivalent basis was $231.9
million in 1997, $39.7 million higher than 1996. The increase in net interest
income was due to the additional volume of interest-earning assets and
interest-bearing liabilities assumed in the fourth quarter 1996 acquisition of
twenty banking branches from Bank of Boston Corporation ("Branch Purchase"), and
improvements in earning asset mix and volumes. Market rates were relatively
level during 1997 and not a major factor in the interest margin growth over
1996.
Yield on loans in 1997 was 8.81 percent, down slightly from 8.86 percent a
year earlier, due mostly to external pressure on loan pricing of new loans,
particularly commercial credits. Yield on securities improved from 6.22 percent
to 6.47 percent reflecting the positive impact of a restructuring program under
which lower-yielding securities with higher risk of prepayment were sold during
1997. Yield on earning assets increased 16 basis points from 8.04 percent in
1996 to 8.20 percent in 1997 due to a shift in earning asset mix from securities
to higher yielding loan assets, and from the securities yield improvement. The
cost of interest-bearing liabilities decreased 12 basis points to 4.29 percent.
Deposit costs, the principal component of interest expense, crept downward
during the year from 3.51 percent to 3.35 percent. The rollover of certificates
of deposit at the current lower rates was the largest contributor to the cost of
funds decrease. The combined effect of a higher yield on earning assets with a
lower liabilities cost resulted in improvement in interest margin and spread
from 4.33 percent and 3.63 percent, respectively, in 1996, to 4.64 percent and
3.91 percent, respectively, in 1997.
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<PAGE> 31
The following table attributes changes in interest income and interest
expense to changes in interest rates and changes in the volume of
interest-earning assets and interest-bearing liabilities for the year ended
December 31, 1997 when compared with the year ended December 31, 1996. Changes
attributable to both rate and volume are allocated on a weighted basis.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Increase (Decrease) From Year Ended December 31, 1996
-----------------------------------------------------
Year Ended Amount Due to Changes in
--------------------------------
(Dollars in thousands) December 31, 1997 Total Change Volume Rate
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans* $327,689 $ 55,230 $ 57,439 $(2,209)
Interest on securities:
Taxable 73,935 (4,957) (8,041) 3,084
Nontaxable and preferential rate income* 3,294 753 996 (243)
Interest on federal funds sold and other 5,191 2,400 2,150 250
-------- -------- -------- -------
Total interest income* 410,109 53,426 52,544 882
-------- -------- -------- -------
Interest expense:
Interest on NOW, money market and
regular savings deposits 43,706 9,508 8,414 1,094
Interest on time deposits 88,081 4,618 6,132 (1,514)
Interest on borrowings 46,418 (440) (512) 72
-------- -------- -------- -------
Total interest expense 178,205 13,686 14,034 (348)
-------- -------- -------- -------
Net interest income $231,904 $ 39,740 $ 38,510 $ 1,230
======== ======== ======== =======
</TABLE>
* Fully taxable equivalent at the federal income tax rate of 35 percent and
includes applicable state taxes net of federal benefit. The tax equivalent
adjustment on loans was approximately $.4 million and on nontaxable and
preferential rate income securities was approximately $1.0 million.
- --------------------------------------------------------------------------------
Average earning assets for 1997 were $5.002 billion, $575 million higher
than 1996. Average securities volume decreased $114 million to $1.194 billion
due to the aforementioned portfolio restructuring. Average loan volume increased
21 percent, or $652 million, to $3.718 billion in 1997. The increase in loan
volume reflects the full year average of the loans acquired in the late 1996
Branch Purchase and loan growth during 1997. As noted in the table above, total
interest income increased $52.5 million due to changes in earning asset volume.
Average interest-bearing deposits increased $447 million to $3.328 billion due
to the full year average of deposits acquired in the Branch Purchase and deposit
growth during the year. When combined with a $9 million decrease in average
borrowings, changes in volume of interest-bearing liabilities resulted in an
increase of $14.0 million interest expense over 1996. The net positive
differential between average total earning assets and average total
interest-bearing liabilities increased $137 million in 1997 which also
contributed to the favorable volume-related variance.
Noninterest Income
Total noninterest income was $41.7 million, $1.0 million lower than 1996.
Included in 1997 was $1.2 million in realized securities losses compared with
$1.1 million in realized securities gains in 1996. The 1997 securities losses
reflect the aforementioned portfolio restructuring. Deposit account service
charges increased 35 percent, or $2.8 million, from 1996 to $10.9 million.
Corporate services income, which includes merchant credit card income net of
card processing expense, increased 27 percent, or $1.2 million, to $5.7 million.
The increase in both deposit and corporate fee income reflects the additional
volume of accounts obtained in the December 1996 Branch Purchase and new account
growth in 1997. The 1997 realized gain on the loans held-for-sale portfolio was
$2.2 million compared with a nominal gain in 1996. Other noninterest income
increased $2.0 million from 1996 due primarily to increased Debit Card income, a
new product introduced in late 1996, and the benefit of the larger branch
network and resulting increase in ATM fee income from noncustomer users. Asset
management fees, the largest component of noninterest income, remained
consistent with 1996 at $13.0 million.
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<PAGE> 32
Noninterest Expense
Total noninterest expense was $190.2 million in 1997, an increase of $30.6
million over 1996. The largest component of the increase resulted from charges
related to acquisitions. 1997 included an $11.8 million restructuring charge
consisting of expenses for severance payments to former Walden executives and
staff, write-offs of certain Walden assets and contract buyouts, costs
associated with the conversion of Walden's systems to the Company's operating
systems, and certain other expenses associated with the integration of the
Walden banking subsidiaries. 1997 also included $4.4 million in acquisition and
merger-related expense primarily for professional services paid in connection
with the Walden and Firestone acquisitions. In 1996, acquisition and
merger-related expense was $5.9 million primarily related to the Branch
Purchase. Refer to Notes 2 and 14 of the Notes to Consolidated Financial
Statements for a further discussion of acquisitions.
Salary and employee benefits, occupancy, equipment and furniture expense
increased a combined $15.5 million due mostly to the full year's operation and
support for the twenty banking branches acquired in December 1996. The $4.2
million increase in intangible asset amortization resulted from the premiums
paid in the purchase of the branches and associated assets. Data processing
services expense increased $2.7 million largely as a result of a higher use of
nonaffiliated banks' ATM's by new customers. The increase in advertising and
promotion is consistent with the Company's growth in assets and reflects the
many product promotions in 1997 and the advertising campaign, "THE other BIG
BANK." Deposit insurance premiums decreased from 1996, which included the $5.0
million one-time SAIF assessment. Refer to Note 14 to the Notes to Consolidated
Financial Statements for a further discussion of the one-time SAIF assessment.
Other noninterest expense increased $5.2 million reflecting higher costs
associated with operating an expanded branch network. Communications expenses,
including telephone, stationery and supplies, postage and delivery charges
accounted for most of the other noninterest expense increase.
cautionary statement regarding forward-looking information
The preceding discussion and Notes to Consolidated Financial Statements of this
Form 10-K contain certain forward-looking statements, including without
limitation the statements regarding (i) rates of loan growth and amortization;
(ii) expectations regarding future operating efficiencies; (iii) effects on net
interest margin from changes in market interest rates; (iv) the rate of
delinquencies and amounts of chargeoffs; (v) the level of reserve for possible
loan losses; (vi) the Company's ability to minimize any detrimental effects of
the Year 2000 issue, estimated completion dates of various phases of the Year
2000 Readiness Program, and estimated associated expense; (vii) utilization of
deferred tax assets; (viii) timing of completion of acquisitions; and (ix) the
purchase of a new operations center. Moreover, the Company may from time to
time, in both written reports and oral statements by Company management, express
its expectations regarding future performance of the Company and estimates of
the effects of its acquisition activities. These forward-looking statements are
inherently uncertain and actual results may differ from Company expectations.
Risk factors that could impact current and future performance include but are
not limited to: (i) adverse changes in asset quality and the resulting credit
risk-related losses and expenses; (ii) adverse changes in the economy of the New
England region, the Company's primary market, which could further accentuate
credit-related losses and expenses; (iii) adverse changes in the local real
estate market that can also negatively affect credit risk as most of the
Company's loans are concentrated in Eastern Massachusetts and a substantial
portion of these loans have real estate as primary and secondary collateral;
(iv) the consequences of continued bank acquisitions and mergers in the
Company's market, resulting in fewer but much larger and financially stronger
competitors which could increase competition for financial services to the
Company's detriment; (v) fluctuations in market rates and prices can negatively
affect net interest margin, asset valuations, asset management fees and expense
expectations; (vi) the various risk factors discussed under the caption "Risks
of Year 2000 Issues" of this Form 10-K; and (vii) changes in the regulatory
requirements of federal and state agencies applicable to bank holding companies
and banks, such as the Company and its Subsidiary Banks, which could have a
materially adverse effect on the Company's future operating results.
item 7a. quantitative and qualitative disclosures about market risk
Refer to Management's Discussion and Analysis of Financial Condition and Results
of Operations of this Form 10-K under "Interest Rate Risk" for a discussion of
market risk.
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item 8. financial statements and supplementary material
<TABLE>
<CAPTION>
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index to financial statements
- -------------------------------------------------------------------------------------------------------------------------
Financial Statements Page
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<S> <C>
Report of Independent Public Accountants 34
Consolidated Balance Sheets - December 31, 1998 and 1997 36
Consolidated Statements of Income for the Years Ended December 31, 1998, 1997 and 1996 37
Consolidated Statements of Changes in Stockholders' Investment for the Years Ended December 31, 1998, 1997 and 1996 38
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 39
Notes to Consolidated Financial Statements 40
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 34
report of independent public accountants
To the Stockholders and Board of Directors of UST Corp.:
We have audited the accompanying consolidated balance sheets of UST Corp. and
subsidiaries (a Massachusetts corporation) as of December 31, 1998 and 1997, and
the related consolidated statements of income, changes in stockholders'
investment and cash flows for each of the three years in the period ended
December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the financial statements of the Somerset Savings Bank as of December
31, 1997 and for each of the two years in the period ended December 31, 1997, a
bank acquired during 1998 in a transaction accounted for as a pooling of
interests, as discussed in Note 2 to the Notes to Consolidated Financial
Statements. Such statements are included in the consolidated financial
statements of UST Corp. and subsidiaries and reflect total assets of 9.8 percent
in 1997 and net interest income of 8.6 percent and 9.7 percent, respectively, in
1997 and 1996 of the related consolidated totals. These statements were audited
by other auditors whose report has been furnished to us and our opinion on the
consolidated financial statements of UST Corp. and subsidiaries for the years
ending December 31, 1997 and 1996, insofar as it relates to amounts included for
the Somerset Savings Bank, is based solely upon the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements were
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits and
the report of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of UST Corp. and subsidiaries as of
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
s/ Arthur Andersen LLP
Boston, Massachusetts
January 28, 1999
34
<PAGE> 35
report of independent public accountants
To the Stockholders and Board of Directors of Somerset Savings Bank:
We have audited the consolidated balance sheet of Somerset Savings Bank and
subsidiaries as of December 31, 1997, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for each of the years in
the two-year period ended December 31, 1997. These consolidated financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Somerset
Savings Bank and subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
s/ Wolf & Company, P.C.
Boston, Massachusetts
January 23, 1998
35
<PAGE> 36
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
consolidated balance sheets
- -------------------------------------------------------------------------------------------------------------------------------
December 31,
-----------------------
(Dollars in thousands, except share amounts) 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash, due from banks and interest-bearing deposits (Note 4) $ 126,861 $ 120,521
Federal funds sold and other short-term investments 7,969 81,000
Securities (Notes 1 and 5):
Securities available-for-sale:
Mortgage-backed securities 1,077,543 535,714
U.S. Treasury, federal agencies and other securities 212,074 411,722
---------- ----------
Total securities available-for-sale 1,289,617 947,436
Securities held-to-maturity (market value $261,951) 260,307
---------- ----------
Total securities 1,289,617 1,207,743
Loans (Notes 6, 18, and 20):
Loans, net of unearned discount of $42,779 in 1998 and $32,406 in 1997 4,296,103 3,967,529
Reserve for possible loan losses (65,274) (68,539)
---------- ----------
Total loans, net 4,230,829 3,898,990
Premises, furniture and equipment, net (Note 7) 90,424 85,692
Intangible assets, net (Note 1) 51,959 58,991
Other property owned, net (Notes 1 and 8) 4,660 7,046
Other assets (Notes 12 and 15) 98,558 72,995
---------- ----------
Total Assets $5,900,877 $5,532,978
========== ==========
Liabilities and Stockholders' Investment
Deposits:
Noninterest-bearing $ 847,341 $ 781,926
Interest-bearing:
NOW 69,739 128,293
Money market 964,705 786,358
Regular savings 962,852 866,164
Time:
Certificates of deposit over $100 thousand (Note 9) 300,543 326,102
Other (Note 9) 1,088,491 1,276,697
---------- ----------
Total deposits 4,233,671 4,165,540
Short-term borrowings (Note 10) 986,082 619,381
Other borrowings (Note 11) 76,043 196,845
Other liabilities (Notes 12 and 15) 71,536 62,156
---------- ----------
Total liabilities 5,367,332 5,043,922
Commitments and contingencies (Notes 19 and 20)
Stockholders' investment (Notes 1 and 17):
Preferred stock $1 par value; authorized - 4,000,000 shares; outstanding - none
Common stock $0.625 par value; authorized - 75,000,000 shares and 45,000,000 shares in 1998 and
1997, respectively; Issued - 42,824,177 and 42,446,618 shares in 1998 and 1997, respectively 26,765 26,528
Additional paid-in capital 201,936 195,047
Retained earnings 300,003 268,049
Accumulated other comprehensive income 7,563 3,164
Treasury stock at cost: 80,451 shares and 348,975 shares in 1998 and 1997, respectively (1,866) (3,402)
Other (856) (330)
---------- ----------
Total stockholders' investment 533,545 489,056
---------- ----------
Total liabilities and stockholders' investment $5,900,877 $5,532,978
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
36
<PAGE> 37
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
consolidated statements of income
- ----------------------------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------
(Dollars in thousands, except share amounts) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $351,753 $327,308 $271,984
Interest and dividends on securities:
Taxable 70,645 73,935 78,892
Nontaxable and preferential rate income 2,337 2,301 1,745
Interest on federal funds sold and other short-term investments 3,910 5,191 2,791
-------- -------- --------
Total interest income 428,645 408,735 355,412
-------- -------- --------
Interest expense:
Interest on deposits 130,100 131,787 117,661
Interest on borrowings 46,230 46,418 46,858
-------- -------- --------
Total interest expense 176,330 178,205 164,519
-------- -------- --------
Net interest income 252,315 230,530 190,893
Provision (credit) for possible loan losses (Note 6) 2,239 3,100 (15,495)
-------- -------- --------
Net interest income after provision for possible loan losses 250,076 227,430 206,388
-------- -------- --------
Noninterest income:
Asset management fees 15,204 13,093 12,947
Deposit account service charges 12,049 10,871 8,059
Corporate services income, net 6,156 5,689 4,471
Securities gains (losses), net 3,927 (1,241) 1,132
Gain on sale of loans 658 2,185 121
Gain on sale of bank subsidiary 6,806
Other 10,810 11,077 9,100
-------- -------- --------
Total noninterest income 48,804 41,674 42,636
-------- -------- --------
Noninterest expense:
Salary and employee benefits 98,052 91,483 80,700
Occupancy, net 16,065 15,334 12,985
Restructuring charges (Notes 2 and 14) 11,505 11,751
Equipment depreciation and maintenance 10,890 9,126 6,778
Data processing services 9,013 7,143 4,477
Acquisition and merger-related expense (Notes 2 and 14) 8,071 4,418 5,933
Intangible asset amortization 6,697 7,142 2,910
Advertising and promotion 5,536 5,998 4,953
Professional and consulting fees 5,430 6,415 7,009
Year 2000 readiness expense 5,381 100
Foreclosed asset and workout expense 3,384 2,474 4,544
Deposit insurance assessment 1,794 2,116 7,859
Other 27,415 26,744 21,501
-------- -------- --------
Total noninterest expense 209,233 190,244 159,649
-------- -------- --------
Income before income taxes 89,647 78,860 89,375
Income tax provision (Note 15) 34,361 28,644 32,762
-------- -------- --------
Net income $ 55,286 $ 50,216 $ 56,613
======== ======== ========
Per share data (Note 16):
Basic earnings per share $ 1.30 $ 1.20 $ 1.38
Diluted earnings per share $ 1.28 $ 1.18 $ 1.35
Cash dividends declared $ 0.54 $ 0.38 $ 0.29
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
37
<PAGE> 38
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
consolidated statements of changes in stockholders' investment
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Additional Other
Comprehensive Common Paid-in Retained Comprehensive Treasury
(Dollars in thousands) Income (Loss) Stock Capital Earnings Income (Loss) Stock Other Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995,
as previously stated
in the 1997 Form 10-K $ 18,138 $ 111,629 $ 147,415 $ 1,067 $ 144 $ 278,393
Adjustments for the
Somerset Saving
Bank pooling of
interests (Note 2) 1,978 33,271 (8,214) 27,035
Adjustments for the
Affiliated Community
Bancorp, Inc. pooling
of interests (Note 2) 5,835 42,481 51,563 90 (679) 99,290
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1995,
as restated 25,951 187,381 190,764 1,157 (535) 404,718
Comprehensive income (Note 1):
Net income $ 56,613 56,613 56,613
Other comprehensive income:
Unrealized securities
losses, net of $2,934
tax benefit (3,603)
Less: Reclassification
of securities gains
included in net income,
net of $470 tax expense 662
---------
Total other
comprehensive
income (4,265) (4,265) (4,265)
---------
Total
comprehensive
income $ 52,348
=========
Cash dividends declared (11,911) (11,911)
Treasury stock acquired (13,994) (13,994)
Activity related to stock
option, restricted stock
and stock purchase plans 229 (173) (1,738) 10,450 (910) 7,858
Other stockholders'
investment activity 16 543 34 142 517 1,252
--------- --------- --------- --------- --------- --------- ---------
Balance, December 31, 1996 26,196 187,751 233,762 (3,108) (3,402) (928) 440,271
Comprehensive income (Note 1):
Net income $ 50,216 50,216 50,216
Other comprehensive income:
Unrealized securities
gains, net of $3,699
tax expense 5,546
Less: Reclassification
of securities losses
included in net
income, net of $515
tax benefit (726)
---------
Total other
comprehensive
income 6,272 6,272 6,272
---------
Total comprehensive
income $ 56,488
=========
Cash dividends declared (15,980) (15,980)
Stock issued under stock
option, restricted stock
and stock purchase plans 332 6,936 7,268
Other stockholders'
investment activity 360 51 598 1,009
--------- --------- --------- --------- --------- --------- ---------
Balance, December 31, 1997 26,528 195,047 268,049 3,164 (3,402) (330) 489,056
Comprehensive income (Note 1):
Net income $ 55,286 55,286 55,286
Other comprehensive income:
Unrealized securities
gains, net of $4,635
tax expense 6,696
Less: Reclassification
of securities gains
included in net
income, net of
$1,630 tax expense 2,297
---------
Total other
comprehensive
income 4,399 4,399 4,399
---------
Total comprehensive
income $ 59,685
=========
Treasury stock retired in
connection with
acquisition of Affiliated (3,402) 3,402
Cash dividends declared (23,126) (23,126)
Activity related to stock
option, restricted stock
and stock purchase plans 237 9,763 513 10,513
Treasury stock acquired (2,379) (2,379)
Other stockholders'
investment activity 528 (206) (526) (204)
--------- --------- --------- --------- --------- --------- ---------
Balance, December 31, 1998 $ 26,765 $ 201,936 $ 300,003 $ 7,563 $ (1,866) $ (856) $ 533,545
========= ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
38
<PAGE> 39
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
consolidated statements of cash flows
- --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------
(Dollars in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 55,286 $ 50,216 $ 56,613
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (credit) for possible loan losses 2,239 3,100 (15,495)
Depreciation and amortization of fixed and intangible assets 17,840 15,815 9,817
(Accretion) amortization of securities discount or premium, net (623) 255 470
Gain on sale of bank subsidiary (6,806)
Securities (gains) losses, net (3,927) 1,241 (1,132)
Loss (gain) on sale of other property owned, net 393 (459) (923)
Gain on sale of loans held-for-sale (658) (2,185) (121)
Writedowns of other property owned 2,726 1,353 1,616
Writedowns of fixed assets and other assets, net 2,596 1,158
Deferred income tax (benefit) expense (6,442) 4,047 4,541
Net change in other assets and other liabilities (12,741) (13,270) 24,849
--------- --------- ---------
Net cash provided by operating activities 56,689 61,271 73,429
Cash flows from investing activities:
Proceeds from sales of securities available-for-sale 353,257 297,735 55,046
Proceeds from maturities of securities available-for-sale 207,559 235,592 224,760
Proceeds from maturities of securities held-to-maturity 139,886 91,505 100,464
Purchases of securities available-for-sale (766,733) (465,247) (321,528)
Purchases of securities held-to-maturity (19,011) (91,672) (140,156)
Net decrease (increase) in federal funds sold and other 69,738 67,365 (114,167)
Net increase in loans (349,488) (392,257) (218,256)
Proceeds from other property owned 8,877 12,251 12,578
Net cash proceeds from sale of bank subsidiary (Note 2) 7,795 11,989
Net cash acquired from Branch Purchase (Note 2) 176,862
Net purchases of premises and equipment (16,098) (14,009) (14,967)
--------- --------- ---------
Net cash used by investing activities (364,218) (258,737) (227,375)
Cash flows from financing activities:
Net increase in nontime deposits 284,654 174,652 57,879
Net (decrease) increase in certificates of deposit (198,823) 37,600 21,590
Net increase (decrease) in borrowings 245,899 (42,424) 102,207
Cash dividends paid (21,268) (14,703) (10,468)
Treasury stock acquired (2,379) (13,994)
Issuance of common stock for cash, net 5,786 4,049 8,709
--------- --------- ---------
Net cash provided by financing activities 313,869 159,174 165,923
Increase (decrease) in cash and cash equivalents 6,340 (38,292) 11,977
Cash and cash equivalents at beginning of period 120,521 158,813 146,836
--------- --------- ---------
Cash and cash equivalents at end of period $ 126,861 $ 120,521 $ 158,813
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 171,856 $ 176,839 $ 164,541
========= ========= =========
Income taxes $ 36,853 $ 22,148 $ 29,103
========= ========= =========
Noncash transactions:
Transfers from other assets to securities available-for-sale $ 180 $ 4,180
========= =========
Transfers from securities held-to-maturity to available-for-sale (Note 1) $ 168,245 $ 145,564
========= =========
Transfers from loans to other property owned $ 14,531 $ 11,652 $ 11,117
========= ========= =========
Securitization and transfer of loans to securities available-for-sale $ 2,326
=========
Financed other property owned sales $ 162 $ 2,047
========= =========
Common stock issuance $ 4,727 $ 1,299 $ 634
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
39
<PAGE> 40
notes to consolidated financial statements, december 31, 1998
note 1. nature of operations and summary of significant accounting policies
UST Corp. is a bank holding company with two banking subsidiaries:
USTrust, the largest banking subsidiary, which represents 99 percent of the
Company's total assets, and United States Trust Company ("USTC"), each
headquartered in Boston, Massachusetts. UST Corp. and its banking and nonbanking
subsidiaries (the "Company") provide a broad range of financial services
principally to individuals and small- and medium-sized companies in the New
England region. Included in these services are commercial banking, retail
consumer financial services, trust and money management, and equipment leasing.
The Company, through its banking subsidiaries, presently operates 87 banking
branches and 117 automated teller and cash dispensing machines throughout
eastern Massachusetts.
The accounting and reporting policies of the Company conform with
generally accepted accounting principles and general practice in the banking
industry. The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reporting and disclosure of assets and liabilities,
including those that are of a contingent nature at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
significant accounting and reporting policies of the Company are summarized
below.
Principles of Consolidation
The consolidated financial statements include the accounts of UST Corp.
and its wholly-owned subsidiaries. All material intercompany balances and
transactions have been eliminated. The parent company only financial statements
contained in Note 21 reflect investments in subsidiaries using the equity method
of accounting.
Certain reclassifications have been made to prior year balances to conform
with the current year presentation. All applicable prior-period amounts included
in these financial statements have been restated to reflect the January 3, 1997
acquisition of Walden Bancorp, Inc. ("Walden"), the October 15, 1997 acquisition
of Firestone Financial Corp. ("Firestone"), the July 20, 1998 acquisition of
Somerset Savings Bank ("Somerset"), and the August 7, 1998 acquisition of
Affiliated Community Bancorp, Inc. ("Affiliated") as poolings of interests.
Refer to Note 2 for a further discussion of acquisitions. Assets owned by others
and held in a fiduciary or agency capacity are not included in the consolidated
balance sheets.
Securities
The Company classifies investments in debt and equity securities in accordance
with Statement of Financial Accounting Standards No. 115 ("SFAS No. 115"),
"Accounting for Certain Investments in Debt and Equity Securities." This
Statement addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments in
debt securities. Under this statement such securities are classified as
held-to-maturity, trading, or available-for-sale.
Securities Held-to-Maturity - Debt securities which management has the
positive intent and ability to hold to maturity are classified as
held-to-maturity, and are carried at cost adjusted for the amortization of
premium or the accretion of discount. Securities classified by the Company as
held-to-maturity were $260 million at December 31, 1997. All of the year-end
1997 held-to-maturity securities were owned by Somerset and Affiliated and were
redesignated as available-for-sale upon the closing of the Somerset and
Affiliated acquisitions as allowed under SFAS No. 115.
Trading Securities - Debt and equity securities with readily determinable
market values that are bought and held principally for the purpose of selling
them in the near term are classified as trading securities and are carried at
fair value, with unrealized gains and losses included in current earnings. At
December 31, 1998 and 1997, there were no securities classified by the Company
as trading.
Securities Available-for-Sale - Debt and equity securities not classified
as either held-to-maturity or trading are classified as available-for-sale and
carried at fair value, with unrealized gains and losses reported as a separate
component of stockholders' investment, net of tax. At December 31, 1998,
stockholders' investment included an unrealized gain of $7.6 million net of a
deferred tax provision of $5.3 million.
For mortgage-backed securities, the Company recalculates the effective
yield on the investment to reflect the actual prepayment results and estimated
future prepayments. The net investment in these securities is adjusted to the
amount that would have existed had the new estimated average life and effective
yield been applied since the acquisition of the securities. Such adjustments are
reflected in interest income in the current period.
40
<PAGE> 41
The Company determines the securities sold by the specific identification
method. The amount of taxes paid on gains is dependent upon the overall results
of operations of the subsidiary realizing the gain. Realized gains and losses,
and declines in value judged to be other than temporary are included in
noninterest income as securities gains (losses).
Loans Held-for-Sale
Loans held-for-sale are carried at the lower of aggregate cost or market value
and included in other assets. Adjustments to market value and realized gains and
losses are classified as noninterest income. The balances of loans held-for-sale
were insignificant at December 31, 1998 and 1997.
Premises, Furniture and Equipment
Premises, furniture and equipment are stated at cost, less accumulated
depreciation and amortization. The Company provides for depreciation using the
straight-line method by charges to expense in amounts estimated to amortize the
cost over the estimated useful lives of the respective assets as follows:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Buildings and building improvements 10-40 years
Computer equipment 3-5 years
All other furniture and equipment 3-10 years
- --------------------------------------------------------------------------------
</TABLE>
Leasehold improvements are amortized over the life of the lease agreements.
Loans and Leases
Commercial and commercial real estate loans that are recognized by the Company
as nonaccrual and restructured are classified as "impaired loans" by the
Company. Consumer loans and lease financings recognized as nonaccrual are
collectively evaluated for impairment, and are excluded from impaired loans in
accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan." Loan impairment is 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.
Loans are stated at their principal amount net of unearned discount, if
any. Certain loans are made on a discounted basis. The unearned discount
applicable to such loans is recorded as income monthly by use of the actuarial
method. Interest income on nondiscounted loans is accrued based on the principal
amount of loans outstanding. Loans and leases are placed on nonaccrual, with the
reversal of all uncollected accrued interest, when there is doubt as to the
collectibility of interest or principal or if loans or leases are 90 days or
more past due unless they are both well secured and in the process of
collection. In every case, a loan or lease reaching 180 days past due is placed
on nonaccrual. Interest received on impaired loans, nonaccrual leases and
nonaccrual consumer loans is applied to principal if collection of principal is
doubtful; otherwise, it is reflected in interest income on a cash basis.
Restructured loans are those on which concessions in terms have been
granted as a result of deterioration of a borrower's financial condition and for
which doubt no longer exists as to collectibility of restructured principle or
interest. Interest on these loans is accrued at the new terms.
Discount and premiums on purchased loans are amortized to income using the
interest method over the remaining period to contractual maturity, adjusted for
anticipated prepayments.
Reserve for Possible Loan Losses
The reserve for possible loan losses is maintained at a level considered
adequate by management to provide for possible losses from loans and leases.
Adequacy of the reserve is determined by management using a consistent,
systematic methodology which analyzes the size and risk of the loan and lease
portfolio. Factors include historical loss experience and asset quality, as
reflected by delinquency trends, nonaccrual and restructured loans and the
Company's credit risk rating profile. Consideration is also given to the current
and expected economic conditions and, in particular, how such conditions affect
the types of credits in the portfolio and the market area in general. The
analysis includes sensitivity testing and supports a written conclusion. The
reserve is based on estimates, and ultimate losses may vary from current
estimates. These estimates are reviewed periodically and, as adjustments become
necessary, they are reported in earnings in the current period.
When a loan, classified as impaired or otherwise, or a lease, or portion
thereof, is considered uncollectible, it is charged against the reserve.
Recoveries on amounts previously charged off are added to the reserve when
collected. Amounts are charged off once the probability of loss has been
established, after having given consideration to such factors as level of
collateral and guarantees, prospective economic conditions and financial
strength of the customer.
41
<PAGE> 42
notes to consolidated financial statements, december 31, 1998
Other Property Owned
Other property owned consists of equipment, vehicles and other real estate owned
("OREO"). OREO includes properties acquired through foreclosure or in settlement
of loans. All OREO is held for sale and carried at the lower of the loan value
or fair value of the property acquired, less estimated costs to sell ("net
realizable value"). At the time of foreclosure, the excess, if any, of the loan
value over the net realizable value, is charged to the reserve for possible loan
losses. The carrying value of OREO is reviewed periodically. Subsequent declines
in the fair value of the property and net operating results of the property are
charged to foreclosed asset and workout expense.
Other vehicles owned are acquired through repossession or in settlement of
loans or leases. Repossessed vehicles are carried at the lower of the net
investment in the loan or lease, or the estimated proceeds from insurance and
sale at auction.
Other equipment owned is acquired through repossession or in settlement of
loans or leases. The equipment is carried at the lower of the net investment in
the loan or lease, or the estimated fair value of the equipment less estimated
selling costs.
Stock-based Compensation
On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-based Compensation," which establishes a fair value-based method of
accounting for stock options and similar equity instruments of employee stock
compensation plans. This Statement provides the option of adopting the new fair
value method or to continue to measure compensation cost for those plans using
the current intrinsic value-based method as prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB No.
25"). Under this Statement, the continued use of the intrinsic value-based
method, requires pro forma disclosure of net income and earnings per share as if
the fair value-based method had been applied. The Company continues to use the
intrinsic value-based method under the provisions of APB No. 25 and has
disclosed the required pro forma information in Note 13.
Income Taxes
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
income tax provision.
Intangible Assets
Intangible assets include goodwill and core deposit intangibles and are stated
at cost less accumulated amortization. Cost of purchased businesses in excess of
net assets acquired ("goodwill") includes amounts being amortized using lives
ranging from twelve- to twenty-five years with an insignificant amount at forty
years. Values assigned to deposits of purchased businesses ("core deposit
intangibles") are being amortized over seven- and fifteen-year periods using an
accelerated method.
On a periodic basis, the Company reviews its goodwill and core deposit
intangible assets for events or changes in circumstances that may indicate that
the carrying amount of the assets may not be recoverable, and, if appropriate,
reduces the carrying amount through a charge to income in accordance with SFAS
No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of."
Goodwill, net of accumulated amortization totaled $30.3 million and $32.8
million at December 31, 1998 and 1997, respectively. Core deposit intangibles,
net of accumulated amortization totaled $20.9 million and $24.9 million at
December 31, 1998 and 1997, respectively.
Statements of Cash Flows
For the purpose of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and interest-bearing deposits.
Recent Accounting Developments
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), which
requires companies to report all changes in stockholders' investment during a
period, except those resulting from investment by owners and distribution to
owners, in a financial statement for the period in which they are recognized.
The Company has chosen, as allowed by SFAS No. 130, to disclose Comprehensive
Income, which encompasses net income and unrealized gains or losses on
securities available-for-sale, in the Consolidated Statements of Changes in
Stockholders' Investment. Prior years have been presented to conform to SFAS No.
130 requirements. The impact of this Statement for the year ended December 31,
1998 was to increase
42
<PAGE> 43
reported net income of $55.3 million to a total comprehensive net income of
$59.7 million. The impact for the year ended December 31, 1997 was to increase
reported net income of $50.2 million to a total comprehensive net income of
$56.5 million and for the year ended December 31, 1996, a decrease from $56.6
million to $52.3 million.
On December 31, 1998, the Company adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." This Statement changes the
way public companies report segment information in annual financial statements
and requires public companies to report selected segment information in interim
financial reports to shareholders. Under the Statement's "management approach,"
public companies are to report financial and descriptive information about their
operating segments. Operating segments are components of an enterprise for which
separate financial information is produced internally and are subject to
evaluation by the chief operating decision maker in deciding how to allocate
resources to segments and assess segment performance. Refer to Note 3 for the
additional disclosures under this Statement.
Also, on January 1, 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This Statement
does not change the recognition or measurement associated with pension or
postretirement plans. It standardizes certain disclosures, requires additional
information about changes in the benefit obligations and about change in the
fair value of plan assets to facilitate analysis, and it eliminates certain
disclosures that were not deemed useful. Refer to Note 12 for the disclosures
required under this Statement.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position of 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
requires computer software costs associated with internal use software to be
expensed as incurred until certain capitalization criteria are met. SOP 98-1 is
effective for financial statements for fiscal years beginning after December 15,
1998. The Company does not believe that adoption of SOP 98-1 will have a
material impact on the Company's financial position or results of operations.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5 requires all costs
associated with pre-opening, pre-operating and organization activities to be
expensed as incurred. SOP 98-5 is effective for financial statements for fiscal
years beginning after December 15, 1998. The Company does not believe that
adoption of SOP 98-5 will have a material impact on the Company's financial
position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments and hedging activities. The
Statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The Company does not expect that the adoption of this Statement
will have a material impact on the Company's financial position or results of
operations.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." This Statement further amends
SFAS No. 65, "Accounting for Certain Mortgage Banking Activities," as amended by
SFAS No. 115 and SFAS No. 125. This Statement requires that after the
securitization of mortgage loans held for sale, an entity engaged in mortgage
banking activities classify the resulting mortgage-backed securities or other
retained interests based on its ability and intent to sell or hold those
investments. This Statement is effective for the first fiscal quarter beginning
after December 15, 1998. The Company does not expect that the adoption of this
Statement will have a material impact on the Company's financial position or
results of operations.
note 2. acquisitions and divestitures
Branch Purchase
In the fourth quarter of 1996 the Company completed its acquisition of twenty
banking branches (the "Branch Purchase") from The First National Bank of Boston
("FNBB"), BayBank, N.A. ("BayBank") and their parent company, Bank of Boston
Corporation. The transaction included the assumption of approximately $149
million in noninterest-bearing deposits, $378 million in savings deposits, $140
million of certificates of deposit, $77 million of repurchase agreements, $8
million in premises and equipment, and $508 million in commercial, residential
real estate, and other loans. USTrust paid a premium equal to 7 percent of
average deposit liabilities assumed or approximately $49 million.
UST Bank/Connecticut
In November 1996, the Company completed the sale of its Connecticut banking
subsidiary, UST Bank/Connecticut ("UST/Conn"). The Company received cash of $13
million representing UST/Conn's capital plus a deposit premium of 7 percent and
recorded a $6.8 million gain on the sale in noninterest income. The positive
effect on capital from
43
<PAGE> 44
notes to consolidated financial statements, december 31, 1998
the gain and cash proceeds received in the sale transaction provided the Company
with a portion of the necessary funds to contribute capital to USTrust to
facilitate the aforementioned Branch Purchase. At the time of the sale, UST/Conn
had total assets of $107 million, including loans of $70 million, securities of
$22 million and federal funds sold of $15 million. Liabilities totaled $101
million and included noninterest-bearing deposits of $22 million, $41 million in
savings deposits, certificates of deposit of $32 million and $4 million in other
borrowings.
Walden Bancorp, Inc.
On January 3, 1997, the Company completed its acquisition of Walden Bancorp,
Inc. ("Walden"), a $1.0 billion multi-bank holding company headquartered in
Acton, Massachusetts. The transaction was accounted for as a pooling of
interests and was structured as a tax-free exchange of 1.9 shares of the
Company's common stock for each share of Walden common stock. The Company's
outstanding stock increased by 10,125,540 shares to a total of 28,144,163 shares
on the date of acquisition. Based on the closing price of the Company's stock as
of January 3, 1997, the market value of the shares exchanged totaled $207
million. Walden's two subsidiary banks, The Braintree Savings Bank and The
Co-operative Bank of Concord operated a total of seventeen branches located in
the Massachusetts counties of Middlesex, Norfolk and Plymouth. The Co-operative
Bank of Concord and the Braintree Savings Bank were merged into and with USTrust
in the second quarter of 1997. In 1997, the Company recognized a nondeductible
charge of $2.9 million in acquisition and merger-related expense and a pre-tax
$11.8 million restructuring charge associated with the transaction. Also, upon
the completion of the acquisition, the Company redesignated $146 million of
former Walden securities from the held-to-maturity classification to securities
available-for-sale.
Firestone Financial Corp.
On October 15, 1997, the Company completed its acquisition of Firestone
Financial Corp. ("Firestone"), an $85 million small business equipment finance
company headquartered in Newton, Massachusetts. The transaction was accounted
for as a pooling of interests and was structured as a tax-free exchange of 0.59
shares of the Company's common stock for each share of Firestone common stock.
The Company's outstanding stock increased by 1,180,000 to a total of 29,716,593
shares on the date of acquisition. Based on the closing price of the Company's
stock as of October 15, 1997, the market value of the shares exchanged totaled
$31 million. Firestone operates as a wholly-owned subsidiary of USTrust. The
Company recognized a nondeductible charge of $1.0 million in acquisition and
merger-related expenses associated with the transaction.
Somerset Savings Bank
On July 20, 1998, the Company completed its acquisition of Somerset Savings Bank
("Somerset"), a $524 million Massachusetts savings bank headquartered in
Somerville. The transaction was accounted for as a pooling of interests and was
structured as a tax-free exchange of 0.19 shares of the Company's common stock
for each share of Somerset common stock. The Company's outstanding stock
increased by 3,203,373 shares to a total of 33,100,551 shares on the date of
acquisition. Based on the closing price of the Company's stock as of July 20,
1998, the market value of the shares exchanged totaled $88.9 million. Somerset
operated six branches in Middlesex County. At the date of acquisition, Somerset
was merged with and into USTrust. Also, upon the completion of the acquisition,
the Company redesignated approximately $82 million of former Somerset securities
from the held-to-maturity classification to securities available-for-sale.
Affiliated Community Bancorp, Inc.
On August 7, 1998, the Company completed its acquisition of Affiliated Community
Bancorp, Inc. ("Affiliated"), a $1.1 billion multi-bank holding company
headquartered in Waltham, Massachusetts. The transaction was accounted for as a
pooling of interests and was structured as a tax-free exchange of 1.41 shares of
the Company's common stock for each share of Affiliated common stock. The
Company's outstanding stock increased by 9,439,735 shares to a total of
42,542,386 shares on the date of acquisition. Based on the closing price of the
Company's stock as of August 7, 1998, the market value of the shares exchanged
was $225 million. Affiliated's three subsidiary banks, The Federal Savings Bank
("Federal"), Lexington Savings Bank ("Lexington") and Middlesex Bank & Trust
Company ("Middlesex"), operated a total of thirteen branch offices in Middlesex
County. In the fourth quarter of 1998, Federal and Lexington were merged with
and into USTrust. As contemplated by the terms of the agreement under which the
Affiliated acquisition was consummated, in August 1998, Middlesex Bank and Trust
Company, a $28 million bank, was sold for $8.24 million to a private investor
unaffiliated with the Company. Upon the completion of the Affiliated
acquisition, the Company redesignated approximately $86 million of former
Affiliated securities from the held-to-maturity classification to securities
44
<PAGE> 45
available-for-sale. The Company recognized a nondeductible charge of $8.1
million in acquisition and merger-related expense and a pre-tax $11.5 million
restructuring charge associated with the Somerset and Affiliated acquisition
transactions.
The following presentation reflects key line items on a historical basis
for Somerset, Affiliated and UST Corp. and on a pro forma combined basis
assuming the mergers were in effect for the periods presented:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Historical Historical Historical UST Corp.
(Dollars in thousands, except share amounts) UST Corp. Somerset Affiliated Restated
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Six months ended June 30, 1998
Net interest income $ 95,731 $ 10,909 $ 18,211 $ 124,851
Net income 25,390 4,376 6,418 36,184
Net income per diluted share 0.83 0.26 0.94 0.84
Total assets 3,915,358 524,149 1,122,980 5,562,487
Total deposits 2,991,896 444,182 733,848 4,169,926
Total shareholders' investment 362,099 40,485 119,083 521,667
Year ended December 31, 1997
Net interest income $ 175,205 $ 19,826 $ 35,499 $ 230,530
Net income 32,393 5,967 11,856 50,216
Net income per diluted share 1.08 0.35 1.78 1.18
Total assets 3,838,258 539,672 1,155,048 5,532,978
Total deposits 2,978,215 455,886 731,439 4,165,540
Total shareholders' investment 340,126 35,877 113,053 489,056
Year ended December 31, 1996
Net interest income $ 141,086 $ 18,530 $ 31,277 $ 190,893
Net income 45,277 2,813 8,523 56,613
Net income per diluted share 1.53 0.17 1.32 1.35
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Brewer & Lord LLP - Pending
On December 17, 1998, the Company announced the execution of a definitive
agreement under which USTrust will acquire Brewer & Lord LLP, an independent
insurance agency headquartered in Norwell, Massachusetts. The purchase of Brewer
& Lord is structured as an all-cash transaction and is expected to close in the
second quarter of 1999. Through its nine offices, Brewer & Lord specializes in
providing personal, commercial and employee benefit-related insurance products
to consumers and medium-size and large business located primarily in eastern
Massachusetts. The acquisition is subject to the approval of the Massachusetts
Commissioner of Banks and the Massachusetts Commissioner of Insurance. Under the
agreement, Brewer & Lord will operate as a wholly-owned subsidiary of USTrust.
note 3. business segments
The Company provides a broad range of financial services to individuals and
small- and medium-sized companies. It services a single geographic area, the New
England region with its principal customer base in eastern Massachusetts. The
Company's operations include three reportable "operating segments," Retail
Banking, Commercial Banking and Treasury, all organized around products and
services. Retail Banking services include direct and indirect consumer loans and
leasing, consumer deposit products, residential loans, private banking and
mutual funds. Commercial Banking provides a broad range of financial services
principally to small- and medium-sized companies. Such services include
commercial lending, real estate financing, construction lending, cash management
services, merchant services, government banking and international trade
services. The Treasury group is charged with asset/liability risk management of
the Company, including the securities portfolio and interest-bearing
liabilities.
The information presented herein includes allocations of income or expense
on excess funds used/provided at a market rate of interest to reflect the value
of the net funds each segment provides or uses in its operations. The rate is
applied without regard to differences in the risk profile of the operating
segments. A provision for possible loan losses is assigned to units involved in
credit extension based upon management's expectation of normalized losses.
Operating expenses of the Company's support groups, including Data
Processing, Finance, Legal, Human Resources, among others, are charged to
business segments based on allocation criteria determined by the Company.
Federal and
45
<PAGE> 46
notes to consolidated financial statements, december 31, 1998
state income taxes are applied using the Company's consolidated effective tax
rate. Assets of business segments that are net fund providers reflect the excess
funds sold balances in their respective asset balances while net funds users
reflect excess funds purchased as a part of liability balances. Expenditures for
additions to long-lived assets are not material. No one customer is responsible
for more than 10 percent of revenues. Operating segment interest income is
reported net of interest expense consistent with Company methodology.
The historical financial results prior to merger and/or system conversions
of acquired institutions accounted for as poolings of interest are not combined
with the Company's operating segment results. Such segment information is not
readily determinable. Therefore, the operating segment financial information
presented is not indicative of segment results for a full year or any interim
period.
Exhibited in the table below is selected financial information by
operating segment and a reconciliation of the reportable segment data to the
Company's consolidated total for each of the three years ended December 31,
1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Retail Commercial Reconciliation UST Corp.
(Dollars in thousands) Banking Banking Treasury All Other (1) Column (2) Acquisitions (3) Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Net interest income -
external sources $ 51,265 $ 101,189 $ 40,057 $ 10,728 $ 2,319 $ 46,757 $ 252,315
Interest on funds (used)/
provided - internal
transactions 64,587 (19,157) (33,996) (657) (10,777)
---------- ---------- ---------- -------- ----------- ---------- ----------
Total net interest
income 115,852 82,032 6,061 10,071 (8,458) 46,757 252,315
Noninterest income 17,129 8,672 845 17,997 722 3,439 48,804
Income taxes 13,828 14,441 2,385 4,468 (6,852) 6,091 34,361
Net income 21,626 22,588 3,731 7,061 (9,248) 9,528 55,286
Total assets (4) 3,844,200 1,982,782 1,303,144 127,220 (1,356,469) 5,900,877
Year ended December 31, 1997
Net interest income -
external sources $ 29,079 $ 86,456 $ 40,857 $ 3,626 $ (933) $ 71,445 $ 230,530
Interest on funds (used)/
provided - internal
transactions 60,775 (16,664) (36,859) (1,053) (6,199)
---------- ---------- ---------- -------- ----------- ---------- ----------
Total net interest
income 89,854 69,792 3,998 2,573 (7,132) 71,445 230,530
Noninterest income 11,607 8,128 (1,391) 13,743 2,945 6,642 41,674
Income taxes 12,680 12,268 637 1,187 (7,218) 9,090 28,644
Net income 19,831 19,188 996 1,588 (14,346) 22,959 50,216
Total assets (4) 2,578,783 1,317,017 807,354 123,785 (985,306) 1,691,345 5,532,978
Year ended December 31, 1996
Net interest income -
external sources $ 2,398 $ 60,952 $ 29,242 $ 2,898 $ 636 $ 94,767 $ 190,893
Interest on funds (used)/
provided - internal
transactions 38,360 (8,280) (29,661) (1,281) 862
---------- ---------- ---------- -------- ----------- ---------- ----------
Total net interest
income 40,758 52,672 (419) 1,617 1,498 94,767 190,893
Noninterest income 2,871 8,686 1,592 14,699 4,084 10,704 42,636
Income taxes 5,764 7,438 (403) 604 7,611 11,748 32,762
Net income 6,877 11,093 (246) 862 14,076 23,951 56,613
Total assets (4) 1,787,415 968,298 733,871 32,809 (815,779) 2,623,996 5,330,610
</TABLE>
(1) Includes three operating segments, equipment financing, asset management
and the nonperforming asset workout group. None of these segments meet the
quantitative thresholds for determining reportable segments or aggregation
criteria under FASB No. 131.
(2) Reflects the elimination of interdepartmental charges and credits as well
as certain unallocated corporate expenses such as acquisition and
merger-related expense, restructuring charges, Year 2000 readiness expense
and certain other unallocated expenses and certain unallocated assets.
(3) The Acquisitions column includes historical financial results of acquired
institutions accounted for as poolings of interests prior to merger and/or
systems conversions. For the year ended December 31, 1998, partial-year
results of Somerset and Affiliated are included. For the Year ended
December 31, 1997, full-year results of Somerset and Affiliated and
partial-year results of Walden and Firestone are included. For the year
ended December 31, 1996, full-year results of Somerset, Affiliated, Walden
and Firestone are included.
(4) Reflects total assets as of December 31, 1998, 1997 and 1996,
respectively.
- --------------------------------------------------------------------------------
46
<PAGE> 47
note 4. restrictions on cash and due from banks
At December 31, 1998 and 1997, cash and due from banks included $11.6 million
and $23.2 million, respectively, to satisfy the reserve requirements established
by the Federal Reserve Bank.
note 5. securities
A comparison of the amortized cost, fair value and gross unrealized gains and
losses as of December 31, 1998 and 1997 for securities available-for-sale
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1998
--------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available-for-sale:
Mortgage-backed securities:
Pass-through securities $ 820,412 $ 8,566 $ (619) $ 828,359
Collateralized mortgage obligations 248,098 1,244 (158) 249,184
---------- ------- ------- ----------
Total mortgage-backed securities 1,068,510 9,810 (777) 1,077,543
U.S. Treasury and federal agencies 45,119 466 (7) 45,578
FHLB equity securities 69,200 69,200
Asset-backed securities 26,777 400 27,177
Corporate debt securities 28,706 582 29,288
Marketable equity securities 24,971 2,527 (118) 27,380
States and municipalities 6,804 24 6,828
Foreign governments 520 520
All other securities 6,103 6,103
---------- ------- ------- ----------
Total securities available-for-sale $1,276,710 $13,809 $ (902) $1,289,617
========== ======= ======= ==========
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1997
--------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available-for-sale:
Mortgage-backed securities:
Pass-through securities $ 281,925 $ 2,444 $ (691) $ 283,678
Collateralized mortgage obligations 252,442 613 (1,019) 252,036
---------- ------- ------- ----------
Total mortgage-backed securities 534,367 3,057 (1,710) 535,714
U.S. Treasury and federal agencies 213,070 607 (545) 213,132
FHLB equity securities 66,726 66,726
Asset-backed securities 51,883 272 (57) 52,098
Corporate debt securities 20,917 400 21,317
Marketable equity securities 45,326 3,640 (186) 48,780
States and municipalities 1,999 25 2,024
Foreign governments 445 445
All other securities 7,200 7,200
---------- ------- ------- ----------
Total securities available-for-sale $ 941,933 $ 8,001 $(2,498) $ 947,436
========== ======= ======= ==========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 48
notes to consolidated financial statements, december 31, 1998
Equity securities of the Federal Home Loan Bank ("FHLB") of Boston and
certain other securities, which do not have readily determinable market values
are carried at cost. USTrust is a member of the FHLB and is required to invest
in FHLB equity securities, a restricted investment, in an amount equal to the
greater of 1 percent of residential mortgage loans, including certain
mortgage-backed securities, or three-tenths of 1 percent of total assets or a
specified percentage of outstanding advances.
The amortized cost and fair value of debt securities at December 31, 1998,
by contractual maturity, are shown in the table below. Actual maturities are
expected to differ from contractual maturities because some borrowers have the
right to prepay without penalty. Mortgage-backed securities are shown at their
final maturity but are expected to have shorter average lives. Equity
securities, which have no contractual maturity, are presented in the aggregate.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31, 1998
--------------------------
Amortized
(Dollars in thousands) Cost Fair Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Securities available-for-sale:
Mortgage-backed securities:
Due in 1 year or less $ 5,135 $ 5,168
Due after 1 year through 5 years 34,995 35,613
Due after 5 years through 10 years 131,221 133,112
Due after 10 years 897,159 903,650
---------- ----------
Total mortgage-backed securities 1,068,510 1,077,543
All other debt securities:
Due in 1 year or less 11,131 11,136
Due after 1 year through 5 years 65,303 66,139
Due after 5 years through 10 years 13,766 14,059
Due after 10 years 17,726 18,057
---------- ----------
Total debt securities 107,926 109,391
Equity securities and other 100,274 102,683
---------- ----------
Total $1,276,710 $1,289,617
========== ==========
- --------------------------------------------------------------------------------
</TABLE>
There were no securities designated as held-to-maturity by the Company at
December 31, 1998. All of the year-end 1997 held-to-maturity securities were
owned by Somerset and Affiliated and were redesignated as available-for-sale at
their respective acquisition dates. The effect of the redesignation was to
increase the gross unrealized gain on securities available-for-sale by
approximately $1.9 million. The amortized cost, fair value and gross unrealized
gains and losses as of December 31, 1997 for securities held-to-maturity
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
December 31, 1997
-------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities held-to-maturity:
Mortgage-backed securities:
Pass-through securities $108,812 $1,478 $ (278) $110,012
Collateralized mortgage obligations 73,962 829 (668) 74,123
-------- ------ ------- --------
Total mortgage-backed securities 182,774 2,307 (946) 184,135
U.S. Treasury and federal agencies 54,687 221 (42) 54,866
Asset-backed securities 21,592 156 (64) 21,684
Corporate debt securities 1,254 12 1,266
-------- ------ ------- --------
Total securities held-to-maturity $260,307 $2,696 $(1,052) $261,951
======== ====== ======= ========
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE> 49
Total gross realized gains, gross realized losses, and proceeds from the
sale or other disposition of securities available-for-sale for the three years
ended December 31 were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Dollars in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities available-for-sale:
Debt securities:
Gross realized gains $ 1,333 $ 557 $ 80
Gross realized losses (615) (1,798) (380)
Proceeds from sales* 347,700 297,735 53,461
Equity securities:
Gross realized gains $ 3,440 $ 1,551
Gross realized losses (231) (119)
Proceeds from sales* 5,557 1,585
</TABLE>
* Excluded from 1996 proceeds from sales was a reduction in securities
available-for-sale of $21.4 million in debt securities and $0.1 million in
equity securities resulting from the sale of a banking subsidiary.
- --------------------------------------------------------------------------------
At December 31, 1998, securities carried at $455.2 million were pledged to
secure public and trust deposits, securities sold under agreements to repurchase
and for other purposes as required by law.
note 6. loans
The composition of the loan portfolio (net of unearned discount) at
December 31, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Commercial and financial $1,413,808 $1,076,980
Commercial real estate:
Construction 55,989 109,787
Developer, investor and land 498,200 540,924
Commercial lease financing 76,053 56,260
Consumer:
Residential mortgage 1,085,353 1,371,021
Home equity 120,020 134,874
Indirect automobile installment 909,605 605,486
Other consumer 38,712 45,914
Indirect automobile lease financing 98,363 26,283
---------- ----------
4,296,103 3,967,529
Reserve for possible loan losses (65,274) (68,539)
---------- ----------
$4,230,829 $3,898,990
========== ==========
- --------------------------------------------------------------------------------
</TABLE>
Most of the Company's lending activity is with customers located within
Massachusetts. At year-end 1998, the Company's exposure to credit risk
principally secured by commercial real estate, home equity and residential real
estate included approximately $1.8 billion of loans. Refer to Note 20 for
additional discussion of concentration of credit risk.
Mortgage loans serviced for others are not included in the table above or
the accompanying consolidated statements of financial condition. The unpaid
principal balances of mortgage loans serviced for others was $469 million and
$626 million at December 31, 1998 and 1997, respectively. Capitalized mortgage
servicing rights were insignificant for both periods.
49
<PAGE> 50
notes to consolidated financial statements, december 31, 1998
Reserve for Possible Loan Losses
An analysis of the reserve for possible loan losses for the three years
ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Dollars in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $68,539 $65,979 $ 84,245
Chargeoffs 14,827 7,755 11,618
Recoveries on loans previously charged-off 9,376 7,215 10,951
------- ------- --------
Net chargeoffs 5,451 540 667
Provision (credit) for possible loan losses 2,239 3,100 (15,495)
Reserve of sold banks (53) (2,104)
------- ------- --------
Balance at end of period $65,274 $68,539 $ 65,979
======= ======= ========
- --------------------------------------------------------------------------------
</TABLE>
The status of impaired loans for the years ended December 31, 1998, 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Dollars in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Impaired loans-reserve required $ 610 $ 7,377 $ 5,956
Impaired loans-reserve not required* 12,302 28,524 47,524
------- ------- -------
Total impaired loans $12,912 $35,901 $53,480
======= ======= =======
Required reserve for impaired loans* $ 260 $ 2,209 $ 1,434
Average balance of impaired loans during the year $28,673 $39,412 $50,808
</TABLE>
* The methodology used in the required reserve calculation utilized the fair
value of collateral consistent with the provisions of SFAS No. 114. The
required reserve for impaired loans is included in the Company's total
reserve for possible loan losses.
- --------------------------------------------------------------------------------
For the years ended December 31, 1998, 1997 and 1996, the amount of
interest income on impaired loans that would have been recognized if the loans
had been paying in accordance with their original terms, was $2.6 million, $4.2
million, and $4.4 million, respectively. The amount recognized as interest
income in the same periods was $1.2 million, $2.1 million, and $1.8 million,
respectively.
note 7. premises, furniture and equipment
A summary of the accounts at December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 11,424 $ 11,424
Buildings and leasehold improvements 79,456 78,713
Furniture and equipment 55,626 40,829
-------- --------
146,506 130,966
Accumulated depreciation and amortization (56,082) (45,274)
-------- --------
$ 90,424 $ 85,692
======== ========
- --------------------------------------------------------------------------------
</TABLE>
Depreciation and amortization expenses reflected in the consolidated
statements of income were $10.8 million, $8.9 million and $7.3 million in 1998,
1997 and 1996, respectively.
50
<PAGE> 51
note 8. other property owned
Other property owned includes other real estate owned and repossessed vehicles
and equipment of $3.2 million and $1.5 million, respectively, at December 31,
1998, and $5.9 million and $1.1 million, respectively, at December 31, 1997.
Other property owned is stated net of a valuation allowance. Analysis of
the valuation allowance for the three years ended December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31,
------------------------------
(Dollars in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $3,628 $3,147 $4,760
Chargeoffs 697 872 3,229
Provision charged to operations 2,726 1,353 1,616
------ ------ ------
Balance at end of period $5,657 $3,628 $3,147
====== ====== ======
- --------------------------------------------------------------------------------
</TABLE>
The net cost of other real estate owned included in foreclosed asset and
workout expense in the income statement was approximately $2.7 million, $807
thousand and $1.9 million in 1998, 1997 and 1996, respectively. These costs
include provisions charged to operations to reflect reductions in net realizable
value, net gain or loss on sales and net cost of maintaining and operating the
properties.
note 9. deposits
At December 31, 1998, the scheduled maturities of certificates of deposits are
as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Dollars in thousands)
- --------------------------------------------------------------------------------
<S> <C>
Within one year $1,092,605
One to two years 199,009
Two to three years 53,105
Three to four years 24,350
Over four years 19,965
----------
Total $1,389,034
==========
- --------------------------------------------------------------------------------
</TABLE>
note 10. short-term borrowings
Short-term borrowings consisted of the following at December 31, 1998 and
1997:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Securities sold under agreements to repurchase $498,372 $276,264
Federal funds purchased 278,695 79,027
FHLB borrowings 200,000 249,264
Notes payable 5,650 1,156
Treasury tax and loan note account 3,365 13,670
-------- --------
$986,082 $619,381
======== ========
- --------------------------------------------------------------------------------
</TABLE>
USTrust is a member of the Federal Home Loan Bank of Boston. As a member
institution, USTrust has a borrowing capacity of approximately $1.4 billion for
short- and long-term FHLB advances.
The weighted average interest rates for short-term borrowings at December
31, 1998 and 1997 were 4.65 percent and 5.25 percent, respectively. The average
outstanding short-term borrowings were $768 million in 1998 and $538 million in
1997. The approximate weighted average interest rates during the year were 4.82
percent in 1998 and 5.08 percent in 1997. The maximum amount of short-term
borrowings outstanding at any month end was $986 million in 1998 and $619
million in 1997.
51
<PAGE> 52
notes to consolidated financial statements, december 31, 1998
note 11. other borrowings
Other borrowings consisted of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997
------------------- ------------------
Weighted Weighted
Average Average
(Dollars in thousands) Amount Rate Amount Rate
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term FHLB borrowings by maturity:
Within one year $43,430 6.10% $110,390 5.84%
One to two years 16,957 6.12% 43,430 5.81%
Two to three years 3,500 6.69% 26,957 5.96%
Three to four years 7,500 5.71% 3,500 6.69%
Over four years 3,941 6.81% 11,531 6.10%
Employee Stock Ownership Plan ("ESOP") debt:
Former Lexington Savings Bank ESOP, principal due in 2001, interest paid
quarterly at borrower's annual option of 90-day LIBOR rate plus 225
basis points or rate equal to the base lending rate of USTrust 483 644
Former The Federal Savings Bank ESOP, due in installments to 2000,
interest rate equal to federal funds effective rate plus 260 basis points 232 393
------- --------
$76,043 $196,845
======= ========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE> 53
note 12. employee benefit plans
The Company has a noncontributory, defined benefit retirement plan covering all
employees who meet specified age and employment requirements. The Company also
has nonqualified, unfunded supplemental retirement plans, which cover certain
senior officers of the Company. The plans provide pension benefits that are
based on the employee's compensation during the highest four consecutive years
before retirement. The following summary sets forth the plan's funded status and
amounts included in the Company's consolidated balance sheets as of December 31,
1998 and 1997:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Qualified Plan Supplemental Plans
------------------ ------------------
(Dollars in thousands) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Benefit obligations:
Benefit obligation at beginning of year $36,310 $29,640 $ 2,614 $ 1,886
Service cost 2,655 2,035 380 257
Interest cost 2,606 2,246 180 156
Actuarial loss (gain)(excluding assumption changes) 916 674 (101) 249
Actuarial loss due to assumption changes 1,243 2,015 107 179
Benefits paid (846) (967) (113) (113)
Plan amendments 377
Business combinations* (6,208) 667
------- ------- ------- -------
Benefit obligation at end of year $36,676 $36,310 $ 3,444 $ 2,614
======= ======= ======= =======
Fair value of assets:
Fair value of assets at beginning of year $38,883 $30,119
Actuarial return on plan assets 5,998 7,718
Contributions by employer 550 $ 113 $ 113
Benefits paid (845) (967) (113) (113)
Business combinations* 121 1,463
------- ------- ------- -------
Fair value of assets at end of year, primarily listed stocks and U.S. bonds $44,157) $38,883 $ -- $ --
======= ======= ======= =======
Fair value of assets at end of year $44,157 $38,883
Benefit obligation at end of year 36,676 36,310 $ 3,444 $ 2,614
------- ------- ------- -------
Funded status 7,481 2,573 (3,444) (2,614)
Unamortized prior service cost (3,915) 1,053 804 490
Unrecognized net (gain)/loss (5,730) (4,756) 196 190
Unrecognized net obligation (asset) (947) (1,251)
------- ------- ------- -------
Net accrued benefit cost $(3,111) $(2,381) $(2,444) $(1,934)
======= ======= ======= =======
</TABLE>
* Business combinations represent the amounts to eliminate differences in
actuarial assumptions between pension plans of acquired banks and the
Company's plan.
- --------------------------------------------------------------------------------
The actuarial assumptions used were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Discount rate 6.75% 7.00%
Rate of increase of future compensation levels 4.50% 4.50%
Expected rate of return on plan assets 9.00% 8.00%
- --------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 54
notes to consolidated financial statements, december 31, 1998
Net pension cost for 1998, 1997 and 1996 included the following
components:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Dollars in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost benefit earned during the period $ 3,035 $ 2,292 $ 2,202
Interest cost on projected benefit obligation 2,786 2,402 2,163
Expected return on plan assets (3,345) (3,063) (2,814)
Amortization of transition asset (304) (288) (288)
Amortization of prior service costs 124 112 99
Amortization of net (gain)/loss (162) 507 485
------- ------- -------
Net pension cost $ 2,134 $ 1,962 $ 1,847
======= ======= =======
- --------------------------------------------------------------------------------
</TABLE>
Certain former officers and employees of Federal are included in a
noncontributory defined benefit pension plan as a participating employer in the
Financial Institutions Retirement Fund (the "Fund"), a multi-employer plan. The
Fund does not segregate its assets or liabilities by participating employer.
Contributions are based on the individual employer's experience. As the plan is
fully funded, no contribution is required. Benefits accrued under this plan
until September 30, 1998. Effective September 30, 1998, all future benefits are
earned under the Company's defined benefit retirement plan. In addition certain
former employees of Lexington and Federal are included in a non-qualified
supplemental retirement plan established by their respective banks. Each is
fully funded by life insurance; no contribution is required.
The Company has an Employee Savings Plan which qualifies as a deferred
salary arrangement under Section 401(k) of the Internal Revenue Code. Under the
Plan, contributions made by eligible employees are matched by the Company at
varying rates based on a specified percentage of employee contributions. The
maximum match per employee by the Company is 4 percent of the individual
employee's earnings.
During 1997 and 1996, the Company had an employee stock ownership plan
("ESOP") which covered substantially all of its employees. The plan was
administered by a committee designated by the Board of Directors and was
maintained in a separate trust established for that purpose. Under the plan, the
Company contributed either a fixed amount or a percentage of compensation of all
participants. Effective December 31, 1997, the ESOP ceased to operate as an
independent plan and was merged into a newly created Employer Stock Fund of the
Employee Savings Plan. All participants became vested in their ESOP account
balances, and these funds were transferred directly to their respective Employee
Savings Plan accounts.
Certain former employees of Lexington and Federal receive benefits under
ESOP plans established by their respective banks. It is expected that these
plans, which have an insignificant effect on operating results of the Company,
will continue in accordance with their original terms.
Certain key employees are awarded shares of the Company's common stock
through the Company's Restricted Stock Ownership Plan adopted in 1989 and the
restricted stock program of the Stock Compensation Plan adopted in 1992 and
amended in 1994. Under these restricted stock plans 631,320 shares of common
stock have been granted, of which 86,250, 32,100 and 14,400 were granted in
1998, 1997 and 1996, respectively. The shares vest to the employee over varying
schedules. In 1998, 44,549 restricted shares vested under this plan. At December
31, 1998 there were 100,901 unvested restricted shares outstanding.
Expenses relating to the employee benefit plans were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------------------------
Employee Employee
Stock Restricted Savings Plan
(Dollars in thousands) Pension Ownership Stock 401(k) Other*
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 $2,134 $ 975 $1,161 $1,786 $275
1997 1,962 1,275 629 1,244 878
1996 1,847 884 531 1,576 803
</TABLE>
* Includes cost of various plans of acquired banks which were terminated at the
time of acquisition by the Company.
- --------------------------------------------------------------------------------
54
<PAGE> 55
note 13. stock options
The Company has a Stock Compensation Plan for officers and key employees under
the terms of which the Company may issue incentive stock options, nonqualified
stock options and shares of restricted stock. At December 31, 1998, 140,320
shares of the Company's common stock remained available for future grants. The
Company's Stock Compensation Plan provides that the number of shares of common
stock reserved for future grants under the plan be increased by an amount equal
to 1.25 percent of the number of shares outstanding on the first day of each
fiscal year. As a result, as of January 1, 1999, 535,302 additional common
shares are to be reserved for future grants. The vesting periods for options
under this Plan range from immediate vesting at grant date to 5 years. The
expiration periods for options under this Plan range from between 5 and 10
years.
The Company has two stock option plans for directors, the 1996 Director
Option Plan and the 1995 Director Option Plan. Eligible directors received
option grants at fair value for 5,000 shares in 1996 and up to 7,500 shares in
1995. A total of 150,000 shares of the Company's common stock were reserved for
issuance under each plan. The vesting periods for options under these plans
range from immediate vesting at grant date to 3 years. The expiration periods
for options under these plans range from 5 to 10 years.
The vesting periods for certain options under the aforementioned employee
and director plans can be accelerated in accordance with the plans based on
prescribed movement in the market price of the Company's stock or other
conditions. Under all option plans the option exercise price equaled the market
price of the Company's stock on date of grant.
The Company has opted to continue to measure stock compensation in
accordance with APB Opinion No. 25. Refer to Note 1 for a further discussion. If
the Company had determined stock compensation cost consistent with the fair
value alternative contained in SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts presented in
the table below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31,
---------------------------
(Dollars in thousands, except share amounts) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $55,286 $50,216 $56,613
Pro forma 54,700 49,947 55,912
Diluted earnings per share:
As reported $ 1.28 $ 1.18 $ 1.35
Pro forma $ 1.26 $ 1.17 $ 1.34
- --------------------------------------------------------------------------------
</TABLE>
55
<PAGE> 56
notes to consolidated financial statements, december 31, 1998
-------------------------------------------------------------
The following table presents the activity for the employee stock option
program under the Stock Compensation Plan and the activity in the Stock Option
Plans for directors for the years ended December 31, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Number of Exercise Weighted
Shares Under Price Average
Option Per Share Exercise Price
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding December 31, 1995 1,962,569 $ 1.84 - $14.13 $ 8.74
Granted in 1996 538,867 $ 8.68 - $14.81 $12.18
Canceled in 1996 (34,849) $ 6.07 - $12.88 $10.16
Exercised in 1996 (384,804) $ 6.07 - $13.44 $ 7.04
---------
Outstanding December 31, 1996 2,081,783 $ 1.84 - $14.81 $ 9.92
---------
Granted in 1997 419,968 $11.37 - $20.31 $16.82
Exercised in 1997 (416,304) $ 1.84 - $13.81 $ 7.79
---------
Outstanding December 31, 1997 2,085,447 $ 2.98 - $20.31 $11.73
---------
Granted in 1998 251,500 $20.94 - $24.69 $24.06
Cancelled in 1998 (1,550) $ 3.16 - $24.69 $11.49
Excercised in 1998 (382,934) $ 2.98 - $24.69 $12.00
---------
Outstanding December 31, 1998 1,952,463 $ 2.98 - $24.69 $13.27
=========
Options exercisable at:
December 31, 1996 1,938,342 $ 1.84 - $14.81 $ 9.76
December 31, 1997 1,959,843 $ 2.98 - $20.31 $11.54
December 31, 1998 1,879,097 $ 2.98 - $24.69 $12.90
- ------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information regarding options outstanding
and options exercisable at December 31, 1998 under the employee Stock
Compensation Plan and Stock Option Plans for Directors:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
----------------------------------------------------------------- ----------------------------------------
Weighted Average
Number Outstanding Remaining Contractual Weighted Average Number Exercisable Weighted Average
at December 31, 1998 Life in Years Exercise Price at December 31, 1998 Exercise Price
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2.98 - $ 7.24 172,592 3.97 $ 5.50 172,592 $ 5.50
$ 7.50 - $ 9.61 392,871 1.99 $ 9.06 392,871 $ 9.06
$ 9.72 - $13.81 786,564 3.13 $11.77 786,564 $11.77
$14.40 - $24.69 600,436 8.46 $20.22 527,070 $19.86
--------- ---------
1,952,463 1,879,097
========= =========
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average fair value of options granted during the years ended
December 31, 1998, 1997 and 1996 was $3.79, $2.42 and $1.44, respectively. The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants in 1998, 1997 and 1996:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 4.63% 5.70% 5.94%
Expected dividend yield 3.5% 3.5% 3.5%
Expected life in years 2.5 2.3 2.3
Expected volatility 25.00% 24.00% 18.12%
- --------------------------------------------------------------------------------
</TABLE>
56
<PAGE> 57
The Company has a Directors Deferred Compensation Program under which up
to 250,000 shares of the Company's common stock may be granted to outside
Directors of the Company or its banking subsidiaries who choose to receive their
Director's fees or stipend in shares of the Company in lieu of cash. The shares
may not be sold until the individual holder's status as Director terminates.
note 14. noninterest expense
Restructuring Charges, Acquisition and Merger-related Expense Restructuring
charges for the year ended December 31, 1998 totaled $11.5 million. Such costs
were incurred in connection with the Somerset and Affiliated acquisitions and
were the result of management's integration plan. These costs related to
activities that had no future economic benefit to the Company and were
incremental to other costs incurred in the conduct of the Company's business.
The nature of these expenses included charges for severance payments to former
Somerset and Affiliated executives and staff, processing system conversions and
deconversion costs, customer communications related to the effect of the
acquisitions, write-offs of certain Somerset and Affiliated assets, and other
expenses directly associated with the integration of the acquired institutions.
Similar restructuring charges of $11.8 million for the year ended December 31,
1997 were incurred in connection with the Walden acquisition.
Acquisition and merger-related expense for the year ended December 31,
1998 totaled $8.1 million which included professional, legal, accounting and
investment banking services incurred in connection with Somerset and Affiliated
acquisition transactions. Acquisition and merger-related expenses of $4.4
million for the year ended December 31, 1997 were incurred primarily in
connection with the Walden and Firestone acquisitions. For the year ended
December 31, 1996, the expense totaled $5.9 million, primary resulting from the
Branch Purchase.
Reserves associated with restructuring and merger-related charges are
included in other liabilities and totaled $1.7 million and $.9 million at
December 31, 1998 and 1997, respectively. Additions to the reserve, as described
above, of $11.5 million and $11.8 million for the years ended December 31, 1998
and 1997, respectively, were charged to income. Cash expenditures and write-offs
of $10.7 million and $14.6 million in 1998 and 1997, respectively, were charged
against the reserve balance.
Deposit Insurance Assessment
The Company's deposit insurance assessment reflects premiums paid to two Federal
Deposit Insurance Corporation ("FDIC") funds, the Bank Insurance Fund ("BIF")
for banks, as well as the Savings Association Insurance Fund ("SAIF") for
savings and loan associations ("Thrifts"), due to the Company's acquisitions of
thrift deposits and thrift institutions. The deposit insurance assessment for
the years ended December 31, 1998 and 1997 reflect reductions in expense due to
reduced premium rates by the FDIC on BIF balances. The year ended December 31,
1996, included a $5 million one-time assessment by the SAIF on the former Thrift
deposits held by the Company.
note 15. income taxes
The income tax provision included in the consolidated statements of income
consisted of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------
(Dollars in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense*:
Federal $33,602 $19,876 $20,609
State 7,201 4,721 7,566
Foreign 46
------- ------- -------
40,803 24,597 28,221
------- ------- -------
Deferred tax expense (benefit):
Federal (4,772) 3,075 5,444
State (1,670) 972 (903)
------- ------- -------
(6,442) 4,047 4,541
------- ------- -------
Total $34,361 $28,644 $32,762
======= ======= =======
</TABLE>
* The 1998, 1997 and 1996 current provisions do not reflect $2.9 million,$.6
million and $.4 million, respectively, of tax benefits related to stock
options exercised that were credited directly to additional paid-in
capital.
- --------------------------------------------------------------------------------
57
<PAGE> 58
notes to consolidated financial statements, december 31, 1998
-------------------------------------------------------------
As of December 31, 1998 and 1997, cumulative deferred tax assets, included
in the consolidated balance sheets as other assets, amounted to $18.5 million
and $14.7 million, respectively, while cumulative deferred tax liabilities of
$1.3 million and $0.4 million, respectively, were included in other liabilities.
Additionally, at December 31, 1998 and 1997 there were tax refund receivables of
approximately $1.7 million and $2.2 million included in other assets while
current taxes payable were approximately $11.5 and $4.5 million, respectively,
and included in other liabilities.
In August 1996, Congress passed the Small Business Job Protection Act of
1996. Included in this bill was the repeal of Internal Revenue Code (IRC)
Section 593, which allowed thrift institutions special provisions in calculating
bad debt deductions for income tax purposes. Thrift institutions are now viewed
as commercial banks for income tax purposes. The repeal is effective for tax
years beginning after December 31, 1995. One effect of this legislative change
is to suspend a thrift's bad debt reserve for income tax purposes as of its base
year (December 31, 1988). Any bad debt reserve in excess of the base year amount
is subject to recapture over a six-year time period. The suspended (i.e., base
year) amount is subject to recapture upon the occurrence of certain events, such
as a complete or partial redemption of a bank's stock or if the bank ceases to
qualify as a bank for income tax purposes.
Through the Company's acquisition of Walden, Somerset and Affiliated and
subsequent merger of the various banking subsidiaries with USTrust in 1997 and
1998, USTrust's tax position is effected by this legislative change. At December
31, 1998, USTrust's surplus includes approximately $37.0 million of bad debt
reserves, representing the base year amount, for which income taxes have not
been provided. Since USTrust does not intend to use the suspended bad debt
reserve for purposes other than to absorb the losses for which it was
established, deferred taxes in the amount of $15.5 million have not been
recorded with respect to such reserve.
The components of the net deferred tax asset were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
December 31,
------------------
(Dollars in thousands) 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C>
Book provision for loan losses in excess of tax $28,483 $28,517
Book writedowns on other property owned, not deducted for tax 4,467 3,493
Pension expense deducted for tax not book 4,212 1,420)
Book basis in core deposit more than tax 1,765 (33)
Deferred compensation benefits not deducted for tax 1,431 2,323
Loan mark-to-market adjustment for tax (581) (4,961)
Cumulative tax depreciation in excess of book (3,104) (2,683)
Recapture of bad debt reserve under repeal of Code Section 593 (3,661)
Tax basis in partnership investments less than book (3,998) (3,858)
Securities mark-to-market adjustment deferred for tax (5,089) (1,545)
Tax deductions on leveraged leases deferred for books (7,372) (6,362)
Other, net 638 (2,018)
------- -------
Total net deferred tax asset $17,191 $14,293
======= =======
- -----------------------------------------------------------------------------------
</TABLE>
58
<PAGE> 59
The provisions for income taxes differ from the amounts computed by
applying the U.S. statutory federal tax rate of 35 percent in 1998,1997 and
1996, to income before income taxes principally due to:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------
(Dollars in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate $31,376 $27,553 $30,910
Increases (reductions) from:
State income taxes 3,595 3,637 4,113
Nondeductible expenses 3,508 1,570 664
Tax credits utilized (191)
Tax-exempt income (761) (708) (684)
Low income housing (1,333) (1,194) (911)
Reversal of tax reserves (1,865) (2,656) (1,183)
Other, net (159) 442 44
------- ------- -------
Tax expense recorded $34,361 $28,644 $32,762
======= ======= =======
- --------------------------------------------------------------------------------
</TABLE>
note 16. earnings per share
The Company computes earnings per share in accordance with SFAS No. 128. This
Statement supersedes APB No. 15 regarding the presentation of earnings per share
("EPS") on the face of the income statement. SFAS No. 128 replaced the
presentation of Primary EPS with a Basic EPS calculation that excludes the
dilutive effect of common stock equivalents. The Statement requires a dual
presentation of Basic and Diluted EPS, which is computed similarly to Fully
Diluted EPS pursuant to APB No. 15, for all entities with complex capital
structures. This Statement is effective for fiscal years ending after December
15, 1997 and requires restatement of all prior period EPS data presented,
including quarterly information. The Company's common stock equivalents consist
primarily of dilutive outstanding stock options and restricted stock grants
computed under the treasury stock method. Basic and Diluted EPS for the three
years ended December 31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
(Dollars and shares in thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share computation:
Numerator:
Net income $55,286 $50,216 $56,613
Denominator:
Weighted average shares outstanding 42,378 41,760 41,061
Basic earnings per share $ 1.30 $ 1.20 $ 1.38
Diluted earnings per share computation:
Numerator:
Net income $55,286 $50,216 $56,613
Denominator:
Weighted average shares outstanding 42,378 41,760 41,061
Dilutive stock options 912 948 800
------- ------- -------
Weighted average diluted shares outstanding 43,290 42,708 41,861
======= ======= =======
Diluted earnings per share $ 1.28 $ 1.18 $ 1.35
- ----------------------------------------------------------------------------------
</TABLE>
note 17. capital
The Company and its banking subsidiaries are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken, could have
a material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and its subsidiary banks must meet specific capital guidelines that
involve quantitative measures of assets, liabilities, and
59
<PAGE> 60
notes to consolidated financial statements, december 31, 1998
-------------------------------------------------------------
certain off-balance sheet items as calculated under regulatory accounting
practices. The capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and its banking subsidiaries to maintain minimum amounts and
ratios (set forth in the table below) of Total and Tier 1 capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1998, that the Company and its subsidiary banks meet all of their respective
capital adequacy requirements.
The actual capital amounts and ratios of the Company and its banking
subsidiaries are presented in the following summary.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
December 31, 1998
-----------------------------------------------------------------------------
Amount Percent
-----------------------------------------------------------------------------
Adequately Well Adequately Well
Capitalized Capitalized Capitalized Capitalized
(Dollars in millions) Actual Minimums Minimums Actual Minimums Minimums
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UST Corp. Consolidated:
Tier 1 leverage capital $475.6 $229.9 * 8.27% 4.00% *
Tier 1 capital 475.6 188.4 * 10.10% 4.00% *
Total (Tier 1 and Tier 2) capital 535.5 376.3 * 11.38% 8.00% *
USTrust:
Tier 1 leverage capital 440.5 228.9 $286.1 7.70% 4.00% 5.00%
Tier 1 capital 440.5 187.3 281.0 9.41% 4.00% 6.00%
Total (Tier 1 and Tier 2) capital 499.8 374.1 467.6 10.69% 8.00% 10.00%
USTC:
Tier 1 leverage capital 5.4 1.0 1.2 21.67% 4.00% 5.00%
Tier 1 capital 5.4 0.5 0.8 43.31% 4.00% 6.00%
Total (Tier 1 and Tier 2) capital 5.4 1.0 1.3 43.37% 8.00% 10.00%
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
December 31, 1997
-----------------------------------------------------------------------------
Amount Percent
-----------------------------------------------------------------------------
Adequately Well Adequately Well
Capitalized Capitalized Capitalized Capitalized
(Dollars in millions) Actual Minimums Minimums Actual Minimums Minimums
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UST Corp. Consolidated:
Tier 1 leverage capital $427.4 $214.9 * 7.95% 4.00% *
Tier 1 capital 427.4 165.2 * 10.35% 4.00% *
Total (Tier 1 and Tier 2) capital 479.0 329.1 * 11.64% 8.00% *
USTrust:
Tier 1 leverage capital 397.4 194.3 $242.8 8.18% 4.00% 5.00%
Tier 1 capital 397.4 164.2 246.3 9.68% 4.00% 6.00%
Total (Tier 1 and Tier 2) capital 447.9 327.1 408.9 10.95% 8.00% 10.00%
USTC:
Tier 1 leverage capital 3.5 0.8 0.9 18.42% 4.00% 5.00%
Tier 1 capital 3.5 0.4 0.6 32.26% 4.00% 6.00%
Total (Tier 1 and Tier 2) capital 3.5 0.9 1.1 32.34% 8.00% 10.00%
</TABLE>
* Not applicable
- --------------------------------------------------------------------------------
60
<PAGE> 61
Dividends
The Company and its banking subsidiaries' ability to pay dividends is subject to
certain limitations imposed by statutes of the Commonwealth of Massachusetts and
limitations imposed by bank and bank holding company regulators. Massachusetts
statutes restrict the amount of dividends payable by banks to be the balance of
their undivided profits, net of any amount transferred to capital in excess of
par value. An issuance of dividends which would reduce the capital of the
Company and/or its Subsidiary Banks below minimum capital requirements would
cause the appropriate regulatory agencies to require the institution to submit
an acceptable capital restoration plan. An institution which fails to submit an
acceptable plan may be subject to a bank regulatory enforcement action, or
ultimately placed into conservatorship or receivership.
In 1998 the Company declared quarterly cash dividends totaling $23 million
or $0.54 per share to stockholders. During the year the Company's subsidiaries
declared dividends payable to the Company totaling $37 million.
Shareholder Rights Plan
In 1995, the Company's Board of Directors approved a Shareholder Rights
Plan and distributed preferred share purchase rights to shareholders. The rights
will become exercisable only if a person or group (i) acquires 15 percent or
more of the Company's common stock, (ii) announces a tender offer that would
result in ownership of 15 percent or more of the common stock, or (iii) is
declared to be an "Adverse Person" by the Company's Board of Directors. "Adverse
Person" includes any person or group who owns at least 10 percent of the
Company's common stock and attempts an action that would adversely impact the
Company. Each right would entitle a stockholder to purchase 1/100th of a share
of a new series of junior participating preferred stock.
Once a person or group has acquired 15 percent or more of the outstanding
common stock of the Company or is declared an "Adverse Person" by the Company's
Board of Directors, each right may entitle its holder (other than the acquiring
person or Adverse Person) to purchase, at an exercise price of $40, shares of
common stock of the Company (or any organization that acquires the Company) at
an amount equal to 50 percent of their current market price. Under certain
circumstances, the Continuing Directors (as defined in the rights plan) may
exchange the rights for common stock (or equivalent securities) on a one-for-one
basis excluding rights held by the acquiring person or Adverse Person. The
rights may be redeemed by action of the Board of Directors for $.001 per right.
Stock Repurchase Programs
In November 1998, the Company's Board of Directors approved a common stock
repurchase program authorizing the repurchase of up to 310,000 shares which
constitutes less than 1 percent of the Company's common stock outstanding. The
repurchase program did not affect the Company's use of the pooling of interests
method of accounting to record the recent acquisitions by the Company of
Affiliated and Somerset since it was implemented in accordance with the
Securities and Exchange Commission's Staff Accounting Bulletin No. 96. The
program authorizes the Company to buy back common stock from time to time,
subject to prevailing market conditions. Purchases may be made on the open
market or in privately negotiated transactions. As of December 31, 1998, 103,500
shares had been purchased under the program, 23,049 shares were reissued and
80,451 shares remained in treasury.
Prior to the August 7, 1998 acquisition of Affiliated by the Company,
Affiliated retired all of its common stock held in treasury (total of 348,975
UST Corp. equivalent shares) and terminated its stock repurchase program.
note 18. related party transactions
In the ordinary course of business, the Company's banking subsidiaries have
granted loans to certain of the Company's directors and executive officers. All
such transactions are made on substantially the same terms as those prevailing
at the same time for individuals not affiliated with the Company and its
subsidiaries and at the time they were granted did not involve more than the
normal risk of collectibility. At December 31, 1998, none of these transactions
were on nonaccrual status, nor did they involve delinquent, substandard or
restructured loans. Over 77 percent of the balance outstanding at December 31,
1998 and 1997 was due from one director.
61
<PAGE> 62
notes to consolidated financial statements, december 31, 1998
An analysis of loans outstanding in excess of $60 thousand to directors
and executive officers related to the foregoing entities at December 31, 1998
and 1997 is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Dollars in thousands)
- --------------------------------------------------------------------------------
<S> <C>
Balance, December 31, 1996 $21,212
Additions 2,238
Repayments (1,715)
Other reductions* (2,241)
-------
Balance, December 31, 1997 19,494
Additions 2,937
Repayments (1,058)
Other reductions* (3,011)
-------
Balance, December 31, 1998 $18,362
=======
</TABLE>
* Other reductions are loans outstanding to directors and officers who
ceased to be directors or executive officers of the Company or its
subsidiary banks during the year or their balance decreased below $60
thousand.
- --------------------------------------------------------------------------------
note 19. commitments and contingencies
Commitments for leased premises expire at various dates through 2018. At
December 31, 1998, minimum rental commitments for noncancelable leases are as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Dollars in thousands)
- --------------------------------------------------------------------------------
<S> <C>
1999 $ 8,344
2000 7,772
2001 6,028
2002 5,715
2003 2,816
Thereafter 5,364
-------
Total $36,039
=======
- --------------------------------------------------------------------------------
</TABLE>
Rent expense for the years ended December 31, 1998, 1997 and 1996 was
approximately $6.6 million, $6.1 million, and $5.0 million, respectively.
In the ordinary course of business, the Company and its subsidiaries
become defendants in a variety of judicial and administrative proceedings. In
the opinion of management there is no proceeding pending, or to the knowledge of
management threatened, which in the event of an adverse decision, would result
in a material adverse change in the financial condition or results of operations
of the Company.
note 20. financial instruments with on-and off-balance sheet risk
The Company is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit, standby letters of
credit and financial guarantees, foreign exchange contracts, and recourse
arrangements on sold loans. Those instruments involve, to varying degrees,
elements of credit risk in excess of the amount contained in the balance sheet.
The contract or notional amounts of those instruments reflect the extent of
involvement the Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument or commitments to extend credit and
standby letters of credit and financial guarantees written is represented by the
62
<PAGE> 63
contractual notional amount of those instruments. The Company uses the same
credit policies in making commitments and conditional obligations as it does for
on-balance sheet instruments.
The Company generally requires collateral or other security to support
financial instruments with credit risk.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Contract or Notional Amount
---------------------------
December 31, December 31,
(Dollars in thousands) 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial instruments whose contract amount represents credit risk:
Commitments to extend credit $1,032,000 $1,149,000
Standby letters of credit and financial guarantees written 87,000 73,000
Commercial letters of credit 10,000 4,000
Foreign exchange contracts 1,000 5,000
Loans sold with recourse 9,000 14,000
- -------------------------------------------------------------------------------------------------
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract during its
term. Commitments generally have fixed expiration dates or other termination
clauses and usually require payment of a fee. Since many of the commitments are
expected to expire without being fully drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The Company evaluates
each customer's credit worthiness on a case-by-case basis. Of the total
commitments to extend credit, approximately $258 million and $276 million were
secured by real estate at December 31, 1998 and December 31, 1997, respectively.
The amount of collateral obtained is based on management's evaluation of
the credit risk. Collateral held on commitments and loans varies but may include
cash, accounts receivable, inventory, property, plant and equipment. Standby and
commercial letters of credit and financial guarantees written are conditional
commitments issued by the Company to guarantee the performance of, or payment
by, a customer to a third party. Those guarantees are primarily issued to
support private borrowing arrangements. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. The Company holds various collateral to support these
commitments including (but not limited to) cash, account receivables, inventory,
property, plant and equipment. The extent of collateral held for those
commitments varies from zero to over one hundred percent. Of the total standby
and commercial letters of credit, approximately $13 million was secured by real
estate at December 31, 1998.
The Company's primary loan market is the New England region. Most of the
loans outstanding are from eastern Massachusetts and a substantial portion of
these loans are various types of real estate loans; still others have real
estate as additional collateral. Approximately 79 percent of the Company's
outstanding commercial and commercial real estate loans are collateralized.
The Company enters into foreign currency exchange contracts to purchase or
sell foreign currencies at a future date at a predetermined exchange rate.
Except as noted below, contracts are purchased on the open market to assist
customers with international transactions denominated in foreign currencies. The
Company is exposed to credit risk in the event the customer fails to deliver or
take delivery of the agreed upon currency whereby the Company would execute the
transaction with another counterparty at the prevailing currency valuation. The
positive fair value, which represents the credit exposure of contracts
outstanding, was insignificant at December 31, 1998 and 1997.
The Company enters into nominal amounts of foreign exchange contracts for
the purposes of hedging certain financial commitments related to the collection
of loans of Canadian borrowers. The fair value of such contracts was
insignificant at December 31, 1998 and 1997.
During 1997, the Company, through its small equipment finance company,
Firestone, was party to an interest rate swap agreement with a nominal notional
amount. The swap agreement effectively converted a portion of Firestone's
interest rate obligation on certain long-term borrowings from a floating to a
fixed rate. The arrangement was paid in full and terminated in August 1997,
prior to the acquisition of Firestone by the Company.
The Company's securities portfolio includes a significant investment in
mortgage-backed securities. These securities carry prepayment risk due to the
fact that prevailing interest rates could decline. Under such circumstances an
unusually high percentage of homeowners may choose to refinance their first
mortgages to take advantage of these lower rates with the result that, under the
Company's accounting policy, adjustments reducing gross unamortized premiums
would be required. Refer to Note 1 for a discussion of accounting policies.
63
<PAGE> 64
notes to consolidated financial statements, december 31, 1998
note 21. parent company financial information
Summarized information relative to the balance sheets at December 31, 1998 and
1997 and statements of income and cash flows for the three years in the period
ended December 31, 1998 of UST Corp. (parent company only) are presented as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
balance sheets - parent company only
- --------------------------------------------------------------------------------
December 31,
-------------------
(Dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash, due from banks and interest-bearing deposits $ 4,666 $ 6,077
Securities purchased under agreements to resell 15,000 4,000
Securities available-for-sale 1,270 3,284
Loans to subsidiaries 1,675
Investment in banking subsidiaries 506,528 479,556
Investment in nonbanking subsidiaries 3,908 2,582
Premises, furniture and equipment, net 483 287
Other assets 20,120 6,278
-------- --------
Total assets $553,650 $502,064
======== ========
Liabilities and stockholders' investment:
Other liabilities $ 20,105 $ 13,008
Stockholders' investment 533,545 489,056
-------- --------
Total liabilities and stockholders' investment $553,650 $502,064
======== ========
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
statements of income - parent company only
- --------------------------------------------------------------------------------
Year Ended December 31,
---------------------------
(Dollars in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend income $36,653 $22,500 $15,658
Undistributed equity in net income of subsidiaries 22,418 30,245 37,728
Gain on sale of bank subsidiary 6,806
Other income 7,465 4,962 4,685
------- ------- -------
66,536 57,707 64,877
Expenses 11,250 7,491 8,264
------- ------- -------
Net income $55,286 $50,216 $56,613
======= ======= =======
- --------------------------------------------------------------------------------
</TABLE>
64
<PAGE> 65
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
statements of cash flows - parent company only
- -----------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------
(Dollars in thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 55,286 $ 50,216 $ 56,613
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 184 217 220
Undistributed income of subsidiaries (22,418) (30,245) (37,728)
Noncash dividend from subsidiary (5,925) (2,158)
Gain on sale of bank subsidiary (6,806)
Gain on sale of securities (596)
Increase in other assets (7,618) (1,330) (1,756)
Increase in other liabilities 5,735 3,766 4,808)
-------- -------- --------
Net cash provided by operating activities 24,648 22,624 13,193
Cash flows from investing activities:
Proceeds from sales of securities 1,793
Purchase of securities (60)
Purchases of premises and equipment (274) (415)
Proceeds from sale of bank subsidiary 13,435
Net (decrease) increase in short-term investments (11,000) 10,000) (9,000)
Increase in loans to subsidiaries (1,675)
Equity contributed to subsidiaries (1,000) (20,000) (13,000)
-------- -------- --------
Net cash used by investing activities (12,156) (10,060) (8,980)
Cash flows from financing activities:
Proceeds from issuance of common stock, net 5,786 3,230 2,795
Treasury stock acquired (2,379) (3,363)
Cash dividends paid (17,310) (10,554) (3,760)
-------- -------- --------
Net cash used by financing activities (13,903) (7,324) (4,328)
-------- -------- --------
(Decrease) increase in cash and cash equivalents (1,411) 5,240 (115)
Cash and cash equivalents beginning of year 6,077 837 952
-------- -------- --------
Cash and cash equivalents end of year $ 4,666 $ 6,077 $ 837
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 61 $ 56 $ 56
======== ======== ========
Income taxes $ 22,891 $ 11,375 $ 12,160
======== ======== ========
Noncash transactions:
Transfers from other assets to securities available-for-sale $ 50
========
Noncash dividends from subsidiaries $ 5,925 $ 2,158
======== ========
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Dividends paid to the Company in 1998 by consolidated bank subsidiaries
totaled $28.1 million, $17.5 million in 1997 and $14.7 million in 1996.
Dividends paid to the Company by nonbank subsidiaries totaled $2.0 million in
both 1998 and 1997, and $1.0 million in 1996.
note 22. financial instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of the fair market value of Financial Instruments (as defined),
whether assets, liabilities or off-balance sheet commitments, if practicable.
The following methods and assumptions were used to estimate the fair value of
each class of Financial Instruments. Fair value estimates which were derived
from discounted cash flows or broker quotes cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in
immediate settlement of the instrument.
65
<PAGE> 66
notes to consolidated financial statements, december 31, 1998
Cash and due from banks, federal funds sold and other short-term
investments - For these short-term instruments the carrying amount is a
reasonable estimate of fair value.
Securities available-for-sale and securities held-to-maturity - For
marketable securities fair values are based on quoted market prices or dealer
quotes.
Loans - For certain homogeneous categories of loans, such as residential
mortgages and home equity loans, fair value is estimated based on broker quotes
on sales of similar loans. The fair value of fixed rate loans was estimated by
discounting anticipated future cash flows using current rates at which similar
loans would be made to borrowers with similar credit ratings and for the same
remaining maturities. The fair value of performing variable rate loans is the
same as the book value at the reporting date because the loans reprice when the
market changes.
Deposit liabilities - The fair value of noncertificate deposit accounts is
the amount payable on demand at the reporting date. The fair value of
fixed-maturity certificates of deposit is estimated by discounting the
anticipated future cash payments using the rates currently offered for deposits
of similar remaining maturities.
Short-term borrowings - For these short-term instruments the carrying
amount is a reasonable estimate of fair value.
Other borrowings - The fair value for FHLB borrowings with an original
maturity of greater than one year was determined by discounting the expected
cash flows using a discount rate equal to the current rate offered by the FHLB
for debt of the same remaining maturity. While the current FHLB debt outstanding
has a prepayment option at the borrower's discretion, the fair value was
estimated assuming the Company will hold the full amount until maturity.
Off-balance sheet financial instruments - For commitments to extend
credit, standby and commercial letters of credit and foreign exchange contracts,
the carrying amount which represents accruals of deferred income (fees) arising
from these instruments, and the fair value of such deferred income is not
material. Refer to Note 20 for notional or contract amounts and a further
discussion of off-balance sheet financial instruments.
Values not determined - SFAS No. 107 excludes certain assets from its
disclosure requirements including real estate included in banking premises and
equipment, lease financings, and the intangible value inherent in the Company's
deposit relationships (i.e., core deposits). Accordingly, the aggregate fair
value amounts presented below do not represent the underlying value of the
Company.
The carrying amount and estimated fair values of the Company's Financial
Instruments at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1998 1997
----------------------------------------------------
Carrying Fair Carrying Fair
(Dollars in thousands) Amount Value Amount Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Instrument assets:
Cash and due from banks $ 126,861 $ 126,861 $ 120,521 $ 120,521
Securities 1,289,617 1,289,617 1,207,743 1,209,387
Federal funds sold and other short-term investments 7,969 7,969 81,000 81,000
Loans receivable, net* 4,059,919 4,121,815 3,817,674 3,873,219
Financial Instrument liabilities:
Deposits:
Noninterest-bearing $ 847,341 $ 847,341 $ 781,926 $ 781,926
NOW 69,739 69,739 128,293 128,293
Money market 964,705 964,705 786,358 786,358
Regular savings 962,852 962,852 866,164 866,164
Time 1,389,034 1,399,528 1,602,799 1,606,387
Short-term borrowings 986,082 986,082 619,381 619,381
Other borrowings 76,043 76,927 196,845 196,595
</TABLE>
* Excludes commercial and consumer leases
- --------------------------------------------------------------------------------
66
<PAGE> 67
note 23. consolidated selected quarterly financial data (unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
For Year Ended December 31, 1998 For Year Ended December 31, 1997
--------------------------------------------------------------------------------------
(Dollars in thousands, Fourth Third Second First Fourth Third Second First
except per share amounts) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $108,004 $107,514 $106,219 $106,833 $105,464 $104,815 $100,287 $ 98,169
Interest expense 43,401 44,778 44,137 44,063 45,623 45,202 43,936 43,445
Net interest income 64,603 62,736 62,082 62,770 59,841 59,613 56,351 54,724
Provision (credit)
for possible loan losses 1,228 789 (880) 1,101 900 850 850 500
Net interest income after provision
for possible loan losses 63,375 61,947 62,962 61,669 58,941 58,763 55,501 54,224
Noninterest income 13,441 11,892 11,106 12,477 11,352 9,470 9,215 11,638
Noninterest expense 49,357 67,030 47,209 45,628 45,122 43,682 44,221 57,219
Income tax expense 10,095 5,071 9,409 9,785 8,501 9,253 7,076 3,814
Net income $ 17,364 $ 1,738 $ 17,450 $ 18,733 $ 16,670 $ 15,298 $ 13,419 $ 4,829
Basic earnings per share $ 0.41 $ 0.04 $ 0.41 $ 0.45 $ 0.40 $ 0.36 $ 0.32 $ 0.12
Diluted earnings per share $ 0.40 $ 0.04 $ 0.40 $ 0.43 $ 0.39 $ 0.36 $ 0.31 $ 0.11
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Quarterly net income and diluted earnings per share, while affected by large
infrequent items and the addition of Year 2000 readiness expense in 1998, grew
throughout most of the two-year period. Acquisition and merger-related expenses
and restructuring charges totaling $14.6 million and $19.6 million were incurred
in the first quarter 1997 and third quarter 1998, respectively. Excluding these
charges, diluted earnings per share were $0.35 in first quarter 1997 and $0.39
diluted earnings per share in the third quarter 1998. Large realized gains on
sale of securities and loans positively affected earnings results in the first
quarter 1997, first quarter 1998, and third and fourth quarters 1998.
The two years ended December 31, 1998 was a period of strong growth in net
interest income. Earning asset growth and favorable changes in deposit mix and
reduced deposit and borrowing costs were the largest factors for the improving
margin. The quarterly provision for possible loan losses averaged approximately
$1 million during the two-year period as asset quality remained favorable. The
exception was a $.9 million credit provision recorded in the second quarter of
1998. A credit provision, or reduction in loan loss reserve was recorded by
Somerset Savings Bank prior to acquisition by the Company.
Noninterest income fueled by strong growth in asset management fees,
deposit account service charges and corporate services income, increased during
most of the eight quarter periods. Peak quarters were first quarter 1997 and
first, third and fourth quarter of 1998 due to realized gains on securities and
loan sales of $2.1 million, $1.4 million, $1.1 million, and $1.5 million,
respectively.
In order to support volume growth throughout the Company as well as
support and process the many system conversions and mergers of five banks,
noninterest expenses rose during the eight-quarter period. Acquisition and
merger-related expenses and restructuring charges were recorded in the first,
third, and fourth quarters of 1997 and third quarter of 1998 of $14.6 million,
$1.0 million, $.6 million, and $19.6 million, respectively. In addition, during
1998 the Company incurred Year 2000 readiness expense in quarters one through
four of $.5 million, $.8 million, $1.8 million, and $2.3 million, respectively.
item 9. changes in and disagreements with accountants on accounting and
financial disclosure
None.
67
<PAGE> 68
PART III
item 10. directors and executive officers of the registrant
Office of the Chief Executive Officer
In 1987, the Board of Directors of the Company created an Office of the
Chief Executive Officer ("OCEO") (formerly known as the Executive Policy
Committee) which is the primary management forum of the Company for all
strategic and policy decisions. Such decisions of the OCEO are subject to the
review and approval of the Board of Directors of the Company. The OCEO has been
directed by the Board of Directors to make recommendations to the Board
concerning adoption of policies, strategies and programs concerning the
following, among other matters: (a) acquisitions and dispositions of corporate
entities, assets and/or investments; (b) the issuance of equity and/or debt; (c)
engaging in new business activities; (d) the hiring, termination, training and
motivation of senior management; (e) the development of marketing programs
concerning financial services; (f) improvements to operations, service delivery
and implementation of procedures for cost control; (g) improvements to the
financial reporting and financial control systems; (h) improvements to the
business information systems; and (i) improvements concerning risk management
and legal and regulatory compliance programs. As of March 1, 1999, there were 7
members of the OCEO. The members of the OCEO are identified and the background
of each OCEO member is set forth below under "Executive Officers."
Executive Officers
The names and ages of the executive officers of the Company (all of whom
are members of the OCEO) and each executive officer's position with the Company
and its principal subsidiaries are listed below. Each such executive officer is
elected annually by the Directors of the Company (or the Directors of the
applicable subsidiary of the Company) and serves until his or her successor is
duly chosen and qualified or until his or her earlier death, removal or
disqualification.
<TABLE>
<CAPTION>
Name Age Positions and Offices with the Company (and/or where appropriate,
position with one of the Company's susidiaries)
<S> <C> <C>
Neal F. Finnegan 61 President, Chief Executive Officer and Director of the Company and
Chairman, Chief Executive Officer and Director of USTrust
Timothy J. Hansberry 55 Vice Chairman, Chief Operating Officer and Director of the Company,
and President, Chief Operating Officer and Director of USTrust
James K. Hunt 55 Executive Vice President, Chief Financial Officer and Treasurer of the
Company; Executive Vice President and Chief Financial Officer of USTrust
Katharine C. Armstrong 54 Executive Vice President/Credit Administration of the Company and
USTrust
John G. Fallon 52 Executive Vice President/Bank Operations and Information Technology
of the Company and USTrust
Robert T. McAlear 56 Executive Vice President/Consumer Banking and Acquisition Integration
of the Company; Vice Chairman and Director of USTrust
Kathie S. Stevens 48 Executive Vice President/Commercial Lending and Controlled Loans of
the Company; Vice Chairman and Director of USTrust and President and
a Director of UST Capital Corp.
</TABLE>
68
<PAGE> 69
The following sets forth the principal occupation during the past five years of
each of the executive officers of the Company.
Mr. Finnegan has served as President, Chief Executive Officer and Director
of the Company since 1993. During the prior five years, Mr. Finnegan was
Executive Vice President in charge of Private Banking at Bankers Trust Company,
New York, New York. From 1986 to 1988, Mr. Finnegan was President and Chief
Operating Officer of Bowery Savings Bank in New York City. From 1982 to 1986 he
was Vice Chairman of Shawmut Corporation in Boston. Mr. Finnegan also serves as
Chairman of the Board of Trustees of Northeastern University. Mr. Finnegan is
also Chairman, Chief Executive Officer and a Director of USTrust and Chairman of
the Executive Committee and a Director of USTC.
Mr. Hansberry has served as Vice Chairman and Chief Operating Officer and
a Director of the Company and as President and Chief Operating Officer and a
Director of USTrust since August, 1998. From April, 1995 to August, 1998 he was
President, Chief Executive Officer and a Director of Affiliated Community
Bancorp, Inc. ("Affiliated") which was acquired by the Company in 1998. From
1992 to 1995, Mr. Hansberry served as President and Chief Executive Officer of
Lexington Savings Bank.
Mr. Hunt was elected Executive Vice President, Treasurer and Chief
Financial Officer of the Company in 1994. Prior to joining the Company, Mr. Hunt
served as Executive Vice President at Peoples Bancorp of Worcester, Inc.,
Worcester, Massachusetts, from 1987 through mid-1994. He also serves as
Executive Vice President and Chief Financial Officer of USTrust.
Ms. Armstrong has served as Executive Vice President/Credit Administration
of the Company and USTrust since 1998. From 1995 to 1998 Ms. Armstrong served as
Executive Vice President/Commercial Lending of the Company and USTrust. Ms.
Armstrong joined the Company in 1985 and has served in various credit
administration and commercial lending functions since that time.
Mr. Fallon has served as Executive Vice President/Bank Operations and
Information Technology of the Company and USTrust since August, 1998. He served
as Executive Vice President and Chief Financial Officer of AFCB from April, 1995
to the date of Affiliated's acquisition by the Company in August, 1998. From
1993 until April, 1995 Mr. Fallon served as Executive Vice President of
Lexington Savings Bank.
Mr. McAlear was elected Executive Vice President/Consumer Banking and
Acquisition Integration in 1998. From 1994 to 1998 Mr. McAlear served as
Executive Vice President/Controlled Loans and Credit of the Company. He has
served as Vice Chairman and a Director of USTrust since he joined the Company in
1990.
Ms. Stevens has served as Executive Vice President/Commercial Lending and
Controlled Loans of the Company since 1998. She was Executive Vice President and
Senior Lending Officer of the Company from 1993 until 1998, and was also elected
to the positions of Vice Chairman and Director of USTrust in 1992. Ms. Stevens
has been a senior officer in the Commercial Lending function since she joined
the Company in 1985. Ms. Stevens is also President and a Director of UST Capital
Corp.
There are no arrangements or understandings between any executive officer
and any other person pursuant to which he or she was selected as an executive
officer.
Other than the information provided in the preceding paragraphs of this
Item 10, the remainder of this item has been omitted since the Company will have
filed a definitive proxy statement within 120 days after December 31, 1998, the
close of its fiscal year. The additional information required by this item is
incorporated by reference to such proxy statement.
item 11. executive compensation
This item has been omitted since the Company will have filed a definitive proxy
statement within 120 days after December 31, 1998, the close of its fiscal year.
The information required by this item is incorporated by reference to such proxy
statement.
item 12. security ownership of certain beneficial owners and management
This item has been omitted since the Company will have filed a definitive proxy
statement within 120 days after December 31, 1998, the close of its fiscal year.
The information required by this item is incorporated by reference to such proxy
statement.
69
<PAGE> 70
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Executive
Officers and Directors are required by the SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, the
Company believes that, during 1998, all such filing requirements applicable to
its executive officers and directors were complied with by such individuals.
item 13. certain relationships and related transactions
This item has been omitted since the Company will have filed a definitive proxy
statement within 120 days after December 31, 1998, the close of its fiscal year.
The information required by this item is incorporated by reference to such proxy
statement.
70
<PAGE> 71
PART IV
item 14. exhibits, financial statement schedules, and reports on form 8-K
(a) List the following documents filed as part of this report:
1. All financial statements
UST Corp. and subsidiaries
See Index to Financial Statements.
2. Financial statement schedules required to be filed by Item 8 of Form
10-K and by Item 14(d)
None (Information included in Financial Statements).
3. Exhibits required to be filed by Item 501 of Regulation S-K and by
Item 13(c)
(3) Articles: By-Laws
3(a) Articles of Organization of the Company as amended to
date. (Exhibit to Form 10-K for year ended December 31,
1996.)**
3(b) Articles of Amendment of the Company dated June 18,
1998.*
3(c) By-laws of the Company as amended to date. (Exhibit to
Form 10-K for year ended December 31, 1994.)**
(4) Instruments defining the rights of security holders, including
indentures:
4(a) Specimen of the Company's Common Stock Certificate.
(Exhibit 4.1 to Registrant's Registration Statement No.
2-67787 on Form S-1.)**
4(b) Description of rights of the holders of the Company's
Common Stock (Appearing on Page 64 of Registrant's
Registration Statement No. 333-45809 on Form S-4.)**
4(c) Rights Agreement, dated September 19, 1995, between UST
Corp. and United States Trust Company, as Rights Agent
and exhibits attached thereto. (Exhibit to Registrant's
Form 8-A filed September 26, 1995.)**
(10) Material Contracts
10(a) Acquisition Agreement, dated as of December 17, 1998, by
and among USTrust, Brewer & Lord LLP and each of its
current and former partners. (Confidential treatment to
be requested for certain portions of this Exhibit.)*
10(b) Deferred Compensation Program, as amended to June 16,
1992. (Exhibit to Form 10-K for year ended December 31,
1992.)**
71
<PAGE> 72
10(c) Pension Plan, as amended to January 1, 1990. (Exhibit to
Form 10-K for year ended December 31, 1991.)**
10(c)(i) Amendment dated December 20, 1994 to the
Pension Plan as previously amended on January
1, 1990. (Exhibit to Form 10-K for year ended
December 31, 1994.)**
10(c)(ii) Amendment dated February 18, 1997 to the
Pension Plan. (Exhibit to Form 10-K for year
ended December 31, 1996.)**
10(c)(iii) Amendment dated December 31, 1997 to the
Pension Plan. (Exhibit to Form 10-K for year
ended December 31, 1997.)**
10(c)(iv) Amendment dated as of January 1, 1999 to the
Pension Plan.*
10(d) Employee Savings Plan as amended to January 1, 1999.*
10(e) 1992 Stock Compensation Plan. (Registration Statement
Nos. 33-54390 and 2-77803.)**
10(e)(i) 1992 Stock Compensation Plan as amended and
restated on November 15, 1994. (Exhibit to
Form 10-K for year ended December 31,
1994.)**
10(f) Dividend Reinvestment Plan, as amended. (Exhibit to
Registration Statement No. 3-38836 on Form S-3.)**
10(g) 1995 Stock Option Plan for Non-Employee Directors.
(Exhibit to Proxy Statement for Annual Meeting of
Stockholders dated April 20, 1995.)**
10(h) 1996 Stock Option Plan for Non-Employee Directors.
(Exhibit to Proxy Statement for Annual Meeting of
Stockholders dated April 19, 1996.)**
10(i) Executive Employment Agreements with members of the
Company's Office of the Chief Executive Officer.**
10(i)(i) Second Amended and Restated Executive
Employment Agreement, dated as of January 1,
1999, between the Company and Neal F.
Finnegan, President and Chief Executive
Officer of the Company.*
10(i)(ii) Executive Employment Agreement, dated as of
August 10,1998, between USTrust and Timothy
J. Hansberry, Vice Chairman and Chief
Operating Officer of the Company.*
10(i)(iii) Restated Employment Agreement dated
as of February 1, 1996 and amended as of
December 17, 1996 between UST Corp. and James
K. Hunt, Executive Vice President, Chief
Financial Officer and Treasurer of the
Company (Exhibits to Forms 10-K for years
ended December 31, 1995 and December 31,
1996.)**
10(i)(iv) Restated Employment Agreement dated as of
February 1, 1996 and amended as of December
17, 1996 between UST Corp. and Robert T.
McAlear, Executive Vice President of the
Company. (Exhibits to Forms 10-K for years
ended December 31, 1995 and December 31,
1996.)**
72
<PAGE> 73
10(i)(v) Restated Employment Agreement dated as of
February 1, 1996 and amended as of December
17, 1996 between UST Corp. and Katharine C.
Armstrong, Executive Vice President of the
Company. (Exhibits to Forms 10-K for years
ended December 31, 1995 and December 31,
1996.)**
10(i)(vi) Restated Employment Agreement dated as of
February 1, 1996 and amended as of December
17, 1996 between UST Corp. and Kathie S.
Stevens, Executive Vice President, of the
Company. (Exhibits to Forms 10-K for years
ended December 31, 1995 and December 31,
1996.)**
10(i)(vii) Executive Employment Agreement, dated as of
August 10, 1998, between UST Corp. and John
G. Fallon, Executive Vice President of the
Company.*
10(j) Severance Pay Plan, effective January 1, 1995 (Exhibit
to Form 10-K for year ended December 31, 1995.)**
10(k) Senior Officer Severance Pay Plan, restated effective
December 8, 1998.*
10(l) Employment Agreement among UST Corp, USTC and Domenic
Colasacco, President of USTC, a wholly-owned subsidiary
of the Company (Exhibit to Form 10-K for year ended
December 31, 1995.)**
10(l)(i) Asset Management Unifying Agreement by and
among Domenic Colasacco and other
Employee/Principals of the Asset Management
Division of the United States Trust Company
and United States Trust Company and UST
Corp., effective as of January 1, 1995
(Exhibit to Form 10-K for year ended December
31, 1995)**
10(l)(ii) Amendment dated December 31, 1996 to the
Asset Management Unifying Agreement by and
among Domenic Colasacco and other
Employee/Principals of the Asset Management
Division of the United States Trust Company
and United States Trust Company and UST
Corp., effective as of January 1,
1995.(Exhibit to Form 10-K for year ended
December 31, 1996)**
10(l)(iii) Amendment dated as of June 30, 1998 to
Employment Agreement, entered into by USTC,
UST and Domenic Colasacco.*
10(m) Agreement, dated November 18, 1998 between Middlesex
Realty Holdings Corp., an indirect wholly-owned
subsidiary of UST Corp. and PL 20 Cabot Properties
Limited Partnership, pursuant to which UST Corp. has
agreed to purchase property at 20 Cabot Road, Medford,
MA.*
(11) Statement re: computation of per share earnings (See Note 16
to the Notes to Consolidated Financial Statements.)*
(21) Subsidiaries of the Registrant*
73
<PAGE> 74
(23.1) Consent of Arthur Andersen LLP*
(23.2) Consent of Wolf & Company, P.C.*
(27.1) Article 9 Summary Financial Information for 12 months ended
December 31, 1998.*
(27.2) Article 9 Restated Summary Financial Information for 12
months ended December 31, 1997.*
(27.3) Article 9 Restated Summary Financial Information for 12
months ended December 31, 1996.*
* Filed herewith.
** Filed as part of a previous Commission filing and
incorporated herein by reference.
(b) Reports on Form 8-K
None.
(d) Exhibits being filed
See Exhibit Index.
(e) Financial Statement Schedules included in Financial Statements.
74
<PAGE> 75
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UST Corp.
By s/ NEAL F. FINNEGAN
--------------------------------
Neal F. Finnegan
President and Chief Executive Officer
(Principal Executive Officer)
Date: 3/29/99
By s/ JAMES K. HUNT
--------------------------------
James K. Hunt
Executive Vice President, Treasurer and
Chief Financial Officer
Principal Financial Officer and Principal
Accounting Officer)
Date: 3/29/99
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By s/ CHESTER G. ATKINS
--------------------------------
Chester G. Atkins, Director
Date: 3/29/99
By s/ DAVID E. BRADBURY
--------------------------------
David E. Bradbury, Director
Date: 3/29/99
By s/ KENDRICK G. BUSHNELL
--------------------------------
Kendrick G. Bushnell, Director
Date: 3/29/99
By s/ JACK E. CHAPPELL
--------------------------------
Jack E. Chappell, Director
Date: 3/29/99
By s/ ROBERT M. COARD
--------------------------------
Robert M. Coard, Director
Date: 3/29/99
By s/ ROBERT L. CULVER
--------------------------------
Robert L. Culver, Director
Date: 3/29/99
By s/ ALAN K. DERKAZARIAN
--------------------------------
Alan K. Derkazarian, Director
Date: 3/29/99
By s/ DONALD C. DOLBEN
--------------------------------
Donald C. Dolben, Director
Date: 3/29/99
By s/ JAMES F. DREW
--------------------------------
James F. Drew, Director
Date: 3/29/99
By s/ NEAL F. FINNEGAN
--------------------------------
Neal F. Finnegan, Director,
President and
Chief Executive Officer
Date: 3/29/99
By s/ TIMOTHY J. HANSBERRY
--------------------------------
Timothy J. Hansberry, Director,
Vice Chairman and
Chief Operating Officer
Date: 3/29/99
By s/ EDWARD S. HEALD
--------------------------------
Edward S. Heald, Director
Date: 3/29/99
By s/ BRIAN W. HOTAREK
--------------------------------
Brian W. Hotarek, Director
Date: 3/29/99
By s/ JAMES E. McCOBB, JR.
--------------------------------
James E. McCobb, Jr. Director
Date: 3/29/99
By s/ FRANCIS X. MESSINA
--------------------------------
Francis X. Messina, Director
Date: 3/29/99
By s/ SYDNEY L. MILLER
--------------------------------
Sydney L. Miller, Director
Date: 3/29/99
By s/ VIKKI L. PRYOR
--------------------------------
Vikki L. Pryor, Director
Date: 3/29/99
By s/ GERALD M. RIDGE
--------------------------------
Gerald M. Ridge, Director
Date: 3/29/99
By s/ WILLIAM SCHWARTZ
--------------------------------
William Schwartz, Director
and Chairman of the Board
Date: 3/29/99
By s/ BARBARA C. SIDELL
--------------------------------
Barbara C. Sidell, Director
Date: 3/29/99
By s/ JAMES V. SIDELL
--------------------------------
James V. Sidell, Director
Date: 3/29/99
By s/ PAUL D. SLATER
--------------------------------
Paul D. Slater, Director
Date: 3/29/99
By s/ EDWARD J. SULLIVAN
--------------------------------
Edward J. Sullivan, Director
Date: 3/29/99
By s/ G. ROBERT TOD
--------------------------------
G. Robert Tod, Director
Date: 3/29/99
By s/ MICHAEL J. VERROCHI
--------------------------------
Michael J. Verrochi, Director
Date: 3/29/99
By s/ GORDON M. WEINER
--------------------------------
Gordon M. Weiner, Director
Date: 3/29/99
75
<PAGE> 1
EXHIBIT 3(b)
FEDERAL IDENTIFICATION
No. 04-2436093
The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
We, Neal F. Finnegan , President
------------------------------------------------------
and Eric R. Fischer , Clerk
------------------------------------------------------
of UST Corp.
--------------------------------------------------------------------,
(Exact name of corporation)
located at: 40 Court Street, Boston, Massachusetts 02108 .
------------------------------------------------------------
(Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting article numbered:
Three (3)
- --------------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5, and/or 6 being amended)
of the Articles of Organization were duly adopted at a meeting held on
June 10 , 1998, by vote of: 20,244,825 shares of
- ------------------- --------------------
UST Corp. Common Stock of 29,878,628 shares outstanding.
- -------------------------------- ----------------
(type, class & series, if any)
par value of $0.625
being at least a majority of each type, class or series outstanding and
entitled to vote thereon:
VOTED: to amend the Corporation's Restated Articles of Organization to increase
the number of authorized shares of the Corporation's Common Stock from
45,000,000 to 75,000,000
<PAGE> 2
To change the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- ------------------------------- --------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- ---------- ------------------ ---- ---------------- ----------
<S> <C> <C> <C> <C>
Common: Common: 45,000,000 $0.625
Preferred: Preferred: 4,000,000 $1.00
(300,000 Series A Junior Participating @ 1.00)
</TABLE>
Change the total authorized to:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- ------------------------------- --------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- ---------- ------------------ ---- ---------------- ----------
<S> <C> <C> <C> <C>
Common: Common: 75,000,000 $0.625
Preferred: Preferred: 4,000,000 $1.00
(300,000 Series A Junior Participating @ 1.00)
</TABLE>
<PAGE> 3
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date:
-----------------------------------------.
SIGNED UNDER THE PENALTIES OF PERJURY, this 18th day of June, 1998 .
-------- ------- ---
/s/ Neal F. Finnegan , President
- -----------------------------
Neal F. Finnegan
/s/ Eric R. Fischer , Clerk
- -----------------------------
Eric R. Fischer
<PAGE> 4
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
===========================================================================
I hereby approve the within Articles of Amendment, and the filing fee in the
amount of $30,000 having been paid, said article is deemed to have been filed
with me this 22nd day of June, 1998.
/s/ William Francis Galvin
William Francis Galvin
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
Eric R. Fischer
----------------------------------------
40 Court Street
----------------------------------------
Boston, Massachusetts
----------------------------------------
(617) 726-7377
<PAGE> 1
EXHIBIT 10(a)
ACQUISITION AGREEMENT
ACQUISITION AGREEMENT (this "Agreement"), dated as of December 17, 1998,
by and among USTRUST, a Massachusetts trust company ("Buyer"), BREWER & LORD
LLP, a Massachusetts limited liability partnership ("Seller"), and each of the
individuals listed on Schedule 1 hereto, each in their capacity as a partner of
Seller (each a "Partner", and collectively, the "Partners");
WHEREAS, the Board of Directors of Buyer and the Partners of Seller deem
it advisable and in the best interests of their stockholders or Partners, as the
case may be, and their respective customers, employees and other constituencies,
as well as the communities they serve, to consummate, and have approved, the
business combination transactions provided for herein in which Buyer will,
subject to the terms and conditions set forth herein, acquire Seller;
WHEREAS, as a condition to, and after the execution of, this Agreement,
Buyer, Seller and the Partners are entering into employment agreements (the
"Employment Agreements"), pursuant to which, subject to consummation of the
transactions contemplated hereby, each of the Partners will be employed by the
Surviving Entity (as defined herein) after the Effective Time (as defined
herein);
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
Except as otherwise provided herein or as otherwise clearly required by
the context, the following terms shall have the respective meanings indicated
when used in this Agreement:
"Acquisition Subsidiary" shall mean that certain limited liability company
that has been or shall be organized as a direct wholly-owned subsidiary of Buyer
under the laws of the State of Delaware for the purpose of merging with Seller
pursuant to the terms of the Plan of Merger.
"Acquisition Transaction" shall have the meaning ascribed thereto in
Section 5.03 hereof.
"Affiliate" shall mean, with respect to any Person, any other Person
controlling, controlled by or under common control with such Person. As used in
this definition, "control" (including, with its correlative meanings,
"controlled by" and "under common control with") means the possession, directly
or indirectly, of power to direct or cause the direction of the management and
policies of a Person whether through the ownership of voting securities, voting
rights, by contract or otherwise. As used with respect to Seller, "Affiliate"
includes the Partners and the Retired Partners, but does not include any other
individual unless such individual controls Seller.
"Agreement" shall mean this Acquisition Agreement by and among Buyer,
Seller and the Partners.
"Associate" shall have the meaning ascribed thereto in Section 4.01(a)
hereof.
"BHCA" shall mean the Bank Holding Company Act of 1956, as amended.
"Buyer" shall have the meaning ascribed to such term in the preamble to
this Agreement.
"Buyer Balance Sheet" shall have the meaning ascribed thereto in Section
3.05 hereof.
"Buyer Common Stock" shall have the meaning ascribed thereto in Section
3.02(a) hereof.
"Buyer Parent Corp." shall mean UST Corp., the parent bank holding company
of Buyer.
<PAGE> 2
"Cap" shall have the meaning ascribed thereto in Section 9.05(a) hereof.
"Closing" shall mean the consummation of the Merger.
"Closing Date" shall mean the date on which the Closing occurs.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Companies" shall have the meaning ascribed thereto in Section 4.10(a)
hereof.
"Confidential Information" shall have the meaning ascribed thereto in
Section 5.02(b) hereof.
"Confidentiality Agreement" shall mean that certain letter agreement
pertaining to the disclosure of certain Confidential Information by Seller to
Buyer dated June 10, 1998.
"Damages" shall have the meaning ascribed thereto in Section 9.04
hereof.
"Deferred Services Assets" shall have the meaning ascribed thereto in
Section 5.16 hereof.
"DLLCA" shall mean the Delaware Limited Liability Company Act.
"Effective Time" shall mean the date and time at which the Merger has
become effective pursuant to the applicable laws of the State of Delaware and
The Commonwealth of Massachusetts.
"Employees" shall have the meaning ascribed thereto in Section 4.11(a)
hereof.
"Employment Agreements" shall have the meaning ascribed thereto in the
recitals hereto.
"Equity Investment" shall have the meaning set forth for such term as of
the date hereof in the FDIC's rules and regulations regarding activities and
investments of insured state banks.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall have the meaning ascribed thereto in Section 3.05
hereof.
"Expirations" shall mean the knowledge of the respective expiration dates
of insurance policies currently in force and purchased through Seller.
"FDIA" shall mean the Federal Deposit Insurance Act, as amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System or the Federal Reserve Bank of Boston, as applicable.
"Filed Tax Returns" shall mean, with respect to the Companies, all Tax
Returns that have been or will required to be filed by either of the Companies
on or prior to the date hereof.
"GAAP" shall mean generally accepted accounting principles and practices
in effect from time to time within the United States applied consistently
throughout the period involved.
"Income" shall have the meaning ascribed thereto in Section 5.01(e)
hereof.
<PAGE> 3
"INfinity System" shall have the meaning ascribed thereto in Section 4.25
hereof.
"Injunction" shall have the meaning ascribed thereto in Section 6.01(b)
hereof.
"Insurance Companies" shall mean those insurance companies, with whom
Seller places insurance risks as of September 30, 1998.
"Insurance Company Contracts" shall mean those contracts between Seller
and Insurance Companies, pursuant to which Seller places insurance risks.
"IRS" shall mean the United States Internal Revenue Service.
"Known Intellectual Property" shall have the meaning ascribed thereto in
Section 4.20 hereof.
"MLPA" shall mean the Massachusetts Limited Partnership Act.
"Material Adverse Effect" shall mean, (a) with respect to Buyer, a
material adverse effect on the assets, properties, liabilities, business,
operations, results of operations, financial condition or prospects of Buyer and
its subsidiaries, taken as a whole, and (b) with respect to Seller, a material
adverse effect on the assets, properties, liabilities, business, operations,
results of operations, financial condition or prospects of Seller and its
subsidiaries taken as a whole; provided, further, that, without in any way
limiting the foregoing, a Material Adverse Effect with respect to Seller shall
be deemed to occur if, after the date hereof, (i) Insurance Companies from whom
Seller derives a material amount of commissions shall terminate or deliver a
notice of termination to Seller with respect to the applicable Insurance Company
Contracts between such Insurance Companies and Seller and (ii) Seller shall not
have placed or obtained commitments to place all of the risks formerly placed
with such terminating Insurance Companies with other comparably-rated insurance
companies on terms with respect to commissions comparable to the commissions
payable under such terminated Insurance Company Contracts.
"Merger" shall mean the merger of Seller with and into Acquisition
Subsidiary, the result of which shall be the direct acquisition by Buyer of
Seller at the Effective Time.
"Nasdaq" shall mean the National Association of Securities Dealers
Automated Quotation system.
"Non-Mission Critical Systems" shall have the meaning ascribed thereto in
Section 4.25 hereof.
"Partners" shall have the meaning ascribed to such term in the preamble to
this Agreement.
"Partnership Agreement" shall have the meaning ascribed to such term in
Section 4.02(a) hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Person" shall mean any individual, general partnership, limited
partnership, corporation, joint stock company, joint venture, trust, estate,
business trust, limited liability company, limited liability partnership,
unincorporated association, cooperative or association and, where the context so
permits, the heirs, executors, administrators, legal representatives, successors
and assigns of such Person.
"Plan of Merger" shall mean that certain Agreement and Plan of Merger to
be entered into by and between Seller and Acquisition Subsidiary at or prior to
the Effective Time, substantially in the form attached hereto as Exhibit A.
"Promotions" shall have the meaning ascribed thereto in Section 4.23
hereof.
"Purchase Price" shall have the meaning ascribed thereto in Article II
hereof.
"Records" shall mean all records and original documents in Seller's
possession which pertain to and are utilized by Seller or the Seller Subsidiary
to administer, reflect, monitor, evidence or record information respecting their
businesses and operations, including but not limited to all records and
<PAGE> 4
documents relating to (i) corporate, regulatory, supervisory and litigation
matters, (ii) tax planning and payment of taxes, (iii) personnel and employment
matters, and (iv) the business or conduct of the business of Seller or the
Seller Subsidiary.
"Representatives" shall have the meaning ascribed thereto in Section
5.02(b) hereof.
"Requisite Regulatory Approvals" shall have the meaning ascribed thereto
in Section 6.01(a) hereof.
"Retired Partners" shall have the meaning ascribed thereto in Section
4.02(a) hereof.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall have the meaning ascribed to such term in the preamble to
this Agreement.
"Seller Balance Sheet" shall have the meaning ascribed thereto in Section
4.05 hereof.
"Seller Benefit Plans" shall have the meaning ascribed thereto in Section
4.11(a) hereof.
"Seller Disclosure Schedule" shall have the meaning ascribed thereto in
Section 4.01(a) hereof.
"Seller Other Plans" shall have the meaning ascribed thereto in Section
4.11(a) hereof.
"Seller Pension Plans" shall have the meaning ascribed thereto in Section
4.11(a) hereof.
"Seller Reports" shall have the meaning ascribed thereto in Section 4.15
hereof.
"Seller Subsidiary" shall mean Seller Insurance Advisers, Inc., a
Massachusetts corporation and wholly-owned subsidiary of Seller.
"September Financial Statements" shall have the meaning ascribed thereto
in Section 4.05 hereof.
"subsidiaries" shall mean, when used with reference to a party, any
corporation or other organization, whether incorporated or unincorporated, of
which such party or any other subsidiary of such party is a general partner
(excluding partnerships the general partnership interests of which held by such
party or any subsidiary of such party do not have a majority of the voting
interests in such partnership) or, with respect to such corporation or other
organization, at least a majority of the securities or other interests having by
their terms ordinary voting power to elect a majority of the board of directors
or others performing similar functions is directly or indirectly owned or
controlled by such party or by any one or more of its subsidiaries, or by such
party and one or more of its subsidiaries.
"Surviving Entity" shall have the meaning ascribed thereto in the Plan
of Merger.
"Tax" means any federal, state, local or foreign income, gross receipts,
franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer,
registration, value added, excise, natural resources, severance, stamp,
occupation, premium, windfall profit, environmental, customs, duties, real
property, personal property, capital stock, intangibles, social security,
unemployment, disability, payroll, license, employee or other tax or levy, of
any kind whatsoever, including any interest, penalties or additions to tax in
respect of the foregoing.
<PAGE> 5
"Tax Return" means any return, declaration, report, claim for refund,
information return or other document (including any related or supporting
estimates, elections, schedules, statements or information) filed or required to
be filed in connection with the determination, assessment or collection of any
Tax or the administration of any laws, regulations or administrative
requirements relating to any Tax.
"Transaction Documents" shall mean this Agreement, Plan of Merger, the
Employment Agreements and the Confidentiality Agreement and each other
agreement, document or instrument executed in connection herewith or therewith.
"Transferred Employee" shall have the meaning ascribed thereto in Section
5.10 hereof.
"Year 2000 Problem" shall have the meaning ascribed thereto in Section
4.25 hereof.
ARTICLE II
THE MERGER
Subject to the terms and conditions of this Agreement and the Plan of
Merger, Seller will merge with and into Acquisition Subsidiary, with Acquisition
Subsidiary being the surviving entity, pursuant to the provisions of, and with
the effect provided in the DLLCA and the MLPA. The Plan of Merger provides for
the terms and conditions of the Merger, including but not limited to the payment
by Buyer to the Partners and the Retired Partners of the aggregate purchase
price of $[*] million in cash (the "Purchase Price") in exchange for all
partnership interests in Seller of such Partners and Retired Partners, all of
which are incorporated herein and made a part of this Agreement by this
reference whether or not the Plan of Merger is executed on or subsequent to the
date hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
3.01 Corporate Organization.
(a) Buyer is a trust company duly organized and validly existing under the
laws of The Commonwealth of Massachusetts. Buyer has all requisite power and
authority to own, lease or operate all of its properties and assets and to carry
on its business as it is now being conducted, and is duly licensed or qualified
to do business in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and assets owned,
leased or operated by it makes such licensing or qualification necessary, except
where the failure to be so licensed or qualified would not result in a Material
Adverse Effect.
(b) Acquisition Subsidiary is or will be a limited liability company, duly
organized, validly existing and in good standing under the laws of the State of
Delaware. From the date of its formation to the Closing Date, Acquisition
Subsidiary will not engage in any material activities other than in connection
with or as contemplated by this Agreement. Acquisition Subsidiary has been or
will be formed solely for the purpose of effectuating the Merger.
3.02 Capitalization.
(a) The authorized capital stock of Buyer consists of 200,000 shares of
common stock, par value $47.50 per share ("Buyer Common Stock"). As of the close
of business on December 15, 1998,
*confidential treatment requested
<PAGE> 6
there were 181,446 shares of Buyer Common Stock issued and outstanding. All of
the shares of Buyer Common Stock are owned directly and indirectly by Buyer
Parent Corp.
(b) Buyer is an "insured depository institution" as defined in the FDIA
and applicable regulations thereunder, and the deposits of Buyer are insured by
the Bank Insurance Fund and the Savings Association Insurance Fund of the FDIC
in accordance with the FDIA, and Buyer has paid all assessments and filed all
reports required by the FDIA. As of the date hereof, no proceedings for the
revocation or termination of such deposit insurance are pending or, to the
knowledge of the Buyer, threatened.
(c) As of the Effective Time, Buyer will be the only member of the
Acquisition Subsidiary.
3.03 Authority; No Violation.
(a) Buyer has full power and authority to execute and deliver the
Transaction Documents to which it is a party and to consummate the transactions
contemplated thereby. Acquisition Subsidiary has or will have full corporate
power and authority to execute and deliver the Plan of Merger and to consummate
the transactions contemplated thereby. The execution and delivery of this
Agreement and the other Transaction Documents to which it is a party and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly approved by the Board of Directors of Buyer. The execution and
delivery of the Plan of Merger and the consummation of the transactions
contemplated thereby have been or will be duly and validly approved by Buyer, as
the sole member of Acquisition Subsidiary, and by the Board of Directors of
Acquisition Subsidiary. No other corporate proceedings on the part of Buyer or
Acquisition Subsidiary are necessary to consummate the transactions contemplated
by any of the Transaction Documents to which each is a party. This Agreement has
been, and the Plan of Merger and the other Transaction Documents to be executed
by Buyer will be, duly and validly executed and delivered by Buyer and (assuming
due authorization, execution and delivery by Seller) constitute (or, in the case
of the Plan of Merger or such other Transaction Documents, will constitute at
Closing) the valid and binding obligation of Buyer, enforceable against Buyer in
accordance with their respective terms, except that enforcement thereof may be
limited by the receivership, conservatorship and supervisory powers of bank
regulatory agencies generally as well as bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting enforcement of creditors' rights
generally and except that enforcement thereof may be subject to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law) and the availability of equitable remedies. The
Plan of Merger will be duly and validly executed and delivered by Acquisition
Subsidiary and (assuming due authorization, execution and delivery by Seller)
will constitute at closing the valid and binding obligation of Acquisition
Subsidiary, enforceable against Acquisition Subsidiary in accordance with its
terms, except that enforcement thereof may be limited by the receivership,
conservatorship and supervisory powers of bank regulatory agencies generally as
well as bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting enforcement of creditors' rights generally and except that enforcement
thereof may be subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law) and the
availability of equitable remedies.
(b) Neither the execution and delivery by Buyer and Acquisition Subsidiary
of any of the Transaction Documents to which either is a party, respectively,
nor the consummation by Buyer and Acquisition Subsidiary of the transactions
contemplated hereby and thereby, nor compliance by Buyer and Acquisition
Subsidiary with any of the terms or provisions hereof or thereof, will, assuming
that the consents and approvals referred to in Section 3.04 hereof are duly
obtained, (i) violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to Buyer or any of its properties
or assets, or, (ii) violate, conflict with, result in a breach of any provisions
of, constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, result in the termination of,
accelerate the performance required by, or result in a right of termination or
acceleration or the creation of any lien, security interest, charge or other
encumbrance upon any of the properties or assets of Buyer under, any of the
terms, conditions or provisions of (x) the Articles of Association, or other
charter document of like nature or By-laws of Buyer, or (y) any note, bond,
<PAGE> 7
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Buyer is a party thereto as issuer, guarantor
or obligor, or by which Buyer or any of its properties or assets may be bound or
affected.
3.04 Consents and Approvals. Except for consents, waivers or approvals of,
notices to or filings or registrations with, the Federal Reserve Board, the
FDIC, the Commissioner of Banks of The Commonwealth of Massachusetts, the
Commissioner of Insurance of The Commonwealth of Massachusetts, certain other
state insurance commissioners and regulatory agencies, the Secretary of State of
the State of Delaware under the DLLCA and the Secretary of the Commonwealth of
the Commonwealth of Massachusetts, no consents, waivers or approvals of, notices
to or filings with any public body or authority are necessary, and no consents
or approvals of any third parties (which term does not include the Board of
Directors of Buyer or Acquisition Subsidiary) are necessary, in connection with
(i) the execution and delivery by Buyer of the Transaction Documents, (ii) the
execution and delivery by Acquisition Subsidiary of the Plan of Merger, or (iii)
the consummation by Buyer and Acquisition Subsidiary, as the case may be, of the
transactions contemplated by such Transaction Documents, including the Merger.
Buyer has no knowledge of any fact or circumstance relating to Buyer or its
Affiliates that is reasonably likely to materially impede or delay receipt of
any consents of regulatory or governmental authorities or result in the
imposition of a restriction or condition of the type referenced in Section
6.02(e) herein.
3.05 Financial Statements. Buyer has made available to Seller copies of
(a) the consolidated balance sheets of Buyer Parent Corp. and its subsidiaries
as of December 31 for the fiscal years 1995 through 1997, inclusive, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the fiscal years 1995 through 1997, inclusive, as reported in
Buyer Parent Corp. Annual Reports on Form 10-K for each of the three fiscal
years ended December 31, 1995 through December 31, 1997 filed with the SEC under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in each
case accompanied by the audit report of Arthur Andersen LLP, independent
accountants for Buyer Parent Corp., and (b) the unaudited consolidated balance
sheet of Buyer Parent Corp. and its subsidiaries as of September 30, 1998, the
related unaudited consolidated statements of income and changes in stockholders'
equity for the nine (9) months ended September 30, 1997 and September 30, 1998
and the related unaudited consolidated statements of cash flows for the nine (9)
months ended September 30, 1997 and September 30, 1998, all as reported in Buyer
Parent Corp.'s Quarterly Report on Form 10-Q for the quarter ended September 30,
1998 filed with the SEC under the Exchange Act. The December 31, 1997
consolidated balance sheet of Buyer Parent Corp. (including the related notes,
where applicable) (the "Buyer Balance Sheet") and the other financial statements
referred to herein (including the related notes, where applicable) fairly
present in all material respects, and the financial statements to be included in
any reports or statements (including reports on Forms 10-Q and 10-K) to be filed
by Buyer Parent Corp. with the SEC after the date hereof will fairly present in
all material respects, the consolidated financial position and results of the
consolidated operations and cash flows and changes in stockholders' equity of
Buyer Parent Corp. and its subsidiaries for the respective fiscal periods or as
of the respective dates therein set forth; and each of such statements
(including the related notes, where applicable) has been and will be prepared in
accordance with GAAP consistently applied during the periods involved, except as
otherwise set forth in the notes thereto (subject, in the case of unaudited
interim statements, to normal year-end adjustments).
3.06 Absence of Certain Changes or Events. Except as disclosed in Buyer
Parent Corp.'s Quarterly Report on Form 10-Q for the quarter ended September 30,
1998 or in any Current Reports of Buyer Parent Corp. on Form 8-K filed prior to
the date of this Agreement, since December 31, 1997, there has not been any
change in the assets, properties, liabilities, business, operations, results of
operations or financial condition of Buyer Parent Corp. or any of its
subsidiaries which has had, or is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Buyer Parent Corp. or Buyer.
3.07 Legal Proceedings. There is no suit, action or proceeding pending or,
to the best knowledge of Buyer, threatened, against Buyer or any Affiliate or
subsidiary of Buyer or challenging the
<PAGE> 8
validity or propriety of the transactions contemplated by this Agreement, as to
which there is a reasonable possibility of an adverse determination and which,
if adversely determined, would, individually or in the aggregate, have a
Material Adverse Effect on Buyer or otherwise materially adversely affect
Buyer's ability to perform its obligations under this Agreement, nor is there
any judgment, decree, injunction, rule or order of any legal or administrative
body or arbitrator outstanding against Buyer or any Affiliate or subsidiary of
Buyer having, or which insofar as reasonably can be foreseen, in the future
could have, any such effect.
3.08 Broker's Fees. Neither Buyer nor any of its officers, directors,
employees or agents has employed any broker, finder or financial advisor or
incurred any liability for any fees or commissions in connection with any of the
transactions contemplated by this Agreement, except for the fees incurred in
connection with the engagement of Fox-Pitt, Kelton Inc. and for legal,
accounting and other professional fees payable in connection with the Merger.
Buyer will be responsible for the payment of such fees.
3.09 Financing. Buyer has available to it sources of capital and financing
sufficient to fulfill its obligations under this Agreement and to consummate all
of the transactions contemplated hereby and Buyer's ability to pay the Purchase
Price hereunder is not contingent on raising any equity capital, obtaining
specific financing therefor or the consent of any party.
3.10 Compliance With Applicable Laws. Buyer holds all licenses,
franchises, permits and authorizations necessary for the lawful conduct of its
business, and after giving effect to the transactions contemplated hereby
(including obtaining all Requisite Regulatory Approvals), will be, in compliance
with and not in violation of or default in any respect under any, applicable
law, statute, order, rule, regulation or policy of, or agreement with, any
federal, state or local governmental agency or authority relating to Buyer other
than where such default or noncompliance will not result in or create the
possibility of resulting in (i) any Material Adverse Effect on Buyer, or (ii)
any material limitation on the conduct of business of the Surviving Entity in
addition to those limitations generally applicable to Massachusetts banks
conducting an insurance agency business through a subsidiary, and Buyer has not
received any notice of any violation of any such law, statute, order, rule,
regulation, policy or agreement, or the commencement of any proceeding in
connection with any such violation, and does not know of any violation of, any
such law, statute, order, rule, regulation, policy or agreement which would have
such a result.
3.11 Buyer Information. The information relating to Buyer and its
subsidiaries to be contained in any documents filed with any governmental agency
or authority in connection herewith, to the extent such information is provided
in writing by Buyer, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make such information not misleading.
3.12 Disclosure. No representation or warranty contained in this
Agreement, and no statement contained in any certificate, list or other writing
furnished to Seller pursuant to the provisions hereof, to the best knowledge of
Buyer, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements herein or therein not
misleading. To the best knowledge of Buyer, all information material to Seller's
interest in the Merger or which is necessary to make Buyer's representations and
warranties herein contained not misleading, has been disclosed to Seller.
<PAGE> 9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER AND PARTNERS
Seller and the Partners hereby represent and warrant to Buyer as follows:
4.01 Organization of Seller.
(a) Seller is a limited liability partnership duly organized, validly
existing and in good standing under the laws of The Commonwealth of
Massachusetts. Seller has all requisite power and authority to own, lease or
operate all of its properties and assets and to carry on its business as it is
now being conducted, and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned, leased or operated by
it makes such licensing or qualification necessary, except where the failure to
be so licensed or qualified would not result in, with respect to Seller, any
Material Adverse Effect. Section 4.01(a)(i) of the disclosure schedule delivered
to Buyer together herewith (the "Seller Disclosure Schedule") lists each of the
jurisdictions in which Seller or the Seller Subsidiary possesses such foreign
qualification or license. Seller and the Seller Subsidiary are duly licensed to
act as an insurance agent, broker, or adviser, as the case may be, in each state
as set forth after its respective name in Section 4.01(a)(i) of the Seller
Disclosure Schedule. The Partners and all other employees of Seller and the
Seller Subsidiary responsible for selling or placing insurance for Seller (each
such employee, an "Associate," and together, the "Associates"), are each duly
licensed to act as an insurance agent or broker by the appropriate insurance
authorities in each state set forth after such person's name in Section
4.01(a)(iii) of the Seller Disclosure Schedule. All licenses set forth in
Section 4.01(a) of the Seller Disclosure Schedule are in good standing. (b)
Except for the Seller Subsidiary, Seller has no subsidiaries and no Equity
Investments (other than its investments in the Seller Subsidiary). Section
4.01(b) of the Seller Disclosure Schedule lists for the Seller Subsidiary, the
percentage of Seller's ownership in the Seller Subsidiary, the activities of the
Seller Subsidiary, including but not limited to, whether or not the Seller
Subsidiary is engaged principally or otherwise, directly or indirectly through a
joint venture, partnership or other entity, in the sale of mutual funds or the
development of real estate. Neither Seller nor Seller Subsidiary engage in any
activity, principally or otherwise, that is not permitted for a national bank or
otherwise authorized under applicable FDIC regulations. The Seller Subsidiary is
duly organized, validly existing and in corporate good standing under the laws
of the jurisdiction of its incorporation. The Seller Subsidiary has all
requisite corporate power and authority to own, lease or operate all of its
properties and assets and to carry on its business as it is now being conducted.
At the Effective Time, the Seller Subsidiary will be the only subsidiary or
Equity Investment of Seller.
(c) The partnership records of Seller contain complete and accurate
records of all partnership actions authorized at all meetings held, and all
actions taken by written consent, since the date of Seller's formation by its
partners and Executive Committee. The minute books of the Seller Subsidiary
contain complete and accurate records of all corporate actions authorized at all
meetings held, and all actions taken by written consent, since the date of the
Seller Subsidiary's formation by its stockholders and Board of Directors.
4.02 Partnership Interests; Capitalization.
(a) Schedule 1 attached hereto sets forth a list of the Partners, and
Schedule 2 attached hereto sets forth a list of all formerly active partners,
Retired Partners, Disabled Partners and Estate Partners (as such terms are
defined in the Partnership Agreement) (collectively, the "Retired Partners"), in
each case indicating the type of Partner or Retired Partner and percentage
partnership interest in Seller. The persons listed as Partners or Retired
Partners are the only partners of Seller as of the date hereof. The rights and
liabilities of the Partners and the Retired Partners are as set forth in (i) the
Partnership Agreement of Seller, as amended to date, a copy of which has been
provided to Buyer (the "Partnership
<PAGE> 10
Agreement"), (ii) the partnership actions referred to in Section 4.01(c), and
(iii) M.G.L. chapter 108A. Except as set forth in Section 4.02(a)(i) of the
Seller Disclosure Schedule, no other Person, other than the Partners or the
Retired Partners, has any ownership interest in, or right to receive at any time
a portion of, the Net Income (as defined in the Partnership Agreement) of Seller
or a "terminal payout" or any other payment from Seller under the Partnership
Agreement. Except as described in Section 4.02(a)(ii) of the Seller Disclosure
Schedule, Seller does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for Seller to issue, deliver or sell, or cause to be issued,
delivered or sold any partnership interest in Seller or any securities
convertible into, exchangeable for or representing the right to subscribe for,
purchase or otherwise receive any partnership interest in Seller or obligating
Seller to grant, extend or enter into any such subscriptions, options, warrants,
calls, commitments or agreements. Except as described in Section 4.02(a)(ii) of
the Seller Disclosure Schedule, as of the date hereof, there are no outstanding
contractual obligations of Seller to repurchase, redeem or otherwise acquire any
partnership interest of Seller.
(b) The Seller Subsidiary does not have and is not bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character calling for the Seller Subsidiary to issue deliver or sell, or
cause to be issued, delivered or sold any equity security of the Seller or of
the Seller Subsidiary or any securities convertible into, exchangeable for or
representing the right to subscribe for, purchase or otherwise receive any such
equity security or obligating the Seller Subsidiary to grant, extend or enter
into any such subscriptions, options, warrants, calls, commitments or
agreements. As of the date hereof, there are no outstanding contractual
obligations of the Seller Subsidiary to repurchase, redeem or otherwise acquire
any shares of capital stock of the Seller or the Seller Subsidiary. All of the
shares of capital stock of the Seller Subsidiary held by the Seller are fully
paid and nonassessable and, except for directors' qualifying shares, are owned
by the Seller free and clear of any claim, lien, encumbrance or agreement with
respect thereto.
4.03 Authority; No Violation.
(a) Each of Seller and the Seller Subsidiary has obtained all necessary
authorities and approvals from the Partners in their capacities as such required
for the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby. Seller has full right, power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby to be consummated by it. No other partnership proceedings on
the part of Seller are necessary to consummate any of the transactions
contemplated by the Transaction Documents to be consummated by it. This
Agreement has been, and the Plan of Merger and the other Transaction Documents
to be executed by Seller will be, prior to the Closing Date duly and validly
executed and delivered by Seller and (assuming due authorization, execution and
delivery by Buyer and, with respect to the Plan of Merger, Acquisition
Subsidiary) constitute (or, in the case of the Plan of Merger or such other
Transaction Documents, will constitute at Closing) the valid and binding
obligations of Seller, enforceable against Seller in accordance with their
respective terms, except that enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
enforcement of creditors' rights generally and except that enforcement thereof
may be subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law) and the
availability of equitable remedies.
(b) Neither the execution and delivery of any Transaction Document by
Seller, nor the consummation by Seller of the transactions contemplated thereby,
nor compliance by Seller with any of the terms or provisions hereof or thereof,
will, assuming that the consents and approvals referred to in Section 4.04 are
duly obtained, (i) violate any statute, code, ordinance, rule, regulation,
license, judgment, order, writ, decree or injunction applicable to Seller or the
Seller Subsidiary or any of their respective properties or assets, or (ii)
violate, conflict with, result in a breach of any provisions of, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of, accelerate the
performance required by, or result in a right of termination or acceleration or
the creation of any lien, security interest, charge or other encumbrance upon
any of the respective properties or assets of Seller or the Seller Subsidiary
under, any of the terms, conditions or provisions of (x) the Partnership
Agreement, certificate of partnership, articles or organization or other
<PAGE> 11
charter document of like nature or By-laws of Seller or the Seller Subsidiary,
as the case may be, or (y) any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which Seller or
the Seller Subsidiary is a party thereto as issuer, guarantor or obligor, or by
which they or any of their respective properties or assets may be bound or
affected.
4.04 Consents and Approvals. Except as set forth in Section 4.04 of the
Seller Disclosure Schedule, no consents, waivers or approvals of, notices to or
filings with any public body or authority are necessary, and no consents or
approvals of any third parties (which term does not include the Partners of
Seller) are necessary, in connection with (i) the execution and delivery by
Seller of the Transaction Documents or (ii) the consummation by Seller of the
transactions contemplated by such agreements, including the Merger. The
affirmative vote of holders of one hundred percent (100%) of the outstanding
partnership interests of Seller held by the Partners is the only vote of the
holders of any class or series of partnership interests of Seller necessary to
approve the Transaction Documents and the transactions contemplated thereby.
Seller has no knowledge of any fact or circumstance relating to Seller that is
reasonably likely to materially impede or delay receipt of any consent of
regulatory or governmental authorities or result in the imposition of a
restriction or condition of the type referenced in Section 6.02(f) herein.
4.05 Financial Statements. Seller has delivered to Buyer copies of (a) the
balance sheets of Seller as of December 31 for the fiscal years 1995 through
1997, inclusive, and the related statements of income and cash flows for the
fiscal years 1995 through 1997, inclusive, in each case accompanied by the audit
report of Deloitte & Touche LLP, independent accountants for Seller, (b) the
unaudited balance sheets of the Seller Subsidiary as of December 31 for the
fiscal years 1995 through 1997, inclusive, and the related income statements for
the fiscal years 1995 through 1997, inclusive, and (c) the unaudited balance
sheets of each of Seller and the Seller Subsidiary as of September 30, 1998 and
September 30, 1997, the related unaudited consolidated statements of income for
the nine (9) months ended September 30, 1998 and September 30, 1997
(collectively, the "September Financial Statements"). The December 31, 1997
balance sheet of Seller (including the related notes, where applicable) (the
"Seller Balance Sheet") and the other financial statements referred to herein
(including the related notes, where applicable) fairly present, in all material
respects, and the financial statements to be included in any reports or
statements to be filed by Seller with any state or federal governmental agency
or authority or otherwise prepared by Seller after the date hereof will fairly
present, in all material respects, the assets, liabilities, and partners'
accounts of Seller and its revenue and expenses, changes in partners' accounts,
and cash flows for the respective fiscal periods or as of the respective dates
therein set forth, on the basis of accounting described in Note 1 thereto. Each
of such statements (including the related notes, where applicable) has been and
will be prepared in accordance with the accrual method of accounting used for
federal income tax purposes (as described in more detail in Note 1 to the
December 31, 1997 financial statements), consistently applied during the periods
involved, except as otherwise set forth in the notes thereto (subject, in the
case of unaudited interim statements, to the absence of footnotes and to normal
year-end adjustments). The books and records of Seller and the Seller Subsidiary
have been, and are being, maintained on an income-tax basis and in accordance
with applicable legal and regulatory requirements.
4.06 Absence of Undisclosed Liabilities. Neither Seller nor the Seller
Subsidiary has any obligation or liability (contingent or otherwise) that is
material on a consolidated basis to Seller, or that when combined with all
similar obligations or liabilities would be material on a consolidated basis to
Seller, except as disclosed or reflected in the Seller Balance Sheet, any of the
other financial statements described in Section 4.05 above or Section 4.06 or
the other sections of the Seller Disclosure Schedule, or incurred hereafter in
the ordinary course of business consistent with past practice and with Section
5.01 hereof.
4.07 Broker's Fees. Neither Seller nor any of its Partners, officers,
employees or agents has employed any broker, finder or financial advisor or
incurred any liability for any fees or commissions in connection with any of the
transactions contemplated by this Agreement, except for the fees incurred in
<PAGE> 12
connection with the engagement of Reagan & Associates and except for legal,
accounting and other professional fees payable in connection with the Merger.
The Seller and the Partners will be responsible for the payment of such fees.
4.08 Absence of Certain Changes or Events. Except as disclosed in, or
reflected on, the September Financial Statements or as set forth in Section 4.08
of the Seller Disclosure Schedule, or incurred hereinafter in the ordinary
course of business consistent with past practice and with Section 5.01 hereof,
since December 31, 1997, (i) the business of Seller and the Seller Subsidiary
have been conducted only in the ordinary course consistent with past practices,
(ii) there has not been any change in the business, assets, financial condition
or results of operations of the Seller or the Seller Subsidiary, (iii) there has
not been any material change in any policy or practice followed by the Seller or
the Seller Subsidiary in the ordinary course of business, (iv) neither the
Seller nor the Seller Subsidiary has incurred any material liability, except in
the ordinary course of its business consistent with prudent business practices,
(v) there has not been any agreement, contract or commitment entered into, or
agreed to be entered into, except for those in the ordinary course of business;
(vi) there has not been any increase in or establishment of any bonus,
insurance, severance (including severance after a change in control), deferred
compensation, pension, retirement, profit sharing, life insurance or split
dollar life insurance, retiree medical or life insurance, or other employee
benefit plan, or any other increase in the compensation payable or to become
payable to any officers or key employees of the Seller or the Seller Subsidiary,
except with respect to cash compensation, in the ordinary course of business
consistent with past practice; and (vii) there has not been any change in any of
the accounting methods or practices of the Seller or the Seller Subsidiary other
than changes required by applicable law or applicable accounting policies.
4.09 Legal Proceedings. Seller has furnished to the Buyer copies of (i)
all attorney responses to the request of the independent auditors for the Seller
and the Seller Subsidiary with respect to loss contingencies as of December 31,
1997, and (ii) a written list of all legal and regulatory proceedings filed
against Seller or the Seller Subsidiary since that date. Neither Seller nor the
Seller Subsidiary is a party to any pending or, to the knowledge of the Seller,
threatened claim, action, suit, proceeding or to the knowledge of the Seller,
investigation against Seller, or is subject to any order, judgment or decree,
except for matters shown in Section 4.09 of the Seller Disclosure Schedule.
Seller has provided Buyer with copies of all consumer or customer complaints,
whether formal or informal, brought since 1993 against Seller, any of the
Partners or the Associates regarding the conduct of Seller's business or the
activities of Seller, the Partners or the Associates, which complaints involved
either an attorney for the complainant or a notice to a regulatory agency or
insurance carrier, and there have been no other material complaints brought
during such period. Except as set forth in Section 4.09 of the Seller Disclosure
Schedule, there is no suit, action or proceeding pending or, to the best
knowledge of Seller, threatened, against Seller or the Seller Subsidiary or
challenging the validity or propriety of the transactions contemplated by this
Agreement or the Plan of Merger, as to which there is a reasonable probability
of an adverse determination and which, if adversely determined, would,
individually or in the aggregate, have a Material Adverse Effect on Seller or
otherwise materially adversely affect Seller's ability to perform its
obligations under this Agreement, nor is there any judgment, decree, injunction,
rule or order of any legal or administrative body or arbitrator outstanding
against Seller having, or which insofar as reasonably can be foreseen, in the
future could have, any such effect.
4.10 Taxes and Tax Returns.
(a) Seller and the Seller Subsidiary (referred to for purposes of this
Section 4.10, collectively, as the "Companies") have timely filed in correct
form all Filed Tax Returns, each Filed Tax Return has been prepared in
compliance with all applicable laws and regulations, and all Filed Tax Returns
are true and accurate in all respects. Seller has delivered to the Buyer correct
and complete copies of all federal income Tax Returns filed with respect to the
Companies for taxable periods ended on or after December 31, 1993, and all
examination reports, and statements of deficiencies assessed against or agreed
to by the Companies with respect to such taxable periods.
(b) Each of the Companies has paid all Taxes required to be paid by it.
<PAGE> 13
(c) No assessment that has not been settled or otherwise resolved has been
made with respect to Taxes payable by either Company not shown on the Filed Tax
Returns. No deficiency in Taxes or other proposed adjustment that has not been
settled or otherwise resolved has been asserted in writing by any taxing
authority against either of the Companies nor have either of the Companies
consented to any extension of the period for assessment or collection with
respect to any Tax. No Filed Tax Return of either of the Companies is now under
examination by any applicable taxing authority. There are no liens for Taxes
(other than current Taxes not yet due and payable) on any of the assets of
either of the Companies. Neither of the Companies has requested or been granted
an extension of the time for filing any Tax Return to a date later than the
Effective Time. No claim has ever been made by a taxing authority in a
jurisdiction where neither of the Companies pays Tax or file Tax Returns that
either of the Companies is or may be subject to Taxes assessed by that
jurisdiction.
(d) Adequate provision has been made on the most recent balance sheet of
each of Seller and the Seller Subsidiary for all Taxes of such Company in
respect of all periods through the date of such balance sheet.
(e) Neither of the Companies is a party to or bound by any Tax
indemnification, Tax allocation or Tax sharing agreement with any person or
entity or has any contractual obligation to indemnify any other person or entity
with respect to Taxes.
(f) Neither of the Companies has filed or been included in a combined,
consolidated or unitary income Tax Return (including any consolidated federal
income Tax Return) other than one of which Seller was the parent.
(g) Neither of the Companies has made any payments, is not obligated to
make any payments, or is not a party to any agreement that could obligate it to
make any payments that will not be deductible under Code Section 280G.
(h) Neither of the Companies has made or is affected by any elections
under Code Sections 108(b)(5), 338(g), or 565, or Treasury Regulation
Sections 1.1502-20(g) or 1.1502-32(f)(2).
(i) The Companies have withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any Partner,
Retired Partner, employee, creditor, independent contractor or other third
party.
4.11 Employees.
(a) Seller has delivered to Buyer a list of all employees of Seller and
the Seller Subsidiary (the "Employees"), showing for each the position held as
of the date hereof, the date of hire, the regular work schedule and current
salary. None of the Employees is covered by any collective bargaining or similar
agreement. There is no strike or other labor dispute pending or, to the
knowledge of Seller, threatened, against Seller or the Seller Subsidiary which
would have a Material Adverse Effect on Seller or Buyer. Except as set forth in
Section 4.11(a) of the Seller Disclosure Schedule, neither Seller nor the Seller
Subsidiary maintains or contributes to any "employee pension benefit plan" (the
"Seller Pension Plans"), as such term is defined in Section 3 of ERISA,
"employee welfare benefit plan" (the "Seller Benefit Plans"), as such term is
defined in Section 3 of ERISA, stock option plan, stock purchase plan, deferred
compensation plan, other employee benefit plan for Employees or former employees
of Seller or the Seller Subsidiary, or any other plan, program or arrangement of
the same or similar nature that provides benefits to nonemployee directors of
Seller or the Seller Subsidiary (collectively, the "Seller Other Plans").
(b) Seller has delivered to Buyer a complete and accurate copy of each of
the following with respect to each of the Seller Pension Plans, Seller Benefit
Plans and Seller Other Plans: (i) plan
<PAGE> 14
document; (ii) trust agreement or insurance contract, if any; (iii) most recent
IRS determination letter, if any; (iv) most recent actuarial report, if any; and
(v) most recent annual report on Form 5500.
(c) The current value of the assets of each of the Seller Pension Plans
subject to Title IV of ERISA is less than that plan's "benefit liabilities" as
that term is defined in Section 4001(a)(16) of ERISA, when determined under
actuarial factors that would apply if that plan terminated in accordance with
all applicable legal requirements.
(d) Each of the Seller Pension Plans and each of the Seller Benefit Plans
has been administered in compliance with its terms in all material respects and
is in compliance in all material respects with the applicable provisions of
ERISA (including, but not limited to, the funding and prohibited transactions
provisions thereof), the Code and other applicable laws.
(e) There has been no reportable event within the meaning of Section
4043(b) of ERISA or any waived funding deficiency within the meaning of Section
412(d)(3) of the Code with respect to any Seller Pension Plan.
(f) Seller has caused all of its financial statements, including the
Seller Balance Sheet, to reflect appropriate expenses, accruals and reserves for
all Seller Pension Plans, Seller Benefit Plans and Seller Other Plans and have
made or provided for all contributions to the Seller Pension Plans required
thereunder.
(g) Seller has not contributed to any "multiemployer plan," as such term
is defined in Section 3(37) of ERISA.
(h) Each of the Seller Pension Plans which is intended to be a qualified
plan within the meaning of Section 401(a) of the Code is so qualified, and
Seller is not aware of any fact or circumstance which would adversely affect the
qualified status of any such plan.
(i) Neither Seller nor the Seller Subsidiary is a party to or maintains
any contract or other arrangement with any employee or group of employees,
providing severance payments, stock or stock-equivalent payments or
post-employment benefits of any kind or providing that any otherwise disclosed
plan, program or arrangement will irrevocably continue, with respect to any or
all of its participants, for any period of time.
4.12 Agreements with Governmental Authorities. None of Seller, the Seller
Subsidiary, or any of the Partners or Associates is a party to any commitment,
letter, written agreement, memorandum of understanding or order to cease and
desist with any federal or state governmental agency or authority charged with
the supervision or regulation of insurance agencies which restricts the conduct
of its business, or in any manner relates to its capital adequacy, credit
policies or practices, management or overall safety and soundness or such
entity's ability to perform its obligations hereunder.
4.13 Material Agreements. Section 4.13 of the Seller Disclosure Schedule
lists the following contracts and other agreements (whether written or oral) to
which either of Seller or the Seller Subsidiary is currently a party:
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in
excess of $25,000 per annum;
(ii) any agreement (or group of related agreements) for the purchase
of supplies, products or other personal property, or for the furnishing or
receipt of services that involves consideration in excess of $25,000 per
annum other than contracts for insurance;
(iii) any agreement constituting a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which the
Seller has created, incurred, assumed or guaranteed any indebtedness for
borrowed money in excess of $25,000 or under which it has imposed a
security interest on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or noncompetition;
<PAGE> 15
(vi) any agreement with any Partner or any Affiliate;
(vii) any profit sharing, option, partnership or stock purchase,
deferred compensation, severance or other plan or arrangement for the
benefit of its current or former Partners, officers and employees;
(viii) any agreement for the employment of any individual on a
full-time, part-time, consulting or other basis or providing severance
benefits;
(ix) any agreement under which it has advanced or loaned any amount
to any of its Partners, directors, officers and employees outside the
ordinary course of business;
(x) any agreement under which the consequences of a default or
termination could have a Material Adverse Effect on Seller, indicating any
such agreement which is subject to renewal within sixty (60) days of the
date of this Agreement; or
(xi) any other agreement (or group of related agreements), other
than contracts for insurance, the performance of which involves the
payment by Seller of consideration in excess of $25,000.
Seller has delivered to the Buyer a correct and complete copy of each
written agreement listed in Section 4.13 of the Seller Disclosure Schedule and a
written summary setting forth the terms and conditions of each oral agreement,
if any, referred to in Section 4.13 of the Seller Disclosure Schedule. Each such
written agreement constitutes the legal, valid and binding obligation of the
parties thereto, enforceable against such obligor in accordance with the terms
thereof (except as enforcement may be limited by general principles of equity
whether applied in a court of law or equity and by bankruptcy, insolvency and
similar laws affecting creditors' rights and remedies generally). Seller is not
in default under, or with the giving of notice or the lapse of time, or both,
would be in default under, any of the terms or conditions of any contract,
agreement or commitment listed in Section 4.13 of the Seller Disclosure
Schedule. To the knowledge of any of the Partners and Seller's officers, there
has occurred no default or event which, with the giving of notice or the lapse
of time, or both, would constitute a default by any other party to any such
contract, agreement or commitment.
4.14 Ownership of Real Property and Assets; Leases. Neither Seller nor the
Seller Subsidiary owns any real property. Section 4.14(a) of the Seller
Disclosure Schedule sets forth a true and complete list of all real property
leased or operated by the Seller or the Seller Subsidiary as of the date hereof.
Seller or the Seller Subsidiary, as the case may be, has good and marketable
title to all assets and properties used in its respective business, whether real
or personal, tangible or intangible, including, without limitation, the assets
and properties reflected in its respective balance sheet as of September 30,
1998, or acquired subsequent thereto, subject to no encumbrances, liens,
mortgages, security interests or pledges, except (a) those items that secure
liabilities that are reflected in said balance sheet or the notes thereto or
incurred in the ordinary course of business after the date of such balance sheet
or (b) statutory liens for amounts not yet delinquent or which are being
contested in good faith. Seller or the Seller Subsidiary, as the case may be, as
lessee has the right under valid and existing leases to occupy, use, possess and
control all property leased by the Seller or the Seller Subsidiary as presently
occupied, used, possessed and controlled by the Seller or the Seller Subsidiary.
Neither Seller nor the Seller Subsidiary is in default, and there has not
occurred any event that with the lapse of time or giving of notice or both would
constitute a default, under any leases pursuant to which the Seller or the
Seller Subsidiary leases any real property, except for such defaults which,
individually or in the aggregate, would not result in the forfeiture of the use
or occupancy of the property covered by any such lease or would not result in a
material liability to the Seller or the Seller Subsidiary which is not reflected
on the consolidated balance sheet of the Seller dated as of September 30, 1998.
All such leases constitute legal, valid and binding obligations of the Seller or
the Seller Subsidiary and, to the knowledge of the Seller, the other party
thereto, enforceable by the Seller or the Seller Subsidiary in accordance with
their respective terms, except that enforcement thereof may be limited by the
receivership, conservatorship and supervisory powers of bank regulatory agencies
generally as well as bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting enforcement of creditors' rights generally and except
that enforcement thereof may be subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law) and the availability of equitable remedies. Section 4.14(a) of the Seller
Disclosure Schedule sets forth the expiration date and renewal terms of each
such lease. Neither Seller nor the Seller Subsidiary has received notice of, or
made a claim with respect to, any breach or default under any leases pursuant to
which the Seller or the Seller Subsidiary leases any real property. None of the
leases to which
<PAGE> 16
the Seller or the Seller Subsidiary is a party, will terminate by reason of the
Seller (a) entering into this Agreement or any of the other Transaction
Documents or (b) consummating the transactions contemplated hereby or thereby.
4.15 Reports. Since January 1, 1994, Seller and the Seller Subsidiary have
filed, and subsequent to the date hereof will file, all reports, registrations
and statements, together with any amendments required to be made with respect
thereto, that were and are required to be filed with any state or federal
governmental agencies or authorities (all such reports and statements are
collectively referred to herein as the "Seller Reports"). As of their respective
dates, the Seller Reports complied and, with respect to filings made after the
date of this Agreement, will at the date of filing comply, in all material
respects with all of the statutes, rules and regulations enforced or promulgated
by the regulatory authority with which they were filed and did not contain and,
with respect to filings made after the date of this Agreement, will not at the
date of filing contain, any untrue statement of a material fact or omit 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.
4.16 Compliance with Applicable Laws. Each of Seller, the Seller
Subsidiary, the Partners and the Associates holds all material licenses,
franchises, permits and authorizations necessary for the lawful conduct of its
and their respective business and activities, and each of Seller, the Seller
Subsidiary, the Partners and the Associates has complied with and is not in
default in any respect under any applicable law, statute, order, rule,
regulation or policy of, or agreement with, any federal, state or local
governmental agency or authority relating to Seller, the Seller Subsidiary, the
Partners and the Associates, other than where such default or noncompliance will
not result in, or create any reasonable probability of resulting in, a material
limitation on the conduct of the business of Seller or the Seller Subsidiary,
will not cause, or create any reasonable probability of causing, Seller, the
Seller Subsidiary, the Partners or the Associates to incur any material
financial penalty and will not otherwise result, or create any reasonable
probability of resulting, with respect to Seller, in any Material Adverse
Effect, and, except with respect to those matters for which Seller has provided
Buyer information pursuant to Section 4.09 hereof, Seller has not received any
notice of violation of, or commencement of any proceeding in connection with any
such violation, and does not know of any violation of, any such law, statute,
order, rule, regulation, policy or agreement which would have such a result.
4.17 Insurance. Seller and the Seller Subsidiary are presently insured,
and since December 31, 1993 have been insured, for reasonable amounts against
such risks as companies engaged in a similar business in a similar location
would, in accordance with good business practice, customarily be insured. Seller
has delivered to the Buyer copies of policies relating to insurance maintained
by the Seller or the Seller Subsidiary with respect to their properties and the
conduct of their businesses.
4.18 Labor. No work stoppage involving Seller or the Seller Subsidiary is
pending or, to the best knowledge of Seller, threatened. Neither Seller nor the
Seller Subsidiary is involved in, or, to the best knowledge of Seller,
threatened with or affected by, any dispute, arbitration, lawsuit or
administrative proceeding relating to labor or employment matters which, if
adversely decided, could result in a Material Adverse Effect with respect to
Seller.
4.19 Material Interests of Certain Persons. No officer, director,
employee, or Partner of Seller or the Seller Subsidiary, as the case may be, or
any "associate" (as such term is defined in Rule 14a-1 under the Exchange Act)
of any such officer, director, employee or Partner, has any material interest in
any material contract or property (real or personal), tangible or intangible,
used in or pertaining to the business of Seller or the Seller Subsidiary.
4.20 Trademarks, Patents, Etc. Neither Seller nor the Seller Subsidiary
has or uses any patents, trade names, service marks, trademarks or copyrights
registered in its name. Seller does not have or use any common law trade names
or trademarks or copyrights or any proprietary trade secrets, processes or
know-how except for (i) the use by it of the names listed in Section 4.20 of the
Seller
<PAGE> 17
Disclosure Schedule, (ii) copyrights arising by operation of law in connection
with brochures and other written material created by Seller and (iii) any
customer lists of Seller or the Seller Subsidiary (the "Known Intellectual
Property"). Except for off-the-shelf office systems programs or as described in
Section 4.20 of the Seller Disclosure Schedule, neither Seller nor the Seller
Subsidiary is a party to any license agreement as licensor or licensee of any
intellectual property. Seller has not granted to any other Person a license of
any of the names listed in Section 4.20 of the Seller Disclosure Schedule or any
derivation thereof. No claims have been asserted against Seller or the Seller
Subsidiary, and to the Seller's knowledge no claims are pending, by any Person
regarding the use or infringement by Seller or the Seller Subsidiary of any
trademarks, patents, service marks, trade names, copyrights, trade secrets,
know-how or processes or other intellectual property of any kind whatsoever, or
challenging or questioning the validity or effectiveness of any license or
agreement, and to the Seller's knowledge there is no basis for such claim. To
the Seller's knowledge, the use by Seller or the Seller Subsidiary of the Known
Intellectual Property does not infringe on the rights of any Person.
4.21 Accounts Receivable. Except as specifically set forth in Section 4.21
of the Seller Disclosure Schedule, hereto, all accounts and notes receivable
reflected on the Seller Balance Sheet, and all accounts and notes receivable
arising subsequent to the date of the Seller Balance Sheet, have arisen in the
ordinary course of business, represent valid obligations to Seller or the Seller
Subsidiary and, subject only to an amount of bad debts reasonable in the
industry and not materially different than Seller's past experience, have been
collected or are collectible in the aggregate recorded amounts thereof in
accordance with their terms.
4.22 Substantial Customers, Brokers and Suppliers; Expirations.
(a) Section 4.22(a) of the Seller Disclosure Schedule lists the 25
customers of Seller with the highest amounts of premiums paid to Seller or paid
directly to the applicable insurer during the period from January 1, 1998 until
December 9, 1998, and the amount for which each such customer was invoiced
during such period.
(b) Section 4.22(b) of the Seller Disclosure Schedule lists the 25
insurance markets of Seller with the highest premium volume during the period
from January 1, 1998 until December 9, 1998, and the amount which Seller paid to
each insurance market during such period.
(c) Section 4.22(c) of the Seller Disclosure Schedule lists the producing
brokers for Seller during 1997 and the 9 month period ended September 30, 1998,
and the production for such broker during each such period.
(d) No customer, insurance market or broker listed in Sections 4.22(a),
(b), or (c) of the Seller Disclosure Schedule has ceased, or indicated to Seller
an intention to cease, dealing with or through Seller, (ii) reduced, or
indicated an intention to reduce, substantially its dealings with or through
Seller, or (iii) changed, or indicated an intention to change, substantially the
terms on which it is prepared to deal with or through Seller. To Seller's
knowledge, all of the customers, insurance markets or brokers listed in Sections
4.22(a), (b), or (c) of the Seller Disclosure Schedule will continue to be
customers, insurance markets or brokers of Seller after the Closing.
(e) Except in the ordinary course of business, to Seller's knowledge, no
policies of insurance in force for which the Seller receives commissions or
other remuneration will be terminated before the stated expiration date or will
not be renewed upon expiration.
(f) Expirations on insurance policies on which Seller earns commissions
are the sole property of Seller and not of any Partner, Associate, or other
Employee, except for, (i) Expirations on insurance policies produced by
sub-brokers, which policies, in 1997, accounted for 5.1% of Seller's gross
commissions, and, for the nine months ended September 30, 1998, accounted for
6.1% of Seller's gross commissions and (ii) as of the date hereof, Expirations
on policies produced by one Employee before he
<PAGE> 18
became employed by Seller, which policies account for less than 1% of Seller's
gross commissions in 1998 to date, and which Expirations are retained by such
Employee under an agreement consistent with Seller's customary policies for
Employees who bring such business when they become employed by Seller, a copy of
which agreement has been provided to Buyer.
4.23 Discount Programs. Section 4.23 of the Seller Disclosure Schedule
sets forth a description of each commission sharing arrangement, sub-brokerage
arrangement or other promotion program (collectively, "Promotions") instituted
by Seller and in effect prior to the Closing Date. The description of each
Promotion includes a summary of all major terms thereof, including, without
limitation, the amounts of the commissions shared or sub-brokerage fees, the
period for which it is in effect and the services subject thereto. True and
complete copies of each written contract relating to Promotions described in
Section 4.23 of the Seller Disclosure Schedule have been delivered to the Buyer
prior to execution of this Agreement.
4.24 Insurance Brokerage Activities.
(a) No person other than the Partners, Associates or Employees is or has
been authorized or permitted to place business on Seller's behalf.
(b) No binder of insurance or other intimation of coverage has been issued
or sent to any person by Seller or on its behalf unless and until the relevant
risk has been properly bound and all binders of insurance and intimations of
coverage on the part of Seller are complete and accurate in all material
respects.
(c) Section 4.24 of the Seller Disclosure Schedule sets out fully and
accurately the policy of the Seller with respect to the commissions booked in
its book of accounts and:
(i) no commissions have been booked except in accordance with that
policy;
(ii) to Seller's knowledge, there are no facts or circumstances
which might require reversal of commissions booked or return of
commissions already collected, except in the normal course of business.
(d) Seller has not paid insurance premiums, premium adjustments or other
items on behalf of a client (whether or not funded by the client) except with
the authority (express or implied) of the clients on whose behalf such payments
purport to have been made.
(e) To Seller's knowledge, Seller has not been party to the placement,
directly or indirectly, of insurance which is:
(i) unlawful; or
(ii) a fictitious or sham transaction.
(f) To Seller's knowledge, in the placement of insurance, Seller has not
breached any duty owed to its clients including but not limited to the duty to
make full disclosure of material facts to underwriters.
(g) Except as set out in Section 4.24 of the Seller Disclosure Schedule,
there are no arrangements whereby any part of any brokerage or commission
payable to Seller by any insured is shared with the insured or any other third
party.
(h) To Seller's knowledge, except as set out in Section 4.24 of the Seller
Disclosure Schedule, all insurance companies with which business has been placed
by Seller are paying claims in the normal course and without undue delay.
<PAGE> 19
4.25 Year 2000. The only "mission-critical" computer system (as such term
is commonly used in regulations and trade organization guidelines with respect
to the Year 2000 Problem (as defined below)) owned or utilized by Seller in its
business is the "INfinity System". Seller has scheduled an update to the
INfinity System in January 1999. Seller has received written assurances from
Delphi Product Development, the applicable third-party service provider with
respect to the INfinity System, that upon adoption of the update referred to in
the preceding sentence, the INfinity System will contain no deficiencies
relating generally to formatting for entering dates (commonly referred to and
referred herein as the "Year 2000 Problem") and that the INfinity System is in
compliance with all regulations and trade organization guidelines concerning the
Year 2000 Problem. To the best of Seller's knowledge, all of its other computer
systems ("Non-Mission Critical Systems") are in compliance with all regulations
and trade organization guidelines concerning the Year 2000 Problem, except where
the failure to be compliant would not result in, with respect to Seller, any
Material Adverse Effect. Seller is in the process of requesting written
assurances from all applicable third-party service or equipment providers that
its Non-Mission Critical Systems are in compliance with all regulations and
trade organization guidelines concerning the Year 2000 Problem. Seller has
delivered to Buyer copies of all correspondence between Seller and third-party
service or equipment providers or licensors concerning Year 2000 Problem
compliance. Except as set forth in Section 4.25 of the Seller Disclosure
Schedule, and except for off-the-shelf office systems programs, Seller has no
other contracts with, or commitments to, any third-party with respect to its
computer systems. Seller is not aware of any inability on the part of any
customer, insurance company or service provider with which Seller transacts
business to timely remedy any deficiencies of its own in respect of the Year
2000 Problem.
4.26 Prior Acquisitions. Except as set forth in the Seller Balance Sheet,
the September 30, 1998 balance sheet or in Section 4.26 of the Seller Disclosure
Schedule, no claims, amounts owed, liabilities (contingent or otherwise),
encumbrances, legal proceedings or any other obligations of any kind are due or
were incurred or outstanding in connection with any acquisitions made by Seller
prior to the date of this Agreement.
4.27 Seller Information. The information relating to the Seller and the
Seller Subsidiary to be contained in any documents filed with any governmental
agency in connection herewith, to the extent such information is provided in
writing by Seller, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make such information not misleading.
4.28 Disclosure. No representation or warranty contained in this
Agreement, and no statement contained in any certificate, list or other writing,
including but not necessarily limited to the Seller Disclosure Schedule,
furnished to Buyer pursuant to the provisions hereof, to the best knowledge of
Seller, contains or will contain any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements herein
or therein not misleading or, in the case of Seller's and the Seller
Subsidiary's financial statements, to present fairly the assets, liabilities and
partners' accounts of Seller and its business and expenses, changes in partners'
accounts and cash flows. To the best knowledge of Seller, all information
material to Buyer's interest in the Merger, or which is necessary to make
Seller's representations and warranties herein contained not misleading, has
been disclosed to Buyer.
4.29 Financing. Section 4.29 of the Seller Disclosure Schedule lists each
of the financing arrangements, including subordinated loans and promissory notes
to or investments in Seller to which Seller is currently a party, including
maturity date, original principal amount, interest rate and amount outstanding.
Seller is not a party to any financing arrangement that will accelerate or
terminate by reason of Seller (i) entering into this Agreement or any of the
Transaction Documents or (ii) consummating the transactions contemplated hereby
and thereby, including the Merger.
<PAGE> 20
ARTICLE V
COVENANTS OF THE PARTIES
5.01 Conduct of the Business of Seller. During the period from the date of
this Agreement to the earlier of the Effective Time or the date of termination
of this Agreement, and except as provided in Section 5.13 hereof or as may be
required or specifically permitted pursuant to this Agreement, Seller:
(a) shall, and shall cause the Seller Subsidiary to, conduct its business
and engage in transactions only in the ordinary and usual course of business
consistent with past practices, which shall include without limitation (i)
refraining from any of the activities described in Section 5.01(b) below and
(ii) not entering into any material transactions except in the ordinary and
usual course of business consistent with past practices, and (iii) complying
with the following covenants:
(A) maintaining its partnership or corporate existence, as the case
may be, and good standing, except where any failure to maintain such good
standing does not or would not have a Material Adverse Effect on the
Seller;
(B) using all reasonable efforts to maintain in full force and
effect insurance generally comparable in amount and in scope of coverage
to that now maintained by it;
(C) complying with and performing in all material respects its
obligations and duties (y) under contracts, leases and documents relating
to or affecting its assets, properties and business and (z) imposed upon
it by all federal, state and local laws and all rules, regulations and
orders imposed by federal, state or local governmental authorities,
judicial orders, judgments, decrees and similar determinations; and
(D) using all reasonable efforts and cause the Seller Subsidiary to
use all reasonable efforts to (x) preserve intact its business
organization and the goodwill of those having business relationships with
the Seller or the Seller Subsidiary, (y) keep available the services of
its officers and employees as a group and (z) maintain satisfactory
relationships with customers, insurance markets and brokers and others
having business relationships with it;
(b) shall not and shall not permit the Seller Subsidiary to, without the
prior written consent of Buyer:
(i) engage or participate in any material transaction or incur or
sustain any material obligation or liability except in the ordinary,
regular and usual course of its business consistent with past practices;
(ii) except in the ordinary, regular and usual course of business
consistent with past practices, sell, lease, transfer, assign, encumber or
otherwise dispose of or enter into any contract, agreement or
understanding to lease, transfer, assign, encumber or dispose of, any of
its assets;
(iii) relocate, or file any necessary application to open, close,
relocate, any office;
(iv) terminate, or give any notice (written or verbal) to customers
or governmental authorities or agencies to terminate, the operations of
any office or insurance brokerage or agency contract;
(v) waive any material right, whether in equity or at law, that it
has with respect to any asset except in the ordinary, regular and usual
course of business consistent with past practice; or
(vi) terminate, or give any notice (written or verbal) to
governmental authorities or agencies to terminate, fail to renew, or allow
to expire, any license.
(c) shall, at Buyer's request and expense, use its best efforts to
cooperate with Buyer with respect to preparation for the acquisition of Seller
by Buyer, and Seller shall confer on a regular and frequent basis with one or
more representatives of Buyer to report on operational and related matters;
<PAGE> 21
(d) shall promptly notify Buyer of any emergency or other change in the
normal course of its or the Seller Subsidiary's businesses or in the operation
of its or the Seller Subsidiary's properties and of any governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated) if such emergency, change, complaint, investigation or hearing
would be material to the assets, properties, liabilities, business, operations,
results of operations, financial condition or prospects of Seller;
(e) shall not make any distributions in respect of the partnership
interests of Seller except (i) distributions of 1998 Income (A) at the beginning
of January 1999, equal to one-twelfth of eighty-five percent (85%) of Seller's
estimated 1998 Income and (B) when the amount is finally determined, of the
remaining undistributed amount of Seller's actual 1998 Income; and (ii)
distributions of 1999 Income at the beginning of each month before the Closing,
in an amount equal to a pro rata portion (estimated based on the number of
months before the then-anticipated Closing Date) of Seller's then-estimated 1999
Income (for which purpose, "Income" shall mean Seller's income from operations
plus profit-sharing commissions received, as determined in accordance with
Seller's normal accounting methods consistent with past practice);
(f) except as expressly provided for in this Agreement, shall not adopt or
amend (other than amendments required by applicable law or amendments that
reduce amounts payable by it) in any material respect any Seller Pension Plan,
any Seller Benefit Plan or any Seller Other Plan or enter into any employment
(other than at-will employment in the ordinary course), severance or similar
contract with any person (including, without limitation, contracts with
management which might require that payments be made upon the consummation of
the transactions contemplated hereby) or amend any such existing agreements,
plans or contracts to grant any raise or bonus or otherwise increase any amounts
payable thereunder or benefits provided thereunder, or grant or permit any
increase in compensation to its employees as a class except as disclosed in
Section 5.01 of the Seller Disclosure Schedule;
(g) shall not authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into an agreement with respect to, any
merger, consolidation, purchase and assumption transaction or business
combination (other than the Merger), any acquisition of a material amount of
assets or securities or assumption of liabilities, any disposition of a material
amount of assets or securities, or any release or relinquishment of any material
contract rights not in the ordinary and usual course of business and consistent
with past practices;
(h) shall not propose or adopt amendments to its limited liability
partnership registration or Partnership Agreement or the Seller Subsidiary's
articles of organization or by-laws;
(i) (A) shall not admit any new partner, and (B) shall not permit the
Seller Subsidiary to, issue, deliver or sell any shares (whether original
issuance or from treasury shares) of its capital stock, or securities
convertible into or exercisable for shares of its capital stock, or effect any
stock split, reverse stock split, recapitalization, reclassification or similar
transaction or otherwise change its equity capitalization as it exists on the
date hereof;
(j) shall not, and shall not permit the Seller Subsidiary to, grant,
confer or award any options, warrants, conversion rights or other rights not
existing on the date hereof to acquire any partnership interest or shares of its
capital stock, respectively;
(k) shall not purchase, redeem or otherwise acquire any partnership
interest other than pursuant to the arrangements described in Section 4.02(a) of
the Seller Disclosure Schedule, and shall not permit the Seller Subsidiary to,
purchase, redeem or otherwise acquire any shares of its capital stock or any
securities convertible into or exercisable for any shares of its capital stock;
<PAGE> 22
(l) shall not, and shall not permit the Seller Subsidiary to, impose, or
suffer the imposition, on any partnership interest or share of capital stock
held by it of any material lien, charge, or encumbrance, or permit any such
lien, charge, or encumbrance to exist;
(m) shall not, and shall not permit the Seller Subsidiary to, incur any
additional debt obligation or other obligation for borrowed money, or to
guaranty any additional debt obligation or other obligation for borrowed money,
except in the ordinary, regular and usual course of business consistent with
past practices;
(n) shall not, and shall not permit the Seller Subsidiary to, incur or
commit to any capital expenditures or any obligations or liabilities in
connection therewith, other than capital expenditures and such related
obligations or liabilities incurred or committed to in the ordinary, regular and
usual course of business consistent with past practices, and, in all cases,
Seller agrees to obtain Buyer's prior consent with respect to capital
expenditures that individually exceed $50,000 or cumulatively exceed $100,000;
(o) shall not change its methods of accounting in effect at December 31,
1997, except as may be required by changes in applicable accounting policies as
concurred in by Seller's independent auditors, and Seller shall not change its
fiscal year;
(p) shall file all reports, applications and other documents required to
be filed by it with any governmental agency or authority between the date of
this Agreement and the Effective Time and shall furnish to Buyer copies of all
such reports promptly after the same are filed;
(q) shall not, except as expressly contemplated hereby, enter into any
contract with any Affiliate;
(r) shall not, and shall not permit the Seller Subsidiary to, except for
transactions in the ordinary course of business consistent with past practice,
enter into or terminate any material contract or agreement, or make any changes
in any of its material contracts, other than renewals of contracts for less than
a two (2) year period and, subject to the provisions of Section 5.13 hereof,
changes to leases not constituting a material adverse change of terms;
(s) shall not agree, in writing or otherwise, to take any of the actions
that are described above in this Section 5.01 as prohibited hereunder or any
action which would make any of its representations or warranties contained in
this Agreement untrue or incorrect or would otherwise violate any of its other
agreements or commitments contained in this Agreement in any material respect;
(t) shall use its best efforts to adopt the update of the INfinity System
referred to in Section 4.25 hereof and to continue to seek assurances from all
third-party service providers, customers and Insurance Companies with whom
Seller places insurance that Seller's and such third party's computer systems
are Year 2000 compliant, as applicable. Seller shall promptly deliver to Buyer
copies of all correspondence between Seller and such third-parties regarding the
Year 2000 Problem.
5.02 Access to Properties and Records; Confidentiality.
(a) Except as provided below, once a public announcement of this Agreement
has been made, Seller shall permit Buyer access to its and the Seller
Subsidiary's properties during normal business hours upon reasonable prior
notice, and shall disclose and make available to Buyer all Records, including
all books, papers and records relating to the assets, partnership interests,
stock ownership, properties, operations, obligations and liabilities of Seller
and the Seller Subsidiary, including, but not limited to, all books of account
(including the general ledger), tax records, minute books of Partners',
directors' and stockholders' meetings, organizational documents, by-laws,
material contracts and agreements, filings with any regulatory authority,
accountants' work papers, litigation files, plans affecting employees, and any
other business activities or prospects in which Buyer may reasonably have an
interest in light of the
<PAGE> 23
transactions contemplated hereby. Seller shall use best efforts to make
arrangements with each third party provider of services to Seller or the Seller
Subsidiary to permit Buyer reasonable access to all of Seller's and the Seller
Subsidiary's Records held by each such third party. Buyer shall permit Seller
reasonable access during normal business hours upon reasonable prior notice to
such properties and records of Buyer in which Seller may reasonably have an
interest in light of the transactions contemplated hereby. Neither Buyer nor
Seller shall be required to provide access to or to disclose information where
such access or disclosure would violate or prejudice the rights of any customer,
would jeopardize the attorney-client privilege of the institution in possession
or control of such information, or would contravene any law, rule, regulation,
order, judgment, decree or binding agreement or, in the event of any litigation
or threatened litigation between the parties over the terms of this Agreement
where access to information may be adverse to the interests of such party. The
parties will use all reasonable efforts to make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply.
(b) All Confidential Information, as such term is defined further below,
furnished by each party hereto to the other or to any of its affiliates or to
any of its or any of its affiliates' directors, officers, employees, or
representatives or agents (such persons being referred to herein as
"Representatives"), shall be treated as the sole property of the party
furnishing the information until consummation of the transactions contemplated
hereby, and, if such transactions shall not occur, the party receiving the
information or any of its affiliates or Representatives, as the case may be,
shall return to the party which furnished such information all documents or
other materials containing, reflecting or referring to such information, shall
keep confidential all such information for the period hereinafter referred to,
and shall not directly or indirectly at any time use such information for any
competitive or other commercial purpose; provided, however, that Buyer and its
affiliates shall be permitted to retain and share with their regulators,
examiners and auditors (only to the extent Buyer is required to disclose such
information, and, provided, that such parties are informed of the confidential
nature thereof and if appropriate directed to treat such information
confidentially) such materials, files and information relating to or
constituting Buyer's or any of its affiliates' or Representatives' work product,
presentations or evaluation materials as any such party deems reasonably
necessary or advisable in connection with auditing or examination purposes. The
obligation to keep such information confidential shall continue for two years
from the date this Agreement is terminated. In the event that either party or
any of its affiliates or Representatives is requested or required in the context
of a litigation, governmental, judicial or regulatory investigation or other
similar proceeding (by oral questions, interrogatories, requests for information
or documents, subpoenas, civil investigative demands or similar process) to
disclose any Confidential Information, the party or its affiliate or its
Representative so requested or required will directly or through the party or
such affiliate or Representative, if practicable and legally permitted, prior to
providing such information, provide the other party with notice of each such
request or requirement so that the other party may seek an appropriate
protective order or other remedy or, if appropriate, waive compliance with the
provisions of this Agreement. If, in the absence of a protective order or the
receipt of a waiver hereunder, the party or affiliate or Representative so
requested or required is, in the written opinion of its counsel, legally
required to disclose Confidential Information to any tribunal, governmental or
regulatory authority, or similar body, the party or affiliate or Representative
so required may disclose that portion of the Confidential Information which it
is advised in writing by such counsel it is legally required to so disclose to
such tribunal or authority or similar body without liability to the other party
hereto for such disclosure. The parties and their affiliates and Representatives
will exercise reasonable efforts, at the expense of the party who disclosed such
Confidential Information to the other party, to obtain assurance that
confidential treatment will be accorded the information so disclosed.
As used in this Section 5.02(b), "Confidential Information" means all
data, reports, interpretations, forecasts and records (whether in written form,
electronically stored or otherwise) containing or otherwise reflecting
information concerning the disclosing party or its affiliates which is not
available to the general public and which the disclosing party or any affiliate
or any of their respective Representatives provides or has previously provided
to the receiving party or to the receiving party's affiliates or Representatives
at any time in connection with the transactions contemplated by this
<PAGE> 24
Agreement, including but not limited to any information obtained by meeting with
Representatives of the disclosing party or its affiliates, together with
summaries, analyses, extracts, compilations, studies, personal notes or other
documents or records, whether prepared by the receiving party or others, which
contain or otherwise reflect such information. Notwithstanding the foregoing,
the following information will not constitute "Confidential Information": (i)
information that is or becomes generally available to the public other than as a
result of a disclosure by the receiving party or any affiliate or Representative
of the receiving party, (ii) information that the receiving party can
demonstrate was previously known to it or its affiliates or Representatives on a
nonconfidential basis prior to its disclosure by the disclosing party, its
affiliates or Representatives, (iii) information that became or becomes
available to the receiving party or any affiliate or Representative thereof on a
nonconfidential basis from a source other than the disclosing party or any
affiliate or Representatives of the disclosing party, provided that such source
is not known by the disclosing party or its affiliates or Representatives to be
subject to any confidentiality agreement or other legal restriction on
disclosing such information or (iv) information that the receiving party can
demonstrate has been independently acquired or developed by it or its affiliates
or Representatives without violating the obligations of this Section 5.02(b).
5.03 No Solicitation. Unless and until this Agreement shall have been
properly terminated by either party pursuant to Section 8.01 hereof, neither
Seller nor the Seller Subsidiary shall (and Seller shall use its best efforts to
cause the Partners and Seller's officers, employees, representatives and agents,
including, but not limited to, investment bankers, attorneys and accountants,
not to), directly or indirectly, encourage, solicit, initiate or participate in
any discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than Buyer and
its affiliates or representatives) concerning any merger, tender offer, sale of
assets, sale of shares of partnership interests, capital stock or debt
securities or similar transaction involving Seller or the Seller Subsidiary (an
"Acquisition Transaction"). Seller will immediately communicate to Buyer the
terms of any proposal, discussion, negotiation or inquiry relating to an
Acquisition Transaction and the identity of the party making such proposal or
inquiry which it may receive in respect of any such transaction (which shall
mean that any such communication shall be delivered no less promptly than by
telephone within twenty-four (24) hours of Seller's receipt of any such proposal
or inquiry) or its receipt of any request for information from any governmental
agency or authority with respect to a proposed Acquisition Transaction.
5.04 Consents. Each of Seller and Buyer will cooperate with the other and
use all reasonable efforts to, as promptly as practicable, prepare all
documentation, to effect all filings and to obtain all permits, consents,
approvals and authorizations of governmental agencies and authorities and
nongovernmental third parties, including but not limited to, consents of
Insurance Companies, which are necessary or appropriate to consummate the
transactions contemplated by this Agreement.
5.05 Further Assurances. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable efforts to, as
promptly as practicable, take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of Buyer and Seller shall use
reasonable efforts to take all such necessary action.
5.06 Seller Disclosure Supplements. From time to time prior to the
Effective Time, and in any event on the date which is three (3) days prior to
the Closing Date, Seller will promptly supplement or amend the Seller Disclosure
Schedule with respect to any matter hereafter arising which, if existing,
occurring or known at the date of this Agreement, would have been required to be
set forth or described in the Seller Disclosure Schedule or which is necessary
to correct any information in the Seller Disclosure Schedule which has become
inaccurate. No supplement or amendment to the Seller Disclosure Schedules
pursuant to this Section 5.07 shall have any effect for the purpose of
determining Seller's satisfaction of any of the conditions set forth in Section
6.02 hereof.
<PAGE> 25
5.07 Public Announcements. Except as otherwise required by law or the
rules of Nasdaq, Seller and Buyer will cooperate with each other in the
development and distribution of all news releases and other public information
disclosures with respect to this Agreement or any of the transactions
contemplated hereby.
5.08 Post-Closing Governance. From the Effective Time and for a period of
at least two years thereafter, the Board of Directors of the Surviving Entity
shall consist of six (6) members, including, in addition to three (3)
individuals designated by Buyer (initially the three (3) persons who are serving
as directors of the Acquisition Subsidiary immediately prior to the Effective
Time), three (3) individuals designated by the Partners, who are either (a)
Partners or (b) other persons designated by the Partners and approved by Buyer
in its reasonable judgment prior to the Effective Time, each to hold office in
accordance with the certificate of formation and operating agreement of
Acquisition Subsidiary as then in effect.
5.09 Acquisition Subsidiary. On or prior to the Closing Date, Buyer and
the Acquisition Subsidiary shall adopt an operating agreement which, in general,
shall provide for a Board of Directors which shall have the same power and
authority with respect to the Acquisition Subsidiary as may be exercised
pursuant to the Delaware Corporation Law by a board of directors of a
corporation incorporated in Delaware in the absence of any restriction on such
power and authority in the certificate of incorporation or bylaws of such
corporation. The operating agreement of the Acquisition Subsidiary shall also
contain standard indemnification and exculpation provisions for directors and
officers of the Acquisition Subsidiary, subject to applicable federal or state
laws and regulations governing Buyer or any of its Affiliates.
5.10 Employment and Benefit Matters.
(a) From and after the Effective Time, Buyer shall either continue in
effect the Seller Pension Plans, Seller Benefit Plans, and Seller Other Plans or
shall permit each Partner and Employee who remains employed by the Surviving
Entity to participate in substitute plans maintained by Buyer for its employees
provided that, (i) with respect to the pension plan maintained by Buyer for its
employees, such pension plan has benefits no less favorable in the aggregate
than the Seller Pension Plan, and (ii) with respect to such other plans of Buyer
other than Buyer's pension plan, such plans in the aggregate have benefits no
less favorable than the benefits currently provided under the Seller Benefit
Plans and Seller Other Plans. In the event that any Partner or Employee becomes
a participant in an employee benefit plan, program or arrangement maintained by
or contributed to by the Buyer or its affiliates (a "Transferred Employee"),
Buyer shall cause such plan, program or arrangement to treat the prior service
of such Transferred Employee with Seller or the Seller Subsidiary as service
rendered to Buyer or its affiliate, as the case may be, for purposes of
eligibility to participate, vesting and eligibility for special benefits under
such plan, program or arrangement of Buyer, but not for purposes of benefit
accrual (including minimum pension amount) or benefit payment, early retirement
subsidies, minimum pension benefits or post-retirement welfare benefits under
any pension benefit plan or welfare plan of Buyer extended to Employees or
Transferred Employees, and all preexisting conditions to which any such
Employees or Transferred Employees are subject shall be waived under the welfare
plans of the Buyer and its subsidiaries. Buyer agrees to provide Employees and
Transferred Employees with the types and levels of employee benefits maintained
by Buyer for similarly situated employees of the Buyer.
(b) After the Effective Time, the Surviving Entity shall assume the
indemnification obligations to Partners currently set forth in the last
paragraph of Section 17 of the Partnership Agreement with respect to acts and
omissions taken prior to the Effective Time by such Partners, but only to the
extent permitted by federal and state law and regulations and excepting any
matter as to which Buyer is entitled to indemnification under Article IX hereof,
regardless of any limitation on indemnification set forth in Article IX hereof.
<PAGE> 26
(c) All existing Non-Piracy Agreements executed and delivered by Seller
and Associates, Employees or other Persons, other than Partners, prior to the
Closing Date shall remain in full force and effect unchanged after the Closing
Date.
5.11 Maintenance of Records. Through the Effective Time, Seller will
maintain the Records in the same manner and with the same care that the Records
have been maintained prior to the execution of this Agreement. Buyer may, at its
own expense, make such copies of and excerpts from the Records as it may deem
desirable. All Records, whether held by Buyer or Seller, shall be maintained for
such periods as are required by law, unless the parties shall, applicable law
permitting, agree in writing to a different period. From and after the Effective
Time, Buyer shall be solely responsible for continuing maintenance of such
Records.
5.12 Leases. Seller shall consult with Buyer before renewing or extending
any material lease of an office or other material lease of Seller or the Seller
Subsidiary for real property or relating to furniture, fixtures or equipment
that is currently in effect but that would otherwise expire on or prior to the
Effective Time. Neither Seller nor the Seller Subsidiary shall cancel, terminate
or take other action that is likely to result in any cancellation or termination
of any such material lease without first consulting with Buyer.
5.13 Retired Partners. On or prior to the Closing Date, Seller shall
satisfy all obligations of Seller to Retired Partners and any other Person
described in Section 4.02(a)(i) of the Seller Disclosure Schedule under the
Partnership Agreement; provided, that Seller shall be permitted to satisfy all
obligations of Seller to Retired Partners or any other Person described in
Section 4.02(a)(i) of the Seller Disclosure Schedule under the Partnership
Agreement by directing Buyer to pay an applicable portion of the Purchase Price
to such Retired Partner or such other Person described in Section 4.02(a)(i) of
the Seller Disclosure Schedule on the Closing Date. Seller and the Partners
represent and warrant to Buyer that the payment of that portion of the Purchase
Price which Seller shall direct Buyer to pay to the Retired Partners and any
other Person described in Section 4.02(a)(i) of the Seller Disclosure Schedule
under the foregoing sentence, together with any other payments to be made as of
the Closing Date, shall satisfy all obligations of Seller and the Partners to
the Retired Partners and such other Persons described in Section 4.02(a)(i) of
the Seller Disclosure Schedule under the Partnership Agreement. On or prior to
the Closing Date, Seller and the Partners shall use their best efforts to obtain
a release from all Retired Partners and any other Person described in Section
4.02(a)(i) of the Seller Disclosure Schedule, in a form reasonably acceptable to
Buyer, pursuant to which each such Retired Partner or Person shall release
Seller and Buyer from any and all claims which such Retired Partner or Person
may have under the Partnership Agreement.
5.14 Obligations of Partners. On or prior to the Closing Date, all
obligations and indebtedness of the Partners to Seller under the Partnership
Agreement or otherwise, including without limitation, all obligations to make
capital contributions, shall have been repaid and satisfied in full, for which
purpose such Partners may direct Buyer to pay an applicable portion of the
Purchase Price to Seller, and no Partner shall thereafter have any remaining
obligation or liability to Seller outstanding as of the Closing Date.
5.15 Deferred Service Revenue. At the Closing, immediately prior to the
Effective Time, Seller shall assign and transfer to the Acquisition Subsidiary,
cash, accounts receivables and/ or other assets of Seller having an aggregate
value equal to the amount of deferred service revenue (as described below) as of
such date (the "Deferred Service Assets"), in consideration for the agreement of
Acquisition Subsidiary to assume Seller's obligation to perform all of the
services with respect to which Seller has, in the ordinary course of business,
recorded "deferred service revenue" on its "Statements of Assets and Liabilities
and Partners' Accounts" as in effect on the Closing Date. Such assignment and
assumption shall be effective by the delivery (a) by Seller of a bill of sale
and such other instruments of assignment as Buyer shall reasonably request and
(b) by Acquisition Subsidiary of such instruments of assumption as Seller shall
reasonably request.
5.16 Distribution of 1999 Partnership Income. Promptly after the Closing
Date, the Board of Directors of the Surviving Entity shall cause an accounting
to be made of Seller's partnership Income (as that term is defined in Section
5.01(e) hereof) for the period from January 1, 1999 through the Closing Date,
and shall provide prompt written notice to the Partners of such determination,
together with all
<PAGE> 27
back-up materials used by the Surviving Entity in preparing the determination.
For purposes of this determination, "deferred service revenue" reflected in
Seller's Statements of Assets and Liabilities and Partners' Accounts shall be
included in income and the amount of cash and other assets assigned and
transferred to Acquisition Subsidiary pursuant to Section 5.15 shall be deducted
as an expense. The Partners shall have ten (10) days from delivery of the
written notice of determination pursuant to this Section 5.16 to object to such
determination; provided, that such objection shall be set forth in a written
notice signed by 70% in interest of the Partners (determined pursuant to
Schedule 1 hereto). In the event of such objection, the Partners and Seller
shall use reasonable efforts to resolve in good faith all of the Partners'
objections to the determination. In the event that, after the expiration of the
twenty (20) day period following delivery by the Partners of the written notice
of objection to Seller, the parties shall not have resolved the objection, such
objection shall be submitted to binding arbitration in Boston, Massachusetts
with each party sharing equally the costs of the arbitration. When the
determination becomes final (either because it is not so challenged or as a
result of the arbitrator's decision), the Surviving Entity shall distribute to
the Partners and the Retired Partners in accordance with instructions given by
the Partners hereunder, each Partner's and Retired Partner's proportionate share
of the difference between (i) the determination of partnership Income for the
period from January 1, 1999 until the Closing Date, minus (ii) distributions of
1999 Income prior to the Closing Date pursuant to Section 5.01(e)(ii) hereof.
ARTICLE VI
CLOSING CONDITIONS
6.01 Conditions to Each Party's Obligations. The respective obligations of
each party under this Agreement shall be subject to the fulfillment at or prior
to the Effective Time of the following conditions, none of which may be waived,
except as provided for below:
(a) Governmental Consents. All authorizations, consents, orders or
approvals of, declarations or filings with or notices to, and all expirations of
waiting periods imposed by, any governmental or regulatory authority or agency,
which are necessary for the consummation of the Merger, shall have been filed,
occurred or been obtained (all such authorizations, orders, declarations,
approvals, filings, notices and consents and the lapse of all such waiting
periods being referred to as the "Requisite Regulatory Approvals"), and all such
Requisite Regulatory Approvals shall be in full force and effect, except any
Requisite Regulatory Approval the failure of which to obtain will not have a
Material Adverse Effect on Buyer, the Surviving Entity or the transactions
contemplated hereby.
(b) 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 (an "Injunction")
preventing the consummation of the Merger shall be in effect.
6.02 Conditions to the Obligations of Buyer. The obligations of Buyer
under this Agreement shall be further subject to the satisfaction or waiver by
Buyer, at or prior to the Effective Time, of the following conditions:
(a) Absence of Material Adverse Changes. There shall not have occurred any
change in the assets, properties, liabilities, business, operations, results of
operations, financial condition or prospects of Seller or the Seller Subsidiary
which constitutes, individually or in the aggregate, a Material Adverse Effect
on Seller.
(b) Representations and Warranties; Performance of Obligations. The
obligations of Seller required to be performed by it at or prior to the Closing
pursuant to the terms of this Agreement shall have been duly performed and
complied with in all material respects and the representations and warranties of
Seller contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective Time as though
made at and as of the Effective Time (except as
<PAGE> 28
otherwise specifically contemplated by this Agreement and except as to any
representation or warranty which specifically relates to an earlier date) and
Buyer shall have received a certificate to that effect signed on behalf of
Seller by two members of the Executive Committee of Seller.
(c) Third-Party Approvals. Any and all permits, consents, waivers,
clearances, approvals and authorizations of or notices to all nongovernmental
and nonregulatory third parties which are necessary in connection with the
consummation of the Merger and are required to be received, obtained or made by
Seller, including without limitation all such permits, consents, waivers,
clearances, approvals, authorizations and notices disclosed in Section 4.04 of
the Seller Disclosure Schedule, shall have been so received, obtained or made
and shall be in full force and effect.
(d) Employment Agreements. The Employment Agreements shall be in full
force and effect.
(e) Obligations to Retired Partners. Except as otherwise provided in
Section 5.13 hereof, all obligations of Seller to Retired Partners and any other
Person whether or not described in Section 4.02(a)(i) of the Seller Disclosure
Schedule under the Partnership Agreement shall be satisfied.
(f) Burdensome Condition. There shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger or Buyer, by any federal or state governmental agency
or authority which, in connection with the granting of any Requisite Regulatory
Approval, imposes any condition or restriction upon Buyer, any Buyer subsidiary
or Seller after the Merger, which would so materially adversely impact the
economic or business benefits of the transactions contemplated by this Agreement
as to render inadvisable in the reasonable judgment of Buyer the consummation of
the Merger.
(g) Legal Opinion. Buyer shall have received a legal opinion, dated the
Closing Date, of Palmer & Dodge LLP, counsel for Seller, containing the opinions
set forth in Exhibit B attached hereto, together with customary qualifications
and exceptions in a form reasonably acceptable to Buyer.
(h) [*]
In addition to the foregoing, Seller will furnish Buyer with such
additional certificates, instruments or other documents in the name or on behalf
of Seller, executed by appropriate officers or
*confidential treatment requested
<PAGE> 29
others, including without limitation certificates or correspondence of
governmental agencies or authorities or nongovernmental third parties, to
evidence fulfillment of the conditions set forth in this Section 6.02 as Buyer
may reasonably request.
6.03 Conditions to the Obligations of Seller. The obligations of Seller
under this Agreement shall be further subject to the satisfaction or waiver by
Seller, at or prior to the Effective Time, of the following conditions:
(a) Absence of Material Adverse Changes. There shall not have occurred any
change in the assets, properties, liabilities, business, operations, results of
operations, financial condition or prospects of Buyer or any of its subsidiaries
which has had, or is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Buyer.
(b) Representations and Warranties; Performance of Obligations. The
obligations of Buyer required to be performed by it at or prior to the Closing
pursuant to the terms of this Agreement shall have been duly performed and
complied with in all material respects and the representations and warranties of
Buyer contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective Time as though
made at and as of the Effective Time (except as otherwise specifically
contemplated by this Agreement and except as to any representation or warranty
which specifically relates to an earlier date) and Seller shall have received a
certificate to that effect signed by the vice chairman and chief financial
officer of Buyer or such other appropriate officer(s) of Buyer.
(c) Third-Party Approvals. Any and all permits, consents, waivers,
clearances, approvals and authorizations of or notices to all nongovernmental
and nonregulatory third parties which are necessary in connection with the
consummation of the Merger and are required to be received, obtained or made by
Buyer shall have been so received, obtained or made and shall be in full force
and effect.
(d) Legal Opinion. Seller shall have received a legal opinion dated the
Closing Date, of Eric R. Fischer, Executive Vice President, General Counsel and
Clerk to Buyer, and Bingham Dana LLP, counsel for Buyer and the Acquisition
Subsidiary, containing the opinions set forth in Exhibit C attached hereto,
together such customary qualifications and exceptions in forms reasonably
acceptable to Seller.
(e) Employment Agreements. The Employment Agreements shall be in full
force and effect.
(f) Transfer of Deferred Service Revenue. The transfer of the deferred
service revenue described in Section 5.15 hereof shall have been consummated, or
Buyer and Seller shall have made alternative arrangements which in the
reasonable opinion of the Partners will achieve the economic and tax results
contemplated by the transfer of the deferred services revenue pursuant to
Section 5.15 hereof.
In addition to the foregoing, Buyer will furnish Seller with such
additional certificates, instruments or other documents in the name or on behalf
of Buyer, executed by appropriate officers or others, including without
limitation certificates or correspondence of governmental agencies or
authorities or nongovernmental third parties, to evidence fulfillment of the
conditions set forth in this Section 6.03 as Seller may reasonably request.
ARTICLE VII
CLOSING
7.01 Time and Place. Subject to the provisions of Articles VI and VIII
hereof, the Closing of the transactions contemplated hereby shall take place at
the Boston, Massachusetts offices of Bingham Dana LLP at 10:00 A.M., local time,
on the first business day after the date on which all of the conditions
<PAGE> 30
contained in Article VI are satisfied or waived; or at such other place, at such
other time, or on such other date as Seller and Buyer may mutually agree upon
for the Closing to take place.
7.02 Deliveries at the Closing. Subject to the provisions of Articles VI
and VIII hereof, at the Closing there shall be delivered to Seller and Buyer,
the opinions, certificates, and other documents and instruments required to be
delivered under Article VI hereof.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.01 Termination. This Agreement may be terminated at any time prior to
the Effective Time in accordance with the following provisions:
(a) by mutual written consent of Seller and Buyer authorized by their
Partners or Boards of Directors as the case may be;
(b) by Seller or Buyer if the Effective Time shall not have occurred on or
prior to June 30, 1999 (the "Termination Date"); provided, however, that in the
event the delay is caused by Seller or due to Seller's failure to promptly
produce information required for any regulatory or governmental approval, as
required by Section 5.04 hereof, or Seller's failure to otherwise fulfill its
obligations to consummate the transactions, including the Merger, contemplated
hereby, the Termination Date shall be extended until September 30, 1999 or such
later date as shall have been agreed to in writing by Buyer and Seller;
(c) by Buyer or Seller if any governmental or regulatory authority or
agency, or court of competent jurisdiction, shall have issued a final permanent
order or Injunction enjoining, denying approval of, or otherwise prohibiting the
consummation of the Merger and the time for appeal or petition for
reconsideration of such order or Injunction shall have expired without such
appeal or petition being granted; or
(d) by the Buyer or the Seller (provided that the terminating party is not
then in material breach of any representation, warranty, covenant or other
agreement contained herein), in the event of a material breach by the other
party of any representation, warranty, covenant or other agreement contained
herein which breach is not cured after thirty (30) days written notice thereof
is given to the party committing such breach;
(e) By the Board of Directors of Buyer or the Representatives of Seller
(provided that the terminating party is not then in breach of any representation
or warranty, covenant or other agreement contained in this Agreement) in the
event that any of the conditions precedent to the obligations of such party to
consummate the Merger cannot be satisfied or fulfilled by the date specified in
Section 8.01(b) of this Agreement.
8.02 Effect of Termination. In the event of termination of this Agreement
by either Seller or Buyer as provided above, this Agreement shall forthwith
become null and void (other than Sections 5.02(b) and 10.02 hereof, which shall
remain in full force and effect) and there shall be no further liability on the
part of Seller or Buyer or their respective officers or directors to the other,
except (i) any liability of Seller or Buyer under said Sections 5.02(b) and
10.02, provided that, nothing contained herein shall relieve a party from
liability for any and all damages, costs and expenses, including all reasonable
attorneys' fees, sustained or incurred by the nonbreaching party caused by a
willful breach or default hereunder occurring prior to such termination.
8.03 Amendment, Extension and Waiver. Subject to applicable law and as may
be authorized by the Boards of Directors of the Buyer and the Partners of
Seller, at any time prior to the consummation of the transactions contemplated
by this Agreement or termination of this Agreement in accordance with
<PAGE> 31
the provisions of Section 8.01 hereof, Buyer and Seller may, (a) amend this
Agreement, (b) extend the time for the performance of any of the obligations or
other acts of any other party hereto, (c) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, or (d) waive compliance with any of the agreements or
conditions contained in Articles V and VI (other than Section 6.01) hereof. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of Buyer and Seller hereto. Any agreement on the part of Buyer or Seller
hereto to any extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party, but such waiver or failure
to insist on strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
ARTICLE IX
INDEMNIFICATION
9.01 Claim Period; Survival. Any claim for a breach of any representation,
warranty, covenant or other agreement contained in or incorporated into this
Agreement referred to below must be made within the following periods:
(a) with respect to the matters addressed in Sections 4.02(a) and
Section 5.13 hereof, [*];
(b) with respect to the matters addressed in Section 4.10 hereof,
[*]; and
(c) with respect to all other representations, warranties, covenants
and agreements made by the Seller or the Partners contained in or incorporated
into this Agreement or in any certificate delivered pursuant hereto, [*] after
the later of (i) the Closing Date or (ii) with respect to any breach of
covenant, the date such covenant was required to be performed. The
representations, warranties, covenants and agreements of the Seller and the
Partners contained in or referred to in this Agreement or in any certificate
delivered pursuant hereto shall survive the Closing Date and continue for the
periods during which claims may be made as set forth above; provided, however,
that covenants of the Seller or Partners referred to in the proviso of Section
10.10 shall survive as stated therein.
9.02 Terms of Indemnification. Subject to Section 9.05 below, the Partners
agree to indemnify, jointly and severally, Buyer (and its directors, officers,
agents and employees) against, and each of them agrees to protect, to defend and
to hold harmless the Buyer (and its directors, officers, agents and employees)
from all Damages (as such term is defined in Section 9.04 below) arising out of
or resulting from any inaccuracy in, or breach of, any of the representations,
warranties, covenants or other agreements of the Seller or the Partners
contained in or incorporated into this Agreement or in any certificate or
instrument delivered in connection herewith (with any representations,
warranties, covenants and other agreements of Seller being deemed to be of the
Partners for purposes of this indemnification), which inaccuracy or breach is
asserted and a claim for indemnification with respect thereto is made within the
applicable survival period set forth in Section 9.01 above. In addition, the
Partners agree that they will indemnify and hold Buyer and its Affiliates,
officers, directors and employees harmless from all Damages incurred by Buyer
resulting from, arising out of, or in connection with, any claim of a Retired
Partner or any other Person whether or not described in Section 4.02(a)(i) of
the Seller Disclosure Schedule with respect to unsatisfied obligations of Seller
to such Persons under the Partnership Agreement.
9.03 Procedures. In any case under this Agreement where the Partners have
indemnified the Buyer against any claim or legal action, indemnification shall
be provided in accordance with the procedure outlined below:
(a) Provided that prompt notice is given by the Buyer of a claim or suit
for which indemnification might be claimed, unless the failure to provide such
notice does not prejudice the interests
*confidential treatment requested
<PAGE> 32
of the Partners, the Partners promptly will defend, contest, or otherwise
protect against any such claim or suit at their own cost and expense.
(b) The Buyer may, but will not be obligated to, participate at its own
expense in a defense thereof by counsel of its own choosing, but the Partners
shall be entitled to control the defense unless the Buyer has relieved the
Partners from liability with respect to the particular matter, provided that the
Partners may only settle or compromise the matter subject to indemnification
without the consent of the Buyer if such settlement includes a complete release
of the Buyer as to the matters in dispute and provided further that Buyer will
not unreasonably withhold consent to any settlement or compromise that requires
its consent.
(c) In the event the Partners fail to timely defend, contest, or otherwise
protect against any such claim or suit, the Buyer may, but will not be obligated
to, defend, contest, or otherwise protect against the same, and make any
compromise or settlement thereof and recover the entire costs thereof from the
Partners, jointly and severally, including reasonable attorneys' fees,
disbursements and all amounts paid as a result of such claim or suit or the
compromise or settlement thereof; provided, however, that if the Partners
undertake the defense of such matter, the Buyer shall not be entitled to recover
from the Partners for its costs incurred in the defense thereof other than the
reasonable costs of investigation undertaken by the Buyer and reasonable costs
of providing assistance.
(d) The Buyer shall cooperate and provide such assistance as the Partners
may reasonably request in connection with the defense of the matter subject to
indemnification and in connection with recovering from any third parties amounts
that the Partners may pay or be required to pay by way of indemnification
hereunder. The Buyer shall be required to file a claim with its insurers as to
any matter subject to indemnification that is covered by insurance; provided,
however, that neither the filing of any such claim nor the insurer's rejection
thereof in whole or in part shall be a condition to the Partners' obligations
under this Article IX. The Buyer shall protect its position with respect to any
matter that may be the subject of indemnification hereunder in the same manner
as it would any similar matter where no indemnification is available.
9.04 Damages. As used in this Article IX, the term "Damages" means any and
all losses, claims, damages, liabilities, obligations, judgments, settlements,
awards, demands, offsets, defenses, counterclaims, actions or proceedings,
reasonable out-of-pocket costs, expenses and attorneys' fees (including any such
reasonable costs, expenses and attorneys' fees incurred in enforcing a party's
right of indemnification against any indemnitor or with respect to any appeal)
and penalties and interest, if any, but shall not include any such amounts for
which the Buyer or Surviving Entity receives payment from a third party
(including insurers). Any insurance proceeds received by the Buyer with respect
to any matter that has been the subject of any prior indemnification payment(s)
by the Partners shall be promptly remitted to the Partners up to the aggregate
amount of such prior indemnification payment(s).
9.05 Maximum Indemnification; Threshold; Caps; Exception.
(a) The maximum liability of the Partners to Buyer under this Article IX
(except for claims with respect to the representations, warranties, covenants
and agreements set forth in Section 5.13 hereof, for which there shall be no
maximum liability) shall be [*] (the "Cap"); provided, however, that the maximum
liability of any individual Partner to Buyer under this Article IX (except for
claims with respect to the representations, warranties, covenants and agreements
set forth in Section 5.13 hereof for which there shall be no maximum liability)
shall be [*];
(b) Buyer shall not be entitled to any indemnification with respect to
representations, warranties, covenants and agreements referred to in Section
9.01(c) of this Article IX (except for claims with respect to the
representations, warranties, covenants and agreements set forth in Section 5.13
hereof, for which there shall be no deductible) unless and only to the extent
that the aggregate Damages to the Buyer and its affiliates (without duplication)
exceed [*] (the "Aggregate Deductible") and provided further (i) for claims
and actions (except for claims and actions with respect to the representations,
warranties, covenants and agreements set forth in Section 5.13 hereof, for which
there shall be no limitation) arising within one year of the Closing Date, the
Partners shall be liable for the full amount by
*confidential treatment requested
<PAGE> 33
which such Damages exceed the Aggregate Deductible up to the amount of the Cap,
(ii) for claims and actions (except for claims and actions with respect to the
representations, warranties, covenants and agreements set forth in Section 5.13
hereof, for which there shall be no limitation) [*] of the Closing Date, the
Partners shall be liable for the full amount by which such Damages exceed the
Aggregate Deductible but only up to the aggregate amount of [*] of the Cap, and
(iii) for claims and actions (except for claims and actions with respect to the
representations, warranties, covenants and agreements set forth in Section 5.13
hereof, for which there shall be no limitation) arising after [*] but within [*]
of the Closing Date, the Partners shall be liable for the full amount by which
such Damages exceed the Aggregate Deductible but only up to the aggregate amount
of [*] of the Cap, and
(c) Notwithstanding any other provision of this Agreement, if the Damages
for which indemnification is sought arise out of an inaccuracy or breach which
was known to be inaccurate at the time made or deemed to be made or, with
respect to a breach of a covenant, was willful at the time performed or to be
performed, then there shall be no limitation on the amount of Damages that may
be recovered from the Partners hereunder.
ARTICLE X
MISCELLANEOUS
10.01 Expenses. Except as may otherwise be agreed to hereunder or in other
writing by the parties, all legal and other costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses.
10.02 Notices. All notices or other communications hereunder shall be in
writing and shall be deemed given if delivered personally or mailed by prepaid
registered or certified mail (return receipt requested) or by telecopy, cable,
telegram or telex addressed as follows:
(a) If to Seller, to:
Brewer & Lord LLP
600 Longwater Avenue
Norwell, Massachusetts
Attention: Richard A. Hubbard
Copy to:
Palmer & Dodge LLP
One Beacon Street
Boston, Massachusetts 02108
Attention: Matthew C. Dallett, Esq.
(b) If to Buyer, to:
USTrust
30 Court Street
Boston, Massachusetts 02109
Attention: Neal F. Finnegan
Chairman and Chief Executive Officer
and to:
USTrust
*confidential treatment requested
<PAGE> 34
30 Court Street
Boston, Massachusetts 02109
Attention: Eric R. Fischer, Esq.
Executive Vice President, General Counsel and Secretary
Copy to:
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
Attention: Neal J. Curtin, Esq.
and Stephen H. Faberman, Esq.
and if to any of the Partner, to the address listed under such Partner's name on
the signature pages hereto, with a copy to Palmer & Dodge LLP as provided above,
or such other address as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
so mailed.
10.03 Parties in Interest. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors,
assigns and personal representatives; provided, however, that neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any party hereto without the prior written consent of the other
parties, and that nothing in this Agreement is intended to confer, expressly or
by implication, upon any other person any rights or remedies under or by reason
of this Agreement.
10.04 Complete Agreement. This Agreement, including the documents and
other writings referred to herein or delivered pursuant hereto, including the
Plan of Merger, contains the entire agreement and understanding of the parties
with respect to its subject matter. Except as set forth in the Plan of Merger or
in the Seller Disclosure Schedule, there are no restrictions, agreements,
promises, warranties, covenants or undertakings between the parties other than
those expressly set forth herein or therein. This Agreement supersedes all prior
agreements and understandings between the parties, both written and oral,
including without limitation the Confidentiality Agreement, with respect to its
subject matter.
10.05 Counterparts. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement and each of which shall be
deemed to be an original and shall become effective when a counterpart has been
signed by each of the parties and delivered to each of the other parties.
10.06 Governing Law. This Agreement shall be governed by the laws of The
Commonwealth of Massachusetts, without giving effect to the principles of
conflicts of laws thereof.
10.07 Captions. The Article and Section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
10.08 Effect of Investigations. No investigation by the parties hereto
made heretofore or hereafter, whether pursuant to this Agreement or otherwise
shall affect the representations and warranties of the parties which are
contained herein and each such representation and warranty shall survive such
investigation, subject, however, to Article IX and Section 10.10 hereof.
10.9 Severability. In the event that any one or more provisions of this
Agreement shall for any reason be held invalid, illegal or unenforceable in any
respect, by any court of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement and
<PAGE> 35
the parties shall use their best efforts to substitute a valid, legal and
enforceable provision which, insofar as practicable, implements the purposes and
intents of this Agreement.
10.10 Survival of Representations, Warranties and Covenants. Except as
otherwise specifically provided in this Agreement or in such other agreements,
all representations, warranties, covenants and other agreements contained in or
referred to in this Agreement or in any certificate delivered pursuant hereto
shall not survive the Closing; provided, however, the covenants contained or
referred to in Sections 5.08, 5.09, 5.10, and 5.11 shall survive for 18 months
after the last date on which such covenant or agreement was required to be
performed and the covenants contained or referred to in Section 5.13 and 5.14
shall survive the Closing Date indefinitely.
10.11 Specific Enforceability. The parties recognize and hereby
acknowledge that it is impossible to measure in money the damages that would
result to a party by reason of the failure of either of the parties to perform
any of the obligations imposed on it by this Agreement. Accordingly, if any
party should institute an action or proceeding seeking specific enforcement of
the provisions hereof, each party against which such action or proceeding is
brought hereby waives the claim or defense that the party instituting such
action or proceeding has an adequate remedy at law and hereby agrees not to
assert in any such action or proceeding the claim or defense that such a remedy
at law exists.
10.12 Partners' Representative. Each of the Partners hereby designates
Richard A. Hubbard, Roger B. Wilson and William R. Plumer as the representatives
(as such, the "Representatives") of each of the Partners to perform all such
acts as are required, authorized or contemplated by this Agreement to be
performed by the Partners, including but not limited to, executing and
delivering any notices, agreements, instruments and other documents on behalf of
the Partners, giving instructions and taking such actions which the
Representatives, in their sole discretion, deems appropriate to carry out the
provisions of this Agreement and the agreements contemplated hereby. Buyer shall
be entitled to rely upon any action taken by any two (2) of the Representatives
as representative of the Partners, the taking of such action being conclusive
evidence that such Representatives were duly authorized to take such action.
<PAGE> 36
IN WITNESS WHEREOF, Seller, Partners and Buyer have caused this Agreement
to be executed as a sealed instrument by their duly authorized officers and each
Partner has executed and delivered this Agreement in his individual capacity,
all as of the day and year first above written.
USTRUST
By: /s/ Neal F. Finnegan
--------------------------
Name: Neal F. Finnegan
Title: President and Chief Executive Officer
BREWER & LORD LLP
By: /s/ R.A. Hubbard
--------------------------
Name: R.A. Hubbard
Title: Partner
THE PARTNERS
/S/ William R. Plummer
-----------------------------
William R. Plummer, Individually and on behalf of Brewer & Lord LLP
Address: 20 Alden Road
-----------------
Wellesley Hills MA 02481
--------------------------
/s/ Whitfield Painer Jr.
----------------------------
Whitfield Painer Jr., Individually
Address: 93 Monument St.
-----------------
Concord MA 01742
------------------
/s/ Roger B. Wilson
-----------------------------
Roger B. Wilson, Individually
Address: 119 Jericho Rd.
-----------------
Weston MA 02493
-----------------
/s/ B. Devereux Barker III
-----------------------------
B. Devereux Barker III, Individually
Address: Box 752
-----------------
Manchester MA 01944
------------------
/s/ Richard A. Hubbard
-----------------------------
Richard A. Hubbard, Individually
Address: 15 Carriage Way
-----------------
Topsfield MA 01987
-------------------
/s/ Frederick N. Nowell III
-----------------------------
Frederick N. Nowell III, Individually
Address: 7 Johnson Rd.
-----------------
Andover MA 01810
-----------------
/s/ John J. Zawilinski
-----------------------------
John J. Zawilinski
Address: 7 Mass Ave
-----------------
Norfolk MA 02056
-----------------
/s/ Maurice F. Ahearn III
-----------------------------
Maurice F. Ahearn III, Individually
Address: 42 Arrowhead Road
------------------
Marshfield, MA 02050
---------------------
/s/ Jane F. Calley
---------------------------------
Jane F. Calley, Individually
Address: 59 Longwood Rd
---------------------
Quincy MA 02169
---------------------
/s/ Margaret Briggs
-----------------------------
Margaret Briggs, Individually
Address: 33 Gallows Pond Rd
-------------------
Plymouth MA 02360
-------------------
/s/ William K. McCann
-------------------------------
William K. McCann, Individually
Address: 31 Duxborough Trail
--------------------
Duxbury, MA 02332
--------------------
<PAGE> 1
EXHIBIT 10(c)(iv)
AMENDMENT TO THE
UST CORP. PENSION PLAN
WHEREAS, UST Corp. (the "Sponsoring Employer") maintains the UST Corp. Pension
Plan (the "Plan") which was amended and restated effective July 1, 1996 for the
benefit of its eligible employees and their beneficiaries; and
WHEREAS, the Sponsoring Employer reserves the right to amend the Plan at any
time in accordance with Section 17.1 of the Plan; and
WHEREAS, the Sponsoring Employer desires to amend the Plan to recognize a
portion of the commissions earned by certain employees;
NOW THEREFORE, the Plan is hereby amended effective January 1, 1999 to add the
following paragraph immediately after the first paragraph of Section 1.9:
"Notwithstanding the foregoing, in the case of an Employee who is
specifically assigned to a formal commission-based incentive plan as
either a
a) Mortgage Originator,
b) The Investment Group at USTrust sales representative, or
c) UST Leasing Corp. sales representative.
Compensation shall be no less than 80% of the sum of January 1 base rate of
pay plus the commissions paid to such Employee by an Employer and included
in the income reported on Federal Income Tax Form W-2 for the prior
calendar year. "Commission-based incentive plans" are those that provide
for variable payments directly related to the sale of company services and
products, and provide for payment on a quarterly or more frequent basis."
IN WITNESS WHEREOF, the Sponsoring Employer has caused this Amendment to be
executed by its duly elected officer this 16th day of December, 1998.
UST CORP.
By: /s/Eric R. Fischer
--------------------------------
Eric R. Fischer, Executive Vice
President
Attest: /s/Kathleen Bruno
------------------------
Kathleen Bruno
<PAGE> 1
EXHIBIT 10(d)
UST CORP.
EMPLOYEE SAVINGS PLAN
(AMENDED AND RESTATED EFFECTIVE
AS OF JULY 1, 1996)
May 28, 1997
<PAGE> 2
UST CORP.
EMPLOYEE SAVINGS PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PREAMBLE .............................................................................. (i)
ARTICLE 1 DEFINITIONS................................................................... 1
ARTICLE 2 SERVICE ..................................................................... 14
2.1 Service.............................................................. 14
2.2 Year of Service...................................................... 14
2.3 One-Year Break in Service............................................ 14
ARTICLE 3 PARTICIPATION ................................................................ 16
3.1 Eligibility to Participate........................................... 16
3.2 Elections Required................................................... 17
3.3 Reemployed Employee.................................................. 18
ARTICLE 4 PARTICIPANT CONTRIBUTIONS..................................................... 19
4.1 Participant Contributions............................................ 19
4.2 Increase or Decrease in Rate of Contributions........................ 20
4.3 Suspension and Resumption of Contributions........................... 20
4.4 Rollover Contributions............................................... 21
4.5 Maximum Amount of Salary Deferral and Cash
Option Deferral...................................................... 22
4.6 Participant Contributions for Returning Veterans..................... 23
ARTICLE 5 EMPLOYER CONTRIBUTIONS ....................................................... 25
5.1 Employer Profit Sharing Contribution................................. 25
5.2 Employer Matching Contributions...................................... 27
5.3 Form and Timing of Employer Contributions............................ 28
5.4 Employer Contributions for Returning Veterans........................ 28
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 6 INVESTMENT PROVISIONS AND PARTICIPANT ACCOUNTS................................ 29
6.1 Investment Funds..................................................... 29
6.2 Investment Election.................................................. 30
6.3 Change in Investment Election........................................ 30
6.4 Responsibility of Participant in Selecting
Investment Funds..................................................... 31
6.5 Establishment of Participant Accounts................................ 31
6.6 Fair Market Value of Trust Assets.................................... 32
6.7 Allocation of Trust Assets........................................... 32
6.8 Correction of Error.................................................. 32
6.9 Allocation Shall Not Vest Title...................................... 33
ARTICLE 7 BENEFITS ..................................................................... 34
7.1 Nature of Benefits .................................................. 34
7.2 Medium and Method of Distribution ................................... 34
7.3 Timing of Distribution .............................................. 34
7.4 Vesting ............................................................. 35
7.5 Forfeitures.......................................................... 35
7.6 Permanent and Total Disability ...................................... 38
7.7 Distribution on Death ............................................... 39
7.8 Distribution to Alternate Payees .................................... 40
7.9 Investment of Deferred Distributions ................................ 41
7.10 Designation of Beneficiary .......................................... 41
7.11 Advice of Benefits .................................................. 42
7.12 Incapacity .......................................................... 42
7.13 Proof of Claim ...................................................... 42
7.14 Direct Rollover Distributions........................................ 42
7.15 General Distribution Requirements.................................... 43
ARTICLE 8 LOANS ..................................................................... 45
8.1 Loan Availability ................................................... 45
8.2 Loan Conditions ..................................................... 46
8.3 Loan Fund............................................................ 47
8.4 Loans to Parties-In-Interest ........................................ 48
8.5 In Service Withdrawals After Age 59-1/2.............................. 48
</TABLE>
<PAGE> 4
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 9 THE BENEFITS COMMITTEE........................................................ 49
9.1 Establishment and Composition ....................................... 49
9.2 Meetings ............................................................ 49
9.3 Powers and Duties ................................................... 49
9.4 Instructions ........................................................ 50
9.5 Administration ...................................................... 50
9.6 Compensation of Benefits Committee .................................. 50
9.7 Prudence ............................................................ 50
9.8 Claims Procedure .................................................... 50
9.9 Insurance ........................................................... 51
ARTICLE 10 TRUSTEE ..................................................................... 52
10.1 Investment Responsibility ........................................... 52
10.2 Custody ............................................................. 53
10.3 Distributions ....................................................... 53
10.4 Allocation of Responsibilities Among Trustees
Regarding Plan Assets ............................................... 53
10.5 Fiduciary Status .................................................... 53
10.6 Plan and Trust Expenses ............................................. 53
10.7 Resignation ......................................................... 54
10.8 Trustee's Miscellaneous Powers ...................................... 54
10.9 Trustee's Accounts .................................................. 55
10.10 Indemnification of Trustee .......................................... 55
ARTICLE 11 TOP HEAVY PROVISIONS ......................................................... 56
11.1 Top Heavy Definitions ............................................... 56
11.2 Determination of Top Heavy Status ................................... 58
11.3 Procedures in the Event of Top Heavy Status ......................... 59
</TABLE>
<PAGE> 5
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 12 MISCELLANEOUS PROVISIONS ..................................................... 62
12.1 Spendthrift Provisions .............................................. 62
12.2 Bonding.............................................................. 62
12.3 No Contractual Obligations .......................................... 63
12.4 Limitations on Contributions......................................... 63
12.5 Nondiscrimination Limitations on Participant
Contributions and Employer Matching Contributions.................... 67
12.6 Leased Employees..................................................... 75
12.7 Exclusive Benefit of Participants.................................... 76
12.8 Return of Contributions.............................................. 76
ARTICLE 13 AMENDMENT AND TERMINATION .................................................... 77
13.1 Amendment ........................................................... 77
13.2 Merger, Consolidation or Transfer of Assets ......................... 77
13.3 Termination ......................................................... 77
13.4 Consequences of Termination ......................................... 78
</TABLE>
<PAGE> 6
PREAMBLE
WHEREAS, UST Corp. (the "Sponsoring Employer") established the UST Corp.
Profit Sharing Plan & Trust (the "Plan") effective as of January 26, 1967,
amended from time to time thereafter and restated effective as of January 1,
1994 to comply with voluntary and statutory changes; and
WHEREAS, the principal purposes of the Plan are to (a) set aside a portion
of the profits of the Sponsoring Employer and other participating Employers from
time to time for the distribution to, and the benefit of, Eligible Employees,
and (b) to facilitate systematic savings by Eligible Employees with funds for
their retirement or possible earlier needs; and, therefore, this Plan was
established as a profit sharing plan pursuant to Section 401(a) of the Internal
Revenue Code with a cash or deferred arrangement pursuant to Internal Revenue
Code Section 401(k); and
WHEREAS, the Sponsoring Employer also established this Plan for the
exclusive benefit of its, and for the participating Employers', Eligible
Employees and their Beneficiaries and, except as permitted by law, neither the
principal nor the income of the Plan are to be paid to or reinvested in the
Sponsoring Employer or any other Employer or be used for any purpose other than
the exclusive benefit of their Eligible Employees and their Beneficiaries by
providing benefits as set forth herein, and by defraying reasonable expenses of
administering the Plan; and
WHEREAS, the Sponsoring Employer desires to amend certain provisions of
the Plan and incorporate prior amendments; and
NOW, THEREFORE, in consideration of the foregoing, the Plan is hereby
amended and restated as hereinafter set forth, effective July 1, 1996 unless
specifically stated otherwise. It is the intention of the Sponsoring Employer
that the Plan as herein amended and restated shall continue to be recognized as
a qualified profit sharing plan and trust under Sections 401(a) and 501(a) of
the Internal Revenue Code. It is further intended that the amended cash or
deferral arrangement forming part of the Plan shall continue to qualify under
Section 401(k) of the Internal Revenue Code. The provisions of the Plan as set
forth in this document shall apply only to an Eligible Employee who terminates
employment with the Sponsoring Employer or a participating Employer on or after
the effective date of a provision as set forth herein. The rights and benefits,
if any, of an Employee who terminated employment prior to the effective date of
a provision as set forth herein shall be determined in accordance with the
provisions of the Plan as in effect on the date his employment terminated.
(i)
<PAGE> 7
ARTICLE 1
DEFINITIONS
1.1 "AFFILIATED EMPLOYER" means any of the following:
(a) Any corporation which is a member of a controlled group of
corporations which includes an Employer, determined under the
provisions of Section 414(b) of the Code;
(b) Any trade or business (whether or not incorporated) which is under
common control (as defined in Section 414(c) of the Code) with an
Employer;
(c) Any organization (whether or not incorporated) which is a member
of an affiliated service group (as defined in Section 414(m) of
the Code) which includes an Employer; and
(d) Any other entity required to be aggregated with an Employer
pursuant to regulations under Section 414(o) of the Code.
A corporation, trade or business, or member of an affiliated service
group shall be treated as an Affiliated Employer only while it is a
member of the controlled group.
1.2 "ADVANCE CONTRIBUTION ACCOUNT" means the account which may be
established under the Plan in accordance with Section 5.1(g).
1.3 "ALTERNATE PAYEE" means any Spouse, child, or other dependent of a
Participant recognized by a Qualified Domestic Relations Order as having
a right to receive all, or a portion of, the Participant's
nonforfeitable benefits under the Plan.
1.4 "BEFORE-TAX CONTRIBUTION" means a contribution to the Trust Fund which
is made on behalf of a Participant pursuant to a Salary Deferral
Agreement and which is not included in the Participant's gross income
for Federal income tax purposes for the year in which such contribution
was made.
1.5 "BENEFICIARY" means any one or more members of the Participant's family
or any other person or persons, executor, or administrator, or any
trust, foundation, or other entity
(1)
<PAGE> 8
designated by a Participant or by the terms of the Plan as provided in
Section 7.10, who is or who may become entitled to receive benefits from
the Plan. Any person who is an Alternate Payee shall be considered a
Beneficiary for purposes of the Plan.
1.6 "BENEFIT COMMENCEMENT DATE" means the first Valuation Date following the
date on which all events have occurred which entitles the Participant,
or Beneficiary, to a Plan distribution in accordance with the applicable
provisions of the Plan.
1.7 "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of UST
Corp.
1.8 "CASH OPTION" means a Participant's annual option to receive the Cash
Option Share of the Employer Profit Sharing Contribution for a Plan Year
as an immediate cash payment, instead of deferring payment thereof, as
further described in Section 5.1(b).
1.9 "CASH OPTION DEFERRAL" means such amount of the Cash Option Share of the
Employer Profit Sharing Contribution in any Plan Year for which a
Participant has not elected to receive as an immediate cash payment.
1.10 "CHANGE DATE" means the last day of each March, June, September, and
December.
1.11 "CODE" or "INTERNAL REVENUE CODE" means the Internal Revenue Code of
1986, as amended from time to time. Reference to a specific provision of
the Code shall include such provision, any valid regulation or ruling
promulgated thereunder, and any comparable provision of future law that
amends, supplements, or supersedes such provision.
1.12 "COMMITTEE" or "BENEFITS COMMITTEE" means the committee appointed by the
Board as set forth in Article 9.
1.13 "COMPENSATION" means, in the case of each Employee, all earned income
paid for services rendered by an Employee for an Employer as reported on
Federal Income Tax Form W-2, but excluding bonuses, incentive payments,
overtime pay, director's fees, retainers and travel allowances and any
income imputed as a result of group life insurance, any Employer
Contribution under this Plan or any other qualified plan of an Employer,
moving expenses, tuition reimbursement, and any other forms of
extraordinary earnings or the value thereof.
In the event an Employee has entered into a salary deferral agreement
under Section 401(k) of the Code or a salary reduction agreement
pursuant to a cafeteria plan established under
(2)
<PAGE> 9
Section 125 of the Code, Compensation shall be determined as if such
agreements did not exist.
In no event shall a Participant's Compensation taken into account under
the Plan for any Plan Year commencing on or after January 1, 1989 exceed
$200,000 ($150,000 for Plan Years beginning on and after January 1,
1994) or such other amount as the Secretary of the Treasury may
determine for such Plan Year under Section 401(a)(17) of the Code. In
determining the Compensation of a Participant for purposes of this
limitation, the rules of Section 414(q)(6) of the Code shall apply,
except that in applying such rules, the term family shall include only
the Spouse of the Participant and any lineal descendants of the
Participant who have not attained age 19 before the close of such year.
1.14 "COMPENSATION DEFERRAL LIMIT" for any Plan Year means the maximum
percentage (determined in accordance with the provisions of Section
12.5) of an Employee's Compensation which may be contributed to the Plan
pursuant to a Salary Deferral Agreement and Cash Option Deferral. The
Benefits Committee shall establish the Compensation Deferral Limit for
each Plan Year for the purpose of meeting the nondiscrimination tests of
Sections 401(k) and 401(m) of the Code, and shall apply the limit to
such Employees as is necessary to assure compliance with such tests.
1.15 "CONTRIBUTION PERCENTAGE LIMIT" means the maximum percentage (determined
in accordance with the provisions of Section 12.5) of an Employee's
Compensation which may be contributed to the Plan as Employer Matching
Contributions under Section 401(m) of the Code. The Benefits Committee
shall establish the Contribution Percentage Limit for each Plan Year for
the purpose of meeting the nondiscrimination tests of Section 401(m) of
the Code, and shall apply the limit to such Employees as is necessary to
assure compliance with such tests.
1.16 "DETERMINATION YEAR" means the Plan Year that is being tested for
purposes of determining if an Employee is a Highly Compensated Employee.
1.17 "DISABILITY" means Permanent and Total Disability, as further described
in Section 7.6.
1.18 "DISABILITY RETIREMENT DATE" means the date on which a Participant's
employment terminates due to Disability.
(3)
<PAGE> 10
1.19 "EFFECTIVE DATE" means July 1, 1996 for this amended and restated Plan.
The original Effective Date of the Plan was January 26, 1967.
1.20 "ELIGIBLE EMPLOYEE" means any person who is an Employee of an Employer,
excluding, however:
(a) Any Employee who is a member of a unit of employees covered by a
collective bargaining agreement to which an Employer is a party
and which does not specifically provide for the coverage of such
employees under the Plan;
(b) Any Employee who is a nonresident alien receiving no earned income
from sources within the United States; or
(c) Any Employee who is a leased employee (within the meaning of
Section 414(n)(2) of the Code).
1.21 "EMPLOYEE" means any person currently employed by the Employer or an
Affiliated Employer. The term "Employee" also includes any leased
employees of the Employer or an Affiliated Employer within the meaning
of Section 414(n) or Section 414(o) of the Code to the extent such
employees are deemed to be "Employees" in accordance with the provisions
of Section 12.6.
1.22 "EMPLOYER" means any of the following corporations:
(a) UST Corp.;
(b) United States Trust Company;
(c) USTrust/Norfolk;
(d) USTrust;
(e) UST Data Services Corp.;
(f) UST Bank/Connecticut;
(g) UST Capital Corp.;
(h) UST Leasing Corporation;
(i) UST Merchant Bancorp, Inc.;
(j) Property Research Group, Inc.; and
(k) each parent, subsidiary, affiliate, successor or other corporation
which has, by invitation by the Board and by action of its own
board, elected to join the Plan.
(4)
<PAGE> 11
The term "EMPLOYER" as herein defined shall mean UST Corp., individually
or in combination with any or all such affiliates as the context may
require.
1.23 "EMPLOYER CONTRIBUTIONS" means the total contribution made by the
Employer on behalf of a Participant for a Plan Year, comprising the
following contributions:
(a) "EMPLOYER PROFIT SHARING CONTRIBUTION" - The portion of Employer
Contributions consisting of profit sharing contributions made in
accordance with Section 5.1.
(b) "EMPLOYER MATCHING CONTRIBUTION" - The portion of Employer
Contributions consisting of matching contributions made in
accordance with Section 5.2.
1.24 "EMPLOYMENT COMMENCEMENT DATE" means the date on which an Employee is
first credited with an Hour of Service for an Employer or Affiliated
Employer, excluding, however, hours of service credited for an
Affiliated Employer prior to the date such Employer became an Affiliated
Employer, unless such hours are recognized by the Board.
1.25 "ENTRY DATE" means the first January 1, or July 1 of a Plan Year as
determined under Section 3.1(b) or such other dates designated by the
Benefits Committee.
1.26 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time. Reference to a specific provision of ERISA
shall include such provision, any valid regulation or ruling promulgated
thereunder, and any comparable provision of future law that amends,
supplements, or supersedes such provision.
1.27 "FORFEITURE ACCOUNT" means the Participant's Regular Profit Sharing
Account maintained separately on the books of the Plan by the Trustee
for each terminated Participant with a forfeitable balance.
1.28 "HIGHLY COMPENSATED EMPLOYEE" means, with respect to a Plan Year, any
Employee who performs services for an Employer or Affiliated Employer
during the Determination Year and who, during the Look-Back Year:
(a) Was a 5% owner (within the meaning of Section 416(i)(l)(B)(i) of
the Code) at any time during such year;
(5)
<PAGE> 12
(b) Received compensation from an Employer or Affiliated Employer in
excess of $75,000 (as adjusted pursuant to Section 415(d) of the
Code);
(c) Received compensation from an Employer or Affiliated Employer in
excess of $50,000 (as adjusted pursuant to Section 415(d) of the
Code) and was among the top 20% of Employees when ranked on the
basis of compensation paid during the Look-Back Year, excluding
however, Employees who:
(i) are under age 21;
(ii) ordinarily work less than six months per year;
(iii) ordinarily work less than 17-1/2 hours per week;
(iv) are included in a unit of Employees covered by a
collective bargaining agreement if 90% or more of the
Employer's Employees are covered by collective bargaining
agreements and the Plan covers only those Employees who
are not covered by such agreements; or
(d) Was an officer of an Employer or Affiliated Employer and received
compensation during the Look-Back Year of more than 50% of the
dollar limitation in effect under Section 415(b)(1)(A) of the
Code. No more than 50 Employees (or, if lesser, the greater of 3
Employees or 10% of the Employees) shall be treated as officers.
If no officer has satisfied this requirement during the Look-Back
Year, the highest paid officer for that year shall be treated as a
Highly Compensated Employee.
Any Employee who during the Determination Year is either a 5% owner at
any time during such year, or who (i) satisfies the requirements in
paragraphs (b), (c), or (d) above, or if no officer satisfies the
requirements of paragraph (d) for that year, the highest paid officer
for that year, and (ii) is among the top 100 Employees ranked by
compensation for the Determination Year shall be treated as a Highly
Compensated Employee.
The term Highly Compensated Employee shall also include any former
Highly Compensated Employee who terminated employment with an Employer
or Affiliated Employer prior to the Determination Year, performs no
services for an Employer or Affiliated Employer during the Determination
Year, and was a Highly Compensated Employee in either his year of
(6)
<PAGE> 13
termination of employment or in any Determination Year ending on or
after his attainment of age 55.
If an Employee is, during a Determination Year or Look-Back Year, a
member of the "family" (within the meaning of Section 414(q)(6)(B) of
the Code) of a 5% owner or of one of the ten most Highly Compensated
Employees when ranked on the basis of compensation paid during such
year, then such individual shall not be treated as a separate Employee
and any compensation received by such individual and any contribution or
benefit of such individual shall be aggregated with the compensation and
contribution or benefit of the 5% owner or Highly Compensated Employee.
For purposes of determining an Employee's compensation under this
Section, "COMPENSATION" shall mean the Employee's total compensation
reportable on Form W-2, plus amounts not otherwise recognized as
compensation because of Sections 125, 402(a)(8) and 402(h)(1)(B) of the
Code.
1.29 "HOUR OF SERVICE" means those hours set forth below:
(a) Employees will receive credit for an Hour of Service for each hour
they are paid, or entitled to payment, for the performance of
duties for an Employer or Affiliated Employer during the Plan
Year.
(b) Except to the extent limited by paragraph (e) below, Employees
will receive credit for an Hour of Service for each hour for which
they are directly or indirectly paid, or entitled to payment, on
account of a period of time during which no duties are performed
for an Employer or Affiliated Employer (irrespective of whether
their employment relationship has terminated) due to and in
accordance with procedures regarding vacation, holiday, illness,
incapacity (including Disability) layoff, jury duty, military
duty, or Leave of Absence. (No credit towards Hours of Service
shall be given on account of severance.)
(7)
<PAGE> 14
(c) An Employee who is on a Maternity/Paternity Leave of Absence shall
be credited with Hours of Service during the Maternity/Paternity
Leave of Absence up to the number of Hours of Service which would
have been credited to such Employee but for such absence, or if
the Benefits Committee is unable to determine such number of Hours
of Service, eight Hours of Service per day of such absence up to a
maximum of 501 Hours of Service. Hours of Service under this
paragraph (c) shall be credited in the manner specified in Section
2.3 hereof.
(d) Employees will also receive credit for an Hour of Service for each
hour for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by an Employer or Affiliated Employer,
but the same Hours of Service will not be credited both under
paragraph (a) or paragraph (b), as the case may be, and under this
paragraph (d). Hours credited under this paragraph (d) shall be
credited to the Plan Year in which the award or agreement
pertains, rather than to the Plan Year in which the award,
agreement or payment is made.
(e) Notwithstanding the provisions of paragraph (b) above,
(i) No more than 501 Hours of Service will be credited to an
Employee under paragraph (b) on account of any single
continuous period during which the Employee performs no
duties; except that if the Employee meets (A) the
"Disability" requirements hereunder, or (B) is absent due
to service in the Armed Forces of the United States and
returns with reemployment rights under applicable Federal
law(s), such Employee shall continue to earn Hours of
Service for eligibility and vesting purposes based on the
number of hours he worked on an annual basis prior to his
Disability or military service, whichever is applicable.
(ii) No Hours of Service will be credited to an Employee for a
period during which no duties are performed if payment to
the Employee was made or due under a plan maintained
solely for the purpose of complying with workers'
compensation, unemployment compensation or disability
insurance laws.
(iii) No Hours of Service will be credited for a payment which
solely reimburses an Employee for medical or medically
related expenses incurred by the Employee or his
dependents.
(8)
<PAGE> 15
The determination of Hours of Service shall be in accordance with
the rules set forth in the United States Department of Labor's
Rules and Regulations for Minimum Standards for Employee Pension
Benefit Plans, Section 2530.200b-2(b) and (c) which are
incorporated herein by this reference.
1.30 "INVESTMENT MANAGER" means any person, firm, or corporation who:
(a) is a registered investment adviser under the Investment Advisers
Act of 1940, a bank, or an insurance company;
(b) has the power to manage, acquire, or dispose of Plan assets; and
(c) acknowledges in writing a fiduciary responsibility to the Plan.
1.31 "LEAVE OF ABSENCE" means a period during which an Employee is:
(a) temporarily absent due to sickness or disability, an authorized
vacation, or jury duty;
(b) on approved extended leave of absence for any reason as granted in
a non-discriminatory manner in writing by an Employer; provided
that the Employee returns to work promptly upon the expiration
thereof;
(c) temporarily laid off, provided however, that no additional Hours
of Service shall be credited to the Employee or Participant, after
12 consecutive calendar months of layoff;
(d) absent due to service in the Armed Forces of the United States,
provided, however, that the Employee shall have returned to
employment with the Employer within 90 days after the termination
of such service or within such longer period as his employment
rights are protected by law;
(e) absent due to a Maternity/Paternity Leave of Absence.
For purposes of the Plan a "MATERNITY/PATERNITY LEAVE OF ABSENCE",
means an absence for any period by reason of the Employee's
pregnancy, birth of the Employee's child, placement of a child
with the Employee in connection with the adoption of such child,
or any absence for the purpose of caring for such child for a
period immediately following such birth or placement.
(9)
<PAGE> 16
1.32 "LOAN" means the amount provided as a Loan under the Plan to
Participants, pursuant to Article 8.
1.33 Reserved.
1.34 "LOOK-BACK YEAR" means the period of twelve consecutive months
immediately preceding the Determination Year. In determining the
identity of a Highly Compensated Employee, however, the Committee may
elect that the Look-Back Year shall be the calendar year ending with or
within the Determination Year.
1.35 "NONHIGHLY COMPENSATED EMPLOYEE" means an Employee who is not a Highly
Compensated Employee.
1.36 "NORMAL RETIREMENT DATE" means a Participant's 65th birthday.
1.37 "PARTICIPANT" means an Employee participating in the Plan in accordance
with Article 3.
1.38 "PLAN" means the UST Corp. Employee Savings Plan (formerly the "UST
Corp. Profit Sharing Plan") as herein set forth, or as hereafter may be
amended from time to time. The Plan is also a declaration of trust by
the Trustee.
1.39 "PLAN ADMINISTRATOR" means the Benefits Committee which shall be
responsible for disclosure and reporting as required under applicable
law. Compliance with the disclosure and reporting requirements of ERISA
shall be sufficient to discharge any duty to account which would
otherwise exist regarding the Plan.
1.40 "PLAN YEAR" means the twelve month period commencing on January 1st and
ending on December 31st of each calendar year.
1.41 "QUALIFIED DOMESTIC RELATIONS ORDER" means a domestic relations order
which meets the requirements of Section 414(p) of the Code, as
determined by the Benefits Committee.
1.42 "QUALIFIED MILITARY SERVICE" means any service in the Armed Forces (or
other uniformed service as provided by USERRA).
(10)
<PAGE> 17
1.43 "ROLLOVER CONTRIBUTION ACCOUNT" means a rollover of a distribution from
a qualified plan or conduit individual retirement account to this Plan,
provided the distribution is:
(a) either received from a qualified plan prior to January 1, 1993 as
a "qualified total distribution" (within the meaning of Section
402(a)(5)(E) of the Code prior to amendment by the Unemployment
Compensation Amendments of 1992), or is received from a qualified
plan on or after January 1, 1993 as an "eligible rollover
distribution" (within the meaning of Section 402(c)(4) of the
Code);
(b) eligible for a tax-free rollover to a qualified plan; and
(c) either rolled over within 60 days following the date the Eligible
Employee received the distribution, or paid to the Plan as a
"direct rollover" (within the meaning of Section 401(a)(31) of the
Code).
A Rollover Contribution may not include amounts attributable to
voluntary deductible employee contributions.
1.44 "SALARY DEFERRAL AGREEMENT" means an agreement provided by the Benefits
Committee in which an Eligible Employee agrees, on or after January 1,
1994, to reduce his Compensation paid after the execution of such
agreement and to have the amount of such reduction contributed by the
Employer to the Trust Fund on behalf of the Eligible Employee pursuant
to Section 401(k) of the Code. An Eligible Employee may execute a new
Salary Deferral Agreement from time to time pursuant to Article 4.
1.45 "SPONSORING EMPLOYER" means UST Corp. or its successor or successors.
1.46 "SPOUSE" means the person, if any, to whom the Participant is lawfully
married at the date of his death, or at his Benefit Commencement Date,
whichever is earlier, provided, however, that a former spouse will be
treated as the Participant's Spouse to the extent provided under a
Qualified Domestic Relations Order.
1.47 "TOTAL ACCOUNT" - means the total amounts held under the Plan for a
Participant, consisting of the following accounts:
(a) "BASIC BEFORE-TAX CONTRIBUTION ACCOUNT" - The portion of the
Participant's Total Account consisting of Basic Before-Tax
Contributions made in accordance with Section
(11)
<PAGE> 18
4.1(a), plus (or minus) any investment earnings (or losses) on
such contributions, less any distributions from such Account.
(b) "SUPPLEMENTAL BEFORE-TAX CONTRIBUTION ACCOUNT" - The portion of
the Participant's Total Account consisting of Supplemental
Before-Tax Contributions made in accordance with Section 4.1(b),
plus (or minus) any investment earnings (or losses) on such
contributions, less any distributions from such Account.
(c) "CASH OPTION DEFERRED ACCOUNT" - The portion of the Participant's
Total Account consisting of Cash Option Deferrals made in
accordance with Section 5.1, plus (or minus) any investment
earnings (or losses) on such contributions, less any distributions
from such Account.
(d) "EMPLOYER MATCHING CONTRIBUTION ACCOUNT" - The portion of the
Participant's Total Account consisting of Employer Matching
Contributions made in accordance with Section 5.2, plus (or minus)
any investment earnings (or losses) on such contributions, less
any distributions from such Account.
(e) "REGULAR PROFIT SHARING ACCOUNT" - The portion of the
Participant's Total Account consisting of the Regular Profit
Sharing Contribution of the Employer made in accordance with
Section 5.1, plus (or minus) any investment earnings (or losses)
on such contributions, less any distributions from such Account.
(f) "ROLLOVER ACCOUNT" - The portion of the Participant's Total
Account consisting of any Rollover Contributions made on behalf of
the Participant in accordance with Section 4.4, plus (or minus)
any investment earnings (or losses) on such contributions, less
any distributions from such Account.
1.48 "TRUST FUND" means the assets of the Trust Fund held by the Trustee
hereunder.
1.49 "TRUSTEE" means United States Trust Company, a banking corporation
organized under the laws of the Commonwealth of Massachusetts, in its
capacity as Trustee hereunder and any corporation or one or more
individuals who may from time to time be appointed as successor Trustee
or Trustees. A person so appointed shall become Trustee upon delivery to
the Benefits Committee of his or its acceptance. The duties,
responsibilities and other pertinent information concerning the Trustee
are set forth in Article 10.
(12)
<PAGE> 19
1.50 "USERRA" means the Uniformed Services Employment and Reemployment Rights
Act of 1994.
1.51 "VALUATION" means the valuation of the assets of the Trust Fund and
adjustment of Participants' Accounts.
1.52 "VALUATION DATE" means the last day of each June and December prior to
January 1, 1994 and the last day of each March, June, September and
December thereafter and such other dates as the Trustee and/or the
Benefits Committee deem appropriate.
1.53 "YEAR OF SERVICE" means such year as specified in Article 2.
1.54 The masculine gender wherever appearing in the Plan shall be deemed to
include the feminine gender and the singular to include the plural,
unless the context clearly indicates the contrary.
(13)
<PAGE> 20
ARTICLE 2
SERVICE
2.1 SERVICE
"SERVICE" means active employment with the Employer as an Employee. For
purposes of determining Service, employment with any Affiliated Employer
as specified in Section 1.1 of this Plan and certain periods of absence
due to Disability or military leave as specified in Section 1.31(d) of
this Plan, shall be treated as employment with the Employer for vesting
purposes, but not for purposes of allocations hereunder, unless
otherwise provided herein. Service with a predecessor organization of
the Employer also shall be treated as Service with the Employer if the
Employer maintains the Plan of such predecessor organization. In
addition, the Board may recognize employment with an Affiliated Employer
for vesting purposes prior to the date such entity became affiliated
with the Employer.
2.2 YEAR OF SERVICE
The term "YEAR OF SERVICE" means a Plan Year during which an Employee
has completed at least 1,000 Hours of Service.
2.3 ONE-YEAR BREAK IN SERVICE
The term "ONE-YEAR BREAK IN SERVICE" means any Plan Year during which an
Employee fails to complete more than 500 Hours of Service.
Notwithstanding the foregoing, for purposes of determining whether a
One-Year Break in Service has occurred, Hours of Service shall be
credited for periods during which the Employee is on a
Maternity/Paternity Leave of Absence, as follows. Hours of Service shall
be credited for the Plan Year in which the absence from work begins,
only if credit in such year is necessary to prevent the Employee from
incurring a One-Year Break in Service, or, in any other case, in the
immediately following Plan Year. The Hours of Service credited for a
Maternity/Paternity Leave of Absence shall be those which would normally
have been credited but for such absence, or, in any case in which the
Benefits Committee is unable to determine such hours normally credited,
eight Hours of Service per day. The total Hours of Service credited for
a Maternity/Paternity Leave of Absence shall not exceed 501.
(14)
<PAGE> 21
A Break in Service shall not occur with respect to an Employee who is
absent from work on account of Qualified Military Service, provided such
Employee is reemployed by the Employer within the period during which
his or her reemployment rights are protected by USERRA.
(15)
<PAGE> 22
ARTICLE 3
PARTICIPATION
3.1 ELIGIBILITY TO PARTICIPATE
(a) Current Participants
Each Eligible Employee of the Employer who was participating in
the Plan on September 30, 1995 shall continue to participate
hereunder, and shall be eligible to have a Before-Tax
Contribution made on his behalf pursuant to Section 4.1 and
receive an Employer Matching Contribution pursuant to Section 5.2
provided he has made the required elections pursuant to Section
3.2.
(b) Participation on October 1, 1995
Notwithstanding the above, each Eligible Employee on September
30, 1995 who is scheduled to work at least 1,000 hours per year
shall be eligible to have Before-Tax Contributions made on his
behalf pursuant to Section 4.1 and receive Employer Matching
Contributions pursuant to Section 5.2, provided he has made the
required elections pursuant to Section 3.2.
(c) Participation on or after January 1, 1996 and prior to January 1,
1997
(i) Each Employee of the Employer shall automatically become a
Participant in the Plan on the date he becomes an Eligible
Employee.
(ii) Effective January 1, 1996, each Participant shall, on the
first Entry Date coincident with or next following the
earliest date on which he has completed (A) 500 or more
hours in the first six months of employment, (B) 1,000 or
more hours on the first anniversary of employment, or (C)
1,000 or more hours in any subsequent calendar year, be
eligible to have Before-Tax Contributions made on his
behalf pursuant to Section 4.1 and receive an Employer
Matching Contribution pursuant to Section 5.2 provided he
has made the required elections pursuant to Section 3.2.
For purposes of this subparagraph, "six months of
employment" shall mean that the Participant is employed on
the date which is six months after the date the
Participant is first credited with an Hour of Service.
(d) Participation on January 1, 1997
(16)
<PAGE> 23
Notwithstanding the above, each Eligible Employee on November 15,
1996 who is scheduled to work at least 20 hours per week shall be
eligible on January 1, 1997 to have Before-Tax Contributions made
on his behalf pursuant to Section 4.1 and receive Employer
Matching Contributions pursuant to Section 5.2, provided he has
made the required elections pursuant to Section 3.2.
(e) Participation after January 1, 1997
Each Participant shall, on the first Entry Date coincident with
or next following the earliest date on which he has completed (i)
500 or more hours in the first six months of employment, (ii)
1,000 or more hours on the first anniversary of employment, or
(iii) 1,000 or more hours in any subsequent calendar year, be
eligible to have Before-Tax Contributions made on his behalf
pursuant to Section 4.1 and receive an Employer Matching
Contribution pursuant to Section 5.2 provided he has made the
required elections pursuant to Section 3.2. For purposes of this
subparagraph, "six months of employment" shall mean that the
Participant is employed on the date which is six months after the
date the Participant is first credited with an Hour of Service.
3.2 ELECTIONS REQUIRED
Each Eligible Employee must, upon satisfying the eligibility
requirements of Section 3.1(b)(ii), make elections in the manner
provided under the Plan and execute such forms as required by the
Benefits Committee. Any elections made pursuant to Section 4.1 shall
become effective beginning with the first paycheck received by the
Eligible Employee on or after the Entry Date which is 15 or more days
after the date the Eligible Employee files his executed forms with the
Benefits Committee. A Participant's elections made pursuant to Section
4.1 shall remain in effect (subject to the contribution limitations
under Sections 4.5, 12.4, and 12.5) while the Participant is an Eligible
Employee or until such time as he files a new election on the
appropriate form with the Benefits Committee.
An Eligible Employee who becomes a Participant shall be entitled to
share in the Regular Profit Sharing Contribution allocations provided
under Article 5 for a Plan Year, regardless of any elections required
under this Section or any elections made by the Eligible Employee
pursuant to Section 4.1.
3.3 REEMPLOYED EMPLOYEE
(17)
<PAGE> 24
In the case of an individual who ceases to be an Employee and is
subsequently rehired as an Employee, he shall resume participation in
the Plan on the date he becomes an Eligible Employee. Such Eligible
Employee may resume making contributions or having contributions made on
his behalf under the Plan as of the Entry Date following his date of
reemployment provided he has satisfied the eligibility requirement under
Section 3.1(b) and he has made the required elections pursuant to
Section 3.2
(18)
<PAGE> 25
ARTICLE 4
PARTICIPANT CONTRIBUTIONS
4.1 PARTICIPANT CONTRIBUTIONS
Effective January 1, 1994, each Eligible Employee may, after satisfying
the eligibility requirements of Section 3.1(b)(ii), elect to have a
contribution made on his behalf to the Trust Fund at the rate of 1% to
10% (12% effective January 1, 1997) of Compensation. The rate of
contribution will be in increments of 1%. Such election shall be in the
form of a Salary Deferral Agreement and shall be subject to the
Compensation Deferral Limit, if any, applicable to such Participant as
established by the Committee from time to time for purposes of meeting
the nondiscrimination tests of Section 401(k) of the Code. Contributions
made in accordance with this Section 4.1, shall also be subject to the
maximum limits in effect under Sections 4.5 and 12.4.
A Participant's contributions may consist of Basic Before-Tax
Contributions and Supplemental Before-Tax Contributions as described
below:
(a) BASIC BEFORE-TAX CONTRIBUTIONS - The first 5% (6% effective
January 1, 1997) of Compensation for a payroll period which is
contributed on the Participant's behalf under a Salary Deferral
Agreement shall be known as the Participant's Basic Before-Tax
Contributions and shall be contributed to the Participant's Basic
Before-Tax Contribution Account.
(b) SUPPLEMENTAL BEFORE-TAX CONTRIBUTIONS - Contributions made on the
Participant's behalf under a Salary Deferral Agreement in excess
of 5% (6% effective January 1, 1997) of Compensation for a
payroll period shall be known as the Participant's Supplemental
Before-Tax Contributions and shall be contributed to the
Participant's Supplemental Before-Tax Contribution Account.
Contributions made pursuant to this Section 4.1 shall be made by the
Employer directly to the Trustee no less frequently than once per
calendar month.
(19)
<PAGE> 26
4.2 INCREASE OR DECREASE IN RATE OF CONTRIBUTIONS
A Participant may elect to change the rate of his Before-Tax
Contributions, effective as of any Change Date, provided that at least
15 days in advance of such Change Date the Participant files with the
Benefits Committee a new Salary Deferral Agreement. In addition, a
Participant may, within one week of a change in his base rate of
compensation, elect to change the rate of his Before-Tax Contributions
to be effective as soon as practicable following the Participant's
election. A Participant's change in his rate of Before-Tax Contributions
shall be subject to the contribution limitations in effect under
Sections 4.5, 12.4, and 12.5 at the time the change is made.
4.3 SUSPENSION AND RESUMPTION OF CONTRIBUTIONS
A Participant may elect to suspend his Before-Tax Contributions
effective as of the first day of any succeeding payroll period, provided
that at least 7 days in advance of such date the Participant files with
the Benefits Committee a new Salary Deferral Agreement. Before-Tax
Contributions may be resumed as of any January 1 or July 1 which
coincides with or next follows a six month period of suspension,
provided that at least 15 days in advance of such date the Participant
files with the Benefits Committee a new Salary Deferral Agreement.
A Participant may not make up suspended Before-Tax Contributions.
During a period of suspension, the Participant's Total Account will
continue to share in the investment experience of the Trust Fund, and
the Participant will remain entitled to those benefits and rights under
the Plan not conditioned on Before-Tax Contributions, including the
right to receive an allocation of Regular Profit Sharing Contributions,
if any, and the right to make an in-service withdrawal or receive a Plan
Loan.
A Participant's election to resume making Before-Tax Contributions shall
remain in effect while the Participant is an Eligible Employee or until
such time as he files a new election on the appropriate form with the
Benefits Committee. Any election to resume making Before-Tax
Contributions shall be subject to the contribution limitations in effect
under Sections 4.5, 12.4, and 12.5.
(20)
<PAGE> 27
4.4 ROLLOVER CONTRIBUTIONS
(a) ROLLOVERS - An Eligible Employee may file a written request with
the Benefits Committee to accept his Rollover Contribution. Any
such request shall state the amount of the Rollover Contribution
and include a statement that such contribution constitutes a
Rollover Contribution.
The Benefits Committee shall determine, in accordance with a
uniform and nondiscriminatory policy, whether or not such
contribution shall be accepted, and may require the Eligible
Employee to submit such other evidence and documentation as the
Benefits Committee determines necessary to ensure that the
contribution qualifies as a Rollover Contribution.
All Rollover Contributions must be made in cash.
The amount paid to the Trust Fund in the form of a Rollover
Contribution and any subsequent investment experience on such
amount shall be credited to the Participant's Rollover Account.
(b) An Eligible Employee shall have at all times a nonforfeitable
interest in 100% of his Rollover Contribution, and any investment
experience on such amount.
(c) At the time the Rollover Contribution is made to the Trust Fund,
the Eligible Employee must elect to have it invested in
accordance with the terms of Section 6.2.
(d) An Eligible Employee who makes a Rollover Contribution to the
Trust Fund shall be deemed to be a Participant with respect to
such amount for all purposes of the Plan, except for purposes of
Sections 2.1 through 2.5, Sections 4.1 through 4.3, Sections 5.1
and 5.2, and Section 12.5.
(e) In no event shall any Rollover Contribution be subject to
Employer Matching Contributions.
(21)
<PAGE> 28
4.5 MAXIMUM AMOUNT OF SALARY DEFERRAL AND CASH OPTION DEFERRAL
(a) On or after January 1, 1987, contributions made during a
Participant's taxable year (which is presumed to be the calendar
year) on behalf of the Participant under a Salary Deferral
Agreement and Cash Option Deferral shall be limited to $7,000 (or
such other limit as may be in effect at the beginning of such
taxable year under Section 402(g)(1) of the Code), reduced by the
amount of "elective deferrals" (as defined in Section 402(g)(3)
of the Code) made during the taxable year of the Participant
under any plans or agreements maintained by the Employer or an
Affiliated Employer other than this Plan. Elective deferrals
shall not include any elective deferrals returned to the Employee
pursuant to Section 12.4(d).
(b) If contributions made on a Participant's behalf for the preceding
taxable year of the Participant under a Salary Deferral
Agreement, and Cash Option Deferral, and any other elective
deferrals (within the meaning of Section 402(g)(3) of the Code)
made on the Participant's behalf under any other qualified cash
or deferred arrangement of the Employer or Affiliated Employer
for such taxable year exceed $7,000 (or such other amount as
adjusted in accordance with paragraph (a) above), the Participant
shall notify the Benefits Committee in writing within two months
following the close of such taxable year of the amount of such
excess. Such notification shall include a statement that if such
amounts are not distributed, the excess deferral amount, when
added to amounts deferred under other plans or arrangements
described in Section 401(k), 408(k), or 403(b) of the Code, will
exceed the limit imposed on the Participant by Section 402(g) of
the Code for the taxable year of the Participant in which the
deferral occurred.
If the elective deferral limit is exceeded for a Participant for
a taxable year, the excess amount, adjusted (as described below)
for allocable gains or losses for the taxable year with respect
to which the deferral was made, shall be refunded to the
Participant in a single payment no later than 3-1/2 months
following the Participant's taxable year following the taxable
year in which such excess deferral arose. If the Participant's
Before-Tax Contribution Account and/or Cash Option Deferred
Account is invested in more than one investment fund, such refund
shall be made pro rata, to the extent practicable, from all such
investment funds. The amount refunded shall not exceed the
Participant's Before-Tax Contributions and Cash Option Deferrals
under the Plan for the taxable year. If the foregoing refund is
made, the payment shall be deemed to have been made before the
close of the taxable year in which such excess deferral arose.
(22)
<PAGE> 29
Any Employer Matching Contributions made with respect to returned
excess deferral amounts shall be forfeited.
Excess deferrals shall be adjusted for allocable gains or losses
for the taxable year in which the excess deferrals arose by
multiplying the gains or losses credited to the Participant's
Basic and Supplemental Before-Tax Contribution Accounts and Cash
Option Deferred Account for that taxable year by a fraction, the
numerator of which is the excess deferral amount made by the
Participant for the taxable year, and the denominator of which is
the sum of (i) the balance in the Participant's Basic and
Supplemental Before-Tax Contribution Accounts and Cash Option
Deferred Account as of the beginning of the taxable year, and
(ii) the amount of Before-Tax Contributions and the Cash Option
Share credited to the Participant's Basic and Supplemental
Before-Tax Contribution Accounts and Cash Option Deferred Account
for the taxable year.
If the Participant fails to notify the Benefits Committee by the
2-month period specified above, no refund will be made.
4.6 PARTICIPANT CONTRIBUTIONS FOR RETURNING VETERANS
(a) If a Participant incurs a Leave of Absence on account of
Qualified Military Service and such Participant is reemployed by
the Employer within the period during which his or her
reemployment rights are protected by USERRA, upon reemployment
such Participant shall be entitled to contribute to the Plan, in
accordance with and subject to the limitations provided in
Section 414(u) of the Code, the Before-Tax Contributions he or
she would have been entitled to make had he or she remained
actively employed by the Employer during such Leave of Absence.
(b) All such contributions must be made during the period which
commences on the date of such a Participant's reemployment and
has the same length as the lesser of (i) 3 multiplied by the
period of such Participant's Qualified Military Service and (ii)
five years. All such contributions will be invested in accordance
with Section 6.2 and shall be credited with investment earnings
(or losses) as provided in Section 6.7.
(c) For purposes of determining the amount of the Before Tax
Contributions a Participant may contribute pursuant to paragraph
(a) above, such Participant's Compensation during his or her
Qualified Military Service shall be equal to: (i) the
Compensation he
(23)
<PAGE> 30
or she would have received during the period of Qualified
Military Service based on the rate of pay he or she would have
received but for the absence during the period of Qualified
Military Service or (ii) if the Compensation he or she would have
received during the period of Qualified Military Service is not
reasonably certain, his or her average Compensation during the
12-month period immediately before the Qualified Military Service
or, if shorter, the period of employment immediately before the
Qualified Military Service.
(24)
<PAGE> 31
ARTICLE 5
EMPLOYER CONTRIBUTIONS
5.1 EMPLOYER PROFIT SHARING CONTRIBUTION
(a) AMOUNT
An Employer may make a profit sharing contribution to the Trust
Fund, as of the end of each Plan Year, in such amount as is
determined in the discretion of the Board prior to the date on
which the contribution is required to be made.
The Employer Profit Sharing Contribution shall consist of two
parts as described below:
(i) REGULAR PROFIT SHARING CONTRIBUTION - The portion of the
Employer Profit Sharing Contribution equal to 66-2/3% of
the total Employer Profit Sharing Contribution.
(ii) CASH OPTION SHARE - The portion of the Employer Profit
Sharing Contribution equal to 33-1/3% of the total
Employer Profit Sharing Contribution.
(b) CASH OPTION
(i) CASH OPTION ELECTION
Within a reasonable time prior to the close of each Plan
Year, the Trustee shall deliver to each Participant a Cash
Option election form. Pursuant to such form, each
Participant may elect in writing by the end of the Plan
Year to receive in cash his Cash Option Share. Any
election under this Section shall be irrevocable for the
year in which such election is made.
If a Participant fails to make an election to either
receive an immediate cash payment of or to defer the Cash
Option Share under this Section, it shall be assumed that
he intended to receive his Cash Option Share in cash.
(25)
<PAGE> 32
(ii) PAYMENT OF CASH OPTION SHARE
The Cash Option Share which a Participant elects to
receive in cash shall be paid to him as soon as
practicable after the year for which the election is made,
which generally shall be either February or March of such
following year; provided that in any event such payment
shall be made within any time limits prescribed by
applicable law.
(c) ALLOCATION OF EMPLOYER PROFIT SHARING CONTRIBUTIONS
The Trustee shall make an allocation under this Section 5.1(c)
and Section 7.5 to the Regular Profit Sharing Account and, if
applicable, the Cash Option Deferred Account of each Participant
who completed a Year of Service during, and is employed on the
last day of, the Plan Year to which the Employer Profit Sharing
Contribution relates. The Trustee shall allocate a portion of the
current Employer Profit Sharing Contribution to each such
Participant equal to a fraction as described below:
(i) The numerator shall be the Participant's Compensation for
the Plan Year,
(ii) The denominator shall be the total Compensation for all
Participants eligible to share in the contribution for the
Plan Year.
(d) ALLOCATION AMONG TOTAL ACCOUNT
As of the last day of each Plan Year, the Trustee shall allocate
to the Regular Profit Sharing Account and, if applicable, the
Cash Option Deferred Account of each Participant entitled, in
accordance with Section 5.1(c), to share in the Employer's Profit
Sharing Contribution and forfeitures for such Plan Year, an
amount (computed in dollars) equal to his proportionate share of
the Employer's Profit Sharing Contribution and forfeitures for
such Plan Year, as set forth in Sections 5.1(c) and 7.5,
respectively. Except as provided in Section 5.1(b), one third of
the Employer's Profit Sharing Contribution made on behalf of a
Participant shall be credited to the Participant's Cash Option
Deferred Account. The remaining portion of the Employer's Profit
Sharing Contribution, together with the Participant's share of
forfeitures, shall be allocated to the Participant's Regular
Profit Sharing Account.
(e) RESPONSIBILITY OF COMMITTEE AND TRUSTEE
(26)
<PAGE> 33
If no contribution under this Section shall be made for any year,
the Employer shall so advise the Benefits Committee and the
Trustee. Neither the Trustee nor the Benefits Committee shall be
under any duty to inquire into the correctness of the amounts
contributed and paid over to the Trustee hereunder or to
determine whether any contribution is payable under this Section
5.1 or to enforce payment of any contribution by the Employer.
(f) ADVANCE CONTRIBUTIONS
The Employer, at any time, may make payments on account of its
contribution for the year. Such payment shall constitute a part
of the Trust Fund upon receipt by the Trustee but may be
segregated in an Advance Contribution Account which shall be held
in cash or such other property as may be permissible under
applicable law. The total market value of such Advance
Contribution Account on the last day of the Plan Year, together
with any other contribution by the Employer, shall be allocated
as provided in Section 5.1(c).
5.2 EMPLOYER MATCHING CONTRIBUTIONS
As of each Valuation Date, an Employer Matching Contribution shall be
credited to the Employer Matching Contribution Account of each
Participant who made Basic Before-Tax Contributions to the Trust Fund
since the previous Valuation Date and who is employed by the Employer on
said Valuation Date. The Employer Matching Contributions made on behalf
of each such Participant shall be based upon the Participant's Basic
Before-Tax Contributions and Compensation since the previous Valuation
Date, and shall be equal to the sum of (a) 100% of the Participant's
Basic Before-Tax Contributions which do not exceed 1% (2% effective
January 1, 1997) of Compensation, plus (b) 25% of the Participant's
Basic Before-Tax Contributions which exceed 1% (2% effective January 1,
1997) of Compensation.
No Employer Matching Contributions shall be made with respect to
Supplemental Before-Tax Contributions or Cash Option Deferrals made by
or on behalf of any Participant.
(27)
<PAGE> 34
5.3 FORM AND TIMING OF EMPLOYER CONTRIBUTIONS
Employer Contributions for each fiscal year shall be made by the
Employer within the period required by the provisions of the Code
applicable to such year. The Employer's Contribution for each year may
be paid to the Trustee either in cash or other property, to the extent
permissible under law; provided that any securities so contributed shall
be valued at fair market value on the date of the contribution pursuant
to the valuation methods set forth in Section 6.6.
5.4 EMPLOYER MATCHING CONTRIBUTIONS
If a Participant incurs a Leave of Absence on account of Qualified
Military Service and such Participant is reemployed by the Employer
within the period during which his or her reemployment rights are
protected by USERRA, Employer Matching Contributions which would have
been credited to the Employer Matching Contribution Account had such
former Participant remained actively employed by the Employer during
such Leave of Absence shall be made to the extent provided in and in
accordance with Section 414(u) of the Code; and Employer Profit Sharing
Contributions which would have been credited to the Employer Profit
Sharing Contribution Account had such former Participant remained
actively employed by the Employer during such Leave of Absence shall be
made in accordance with Section 414(u) of the Code.
(28)
<PAGE> 35
ARTICLE 6
INVESTMENT PROVISIONS AND PARTICIPANT ACCOUNTS
6.1 INVESTMENT FUNDS
The Trustee shall establish one or more investment funds as the
Sponsoring Employer may from time to time direct. The Sponsoring
Employer may direct that each investment fund be invested:
(a) At the discretion of the Trustee in accordance with such
investment guidelines and objectives as may be established by the
Sponsoring Employer for such investment fund; or
(b) At the discretion of a duly appointed Investment Manager in
accordance with such investment guidelines and objectives as may
be established by the Sponsoring Employer; or
(c) In such investments as the Sponsoring Employer may specify for
such investment fund.
The Sponsoring Employer may from time to time change its direction with
respect to any investment fund and may, at any time, eliminate any
investment fund or establish additional funds. Whenever an investment
fund is eliminated, the Trustee shall promptly liquidate the assets of
such investment fund and reinvest the proceeds thereof in accordance
with the directions of the Sponsoring Employer.
The Trustee may maintain from time to time reasonable amounts in cash or
cash equivalents in any fund. All expenses properly attributable to an
investment fund, including but not limited to brokerage fees and stock
transfer taxes, shall be paid from such investment fund, unless paid by
the Employer.
All dividends, interest and other income of each investment fund, as
well as stock splits, stock dividends, and the like, shall be reinvested
in that investment fund.
(29)
<PAGE> 36
6.2 INVESTMENT ELECTION
(a) The Plan permits Participants or Beneficiaries to exercise
control over the assets in his Total Account in a manner which is
intended to bring the Plan within the rule of Section 404(c) of
the Employee Retirement Income Security Act of 1974. By allowing
Participants and Beneficiaries to elect among several investment
funds, the Employer intends that fiduciaries of the Plan be
relieved of fiduciary responsibility for any loss, or by reason
of any breach, which results from the Participant's or
Beneficiary's exercise of control.
The Participant's Total Account shall be invested in one or a
combination of the available investment alternatives established
and maintained by the Trustee. These alternatives may include,
but are not limited to: an Equity Fund, seeking growth of capital
by investing in a wide range of companies, a Stable Asset Fund,
consisting primarily of FDIC-insured deposits, and a Balanced
Fund, investing in both stocks and fixed-income securities. The
Employer and/or Trustee reserves the right to add to or change
the types of investment alternatives available to Participants
and Beneficiaries.
At the time an Eligible Employee becomes a Participant in the
Plan and makes an election in accordance with Section 4.1, the
Eligible Employee must choose, on a form provided by the Benefits
Committee, the percentage in which contributions made by or on
behalf of such Participant are to be invested in each investment
fund. Such percentage may be 0%, or in increments of 5%, up to a
total of 100%. Participant's investment elections must total
100%. A Participant or Beneficiary may elect to have all of his
Total Account invested in a single investment vehicle.
(b) During the absence of a valid election by a Participant, the
contributions made by or on behalf of such Participant, shall be
credited to the fund with the least investment risk.
6.3 CHANGE IN INVESTMENT ELECTION
A Participant may elect, effective as of any Change Date, to reallocate
in 5% increments his Basic and Supplemental Before-Tax Contribution
Accounts, Employer Matching Contribution Account, and Rollover Account
among the investment funds, provided that the Participant files with the
Benefits Committee a new election on the appropriate form at such time
and in such manner as the Benefits Committee may require. Any elections
made in accordance with this paragraph shall apply to the amounts
existing in the Participant's Basic
(30)
<PAGE> 37
and Supplemental Before-Tax Contribution Accounts, Employer Matching
Contribution Account, and Rollover Account on the Change Date and to all
contributions credited to such Accounts on or after such Change Date.
The Benefits Committee may from time to time:
(a) Limit or restrict a Participant's ability to change the
allocation of his Basic and Supplemental Before-Tax Contribution
Accounts, Employer Matching Contribution Account, and Rollover
Account among the investment funds and/or withdraw balances from
the various investment funds in order to conform to the
practices, provisions, or restrictions of any investment media
held in any such investment fund; and
(b) Adopt procedures relating to the determination and allocation of
the investment earnings among the Participants' Basic and
Supplemental Before-Tax Contribution Account, Employer Matching
Contribution Account, and Rollover Account, in order to
facilitate the administration of the Plan on an equitable and
practicable basis.
6.4 RESPONSIBILITY OF PARTICIPANT IN SELECTING INVESTMENT FUNDS
The selection of an investment fund or funds is the sole responsibility
of each Participant. The Benefits Committee, the Trustee, the Investment
Manager, the Employer, or any other fiduciary to the Plan may not advise
a Participant as to the election of any investment fund or the manner in
which contributions shall be invested. The fact that a security is
available to Participants for investment under the Plan shall not be
construed as a recommendation as to the purchase of that security, nor
shall the designation of an investment fund impose any liability on the
Benefits Committee, the Trustee, the Investment Manager, or the
Employer.
6.5 ESTABLISHMENT OF PARTICIPANT ACCOUNTS
(a) The Trustee shall establish and maintain for each Participant a
Total Account, consisting of the following accounts, and any such
other accounts as may be deemed necessary by the Benefits
Committee:
(i) Basic Before-Tax Contribution Account;
(ii) Supplemental Before-Tax Contribution Account;
(iii) Employer Matching Contribution Account;
(iv) Regular Profit Sharing Account;
(31)
<PAGE> 38
(v) Cash Option Deferred Account; and
(vi) Rollover Account.
(b) Within each of the accounts described in paragraph (a) above,
separate records shall be kept of the portion of the account
credited to each investment fund.
(c) Such accounts as described in Sections 6.5(a)(iv) and (v) above
shall be maintained primarily for bookkeeping purposes. The
Trustee shall not be required to segregate the assets in these
accounts of Participants for purposes of investment or otherwise.
6.6 FAIR MARKET VALUE OF TRUST ASSETS
The fair market value of all of the assets of the Trust Fund shall be
determined by the Trustee on each Valuation Date.
6.7 ALLOCATION OF TRUST ASSETS
The balance of each Participant's Total Account (including the Regular
Profit Sharing Account portion, if any, of a Forfeiture Account
attributable to a Participant and not yet available for reallocation
pursuant to Section 7.5) shall be adjusted as of each Valuation Date.
In addition to the rules set forth above, the credit balance of the
Total Accounts of Participants shall be reduced by any distributions
made since the most recent Valuation Date.
6.8 CORRECTION OF ERROR
The Benefits Committee may adjust the Total Accounts of any or all
Participants or Beneficiaries in order to correct errors or rectify
omissions, including, without limitation, any allocations to a
Participant's Total Account made in excess of the limits specified in
Sections 4.5, 12.4, and 12.5, in such manner as it believes will best
result in the equitable and nondiscriminatory administration of the
Plan.
(32)
<PAGE> 39
6.9 ALLOCATION SHALL NOT VEST TITLE
The fact that an allocation is made and amounts are credited to the
Total Account of a Participant shall not vest in such Participant any
right, title, or interest in and to any assets except at the time or
times and upon the terms and conditions expressly set forth in this
Plan, nor shall the Trustee be required to segregate physically the
assets of the Trust Fund by reason thereof.
(33)
<PAGE> 40
ARTICLE 7
BENEFITS
7.1 NATURE OF BENEFITS
The benefits provided by this Plan consist of the right of a Participant
to receive a distribution of the vested portion of his Total Account in
accordance with the provisions of this Article 7. The value of a
Participant's Total Account shall be determined as of the Valuation Date
preceding the date on which payment is made.
7.2 MEDIUM AND METHOD OF DISTRIBUTION
The amount payable to a Participant (or Beneficiary) under the terms of
the Plan shall be distributed in the form of a single lump sum payment
in cash.
7.3 TIMING OF DISTRIBUTION
Except as noted below and otherwise provided in this Plan, the vested
portion of a Participant's Account shall be paid as soon as
administratively feasible following the first Valuation Date following
the date the Employee's employment with the Employer or an Affiliated
Employer terminates. Distribution shall be made no later than 60 days
after the close of the Plan Year in which occurs the latest of the
Participant's (A) Normal Retirement Date, (B) tenth anniversary of Plan
participation, or (C) separation from service with the Employer and all
Affiliated Employers.
If the value of a Participant's vested Account has ever exceeded $3,500
during his participation in the Plan, payment to such Participant shall
not be made in accordance with the above unless the Participant consents
to such distribution. In addition, a Participant who elects not to
receive his distribution in accordance with the above, may elect to
receive such distribution at any time prior to the date distributions
must commence in accordance with IRC Section 401(a)(9).
(34)
<PAGE> 41
7.4 VESTING
A Participant shall always have a nonforfeitable, or 100% vested,
interest in his Basic and Supplemental Before-Tax Contribution Accounts,
Cash Option Deferred Account, Employer Matching Contribution Account,
and Rollover Account. A Participant's vested interest in his Regular
Profit Sharing Account shall become 100% vested, upon the earliest of
his:
(a) Normal Retirement Date,
(b) death (while actively employed),
(c) Disability Retirement Date, or
(d) September 30, 1995.
The vested interest of a Participant in his Regular Profit Sharing
Account at any time prior to the date indicated above, shall be based
upon the Participant's Years of Service in accordance with the
following:
<TABLE>
<CAPTION>
YEARS OF SERVICE VESTED PERCENTAGE
<S> <C>
Less than 3 0%
3 30%
4 40%
5 60%
6 80%
7 or more 100%
</TABLE>
If any Plan amendment changes the vesting schedule set forth above, each
Participant who has completed at least three Years of Service as of the
later of (a) the date the Plan amendment is adopted, or (b) the date the
Plan amendment becomes effective shall have the vested percentage of his
Regular Profit Sharing Account computed in accordance with the vesting
schedule that produces the higher vested benefit.
7.5 FORFEITURES
(a) Prior to January 1, 1985:
If a Participant incurs a One-Year Break in Service before his
Regular Profit Sharing Account had become 100% vested pursuant to
the provisions of the Plan in effect on his date of termination,
the nonvested portion of such Account shall be forfeited
effective as of the last day of the Plan Year during which the
Participant incurred a
(35)
<PAGE> 42
One-Year Break in Service. Upon such date, the amount forfeited
shall be added to the Employer Profit Sharing Contribution for
the Plan Year ending on such date and shall be allocated in the
same manner as such Employer Profit Sharing Contribution.
(b) After January 1, 1985:
(i) Timing of Forfeitures:
If a Participant who terminates his employment with the
Employer before his Regular Profit Sharing Account had
become 100% vested and receives a distribution of the
vested portion of his Regular Profit Sharing Account,
the non-vested amount remaining in such Participant's
Regular Profit Sharing Account, after distribution of
the vested portion of his Regular Profit Sharing
Account, shall be forfeited as of the last day of the
Plan Year in which his termination of employment from
the Employer occurs and has received the vested portion
of his Regular Profit Sharing Account. If a Participant
who terminates employment before his Regular Profit
Sharing Account had become 100% vested does not receive
a distribution of the vested portion of his Regular
Profit Sharing Account, the non-vested amount in such
Participant's Regular Profit Sharing Account shall be
forfeited on the last day of the Plan Year during which
the Participant incurs five consecutive One Year Breaks
in Service. Solely for purposes of this paragraph, a
Participant who terminates on the last day of a Plan
Year shall be treated as though he terminated employment
on the first day of the following Plan Year. The amount
forfeited shall be allocated in the same manner as the
Regular Profit Sharing Contribution for such year.
(ii) Rehire - Repayments Permitted Within Five Years of
Reemployment:
In the event a Participant described in subparagraph (i)
above is rehired prior to incurring five consecutive
One-Year Breaks in Service, the Participant shall be
permitted to repay the entire amount of the distribution
in order to restore the nonvested portion of his Regular
Profit Sharing Account balance to his Total Account for
the purpose of future vesting as if he had not separated
from Service or received a distribution. The permissible
repayment period shall continue until the fifth
anniversary of the day on which the Employee is
reemployed by the Employer.
(36)
<PAGE> 43
If such repayment is not made before such period, such
Participant's vested amount will be determined by
including Years of Service accrued before such
Participant's separation from Service but without regard
to amounts allocated prior to such separation.
In the event that the terminated Participant's vested
balance in his Regular Profit Sharing Account was zero,
(A) distribution of the vested balance in his Regular
Profit Sharing Account shall be deemed to have
been made to him as of the date of his termination
of employment,
(B) repayment shall be deemed to be made on his
reemployment commencement date, and
(C) the balance in his Regular Profit Sharing Account
shall be restored accordingly.
(iii) Restoration of Regular Profit Sharing Account Balances:
A Participant who made or who is deemed to have made a
repayment pursuant to subparagraph (ii) above will have
recredited to his Regular Profit Sharing Account, as of
the last day of the Plan Year coinciding with or next
following his date of rehire, the portion of such
Account balance which he forfeited upon his prior
termination from Service with the Employer unadjusted
for any subsequent gains or losses. The sources for
restoring a previous forfeiture in a subsequent year
will be, in order of priority:
(A) Forfeitures occurring in the Plan Year in which
the Regular Profit Sharing Account balances are
recreated, if not sufficient then;
(B) Earnings allocable to nonsegregated Regular Profit
Sharing Account balances and realized during the
Plan Year in which such Account balances are
recreated, if still not sufficient then;
(37)
<PAGE> 44
(C) Employer Profit Sharing Contributions made by the
Employer for the Plan Year in which the Regular
Profit Sharing Account balances are recreated.
Such reinstated Regular Profit Sharing Account balances
shall be subject to the vesting requirements described
in Article 7.4.
(iv) Rehire After Five Years:
In the event a former Participant is rehired after
incurring five consecutive One-Year Breaks in Service,
the portion of the Participant's Regular Profit Sharing
Account which he forfeited upon his prior termination
shall be deemed to be a permanent forfeiture and shall
not be recredited to the Participant's Regular Profit
Sharing Account if he subsequently becomes eligible to
participate in the Plan, except as follows:
Such a former participant shall have his prior nonvested
portion in his Regular Profit Sharing Account restored,
if such former Participant repays the entire amount of
the distribution he previously received under the Plan
(upon his prior termination) by the close of five
consecutive One-Year Breaks in Service commencing after
such prior distribution.
To the extent applicable, the procedures of paragraph
(iii) above shall apply to the restoration of the
Participant's nonvested portion of his Regular Profit
Sharing Account if he repays his prior distribution
under this paragraph (iv).
7.6 PERMANENT AND TOTAL DISABILITY
"PERMANENT AND TOTAL DISABILITY" shall be a total disability which
satisfies the requirements for benefit entitlement under any long-term
disability plan or program sponsored by the Employer and the Benefits
Committee concludes that such total disability is likely to be
permanent.
If any disabled Participant returns to the employ of the Employer, he
shall become a Participant on his reemployment date, and the various
Plan sections regarding reemployment with an Employer shall be applied
to him.
(38)
<PAGE> 45
7.7 DISTRIBUTION ON DEATH
Upon the death of any Participant, the vested portion of the
Participant's Total Account shall be distributed to the Participant's
designated Beneficiary in accordance with the following rules:
(a) If the Participant has a Spouse at his date of death, the
distribution shall be paid to his Spouse as designated
Beneficiary. The distribution may be paid to a designated
Beneficiary other than the Participant's Spouse while the Spouse
is living only with the written consent of the Participant's
Spouse. A spousal consent must:
(i) Be in writing on a form provided by the Benefits
Committee;
(ii) Specify the Beneficiary;
(iii) Acknowledge the effect of such consent; and
(iv) Be witnessed by a notary public.
Any such consent will be valid only with respect to the Spouse
who signs the consent. A spousal consent is not required,
however, if the Participant establishes to the satisfaction of
the Benefits Committee
(A) that there is no Spouse;
(B) that the Spouse cannot be located;
(C) that the Participant has been abandoned by the
Spouse within the meaning prescribed by applicable
law and evidenced by a court order; or
(D) that spousal consent is not required under other
applicable regulations.
If the Participant does not have a Spouse at his date of death,
the distribution shall be paid to the designated Beneficiary
elected by the Participant.
If a Participant's designated Beneficiary shall have predeceased
the Participant, or if a Beneficiary designation shall have
lapsed or failed for any reason, payment will be made to the
Beneficiary designated under Section 7.10.
(39)
<PAGE> 46
(b) The distribution shall be paid to the Beneficiary as soon as
administratively feasible following the Valuation Date after the
date the Participant's death is reported to the Benefits
Committee; provided the designated Beneficiary has filed a proper
distribution election form with the Benefits Committee.
Distribution shall be made in a single lump sum cash payment.
(c) If the Participant's designated Beneficiary is his Spouse, such
Spouse may elect to defer distribution until any time prior to
the date distributions must commence in accordance with IRC
Section 401(a)(9). Such election must be made no later than the
date distribution is required under paragraph (b) above. If the
Participant's Spouse dies before any distribution is made, the
provisions of this Section shall be applied as though the Spouse
were the Participant.
(d) Notwithstanding the preceding, if the Participant's Account to
which the Beneficiary is entitled under this Section did not, at
any time, exceed $3,500 during the Participant's participation in
the Plan, distribution shall be made to the Beneficiary in a
single lump sum cash payment as soon as practicable after the
Valuation Date next following the date the Participant's death is
reported to the Benefits Committee.
7.8 DISTRIBUTION TO ALTERNATE PAYEES
The Benefits Committee may authorize the Trustee to make a lump sum
distribution to an Alternate Payee pursuant to a Qualified Domestic
Relations Order as soon as administratively practicable after the
Valuation Date next following the date the Alternate Payee has filed a
request for distribution with the Committee.
If the Alternate Payee's nonforfeitable interest in the Plan does not
exceed $3,500, distribution to the Alternate Payee shall be made as soon
as administratively possible.
7.9 INVESTMENT OF DEFERRED DISTRIBUTIONS
Any amounts deferred in accordance with this Article 7 shall be held in
the Participant's Total Account and shall continue to share in the
investment experience of the Trust Fund as long as a balance remains.
7.10 DESIGNATION OF BENEFICIARY
(40)
<PAGE> 47
(a) Each Participant may designate, on a form provided by the
Benefits Committee, a Beneficiary or Beneficiaries to receive any
benefits distributable hereunder after the death of the
Participant. Such designation of a Beneficiary or Beneficiaries
shall not be effective for any purpose unless and until it has
been filed by the Participant with the Benefits Committee,
provided, however, that a designation mailed by the Participant
to the Benefits Committee prior to his death and received by the
Benefits Committee after his death shall take effect upon such
receipt, but prospectively only and without prejudice to any
payor or payee on account of any payments made before receipt of
such designation by the Benefits Committee.
Notwithstanding the above, the following provisions shall apply:
(i) A Participant's Beneficiary shall be his surviving
Spouse, if the Participant has a surviving Spouse,
unless the Participant has designated another
Beneficiary pursuant to the spousal consent requirements
of Section 7.7(a).
(ii) A Participant may from time to time change his
designated Beneficiary or Beneficiaries, but any such
designation which has the effect of naming a person
other than the Participant's surviving Spouse, if any,
as sole Beneficiary is subject to the spousal consent
requirements of Section 7.7(a).
(b) In the absence of a Beneficiary designation by the deceased
Participant, or if a designation of Beneficiary lapses or fails
for any reason, distribution of the deceased Participant's
nonforfeitable interest in the Trust Fund shall be distributed to
the surviving Spouse of the Participant or, if there be none
surviving, to the duly appointed and currently acting personal
representative of the Participant's estate.
7.11 ADVICE OF BENEFITS
The Benefits Committee shall establish such rules and procedures as it
deems necessary to properly advise all Participants and other persons as
to any rights they may have to a benefit under this Plan and may impose
upon any such person reasonable requirements with respect to filing
application for such benefits.
7.12 INCAPACITY
(41)
<PAGE> 48
If any person to whom a benefit is payable hereunder is an infant or if
the Benefits Committee determines that any person to whom such benefit
is payable is incompetent by reason of physical or mental disability,
the Benefits Committee may cause the payments becoming due to such
person to be made to such person's legally appointed guardian or
conservator.
7.13 PROOF OF CLAIM
The Benefits Committee may require such proof of death and such evidence
of the right of any person to receive payment of the value of the vested
interest in the Trust Fund of a deceased Participant or former
Participant as the Benefits Committee may deem desirable.
7.14 DIRECT ROLLOVER DISTRIBUTIONS
Notwithstanding any provision of the Plan to the contrary, if any
distribution to a Distributee (i) is made on or after January 1, 1993,
(ii) totals $200 or more, and (iii) constitutes an Eligible Rollover
Distribution, the Distributee may elect on a form provided by the
Benefits Committee to have all or part of such Eligible Rollover
Distribution paid in a direct rollover to an Eligible Retirement Plan
selected by the Distributee. For this purpose, a Distributee, an
Eligible Rollover Distribution, and an Eligible Retirement Plan shall be
defined as follows:
(a) Distributee includes an Employee or former Employee. In addition,
the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is
the alternate payee under a qualified domestic relations order,
as defined in Section 414(p) of the Code, are Distributees with
regard to the interest of the spouse or former spouse.
(b) Eligible Rollover Distribution means any distribution of all or
any portion of the balance to the credit of a Distributee, except
that an Eligible Rollover Distribution does not include any
distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the Distributee or the joint
lives (or joint life expectancies) of the Distributee and the
Distributee's designated beneficiary, or for a specified period
of ten years or more; any distribution to the extent such
distribution is required under Section 401(a)(9) of the Code; and
the portion of any distribution that is not includable in gross
income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
(42)
<PAGE> 49
(c) Eligible Retirement Plan means a plan described below:
(i) an individual retirement account described in Section
408(a) of the Code;
(ii) an individual retirement annuity (other than an
endowment contract) described in Section 408(b) of the
Code;
(iii) with respect to Participants and Distributees who are
alternate payees only, a qualified defined contribution
plan and exempt trust described in Sections 401(a) and
501(a) of the Code respectively, the terms of which
permit the acceptance of rollover contributions; or
(iv) with respect to Participants and Distributees who are
alternate payees only, an annuity plan described in
Section 403(a) of the Code.
If an election is made to have only a part of an eligible rollover
distribution paid in a direct rollover, the amount of the direct
rollover must total $500 or more.
Direct rollovers shall be accomplished in accordance with procedures
established by the Benefits Committee.
7.15 GENERAL DISTRIBUTION REQUIREMENTS
All distributions made under this Article 7 shall be determined and made
in accordance with the provisions of Section 401(a)(9) of the Code
(including, for calendar years beginning after December 31, 1988, Income
Tax Regulations prescribed under Section 401(a)(9) of the Code for the
minimum distribution of incidental benefits). The consent of neither the
Participant nor the Participant's Spouse shall be required to the extent
a distribution must be made to satisfy the provisions of Section
401(a)(9) of the Code. All applicable provisions of Section 401(a)(9) of
the Code and the Regulations prescribed thereunder are hereby
incorporated by reference.
(43)
<PAGE> 50
ARTICLE 8
LOANS AND IN SERVICE WITHDRAWALS
8.1 LOAN AVAILABILITY
(a) Except to the extent provided in Section 8.4, any Participant who
is not an "owner-employee" within the meaning of Section 4975(d)
of the Code may request a Loan in an amount which does not exceed
an amount equal to the lesser of (i) or (ii) below:
(i) $50,000 reduced by the individual's highest outstanding
Loan balance from this Plan and all other qualified
plans of the Employer and all Affiliated Employers
during the 12 month period ending on the day before the
date the new Loan is made.
(ii) 50% of the individual's vested interest in his Total
Account reduced by the outstanding balance of all
previous Loans made to the individual from this Plan.
(b) An applicant may request a Loan from the Plan to meet certain
financial needs, as follows:
(i) To pay expenses associated with the purchase and/or
renovation of the applicant's primary residence;
(ii) To prevent eviction or foreclosure from your primary
residence;
(iii) To pay medical expenses incurred by the applicant or his
immediate family which are not covered by insurance;
(iv) To pay educational expenses beyond the high school level
incurred by the applicant or applicant's immediate
family member, or
(v) To pay funeral expenses for an immediate family member.
(44)
<PAGE> 51
(c) Requests for Loans must be submitted in writing to the Benefits
Committee on a form designated for that purpose by the Benefits
Committee. Decisions by the Benefits Committee regarding Loans
shall be made on a uniform, nondiscriminatory basis, shall be
final and shall be communicated to the applicant approximately 30
days from the date the Loan application is received by the
Benefits Committee.
8.2 LOAN CONDITIONS
A Plan Loan shall be subject to the following conditions:
(a) A new Plan Loan shall not be made to an applicant until he fully
repays any previous Plan Loan.
(b) The minimum Loan shall be $1,000.
(c) The maximum Loan amount shall be based upon the vested balance in
the applicant's Total Account as of the Valuation Date preceding
the date the Loan is made.
(d) Each Loan shall bear interest at a rate equal to 1% point above
the United States Treasury rate for an instrument with a similar
maturity to that of the Plan Loan on the date the Plan Loan
request is made. Notwithstanding the foregoing, the Plan Loan
interest shall conform to the amount necessary to comply with
Department of Labor Regulation 2550.408b-1(e).
(e) Each Loan shall be secured by collateral consisting of the
applicant's vested interest in his Total Account, supported by a
promissory note for the amount of the Loan, made payable to the
Trustee.
(f) In applying for a Loan, the applicant shall agree to repay the
Loan plus interest over a period of years from one to five, as
elected by the Participant, unless the Loan is to be used for the
purchase of the Participant's principal place of residence, in
which case the repayment period may be any period of years up to
fifteen years, as elected by the Participant.
(g) Repayment by Participants actively employed by an Employer during
the repayment period shall be in equal installments by weekly or
bi-monthly payroll deductions and
(45)
<PAGE> 52
shall commence with the first paycheck received by the
Participant in the month following receipt of the Loan.
(h) Full repayment of the entire outstanding balance of a Loan may be
as of the last day of any month during the repayment period.
(i) If any individual fails to repay a Plan Loan in accordance with
its terms, the Loan shall be in default. The balance will be paid
automatically from the applicant's Total Account (unless he
repays the Loan prior to the last day of the month in which he
terminates) in the following order until the full amount of the
Loan has been provided:
(i) from his Supplemental Before-Tax Contribution Account;
(ii) from his Basic Before-Tax Contribution Account;
(iii) from his Cash Option Deferred Account;
(iv) from his Rollover Account;
(v) from his Employer Matching Contribution Account; and
(vi) from his Regular Profit Sharing Account (to the extent
vested).
If the Loan remains in default at the time the applicant
terminates employment, in accordance with governmental
regulations, the Benefits Committee shall authorize the Trustee
to cancel and distribute the promissory note and report a taxable
distribution to the Internal Revenue Service equal to the amount
transferred from his Total Account to repay the loan.
8.3 LOAN FUND
A separate loan fund shall not be established; instead, Participant
loans shall be considered an asset of the investment fund which contains
the least investment risk or such other fund selected by the Trustee.
(46)
<PAGE> 53
8.4 LOANS TO PARTIES-IN-INTEREST
(a) Notwithstanding anything to the contrary in the Plan, Plan Loans
shall be made available to Participants (either active or former)
and Beneficiaries who are "parties-in-interest" as defined in
Section 3(14) of ERISA, to the extent required by applicable law.
(b) The provisions of this Section 8.4 shall be null and void without
amendment to the Plan in the event that by ruling of the
Commissioner of Internal Revenue and/or the Secretary of Labor
the rules herein set forth are no longer necessary to prevent any
prohibited discrimination that may occur in the Plan's Loan
program.
8.5 IN SERVICE WITHDRAWALS AFTER AGE 59-1/2
A Participant who has attained age 59-1/2 and completed ten or more
Years of Service may elect to withdraw all or any part of the vested
portion of his Total Account, by submitting a written request to the
Benefits Committee at least fifteen days prior to a Valuation Date.
The amount to be withdrawn shall be taken from the Participant's Total
Account in the following order, with the full amount available from each
account to be fully withdrawn before any amount is taken from the next
account:
(a) from the Participant's Rollover Account;
(b) from the Participant's Employer Matching Contribution Account;
(c) from the Participant's Regular Profit Sharing Account (to the
extent vested);
(d) from the Participant's Cash Option Deferred Account;
(e) from the Participant's Supplemental Before-Tax Contribution
Account; and
(f) from the Participant's Basic Before-Tax Contribution Account.
The distribution shall be made as soon as practicable following the
Valuation Date following the date the application is received.
(47)
<PAGE> 54
ARTICLE 9
THE BENEFITS COMMITTEE
9.1 ESTABLISHMENT AND COMPOSITION
The general administration of the Plan and the responsibility for
carrying out its provisions shall be vested in the Benefits Committee,
which shall be composed of at least three persons appointed from time to
time by the Board to serve at its pleasure. The Benefits Committee shall
be a "NAMED FIDUCIARY" of the Plan in accordance with Section 402(a) of
ERISA.
If at any time there shall be a vacancy in the membership of the Benefits
Committee, the remaining member or members of the Committee shall
continue to act until such vacancy is filled by action of the Board.
9.2 RULES AND REGULATIONS
The Benefits Committee may from time to time establish rules,
regulations, and procedures for the administration of the Plan and the
conduct and transaction of its business and affairs.
9.3 POWERS AND DUTIES
The Benefits Committee shall have and shall exercise complete
discretionary authority to discharge its duties hereunder, including, but
not limited to, the authority to interpret and construe the Plan to
determine all questions of eligibility, duration of service, dates of
birth, participation or retirement, allocation of benefits, value of
benefits, and similarly related matters for the purpose of the Plan, the
authority to prescribe forms to be used for designating Beneficiaries or
for changing or revoking such designation, and the authority to take such
other action not inconsistent with the Plan or with any action of the
Board as it deems appropriate in order to administer the Plan. Any such
construction, administration, interpretation or application shall be
final, binding and conclusive upon all persons concerned.
(48)
<PAGE> 55
9.4 INSTRUCTIONS
The Benefits Committee shall, from time to time, issue instructions to
the Trustee with respect to the payments to be made out of the Fund
pursuant to the Plan.
9.5 ADMINISTRATION
The Benefits Committee may retain or employ such legal, accounting and
clerical assistance as it deems expedient in carrying out the provisions
of the Plan, and may delegate to any member, or members of the Benefits
Committee and/or any employee or employees of the Employer any
ministerial or routine act or duty in connection with the administration
of the Plan.
9.6 COMPENSATION OF BENEFITS COMMITTEE
No Employee of the Employer who is a member of the Benefits Committee
shall receive compensation for his services as a member, but a member of
the Benefits Committee who is not an Employee may be compensated as the
Board may determine.
9.7 PRUDENCE
Any person serving as a member of the Benefits Committee shall use that
standard of care, skill, prudence and diligence under the circumstances
then prevailing that a prudent man acting in a like capacity and familiar
with such matters would use in the conduct of an enterprise of a like
character and with like aims.
9.8 CLAIMS PROCEDURE
In the event that an Employee or Participant disagrees with any decision
of the Benefits Committee regarding his rights to receive a benefit under
the Plan, the amount of any such benefit, or any other factor affecting
his rights under the Plan, the Employee or Participant may request a
review of such decision, including a hearing before the full Benefits
Committee concerning his rights. Such a request must be made in writing
to the Benefits Committee within 60 days after receipt of such
Committee's decision. The Employee or Participant shall be entitled to
review documents pertinent to his claim and to submit issues and comments
in writing to the Benefits Committee. The Benefits Committee shall within
60 days after receiving the Employee's or Participant's request for a
hearing, grant the
(49)
<PAGE> 56
Employee or Participant such a hearing, at which the Employee or
Participant shall be entitled to have his attorney, or other person of
his choice, present. Within 60 days after the request for a review is
first received (or within 120 days after a request for a hearing is first
received), the Benefits Committee shall issue a written decision to the
Employee or Participant with respect to his case, giving specific reasons
for its decision and specific references to the pertinent Plan provisions
on which the decision is based.
9.9 INSURANCE
The Benefits Committee shall have the right to purchase such insurance as
it deems necessary to protect the Plan and the Fund from loss due to any
breach of fiduciary responsibility by any person. Any premiums due on
such insurance may be paid from Fund assets provided that, if such
premiums are so paid, such policy of insurance must permit recourse by
the insurer against the person who breaches his fiduciary responsibility.
Nothing in this Section shall prevent the Benefits Committee or the
Employer, at its, or his own expense, from providing insurance to any
person to cover potential liability of that person as a result of a
breach of fiduciary responsibility, nor shall any provisions of the Plan
preclude the Employer from purchasing from any insurance company the
right of recourse under any policy issued by such insurance company.
(50)
<PAGE> 57
ARTICLE 10
TRUSTEE
10.1 INVESTMENT RESPONSIBILITY
The responsibility for investment of the Trust Fund assets shall rest
with the Trustee, except to the extent that the Trustee has delegated
such responsibility to another Trustee or Trustees, as described in
Section 10.5, or to an Investment Manager.
The Trustee shall invest the assets of the Trust Fund in such stocks,
bonds or other securities or certificates of participation or shares of
any mutual investment company, trust or fund, or any other property of
any kind, real or personal, tangible or intangible, as it may deem
advisable, whether or not authorized under any present or future laws for
the investment of trust funds, provided that the Trustee may hold funds
of the Trust Fund uninvested without liability for interest if and to the
extent that it may deem advisable from time to time; and the Trustee is
authorized to commingle part or all of the assets of the Trust Fund in or
with any one or more trusts created for the investments or collective
investment of funds held under Employees' retirement benefit plans or
trusts which are qualified within the meaning of and exempt from tax
under the revenue laws of the United States, and permitted by existing or
future rulings of the United States Treasury Department to pool their
respective funds in a group trust, and the terms of any such collective
investment trust shall be deemed incorporated herein and made a part
hereof. The Trustee may accumulate and invest income.
The Trustee, if a bank or trust company, is specifically authorized to
maintain checking and earnings accounts in its own bank or trust company
and is further authorized to purchase money market investments issued by
itself. If otherwise permitted by law the Trustee may hold property in
the name of a nominee without disclosure of its trust. No transfer agent,
bank or other person dealing with the Trustee need inquire into the
Trustee's authority to make transfers or need see to the application of
property received by the Trustee.
(51)
<PAGE> 58
10.2 CUSTODY
The Trustee shall have the exclusive responsibility for custody of the
Trust Fund, including any income, from and after the receipt of an
Employer Contribution or other addition to the Trust Fund.
10.3 DISTRIBUTIONS
The Trustee shall make distributions to Participants and their
Beneficiaries in accordance with the written instructions of the Benefits
Committee, observing the names, addresses and other similar instructions
given by such Committee, and the Trustee shall have no other
responsibility with respect to such distributions.
10.4 ALLOCATION OF RESPONSIBILITIES AMONG TRUSTEES REGARDING PLAN ASSETS
If there shall be more than one Trustee, the Trustees shall jointly
manage and control the assets of the Trust Fund, the Trustees may by
agreement allocate any such specific responsibilities, obligations or
duties among themselves as they deem advisable, including (without
limitation) the duties of the Trustees respecting custody and
registration of securities.
10.5 FIDUCIARY STATUS
The Trustee is a fiduciary and shall discharge of its duties as set forth
in the Plan and the requirements of law.
10.6 PLAN AND TRUST EXPENSES
The Benefits Committee or the Sponsoring Employer may direct the Trustee
to pay from the Trust Fund any or all expenses of administering the Plan
and Trust, to the extent such expenses are reasonable. The Benefits
Committee or the Sponsoring Employer will determine what constitutes a
reasonable expense of administering the Plan and Trust, and whether such
expenses shall be paid from the Trust Fund. Any such expenses not paid out
of the Trust Fund shall be paid by the Sponsoring Employer; provided,
however, that to the extent permitted by ERISA, the Benefits Committee or
the Sponsoring Employer may direct the Trustee to reimburse the Sponsoring
Employer out of the Trust Fund for a
(52)
<PAGE> 59
reasonable expense of administering the Plan which is paid by the
Sponsoring Employer prior to a determination with respect to such
expense.
10.7 RESIGNATION
The Trustee may resign upon 30 days' prior written notice to the Benefits
Committee.
10.8 TRUSTEE'S MISCELLANEOUS POWERS
The Trustee shall have the following powers exercisable without leave of
court and without limiting any power otherwise given to the Trustee:
(a) VOTING. The Trustee may vote all securities held in the Trust Fund
either directly or by proxy.
(b) TRANSFERS. The Trustee may buy, sell, mortgage, grant a security
interest in, lease (for any length of time) or otherwise deal with
real or personal property on such terms as the Trustee deems proper;
the Trustee shall take any action which the Benefits Committee
directs regarding the sale or exchange of securities in connection
with any merger or other reorganization described in the Code or
otherwise; the Trustee may execute instruments of conveyance in such
form as the Trustee deems proper.
(c) CONTRACTS. The Trustee may make contracts binding upon the trust
estate without assuming personal liability therefor.
(d) LOANS. The Trustee may borrow and lend on such terms as the Trustee
deems proper.
(e) CLAIMS. The Trustee may pay a claim on such proof as the Trustee
deems sufficient and may compromise disputed claims of or against the
Trustee on such terms as the Trustee deems adequate.
(f) BANKING TRANSACTIONS. The Trustee may authorize one or more persons
to sign checks and other commercial paper and engage in banking
transactions on behalf of the Trust Fund. A Trustee which is a bank
may use its own banking facilities, to the extent permitted by law,
for deposits of funds of the Trust Fund.
(53)
<PAGE> 60
10.9 TRUSTEE'S ACCOUNTS
The Trustee shall render periodic accounts to the Benefits Committee and
the Employer. It shall have no duty to account to Participants and their
Beneficiaries, who shall look exclusively to the Benefits Committee as
Plan Administrator for disclosure and reporting.
Within a reasonable time after the close of each fiscal year of the
Employer, or of any termination of the duties of the Trustee hereunder,
the Trustee shall prepare and deliver to the Benefits Committee an
account of its acts and transactions as Trustee during such fiscal year
or during such period from the close of the last fiscal year to the
termination of the Trustee's duties, respectively, including a statement
of the then current value of the Trust Fund. Any such account shall be
deemed accepted and approved by the Benefits Committee, and the Trustee
shall be relieved and discharged, as if such account had been settled and
allowed by a judgment or decree of a court of competent jurisdiction,
unless protested by written notice to the Trustee within 60 days of
receipt thereof by the Benefits Committee.
The Trustee or the Benefits Committee shall have the right to apply at
any time to a court of competent jurisdiction for judicial settlement of
any account of the Trustee not previously settled as herein provided or
for the determination of any question of construction or for
instructions. In any such action or proceeding it shall be necessary to
join as parties only the Trustee and the Benefits Committee (although the
Trustee may also join such other parties as it may deem appropriate), and
any judgment or decree entered therein shall be conclusive.
10.10 INDEMNIFICATION OF TRUSTEE
The Employer shall indemnify and hold harmless the Trustee for any
liability or expenses, including without limitation reasonable attorney's
fees, incurred by the Trustee with respect to taking such investment
direction as the Benefits Committee may authorize, and, in addition, with
respect to holding, managing, investing or otherwise administering the
Trust Fund, except for its lack of good faith or lack of due care or
except as may be judicially determined.
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ARTICLE 11
TOP HEAVY PROVISIONS
11.1 TOP HEAVY DEFINITIONS
For purposes of this Article, the following terms shall have the meanings
indicated below:
(a) "KEY EMPLOYEE" means any employee or former employee (including any
deceased employee) of an Employer or an Affiliated Employer who at
any time during the Plan Year containing the Determination Date for
the Plan Year in question, or any of the four preceding Plan Years
is:
(i) An officer of an Employer or Affiliated Employer, if such
individual received Annual Compensation (as defined below) of
more than 50% of the dollar limitation in effect under Section
415(b)(1)(A) of the Code. No more than 50 employees (or, if
lesser, the greater of 3 employees or 10% of the employees)
shall be treated as officers (exclusive of employees described
in Section 414(q)(8) of the Code).
(ii) One of the 10 employees owning or considered as owning (within
the meaning of Section 416(i) of the Code) both more than a 1/2
percent ownership interest and one of the ten largest ownership
interests in an Employer or Affiliated Employer, if such
employee's Annual Compensation (as defined below) exceeds 100%
of the maximum annual limit under Section 415(c)(1)(A) of the
Code.
(iii) A 5% owner of an Employer or Affiliated Employer. A "5% owner"
means a person owning (or considered as owning, within the
meaning of Section 416(i) of the Code) more than 5% of the
outstanding stock of an Employer or Affiliated Employer, or
stock possessing more than 5% of the total combined voting
power of all stock of an Employer or Affiliated Employer (or
having more than 5% of the capital or profits interest in any
Employer or Affiliated Employer that is not a corporation
determined under similar principles).
(iv) A 1% owner of an Employer or Affiliated Employer having Annual
Compensation (as defined below) of more than $150,000. A "1%
owner"
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means any person who would be described in paragraph (a)(iii)
above if "1%" were substituted for "5%" in each place where it
appears in paragraph (a)(iii).
A Key Employee shall be determined in accordance with the
provisions of Section 416(i) of the Code and the regulations
thereunder.
(b) "ANNUAL COMPENSATION" means for years beginning after 1988, 415
Compensation (as defined in Section 12.4(b)) in addition to any
amounts contributed on behalf of the Employee by an Employer or an
Affiliated Employer pursuant to a salary deferral agreement or cash
option deferral under the Plan (or any other cash or deferred
arrangement described in Section 401(k) of the Code) or a salary
reduction agreement pursuant to a cafeteria plan established under
Section 125 of the Code, or toward the purchase of an annuity
described in Section 403(b) of the Code.
(c) "DETERMINATION DATE" means the last day of the preceding Plan Year,
except that for the first Plan Year the Determination Date is the
last day of that Plan Year.
(d) "AGGREGATION GROUP" means either:
(i) A "REQUIRED AGGREGATION GROUP" which is each qualified plan of
an Employer or Affiliated Employer which provides benefits to a
Key Employee, and each other qualified plan of an Employer or
Affiliated Employer (including terminated plans maintained
within the five-year period ending on the Determination Date),
if any, which is included with such plan during the period of
five years ending on such plan's Determination Date for
purposes of meeting the requirements of Section 401(a)(4) or
Section 410 of the Code; or
(ii) A "PERMISSIVE AGGREGATION GROUP" which is this Plan and each
other qualified plan of an Employer or Affiliated Employer
which in total would continue to meet the requirements of
Section 401(a)(4) and Section 410 of the Code with such other
qualified plan being taken into account (i.e., such other
qualified plan provides comparable benefits and satisfies the
coverage test).
(e) "NON-KEY EMPLOYEE" means an employee who is not a Key Employee,
including any employee who is a former Key Employee.
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(f) "VALUATION DATE" means the date used to calculate the value of
account balances or accrued benefits for purposes of determining the
top heavy ratio specified in Section 11.2.
For purposes of this Plan, the Valuation Date shall be the
Determination Date. For each other plan, the Valuation Date shall be,
subject to Section 416 of the Code, the most recent Valuation Date
which falls within or ends within the period of twelve months ending
on the applicable determination date for such plan.
(g) "EMPLOYEE," "FORMER EMPLOYEE," "KEY EMPLOYEE" and "NON-KEY EMPLOYEE"
shall also include Beneficiaries of such an employee.
11.2 DETERMINATION OF TOP HEAVY STATUS
The Plan shall be deemed a top heavy plan for a Plan Year if, as of a
Valuation Date, the sum of the account balances of Key Employees under
this Plan and all other defined contribution plans in the Aggregation
Group, and the present value of accrued benefits of Key Employees under
all defined benefit plans in the Aggregation Group exceeds 60% of the sum
of the account balances of all Participants under this Plan and all other
defined contribution plans in the Aggregation Group and the present value
of accrued benefits of all Participants under all defined benefit plans
in the Aggregation Group (but excluding participants who are former Key
Employees). When aggregating plans, the value of account balances and
accrued benefits will be calculated with reference to the Determination
Dates that fall within the same calendar year.
For purposes of this test, the following rules shall apply:
(a) Subject to paragraph (b) below, any distributions made during the
five Plan Years ending on the Determination Date shall be taken into
account.
(b) For Plan Years commencing after December 31, 1984, the accounts of
all former employees who have not been credited with at least one
Hour of Service during the period of five years ending on the
Determination Date shall be disregarded, provided, however, that if
such former Employee again completes an Hour of Service with the
Employer after such five year period, such former Employee's accounts
shall be taken into consideration.
(57)
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(c) If an employee is a Non-Key Employee for the Plan Year containing the
Determination Date, but such individual was a Key Employee during any
previous Plan Year, the value of his accounts shall not be taken into
consideration.
(d) Solely for purposes of determining if the Plan or any other plan in
the Required Aggregation Group is a top heavy plan for a Plan Year,
the accrued benefits of Non-Key Employees under any defined benefit
plans shall be determined for Plan Years beginning after 1986 under
the method, if any, which is uniformly applied for accrual purposes
under all defined benefit plans maintained by an Employer or
Affiliated Employer or, if there is no such method, as if such
benefit accrued not more rapidly than under the slowest accrual rate
permitted under Section 411(b)(1)(C) of the Code.
(e) The determination of the present value of accrued benefits under all
defined benefit plans in the Aggregation Group shall be based on the
interest rate and mortality table specified in the qualified defined
benefit plan maintained by the Sponsoring Employer.
In no event shall the Plan be considered top heavy if it is part of a
Required Aggregation Group or a Permissive Aggregation Group which is not
top heavy.
11.3 PROCEDURES IN THE EVENT OF TOP HEAVY STATUS
Notwithstanding any other provision of the Plan to the contrary, for any
Plan Year in which the Plan is deemed to be top heavy, the following
provisions shall apply:
(a) Minimum Vesting - Any Participant who completes an Hour of Service in
a Plan Year in which the Plan is deemed to be top heavy shall have a
nonforfeitable interest in the Employer Profit Sharing Contribution
made on his behalf to his Regular Profit Sharing Account for such
Plan Year. Furthermore, if the vesting schedule under the Plan for
any Plan Year shifts into or out of the above schedule because of the
Plan's top heavy status, such shift shall be regarded as an amendment
to the Plan's vesting schedule and the provisions of Section 7.4
shall be applied.
(b) Minimum Contribution - The Employer shall make a minimum contribution
for each Participant who is a Non-Key Employee and who is employed by
an Employer or Affiliated Employer on the last day of the Plan Year
as follows:
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(i) If the Participant is also a participant in a defined benefit
plan or another defined contribution plan sponsored by an
Employer or Affiliated Employer which provides a top heavy
minimum benefit, then the minimum contribution to this Plan is
0%.
(ii) If the Participant is also a participant in a defined benefit
plan or another defined contribution plan sponsored by an
Employer or Affiliated Employer which provides a top heavy
minimum benefit offset by the minimum benefit under this Plan,
or if the Participant is not a participant in any other defined
benefit plan or defined contribution plan sponsored by the
Employer, then the minimum contribution to this Plan is the
lesser of:
(A) 3% of the Participant's Section 415 Compensation (as
defined in Section 12.4(b)) for such Plan Year, or
(B) The largest percentage of Employer contributions, as a
percentage of Section 415 Compensation (as defined in
Section 12.4(b)), allocated to the Total Account of any
Key Employee for such Plan Year.
For purposes of this paragraph (b)(ii), Participants shall also
include Eligible Employees who have waived participation in
this Plan, if applicable.
(c) In any Plan Year in which the Plan is top heavy, but not super top
heavy (substituting 90% for 60% in Section 11.2 above), Section
12.4(e) shall be applied by substituting "1.0" for "1.25," unless
subparagraph (b)(ii)(A) above is amended to substitute "4%" for "3%"
therein.
(d) In any Plan Year in which the Plan is super top heavy (substituting
90% for 60% in Section 11.2), the factor of "1.25" shall be changed
to "1.0" in Section 12.4(e).
(e) In any Plan Year that the Plan ceases to be top heavy, the above
provisions shall no longer apply, except that the portion of a
Participant's Regular Profit Sharing Account which was vested
pursuant to paragraph (a) above shall remain vested.
(f) The minimum allocation provisions of paragraph (b) above shall, to
the extent necessary, be satisfied by special contributions made by
the Employer for that purpose. Neither Before-Tax Contributions nor
Employer Matching Contributions
(59)
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shall be taken into account in satisfying the minimum allocation
provisions of paragraph (b) above.
(g) The provisions of this Section 11.3 above shall not apply to any
Employee included in a unit of Employees covered by a collective
bargaining agreement if, within the meaning of Section 416(i)(4) of
the Code, retirement benefits were the subject of good faith
bargaining.
(60)
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ARTICLE 12
MISCELLANEOUS PROVISIONS
12.1 SPENDTHRIFT PROVISION
No benefit payable under the Plan will, except as otherwise specifically
provided by law, be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance or charge, and any
attempt so to anticipate, alienate, sell, transfer, assign, pledge,
encumber or charge the same will be void; nor will any benefit be in any
manner liable for or subject to the debts, contracts, loans, liabilities,
engagements or torts of the person entitled thereto, except for any loans
or other indebtedness due the Trust Fund within the limitations stated in
Section 4975(d)(3) of the Code and 1.401(a)-13 of the Code of Federal
Regulations or similar substitute provisions of applicable regulation.
Upon the occurrence or threatened occurrence of any act or thing in
violation of or contrary to the foregoing provision, then the benefit
affected will, in the discretion of the Benefits Committee, cease and
terminate, and in that event the Benefits Committee will make or hold the
payments which would otherwise be payable on account thereof to or for
the benefit of the Participant or Beneficiary involved, his spouse,
children or other dependents, or any of them, in such manner and in such
proportion as the Benefits Committee may deem proper.
This provision shall not apply to a Qualified Domestic Relations Order,
and those other domestic relations orders permitted to be so treated by
the Administrator under the provisions of the Retirement Equity Act of
1984. The Administrator shall establish a written procedure to determine
the qualified status of domestic relations orders and to administer
distributions under such qualified orders. Further, to the extent
provided under a Qualified Domestic Relations Order, a former spouse of a
Participant shall be treated as the Spouse or surviving Spouse for all
purposes under the Plan.
12.2 BONDING
The requirement of giving bond by any Trustee or other fiduciary or of
giving surety on any bond shall be dispensed with to the extent permitted
or required by applicable law.
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12.3 NO CONTRACTUAL OBLIGATIONS
This Plan shall not constitute an express or implied contract between the
Employer and any Participant and nothing contained herein shall give to
any Employee or Participant the right to be retained in the employ of the
Employer or to interfere with the management of the Employer's business
or, except as otherwise provided by law, the right of the Employer to
discharge any Employee or Participant at any time, nor shall it give the
Employer the right to require any Employee to remain in its employ, nor
shall it interfere with the right of any Employee to terminate his
employment at any time.
12.4 LIMITATIONS ON CONTRIBUTIONS
(a) The maximum annual addition that may be contributed or allocated to a
Participant's accounts under this Plan, all other defined
contribution plans, all individual medical accounts (as defined in
Section 415(l)(2) of the Code) which are part of a defined benefit
plan, and, with respect to contributions paid or accrued after
December 31, 1985, all separate accounts for post-retirement medical
benefits of key employees (as defined in Section 419A(d)(3) of the
Code) under a welfare benefit fund (as defined in Section 419(e) of
the Code), maintained by all Employers and Affiliated Employers for
any Limitation Year commencing on or after January 1, 1987 shall not
exceed the lesser of (i) or (ii) below:
(i) $30,000 (or, if greater, 25% of the defined benefit dollar
limitation in effect under Section 415(b)(1)(A) of the Code for
the Limitation Year), or
(ii) 25% of the Participant's "Section 415 Compensation" (as defined
in paragraph (b) below) for such Limitation Year.
(b) The term "Section 415 Compensation" means wages, salaries, and fees
for professional services and other amounts received from the
Employer and all Affiliated Employers during the Limitation Year
(without regard to whether or not an amount is paid in cash) for
personal services actually rendered in the course of employment with
the Employer, to the extent such amounts are includable in gross
income, including, but not limited to, overtime pay, tips, bonuses,
commissions to paid salesmen, compensation for services on the basis
of a percentage of profits, commissions on insurance premiums, fringe
benefits, reimbursements, and expense allowances, and excluding the
following:
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(i) amounts contributed by the Employer or Affiliated Employer on
behalf of the Employee pursuant to a salary deferral agreement
under this Plan or any other cash or deferred arrangement
described in Section 401(k) of the Code, to any salary
reduction agreement pursuant to a cafeteria plan established
under Section 125 of the Code, or to any other plan of deferred
compensation, and which are not includable in the Employee's
gross income for the taxable year in which contributed, or any
distributions from a plan of deferred compensation;
(ii) amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the
Employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture;
(iii) amounts realized with respect to the sale, exchange, or other
disposition of stock acquired under a qualified stock option;
and
(iv) other amounts which receive special tax benefits, or
contributions made by the Employer (whether or not under a
salary reduction agreement) towards the purchase of an annuity
described in Section 403(b) of the Code (whether or not the
amounts are excludable from the Employee's gross income).
For Limitation Years beginning after December 31, 1991, for purposes
of applying the limitations of this Section, the term "Section 415
Compensation" means the compensation actually paid or includable in
the Employee's gross income for the Limitation Year.
(c) For purposes of the Plan, an annual addition consists of the amounts
allocated to a Participant's accounts during the Limitation Year that
constitute:
(i) Employer Contributions (including Cash Option Deferrals) and
forfeitures allocable to a Participant under all plans (or
portions thereof) maintained by the Employer subject to Section
415(c) of the Code;
(ii) the Participant's employee contributions under all such plans
(or portions thereof); and
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(iii) amounts allocated after March 31, 1984 to an individual medical
account (as defined in Section 415(l)(2) of the Code) under a
pension or annuity plan maintained by the Employer, or amounts
derived from contributions paid or accrued after December 31,
1985, in taxable years ending after such date, which are
attributable to post-retirement medical benefits, allocated to
the separate account of a key employee (as defined in Section
419(A)(d)(3) of the Code) under a welfare benefit fund (as
defined in Section 419(e) of the Code) maintained by the
Employer.
Any excess amount applied under paragraph (d) below in the Limitation
Year to reduce Employer Contributions shall be considered annual
additions for such Limitation Year.
A Participant's employee contributions as described in clause (ii)
above shall be determined without regard to any rollover
contributions, any employee contributions transferred directly from
another plan qualified under Section 401(a) of the Code, or any Loan
repayments.
Employer and employee contributions taken into account as annual
additions shall include "excess contributions" as defined in Section
401(k)(8)(B) of the Code, "excess aggregate contributions" as defined
in Section 401(m)(6)(B) of the Code, and "excess deferrals" as
defined in Section 402(g) of the Code, regardless of whether such
amounts are distributed or forfeited, unless such amounts constitute
"excess deferrals" that were distributed to the Participant no later
than April 15 of the taxable year following the taxable year of the
Participant in which such deferrals were made.
(d) In the event a Participant's total annual additions for a Limitation
Year exceed the limitations of paragraph (a) above, Employer
Contributions otherwise required with respect to such Participants
under Article 5 shall be reduced to the extent necessary to comply
with the limitations of paragraph (a) above. If such reduction is not
effected in time to prevent such allocations for any Limitation Year
from exceeding the limitations of paragraph (a), such excess amount
shall, if permissible under Income Tax Regulation 1.415-6(b)(6)(iv),
be distributed to the Participant. If such excess amount is not
distributed, it shall be used to reduce Employer Contributions for
such Participant in the next Limitation Year, and each succeeding
Limitation Year, if necessary, provided that if the Participant is
not covered by the Plan at the end of the current Limitation Year,
the portion exceeding the limitation set forth in paragraph (a)
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above shall be held unallocated in a suspense account for such
Limitation Year, and shall be reallocated in the next Limitation
Year to the accounts of other Participants to the extent such
allocations do not exceed the limitations of paragraph (a) above.
All amounts held in the suspense account shall be used to reduce
future Employer Contributions for all remaining Participants in
succeeding Limitation Years (subject to the limitations of paragraph
(a) above) before any Employer Contributions or Before-Tax
Contributions which would constitute annual additions may be made to
the Plan for the Limitation Year.
If a suspense account is in existence at any time during a Limitation
Year, it will participate in the allocation of the Trust Fund's
investment gains or losses.
Upon termination of the Plan, any unallocated amounts remaining in a
suspense account shall be allocated to the extent possible under this
Section for the Limitation Year of termination. Any amount remaining
in such suspense account upon termination of the Plan shall be
returned to the Employer, notwithstanding any other provision of the
Plan or Trust Agreement.
(e) If the Employer maintains, or at any time maintained, a qualified
defined benefit plan covering any Participant in this Plan, the sum
of the Participant's defined benefit plan fraction and defined
contribution plan fraction (as described below) for any Limitation
Year shall not exceed 1.0.
The DEFINED BENEFIT PLAN FRACTION for any Limitation Year is a
fraction, the numerator of which is the sum of the Participant's
projected annual benefits under all defined benefit plans (whether or
not terminated) maintained by the Employer, and the denominator of
which is the lesser of 1.25 times the dollar limit determined under
Sections 415(b) and 415(d) of the Code for the Limitation Year, or
1.4 times 100% of the Participant's highest average annual Section
415 Compensation (including any adjustments under Section 415(b) of
the Code) for any three consecutive years.
The DEFINED CONTRIBUTION PLAN FRACTION for any Limitation Year is a
fraction, the numerator of which is the sum of the annual additions
to the Participant's accounts under all defined contribution plans
(whether or not terminated) maintained by the Employer for the
current and all prior Limitation Years (including the annual
additions attributable to the Participant's nondeductible employee
contributions to all
(65)
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defined benefit plans (whether or not terminated) maintained by the
Employer, and the annual additions attributable to all welfare
benefit funds, as defined in Section 419(e) of the Code, and
individual medical accounts, as defined in Section 415(l)(2) of the
Code) maintained by the Employer, and the denominator of which is the
sum of the maximum aggregate amounts for the current and all prior
Limitation Years of service with the Employer (regardless of whether
a defined contribution plan was maintained by the Employer). The
maximum aggregate amount in any Limitation Year is the lesser of 1.25
times the dollar limitation determined under Sections 415(b) and
415(d) of the Code in effect under Section 415(c)(1)(A) of the Code,
or 35% of the Participant's Section 415 Compensation for such
Limitation Year.
Any adjustment necessary to comply with the limitations of this
paragraph (e) shall be made in the Participant's benefit payable
under the relevant defined benefit plan; but under no circumstances
may the accrued benefit of a Participant in a defined benefit plan
decrease as a result of a Plan amendment to change the combined plan
limits.
(f) For purposes of this Section, the Employer and all Affiliated
Employers shall be considered one employer, and the limitations shall
be applicable to the total benefits received from the Employer and
all Affiliated Employers. Furthermore, in determining who is an
Affiliated Employer for this purpose, the phrase "more than 50%"
shall be substituted for "at least 80%" each place it appears in
Section 1563(a)(i) of the Code.
12.5 NONDISCRIMINATION LIMITATIONS ON PARTICIPANT CONTRIBUTIONS AND EMPLOYER
MATCHING CONTRIBUTIONS
(a) For purposes of this Section, the following terms shall have the
meaning indicated below:
(i) "ACTUAL DEFERRAL PERCENTAGE" means the average (expressed as a
percentage) of the deferral percentages of Eligible Employees
in a group. An Eligible Employee's deferral percentage is equal
to the ratio (expressed as a percentage) of the Employee's
Before-Tax Contributions and Cash Option Deferrals (including
any Before-Tax Contributions and Cash Option Deferrals returned
to the Employee pursuant to Section 4.5(b) but excluding
Before-Tax Contributions and Cash Option Deferrals returned to
the Employee pursuant to Section 12.4(d) contributed to the
Trust Fund in the Plan Year to the
(66)
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Eligible Employee's Compensation for that Plan Year. The
individual ratios and the percentages for any groups of
individuals shall be calculated to the nearest one-hundredth
of one percent (.01%).
(ii) "ACTUAL CONTRIBUTION PERCENTAGE" means the average (expressed
as a percentage) of the contribution percentages of Eligible
Employees in a group. An Eligible Employee's contribution
percentage is equal to the ratio of the Employer Matching
Contributions contributed to the Trust Fund in the Plan Year to
the Eligible Employee's Compensation for that Plan Year. The
individual ratios and the percentages for any groups of
individuals shall be calculated to the nearest one-hundredth of
one percent (.01%).
(iii) "ELIGIBLE EMPLOYEE" means any Employee of the Employer who,
during the Plan Year, is eligible to make Before-Tax
Contributions or Cash Option Deferrals in accordance with the
provision of Sections 4.1 and 5.1 respectively, or who is
eligible to receive Employer Matching Contributions in
accordance with the provisions of Section 5.2. An individual
shall be treated as an Eligible Employee for a Plan Year if he
so qualifies for any part of the Plan Year.
(iv) "COMPENSATION" means the Employee's Section 415 Compensation
(as defined in Section 12.4(b)) but not in excess of the limit
under Section 401(a)(17) of the Code, and including any amounts
contributed by the Employer or an Affiliated Employer on behalf
of the Employee pursuant to a salary deferral agreement or cash
option deferral under this Plan (or any other cash or deferred
arrangement described in Section 401(k) of the Code) or a
salary reduction agreement pursuant to a cafeteria plan
established under Section 125 of the Code, or toward the
purchase of an annuity described in Section 403(b) of the Code.
Notwithstanding the foregoing, in determining the amount of
Compensation to be taken into account for purposes of this
Section, the Employer may limit the period used to determine an
Employee's Compensation for the Plan Year to the portion of the
Plan Year in which the Employee was an Eligible Employee (as
defined in subparagraph (iii) above), provided that this limit
is applied uniformly to all Eligible Employees with respect to
such Plan Year.
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(b) For purposes of determining the Actual Deferral Percentage and Actual
Contribution Percentage of an Eligible Employee who is a 5% owner or
one of the ten most Highly Compensated Employees, and, for purposes
of determining his excess contributions and excess aggregate
contributions, if any, the Compensation, Before-Tax Contributions,
Cash Optional Deferrals, and Employer Matching Contributions of such
Employee shall include the Compensation, Before-Tax Contributions,
Cash Option Deferrals, and Employer Matching Contributions for the
Plan Year of his family members. For this purpose, the term "family
member" means such Employee's Spouse and lineal ascendants and
descendants, and the spouses of such lineal ascendants and
descendants. Family members shall be disregarded in determining the
Actual Deferral Percentage and Actual Contribution Percentage for
Eligible Employees who are not 5% owners or among the ten most Highly
Compensated Employees.
(c) If more than one plan providing for a cash or deferred arrangement,
or for matching contributions, or employee contributions (within the
meaning of Sections 401(k) and 401(m) of the Code) is maintained by
the Employer or an Affiliated Employer, then the individual ratios of
any Highly Compensated Employee who participates in more than one
such plan or arrangement shall, for purposes of determining the
individual's Actual Contribution Percentage and Actual Deferral
Percentage, be determined as if all such arrangements were a single
plan or arrangement. If a Highly Compensated Employee participates in
two or more cash or deferred arrangements that have different plan
years, all cash or deferred arrangements ending with or within the
same calendar year shall be treated as a single arrangement.
Notwithstanding the foregoing, plans that are mandatorily
disaggregated pursuant to regulations under Section 401(k) of the
Code shall not be aggregated for purposes of this paragraph but shall
be treated as separate plans.
(d) In the event that this Plan satisfies the requirements of Sections
401(a)(4) and 410(b) of the Code only if aggregated with one or more
other plans, and for Plan Years beginning after December 31, 1988 all
such plans have the same Plan Year, then this Section shall be
applied by determining the Actual Deferral Percentage and Actual
Contribution Percentage of Eligible Employees as if all such plans
were a single plan.
(e) In accordance with the nondiscrimination requirements of Section
401(k) of the Code, the Committee shall establish a Compensation
Deferral Limit with respect to Before-Tax Contributions and the Cash
Option Share credited to a Participant's Total
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Account during a Plan Year and may adjust such deferral limit (in
accordance with paragraph (g)(i) below) from time to time during the
Plan Year in order to satisfy one of the following tests:
(i) The Actual Deferral Percentage of the group of Eligible
Employees who are Highly Compensated Employees for the Plan
Year shall not exceed the Actual Deferral Percentage of the
group of Eligible Employees who are Nonhighly Compensated
Employees for the same Plan Year multiplied by 1.25.
(ii) The Actual Deferral Percentage of the group of Eligible
Employees who are Highly Compensated Employees for the Plan
Year shall not exceed the Actual Deferral Percentage of the
group of Eligible Employees who are Nonhighly Compensated
Employees for the same Plan Year multiplied by two, provided
that the Actual Deferral Percentage for such Highly Compensated
Employees is not more than two percentage points higher than
the Actual Deferral Percentage for such Nonhighly Compensated
Employees.
(f) In accordance with the nondiscrimination requirements of Section
401(m) of the Code, the Committee shall establish a Contribution
Percentage Limit with respect to Employer Matching Contributions
credited to a Participant's Total Account, and may adjust such
percentage limit (in accordance with paragraph (g)(i) below) from
time to time during the Plan Year in order to satisfy one of the
following tests:
(i) The Actual Contribution Percentage of the group of Eligible
Employees who are Highly Compensated Employees for the Plan
Year shall not exceed the Actual Contribution Percentage of the
group of Eligible Employees who are Nonhighly Compensated
Employees for the same Plan Year multiplied by 1.25.
(ii) The Actual Contribution Percentage of the group of Eligible
Employees who are Highly Compensated Employees for the Plan
Year shall not exceed the Actual Contribution Percentage of the
group of Eligible Employees who are Nonhighly Compensated
Employees for the same Plan Year, multiplied by two, provided
that the Actual Contribution Percentage for such Highly
Compensated Employees is not more than two percentage points
higher than the Actual Contribution Percentage for such
Nonhighly Compensated Employees.
(69)
<PAGE> 76
(g) The Committee may take the following actions to assure compliance
with the nondiscrimination limitations of Section 401(k) and/or
Section 401(m) of the Code:
(i) If the average percentages described in paragraphs (e) and/or
(f) above applicable to the group of Eligible Employees who are
Highly Compensated Employees are expected to exceed the maximum
average percentage necessary to comply with the rules described
in said paragraphs, the Committee may direct that the Actual
Deferral Percentage and/or the Actual Contribution Percentage,
as the case may be, for each member of such group of Highly
Compensated Employees be reduced, prospectively only, beginning
with the Highly Compensated Employee whose Actual Deferral
Percentage or Actual Contribution Percentage, as the case may
be, is the highest so that the limit is not exceeded.
(ii) If the average percentages described in paragraphs (e) and/or
(f) above applicable to the group of Eligible Employees who are
Highly Compensated Employees exceed the maximum average
percentage necessary to comply with the rules described in said
paragraphs, the Committee shall direct the successive
reductions of the highest individual Actual Deferral Percentage
and/or Actual Contribution Percentage attributable to one or
more members of such group of Highly Compensated Employees
(beginning with the Highly Compensated Employee whose Actual
Deferral Percentage or Actual Contribution Percentage, as the
case may be, is the highest) until the average percentage for
such group of Highly Compensated Employees does not exceed the
applicable limit.
The reduction of a Highly Compensated Employee's Actual Deferral
Percentage and/or Actual Contribution Percentage shall be made in
accordance with the following procedure:
FIRST, if a Highly Compensated Employee's Actual Deferral Percentage
for the Plan Year exceeds the limit described in paragraph (e) above,
his Actual Deferral Percentage shall be reduced by returning to him
all (or a portion) of the amount contributed for such Plan Year in
excess of such limit.
(70)
<PAGE> 77
Any amounts to be returned shall first be reduced, but not below
zero, by any excess deferrals contributed for the Plan Year and
previously returned to the Employee in the taxable year ending with
or within that Plan Year pursuant to Section 4.5.
The reduction of excess contributions shall be made by first reducing
the Participant's Supplemental Before-Tax Contributions and, if that
is insufficient, by reducing his Basic Before-Tax Contributions and,
if that is insufficient, by reducing his Cash Option Deferrals.
SECOND, in the case of a Participant to whom Basic Before-Tax
Contributions are returned, the amount of his Employer Matching
Contributions shall be reduced by distributing to the Participant his
Employer Matching Contributions that were attributable to such Basic
Before-Tax Contributions.
THIRD, if a Highly Compensated Employee's Actual Contribution
Percentage for the Plan Year exceeds the limit described in paragraph
(f) above, his Actual Contribution Percentage shall be reduced by
returning to him the amount contributed for such Plan Year in excess
of such limit.
The reduction of excess aggregate contributions shall be made by
distributing Employer Matching Contributions to the Participant on a
pro rata basis.
Contributions which are returned, forfeited or distributed shall be
adjusted for allocable gains and losses for the Plan Year with
respect to which the contributions were made in accordance with the
method described below for such contributions.
ALLOCATING INCOME TO EXCESS CONTRIBUTIONS. Excess contributions shall
be adjusted for allocable gains or losses for the Plan Year in which
such excess contributions arose by multiplying the gains or losses
credited to the Participant's Basic and Supplemental Before-Tax
Contribution Accounts and Cash Option Deferred Account for such Plan
Year by a fraction, the numerator of which is the Participant's
excess contributions for the Plan Year, and the denominator of which
is the sum of (i) the balance in the Participant's Basic and
Supplemental Before-Tax Contribution Accounts and Cash Option
Deferred Account as of the beginning of the Plan Year, and (ii) the
amount of Before-Tax Contributions and Cash Option Deferrals credited
to the Participant's Total Account for the Plan Year.
(71)
<PAGE> 78
ALLOCATING INCOME TO EXCESS AGGREGATE CONTRIBUTIONS. Excess aggregate
contributions shall be adjusted for allocable gains or losses for the
Plan Year in which such excess aggregate contributions arose by
multiplying the gains or losses credited to the Participant's
Employer Matching Contribution Account for such Plan Year by a
fraction, the numerator of which is the Participant's excess
aggregate contributions for the Plan Year, and the denominator of
which is the sum of (i) the balance in the Participant's Employer
Matching Contribution Account as of the beginning of the Plan Year,
and (ii) the amount of Employer Matching Contributions credited to
the Participant's Total Account for the Plan Year.
Excess contributions and excess aggregate contributions (and income
allocable thereto) shall be returned, distributed, or, if applicable,
forfeited, not later than the last day of the Plan Year following the
close of the Plan Year in which such excess arose. Excess
contributions shall be allocated to Participants who are subject to
the family aggregation rules of Section 414(q)(6) of the Code in the
manner prescribed by applicable regulations.
(i) For purposes of this Section, the "aggregate limit" for any Plan Year
shall mean a percentage equal to the greater of (i) or (ii) below:
(i) The percentage equal to the sum of (A) and (B) below:
(A) 125% of the greater of:
(1) The Actual Deferral Percentage for Eligible Employees
who are Nonhighly Compensated Employees for the Plan
Year, or
(2) The Actual Contribution Percentage of such Eligible
Employees, and
(B) 2% plus the lesser of (A)(1) or (A)(2) above. In no event,
however, shall this percentage exceed 200% of the lesser
of (A)(1) or (A)(2) above.
(ii) The percentage equal to the sum of (A) and (B) below:
(A) 125% of the lesser of:
(72)
<PAGE> 79
(1) The Actual Deferral Percentage for Eligible Employees
who are Nonhighly Compensated Employees for the Plan
Year, or
(2) The Actual Contribution Percentage of such Eligible
Employees, and
(B) 2% of the greater of (A)(1) or (A)(2) above. In no event,
however, shall this percentage exceed 200% of the greater
of (A)(1) or (A)(2) above.
The "aggregate limit" shall be calculated to the nearest
one-hundredth of one percent (.01%).
The "aggregate limit" shall be applied to reduce allocations
otherwise permissible for a Plan Year if after application of
paragraph (g) above the sum of the average percentages described in
paragraphs (e) and (f) above applicable to the group of Eligible
Employees who are Highly Compensated Employees exceeds the "aggregate
limit" for such Plan Year.
The "aggregate limit" shall not apply to reduce allocations otherwise
permissible for a Plan Year unless the Actual Deferral Percentage and
the Actual Contribution Percentage for Eligible Employees who are
Highly Compensated Employees for the Plan Year each exceed 125% of
the corresponding percentages determined for Eligible Employees who
are Nonhighly Compensated Employees for the Plan Year.
The reduction of the Actual Contribution Percentage and/or Actual
Deferral Percentage of the group of Eligible Employees who are Highly
Compensated Employees shall be applied to those Highly Compensated
Employees who are eligible to make Before-Tax Contributions or Cash
Option Deferrals, or are eligible to receive Employer Matching
Contributions. Reductions shall be made in the manner described in
paragraph (g) above to the extent necessary to comply with the
aggregate limit, except that the reductions shall be applied first to
reduce Actual Contribution Percentages and then, if necessary, to
reduce Actual Deferral Percentages.
(j) The Committee shall maintain sufficient records to demonstrate that
the Plan satisfies the nondiscrimination tests described in
paragraphs (e) and (f) above.
(73)
<PAGE> 80
12.6 LEASED EMPLOYEES
For purposes of the Plan, the term "leased employee" means any person who
would not otherwise be considered an Employee but who, pursuant to an
agreement between the Employer or an Affiliated Employer and a leasing
organization (within the meaning of Section 414(n)(2) of the Code) has
performed services for the Employer or Affiliated Employer on a
substantially full time basis for a period of at least one year, and such
services are of a type historically performed by employees in the
business field of the Employer or Affiliated Employer. Contributions or
benefits provided a leased employee by the leasing organization which are
attributable to services performed for the Employer or Affiliated
Employer shall be treated as provided by the Employer or Affiliated
Employer.
A leased employee shall not be considered an Employee if:
(a) Such individual is covered by a money purchase pension plan providing
(i) a nonintegrated employer contribution rate of at least ten
percent of his or her "Section 415 Compensation" (as defined in
Section 12.4(b)), but including amounts contributed pursuant to a
salary reduction agreement which are not includable in gross income
under Section 125, 402(a)(8), 402(h), or 403(b) of the Code, (ii)
immediate participation, and (iii) full and immediate vesting; and
(b) leased employees constitute twenty percent or less of the Employer's
or Affiliated Employer's nonhighly compensated workforce (within the
meaning of Section 414(n)(5)(C)(ii) of the Code).
12.7 EXCLUSIVE BENEFIT OF PARTICIPANTS
All assets of the Trust Fund shall be held for the exclusive purposes of
providing benefits to Participants and Beneficiaries under the Plan and
defraying reasonable expenses of administering the Plan. Except as
otherwise provided in the Plan, or permitted by law, in no event shall it
be possible, under the Plan for any part of the assets of the Trust Fund,
whether principal or income, to be used for, or diverted to, purposes
other than those stated herein.
12.8 RETURN OF CONTRIBUTIONS
Nothing herein shall prohibit a return to the Employer, within one year
after payment, of excess sums contributed to the Trust Fund as a result
of a mistake of fact.
(74)
<PAGE> 81
In the event that the Commissioner of Internal Revenue (or his delegate)
determines that the Plan is not initially qualified under the Code, any
Employer contributions made to the Plan shall be returned to the Employer
within one year after the date the initial qualification is denied,
provided application for qualification is made by the time prescribed by
law for filing the Employer's return for the Fiscal Year in which the
Plan is adopted, or such later date as the Secretary of the Treasury may
prescribe.
Each Employer contribution is conditioned on the deductibility of the
contribution under Section 404 of the Code, and to the extent such
contribution deduction is disallowed, the contribution shall be returned
to the Employer within one year after the date of disallowance.
(75)
<PAGE> 82
ARTICLE 13
AMENDMENT AND TERMINATION
13.1 AMENDMENT
The Sponsoring Employer may amend the Plan, from time to time, by a
written instrument duly executed by an authorized officer of the
Sponsoring Employer pursuant to a resolution of the Board and delivered
to the Trustee, provided that no amendment which affects the Trustee
shall be effective without the Trustee's consent.
13.2 MERGER, CONSOLIDATION OR TRANSFER OF ASSETS
In the case of any merger or consolidation of the Trust Fund with, or
transfer of assets or liabilities of the Trust Fund to, any trust under
any other plan, such transaction shall be structured in such a way that
each Participant would (if the Plan then terminated) receive a benefit
immediately after the transaction which is equal to or greater than the
benefit he would have been entitled to receive immediately before the
transaction (if the Plan had then terminated).
13.3 TERMINATION
The Sponsoring Employer may terminate the Plan established hereunder at
its option at any time by written resolution of the Board. Without
thereby undertaking a legal duty, however, the Sponsoring Employer hereby
expresses the intention of establishing a permanent plan under which the
Sponsoring Employer will make recurring and substantial contributions.
The Plan shall be automatically terminated if the Sponsoring Employer is
adjudicated bankrupt, makes an assignment for benefit of creditors,
suffers the appointment of a receiver, or dissolves, except that the
reorganization of the Employer under the applicable sections of the Code
shall not be deemed to result in dissolution for purposes of this Section
13.3.
A participating Employer may discontinue or revoke its participation in
the Plan with respect to its Eligible Employees. At the time of
discontinuance or revocation, the Committee may authorize the Trustee to
transfer, deliver, and assign vested Trust Fund assets attributable to
the Participants employed by such participating Employer to a new trustee
as shall have been designated by the participating Employer, in the event
that it has
(76)
<PAGE> 83
established a separate qualified plan for its employees. If a separate
qualified plan is not established, the Trustee shall retain such assets
for the benefit of the Participants employed by such participating
Employer. In no event shall any part of the corpus or income of the Trust
Fund as it relates to such participating Employer be used for or diverted
to purposes other than for the exclusive benefit of the Participants
employed by such participating Employer and their Beneficiaries.
13.4 CONSEQUENCES OF TERMINATION
In the event that the Board shall decide to terminate the Plan, or in the
event of a partial termination or complete cessation of Employer
Contributions, the rights of Participants to the amounts in their Total
Accounts shall be fully vested. Thereupon, the Benefits Committee shall
direct the Trustee to liquidate the entire Trust Fund after payment of
all expenses and proportional adjustment of Total Accounts to reflect
such expenses and the value of the Fund. The Trustees shall make payment
of all amounts due to the Participants in accordance with the applicable
provisions of the Plan.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of this Plan
instrument by the Sponsoring Employer and the Trustee, the Sponsoring Employer
and the Trustee have caused these presents to be executed on their behalf and
the Corporate Seal of the Sponsoring Employer is to be hereunder affixed as of
this 7th day of July, 1997.
ATTEST:
/s/ Eric R. Fischer
________________________________
Clerk
UST CORP.
/s/ Linda J. Lerner
By:________________________________
Sr. Vice President
________________________________
The Trustee hereby acknowledges receipt and to the extent it affects the
Trustee, I hereby accept the responsibility.
UNITED STATES TRUST COMPANY AS TRUSTEE
/s/ Domenic Colasacco
By:________________________________
(77)
<PAGE> 84
UST CORP. EMPLOYEE SAVINGS PLAN
FIRST AMENDMENT
WHEREAS, UST Corp. (the "Employer") maintains the UST Corp. Employee Savings
Plan, (the "Plan") for the benefit of its eligible employees and their
beneficiaries; and
WHEREAS, the Employer reserves the right to amend the Plan at any time;
NOW THEREFORE, the Plan is hereby amended effective June 30, 1997 to merge the
SBERA 401(k) Plan Adopted by the Bank of Braintree into the Plan subject to the
terms and conditions of the Plan as modified by the retained provisions set
forth in Exhibit A, Special Provisions, Applicable to Former Participants of the
SBERA 401(k) Plan Adopted by the Bank of Braintree, which such Exhibit A is
hereby incorporated and made a part of the Plan.
IN WITNESS WHEREOF, the Employer has caused this Amendment to be executed by its
duly elected officer this 30th day of June, 1997.
UST CORP.
/s/ Linda J. Lerner
By: ____________________________
/s/ Eric R. Fischer
Attest: _____________________________
<PAGE> 85
EXHIBIT A
SPECIAL PROVISIONS APPLICABLE TO FORMER PARTICIPANTS OF THE SBERA
401(K) PLAN ADOPTED BY THE BANK OF BRAINTREE
The following provisions shall be applicable to Participants who were formerly
participants in the SBERA 401(k) Plan Adopted by The Bank of Braintree (Prior
Plan) with respect to their account balances (Merged Account or Merged Account
Balances) under the Prior Plan that was merged into the UST Corp. Employee
Savings Plan effective June 30, 1997.
1. "MERGED ACCOUNT OR MERGED ACCOUNT BALANCE" shall mean the Participant's
total account balance under the Prior Plan as of June 30, 1997, plus any
investment earnings (or losses) on such account subsequent to such date and
up to the date of distribution.
2. With respect to each Participant's Merged Account Balance the following
provisions shall also apply in addition to the provisions set forth in the
Plan with regard to options upon distribution:
AUTOMATIC ANNUITY The Participant's Merged Account will be applied to
purchase a Qualified Joint & Survivor Annuity for a married
Participant. If the Participant is not married the Participant's Merged
Account will be applied to purchase a life annuity. In the 90 day
period prior to his annuity starting date the Participant may make a
Qualified Election to receive an alternative distribution. A
Participant may elect to have such annuity distributed upon the
attainment of the Participant's Earliest Retirement Age. A deceased
Participant's Merged Account will be paid as a death benefit to the
surviving Spouse or Beneficiary. Unless an Optional form of benefit
within the Election Period pursuant to a Qualified Election has been
selected, the surviving Spouse may elect distribution of the automatic
pension within a reasonable period after the Participant's death.
NOTICE a) In the case of a Qualified Joint & Survivor Annuity notice
shall be provided not less than 30 days or more than 90 days prior to
the annuity starting date and in the case of a Qualified Preretirement
Survivor Annuity the later of the following periods that ends last: i)
the period beginning the first day of the Plan Year the Participant
attains age 32 and ending the last day of the Plan Year preceding the
Plan Year the Participant attains age 35 or ii) the period beginning
one year prior to and ending one year after the date the Employee
becomes a Participant or iii) the period one year before and ending one
year after this section first applies to the Participant or iv) the
period beginning one year prior to and ending one year after this
section ceased to apply to the Participant. Notice shall be provided
within the period beginning one year prior to and ending one year
following the date employment terminates for a Participant who has not
attained age 35. If such Participant is reemployed the applicable
period shall be redetermined. A Participant may elect, with appropriate
spousal consent, to waive the requirement that the written notice be
provided at least 30 days prior to the annuity starting date provided
such distribution commences more than 7 days after the notice is
provided.
<PAGE> 86
SBERA Exhibit A
6/30/97
Page 2
b) Notwithstanding this section, the respective notices prescribed by this
section need not be given to a Participant if the Plan fully subsidizes the
costs of a Qualified Joint and Survivor Annuity or a Qualified Preretirement
Survivor Annuity and the Plan does not allow the Participant to waive the
Qualified Joint and Survivor Annuity or the Qualified Preretirement Survivor
Annuity and does not allow a married Participant to designate a non-Spouse
Beneficiary.
The notice will be written and will inform the Participant that his vested
Merged Account Balance will be paid as a Qualified Joint & Survivor Annuity
unless an alternate distribution method is selected in a Qualified Election.
The notice will include an explanation of the terms and conditions of a
Qualified Joint and Survivor Annuity or a Qualified Preretirement Survivor
Annuity, the effect of an Election to waive the Qualified Joint and Survivor
Annuity, the Spouse's right regarding the required consent, the right to make
and the effect of revoking an Election, and a statement of any benefits which
may be forfeitable for any reason including death.
If a Participant elects to receive distribution in one sum or in a series of
sums which may constitute a lump sum distribution, the Plan Administrator will
furnish notice using a format provided by the Secretary of Treasury explaining
that the distribution is not taxable currently to the extent transferred to
another qualified Plan or individual retirement account or individual retirement
annuity within 60 days after the date of its receipt and that the 60 day period
begins when the last distribution is made, and 10 or 5 year income averaging
and/or capital gains income tax provisions may apply.
"ELECTION" means a written instrument executed by a Participant and filed with
the Plan Administrator on or before its effective date, exercising one or more
rights under this Plan.
"ELECTION PERIOD" means the period beginning on the first day of the Plan Year
in which the Participant attains age 35 and ending on the date of his death. If
a Participant separates from service prior to the first day of the Plan Year in
which he is 35, the Election Period shall begin on the date his employment
terminates. A Participant may make a special Qualified Election to waive the
Qualified Preretirement Survivor Annuity for the period beginning on the date of
such Election and ending on the first day of the Plan Year in which he attains
age 35 provided that the Participant has received a written explanation of the
Qualified Preretirement Survivor Annuity stating that such coverage will be
reinstated as of the first day of the Plan Year in which he attains age 35. Any
new waiver on or after such date shall be subject to the full extent of this
Article.
"EARLIEST RETIREMENT AGE" means the date on which the Participant can elect to
receive retirement benefits.
"QUALIFIED ELECTION" means a waiver of a Qualified Joint and Survivor Annuity or
a Qualified Preretirement Survivor Annuity neither of which shall be effective
unless: the Spouse gives written consent to the Election; the Election
designates a specific Beneficiary
<PAGE> 87
SBERA Exhibit A
6/30/97
Page 3
or Beneficiaries or contingent Beneficiaries, which may not be changed
without spousal consent unless the Spouse has permitted the Participant to
change designations without further consent; the Spouse's consent
acknowledges the effect of the Election; and the Spouse's consent is
witnessed by a Plan representative or Notary Public. If it is established
to the satisfaction of a Plan representative that written consent may not
be obtained because there is no Spouse or the Spouse cannot be located, a
waiver will be deemed a Qualified Election.
"QUALIFIED JOINT AND SURVIVOR ANNUITY" means the actuarial equivalent of a
straight life annuity paid to the Participant and his spouse for their
joint lives and reduced by 50% at the first death.
"QUALIFIED PRERETIREMENT SURVIVOR ANNUITY" means a straight life annuity
paid to the Participant's spouse by applying the Participant's Merged
Account Balance to the purchase of such an annuity.
Consent, or the deemed consent of a Spouse shall be effective only with
respect to such Spouse. Consent that permits designations by the
Participant without requirement of further consent by such Spouse shall
acknowledge that the Spouse has the right to limit consent to a specific
Beneficiary, and a specific form of benefit, and that the Spouse
voluntarily elects to relinquish either or both such rights. A Participant
may revoke a waiver without Spouse consent at any time before benefits
commence without limit. Consent shall not be valid unless the Participant
has received Notice under this section.
Subject to the above limitations, distributions may also be made over one
of the following periods.
a) the life of the Participant, or the life of the Participant and the life
of the Designated Beneficiary; and
b) the period contains not greater than the Participant's life expectancy
or the joint and last survivor life expectancy of the Participant and
his or her Beneficiary.
Distributions based on a life contingency or period certain will be made by
applying the Participant's Merged Account to purchase a non-transferable
annuity from an insurance company to provide the benefit for the
Participant.
3. With respect to each Participant's Merged Account Balance, the following
provisions shall also apply with respect to hardship distributions.
HARDSHIP DISTRIBUTION Distribution of Before-Tax Contributions (and
earnings thereon accrued as of December 31, 1988) out of a Participant's
Merged Account Balance may be made to a Participant in the event of
hardship. For the purposes of this section, hardship is defined as an
immediate and heavy financial need of the Employee where such Employee
lacks other available resources. Hardship Distributions are subject to the
spousal consent requirements contained in IRC 401(a)(11) and 417.
<PAGE> 88
SBERA Exhibit A
6/30/97
Page 4
The following are the only financial needs considered immediate and heavy:
funeral expenses of an immediate family member, deductible medical expenses
(within the meaning of IRC 213(d)) of the Employee, the Employee's spouse,
children, or dependents; the purchase (excluding mortgage payments) of a
principal residence for the Employee; payment of tuition for the next
quarter or semester of post-secondary education for the Employee, the
Employee's spouse, children or dependents; or the need to prevent the
eviction of the Employee from, or a foreclosure on the mortgage of, the
Employee's principal residence, including any federal, state or local taxes
or penalties reasonably expected to result from the distribution.
A distribution will be considered as necessary to satisfy an immediate and
heavy financial need of the Employee only if:
a) The Employee has obtained all distributions, other than Hardship
Distributions, and all non-taxable loans under all Plans maintained by
the Employer;
b) All Plans maintained by the Employer provide that the Employee's
Before-Tax Contributions (and employee contributions) will be suspended
for twelve months after the receipt of the Hardship Distribution;
c) The distribution is not in excess of the amount of an immediate and
heavy financial need; and
d) All Plans maintained by the Employer provide that the Employee may not
make Before-Tax Contributions for the Employee's taxable year
immediately following the taxable year of the Hardship Distribution in
excess of the applicable limit under IRC 402(g) for such taxable year
less the amount of such Employee's Before-Tax Contributions for the
taxable year of the Hardship Distribution.
<PAGE> 89
SECOND AMENDMENT TO THE
UST CORP. EMPLOYEES SAVINGS PLAN
WHEREAS, UST Corp. (the "Sponsoring Employer") maintains the UST Corp. Employees
Savings Plan (the "Plan") which was amended and restated effective July 1, 1996
for the benefit of its eligible employees and their beneficiaries; and
WHEREAS, the Sponsoring Employer reserves the right to amend the Plan at any
time in accordance with Section 13.1 of the Plan;
WHEREAS, the Sponsoring Employer desires to amend the Plan to:
(a) to recognize the participation of the BankBoston and Walden employees in the
Plan, and
(b) with respect to the employees of UST Bank/Connecticut to provide matching
contributions for the month of December, 1996.
NOW THEREFORE, the Plan is hereby amended effective January 1, 1997 unless
otherwise stated as follows:
1. Section 1.2 is hereby amended by replacing the reference to "5.1(g)" with the
reference to "5.1(f)".
2. Section 1.22 is hereby amended in its entirety to read as follows:
"1.22 "EMPLOYER" means any of the following corporations:
(a) UST Corp,;
(b) United States Trust Company;
(c) USTrust/Norfolk;
(d) USTrust;
(e) UST Data Services Corp.;
(f) UST Captial Corp.;
(g) UST Leasing Corporation;
(h) UST Merchant Bancorp, Inc.;
(i) Property Researach Group, Inc.; and
(j) each parent, subsidiary, affiliate, successor or other corporation
which has, by invitation by the Board and by action of its own board, elected to
joint the Plan.
The "EMPLOYER" as herein defined shall mean UST Corp., individually or in
combination with any or all such affiliates as the context may require."
3. Section 3.1 is hereby amended by adding the following paragraph (f) to the
end thereof:
<PAGE> 90
"(f) An Eligible Employee who was an active participant in either the SBERA
401(k) Plan Adopted by the Bank of Braintree or the Cooperative Benefits
Employees Retirement Association Defined Contribution Plan - Plan A on July 31,
1997 shall become a Participant in this Plan on August 1, 1997 and be eligible
to have Before-Tax Contributions made on his behalf pursuant to Section 4.1 and
receive an Employer Matching Contribution pursuant to Section 5.2 provided he
has made the required elections pursuant to Section 3.2.
An Eligible Employee who was an active participant in either the SBERA 401(k)
Plan Adopted by the Bank of Braintree or the Cooperative Benefits Employees
Retirement Association Defined Contribution Plan - Plan A on October 1, 1996 and
whose employment during the period commencing October 1, 1996 and ending prior
to the date of acquisition (January 3, 1997) was terminated with Walden Bancorp
and commenced immediately thereafter with an Employer shall become a Participant
in this Plan and eligible on his or her Employment Commencement Date to have
Before-Tax Contributions made on his behalf pursuant to Section 4.1 and receive
an Employer Matching Contribution pursuant to Section 5.2 provided he has made
the required elections pursuant to Section 3.2."
4. Section 5.2 is hereby amended by adding the following paragraph between the
first and second paragraphs:
"Each Participant who was employed by UST Bank/Connecticut on November 30, 1996
and continued employment with HUBCO through December 31, 1996 shall be entitled
to an Employer Matching Contribution as of December 31, 1996 computed as though
his Basic Before-Tax Contributions continued through December 31, 1996 at the
rate in effect on November 30, 1996."
5. Section 13.1 shall be amended by replacing the first sentence of paragraph
(a) with the following:
"The Sponsoring Employer, by written action of a duly authorized officer of the
Sponsoring Employer, unanimous approval of the Benefits Committee and delivered
to the Trustee, shall have the right at any time to terminate this Plan and
shall have the right at any time and from time to time to amend, in whole or in
part, any or all of the provisions of this Plan, provided that no amendment
which affects the Trustee shall be effective without the Trustee's consent."
IN WITNESS WHEREOF, the Sponsoring Employer has caused this Amendment to be
executed by its duly elected officer this 31st day of July, 1997.
UST CORP.
By: /s/ Linda J. Lerner
-----------------------------
Attest: /s/ Eric R. Fischer
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THIRD AMENDMENT TO THE
UST CORP. EMPLOYEES SAVINGS PLAN
WHEREAS, UST Corp. (the "Sponsoring Employer") maintains the UST Corp. Employees
Savings Plan (the "Plan") which was amended and restated effective July 1, 1996
for the benefit of its eligible employees and their beneficiaries; and
WHEREAS, the Sponsoring Employer reserves the right to amend the Plan at any
time in accordance with Section 13.1 of the Plan; and
WHEREAS, the Sponsoring Employer desires to amend the Plan to (a) merge the UST
Corp. Employee Stock Ownership Plan into the Plan, (b) improve benefits, and (c)
update the Plan for recent legislative changes.
NOW THEREFORE, the Plan is hereby amended as follows:
1. Effective December 31, 1997, the UST Corp. Employee Stock Ownership Plan
(UST ESOP) is hereby merged into the Plan subject to the terms and
conditions of the Plan as modified by the retained provisions set forth in
Exhibit B that is hereby incorporated and made a part of the Plan. Amounts
in the Employer Stock Account, Other Investments Account and Alternative
Investment Account of the UST ESOP shall be transferred to the ESOP
Account of this Plan.
2. Effective January 1, 1998, all Participants who are employed by the
Employer on December 31, 1997 shall be fully vested in their ESOP
Accounts.
3. Effective January 1, 1997, Section 1.13 of the Plan is amended to delete
in its entirety the last sentence of the last paragraph.
4. Effective January 1, 1998, Section 1.20 of the Plan is amended to read as
follows:
"1.20 "ELIGIBLE EMPLOYEE" means any person who is an Employee of an
Employer, excluding, however:
(a) Any Employee who is a member of a unit of employees covered by
a collective bargaining agreement to which an Employer is a
party and which does not specifically provide for the coverage
of such employees under the Plan;
(b) Any Employee who is a nonresident alien receiving no earned
income from sources within the United States;
(c) Any Employee who is a leased employee within the meaning of
Section 414(n)(2) of the Code;
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(d) Any Employee who became an Employee as a result of the
acquisition of Firestone Financial Corp. by the Employer; or
(e) Any Employee(s) who became an Employee(s) by reason of merger
with or acquisition by the Sponsoring Employer prior to the
date participation in the Plan is extended to such Employee(s)
by the Sponsoring Employer."
5. Effective January 1, 1998, Section 1.25 is amended to read as follows:
"1.25 "ENTRY DATE" means the first day of a calendar quarter as determined
under Section 3.1(b) or such other dates designated by the Benefits
Committee."
6. Effective January 1, 1998, Section 1.27 is amended to add the following
sentence.
"Forfeiture Account also means the ESOP Account maintained separately on
the books of the Plan by the Trustee for each terminated Participant with
a forfeitable Account balance. All amounts held in the Forfeiture Accounts
as of May 1, 1998 shall be immediately forfeitable."
7. Effective January 1, 1997, Section 1.28 of the Plan is amended to read as
follows:
"1.28 "HIGHLY COMPENSATED EMPLOYEE" means, with respect to a Plan Year,
any Employee who performs services for an Employer or Affiliated
Employer during the Determination Year and who:
(a) Was a 5% owner (within the meaning of Section 416(i)(l)(B)(i)
of the Code) at any time during the Determination Year or Look
Back Year; or
(b) Received compensation from an Employer or Affiliated Employer
in excess of $80,000 (as adjusted pursuant to Section 415(d)
of the Code) and was among the top 20% of Employees when
ranked on the basis of compensation paid during the Look-Back
Year. In determining who is among the top 20% of Employees
when ranked on the basis of Compensation there shall be
excluded Employees who:
(i) are under age 21;
(ii) have completed less than six months of service;
(iii) ordinarily work less than six months per year;
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(iv) ordinarily work less than 17-1/2 hours per week; or
(v) are included in a unit of Employees covered by a
collective bargaining agreement if 90% or more of the
Employer's Employees are covered by collective
bargaining agreements and the Plan covers only those
Employees who are not covered by such agreements.
The term Highly Compensated Employee shall also include any
former Employee who terminated employment with an Employer or
Affiliated Employer prior to the Determination Year, and was a
Highly Compensated Employee in either his year of termination
of employment or in any prior Determination Year ending on or
after his attainment of age 55.
For purposes of determining an Employee's compensation under this Section,
"COMPENSATION" shall mean the Employee's total compensation as set forth
in Section 414(q)(4) of the Code."
8. Effective January 1, 1998, Section 1.47 is amended to add subsection (g)
as follows:
"(g) "ESOP ACCOUNT" - The portion of the Participant's Total Account
consisting of amounts transferred from the Employer Stock Account,
Other Investments Account and Alternative Investment Account of the
UST ESOP, plus (or minus) any investment earnings (or losses) on
such amounts, less any distributions from such Account."
9. Effective with regard to reemployment initiated after December 12, 1994,
Article 2 is amended to delete the last paragraph of Section 2.3 and to
add a new Section 2.4 as follows:
"2.4 VETERAN'S RIGHTS
Notwithstanding any provision of this Plan to the contrary,
contributions, benefits and service credit with respect to any
qualified military service will be provided in accordance with
Section 414(u) of the Code. In addition, loan repayments will be
suspended under this Plan as permitted by Code Section 414(u)."
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10. Effective January 1, 1998, Section 3.1(e) of the Plan is amended to read
as follows:
"(e) Participation after January 1, 1997
Each Participant shall, on the first Entry Date coincident with or
next following the earliest date on which he has completed (i) 500
(250, effective January 1, 1998) or more hours in the first six
months (three months, effective January 1, 1998) of employment, (ii)
1,000 or more hours on the first anniversary of employment or (iii)
1,000 or more hours in any subsequent calendar year, be eligible to
have Before-Tax Contributions made on his behalf pursuant to Section
4.1 and receive an Employer Matching Contribution pursuant to
Section 5.2 provided he has made the required elections pursuant to
Section 3.2. For purposed of this subparagraph, "six months of
employment" ("three months of employment", effective January 1,
1998) shall mean that the Participant is employed on the date which
is six months (three months, effective January 1, 1998) after the
date the Participant is first credited with an Hour of Service."
11. Effective January 1, 1998, Section 4.1 of the Plan is amended to read as
follows:
"4.1 PARTICIPANT CONTRIBUTIONS
Effective January 1, 1998, each Eligible Employee may, after
satisfying the eligibility requirements of Section 3.1(b)(ii), elect
to have a contribution made on his behalf to the Trust Fund at a
rate of 1% to 15% of Compensation. The rate of contribution will be
in increments of 1%. Such election shall be in the form of a Salary
Deferral Agreement and shall be subject to the Compensation Deferral
Limit, if any, applicable to such Participant as established by the
Committee from time to time for purposes of meeting the
nondiscrimination tests of Section 401(k) of the Code. Contributions
made in accordance with this Section 4.1, shall also be subject to
the maximum limits in effect under Sections 4.5 and 12.4.
A Participant's contributions may consist of Basic Before-Tax
Contributions and Supplemental Before-Tax Contributions as described
below:
(a) BASIC BEFORE-TAX CONTRIBUTIONS - The first 6% of Compensation
for a payroll period which is contributed on the Participant's
behalf under a Salary Deferral Agreement shall be known as the
Participant's Basic Before-Tax Contributions and shall be
contributed to the Participant's Basic Before-Tax Contribution
Account.
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(b) SUPPLEMENTAL BEFORE-TAX CONTRIBUTIONS - Contributions made on
the Participant's behalf under a Salary Deferral Agreement in
excess of 6% of Compensation for a payroll period shall be
known as the Participant's Supplemental Before-Tax
Contributions and shall be contributed to the Participant's
Supplemental Before-Tax Contribution Account.
Contributions made pursuant to this Section 4.1 shall be made by the
Employer directly to the Trustee no less frequently than once per
calendar month."
12. Effective May 1, 1998, Section 5.1(d) of the Plan is amended to read as
follows:
"(d) ALLOCATION AMONG TOTAL ACCOUNT
As of the last day of each Plan Year, the Trustee shall
allocate to the Regular Profit Sharing Account and, if
applicable, the Cash Option Deferred Account of each
Participant entitled, in accordance with Section 5.1(c), to
share in the Employer's Profit Sharing Contribution for such
Plan Year, an amount (computed in dollars) equal to his
proportionate share of the Employer's Profit Sharing
Contribution for such Plan Year, as set forth in the Section
5.1(c). Except as provided in Section 5.1(b), one third of the
Employer's Profit Sharing Contribution made on behalf of a
Participant shall be credited to the Participant's Cash Option
Deferred Account. The remaining portion of the Employer's
Profit Sharing Contribution shall be allocated to the
Participant's Regular Profit Sharing Account."
13. Effective January 1, 1998, Section 5.2 of the Plan is amended so that the
first paragraph reads as follows:
"As of each Valuation Date, an Employer Matching Contribution shall be
credited to the Employer Matching Contribution Account of each Participant
who made Basic Before-Tax Contributions to the Trust Fund since the
previous Valuation Date and who is employed by the Employer on said
Valuation Date. The Employer Matching Contributions made on behalf of each
such Participant shall be based upon the Participant's Basic Before-Tax
Contributions and Compensation since the previous Valuation Date, and
shall be equal to the sum of (a) 100% of the Participant's Basic
Before-Tax Contributions which do not exceed 2% of Compensation, plus (b)
50% of the Participant's Basic Before-Tax Contributions which exceed 2% of
Compensation."
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14. Effective January 1, 1998, Section 6.2 of the Plan is amended so that the
second paragraph reads as follows:
"The Participant's Total Account shall be invested in one or a combination
of the available investment alternatives established and maintained by the
Trustee. These alternatives may include, but are not limited to: an Equity
Fund, seeking growth of capital by investing in a wide range of companies,
a Stable Asset Fund, consisting primarily of FDIC-insured deposits, an
Indexed Stock Fund, a Balanced Fund, investing in both stocks and
fixed-income securities, and an Employer Stock Fund consisting of
qualifying employer securities as defined in Code Section 409(l). The
Employer and/or Trustee reserves the right to add to or change the types
of investment alternatives available to Participants and Beneficiaries."
15. Effective January 1, 1998, Section 6.3 is amended to read as follows:
"6.3 CHANGE IN INVESTMENT ELECTION
Any Participant, employed by the Employer on or after January 1,
1998, may elect, effective as of any Change Date, to reallocate in
5% increments his Basic and Supplemental Before-Tax Contribution
Accounts, Employer Matching Contribution Account, ESOP Account, and
Rollover Account among the investment funds, provided that the
Participant files a new election in the appropriate form at such
time and in such manner as the Benefits Committee may require. Any
elections made in accordance with this paragraph shall apply to the
amounts existing in the Participant's Basic and Supplemental
Before-Tax Contribution Accounts, Employer Matching Contribution
Account, ESOP Account, and Rollover Account on the Change Date and
to all contributions credited to such Accounts on or after such
Change Date.
The Benefits Committee may from time to time:
(a) Limit or restrict a Participant's ability to change the
allocation of his Basic and Supplemental Before-Tax
Contribution Accounts, Employer Matching Contribution Account,
ESOP Account, and Rollover Account among the investment funds
and/or withdraw balances from the various investment funds in
order to conform to the practices, provisions, or restrictions
of any investment media held in any such investment fund; and
(b) Adopt procedures relating to the determination and allocation
of the investment earnings among the Participants' Basic and
Supplemental Before-Tax Contribution Account, Employer
Matching Contribution
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Account, ESOP Account and Rollover Account, in order to
facilitate the administration of the Plan on an equitable and
practicable basis.
Any Participant who terminated employment with the Employer prior to
January 1, 1998 shall be subject to the provisions of this Section
6.3 with respect to all Accounts except for his ESOP Account which
will be subject to the provisions of Part F of Exhibit B."
16. Effective January 1, 1998, Section 6.5(a) of the Plan is amended to add
subsection (vii) entitled "ESOP Account".
17. Effective May 1, 1998, Section 6.7 of the Plan is amended so that the
first paragraph reads as follows:
"The balance of each Participant's Total Account shall be adjusted as of
each Valuation Date."
18. Effective January 1, 1998, Section 7.3 of the Plan to replace "$3,500"
with "$5,000" in the second paragraph thereof.
19. Effective January 1, 1998, Section 7.4 is amended to read as follows:
"7.4 VESTING
A Participant shall always have a nonforfeitable, or 100% vested
interest in his Basic and Supplemental Before-Tax Contribution
Accounts, Cash Option Deferral Account, Employer Matching
Contribution Account, Rollover Account and Regular Profit Sharing
Account. Any Participant employed by the Employer on December 31,
1997 shall have a nonforfeitable or 100% vested interest in his ESOP
Account."
20. Effective May 1, 1998, Section 7.5 of the Plan is amended to read as
follows:
"(a) Timing of Forfeitures:
If a Participant who terminates his employment with the
Employer before his Regular Profit Sharing Account or ESOP
Account has become 100% vested and receives a distribution of
the vested portion of his Regular Profit Sharing Account or
ESOP Account, the non-vested amount remaining in such
Participant's Regular Profit Sharing Account or ESOP Account
after distribution of the vested portion of his Regular Profit
Sharing Account or ESOP Account shall be forfeited as of the
date he
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<PAGE> 98
has received the vested portion of his Regular Profit Sharing
Account or ESOP Account.
If a Participant terminated employment prior to December 31,
1997 before his regular Profit Sharing Account or ESOP Account
had become 100% vested and did not receive a distribution of
the vested portion of his regular Profit Sharing Account or
ESOP Account, the non-vested amounts held in the Forfeiture
Account shall be immediately forfeited as of May 1, 1998 and
shall be allocated in the following manner:
(i) Forfeitures shall first be used to pay any Plan expenses
that may be authorized pursuant to Section 10.6 of the
Plan;
(ii) Any remaining forfeitures shall then be used to reduce
Employer Contributions made pursuant to Section 5.1 and
Section 5.2; and
(iii) Any remaining forfeitures shall then be allocated to
Participant's Regular Profit Sharing Accounts and/or
ESOP Accounts in the same manner as set forth in Section
5.1(c).
(b) Rehire - Repayments Permitted Within Five Years of
Reemployment:
In the event a Participant described in subparagraph (a) above
is rehired prior to incurring five consecutive One-Year Breaks
in Service, the Participant shall be permitted to repay to his
Total Account the entire amount of the distribution in order
to restore the nonvested portion of his Regular Profit Sharing
Account or ESOP Account balance for the purpose of future
vesting as if he had not separated from Service and received a
distribution. The permissible repayment period shall continue
until the fifth anniversary of the day on which the Employer
reemploys the Employee.
If such repayment is not made before such period, such
Participant's vested amount will be determined by including
Years of Service accrued before such Participant's separation
from Service but without regard to amounts allocated prior to
such separation.
In the event that the terminated Participant's vested balance
in his Regular Profit Sharing Account or ESOP Account was
zero,
(A) distribution of the vested balance in his Regular Profit
Sharing Account or ESOP Account shall be deemed to have
been made to him as of the date of his termination of
employment,
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(B) repayment shall be deemed to be made on his reemployment
commencement date, and
(C) the balance in his Regular Profit Sharing Account or
ESOP Account shall be restored accordingly.
(c) Restoration of Regular Profit Sharing Account or ESOP Account
Balances:
A Participant who made or who is deemed to have made a
repayment pursuant to paragraph (b) above will have recredited
to his Regular Profit Sharing Account or ESOP Account, as of
the last day of the Plan Year coinciding with or next
following his date of rehire, the portion of such Account
balance which he forfeited upon his prior termination from
Service with the Employer unadjusted for any subsequent gains
or losses. The sources for restoring a previous forfeiture in
a subsequent year will be, in order of priority:
(A) Earnings allocable to the Plan's Regular Profit Sharing
Account or ESOP Account balances for the Plan Year in
which such Account balance is recreated, if still not
sufficient then;
(B) Contributions made by the Employer for the Plan Year in
which the Regular Profit Sharing Account or ESOP Account
balance is recreated.
(d) Rehire After Five Years:
In the event a former Participant is rehired after incurring
five consecutive One-Year Breaks in Service, the portion of
the Participant's Regular Profit Sharing Account or ESOP
Account which he forfeited shall not be recredited to the
Participant's Regular Profit Sharing Account or ESOP Account
if he subsequently becomes eligible to participate in the
Plan, except as follows:
(A) Such former Participant shall have his prior nonvested
portion in his Regular Profit Sharing Account or ESOP
Account restored, if such former Participant repays the
entire amount of the distribution he previously received
under the Plan (upon his prior termination) by the close
of five consecutive One-Year Breaks in Service
commencing after such prior distribution.
(B) To the extent applicable, the procedures of paragraph
(c) above shall apply to the restoration of the
Participant's nonvested portion of his Regular Profit
Sharing Account or ESOP
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<PAGE> 100
Account if he repays his prior distribution under this
paragraph (d)."
21. Effective January 1, 1998, Section 7.7(d) shall be amended to replace
"$3,500" with "$5,000".
22. Effective January 1, 1998, Section 7.8 shall be amended to replace
"$3,500" with "$5,000" in the second paragraph thereof.
23. Effective January 1, 2000, Section 12.4 of the Plan is amended to delete
paragraph (e) and to redesignate paragraph (f) as paragraph (e).
24. Effective January 1, 1998, Section 12.4(b) of the Plan is amended to read
as follows:
"(b) The Term "Section 415 Compensation" means wages, salaries, and
fees for professional services and other amounts received from
the Employer and all Affiliated Employers during the
Limitation Year (without regard to whether or not an amount is
paid in cash) for personal services actually rendered in the
course of employment with the Employer, to the extent such
amounts are includable in gross income, including but not
limited to, overtime pay, tips, bonuses, commissions paid to
salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums,
fringe benefits, reimbursements, expense allowances, and
amounts contributed by the Employer or Affiliated Employer on
behalf of the Employee pursuant to a salary deferral agreement
under this Plan or any other salary deferred arrangement
described in Section 402(g)(3) of the Code or to any salary
reduction agreement pursuant to a cafeteria plan established
under Section 125 of the Code which are not includable in the
Employee's gross income for the taxable year in which
contributed and excluding the following:
(i) amounts contributed by the Employer or Affiliated
Employer to any other plan of deferred compensation and
which are not includable in the Employee's gross income
for the taxable year in which contributed, or any
distributions from a plan of deferred compensation.
(ii) amounts realized from the exercise of a non-qualified
stock option, or when restricted stock (or property)
held by the Employee either becomes freely transferable
or is no longer subject to a substantial risk of
forfeiture; and
(iii) amounts realized with respect to the sale, exchange, or
other disposition of stock acquired under a qualified
stock option".
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25. Effective January 1, 1997, Section 12.5 of the Plan is amended to read as
follows:
"12.5 NONDISCRIMINATION LIMITATIONS ON PARTICIPANT CONTRIBUTIONS AND
EMPLOYER MATCHING CONTRIBUTIONS
(a) For purposes of this Section, the following terms shall have
the meaning indicated below:
(i) "ACTUAL DEFERRAL PERCENTAGE" means the average
(expressed as a percentage) of the deferral percentages
of Eligible Employees in a group. An Eligible Employee's
deferral percentage is equal to the ratio (expressed as
a percentage) of the Employee's Before-Tax Contributions
and Cash Option Deferrals (including any Before-Tax
Contributions and Cash Option Deferrals returned to the
Employee pursuant to Section 4.5(b) but excluding
Before-Tax Contributions and Cash Option Deferrals
returned to the Employee pursuant to Section 12.4(d)
contributed to the Trust Fund in the Plan Year to the
Eligible Employee's Compensation for that Plan Year. The
individual ratios and the percentages for any groups of
individuals shall be calculated to the nearest
one-hundredth of one percent (.01%).
(ii) "ACTUAL CONTRIBUTION PERCENTAGE" means the average
(expressed as a percentage) of the contribution
percentages of Eligible Employees in a group. An
Eligible Employee's contribution percentage is equal to
the ratio of the Employer Matching Contributions
contributed to the Trust Fund in the Plan Year to the
Eligible Employee's Compensation for that Plan Year. The
individual ratios and the percentages for any groups of
individuals shall be calculated to the nearest
one-hundredth of one percent (.01%).
(iii) "ELIGIBLE EMPLOYEE" means any Employee of the Employer
who, during the Plan Year, is eligible to make
Before-Tax Contributions or Cash Option Deferrals in
accordance with the provisions of Sections 4.1 and 5.1
respectively, or who is eligible to receive Employer
Matching Contributions in accordance with the provisions
of Section 5.2. An individual shall be treated as an
Eligible Employee for a Plan Year if he so qualifies for
any part of the Plan Year.
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(iv) "COMPENSATION" means the Employee's Section 415
Compensation (as defined in Section 12.4(b)) but not in
excess of the limit under Section 401(a)(17) of the
Code, and including any amounts contributed by the
Employer or an Affiliated Employer on behalf of the
Employee pursuant to a salary deferral agreement or Cash
Option Deferral under this Plan (or any other cash or
deferred arrangement described in Section 401(k) of the
Code) or a salary reduction agreement pursuant to a
cafeteria plan established under Section 125 of the
Code, or toward the purchase of an annuity described in
Section 403(b) of the Code.
Notwithstanding the foregoing, in determining the amount
of Compensation to be taken into account for purposes of
this Section, the Employer may limit the period used to
determine an Employee's Compensation for the Plan Year
to the portion of the Plan Year in which the Employee
was an Eligible Employee (as defined in subparagraph
(iii) above), provided that this limit is applied
uniformly to all Eligible Employees with respect to such
Plan Year.
(b) If more than one plan providing for a cash or deferred
arrangement, or for matching contributions, or employee
contributions (within the meaning of Sections 401(k) and
401(m) of the Code) is maintained by the Employer or an
Affiliated Employer, then the individual ratios of any Highly
Compensated Employee who participates in more than one such
plan or arrangement shall, for purposes of determining the
individual's Actual Contribution Percentage and Actual
Deferral Percentage, be determined as if all such arrangements
were a single plan or arrangement. If a Highly Compensated
Employee participates in two or more cash or deferred
arrangements that have different plan years, all cash or
deferred arrangements ending with or within the same calendar
year shall be treated as a single arrangement. Notwithstanding
the foregoing, plans that are mandatorily disaggregated
pursuant to regulations under Section 401(k) of the Code shall
not be aggregated for purposes of this paragraph but shall be
treated as separate plans.
(c) In the event that this Plan satisfies the requirements of
Sections 401(a)(4) and 410(b) of the Code only if aggregated
with one or more other plans, and for Plan Years beginning
after December 31, 1988 all such plans have the same Plan
Year, then this Section shall be applied by determining the
Actual Deferral Percentage and Actual Contribution Percentage
of Eligible Employees as if all such plans were a single plan.
(d) In accordance with the nondiscrimination requirements of
Section 401(k) of the Code, the Committee shall establish a
Compensation Deferral
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Limit with respect to Before-Tax Contributions and the Cash
Option Deferral credited to a Participant's Total Account
during a Plan Year and may adjust such deferral limit (in
accordance with paragraph (f)(i) below) from time to time
during the Plan Year in order to satisfy one of the following
tests:
(i) The Actual Deferral Percentage of the group of Eligible
Employees who are Highly Compensated Employees for the
Plan Year shall not exceed the Actual Deferral
Percentage of the group of Eligible Employees who are
Nonhighly Compensated Employees for the same Plan Year
multiplied by 1.25.
(ii) The Actual Deferral Percentage of the group of Eligible
Employees who are Highly Compensated Employees for the
Plan Year shall not exceed the Actual Deferral
Percentage of the group of Eligible Employees who are
Nonhighly Compensated Employees for the same Plan Year
multiplied by two, provided that the Actual Deferral
Percentage for such Highly Compensated Employees is not
more than two percentage points higher than the Actual
Deferral Percentage for such Nonhighly Compensated
Employees.
(iii) Amounts in excess of these limits in (d) are called
"Excess Contributions".
(e) In accordance with the nondiscrimination requirements of
Section 401(m) of the Code, the Committee shall establish a
Contribution Percentage Limit with respect to Employer
Matching Contributions credited to a Participant's Total
Account, and may adjust such percentage limit (in accordance
with paragraph (f)(i) below) from time to time during the Plan
Year in order to satisfy one of the following tests:
(i) The Actual Contribution Percentage of the group of
Eligible Employees who are Highly Compensated Employees
for the Plan Year shall not exceed the Actual
Contribution Percentage of the group of Eligible
Employees who are Nonhighly Compensated Employees for
the same Plan Year multiplied by 1.25.
(ii) The Actual Contribution Percentage of the group of
Eligible Employees who are Highly Compensated Employees
for the Plan Year shall not exceed the Actual
Contribution Percentage of the group of Eligible
Employees who are Nonhighly Compensated Employees for
the same Plan Year, multiplied by two, provided that the
Actual Contribution Percentage for such Highly
Compensated Employees is not more than two percentage
points
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higher than the Actual Contribution Percentage for such
Nonhighly Compensated Employees.
(iii) Amounts in excess of these limits in (e) are called
"Excess Aggregate Contributions".
(f) The Committee may take the following actions to assure
compliance with the nondiscrimination limitations of Section
401(k) and/or Section 401(m) of the Code:
(i) If the average percentages described in paragraphs (d)
and/or (e) above applicable to the group of Eligible
Employees who are Highly Compensated Employees are
expected to exceed the maximum average percentage
necessary to comply with the rules described in said
paragraphs, the Committee may direct that the Actual
Deferral Percentage and/or the Actual Contribution
Percentage, as the case may be, for each member of such
group of Highly Compensated Employees be reduced,
prospectively only, beginning with the Highly
Compensated Employee whose Actual Deferral Percentage or
Actual Contribution Percentage, as the case may be, is
the highest so that the limit is not exceeded.
(ii) If the average percentages described in paragraphs (d)
and/or (e) above applicable to the group of Eligible
Employees who are Highly Compensated Employees exceed
the maximum average percentage necessary to comply with
the rules described in said paragraphs, the Committee
shall direct that any distribution of Excess
Contributions or Excess Aggregate Contributions shall be
made to Highly Compensated Employees on the basis of the
amount of Before-Tax Contributions and Cash Option
Deferrals in the case of percentages described in (d)
and the amount of Employer Matching Contributions in the
case of percentages described in (e) in accordance with
the following method. The Committee shall first
calculate the dollar amount of the Excess Contributions
or Excess Aggregate Contributions described in
paragraphs (d) and (e), respectively. The Before-Tax
Contributions and Cash Option Deferral or the Employer
Matching Contributions of the Highly Compensated
Employee with the highest dollar amount shall be reduced
to equal the dollar amount of Before-Tax Contributions
or Cash Option Deferral or Employer Matching
Contributions of the Highly Compensated Employee with
the next highest dollar amount. This amount shall be
distributed to such Highly Compensated Employee.
However, if a lesser reduction when added to the total
dollar amount already distributed under this
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step would equal the total Excess Contributions or
Excess Aggregate Contributions, the lesser reduction
shall be distributed. If the total amount distributed is
less than the total Excess Contributions or Excess
Aggregate Contributions, the above process will be
repeated until the total dollar amount of Excess
Contributions or Excess Aggregate Contributions, as the
case may be, is distributed.
Once distribution of the total Excess Contributions or
Excess Aggregate Contributions is made, the
nondiscrimination tests of Code Sections 401(k)(3) or
401(m)(3) are deemed satisfied. In the event that any
Basic Before-Tax Contributions are returned as described
above, the amount of such Participant's Employer
Matching Contributions attributable to the returned
Basic Before-Tax Contributions shall be forfeited and
used to reduce Employer Matching Contributions.
(iii) ALLOCATING INCOME TO EXCESS CONTRIBUTIONS. Any returned
Excess Contributions shall be adjusted for allocable
gains or losses for the Plan Year in which such excess
contributions arose by multiplying the gains or losses
credited to the Participant's Basic and Supplemental
Before-Tax Contribution Accounts and Cash Option
Deferral Account for such Plan Year by a fraction, the
numerator of which is the Participant's returned Excess
Contributions for the Plan Year, and the denominator of
which is the sum of (i) the balance in the Participant's
Basic and Supplemental Before-Tax Contribution Accounts
and Cash Option Deferral Account as of the beginning of
the Plan Year, and (ii) the amount of Before-Tax
Contributions and Cash Option Deferrals credited to the
Participant's Total Account for the Plan Year.
(iv) ALLOCATING INCOME TO EXCESS AGGREGATE CONTRIBUTIONS. Any
returned excess aggregate contributions shall be
adjusted for allocable gains or losses for the Plan Year
in which such excess aggregate contributions arose by
multiplying the gains or losses credited to the
Participant's Employer Matching Contribution Account for
such Plan Year by a fraction, the numerator of which is
the Participant's returned Excess Aggregate
Contributions for the Plan Year, and the denominator of
which is the sum of (i) the balance in the Participant's
Employer Matching Contribution Account as of the
beginning of the Plan Year, and (ii) the amount of
Employer Matching Contributions credited to the
Participant's Total Account for the Plan Year.
15
<PAGE> 106
Excess Contributions and Excess Aggregate Contributions
(and income allocable thereto) shall be returned,
distributed, or, if applicable, forfeited, not later
than the last day of the Plan Year following the close
of the Plan Year in which such excess arose.
(g) For purposes of this Section, the "aggregate limit" for
any Plan Year shall mean a percentage equal to the
greater of (i) or (ii) below:
(i) The percentage equal to the sum of (A) and (B)
below:
(A) 125% of the greater of:
(1) The Actual Deferral Percentage for
Eligible Employees who are Nonhighly
Compensated Employees for the Plan
Year, or
(2) The Actual Contribution Percentage of
such Eligible Employees, and
(B) 2% plus the lesser of (A)(1) or (A)(2)
above. In no event, however, shall this
percentage exceed 200% of the lesser of
(A)(1) or (A)(2) above.
(ii) The percentage equal to the sum of (A) and (B)
below:
(A) 125% of the lesser of:
(1) The Actual Deferral Percentage for
Eligible Employees who are Nonhighly
Compensated Employees for the Plan
Year, or
(2) The Actual Contribution Percentage of
such Eligible Employees, and
(B) 2% of the greater of (A)(1) or (A)(2) above.
In no event, however, shall this percentage
exceed 200% of the greater of (A)(1) or
(A)(2) above.
The "aggregate limit" shall be calculated to the nearest
one-hundredth of one percent (.01%).
The "aggregate limit" shall be applied to reduce
allocations otherwise permissible for a Plan Year if
after application of paragraph (f) above the sum of the
average percentages described in paragraphs (d) and (e)
above applicable to the group of Eligible Employees who
are Highly
16
<PAGE> 107
Compensated Employees exceeds the "aggregate limit" for
such Plan Year.
The "aggregate limit" shall not apply to reduce
allocations otherwise permissible for a Plan Year unless
the Actual Deferral Percentage and the Actual
Contribution Percentage for Eligible Employees who are
Highly Compensated Employees for the Plan Year each
exceed 125% of the corresponding percentages determined
for Eligible Employees who are Nonhighly Compensated
Employees for the Plan Year.
The reduction of the Actual Contribution Percentage
and/or Actual Deferral Percentage of the group of
Eligible Employees who are Highly Compensated Employees
shall be applied to those Highly Compensated Employees
who are eligible to make Before-Tax Contributions or
Cash Option Deferrals, or are eligible to receive
Employer Matching Contributions. Reductions shall be
made in the manner described in paragraph (f) above to
the extent necessary to comply with the aggregate limit,
except that the reductions shall be applied first to
reduce Actual Contribution Percentages and then, if
necessary, to reduce Actual Deferral Percentages.
(h) The Committee shall maintain sufficient records to
demonstrate that the Plan satisfies the
nondiscrimination tests described in paragraphs (d), (e)
and (g) above".
26. Effective January 1, 1997, Section 12.6 is amended so that the first
sentence reads as follows:
"For purposes of the Plan, the term "leased employee" means any
person who would not otherwise be considered an Employee but who,
pursuant to an agreement between the Employer or an Affiliated
Employer and a leasing organization (within the meaning of Section
414(n)(2) of the Code) has performed services for the Employer or
Affiliated Employer on a substantially full time basis for a period
of at least one year, and such services are performed under the
direction and control of the Employer or Affiliated Employer."
17
<PAGE> 108
IN WITNESS WHEREOF, the Sponsoring Employer has caused this Amendment to be
executed by its duly elected officer this 31st day of December, 1997.
UST CORP.
Attest: /s/ Eric R. Fischer By: /s/ Linda J. Lerner
--------------------------- -------------------------
18
<PAGE> 109
FOURTH AMENDMENT TO THE
UST CORP. EMPLOYEE SAVINGS PLAN
WHEREAS, UST Corp. (the "Sponsoring Employer") maintains the UST Corp. Employee
Savings Plan (the "Plan") which was amended and restated effective July 1, 1996
for the benefit of its eligible employees and their beneficiaries; and
WHEREAS, the Sponsoring Employer reserves the right to amend the Plan at any
time in accordance with Section 13.1 of the Plan; and
WHEREAS, the Sponsoring Employer desires to amend the Plan to
a) recognize a portion of the commissions earned by certain employees, and
b) enhance the employer matching contribution to be an IRS safe harbor
formula;
NOW THEREFORE, the Plan is hereby amended effective January 1, 1999 in the
following ways:
1. Section 1.13 is hereby amended to add the following paragraph
immediately after the first paragraph thereof:
"Notwithstanding the foregoing, in the case of an Employee who is
specifically assigned to a formal commission-based incentive plan as
either a
a) Mortgage Originator,
b) The Investment Group at USTrust sales representative, or
c) UST Leasing Corp. sales representative,
Compensation shall be 80% of the sum of base pay plus commissions paid
to such Employee by an Employer and included in the income reported on
Federal Income Tax Form W-2. "Commission-based incentive plans" are
those that provide for variable payments directly related to the sale
of company services and products, and provide for payment on a
quarterly or more frequent basis."
2. Section 4.1 is hereby amended to change the phrase "6% of Compensation"
to "5% of Compensation" throughout.
3. Section 5.2 is hereby amended so that the first paragraph reads as
follows:
"As of each Valuation Date, an Employer Matching Contribution shall be
credited to the Employer Matching Contribution Account of each
Participant who made Basic Before-Tax Contributions to the Trust Fund
since the previous Valuation Date. The Employer Matching Contributions
made on behalf of each such
<PAGE> 110
Participant shall be based upon the Participant's Basic Before-Tax
Contributions and Compensation since the previous Valuation Date, and
shall be equal to the sum of (a) 100% of the Participant's Basic
Before-Tax Contributions which do not exceed 3% of Compensation, plus
(b) 50% of the Participant's Basic Before-Tax Contributions which
exceed 3% of Compensation."
4. Section 12.5 is amended to add the following paragraph to the beginning
thereof.
"This Section 12.5 shall only apply to the extent required by law."
IN WITNESS WHEREOF, the Sponsoring Employer has caused this Amendment to be
executed by its duly elected officer this 16th day of December, 1998.
UST CORP.
Attest: /s/ Kathleen Bruno By: /s/ Eric R. Fischer
--------------------------- ---------------------------
Kathleen Bruno Eric R. Fischer
Executive Vice President
<PAGE> 1
EXHIBIT 10(i)(i)
SECOND AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT
This Agreement is made by and between UST Corp., a Massachusetts
corporation, ("UST") and Neal F. Finnegan (the "Employee") as of the 1st day of
January, 1999 (the "Effective Date"), amending in part and restating that
certain First Amended and Restated Employment Agreement between the parties
dated as of the 21st day of November, 1995, as amended by the agreement between
the parties dated as of the 2nd day of January, 1997 (collectively, the "First
Amended Agreement"), which in turn amended and restated the agreement between
the parties dated as of the 20th day of April, 1993, as amended on July 13, 1993
and February 15, 1994 (collectively, the "Original Agreement").
WHEREAS, UST considers the establishment and maintenance of a sound and
vital management to be essential to the protection and enhancement of the best
interests of UST and its shareholders;
WHEREAS, on the date hereof, the Employee is President, Chief Executive
Officer ("CEO") and a member of the Board of Directors of UST (the "UST Board")
and has developed an intimate and thorough knowledge of UST's business methods
and operations; and
WHEREAS, the retention of the Employee's services for and on behalf of UST
is material to the preservation and enhancement of the value of UST's business;
and
WHEREAS, UST wishes to retain the Employee's services, and the Employee
wishes to continue in the employment of UST, on the terms and conditions
contained herein;
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual promises, terms, provisions and conditions contained in this Agreement,
the parties agree as follows:
1. EMPLOYMENT. Subject to the terms and conditions contained in this
Agreement, UST agrees to continue the employment of the Employee, and the
Employee agrees to continue in the service of UST.
2. TERM. Subject to earlier termination as provided hereafter, the Employee's
employment hereunder shall be for a term of three (3) years, commencing on the
Effective Date, which term may be extended or renewed only by a written
agreement signed by the Employee and a duly authorized representative of UST.
Notwithstanding the foregoing, in
1
<PAGE> 2
2
the event that this Agreement is in effect on the date of consummation of a
Change of Control, as defined in Section 5.g.ii below, this Agreement shall
automatically be extended on said date such that the remaining term of the
Agreement shall then be two (2) years, but this Agreement shall be renewable
thereafter only by a written agreement signed by the Employee and a duly
authorized representative of UST. The term of this Agreement, as from time to
time renewed or extended in accordance with this Section 2, is hereafter
referred to as "the term hereof" or "the term of this Agreement."
3. PERFORMANCE.
a. During the term hereof, the Employee shall hold the position of
President and CEO of UST, subject to the direction and control of the UST Board.
The Employee shall perform the duties and assume the responsibilities of such
positions and such other appropriate duties and responsibilities as may
reasonably be assigned from time to time by the UST Board or its designee. UST
shall propose to the shareholders of UST at each appropriate Annual Meeting of
such shareholders during the term hereof the reelection of the Employee as a
member of the UST Board, provided that the Employee is otherwise eligible for
such election. In addition, and without further compensation, the Employee shall
serve as a director and/or officer of one or more of the Affiliates and as a
member of committees of the UST Board and the boards of directors of the
Affiliates, if so elected or appointed from time to time.
b. During employment, the Employee shall devote his full business time and
best efforts, judgment, skill and knowledge exclusively to the advancement of
the interests of UST and the Affiliates and to the discharge of his duties and
responsibilities for them and shall perform all such duties and responsibilities
in good faith and in a manner consistent with banking industry standards. While
employed by UST, the Employee shall not be engaged in any other business
activity, except as approved by the UST Board or its designee in writing. It is
agreed, however, that the provisions of this Section 3.b shall not be violated
by the Employee's holding of directorships or related positions in charitable,
educational or not-for-profit organizations which do not involve continuous or
substantial time commitments or by passive personal investment activities,
provided that such positions and activities are not in conflict, and do not
otherwise interfere, with the Employee's duties and responsibilities to UST and
the Affiliates.
4. COMPENSATION. As compensation for all services performed for UST and the
Affiliates during the term of this Agreement:
a. BASE SALARY. During the term hereof, UST shall pay the Employee a base
salary at an annual rate of not less than Six Hundred Thousand Dollars
($600,000),
<PAGE> 3
3
which amount shall be subject to increase from time to time at the discretion of
the UST Board or its designee. The base salary, as adjusted from time to time in
accordance with this Section 4, is hereafter referred to as the "Base Salary."
b. SHORT TERM INCENTIVE COMPENSATION. The Employee shall be eligible to be
considered for short term incentive compensation with an annual target of not
less than one hundred percent (100%) of the Base Salary for calendar year 1999
and for each full calendar year thereafter during the term hereof. The
determination of whether bonus compensation will be granted and, if so, the
amount of any such bonus shall be determined by the UST Board in its discretion,
based on its assessment of the Employee's performance during the applicable
calendar year and taking into consideration the Employee's total compensation
(including but not limited to the value of the Restricted Stock, as hereafter
defined, granted him) in comparison with that of other chief executive officers
in businesses comparable to UST. The Employee shall not be eligible to
participate in any other bonus plan, program or arrangement of UST during the
term hereof unless expressly so authorized by the UST Board.
c. STOCK OPTIONS AND RESTRICTED STOCK.
i. All stock options granted to the Employee under the Original
Agreement and the First Amended Agreement have vested as of the Effective Date.
In addition, on the first business day following the Effective Date (i.e., on
January 4, 1999), UST shall grant to the Employee a non-qualified stock option
to purchase 360,000 shares of UST's Common Stock, which option shall be fully
vested on the date of grant and shall be and remain exercisable for a period of
five years from the date of grant, subject to the terms of UST's Stock
Compensation Plan as amended by UST from time to time (the "Plan") in the event
that the Employee's employment terminates prior to the expiration of the five
year exercise period and the option has not been exercised at the time of such
termination. The exercise price of all shares under said non-qualified stock
option shall be the fair market value on the date of grant. Except as otherwise
expressly provided herein, the option shall be governed by the terms of the
Plan. The Employee shall not otherwise be entitled to be granted stock options
during the period ending December 31, 2001. Any stock options granted the
Employee thereafter shall be at the discretion of the Compensation Committee of
the UST Board.
ii. Pursuant to the Original Agreement, the Employee has been
granted shares of UST Restricted Common Stock ("Restricted Stock") under the
Plan from which the restrictions have lapsed. Pursuant to the First Amended
Agreement, the Employee has been granted additional shares of Restricted Stock
under the Plan, from certain of which the restrictions have lapsed prior to the
Effective Date and from the
<PAGE> 4
4
remainder of which the restrictions shall lapse on January 4, 1999. On January
4, 1999, UST shall grant the Employee an additional 10,000 shares of Restricted
Stock under the Plan, from approximately one third of which shares the
restrictions shall lapse during the term hereof on each of the date of grant and
the first and second anniversaries of the date of grant. On each of January 4,
2000, and January 4, 2001, during the term hereof, UST shall grant the Employee
an additional 10,000 shares of Restricted Stock under the Plan, from which
shares the restrictions shall lapse as determined in the discretion of the UST
Board or the Compensation Committee thereof. Any additional shares of Restricted
Stock granted the Employee shall be at the discretion of the Compensation
Committee of the UST Board.
d. EMPLOYEE BENEFIT PLANS. During the term hereof, the Employee shall be
entitled to participate in any and all employee benefit plans from time to time
in effect for employees of UST generally, excluding only plans providing
payments and/or other benefits in the event of termination of employment. Such
participation shall be subject to the terms of the applicable plan documents,
generally applicable UST policies and the discretion of the UST Board or any
administrative or other committee provided for in or contemplated by such plan.
e. UST EXECUTIVE SERP. Notwithstanding anything to the contrary contained
in the UST Corp. Senior Executive Plan (the "SERP"), for purposes of determining
the Employee's Target Benefit, as that term is defined in Article III of the
SERP, the Employee's Credited Service shall be deemed to be as follows:
Age at Termination
of Employment Years of Credited Service
62 9
63 11
64 13
65 15
Notwithstanding the preceding schedule, however, in the event of a Change of
Control and subsequent termination of employment prior to the Employee
attaining age 63, Paragraph 1 of Section 10.07 of the SERP shall govern in
determining Credited Service and assumed age.
UST undertakes to dedicate cash to a trust that will fund the payment of SERP
obligations to the Employee.
f. EXECUTIVE PERQUISITES. The Employee shall receive an allowance of not
<PAGE> 5
5
less than Seven Hundred and Ninety Dollars ($790) per month which he shall use
to defray the cost of the business use of an automobile owned or leased by the
Employee. The Employee's annual dues and reasonable business expenses related to
UST's business at the Bay Club and the Union Club shall be reimbursed by UST.
Unless otherwise provided in this Agreement, the Employee shall be entitled to
participate in all programs and perquisites provided to executives of UST
generally, except to the extent such programs and perquisites are duplicative of
benefits provided to the Employee hereunder.
5. TERMINATION OF EMPLOYMENT. Notwithstanding the provisions of Section 2 above,
the Employee's employment under this Agreement shall terminate under the
following circumstances and, in that event, UST shall have only such obligations
to the Employee as are specified below under the applicable termination
provision of this Section 5:
a. UPON DEATH. In the event of the Employee's death during the term
hereof, the Employee's employment hereunder shall immediately and automatically
terminate. In such event, UST shall pay to the Employee's designated beneficiary
or, if no beneficiary has been designated by the Employee, to the Employee's
estate, Base Salary earned but unpaid, and vacation time accrued but unused,
through the date of death and any short-term incentive compensation awarded but
unpaid on the date of death.
b. AS A RESULT OF DISABILITY. In the event that the Employee becomes
disabled during the term hereof and, as a result, is unable to perform
substantially all of his duties for UST for more than one hundred and eighty
(180) days during any period of three hundred and sixty-five (365) days, UST may
terminate the Employee's employment without further obligation upon notice to
the Employee. In the event of such disability, the Employee will continue to
receive the Base Salary and benefits in accordance with Section 4 hereof until
the earlier of (i) the date the Employee becomes eligible for disability income
under UST's long-term disability or workers' compensation insurance plan or (ii)
the date his employment terminates.
c. BY UST FOR CAUSE. UST may terminate the Employee's employment for Cause
at any time upon notice to the Employee setting forth in reasonable detail the
nature of such Cause. The following shall constitute Cause for termination: (i)
the Employee's willful refusal to perform, or gross malfeasance in the
performance of, his duties or responsibilities on behalf of UST and the
Affiliates; (ii) the Employee's fraud, embezzlement or other material dishonesty
with respect to UST or any of the Affiliates; (iii) the Employee's gross
misconduct or (iv) the Employee's conviction of, or plea of no contest to, a
felony; provided, however, that, in the event of termination under clause (i) or
(iii) hereof, UST will give the Employee notice, in reasonable detail, of the
basis for termination and an opportunity of not more than (10) ten business days
to cure in a manner
<PAGE> 6
6
which reasonably assures UST that such event will not recur. In the event of
termination under this Section 5.c, UST shall have no further obligation to the
Employee, other than for Base Salary earned but unpaid, and vacation time
accrued but unused, through the date of termination and any short-term incentive
compensation awarded but unpaid on the date of termination. Employee's
participation in UST's employee benefit plans shall end as of the date of
termination, but termination shall not result in the loss of any benefits that
have vested under any such plan on or before the date of termination. Stock
options and Restricted Stock shall be governed by the terms of the Plan.
d. BY UST OTHER THAN FOR CAUSE. UST may terminate the Employee's
employment other than for Cause upon notice to the Employee under this
subsection d or under subsection g below, whichever is applicable. In the event
of such termination prior to, or more than two years following, a Change of
Control and provided that the Employee executes the release of claims attached
hereto and marked "Appendix A" (the "Employee Release") within twenty-one (21)
days of his receipt of notice of termination of employment and does not timely
revoke the Employee Release, UST shall pay the Employee Base Salary earned but
unpaid, and vacation time accrued but unused, through the date of termination
and any short-term incentive compensation awarded but unpaid on the date of
termination and, in addition, UST
i. shall pay the Employee severance pay in an amount equal to
twenty-four (24) months' Base Salary at the rate in effect on the date of
termination of the Employee's employment, which the Employee may elect to
receive (A) in a single lump sum, payable within thirty (30) days
following the effective date of the Employee Release or (B) as salary
continuation payable at UST's regular payroll periods and in accordance
with its regular payroll practices commencing on the next regular payday
immediately following the effective date of the Employee Release, but
retroactive to the date of termination;
ii. shall pay the Employee an amount equal to two times the
short-term incentive compensation which the Employee received for the last
full calendar year immediately preceding the date of termination of his
employment, payable within thirty (30) days following the effective date
of the Employee Release;
iii. shall cause to be vested all unvested stock options to purchase
UST Common Stock granted to the Employee and not yet exercised, expired,
surrendered or canceled and shall cause all restrictions to lapse on all
Restricted Stock held by the Employee; and
<PAGE> 7
7
iv. at the Employee's election, (A) shall continue to pay, for
twenty-four (24) months following the date of termination of the
Employee's employment or, if earlier, until the date the Employee is
covered under another employer's health plan that is comparable to that of
UST (the "Post-Employment Health Coverage Period"), that share of the
premium cost of the Employee's participation and that of his eligible
dependents in UST's group health plan as it pays for active employees of
UST and their eligible dependents generally OR (B) shall pay the Employee
a single lump sum payment equal to the amount that UST would have expended
if participation had been elected and continued for twenty-four (24)
months following the date of termination of the Employee's employment,
which lump sum shall be payable within thirty (30) days following the
effective date of the Employee Release, and the Employee and his eligible
dependents may exercise any rights they have under Sections 601-607 of
ERISA and Section 4980B of the Internal Revenue Code (collectively
referred to as "COBRA") to continue participation in the group health plan
at their cost, effective as of the date the Employee's employment
terminates. Should the Employee elect option (A) above, the period of any
continued health coverage to which the Employee and his eligible
dependents may be entitled under COBRA as a result of the Employee's
termination of employment will commence at the end of the above-defined
Post-Employment Health Coverage Period. Notwithstanding anything to the
contrary contained herein, the Employee may elect option (A) directly
above only if the Employee elects to receive payment under Section 5.d.i
in the form of salary continuation.
e. BY THE EMPLOYEE FOR GOOD REASON. The Employee may terminate employment
hereunder for Good Reason upon notice to UST setting forth in reasonable detail
the nature of such Good Reason. The following shall constitute Good Reason for
termination by the Employee: (i) failure of UST to continue the Employee in his
position as President and CEO of UST; (ii) a change adverse to the Employee in
the Employee's primary reporting relationship; (iii) material diminution in the
nature or scope of the Employee's responsibilities, duties or authority; (iv)
material failure of UST to provide the Employee compensation and benefits in
accordance with the terms of Section 4 hereof; or (v) a permanent transfer of
the Employee to a work site more than twenty-five (25) miles distant from his
work site on the Effective Date. In the event of termination in accordance with
this Section 5.e, UST shall provide the Employee Base Salary, short-term
incentive compensation, vesting of stock options, lapse of restrictions on
Restricted Stock and health plan benefits in accordance with Section 5.d hereof,
provided that the Employee executes
<PAGE> 8
8
the Employee Release within twenty-one (21) days of his notice of termination of
employment and provided further that the Employee does not timely revoke the
Employee Release.
f. BY THE EMPLOYEE OTHER THAN FOR GOOD REASON. The Employee may resign
employment other than for Good Reason at any time upon sixty (60) days' notice
to UST. In the event of such termination, UST shall have no further obligation
to the Employee, other than for Base Salary earned but unpaid, and vacation
time accrued but unused, through the date of termination and any short-term
incentive compensation awarded but unpaid on the date of termination.
g. UPON A CHANGE OF CONTROL.
i. If, upon a Change of Control (as defined in subsection g.ii
below), the Employee elects to terminate this Agreement by notice to UST or its
successor or if, upon a Change of Control or within two (2) years thereafter,
UST terminates the Employee's employment other than for Cause or the Employee
terminates his employment for Good Reason and if, within twenty-one (21) days of
the date the Employee or UST gives notice of termination of his employment, the
Employee executes the Employee Release and does not timely revoke it thereafter,
then, in lieu of any payment and benefits to which the Employee would otherwise
be entitled under Section 5.d or 5.e hereof, UST shall pay the Employee Base
Salary earned but unpaid, and vacation time accrued but unused, through the date
of termination and any short-term incentive compensation awarded but unpaid on
the date of termination and, in addition, UST shall provide the Employee the
following:
(1) UST shall pay the Employee an amount equal to thirty-six
(36) months' Base Salary at the rate in effect on the date of termination
of the Employee's employment, which the Employee may elect to receive (A)
in a single lump sum, payable within thirty (30) days following the
effective date of the Employee Release or (B) as salary continuation
payable at UST's regular payroll periods and in accordance with its
regular payroll practices commencing on the next regular payday following
the effective date of the Employee Release, but retroactive to the date of
termination.
(2) UST shall pay the Employee an amount equal to three times
the short-term incentive compensation which the Employee received for the
last full calendar year immediately preceding the date of termination of
his employment, payable within thirty (30) days following the effective
date of the Employee Release.
<PAGE> 9
9
(3) At the Employee's election, UST (A) shall continue to pay,
for the period of thirty-six months following termination of the
Employee's employment or, if earlier, until the date the Employee is
covered under another employer's health plan that is comparable to that of
UST (the "Change of Control Post-Employment Health Coverage Period"), that
share of the premium cost of the Employee's participation and that of his
eligible dependents in UST's group health plan as it pays for active
employees of UST and their eligible dependents generally OR (B) shall pay
the Employee a single lump sum payment equal to the amount that UST would
have expended if participation had been elected and continued for a period
of thirty-six (36) months, which lump sum shall be payable within thirty
(30) days following the effective date of the Employee Release, and the
Employee and his eligible dependents may exercise their rights under COBRA
to continue participation in the group health plan at their cost effective
as of the date his employment terminates. Should the Employee elect option
(A) above, the period of any continued health coverage to which the
Employee and his eligible dependents may be entitled under COBRA as a
result of the Employee's termination of employment will commence at the
end of the above-defined Change of Control Post-Employment Health Coverage
Period. Notwithstanding anything to the contrary contained herein, the
Employee may only elect option (A) directly above if the Employee elects
to receive payment under Section 5.g.i.(1) in the form of salary
continuation.
(4) Upon a Change of Control as defined in the Plan, the
vesting of any Restricted Stock or stock options to purchase UST Common
Stock granted to the Employee and not yet exercised, expired, surrendered
or canceled shall be in accordance with the Plan.
(5) If in connection with a Change of Control as defined in
the Plan any other employees who hold stock options under the Plan or
Restricted Stock will have their options or Restricted Stock or both
cashed out, whether under the Plan or otherwise, the Employee shall have
the right to have all or any of such options (including any non-qualified
options granted pursuant to Section 4.c hereof) or Restricted Stock or
both cashed out on the same basis and at the same time the options and
Restricted Stock of such other employees are cashed out.
ii. Except as otherwise provided with respect to subparagraphs
g.i.(4) and g.i.(5) directly above, a "Change of Control" shall be deemed to
have been consummated if hereafter
(A) any "person", as such term used in Section 13(d) and
<PAGE> 10
10
14(d) of the Securities Exchange Act of 1934 as amended (the "Exchange
Act"), other than UST or any of the Affiliates or any trustee or other
fiduciary holding securities under an employee benefit plan of UST or any
of the Affiliates, becomes a beneficial owner (within the meaning of Rule
13d-3, as amended, as promulgated under the Exchange Act), directly or
indirectly, of securities representing twenty-five percent (25%) or more
of the combined voting power of UST's then outstanding securities; or
(B) during any period of two consecutive years (not including
any period prior to the Effective Date), individuals who at the beginning
of such period constitute the Board, and any new director [ other than a
director designated by a person who has entered into an agreement with UST
to effect a transaction described in clause (A), (C) or (D) of this
Section 5.g.(ii) ] whose election by the Board or nomination for election
by UST's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously
so approved, cease for any reason to constitute at least a majority
thereof; or
(C) there occurs a merger or consolidation of UST with any
other corporation, other than a merger or consolidation which would result
in the voting securities of UST outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than eighty
percent (80%) of the combined voting power of the voting securities of UST
or such surviving entity outstanding immediately after such merger or
consolidation; provided, however, that a merger or consolidation effected
to implement a recapitalization of UST (or similar transaction) in which
no "person" (as hereinabove defined) acquires more than twenty-five
percent (25%) of the combined voting power of UST's then outstanding
securities shall not constitute a Change of Control; or
(D) the stockholders of UST approve a plan of a complete
liquidation of UST; or
(E) there occurs a closing of a sale or other disposition by
UST of all or substantially all of its assets.
6. POST-AGREEMENT EMPLOYMENT. In the event the Employee remains in the employ of
UST or any of the Affiliates following termination of this Agreement, by the
expiration of the term or otherwise, then such employment shall be at will.
<PAGE> 11
11
7. EFFECT OF TERMINATION. Provisions of this Agreement shall survive any
termination of this Agreement, by expiration of the term or otherwise, if so
provided herein or if necessary or desirable fully to accomplish the purposes of
such provision, including without limitation the obligations of the Employee
under Sections 8 and 9 hereof.
8. CONFIDENTIAL INFORMATION. The Employee acknowledges that UST continually
develops Confidential Information, that the Employee may develop Confidential
Information for UST and that the Employee may learn of Confidential Information
during the course of employment. The Employee agrees to comply with the policies
and procedures of UST for protecting Confidential Information and agrees that he
shall never disclose to any person, corporation or other entity, except as
required for the proper performance of his regular duties for UST, and shall
never use for his own benefit or that of another, any Confidential Information
obtained by the Employee incident to his employment or other association with
UST or any of the Affiliates. The Employee understands that this restriction
will continue to apply throughout his employment and after his employment
terminates, regardless of the reason for such termination; provided, however,
that the obligations contained in this Section 8 shall not apply to any
Confidential Information that becomes publicly known through no fault of the
Employee or that the Employee is otherwise required by law or regulation to
disclose.
9. NON-COMPETITION AND NON-SOLICITATION.
a. In the event the Employee leaves his employment with UST without Good
Reason during the term hereof or is discharged during the term hereof for one or
more of the causes set forth in Section 5.c hereof, the Employee agrees that he
shall not enter into the employment of any other financial institution or entity
in the Eastern Massachusetts banking market (as defined by the Federal Reserve
Bank of Boston) having assets in excess of $1 billion for the period of two (2)
years immediately following the date of termination of his employment.
b. The Employee further agrees that for a period of two (2) years
following termination of his employment pursuant to Section 5 c. or 5 f hereof,
he will not directly or indirectly, for his own account or for the account of
others, (i) solicit the business of persons whom he knows to be customers of UST
or any of the Affiliates with regard to the provision of any type of financial
service provided by UST or any of the Affiliates or (ii) after notice from UST
that any one or more persons or entities are customers, commence or continue the
solicitation of such business from any such person or entity or (iii) solicit or
hire executive personnel of UST or any of the Affiliates for the benefit of any
entity controlled by the Employee or by which the Employee is employed or from
which the
<PAGE> 12
12
Employee receives any form of fee or compensation.
10. REMEDIES. The Employee acknowledges that, if he were to breach any of the
provisions of Section 8 or Section 9 of this Agreement, the harm to UST would be
irreparable. The Employee therefore agrees that, in addition to any other
remedies available to it, UST shall be entitled to obtain preliminary and
permanent injunctive relief against any such breach, without having to post
bond.
11. TAXES. All payments made to the Employee under this Agreement shall be
reduced by any tax or other amount required to be withheld by UST under any
applicable withholding law.
12. REDUCTIONS. Notwithstanding anything to the contrary contained in this
Agreement, the payments and benefits to which the Employee would be entitled
pursuant to Section 5.g hereof or otherwise as a result of a Change of Control
shall be reduced to the maximum amount for which UST will not be limited in its
deduction pursuant to Section 280G of the Internal Revenue Code of 1986, as
amended, or any successor provision. Any such reduction shall be applied to the
amounts due to the Employee in such manner as the Employee may reasonably
specify within thirty (30) days following notice from UST of the need for such
reduction or, if the Employee fails to so specify timely, as determined by UST.
13. ASSIGNMENT. UST may assign its rights and obligations under this Agreement
without the consent of the Employee in the event that UST shall hereafter effect
a reorganization, consolidate with, or merge into, any other person, corporation
or other entity or transfer all or substantially all of its assets to any other
person, corporation or other entity. UST requires the personal services of the
Employee and he may not assign this Agreement. This Agreement shall inure to the
benefit of and be binding upon UST and the Employee and their respective
successors, executors, administrators, heirs and permitted assigns.
14. INDEMNIFICATION. UST shall, and UST shall use its best efforts to cause the
Affiliates to, indemnify the Employee to the maximum extent permitted by law and
regulation in connection with any liability, expense or damage which the
Employee incurs or to which the Employee is exposed as a result of the
Employee's employment and positions with UST and the Affiliates as contemplated
by this Agreement, provided that the Employee shall not be indemnified with
respect to any matter as to which he shall have been adjudicated in any
proceeding not to have acted in good faith in the reasonable belief that his
action was in the best interest of UST and the Affiliates. UST, on behalf of
itself and the Affiliates, hereby confirms that the occupancy of all offices and
positions which in
<PAGE> 13
13
the future are or were occupied or held by the Employee have been so occupied or
held at the request of and for the benefit of UST and the Affiliates for
purposes of the Employee's entitlement to indemnification under applicable
provisions of the respective articles of organization and/or other similar
documents of UST and the Affiliates.
15. DEFINITIONS. Words or phrases which are initially capitalized or are within
quotation marks shall have the meanings provided in this Section 15 and as
provided elsewhere herein. For purposes of this Agreement, the following
definitions apply:
a. "Affiliates" means all persons and entities directly or indirectly
controlling, controlled by or under common control with UST, where control may
be by management authority or equity interest.
b. "Confidential Information" means any and all information of UST and the
Affiliates that is not generally known by others with whom any of them competes
or does business, or with whom any of them plans to compete or do business,
including without limitation any and all information concerning the identity and
special needs of the customers of UST and the Affiliates and the people and
organizations with whom UST or any of the Affiliates has business relationships.
Confidential Information also includes any information received by UST or any of
the Affiliates from others with any understanding, express or implied, that it
will not be disclosed.
16. MISCELLANEOUS. This Agreement sets forth the entire agreement between UST
and the Employee and, except as otherwise expressly provided herein, supersedes
all prior communications, agreements and understandings, whether written or
oral, with respect to the Employee's employment. The headings and captions
contained herein are for convenience of reference only and are not part of this
Agreement. This Agreement may not be modified or amended, and no breach of this
Agreement shall be deemed to be waived, unless agreed to in writing by the
Employee and UST. This is a Massachusetts contract and shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts.
[Remainder of page left blank intentionally.]
<PAGE> 14
14
17. NOTICES. Any notices provided for in this Agreement shall be in writing and
shall be effective when delivered in person or deposited in the United States
mail, postage prepaid, and addressed to the Employee at his last known address
on the books of UST or, in the case of UST, at its main office, attention of the
Senior Vice President, Human Resources with a copy to the General Counsel of
UST.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by UST, by its duly authorized representative, and by the Employee,
as of the date first written above.
THE EMPLOYEE UST CORP.
/s/ Neal F. Finnegan By:/s/ Donald C. Dolben
-------------------- -----------------------
Neal F. Finnegan Donald C. Dolben
Chairman, Compensation
Committee and authorized signer
<PAGE> 15
15
APPENDIX A
RELEASE OF CLAIMS
FOR AND IN CONSIDERATION OF the special payments to be made to me in
connection with my separation of employment, as set forth in the Second Amended
and Restated Executive Employment Agreement between UST Corp. and me dated as of
the 1st day of January, 1999 (the "Employment Agreement"), I, on my own behalf
and on behalf of my heirs, beneficiaries and representatives and all others
connected with me, hereby release and forever discharge UST Corp. ("UST"), the
Affiliates (as defined in the Employment Agreement), and all of their respective
officers, directors, employees, agents, representatives, successors and assigns
(all collectively, the "Released"), both individually and in their official
capacities, from any and all liabilities, claims, demands, actions and causes of
action of any type (all collectively "Claims") which I have had in the past, now
have, or might now have, through the date of my execution of this Release of
Claims, in any way resulting from, arising out of or connected with my
employment or its termination or pursuant to any federal, state or local
employment law, regulation or other requirement (including without limitation
Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in
Employment Act, as amended, the Americans with Disabilities Act, as amended, and
the Massachusetts fair employment practices act, as amended).
Excluded from the scope of this Release of Claims is (i) any claim arising
hereafter under the terms of the Employment Agreement or under the terms of any
of UST's employee qualified and non-qualified benefit plans (including without
limitation UST's employee pension plan, profit sharing plan or stock ownership
plan) and (ii) any right of indemnification or contribution pursuant to the
Articles of Organization or By-Laws of UST that I have or hereafter acquire if
any claim is asserted or proceedings are brought against me by any governmental
or regulatory agency, or by any customer, creditor, employee or shareholder of
UST or any other person or entity, or by any self-regulatory organization, stock
exchange or the like, related or allegedly related to my having been an officer
or employee of UST or to any of my activities as an officer or employee of UST.
By acceptance of or reliance on this Release of Claims, UST promises that
neither it nor any of the other Released who are Affiliates of UST will take any
action that is designed, specifically as to me or with respect to a class of
similarly situated former employees, to reduce or abrogate, or may reasonably be
expected to result in an abridgment or elimination of, any rights under any
policy or policies of directors and officers liability insurance affording
coverage to former officers and in effect from time to time, unless any such
abridgment or elimination of rights is also generally applicable to then-current
officers and employees of UST.
<PAGE> 16
16
In signing this Release of Claims, I acknowledge that I have had at least
twenty-one (21) days from the date of my receipt of notice of termination of my
employment (or, if applicable, the date I gave such notice to UST) to consider
the terms of this Release of Claims, that I am encouraged by UST to seek the
advice of an attorney prior to signing this Release of Claims and that I am
signing this Release of Claims voluntarily and with a full understanding of its
terms. I understand that I may revoke this Release of Claims at any time within
seven (7) days of the date of my signing by written notice to UST, at its main
office, attention of the Senior Vice President, Human Resources, and that this
Release of Claims will take effect only upon the expiration of such seven-day
revocation period and only if I have not timely revoked it.
IN WITNESS WHEREOF, I have set my hand and seal on the date written below.
Signature: _________________________________
Date Signed: _______________________________
<PAGE> 1
EXHIBIT 10(i)(ii)
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (hereafter referred to as this
"Agreement") is made by and between UST Corp., a Massachusetts corporation, (the
"Company") and Timothy J. Hansberry (the "Employee") as of the 10th day of
August, 1998 (the "Effective Date").
In consideration of the mutual promises, terms and conditions contained
in this Agreement, the parties agree as follows:
1. EMPLOYMENT. The Company agrees to employ the Employee, and the
Employee agrees to accept employment, subject to the terms and conditions
contained in this Agreement.
2. TERM. Subject to earlier termination, as provided hereafter, the
Employee's employment hereunder shall be for an initial term commencing on the
Effective Date and ending on January 4, 2000 (the "Initial Term"), and shall
automatically renew thereafter for a first renewal term which shall expire on
August 9, 2001; provided, however, that the Company, at its option, may elect to
extend the first renewal term beyond August 9, 2001 to the expiration date of
any employment agreement between the Company and Mr. Neal F. Finnegan with an
effective date on or about January 5, 2000. Upon the expiration of the first
renewal term of this Agreement, this Agreement shall automatically renew
thereafter for successive terms of one year each, unless either party gives
notice to the other at least sixty (60) days prior to the expiration of the
first renewal term or any subsequent renewal term that this Agreement shall not
renew. Notwithstanding the foregoing, in the event that this Agreement is in
effect on the date of consummation of a Change of Control, as defined in Section
5.g.ii below, this Agreement shall automatically be extended on said date such
that the remaining term of the Agreement shall then be two (2) years and, upon
the expiration of that extension, shall thereafter resume automatic renew for
successive terms of one year each, unless either party gives notice to the other
at least sixty (60) days prior to the expiration of the extension or any
subsequent renewal term that this Agreement shall not renew. The term of this
Agreement, as from time to time renewed or extended in accordance with this
Section 2, is hereafter referred to as "the term hereof" or "the term of this
Agreement."
3. PERFORMANCE.
a. During the term hereof, the Employee shall serve the
Company as its Vice Chairman and Chief Operating Officer and as President and
Chief Operating Officer of USTrust and, if so elected or appointed from time to
time, shall also serve as a director of the Company or as a director or officer
of one or more of the Company's Affiliates, as defined in Section 15, below. The
Employee shall perform the duties and assume the responsibilities of such
positions and such other appropriate duties and responsibilities as may be
assigned by the Board of Directors of the Company (the "Board") or its
designees. All such services shall be rendered by the Employee in good faith and
in a manner consistent with banking industry standards.
<PAGE> 2
b. During employment, the Employee shall devote his full
business time and best efforts, judgment, skill and knowledge exclusively to the
advancement of the interests of the Company, USTrust and any other Affiliates of
the Company with which he holds a position or office and to the discharge of his
duties and responsibilities for those entities. While employed by the Company or
any of its Affiliates, the Employee shall not be engaged in any other business
activity, except with the written approval of the Board or its designee or of
the President of the Company. It is agreed, however, that the provisions of this
Section 3.b shall not be violated by the Employee's holding of directorships or
related positions in charitable, educational or not-for-profit organizations
which do not involve continuous or substantial time commitments or by passive
personal investment activities, provided that such positions and activities are
not in conflict, and do not otherwise interfere, with the Employee's duties and
responsibilities to the Company, USTrust or any of the Company's other
Affiliates.
4. COMPENSATION.
a. BASE SALARY. As compensation for all services performed for
the Company and its Affiliates during the term of this Agreement, the Company
shall pay the Employee a base salary at an annual rate of not less than Three
Hundred and Twenty-Five Thousand Dollars ($325,000), subject to increase from
time to time by the Company in its discretion. The Employee's base salary, as
from time to time increased, is hereafter termed the "Base Salary."
b. BONUS. During the term hereof, the Employee shall be
eligible to participate in the Company's annual incentive plan for executives,
as in effect from time to time, in accordance with its terms. The Employee shall
not be eligible to participate in any other bonus plan, program or arrangement
of the Company or USTrust during the term hereof unless expressly so authorized
by the Board.
c. AUTOMOBILE ALLOWANCE. The Employee shall receive an
allowance of Seven Hundred and Ninety Dollars ($790) per month which he shall
use to defray the costs of the business use of an automobile owned or leased by
the Employee.
d. DUES AND EXPENSES. The Employee's annual dues and
reasonable business expenses related to business of the Company, USTrust and the
Company's other Affiliates at the Harvard Club and the Union Club shall also be
reimbursed by the Company.
e. STOCK OPTIONS. The Employee shall be granted restricted
stock and stock options in accordance with the vote of the Compensation
Committee of the Board on May 19, 1998, which grant shall be subject to an
agreement between the Employee and the Company on terms comparable to those
generally offered to executive officers of the Company in connection with the
grant of restricted stock and/or stock options (the "Stock Compensation
Agreement") and the Company's Stock Compensation Plan, as amended by the Company
from time to time (the "Stock Compensation Plan").
f. EMPLOYEE BENEFITS. During the term hereof, the Employee
shall be entitled
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<PAGE> 3
to participate in any and all employee benefit plans from time to time in effect
for employees of the Company generally or for executive officers of the Company
generally, including without limitation the Company's Supplemental Retirement
Benefits Plan(s), but excluding plans providing payments and/or other benefits
in the event of termination of employment. Such participation shall be subject
to the terms of the applicable plan documents, generally applicable Company
policies and the discretion of the Board or any administrative or other
committee provided for in or contemplated by such plan.
5. TERMINATION OF EMPLOYMENT. Notwithstanding the provisions of Section
2 above, the Employee's employment under this Agreement shall terminate under
the following circumstances and, in that event, the Company shall have only such
obligations to the Employee as are specified below under the applicable
termination provision:
a. UPON DEATH. In the event of the Employee's death during the
term hereof, the Employee's employment hereunder shall immediately and
automatically terminate. In such event, the Company shall pay to the Employee's
designated beneficiary or, if no beneficiary has been designated by the
Employee, to the Employee's estate, Base Salary earned but unpaid through the
date of termination, any bonus awarded but not yet paid and pay for any vacation
time accrued but not used through the date of termination. .
b. AS A RESULT OF DISABILITY. In the event that the Employee
becomes disabled during the term hereof and, as a result, is unable to perform
substantially all of his/her duties for the Company for more than one hundred
and eighty (180) days during any period of three hundred and sixty-five (365)
days, the Company may terminate the Employee's employment without further
obligation upon notice to the Employee. In the event of such disability, the
Employee will continue to receive the Base Salary and benefits in accordance
with Section 4 hereof until the earlier of the date the Employee becomes
eligible for disability income under the Company's long-term disability or
workers' compensation insurance plan or the date his employment terminates.
c. BY THE COMPANY FOR CAUSE. The Company may terminate the
Employee's employment for Cause at any time upon notice to the Employee. The
following, as determined by the Board in its reasonable judgment, shall
constitute Cause for termination: (i) the Employee's willful failure to perform,
or gross negligence in the performance of, his duties or responsibilities on
behalf of the Company, USTrust and, as applicable, other Affiliates of the
Company; (ii) the Employee's willful violation of any provision of federal or
state banking or securities law; (iii) the Employee's gross misconduct; (iv) the
Employee's fraud, embezzlement or other material dishonesty with respect to the
Company, USTrust or any of the Company's other Affiliates or (v) his conviction
of, or plea of no contest to, a felony; provided, however, in the event of Cause
arising under clause (i), (ii) or (iii) of this Section 5.c, that the Company
has given the Employee notice, setting forth in reasonable detail the nature of
such Cause, and ten business days' opportunity to cure and the Employee has
failed to effect a cure within that ten-day period in a manner which reasonably
assures the Company that such Cause will not recur. In the event of termination
hereunder, the Company shall have no further obligation to the Employee, other
than
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<PAGE> 4
for Base Salary earned but unpaid through the date of termination, any bonus
awarded but not yet paid and pay for any vacation time accrued but not used
through the date of termination.
d. BY THE COMPANY OTHER THAN FOR CAUSE. The Company may
terminate the Employee's employment other than for Cause upon notice to the
Employee under this subsection d or under subsection g below, whichever is
applicable. In the event of such termination prior to, or more than two years
following, a Change of Control and provided that the Employee executes the
release of claims attached hereto and marked "A" (the "Employee Release") within
twenty-one (21) days of his receipt of notice of termination of employment and
does not timely revoke the Employee Release, the Company:
i. shall pay the Employee severance pay in an amount equal to
eighteen (18) months' Base Salary at the rate in effect on the date of
termination, which the Employee may elect to receive (A) in a single
lump sum, payable within thirty (30) days following the effective date
of the Employee Release or (B) as salary continuation payable at the
Company's regular payroll periods and in accordance with its regular
payroll practices commencing on the next regular payday immediately
following the effective date of the Employee Release, but retroactive
to the date of termination and,
ii. at the Employee's election, (A) shall continue to pay, for
the period of eighteen (18) months following termination of the
Employee's employment or, if earlier, until the date the Employee is
covered under another employer's health plan that is comparable to that
of the Company (the "Post-Employment Health Coverage Period"), that
share of the premium cost of Employee's participation and that of his
eligible dependents in the Company's group health plan as it pays for
active employees of the Company and their eligible dependents generally
OR (B) shall pay the Employee a single lump sum payment equal to the
amount that the Company would have expended if participation had been
elected and continued for a period of eighteen (18) months, which lump
sum shall be payable within thirty (30) days following the effective
date of the Employee Release, and the Employee and his eligible
dependents may exercise any rights they have under Sections 601-607 of
ERISA and Section 4980B of the Internal Revenue Code (collectively
referred to as "COBRA") to continue participation in the group health
plan at their cost, effective as of the date the Employee's employment
terminates. Should the Employee elect option (A) above, the period of
any continued health coverage to which the Employee and his eligible
dependents may be entitled COBRA as a result of the Employee's
termination of employment will commence at the end of the above-defined
Post-Employment Health Coverage Period. Notwithstanding anything to the
contrary contained herein, the Employee may elect option (A) directly
above only if the Employee elects to receive payment under Section
5.d.i., above, in the form of salary continuation and,
iii. in addition to the above, shall pay the Employee any Base
Salary earned but unpaid through the date of termination, any bonus
awarded but not yet paid and pay for any vacation time accrued but used
through the date of termination.
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<PAGE> 5
e. BY THE EMPLOYEE FOR GOOD REASON. The Employee may terminate
employment hereunder for Good Reason upon notice to the Company setting forth in
reasonable detail the nature of such Good Reason. The following shall constitute
Good Reason for termination by the Employee: (i) failure of the Company to
continue the Employee in his position as the Company's Vice Chairman and Chief
Operating Officer and as President and Chief Operating Officer of USTrust; (ii)
a change adverse to the Employee in the Employee's primary reporting
relationship; (iii) material diminution in the nature or scope of the Employee's
responsibilities, duties or authority; (iv) material failure of the Company to
provide the Employee Base Salary and benefits in accordance with the terms of
Section 4 hereof; or (v) a permanent transfer of the Employee to a work site
more than twenty-five miles distant from his work site immediately following the
Effective Date. In the event of termination in accordance with this Section 5.e,
the Company shall provide the Employee Base Salary and health plan benefits in
accordance with Section 5.d hereof, provided that the Employee executes the
Employee Release within twenty-one (21) days of his notice of termination of
employment and provided further that the Employee does not timely revoke the
Employee Release. In addition to the payments and benefits to be provided the
Employee in accordance with this Section 5.e, the Employee shall be entitled to
receive Base Salary earned but unpaid through the date of termination, any bonus
awarded but not yet paid and pay for any vacation time accrued but used through
the date of termination.
f. BY THE EMPLOYEE OTHER THAN FOR GOOD REASON. The Employee
may resign employment other than for Good Reason at any time upon ninety (90)
days' notice to the Company. In the event of such termination, the Company shall
have no further obligation to the Employee, other than for Base Salary earned
but unpaid through the date of termination, any bonus awarded but not yet paid
and pay for any vacation time accrued but not used as of the date of
termination.
g. UPON A CHANGE OF CONTROL.
i. Upon a Change of Control, as defined in Section
5.g.ii, below, the Employee shall be entitled to terminate this Agreement by
notice to the Company or its successor, and in such event, and provided the
Employee executes the Employee Release within twenty-one (21) days of the date
he gives notice of termination of his employment and does not timely revoke it,
the Employee shall be entitled to pay and benefits in accordance with Section
5.g.ii below.
ii. If a Change of Control occurs and (A) the
successor to the Company does not expressly assume the Company's obligations
under this Agreement or (B) within two (2) years following such Change of
Control, the Company terminates the Employee's employment other than for Cause,
or the Employee terminates his employment for Good Reason, and, in any such
event, the Employee executes the Employee Release within twenty-one (21) days of
the date of notice of termination of his employment and does not
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<PAGE> 6
timely revoke it, then, in lieu of any payment or other benefits to which the
Employee would otherwise be entitled under Section 5.d or 5.e hereof, the
Company
(1) shall provide the Employee a cash
severance payment equal to 2.99 times his "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended,
exclusive of his W-2 earnings resulting from the exercise of stock
options, which cash severance payment shall be payable in one lump sum
within five (5) business days following the effective date of the
Employee Release and,
(2) at the Employee's election, (A) shall
continue to pay, during the Post-Employment Health Coverage Period,
that share of the premium cost of Employee's participation and that of
his eligible dependents in the Company's group health plan as it pays
for active employees of the Company and their eligible dependents
generally OR (B) shall pay the Employee a single lump sum payment equal
to the amount that the Company would have expended if participation had
been elected and continued for a period of eighteen (18) months, which
lump sum shall be payable within thirty (30) business days following
the effective date of the Employee Release, and the Employee and his
eligible dependents may exercise their rights under COBRA to continue
participation in the group health plan at their cost effective as of
the date his employment terminates. Should the Employee elect option
(A) above, the period of any continued health coverage to which the
Employee and his eligible dependents may be entitled under COBRA as a
result of the Employee's termination of employment will commence on the
date immediately following termination of his employment.
(3) Upon a Change of Control as defined in
the Company's Stock Compensation Plan as amended by the Company from
time to time, the vesting of any Company Restricted Common Stock
("Restricted Stock") or stock options to purchase Company Common Stock
granted to the Employee and not yet exercised, expired, surrendered or
canceled shall be in accordance with the Stock Compensation Plan.
(4) If in connection with a Change of
Control as defined in the Stock Compensation Plan any other employees
who hold stock options under that Plan or Restricted Stock will have
their options or Restricted Stock or both cashed out, whether under the
Stock Compensation Plan or otherwise, the Employee shall have the right
to have all or any of his options or Restricted Stock or both cashed
out on the same basis and at the same time the options and Restricted
Stock of such other employees are cashed out.
(5) In addition to the payments and/or
benefits to be provided the Employee under Subsections (1) and (2) of
this Section 5.g.ii, the Employee shall be entitled to receive Base
Salary earned but unpaid through the date of termination, any bonus
awarded but not yet paid and pay for any vacation time accrued but used
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<PAGE> 7
the date of termination.
iii. Except as otherwise provided with respect to
subparagraphs g.ii.(3) and g.ii.(4) directly above, a "Change of Control" shall
be deemed to have been consummated if hereafter
(A) any "person", as such term used in
Section 13(d) and 14(d) of the Securities Exchange Act of 1934 as
amended (the "Exchange Act") other than the Company or any of its
Affiliates or any trustee or other fiduciary holding securities under
an employee benefit plan of the Company or any of its Affiliates,
becomes a beneficial owner (within the meaning of Rule 13d-3, as
amended, as promulgated under the Exchange Act), directly or
indirectly, of securities representing twenty-five (25%) percent or
more of the combined voting power of the Company's then outstanding
securities; or
(B) during any period of two consecutive
years (not including any period prior to the Effective Date),
individuals who at the beginning of such period constitute the Board,
and any new director [other than a director designated by a person who
has entered into an agreement with the Company to effect a transaction
described in clause (A), (C) or (D) of this Section 6.g.iii] whose
election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election
was previously so approved, cease for any reason to constitute at least
a majority thereof; or
(C) there occurs a merger or consolidation
of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than eighty percent (80%) of
the combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation; provided, however, that a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no "person" (as hereinabove defined) acquires
more than twenty-five percent (25%) of the combined voting power of the
Company's then outstanding securities shall not constitute a Change of
Control; or
(D) the stockholders of the Company approve
a plan of a complete liquidation of the Company; or
(E) there occurs a closing of a sale or
other disposition by the Company of all or substantially all of the
Company's assets.
h. UPON EXPIRATION OF THE TERM HEREOF. Notice by the Company
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pursuant to Section 2 hereof that this Agreement shall not renew shall be
treated as termination by the Company other than for Cause pursuant to Section
5.d. Notice by the Employee pursuant to Section 2 hereof that this Agreement
shall not renew shall be treated as a termination by the Employee of his/her
employment other than for Good Reason.
6. CONFIDENTIAL INFORMATION. The Employee acknowledges that the Company
and its Affiliates continually develops Confidential Information, as defined in
Section 15 below, that the Employee may develop Confidential Information for the
Company and its Affiliates and that the Employee may learn of Confidential
Information during the course of employment. The Employee agrees to comply with
the policies and procedures of the Company and USTrust for protecting
Confidential Information and agrees that he shall never disclose to any person,
corporation or other entity, except as required for the proper performance of
his regular duties for the Company, USTrust and the Company's other Affiliates,
and shall never use for his own benefit or that of another, any Confidential
Information obtained by the Employee incident to his employment or other
association with the Company, USTrust or any of the Company's other Affiliates.
The Employee understands that this restriction will continue to apply throughout
his employment and after his employment terminates, regardless of the reason for
such termination; provided, however, that the obligations contained in this
Section 6 shall not apply to any Confidential Information that becomes publicly
known through no fault of the Employee and shall not prevent the Employee from
disclosing Confidential Information as required by law or regulation.
7. NON-COMPETITION. The Employee agrees that, in the event that he
leaves his employment without Good Reason during the term hereof or is
discharged during the term hereof for Cause, he will not enter into the
employment of any other financial institution or entity in Eastern Massachusetts
(as defined by the Federal Reserve Bank of Boston) having assets in excess of $1
billion for a period equal to the balance of the term provided for herein or for
a period of six months, whichever is greater. The Employee further agrees that,
for a period of two years following such termination of his employment, he will
not directly or indirectly, for his own account or for the account of others,
(i) solicit the business of persons or entities whom he knows to be customers of
the Company or any of its Affiliates with regard to the provision of any type of
financial service provided by the Company or any of its Affiliates or (ii) after
notice from the Company that any person or entity is a customer, commence or
continue the solicitation of such business from such person or entity or (iii)
solicit or hire executive personnel of the Company or any of its Affiliates for
the benefit of any entity controlled by the Employee or by which the Employee is
employed or from which the Employee receives any form of fee or compensation.
8. REMEDIES. The Employee acknowledges that, if he were to breach any
of the provisions of Section 6 or Section 7 of this Agreement, the harm to the
Company and its Affiliates would be irreparable. The Employee therefore agrees
that, in addition to any other remedies available to it, the Company and its
Affiliates shall be entitled to obtain preliminary and permanent injunctive
relief against any such breach, without having to post bond, and to
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recover any and all costs and expenses incurred in enforcing this Agreement. In
the event that any provision of Section 6 or Section 7 hereof shall be
determined by any court of competent jurisdiction to be unenforceable by reason
of its being extended over too great a time, too large a geographic area or too
great a range of activities, such provision shall be deemed to be modified to
permit its enforcement to the maximum extent permitted by law.
9. TAXES. All payments made to the Employee under this Agreement shall
be reduced by any tax or other amount required to be withheld by the Company
under applicable law.
10. REDUCTIONS. Notwithstanding anything to the contrary contained in
this Agreement, (a) any and all payments and benefits to be provided to the
Employee hereunder are subject to reduction to the extent required by applicable
statutes, regulations, rules and directives of federal, state and other
governmental and regulatory bodies having jurisdiction over the Company and/or
any of its Affiliates and (b) the payments and benefits to which the Employee
would be entitled pursuant to Section 5.g hereof or otherwise as a result of a
Change of Control shall be reduced to the maximum amount for which the Company
will not be limited in its deduction pursuant to Section 280G of the Internal
Revenue Code of 1986, as amended, or any successor provision. Any such reduction
shall be applied to the amounts due to the Employee in such manner as the
Employee may reasonably specify within thirty (30) days following notice from
the Company of the need for such reduction or, if the Employee fails to so
specify timely, as determined by the Company.
11. NO CONFLICTING AGREEMENT. The Employee hereby represents and
warrants to the Company that he is under no contract, agreement or obligation
which (i) prohibits him from entering into this Agreement, (ii) conflicts with
the terms of this Agreement or (iii) prevents him, in any way, from performing
the duties contemplated hereby.
12. SEVERABILITY. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
13. ASSIGNMENT. The Company may assign its rights and obligations under
this Agreement without the consent of the Employee in the event that the Company
shall hereafter effect a reorganization, consolidate with, or merge into, any
other person, corporation or other entity or transfer all or substantially all
of its assets to any other person, corporation or other entity. The Company
requires the personal services of the Employee and he may not assign this
Agreement. This Agreement shall inure to the benefit of and be binding upon the
Company and the Employee and their respective successors, executors,
administrators, heirs and permitted assigns.
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14. INDEMNIFICATION. The Company shall, and the Company shall use its
best efforts to cause its Affiliates to, indemnify the Employee to the maximum
extent permitted by law and regulation in connection with any liability, expense
or damage which the Employee incurs or to which the Employee is exposed as a
result of the Employee's employment and positions with the Company and its
Affiliates as contemplated by this Agreement, provided that the Employee shall
not be indemnified with respect to any matter as to which he shall have been
adjudicated in any proceeding not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Company and its
Affiliates. The Company, on behalf of itself and its Affiliates, hereby confirms
that the occupancy of all offices and positions which are occupied or held by
the Employee, now or hereafter, have been so occupied or held at the request of
and for the benefit of the Company and its Affiliates for purposes of the
Employee's entitlement to indemnification under applicable provisions of the
respective articles of organization and/or other similar documents of the
Company and its Affiliates.
15. DEFINITIONS. As used in this Agreement:
"Affiliates" means all persons and entities directly or indirectly
controlling, controlled by or under common control with the Company, where
control may be by management authority, equity interest or otherwise.
"Confidential Information" means any and all information of the Company
and its Affiliates that is not generally known by others with whom any of them
competes or does business, or with whom any of them plans to compete or do
business, including without limitation any and all information concerning
acquisition, expansion, and other strategic plans of the Company and its
Affiliates, the identity and special needs of the customers of the Company and
its Affiliates and the people and organizations with whom the Company or any of
its Affiliates has business relationships and the substance of those
relationships. Confidential Information also includes any information received
by the Company or any of its Affiliates from customers or others with any
understanding, express or implied, that it will not be disclosed.
16. MISCELLANEOUS. This Agreement sets forth the entire agreement
between the Company and the Employee and supersedes all prior communications,
agreements and understandings, whether written or oral, with respect to the
Employee's employment and all matters related thereto, including without
limitation the agreement between the Employee and Affiliated Community Bancorp,
Inc. dated as of the 14th day of October, 1997 and captioned "Special
Termination Agreement," which the parties expressly agree shall be void and of
no force or effect, and excluding only the Stock Compensation Agreement, which
shall remain in effect. The headings and captions contained herein are for
convenience of reference only and are not part of this Agreement. This Agreement
may not be modified or amended, and no breach of this Agreement shall be deemed
to be waived, unless agreed to in writing by the Employee and a duly authorized
representative of the Company. This is a Massachusetts
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contract and shall be governed by and construed in accordance with the laws of
the Commonwealth of Massachusetts.
17. NOTICES. Any notices provided for in this Agreement shall be in
writing and shall be effective when delivered in person or deposited in the
United States mail, postage prepaid, and addressed to the Employee at his last
known address on the books of the Company or, in the case of the Company, at its
main office, attention of the Senior Vice President, Human Resources with a copy
to the General Counsel of the Company.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, by its duly authorized representative, and by the
Employee, as of the date first written above.
THE EMPLOYEE UST CORP.
/s/ Timothy J. Hansberry By: /s/ Eric R. Fischer
- ------------------------ -------------------
Timothy J. Hansberry Eric R. Fischer
Title: Executive Vice President
--------------------------
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"A"
RELEASE OF CLAIMS
FOR AND IN CONSIDERATION OF the special payments to be made to me in
connection with my separation of employment, as set forth in the employment
agreement between UST Corp and me dated as of the 10th day of August, 1998 (the
"Employment Agreement"), I, on my own behalf and on behalf of my heirs,
beneficiaries and representatives and all others connected with me, hereby
release and forever discharge UST Corp. (the "Company"), its Affiliates (as that
term is defined in Section 15 of the Employment Agreement), and all of their
respective officers, directors, shareholders, employees, agents,
representatives, successors and assigns and all others connected with them (all
collectively, the "Released"), both individually and in their official
capacities, from any and all liabilities, claims, demands, actions and causes of
action of any type (all collectively "Claims") which I have had in the past, now
have, or might now have, through the date of my execution of this Release of
Claims, in any way resulting from, arising out of or connected with my
employment or its termination or pursuant to any federal, state or local
employment law, regulation or other requirement (including without limitation
Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment
Act, the Americans with Disabilities Act and the Massachusetts fair employment
practices act, each as may be amended).
Excluded from the scope of this Release of Claims is (i) any claim
arising hereafter under the terms of the Employment Agreement or under the terms
of any of the Company's qualified and non-qualified employee benefit plans
(including without limitation the Company's employee pension plan, profit
sharing plan or stock ownership plan) and (ii) any right of indemnification or
contribution pursuant to the Articles of Organization or By-Laws of the Company
that I have or hereafter acquire if any claim is asserted or proceedings are
brought against me by any governmental or regulatory agency, or by any customer,
creditor, employee or shareholder of the Company, or by any self-regulatory
organization, stock exchange or the like, related or allegedly related to my
having been an officer or employee of the Company or to any of my activities as
an officer or employee of the Company.
By acceptance of or reliance on this Release of Claims, the Company
promises that neither it nor any of the other Released affiliated with the
Company will taken any action that is designed, specifically as to me or with
respect to a class of similarly situated former employees, to reduce or
abrogate, or may reasonably be expected to result in an abridgement or
elimination of, any rights of indemnification or contribution available to me
pursuant to the Articles of Organization or By-Laws of the Company, or under any
policy or policies of directors and officers liability insurance affording
coverage to former officers and in effect from time to time, unless any such
abridgement or elimination of rights is also generally applicable to
then-current officers and employees of the Company.
In signing this Release of Claims, I acknowledge that I have had at
least twenty-one
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(21) days from the date of my receipt of notice of termination of my employment
(or, if applicable, the date I gave such notice to the Company) to consider the
terms of this Release of Claims, that I am encouraged by the Company to seek the
advice of an attorney prior to signing this Release of Claims and that I am
signing this Release of Claims voluntarily and with a full understanding of its
terms. I understand that I may revoke this Release of Claims at any time within
seven (7) days of the date of my signing by written notice to the President of
the Company and that this Release of Claims will take effect only upon the
expiration of such seven-day revocation period and only if I have not timely
revoked it.
IN WITNESS WHEREOF, I have set my hand and seal on the date written
below.
Signature: _________________________________
Timothy J. Hansberry
Date Signed: _______________________________
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EXHIBIT 10(i)(vii)
EXECUTIVE EMPLOYMENT AGREEMENT
This Agreement is made by and between UST Corp., a Massachusetts
corporation, (the "Company" or "UST") and John Fallon (the "Employee") as of the
10th day of August, 1998 (the "Effective Date").
In consideration of the mutual promises, terms and conditions contained in
this Agreement, the parties agree as follows:
1. EMPLOYMENT. The Company hereby offers, and the Employee hereby accepts,
employment with the Company, subject to the terms and conditions contained in
this Agreement.
2. TERM. Subject to earlier termination, as provided hereafter, the
Employee's employment hereunder shall be for an initial term of two (2) years,
commencing on the Effective Date, which term shall automatically renew
thereafter for successive terms of one year each unless either party gives
notice to the other at least sixty (60) days prior to the expiration of the
initial or any renewal term that this Agreement shall not renew. Notwithstanding
the foregoing, in the event that this Agreement is in effect on the date of
consummation of a Change of Control, as defined in Section 6.g.ii below, this
Agreement shall automatically be extended on said date such that the remaining
term of the Agreement shall then be two (2) years, but this Agreement shall be
renewable thereafter only by a written agreement signed by the Employee and a
duly authorized representative of the Company. The term of this Agreement, as
from time to time renewed or extended in accordance with this Section 2, is
hereafter referred to as "the term hereof" or "the term of this Agreement".
3. PERFORMANCE.
a. During the term hereof, the Employee shall hold the position of
an Executive Vice President of the Company and/or such other executive position
or positions with the Company, its subsidiaries and other affiliates to which
the parties may hereafter from time to time agree and the Employee shall perform
the duties and assume the responsibilities of such positions and such other
appropriate duties and responsibilities as may be assigned by the Board of
Directors of the Company (the"Board") or its designees.
b. During employment, the Employee shall devote his full business
time and best efforts, judgment, skill and knowledge exclusively to the
advancement of the interests of the Company, its subsidiaries and other
affiliates and to the discharge of his duties and responsibilities for them.
While employed by the Company, the Employee shall not be engaged in any other
business activity, except as approved by the Board, the President or the Board's
designee in writing. It is agreed, however, that the provisions of this Section
3.b shall
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not be violated by the Employee's holding of directorships or related
positions in charitable, educational or not-for-profit organizations which do
not involve continuous or substantial time commitments or by passive personal
investment activities, provided that such positions and activities are not in
conflict, and do not otherwise interfere, with the Employee's duties and
responsibilities to the Company and its subsidiaries and other affiliates.
4. COMPENSATION. As compensation for all services performed for the
Company and its subsidiaries and other affiliates during the term of this
Agreement, the Company shall pay the Employee a base salary at an annual rate
not less than Two Hundred Thousand Dollars ($ 200,000), subject to increase from
time to time by the Company in its discretion. Notwithstanding the foregoing,
the Company may reduce the Employee's base salary, but (i) only in the event of
a salary reduction affecting all or substantially all of the Company's officers
employed under an executive employment agreement and only in proportion to the
salary reductions applicable to such other affected officers and (ii) only if no
Change of Control has occurred.
5. EMPLOYEE BENEFITS. During the term hereof, the Employee shall be
entitled to participate in any and all employee benefit plans from time to time
in effect for employees of the Company generally, excluding only plans providing
payments and/or other benefits in the event of termination of employment. Such
participation shall be subject to the terms of the applicable plan documents,
generally applicable Company policies and the discretion of the Board or any
administrative or other committee provided for in or contemplated by such plan.
6. TERMINATION OF EMPLOYMENT. Notwithstanding the provisions of Section 2
above, the Employee's employment under this Agreement shall terminate under the
following circumstances and, in that event, the Company shall have only such
obligations to the Employee as are specified below under the applicable
termination provision:
a. UPON DEATH. In the event of the Employee's death during the term
hereof, the Employee's employment hereunder shall immediately and automatically
terminate. In such event, the Company shall pay to the Employee's designated
beneficiary or, if no beneficiary has been designated by the Employee, to the
Employee's estate, any base salary earned and unpaid through the date of death.
b. AS A RESULT OF DISABILITY. In the event that the Employee becomes
disabled during the term hereof and, as a result, is unable to perform
substantially all of his duties for the Company and, if applicable, its
subsidiaries and other affiliates, for more than one hundred and twenty (120)
days during any period of three hundred and sixty-five (365) days, the Company
may terminate the Employee's employment without further obligation upon notice
to the Employee. In the event of such disability, the Employee will continue to
receive his base salary and benefits under Sections 4 and 5 hereof until the
earlier of the date the Employee becomes eligible for disability income under
the Company's long-term disability or workers' compensation insurance plan or
the date his employment terminates.
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c. BY THE COMPANY FOR CAUSE. The Company may terminate the
Employee's employment for Cause at any time upon notice to the Employee setting
forth in reasonable detail the nature of such Cause. The following, as
determined by the Board in its reasonable judgment, shall constitute Cause for
termination: (i) the Employee's refusal to perform, or gross negligence in the
performance of, his duties or responsibilities on behalf of the Company and, if
applicable, its subsidiaries and other affiliates; (ii) the Employee's fraud,
embezzlement or other material dishonesty with respect to the Company or any of
its subsidiaries or other affiliates; (iii) the Employee's gross misconduct or
his conviction of, or plea of no contest to, a felony. In the event of such
termination, the Company shall have no further obligation to the Employee, other
than for base salary earned through the date of termination.
d. BY THE COMPANY OTHER THAN FOR CAUSE. The Company may terminate
the Employee's employment other than for Cause upon notice to the Employee under
this subsection d or under subsection g below, whichever is applicable. In the
event of such termination prior to, or more than two years following, a Change
of Control and provided that the Employee executes the release of claims
attached hereto and marked "A" (the "Employee Release") within twenty-one (21)
days of his receipt of notice of termination of employment and does not timely
revoke the Employee Release, the Company:
i. shall pay the Employee severance pay in an amount equal to
the sum of twelve (12) months' base salary at the rate in effect on
the date of termination plus the amount of any performance bonus
paid to the Employee in the calendar year immediately preceding that
in which termination occurs, which the Employee may elect to receive
(A) in a single lump sum, payable within thirty (30) days following
the effective date of the Employee Release or (B) as salary
continuation payable at the Company's regular payroll periods and in
accordance with its regular payroll practices commencing on the next
regular payday immediately following the effective date of the
Employee Release, but retroactive to the date of termination and,
ii. at the Employee's election, (A) shall continue to pay, for
the period of twelve (12) months following termination of the
Employee's employment or, if earlier, until the date the Employee is
covered under another employer's health plan that is comparable to
that of the Company (the "Post-Employment Health Coverage Period"),
that share of the premium cost of Employee's participation and that
of his eligible dependents in the Company's group health plan as it
pays for active employees of the Company and their eligible
dependents generally OR (B) shall pay the Employee a single lump sum
payment equal to the amount that the Company would have expended if
participation had been elected and continued for a period of twelve
(12) months, which lump sum shall be payable within thirty (30) days
following the effective date of the Employee Release, and the
Employee and his eligible dependents may exercise any rights they
have
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under Sections 601-607 of ERISA and Section 4980B of the
Internal Revenue Code (collectively referred to as "COBRA") to
continue participation in the group health plan at their cost,
effective as of the date the Employee's employment terminates.
Should the Employee elect option (A) above, the period of any
continued health coverage to which the Employee and his eligible
dependents may be entitled under COBRA as a result of the Employee's
termination of employment will commence at the end of the
above-defined Post-Employment Health Coverage Period.
Notwithstanding anything to the contrary contained herein, the
Employee may elect option (A) directly above only if the Employee
elects to receive payment under subparagraph d.i., directly above,
in the form of salary continuation.
e. BY THE EMPLOYEE FOR GOOD REASON. The Employee may terminate
employment hereunder for Good Reason upon notice to the Company setting forth in
reasonable detail the nature of such Good Reason. The following shall constitute
Good Reason for termination by the Employee: (i) failure of the Company to
continue the Employee in an executive position in accordance with Section 3.a
above; (ii) a change adverse to the Employee in the Employee's primary reporting
relationship; (iii) material diminution in the nature or scope of the Employee's
responsibilities, duties or authority; (iv) material failure of the Company to
provide the Employee base salary and benefits in accordance with the terms of
Sections 4 and 5 hereof; or (v) a permanent transfer of the Employee to a work
site more than twenty-five miles distant from his work site on the Effective
Date. In the event of termination in accordance with this Section 6.e, the
Company shall provide the Employee severance pay and health insurance benefits
in accordance with Section 6.d hereof, provided that the Employee executes the
Employee Release within twenty-one (21) days of his notice of termination of
employment and provided further that the Employee does not timely revoke the
Employee Release.
f. BY THE EMPLOYEE OTHER THAN FOR GOOD REASON. The Employee may
resign employment other than for Good Reason at any time upon one month's notice
to the Company. In the event of such termination, the Company shall have no
further obligation to the Employee, other than for base salary earned through
the date of termination.
g. UPON A CHANGE OF CONTROL.
i. If a Change of Control (as defined in subsection g.ii
below) occurs and, within two (2) years following such Change of Control, the
Company terminates the Employee's employment other than for Cause, or the
Employee terminates his employment for Good Reason, and the Employee executes
the Employee Release within twenty-one (21) days of the date of notice of
termination of his employment and does not timely revoke it, then, in lieu of
any payment and benefits to which the Employee would otherwise be entitled under
Section 6.d or 6.e hereof, the Company
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(1) shall pay the Employee an amount equal to the sum of
twenty-four (24) months' base salary at the rate in effect on the date of
termination of the Employee's employment plus two times the amount of any
performance bonus paid to the Employee in the calendar year immediately
preceding that in which termination occurs, which the Employee may elect
to receive (A) in a single lump sum, payable within thirty (30) days
following the effective date of the Employee Release or (B) as salary
continuation payable at the Company's regular payroll periods and in
accordance with its regular payroll practices commencing on the next
regular payday following the effective date of the Employee Release, but
retroactive to the date of termination, and
(2) at the Employee's election, (A) shall continue to
pay, for the period of twenty-four months following termination of the
Employee's employment or, if earlier, until the date the Employee is
covered under another employer's health plan that is comparable to that of
the Company (the "Change of Control Post-Employment Health Coverage
Period"), that share of the premium cost of Employee's participation and
that of his eligible dependents in the Company's group health plan as it
pays for active employees of the Company and their eligible dependents
generally OR (B) shall pay the Employee a single lump sum payment equal to
the amount that the Company would have expended if participation had been
elected and continued for a period of twenty-four (24) months, which lump
sum shall be payable within thirty (30) days following the effective date
of the Employee Release, and the Employee and his eligible dependents may
exercise their rights under COBRA to continue participation in the group
health plan at their cost effective as of the date his employment
terminates. Should the Employee elect option (A) above, the period of any
continued health coverage to which the Employee and his eligible
dependents may be entitled under COBRA as a result of the Employee's
termination of employment will commence at the end of the above-defined
Change of Control Post-Employment Health Coverage Period. Notwithstanding
anything to the contrary contained herein, the Employee may only elect
option (A) directly above if the employee elects to receive payment under
subparagraph g.i.(1) in the form of salary continuation.
(3) Upon a Change of Control as defined in the Company's
Stock Compensation Plan as amended by the Company from time to time (the
"Plan"), the vesting of any UST Restricted Common Stock ("Restricted
Stock") or stock options to purchase UST Common Stock granted to the
Employee and not yet exercised, expired, surrendered or canceled shall be
in accordance with the Plan.
(4) If in connection with a Change of Control as defined
in the Plan any other employees who hold stock options under the Plan or
Restricted Stock will have their options or Restricted Stock or both
cashed out, whether under the Plan or otherwise, the Employee shall have
the right to have all or any of his options or Restricted Stock or both
cashed out on the same basis and at the same time the options and
Restricted Stock of such other employees are cashed out.
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ii. Except as otherwise provided with respect to subparagraphs
g.i.(3) and g.i.(4) directly above, a "Change of Control" shall be deemed to
have been consummated if hereafter
(A) any "person", as such term used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934 as amended (the "Exchange
Act") other than the Company or any of its subsidiaries or other
affiliates or any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its subsidiaries or other
affiliates, becomes a beneficial owner (within the meaning of Rule 13d-3,
as amended, as promulgated under the Exchange Act), directly or
indirectly, of securities representing twenty-five (25%) percent or more
of the combined voting power of the Company's then outstanding securities;
or
(B) during any period of two consecutive years (not
including any period prior to the Effective Date), individuals who at the
beginning of such period constitute the Board, and any new director [other
than a director designated by a person who has entered into an agreement
with the Company to effect a transaction described in clause (A), (C) or
(D) of this Section 6.g.(ii)] whose election by the Board or nomination
for election by the Company's stockholders was approved by a vote of at
least two-thirds of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason to
constitute at least a majority thereof; or
(C) there occurs a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than eighty percent (80%) of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; provided, however, that a
merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no "person" (as hereinabove
defined) acquires more than twenty-five percent (25%) of the combined
voting power of the Company's then outstanding securities shall not
constitute a Change of Control; or
(D) the stockholders of the Company approve a plan of a
complete liquidation of the Company; or
(E) there occurs a closing of a sale or other
disposition by the Company of all or substantially all of the Company's
assets.
h. UPON EXPIRATION OF THE TERM HEREOF. Notice by the Company
pursuant to Section 2 hereof that this Agreement shall not renew shall be
treated as termination
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by the Company other than for Cause pursuant to Section 6.d. Notice by the
Employee pursuant to Section 2 hereof that this Agreement shall not renew shall
be treated as a termination by the Employee of his employment other than for
Good Reason.
7. CONFIDENTIAL INFORMATION.
a. The Employee acknowledges that the Company, its subsidiaries and
other affiliates continually develops Confidential Information, that the
Employee may develop Confidential Information for the Company, its subsidiaries
and other affiliates and that the Employee may learn of Confidential Information
during the course of employment. The Employee agrees to comply with the policies
and procedures of the Company for protecting Confidential Information and agrees
that he shall never disclose to any person, corporation or other entity, except
as required for the proper performance of his regular duties for the Company,
its subsidiaries and other affiliates, and shall never use for his own benefit
or that of another, any Confidential Information obtained by the Employee
incident to his employment or other association with the Company or any of its
subsidiaries or other affiliates. The Employee understands that this restriction
will continue to apply throughout his employment and after his employment
terminates, regardless of the reason for such termination; provided, however,
that the obligations contained in this Section 7 shall not apply to any
Confidential Information that becomes publicly known through no fault of the
Employee and shall not prevent the Employee from disclosing Confidential
Information as required by law or regulation.
b. As used in this Agreement, "Confidential Information" means any
and all information of the Company, its subsidiaries and other affiliates, that
is not generally known by others with whom any of them competes or does
business, or with whom any of them plans to compete or do business, including
without limitation any and all information concerning the identity and special
needs of the customers of the Company, its subsidiaries and other affiliates and
the people and organizations with whom any of them has business relationships
and the substance of those relationships. Confidential Information also includes
any information received by the Company or any of its subsidiaries or other
affiliates from others with any understanding, express or implied, that it will
not be disclosed.
8. NON-SOLICITATION. While the Employee is employed by the Company and (a)
for a period of two years following the termination of his employment pursuant
to Section 6.b or 6.c or 6.f hereof or (b) in the event of termination pursuant
to Section 6.d or 6.e or 6.g hereof, for a period equal to the months of
severance pay provided the Employee thereunder:
(i) the Employee shall not, directly or indirectly, solicit or
encourage any customer of the Company or any of its subsidiaries or other
affiliates to terminate or diminish substantially its relationship with the
Company or any of its subsidiaries or other affiliates and
(ii) the Employee shall not, directly or indirectly, hire or attempt
to hire any
7
<PAGE> 8
executive personnel of the Company or any of its subsidiaries or other
affiliates or solicit or encourage any executive personnel of the Company or any
of its subsidiaries or other affiliates to discontinue employment with the
Company or any of its subsidiaries or other affiliates.
For purposes of this Section 8, the term "months of severance pay" shall mean
the quotient of the total sum of payments to be made to the Employee under the
applicable termination provision divided by the Employee's base salary at the
monthly rate in effect on the date of termination.
9. REMEDIES. The Employee acknowledges that, if he were to breach any of
the provisions of Section 7 or Section 8 of this Agreement, the harm to the
Company would be irreparable. The Employee therefore agrees that, in addition to
any other remedies available to it, the Company shall be entitled to obtain
preliminary and permanent injunctive relief against any such breach, without
having to post bond.
10. TAXES. All payments made to the Employee under this Agreement shall be
reduced by any tax or other amount required to be withheld by the Company under
applicable law.
11. REDUCTIONS. Notwithstanding anything to the contrary contained in this
Agreement, (a) any and all payments and benefits to be provided to the Employee
hereunder are subject to reduction to the extent required by applicable
statutes, regulations, rules and directives of federal, state and other
governmental and regulatory bodies having jurisdiction over the Company and/or
any of its subsidiaries or other affiliates and (b) the payments and benefits to
which the Employee would be entitled pursuant to Section 6.g hereof or otherwise
as a result of a Change of Control shall be reduced to the maximum amount for
which the Company will not be limited in its deduction pursuant to Section 280G
of the Internal Revenue Code of 1986, as amended, or any successor provision.
Any such reduction shall be applied to the amounts due to the Employee in such
manner as the Employee may reasonably specify within thirty (30) days following
notice from the Company of the need for such reduction or, if the Employee fails
to so specify timely, as determined by the Company.
12. ASSIGNMENT. The Company may assign its rights and obligations under
this Agreement without the consent of the Employee in the event that the Company
shall hereafter effect a reorganization, consolidate with, or merge into, any
other person, corporation or other entity or transfer all or substantially all
of its assets to any other person, corporation or other entity. The Company
requires the personal services of the Employee and he may not assign this
Agreement. This Agreement shall inure to the benefit of and be binding upon the
Company and the Employee and their respective successors, executors,
administrators, heirs and permitted assigns.
13. INDEMNIFICATION. The Company shall, and the Company shall use its best
efforts to cause its subsidiaries and other affiliates to, indemnify the
Employee to the maximum
8
<PAGE> 9
extent permitted by law and regulation in connection with any liability, expense
or damage which the Employee incurs or to which the Employee is exposed as a
result of the Employee's employment and positions with the Company and its
subsidiaries and other affiliates as contemplated by this Agreement, provided
that the Employee shall not be indemnified with respect to any matter as to
which he shall have been adjudicated in any proceeding not to have acted in good
faith in the reasonable belief that his action was in the best interest of the
Company and its subsidiaries and other affiliates. The Company, on behalf of
itself and its subsidiaries and other affiliates, hereby confirms that the
occupancy of all offices and positions which are occupied or held by the
Employee, now or hereafter, have been so occupied or held at the request of and
for the benefit of the Company and its subsidiaries and affiliates for purposes
of the Employee's entitlement to indemnification under applicable provisions of
the respective articles of organization and/or other similar documents of the
Company and its subsidiaries and other affiliates.
14. MISCELLANEOUS. This Agreement sets forth the entire agreement between
the Company and the Employee and supersedes all prior communications, agreements
and understandings, whether written or oral, with respect to the Employee's
employment; provided, however, that this Agreement shall not terminate or
supersede any agreement between the parties with respect to the securities of
the Company. The headings and captions contained herein are for convenience of
reference only and are not part of this Agreement. This Agreement may not be
modified or amended, and no breach of this Agreement shall be deemed to be
waived, unless agreed to in writing by the Employee and the Company. This is a
Massachusetts contract and shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
15. NOTICES. Any notices provided for in this Agreement shall be in
writing and shall be effective when delivered in person or deposited in the
United States mail, postage prepaid, and addressed to the Employee at his last
known address on the books of the Company or, in the case of the Company, at its
main office, attention of the Senior Vice President, Human Resources with a copy
to the General Counsel of the Company.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, by its duly authorized representative, and by the
Employee, as of the date first written above.
THE EMPLOYEE UST CORP.
/s/ John G. Fallon /s/ Linda J. Lerner
____________________ By: _________________________
Senior Vice President
Title: ______________________
9
<PAGE> 10
"A"
RELEASE OF CLAIMS
FOR AND IN CONSIDERATION OF the special payments to be made to me in
connection with my separation of employment, as set forth in the employment
agreement between UST Corp and me dated as of the 10th day of August, 1998 (the
"Employment Agreement"), I, on my own behalf and on behalf of my heirs,
beneficiaries and representatives and all others connected with me, hereby
release and forever discharge UST Corp. (the "Company"), its subsidiaries and
other affiliates, and all of their respective officers, directors, shareholders,
employees, agents, representatives, successors and assigns and all others
connected with them (all collectively, the "Released"), both individually and in
their official capacities, from any and all liabilities, claims, demands,
actions and causes of action of any type (all collectively "Claims") which I
have had in the past, now have, or might now have, through the date of my
execution of this Release of Claims, in any way resulting from, arising out of
or connected with my employment or its termination or pursuant to any federal,
state or local employment law, regulation or other requirement (including
without limitation Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, the Americans with Disabilities Act, and the
Massachusetts fair employment practices act, each as may be amended).
Excluded from the scope of this Release of Claims is (i) any claim arising
hereafter under the terms of the Employment Agreement or under the terms of any
of the Company's qualified and non-qualified employee benefit plans (including
without limitation the Company's employee pension plan, profit sharing plan or
stock ownership plan) and (ii) any right of indemnification or contribution
pursuant to the Articles of Organization or By-Laws of the Company that I have
or hereafter acquire if any claim is asserted or proceedings are brought against
me by any governmental or regulatory agency, or by any customer, creditor,
employee or shareholder of the Company, or by any self-regulatory organization,
stock exchange or the like, related or allegedly related to my having been an
officer or employee of the Company or to any of my activities as an officer or
employee of the Company.
By acceptance of or reliance on this Release of Claims, the Company
promises that neither it nor any of the other Released affiliated with the
Company will taken any action that is designed, specifically as to me or with
respect to a class of similarly situated former employees, to reduce or
abrogate, or may reasonably be expected to result in an abridgement or
elimination of, any rights of indemnification or contribution available to me
pursuant to the Articles of Organization or By-Laws of the Company, or under any
policy or policies of directors and officers liability insurance affording
coverage to former officers and in effect from time to time, unless any such
abridgement or elimination of rights is also generally applicable to
then-current officers and employees of the Company.
In signing this Release of Claims, I acknowledge that I have had at least
twenty-one
10
<PAGE> 11
(21) days from the date of my receipt of notice of termination of my
employment (or, if applicable, the date I gave such notice to the Company) to
consider the terms of this Release of Claims, that I am encouraged by the
Company to seek the advice of an attorney prior to signing this Release of
Claims and that I am signing this Release of Claims voluntarily and with a full
understanding of its terms. I understand that I may revoke this Release of
Claims at any time within seven (7) days of the date of my signing by written
notice to the President of the Company and that this Release of Claims will take
effect only upon the expiration of such seven-day revocation period and only if
I have not timely revoked it.
IN WITNESS WHEREOF, I have set my hand and seal on the date written below.
Signature: _________________________________
John Fallon
Date Signed: _______________________________
11
<PAGE> 1
EXHIBIT 10(K)
UST CORP.
SENIOR OFFICER SEVERANCE PAY PLAN
RESTATED EFFECTIVE DECEMBER 8, 1998
I. PURPOSE
This Plan is intended to provide salary continuation to certain designated
Senior Officers of UST Corp. (the "Company") in the event that their
employment is terminated as provided hereafter due to a reduction in force
or a corporate restructuring or following a Change of Control.
II. ELIGIBILITY TO PARTICIPATE
A. In order to be eligible to participate in this Plan, and employee
must be currently designated, in writing, by the Chief Executive
Officer of the Company or his designee as an "Senior Officer" for
purposes of this Plan.
III. QUALIFYING EVENTS
A. An employee eligible to participate in this Plan under Section II
above (a "participating employee") is entitled to receive benefits
under the Plan only if all of the following three conditions are
met: (i) the employee is on the Company's active payroll or on a
leave of absence that has been approved in writing, with guaranteed
reinstatement, at the time his/her employment terminates; and (ii)
termination occurs in one of the following circumstances:
1. The participating employee's employment is terminated as a
result of the elimination of his/her position with the Company
in conjunction with a reduction in force or a corporate
restructuring and the employee is not offered employment in a
comparable position with the Company or one of its Affiliates;
or
2. The employee's employment is terminated other than for Cause
by the Company within twelve (12) months following a Change in
Control; and
3. The employee is not then covered by another severance pay plan
or by an individual employment agreement or other severance
arrangement providing benefits that in the aggregate are
comparable to or exceed those for which the employee would
otherwise be eligible under this Plan; and (iii) the
participating employee executes the release of claims attached
hereto and marked "A" (the "Employee Release") within
forty-five (45)
<PAGE> 2
days of the date on which he/she receives notice of
termination of his/her employment, and does not timely revoke
it.
IV. EXCLUSIONS
A. The following are examples of events in which an employee would not
qualify for benefits under this Plan:
1. The employee resigns or otherwise voluntarily leaves his/her
employment with the Company; or
2. The employee's employment is terminated by the Company for
Cause; or
3. The employee is offered comparable employment at
the time of the elimination of his/her position; or
4. The employee is temporarily laid off; or
5. The employee is on a leave of absence which has not been
approved in writing or as to which reinstatement is not
guaranteed; or
6. The employee elects not to execute the Employee Release.
B. This Plan does not constitute a contract of employment for a
specific term or otherwise alter the at-will nature of the
employment relationship between any employee and the Company.
V. BENEFITS
A. Benefits under this Plan are determined by length of service, as
follows:
1. Six (6) months' pay, at the participating employee's final
base rate of pay, if the participating employee has not more
than three (3) full years of service with the Company as of
the date employment terminates; or
2. Nine (9) months' pay, at the participating employee's final
base rate of pay, if the participating employee has more than
three (3) full years of service, but not more than six (6)
full years of service, with the Company as of the date his/her
employment terminates.
3. Twelve (12) months' pay, at the participating employee's final
base rate of pay, if the participating employee has more than
six (6) full years of service with the Company as of the date
his/her employment terminates.
B. Provided that the participating employee elects to receive benefits
as salary continuation under option 2 of paragraph D of this Section
V, and provided further that the participating employee is currently
enrolled in, and exercises his/her right to continue coverage, under
the Company's group heath plan in accordance with applicable federal
law ("COBRA"), then, for the duration of the period in which the
participating employee is receiving such salary continuation or, if
earlier, until the date the participating employee ceases to be
eligible for continued coverage in accordance with COBRA, the
Company shall continue to pay that share of the premium cost of the
participating employee's coverage and that of his/her eligible
dependents under the Company's group health plan that it pays for
active employees of the Company and their eligible dependents
generally or, following a Change of Control, the amount the Company
was paying for active employees of
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<PAGE> 3
the Company and their eligible dependents generally immediately
prior to such Change of Control if greater.
C. For purposes of determining the length of service of a participating
employee hereunder, service with the Company which occurred prior to
a break in service of two (2) years or more shall not be included.
D. Benefits under Section V.A for which a participating employee is
eligible shall be reduced by all taxes and other amounts which the
Company is required to withhold under applicable law and shall be
payable, at the participating employee's election, (1) in a single
lump sum within thirty (30) days following the effective date of the
Employee Release or (2) as salary continuation payable at the
Company's regular payroll periods and in accordance with its regular
payroll practices commencing on the next payday immediately
following the effective date of the Employee Release, but
retroactive to the date of termination of the participating
employee's employment.
E. Benefits otherwise payable under this Plan shall be reduced by any
amounts to which the employee is entitled under applicable law as a
result of the termination of his/her employment.
F. The Company pays the full cost of benefits provided under this Plan
from the Company's general assets.
G. Benefits under this Plan are not assignable or subject to
alienation. Likewise, benefits are not subject to attachments by
creditors or through legal process against the Company or any
employee.
H. Notwithstanding anything to the contrary contained herein, any and
all payments to be provided hereunder to or on behalf of any
participating employee are subject to reduction to the extent
required by applicable statutes, regulations, rules and directives
of federal, state and other governmental and regulatory bodies
having jurisdiction over the Company and/or any of its Affiliates.
VI. DEFINITIONS
A. Words or phrases which are initially capitalized or within quotation
marks shall have the meanings provided in this Section VI and as
provided elsewhere herein. For purposes of this Plan, the following
definitions apply:
1. An "Affiliate" means any individual, corporation or other
entity directly or indirectly controlling, controlled by or
under common control with the Company, where control may be by
management authority, equity interest or otherwise.
2. "Cause" for termination means only (i) the employee's refusal
to perform or gross negligence in the performance of, his/her
duties and responsibilities for the Company or (ii) the
employee's fraud, embezzlement or other material dishonesty
with respect to the Company or any of its Affiliates or (iii)
an action or omission by the employee in violation of the
banking or other laws governing the operations of the Company
and/or (iv) the employee's conviction of, or plea of no
contest to, a felony, each as communicated to the employee by
-3-
<PAGE> 4
notice from the Company setting forth in reasonable detail the
nature of such Cause.
3. A "Change of Control" shall be deemed to have been consummated
if hereafter
i) any "person", as such term used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934 as amended
(the "Exchange Act") other than the Company or any of
its subsidiaries or affiliates or any trustee or other
fiduciary holding securities under an employee benefit
plan of the Company or any of its subsidiaries or
affiliates, becomes a beneficial owner (within the
meaning of Rule 13d-3, as amended, as promulgated under
the Exchange Act), directly or indirectly, of securities
representing twenty-five (25%) percent or more of the
combined voting power of the Company's then outstanding
securities; or
ii) during any period of two consecutive years (not
including any period prior to the establishment of this
Plan), individuals who at the beginning of such period
constitute the Board of Directors of the Company (the
"Board"), and any new director (other than a director
designated by a person who has entered into an agreement
with the Company to effect a transaction described in
clause (i), (iii) or (iv) of this Section V.A.3) whose
election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at
least two-thirds of the directors then still in office
who either were directors at the beginning of the period
or whose election or nomination for election was
previously so approved, cease for any reason to
constitute at least a majority thereof; or
iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation,
other than a merger or consolidation which would result
in the voting securities of the Company outstanding
immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted
into voting securities of the surviving entity) more
than eighty percent (80%) of the combined voting power
of the voting securities of the Company or such
surviving entity outstanding immediately after such
merger or consolidation; provided, however, that a
merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction)
in which no "person" (as hereinabove defined) acquires
more than twenty-five percent (25%) of the combined
voting power of the Company's then outstanding
securities shall not constitute a Change of Control; or
iv) the stockholders of the Company approve a plan of
complete liquidation of the Company; or
v) there occurs a closing of a sale or other disposition by
the Company of all or substantially all of the Company's
assets.
-4-
<PAGE> 5
4. The "Company" means UST Corp. or, following a Change of
Control, any successor of UST Corp.
VII. ADMINISTRATION, CLAIMS PROCEDURE AND GENERAL INFORMATION
A. The Company reserves the right to amend, modify and terminate the
Plan. Also, the Company, as the Plan administrator within the
meaning of ERISA, reserves full discretion to administer the Plan in
all of its details, subject to the requirements of law. The Company
shall have such discretionary powers as are necessary to discharge
its duties. Any interpretation or determination that the Company
makes regarding this Plan, including without limitation
determinations of eligibility, participation and benefits, will be
final and conclusive, in the absence of clear and convincing
evidence that the Company acted arbitrarily and capriciously.
B. Notwithstanding anything to the contrary contained herein, this Plan
may not be modified, amended or terminated during the first twelve
(12) months following a Change of Control and any participating
employee who is designated as an "Senior Officer" for purposes of
this Plan at the time of a Change of Control will remain so
designated for twelve (12) months following that Change of Control.
C. If you believe you are being denied any rights under the Plans, you
may file a claim in writing with the Company, as Plan administrator.
If your claim is denied, in whole or in part, the Plan administrator
will notify you in writing, giving the specific reasons for the
decision, including specific reference to the pertinent Plan
provisions and a description of any additional material or
information necessary to perfect your claim and an explanation of
why such material or information is necessary. The written notice
will also advise you of your right to request a review of your claim
and the steps that need to be taken if you wish to submit your claim
for review. If the Plan administrator does not notify you of its
decision within 90 days after it had received your claim (or within
180 days, if special circumstances exist requiring additional time,
and if you had been given a written explanation for the extension
within the initial 90-day period), you should consider your claim to
have been denied. At this time you may request a review of the
denial of your claim.
A request for review must be made in writing by you or your duly
authorized representative to the Company, as Plan administrator,
within 60 days after you have received the notice of denial. As part
of your request, you may submit written issues and comments to the
Plan administrator, review pertinent documents, and request a
hearing. The Plan administrator's written decision will be made
within 60 days (or 120 days if a hearing is held or if other special
circumstances exist requiring more than 60 days and written notice
of the extension is provided to you within the initial 60-day
period) after your request has been received. Again, the decision
will include specific reasons, including references to pertinent
Plan provisions.
-5-
<PAGE> 6
"A"
RELEASE OF CLAIMS
FOR AND IN CONSIDERATION OF the special payments to be made to me in
connection with my separation of employment, as set forth in UST Corp. Senior
Officer Severance Pay Plan (the "Plan"), I, on my own behalf and on behalf of my
heir, beneficiaries and representatives and all others connected with me, hereby
release and forever discharge UST Corp. (the "Company"), its subsidiaries and
affiliates, and all of their respective officers, directors, employees, agents,
representatives, successors and assigns and all others connected with them (all
collectively, the "Releasees"), both individually and in their official
capacities, from any and all liability, claims, demands, actions and causes of
action of any type (all collectively "Claims") which I have had in the past, now
have, or might now have, through the date of my execution of this Release of
Claims, in any way resulting from, arising out of or connected with my
employment or its termination or pursuant to any federal, state or local
employment law, regulation or other requirement (including without limitation
Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in
Employment Act, as amended, the Americans with Disabilities Act, as amended, and
the Massachusetts fair employment practices act, as amended).
Excluded from the scope of this Release of Claims is (i) any claim arising
hereafter under the terms of the Plan or under the terms of any of the Company's
other employee benefit plans (including without limitation the Company's
employee pension plan, profit sharing plan or stock ownership plan) and (ii) any
right of indemnification or contribution pursuant to the Articles of
Organization or By-Laws of the Company that I have or hereafter acquire if any
claim is assert or proceedings are brought against me by any governmental or
regulatory agency, or by any customer, creditor, employee or shareholder of the
Company, or by any self-regulatory organization, stock exchange or the like,
related or allegedly related to my having been an officer or employee of the
Company or to any of my activities as an officer or employee of the Company.
By acceptance of or reliance on this Release of Claims, the Company
promises that neither it nor any of the other Releasees affiliated with the
Company will taken any action that is designed, specifically as to me or with
respect to a class of similarly situated former employees, to reduce or
abrogate, or may reasonably be expected to result in an abridgment or
elimination of, any rights of indemnification or contribution available to me
pursuant to the Articles of Organization or By-Laws of the Company, or under any
policy or policies of directors and officers liability insurance affording
coverage to former officers and in effect from time to time, unless any such
abridgment or elimination of rights is also generally applicable to then-current
officers and employees of the Company.
In signing this Release of Claims, I acknowledge that I have had at least
forty-five (45) days from the date of my receipt of notice of termination of my
employment to consider the terms of this Release of Claims, that I am encouraged
by the Company to seek the advice of an attorney prior to signing this Release
of Claims and that I am signing this Release of Claims voluntarily and with a
full understanding of its terms. I understand that I may revoke this Release of
Claims at any time within
<PAGE> 7
seven (7) days of the date of my signing by written notice to the President of
the Company and that this Release of Claims will take effect only upon the
expiration of such seven-day revocation period and only if I have not timely
revoked it.
IN WITNESS WHEREOF, I have set my hand and seal on the date written below.
Signature: _________________________________
Date Signed: _______________________________
<PAGE> 1
EXHIBIT 10(l)iii
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT made as of June 30, 1998 by and
among United States Trust Company ("USTC"), a banking and trust company having
its principal place of business in Boston, Massachusetts, UST Corp. ("UST"), a
Massachusetts corporation also having its principal place of business in Boston,
Massachusetts and the parent of USTC, and Domenic Colasacco (the "Employee").
WHEREAS, the Employee and USTC have entered into an Employment Agreement as
of February 14, 1995 (the "Employment Agreement") in which UST joined for
certain purposes; and
WHEREAS, the Employment Agreement provides that it may not be amended
except by a written instrument executed by USTC, UST and the Employee; and
WHEREAS, USTC, UST and the Employee now wish to amend the Employment
Agreement to require that the Employee not solicit clients and employees of USTC
for a period of one year after the date of certain terminations of the
Employee's employment by USTC;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, USTC, UST and the Employee agree as follows:
1. Amendment to Employment Agreement. The Employment Agreement is hereby
amended as follows:
(a) The following new Sections 12(e) and (f) are hereby added to the
Employment Agreement:
"(e) If during the period from June 30, 1998 through June 30, 2002, the
Employee's employment with USTC shall terminate voluntarily or is terminated by
USTC in the circumstances set forth in Section 7(a), for a period of one (1)
year after such termination, in addition to any other obligation Employee may
have hereunder, Employee shall not, directly or indirectly:
(i) Provide or attempt to provide, whether as an officer, director,
employee, partner, independent contractor or otherwise, investment advisory
services to any person or entity who as of the date of such termination is a
Present Client;
(ii) Interfere with AM's relations with any person or entity who as of
the date of such termination is a Present Client; or
(iii) Induce or attempt to induce directly or indirectly any
professional employee of AM to terminate his or her
<PAGE> 2
employment or hire or attempt to hire, directly or indirectly, any such person.
The Employee shall have no further obligations under this Section 12(e) or
under Section 12(f), and such Sections shall be void and of no further force or
effect, if this Agreement shall be terminated by the Employee/Principals
pursuant to Section 5 hereof.
(f) If, in violation of Section 12(e) hereof, within the applicable one (1)
year period, Employee in any of the capacities listed shall provide investment
advisory services to any person or entity who as of the date of Employee's
termination was a Present Client, then in addition to all other rights and
remedies available to USTC, Employee shall pay to USTC promptly all compensation
received by Employee or any corporation, firm or other organization with which
Employee is employed or otherwise associated in any such capacity with respect
to the two (2) years following commencement of providing such services to such
Present client."
(b) Section 11(i) is hereby amended to insert the words "other than Section
12(e)" after the words "Section 12".
(c) The heading for Section 12 is hereby amended to delete the words "Phase
II".
(d) The phrase "subsections (a)(i) and (b)(i)" is hereby deleted from the
first line of Section 12(c) and the phrase "subsections (a)(i), (b)(i) and
(c)(i)" substituted therefor.
2. Compensation for Amendment. In full compensation for the agreement of
the Employee to amend the Employment Agreement as set forth in Section 1 and for
the Employee's agreement not to solicit Clients and professional employees of
USTC as set forth therein, UST shall pay the Employee $1,210,000 within ten (10)
days after the execution and delivery of this Amendment by the Employee. In no
circumstances shall such amount be refundable to, or recoverable by, UST or any
other person or entity.
3. Miscellaneous.
(a) Capitalized terms used, but not otherwise defined, herein shall have
the meanings given them in the Employment Agreement.
(b) As amended hereby, the Employment Agreement shall hereafter continue in
full force and effect in accordance with its terms.
(c) This Amendment shall be governed by, and construed and enforced in
accordance with, the substantive laws of The Commonwealth of Massachusetts
without regard to its principles of conflicts of laws.
-2-
<PAGE> 3
IN WITNESS WHEREOF, USTC, UST and the Employee have executed this Amendment
as a sealed instrument as of the date first above written.
EMPLOYEE: UNITED STATES TRUST COMPANY
/s/ Domenic Colasacco By: /s/ Neil F. Finnegan
------------------------- -------------------------
Domenic Colasacco Title:
UST CORP.
By: /s/ Neil F. Finnegan
-------------------------
Title:
Pursuant to Article VII of that certain Unifying Agreement dated
February 14, 1995 among USTC, UST, the Employee, the undersigned and
certain others, the undersigned hereby consent and agree to the foregoing
Amendment.
/s/ Domenic Colasacco /s/ Robert Lincoln
------------------------- -------------------------
Domenic Colasacco Robert Lincoln
/s/ Stephen K. Moody /s/ Lucia Santini
------------------------- -------------------------
Stephen K. Moody Lucia Santini
/s/ William Apfel
-------------------------
William Apfel
-3-
<PAGE> 1
EXHIBIT 10(M)
PURCHASE AND SALE AGREEMENT
DATED as of November 18, 1998
between
PL 20 CABOT PROPERTIES LIMITED PARTNERSHIP
as Seller
and
MIDDLESEX REALTY HOLDINGS CORP.
as Purchaser
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Sale of the Property....................................................................................1
1.1. Excluded Property.......................................................................................2
1.2. Closing Date............................................................................................2
2. Purchase Price..........................................................................................2
3. Apportionments..........................................................................................3
3.1. Taxes...................................................................................................3
3.2. Rents...................................................................................................4
3.2.1. Arrearages..............................................................................................4
3.2.2. Additional Rents........................................................................................4
3.2.3. Collection After the Closing............................................................................4
3.3. Water. ................................................................................................5
3.4. Utilities. ............................................................................................5
3.5. Post-Closing Adjustments................................................................................5
4. Due Diligence Period....................................................................................6
4.1. Access to the Property..................................................................................6
4.2. Purchaser's Termination Notice..........................................................................8
4.3. Estoppel Certificates...................................................................................9
5. Title...................................................................................................9
5.1. Unacceptable Encumbrances...............................................................................9
5.2. Removal of Unacceptable Encumbrances...................................................................10
5.3. Options Upon Failure to Remove Unacceptable Liens......................................................10
5.4. Use of Purchase Price..................................................................................11
5.5. Transfer Taxes; Title Insurance Premiums...............................................................11
6. Representations and Warranties of the Seller...........................................................12
6.1. Survival of Representations............................................................................13
6.2. Discovery of Untrue Representation.....................................................................13
6.3. Limited Nature of Representations......................................................................14
7. Representations and Warranties of the Purchaser........................................................15
8. Documents to be Delivered by the Seller at Closing.....................................................16
9. Documents to be Delivered by the Purchaser at Closing..................................................18
10. Operation of the Property prior to the Closing Date....................................................19
10.1. New Leases.............................................................................................19
10.2. Termination of Existing Leases.........................................................................19
10.3. Insurance..............................................................................................19
11. Broker.................................................................................................20
12. Casualty; Condemnation.................................................................................20
12.1. Damage or Destruction..................................................................................20
12.2. Condemnation...........................................................................................21
12.3. Termination............................................................................................22
13. Conditions Precedent to Closing........................................................................22
13.1. Conditions Precedent to the Purchaser's Obligations to Perform.........................................22
13.2. Conditions Precedent to the Seller's Obligations to Perform. .........................................22
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
13.3. Conditions Precedent to Purchaser's and Seller's Obligations to Perform Regarding
Environmental Matters ...............................................................................23
13.4. Remedies Upon Failure to Satisfy Conditions............................................................24
14. Remedies...............................................................................................25
14.1. Seller's Inability to Perform..........................................................................25
14.2. Purchaser's Failure to Perform.........................................................................25
14.3. Seller's Failure to Perform............................................................................26
15. Escrow.................................................................................................26
16. Notices................................................................................................27
17. Property Information and Confidentiality...............................................................28
17.1. Press Releases.........................................................................................29
17.2. Return of Property Information.........................................................................29
17.3. Property Information Defined...........................................................................29
17.4. Remedies...............................................................................................30
18. Access to Records......................................................................................30
19. Assignments............................................................................................30
20. Entire Agreement, Amendments...........................................................................30
21. Merger.................................................................................................30
22. Limited Recourse.......................................................................................30
23. Miscellaneous..........................................................................................30
24. Time of the Essence....................................................................................32
25. IRS Form 1099-S Designation. ..........................................................................32
26. Attorney's Fees........................................................................................32
27. Counterparts...........................................................................................32
28. Tax Free Exchange......................................................................................33
</TABLE>
LIST OF SCHEDULES
1. Description of the Land
2. List of Additional Insureds
3. Permitted Encumbrances
4. Leases
5. Actions
6. [Intentionally Deleted]
7. Intangible Property
8. Additional Conditions to Seller's Obligations to Perform
LIST OF EXHIBITS
A Deed
B Lease Assignment
C Intangible Property Assignment
D Bill of Sale
E Notice to Tenants
F Tenant Estoppel Certificate
<PAGE> 4
G Seller's FIRPTA Affidavit
H Escrow Agreement
I [Intentionally Deleted]
J 1099 Designation Agreement
K Limited Warranty Bill of Sale
L Scope of Work for Subsurface Investigations
<PAGE> 5
TABLE OF DEFINED TERMS
The following capitalized terms are defined in the respective Section
of the Agreement identified below and are used in this Agreement as so defined:
"A & A Agreements" - as such term is defined in Section 8(c) hereof.
"Additional Rents" - as such term is defined in Section 3.2.2 hereof.
"Adjustment Date" - as such term is defined in Section 3 hereof.
"Agreement" - as such term is defined in the opening paragraph hereof.
"AUL" - as such term is defined in Section 8(o) hereof.
"Bill of Sale" - as such term is defined in Section 8(e) hereof.
"Broker" - as such term is defined in Section 11 hereof.
"Building" - as such term is defined in Section 1 hereof.
"Clearing House Bank" - as such term is defined in Section 2(a) hereof.
"Closing" - as such term is defined in Section 1.2 hereof.
"Closing Date" - as such term is defined in Section 1.2 hereof.
"Deed" - as such term is defined in Section 8(a) hereof.
"DEP" - as such term is defined in Section 8(o) hereof.
"Deposit" - as such term is defined in Section 15 hereof.
"Downpayment" - as such term is defined in Section 2(a) hereof.
"Downpayment A" as such term is defined in Section 2(a) hereof.
"Downpayment B" as such term is defined in Section 2(a) hereof.
"Due Diligence Period" - as such term is defined in Section 4 hereof.
"Escrow Agent" - as such term is defined in Section 2(a) hereof.
"Escrow Agreement" - as such term is defined in Section 15 hereof.
"Intangible Property Assignment" - as such term is defined in Section
8(d) hereof.
"Investigations" - as such term is defined in Section 4.1 hereof.
<PAGE> 6
"Land" - as such term is defined in Section 1 hereof.
"Laws" - as such term is defined in Section 6(c) hereof.
"Lease Assignment" - as such term is defined in Section 8(b) hereof.
"Lease" - as such term is defined in Section 6(d) hereof.
"Limited Warranty Bill of Sale" - as such term is defined in Section
8(n) hereof.
"MCP" - as such term is defined in Section 8(o) hereof.
"Permitted Encumbrances" - as such term is defined in Section 5 hereof.
"Personal Property" - as such term is defined in Section 1 hereof.
"Property" - as such term is defined in Section 1 hereof.
"Property Information" - as such term is defined in Section 17.3
hereof.
"Purchase Price" - as such term is defined in Section 2 hereof.
"Purchaser" - as such term is defined in the opening paragraph hereof.
"Purchaser's Documents" - as such term is defined in Section 7(b)
hereof.
"Purchaser LSP" shall mean Mark Guerins or any other Licensed Site
Professional as such term is used in the MCP which has been reasonably approved
by the Seller.
"Purchaser's Representatives" - as such term is defined in Section 17.3
hereof.
"Purchaser's Termination Notice" - as such term is defined in Section
4.2 hereof.
"RAO" - as such term is defined in Section 8(o) hereof.
"Rents" - as such term is defined in Section 3 hereof.
"Response Plan Account"- as such term is defined in Section 13.3
hereof.
"Right of First Offer Agreement" - as such term is defined in Section
8(m) hereof.
"Scope of Work" - as such term is defined in Section 13.3(a) hereof.
"Seller" - as such term is defined in the opening paragraph hereof.
"Seller's Affiliates" - as such term is defined in Section 22 hereof.
"Seller's Documents" - as such term is defined in Section 6(b) hereof.
<PAGE> 7
"Seller's LSP" shall mean Deborah Gevalt or any other Licensed Site
Professional as such term is used in the MCP which has been reasonably approved
by Purchaser.
"Seller's Response Plan" - as such term is defined in Section 13.3(b)
hereof.
"Seller's Test Data" - as such term is defined in Section 13.3(a)
hereof.
"Survey" - as such term is defined in Section 5 hereof.
"Surviving Obligations" - as such term is defined in Section 14.1
hereof.
"Title Commitment" - as such term is defined in Section 5 hereof.
"Title Company" - as such term is defined in Section 5 hereof.
"Transfer Tax Payments" - as such term is defined in Section 5.5
hereof.
"Transfer Tax Return" - as such term is defined in Section 5.6 hereof.
"Unacceptable Encumbrances" - as such term is defined in Section 5.1
hereof.
<PAGE> 8
PURCHASE AND SALE AGREEMENT
PURCHASE AND SALE AGREEMENT (this "Agreement"), dated as of the 18th
day of November, 1998, by and between PL 20 CABOT PROPERTIES LIMITED
PARTNERSHIP, a Massachusetts limited partnership, having an office c/o Preotle,
Lane & Associates Ltd., 535 Madison Avenue, New York, New York 10022-4212 (the
"Seller"), and MIDDLESEX REALTY HOLDINGS CORP., a Massachusetts corporation,
having an office at 30 Court Street, Boston, Massachusetts 02108 (the
"Purchaser").
W I T N E S S E T H
WHEREAS, the Seller is the owner of the real property known and
numbered as 20 Cabot Road, Medford, Massachusetts consisting of one building
commonly referred to as Riverview at Wellington;
WHEREAS, the Seller and the Purchaser have entered into negotiations
wherein the Purchaser expressed its intent to purchase the Property (as defined
herein) from the Seller and the Seller expressed its intent to sell the Property
to the Purchaser; and
WHEREAS, the Seller and the Purchaser now desire to enter into an
agreement whereby, subject to the terms and conditions contained herein, the
Seller shall sell the Property to the Purchaser and the Purchaser shall purchase
the Property from the Seller.
NOW, THEREFORE, in consideration of ten ($10.00) dollars and the mutual
covenants and agreements hereinafter set forth, and intending to be legally
bound hereby, it is hereby agreed as follows:
1. SALE OF THE PROPERTY.
The Seller agrees to sell and convey to the Purchaser, and the
Purchaser agrees to purchase from the Seller, at the price and upon the terms
and conditions set forth in this Agreement, all those certain plots, pieces and
parcels of land described in Schedule 1 hereto (the "Land") listed thereon as
owned by the Seller together with (i) all buildings and other improvements
situated on the Land (collectively, the "Building"), (ii) all easements, rights
of way, reservations, privileges, appurtenances, and other estates and rights of
the Seller pertaining to the Land and the Building, (iii) all right, title and
interest of the Seller in and to all fixtures, machinery, equipment, supplies
and other articles of personal property attached or appurtenant to the Land or
the Building, or used in connection therewith including, without limitation, all
liebert units, generators and raised floors located on, in or at the Building
(collectively, the "Personal Property"), and (iv) all right, title and interest
of the Seller, if any, in and to the trade names of the Building all intangible
property used or useful in connection with the foregoing including, without
limitation, all assignable contract rights, guaranties, licenses, permits and
warranties, if any, (the Land, together with all of the foregoing items listed
in clauses (i)-(iv) above being hereinafter sometimes referred to as the
"Property"). Additionally, Seller agrees to use reasonable efforts to assist the
Purchaser in its proposed acquisition of certain furniture of the tenant under
the Lease.
<PAGE> 9
1.1 EXCLUDED PROPERTY.
Specifically excluded from the Property and this sale are all items of
personal property not described in Section 1 and all personal property of the
tenant under the Lease.
1.2 CLOSING DATE.
The delivery of the Deed and the consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Bingham Dana LLP, 150 Federal Street, Boston, Massachusetts, at 10:00 A.M. on
a date which is the earlier to occur of (i) May 16, 1999; or (ii) thirty (30)
days after Seller has provided the Purchaser with written notice given after the
expiration of the Due Diligence Period of the intended Closing Date unless such
day is not a day on which the registry of deeds of Middlesex County,
Massachusetts is open for business, in which case, the Closing shall take place
on the next day on which such registry of deeds is open (the "Closing Date") or
such earlier or later date as the Seller and Purchaser may agree in writing.
2. PURCHASE PRICE.
The purchase price to be paid by the Purchaser to the Seller for the
Property (the "Purchase Price") is Twenty Three Million Dollars and No/100
Dollars ($23,000,000.00) payable as follows:
(a) Five Hundred Thousand Dollars and No/100 ($500,000.00)
("Downpayment A") shall be payable simultaneously with the execution and
delivery of this Agreement, by delivery to Chicago Title Insurance Company (the
"Escrow Agent") of a certified or bank check drawn on or by a bank which is a
member of the New York Clearing House Association (a "Clearing House Bank") or
by wire transfer of immediately available funds to the Escrow Agent's account as
set forth in the Escrow Agreement; and (ii) provided that the Purchaser has not
delivered Purchaser's Termination Notice, Four Million Five Hundred Thousand
Dollars and No/100 ($4,500,000.00) ("Downpayment B") (Downpayment A and
Downpayment B shall sometimes hereinafter be collectively referred to as the
"Downpayment") shall be payable to the Escrow Agent on or before 5:00 p.m.
Boston, Massachusetts time on or before the date hereof, by means of a certified
or bank check drawn on or by a Clearing House Bank or by wire transfer of
immediately available funds to the Escrow Agent's account as set forth in the
Escrow Agreement. The Downpayment shall be held and disbursed by the Escrow
Agent in accordance with the terms of Section 15. At the Closing, the Deposit
shall be delivered to the Seller and such amount shall be credited against the
portion of the Purchase Price payable pursuant to Section 2(b);
(b) The balance of the Purchase Price (i.e., the Purchase Price
minus the credit set forth in Section 2(a) above), plus or minus the
apportionments set forth in Section 3, shall be paid at the Closing by bank wire
transfer of immediately available funds to the Seller's account or to the
account or accounts of such other party or parties as may be designated by the
Seller on or before the Closing Date.
<PAGE> 10
3. APPORTIONMENTS.
The following shall be apportioned between the Seller and the Purchaser
at the Closing as of 11:59 p.m. of the day preceding the Closing Date (the
"Adjustment Date"):
(a) to the extent applicable, collected, fixed or base rents
("Rents") which have been prepaid, security deposits referred to in Section
8(d), collected Rents for the month in which the Closing occurs and Additional
Rents and other amounts paid by tenants applicable to periods which expire after
the Closing Date, which have been received by Seller;
(b) to the extent applicable, real estate taxes, special
assessments (but only any installment relating to the period in which the
Adjustment Date occurs), water charges, sewer rents and charges and vault
charges, if any, on the basis of the fiscal years (or applicable billing period
if other than a fiscal year), respectively, for which same have been assessed;
(c) utilities, to the extent required by Section 3.4;
(d) such other items as are customarily apportioned between
sellers and purchasers of real properties of a type similar to the Property and
located in Boston, Massachusetts.
3.1 TAXES.
If the amount of real estate taxes, special assessments or other taxes
for the Property for the fiscal year during which Closing occurs is not finally
determined at the Adjustment Date, such taxes shall be apportioned on the basis
of the full amount of the assessment for such period (or the assessment for the
prior tax period if the assessment for the current tax period is not then known)
and the rate for the immediately prior tax year, and shall be reapportioned as
soon as the new tax rate and valuation, if any, has been finally determined. If
any taxes which have been apportioned shall subsequently be reduced by
abatement, the amount of such abatement, less the cost of obtaining the same and
after deduction of sums payable to the tenant under the Lease or expired or
terminated leases of the Property, shall be equitably apportioned between the
parties hereto.
3.2 RENTS.
3.2.1 ARREARAGES.
If on the Closing Date the tenant under the Lease is in
arrears in the payment of Rent or has not paid the Rent payable by it for the
month in which the Closing occurs (whether or not it is in arrears for such
month on the Closing Date), any Rents received by the Purchaser or the Seller
from such tenant after the Closing shall be applied to amounts due and payable
by such tenant during the following periods in the following order of priority:
(i) first, to the month in which the payment is received, (ii) second, if
applicable, to the months following the month in which the Closing occurred and
(iii) third, to the month preceding the month in which the Closing occurred. If
Rents or any portion thereof received by the Seller or the Purchaser after the
Closing are due and payable to the other party by
<PAGE> 11
reason of this allocation, the appropriate sum, less a proportionate share of
any reasonable attorneys' fees and costs and expenses expended in connection
with the collection thereof, shall be promptly paid to the other party (to the
extent not collected from or reimbursed by the tenant under the Lease).
3.2.2 ADDITIONAL RENTS.
If the tenant under the Lease is required to pay percentage
rent, escalation charges for real estate taxes, parking charges, operating
expenses and maintenance escalation charges, cost-of-living increases or other
charges of a similar nature ("Additional Rents") and any Additional Rents are
collected by the Purchaser from such tenant after the Closing Date, then the
Purchaser shall promptly pay to the Seller out of the first such sums received
from such tenant the amount of all Additional Rents which are due and payable by
such tenant with respect to any period prior to the Closing Date (whether or not
such Additional Rents first became due and payable on or after the Closing
Date), less a proportionate share of any reasonable attorneys' fees and costs
and expenses of collection thereof (to the extent not collected from or
reimbursed by the tenant under the Lease).
3.2.3 COLLECTION AFTER THE CLOSING.
After the Closing, the Seller shall continue to have the
right, in its own name, to demand payment of and to collect Rent and Additional
Rent arrearages owed to the Seller by the tenant under the Lease, which right
shall include, without limitation, the right to continue or commence legal
actions or proceedings against such tenant. The Purchaser agrees to reasonably
cooperate with the Seller in connection with all efforts by the Seller to
collect such Rents and Additional Rents and to take all steps, whether before or
after the Closing Date, as may be reasonably necessary to carry out the
intention of the foregoing, including, without limitation, the delivery to the
Seller, upon demand, of any relevant books and records (including any Rent or
Additional Rent statements, receipted bills and copies of tenant checks used in
payment of such Rent or Additional Rent), the execution of any and all consents
or other documents, and the undertaking of any act reasonably necessary for the
collection of such Rents and Additional Rents by the Seller.
3.3 WATER.
If there is a water meter on the Property, the Seller shall furnish a
reading to a date not more than thirty (30) days prior to the Closing Date, and
the unfixed water charges and sewer rent, if any, based thereon for the
intervening time shall be apportioned on the basis of such last reading.
3.4 UTILITIES.
The Seller will attempt to obtain final cut-off readings of fuel,
telephone, electricity, and gas to be made as of the Adjustment Date. The Seller
shall pay or cause the tenant under the Lease to pay the bills based on such
readings promptly after the same are rendered. If arrangements cannot be made
for any such cut-off reading, the parties shall apportion the
<PAGE> 12
charges for such services on the basis of the bill therefor for the most recent
billing period prior to the Adjustment Date, and when final bills are rendered
for the period which includes the Adjustment Date the Seller and Purchaser shall
promptly readjust the apportionments in accordance with such final bills.
3.5 POST-CLOSING ADJUSTMENTS.
The items set forth in this Section 3 shall be apportioned at the
Closing by payment of the net amount of such apportionments to the Seller in the
manner set forth herein for the payment of the Purchase Price if the net
apportionment is in favor of the Seller or by a credit against the Purchase
Price if the net apportionment is in favor of the Purchaser. However, if any of
the items subject to apportionment under the foregoing provisions of this
Section 3 cannot be apportioned at the Closing because of the unavailability of
the information necessary to compute such apportionment, or if any errors or
omissions in computing apportionments at the Closing are discovered subsequent
to the Closing, then such item shall be reapportioned and such errors and
omissions corrected as soon as practicable after the Closing Date and the proper
party reimbursed, which obligation shall survive the Closing for a period of one
year after the Closing Date. Notwithstanding any of the foregoing provisions of
this Section 3.5 to the contrary, the Purchaser and the Seller agree that the
one year limitation set forth in this Section 3.5 shall not apply to the
parties' obligations under Sections 3.1 and 3.2 and that such obligations shall
survive the Closing forever.
4. DUE DILIGENCE PERIOD.
Notwithstanding anything to the contrary contained herein, the
Purchaser had a period which commenced prior to the date hereof and terminated
at 5:00 p.m. (EST) on November 6, 1998 (the "Due Diligence Period") to examine
title to the Property, to inspect the physical condition of the Property and to
review the Property Information. Neither the Purchaser nor the Purchaser's
Representatives were permitted during the Due Diligence Period to contact any
governmental authority or any of the Seller's tenants, vendors, employees,
consultants or contractors prior to the Closing without (i) providing Seller
with one (1) day prior written notice of such contact, and (ii) if Seller so
requested within such one (1) day period, a representative of Seller being
present. Nothing contained in this Section 4 is intended to preclude Purchaser
from reviewing public records such as documents on record at the Middlesex
County (Southern District) Registry of Deeds or the building jacket for the
Building on file with the Medford Building Inspector.
4.1 ACCESS TO THE PROPERTY.
During the Due Diligence Period, the Purchaser and the Purchaser's
Representatives had the right to enter upon the Property for the sole purpose of
inspecting the Property and making surveys, and other investigations,
inspections and tests of the Property, including, without limitation, all
structural and mechanical systems within the Building (collectively,
"Investigations" which term shall not include Purchaser's internal work
product), provided (i) the Purchaser gave the Seller not less than one (1)
business days' prior written notice before each entry, and (ii) the first such
notice shall include sufficient information to permit the Seller
<PAGE> 13
to review the scope of the proposed Investigations. Purchaser did not during the
Due Diligence Period and does not now have the right to conduct any subsurface
investigations at the Property, any such investigations shall be undertaken by
the Seller pursuant to Section 13.3(a) hereof. Any entry upon the Property and
all Investigations during the Due Diligence Period were to have been during the
Seller's normal business hours and were and remain at the sole risk and expense
of the Purchaser and the Purchaser's Representatives, and were not to have
disrupted the activities on or about the Property of the Seller, its tenants and
their employees and invitees in any substantial manner. The Purchaser was
required during the Due Diligence Period and remains obligated to:
(a) promptly repair any damage to the Property resulting from
any such Investigations and replace, refill and regrade any holes made
in, or excavations of, any portion of the Property used for such
Investigations so that the Property shall be in the same condition as
that which existed prior to such Investigations;
(b) fully comply with all Laws applicable to the
Investigations and all other activities undertaken in connection
therewith;
(c) permit the Seller and/or the tenant under the Lease to
have a representative present during all Investigations undertaken
hereunder;
(d) take all actions and implement all protections necessary
to ensure that all actions taken in connection with the Investigations,
and the equipment, materials, and substances generated, used or brought
onto the Property pose no threat to the safety or health of persons or
the environment, and cause no damage to the Property or other property
of the Seller or other persons;
(e) if requested by the Seller, furnish to the Seller, at no
cost or expense to the Seller, copies of all surveys, engineering,
asbestos, environmental and other studies and reports relating to the
Investigations which the Purchaser shall obtain from third party
consultants with respect to the Property promptly after the Purchaser's
receipt of same, Seller hereby waives any claims, actions or causes of
action against Purchaser or any such third party consultant with
respect to the accuracy or completeness of any such studies or reports
delivered to Seller by Purchaser;
(f) maintain or cause to be maintained, at the Purchaser's
expense, a policy of comprehensive general public liability insurance
with a combined single limit of not less than $1,000,000 per occurrence
for bodily injury and property damage, automobile liability coverage
including owned and hired vehicles with a combined single limit of
$1,000,000 per occurrence for bodily injury and property damage, and an
excess umbrella liability policy for bodily injury and property damage
in the minimum amount of $3,000,000, insuring the Purchaser and the
Seller and certain of Seller's Affiliates listed on Schedule 2, as
additional insureds, against any injuries or damages to persons or
property that may result from or are related to (i) the Purchaser's
and/or the Purchaser's Representatives' entry upon the Property, (ii)
any Investigations or other activities conducted thereon, and (iii) any
and all other activities undertaken by the
<PAGE> 14
Purchaser and/or the Purchaser's Representatives in connection with the
Property, and deliver evidence of such insurance policy to the Seller
at the earlier of ten (10) days after the date of this Agreement or the
first entry on the Property; and
(g) subject to the final sentence of Section 17 hereof,
indemnify the Seller and the Seller's Affiliates and hold the Seller
and the Seller's Affiliates harmless from and against any and all
claims, demands, causes of action, losses, damages, liabilities, costs
and expenses (including without limitation attorneys' fees and
disbursements), suffered or incurred by the Seller or any of the
Seller's Affiliates and arising out of or in connection with (i) the
Purchaser and/or the Purchaser's Representatives' entry upon the
Property, (ii) any Investigations or other activities conducted thereon
by the Purchaser or the Purchaser's Representatives, and (iii) any
liens or encumbrances filed or recorded against the Property as a
consequence of the Investigations or any other activities conducted
thereon by the Purchaser or the Purchaser's Representatives.
The provisions of this Section 4.1 shall survive the termination of
this Agreement and the Closing.
4.2 PURCHASER'S TERMINATION NOTICE.
Subject to the provisions of the last paragraph of this Section 4.2,
the Purchaser shall have the right to elect to terminate this Agreement by
giving written notice (the "Purchaser's Termination Notice") of such election to
the Seller at any time prior to the expiration of the Due Diligence Period if
the Purchaser shall determine, in Purchaser's sole discretion, that the Property
is not satisfactory for any reason whatsoever.
If for any reason whatsoever the Seller shall not have received the
Purchaser's Termination Notice prior to the expiration of the Due Diligence
Period, the Purchaser shall be deemed to have irrevocably waived the right of
termination granted under this Section 4.2, and such right of termination shall
be of no further force or effect, provided, however, failure by the Purchaser to
deliver Downpayment B on or before the date hereof shall be deemed receipt by
Seller of Purchaser's Termination Notice as of such time and date.
Purchaser and Seller acknowledge and agree that the Due Diligence
Period has terminated and that the Purchaser has no right to terminate the
Agreement pursuant to this Section 4.2.
4.3 ESTOPPEL CERTIFICATE.
The Seller shall use reasonable efforts to obtain an estoppel
certificate from the tenant under the Lease (i) as soon as practicable after
November 6, 1998; and (ii) in the event that the tenant under the Lease is still
in occupancy of the Property on the Closing Date, within thirty (30) days of the
Closing Date, but in no event shall it be deemed to be an obligation of the
Seller under this Agreement to obtain either executed estoppel certificate. The
estoppel certificates shall be in the form annexed hereto as Exhibit F and made
a part hereof. If the tenant under the Lease fails to deliver either estoppel
certificate in the form required by this
<PAGE> 15
Agreement, Seller shall have the right to substitute in lieu thereof an estoppel
certificate substantially in such form executed by Seller and such estoppel
certificate shall be treated for all purposes as an estoppel certificate from
such tenant. In the event that the tenant under the Lease is no longer in
occupancy of the Property as of the Closing Date, the Seller shall provide the
Purchaser with a certificate at Closing indicating that the tenant under the
Lease has vacated the Property. Purchaser shall not contact the tenant under the
Lease prior to Closing without (i) providing Seller with one (1) day prior
written or telephonic notice of such contact, and (ii) if Seller so requests,
within such one (1) day period, a representative of Seller being present.
5. TITLE.
The Seller shall convey and the Purchaser shall accept title to the
Property subject to those matters set forth on Schedule 3 hereto (collectively
the "Permitted Encumbrances"). The Seller has delivered to the Purchaser, at the
Seller's expense, a commitment for an owner's fee title insurance policy with
respect to the Property (the "Title Commitment") from Chicago Title Insurance
Company (the "Title Company"), together with true and complete copies of all
instruments giving rise to any defects or exceptions to title to the Property.
The Seller has delivered to the Purchaser, at the Seller's expense, an as-built
survey ("Survey") of the Land and Building after the date of this Agreement and
prepared in accordance with the "Minimum Standard Detail Requirements for
ALTA/ACSM Land Title Surveys" for Urban Surveys (including Table A items 1, 2,
3, 4, 6, 7, 8, 9, 10, 11 and 13) jointly established and adopted by ALTA and
ACSM in 1992.
5.1 UNACCEPTABLE ENCUMBRANCES.
If the Title Commitment or the Survey indicate the existence of any
liens or encumbrances (collectively, "Liens") or other defects or exceptions in
or to title to the Property other than the Permitted Encumbrances (collectively,
the "Unacceptable Encumbrances") subject to which the Purchaser is unwilling to
accept title and the Purchaser gives the Seller notice of the same within
fourteen (14) days after the later to occur of Purchaser's receipt of (i) the
Title Commitment or (ii) the Survey, and the Seller shall undertake to eliminate
the same (or to arrange for title insurance insuring against enforcement of such
Unacceptable Encumbrances against, or collection of the same out of, the
Property) subject to Section 5.2. The Purchaser hereby waives any right the
Purchaser may have to advance as objections to title or as grounds for the
Purchaser's refusal to close this transaction any Unacceptable Encumbrance which
the Purchaser does not notify the Seller of within such fourteen (14) day period
unless (i) such Unacceptable Encumbrance was first raised by the Title Company
subsequent to the date of the Title Commitment or the Purchaser shall otherwise
first discover same or be advised of same subsequent to the date of the Title
Commitment or the Survey, respectively, and (ii) the Purchaser shall notify the
Seller of the same within five (5) days after the Purchaser first becomes aware
of such Unacceptable Encumbrance. Seller agrees to notify Purchaser within five
(5) days of any new liens of record of which Seller has actual knowledge of and
which arise subsequent to the date of the Title Commitment. The Seller, in its
sole discretion, may adjourn the Closing one or more
<PAGE> 16
times for up to sixty (60) days in the aggregate in order to eliminate
Unacceptable Encumbrances provided, however, that the Closing may not be
adjourned beyond June 30, 1999.
5.2 REMOVAL OF UNACCEPTABLE ENCUMBRANCES.
The Seller shall not be obligated to bring any action or proceeding, to
make any payments or otherwise to incur any expense in order to eliminate
Unacceptable Encumbrances not waived by the Purchaser or to arrange for title
insurance insuring against enforcement of such Unacceptable Encumbrances
against, or collection of the same out of, the Property; except that the Seller
shall satisfy Unacceptable Encumbrances which are (i) mortgages and past due
real estate taxes and assessments secured by or affecting the Property, and (ii)
judgments against the Seller or other Liens secured by or affecting the Property
which judgments and other Liens can be satisfied by payment of liquidated
amounts not to exceed $2,000,000 in the aggregate for all such judgments and
other Liens. The Seller may eliminate any such Unacceptable Encumbrance by the
payment of amounts necessary to cause the removal thereof of record, by bonding
over such Unacceptable Encumbrance in a manner reasonably satisfactory to the
Purchaser or by arranging for title insurance reasonably satisfactory to the
Purchaser insuring against enforcement of such Unacceptable Encumbrance against,
or collection of the same out of, the Property.
5.3 OPTIONS UPON FAILURE TO REMOVE UNACCEPTABLE LIENS.
If the Seller is unable or is not otherwise obligated (pursuant to
Section 5.2) to eliminate all Unacceptable Encumbrances not waived by the
Purchaser, or to bond over in a manner reasonably satisfactory to the Purchaser
any Unacceptable Encumbrances not waived by the Purchaser, or to arrange for
title insurance reasonably acceptable to the Purchaser insuring against
enforcement of such Unacceptable Encumbrances against, or collection of the same
out of, the Property, and to convey title in accordance with the terms of this
Agreement on or before the Closing Date (whether or not the Closing is adjourned
as provided in Section 5.1), the Purchaser shall elect on the Closing Date, as
its sole remedy for such inability of the Seller, either (i) to terminate this
Agreement by notice given to the Seller pursuant to Section 14.1, in which event
the provisions of Section 14.1 shall apply, or (ii) to accept title subject to
such Unacceptable Encumbrances and receive no credit against, or reduction of,
the Purchase Price.
5.4 USE OF PURCHASE PRICE.
If on the Closing Date there may be any Liens or other encumbrances
which the Seller must pay or discharge in order to convey to the Purchaser such
title as is herein provided to be conveyed, the Seller may use any portion of
the Purchase Price to satisfy the same, provided:
(a) the Seller shall deliver to the Purchaser or the Title
Company, at the Closing, instruments in recordable form and sufficient
to satisfy such Liens or other encumbrances of record together with the
cost of recording or filing said instruments; or
<PAGE> 17
(b) the Seller, having made arrangements with the Title
Company, shall deposit with said company sufficient moneys acceptable
to said company to insure the obtaining and the recording of such
satisfactions.
5.5 TRANSFER TAXES; TITLE INSURANCE PREMIUMS.
At the Closing, the Seller shall pay all transfer taxes (the "Transfer
Tax Payments") imposed pursuant to the Laws of the Commonwealth of Massachusetts
or any other governmental authority in respect of the transactions contemplated
by this Agreement by delivery to the Title Company of sufficient funds to pay
such taxes. At the Closing, the premiums due the Title Company to obtain title
insurance policies in the form contemplated by the Title Commitment (as the same
may be amended pursuant to this Agreement), the cost of obtaining the Survey,
and recording fees of the Title Company shall be paid by the Purchaser. Any fee
owed to the Escrow Agent for its services as Escrow Agent shall be divided
equally between Purchaser and Seller. The Seller shall also pay for the cost of
recording any lien discharges which are required in order for Seller to deliver
title to the Property in accordance with the terms of this Agreement.
6. REPRESENTATIONS AND WARRANTIES OF THE SELLER.
The Seller represents and warrants to the Purchaser as follows:
(a) The Seller is a duly formed and validly existing limited
partnership organized under the laws of the Commonwealth of
Massachusetts and is qualified under the laws of the Commonwealth of
Massachusetts to conduct business therein.
(b) The Seller has the full, legal right, power and authority
to execute and deliver this Agreement and all documents now or
hereafter to be executed by the Seller pursuant to this Agreement
(collectively, the "Seller's Documents"), to consummate the transaction
contemplated hereby, and to perform its obligations hereunder and under
the Seller's Documents.
(c) This Agreement and the Seller's Documents do not and will
not contravene any provision of the limited partnership agreement of
the Seller, any judgment, order, decree, writ or injunction issued
against the Seller, or, to the Seller's actual knowledge, any provision
of any laws or governmental ordinances, rules, regulations, orders or
requirements (collectively, the "Laws") applicable to the Seller. The
consummation of the transactions contemplated hereby will not result in
a breach or constitute a default or event of default by the Seller
under any agreement to which the Seller or any of its assets are
subject or bound and will not result in a violation of any Laws
applicable to the Seller.
(d) The Seller has no actual knowledge of any leases,
licenses, other occupancy agreements or material agreements which will
survive termination of the Lease and the conveyance of the Property to
Purchaser affecting any portion of the Property on the date hereof,
except for (i) the Lease described in Schedule 4 annexed
<PAGE> 18
hereto and made a part hereof (the "Lease"); and (ii) any other
instrument described on Schedule 4. To Seller's actual knowledge, the
copy of the Lease furnished by the Seller to the Purchaser is true and
complete. To the Seller's actual knowledge, the Lease is in full force
and effect, without any material default by the Seller or the tenant
thereunder. To the Seller's actual knowledge, except as listed on
Schedule 4, the Seller has not given or received any notice of default
which remains uncured or unsatisfied, with respect to the Lease, nor
does any condition exist which with the passage of time the giving of
notice or would constitute a default under the Lease by Seller or the
tenant under the Lease.
(e) To the Seller's actual knowledge, there are no pending
actions, suits, proceedings or investigations to which the Seller is a
party before any court or other governmental authority with respect to
the Property owned by the Seller except as set forth on Schedule 5
hereto. To the best of Seller's actual knowledge, Seller has not
received written notice of a threat of any such actions, suits,
proceedings or investigations except as set forth on Schedule 5.
(f) To the best of Seller's actual knowledge, Seller has not
received notice from any insurance company of any defects or
inadequacies in any portion of the Property.
(g) From and after the date hereof until the termination of
this Agreement by virtue of sale of the Property to the Purchaser or
otherwise, the Seller shall not enter into any agreement for the sale
of the Property, including, without limitation, any agreement for the
sale of the Property which is contingent upon the termination of this
Agreement.
(h) Except as set forth in the Lease and in this Agreement,
Seller has not granted any options to acquire the Property or leases to
occupy all or any portion of the Property, which remain in effect.
6.1 SURVIVAL OF REPRESENTATIONS.
The representations and warranties of the Seller set forth in this
Section 6 (i) shall be true, accurate and correct in all material respects upon
the execution of this Agreement and shall be deemed to be repeated on and as of
the Closing Date (except as they relate only to an earlier date), and (ii) shall
remain operative and shall survive the Closing and the execution and delivery of
the Deed for a period of one year following the Closing Date and then shall
expire, and no action or claim based thereon shall be commenced after such
period.
6.2 DISCOVERY OF UNTRUE REPRESENTATION.
If at or prior to the Closing, (i) the Purchaser shall become aware
that any of the representations or warranties made herein by the Seller is
untrue, inaccurate or incorrect in any material respect and shall give the
Seller notice thereof at or prior to the Closing, or (ii) the Seller shall
notify the Purchaser that a representation or warranty made herein by the Seller
is
<PAGE> 19
untrue, inaccurate or incorrect, then the Seller may, in its sole discretion
(unless Seller is obligated pursuant to Section 5.2 hereof to use efforts to
cure such untrue, inaccurate or incorrect representation or warranty, in which
case Seller will use such efforts as are required under Section 5.2 hereof to
cure such untrue, inaccurate or incorrect representation or warranty), elect by
notice to the Purchaser to adjourn the Closing one or more times for up to sixty
(60) days in the aggregate in order to cure or correct such untrue, inaccurate
or incorrect representation or warranty provided, however, that Seller may not
adjourn the Closing beyond June 30, 1999. If any such representation or warranty
is not cured or corrected by the Seller on or before the Closing Date (whether
or not the Closing is adjourned as provided above), then the Purchaser, as its
sole remedy for such inability of Seller, shall elect either (i) to waive such
misrepresentations or breaches of warranties and consummate the transactions
contemplated hereby without any reduction of or credit against the Purchase
Price, or (ii) to terminate this Agreement by notice given to Seller pursuant to
the provisions of Section 14.1. In the event the Closing occurs, the Purchaser
hereby expressly waives, relinquishes and releases any right or remedy available
to it at law, in equity or under this Agreement to make a claim against the
Seller for damages that the Purchaser may incur, or to rescind this Agreement
and the transactions contemplated hereby, as the result of any of the Seller's
representations or warranties being untrue, inaccurate or incorrect if the
Purchaser knew, should have known or is deemed to have known that such
representation or warranty was untrue, inaccurate or incorrect at the time of
the Closing and the Purchaser nevertheless closes title hereunder.
6.3 LIMITED NATURE OF REPRESENTATIONS.
The Purchaser acknowledges that neither the Seller nor any of the
Seller's Affiliates, nor any of their agents or representatives, nor Broker has
made any representations or held out any inducements to the Purchaser other than
those specifically set forth in this Section 6 and Section 11. The Purchaser
acknowledges that the Seller, pursuant to the terms of this Agreement, has
afforded or will afford the Purchaser the opportunity for full and complete
investigations, examinations and inspections of the Property and all Property
Information. The Purchaser acknowledges and agrees that (i) the Property
Information delivered or made available to the Purchaser and the Purchaser's
Representatives by the Seller or the Seller's Affiliates, or any of their agents
or representatives may have been prepared by third parties and may not be the
work product of the Seller and/or any of the Seller's Affiliates; (ii) neither
the Seller nor any of the Seller's Affiliates has made any independent
investigation or verification of, or has any knowledge of, the accuracy or
completeness of, the Property Information; (iii) the Purchaser is relying solely
on its own investigations, examinations and inspections of the Property and
those of the Purchaser's Representatives and is not relying in any way on the
Property Information furnished by the Seller or any of the Seller's Affiliates,
or any of their agents or representatives, except to the extent of any
representations or warranties expressly set forth in Section 6(a)-(h) of this
Agreement specifically with regard to such Property Information; and (iv) except
as may be expressly set forth in Section 6(a)-(h) of this Agreement specifically
with regard to such Property Information, the Seller expressly disclaims any
representations or warranties with respect to the accuracy or completeness of
the Property Information, and the Purchaser releases the Seller and the Seller's
Affiliates, and
<PAGE> 20
their agents and representatives, from any and all liability with respect
thereto. The Purchaser or anyone claiming by, through or under the Purchaser,
hereby fully and irrevocably releases the Seller and the Seller's Affiliates
from any and all claims that it may now have or hereafter acquire against any of
the Seller or the Seller's Affiliates for any cost, loss, liability, damage,
expense, action or cause of action, whether foreseen or unforeseen, arising from
or related to the presence of environmentally hazardous, toxic or dangerous
substances, or any other conditions (whether patent, latent or otherwise)
affecting the Property, except for claims against the Seller based upon any
obligations and liabilities of the Seller expressly provided in this Agreement.
The provisions of this Section 6 shall survive the Closing.
7. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser represents and warrants to the Seller as follows:
(a) The Purchaser is a duly formed and validly existing
corporation organized under the laws of the Commonwealth of
Massachusetts.
(b) The Purchaser has the full, legal right, power, authority
and financial ability to execute and deliver this Agreement and all
documents now or hereafter to be executed by it pursuant to this
Agreement (collectively, the "Purchaser's Documents"), to consummate
the transactions contemplated hereby, and to perform its obligations
hereunder and under the Purchaser's Documents.
(c) This Agreement and the Purchaser's Documents do not and
will not contravene any provision of the articles of organization of
the Purchaser, any judgment, order, decree, writ or injunction issued
against the Purchaser, or to the Purchaser's actual knowledge any
provision of any Laws applicable to the Purchaser. The consummation of
the transactions contemplated hereby will not result in a breach or
constitute a default or event of default by the Purchaser under any
agreement to which the Purchaser or any of its assets are subject or
bound and will not result in a violation of any Laws applicable to the
Purchaser.
(d) To Purchaser's actual knowledge, there are no pending
actions, suits, proceedings or investigations to which the Purchaser is
a party before any court or other governmental authority which may have
an adverse impact on the transactions contemplated hereby.
The representations and warranties of the Purchaser set forth in this
Section 7 and elsewhere in this Agreement shall be true, accurate and correct in
all material respects upon the execution of this Agreement, shall be deemed to
be repeated on and as of the Closing Date (except as they relate only to an
earlier date) and shall survive the Closing for a period of two (2) years.
8. DOCUMENTS TO BE DELIVERED BY THE SELLER AT CLOSING.
<PAGE> 21
At the Closing, the Seller shall execute, acknowledge and/or deliver,
as applicable, the following to the Purchaser:
(a) A quitclaim deed (the "Deed") conveying title to the
Property in the form of Exhibit A annexed hereto and made a part
hereof.
(b) In the event that the Lease is in force and effect as of
the Closing Date, the Assignment and Assumption of Leases and Security
Deposits in the form of Exhibit B annexed hereto and made a part hereof
assigning without warranty or representation all of the Seller's right,
title and interest, if any, in and to the Lease in effect on the
Closing Date, all guarantees thereof and the security deposits
thereunder in the Seller's possession, if any (the "Lease Assignment").
(c) The Assignment and Assumption of Intangible Property in
the form of Exhibit C annexed hereto and made part hereof assigning
without warranty or representation all of the Seller's right, title and
interest, if any, in and to all intangible property owned by the Seller
with respect to the operation of the Property listed on Schedule 7
annexed hereto and made a part hereof, including, without limitation,
the trade name Riverview at Wellington (the "Intangible Property
Assignment") (the Lease Assignment and the Intangible Property
Assignment are herein referred to collectively as the "A & A
Agreements").
(d) In the event that the Lease is in full force and effect as
of the Closing Date, to the extent in the Seller's possession, executed
counterparts of the Lease and any amendments, guarantees and other
documents relating thereto, together with a schedule of any security
deposit thereunder and the accrued interest on such security deposit
payable to tenant under the Lease which are in the possession of or
received by the Seller.
(e) A bill of sale in the form of Exhibit E annexed hereto and
made a part hereof (the "Bill of Sale") conveying, transferring and
selling to the Purchaser without warranty or representation all right,
title and interest of the Seller in and to the Personal Property, which
is not conveyed pursuant to the Limited Warranty Bill of Sale.
(f) In the event that the Lease is in full force and effect as
of the Closing Date, a notice to the tenant under the Lease in the form
of Exhibit E annexed hereto and made a part hereof advising the tenant
of the sale of the Property to the Purchaser and directing that rents
and other payments thereafter be sent to the Purchaser or as the
Purchaser may direct.
(g) A certificate of a general partner of the Seller that the
Seller has taken all necessary partnership action to authorize the
execution, delivery and performance of this Agreement and the
consummation of the transaction contemplated hereby.
<PAGE> 22
(h) In the event that the Lease is in full force and effect as
of the Closing Date, an executed original of the estoppel certificate
or certificate of the Seller required by Section 4.3.
(i) To the extent in the Seller's possession and not already
located at the Property, keys to all entrance doors to, and equipment
and utility rooms located in, the Property.
(j) To the extent in the Seller's possession and not already
located at the Property, all Licenses.
(k) To the extent in the Seller's possession and not located
at the Building, plans and specifications of the Building.
(l) A "FIRPTA" affidavit sworn to by the Seller in the form of
Exhibit G annexed hereto and made a part hereof. The Purchaser
acknowledges and agrees that upon the Seller's delivery of such
affidavit, the Purchaser shall not withhold any portion of the Purchase
Price pursuant to Section 1445 of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder.
(m) a certificate issued by the Secretary of State of the
Commonwealth of Massachusetts indicating that the Seller is in legal
existence and corporate good standing.
(n) A Special Warranty Bill of Sale in the form of Exhibit L
annexed hereto and made a part hereof (the "Limited Warranty Bill of
Sale") conveying, transferring and selling to the Purchaser all right,
title and interest of the Seller in and to the Libert Units, generators
and raised floors located at the Building.
(o) Subject to the provisions of Section 13.3, a copy of a
Response Action Outcome ("RAO") Statement, evidencing receipt by the
Massachusetts Department of Environmental Protection ("DEP"), pursuant
to the Massachusetts Contingency Plan, 310 CMR 40.0000 (the "MCP"),
which RAO Statement supports a Class A or Class B RAO, with or without
an Activity and Use Limitation ("AUL"). In the event the RAO Statement
relies upon the implementation of an AUL, such AUL shall not limit the
use of the Building as an operations center for the Purchaser or as
general office space or for any other commercial or industrial use
otherwise allowed under applicable law.
(p) All other documents the Seller is required to deliver
pursuant to the provisions of this Agreement, including, without
limitation, any documents reasonably required by the Title Company for
the purpose of issuing an owner's policy of title insurance without
exception for mechanics' liens or parties in possession.
9. DOCUMENTS TO BE DELIVERED BY THE PURCHASER AT CLOSING.
<PAGE> 23
At the Closing, the Purchaser shall execute, acknowledge and/or
deliver, as applicable, the following to the Seller:
(a) The cash portion of the Purchase Price payable at the
Closing pursuant to Section 2, subject to apportionments, credits and
adjustments as provided in this Agreement.
(b) The Bill of Sale.
(c) If the Purchaser is a corporation, (i) copies of the
articles of organization and by-laws of the Purchaser and of the
resolutions of the board of directors of the Purchaser authorizing the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement
certified as true and correct by the Secretary or Assistant Secretary
of the Purchaser; (ii) a good standing certificate issued by the state
of incorporation of the Purchaser, dated within thirty (30) days of the
Closing Date; and (iii) an incumbency certificate executed by the Clerk
or Assistant Clerk of the Purchaser with respect to those officers of
the Purchaser executing any documents or instruments in connection with
the transactions contemplated herein.
(d) The A & A Agreements.
(e) The Limited Warranty Bill of Sale.
(f) All other documents the Purchaser is required to deliver
pursuant to the provisions of this Agreement.
10. OPERATION OF THE PROPERTY PRIOR TO THE CLOSING DATE.
Between the date hereof and the Closing Date, the Seller shall continue
to operate and maintain the Property in accordance with its customary practice.
10.1 NEW LEASES; ALTERATION OF LEASE.
From and after the date hereof until the Closing Date or the earlier
termination of this Agreement, the Seller shall not enter into any new lease
with respect to the Property or alter the Lease without the prior written
consent of the Purchaser. The Seller shall not enter into any new lease with
respect to the Property which is contingent upon the termination of this
Agreement.
10.2 TERMINATION OF LEASE.
Notwithstanding anything to the contrary contained in this Agreement,
the Seller reserves the right, but is not obligated, to institute summary
proceedings against the tenant under the Lease or terminate the Lease as a
result of a default by the tenant thereunder prior to the Closing Date. The
Seller makes no representations and assumes no responsibility with respect to
(i) the continued occupancy of the Property or any part thereof by the tenant
under
<PAGE> 24
the Lease and (ii) the fulfillment by such tenant of its obligations under the
Lease. The removal of such tenant whether by summary proceedings or otherwise
prior to the Closing Date shall not give rise to any claim on the part of the
Purchaser. Further, the Purchaser agrees that it shall not be grounds for the
Purchaser's refusal to close this transaction that such tenant is a holdover
tenant or in default under its Lease pursuant to any economic or non-economic
terms of the Lease on the Closing Date and the Purchaser shall accept title
subject to such holding over or default without credit against, or reduction of,
the Purchase Price.
10.3 INSURANCE.
Until the Closing, Seller shall maintain, or cause the tenant under the
Lease to maintain, insurance on the Property in accordance with the terms of the
Lease.
11. BROKER.
The Purchaser and the Seller represent and warrant to each other that
John Power, David Fitzgerald and Phil Giunta of CB Richard Ellis Whittier
Partners (collectively, the "Broker") is the sole broker with whom they have
dealt in connection with the Property and the transactions described herein. The
Purchaser shall be liable for, and shall indemnify the Seller against, all
brokerage commissions or other compensation due to John Power and David
Fitzgerald arising out of the transaction contemplated in this Agreement, which
compensation shall be paid subject and pursuant to a separate agreement between
the Purchaser and the Broker. The Seller shall be liable for and shall indemnify
the Purchaser against, all brokerage commissions or other compensation due to
Phil Giunta arising out of the transaction contemplated in this Agreement, which
compensation shall be paid subject and pursuant to a separate agreement between
Seller and Broker. Each party hereto agrees to indemnify, defend and hold the
other harmless from and against any and all claims, causes of action, losses,
costs, expenses, damages or liabilities, including reasonable attorneys' fees
and disbursements, which the other may sustain, incur or be exposed to, by
reason of any claim or claims by any broker, finder or other person, except (in
the case of the Purchaser as indemnitor hereunder) the Broker, for fees,
commissions or other compensation arising out of the transactions contemplated
in this Agreement if such claim or claims are based in whole or in part on
dealings or agreements with the indemnifying party. The obligations and
representations and warranties contained in this Section 11 shall survive the
termination of this Agreement and the Closing.
12. CASUALTY; CONDEMNATION.
12.1 DAMAGE OR DESTRUCTION.
If a "material" part (as hereinafter defined) of the Property is
damaged or destroyed by fire or other casualty whether insured or uninsured,
intentional or unintentional, the Seller shall notify the Purchaser of such fact
and the Purchaser shall have the option to terminate this Agreement upon notice
to the Seller given not later than ten (10) days after receipt of the Seller's
notice; provided, however, that the Purchaser's election shall be ineffective if
within ten (10) days after the Seller's receipt of the Purchaser's election
notice, the Seller shall elect
<PAGE> 25
by notice to the Purchaser to repair such damage or destruction and shall
thereafter complete such repair by the earlier to occur of (i) 90 days after the
then scheduled Closing Date at the time of the Purchaser's election; or (ii)
June 30, 1999. If the Seller makes such election to repair, the Seller shall
have the right to adjourn the Closing Date one or more times for up to 90 days
in the aggregate, provided, however, that the Seller may not extend the Closing
Date beyond June 30, 1999, in order to complete such repairs and shall have the
right to retain all insurance proceeds which the Seller may be entitled to
receive as a result of such damage or destruction. If (i) the Purchaser does not
elect to terminate this Agreement as to the damaged Property, (ii) the Purchaser
elects to terminate this Agreement as to the damaged Property but such election
is ineffective because the Seller elects to repair such damage and completes
such repair within such time period provided above (which period shall not
extend beyond June 30, 1999), or (iii) there is damage to or destruction of an
"immaterial" part ("immaterial" is herein deemed to be any damage or destruction
which is not "material", as such term is hereinafter defined) of the Property,
the Purchaser shall close title as provided in this Agreement and, at the
Closing, the Seller shall, unless the Seller has repaired such damage or
destruction prior to the Closing which repair shall be subject to Purchaser's
reasonable approval, (x) pay over to the Purchaser the proceeds of any insurance
collected by the Seller less the amount of all costs incurred by the Seller in
connection with the repair of such damage or destruction, and (y) assign and
transfer to the Purchaser all right, title and interest of the Seller in and to
any uncollected insurance proceeds which the Seller may be entitled to receive
from such damage or destruction, provided, however, if the cost of repairing
such damage or destruction is equal to or greater than Twenty Five Thousand
Dollars ($25,000.00) and equal to or less than Two Hundred and Fifty Thousand
Dollars ($250,000.00), in the reasonable estimation of a third party contractor
mutually agreed upon by Seller and Purchaser, then (xx) Seller shall repair such
damage or destruction to the reasonable satisfaction of Purchaser on or before
the scheduled Closing Date; or (yy) Seller shall have a reduction in the
Purchase Price at Closing equal to the cost of the repair of such damage or
destruction (as estimated by such third party contractor) and Seller shall
retain any insurance proceeds relevant to such damage or destruction. A
"material" part of the Property shall be deemed to have been damaged or
destroyed if the cost of repair or replacement shall be ten percent (10%) or
more of the Purchase Price.
12.2 CONDEMNATION.
If, prior to the Closing Date, all or any "significant" portion (as
hereinafter defined) of the Property is taken by eminent domain or condemnation
(or is the subject of a pending taking which has not been consummated), the
Seller shall notify the Purchaser of such fact and the Purchaser shall have the
option to terminate this Agreement upon notice to the Seller given not later
than ten (10) days after receipt of the Seller's notice. If the Purchaser does
not elect to terminate this Agreement, or if an "insignificant" portion
("insignificant" is herein deemed to be any taking which is not "significant",
as such term is herein defined) of the Property is taken by eminent domain or
condemnation, at the Closing the Seller shall assign and turnover, and the
Purchaser shall be entitled to receive and keep, all awards or other proceeds
for such taking by eminent domain or condemnation. A "significant" portion of
the Property means (i) 10% or more of the main office building on the Land, (ii)
a portion of the parking areas if
<PAGE> 26
the taking thereof reduces the remaining available number of parking spaces
below the minimum legally required, or (iii) a legally required driveway on the
Land if such driveway is the predominant means of ingress thereto or egress
therefrom.
12.3 TERMINATION.
If the Purchaser effectively terminates this Agreement pursuant to
Section 12.1 or 12.2, this Agreement shall be terminated and the rights of the
parties shall be the same as if notice of termination were given pursuant to
Section 14.1.
13. CONDITIONS PRECEDENT TO CLOSING.
13.1 CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS TO PERFORM.
Subject to Section 13.3, the Purchaser's obligation under this
Agreement to purchase the Property is subject to the fulfillment of each of the
following conditions: (i) the representations and warranties of the Seller
contained herein shall be materially true, accurate and correct as of the
Closing Date except to the extent they relate only to an earlier date; (ii) the
Seller shall be ready, willing and able to deliver title to the Property in
accordance with the terms and conditions of this Agreement; (iii) any conditions
precedent to the Purchaser's obligation to purchase the Property which is
validly listed in the Purchaser's Termination Notice as being unsatisfied has
been satisfied; (iv) the Seller shall have delivered all the documents and other
items required pursuant to Section 8; (v) no violation of Law (a) first
occurring subsequent to the date hereof; and (b) having a material adverse
effect on the Property shall have occurred, and the Seller shall have performed
all other covenants, undertakings and obligations, and complied with all
conditions required by this Agreement to be performed or complied with by the
Seller at or prior to the Closing.
13.2 CONDITIONS PRECEDENT TO THE SELLER'S OBLIGATIONS TO PERFORM.
The Seller's obligation under this Agreement to sell the Property to
the Purchaser is subject to the fulfillment of each of the following conditions:
(i) the representations and warranties of the Purchaser contained herein shall
be materially true, accurate and correct as of the Closing Date; (ii) the
Purchaser shall have delivered the funds required hereunder and all the
documents to be executed by the Purchaser set forth in Section 9 and shall have
performed all other covenants, undertakings and obligations, and complied with
all conditions required by this Agreement to be performed or complied with by
the Purchaser at or prior to the Closing; and (iii) the additional matters set
forth in Schedule 8 annexed hereto and made a part hereof shall have occurred or
been delivered to the Seller, as applicable, at or prior to the Closing.
13.3 CONDITIONS PRECEDENT TO PURCHASER'S AND SELLER'S OBLIGATIONS TO
PERFORM REGARDING ENVIRONMENTAL MATTERS.
(a) The Purchaser's obligation under this Agreement to
purchase the Property is subject to the Seller, at Purchaser's sole
cost, having caused Haley & Aldrich, or another environmental
consulting firm approved by Purchaser, which
<PAGE> 27
approval shall not be unreasonably withheld, to perform the work set
forth in the Scope of Work for Subsurface Investigations, dated
November 13, 1998 and prepared by Haley & Aldrich, attached hereto as
Exhibit L (the "Scope of Work"). Seller shall furnish to the Purchaser
copies of all test results relating to the work conducted pursuant to
the Scope of Work ("Seller's Test Data") promptly after Seller's
receipt of same. Purchaser or anyone claiming by, through or under the
Purchaser, hereby fully and irrevocably releases the Seller and the
Seller's Affiliates from any and all claims, costs, losses, expenses,
actions or causes of action that it may now have or hereafter acquire
against the Seller or Seller's Affiliates with respect to the accuracy
or completeness of any such studies or reports delivered to Purchaser
by Seller.
(b) Within forty-five (45) days of providing the Purchaser
with Seller's Test Data, the Seller's LSP shall determine (x) whether a
Class A or Class B RAO, with or without an AUL, as set forth in Section
8(o) of this Agreement, may be obtained without having to perform
additional response action (as defined in MCP) beyond that which is
described in the Scope of Work, and (y) whether such RAO may be
achieved within three (3) years of the Closing Date. In the event that
the Seller's LSP, in its reasonable discretion, determines that a RAO
may not be obtained in strict accordance with the terms and conditions
set forth in the immediately preceding sentence, the Seller may, at its
sole option, terminate this Agreement by providing the Purchaser with
written notice of its election to terminate this Agreement within the
forty-five (45) day period set forth in the immediately preceding
sentence; thereafter, the Seller and the Purchaser shall have their
respective rights and obligations set forth in Section 14.1. In the
event that the Seller does not elect to terminate this Agreement
pursuant to the above provisions, the Seller shall provide the
Purchaser with a plan setting forth a description of any actions,
including any response actions, required to obtain a Class A or Class B
RAO at the Property ("Seller's Response Plan"). Seller's obligations
pursuant to Section 8(o) shall be deemed fulfilled if (xx) Purchaser's
LSP, together with Seller's LSP, agree, in their respective reasonable
discretion, that there is a substantial likelihood that the completion
of Seller's Response Plan will support the filing of a Class A or Class
B RAO in strict accordance with the requirements set forth in the first
sentence of this Section 13.3(b); and (yy) Seller has placed in an
interest bearing escrow account (the "Response Plan Account") created
pursuant to an escrow agreement which shall be mutually acceptable to
both the Seller and the Purchaser, an amount equal to 125% of the total
costs estimated and agreed upon between Seller's LSP and Purchaser's
LSP to conduct the response actions set forth in Seller's Response
Plan. Interest on the funds deposited in the Response Plan Account
shall be property of the Seller and paid to the Seller on a monthly
basis. After a Class A or Class B RAO has been obtained at the
Property, any funds remaining in the Response Plan Account shall be
disbursed to the Seller. In the event that Purchaser's LSP and Seller's
LSP do not agree that there is a substantial likelihood that the
completion of Seller's Response Plan will support the filing of Class A
or Class B RAO in strict accordance with the requirements set forth in
the first sentence of this Section 13.3(b), Purchaser may terminate
this Agreement by providing Seller with written notice of such
disagreement within thirty (30) days of Purchaser's receipt of Seller's
Response Plan; thereafter, the
<PAGE> 28
Purchaser and the Seller shall have their respective rights and
obligations as set forth in Section 14.1. Notwithstanding anything
contained in this Section 13.3 to the contrary, at any time at which
this Agreement allows the Seller to terminate the Agreement, Purchaser
may, by providing the Seller with written notice within ten (10) days
of receipt of Seller's termination, elect to waive all conditions of
Closing related to environmental matters and close the transaction as
provided for in Section 1.2 above. In such event, all of Seller's
obligations pursuant to this Section 13.3 including, without
limitation, the obligation to prepare and perform Seller's Response
Plan and fund the Response Plan Account, shall terminate and be of no
further force and effect.
13.4 REMEDIES UPON FAILURE TO SATISFY CONDITIONS.
In the event that any condition contained in Sections 13.1, 13.2 or
13.3 is not satisfied, the party entitled to the satisfaction of such condition
as a condition to its obligation to close title shall have as its sole remedy
hereunder the right to elect to (i) waive such unsatisfied condition whereupon
title shall close as provided in this Agreement or (ii) proceed as provided in
Section 14 hereof.
14. REMEDIES.
14.1 SELLER'S INABILITY TO PERFORM.
If the Closing fails to occur by reason of the Seller's inability to
perform its obligations under this Agreement which has not been waived pursuant
to Section 13.3, then the Purchaser, as its sole remedy for such inability of
the Seller, may terminate this Agreement by notice to the Seller. The Seller
shall be deemed to have an inability to perform its obligations hereunder if
Seller has used all efforts expressly required pursuant to the terms of this
Agreement and nonetheless is unable to perform its obligations hereunder. If the
Purchaser elects to terminate this Agreement, then this Agreement shall be
terminated and neither party shall have any further rights, obligations or
liabilities hereunder, except as otherwise expressly provided herein
(collectively, the "Surviving Obligations"), and except that the Purchaser shall
be entitled to a return of the Deposit provided the Purchaser is not otherwise
in default hereunder. Except as set forth in this Section 14.1, the Purchaser
hereby expressly waives, relinquishes and releases any other right or remedy
available to it at law, in equity or otherwise by reason of the Seller's
inability to perform its obligations hereunder. Notwithstanding anything to the
contrary herein, if the Seller's inability to perform its obligations under this
Agreement is a result of any action of, or failure to act by, the Purchaser or
any of the Purchaser's Representatives, the Purchaser shall not be relieved of
its obligations under this Agreement and Purchaser shall not be entitled to any
right or remedy provided in this Section 14.1 or elsewhere in this Agreement.
14.2 PURCHASER'S FAILURE TO PERFORM.
In the event of a default hereunder by the Purchaser or if the Closing
fails to occur by reason of the Purchaser's failure or refusal to perform its
obligations hereunder, then the Seller may terminate this Agreement by notice to
the Purchaser. Purchaser shall be deemed to have
<PAGE> 29
failed to perform its obligations hereunder if Purchaser has intentionally not
used all efforts expressly required pursuant to the terms of this Agreement and
such intentional failure has resulted in Purchaser not being able to fulfill its
obligations hereunder. If the Seller elects to terminate this Agreement, then
(i) this Agreement shall be terminated; (ii) the Seller shall retain the
Downpayment as liquidated damages, as Seller's sole remedy at law or in equity
(subject to the immediately following sentence) for all loss, damage and
expenses suffered by the Seller, it being agreed that the Seller's damages are
impossible to ascertain, and neither party shall have any further rights,
obligations or liabilities hereunder, except for the Surviving Obligations; and
(iii) all interest on the Downpayment shall be disbursed by the Escrow Agent to
the Purchaser. Nothing contained herein shall limit or restrict the Seller's
ability to pursue any rights or remedies it may have against the Purchaser with
respect to the Surviving Obligations. Except as set forth in this Section 14.2
and the Surviving Obligations, the Seller hereby expressly waives, relinquishes
and releases any other right or remedy available to them at law, in equity or
otherwise by reason of the Purchaser's default hereunder or the Purchaser's
failure or refusal to perform its obligations hereunder. Notwithstanding
anything to the contrary herein, if the Purchaser's default or the Purchaser's
failure or refusal to perform its obligations under this Agreement is a result
of any action of, or failure to act by, the Seller or any of the Seller's
Affiliates, the Seller shall not be relieved of its obligations under this
Agreement and the Seller shall not be entitled to any right or remedy provided
in this Section 14.2 or elsewhere in this Agreement.
14.3 SELLER'S FAILURE TO PERFORM.
If the Closing fails to occur by reason of the Seller's failure or
refusal to perform its obligations hereunder which has not been waived by the
Purchaser, then the Purchaser, as its sole remedy hereunder, may (i) terminate
this Agreement by notice to the Seller or (ii) seek specific performance from
the Seller which shall be Purchaser's sole and exclusive remedy at law and in
equity if sought by Purchaser. As a condition precedent to the Purchaser
exercising any right it may have to bring an action for specific performance as
the result of the Seller's failure or refusal to perform their obligations
hereunder, the Purchaser must commence such an action on or before September 30,
1999. The Purchaser agrees that its failure to timely commence such an action
for specific performance on or before September 30, 1999 shall be deemed a
waiver by it of its right to commence such an action. Notwithstanding anything
to the contrary herein, if the Seller's failure or refusal to perform its
obligations under this Agreement is a result of any action of, or failure to act
by, the Purchaser or any of the Purchaser's Representatives, the Purchaser shall
not be relieved of its obligations under this Agreement and Purchaser shall not
be entitled to any right or remedy provided in this Section 14.3 or elsewhere in
this Agreement.
15. ESCROW.
The Escrow Agent shall hold the Downpayment and all interest accrued
thereon, if any (collectively, the "Deposit" which term shall refer to
Downpayment A plus all interest accrued thereon until delivery of Downpayment B
to the Escrow Agent and which term shall refer to Downpayment A, Downpayment B
and all interest accrued thereon after delivery of
<PAGE> 30
Downpayment B to the Escrow Agent) in escrow and shall dispose of the Deposit
only in accordance with the provisions of that certain Escrow Agreement of even
date herewith by and among the Escrow Agent, the Purchaser and the Seller
relating to the Property (the "Escrow Agreement") in the form of Exhibit H
hereto. Simultaneously with its execution and delivery of this Agreement, the
Purchaser shall furnish the Escrow Agent with its true Federal Taxpayer
Identification Number so that the Escrow Agent may file appropriate income tax
information returns with respect to any interest earned on or credited to the
Deposit. Purchaser, as the party entitled to the economic benefit of the Deposit
representing interest earned on the Downpayment shall be responsible for the
payment of any tax due thereon. The Escrow Agent shall remit interest on the
Downpayment to the Purchaser on a monthly basis or, if the Escrow Agent is
unable to do so, on such periodic basis as the Escrow Agent is able to remit
such payment.
The provisions of the Escrow Agreement shall survive the termination of
this Agreement and the Closing.
16. NOTICES.
All notices, elections, consents, approvals, demands, objections,
requests or other communications which the Seller or the Purchaser may be
required or desire to give pursuant to, under or by virtue of this Agreement
must be in writing and (i) delivered by hand to the addresses set forth below,
or (ii) (a) sent by express mail or courier (for next business day delivery), or
(b) sent by certified or registered mail, return receipt requested with proper
postage prepaid, addressed as follows:
IF TO THE SELLER:
c/o Preotle, Lane & Associates Ltd.
535 Madison Avenue
New York, New York 10022-4212
Attention: John J. Preotle, Jr.
WITH COPIES TO:
Victor J. Paci, Esq.
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
AND
Vincent M. Sacchetti, Esq.
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
<PAGE> 31
IF TO THE PURCHASER:
Middlesex Realty Holdings Corp.
c/o USTrust
30 Court Street
Boston, MA 02108
Attention: Walter E. Huskins, Jr., Executive Vice President
Attention: Eric R. Fischer, Esq., Executive Vice President and General
Counsel
WITH A COPY TO:
Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, MA 02111
Attention: Peter D. Gens, Esq.
The Seller or the Purchaser may designate another addressee or change its
address for notices and other communications hereunder by a notice given to the
other parties in the manner provided in this Section 16. A notice or other
communication sent in compliance with the provisions of this Section 16 shall be
deemed given and received (i) if by hand, at the time of the delivery thereof to
the receiving party at the address of such party set forth above (or to such
other address as such party has designated as provided above), (ii) if sent by
express mail or overnight courier, on the date it is delivered to the other
party, or (iii) if sent by registered or certified mail, on the third business
day following the day such mailing is made.
17. PROPERTY INFORMATION AND CONFIDENTIALITY.
The Purchaser agrees that, prior to the conclusion of the Due Diligence
Period, all Property Information shall be kept strictly confidential and shall
not, without the prior consent of the Seller, be disclosed by the Purchaser or
the Purchaser's Representatives. Moreover, the Purchaser agrees that, prior to
the conclusion of the Due Diligence Period (or if this Agreement has been
terminated pursuant to Section 4.2 hereof), the Property Information will be
transmitted only to the Purchaser's Representatives (i) who need to know the
Property Information for the purpose of evaluating the Property, and who are
informed by the Purchaser of the confidential nature of the Property
Information, and (ii) who agree to be bound by the terms of this Section 17 and
Section 6.3. The provisions of this Section 17 shall in no event apply to
Property Information which is a matter of public record and shall not prevent
the Purchaser from complying with Laws, including, without limitation,
governmental regulatory, disclosure, tax and reporting requirements. The
indemnification set forth in Section 4.1(g) shall not apply to any liability
which Seller incurs as a result of Purchaser disclosing any Property Information
to a governmental agency if Purchaser's failure to do so would be a violation of
any Law.
17.1 PRESS RELEASES.
<PAGE> 32
The Purchaser and Seller, for the benefit of each other, hereby agree
that between the date hereof and the conclusion of the Closing, they will not
release or cause or permit to be released any press notices, publicity (oral or
written) or advertising promotion relating to, or otherwise announce or disclose
or cause or permit to be announced or disclosed, in any manner whatsoever, the
terms, conditions or substance of this Agreement or the transactions
contemplated herein, without first obtaining the written consent of the other
party hereto, which consent may be withheld on the basis of such other party's
review of any such press release. It is understood that the foregoing shall not
preclude either party from discussing the substance or any relevant details of
the transactions contemplated in this Agreement with any of its attorneys,
accountants, professional consultants or potential lenders, as the case may be,
or prevent either party hereto from complying with Laws, including, without
limitation, governmental regulatory, disclosure, tax and reporting requirements.
17.2 RETURN OF PROPERTY INFORMATION.
In the event this Agreement is terminated, the Purchaser and the
Purchaser's Representatives shall promptly deliver to the Seller all originals
and copies of the Property Information in the possession of the Purchaser and
the Purchaser's Representatives other than the work product of Purchaser or
Purchaser's representatives.
17.3 PROPERTY INFORMATION DEFINED.
As used in this Agreement, the term "Property Information" shall mean
(i) all information and documents in any way relating to the Property, the
operation thereof or the sale thereof (including, without limitation, the Lease
and Seller's Test Data) furnished to, or otherwise made available for review by,
the Purchaser or its directors, officers, employees, affiliates, partners,
brokers, agents or other representatives, including, without limitation,
attorneys, accountants, contractors, consultants, engineers and financial
advisors (collectively, the "Purchaser's Representatives"), by the Seller or any
of the Seller's Affiliates, or their agents or representatives, including,
without limitation, their contractors, engineers, attorneys, accountants,
consultants, brokers or advisors, and (ii) all analyses, compilations, data,
studies, reports or other information or documents prepared or obtained by the
Purchaser or the Purchaser's Representatives containing or based, in whole or in
part, on the information or documents described in the preceding clause (i), or
the Investigations, or otherwise reflecting their review or investigation of the
Property.
17.4 REMEDIES.
In addition to any other remedies available to the Seller, the Seller
shall have the right to seek equitable relief, including, without limitation,
injunctive relief or specific performance, against the Purchaser or the
Purchaser's Representatives in order to enforce the provisions of this Section
17 and 6.3.
The provisions of this Section 17 shall survive the termination of this
Agreement and the Closing.
<PAGE> 33
18. ACCESS TO RECORDS.
For a period of three (3) years subsequent to the Closing Date, the
Seller, the Seller's Affiliates and their employees, agents and representatives
shall be entitled to access during business hours to all documents, books and
records given to the Purchaser by the Seller at the Closing for tax and audit
purposes, regulatory compliance, and cooperation with governmental
investigations upon reasonable prior notice to the Purchaser, and shall have the
right, at their sole cost and expense, to make copies of such documents, books
and records.
19. ASSIGNMENTS.
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and to their respective heirs, executors, administrators,
successors and permitted assigns. This Agreement may not be assigned by the
Purchaser without the prior written consent of the Seller and any assignment or
attempted assignment by the Purchaser without such prior written consent shall
constitute a default by the Purchaser hereunder and shall be null and void.
Notwithstanding the immediately preceding sentence, the Purchaser may assign
this Agreement to any affiliate of Purchaser controlling, controlled by, or
under common control with Purchaser, provided, however, that Purchaser shall
remain liable for all obligations of Purchaser hereunder and such assignee shall
assume in writing all of the Purchaser's obligations hereunder.
20. ENTIRE AGREEMENT, AMENDMENTS.
All prior statements, understandings, representations and agreements
between the parties, oral or written, are superseded by and merged in this
Agreement, which alone fully and completely expresses the agreement between them
in connection with this transaction and which is entered into after full
investigation, neither party relying upon any statement, understanding,
representation or agreement made by the other not embodied in this Agreement.
This Agreement shall be given a fair and reasonable construction in accordance
with the intentions of the parties hereto, and without regard to or aid of
canons requiring construction against the Seller or the party drafting this
Agreement. This Agreement shall not be altered, amended, changed, waived,
terminated or otherwise modified in any respect or particular, and no consent or
approval required pursuant to this Agreement shall be effective, unless the same
shall be in writing and signed by or on behalf of the party to be charged.
21. MERGER.
Except as otherwise expressly provided herein, the Purchaser's
acceptance of the Deed shall be deemed a discharge of all of the obligations of
the Seller hereunder and all of the Seller's representations, warranties,
covenants and agreements herein shall merge in the documents and agreements
executed at the Closing and shall not survive the Closing.
22. LIMITED RECOURSE.
<PAGE> 34
The Purchaser agrees that it does not have and will not have any claims
or causes of action against any disclosed or undisclosed officer, director,
employee, trustee, shareholder, partner, principal, parent, subsidiary or other
affiliate of the Seller, including, without limitation, the parent and
affiliates of Seller (collectively, the "Seller's Affiliates"), arising out of
or in connection with this Agreement or the transactions contemplated hereby.
The Purchaser agrees to look solely to the Seller and the Seller's assets for
the satisfaction of the Seller's liability or obligation arising under this
Agreement or the transactions contemplated hereby, or for the performance of any
of the covenants, warranties or other agreements of the Seller contained herein,
and further agrees not to sue or otherwise seek to enforce any personal
obligation against any of the Seller's Affiliates with respect to any matters
arising out of or in connection with this Agreement or the transactions
contemplated hereby.
The Seller agrees that it does not have and will not have any claims or
causes of action against any disclosed or undisclosed officer, director,
employee, trustee, shareholder, partner, principal, parent, subsidiary or other
affiliate of the Purchaser, including, without limitation, the parent and
affiliates of Purchaser (collectively, the "Purchaser's Affiliates"), arising
out of or in connection with this Agreement or the transactions contemplated
hereby. The Seller agrees to look solely to the Purchaser and the Purchaser's
assets for the satisfaction of the Purchaser's liability or obligation arising
under this Agreement or the transactions contemplated hereby, or for the
performance of any of the covenants, warranties or other agreements of the
Purchaser contained herein, and further agrees not to sue or otherwise seek to
enforce any personal obligation against any of the Purchaser's Affiliates with
respect to any matters arising out of or in connection with this Agreement or
the transactions contemplated hereby.
23. MISCELLANEOUS.
Neither this Agreement nor any memorandum thereof shall be recorded and
any attempted recordation hereof shall be void and shall constitute a default.
This Agreement may be executed in one or more counterparts, each of which so
executed and delivered shall be deemed an original, but all of which taken
together shall constitute but one and the same instrument. Each of the Exhibits
and Schedules referred to herein and attached hereto is incorporated herein by
this reference. The caption headings in this Agreement are for convenience only
and are not intended to be a part of this Agreement and shall not be construed
to modify, explain or alter any of the terms, covenants or conditions herein
contained. If any provision of this Agreement shall be unenforceable or invalid,
the same shall not affect the remaining provisions of this Agreement and to this
end the provisions of this Agreement are intended to be and shall be severable.
This Agreement shall be interpreted and enforced in accordance with the laws of
the Commonwealth of Massachusetts without reference to principles of conflicts
of laws.
24. TIME OF THE ESSENCE.
Time is of the essence with respect to this Agreement, including but
not limited to the occurrence of the Closing as of the originally scheduled
date.
<PAGE> 35
25. IRS FORM 1099-S DESIGNATION.
In order to comply with information reporting requirements of Section
6045(e) of the Internal Revenue Code of 1986, as amended, and the Treasury
Regulations thereunder, the parties agree (i) to execute an IRS Form 1099-S
Designation Agreement in the form attached hereto as Exhibit J at or prior to
the Closing to designate the Title Company as the party who shall be responsible
for reporting the contemplated sale of the Property to the Internal Revenue
Service (the "IRS") on IRS Form 1099-S; (ii) to provide the Title Company with
the information necessary to complete Form 1099-S; (iii) that the Title Company
shall not be liable for the actions taken under this Section 25, or for the
consequences of those actions, except as they may be the result of gross
negligence or willful misconduct on the part of the Title Company; and (iv) that
the Title Company shall be indemnified by the parties for any costs or expenses
incurred as a result of the actions taken under this Section 25, except as they
may be the result of gross negligence or willful misconduct on the part of the
Title Company. The Title Company shall provide all parties to this transaction
with copies of the IRS Forms 1099-S filed with the IRS and with any other
documents used to complete IRS Form 1099-S.
26. ATTORNEY'S FEES.
In any event that at any time Seller or Purchaser shall institute any
action or proceeding against the other relating to this Agreement or any default
hereunder, then and in that event the prevailing party in such action or
proceeding shall be entitled to recover from the other party its reasonable
attorneys' fees which shall be deemed to have accrued on the commencement of
such action or proceeding and shall be payable.
27. COUNTERPARTS.
This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute but one and the same
instrument.
28. TAX FREE EXCHANGE.
Seller may consummate the purchase of the Property as part of a so
called like kind exchange (the "Exchange") pursuant to Section1031 of the
Internal Revenue Code of 1986, as amended (the "Code"), provided that: (i) the
Closing shall not be delayed or affected by reason of the Exchange nor shall the
consummation or accomplishment of the Exchange be a condition precedent or
condition subsequent to Purchaser's obligations under this Agreement; (ii)
Seller shall effect the Exchange through an assignment of this Agreement, or its
rights under this Agreement, to a qualified intermediary; (iii) Purchaser shall
not be required to acquire or hold title to any real property for purposes of
consummating the Exchange; and (iv) Seller shall pay at Closing any additional
costs that would not otherwise have been incurred by Purchaser or Seller had
Seller not consummated its purchase through the Exchange. Seller agrees to
indemnify Purchaser and hold Purchaser harmless as to any costs, damages or
other liabilities including reasonable attorneys' fees that Purchaser incurs
(other than payment of the purchase price for the exchange property) in
connection with, or as a result of, the like-kind
<PAGE> 36
exchange, but exclusive of any costs, damages or other liabilities that
Purchaser may have likely sustained if there had been no like-kind exchange.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the day and year first above written.
SELLER:
PL 20 CABOT PROPERTIES LIMITED
PARTNERSHIP
By: PL 20 CABOT PROPERTIES, INC., a
Massachusetts corporation
its general partner
By: /s/ John J. Preotle, Jr.
-----------------------------
Name: John J. Preotle, Jr.
Title: Treasurer
PURCHASER:
MIDDLESEX REALTY HOLDINGS CORP.
By: /s/ Walter E. Huskins, Jr.
------------------------------
Name: Walter E. Huskins, Jr.
Title:
<PAGE> 1
EXHIBIT 21
Subsidiaries of UST Corp.*
USTrust (7)
United States Trust Company (1)
Affiliated Community Bancorp, Inc. (1)
Cambridge Trade Finance Corp. (1)
Firestone Financial Corp. (2)
Firestone Financial Canada Ltd. (3)
UST Leasing Corporation (2)
UST Capital Corp. (4)
UST Auto Lease Corp. (2)
Bra-Prop Corp. (2)
UST Realty Trust, Inc. (6)
* Each of the above subsidiaries of UST Corp. is a Massachusetts Corporation
or trust company. Other than USTrust which does business under the names
of both USTrust and USTrust Bank, each of the above entities does business
only under its corporate name. The foregoing list does not include the
names of inactive subsidiaries or the names of subsidiaries of banking
entities which subsidiaries have been organized to hold foreclosed
property or to hold securities as a Massachusetts Securities Corporation.
(1)Wholly-owned by UST Corp.
(2)Wholly-owned by USTrust.
(3)Wholly-owned by Firestone Financial Corp.
(4)Wholly-owned by United States Trust Company.
(5)Wholly-owned by UST Securities Corp.
(6)Organized as a wholly-owned subsidiary of Bra-Prop Corp.
(7)Owned 76% by UST Corp. and 24% by Affiliated Community Bancorp, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 28, 1999 included in UST Corp.'s Annual
Report on Form 10-K for the year ended December 31, 1998 into UST Corp.'s
previously filed Registration Statements No. 033-56687, 033-38836 and 333-05911.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 25, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report on Somerset Savings Bank dated January 23, 1998 included
in UST Corp.'s Annual Report on Form 10-K for the year ended December 31, 1998
into UST Corp.'s previously filed Registration Statements No.033-56687,
033-38836 and 333-05911.
/s/ Wolf & Company, P.C.
Boston, Massachusetts
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF UST CORP. AT OR FOR THE YEAR ENDED DECEMBER 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.00
<CASH> 126,697
<INT-BEARING-DEPOSITS> 164
<FED-FUNDS-SOLD> 7,969
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,289,617
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 4,296,103
<ALLOWANCE> 65,274
<TOTAL-ASSETS> 5,900,877
<DEPOSITS> 4,233,671
<SHORT-TERM> 986,082
<LIABILITIES-OTHER> 71,536
<LONG-TERM> 76,043
0
0
<COMMON> 26,765
<OTHER-SE> 506,780
<TOTAL-LIABILITIES-AND-EQUITY> 5,900,877
<INTEREST-LOAN> 351,753
<INTEREST-INVEST> 72,982
<INTEREST-OTHER> 3,910
<INTEREST-TOTAL> 428,645
<INTEREST-DEPOSIT> 130,100
<INTEREST-EXPENSE> 176,330
<INTEREST-INCOME-NET> 252,315
<LOAN-LOSSES> 2,239
<SECURITIES-GAINS> 3,927
<EXPENSE-OTHER> 209,233
<INCOME-PRETAX> 89,647
<INCOME-PRE-EXTRAORDINARY> 89,647
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,286
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.28
<YIELD-ACTUAL> 8.09
<LOANS-NON> 23,967
<LOANS-PAST> 2,423
<LOANS-TROUBLED> 141
<LOANS-PROBLEM> 69,500
<ALLOWANCE-OPEN> 68,539
<CHARGE-OFFS> 14,827
<RECOVERIES> 9,376
<ALLOWANCE-CLOSE> 65,274
<ALLOWANCE-DOMESTIC> 65,274
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,145
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF UST CORP. AT OR FOR THE YEAR ENDED DECEMBER 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF FORM
10-K.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.00
<CASH> 120,184
<INT-BEARING-DEPOSITS> 337
<FED-FUNDS-SOLD> 81,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 947,436
<INVESTMENTS-CARRYING> 260,307
<INVESTMENTS-MARKET> 261,951
<LOANS> 3,957,529
<ALLOWANCE> 68,539
<TOTAL-ASSETS> 5,532,978
<DEPOSITS> 4,165,540
<SHORT-TERM> 619,381
<LIABILITIES-OTHER> 62,156
<LONG-TERM> 196,845
0
0
<COMMON> 26,528
<OTHER-SE> 462,528
<TOTAL-LIABILITIES-AND-EQUITY> 5,532,978
<INTEREST-LOAN> 327,308
<INTEREST-INVEST> 76,236
<INTEREST-OTHER> 5,191
<INTEREST-TOTAL> 408,735
<INTEREST-DEPOSIT> 131,787
<INTEREST-EXPENSE> 178,205
<INTEREST-INCOME-NET> 230,530
<LOAN-LOSSES> 3,100
<SECURITIES-GAINS> (1,241)
<EXPENSE-OTHER> 190,244
<INCOME-PRETAX> 78,860
<INCOME-PRE-EXTRAORDINARY> 78,860
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,216
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.18
<YIELD-ACTUAL> 8.20
<LOANS-NON> 33,092
<LOANS-PAST> 1,069
<LOANS-TROUBLED> 17,443
<LOANS-PROBLEM> 62,300
<ALLOWANCE-OPEN> 65,979
<CHARGE-OFFS> 7,755
<RECOVERIES> 7,215
<ALLOWANCE-CLOSE> 68,539
<ALLOWANCE-DOMESTIC> 68,539
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 8,945
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF UST CORP. AT OR FOR THE YEAR ENDED DECEMBER 31, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF FORM
10-K.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.00
<CASH> 158,479
<INT-BEARING-DEPOSITS> 334
<FED-FUNDS-SOLD> 148,365
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 862,165
<INVESTMENTS-CARRYING> 405,681
<INVESTMENTS-MARKET> 405,100
<LOANS> 3,583,758
<ALLOWANCE> 65,979
<TOTAL-ASSETS> 5,330,610
<DEPOSITS> 3,953,288
<SHORT-TERM> 618,907
<LIABILITIES-OTHER> 78,401
<LONG-TERM> 239,743
0
0
<COMMON> 25,977
<OTHER-SE> 414,294
<TOTAL-LIABILITIES-AND-EQUITY> 5,330,610
<INTEREST-LOAN> 271,984
<INTEREST-INVEST> 80,637
<INTEREST-OTHER> 2,791
<INTEREST-TOTAL> 355,412
<INTEREST-DEPOSIT> 117,661
<INTEREST-EXPENSE> 164,519
<INTEREST-INCOME-NET> 190,893
<LOAN-LOSSES> (15,495)
<SECURITIES-GAINS> 1,132
<EXPENSE-OTHER> 159,649
<INCOME-PRETAX> 89,375
<INCOME-PRE-EXTRAORDINARY> 89,375
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,613
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.35
<YIELD-ACTUAL> 8.04
<LOANS-NON> 45,298
<LOANS-PAST> 1,134
<LOANS-TROUBLED> 20,401
<LOANS-PROBLEM> 55,600
<ALLOWANCE-OPEN> 84,245
<CHARGE-OFFS> 11,618
<RECOVERIES> 10,951
<ALLOWANCE-CLOSE> 65,979
<ALLOWANCE-DOMESTIC> 65,979
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 12,557
</TABLE>
